AAK CMD 2024 – Tomas Bergendahl, CFO – Financials

Tomas, any questions to us?

I wonder how you practically work with your alignment vision and how the organization as such is responding to it, so to speak.

You heard us talk about culture and a culture journey. We haven't been press-releasing that we're working on a culture journey, but we are. It started three years ago with me opening the Pandora's box with the executive committee and saying there is a better way to lead AAK. We were quite dependent and a bit silo-like where everyone delivers your number but not necessarily driving AAK as a team. It quickly evolved to say there's a huge opportunity to improve the culture. We've started a real culture program now being deployed.

We are engaging the leaders in AAK. We have been running 48-hour workshops with some 400 employees and leaders about what we want, how we want to work together, the respect we want to show each other, the high-performing team we want to become — that it's okay to speak up for what you believe in without being afraid in a hierarchical organization. There's a lot ongoing underneath the surface that you don't see in a quarterly report.

The other piece is practically exercising that, through the Deep Dives. A global team comes to a production site where we typically serve a regional market, with customers there and an innovation center. We bring a team together covering go-to-market, production, supply chain, procurement, and we look at that plant from every angle — pricing of the least profitable product, can we run it differently, can we change the way we operate the factory to reduce setup times, do debottlenecking, invest in new capacity. That's very hands-on, combining global knowledge with local knowledge and passion.

We leave that with a local plan. It also helps drive culture because we didn't do that in the past. When we had the success story in one plant, all of a sudden the first reaction was 'no, even in the leadership team, why are you coming here?' But after the fact it's like 'hey, I want you at the next plant and the next plant' because you see the benefit and that spreads.

The cultural journey is not to rip out the culture of AAK and replace it with a new model. It's saying we want to keep the good stuff, the 85-90% of the culture that's working really well and has been part of AAK's success for so long. We want to nudge the other 10-15% for better behavior, and that's done through these programs and activities with leaders and employees.

Oscar Linton from DNB. Two questions for Tomas. First: you mentioned price management has been an important part of driving EBIT per kilo improvement. Do you feel that has been made easier in the inflationary environment, and would it have been much more difficult without all the inflation and volatility? Second question: on net debt to EBITDA, you reiterate the ceiling. What about the floor — how low can you go before it starts burning in your pocket?

If I may add one perspective from real life and where I think we've shown the resilience of AAK. Imagine this period of rapid disruption, inflation — it gives you reason to talk to a customer, that's an enabler, but nothing is a given. What I think looking back is the strength of the organization. We have what we call Global Leadership Community, the 100-plus leaders of AAK. When this happened, we utilized the opportunity of the decentralized organization — called everyone together, said 'we have rapid inflation, things are hitting us.' We went from updating standard costing once a year, once a quarter, to rallying the troops to look at utilities weekly. It worked. Through this we've also become faster — not just yanking up the price but being more agile and adapting quickly whether that is up or down.

We've learned a lot. It's more of that honestly than leveraging the situation, because we are under competition all the time. But I do think it helps. In a very stable industry where nothing happens, it's always difficult to take up a conversation. When things are dynamic, you have a better opportunity to have the right conversations and show that you can differentiate.

Joan from BNP Paribas. You said AAK wants to grow volumes ahead of the market after a period of flat volumes. Could you help us understand the drivers behind what will drive volume growth at AAK going forward?

I can do that. First of all, there is an underlying market growth as we see it for oils and fats. But this is about growing faster. In the segments where we target the specialty segments, we have an opportunity to outpace that. There is also an opportunity to penetrate — we're seeing it in chocolate and confectionary at the moment, with most likely supported by high cocoa prices. More customers are challenging their own recipes to address costs. If you're able to now penetrate that market better, replacing more cocoa butter with our alternatives, there's an opportunity to grow faster.

Then we have new markets coming into play — plant-based food is established but the growth is yet to come. We see the opportunity outside of food: technical products replacing paraffin in candles, replacing in cosmetics, finding new opportunities. We're specializing a lot. When we say outgrowth, we don't mean bakery oils and fats as a whole — we're saying we'll outgrow the specialty space. It's going to be done by focusing on where we differentiate, being really downstream-focused. We have a stronger track record in co-development than most of our competitors, and we've organized ourselves differently around that with Nile's new responsibility.

Eric Sonnet with Kepler Cheuvreux. Two questions. Firstly, what would you say are the biggest risks to the updated 2030 aspiration? What needs to happen for it not to materialize? I'm thinking specifically about the EBIT per kilo target.

That's a great question. One is of course what are competitors doing — we are not alone. We have competitors with a different setup, some more vertically integrated, using a different business model where you might not care as much about the downstream as about upstream crushing. You can end up in a situation where competitors really want to undershoot and just get volumes going. The medicine to that is to differentiate with innovation and make ingredients that are unique and special — that's why we focus on being downstream in specialty.

It could also be if we saw sustainability targets being loosened from a policymaking point of view — if the need for the food supply chain to deliver on sustainability decreases, that wouldn't necessarily help oils and fats and specialty. We really need to continue to double down on sustainability in the food ingredient space. And then the availability of raw materials — should there be a lack of rapeseed, palm, shea, sunflower, we're dependent on the supply. That could have a huge impact on the supply of food and of course an impact on AAK.

Thanks. And then also in terms of the updated aspiration — you said it's not a cost-cutting program as such, but is it fair to assume that cost reduction still will play a material part to reaching above three SEK?

There's no doubt — cost efficiency: we have a model which includes volume growth and cost efficiency. Should we see weaker volume growth, we need to attack the cost. So there might be cost reduction programs, but that will come if volumes are too flat and we still want to deliver. We have a conversation with our teams: if we don't deliver on EBIT per kilo with the help of volume, you've got to attack the cost. With the growth of volume today, the primary focus initially is alignment. Then there might be times and events that demand something else, and we're prepared to do that as well.

Alex Jones, Bank of America. Two questions. First on M&A: if I look at your margin target and your volume target outgrowing the market, it looks like you can do 10% earnings growth pretty much organically, which would be a change of message from prior. Can you confirm whether that's your belief — that you can do that without M&A? Same for the margin ambition, that the three SEK per kilo can be done without M&A. And then on cash conversion — Thomas, you talked about some improvement versus history. Could you talk about the levers for that improvement going forward?

Crystal clear — yes, we think we can do the three SEK per kilo organically. Our target is what it is — we're not saying it has to be exactly three-plus on volume and exactly X on EBIT per kilo and then no M&A. We're leaving it a bit open. Should volume be a bit flatter organically, we might have a bolt-on acquisition that helps. We're maintaining that M&A is included, but you're asking if we believe we can do it organically — and honestly, yes, we do. We don't need all the new product innovations to come into force to deliver either. There's more to give on things we're doing today.

When we acquire something and look at EBIT per kilo, usually a bolt-on has a lower-than-average margin because of simpler product deliveries, and that takes two to three years to run up. But if we have something that's really big, maybe we'd look at that differently. Also to be clear — if we have an opportunity to drive EBIT growth and there's a great bolt-on acquisition with a lower EBIT per kilo but we see an opportunity to grow it, we wouldn't be afraid of buying that and being a bit dilutive in the short term, because then the opportunity is to drive EBIT growth.

If you look at the portfolio of the different plants, there's a very broad range from seven down to zero EBIT per kilo. Are any of the ones close to zero just structurally not able to improve? Do you think all of them can get to two or at least the two SEK? And would you expect to dispose of any?

I wouldn't say I expect to dispose of the ones we have today because the ambition is to turn around. But you've also seen that not a long time ago we did close a factory in Europe because it was not profitable and we didn't see the opportunity to turn it — we could allocate the volumes to other factories. So we're not excluding anything. If we can't see it working, we're looking at options. Can they all go to two? I would like to think we can go to two and three with everyone. There's always going to be a distribution, but there are different setups — a plant focused on high-value-added formula fats has a different setup than bakery fats. But there is an opportunity to lift the whole curve.

That's a great question and you could come with me on the next leadership call for how we roll out the culture, because this is one of the things where we went wrong a bit. When we launched the 2030 aspiration, even though I tried as hard as I could to say it's all about how to optimize — if you take this curve and put all our products there, we have some with quite high margins and some with quite low. Part of the organization thought 'I cannot sell something if I don't get two SEK per kilo,' so if you were at 0.5 you left the opportunity to sell what you had. That's something we talk about — it's not like everyone has to do it exactly the same. It's about everyone lifting the curve.

Even the culture journey is about that — the culture is about the sum of everyone. If everyone gets a little bit better, you lift the whole curve. We don't have a limit, but we're focusing on how we can improve every single plant, every single product line. There will come a time where you might have a cut-off — selling a factory if you see a better opportunity or killing a product line to free it up for something else. But rather, the way we use limits is: 'have you done your optimization, have you looked at your product portfolio, can you free up capacity?' If you've done that, you can get investment approval. If not, do the work first.

It's just about your procurement savings initiative...