AAK CMD 2021 – Tomas Bergendahl, CFO – Financial development

Thank you very much.

Good afternoon everyone, and again a warm welcome to our Capital Markets Day from me as well. Let's dive into the numbers a bit. When we look at our numbers for the year and Q3, and you've seen this before, but just to give some color to it: Q3 showed continuous growth in volumes and also in profitability per kilo, driving the overall operating profit up by about seven percent. So a good quarter for us. Clean for currency effects, we're up over twelve percent. Our ROC stays stable at above 15 from a lower level of mid-2020 when the pandemic started. We were down to about 13, picked up quickly again, and I'll come back to that.

When we look at the year-to-date numbers, you see a very similar picture. The reason why the percentages are actually higher in the year-to-date than the Q3 numbers — the growth — the reason for that is the weak Q2 we had last year. When the pandemic hit, we had a bit of a slump, and that shows in these numbers as well, of course.

When we dive into the details a bit, particularly on the Q3, we look at food ingredients, and what we see there is, as you've also seen, a bit of a reduction on volume but a growth in profit. This is in line with the strategy that has been mentioned before by Johan, where we try to optimize primarily our bakery and dairy business, but also play for where we want to grow, like plant-based and so forth. So good development in our view.

We also see on CCF, profits up by about six percent, driven by volume. The price pressure that's been there before, that we mentioned, is still there, so it is a bit of a tough market. But we see our volumes grow and our profit grow in TPF.

Profits soared in Q3, up 65. A third of that was driven by our crushing margin, which at high volumes and high raw material prices produced a good margin. Two-thirds of that improvement is a bit more interesting in my mind — it is related to natural ingredients and the demand for that. We talk candles, things like that. You see prices going up and demand going up. So that's a real interesting development and segment for us.

Another way to look at our profit growth is this waterfall here. Same thing, looking at the year-to-date development versus 2020, first nine months. Volume again driven mainly by CCF. Where more of the strategy comes into play is the price and mix, where if we do well we see some good gains, and we have TPF and food ingredients play a big role here, of course.

SG&A is up somewhat, about two percent, but then we have to take into account that we have annual salary increases, we also had furloughs last year that have been cancelled — everyone's back again — and we also have a little bit of travel pickup. So I would say the cost reduction program that we initiated in 2020 is playing a big part in this and keeping the cost down.

And back to what I said before, up 11 percent year-to-date. If you clean it for currency, in this good development, we also have the challenge of increased inflation that we've been dealing with, and I'll come back to that in the next two slides. But just to give you an idea of what it looks like — this is the cost breakdown of the first nine months as a percentage of where we basically spend our money. Almost 80 percent goes towards raw materials, and that is, of course, with the pricing increases that we've seen, a big challenge.

Wages, other production costs, secondary input, packaging and so forth, but also energy and logistics — we've all seen increased inflation over the past six to 12 months. Raw materials has probably grown in price over the last 12 to 24 months, I would say, so we've seen that for a bit longer, but it is a challenging picture, of course.

And with these cost increases, we are still able to move those costs on in the value chain successfully, and that's what you see in our profit numbers as well. We continue to grow and produce increased profits despite these challenges.

And we don't see — if we look at logistics for example, there is a practical point to this as well. The difficulty of getting goods moved around the world — we have seen challenges there like everyone else. About the same, I would say, as everyone else on average. It is a challenge; we put more resources and time to find the solutions, but we have managed well over the past year, I would say.

We don't see the risk increase going forward, but we don't see it drop quickly either. So I think we'll continue to manage it the way we have, in a successful way.

When we look at our cash flow, it's also very much impacted by raw materials. All components of working capital, the main ones — everything from inventory to receivables and payables — are inflated by the raw material prices. But what we see when we measure inventory days is actually a slight reduction from the beginning of the year until the end of Q3, which is what really matters. The prices we can't do much about. The important thing there is that we actually get paid for the increases. What we can do is the levels, and that's where we work, and that's how we measure the inventory days, of course.

But that hampers the cash flow a bit, as you can see. Operating cash flow before interest and taxes is slightly less than a quarter of what the EBITDA is, so the cash conversion is not great. But if prices level out, we'll see cash flow start going up, and if prices drop, cash flow starts going up real quick. But there is a six to nine month lag in this, as we mentioned before. So given the price increases that we've seen of late, that continue in Q3, we expect cash flow to be hampered the rest of the year and going into the first half of next year as well, and then we'll see how the prices develop.

When it comes to capex — and I have a slide on that as well to give you some details — investing activities, acquisitions, but focusing on capex: what we see in Q3 is the sort of run-rate level that we've seen in the quarters of 2021, about 150 million a quarter. It's less than what we've seen historically, and it's less than we would like to see, I have to admit. But there are some challenges — resources, materials availability, and those type of things.

It does not hamper our ability to run our operations or maximize our capacity in the short to medium term. But long-term, our focus is of course to get the levels up again. We have good projects in the pipeline, so we expect next year to have some overflow, probably around the billion or just north of the billion SEK mark for capex.

And looking a little bit more long-term — these are adjusted EBITs and volumes on the right-hand side. As you can see from the graph, for the past 10 years we've had good growth of both. We ran into a little bit of a problem in the beginning of the pandemic, as you can see. Volumes actually dropped about four percent, mainly driven by food ingredients, food service, and so forth — that came almost to a halt in Q2 2020. Has since picked up again.

But profit didn't go down — we kept it fairly flat. And in 2021, and this is in my mind where we make a big difference: you see volumes come back up, and profit increase even faster. And it hasn't done that really throughout the — well, a little bit but not too much as you can see in the past — as it has in 2021. And this then enables our EBIT per kilo to grow quickly, and we're now above one crown, up to 110. So we see the gearing effects here in 2021, which is really good to see despite continued uncertainty and volatility in the markets.

When we look at our ROC, as I mentioned before, we have a drop in the beginning or mid-2020 due to the start of the pandemic, and then a quick rise again. And it's all driven by the improvement of profitability, and we're back to our sort of 15, 15 and a half mark of return on capital employed. Has remained fairly stable throughout — raw material prices have pushed it up, the currency and exchange rate development of actually revaluation pushed it down at the same time. So fairly stable levels, profits driving it back up to historically high levels.

When we look at our net debt versus EBITDA ratio, we're still at very moderate levels, I would say, and this gives us ample room for growth in the future. We talk both about organic growth, where we invest in capex and in growth-related working capital, but also acquisitions. And I think that we can probably gear this up to three or four without any huge problems over a limited time when we make larger investments and so forth. So there's a lot of dry powder here.

And when we look at the long-term delivery to our shareholders, EPS 10 percent CAGR over the past 10 years, as Johan mentioned as well. In 2021, we have excluded here our items affecting comparability, and that's the Marskim closure that we announced at the end of Q2, just to give you an idea of comparability there. This in turn, from the EPS development, has also then provided a steady increase of dividend per share over the years within the dividend policy that we have in place.

So looking at AAK as an investment, we have our focus maintained and we're geared to continue to deliver. We see — and it's proven through the pandemic — we have a strong underlying demand in the markets, in our products and where we operate. There's growth drivers, as I mentioned before. We have a strong balance sheet to continue that growth, and we do so through organic growth and acquisitions. And in order to deliver, as Johan also mentioned in his last slide, the 10 year-over-year EBIT growth.

That's it for me. Thank you very much.