AAK CMD 2024 – Johan Westman, President and CEO – Strategic update

We will today spend some time on a strategic update, going through our financials. We'll speak a lot about innovation, what we see ahead of us, and how we are taking those opportunities within AAK. There will be lunch, then breakout sessions back in the Callum Factory where you will be able to meet colleagues and get your questions going in a more intimate session. After that, there will be some concluding remarks and we'll head back to Malmö. For those that want to, there is a mingle dinner later tonight. Again, welcome here. Happy that so many of you took the opportunity to invest the time to get really some hands-on experience of what we are doing. And now we are starting the presentation for today. Myself, Johan Westman, the CEO of AAK. I have one part of the presentation. We will also see Thomas, our CFO, and Nile Sans, our head of commercial development and innovation. The three of us will present during this session. And after that, in the breakout sessions, you will also meet Susanne Jaspers, our head of Europe, as well as Tim Stevenson, our head of sourcing and trading and sustainability, and David Smith, head of global operations. The six of us are also part of the executive management team of AAK. Thank you for being here today. All right, let's get into my presentation. AAK, we have a strong track record delivering as a double-digit earnings compounder. We have a CAGR of 12% EBIT growth since 2005. If you divide that into a bit of phases, you could say that we've been on a specialty journey. We have expanded globally, we are focusing on a co-development approach, which is working really closely together with our customers on incremental improvement of their products. We are optimizing our portfolio and we're focusing on value creation and also having a positive impact. If we double-click one level down, we have been on a journey of EBIT per kilo growth — that's the way we measure our margin. We've had a decent return on capital employed, improving over the last couple of years, and we have been able to consistently increase our dividend to our shareholders. We're also more and more engaging in how to really enable sustainable supply of food. We have chosen to show you here one of the important things: to verify that there is no deforestation in the supply of palm. Palm is a very important raw material, but it has to be with no deforestation, and we're making really good progress on that end. So, speaking of the delivery that we have done, the earnings growth that we have had — what is it that we have that enables that? There is something around our specialty focus. We are a multi-oil ingredient house that is really focused on plant-based oils and fats and the chemistry behind that and the solutions that we can bring. So really tailoring ingredients for our customers for their products to work with the end consumer, and we do that in something that we call the co-development approach. What is that? It is actually very simple. We are working hands-on together with customers in our innovation centers or at the customer site, with our employees working together with our customers' employees to develop better products. We do that by being experts in fats and oils chemistry — plant-based oils and fats — but we are also really, really good in end-product applications. So in essence, if we want to make a chocolate bar better with a longer shelf life, we know how to formulate chocolate, or we know how to formulate an infant formula. We use our knowledge in oils and fats to create a better ingredient from ourselves, but with a really deep knowledge on the application of the end product. And with that, we're also very close to our customers. That, in combination with being flexible — we have customer innovation centers around the world. There are many players, especially in the food industry, that are local players — in Uruguay, Colombia, China, India, Sweden, Denmark — we have the ability to have a local team working very closely to these customers, addressing the taste experience, the structure that food needs in that local market. But we can also work with global players on global trends with global centers of excellence. In essence, we are very close, flexible, and agile together with our customers, and we have the distribution footprint to back it up. We also have factories and production sites around the world. When we engage with a customer, we address a problem, an opportunity, and we find a solution — an updated ingredient, a different mix of oils. The customers like it, they have validated it, they say 'Can you deliver?' Yes, we can. Whether that is locally or a global supply — when you combine these four things, that's when AAK becomes unique. We are a downstream, multi-oil ingredient player that uses different raw materials to arrive into end-product solutions. One more thing: the way we can do this is of course together with our employees. If there's one thing that I've learned traveling through AAK, it is the one thing that we have in common across the world — it's the passion. The passion for what we do and the passion for our customers. I have the luxury to travel the whole world. Some of the colleagues I meet, they have never met the other colleagues around the world, but they are equally passionate about the solutions we bring to customers. And we're also now investing in a more interdependent culture to leverage the skill set. AAK is a decentralized company, which means that we sometimes operate completely on our own. But when we tap into the knowledge totally in AAK in an interdependent culture, we have more to give. So, two years ago we launched what we call the 2030 aspiration. Today we're speaking about an update. To be clear, what have we done so far? We have delivered on doubling our value creation — our EBIT per kilo now above two SEK per kilo. We have built an increasingly aligned organization. Being decentralized, the real opportunity comes when we get a strong alignment. We have built a better alignment. We have also improved the mix between volume and value. We have strengthened the recognition. The third pillar in the 2030 aspiration is about making positive impact but also getting recognition for it. We have invested time in doing the right thing, driving sustainability, but also making sure that we own the message — that we can really deliver the message about what we are doing and why we're doing it. Ideally getting recognition from investors, from stakeholders, and I think we have started that journey in a nice way. But having said that, to be crystal clear, we believe that there is a lot more to give. On value creation — EBIT per kilo — we think that we can do a lot more. In terms of aligning our organization, we will continue to optimize the way that we deliver without taking away the decentralized structure, but rather focusing on being aligned on the strategy, doing more of best practices, etc. Thomas will guide you through what we have done and what we are still to be done. With regards to volumes, if you look at the last five years, we have had pretty much a flat volume development. Better this year with a 4% volume growth. We're not satisfied with the volume growth that we have had. However, we do recognize that we have focused on value creation. We have also closed down non-profitable plants, we have exited Russia, and so forth — so there are active decisions that have limited part of the volume growth. But we do believe that we have more to give. We need to be able to drive growth with the market and then some, in the areas where we focus. We are going to continue to strengthen the way we deliver positive impact and get recognition for it. We are engaging in the World Economic Forum, taking part in the debate about how to deliver a sustainable food supply chain for the future, feeding a growing population. We're engaging with stakeholders, with ingredient peers — stepping really outside AAK, if you will, and being part of a transformation. And I think we have a role to play there. So there is more to be done there as well. In essence, we have delivered a lot, but we also see a great opportunity to do more. If we look at that from our strategic portfolio-based strategy that we launched in 2019, the value creation in terms of EBIT growth has come a lot from the invest in continued growth for the future — especially with regards to the chocolate and confectionary opportunities that we have had and still have going forward. We have done a lot in optimizing our value creation in bakery, dairy, and food service. We have really looked into that box and said: how do we produce, what is the product portfolio, where do we see the real value? Because these are huge segments with lots of different ingredients, and we have done really systematic work to optimize what we deliver, to whom, at what prices, and in what way. That has also generated a lot of value. Less so in the bet for the future — but let's recognize that bets for the future also take a bit of time to develop. There is a positive trend. We see the opportunities in plant-based food, we see them in technical products, we see it in personal care. We have some really strong offerings, but we're coming from a low base, right? But the trend line is positive. And then we still have a few segments where we see opportunities as we go forward. But more to get. So when we look at this, part of today is not just about saying what we have done and why we believe that we can reach our 2030 aspiration. It is also to take you on a journey to lift our sight a bit on the longer-term horizon. The clear message is that we have delivered a lot over the last five years — or even 15 years, if you will. We believe, by launching the 2030 aspiration, that we have the ammunition already in the activities that we have on the table today and the things we have launched. We have the ability to reach the 2030 aspiration. However, we also see opportunities beyond that, and that's why we focus on developing AAK and also discovering new opportunities in new markets and with new technologies. Throughout the day, I have Thomas digging a bit deeper into how we deliver and how we will deliver, and Nile taking you on the journey on how we develop and discover beyond 2030. To update the 2030 aspiration, as we also press-released yesterday, we keep the main structure of the 2030 aspiration that we launched two years ago. So we keep the ambition of growing faster than the market, getting recognition for our positive impact, but we are updating the EBIT per kilo target. We are now lifting that to reaching above three SEK per kilo. We do that after having delivered faster than we thought on doubling our value creation per kilo above two SEK. We have already reached that and we have now, after some time, also stabilized ourselves on that level. We see the opportunity to grow further, to deliver a stronger EBIT per kilo, and that's why we have lifted it. I also want to be clear on us keeping the financial target that we have, which is about growing our EBIT by 10% year-on-year on average. Last but not least, the future that we have and the journey that we have been on is a lot anchored around sustainability. We are doubling down on verifying no deforestation. We've come far, as I showed you, and we are committed to no deforestation in palm. We're also investing in our employees, in our culture, our people agenda — that's an ongoing activity that we have today, becoming a better place to work with a more interdependent culture, a high-performing culture that will enable this journey going forward. And we're also approved now for our science-based targets — one of the first companies also with SBTi science-based targets. So we are committed to reducing our greenhouse gas footprint, and with that we're also aligning with our customers and suppliers. Speaking a bit more about this alignment — Thomas will talk even more about it. As a matter of fact, Thomas was one of the employees that came in and looked at this and said, 'Hey Johan, isn't it so that we are decentralized but we're not really aligned?' And he was so right. What we have done over the last two to four years, we have created better alignment — better alignment on the strategy, better alignment about the opportunities that we see, better alignment about realizing that there are things we do in the US that we can learn from in Europe, there are things we do in India that we can actually implement in Latin America. We haven't done a lot of that in the past in AAK. By starting on that journey to better alignment, we are already seeing positive impact in terms of better ways of doing operations, better ways of developing products to customers. But we also want to be clear: we have just started that journey. We are very decentralized, and sometimes even if you want it, unstructured. Huge opportunity to do even better. I'm sure that many of you follow the food sector and the chemistry sectors, so I'm sure you know a lot about the end-consumer trends. Let's just fast-forward into what does that mean for AAK. What we have seen over the last five years in our sector is a steady demand for palm oil. There has been turbulence, there's been disruption in the world, there's been debates about what's good and bad, but reality is that there is a stable demand of palm oil because palm oil is a multifaceted oil ingredient. Our focus is again on making sure it's a fully sustainable supply with no deforestation. But it's a clear need, and we do believe that it's needed to feed the world going forward. We also see some acceleration among trends like new solutions, new technologies — precision fermentation, lab-grown, different ways of producing food ingredients — and also new food, like plant-based alternatives to meat and dairy. Quite some interesting opportunities. Even like we have invested in the power-to-chemicals space, being able to produce edible fatty acids out of CO2 — pretty cool. But these are new trends emerging, and it's accelerating. We see also the local and regional markets having some new players — new CPG companies popping up with a different approach, kind of a niche approach. And that's where our local setup works really well, so we enable AAK to be serving some local niche players while we also serve the bigger companies. What we see among the bigger companies is that they get increasingly professional in how they do product development, and that's why we as AAK also need to be more professional as we go forward. When we look at what's really accelerating, it's the requirements of sustainability and health. You can't read the news over the last two years without reading about sustainability, health, also about affordable food and feeding the world. But there's also a lot of volatility — volatility in prices, disruption in supply. What we have seen in AAK is that our passionate workforce, being decentralized, has really helped us well to navigate. So we feel quite confident that whatever the world throws at us, we are at least very capable of navigating. It's not easy, it's not a guarantee, but we have shown that we are able to navigate uncertain or troubled waters, if you will. Now, if we look ahead — if you look at that from how we also report, we report in food ingredients, chocolate and confectionary, and technical products, and feed — there is no doubt that we have to feed a growing population. The population of the world is growing. We need to feed the population of the world. We need to feed our population in a sustainable way. We see great opportunities for plant-based oils and fats to play an important role in not only feeding the world but also helping transform the food supply chain to a sustainable supply of food. Huge opportunities. When we look into chocolate and confectionary, there's no doubt that as human beings, we kind of love to indulge ourselves. When you look at how we consume chocolate in the world — Europe and the US consumes a lot of chocolate. Latin America and Asia, it's a fraction of what we consume in the rest of the world per capita. What if that penetration started to move a bit faster? It's already moving, but it could move faster. Huge opportunity for a company like AAK. And if we start looking at policymaking, there is a limit in some markets for how much cocoa you can replace with, for example, solutions like we have. We've already seen India starting to look at maybe changing that limit of 5%. What if that changes across the world? Huge opportunity for solutions like we have in our portfolio. With those opportunities, it's all about how we take them. We are now building an organization that is much more focused on the end-consumer trends, making sure we translate that into insights in AAK, and with that tailor our innovation towards those opportunities and insights. That's what Nile is going to talk about a bit later today — how we have a five-pillar approach to innovation. If we sum it up in terms of market expectations, we do believe that there is an underlying trend in oils and fats as it looks today, with about 3% market growth for plant-based oils and fats. But when we tap into these more disruptive or evolutionary trends about what we eat and what we can replace with plant-based oils and fats, we see an opportunity for market expansion. That could be for continued replacement of fossil-based ingredients — in like candles, replacing paraffin. We already have solutions into that space. We sell to candles, we do skincare products replacing chemicals in cosmetics. But when you look around you with all the companies in different industries that have signed up to science-based targets and have to deliver on a lower greenhouse gas footprint going forward, we see a huge opportunity in continuing to replace paraffin, mineral oil, or in essence fossil-based components in products outside food. We have already identified a few segments and we are now investing time and resources to see where AAK can play a role with our deep knowledge in plant-based oils and fats chemistry. So that sums up my part of this presentation. We have been on a very strong delivery journey, strong track record of earnings growth. We see an opportunity to continue develop AAK towards the future with our customers, and there is more to be discovered. And throughout the day, together with Thomas, who is now next on stage, we'll dig a bit deeper in the delivery part — in how we do things today, how we will deliver on our 2030 aspiration. And we'll continue with Nile, who will take us on a journey on how we develop and innovate towards the future opportunities. We will wait with questions to me until we have heard Thomas, and then we'll take the questions to me and Thomas together. Thank you so much, and over to you, Thomas.