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Edited Transcript of AAK.ST earnings conference call or presentation 16-Jul-19 11:00am GMT

Q2 2019 AAK AB (publ) Earnings Call

19 Malmö Jul 22, 2019 (Thomson StreetEvents) -- Edited Transcript of AAK AB (publ) earnings conference call or presentation Tuesday, July 16, 2019 at 11:00:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Fredrik Nilsson

AAK AB (publ.) - CFO, Head of Corporate Communications, Mergers, Acquisitions & IT and VP

* Johan Westman

AAK AB (publ.) - President & CEO

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Conference Call Participants

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* Alexandra Barganowski

Nordea Markets, Research Division - Analyst

* Heidi Maria Vesterinen

Exane BNP Paribas, Research Division - Financial Analyst

* James Targett

Joh. Berenberg, Gossler & Co. KG, Research Division - Analyst

* Karri Rinta

Handelsbanken Capital Markets AB, Research Division - Research Analyst

* Kenneth Toll Johansson

Carnegie Investment Bank AB, Research Division - Financial Analyst

* Oskar Lindstrom

Danske Bank Markets Equity Research - Senior Analyst

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Presentation

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Operator [1]

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Ladies and gentlemen, welcome to the AAK Q2 Report for 2019. Today, I'm pleased to present Johan Westman, President and CEO. (Operator Instructions) Johan, please begin.

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Johan Westman, AAK AB (publ.) - President & CEO [2]

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Thank you very much. Good afternoon, and welcome everybody to the AAK Quarter 2 2019 Report and Presentation of our Results.

Together with me today, I have, as previous quarters, Fredrik Nilsson, our CFO, and we will run this presentation together.

On Page 2, you find today's agenda. We will start with comments on the second quarter 2019. We'll comment on a few strategic activities, some area by -- some information by business area, and we will end with a Q&A session as we usually do.

With that, turning to Page 3, some initial comments on the quarter and our results. We have continued with a very strong momentum with regards to our operating profit. Our profit is up 14% year-over-year, and adjusted for currency, we're up 10%, right at the target of the management ambition. We closed the quarter at SEK 518 million in operating profits. And we saw some softer volumes but really good development with regards to our margins. Our operating profit per kilo continued to improve, up 11% year-over-year, now at SEK 0.92 per kilo.

Our earnings per share grew even further, grew by 18% year-over-year. And behind this, we had really good trend and good development in Food Ingredients. As expected, we had higher-than-normal cost or rather lower-than-normal yields with our shea kernels in the Chocolate & Confectionery business. That's basically nothing new compared to the latest quarters, so that was more or less an expected result. Strong volume growth but offset a bit by increased cost for every produced kilo in CCF.

If we turn to Page 4, our trend quarter-over-quarter. With quarter 2 2019, we continued this nice trend, a really strong quarter where the management ambition was delivered right on target. Some quarters obviously lower, some higher, and this was a good quarter for AAK.

On Page 5, during the quarter, we've also introduced or launched 2 important products or 1 product portfolio and a product to the market.

Starting with AkoPlanet. AkoPlanet is a portfolio of products for plant-based alternatives, alternatives to meat and dairy products. We are very proud to launch this, and we do believe that this is a market space that will continue to have a very positive outlook for the future. We see a really strong trend in the consumer market with regards to using or starting to eat plant-based alternatives to dairy and meat. Today, at small volumes in the market as a total, but we do expect this trend to continue for quite some time.

We also launched COBAO Pure. COBAO Pure is a unique and patented solution that will deliver really good blooming retarding effects, and it will also extend the shelf life of the products our customers produce. So both these launches were really good in quarter 2, and we do hope that this will deliver nice growth going forward, again starting off from small volumes.

With those comments on the quarter results and our launches in quarter 2, I will hand it over to Fredrik Nilsson, our CFO, for some further comments on the financials.

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Fredrik Nilsson, AAK AB (publ.) - CFO, Head of Corporate Communications, Mergers, Acquisitions & IT and VP [3]

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Thank you, Johan. Going into some more financial details, we have a positive FX translation impact of SEK 19 million in the quarter. SEK 12 million was related to Food Ingredients and SEK 7 million was related to Chocolate & Confectionery Fats. Based on currency rates, we should expect to see continued positive impact going into the third quarter, but most likely slightly smaller than we have seen during the first and the second quarter.

Let's move on to Page 7. Looking at the working capital days. Inventory days, we have been able to improve by 1 day during the quarter, and that's due to good inventory management. The improved product mix on our speciality solution and the strong volume growth in Chocolate & Confectionery Fats put some underlying pressure upwards on our accounts receivable days, but we have the good work managed to keep them flat.

Accounts payable are the main disappointment here, down 3 days, but this is also an area where we focus a lot and try to improve.

Let's move on to Page 8 and looking into the cash flow. We have a good EBITDA increase of 16% or SEK 93 million in the quarter. Cash flow from working capital was slightly negative in the quarter. Lower raw material prices had a positive impact on the inventory and accounts receivable. However, that was offset by lower payables.

Interest cost paid to banks are down in the quarter. That's positive. Paid tax is also down despite that we have a higher earnings before tax. And I would like to highlight that we have also been able to continue to reduce the tax rate from 27% down to 25%, and that's due to the lower tax rate in Sweden combined with further optimization of the capital structure.

Looking at cash flow from investments. We had an outflow of SEK 280 million. SEK 111 million of those was related to acquisition, and that was the minority shares increase in India. And the remaining capital expenditures was related to regular maintenance investments and capacity increases. And then you can also find other noncash items, and that's mainly the mark-to-market impact from our financial instruments. So to summarize, a free cash flow of SEK 128 million in the quarter.

Let's move to Page 9 and return on capital employed. Looking at the 12 months running, we have 15.5% in the quarter compared to 15.8% at year-end, and that's explained by the impact of IFRS 16. As you can see on the light blue line, we are at 15.8%, the same as the year started if we adjust for the IFRS 16 impact.

Moving to Page 10 on loan and duration profile. We have, during the year, been able to increase average duration in our loan portfolio due to our MTN bonds, which has been a positive to increase the duration in the portfolio.

And then I would like to hand back the microphone to you, Johan.

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Johan Westman, AAK AB (publ.) - President & CEO [4]

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Thank you very much, Fredrik. And with that, we head into Page 11 and further comments by our business areas.

Food Ingredients first. Food Ingredients improved profit by 18% year-over-year, and this is on the back of a solid margin expansion and a good product mix more or less across all subsegments within Food Ingredients.

We saw continued improvement in Bakery and Dairy and really strong product mix in Special Nutrition, and with that, in spite of call it only 1% volume growth, we grew profit by 18%. Also Foodservice had a good development with really strong margin improvement in the portfolio.

With that, Page 12 on Chocolate & Confectionery. Very strong growth in the Chocolate & Confectionery business area, but the highest growth was within the low-end and semi-speciality products in this product group. And with that, you saw an impact on operating profit per kilo. Also impacting operating profit per kilo is the increased cost that we have due to the lower yields in our shea-based solution. So in spite of that, we saw a stable quarter with increased operating profit although we still have the, call it, challenge with capacity as well as lower yields resulting in higher cost per produced kilo of high-end Chocolate & Confectionery solutions.

We reiterate what we have said before. We have capacity expansion activities ongoing. They follow plan. We see good results, and we have to use our stock with somewhat lower-quality kernels throughout the year. And therefore, we are expecting improvements by the end of the year, and that is still a plan that we stick to.

On Page 13, Technical Products & Feed, a strong quarter again for Technical Products & Feed. We had volume growth in the fatty acid business, and we also improved mix. And in the total business area, we are focusing on operating profit per kilo really driving value in that portfolio as well. So with that, a solid quarter for Technical Products & Feed.

Page 14. Our current company program, The AAK Way is progressing really well. We are now literally on the final stretch, 1/2 of a year left in this program. And as I mentioned before, we are now also making a strategic review and we are about to create the next company program for 2020 and forward. This is running well with good progress. We see that we are in a good space in the market. We have a good position in our market, so we do expect our direction for AAK to continue but with a more laser sharp focus with adding a segment or 2, but we do not expect a 180-degree turnaround with the new strategy. So more about that as we go further into 2019. Expect feedback by the end of 2019 with regards to the updated strategy in our new company program.

Page 15, our management ambition. We have the ambition to grow our operating profit by 10% year-over-year, adjusted for currency and acquisitions. And as I mentioned earlier, we did that this quarter. As a consolidated view, after 2.5 years, we are at plus 9% with regards to operating profit improvement. So we continue to progress well, and we reiterate our ambition as an average. Some quarters might be higher, others are lower, but we reiterate our target by growing 10% operating profit year-over-year.

As concluding remarks, we do offer plant-based, healthy, high-value-adding oils and fats solutions, and we're using our customer codevelopment approach. We see favorable underlying trends in our markets and thus, we continue to remain prudently optimistic about our future.

With those comments from myself and Fredrik, we would like to open up for questions and answers. Thank you very much.

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Questions and Answers

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Operator [1]

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(Operator Instructions) And our first question comes from the line of Oskar Lindstrom from Danske.

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Oskar Lindstrom, Danske Bank Markets Equity Research - Senior Analyst [2]

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Yes. I have 3 questions or 3 sets of questions. The first one is on Food Ingredients, and what's the reason behind the sort of rather weak volume growth in that division in this quarter? Yes.

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Fredrik Nilsson, AAK AB (publ.) - CFO, Head of Corporate Communications, Mergers, Acquisitions & IT and VP [3]

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Oskar, I will say what explaining in Food Ingredients is, of course, we have lower commodity volumes in the quarter. But also as we have seen a little bit lower volumes in Foodservice, despite we see a good evolution with more high-end speciality solutions, but we're a little bit softer on the volume side. And then also on the Bakery side, we continue to work with the mix. But we are maybe as I said now overwhelmed to some of the low-end semi-speciality volumes in the Bakery segment.

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Oskar Lindstrom, Danske Bank Markets Equity Research - Senior Analyst [4]

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All right. Is it -- are these sort of developments with the lower commodity or fewer commodity volumes and being more selective in terms of Bakery, is that related to sort of lack of capacity in your facilities?

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Johan Westman, AAK AB (publ.) - President & CEO [5]

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In some areas, yes, we need to optimize, but we have continuously invested in capacity increase in AAK for many years. If anything, we continue to really push forward for our high-end solution. That's where we want to play. That's where we should play. So we are challenging our teams to go for that type of sale and not just taking volume for volume. So in other words, when the mix is improving and if that is on the back of missing a contract, true, that is the priority. But at the same time, we also are focused on growing organically our volumes, but it has to be with the right type of products.

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Oskar Lindstrom, Danske Bank Markets Equity Research - Senior Analyst [6]

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Okay. My second question then is moving on to Chocolate & Confectionery Fats and where you sort of have the opposite situation. You have very strong volume growth, but perhaps weaker or not as strong earnings growth. What is behind that sort of development there?

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Johan Westman, AAK AB (publ.) - President & CEO [7]

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Yes. There are a few things in the dynamics here. If we take the volume first, so we had volume growth across the board but proportionately higher volume growth in the low-end and semi-speciality versus the high end. So in other words, higher-volume growth on lower-margin products versus the growth on higher-margin products. And adding to that with our high-end products, that is where we also have the challenge with the lower yield, so the cost per kilo goes up, and in that case, impacting the net margin even in that segment for this time when we have the lower yield. So the combination of those 2 impact the profit per kilo, but high-volume growth and significantly higher-volume growth in the lower end and semi-speciality.

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Oskar Lindstrom, Danske Bank Markets Equity Research - Senior Analyst [8]

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And is that a situation which we should expect to continue in coming quarters or, let's say, the second half of the year?

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Johan Westman, AAK AB (publ.) - President & CEO [9]

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At least the cost per kilo produced shea-based solutions, we know that we will continue to use our stock of lower-quality kernels throughout the year. And we are ramping up our capacity improvements towards the end of the year, so we know that, that will stay and then we need to trust the new crop and so forth coming in during the fall. So that should be expected. If we can maintain a significant high growth on lower -- the lower end and the semi-speciality, let's see. It was a really strong growth this quarter.

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Oskar Lindstrom, Danske Bank Markets Equity Research - Senior Analyst [10]

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Okay. And my final question then is on those 2 effects, which we should see next year. You mentioned one of them is the more normal shea being harvest or kernel harvest and the other one being your capacity or your investment projects which should, as you said, ramp up next year. On the harvest, do you know already that, that is a normal harvest and that you're going to be sort of not have this effect next year as well?

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Johan Westman, AAK AB (publ.) - President & CEO [11]

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No, that is too early. We have just started to source. And to be more specific, it's not really about this harvest or the last year's harvest. It is about the worst yield we get is from the old safety stock that we have. So that has not as much to do with the new harvest. Obviously, every harvest has its, call it, quality of the kernels with higher or lower FFA values that impacts our yield. But the really low yield that we have comes from older kernels that we have had in safety stock and that we have used and need to use during this year. So if we get a normal crop or normal kernels, we will get a normalized yield going forward, and with capacity improvements, that should give us opportunity to increase volume as well as to reduce cost.

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Operator [12]

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And our next question comes from the line of Kenneth Johansson from Carnegie.

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Kenneth Toll Johansson, Carnegie Investment Bank AB, Research Division - Financial Analyst [13]

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So I'm curious about the COBAO Pure introduction. You introduced the TROPICAO solution that should solve similar problems for chocolates a couple of years ago, but that solution didn't really take off in a big way or haven't done yet. So could you talk a little bit about the difference between those 2, between TROPICAO and COBAO, please?

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Johan Westman, AAK AB (publ.) - President & CEO [14]

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Yes, I will -- thank you, Kenneth. I will comment it from a business point of view rather than from a technical point of view. And so for TROPICAO, it's still a good solution with regards to what it solves, but the issue with TROPICAO has been the commercialization of that project due to that it includes a change in the customer's process, an increased investment by the customer and also change to the process, which limits how many that wants to go that route, so to say. The COBAO Pure is a solution that our customers can use much more easily directly into their processes. So with that, we do hope that this will be a better success from a commercial point of view.

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Kenneth Toll Johansson, Carnegie Investment Bank AB, Research Division - Financial Analyst [15]

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Okay. But it's basically solving the same thing, and is it sort of based same sort of chemicals or the same solutions in the back-end somehow?

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Johan Westman, AAK AB (publ.) - President & CEO [16]

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It's 2 different products. It has -- yes, it has some of the same improvements to the chocolate, to the products of our customers, but it's not the same product as such. So -- but the COBAO has positive impact on blooming and a positive impact on shelf life.

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Kenneth Toll Johansson, Carnegie Investment Bank AB, Research Division - Financial Analyst [17]

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Okay. So how is pricing for these 2 products? Is TROPICAO much more expensive? Or is this one more expensive? Or is one of the products targeting more the high-end and the other one the low-end chocolate products or?

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Johan Westman, AAK AB (publ.) - President & CEO [18]

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We're targeting our main customers with both of these products. We do believe COBAO will have a smoother ramp-up and commercialization and industrialization and we have already started. And I just mentioned why, I believe TROPICAO had a somewhat tougher start. We'll see in the future how we can possibly ramp up TROPICAO. But pricing, we will not comment in the public domain.

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Kenneth Toll Johansson, Carnegie Investment Bank AB, Research Division - Financial Analyst [19]

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Okay. And then does this introduction of COBAO, does it take some years because you need to test it? And then, yes, is the testing phase also long so that the volumes of shipment for COBAO is not going to take off until a year or 2?

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Johan Westman, AAK AB (publ.) - President & CEO [20]

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That's a good assumption. It will be some 1 to 1.5, 2 years of testing before, call it, serious production; what we expect.

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Operator [21]

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And our next question comes from the line of Heidi Vesterinen from Exane BNP Paribas.

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Heidi Maria Vesterinen, Exane BNP Paribas, Research Division - Financial Analyst [22]

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Yes. I've got 3 questions as well. Maybe going back to Food Ingredients where we talked about the very high EBIT per kilo. Do you think that the sort of level we saw in Q2 is sustainable? Or were there any positive mix effects do you think this quarter?

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Johan Westman, AAK AB (publ.) - President & CEO [23]

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Well, I mean the sustainable, without commenting specifically on the SEK 0.91, what's sustainable is the focus that we have and the work that we do to lead us to this. That is sustainable, meaning that we at AAK, we focus on improving on the value creation, improving on the higher-end solutions and higher-end solutions and high-margin products has a high priority versus commodity low-end products. That is sustainable. Then obviously, a quarter can be -- depending on the exact volume mix and product delivered, obviously, operating profit per kilo can fluctuate a bit. It was a really strong pickup, as you've seen. So difficult to make a very precise forecast, but I do expect us to be able to continue at high level, and our efforts are clearly targeted on improvement.

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Fredrik Nilsson, AAK AB (publ.) - CFO, Head of Corporate Communications, Mergers, Acquisitions & IT and VP [24]

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To add to that, so about looking at the long term, we have clearly the ambition to improve EBIT per kilo year-over-year. But as Johan said, there could be a quarter that will be a little bit better and there could be a quarter that will be a little bit lower. But definitely, long term, Heidi, we have an ambition to continue to improve EBIT per kilo.

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Heidi Maria Vesterinen, Exane BNP Paribas, Research Division - Financial Analyst [25]

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Okay. And then last quarter, we had talked about the U.S., how you said there was a pickup and momentum. I think the quarter before was weak and then last quarter was quite reassuring. You said trends are improving. Can you update us on the U.S., please?

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Johan Westman, AAK AB (publ.) - President & CEO [26]

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Yes, it continued. We have a good improvement year-over-year in the U.S., really on the back of again like the segment as such, a good mix, so a good improvement of the margin also for the U.S.

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Heidi Maria Vesterinen, Exane BNP Paribas, Research Division - Financial Analyst [27]

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And last question, I think, Johan, when you were talking about the strategic review, you talked about potentially adding a leg or 2. Does this refer to splitting out a new segment from your existing businesses or adding something potentially through M&A?

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Johan Westman, AAK AB (publ.) - President & CEO [28]

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Obviously, if anything more specific like what you're asking, it's going to be that we will come back to that when we communicate and launch the updated strategy going forward. But for example, as I mentioned, I don't expect us to have 180-degree turnaround or expect us to focus on the segments we have. But we can focus on subsegments more or less, and I expect us to do so. We need to be more laser sharp in where we focus, and that fits well to what we talked about on how to improve our margins and focusing on the right product segments where we can compete better. We also see continued good momentum and market trends within Chocolate & Confectionery. Obviously plant-based, we are already 100% plant-based. But as an industry, you can call it or a part of our Food Ingredients industry, plant-based is something -- is an area, a market space we expect to grow significantly going forward. And with that, we need to take the right actions and have the right structure to support that. So that type of focus, how we focus and what strategy and tactics we use in certain business areas and segments, that is what the major part of the strategic direction will be about. And then potentially, we might add a adjacency through an acquisition or a focused effort. But that, we will have to come back to later.

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Heidi Maria Vesterinen, Exane BNP Paribas, Research Division - Financial Analyst [29]

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So does M&A remain a big focus? Because that's the impression we got last November. Is it still a big focus for you? And you had talked about acquisitions of all sizes, the very big ones as well as small ones. Is that still the case?

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Johan Westman, AAK AB (publ.) - President & CEO [30]

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That is still the case. We continue to push forward. We have a good pipeline of M&As. We always look at M&As. We will always -- do not always, but we will continue to really look at M&As out there in the market for geographical expansion as well as for potential adjacencies and really strengthening our high-priority business areas.

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Operator [31]

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And our next question comes from the line of Alexandra Barganowski from Nordea.

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Alexandra Barganowski, Nordea Markets, Research Division - Analyst [32]

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I had 2 questions [Johan], could you just similarly talk about -- tell us a bit more about AkoPlanet and where the product is available right now and what customers you're targeting and as well sort of what potential do you see from that product going forward.

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Johan Westman, AAK AB (publ.) - President & CEO [33]

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So just so that I understood correctly, was the question about COBAO and AkoPlanet or about...

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Alexandra Barganowski, Nordea Markets, Research Division - Analyst [34]

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Mainly AkoPlanet since you just talked about COBAO.

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Johan Westman, AAK AB (publ.) - President & CEO [35]

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Yes. Okay. Absolutely. So with AkoPlanet, I think it's worth -- I mentioned it before, it might come -- it's crystal clear if you look at our product portfolio, everything we do is basically plant-based. We use a variety of raw materials. We have a multi-oil product offering through the total Food Ingredients space. But with the development that you see in plant-based dairy as well as plant-based meat, there is obviously a high demand for ingredients and combination of ingredients to get to the right structure, the right taste so that we as consumers really see it as a high-quality product, a good-tasting product and potentially even a better product. And with that comes also the drive supported by sustainability, how do we reduce the use of animal-based products. And many of the customers, the producers of plant-based meat and plant-based dairy also have a brand promise very much linked to sustainability. So when we look at this product offering, on the one hand, we do the same thing as we do with any customer within the Food Ingredients space. It's customer co-development. It's finding out what oils and fats you could use for the right taste, for the right texture, for the right applications. And that is something that we have a strong track record of doing. That fits very well with the need with this industry where a lot of changes are happening that the development and the pace of the development is really strong, and the need of also improving the product quality is high for us as a consumer to really use it. And with that, we expect the plant-based market space to require lots of co-development, product improvement, innovations going forward. And we are one of the companies that are geared towards doing that. So that is basically what we do. And with that regard, the AkoPlanet portfolio is grouping together products that serves the purpose, but also has sustainability promise to it. This is something we will continue to develop. And also we, as a supplier, will focus on development, codevelopment, innovations for this market space.

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Alexandra Barganowski, Nordea Markets, Research Division - Analyst [36]

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Sure. And so my second question would be in regards to your increased ownership in your joint venture with Kamani. You now own 64%, if I'm correct. Is this a level that you're comfortable with now? Or do you see yourself increasing this level potentially going forward?

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Johan Westman, AAK AB (publ.) - President & CEO [37]

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This is a joint venture we have, has been working out really well for us. It continues to do that. These acquisitions are more on the back of the joint venture agreement that we have with put call options that the counterparty has decided to trigger. And we are happy with this change, and we will be happy with buying more or staying where we are. It's a company and an operation in India that fits well with AAK and we continue to deliver good value in India.

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Operator [38]

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And our next question comes from the line of Karri Rinta with Handelsbanken.

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Karri Rinta, Handelsbanken Capital Markets AB, Research Division - Research Analyst [39]

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Karri Rinta, Handelsbanken. A follow-up on the AkoPlanet question. Firstly, when we think about future potential for maybe few years down the road, should we focus more on the nondairy segment or on the nonmeat segment in terms of total addressable market and maybe total addressable market for -- specifically for AAK? So where do you think that you will put your laser-sharp focus in that respect?

And then secondly, how should we think about the sort of the competitive dynamics in that? Is this more of a similar to sort of Bakery where you have a large number of players both competing with you as well as in terms of customers? Or could this be more like Infant Nutrition, which is dominated by few multinationals and thereby also the number of suppliers to them is limited and that therefore, the EBIT per kilo is significantly higher than in more sort of commoditized categories?

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Johan Westman, AAK AB (publ.) - President & CEO [40]

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Thank you. If we start with the first one, we focus on both plant-based alternatives to meat and plant-based alternatives to dairy. And so at the moment, they are both very important for us. We see great opportunities in both, and we are delivering to both segments as we speak. So in our laser-sharp focus going forward, I expect them both to be in the portfolio focus.

With regards to the competitive dynamics in the industry, I think if you have followed kind of the development over the last few years and quite significantly this year with regards to the tension, we see a mix of established food ingredient companies and start-up companies. And the dynamic through some of these start-ups are like start-ups in some other high-growth industries. So I think it's too early to determine what kind of product it is, but I think it's fair to say that in a industry where a lot of change is happening fast and demand is growing fast, then the interest from consumers is growing fast. There are dynamics around improving product quality fast, improving product characteristics fast and being able to deliver that at a pace and being able to also ramp up and be agile enough to do that. That's suited for certain type of companies and maybe less suited for others. But exactly, with regards to delivering oils and fats to this industry, we and others can do it. I believe AAK is well positioned as one of the companies that can do it or one of the companies that has a codevelopment approach and the speed to market certainly.

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Karri Rinta, Handelsbanken Capital Markets AB, Research Division - Research Analyst [41]

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Okay. Maybe a follow-up on that. So how would you sort of summarize AAK's unique selling points when it comes to AkoPlanet compared to, for example, start-ups and then maybe compared to your more established ingredient competitors?

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Johan Westman, AAK AB (publ.) - President & CEO [42]

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What we are good at in AAK is our codevelopment approach where we are able to take our customer needs, our customer pains, our customer's application need and turn that into solutions. We do that often together with our customers. And that is really what I see plant-based meat, plant-based dairy needing as well. That is the type of work we're doing as we speak with customers in this space. So that is what we will use. That is what we are using. And in addition to that, obviously, there is a focus on -- in the total industry, what are the best solutions for making the taste and the structure, mimic or develop an even stronger value proposition in the eyes of the consumer.

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Operator [43]

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(Operator Instructions) And our next question comes from the line of James Targett from Berenberg.

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James Targett, Joh. Berenberg, Gossler & Co. KG, Research Division - Analyst [44]

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My question is really going back to Food Ingredients, and I think you've made it clear that one of the reasons for the weaker -- or softer, sorry, volumes is the shift towards higher-margin products. And I wonder how -- within that slowdown, are there any end markets or sort of customer segments which have seen any softness, which is also a reason for the slowdown in volumes? Or was it just this mix shift? And then regarding this sort of dynamic between lower volumes and the higher EBIT per kilo, based on sort of visibility you have into your customer pipeline, how long do you expect sort of this level of volume and margin improvement to continue?

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Fredrik Nilsson, AAK AB (publ.) - CFO, Head of Corporate Communications, Mergers, Acquisitions & IT and VP [45]

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James, if you look at Food Ingredients, I will not say that the market as such, the underlying demand has slowed down. So I will say the shift you have seen towards the higher EBIT per kilo is driven by the mix. And that is a quite significant change if you compare 1 kilo of high-end or semi-speciality comparing to 1 kilo of commodity from EBIT per kilo point of view. And if you look at the more -- you talk about the pipeline, I think it's more important to look also at our track record and then also what our ambition going forward with our ambition to improve year-over-year. And I would not like to promise you that there will be a Q3 at a certain level or Q4 at a certain level, but we clearly have the ambition to continue to improve the EBIT per kilo, and to be able to do that, we need also to improve the mix.

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James Targett, Joh. Berenberg, Gossler & Co. KG, Research Division - Analyst [46]

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Okay. But do you -- I mean, what's your kind of -- maybe perhaps this is something you'll cover when you do the new strategy update in Q4? But have you changed your view towards what your sort of volume potential -- volume grade potential is in Food Ingredients?

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Fredrik Nilsson, AAK AB (publ.) - CFO, Head of Corporate Communications, Mergers, Acquisitions & IT and VP [47]

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No, I will not say that there is that kind of change. This is the result of work we have done for quite a long time to work towards more speciality solutions and more customer codeveloped solution.

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Operator [48]

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Thank you. There doesn't seem to be any more questions registered at this time, so I'll hand the call back to you, speakers, for your closing comments.

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Johan Westman, AAK AB (publ.) - President & CEO [49]

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All right. So with that, we conclude the earnings call for AAK quarter 2. A strong quarter with a really strong operating profit growth and earnings per share growth. I thank you very much for listening in and for good questions. Thank you very much.

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Operator [50]

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And this now concludes our conference call. Thank you all for attending. You may now disconnect your lines.