U.S. Markets closed

Edited Transcript of AAK.ST earnings conference call or presentation 23-Apr-19 11:00am GMT

Q1 2019 AAK AB (publ) Earnings Call

19 Malmö Apr 23, 2019 (Thomson StreetEvents) -- Edited Transcript of AAK AB (publ) earnings conference call or presentation Tuesday, April 23, 2019 at 11:00:00am GMT

TEXT version of Transcript

================================================================================

Corporate Participants

================================================================================

* Fredrik Nilsson

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

* Johan Westman

AAK AB (publ.) - President & CEO

================================================================================

Conference Call Participants

================================================================================

* Heidi Maria Vesterinen

Exane BNP Paribas, Research Division - Financial 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

================================================================================

Presentation

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

Ladies and gentlemen, welcome to the AAK Q1 Report 2019. Today, I'm pleased to present, Johan Westman, President and CEO. (Operator Instructions) Johan, please begin.

--------------------------------------------------------------------------------

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

--------------------------------------------------------------------------------

Thank you very much. Good afternoon, everyone and welcome to the AAK Quarter 1 Earnings Call. Together with me for this presentation is also Fredrik Nilsson, our CFO, who will present part of the presentation together with me. We have the agenda for today's call on Page 2. We will start with the comments on the first quarter 2019, and then some comments on strategic initiatives, some business area updates and, as usual, a question-and-answer session after the presentation.

With that, turning to Page 3. We start with some highlights from the first quarter. It was a good start to the year. We continue to grow organically and also through acquisitions. I will comment the 2 acquisitions later on in the presentation today. Volume growth, organically up by 4% year-over-year. Our operating profit landed at SEK 509 million, adjusted for the acquisition cost that we had in the quarter, up 11% year-over-year. Our operating profit also continued to go up by 5% year-over-year, and all in all, a good development in most markets. And I'm very glad to see also that we've seen a, call it, rebound in the U.S. business where we, last year, had a little bit a plateau or even reduced comparisons year-over-year. But now we see a better trend in the U.S. as well.

We've also reached a lower tax level through continued optimization of our total setup, but also thanks to a lower corporate tax in Sweden, and Fredrik will comment more about that later on.

If we turn to Page 4, our operational profit continued to develop well. This quarter was a quarter that was steady in line with last year's trend lines for quarterly results continue with strong improvements year-over-year.

On Page 5, further comments to the quarter. We continue to make significant investments in China.

As you all know, we have opened up a new greenfield facility in China a few years back. We have loaded that with good volume and the business is improving. We now see that we have to invest for the future, so we're making add-on investments to that plant. A new deodorizer will be installed, but we're also making a strategic investment on that side for our Special Nutrition business, where we have a strong position in the global market supplied from our European footprint predominantly, but we now invest in China in order to be able to supply in China, but also for the rest of the world. Part of the volume growth is also driven by the Bakery segment, where we, in China, have seen really good development over the last year. We have also, in the quarter, issued another SEK 500 million in our bond structure, where we have a total frame of SEK 4 billion, I should say, and we have now used or issued SEK 1.6 billion of that SEK 4 billion frame. The last one, the SEK 500 million is on a 5-year basis.

Now moving into Page 6 and some further comments to the latest M&As that we did. We -- the number one is MaasRefinery in the Netherlands. This is an important acquisition in terms of adding capacity to our European footprint, where we need additional capacity to cope with our continued organic growth. But it also gives us a very good and up-to-date process facility, where we can also process Skal, Kosher, and it is also certified for RSPO and so forth. Being able to increase the volume but at the same time, being able to produce organic oils and fats really strengthens our footprint and our ability to continue to grow with our high-end value-added oils and fats for Europe.

It is also located strategically. It's located in the -- or next to the deep-sea terminal in Rotterdam, that also gives us opportunities with regards to our total supply chain setups.

With that, turning into Page 7. A few comments on the other acquisition we made in the quarter, BD Foods in the U.K. BD Foods adds to our global Foodservice expansion. We have a Foodservice business currently operating out of Sweden, U.K. and the U.S. With this acquisition, we expand our product portfolio and with that, also increases the, call it, strategic value proposition that we have within Foodservice. And we continue to focus on building this into a strong global business for us. With those comments on the latest acquisitions. I will hand it over to Fredrik for some further comments on our financial results.

--------------------------------------------------------------------------------

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

--------------------------------------------------------------------------------

Thank you, Johan. Going into some more financial details. We had a positive translation impact of a SEK 20 million in the quarter, SEK 12 million was related to Food Ingredients, SEK 9 million to Chocolate & Confectionery and then we're SEK 1 million negative in group functions. Based on current currency rates, we expect to see a continued positive impact in the next quarter, but slightly smaller than we had in the first quarter.

Let's move to Page 9 and looking at working capital days, we have a net increase of 1 day in the quarter. Inventory, we've been able to improve by 1 day in the quarter. Looking into receivables, we have seen an improved product mix of our specialty solutions in the quarter, strong volume growth in Chocolate & Confectionery Fats. We're seeing an underlying pressure upwards on payment days, but we have managed to keep them flat. So good job here.

Accounts payable are down 2 days, and it's a focus area going forward to try to improve. Other working capital days is related to our changes in raw material derivatives.

Going into Page 10. Looking at the cash flow, we have a strong EBITDA increase of 12% or SEK 71 million in the quarter. Cash flow for working capital was slightly negative in the quarter, continued volume growth impacted the cash flow from inventory and accounts receivables negatively. This was partly offset by higher accounts payable. Paid interest was upwards of last year but it's entirely due to paid interest that was accrued in 2018.

Paid tax is up as well and that is due to the higher earnings. But I would like to highlight what Johan commented upon regarding reports and tax costs. We're now down to 25% compared to 27% a year ago. It's a combination of lower corporate tax rate in Sweden, but we've also optimized the capital structure in the group to be able to reduce it from 27% to 25%, and we expect to keep this lower level going forward.

Cash flow from investment activities amounted to SEK 296 million in the quarter, whereof SEK 169 million was related to the 2 mentioned acquisitions.

The remaining capital expenditure was mainly related to regular maintenance investment and capacity increase.

Looking at the noncash items, that's mainly related to the mark-to-market impact from our financial instrument. But to summarize, we have a free cash flow that is SEK 600 million better than Q1 last year.

Moving into Page 11, return on capital employed. You can see it's going slighter down in the quarter, 3 reasons behind: We see an impact from the IFRS 16, the new accounting standard for leasing; the 2 acquisitions; and also, as I said, a little bit higher working capital.

Let's move to Page #12. Looking into the loan and duration profile of our loans. We have been able to increase the average duration in the quarter, as Johan said, we issued senior unsecured bond for a total of SEK 500 million with a tenor of 5 years in the quarter. By that, I would like to hand back the microphone to you, Johan.

--------------------------------------------------------------------------------

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

--------------------------------------------------------------------------------

Thank you very much, Fredrik . And we turn into Page #13, where we start a few comments on the industry segments and the business areas. We -- within Food Ingredients, we had a really strong quarter. Our operating profit increased by 14% year-over-year, so really continuous strong development within our Food Ingredients business. We do see some margin expansion since operating profit is higher than our organic volume growth. Bakery continues to perform well. That trend we've seen over the last year or so and that is continuing also through Q1 2019. As I mentioned early on, also, in the U.S., we start to see better momentum and a better year-over-year improvement. We had a bit lower volume development in our Special Nutrition business, like we had the last quarter, but really we do see an improved mix. So the earnings result or the operating profit was still good improvement year-over-year.

This is mainly due to us selling more of the concentrated products versus the blended products.

Turning into Chocolate & Confectionery. This business area pretty much trends as expected. A good operating profit of plus 8% year-over-year, where the volume growth was really strong, but as expected, our costs were a bit higher than normal due to our continued lower yield on raw material. Just as expected, our investments and so forth in the supply chain do progress according to plan, and we do expect to see an improvement towards the end of the year. Operating profit landed on SEK 206 million.

Turning into Page 15, our Technical Products & Feed business. A stable quarter, pretty much at last year's level. So that was a flat development, but at the same time, we did see a fewer -- we had fewer production days, we could say, due to a longer maintenance stop, so all in all, we were trending quite well in the quarter, and we have now made these improvements to our operations and we expect us to kind of continue on that new level that we have established.

Turning into Page 16. Our company program, The AAK Way, we do continue according to plan, we're trending well in our focus areas. This is now the final year of The AAK Way program. And it's time for us to reap the benefits. We expect to fly into 2020 with a much better base going forward. This is also the year where we start to plan for the future. So we are making a strategic review, and we will come back to you as investors with -- during the later part of 2019, with an updated strategy and a new company program.

Page 17, we are reiterating our management ambition of growing our operating profit by 10% year-over-year. Since the program started, now 27 months into it, we are at plus 9%. So a little bit short of the target, but we still remain at 10%, as our management ambitioned.

With that, heading into Page 18. Some concluding remarks from myself. As we offer plant-based, healthy, high value-adding oils and fats solutions by using our customer co-development approach, and at the same time, seeing favorable, underlying trends in our markets, we do continue to remain prudently optimistic about our future. With that, we end the presentation for quarter 1 2019, and we open up for questions. Thank you.

================================================================================

Questions and Answers

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

(Operator Instructions) Our first question comes from the line of Oskar Lindstrom from Danske Bank.

--------------------------------------------------------------------------------

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

--------------------------------------------------------------------------------

Regarding the ongoing investments in your facility in China, to what extent and what timing should we expect those to have an impact on your volumes and earnings?

--------------------------------------------------------------------------------

Johan Westman, AAK AB (publ.) - President & CEO [3]

--------------------------------------------------------------------------------

So -- thank you. So this is, to some extent, call it, plug and play. Maybe that is making it a bit too easy. But part of the installation is increasing our, for example, deodorizing capacity, where we have already when we built the plant, made an installment so that we can plug in extra capacity relatively easily. So -- but it would still take 1.5, 2 years to complete it. And that in total with the also expansion of Special Nutrition or Infant Nutrition facility, it will take 2 years until we start seeing that in our P&L sheets. You will, of course, see the cash flow from the investments earlier than that but really the P&L effect should come in 2 years from now basically. Is that right, Fredrik?

--------------------------------------------------------------------------------

Fredrik Nilsson, AAK AB (publ.) - CFO, Head of Corporate Communications, Mergers, Acquisitions & IT and VP [4]

--------------------------------------------------------------------------------

That's right. And regarding your question regarding volumes. I have -- we're talking about InFat, it's a relatively small volume if we compare it to the AAK group. So you should not need to change the overall picture based on the new volumes coming on board.

--------------------------------------------------------------------------------

Oskar Lindstrom, Danske Bank Markets Equity Research - Senior Analyst [5]

--------------------------------------------------------------------------------

So we should see this as something that supports continued EBIT growth of 10%?

--------------------------------------------------------------------------------

Johan Westman, AAK AB (publ.) - President & CEO [6]

--------------------------------------------------------------------------------

Yes...

--------------------------------------------------------------------------------

Oskar Lindstrom, Danske Bank Markets Equity Research - Senior Analyst [7]

--------------------------------------------------------------------------------

Rather than any bump in that. And then if I may also just follow up on the ongoing investments in the Danish facility, which is more of a debottlenecking, if I understood correctly. How's that going? And what's the timing and possible effect of that?

--------------------------------------------------------------------------------

Johan Westman, AAK AB (publ.) - President & CEO [8]

--------------------------------------------------------------------------------

We are following plan. But it is, as you said, it is a debottlenecking initiative. It's not like 1 bottleneck where we replace it and then we are one and done. It is several steps that we've taken. That's why it's taking another year. And it is an incremental improvement as we go. But it's also -- as we go, we are also improving our safety stock levels, getting us into a better shape to cope with increased demand that we see. It's also including further efforts in our sourcing activities and so forth. So it's really getting the complete supply chain of these products up to a better capacity.

--------------------------------------------------------------------------------

Oskar Lindstrom, Danske Bank Markets Equity Research - Senior Analyst [9]

--------------------------------------------------------------------------------

If I just may -- I was thinking, I mean, is this something that's going to have a negative impact on earnings during the first half and then a positive effect during the second half? Is there any impact on production when you're making these debottlenecking investments?

--------------------------------------------------------------------------------

Johan Westman, AAK AB (publ.) - President & CEO [10]

--------------------------------------------------------------------------------

It is and it has been. So this is something that we take. It's not a step curve, it's not a step-down and a step-up that way. We stop 1 day, 2 day, we make improvements and then we continue, get a little bit better results and then fine-tune and stop again. So this is more normal, normal operations, improving debottlenecking, stopping when we have to or doing it as we run in other cases. So it's an incremental improvement, but it's not a step function improvement.

--------------------------------------------------------------------------------

Operator [11]

--------------------------------------------------------------------------------

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

--------------------------------------------------------------------------------

Heidi Maria Vesterinen, Exane BNP Paribas, Research Division - Financial Analyst [12]

--------------------------------------------------------------------------------

So the first question, please on the U.S., it was nice to see an improvement in that market. Could you talk about which end market you are seeing this in? You talked about Food Ingredients, but which area those Food Ingredients? And do you think this is a market pickup? Or are you doing anything differently in that market? That's my first question.

--------------------------------------------------------------------------------

Johan Westman, AAK AB (publ.) - President & CEO [13]

--------------------------------------------------------------------------------

Thank you. So with regards to the U.S., it's more across the board. So it's not a single segment, I would say. And it has to do with us improving from where we were last year across the board with -- from sales to operations. So it's not a single -- and it's, I should say, it's a turn of the trends, not a step-up really. But a good sign.

--------------------------------------------------------------------------------

Heidi Maria Vesterinen, Exane BNP Paribas, Research Division - Financial Analyst [14]

--------------------------------------------------------------------------------

And then secondly on the Dairy segment. So you talked about a good development in the plant-based area. So could you talk about what proportion of that business goes into Dairy versus plant-based end markets? Because I think overall, that segment was stable, right? So I think, the Dairy part maybe was declining. Have I interpreted that correctly? And then what happened to Dairy outside of Latin America, please?

--------------------------------------------------------------------------------

Johan Westman, AAK AB (publ.) - President & CEO [15]

--------------------------------------------------------------------------------

So for the first question, we do still have a plant-based Dairy -- still a small portion of Dairy, if you call it that way. So you don't see major shifts between the 2. And with regards to Dairy outside Latin America, Fredrik?

--------------------------------------------------------------------------------

Fredrik Nilsson, AAK AB (publ.) - CFO, Head of Corporate Communications, Mergers, Acquisitions & IT and VP [16]

--------------------------------------------------------------------------------

No, but you have right idea, yes, we saw stable quarter, but we also said, no thanks to some and more low end seems to sell it close to commodity volumes in the Dairy segment. And that was the reason behind where we were rather stable with volume in the quarter.

--------------------------------------------------------------------------------

Heidi Maria Vesterinen, Exane BNP Paribas, Research Division - Financial Analyst [17]

--------------------------------------------------------------------------------

So should we expect this trend to continue as we go into the next quarters? Or have you seen any changes in trends lately?

--------------------------------------------------------------------------------

Fredrik Nilsson, AAK AB (publ.) - CFO, Head of Corporate Communications, Mergers, Acquisitions & IT and VP [18]

--------------------------------------------------------------------------------

We're not seeing any change in the trends. We continue to see a good development for the plant-based, we see some good growth in some regions. So we definitely expect that trend to continue.

--------------------------------------------------------------------------------

Heidi Maria Vesterinen, Exane BNP Paribas, Research Division - Financial Analyst [19]

--------------------------------------------------------------------------------

Okay, and then lastly, a quick one on CCF. When Easter is late in the year, is there typically any kind of boost to Q1 that we should be thinking about? Or is that irrelevant?

--------------------------------------------------------------------------------

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

--------------------------------------------------------------------------------

It's not irrelevant, but maybe with a slight twist to how you ask the question. With Easter being late, it means being now in Q2 in terms of operations and so forth, so it's rather that Q1 had less of a negative impact versus a normal year and Q2 now have that impact. So it's rather on -- rather than an upside, it's rather slightly a downside when Easter falls into Q2, or the quarter it falls into has a negative in terms of production size.

--------------------------------------------------------------------------------

Heidi Maria Vesterinen, Exane BNP Paribas, Research Division - Financial Analyst [21]

--------------------------------------------------------------------------------

So Q1 benefits and then Q2 is weaker, right? Basically, the -- it's just the phasing issue, right? I think, that's what you're saying?

--------------------------------------------------------------------------------

Johan Westman, AAK AB (publ.) - President & CEO [22]

--------------------------------------------------------------------------------

Yes.

--------------------------------------------------------------------------------

Operator [23]

--------------------------------------------------------------------------------

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

--------------------------------------------------------------------------------

Karri Rinta, Handelsbanken Capital Markets AB, Research Division - Research Analyst [24]

--------------------------------------------------------------------------------

First, a clarification on the Special Nutrition investment in China. So have you had Infant Nutrition manufacturing in China before? And if so, how much more will you have once you are done with this investment? Or is this your first sort of investment -- or is this the first time that you will start manufacturing Infant Nutrition in China? That's my first question.

--------------------------------------------------------------------------------

Johan Westman, AAK AB (publ.) - President & CEO [25]

--------------------------------------------------------------------------------

So we have had -- parts of our portfolio has been in China prior to this. But part of the portfolio has been only been produced in Europe and now we expand that into China.

--------------------------------------------------------------------------------

Karri Rinta, Handelsbanken Capital Markets AB, Research Division - Research Analyst [26]

--------------------------------------------------------------------------------

Okay, so after this, you'll have all of your portfolio also manufactured in China?

--------------------------------------------------------------------------------

Johan Westman, AAK AB (publ.) - President & CEO [27]

--------------------------------------------------------------------------------

Exactly, that's correct.

--------------------------------------------------------------------------------

Karri Rinta, Handelsbanken Capital Markets AB, Research Division - Research Analyst [28]

--------------------------------------------------------------------------------

Yes, okay. And then secondly, follow-up on Heidi's question on the Dairy side of business. Can you talk a little bit more about your plant-based Dairy? You're saying that it's still a small part of your Dairy business, but is there any way for us to get a handle of that, what's your, I don't know, maybe market share? And whether that has started to have an overall impact on the sort of your EBIT per kilo in Dairy. Because when you were still reporting per EBIT per kilo per category, Diary was still a relatively low-margin business in terms of EBIT per kilo. Can you give us an indication of is there's been any change in that EBIT per kilo from Dairy? And whether plant-based Dairy is -- has similar margin profile, or better?

--------------------------------------------------------------------------------

Johan Westman, AAK AB (publ.) - President & CEO [29]

--------------------------------------------------------------------------------

Yes, thank you. So in the total scheme of things, plant-based is a lower proportion if we call it now a part of the Dairy business. Plant-based Dairy is still a smaller portion for us, [and it always were]. But it is for sure, I mean, a very interesting segment, it is indeed a segment that is growing and it's growing with investments globally, and we are part of that. With us being a supplier of plant-based oils and fats, we are in that industry already. We are focusing on key players in that industry and with them we're growing, and it is an industry or a segment of the industry, should call that way, that also calls for more high-end solutions. And that's where our co-development approach is -- comes in handy. So yes, it is positive to us, but it's still a smaller portion, and we don't see it immediately in our results, but it does incrementally increase our EBIT per kilo and our profit. Fredrik, any other comments?

--------------------------------------------------------------------------------

Fredrik Nilsson, AAK AB (publ.) - CFO, Head of Corporate Communications, Mergers, Acquisitions & IT and VP [30]

--------------------------------------------------------------------------------

No, I think you summarized it to Karri, well as anyone.

--------------------------------------------------------------------------------

Operator [31]

--------------------------------------------------------------------------------

(Operator Instructions) And the next question comes from the line of [Pierre Yarkinson] from [ING].

--------------------------------------------------------------------------------

Unidentified Analyst, [32]

--------------------------------------------------------------------------------

Two questions from my side. We can see this very nice development in EBIT per kilo in Food Ingredients. I know it's maybe early days, but is it due to The AAK Way that's actually the last year of The AAK Way. So you're actually really now seeing the benefits of all the investments on the FI, that's my first question.

My second question is on the Foodservice that you mentioned, that you actually use this as a more global platform. Is it one of the ways that you will grow when The AAK Way is out of the way, so to say?

--------------------------------------------------------------------------------

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

--------------------------------------------------------------------------------

I hope that The AAK Way is not out of the way but rather a new platform. But...

--------------------------------------------------------------------------------

Unidentified Analyst, [34]

--------------------------------------------------------------------------------

No, that's fine. Okay.

--------------------------------------------------------------------------------

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

--------------------------------------------------------------------------------

So we -- most of the things we do, we do to have a stable benefit from it. But anyhow, you're right that obviously, the part of The AAK Way is about how we improve our -- it's improving our operation, it is special focus areas. So obviously, part of this helps driving the EBIT per kilo. And it is not easy to single out what is -- what action did have the most impact, but the combination of everything we do within our customer co-development approach, with how we go to market, with how we price our high value-added solutions and so forth. All of that combined really supports the EBIT per kilo growth. So in that way, yes, AAK Way is having an effect, but it's not like you would say that it's actually the last year that it's doing that. You -- if you look at the historic curve, we have improvements in EBIT per kilo for quite some time. I would rather say that it's a -- an effect of the strategic work that AAK has been doing for quite some time, where The AAK Way is kind of the next step on that journey.

With regards to Foodservice, we do recognize this as interesting market with an opportunity for us to go broader. We have had 3, call it, 3 sites before, or 3 locations with Sweden, U.K., and the U.S. We're now expanding that. And we have formed a global Foodservice team that looks on opportunities globally.

--------------------------------------------------------------------------------

Unidentified Analyst, [36]

--------------------------------------------------------------------------------

So that's where we can actually see some more acquisitions in this Foodservice? But that's a new growth platform for you going -- if I'm not correct -- if I'm not wrong, going more vertical in your industry.

--------------------------------------------------------------------------------

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

--------------------------------------------------------------------------------

I would probably guide you to don't over leverage that. We rather acknowledge that this is a separate business. It's a bit different to our high-volume oils and fats business. So call it more getting the right focus and the right industry learnings. And we made an acquisition to get a better platform, but it's not a sign of our -- of a new strategy, more recognizing that this is a separate focus area.

--------------------------------------------------------------------------------

Operator [38]

--------------------------------------------------------------------------------

And the next question comes from the line of Kenneth Toll from Carnegie.

--------------------------------------------------------------------------------

Kenneth Toll Johansson, Carnegie Investment Bank AB, Research Division - Financial Analyst [39]

--------------------------------------------------------------------------------

So on Chocolate & Confectionery Fats, the results were higher than I had expected. I had expected share not yield to have a larger impact. And you're right about margin expansion, some high-end products. So could you elaborate a little bit more on, yes, on how that division did? What products are doing well? What are the drivers of those high-margin products?

--------------------------------------------------------------------------------

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

--------------------------------------------------------------------------------

Yes, so combined, we can see that actually our operating profit per kilo is a bit lower. So this is again a mix of a portfolio of products where we have sold more volume of some of the low volume -- low value-added products and solutions so, therefore, the EBIT per kilo is a bit reduced. But at the same time, we have seen an opportunity to expand margins in the high-end segments. And it is as simple as that, that we -- the way we know the market, the high demand that is out there and the high demand for these specific products creates an opportunity to take care of that and then it's nothing more, nothing less than that.

--------------------------------------------------------------------------------

Kenneth Toll Johansson, Carnegie Investment Bank AB, Research Division - Financial Analyst [41]

--------------------------------------------------------------------------------

Okay. So it's not related to any specific region or any specific products that are all of a sudden have increased in demand?

--------------------------------------------------------------------------------

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

--------------------------------------------------------------------------------

Not really. This is maybe where -- one of more global business for us, we're large players globally, also source larger -- have larger tenders for business.

--------------------------------------------------------------------------------

Kenneth Toll Johansson, Carnegie Investment Bank AB, Research Division - Financial Analyst [43]

--------------------------------------------------------------------------------

Sounds good. Then on M&A, I noticed in the quarter, that in the tables to your quarterly report that you -- yes, you don't state that you have any -- much impact on sales volumes from those acquisitions. Now they can mean pretty late in the quarter, but what kind of volume contribution are you looking for in coming quarters? Could we take sort of the 40,000 tons and then divide it by 4 and have that as an indication of what kind of volumes those could add?

--------------------------------------------------------------------------------

Fredrik Nilsson, AAK AB (publ.) - CFO, Head of Corporate Communications, Mergers, Acquisitions & IT and VP [44]

--------------------------------------------------------------------------------

Sounds like a good starting point, Kenneth, to split the 40,000 ton in 4 pieces.

--------------------------------------------------------------------------------

Kenneth Toll Johansson, Carnegie Investment Bank AB, Research Division - Financial Analyst [45]

--------------------------------------------------------------------------------

Okay, great. And then over time, you will be able to increase, but what do you think could be a maximum capacity for this plant? Could it reach 100,000?

--------------------------------------------------------------------------------

Fredrik Nilsson, AAK AB (publ.) - CFO, Head of Corporate Communications, Mergers, Acquisitions & IT and VP [46]

--------------------------------------------------------------------------------

No. And if you look for the MaasRefinery, it's a rather much commodity volumes. It's toll-refinering (sic) [toll-refining] today. So what you will see is much more working with the mix and improve profitability than increasing the total volume.

--------------------------------------------------------------------------------

Kenneth Toll Johansson, Carnegie Investment Bank AB, Research Division - Financial Analyst [47]

--------------------------------------------------------------------------------

Okay, great. And then...

--------------------------------------------------------------------------------

Johan Westman, AAK AB (publ.) - President & CEO [48]

--------------------------------------------------------------------------------

Volume was acquired, but we will then use it for better-margin products.

--------------------------------------------------------------------------------

Kenneth Toll Johansson, Carnegie Investment Bank AB, Research Division - Financial Analyst [49]

--------------------------------------------------------------------------------

And that will take until you're really happy with the product mix, is it 1 year or 2 years or...

--------------------------------------------------------------------------------

Fredrik Nilsson, AAK AB (publ.) - CFO, Head of Corporate Communications, Mergers, Acquisitions & IT and VP [50]

--------------------------------------------------------------------------------

I would say, plus 2.

--------------------------------------------------------------------------------

Kenneth Toll Johansson, Carnegie Investment Bank AB, Research Division - Financial Analyst [51]

--------------------------------------------------------------------------------

Okay. Then on M&A, you didn't do M&A for some time and now you've done 2 smaller ones. Do you see the M&A climate being better? Or prices have come down, or sellers are more willing to sell, or should we see those 2 acquisitions as an indication that you might do more going forward?

--------------------------------------------------------------------------------

Johan Westman, AAK AB (publ.) - President & CEO [52]

--------------------------------------------------------------------------------

To that, I would say, yes. Because M&A is clearly a part of our strategy going forward. We do see it, but I would say, if you take a 5-year perspective on AAK, it has been a story of acquisitions as well as organic growth. And this is really what we see going forward. We see us having M&As as an opportunity for new platforms, for geographical expansions and bolt-on and also further improving in the high value-added space of oils and fats. So we clearly have sharpened our pencils in terms of M&A strategy. But as you know as well, M&A is a bit of timing when something is up for sale and when you can manage it all the way to the finish line and be the buyer in the end. So the time I'm not making M&A I wouldn't focus as much on that more than focusing going forward on the fact that M&A is an enabler for us combined with our organic growth and the market growth.

--------------------------------------------------------------------------------

Operator [53]

--------------------------------------------------------------------------------

And we have a follow-up question from Karri Rinta from Handelsbanken.

--------------------------------------------------------------------------------

Karri Rinta, Handelsbanken Capital Markets AB, Research Division - Research Analyst [54]

--------------------------------------------------------------------------------

A question on sustainability and palm oil in particular. Because I was encouraged to see a recent statement from WWF, where they stated that sort of -- for investors to divest everything that's related to palm oil plantations is not the right way to go. And that was for me, sort of a fresh voice of reason in this somewhat controversial debate. So how would you characterize the discussions that you have had in the last 12 months with politicians, customers and investors, when it comes to palm oil and specific issues, is there any stakeholder group that is sort of growing more concerned around this theme, or is the situation, how would you say, better than what it was 12 months ago when it comes to palm oil specifically?

--------------------------------------------------------------------------------

Johan Westman, AAK AB (publ.) - President & CEO [55]

--------------------------------------------------------------------------------

Thank you. I would probably start with -- or I will start with saying that you have summarized it fairly well. That it is quite a difficult debate where some of the -- part of the debate you might or you could argue that is based on not having all the facts. But at the same time, it is also driven by consumers and what the market believes in and so forth. So -- but if I switch to customers, which is easier to make a statement around, we do see the customers, some of them, especially if you look into the plant-based sector, when you come with the brand promise and so forth, some of them ask for non-palm solutions. But at the same time, if you look into the broader industry of oils and fats and vegetable oils and fats, it is an industry and a customer base that very much know the importance of palm oil and how to deal with that. So I would say that the dialogue with customers pretty much show exactly what you presented. It's a mixed picture. We all know the importance of it, and we will know how important it is to continue to do this responsibly. And -- but I wouldn't say that the climate has changed significantly to the better. But on the other hand, it hasn't changed to the worse either. So I do -- I personally believe it will take some time before we have a more balanced debate. But I do think it is important that we and others continue to really focus on sustainability and responsible sourcing and development.

--------------------------------------------------------------------------------

Operator [56]

--------------------------------------------------------------------------------

As there are no further questions, I will hand back to the speakers.

--------------------------------------------------------------------------------

Johan Westman, AAK AB (publ.) - President & CEO [57]

--------------------------------------------------------------------------------

All right. Thank you very much for listening in. Thank you very much for your questions. And if there are no further questions, then we will close it for today. Thank you very much.

--------------------------------------------------------------------------------

Operator [58]

--------------------------------------------------------------------------------

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

--------------------------------------------------------------------------------

Johan Westman, AAK AB (publ.) - President & CEO [59]

--------------------------------------------------------------------------------

Thank you.