Specialist fat supplier reports strong growth in cocoa butter alternatives, sustaining an increase in operating profits in spite of growing market uncertainty.
The Swedish company which specialises in vegetable fats, reports “growth opportunities in all business areas”, on top of increased second quarter, and six-month operating profits.
AAK says that volumes for speciality products are expected to continue to increase in food ingredients as well as chocolate and confectionery fats, stating there is strong volume growth for cocoa butter alternatives.
“The global recession has provided a strong incentive for our customers to reduce costs and to further drive the substitution of expensive cocoa butter”, said Arne Frank, President and CEO of AAK.
However, the growth in cocoa alternatives has been offset by a reduction in confectionery consumption in recession-hit areas.
During the recession, chocolate consumption in Western Europe and the US reduced by between 5 and 10 per cent. In Asia it seems to be stable, according to AAK, but in Eastern Europe the drop is over 10 per cent.
AAK stated: “Short term volume growth will not compensate for the consequent reduction in margins. A slow recovery in the chocolate consumption in Eastern Europe compared to the rest of the world continues to suppress growth.”
AAK added that a “general uncertainty” remains about the impact of surplus production capacity in the confectionary industry.
AAK reports good development and positive results for Q2 of 2010, with all business areas “developing positively” compared to Q2 of 2009. It posted a second quarter operating profit of SEK 164m, up 12 per cent from last years SEK 146m.
Higher volumes, and more stable margins helped confectionery and fat products to see marginally increased operating profits over last years results, whilst food ingredients “successfully continued the specialisation strategy with good volume growth in speciality products”, seeing a 19 per cent increase in operating profits. Technical products and feeds increased by 16 per cent.
“Food Ingredients continued to develop very well and we saw an acceptable result for Chocolate & Confectionery Fats”, said Frank.
Six month operating profits from January to June 2010 were SEK 342m, a 13 per cent increase from the SEK 303m reported during the same period in 2009.
"Our health profile, speciality products… and our strong product development are relevant examples of the future potential for AAK,” said Arne Frank.
On top of business growth, AAK are in line to report annualised cost savings of SEK 100m later this year, with an additional SEK 200m in savings due in 2011 - as part of long term rationalisation programmes.
“AAK is currently also executing a substantial cost reduction programme which will improve our competitive position. Further I see significant opportunities to strengthen the focus on sales and marketing. This, as well as a selective acquisition strategy based on a strong balance sheet, will move AAK forward and ensure a continued long-term improvement in profitability," added Frank.