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Falling vegetable oil prices to improve AAK cash flow

By Jess Halliday , 31-Oct-2008

Specialty fats firm AAK has said that the falling price of vegetable oils will help keep its financial situation in good health – especially useful when acquisitions and organic growth in food ingredients are on the horizon.

AAK has reported a positive Q3, with net sales up 40 per cent on last year’s quarter to SEK 4693m (€474.1m). Operating income was up 62 per cent to SEK 261m (€26.3m). This included SEK47m (€4.74m) in insurance compensation from a fire at the end of last year).

 

Group CEO Jerker Hartwall said the firm was able to compensate for rapidly increasing prices of energy and consumables that affected it in Q2.

 

In particular, the sky-high cost of vegetable oils started to fall towards the end of Q2, and picked up speed in Q3.

 

“The significantly lower raw material prices will lead to reduced working capital and improved cash flow over time,” he said.

 

Indeed, AAK’s food ingredients business is said to have shown stability in the face of volatility in raw materials, thanks to high volumes, more specialty products, and compensation filtering through from price increases that were introduced earlier help it deal with the situation.

 

Hartwell hinted that acquisitions could be in the pipeline in food ingredients and, together with organic growth, “will gradually raise margins in food ingredients”.

 

Specialisation strategy

 

AAK has said it is aiming for organic growth and is particularly targeting health promoting solutions in its product development.

 

Cocoa butter equivalents (CBE) are also a keen area for specialisation, and a new factory and re-start of an old factory in Aarhus, Denmark, will drive this forward. Indeed, AAK Hartwell said that CBE is expected to be a driving force in profit growth in the next few years. CBE is used to replace higher cost cocoa butter.

 

The company has also invested in strengthening its shea butter supply chain in West Africa recently, in a bid to secure supply of the core CBE raw material.

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