Price hikes benefit sales for speciality-focused AAK

By Laura Crowley

- Last updated on GMT

Related tags Fat Revenue

AarhusKarlshamn's (AAK) strategy of focussing on speciality over
bulk has pushed up sales, though the fire in Denmark is predicted
to have a negative impact on 2008 Q1 results.

The Danish vegetable oils manufacturer has reported net sales increases of 21 per cent in its 2007 fourth quarter, up to SEK 3,709m (€399m) from SEK 3,057m (€329m) at the same time in the previous year. This represents a 19 per cent net sales increase for the full year. Operating profit increased 65 per cent, up from SEK 108m (€12m) in 2006, to SEK 178m (€19m) in 2007. This translated into a 44 per cent increase over the whole year. The chocolate and confectionery fats group contributed most to these increases, particularly in the fourth quarter where earnings increased by 47 per cent. The food ingredients sector had strong earnings growth in the same quarter however, with an increase of 14 per cent. "Earnings for 2007 are the AAK Group's highest since the merger of 2005, primarily on account of increased Cocoa Butter Equivalents (CBE) sales and implemented synergies,"​ said CEO Jerker Hartwall. ​In 2005, Aarhus United and Karlshamns merged to form one company. "The company has filed an insurance claim of SEK 47m for December, related to the impact of the Danish incident​. This amount has not yet been recognized as income,"​ Hartwell added. Raw materials impact ​Net sales in the chocolate and confectionery fats sector increased by 24 per cent in the fourth quarter, largely as a result of higher CBE volumes on the back on the rising cost of cocoa butter - the component CBE replaces. The cost of cocoa butter rose to over SEK 40,000 (€4,300) in 2007 and 2008. The sector's earnings experienced a significant increase as the company sold a higher quantity of specialty CBE products against a lower amount of less complex chocolate fat replacers. In the food ingredients sector, net sales rose by 20 per cent in the fourth quarter, an increase the company attributes to higher raw materials prices. The cost of palm, rapeseed and soya have all rocketed during 2007. According to AAK, this is a result of the accelerated consumption of vegetable oils, which has in turn placed further competitive pressure in the food industry. Bo Svensson, corporate communications, told that AAK's food ingredients sector has maintained a solid performance because of its strategy of concentrating on speciality ahead of bulk. Last July, it acquired Croda Food Services in a bid to expand its specialist product range in the bakery sector. Impact of tragic fire ​Last December, a fire caused by an explosion in AAK's factory in Denmark resulted in the death of one employee. The incident was in a part of the factory where vegetable oils are used as components in special fats for chocolate and confectionery products. The commissioning of a new factory has been delayed as a result of the fire, but the raw material inventories of shea were unaffected. However, it resulted in delays of CBE deliveries to customers, which the company said will impact on first quarterly sales for 2008. It hopes to start production again in the second half of 2008. Svensson said: "Some of our customers have gone to other suppliers while we restart up production, and others have accepted the delays. However, we have communicated well with our customers and we are not concerned that they will not return." ​AAK has filed an insurance claim of SEK 47m (€5m). The insurance compensation will be recognised as revenue when the insurance company has completed its approval process. The company said its specialisation strategy will develop further, and CBE will continue to stimulate growth after the start-up of the new factory and restoration of the old factory. It hopes acquisitions and organic growth will progressively improve margins in food ingredients.

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