AAK's speciality strategy shows recession resilience

By Jess Halliday

- Last updated on GMT

Cost savings and a strategy that fits with chocolate eating habits in the recession have meant for an acceptable full year for AAK, topped off with an especially good Q4.

The specialty fats supplier reported SEK827m operating profit for the year, down from SEK851 in 2008. It says this is a strong result given the recession, which affected all parts of its business.

However Q4 has shown considerable rebound, as record operating profits of SEK289m were generated (compared to SEK212m for the last three months of last year).

Although costs were high in Q4 too, mainly due to start up costs of a new plant in Denmark, overall the company saw the effects of its cost-cutting programme kicking in. Some SEK100m in cost savings are expected to be realised by the end of 2010, and another SEK 200m by the end of 2011.

Moreover, in Q4 AAK’s food ingredients division surpassed chocolate and confectioner fats for the first time, with operating profit of SEK536m – a 23 per cent rise. Chocolate and confectionery fat operating profits took hit, decreasing from SEK521m to SEK429m. This was still a better story than in Q3, however, and in the first half of the year the company was affected by customer de-stocking.

Recession habits

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.

In order to protect itself from the slowing market in Eastern Europe, AAK has introduced a new restricted credit policy.

In general, however, AAK’s group strategy is not entirely at odds with consumer habits in a recession. Last year it observed certain changes in behaviour:

“In the market there is a clear trend towards substituting more expensive products with less expensive vegetable oil solutions. Further, private labels are gaining market shares.”

This picture is said to bring more growth opportunities for value-added solutions.

Where next?

Arne Frank is set to replace Jerker Hartwell as the company’s CEO as of 4 April 2010. Frank will take up the helm during a period of continuing uncertainty, especially given excess supply capacity in the industry and lower demand.

Nonetheless, demand of specialty products is expected to increase. However Hartwell has drawn attention to the benefits of a strengthened balance sheet, which he says “provides the foundation for continued development and acceleration of the specialisation strategy”.

In November 2009 AAK signalled that the growth and savings made since the merger of Aarhus and Karlshamn in August 2005 have set it up to start casting about for new acquisitions.

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