AAK plans more ‘rationalisation’ to focus on specialty products

05-May-2011 - Last updated on 06-May-2011 at 10:02 GMT

AAK is taking its rationalisation to a new stage in Q2 2011 as it repositions away from commodities towards higher value-lower volume specialty food ingredients.

The rationalisation will cost around SEK 40m to be billed under the Q2 results but will bring annual savings of SEK30m from Q2 2012. It was announced in this week’s Q1 results report.

The company has not released details of what exactly this process will entail; but it comes on top of ongoing productivity improvements in the Scandinavian units. As of 31 March AAK had an employee head-count of 2052 – a reduction of 49 employees since the end of 2010 and down 87 on Q1 2010.

Food ingredients make up the largest business division at the Swedish firm and currently contains a mix of products for bakery, dairy fat alternatives, ice cream, infant nutrition, oils and fats ingredients, and preparations such as frying oils for food service. Its other two divisions are chocolate and confectionery fats and technical products and feed.

Results

The Swedish company reported an increase in sales in Q1 to SEK3843m, from SEK3510m – but this was down to increased prices to off-set higher raw material costs.

Food Ingredients saw a 7% increase in operating profit to SEK104m, as the existing acceleration programme to bring growth through a more profitable product mix started to have an impact.

“An increased proportion of high-value products with a more profitable product mix led to an operating profit at fixed exchange rates of SEK 112 million, an improvement of 15 percent,” said CEO and president Arne Frank in his commentary.

The positive development applied to all speciality product areas, especially those for infant nutrition and the dairy industry.

In volume terms sales were down 4%, but that was due to lower commodity volumes, CEO and president Arne Franck explained. The food ingredients division took a 9% hit in volumes to 193000 MT.

Chocolate and confectionery fat volumes were also up 3% to 78000MT, and operating profit per kilo was up 2% to SEK1.03. In this division AAK said there was “continued strong demand in the Americas (North and South) and moderate demand Europe”.

“Customers in Russia continue to be mainly focused on standard and economy brands in chocolate confectionery while demand for premium products is still relatively low.”

The low premium potential in Russia was explained by limited growth in disposable income and unstable employment levels.