Hello, everybody. Ladies and gentlemen, please be very welcome to AAK's Press and Analyst Conference Call for the third quarter of 2017. It has been a very special quarter. It was with great grief, we received the sad notification that our CEO and President, Arne Frank, passed away in July. Arne will, of course, be deeply missed within AAK, both on a personal and professional level. In this unfortunate situation, I must say that the management team, together with its local teams, have very professionally continued to execute on the company's strategy and deliver an all-time high operating result. This is not without some material challenges. Regarding the recruitment of a new CEO and President, AAK's Board of Directors is expecting to announce the name during the fourth quarter. Let's move on to page two.
Today's agenda will be, I will start by reviewing our current performance. I will go into some more details regarding our business areas. That will be followed by an update of our company program, The AAK Way. By the end, we should have ample of time for questions. Let's move to page three. We are happy and proud and almost satisfied for a few nanoseconds with a new good quarter. For the 27th consecutive quarter, we achieved a record high operating profit, and the quarter was also an all-time high whatsoever, with SEK 475 million in EBIT compared to the previous record from the fourth quarter last year, when we reached SEK 435 million. We saw good organic volume growth in the quarter with +4%. We are taking market shares. Total volume was up 8%, including mergers and acquisitions.
Sales up 15% in the quarter. That was mainly due to higher raw material prices, a positive product mix, continued organic volume growth, and the effect from the acquisitions in 2016. This was partly offset by a negative currency translation impact of SEK 200 million in the quarter. Looking at EBIT, as I said, an all-time high of SEK 475 million, an improvement of 10%. In this good result, we have absorbed negative currency translation effects of SEK 14 million. That means that we have another quarter where we are a little bit ahead of our long-term management ambition. EBIT per kilo continued to grow nicely with 6% to a new record, SEK 0.87. We continue to see a good underlying improvement of the product mix, which is partly still offset by ramp-up cost related to the greenfield investments.
We also have the negative currency impact that has impacted negatively on EBIT per kilo. Part of the management ambition for the coming years was to deliver a good and consistent earnings-per-share improvement. I would say with an EPS improvement of 20%, we are definitely delivering according to plans and maybe a little bit better than our initial plans on earnings per share. Net debt is less impressive, as you can see, an increase with 23% year to date. As early communicated, that has been impacted by higher raw material prices during the first and the second quarters. We have during the third quarter started to see positive cash flow from working capital. We expect that will continue during the fourth quarter. Let's move to page four and look at the trends. Total volume continued to grow nicely. We're up 8%.
The important part here is that also the specialty and semi-specialty volumes was up 4% in the quarter. That's definitely faster growth than the underlying market. We then look at the rolling 12 months trend, we are now past 2.1 million ton in sold volumes. The good trend continues. As I said, an all-time high operating profit despite some challenges. Looking at EBIT per kilo or operating profit per kilo, it's the highest ever despite the ramp-up cost for the new factories. Looking at the quarterly EBIT growth year-over-year, we have a new quarter that was on 10% or more. Let's move on to page five, the working capital days. As you can see, a very stable trend. We are down one day since the year-end 2016. Starting to look a little bit more into the details.
Looking at the receivable days, they are flat. That despite an improved product mix. Inventory days are down. That's due to good inventory management during the last quarters. We have also been able to make some further improvements with our accounts payable. Let's move to page six and look at the raw material prices. There's been a decrease in raw material prices since mid-first quarter, which will have a positive impact on the cash flow with a time lag of six to nine months. However, we have started to see a modest increase in raw material prices since some months. I would just like to take the opportunity to remind you that a 10% change in all our raw material prices will have an impact on working capital of approximately SEK 300 million with a time lag of six to nine months.
I suggest that we move to page seven and look at the more detailed development of the raw material prices. Significant price increases during the second half of 2016 explains the negative cash flow for working capital in Q1 and Q2 this year. Having said that, we are starting to see a positive cash flow now during the third quarter. That's due to the lower raw material prices since the mid-first quarter. We should expect to see a continued good cash flow from working capital during the fourth quarter as well. Due to the modest increase in raw material prices, which is roughly speaking 10% since some months ago, we should expect that will have a negative impact during the first six months in 2018. Let's move to page eight and look at the more detailed cash flow analysis.
We have a good EBITDA in the quarter, which is SEK 66 million better than Q3 last year. Paid interest continued to be down versus last year despite a higher net debt. The lower financial costs are down due to that we are optimizing the finance in the few high interest rate countries. We have also temporarily benefited from the structure in the interest market. Paid tax, SEK 36 million lower than Q3 last year. As I communicated both after Q1 and Q2, there is a timing always when you're looking at paid tax. The important thing here is that the underlying tax rate is the same as we have communicated earlier. Looking into non-cash items, that's mainly related to changes in pension provisions and mark-to-market impact of our financials instruments, which we are using for our hedging of raw materials.
Change in working capital, we have an inflow of SEK 156 million in the quarter, which was very good, and that explained by the lower raw material prices, but also very strong inventory management in the quarter. This was partly offset by the strong organic volume growth, which implies more accounts receivables and also some more working capital tied up for the new factories in Brazil and China. Investments are very much in line with previous guidance, where we have communicated that we will end the full year between SEK 700 million-SEK 750 million in investments. Let's move to page nine and look at the return on capital employed. Calculated on a rolling 12 months basis, the return on capital employed reached 15.4%, which is a small improvement since last quarter.
With the lower working capital that we expect for Q4 and continued EBIT improvement, we should expect ROCE to continue to improve the coming quarters. If we continue on page 10 and looking at the business trends for the third quarter. The business trends we are showing here is based on how AAK look upon the trend in each region from our perspective. They're very similar compared to how we presented the trends after the second quarter. There is actually only two changes. The first change is related to Technical Products & Feed, where we have changed from a red arrow to a yellow arrow in the Nordics. The other is for Food Ingredients in the U.S., which is now back to a green arrow after one quarter with a yellow arrow.
I will go back now and go a little bit more into the details for each region. If we start with Nordics, which is an important part of AAK, there is a good trend in many parts of the business, but there are also some challenges, and that's mainly related to bakery and food service. I feel clearly that we are doing the right activities in food service, and we will start to see an improvement from the first quarter next year. As I said, after some challenging quarters, Technical Products & Feed was back to more historical levels on EBIT. If we look at our business in Western Europe, the CCF business is performing really well, but we continue to be challenged in the bakery segment.
In the U.K., we are holding our positions, we are growing in some segments, and we are struggling a little bit more in some other segments. Particular bakery is tough here as well. The U.S. continue to develop nicely, I will say particular Dairy, Special Nutrition, and Chocolate & Confectionery Fats are doing really well. We are also seeing a good development for California Oils, and they are developing according to plan and have now started to contribute to the profit. Still from a small level, but we see an improvement quarter by quarter. Central and Eastern Europe is improving in both Food Ingredients and Chocolate & Confectionery Fats. CIS continued a very strong trend from previous quarter with a very good development in Russia for the chocolate business. Asia, a very good trend from Turkey and West to China and East.
There is a good momentum both in Food Ingredients and Chocolate & Confectionery Fats. Finally, Latin America, which is mainly Mexico and Brazil in the AAK world, and also a few other countries. Food Ingredients continue to grow very nicely, CCF, despite the challenges with economical situation in Brazil, are doing a really good job. Let's move to page 11 and look into more details regarding Food Ingredients. The demand for specialty and semi-specialty products continues to be very good, and we saw a growth of 3% in the quarter. As you have seen during Q1 and Q2, the picture between the segments are very different. The bakery segment continued to be challenging, I would say particularly in the European market, but also rather tough in both North Latin America and U.S.
There are also some lights in the tunnel, and we see good growth in Asia, South Latin America, and Nordics. The Dairy segment continued to grow really nicely with a high double-digit growth. It's more or less all around the globe, we see this good growth. That's both with our traditional products, but we also see good growth with the plant-based products. Regarding Special Nutrition, I have to take my hat off and they had another fantastic quarter. We saw double-digit growth for our Akonino product range. We saw also double-digit volume growth for the product range INFAT , which is sold through Advanced Lipids, a joint venture between AAK and Symrise. Finally, food service reported declining volumes in the quarter. As I said, I start to see some light in the tunnel regarding the market condition in the Nordics.
If we now move to page 12 and look at the volume evolution, I think the important part here is to focus on the +3% for the specialty, semi-specialty. We have to go back quite a lot of years to find +3% organic growth in Food Ingredients for the specialty and semi-specialty. The 4% growth in commodity should be more seen in the light of -9% in Q3 last year. Let's move to page 13 and looking at the trends, then you can see that we had an all-time high operating profit for Food Ingredients. This is the best quarter ever from an operating profit point of view. If you look at EBIT per kilo, we have seen a more stable evolution over the last 18 months.
The product mix continued to improve in Food Ingredients. We have also had some extra costs related to the ramp-up of both Brazil and China that have impacted EBIT per kilo negatively, and also the acquisition of Cal Oil, where we got in 110,000 tons without any profit. If you look at the growth in the quarter, it was up 6%, but at fixed FX, it was actually up 9%. Let's move to page 14 and Chocolate & Confectionery Fats. Continued good volume growth, +9%, so we are gaining market share again in this business area. We saw strong growth both for the high-end specialty products and the semi-specialty products. It was good growth, both in a more mature market, but also in more emerging markets. Operating profit increased by 4%.
I will say, we have faced some challenges during this quarter for Chocolate & Confectionery Fats. We have seen continued strong demand, but we have faced some production disruptions in Aarhus, which have resulted in increased production and supply chain costs. This will gradually improve towards the end of the fourth quarter. I feel really comfortable here that when we leave the fourth quarter, we are back on track here, but there will be some extra costs as well in the fourth quarter. Looking at page 15 and the trends for Chocolate & Confectionery Fats, you can see another good quarter despite the challenges. Looking at operating profit per kilo, we have the ramp-up cost and then also some extra cost for production and supply chain in the quarter, which have impacted EBIT per kilo negatively.
Let's look at page 16 and the cocoa butter price. As you can see, the cocoa butter price has decreased, but it's still in the sweet spot between $5,000 and $6,500. I don't think there's so much more to say that the cocoa butter price remain in the sweet spot. Let's move to page 17 and Technical Products & Feed. We have had some challenging quarter, that's for sure. Both Q1 and Q2 was rather challenging, particular for our fatty acid business. I will say now with the third quarter, we are back to almost historical levels again, and that's partly due to that our fatty acid business has now started to see normal raw material prices. It's also related to that our feed business continue to improve nicely. Let's move to page 18.
Our new company program is developing according to plan, I would also like to highlight we have a few areas which is a little bit ahead of plan, and that's Special Nutrition and Dairy Plus. We will, at the Capital Markets Day, make a deep dive in some of our projects in The AAK Way. If we now look at page 19, I would just like to share some nice photos from the official inauguration in our new factory in Zhangjiagang. We had that in the beginning of September, and we had more than 200 customers and distributors participating. Also the board of directors participated as well. I must say, it looks really promising from the new factory.
On page 20, I would just like to inform that we still have some tickets available for our Capital Markets Day in Stockholm, November 28th. You can go to our webpage and sign up for the Capital Markets Day. If we look on page 21 and have some concluding remarks, I think you will not be too surprised because looking at the future, we continue to remain prudently optimistic. I think that was all from my side today, and I'm ready for questions.
Thank you. Ladies and gentlemen, if you do wish to ask a question, please press zero one on your telephone keypad now. If you want to withdraw the question again, you can do so by pressing zero two to cancel. Once again, that's zero one on your telephone keypad to register for a question. We'll now have a brief pause while questions are being registered. We have our first question from the line of Casper Blom from ABG Sundal Collier. Please go ahead. Your line is now open.
Thanks a lot. Two questions from my side, please. First, Fredrik, regarding Chocolate & Confectionery Fats, can you just confirm that the disruption you've seen here in the quarter is a temporary one, and that when we look into 2018, Q3 and Q4, we would see a normalization and a bit of a rebound in the profitability in CCF? My second question is regarding Food Ingredients. I don't know if it's possible, but can you give some sort of guidance to what EBIT per kilo would have been, had it not been for your structural initiatives, i.e., the greenfields and the acquisitions that you did last year? I can say an organic EBIT per kilo, so to say. Thank you.
Thank you, Casper. Yes, the situation we have with the production disruption in Aarhus is of a temporary nature, and it will be solved by the fourth quarter. When we're going into 2018, that will be solved. That I can confirm. Coming back also, maybe a fair comment to CCF, I will say without those costs, I will say that the CCF has been able to show a double-digit year-over-year improvement in the quarter. Looking at Food Ingredients, I will say the same. You have 9% if you add back the FX. The cost is more or less in the same magnitude as I commented upon in Q1 and Q2 related to Brazil and China. You have also seen a double-digit improvement year-over-year for Food Ingredients if you have normalized it.
I suppose there must be a dilutive effect from the factories that are not running with full utilization. Do you have any guidance to the profitability levels for your, how can you say, legacy business?
But what we can look upon it is if you look at the ramp-up cost we have had in the quarter, it's in the range of SEK 10 million-SEK 15 million in the quarter for the group.
Okay. Thank you.
The next question comes from the line of Carl Mellerby from Nordea. Please go ahead. Your line is now open.
Hi, thank you for taking my questions. I was wondering if you could specify what kind of contribution on earnings you had from Cal Oil in Q3 this year, and also in regards to financial net, up sequentially but down significantly year-over-year. Should we regard this as a new normalized level? Thank you.
Regarding Cal Oil, it's a small positive contribution, so we are still far below any AAK average. That is a small EBIT contribution in the quarter, and you will see a gradual improvement here over some time. I think that's what I can say about Cal Oil. Regarding the financial net, I think this is more close to what you should expect going forward, what you saw in the third quarter.
Okay. Thank you.
The next question comes from the line of Oskar Lindström from Danske Bank. Please go ahead. Your line is now open.
Yes. I have one question remaining, and that's in the food service business, you said that, if I understood you correctly, you forecast an improvement starting in Q1. What sort of gives you confidence in this?
What gives me confidence is when I start to look what we have in our contract portfolio for 2018.
Is that a material or significant improvement, and was it only referring to Western Europe or globally?
It's only referring to the Nordics.
Only the Nordics, sorry.
Yeah, this is a rather small part of the total AAK, but I clearly see an improvement in the Nordics, which has been the challenge in 2017.
All right. Thank you very much.
Thank you.
The next question comes from Heidi Vesterinen from Exane BNP Paribas. Please go ahead. Your line is now open.
Hi. I have a few. On food service, is the business primarily in the Nordics? Do you have exposure elsewhere? It sounds like other markets like U.S. and Asia, the underlying demand has been quite good. How are you doing there, or do you have plans to expand in those areas? Back to the production disruption. Are you able to quantify what the impact was in Q3 and the expectation for Q4? I will start with those two. Thank you.
Looking at food service, we have a quite significant business in the U.K., and we have also quite significant business in the U.S. They are doing really well. The issue we have seen in food service during 2017 has been insulated to the Nordics. Regarding the impact in Chocolate & Confectionery Fats, I commented. Without the disturbance, we have seen a double-digit EBIT improvement year-over-year, and now we have 4% in the quarter. I think you should expect some similar cost in the next quarter.
Thank you.
The next question comes from the line of James Targett from Berenberg. Please go ahead, your line is now open.
Hi. Good morning, Fredrik. Good afternoon, sorry. Just on looking at some organic growth in specialty and semi-specialty and Food Ingredients, as you said, one of the best performances for a while. How confident are you in that level of growth continuing? You talk, obviously, strong growth in Special Nutrition, and you've got, hopefully, an improvement in food service, and the new capacity continues to ramp up in emerging markets. Do you think that is sustainable at 3%, or could we see some upside from here? Thanks.
I hope we should be able to continue to grow from this level because we see a strong momentum in our Special Nutrition business, and that's of course small from a volume point of view. Dairy, we also expect to continue really nicely. Then, of course, the challenge has been the bakery, which is a big chunk from a volume point of view. When they are not performing that well, the rest need to grow faster to be able to get to the 3%. I am a little bit optimistic that we should be able to at least keep this level and maybe with a small upside.
Thanks.
I remind you that if you would like to register for a question, please press zero one on your telephone keypad now, and zero two to cancel. We'll have a further pause to see if there are any further questions. We have a follow-up question from the line of Heidi Vesterinen from Exane BNP Paribas. Please go ahead. Your line is now open.
Hi again. Is there an update on Tropicow at all? I think we were meant to hear about this one at the end of the year. Second question, we've seen the deal with Bunge and your competitor IOI. Does that change anything in terms of the competitive environment? They've been talking about benefits of back integration. What is your view on that? Thank you.
We start with the Tropicow, we will come back to that at the Capital Markets Day. We are still optimistic that we will close the first contract here during 2017. Regarding Bunge and Loders, I think I should not comment upon competitors, we feel comfortable with our multi-raw material strategy, where we work with different kind of raw materials. We will secure our need of raw materials even if we are not backward integrated.
Thank you.
Once again, if there are any further questions, please press zero one on your telephone keypad now. As there appears to be no further questions, I will hand back to Fredrik for closing comments.
I would like to thank everybody for attending this call. Thank you very much, and I'm looking forward to see you soon.