Welcome to the AAK Q3 2026 report presentation. For the first part of the presentation, participants will be in listen-only mode. During the questions and answers session, participants are able to ask questions by dialing pound key five on their telephone keypad. Today's event will last for 45 minutes. Now, I will hand the conference over to CEO Johan Westman. Please go ahead.
Good morning, everyone. Thank you for joining us, and thank you for your interest in AAK. With me today to review our third quarter results is our CFO, Tomas Bergendahl, and Niall Sands, President, Commercial Development. With that, please turn into page two or slide two. Today, we will cover quarterly highlights, selected events, and a business and financial update, followed by some concluding remarks from myself. The presentation is scheduled for 45 minutes in total, including a Q&A session at the end. Next page, please. This presentation includes forward-looking statements that come with risks and uncertainties. These are our views on future events and financial performance, but actual results may differ. With that, let's go to slide number four and start some quarterly highlights for Q3 2026. Market conditions and consumer sentiment remained subdued during the third quarter of 2026.
Against this backdrop, volumes proved resilient, remaining in line with last year. Lower volumes in Food Ingredients, particularly in food service and bakery, were offset by growth in Chocolate & Confectionery Fats and Technical Products & Feed. Looking at the regional development, we saw growth in Asia, the Middle East, and Africa, which compensated for lower volumes in the Americas and Europe. While volumes remained flat, profitability was below last year. Operating profit per kilo declined by 8% to SEK 2.27. This reflects lower operating profit per kilo across all three business areas, including a less favorable regional volume mix. As a result, operating profit decreased by 8% compared to the same period last year, driven by lower profitability across the business areas. Moving to cash flow and our financial position. The quarter generated a strong operating cash flow of SEK 1.496 billion, and our balance sheet remains strong.
Net debt in relation to EBITDA ended in the quarter at 0.56, providing significant financial flexibility going forward. Return on capital employed was 19.1%. Finally, regarding our long-term ambition, our financial target and our 2030 ambition or aspiration remain unchanged. We continue to target average annual operating profit growth of around 10% over time while outperforming the underlying market in volumes. At the same time, we remain committed to achieving an operating profit per kilo north of SEK 3 per kilo by 2030. With that, let us move into the next page, slide five. Some key developments during the quarter. First, we have taken another important step in strengthening our health platform. AAK has started construction of a new lipid excipients manufacturing facility in India aimed at serving the pharmaceutical industry. The investment strengthens our capabilities in one of the world's most important pharmaceutical markets.
The facility we will establish in India as a pharmaceutical hub within our health platform, complementing our existing strengths in personal care, medical, and lifestyle nutrition. As one of the world's largest producers of generic medicines, India plays a central role in global healthcare supply chains. By establishing local production, we will move closer to customers in a market where quality standards and regulatory requirements are particularly important. The facility will be located at our existing site in Khopoli, outside Mumbai, and is planned to become operational in late 2027. Turning to innovation and technology. During the quarter, we also reached an important milestone for one of our proprietary technologies. Our patented dry-fractionation technology is now set for its first commercial deployment at the NURA specialty oils and fats plant currently being built in Malaysia.
The technology will be used to produce specialty palm mid-fractions, a key ingredient in high-quality cocoa butter equivalents for chocolate and confectionery applications. Complementing our existing fractionation capabilities, this technology enables a solvent-free production process and has the potential to reduce initial CapEx, lowering operating costs, and reduce CO2 emissions while maintaining the high-quality standards required for specialty fats. As a reminder, NURA is the joint venture announced in our third quarter report together with the Kuala Lumpur Kepong Berhad. The facility, which will be located in Pasir Gudang, Malaysia, will strengthen our upstream access to sustainable, high-purity feedstock for cocoa butter alternatives, broaden our supply base, and further reinforce supply chain resilience. Finally, on sustainability, AAK was recognized as one of the top scorers on the RSPO Shared Responsibility Scorecard.
The scorecard measures how members contribute to responsible practices and support the production and consumption of certified sustainable palm oil. The recognition reflects our efforts across sourcing, supply chain initiatives or activities, customer engagement, and operational improvements. It is also particularly meaningful given that AAK was a founding member of the Roundtable on Sustainable Palm Oil, which continues to play an important role in driving more sustainable practices across the industry. These achievements reflect our continued focus on strengthening our business through targeted investments, innovation, and sustainability leadership. With that, I will hand it over to Niall for a review of the performance per business area. Please go ahead, Niall.
Thank you, Johan. Please turn to the next slide. Starting with Food Ingredients, volumes declined by 1% compared with the corresponding quarter last year. The decline was primarily driven by lower volumes in food service and bakery. Looking at the regional development, volumes were lower across all three regions, with Europe accounting for the largest share of the decline, followed by the Americas. Volumes in Asia, the Middle East, and Africa also decreased, albeit to a lesser extent. Looking into bakery, volumes declined compared with the corresponding quarter last year. The growth we experienced in Asia, Middle East, and Africa, mainly driven by Turkey, was offset by lower volumes in the Americas and Europe, reflecting continued competitive pressure and softer demand. In dairy, volumes grew slightly following the weak volume performance in the second quarter of this year.
Growth was driven by Asia, the Middle East, and Africa, and in particular China. However, it was partly offset by lower volumes in Europe and the Americas, where the surplus of animal-based milk fat continued to have a negative impact on the business. Special nutrition volumes declined compared with the corresponding quarter last year. The decline was driven by weaker performance in the Americas and, in particular, the U.S., which more than offset the growth we experienced in Europe. Food service volumes also declined compared with last year, primarily driven by weak performance in the U.K. Turning to profitability, operating profit per kilo decreased by 9% to SEK 2.18, including a slight positive currency effect.
At fixed foreign exchange rates, operating profit per kilo decreased by 10%, mainly driven by lower profitability in bakery and dairy, reflecting a more competitive pricing environment as well as continued soft performance in food service. As a result, operating profit decreased by 10% to SEK 687 million. Currency effects had a slight positive impact during the quarter. At fixed foreign exchange rates, operating profit decreased by 11% compared with the corresponding period last year. Let's turn to Chocolate & Confectionery Fats. Next slide, please. Volumes increased by 1% compared with the corresponding quarter last year. Looking at the regional development, performance was mixed during the quarter. We saw growth in Asia, the Middle East, and Africa, supported by expansion into new markets, while volumes declined slightly in both the Americas and Europe.
From a product mix perspective, volumes were relatively stable with a modest positive contribution from cocoa butter alternatives. Turning to profitability, operating profit per kilo decreased by 6% to SEK 4.04. Currency translation had a positive impact of SEK 0.10 per kilo during the quarter. At fixed foreign exchange rates, operating profit per kilo decreased by 8%. While profitability remained at a high, absolute level, it was below the very strong comparative last quarter. As previously favorable market conditions continued to normalize, the pricing environment became more competitive, which impacted profitability compared with the prior year period. Operating profit amounted to SEK 500 million, a decrease of 5% compared with the same quarter last year. Currency translation had a positive impact of SEK 13 million. At fixed foreign exchange rates, operating profit decreased by 5% compared with the corresponding quarter last year.
Overall, the business delivered good volume growth and maintained a strong level of profitability, despite a more normalized and competitive market environment. Next slide, please. Turning to Technical Products & Feed. Volumes increased by 1% compared with the corresponding quarter last year. Looking at the underlying performance, the development was mixed across the portfolio. Technical products delivered volume growth during the quarter, while feed volumes declined slightly compared with last year.
Turning to profitability, operating profit per kilo decreased by 32% to SEK 0.45, compared with SEK 0.67 in the corresponding quarter last year. The decline was driven by weak performance in the candle business during the quarter. As a result, operating profit totaled SEK 32 million, compared with SEK 46 million in the corresponding period last year, representing a decline of 31%. Overall, the business delivered modest volume growth, but profitability was negatively impacted by the continued weak performance in candles. Back to you, Johan.
Thank you, Niall. Looking across the three business areas, we delivered resilient volumes during the quarter, with growth in Chocolate & Confectionery Fats and Technical Products & Feed, offsetting lower volumes in Food Ingredients. While profitability was below last year's level, all three business areas generated solid results in a more competitive market environment. With that, I hand it over to Tomas for a review of our financials. Tomas.
Thank you, Johan. Good morning, everyone. Please turn to slide nine. Building on Niall's review earlier on the call, let me bring the performance in the quarter together at group level. Operating profit amounted to SEK 1,154,000,000 , down 8%, or SEK 106 million from SEK 1,260,000,000 last year. Volumes were unchanged, while operating profit per kilo decreased by 8% to SEK 2.27 . Profitability remained at a high level from an historical perspective, but operating profit per kilo was lower across all three business areas in the quarter. Food Ingredients was the main driver, accounting for SEK 79 million , or around 75% of the decline, primarily due to negative price development in bakery, dairy, and food service. Chocolate & Confectionery Fats accounted for SEK 25 million of the decrease.
Profitability remained above SEK 4 per kilo, but declined from a strong prior year quarter, reflecting normalized market conditions and continued subdued chocolate consumption, which is driving price competition. Technical Products & Feed accounted for a further SEK 14 million , while group functions partly offset the decline with a positive contribution of SEK 12 million supported by Fit-to-Win. In summary, volumes remained resilient, but lower operating profit per kilo, particularly in Food Ingredients, resulted in an 8% decline in group operating profit year-over-year. Please turn to the next slide. Operating cash flow amounted to SEK + 1.5 billion in the quarter and close to SEK 4 billion year -to- date. This is the sixth consecutive quarter of positive operating cash flow. Working capital decreased in the third quarter, driven by inventory and accounts payable, while accounts receivable increased.
The recent operating cash flow development demonstrates the strong cash generative nature of the business when working capital headwinds, for example, the raw material pricing increases that we have seen over the last few years, are absent. The decrease of inventory in the quarter of SEK 268 million was driven by lower inventory levels of both palm and seasonal inventory, primarily shea, partly offset by continued price increases on raw materials. CapEx amounted to SEK 402 million in the quarter, comprised mainly of investments related to maintenance, productivity improvements, and capacity increases, as well as debottlenecking. Year- to- date CapEx amounts to just shy of SEK 1.1 billion. The CapEx spend for the full year of 2026 is expected to be slightly higher compared to 2025, around or just below SEK 1.5 billion, in line with indications given in connection with the last two quarterly reports.
The increase of CapEx spend in 2026 is mainly related to the new food service plant in Sweden, which will be ramping up and up and running in the first half of 2027. Free cash flow amounted to a positive SEK 1.1 billion in the quarter and close to SEK 2.9 billion year- to- date. Next slide, please. Return on capital employed remains strong, as Johan mentioned, at 19.1%, slightly below last quarter. Year-over-year, the return on capital employed is down from 20%, partly driven by a slight reduction in EBIT and partly by an increase in working capital, driven by an increase in raw material prices as well as an increase in fixed assets. Next slide, please. The net debt to EBITDA ratio for the quarter was 0.56, slightly down from the second quarter at 0.68, and down from 0.60 at the beginning of the year.
This is a very strong result given the ordinary and extraordinary dividend paid in Q2, as well as the initiation of the share buyback program in Q2, continuing into Q3. With that, I will hand it back to Johan.
Thank you, Tomas. Please turn to the next slide for a few concluding remarks before we open up the line for questions. Overall, we delivered resilient volumes and strong cash flow in what remains a challenging market environment. Subdued market conditions and cautious consumer sentiment continued during the quarter, but group volumes remained in line with last year. We generated a strong operating cash flow and continued to maintain a strong financial position with a net debt to EBITDA ratio of 0.56, and a return on capital employed of 19.1%. At the same time, profitability was below last year's level. Operating profit decreased by 8%, reflecting lower operating profit per kilo across all three business areas, and a less favorable regional mix. While market conditions remain uncertain, there have been no fundamental changes to our long-term view of the business. Our financial target and our 2030 aspiration remains unchanged.
Our target is to deliver average annual operating profit growth of around 10% over time. The way we will get there is by outperforming the market in volumes and achieving an operating profit per kilo by SEK 3+ by 2030. Looking ahead, our focus remains firmly on disciplined execution of our strategic initiatives, gradually improving profitability, and delivering volume growth above the underlying market. With that, I will hand it back to the operator and open up for questions. Operator, please.
If you wish to ask a question, please dial pound-key five on your telephone keypad to enter the queue. Please limit yourself to two questions and then get back in line. The next question comes from Johan Fred from SEB. Please go ahead.
Yes, good morning. Thank you for taking my questions. Starting off with a question on CCF. Could you help us understand the drivers of the EBIT per kilo decline here in Q3 more in detail? Just based on what you said in Q2, you said that CCF was doing up well besides similar market conditions with subdued chocolate consumptions and the lower cocoa butter price. But here now in Q3, volumes are up 1%, but EBIT per kilo is down 10% or so in fixed FX. Is this an effect of pricing pressure coming through contract renewal Q3, or is there anything else that hit the CCF margin in Q3 specifically?
Thank you, Fred. Let us give some color to that. I think first in an overall perspective, also a SEK 4.04 is quite a high number in a historical perspective in Chocolate & Confectionery Fats. I think we should keep that in mind. But as we have also said, in a now two years almost decline of volumes, yes, it puts pressure in terms of the competitive landscape. I think given that backdrop, reduced volumes, everyone wants to load their factories. Yes, there is indeed a bit of price pressure, but still delivering a SEK 4.04 per kilos is a quite strong result. With that, Niall, maybe a bit more to it.
Yeah, I think overall, when I look at the Chocolate & Confectionery Fats market, consumers are buying less unit volume. Compounding that is the fact that those units actually weigh less as a consequence of shrinkflation. Whenever we look at the Nielsen data across all time horizons, we do see that that is translated into negative volume development across all markets. I suppose against that backdrop, growing CCF volumes modestly year-on-year is somewhat encouraging. But as you allude to, the pricing competitiveness is a little more robust in the quarter. Cocoa butter is structurally higher versus historical prices, but market fundamentals suggest this will continue, and hence we do see continued opportunities for cocoa butter alternatives as customers reduce their dependency on cocoa butter.
Okay. Got it. Thanks. My second question, I guess what we're seeing across the board here in Q3 is pricing pressure across markets and segments. As you alluded to, Johan, over time, yes, you may be able to gradually improve profitability and drive volume growth. But in the shorter term, if we assume that the pricing dynamics persist across Food Ingredients and CCF, what levers do you have at your disposal to sort of shift the trends and, yeah, as you've reported, volumes were stable, but margins are down significantly. What can you do to offset that in the short term?
Thank you. Obviously little in terms of changing markets in a heartbeat, right? But we remain focused on initiatives that are already in place. We have quite a few optimization programs in place already that we expect to deliver, and we also have more to give on commercial excellence. But Tomas, maybe you want to give some color to that.
Yeah, we see, of course, a quarter that we're not satisfied with. But our long-term aspiration and financial targets continue to be in place. As Johan said, we have still the different programs that we've talked about before up and running. One example is, of course, our Fit-to-Win program that we, in Q3, has now increased the annual run rate of cost reduction from SEK 200 million to SEK 250 million . As we've also mentioned before, our annual financial target of 10% year-over-year increase is an average over time. So, we are not happy with the quarter, but we have the programs and actions in place to continue towards our aspiration of SEK 3+ per kilo .
And very short-term, obviously, we are tightening the bolts on the things that are in motion, like cost reductions, like procurement savings, as well as absolutely leveraging our strength with our customers. We see examples over and over again where customers also come back to us when having tried a competitor in this environment, and maybe then receiving a bit bad quality and returning back to AAK. And we clearly see that now a bit more competitive. You have to be there, but we also see signs of why AAK has been very successful. We do deliver a very high level of expertise in fats and oils chemistry, in chocolate and confection applications, and we see evidence of that also in this market environment. So focusing on delivering in the front end, but also tightening our cost base and efficiencies.
Even if we, as I mentioned, see a disappointing quarter, we should also remember that we have a 6% EBIT sequential growth quarter-to-quarter this year, which is important to notice as well.
All right. Back to you. Next question.
The next question comes from Setu Sharda from Barclays. Please go ahead.
Yeah. Hi, thanks for taking my question. I have a question on the CCF normalization. You described the normalization of previously favorable market conditions and a more competitive pricing environment. How far through that normalization are we? Should we expect further sequential pressure on your CCF EBIT per kilo going into Q4 and 2027? Or is SEK 4 per kilo broadly representative of the new environment?
Thank you for the question. Obviously, we don't give forward-looking statements like that and it is difficult to forecast exactly. I think what is important in normalization, what we mean by that is that we are now in a more stable environment, both from a cocoa prices development, but also a continued subdued end market with volumes being down over time, hopefully turning back growth to volume growth. But in that environment, we're highlighting the reality here, which is a bit of increased competition. It is in the light of that we call it a normalized situation. But Niall, why don't you add a few comments to that?
Yeah, I think that it's important to capture that the normalization is versus last year. Again, if you look at, especially in CCF, and especially where we come into play with our cocoa butter alternatives. The normalization of cocoa butter when we say that in particular relative to our CCF business is the fact that year on year, cocoa butter is down around 30%, but it's still up more than 50% versus historical lows.
So to that end, cocoa butter has reset at a structure higher level, and it is stabilizing at that level. Again, as I said in the previous question, market fundamentals suggest that this will continue, especially as we look into the face of an El Niño that's expected to impact yields in the upcoming season. Therefore, we do remain buoyant that there will be further opportunities for cocoa butter alternatives for the foreseeable future in that environment.
Looking up a bit at the horizon, we still stand, as we said, very firmly on our aspiration of 3+ SEK per kilo. The CCF development of improved profit over time is a big component of that, of course. We are confident on our ability to deliver on that in the long term.
All right.
The next question comes from Benjamin Wahlstedt from ABGSC. Please go ahead.
Good morning. Sort of following on previous speakers' questions as well. Is it possible for you to share sort of what share of favorable CCF contracts have lapsed, if you see what I'm getting at?
I am not sure. We call it more favorable and normalizing market conditions. We are not speaking about specific contracts or margin levels in contract, it is more the general comment on the market environment. Maybe if you take the question, what is the perspective?
No, I am thinking you talk about normalization of markets. I would have assumed that sort of your contracts have fixed pricing terms, so to speak. There is a natural lag in how a normalized market or a lower spread between cocoa butter and shea, for example, would drop through to your CCF EBIT per kilo. Is that not a correct assumption?
Yeah, good. Thank you. That is a good clarification. Thank you. Yes, indeed, it could be between everything from spot buy, which always happens, right? Typically in CCF, repeating that, and you are correct, we do contract for CBEs specifically, but also for filling fats and a few other applications. We do enter yearly contracts with some, but typically the customers never cover for more than 60%, 70%, 80%, and then they buy the residual over time. There is a mix of, call it a monthly contract with contracts with a 9- 12 months contract period. And yes, during that time it is fixed and we typically hedge the raw materials against that backdrop and so forth. There is a bit of stability in that. But as I mentioned, you always have a competitive landscape throughout the year and then peaking a bit at the season of annual contracts.
You should see this comment on normalization as a bit of a nuance versus years of dramatic uptick in cocoa butters and everyone chasing risk mitigation in that on the customer side. Now a bit more stabilized environment with still a very good cost competitive and functional play with the cocoa butter equivalents versus cocoa butter. Still that market dynamic is there in a positive sense, but also a more normalized and competitive landscape where volumes are below, all competitors wants to load their factories, and with that you get a bit more pricing, price pressure if you would, but not more than that and not less than that, if that clarifies.
Yeah, sure. I'll shoot one question on Food Ingredients as well. I was wondering if you could give some more color on the Food Ingredients EBIT per kilo, I guess pressure by month. The EBIT per kilo figure is somewhat similar to Q2, but Q3 does not contain any Karlshamn impact. Should we understand this as gradually more price pressure versus Q2 or is Q3 price pressure equal to the exit rate of Q2? Again, please advise if I need to be clear.
Yeah, no, that's clear. I think first of all, the Karlshamn issue, which we had, that's resolved and that's done. So that's there, right? And it did impact Q2, so you're correct in that, and it's not here in Q3. On the other hand, the development in Q3 versus Q2, I would say broad-based, very much in line because there will always be a bit of movement between quarters, et cetera. So I think your assumption there that the margins are fairly on par in terms of dynamics is more correct than anything else. Then there are obviously a bit of dynamics between different dairy, bakery. There are some mixed changes always in a quarter, but broadly the same market environment in Food Ingredients as it was in Q2.
Perfect. Thank you. I'll get back in line.
The next question comes from Joan Lim from BNP Paribas. Please go ahead.
Hello. I've got three questions, please. First one is, can you share more color on which region or product categories are you seeing this price competition in CCF? As you go through the customer contracting rounds into the year-end, do you see this price competition worsening or becoming a greater headwind for CCF in 2027 and maybe in Q4 as well? That is my first question. The second question is, can you help us understand the drivers of your EBIT decline in CCF? Are you priced on CBEs or is there more negative mix coming from your CBRs and CBS relative to the CBEs? The third question is, what gives you that confidence of growing EBIT 10% over time when your underlying markets remain soft, you're seeing increasing price competition, and you're starting to see EBIT declines? Thank you.
Thank you. Those are a few questions. We'll try to break them up in pieces. I take the last one first. I think why are we confident? Obviously, if we were to see over a long period of time, volume pressure left, right, and center, that would be difficult market conditions, and obviously that was not in that light that we launched the 2030 aspiration. However, at the moment, there's a bit subdued market conditions, especially in Chocolate & Confectionery Fats, but we don't see that being a long-term real negative volume development. Cannot make any guarantees. But in the light of that aspiration that we put forward, we did that some years ago. Four years ago, we had first a target of SEK 2 per kilo. We reached that very quickly.
In the light of that, we are at the moment, even in a disappointing quarter at SEK 2.27, so well on the way, despite being lower than last year. Now we are shooting for SEK 3 per kilo. When we put that SEK 3 per kilo down, we saw that we had plenty of opportunity to optimize the way we run our business as it is. That is from commercial excellence, operational excellence, cost efficiencies, et cetera, including pricing, where some of that has been implemented and some of that is still to be delivered. In the light of that, we are confident. Now it will help a lot if structural volumes come back in both Food Ingredients and CCF, no doubt. But we have also more to give on the internal space, if you will, to further optimize. So that gives us the confidence.
Having said that, of course, if things were to develop very negatively on the consumer trend side, that's difficult. Then we'll come back to that. But we will always take action in any market environment to deliver as best we can. But we are confident that we can still deliver on that aspiration. With that, maybe over to you, Niall, on a few comments on the CCF regions and categories.
Yeah. So Joan, just to answer your first question there in terms of the region. When you look at the Middle East, Africa, and Asia, that was primarily a driver, especially in the Middle East, quite specifically, a new distributor doing a great job on opening up new markets for us there. In the Americas, we have seen slightly lower volumes in the quarter, and that is more of a reflection of the consumer market space. Quite often we may have the contracts in place, but the customers maybe do not call off as they should. To that end, that is a reflection of just soft consumer sentiment, and we see that in particular in the Americas in the quarter.
Thank you. On the customer contracting round, do you see this price competition being a greater headwind for Q4 and 2027?
First confirming that yes, this time around, and you know this, the ones that follow us closely, yes, we are in the contracting round, and I will not comment this specifically. I can only say that we see versus how we are running today and contracting both on the spot business side and yearly contracts versus today's sentiment. We do not see material changes worsening or improving. We are contracting in the current environment and holding up well.
Okay. That is helpful. Thank you.
As a reminder, if you wish to ask a question, please dial pound-key five on your telephone keypad. The next question comes from Oskar Lindström from Danske Bank. Please go ahead.
Yes. Three sets of questions for me. The first one is following up on the previous analyst here. You said some of the pricing initiatives are still to be delivered. How large are they, or when do they land? Specifically, how do they hold up in the year-end CCF contract round, and what customers or regions worry you most on price? I am not sure if you are able to answer any of those, but I wanted to give it a try anyway.
Thank you, Oskar. I was about to say, did I understand your question? Yes, I did perfectly well. But you know where I am going with this. We will never comment a customer or a customer contract.
Okay.
That will not happen. I think you heard me before.
Yeah. Could you give any color on, for example, regions?
Yeah. So I'll get you some color to it. Maybe, Niall, you want to chip in here. But the contracting round is ongoing at the moment, and as I said, we hold up well in the current environment and so forth. Also look at our volume development in the quarter, still holding up well. Yes, a bit of pressure on the margin, but in a more longer-term perspective, still operating at high levels on our way to our aspiration. So that's the broader comment on where we are and looking forward. If you then, I think your first question there was on Repeat the first part of the question to me.
The size and timing of these price initiatives, would you mind-
Yeah. Fine. Thank you. So when I say that, is that we, and we had talked about this a bit before. We are driving operational excellence structurally through AAK. We have been driving these deep dives we talked about before. We have procurement savings. We have the Fit-to-Win. But we are also driving improvements on the commercial side. That is everything from the long-term piece of we are investing in insights management, getting closer to consumer trends, having a better dialogue with customers that is generating leads into innovation, but also leads into co-development and opportunities with our customers. So that's one kind of commercial piece.
We are also seeing a great opportunity in standardizing, unifying, and improving our models and support systems on pricing globally, where, again, AAK come from a very decentralized structure, where we have been allowed to operate pretty much as we like close to customers. That serves us well many times, but leaves also the opportunity to optimize. That is what we are doing more to give. I cannot comment on what specific customer or what specific segment will we reach better pricing, but we are investing in stepping up our commercial capability, which includes better pricing across. That might be not just pricing up with someone, but making sure we put the right prices across the board and not leaving money on the table in one region or with one customer where we do not know exactly what the best price is. That kind of-
What is the rough sort of timing of these initiatives. I realize it is not going to happen sort of from one day to another, but when could the effects of this start to be visible?
It should come gradually. Part of this is already ongoing and pilots in motion, but part of it is also ramping up into 2027.
Thank you. Two following questions, much easier. Of the SEK 250 million Fit-to-Win run rate, how much is in the P&L 2026 versus 2027, Johan?
Well, of the SEK 250 million, that's the annual run rate, right?
Yeah.
We initiated the program last year. I would say roughly we see three-quarters of it so far this year. Then we still have the goal of getting to SEK 300 million, and the aim is to do that by the end of the year on an annual run rate.
Okay. A final question just on M&A. Fairly tough markets now for you, but I'm guessing also for your competitors. Does that push more assets coming up for sale, or make getting M&A discussions and targets easier or even less expensive?
I certainly hope so. You know that we have the capability to consolidate, and we absolutely have that as part of our strategic execution, and we are active. I've said that many times before. With market dynamics comes opportunities, so you're right on that. Valuations have come down in the food space across the board, so you could argue that that would speak to cheaper. At the same time, we have players in this market with a bit of different setups. Some of them are also geared towards biofuels, so you can have that as an offset. Some of them are more vertically integrated and sometimes earn a bit more money on crushing and hedging, et cetera, versus us as a downstream player. There are a bit of dynamics where some are fairing well even in tough end market conditions.
But we are going to be out there like before, but even more than ever, I think. Yes, we are still eager. We have the capability, and we are going to continue to nurture relationships and opportunities going forward. Absolutely.
And if we take downstream geographic white spot and then upstream, which interests you most in terms of direction of M&A?
Definitely downstream geographical opportunities rather than vertical integration, if that's what you meant by upstream.
Yeah.
Upstream, because we have no intention to become a big agri-player, fully vertically integrated. That would be a long time of a lot of capital investing in a space which is well-covered. Our strategy is downstream, specialized ingredients, and strengthening that. Now, we might go upstream, as we have done with the NURA specialty oils joint venture, where we're also launching new technology patented by AAK. That is to secure high quality, good sustainability credentials, and a better supplier profile, if you will, supporting health and wellbeing, supporting Chocolate & Confectionery Fats, high-end segments. Then we did that to secure important raw materials, not because that upstream is a strategy, if that makes sense.
Oh, thank you. Those are all my three questions. Thank you.
Thank you.
The next question comes from Nicklas Skogman from Nordea. Please go ahead.
Good morning. One more question on the CCF EBIT, please. Given the very abrupt change in EBIT per kilo in Q3 versus Q2, I would like to ask, what did you see intra-quarter? Did we see a whole quarter of this normalized market, so to speak, or did you only see it in parts of the quarter?
Thank you. It is down a bit, but is it abrupt or not, we can talk about. It is more of a general development, I would say, over, as we said before as well, volumes had been under pressure in Chocolate & Confectionery Fats for some time. That leads to more and more players looking at how to load their factories, et cetera, including us, and that is where you stand against the competitor and you get a bit of price pressure.
That has had some impact, and we are also in a general high inflationary environment still, with oil prices impacting biofuels, impacting oil for food, et cetera. So it is inflationary environment. We can still push that on, if you will, by updating our standard cost. But at the end of the day, we are standing next to a competitor when we take our contracts. With that, Niall, maybe one or two more questions.
Yeah. I think also, just building on a previous comment to a similar question from Johan, is in relation to the contracting strategies of customers over this past 12 months, where they do see uncertainty in terms of what customers are buying, the frequency with which they are buying, and the volume with which they are buying. Therefore, the contract coverage maybe has been a little lighter and made them more susceptible to spot buying during the course of this year. To that end then, we have seen that the raw materials in the whole vegetable oil complex have moved on quite significantly in the past 12 months. So those pricing conversations are a little more robust these days.
But to also get back to your intra-quarter question, I think there is a normal seasonality in Q3 as well, not just in CCF, but in most segments where it is a bit weaker in the first half and it ramps up in the second half. We saw that in this Q3 as well, as in previous years. That is nothing unusual.
You mean ramping up in terms of how much volume you are putting through or
Yeah
your profitability?
Of how much volume is coming through. That is the part of the normal seasonality ramping up towards the stronger second half of the year.
You mentioned here several times that SEK 4 per kilo in CCF is a very strong number. But at the same time, you say that growing CCF EBIT per kilo is very important for you to reach your 2030 target. Do you see this as sort of temporary headwind and then in a year or so it will start growing again? What is the view there?
Yeah. Thank you. I think back to how we drive and execute this. We launched this aspiration for 2030 in 2022, and I think back then we had an EBIT per kilo in CCF of SEK 2 per kilo. We are now at SEK 4. We have been higher last year, but under, as we say, favorable market conditions, et cetera. We are also comparing against a bit of tough comps last year. Yes, indeed, it is important to continue to drive EBIT per kilo in CCF to reach our 2030 aspiration. When we call out the SEK 3 per kilo, that is indeed continuous improvement in both Food Ingredients and Chocolate & Confectionery Fats, and also maximizing the opportunities in Technical Products & Feed. We do believe that we have an opportunity to strengthen EBIT per kilo in CCF as well.
But as we say, if volumes remain very low or even continue to be declining, that is a tougher backdrop. If volumes come back in the chocolate space, coming back to structural growth before we had 4%-5% structural growth in CCF, and now we are seeing a decline. I think that is the backdrop we need to keep in mind. We definitely see potential to come back to growth, in the market, but we also see that potential that we have in AAK to operate more efficiently, which cuts across every business area. We repeat that potential, but not against an extremely tough backdrop in the market, of course.
Okay. Then on the Indian factory here, how much CapEx will this drive? Do you expect a meaningful earnings contribution, in 2028, given that it comes online late 2027?
Thank you. This is a CapEx where I repeat, so we do not have to start completely from scratch. This is leveraging our site in Khopoli where we have a big oils and fat site, and we are already in the pharma space. Now we are upgrading with the new plant that is fully compliant with regulation into the pharma space. That is the new things, adding capacity, adding compliance and quality standards to be able to step up the game in pharma. Tomas.
Yeah. As Johan mentioned before, this is a project that just been sort of broken ground, and we expect it to be up and running at the end of 2027. In total, we see roughly SEK 200 million in the CapEx for this spread fairly evenly over the next couple of quarters. Right?
Without going into forecasting, we can confirm that the space is a high-margin space. So typically, EBIT per kilo is very high. But also, of course, more of a low-volume space. But it will be EBIT accretive, and we will come back to in what context and how much later on when we are up running.
Just to mention back-
Thank you
on M&A, this is also where we see an opportunity to build something ourselves instead of buying this type of operation when it comes to medical India and so forth. Right? We always have this option as well, and I think in this case, this is the best solution for us.
Thank you.
Thanks.
The next question comes from Benjamin Wahlstedt from ABGSC. Please go ahead.
Hello. Sorry, I thought you would not have time for me. I was wondering about Technical Products & Feed, as well. Could you give us an indication of the size of your candles business and perhaps also elaborate on the reasons for the softer performance, please?
I'll start on that and maybe start with the boring part of the question. No, we will not comment exactly how big the candles business is, but it is indeed an important one and an interesting one. In the candles business, we have find a way to replace fossil-based ingredients like paraffin and so forth into more sustainable candle production. This space, just like a few other spaces, have seen impact of inflation and cost. We are indeed living in a world today where everyone is looking after the cost consumers on their disposable income, et cetera. Also in candles, we have seen a bit more competitive pressure, but also the customer space, leaving a bit the sustainability play, going back to paraffin in some cases. But in other cases, with customers with a strong sustainability profile, it keeps up.
It's a few bits and pieces, moving parts there, but it has had a negative impact. But still, it is a good space. The candle space is a good space, above par, EBIT per kilo, but a few moving parts in the market.
What we can give you on volume, and we've done this before, is basically to say that TPF is made up of technical products and feed. In general, feed makes up about 80% of the volume and technical products, of which then candles is part of, makes up about 20%. That gives a little bit more indication, at least.
Yeah, that's helpful. Correct me, paraffin is made from oil, essentially.
Petroleum, yes.
Wouldn't that make your candles business more cost competitive?
There's a few more dynamics to it. As you mentioned, linked to the oleochemical market, and quite specifically, it's just pricing competitive dynamics at this specific moment in time in Europe.
All right. Thank you.
There are no more questions at this time. I hand the conference back to the speakers for any closing comments.
All right. Thank you so much. We, again, thank you for your interest, your engagement, and before we close, I would just like to leave you with a few reflections. Market conditions remained subdued during the third quarter, but we delivered resilient volumes with group volumes in line with last year. Profitability was below the strong level of last year, reflecting lower operating profit per kilo across all three business areas while we continue to generate strong cash flow and maintain a very strong financial position. We also continue to execute on our strategic priorities, including investments to support future growth and strengthen our competitive position. It is important to remember that AAK is a long-term growth case. Quarter-to-quarter performance will vary, particularly in a challenging market environment, but our strategic direction remains unchanged.
We remain confident in our ability to outgrow the underlying market over time, achieve an operating profit per kilo of above SEK 3 by 2030, and continue delivering average annual operating profit growth of around 10% over time. With that, I thank you all for today, and thank you for your interest in AAK.