AAK builds profits on cocoa butter equivalents

By Jess Halliday

- Last updated on GMT

Related tags Cocoa butter Fat Aak

The high price of cocoa butter has led to greater demand for AAK’s cocoa butter equivalents (CBEs) from specialty vegetable oils, and in turn has yielded strong growth in its confectionery fat business area.

The price of cocoa butter has risen significantly in the last 18 months, from under SEK 30000 (€3193.8 at today’s exchange rates) per tonne in early 2007 to over SEK 50000 (€5325.4) per tonne at this year’s high. Cocoa crops have this year yielded disappointing crops, which has pushed up the price of cocoa globally.

For AAK, this means greater demand for its CBEs, which can be used by confectionery manufacturers instead of cocoa butter. And limited supply of CBEs to meet global demand has meant that they can be sold at a higher price.

For the second quarter 2008, the firm reported net sales of SEK 1122m (€119.5m) for its chocolate and confectionery fats business area, up 44 per cent on the same period of last year. Operating profit was up 50 per cent to SEK 105m (€11.2m), although this figure was skewed by the inclusion of insurance compensation of SEK 73m, to cover losses resulting from the fire at its factory in Aarhus, Denmark, in December 2007.

Chocolate and confectionery fats is the most profitable of AAK’s three business areas – and the result is all the more impressive since, in seasonal terms, the Q2 tends to be the weakest.

Despite the boon that the cocoa price issues have brought the firm, it recognises that it is not immune to supply issues. Shea is the most important component of its CBE offerings.

AAK has recently been able to secure better supplies of shea as it increased its presence in West Africa, which has “strengthened the logistics chain from tree to factory”.

The firm said: “CBE growth will be a considerable driving force in the group’s profit growth over the next few years.”

It has recently invested in a new factory in Aarhus centered on this area. In fact, this factory was ready to start production in Q1 2008. This was timely since the fire in December 2007 occurred in the part of the old factory vegetable oils are produced for use as specialty fats, mainly in CBEs.

Immediately following the incident, in which one employee lost his life, AAK said that it expected deliveries to be affected for about two months. However the company also has CBE production facilities in Sweden, so it was able to step up production there as something of a stop-gap.

It is expected that the old factory will re-start production during the second half of 2008, once the authorities have given their approval to the restoration of damaged buildings and infrastructure.

Food ingredients

In the food ingredients area – one that the company recognises as very competitive – it reported net sales of SEK 2471m (€263.1m), up 36 per cent. Operating profit was up only slightly, from SEK72m (€7.6m) to SEK74m (€7.9m).

The biggest challenge has been higher raw material costs as a result of more vegetable oils being used by the energy sector – this driving up costs.

“Strongly increased prices for energy and consumables have led to increased costs, where we have not achieved full compensation during the second quarter,” ​said the company.

Since the end of the quarter however (June 30), the price of vegetable oils has started to go down. “If this continues it will imply reduced working capital and improved cashflow over time”.

AAK has been implementing a programme of specialisation, focusing in particular on healthy products.

As part of this, the firm acquired Croda’s Food Service business in Mexico, and has also entered into an agreement with Israeli ingredients firm Enzymotec for mothers’ milk replacers.

“The specialisation strategy develops organically and selective acquisition will complement this strategy,”​ hinted AAK.

Related topics Commodities Cocoa

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