AAK AB (publ)
STO:AAK
If you don’t study any companies, you have the same success buying stocks as you do in a poker game if you bet without looking at your cards.
Utilize notes to systematically review your investment decisions. By reflecting on past outcomes, you can discern effective strategies and identify those that underperformed. This continuous feedback loop enables you to adapt and refine your approach, optimizing for future success.
Each note serves as a learning point, offering insights into your decision-making processes. Over time, you'll accumulate a personalized database of knowledge, enhancing your ability to make informed decisions quickly and effectively.
With a comprehensive record of your investment history at your fingertips, you can compare current opportunities against past experiences. This not only bolsters your confidence but also ensures that each decision is grounded in a well-documented rationale.
Do you really want to delete this note?
This action cannot be undone.
| 52 Week Range |
207.9369
340
|
| Price Target |
|
We'll email you a reminder when the closing price reaches SEK.
Choose the stock you wish to monitor with a price alert.
This alert will be permanently deleted.
AAK AB (publ)
You don't have any saved screeners yet
Ladies and gentlemen, welcome to the AAK Audiocast with Teleconference Q1 2022. Today, I'm pleased to present CEO, Johan Westman; and CFO, Tomas Bergendahl. [Operator Instructions]
Speakers, please begin.
Thank you so much, and welcome to everyone, to AAK's earnings call for quarter 1 2022. As you heard, I also have our CFO, Tomas Bergendahl, with me today. For the agenda, we're going to go through some highlights of quarter 1, some key events, a business update as usual. And after concluding remarks, we are happy to answer any questions that you might have.
Before we move into comments on the quarter, I'd just like to address the situation in Europe as we speak. The war in Europe is still ongoing. This is a devastating situation. It is impacting millions of people, and our hearts and minds are with them. This impacts, of course, also AAK employees as well as partners. Earlier today, we also announced that after evaluation, a careful evaluation, AAK is leaving Russia in what we -- in really, a controlled exit out of Russia. And I will comment that later on in the call.
But with that opening, I'd like to move us into Page 3. Quarter 1 for AAK, a strong start to 2022. Entering into quarter 1, I think it's fair to say that we and many with us in the world were operating with high uncertainty, certainly inflationary pressure and a volatile raw material market. And on top of that, we then have a war in Europe that added to uncertainty as well as volatility.
With that in mind, or despite that, we delivered a very strong record quarter for the quarter 1 for AAK. Our operating profit compared to last year at fixed foreign exchange rates is up 15%. That's a strong achievement delivered in a very dynamic business environment. And this achievement is very much thanks to our organization, an agile organization, which is strong in managing uncertainty and really passionate about driving growth.
So in light of what is around us, I would like to say that this is a remarkable result for AAK. I will soon get into our business areas to comment in more details about that, but it was really a strong development across the board within AAK.
With that, let's move into Page #4, and just a few comments on our sustainability work. We just released our Sustainability Report, and we are proud about the progress we are making. We are having an impact in the supply chains where we operate.
To mention a few, we are really committed to driving no deforestation and traceability in the palm oil supply chain. For example, we increased our source of verified deforestation-free palm oil by 34% last year. And those of you who follow us also know that we source a lot of the -- or we source our shea kernels for our shea production that we have in Denmark, we source that from West Africa, and we have a program focused at direct financing and sourcing and empowerment of women in West Africa. We call it Kolo Nafaso. This program now includes more than 350,000 women.
We also focus, of course, internally on how we operate. And we have really improved the usage of renewable energy, renewable electricity, which is up 50 percentage points versus last year. Just to mention a few of the achievements with regards to sustainability and AAK having an impact on the supply chains where we operate.
If we then move on to Page 5, a few more comments on Russia. We are to leave Russia in a controlled exit. It's been a difficult and sensitive decision. It's made after a careful evaluation. This is to be a controlled exit. And what that means is that we are to leave our joint venture where we have 75% in that joint venture. Hopefully, by reaching an agreement with our current partner, of selling the JV back to our partner.
We will also leave our sales company or market company in Russia. The volumes that we have had in Russia is split roughly 50% with the JV and 50% with our Russian sales company, and in total, our volumes are approximately 3% in Russia. So when leaving that, obviously, we are losing the sales that we have there.
This controlled exit will have an impact, and we will report that in quarter 2. With the press release that we have today, we give the indication of our estimate. So we estimate this to be a one-off cost impacting our P&L in quarter 2, with approximately SEK 300 million to SEK 350 million, so that's a one-off in Q2.
Since we're also leaving Russia, that means that we are then not selling any longer in Russia. And that impact is estimated on the P&L sheet of SEK 75 million to SEK 100 million going forward. Now obviously, AAK is focused on continuing to grow and we see an opportunity to offset volumes and sell them elsewhere. But when just looking at what we expect to lose from not being able to sell in Russia, that EBIT impact would be roughly SEK 75 million to SEK 100 million on an annual basis.
All right. So with that said, now let's move into our business areas, Food Ingredients, Chocolate & Confectionery Fats as well as Technical Products & Feed for quarter 1.
Let's start on Page 6 with Food Ingredients. A very strong development for Food Ingredients in quarter 1, a clear rebound in Foodservice. Those of you who follow us know that we have had a setback in Foodservice due to COVID. Quarter 1 this year has really shown a strong rebound leverage on increased volumes. We have also continued our optimization within certain industries that we deliver to. Our Bakery profitability has been improved significantly in quarter 1.
So in total, Food Ingredients operating profit is up by 9% year-on-year at fixed FX. And our operating profit per kilo, our margin, is up 7%. So this is very much thanks to good leverage within Foodservice and a focus on improving profitability in Bakery.
If we then move on to Chocolate & Confectionery Fats, we've seen a continued strong demand in the market. Our volumes are up by 5% year-on-year, and this is in most regions where we operate. And when looking at it from a product perspective, it's really a strong development with regards to filling fats that has continued in this quarter. And with that, our operating profit is up 9% at fixed FX. Operating profit per kilo is up 3%. So also in Chocolate & Confectionery Fats, we increased both the operating profit and our margin, which is great to see.
If we then move on to Page 8 at Technical Products & Feed, our value proposition for feed as well as for natural ingredients for technical products as well as our management of site stream and waste streams has really paid off. Thanks to a strong execution and favorable market dynamics, we have delivered an all-time high for Technical Products & Feed. Our operating profit is up by 84% year-on-year, with an operating profit per kilo now reaching SEK 1.07 per kilo, which is double up compared to 1 year ago. So in essence, a very, very strong quarter for Technical Products & Feed.
With those comments on the business areas, I'd like to hand it over to Tomas, our CFO, to take us through some raw material price developments and further details on our cash flow, et cetera.
Thank you, Johan, and good afternoon, everyone. Moving on to Slide #9. As you can see in this -- the graph to the left, price levels of palm oil and rapeseed oil has risen during the first quarter of '22, further from where it was at the end of '21. The volatility in a dynamic market environment affects our working capital and capital employed, as we previously have communicated.
And the impact from a 10% change in raw material prices have been adjusted from SEK 350 million to SEK 700 million. This is driven by the increase in the absolute amount of the inventory over the last few quarters. So it's an update based on how much the price has already risen and then continuous impact from additional increases.
Moving on to the next slide, Slide 10. Despite an increase in profit, we saw a negative cash flow in the quarter. This was mainly driven by an increase in working capital, an increase which was mainly driven by continued significant increases in raw material prices as well as 2 one-time effects to the accounts payable. One, the first was negotiated changes to 2 major contracts; and the second one is a change to sourcing patterns driven by increases in volume.
And with the previously also communicated 6 to 9-month lag of price effects on raw material moving their way into our working capital, we expect, with the current prices, a continued negative impact on our working capital throughout 2022. The logic that we have communicated before still exists, i.e., if raw material prices stabilize at current levels, all else equal, the EBITDA will flow through to cash flow.
If the raw material price decreases, the working capital will decrease and will positively affect cash flow together with EBITDA. And if they continue to increase, we'll see the same effects that we've seen in the last few quarters with increasing working capital.
When it comes to CapEx, we guided in our last call spend in 2022 just north of SEK 1 billion. And the first quarter spend ended up at SEK 227 million, which is in line with the guidance for the full year previously provided.
Moving on to Slide 11. Overall, as I mentioned before, we have an increase in working capital driven by an increase in primarily inventory driven by raw material prices. The increase in working capital is about SEK 2 billion in the quarter.
From a working capital perspective, we focus on what we can affect, and the results of which are shown in the development in working capital days on the left-hand side of the slide. And the number of days are down 9 days quarter-over-quarter '21 to '22.
Next slide, Slide 12. Return on capital employed, which is based on a 12-month rolling calculation remains at a high level, above 15% in Q1, though slightly down from the previous 3 quarters. And given the continued increase in raw material prices with a subsequent increase in working capital, coupled with the 6 to 9-month delay in cash flow effect, we expect the return on capital to continue on a slight downward trend in 2022 despite the current record high profit levels.
Slide 13. And similar to return on capital employed, the net debt-to-EBITDA ratio is negatively affected in the quarter by the increase of raw material prices. It has now increased to 1.64 in the quarter. Those are levels last seen in Q3 2019. As with the return on capital employed, the expectation is, despite record high profit levels, that this ratio will continue to increase driven by raw material prices in a very volatile and dynamic market throughout 2022.
Johan, back to you.
Thank you, Tomas, and that leads us into some concluding remarks before we open up for questions. Clearly, as I mentioned, entering into this quarter, we were doing that in -- with regards to uncertainty and volatility in raw material markets. We have now seen a war in Europe developing, and certainly, the volatility is still there around us with inflationary pressure with volatile raw material prices. So needless to say almost, risk and uncertainty is high also for our business.
But at the same time, we, as AAK, we are an important supplier of plant-based ingredients to both food and technical products. And we are well positioned. We have also proven over the last couple of years in a very dynamic environment that we can deliver and that we can manage uncertainty. There are no guarantees in business, but I want to highlight that.
So when we look forward, despite short to mid-term uncertainty and high volatility, we still see that the underlying trends around natural ingredients, around plant-based ingredients, et cetera, for the industries and markets that we serve, they are still favorable on the long-term trend. And with that, we do remain prudently optimistic about our future, and we are committed to our purpose, living our purpose, making better happen.
And with that, I'm happy to take any questions together with Tomas.
[Operator Instructions] The first question comes from the line of [ Max Trent ] from Bank of America.
Sorry. Three, if I can, please. The first one on the Indonesia palm oil export ban that was announced at the end of last week. Could you help us understand how you're thinking about that risk, particularly given the nuances they've disclosed around the different fractions that they may cease exporting?
Then the second question on Technical Products. Could you help us understand the sort of split and improvement in profitability between natural ingredients and feed? And what's driving that feed? Is that just higher commodity prices, or is there anything else going on there?
And then final question on the plant-based area of the business. You're reporting flat growth, which is quite a marked deceleration. Any color you can give around why that is and whether you expect any improvement going forward?
Thank you. And let's start with the discussion around Indonesian palm oil ban. Of course, that creates a bit of uncertainty around us. We -- our view on that is, of course, we need to know more before we can comment on that specifically. Our view is as follows: There is a reason most likely, of course, for that ban, and that is most likely to be -- to protect local prices for the Indonesian population, so I guess a countermeasure to inflation.
Because as a country, they have plenty of supply, far exceeds the local need and demand. So -- and that's our view. It seems illogical that this is a ban that would stay for a long period of time, whether that is for a certain portion of fraction or whether it would be a complete ban.
Should there be a complete ban for all palm oil or palm oil derivates leaving Indonesia, and that will be huge for the whole food industry, including AAK. But again, is that likely to be on a long-term basis? We don't think so because that would be basically Indonesia saying no to selling one of their most important export product.
Then with regards to Technical Products & Feed, Tomas, why don't you give a few comments on that one?
Sure. Yes. Thank you for the question, Max. Looking at the improved profitability quarter-over-quarter, it can be more or less divided into 3 equal parts. The first 2 is within [ TFACT ]. One is continued strong trend in naturals, which drives about 1/3. Strong trend, strong demand. The other piece within the TFACT segment is biofuel. And we have a waste side stream that we sell to biofuel, biomass file -- burners basically, operators of those. And there, we've seen a strong increase in price during the quarter and even so towards the end of last quarter, so that makes up 2/3 of the difference.
The other one is feed, where we see a very strong demand. Our production volumes, as we mentioned, are a little bit hampered. We have had slight issues in Q4 and Q1, which we hope to adjust in a planned scheduled maintenance stop in Q2. But despite that, we've been able, through good price management and portfolio management of our customers, to be able to increase profitability on feed. And the demand is very strong, so we hope to get back on full production level again.
And sorry, I should also mention then because it's of some interest. I know the crush margin is high but stable compared to where it was in the comparable quarter.
And then on your final question for plant-based volumes, we have seen a slight growth in plant-based dairy or dairy alternative solutions where the -- we saw, for us, a decline in plant-based meat solutions or meat alternatives. And I do think that we are obviously -- we are an important player in the whole market, but we are not equally with every customer. And to some extent, we have specific volumes in plant-based meat solutions where we saw a decline. And I think it's very much due to the market as such with regards to penetration, taking 2 steps forward, 1 step back.
And as a market, there -- we do believe in this market long term, but I can also see a reason for consumers. There is a bit of a hurdle. Once you've tried it, you need to really get hooked up on it and then continue in order for the penetration to move to next steps. So I think it's kind of natural where we are at the moment. So I see it more market-related than any issues with regards to AAK. So long term, still very positive; short term, a bit of a plateau for our plant-based solutions -- or solution for the plant-based industries.
The next question comes from the line of Heidi Vesterinen from BNP Paribas Exane.
A few, please. Could you update us on pricing in Special Nutrition, please? I think you had said on past calls that contracts are longer term, it could be like a year. So when you have inflation within the year, you can get squeezed. That's something we had seen last year. So what is the latest situation, please?
And then secondly, you talked about recapturing Russian volumes elsewhere. Can you explain how you intend to do this maybe with an example?
And then thirdly, you talked about the higher cash impact of working capital, and the environment going forward is, of course, uncertain. Does this in any way impact your thinking on M&A, please?
Thank you. Good questions, relevant. With regards to the dynamics in Special Nutrition and some contracts in predominantly China with regards to more of a longer lock in when you've taken a contract, you're completely right. That is one thing that impacts our ability to adjust, right? And that is still there.
What is also still there, as we have mentioned before, is a competitive market dynamic where some of our competitors for some time have chosen a different pricing strategy compared to us and with our view, not increasing pricing in relation to inflation, which puts -- which has put a bit of pressure on the margins in Special Nutrition. So if competitive -- if competitors are doing that, of course, that also limits your ability to then adjust. As you come out of a contract, you need to renegotiate, you still always face a possible competitive situation.
So you have 2 things impacting: One, the first point where you can change your price; and two, what are your abilities to change the price in that market, which is, of course, a function of inflation and market pricing, competitive dynamics. So that's what we have. That's not unique, but that is what we have.
With regards to Russia, and I take this opportunity to just reinforce the press release, which could potentially be read in different ways. But we're taking a one-off cost in Q2 that will be reported in Q2, that is linked to our assets and ARs and inventory, et cetera, that we need to deal with. And then we are guiding going forward that our sales in Russia, what is that worth to us bottom line. And that's where your question is very relevant.
So we are, in fact, losing the sales that we used to have into Russia, Russian customers and international customers in Russia. And when we then move out, we still see a strong demand, for example, in Chocolate & Confectionery Fats. Russia has always been a strong chocolate and confectionery market. So we are losing that sales volume, and with that, we're losing EBIT. But we think that we can reroute part of that by selling Chocolate & Confectionery Fats, for example, to customers outside Russia where we now have more capacity to do that.
So with that, we limit, call it, the loss of EBIT to only SEK 75 million to SEK 100 million going forward. And then, of course, if we are successful in our strategy, we will continue to grow on that new base. But of course, theoretically, we could have always continued to sell in Russia should we have chosen to do that, but now we are moving out. So see it as a forward-looking loss of sales that impacts SEK 75 million to SEK 100 million. But then since we also get more capacity available for other markets, we will then drive sales elsewhere.
And this CCF volume that we used to have in Russia were not -- it was not produced in Russia. So we're not losing our production capability by leaving Russia, but we're losing part of the sales that we then, of course, imported into Russia in the past.
And then finally, your question on cash flow and M&A. Yes, of course, the current rapid increase of raw materials and you see how that moves into our net working capital and of course, takes up part of our net debt. We still believe we have a strong balance sheet, and we have a strong possibility to finance actions going forward. Clearly, it's -- I mean, I would have liked to have raw materials more stable and not seeing this.
But as things hopefully stabilize going forward, we'll also see a stabilization of net working capital. And I do believe that AAK, with our track record, with our stability in our business and opportunities going forward, that when M&A opportunities materialize going forward, that we would be able to fulfill that. Of course, if you take it to the extreme, very big M&A in the middle of a very tough inflationary environment, you could have a discussion on whether you take that risk or not, but we're not there yet.
The next question comes from the line of James Targett from Berenberg.
Two questions for me. Firstly, just could you say where we are now on sort of Foodservice volume levels relative to maybe 2019 following the recovery? Just trying to understand how many more quarters we should expect sort of significant positive tailwinds from Foodservice recovery.
And my second question is just coming back on Russia. So just so I understand, the SEK 75 million to SEK 100 million profit impact for 2022, that does include your expectation of reselling those -- that 1.5% imported volumes elsewhere or it doesn't? Just so I understand. And is that -- and is the SEK 75 million to SEK 100 million, is that just the impact you expect in 2022? Or is that an annualized impact? So I'm just trying to understand what the impact in '23 would be as well.
Yes. You're welcome. Very good, and I like you asking for clarification. So first of all, Foodservice. We are closing in on the pre-COVID levels. We are not really there yet, and then you can argue a few things have developed. Clearly, sales to airline catering is not where it used to be, sales to hotel is not where it used to be. On the other hand, most schools and restaurants are open and being loaded and so forth. So we are closing in, let's call it, a single-digit gap to '19. So almost there, you could argue.
And then with regards to Russia. So the SEK 75 million to SEK 100 million, call that an unannualized impact. So if you just take everything else equal, we are losing all the sales that we have into Russia, and that has an EBIT impact greater than the SEK 75 million to SEK 100 million. We are then able to reroute some to limit the annual impact to SEK 75 million to SEK 100 million. So everything else equal, we would then say that an annualized loss of SEK 75 million to SEK 100 million EBIT, a majority in Chocolate & Confectionery Fats from a business area perspective.
Now we mentioned it as a 2022 just to give a guidance on. When we look further ahead, then, of course, it becomes a question, what do we do with our capacity? And now, of course, the capacity available for other markets is greater. Theoretically, we could have continued to sell in Russia and then grow with the CapEx, et cetera, et cetera. So depending how we see it, it's a continuation annualized loss of SEK 75 million to 100 million, or one could argue with now less of CapEx, we could continue to grow in other markets.
So -- but if we were just to see how we cut out volume and then sell some of that in other markets, the annualized forward-looking loss of EBIT would be SEK 75 million to SEK 100 million per annum. Was that clear?
Yes. Very much.
Just checking. And then a one-off, as I said earlier, one-off of SEK 300 million to SEK 350 million to deal with the exit as such in Q2.
The next question comes from the line of Oskar Lindstrom from Danske Bank.
Yes. Three questions from my side, the first one on the export bans. I mean you have hedged your prices. But assuming that this export ban goes ahead, is there a risk that you will not be able to deliver the volumes that you've committed to your customers? Because I assume those, you haven't been able to hedge.
And also, I'd just like to follow up on that or in addition to that, are there any other sort of situations where you see possible export bans or government action limiting your availability to source -- your possibility to source raw materials that you need? That's my first question.
The second question is on Russia and on the rerouting of volumes. As I understand it, roughly sort of half of the volumes that you sold in Russia are coming from outside of the region. You said half of it was from your sales company and half from the local JV. I mean likely everyone else is also looking to reroute volumes out of Russia. I mean is this possibly going to impact competition in other markets and pricing? So that's my second question.
The third question is on sourcing and logistics. I mean, we read about widespread problems in a lot of sectors in terms of freight, logistics and sourcing, but you're able to sort of take down your working capital base despite all that. I mean very impressive. Is this something you will be able to continue to do or even maintain given that this sort of uncertain situation continues? So those are my 3 questions.
Thank you, Oskar. Let's then start with palm oil. I mean let's be clear about it. You heard me in the beginning. We -- one can always -- it becomes a little bit of speculation, it's not our role to speculate. But clearly, if we have a long export ban, that means that we don't get any volume. So you're completely right that -- then a hedge doesn't matter. A hedge is a hedge against the price that you pay and the price that you lock into your customer.
If we get a complete stop, that means, like in any other industry, that you would have many, many ingredients. Because let's face it, palm oil is the family name. But underneath that, you have many different products and solutions, whether that is for biofuel or whether that is for food. And within food, there are many different fractions used for many different functional applications around the world.
So should there be a complete ban, meaning that no volumes move out of Indonesia, that means that no production site in the world using these ingredients or, in this case, palm oil fractions would be able to continue to produce the products made from that, including us. So that would not be good if that continued for a long time. And for us, that is -- we source roughly -- of our total volumes, we source roughly 20% from this -- from Indonesia.
So -- but I don't think it's likely, as I said before, because that means that they would sit on huge stock or have their complete palm oil industry stopped basically. So I have to say that it's not likely, but again, the world is what it is, right? So I can't guarantee that. If that were to happen, we'll see huge problems in the total food supply chain in the world. We would -- longer term, that would be a bump on the road for us.
Longer term, we would, of course, be one of the companies being able to then help customers to reformulate products that today has those components into other components, et cetera, et cetera. But it wouldn't be good for us. It wouldn't be good for the food industry and wouldn't be good for the supply of food for the world, and predominantly impacting poor countries with hunger as one of their biggest problems. So I really, really hope that it doesn't come to a long ban. But if you ask me, is there a risk? And what will that mean? It would be devastating.
Other export bans, well, I don't want to speculate. I have a hard time seeing it, but then you -- so I'll be -- we haven't seen similar activities, and I can see why Indonesia is doing this. I can see why they want to protect prices in an inflationary market dynamics. I could see why they want to protect prices locally in Indonesia. And if this is a solution to -- if something happens, that really takes down price on palm oil, well, then good. But can you have a ban forever and then lose the income for the country and the population? That's where my question is. I have a hard time extrapolating that to other countries to do the same. It's possible, I guess, but I can't see it today.
With that, moving into your second question on Russia and rerouting. Would others do that? For sure, some others would do that as well. But let's be also very frank, all companies are not leaving Russia like we are. Meaning that we -- competition to us, some of those stay and will take over volumes locally, and they will not be able to reroute it like we are. And others would be doing exactly what we are doing. So in theory, it could be an impact or practically could be an impact.
What we have seen so far for a couple of years now is a strong demand in chocolate and confectionery, AAK being well positioned. So I am balanced in risk and opportunity. If anything, I will be more opportunistic with our possibility to use this volume without it being a, call it, negative competitive environment post leaving Russia.
Last one on being able to manage, call it, logistics, freight and so forth, and that's really how I ended the comment or even started this conference. When you look at our results over the last couple of quarters with clearly inflationary pressure and impact on freight, I mean, we sit in the middle of that, like you said. I mean it's not like we are immune, quite the opposite. We have sea freight. We have -- we are a global company, very dynamic. So I think it's fair to say that we have an organization that is agile. We have been able to maneuver. We maneuvered COVID. We have maneuvered inflation. We have maneuvered disturbances.
We are not immune, so you could be only a day away from something impacting you, of course. But the way I would answer your question is we have a strong organization. We are capable and we are used to managing complexity and uncertainty. That is no guarantee going forward, but it's certainly the organization that we will continue to lean on going forward.
So do we have a chance on continued good performance in, call it, days of net working capital? Yes, I think we have, we have that opportunity. But there's also a risk that we could face a disruption in supply somewhere or in a shipment somewhere, not to say the least from the potential palm oil ban. But again, that's where we are strong in dealing with that at face value and trying to get the best possible solution in place.
The next question comes from the line of Alex Sloane from Barclays.
Hopefully, you can hear me. I've got a couple of questions. Just the first one, just on the Indonesia potential palm oil ban, thanks for the color there. I wonder if you could kind of elaborate on your inventory position? I mean how long would the ban need to go on for it to be the huge problem for the food industry and AAK specifically? Do you have kind of, I guess, months of cover, weeks of cover? Any color there would be helpful.
And then just secondly, on Technical Products & Feed, thank you very much for the color in terms of the drivers of that very strong improvement in EBIT per kilo. I wonder, as we look forward, those 3 areas, is there any reason why those won't kind of remain as strong for the next few quarters? And could SEK 1 EBIT per kilo be kind of a new sustainable run rate for margins?
Yes. Let's start with your first question. Certainly understand your willingness to look at it, and I will not give specific guidance on exactly our stock levels by -- and honestly, it's -- call it, the rumors or factors around the ban is not exactly clear, what fractions, how long. So I can't give you the answer today. We are certainly looking at all of this internally, as you can imagine. But I don't want to give you a specific comment because it's going to differ a lot by a fraction.
So you could have a month of supply for one fraction, and you could have weeks of supply on another one, and it could be the one that you need that could stop with, right? That would be like a semiconductor problem in another industry, right. So let me not try to speculate in that by rather saying that it's an uncertainty at the moment. And we have to deal with it, and that's where we are.
With TPF, Tomas, if you want to continue on that one since you answered it earlier.
Yes. Alex. I think if we look at the Feed segment of it and the improvements that we've seen there, the demand is there. The prices that we see in the market are very good. I don't see any reason there that we would have any large change immediately in the next couple of quarters. There, it's more about our own ability to produce the volume.
When we go into TFACT, naturals, as we've seen in the last couple of quarters, is also a strong trend. We see that continue. But when it comes to the waste side stream that I mentioned that we provide to biofuel operators, that is, of course, something that is focused on a -- more demand when it's cold outside.
So Q4 and Q1, I would expect to see more demand for that product and also the part of the price increases we've seen is driven by utility cost in general, but also by higher demand when it's colder. So I would say Q2 and Q3, probably a little bit softer demand on that side. And that then made up about the improvement there, made up about 1/3 of the improvement in TPF quarter-over-quarter. So some softness there.
That's really helpful. If I could maybe just squeeze one more in, please.
Sorry. Just -- yes, seasonal softness, I was saying.
Sure. If I could just squeeze one more, just on Slide 9, you show and you've consistently shown the palm oil and rapeseed oil prices. And then you show, for reference, the cocoa butter price. Obviously, the kind of diverging trends there over the last 18 months or so, is that a relevant risk factor? Or I guess, why do you sort of continue to show that chart?
Yes. We continue to show it because it makes sense in the long term. Both of them are important. We source a lot of the top one, and we, call it, compete with the bottom one for some of the solutions that we have, as you know. So we sell, for example, a cocoa better equivalent and so forth.
We are still in what used to be said as a sweet spot. I don't know if that's the right term or not, but our solutions are still competitive in relation to cocoa butter in terms of functionality as well as price. Keep in mind that many -- most of the solutions we have, they are for functionality. But of course, when you try to then replace cocoa butter, it's -- the replacement of such is also a question about competitive pricing. There is still a gap towards cocoa butter prices even on these high levels of input material.
Yes. And as you remember, it's usually a 5%; some markets, 10%, right? So cocoa...
You can replace.
Yes. You can replace. So cocoa butter still the driver for the overall cost, I would say, on the end product. And then we have the functionality that we provide on the CBs and so forth.
So what you could argue even is that this is positive, because if you would have seen cocoa butter spiking like the ones above, then the total chocolate and confection market would have seen even higher inflationary pressure leading to higher prices on the shelves. And that could potentially lead to lower consumption. And that's why we called it a sweet spot in the past, that we don't want all input prices to increase because then the actual cost on the shelf increases.
With this, you see one of the input materials like palm oil increasing where we produce a cocoa butter equivalent that is still priced lower than cocoa butter, so still interesting for our customers to buy. But the main component, cocoa butter, is then flat or even slightly decreasing, which gives them a cost of goods or bill of material that hasn't increased as much as it could have been if cocoa butter prices would have increased. Does that make sense, what we were saying?
Yes. That's very helpful.
[Operator Instructions] The next question comes from the line of Kenneth Toll Johansson from Carnegie.
Two smaller questions. The first one on Russia, you exit the operations there and you take a cost. But do you think you will be able to get any value out of that joint venture? And in such a case, how do you expect to get cash out of Russia in such an event?
The second question is on Bakery. You say that you improved profitability there, but what's behind the improvement? Is it a change in the product mix? Or is it downsizing? Or could you elaborate a little bit around the Bakery improvement, please?
Yes. Thank you. Well, first of all, with regards to Russia, we -- as we announced today, we expect a net cost to be taken by SEK 300 million to SEK 350 million. So we -- and that is the net of our JV exit as well as our exit of our own entity market company in Russia. So we do not expect to get a profit out of that at all.
And I think that with regards to cash out of Russia, I mean, we do -- everything we do in this controlled exit is all about following sanctions, doing everything we can in a controlled manner to limit the risk for AAK, to limit the risk for our employees, and to try to get out our obligations to the extent that it's possible to do this. So I think with -- from that point of view, your question is relevant, but we don't expect to get a net profit and having that issue.
With regards to Bakery, and please feel free to chip in, Tomas. We have been working hard with -- as we announced when we announced our strategy, our portfolio-based strategy is about growing, continue to invest for growth, but also about optimizing our performance, looking at our cost to serve. We announced a close down of a plant which is dedicated for Bakery, but we've also said all the time that we're focusing on high value-added segments within Bakery and that we're committed to do product management better across all the industries and in Bakery. A good example of working hard with product management, pricing, optimizing the portfolio of products, and that leads to good results as well.
Yes. I agree. That's the main driver of it, so yes.
Was that clear on Russia? Or any follow-on on that?
No, no. That's fine.
[Operator Instructions] There are currently no further questions. I'll hand the conference back to you, speakers.
Thank you so much. So if there are no further questions, then we reinforce the conclusion. A strong quarter for AAK, delivered in a time of uncertainty and volatility, and we're entering into Q2 the same way.
And I thank you for taking the time to listening to us and asking questions, and looking forward to talking to you soon again. Bye-bye.