AAK AB (publ)

STO:AAK

Earnings Call Analysis

Strong Q2 with Optimistic Growth Outlook

In Q2 2024, AAK posted a 4% volume increase, driven by strong performance in Chocolate & Confectionery Fats and Food Ingredients. Operating profit soared by 26% at fixed currencies, attributed to global optimization and favorable market conditions, with operating profit per kilo rising by 21%. AAK's leverage was low at 0.41 net debt to EBITDA, and return on capital employed was strong at 21.5%. The company is investing in bio-boilers and complying with EUDR, enhancing facilities in Europe. Looking forward, AAK aims for an average 10% annual operating profit growth and remains cautiously optimistic about future prospects.

Introduction to Quarterly Results

AAK's recent earnings call offered a comprehensive overview of their Q2 2024 performance. CEO Johan Westman and CFO Tomas Bergendahl guided investors through the key financial metrics, business updates, and strategic initiatives that have driven the company's success this quarter.

Strong Financial Metrics

AAK reported a 4% increase in volumes, primarily driven by the Chocolate & Confectionery Fats (CCF) and Food Ingredients segments. The operating profit per kilo saw a robust 21% rise at fixed currencies, influenced by global optimization programs and the benefits of higher volumes. Overall, operating profit surged by 26% at fixed currencies. The company also maintained a solid operating cash flow, despite a rise in working capital due to increased volumes. Notably, AAK's leverage remained low at 0.41 net debt to EBITDA, and return on capital employed was strong at 21.5%.

Key Project Milestones

AAK celebrated several significant milestones. The annual general meeting in Malmo, Sweden, showed strong shareholder representation at 77%. Additionally, the company successfully launched bio-boilers at their Aarhus site in Denmark, achieving over 90% reduction in CO2 emissions and saving SEK 100 million annually.

Performance by Business Area

The Food Ingredients segment experienced 4% volume growth, driven by Bakery and Dairy, while Special Nutrition volumes declined. The operating profit per kilo rose by 15%, resulting in a 19% total operating profit growth, reaching SEK 756 million. Despite some currency impacts, the segment showed solid performance.

Chocolate & Confectionery Fats Highlights

The Chocolate & Confectionery Fats (CCF) segment experienced remarkable growth, with volumes surging by 14% due to favorable market conditions and a recovery from last year’s performance. The operating profit per kilo increased to SEK 3.55, resulting in a 58% rise in overall operating profit, which stood at SEK 433 million.

Technical Products & Feed Challenges

The Technical Products & Feed segment faced an 11% decline in volumes, attributed to a lengthier-than-expected production restart following planned maintenance. This resulted in an 80% drop in operating profit to SEK 9 million. However, the situation is expected to normalize in the subsequent quarters as production has returned to usual levels.

Strategic Investments and EUDR Compliance

AAK is proactively addressing the European Union Deforestation Regulation (EUDR). They are investing SEK 100 million to upgrade European fractionation facilities and enhance their presence in the Port of Rotterdam. Further funds have been allocated for integrating IT systems to ensure compliance and traceability. These steps demonstrate AAK’s commitment to sustainability and regulatory adherence.

Sustainability and Future Outlook

AAK continues to advance towards its 2030 sustainability aspirations, boasting 83% deforestation-free palm oil sourcing and 93% traceability to plantations by 2023. The management is optimistic about future growth, aiming for an average operating profit growth of 10% over time, and remains cautiously optimistic about upcoming market conditions.

Market Dynamics and Competitive Landscape

The earnings call highlighted the competitive advantages AAK has in the market, particularly in offering cost-efficient alternatives to cocoa butter. With rising cocoa prices, AAK’s solutions have seen increased penetration and interest from customers seeking functional and cost-efficient alternatives. The company’s strong balance sheet and strategic optimization programs position it well against competitors.

Q&A Session Insights

During the Q&A session, analysts inquired about margin dynamics, M&A prospects, and the impact of market conditions on future performance. The management provided clarity on these aspects, emphasizing their continuous efforts in portfolio optimization and maintaining a prudent approach towards acquisitions while ensuring robust operational performance.

Earnings Call Transcript 2024-Q2

[Operator]

Welcome to the AAK Q2 2024 Report Presentation. [Operator Instructions] Now I will hand the conference over to the speakers, CEO, Johan Westman; and CFO, Tomas Bergendahl. Please go ahead.

[Johan Westman, executive]

Good morning, everyone, and welcome to our second quarter results presentation. Joining me today, I have our CFO, Tomas Bergendahl, and we also have Tim Stephenson, our President of global sourcing and trading as well as sustainability. With that, let's head into Slide #2. This is what we will cover today. We will run through our quarterly highlights, some select events. We'll do a business and financial update, including a progress update on EUDR from my colleague, Tim. And then some concluding remarks from myself, and we will also have a Q&A session at the end. So save your questions for that.

On Slide 3 just very shortly, regarding forward-looking statements. This is the presentation that includes forward-looking statements that come with risks and uncertainties. These are our views on future events and financial performance, but actual results could be different. So please keep that in mind when digesting the material.

With that, Page #4. And some comments through our key financials for the quarter 2 of 2024. In Q2, our volumes grew by 4%, driven mainly by Chocolate & Confectionery Fats and Food Ingredients. Our operating profit per kilo increased by 21% at fixed currencies, mainly driven by our global optimization programs and operational leverage from higher volumes. Profitability was also supported by continued favorable market conditions. Overall, operating profit increased by 26% at fixed currencies.

Operating cash flow was solid, even with increased working capital due to the higher volumes that we are seeing. Our leverage remains low at 0.41 in net debt to EBITDA, and our return on capital employed was strong at 21.5%.

Please turn to the next page, Page 5. We had our AGM, our Annual General Meeting, on May 8 in Malmo, Sweden with good representation, 77% of the shareholding represented. We also now are up and running with our bio-boilers in the Aarhus site in Denmark, and we're nearing full capacity. And this helps us to reduce our CO2 emissions from this plant with over 90%, and it's also saving us SEK 100 million annually in cost savings. So really good projects there that is now up [ mine ].

With that, please turn into Page #6. Comments on our business areas, starting with Food Ingredients. We grew our volumes. They increased by 4%, driven by Bakery and Dairy, while Special Nutrition declined. Operating profit per kilo increased by 15%, thanks to continued optimization and portfolio management. From an industry perspective, it was primarily driven by Dairy, Special Nutrition and foodservice. And with that, our operating profit all in all rose by 19% and reached SEK 756 million despite a SEK 3 million negative currency effect.

Heading onto Chocolate & Confectionery Fats on Slide 7. Our volumes increased by 14%, building on last year's soft second quarter performance, and it was further supported by favorable market conditions, so really strong volume growth. Our operating profit per kilo increased to SEK 3.55, with SEK 0.1 per kilo positive currency impact. And that all in all led to an operating profit that reached SEK 433 million, an increase by 58% versus last year. And that was driven by further optimization of the CCF portfolio, good leverage on increased volume as well as increased market penetration for our alternatives to cocoa butter.

With that, Page 8, Technical Products & Feed. Volumes declined 11% in the quarter. This was due to production challenges during the restart process after our annual and planned maintenance stop. So really an isolated event with a longer stop than anticipated. As a result, production remained offline longer than anticipated.

Adjusted for this one-off, stock volumes in Technical Products & Feed actually grew by 3%. Operating profit per kilo and operating profit was, of course, negatively impacted by the low volume following the longer-than-normal stop that we had. And with that, operating profit per kilo dropped to SEK 0.15, and the overall operating profit fell to SEK 9 million, a decrease by 80%, but again, very much linked to a longer-than-normal stop. Production did come back up and has returned to normal. With that, I hand it over to you, Tim, for an update on EUDR and what we are doing.

[Tim Stephenson, executive]

Thank you, Johan, and good morning, everybody. Please turn to Slide 9, which deals with progress on deforestation-related targets. First, some context from our sustainability report for 2023. You can see that up to 2023, we have made excellent progress towards our target of having 100% deforestation-free sourcing of palm oil by the end of 2025, and it's at 83%. And on traceability to plantation, which is at 93% in 2023.

We are also now making progress in planning to meet our science-based targets for 2030, which were accepted by the SBTI in December last year and which comprised various targets in relation to carbon emissions. This is all very good news. And displayed some positive impact, which AAK can and does make, being 1 of our key aspirations for 2030.

Please turn to the next slide, which is Slide 10, deals with several actions to meet EUDR compliance. The EU deforestation regulation in force since mid-2023 provides mandates for traceability and deforestation for commodities placed on the EU market, including palm oil, soy, cocoa, coffee, rubber, cattle and timber. Starting from December 30, 2024, so this year, all imported raw materials in these categories must comply with EUDR requirements, including evidence of traceability to source, proof of legal production and being deforestation-free since 2020.

For AAK, this impacts palm and soy in particular, and their input on their imports into the EU. It's a regulation already in force. And although there is speculation that its application may be delayed beyond the end of this year, it is a regulation with which we are planning and expecting to comply in line with the time line of 30th of December.

We've already taken steps to comply, including working with suppliers, revising our make or buy strategy and preparing our production setup for increased processing in Europe. We're also maintaining an open dialogue with stakeholders, underlining IT systems and documentation requirements with customers and authorities so far as those requirements are already known.

There do remain some gaps which we expect to be filled and need to be filled by the EU Commission and member states in order to allow a smooth transition. We're working with suppliers to meet EUDR requirements by year-end and strategically replacing elements in our supply chain to safeguard compliance.

We're also adjusting our sourcing strategies and increasing production flexibility in Europe to mitigate risks. Our 2024 capital expenditure includes SEK 100 million for upgrading European fractionation facilities and to each -- ease compliance with EUDR standards. And we're investing in expanding our presence in the Port of Rotterdam and integrating IT systems for raw material traceability requirements. These investments represent early steps in our careful approach to EUDR compliance. And with that overview, I'll hand back to Johan.

[Johan Westman, executive]

Thank you so much, Tim, for that clarification on EUDR. As mentioned by Tim, we are indeed allocating some SEK 100 million to upgrade our facilities in Europe for compliance. We've also invested a similar amount to enhance our presence in Rotterdam, as you just mentioned, and we're also integrating a new IT system. And these investments really mark our initial steps to cautiously monitor regional EUDR implementation and enforcement, and we are consistently and continuously assessing potential future CapEx in order to comply and develop as AAK. And with that, let's move into further comments on our financials with you, Tomas.

[Tomas Bergendahl, executive]

Thank you, Johan. Good morning, everyone. Turning to Slide 11. As you can see from the graph, cash flow in the quarter was driven by earnings primarily, offset by changes in our inventory mix with a higher share of palm versus shea and rapeseed, mainly driven by seasonality and growth in our CCF business. Overall inventory levels remained stable, as did accounts receivable. And cash flow from accounts payable were positive in impact, also driven by the change in inventory mix.

Building on Tim's earlier comments, in order to ensure a smooth implementation of the EUDR regulation as well as the effect of seasonal procurement of inventory related to shea and rapeseed, we will have a temporary stock buildup, which is expected, all else equal, to have a negative cash flow impact of roughly SEK 500 million in the second half of the year, primarily in the fourth quarter.

This effect will then reverse and return to normal over the first half year of 2025. This is a regular seasonal effect, but this year, exaggerated by the EUDR implementation. And the EUDR part of the buildup is there to manage existing uncertainties that still remain in relation to the implementation of the regulation. CapEx amounts to just over SEK 300 million in the quarter, SEK 570 million year-to-date, and we continue to guide the 2024 full year number to SEK 1.2 billion.

Next slide, please. Our return on capital employed increased, as Johan mentioned, following the continued strong development of operating profit, with the rolling EBIT in the calculation of roughly SEK 4.7 billion. The return on capital employed is 21.5%. And capital employed in the calculation is done at SEK 21.6 billion, and the latter remaining very stable over the last few quarters.

Next slide, please. When we look at our net debt to EBITDA, it remains at low levels, 0.41 in the second quarter, marginally higher than in Q1. But this is also following the dividend payout of SEK 960 million in May, Q2. With that, I'll hand it back to Johan for some concluding remarks before we open up for questions.

[Johan Westman, executive]

Thank you, Tomas, and please then turn to the next page, Slide 14. Let me just summarize the key messages here today. We are pleased with our continued progress towards our 2030 aspirations. We delivered year-on-year volume growth, organic volume growth and maintained an operating profit per kilo above SEK 2, resulting in a 27% increase in operating profit. We remain focused on achieving an average operating profit growth of 10% over time. And we are prudently optimistic about the future. And with that, we would like to open up for questions. So operator, please go ahead.

[Operator]

[Operator Instructions] The next question comes from Alex Jones from BofA.

[Alexander Jones, analyst]

Two, if I can. The first on the Food Ingredients margin, in particular and the sequential development, I think EBIT per kilo is down 4% versus Q1, while volumes are slightly up quarter-on-quarter. So can you explain what's driving that sequential movement and whether we should expect further sequential deterioration into the second half or whether it's something that's specific to Q2?

And then the second question, just on chocolate. Clearly, very strong volume growth this quarter. Can you talk a little bit about how much benefit you think you're already seeing from customers' shifting recipes in response to the higher cocoa price and how your pipeline of such reformulation opportunities evolving into H2 and whether that sort of eventual opportunity is much bigger than we're already seeing in the results today?

[Johan Westman, executive]

Thank you. First of all, with regards to sequential development, it's not a big drama, there are always movements between quarters, and Q2 is typically a slightly softer quarter, but I do understand your question with regards to volume sequentially, but we don't see big movements, but there are always some movements between -- in the mix and the portfolio and also between certain regions. So not a big shift there with regards to EBIT per kilo development all in all.

With regards to Chocolate & Confectionery, this is, of course -- this is a -- we need to look at this in a total perspective. There is no doubt that -- I mean, we offer alternatives to cocoa butter as you know. These alternatives bring -- that brings functionality. It also brings cost-efficient solutions to our customers. So with the higher cocoa prices, there is certainly an interest in looking at alternatives, and we've seen that and we commented in our report that we see increased penetration for cocoa butter alternatives, be that a customer used to cocoa butter alternatives using more of it, or be that a customer that hasn't used it before that is now using it. Or even certain segments of customers that is really trying it for the first time and now replacing cocoa butter. So that is a clear trend that we have seen.

With regards to the direct link to cocoa price, I think it's important to keep in mind that we're always selling this in the market. There are competitors out there. You only win businesses based on what you offer and the value that you bring. And the total mix of why we are performing well is still back to higher volumes, which is certainly linked to market dynamics, but also that we continuously optimize our operations, our portfolio management and the value that we bring to our customers. So the total of that is what leads to our earnings and the earnings growth.

[Alexander Jones, analyst]

Great. If I can just follow up on that a touch more, I suppose. I think last quarter, we talked about this high cocoa price creating that interest, but you also talked about the fact it takes customers time to change their recipes. Have a lot of them now had enough time, or do you still think for many of your customers, it's going to take longer and therefore, there's more potential benefit to come if as you say, you can outcompete your competition to win that business?

[Johan Westman, executive]

Yes, great question. It does take time for reformulating and with food and with many other industries, obviously, the consumer product companies always want to be very careful on testing things out. Within the Chocolate & Confectionery business, there is also a bit of yearly tenders and planning ahead. So we have seen some impact of this, and that's what we mentioned.

Structurally, I do think that there is a real opportunity for cocoa butter alternatives going forward that we haven't seen yet. And I do believe that when customers do reformulate and see the benefits both from a functional perspective and a cost perspective and have proven that in their product to consumers, then the -- it becomes a bit -- a stickiness to it because then you are in the recipe.

So we're quite positive with that regard, and then we'll keep highlighting that I think there are even more opportunities down the line if certain countries or government bodies would challenge the restriction of using cocoa butter alternatives, which in many places are capped to 5% only in the ingredient list. But we could with good functionality go higher.

[Operator]

The next question comes from Alex Sloane from Barclays.

[Alexander Sloane, analyst]

I've got a few. The first one, just actually building on the last discussion on the CBEs. So certainly get that you think there's a structural volume opportunity from penetration. Does the high cocoa butter price also give you license to raise your pricing on CBEs in 2025? And where are we on the sweet spot there?

The second one, just in terms of the group more broadly. I mean, obviously, AAK returns are historically at very good levels on the back of the margin uplift that you've delivered over the last couple of years. I mean that's also been somewhat visible, competitors like Bunge and Fuji Oil over the past year or 2.

So I wonder, do you think the sort of the high return on invested capital that the industry is making is kind of structurally sustainable in vegetable oil processing or particularly in segments like CBEs? Could the strong developments maybe encourage more capacity from larger competitors over the medium term? That would be the second one.

And then just finally, Tim, thanks very much for the detail on the EUDR. Really good to hear you're making progress there. Obviously, last year, there was an investigation piece in Sweden Nature that linked AAK and others buying from mills in Indonesia that have been linked to palm fruit from protected lands. I wonder, are you confident that the traceability that you now have in place to plantation would have prevented that?

[Johan Westman, executive]

Thank you. Great question. Starting then with CBE and whether that will be a license to raise prices, I think, need to be repeated, right? We always win and lose against competition, and there's always a price negotiation. So I don't necessarily -- I wouldn't call it license to price. However, we can all understand that if there is an increased demand, an increased opportunity, that demand pull is also playing into the industry dynamics and the competitive landscape. So with that, of course, these dynamics is supportive in terms of continuing to focus on good alternatives to cocoa.

Then with regards to the, call it, higher return, sustainable and so forth with regards to the total oils and fats. From my point of view, I've been quite vocal about this in certain context is we are a multi-oil ingredient house as AAK. And we compete against other oil ingredient players. Some of them vertically integrated, some would call it a commodity-type setup. But these are ingredients. We sell ingredients.

And if you look at the profitability, if you look at the EBIT that we have as an industry, it's a quite low EBIT-type industry. So I think there is a huge opportunity to make sure that any ingredient is sold based on the risk we're taking, the value that we bring. And in that context, I do believe that higher margins for companies producing oils or fats ingredients, which play a huge role in the end product quality, the taste, the texture, et cetera, that makes sense to have good returns.

I don't think that's where I leave it. Internally, we do have continued opportunity for optimization alignment across our industry and driving portfolio management and learning from Food Ingredients into Chocolate & Confectionery and vice versa and also leveraging opportunities in replacing fossil-based ingredients within Technical Products and Feed. So huge opportunities, I think, to drive value. I don't know if you have further comments to that, Tomas?

[Tomas Bergendahl, executive]

No, I think the improvements that you've seen in '22, '23, that now continues in '24. As we've stated before, we see the majority of that being driven by the internal changes that we've made and efficiency gains and so forth, right, getting up to a more sort of reasonable level of profitability for a business like ours as we see it, as Johan said, providing functional ingredients into the food industry.

[Johan Westman, executive]

Yes. And then the last question here on traceability, great question, it's so important that we drive fully sustainable supply chains. Palm is such an important product for feeding the world. And traceability, stopping deforestation is key for us and key for the world. Tim, do you have specific answers to the question?

[Tim Stephenson, executive]

Sure. Alex, yes, I mean in relation to the issue -- one issue that you raised that was brought forward by Swedish nature last year. Our traceability, as we already said, in -- to plantation in 2023 was 93%. So not 100% of that. And even if it was 100%, then I think we can't rule out individual issues arising. It's a bit like sort of health and safety, you never want them to arise, but sometimes you get them. And then it's important as to how you react to those sort of issues when they do arise.

So I think that we -- I'm confident that our traceability to plantation is appropriate to what we do. It's actually quite different from the EUDR requirements as well. It's in part important to say that, that the EUDR requirements are around compliance and providing polygons from each individual location from where we source. So that is a difference. And ours is focused more on the sustainability side and making sure that we contribute to sustainability and I recognize for doing that.

So I can't give you absolute confidence that we won't get anything else that arises, of course, because some things do come out from time to time. But I think our level of traceability and our actions in that area are appropriate and industry leading, in fact.

[Johan Westman, executive]

Yes. And we are -- I mean, we are so active in driving it as a positive driving force for sustainability in all these areas. So I'm confident that we are doing the right thing, but there is never a guarantee for someone misplaying things in a certain situation.

[Operator]

The next question comes from Priya Patel from UBS.

[Priyanka Patel, analyst]

Congrats on the results today. I have 2 main questions. So firstly, within Food Ingredients, just digging into subsegments. So Bakery grew volumes year-over-year, but the EBIT per kilo development was flat. Was this due to mix or like price to raw spread? And then also for Special Nutrition, volumes declined year-over-year, but you saw EBIT per kilo growth. Could you again just explain the dynamics here, please?

[Tomas Bergendahl, executive]

Thank you for the question. I think as Johan mentioned before, in Food Ingredients, there is some seasonality coming into Q2, as we've mentioned before. So no sort of big items that stick out for us in the quarter. The margins and the volumes will change somewhat up and down. When we look at Special Nutrition, as we've mentioned over the last couple of years, we do have challenges on the volume side, particularly on the high-end product that goes into the Chinese market, mainly driven by the reduction in birth rates. That trend continues. But the margin has improved somewhat over time, which is nice to see, and that's also connected, as we've mentioned before, to some of the raw material prices. But the pressure on Special Nutrition in terms of volumes continue.

[Johan Westman, executive]

Yes. So all in all, I think we focus on these optimization programs, portfolio optimization. We are also there in the market in the competitive landscape. So back to bakery, of course, in cases, we take a bit of volume, sometimes on a lower margin, but we focus on higher-margin businesses. So looking at the total portfolio, as you can see, we're up. We're leveraging higher volumes, but there will be dynamics between segments in quarter-to-quarter.

[Tomas Bergendahl, executive]

And in Food Ingredients sequentially, we also see our foodsevice business growing, and they tend to bring a little bit lower than average margins into the business. So this also has an effect.

[Johan Westman, executive]

So good year-on-year EBIT improvement, but slightly dilutive on margin.

[Tomas Bergendahl, executive]

Those are the dynamics.

[Operator]

The next question comes from Joan Lim from BNP Paribas Exane.

[Yuan Lim, analyst]

I have 2, please. So just picking up on the Food Ingredients point. Other than optimization, I think EBIT has been strong in part by your strategy to improve mix. Can you share more about what are some of the drivers of growth and premiumization within this segment, excluding special nutrition? That's my first question.

And my second question is in CCF. So how far is there to go on this reformulation opportunity? So you mentioned there's annual contracting. How should we think about H2? Is it going to continue? Is the strength that we are seeing so far going to continue? Or can we expect a deceleration?

[Johan Westman, executive]

Thank you. Well spotted. Speaking about the optimization and portfolio management that we have done within Food Ingredients, excluding special nutrition, large volumes in bakery, dairy obviously. We have had really nice programs running with the structured process. We call it like a factory deep dive where we go in and look at a total factory, how we run it, how we plan it, what the profitability is by product category, et cetera, and then try to optimize. And that could be internal improvements on how we plan the production to save costs, but it could also be how we challenge lower profit-type products.

And I mean that method and that concept, that works on any segment, any industry, right? So -- but we have seen benefits in that. And further to this, our focus is on high value-added ingredients, really specialty ingredients.

And within all the industries that we serve, absolutely dairy and bakery as well as special nutrition, Chocolate & Confectionery, there are pockets of opportunities where our functional ingredients really play a different role or a good role in terms of the recipe for our customers. So it's been a focus within dairy, bakery, food ingredients in total, also within foodservice to really optimize the portfolio, really deliver the high value-added products. And with that drive, call it, a better mix or at least a better EBIT per kilo.

So if that helps answer the question there on food ingredients, then I'm moving over to continued strength. Repeat the question on the second quarter, please? Or the have -- the second half of the year? Was that CBE?

[Yuan Lim, analyst]

Yes. In the CBE reformulation opportunity, because contracts are annual, right? So just trying to get a sense of H2.

[Johan Westman, executive]

Yes. Thank you. I just don't -- I needed that reminder. So yes. With regards to CCF in total, right, let's keep in mind that when we speak about the performance in Chocolate & Confectionery Fats, we bring within that, industry offering, if you will. We have a broad portfolio of solutions, be that CBEs, be that other alternatives to cocoa butter, be that filling fats and so forth. .

In total, these alternatives replace cocoa butter one way or the other in different confectionery applications, CBE being the dominant one that really is a cocoa butter equivalent. So -- so the total portfolio does deliver a value, a cost-efficient value to our customers.

When we then look at this from an industry and kind of a yearly cycle perspective, the large players in this industry, the large consumer goods companies, they do often yearly tenders where we offer our ingredients and price and so forth and then we get allocation. But you typically don't allocate your full volume. So then during a year, there will typically be opportunities to win business over time.

So therefore, as we look into the second half of the year, a lot of it has been contracted already back in Q3, Q4 last year, but a lot of -- not a lot, but some is still there to be contracted during the first half of this year and even now during Q3 into late Q3 and Q4. And then we will come into allocation contracting season again end of Q3, Q4 for 2025.

So that's kind of the dynamics. And some of these dynamics in the industry linked to cocoa prices and so forth has really accelerated towards the end of last year and the beginning of this year. So I think we're far from seeing the full impact of that, but we have seen some of it.

[Yuan Lim, analyst]

Okay. That's really helpful. Maybe can I just squeeze in one more question. So on finance costs, they have remained high even though they've come down year-on-year due to your reduced debt levels. Can you just remind us what's driving these higher finance costs this year?

[Johan Westman, executive]

Tomas?

[Tomas Bergendahl, executive]

Yes. Thank you for the question. I think the -- if you look at the financing costs, the interest rates have come up over the last couple of quarters, as you've seen. Now we see about SEK 60 million a quarter on average in financing costs. So it's remained fairly stable.

What you see in the cash flow also includes then taxes. And there's a seasonality to that where we pay, from a liquidity point of view, more taxes during the Q2 period compared to other periods in the -- during the year. So that's part of the -- at least the liquidity effect to it.

[Yuan Lim, analyst]

And is there any hyperinflationary considerations in finance costs? Because previously, I think there was an earthquake in Turkey. And is there any more from hyperinflationary...

[Tomas Bergendahl, executive]

There is a little bit of impact, but it's very limited in Q2, and it relates to Turkey still, which is in hyperinflation definition, if you will, from an accounting point of view. But not a big impact in the quarter, no.

[Operator]

The next question comes from Benjamin Wahlstedt from ABG Sundal Collier. Please go ahead.

[Benjamin Wahlstedt, analyst]

A couple of follow-ups on previous questions. With higher prices for cocoa and thereby also chocolate, what is your view of volume growth in the chocolate market overall going forward? Do you get any indications from customers in this regard? Please, that would be interesting.

[Johan Westman, executive]

Yes. Thank you. And of course, that's the end consumer demand we're talking about there, absolute volume growth. We haven't seen a lot impact still. So kind of small movements in the market. As you can see, our volume growth is higher than the market, and that's linked to the things we already talked about. Technically, I think it's worth considering that, of course, if you see high inflation, I mean, if cost really goes up and up and up, and that impacts the price on the shelf, then of course, that has an impact on consumer demand. We haven't seen a huge impact yet, currently low single-digit minuses. So far, call it so good in terms of end consumer demand still being there. We're still using indulgence to treat ourselves, and that has been the case many times in ups and downs in the industry.

I am confident that we have a great opportunity to work with this opportunity for penetration in our solutions. But it's hard to say whether we will see further more significant changes in the market demand. So far, it hasn't been there.

[Benjamin Wahlstedt, analyst]

Perfect. And perhaps a follow-up on this one on the previous question as well. I got a few questions on obesity-related medication possibly having a negative impact on volume growth for products such as chocolate. Do you see any difference in consumer demand between, say, North America where the penetration of such medications is higher than in Europe, for example?

[Johan Westman, executive]

No. A simple answer is no, absolutely not. Not yet maybe would be the prudent answer. But I think these are medicines that potentially can help us have better health and so forth. And our view at the moment is like -- it's great that we focus on health and possibility for us to live longer. .

When we look at it in a total perspective with the sustainability challenges that we have that needs to impact our diet. So I think there's a huge opportunity in the future for a growing population that might live longer even with the help of such a medicine, but also the greater need for plant-based ingredients and so forth to shift diets from animal-based and also from -- in the other sectors shifting away from fossil-based.

So when we look at this, we do see a strong future for plant-based oils and fats, but there might be some impact from a medicine like that. But that's where we stand at the moment. We haven't seen anything in the demand picture at all.

[Benjamin Wahlstedt, analyst]

Perfect. And then a final one from me. You gave us an adjusted volume growth figure for Technical Products & Feed after the unplanned production stop. Is it possible to give an indication or discuss at least sort of like an adjusted EBIT figure for the segment as well, please?

[Tomas Bergendahl, executive]

Yes. Good question. We can give you some numbers on that. If you look at the volume for the group, we were plus 4%. If we adjust for the extra downtime on TPF, if that would have run normal schedule, we would have been at plus 6% instead of plus 4% for the group as a whole.

We saw the combination of lower volumes, meaning lower sales in the quarter with reduced net margin. And additional costs related to the stoppage, about SEK 35 million. So instead of EBIT being up 27% year-over-year, it would have been up close to 31%. And an EBIT per kilo that would have been up a few -- or to about [ SEK 2.15 to SEK 2.16 ]. And it's not because feed has a higher margin EBIT per kilo, as you know, but it's the additional cost that has also contributed with the stop in addition to the lower volume. So about SEK 35 million in the quarter.

[Operator]

The next question comes from Victor Hansen from Carnegie.

[Victor Hansen, analyst]

A couple of follow-ups here. Firstly, if you could provide an update on your M&A pipeline?

[Johan Westman, executive]

Well, I could, of course, but we don't comment specifically, right? So let me maybe rephrase the question or the answer. An update on M&A. We -- obviously, with our continued strong balance sheet, we do believe that we have an opportunity to consolidate, expand geographical expansion, bolt-on acquisitions and/or if something bigger would materialize. So I think the same answer to what we have said before, we are still very interested. We're still very capable, but there is not a lot of transactions out there in our markets. So we just need to be focused, making sure that we are relevant when anything flips, and we are much willing to do so. But I can't comment on any specific...

[Victor Hansen, analyst]

Yes, of course. Yes, exactly. That's how I meant it. So it seems like the amount of dialogues you have here are similar to before. Certainly like that, yes. And the next question I had here on -- if you could give an update on your Cash to Go program. Could this perhaps mitigate some of the EUDR-driven additional working capital?

[Johan Westman, executive]

Tomas? Fill in on this.

[Tomas Bergendahl, executive]

We -- the program is continuing. We have scheduled a few more facilities and plants during the fall, and it's progressing well. We did measure the development of working capital days between the facilities that we had gone through the project and the ones that haven't. And we saw actually so far a 7-day working capital reduction with the ones where we had gone through the Cash to Go process compared to the ones that we hadn't so far. So we do see a good effect, and we hope that will continue as we then roll this out to the remaining plants and facilities in '24 and continuing then through '25 as well. So good progress. But it is quite labor intensive in each plant. So it will continue into 2025 with this activity as well.

[Victor Hansen, analyst]

Perfect. And perhaps a final question here on TPF, the lower volumes due to the production stop. Should we expect these volumes to be delivered in Q3 instead?

[Johan Westman, executive]

Thank you. No, it was a longer stop, and we kind of lost that opportunity for production and sales, but we are up and running as normal. So not an expected catch-up, but still expect it now back to kind of normal operations.

[Victor Hansen, analyst]

Okay. Perfect. That's all for me.

[Tomas Bergendahl, executive]

But we -- just as an additional comment, sorry, we don't see any negative effects on volume going forward from not being able to supply during that period. So it's more a hand-to-mouth type of business in that way.

[Johan Westman, executive]

Right. I think that was the last question. We have actually time for one more question, I think. So if there is one more question that we could take.

[Operator]

The next question comes from Oskar Lindstrom from Danske Bank.

[Oskar Lindström, analyst]

Yes. Most of my questions have been answered, but I do have one question, and I guess it's for you, Tim, on EUDR. And -- any way to say what kind of impact this regulation is having on the competitive landscape? Are you seeing any changes in supply to the EU, with the competitors perhaps giving up on the European market or at least segments of the market due to the tighter regulations? Yes.

[Johan Westman, executive]

Thank you. Tim?

[Tim Stephenson, executive]

Yes. Oskar. Well, it's not being implemented yet, actually. So it's a difficult one to answer because it doesn't come into effect until the end of this year. I don't expect any major changes in terms of that competitive landscape, really, everybody is effected in pretty much the same way, certainly as far as the oils and palm and soy which impact us. And I couldn't comment on the other commodities. It may have some sort of impact, but it would be speculating to see if it had yet. So -- so maybe ask me in 6 months' time or something and then I'll be able to give you a better answer on that.

[Johan Westman, executive]

And as AAK, I mean, we are agile. We are on top of it. We're trying to lead and be really well prepared. I think our greater concern is rather what these kind of very deep regulation and detailed focus on compliance is doing to Europe. You've heard those voices in many areas. So it's a bit of a concern that they choose a very comprehensive way of proven compliance.

And with that, likely cost for importing goods into Europe goes up and so forth, but we are on top of it, and we will be able to comply as we understand more of this. And then we'll see what impact it might have on competitive landscape. But I think the greater conversation should rather be on Europe as a whole in these kind of regulations. And -- and the cost of compliance versus the benefit where, as you've heard us being focused on, for example, satellite monitoring, driving no deforestation. So we have -- we share the same objective and intent. However, EU has chosen a more difficult way for compliance versus maybe our choice.

[Oskar Lindström, analyst]

I agree with you there. That seems to be the case. Just -- I mean, have you seen any of your customers considering at least changing their sourcing and use of raw material for oils and fats due to this regulation, making palm oil relatively less attractive and other oils relatively more attractive? Is it happening any -- having any changes on demand?

[Johan Westman, executive]

Thank you. Great question. There are some examples, but it doesn't move the needle on the big items, right? So large customers, large product -- volume products in the market. No big change, and I don't expect it to be. There are some that do look into that, and it's part of our plan. Actually, we are -- for us to comply, we're looking at reformulations. We're looking at how we source and what suppliers we're using, and we're looking at some internal make-buy investments, as you've heard.

But I think it's worth raising the view here again. That could be a simple way for someone to just -- you don't have to deal with it, let's say. You choose another oil, you reformulate and you don't have to deal with that. Does that make deforestation lower in the world? Does that make our world more sustainable? Does that mean that we would meet our targets faster on the 1.5 degrees? No, it won't, because many of the other solutions are less sustainable than a sustainable supply of palm, for example.

So this is where we advocate facts on the table, look at what ingredients, what kind of diets are more sustainable than others. But this type of regulation will have some consequences. And some of them are maybe irrational or would not lead to the right result. But for certain customers, certain players, that could be their choice.

And AAK is great again. I mean we are good at reformulating, we're good at helping our customers. We do have a multi-oil ingredient house offering. So this could be beneficial for AAK, but I'm not necessarily advocating it being the best choice for feeding the world sustainably.

[Operator]

There are no more questions at this time. So I hand the conference back to the speakers for any closing comments.

[Johan Westman, executive]

Thank you so much. Thank you to everyone that has been listening in, calling in for your great questions. Thank you, Tomas and Tim, for this call today. I wish you all the best. Thank you.