Looking at AAK’s financial performance 2017, the AAK Group’s CFO Fredrik Nilsson gives you an insightful analysis. He also looks ahead, telling you more on how AAK’s company program will guide us during the next years.
2017 saw another record-high operating profit for AAK, how would you describe the company’s financial performance?
Very strong, particularly when you consider the challenges we faced during the year. We continue to deliver double-digit improvement in operating profit, which is in line with our management ambition, and we have now had 28 straight quarters with record-high operating profit quarter-over-quarter as well as a record-high full-year result every year since 2010. That is quite impressive.
The organic growth for our speciality and semi-speciality solutions continued during 2017 and with 5 percent organic growth we have definitely gained market shares. We have also identified how to further that organic growth as well as continued our effective cost control with annual productivity improvements.
What are your comments on the company's cash flow?
Following a negative cash flow after investment activities in 2016, mainly due to the acquisition of California Oils Corporation and higher raw material prices, we have in 2017 a positive cash flow after investment activities. This despite the fact that the Group’s capital expenditure continued to be at a high level due to the finalization of our greenfield project in China as well as investments for increasing our capacity to meet the strong demand from our customers. We expect capital expenditure to be at a slightly higher level in 2018 compared to 2017.
Cash flow from working capital was negative in 2017. Good working capital management has impacted cash flow favorably. However, this was offset by a continued organic volume growth, a net negative impact from higher raw material prices, and working capital tied up for our new factories in Brazil and China. Our focus on working capital days continues and some further improvements should be possible, particularly relating to payment terms with our suppliers and late payments from some customers.
AAK strives to pay a stable dividend linked to the company’s long-term performance, and for the sixth year in a row we increased the dividend paid. Total paid dividend was SEK 370 million or 36 percent of the consolidated profit after tax.
How do you allocate capital?
We always try to maximize our ability to invest in growth and create a higher shareholder return. To ensure we can continue to grow, we want to have a strong balance sheet and be well capitalized with a net debt/EBITDA ratio lower than 3.
The dividend policy for the company is to have a payout ratio of net profit of 30–50 percent. Historically, the payout ratio has been around 35 percent.
AAK has over the last year invested significant amounts in organic growth, built two new factories, and expanded others to secure that we have enough capacity to meet the strong demand for our solutions. The company will continue to invest in organic growth, both in equipment and in our employees, to secure that we can continue to be the co-development partner to our customers.
We also have an ambition to continue to grow through mergers and acquisitions, either to expand our geographical footprint and get closer to our customers or to invest in technology that adds even more value to our unique customer co-developed solutions.