Gränges AB (publ)

Welcome to Grenges conference call for the fourth quarter of 2020 here in Stockholm. It's me, Johan Enkel, CEO of Grenges. And beside me, I have CFO Oskar Hallström. As usual, we will start this presentation with an update of Grenges performance during the last quarter and touch upon some important events. After that, Oskar will take you through the financial results. And then we will conclude the presentation with a short summary and a Q&A session. The fourth quarter of 2020 has in many ways been a productive and good quarter for Gränges. During the quarter, we continued to experience a recovery of our core markets and the activity in both the automotive and the HVAC industry were higher than in the fourth quarter of 2019. As a consequence of the strong demand of the HVAC market and our increase of the market share, our America business had a new record year in 2020, both in terms of sales volume and earnings, despite the COVID-19 pandemic. In November, we completed the acquisition of Aluminum Corning, adding important capabilities and new niche market to Gränge's portfolio. In the fourth quarter, we also entered the market for aluminum powder for additive manufacturing throughout the establishment of Grenges Powder Metallurgy. Following the improved market conditions in the fourth quarter, the sales volume, excluding acquisitions, increased by 14% year over year. whereas the total sales volume growth including Corning was 33%. The adjusted operating profit increased to 34% to 193 million SEK. The cash generation continued to be very strong and the adjusted cash flow before financing amounted to 232 million SEK in quarter four. Finally, our board of directors intends to resume the dividend and proposes a dividend of 1.10 SEK per share for 2020. During the quarter, we also updated our strategy and identified our priorities the coming five years. I will comment more about this later. The improved market conditions become evident when we look at the market statistics. Unlike the negative development we saw in especially the second and third quarter, all Granger's key markets show a positive year-over-year development in the fourth quarter. For the automotive market, the research firm IHS currently estimates a global increase in light vehicle production of 2% in the fourth quarter. This means a continued sequential increase from the third to the fourth quarter of 14%, and that the full-year light vehicle production is down 16% in 2020 compared with 2019. If we look at estimates by region, we can see that Asia is expected to have a year-over-year growth of 4%, followed by Europe at 1%. America shows a flat development in car production compared with last year. In Asia, inventory levels in the automotive supply chains have to a large extent been restored, fueled by the comparatively more rapid recovery from COVID-19 in China, than in many other countries. In Europe and Americas, we still see effects from inventory levels in the supply chain being increased, which generates a positive effect on demand for Grenges products on top of the light vehicle production increase. For the first quarter this year, IHS expects a continued recovery of the automotive production with a global year-over-year increase of 15%. There is, however, a potential downside risk associated with this forecast since there are signs of shortage of semiconductors in the automotive supply chains. This may lead to line stops at automakers and reduced production rates below forecasted levels. The most positive development in the fourth quarter is the Americas HVAC market that is expected to have grown by 61% compared with the same quarter last year. This may seem a lot, it is, but we also need to keep in mind that the fourth quarter typically is the seasonal low point for HVAC production. So the increase is from low levels. That said, there are two primary drivers behind this development. First, the summer season in the US has been unusually long and warm this year, which has a positive impact on sales of air conditioning units. Secondly, as many people are now working from home, Because of COVID-19, there is an increased need for a better indoor climate, which has increased the demand further. When looking at Grengel's sales volume development during the fourth quarter, we can clearly see the impact of the strong HVAC market and the continued recovery of the automotive market. Our sales volume grew organically by 14% year-over-year in the quarter, and when adding the acquired sales volume from the Corning, The total increase is 33%. With a total sales volume of 103,000 tons, the fourth quarter of 2020 is the first individual quarter for Gränges with a sales volume above 100,000 tons. If we look at the sales of automotive materials, we see a year-over-year increase by 4%. In Asia, sales volume was up 2%. In Europe, 5%. and in Americas, 8%. This largely follows the pattern of the development of light vehicle production in the quarter, but we see a slightly higher growth for Gragas in Europe and Americas. This is primarily the result of customers rebuilding inventory in their supply chains to adjust to a new and higher expected demand level going forward. For the HVAC and other business in Americas, we see a volume increase of 24%, There are three main reasons for this. First, we have contracted a market share increase as of 2020, as we have communicated earlier. Secondly, the HVAC market was very strong in the quarter. And thirdly, the demand for specialty packaging materials for food and pharmaceutical has increased as a consequence of the COVID-19 outbreak. Especially demand for materials for food containers for home delivery and takeaway has increased as a result of heavy restrictions in many US states. We are satisfied that our investments in new capacity has enabled us to capture this growth. In the fourth quarter, we have included two months of sales from Corning. In total, Corning contributes with a sales volume of 14.6 thousand tons in the fourth quarter, Of this, 13.6 thousand tons are sold in Europe and 0.9 thousand tons in Americas. In the beginning of November, we completed the acquisition of aluminum Corning, now renamed Gränges Corning. The acquisition strengthened our product offering and presence in Europe and contributes with the strong positions in new attractive niche markets. Gränges Corning also adds new capabilities and capacity to expand the offering for future transportation solutions, such as electrical vehicles. Following the completion of the acquisition, we have worked closely with our new colleagues in Poland to integrate KONIN into Gränges. The integration work progressed according to plan, and I'm very pleased with the development I've seen so far. Subsequent to the KONIN acquisition, we undertook a new share issue of approximately 1.7 billion SEK with preferential rights for existing shareholders. The share issue aims to finance the acquisition and future growth investments in line with our strategy. The interest to participate in the right issue was very high and resulted in an oversubscription of approximately 50%. It is very positive for Gränges with this strong support from both current and new shareholders. With the acquisition of Konin and the right issue completed, We have established an even stronger platform for Gränges in general and for Gränges in Europe in particular. Despite challenging market conditions following the COVID-19 pandemic, 2020 has been a productive and eventful year for Gränges in several ways. During the first half year, we spent significant time and effort mitigating the impact of COVID-19. We did that by activating our contingency plans and focusing on business continuity, cash and cost. Although we have continued to work in accordance with this throughout the year, we have during the second half of the year also taken important steps to position Gränges even better for the future. We have completed the acquisition of Gränges Kornil and entered the market for aluminum powder for additive manufacturing through the establishment of Grenges Powder Metallurgy. We have successfully ramped up the new production capacity in our Huntingdon facility, which contributed to that 2020 became a new record year for our America's business, both in terms of sales volume and earnings. Through the successful 1.7 billion SEK right issue, we have strengthened our balance sheet and secure capital for continued development of the Gränges Group. We have also continued to execute on Gränges' ambitious sustainability framework and targets, and I'm very satisfied to see continued good progress on many of our sustainability priorities for 2020. When looking at the sustainability performance for 2020 in more detail, We continue to see good progress on many of our prioritized sustainability topics and metrics. This demonstrates that the strength of our structured way of working when integrating sustainability aspects across our operations and value chain. The slide here covers four of our prioritized sustainability metrics and the arrows illustrate the direction of the performance versus 2019. As you can see, the metrics show a positive trend. Total carbon emission intensity has continued to decrease year over year, which we are very proud of. This is mainly driven by lower emissions from purchased materials, which in turn has been positively affected by increased sourcing of low carbon primary aluminum, as well as higher share of sourced recycled aluminum versus prior year. We have also, during 2020, taken important action to speed up the development of sustainable products. Our operation in Finsbom has developed and implemented a lifecycle assessment LCA tool, which enables declarations of environmental impacts on product level. Starting with the carbon footprint, I'm very satisfied that we can start to offer customers third-party verified carbon footprint certificates for products. Finally, we also see a positive trend when it comes to the share of women working at Gränges, both in the total workforce and among senior management. Improving the gender balance is a priority across the organization, and Gränges strives to offer an inclusive work environment which leverage employees' different perspectives and experiences. All detailed sustainability performance will be published in our annual and sustainability report, which will be launched in mid-March. When summarizing the year 2020, we can clearly see that the performance against our long-term financial targets are impacted by two things. The challenging market situation following the COVID-19 pandemic and the fact that we during the year have continued to invest according to our growth strategy. Even though we are not satisfied with the sales volume development in the year, Seeing an organic decline of 2% compared with 2019, when we exclude the impact of acquisition, we can note that this is much better than the growth of our end markets. In total weighted average growth, our end market is currently estimated to be negative 7% for 2020, making Granger's growth four percentage points better than the benchmark. The lower earnings following the challenging market situation in especially the second quarter in combination with an increased assets from the expansion investment, had a negative impact on return on capital employed in the year. For 2020, the return on capital employed was 8.1%. We ended the year with a net debt of 3.3 billion SEK, which correspond to 2.2 times EBDA. This is slightly outside of our target range, but we expect to see leverage rate to come down going forward as the new investments will be increasingly utilized. Our board of directors intends to resume the dividend and proposes a dividend of 1.10 SEK per share for 2020. Given that the AGM approves the proposal in May, it means that 32% of net profit will be returned to our shareholders. This is within our target range. As we conclude on 2020, we are also concluding on the last year of the current strategy period. Consequently, we have, during the year, spent time reviewing and updating our strategy and priorities for the coming five years. The foundation of our updated strategy is our purpose and promise to our stakeholders to develop lighter, smarter and more sustainable aluminum products. Based on current market trends, And with the Grenges competence, capabilities and global footprint in mind, we have identified four areas in which we will focus on growth efforts going forward. These are thermal management, electrified transportation, new road product niches and new materials technology. Grenges is the global leader when it comes to supplying materials for the heat exchanger industry. and this will continue to be an important part of Grenges future growth. We aim to use our knowledge and connections in the heat exchanger value chain to build new business in thermal management market within both existing and new end market areas. The increased focus on sustainability is driving the electrification of the transportation industry. This generates increased demand for rolled aluminum solutions, for instance, batteries and general lightweighting. In this area, Grenges aims to target select opportunities to have a good fit with Grenges know-how and production capabilities. This increased demand for structural aluminum parts will be able to serve to our new facility in Koning. We also have a clear ambition to continue to diversify our product portfolio and enter into new rural product niches where we can leverage and further build on our product and process know-how. An example of such initiative is our entry into the light-gauge aluminum foil area with our upgraded Newport facility, or the expansion of our specialty packaging offering through the acquisition of Gränges Corning. Finally, we aim to use our knowledge and competencies to expand in what we refer to as new materials technology. Although Granges today is very much associated with aluminum rolling, our competence within materials technology is much broader and can be used in areas also outside of rolling. This is something that we intend to capitalize on going forward. A very good example of a new materials business is the recently established powder metallurgy business unit where we target the market for aluminum powder for additive manufacturing. The realization of the updated growth strategy is supported by an increased focus on sustainability, innovation, digitalization, and continuous improvement. An increased focus on these business drivers, together with our strong company culture, committed employees, will further strengthen Grengel's profitability and competitiveness and ensure realization of our updated strategy. With that, I hand over to Oskar for the financials.

Thank you, Johan. As we already heard Johan talk about, we saw a continued positive development of the sales volume in the fourth quarter, both if we compare with last year and with the third quarter. With the close to 15,000 tons volume added from Corning, the 103,000 tons we delivered in the fourth quarter is the highest sales volume in an individual quarter so far for Grenges. From a 2020 full-year perspective, We do, however, see the impact of COVID-19 on both sales volume and operating profit in the earlier quarters of the year. And for the full year, we delivered a total sales volume of 351,000 tonnes and the adjusted operating profit amounted to 648 million SEK. If we look at the sales volume and margins on a quarterly basis, we can see that the group's adjusted operating profit per tonne remained stable at 1.9 thousand SEK year over year, but came down slightly compared with the third quarter. Excluding acquisitions, the profit per ton increased year over year to 2,000 SEC in Q4. For the automotive business, we can see a higher volume and a stable profit per ton in Q4 compared with Q3. On the positive side, we see the capacity utilization continue to increase and is now close to 75% for automotive business. The effect from this is partly offset by product and geographical mix changes between the quarters. If we compare the automotive margins in Q4 with Q4 last year, we see the positive effect from a higher sales volume and improved capacity utilizations. whereas unfavorable FX, slightly lower average conversion price and less optimal metal management, reduced the margins. For the HVAC and other business in Q4, it was very strong, as Johan mentioned earlier. If you compare with the third quarter, the operating profit per ton is negatively impacted by a seasonal mix shift, as Q4 typically has less HVAC and more specialty packaging volume. This year, we also see the effects from the reopening of the Salisbury facility in the second half of Q3 that increased the fixed cost base somewhat in the fourth quarter. That said, looking at the full year perspective, the profit per ton for the HVAC business has improved from 1.8 in 2019 to 2.4 for the full year of 2020. And this is, of course, something that we are very happy with. As you can see on this slide, the acquired business, which is Aluminium Konin, has a below average operating profit per tonne of 1,100 SEK in Q4. Here we do need to be a little bit careful when we make comparisons, as the two months including for Konin are November and December, where especially December is the seasonally weakest month of the year, whereas for Grenges, the full third quarter, including October. is included in the figures. To give an indication of what can be expected from Corning on a full year basis, I think it's worth to recall what we have indicated on Corning performance before. Gränges Corning is in the current market environment operating at close to the maximum capacity of 100,000 tons per year. And that is expected to generate an EBITDA of about 135 million Polish Zloty per year. The appreciation of conin assets as a part of Gränges is expected to be about 50 million Zloty per year, depending on the final purchase price allocation, which has not yet been concluded. And this means then that the operating profit per year would be about 85 million Zloty. And at current FX rates, this is approximately 190 million or 1.9 thousand SEK per ton for the full year. Any realized synergies or improvements would come on top of this. If we leave the sequential perspective and look at the fourth quarter compared with the same quarter last year, we can see that the sales volume increased by 33% to 103,000 tons and that the net sales increased by 17% to 3.1 billion. Excluding acquisitions, the sales volume increased by 14% and the net sales by 3%. The main reason for the net sales increasing less than the sales volume is FX translations. The net impact of changes in foreign exchange rates was negative 264 million SEC compared with the fourth quarter last year. Looking at the earnings, the adjusted operating profit increased to 193 million SEC in Q4, an increase of 49 million SEC, or 34% on prior year. Of this, the acquired Corning business contributes with operating profit of 17 million SEC. The positive impact from increased sales volume, slightly higher average conversion price and continued positive effects from cost reduction initiatives was partly offset by less efficient metal management. Metal management continued to be a very high focus for us at this point. The raw material represents a large part of our cost base and our ability to keep an optimal raw material mix can have a large impact on the profitability. When demand is unpredictable and rapidly changing, raw material optimization is more difficult. When comparing Q4 year over year, we should also mention the difference in absorption of fixed costs in inventory that has an impact of negative 12 million sec. In 2019, demand slowed down more than normal toward the end of the year. And as a result of this, we built inventory that absorbed some of the fixed costs. In 2020, demand was strong throughout the quarter and we reduced inventory, resulting in a lower absorption of fixed costs and a higher share of the fixed costs was taken directly in the result. This effect is primarily related to 2019, but of course has an impact on the year-over-year comparison. Depreciation increased within total 23 million SEC, of which 17 is related to Corning, and the remainder is related to the completed expansion projects in the US. Net changes in foreign exchange rates was negative 11 million SEC in the quarter. Items affecting comparability amounted to in total 27 million SEC in the quarter. Of these, 31 are related to the realization of the fair value step-up of the inventory that was acquired as a part of the Corning transaction. We expect an additional effect from fair value step-up of negative 16 million SEK in the first quarter this year. Further, we also carried one-time costs for the KONIN acquisition of 6 million SEK in the quarter. And finally, we had a positive effect of 11 million SEK, which is the net of a released restructuring provision in Sweden and restructuring costs in Americas. The reason for the released provision in Sweden is that the money reduction will be smaller than previously expected as a consequence of the stronger market environment. The reported operating profit for the fourth quarter increased to 167 million SEK. The profit for the period increased to 106 million SEK. Earnings per share has been calculated taking the dilution from the rights issue into account and amounts to 1.19 SEK in the fourth quarter. During the fourth quarter, the net debt increased by 480 million SEK to about 3.3 billion SEK. In terms of net debt to adjusted EBTA, this is, however, an improvement from 2.5 to 2.2 times, since we are now also including the 12-month rolling EBTA from Grenges Kornin. when we calculate this ratio. Starting from the left of this chart, we can see that we continue to have a strong underlying cash generation in the fourth quarter. And the cash flow before financing adjusted for the expansion investments and acquisitions amounted to 232 million SEK. As we've mentioned before, one of the areas we have increased our focus on as a response to COVID-19 is working capital management. And despite the sequential pickup in the business activity, we managed to maintain working capital on a stable level in Q4. And we end the year with 13 days less of working capital than what we carried a year ago. As Johan already mentioned, we made a capital raise in the form of a rights issue during the quarter. The net proceeds of this amounted to, in total, close to 1.7 billion SEK and reduced the net debt by the same amount. During the fourth quarter, we also made two acquisitions, the one of Getek in October and Aluminium Konin in November. The net cash consideration and acquired debt for these two acquisitions amount to 1.2 billion SEK and about 1.1 billion SEK, respectively. We've also continued to invest in total 102 million SEK in our expansion programs. Of this, 56 million SEK refers to the ongoing program in Konin and 46 million SEK to the expansion investments in Americas and Sweden. In total, net debt impact from acquisitions and expansion investments amount to close to 2.4 billion SEK in Q4 and 2.6 billion SEK for the full year. Given this and keeping the impact from the challenging market that we experienced earlier in the year in mind, I think that it's very positive that we end the year close to our leverage target. Before leaving this page, I would just briefly like to touch upon how we currently view the capital expenditure for 2021. At current FX rates, we expect the full year capex to be about 800 million SEC. Of this, about half is expected to be related to maintenance and upgrades of existing assets and half to expansion investments. The majority of the expansion capex is in turn related to the ongoing program in Konin. Finally, I would just like to highlight that Grengis has always been in business with a strong underlying cash generation and the fourth quarter of 2020 was no exception from this and nor was the full year. If we look at the cash flow before financing activities and exclude acquisitions and CapEx for expansion investments, this amount to more than 1.8 billion SEK for 2020, implying an operating profit to cash conversion of 182%. I believe that the continued strong cash generation is good evidence of the efforts made by the Grenges team in this year when it comes to cost savings and capital management. And this also shows the strength of the Grenges business model throughout the economic cycle. With that, I hand over to Johan that will provide an outlook for the first quarter and the summary of the fourth quarter. Thank you.

Thank you, Oskar. Although the COVID-19 pandemic continues to impact several of Gränge's end markets, the recovery is currently expected to continue going into 2021. For the first quarter in 2021, the research firm IHS currently assumes that the global light vehicle production will increase by 15% year over year. Still, we do see some downside risk here as the car production may be negatively impacted by shortage of electronics components that may lead to line stops. Based on what we see for Gränges now, we expect an organic increase in sales volume, excluding Gränges Corning, by low double-digit compared to last year in the first quarter. This includes a low double-digit growth for the automotive and a mid-single-digit growth for the HVAC and other business. Grengis Kornin is operating at close to full capacity and is under current market conditions expected to contribute with a sales volume of some 24,000 tons in the first quarter. The development of foreign exchange rate is expected to have a negative impact on the profitability in the first quarter. To conclude 2020 fourth quarter report, the fourth quarter was productive and good for Gränges. We have experienced improved market conditions in all regions, with HVAC in Americas representing the strongest demand. As a consequence of the improved market demand, and the completion of the KONIN acquisition in November, the sales volume increased by in total 33% year over year, and the adjusted operating profit increased to 193 million SEK in the quarter. The cash generation continued to be very strong, and the adjusted cash flow before financing amounted to 232 million SEK in quarter four. Our board of directors intends to resume the dividend and proposes a dividend of 1.10 SEK per share for 2020, given that the AGM approves the proposal in May. It means that 32% of net profit will be returned to our shareholders. This is within our target range. Leaving 2020 behind and looking further ahead, I conclude that we in the last five years have established a strong platform through organic growth, expansion, investments and acquisitions. With a strong commitment to sustainability, innovation, continuous improvements and digitalization, Gränges is well positioned to deliver sustainable and profitable growth for the coming years. Now we open up for questions.

Thank you. Ladies and gentlemen, if you have a question, please press 01 on your telephone keypad now and enter the queue. Once again, I remind you, if you have a question for the speakers, that's 01 on your telephone keypad now. And our first question comes from the line of Gustav Scheren of Handelsbanken. Please go ahead. Your line is now open.

Yes, hello, Johan and Oskar. Thanks for taking my questions. Firstly, on Q4 profitability, you mentioned the challenges with method management and also the under-absorption of fixed costs from sales breaks. if you could give some indication of how much that impacted Q4 negatively. And also on that theme, I didn't quite hear what you said, but I'm wondering why the EBIT per ton for the auto business is not up year over year. I can't think that the cost base is higher year over year. Thanks.

I think that if we start with the fixed cost absorption in inventory there, it's not the Salisbury plant per se, but you're right in that it's related primarily to the Americas and to the HVAC business. The year over year impact of this particular item is 12 million SEK and it's primarily then related to 2019. So the positive effect of this in 2019 was about 12 million, whereas it's more neutral for 2020. So that's the absorption of the inventory. When it comes to automotive profitability, This is really the part of the business where we are running the most complex products, the most complex alloy mixes, which means also that this is the area where we are most sensitive to the optimization of the metal management. So if you compare the automotive margins year over year, This is really the area where our less optimal metal management in Q4 currently has the largest impact. So that is a key driver there. We also see slightly negative average conversion price development on the automotive side. And FX, translation FX and transaction FX also has a, slight negative impact year over year for automotive. But I think that the main part there is that it's on the automotive side of the business where the metal management effect is the largest. Did that answer your question?

Yeah, I think it gave a rough indication of how much that affects the e-bill to turn negatively the metal management.

I would say that in the fourth quarter, the total metal management effect of the group is between 20 and 30 million negative year over year. So it's a substantial part, of course.

All right, thank you. Secondly, and perhaps thirdly as well, you mentioned the risk to IHS numbers on semi-shortage now in Q1. Is this something you're already seeing in the value chain? And lastly...

when can we expect to hear some more now on on synergies on your outlook for uh conan for the coming years thanks so yes to verify you you your question was if we see this if we experience impact of the semiconductor shortage on the demand that we see from our automotive customers was that the first question

Yes, exactly. Yeah, thank you. No, we don't see that in our order book and demand right now. And as you know, we have a good visibility for the one quarter in front of us. And we have it delayed, of course, from the production of light vehicle when it hits basically growing as demand. But we don't see it right now. But, of course, we hear about it in the market. But I think also that was the first question. And the second was... expected synergies from KUONIN. We are working with the synergies in three areas, as we have been presenting before, basically on sales and operation efficiency and also metal management. And we will see, of course, these synergies come in here during this year and also next year. But the largest synergies will come from optimizing our sales force. And given the fact that we have a lot of existing contract, this will, of course, take some longer time. But there are clearly synergies that will be realized here going forward.

And I think just to add to that is that, of course, we have a fairly good view of what we believe the synergies should be. We are currently verifying them. And we have so far not provided an external view for us on this. But I think that that's, of course, something we will do at some point in time. All right.

Thank you.

Thank you. Once again, I remind you, if you do have a question for the speakers, please press 01 on your telephone keypad. Our next question comes from the line of Carl Borkvist of ABG Sandal Collier. Please go ahead. Your line is now open.

Thank you, and good morning. So my first question is a bit of a follow-up. If we look... if we extend the view beyond perhaps three months, and let's say that the electronic issues that we read in the news tend to spill over into the rest of the supply chain, how quickly would that potentially materialize in your supply chain and delivery ability?

Yeah, I think it's a good question there. I mean, It depends very much on how our customers, of course, will react. And that in turn depends on how the automakers will react to this. But I mean, in the end, this will be... I guess, like any sort of demand reduction. How quick it is, it's, I guess, difficult to say. But on the good side, of course, is that this potential shortage of semiconductors is well known at this point. And of course, we have to expect that that The automakers and our customers can take this into account when they are planning their sort of placing orders from Gränges, of course. But as Johan says, at this point, we haven't seen a drop in orders from our customer that we can relate to this specific thing. But we do think that it is a risk given what has been indicated from the other parts of the automotive supply chain. I don't know if that helps, but maybe a little bit of additional flavor.

Yeah, no, I understood. Thanks. And just as an update, is it possible for you to say kind of your top three largest OEM customers in automotive?

If you think about the car producers now, or?

Yes, exactly.

No, but it's a, It's a very good question. And we have a fairly good answer to it. And of course, we have about 20% of the global market for heat exchange materials to the automotive industry. A little bit of an increase really after the completion here of the Corning acquisition. If you translate that to what cars that we are in, it means that we are in 50% of... all the cars produced globally today. So more or less, we have our equal share of the market among most of the car producers. But then, of course, we have a little bit of a higher market share in Europe. It means that we have a little bit of a higher share among European produced cars. And of course, we have a slightly below average market share in America, meaning that we have a little bit of a lower share in US produced cars. But more or less, I think it's fair to assume that we are almost everywhere in the market with some products in each car, really.

Yes, to add on this, I mean, we basically have the same, you know, proportion as the car producer globally. I mean, Volkswagen, Toyota, and also other, I mean, large, so we basically, we have a good penetration for all these large OEMs. So it's not that we have a, you know, yeah.

Okay, thanks for that. That was what I was interested in. Follow-up question. If we look into the coming quarters, do you think that it's very difficult to say that metal management and conversion price pressure, if we put it like that, will improve or worsen the development of this? Or is it still very uncertain?

As for the metal management part, of course, the most important factor for us there is stability. The more stable and predictable our environment is, the better we can plan and the better we can optimize our raw material mix. So... We don't, of course, know exactly what 2021 will bring in terms of end market demand and the impact of COVID-19 and so forth. There are still certainly some clouds out there. But I think that we are in a much more stable situation right now with what we see in the first quarter than what we were, for instance, in the second and third quarter of this year. So I think we will have a better situation when it comes to optimizing metal management going forward. And it's certainly a key priority for us. But... Stating it again, the more stable the environment is, the better we can perform on this metric.

Understood. And the conversion prices, is there any trend there that this might decrease further?

I think it varies a little bit in different markets. I think if we look at sort of the most challenging market right now, I think it's the Asia region where there is sort of a maturing market in general, but where we also see that the US has anti-dumping duties on China. And of course, that has an impact on the competition in the Asia region. That is probably the most challenging area from a price perspective. This is not really anything new. This is something we have lived with for several years as the Asian and Chinese market has matured. On the positive side, we do see the Americas region as an area where we have managed to have a good price development in recent years and where we think that the price development potential is stable with some upside potential in 2021. Europe is somewhere between there.

All right. And sorry, just the final one, more technical. I appreciate the disclosure on CONIN in terms of volumes and earnings and everything, but going into 2021, should we expect to seek NIN as a separate line item in your reports, or should we assume that they will be consolidated into your previous reporting structure?

I think everyone benefits from transparency here. So our intention is to make sure that until we have KONIN at least 12 months into Gränges, we intend to disclose the contribution from KONIN in terms of sales volume and earnings and so forth, so that everyone can see how that impacts Gränges. Then exactly how we will integrate Corning and what our reporting structure for that will look like in the long term, that's something we have to come back with. But at least you will be able to see the Corning impact disclosed throughout 2021. Understood.

Thank you. Thank you. Our next question comes from the line of Julian Bartow of Pascal Advisors. Please go ahead. Your line is now open.

Hello, gentlemen. As a first, I would miss hearing you, Johan, for the next call.

Okay, thank you.

My first question is coming back on this Asian topic. Can you explain just if I look Q4 against Q3, Asia volume is higher in terms of weight in your auto volume, and In my memory, Asia has a higher margin, while we see that the auto volume in Q4 compared to Q3 is lower. The profitability of the auto volume is lower in terms of EBITDA ton, which would indicate some kind of that Asia is pulling down the mix. So maybe could you say a word? I heard what you say about Q420 against Q419, but I'm more interested about Q3 against Q4, where volume in auto were higher, much higher, while the EBIT is not very different. So can you make comment on this?

Yeah, no, but it's a good observation, of course. And it's true that we did have a better capacity utilization in our plants, which is, of course, helping in terms of volume. And on the negative side here, we see what we call as product and geographical mix changes. And when it comes to the geographical mix part, you're right in that Asia is typically... Higher volume in the sense that we have lower production costs in our Asian facility than in our European facility. But the negative mix change here from Q3 to Q4 on the automotive side, it's more related to the US business, where we had very good results in automotive in Q3, and where the US is a lower part of the business than in Q4. Part of this is also that we had good profits from reducing inventory and selling out products on the automotive side that sort of had a higher realized profit that were sort of old in inventory in Americas in Q3. And that's sort of the product mix aspect of this. But otherwise, Julian, I would agree to your observation that with a higher share of Asian business compared to Europe, for instance, you would typically see a slightly better profitability.

And just to finish on this, you did say that there's some price pressure in Asia. Do you see any end to it, to stabilization coming in 2021, or is it a fairly...

slightly declining environment you will face for the next quarter no i think it's uh i mean if it's coming to an end i think it has decreased in speed and we also know that some players not really a real competitor to us actually actually seek for bankruptcies in china so and there are signs that some of the players in china are increasing prices as well so i think these are in a way signs of of uh of uh that we will see not so much of a price delusion going forward, actually, in China.

Then a more general, more hindsight question. You have a 15-20% roadshed target. With now calling on the books, we have a good view on where capital and budget should be. For me, it's around 9 billion when you finish the capital expansion. Correct me if I'm wrong. So it To achieve your target, that would mean to take EBIT to $1.5 to $2 billion against the one on the pro forma basis. Again, it's very back of the envelope. So that would mean a 50% to 100% increase in EBIT from now on. Can you maybe give what are the main areas where you see potentials?

But you're right, of course, in your observation here, Julian. And I think that was also what Johan mentioned when he sort of summarized 2020 here and commented on return on capital employed, of course, that we are now in a phase where our earnings has been pressured this year, especially from COVID. And of course, we do expect to see an earnings recovery sort of just by the things getting back to normal here at some point, right? So that's one important comment. The other comment is, of course, that we are also at a point in time where we have now completed or are about to complete many substantial investments. And at some point, of course, these investments will start to give returns. coming back to, to, um, uh, what we have talked about also before here, we have the, the, uh, about 15% return on capital employed target and, and every investment we make is of course evaluated based on this and, and, uh, is expected to contribute to, to, um, to us, uh, reaching this target. But, but if you then specifically ask for, okay, what, what are the key sort of Drivers here, in addition to the market recovery, it's, of course, to make sure that we utilize the investments in the U.S. that we made in the best way. And here we have come quite a good way with Huntington, but Newport is still sort of ahead of us in terms of ramping up and so forth. And we also have, of course, the large investment in Corning, where we see very good potentials going forward. So that will be areas that will be contributing specifically. In addition to that, of course, we are, as Johan talked about earlier also, always working with improving our current business and continuous improvement is sort of a core element of our strategy and of our DNA. That's not to be forgotten when it comes to optimizing your business going forward.

I would give you my feedback. Any more guidance on some metrics like, I don't know, synergy, volume, pooling, would be good for us to be able to bridge this journey. Okay. Just two quick questions. Can you say where the Strategy 25 is? What do you hear when you talk about the niche royal products? Can you give some examples that you would invest or start selling there?

yeah we can uh i mean one niche product for instance what we see in the corner acquisition the special packaging is a niche role product that we see a good future demand from and also good good profitability we also see a structure part for the electrical vehicle as as being a niche role product uh So these are two examples. And then there are several potential rural products also for the battery producers that we talked about earlier. But there are basically four different categories. There's battery foil and casing and battery box. So there are several niches that we are targeting here. But there's also potential for electronics, for instance, especially from the new investment in Kåning, where we'll have a unique in Europe producing very high-strength alloys containing a lot of magnesium. So, yeah, this is some flavor of these niches, actually.

But they could be substantial? Combined, those niches could be as big as the sperm management and the battery opportunities?

Over time, of course, the battery potential itself has a very large future demand, of course, over time. But, of course, there's also a lot of niches within that, so we won't target all of them. But, for sure, it's a large volume there over time.

And then, last question, really quickly. The capacity of Kooning for 2021 is capped at 100,000 tons. Or will you have some benefit from increased capex?

I think that the best way to view corning capacity short term is it's 100,000 tons. Capex will not benefit this, but of course, in the short term, but we are, of course, looking at process improvements that may have a quicker sort of return in terms of more capacity. But I think that for 2021, it's fair to view this as 100,000 tons. Yeah.

Thank you. Thank you very much.

Thank you. Thank you. Our next question comes from the line of Mats Luss of Kepler Cheveux. Please go ahead. Your line is now open.

Yeah, hi. Thank you. A couple of questions. First, I mean, you mentioned Conning has a season of the week, fourth quarter, and I'm just wondering if you could give some flavor about the eternality throughout the year there.

That is true, Martin. I think the comment on seasonality there, it's also the fact that we don't have the full quarter for Koning, right? We only have sort of the two worst months. It's the same for Koning as for Grängis, that October is typically the best month of the fourth quarter. And for Grängis, we have October included, and for Koning, we have not. In terms of Koning seasonality, sort of in a normal year, if we do that statement, which I think is the most valuable here, it looks very similar to the seasonality of the Gränges business, which means that the second quarter is typically the high point and the fourth quarter is typically the low point. That said, we should also keep in mind then that at present, Corning is running at sort of a high capacity utilization And that means that sort of the seasonal pattern is slightly less visible just by the fact that the plant is loaded at a high sort of degree. But other than that, the seasonality of corn is very much like the seasonality of Gränges.

Great. Then about the automotive segment there, and I guess we have a big change gradually towards more sort of hybrids and electrification. Electrified cars, and I guess, could you say something about the potential impact of the volume content in those cars for you? I mean, previously you have sort of indicated that there is an increased demand for increased content. Do you see that coming now?

Yeah, we see that, and I mean, we are very active in all regions to basically validate products for the new EV platforms. And just to give you some perspective then, I mean, taking Europe as an example, where there is... Yeah, prediction to have 5 million units then in 2025 and around 3.4 million of these units will be based on the coolant or liquid cooling, which is basically the market that we are aiming down. And if you take kind of the total need for this market, you will have around 40,000 to 50,000 tons of extra capacity on the European market. And the total market in Europe is around 300,000. So then you get some perspective on the future potential here. It is a potential, but it will also take time. And a lot of the platform will basically come to start a production from, as you know, 2021 and onwards and with quite small volumes and then gradually ramping up to 2025 with the full volume.

Do you think new competition due to this growth trend potential or do you meet the same competitors?

We see the same, basically, competition for these products. Apart from the extension, of course, with battery foil, as mentioned before, where we have a unique capability in our rolling mill with a narrow rolling mill where we are in a quite strong position. But that's basically outside the normal heat exchange market that we are referring to.

Okay, great. And then just about the 2025 strategy there, and I guess you have the Trillium technology on board. Do you see any impact of that sort of gaining traction in certain segments also, or is it more like an add-on gradually, something that you...

No, but we see, of course, continuous strong interest for Trillium. And I mean, for an example, we have product with ongoing customer for fuel cells, for instance, where Trillium is a very good solution, but also for the electrical vehicles. So there is a strong interest. And our belief also when we now are reorganizing our operations, so we will form this unit, we will have a better focus on that business as well. and from an operation point of view, but also from a commercial point of view. But there's a strong interest there still. But it's one out of several of our products and offering to the market.

Thank you very much.

Very good. So I think we are approaching the full hour here, but I think that we have time for one last question, if there is one.

Thank you. We currently have no further questions at the moment.

Then excellent. Then I would like to thank everyone for participating today on the call. As usual, we have received very good and interesting questions. And we look forward to our next call on the 22nd of April, when we'll present our first quarter report for 2021. Thank you and goodbye, everyone.