Gränges AB (publ)

Good morning, ladies and gentlemen, and welcome to this first quarter result presentation for Grengis. My name is Jörgen Rosengren, Grengis CEO, and I'm joined here by Oskar Hellström, our CFO, and together we'll be taking you through the presentation today of our first quarter results. To start out with, it's got to be said that the first quarter was a very turbulent quarter in the environment that we're in with the terrible Russian war in Ukraine and also other turbulence among us, around us. But despite that, we managed to record very stable sales volume. In fact, we had the exact same sales volume as last year. And that was because of compensating in other sectors for the sectors that were affected by the various commotions around us. We also improved our margin quite a bit. And that was something we regard as an achievement because it happened despite very large cost increases for companies. various input factors like energy, transport and other things. And those two factors together accounted them for an improved profit also, where our adjusted operating profit totaled 357 million SEK in the first quarter compared to 342 million SEK last year. And this level is also the highest ever EBIT recorded by Grengis in a single quarter. So we're happy about that, of course. On the negative side, however, we had a significant working capital build up in the quarter, and that is almost exclusively driven by aluminum price increases. And that in turn then led to a negative cash flow in the quarter of minus 1.2 billion SEC compared to a zero cash flow approximately last year. And we will get back further on that particular point later to comment on the pros and cons of that development. And then we had a good development of our rather large investment projects that are ongoing in Europe and in the US primarily. And we'll also get back and comment on those later. For those of you who may be new to this, just a short update on Gragas' business. We have leading positions in various niches globally, in North America, in Europe and also in Asia. Our largest segment is automotive, but it's becoming, relatively speaking, a smaller segment. In 2015 or thereabouts, this was close to 100% of Grengis, and now it's edging down towards 35% of our total volume. Second largest segment is HVAC. That has been a very strong growth in that market over the past couple of years and continues to grow quite strongly also in this quarter, as we shall see in a moment. Then we have a strong position in specialty packaging and also in a variety of other niches. So a fairly balanced portfolio across various segments. The big factor in our last quarterly report, of course, was both a factor of shrinking volumes in certain segments and also increasing costs for many input factors, as I alluded to earlier. And there we launched in the fourth quarter of last year, we launched an action program to combat those two things. And we feel that the action program has delivered strong results so far. Firstly, we have worked very hard on cost savings and productivity, but also on price increases and surcharges to our customers to offset the very large cost increases that we've encountered on energy, on freight, and on certain alloying elements, among other things. but also, of course, the generally strong inflationary pressure that is starting to be felt across our economy now. And there the effect has been that the price increases that we have made and the cost savings that we've made have fully compensated for the gross cost increases, meaning that also our contribution margin, but also our EBIT margin, for instance, as in this case measured as operating profit per tonne, took a big step up from the last quarter of last year, where we had 1.2 thousand sec EBIT per ton to this quarter's 2.8, which is also, as you can see, higher than last year's result on that same line. And we're very happy about this because it is by no means a given. It's required hard work from all of our sales teams around the world in particular. And we've reached this result more or less in good agreement with our customers after appropriate discussions, of course, as a way to share the pain, I guess, across the supply chain of the cost increases that are now being seen by everybody. Secondly, we also made large efforts starting in October last year to increase our sales in sectors other than automotive, where we saw at least what we thought then was perhaps a temporary weakness. Automotive has continued to be weak throughout the first quarter of this year, and therefore it was very opportune, very timely that we made those efforts, and they also succeeded quite well. We had a 19% decrease of the volumes to automotive in the first quarter of this year relative to the first quarter of last year, which admittedly was quite strong in that sector. Although that was so, we managed to compensate fully for that with growth in other segments, which then grew by 15% for a total of a wash of flat growth, 127,000 tons this quarter. this last quarter compared to the same volume the quarter the same quarter last year and this too has required a lot of work from not only the sales organization but from our our total teams across the world and we're very happy about this result and in total this then led to the profit increase and the all-time high ebit that we reported on on the first page Going a little bit more into details, you can see here our two reporting segments, Grengis Americas and Grengis Eurasia. And in Grengis Americas, we had very strong growth in the largest segment we play in there, HVAC, but even stronger growth in specialty packaging, which were then, of course, slightly dampened by the negative growth in automotive and other niches, leading to total slight growth of plus 2% over a very strong first quarter last year. In Grenges Eurasia, the largest segment is automotive, and there we had an 18% contraction. But due to the efforts I mentioned before, we had a very, very strong growth in other niches with plus 40% almost, leading to a total of minus 2% growth there. And that means that the group then had a 0% growth, compensating for a minus 20% growth in automotive. This is, I believe, the first time that Grengis has encountered such a strong contraction in the automotive segment and at the same time managed to compensate fully for it. And it's a result that we think also that we're proud of, like I said, but also bodes well for the future. Then we have, of course, the situation around us, which is heartbreaking, I guess, to most people. And starting then with the war in Ukraine, it is fortunately limited impact on Grengis' business, but it has a very large impact on all citizens, I guess, in Europe, but in particular on our employees in Poland. They are the ones who are the most hit by this and they are also the ones who are bearing the brunt of the reception of the millions of refugees who are now fleeing Ukraine in the war. And there we, I have to say I'm impressed with the way that our colleagues in Poland and the Polish country and people in general have acted in charity towards the Ukrainian people in this very terrible conflict. For Grengs' part, though, the impact has been rather limited. We have suspended all business with Russia and with Belarus and also with the occupied parts of Ukraine. This is a very small part of Grengs, only about a half a percent of our sales, but we have then suspended that, of course. Although in the latter half of the first quarter, we were able to resume deliveries to a customer in Ukraine in an area that had been liberated from Russian occupation. And that was, of course, economically not a big deal, but emotionally and in other ways, a very good signal for the people in that area and for our customer and also for our employees in Poland. What has, however, been an effect of the Russian invasion of Ukraine is, of course, the increasing aluminum price that we've seen. And it in turn has driven a very large increase of our working capital. We'll get back to that, like I said. And also the generally upward trend of energy prices has continued, as you know, in the first quarter. And that has, of course, been fueled to a large extent by the conflict in Ukraine. We're also impacted by the resurgence, the continued or renewed outbreak, I guess is the right word, of COVID-19 in China. There have been lockdowns in various parts of China, as you're probably well aware, over the past three, four months. But quite recently, we've had a strong lockdown of most parts of Shanghai. And in Shanghai, we have one of our large factories located, and it is then impacted, of course, by these lockdowns. We've seen in the first quarter significant disruption to our operations, but they have been largely mitigated, I have to say, by outstanding efforts of our team in that plant. And therefore, we have been able to produce, and we are still able to produce, albeit at lower volumes than we normally enjoy. The loss in the first quarter was limited to 2,000 tonnes, but it did, of course, impact our profit in Eurasia. and our margin. The outlook for the second quarter is uncertain. It's kind of fundamentally uncertain because we do not know what will happen with the COVID-19 pandemic in China. And we do not know how the government in China will react to it. And we also don't know what the effect will be on our customers or on our suppliers. In the last year, we had a volume in China in the second quarter of just over 20,000 tons. That is approximately one-fifth then of Grengis' total volume or thereabouts, maybe a little less. And we then think that depending on how the lockdowns in China develop and in Shanghai develop, the volume will be affected then in proportion to that during the second quarter. So far, we have been able to maintain production, but it's uncertain how long that will be possible to continue, especially since there are big impacts also on the logistics surrounding our factory. And there is also risk also from this that there will be further disruption to the global supply chain or to global demand. So a very, very dramatic and turbulent quarter for us. And a quarter also where I believe we can say that Grengis' decentralized organization has proven its worth because the teams that we have in Poland and in Shanghai have dealt with the very specific circumstances there in a fantastic way, at the same time as we've been able to grow and advance our positions in other countries, not the least, of course, in the US. We're also driving some very large investment projects and a lot of them are actually in track for completion during this year, 2022. And we mentioned a few of them on this page. Firstly, we are investing in a large recycling and casting center expansion in Huntingdon, which was announced in the middle of or in the spring of last year. It is scheduled to be completed by the end of this year and contribute significantly to profits, but also to reduction of our carbon footprint starting next year, 2023. Last year, we had an unfortunate fire in our factory in Newport, Arkansas, and there we now managed to rebuild the mill that was harmed in that fire. We produced the first coils during the first quarter, and we intend then to ramp it up to full capacity during the second half of this year. which also completes a large expansion into the foil business in the US, which we started in 2018, which will now be fully completed during 2022, a milestone for Grengis. In Grengis Eurasia, we have a very large capacity expansion going on in Konin in Poland, which was an acquisition by Grengis in the second half of 2020. And it is now nearing its completion. So both the casting center that we have expanded there, but also a new rolling mill that you can see on this beautiful picture, are now producing commercial volume and are also intended to reach full capacity during the second half of this year. And finally, in Finnspång, we are wrapping up the investment in logistics improvement, which is intended to slightly increase volume there, but also improve productivity. Finally, we announced only last week a further investment in the US in a new recycling and casting center also in Huntington, Tennessee, which is intended to enable us to deliver near zero carbon aluminum products from that facility to customers who require that. by being fully powered by renewable electricity and also by enabling a lot more recycling from our customers with closed-loop arrangements, which is critical then to bring down the carbon footprint. We are very excited about this investment and our customers are also very excited about it. We've had a lot of positive feedback over the past week. And we expect this investment to contribute to a lower carbon footprint and also to a higher profitability starting in the middle of 2024. The investment is approximately 50 million US dollars. And with that, I wrap up my initial comments on the quarter and turn the word over to Oskar Hellström, who will take you through the financials for the first quarter of 2022.

Thank you, Jørgen. So unfortunately, I lost my voice a bit today, but bear with me and I will do my very best to take you through the first quarter financials. If we start with looking at the margin development in the first quarter, we can see a clear improvement on a year-over-year and certainly on a quarter-over-quarter basis. The operating profit per tonne increased to 2.8 thousand SEK in Q1 compared with 2.7 in Q1 last year and 1.2 in the fourth quarter last year, as Jörgen also showed in his slide earlier. Taking the quarter over quarter perspective, the general trend is the same in the two business areas with increasing sales volumes and margins. As we heard from Jörgen earlier, the positive margin development compared with Q4 is largely due to that we now start to see the effects of the price increases implemented in Q3 and primarily Q4 last year. In Q1, the price increases are offsetting the significant inflationary pressure that we continue to experience on almost all cost items, but above all then on energy, alloying elements and freight. And in total, external costs increased by over 300 million SEC in Q1 compared with last year. And this does not include then the increased cost for aluminium that is directly passed on to customers. As you can see on the chart also, there are, however, some clear differences between the business areas when we're comparing year over year results. And this is to a large extent driven by what end customer markets that each business area is serving and the general market environment that they're exposed to. And for Grengis Americas, with the lower exposure to automotive customers, operating profit per tonne increased from 3 to 3.9 thousand SEK. And for Grengis Eurasia, that has a relatively larger share of the auto business, the operating profit per tonne decreased from 2.6 to 2.000 SEK. Although a large part of the lower sales to automotive customers was successfully compensated by additional sales to other markets, The capacity utilization in Eurasia declined to 85% compared to about 90% in Q1 2021. For the group, the capacity utilization was just below 90% in the first quarter. If we look at the first quarter then in more detail, we can see that the sales volume remained flat at 126.7 thousand tons, but that the net sales increased by 50% to 6.1 billion SEK. The reason for the net sales increasing more than the sales volume is the higher aluminium price, which I will come back to and speak more about shortly. and increased average fabrication prices. In addition to this, the net impact of changes in foreign exchange rates was also positive, 425 million SEC compared with the first quarter last year. Looking at the earnings, the adjusted operating profit increased by 15 million SEC to 357 million SEC in Q1, and that's the highest operating profit we've seen in an individual quarter so far. In addition to the improved balance between price and cost increases, net changes in foreign exchange rates had a positive impact of 22 million SEC in the quarter, and this is primarily the effect from the US dollar appreciating against the SEC in Q1. Depreciation and amortizations increased within total 13 million SEC. There are no items affecting comparability in the quarter, and that means that the reported operating profit is also the same as the adjusted operating profit. The profitable period increased to 261 million SEC and the earnings per share increased to 2.45 SEC in the first quarter. In the first quarter, also, the net debt increased by about 1.3 billion SEK to close to 5 billion SEK, and that corresponds to 2.9 times EBITDA on a rolling 12-month basis. As you can see on this slide, the increased net debt is solely driven by the significant buildup of 1.6 billion SEK of working capital that impacted the cash flow negatively in the quarter. And this has two primary reasons. First, the normal seasonal effect that is driven by a typically low working capital at the year end and the sequential increase in business activity from Q4 going into Q1. This effect is about 700 million SEC in Q1. This year, we do, however, have another effect as well. and that is the impact of the increasing metal prices. We will look at more closely on that on the next slide, but this makes up the remaining 900 million SEK of the working capital increase in Q1. Before we leave this slide, we should also note that we continue to invest in total 70 million SEK in the expansion of the grainage business through the ongoing investment programs in Americas and Eurasia. As we often talk about, changes in the aluminium price doesn't impact the Grange's operating profit because it's passed through to customers by contract. But during the time we process the metal, we do, however, carry it in our own books and changes in the aluminium price consequently impacts the amount of working capital on our balance sheet. And as Jörgen mentioned earlier, as a consequence of the Russia-Ukraine conflict, the market priced in severe supply chain disruptions for aluminium. Although this may not have happened yet, it has still impacted the price. And on the back of this, then, the LME three-month aluminium price rose to an all-time high, about US$4,000 per tonne, before falling back a bit. And we see an average level of about US$32.50 per tonne for Q1. But as a metal processor, we however need to pay an additional premium than on top of the LME to take the physical delivery of the aluminium. And when we look at the metal price impact for Grenges, we need to take this into account as well. So if we look at LME plus the Ingot premium, we see an increase from on average 3,100 USD per ton in Q4. to an average $3,750 in Q1, a sequential increase of $650 per ton. And in addition to this, we also have the SEC depreciation against the dollar we mentioned earlier. If we take that effect into account and look at the price change in SEC, it's an even larger effect, about $7,600 per ton. And in Q1, Our net working capital included about 120,000 tonnes of aluminium and that means that the increase in the aluminium price had a total impact of about 900 million SEK in the quarter. Given the high price level towards the end of Q1 and now in the beginning of Q2 as well, we expect to see some additional negative impact on the working capital and cash flow in the second quarter as well, even if the aluminium price remains at the current level. If it's going down, of course, we will have the corresponding reversed positive effect from this. Obviously, this adds to our net debt and the leverage increases as a consequence. But what we need to keep in mind here is that aluminium is a very liquid asset and that can easily be turned into cash should that be required for any reason. And I would say then that the primary consequence for Grenius of the aluminium price increase is that we have to finance an additional billion of assets on our balance sheet. And that increases our financial net with about 20 million SEK per year. And obviously, then this is something that we have to compensate for through additional price increases. regarding the outlook for the aluminium price i think it's it's very difficult to have a view on that but i think we need to be prepared for a period of volatility and fluctuation here on the back of the uncertainty following the russia ukraine war Let's now leave the metal price and move on to the Grengis Americas business area. In Americas, we continue to experience a strong market activity in the first quarter as Jörgen highlighted before. In total, the sales volume increased by 2% compared with last year because we managed to compensate the loss in automotive fully by growth in HVAC and packaging primarily. Adjusted operating profit increased to an all-time high level for Americas as well, 251 million SEC, which corresponds then to an adjusted operating profit per ton or 3.9 thousand SEC. Here we also have a positive impact of the net changes in foreign exchange rates of 20 million in the quarter. So here we have the majority of the US dollar SEC effect. More good news then is that the rebuild of the Newport mill is completed. And as Jörgen mentioned, we expect to ramp up that with commercial orders during the second half of this year. In Eurasia, we experienced a larger effect of that in Americas, I would say, on the continued slowdown there in the automotive. And of course, this was driven then by continued shortage of component and then in turn then further supply chain disruptions. fueled by the war in ukraine and covered outbreak in china etc um in addition to the negative impact on automotive we we lost 2 000 tons in in china due to the covet closures um and as a consequence the external sales volume in eurasia declined by two percent of the total sales volume by seven percent to sixty eight point three thousand tons in quarter one The adjusted operating profit for the first quarter decreased to 135 million SEK, corresponding to a profit per tonne of 2,000 SEK. And this is driven by the lower sales volume in combination with increasing costs that was only partly offset and compensated by price increases in the quarter. As those of you who have already had a chance to read in our Q1 report have probably noticed, we have, as of this quarter, added results for our key sustainability metrics. And this is something that we now intend to continue to publish on a quarterly basis going forward. In the left chart on this slide, we show the quarterly development of our carbon emissions intensity. And in the right chart, our recycling trend, both in absolute volumes and the share of total sourced metal inputs. We've also included the result here for our 2027, which is our baseline year and what we compare our improvements with. If we start by looking at the climate impact, we're very pleased that our total carbon footprint continues to show a positive trend. And that's thanks to our efforts to decarbonize both our own business as well as decarbonize along the value chain. The first quarter was down 10% compared with Q1 last year and 21% compared with the baseline in 2017. And the reduction there is mainly driven by increased recycling and the use of metal scrap, which replaces primary aluminium as an input material. And this is then included also in the scope three category shown in the left chart. We can see this strong recycling performance in the right chart where increased volumes of sourced aluminium have increased sequentially. And the share of sourced aluminium scrap reached 31% in the first quarter of 2022. That's up 5.5% versus Q1 and almost 20 percentage points higher than the baseline year in 2017. And I think needless to say that we're very proud of our continued strong sustainability progress. And with that, I will hand over back to Jörgen, who will provide us with a summary of the first quarter and an outlook for the second quarter. Go again, please. Thanks, Oskar.

Yeah, so to summarize the first quarter, we think that we had good results of the very strong efforts we made to compensate for weaknesses in some segments and geographies by stronger sales in other segments and geographies. In particular, the turbulent environment around us impacted the sales in Asia and the sales in automotive, but we fully compensated for that with stronger sales in other niches and in particular then in the US, but also Europe had good sales. We also made very large efforts to compensate for the large gross cost increases that we saw primarily on energy, but also on other things like transportation, alloying metals, and also on labor. By productivity, cost decreases elsewhere, but also large price increases to customers. And as a result, we were able to improve our margin dramatically relative to the fourth quarter of last year, but also significantly relative to the first quarter of last year. And those two factors together with a good volume demand in the market in general, outside of Automotiv Dan, contributed to our operating profit which was the best one we have recorded in a single quarter yet. On the negative side we did have a significant working capital build up and it was relative to last quarter then driven by seasonal effects and as we have spoken about the increased aluminum price. We saw good progress in all of our investment projects and intend to finalize several large ones before the end of this year, thereby having a full effect of those investments for 2023. And we're proud to announce a new investment in a recycling and remelting facility, casting facility in the US. which will enable us to launch near zero carbon aluminum products to our customers in that geography. So that's going to be very exciting when it comes online in the middle of 2024. Turning then to the outlook, it is of course so that these extremely turbulent developments in Europe and in Asia are hard to predict also in terms of their continued impact on our industry, but also on the demand in the world in general and consumers in general. So there is some fundamental uncertainty there. And Grenges' job there is actually not to make those predictions, but rather to be flexible and to adapt to the situation around us, as we have done also, I think, in a good way in this last quarter. Making a prediction then, nevertheless, we're forced to say that we believe the volume in the second quarter will be slightly lower than it was the last year. That is not driven by demand factors because we think the market dynamics in general support a similar development as in the first quarter with kind of a flat year-on-year volume, but it is driven by the uncertainty in China, where we say that the probable impact depends, of course, on the duration of the lockdowns in Shanghai. And those lockdowns will affect the output in China proportionately to their duration, simply put, in the second quarter. And until then, we expect a lower volume in the second quarter than the second quarter last year. Nevertheless, our ambition level remains very high. We have the ambition to continue to grow, in particular to continue to grow on the strength of these investment projects that are being finalized now gradually during this year. We definitely have the ambition to continue to offset any cost increases that we're forced to take by corresponding productivity gains, cost decreases on our side, but also by price increases to customers also going forward. And we have the ambition level to continue building up a very strong company so that we can present the world and the shareholders and also our customers and other stakeholders with a stronger and also much more sustainable Gränges in the future. And we hope to get back to the investor community during the second quarter of this year or at least around the summer with some news on our plans for that. And with that, we'd like to conclude our prepared comments of the first quarter of this year. And thank you for your attention. And then we're going to turn to questions, if there are any. So operator, please, instructions or questions.