Gränges AB (publ)

Good morning, ladies and gentlemen, and welcome to this first quarter result presentation for Gränges. My name is Jörgen Rosengren, Gränges 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 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 various input factors like energy, transport and other things. And those two factors together accounted 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 Gränges 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 sek, 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 Gränges' 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 Gränges, 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, an action program to combat those two things. 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 sek EBIT per tonne 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 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 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. Therefore, it was very timely that we made those efforts, and they also succeeded quite well. So although 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 tonnes this last quarter, compared to the same volume, the same quarter last year. And this too has required a lot of work from not only the sales organisation, but from 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 the first page. Going a little bit more into details, you can see our two reporting segments, Grandiens Americas and Grandiens Eurasia. And in Grandiens 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 Grandiens 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 Grandiens 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, a limited impact on Gränges' 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 Gränges' part, though, the impact has been rather limited. We have suspended our business with Russia and with Belarus and also with the occupied parts of Ukraine. This is a very small part of Gränges, 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. 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 tons. But it did, of course, impact our profit in Eurasia and our margin. The outlook for the second quarter is uncertain. It's 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 of Grenge's 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 on the logistics surrounding our factory. And there is also a risk 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 the Grenge's... that Grenge's 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, and 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 Grenge's. In Grenge's Eurasia, we have a very large capacity expansion going on in Cologne in Poland, which was an acquisition by Grenge's 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 Finsbong, 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 US$50 million. 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 -over-year and certainly on a -over-quarter basis. The operating profit per ton increased to 2.8 thousand SEC in Q1 compared with 2.7 in Q1 last year and 1.2 in the fourth quarter last year, as Jørgen also showed in his slide earlier. Taking the -over-quarter perspective, the general trend is the same in the two business areas with increasing sales volumes and margins. As we heard from Jørgen 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 on energy, alloying elements and freight. And in total, external costs increased by over 300 million SEC in Q1 compared with last year. This does not include the increased cost for aluminium that is directly passed on to customers. As you can see on the chart, there are, however, some clear differences between the business areas when we're comparing -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. For Granger's Americas, with a lower exposure to automotive customers, operating profit per ton increased from 3 to 3.9 thousand SEC. For Granger's Eurasia, that has a relatively larger share of the auto business, the operating profit per ton decreased from 2.6 to 2 thousand SEC. 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 Q1-21. For the Group, the capacity utilization was just below 90% in the first quarter. If we look at the first quarter in more detail, we can see that the sales volume remained flat at 126.7 thousand tons and that the net sales increased by 50% to 6.1 billion SEC. And 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 sales volume and 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. 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 then from the US dollar appreciating against the SEC in Q1. Depreciation and amortization 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 profit for the 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 SEC to close to 5 billion SEC, 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 build-up of 1.6 billion SEC of work and 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 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 SEC 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 SEC in the expansion of the greenhouse business through the ongoing investment programs in Americas and Eurasia. As we often talk about, changes in the aluminium price doesn't impact the greenhouse 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 impact the amount of working capital on our balance sheet. And as Jørgen mentioned earlier, as a consequence of the Russian-Ukraine war, 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 4,000 US dollars per tonne before falling back a bit, and we see an average level of about 3250 US dollars per tonne for Q1. But as a metal processor, we, however, need to pay an additional premium on top of the LME to take the physical delivery of the aluminium. And when we look at the metal price impact for Grenge, 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 US dollars per tonne in Q4 to, on average, 3,750 in Q1, a sequential increase of 650 US dollars per tonne. In addition to this, we also have the SEC depreciation against the dollar that 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 SEC per tonne. And in Q1, our networking 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 SEC 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 depth 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. I would say that the primary consequence for grenges 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 SEC per year. Obviously, this is something that we have to compensate for through additional price increases. Regarding the outlook for the aluminium price, I think 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 grenges 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. The 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 then the 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 COVID outbreak in China, etc. In addition to the negative impact on automotive, we lost 2,000 tonnes in China due to the COVID closures. And as a consequence, the external sales volume in Eurasia declined by 2% and the total sales volume by 7% to 68.3 thousand tonnes in quarter one. Adjusted operating profit for the first quarter decreased then to 135 million SEC. Corresponding to a profit per tonne of 2,000 SEC. 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 3 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% 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. Jörgen, please. Thanks, Oskar.

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 in geographies by stronger sales in other segments in 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, on 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 automotive done 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 built 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 recycling and re-melting 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 Grangis' 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 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 -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 Grängas 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.

The first question comes from the line of Victor Hansen from Nordia. Please, go ahead.

Hi, Jörgen and Oskar. Victor here. So, my first question is on the Shanghai lockdowns. And I'm wondering, at what utilization level are you able to run your production now, now in April, during the lockdowns?

It's a complex question, and also we don't provide -to-day guidance on that because then we have to keep issuing press releases once a week. But we had a significant loss in the second half of the last quarter, right? Which resulted in those 2,000 tonnes, I believe, that we communicated in this report. And what we're saying is that, depending on the duration of the lockdown, it will affect volume in proportion to the duration as a proportion of the full quarter volume. And last year's full quarter was around 20,000 tonnes. So, that's the best estimate that we can give you at this time. Being able to produce is not necessarily enough because we can produce, but then we are maybe not able to sell because of external logistics things. Or we're able to sell, but we're not able to get raw materials and so on. And then there's also limitations of space and other things affecting it. So, it's a really hard question to give a really detailed answer to. But, again, depending on how long the lockdown lasts, a proportion of that will impact on the volume relative to last year, which was 50,000 tonnes.

Yeah, and a follow-up on this. Perhaps you can say when exactly did you see the first effects from the lockdowns hurting your outputs?

We saw the first effect in the last two weeks, I think we can say, of March.

Great. Okay. And then another question here. If you could shed some light on how much you would save in terms of costs for the 52 million USD investment announced recently in Huntingdon.

We don't comment on cost savings from individual investments either, but what we do say is that we have a target, as you know, in Gränges, to have at least a 15% rosy on average. And this investment has a significantly higher return than that.

Got it. And then if you could provide some color on why your automotive volumes declined 19% while the light vehicle production declined only 4% in the quarter.

You may know, but I don't know that the light vehicle production declined only 4% of the quarter. The best we have there is an estimate from IHS that it would decline, but I don't know that we have final production figures of what the automotive industry is doing. We have a number of factors that the automotive industry actually did in the first quarter. What we are providing here are the actual shipments that we made. And they are influenced by a number of factors. One is what we believe to be a lower production in the quarter, but they're also, of course, influenced by the disruptions to this industry, not the least in China in the first quarter. But we saw from our customers a lower demand than the figure that you mentioned of minus 4% during the first quarter, actually globally. And whether that is because of inventory reductions or because the figure of 4% is not accurate or because of something else, I don't know. We do not believe, however, that we have lost market share. On the contrary, we think that the market share is unchanged in the first quarter relative to the first quarter last year.

That's helpful. And a final question. How much can you save in terms of financial costs by sourcing the aluminium scrap compared to primary aluminium, if you look at the entire production process?

That's a super interesting question. Generally, of course, scrap has been much less expensive than primary aluminium. But what happens now is that as the production loops are closed, the recycling loops are closed with various customers, the rebates for scrap is contracting in most geographies. And exactly how that will develop, we are not exactly sure, in fact. But that is also a good reason to make sure that we secure scrap volumes, firstly, from our customers and elsewhere, and also that we secure the ability to have control of our own metal supply by remelting, for instance, and casting. So those are strong underlying factors that's why we believe that these investments that we are making already and that we're now announcing to make are of quite a strategic nature and also a reason why we think that they will be very good return investments.

Thank you for the answers, Jörgen. Let's all remain.

The next question comes from the line of Mats Litz from Kepler Chevrolet. Please, go ahead.

Yeah, hi. Thank you. A couple of questions. First, regarding the Huntington investment there. If you could shed some light there. I mean, you have a pretty impressive use of the reused aluminium already, but you see 31% is that sort of a level that you will be able to increase through this investment? Or is it sort of other things that affect that figure as well?

Which investment are you talking about now? We have one investment that's going to be finalised this year and then we have another investment that's going to be finalised in the middle of 2024. And in both cases, it's absolutely a clear target of those investments to be able to enable us to recycle more aluminium than we have done in the past. Now, these 30% level we're at right now, that's not nothing, right? I mean, if we have a capacity of 600,000 tonnes, that corresponds then to approximately 200 million kilos of recycled aluminium. But we intend absolutely to grow those volumes going forward and these investments are part of that journey.

Okay, great. And secondly, Dan, about sourcing aluminium. You just cobalt there in Sundsvall. Could you say something about how that develops?

Yeah, we don't actually comment on individual suppliers, but it's true that Cobal, the Swedish company in Sundsvall, is one of the suppliers of the Grängens Group, or has been at least, for many years. It was also, if you go further back in history, it was also part of the Grängens Group. But other than that, I don't think we're going to comment either on customer or supplier relations.

Okay. And then about the impact of higher raw material prices. I guess gearing increased somewhat. And then again, you mentioned that aluminium is a liquid asset. So do you feel that the increased gearing affects your ability to implement further investments without sort of... Well, yeah. So it's about getting external equity capital or something like that.

No, it's Oscar here. I wouldn't say that this has changed our view on that in any way. I think we have a lot of investments that we are finalising this year, but they are not affected by this increase in aluminium price. And we do not have any plans to issue new equity.

So it's... Well, you... But it's not affecting you. Good. All right. Thank you very much. Thank you.

Just to remind you, if you would like to ask a question, please press 01 on your telephone keypad. The next question comes from the line of Gustav Schwerin from Handelsbanken. Please go ahead.

Yes. Hello, Jörgen. Oscar. Firstly, I have a question on the impressive improvement in profitability in America. It looks like you are much more than compensated for inflation here now. Because when I look at the... I mean, the step up in volume is not that big year over year. There doesn't look to be much of a mix effect either. So it is just mainly older contracts having been renewed. Even if I take away the effects, the improvement here is very big. Can you help me understand the moving parts a bit more?

Well, the moving parts in our industry is that you've got to have a good utilisation, firstly. You've got to have good pricing power, and then ideally you should also have stability over time. And all those three factors we've been able to put in place now in the US. And that has led to a very large profit increase over the past couple of years since we acquired that business in 2016. And we have also gradually then made, as you know, large investments in the business, leading to an improved profitability. When you look at the individual quarter, there is always an effect of mix on top of everything else. Hello? Can you hear me now,

then? Ladies and gentlemen, please stand by.

Hello? Can you...

I can hear you again. We can hear you.

Everybody can hear everybody. Operator here is Gustav, I hear Gustav, and Gustav here is me. I was saying that in the individual quarter, or in any individual quarter, there is always an effect of mix on top of those things, which influences the margin. But it's true that we have a super good margin development in the US, and it's true that a large portion of it is due to large price increases to customers.

Yeah, because you had good utilisation levels last year as well, and the mix isn't that different. I mean, have you more than offset the inflation in the Americas?

Well, we have offset the inflation in total, and we have not quite offset it in Eurasia, so I guess that means that we more than offset it, slightly more, in the US.

Great. Do you expect more to come in Q2, in America?

We expect the good development in the Americas to continue over many years.

Okay. Yeah, then on Eurasia, the dynamics there, as you said, you only partly offset there. Is that just because we've seen an acceleration in high energy prices, maybe natural gas in Poland, for example, or what's the main reason and how do you see that progressing into Q2 and the rest of the year?

The total mix is worse from a price perspective in Eurasia, because we have more automotive with more longer contracts in general, and so on, that influences it. And also, pricing power is admittedly stronger in America, generally speaking, because of the general market conditions there. So those are all factors that influence it. When you look at the margin individually, it is also affected by the effects in Shanghai on the lower production and the effects of lower production that are not contributing to absorption and so on, right? So there are several factors that influence the margin development there. But it's true that we have had very large price increases also in Eurasia, but not quite enough to offset the effect of the cost increases.

And you feel confident, you will? I think, for example, in the auto industry, I mean, even the volumes are quite weak. The profitability in that industry is pretty good at the moment. So they should be. How are discussions with those customers right now?

Yeah, discussions with those customers are always extremely tough because they are very competent, very talented people work there, and they have decades of experience in keeping the margins in the right place of the value chain from their point of view. But it's also so that we have very long relations with those customers. We have strong technology, we have a good footprint, we have good sustainability, and those are all factors, of course, that weigh in. So those discussions are always intense, I guess is a good word to put it.

Yeah. All right, thank you.

You're welcome.

Once again, ladies and gentlemen, if you would like to ask a question, please press 01 on your telephone keypad. Once again, it's 01 for a question. The next question comes from the line of Julien Barthoux from Pascal Advisors. Please go ahead.

Yes, hello, gentlemen. Just two quick questions. The first one on the last point we discussed about the margin in America. Just to be clear, would you expect volume to sustain the high level of sale of last year, Q2, because as I remember, it was very strong? And also, do you see any reason why any moving parts in the margin equation should significantly deviate in Q2 compared to Q1? And the second question is, you say that the $52 million investment in the US would be significantly higher than the 50% road share, or higher, to put it this way. What are the main factors explaining this? Thank you very much.

Well, on the margin and volume outlook, I guess the short answer is we do not give margin or volume outlooks for individual segments. We think we're doing pretty well to give an outlook of such precision for the total volume. So I guess you're going to have to go with that. But it's not so that we see any significant factors, however, in the US or North America or Eurasia, in fact, impacting the volumes or margins, other than the ones we have mentioned with the uncertainty in Eurasia. So you have to make your own conclusions or draw your own conclusions from that. Regarding the return on the $50 million investment in Huntingdon and recycling and casting, we're saying that it has a higher rosy than the average of Grangis. And one reason for that is that America has a higher rosy than Grangis in the first place. Another reason is that we're replacing its higher-cost input materials that are brought in from overseas with lower-cost self-produced cast materials. So those factors together make for a good rosy. But I also think from a strategic point of view, it is so that we believe that investments in recycling, investments in closing loops with the customers, investments also in providing greener, and in this case near zero aluminum products for our customers, are investments that are more likely to have a good return than other investments going forward.

Okay, excellent. Thank you very much.

The next question comes from the line from my slip from Kepler Schiffrö. Please go ahead.

Yeah, hi, Kepler, follow-up. First, you mentioned the investments there in Poland and also in the US are sort of ramped up now. And did you see the full impact of that, I mean, efficiency bias and so on in the first quarter of 2020? Or will the impact be more substantial going forward?

We've said that they were ramped up, and if we did, we have to correct it. They are both the new rolling mill, foil rolling mill that replaces the one that was damaged by fire last year in Newport is now operational. And the investment in Poland, not all of it, but a large portion of it is also operational now. But being operational and being fully ramped up are two different things. And we expect then these investments that I just spoke about to be fully ramped up by the end of this year.

Yeah, okay. So there will be some sort of start-ups in fact. And so in the coming quarters...

Absolutely. It always takes time to... These are some large pieces of equipment, complex. You need to ramp them up in a controlled way. And then there is also, of course, the commercial aspect of having... filling them with the right capacity and selling that capacity to the customers and so on.

Okay, great. And then just about... I mean, the freight rates are quite substantial going from Europe to the US, and you have some sort of sourcing from Europe to the US to supply your automotive customers in the US. Is that doable currently, or do you have sort of freight search artists in the contract that help you? And so could you say something about that?

It depends on the individual contract, but it is so that we are seeing, of course, higher freight costs generally and the trade routes that you mentioned are some of those that are impacted by that, but not only those. And depending on the contract, we are not able to forward that to the customers. And that's part of this whole package of moving costs to customers that we intend to continue to succeed with going forward. That's our intention, or our ambition, at least, right? But if the answer is, are we able to transport goods, then the answer is yes.

Okay, great. And just finally there about the financial net, I guess you have increased gearing somewhat. Could you give some guidance on that item in the coming quarters?

It's a very good question, Martin. I think I've indicated here that, of course, the extra billion of working capital that we are now carrying on the balance sheet from the increased metal prices, we expect that sort of increase. The financial costs with about 20 million or so on a full year basis. So I guess you can assume then that the five million or so per quarter. In addition to that, I think we also need to be prepared for that. We are in an environment now where we will see interest rates coming up gradually over the coming quarters here. And I don't want to speculate on the effect of that. But we certainly do see a risk that our financial costs will come up a little bit going forward as a consequence of these items. Yes.

Yes, okay. Thank you very much.

Thank you, Martin.

Once again, it's 01 on your telephone keypad for a question. There are currently no further... We do have a follow-up question from Victor Hansen from Nordia. Please go ahead.

Sorry, is it my turn? I didn't hear.

Yes, Victor, your line is open.

Oh, yeah, thanks. So just one follow-up on how much of your energy need is hedged would be very helpful.

Yeah, absolutely, Victor. And I mean, we hedge energy, but it's different for different regions and we were operating in. But if you look on average, going into 2022, we had about 60% of our forecasted energy need for the year hedged. And if you look at 2023, that number is 25%. That was hedged prior to the start of this year.

Thank

you. There are currently no further questions. I hand the conference back to you, speakers.

Thank you. Then, ladies and gentlemen, thank you so much for joining this update on Greggenstads First Quarter Result 2022. And I hope that you have a fantastic day and rest of the week. And take care and let's be in touch. Bye now.