Gränges AB (publ)

Good morning, ladies and gentlemen, and a warm welcome to this third quarter presentation of the results for Grengis. My name is Jørgen Rosengren. I'm Grengis' CEO, and I'm joined here also by Oskar Hellström, our CFO, and we'll take you through the third quarter result for our company. And we'll be referring to the presentation that you can see on screen, but it's also available on our homepage under the investor relations tab. So in summary for the third quarter, We saw, in fact, a very stable sales volume of 120,000 tons relative to 119 last year. And it's a sign of strength. We feel that our different regions, our different segments compensate for each other. We saw, of course, continued strong demand in Americas, which has been the case for many quarters on end now. And also, I'm very... We're very happy to be able to say that, that we saw a very strong recovery after the post-COVID shutdown, after the COVID shutdown that we had in the second quarter in China. And that more or less compensated for a slight slowdown in the European theater. So in total, that evened out to an even volume development. On this stable volume, we had a very good operating profit development. The adjusted EBIT is up almost 60% to 345 million relative to 2019 last year. And that, of course, represents a very strong margin improvement. And we're proud of that because it comes despite very, very large cost increases that we've had to tackle over the past 12 months and have tackled with a combination of cost productivity, of course, but also price increases. We're also happy to be able to report a good cash flow in the quarter of 441 million, apologies, relative to negative cash flow last year. And that cash flow helps us, of course, to also reduce our leverage, which is now down to, I believe, 2.1 or so, close to our target range. And while dealing with all these short-term things, we also are executing on our long-term navigate plan and have some good progress also to report there. Getting back to volumes then, if we look at the overall picture, our largest segments to the right of this picture are automotive and HVAC. And in both cases, we had stable, in fact, quite good growth. And that also reflects the situation in our two largest segments. So automotive is driven mainly by growing as Eurasia, where we saw strong growth. And that strong growth in the quarter was very much driven, of course, by the recovery in Asia that I reported on before. but also reflects a relatively stable demand situation in automotive, which is influenced and bolstered, I guess, by the pent-up demand that is there after the delivery problems that that industry has experienced in the past year or so. In Green's Americas, we had a very strong demand in HVAC, which we... endeavor to fulfill so far as we can in Grengs America as we are and have been for a long time now, constrained by our production capacity. And that is also visible in the Grengs America's numbers, where our specialty packaging is down a little bit. That's not really due to demand, but rather due to the fact that we're scrambling a bit to keep up with demand, which is, I guess, a luxury problem to have. In total, the Gragas Americas volume, as you can see, landed more or less on the same level as last year. In Gragas Eurasia, the strong development in automotive was unfortunately then negatively affected by, or compensated for, if you like, by negative growth in some other segments. And that's mainly in Europe, where we have some shorter-term developments business in areas driven by such things as construction and so on, also packaging, as you can see. And there we've seen, of course, an effect now of the rather extraordinary situation in Europe. But on balance, it evens out also there. So we have, in fact, the ability to report the growth in Grängis Eurasia. All this boils down to year-on-year flat volumes for Grängis, which we're relatively happy with in these turbulent circumstances. Looking at margin then on page four, The margin, in fact, this year has been very, very stable. It's, of course, helped to a large extent by the strong margins that we have been able to generate in Americas. The margins in Eurasia are a little bit lower and also went down, as you can see, in this particular quarter for the reasons I've already mentioned. So the energy cost, of course, is the biggest factor there. But in total, Grenges delivers a stable margin for the third quarter in a row and also on a high level. And that's also what makes the operating profit to date this year the highest we've ever been able to generate. Turning to page five, we, of course, as you know, most of you, we have a very strong focus on sustainability in Grenges. And this year we are continuing to show good results in that area. We're planning also for even better results long term, but also this year, good results. We've committed to climate neutrality by 2014, and we have committed to the science-based targets initiative and are in the process of calibrating our targets to make sure that we fulfill those requirements. Reaching these targets will require a lot of partnerships, both upstream and downstream, And in this particular quarter, we signed a long-term partnership for the lever of renewable energy to our Newport site in the U.S. In the quarter itself, we had, unfortunately, an increased carbon emissions intensity from 8.9 last year to 9.5 this year. That's mainly due to a mixed change between our regions. But on the other hand, if you look at the long-term trend, it's favorable. Our Year-to-date carbon emissions are the lowest we've ever had and are down very significantly relative to our reference year of 2017. And the same thing is true for recycling, where we have the highest ever recycling share and also recycling volume for Grengas year-to-date. An interesting growth area for us are battery materials. As you know, a lot of investments are taking place, not the least in North America and in Europe, to... supply batteries to the electric vehicle industry. And we regard that as a very exciting growth area for Grengis. We see a lot of customer interest in this from customers across the field, both in our cathode foil capabilities, but also in other components for electric vehicle batteries. And we feel that we have structural advantages in this field. We have the good footprint in Asia, of course, which is good because that's where this industry is focused. but also in North America and Europe, where most of the growth is expected to come in this industry. We have the technology and the ability to serve automotive customers well, and we have the sustainability that is both the ambition and the performance, which are going to be very critical in this industry. We've started a systematic investment program to supply these customers and have started deliveries already this year of battery cathode foil in China. We then plan to start deliveries in Europe in 2023 and in North America in 2024. In fact, we believe that we will be the first to market in the US with domestically produced battery cathode foil. And that is an achievement that we firstly are proud of, of course, but also positions us, we feel, well with many of the global customers in this industry. But Based on the latest signals we've gotten from our customers and from the market, we're also taking steps to accelerate this development and strengthening our team, among other things. So that was like a helicopter view of the third quarter and the developments in it. And now I would like to turn over the word to Oskar to take us through the numbers in more detail. Oskar, please.

Well, thank you, Jørgen. So let's see if I can provide some more details then on the developments in the third quarter. So if we start with the sales volume, we can see that that increased with about a percent to 119.8 thousand tons there, as you heard from Juergen earlier. Net sales, on the other hand, increased by 34 percent to 6.2 billion SEC. And the main reasons for that net sales increased while the sales volume was fairly stable are the higher average year on year aluminium price that is still impacting in the third quarter and increased fabrication prices. In addition to this, the net impact of changes in foreign exchange rates was positive 795 million SEK compared with the third quarter last year. That's also a big driver of the increase in net sales. In addition to this, I should mention that the net sales includes revenues of 74 million SEK related to insurance compensation for the fire in Kornlin that occurred in May. This does, however, not have an impact on the operating profit in the quarter as the assets that were damaged in the fire are impaired with the same amount. Looking at the earnings, I should maybe start by saying then that the 345 million SEK in adjusted operating profit in Q3 is the third highest we've ever seen in an individual quarter. So we continue to perform well, and I would say especially so under the current quite challenging circumstances. The adjusted operating profit per ton increased to 2.9 thousand SEC compared to 1.8 in the third quarter last year. And the key driver behind the strong earnings is the continued margin recovery as price adjustments are compensating for significant external cost increases that we see. And on that topic, we actually continue to see almost all cost items increase year over year with the largest increases related to energy. And that's really our European operations that are most impacted from this. In total for the group, external costs increased by close to 400 million SEK in Q3 compared with last year. And this does not include the cost for aluminium that is directly passed on to customers. In addition to the improved balance then between price and cost, net changes in foreign exchange rates had a positive impact of 48 million SEC in the quarter. And this is primarily the translation effects on the significant appreciation of the US dollars against the SEC. And over the coming quarters, we expect to see increasing transaction effects as well, as the effects of currency hedges are gradually wearing off. Depreciation, amortization and impairment charges increased with 63 million in total. And this now then includes the 74 million SEC related to the impairment of the assets damaged in the firing corn that I mentioned earlier. The reported operating profit of 269 million SEC in the quarter further includes items affecting comparability of negative 76 million SEC. This is related to a loss on an open aluminium position in one of the Grenges subsidiaries and the reason for the loss was a wrongly stated and therefore unhedged exposure in combination with extremely high volatility in the price of aluminium during the second quarter of this year. Now this is an unusual type of event for Grenges and as a consequence we have reviewed and improved the processes in our subsidiaries to ensure appropriate risk management throughout the group. The profit for the period increased to 156 million SEC and earnings per share increased to 1.47 SEC in the third quarter. During Q3, the financial net debt decreased slightly to 4.3 billion SEC. Driven by the earnings improvement, the leverage did, however, also come down to 2.1 times EBITDA on a rolling 12-month basis. And as you can see on this slide, the adjustment cash flow before financing was strong in the quarter, totaling 441 million SEK. And as you may remember, then we saw a very large build up of working capital in the first quarter this year due to the dramatically increasing aluminium price at that time. With the metal prices now having come down again, we see the reverse effect of this. So sequentially lower aluminium price impacted the working capital positively in the quarter. Now, the effect from the lower aluminium price is partly offset by build-up of inventory, and then that's primarily related to safety stock in our Polish operation, and this will mitigate the effects of potential natural gas shortages over the coming months. But the result of this is that the working capital remained fairly flat from the second to the third quarter. We also continue to invest in total 129 million SEK in the expansion of the Grenges Group and in key areas such as more sustainable and circular products. The majority of the spend in this quarter relates to the two new recycling centers that we are currently building in the U.S., Finally, I think it's also worth to comment on the large currency translation effect that impacts the net debt in the quarter. And this is primarily related to our dollar denominated debt and the strengthening of the US dollar against the SEC in the quarter. Even though the currency maybe is working against us a little bit on the debt side, I think it's very positive that we continue to see the strong cash generation and we continue to reduce the leverage in the quarter. Let's now take a closer look at our business areas and start with Grengis Americas. In Americas, we heard from Jörgen that we continued to experience a strong market demand from all our segments, with the exception of automotive there, which is continuously negatively impacted by component shortages and high inventory at customer level. In addition to this, a gradual ramp-up of the Salisbury facility there after the stop in June restricted the production capacity with about 3,000 tonnes in the quarter, and this had a negative impact on the sales, primarily to the specialty packaging market. But we expect the Salisbury operation there to be back at full capacity as of first quarter next year. The adjusted operating profit increased to 254 million SEC, which corresponds to an adjusted operating profit per ton of 4,000 SEC. And also here we see the main part of the positive effect of the FX, so net changes in foreign exchange shares was positive 39 million sec in the quarter continuing with with grain is eurasia and here we experience this mixed market development uh as jorgen talked about the two percent year-over-year uh sales volume growth in in total uh and it's a combination then of strong demand in automotive in in asia as china recovered and asia increased within total 32 percent in the quarter And then that was offset by a 12% lower sales in Europe. And that's really driven by two things. Well, first, the general negative market sentiment in Europe, I would say. And then second, high inventory levels as an effect of new anti-dumping duties. In July, the European Union imposed anti-dumping duties on the import of rolled aluminium products from China. And this has been known for a while. And in anticipation of this decision, European distributors basically built up significant stocks of Chinese products in, for instance, the general engineering and building and construction markets. So inventory levels are currently high in Europe. And maybe we should say that over time, the anti-dumping duties are expected to have a positive impact on Grengis' European business. But short term, then they provide a challenge due to this inventory buildup. The adjusted operating profit for the quarter increased to 87 million SEC, corresponding to an adjusted operating profit per ton of 1.4 thousand SEC. Also here we see a little bit of positive impact from FX. It's 9 million SEC in the quarter. Going back to the group level again, as some of you may recall, we updated our financial targets earlier this year. And although we're currently not meeting the targets, we delivered sequential improvements on both profitability, profit growth and capital structure in the third quarter. And as you can see on this slide, we're now very close to meeting the targets of at least 10% average operating profit growth. And we're almost back at our target range of net debt to EBITDA below two times. Of course, this is something we're very pleased with, and especially so in the very turbulent environment that we're currently in. And speaking of the turbulent environment, that's something we expect to continue to have to tackle in the fourth quarter. especially in Europe, where we see challenges both in terms of increasing costs and falling demand. But maybe start on the positive side. We expect a stable year-over-year development of demand in North America and increasing demand in Asia in the fourth quarter. In Europe, we expect the demand from the automotive customers to continue to be stable, but basically most other markets to be very weak. Further, our sales will also be negatively impacted by continued high inventory levels at customers in Europe, as I just mentioned. In total, we expect a slowdown in Europe to bring Grange's group sales volume for the fourth quarter down to a similar level as for the fourth quarter last year. On the margin side, we intend to continue to offset cost increases with productivity and price increases, as we've done throughout the year. With the extremely high energy prices we see in Europe and the market dynamics currently in play there, we do, however, expect a time lag before the new price increases come into effect. And this is currently expected to impact sequential margin development negatively in the fourth quarter. That said, we should not forget that the macro environment is currently highly uncertain and basically that there could be both downside and upside potential to our current view. With that, I'll hand over back to Jörgen to summarize the third quarter before we open up for questions.

Yes, in summary for the third quarter then, we feel that the third quarter was a very stable one. where we proved again that we can meet the external market conditions with things like price increases, mix changes, and so on, to provide a good result. And as a result, in the year to date, we have the highest ever operating profit and lowest ever carbon intensity. We feel there's a strong interest in the battery products and that the outlook, though uncertain, is something that we will have to deal with in the same flexible way that we've done before. And that's why we also say that our plan and ambition are changed.