Gränges AB (publ)

Good morning, ladies and gentlemen, and welcome to this fourth quarter 2022 and full year presentation for 2002 for Grengis. My name is Jørgen Rosengren. I am Grengis CEO, and I'm joined here by our CFO and Deputy CEO, Oskar Hellström. The fourth quarter of 2022 was a stable quarter, which concluded a record year. We had stable sales volume of approximately 110,000 tons relative to 112 last year. And across our segment, we had a continued stable demand in Americas and a very strong post-COVID recovery in Asia, whereas the situation in Europe was decidedly weaker. Our profit measured as the adjusted operating profit was up 10% in the quarter to 153 million SEK relative to 139. And this is, of course, despite the quite serious challenges that we faced in the outside world with notably energy prices in Europe. We had a strong cash flow, we reduced the net debt, and we improved our leverage during the quarter. Taken as a whole, 2022 was our best year ever. It was our best year financially, and it was the best sustainability performance we've ever recorded. And this morning, we also announced a further expansion in battery components. Looking then at the sales volume per segment and per customer group, We had an America's largely seasonal slowdown in HVAC of about 5% and also in other niches, whereas specialty packaging and automotive performed well. The total America's sales volume was largely constrained by capacity or production capacity and was up about a percent. The strong trend in automotive continues in Eurasia, where automotive was up a full 17%. Whereas the weakness in Europe primarily resulted in a decline in other niches and in specialty packaging by 43% and 11% respectively. The total sales volume in Eurasia was down 5%. And this is a mix of a weak development in Europe with approximately 10% down in volume or so, but an extremely strong development in Asia, like I said before, with 15% plus. And taking this for the whole group, then, we can say that automotive continues to be a strong support with good backlogs, good order book, and good sales also in the quarter, whereas HVAC and other niches performed worse. Specialty packaging in total performed well on the basis of good demand, but also increased production capacity. The total volume was down 2% then, a little up in the Americas and a little down in Eurasia, but largely stable. And with that, I'd like to turn over to Oskar, who will take us through the financials for the fourth quarter. Go ahead.

Thank you, Jörgen. So I think before drilling down in the fourth quarter, which I will certainly do, I think it's worth to spend a little bit of time on the full year, which so happens to be a new record year for Gränges, as we heard from Jörgen. We've never had a higher adjusted operating profit than the 1 billion and 150 million SEC that we delivered in 2022. And as you can see from this chart, we've now managed to more than recover the profit drop we experienced in 2020 as a consequence of the COVID pandemic. And that said, the 2022 profit is generated on a higher sales volume. And that means that the EBIT per ton of 2.4 thousand SEC for full year 22 is not yet fully back to historic peak levels. But we are gradually getting there. Now, leaving the full year perspective and looking at the fourth quarter, as Jörgen mentioned, we experienced a year-over-year decline of 2% in sales volume. If we look at the margin, the EBIT per ton, however, continued to improve from 1.2 thousand SEC in Q4 2021 to 1.4 thousand SEC in Q4 2022. If we look at the individual business areas, they move in a similar direction, but there are some Some differences. In Europe, as we heard from Jörgen, we continue to experience a weak market for especially general engineering and building and construction products within the other niches market. And we see that also in the fourth quarter. This continues to impact capacity utilization and also the ability to optimised metal management and that has a negative operating profit per tonne impact. In addition to this, the weak market demand also makes it more difficult to immediately offset continued high costs with price increases and especially so then for the energy costs. Although we saw some relief on the European natural gas market in the quarter, this did not benefit our earnings in the quarter as we entered Q4 with high inventory levels in our cone implant as we talked about in our Q3 presentation. From a year-over-year perspective, I think that challenging situation in Europe was offset by strong performance in Asia in the quarter and if we look in total the capacity utilization in Eurasia was about 70% in the fourth quarter In Americas, we see a more stable market situation, and as a consequence, we have a higher year-over-year margin improvement there. From a sequential perspective, we did, however, experience a larger market decline in Americas than in Europe. But keep in mind, this is from a significantly higher level. This is related to three things. It's volume, mix and productivity related. And as for volume, what we see there is to a large extent normal seasonal effects, with Q4 being the quarter with the lowest sales volume in the year. But it's also constrained by the Salisbury facility that continues to operate below normal level. In total, the capacity utilization in Americas was about 80% in the quarter. Now looking at the quarterly performance for 2022, I would also like to comment on an adjustment that we made that is affecting the first three quarters of the year. As a result of our review of the annual accounts, we made a non-cash inventory adjustment of negative 80 million SEC related to raw materials in Grengis Americas that they imported in Q1 to Q3 2022. In order to show representative comparables for future periods, the inventory adjustment has been recognized in our accounts as increased cost of materials in the first three quarters of 2022 instead of as a one-time effect in the fourth quarter 2022. and the Q1 to Q3 figures you show on this that you can see on this slide they include these adjustments. If we look even in more detail in the fourth quarter we see the sales volume decreasing the two percent but net sales increasing 10 percent to 5.4 billion SEK and the main reason for this is of course that that we increased the average fabrication price but This is also seen in combination with net changes in foreign exchange rates. That was positive 600 million compared with fourth quarter last year. If we look at the earnings, just operating profit increased by 10% to 153 million SEC. And on an overall level, price adjustments continue to compensate for significant external cost increases also in the fourth quarter, similar to the earlier quarters in the year. Net changes in foreign exchange rates had a positive impact of 33 million SEC in the quarter. And this is primarily the translation effect from the strengthening of the US dollar against the SEC that we've seen throughout the year. In Q4, the adjusted operating profit also includes 7 million SEC of restructuring costs related to our European business. Depreciation increased with in total 30 million and a large part of this increase is related to that we during Q4 completed the logistics improvement project in Finspång and the first of the two new recycling and casting centers in Huntington and we started to depreciate these. There are no items affecting comparability in the quarters that the reported operating profit for the group is the same as the adjusted operating profit in Q4. The profit for the period increased to 50 million SEK and earnings per share increased to 0.47 SEK in the fourth quarter. For the full year, the profit for the period increased to 700 million SEK and the earnings per share increased to 6.59 SEK. And the Grange's Board of Directors proposed an increase of dividend to 2.50 SEK per share for the year. And provided that this is approved by the annual general meeting, it means that 38% of the profit is distributed back to our shareholders. During Q4, the financial net debt decreased by close to half a billion to 3.9 billion SEK. And as a result, the leverage improved to 1.9 times EBITDA on a rolling 12-month basis. And this means that we are now back in our target range of 1.22 times EBITDA. And as you can see on this slide, the adjusted cash flow before financing activities was very strong in the quarter, 679 million SEK. And this is driven by the earnings in combination with the release of working capital. And of course, the release in turn is driven by the seasonal sequential reduction in sales, which is normal in the fourth quarter. But this year, we've also put very high focus on reducing operational working capital and primarily then inventory. And this is something I think that the Grengis team delivered very well on in the quarter and we see the result as the reduced debt. We continue to invest in total 163 million in the expansion of the group in key areas such as sustainable and circular products. The majority of the spend in the quarter relates to the two new recycling centers that we're building in the US and one then, which has now been completed. For the full year 22, we had a total capital expenditure of about a billion SEC, of which half is maintenance and upgrades to existing assets and half is expansion programs. Before leaving this page, I would just like to briefly comment on how we currently view the capital expenditure for 2023. And with the expansion investments now in battery capacity communicated in FinSpone, we expect the full year capex for 2023 to be about 1.3 billion sec at current FX rates. And of this, about 70% is expected to be related to our expansion programs. If we now take a closer look at our business areas, and we start with Grengis Americas, there we continue to experience a fairly good market demand for most segments, as Jørgen told us about earlier. The factor limiting our sales in Q4 is really the production capacity in the Salisbury facility that remains constrained. It's currently about 3,000 tonnes below normal level for the quarter. And in terms of demand, we this year also start to see a normalization of the seasonality of the product mix with a higher share of packaging and a lower share of HVAC in the fourth quarter. Although this is quite normal historically for a fourth quarter, it's a less favorable product mix than what we've seen in, for instance, the third quarter this year. Despite the challenges, the adjusted operating profit increased to 99 million SEC, which corresponds to an adjusted operating profit per ton of 1.7 thousand SEC. And this includes higher depreciation. from the fourth quarter, as we're now starting to depreciate the new recycling center, as I mentioned earlier. And net changes in foreign exchange rates had a positive impact of 20 million SEC in the quarter. Continuing with Grengis Eurasia, here, as we said, we continued to experience a mixed market development. Demand from automotive customers in Asia was strong, as China continued to recover after the COVID lockdowns. This positive development in Asia did, however, take a little bit of a hold towards the end of the quarter when China changed its COVID strategy, and that had a quite significant short-term impact on our ability to produce and ship products. Still, in total, sales volume in Asia increased by 15% in the fourth quarter. The growth in Asia was, however, offset by 10% lower sales volume in Europe. This is driven by two things. First, the general negative market sentiment outside of automotive. And second, the inventory levels at distributors that remain very high. As we talked about in Q3, in anticipation of this anti-dumping duties decision against China, European distributors built up significant stock of Chinese products, for instance, general engineering and building and construction markets. And due to the lower end market demand that we've seen in the year, the inventory levels continue to remain high throughout the fourth quarter. And the tight general engineering and building and construction market, it also reduces the possibility for optimizing metal management, which had a further negative impact on the earnings in the quarter. Still, the adjusted operating profit for the quarter increased to 55 million SEC, corresponding to an adjusted operating profit per ton of 0.9 thousand SEC. Net changes in foreign exchanges had a positive impact of 13 million SEK in the quarter, but these are partly offset then by restructuring costs in Europe of 7 million SEK. With a very challenging situation that we've seen in especially Europe, but also in Asia towards the end of the quarter, I must say that I think that our Eurasia team delivered very well in the fourth quarter. With that, I hand over back to Jörgen, who will comment further on the full year of 2022.

Thank you, Oskar. I will speak a little bit about 2022 as a full year, also about our progress against our long-term targets. And then I will wind up by speaking about the outlook for the first quarter of 2023. I think... 2022 was a year of challenges for many people, and I think it's a year that many people in the world will be happy to leave behind them. And that was also the case for Grengis. We had a complete lockdown of our factory in China in the spring, which, of course, is a very tough thing to handle. In Europe, we were faced with the war in Ukraine and the energy crisis. We had supply chains restrained. We had the all-time high aluminum price peak in the summer. And in the fall, we've, of course, been hit by inflation and interest rates and not least increasing energy costs. All of this has led throughout the year to dramatic demand swings. And they themselves are, of course, a bit of a challenge to handle for an operations team. But all this has also cost money. On the operating profit level, we've been hit with increased costs of approximately a billion and a half SECs. which is more than the entire operating profit for 2021. Now, fortunately, we have also been able to work hard on this and also been able to offset most of it. Most important maybe in the long term is that we've been able to keep up a steady supply and thereby kept our customers supplied in a very, very turbulent period, which is important for long-term customer relations. We have secured long-term financing. We've had a very good progress in sustainability. We've made a new long-term plan and set longer-term targets, which are more ambitious than our historic performance and we keep making expansion completing expansion projects and making new investments in new products and a new productivity in total we were able to achieve productivity and price increase improvements in close cooperation with our customers which exceed the 1500 million negative and thereby bring the operating profit up to a good level So as a summary of the year, you can say that we achieved stable volume, we achieved our best ever profit, and we, as a result of also weathering all these challenges, we strengthened our team, we strengthened our operating footprint, and we also got stronger partnerships both upstream and downstream. So all in all, the year that we're content with, although the external environment was quite tough. Sustainability performance deserves a special mention. We had record levels for recycling. We had the lowest ever carbon emissions intensity. That in itself, those things having together, the recycling improvement drives lower carbon emissions intensity. And we also got a lot of external accolades for our performance in this area. For instance, we achieved two new ASI certifications for Grengas Americas, and we got for the second year in a row, I believe, the Ecovados Platinum rating, which places us in the top 1% of the companies that they rate. Quite a good performance. In the year, we also announced our Navigate plan. It has three phases. I'll speak about them in a second. Restore, build and invest. And it aims at building, in fact, the world's best aluminum technology company in our niche. achieving a 15% ROSI, achieving a long-term 10% EBIT growth, which I might mention we actually surpassed in 2022, and to continue towards a 2040 carbon neutrality target. In all these three phases, we're starting out, of course, but there were some notable things to record for the year 2022. In Restore, we're aiming to finalize our footprint, utilize it fully, and then optimize it. And we are completing several of the expansion projects that we've started in the last couple of years, notably the recycling centers in Poland and in the U.S., and the internal logistics optimization in Finspång. we had a really good utilization in the air in Americas, and it was uneven in Eurasia. It was very good in Europe in the spring and very good in Asia in the fall, you could say. But most of all, I think we've shown really good performance on price, on mix, and on flexibility throughout the year, thereby weathering most of the challenges that we've had on the coast, or in fact more than the challenges that we had on the coast side. On build, we've raised the ambition level in our Always Safe program, We're making good progress with various solutions for electrification and other new businesses also. We've had this fantastic growth in our recycling volumes. That's now quite an important part of our business, in fact. And we're making new partnerships for green energy and for aluminum, both scrap, in fact, and primary aluminum. And we also aim to invest. We are starting now to execute the large investment in remelting and recycling for also very green metal, very green products, very low carbon intensity products in the US. And we're also continuing our expansion into battery components. And let me speak especially about that because it's important for long-term growth opportunities. possibilities aluminum is in fact a very key material in the electrification revolution it's low weight and other properties are ideal for that and one part you can see on this page here several different product categories but one very interesting product category for us is battery cathode foil, the demand for which will be driven by the very strong expected growth in the demand for lithium ion battery applications over the next years. There's a picture of that here. Interestingly, most of the supply chain for such battery cathode foil is located in Asia, but it's being built up in Europe and in North America as a part, I guess, of the general regionalization of supply chains trend in the world. And we started deliveries to customers of this product in 2002 in Asia, and we're going to start deliveries this year in Europe. And next year, we will start deliveries in North America and believe then to be Maybe the only or maybe one of a very, very few suppliers who can provide this type of service on all three continents to these global battery manufacturers and OEMs. And therefore, we announced today, in fact, that we're going to double our European battery foil manufacturing capacity to meet the growing interest we're seeing from all these customers and invest in that capability 600 million sec over the next two years and come in line with it in 2025. Looking at longer-term development, Oscar has already touched on this, our profitability is below our target. The improvement we're seeing in the profit is offset to some extent by the increase of our capital employed, and not the least driven by the large aluminum price in the last year. We hope to be able to make the working capital more efficient and gradually improve this ratio. And that will also be helped, of course, by the profit growth, where we're now touching on the target area there. As you can see, we have a long-term target to grow our operating profits by more than 10%. And now we're back towards the zone where we want to be there. And very important for us also, we have a good development of our capital structure, despite, I might say, the very high aluminum price, where we're now back in our target range of below or between one and two times net debt over EBITDA. And dividend, of course, you have seen the board proposal to the AGM of 2.56 per share. which is in our target range of 30 to 50% of earnings per share. Turning then to the outlook, there is no doubt that there is uncertainty in the world and that uncertainty in 2023 remains. In the near term, though, we see a very good support from the automotive backlogs globally and also from the recovery in China, which we believe will support demand. In other customer segments, we see some hesitancy that makes us believe that the customers will shift their focus from securing supply to managing inventories. But that said, though, we still believe in a solid first quarter volume-wise, and we believe more specifically in a sequential improvement of the volume in the first quarter of 2023 over last quarter by 10%. And then, as before the ambition is, and as we've proven to date, our ambition is to fully offset the year-on-year cost increases with price increases. And that concludes the outlook. To summarize this whole thing, we had a solid quarter, which ended our best ever year financially, but also the very good sustainability performance in 2022 deserves mention. We made good progress on a long-term navigate plan. As one example there, we're increasing our investment in battery foil capacity now in Europe. And the outlook for the first quarter then is a 10% volume growth and a continued ambition to offset all year-on-year cost increases with similar price or productivity increases. And that also concludes the presentation that we had prepared for you. But now, operator, we're willing to take any questions that the audience may have.

If you wish to ask a question, please dial star five on your telephone keypad to enter the queue. If you wish to withdraw your question, please dial star five again on your telephone keypad. The next question comes from Gustav Schwen from Handelsbanken. Please go ahead.

Yes, hello, I'm Gustav Schwen from Handelsbanken. I have a few. First, on the sequential earnings development in America and the Salisbury effect, are you only losing leverage on those 3,000 ponds, or is there actually extra cost impact in Q4 over Q3 as well? If so, can you say roughly how much, just to get a better understanding of the mixed effect on the earnings? That's the first one.

Hi Gustav, it's Oskar here. It's a good question there. I think the challenges we have in Salisbury has been a little bit of a struggle for us the whole second half of the year. One part is certainly the impact it has on constraining our... Our sales volume, basically, should we have this plant fully up to operating at normal levels, it would certainly be able to sell more product in the US. So that's one part of it, as you say. In addition to that, of course, sort of from a productivity perspective, yield perspective, which is a key metric for us, etc., The plant is not operating where it should be at this point. So there is more to it just than the volume side of this. And I mean, if you look at the sequential development now in the US third to fourth quarter, obviously Q4 is a seasonally weaker quarter. volume-wise, mix-wise. But we also have this productivity aspect in there for this year. And, I mean, order of magnitude, well, volume is the single most important driver sort of from a sequential perspective. And then you have mix and productivity, basically half-half of the remaining part there.

All right. I guess when we have had normal season average in the past you typically see a bit of uptick quarter on quarter for HVAC in Q1 right? Is that how we should view it for this year as well?

The HVAC business is typically strongest during second and third quarter but it starts to ramp up during the first quarter and fourth quarter is typically a very low quarter for HVAC and We had two extraordinary years now in HVAC in the US. I mean, we don't know, of course, exactly how that will develop in the next couple of years. But if it returns to sort of the historic seasonality, that is the pattern that you could expect.

Perfect. And then on the inventory situation in Europe. Would you say, I mean, are we at similar levels of this on Q3? Or have you seen some destocking? And yeah, I mean, what's your best guess of how this is going to play out over the next coming quarters?

Yeah, for clarification, you're talking here, I believe, about the downstream inventory situation among our customers in Europe, which has been high during the second half of last year, you could say. We also end the year with what we believe is a high downstream inventory, but slightly lower than it was in Q3. So it is decreasing. It's decreasing slowly, however, on the back of… basically low-end customer demand in those same sectors. But we believe that the inventory situation with what we can see now, the trends we can see now, may correct itself during the first half of the year and lead then, therefore, to, from our perspective, a better demand situation in the second half of the year in Europe.

Okay. Can I ask you to send the last one?

Sure, absolutely. Okay.

Just on the forward expansion you're doing now, are you building another rolling mill, or are you adding melting capacity? The reason I'm asking is, I think you said 400 million for the first 20,000 tons, but that included then the logistics and efficiency investments, right? Just curious what this means for total output in Finnsport.

The 400 million is not a figure I recognize, but what we're doing here gradually is we're building more downstream rolling capacity, right? But we're reutilizing the upstream remelting, casting, and hot rolling capacity. uh better we think with this right we're trying to move away a little bit from the tonnage numbers on the battery foil because we don't believe it's the right metric rather we should measure i don't know square kilometers or something but um but uh it is so that we will with this investment of the 600 million then double the total capacity that we have projected for uh for europe then uh in battery cathode foil

add to that, I think the 400 million you referred to is sort of the logistics improvement and automation of the existing Finspång facility, which was completed then by the end of this year, right? And that in itself will sort of give the upstream part of Finspång 20% more or 20,000 tons more capacity. And I think adding to what Jörgen said, that part of this capacity, we will now be able to direct into the battery foil segment by making some additional investments into that specific product area. So it goes hand in hand, so to say.

Okay. All right. Thank you very much.

Please state your name and company. Please go ahead.

Nordea Equity Research. So first off, I'm wondering here if you could speak more on your guidance, what you expect will drive the 10% sequential increase in Q1. Is it a recovery in HVAC and further progress in automotive or what are your thoughts here?

No, like we said, the segment that we believe will work the best in our favor in the first quarter of this year is going to be automotive, right? So we expect strong demand in Asia. We expect strong demand in Europe and also in America in automotive, although it's a smaller segment there. Then sequentially, we also do expect stronger demand and production in HVAC and the other segments in the Americas, as Oskar explained earlier, which is part of the normal seasonal pattern, both in our capacity and in demand. So we expect, in fact, increased sales volume in all segments in the first quarter.

Yeah, understood. Thank you. And then, just to clarify here, do you have any extra safety stock still? You had some in Kunin and Shanghai earlier. Do you still have some?

We have. In general, I think the whole Granges organization did a very good job reducing inventory in the fourth quarter. That said, of course, our teams, especially Kunin, had a tougher situation. tougher task in doing so because of the market situation. We currently have still higher than normal, I would say, inventory levels, especially in Conan, but we expect to sort of, under normal market sort of conditions, the inventory levels will be turned in, let's say, three to four months. So throughout the first and a little bit into the second quarter, this should normalize. provided that we don't see a significant deterioration of market demand.

Okay, great. And finally, perhaps a follow-up on the previous question on the battery CapEx. I'm wondering if you could say what capacity you will have for battery-related products by 2025 after the investment announced today.

We're going to try to not go into the tonnage for battery products. Now we're talking about battery foil, but I guess I should have mentioned in my overview about the fact that there are other products there where we're in fact also taking volume. So we're expecting volume already in this year, 2023, in battery casing. And we had significant volume actually mostly in Asia, but expect significant volume in Asia and Europe this year in battery cooling plates, for instance. So the total tonnage of battery products is not something that we're, at least right now, going to report on externally, but I can tell you that it's growing. Okay, thank you.

That's all for me.

The next question comes from Kenneth Toll Johansson from Carnegie. Please go ahead.

Thank you. So a couple of questions. First, in the Salisbury plant, what's happening there? What's the reason why it's not performing full speed? Is it still the safety issues?

Kenneth, good morning. Jörgen here. Yes, we had a safety... We've had a safety issue in Salisbury, and as I also commented on earlier, we're generally working on the safety situation in Ollegrenge with a view to become much better than we are today. And as a result of that, we had a partial closure of the Salisbury plant in the beginning of the third quarter. But since then, we've ramped up. But it is generally an operational and productivity issue, which is related to organizational issues and other issues there, but not specifically related to safety as such. And of course, when you have a factory that's not performing, it needs to improve. We have good management there, we have good plans, and we also have good confidence that the operating trend in America generally, and specifically in Salisbury, will be a positive one during the spring of 2023. Great.

Then I have some questions on pricing and relating to margins. You talked about batteries that you're initiating or starting deliveries on new products and orders and so on. For the products you have delivered to in China and so on, do you see that you have a good profitability there and that it is higher than the grainless average?

It varies, Kenneth. In Asia in general, the situation is not so favorable as in Europe and in America when it comes to battery products because of the existence of battery products. component supply chain in that region right so there were admittedly facing much tougher price competition for those products but they can still be quite important contribution generators for us in Europe and America the situation is the opposite there were facing very little competition from domestic suppliers and therefore have a generally speaking a better situation when it comes to the ability to extract price of course We think that the investments that we're making in this will generate returns which are in line with or even exceed the financial targets that Genghis have set out. And those, of course, you know by heart, so I'll refer to them.

I do, in fact. Yeah, but then also I was thinking with the change or the accounting issues in the Americas, the profitability there wasn't as good as we thought. Do you see a reason to correct pricing to sort of improve the Americas business now? I mean, it's still good, but have you had any thoughts in that direction?

The issues that we refer to have had no impact, in fact, on our invoices out of the company or into the company. It's strictly an internal accounting thing. And now, as you can see, we're also corrected in all these numbers. So the issues, although it's hard to explain, have not really affected our profitability at all or any external flows out of or into the company, including cash invoices. in 2022. And therefore, we don't see that as a reason to increase prices because we have a good price trend and a good profitability trend, as you also comment on in Americas. That being said, though, we do see good reasons to increase prices in Americas, and we intend to do so also. We intend to capitalize on the good situation we have in Americas, on the good customer relationships, and also, of course, intend to compensate ourselves for the cost increases that we're facing there as elsewhere. So I think it is true that the profitability trend was not quite so good as we reported with the year-to-date Q3 figures, but it's also true that it's a good profitability trend and one that we intend to continue.

Great. And also, if I remember correctly, you have an opportunity to move pricing in January, right? And you talked also about higher energy costs, especially in Europe and so on. So would you think that the balance between your pricing and the costs you are experiencing would be better in the first quarter than it was in the fourth quarter? I know that was clearly the case when comparing the fourth quarter of 2021 with the first quarter of 2022. So should we expect a similar trend here?

That is a very good question. Firstly, you're right. We have already concluded many agreements, many contracts with our large customers for not only 2023 but also for several years to come at more favorable price levels than the ones we had in 2022. And it is so that many of those have not yet taken hold completely. So some of them will take effect in January, others in April and so on, depending a little bit on how the agreement is with the specific customer. And of course, when you are in a rising cost trend, you can get such changes. let's say sequential quarter and quarter effects where sometimes you're a bit ahead and sometimes you're a bit behind. We're actually quite proud that we've been able to stay ahead throughout and we have been able to stay ahead in Q4 also. But our ambition going forward is to fully compensate for all year-on-year cost increases in all periods, if they're quarters or if they're years. And that also goes for the first quarter. How well we succeed, we'll tell you on, I don't know, in the last week of April or something like that.

Okay. Thank you. That's all for me. Thanks.

The next question comes from Mats Liss from Kepler-Chuvriaks. Please go ahead.

Thank you. A couple of questions. Coming back to the battery foil segment, if you could just briefly say something about the competition you meet in that segment and also if you address the same type of customers. Just a brief touch upon that.

Good question. The competition situation, like I said before, is quite different in Asia relative to Europe and America. So in Asia, we're facing a wide range of competitors worldwide. which are, by and large, our normal competitors, although our own focus area there is on slightly heavier gauge material than this petrofoil is. In Europe and Americas, we're facing very little competition, in fact. There are very few players who are supplying this with production in Europe or in Europe. the Americas. In fact, you could almost say there are none. Now, we have plans to start deliveries this year in Europe and next year in Americas, and there are also other players who have announced such plans, but very few. And they then tend to be Asian players who are in various ways trying to expand their footprint into Europe and into Americas. Regarding customers, our customers here are partly new because some of these customers are, in fact, battery manufacturers. And they're – at least I personally have been quite surprised by the very strong interest from large, very technologically impressive, leading global battery manufacturers. But there is also, interestingly – an interest, of course, from OEMs here because many of the OEMs, as you know, are also active in the battery market. And that, we think, is quite interesting because it gives us an opportunity for direct dialogue with the OEMs on things like technology development and so on. So we regard that as an important opportunity for Grengis.

Great. Great. Thank you. Then about the figures, I mean, you mentioned the China slowdown in December there, and I guess COVID was the reason, maybe, and then closed down. But what about the supply chain inventories? Is there any sort of, I mean, automotive is important there. Is that the reason also behind the slowdown, or is it entirely due to the COVID relation, that kind of issues?

Specifically in China, but actually I think also you could say globally, we are seeing a good development in automotive, which has to do also with the supply chains easing up. And that is, of course, in itself positive, and we expect that to continue during the beginning of the year, as we said before. They're also, of course, not entirely positive, is that the easing of the supply chain partly has to do with general, maybe, demand and supply balances that are going a little bit in the other direction. There we're seeing, of course, some... about some customers who are now less eager to take on inventory and less hurried to offset supply chain differences. Specifically in China, we have, I think... been been working all the second half of the year at least to catch up with the backlog that we've had and we continue to work on that and we still have a large backlog and that makes it difficult to see beyond that so to speak into what the actual end demand is right and i also don't think that many people know what will happen during the year in china i guess we can all hope for a recurring demand, generally speaking, when the economy opens up now after COVID. And best case, that's what's going to happen.

Great. And then about the investments you make now in Finspången. So do you expect to be able to finance those entirely or to a large extent, maybe from internal internal cash flow generation or do you expect to increase? Could you say something about the mix there?

Sure. When we announced our Navigate plan in May or June, I forget, then we said that our ambition on the financing side is to get below two times ratio between net debt and EBITDA and stay there. And now in this last quarter, we actually got below two, so we intend to stay there. And the 600 million investment in Finspång is compatible with that ambition. as far as we can tell with the outlook such as we see it now. But that being said, I would like, Oscar, maybe you want to say something in addition to that.

I think we can comment a little bit on... Maybe we can comment on two things in relation to that. I think one thing we haven't talked about today but was a significant thing for Grengis in the end of 2022 is that we completed a refinancing exercise, basically tying our debt portfolio fully to a new sustainability-linked structure with also fairly favourable terms. That's a good starting point to have for Grengis. But that said, I think... We should also remember that Grenges is a company with a strong underlying cash generation. For those of you who listen in on our Capital Markets Day, we showed some historical performance there, basically, and that is that our EBITDA... to cash generation over time. And we're saying then basically to cash after maintenance or sustaining investments is typically on average 75%. That means that, of course, this business generates quite some cash that can be spent into expansion investments. So that also means that that's how we intend to finance this FinSpong investment. So basically through internally generated cash flows and supported by existing new credit facilities if needed.

Great. And just finally, you mentioned that you're a bit high on working capital and inventory. How much do you expect to be able to reduce that? Or do you have any targets to

I think it's fair to say that it's a high focus area for Gränges. I think we started to see the results of the focus we put on this in the fourth quarter. But we intend to continue to work on this throughout 2023. Now, coming back to what Jörgen said on the outlook, of course, we expect to see a sequential trend. sequential growth in business activity in the beginning of the year. And of course, that is a short term, maybe a little bit of a counter impact on reducing working capital. But we continue to see a significant potential for further reductions throughout the year, if not necessarily in the first quarter.

Okay, great. Thank you.

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Hello. Hello. Yes. Hi. Yeah. Sorry about that. Good morning. So my my first question is just on kind of all of the ongoing ramp up or capacity projects that you currently have and if you could possibly help us with kind of shedding some light on how you foresee those volumes kicking in during this year both related to kind of well let's go with repairs or restoration of Salisbury but also the improvement efforts that you made in the other factories and so on.

technical part of this and then Jörgen can add some more flavor on sort of the organization and business side maybe but coming back to where you started there with sort of the capacities obviously we've had a large or a few large investments in additional capacity ongoing for the last couple of years. In Finspång, we have the internal logistics and automation project that was completed by December this year. That is designed to release an additional 20,000 tons of capacity. Now, even though that is technically finished, of course, all the assets needs to be ramped up and qualified with customers and so forth. So it doesn't mean that volumes will increase with 20% from one day to another. In Konin, we are running a project to increase from 100 to 140,000 tons, so 40,000 tons more capacity. Now, there we had the setback earlier in 2022, as you know, with the fire. So we have only so far achieved 10 of the 40 additional tons of capacity there. The remaining 30 will be back online when the mill that has been damaged has been rebuilt. And our current estimate on when that will be is mid 2024. And I mean, basically, that brings us to a situation now where we basically see in 2022 had 580,000 tons of capacity. But entering 2023, technically, we will have 610. And then that will become, let's call it operationally available throughout the year. And then we will be at 640 by mid-2024 when the Kohn implant is completed. So that's the technical side of it. Then the Salisbury situation, Jörgen has already commented on, of course, it's a focus area for our Americas team to release that capacity that is technically there, but that we currently don't get out of the facility yet. And as for the investments in battery foil, As Jörgen said, capacity in terms of tonnage may not be the ideal measure for that, but I think the way to think about this is that the battery foil will also, of course, be a very good way to utilize the existing upstream assets that we have and get an even better return on those, even though we're not necessarily communicating an additional capacity figure for them. for those particular investments. I don't know, Jörgen, if you want to add something there.

No, other than to say, of course, that productivity is an important topic in a company like Rengis and is going to be an important topic also in 2023. And that's generally the case when you make new capacity investments, like you also said, Oskar, that in the beginning you have to work a little bit to get them fully, all the kinks work out, so to speak, and then you have to work on productivity of those new assets. And I regard that as an upside in Grengas in the next couple of years to get all of this new capacity fully utilized and optimized, as we also say in our Navigate plan.

Understood. Thank you for that. So the second one is related to import your financial targets and the 10% EBIT growth exceed near-term maintain over time. Just thinking about this in EBIT per ton terms, in America's EBIT per ton, well, it's essentially more than doubled since you acquired the platform assets a while back. Whereas the Eurasia, if we call it that, EBIT per ton is below historical levels. So just think about the EBIT growth and potential improvement in group EBIT per ton. Is it just conceptually? Should we think about it as you maintaining the America's EBIT per ton on this kind of good level and that the uptick will mainly stem from Eurasia improving towards kind of historical levels?

I think the America's team will not like if we say that they should maintain anything because they are a very ambitious crowd over there. And they absolutely have the intention to further improve the Abbott-Furtan. And one way to do that, of course, is to address exactly the issue that you spoke about before, right? Utilization of our capacity base in Americas is high, but it's not equally high everywhere. And we also have the ability in the Americas to make the bottlenecking investment and generally to improve productivity. And all those things, of course, can also lead to higher sales volumes. So that's generally the – that's absolutely the – ambition there in addition of course to offsetting cost increases with price in europe and in asia you are right that we have a lower general utilization so that represents of course in a way an easier upside but then you also have to have the market and right now the short-term outlook in europe is not super fantastic and in asia is is good but um but not as good as the outlook we've had at least in the U.S. in a couple of years. So in Europe and in Asia, the challenge is, of course, to find the right customer mix, the right product mix, and the right volumes to utilize our assets there in the best possible way. And that worked out well in Europe in the first half of last year. And it worked out well in Asia in the second half of last year. But we, of course, need to have a more stable high utilization over some time before we can say that that is the case. And if we did, then, of course, you would see a corresponding margin uptake in Europe and in Asia.

Understood. My final one, if I may, given all of the changes in the regional mix and also end market mix over the past few years, putting COVID aside, Is there anything you could help us with in how we should think about, if you continue to fully offset cost increase, if you do that, throughout this year, how one should think about seasonality in maybe only volumes, but if possible, how we should think about seasonality in profitability per tonne?

It's important then to understand what kind of a market scenario we're looking at. If we're looking at the market scenario we are in right now with the demand factors we have right now, then we would expect, of course, normal seasonality. That's always the planning assumption, right? That you have normal seasonality going into a year. And if... So I guess that's the answer to the seasonality and volume question that we expect normal seasonality. It will probably be A little better than normal in Asia because of the large backlog we have there, right? And a little weaker than normal seasonality in Europe because of the weak market situation there. But those, I think, are things on the margin. And in total, in your job, so to speak, maybe a good thing is to expect normal seasonality. Then how will that affect... profitability? Well, we have a rule of thumb, which is to say that about 7,000 sec per ton contribution effect of volume up and down is a good rule of thumb. And on top of that, we then want to fully offset all year-on-year cost increases, in fact, going all the way back to 2021 in each quarter, in fact, right? So that gives you guidance for how to think about it. How it will actually be, of course, depends on many things, and not the least, of course, on the market demand. But in terms of planning, that is a good way to think about going. Understood. Thank you.

There are no more questions at this time, so I hand the conference back to the speakers for any closing comments.

Thank you, operator. Then I would like to thank everybody for attending this fourth quarter conference call. And I wish you a nice day going forward. Take care and see you soon again.