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.