Gränges AB (publ)

Good morning, ladies and gentlemen, and welcome to this first quarter presentation for Grengis. My name is Jörgen Rosengren. I'm Grengis' CEO, and I will be taking you through this presentation today together with our CFO, Oskar Hellström, who's here with me. The first quarter of 2024 showed a return to volume growth, and that happened because we saw a stabilization of the market demand in most sectors after a long period of destocking downstream from us. And now we believe that inventory levels are more normal in most of the sectors that we serve. But it also happened because we had focused in some time on market share gains and gained some good results from that in the first quarter of this year. And as a result, we did indeed then show some volume growth, albeit at the modest level of 2% to 122,000 tons in the first quarter, relative to 120,000 tons last year. We also managed to...

achieve good productivity improvements, and they, together with the growth that were recorded, largely offset the customer price pressure. That is a normal feature of the environment today, with lower energy prices and so on. And as a result, we recorded an operating profit of 356 million SEC, which we regarded as a good result and more or less in line with last year when compensated for energy compensation that we received in the first quarter of last year. We also are very proud of our sustainability performance, where we recorded some very, very good results in the first quarter. Turning to the market then, and to our sales in 2020, for various business statements. We saw negative volume growth in Greenwich Americas. And the most important factor there is somewhat later on, sell into the customers in the HVAC segments as a result of their manufacturing starting up a little later than last year. on the tail end of their inventory reduction, which lasted most of 2023. But the outlook, however, is more positive

Good sell-in to those customers. So we're relatively optimistic still about Grengs Americas. In Grengs Eurasia, we saw strong growth of 10%, mostly driven then by a normalization of inventory levels in several segments and by a stable demand in automotives. And that evens out then for the whole group to a small but important volume growth of 2% for Grengis. In parallel with all this, we're continuing systematic work on executing our Navigate plan, which has the three steps restore, build and invest. And where we're aiming to become the world's best aluminum flat rolling and recycling company in the niches that we serve.

to achieve a 15% return on capital employed, to have an average 10% operating profit growth over the years, and to continue executing our plans to reach our 2040 climate neutrality target. And on that last point, we saw in this quarter a record-stating performance, and it's not just a one-off either, it's really a long-term positive trend that as you can see here we reached a very low carbon emission intensity that's the level of carbon emissions measured as a ton per ton of sold product and we're now at the level of 30 percent lower than than we were when we started this in the reference year of 2017. But we also saw a very high share of sourced recycled aluminum, which now reached 44% in this year. in this last quarter, and that means that 44% of all raw materials that we use are in fact recycled, so Greggs is now quickly and quite substantially becoming also a recycling company of note in the aluminum industry. like to turn over to Oscar to take us through the financials and some other numbers for the first quarter of 2024. Go ahead, Oscar. Thank you, Jørgen. As we heard earlier, And as you can also see on this slide, our sales volume grew slightly year on year, but it also showed a strong 13% sequential growth in the first quarter. As a consequence of this, we also see a normal seasonal increase of both the operating profit and on the operating profit per ton in the quarter. And looking from a year-on-year perspective, we do see a slight decline. as the EBIT per ton decreased by 400 SEC from 3.3 thousand SEC in Q1 23 to 2.9 thousand SEC in 24 but here we do need to remember something that Jörgen touched upon also and that is that the 401 million SEC of EBIT that we delivered in Q1 last year includes one of energy cost compensation related to the years 2021 and 22, and that totals 32 million SEK.

And if we adjust for this, the year-on-year EBIT development is much more stable, showing only a 13 million SEK or 200 SEK per ton reduction. If we look at the drivers behind this development, we can see that we largely managed to offset the continued market price pressure as well as salary and wage inflation in the first quarter. And the main contributors to this are the full utilization of the new recycling and casting center in Americas, which together with generally good metal management had a positive impact on our raw material costs. The second thing is the continued normalization of costs for energy, especially in Europe.

And third, improved cost productivity with that we managed to offset continued inflation. In terms of geographical mix, that had a negative impact in the operating profit on the operating profit in the quarter as we saw lower sales volume in America where we currently have the highest margins utilization, which is an important profit driver for Grengest, we continued to operate below the optimal level. For the group, the capacity utilization reached 80% in the first quarter. Let's now look at the group financials in a bit more detail. Starting with the sales volume, it increased with a percent and a half to $122,000. and tons while the net sales decreased by 9% to 5.4 billion stag and the development of the net sales is the net effect of lower average fabrication prices a lower aluminium price and positive changes in foreign exchange rates compared with the first quarter to last year. If we move on to the earnings, the adjusted operating profit, which is 356 million SEK, 13% lower than in Q1 last year, excluding the one-off energy cost compensation. On the negative side, we see the lower average price, the continuation of inflation, and less favorable geographical mix. But as we said, this is offset by good metal management and improved cost productivity. And the remaining difference to last year is explained by the 12 million SEC increase in depreciation related to complete expansion projects but the net effect from changes in foreign exchange rates that was slightly negative minus 3 million compared with last year It is affecting comparability in the quarter, and the reported operating profit is therefore the same as the adjusted operating profit in the first quarter. The profit for the period reached 237 million SEC, and the earnings per share was 2.23 SEC.

The return on capital employed increased to 11.8% by the end of first quarter. That's up 2.2 percentage points compared to the year before. If we move on then to the balance sheet, during the first quarter, our financial net debt increased slightly to 3 billion SEG. The net debt to EBITDA ratio was 1.3 times, and that means that we remained well within our target range of 1-2 times EBITDA. As a consequence of the seasonality of our business, we typically see a large build-up of networking capital in Q1. We have, however, continued our focus on working capital efficiency and thereby limited the networking capital increase to 378,000,000

That's about half of what you could expect from the sequential sales increase. That's a pretty good result, I think. This, in turn, leads to that the adjusted cash flow before financing was positive at 95%. 5 million second the first quarter we continue to invest in total 134 million second expansion and the majority of the spend in q1 relates to expansion of for battery cathode foil production in both Europe and Americas and it's also we invested in the second of the two recycling and composting centers that we are building in Americas Finally, I think it's also worth to comment on the fairly large currency translation effect that impacts the net debt in the quarter. And this is primarily related to our dollar denominated debt and the depreciation of the SEC against the US dollar in the quarter. even though the currency is working against us on the debt side we can say I think it's very positive that we continue to see strong cash generation and we continue to remain well within our target range for leverage if we look ahead a little bit here I think that it's worth to note that the aluminium price has increased by about 15% or 400 dollar per ton or so so far in April and if this current price level remains we expect to see an impact of this on our net working capital and our cash flow in the second quarter because this will lead to a working capital build up for us um Moving on to the business areas, and starting with Grengis Americas. As you heard from Jörgen earlier, the market demand in Americas was lower than last year. But on the positive side,

the actions taken to compensate for the lower market demand with increased market share is starting to have effect and this limits the sales volume decline in Q1 to 7% year on year. Even with the lower sales volume and lower average fabrication price the adjusted operating profit remains stable at 267 million SEK and the adjusted operating profit per ton increased to 4.8 thousand SEK. I would say that this is a very good margin level given the fact that we were only operating at about 80% capacity utilization in the first quarter in Americas. The most important profit driver from a year-on-year perspective is the new recycling and casting center in Huntington that was operating at full utilization throughout the quarter. And this has now been in operation for more than a year, and the full annual benefit from this is now included in the financial statements.

In addition to this, Good metal management with a generally high share of recycled material and a high utilization of our cast houses has a further positive impact on the raw material cost. foreign exchange rates were fairly neutral in America in the quarter. Moving on to grain saturation. Here we continue to experience mixed but generally positive market development in the first quarter. and this resulted in a total 8% year-on-year sales volume growth. In Asia, we continue to see positive development, especially in the automotive market, and this resulted in that our sales levels volume in Asia increased by 11% compared with Q1 last year. In Europe we experienced an increased demand coming from normalization of downstream inventory levels. especially within the general engineering and distribution markets. In combination then with somewhat lower demand from automotive customers, this led to a 6% year-on-year sales volume growth in Europe. per tonne reached 120 million SEK in the first quarter. This represents a decline by 19 million SEK compared with the same quarter last year when adjusting for the one-off energy cost compensation in 2023. Lower average fabrication price and changes in foreign exchange rates had a negative impact on the Q1 operating profit, but this was partly offset by the higher sales volume, improved cost productivity, and generally good capital management. With that, I hand over back to Jörgen, who will provide you with an outlook for the second quarter and the summary of the first quarter. Certainly. Regarding the second quarter, then, the... It is, of course, so that the end customer markets to which we are now fully exposed, so to speak, remain hard to predict. We live in an uncertain world.

But, of course, Grengis has gotten used to and also, we believe, quite good at dealing with uncertainty and also with volatility over the past couple of years. So it's with confidence that we'll look forward towards the second quarter. More concretely, we expect the second quarter to provide growth in the mid to high single-digit percentage range year on year and sequentially as well. And that's the result partly of the more normal downstream inventory levels that we're seeing now, but also backlog levels that we're seeing now compared to one year ago, and also the result of our continued focus on market share gains. We aim to continue to offset any further price pressure and wage inflation during the second quarter with further cost productivity. And this outlook is, we regard as a fairly optimistic one, in fact, and one that bodes well for the rest of the year.

To summarize the first quarter, We think it's a really robust start to the year. We have normalized the levels in the market. We have taken market share. And those two things together marked a return to volume growth that we're now predicting will be able to sustain into the second quarter. Our volume growth, but also our excellent metal management and cost productivity have largely offset the price pressure that we're facing in the markets. They're believing in the good results we just reported, and I also think it's worthwhile mentioning that our balance sheet is dramatically stronger now than it was one year ago. As a result of good work in that area also, we're recording some truly excellent sustainability results. And we're predicting for the second quarter even more growth, both sequentially and year-on-year. And in the background, we're continuing our work on our long-term navigate plan to see systematically achieve our goal of becoming a leading company in our industry and to reach our 15% growth level and our long-term commitment to climate neutrality in 2014. And with that, that concludes our prepared statements. So if there are now any questions from the audience, now is a good time to ask them. If you wish to ask a question, please dial star 5 on your telephone keypad to enter the queue. please dial star five again on your telephone keypad. The next question comes from Adrian Jalani from ABG Sundal Collier. Please go ahead. Hello, you're going to ask a few questions from my end. First of all, I'd like to start on the Q2 volume guidance, volumes being about mid to high single digits. Could you, I guess, help us out by adding some color at the segment level there, do you expect?

fairly similar figures for the two segments, or one being clearly better than the other?

Yeah, so we don't, of course, as you know, Adrian, give detailed guidance per segment. But it's also not so that we're clearly saying one is going to be very strong and the other very weak or the opposite. So the guidance is a total effect of what we're seeing in the market and is then driven by the lower inventory levels that we're seeing in the market, generally speaking, among our customers and their customers, and by our market share gains. And we expect a fairly equal distribution across the two segments.

Okay, I understand. And you also write that you aim to offset any further price pressure with productivity. Are you able to specify what kind of productivity measures that you can take going forward?

Well, we're working, in fact... productivity right so metal management of course is very important in our industry but also very mundane things like procurement and making sure that we're getting the price decreases from our suppliers that that we're seeing generally in the industry. Labor cost productivity is always important to make sure that we can get this volume gain to happen without adding cost in. at the same rate. So it's really across the board productivity, which has given good results in Q1. And we hope we'll continue to give good results in Q2. I understand. A follow-up. that perhaps it's hard to give an exact answer, but in an environment with further price pressure, do you think you can sort of offset that one to one with lower costs and better productivity, or do you see risk of margin pressure in?