Gränges AB (publ)

Good morning, ladies and gentlemen, and welcome to this result presentation for Grenges. My name is Jörgen Rosengren. I'm Grenges' CEO, and with me here is Oskar Hellström, our CFO, and Svarelanda Helén, who's our head of communications and investor relations. This is the second quarter of 2024 that we're going to present today, but it also happens to be the 40th quarter of Grenges as a listed company since our IPO in 2014. fact that we're celebrating with presenting some what we call at least very good results in this quarter. We're going to be referring throughout the presentation to a presentation, a PowerPoint presentation, which is available on our investor website and also broadcast here. Turning then to the beginning of this presentation, we think that it's fair to say that this quarter has been characterized by stability and by profitability. And we set out entering this year to achieve two commercial objectives, to gain new business and to protect our margin. And I'm going to speak about them now in turn. Regarding the sales volume, we had a muted demand, but also a stable demand where most of our businesses, automotive, HVAC and so on, are back to relatively normal demand patterns. But that also means, of course, that the market growth has been quite subdued. But we complemented that with strong results from our sales efforts focusing on new business. And as a result, we clocked in on a 9% volume growth year-on-year to 131,000 tons compared to 121 last year. This is a higher number than last year and also than two years ago. So, in fact, a rather strong quarter for us volume-wise. The second commercial priority for the year, as I mentioned, is to work on productivity. And the reason for that is that there is generally now in our industry quite a bit of price pressure and also quite a bit of lingering wage inflation, which generally then lags, of course, the general inflation in society. And therefore, we've worked quite a bit on productivity improvements in our company and have been able to offset the majority, at least, of the wage inflation and price pressure effects in this quarter, and thereby retaining a good gross margin, I guess you could say. And as a result of these two effects, the volume and the productivity, we've achieved an all-time high quarterly adjusted operating profit result, of 471 million SEK compared to 450 last year, an increase of about 5%, which is quite good, we think. In addition, and more on a longer-term note, we are continuing our very successful decarbonization of our business and not the least we are continuing to grow as a recycler of aluminum and in the last year we had again a record level of recycled material which is now approaching 50% so 50% of our input aluminum is now recycled close to at least which is also we think something to be proud of. Turning then to the next page of the presentation you see here on the sales development year on year for each of our segments and each of our customer areas as well. And as you can see, taking it from the top here on this table, the automotive sales were a little down in Grangus Americas, but were up about the same level in Grangus Eurasia. resulting in a more or less flat development year-on-year for automotive, which also more or less reflects the production of automotive and also, I believe, the end customer demand, because the backlogs that had been prevalent in this industry for the past year, year and a half or so, are now more or less gone. When it comes to HVAC, we had a small growth in Grangus Americas, but not a very strong one. And as we're not really active in HVAC in Grangus Eurasia, that also is the group result there, a small growth, but not a strong one. And that is then a normalization also of the HVAC industry relative to last year, and also the second half of last year in particular, when we were plagued in that industry by overstocks. and they too are now more or less gone out of this industry. So what we're seeing here is the production level in the industry, and it also reflects, I guess, more or less the end customer demand. The two other segments where we're present, or customer areas where we're present, specialty packaging and other niches, on the other hand, enjoyed very strong growth. It's also in those areas that we have attained the majority of the new business that we have secured. And together with those two areas, then, we saw for Grangus Americas a 7% volume growth year on year, and for Grangus Eurasia a 10% volume growth, which then nets out to the 9% volume growth that the Grangus group had in this quarter. And as I said, the last year and the year before had then lower volumes. We regard this as a good quarter volume-wise. In the quarter also, we entered into a strategic partnership, an extended strategic partnership, which we hope will enable us to continue the strong electrification growth we have seen over the past two years in Grange's Asia. As per the terms of this partnership, we will take ownership of a casting and hot rolling facility in the Shandong province in northeastern China, and also in the same area, under the same deal, get access to scalable downstream capabilities and also good supply of metal and of energy in that area. In exchange for these assets, our partner will obtain a minority ownership share in our subsidiary in China. And together, these two things will happen without the cash impact because it's a purely equity-based deal, which we expect to close in the second half of this year. Now, in the beginning, the effects of this partnership will be rather limited, but we do expect the partnership to contribute positively to Grengis' earnings per share after the equity effects starting in 2025. In the quarter, as I alluded to earlier, also we had record sustainability performance, and this is not a flash-in-the-pan type of thing. It's actually quite a long-term trend, where we are now, on our two major KPIs, enjoying a good reduction from our 2017 baseline, both when it comes to carbon emissions and intensity, which has been reduced by over 30% compared to 2017, and where we got achieved now a very, very good result in this particular quarter. And we hope, of course, that that trend can continue. But also when it comes to recycling, which is now quite a substantial business in Grange. In fact, we have recycled in the last 12 months something like 230 million kilos of aluminum. And that puts us about halfway to our target for that, which is to recycle half a billion kilos of aluminum at the latest in the year 2030. And all of this, of course, aims at Gwengels' overall target to achieve a net zero carbon emissions effect on the environment in 2014, that year, which has also been submitted to and approved by the Science-Based Target Initiative. And those were just some starting remarks. And now I will turn over to Oskar, who will take us through the financials for the second quarter of 2024. Go ahead.

Thank you, Jörgen. As we heard from Jörgen, as you can see also on this slide, Q2 is a new record quarter for Grenges with the highest operating profit and the second highest sales volume that we've delivered in an individual quarter. So in the second quarter, the sales volume grew by 9% year on year and 7% sequentially. And this reflects that we now continue to see a return to a more normal seasonality. And as a consequence, we see a seasonal increase of both the operating profit that reached 471 million SEC in Q2 and of the operating profit per ton. Still, looking from a year-on-year perspective, the EBIT per ton decreased by 100 SEC from 3.7 thousand SEC in Q2 last year to 6.3 thousand SEC this year. But here we need to remember that the 450 million SEC of operating profit that we delivered in Q2-23 That included a one-off timing effect related to surcharge clauses in customer contracts, and that was in total 40 million SEC. So adjusted for this, the year-on-year operating profit improvement is even more significant, showing a 61 million SEC or 200 SEC per tonne increase. If we look at the drivers behind this development, we can see that we managed to fully offset the continued market price pressure as well as the wage inflation in the second quarter. And the main contributors to these are the increased sales volume fueled by the new business gains that Jörgen mentioned. It's increased utilization of our casting and recycling centers, which together with good metal management had a positive impact on our raw material costs. And we also see a continued decrease of unit costs for energy, in especially Europe. And last but not least, generally improved cost productivity. If we look at the capacity utilization, which is an important profit driver for Grenges, this increased to about 85% for the group in Q2. Now this is a good improvement year over year, but we still operate below the optimal level from a utilization perspective. Let's now look at the group financials for the quarter in a bit more detail. We start with the sales volume. As we said, it increased with close to 9% to 131,000 tons, while the net sales increased by a little more than 2% to 6.1 billion SEG. And the lower increase in net sales than in sales volume is primarily explained by a lower average fabrication price. Moving on to the earnings, the adjusted operating profit reached a record 471 million SEC. Again, that's 61 million SEC higher than in Q2 last year when excluding the one of surcharge timing effect that I mentioned earlier. And the market price pressure and wage inflation was fully offset by increased sales, good metal management and improved cost productivity across the group. On the negative side, depreciation increased by 6 million SEK, and that's related to the completed expansion projects. And also the net effect from changes in foreign exchange rates was negative 15 million SEK compared with last year. The profit for the period remained fairly flat and reached 314 million SEK for the quarter, and the earnings per share was 2.94 SEK. And the main reason for why we don't see the same year-on-year improvement in the profit for the period as in the operating profit is that the tax in the second quarter last year included positive one-off items of net 18 million SEK. We do not have any such items in 2024. On a further positive note, the return on capital employed increased to 11.9% by the end of second quarter, up 1.7 percentage points compared to the year before. Now, moving on to the balance sheet. During Q2, the financial net debt remained stable at 3 billion SEK, and the net debt to EBITDA ratio was 1.3 times. This means that we remain well within our target range of 1 to 2 times EBITDA. Now, keeping the net debt flat may not seem like much of an achievement, but in this quarter I actually think that it is. And the reason is first that as a consequence of the seasonality of our business, we typically see a large buildup of networking capital in Q2, so also this year. And second, the aluminium price increased by about 15% during the quarter, and this added some 370 million SEK or so to our working capital. But through continued focus on working capital efficiency, we managed to limit the actual networking capital increase to only 47 million SEK in the quarter. I think this is very well done by our teams across all our regions. And in turn, this led to that the adjusted cash flow before financing was positive 399 million SEK in Q2. During the quarter, we also continued to invest in total 262 million SEK in expansion, and the majority of the spend in the quarter relates to the expansion of Capacity and capabilities for battery cat oil foil production in Europe and Americas. And also to the second of the two recycling and casting centers that we are building in Americas. In the second quarter, we also distributed 159 million SEG to our shareholders. And the second dividend payment with the same amount will be made in November this year. But all in all, I'm very happy that we continue to have a strong operational cash generation and that we managed to keep the net debt and leverage stable in a quarter where we also paid the dividend to our shareholders. Moving on to the business areas and starting with Grengis Americas, as you heard from Jörgen earlier, with the exception of automotive, the market demand in Americas remained fairly stable in Q2 compared with last year. And in addition to this, we saw increasing effects from the actions taken to further grow sales through capturing new business and then especially within the specialty packaging in other niches markets. And in total, this led to sales volume growth in Q2 on 7% year-on-year for Grains Americas. In terms of earnings, we managed to more than offset the continued market price pressure with the increased sales volume, generally good cost productivity and increased utilization of our casting and recycling centers. And when it comes to the latter, I think that it's good to see that our new recycling center in Huntington continues to perform very well. In total, the Q2 operating profit increased by 33 million SEK to 325 million SEK, which corresponds to a margin of 5.4 thousand SEK per tonne. And this is a new record level for Grengis Americas, both in terms of operating profit in absolute terms and per tonne. Moving on to Grengis Eurasia, also here we experienced improved market demand that in combination with new business gains resulted in a total 7% year-on-year sales volume growth. In Asia, we continue to see a positive development in especially the automotive market and this resulted in that sales volume in Asia grow by some 13% compared to Q2 last year. In Europe, we experienced an increased demand on the back market of a normalization of downstream inventory levels within the general engineering and distribution markets, and in combination with a stable demand from European automotive customers, this led to a 3% year-on-year sales volume growth in Europe. The adjusted operating profit reached 176 million SEC in the second quarter, and this represents an increase by 17 million SEC compared with the same quarter last year, when we adjust for the one-off surcharge timing effect that we had in 2023. On the negative side, we saw the lower average fabrication price and a negative 15 million sec net effect from changes in foreign exchange rates. This was however more than offset by the higher sales volume, improved metal management and lower energy unit costs. I think that it's fair to conclude that the underlying development in Eurasia in Q2 was slightly better than what one might think there at first glance. With that, I hand over back to Jörgen, who will provide an outlook for the third quarter.

Thank you, Oskar. As you can see in this picture of our colleague, our stance for the third quarter is one of determination. And what we're determined to do is to continue to do what we did in the second quarter. Of course, the end customer demand remains really hard to predict, but compared to some other quarters that we have had, at least appears more stable in the near term. And in this relatively stable and calm environment, but maybe also not so strong growth environment, we will continue to focus on gaining new business and that we then expect to drive a mid to high single-digit percentage sales volume growth compared to the third quarter of 2023. That's a bit of a mouthful. Incidentally, that's the exact same guidance that we issued for the second quarter relative to the second quarter of 2023. In the environment where we're still seeing quite significant wage inflation and also not insignificant price pressure from our customers, we intend to offset any further price pressure and wage inflation, and with that we mean sequential relative to the first half of the year, with further productivity improvement, thereby hopefully getting a benefit from the volume growth, which we also intend then to bag. So the third quarter outlook is very similar to the second quarter outlook, and that, I guess, is also a sign of maybe a return to some stability in this industry after some turbulent years. And with that operator, I would like to turn over to the audience for any questions.

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 on your telephone keypad. The next question comes from Adrian Jelani from ABG Sundal Collier. Please go ahead.

Yes. Hello, Jörgen and Oskar. I'd like to start off with a few questions on the Shandong partnership. I guess, first of all, are you able to give us any more color on roughly how you've expected the utilization rate in Shandong to ramp up in 2025, 26, and when you expect to be close to sort of optimal utilizations?

Good morning, Adrian. Hope you're doing fine. Actually, we can't. The factory in Shandong, we haven't even closed this deal yet. And it does provide us with good capacity, opportunity, I guess you could say, and therefore an opportunity to grow. But how fast we will grow, we don't know yet. It just raises the ceiling, I guess, for our growth in Asia. What we can say is that... from some kind of technical point of view, we can look at this as 150,000 tons of capacity. And of course, our plan is to gradually grow into that, but our plan is to grow into it with good profitability. And what we can say then is we expect the business to be profitable in 2025 and profitable to such an extent that it offsets the dilution of the minority share operation operations, thereby providing this marginally positive EPS contribution in 2025. And how fast we will then grow from there, we will have to return to you when we have more firm plans in the future.

Okay, I understand. On, I guess, a bit of a broader note, if we look at your Shanghai factory, that has been operating at very good utilization rates recently, and it seems the Chinese auto market continues to be strong. So what I don't Really understand is why SIG has been keeping the Shandong factory idled right now, if the market seems to be so good. Can you give any input on why that's the case?

Yeah, I don't think they would describe it as having kept it idle. But in our business, it's so that we have a saying in Grangos, which we call people make the difference. And in our business, that's very true. Anybody can find the customers, anybody can find the suppliers, anybody can obtain the machinery needed to run a flat rolling plant. And in China, there are many, many flat rolling plants that operate on very, very low utilization levels, which makes the competitive situation in China very tough. We, on the other hand, have a fantastic team in China, and that fantastic team has been able to generate growth and also good utilization and therefore also good profitability in under some really, really tough competitive conditions. So it's about that, I guess. We believe that our team is a better owner, in fact, of this factory than SIG. And SIG also believes that, and that is why we've been able to make this deal.

Okay, sounds good. And then in the more near term, I guess, on the fabrication pricing, Is your best guess that this is going to continue or that we're going to continue to see price pressure escalating for the second half of this year as well? Or do you expect that most of these problems are behind us, let's say?

You're talking about growing us globally, right?

Yeah, on a group level, I guess.

Like you probably know, it's nice of you to ask, but we don't give any forecast for the FAB pricing. because it's complex, right? We have the regional mix, we have the business mix, and then we have individual customer negotiations, of course, as well. And also the factory, the fab price depends on market movements that are not known now, because not all of our business is contracted. Some is more of a spot character, and the spot price depends on the energy price and the freight price and on imports and on many, many things that we simply don't know. where they're headed. So that's why we are trying to be precise in our guidance and seeing that any further fair price pressure that occurs, we intend to offset with productivity. And that's about as good as guidance as we feel we can give.

Okay. And a final one from my end, a bit of a housekeeping question on the expansions that are going to or that are planned to be commissioned around the end of this year. is sort of all the timelines, are they the same as last quarter, or have there been any delays since?

No significant delays, Adrian, and I just want to, so the short answer is no significant further delays, and we keep, we stay with the timelines that we have communicated previously, but it's maybe important to then say in this context that what we're talking about then is capacity, And then, of course, it needs to also be filled, which is a commercial question that we'll revert to when we give guidance for the first quarter of 2025. Yeah, I understand.

In that case, that's all for me. So thank you for taking my questions.

Thank you.

The next question comes from Gustav Schwen from Handelsbanken.

Please go ahead.

Hello, here we go. I have two questions. Firstly, if we look at the comment where you say that you have good growth in Asia for automotive, can you be a bit more explicit to how much that was in the quarter?

we do not we typically don't communicate growth for regional segments in that detail but I would say that to give you an order of magnitude for what it was it was between 5 and 10% so year over year automotive in Asia in Q2

I can hear you typing it into your Excel sheet there, Gustav. It's good.

Sorry?

We can hear you typing it into your Excel sheet there, Gustav, so that's very good.

I'm taking notes here. Yes, good, good. Another reason for asking is because when you say a flat development on the group for autos, that implies growth in line with global LVT. When we discussed this at Q1, you were quite clear that you were growing above production levels. Can you just confirm that that's the case also in Q2? I don't have the LVP number for your mix in Asia for Q2.

that if you look at Q2 in isolation, we have a better growth than the underlying vehicle production. But again, we also need to remember that this is not necessarily a one-to-one thing when you compare for a short period of time like a quarter. Yeah, okay.

Thank you. Then, secondly, on America and the profitability, which is great, again, especially considering the fact that your fund prices are down something like 10%. I mean, I appreciate there's a lot of moving parts here, but broadly speaking, where do you think you can take the profitability from, say, this 5.4 per tonne EBIT level, return on capital employed running at almost 20% now, Are we closing in on, say, the maximum potential for Americas where any, say, further improvement would come from the second casting center, for example, volume leverage, which would be quite limited given where you're running capacity-wise? Or am I thinking wrong here? Thank you.

There is still some potential to run more volume through our American operations. And now that we're looking at, at least in the near term, at the period of no further significant capacity investments, neither in Eurasia nor in Americas, our focus really is on making sure that the volume first is up to the rafters, so to speak, and secondly, that the mix is optimized. And we believe that there are opportunities there On the other hand, it must be said that 20%, or close to it at least, return on capital employed is a very high number in our business, right? At least we consider it to be quite a good return to get out of any flat rolling operation anywhere in the world. So, of course, there are factors that go in a different direction to do with competition and imports and whatnot. So I guess we can say we're happy with the return on capital employed that we're enjoying right now in America's there are things we can do to improve it, but there are also things that can happen externally, so to speak, that could detract from it, right? So we're not given any forecast on that, but if I had to say, I would say if we can keep it on 20% forever, then that's quite an achievement, I think.

Can I just add that? I mean, of course, you can always work with mix and you will have different profitability levels on different segments, but in terms of Say the mix you're running right now, like for like, is there still things you can do in production here, making this more efficient to lift profitability? Or would anything from here be leveraged on increased volumes and mixes?

Well, mix. Firstly, mix is a complex thing because we need mix that doesn't only fill the factory, but also fills it in such a way that we can honor all our customer obligations. So the mix is not only a question about the profitability of each individual product or customer that we run through the operations, but also a question of how it all works together to ensure an earning stability over time on average, number one. Number two, when it comes to opportunities to improve the the marginal profitability of our business there are definitely such opportunities in america's because as we've also shown in these last two quarters with good cost savings both on the variable and the fixed side which is good and of course there are further such opportunities but there are also pressures for instance in the form of inflation and the form of uh pretty tight still labor market and and so on right so again it becomes um when you're at such a high level of profitability it becomes a bit of a feat just to um to stay on that level also it's also not so that our competitors don't know what we make right because we are talking to you now about it and they can read up on it and the customers too right and all of that presents of course a a strategic threat to the business there of new entrants and of customers and so on, right? So, again, our ambition is, of course, to always improve, but we have to be realistic also about the very high level that we've attained in Greenland's Americas. Perfect. Thank you. Have a nice summer. You too, Gustav.

Take care.

The next question comes from Albin Nordmark from Nordia. Please go ahead.

Hi, Jörgen and Oskar. Thank you for taking my questions. So I would like to start off with the specialty packaging and other niches that are developing well during this quarter. And you're mentioning some new businesses in both those areas. Can you elaborate a bit on that? What products, markets, etc.? ?

Yeah, so first, the new business that we've been taking is business primarily that's a little bit easier to take fast, right? Because we set out on this journey at least full tilt, I guess, between six and four quarters ago, depending on the various regions. And then, of course, we're looking for business that we can take and fit in without having to tell any of our existing customers that we no longer have capacity for them, right? And then we're talking about extending a bit our... Scoping capabilities, for instance, in Grengas Americas, we've moved into higher gauges, thicker material than we usually operate with there. And that's actually a negative mix, you could say, in terms of that the fabrication price for such product is lower. But of course, it still contributes to our business in Grengas Europe and Grengas Asia. Well, let's talk about Europe first. We've, of course, grown, as you can see, in specialty packaging, both with existing and some new customers. And we've also expanded our reach primarily in the general engineering area to try to break out a little bit of Eastern European focus that we've had for some time and also find some other customers in the rest of Europe, number one. And there also we have some specific advances in, for instance, structural auto parts and other things that help bolster that growth there. But again, the game is always to try to have a good base load and flexibility with that base load so that we're liked by those customers who cannot either forecast exactly how much they're going to need next quarter, for instance, but then have also some customers who also like us, but where we can enjoy a little bit more flexibility on the volume so that we can get an average high utilization. And the sales efforts that we have made reflect that ambition.

Okay, thanks a lot. And on the HVAC in America, can you comment on the demand from your customers, maybe carrier that can be similar?

Yeah, so I think we said in the last quarter, and truthfully then, that the beginning of the season was more normal than it has been for a couple of years. Now we're in the middle of the production season, And it continues more or less as planned and also in normal fashion. The demand that comes from end customers in this season is delayed. It reaches us only after some time, right? Because you have the distributors in between and some inventory, and then you have the production and so on. So whether or not this becomes, from a retail perspective, good HVAC season, that depends. influences our demand rather in the third quarter than in the second quarter. Because then if it is really good season, then there will be the replenishment of inventories will just continue longer than normal, right? Or vice versa. So right now, as you probably know, it's rather hot weather in the U.S., which is a very large market for us. And that, of course, is bad in itself, but it's good for HVAC sales. So I guess that bodes well. But any signals that reach us, we'll know more about when we get further into the third quarter.

Thanks for that. And the last one, regarding the guidance, can you give us some guidance on end market level?

Volume-wise? No. I mean, we really would like to do that, but we can't. I mean, we really don't know. We really don't know, Albin. It's simply so that we weigh all these things together and then we come up with this... we think rather precise volume forecast. But of course, there are many moving parts in that. And we're, I guess, just hoping that some of them will move in the right direction and some in the wrong direction. But it's really hard to say something about the end customer markets. And there are people who do that better than we. But even people who do it better than we don't do it so well, right? So it doesn't pay off to speculate in that, at least not for us. Instead, what we're trying to do is to be flexible in and have, like I said before, a mix that allows us to be flexible so that we can meet end customer demand variations in a good way without, for instance, incurring a lot of cost when demand is higher than expected or a lot of empty capacity when it's lower than expected.

Okay, perfect. Thanks. That was really helpful. Thanks.

The next question comes from Oscar Lindstrom from Danske Bank. Please go ahead.

Good morning, Juergen and Oscar.

A couple of questions on your volume growth and the new business which you mentioned here. First off, I mean, how much of this new business or market share gains have we seen so far? And, you know, you're at 85% capacity utilization in this quarter, and I presume you're aiming for somewhere 90% to 92% capacity utilization. Do you need further cyclical support for this, or are the sort of market measures that you've taken enough for you to reach, let's say, full capacity utilization? That's my first question.

Yeah, the number 9092, I don't know where you get it from, but we're aiming to fill the place, but we're not forecasting to fill the place. But something like this, that we're aiming to gain new business in all of our areas, right? If we take Asia out of the equation for a moment, because the situation there is special now, and talk only about Europe and America's, then we're aiming to gain much more business, but to gain it in such a way that we get flexibility and can on average have a higher utilization than Gragas has experienced over the past couple of years. And number one. And number two, it's important to remember that we will have in... at the beginning of next year, then get access, especially in Europe, to additional capacity, which, of course, also needs to be filled. So it's by no means so that we're finished with taking the business, but, of course, there's a bit of an effect that you pick the easiest to reach fruit first before you get a ladder, right? So there's some kind of... to how much business we can get also, of course. What we are hoping for, of course, is a little bit of return of demand also in our core segments, right? And what would be really nice is if the, of course, the new automotive platforms, not the least, where we believe we have a very strong market share. can start to deliver actual strong demand in the future, right? And could that help towards such a target, as you mentioned?

Thank you. So follow up on this. I mean, you mentioned now and earlier as well that you've taken the sort of lowest hanging fruit first in terms of new business. As you progress and sort of add more market share here do you foresee having to uh reach for for sort of higher hanging fruits and and maybe have to sort of give up some margin in order to achieve that volume growth is that an effect that we should expect in the coming four quarters or something when you say margin you may mean ebit margin and then it's important to remember that the contribution of new business can be rather low and still contribute very well on the ebit level if it fills up empty capacity

some of the higher hanging fruit then is also related to things that take longer to develop, right? So then we're talking about new products which require, which are associated with new product launches, for instance, with our customers and so on, not the least in the electrification and battery areas. And those new, those fruit, of course, require a big ladder. We took the ladder out and we started climbing, but it takes a while before before that materializes. Similarly, if we then get back to Asia, now we have ample capacity there, we feel. And then, of course, we have since some time now been very active in the market to try to get that capacity utilized. But there, of course, there are also time effects and customer effects that make those benefits take a little bit of time to get realized. So in all, I guess, the way we think about it, at least, this is a very simple management situation. We have the capacity. Let's make sure we sell it and fill it with the best possible mix for profitability, as you mentioned, but also for flexibility. And that's something that's been going on for some quarters now, and we expect to be there for a long time going forward.

A final question, and I realize you might not want to answer this, but with the new Shandong facility, how much access have you had to that facility or how well do you know it and how confident are you in the quality of that asset and your ability to ramp it up?

The quality of the asset from a technical point of view is very high, and we know it well. What is always more difficult, more challenging, but also more rewarding if you succeed with it, is to build up the quality of the organization, the processes, the procedures, the customers, the customer audits, the suppliers, the supplier audits, and make all of that entire choir, so to speak, sing in harmony. And that's something that we're going to have to partly build up, right? There are employees there, there are customers, there are some suppliers and so on. But to make it really succeed is something that's going to take a while. And that's also where we're being realistic, realistically cautious, I guess, with the guidance for how much this can give us in terms of a net effect on our bottom line in 2025. Okay. Okay.

Thank you very much. I'm happy with those answers.

Thank you.

Enjoy your summer also.

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

Yeah, hi, thank you.

Well, coming back to this outlook, me too. And I just wonder, I mean, you're talking about new business, new gain momentum, sort of. And I guess my question is more related to if you expect this momentum to continue to improve in the third quarter, or is it more of similar leverage in the second quarter. If you could shed some more light on that.

We expect the market to be similar and the growth to be similar. So I guess you would say that we expect the effect of the new business to also be similar then.

Yeah, but I mean, in the second quarter, we saw that the new business maybe picked up a bit more than you expected or how you communicated in the first quarter. Do you see a similar effect

opportunity chance in the third quarter see opportunities and we see threats but but like i said we expect the market to be unchanged and we expect the growth to be unchanged and the difference between those two is the new business and that we also expect to be unchanged and year and year great uh

then i mean you reached a high level of recycling recycled aluminium there 46 percent and i guess you have this new capacity coming up now could you well give some indication how how much additional well how this will affect the recycling level in when when when you have the new new capacity on stream next year so

Yeah, absolutely. So the effect of the new recycling capacity, I assume you're referring now to the North American investment. The effect of it is going to be very good if you compare with not having it, because when we grow further, which we fully intend to in North America, and here I refer back to our earlier discussions here today, right, with the capacity utilization and so on, When we manage to grow further, if we did not have this new investment coming online, then we would have to reach outside Gränges to buy semi-fabricated material at usually high prices, long lead times, low sustainability and high working capital, therefore bad cash flow characteristics. With these new investments, we will be able to grow without having to do that. And as such, the investment is a very good one for us, we believe. But if you look at our profitability sequentially, that will not be the effect, because right now we're only buying externally very limited such semi-finished products. So therefore, the investment in itself will not mean a step change in improving the profitability in the Americas. sequentially to what we're enjoying right now but of course new volume will will be good in the way that new volume is good always right so in short it enabled us to continue to grow without a deteriorated margin rather than to continue to grow with an improved margin on the marginal level Oscar?

Yeah, maybe we can add there. I don't know, Mats, if you actually asked also about the impact on additional recycling in terms of the actual recycling. And what we said there is that the new recycling center, the second of the two recycling centers that we're now building, that has an additional capacity of 25,000 tons. So if you think that we are currently at the run rate of 232,000 tons per year, this will add something. capacity to increase that with 10% or so.

Oh, yeah, that's very clear. And then China, then, I guess. I mean, Shandong and the opportunities you have there to grow in China seems to be substantial. Is this the end game, so to speak, or are there other opportunities planned to grow further, maybe adding more capacity that the Shandong was to do. Could you say something that in a longer term perspective, it's a lot already, but could you?

It's an endgame.

No, I mean if this is the platform as is.

We can look at this as the platform for the next two or three years at the very least. And that also feels very good because it's much simpler to run a company if you have ample production capacity and can focus exclusively on the technical and commercial challenges with growing the business. then if you always have to think, oh yes, but if we take that business, then maybe this, that, then as we've been forced to do over the past couple of years in China. So it does represent a huge, it removes an obstruction, a constraint that we've had over our growth in China and in Asia generally and enables us to continue to grow there. But the capacity itself of it, technically speaking, is such that we think it helps us out, gives us all the help that we are going to need in the next couple of years, I guess is the short answer to the question. And then we have plenty of time to think about what the end game may be.

Yeah, of course. And just a corporate governance question. Will Shandong have a seat on the board of your Shanice venture company?

So, I mean, we will have an external owner for 20% of our Chinese group of companies. And, of course, there is governance related to that. It's something we are currently discussing, of course, as a part of concluding on the setup. But it will most likely not be a board representation, but there will be other types of representations.

Okay, great. And finally, just looking at cash flow, I mean, you have a good cash conversion this quarter also, but I guess last year you had some extra help from working capital. Is working capital in balance now, so we shouldn't expect any extras there going forward?

I think it's fair to say that we've achieved a lot in terms of working capital efficiency. And the low-hanging fruit has for sure been picked. Some of the higher-hanging fruits as well, I think. We will never stop trying to improve our working capital further. But I think it's fair to assume that it's going to be at a slower rate from now on because we are starting to approach very good levels.

Okay, great. Thank you.

The next question comes from Albin Nordmark from Nordia.

Please go ahead.

Hi again, Jörgen and Oskar. Just one final from me just regarding acquisitions. Do you see yourself doing more acquisitions here and do you see any similar acquisitions going forward or do What I'm out after really are, as you might know, the capital distribution once you reach below one, one times net activity.

Firstly, it's an unusual problem that you're referring to, one that we're not very familiar with, so we don't really know how it feels to get down to one times net activity. Last time it happened was in 2015, I think, or sometime like that. So we're going to have to get used to the feeling first before we know what to do with it, I suppose. But about acquisitions, Grengis has an opportunistic acquisition strategy. And with opportunistic, it means that we try not to set ourselves targets to make or indeed not to make acquisitions because the value of an acquisition in our industry depends a lot on what you pay for it. And what you pay for it depends on who else is bidding. And who else is bidding depends on factors outside our control. So for that reason, we try to be flexible in our heads when it comes to that. And if a really good acquisition opportunity turns up and one that we're able to realize at low price, that also means, generally speaking, then a high return, then that could be quite a fruitful thing. On the other hand, looking at our acquisition record, you shouldn't be holding your breath because in the last 10 years we've made – I don't know, two and a half acquisition or so, right? So that's one every four years or whatever that may be. So, I mean, don't lie awake at night thinking about that. That means, exactly as you say, that we're going to be facing, barring any large expansion projects or acquisitions, a situation where Grangus can expect to enjoy a relatively good cash flow and also a stronger balance sheet going forward. And indeed, we need to think a little bit about how we handle that, but we haven't gotten around to thinking really hard about it yet.

Okay, thanks for that.

As a reminder, if you wish to ask a question, please dial star 5 on your telephone keypad.

The next question comes from Will Forbes from Key Group. Please go ahead.

Good morning.

You've talked about your sales in Eurasia and the capacity utilization. I was wondering if you could break that out. China and Europe, and particularly within China, what's the utilization and how much spare capacity and how much growth can you have that is possible in the next few years in terms of your utilization?

Hi Will, it's Oskar here. I can comment on the current situation and then maybe Jorgen wants to comment on the forward-looking piece of this, but I think it's no secret that we are currently running a very high capacity utilization in Europe In our Shanghai facility, in the second quarter, that was above 95%. So we are close to the ceiling level there. Which was more forward-looking, or did I misunderstand that, Will?

Yeah, so 95% implies there's very little volume growth. potential in China, and obviously the second plant, or the new plant, will contribute to that. That's extremely useful. I've got two others. One is just in terms of the wage inflation you're facing, can you talk a bit more about how that splits out regionally? And then secondly, on battery foil expansion, I think the market is a lot more realistic now on EV expansion and EV growth. How is that affecting your battery foil expectations?

So let's take the second half first. It's exactly as you say, the market is more realistic now. And that has manifested itself in our universe, so to speak, as still good plans, good customer relations, and a good portfolio, good pipeline, as we call it, of new businesses. But, of course, relative to the plans that we were looking at for those businesses two years ago, three years ago, When we start talking to those customers, of course, the plans are mightily delayed. But for us, though, I mean, that's just delay on paper, so to speak. It's not something that influences the business we already have. And in fact, when you look at Rangas as a whole, the delay of the EV, the pure battery platforms, their ramp up, especially, of course, in Europe and in the U.S., is not entirely negative because it is also complemented by growth of hybrid engines. And in hybrid cars, there's also quite a lot of use of aluminum and also use of our existing platforms, which generally is not bad for us. So, of course, if we could choose, we would choose a higher speed of pickup of BEVs and in Europe and the US. But what we're seeing right now is not 100% harmful to us either. When it comes to battery cathode foil, there is good growth in it. But if you look in Europe and in the Americas, of course, our bid, so to speak, is to be a local producer of battery cathode foil for local producers of batteries. And you're well aware, of course, that all of those plans have been pushed out by countries I think by all manufacturers, both existing Asian ones that are setting up shop in Europe and in the US, and by a new entrance. And that, of course, means that our own plans for selling battery cathode foil in Europe and in the Americas have also been delayed. That's absolutely true.

And on your question on wage inflation, I mean, we do see that to various extent in basically all the regions where we are operating. But if I should comment on where we have sort of the, where it's slightly more significant, I would say that the US and partly Poland is regions where we're facing a little bit higher wage inflation. But we're trying to, of course, offset that, as Juergen said earlier, with with productivity improvements. And as we also said, we've been quite successful in doing so in the second quarter.

Thank you very much. Thank you.

There are no more questions at this time. So I hand the conference back to the President and CEO, Jorgen Rosengren, for any closing comments.

Thank you, Operator. So that concludes then our presentation of the second quarter results for Grenges in 2024. A quarter where we saw good volume growth, we saw good margin and therefore also very good profitability. In fact, our best ever operating profit in Grenges. We also had good cash flow, strength and balance sheet and continued record-breaking sustainability performance. So all in all, a quarter that we're very happy with. And the guidance for the third quarter, I apologize, is, I suppose, more or less more of the same. So I hope everybody can enjoy a good summer and that we meet again in the beginning of the fourth quarter of 2024. Thank you and goodbye.