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.