Gränges AB (publ)

Good morning, ladies and gentlemen, and welcome to Grenges' second quarter results presentation. My name is Jørgen Rosengren, and I have the great honor and also pleasure to be president and CEO at Grenges. And today I'm joined in this conference by Oskar Hellström, our CFO and deputy CEO, and Anna Hedenberg, our investor relations director. I will start today's call by giving a short summary of the second quarter, after which Oskar will present our result in more detail. And then I will round off with some comments on the outlook. And as always, we will do our best to get through the presentation rather quickly, leaving ample opportunity to ask questions after the presentation is finished. Now, to summarize the second quarter, I'd like to first point out the continued strong volume growth. We grew our sales volume by 5% despite hesitant demand in many of our markets and the driver, the main driver behind this growth was continued market share gains as we've seen for several quarters now and of course also strong operational performance enabling us to deliver this volume but also to respond quickly when we see commercial opportunities. And in fact the second quarter of 2026 was our tenth consecutive quarter of year-on-year sales volume growth and in itself was the best sales volume we've ever had in a single quarter. So a strong volume then and this volume together with pricing and recycling and also productivity improvements more than offset the cost increases we had to take during the quarter and also currency headwinds. And taken together, all this led to a record adjusted operating profit. It in fact increased 33% over last year to 580 million SEK, making this the stronger quarterly result in the history of Grengis. We also delivered record sustainability results. We had our lowest ever carbon emissions intensity and we had our highest ever recycling performance. And these achievements, of course, strengthen our competitiveness, our customer relations, our long term growth. But of course, they also help the planet. Now, as I've already mentioned, market share gains continue to be the main driver behind our growth, also in the second quarter, as the underlying demand in most of our markets and segments remained hesitant. But looking at the different end markets, our sales to automotive grew by 7%, packaging by 11%, and climate control by 4%. In all cases, this is stronger growth than that of the end consumer markets that underlie these numbers. As you can see, the growth this quarter was mainly driven by Europe and by Americas. In Americas, market share gains drove strong growth in both packaging and climate control, resulting in a total volume increase of 8%, despite relatively soft underlying demand. In Europe, we grew even faster by 13%, delivering our best year-to-date sales volume ever. Growth was particularly strong in automotive in Europe, thanks to large market share gains there. And overall, our sales volume increased by 5% compared with the second quarter last year, thanks to market share gains resulting, as I've already said, in our best volume in a single quarter ever. Now, before I hand over to Oskar, I'd like to briefly revisit some of the things we presented at our Capital Markets Day in June. And first, I'd like to point out that our long-term direction remains unchanged from what it has been for the last five years. And personally, I think this latest quarter is another really good example of us executing according to that plan, which we call NAVIGATE. Now, as many of you know, our Navigate strategy has three phases. And last year we finalized a long investment phase, which significantly expanded our production capacity worldwide and strengthened our capabilities also. But it was a phase that required significant capex. Now we've shifted our focus to utilizing and optimizing the assets we've built, increasing capacity utilization, continuing to gain market share, improving productivity, both capital productivity, cost productivity, asset productivity, and also, of course, maintaining a disciplined capital allocation. Now, all of this is built on the same strong foundation we have talked about for several years now, safety, people, sustainability, as well as disciplined risk management and capital allocation. And taken together, all these initiatives support our ambition to build an industry leader in aluminum recycling and flat rolling, while delivering strong cash generation and attractive shareholder returns over time, and then to reach carbon neutrality by 2040. Here are the key messages that were delivered on the Capital Markets Day. And as you can see, we made many bold statements. Our investment phase is finalized, so we expect lower capex from now on. We have a much higher sustainability ambition. We promise to try to get our utilization above 90% by 2027, which in itself is a very strong statement, implying something like 100,000 tons of extra volume. We've launched a four-year optimized program to focus on price mix, but also asset cost and capital productivity. And this is not something in only one of our regions. No, all of our regions raised the ambition according to these strategic initiatives. Looking at the results side then, we do expect much stronger cash conversion ahead. In fact, our ambition is to have a 70% cash conversion from EBITDA to operating cash flow. We will be disciplined in how we allocate that cash. And in particular, we are looking into share buyback as an alternative, which we will activate as soon as our leverage is sustainably below or at 1.5 times net debt over EBITDA. We reconfirmed our financial targets and also that we believe that they're within reach, maybe not least importantly, our 15% return on capital employee targets. And we also recommended to building an industry leader in flat rolling and recycling of aluminum. And these messages are available, of course, in the Capital Markets Day material, which in turn is available in our investor relations page. So please take a look at that. And with that, which was quite a mouthful, I am turning over to Oskar, who will take us through the result in a little bit more depth and detail.

Yes, thank you, Jörgen. I will try to do so. So the second quarter of 2026 was in fact by quite a good margin the best individual quarter we've had so far. And we continued to experience solid sales growth, as you heard from Jørgen, despite the continued softness across many of our markets. And as you can see on the left-hand side here, the sales volume grew by 5% year-on-year to 167,000 tons or 333,000 tons then on a rolling 12-month basis. On the earnings side, we saw an even stronger positive development and the adjusted operating profit increased by 33% or 144 million SEK to 580 million SEK. And for the margin, the adjusted operating profit per ton improved by more than 700 SEK from 2.7 thousand SEK in Q2 last year to 3.5 thousand SEK in Q2 2026. If we look at the drivers behind this, we continue to see increasing inflationary pressure for several cost items, not the least in Americas. And this together with price pressure in Asia and negative but sequentially improving currency effects that totals 32 million SEK year on year. These are then the key negatives in the quarter. The external pressures that we see are however more than well offset by very positive developments in several other areas. We note a continued improvement on the market scrap spreads and this is an important contributor when we compare with last year. But here we, however, need to remember that we had the reverse effect from the scrap spreads in Q2 last year and that we are now back at or slightly above the levels we saw back in 2024. In total, the improved market scrap spreads added some 60 million SEC to operating profit from a year-on-year perspective. And provided that the current spreads remain, we expect to see positive year-on-year effects from this also over the next two quarters. Looking at the things we can control ourselves, we continue to see positive effects from the volume growth, improved pricing and continued productivity improvements. And let's now continue with some more details on the group financials before we look into the operating segments. On this slide, I think it's worth to highlight that we've had items affecting comparability in the quarter. That's negative 15 million SEK and these are related to a fire that occurred in our production facility in Tjandong. And this means that the reported operating profit for the quarter is 565 million SEK compared with the adjusted operating profit of 580 million SEK. The profit for the period increased by more than 38% to 405 million SEK for the quarter. And this is of course primarily driven by the higher operating profit. The financial net is fairly stable compared to last year as lower market interest rates compensated for the increased net debt level. Earnings per share attributable to Grenges parent company shareholders increased to 3.73 SEK for the second quarter and the return on capital employed reached 11.8% in the quarter. So this represents an improvement by 0.6 percentage points compared to the year before. Before we look more in detail on the cash flow and leverage, I would like to spend a little bit time on the development on the market price for aluminium. Now, as most of you probably know well, Grenges makes the money on the value that we add on top of the aluminium raw material and that the aluminium price therefore is to be considered as a pass-through to our customers. This means that the impact from the aluminium price on the operating profit in absolute terms is limited. aluminum price does, however, impact the value of our working capital. And when the market price for aluminum increases, this has a negative impact on the change in working capital and consequently on our operating cash flow. Understandably, the reverse is true when the market price declines. On the back of the US introduction of tariffs on primary aluminium from Canada, the Midwest transaction price for aluminium has doubled since the beginning of 2025. Driven by this, but also by increases in other regions, the average aluminium price for Grenges has increased with more than US$1,600 per tonne in the same period. We continue to see a further increase of the aluminium price in Q2. Now, short term, the aluminium price is sensitive to many things, for instance, the development of the conflict in the Middle East. So it's very difficult to forecast how this will develop. But as you can see on this chart, the market price started to decline towards the end of the quarter. And this is, of course, positive for Grengis and for our cash generation. In the second quarter, the increasing aluminum price had a negative impact still on our working capital and cash flow with some 600 million SEK. But provided that the aluminum price remains on the current level, we expect this to impact the operating cash flow positively with about 300 million SEK in the third quarter. With this in mind, let's now look at the cash flow for the second quarter in more detail. And starting down with the operating fast flow, this amounted to negative 155 million SEC in Q2. And as you can see on this chart here, the strong EBITDA of 792 million couldn't fully compensate for the buildup of networking capital that totaled 838 million SEC. But as I mentioned earlier, about 600 million SEK of this is related to the increased aluminium price. And the remainder then is the volume driven seasonal increase from the first to the second quarter. But here we should note that we continue to improve the working capital efficiency in the quarter and this has an offsetting effect on the seasonal buildup. capital expenditure that amounted to 109 million SEK in the quarter and during Q2 we also distributed 179 million SEK to our shareholders and the second dividend payment with the same amount will be paid in November. including taxes and interest paid as well as changes in currency rates. This led to that the financial net debt increased by 564 million SEK to 5.1 billion SEK during the second quarter. But thanks to the strong earnings development and improved EBITDA, the net debt to EBITDA ratio increased only slightly to 1.9 times. So still within our target range of between one and two times. Now, let's continue with the operating segments and starting then with Grengis Americas that made a record quarter and reached new all-time highs for both sales volume and operating profit. As you heard from Jörgen earlier, we had a strong sales volume development in Americas. Sales volume increased by 8% year-on-year and reached 65,000 tons in the quarter. And the growth is primarily market share driven, but we also saw the demand gradually picking up in the climate control market, which is positive. In terms of the earnings, we continued to experience increased inflationary pressure for many cost items. And we also continue to have negative year on year currency translation effects from the strengthening of the Swedish krona against the US dollar. But we see a sequential improvement here and in the second quarter the net change in foreign exchange rates was only 7 million SEK compared with the same period last year. Turning then to the positives, we had a very good operational performance in all our US facilities in the quarter and this enabled both the volume growth as well as productivity improvements. We also note the continued improvement of the market scrap spreads, which together with improved pricing are important earnings drivers than if we compare with last year. In total, the adjusted operating profit increased by 55% to 449 million SEK. And in terms of the margin, this represents an operating profit per ton increase from 4.8 thousand SEK to 6.9 thousand SEK. And this I think is good evidence of the strong execution we're seeing from our Americas team. Leaving Grenges Americas continuing with Grenges Asia. And here the slowdown of the market that we saw in Q1 continued in the second quarter. We continued to gain market share within primarily automotive customers and this compensated for some of the lower demand. But we also had some negative effects on the sales volume from the fire in the Shandong facility where we were not able to ship about 3,000 tons to primarily industrial customers. But this we should mention is fairly low margin products. Due to the negative volume effect from the fire, the sales volume decreased by close to 5% to slightly below 53,000 tons. Excluding this, the sales volume would have been fairly stable compared with last year. When it comes to earnings, the effect from the lower sales volume and the market price pressure were only partly offset by product mix improvement and by productivity increases. As a consequence, the operating profit decreased to 81 million SEK and the operating profit per ton came in at 1.5 thousand SEK. Changes in currency rates were positive 2 million SEK compared to second quarter last year. The financial effects from the fire in Shandong were relatively limited in the second quarter. The contribution loss from the 3,000 tons of industrial products that we couldn't deliver was about 3 million SEK. And earlier I mentioned the 15 million SEK of write-down and extraordinary costs there, booked as items affecting comparability. For those of you who would like to have more details on this and also how we currently view the impact of this fire going forward, there is a good section on this on page 12 in our half-year report. So please have a look at that and you will get more detailed information. Then moving on to Grengis Europe, where we continue to experience hesitant underlying end-user demand across most market segments. We did, however, successfully compensate for this with share gains, especially within the automotive and industrial markets. In total, the sales volume in Europe increased by 6,300 tons or 13% to 53,000 tons in Q2. And given how challenging the European market has been, I think this is a very good outcome. Despite negative effects from foreign exchange rates of 27 million SEK compared to last year, the operating profit increased by 17% to 87 million SEK and the operating profit per ton reached 1.6 thousand SEK. The key drivers behind the improved earnings are the sales growth, improved pricing and increased productivity together with the tailwind from the improved market scrap spreads. Finally, from my end, some words on our sustainability performance that also reached new record levels in the second quarter. We continued to reduce our carbon emissions intensity, which is down 13%, and increase our volume of sourced recycled aluminium, which is up 14% compared to second quarter last year. The share of source recycled aluminium is now at an all-time high of 49%, which is close to 4 percentage points higher than in Q2 a year ago. And the carbon emissions is at an all-time low of 5.6 thousand tons CO2 per ton aluminium, and that also happens to be 50% down from our SPTI baseline from 2021. But more importantly, when it comes to the carbon emissions, we have raised our 2030 ambitions further and lowered our total intensity target with 25% from four to three tons of CO2 per ton aluminum. And this, I think, reflects the confidence in our strategic direction and our sustainability ambitions, and it puts us in the forefront of our industry. With that, I hand over back to Jørgen who will provide you with an outlook for the third quarter.

Thank you, Oskar. We're getting closer now to the end of our prepared remarks and we'll soon turn over to Q&A. But let me give you a flavor then of what we're expecting for the third quarter. First, we need to acknowledge that the market remains really difficult to predict and maybe not super strong in all respects. But having said that, we do continue to see opportunities to grow through market share gains. And in Americas and Europe, we expect sales volume growth in the mid to high single digits compared with the third quarter of last year. driven mainly then by continued market share gains and to get the full benefit of that growth our ambition remains the same as before which is to offset cost increases through pricing and recycling and productivity also In Asia, we're facing a different situation. There we expect continued price pressure, but we also have a high ambition in the productivity area. But when it comes to volume, we expect the fire in Shandong to result in a year-on-year sales volume decrease of approximately 10,000 tons. and this decrease is then thankfully primarily related to lower margin industrial products. Because in China and the situation we're in, our priority and focus remains on protecting strategic business and customer deliveries by securing supply through alternative solutions. And finally, unlike what I've said in the recent quarters, foreign exchange rates are currently expected to be broadly neutral compared with the third quarter of last year. And as Oscar already mentioned, we are optimistic about our ability to have a better cash flow going forward and a better cash conversion thanks to the development of the aluminum price. To summarize today's presentation then, we delivered our 10th consecutive quarter of year-on-year volume growth and this was driven by continued systematic market share gains despite hesitant end-user demand. Also in the quarter we delivered record sales, volume and record earnings. Our good commercial and operational performance apart from delivering the volume that we reported also enabled us to offset cost increases, continued price pressure in Asia and negative currency effects through pricing and recycling and productivity. Americas delivered another record earnings quarter and Europe delivered its best every year to date volume and significantly improved its profitability. We also delivered our strongest sustainability performance, so far at least, with the lowest carbon emissions intensity and the highest recycling level in our history. And we entered the third quarter with good momentum and optimism also, and feel that we have many opportunities still to grow through market share gains. And all in all, this was the strongest quarter in the history of Grenges, and we remained focused going forward then on continuing to deliver profitable growth. And that concludes our prepared remarks for today. So, operator, we are now ready to take questions from the audience.