Gränges AB (publ)

Good morning, ladies and gentlemen, and welcome to this third quarter results presentation for the Grenges Group. My name is Jørgen Rosengren, and I've had the pleasure and great honor to be president and CEO of the Grenges Group since 2021, so five years now. And today I'm joined in this conference by Oskar Hellström, our CFO and deputy CEO, and Anna Hedenberg, our director of investor relations. I will start this presentation by giving a short summary of the third quarter, after which Oskar will present our results more fully. And then I will round off with some comments on the outlook. And today we know it's a very busy day on the Stockholm Stock Exchange, so we'll keep the presentation a little shorter than usual to make sure to have ample room for questions after the prepared remarks. So, on the third quarter, we have to say it was a record quarter. In fact, it was another record quarter. We felt that demand remained generally quite weak across many of our markets, but despite that, and despite our reduced capacity in Asia following the fire in Shandong in June, we increased sales volume by 1% and extended our track record of year-on-year volume growth to 11 consecutive quarters. Our adjusted operating profit grew by a full 50% year-over-year and amounted to SEK 596 million, which is a new record in the single quarter for Grenges, despite the third quarter generally not being our strongest one. This development was driven by growth and mix, by improved recycling, pricing, and those factors together more than offset headwinds from cost increases and currency. We also continue to strengthen our financial position with increased operating cash flow and reduced leverage. And as we report almost every quarter, our sustainability performance also reached record levels, so another record there, with our lowest ever carbon emissions intensity and highest ever recycling performance. And those are some really great achievements which really strengthen Grenges and our competitiveness for the long term. And when we look ahead, we feel we entered the fourth quarter with positive momentum. And it is difficult to predict the demand going forward, but we're still rather confident, as I will get back to in my comments later in this call. Looking at the markets then in the third quarter, our continued market share gains offset weak end market demand and also the reduced capacity in Asia. And as I've already mentioned, we saw a relatively weak underlying demand across most of our end markets and also geographies. In Shandong, we continue to operate the facility with reduced production capacity in the quarter. We are progressing with our repairs in a good way as planned. and we expect to have them completed around year end so that we can ramp back up again in the first quarter of next year if things go to plan. But positively in the quarter is... Positive in the quarter, of course, is this fact that we continue to take market share across our regions and in most of our end markets. And if we look here in this picture at the volume in our different end markets, we see that automotive grew by 12%. and that was fully due to good market share gains in Europe and in Asia in relatively weak markets. Industrial, however, shrank by 20% and that was mainly due, of course, to the severely constrained capacity in Asia and due to our decision to prioritize the most strategic and most profitable business in Asia during this outage. Packaging was slightly down, but we had a very good quarter last year, so it was a tough comparable. And finally, climate control grew by a full 22%, and that was quite a rebound then compared to a weak Q3 in 2025 when we had negative growth of 9%, but it also reflects market share gains. And in summary, then, as you can see, we saw good growth in Americas in Europe and good growth outside industrial also in Asia. In fact, the automotive business in Asia grew by a full 17% compared with the same quarter last year. And that's, of course, much, much faster than the market and is due to our market share gains and to new business associated with electric vehicles and other battery applications. And those gains more than offset the weak market demand. And in total, then, we had year-on-year volume growth of 1% in the quarter. Now, as we're keeping this short today, that really concludes my initial remarks, and I would like to hand it over to you, Oskar, for a more detailed run-through of the financials.

Thank you, Jörgen. So as you heard from Jörgen, the third quarter of 2026 was a very good quarter for Grenges. And in many ways, it was the best quarter we've had so far. As you can see to the left here, the sales volume increased by the 1% that Jörgen mentioned to 154,000 tons or 634,000 tons on a rolling 12-month basis. This is a smaller year-on-year growth than what we've seen in the earlier quarters this year. But the reasons for this is the reduced production capacity in Asia. And if we adjust for that, we would have had a similar year-on-year growth in Q3 as in the earlier quarters this year. On the earnings side, we saw a very strong positive development and the adjusted operating profit increased by 50% to 596 million SEK. And if you look at the mid chart there, you can also see that our rolling 12 months adjusted operating profit is above 2 billion SEK for the first time. So that's also a new record. For the margin, the adjusted operating profit per ton improved by more than 1,300 SEC from 2,600 SEC in Q3 2025 to 3,900 SEC in Q3 this year. If we look at the earnings drivers, we continue to see high inflationary pressure for several cost items. This together with price pressure in Asia and negative but sequentially improving currency effects, totaling 20 million SEC net currency hedges. These are the key negatives in the quarter. The external pressures are, however, more than offset by very positive developments in several other areas. We note continued improvement of the market scrap spreads and this is an important contributor when we compare with last year. Here we do need to remember though that we had the reverse effect from the scrap spreads in Q3 last year and that we are now back at a level slightly above the level we saw in 2024. In total the improved market scrap spreads added some 70 million SEC to operating profit from a year-over-year perspective. Provided that the current scrap spreads remain, we expect to see a positive year-on-year effect from this also in the fourth quarter, albeit not as high as in the third quarter. Looking at the things we can control ourselves, we continue to see positive effects from improved pricing and recycling. And here I should also point out the excellent operational performance we had in Americas in the quarter, with high production stability and consequently very good cost productivity. In Q3, we also had a favorable geographical and product mix driven by the fact that we had the highest growth in the niches where we have the highest profitability. Let's look at some more details of the financials. On this slide, I think it's worth to highlight that we have items affecting comparability of negative 49 million SEK in the third quarter. These are related to the fire in the production facility in Shandong in Q2 and our additional cost for tolling and transportation. And this means that the reported operating profit for the quarter is 546 million SEK compared with the adjusted operating profit of 596. The profit for the period increased by 53% to 388 million SEK for the quarter. And this is, of course, primarily driven by the higher operating profit. Earnings per share attributable to Grenges parent company shareholders increased to 3.63 SEK for the third quarter. And also the operating cash flow improved compared to last year and came in at 396 million SEK for the quarter. And we will look more at this in a second. Before we do that, I would like to comment on the return on capital employed that increased to 12.6% in the quarter. And this represents an improvement of close to two percentage points compared to Q3 last year. And we need to go back to third quarter 2019 to see an equally high return level. That being said, we still have quite some way to go to reach our 15% return on capital employed target, but we are certainly taking steps in the right direction here. Now moving on to the cash flow and looking at the 396 million SEC of operating cash flow in more detail. As you can see on this chart, the main driver of the cash generation in the quarter is the strong EBITDA. When it comes to net working capital, we typically see a seasonal release in the third quarter. This year, the seasonal effects are less visible as we had a build-up of working capital of 186 million SEK in Q3. The primary reason for this is a build-up of work in progress inventory in Asia as a consequence of the alternative supply solutions that we use there and the additional lead time required for tolling and transportation. This is a temporary effect and we expect to reduce this inventory once the Shandong plant is back to normal operations. On the positive side, we saw a slight sequential decline of the market price for aluminium at the end of the second quarter, followed by a small rebound in Q3 where after the price remained fairly stable. This resulted in a positive effect on our working capital and cash flow with some 150 million SEK in the third quarter. The further decline of the aluminium price so far in October will, provided that it remains at the current level, impact the operating cash flow positively with about 150 million SEK in the fourth quarter and further positively also in beginning of Q1 next year. Capital expenditure amounted to 183 million SEK in the third quarter and including taxes and interest paid as well as changes in currency rates. This led to that the financial net debt decreased by 161 million SEK to just short of 5 billion SEK during the third quarter. Together with the improved EBTA, this resulted in that the net debt to EBTA ratio decreased to 1.7 times. So we're improving this within our target range of between one and two times. Let's continue with the operating segments and then look at Grenges Americas that made a record quarter and reached a new all-time high for both operating profit and margin. And the sales volume in Americas increased by 6% year on year in Q3 and reached 63,000 tons in the quarter. The growth was driven by recovery of the climate control market supported by market share gains. And in terms of earnings, we continue to experience increased inflationary pressure for many cost items. On the positive side, we had a quarter with excellent operational performance in all our US facilities, and this enabled a very good cost productivity. We also note the continued improvement from the market scrap spreads, which together with improved pricing and recycling are important earnings drivers if we compare with last year. In total, the adjusted operating profit increased by close to 73% to 490 million SEK. The year-on-year currency translation effects turned positive in the quarter as a result of the weakening of the Swedish krona against the US dollar. And in terms of margin, the operating profit per ton increased from 4,800 SEK to 7,700 SEK. And I think our Americas team deserves a lot of credit for how they've managed to deliver here. Continuing on to Grengis Asia, where the main theme of the quarter has been the aftermath of the fire in Shandong in Q2. Our Asia team has, however, done an outstanding job in establishing an alternative route of supply for most of our products. And as I mentioned earlier, and as you heard from Jörgen, it was only about 10,000 tons of industrial products that we couldn't deliver in the quarter. And these, we need to remember, are fairly low margin products. For automotive products, the market slowdown we experienced in the first half of the year continued in the third quarter, but this was more than well compensated for by share gains. In total, the sales volume in Asia decreased 12% year-on-year in Q3. If we exclude the effects from the fire-related reduction in industrial sales, we would have recorded an 8% growth in the quarter. When it comes to earnings, the effect of the lower sales volume and market price pressure were only partly offset by product mix improvement. And as a consequence, the adjusted operating profit decreased to 71 million SEK and the operating profit per ton came in at 1.6 thousand SEK. Regarding the P&L effects from the Shandong fire, these were primary two in the quarter. First, the contribution loss from the reduction of 10,000 tons of industrial products, which was approximately 30 million sec absorbed in the reported operating profit. And second, the extraordinary costs for tolling and transportation of 49 million sec that was accounted for as items affecting comparability. As you heard from Jörgen, we expect that the Shandong facility will be back to normal operations as of year end and consequently we expect similar financial effects in Q4 as in Q3. For those of you who want more details on this, there is a section covering this in our third quarter report. Finally then, Grenges Europe, where we continued to experience weak underlying end customer demand across most of our markets. We did however continue to compensate for this with share gains, especially within the automotive and industrial markets. And in total, the sales volume in Europe increased by 2,800 tons or close to 6% to 52,000 tons in Q3. Despite cost increases and still quite negative year-on-year effects from foreign exchange rates of 28 million SEK, the operating profit increased by 15%. Thank you very much. Finally then, some words on our sustainability performance that continued to develop well in the third quarter. We continued to reduce our greenhouse gas intensity which is down 8% and increase our volume of sourced recycled aluminium which is up 13% compared to third quarter last year. The share of sourced recycled aluminium was 48% which is three percentage points higher than in Q3 last year. A key driver behind this is the record high level of recycling in Americas that reached 73% in the third quarter. That being said, we saw a slight sequential decline in sustainability performance from the second to the third quarter. This is driven by the lower sales volume in Asia combined with the fact that some of the alternative sources of supply that we use to secure deliveries in Asia are less efficient from a greenhouse gas perspective. This is, however, a temporary effect until we get back to our normal supply chain setup. With that, I hand over back to Jörgen who will provide you with an outlook for the fourth quarter.

Thank you, Oskar. We're nearing now the end of our prepared presentation, but let me give you first a short summary of what we're expecting in the fourth quarter of this year. We do need to acknowledge, to start out again, the fact that market demand remains quite difficult to predict. But having said that, we do enter the fourth quarter with good momentum and we continue to see opportunities to take market share. In America and Europe, we expect sales volume growth of mid-single digits compared with the fourth quarter of last year. More or less, all of that we expect to be driven by 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, recycling, productivity, and mix, and other factors more in our control. In Asia, we do expect the fire in Shandong to result in a year-on-year sales volume reduction of approximately 10,000 tons, which primarily then refers to lower margin industrial products. But in the first quarter of next year, we do hope to be able to start ramping up again after hopefully having completed our repairs by the beginning of the year or so. And finally, we do expect continued tailwind from improved market scrap spreads, or I guess I should say restored market scrap spreads, and we forecast limited currency effects for the fourth quarter of this year. And then to wrap up this talk that we prepared for you, we deliver in the fourth quarter of 2026, our 11th consecutive quarter of year-on-year volume growth, thanks to our continued market share gains. We had a fantastic development of our operating profit. It's up 50% to 596 million SEK, and that's our best quarter for Grengis in our history. We had continued strong sustainability performance, which Oskar explained to you just now, and we felt good momentum at the end of the last quarter, and we see good momentum going into Q4 as well. And that really concludes our prepared remarks for today. So, operator, we are ready to take questions from the audience.