Half-year report 2019

Continued soft market conditions in the second quarter

Second quarter 2019

• Sales volume decreased by 6.3 per cent to 92.9 ktonnes (99.1). Net sales decreased to SEK 3,188 million (3,443).
• Adjusted operating profit was SEK 257 million (301), while adjusted operating profit per tonne amounted to 2.8 kSEK (3.0).
• Profit for the period decreased to SEK 171 million (214).
• Basic and diluted earnings per share decreased to SEK 2.26 (2.84).
• Cash flow before financing activities decreased to SEK –198 million (125) and includes capital expenditure of SEK 508 million (166). Of the total capital expenditure SEK 354 million relates to the expansion of the produc­tion facilities in the US and Sweden. Further, SEK 93 million relates to the acquisition of utilities infrastruc­ture in Sweden.

First half-year 2019

• Sales volume decreased by 5.4 per cent to 183.7 ktonnes (194.2). Net sales decreased to SEK 6,297 million (6,514).
• Adjusted operating profit was SEK 532 million (583), while adjusted operating profit per tonne amounted to 2.9 kSEK (3.0).
• Profit for the period decreased to SEK 355 million (381).
• Basic and diluted earnings per share decreased to SEK 4.70 (5.05).
• Cash flow before financing activities decreased to SEK –371 million (318) and includes capital expenditure of SEK 959 million (289). Of the total capital expenditure SEK 693 million relates to the expansion of the produc­tion facilities in the US and Sweden.
• Net debt increased to SEK 3,560 million at 30 June 2019 (SEK 2,494 million at 31 December 2018), corresponding to 2.6 times adjusted EBITDA* (1.8 times at 31 December 2018). Net debt at 30 June 2019 includes lease liabilities of SEK 257 million due to IFRS 16 Leases**.

*Adjusted for items affecting comparability, see Note 5 for further information.
**See Note 1 for further information on IFRS 16 Leases.

Comments by Gränges’ CEO Johan Menckel:

The softer market conditions that we experienced in the first quarter continued in the second quarter of 2019. Lower market demand resulted in a sales volume decline of 6 per cent to 92.9 ktonnes. The adjusted operating profit declined by SEK 44 million to SEK 257 million and included costs for the US expansion pro­jects of SEK 16 million. Exchange rate fluctuations had a positive impact on adjusted operating profit of SEK 22 million during the quarter. The cash generation continued to be strong also in the second quarter. Cash flow before financing adjusted for expan­sion investments and acquisitions increased to SEK 249 million, which represents a cash conversion of 97 per cent.

During the second quarter market conditions were especially challenging in Europe and Asia, where the sales volume to auto­motive customers declined by 10 and 7 per cent respectively. This was driven by a continued significant slowdown of the light vehicle production in combination with further destocking in the supply chain. In Americas, the automotive sales volume was sta­ble in the quarter. With regards to the HVAC & Other business, the market demand in Americas continued to develop positively in the quarter. Sales volume however decreased by 6 per cent compared with 2018 due to product mix optimization, capacity limitations connected to the ongoing expansion projects, as well as temporary production disturbances in the Salisbury plant at the end of the quarter.

Focus on expansion projects and cost reduction
Due to the continued soft market outlook in primarily Europe and Asia we are now implementing cost reduction measures to align the cost base to current market conditions. In Americas large efforts are currently being made to finalize the expansion pro­jects in Huntingdon and Newport. Start of production is planned for August with the first commercial shipments expected in September. Sales volume will gradually be ramped up during the fourth quarter.

Outlook
The global automotive market is expected to continue to be soft for the rest of 2019. Although the research firm IHS estimates a modest growth of 2 per cent for global light vehicle production in the third quarter, the outlook for the fourth quarter is slightly negative, resulting in a 3 per cent decline expected for the full year. For the third quarter Gränges expects a sales volume growth by low single digits. For automotive materials we foresee a low to mid-single digit reduction primarily driven by continued destocking in the supply chain, primarily in Asia but also partly in Europe. In Americas we expect a mid-single digit growth for the HVAC & Other business as new capacity will gradually become available during the third quarter.

As we look further ahead, we will continue to work actively with innovation and a more sustainable customer offering, which includes an increased focus on product development for electric vehicles. Demand for advanced heat exchanger materials for electric vehicles is expected to increase significantly in the coming years, as more car manufacturers choose liquid cooling solutions for batteries. In Americas the demand for HVAC and other products continues to be strong and with the new capacity available in Huntingdon and Newport we will be able to further strengthen our position in this market. Altogether, we are determined to continue to grow with sustainable profitability in the coming years.

Johan Menckel, CEO

Webcasted telephone conference
CEO Johan Menckel and CFO Oskar Hellström will present Gränges’ half-year report for January–June 2019 at a webcasted conference call at 10.00 CEST, Thursday 18 July, 2019.

The webcast is available on www.granges.com/investors. To participate in the conference call, please call +46 8 5199 9355 (Sweden), +44 203 194 0550 (UK) or +1 855 269 2605 (USA). Please call a few minutes before the conference call starts. The presentation will be in English.

For additional information, please contact:
Oskar Hellström, CFO
oskar.hellstrom@granges.com
Telephone +46 8 459 59 00

The information in this report is such that Gränges must disclose pursuant to the EU Market Abuse Regulation and the Swedish Securities Market Act. The information was submitted for publication, through the agency of the contact person set out above, on Thursday 19 July, 2019 at 07.30 CEST.

About Gränges
Gränges is a leading global supplier of rolled aluminium products for heat exchanger applications and other niche markets. In materials for brazed heat exchangers Gränges is the global leader with a market share of approximately 20 per cent. The company develops, produces and markets advanced materials that enhance efficiency in the customer manufacturing process and the performance of the final products. The company’s geographical markets are Europe, Asia and the Americas. Its production facilities are located in Sweden, China and the United States, and have a combined annual capacity of 420,000 metric tonnes. Gränges has around 1,800 employees and net sales of SEK 13 billion. The share is listed on Nasdaq Stockholm. More information on Gränges is available at www.granges.com.