Gränges AB: Gränges half-year report 2020

Continued strong cash generation in difficult market conditions

• The COVID-19 pandemic and the extraordinary measures taken to limit the spread of the virus significantly reduced the demand for Gränges' products in the quarter. Sales volume decreased by 23.8 per cent to 70.8 ktonnes (92.9). Net sales decreased to SEK 2,221 million (3,188).
• Adjusted operating profit was SEK 42 million (257) and adjusted operating profit per tonne was 0.6 kSEK (2.8).
• Profit for the period decreased to SEK 1 million (171) and includes items affecting comparability of SEK -5 million (-).
• Basic and diluted earnings per share decreased to SEK 0.01 (2.26).
• Cash flow before financing activities increased to SEK 166 million (-198) and includes capital expenditure of SEK 85 million (508). Adjusted cash flow before financing activities was SEK 238 million (249).

• Sales volume decreased by 12.5 per cent to 160.7 ktonnes (183.7). Net sales decreased to SEK 5,284 million (6,297).
• Adjusted operating profit was SEK 252 million (532) and adjusted operating profit per tonne was 1.6 kSEK (2.9).
• Profit for the period decreased to SEK 133 million (355) and includes items affecting comparability of SEK -11 million (-).
• Basic and diluted earnings per share decreased to SEK 1.76 (4.70).
• Cash flow before financing activities increased to SEK 347 million (-371) and includes capital expenditure of SEK 292 million (959). Adjusted cash flow before financing activities was SEK 568 million (415), representing a cash conversion of 226 per cent.
• Net debt decreased to SEK 3,247 million at 30 June 2020 (SEK 3,465 million at 31 December 2019), corresponding to 2.9 times adjusted EBITDA[1] (2.6 times at 31 December 2019).

[1] Adjusted for items affecting comparability, see Note 5 for further information.

Comments by Gränges' CEO Johan Menckel:

Continued focus on measures to mitigate effects of COVID-19 supported strong cash generation

Unprecedented market conditions
The COVID-19 pandemic and the extraordinary measures taken by governments and authorities to limit the spread of the virus, significantly reduced the demand for Gränges' products in the second quarter of 2020. Sales volume in the second quarter reached 70.8 ktonnes, which is a 24 per cent decline compared with the same period last year. Although substantial measures to reduce cost was taken already in the first quarter, the lower sales volume led to a lower adjusted operating profit of SEK 42 million. The cash generation continued to be strong in the second quarter and the cash flow before financing, adjusted for expansion investments and acquisitions, amounted to SEK 238 million. The strong cash flow further improved the liquidity and at the end of June cash and available credit lines amounted to more than SEK 2.1 billion.

Market conditions in the second quarter were particularly challenging in Europe and Americas, where the sales volume to automotive customers declined by 47 and 60 per cent respectively. This was driven by a significant slowdown of the light vehicle production as several car producers closed their production facilities for a large part of the quarter due to the COVID-19 outbreak. In Asia, the automotive sales volume decreased by 28 per cent as positive development and signs of a recovery in China partly balanced the impact of the prolonged lock-down of several other markets. For the HVAC & Other business the sales volume declined by 7 per cent as the negative impact from COVID-19 was partly offset by a higher market share. Build-up of inventory at customer level had a positive effect on sales volume in all regions in the second quarter.

Measures taken to mitigate COVID-19 impact
Gränges' highest priority is to ensure the health and safety of our employees while maintaining continuity and developing the business. During the quarter we have continued to take measures to mitigate the negative impact of COVID-19 and adapt the operations to the new market situation. We continue to work in line with our contingency plans to secure business continuity, protect cash flow and reduce cost. This includes postponed capital expenditure, a reinforced general savings program and capacity adjustments through temporary site closures. During the quarter 560 or 34 per cent of our employees were temporary laid off on full or part time in accordance with local regulations. At the end of the quarter we decided to keep the Salisbury plant closed for the remainder of the year and as a consequence 128 employees were terminated at the end of June. Going forward we will continue to take necessary measures to further adapt our operations to new and changing market conditions.

Outlook
Given the rapid development of the spread of COVID-19 and the high level of uncertainty in the market, it is currently very difficult to provide an accurate forecast even for the short term. The research firm IHS currently assumes a gradual recovery of the global light vehicle production with a sequential growth and a lower year over year decline in the third compared with the second quarter. In combination with expected inventory reductions at customers and the seasonality of the Gränges business, we currently expect a lower year over year decline and that the sales volume in the third quarter will be fairly similar to the sales volume in the second quarter. Increasing effects of cost reduction measures are expected to have a positive impact on profitability in the third quarter.

Despite the short-term challenges, we remain positive of the future and as we look further ahead, we will continue to work actively with innovation, efficiency improvements, and develop our sustainable customer offering even more, 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.

With a strong commitment to constantly improve and develop, Gränges is well positioned to deliver sustainable and profitable growth throughout the economic cycle.

Johan Menckel, CEO

Webcasted telephone conference
CEO Johan Menckel and CFO Oskar Hellström will present Gränges' half-year report 2020 at a webcasted conference call at 10.00 CEST, Thursday 16 July, 2020. The webcast is available on www.granges.com/investors. To participate in the conference call, please call +46 8 566 426 51 (Sweden), +44 3333 000 804 (United Kingdom) or +1 631 913 1422 (United States). PIN code: 69788601#. Please call a few minutes before the conference call starts. The presentation will be in English.

For additional information, please contact:
Johan Dufvenmark, VP Group Treasury & Investor Relations
johan.dufvenmark@granges.com
Telephone +46 705 97 43 75

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 16 July, 2020 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 460,000 metric tonnes. Gränges has some 1,800 employees and net sales of SEK 12 billion. The share is listed on Nasdaq Stockholm. More information on Gränges is available at www.granges.com.