Gränges’ interim report January–September 2021

Growth and increased profit, but challenging near-term outlook

Third quarter 2021

• Sales volume increased by 36.7 per cent to 118.5 ktonnes (86.7) and net sales to SEK 4,621 million (2,575). Excluding acquisitions sales volume increased by 11.1 per cent to 96.3 ktonnes and net sales was SEK 3,888 million.
• Sales volume excluding acquisitions was positively impacted by a continued year over year recovery from the COVID-19 pandemic, but negatively impacted by a sequential slowdown in automotive demand due to the semiconductor shortage.
• Adjusted operating profit increased to SEK 219 million (203) and adjusted operating profit per tonne was 1.8 kSEK (2.3). Excluding acquisitions, adjusted operating profit was SEK 192 million.
• Profit for the period increased to SEK 153 million (124) and includes no items affecting comparability (–26).
• Diluted earnings per share decreased to SEK 1.44 (1.45).
• Cash flow before financing activities adjusted for expansion investments and acquisitions was SEK –135 million (380).
• Sustainability-Linked Bond of SEK 600 million issued.

January–September 2021

• Sales volume increased by 52.3 per cent to 376.6 ktonnes (247.4) and net sales to SEK 13,272 million (7,858). Excluding acquisitions sales volume increased by 23.8 per cent to 306.2 ktonnes and net sales was SEK 11,128 million.
• Adjusted operating profit increased to SEK 870 million (455) and adjusted operating profit per tonne was 2.3 kSEK (1.8). Excluding acquisitions, adjusted operating profit increased to SEK 745 million.
• Profit for the period increased to SEK 618 million (257) and includes items affecting comparability of SEK –16 million (–37).
• Diluted earnings per share increased to SEK 5.79 (3.02).
• Cash flow before financing activities adjusted for expansion investments and acquisitions was SEK 144 million (948).
• Net debt increased to SEK 3,810 million at 30 September 2021 (SEK 3,292 million at 31 December 2020), corresponding to 2.2 times adjusted EBITDA[1,2] (2.2 times at 31 December 2020).

[1] Includes adjusted EBITDA for acquisitions as a part of Gränges Group for 12 months, see alternative performance measures page 25 for further information.
[2] Adjusted for items affecting comparability, see Note 5 for further information.

Comments by Gränges’ CEO Jörgen Rosengren:

Short-term challenges, long-term potential

Good demand in general, but severe slow-down in automotive
Gränges saw continued strong demand in most of our end-customer markets throughout the third quarter. As a result, sales volume grew by 11 per cent organically, compared with a relatively weak third quarter in 2020. Including Gränges Konin, the sales volume increased by 37 per cent to 119 thousand tonnes. However, the global shortage of semiconductors and other components caused severe supply chain problems for our automotive customers, which had an increasingly negative effect on our sales volume as the quarter progressed. Together with seasonal variation and the impact of temporary production disturbances in Gränges Americas, this led to a 10 per cent decline in sales volume in the third quarter compared to the strong second quarter of 2021.

Increased cost pressure during the quarter
The adjusted operating profit in the quarter increased to SEK 219 million, driven by higher sales volume and the acquisition of Gränges Konin. However, the inflationary environment in all regions has now started to impact our cost base. A higher aluminium price does not influence our operating profit since it is passed through to customers, although it does reduce our margin and increase our working capital. But we also saw dramatic cost increases for energy, freight, and other input costs such as alloy materials. These were only partially offset by price increases in the third quarter.

Good progress on strategic initiatives
We have made significant progress on many of our strategic initiatives. In Gränges Americas, we broke ground for the construction of a new caster. In Gränges Europe, we finalized the first phase of the logistics improvement project in Sweden, which together with other actions will increase capacity and productivity and reduce our environmental impact with effect from the end of next year. In Poland, the planned capacity expansion program passed a milestone with the commissioning of a new furnace and casting complex as well as a new cold-rolling mill. Our investment in battery-related technologies also continued. In total, these investments make a solid platform for growth and productivity from 2023 and onwards, despite a near-term negative effect on our return on capital employed.

Our sustainability efforts continued to progress. For example, we were very proud to successfully issue a SEK 600 million sustainability-linked bond as a part of our new green and sustainability-linked finance framework. The interest rate of the bond is tied to the achievement of three selected 2025 sustainability targets. It was encouraging to see the high level of confidence among investors in our sustainability strategy and targets.

Challenging fourth quarter
The outlook for the fourth quarter is challenging. On the one hand, we expect continued good demand in many end-customer markets. On the other hand, we expect that the demand from the automotive industry will continue to be very low throughout the fourth quarter. We are also planning for more extensive year-end maintenance in Gränges Americas compared to 2020. In summary, we expect the total sales volume in the fourth quarter to be around 10 per cent lower than in the third quarter.

We also expect the cost pressure to continue to increase throughout the quarter. Although some customer price increases will start to take effect before the end of the year, we do not expect them to mitigate the spike in input costs during the fourth quarter.

Action needed
In the third quarter, our return on capital employed was 11.2 per cent, which is significantly below our target range of 15–20 per cent. The main reason is a sudden drop in demand combined with a sharp cost increase for energy, freight and other costs. But whatever the reason, our current level of profitability is not satisfactory, especially against the backdrop of a generally quite strong economy.

In the near term, we need to intensify our efforts to offset cost increases with price increases, and to improve productivity and cost efficiency throughout our operations. Longer-term, we need to review and perhaps adjust the strategies in our two business areas to ensure that they take us to our stated financial and sustainability-related targets.

Given our stable global presence and customer base, a very strong team, and exciting growth opportunities in both existing and new end-customer markets, we have every possibility to succeed both short-term and long-term.

Jörgen Rosengren, CEO

Webcasted telephone conference
CEO Jörgen Rosengren and CFO Oskar Hellström will present Gränges’ interim report for January–September 2021 at a webcasted conference call at 10.00 CEST, Thursday 21 October 2021.

The webcast is available on www.granges.com/investors. To participate in the conference call, please call +46 8 5664 2651 (Sweden), +44 3333 000 804 (United Kingdom) or +1 631 913 1422 (United States). PIN code: 6978 8601#. Please call a few minutes before the conference call starts. The presentation will be in English.