Gränges’ interim report January–September 2022

Third quarter 2022

• Sales volume increased by 1.1 per cent to 119.8 ktonnes (118.5) and net sales increased to SEK 6,172 million (4,621).
• Adjusted operating profit increased to SEK 345 million (219) and adjusted operating profit per tonne was 2.9 kSEK (1.8).
• Operating profit was SEK 269 million (219) and includes items affecting comparability of SEK –76 million (–).
• Profit for the period increased to SEK 156 million (153).
• Diluted earnings per share increased to SEK 1.47 (1.44).
• Cash flow before financing activities adjusted for expansion investments and acquisitions was SEK 441 million (–135).
• Total carbon emissions intensity (scope 1+2+3) increased to 9.5 tonnes CO2e/tonne (8.9), but is down 17 per cent compared with baseline 2017.
• The share of sourced recycled aluminium increased to 31.1 per cent (28.7).

January–September 2022

• Sales volume decreased by 2.0 per cent to 369.0 ktonnes (376.6) and net sales increased to SEK 19,126 million (13,272).
• Adjusted operating profit increased to SEK 1,077 million (870) and adjusted operating profit per tonne was 2.9 kSEK (2.3).
• Operating profit was SEK 1,063 million (854) and includes items affecting comparability of SEK -14 million (-16).
• Profit for the period increased to SEK 713 million (618).
• Diluted earnings per share increased to SEK 6.70 (5.79).
• Cash flow before financing activities adjusted for expansion investments and acquisitions was SEK -60 million (144).
• Financial net debt increased to SEK 4,342 million at 30 September 2022 (SEK 3,059 million at 31 December 2021), corresponding to 2.1 times adjusted EBITDA (1.8 times at 31 December 2021).
• Total carbon emissions intensity (scope 1+2+3) decreased to 8.8 tonnes CO2e/tonne (9.3), and is down 23 per cent compared with baseline 2017.
• The share of sourced recycled aluminium increased to 32.5 per cent (27.1).

Comments by Gränges’ CEO Jörgen Rosengren:

Another stable quarter in a turbulent environment

Safety work intensified
During the quarter, we intensified our efforts aiming at industry-leading safety performance. Our first milestone is to achieve a dramatic risk reduction in key areas by the summer of 2023 and we are starting to see some first concrete results on the factory floor.

Growth despite global challenges — Europe hardest hit
Gränges is impacted by the same challenges affecting our sector peers, customers and suppliers: the highest cost inflation and interest rates in decades. Over time, this may of course impact demand.

In Gränges Americas, we nevertheless experienced continued strong demand in the quarter. As earlier in the year, our sales volume was constrained by production capacity.

In Gränges Eurasia, the picture was more mixed. Asia saw a strong recovery of demand and sales volume. The reason was a large order backlog going into the quarter and a successful ramp-up after the earlier COVID-19 lock-down. In Europe, the energy crisis caused by the war in Ukraine made the situation especially dramatic. Demand was largely stable in automotive, but slowed down significantly in other industry segments due to high inventory levels downstream and decreasing end-customer demand. Taken together, growth in Asia compensated fully for contraction in Europe.

All in all, Gränges returned to growing sales volume in the third quarter.

Stability and flexibility enable continued profit improvement
In the past 12 months, Gränges has been hit by cost increases exceeding SEK 1.3 bn and very large demand fluctuations. We’ve also had to deal with the effects of the war in Ukraine on demand, supply and energy costs, and with a drastic COVID-19 lock-down of our operations in China.

Handling these dramatic events has required enormous flexibility from our entire global team. At the same time, we have kept our customers supplied with stable quality, on time, every time. We’ve also replaced lost volumes in some segments with new business and managed to fully offset the cost shock with productivity and price increases.

As a result of these efforts, we continued our profit improvement in the third quarter despite very difficult circumstances.

Sustainability work continues
Our sustainability work made good progress in the quarter. The aim is to decarbonize our business and develop more sustainable solutions. Recycling volumes increased further as we gradually succeeded in making more of our material flows circular. That carbon intensity unfortunately increased in the quarter was due to changed mix.

An important part of our Navigate plan is to develop the right upstream and downstream partnerships. As one example, we recently entered into a long-term agreement for delivery of renewable energy to our Newport facility.

Situation in Europe weighs on short-term outlook
The extraordinary uncertainty the last two years appears to have become the new normal.

We expect stable demand in North America and Asia during the next quarter. Our biggest near-term challenge is instead the situation in Europe, involving both increasing cost and falling demand.

Unless the situation improves, the unprecedented European energy prices risk driving up our cost by as much as half a billion SEK on a full-year basis. We intend to offset such cost increases with productivity and price increases, as we have consistently done during 2022 so far. However, the time lag before new price increases take hold will impact sequential margin development in the fourth quarter.

In the coming quarter European end-customer demand is expected to be stable in Automotive, but very weak in many other sectors. Our sales will be further dampened by continued high downstream inventory levels. As before, we intend to flexibly seek volume where there is demand. Still, we expect the weakness in Europe to bring our total sales volume for the fourth quarter down to a similar level as for the relatively weak fourth quarter of 2021.

Unchanged ambition going forward
In the midst of all the short-term challenges, we are not neglecting the long term. The work on executing our ambitious Navigate plan continues. Safety, investment programs, increased recycling, productivity improvement, more sustainable energy sourcing, and investment in our people are some examples of focus areas. It’s especially heartening to see good progress on battery materials for electric vehicles. Customer interest in our capabilities in battery products is very high, and we have landed some important contracts during the third quarter. We’re strengthening the team and taking other steps to accelerate our growth in this area.

To summarize, I have every confidence in our ability to continue to deliver strong results both in the short term and the long term. It gives me great pleasure to be able to again present an all-time-high financial result so far in 2022, and good progress on our long-term priorities. To our entire global team: Thanks for your outstanding efforts!

Jörgen Rosengren, President and CEO

Webcasted telephone conference
CEO Jörgen Rosengren and CFO Oskar Hellström will present Gränges’ interim report for the period January–September 2022 at a webcasted conference call at 09.00 CEST, Thursday 20 October, 2022.

The webcast will be available on https://granges.videosync.fi/2022-10-20-q3_2022. To participate in the conference, please register at https://call.vsy.io/access-256. Upon registration, phone numbers and a conference ID to access the conference will be provided. Please call a few minutes before the conference call begins. The presentation will be in English.