Strong result despite turbulent environment
First quarter 2022
- Sales volume was 126.7 ktonnes (126.7) and net sales increased to SEK 6,080 million (4,043).
- Adjusted operating profit increased to SEK 357 million (342) and adjusted operating profit per tonne was 2.8 kSEK (2.7).
- Profit for the period increased to SEK 261 million (239) and does not include any items affecting comparability (–16).
- Diluted earnings per share increased to SEK 2.45 (2.24).
- Cash flow before financing activities adjusted for expansion investments and acquisitions was SEK –1,224 million (–55).
- Net debt increased to SEK 4,991 million at 31 March 2022 (SEK 3,643 million at 31 December 2021), corresponding to 2.9 times adjusted EBITDA (2.2 times at 31 December 2021).
- Total carbon emissions intensity (scope 1+2+3) decreased to 9.0 tonnes CO2e/tonne (10.0).
- The share of sourced aluminium scrap increased to 31.1 per cent (25.6).
Comments by Gränges’ CEO Jörgen Rosengren:
Success in a headwind
Dramatic development in Europe and China cause for concern
The war in Ukraine affects Gränges as it does all companies with operations in Europe. We have condemned the invasion and ended all business with Russia, Belarus and occupied parts of Ukraine. Before the war, we had about half a percent of our net sales but no operations or employees in these countries. Our eight hundred colleagues in Poland, on the other hand, are affected in many ways by the war and the refugee crisis, but kept up manufacturing and sales with their usual professionalism. Both Gränges as a company and our employees contribute to the relief work in different ways.
In China, the increased spread of COVID-19 had dramatic consequences. Major closures in Shanghai, where our factory is located, caused significant disruption to all industrial operations there. Thanks to outstanding efforts from our employees, we were able to continue to produce and sell, albeit at a lower level than usual.
Stable sales volume thanks to good flexibility
Demand in the automotive industry was weak during the quarter, and our sales to that market were also hit by disruptions in China. For that reason, we had to work hard on sales to HVAC, speciality packaging and other niche markets. These efforts had good results. We are very proud that we managed in this way to achieve the same sales volume as the strong first quarter of 2021.
Stable margin despite large cost increases
The sharply increased aluminium price does not affect our operating profit, but does increase working capital and thus weakens cash flow. We are also affected by large cost increases on freight, energy and certain alloying elements, as well as by the generally high inflation.
We intend to compensate fully with productivity, price increases and surcharges towards customers. This has taken very hard work over the past six months. So far, we have been successful. The margin, expressed as operating profit per tonne, increased sharply compared to the weak fourth quarter of 2021 and also slightly compared to the previous year. We are very pleased with that result.
Continued sustainability progress
Our sustainability performance continued to progress in the first quarter, with a reduced carbon intensity and increased recycling. Recycling volumes continued to be on a record level driven by a strong focus on circularity and reduced climate impact. We continue to focus on decarbonizing our business and leading the way in offering solutions that are clearly differentiated from a sustainability perspective.
Investment projects proceed as planned
Our expansion programme in Konin continues according to plan. Both the new recycling and casting center and the new rolling mill are now up and are expected to reach full production volume in the autumn. In Newport, we have now, one month ahead of schedule, resumed production in the rolling mill that was damaged by fire in May 2021. Also in Newport, we plan for full production in the autumn. This will mark the fulfillment of our ambition from 2018 to build a leading position in thin foil in the US. The investment in a new recycling and casting center in Huntingdon is expected to contribute to earnings from the beginning of 2023.
At the beginning of April 2022, we decided on an investment in another recycling and casting centre in Huntingdon. It will enable the launch of more sustainable products, reduce our environmental impact and improve our return on capital from early 2024 and onwards.
Uncertainty and high ambition level for the second quarter
The development in China is very difficult to predict. At best, the loss in production and sales is limited to April, but it can also continue until the summer. The development of the war in Ukraine and the reactions it causes in the rest of the world are also impossible to predict. Overall, however, it already seems likely that we will see significant effects on the industry in China and globally during the second quarter. We also need to be prepared for further substantial cost increases.
On the other hand, we have high ambitions. We intend to continue to pass on cost increases to customers. We plan to gradually ramp up production volume of our new facilities during the year. We aim for flexibility and high capacity utilization, and thus stable earnings, even when there are rapid market changes. At present, we expect that the sales volume in the second quarter will be lower than in the strong second quarter of 2021. Although market demand is anticipated to support similar sales volume as in the second quarter of 2021, we expect sales volume in Asia to be negatively impacted in proportion to the duration of the lockdown in Shanghai.
At the end of 2021, we started the project Navigate, which will set a direction for Gränges going forward. The work is going well and we plan to be able to inform about the results in the summer of 2022. This is good timing because the major investments we have made in recent years are now beginning to bear fruit, and because the market outlook is favorable, especially in North America and Europe. We are also well positioned to benefit from the regionalization of supply chains, the electric car revolution and customer demands for more sustainable solutions. We must strive to restore growth and return on capital to the high levels that Gränges has delivered in the past, and to build an even stronger and more sustainable company for the future.
It gives me great pleasure, therefore, to present an all-time-high quarterly operating profit in the first quarter of 2022. The fact that we deliver on this level in extremely difficult circumstances is clear proof that Gränges’ decentralized organization works very well. I would like to take this opportunity to thank all the Gränges employees and especially the colleagues in Poland and China for a truly outstanding effort during the beginning of 2022.
Jörgen Rosengren, CEO
Webcasted telephone conference
CEO Jörgen Rosengren and CFO Oskar Hellström will present Gränges’ interim report for January–March 2022 at a webcasted conference call at 10.00 CEST, Thursday 21 April, 2022.
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.