Gränges' interim report January-September 2016

Successful acquisition in US and strong performance in existing business

Third quarter 2016

• The acquisition of Noranda’s rolled aluminium business in the US have been consolidated into Gränges’ accounts as of 22 August 2016.
• Sales volume increased to 62.8 ktonnes (38.9) and net sales was SEK 1,859 million (1,281). Excluding the acquired business, sales volume increased by 5.6% to 41.1 ktonnes and net sales was SEK 1,334 million.
• Adjusted operating profit increased by 61.2% to SEK 181 million (112), corresponding to an adjusted operating margin of 9.7% (8.8). Excluding the acquired business, adjusted operating profit rose 17.0% to SEK 132 million.
• Operating profit amounted to SEK 88 million (97), including items affecting comparability of SEK –94 million related to the US acquisition.
• Profit for the period increased to SEK 189 million (69) and includes a tax provision release of SEK 139 million.
• Diluted earnings per share was SEK 2.52 (0.93).
• Cash flow before financing activities was SEK –2,285 million (267) including the cash consideration for the US acquisition.

January-September 2016

• Sales volume increased to 154.4 ktonnes (125.0) and net sales was SEK 4,662 million (4,243). Excluding the acquired business, sales volume increased by 6,1% to 132.7 ktonnes and net sales was SEK 4,136 million.
• Adjusted operating profit increased by 21.4% to SEK 516 million (425), corresponding to an adjusted operating margin of 11.1% (10.0). Excluding the acquired business, adjusted operating profit rose 9.8% to SEK 467 million.
• Operating profit amounted to SEK 397 million (410).
• Profit for the period was SEK 397 million (295).
• Diluted earnings per share was SEK 5.30 (3.95).
• At 30 September 2016, the equity to assets ratio amounted to 35.8% and net debt corresponded to 2.2 times adjusted EBITDA1.

Comments from CEO Johan Menckel:

We have continued to see strong positive trends in the third quarter in terms of sales and earnings development. Especially encouraging was that our recently acquired business in the US performed very well. Overall, sales volumes increased over 60% during the quarter; and by 6% when excluding the acquisition. Continued increase in volume in the Americas, together with recovery in Asia contributed positively to sales of automotive heat exchanger materials. In Europe, sales volume increased and we continued to gain market share. Adjusted operating profit increased to SEK 181 million (112). Excluding the acquisition, adjusted operating profit increased to SEK 132 million.

US acquisition strengthens Gränges
The acquisition of Noranda’s aluminium rolling business was completed in August, and work to integrate the business with the Group is currently proceeding very well. To date, this process has surpassed expectations, and we feel confident in our view of future opportunities and potential in the North American market. It is of the utmost importance that the acquisition is welcomed by our customers. The move also gives us a clearer focus on stationary heat exchangers, primarily for air conditioning systems. This end-customer market now accounts for around half of all sales in North America, and more than 20 % cent of our total overall sales volume. We had a positive lift to operations in the weeks following the acquisition due to unusually warm weather that fuelled demand for material for stationary heat exchangers. Capacity utilization is currently high in our US facilities.

To ease production bottlenecks, we plan to make modest maintenance investments during the coming year. These will form part of our existing maintenance budget. We are also investing possible future investments in production of multi-layer products.

Well-attended seminar in China
Gränges’ technical seminar in China was held at the end of September, and it attracted more than 400 customers and other industry representatives. The seminar – the largest of its kind in our industry – is an important meeting place to discuss future challenges related to emissions, powertrains, and digitalisation, where advanced heat exchanger materials play a key role. As a market leader, Gränges is determined to continue to invest and expand operations in Asia in the years ahead and together with our customers develop new, innovative products.

Gränges joins the UN Global Compact
Sustainability is an important area for Gränges, and a fully integrated element of our business strategy. From 2016, we will conduct sustainability reporting according to GRI guidelines. As part of this work, we adopted the UN Global Compact and its ten principles in October.

Outlook
In terms of heat exchanger material for the automotive industry, we expect growth in the underlying market during the last quarter of the year. According to industry analysts IHS, global production of light vehicles is expected to increase by 2% in the fourth quarter. In Asia and Americas, Gränges sales volumes are expected to increase at a higher rate than the market, while in Europe we expect growth in line with the market.

As for our recently acquired business in the US, we expect stable growth in the fourth quarter. Sales volume is forecasted to increase of 1-2% compared to the same period last year. The acquired business is expected to positively contribute to earnings per share for Gränges from 2017.

We continue to follow our strategy and work towards our goals that we have set for 2020. This means that we will maintain focus on new, innovative products, expand our business in niche areas of the aluminium sector, and ensure that we create sustainable profit. This is work from which our customers, employees and shareholders will benefit. The acquisition in the US provides an excellent platform from which we will be able to continue to expand in the region, while at the same time broaden the business into a greater number of markets and customers. We feel positive about 2017, and our ambition is to continue to grow and strengthen our presence and position globally.

Johan Menckel, CEO Gränges

Webcasted conference call

CEO Johan Menckel and CFO Oskar Hellström will present Gränges’ interim report for January-September 2016 at a webcasted conference call at CET 10.00, Thursday 27 October, 2016. The webcast can be accessed on www.granges.com/investors. To participate in the telephone conference, please call +46 856 642 661 (Sweden), +44 203 194 0544 (UK) or +1 855 269 2604 (USA). Please call a few minutes before the telephone conference starts. The presentation will be held in English.

For additional information, please contact:

Pernilla Grennfelt Director Communications and Investor Relations
pernilla.grennfelt@granges.com

Telephone +46 (0) 702 90 99 55

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 27 October 2016 at 07.30 CET.

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%. The company develops, produces and markets advanced materials that enhance efficiency in the customer manufacturing process and the performance of the final products; brazed heat exchangers. 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 400,000 metric tonnes. Gränges has some 1,500 employees and net sales of more than SEK 10 billion. The share is listed on Nasdaq Stockholm. More information on Gränges is available at granges.com.