Gränges interim report January-September 2018

Stable sales volume and operating profit in the third quarter

Third quarter 2018

• Sales volume increased by 0.4 per cent to 93.4 ktonnes (93.0). Net sales rose to SEK 3,322 million (2,728).
• Adjusted operating profit increased by 1.6 per cent to SEK 230 million (227), while adjusted operating profit per tonne increased to 2.5 kSEK (2.4). Production disturbances in the Finspång plant led to increased cost and lower sales volume with a total negative impact of SEK 22 million.
• Profit for the period increased to SEK 158 million (151).
• Diluted earnings per share increased to SEK 2.09 (2.00).
• Cash flow before financing activities decreased to SEK 81 million (148) and includes capital expenditure of SEK 236 million (74) and an increase in working capital of SEK 30 million due to US sanctions against one of Gränges’ aluminium suppliers.

January-September 2018

• Sales volume increased by 0.4 per cent to 287.5 ktonnes (286.5). Net sales rose to SEK 9,836 million (8,701).
• Adjusted operating profit increased by 7.9 per cent to SEK 813 million (754), while adjusted operating profit per tonne increased to 2.8 kSEK (2.6).
• Profit for the period increased to SEK 539 million (500) and includes SEK –64 million of items affecting comparability and profit from joint ventures of SEK 22 million.
• Diluted earnings per share increased to SEK 7.14 (6.62).
• Cash flow before financing activities decreased to SEK 398 million (530) and includes capital expenditure of SEK 524 million (180) and an increase in working capital of SEK 165 million due to US sanctions against one of Gränges’ aluminium suppliers.
• Net debt increased to SEK 2,565 million at 30 September 2018 (SEK 2,292 million at 31 December 2017), corresponding to 1.9 times adjusted EBITDA.

Gränges CEO Johan Menckel comments the report:
Gränges continued to experience good demand in North America during the third quarter, while the development of the European and Asian markets has been weaker. Overall, sales volume rose 0.4 per cent to 93 ktonnes and adjusted operating profit increased to SEK 230 million. Production disturbances when commissioning new equipment in Finspång, Sweden had a negative impact on adjusted operating profit of SEK 22 million due to lower deliveries and higher costs. At the same time, we have had negative effects of less efficient metal management in Asia related to move of production from Shanghai to Finspång, while price increases in North America have had a positive impact. Exchange rate fluctuations have positively affected the adjusted operating profit by SEK 30 million during the third quarter.

In Asia, sales volume was on par with third quarter last year, which was a better development than the overall market. In China, sales to the automotive industry rose by some 3 per cent during the quarter which also was a higher growth compared to the underlying market. In Europe, sales of heat exchanger materials decreased by about 5 per cent in the third quarter, to a large extent due to the production disturbances in Finspång. In the Americas, demand for domestically produced products continued to increase following the anti-dumping duties imposed by the US on rolled aluminium products from China. The sales volume of automotive heat exchanger materials to customers in the Americas was higher than in the previous year.

Investment to expand and improve efficiency in the Finspång facility
Gränges has decided to expand capacity and improve efficiency in the production facility in Finspång. The investment amounts to SEK 400 million over two years and will increase capacity by approximately 20 ktonnes to 120 ktonnes. By relocating and upgrading certain machinery and equipment, the logistics flow will be significantly improved, which means lower costs and less environmental impact. In addition, new capabilities to meet future customer demand will be added. Overall, the investment is expected to ensure cost competitiveness and enable a clear improvement of earnings in the coming years in Europe.

Outlook
The global automotive market is expected to continue to grow in 2018. Research firm IHS estimates that light vehicle production will increase by 2 per cent globally in the fourth quarter and by 1 per cent for the full-year. In 2019, global growth is expected to be 2 per cent, according to IHS.

Gränges expects sales volume to increase by low single digits in the fourth quarter. For automotive products we foresee a stable sales volume on overall level with higher sales volume in Europe compared to last year. In Asia and the Americas, we foresee a somewhat lower sales volume than in the fourth quarter last year. For the HVAC & Other business, we expect a low single digit growth in the fourth quarter.

As we look into 2019, we will continue to work actively with innovation and a more sustainable customer offering, 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. We also have a clear focus on growth. In the US, the expansion of the facility in Huntingdon is expected to be finalized in mid2019 and the capacity at the facility in Newport will gradually become available during next year. We have now also decided to go ahead with the plans to expand and improve efficiency in Finspång. Altogether, we are determined to continue to grow with sustainable profitability in the coming years.

Johan Menckel, CEO

Webcasted telephone conference
CEO Johan Menckel and CFO Oskar Hellström will present Gränges’ interim report for January–September 2018 at a webcasted conference call at 10.00 CEST, Thursday 25 October, 2018.

The webcast is available on www.granges.com/investors. To participate in the conference call, please call +46 8 51999355 (Sweden), +44 203 1940550 (UK) or +1 8552692605 (USA). Please call a few minutes before the conference call starts. The presentation is in English.

For additional information, please contact:
Pernilla Grennfelt
SVP 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 25 October 2018 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 420,000 metric tonnes. Gränges has some 1,600 employees and net sales of more than SEK 11 billion. The share is listed on Nasdaq Stockholm. More information on Gränges is available at granges.com.