Gränges AB (publ) (GRNG) Earnings Call Transcript & Summary

Welcome to Gränges Capital Markets Day, where we will focus on sustainable growth. My name is [indiscernible]. I'm moderating this event and will be your host and get you through this afternoon. And this is a hybrid event, and we are getting used to those now, right? That means we have a small audience here at the Royal Swedish Academy of Engineering Sciences where we are in Stockholm, a most warm welcome to you. And also, we have a fairly large crowd watching us digitally. No matter where you are and how you're -- this is coming to you, most welcome. So it's a pleasure for me to be here and getting to share with you how this legendary Swedish-born company, is tackling the changing world around us and aiming not just for growth but also taking on a leading position towards sustainability. Before we dive into a day, let's take a short look at our agenda, so that you know what's coming up. We are here until 4:00 this afternoon, and it's divided into 2 sessions. And each of them holds a Q&A session. [Operator Instructions] Also, just a reminder, for the ones here in the room, please turn your phones on to silent mode. So we don't have those ringing. And in case of emergencies, there are 2 emergency exits in the end of the one to the left and one to the right. So then with no further ado, let's get this program started. And we will do so by watching a film about Gränges' history of constant innovation and change leading up to the pole position they have today. [Presentation]

Yes. And now on stage, I have with me my first guests of today. We have CEO, Jorgen Rosengren, warm welcome; CFO, Oskar Hellstrom; SVP Sustainability, Sofia Hedevag. lovely to have you here.

Thanks a lot.

And it's been a while, right? It's been 4 years since the last Capital Markets Day. We've been waiting for this moment for quite a while. And you only started 6 months ago. So you definitely went there 4 years ago. So tell us a little bit about how this first half year of yours has been?

Sure, sure. First, welcome everybody here. I want to say that you also -- and also the people who are joining digitally, a warm welcome to our Capital Markets Day. And like you say, it's the first in a long time, and those have been very exciting years for Gränges impressions, right?

Yes, your first impression.

So my impressions are the following. They are good ones, in fact. I think that, coming in already, I knew that Granges was a global company that we have a good performance, sustainability, profitability and so on and also that we're leading in our field. So that was exciting going in. But if I had to pick out 2 things that have really struck me since I started. It's the people in Granges or decentralized organization and it's our work on sustainability. Those 2 things.

Thank you. So we got a glimpse here of the history of getting it. And within the group, that's here, you Oskar have worked the longest. Do you have 10 years, right?

That's correct.

So if we go back to the IPO of 2014 and you look at the company then and you look at the company, you are today. Can you tell us a little bit about what the major changes have been?

I think that's absolutely right. It has been major changes, right? But I think we saw in the film 2 very good examples, and those will be growth -- the company has grown. We have created a completely global platform for Granges in the time period and diversification. We have diversified our product portfolio going from a -- basically a 1 market type business and to now have several strong positions in several core markets. And as Jorgen also touched upon, you can't sort of mention this transition without mentioning sustainability and the focus on sustainability has really increased in this time period, sure.

So that's a fair [indiscernible]. With Oskar, you're going to talking about sustainability. Is that like music to your ears.

It is.

No. But I agree with you, Oskar. I mean, sustainability is not something new for us. We've been working with sustainability for a very long time even before I started. With that said, I think we have laid a good foundation now. We have clear targets in place. We have delivered good progress. And just looking at the increasing customer requirements, I think we're well positioned now to continue to benefit and to differentiate ourselves.

So Jorgen, you talked a little bit about the challenges and the world certainly hasn't been without challenges during the last couple of years. So how has that played into Granges? And how has it affected you?

Well, I think it has been challenging. It's been challenging for us. And I believe for most companies in the industry. For us, the COVID thing, I guess, has been the biggest thing, the COVID pandemic. And it really challenged us back in 2020. But throughout this period and also recently in China, we've had a lot of challenges from COVID. But challenges also bring opportunities. And we've used these last couple of years to invest very heavily in a new platform, I guess, we could say for growth. And I also think that Granges has proven that we can get through challenges with stability. So that's one thing that I think the whole team can be proud of and the shareholders, I think, can be grateful for.

So why then is now a good time to sort of lay out a new plan for the future?

I'm not sure it's good time. I think it's a perfect time, right? I mean we have a history behind us of strong investments, but also a challenging period, like you said. And at the same time, we're seeing some really interesting trends in society around us that mean challenges for Granges, further challenges, but also a lot of opportunities. And we'll talk about those now. And then we have a new CEO. So it's a good time. That's our new plan, right. So...

So this is your new plan. So you mentioned challenges and you mentioned trends, and those are kind of global trends that affect in every one of us in one way or another. But we picked 3 that maybe are specific to your business. So the regionalization of supply chains, the electrification revolution that's coming up or we're in the midst of, I don't know if it's [ being in ] mid, but we'll talk about that. And the need for more sustainable solutions. So let's start with the regionalization part of it. And we've heard this from a number of business leaders. I think BlackRock's CEO was one of the latest here going out saying, "globalization is dead." So what's your take on that, Jorgen?

Maybe the latest. It's not the first though, but it's possible to know something I don't know. I wouldn't call globalization dead, but it certainly has gone into a new phase. For us, globalization is important because we are -- we have a global presence, and that's something that our customers value very much with Granges. But something we do also is a regional presence. We have manufacturing and are able to deliver in Europe. We can do so in Asia and we can do so in North America, and that's actually quite fair in our industry. So I think that strengthens our handle a bit. And it's indeed one of the trends that we need to watch also going forward.

So you need to kind of have both or it's a good thing that you have both?

For our customers, that's certainly a good thing.

So the electrification revolution then, Oskar. Some say that what's happening within the car industry is actually going to mean the death for Granges. What do you say then?

Well, some might say that. I think I have a different view. When we talk electrification in Granges, I think we view that much, much more as an opportunity. And that's not just an opportunity sort of for our traditional heat exchange based products for the automotive industry. It's also an opportunity to go into new types of products that would be new for Granges portfolio. And I'm sure we will hear much more about that later today.

We will definitely talk about that shift and how that's affecting not only you. I mean it's affecting us all. So then the demand for sustainable solutions and you hear this from everywhere. I mean, investors, obviously, you hear it from your customers, you hear it from the consumers. And also, it's a big pressure from within businesses today. So Sofia, what do you think will be the game changers here?

Well, first of all, I really agree with you on that. It's happening here and now. customers' requirements are increasing. Investors, expectations are increasing as well, our employees' expectations as well. And I think that we are in a very good position then to handle those requirements. And aluminum is a material, as you know, that really contributes to a sustainable development. With the lightweighting feature, for example, with the recyclability as another example. And if I would pick 2 topics that are extra important for us and that I will talk about, and we will talk about today, it's circularity and climate.

Brilliant. And yesterday, you release new climate targets stating, you will be climate neutral by 2040. We want to know more about that, and I suppose it was a proud day for you.

It was indeed a proud day achieving net 0 by 2040 already. It's, of course, going to imply a lot of changes and a lot of challenges for us. But I'm very much looking forward to being on this journey together with colleagues and by collaborating with suppliers and customers. And of course, we have very high ambitions and sustainability and a strong commitment. So I think it's the perfect next step for us.

So it's not growth only.

No, it isn't. I want to add that Sofia has had many such proud days because it is the third time I think that you raised the sustainability target to Granges and they keep getting higher all the time. So we...

just keeping you on tiptoes, right?

So Oskar, I got to go to Finspång and visit the facilities there. And I'm thinking there was a lot of investments made. And now it's the time to start to see the results of these investments. And one thing that really stood out with was that a thin then battery foil was 1/10 of a human hair. And you can't imagine that, right? It's incredible. How is that going to play into the transformation to the electrical vehicle industry that you're aiming for?

First to say that is an amazing material. I think we can't imagine as thin product that really is. But I think that's a very difficult product to make. I'm happy that you saw that. But that's exactly what we are good at in Granges. We make the difficult stuff. And we have spent a very long time working closely with customers, raising our bar for technical development all the time. So I think that we are very well positioned to sort of take on that difficult product. And as of now, we are the only player globally which has capabilities to produce these existing assets in Europe and Americas. And I think that's going to be a great advantage for Granges once the global -- or sort of regional supply chains for battery materials are being developed in coming years. Certainly, a topic we will hear more about today also.

Indeed, we will. So Jorgen, just to summarize this little show starter as we've been doing here. What does it mean for Granges, the markets of Granges going forward, what we just talked about?

This [indiscernible]? I think -- well, first, you got to say that the trends are interlinked. I mean, they have -- they influence each other. For instance, this electrification thing that you spoke about, that's strongly driven, of course, by the sustainability trend. Sustainability and regionalization have to do with each other, right? One reason that the supply chains are regionalizing as need for sustainability from the customers. So this is linked -- for us, we have several market segments that you saw also in the intro movie. And some of them are more strongly driven by this than other. For instance, in automotive heat exchanger material. We have a strong influence of the electrification on the demand for that, Oskar mentioned it, right? In HVAC, that's an industry that's structurally favored by the sustainability trend. And also -- of course, when you look at the battery materials, you also mentioned that, in fact, maybe you should present this picture. We also mentioned that already. I mean, that's going to be an exponential growth for that going forward, right? But we also have some segments that are little bit more stable. We have packaging, we have a lot of niches that, at least together as a group, are quite stable, right? And that's important in our business to have a mix not only to have good products, but also to have a good mix so that we can also counter the volatility, for instance, of the automotive heck with more stable segments. And that's what we're trying to build up also now going forward.

So that was a show starter, and we will now, of course, then go deep diving into each and every one of these specific areas with your presentations. And after the presentations, we'll do a Q&A session. So then you are going to be ready with your microphones here in the audience. And if you're with us digitally, you can start writing in the questions as we speak, and we'll take them after the presentations. So Sofia and Oskar, you can actually go and have a seat. And Jorgen, you are first out and being fairly new, as we said, only from October last year, I guessing that there is a lot of anticipation now hearing what you're going to say about the trip and the navigation on Granges going forward. So please, go ahead.

Okay. Thank you. Yes. So we have a project here in Granges that we call Navigate. We've been doing this for about 6 months now. It's a program really. And we've involved a lot of people in our regions. Granges has decentralized organizations with 3 different regions. And we've really worked in those regions to come up with a good plan to each of them. And the plan had basically 3 starting points. And the first one for me, most important one was that Granges is a strong company. I don't believe that you should try to fix a company's weaknesses primarily, you should try to do that, but not primarily. You should build on the company's strength. And Granges has many strengths, and we really put that into our -- the hoppers who picked the basket when we started this plan. The second starting point were the trends that we spoke about and that are so strong in our industry now. I know that it's not actually unique for Granges to speak about these things, right? Not at all. But it's so evident when we meet customers. Now that -- the first question now is not at all cost. It's not quality, but it is. Can it supply locally? Is the product sustainable? What about the carbon footprint, right? And if it's not electrically involved customer, of course, that plays a big role also, right? So those trends really play a big role for us. And then we've worked also, of course, with a lot of financial analysis, and we have some things to say about that. And I'm going to start with the financial thing, right? So we've started talking in Granges a lot about financial value creation. You can define that in a number of different ways. But the way we look at it is the return on the capital or if you like, the operating profit, right, minus the cost of the capital. And for Granges, it's important to start with. It's been a very good journey with that, right? We've had over many, many years, the return on capital that's vastly higher than the cost of the capital. And that's been really good because that's exactly what is financed are very successful, I have to say, acquisitions, especially one in the U.S., which now is most of Granges Americas. And Patrick will speak about that in a moment, that journey. But also the acquisition of Gränges Konin about 1.5 years ago or so. But in the last year, then if we're honest, the performance has also tapered off a bit. And if you compare it with the cost of capital, it becomes more evident that we haven't had a lot of value creation recently. And that, of course, needs to change also. So it's another reason why we should have a new plan, I think. Now we have worked with this. I think we've come up with a good plan, like I said, and one feature of a good plan is that simple. And ours is super, super, super simple. It only has 3 elements. And the first element is that we're going to restore a strong value creation -- going to restore a leading well creation in each region and also globally. And we'll talk a lot about that. But the message there, the outcome is going to be simple, a restored value creation. Second, we're going to use that stronger value creation to invest in our business to build a stronger company for the future. And then we're going to use the results of those phases to invest in opportunities for sustainable growth. And maybe I should comment on sustainable growth. What is that? Well, for us, in our business, it really makes a lot of difference to choose the right places to play because you have your equipment, you have your customers usually long term, right? So you want to be sure that where you invest is a good place to play. And going forward, we believe that good places to play are niches where you can get a good return and good growth over time. But also niches that present an opportunity to have a sustainable business, right? That's what we call sustainable growth. Now this is abstract in the extreme. I'm going to speak very briefly about each of the steps, and then I'm going to use the rest of it, they go through them more in detail. But talking first of what we store, it's important to know that Granges has gone through a very, very heavy investment program over the past couple of years, right? We've invested in with CapEx and capacity expansion and productivity, and we've also invested in the large acquisitions, not so long ago, right? And the first thing we need to do is to finalize that investment program. We need to finalize the investment program so that we get the productivity that those investments are supposed to deliver and so that we get the capacity that those investments are supposed to deliver. And in that, we also need to make sure that we pulled Gränges Konin into [ Orsero ] or maybe we need to get pulled into [indiscernible], but then we will need to integrate, of course, our operations in Europe in the best way possible. The second step, of course, is to utilize that new capacity. And we believe there's going to be good opportunities for that. We believe the market is quite favorable in the U.S., North America in general, in fact, and we believe the market is also favorable in Europe. In Asia, in China, it's a little bit more challenging, but we have some ideas about that also. And just to give you a feel for that, Europe, North America, about 80% of our markets, Asia, about 20%, right? So we believe that are going to be good opportunities for us to utilize this new capacity that is coming online. That's unusual. Capital-intensive industry is usually when the capacity comes online, not a good time. In our case, we believe now this will be a good time. And finally, when you've gone through an investment phase like that, there's a lot of optimization that needs to happen, and we're going to invest also in that and work on that quite a lot. Now this is still abstract, but Oskar will take you through these steps one by one in just a moment, okay? The second step is to build -- in fact, we wrote here to build the world's best aluminum technology company. That's a strong statement and maybe also a bit of an un-Swedish thing to say. But I noticed in grains that the ambitions really are very high in the different regions. And I believe that's good. In an industry like this, you need to have an energetic team with high ambitions that is there in greenness. So we want to make sure that we also project that to the investors that ambitions are high. And we're going to talk about 2 things that I really think set Granges apart from the crowds and speak from our competitors. And the first of those is people. We have strong [indiscernible], but we also have a very good decentralized organization, where we are both able to take advantage of our scale and most of all our reach, for instance, our global presence then our technology that we have a global network that works on. But at the same time, we're able to be very close to our customers in each geography. And precisely because of the trends we just spoke about, that is a strength for us going forward. And the second part is sustainability. Sofia is a very competent person but also a humble person, and she does not, I think, project how strong our performance has been in sustainability over the past years. We're one of the very, very few companies in our industry that not only measures the Scope 3 emissions, including the carbon footprint all the way back to the production of the aluminum but also publishes those numbers, set target for them and also ties our financing to them together with our partners. That is a real achievement, and we're way ahead of the crowd there. And we intend to stay ahead of the card also. These are things that we believe differentiate Granges. But we will also, of course, work on the business model, and we've divided that in 3 steps. We need to work on improve. And with improve, of course, we mean the productivity improvements that should come after this investment phase. But also strengthening our continuous improvement program, the digitalization and so on. Many points there. Then we work on growth. And of course, when you have this new capacity, it's not only a question of filling it, it's also a question of filling it with the right mix at the right price. And as you've seen in our recent reporting, we've also had a lot of focus on price optimization which I think you can also see is giving a good return, and that's something that we need to work on also going forward, right? Innovation is in this bucket because we think we need to do the innovation together with the customers. And we're going to focus, of course, on growth segments, but also sustainability. There's a lot of technology that's needed to, for instance, enable the circularity that we have a target for that we'll get back to. And finally, we have recycled. So we say source green or recycle, we're going to invest. We are already investing and we have announced some other big investments already in increased recycling in Granges in Europe, in the U.S. And that's going to be a very fast growing part of our business actually going forward. But we're also going to have to find less capital-intensive ways to work on recycling and that means partnerships, right? Partnerships not the least with upstream energy suppliers and upstream suppliers of virgin or recycled metal. And we've also announced in the U.S., you may have seen a partnership with the energy supplier for our latest recycling center there, right? So these 2 things together are very important for us. You put them all together, you get this beautiful picture, source screen and recycle. We want to be leading in that, improve the program for that, which also includes improving our safety performance, which could take a step-up without hurting us and then innovate and grow those 3 things. And at the center of this, people and sustainability. But I think of a feature of the world going forward because of those 3 trends that we spoke about in the beginning is going to be, at least in our industry, that there is a stronger need for vertical partnerships, right? So partnerships along the value chain. And you see that now in the battery industry, for instance, that people are lining up vertically in the chain, and we're going to have to do that, too. So part of this, Gränges is going to make it happen, but part of it, we actually need to make happen together with partners for metal and for energy, and we also need to make it happen with partnerships with our customers. In fact, that's an area that we have already started quite well in, and that has enabled a lot of the recycling progress we've done so far. But then finally, we also need to close the loop, right, to close the loop with partnerships between our customers and our suppliers, so that it can actually cycle a material backward to make it really circular. And that's why we call this a circular business model based on value chain partnerships. That's a mouthful, but that's in a way what we call it, okay? Now when we have succeeded with this, when we've succeeded with restoring the profitability, when we have this business model on [indiscernible] on a good way towards it, then we can also start to invest again. Right now, we don't feel we can invest in a big way because we don't feel that we really earn the right to grow in that way, but we are going to take that back in short order. But when we do invest, there are several interesting themes. One theme is recycling. Another one, optimization, like I said before, to optimize it, for instance, with debottlenecking or digitalization or so. Then we have new markets. We're going to speak a lot about that today. And finally, the whole story about mergers and acquisitions. Gränges has a super successful story of acquisitions over the past 10 years, really quite successful. And we intend, of course, to be on the lookout for new such opportunities, but also partnerships like I said, energy, metal, maybe the most with the customers also. So those are 4 interesting themes for our investment. And if you put all this together, then you get this beautiful picture here. We're going to restore, leading profitability. We're going to build a very strong company, the world's best, in fact, and we're going to invest in sustainable growth. Now you think this was possibly the explanation, but it's still extremely abstract, and it is. And that is because 95% of the work on most of this is going to happen in Gränges' regions. And that's also where they're going to take 95% almost of the time today to go through how this actually is concretely being done in each of the regions, and that's what we're going to spend most of the time about today. But before that, we're going to go back to the restore part because I promised to let Oskar explain to you guys how we're going to restore our leading value creations, I guess, the floor is yours.

Thank you so much, Jorgen. I'm just thinking before you leave the station. Would you say that there are misconceptions about Gränges within the financial markets or investor community?

I'm sure there are many, but not among this...

Fantastic. I'm talking about the other ones.

But I can tell one thing. After Oskar's presentations, there are not going to be any misconceptions anymore. So he's going to take them all way.

Oh, that's brilliant. So I started by saying this is a legendary company, and it is, and it's a pride for Sweden and for Finspång, where it all started. Does it come with a great responsibility to head up such an organization?

I think it comes with pride, certainly. And heading up an organization is a source of -- gives you a feeling of responsibility. It's interesting, though, to go out in our regions because they always say that we're very proud of our Swedish heritage, but in the Americas, XYZ, right, so then they have their own story about that. And I think that's nice. I mean people are proud about the heritage, but they're very focused on the here and now and the future, right? I think that's how it should be.

Brilliant. So we thank you. You get to sit down, and we will come back for the Q&A session, right?

Correct.

Thank you so much, Jorgen. So now we want Oskar up here on stage to give us more details on how we then can achieve the best value creation and how you're going to go about with your financial targets. So Oskar, the stage is all yours.

Thank you. Apparently, I was also going to straighten out any misconceptions about Gränges, I heard. So that's, of course, a great challenge. But I think in doing that and in speaking then on the topic of restoring the leading value creation in Gränges, I think we should start from looking a little bit at the past, where we're coming from, what is really the platform we are standing on in terms of financial performance. And I think that first, we can say that Gränges has a strong track record of growth. Over the last 10 years, we've grown our sales volume with on average 13% per year, and we've grown our operating profit with 17% per year. And I think that is quite an achievement for the type of company we are and the type of industry we are in. So that's certainly something we are very proud of in Gränges. But it's also evident when looking on this chart that the majority of this growth took place prior to 2018. And in fact, we did SEK 1 billion of EBIT in 2021. We had SEK 1 billion of EBIT in 2018 as well, but at a much lower sales volume. And in practice, that means that we've seen a contraction of EBIT per ton, which is the measure we use in this time period. And then, of course, the question is, why is that? Well, I think that -- we can say that the largest challenge for us in this time period has been our Eurasia business. And the Eurasia business, for those of you who don't know Gränges that well, that is our historical Gränges business that we IPO-ed back in 2014, and that's why we have the largest automotive business within the current footprint. And probably all of you know that the automotive industry peaked in 2018. We've seen less cars produced every year since. COVID certainly hasn't helped, and this industry hasn't recovered. We haven't been good enough and flexible enough in Gränges to accommodate for this and sort of compensate for the lower automotive business. In addition to this, we've also seen an increasingly challenging market situation in Asia, in particular, China. Colin Xu, our President for our Asia business will come back after the break and explain more about that. Then if we look on the return on capital employed, you saw that as one of the learnings in the chart Jorgen showed earlier. But we can see that, that has come down from a level about 16% in 2018 to a level at around 10% in 2021. Obviously, the challenges that we've seen in the Eurasia business is impacting the return on capital employed as well. In addition to this, well, you probably know that the metal price, the aluminum price, that doesn't have an impact on our operating profit. You can see that it doesn't. But it does impact our working capital. In this time period, the aluminum price increased with about 40% and that has actually had a negative impact on Granges return on capital employed by 2 percentage points. The other thing that I think also Jorgen touched briefly upon is that we have been through a large pace of expansion investments. We currently have a lot of assets under construction on our balance sheet that is -- well, we basically haven't turned the key on them and they are not generating value at this point in time. These assets are also having a negative impact on our return on capital employed in this time period with about 2 percentage points. On the good side then, are there any good sides. Well I think there are some green on this page as well, and that's really the acquisitions that we've made. We've made very successful acquisitions and been very good at continuing to develop those in -- under Granges ownership. I think that's also a key strength of the Granges organization. Another strength is our stable contribution margin. This means that we have a pricing structure in Granges that in a good way can transfer changes in our processing costs and changes in input costs to our customers, maybe with the exception of Q4 2021, as you see here, we had a bit of an issue with high inflation that we couldn't quickly enough transfer through increased pricing to customers. But as you can see on this page, that has been sorted out now. We are back at more historical or more normal levels in Q1 this year. In Gränges, we also have a very strong and stable cash generation. If you look over the last 10 years, our EBITDA to operating cash conversion has been on average 75% and that is after making maintenance-type investments to sustain our existing asset base. And that means that our operating cash flows generate quite some capacity for further growth for debt repayment or time to shareholders. So how have we used this capacity in recent years? Well, we are in a capital-intensive industry. When we make expansion projects, those projects take typically 2, 3, sometimes 4 years to complete. But once completed, these assets will be there for decades, generating value for decades. And that means that we tend to invest in phases. So we invest in an expansion phase, then we go into a consolidation phase when we harvest the benefits and make use of the investments we've made. We've been in an expansion phase now since 2018. It has been prolonged due to COVID. That means that we currently have SEK 1.5 billion of assets under our balance sheet, which are about to be finalized, but that are not completed at this point, and that means they're not yet generating any value. So we have used our capacity to expand our current business or continue to build on existing assets. We've also, in this time period made 2 very successful acquisitions of Granges Americas in 2016 and of Gränges Konin in 2020. We will from Fredrik Spens and Patrick Lawlor later today, we in Granges have developed this and what we intend to do with these going forward. But in any case, I think we can say that we've taken care of these assets in very good way after we have acquired them. We have a very good cash generation in Granges. I think that's clearly visible from -- on this chart as well. But that hasn't been enough to completely fund the growth that we have been through in recent years. As a consequence, we have gone from being virtually debt-free in 2015 to having a financial net debt of SEK 4.4 billion by the end of the first quarter this year. That also means that we, over the last couple of years have been at the top of or even above our target range for leverage. When looking at this page, I think it's also worth commenting on the uptick of leverage that we see in Q1 this year. This is due to the dramatic increase of the aluminum price that we saw on the back of the Russian invasion of the Ukraine. Since then, the aluminum price has come down to -- I don't know if it's fair to say a normal level, but it has come down still and provided that it remains on current levels, we expect to see this uptick in leverage to basically be reversed, if not in the second quarter, so in the third and fourth quarter, for sure. So what is it then that we have invested in, in recent years. Well, I think that we could fairly say that we have invested in a platform for growth. When we have completed the ongoing expansion programs, we aim to have an annual production capacity of 640,000 tonnes. Now unfortunately, we'll be a little bit delayed. We originally planned to have this available by the end of this year. We, unfortunately, had a fire incident in our expansion program in our Polish facility. We had some damage to one of the assets there. which will delay the full ramp-up of that. But I think it's fair to say that our current target is to have the 640,000 tonnes available by the end of next year. Some of it will already be available by the end of this year, as you can see here as well. So what does it mean then? Can we use the 640,000 tonnes? Well, in reality, we can probably use some 90%, 95% of these capacities because we need some flexibility, some room for the seasonal variations of the business. We need some time to maintain our assets and so forth. But even at the 90%, 95% utilization, it means that we can grow our sales volume, grow our business with 25% from today's level without having to make further capacity investments into our assets. So we create a very good base for growth. And when these expansion investments are now completed, we intend to move into more of a consolidation phase. And in this consolidation phase, of course, the target is to restore the value creation in Granges, as Jorgen pointed out, being sort of the #1 step on our path for the future. And the first item here is really to finalize the 640,000 tonnes that I mentioned. That needs to be completed. Those assets needs to be operational capacity needs to be ramped up. Second step is to make sure that we utilize these new capacity, basically increase the load, get up the utilization, and we intend to do that by growing primarily on the American and European market because these are the markets that we currently view as the most favorable for Granges in the short to medium term. And finally, optimize these assets for higher return and more stable value creation. And that goes for existing assets as well as the new assets that we are adding here. So what is it then that we're targeting? What is a leading value creation? Well, we are aiming for a return on capital employed consistently above 15%. And if we start from today's level of 10%, the first key building block is really the Restore that we talked about, completing these assets, making them useful, making them generate value. that we expect will add about 3 percentage points to our return on capital employed from current levels. Typically, we should also say that these assets, the new investments have a incremental return on capital employed, which is much higher than the return on our existing assets. The second phase, what's really important for the longer-term perspective, I think I have the build phase, Jorgen touched upon. We will hear more about it this afternoon from our regional presidents. That, too, is expected to add about 3 percentage points to the ROCE. Finally, we have the third phase. We aim to continue to invest in what we heard from Jorgen being sustainable growth. We expect that actually to have a negative contribution to the return on capital employed in -- while assets are being built and before they can be put to use -- but I think the message is there even when we invest in sustainable growth, we are very committed to have the return on capital employed above 15% even in years, we are making investments. to sustain this at a continuously high level. This new focus is also reflected in updated financial targets. And these targets are now slightly changed based on new priorities. And what we priority -- or what we prioritize is profitability. And we measure profitability then using the return on capital employed metric. And that should be above 15% for Granges. And I think in terms of priorities, you already heard me saying that we intend to restore this as soon as possible. Second, growth. We have a history of growth. Growth is important to bring us it's really about the profit growth, isn't it? And we then have a new increased target for growth, and that is to grow average operating profit or have an average operating profit growth above 10% per year. Now that might seem high, but if we remember where we're coming from, and we also remember where we are in the investment cycle, I think it's fair to assume that we will be able to exceed this in the near term once we are putting the new investments online. In terms of capital structure, we are making a slight adoption of the definition of the target metric here. And we are looking at financial net debt to EBITDA. And this adjustment is basically an alignment to how typically financial markets as well as range financing banks view the risk profile of Granges. So we're looking at the net debt, but we exclude subordinated debt, pension debt and leasing debt. And we take that in relation to EBITDA. The target levels though remain the same as before, between 1 and 2x. And we expect this to gradually normalize as we now are moving from an expansion to a consolidation phase. The dividend policy remains the same, and we have a policy to distribute 30% to 50% of the net profit to our shareholders. So leaving the longer-term perspective a little bit and looking at current trading, I think we are pretty happy with how 2022 started. We saw some clear signs of improvement, got some pretty good momentum there. If you're touching on the highlights, we can say that we managed to keep sales volumes stable year-over-year despite a continued slowdown of the automotive industry. And the reason we managed to keep ourselves stable is that we made a great effort in compensating lower automotive volumes with increased sales to other segments, basically trying to increase that flexibility that we have been lacking in some of our facilities for some time. The second really strong point is that we can clearly see the impact of price increases starting to compensate for cost increases in the first quarter. We started to increase prices already in the second half of last year. But due to -- basically our pretty long lead times in production, it takes a while before they are hitting the P&L. So we did not have a very good margin in Q4. In Q1, we are back at an operating profit per tonne level above 2021. This good momentum that we see in the first quarter, it continues in the second quarter, and we issued a little bit of a trading update and a revised outlook for second quarter yesterday. And the big issue for us in Q2 has really been the COVID lockdowns in China and in Shanghai, in particular, which is where we have our main facility for Asia. I would say that our Asian team did a fantastic job, really an achievement to keep this plant running throughout the lockdown. And as a consequence, we now expect to have sales volume in the second quarter at 90% or above 90% level of the sales volume in Q2 last year. And that was our best quarter ever in terms of sales. So this is a very strong message, I think. In terms of margins, we expect to see that continue to improve quarter-over-quarter, and that is basically due to the fact that we gradually see the price increasing -- price increases compensate more and more for the inflation and the cost increases. Colin Xu, our President from Asia will come back a little bit later and talk more about what our Shanghai team did to basically mitigate the COVID effects. So in summary, what have we been talking about? Well, what blessing that you should bring with you. I think that you should bring with you that Granges has a track record of strong financial performance, strong historical profit growth, stable contribution margins very strong and stable cash generation. We have done successful -- made successful acquisitions that we have been able to bring in to Gränges and continue to develop in a very good way. Basically, you could argue that we are good at buying and building, if you want to use those words. We have been through an expansion phase. That means that we are now very well invested for the future. And we have large capacities coming online in this year and certainly in 2023. We are currently below our target levels in terms of financial performance for the reasons that we have been talking about in the last 10 minutes. But we have a new focus, and we have updated financial target that really reflects this focus and really then on restoring and maintaining the strong value creation. And we certainly have a commitment to come back to a stable level of about 15% return on capital employed. Thank you.

Thank you, Oskar. Brilliant. I'm wondering about these acquisitions because Jorgen said that you're super successful even. So is there a secret recipe.

That is a very good question. I think that if you invest in what you know, you have a good start. I mean, we have a very strong engineering team in Granges when we buy something, we know exactly what we're buying. And we have a decent view on how to be able to further improve that and utilize that in the best way. That's a good start. But really the success story is here. It comes down to the people, I think, making sure we have the right management in basically managing their respective acquisitions once they're on board in Granges and the best teams on site because it's really the teams at site that develops the business. Making the acquisition is the easy part, I can say.

Really? Well, I think some might differ with you, but fine. Perfect for you. So you also talked about you've invested a lot of money. And once it's done, these are going to stay with you for a long time. And I've heard correct me if I'm wrong, that you actually have machinery that's been working for you almost for 100 years. So is that the length of the investments we're talking about?

Yes. We have equipment that we are currently using today that are more than 100 years old. That is correct. -- you might have seen it because it's in Finspång. But we obviously upgrade this over time. I think 100 years is a very long time, but our assets typically have 20- to 40-year life time. Absolutely.

So what you've been doing now these last couple of years, that's starting to pay off soon as you hit that button, it's going to last. That's what we're saying.

That's what we certainly believe, but I think the challenge in this is also that whatever we invest in now needs to be there for 40 years, right? So it better be the right things when you make that investment decision. That is a tricky part...

Because the world is moving fast. We all know that.

Absolutely.

So there will be questions for you later on in the Q&A. But for now, we say, thank you very much, Oskar.

Thank you.

Let's move ahead and we will now go into more details on the sustainability work of Granges. And for this, we are, of course, want Sofia to come and join us, SVP Sustainability. Please welcome.

Thank you, Anna. All right. So aluminum has a really important role to play when it comes to contributing to the green transition and to the transition towards a circular and sustainable economy. And our materials, for example, will use to produce lightweight vehicles, resource-efficient packaging and energy-efficient buildings. And lightweighting is a very important feature in today's world, given the challenges of climate and resources. And by making products lighter, we can, of course, save energy and have a positive impact on climate. Same goes for circularity and recyclability. And aluminum is a highly recyclable material, almost infinitely recyclable, and that is another key feature in a sustainable development. And since it takes less than 95% of energy to recycle aluminum versus producing primary aluminum, there are also huge savings that can be done on climate. We have a very strong position with our commitment to sustainability to make a difference. We work along the value chain to reduce our climate impact together with business partners, we also work upstream and downstream, as Jorgen mentioned before, to also increase circularity in the value chain, and we also promote responsible business practices, which is something we never compromise. Our main ambition is to develop sustainable aluminum solutions that help our customers decarbonize and that help our customers to become more sustainable. So what is the sustainable aluminum solution. Well, we like to present it as having 3 attributes that are equally important. The solution should have a low climate impact along the value chain. It should be designed to be -- to maximize circularity and resource efficiency and then never compromise then on responsibly sourced and produced. And by that, we take into consideration that it's produced in a socially sound way, in an ethical way and in a safe way. And to drive the development of sustainable aluminum solutions, we have a set of clear targets to 2025 that we launched in 2018, and then we upgraded some along the way as Jorgen pointed out earlier today. First of all, we intend to reduce our emissions. We intend to reduce the emissions from our own operations in combination with the emissions from purchased energy. So Scope 1 and Scope 2 emissions by 25%. We also intend to reduce the emissions for Scope 3. So that is from purchased materials and services. And if we combine all the 3 scopes, our ambition is to lower emissions by almost 30%. We also have an intention to be fact-based and transparent, and we want to offer our customers third-party verified sustainability information on all products. We also, as mentioned, strive to increase circularity and to work to improve and increase the recycled volumes. We also want to improve workplace safety, of course, and reduce the accident rate. And then lastly, we want to make sure that our products and sites are produced in a responsible and sustainable way. And we have a target that all our sites should be certified in line with the aluminum initiative -- stewardship initiative with their 2 sustainability certifications. We have delivered quite good progress against these targets and against many other sustainability targets. And for example, we have reduced our climate impact by almost 20% in the period from 2017 to 2021. We have tripled our recycled volumes, and we currently have more than 70% of our products with a third-party verified carbon footprint. And if we look at the decarbonization progress that we have made, as mentioned, we cut our emissions by 19%, and we're very proud of that because it actually equals a reduction rate of 5% per year, which is quite significant. So what has been driving this? Of course, many activities in our business units. If I should mention a couple that are more important than others, it is that we have increased recycling in all our regions in this time period. And we've also managed to increase the sourcing and the usage of low-carbon primary aluminum, and that is virgin material that has been produced by renewable energy. If we look at circularity, we have a positive trend here as well. And as mentioned, we have tripled the volumes from almost 50,000 tonnes to 150,000 tonnes in last year. And since we have managed to grow the recycling volumes at a higher pace than our total sourced metal inputs, we've also seen a quite significant share increase. And we're now -- we are now almost reaching 30%. And all regions have increased the recycling capabilities in this time period. And Patrick Lawlor will come back later today to describe the successful activities in recycling that he and his team have done in Americas. We've also seen a positive contribution from our Polish operations in Granges Europe, where we have the capability to also remelt more contaminated scrap, which has a positive effect, of course, also on group figures. So we have seen a strong sustainability performance, and we're very proud of that. And it's also very good to see that these efforts have been recognized externally. Ecovadis, for example, recently awarded us a platinum metal, which ranks us among the top 1% globally of assessed companies in our business -- in our industry. Sustainalytics is another example, where they ranked us as #1 out of 33 aluminum companies or #2 out of 161 metal companies globally. So something that we're very proud of. Although we have seen a good sustainability performance. We think it's really good timing to shift our ambitions and to upgrade our ambition level. And our upgraded sustainability strategy stronger supports and accelerate sustainable growth. And by sustainable growth, we mean both growth to sustainable sectors such as EVs that we will hear more about soon. We also mean growth through industry-leading sustainable solutions. So 2 perspectives. And as you might have seen, we announced yesterday our new ambitious climate neutrality target to 2040. We also announced that we have joined the science-based targets initiative, and that we now aim to have our climate targets validated to be in line with what science requires. I will soon show you that we're also stepping up our ambition level when it comes to recycling. And -- from now on, we will be even more focus on decarbonizing our business and along the value chain. And there would be many, many things needed to reach climate neutrality already by 2040. Investments will be needed, collaborations and partnerships with our suppliers, metal suppliers, energy suppliers, with our customers to design sustainable and circular solutions. And we have identified 3 main investment areas as part of the upgraded strategy. We want to invest in sustainable supply and recycling, which will be managed through our source green and recycle initiative as part of our business model. We also intend to invest in sustainable operations. When it comes to material efficiency, energy efficiency, workplace safety, et cetera. and that will be done through the Improve initiative. And then lastly, invest in sustainable customers and sectors, which will be done through our Innovating Growth teams. And if we as our path towards net 0. This is, of course, a very conceptual overview that stretches from 2017, which was our baseline and down to 2040 when we intend to be carbon neutral. This is, of course, showing the carbon intensity, which is then the carbon dioxide per tonne aluminum, but also over time, intensity measures will converge towards 0. And we started 2017, we were at 19% emission cuts last year. And if we follow this trajectory here. It would mean that we need to cut through emissions by 60% or more in 2030, which is equal to halving our emissions from last year. So of course, a huge challenge for us. And short term, we are now working to prepare and to have our climate targets for 2030 and 2040 validated them by SPTI. One of the key pathways to climate neutrality will, of course, be recycling. That's not rocket science. And we have, therefore, also shifted our recycling ambitions. We started at 50,000 tonnes as I showed you before, and we're aiming to tenfold those volumes to 2030. And by 2025, about 6x the original value. So this is also going to be very important for us going forward. And with the increased -- the reason why we have increased our ambition levels for climate and for circularity is, of course, to be able to continue to be a front-runner in sustainability and to be able to continue to deliver industry-leading sustainable solutions. So I'm also very excited to present to you today our new product brand concept, Granges Endure, which will help our customers select the most sustainable aluminum solutions. It will help our customers decarbonize and it will help them improve their sustainability performance. So I will show you premier first time movie, and then I will talk a little bit more about it. [Presentation]

All right. So really excited. It's our first sustainable brand concept, of course, and I think it very well ties the pieces to have a sustainable aluminum solution together with a low climate impact with recycled or low-carbon input materials that we want to be fact-based and transparent and never compromise on the fact that our product should be responsibly sourced and produced. So with that, I would like to summarize this short session by saying that we are industry-leading, we have clear targets, and we have delivered good progress against the targets. We have also seen some good external recognition. We are in a really good position to continue to make a difference through our commitment to sustainability and that we intend to continue to develop industry-leading sustainable solutions that should have these 3 important attributes. A low climate impact high circularity and resource efficiency and responsibly sourced and produced. We announced then our commitment to climate neutrality by 2040 and a significantly raised ambition level. And our intention now is to really support and accelerate sustainable growth. Thank you.

Thank you, Sofia. What a week you had.

Yes, I know.

I mean...

Quite fast.

Yesterday and now a totally new brand today.

Yes, yes, yes. Got to make things happen. Yes.

Yes. Excellent. So this -- that we talked about, I mean, these are not everyday businesses, releasing brands and so forth. How will this position you in sustainability towards your competitive competition?

As [ for ] as the competition?

Yes.

Yes. No, I definitely think it will strengthen, if anything, our position compared to competitors. There are some product brands out there, but they're mainly related to primary aluminum. So I think this will really show our customers which products or which solutions are most sustainable because it's really a high ambition level on the carbon footprint. And by producing products lower than 4.0, it's really challenging. And we are at 9.3 on average. So it's really a top brand.

How is the organization, I mean, your employees? And within the organization feeling towards your goals on sustainability?

I think our employees are very committed and very engaged and very -- they're very curious and also very proud of our sustainability performance. We have -- when we started some years back, had a more top-down approach and we're now starting to turn that around and have a bottom-up approach. So we really want to make sure that every employee knows how to contribute because, of course, also small actions can make a big difference if everyone contributes.

Then I think I can make you happy because when I was in Finspang, and visited the facility there, it was the one thing that everyone -- like on the floor besides the machines and everything they mentioned, "I really enjoy. I like the fact that we're working so hard towards sustainability." So I think you're right there. even on the floor there -- that's what they mentioned.

Yes, a lot of engagement and a lot of pride. Yes.

Thank you, Sofia. Well, you can take a seat -- I almost said, but take a stand over there. And we're going to ask Jorgen and Oskar to join us to come back on stage because now we are opening up the floor for questions. Isn't that lovely?

You can -- if you want -- if you're in the room, you can take the microphone. Yes, we already have one. Let's go ahead with an audience questions, please.

Name a number.

You have to press that little button there.

[indiscernible]. When we start on the ROCE target. Two questions related to that. First of all, when do you think we're back plus 15%? And secondly, I mean, removing the upper range. So even that because you think 20% is not realistic? Or because you have to have higher ambitions than last overtime?

I'll answer both the top range. Didn't seem to me, but it sounds I mean if it's 22%, we're happy about that as well, right? So that was not a big deal. But getting back to 15%, absolutely, we have ambitions to do so soon. We have plans to do so soon, but we also have to acknowledge, of course, that we're in a very uncertain environment, and that influences it. But if we execute on those plans, I think that everybody will be happy depending on what happens in the environment. But we're not going to give you a target date for that 15%.

I can...

It resembles to a [ thing ] that we want to be there until we've seen expansion projects being ramped up, what we think we can reach it before that.

Is it reasonable to -- I didn't catch the question.

Is it reasonable to assume that we won't be back at 15% until we have your expansion programs being sort of -- maybe not further [ run ] out [indiscernible]...

I think it's reasonable to assume that we don't think that the current profitability levels will really have the right to grow and invest. So we're in a hurry to do this also to be able to grow and invest or invest in future growth. So if that was the question, then the answer is yes.

Can I ask one more?

Sure. Hit it.

On -- I mean, you're bit more agile on swings in demand [ rate ]. [indiscernible] auto demand, there's nothing new...

Could you keep the microphone closer, because it's really hard -- thank you, yes, perfect.

Sorry. On being more adapt to swings and auto demand, [indiscernible] has been quite massive some years now. Can you give us like a hands-on example of what you're actually doing differently this time and why we should have confidence in you handling this in a better way going forward. I can start.

I think the key thing is really what we talked about when we talked about the history film because that also translates the way forward. I think the important thing here is that we need to make sure that we are just not too dependent on 1 certain market segment. I think the diverse product portfolio and the continued diversification of that is going to be 1 key element of making us more agile and easy to compensate if you see demand go down in certain segments for some reasons. We have not been good enough at compensating for the drop in auto sales in recent years.

I think it's also fair to say that with the acquisition of Granges Konin, we're also learning a lot, right? When you acquire companies, there is a tendency to want to teach them things. But it's also important to learn from the companies you acquire. And I think Cotton has been better than some other units to have a very diverse portfolio and a good flexible mix, I guess, in their capacity bucket there. And what we need to do now is to make sure we have that in all of our buckets, right? Because it's not used to be flexible on average, if you're not flexible also in every capacity bucket, right, every plant, but also a segment of every plant. And there's clear improvement potential there. But on the other hand, we also have clear plans for what to do about it.

I have a digital question here on Restore, could you give more flavor of the most important initiative and drivers for the third step optimize?

What I think it ties very much to what Jorgen said here. It's about optimizing every plant to have the ideal product mix in every plant to make it flexible to handle demands. That's really a key element of the optimization. The product mix in the plant, the product mix across the whole production footprint. In addition to that, it's, of course, optimization of productivity, optimization of pricing to continue to making sure that we balance any sort of cost inflation that may be there also in the medium to long-term lows, right? But it's really optimizing our way of working.

Also a question here to you, Oskar, I guess, is the management staff compensation linked to the new 15% ROCE targets -- target?

Management is compensated as shareholders to an increasing extent, and that's a clear wish from the Granges' Board of Directors that the management and the investors should have the same incentives here. And I think that is probably the best answer to that question.

But I think new for this year is that management is also compensated on our sustainability performance. So now all senior management in Granges has a clear target for [indiscernible] climate performance of Granges. And that in -- is not an insignificant part of the total comp. And I think that's also good -- if people see that then also in the company, then they see that we take it seriously and not just something for PowerPoint, but something we actually do.

Audience question, please? State your name and where you're from.

Karl Bokvist, ABG. First on EBIT per tonne that we restore potentially. Is it mainly about restoring profitability in the automotive segment and Eurasia regions since the Americas profitability level is already on very high levels.

It's a very good question there. I think that you will have a great opportunity later this afternoon to ask the very same question to our Americas President, Patrick Lawlor. We'll see what he's going to answer on that. But I think this is something that goes across every region, every plant. We always need to be better. So plants are certainly at a higher level than others, but everyone can surely improve, and that's going to be for the benefit of the group totality, of course.

And then on the -- also in terms of profitability potential incorporating sustainability here, how large share do you see stemming from just increasing the allocation of recycled materials and those sorts of actions into improving profitability.

That's a really, really good question. I think recycling has helped our profitability in the past couple of years. So there, we've had 2 incentives coming together, right, the incentive need for us to increase recycling circularity, but also it's always good to improve profits. Going forward, that's going to be a really interesting question, what will happen with that because now a lot of people are grabbing or trying to grab that scrap, right, so that you can recycle in the first place. And there's going to be, I think -- I don't know, but I think a shortage of scrap or at least a good scrap. And that's why it becomes really important for us to work with partnerships, upstream partnerships, in particular there, but also customer partnerships to close the loop and to get the scrap that we need for our operations. And in fact, we're going to address that question in some detail in today's presentations. But so far, it's been the same thing. But going forward, it's going to be a question of getting the right scrap and maybe also translated into a price premium for these Endure products, for instance, that you spoke about before.

Yes.

All right. Final and then -- sorry, the last one, if I may, on sustainability. First one, it's very early stages, of course, but the potential to use hydrogen to create net 0 aluminum similar to what we're looking into within steel. And the second one on the Endure product line, can the TRILLIUM product category be fitted into the Endure category, for example.

Can I start? I think hydrogen-powered furnaces certainly can be play a role in our industry, but the new remelting furnaces, recycling furnaces that we're sourcing now that we're buying now, investing in now. we are powering directly with electricity, which is a cleaner way than going through the hydrogen because you have losses in generating the hydrogen. But I think -- and the other thing, it's going to be a question of all different technologies lining up depending on the need for the particular furnace. Otherwise, if you really want to go to net 0 aluminum, net 0, I mean 0, then you have to do some things that aren't really yet inventor or at least not commercialized at large scale, right, such as noncarbon anodes for the generation of the primary aluminum and so on, right? So there's a lot of stuff that needs to happen still. But on the other hand, 2040, that's pretty soon when it comes to industry, right? But it's still -- it's what to say, 17, 18 years ago -- in the future. So we also need to count on some innovation happening both in our business but also upstream. If you recycle aluminum, though, then you don't have to worry about the generation cost of the aluminum, right? So that is really the Holy Grail. Sorry, you want to...

So let -- just -- do you want to...

No, no, continue. I'm thinking we're -- the financial benefits of providing a sustainable aluminum, what would they be?

The financial benefits is that we all get to survive and have children and have them have children. I mean that's a pretty good benefit to start with. So let's start there, I guess.

Yes. And I guess really successful sustainable solutions have an impact both on top line and bottom line. So of course, we hope that we can commercialize this in a successful way with the price premium and grow the top line. But as Jorgen said, sustainability and profitability often go hand in hand. There are cases where it doesn't, but often because hand in hand, so also cost reductions -- so would you say that the market is ready for this type of premium product I think the market is developing as we speak. If it's ready or not, let's see. But we have at least seen higher interest from our customers. And we've also had customers who have asked for sustainable solutions and indicated that they would...

And are they willing to pay for a premium product, would you say?

Some are, some are not. I think when it comes to the customers whose customers in turn are promising their customers in turn that they have a sustainable pros, those customers are going to -- are going to be willing to pay and are going to have to pay also. So the best example, of course, is an electric car, right? I mean if you sell an electric car, then you're also going to have to promise that it's sustainably also responsibly in fact, produced. And you see that in all the -- what the carmakers are doing and they're then pushing the incentive to their customers, and they're pushing to us. So I think, for sure, we're all going to have to pay for that, but we're all going to have to be willing to pay for it because it's the future.

The option is worse.

Yes, the option is worse. Also what I really think is that the industry may split like many industries tend to seem to be doing now that it may split into a green aluminum industry and a non-green aluminum ministry. And that split, we know which part we want to belong to.

So someone asks if you could indicate something about what sales levels in Swedish krones would -- could be expected going forward?

That is a million-dollar question.

It's a difficult question.

It's a difficult...

It's your question.

It's my question. I will give a very unsatisfactory answer to whoever asked that question. sales for us is a little bit difficult to measure or it's easy to measure, but it's impacted by the metal price. Right now, we have a very high aluminum price. That is a pass-through to our customers. but it impacts our cost of material, it impacts our net sales. I would say currently, maybe he can call the grain sales level inflated by the metal price. I think it's more fair. And that's what we tend to look at is either to look at the sales volume, which is a very straightforward measure, how much tonne element do you sell? -- or look at what we call fabrication revenue, which is the value added to the metal, that's basically the price that customers have to pay for the value we are adding to that. And that's more relevant to look at. But that said, we are not in a position to provide any forecast on it. We will have provided an outlook for the third quarter in conjunction with the second quarter outlook, which we always do. But other than that, I would be very reluctant to comment on that at this point.

But one thing that we see on a broad scale is the rate of commodity prices. So how do you navigate in that landscape? Because it's been a bit tricky for the last...

So thinking about Oskar's answer, so we're not going to provide it [indiscernible] I can't give you a promise. And the promise is we're going to grow our volumes, and we're going to grow the profitability of those volumes, right? Then you can calculate yourself what the forecast should look like. But commodity prices, that's been a big, big thing for us, of course, as you've seen over the past year. And we -- that has impacted our cost base dramatically, in fact. And there's only one answer to that, obviously, and that's to move that cost to the customers. As easy said, it's difficult to do. And we think that so far this year, we've done a good job of it. But it's -- every new quarter is a new quarter, right. We need to continue to do that. If we can do that, then we don't have the pricing power we're required to have a sustainable profit over time. Another question here?

Yes. So on sustainability improvements, you showing that you have improved your sustainability over the years now. So I'm wondering now when you come a bit, I mean, do you feel that you have picked the low-hanging fruit and it will become much harder now? Or is it like knowledge of a new field that if you learn a little bit about the new thing, you realize that there's so much to learn and you see more opportunity and you see more opportunities also to improve your sustainability going forward? So which 1 of the 2?

No, I think it's a mix. That's my real answer. I think that -- of course, we have picked many of the low-hanging fruits in many of our business units, but not in all. So there are still some low-hanging fruits left to be picked. With that said, I think it definitely becomes increasingly challenging then to continue to progress in the same speed. But given our climate neutrality already at 2040, I think it's a must to speed up the size and the magnitude of actions generally. We need to invest behind our activities, and we need to be smart then by creating partnerships and sharing risks, for example, so.

So one more here. You're expanding capacity and seeking entry into new market niches, and there is an increasing concern about a global recession coming up. and more likely than weaker demand, what is your plan handling this? Will you be willing to compete on price?

I think Granges and every company compete some price every day, but it's a question of having valuable products, good customer relations and so on so that you can compete successfully on price. The recession, that's another million-dollar question, we don't know really any much -- any more about that than anybody else. But it does highlight the need for flexibility. We need to have a flexible mix in all of our factories so that we can handle volume swings, both up and down, actually, right? So down is one thing, but also you need to be able to hold it up in a good way in a variety of market conditions. And -- when you look historically, I was actually -- it's the first time just recently that I saw that long-term chart with margin stability. The contribution margin per ton for Granges. It's a new chart to believe for us. In a way, it's, I think, a very good chart because over those years, whatever it was back to 2011 or something, a lot of things have happened, right, ups and downs, along that year, but we've managed to keep a stable contribution margin over that time. So no doubt, we've competed on price, but we compete somehow successful it then to keep a stable margin.

And there's also a few questions here on Asia and so forth, but I'm keeping those because we're going to go into Asia and the Americas after a short break that we will take. So we'll see if those answers -- questions are already answered or we take them in our next Q&A session. So if you have more questions on these topics, please, they are more than welcome. And by the end of this session, just before 4:00, we will have another Q&A session. So at this point in time, we're going to leave you for a little bit and have a little short break. So we'll see you back here in 15 minutes. [Break]

So welcome back. Now it's time for an update on the regions as well as information regarding end customer segments. And as you know, Granges is a global company present in U.S., Europe and Asia, and we will now address these different regions. And for the U.S., it has certainly been a good trip since 5 years ago when the acquisition of Noranda happened. And here to tell us more about the road up till now and the future ahead. Here the President of Granges Americas, Patrick Lawlor. Did I get it right? Yes.

Thank you, Anna, for the introduction.

You're mostly welcome.

And again, it's great to be here in Stockholm, especially during the week of mid-summer. So Granges Americas has been a really good story since the acquisition of the Noranda assets back in 2016, but we still have many opportunities to improve and grow and optimize over the coming years. So today, I'll give you an overview of the company, who we are in Granges Americas, very much a lot of time on the markets we serve and then a bit on strategy going forward as well. So let's start a bit on who we are. So Granges Americas, we have 3 locations in Huntington, Salisbury and Newport. Huntington is our largest location with approximately 75% of our volume flowing through that location. And we service almost every market segment from that location with the exception of flexible packaging and light gauge markets, which go through our Newport plant. Our Salisbury location is mainly a HVAC plant and accounts for approximately 15% of our volume. Our Newport location is a specialty like gauge plant specializing in products such as flexpack and in future, the battery foil marketplace as well. And I know Ann, I think it was said that battery foil is basically 1/10 the gauge or the thickness of human here. This is the type of product that we make in the Newport plant already. So the average gauge we make there is 6- to 7-micron material, which is 1/10 of the thickness or gauge of a human hair. Our HVAC products, just to put things in perspective is probably 15x that gauge or so. But still in the U.S. and in all markets, it's saying it's a light-gauge product. So our specialty is like age products, and we go across the full spectrum of the product range. Auto plants basically run 360, 350 days a year around the clock. We also import automotive heat exchanger volume from our sister plants in Finspang and in Shanghai. That automotive heat exchanger product from Finspang is shipped mainly into U.S. and the automotive heat exchanger product from Shanghai has shipped mainly into Mexico. Our nameplate volume in the U.S. is approximately 260,000 tonnes a year. If you see these figures up here, our actual volume that we shipped in the Americas last year was 15% lower than this. And one of our strategic objectives is to close that gap over the coming years in a safe manner. So as I said already, our performance in Granges Americas, as you heard a lot this morning, has been very good since the acquisition of the Noranda assets back in 2016. And the investments we have made since then have also paid us off in terms of both our volume and our earnings as well. Our sustainability story is exceptionally good I think we have reduced our carbon emissions by 24% since 2017. Moving on to the marketplace. We are the market leader in the foil segment of the rolled product market in North America. And I'll speak a lot about market segmentation in the Americas over the next 20 minutes or so. So where do we go from here? We have good performance. We have a market situation that's quite good where we intend to go further to the right on that green bar up to [indiscernible]. This is the ambition level we have. We have a very good, solid foundation in the company, and we want to build on that foundation and improve going forward as well. So from a market viewpoint, we see we have volume growth opportunities as well as mix optimization opportunities as well as increase on the pricing opportunities. From an improved and operational standpoint. And as stated already, we really want to build on the 260,000 tonnes of nameplate volume we have and trying to reap volume over the coming years. From a sustainability viewpoint, we've built a very good story as stated already, and we really want to continue that sustainability story over the coming years. We have invested -- or we are investing in 2 new recycling centers as part of those initiatives. And I'll speak about that later in the presentation as well. And we also recently announced, of course, our expansion into the battery foil segment in 2024, which is a really exciting development for us in the Americas and for the global company as well. So let's go in a bit into our product range and the market segments that we service. HVAC is our largest market segment with approximately 40% of our volume. The HVAC story, which I'll also come back to is a very positive story in the last few years in North America with annual growth in the 5% to 8% range. Our next largest segment is specialty packaging, which is a much more stable marketplace with 1% to 2% annual growth and a very much recession proof. Our next segment is the automotive market with 17% of our volume, but of that 17%, as I said earlier, we have imports from both Shanghai and from Finspang in that number. 8% of that 17% is manufactured in the U.S. And then we also have 2 or 3 smaller market segments where we are the #1 player in the marketplace. So overall, for us, we have a quite balanced portfolio operating in different niche market segments, and we are the #1 or the #2 player in each of those market segments. So moving on a bit and describing the role product marketplace in North America. It's a huge marketplace of 5 million tonnes a year totally. So where we play is in the foil segment of that huge marketplace. The foil segment represents approximately 12% of the North American rolled product market. And you can see from some of our market shares here, we have exceptionally high market shares in a market such as HVAC with 60% market share or so. and we have some smaller shares in other marketplaces such as household foil. Imports represents 40% or so of the North American foil market today, and I'll speak about that on the next chart as well, and they have some exceptionally high shares a bit in household oil, but also in the flex park market where imports represent 97% of the entire marketplace. It's our strategic ambition to grow our share in the flexpack marketplace through the upgrading of the mills in our plant in Newport over the coming years. Moving on to imports. And again, imports represent 40% of the entire marketplace within the foil market. And again, that 40% really doesn't change from year-to-year, but the country of origin has changed dramatically in terms of imports over the last 3 or 4 years. China used to be a significant importer of foil product into the North American marketplace. But in 2018, there was antidumping duties imposed in China, and their share has gone from 20% of the market back in 2016 to less than 4% in the last year. As imports from China went down, imports from other countries have increased. And subsequently, there have been additional antidumping duties imposed on countries such as Armenia, Russia and Brazil. And the impact of that as well has been to reduce the imports from the said countries. So overall, very interesting market dynamics in the U.S. for both imports and the players within the foil marketplace. Again, our market relationships are very strong, and we have relationships going back 40 years plus. We also, since the Noranda acquisition, had a strategy of entering into longer-term deals and contracts with our customers. And as you see here, more than 66% of our 2023 capacity is under contract and more than 40% of our 2024 capacity is under contract as well. With the onset of inflation in North America in 2021, we're experiencing like the rest of the world, very high inflationary rates, we have introduced the concept of a quarterly surcharge on to our customers in 2022. And this is based on the movement of certain indices, such as natural gas and freight. The imposition of this surcharge has helped us to offset the very high cost of inflation within the North American marketplace. So now on to deeper dive in 2 of our major market segments, HVAC and the specialty packaging marketplace. HVAC today represents, as I said, about 40% of the volume that we have in the company. And overall, the story for HVAC, as demonstrated on the left-hand side, has been a very good story in the last 4 or 5 years with a growth rate between 5% and 10%. 70% of the market in HVACs is for the residential side. And within the residential market, 80% of that is represented by the replacement side of the marketplace. So even during 2020, when we had the outbreak of the pandemic, the HVAC market increased by 10%, mainly for the reason people stayed at home, use their HVAC systems much more and had to replace them in a much earlier time frame. The outlook for 2022 for HVAC remains very strong despite the very high inflation within the North American marketplace. Furthermore, the SEER efficiency ratings are increasing for HVAC units next year in North America. That will lead to larger HVAC units being built, more energy-efficient HVAC units, but also for us subsequently a much higher content of aluminum in the HVAC units as well. Our own performance within HVAC has been very good, as you see from the chart on the right, where we've increased both our volume and our market share significantly over the past years. So moving on to packaging. This is our #2 marketplace where 25% of our volume is represented in the packaging marketplace. And again, a much more noncyclical marketplace, 1% to 2% annual growth historically and in the last few years as well. We have a market share of approximately 40% on the container side of the business and household foil, as I said earlier, a pretty small market share of 8%, 9%. This is much more down to our decision and the limitations on some of the equipment we have. And as mentioned earlier, in the flexpack marketplace, this is 97% imports and is our strategic intent to grow our share in that flex pack marketplace to our location and Newport over the coming years. So all in all, HVAC, 40% of our volume, specialty packaging, 25% of the volume makes up 65% and very much remain strategic marketplaces for us in Granges Americas going forward. So switching gears a bit. We've invested very heavily in the business since the acquisition of the Noranda assets. And we have 5 investments here. Two of those investments are fully operational as of today and the other 3 investments are coming online over the coming months and years. Our first investment was in the Huntingdon plant, where we basically increased our capacity by 40,000 tonnes a year. And you can see this volume now in our shipment figures and it's been successfully ramped up and fully operational and in place. We then invested in 3 mills in the location in Newport. And unfortunately, we had a setback last year with a mill fire. We're glad to say today, all 3 mills are fully operational. Our next investment coming online is a recycling center in the Huntingdon plant, and that first recycling center is coming online in December 2022. This will help to replace some of the reroll raw material, which we have outsourced over the past months and years. Recently, we announced a second recycling center, which will come on stream in mid-2024. This new recycling center will also replace some of the rerolled raw material, which we have been outsourcing over the past years as well. In addition, this equipment and the furnaces will be electric sourced by solar energy, which will enable us in Granges Americas to launch a near 0 carbon products under the marketplace in mid-2024, which we and our customer base are very excited about. Finally, the latest investment announcement was for a new power plant where we are investing in finishing equipment, which will enable us to enter the battery foil marketplace in 2024. We have the mills already in Newport capable of making this product and the finishing equipment will enable us to make battery for going forward. So moving on to the sustainability. I've lived in the U.S. for many, many years. And of all I said, once the U.S. hooks on or latent or something, it moves like an express train. And I think sustainability is definitely one of those areas. Our own performance in sustainability has been very good over the last 5 years with 24% reduction in our emissions over that time frame. In addition, we have sourced almost 4x times to source aluminum scrap during that time frame as well. Moving on a bit more depth and detail on our Scope 1, 2 and 3 emissions. Our Scope 1 and 2 emissions have been reduced by 15% since 2017. This is mainly as a result of operating efficiencies and also the ramp-up of more energy-efficient assets through our investments. Our Scope 3 emittance have been reduced by 25% in that time frame, again as a result of a much increased usage of source aluminum scrap -- and last year, we almost reached 100,000 tonnes of source of aluminum scrap in the business. So on this, lots of arrows going on. But the main message here is that we really want to capture more scrap units in the marketplace. So even though we've reached a level of almost 100,000 tonnes already, we have lots of opportunity to source more scrap in the coming months and years. And the fact that we are bringing on 2 new recycling centers, really, we have to find that scrap units out there to make sure that the investment pays off. All our internal scrap today is already 100% recycled within our own furnaces. On the customer side now, we are capturing customer scrap units to the degree that 60% of all the customer produced scrap from our customers is brought back into our internal system as well. And this type of system, we've been progressing over the last years and hope to increase that 60% over the coming years as well. And the importance of upstream partnerships is of key strategic value to us going forward as well. So here's the results of our story. Very good volume development over the past years, 15% or so from both operational efficiencies as well as the ramp-up of the investments we have made. If you combine operational efficiencies and the increase in volume with a great organization and mix optimization, this has led to very much increased financial results, whether that be on a per kilo basis or whether that be on an absolute basis. And now our return on capital has reached the 17% range on an [indiscernible] basis. So in summary, for Granges Americas, the acquisition has been highly successful at the Noranda assets 5 years ago. We have a very good foundation for growth, and we want to take that foundation and move the business further to the right on that graph. From a market viewpoint, we see volume growth opportunities, pricing opportunities as well as mix optimization opportunities. We will enter into the battery foil segment in 2024. In the same year, we want to launch our near 0 aluminum products. From an improved standpoint and operational standpoint, we have a nameplate capacity of 260,000 tonnes. Our current volume last year is 15% lower than this. And we have ambition level to reach our nameplate capacity over the coming years. And again, from sustainability, again, our vision is to be the North American industry sustainability leader. And we are taking very proactive steps to enable us to reach that goal and vision over the coming years. So with that, thanks for your time and attention.

Thank you, Patrick. So could you say something about what the upsides are of belonging to a global organization such as [ Squagous ]?

Sure. Yes, I think it's always an interesting type of question, especially since we're based in the U.S. and far away from our head office in Stockholm, of course. But I think the benefits of a global organization are enormous. And I think Granges as a company, have done a really good job to bring together the sum of the parts, whether that be in Asia or whether that be in North America or that be in Europe. So we're one family. And I think this certain things globally that should be handled, but there's other issues locally that need to be handled as well. And I think Granges has found a very good balance between the issues that should be run locally in terms of the plants themselves and the issues on a senior level, top level that should be handled on a central level. And we've had really good discussions on this in the last 6 months about where that balancing and where the line is. But I think we've reached a very good output and balancing point between the really the ownership within the regions, which is very important because we are a regional business but also being part of a family like Ganges, there has to be some value from bringing together the individual companies into a global company.

So what has changed during these 5 years of belonging to Granges would you say? What other difference...

CEO.

It's definitely a new CEO. You're right on that. But I'm thinking within the Americas, is there what has transformed within your business?

Sure. I think the Americas business, as I've described, has developed very well, of course. And in terms of our market segmentation, we play in 8 or 9 different market segments. I think the acquisition of the Konin plant in Poland has been very interesting to see as well because that's another plant of tactic that has market segmentation, 6 or 7 different marketplaces. I think the combination of the segmentation we have and what Konin have is now rubbing off on the other parts of the system as Jorgen and Oskar has described earlier as well. So it's not just in 1 particular marketplace like automotive heat exchangers.

You said that there are interesting market dynamics going on in the U.S. How stable are these interesting dynamics?

Yes, it's a good question. I think with the situation in the rolled product market generally in North America, where it's growing substantially right now over the coming years. So for example, the demand for can sheet in the U.S., which is the largest market segment, the U.S. at 40%, has been a stable market for many, many years, with sustainability ambition levels and everything else, that can sheet market is now growing a lot. The same for ABS and automotive work is also growing substantially. So I think -- the amount of investment needed in U.S. in future rolled products is also growing in a very material way.

And the way they're putting demands on products from other countries, you mentioned China and so forth. Are those stable or they come and go? And what does that differ for you?

No, I think the antidumping duties that are in place against countries such as China, that's the question?

Yes, yes.

They last for 5 years at a time, and they're also renewed every 5 years as well. And at least the experience we have on all these antidumping duties, they last many, many, many years. So you think they're going to stay for a bit. I hope they're going to say it.

Okay. Well, more questions for you later on, but for now thank you, Patrick. Okay. Thank you. So with that, we're going to move straight into our next speaker, Colin Xu, who will be with us on film to talk both about Asia and also the focus on sustainability in China. So please roll the film.

Good afternoon, everybody. I'm Colin so. I've been with Granges since 2001 and have been the President of Asia and leading our Shanghai organization since 2011. It's my pleasure to give you an overview of Granges Asia and our business and priority here. Grand East Asia has 1 production site located in Shanghai, China. Most of the value chain and supporting functions are in the location as well as the research and innovation. It's important to be close to our key customers so that we have 3 sales offices in the key markets. Currently, we have 512 employees of Granges Asia team. The plant is equipped with 120,000 tonne capacity for the road aluminum strip and for us. Grands Asia was established as a greenfield in 1996. We have experienced a very strong value creation period in the past 2 decades, up until 2018. After 2018, we have seen our local market mature and the local competition increasing, partly as a result of increased tariffs on imports to a certain region locking capacity into China. This has resulted in the lower sales and margins. We maintained the leadership in the automotive heat exchanger market. We have seen the promising opportunities in several potential natures and was to invest in future. We do have a very strong and stable team in Asia. Now we have a new plan to address the future value creation and further improve performance. We'll talk about later. Granges Asia used to have a single niche strategy focused on the automotive heat exchanger market. In past years, we still retain our focus and continue being the leader while trying to diversify into the other adjacent niches. For example, we gained strong position in the wind power had exchange segment through the innovative solution and it will continue to grow, being driven by the green energy sector growth. Most recently, we invest in the capability of doing battery catechol in the current footprint is to catch the opportunity from electrification. Fredrik Spens will come back and talk more about this very promising market segment later. In our market, the automotive heat exchanger segment, its dynamics continue being challenging. Overcapacity will remain for some years as a result of increasing trade restrictions. While we see there might be relief from the turning price trend in the market. We see the market price first time turn it up after 2 decades downward trend. It's related to an inflated cost but a son of bottom-out. We expect that price will likely be stable in the coming years, and Granges will continue to enjoy price premium over the market average. On demand side, automotive markets seem to be on track, recovering back to the pre-COVIDp phase. In summary, the market is still challenging, but with more positive signs. In this challenging market environment, it is extremely important to work on the improvement side and reduce cost by being better at what you do. In past years, we have managed to reduce the viral production cost by 6% per year, even though there were high inflation pressure. Digitalization is a very important driver integrated in our improvement. Because of the challenges on the market and the need for cost improvement. Asia has become the leader in digitalization in Granges. The main efforts are made with systematic approach and suitable digital tools to optimize our production process. There are many good developments in the past years. For example, the heat treatment process optimization with deep learning model and smart maintenance, monitoring and diagnostic functions and so on. Sustainability is getting increasingly important. We have seen the big changes in China, especially after 2060 carbon neutral strategy is announced. We have seen also increasing projects with the former request on sustainability performance from our customers. Granges Asia may move ahead the most aluminum companies in Asia and in China were among the very first few in China in aluminum industry being certified ASI, None of our competitors in China has done that yet. Recordable accident has been reduced by 66% per milling hour, reflecting strong focus and the care of our people. And we are the safety leader in our group, by the way. All in all, Granges Asia with our leadership in sustainability, we are very well prepared here. At the beginning, I talked about our strong and stable team in greens. Here, I just show 1 most recent example. In April and May, Shanghai production facility was in the Covid-19 locked down, and all may know the lockdown covers almost entire Shanghai area. Over 200 employees voluntarily lived and worked at the facility to secure our operation. We had a team inside and outside facility work together during such extraordinary period. The San team has been staying at a very low turnover rate in the past decades. And more than half of our employees served in company over 10 years. We got out of tough situation and back to normal in June eventually, that we managed to keep the operation running, and this circumstance is an extraordinary achievement by our external people. Now to look forward, we have a plan in Asia to improve value creation. From growth perspective, beside optimizing our core business in automotive ethane. We aim to grow in selected low risk and low CapEx niches. Regarding improvement, we give the highest priority to keep the best safety performance in Granges Asia. And we -- secondarily, we'll continue integrating digitalization into Granges production system to more effectively and innovatively work with continuous improvement. Our perspective of sourcing green and recycle, we put a lot of focus on building up partnership in the metal value chain. For example, closed-loop recycling with our customers and facilitate partnership in scrap value chain in broader external market. Operating in such high carbon emission context in China, we believe the mentioned actions essential to achieve the step reduction of carbon mission. At the end, to conclude Asia session, I would phrase in this way, we expect a more stabilized market in automotive exchange business. We plan to get back to better value creation by growing in selected niches and strong focus on improvement. We aim to develop strategic strength of sustainability, and we focus mostly on sourcing and recycling in coming years. Last but not least, we believe, with a strong team in Asia, our plan will likely can be accomplished. Now I will continue to talk about the global automotive heater changer market. Automotive heat exchanger material is 1 of the most important market segment for Granges. We have a long history, focusing on this niche. Granges offers a complete set of material for all type of teachers in either internal combustion engine or the electrical vehicles. The heat exchanges are critical components in different type of the thermal management system such as the powertrain cooling, climate control transmission oil cooling or better cooling and so on. Granges is the market leader of road aluminum for automotive heat change, and our global market share today is about 25%. In Europe and Asia, we have the production footprint to directly service the customer in the region, and we have the #1 position in both of these markets. In Americas, we only have limited production in the location -- and this market instead supplied from Europe and Asia, and we have the #2 position there. The latest outlook of automotive heat exchanger material is positive with 6% average annual growth and all main markets globally generally follow the same trend. The most important growth drivers are the light vehicle production or the number of costs produced together with electrification of the car industry. From internal combustion engine to electrical vehicle requirements of the summer measure systems are different. Generally speaking, the heat malt and the working temperature requirements are very different. Most of the traditional heat changes designed in the EV are quite similar, actually, while there are new types of heat exchanges in the EV, such as the chiller, the liquid crude condenser, the pay type of [ heat exchangers ] for the electronics cooling and the better cooling plate and so on. The architecture of the EV summer management system is still under development. So, so far, we see the liquid cooling system is a mainstream and above mentioned heat changes all the relevant. We typically divide market into traditional heat-exchanges and the battery it changes. But it is very important to point out an electrical vehicle used the traditional heat exchanger material as well, but not only the battery heat-exchanger. Here is the illustration of thermal management system in electrical vehicle. In the system, we still consider traditional heat change designs, while also some new types of tech changes, which are highlighted, they are mainly included in the battery cooling circuit. We can see the battery cooling plate is quite commonly placed beneath the battery pack or the bonds. The design contains the sections in which a livid flows to manage the battery temperature. The battery cooling plate normally requires a thicker and a bigger area of the aluminum plate, Thus, the design drives the much -- quite much weight demand of heat exchanger material. Thermal Management system architecture being developed and there are still different type of the solution and standard we use. It's likely the industry will come in one way over time. but we still expect to have to develop new products to meet some new customer needs. Looking at the content per vehicle, the amount of material for traditional heat exchanges slightly lower in the EV compared with but that in battery cooling part has a sharp increase, resulting in 80% of total content with current battery at a change in the solution. The main driver of the content per vehicle is the battery cooling plate. We expect in the long run, it may further increase considering that liquid cooling is getting more dominant, the area increased to couple with the large better packs and the quantity of unit increase to cope with the faster charging. Forecast of the total heat exchanger material consumption has a similar picture as the unit level study. From 2021 base, it's about a 6% average growth rate in 2028. Obviously, the better cooling heat exchanger will drive the growth with 31% growth rate. In addition to this material demand for traditional heat changes is expected to have a steady growth over coming years. It's not automatically that Granges can achieve growth following the material demand from EV, especially better cooling plate. Their challenges t capture its growth. For example, the summer management system, as I mentioned, is still under development. We have seen the larger better packs that requires much wider road aluminum products than today. and we have limitations in our existing rolling mills. We have also seen some new players joining the value chain, many of them are from the battery manufacturing site. It adds the complexity in terms of the contacts, development processes and the other commercial practices. Finally, the technology development is not 100% affirmative. Even though we believe brazing, which is that Granges is really good at, will remain the mainstream technology. Out there, we have also seen some new designs that better cooling parts more like a structural components and they are also alternative joining technologies that require less of the Granges material. With all that said, we see the traditional heat exchange segment will remain large and steady in future. It's very important that we do have a strong foundation as brand is already well positioned as the leader. Battery cooling heat exchanger represents the large growth opportunity. It requires product development with partly new customers. And Granges with our leading position of aluminum technology should have a good chance to capture the growth. As we know, more car makers have set decarbonization targets which drives the new requirements for the low-carbon aluminum products and increased recycling. Granges has already acted the forefront of the industry and also set for ambitious decarbonization targets. Such a leading position will show successful business development following the mega trend. Okay. Finally, to conclude, Granges is the market leader in automotive heat exchanger material with a global share of 25%. Electrification provides a large opportunity with content per vehicle increasing with up to 80%. And battery cooling plate represents the large growth potential and requires development for new products and partly new customers. As market technology and sustainability leader, Granges is well positioned to take part of future market growth.

So. Super interesting market update from China and also to hear better on sustainability. More on this in the Q&A session a little bit later on. Now it's time to move to Europe. And for that, we will have Fredrik Spens, President of Ganges Europe with us on stage. A warm welcome.

Thank you, Anna. Yes. Thank you. And I would like to very much look forward to give you now on Granges Europe and the direction going forward. Let's start with who we are I think I need some help Granges Europe. Who are we? Yes, Granges Europe is serving the market from 2 large business units, 1 located in Finspang, Sweden and 1 in [indiscernible] Poland. We also have a small powder facility in France. As we speak, we are having a lot of investments going on in the region, adding capacities and capabilities up to 60,000 tonnes. In the region, we are 1,350 people, vast majority located at the 2 big units in Finspang and in Konin, covering the competencies of sales, R&I, production, you could say all that is needed set for running a business. But where are we now? First of all, our financial performance are not meeting the Granges group return on capital employed targets. That is naturally linked to the large investments that are under construction, coming online later this year and next year. The market, on the other hand, is turning towards green. Why so? Yes, referring to the markets where we are active and the earlier trends we heard here before on electrification, regionalization and the importance of sustainability in the market segments we're active is really pushing this market trend towards green for us in Granges Europe. Where do we come from? Granges Europe come from a situation with more than 90% of the business into automotive heat exchanger. But with the acquisition of Granges Konin and the subsequent investments at the 2 big locations, we are turning to a much more diversified portfolio. And the plan in short is, of course, then to restore good value creation by finalizing, utilizing and optimizing the new capacities coming on board. -- and also move into new segments. I said diversified portfolio. Let's have a look. As you can see, clearly, automotive heat exchanger, we are having a leading position. We also now could add leading positions like in specialty packaging market, -- we are also entering into new very high-growth segments like automotive structures. As I said here, diversification is of importance. And it's linked, of course, to the investment of Granges Konin. Let's have a little bit more of a deep look into the combination of Granges Konin, Granges Finspang, forming the new Granges Europe and how the combination is stronger than 1 each part alone. And to start that, I think it's good to take the perspective of what do each part contribute with. Yes, Granges Finspang, strong automotive know-how and position a technical leadership. And then when you combine that with a much more diverse product portfolio and the way you're working around that, combined with different capabilities, high-strength materials, adding as well the recycling capabilities. Then when you optimize this together larger capabilities or, let's say, different capabilities, a more comprehensive offer for the customer at the end, you buy that are enlarging the market. And when you are doing that and combine and optimizing this with the volumes, the mix in each plant across the plants, we are creating higher average utilization and as well higher operational flexibility. But it's not only about that. It's also about scale. And here, I mean the combination of the different strengths, talking about sales, segment know-how, material know-how, process know-how. And with this combination, and then on top of that, add the ingredient of the investments that are under construction as we speak. The [ coning ] expansion throughout the value chain from new casting Center, rolling mill, finishing, adding capabilities into battery casing, battery cooling plate, as you heard from Colin here earlier. And then on the [ Finspan ] side, additional 20,000 tonnes, new cold rolling mill with the capabilities, meeting some of the new segments linked to the battery, battery foil, but also battery casing. Both also have in common that they improve our sustainability position. It's, of course, super important how these investments are then matched towards the markets where we're active today and the markets that we are targeting. Let's have a look. The growth targeted in existing and new market segments is then further diversified [ Polo ], yes. If we have automotive has, specialty packaging and the other niches is giving a stable growth or above average GDP Combining that with the new market segments, the structural products, the battery materials and the small but still very interesting ingredient of powder metallurgy targeting towards additive manufacturing. But all this together is then, of course, creating a new portfolio ahead of us. And how to compete in this market. And if I should select 1 thing that is in common, regardless of segment where we are acting, that is, of course, I would say, the sustainability performance and position, whereas we have an industry-leading carbon footprint in Europe, we have momentum in the improvement. I mean, look at Granges Finspan, for instance, that have a significant lower carbon footprint compared to average peers in Europe. Granges Konin coming in and adding the competence and the capabilities of further recycling, as you heard about here earlier today, very important going forward. And of course, the importance of being fact-based and have the trajectory on the ASI and the third-party verification. If we summarize. We will grow by finalizing and utilizing new capacity. We will improve by optimizing within and in between the plants. And we will further decarbonize by clearly increased recycling and thereby, together with partners, suppliers, customers, improve our carbon footprint and the sustainability growth going forward even more. So I don't know.

Yes. Thank you.

Thank you.

I recognize what you talk about since I got the enormous pleasure of visiting your old home turf in Finspang and the Granges factory there. And you -- because you love that factory up until 2022 when you took on the role as President getting is Europe, right? So -- when I was there, I got to me, people both on the factory side and the innovation side. So do you want to take a look?

Yes, let's have a look.

Okay. Let's roll the film. [Presentation]

We saw a few examples of the investments that you've been talking about and that we've been talking about during the day here. What will they hopefully lead to?

But they are a very much -- let's say, equipped in order to meet the both existing, but also new market segments for us that will be important for us in the future, absolutely.

So -- and it's extremely thin foil that we saw here now and that is on the way, it's on the market already. I mean, in -- how difficult has that been to reach this point of the battery foil?

But of course, this kind of high demanding product, it's a lot of process development that lays behind that you need the equipment, but you need as well, the people in order to find a way how to fine-tune this in the best portable way. So some time it has taken.

It has taken some time. And it's quite remarkable, right, the thinness of this foil, which is of great importance. And the reason I mention this again is that, of course, it's of importance to the battery that's going to be in our electric vehicles, that's hopefully going to change the way we move ourselves in the world and, therefore, also the sustainability of the planet and for our sakes. And before we go into details and talk more about the battery materials, we want to show you a film we did last week when I met the CEO of Northvolt, Peter Carlsson, and he talked about just that, how the battery material market is. Here we go. [Presentation]

Peter Carlsson was fairly clear that the need for aluminum will certainly be there in this electrified era as well. So please, Fredrik, now help us understand more concerning the materials for batteries.

Thank you. I will certainly do. Yes, first of all, I was at -- it strikes me when listening to this how important and the demand that is on the sustainability and the carbon footprint requirement. We hear it from all our customers. And that's a challenge that we really would like to take on. The battery market and how it could be an opportunity for Gränges growth going forward. First of all, aluminum is key material for the battery industry. Let's have a look just only on the flat-rolled product applications. We have the cathode foil with a high demand zone. We have the casing. We have surrounding the system -- surrounding the cells, the system itself, we have the home turf of battery cooling plate, heat exchanger, in fact. On top of that, we have the battery module, the box system. So if we conclude that aluminum is relevant and key for the battery, is the market growing? Yes, let's have a look on the lithium-ion battery demand for the next 10 years or so. There is in terms of gigawatt hours a large number of factors that is coming online. That is how this demand is, let's say, measured. No doubt that there is a growth. But more relevant to Gränges is to see how does that play into the different applications that are relevant for us, the flat-rolled products. And here, we could see that the whole span here from battery cathode foil, battery casing, battery box and so forth, is having round about a growth of annually 30% on a global scale. Of course, this is very important for us when we have all the dialogues with the customers to understand how we should scale in our needed demands going forward. What is as well to be recognized here is in 3 out of 5 of those application service, we have commercial deliveries as we speak. I think as well, it's important to take a regional perspective on what's happening here. And that is also referring back to earlier comments and discussions around the realization and so forth. We could see that we have a supply chain developed in Asia that is more developed. Having the consequence that there are applications that are exported from Asia into Europe into U.S. But now the supply chain is under transition. There is a lack of capacity in the value chains in Europe and in U.S., so investments are taking place. There will be a constraint of capacity, of course, creating opportunities for Gränges as part of this value chain. If we said on the last page that it was an average growth annually on 30% on, some occasions on these applications, it's up to 50% annually, on the very same market in, for instance, Europe and U.S. But even more important for us maybe is, okay, when we meet with all the battery manufacturers today, what is the common understanding? Are we relevant to them? And there are 3 things that sticks out, I would say. First of all, we have a global production footprint. That is importance, meaning that, for instance, already 2024, we will be the only flat-roll producer that will be able to offer battery cathode foil in all 3 regions. Of course, our technology leadership within the material aluminum, the process know-how, how we work in between and within the plants in order to develop these kind of capabilities is a great importance, both for the short but mid- and long-term. And last but not least, to continue our industrial leadership on sustainability is super clear that is more or less, as I heard earlier here, like a quality request. We need to have that, we need to be #1 in this area. What makes me maybe very personally positive to this momentum that we are in right now? That is the following: Just have a quick snapshot on what has happened the last 24 months. We acquired Gränges Konin, added new capabilities, creating this more comprehensive offer, as I talked about, at a larger market. And then we have the Gränges investments in cathode foil in Finspång, in Shanghai, and that we now, in fact, have close to 20,000 tonnes contract on casing. We have commercial delivery on battery cathode foil and we are as the first producer investing in battery cathode foil in U.S. that we heard from Patrick earlier here. So I will say we have the momentum, and we need to increase the speed even further. Let's summarize. Aluminum is key for the battery material for battery industry. And there is a growth taking place. There is as well a regional transition. So when we sum that up, it means opportunities for the whole of Gränges and then specifically also to Gränges U.S. and Gränges Europe. And of course, our global reach, combined with our technical strengths and our sustainability leadership is of great importance when we as we will have a dedicated path into this fast-growing segment.

Brilliant. Would you say, Fredrik, that there is more demand than supply?

Yes.

And while -- is that a good thing or bad thing for you?

But it's -- I mean, you need to be on your toes to have the, let's say, ear to the market to see where it is heading. You need to, let's say, put your focus exactly right every time and moment to find the right partners in order to help the value chain in the best possible way and support your company.

So this brings us to the next topic on our agenda, actually, the one that Jorgen started with this morning, the people. And I went to Finspång, and let's go back there because we had a conversation regarding people and culture, which might just be the most important thing going forward. And we've stressed this a lot of times, the competence and the skill. And I talked to people who work there and worked there for like 20 years or so, whose parents worked there and whose grandparents worked there. And I think that is pretty cool, and that says something about who Gränges are. So let's return to Finspång and talk about people. [Presentation]

So thank you. Please take a stand over there. And here, we have the whole group and now our second Q&A session. Are you ready?

Absolutely.

Are you ready? So -- I need the iPad as well. That would be a good thing, actually helps. So let's start with the audience. Do we have any questions here? Yes, go ahead.

[indiscernible]. Maybe I'll start with Europe. When you acquired Konin, there was a lot of discussion about potential to improve the yield there, working with more alloys, et cetera, et cetera. Where are you in terms of improving those kind of measures in Konin right now? And maybe if you could mention a bit on how you're seeing sort of synergies playing out because we haven't really heard that much about it?

Thank you for the question. First of all, when it comes to, as you mentioned, the yield and these kind of things, I connect that to what I presented about scale because it's about utilizing the different competencies. And for instance, the process know-how linked, for instance, to certain products. So we have started to deploy that. We have also within Gränges this Gränges production system that we are as well introducing to Gränges Konin. But when we do that, at the same time, we learned from Gränges Konin on both. So it's going really both directions. And then when it comes to -- yes, synergies, I would say it's connected to what early mentioned here. It's about -- I mean, to make this combination even stronger together with creating the prerequisites to create this enlarged market, more comprehensive offer for the customer, combined with this scaling them, the different competences. It goes from material know-how, process know-how, sales and sourcing and so forth, of course. So we are on our way.

So Jorgen would you like to comment a little bit on the culture that we just heard about film? And we talked about how the different continents or places have their own kind of setup, but still, it's one company. And how important is that for you going forward?

Me? Yes, for me, it's super important. I already said so. And I think that is a bit of the challenge and also the balance, as you spoke about before, in a company like this is you got to -- you cannot want or try to make everything the same across the world. But there are some things that ought to be the same. And what we're trying to do now is pick the things that we really want to be the same, such as the focus on sustainability, focus and safety also. And the focus on investment for sustainable growth, those things. And also a bit of a family feeling while at the same letting, I don't know, Polish people will be Polish people, and letting [indiscernible] people and [indiscernible] Chinese people be that. So that's always a balance, but we think -- I was glad to hear you, Patrick, say, today that you find that we've struck a good balance there in the past and hopefully also in the future.

So it's full speed ahead. Do you think you have the capacity, I mean, with -- when it comes to people and functions to take on the speed ahead?

Yes, I don't worry about that at all, to be honest. I mean, we have these 3 regions. The regions have to worry about that. So you...

You just leave that to them? Okay. So here's 2 from Mats Liss to the President of Americas, do you lack U.S. hot roll capacity to reach the full market opportunity?

Good question. One of the reasons we're investing, of course, in the 2 new recycling centers is to make sure we have the capacity going forward. And as I said earlier, we have outsourced some of that volume. But with the investments we're making, we feel we have a balanced type of capacity between upstream and downstream assets.

Super. Another question for you from [indiscernible] to -- how will a recession in the U.S. impact volumes and margins? That's a tricky one.

That's a very big question, of course. A, we're not sure in recessions when they're going to come and if they're going to come. But I think overall in the U.S. Our portfolio is balanced between different market segments, and we do have the ability to switch between market segments quite fast, in fact. So if there is a downturn in one market, we can quickly switch to other mart segments as well. We have the flexibility to do that.

Somebody asked me on the break for -- I think it was you, for a good concrete example of how we can use the different segments to flex back and forth. And the good example is flex back and battery foil because that utilizes some of the same equipment. And that means we can enter in the market which has long lead times, while having a return on those assets already day 1, right? And that's a strength that you can have if you have many segments. We have other examples, but that's a good one to answer your question.

Another question here from the audience?

Yes, so to follow up on that a little bit...

A bit closer, please?

Yes. So you expect very good growth both in electric vehicles also in the battery side. So do you have enough capacity? And how would you cater for that growth, say, 3, 5 years ahead?

I would rather have too little capacity than too much. It's good. We should -- in our business, if you have a little bit too little capacity and just enough but not quite, then you also have a better pricing position. And that's what we like. That's also what the situation has been in the U.S. now for several years. Look at the results.

And also -- so you think you will be able to switch into more high-growth area with probably better profitability to improve?

Yes. We think we will absolutely improve our profitability. When it comes to battery, the customer is, of course, asking that same question because they have these enormous growth rates, and they want to tie up the capacity upstream, right? But it's fortunate in that respect for us that, that is a modular business. We can add on the capacity in relatively small increments with relatively low CapEx. And we have a lot of -- God's Green Earth still available in Arkansas or in else in [indiscernible] land. And so I guess we can expand there also.

Then a question for the U.S. operations. You said that you're working more with sort of longer lead times now -- sorry, not longer lead times, with contracts where you have signed up for 2023 and '24. So do you see risks there as well that you lock up your product capacity? And how much of the volume do you want to sell out?

Sure. I think that's a constant evaluation. And it's not just recently, we've gone into long-term contracts. That's been a strategy for the last 5 or 6 years. But I think to answer your question, it's a constant evaluation of the customer and the market segmentation that we're looking into as well.

Any other ones in the audience? Yes. Here.

Karl Bokvist, ABG. So on the value chain within battery materials to electric vehicles. Do you feel that you have to approach different kinds of customers, distributors and so on compared to when you're selling regular heat exchangers to your automotive customers today?

I could start. I mean, yes, there is a little bit of a difference. It's as well. I mean, it's also what I meet here is a lot of questions about the importance of, yes, being having global reach, but also the different applications that they would like to see us being able to create a comprehensive offer for them. That's a couple of the comments upon that.

The development chain is going to be different for the different applications that you went through before. If you take battery foil, goes to the cell makers. The cell makers can be cell makers like Northvolt or they can be OEMs even, right? So carmakers, Tesla, for instance, is an example of a carmaker that makes cells. So if you going into casing, it's different. If you go into battery box materials or battery cooling materials, it's different again. But I think we're going to see a bit of an integration backwards of the OEMs into battery-related products and systems because that's part of their value add now instead of the engines that they used to make, right? So I think there's going to be a bit of that. That's exciting. It also makes it a bit fun, right? I mean, new customers, new value chains, that creates opportunities, challenges, too.

Yes. Because my follow-up was really how can you -- or do you feel that you can leverage your existing strong relationship with Tier 1 suppliers and auto OEMs when you enter these new market applications?

I think it's a super big strength of Gränges with the OEM experience with the OEM relations we have in the battery market is your answer to that.

And we have to hear how much of Gränges volumes go to battery production today and what might be the main threats.

Zero, so there's no threat.

And how much it goes in -- of your volume goes to battery production?

Zero, so there's no threat.

Got you. So someone wants to know [indiscernible] wants to know the aluminum price is now down [ 32% ] from the end of quarter 1 and below year-end. Based on this, is it right to assume reversal of inventory increasing Quarter 1?

This sounds like a CFO question.

Yes. I think it's like very much fair to assume that we will see a reverse of the effect that we saw when the aluminum price went up. We will see the reverse effect when the aluminum price goes down. In terms of timing, it's not 1:1 because it takes 2 to 3 months before we see the effects in our cash flow.

Okay. Charles [indiscernible] says that he struggles to understand why Europe have the lowest performance in the group. Is there something different here compared to other regions?

Fredrik, you wanted to answer?

You want me to answer? I mean, the logic reason, as I already explained, is, of course, all the investments that are close to be final. That is, of course, making a pressure on return on capital employed. So it's very much to follow our plan going forward and to finalize, utilize and optimize these capacities and capabilities.

So let's see if we have -- I thought there was one on Asian here, that's -- you probably answered that already then. Anyone in here? No. What are you doing in terms of reducing work -- working capital? That's the last one then.

I think that if we look at our working capital trends, we have seen a quite good improvement over the years. But right now, we have received new challenges because of the very high metal prices. I'm not going to tell you exactly what we're doing, but I can assure you and everyone in here that it's a very high focus of Gränges be very much on top of our working capital development, not the least at these metal price levels.

So -- no more questions. There one short one then because we have to sum up.

Yes. So very short. In the Polish operations and in the U.S. operation, you have many different customer segments and you are good at moving capacity between them. So what are you doing in the Finspång operation and Shanghai to increase that capability also there?

I can start from Finspång perspective. I mean, I know Oskar mentioned here earlier today about, I mean, how during, let's say, quarter 1, it was helped by the fact that we were, let's say, changing the mix, and that was happening in different plants, for instance, in Finspång. So of course, it's a target to create the capabilities that you -- in each and every plant can have that kind of diversification. That's important.

And then Shangai also investing in another slow segments, but it's going -- it takes time to do those things, and it takes time to build up customer relationships as well. So it's a challenge, but something we're working on, if I put it like that.

Okay. If there are any more questions afterwards, I'm sure you're willing to answer them as well. They can always reach out to you, right, Oskar, to get the right help there. So -- it's only up to you, now, Jorgen, to sum up. So the rest of you, thank you very much, Fredrik Sofia, Patrick, Oskar. And Jorgen, just a couple of final words then from you.

Sure. I promised hastily that I would be able to summarize this in 2 minutes, and I'm not sure that's going to work exactly, but I'm going to take you through it really quickly because I think it's after all a pretty simple story. You asked on about my impressions of Gränges, my impressions are very favorable. It's a global company, high performing. We've diversified enormously over the years. We're an entrepreneurial company, and you heard a little bit about the people, that's very nice, and of course, sustainability. And despite all this diversity, we're also focused because you heard us speak today about very selected niches that we kind of pick out of the market, and I think that's a key to success in this industry. We talked about the strong global team. It's a global team. So it's a strong team and as you can see here in Americas, in Europe, also in Asia, but it is also a global team where you can -- for instance, in battery foil that we spoke a lot today, there is a strong cooperation and a strong sense also from our customers, that's part of our strength, also, of course, when it comes to customer relations. Some of these customers are very, very global companies and they expect global service. They want us to show up in Japan on Wednesday, and they want us to show up in the U.S. on Thursday, and that's not such an easy thing to do. We have a financially attractive business model I find. It's cash generative. We have hidden that successfully by investing all the cash that we generate into acquisitions and new capacity, but that has also generated quite a lot of growth. We have stable margins, much more stable margins than I would have expected when I see our customer portfolio and their strength relative to ours. And we have, with a slight exception of the last couple of years, generated overall very, very strong value creation, return on capital way in excess of our cost of capital. That was especially noticeable of course, in the period until 2018. It's been a little bit less noticeable since where we've grown our capital with a vengeance, I guess, you could say, but hadn't increased our profit. But I guess now it's time then, right? To start growing from this level and forward. We will be helped, we believe, in this by the 3 -- these triple trends of sustainability, electrification, regionalization. And I hope that you got out of the regional presentation, a little bit more concrete examples of how that relates to their business. These things are catchwords, buzzwords, it's true, but they're also very concrete things in our business that play a big role when we meet our customers, not the least. This will generate, we believe, growth, and we have some segments where it really generates such as an HVAC and Auto HEX course, in this battery segment. But we also have segments to complement those. And I hope that you saw not the least in Patrick's presentation regarding your questions here and comments about Konin and so on, the value of having a mix in this business so that you can flex a little bit the shift from one foot to the other so and I think we're learning to do that better. And like you said, Patrick, that it starts to drop off, that's a skill also, right? So you need to develop that skill. And I think we're well on the way to that. We have a plan, and it's a simple plan. We need to restore our leading profitability, and that's going to happen mainly by finalizing our investment program, utilizing it fully and optimize it, which is a natural thing to want to do after big expansion phase like we've had. The second thing is really going to invest and work hard on building the world's best aluminum company here, aluminum technology company by working on the improve, on the innovative grow and on the source [indiscernible] recycle in partnerships, both with upstream partners in energy and metal and also with our customers. And finally, we're going to take the proceeds of all of that and invest them, and we're going to invest in sustainable growth opportunities and here are some of the themes for that, such as recycling and new segments. So simple plan 1, 2, 3. And with that, we also intend to have a very, very good sustainability performance as we have had, but also going forward, aiming now for carbon neutrality by 2040 and aiming to have tenfold of volumes we had in 2017 in recycling in 2030, right? These are high ambitions. We could stay an okay company, we think by just doing what we do, but we want to become a good company primarily by going through this resource step and go back a little bit to the value creation targets that Oskar showed there before. And we think that with the build step and the invest step on top of can, we get back to really strong long-term profit growth and really strong sustainable value creation. And our target is to build the world's best aluminum technology company, to get to 15% growth and keep it to establish a level of 10% growth in profit, operating profit in this case, over time and to keep it -- and to continue our fast progress towards carbon neutrality in 2040. And in doing so, we intend to build a much stronger company, a better performing company and also a more sustainable company for the future. And that's the plan. How long was that?

That is a brilliant plan to me. So with that, we thank Gränges for your Capital Market's Day. It's been a pleasure working with you. And thank you, audience, brilliant questions. And thank you for watching online. Sorry, we stole a couple of minutes of your afternoon. It's been a pleasure being here today. So thank you very much.

Thank you.

Thank you.