Good morning, ladies and gentlemen, and welcome to this presentation of the first quarter result for Gränges. My name is Jörgen Rosengren. I'm Gränges' CEO, and I'm here with Oskar Hellström, our CFO, and we will be taking you through this presentation today. The first quarter of 2023 is one we're very happy with, we're proud of, and we achieved in this quarter an operating profit on a record level and also quite a strong cash flow. Speaking first about demand, we saw lower demand in the first quarter of this year than we did in the very strong first quarter of last year.
We compensated for that, slightly lower demand then by high sales activity and reached, therefore, marked recovery actually of about 10% relative to the last quarter of last year, 220,000 tons, which is then about 5% down from the same quarter last year. We also made good progress on our strategic plan for sustainable growth, which we call Navigate, both on the commercial parts of it, but also on the sustainability part of it, which I'll also talk a little bit more about in a minute.
To make the investments in that plan, we also have, of course, to be capital efficient where we can, and therefore it's good to see that in the quarter we had a good reduction of working capital intensity, which drove a strong cash flow and also an improved leverage. Then, of course, we're in inflation times, so we did see quite large cost increases in the quarter, but managed to offset those with price and with productivity efforts. The result of all of this, of course, is that we were able then to produce our best ever adjusted operating profit of SEK 401 million as compared to SEK 331 last year.
Looking then a little bit further into the market, we had sequential volume recovery, like I said before, but a year-over-year decline. The demand was different in our different segments and also in our different reporting areas. Firstly, in Americas then, we had a rather strong decline in HVAC where our customers are shifting foot, you could say, from growth and trying to get all the material that they possibly can to destocking and a more conservative approach to the market, which we're able to partly offset with sales effort. In packaging, the story is a little bit different. There, our customers saw a large influx of very low-priced materials from Asia competing with them, and that led them to reduce their orders to us, of course.
There also, we were able to, by sales effort, almost fully offset that and had flat sales more or less. Automotive was up strongly. The automotive up is a theme that goes across our two segments, where you can say that the last year's difficulty in the semiconductor supply and other supply chain issues now seem to be fully resolved, and automotive production is running at a good clip, which then makes us be able to sell then well into that segment also. In total, in the U.S., and Mexico, North America, we had about 6% then volume decline, whereas in Eurasia, the volume decline was 4%. There the story is the same in automotive, strong growth, both actually in Europe and in China.
We continue to see a weakness in the other segments, mainly in Europe then, where there is large market inventory that we're still working down from last year. In total for Gränges then, strong growth in automotive, 14%, other segments down variously, and a net reduction then of our sales volume by about 5% relative to 2022. Turning to the Navigate plan, we made several important advances in the quarter. One of the most exciting ones is that we entered into an agreement to create a joint venture, a strategic partnership, in the Yunnan Province in China, where we will build the recycling and casting operations together with the Shandong Innovation Group.
This venture enables us to secure access to low carbon primary aluminum and renewable energy. In fact, over time, we intend to entirely phase out usage of coal-based aluminum in China, in our operations there, in the favor of wind power, sorry, solar power and hydropower-based aluminum, which will then drive a dramatic reduction of carbon footprint by 2025, but also enable us to commercially meet the very strong demand that there is now for green aluminum solutions in the Asian market, not the least driven, of course, by the strong growth of the electric and the battery-driven car industry in Asia in general, and in China in particular.
We're working on that as well because part of the long-term growth hopes for Gränges center on the electrification of the, of the automotive or the transportation industry. There we are making continuing investments to meet a growing demand for battery components and also for electric vehicle components worldwide. We started the sales of such components in the last year in Asia, and we're seeing a very strong interest from battery makers and from car makers, and also from tier one suppliers for a number of product categories. I could speak for hours about this, but one of those product categories, and a very exciting one, is what we call battery cathode foil. There we're progressing as planned. We launched this product in Asia in 2022.
We're launching it in Europe this year, we will launch it next year in Americas. We also inaugurated a new production facility in the quarter in Europe, also announced an investment, a further investment in Europe then, which will double our capacity in this particular product category in Europe from 2025 and out. You can see here on the picture some of the new equipment, glistening there and, getting ready to serve customers. Another important step is that in the quarter we completed on time the very important investment in the casting capacity and recycling capacity in Huntington, in Tennessee, in the U.S. It was inaugurated in February, as you can see in the picture, with a small ceremony.
More important maybe is that we had a very successful ramp-up during the first quarter, and it is now operating at a good capacity level and will had an impact on earnings in the first quarter, but will have a very positive impact on earnings, on cash flow, and also on our recycling and carbon footprint from the second quarter and out. This is a very important strategic investment for us into recycling, and also, a very strong contributor to our strong sustainability performance in the quarter and also we hope for the future. Therefore, we're also planning a second investment into a second recycling and casting center, which will be completed, we hope, in 2024, at the end of that year.
It will be fully powered by renewable energy and represent a good step forward for us when it comes to supplying green aluminum solutions also to our customers in the Americas. Speaking of sustainability, we had a good performance in the quarter, as we've had now for several years. The thing that stands out the most perhaps is that we had all-time high recycling volume and share of recycled aluminum in the quarter through various successful circularity initiatives, not the least, the casting and recycling center I just spoke about, but also many other things, and reached actually a recycled , a share of sourced recycled aluminum of 38% relative to 31% last year, and relative to 11% when we started measuring this thing in 2017. That's a very, very good development.
We also had record low Scope 1 and 2 emissions. Scope 1 and 2 emissions are the emissions that are related to our own operations and our own energy usage. There we shifted over actually to renewable energy in Asia from coal-based electricity, and thereby were able to reach a record low Scope 1 and 2 emissions level, as it says here on this page. Scope 3 emissions also improved in many areas, but were flat overall, and that is mainly due to the phase out of low carbon Russian material, which for ethical and other reasons we don't feel we can continue to use.
Despite that negative effect then we had a flat carbon emissions intensity year-on-year, and it is down about 20% from the level we were at in 2017. Of course, we intend to continue to reduce it also going forward because we have set a target to be carbon neutral by 2014. The two things I've just spoken about, the strategic partnership in Asia and the new recycling center in Americas are quite important steps towards that carbon neutrality. Going back to financials for a moment then, we feel that we were able to offset with flexibility the various challenges we were faced with during the quarter.
That's actually part also of our Navigate plan for sustainable growth, to be able to reduce earnings volatility with increased flexibility, so to speak, no matter what the market does. In the first quarter, we were able to offset demand, which was weak, relative to the very strong quarter in the first quarter of 2022. We were able to offset that weakness by mainly new business, but also by reducing the backlog that we built up during 2022. We were also able to offset the inflation-driven cost increases, which were quite large, and in fact to more than offset them by productivity efforts and by price increases. We also had some other head, tailwinds.
As a result of all that, we reached our best ever adjusted operating profit in a climate of significantly weaker demand, which we think is actually quite well done. To go a little bit more into the details of this financial performance, I'm going to ask Oskar to take us through that. Go ahead, Oskar.
Thank you, Jörgen. As we heard earlier, we made our best adjusted operating profit so far in the first quarter, despite the challenging market situation and lower sales volume that Jörgen just mentioned. Higher earnings generated on a lower volume is of course also showing up as improved margins. As you can see on this slide, the EBIT per tonne improved by SEK 700 from SEK 2,600 in Q1 2022 to SEK 3,300 this year. This also means that we continue to gradually move back to historical margin levels. In fact, we must go back to Q2 2016 for an individual quarter with a higher EBIT per tonne than what we recorded in the first quarter this year.
Looking at the individual business areas, we can see that we are improving margins in both Americas and Eurasia, both year-on-year and quarter-over-quarter. The key drivers of the improved profitability are the price increases for several contracts that came into effect in January and the improved productivity. We also had some positive tailwind from currency and energy cost compensation. In terms of capacity utilization, which as you know, is an important driver of profitability for Gränges, we continued to operate below the optimal level. For the group, the capacity utilization was about 80% in Q1. The flip side of this is that there is room for further margin increase from improved utilization. I'll come back and comment more on the individual business areas shortly.
Let's first look at the group financials for first quarter in a bit more detail. Starting with the sales volume, this decreased with about 5% to 120.2 thousand tons, while the net sales decreased by only 2% to SEK 6 billion. The development of the net sales in Q1 is the net effect of the lower sales volume, increased fabrication price, the decreased aluminum price, and positive changes in foreign exchange rates compared with the first quarter last year. Looking at the earnings, the adjusted operating profit increased by 21% to SEK 401 million, which is a new record for Gränges. A key driver behind the year-on-year improvement is that the price adjustments and productivity continue to compensate for the significant external cost increases.
In addition to that, net changes in foreign exchange rates had a positive impact of SEK 63 million in the quarter. This is primarily the effect of the strengthening of the US dollar against the SEK over the last year. The Q1 profit also includes government support of SEK 32 million related to compensation for the high energy prices in Poland in 2022. This will not be a recurring item for the remaining quarters of the year. Depreciation increased within total SEK 22 million. This is primarily related to that we have completed the logistics improvement project in Finspång and then the recycling center in Huntington, as you heard from Jörgen. We started to depreciate these in this year.
There are no items affecting comparability in the quarter, and the reported operating profit is therefore the same as the adjusted operating profit in Q1. The profit for the period increased to SEK 254 million, and earnings per share increased to SEK 2.38 in Q1. Another very positive thing in Q1 is the significantly improved operating cash flow. As you might remember, we typically build working capital in Q1 due to the seasonal increase in business activity from Q4 to Q1. Last year, this build up was further amplified by the dramatic, to say the least, increase in the aluminum price on the back of the start of the war in the Ukraine. This led to a SEK 1.2 billion negative cash flow for Gränges in Q1 2022.
This year, we put a large focus on reducing working capital, that mitigated the seasonal build up, and therefore we ended the quarter with a positive cash flow before financing activities of SEK 287 million, I think that's a great achievement by the Gränges team. As we can see on the next slide, the strong cash flow contributed to keeping the financial net debt stable at SEK 3.9 billion during the first quarter. Driven by the improved earnings, the net debt to EBITDA ratio improved to 1.8, this means that we continued to improve within our target range of one to two times EBITDA.
In the quarter, we also continued to invest in total SEK 203 million in the expansion of the Gränges Group and in key areas such as more sustainable and circular products. The majority of the spend in the quarter relates to the expansion of capacity and capabilities for battery cathode foil in Americas and in Europe, and also to the second of the two recycling centers and casting centers that we are building in Americas. Let's now take a closer look at our business areas. We start with Gränges Americas. As you heard from Jörgen earlier, the market demand in Americas was significantly lower than last year. Despite that we successfully compensated for some of this, the sales volume was down about 6% year-on-year.
On the positive side, productivity improved significantly in Q1, and we continued to improve the operational performance in the Salisbury facility. Due to the lower market demand, the Salisbury output was not a limiting factor for sales in this quarter as it was for the second half of 2022. Despite these challenges, the adjusted operating profit increased to SEK 269 million, which corresponds to an adjusted operating profit per ton of SEK 4,500. This is a very good margin level given the fact that we were only operating at slightly above 80% capacity utilization in Americas in the quarter. We had some help from favorable currency that contributed about SEK 25 million to the earnings compared with last year.
The majority of the year-over-year improvement is related to improved pricing and productivity that managed to fully offset the cost inflation that we continued to experience in Q1. Going forward, we expect to get further positive impact on the cost side from the new recycling and casting center. During the first quarter, as we heard from Jörgen, this has been successfully ramped up, and that means that we expect it to contribute increasingly positively to the earnings in the second quarter. If we continue with Gränges Eurasia, there we also continue to experience a mixed market development in the first quarter, and that resulted in a 3% year-on-year sales volume decline. Demand from automotive customers in Asia primarily was strong then fueled by the backlog.
In total, sales in Asia increased by 15% in the first quarter. This was, however, then offset by 11% lower sales volume in Europe. Similar to the fourth quarter last year, the development in Europe is driven by two key things. First, the general negative market sentiment outside of automotive, and second, that inventory levels at downstream distributors remain on a high level, for instance, general engineering and building and construction products. The tight engineering and B&C market also reduces the possibilities for optimizing metal management, which had a negative impact on the earnings in the quarter. Despite that, the adjusted operating profit for the quarter increased to SEK 171 million. That's corresponding to an adjusted operating profit per tonne of SEK 2,600.
I think we can say that this is driven by hard work with price and productivity improvement, we also get some help from external factors in the quarter. First, we started to get some positive effects from the relief on the European natural gas market as we gradually worked our way through the inventory in the Konin plant. Second, also connected to the energy situation in Poland, we received energy cost compensation, as I mentioned earlier. Finally, net changes in foreign exchange rates had a positive impact on SEK 39 million in the first quarter. With that, I hand over back to Jörgen, who will give you an outlook for the second quarter and the summary of the first quarter. Jörgen.
Thanks, Oskar. Yeah, so it's not the easiest thing to make an outlook in these, this quite turbulent environment, but there is, of course, a high uncertainty in the market in all of our regions. We expect, however, a continued good momentum in automotive year-on-year because of the easing up of the supply chains globally, at least during the second quarter. We expect a soft demand in all other markets, which will then partly offset that. However, we will continue to work on sales efforts to mitigate any shortfall of volume from these things.
Therefore, we're projecting a second quarter volume, which we believe will be in line with roughly or maybe slightly below last year's volume in the second quarter, which means also about the same level as we had in the first quarter of this year. We retain the ambition to continue offsetting any cost increases driven by inflation with productivity improvements and with price increases, and we expect a further positive effect of the recently inaugurated recycling and casting center in Huntington, all forecasts that apply to the second quarter of 2023. We're soon gonna open up for Q&A here. To summarize the quarter, I guess we can say that we had a strong volume recovery in the quarter of about 10% sequentially.
This was despite a significantly lower demand year-on-year than in a very strong first quarter of 2022, which we then were able to partly compensate for by a very active and flexible sales performance. We had good cash flow in the quarter, which was primarily driven by a strong and high level of control of our net working capital. That led to an improvement of our leverage year-on-year and also sequentially, which is quite good. We made good progress on the Navigate plan for sustainable growth with a good reduction of our carbon footprint. We entered into partnership for green aluminum in China. We continued working on the electrification, both on the investment side and on the commercial side.
We made an investment and started in the new recycling and casting center in Huntington, in Tennessee, in the U.S. All of these things are important for our long-term sustainable growth, which is the objective of the Navigate plan. All in all, a lot of this led to very strong profit development in actually both our segments and in total our best ever quarter profit-wise in what we regard as a very tough environment. We forecast then flat volumes for the second quarter of this year and continued offsetting of inflation-driven costs. That summarizes our prepared remarks for today's conference call, and we would like now then to open up for any questions or comments that you may have. Please go ahead.
If you wish to ask a question, please dial star five on your telephone keypad to enter the queue. If you wish to withdraw your question, please dial star five again on your telephone keypad. The next question comes from Gustaf Schwerin from Handelsbanken. Please go ahead.
Yes. Hello, Jörgen and Oskar. I have a few. Can we start by the earnings in Americas, which are quite impressive? I mean, if we look at the volumes quarter-on-quarter, they are relatively stable. You have an extreme step-up in earnings per tonne. I understand the components, the effects we of course have. I mean, can you give us some more color on the constituents? How much mix improved earnings, price, and operational efficiency part, and also the casting center saving. That's the first one.
Yeah. I can start a little bit and comment on the more technical aspects of this, then maybe Jörgen can add if I forget something. I mean, we see a sequentially a very favorable margin development in Americas. We should also note first that, of course, Q4 is the seasonally weakest quarter for Gränges. That is true for Americas, that is true for Eurasia as well, and that goes for both sales volume typically and sort of mix and margins.
If we compare Q1 to Q4, we have a little bit of volume growth, a little bit of mix improvement, but the biggest drivers of the improved earnings are really the price increases because as you know, we have short-term contracts, we have long-term contracts, and many of the long-term contracts, there you adjust prices starting first of January. Of course, we passed first of January, and we have new pricing for many contracts. That's a big driver. In addition, as you may remember, we did not have the best quarter in Q4 from a productivity perspective in Americas.
This quarter is much better and that's much better in our Salisbury facility, where we've struggled a little bit more maybe in the past, but it's also better in the other locations. In addition to that, of course, we have a tailwind from currency, and we start to get some positive impact from the new recycling and casting center there, reducing our cost of materials. That's the drivers. I would say in order of magnitude, price is the largest one, followed by productivity improvements.
Perfect. I mean, when we think about the delta in savings, Q2 versus Q1, I mean, is it two, three times higher? I mean, we know the CapEx, and we know or we can make an assumption on the return on capital employed, but just to get a feeling for how much bigger the savings will be already in the second quarter.
Are you referring to the savings coming from the recycling and casting center then?
Yeah. Yeah.
I think we have previously said that. Okay, first, we need to keep in mind then that the size of the savings are always relative, of course, to the market price if you outsource this production step and based on the current market price, we believe that at run rate, the annual savings of running this recycling and casting center is about $20 million, so about SEK 200 million on full year. That would be then SEK 50 million or so a quarter. Now, we don't expect to get that full benefit necessarily in Q2, but a large part of it, and then we got some benefits already in Q1.
Maybe some SEK 20 million-SEK 30 million sequential improvement from this is what we can expect.
Perfect. Thank you. Then, I have a question on the demand situation outside automotive for Eurasia. I mean, we can see the volumes of course, but, would you say that there are any major changes to underlying demand versus the fourth quarter, or is that hard to call now given the inventory situation?
It depends on what you mean with underlying demand. We can certainly see that there is, production is up, but we can also see that, or we can not see at all what is, going to happen in the fall, right? If you by underlying demand mean consumer demand longer term, we're about equally in the dark as everybody else is there.
That's also I think, part of our ambition going forward is to be able to meet such fluctuations in demand, and not to be the victim of them, so to speak, but rather to meet them with flexibility as we feel we have done during most parts of 2022, perhaps with the exception of the fourth quarter, and as we intend then to do for this year as well.
If I put it this way, the stocking situation, would you say that it's slower than you previously expected?
Are we talking about automotive still or about something else?
About the downstream inventory. I mean, the last time we spoke at Q4, you said that you would, you were expecting this to resolve throughout H1, if I'm correct? I mean, now it sounds like that has not been improved.
I think you're talking about the downstream inventory in Europe now then of.
Yeah. Yeah
... general purpose market. Okay. Sorry. Yes. we still expect that to be resolved during the first half of this year, more or less, but it depends, of course, on the end customer demand and on many other factors too that we don't control. Remember, this is a market inventory, not our inventory, but we are seeing some favorable trends there, and now the demand is slowly picking up, which then has to do with refilling that inventory of course, or replacing it. But prices are still quite low, right? we are still experiencing a tough environment in Europe, I guess you could say, outside of automotive then.
Okay. Thank you very much for that.
Thank you.
The next question comes from Kenneth Toll Johansson from Carnegie. Please go ahead.
Yeah. Thank you. Going back to Asia again, you talked about that you've had a backlog there after the COVID-19. Do you think that all of that backlog have been worked off now in Q1 or do you still believe that there's a catch-up and good, yeah, good production also in Q2 in Asia?
Morning, Kenneth. A very good question. You're absolutely right. We have had a backlog since the second quarter of last year, and we spent the second half of last year working it down, and we're now more or less in balance then with demand in Asia from the second quarter and out. There was definitely a positive effect of that in the first quarter, which we then expect now to have worked off, right? Now we're more dependent of course on the market development. I want to add then also that that is factored in, of course, in our volume forecast for the second quarter.
Okay. Great. The second question is, you mentioned also that you reduced purchases of Russian aluminum. Are you buying any Russian aluminum today? How large a share of sort of good purchases would that be?
We are not buying any Russian aluminum today, but it's of course with a bit of a caveat that aluminum is a fluid market, and there are many step in the upstream processes, right, re-melting and so on, that make it difficult to fully trace every single piece of aluminum that we buy. You can say largely that we phased out any sourcing of Russian aluminum by now. Now, a lot of the Russian aluminum in the past years has been quite low carbon footprint, right? Because of the access that they have to low carbon energy in Russia, and that is part of the reason why we're only managing, so to speak, to stay flat on our carbon footprint year-on-year in the first quarter.
Great. Yeah, that's all from me. Thank you.
Please state your name and company. Please go ahead.
Yeah. Hi. Mats Liss, Kepler Cheuvreux. A couple of questions. First, I guess you see an improved, growth there in automotive, and I just wanted to confirm if this sort of, margin, improving mix situation as it's been previously, or, I mean, the increases in cathode, battery cathode, volumes are those sort of dilutive, when ramping up, so to speak? Yeah, just to get some more flavor about that. Thank you.
Let me first speak about the long-term effect then of the battery cathode foil. We do not expect battery cathode foil to be dilutive of margins. Especially we don't expect it to be dilutive of return on capital employed. The margin measure that we use, EBIT per tonne, is maybe not 100% applicable to that category because of the low volumes that the low weights of those products. But in this quarter we had no effect of that. That's completely negligible now. The quarter is clean in that respect margin-wise, and the margin improvement that we have has nothing to do either negatively or positively with battery cathode foil.
Maybe then I can comment on.
Yeah.
Should I comment on the automotive margins that you also asked about, Mats?
Yes, please.
I think what we can start with saying there is of course that if you look at sort of the technical content of the products, the automotive products typically enjoy the higher margins in our product portfolio. The other important driver of profitability is also capacity utilization of our production assets. We of course been through a time now where we've had fairly low capacity utilization in the plants that produce a large share of automotive products due to the soft automotive market. Now, when this market now starts to recover and we see growth in automotive, capacity utilization increases in the automotive plants and that's of course a contributor to improved profitability.
You see it especially then in the Eurasia region. That's maybe a comment on that. Typically, automotive has a higher EBIT per tonne than many other parts of the portfolio.
Thank you. Then about the decline there you see in HVAC in the Americas, I guess, could you say, or could you give some sort of indication there? Are there sort of supply chain inventory impact, or is it only a general decline in demand that you are affected by?
I'm a little-
Yeah
... confused by the question. You're saying the inventory in Asia or-
No, I mean, sorry, the end user demand of the HVAC producers or their inventories between you and them, that sort of-
Yeah
... well, increase.
Okay. Thank you.
Increase the downturn currently. Yeah.
Thank you. Yes. There are very small inventories of our product downstream us because it's so bulky and hard to store, but there are of course inventories in the entire supply chain of the HVAC manufacturers downstream. In the past two years, I guess, they have been, our customers in that industry have been struggling to meet demand, and therefore have been, of course, trying to ramp up both supply of product and also production of product, and also where they can have tried to build inventories, right? That is where we now see a shift where they're in words, but also in deeds, move from a try to build inventory kind of stance to a try to de-stock kind of stance, right?
That goes not only for our direct customers, but also, of course, for customers that they have downstream, distributors and the like. We expect the demand this year to be affected both by and really truly end customer demand, for instance, related to new housing starts and such and such, but also to be affected by de-stocking during this year.
Yeah. Okay. Thank you. Just to add on to that, question, I mean, you have the, this I think I heard 80% capacity utilization in the Americas. Or is it possible to add sort of short term other volumes in the market? Or is it, well, something that, well, we will have a similar capacity utilization during the coming quarters as well?
It is possible to add volume short term, and we have. By that, for instance, we have offset a significantly higher demand loss in the packaging segment, in particular, with the new business that we have acquired. We're of course working on doing that also for subsequent quarters and also for next year's, right? Of course, the aim is always to be, if not fully, then at least very highly utilized in all of our segments. But, it is also so that the net effect of that in the first quarter still led to a volume decline, as you saw. All of these factors together then are factored in into our forecast for having flat quarter-on-quarter and actually also year-on-year in the second quarter of this year.
Further out, we don't really dare look because it depends, of course, on what happens to the economy and so on.
Sure. Thank you. Just finally, about the energy compensation you mentioned in Europe there, I guess it was that, one of in the first quarter or is it something that, well, we can expect you to receive going forward as well?
I think the short answer is no, but Oskar has a longer answer, I can say.
I guess my answer is no, we don't expect that to be recurring throughout the year. It's a one-off in the first quarter in that sense. That was the longer version of that. Still, no.
Okay. Okay. Thanks a lot. Thank you.
Energy compensation that it pertains to 2022, not to the first quarter of this year, right? As you know, and others also, I'm sure, the energy crisis that we saw during 2022 has eased up quite a bit in all of Europe, not at least in Poland where we're operating. We're happy about that energy compensation, but it has to do with extremely high costs that we had during the second half of 2022, as such, does not pertain to the cost that we're having now.
Okay. Thanks a lot.
The next question comes from Karl Bokvist from ABG Sundal Collier. Please go ahead.
Thank you. Good morning. My first one is just on the demand outlook, and if we take the market segments a bit one by one, so to say. In HVAC, perhaps it's mainly about U.S. then, but is it mainly within residential? I'm just trying to recall how you spoke about HVAC at your capital markets day and your strong position, but is it mainly residential that's weak and perhaps commercial a bit better based on what we hear from other players in the industry? Then also if you, I apologize if you mention it, but if you could say something about this increased competition within specialty packaging from lower priced imports, how you think that will proceed going through the year?
Well, firstly, we sell to HVAC manufacturers, right? They in turn sell into these different segments. It's not always possible for us to track exactly what our individual products are used for, because some of our products are used in both residential and in commercial applications, right? Generally speaking, you're absolutely right that the worries about the HVAC industry demand, of course, are related to, not least to the residential and to a lesser extent, to commercial, of course. Where in commercial, you have both factors to do with maintenance and spare parts and so on, and also, of course, longer cycles and many other factors that make it less volatile than the residential sector. That is absolutely right.
Regarding the packaging market in the U.S., and in North America in general, there has been an increase now of low priced import from Asia into the U.S. primarily done of finished goods. Those finished goods are then imports that compete with our customers' finished goods. That has to do, of course, with the relative cost positions of Asia and America, but also, we believe with improvement reduction then of the freight rates, sequentially relative to what we had a year ago or so when the freight rates were quite high. We don't know, of course, what these competitors will do, nor do we know what our customers or their customers will do relative to this. It is a concern, of course.
That is another reason to continue to work on a flexible and ambitious sales plan for the Americas. To keep our utilization and also our profitability at the very high levels that we enjoy currently. That being said, we're quite proud actually of the result in the Americas this quarter because this effect was very, very noticeable in the quarter, and we managed to more or less offset it on the volume side already, and more than offset it on the profit side with the actions that we've spoken about before. I guess it's one of the many effects on the market that we're exposed to, and another proof that flexibility and short-term ambition in preserving margins in the face of such variation is a very good plan for Gränges.
Understood. On that topic, you know, offsetting lower volumes with others, you mentioned new businesses, if that was the correct term. Could you just describe a bit what these relate to?
Well, it depends a little bit on the, on the geography. In the Americas, we've mainly sold more to various customers that we already know but didn't sell to before, or we sold more to customers we already sold to before, to offset, of course, lower demand than from those same customer categories. That's also typically what happens in the short term, sales search as we've now tried to engineer, right? That you go to the customers you know. More generally for Gränges in the Americas and in all of our regions and both segments then, it is of course so that we need to find new growth opportunities, right?
There, the growth opportunities related to electrification stand out, where we have had a very good development, especially in Asia in 2022, and are continuing to take new business in various electrification-related sectors and products, both actually in Europe and in Asia. We hope also to have that as a longer term growth prospect in the Americas.
Understood. My final one, and again, I'm sorry if you were already very detailed on this, Oskar, but just trying to make a bit sense on the guidance here. We have 120 kilotons in Q1. Last year, Q2 was 123, if we round it, so let's say it ends up somewhere between these. Then you mentioned the positive effect quarter-over-quarter from the casting facility, compared to your Q1 EBIT of SEK 400. I mean, these couple of kilotons and the savings from the casting facility in positive terms, are there any other factors that you would like to highlight? Just how we think about operating profits for Q2?
Well, maybe it's already given, but obviously we talked about the Q1 result, and including these SEK 32 million of energy cost compensation that we don't expect to see later in the year. You have to remove those when you look sequentially from Q1 to Q2. I think volume-wise, I think it's fair to assume it's as Jörgen said, it's gonna be sequentially fairly flat. In terms of margins, I mean, our ambition is to continue to offset cost increases with price and productivity, I think the Q1 margin, excluding the energy cost compensation is a fair assumption of what we might be able to achieve in Q2.
I think FX is probably gonna be fairly neutral when you look sequentially, but then you have to add, as you say, the upside from the increased utilization of the new recycling center and I think those would be the main items to consider.
Okay, that's helpful. Thank you.
As a reminder, if you wish to ask a question, please dial star five on your telephone keypad. There are no more questions at this time, so I hand the conference back to Jörgen Rosengren for any closing comments.
Thank you, operator. Then, If there are no more questions, that I guess concludes the first quarter presentation for Gränges, this time. I would like to thank everybody for attending and for your good questions, and I wish you welcome back when we present our second quarter result in July this year. Take care. Bye now.