Good morning, ladies and gentlemen, and welcome to this presentation of Gränges' first half-year result for 2023. My name is Jörgen Rosengren. I'm joined here by our CFO, Oskar Hellström. We will try to take you through this morning the big picture, but also the details of our half-year results. Starting with the big picture, then we had in the quarter, now, a stable volume, slightly down from 122,000 tons last year to 120,000 tons. We think that this is kind of an achievement in itself in a very uncertain and volatile environment. Our good earnings in the quarter and also reduced working capital led to a good cash flow, which helps our balance sheet situation and creates flexibility, of course, for the future. Very good.
I should mention that this happens despite the fact that we continue to invest rather heavily in our future, and hope, therefore, to have a very good future also looking forward. Speaking of earnings, the price and productivity and new business actions that we undertook in the quarter and have been undertaking for a long time, more than offset cost mix and demand challenges in the quarter. For the longer term, we continued in the quarter, as we have done now for some time, to progress relative to our Navigate Plan for sustainable growth. In sum, the adjusted operating profit for the quarter was up 30% relative last year.
Last year was a record quarter. Therefore, this year is also a record quarter, and we reached a level now of SEK 450 million the quarter, compared to 350 approximately last year, an all-time high result. Let's begin then to go over the market. We saw a market which in most segments was rather weak in the quarter. That goes for HVAC, so heating, ventilation, and air conditioning customers, for packaging customers, and for many other niches where Gränges is active. We did see very stable and in fact, good growth, in automotive customers. This, of course, is related partly to the difficulties that the automotive industry experienced last year because of component shortages then.
It's also due to the fact that last year we had trouble in China and were suffering there from a COVID lockdown, which of course, now we're recovering from. In total, for the group, we had very strong growth in automotive, and we had weak growth in other segments. This proves, again, I guess, the value of having a very, very diversified and widespread customer portfolio, geographically and also over segments. In total, as I've said before, the volume sales of Gränges were down by about 2% in the quarter. Sustainability is very important for Gränges, and we keep investing in it and improving our processes for it and also building partnerships for it. In this quarter, we had record high recycling volume, actually, for the first time, over 40% recycling.
That brings our total recycled volume in the vicinity, at least of 200,000 tons, so 200 million kilos for recycling. In fact, now recycling is a rather sizable business in Gränges and very important also for our future. It also makes it easier to take new customer contracts when we can show that we are gradually moving to a much more circular business model, and in fact, they're very often ahead of our competitors. This was driven by new partnerships, but also driven to a large extent by the now fully operational casting and recycling center in Huntington, in the U.S., which contributed not only to good recycling, but also to a more favorable cost position and also good cash flow in the quarter.
However, our Scope 3 emissions and our total emissions, therefore, were negatively affected in the quarter by the phase out of low-carbon Russian material. This is, of course, a conscious decision prompted by the awful and terrible war in Ukraine, which started last year. Year-on-year, we therefore have a negative comparison to this very low carbon material that we're phasing out. We are, however, undertaking actions, of course, to replace this new material with carbon material, and that is where the partnerships that we're now building with upstream players play a very significant role. We expect, therefore, to continue a very good performance also on carbon emissions going forward, and regard this as a temporary setback, but a necessary one.
On other sustainability factors, we had a very good development of our own emissions, the so-called Scope 1 and 2 emissions. That was driven mainly by the fact that we now, this year, switched over entirely to renewable electricity in Asia, and was also helped along a little bit by us starting to use our new solar panel installation in our factory in Shanghai towards the end of the quarter. That's also a good step forward. When it comes to the result, a very important factor this quarter was margin. Volume was down a little bit, but margin was up steeply. This, in fact, is the culmination of actions that have taken place over the past two years now, since the second half of 2021.
In that half year, we started to see a very, very negative effect on our costs from various things. First, it was magnesium, for instance, then energy, then freight, and then even more energy effects, right? Those negative cost effects have continued to impact us in the during the whole of 2022, and also during the beginning of this year. As you can see on this chart, of course, the full year of 2022 represented lion's share of those cost increases. We have, however, from the beginning, said that we would offset all those cost increases with price increases and with productivity increases in partnerships with our customers, and that is also exactly what has happened. We now are, you could say, back on a level, having compensated all of them.
In the beginning, of course, there was a bit of a negative time lag, in the sense that our price increases lagged, of course, the cost increases. Now in this particular quarter, we have a slight positive time lag, where our price increases are catching up with the cost situation. In total, the net impact on Gränges is zero. We have, in fact, compensated entirely for the cost increases over the past years. This looks easy, looking at this picture, maybe sounds easy, I don't know, but it is a lot of work, I'm extremely proud of the Gränges organization for having achieved this good result, also, very proud of our customer relations, having worked through this and continuing then to award us new business, for instance, after all this journey.
For the long term, we have launched what we call the Navigate plan. The Navigate plan is a plan for sustainable growth, and it aims at bringing us to a level where we can say that we're the world's best aluminum technology company in our niche. We also aim at a 15% ROCE, and year-on-year. A nd rolling yearly operating profit growth of 10%. We have also committed to climate neutrality in 2040. The plan has three steps. We call them restore, build, and invest. We're now well into the restore phase, where we are basically finalizing the rather large capacity expansion steps we've been taking over the past years.
We will move into the build phase. That is now our main focus going forward. Finally, we will create room, we believe, to invest in sustainable growth in the areas that are on this picture. That brings us to the question, how we're doing against this plan, and more in detail, what happened in the second quarter. There, I will turn over to our CFO, Oskar Hellström .
Thank you. Yeah, as we heard from Jörgen Rosengren, we continued to improve the earnings to a new record level, despite the challenging market environment and lower sales volume. Higher earnings generated on a lower volume, of course, also means improved margin. In Q2, this is true, both if we compare year-on-year and quarter-on-quarter. As you can see on this slide, the EBIT per ton improved by some SEK 900, from SEK 2,800 in Q2 2022 to SEK 3,700 this year. As we heard from Jörgen Rosengren, there are, of course, several drivers behind this improvement, but I would say that the most important ones in the second quarter are the ramp-up to full utilization of the new recycling and casting center in Gränges Americas.
It's improved productivity, it's a tailwind from FX, and last but not least, an additional price increases. Connected to the price increases, as you know, we've put surcharge clauses in place in many of our customer contracts in order to efficiently pass on cost increases in the value chain. As costs for instance, energy, freight, alloying elements have now started to come down, the delay built into the surcharge clauses is creating a positive timing effect in Q2, and this effect was approximately SEK 40 million in the quarter. With the current outlook on the cost development, we do not, at this point in time, expect to see a similar timing effect from surcharge clauses going forward. Rather, we expect this effect to be fairly neutral in the third quarter.
Looking at the individual business areas, we can see that we are improving margins in both Americas and Eurasia, again, both year-on-year and quarter-on-quarter. What we also notice when looking at this chart is that we have negative geographical mix development in Q2. As you can see, we have growth in Eurasia, that has a relative to group average, then lower margin. Where in Americas then, with a higher than average margin, we see a declining volume, this shift impacts the group operating profit negatively in the quarter. In terms of capacity utilization, which is an important profit driver for Gränges, we continued to operate below the optimal level. For the group, the capacity utilization remained at about 80% in Q2.
I will come back and talk more about the business area shortly, let's first go and look at the group financials for Q2 in a bit more detail. Starting with the sales volume, this decreased with about 2% to 120.5 thousand tons, whereas the net sales decreased by 13% to SEK 6 billion. The development of net sales in Q2, it's the net effect of slightly lower sales volume, increased fabrication prices, decreased aluminum price, and positive changes in foreign exchange rates compared with the second quarter last year. Moving on to the earnings, the adjusted operating profit then increased by 30% to SEK 450 million, which then is the new record level for Gränges for an individual quarter.
The key drivers behind this is, as I mentioned, the improved pricing, better productivity, and reduced raw material costs from the new recycling center in Americas. In addition, then, the net changes in foreign exchange rates was positive, SEK 85 million compared to the same quarter last year. On the negative side, the lower sales volume and the shift in geographical mix had a negative impact on the operating profit in the quarter. Excluding the one-time effect in Q2 last year from the write-down of assets damaged in the fire in Konin, then excluding this, the depreciation and amortizations increased, within total SEK 23 million compared with last year. The increase is primarily related to that we have completed the logistics improvement project in Finspång, and the recycling and casting center in Huntington, and started to depreciate these.
There are no items affecting comparability in Q2, as the reported operating profit is therefore the same as the adjusted operating profit in the quarter. Regarding the tax in the quarter, it includes some one-off items related to, for instance, tax credits in the U.S. and Chinese withholding tax. A nd the net of these are SEK 18 million positive. If you exclude these items, the effective tax rates in the quarter will be about 18%. The profit for the period increased to SEK 316 million , and earnings per share increased to SEK 2.97 in the second quarter. During Q2, the financial net debt remained stable at SEK 3.9 billion , and the leverage remained at 1.8x EBITDA.
As you can see on this slide, the adjusted cash flow before financing was strong in the quarter, totaling SEK 779 million. In addition to the strong earnings, a key driver of the cash flow is the continued focus on reducing net working capital, and then, in particular, the inventory. In Q2, we got the working capital down by an additional SEK 245 million. At the same time, the sales volume remained sequentially stable. In general, I think we have a good momentum here, and I expect to see further results on our focus in this field in the second half of the year. In the quarter, we also continued to invest in total SEK 145 million in expansion of the group, and in key areas, then such as more sustainable and circular products.
The majority of the spend in Q2 relates to the expansion of capacity and capabilities for battery cathode foil in Europe and Americas, and to the second of the two recycling and casting centers that we are building in Americas. In the second quarter, we also distributed 266 million SEK to our shareholders. Finally, I think it's worth to comment on the large currency translation effect that impacts the net debt in the quarter, and this is primarily related to our dollar-denominated debt and the strengthening of the U.S. dollar against the SEK. All in all, I'm very happy that we continued to have a strong operational cash generation, and we managed to keep the leverage stable in a quarter where we also paid dividend to our shareholders.
If you then go back to the business areas, looking at Gränges Americas, as you heard from Jörgen, the market demand in Americas was significantly lower than last year. Despite successful actions compensating for some of this, the sales volume was down about 11% year-on-year. Despite the challenges and the lower sales volume, the adjusted operating profit increased by 20% to SEK 292 million, which corresponds to an adjusted operating profit per ton of SEK 5,200. I would say that this is a very good margin level, given the fact that we're only operating at about 80% capacity utilization in Americas in the quarter.
We had some help from favorable currency that contributed SEK 21 million to the operating profit compared with last year. The majority of the year improvement is really related to improved pricing and productivity, and to lower cost of material, thanks to the new recycling and casting center that was running at close to full utilization in the quarter. If we look at Gränges Eurasia, here we continued to experience the mixed market development, resulting in a total 6% year-on-year sales volume growth in the quarter. The growth was primarily driven by Asia, where we met low comparables, as China was largely affected by the COVID lockdown in Q2 last year.
As we heard from Jörgen, it's really the demand from the automotive customers that remained strong here and fueled by the backlog. In total, sales in Asia increased by 29% in the first quarter. The growth in Asia was then partly offset by 4% lower sales volume in Europe, and similar to the first quarter this year, this is really two things that drives this. First, there is a general negative market sentiment outside of automotive, and second, we still have high inventory levels downstream at distributors, mainly for general engineering and Building and Construction products. The tight engineering and B&C market also reduces the possibilities for us for optimizing metal management, and that has a negative impact on the earnings in the quarter.
On the positive side, we saw reduced external cost pressure, and we also continued to have tailwind from FX, with net changes in foreign exchange rates impacting positively with SEK 64 million in the second quarter. As a result, the adjusted operating profit increased by 16% to SEK 199 million, and that corresponds to an adjusted operating profit per ton of SEK 2.8 thousand. That's up to SEK 100 per ton compared with second quarter last year. With that, I'll hand over back to Jörgen, who will provide you with an outlook for the third quarter and a summary of the second quarter. Thank you.
Regarding the outlook, we write here on this picture that the market uncertainty remains high in all regions. It's becoming almost tedious now because this is, I don't know, we've, for many quarters in a row, spoken about this high uncertainty. It is high, but we've also, I think, proven that we can handle high uncertainty and still provide a good result development and good volume development also. Specifically for the third quarter, we expect stable demand in automotive, but we expect continued soft demand in other markets. In other words, we expect the quarter three to behave something like the quarter two.
This translates into an expected decline year-on-year by a mid- to high-single-digit % when it comes to sales volume, and that also corresponds then, of course, to a decline relative to the second quarter of this year, the one we just concluded. This is a normal seasonal pattern for Gränges, historically, and this normal seasonal pattern has not repeated itself in the last two years because of the very strong demand and pent-up order books and so on, that we saw after the COVID shutdowns in 2020. This year, we expect a normal seasonal pattern, and that means lower volumes in Q3 than Q2.
In addition, the timing effects that we saw, and I spoke about before, and Oskar also mentioned, from the surcharge clauses in customer contracts, that we had such a good effect of in the 2Q. That effect is not expected to recur in the 3Q because prices and costs are then expected to be in balance. On the other hand, we also expect to continue to offset any cost challenges and demand challenges with flexibility and productivity and price increases. As a result of all of this, we expect the operating profit per ton to be weaker sequentially than the 2Q of this year, which is the normal pattern in Gränges. We also expect it to be stronger than last year.
To continue, in fact, the pattern we've had now over many quarters, to have a margin improvement year-on-year. That is the outlook for the third quarter. In summary, we feel that the second quarter of this year was a very good one. In fact, it was our best-ever quarter. In fact, if you look at the rolling 12 months result, we're also now at a level which in itself represents an all-time high. the best ever rolling 12 months EBIT for Gränges. We are making, we feel, very good progress with Navigate. on this picture, you can see also a clip from our Global Leadership Summit, which took place here in just a few weeks ago in Poland.
There is a large engagement throughout Gränges' organization, a lot of energy in making this Navigate plan succeed, and we also feel good confidence that we will. Therefore, also, we have very high ambitions going forward, also accounted for in the quarter report, and hope to be able to show also continued good development for Gränges' shareholders. That concludes our prepared remarks about the second quarter. Now, we can open up for questions.
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, good morning, again, Oskar, Gustaf Schwerin. Firstly, on the non-automotive segment in Eurasia, maybe especially the other category. I mean, it's growing year-over-year, it's clearly up quarter-over-quarter. This should be the better weather on general industrial demand, construction, et cetera. What is going on here quarter-over-quarter? Is there a restocking element after the de-stocking period you have been talking about previously? I mean, when you talk about the weak demand situation outside autos, we can't really see that in the numbers. Yeah, that's the first one.
Maybe I can start to comment a little bit on sort of the technical aspects of this also. Of course, when you look at Eurasia, you have two quite different market environments in Q2, right? You have the Asia environment, where you have large year-over-year growth, also, good development if you compare with the first quarter. Whereas you have a weaker situation in Europe, and of course, when we present the Eurasian numbers, that's a mix of the two. In reality, right now, they are very different, these two markets, and that maybe distorts the picture a little bit.
I mean, Asia is quite automotive-heavy, so I guess the majority of the sequential pickup in the other category should be driven by Europe, or am I wrong there?
It's a combination. I mean, if you look at the other businesses, of course, you have a very large pickup also in that business, percentage-wise, year-over-year increase in Asia. That, of course, is smaller, a smaller business than the one in Europe.
Yeah. I mean, just to be very clear here, do you have higher volumes in Europe for the other category, Q2 over Q1? What is driving that, if that's the case?
Okay. Yeah, okay, I understand your question. Yeah, also sequentially, also, the volumes, in Europe improves a little bit in the other segments. The reason for that is that we've had-.
Had a situation with high inventories for quite a few quarters now, really started third quarter last year. I mean, the inventory levels are coming down sequentially, and in the past, we expected to see a normalization of the inventory levels after the second quarter. Unfortunately, we're not really there yet, but if you compare, if you compare sequentially, you will see lower inventory levels, consequently higher demand for Gränges products, but not as high as we have originally expected them to be. Sorry for misunderstanding your initial question there.
No, no, that's fine. I thought that was the reason for it, yeah, okay. That's clear. I think, coming back a bit to your guidance, this is one of the areas, I guess, which presumably will be weaker in Q3, right? Because the automotive still looks pretty good. HVAC with the seasonality should be quite similar volumes to Q2. I'm sure that a positive mix effect also on the, on the earnings for Q3, right?
We have both positive and negative mix effects, but we don't forecast, as you know, mix, but there are some strong negative factors. Firstly, it's that of course now, Americas generally is higher profit generators, and we have a negative geographical mix in this second quarter, and there's nothing that says that will change in the third quarter. Also, we have other product-related negative mix effects that counter that, right? We're not, at least, not guiding for any positive mix, neither sequentially nor year-on-year in the third quarter.
Yeah. Then just lastly, I understand that, yeah, September is a big month in Q3, and yes, visibility isn't that good so far out. Should we read this as just, I think you mentioned it, Jörgen, but normal seasonality rather than underlying demand deteriorating Q3 over Q2. Is that the way you see the market right now?
Yes, I think that's a good summary, that we don't have any reason to suspect that the market will sequentially deteriorate. It is, however, so that last year we had a strong backlog situation, which, I s not the case this year, right? That masked, I guess, the traditional seasonality in the third quarter of last year, and we can expect that now. For that reason, we expect this, let's say, high, mid to high single digit volume decline year-on-year, which is something like that also done sequentially, right? If you look back, you will see is similar to the ordinary seasonal pattern of Gränges as it has been historically.
All right. Thank you very much.
The next question comes from Linus Alentun from Nordea. Please go ahead.
Thank you, hi, Jörgen and Oskar. It's Victor from Nordea here. A couple of questions from my side. First here, you expect no timing effects from client surcharges in Q3. You made that clear, I was hoping that you could quantify the number for Q2.
This effect, if you isolate sort of the timing effect on the surcharges, that's about SEK 40 million in the second quarter. We expect the sort of corresponding effect to be fairly neutral or at least very small in Q3, provided the current cost outlook.
Good morning, Victor. I should stress there once again that this positive timing effect corresponds to a negative timing effect, which we had as far back as the last quarter of 2021, right? Now we're catching up, so to speak.
Yeah, got it. You said 40, right? Not 14.
No, 440. That's correct.
Okay. Okay, great. Great. Next question here. How much would you say your safety stock is, currently, and when should we expect this to normalize?
I wouldn't necessarily say that we have safety stock, but we have for various reasons, we believe that we have higher inventory that we necessarily should have, right? We have a large focus on reducing net working capital in general and inventory then in particular. As I mentioned, we saw good results of that in the second quarter. We have, of course, our internal target. I know where we would like to end up, but we have not communicated that externally, but I would say that we still have at least the same potential as we realized in the second quarter.
Should be there, to take out going forward, provided that there is not a huge pickup in the market. Of course, that will be a different picture then.
Yeah. Okay, great. My final question here: You have quite a few ongoing investments now. How much would you say remains of your expansion centers?
Basically what we have provided in guidance here is that we expect to spend about SEK 1.3 billion for the full year. We know that we have some large investments there, primarily into the battery cathode foil space, but also into additional recycling. SEK 1.3 billion for the full year. Of this, we've spent about SEK 450 million to date. We have quite a bit left then for the second half of the year. We have not provided an official number for guidance going forward.
If you look at these ongoing expansion projects, we expect to have a bit about a half a billion SEK or so left after this year of the communicated projects.
Okay, great. Thank you.
As a reminder, if you wish to ask a question, please dial star five on your telephone keypad. The next question comes from Oskar Lindström from Danske Bank. Please go ahead.
Thank you. A couple of questions from my side. The first one is, I mean, I appreciate the hard work that you've done to improve profitability over the past 2 years and what we saw from that in this quarter. You talked a little bit about now sort of entering the build phase of your Navigate program. Could you talk a little bit about sort of what we can expect from that in terms of earnings impact, let's say, in the coming year or year and a half? That's my first question. Would you like me to go on with the other questions or answer this one first?
Oskar, I think it's easier to take them one by one. Good morning. This is Jörgen speaking.
Good morning.
Navigate build phase, that's an excellent question. We, as you know, a couple of pieces of that phase, and one of them, indeed, is innovate and grow. That kind of blends also into the invest phase of Navigate, where we want to invest in growth with sustainable businesses shortly. We expect, F irstly, now we have a stronger focus now than we've had for some time on share growth. The reason for that, of course, is the current market climate, where we would appreciate any additional business we can achieve. Therefore, we have now a strong focus on hunting new business in all of our regions.
Secondly, we are building up competencies, customer relations, technology, and also a pretty good book of new business related to the electrification trend, which is one of the underpinnings of the Navigate plan. There we're seeing now already in this result to date, not insignificant volumes, especially in the battery heat management, battery cooling area. We expect, of course, that to be a growth driver for us also going forward. Regarding the financial results, which I can understand that you're after, we have committed to 10% earnings growth annually over long and short time horizons. Of course, this year we have reached that number in a big way, but we need to also look over a longer time.
We've also committed to a ROCE of 15%, and we're far from that number. That means, of course, to reach that number, we have to improve our earnings further, and also, as Oskar said, see if we can lean out the capital base a bit also. We expect, fully expect to reach that 15% number, but I cannot provide you, of course, with a hard timeline for it.
Thank you. It's going to be interesting to follow. My second question probably ties into this a little bit, and that's the planned ramp-up of the Konin expansion. You know, if you could talk a little bit about that, I mean, the timing of it, how is it impacted by the weaker general sort of market in Europe? Then, again, I mean, if you have any comments on the leverage impact on earnings from that.
The expansion that we're planning Konin in conjunction with the acquisition is largely finalist. There is one area, one rolling mill, in fact, which has been delayed, significantly delayed by the unfortunate fire which we suffered last year. How it has been impacted by the market is I suppose is that the capacity expansion has become slightly less urgent because we are building, equally focusing on building new business, of course, but the general market conditions make the capacity expansion less urgent in order to accommodate that business growth. Technically, we expect to restore this rolling mill to full capacity during 2025, and that times rather well, we feel, with the plans that we have for growing the business also.
The capacity is one thing, but you also have to have the customers to fill it. We have a very ambitious plan for volume, for business growth in all of our segments, and in all of our regions, and that goes also for Europe. To accommodate growth in Europe, this capacity expansion in Konin will, over time, you know, become quite critical.
Could you say how much volume you sort of, in terms of capacity, that, rolling mill expansion could give you in 2025?
The technical capacity of this rolling mill is about 30,000 tons on top of the current available capacity once it's fully operational.
Wonderful. Thank you. Then just my final question is around the sustainability of automotive demand in general, and in particular in China. Where, I mean, you continue to say that the market is quite strong or the demand is quite strong, given, you know, this buildup of demand from due to the COVID closures. I mean, is this a situation whereby later this year we're going to see that backlog having been sort of taken down, and what's the underlying demand? That's what I'm trying to get at.
That's a good question. I think, Oskar, what we have said is that growth has been strong on the in the last 12 months, I guess you could say, in Asia generally, because of the backlog. We have also said that this backlog is now depleted, exhausted, and that we cannot expect a backlog effect to continue to bolster sales. Nor can we, of course, expect a year-on-year positive effect anymore of the lockdowns, which we suffered last year, because that was in the first half of the year. Therefore, we're not saying that we're predicting strong growth from automotive. We're saying that we're predicting stable growth, stable demand, and stable growth also in automotive going forward. That goes actually for Asia as well as Europe and, also Americas.
What's specific about Asia, though, is that there is such fantastic, enormous growth in electric vehicles. That, of course, is now a major growth objective for us and has been for some time, but now really is front and center to make sure that we benefit from the good growth that there is in Asia, generally speaking, in electric vehicles. Whether we succeed with that or not is something we'll have to wait and see.
All right. Thank you. That's very clear. Those were my questions.
Thank you, Oscar.
As a reminder, if you wish to ask a question, please dial star five on your telephone keypad. The next question comes from Mats Liss from Kepler Cheuvreux. Please go ahead.
Yeah. Hi, hi, good morning. Two questions, please. First, regarding market shares, I guess, your volumes are, well, slowing somewhat, and I was just wondering if you see that you keep your market position or maybe also improve it. Could you say something about that?
Sure, Mats. Good morning, and sorry for the terrible pronunciation of Kepler Cheuvreux. We apologize. The market shares we feel are stable. If anything, we think that we are taking market share, but with this electrification shift, it's a bit of a moving target because, of course, we're taking many new platforms in electric, EV-related sales. It's sometimes a little hard to say exactly what is the market share, because that depends also on the market share of the new platforms, right? Our stated view is that we're keeping and maybe gaining a bit of market share, and right now we're focusing, of course, even more on gaining market share because we have now, in all three regions, capacity that we could that we could utilize, basically. I hope that answers your question, or if it didn't, then ask it again, please.
Yeah, good answer. Well, trend in electrification, is that something that is margin mix improving, or is it sort of similar to what you, well, get historically in automotive?
It's very varied. M ost of our electrification-related growth to date this year has come from Asia, and as such, has a negative, at least price mix component to it. We also are very cost competitive in Asia on the third hand, so to speak. Generally, we are aiming at comparable profitability in electric vehicle components as we have been aiming for in traditional combustion engine components in automotive. It's not so that we're consciously buying market share, quote, unquote, with price. We also are not trying to maximize profit on the behalf of volume. We're trying to keep the profit and make sure that we defend our total market share in heat transfer materials in electric vehicles, that we've had for many, many years in combustion engine vehicles.
Okay, great. About capacity utilization, you've mentioned you have 80% or something. Is that the lower now? I mean, are you able to take on other, maybe no more nor low margin business to keep that level, or should we expect capacity utilization to deteriorate somewhat in the second half?
I think from a sort of, just from a mathematical perspective, I guess, if we start with that, and Jörgen maybe can add if he wants to. I mean, obviously, we are expecting slightly lower sales volume now in Q3 versus Q2, and everything else the same, of course, that would translate to slightly lower capacity utilization in our production footprint, as well. For that perspective, of course, you can expect the capacity to come down slightly, from a sequential perspective here. I guess we are also doing our utmost to sort of offset this market situation with additional actions that will hopefully take this into the other direction.
On the latter, I mean, it has been a plan of ours and an ambition of ours to show greater flexibility when it comes to compensating for swings in the market. On the whole, I think we've done an okay job of that over the past years. Nothing is so good, so that it couldn't become even better. Of course, that remains an ambition and maybe even a more important ambition in this market climate, to be able to continuously to be able to swing with the market, right? Their utilization, the reason we mentioned the number is also to provide emphasis on it internally, right?
That it is our job, having bought this industrial plant, having acquired it and put it in and tuned it, then it's our job to fill it always, right? There we have a, then apparently 25% upside, you could say, of underutilized capacity. It's a good question, and it puts the finger on, let's say, on an opportunity for Gränges.
Yeah, I think you sort of mentioned that opportunity in previous quarters. I guess it's, well, that's why I asked it, I guess. Yeah, I think 80% is, I mean, there's been to be filled there from that level, I guess also.
I think, Mats, if I may comment on that. If I may comment on that, I mean, that's, I believe, something we're sharing with a lot of industrial companies now, right? Because you also have to have upside if there is more demand. Right now, there is a generally weaker market out there, and it takes a little while to fill up such things. What we are trying to do also is to make sure that any swings on the top line do not translate to equally big swings on the bottom line, whereas for a fixed cost company, that usually is the opposite is the case. There we feel that we're allowed a little bit of pride in the margin development in this quarter, which was so positive over a record quarter, despite, in fact, slightly decreasing volumes.
Yeah, I agree with that. Thank you very much.
Thank you, Mats.
The next question comes from Karl Bokvist from ABG Sundal Collier. Please go ahead.
Thank you. Good morning. My company only has three letters, so easier to say. What I wanted to ask really was about the strong profitability per ton development in both regions. In Americas, you're now, I mean, touching above $5,000 or $5.2, however, we would like to denominate it. Just given what you are doing with the recasting facilities and the fabrication prices and so on, just based on where you are today and not necessarily kind of next quarter, but over time, where do you feel a kind of sustainable profitability level is for Americas, given their business mix?
I think the long-term answer is something like this, that we intend Gränges to display a 15% ROCE, and right now, Americas is approximately on that level. It would be good for our average if everybody could be above the average, but especially Americas, who is already above the average, it would of course, be good if they could advance a little bit more there, right? We have to remember that the 15% ROCE and this margin number that you mentioned, that those were achieved in what for us, over the past 4 or 5 years, is an uniquely weak market and rapid market decline, right?
Where, of course, we have not been able to adjust any fixed cost, really, and also in a situation where we have strong inflation still in the U.S., as you know, for instance, for labor cost and so on. For sure, the ambition is to continue to improve Gränges' ROCE significantly, and that is difficult to achieve without also improving the ROCE in Gränges Americas. That, for sure, is an ambition. In the near term, though, that is, if we achieve it, have to be done in the face of a relatively weak market in Gränges Americas, right? I guess we shouldn't wait for any or hope for any major jumps upwards in the next couple of quarters. Similarly, however, in Eurasia, we have a relatively low ROCE, and there, of course, the pressure is even higher to improve that in this time period that we're speaking about.
Understood. Within Eurasia, given that you're still undertaking CapEx there, but sticking with the profitability side of the equation, are there any particular end markets outside of perhaps Asia Automotive, but if we focus on Europe, where you see that if that particular segment comes back to a more normal level, then that is where you could start to see the more material improvements in profitability per ton?
I think the biggest improvement in profitability in Eurasia would be an improved utilization effect. That goes especially for Europe, where we have a low utilization, simply put. It's also lower than last year, at least for the first half year, because we had in the first half of last year, a very, very good demand situation, generally speaking, and especially good in the general industry and other segments, and also packaging, in fact. A return of a more normal demand situation, which can then lead us to have a higher utilization and also maybe a return of a, in the general and distribution segments and so on, a little bit more normal pricing, even if we cannot count on the very good pricing we enjoyed in the first half of last year. Those are the most important factors. For the longer term.
Absolutely most important thing is to continue to take new contracts with new customers, both in packaging and in distribution, and not the least, of course, in automotive, and then not the least, electrification-oriented contracts. There, we're placing a lot of emphasis on that. We're working hard on it, and we're also relatively hopeful that it'll be successful.
Okay, understood. Just my final one, I apologize if this has already been asked, but the continued positive earnings effect from the recycling facility that came online kind of in a more material manner this quarter, how should we think about this? Again, sorry, if this has already been asked.
No, it's a good question. It's worth reiterating. It's a good investment. We are very proud of that, and in many ways, of course, both from the fact that it increases recycling, reduces working capital, but also, of course, the fact that it has a good impact on profitability for us. I think what we've said is that this type of facility under normal market conditions, the EBIT impact of such a facility is in the vicinity of SEK 200 million per year. At full utilization, that would mean then divided by four, SEK 50 million or so per quarter.
We're not up at that full number in effects, EBIT effect in Q2, but also not very far from it. I would say that if you compare sequentially, we from Q1, maybe the impact of this facility was about SEK 10 million positive in Q1, and now we are at between SEK 40 million and SEK 50 million, sequentially, a SEK 30+ million uptick in profitability quarter-to-quarter. Of course, we expect to be able to continue to run this facility at the high utilization going forward. That's the plan, at least.
Understood. Thanks. That's all for me.
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.
I'd like to thank you, ladies and gentlemen, for attending this first half year presentation for Gränges' results for 2023, and especially, of course, for the very insightful, incisive questions from many participants. Wish all of you a nice rest of the day and a nice weekend also. Thank you, and goodbye.