Granges AB

STO:GRNG

Earnings Call Transcript 2021-Q1

[Johan Menckel, CEO & President]

Welcome to Gränges Conference Call for the first quarter of 2021. Here in Stockholm, it's me, Johan Menckel, the CEO; and beside me, I have our CFO, Oskar Hellström. As usual, we will start this presentation with an update of Gränges performance during the last quarter and highlight some important events. After that, Oskar will take you through the financial results, and then we will conclude the presentation with an outlook and the Q&A session. When summarizing the first quarter of 2021, It is clear that this is the best quarter so far for Gränges. We experienced strong market across all regions and end customer markets during the quarter. This contributed to an all-time high sales volume and operating profit. In total, sales volume reached 127,000 tonnes, which represents a 41% growth quarter on last year. Excluding the acquired sales volume from Gränges Konin, the first quarter sales volume was up 14% compared with the same period last year and 16% compared to the sales volume in the fourth quarter of 2020. The adjusted operating profit increased by 63% to a new record level of SEK 342 million, largely driven by the higher sales volume, supported by continued good cost performance. During the quarter, we have also continued to execute on our growth strategy. We have now finalized to upgrade our Newport facility in North America, and we have taken a decision to expand our casting capacity in Huntingdon. This to keep up with increasing customer demand. I'm also happy to see that the integration of Gränges Konin progresses according to plan despite the challenges imposed by COVID-19. I will come back and talk more about this shortly. As I've mentioned several times before, sustainability is a strong driver and enabler of our long-term competitiveness and value creation. In 2019, we launched a set of sustainability targets. And since then, good progress has been achieved towards many of these. To reflect the stronger-than-anticipated development in the sustainability performance as well as the increased interest and expectations from customers and other stakeholders, we're now upgrading selected sustainability targets. Growing our successful growth initiatives have resulted in a larger production footprint and a more diversified product portfolio. And we now see an opportunity to further increase efficiency and transparency by grouping the different businesses based on their respective characteristics. As a consequence of this, we have established 2 business areas. From now on, will be presented separately in the external financial reporting Gränges Eurasia and Gränges Americas. Oskar will come back and describe this in more detail shortly. In addition to the new business areas, we would also, as of quarter 1 this year, refine the reporting our performance in our core end customer markets. Automotive, representing 44% of our sales volume in quarter 1, HVAC with 21%, specialty packaging with 15% and other niches with 21% (sic) [ 20% ] of our sales volume in quarter 1. Short term, sales to the automotive industry is primarily driven by the number of vehicles produced, Longer term, the increasing share of hybrid and electrical vehicles will have a further positive impact on demand for Gränges products. Sales to the HVAC industry is short term driven by consumer confidence and the general activity within building and construction. Whereas increased requirements on energy efficiency of HVAC units is expected to have a further positive impact on the demand for Gränges products in the longer term. The demand for materials for specialty packaging is relatively stable in its nature and reduces some of the cyclicality and seasonality in the product portfolio. Sales to other niche applications are largely driven by the general economy activity. That said, In this product category, there are also several very interesting applications with very high growth potential that may be new core markets for Gränges in the future. Good examples of these are, for instance, our products for renewable energy, electrical vehicle batteries and green transformers. As I mentioned earlier, all our key markets developed very positively in the first quarter. If we start by looking at the geographical dimension, we can see that demand for Gränges products increased the most in Asia. This is driven by that Asia and in particular, China, was the first to face COVID-19 already in January, last year, and is consequently the first region to also recover. Year-over-year, the demand for our products increased by 39% in the Asian market. Also the European and the North and South American market show clear signs of recovery, growing by 12% and 8%, respectively, in the quarter. Demand for our automotive products increased by 22% globally compared with last year. This was driven by increased light vehicle production and continued restocking activities at customer level. For comparison, IHS estimate that the global light vehicle production increased by 14% in the first quarter. The semiconductor shortage currently experienced in the automotive industry did not have a material impact on our sales in the first quarter, but we expect it to impact the second quarter to a larger extent. Demand for HVAC product increased by 11% in the first quarter driven by a continued increase in HVAC unit production and an increased market share for Gränges. Demand for specialty packaging material remained stable on the same level as in previous years, whereas demand for materials to other niche increased by 16% in the first quarter. Those of you who listened to our year-end presentation may recall that we, despite COVID-19, did a record year in Americas in 2020 and that quarter 3 was our best quarter so far for our American business. That record is now broken. In quarter 1, we achieved an all-time high sales volume of 63,000 tonnes, a record operating profit of SEK 191 million and the highest margin ever with an operating profit of SEK 3,000 per tonne. We established ourselves with own production in North America market in 2016 through the acquisition of Noranda. On the chart to the right, you can see how we have managed to grow and improve the business since. Our Americas team has so far managed to grow the sales volume by 25% and double the margin since the time of the acquisition. This is quite an achievement. and we are highly determined to continue on this route. At the end of March, the upgrade of the third and final rolling mill in Newport was completed, and the first coil was successfully rolled on April 20. Commissioning of the mill will take place during the second quarter and commercial volumes of thin gauge foil are expected to start ramp up as of the third quarter. This means that both the investments undertaken to increase the rolling capacity in Newport and Huntingdon have now been successfully completed. To meet the continuously increasing demand from North American customers, we have during the first quarter, taking a decision to invest USD 33 million to expand our aluminum casting operations in Huntingdon. When completed within 2 years, this investment will enable us to increase the capacity utilization in our rolling and slitting operations even further. At the end of April, Gränges Konin will have been part of Gränges Group for 6 months. During these months, we have worked closely with our new Gränges colleagues in Poland to integrate Konin into Gränges. The integration work progresses according to plan despite the challenges in travel restrictions due to COVID-19, and I'm very pleased with the development I've seen so far. From a financial perspective, Gränges Konin delivers as expected in the first quarter with a sales volume of 24,000 tonnes and an adjusted operating profit of SEK 49 million. As you know, we are currently investing in a further expansion of the production capacity in Gränges Konin. The expansion project will further strengthen our capabilities and increased annual capacity by 40% to 140,000 tonnes. The investment will enable growth within current niche market such as automotive HEX, but also electric vehicle application as well as specialty packaging, but it will also add new capabilities for rolling and finishing of harder aluminum alloys used, for instance, in automotive structured products. The investment project is expected to be completed by the end of 2022, and we expect a gradual ramp-up of production capacity going into 2023. Aluminum has an important role to play in the transition towards the circular and sustainable economy. We work to leverage the unique properties of aluminum to develop sustainable products and solutions, which aim to improve customers and end-user sustainability performance. Our materials are, for example, used in lightweight vehicles, energy-efficient buildings and resource-efficient packaging, which are all vital applications for the future. Gränges' strategic priority is to offer customers sustainable product and solution which have 3 important characteristics. One, our offering should have a long -- should have a low climate impact and helped to reduce climate impacts along the aluminum value chain, for example, in customers' manufacturing process or in the use of the end product. Two, our offerings should be designed to maximize the use of recycled material as well as eliminate waste in our own operations. And third, our offering should also be purchased, manufactured and used in an ethical, responsible and safe way. To enable the development of sustainable products and solutions, we work through a structured sustainability framework to integrate sustainability into our business and value chain. In the beginning of 2019, we launched sustainability targets to 2025. Since then, good progress have been achieved towards many of these. To reflect the strong performance and to meet the increased requirements from our stakeholders, we have now made upgrades to a few of these targets. We have raised the target for having third-party verified sustainability information available for our products from 80% to 100%. We have quantified the target for renewable energy from a directional target to a target of 20%. We have increased the target for sourced recycled aluminum from 20% to 30%. This confirms our focus on circularity and resource efficiency. We have also quantified the reduction target for carbon emission intensity from sourced metal inputs Scope 3 versus baseline in 2017 to minus 30%. This target complements our existing climate targets for own operations and purchase energy Scope 1 plus 2, which is a minus 25% target. Lastly, we have added a target to have all our sites certified in accordance with ASI's sustainability standards. I'm very proud that we have achieved good progress on our sustainability priorities and that we'll now further raise our ambition level. With that, I hand over to Oskar for the financials.

[Oskar Hellstrom, Deputy CEO & CFO]

Thank you, Johan. As Johan mentioned here, we have from the first quarter this year, introduced 2 new business areas: Gränges Americas and Gränges Eurasia. And the reason for doing this is that we have grown a lot in recent years, and we have now a much larger production footprint and a more diversified product portfolio. In order to improve transparency and increase the efficiency, we see that there is an opportunity to group our different businesses based on the production technology and end customer markets. If we start with Gränges Eurasia, it consists of the 3 rolling mills we have with direct chill casting and hot rolling technology in Finspång, Konin and Shanghai. In addition to this, it also includes the newly established Gränges Powder Metallurgy business in Saint-Avold, France. The largest end customer market for Gränges Eurasia is heat exchange material for the automotive industry, which represents 71% of the business area sales volume in the first quarter of this year. Continuing with Gränges Americas, it includes 3 U.S. rolling mills in Huntingdon, Salisbury and Newport with continuous casting technology. The largest end customer markets for Gränges Americas is heat exchanger material for the HVAC industry that represents 42% and specialty packaging material, which represents 23% of the sales volume in the first quarter of 2021. Gränges Americas also serves as a distributor of heat exchange material for the automotive industry from Gränges Eurasia on the North and South American market through the Gränges International business unit. Starting with the first quarter this year, we will provide breakdowns showing the financial performance of these 2 business areas, and this replaces the earlier used and less precise split of Gränges group into automotive and HVAC and other businesses. That said, to a large extent, Gränges Eurasia matches the previous automotive business, whereas Gränges America is fairly similar to what we referred to as HVAC and other. Worth to point out though is that there is automotive business in Gränges Americas and nonautomotive business in Gränges Eurasia. Since we have internal sales between the business areas, we have to make eliminations when consolidating the group. These are represented together with some unallocated group costs on the row called other and eliminations in our financial statements. If we look at the sales volume and margin development, we can see a clear improvement on year-over-year as well as on a quarter-over-quarter basis in the first quarter. In terms of the margin, the group's adjusted operating profit per tonne increased from SEK 2,300 in Q1 2020 to SEK 2,700 in Q1 this year. If we look at the 2 business areas, the Eurasia margin, excluding Gränges Konin, increased from 1.9% in 2020 to 2.9% in 2021, and the corresponding development for Americas is 2.6% to 3.0%. An important driver behind this improved margins is the improved capacity utilization that is approaching 90% for the group in the quarter, and this is true for both the Americas and the Eurasia businesses. In addition to the higher capacity utilization, the most important drivers behind the positive development are slightly higher average conversion price, improved metal management and continued good cost performance. And this is, of course, a good development in itself, but I would still like to highlight 2 important items that have a significant negative impact when comparing the year-over-year margin development. First, as you can see on this slide, Gränges Konin has a below-average operating profit per tonne of SEK 2,000 in Q1. This is a good representation of the performance that can currently be expected from Konin operating in a Gränges context As you may recall, we have previously guided for a full year operating profit per tonne of SEK 1,900 for Gränges Konin. If we exclude Gränges Konin, the adjusted operating profit per tonne was SEK 229,000 for the group in Q1. Second, as we also mentioned in our guidance for the first quarter, we have a large negative impact on operating profit from unfavorable currency development if we compare with Q1 last year. In total, the net impact of changes in foreign exchange rates was negative SEK 62 million in the quarter, and this corresponds to SEK 0.6 per tonne on the margin. If we exclude the impact of Konin and of currency to get a better understanding of the underlying performance of the business, the adjusted operating profit per tonne would have been SEK 3,500 in Q1. And that's an improvement by more than 50% from the situation a year ago, and I think that's quite an achievement by the Gränges team. If we look at the first quarter in more detail, we can see that the sales volume increased by 41% to 126,700 tonnes and that the net sales increased by 32% to SEK 4 billion. As Johan mentioned earlier, this is a new record level for Gränges. Excluding acquisitions, the sales volume increased by 14% and the net sales by 10%. The main reason for the net sales increased less than the sales volume is FX translation. The net impact of changes in foreign exchange rates was negative SEK 449 million on the net sales compared with the first quarter last year. Looking at the earnings. The adjusted operating profit increased to SEK 342 million in Q1, an increase of SEK 132 million or 63% on prior year. Of this, the acquired Konin business contributes with an operating profit of SEK 49 million. Drivers on this positive development are the increased sales volume and capacity utilization, slightly higher average conversion price, improved metal management and continued good cost performance. Depreciation increased within total SEK 22 million primarily related to Konin. As I mentioned earlier, net changes in foreign exchange rates was negative SEK 62 million in the quarter. Items affecting comparability amounted to in total SEK 16 million in the quarter, and this is fully related to the realization of the fair value step-up of the remaining part of the inventory that was acquired as a part of the Konin transaction. Including the items affecting comparability, the reported operating profit for the first quarter increased to SEK 326 million. The profit for the period increased to SEK 239 million, corresponds to earnings per share of SEK 2.24 in the first quarter. During the first quarter, the net debt increased by close to SEK 400 million to SEK 3.7 billion. In terms of net debt to adjusted EBITDA, this corresponds to an increase from 2.4 -- 2.2 to 2.4x. Starting from the left, we can see that the cash flow before financing activities adjusted for the expansion investments and acquisitions was negative SEK 55 million in the first quarter. And this is primarily driven by the increase in working capital of SEK 471 million. Of this, about SEK 300 million is a consequence of the sequentially increased business activity that we experienced in the first quarter, and the remaining SEK 170 million is driven by the higher aluminum price that increased the value of our working capital. That said, we're continuing to focus on working capital management, and we ended the quarter with 9 days less working capital than what we carried a year ago. We've also continued to invest in total SEK 195 million in the expansion of the Gränges business. Of this, SEK 64 million refers to the final payment of the purchase price for the Getek and Dispal acquisitions made in 2020. SEK 14 million is related to the final purchase price adjustment for Konin and SEK 117 million refers to the ongoing expansion programs in Konin, Finspång and Newport. Before leaving this page, I would just briefly like to touch upon how we currently view the capital expenditure for 2021. Those of you who listened at our year-end presentation may recall that we, at that time, guided for a full year CapEx of around SEK 800 million, With the recent decision then to invest USD 33 million over 2 years in expanding the casting capacity in Huntingdon, we had to add about SEK 100 million to the 2021 figure. And the new CapEx guidance for full year 2021 is consequently about SEK 900 million at the current FX rate. If we look at the Gränges Americas business area, Johan has already given us some of the most important highlights for the quarter. What we can add here is some more detailed comments on the earnings development. First, the comment I made earlier on the net impact on FX being negative for the group is true for the Americas business as well. SEK 31 million or half of the total FX impact is related to Gränges Americas, with the same FX rates as last year, The Americas operating profit would have been SEK 222 million or [ SEK 3,500 per tonne ]. Worth to mention here also that the favorable market conditions in especially in the U.S. continues to have a positive impact on the pricing side, and we see a slightly higher average conversion price in the first quarter. In Eurasia, we saw the largest organic sales increase, 27% year-over-year in the first quarter, And this is driven by 2 things. First, this is the part of our business with the largest sales to automotive applications, and the automotive industry was one of the industries that was most impacted by COVID-19 in 2020. And second, China was impacted earlier than most other markets by COVID-19, and this is also where we've seen the most rapid recovery in the first quarter. When we add the 24,000 tonnes delivered by Konin, we get a total growth for Gränges Eurasia of 89% over prior year. Similar to Americas, we had the same negative SEK 31 million FX impact in Eurasia. And with the same FX rate as last year, the Eurasia adjusted operating profit would have been SEK 224 million or SEK 3,100 per tonne. So a very strong underlying improvement in the Eurasia business as well in the first quarter. With that, I hand over to Johan that will provide an outlook for the second quarter and the summary of the first quarter.

[Johan Menckel, CEO & President]

Thank you, Oskar. Although the COVID-19 pandemic continues, some of the uncertainty has cleared, and the market demand is currently expected to remain on a healthy level in the coming quarter. For the second quarter of 2021, we currently expect a similar sales volume for Gränges products as in the first quarter, and this goes for all businesses. Gränges Konin is expected to contribute with a sales volume of about 24,000 tonnes in the second quarter. As I mentioned earlier, we did not experience any material negative impact on our automotive sales in quarter 1 from the current semiconductor shortage. We do, however, expect this to a large extent in the second quarter, and this has been considered in this guidance. That said, a potentially larger impact from the semiconductor shortage poses a downside risk to this outlook. Moreover, the development of foreign exchange rate is expected to have a negative net impact on profitability when comparing the second quarter to the first quarter this year. Looking further ahead, I strongly believe that we will be able to capitalize on the strong platform we have established for Gränges. With a strong commitment to sustainability, innovation, digitalization and continuous improvement, Gränges is well positioned to deliver sustainable and profitable growth for the coming years. To conclude, the 2021 first quarter report. The first quarter was a record quarter for Gränges with a strong market and an all-time high sales volume and operating profit. In total, we delivered a total year-over-year growth of 44% of which 14% was organic. During the quarter, we have also continued to execute on our growth strategy. We have finalized the upgrade of our Newport facility in America, and we are taking a decision to expand our casting capacity in Huntingdon. The integration of Gränges Konin progresses according to plan. Sustainability is a strong driver and an enabler of our long-term competitiveness and value creation. We have now upgraded several of our sustainability targets and raised our ambition levels further. Following the recent years' successful growth initiatives that have resulted in a larger production footprint and a more diversified product portfolio, we have now divided Gränges into 2 business areas that we will follow separately going forward. Finally, looking into the second quarter this year, we expect healthy market conditions and currently anticipate that the sales volume in the second quarter will be similar to the one in the first quarter. Thank you. And now, we open up for questions.

[Operator]

[Operator Instructions] And our first question comes from the line of Gustaf Schwerin from Handelsbanken.

[Gustaf Schwerin, Research Analyst]

Congratulations on a strong quarter. I have 2 two questions. I'll take them one by one. Firstly, on your guidance for Q2 and the potential downside risk you mentioned on the semiconductor situation. I mean, right now, what is your feeling regarding how big that risk actually is. We're hearing from some other suppliers that the auto industry is not really cutting back too much on purchasing after already so disruptions in the value chain and that they want to be fully ready when these sort of issues are solved. So your visibility right now and when you say that you expect this to be more of a significant negative impact in Q2. How much is that actually taking down sort of your volume guidance sequentially. That's my first question.

[Oskar Hellstrom, Deputy CEO & CFO]

It's Oskar here. But I think if we sort of break down our guidance a little bit there for the second quarter. What we're saying is, I mean, the current market sentiment is really that Q2 is going to look very similar to Q1. Then, of course, things can change, but that's at least how it feels right now. If you sort of differentiate a little bit between the different market segments, the market segment with a slightly softer outlook then is really the automotive part, and that's completely true and sort of connected to the semiconductor shortage here. But that said, I think we do see exactly as you say here, that many of our customers has not really cut back orders at this point in time due to this. So it looks quite healthy. But a little bit of a softer spot on the automotive part, I would say, but it's very difficult to quantify this at this point. I would say a couple of thousand tonnes maybe is the quarter-to-quarter impact on automotive from this.

[Gustaf Schwerin, Research Analyst]

Okay. But basically, I mean, just to be very clear. When you say that you expect similar volumes sequentially, we should still expect to see a slight decrease on the auto side, which is then offset by the rest of the volumes.

[Oskar Hellstrom, Deputy CEO & CFO]

I think that's a fair view at this point, yes.

[Gustaf Schwerin, Research Analyst]

Okay. Yes. Fair enough. And secondly, on the tonne development, which, of course, was very strong both year-on-year and sequentially. We know some of the reasons why it's improving. But can you give us bit of a feeling for the size of these differences in a bridge? Like how much is volumes helping? How much is better mix and how much is a lower problem from metal management, et cetera, either if you want to give that year-on-year or sequentially?

[Oskar Hellstrom, Deputy CEO & CFO]

I mean I can give you an indication of what sort of the most important parts are without sort of giving any exact numbers. But if we look year-over-year, of course, the absolutely most important thing for us here is really the increased volume that helps the capacity utilization of our plants, of course. So we say that's the single most important factor. The second most important factor is our continued good sort of cost performance, also sort of taking into account the higher volume and leading to the larger fixed cost absorption. Also our variable production cost, that's an area where we performed very well year-over-year. And after that, I would say the price component and after that, the metal management component. There, you have the ranking of the top 4 ones. And of course, the largest negative driver if you look year-over-year is really the currency part where we say that, that's negative SEK 62 million year-over-year. But volume is most important here.

[Gustaf Schwerin, Research Analyst]

Okay, that's helpful. And then just a last question for now. On the USD 33 million investment in the U.S. Do you want to say anything on sort of profitability improvements for this. I assume it should be at least in the upper range of your return on capital employed target?

[Oskar Hellstrom, Deputy CEO & CFO]

Yes. I mean, obviously, everything we do is -- has to fulfill our at least [ 15% ] on return on capital employed, of course. This investment is -- I mean, it's 2 things to this. It's really about sort of cutting down the costs for our value chain. So it's a cost improvement. And the second part is, of course, that even though that we do not have -- when we have completed the new port expansion, we don't have any sort of capacity investments in rolling mill capacity planned for the coming years, but we do expect to increase capacity by process improvements and sort of running our mills more efficiently. And in order to sort of match that with casting capacity, we have to invest in casting capacity. That are the 2 drivers. And I would say it's fair to assume that the return on this investment is going to be fairly good.

[Operator]

Our next question comes from the line of Oskar Lindstrom from Danske Bank.

[Oskar Lindstrom, Senior Analyst]

It's Oskar here from Danske Bank. Two questions on my side. You mentioned that the -- in Americas, the pricing momentum was positive during Q1. Have you seen that momentum continue into Q2 as well? And what's the magnitude of this momentum? That's my first question.

[Oskar Hellstrom, Deputy CEO & CFO]

Yes, it's Oskar here. I mean we have a quite favorable market situation in general in the U.S. And I think we've said it before, and I think it's still stands true that for 2021, we expect sort of a price increase in the Americas region by low single-digit percentage. And that's what we saw in the first quarter, and that was what we expect to see in the coming quarters as well.

[Oskar Lindstrom, Senior Analyst]

All right. Super And then on Asia, you mentioned inventory restocking among clients. How large was this impact? And I mean how long will it last? Or was sort of Q1 the peak of restocking in the automotive sector and then it's going to go down Q2, Q3, Q4? What's the profile here?

[Oskar Hellstrom, Deputy CEO & CFO]

Yes. I mean, it's really difficult to say exactly how large the restocking effect was. But I mean, one thing to sort of try to get a little bit of a grip on this is to say that you can always compare, of course, our sales to the light vehicle production and sort of the discrepancy there is what happens in between Gränges and the automaker, and that's typically then the destocking or restocking effects. And I think the latest IHS number for Asia is 33% growth in Q1 for auto production, and we grew by 38% in automotive in Asia in the quarter. And of course, that means that there is a 5 percentage points of the growth is restocking and 33% is underlying auto production. I mean that's probably ballpark, at least what it's sort of about.

[Oskar Lindstrom, Senior Analyst]

But given your guidance, we should assume that to continue to sort of stay at that level also in Q2?

[Oskar Hellstrom, Deputy CEO & CFO]

I would say that we probably expect a little bit less of restocking in Asia going into the second quarter because we have had quite some effects of that already, but some is likely to continue in the second quarter, yes.

[Operator]

[Operator Instructions] Our next question comes from the line of Mats Liss from Kepler Cheuvreux.

[Mats Liss, Equity Research Analyst]

Congratulations from me as well for the very solid numbers. I just wanted to come back to the profit per tonne there. I guess you indicate volumes will be similar in the second quarter. And then again, automotive volumes may be a bit softer. I mean, meaning a softer mix as well. But do you still expect the profit per tonne to be sort of sustainable into the second quarter as well?

[Oskar Hellstrom, Deputy CEO & CFO]

I think it's a good question there, Mats. And I think if you look at sort of the outlook here, we say, okay, a little bit softer automotive. And we know that automotive then is quite a large part of the business in the Eurasia region. And if we look at the margins then that we have in Q1, Eurasia, excluding Konin and Gränges Americas, which is then less of automotive, it's fairly similar. So it's not given sort of that you will have necessarily a large negative mix effect on that. But what we can say, however, on the profit per tonne and what Johan also mentioned in the outlook here is that even though currencies are relatively stable, I would say, at this point in time compared to what we've seen before, we do still expect negative quarter-to-quarter FX effect there. And that's due to that we -- in the first quarter, had the benefit of realized hedges that was at sort of more favorable -- taken at more favorable currency levels than the hedges that we will realize in the second quarter. And of course, everything else the same, this will have a slight negative impact on the profit per tonne in the second quarter compared to the first quarter.

[Mats Liss, Equity Research Analyst]

Okay. But it sounds quite stable anyway. Then again, I guess, in automotive as well, you see this change over to -- where you change over to more electrified vehicles. Do you see any sort of impact on that already? Or is it more from low levels?

[Johan Menckel, CEO & President]

Johan here. No, we have been extremely active and there is more activities from the -- our customers and also from the OEM when it comes to validating suppliers, And for the new platforms, the MEV or PPE or Daimler's MMA. So -- and we are already in. We have been awarded some business, but I think it's also important to say that most of the start of production for the majority of the volumes will be in 2022 or later actually. So we'll see that impact coming later. But I think we have a very good position here to actually, to take part of this growth. And not at least what I also mentioned before when it comes to the sustainability targets there, we have as we presented this morning here, upgraded our targets. And I would say that Gränges is quite of a leader here when it comes to -- in our industry to basically have very high ambition and also high transparency, which is, of course, a great value because if you see like BMW requiring now indirectly that the supplier and the supplier's suppliers need to report footprint and the same goes for Audi and Daimler. So you really -- you see this kind of a request now coming from the OEMs And there, Gränges has worked quite a long time to establish a good framework to respond to these questions and requests.

[Mats Liss, Equity Research Analyst]

And this is mainly the battery production phase, you will be able to supply the battery producer which also supplies BMW portfolio?

[Johan Menckel, CEO & President]

This goes for the new platform. I mean if you see a car, I mean, the second largest CO2 footprint from a production footprint is actually aluminum after steel. So I mean this goes not only to the battery. It goes to the whole car, of course. I mean it will be important across all parts of the -- yes, of the product that we are producing for -- even for combustion engines, of course. Because I mean, in the Konin operation, we can also start to deliver structural parts for cars.

[Mats Liss, Equity Research Analyst]

Sure, yes. And well, could you give some sort of outlook there? How will you look in 5 years' time? Do you see sort of -- well, how much more volumes do you expect to see in these segments?

[Johan Menckel, CEO & President]

Yes. I mean just looking into our 2 main markets then or segments for the automotive industry. One is the heat exchanger material for the -- yes, combustion engines and also the EVs, we see that there will be an increase. And today, the market is around 800,000 tonnes, and it's expected to be around 1.1 million tonnes going forward. And if you look into the battery producers, in addition to this, It's also expected to in 5 years' time, be a similar size market around 1 million tonne actually, and that consists of 4 main product groups, battery foil casing, cooling plates. And I mean -- these are all product groups that we see, of course, a potential future for Gränges. So we -- in a way, we have a large upcoming new market segment for Gränges to work on.

[Oskar Hellstrom, Deputy CEO & CFO]

I think just to add to the early part of Johan's comments then that we say that the potential for the heat exchanger material to the automotive industry is around 1 million tonnes. That's also the 2025 perspective that you mentioned there, yes.

[Mats Liss, Equity Research Analyst]

And it's almost a doubling of the market size?

[Oskar Hellstrom, Deputy CEO & CFO]

Yes.

[Johan Menckel, CEO & President]

If you include the battery producers and the potential for us to be part of that as well. That's correct, yes.

[Mats Liss, Equity Research Analyst]

Okay. And finally, I mean, aluminum prices have come up quite a bit. And do you see any sort of impact on demand there that our customers tend to be a bit more cautious to these levels or try to use other materials or something like that?

[Johan Menckel, CEO & President]

I don't -- we don't see that. And I mean the price increase is the same for other materials as well and even higher for some other materials. And I mean a lot of this -- the advantage is aluminum in terms of lightweight and will not, I mean we -- yes, we don't see actually a risk for substitutes here into other materials.

[Operator]

Okay. And we have a follow-up question from the line of Gustaf Schwerin.

[Gustaf Schwerin, Research Analyst]

Just a follow-up on the electric vehicles. I know you said previously that you expect to keep your market share for [ essentials ] following the increased penetration rates, we will see. I mean, so far, when you say you're gaining some contracts on new platforms, how is that working so far between OEMs? I mean can you see that you're protecting your market share? Or is that very dependent on where we are in terms of model launches from the different OEMs?

[Johan Menckel, CEO & President]

We -- it's quite early days to give an exact figure and if we're following the 20% market share. But we have reason to believe that we can, of course, be has a large -- I mean, have the same kind of market share for this vehicle type as we have for the combustion engine types. And as I said, we've been awarded some programs, and we are in discussion with others. But of course, once again, just to say that we will see the volume effect, the main volume effect coming in 2022 and later.

[Operator]

And as we have no more questions registered. I now hand back to our speakers for any closing comments.

[Johan Menckel, CEO & President]

Okay. There is no more question, then I would like to conclude this session. Thank you, everyone, for participating on today's call. As usual, we received good and interesting questions. And we look forward to our next call on 16th of July, when we'll present our second quarter report for 2021. Thank you, and goodbye, everyone.