AB SKF (publ)

Welcome to this conference call on the first quarter results. As in the last couple of quarters, we will use video instead of the traditional telephone conference. So please make use of the chat function for the following Q&A session. Post your questions there and we will answer them after the presentation as usual. Today's speakers are our president and CEO, Alrik Danielsson, and our CFO, Niklas Rosenlev. With that very brief introduction, I will leave the word to Alrik, please.

Thank you. Good morning, everybody, and welcome to this conference. I'm pleased and proud to stand here today after yet another strong set of results. During the first quarter, we saw strong sales and demand growth. Organic sales increased 8.6% in the quarter. Sales were significantly higher in Latin America and Asia and relatively unchanged in Europe and North America. We're also managing significant headwinds in terms of higher costs for logistics and material and a negative currency impact, affecting our operating result by 1.3 billion Swedish kronor. Despite this, we delivered a very solid adjusted operating result of almost 2.8 billion, representing an adjusted operating margin of 14%. We are already working actively to implement price increases, both in industrial and automotive, to compensate for rising input costs. The first quarter is historically lower in terms of cash flow generation. The sharp increase in demand in the quarter contributed significantly to higher accounts receivables, and as a result, cash flow was lower than last year. All in all, another real strong set of results, which we are all very proud of. The industrial business delivered a very good performance with a record high 16.3 adjusted operating margin compared to 15.5 last year. 5.4% in organic sales increase, really good. Compared to last year, sales were significantly higher in Asia and Latin America, relatively unchanged in Europe, Middle East and Africa, and in North America. SKF's great strength is our ability to meet needs of almost any rotating application. One of the most demanding for bearings, although you might not think so, is in agriculture. Farmers need their machines to run without downtime through mud, dust, grime, dirt, and water. Tilling machines and seeding machines are just two of the applications that rely on a multitude of bearings in order to perform. This is also an area where we have been most successful in developing and delivering what we call application-specific solutions. Solutions that are designed, engineered, and manufactured to meet the specific needs of a customer. The key to why we are successful and has been doing so well in our offers in agriculture is straightforward. Our engineers maintain an unrelenting focus on the needs of the customer without overengineering for the sake of it. We're able to capitalize on the speed in the value chain, taking ideas from design to manufacturing in a matter of days, not months. Sourcing and manufacturing at competitive rates and being able to combine the SKF bearing and SEALS technologies in a way which is unmatched in the market. Especially in an application with such a harsh operating environment, that is absolutely key. What makes this a really interesting area as well is the ability to mark and price these solutions based on the value they generate for the customer. We price the bearings on their performance and on the uptime they enable, not based on manufacturing cost plus kind of markup. When you look at this slide, you can see what I mean. Through our engineering and seeding offer, we can essentially engineer an agri-hub which is specified to meet the needs of the individual farmer. The larger the farm is, the higher needs and expectations on the bearing, and therefore also the value of the bearing to the farmer. Smaller farms of lower requirements and their agri hubs are engineered to a different performance level. Remember, it's about performance levels, not quality. The quality is always the same, top. This slide is the one that's really great to be able to show you. As you can see, there's no doubt the value of this application specific offers in terms of direct impact on the business. In 10 years, sales has gone from 100 million SEC to over a billion. What's more, it's really in the last years or so when it's really taken off, as we have invested more in our engineering and manufacturing capabilities. The same approach is now also being implemented in food and beverage, metals, fluid, machinery, to name a few. Another part of the business that's growing well is our fee- and performance-based road-technical equipment performance business. By offering a combined service, including bearings, seals, remanufacturing, lubrication, and of course, condition monitoring and analysis, we're able to offer a completely new business approach. Customers pay for uptime and machine performance. Process industries are really where this setup works best. And we will have yet another win with a pulp and paper company in Brazil. As you can see, it's a five-year deal, which includes a full SKF offering. And just to give an idea of the scope of the contract, it includes over 3,000 connected analysis points. The automotive business continues to perform well. Strong organic sales growth of almost 17%, with an adjusted operating margin of 8.9%. We're also seeing continued strong growth in electrical vehicles. The car on this slide is the NIO ES8, a full-size seven-seater all-electric SUV. And with those words, I leave the word to you, Niklas.

and if we turn to the next page and go through our financials. First of all, let's start actually with sustainability. Sustainability is something that we've been reporting on for many, many years. It's also an integral part of SKF's strategy, our operations and our business. And we will now actually start to report on sustainability on a quarterly basis. just as part of our normal quarterly report. And what you see here is a snapshot of that report. As you can see, we've seen a strong increase in our cleantech revenues during the last couple of years. They've increased from 4 billion in 2018 to 7 billion for the last 12 months. This includes revenue from, for instance, renewable energy, wind, electric vehicles and other similar segments. We are also making good progress towards our target of being carbon neutral. Here it's demonstrated by the reduction of scope one and scope two CO2 emissions. And furthermore, our accident rate has also continued to consistently come down over the years. and over the quarters. Moving on to our sales development in Q1. Sequentially, our organic sales continued to improve with quite consistent progress since the trough in Q2 2020. Compared to last year, our net sales decreased by 1.1% in the first quarter Organic sales increased by 8.6% compared to last year, as Alrik mentioned here earlier. The currency effect, as you see by this difference on sales, was substantial at negative 9.6% in the quarter. And the largest effects came from the dollar, the euro, the renminbi, the Indian rupee, the Brazilian real and the Russian ruble. The recent quarters have, as we all know, been extremely volatile with significant swings in demand. This has actually put our organization and the whole value chain to a real test. And we are extremely pleased to say that we managed to serve our customers well in this quite tough situation. Our improved flexibility and our low cost base have also materialized in excellent profits and also in strong margin resilience. In Q1, we've seen increasing cost inflation on both components and on logistics, as well as a significant currency headwind. Despite this, our operating margin or operating profit was 2.8 billion And that corresponds to a margin of 14%. This is actually an increase, an improvement of 1.2 percentage points compared to Q1 last year. We are continuing to invest in innovation. We continue to improve our competitiveness, continue our push within sustainability, and we are adapting our operations and our ways of working. This has continued to deliver good results as we see now in our Q1 results. So all in all, Q1 was strong and we continue to transform our business. So our profits improved despite headwinds from currency and increased material and logistics costs as we continue to invest in innovation and competitiveness. So let's go through the profit bridge. Firstly, the currency impact was strongly negative at 761 million compared to last year. We also saw strong headwinds from increased prices on materials, components and logistics amounting to 537 million compared to Q1 last year. But then on the other hand, our organic sales and manufacturing volumes contributed with a positive 780 million. And if we zoom in on this, within organic sales and volumes, price was positive and mix was neutral. And then our cost development continued to be good and costs were 735 million lower than last year. So to sum up, our operating profit improved to 2.8 billion, a 14% margin, despite 1.3 billion in headwinds from currency and increased material and logistics costs. So in Q1, we experienced global supply chain bottlenecks resulting in increasing costs, logistics costs, also longer lead times as well as material cost increases. It's pretty natural in this environment and we have a good track record of this. We do continue to take action on pricing to offset this cost inflation. And while the net impact, if you look at the cost inflation, logistics cost, material cost versus pricing impact, it was negative in Q1. And there could actually be a mismatch also in single quarters going forward. We do expect our pricing actions to offset inflation over time. Zooming in on our performance within industrial, the organic net sales increased by 5.4%. Sales for industrials was significantly higher in Asia and Latin America, while sales were relatively unchanged or was relatively unchanged in both EMEA and in North America. The adjusted operating margin for industrials was a record high 16.3% compared to 15 and a half last year. And cost reductions contributed positively here. While then on the other hand, costs for material components, logistics, as well as currency had a negative effect in the quarter. For automotive, our organic sales increased strongly by 16.7% in the quarter. Sales was significantly higher in Asia and in Latin America, and sales was higher in EMEA and slightly lower in North America. We've been successful in delivering on the higher demand to our OEM customers, and this is something we are pleased with in these volatile times. The adjusted operating margin reached 8.9% in Q1 compared to 6% last year for automotive. Moving on to networking capital, it was 30.2% of sales at the end of the first quarter, and this was 0.7 percentage points higher than at the end of the first quarter last year. We had an increase in receivables, and to a lesser degree, we also had an increase in inventories and payables compared to Q1 last year. And as Alrik commented earlier, this increase, especially in receivables, was a result of higher customer demand. Moving on to cash flow in Q1, excluding acquisitions and divestments, it was 0.7 billion negative compared to 1.9 billion positive last year. The decrease compared to last year is mainly explained by higher working capital driven by higher volumes in the quarter, especially towards the latter end of the quarter. And the cash flow for the last 12 months is 2.6 billion. Commenting on the balance sheet, we continue to have a strong balance sheet and very solid liquidity. The net financial debt amounted to 1.5 billion and the net debt to equity ratio excluding pensions was 10.2% at the end of the quarter. So to sum up in Q1, we continued to implement our transformation journey. We had good sales growth. We had improved profits and we had stronger margins. We continue to regionalize our business, consolidate and automate our manufacturing footprint. And we announced consolidation of operations, for instance, in Italy, as well as continuing to expand capacity in China. What comes to our Q2 outlook, demand has improved quite consistently since the trough in the second quarter of 2020. And we expect net sales to continue to grow. And we expect net sales to reach pre-COVID levels in the second quarter of 2021. And with that, I'll hand back to you, Alrik.