AB SKF (publ)

Good morning and welcome to this conference call on the second quarter results. As usual, we'll use the chat function for the Q&A session that will follow after the presentation. You can start posting your questions already now and we'll answer them in due course. Today is also the first time I will welcome our new CEO, Rikard Gustavsson, to the quarterly presentation. Rikard will start the presentation and after that Niklas Rosenlev, our CFO, will continue. So with that brief introduction, welcome again, and I'll leave the word to Rickard, please.

Thank you very much, Patrick. I'm very pleased to report that SKF has performed well in the second quarter. We have delivered a record-strong operating profit, and we're making solid progress on our efforts to consolidate, automate, and regionalize our manufacturing footprint. Demand is currently very strong, and organic sales grew by 33% in the quarter. taking us back to pre-COVID levels. Net sales in the quarter reached 20.7 billion Swedish krona, up from 16.5 billion last year. Industrial sales grew organically by 22%, and automotive sales grew by a full 76%. The second quarter saw a record adjusted operating profit of 3.1 billion Swedish krona, and a strong adjusted operating margin of 15%. The result was especially impressive given continued headwinds in the form of negative currency impact and rising input costs. Through effective mitigating actions, we have been able to compensate for approximately 50% of this cost inflation. We have done well to serve our customers under these circumstances. and we are doing our outmost to capture additional growth opportunities. Cash flow generation in the quarter was just north of 500 million Swedish krona, a significant improvement compared to last year as well as the last quarter. All in all, a really strong set of results which we are pleased with. When looking at the development across our main markets, you can see that EMEA is still our largest market, representing some 44% of sales, followed by Asia Pacific at about 30% and North America at about 20% of sales. During the second quarter, we have seen a very strong rebound of demand and we are all working diligently to meet our customers' expectations. All regions saw double-digit organic growth, although from an extraordinarily low comparison in Q2 last year. With that said, organic sales in Asia and Latin America are now at level above what we saw before the pandemic hit. As mentioned, we are constrained by tight supply chains and a lot of efforts and hard work have been done throughout the entire organization to serve our customers. What all our regions have in common is the shared belief and focus on our ability to capture even more growth. Taking a deeper look at our two segments, starting with industrial, which you are aware represent about 75% of our sales and 85% of our profits. Industrial demand is currently very strong. Organic sales grew by 22% in the second quarter and net sales reached almost 15 billion Swedish kronor. Demand in Asia-Pacific was especially strong within off-highway distribution and industrial drives. In EMEA, we note the strongest momentum in the off-highway, energy and industrial distribution businesses. In North America, heavy industries, off-highway and distribution have been significant growth drivers for the accelerated demand. And finally, in Latin America, Demand has been very strong in energy, industrial drives, off-highway and distribution. From a results point of view, the industrial business delivered another strong quarter with a record high operating margin of 18% compared to 40% last year. Turning to the automotive business, the second quarter has seen exceptional growth compared to Q2 last year. Organic sales grew by 76% in the second quarter, and net sales reached almost 6 billion Swedish krona. However, we are still a few percentage points below the 2019 levels. Some of our automotive customers have been affected by component shortages and have been forced to make production adjustments. These have also had an impact on our inventory levels, which Niklas will tell you more about shortly. We have continued to support our customers to the best of our ability and we show continued good performance with an operating margin of 7.6%, a significant improvement compared to the negative 7.6% of last year. In the second quarter, we have seen strong growth in demand for both cars, commercial vehicles and spare parts across all regions. As you know, We are well positioned within the electrical vehicles and work with many of the leading OEMs in most regions. We have secured another couple of really interesting contracts in the last weeks, both in North America. One for full electric passenger SUV and another for a commercial truck that is being developed. While maintaining our high pace of investments and investments, consolidation of our manufacturing footprint. Since 2019, we have permanently closed six manufacturing units and are currently in the process of closing an additional 11. Some of these initiatives regretfully have a negative impact on some of our employees, but are absolutely necessary to align our manufacturing footprint with customer demand to increase automation and secure growth opportunities. Investments in our factories are expected to reach 3.8 billion Swedish krona for the full year, some 200 million higher than our previous guidance. These investments make us more flexible and efficient, as well as being an important foundation for winning more business from customers in fast-growing segments and regions. So far, These investments and consolidation efforts have realized 1.1 billion Swedish krona of the 5 billion in annual savings we expect to generate by the end of 2025. We are moving towards a more sustainable future, and we already have an ambitious net zero CO2 emission target for our own operations by 2030. By also committing to the science-based target initiative, we are now taking steps to further increase our ambition and transparency levels throughout our supply chain. This will ensure that our efforts are fully aligned with the ambitions of the Paris Agreement. Sustainability isn't just doing the right thing. It's also a great business opportunity for us and which we will continue to invest in both from a product and industry segment point of view. As you can see on this chart, we have seen strong increase in our cleantech revenues during the last couple of years. It now represents sales of more than 7 billion Swedish kronor annually, an increase of 78% since 2018. This includes revenues from the renewable energy, electric vehicles and bearing remanufacturing, one of the many services that we offer to help to reduce CO2 emissions. This is a real excellent growth driver going forward and one which we'll continue to invest in. With this, I'd like to hand back to Niklas for a deep dive in our numbers, and then I will come back with some further comments at the end of this presentation. So, Niklas, over to you.

Thank you, Richard. If we turn to the next page, I'll take you through the details of our financials. So as Rickard mentioned, we had a strong demand for our products and our services in Q2. If you look at this sequentially, our organic sales continue to improve with consistent and good progress in recent quarters. Compared to last year, our net sales increased by 24.9% in the quarter. Our organic sales increased by 33.2% compared to last year. So as you can see, the currency effect on sales continued to be substantial at negative 8.3% in the quarter, with the largest effect coming from the dollar, the euro, the renminbi, the Indian rupee, and the Russian ruble. In Q2, we continued to experience cost inflation on both components and on transports. We also had a significant currency headwind. Despite that, our adjusted operating profit was record high at 3,118 million, corresponding to a margin of 15%. We are investing in innovation, improving 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. So in sum, The second quarter was strong and we continued to transform our business. So in Q2, we had record high profits despite a challenging supply chain situation. And let's go through this step by step in the form of the profit bridge. Firstly, the currency impact was strongly negative at 586 million compared to last year. We also saw continued headwinds from increased prices on materials, components, and logistics, and this amounted to 718 million compared to Q2 last year. Of the total 718 million, a bit less than half was mixed-driven, while then the rest was inflation. On the other hand, our organic sales and manufacturing volumes contributed with a positive 2,824 million. Within organic sales and volumes, both price and mix were positive. In the quarter, price mix did offset roughly half of the higher material and logistics costs. Cost development continued to be good. and costs were 33 million lower than last year. To sum up, despite headwinds from currency and increased material and logistics costs, our operating profit improved to a record high 3,118 million with a 15% margin. We generated a cash flow of 509 million SEC in the quarter compared to negative 854 million last year, excluding acquisitions and divestments. The cash flow for the last 12 months is 4.5 billion. A key driver to the stronger cash flow is the improved operating profit. partly offset by continued build-up of working capital in the quarter, primarily coming from higher inventories. The reason for the higher inventories is due to the strong demand and expected growth also going forward. The other reason for the higher inventories is the volatile supply chain environment. So for instance, in automotive, some of our customers did not take deliveries because of shutdowns or lack of other components. Networking capital in percent of annual sales was 30.7 in the second quarter compared to 30.0 last year. The ratio was negatively affected by exchange rate fluctuations, In fixed currencies, on the other hand, networking capital to sales improved by about one percentage point compared to last year. Return on capital employed continues to improve and was 15.4% for the last 12 months, this being good progress towards our target of 16%. We continue to have a strong balance sheet and solid liquidity. Net financial net debt amounted to 4 billion, and the net debt to equity ratio excluding pensions was 16.8 at the end of the quarter. The sequential tick-up is seasonal, and this is due to the dividend payment in the second quarter. And with that, I hand back to you, Rikard.