AB SKF (publ)

Thank you. Good morning, everyone, and welcome to this SKF conference call on the first quarter results. As usual, we'll start with presentations by our CEO, Richard Gustafsson, and our CFO, Niklas Rosenlev. After the presentation, we do look forward to answering all your questions. You could either choose to post your questions live on the phone, or you could use the chat function as you prefer. The chat function is open already now if you want to. With that, for a brief introduction, I will leave the word to Rickard, so please.

Thank you very much and good morning, ladies and gentlemen, and welcome to this presentation and thank you for joining us this morning. Looking into the quarter, putting it in a context to start with, it's been a quarter that has been divided. We have seen some significant headwinds in our business. Some of those headwinds are of such a character that we wish we'd never experienced them. Of course, I'm referring to the awful situation in the war in Ukraine that also caused us to now exit our presence in Russia. We have seen a situation where cost inflation has continued to be on the rise. We have seen a very challenging logistics and supply chain situation. And most recently, we have also seen a complete lockdown of the important industrial region Shanghai in China, of course, impacting our customers and thereby also impacting us. But in that context, and to deliver the numbers that we're about to present to you today, I need to express my sincere gratitude and thank you to all my colleagues in SKF that I think have managed in a fantastic way in really trying to navigate in these very difficult waters and still deliver these results and at the same time safeguard themselves, our customers and our business. But there has been a number of tailwinds in the quarter as well. First and foremost, we have seen a very strong demand across our geographies and across several industries. which of course is shown in the organic growth rate that I'll come back to shortly. We are pleased to see that we have been able to actually maintain and to some extent even further enhance our operating margin, especially within our industrial business, which is good news. And that in itself is also partly driven by our ability to drive price, to compensate for the cost inflation that is hitting us. So both headwinds and tailwinds. When it comes to our strategic framework, I'm also pleased to announce that we feel that we have had good progress in the quarter in our intelligent and clean growth framework. A number of those growth segments that we identified that's especially of interest to us, they all show great progress in the quarter, and I will come back to that. When it comes to our service offering, we today announced what we think is an exciting new collaboration with Amazon Web Services that I also will come back to. And then in the quarter, we have also operationalized our new way of working, our new operating model, where we have the autonomous business units or business areas that have full accountability and ownership end-to-end for the entire value chain, creating more agility, being closer to our customers, and hopefully also more speed in the way we operate. So overall, good progress. But turning to the quarter and the numbers, I think we are off to a good start for 2022. Net sales came in just below 23 billion Swedish krona, representing an organic growth rate of 6.5%. And again, if you look into what's building up to that, you will see that the industrial business is really spearheading the growth, growing around 11% organically, while we see a small decline in our automotive business of negative 3% growth rate. Our adjusted operating profit came in close to 3.1 billion Swedish krona, which is somewhat ahead of the same period last year, representing a margin of 13.3%. And you break it down and look into the industrial, that had a very, very strong quarter, where we have reported a margin of 16.5%, which is actually somewhat stronger than the same quarter last year. But automotive having more challenging comparison period given that the first quarter 2021 was exceptionally strong i still believe given the circumstances that to deliver a 5.2 percent margin in automotive is also worth noticing maybe the one number that we're less happy with in the quarter is the net cash flow from operations that is negative 270 million as you can see on this chart there are good reasons for this uh all point to uh the build up of inventories A lot of that is driven by our need to build up buffer stocks to ensure delivery and quality to our customers in this very volatile and challenging environment that I described before. The underlying cost inflation by itself is pushing up the value of our inventories. And of course, the lockdown of Shanghai has also come in as an event that has driven up inventories in our Chinese business. Hopefully of more short-term nature, but for the quarter, they do have an impact on our cash flow. If we stay a bit on the group level before we go down to the industrial and automotive part, turning it back and focus to our intelligent and clean growth framework that we announced a quarter ago. As you may recall, in that framework, we identified four growth levers for our business. And I'm pleased to say that we have made some good progress in all four of them in the quarter, starting with the high growth segments. You can see on the right-hand side of this chart an example of a number of those segments that are identified as strategically important to us. And I'm really pleased to say that most of them, at least all of them that present at this chart, they all demonstrate solid double-digit growth rates. When it comes to new technologies, which is important, we will continue to invest and be the leading player to provide our customers with the most relevant products and capabilities. I'd like to point out that in the quarter we have seen good progress in magnetic bearings. That is really enabling and opening up a new industry, i.e. hydrogen. And I'll come back to you with a concrete example later on in that regard. When it comes to our ceramic bearings, they are in high demand and they are the foundation for our growth in the EV segment. And we are a clear number one in the market here. And that is really putting us in a very, very favorable position at the moment. Service and aftermarket. There I want to refer back to the announcement this morning with the collaboration with Amazon Web Services that we believe has the potential to really drive significant revenue opportunities going forward. And I will come back to talk a little bit more, give you some more flavor to this shortly. And finally. portfolio management. Here I don't have a massive or significant event to point to, but in our new setup, in our new operating model where we have each of the business areas, they all now look into their portfolios to really assess what do we need to prove? What are the loss-making accounts and how can we further improve our overall profitability within our portfolio? And that has also helped to drive some of the improvement in the underlying margin as we've seen in the quarter. So again, good progress on our strategic framework. But if we then move forward and look into industrial, and to give you the context, industrial, as you're probably all aware of, is the main industrial segment for us, representing just north of 30% of revenues and close to 90% of our earnings. Industrial has, as I mentioned, had a very strong growth. We come in at 16.5 billion Swedish kronor in net sales, representing some 11% organic growth. You can see that the two main markets or geographies, such as EMEA and Americas, had strong double-digit growth, as well as India, really growing rapidly across all of our different industrial segments, north of 20%. And then China is the one that stands out with a small negative growth rate for the quarter. And I'd like to draw your attention to two things that is really driving this. It's primarily wind and rail that has a tough comparison versus the same quarter last year, given the incentives that really drove growth in wind a year ago. If we would exclude rail and wind from these numbers, we would report a mid single digit growth rate for the rest of the industrial business in China. Again, I've already talked about the growth rate here, but I like to reinforce the margin improvement of 16.5%. Here we're really seeing that we have been able to drive price growth and other cost-mitigating actions effectively throughout the quarter, which is really boosting up our margins. But with that said, though, we are not... complacent. We know that we are chasing a moving target and the team is as on it as it was when we started this quarter to continue to ensure that we do everything in our power and use all the levers available to continue to drive efforts to mitigate the cost inflation. But we're pleased to see the momentum that we built in the first quarter that we foresee will also follow into the second quarter and onwards into 2022. I'd like to end the industrial part of this presentation, but I also point to a few customer success stories, starting with agriculture, which is one of our key strategic themes or sectors that we focus on. And it's always good to get some sort of proof from customers. And we use here, you know, the John Deere Excellence Award that our SKF Brazil team in Brazil has won for the third consecutive year, which is, you know, well done and well deserved. But we have also in the quarter signed some new partnerships that we believe have the potential to unlock some new industries. And I already touched upon them, but let me give you some more flavor. And starting with Amazon Web Services. We're excited about this because this can really take our scalability of condition monitoring and data analysis to a new level. This will not replace what we have today. It will complement what we have today by adding affordable services. Easy to scale, easy to use, condition monitoring and software analysis capabilities to our existing customers that then could afford to maybe hook up and connect more of their less critical machinery or applications. It will open up opportunities for mid-sized manufacturers and entry-level users to also get into the game here and start to connect their applications or their machinery. We believe that this has the potential to really drive our recurring revenue going forward within our service business. So we're excited about this announcement today. And this is going to start in North America. We're going to prove the concept in North America and then hopefully scale it and rule it out in other parts of our geographies as well. Another key example as relates to hydrogen. where we have in the quarter is part of a solution for new hydrogen energy to a customer in North America. And in order to liquefy hydrogen, you need turbo expanders. We don't do turbo expanders, but the main component in a turbo expander is the magnetic bearing. And here we have unique capabilities. Our uniqueness and our capabilities in really providing the bearings or the magnetic solutions to unlock this industry is second to none. And we can provide a 100% friction-free high-speed rotation that is really enabling growth in this exciting industry. So it's kind of emerging, an emerging industry. We believe it has use potential and we're pleased to take part of it from the beginning. Moving on to automotive. And again, automotive represents less than 30% of our revenues and about 10% of our earnings. Automotive had a 6.4 billion net sales in the quarter on the totality that's down by some 3% in the quarter. Here you can see again that EMEA and Americas represents our largest geographies, where EMEA have a small single-digit growth rate and Americas is dropping a little bit, down 2% on the organic growth, while India has a kind of mid-digit single growth rate. China again is the region that stands out and here there are two things I need to draw your attention to to explain that rather significant negative growth rate of 20 percent. Firstly, it's of course the ongoing lockdown of Shanghai that has made it impossible for many of the OEMs in the region to continue their operation and therefore also have an implication on us. Secondly, It's the comparison on commercial vehicles that are a bit problematic, where the first half or the beginning of last year, we saw some significant growth before they changed the emission legislation in China. So that's really the comparison that makes it a bit difficult from that point of view. Hopefully, at least the lockdown in China and the Shanghai region are of short-term nature. We have no idea. how this will evolve and then when they might open up. It might be so that it will get worse before it gets better, but at the end of the day, I hope that China will also open up within a reasonable timeframe. But time will tell and we have to manage accordingly. Looking into automotive in a broader perspective, as I said here, negative growth, but they are delivering a 5.2% adjusted operating margin. But given the circumstances, I think it's very solid and well done by the automotive team. Also here, we have seen an ability to drive price effectively, not just within the aftermarket, but also within the OEM part of our business, which is satisfactory. As I mentioned, we have seen some pruning of the portfolio that is also helping to improve the margins in automotive. On the positive side, EVs are growing rapidly and here we are a clear number one in the market. We are taking advantage of this and we see that more and more of the words EV manufacturers are turning to us. and our ceramic bearings or hybrid bearings are in high demand to deal with the straight current issues that those OEMs suffer from as voltages go up in the vehicles. So strong growth and not just from traditional EV manufacturers but also traditional OEMs are now turning to us for their EV solutions. Also the aftermarket has been very strong within automotive globally. Here we are a clear number two globally, and we have made some further inroads and progress also in that part of our business. And even in automotive, we have seen some customer wins, and they all refer to E and electrification. And we are really strong foothold in E-axles and E-powertrains, and we see some good wins for some major OEMs in Europe that we're very pleased about that provide some promising growth opportunities in the future. So with that, I think it's time for me to hand over to Niklas to give you some more insights to our numbers. So, Niklas.

Thank you, Rickard, and good morning, good afternoon, everyone. Starting off with sales. So we had a 22.9 billion SEC sales in the quarter. That's a growth both sequentially and compared to last year. And the overall growth is 15.5%. And if we split that 15.5% into organic and currency, we had a 6.5% organic growth. And then the currency tailwind was 9%, with the biggest differences coming from our currencies being the dollar, the euro, and the renminbi. So all in all, good growth. solid sales performance in the quarter. Commenting on the adjusted operating profit, we had an operating profit in the quarter of $3,058 million. And that's a growth year on year. And if I just put that into perspective, we had two distinct parts here. We had an organic growth of roughly 1.4 billion, and then we had a cost tailwind of roughly 1.4 billion. Going through this step by step, we had a positive currency effect of 288 million. The organic growth 1,376 million up consisting of two parts. 30% of this is volume driven and roughly 70% of this is driven by the positive price and mix in the quarter. Cost on the other hand, 1,395 negative. This very much reflects the inflationary environment In the world, we had higher component costs, we had higher logistics costs, and we had higher energy costs, which is the vast majority of this 1.4 billion negative. So all in all, good performance when it comes to operating profit with organic growth and price mix offsetting the negative costs. Commenting on the cash flow, and as Rickard said, this is the one thing we are not particularly happy with in the quarter, but there are good reasons, good explanations for it. So we had a negative cash flow, operating cash flow of 271 million, and it was very much driven by a negative net working capital or an increasing net working capital. Net working capital was driven by two things, really. One was the increase in receivables, very much following our sales growth, quite normal there. On the other hand, we also saw an increase in inventories. And the inventory increase, you can really break it down into a couple of components. One is that we, as Rick had said, we do continue to prioritize customer deliveries. Very important for us to make sure that we are able to deliver to the customers. And that drives some buffer stock, essentially. On the other hand, we also had or we continue to have a challenging supply chain situation in the world, leading to, for instance, mismatching in components. The logistics chains are long. We have problems. goods in transit, which is on a higher level than normal. And then last but not least, we also had the Shanghai lockdown, which affected us in the end of the quarter. We do see this or many of these items being temporary in nature. But nevertheless, we do take additional action as well to improve our networking capital in the long term. Commenting on the balance sheet, we have a strong balance sheet. We had a net debt in the end of the quarter of 10.4 billion. That's an increase primarily driven by the dividend payout, which took place in March. The return on capital employed also is developing in a positive way. 15% return on capital employed for the last 12 months. very much driven by the good profitability. And with that, hand back to you, Richard.