AB SKF (publ)

Thank you and good morning to you all and welcome to this conference call on SKF's third quarter results. As usual we will start with the presentations hosted by Richard Gustafsson, our CFO and Niklas, our CFO. After those presentations we are happy to take on your questions. You could use either your phone as instructed previously here or you could use the phone as instructed. I leave the word to Richard please.

Thank you Patrick and good morning everyone and welcome to this interim report for the third quarter. I start by sharing that we continue to deliver on our Intelligent and Clean Growth Framework and I'm very pleased to report that we have very strong traction on all four growth levers that we have defined within our strategic framework. We see that the key mega trends that are sweeping across the globe such as electrification, digitalization, automation and also sustainability provides a strong ground for growth for SKF. And as you can see on this illustration to the right hand side of this chart we record once again solid double-digit growth in many of our focus industries such as material handling, automation, agriculture and high speed rotation. There is also one key outlier here and that's electric vehicles that are growing you know 66 percent in the quarter and I will come back to more details around that when we touch on our automotive business later on in this presentation. When it comes to new technologies we continue to make good inroads with our products and our capabilities and opening new opportunities growth opportunities for us. Our ceramic bearings are key to the growth in EVs that they are described and I come back to them as well in the automotive section. Another proof point in this quarter is the fact that our magnetic bearings has been selected to power Tump Turbos new generation of compressors. So that's a big win for us in the quarter. When it comes to service and aftermarket it is an important piece to our total service offering to our customers. We use our broad capabilities here to really make sure they're provided right value to the customers and that we create loyalty and stickiness with our customer base by leveraging all of our components and technologies within lubrication, seals, bearings, condition monitoring and so forth. And in this quarter we have signed a very significant condition monitoring contract with a large packaging producer in North America that I will share some more details on as well during this presentation. And in terms of portfolio management it's key to us we continue to work actively to look for how we can fix accounts that are not delivering on the profitability levels that we expect or if we can try to exit some parts of our portfolio that may not be strategic or at the very you know margin that is not in line with where we want to be. This is happening across the board and it's very particular within our automotive business and we'll talk a bit more about that as we move into this presentation as well. On top of this we have also worked hard to accelerate the components of our strategic framework that relates to cost efficiency and today we announced some some progression also in that regard that you will see during the presentation. But let's dig into the numbers and as I mentioned the strong growth has been really strong in the quarter and we have an organic sales growth of roughly 11 percent in the quarter and again I'm very pleased to report that most of that organic growth comes from those industry segments that we really want to grow in that is part of our strategic intent and our strategic framework. So net sales comes in at roughly 25 billion Swedish krona up from 20.1 billion last year if you include fx it's a 24 percent growth but organically it's 11 percent. The adjusted operating profit came in at 2.1 billion Swedish krona with a margin just shy of 9 percent 8.5 percent down from 13.3 percent in the same quarter last year. This is of course not nothing that we are very pleased about. We do see that the a significant cost inflation in the quarter especially in Europe has impacted our results negatively despite the fact that we are driving our price and mix activities successfully and I'm going to share some more details on this shortly to give you some more flavor on how the cost has evolved in the quarter and also our progression our capabilities to drive price in this environment. Net cash flow comes in at 1.3 billion down from 2.5 billion last year to a large extent due to the operating profit has come down a bit and that is also reflected in the cash flow. But before we move on to the details I'd also like to take this opportunity to welcome two new members of my management team. As of since a week back we have a new chief technology officer on board and that's Annika Öllmö and we also since a week couple of weeks back we have a new leader for our China and North East Asia business with Henry Wang. Both of them we welcome back to SKF. They have previous experience with the company. They have then you know done a professional careers outside the group and they're now coming back to help us drive our strategic framework forward and I'm delighted to have both of them on board and apart and being part of my team. But if we take a look more into this cost inflation and price momentum that we have if I start with the price momentum and I like to draw your attention to the dark bluish or blackish bars on this chart. As you can see we have significantly improved as quarter over quarter our contribution from price mix. If I draw your attention to the first quarter in this year we had a positive price contribution of roughly 1 billion Swedish krona. It grew to 1.3 billion Swedish krona in Q2 and now in Q3 it's up to 1.8 billion Swedish krona. It's significant improvement and it will continue as we move forward into the future as well. The problem though is that you can see that cost inflation the grayish bar on this chart have accelerated at an even higher pace and we also need to recognize that a lot of that has been happening in Europe and in Europe we have a significant presence. Our European business accounts for roughly 40 percent of our sales but six percent of our production. So of course the energy crisis in Europe and the cost inflation in general in Europe has impacted us negatively. You can see here that you know the delta between price mix and cost inflation has increased and in the quarter we have cost inflation of 2.9 billion Swedish krona primarily driven by materials and energy cost and Niklas will give you some more details about this later on in this presentation. But given that we are unhedged to our exposure both to energy and to some of these cost inflation would also indicate that once we see more normalized levels on energy and other you inflation it should mean that we have a tailwind to our margins going forward. And to try to give you some proof point on that again I like to draw your attention to the first quarter of this year. There you can see that the delta between the price mix and cost inflation started to ease off a bit. We came from 1.5 billion to 1.6 billion then it came down to 1.4 billion in Q1 and our margins at Q1 were 13.3 percent. Then the delta has you know increased and now reached kind of a record high of 1.1 billion having of course a negative impact on our earnings. But on a positive note I like also to mention that we saw at the end of the quarter some improvements in some of the cost items that we have in terms of the pace of inflation starting to ease off and I think about logistics and see I'm also referring to some of our components for us or steel components start to tease off a bit. But it's a volatile environment we are we stay determined to continue to drive our price mix efforts to at some point in time fully compensate for the cost inflation as we have said now throughout you know this full year. But staying within our strategic framework for a few more seconds I already touched on the growth levers that we have the four growth levers and this time I also like to give you some more insights on to two import within two important growth enablers. The how we do to operate more effectively and also what we're doing to maintain our focus to drive regionalization and enhance our competitiveness across our supply chains. But starting with operating more effectively when we launched our strategic framework we were very clear that as part of this we were also changing our organizational structure. We created more autonomous business areas with full accountability end to end for our values for respective value streams of value chains. That also implied that we saw opportunities to simplify our organizations to change ways of working to be faster to our customers and have a more agile structure in general terms. That work has been ongoing since we launched the whole strategic framework and now during the fall we come to a point where these now start to materialize into concrete actions and savings that we are ready to share with the broader audience. As part of this we are you know announcing a delayering of our EMEA organization to drive simplicity and clear accountabilities and changing a number of the ways how we operate within EMEA. I think it's going to benefit our customers. We are trying to leverage more low-cost countries for some of our white color capabilities and laborers not just for certain competencies but also trying to build regional service centers in different countries where it's more attractive from a wage point of view. As I said from the beginning we said that we wanted to rethink our corporate functions. We want to push more of these accountabilities out into our business areas and that is now happening and we are changing some of the corporate functions and we're also using this opportunity to look into our IT spend and our IT projects to ensure that they are fully aligned with our strategic intent and we have found ways to also drive down some costs there within a fairly short time frame. Our connected technologies it is an important piece of our offering especially on the service side. We are keen and determined to continue to grow that but we realize that we should not do it by having everything in-house. We need to leverage partners to help to build the software platforms and also the hardware on the sensors so that you know we can be speedy that we can be future proof and that we can scale this operation more effectively together with partners and already in Q2 we announced one step in this direction with the announcement of the collaboration with AWS on some of the you know low-end sensors. And it goes without saying when you go through these things we're also constantly looking to reduce our consultant to spend and other indirect expenditures. So all in all we see that we have opportunity to reduce our cost base with some 2 billion Swedish krona with full run rate effect by the end of 2023. It will come with a restructuring cost of roughly a billion Swedish krona is our best estimate at this point and that's going to be you know impact our numbers sequentially from now through 2023. In totality this will have an impact on a number of positions roughly you know thousand positions will be redundant due to these activities with a majority of those being in Europe. On the regionalization and how we build our competitive supply chain. I'm pleased to report some good progress also in this quarter. We are today reaching out to you from our head office here in Gothenburg and next to us we have our our factories here. We have recently inaugurated a -the-art fully automated assembly and packaging line for medium-sized roller bearings. That will really drive cost efficiency and productivity in our Gothenburg factory. We have also continued with our efforts to consolidate our footprint especially in Europe and we announced some closures of a factory in the US and three factories across Europe to happen to to be completed within shortly. And also on our strive to develop a more balanced regional footprint we have also completed our second investment in the Jinan factory in China which will really help us to increase our localization rate in China and support our China for China strategy. So it's an important step on that journey as well. So a lot of activities are also ongoing there all in line with our what we outlined in our strategic framework. But let's take a look into our two main segments starting with industrial. Industrial also recorded a very very solid organic growth in the quarter up eight percent versus the same quarter last year and here you can see on this chart that the growth is actually coming from all parts of our region with a significant and Indian Southeast Asia. Also America's is growing nicely. EMEA has a strong single digit growth rate primarily driven by price where we have more a flatish volume while China has more modest growth and I think the Chinese economy is still impacted by the covid restrictions and that's why we see that growth rates are more modest in that part of our footprint. Looking into some of the numbers for industrial I already commented on the on the growth and the adjusted operating margin came in just shy of 11 percent down from 16.5 percent. Of course this is not anything that we are pleased with but it's clear indication that those costing that cost inflation that is described primarily with our European manufacturing footprint is really having negative impact on our earnings in this quarter. However though we are determined and we are confident that we sit on pricing power and that we will continue to work with our customers and find ways to compensate for this cost inflation and build back our earnings over time. Also important to note that some of our business units with longer order books they have had an even tougher time to compensate for the energy crisis and so forth and the fast volatility that we've seen in the quarter. So they have a longer lead time to find ways to compensate for that and two examples of that being our aerospace business and our marine business having a negative impact in this quarter. But we also have a number of success stories to tell you in the industrial side in the quarter. I'd like to start by sharing one related to as I would strive towards more sustainable future. I'm very pleased with the collaboration we'll have with Ova Costil to find ways to demonstrate to the world and to ourselves that net zero is not just something a kind of a vision that is unreachable it's actually something that will happen and can in this case we have already used a mid-size bearing a sizable bearing with a 90 percent less co2 emission than a traditional bearing a clear proof point that this is really doable. Still of course we need to ramp this up and scale this but we're excited about it. It comes from a kind of a circle effort together with OvaCo. OvaCo they provide us with the raw material of the steel we use for the bearings come from Scrapsteed. We then you know may manufacture the bearing here in Gothenburg at our net zero facilities here and then we return the finished product back to OvaCo and into their production. So it's again a proof point how you know we see the future and what that would look like and we are determined to play our part in the transformation towards more sustainable future. As I mentioned in the beginning we also signed a new agreement with a major US packaging producer and I'd like to give you some more details on that one. Again this is a proof point how we can enter with one area of our offerings and build a relationship and let that grow from from there and over time enhance our service capabilities our value to our customers and also create stickiness with our customers. This relationship started in 2019 where we got you know awarded to monitor one single asset of theirs. Today our relationship with them have grown significantly and today we monitor more than 5,500 of their assets. We provide a number of services from application engineering through lubrication management and of course we also provide them with bearings and also with seals which is another you know important component in our total offering. Speaking about seals last quarter I gave you some more insights on our lubrication business and this time I want to share some some details on our our seals business. Seals represent a sizable part of our portfolio roughly six billions of revenue with attractive industrial margins and why are seals important? Well 20 percent of the bearings that fail is due to either contamination or poor lubrication and that's where the seals application play a vital role and if we do this right and if combined these capabilities are with lubrication capabilities our bearing expertise and our seal securities we can find solutions that are state of the art and really solve pain points for our customers. One key example is what we've done with within the agriculture industry with our SKF Agri Hub where we created some a combined offering where we combined our know-how and expertise in these fields and created this unique offering that really works extremely well in these extreme conditions that you find within the agriculture and that has been the foundation for a very very solid growth within this industry for quite some time now and you saw on my first chart that agriculture continues to deliver solid double-digit growth. We continue to invest in our technical capabilities also within seals very often we work very very close with our customers to define the materials and compounds that will solve their particular pain points or problems that they're trying to solve in their applications and we find ways to also in a dynamic way do product design and testing of these applications together with our customers that has been highly appreciated and proven to be successful and also to strengthen our footprint here we've done a recently as you probably have seen a small acquisition we acquired a company in italy called Tenuta that has unique competence in a small niche within the industrial seals segment that we're now delighted to have as part of our portfolio even here we have a emphasis on looking into portfolio management and how we want to develop this business going forward and you will see us put more emphasis on the industrial side of seals applications and less emphasis on the automotive side of our sales business and application going forward of course because we do see that we have a more value add on the industrial side and there we also can obtain more attractive margins moving on to automotive automotive also saw a significant growth in the quarter organic growth up 18 percent versus same quarter last year however though i need to remind you that Q3 last year was a rather low quarter for the automotive industry at that time the semiconductor crisis was really intense and a number of our customers then closed their or our oem customers i should say close their operations and of course you know when compare you know quarter over quarter it makes it somewhat difficult to compare but 18 growth organic growth anyhow you can see growth coming from all regions with significant growth in india in the mea and americas and there we see growth both on personal vehicles light vehicles and commercial vehicles china and northeast asia also see significant growth just shy of 20 as you can see but here is primarily light vehicles and personal vehicles drive growth you know commercial vehicles are still having a senior fairly low demand at the moment looking into the automotive numbers i already mentioned the the growth here we see that the margins can come in at three percent compared to 4.5 percent the same quarter last year but it's actually up versus our second quarter this year so automotive have also been impacted by the significant cost increases that we have seen but they have also worked hard on their price mitigation actions and they have also been successful in getting some surcharges that has also helped them to compensate for some of these energy spikes that we've seen especially in europe with an automotive we are making good progress on our announced transformation as you probably recall we're trying to focus on the areas within our own automotive portfolio where we are having clear number one position or a number two position and where we feel that we have an offering that is truly valuable to our customers and this includes our focus on electrical vehicles on the market as part of this we of course see now good momentum in our e.v. segments as I said up 66 percent and a big drive for this not only drive but one key drivers of course the constantly increased demand for our ceramic bearings in within this industry our ceramic bearings are high demand due to their you know high speed capability and also electrical isolation capability really provide significant value for the e.v. industry and in the quarter we have signed some significant contracts with big oem's on for their e.v. platforms both in europe and in china so with that I end the kind of informal overview part of our presentation i'm now going to hand over to our Nicholas Rosenlev to give you some more details on our numbers so Nicholas

thank you Richard and let's start off with some details on our sales so in q3 we had strong sales growth as Richard already mentioned our sales was just shy of 25 billion sec and sales grew both sequentially and compared to last year driven by a broad based demand from multiple different industries as well as multiple product segments compared to last year our net sales increased by 24 percent total of this there was a two percent negative impact from Russia our exit of the russian business the organic sales increased by 11 percent and this was driven both by volume and by price mix and the currency effect of sales was a positive 15 percent with the largest effects coming from the dollar the renminbi the brazilian real and the so all in all strong and good sales performance moving on to our profitability our adjusted operating profit was 2.1 billion in the quarter compared to 2.7 billion last year overall as rick had mentioned we had good momentum in price mix which was then offset by sharply increasing costs primarily in europe leading to a reduction in profitability and if we go through this step by step firstly the currency impact was positive at 288 million compared to last year and just to explain this number so while we have a strong contribution on sales from for instance the dollar we do have a relatively high portion of our costs in euro resulting in a more limited benefit on our profit from effects the russia business was divested in q2 and this had a negative impact of 54 million meaning that we had a profit last year which we did not have in q3 this year our organic growth which consists of volume price and mix contributed with a positive 2.1 billion and about 90 percent or 1.8 billion of this is price mix while 10 is driven by volume as noted as rick had explained our price mix has sequentially continued to increase 700 in q4 last year a billion in q1 1.3 billion in q2 and now 1.8 billion in q3 and these are -on-year comparisons what comes to inflation we did see a sharp increase in costs in q3 especially driven by europe this came from energy but also materials for some of the other elements such as logistics we actually saw inflation starting to come down a bit from high levels for energy we are largely unhedged and also saw costs coming down a bit towards the very end of the quarter so the total impact from higher costs was 2.9 billion and as a comparison this was around 2 billion last quarter just to give you a flavor so 2.9 billion the component part of it is call it half of it so half of the 2.9 a bit less than half while then energy added 400 million approximately salary approximately 300 million these being the largest elements of cost inflation so to sum up we had a continued good momentum with sales price and mix on the other hand we did have a sharp increase in cost inflation especially in europe resulting in a deteriorating margin while we are confident that we will offset inflation over time in q3 the inflation just increased so quickly that we did not have time to offset it moving on to cash flow we generated a net operating cash flow of 1.3 billion in the third quarter compared to 2.6 billion in or 2.5 billion last year mainly driven by lower operating profit and higher working capital just to comment on working capital working capital as a percentage of sales increased to 36 mainly driven by exchange rates sequentially inventories were actually pretty flat in q3 marking a change after a year of increasing inventories and finished goods on the other hand actually went down somewhat in q3 we've continued to prioritize customer deliveries as demand has stayed on a high level at the same time we have seen some normalization of supply chain bottlenecks although the environment still being quite volatile and let's say regardless of these external circumstances we will work with reducing networking capital across all of our businesses there's no quick fixes here but we are confident we'll start to see networking capital to come down moving on to our balance sheet we have a continuously strong balance sheet and good liquidity our net debt amounted to 11.9 billion a slight increase sequentially driven primarily by but still at very healthy levels return on capital employed was a solid 12.6 and also during the quarter we've continued to work on our capital structure and actually successfully issued our second green bond and on that note to comment on the green bond so we successfully issued this in September and it highlights our commitment to work with sustainability as Rickard commented on earlier and this was a bond of roughly 400 or actually exactly 400 million euros and the reception was very good and some six times oversubscribed it's yet another example of our long history of working with sustainability and now also linking financing to sustainability we use the proceeds for broadly speaking two purposes firstly the first purpose is to strengthen our clean tech business and support our customers for them to achieve better sustainability secondly we also invest in our own operations to ensure that we reach our goal to be scope one and scope two emission neutral by 2030 and scope three neutral by 2050 and an example of internal investments is for instance reducing our own energy consumption by at least 25 percent in manufacturing we do expect these investments to contribute positively to our competitiveness and our business turning to the outlook for q4 and full year 2022 for the fourth quarter of 2022 we expect an organic sales growth of about 10 percent and as a result we expect organic growth for the full year to end in the upper part of our previously guided range of about four to eight percent we do however expect to see continued volatility and geopolitical uncertainty in the markets and as a result we expect continued high levels of cost inflation supply chain bottlenecks and volatile demand so with that i hand back to you rickard

thank you niklas and i will just end this formal part of the presentation before we go into the q a with a summary of what we just hang on have been through we stay determined to deliver on our strategic framework our intelligent and clean growth framework and in terms of growth as you we do report a very strong organic growth and we're pleased that the growth is actually happening in the industries where we want to be and where we want to play we continue across the board to actively work on our portfolio management to help further improve our our margins and our long-term profitability in our business even though we have primarily talked about what's going on with an automotive i like to highlight that this is an activity that's going on in all parts on our business at the moment we do see that maintain our strong price mixed momentum we will continue to drive this the organization is fully focused on driving these activities to ensure that we do everything in our power to compensate for the ongoing cost inflation we are not pleased with where we are in terms of profitability in the quarter but we're pleased with the growth and we're pleased with the activities that we take to help us to that to come back to a more stable earnings when it comes to operating more effectively we really see that we are now starting to embed our new operating model and our new ways of working and i'm as i mentioned i'm also very pleased that we have onboarded a couple of new leaders to to the team all the work that has been done within the organization for you know throughout the spring and summer is now bearing fruit and we have identified a way to really drive a different way of working simplify organizational structure and reduce our overhead costs by roughly two billion swedish krona and run rate savings by the end of 2023 this is a result of a very dedicated and hard work across all parts of our business we maintain our efforts and emphasis to then and improve our regionalization rate across our key geographies and also that we continue to drive in our supply chain the gin nan investment in china is a one example that really you know was concluded in this quarter that will really help drive a significant positive benefit for us in the china and northeast asia region and as you also heard talk about we are continuing on our journey to simplify our footprint footprint manufacturing footprint especially in europe with a set of additional factors being closed within the near future so with that we conclude the formal part of the presentation i will now hand back to the operator to help us facilitate the q and a session so thank you very much operator please

our first question comes from class bergland of city class the line is yours

thank you hi richard and nicolas first on the the moving parts in the bridge the 400 million in energy costs and around 300 million in wages year over year i'm curious how these two will likely move heading into the fourth quarter if you could give an indication what you see now nicolas you made a comment at any cost a level off at the end of the quarters and maybe energy around the same level and wages higher quarter on quarter perhaps and if you think price will also turn higher quarter on quarter as part of your 10 percent guide it looks like it with sort of flatish volume growth as a result i'll start there

well thanks class you know trying to predict energy prices in in europe is i'll leave it to to others but what we did see again was a very volatile energy cost level during the quarter and and as you rightly pointed out we did see it coming off a bit towards the very end of the quarter but i i don't dare frankly to predict how it will look like exactly in q4 what comes to salary inflation you are i would say you are right to to assume that it's more likely to go up rather than than down yeah and price mix of course i mean as you heard throughout the presentation it's a high focus area for us will continue to work on it we are confident that will drive more price mix is always a bit more difficult to to predict but clearly expect you know continuing momentum from from price mix

so so i guess to be more clear i know that you're on hedge on energy but i thought there was some sort of lagged effect still in terms of how it hits your your pnl but is it really one for one effect because obviously nat gas prices are coming down sharply in in europe at the moment which will be a positive immediately in the fourth quarter if this is a -on-one effect is want to clarify that

well i think it's it's true that we are on hedged but it's not an immediate effect i would say within a month time or so we see the effect hitting our results we do have some contracts of course and not just buying everything on a daily basis on spot prices so there's some lag time there but i would say up to roughly a month it's lag time before you see it in our numbers

okay that's helpful my my second one is on is on the the volume guide i mean of course it's up to us to predict what the price mix will be but let's say that it's slattish volumes i'm trying to understand the mix here between your outlook for china on the industrial side where growth was only two percent i there is more to get back from the lockdowns again it's potentially european industrial outlook which is likely getting weaker this quarter was a lot about higher production on the auto side but now the industrial weakness in europe could perhaps gradually kick in versus china gradually coming back thoughts here richard on on on that would be useful

maybe if i if i just comment first i mean similarly to what we saw in in q3 we can expect a similar kind of ratio maybe on auto versus industrial so essentially auto including volumes growing quite strongly in q4 as well while then industrial maybe being a bit more muted for the reasons that you mentioned we do see the european economy being of course challenged and then china being also a bit challenged by the covid lockdowns

yeah i'm not sure if i have so much more to add to that that clause i do expect that europe will face some sort of recession and that will of course impact demand we already see that as i mentioned in the presentation that on volume on a volume basis we flattish in europe and we'll see that's going to evolve now in in q4 while i do believe that some of the growth pace in china is somewhat negatively impacted by the ongoing covid restrictions so there should be some potential opportunities for additional volume growth there as hopefully those restrictions ease off within a reasonable future

thank you our next question comes from james moore of redburn james please go ahead

yeah hi there hopefully you can hear me ricard nicholas patrick and perhaps i could start with the cost development line your minus 2858 liner thanks very much nicholas for your color on raw materials 1400 energy 400 labor 300 i mean i'm going to assume logistics 200 even if i do that there's still a balancing item in here of about minus five six hundred million which to me is your implied savings number which is a sort of negative five six hundred million savings number i know sometimes we have a negative savings number but i thought that the covid 19 temporary measures which i think from memory were 625 eight quarters ago in the third quarter of 19 had already fully reversed after a year ago so i wondered my first question can you just help us understand what's in that balancing item uh maybe i'll come back on the others

so um hi james i i think the on on components and and remembering we buy very little actually raw materials but it's mostly uh components so on components uh uh it's actually it's a bit more than than what you said i said roughly half of the 2.9 billion maybe not fully but but anyway to that tune while then energy 400 roughly salary maybe 300 roughly and then we have things like shop supplies and and and so on making up a part of the the remainder so again a bit a bit more on the component side and then then you are roughly there from a math perspective thanks

and um your your price cost gap if i can call it that is 1.1 billion in the third quarter if you were to take current spot prices for everything do you think that this is the most negative period for that net price cost gap and that it should improve from or would you expect to get it for it to get worse before it gets better and my other question is when we take this all together there's a lot going on with your savings plan with the price cost gap with the inflation with your ambitions on pricing with the economy which may roll over etc etc i understand there's a lot of moving parts here but how should we think about profitability next year for the whole of 2023 versus 2022 when we pull that together can we think about margins um being um up or or actually should we think that they've got to come down given some of these inflationary items good

good points james and i mean um wish wish we could could give you a straight and good answer here i mean have we peaked um um i mean um we on the component side we have a lag so even if we've seen some of the you know for instance crap steel prices come down already for some time and so on we do have a lag of maybe three to two six months if that gives you a bit of insight and then as rickard commented here on on energy the lag is shorter on logistics we we have seen as i mentioned a bit more of a normalization or at least cost levels coming down a bit from the peaks and also operationally it being easier to to ship ship ship goods across the world so it's not all pitch black but we do expect inflation levels to stay at uh at reasonably high or quite high levels then in terms of next year i mean of course i mean we are we are not pleased with the margin we have now in q3 so of course we foresee you know call it normalization or higher margins going forward but uh we don't we don't want to give a prediction of our margins for for next year

if i can add to that james um i think to your point we do have a lot of moving parts and a very very unpredictable and volatile environment around us and i don't really dare to uh to give or or guess where this is going to go i can only look backwards and realize that when we started this year in our plans we did not see a war coming in europe we did not see a locked complete lockdown of china or at least the shanghai region for a couple of months we did not foresee the energy crisis that we're now living through here and especially in europe so it is hard to predict and the delta of 1.1 billion is is a big one and it's bigger than what we thought when we entered into this quarter especially because energy in europe has been a you know a surprise or been more maybe you know developing in a more negative way than anticipated is maybe a better phrasing than a surprise so it's hard to predict but the only thing we can say is that when and if we see a shift in the growth rate of this inflation we should have a tailwind on our margins but i don't dare to predict when that will happen

thank you very much

our next question comes from andreas koski of bnp paribas andreas the line is yours

thank you and good morning yeah i wish you have two questions on cost savings and price firstly on cost savings are you still running your five billion swedish pruna cost savings program if so how much has been materialized and what contribution did cost savings have in this quarter on a -over-year basis

uh if you can sort of talk about the quarter niklas i'll can start yes we are delivering on our five billion commitment we are making progress some of those examples that i gave on what we now do with the consolidating our footprint in europe investing you know the in ginan and in guffinberg are all part of that and we we think that we so far have delivered benefits from this program of equating to roughly two billion swedish krona there or there about i know it's hard to see in the pnl we need to remember when we you know gave that five billion number a you know couple of years back that was under assumption that you know everything else would be roughly equal and that's the case so of course we have seen a number of other things so basically we're swimming against the tide so i think that's why you don't really see them in the numbers but they are there and they are progressing well and we are as committed as before to deliver on those five billion any comments on the quarter there niklas

no and i'm andrea so the um so we have the five billion stay firm on that and uh now of course we we did introduce some additional measures very much in line uh with the strategy and uh let me know andreas if if we missed some of some of your parts of your question

yeah if it's possible to quantify quantify your expected total cost savings in 2023 you have now two billion in annual run rate at the end of 2023 from the new program launched and then we will have addition and savings from the cox program i guess

correct no we don't we we we have we don't really disclose that so um there's not a number that right here and now prepared to kind of you know go into

yeah understood so lastly quickly on price in price mix i assume the mixing pack is uh is negative in this quarter as automotive growth was much stronger than the industrial division so isolated what was uh the the price impact in this quarter and should we expect that to accelerate in the common quarters thank you

yeah so um we we continue to work with price meaning we continue to increase prices and uh the majority of price mix in the quarter is almost all of it is is really price as you said mix was was less favorable this quarter but we are extremely committed to continue to work on the price part of it and i said earlier today it's a bit harder to predict the mix of course but we are very confident that we'll continue to see a good momentum in in price

thank you very much

our next question comes from if and zang of golden sacks if and please go ahead

morning everyone i just want to um quickly check on the new uh restructuring plan you announced this end additional to the before four to five plant closures right and i'll ask my question next

okay

sorry can you hear me

yes can you hear us yeah

i just want to double check yeah yeah i can hear you now okay yeah i just want to know the new plant announced in addition to the previous four to five plant closure yeah

yeah so the the two as rick could explain earlier here is is uh uh more related to our um you know staff um how we work how we work more efficiently uh while then the plant closures uh uh relate to our five billion uh by 2025 so they are two two separate things

okay cool understood and and also there's one billion more restructuring costs do you think it put you in a probably tougher position for your dividend increase for the four year and yeah that's yeah that's a question

well i mean on the dividend of course uh uh the the the the board and uh the shareholders will decide on that so uh cannot really comment on it but we we don't see um we don't see the kind of the restructuring costs affecting our ability to uh pay dividend

oh a final question so you announced um basically how's the plan for higher autonomy that you announced in January February this year playing out so far can you give us some progress on that

okay well we we do have our business areas they are up and running they are you know they have their clear set of targets they have taken over the responsibility and accountability for the -to-end value chains that sits within the respective areas uh we have made some management changes in this regard as well throughout the throughout the year to ensure that we have the right leaders and the right capabilities to execute on this framework and i also would like to say that this two billion in savings run rate savings by 2023 is a direct correlation to our efforts in this regard this has been driven by our business areas as they now scrutinize their areas identify opportunities to further drive cost efficiency while we rethink also some of the corporate head office activities that we have had in the past so i think you should see the the announcement of the two billion as a clear indication that we are progressing pretty well in our restructuring and changing the ways of working with the next kf

perfect thank you very

much our next question comes from eric golrang of seb eric please go ahead

thank you have a couple of questions on the on the portfolio i assume the profitability range is quite wide across your different product groups could you tell us something about sort of what part of the how much a big part of the portfolio are you actually able to to offset the underlying cost inflation is there any part here where you're really operating at continued good margin levels and then on the other end of that i would say could you put a number also on how big part of the portfolio is is loss making currently well

we're into sensitive territory here eric on what we are comfortable this to disclose also from a competitive point of view where we see where we have big opportunities and we have other challenges so i i will have to answer your question in more generic terms than into two specific details i'm afraid but you're right in the way you realize that in some parts of our portfolio we are it's harder to drive through the necessary price increases i mentioned two particular examples in my in my comments related to businesses with rather long order books i.e marine and aerospace there we have more work to do and to get back on track on the profitability level that we expected to be at and what we're used to so that will be two examples on the other hand we are also looking in in each business area they constantly look into their you know bottom 10 performing accounts and come up with clear actions on either fix it or exit and that's a kind of a rhythm that we have in our business that would drive quite aggressively we didn't automotive we have been more specific there we have said that you know we anticipate to exit 1.2 billion of revenues or of business and revenue terms within the next kind of you know couple of years they're bound to certain contracts but those discussions are ongoing and they refer to to large extent to to customers within small combustion engine power passenger cars for example is an area where we pay a lot of attention so i think i i need to leave you at a high level because some of these others it might be a bit too sensitive

to share openly this is maybe a good opportunity to do a bit of marketing so we have our capital markets day coming up on the 8th of december some of these topics as we have a bit more time we could maybe go into into a bit more detail as well so hope to see many of you on the 8th of december very much so

that's if i could just one one follow up on on those when you talk about sort of exiting or or trimming the portfolio of stuff that isn't profitable or where you don't think it will become or reach a good profitability should we mostly think of that as sort of pruning are you just exiting the business as opposed to being able to sell it

i wouldn't roll out the selling part there might be some opportunities for that as well and hopefully can share more details than that on in december on the capital markets day

thank you eric we have come to the end of the hour that has been allocated so time's time runs quickly unfortunately we will have to to call it the day here we are standby on phone and and on email if you have additional questions i know we have some that have been posted on on the chat that we need to get back to you on and we're happy to do so perhaps a couple of closing remarks from from ricard before we close

yeah i'll do a very quick sum up then first and foremost thank you for paying attention thank you for being with us this morning as you heard us about you know we are very pleased about the progress within our strategic framework especially on the growth side where we do see very strong organic growth we're that we're excited about we are less excited about the margin that we have developed or or made up in this quarter but we are confident that our activities and all our efforts will be the right medicine to turn this back to a ability level where we where we need to be where we should be so we are still you know optimistic and forward-leaning when it comes to the future and our eaglet to do everything now to move as quick as you can also during the reminder of this year so with that i think i thank you all and as we begin 4th of December