AB SKF (publ)

Good morning and welcome to the SKF Year End Report 2022. My name is Charlie and I'll be coordinating the call today. If you'd like to ask a question at the end of the presentation, you can do so by pressing star followed by one on your telephone keypad. Alternatively, you can submit a question via the webcast. I'll now hand over to your host, Patrick Stenberg, Director of SKF Group Investor Relations and Mergers and Acquisitions. Patrick, please go ahead.

Thank you, Charlie. And good morning and welcome to all of you listening into this webcast. This is, of course, the SKF conference call on the fourth quarter results. And as usual, we'll start with the presentation followed by Q&A. Presentation will be initiated by Rikard Gustafsson, our CEO, followed by our CFO, Niklas Rosenberg. After the presentation is over, we will continue with the Q&A session. And you are happy to post your questions over the phone as directed by the operator, or you could use the chat function if you prefer that. With that brief introduction, I will leave the word to Rickard. Please.

Thank you very much, Patrik, and a warm welcome, everyone, to this webcast related to our fourth quarter report. And I would like to start by looking back at the full year of 2022. We deliver a strong organic growth, just about 8%, which takes us to the top of our previous guidance for the full year. Our adjusted operating profit came in at 10.2 billion Swedish kronor, representing an adjusted operating margin of some 10.5%. I think we should see or view our numbers against the backdrop of a very challenging external circumstances throughout the year. We have the war in Ukraine and all the consequences thereof, including our exit of our business in Russia. We have had and lived with exceptional cost inflation levels. It has been a moving target for us throughout 2022, but we're happy to see that a gap is now closing towards the end of the year. And you will hear more about that in this presentation. And of course, we also have experienced significant lockdowns from the COVID restrictions in China for a rather lengthy period of 2022. But the year of 2022 was also the year when we accelerated our strategic agenda. We have capitalized on our growth opportunities and delivered double-digit growth in most of our targeted industries. We are taking a more active approach to portfolio management to improve our operational performance. Our technology initiatives are progressing well, and I will share more details later in this presentation. We have further accelerated investments in our regional engineering and manufacturing capabilities to enhance our competitiveness. And I'm going to share some examples of that as well during this presentation. So all in all, we have established a strong foundation for 2023. If we then take a look at the fourth quarter in isolation, net sales maintained very strong in the quarter and came in north of 25 billion Swedish kronor, representing an organic growth of approximately 10%. Roughly two-thirds from this growth comes from price mix and one-third from volume. The adjusted operating profit was 2.5 billion Swedish kronor, corresponding to adjusted operating profit of 10%. This represents a sequential profitability uplift versus Q3, but not yet at the level where we want to be. And the main reason for this is still the cost situation, that we have a rather high cost inflation, even though it starts to level out, and I'll share some more details on that shortly. In this quarter, we have somewhat of a different business mix than normal, where automotive contributed with some rather large growth of 12%. And then we ended the year in China with some exceptional sick leave rates after they lifted the COVID restrictions in China. Basically, most of our people then ended up being out of sick leave during the month of December. But net cash flow for the full quarter was very strong. It came in at 3.4 billion Swedish krona compared to 1.2 billion the same quarter last year. And this is primarily related to activities within networking capital that we have conducted during the quarter. And you will hear Niklas talk more about that shortly. All in all, we saw strong organic sales growth as well as sequential price realization in the quarter, supporting an improved adjusted operating profit versus previous quarter, but also versus the same quarter last year. If we look into our growth activities, and again, I'm very pleased to report strong progress on all of our four core growth levers. Starting with the industries in the quarter, we saw strong double-digit growth across most of our targeted segments. And as you can see on the right-hand side of this chart, see that electric vehicles stands out with a significant growth of 46% in the quarter. But also a number of those industries that we also highlighted in our capital markets day in December continue to deliver solid double digit growth, such as agriculture and food and beverage and rail as an example. When it comes to new technologies, strong progress there, starting with magnetic bearings, solid growth, partly driven by energy application, an area where magnetic barriers really have a role to play. And we're also pleased to see that they report a record order intake in 2022, reaching north of one billion for the first time ever. Recon Oil continues its strong progress, significant interest in the Recon Oil box, but now in this quarter also started to operationalize some new strategic partnerships such as the one with Quaker Horton and Castrol, which we are excited about. We continue to expand our service and aftermarket business and our distribution business grow by 10% in the fourth quarter. In relation to this, we have renewed our focus on condition monitoring, where the responsibility for connected technologies have moved closer to our customers by being distributed to our business areas. And finally, on portfolio management, we continue those tactical and strategic activities that we described in detail at our Capital Markets Day in December. And we have commenced on the strategic review of our aerospace business, as we also announced back in December. Moving on and taking a look at our pricing activities. We continue to increase prices and prune our portfolio to further strengthen our business and market position. Our efforts have resulted in another quarter with a growing positive price mix contribution. And as you can see from this chart, in this quarter we have a positive contribution of 1.8 billion from these activities. However, though, cost inflation is still an issue that we're wrestling with. And even though it's moderating and leveling out, it's still at a high level. And we had headwinds of roughly 1.8 billion Swedish krona in the quarter. Of course, a significant drop versus what we had in Q3 last year. So also what's obvious on this chart, after five consecutive years of negative price mix inflation balance, Now the bars have evenly starting to finally even out. This is, of course, a positive data point, but it's a bit premature to call it a trend. Now, if you take a deeper look into our industrial segment. We saw a very strong organic growth across our industrial businesses at around 9%, roughly 50-50 split between price mix and volume. But also, which is obvious on the slide, it's not evenly distributed across our geographies. We saw very solid growth in Americas, coming in at some 6%, with strong performance in automation, material handling and agriculture, to mention a few. The organic growth in EMEA was actually surprisingly strong at 13%, with very strong growth in aerospace, rail, marine and agriculture as well. We see its strong and continued momentum in India and Southeast Asia, where they're growing 16%, mainly from wind, rail, off-highwind and heavy industries. While finally China and Northeast Asia is more flattish or moderate organic growth, also heavily impacted by the COVID situation at the end of the Q4 in China. If we look into the industrial business and the financials a bit further, the adjusted operating margin came in at 12%. This is due to the good pricing momentum that we have in these industries, in our industries, and we're able better to balance the cost inflation. That has enabled us to deliver an adjusted operating profit that is actually on par with what we saw the same quarter last year at 2.2 billion Swedish kronor. And we're excited about that. We see that our ability to really deliver tailored and specialized solutions to our customers provide true value and enable us to continue to drive profitable growth. I'd like to bring two examples to life today, starting with one that is derived from our sustainability capabilities that is becoming a major differentiator in our offerings. And here I'm going to bring your attention to an example with a contract that was signed with a mining company in Latin America. And my second example relates to application-specific offerings, where we have been able to sign a contract also within the elevator industry. But let's start by taking a look then at the sustainability-related example. Sealed spherical rolling bearings is a great example of how SKF support industries to reduce CO2 emissions. We recently delivered a sealed SRB solution to a mining company in Latin America. And as you can see from this slide, these are not small bearings. They are massive. They are 2.5 meter in diameter and weigh about three tons a piece. But the key customer values that the sealed SRB solution brings to our customers is threefold. Firstly, from a cost point of view, these bearings, they have a superior service lifetime, at least two times versus traditional open SRBs. The environmental benefit is also rather significant. They enable us to have reduced the grease consumption. And as you can see from the slide, in this particular case, the annual consumption dropped from 540 kilograms to only 70 kilograms, a massive transformational shift. And finally, circular economy is starting to become more and more important. And these bearings, they are designed for remanufacturing possibilities, adding another dimension of value to our customers. And finally, I'm also pleased to say that in order to win this business and win this contract, we were also able to leverage our recent acquisition at the back end of last year of Tenuta. And their capabilities and technologies helped us to finish off and sign this deal. Moving on to my application specific offering example and relating to the elevator business. SKF is a leading supplier in the elevator segment with a strong and growing market share. We are gaining market share due to our outstanding quality, but also due to our application specific offerings in this particular industry. And what we mean by application specific offerings and when we design solutions to fulfill specific customer performance requirements related to cost, noise, vibration or friction. In this case, when we signed or renewed, I would say, a major contract with a large OEM in the elevator industry was really due to our ASO capabilities. In this case, the customer had a clear requirement on us. They needed us to significantly reduce the cost of the bearings for them to stay competitive. Our engineers took on this challenge and come up with a solution where we created a product with reduced number of rollers, an optimized ring material, and new lubrication system. As a result, We were able to deliver the price expectation to the customer. The bearing itself came with lower noise, which was an additional benefit to the customer. And also from an SKF point of view, this enabled us to significantly improve our operating margin on this particular contract. So through ASO activities like this one that I just described, we are able to drive profitable growth across many of our industries. So now I think it's time to turn to our other area, our automotive business. And like for our industrial business, we see strong organic growth in the quarter of roughly 12%. And this time is primarily from price mix. As for the industrial side, it's not evenly distributed across our geographies. You see continued and strong growth in the Americas, reflecting very strong growth in light vehicles. In EMEA, organic growth is very, very significant at 19%. We're coming from primarily commercial vehicles growing some 25% and light vehicles growing some 20-21%. India and Southeast Asia grow also solidly at 12%, primarily driven by light vehicles in this area. And then China, flattish. And again, the COVID outbreak at the back end of 2022 is the main driver behind the rather weak growth performance in that region. Going further into the financials of automotive, We deliver an operating profit of 400 million Swedish krona, corresponding to an operating margin of 5.4%. This is a significant sequential improvement versus Q3 and also versus the same quarter last year. And this is primarily due to the positive price contribution that we are able to achieve, both from the OEM market and the aftermarket. And as you all know, we are on a transformational journey to transform our automotive portfolio. And in the fourth quarter, we have signed some contracts that will enable and further accelerate this transition. We have signed major contracts with large commercial vehicle OEMs, both in Europe and Asia, really creating an even stronger foothold for us in that particular segment, large commercial vehicles, which is of strategic importance to us. And we also signed high volume agreements for ceramic bearings with two Asian EV producers. Again, strengthening our position in the important EV area or EV segment. And speaking about EV, to support this significant growth that we see in this segment, I mentioned 46% in the fourth quarter, close to 60% for the full year. We must and we will continue our regionalization efforts. And to bring this to life, I'm going to share one example today where we now announce an investment of roughly 700 million Swedish kronor to build a greenfield operation in Monterrey, Mexico. This plant will provide bearings both for industrial and automotive applications, supporting the growing demand from electrification. The investment will improve our localization rate and thereby enhance our overall competitiveness and flexibility to support customers in Americas. And the first channels will actually open already in the mid 2023. So that ends my introduction and remarks to our numbers. And I'm now going to hand over to our CFO, Niklas, who will take you through some more details.