AB SKF (publ)

Ladies and gentlemen, welcome to the SKF Q3 results conference call. I am Sandra, the chorus call operator. I would like to remind you that all participants will be in listen-only mode and the conference is being recorded. The presentation will be followed by a Q&A session. You can register for questions at any time by pressing star and one on your telephone. For operator assistance, please press star and zero. The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Patrik Stenberg, Director, SKF Group Investor Relations and Mergers Acquisitions. Please go ahead, sir.

Thank you. Good morning and welcome to this Q3 conference call. We will start with a presentation by our CEO, Rikard Gustafsson, and our CFO, Niklas Rosenlev, as usual. We will try to keep that slightly shorter than 30 minutes. After that, we will be open to receive your questions, and we look forward to the dialogue with you there. As usual, you could either use the chat function if you want that, which is available at this call, or you could post your questions over the phone, as usual. With that brief intro, I leave the word to Rickard, please.

Thank you, Patrik, and a warm welcome, everyone, and good morning to this quarterly report presentation. And I guess we get started all directly. So when we started this year, we forecasted that demand would be stronger in the first half of the year and then soften in the second half of the year. And we were right. We now see reduced demand across all regions. However, I am pleased to note that our strategy and operating model are creating a more resilient SKF. Despite headwinds from a negative volumes and somewhat unfavorable business mix impact, we deliver a strong set of numbers in the quarter. All in all, we report a flat organic growth with net sales of just shy of 26 billion Swedish krona, an adjusted operating profit of 3 billion and a very strong cash flow from operations north of 3.4 billion. Adjusted operating margin came in at 11.5% compared to 8.5% the same quarter last year. And our operating margin performance should also be viewed in the light of a somewhat negative mix effect, where automotive growing ahead of our higher margin industrial business. Across our business areas, we have continued our price and portfolio management activities. We have reduced business cycle. But now let's take a deeper look into the sales development by geography. Despite a general slowdown in the market, we saw that EMEA and India and Southeast Asia are holding up well with the mid single digit organic sales growth. In both regions, the underlying volumes are somewhat down, but compensated by a positive price and mixed development. However, China clearly did not rebound as expected with the downward pressure on demand. This was particularly visible in the wind segment that turned from a solid growth in Q2 to a sharp decline in Q3. This in isolation had the three percentage points negative impact on our organic growth rate for the entire group in the quarter. Another area where I have noticing softer markets is North America. This is a continuation of a slowing trend that we have seen for some quarters now. It's mainly related to destocking among some key OEM customers, primarily within food and beverage and agriculture. The ongoing strike affecting our customers in North American automotive industry has so far had a very limited impact on our growth rate in the region. But furthermore, we have also across all our regions exited some unprofitable business. This, of course, having a negative impact on values, but contributing positively to our profitability. In the quarter, We were also affected by the increased geopolitical tension in the world. In August, our factory in Lutsk, Ukraine, was hit by a Russian missile attack. Three of our colleagues were killed and assets were damaged. But I'm impressed by the rapid response from the entire SKF organization to this outrageous event. Very quickly, we were able to support and aid our Ukrainian colleagues, as well as rerouting our supply chain to eliminate any negative impact on our customers. But let's turn into our business segments, industrial and automotive. I'm starting with the industrial business. Here I am pleased to report that many of our high growth segments continue at double-digit organic growth rates, with aerospace and rail growing north of 20%. Also, our industrial distribution business remains strong, with an organic growth of 5% on a global basis. But however, as I mentioned, the slowdown in China and primarily the wind industry and the OEMD stocking in North America, the overall adjusted operating margin came in at 13.7% despite declining volumes and a negative organic sales growth. Turning to Automoto, a somewhat different story. The ongoing strategic repositioning within our automotive portfolio continues at high pace and is progressing well. In the quarter, we saw an organic growth rate of 3% with an adjusted operating profit of almost half a billion Swedish krona. The adjusted operating margin came in at 6.2%, which is a doubling from the same quarter last year, and an additional step towards our 8% annual margin target by 2025. So if we leave the numbers for a second and turn to our strategic framework and our execution of it. Throughout the quarter, we have continued to embed and execute on all dimensions of our intelligent and clean framework. In today's presentation, I will share more details on some of them, namely innovation and technology, regionalized and competitive supply chain. For our machine tool customers, SKF has designed a new generation of super precision bearings. Our new digitally connected bearings enables real time fine tuning of the machine cycle and thereby significantly improving productivity segment. We have recently launched 3D printed axle box covers. This enable us to produce and offer spare parts on demand and thereby lower inventories and solving many obsolescence issues. We have also introduced a new AgriHub with improved robustness in the housing, enabling customers to seed at double speed with more precise placement. Furthermore, the new hub for agriculture is also more environmentally friendly by eliminating the risk of grease contamination into the soil. So many exciting examples there, but let's move on to the supply chain. Competitive and resilient supply chains by regions are critical to be close to our customers, improve our cost competitiveness, reduce our environmental footprint, and to mitigate geopolitical risks. In some regions, like EMEA, we are focusing on consolidating our manufacturing footprint. The announced shift of production capacity from Luton in the UK to Poznań in Poland is one prime example of this. In other regions, like the Americas, it's more about capacity, building capacity from scratch. As you may recall, in Q4 last year, SKF communicated its investments in Monterrey, Mexico. And already in October this year, we celebrated the official inauguration of our new factory. With this new factory, we are increasing our competitiveness, positioning ourselves closer to North American customers and reinforcing the value chain in the region. This investment also supports the ongoing automotive portfolio repositioning by strengthening our offering to EV and commercial vehicle customers in the region. Now let's take another look at service and aftermarket. In many industries, effective monitoring of assets and predictive maintenance are key to reduce downtime and thereby unlocking financial and environmental benefits. We see strong demand for our asset monitoring services and we recently signed a five-year agreement with the international mining and mineral group LKAB to develop monitoring solutions for all their assets. This is a great example of how we expand our service business with our customers. The contract now includes online and onsite vibration analysis, remote diagnostics, application engineering, and lubrication management. By introducing data-driven maintenance, SKF can effectively support LKAB in reducing unplanned stops and lowering the risk of accidents. And finally, I'd like to take you through an update on portfolio management with a particular emphasis on aerospace. As you all recall, at our Capital Markets Day in December last year, we announced a strategic review of our aerospace business. And today, I am pleased to report back the conclusions and the outcome from this review. The aerospace industry is a high growth, high tech industry where we have strong and unique position. However, our current aerospace portfolio is to some extent the result of historical acquisitions, creating a wide assortment range. To leverage our full potential within this industry, we intend to put even more emphasis on our core segments, air engine bearings and aerostructures. We have already initiated numerous pricing and contract management actions that will step up the profitability in near term. In addition, these areas will be further strengthened through accelerated investments, including digitalization, automation and additional modernization of our manufacturing footprint. In our strategic review, we have also identified some high quality business lines with strong market positions in their respective niches. But they fall outside of our core aerospace offering. For these non-core assets, we intend to explore options to act that by focusing on our core business and seeking strategic options for areas outside of our core, we will unlock the full potential of the aerospace business. But let's take a deeper look into the aerospace portfolio. In total, our aerospace business has a turnover of approximately 6 billion krona, but the majority, some 5 billion, come from our core areas, aerospace, engines and aerostructures. For these business lines, we intend to leverage our leading position and tangible synergies with our industrial bearing business to become an even stronger partner to our customers. Our non-core business lines, with a turnover of approximately 1 billion, cover product lines such as mechanical seals, rings, precision elastomeric devices. These are primarily manufactured in our facilities in Hanover and Elgin in the United States. We're convinced that these high-quality assets with attractive business prospects will have an even greater potential with the right owner or partner. So with this overview, I will now hand back to Niklas to take you through the numbers in more detail. Niklas.