AB SKF (publ)

Hello everyone and welcome to the SKF Year End Report for 2023. My name is Seb and I will be the operator for your call today. If you wish to ask a question during the Q&A session on today's call, you can do so by pressing star 1 on your telephone keypad or press star 2 to withdraw your question. I will now hand the floor to Patrick Stenberg to begin the call. Please go ahead when you're ready.

Thank you. Good morning to you all and welcome to this SKF event. Today, we will focus on the Q4 results. We will start with presentations from our CEO, Rikard Gustafsson, followed by a presentation from our CFO, Niklas Rosenle. These presentations will take some 25 minutes, and after that, we are ready to take on all your questions. And as usual, you can either post your questions live on this call, or you can use the chat function as you prefer. With that brief intro, I will leave the word to Rickard. Please go ahead. Thank you, Patrick.

And a warm welcome to all of you, and thank you for joining us for this webcast. It is no coincidence that I have chosen a train as the background image on this first slide. On the contrary, railway is a global, high-performing industry where we play an important role for our customers. I will come back to this later in this presentation. But first, let me start by looking back at the full year 2023. This was a year where we diligently executed in our strategy to further strengthen us as a company. The ongoing transformation has made us more resilient and competitive, both in the first half of year with strong demand, as well as in the weaker demand environment that we faced in the second half of the year. I am very happy to conclude that this is also reflected in our 2023 full-year results. Last year, for the first time ever, we delivered net sales north of 100 billion, bringing our organic growth to around 4%. It is also very satisfying that the adjusted operating profit came in at a record high, 13 billion. The adjusted operating margin was 12.5%, which is a significant improvement compared to 2022. And cash flow from operations was just shy of 14 billion, being one of our strongest performances ever. So all in all, it was a very strong performance last year in a turbulent macro environment. But now let's take a look at our performance in the fourth quarter. Let me once again stress that I'm pleased that our strategy and operating model are creating a more resilient and competitive SKF. We delivered a strong performance also in the fourth quarter, despite reduced demand across all regions. As you can see from this slide, we had net sales of 24. We delivered an adjusted operating profit of almost $3 billion with a cash flow just below $4 billion. Our adjusted operating margin improved significantly and came in at 12% compared to 10% in the same quarter last year. This despite a significant volume drop. Our 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 pricing, cost and portfolio management activities, and this has contributed positively to our profitability. It is also encouraging to note that our decentralized operating model has further enhanced our ability to drive productivity and efficiency. We have succeeded in reducing cost and inventories to effectively manage the business cycle. As an example, we have completed the previously announced 2 billion annual run rate saving program, including a reduction of more than 1,000 staff positions. When it comes to our geographical regions, we see that demand in Europe continues to be resilient, This partly related to good growth in railway and aerospace, as well as in the aftermarket business. In the Americas, we saw continued soft demand where the agriculture and food and beverage segments remained weak. In China and Northeast Asia, it is possible to see a more stabilized situation where demand was somewhat less negative than in the third quarter. However, demand in the wind segment continues to be very weak, but partly offset by strong development in distribution and aftermarket businesses. Finally, growth in India and Southeast Asia was, as you can see on this slide, relatively flat in the quarter. Now, let's take a deeper look at the results for our industrial and automotive business areas. I am happy to report that our robust industrial business, representing more than 70% of net sales, continued to perform well in the quarter. We delivered a strong adjusted operating margin north of 15%. As a result, the adjusted operating profit came in at 2.6 billion, which is a significant uplift compared to the same quarter last year. The growth rate for the industrial business was negative 3% due to the overall economic slowdown. However, our industrial distribution, railway and aerospace businesses all demonstrated good growth, fueled by our ability to develop innovative solutions together with our customers. I will present some more examples of this in a little while. Turning to automotive business, representing a little bit more than one quarter of our sales. The adjusted operating margin for the fourth quarter came in at 4%, with Q4 typically being a lower margin quarter. More long term, we feel confident that the underlying performance in our automotive business is on a positive trajectory as we progress our ongoing portfolio repositioning. This is actually also visible in our 2023 full year margin improvement in automotive, surpassing 5%. With this, let's move on and look at our strategic execution. Our strategy makes us more resilient and competitive. And last year, it helped us to navigate in both a strong demand economy as well as in an economic slowdown. This year, we will continue implementing our ongoing strategic initiatives. This includes, for example, maintained efforts to optimize our supply chain and footprint, managing and restructure our portfolio, as well as strengthening our leadership position within sustainability and low friction products and services. I would like to share more details on these key priorities, what we have done in 2023, and maybe more importantly, what we will do going forward. Starting with our competitive and intelligent value chains. Localizing our manufacturing footprint is an important part of our strategy. Being closer to our customers shortens delivery times and reduces the need for transportation. In 2023, we took some major steps in all our regions, and this year we will build on this strong momentum. In Americas, we inaugurated our new greenfield plant in Monterrey in Mexico. As we now build up the capacity in this factory, we increase our competitiveness. We get closer to our North American customers and we reinforce our value chain in the region. The optimization of our European footprint continues and, as an example, last year we announced the closing of our plant in Luton, UK, with the capacity now being moved east to Poznan in Poland. In Switzerland for Germany, the restructuring continues by gradually moving some assortment volumes to China and to India to further enhance our regional competitiveness. In Asia, we announced the closure of our plant in Busan, Korea, with production volumes being moved to Mexico, China and India. Speaking about India, we are also ramping up capacity and broadening the assortment to further fuel profitable growth in this important region. In China, we have finalized some of our larger investments in Dalian, Jinan and Shenzhen. We have now established an even more competitive China for China value chain geared for profitable growth. So let's turn to portfolio management. We have been successful in our efforts related to divesting and exiting lower margin businesses or businesses that are not core to us. Today, I would like to highlight another area that we focus on related to new innovations in our targeted growth segments that would provide significant customer value. For our distributors and together with them, we have developed a new tool. We call it SKF Housing Select to make it even easier to do business with us. This enables distributors to quickly offer their customers additional accessories like housings, seals and lubricants in addition to bearing sales. For our railway segment, we have developed a new robust bearings for gearboxes, This gives several benefits to our customers, such as longer product life and fewer unplanned stops under harsh conditions. We have also introduced a new precision bearing for lithium batteries thin copper film production systems. This precision bearing provides good anti-corrosion characteristics and longer service life. And finally, let's turn our efforts to strengthen our intelligent and clean leadership. Decreasing greenhouse gas emissions and decarbonization have become paramount objectives for industries worldwide. Hydrogen plays a crucial role in achieving these goals, with hydrogen production and transportation being critical areas of research. Green hydrogen is an industry which is growing rapidly for us, and we are active in the full supply chain. We are investing in R&D, we are increasing sales, and we have multiple active customer projects ongoing. Furthermore, we are working with some of the leading machine builders in the world. In a recent collaboration with Atlas Copco and Plug Power, our magnetic bearings are used in hydrogen liquefaction. This technology enhances reliability, eliminates the risk of contamination and enables greater production capacity. We are the market leader for bearings in the fluid segment, with solutions for industrial compressors, expanders, blowers, pumps and fans. There is an increasing utilization of magnetic bearings within the fluid industry, especially within the high-speed segment. This rapid growth and development of new magnetic bearing applications are very exciting for us, being an important or a leading player in this field. Now, I would like to hand over to Niklas to take you through the numbers in more detail. So please, Niklas, the stage is yours. Thank you, Rickard.