AB SKF (publ)

A warm welcome to this call, where we are focusing on SKF's performance for the first quarter of 2025. And once again, we delivered solid margins. And that's thanks to our diligent strategic execution. My name is Sofie Arnjus. I'm heading up Investor Relations. And I will also be joined by our CEO, Rickard Gustafsson, and our new CFO, I should say, Susanne Larsson, who rejoined SKF in mid-February. And after their presentations, we will open up for questions. And there are two ways to do that. So if you are dialing in via the telephone, you press star and one. If you are instead watching via the webcast, you can already now write your questions and you do that in the tab that you find just above the slides. So let's get started and it's a great pleasure to hand over to you, Rickard.

Thank you so much, Sophie. And good morning and warm welcome to all of you. And thank you for joining us on this webcast. Today, we're going to present a story that the actual journey continues. As you can see on this chart, we now present for the seventh consecutive quarter a negative organic growth, while at the same time our margin demonstrates strong resilience. And this is due to diligent strategy execution both in terms of driving commercial capabilities and operational capabilities. And I will touch more on this shortly. Furthermore, Our work to establish two competitive and fit for purpose businesses continues at a high pace. And clearly, the ongoing discussions around tariff in geopolitical issues have required some significant attention from all of us during the quarter. And of course, I will also bring some more flavor to this as we go through this presentation. But let's start by looking at our numbers from at the top. Starting with net sales, we report a net sales just shy of 24 billion Swedish krona, representing a negative organic growth of 3.5%. Clearly helped and offset by a strong price mix, i.e. demand has been low but somewhat offset by a very strong price mix. Turning to the operating margin, which again demonstrates resilience as I mentioned, coming in at 13.5% just ahead of the same quarter last year. And the main drivers here are primarily our pricing capabilities, our portfolio management, effective cost management, and also a little bit of tailwind from currency in the quarter. And then turning to cash flow, which was actually weak in the quarter, driven by an increased or higher network in capital and also some headwind from FX when it comes to cash. And you will hear Susanne share more about this shortly. This is something that now all our business areas are focusing highly on and scrutinizing their plans and activities to make sure that we bring back cash generation to more normal levels as quickly as possible. If you take a look at our sales by region as I mentioned we are still navigating in a rather soft market environment and it's reflected by these regions starting with EMEA where we saw a negative organic growth of some seven percent in the quarter where we see continued weak demand in many of the main geographies in Europe, primarily Germany, Italy, but also Turkey had a rather soft demand during the quarter. When looking to some industrial verticals, starting with automotive, automotive had a rather soft demand both for commercial vehicles and light vehicles. Well, on the positive side, we have noticed on the industrial business, we see that the incoming order book, order intake in our industrial business for the last few months have actually shown a positive trajectory, providing some indication that markets are about to bottom out. And longer term, we are positive about the commitments that have been made by some of the countries, main economies in Europe, where we have state-backed investments for defense and infrastructure, and that could in a longer term be a positive injection to the European economy. we then turn to China and Northeast Asia which being the bright spot on this chart in this quarter after seven consecutive quarters of negative organic growth they have now turned into a positive organic growth of two percent to some extent due to a favorable comparison versus the same quarter last year but more importantly the Destocking in the industrial distribution market that we have discussed the last couple of quarters have now flattened out. And we see a very strong demand in automotive and especially in the EV space in China and Northeast Asia. And I will come back to that later on. Turning to Americas and India and Southeast Asia. Well, it's a different story than the China, Northeast Asia story. Here in Q4, we reported a positive organic growth that has now turned into negative organic growth. To someone as expected, If you may recall we did say that in Q4 we had some timing effects that some sales that we had planned for Q1 or January slipped into December and therefore had some inflationary effect on the growth numbers in Q4. And now we see that that has come back in this quarter. On a positive side, though, in America, we continue to see a very strong demand in aerospace, while automotive, especially related to commercial vehicles, continue to see a rather slow demand. And India and Southeast Asia, similar story, automotive having a rather soft environment, while an industry like rail is a bright spot in this particular region in the quarter. But as I talk about sales by region, it's hard not to also move over and discuss the current tariff and trade situation. So this is, as we all know, a highly dynamic topic and we are constantly fed new information that we need to digest and figure out how we should act upon it in the best possible way and how to navigate in a very, very volatile environment. What we have done in the quarter that we have initiated a number of mitigating activities. We have established a tariff command center that is meeting on a daily basis, making sure that all the new information that we receive actually, you know, we work with that throughout our entire value flows and value chains in the organization. We have already put in force price changes and tariff surcharges that is also helping to navigate in this space and mitigate some of the cost derived from these tariffs. We are on an ongoing basing, constantly looking over, can we do some smart rebalancing of our global production, leverage our global footprint to its optimum. And those activities is also tactical movements is ongoing, helping to mitigate some of the tariff impacts. And then we have really scrutinized all our different flows across our global footprint and we can conclude that the flows between China and the US are limited and those that exist we are working hard to mitigate. And to give you some color on my last comment there I'd like to draw your attention to the right hand side of this chart where we present the sales for 2024 in the US. As you can see, roughly 50% of what we sell in the US is also manufactured in the US. And 50% is imported from our entire global footprint. Below the pie chart, you see how that breaks out by region. Some 20% comes from Europe, some 15% from Mexico, the region that we are rapidly ramping up to support the America sales. And there you can see that the vast majority is also USMCA compliant. And only 10% of the flows actually come from China. And that's why I say that the flows between China and the US are limited. So based on these mitigating activities, I think that in Q1 we have effectively managed to navigate through this rather volatile environment and the tariffs have not had any significant impact on our financials in Q1. And based on what we know right now and the terrace levels that we navigate and live with us as we speak, we expect that that should be the case also for Q2. The main unknown and the question mark that I think we and everybody else is struggling with is to try to assess what will these tariffs do to global demand and global GDP? Are we facing a global recession? And what will that do to global demand? And here we don't have the answers. I don't think that anyone has the answers, but we are monitoring this very closely and we are encounter different scenarios and we will prepare to act swiftly and with agility to make sure that we find a way also depending on what's going to happen to global demand. But if we leave tariffs aside and go back to our own business and take a look by segment and starting by industrial business. Our industrial business in Q1 represented roughly 70% of our net sales and close to 90% of the adjusted operating profit. As I mentioned, on a global basis, it's a rather soft market and we report negative organic growth of 3.6% in the quarter, primarily driven by EMEA and India and Southeast Asia. But the margin is strong. The margin is very strong at 16.9%, significantly up versus the same quarter last year. And the main drivers here, as I mentioned before, is our ability to drive price, work with portfolio management, cost effectiveness, and also some help from FX in the quarter. Turning to... automotive, representing some 30% of sales and 10% of net adjusted operating profit. As I mentioned, a challenging market, negative 3% in the quarter. Here we see in general terms a very soft demand for commercial vehicles, while on a global basis light vehicles and aftermarket is somewhat flat. While we see on the positive side a very strong and healthy growth in automotive light vehicles in China, primarily in EVs. That is growing a solid double digit organically in the quarter. We report a margin of 5.2%, somewhat shy of the same quarter last year, but the strong development in EV in China has provided a positive mix effect for the automotive business, helping to offset some of the negative headwinds coming from low volumes and fixed cost absorption. When it comes to the margin, we still believe that we can do better and we still believe that the 8% operating margin target that we set for this business by 2025, the 8% is still something that we believe is a reasonable level to reach to, but we do acknowledge that it will extend beyond 2025 to reach that number given current market conditions. If I now leave the quarter aside and then turn the focus to some of the strategic initiatives that we are working on. And this time I would like to bring to your attention two items. One on our progress on driving and developing two fit for purpose businesses. And then also I like to share some light on some exciting innovation that we brought to market recently. But let's start with our two fit for purpose businesses. We are working at a very high pace with this separation. It is a massive task that we have said to you before. As you're probably aware, we have identified a unique organizational unit that is working with this and the rest of the business is all focused on our day-to-day activities. But we have a dedicated set of people working with this split. We have reached a number of important milestones in the quarter. For example, we now have set the operating model and organizational design for our future automotive business. Furthermore, we have concluded on how we're going to develop or split our manufacturing footprint. And the starting base for our automotive business will be 16 global factories spread across the globe, as you can see on this chart. We are at the moment tracking towards our overall time plan, but we do acknowledge as we dig deeper and deeper into the material, we realize that there are thousands and thousands of activities and many of them are on a critical path with limited headroom for delays. So therefore, we think it's prudent to say that there are a risk for that the time plan may stretch. This risk has not materialized yet. And if it will materialize, we will, of course, inform the market accordingly. This is more to say it is a rather massive task ahead of us. A number of things need to go actually follow a very critical path. And we want to be prudent to say that clearly there are risks into the overall time plan. But so far, we are tracking towards the time plan. If you also recall in Q4 I mentioned that we also had initiated an initiative to look into the right sizing of the future automotive and industrial business to create strong foundations for the future. And this work is now near completion and we conclude. that as we become less complex in our future setup, there are opportunities to design leaner organizational structures. We can push even more accountability out to our business areas. We can reduce some overlapping accountabilities or duties. And we can reduce the need for a large corporate head office. All in all, this will result in a sizable reduction of staff positions globally, but not at least within Europe. As of now, we are now working with all our jurisdictions and our countries to assess how we can manage and the impact for each jurisdiction and how much of this that can be done through natural attrition and what that at the end will be real redundancy. And as we conclude this work, we intend to come back to you with more information of the entire size of this program when we report back to you in the second quarter. Then finally, before I hand over to Susanne, I wanted to bring your attention to some exciting new innovation that I brought to market. And this is important to us. Innovation is a vital part of our strategic work. We work very, very closely with our customers and help them to solve their pain points, but also to support them in their sustainability journeys through sustainable innovation. This makes a lot of commercial sense for us. To bring some light to it, I like to highlight three areas or three industrial verticals where we have recently launched some rather impressive new products. It's adding a lot of value to our customers. As you can see, the first example is from our railway industry, where our new bearings there, they are capable of reducing friction with some 20%. Clearly has a financial value to the operators, but also reduces their CO2 footprint. Another example comes from the mining industry where our sensor bearings are enabling the grinding mills to operate more effectively and closer to their full potential and in this case has enabled our customers to increase their fill rates with some 20%. Clearly again a significant financial value for our customers but also a very important step in their sustainability journey. And finally, I like to draw your attention to our ceramic bearings. And most often when we talk of ceramic bearings, we provide examples from the EV space, which is a very exciting application for our ceramic bearings. But it's not the only application. Here's another example for industrial electrical motors, where our bearings They actually can cope with 25% higher speed and up to 50% reduced friction compared to the same type of bearings based on steel rolling elements. Again, a significant value created supporting the sustainable innovation. sustainability and innovation is key to us as i mentioned and the reason i bring this forward is i truly believe that our leading edge technology and then in our innovation capacity is a clear market differentiator and a competitive edge for us a little bit of the secret sauce of skf So with that, I'd like to hand over to our new CFO. Susanne, warm welcome to SKF, and I'm sure you're keen to present yourself. So over to you.

Thank you, Rickard. And good morning, everyone. And I'm super pleased to be back. And I've been at SGF now for the last two months. But before that, I've spent 10 years outside. And before that, I actually spent 20 years with SGF in various finance, business control and strategic change management initiatives. So I know the company well, even if a lot of things have happened over the last 10 years. And these last 10 years then, I've held up two CFO positions. First, I was the CFO for Gunnebo Securities, back then a listed company. And the last five years, I've been the CFO at Mönnlycke Healthcare, a fully owned company by investor AB. So, very pleased to be back. Let's jump into the quarter one financials. So this is an overview then. And we can see, and you have heard already, Rickard talking about net sales coming down. We have a negative organic growth, again, minus 3.5% for the seventh consecutive quarter. And I will elaborate a little bit more on the coming pages. Our gross profit and gross profit margins improved, and it's close to 30%. And I think this is truly illustrating our ongoing cost management initiatives, ensuring that we have a variable cost cake linked to the volume. The adjusted operating margin is also resilient, somewhat better even than last year, 13.5%. And it comes from industrial 16.9% and automotive 5.2%. This quarter, we recorded items affecting comparability of 348 million, and that is represented by some 380 million of ongoing restructuring and the automotive separation costs. We have also taken an impairment charge of 192 million. And that is partly an offset because as we have closed out our Luton manufacturing facility, we have now sold that facility and recorded a profit of 224 million. And net-net, this ends up with an operating margin of 12%. So let's look into the bridge instead. We talk about the sales and the profit on this one. So again, our organic net sales grew negatively 3.5% and it is certainly caused by a weak demand across our industries, partly then offset by strong price and mix management. FX was negligible, while the structure that we see here is derived from the acquisition we did from John Sample Group that we closed in October last year. The adjusted operating margin remained resilient. And while volumes were down, the result impact was very much compensated by positive price mix. And you can also see the cost is almost flat year over year. And that certainly demonstrates a good cost management procedure across our businesses. Finally then, FX was positive year over year. So quarter one over quarter one last year, we had a strong dollar vis-a-vis the SEC and that gave us the 90 million you see here. Moving into cash flow. As Richard said, it's a slightly disappointing operating cash flow ending at 1 billion compared to the 1.8 we had quarter one last year. We can explain that a lot in increased of the working capital, realized negative FX effect and change in provisions. Talking about the networking capital, the accounts receivable have contributed negatively as a result of a strong quarter end increasing our sales sitting down in the accounts receivable by the quarter end. Inventory is also increased and as Richard said again, it remains a key focus for us. We have a lot of actions ongoing and it's a focus on this from management all the way down into all our entities. So we are certainly following this through. When it comes to the operating profit, that is again then impacted by the gain of the sales of the loosened facilities, the 224 million. So that is later then deducted in the non-cash items and other, to instead be included net in the investing activities. So if you look at the cash flow after investment, that ended for the quarter at 374 million. Balance sheet then. We see a net debt excluding pensions that has decreased further. By year end we had 8.7 billion euro and now we have 7.8 billion euro. That reduction is mainly explained by translation effects of currency. Our net debt divided by equity ended at 13.1% and that is certainly well below the target. Net debt in relation to adjusted EBITDA remained low and 0.9%. Our adjusted return on capital employed amounted to 14% by the end of the quarter, where we can see a capital employed that has remained on the same level as last year, sorry, at year end, while the result in absolute amounts have come down. So my last slide here, the outlook. So while we have seen signs of markets bottoming out, we plan for another quarter with negative volume development. And we do that a lot considering the macro environment we operate within. So for the quarter to now, we assume the organic sales to be weakening somewhat year over year. If we look into quarter two and the currency impact, we anticipate that to be some negative 400 million compared to quarter two last year. And we say that based on the rates that existed by the end of March last month. And the full year guidance around tax and investments remain the same. So by that, I hand it over to you, Rickard.