AB SKF (publ)

Hello, everyone. Welcome to this call focusing on our performance in Q3 2025. Also, this quarter, we improved our margin in a challenging market, and that was thanks to commercial execution and cost control. And this was definitely evident for our industrial business area. My name is Sofie Arnjus. I'm heading up Investor Relations, and I will also be joined by our CEO and President, Richard Gustafsson, and our CFO, Susanne Larsson. And there will be, of course, opportunities to ask questions before or after their presentations. And there are two ways to do that. And let me just remind you on how to ask a question. So if you have joined via the telephone, you press star and one. If you instead are watching via the webcast, you can already now type in your questions. And it's in the tab that you find above the slides page. With that, let's get started. It's a great pleasure to hand over to you, Richard.

Thank you so much, Sofie. And good morning, everyone, to this earnings call. And as you heard from Sofie, yet again, we are able to present a resilient and somewhat improved adjusted operating margin, despite a rather challenging market conditions. And also, as you can see on this chart, after eight consecutive quarters of negative organic growth, we're actually back to organic growth in the quarter. Actually, it's primarily driven by an industrial business where we have seen growth across our geographies, while automotive is still more volatile. This performance was actually slightly better than we anticipated walking into this quarter. However, though, the underlying market conditions have not significantly changed in this quarter versus the second quarter. And to some extent, we are also held by favorable comparison figures compared to Q3 last year. When it comes to our strategic initiatives, we are making good progress. Our automotive separation is progressing at a very high pace. And I will share some more lights on that today. But I will refer also to our upcoming Kappler Marks Day in a few weeks time on November 11th in Stockholm, where we will be able to share more lights on this. When it comes to our industrial rightsizing initiative that we announced the last quarter, it's also progressing according to plan at high pace. As we said when we announced it, we do not anticipate significant savings in this quarter. In the fourth quarter this year, the majority will come in 2026 and into 2027. And then we continue on our strategic journey to invest in our capabilities and effectiveness. And this quarter, I would like to put the spotlight on an initiative that we have developed in Italy, where we inaugurated a new global superposition bearing center that we are pretty excited about. And I would share some more details on that shortly. But if we move on and start taking a look at the high level numbers, Net sales ended at 22.4 billion Swedish krona, representing an organic growth of 2%, as I mentioned before. The adjusted operating margin improved slightly to 12.3% in the quarter, despite significant headwinds from FX and rather challenging market conditions. I refer them primarily to the tariff situation. The main reasons why we have been able to further enhance and retain the resilience in our earnings is our ability to drive commercial capabilities and execution on commercial activities. It's our good cost control and also that we benefit from previous investments that we've done in regionalization and in world-class manufacturing. Turning to cash flow. coming in short of the same quarter last year, primarily driven by higher items affecting comparability, where automotive separation is the main driver behind that. And you will hear more of this by Susanne very shortly. But if we then turn to our different regions, and as I mentioned in my opening remarks, I'm very pleased to say that we have growth, organic growth in our industrial business across the regions, where we have some more variation on the automotive side. But let's pick them one by one, starting with EMEA, our largest region, where we have an organic growth of 1%. It's driven by our industrial business, where some industrial verticals stand out and have very significant growth. I refer to aerospace and magnetics. While in general demand in Europe is still at a fairly low level, industrial demand is fairly low level, but has clearly stabilized in the quarter, but it's not yet taking off. When it comes to automotive, We're still in the negative growth territory. However, though, less so if you compare to the same quarter last year. And that is primarily due to a stronger rebounds in our commercial vehicles section. Turning to Americas, also a low single digit organic growth, again, driven by industrial. And of course, in this region, you know, the price mix activities to manage tariffs is part of the organic growth journey, but also some industrial verticals are also standing out. Here I like to mention marine and aerospace. Turning to automotive, a weak underlying demand that we have seen, and it's especially true for commercial vehicles in this region. China and Northeast Asia, mid-single digital organic growth, and here we see growth both in industrial and automotive. On the industrial side, it's primarily our industrial distribution that is growing and also our renewable energy business. Here I need to make the same comment as I did in Q2 last year. Some of the renewable energy growth is somewhat inflated from pre-buys or policy-driven pre-buys in China. On automotive, The growth there is pretty stable. And again, we report and see very positive development when it comes to EVs in this region. India and Southeast Asia, also a region where we have growth both in industrial and automotive, where we see very good activity levels in India and Vietnam, as examples. And from an industrial point of view, agriculture and material handling stand out in a positive way in the quarter. Well, automotive has a good development, both when it comes to vehicle aftermarket and commercial vehicles in this region. If we then focus in on our segments and start with industrial, that this quarter represents roughly 70% of our net sales and 90% of our adjusted operating profit. As I mentioned, we're back to growth here. I'm having organic growth just shy of 4%. But in absolute terms, as you can see from the chart, we are actually declining some 3% this quarter versus same quarter last year. And this is driven by FX. However, though, the adjusted operating margin continues to improve and now reaches 15.5% despite significant headwinds from currency. And also, we've been able to manage a volatile environment and the tariff situation. And the main drivers here are the same as I repeated for the group. But again, our commercial capabilities have played a significant role here. We have very good cost control. We benefit from investments in regionalization and world-class manufacturing, as I mentioned. And then we have a a small but not very sizable contribution from the right-sizing program. But as I mentioned, most of the value from that program, benefit from that program, will come later as we move into 2026. Turning to automotive. This quarter, roughly 30% of sales and 10% of adjusted operating profit. As I mentioned, still in the negative growth territory. but somewhat different across the regions. The negative growth, as you heard me say, is driven by Americas and Europe, or EMEA primarily. We have talked about the tariffs a number of times, and we said at the group level, we do believe that we will be able to largely compensate for the tariff impact. And that has been the case also in this quarter. We also said that the majority of the net negative impact from tariffs will be found in automotive. And that is also the case. So with that in mind, and also the fact that FX had had a really significant impact on the earnings in this quarter, I do believe that adjusted operating margin performance, not just shy of the same level as last year, is a rather good indicator. Good delivery. The main thing, the positive thing I'd like to put your focus on here is the fact that we continue to see a lower material cost that enables to offset some of those headwinds and maintain the margin. And this is not a one time event. It continues to be driven by very solid procurement activities and also a better material mix in our production. that is helping to reduce material costs. So that's something really positive. If we then turn our focus to our ongoing separation initiative. So it's progressing well and at a very high pace. It's still a large program and a lot of work to do. But in this quarter, we have some significant milestones that we have achieved. We have actually concluded a number of very important IT cutovers during the quarter. And they actually turned out fully in line with our plan and no negative surprises came out of those. Another key thing is what's happening in India, where you may know that we have our business there is listed also on the Indian Stock Exchange. And there we have been able to complete the separation. And we are ready to list the new entity in India before year end. Another significant milestone. But to give you some flavor on why we talk about that this is a very tight, tight schedule. And there are, you know, I mentioned a couple of times that, you know, there are always risks with this massive project like this or program like this. And a number of activities are on the critical path. And that has not changed. I don't have any red flags to report today. But to give you some color on this, we're talking about some more than 1,000 IT applications that we need to cut over. We're talking about more than 9,000 intellectual property rights that needs to be split. We're talking about more than 60 manufacturing lines that need to be transferred around in our footprint. So it is a sizable project. But as we said before, we believe, we still stand for, that we should be operational ready to list automotive by mid-2026. Then turning to another item, and as I mentioned in my opening remarks, that we are investing in a product line that is named Superposition Bearings, that we are pretty excited about. Today, it represents some 2% of our industrial net sales. But this is a product line that goes into a number of important industrial verticals, like robotics, advanced machine tools, and compressors, all of them that also benefit significantly from some key megatrends, such as electrification and automation. And why are these products, what value do they bring in these type of applications? Well, clearly it's about accuracy and speed. With minimal friction, exceptional running accuracy. And they also provide better stiffness and power density for these type of applications, enabling increased energy efficiency. Just to mention a few of the value creation that we have from these products. So what we have done and what we inaugurated earlier in the quarter, that we have now built a new, global cross-functional super persistence bearing center. It's based in Italy, in Arrasca, close to our normal operation there, where we have been able to co-locate our R&D, our engineering capabilities, and our production teams in under one roof. We have invested in a highly automated and digitized manufacturing capacity there, that can be able to very, very short turnaround times and also increase throughput significantly. And the benefits that we're beginning to get from this by getting this under one roof is clearly that can drive cross-functional synergies, but more importantly, we can then co-create with our customers and help solve their needs in very critical applications. And I have the joy myself to be part of the inauguration ceremony And I must say that was very rewarding to see the excitement among many of our customers when they saw our new capabilities in this field and what that could do for their business. So we do believe that this is an exciting opportunity where we will benefit from good growth and profitable growth, also driven by electrification and automation, as I mentioned. So with that, I end my part of this presentation and hand over to Susanne to take you through the numbers in detail.

Thank you, Richard. Good morning, everyone. So now we will really talk about the financial implications, and some of them you have also heard Richard commenting upon. But let me first start with a financial summary and an overview of the quarter itself then. So starting off with the net sales, it was down 5.1 percentage points. It was explained first by an organic growth of 2%, more than offset by a significant FX headwind. Our gross margin was down half a percentage point. However, if we put the one-off cost AICs aside, we saw an improvement of 0.4 percentage points. Our adjusted operating margin strengthened compared to last year from 11.9 to 12.3%. This in spite of FX headwind of minus one percentage point. Quarter three, one-off cost IECs amounted to 755 million, with the main areas being the automotive separation costs, representing 362 million. We had 230 million related to impairment charges of fixed assets, and finally, 141 million on ongoing restructuring activities. So net-net, we had an operating profit of 2 billion compared to 2.5 billion last year, where the main difference is explained by the increased one-off charges. So if we look at the bridge here, analyzing the operating margin from 11.9 to 12.3, I start with the organic dimension. So as I said, sales growth amounted to plus 2% with industrial contributing to the growth. Negative production volumes were more than well compensated by price mix. And talking about price mix, the key initiatives is pricing, portfolio management, but also managing the tariffs, mainly through price adjustments. The organic impact on the adjusted operating margin was 1.5 percentage points. Cost management was good with the development almost flat in the quarter, and this in spite of negative impacts of inflation, volume-related inefficiencies, and tariff costs. In the quarter, as Rickard said, we managed to largely compensate for tariffs and expect to do so also continuing into quarter four. Currency remained significant with a headwind, taking down sales by 6.9 percentage points and had an impact on the adjusted operating margin, as I said, on minus one percentage point. The main currencies remain the same. It's US dollar, it's Chinese yen and it's Turkish lira with the main effects vis-a-vis the Swedish krona. And finally, the structure changes. It's a small one. It's a net effect of the divestment we did in aerospace in Hanover and the last year's acquisition of John Sample Group. So let me try to explain the cash flow performance in the quarter. Cash flow from operating activities ended at 1.8 billion Swedish krona. And there are some reasons for that relatively weak cash flow. And it comes from what I will address now then. So first of all, we had one-off IEC cost with a relatively immediate cash flow impact. And that is particularly related to the automotive separation costs that is converting to cash flow relatively immediately, together with ongoing restructuring programs. And this explains 500 million in the quarter. In the bar other, we have 300 million negative explained by realized FX effects. Taxes paid in the quarter amounted to 700 million, which is higher than last year, 200. However, last year was low, so this is on a normalized level. And then finally, the networking capital. We had the change there of minus 400 million. And this was partly explained by accounts receivable and the timing within the quarter. And accounts payable being low due to seasonality, typically in our quarter three. Inventories, we are pleased to see decreasing in the quarter, where we saw reductions in both automotive and industrial inventory. And before leaving this, I just want us to remember that last year we had the change in the networking capital where we changed the reporting of consignment stocks. So we had both increase in inventory and accounts payable of one and a half billion Swedish krona each. So let's take a look at the balance sheet and the return on capital employed. SKF has a strong capital structure, and at the end of September, we had a net debt of 14.5 billion Swedish kronor. And if we put the pensions aside, it ended at 7.5 billion. Cash and cash equivalents ended at 7.6 billion Swedish kronor and were reduced as a consequence of a bond repayment of 3.3 billion Swedish kronor in the end of September. The SKF liquidity remains strong. Net debt excluding pensions in relation to equity ended at 13.3, while net debt excluding pensions in relation to adjusted EBITDA ended at 0.6. Finally, adjusted ROSE remained on a similar level as previous quarter, and that is 14%. So coming to my last slide with the outlook then. The global economic development remains uncertain, So the outlook expected is that the market demand remains similar as the one we just left in Q3. By that we mean that we expect an organic sales to be relatively unchanged Q4 year over year. The currency impact on the operating profits remains high and we estimate that to be minus 650 million applying their rates as for the end of September. The full-year tax rate guidance is adjusted to 28%, which is two percentage points higher than the previous guidance, fully driven by FX. And finally then, the CapEx guidance for the full year, we have taken down somewhat from 4.5 to 4 billion Swedish kronor. And by that, Richard, I hand back to you.