AB SKF (publ)

A warm welcome to this call focusing on SKF's performance in Q4 2025. We are ending the year with improved adjusted operating margins, both at the group level and in our large industrial business area. And this was mainly driven by strong cost management, but also solid commercial execution. I'm Sofia Arnjus, heading up Investor Relations. With me, I have our CEO, Ulrika Gustafsson, and our CFO, Susanne Larsson. After their presentations, there will be opportunities for you to ask questions. And there are two ways to do that. So, if you are joining via the telephone, you can, at any time, press star and one to ask a question. If you are instead watching via the webcast, you can already now type in your questions, and you do that in the tab just above the slides. So, without further ado, it's a great pleasure to hand over to you, Richard.

Thank you very much, Sofie, and good morning, and thank you for joining us for this earnings call. I am pleased. to once again report an improved adjusted operating margin year over year, despite very challenging market conditions and headwind from currency. As you can see from the chart on the right-hand side, in the quarter we do report flat organic growth, which is in line with our guidance. It's important to stress that This does not imply we compared to Q3 that we have deteriorated market activities in Q4 versus Q3, but rather a consequence of tougher comparisons. We do report organic growth in our industrial business, but we still see some softer demand in our automotive that are still in a declining organic growth territory. The automotive separation is, of course, continuous at high pace and strong momentum. And I am very pleased to say that we have identified an opportunity to further accelerate the phase-out of the automotive contract manufacturing that will benefit both businesses. It will require some additional transfers of assets, which means that we now plan to list our automotive business during Q4 2026. And clearly I will come back to more details around this later in my presentation. I will also take this opportunity at this call to reiterate some of the key messages from our Capital Markets Day in November, really outlining the foundation for how we see long-term value creation in both our future businesses. So with that then, if we move in and start by taking a look at the full year 2025. Net sales came in just south of 92 billion Swedish kronor, representing a flattish organic growth, or to be specific, negative 0.4%, where industrial growth was 1%, and automotive negative organic growth at around 4%. The adjusted operating margin actually improved to 12.7% in the year, despite very challenging market conditions, geopolitical tensions, and significant headwind from currencies. The net cash flow from operations ended at 0.8 billion, at 8.4 billion, which is somewhat lower, 2.5 billion lower than the year before. And the reason for this is spelled items affecting comparability, which amounted to almost 3 billion in the full year. And the main drivers there was our right-sizing initiative that we initiated in 2025, our ongoing footprint optimization activities, and of course, our efforts to separate our automotive business. When it comes to dividend, the board will propose to the shareholders at the AGM a maintained dividend at 7.75 Swedish krona per share, which actually is representing or reflecting our strong financial performance. They will also recommend that this year it will be paid out in two tranches, one in April and one in October. If we then turn to the fourth quarter and take a brief look at that, we have net sales at 22 billion, which is a flat year-over-year organic growth in line with our guidance. We do have organic growth in our industrial business, as I will talk to more shortly, while we have still a negative demand environment or slow demand environment in automotive. The adjusted operating margin moved up to 11.8%. And the main drivers for this improvement comes from good price activities to compensate for tariffs. The right-sizing program contributes with almost $200 million in the quarter. We have finalized our world class manufacturing program that is also contributing in the quarter. And we also have had generally very efficient cost management, not at least with an automotive and also when it comes to material costs. Net cash flow in the quarter, 2.7 billion. This is some half a billion roughly, less than what we reported the same quarter last year. And again, items affecting comparability is part of this. The main cash drains, though, has been the auto separation. And that's ongoing. Cost related to our right sizing is coming in here. And then we have also in the quarter closed our manufacturing operations in Argentina. But you're going to hear from Susanne and give you some more color to this as well shortly. If we then move on to our sales by region, and let's start from the top with our largest region, EMEA, where you can see we have flattish organic growth. But if we then break it up by the different segments, we see positive organic growth in our industrial business, primarily driven by aerospace, magnetics, and also off-highway. In general, I would say that for industrial in Europe, we see that the market has bottomed out. But we don't really see any significant signs of a significant bounce back or uptick in the market. But a sound and a solid bottoming out is clearly there. When it comes to automotive, it's more challenging, still rather soft market environment, and it's reflected in low demand for light vehicles and also commercial vehicles in Europe, while the aftermarket business is holding up a bit better. Turning to Americas, also flat-dish growth in general. Here as well, we have positive organic growth in our industrial business, to a large extent driven by tariff-related price increases to compensate for tariffs. But if we break out some geographies, or sorry, some industrial verticals, that actually seems good development. It's aerospace, it's also high-speed machinery and automation. When it comes to automotive, it's also a challenging market with soft demand, and particularly in commercial vehicles for us in this region. China, Northeast Asia, single-digit organic growth on the holistic view. Again, here we have organic growth in our industrial business, and was primarily driven by distribution, which actually had a good ending of the year. We also saw that the wind-related pre-buys, they did end in Q3 as we expected. We actually have a negative organic growth in automotive, but that is driven by a tough comparison, especially for light vehicles in the quarter. So if we break that apart a bit, I'm pleased to say that our EV business continues to grow at high pace in the region, as well as solid development in commercial vehicles. And finally, India and Southeast Asia, flattish on the total level. On the industrial side, there's also actually flattish growth. Here we are facing tough comparisons, which is the main driver. In general terms, we see good demand development in India, and industrial verticals such as heavy industries, agriculture, and automation contributes to growth. We have flattish and automotive in the region. where we see good development in commercial vehicles, while actually it's been a bit soft in the aftermarket business in this particular region. If we then turn to our segments and start with industrial business, as you can see on the top-hand chart, represents some 73% of our net sales in the quarter, and 96% of the adjusted operating profit in the quarter. As I said, we are reporting organic growth here, just north of 2%, driven by Europe, EMEA, Americas, and China, and Northeast Asia. The adjusted operating margin is strong, 15.6% up versus 14.6% the year before, driven by the price-maker activities that I mentioned to compensate for tariffs. The right-sizing benefits of almost 200 million hits here, which contributes here, because it's targeted towards our industrial segment, as you know. We also have the world-class manufacturing program that is helping and contributing in the quarter. And all of this enables us to actually offset a rather significant currency headwind that is eating some one percentage points into our earnings in the quarter. Then on automotive, representing 27% of net sales and 4% of the adjusted operating profit in the quarter. As I mentioned, more soft demand development, negative organic growth of close to 6%. Here, the main drivers we find in EMEA and Americas, but as I mentioned, also in China, but it's more kind of a comparison to last year on the light vehicle side. Again, EVs continue to perform well for us in China. The adjusted operating margin is weak, only 1.7% in the quarter, despite very strong development in cost takeout when it comes to material costs. But it struggles to fully compensate for a rather significant currency headwind, as you can see here, of almost three percentage points in the quarter. I think it's important to zoom out a bit and reflect on the auto business for the full year. And for the full year, The adjusted operating margin is relatively unchanged, just north of 4%, despite this thermal, low-demand environment and significant currency headwind. It's also comforting to mention that throughout 2025, we have won a number of strategically and marginally created contracts that builds a strong foundation for our automotive business as we move into the future. And some of those contracts are also related to the aftermarket business, which means that they will also start to contribute already in 2026. If we then leave the numbers and start to zoom in on some of the strategic initiatives, I want to focus today on the automotive separation, where the program as such continues at high pace with a very, very good momentum, and we're delivering according to our plans. But we have recently identified an exciting opportunity to actually faster reduce the contract manufacturing between the entities by moving or releasing some additional assets to automotive. This will be beneficial both for our future industrial business and our automotive business. It will drive further competitiveness. And what are those benefits then? Well, as I mentioned, it's clearly, you know, we can reduce the contract manufacturing faster. But it's also, for industrial, we can improve the capacity utilization. For automotive, they will have a better control of a larger part of their value chain that will drive competitiveness for them. And longer term, this will also further reduce the CAPEX need in our automotive business. But these additional transfers will take us some additional effort and that means that we now plan to list our automotive business during Q4 2026. But it's also important to stress that this additional asset transfer will be managed within the already announced cost and capital expenditure for the automotive separation as we presented it at the Capital Marks Day in November. And the contract manufacturing will, at point of separation, be roughly the same as we mentioned also in November. However, though, with a much steeper decline trajectory thereafter. So we're excited about this, and this will, you know, create an even stronger starting point for both businesses. Finally, before I hand over to Sun, just to reiterate some of the key messages from our capital markets today. How do we build and lay the foundation for long-term value creation? As we said, since we embarked on this journey, there are very different dynamics between industrial and automotive. And we laid out the plan for the value creation of industrial that rests on three pillars and seven levers, where the three pillars were reignite growth, innovation leadership, and business-driven value chains. And for automotive, their value creation plan rests on two pillars and five strategic levers, where the pillars are, you know, accelerate growth and then build lean and fit-for-purpose organizational and supply chain structures. For industrial, we also named the long-term targets that you can see here on this chart. While we were a bit more vague on the automotive side, and the automotive team will come back during 2026 closer to the listing with their own capital markets day and again then be more specific on their long-term targets some more to come here during 2026 and for those of you that may have missed the uh the information at the capital markets day are curious to learn more please visit skf.com where you find all the information So with that, it's time to hand over to Susanne to take you through the more details in the numbers. Susanne.

Thank you, Richard. And good morning, everyone. And I'm pleased to be here with Richard today and announce our quarter four results. So the financial summary. So as you have heard, net sales was down 11%. So while we finished the year with a flat organic growth, there was a significant and continued FX headwind. The gross margin was 25.7%, which is then slightly below last year. But if we then adjust for the one-off cost, the gross margin was instead 28.7% and slightly better than last year. The adjusted operating margin ended at 11.8%. Again, a proof of our improved margin resilience. And I would further comment on that on the following page. The one-off costs in the quarter added up to approximately $1 billion, where half was related to the ongoing automotive separation, and the other half was related to our footprint optimization, where the closure of our Argentinian manufacturing operation in October was the main one. Let me try to explain the resulting 44 year-over-year elaborating on the organic, cost, currency and structural explanations. Starting off from left to right. So although we had a flat organic growth, we had a positive result impact of 113 million Swedish krona and improved our margin with half a percentage point. This positive margin effect was mainly generated by the positive price mix actions within industrial business compensating for an overall weaker automotive. Our cost management generated a strong contribution to the profit and a 1.7 percentage point improvement to the margin. And there are some main drivers of that. The first one to talk about is the right-sizing activities that are now starting to give a positive contribution year-over-year of some 190 million. This impact falls positively through our results, as the dissynergies of automotive separation will come as from the start of next year, where automotive will be operating more independent within the SKF group. The main dissynergies will be derived from IT and their management structures and consequently offset the impact of the right size activities. By that, I still reconfirm the positive impact of the right sizing activities of some 2 billion and the relatively linear effect until the end of 2027. Moving on. We also have a positive impact of the world-class manufacturing savings that now have come to an end, and we have finalized the program. And we have continued positive material cost effects, and this comes mainly from automotive, but also from our product mix. And as you heard Richard say, when it comes to tariff, we continue to largely compensate for those also in this quarter. And we do expect that this is the case also moving into quarter one, given what we know today. Currency effects continue to be significantly negative and reduced our reported sales by 10.6 percent. and impacted our operating model by 1.4 percentage points of negative effects. And the main currencies are the same. They are dollars, C&I, and Turkish lira. Structure is minor and referred to last year's acquisition of Jöns Sample Group, net of the divestment of aerospace handover that we completed in the spring. Moving on to cash flow. In quarter four, we delivered a solid cash flow, where one of charges impacted cash flow by 1 billion Swedish kronor. In this picture, the starting point is the operating profit for the quarter, and that ended at 1.6 billion Swedish kronor, which is 0.8 billion lower than last year. And this is mainly explained by the higher amounts of one-off costs and the negative currency effects. The non-cash items is higher than last year as a consequence of reducing the provisions related to the right-sizing program from now payouts. Taxes paid in the quarter was 685 million, higher than last year while in line with the full year last year, if we look at the full year values. Changes in working capital was good, and we ended at a positive $1.4 billion, which is some $300 million better than last year, and explained by less buildup of AR and more AP at year end than last year, but also with a minor improvement in inventory. This led us to a quarter-four cash flow from operation of $2.8 billion. From that, we deducted $1 billion of cutbacks and ended with a cash flow after investments of 1.8 billion. For the full year, the operating cash flow amounted to 8.4 billion compared to 10.8 last year. And in 2025, we then have a cash out from IRCs amounting to 3 billion. Balance sheet and return on capital employed. Our net debt excluding pension declined from 7.5 billion Swedish kronor in the end of quarter three to 5.7 this quarter end and the full year end. And this is due to positive cash flow, but also a stronger Swedish krona. Net debt in relation to equity excluding pension reduced from 13 to 10%. Net debt In relation to EBITDA excluding pension, reduced further to 0.5, including pension, we ended at 1. The adjusted return on capital employed remains stable at the 14.3. So, as Richard said, SGF ended the year with a good cash flow, with a strong liquidity, and a low net leverage. Hence, the board has decided to propose to the AGM a dividend of 7.75 per share to be paid in two installments, one in April and the other in October. And this corresponds to 45% of the adjusted net profit. Now I come to my last slide related to the outlook. So we expect the market demand in quarter one to remain at the similar level of quarter four. Consequently, we expect an organic sales to strengthen somewhat in quarter one year over year, supported by also more favorable comparisons. The guidance for quarter one with respect to FX, we anticipate a further negative impact of earnings sequentially in quarter one. This is driven by a continued weakness of dollar against Swedish krona alongside with mainly Turkish lira. So we now estimate the impact to be minus 800 million year of the year for quarter one, given the rates we had by the end of the year last year. When it comes to guidance for the year, The tax rate is expected to be 28%, and there we exclude both automotive separation implications as well as divestments. Cutbacks we estimate to end next year at some $5 billion, where the industrial part is in line with what we communicated at the capital market day of 5% in relation to sales, while we for automotive have some further separation-related investments that are also included. We have also decided to guide for one of items related to the automotive separation and footprint optimization, as we also communicated those at the capital market day. So we anticipate these to be in the range of minus two and a half to three billion for this year. And this is fully in line with the six and a half billion guidance for the period of quarter four 2025 up until 2028. Finally then, the guidance for the full year NISC does not include capital gains from the divestment of LGN, and that we expect to soon close. So by that, over to you again, Rikard.

Thank you, Susanne. And before we move into the Q&A session, let me just take a few minutes to summarize the quarter and the full year. We have navigated throughout 2025, and also of course in the fourth quarter, in rather challenging waters, in terms of geopolitical uncertainty, a lot of volatility, and a lot of tension in the world. Unfortunately, I do not think that 2025 will be, in the history books, a unique year, but rather a new norm, so we need to continue to navigate in a volatile environment. Therefore, I'm very pleased that we can report an improved adjusted operating margin improvement, both in the fourth quarter and for the full year, demonstrating the margin resilience that we have been embarked and that we have tried so hard in the last few years. Strategically, we are excited about the future. There will be a lot of activities in 2026 to finalize the separation. That is planned now, as you heard, for Q4 2026. And that we have found a way to strengthen the starting point even further for both the industrial and automotive business. That we are very excited about. But then, we will not just focus on the separation in 2026. We will also, and the organization is fully charged, to work on delivering on those strategic pillars that I mentioned. that will be the foundation to unlock the full potential of both our industrial and automotive business. So these two things will be the main focus in 2026, to finalize separation and gear up for profitable growth in both our businesses. So with that, I thank you so far for your attention and turn you over to the Q&A session.

Yes, thank you. And we will now open up for questions. And there are two ways to do that. Let me just remind you. So if you are listening in via the telephone line, you can ask a question by pressing star and one. And if you wish to withdraw... you instead press star and two. And also for our webcast audience, you can post your questions and you do that in the tab above the slides. And we will start with a question here from the telephone line. And before we do that, I can see that there are quite many of you that want to ask questions. So please, if you can ask one question, and then if there are time, you can happily join the Q&A queue again. So, but we will start with a question from Klas Berglind at Citi. Klas, please go ahead.

Thank you, Sofie. Hi, Rikard and Susanne, Klas at Citi. So, I just want to come in a bit on the synergies versus the ride sizing here into the first quarter. First, on the savings, you did 190 million already in the fourth quarter. And, Susanne, you're still saying the savings will be linear and that will reach the 2 billion run rate end of 27. But if it's linear, I get this to a 2 billion level earlier than end of 27. Or do you expect the pace to slow here into the first quarter, i.e., do we have an abnormally high savings quarter? And then, obviously, the other side of it is the cost side. out of the round 1.5 billion of total disfinities that we can read from your capital market space slides, how much of those disfinities do you expect here in the first quarter? And that was, I realize now, a very long way of asking what is the likely net effect that we should look at here from disfinities to savings into the first quarter? Thank you.

And Suzanne, do you want to share some light?

Yes, I will do my best. Good morning, Klaas. So you're right, starting off with the savings then. So we have had a good pace in settling with employees, as we have said, and we have come to more than 80% of agreements before the end of the year. So we have slightly more positive impacts in this quarter falling through our P&L while we now from now onwards anticipate it to be a linear path up until the 2 billion by the end of 2027. So that's the benefit part of it then. And when it comes to the cost and the disinerties then, so as from 2026, by design you could say we will operate automotive as an independent organization within sgf allowing them to have a fully dedicated management that is now being onboarded and also having own it structures etc so that will start to come in play already from next quarter and we believe that So the positive implications will be offset by these negative dissonances that we will take on. So that's what we will say about that.

So just to clarify, Susanne, you say from the second quarter onwards, It was a return.

No, it was the next quarter. The next quarter is actually Q1, so you could take it from Q1. Sorry.

Next quarter is Q1. Sorry for confusing. First quarter.

Okay, but... Yeah, but the synergies in the first quarter will still be greater than the savings in the ride sizing, because that is, I think, what you write in the report, right, in the first quarter?

Yes, that's correct. It will be somewhat larger. And, of course, then the pace of the ride sizing savings will, of course, increase in the coming quarters, Q2 and onwards.

Mm-hmm. um can i squeeze in just a very very quick final question on uh on the um on the outlook just very quickly when you say somewhat higher sales growth is it one two three and because consensus is around three percent and the reason why i ask that is if you look at automotive it's down 5.8 percent year over year but if you look at light vehicle production forecast into the first quarter it can get much worse than that. So it would imply to reach expectations that industrial needs to grow meet the high single, and that looks quite high. So I'm just curious, Rickard, sort of between industrial and automotive, how we should think about the growth within the guide. Thank you.

Right. Somewhat. We will not quantify what that means in numbers. But you should think about it that, as we said, that the activity levels – will remain roughly the same as we have had in Q4. That will mean that from a comparison point of view, Q1 over Q1, we will report a somewhat organic growth in Q1. And as we had in Q4, you're right, we have seen an organic growth in our industrial business, while automotive has still been in a softer market environment. And that's what we imply also when we say that the market activities will roughly remain the same.

Thank you, Klaus.

Thank you.

We will now move on to the next question, and that comes from Daniela Costa at Goldman Sachs. Daniela, please go ahead.

Hi, good morning. Thank you for taking my question. I wanted to ask Conan two upcoming regulations, I guess, that are coming, and how different Do you see them impacting the business and how you deal with that? First, I guess, sort of the steel import quotas into Europe. Maybe you can give us a little bit of an idea how you source into Europe and if that means something or nothing for you, and then see them and how you would reflect that going forward.

Richard, it's a question for you here.

Right. When it comes to steel in Europe, we primarily source our steel that we consume in Europe, within Europe. So that is not a major headache for us. CBAM can have some implications, and there are lobbies still ongoing on how to fully implement this. Because it may impact, I'm not talking about SKF in specific, but European companies, rather, that there might be some disadvantages versus other companies that originate in other parts of the world than Europe. So I think we watch that one closely, and we are engaged in those channels that we can to find a good implementation of that legislation.

Thank you. We move on to John Kim at Deutsche Bank. John, please go ahead.

Hi. Good morning. Thanks for the opportunity. I'm wondering if we could focus a bit on the separation timeline. You did cite the changing nature of the contract manufacturing relationship. Can you confirm for us that the timeline is not being impacted by external parties, whether it be tax authorities, unions, regulatory bodies?

I can answer that one. Yes, I can confirm that. It has nothing to do with that. The program as such is actually running it. extremely efficient i dare to stick out my neck and say where we're really holding the timetable that was set up from beginning with a lot of the heavy lifting in terms of i.t cutovers and legal restructuring and all of that i'm rather impressed how well the organization has set up the challenge and the efficiency in how we drive this program but as we have you know as market has evolved and so forth we have identified this opportunity to actually faster reduce the contract manufacturing by reallocating some of the assets in a different way than were written on the plant and when we saw that and we saw the benefits and we realized that this was actually creating an even stronger starting point for both businesses we were very eager to go after that opportunity and therefore we we feel confident with the planned listing timing now for Q4 2026. So it's not driven by any conflicts internally, not at all.

Okay, thanks for confirming, thank you.

And we will continue with a question from Seb Kuhn at RBC. Seb, the line is open.

Yeah, thank you for taking my question. um again on the separation um i mean you you talk now about value creation for both businesses but the way i understand it you simply shift some production lines into automotive to deepen the value chain and to buff up the the margin for automotive but at the same time you take business away from industrial so how how does that create value for both businesses i still don't understand the logic behind it. To me, it's just helping automotive to float in the market, but at a detriment to industrial. Where am I going wrong here? Thank you very much.

Richard, could you please respond to this?

I think maybe where we might struggle a bit is that at the moment, and given the low demand environment that we've experienced for quite some time, we have said before that we're far from maximizing our utilization. So we have found a way to shuffle some of the assets around a bit and free up more capacity. So we're not taking any business away from industrial, but we're avoiding to having a lot of undercapacity, unnecessary undercapacity. So that's kind of the main benefit for the industrial side. And also thereby reducing contract manufacturing will also be a positive contributor long-term also for industrial. So there are a number of good things for industrial here as well. So we truly believe that this is a good thing. And if I may, I don't want to be... criticize you in any shape or form but just saying and then we're likely just just shuffling around some assets it is a little bit more complicated than that uh i must say so um can you just say tell you though but with the reality that we face as well but but you can't create business out of thin air so the business is what the business is demand is what demand is

And by moving assets from right to left, how does that increase capacity utilization? I can only explain it by you basically taking out some more capacities and just make the business a bit more streamlined, right?

That is true, that is true, that we do get a stronger point, better asset utilization, and And also, we are then believing that in the longer term, we will continue to also increase growth and improve growth in industrial business for the utilized assets. But as a starting point, you're right. It's really to set the utilization at a better rate from a starting point. I understand. Thank you very much. Thank you.

Thank you, Seb. And we will continue with our question from Rory Smith at Oxgap.

Good morning. Thank you for taking my question. It's Rory from Oxgap. I was going to ask on the Q1 guidance, but I guess I'll stay on the topic of this contract manufacturing piece, maybe coming at it from a different angle here. If the separation is going to take place a little bit longer. The jumping off point is the same at 5% of industrial sales, but the phasing down is going to be more aggressive. A, can you give any kind of indication or comment on how quickly you do expect that 5% to go to 0%? And then thinking that through, does that put some upside risk to the medium-term margin targets for industrial if we're going to get there quicker? That would be my question. Thank you.

Right. I can't quantify any of this, but you're right. We do see, as I said, that this will be a steeper reduction of contract manufacturing than we planned originally. You mentioned it will go to zero. I hope I've been very clear. The plan is not to take it to zero, but it's going to be a rather low final amount. there's a tail assortment that will make no sense to shift around. So there will be some trading also longer term, but that will not have any material impact. So the vast majority will disappear. And you're right, we did say at the Capital Markets Day that we needed this midterm time, the midterm, at that time we said for the next two to three years, to finalize this, to reach our midterm target. That has not changed. We're now saying that there are two years left of that, and that's kind of where we're aiming to. And exactly the difference and how much faster, we will not go into any details, but it will not have a negative risk in terms of delivering on our midterm target, no. Okay, thank you.

Thank you, Rory. And we will continue with a question from Alex Jones at Bank of America. Alex, please go ahead.

Thanks. Good morning. Maybe continue on the auto spin. Is there a critical mass of profitability in terms of margins or absolute profits that you think you need before the spin in order to ensure sufficient liquidity and size in the new company? And therefore, do the low margins this quarter influence, in your mind, the spin timeline? going forward at all. Thank you.

Right. Thank you. Of course, we have very sound plans for our automotive business that will take it to a certain profitability level and cash generation level. We cannot really disclose any details of those. But as I said during my comments, during my presentation part, In Q4, sorry, in for the full year, the margin is relatively unchanged. And we have throughout the year won a number of strategically important contracts that are margin accretive. The business that we want to win, we normally win. That indicates a strong contract. and that we have a very competitive offer, both technology-wise and price-wise. So that is building a strong foundation. So we have very positive views on the long-term build-up of automotive. And the Q4 in isolation, that we had a tough quarter also with a lot of impact from FX, as I mentioned, have not made any influence on our decision to plan for the spin in June 4, 2026. Thank you.

We will continue to Andrea Kuchnin at UBS. Andrea, your line is open.

Yes, good morning. Thank you very much for taking my question. Can I just start with the clarification on the dissynergies versus savings? and to make sure we kind of have the right math. So if you said we're going to go from 750 run rate to 2 billion during 2026 and 2027, that's 1250 over two years, and hence 625 per annum, so around down to 600. Are we right to think that during 2026 you were expecting the synergies to be around that 600 equivalent to the savings? but the run rate will be higher in Q1 and Q2, and then in Q3 and Q4, you'd expect the savings to start exceeding these synergies. Is that the right way to think about it?

Suzanne, do you want to comment on this? So we will be able to disclose this by quarter because I realize the importance of both the right sizing and the disunity. So we are prepared to do that. But as we said, and you're right, with the run rate of this year of 750, we will end 2027 with the run rate of the 2 billion we are committed to save. And we will now have relatively linear throughout these two years. And we are taking on disunities that will... more than offset now already in quarter one. And I think that means that we will have the synergies in line with the savings throughout this year until we spin the business. And then we will have, of course, the leverage of the right-sizing program that will more than compensate for the synergies and contract manufacturing, as we stated at the capital market.

Great, thank you. That's really helpful. If I may, just a much broader question on pricing and your ability to price up and to pass through headwinds. In 2025, you clearly surprised positively on that. Do you think from that experience, should we be more confident on your ability to do that in 2026 as well, or should we worry about price exhaustion and customer tolerance without that starting to fade and hence it becomes a bigger challenge as I'm sure there will be other headwinds to pass through as we go through 2026.

Rickard, could you answer this one?

I'd be happy to. Given the tariffs that we know today, we are confident that we will be able to largely compensate for that also in 2026. where the net negative impact will be found in automotive. But we will largely compensate. And I do believe, if I leave tariffs aside for a second, I do believe that 2026 will not be a year of large general price increases. I don't think there is room for that in the market. However, though, we will always do, you know, specific or targeted price increases where possible. And clearly, when we deliver new solutions or engage with new customers, we also focus on the value that we provide rather than just, you know, the cost of manufacturing the very. So that will continue clearly throughout the year. If tariffs, if the tariff landscape will change materially during 2026, we will have to take that on, and find a way to mitigate that as well. It's hard to second guess, because there might be a limit at some point, how much you're able to push through. But no one really knows, and no one really knows what might come. So I feel confident that we have demonstrated that when things happen, we are fast, reacting fast, our organization take the right measures, and we're able to compensate. And we're going to do everything in our power to maintain that, regardless what they throw at us.

Thank you. We will continue with a question from Andreas Kosky at BNP Paribas. Please go ahead, Andreas.

Thank you. And good morning. I also have a question on cost savings, but not related to the right-sizing program, rather to the world-class manufacturing program that you've been running for, I think, five years now. And when it was launched, you said that you were going to save like 5 billion SEC on COGS, which implies that that has generated cost savings of about a billion a year. So I just want to check if that's was sort of the savings number that you had in 2025 and if there will be any carryover effects in 26 or if the savings from the world class manufacturing will be zero now from now on and forward. Thank you.

I confirm your assumption. So we have finalized the program this autumn. We had the $5 billion ambition level that we delivered on, and we will expect continued benefits of that as we move along into also 2026. Yes.

So there will, yes, it will be a bridge effect, you can say, primarily the first half of this year.

Understood. Okay. Thank you.

Good. Let's continue with a question from Ritske Madi at Jefferies. Please go ahead.

Yes. Good morning. Thanks for the time. It's just really clarification and maybe it's something that I misunderstood. So on the right sizing savings, we're talking about what is 600 million SEC to be achieved in 2026 and I think at the customer market you talked about these synergies to be roughly around 1.5 billion. My understanding this morning is you're trying to scale the synergy closer to the savings number, but it's still a big number. It's 1.5 billion. And I think automotive needs to stand on its two feet by the end of this year, because that's when the lifting is going to happen. It should help us sort of bridge that gap between the 600 million and the 1.5 billion this year. I think this is really what the market is struggling with this morning. Thank you.

So when we have talked about the right-sizing program that we initiated last summer, we have said that we will have an annual benefit of that of $2 billion, and that will more than compensate for the disinerties and the contract manufacturing. So that's what we said as a general remark then. When it comes to the savings, that will now be linear, as you implied. And if we talk about the disinerties then, That will then, and that is again why we actually launched the right-sizing program, is to right-size the industrial organization, and that work is ongoing, but it's also to cover up for the independence of automotive that we are taking on now to be able to spin by the end of this year. So we are now trying to say how that benefit is offsetting the disinterests and how we will then, when we have left automotive, be in a better place still with the contract manufacturing from the table.

Okay. Okay. Thank you very much. And then just very quickly, does the CAPEX plans for the industrial business are now changing given the transfer of assets that you're doing from industrial to auto? Thanks.

No, no, it will not. So we remain with the 5% of sales for industrial in spite of this scope change of the transfer.

Thank you. Good. And that is at point of departure, and then it will decline faster, as we talked about here. We have time for a final question, and that is – we'll come to them from Daniela Kostad, Goldman Sachs. Daniela, please go ahead.

Hi. Thank you so much for taking the follow-up. I wanted to follow up on the point on tariffs. It's been very clear you're going to compensate that, I guess, from a margin perspective – in passing that through. Have you observed sort of any trends in terms of market share or everyone is doing the same price increase pretty much in the market? Just wondering when you talk about compensating fully if you are willing to give up on market share as part of that or the industry is just all increasing by the same?

Thank you. I would say that so far it seems like the industry has gone down the same path. So it's a bit too early to tell, but we have no indication that we have lost a market share in any general terms. But rather, as you say, that our competitors, they also safeguard their earnings and they're reacting and trying to compensate themselves for these tariffs. So maybe a bit premature to draw a bit too specific, but we have no indication that we're losing a market share at all.

Got it. Thank you. Thank you. Thank you. And that was our final question. And before we end, Richard, do you want to give some concluding remarks here?

I'd be happy to. And thank you for joining us this morning. I am pleased that we are able to navigate in a rather challenging environment and maintaining a resilience and even improved adjusted operating margin. that demonstrates a shift in behavior and capabilities in SKF over the years. And to me, it's also a proof point that our strategy that we launched a few years back is delivering in line with what we anticipated. We are eager to gear up for growth, clearly. We have been in a long period in a negative market or negative demand environment. We foresee that, as we said, that Q1 will be roughly in line with Q4, but we are preparing for an uptick. And given what we have done in the past, I'm again very convinced that we will have a very strong starting point and some good leverage once the market turns back up again. We are committed and confident about our plans for automotive. We're exciting about this small shift in the asset reallocation that would drive creating a better starting point. And as I mentioned, the organization is now really gearing up to deliver on those strategic pillars that would unlock the full potential of our business. So we're excited about the future. More to come. And I thank you so much for your attention today and wish you a lovely weekend once you get to that. Thank you.