AB SKF (publ)

A warm welcome to this call where we will focus on SKF performance in Q1 2026. And we had a strong start of the year in terms of margin successful in navigating in volatile market conditions. I'm Sofia Arnjus, heading up Investor Relations, and today I'm joined by our CEO, Richard Gustafsson, and our CFO, Susanne Larsson. After their presentations, there will be an opportunity to ask questions, and there are two ways to do that. So, if you have joined via the telephone, you can press star and one to ask a question. Or if you're instead watching via the webcast, you can already now type in your questions, and you will do that in the tab just above the slides. So without further ado, it's a great pleasure to hand over to you, Rikke. Please.

Thank you, Sofie. And a warm welcome to all of you for joining us at this quarterly report out. During the quarter, we continue to execute on our strategic priorities, strengthening our position in high-value industrial segments and advancing the separation of our automotive business. And in the quarter, we do deliver a strong performance despite volatile market conditions. As you can see from the right-hand side of this chart, organic growth came in at 2.4% in line with our guidance, driven by solid organic growth in specialized industrial solutions and bearing solutions that more than offset continued weakness in automotive demand. The adjusted operating margin is holding up well at 13.5% despite a significant headwind from FX or currency. And the main drivers behind this strong margin are fourfold. Firstly, we have a better and improved margin in our specialized industrial solutions segment. Secondly, we have a strong mix in the quarter, primarily driven by the fact that the industrial business segments are growing faster than our automotive business segment. Thirdly, we have been successful in our rightsizing activities and actually coming in somewhat stronger than we anticipated in the beginning of the quarter, equating to some 300 million kronor of savings in the quarter, which means a slight positive net after occurred the synergies. And fourthly, We have an increased production volume as we continue to build safety stock for ahead of the plan asset transfer for the automotive separation. Cash flow is weak in the quarter, negative 0.4 billion, as you can see also on the chart. And there are four drivers behind this, and Susanne will shortly take you through that in more detail. But the key highlights are that we build those safety stocks that I mentioned before, that is contributing to our margin. We are taking restructuring charges for the rights sizing program that we're on. We have somewhat higher accounts receivable due to that sales were somewhat stronger at the end of the quarter. And there are also some unfortunate timing effects in AP accounts payable in the quarter. On our continued strategic priorities, we do see that our efforts to create a more separated and focused automotive business is starting to yield benefits. And we see that it's laying a foundation for strong profitable growth that we'll touch upon later in this presentation. And in this quarter, we also, for the first time, report our business in different segments. And I will also take you through that just to remind you. And during this year, we're going to spend some time every quarter to share some more lights on the different business units that make up our segment Specialized Industrial Solutions to educate you and share some more insights on what we do in those areas. And first out this quarter will be lubrication. But starting with the segment, and I'm sure that you've already studied this, but just to remind everyone, so we're all on the same page. Going forward, we're going to report our industrial business in two main segments, the bearing solutions and specialized industrial solutions. And in this specialized industrial solutions, we have four business units, automotive, magnetics, seals, and lubrication. We also have a small other segment in industrial where we host our head office or lean corporate center as we call it internally and that cost was previously distributed to the different segments. Now we hold it here and here we'll also find trading between industrial automotive as we move forward. And then, of course, as long as we have automotive as part of our company, they will be in their own segment. And here they have their fully loaded cost and their own headquarter cost. So this will, to the extent possible, mirror what automotive will look like also after we have completed the separation. If we then move on and start to focus on the quarter and starting by organic growth by geographical region. And my comments on this page will cover all three segments of our business. Starting with our largest region, EMEA, where we have a negative organic growth of 1%, where we do see solid organic growth in specialized industrial solutions in all four business units, but especially strong in aerospace and magnetics. For automotive, demand remains somewhat weak, and especially when it comes to light vehicles. When it comes to bearing solutions, we still wait for the market to turn, where we have seen a rather weak development, or somewhat weak, I should rather say, development in distribution and services in the quarter, while there are some specific and encouraging green shoots as well, especially someone like I like to highlight would be agriculture and high-speed machinery. Turning to Americas, where we have a solid growth of 4%, to large extent driven by price mix activities in that particular market, but also here we see some industrial verticals that really stand out. Aero being one, agriculture being another, and also here high-speed machinery, to some extent driven by the fast growth in the data center development in that particular region. It's also encouraging to note that we have strong growth in our automotive aftermarket in this particular region. China, Northeast Asia, very stable growth at 4.5%, with a solid organic growth in both bearing solutions and specialized industrial solutions. We do see a strong demand in aftermarket and rail on the industrial side, to some extent driven by easy comparisons versus the same quarter last year. And for automotive, it's actually opposite. where we do report a negative organic growth in the quarter due to tough comparisons, especially for light vehicles in this particular region. India and Southeast Asia remains very strong across all three business segments, and some industries to really highlight here of significant growth would be heavy industries, again agriculture, and also light vehicles. If we then move and take a look at our segments and starting with our largest segment, Bearing Solutions, as you can see on the chart in the top right, representing more than 50% of our net sales and more than 75% of our adjusted operating profit. Organic growth came in at 2.4% for the segment as a whole, but demand is largely similar as we saw in Q4. We do see an improved demand in Asia that is offset by rather low or weak demand in EMEA. where we see that, especially on the distribution side and tailored towards rail, it's been rather low. And here we also see an impact from the Middle East crisis that also shined through in this particular region. The adjusted operating margin is 19.3%, which is very stable despite significant headwind from FX. And the main drivers here for the strong margin is a good development when it comes to price and mix. Here we have the benefit, as I mentioned before, from the right sizing activities that provide a somewhat net positive impact after the synergies. We do have a positive bridge effect from the world-class manufacturing program that we concluded at the end of last year. And here we also see some benefits from fixed cost absorption due to higher production volume as we build safety stock ahead of planned asset transfers. Moving to specialized industrial solutions, representing some 20% of sales and roughly 20% of our adjusted operating profit. Very strong organic growth, almost 9% in the quarter. Strong price mix execution across all four business units. And as I mentioned before, especially strong momentum in the segments of business units, aerospace and magnetic solutions. The adjusted operating margin is improving to 13.3% despite tough headwind from currency. And the main drivers behind this strong margin development is, for this one, I'd like to highlight two things. Firstly, it's a positive mix impact, where our air and magnetic businesses are growing faster than our lubrication and seals businesses. And then also that for all business units, as I mentioned before, we have strong progress or strong growth in aftermarket in all segments. The other area I'd like to draw your attention to is that we have a better product mix, both in lubrication and seals. And for lubrication, we have seen good growth in something we call automated lubrication systems, which is an important piece of the lubrication story, which I will come back to shortly and provide some more lights on. And then turning to automotive products. And this quarter representing some 26% of sales and 10% of our adjusted operating profit. Again, market conditions remain challenging, and you see we have a negative organic decline of some 2%, where we see negative growth in EMEA driven by light vehicles and commercial vehicles. We have flat growth in Americas, where negative growth in light vehicles is offset by strong development and aftermarket that I mentioned briefly before. In China and Northeast Asia, we are in negative growth territory, driven by tough comparison on the light vehicles area. And for India and Southeast Asia, we have strong growth, driven significantly by light vehicles and also aftermarket. The margin? It's robust, around 5% in the quarter. And the main drivers behind this performance is, again, mix. We have a strong aftermarket development that I mentioned a couple of times. We also see that our automotive business becoming more separated drives efficiencies in the operational setup that is also yielding benefits. And another area is also that we have been very effective when it comes to purchasing and procurement activities to reduce cost. On the negative side, we do have some reduced fixed cost absorption by lower volumes. And of course, as you can see on the chart, also a significant headwind from currency. So with that, I would like to hand over to Susanne, who will take you through the numbers in more detail. No, I will not. Sorry, my mistake. Billy, I promised you some deep times. So let me do those first. Let's start by providing some more clarity on our lubrication business. And... As you can see on the left-hand side, our new business roughly represents some 5 billion of sales. And seeing in the pie chart, the vast majority of those 5 billion comes from something we call automated lubrication systems. And if we double click on that and focus on the right hand side on this chart, you will see that our automated lubrication system, they do cover three distinct value chains for OEM solutions, engineer solution and aftermarket and services. And the value that our automated systems bring to the customers are rather significant because they provide more reliable and sustainable performance, securing the correct lubricant to the right areas in the right time and at the right amount. This drives cost reduction and clearly a reduction of total cost of ownership and increased efficiency for our customers. And by building strong relationship with these customers, that also deals good cross-sell opportunities for us when it comes to bearing solutions and sealing solutions. But we also said that we need to lift the adjusted operating margin in this particular business. And there are three pillars to our transformation that we have embarked upon to further strengthen our lubrication business. Firstly, we want to convert more of our manual solutions to automated lubrication solutions and services. Secondly, we need to build strong, streamlined products and value chains to really cater for these unique offerings for OEMs, engineered solutions, and aftermarket and service. And thirdly, we still need to do some optimization of our footprint to drive further cost efficiency and also drive regionalization, primarily in the Asia-Pacific region, as you can see on this chart. Then turning to automotive. As you may recall, when we presented Automotive at the Capital Markets Day, we provided the roadmap for the future that consisted of two strategic pillars and five strategic levers. And this is the page that we used back then. I do not intend to take you through all five levers today, but I'd like to put some more color on two of them. The first one relating to how we win in leading segment and the third one, how we address the expandable. or how we expand the addressable market. And by being a more separated, dedicated automotive business, we already now start to see that we are tied to our customers, we are faster in our response times, and we are more focused and more efficient. And that is yielding benefits. We continue to win in leading segments. And as you can see, we have increased our hit rate when it comes to winning OERFQs significantly compared to the situation before we announced the separation. But what's even further or even more good news is that it's not just to be increased the hit ratio significantly, but the value of those contracts that I will be in also increase significantly. That builds a great platform for future growth opportunities. On the addressable market. We have been very systematic and focused in driving new distribution channels and broaden our product portfolio. And due to this work, we have signed several new distribution agreements across North America and Europe that are expected to yield some 1 billion of sales over the coming four years. Again, another piece of building a strong platform for future growth opportunities. And now it's time to actually hand over to Susanne to take us through the numbers in more detail.

Thank you, Richard. Good morning, good afternoon, everyone. Happy to do so. Starting off here with an overview. Net sales was down 8.7% in the quarter and this was mainly driven by the currency headwind of 9.9% negative. The gross margin ended at 29.3% and that was down half a percentage point compared to last year. In the quarter, we delivered a strong adjusted operating margin of 13.5%, which was flat year over year. And I will come back to that even more on the following page. The one-off items affecting comparabilities in the quarter amounted to a negative 308 million, where the automotive separation costs represented a negative 464 million. The optimization of the industrial footprint, a negative 81 million. And then we had impairments of fixed assets and some other one-offs of minus 178. Finally, we also recorded a capital gain from the divestment of Elgin that we reported on in the early part of quarter one, and that amounted to 415 million kronor. In absolute amount, the adjusted and non-adjusted operating profit, together with the net profit, was lower than last year, much explained by adverse currency effects. Altogether, we ended at an earning EPS of 3.6 Swedish krona, and an adjusted EPS would have been 4.25. If we move on to the bridge analysis then. So as I said, the just did operating margin was flat year over year, despite strong currency headwind, tariffs and negative synergies from our ongoing separation. And this is certainly a proof point of our strong underlying performance. From an organic growth of 2.4%, we delivered a contribution to the result of 2.1 percentage points. We had growth in both sales and manufacturing volumes together with the very solid price mix actions, particularly in the specialized industrial solutions. This explained the positive drop through together with production volumes exceeding sales driven by stock built up ahead of the channel transfer related to the automotive separation. On the cost side, As we talked about in the quarter four earnings, we have negative synergies from the automotive separation that were included and reported as from quarter one, as automotive now operates independently with their own dedicated IT, management and administrative structures. However, the strong momentum in the right sizing program delivered higher than expected savings in the quarter, compensating for these effects. The right-sizing savings in the quarter amounted to 300 million, and we expect the run rate of the savings to be fairly linear from the 1.2 billion we had in quarter one to the 2 billion we aim for in the end of quarter four 2027. For the full year 2026, we expect the savings to continue to be somewhat higher than the negative vicinity effect. Further on the cost side, material costs declined in quarter one, primarily driven by automotive, and in line with what we have reported also recent quarters. We continue to largely compensate for tariff costs also in quarter one, and we expect to continue to do that also in the quarter two. So net-net with all this said, costs ended largely flat at minus 17 million. With respect to the currency, we had a significant headwind that continued in Q1, explained much by the weaker dollar and Chinese yen year-over-year. FX impacted the adjusted operating margin for the group of 2.1%. Finally, in the structure here, it's represented by the net divestment of Hanover that we reported in Q2 last year, and the second aerospace divestment in Eldian that we now closed in the first quarter of this year. Moving on. Cash flow. Let me report on that. We recorded a weak operating cash flow in the quarter of a negative 446 million. mainly driven by some 700 million of payments related to IACs and a working capital build-up. Our operating profit landed at 2.6 billion, which was some 240 million lower than quarter one last year, partly explained by adverse currency effects. Depreciation, amortization and impairment was about 300 million lower than last year and was 960 million. It's lower than last year because last year included impairment charges that we took. Non-cash items and others amounted to a negative minus 1.175 million compared to 735 negative of last year. This increase is partly explained by the severance payout of earlier announced right sizing that are sizable this quarter. Taxes that was paid ended at 580, slightly less than last year and also slightly lower than quarter four. Then we have a high net working capital buildup of 2.3 billion compared to 1.8 billion last year. This is explained by the separation related buildup of stock. Accounts receivable that increased due to strong sales in the end of the quarter and that we had negative development of accounts payable mainly explained by poor timing effects. Our capital expenditure in the quarter amounted to a negative 772, which offset the cash inflow of a net 800 million related to the sale of Elgin and sales of the property. Moving on to the balance sheet and the return on capital employed. We had a net debt excluding post-employment benefits that increased by some 600 million in Q1 compared to year-end due to the negative cash flow. Still, we remain on low levels. Net debt in relation to equity excluding pensions ended at 10.7 compared to 10.2 at year-end. Net debt in relation to adjusted EBITDA remained on the same level as year-end, namely 0.8. The adjusted return on capital employed remained stable in the quarter one at 14.4 compared to a 14.3 level at year end. Finally, later today we will have our annual general meeting to which the board has proposed a dividend of 7.75 kronor per share to be paid in two installments, one now in April and another one in October. This takes us to my last slide around outlook and guidance. So the outlook for the quarter, as you have heard us talking about, we expect the market demand in the quarter two to remain at similar levels as in quarter one, and thus expect organic growth to be relatively unchanged, given more unfavorable comparisons year over year. Then, of course, the conflict in Middle East amplifies uncertainty to this outlook. The FX guidance for Q2, so due to sequentially more favorable FX rates, the currency guidance for Q2 is estimated to minus 100 million year-over-year based on the rates we had by the end of March. The guidance for the full year remains the same as we announced in Q4. And that means that we have a tax excluding impact from divestments and the automotive separation to be estimated around 28%. We remain with capital expenditure outlook for the full year of some 5 billion. And the one-off cost related to automotive separation and our footprint optimization is expected to be in the range of negative 2.5 to 3 billion this year, which is completely in line with the 6.5 billion guidance we talked about at our capital market day in November. The capital gain from LG and that we reported now in the first quarter is not included in these estimates. By that, I hand over to you, Rickard.