AB SKF (publ)

So welcome to our Q2 2026 earnings call. Once again, we navigated well in markets with mixed demand and our strong underlying margin was mainly driven by our specialized industrial solutions segment, which grow in targeted areas, including aftermarket. I'm Sofia Arneus, heading up Investor Relations. And with me here in the room, I have our CEO, Richard Gustafsson, and our CFO, Susanne Larsson. After their presentations, there will be opportunities to ask questions. Let me just remind you how you do that. There are two ways to ask questions. If you have joined via the telephone, you can at any time press star and one to ask a question. If you are instead watching this call via the webcast you can also during the call here type in your questions via the question tab which you find above these slides. So without further ado let's get started here and it's a great pleasure to hand over to you Rickard.

Thank you very much, Sophie. And good morning, everyone. And thank you for joining us for this earnings call. Starting on the first page and draw your attention to the up right corner with the bar chart where you see that also in this quarter we are in the positive organic growth territory. And this quarter we report an organic growth of 1.4%. It's driven by strong growth in Asia and also across our segment specialized industrial solutions. We do see a remaining and generally soft demand in Europe, whilst the OEM market in Americas shows early signs of improvement driven by certain industrial verticals. Profitability-wise, we have a strong quarter. The adjusted operating margin improves to 13.9% in the quarter. And there are some key drivers behind this. Firstly, we do see a significant uplift profitability-wise in our specialized industrial solution segment. Secondly, our ride-sizing program continues to deliver. In this quarter, we have some 350 million in realized benefits, which exceeds negative synergies from the separation. And thirdly, we have also improved our profitability in the automotive segment, which we will come back to shortly. And furthermore, there are also some limited contribution in the quarter from some support production to automotive as part of the separation activities and also some AIPA tariff refunds that they have received in the quarter. Turning to cash, we have a stable cash flow in the quarter at 2.1 billion kronor, as you can see from this chart. It's somewhat lower than the same quarter last year, but in this quarter, we have had cash impact of roughly 700 million from our right-sizing activities, our automotive separation activity, and also from some footprint optimization. Turning to our strategic priorities, I'm pleased to report that our automotive separation is progressing in line with plan, and I will share more details on that shortly. We have also announced an exciting venture in the humanoid space, where I also will come back with more details during my presentation. And as part of building a strong business-driven value chain that are fit for purpose for a pure play industrial business, we have also initiated activities to modernize and standardize our IT platform and make them AI-enabled for the future. But let's move in and start to look about our organic growth by geography. And when I speak here, I'm going to talk about all our three segments. So starting with EMEA, our largest region, you can see there kind of a flattish to negative organic growth. But if you pick that apart, you will see that we have very solid growth in specialized industrial solutions, especially driven by aero and magnetics in this region. For automotive, we maintain a low-demand environment where both light vehicles and commercial vehicles report negative organic growth in the quarter. When it comes to business bearing Solutions, we see some cautiousness in our distribution business where the uncertainty also related to the crisis in the Middle East makes a number of our customers to apply kind of better be safe than sorry and a bit, you know, TURNING TO THE AMERICAS where we have a growth of 2.3%. Here I can say that that number is somewhat reduced due to that we have received some tariff refunds, as I mentioned. So underlying organic growth is somewhat bigger than what is reported here. Also, as in for Europe, we have very strong magnetics business driven by the AI build-out and the data center build-out in the region. Also, aerospace are growing very, very nicely in this region. We have a stable organic sales for bearing Solutions and also for automotive, but we start with Bearing Solutions. We do see that we have defense, heavy industries, high-speed machinery are also, just like for Europe, areas that are growing very nicely at the moment. And for auto, it's more flattish, where actually both light vehicles, commercial vehicles, and the aftermarket comes in rather flat in the quarter. Turning to China and Northeast Asia, solid growth north of 3%, where we see a continued solid demand development. And here I like to single out distribution, rail and high speed machinery as some examples of high growth areas for us. For automotive, we're back in growth territory here as well, and to some extent driven by light vehicle and the EV export that we now see coming out of China, but also commercial vehicles have a strong quarter in the region. And finally, India and Southeast Asia, solid growth, just shy of 4%, clearly driven by India and Vietnam, growing very nicely as geographies. For bearing solutions is distribution, wind, and also heavy industries that I would like to highlight as particular good growth areas. And for automotive, it's a bit flattish, very good growth in light vehicles, somewhat offset by commercial vehicles in that region. So we then turn to our segments and starting with bearing Solutions. And as you can see, I'm representing 55% of group sales and 76% of the adjusted operating profit. Here we have a flat dish organic growth of positive 0.2, driven by a price mix. We do see a solid growth across Asia, offset by a declining development in the EMEA region. We do have some tariff refunds, as I mentioned, that impacts growth somewhat in Americas. But here in Americas, we do see early signs of OEM market improvement from direct and indirect growth in these areas that I mentioned, like data centers, defense, AI, and infrastructure. The adjusted operating profit is solid north of 19%. And to give you some more color on this one, we do have benefits from the right-sizing separation, as I mentioned before, that offset negative synergies from the separation and also some of the inflation. But we also have some negative cost items from a comparison versus the same quarter last year. We have some preparation costs for the IT modernization that I mentioned and also build up of shared services beyond what we have in finance. And we also have less contribution from the world class manufacturing program this quarter versus the same quarter last year. Moving on to specialized industrial solutions, representing 20% of sales and 22% of the adjusted operating profit. Here we do see very solid growth, north of 8%, as you can see on this chart. And it's actually not just price mix. Price mix is part of the equation, an important part, but also volume, underlying volume is driving growth here. All units contribute into the growth, but with a particular emphasis on aerospace and magnetics. The adjusted operating margin increases significantly up from last year just north of 10% to over 15% in this quarter. And the main drivers behind this very positive development are threefold. Firstly, we do have a strong aftermarket growth across our business segments or business units, I should say, that make up this segment. Secondly, as I mentioned, our aero and magnetic business are growing faster than our lubrication and seals business, and that implies a positive mix, margin mix for us. And thirdly, we also have a very strong margin uplift in our lubrication business, both from pricing activities, but also for good success in growing our automated lubrication systems. And for those of you who joined us for the Q1 call, we did do a deep dive on the lubrication business, and there I tried to highlight the importance of automated lubrication systems in our lubrication portfolio. So we're pretty pleased to see that growth. Turning to automotive. representing 25% of sales and 11% of the adjusted operating profit. Here we are still in a declining growth environment, negative 1.4% in the quarter. And as I mentioned, there's generally challenging market conditions, especially in the media where both light vehicles and commercial vehicles are down. Good development in China and Northeast Asia, as I mentioned, both on commercial vehicles, but also light vehicles, EV export is driving growth there. And in America, as I said, it's more flattish across light vehicles, commercial vehicles and the aftermarket. But despite that we have a declining growth, we are able to improve the adjusted operating margin up to 5.7%, also visible on this slide. And we're starting to see benefits from being realized from becoming a more separated business. And we continue to see solid cost development, mainly driven by manufacturing efficiency and procurement management. If we then leave the quarter and the numbers, and before I turn back to Susanne to give you some more details, I'd like to take this opportunity to do a few deep dives. And I want to start with the venture around humanoids that we announced a few weeks or days ago. As we mentioned in the past, we have done a rather thorough study here to identify where we should play in this potential market. And we have concluded that we should focus on humanoids for industrial applications and that we will remain a component supplier and that we should partner with key system manufacturers to rapidly build a proposition That covers most of the need for industrial humanoids. But with that said, we also remain open to explore potential expansions to this as this market matures and we learn more. But on the right hand side, I'll try to give you some flavor of the bearings kind of contribution to humanoid and the number of positions where there are bearings. And in a humanoid, there are more than 120 bearings. And if you divide the value of those bearings broken down by bill of material, you find that roughly 45% of the bearing value is found in bearings like cross rollers and flexible bearings. they go into something that's called harmonic drives. And I'll come back to harmonic drives shortly. And this is an area where we don't really have an offering today. But that's where the venture with Leader Drive will come into play and really bridge that gap rapidly. Then some 35% of the bearings, they are related to thin section and other type of bearings. And here we already have capabilities and knowledge in-house that we intend to build further and accelerate internally. So from these two, we have some 80% coverage of the need for humanoids. Then the remaining 20%, they are related primarily to what's called miniature bearings that you find in hands and in fingers. This is an area we don't really have a coverage and where we are still assessing if we should do a greenfield here or if we should try to find a partner to also include this in our portfolio for humanoids or not. But 80% is what we now have coverage. Turning to the venture itself and a little bit on Leader Drive. It's a manufacturer of harmonic drives and other robotic precision components. And you may wonder what is a harmonic drive? And let me try to the best of my ability to explain that for you very, very quickly. An Amaric drive is the gearbox of a rotating actuator with flexible gears that can continuously deform during operations, enabling high precision and torque. And for this type of gearboxes or harmonic drives, a leader drive is the clear number one in China and a clear number two globally after the Japanese company HGI was the first to commercialize a harmonic drive. LeaderDrive, they supply manufacturers for both traditional robots and humanoids, and the main emphasis will be on humanoids, and they have customers both in China and outside China. And before this venture, they produced in-house the cross-roller and flexor bearings that are needed for these harmonic drives in-house. Now with the venture, that will be carved out and moved into the venture. and the venture, it will provide a fast track for SKF into this new exciting growth area. So LeaderDry will contribute with their cross-roller and flexible bearing production, and our contribution will be large-scale manufacturing know-how, support in actually scaling up and industrializing this, and then coupled with our own engineering innovation capabilities. SKF will be the majority owner of this venture, 60% ownership, and the future IP will be retained within SKF. The venture will start with a very strong position in the Chinese market, which we then can scale globally. We will also have capabilities to support all types of robots, traditional co-bots and humanoids, but clearly the main emphasis will be on building humanoids for industrial usage. And we expect this venture to be operational by the end of this year. Turning to automotive and the separation. And I'm very pleased to report that the separation is progressing with speed and fully aligned to our plan. Automotive is now structurally separated and also from an IT point of view. The board of automotive or SKF Vertebo, they have appointed Carsten Enogsson as the CEO, tasked to build an even stronger standalone automotive business. So overall, we are on track to complete the plan separation and listing by Q4 this year. This slide is also something that we used at the Capital Markets Day in November to lay out the five strategic levers that makes the foundation for the full potential plan of SKF Vertevo. And in Q1, I gave some color to some of those levers. And this quarter, I'd like to draw your attention to lever number four, a lean company setup. As I mentioned before, we now see tangible benefits from operating as an independent company. A lean company setup drives speed, cost efficiency and customer centricity. And let me provide you with a concrete example on how we actually accomplish this. In the past, preparing complete design packages for truck-matched units was a very manual and time-consuming process, taking more than four hours to complete. Now, using AI-based automation, customer, factory and supplier drawings are created in less than four minutes. This is, of course, creating significant value from a cost efficiency point of view. It also enables us to more rapidly respond to customer quotes. So it drives speed and also customer centricity. And it's freeing up valuable engineering time on innovation rather than spending time on documentation. I stop there and I turn back and hand over to Susanne to take you through the numbers.

Thank you. Good morning, everyone. So let me start with the profit and loss and the overview then. So as we have touched upon already, net sales was flat year over year with an organic growth of 1.4% being then offset by both currency and structure. We had an adjusted gross profit margin that improved by 1.1% to 32.7%, which we could also see visible in the strong adjusted operating margin that improved from 13.3% to 13.9%. I will come back to the different components of that on the following page here. Talking about one-off cost IEC in the quarter, they amounted to one billion krona, where automotive separation costs represented roughly half of the part, and the other half was related to the consolidation of our America's footprint that we announced early in this quarter, early in quarter two. And out of that restructuring charge, 345 was related to impairment of assets. I also just want to remind us that last year, At this point in time, we took a charge of 2 billion linked to the right-sizing program that we are now implementing, and we also had a profit of 800 million from the divestment of the aerospace business Hanover. All in all, in absolute amount, both adjusted and non-adjusted operating profit as well as net profit was higher than last year, largely explained by less IACs, improved operational performance, but also reduced FX headwinds. Altogether, we ended at an earnings per share of 2.8 krona per share and an adjusted one of 5 krona per share. So, let's look at the components that is building up our strong adjusted operating margin of 13.9%, starting then with the organic growth impact. We see a solid price mix that is the main contributor to the improved result, and as mentioned previously, it's mainly deriving from the SIS segment. Organic sales were negatively impacted by the customer refunds Richard talked about from the EPA tariff reclaims, which we have received the majority of during Q2. Payments to customers will follow the completion of the refunds, so they have not yet been done. The result impact of the tariff all in all around the reclaim is somewhat positive in the Q2 result. Also in this quarter, we had some support production ahead of the separation related to the transfer of production to automotive. So whilst the production volumes were positive in the organic, the result impact was limited because these higher production volumes led to temporary less efficient production impacting our cost negatively. So net-net then, we had a very limited result impact of that support production. With respect to the support production, we expect that to continue also in the second half of the year. Some further comments related to the cost development. Our ride-sizing activities contributed with some 350 million of savings and they continue to more than offset the separation related negative synergies. Material cost savings remain positive and particularly in the automotive segment. The overall cost development remained unfavorable driven by weaker productivity in the support production that I just talked about. We see wage inflation and tariff costs and some industrial transformation initiatives. We continued to largely compensate for the tariff costs also in Q2, and we expect to continue to do so also in Q3. And as I've already mentioned, we had a slight positive effect from the tariff reclaims in the Q2 itself then. With respect to currency, the impact is notable but much less severe than what we have faced previous quarters. So they impact our sales by a reduced 0.8 percentage point and it reduced the profit by 0.3 percentage point. Mainly driven by a weakening dollar vis-a-vis Swedish krona conversion year over year. Finally, then we have the structure column and that is representing the divestment on the aerospace business Eldian that we closed during quarter one earlier this year. Let's move into cash flow. If I start with EBITDA for the quarter two, that amounted to 3.5 billion Swedish krona. And non-cash items and tax payments made the cash flow before changes in networking capital to end at 3.2 billion compared to 2.9 last year. Tax payments was fully in line with last year's payment. Then we had a high networking capital build-up of minus 1.1 billion kronor. And this is mainly explained by the build-up of safety stock linked to automotive channel transfers, together with higher accounts receivable caused by the ongoing separation of automotive. Looking then at the graph to the right, I would like to recall that we announced the right-sizing initiative in Q2 last year, and since then we are paying out gradually every quarter the 2 billion that we accrued through the PNL a year ago. The automotive separation started in the late part of 2024. However, the speed of the separation has been at its peak during the first half of this year, where separation initiatives are now being finalized and we are moving in doing listing preparations. In the Q2 cash flow, we included 700 million of payments linked to such IEC charges. And with respect to Q1 last quarter, we had a similar 700 million paid then. Finally then, we had the capex of 700 million in the Q2 and the year-to-date of 1.5 billion. Comparable numbers last year was 900 in this quarter and 1.8 for the full first half year last year. Balance sheet and return on capital then. Our net debt excluding post-employment benefits Q2 over Q1 increased by 1 billion to 7.3 billion SEK, mainly driven by the dividend payment in Q2 net of cash inflows from our operations. Net debt divided by equity excluding pensions ended at 12.3 compared to 10.2 at year end. Net debt in relation to adjusted EBITDA excluding pensions ended at 0.1 above last quarter. If we then look at net debt in relation to adjusted EBITDA and include pension, we ended at 0.9. Adjusted ROSE improved to 14.5 vis-à-vis 14.4 loss quarter and 14.3 at year-end. So this is as a result of a somewhat improved result and reduced total assets. All in all, our net debt remains on a low level and our liquidity is high, 12.5 billion vis-a-vis 8.4 in the previous quarter. And this is a lot explained by the drawdown of the EIB loan, where we now have $500 million in loan. Additionally, we have another 800 million euro of undrawn credit facilities. That turns me to the last page, and that is around the outlook then. where we say that for Q3 then, and with given signs on improved market demand in certain industries, we expect the organic sales to strengthen somewhat in Q3 year over year. Considering still the geopolitical turmoil and the conflict in Middle East, there is certainly remaining unpredictability. Guidance also for Q3 around currency on the operating profit. That is estimated to a positive 100, applying the exchange rate as per the end of June. Moving on to guidance for the full year, talking tax levels, excluding effects from divestments and ongoing automotive separation. We now guide at 29, which is a slight increase compared to the earlier announcement of 28. And we do that because we have changed the assessment of evaluation reserve linked to the consolidation of our footprint in America. And you see the tax cost for that coming through the P&L in this very quarter. And that means that the full year tax rate is then rather around 29 than 28. additions to property, plant and equipment. We now take down 1 billion and guide to 4 billion. And this is mainly explained by further optimizing both existing assets, but also our planned investments. And finally then, when it comes to one-off costs in this year, IACs related to the automotive separation as well as our footprint optimization, we remain with the minus two and a half to three billion, fully in line with what we have communicated previously and also at the capital market in the end of last year. Rickard, over to you.