SKF B Aktie

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 and navigating in volatile market conditions. I am Sophie Arnius, heading up Investor Relations. And today, I'm joined by our CEO, Rickard Gustafson; and our CFO, Susanne Larsson.

After the presentation, there was an opportunity to ask questions. And there are ways to do that. [Operator Instructions] So without further ado. It's a great pleasure to hand over to you, Rickard, please.

A warm welcome to all of you for joining us at this quarterly report. During the quarter, we continued to execute on our strategic priorities to strengthen 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 SEK 300 million of savings in the quarter, which means a slight positive net after incurred dissynergies. And fourthly, we have an increased production volume as we continue to build safety stock for ahead of the plan as the transfer for the automotive separation.

Cash flow is weak in the quarter, negative SEK 0.4 billion, as you can see also on the chart. And there are 4 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 rightsizing program that we're on. We have a 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 is 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 with -- in different segments. And I will also take you through that just to remind you. And in this -- during this year, we're going to spend some time at every quarter to share some more lights on the different business units that make up our segments 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 2 main segments: the Bearing Solutions and Specialized Industrial Solutions. And in this Specialized Industrial Solutions, we have 4 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 primarily distributed to the different segments. Now it's wholly clear and here, we'll also find trading between industrial and 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 costs. 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 3 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 4 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 weaker 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 a 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 3 business segments and some industries to really highlight here of significant growth will 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 on 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 very low or weak demand in EMEA where we see that, especially on the distribution side and tailored towards rail is rather low. And here, we also see an impact from the Middle East crisis that also shine 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 rightsizing 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 the 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 4 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 the strong margin development is for both-- but listen, I'd like to highlight two things. Firstly, it is 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 some 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 that 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. In 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 a strong development in aftermarket that I mentioned briefly before. In China, Northeast Asia, we are a negative growth territory, driven by tough comparison on the light vehicle area. And for India, Southeast Asia, we have strong growth driven significantly by light vehicles and also aftermarket. The margin is robust around 5% in the quarter. And the main drivers behind this performance is again mix, where 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. Clearly, I promise you some deep dives. 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 lubrication business is roughly represents some SEK 5 billion of sales. And seeing in the pie chart, the vast majority of those SEK 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 3 distinct value chains for OEM Solutions, Engineered Solutions 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 a strong relationship with these customers, that also yields 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 3 pillars to our transformation that we have embarked on 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 with footprint to drive further cost efficiency and also drive regionalization primarily in the Asia Pacific region, as you can see on this chart. Turning to automotive. As you may recall, when we presented automotive at the Capital Markets Day, we provided the road map for the future that consisted of 2 strategic pillars and 5 strategic levers. And this is the page that we used back then. I do not intend to take it through all the 5 levers today, but I would like to provide some more color on 2 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 ratio when it comes to winning OE RFQs significantly compared to the situation before we announced the separation. But it was even further or even more good news is that it's not just to be increase the hit ratio significantly, but the value of those contracts that I will have also increased 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 SEK 1 billion of sales over the coming 4 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, Rickard, and good morning, good afternoon, everyone. Happy to do so. Starting off 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 0.5 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 SEK 308 million, where the automotive separation costs represented a negative SEK 464 million, the optimization of the industrial footprint, a negative SEK 81 million.

And then we had impairments of fixed assets and some other one-offs of minus SEK 178 million. Finally, we also recorded a capital gain from the divestment of Elgin that we reported on in the early part of quarter 1, and that amounted to [ SEK 450 million ] million. 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 SEK 3.6 and an adjusted EPS would have been [ SEK 4.25 ]. If we move on to the bridge analysis then. So as I said, adjusted operating margin was flat year-over-year despite strong currency headwinds, 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 a very solid price mix actions, particularly in the specialized industrial solutions. This explains the positive drop-through together with production volumes exceeding sales, driven by stock buildup ahead of the channel transfer related to the automotive separation.

On the cost side, as we talked about in the quarter 4 earnings, we have negative synergies from the automotive separation that were included as reported in quarter 1 as automotive now operates independently with their own dedicated IT management and administrative structures. However, the strong momentum in the rightsizing program delivered higher-than-expected savings in the quarter, compensating for this effect. The rightsizing savings in the quarter amounted to SEK 300 million and we expect the run rate of the savings to be fairly linear from the SEK 1.2 billion we had in quarter 1 to the SEK 2 billion we aim for in the end of quarter 4 2027. For the full year 2026, we expect these savings to continue to be somewhat higher than the negative dissynergy effect. Further on the cost side, material costs declined in quarter 1, 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 1 and we expect to continue to do that also in the quarter 2. So net-net, with all this said, cost ended largely flat at minus [ SEK 17 million ]. With respect to the currency, we had a significant headwind that continued in quarter 1, explained much by the weaker dollar and sale year-over-year. FX impacted the adjusted operating margin for the group of 2.1 percentage points.

Finally, in the structure here, it's represented by the net divestment of Hanover that we reported in quarter 2 last year and the second aerospace divestment in Elgin 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 SEK 446 million. mainly driven by some SEK 700 million of payments related to IACs and the working capital build up. Our operating profit landed at SEK 2.6 billion, which was some SEK 240 million lower than quarter 1 last year, partly explained by adverse currency effects. Depreciation, amortization and impairment was about SEK 300 million lower than last year and was SEK 960 million. It's lower than last year because last year included impairment charges that we took. Noncash items and others amounted to a negative minus SEK 1.175 million compared to SEK 735 million negative of last year. This increase is partly explained by the severance payout of earlier announced rightsizing that are more -- that are sizable this quarter. Taxes that was paid ended at SEK 580 million slightly less than last year and also slightly lower than quarter 4. Then we have a high net working capital buildup of SEK 2.3 billion compared to SEK 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 SEK 772 million which offset the cash inflow of a net SEK 800 million related to the sale of Elgin and sales of a 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 SEK 600 million in quarter 1 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 0.8x. The adjusted return on capital employed remained stable in the quarter 1 at 14.4% compared to 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 SEK 7.75 per share to be paid in 2 installments, 1 now in April and another 1 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 2 to remain at similar levels as 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 quarter 2. So due to sequentially more favorable FX rates, currency guidance for quarter 2 is estimated to minus SEK 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 quarter 4 and that means that we have a tax excluding impact from divestments on the automotive separation to be estimated around 28%. We remain with capital expenditure outlook for the full year of some SEK 5 billion and the one-off costs related to automotive separation and our footprint optimization is expected to be in the range of negative SEK 2.5 billion to SEK 3 billion this year, which is completely in line with the SEK 6.5 billion guidance we talked about at our Capital Market Day in November. The capital gain from Elgin that we reported now in the first quarter is not included in this estimate. By that, I hand over to you, Rickard.

Thank very much, Susanne. And let me just briefly wrap this up before we hand over to the Q&A session. We do see a strong execution in the quarter, and we are pleased that our rightsizing activities are continued at a high pace and in the quarter coming in somewhat better than we anticipated at SEK 300 million as you heard us say, providing a slight positive net after taking off the incurred dissynergies as well. And for the full year, we do believe that our rightsizing will somewhat be activities will somewhat provide a positive net also for the full year. We do see a strong margin despite significant headwinds, especially from FX, driven by good price and mix actions but also a disciplined cost management and we are pleased to see that we have improved our profitability or margin in our Specialized Industrial Solutions segment in the quarter.

We do report our news -- first time, we now report our new structure, which is another proof point and step that we are advancing our separation activities for our automotive business. And we stand firm, we do plan to finalize these in Q4, as we mentioned in the previous quarter, Q4 this year, as we mentioned in the previous quarter. We are creating 2 strong independent businesses, 1 fully dedicated and fully focused industrial business and 1 fully focused automotive business that will unlock the full potential for both businesses as we move forward.

And we are pleased that we are continuing while doing all this change that we continue to progress on our strategic initiatives and that will strengthen our position in high-value industrial segments to build a strong platform for future profitable growth.

So with that, I'd like to hand back to Sophie to help us get through the Q&A session.

Thank you, Rickard. So now it's time for opening up for questions. And I know that there are many of you that want to ask questions. So please limit it to one question per person. And if time allows, of course, you are very much welcome to so to say rejoin the Q&A queue again. And hopefully, we can also have time to answer your follow-up question.

[Operator Instructions]

We will start with a question from our telephone line, and it comes from Alex Jones at Bank of America.

Great. If I could ask about tariffs, please. Obviously, there have been changes recently to Section 232 on steel and aluminum. Could you talk a little bit the impact on your business given the higher rates and the lack of USMCA exemptions and sort of what actions you're taking in terms of pricing, cost actions, et cetera, to mitigate that?

And is that something that already impact Q2 and as part of your outlook that you can continue to largely offset those tariff impacts, or given your inventories, will that be something we see more effects from into Q3 and H2. And if it's the latter are you confident in still offsetting tariffs under this new Section 232 regime?

Rickard, do you want to share some light on this one?

Happy to. Since this tariff situation started a year ago, we have been able through active price and mix actions being able to offset and mitigate the vast majority of the impact from these tariffs and what we know right now, we're going to continue to do so also in Q2 and as we move forward. And your specific question on 232 is actually less impacting us because previously, we had some taxes on 50% of the value of our bearings. Now it's significant. Now it's 100% of the bearing, but bearings are fall in the category of 25% tax. So basically, it's a wash for us. So it will not have -- we don't see that that's going to have a significant implication.

And therefore, our price mechanisms, both in terms of price increases and surcharges should be able to continue to offset the cost for tariffs also at the levels that are now being predicted through the change in 232.

We will continue with a question from our webcast audience, and it comes from John Kim at Deutsche Bank. And the question is, if we can help him with some color on price mix and volumes in Bearing Solutions and Specialized Industrial Solutions. And if we see the Q1 margin improvement year-over-year in Specialized Industrial Solutions, as indicative of the year or more time and place.

Rickard, do you want to take this one?

Yes. I think the margin improvement that we've seen in the quarter, as I described, came from particular activities or 2 drivers, one being mix and other being a good kind of product development or product portfolio development. We don't guide by segment for the -- with the margins. I can't really say so much more than that, but we do not -- we do believe that our specialized industrial solutions business will follow the same kind of seasonality as our Bearing Business.

Yes. So that means Rickard that, as you said, Q1 is typically the strongest quarter. And we can also say that as we talked about at the Capital Markets Day we target or aim for a margin in the ballpark of where we have the bearing solutions margin midterm.

So it's an important driver for us to deliver on the plus 17% adjusted operating margin target for the SKF post automotive separation midterm.

So with that, let's continue with a question from our telephone line, and it comes from Rory Smith at Oxcap.

It's Rory from Oxcap. I actually just wanted to come back to that point on volume versus price mix in Bearing Solutions in the quarter. If you could put a number on either a percentage point of the growth or an absolute number on how much of that was volume and how much of that volume was over production on the sort of building inventories ready for the spin.

And has that stopped as of Q2? Any sort of numbers around that particular point would be really helpful.

So we have somewhat of an overproduction, which is helping us on the organic development. So that really means that we have built some additional stock, which doesn't really sit in the sales yet. It sits in the production results. So when it comes to price mix, I think it is really explained by a strong a strong portfolio, both pruning and mix with a good aftermarket business in the SIS sector particularly, and also good price management particularly in Industrial Americas, partly caused by the tariff situation.

And if I may here, just add on that overproduction it's around SEK 100 million than for the group impacting earnings positively, and it's in the organic bucket, as Susanne said. And it has to do with us producing more in Bearing Solutions ahead of the planned separation here.

It's in line with our plan to separate automotive.

Thank you, Rory. We will continue with a question

from Sinha at JPMorgan.

My question is just on the savings versus the dissynergies that you saw first in the quarter and then I guess what you're saying on for the full year. So for Q1, I think the savings delivered was maybe perhaps faster or stronger than maybe we had. So is that the positive impact in the quarter? Was that just more of the savings delivered rather than dissynergies perhaps being lower than first anticipated? And then just on the full year comment, does this mean that for each quarter, the savings will be able to compensate for the negative dissynergies? Or is it just that Q1 was more net positive? And as we go into the year, the bridge benefit into Q3, Q4 of the savings will be lower, and therefore, dissynergies will be higher?

Please share some light on this one.

Sure. No, your comment was correct that we do see experience that we had somewhat higher savings from our rightsizing program in the quarter than we maybe anticipated walking into the quarter. The dissynergies have not changed or are in line with our expectation. And even though we don't quantify them, we do provide an indication that with SEK 300 million of savings, that indicates a slight net positive contribution after dis-synergies. And as we move forward, we do believe that the dissynergies will roughly be at the level that we've seen in Q1 throughout the rest of the year quarter-by-quarter. And when we get talking about the savings for the full year, as I mentioned, we do believe that savings will be slightly net positive over our dissynergies, but in the second half, we're also going to meet the pay where we started to yield some benefits already in Q4 from the rightsizing.

And we will continue with a question from Daniela Costa at Goldman Sachs.

I also just wanted to ask a clarification on the question regarding overproduction, whether that's going to continue Q into and after or not. But my main question was regarding now that you've mentioned you have this new higher -- more contracts in automotive than you expected when you preannounced before the announcement of the spin. Does that change any way how you think about the contract manufacturing timing and the impact that can have in industrial?

Rickard, will you talk about the overproduction and the contract manufacturing here?

Yes. We do believe that there might be some overproduction, building some additional safety stock also in Q2 as we move forward with the planned separation and the planned asset transfer. So there might be some also in Q2 that you should expect. And when it comes to the speed of the asset transfers, the solid progress in winning new contracts and also in the winning the RFQs that I mentioned and the improved value of those contracts is, of course, positive. That doesn't really change our ambition in terms of speed of moving assets. and thereby faster reducing the contract manufacturing. We're already trying to do that with the highest possible speed that is doable. And we have put up a very, very aggressive scheme for ourselves on how to move all of these assets around at the shortest time possible.

Thank you, Rickard. And it's -- we also got questions on the same topic here from William Mackie at Kepler Cheuvreux. So Will, I hope you also got your question answered here. So let's continue with another question from the telephone line. And this time, it's from Klas Bergelind at Citi.

I just want to come back on the rightsizing that came in better than expectations. So I just want to look at the full year. You say that this can be somewhat positive versus somewhat negative before, i.e. the difference between rightsizing and the synergies. What delta is that in your view? Was somewhat negative before, perhaps SEK 200 million? And when I do the sort of linear savings against the synergies now, I get to that to the sort of SEK 50 million to SEK 100 million plus. I just want to understand the delta a little bit better between the negative to the somewhat positive. I don't know if you can help me with that.

But you're right. We have a good momentum in the rightsizing, and we even came in a little bit stronger than what we anticipated in quarter 4, and that good pace continues now with having realized savings of SEK 300 million, which is then somewhat positive instead of more than kind of the opposite somewhat negative that we guided on. We believe that we will have a fairly linear development still. But I think the assumption that we're providing to have a net that is in the range of some SEK 100 million would be appropriate for the year of positive rightsizing compared to the synergy part.

Perfect. Very quick one for you, Rickard. I just want to come back to Section 232. It's now 25% of total value of the bearings versus 50% on steel and aluminum copper content before. I get a higher tariff impact for you from April 6, no drama, but still a bit higher. So, sorry, Rickard, can you explain more why this is a wash for you? I didn't fully get that.

No, you're right. Previously, or the current scheme, we do pay roughly, if I kind of paint with a broader brush, 50% tariffs on 50% of the product value. Now we're going to pay kind of 25% on 100% of the product value. So that's why I said it's going to be a wash.

Very good. And we will continue with a question from Andreas Koski at BNP Paribas.

So my understanding is that you started to see stronger sales in March compared to the previous 2 months of the first quarter. So I just wonder why are you not being more positive in your outlook for the second quarter? Why are you not expecting that higher sales level that you saw in March continue to accelerate into the second quarter?

Rickard, would like to answer this one, I see.

Right. Normally, in the first quarter, we do see that the March is somewhat stronger than January and February. But what we said is that we saw that it was unusually stronger this quarter than what we've seen in the past. So that has an impact also on AR, as we mentioned. Now when we look into the trading activities and also what we see in April, we do see that it follow normal seasonality, and we cannot really point to a significant uptick in activities. And therefore, our best estimate is that the activity levels will be roughly the same in Q2 as it was in Q1. And therefore, the comparison will indicate that we will see a somewhat positive growth.

Can I just follow up? So you are not expecting weaker demand in the, say, in the coming months and in April because of the situation in the Middle East that could potentially come on top of your outlook?

What we see right now that the Middle East situation is included in our outlook. Just to state -- kind of put this in context, Middle East for us equates to roughly 1% of group sales. So it's not massive. And it has been having an impact, as I mentioned, especially in Bearing Solutions for EMEA during Q1, and that is probably the case also in Q2. And let's hope that this war ends soon. But given what we see right now and the best estimate we can give is what we now have actually is the outlook that we provided.

Thank you, Andreas. And we will continue with a question here from the webcast audience, and it comes from Olof Larshammar at Danske Bank. And it goes like this. I've heard that some of your competitors have recently announced list price increases in distribution to compensate for recent increases in energy and steel cost post war in Iran. Have SKF announced similar increases? Or is that to come? Susanne, please?

So generally, I think over -- ever since the Liberation Day with a sizable tariff that we have been facing, we have been successful in passing through the majority of that with price increases or surcharges. Now when we are facing the Middle East crisis, we are taking similar actions as soon as possible. And that means that we are out in the market adjusting our price list during this quarter already and anticipate to have somewhat an effect on that already in quarter 2.

Thank you. And let's go back to the telephone line. And we have a question here from Tim Lee at Barclays.

So, another question has probably asked, we just want to follow up a little bit on the margin. I think there's also one aspect that you mentioned will be on the pre-buy impact in vehicle after market segments. And how was the impact in the quarter, and whether it will be similar, like, repeating this in the coming quarter? And what's the reason for that pre-buy?

Tim, let me clarify a little bit about that prebuy impact. So for group, it was marginal in terms of group margin and say it was 40 bps on automotive margin.

Let's continue with a question here from our webcast audience. And also, I believe that also answer your questions that you sent in here. So otherwise, please come back to us. We have a question from William Mackie again at Kepler Cheuvreux. It's on net working capital here. Net working capital as a percentage of rolling sales surged to 34.6% from 30.4% at year-end, adding approximately SEK 1.8 billion to SEK 2 billion of incremental cash absorption relative to the prior normal range. What is the expected net working capital to sales ratio at year-end '26 on management's base case? And what point do separation -- and at what point do separation-driven safety stocks normalize? So this is really a CFO question. Susanne, please?

Yes. So we ended last year at around 32%. And as you rightly say, we have increased up to 34% of sales this quarter, partly explained by buildup of stock to cater for the planned channel transfers. We anticipate some overproduction and hence, having certain stock implications also in the next quarter. And we believe that will normalize during the end of this year. So that's what we see. This means that what we talked about as normalized at the Capital Markets Day of some 29% of sales until long term coming down to 27% will not realize this year. So this year is more of a year where we will be in line with what we had last year full year value. And we will face some negative implications until the separation really.

Thank you. And let's continue with a question from the telephone line, and it comes from John Kim at Deutsche Bank.

I was wondering if we could talk a little bit about the separation. I think it's still scheduled for November 20 -- this year. Can you talk about signposts when we should expect different kind of processes and documents?

Rickard, do you want to share some light?

I will. And we do plan and we are committed to finalize this process during Q4 this year. So we reconfirm that. That means that you should expect to hear more to get information brochure and prospectus will come during this fall. So after summer, you should expect to start to see more communication in terms of information brochure then followed by a extra Annual General Meeting or an EGM. And then, of course, the automotive team will be out there with their own Capital Markets Day communication also during fall this year.

So basically, more information will follow here second half. Thank you, John. Let's continue with a question from Chit Sinha at JPMorgan.

Can you just provide more color on the decision to consolidate the Americas facility? If I'm correct, you were adding capacity to Monterrey early last year? And then was this expected when you issued the 2026 guide?

Well the consolidation in Americas and the closure of the Monterrey factory and moving that into 2 other factories in the Mexico region was part of the plan for our separation. It was included in the framework we gave at the Capital Markets Day for the cost of the footprint consolidation and the items affecting comparability that we need to take in midterm over the next few years to come. So that has always been the plan. When the investment decision was taken a couple of years ago to build this capability or this factory was based on a very different outlook when it comes to how the Americas electrification of the light vehicle fleet and the speed of that, that has really been a very, very significant change in those forecasts since then. And hence, this factory is actually oversized, and we will be much better off by consolidating our industrial footprint in one part of Mexico and our automotive footprint in another part of Mexico. And as I said, this was part of the guidance that we gave at the Capital Markets Day.

Thank you, Rickard. We will continue with a question from the webcast. Here is from Rory Smith at Oxcap, and it's on Middle East. So have we seen anything at all in our supply chains? And Rory is thinking specifically about lubricants, but any comment is appreciated. Rickard, I hand it to you.

Again, just to put this in context, our total net sales in the region equates to roughly 1% of our sales. So the direct impact from that point of view is not massive for us. Clearly, the increases in fuel prices has an impact. And as you heard Susanne mentioned, we are already taking actions in order to compensate ourselves for increased fuel costs. But to your specific question, have we seen any disturbances in our supply chains? We can't really point to anything of any significance so far. And that has not been the case for us. And furthermore, I do believe that the -- maybe the biggest concern that we have regarding how long this conflict will last is what this will do to global demand. And that question, I think we all can speculate and we only will know once we see the war come to an end.

Thank you. And it's now time for the final question here, and it comes from Andreas Koski at BNP Paribas.

It's a housekeeping question for Susanne, because when I look at your outlook, you're guiding for a tax level of 28%, but that's excluding effects related to divested businesses and the separation of the automotive business. So I wonder if there will be any significant tax implications because of the auto spin. And then secondly, you're also guiding for a CapEx level of SEK 5 billion, and that is excluding CapEx related to the separation of the auto business. So also there, will the separation of the auto business lead to a lot of extra CapEx in 2026 that we should take into account?

So coming -- first, taking the 28% tax guidance then. And yes, we are -- as part of the separation country by country, we are facing some legislative implications on tax. And that actually will happen also as we finalize the separation country by country. So we had that in last year's result to some extent, and we envisage that to happen also in this. And that's why we guide on the underlying 28% being the kind of guidance for 2026. Then you had the question, let's see what that was. What was that?

We're guiding on CapEx for the full year now of around SEK 5 billion, and it's total CapEx for the group, so including automotive separation. Just to clarify that.

Thank you, Andreas. And I hand over -- and that concludes the Q&A session for this time, and I hand over to you, Rickard.

Thank you, Sophie. And thanks to all of you in the audience for joining us on this call and for your insightful questions. I believe that we do deliver a strong report in Q1 this year. We are pleased with a couple of things, especially pleased with a couple of things in this quarter.

The fact that we are seeing an improved margin in our Specialized Industrial Solutions is very strong and positive. The fact that we are delivering ahead of our own plans when it comes to the rightsizing activities yielding a slight positive net after the synergies. It's also something I think is strong. And also in general, that our automotive business is demonstrating that they can and will build an even stronger platform for future growth as they now become more independent and that also made them deliver a stable margin despite rather tough headwinds from FX. It's also a good sign. And we are determined to conclude our separation by Q4 this year, as I mentioned. And we are excited about the future of the industrial business, building even stronger foothold and presence in key industrial verticals where we can really add significant value and drive further profitable growth.

So with that, I thank you so much for your attention, and I wish you a great week ahead.

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 Sophie Arnius, heading up Investor Relations. With me, I have our CEO, Rickard Gustafson; and our CFO, Susanne Larsson.

After their presentations, there will be opportunities for you to ask questions. And there are 2 ways to do that. [Operator Instructions]

So without further ado, it's a great pleasure to hand over to you, Rickard.

Thank you very much, Sophie, 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, while we still see some softer demand in our Automotive that are still in a declining organic growth territory.

The Automotive separation, of course, continues at high pace and strong momentum. And I am very pleased to say that we have identified an opportunity to further accelerate the phaseout 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 SEK 92 billion, representing a flattish organic growth or to be specific, negative 0.4%, where Industrial grew some 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 north of SEK 8 billion at SEK 8.4 billion, which is somewhat lower or SEK 2.5 billion lower than the year before. And the reason for this is spelled items affecting comparability, which amounted to almost SEK 3 billion in the full year. And the main drivers there was our rightsizing 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 SEK 7.75 per share, which actually represents or reflecting our strong financial performance. They will also recommend that this year, it will be paid out in 2 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 SEK 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 a good price/mix activities to compensate for tariffs. The rightsizing program contributes with almost SEK 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 a very efficient cost management, not at least within Automotive and also when it comes to material costs.

Net cash flow in the quarter, SEK 2.7 billion. This is some SEK 0.5 billion roughly less than what we reported the same quarter last year. And again, items affecting comparability is part of this. The main cash drain though has been the auto separation, and that's ongoing. Costs related to our rightsizing 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, who will 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 solid bottoming out is clearly there.

When it comes to Automotive, it's more challenging, still rather soft market environment and is 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 flattish 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 is 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 that was primarily driven by distribution, which actually had a good ending of the year.

We also saw that the wind-related prebuys, 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 a total level on the Industrial side, so 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 are flattish in 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 the Industrial business, as you can see on the top hand of this 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 or 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/mix activities that I mentioned to compensate for tariffs. The rightsizing benefits of almost SEK 200 million hits here -- 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 enabled us to actually offset a rather significant currency headwind that is eating some 1 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, 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 are continuing 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 3 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 turmoil, low-demand environment and significant currency headwind. It's also comforting to mention that throughout 2025, we have won a number of strategically and margin-accretive 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 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 efforts, 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 Markets 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 create an even stronger starting point for both businesses.

Finally, before I hand over to Susanne, just to reiterate some of the key messages from our Capital Markets Day. How do we build -- laying the foundation for long-term value creation. As we have 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 3 pillars and 7 levers, where the 3 pillars were reignite growth, innovation leadership and business-driven value chains. And for Automotive, their value creation plan rests on 2 pillars and 5 strategic levers, where the pillars are 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. So more to come here during 2026.

And for those of you that may have missed 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, Rickard, and good morning, everyone. I'm pleased to be here with Rickard today and announce our quarter 4 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 you then adjust for the one-off costs, the gross margin stands at 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 will further comment on that on the following page.

The one-off costs in the quarter added up to approximately SEK 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 result in quarter 4 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 SEK 113 million and improved our margin with 0.5 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 rightsizing activities that are now starting to give a positive contribution year-over-year of some SEK 190 million. This impact falls positively through our results as the dissynergies of automotive separation will come 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 rightsizing activities. By that, I still reconfirm the positive impact of the rightsizing activities of some SEK 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 Rickard 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 1, given what we know today.

Currency effects continue to be significantly negative and reduced our reported sales by 10.6% and impacted our operating margin by 1.4 percentage points of negative effect. And the main currencies are the same. They are dollars, CNY and Turkish lira. Structure is minor and referred to last year's acquisition of John Sample Group, net of the divestment of aerospace handover that we completed in the spring.

Moving on to cash flow. In quarter 4, we delivered a solid cash flow, where one-off charges impacted cash flow by SEK 1 billion. In this picture, the starting point is the operating profit for the quarter, and that ended at SEK 1.6 billion, which is some SEK 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 noncash items is higher than last year as a consequence of reducing the provisions related to the rightsizing program from now payouts. Taxes paid in the quarter was SEK 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 SEK 1.4 billion, which is some SEK 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 4 cash flow from operations of SEK 2.8 billion. From that, we deduct SEK 1 billion of CapEx and ended with a cash flow after investments of SEK 1.8 billion.

For the full year, the operating cash flow amounted to SEK 8.4 billion compared to SEK 10.8 billion last year. And in 2025, we then have a cash outflow from IOCs amounting to SEK 3 billion.

Balance sheet and return on capital employed. Our net debt, excluding pension, declined from SEK 7.5 billion in the end of quarter 3 to SEK 5.7 billion 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 remained stable at 14.3%. So as Rickard said, SKF 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 SEK 7.75 per share to be paid in 2 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 1 to remain at a similar level of quarter 4. Consequently, we expect an organic sales to strengthen somewhat in quarter 1 year-over-year, supported by also more favorable comparisons. The guidance for quarter 1 with respect to FX, we anticipate a further negative impact of earnings sequentially in quarter 1. 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 SEK 800 million year-over-year for quarter 1, 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 implication as well as divestments. CapEx, we estimate to end next year at some SEK 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-off items related to the automotive separation and footprint optimization as we also communicated those at the Capital Markets Day. So we anticipate this to be in the range of minus SEK 2.5 billion to SEK 3 billion for this year, and this is fully in line with the SEK 6.5 billion guidance for the period of quarter 4 2025 up until 2028. Finally then, the guidance for the full year NIAC does not include capital gains from the divestment of [ LTM ] and that we expect to soon close.

So by that, over to you again, Rickard.

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, end the fourth quarter in a 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 dragged 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'll 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 2 things will be the main focus in 2026 to finalize the separation and gear up for profitable growth in both our businesses.

So with that, I thank you so far for your attention and turn over to the Q&A session.

Yes. Thank you. And we will now open up for questions. And there are 2 ways to do that. [Operator Instructions] 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 is time, you can happily join the Q&A queue again. So -- but we will start with a question from Klas Bergelind at Citi.

Klas Bergelind at Citi. So I just want to zoom in a bit on the dissynergies versus the rightsizing here into the first quarter. First, on the savings, you did SEK 190 million already in the fourth quarter. And Susanne, you're still saying the savings would be linear and that will reach the SEK 2 billion run rate end of '27. But if it's linear, I get this to a SEK 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 around SEK 1.5 billion of total dissynergies that we can read from your Capital Markets Day slides, how much of those dissynergies 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 dissynergies to savings into the first quarter?

And Susanne, do you want to shed some light?

I will do my best. 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 had 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 SEK 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 dissynergies then, so as from 2026, by design, you could say, we will operate Automotive as an independent organization within SKF, allowing them to have a fully dedicated management that is now being onboarded and also having own IT structures, et cetera. So that will start to come in play already from next quarter. And we believe that the positive implications will be offset by these negative dissynergies 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, this will [indiscernible] turn and then...

Next quarter.

From the next quarter, I mean, sorry.

Next quarter is actually in Q1. So starting from Q1, sorry.

Next quarter is quarter 1. Sorry for confusing. First quarter.

Okay. But -- yes. But the dissynergies in the first quarter will still be greater than the savings from the rightsizing because that is, I think, what you write in the report, right, in the first quarter.

That's correct. That's correct.

It will be somewhat larger. And of course, then the pace of the rightsizing savings will, of course, increase in the coming quarters, Q2 and onwards.

Can I squeeze in just a very, very quick final question on the outlook just very quickly. When you say somewhat higher sales growth, is it 1%, 2%, 3%? Because consensus is around 3%. And the reason why I ask that is, if you look at Automotive, it's down 5.8% 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 is growing mid- to 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?

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.

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

I wanted to ask on 2 upcoming regulations, I guess, that are coming and then how 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 if 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 CBAM and how you would reflect that going forward?

Rickard, 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 -- lobbying still ongoing on how to fully implement this because it may impact -- I'm not talking about SKF in Pacific, 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 the -- we watch that one closely, and we are engaged in with those channels that we can to find a good implementation of that legislation.

We move on to John Kim at Deutsche Bank.

I'm wondering if we could focus a bit on the separation time line. You did cite the changing nature of the contract manufacturing relationship. Can you confirm for us that the time line 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 extremely efficient. I dare to stick out my neck and say where we're really holding the timetable we set up from the beginning with a lot of the heavy lifting in terms of IT cutovers and legal restructuring and all of that. I'm rather impressed how well the organization has stepped up to this challenge and the efficiency in how we drive this program.

But as we have -- 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 we originally planned. And when we saw that and we saw the benefits and we realized that this will actually create an even stronger starting point for both businesses, we were very eager to go after that opportunity. And therefore, we feel confident with the planned listing timing now for Q4 2026. So it's not driven by any conflicts internally, not at all.

And we will continue with a question from Seb Kuenne at RBC.

Again, on the separation, I mean, 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 margin for Automotive. But at the same time, you take business away from Industrial. So 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 the detriment to Industrial. Where am I going wrong here?

Rickard, could you please respond to this?

Sure. I think maybe where you might struggle a bit is that at the moment and given the low demand environment that we experienced for quite some time, we have said before that we are 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 are avoiding to having a lot of undercapacity -- unnecessary capacity. So that's kind of the main benefit for the Industrial side and also reducing -- thereby reducing contract manufacturing will also be a positive contributor in 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 criticized here in any shape or form, but just saying more likely just shuffling around some assets. It is a little bit more complicated than that, I must say. So to just say so -- tell you about the reality that we face as well.

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, better asset utilization. And also, we are then believing that longer term, we will continue to also increase growth and improve growth in our Industrial business that will further utilize assets. But as a starting point, you're right. It's really to set the utilization at a better rate from starting point.

And we will continue with a question from Rory Smith at Oxcap.

It's Rory from Oxcap. 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 a little bit longer and 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 target for Industrial if we're going to get there quicker? That would be my question.

Right. I can't give you -- 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 that it will go to 0. I hope that we've been very clear. The plan is not to take it to 0, 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 -- in the midterm -- at that time, we said for the next 2 to 3 years to finalize this, to reach our midterm target. That has not changed.

We're now saying that there are 2 years left on 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.

And we will continue with a question from Alex Jones at Bank of America.

Maybe continuing 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 time line going forward at all?

Right. 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, for the full year, the margin is relatively unchanged and that 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 respect and trust among our customers 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 buildup of Automotive. And the Q4 in isolation, that we had a tough quarter also with a lot of impact from FX, as I mentioned, has not made any influence on our decision to plan for the spin in Q4 2026.

We will continue to Andre Kukhnin at UBS.

Yes. 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 SEK 750 million run rate to SEK 2 billion during 2026 and '27, that's SEK 1,250 million over 2 years and hence, SEK 625 million per annum, so round down to SEK 600 million. Are we right to think that during 2026, you were expecting dissynergies to be around that SEK 600 million 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 dissynergies. Is that the right way to think about it?

Susanne, do you want to comment on this?

I'm sure we will be able to disclose this by quarter because I realize the importance of both the rightsizing and the dissynergies. So we are prepared to do that. But as we said, then you're right, with a run rate of this year of SEK 750 million, we will end 2027 with a run rate of the SEK 2 billion we are committed to save. And we will now have relatively linear throughout these 2 years, and we are taking on dissynergies that will more than offset now already in quarter 1. And I think that means that we will have dissynergies in line with the savings throughout this year until we spin the business. And then we will have, of course, the leverage of the rightsizing program that will more than compensate for dissynergies and contract manufacturing as we stated at the Capital Markets Day.

Great. That's really helpful. And if I may, just a much broader question on pricing and your ability to price up and to pass through headwinds. In 2025, you're clearly surprised positively on that. Do you think from that experience, are we -- should we be more confident on your ability to do that in 2026 as well? Or should we worry about kind of price exhaustion and customer tolerance to that, that's 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 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 the cost of manufacturing the bearing. So that will continue clearly throughout the year.

If 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 really, 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 takes 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.

We will continue with a question from Andreas Koski at BNP Paribas.

I also have a question on cost savings, but not related to the rightsizing program, rather to the world-class manufacturing program that you've been running for, I think, 5 years now. And when it was launched, you said that you were going to save like SEK 5 billion on COGS, which implies that, that has generated cost savings of about SEK 1 billion a year. So I just want to check if that 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 0 now from now on and forward?

I confirm your assumptions. So we have finalized the program. This autumn, we have the SEK 5 billion ambition level that we delivered on, and we will expect continued benefits of that as we move along into also '26. Yes.

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

Good. Let's continue with a question from Rizk Maidi at Jefferies.

Yes. It's just really a clarification and maybe it's something that I misunderstood. So on the rightsizing savings, we're talking about roughly SEK 600 million to be achieved in 2026. And I think at the Capital Markets Day, you talked about dissynergies to be roughly around SEK 1.5 billion. As you -- my understanding this morning is you're trying to scale the dissynergies closer to the savings number, but it's still a big number. It's SEK 1.5 billion. And I think Automotive needs to stand on its 2 feet by the end of this year because that's when the listing is going to happen. Can you just help us sort of bridge that gap between the SEK 600 million and the SEK 1.5 billion this year. I think this is really what the market is struggling with this moment.

So when we have talked about the rightsizing program that we initiated last summer, we have said that we will have an annual benefit of that of SEK 2 billion, and that will more than compensate for the dissynergies 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 imply. And if we talk about the dissynergies then, that will then -- and that is again why we actually launched the rightsizing program is to rightsize 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 dissynergies and how we will then -- when we have left Automotive, be in a better place still with the contract manufacturing from the takeoff.

Okay. Okay. And then just very quickly, does the CapEx plans for the Industrial business now changing given the transfer of assets that you're going from Industrial to autos?

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

Good. And that is at the point of departure and then it will decline faster as we talked about here. We have time for a final question, and that will come then from Daniela Costa at Goldman Sachs.

I wanted to follow up on the point on tariffs. You've been very clear you're going to compensate that, I guess, from a margin perspective and 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?

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 market share in any general terms. But rather, as you say, that our competitors, they also safeguard their earnings and reacting and trying to compensate themselves for these tariffs. So maybe a bit premature to be too specific, but we have no indication that we are losing market share.

Thank you. And that was our final question. And before we end, Rickard, 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 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 that 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 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 excited about this small shift in the asset reallocation that would drive -- create an even better starting point. And as I mentioned, the organization is now really gearing up to deliver on those strategic pillars that will 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.

A warm welcome to SKF's Capital Markets Day 2025. My name is Sophie Arnius. I'm heading up Investor Relations and will also be today's moderator. The headline behind me on the screen tells you what today we'll focus on, how we are unlocking value by creating two even sharper businesses, Industrial and Automotive.

Let's look at the rundown for today. Our CEO and President, Rickard Gustafson, will kick things off, giving you an overview of the separation and the value it unlocks. After that, we will have a closer look at our industrial business and the growth opportunities that a much clearer focus will bring. We will also look at our customer-centric innovation model and the value it brings. Then we will also have a deep dive into the business-driven value chain. And what do we need to do to adapt to our needs of customers tomorrow as well as increase our efficiencies further. And then Susanne Larsson, our CFO, will translate all of this into the newly published financial targets for the SKF Group post Automotive separation. We will end the day as zooming in on Automotive and look at what are the benefits they see from this separation?

There will, of course, be opportunities to ask questions, both from our audience here in the room in Stockholm as well as for you that have registered to watch this event online. And as soon as you have your questions, please submit them, and you do that in the column to the right.

There will be three Q&A sessions today. The first one that is just before the break will focus on the overall value creation of this separation, as well as how we are reuniting growth at Industrial. The second one is purely focusing on Industrial. And here, the topics are innovation, the business-driven value chain and the financial targets. And we will end the day with the third and last Q&A session, and that will primarily focus on automotive, but also our CEO will join that. So also questions on the value creation potential is also in that Q&A.

With that, we are ready to get started from our side. I hope you are. So it's a great pleasure to introduce our CEO and President, Rickard Gustafson, to talk about the value creation from this separation. Rickard, please.

And thank you very much, Sophie. And good afternoon, and a warm welcome to all of you here at At Six. And of course, a warm welcome to those of you who follow this event also online. Today is a big day for us. It was roughly a year ago, in September last year, when we announced our plans to drive further value by actually splitting our company into 2 distinct businesses, one, fully dedicated Industrial business and a fully focused Automotive business. And today, we are eager to share our future plans for both these businesses, how we're going to drive value in the focused Industrial business, and how we drive value in our Automotive business. And also share, as you know, our long-term financial targets for our future Industrial business and indicative objectives for our future Automotive business.

But before we go there and before we look into the windshield and into the future, I think it's prudent that we also spend some time to look in the rear mirror and reflect a bit on the journey that we have embarked upon so far and what we have accomplished to date. And as you know, or at least I guess some of you know, back in 2022, we did launch a strategic framework that we named intelligent and clean growth. And since then, we have been very, very focused on delivering on those activities that made up that framework intelligent and clean growth. And I'd like to draw your attention to a couple of things that I believe has had a significant impact on our business. Firstly, if you may recall, we said that we're going to move our business from a more functional organizational structure to a decentralized regional operating model, and we have done that. And that model is now fully embedded into our operations globally and has been further refined over the years.

We also said that we're going to accelerate and focus and drive investment into regionalization, and automation. That has also been the case. And then actually, we have been forced to further accelerate our own plans due to the geopolitical turmoil that we experienced in the last few years. Here, we still have more work to do, and you will hear David later on talk about what still needs to be done to reach the full scale of the regionalization.

We also talked a lot in the beginning about portfolio management. And portfolio management came in different dimensions. We had some strategic dimensions where we also divested some non-core assets. We talked about from a customer dimension where we dare to walk away from some unprofitable business. But we also have done it by looking into our assortment and actually simplified our assortment quite a bit in the last few years. And I know that Hans will touch upon that during his session as well.

Customer-centric innovation is key to us. We have built this company on tactical innovation. That's need to be the core as we move forward. But what we have done differently in the last few years that we have steered our capacity and resources to be more aligned with our growth objectives in those industrial verticals where we see the best opportunities for profitable growth and that needs to continue. We have enhanced our cost management capabilities and also been more advanced when it comes to commercial excellence, enable us to better leverage our pricing leverage in the market. And finally, we also said back in 2022 that we want to create a more autonomous Automotive business. And here we are today, hopefully taking some of the final steps in that particular journey.

And so far, I think that these activities and this strategic framework has played to our advantage. It has yielded some solid dividend. And when we started this journey, we were enjoying some strong organic growth, to some extent, fueled by inflation and corresponding pricing, but then that turned into a period of low demand. And as many of you know, we have been reporting 8 consecutive quarters of negative organic growth. Clearly, painful, but I also like to remind you that some of that negative organic growth is actually self-inflicted. We have done what we said we're going to do when it comes to portfolio management, as I mentioned before. And also when Russia invaded Ukraine back in 2022, SKF was one of the first companies to actually exit and leave that market behind.

But despite this, we are convinced that we know that we have been able, on a global basis, being able to actually sustain our market share. And I think that's the proof point of the value that we create to our customers. But from a profitability point of view, we have also shown more resilience. And I'd like to draw your attention to the straight line on this chart where you'll see that our adjusted operating margin is holding up pretty well in times of strong growth and in times of more challenging demand environment. And actually, we have been able to improve it somewhat in the last few years. So, that's history.

But then when we look into the future then, why are we so convinced that we can create value by splitting the company into two. And before I go into the details, I'd like to actually leave you with a metaphor. I see our Industrial business and our Automotive business as two trees that was planted a bit too close to each other. So as they grow, they compete for the safe sunlight and they actually also shadow each other and thereby hinder their full development and potential. And by creating some more space between them, both businesses will have access and enjoy the full sunshine and actually have a chance and have the prerequisites to deliver on their full potential. But of course, there are also some fundamental business dynamics behind this, why we believe that this is the right thing to do. And I think we shared this chart back in September last year. And the business fundamental drivers for why we believe that this is right thing to do is remains the same is still as relevant.

Clearly, the Automotive business continues to be significantly impacted by the ongoing transformation driven by electrification and the dynamics in terms of contracts and volumes are very different in Automotive and Industrial, where Automotive is all about long-term contracts, high volumes, significant large batches, while Industrial is complete opposite where it's very much more shorter contracts, more smaller batches and where adaptation, agility and also accessibility are key fundamental components for success. So that's definitely something that also will impact and drive our how we set up our business going forward.

But we also said, that we know that to do this, to separate these 2 businesses, it's a massive task. We know that when we enter into this, and we still recognize that, that is the case. I said it before, and I tried to be very prudent or at least transparent about this at our quarterly report [ tabs ], that we are running a very tight time schedule. And we have thousands and thousands of activities that need to be delivered, where many of those activities are on the critical path. And we have not a lot of headroom for mistakes or for delays. But I'm very pleased to say that I'm still can -- with a straight face to tell you that I have no red flags to share.

We are driving this massive program according to our original plan, and we're still confident that we will be operationally ready to lift our Automotive business by mid-2026, as we said, when we embarked upon this. But all this hard work and these efforts is actually worth it because it generates significant value. And some of you have probably read about our long-term financial targets. And clearly, we're going to put some more light to them here today. But here's how we see the value being created. For our industrial business, we're talking about an ability to grow more than 1 percentage points ahead of the industrial bearing market. So you're on this page to talk about 4%. That actually implies an underlying bearing market growth of 3%, hence 4% growth here.

We do sense that we can drive up our earnings profile even further. And in the midterm, and mid-term I mean 2 to 3 years, we're going to hit north of 17% and then finalize a few things in our restructuring and then go for the full potential, where we believe it should be north of 19% adjusted operating margin. And also you can see return on capital employed will also significantly lift up to 20%.

And for Industrial -- sorry, for Automotive, they're kind of indicative objectives. They also generate value where they see opportunities to grow ahead of the automotive market and also a high single-digit operating margin. So again, rather exciting and clearly value creation when the sun can shine on both these fantastic trees.

But let me take a few minutes and walk you through the high levels of the value creation plans that we have for each of these businesses. And I'll start with automotive. You will hear Kerstin later on today, share her views and her words to this. But they are going for growth. And they're going for growth because they know that they better can steer the investment towards high-growth and margin accretive opportunities. They also see opportunities to really establish a value chain that is fit for purpose for an automotive Tier 1 supplier. And by being a smaller business, fewer layers and a leaner structure that can be faster in go to market, they can be even faster responding to customer needs and thereby increase their competitiveness.

And what will the starting point look like? Well, we're going to send them off with a pretty good platform to start with. They all in today enjoy a global footprint where we have capabilities, both manufacturing and R&D and engineering capabilities close to the customers on a global scale. They will continue to put emphasis on the key areas where we have a very strong position today and where we know that we can create even further value. I'm talking about electrical vehicles. I'm talking about commercial vehicles and also how we're going to ramp further the margin accretive aftermarket business.

In order to do that, to deliver on their value creation, they have identified kind of 2 pillars and 5 levers. Three of these levers, they are tailored towards growth and two more tailored towards effectiveness and productivity. And I'm not going to steal Kerstin's thunder here, but she will talk about how they will unleash growth but really staying focused on driving value in those areas where I mentioned EVs, commercial vehicles and vehicle aftermarket.

They will continue to drive innovation. Innovation is key to stay ahead of the market of the competitors and work very, very closely with the world-leading manufacturers of vehicles globally and join them in their innovation journeys. And then clearly, also there are opportunities to extend the addressable market that today that is stopping automotive from its full potential. There are more opportunities that they can unlock in other parts of this market. And then, the 2 levers later to kind of more efficiency, tailors to what I said before, how they set up a supply chain and logistics system that is actually fit for purpose for that type of business that they are in, and also how they rig this new structure, this new organization in a lean and efficient manner. So that will be the key 5 levers that will unlock the full potential of our future automotive business. But as I said, more of this from Kerstin shortly.

Turning then to Industrial. Again, a rather solid platform to start from. Already today, we are the #1 player in the industrial bearing business and we do have significant and deep capabilities and know-how and presence in a broad range of industrial verticals, many of them that will enjoy significant growth driven by some key mega trends that you will hear Hans talk about shortly. We already have a strong global footprint, you know that, and we have a significant market presence and reach in the market through a world-class distribution network and access to sizable aftermarket business.

So based on this, we're going to continue to build our Industrial business. And we're going to start to talk about our industrial business somewhat differently as we move forward. I'm going to talk about 2 segments. We're going to talk about big bearing solutions, which represents some 75% of our Industrial net sales. And here, you find our geographical business areas, as you know them today. But we're also going to have something that we call specialized Industrial Solutions that represents some 25% of net sales, industrial net sales, I should say. And these businesses, they enjoy clear and separate value chains that they control themselves. And we're going to run them as fully owned subsidiaries. And here, you find businesses such as Aerospace, Magnetics, Lubrication and Seals, and more details to come shortly. But that's really how we see our Industrial business as we move forward.

And how do we create value here? Well, similar to Automotive, we have some pillars and some levers. This time, we have 3 pillars and 7 levers. And let me take a few seconds to take you through them and try to explain what's new, what's different. Starting with reignite growth. We have to come back to growth. It's important for us as a vital component of our value creation. And here, we have 4 levers that's going to drive growth for us, starting with basically doubling down on those industrial verticals where we have significant capabilities and a very strong foothold that is also enjoying some growth from these megatrends that I talked about. That is not so much new. We talked about that before, but I think we're even sharper in how we define our capabilities in those areas. And again, this is something that Hans will take you through shortly in more detail.

But then lever 2 through 4 are more new. We will put more emphasis on driving growth in service and intelligent solutions businesses, a highly interesting area that also creates stickiness with end users. Here we see significant growth opportunities. And the pillar #3, to really reignite growth in what we now call specialized industrial solutions. Here though, I need to be honest, for some of those business units, we're not yet pleased where they are in terms of profitability. So they need to fix the profitability before we only allow them to grow to their full potential. But we have plans to do that. And over time, they will contribute significantly to the growth.

And then finally, M&A or acquisitions. And I'm not talking about transformational targets that we're going after, but rather building an engine that constantly every year generates a number of small bolt-on acquisitions. That's what we're after. And I do admit that when we launched our intelligent and clean framework a couple of years ago, I felt that I had 2 broad change agenda and we did not have management bandwidth at that time to actually pursue an M&A agenda. Now it's time to change that. Now it's time to really make sure that we use this lever as well to drive growth going forward.

Turning to the second pillar and our fifth lever, innovation. Innovation, as I mentioned before, is key to us. We have to continue to drive innovation, to stay ahead of competition and avoid falling into the commoditization trap. Here, it's really about working very, very closely with our customers to co-create with them to deliver solutions and also solve their problems. That will support our growth objectives, but also by designing smarter products with less cost of material, it also enable a more efficient value chain and cost equation. So it's going to support both dimensions here. And Annika will share more light to this during our session. And then on the business-driven value chains. Here, we do recognize that we have still some work to do to complete the journey that we worked upon when it comes to regionalization and footprint transformation. But on top of that, we do see significant opportunity to really build a solid and robust and modern data-driven platform for our supply chain. That has the potential to significantly improve our operational capabilities and also operational effectiveness going forward. And this section is what you're going to hear David talk about as he enters the stage shortly.

But to reach the targets, we do see that we have to speed it up in 2 phases, where we have the first distinguished phase that we call kind of in mid-term that we call building the value. And again, when I say mid-term, I mean 2 to 3 years from now. We have some work to do there in order to reach the north of 70% operating margin that aiming for short term or mid-term, if may use that term, then. Really, we need to leverage growth. We need to make sure that we lift the operating margin of our Special Industrial Solution (sic) [ Specialized Industrial Solutions ] business to be on par with our Bearing business. We need clearly to continue to drive innovation and put new products into the market and solve our customers' problem.

And when it comes to our business-driven value chains, yes, we do have some work to complete, as I mentioned, our regionalization and footprint. We need to start to invest and build this new future platform for our supply chain that's going to cater for growth as we move forward. And we do have some -- not big, but some dis-synergies from the separation that we need to manage. We need to deliver on the rightsizing program that we put in place. And in order to create some safeguard optimization of our assets during a transition period, there will also be some contract manufacturing between Industrial and Automotive, but that would be minimized over time. And you will hear Susanne talk more about that during her session. But once we've done that, we do believe that we can reach the 19% target by truly leveraging a fully flexible platform, an industrial business that is fit for purpose and can really compete effectively both in terms of growth, in terms of innovation and in terms of effectiveness.

So by this, I hope I provided some color to how we see the value to be created and allowing the sun on shine on both businesses, both can really be at the very, very best and reach the full potential.

So with this, I thank you for your attention, and I hand you back to Sophie. That will take us forward on the agenda. So thank you so much.

Thank you, Rickard. And Rickard will be back answering questions already after the next presentation. And if you wonder where you can get the presentation material that we are showing on the screen behind me, that will be available later this evening. And if you would like to see this recording or event again, it's a possibility to do so already tomorrow when the on-demand version will be available on our website.

Now let's turn our focus on the industrial business. And first out is Hans Landin that will share with us how pure industrial play will position us better to leverage global megatrends and outgrow the market. Hans, welcome onto stage.

Well, good afternoon, everyone. And I have one confession to make upfront. I have spent my whole life in bearings and power transmission markets. It's just a wonderful place. I just love it. Here, at SKF, I have just taken over the role of our Specialized Industrial Solutions business. And before that, I started our journey on commercial excellence on the bearing side.

In my session, I want to kind of take over here where Rickard left, which is, as you heard, we are now creating a new fully focused industrial SKF with an opportunity to outgrow. So, I would try to spend some time here and explain for you how are we actually going to do this outgrow thing? And we have our 4 tactics, which we are going to pursue. First of all, you're going to hear me talk about how we're going to leveraging attractive industries and geographies, obviously strong megatrends. Then how we're going to scale our recurring service and intelligent solutions business. Here, Rickard talked about how we need to accelerate now the Specialized Industrial Solutions business. And lastly, I will spend some time explaining how we're going to contribute with some M&A as well to our organic growth efforts.

So, without further ado, lets go into our first tactics here, which is all about how we're going to position our industries to markets and geographies where we not only see strong profit pool, but which is also very much in line with strong tailwind coming from a couple of megatrends. Now on the industrial side of SKF, we are paying particular attention to 4 megatrends that you see here behind me. I'm sure that you are very well aware of these trends. So I'm not going to spend too much time on them, but rather give you a few remarks.

In digitalization automation, this has been going now for decades. When we started with Internet, smartphones, Industry 4.0, and now the big thing is obviously AI and all the demand we see being driven by that.

In decarbonization and electrification area, we continue to see more and more emphasis on sustainability, circularity, and with that, the need for more energy-efficient way of operating. And you may want to benefit from knowing that 20% TF Industrial business comes in, where we have a mission to fight friction in every day when we come to work. So we have unique opportunity to play in the area of decarbonization and electrification.

Urbanization is continuing. We see people moving into cities with increased demand on transportation and food industry, et cetera. And then lastly, unfortunately, I think you agree with me that we're now seeing an increased geopolitical tension in the world at the level, at least few of us has ever seen in our professional careers. And with that, we're seeing increased defense spends all over the world and, as such, we think infrastructure and defense will be a new megatrend, which a company like SKF needs to follow.

So now the logical question is, so what industries will then benefit from the tailwind of these megatrends? And there are a couple of industry groups, which we at SKF are really looking closely at. And the reason is we think they are going to have a strong tailwind from the megatrends we just talked about. For example, here, you see industry mobility and defense. And behind me here, you see blue dots and the blue dots indicating that we think those industries is going to have the prime driver from the mega trends I just explained.

27% of SKF's OEM sales last year was coming from the industrial mobility and defense industry. So as you can see, a large portion of our business is seeing fueled demand from these megatrends. If I were to add up our exposure to all those industry groups, it's no less than 65% of our OE sales. So if you believe in these megatrends, you see that SKF Industry is very well positioned to capitalize on those megatrends and the demand coming from them for years to come.

Now let's take a look at what is our position then within those industry groups. And as you can see here from the slide behind me, we have a leadership position across the board here. In interest of time, I'm not going to spend too much time and explain for you why but let me just say that we have now in the new industrial spirit at SKF, detailed go-to-market plans for every single one of these industrial verticals. And every single vertical here have their own unique drivers and demands, which we now plan to respond to.

I just want to spend a few words maybe on heavy industry. Heavy industry, as you know, is an environment where reliability, robustness and making sure that you don't have unplanned equipment going down. It's really a great place for SKF and the reliability and the performance of our products offering this industry. We have enjoyed a leading position here over decades. And that is enabling us to have a very remarkable and sizable installed base, which now every year [indiscernible] reoccurring margin accretive aftermarket opportunities. So we really are proud over our #1 leadership position in heavy industry, and also helps us to be more resilient over the business cycle.

Advanced technology, we have a good base position. We're #2, #3 in areas such as medical and automation. And I don't want to steal the thunder of Annika who's going to come up here and talk to you after the break about how we're using technology to advance customer value. So you will hear more from Annika, which is about how we are advancing in advanced technology.

So now I think the real question is [ great ] SKF, if you identify these megatrends. They're going to help underlying demand in industries you're heavily exposed to. But how do you outgrow? So I have brought a couple of examples which I would like to show you, which is a good examples of how SKF Industrial is operating and how we're outgrowing in those industries.

The first example I brought with me today is on railway. The railway industry is an industry which fits very well with SKF. We have a unique application and sales group dealing only the railroad. We understand the uniqueness of this industry better than most. We have a footprint all over the world to respond to our customers' needs. And very often do we work hand to hand together with our customers, so we are designing in new technology advanced solutions, which helps the rail will become better for tomorrow, and we become an integrated part in our customers' application. You can see from the picture behind me that there is many applications where a company like SKF is active today, adding value, and we do no less than 3 million different products to the railroad every year. Now, I mentioned our focus in this industry and how well we are positioned to serve them, and the ultimate proof of that is actually okay SKF, what are you doing then in this industry? And over the last couple years you can see behind me we've been able to grow about 9% CAGR, a pretty significant outgrowth versus this industry.

Last year, we posted SEK 5 billion in sales from railroad. We believe that railroad is going to benefit from two of the megatrends I just explained before both urbanization as well as sustainability electrification as more people choose to transport themselves and their goods on railway.

We think this industry as such is going to have a future growth rate of around 4%. The other example I brought with me today is from defense. This is also a very unique business, as you can imagine, full of different legal requirements, certifications, but needless to say, the technology and the mission critical of this industry is unique. I mean very much we're talking about the difference between our solutions, working or failing will be difference between life and death in many applications.

You can see our diversification in how we are dealing with our defense customers. We are in the air, we're on the ground, we are on water and even underwater. As we are now a focused industrial SKF in the future, we will be able to even better put our investments and resources in unique businesses, such as defense. And how we're doing it today is actually working well. We have enjoyed 14% CAGR in defense over the last years. We posted SEK 2 billion in sales in defense last year. We expect the demand from defense to continue to be strong. We expect about 7% to 8% CAGR in the years to come.

The third example I brought with me is on data centers. And I figured if I don't bring an example of data centers, each and everyone is probably going to ask me anyway. So here is data centers. This business is absolutely booming today, as you know. And what is more exciting for us at SKF is how well this industry, their drivers and their challenges is matching what SKF is really good at. I don't know how many of you have actually been to a data center. But for those of you who have, you're probably left those sides fairly impressed by just the pure size of these units. This is a big business. The new hyperscale data centers, they are a size of 150 football fields together. And if you look at data centers today, they have very unique challenges. You probably felt it if you had a chance to visit one. The temperature in the data center is a challenge. All these servers are generating a lot of heat. We're also consuming a lot of power. So for us to come up with solutions, which can be more energy efficient and scope with the heat is obviously very strong value propositions. We do very well in data centers. There's over 3,000 mission critical components, which SKF is helping this industry with. We have a dedicated team working with data centers and the results have been good. 26% CAGR over the last years is what SKF has been able to pull off. We think that the market looks very positive also for the future, capitalizing on good megatrends and how we're outgrowing and winning in key markets.

We talked a lot about which industries we think will be having strong tailwinds. I now would like to take a moment and reflect on a couple of geographies, which we think would be also more interesting for SKF from a growth point of view than others. Behind me, you see a map of the world and you see 11 countries marked in blue. These countries are there because we believe that those countries have a higher growth rate than others, and as such, represents good opportunity for SKF for profitable growth.

As we are now a focused industrial company, we will be able to tailor our investments put our infrastructure and resources and skills where we think we have best return on it. So you're going to see more from SKF in some of these countries. We already are doing a good job there. We believe that we outgrow the market with about 4 percentage points over the last couple of years. We have a very strong brand, which we are capitalizing. We're expanding our distribution network. And these countries represented a meaningful chunk of, or part of the bearing demand. About 10% of the global bearing demand is coming from these countries.

I guess you're not supposed to have a favorite country, but my favorite country among goes in blue is probably going to be India for the next couple of years. And why do I say that? I'm pretty excited by the increased export we see coming out of India, the big domestic market and how that market is also growing, driven by an increased middle class, which is now looking for higher performing products, higher-quality product, et cetera, which is driving demand for exactly the type of business and value creation SKF is known for. David is going to come up here after the break and explain for you a little bit what we now are doing is a focused industrial in the area of India to be even better suited to continue to outgrow and take advantage of this strong geography.

With that, I'm going to ask Sophie to join me again back on the stage because I heard that she wants to talk to me about commercial excellence.

Yes, that's a favorite topic of mine. Thank you, Hans. So you joined SKF back in 2023 to strengthen our commercial capabilities. What has been done so far and what is yet to come?

Yes, that's a great question. Thanks for asking that. Well, a lot has been done, but as we started to dive into really driving commercial excellence at SKF, we had to go back to basics. We had to go back and understand what is the customer wants to have from a company like SKF and where do we have the fit with our products and offerings. So, we did that first, decided where we're going to be, which markets we're going to serve. The other thing we had to do was looking our product portfolio, making sure we have the benefits, the features and the cost structure, which are enabling us to successfully compete in those markets we just agree that we're going to go after.

And let's stay with portfolio management there. Could you elaborate more on that topic because that's something we have talked quite a lot about in the past year, or the last couple of years.

Yes, your right. And I think there are two things about product management or program management, I would really like to emphasize, which we've worked on. The first one is we found a good opportunity to actually make our portfolio sharper by simply reduce it, make it more modern, make it more suitable for our customers. So over the last 18 months, we've been able to reduce our product line and assortment, but no less than 25%. And doing so, making it even better for our customers, but significantly simplify the complexity in our own operations. The other thing we've done is we also said here are the customers in the market, which is not critical for SKF. So our product team has worked very closely with our commercial teams around the world and done a fair amount of pruning, which has -- both of those things has, in a meaningful way, helped our resilience in the last quarters.

Let's zoom in on pricing because that's a topic I know analysts and investors are very interested in. And we have gone more from a cost-plus approach to value-based pricing. Where are we on that scale? And what's the next step here?

Yes. Well, as you know, pricing is my favorite topic. And you're right, we had to do a little bit of a transformation here at SKF into value-based pricing. And we offer very much tailor-made, unique solutions for our customers. And we need to make sure we get paid for the value we are bringing. So we're doing much more of that now than we did before. We have put together pricing teams around the world, new processes, we have new tools, which are enabling our teams to better quantify big data and the value of the benefit and the features of our products. So you can expect to see much more value-based pricing from SKF in the future as well.

That's great. And another topic I know the capital market is very interested in is aftermarket. So I leave it with you, Hans.

Yes. Well, that's a perfect kind of lead-in into the next session here in my presentation, which is about how we are enhancing our relationship with end users and also, obviously, with the aftermarket. And that's the second tactic here, which is we really want to scale our recurring service and intelligent solution business.

So let me talk first a little bit about end users or aftermarket and our service business. And I think it's very important for you to take with you today that over 50% of our sales is coming from this margin accretive portfolio. So here, we obviously would like to, first of all, defend our strong position, but see what we can do to grow it further. And that leads us into how we are servicing end users around the world?

We are servicing end users mostly by distributors. And here, you can probably rightly so say that I'm a little bit biased, but I'm convinced that we have the best distributors in the world. And that's part of the reason why we are #1 in the bearing distribution today globally. Not only do we have the best distributor partners who every day, make sure that we have reached to every corner of the world where there is a potential customer of SKF, but we have also 7,000 of them.

As a focus industrial, aftermarket and end users is becoming an even more important and highly focused area for SKF. We now have, for example, processes and systems in place where we can actually track when we are doing OEM business, we already think, what will be the aftermarket coming out of this? How are we going to capture this aftermarket? What would be the financial return of this aftermarket? So we always have aftermarket and end users now in mind in pretty much every business transaction we do.

This focus has yielded results. Over the last years, we believe that we have gained 2 percentage points of market share in the global bearing distribution. Moving forward, we want to continue on that journey and be the best partner for our distributors around the world as well as end users. And what will be the working on? We will be working on primarily 2 things. One is to be easier to do business with. And that could be as simple as being able to respond faster, shorter lead times allowing our distributors to buy in lower quantities of products, for example, but also be available, being available for helping them answering questions, whether it's with new digital tools or with more SKF experts sitting around the world helping them. The other thing we will do is we continue to expand our portfolio, our products and solutions tailored to end users and aftermarket customers around the world.

So with that, I would like to talk about service and our Intelligent Solutions business because this is very much how we're going to further enhance our relationship with our end users around the world. There is really no better way to increase how you work with an end user, then to work with him or her every day in their environment, solving their problems and overcoming issues and most important, prevent them to even happen. Services for SKF now as we are focusing on this on the industry side, something which you heard Rickard said before, we're going to double down in services. And the reason is because the strong value it offers, both SKF and our customers.

We have today 4 key service offers, its condition monitoring, its reliability solutions, predictive maintenance as well as remanufacturing. Service is as far away from a commodity you can come. Service is all about knowledge. And since the first day in 1907, when SKF started to manufacture bearings, there's been no one out there more than SKF who have seen more applications, more customers, more bearing issues than we have. So we have the utmost knowledge, which we now are translating into the value for our customers.

I would like to just, I guess, envision that you're standing in front of, let's say, a big paper mill machine making hundreds and hundreds of meters of paper every second. Can you envision that in front of you? There's a lot of things going on in this facility making papers and all of a sudden, one of the most critical applications break down.

You have papers all over the place. It's a safety hazard not to mention the money you're losing every second, every minute, every hour that event happened.

What SKF's service business is all about is to prevent that event to even happen in the first place. We now have a dedicated service team, which is responsible for making sure we have the best value proposition out there. We're linking that with our regional service people, which are all over with our customers, and this is actually working very well.

We have enjoyed a 10% CAGR in our service and intelligent solution business over the last years. We now have no less than 4 million assets around the world, which is 24/7 being monitored by SKF service people. And 3,000 customers has told SKF, I want you to help me build my equipment, make sure they don't break down. So 3,000 customers are now having service contracts with SKF.

I was trying to kind of make you feel like what it is in the facility and how this could be valuable, but I've brought another example of that to maybe just reinforce again how service is bringing tremendous value for SKF as well as our customers. This is a customer SKF has been working with for many, many years. This customer is operating in an underground mine operation, 1,000 meters done under the surface. And as you can imagine, down in that mine, it is everything else, but the nice clean environment we are sitting in here today. And the last thing you want to have there is to ever happen to have a safety event going on when you're 1,000 meters down below the ground, or having one of your most critical assets go down. So this is a very good example for how we add value for service. If we go back 20 years, we enjoyed a very strong business with this customer where we sold and he enjoyed bearings and different sealing solutions.

Over the next 10 years, we added lubrications. We added some more spare parts, and we enjoyed a good steady 4% CAGR in that business. Not bad.

But if you look at the same journey on the service side, 20 years ago, we did a tiny bit of field service. We then added condition monitoring. We added mechanical service and in-house services. And over the same time period, our service revenue grew by 18%, tremendously higher CAGR than what we were seeing on the product side. If we now fast-forward to the last 10 years, we continue to add remanufacturing, reliability solutions as well as we actually entered into partnership agreements with this customer, and we enjoyed another 12% CAGR over this time period.

So looking at this customer today, versus 20 years ago, you see a big shift. First of all, we have been able to grow and outgrow by adding services. But you can also see that our service portfolio is now 1.5x larger than what we would have been if we were a product-only company. For the customer, this has offered tremendous value. He's been running a safer operations. He has been able to reduce his cost of operation and more predictable operation as well. For SKF, service is margin accretive and it's also using less capital. So this is a true win-win, both for the customer as well as for us at SKF.

The second example I brought is because of remanufacturing. Remanufacturing is really gaining traction. And the whole concept of remanufacturing is simply avoid throwing a bearing or a shaft or other critical component away, and yes, instead remanufacturing it to as new condition and get it back in your operation, saving a lot of money, saving a lot of time, and most important, you're saving a lot of CO2 emissions by doing this. So you see the values behind me. I'm not going to repeat them for you. But this is another good example, how SKF service solutions are offering tremendous value for clients around the world. This happens to be a steel mill here in Europe.

By that, I think we're ready now to look at the third tactics, which is to accelerate our Specialized Industrial Solutions businesses. And this is a little bit extra close to my heart since a few weeks ago, I was asked to led up these businesses. You saw this slide before from Rickard. And he did a very good explanation of how we now are going to focus on the bearing side with focused regional business areas, and how we're now going to focus on the Specialized Industrial Solutions businesses as a focused area. But I would like to spend a few minutes on explaining is the synergies and the value by having these two, thus they are standalone, and they are focusing on their unique businesses. There are still a lot of synergies and opportunities between them. So just a few reflections. Very often, we see the same customers between the 2 groups, customers with similar business drivers. They have -- they're looking for reliability. They have critical applications. Performance matters. Both on the Bearing side and Specialized Industrial Solutions, we are going after industries with repetitive and lucrative aftermarket events, same thing in both sides. When we have aftermarket events, typically, we're using the same distributors. So as you can hear, there's a lot of similarities between the two groups.

Another thing is on technology. By also having bearings, seals, lubrication, we have knowledge of the whole ecosystem, which needs to work for our customers to really benefit the most what we can offer. So another tremendous value for us and also customers getting much more sense of security when they know they're dealing with the bearing expert, sealing expert, lubricant expert over by one company.

With that said, let's spend a few seconds and minutes here on what is now this specialized industrial solutions businesses. Well, as Rickard just explained, it consists of 4 stand-alone end-to-end responsible businesses. You can see from the slide behind me that aerospace is the largest business, roughly 40% of this business unit's revenue. Lubrication is the second largest, then seals and magnetic is the smallest one.

You also heard from Rickard that we are not fully satisfied with the financial performance of this business unit today. That is our key priority right now is to expand our margins and our target is to come up with the same margins as we have on the bearing solutions within 2, 3 years from now.

All these businesses are in different phases in that journey. Lubrication and seals are fully focused on margin expansions versus on aerospace. We have done already much more work on that and we are looking for growth. So also in our Magnetic Mechatronic Solution business.

So let me give you a little bit more flavor of what those businesses are all about. Let's start with aerospace. We are a leading supplier on the bearing side to the aerospace business as well as the air-based defense industry. We are particularly strong in aerospace engines. I mentioned that we have worked on improving our profitability for quite some time. And I will soon give an example showing that we are actually doing very well.

So even though we are pleased, we still have more to do, but there are a lot of opportunity for us now for seeking profitable growth. I have a little silly graph in the lower left-hand corner on the slide behind me. On the left hand there, you can see that management's focus is on margin expansion. On the right side, we are focused on profitable growth. And as you can see from this little heat map, if I use that word, the Aerospace business has now tilted towards the profitable growth area.

Let me give you a little bit of example of what actually is happening in the aerospace industry, and what we've done for improving our margins. First of all, for those of you who are like me frequent flyers, I think you would appreciate the aspect of safety, performance and liability when we're sitting up in the airplane. What you may not know is there's over 2,000 bearings in this aircraft. As such, a great opportunity for SKF. And you can also see from this schematic here that these applications from the tail to the aircraft to the nose for a company like SKF.

So by streamline our offering, and go after operational excellence, also a lot of commercial improvements, we've been able to improve our margins in our aerospace business by 8 percentage points over the last few years. 8 percentage points is pretty remarkable improvement. But we are not fully happy yet, and we are working for even more expansions in the years to come. At the same time, we've been able to improve our margins. We also have outgrown the industry, and we have posted a 14% CAGR in our aerospace revenue. So we've been able to balance in this expanding our margins while outgrowing the industry.

Looking forward, we believe that the commercial aerospace industry is having a strong market in front of them with about 6% CAGR for the years to come. I now would like to change to lubrication. We call our lubrication business, lubrication lifetime solutions because that's really what it is. If you think about the role of lubricants, as a bearing company, we probably know this better than most. But most bearings which we see failing, it's failing because of either the wrong lubricants, not enough lubricants, too much lubricants. This is a very critical part of our rotating system, the lubricant.

And this is exactly what SKF lifetime lubrication systems do. We're providing automatically the right grease or lubricant at the right time in the right quantity. You see a picture behind me, which happens to be a bottling plant. This facility has 3,000 points, which needs lubricants. And as you can imagine, if you're going to do that manually, there's a fair chance that some of us will get one of those 3,000 points. There's also a fair chance that someone is putting too much reason that impressive both look at this wonderful [indiscernible] recorded. Safety has it as well. You see on this picture, the beautiful stainless fuel cabinet. This is SKF's lifetime solution coming in work. So a tremendous value proposition here on safety in reducing the cost of the life of equipment as well as sustainability aspect.

This is one of my favorite businesses of this -- of the simple reason that the value proposition is enormous. This business should be one of SKF's absolute best businesses when we have optimized it. But you can see from the heat map, we are on the left side. Management is now viciously working on margin expansion as the first priority.

We are working on portfolio management. We're working at commercial excellence. We're working at improving our operations as well as realization to be faster, quicker to our customers and more cost competitive. So there's more work to be done here. But I look forward to come back to you in the future and explain what a wonderful lubrication lifetime solutions business we have also from a bottom line point of view.

The next business I want to give you some highlights of is our sealing solution. If you grab a seal and you have this normal piece of rubbing your hand, you may not think much about it. But it's actually a very highly engineered and very critical component for rotating parts like bearings to have a chance to work. We need to keep the debris out. We need to keep the lubricants in, and that's not an easy task while the whole thing is moving.

Our sealing business should also be a really good business of SKF. The market is fragmented. The strong value proposition to customers. But also here, our main focus right now is margin expansions of similar type of activities, as I just explained, in our lubrication business.

Lastly, I want to share with you a little bit about our magnetic mechatronic solutions. I don't know how many of you know what a magnetic bearing is, but it's a highly technical, very unique bearing, which we customize for every customer and every application. If you're familiar with the bearing, you typically have an outer ring, an inner ring and is separated by rollers or balls which is taking all the load, which the application needs to carry.

In the magnetic bearing, we are relying on magnetic levitation to separate the shaft from the outer. So you basically have a shaft floating in air. So if you're looking for the ultimate low friction way of providing a bearing, magnetic is a fantastic solution.

There's also no mechanical context, so it's very favorable from a wear point of view, very, very unique, customized and provide enormous value for the right application. This business we really like. It's margin accretive for SKF. It is benefiting from many megatrends. You heard me talk about data centers before. We're using a lot of magnetic bearings in data centers around the world today.

And our focus right now is to continue with this profitable business, keep up with the high demand we're having make sure we have the capacity to continue to outgrow and thrive here. So this is a really good business, which we look forward to make even better.

Lastly, I want to give you some comments on our 4 tactics, but we want to recognize our reduction in growth, but some complementary M&A. So you heard Rickard talk about M&A now being part of our tools and portfolio moving forward. We have done quite a bit of change to our M&A processes. We have a new M&A game plan with stronger governance, both from a central point of view, but most important, making sure that the ownership resides down in the business where the business actually is going to happen.

We are focusing on long-term value-accretive bolt-ons. You heard Rickard said before, we are not trying to find big transformational moves, we're rather looking for SEK 250 million to SEK 1 billion type of sales companies. We are looking to fill white spaces where we either want to expand because of product expansions, geographic expansions or where there are technology which we would like to have.

We also like businesses with high degree of aftermarket and service. Very important for us is we're looking for complementary customers -- I'm sorry, companies, which are adjacent to the market space and the solutions we have today. There's 2 main reasons for that. First of all, obviously, we see larger synergy cases that way, but we also want to make sure we fully understand their customers and their business.

So with that, I'm going to close, and I know this has been a long session. And I appreciate that you guys stuck with me. But the key takeaway, which I want you to remember here is, in this new full industrial focused SKF, which we are creating, we have detailed go-to-market plans for each and every one of these industry verticals, which you heard me talk about. We have new processes and governance to make sure that we execute and deliver on those game plans.

You have heard me talk about 4 tactics, which we relent is going to drive. And we already now see the momentum from this new way of operating. And based on that, we are very convinced that we will continue to outgrow and reach our objective of 1% outgrowth over the next business cycle.

So with that, I thank you so much for your attention. And I welcome Sophie back up again.

Thank you. Thank you, Hans. Don't run away Hans. It's time now for Q&A, and I would also like to welcome Rickard back on to stage. So please take your seats, gentlemen. We will now open up for questions.

I see many hands in the room, that's great. Just wait for the microphone. And when you get that, please introduce yourself with the name of the company represent. We will also take questions from the website. And we will start with a question here from the room.

So John Kim, please.

John Kim from Deutsche Bank. Wondering if we could focus down on industrial co. It's quite interesting what you said about service and aftermarket. Where do you think you are in terms of current penetration rate? Or how big is the addressable market versus what you do today?

Do you want to take that?

Hans, Please?

Yes, I'll be happy to. We don't really reveal how big of a market share we have, but we are clearly the leader in both aftermarket as well as in the end user side and the good news is there's plenty more markets for us to penetrate, but we are coming from a very strong position where we have the majority of the shares.

I don't know if you want to add any more flavor?

No, I think you're right. And it is an exciting area. Clearly, I heard us, we will definitely focus there. It will be an instrumental part of our growth journey going forward.

Let's continue with that question. And Magnus, please wait. There is a question from Johan Sjöberg over there so -- but you are next, I guess.

Look, I can ask you about your midterm margin target and what sort of market growth that assumes. I mean, you're currently at around about 16%, and you're targeting 17% over the coming 2 to 3 years. Is that just on the back of cost cuts? Or just to hear your thinking about organic growth? You need some tailwind to achieve that target. I guess you need that for the 19% target, but I just want to hear your thoughts about how? That's it, please.

No, that is true. There will be some requirements also for the midterm target that will come from growth. But can I ask you to hold that question because we're going to break that down for you during the sun session and share more of a bridge on how we're going to get to the 17% and the 19% target. So if it's okay, if you haven't received your answer during Susanne's session, we will come back to it.

That's a cliffhanger. So stay tuned. And then we have Magnus Kruber from the Nordea.

First, can I ask you what the current return on capital employed for the Industrial business as person today?

Could you repeat that?

Yes, sorry. What is the current return on capital employed for the industrial business today?

Well, we don't break it down by the segments.

No. And we'll also touch on that in Susanne's presentation. So it's much now referred back to Susanne. But we will not provide a pro forma on this Capital Markets Day. We will provide some numbers and some indications, but not on return on capital employed for industrial.

Let's have Daniela Costa.

Maybe some clarification to understand a little bit of background about how you chose those store things that you put inside specialized because it seems like 2 of them are margin cases, lubrication and sales, and 2 our higher-growth areas, magnetic and aero. But you had other higher road areas in the presentation who are which aren't in specialized. So what is common between the 4.

Why should we read that there's a different line of sight on how you're observing these businesses in the next couple of years? And what will you do with them maybe a further portfolio actually later down the line? Or what's the commonality?

No, I'll start, and please feel free to jump in, Hans. But the idea with the special industry solution is that we have those business units that actually have a rather end-to-end and unique value chain. And we really want to leverage that and make sure that the business units feel that they have the accountability and also the freedom to develop those businesses to its full potential.

And we are -- or I can say I am in favor of the decentralized model. And I want to push the accountability out of those businesses. That's why we're going to view them and treat them as fully owned subsidiaries. So the commonality is that they have the unique value chain. Then we want to grow them.

And as Hans pointed out, they are not in the same phase of the development at the moment. Two of them are more into kind of already into the growth mode and with a solid profitability, while 2 of them, we still believe should increase the profitability before they start to grow too much, but we do see significant growth opportunities for all 4 just that we want to make sure that we fix them before they grow them. So that's kind of the mindset that we operate on there.

And then finally, your question is are you setting up for a future kind of portfolio activity, i.e., separating them out or divesting them. And that is not -- that is not the intention because as also Hans described, they are clearly an integrated part of the totality of a bearing on industrial bearings. And there are a lot and a lot of cross-selling and fertilization between the businesses that we're eager to go after.

One example would be agriculture. We have a fantastic business in agriculture where our solutions are really driving growth and in high demand for many of the key OEMs. And the reason for that is not really because our bearing is so much stronger than anyone else's, it's actually the sealing that is a secret sauce that makes them so unique. So they do come together. So no, the intention not to separate them. Did not miss anything?

Well, you said a lot of good things. I think the only thing I can add is focus yields results. And I think we have seen the time and time after again when SKF decides to really focus on doing something, we do it very well. So now we have 4 companies, which are going to have full focus, and we think this will be a biggest answer we do well if we do that.

And we will have 1 question here from the online audience, and it's from Rizk Maidi of Jefferies.

And it's on this topic we're just talking about, Specialized Industrial Solutions and the margin. And how much of the margin improvement to more than 70% is margin that is driven by the improvement in the specialized industrial solution?

On the 70%?

Yes.

Right. Some, but not much. The -- as also Hans alluded to, that we do see that for the long-term target, clearly, the specialized Industrial Solutions uplift in margin will contribute to the long-term target, less so to the midterm target. But clearly, it's not going to stand still in the next 2 to 3 years. So there will be some contribution, but the big jump is more for the long-term target.

We have a question from Olof Larshammar, I believe. So Linda, please if you can. Olof just raise your hand. So Linda can see you.

I think an interesting to say the slide with routing aftermarket in the underground mine. But just so how do you make sure that you're not starting to compete with all the distributors that you have if ask starting to offer conditional monitoring and taking some aftermarket business? And maybe also a follow-up. Could it be possible that you are starting to target distributors that are bolt-on acquisitions?

Yes. Well, that's an excellent question. Thanks for asking that one. The way we see our service business is actually a way for us together distributors, enhancing our attractiveness to end users. Then we have to break down service into various services.

I mean there are very sophisticated services where SKF has the competence and have to do it and there is call it, lighter services, where actually this represents an opportunity now for distributors to also enhance their business. So this is not either or this is actually both.

Very good. We have a question from Hampus Engellau with Handelsbanken.

Maybe looking forward, you're spending more on CapEx and also restructuring to achieve your targets? How should we think of M&A in terms of that with the first phase and second phase? And why didn't you include M&A in the growth target?

Right. In the growth target, we have stayed focused on the organic growth. As you will hear later on when we go through the financials in Susanne's section, you will also see that there are in order to reach the long-term targets, we also imply that there will be some contribution also from M&A activities. So they are a part of it. And we are confident that we have a balance sheet that has a lot of headroom to also cope for ongoing and ongoing kind of yearly generation of small bolt-on acquisitions.

So that is part of the equation. So again, I think you're going to -- you should expect us to be more active in the M&A field in the -- already from starting now, but it's going to take some time to really build that machinery that we have a constant throughput of targets that would then close on a yearly basis. So I'm sure you will get some more answers during Susanne's session as well.

And the next question is from [indiscernible]. We have a microphone on the way here.

Yes. I have a question regarding the decentralized organization here specialized that you emphasize now that ceilings and lubrication will be more independent. But at the same time, you talk about the cross-selling, it's a little bit contradictive.

Hans, do you want to?

You can start and I...

Yes. I tried to explain the synergies we see having both parties together. But as we talk about driving the business, we really need to have someone who's waking up every day, committed to what's best for our sealing customers and our lubrication customers. And this is where our focus yielding results in comes in.

Where we are seen the synergies is we are going to work together, though. So as we are jointly developing an application, we will come together and do the best solution for our customers, for example. So we need to drive the business as a focused business, but we should still be able to take advantage of the combined resources and skills we have.

Truly. And to be brutal honest, I think in the past, when we have tried to actually integrate all different capabilities to one sales force. I don't think we have really mastered that in a brilliant way. I think many of our sales reps are either in a very, very deep knowledge and comfortable in the selling bearings or lubricants, not both of them.

So trying to force them to do both, we have lost focus. And we have put more emphasis on bearings rather than sales and lubricants in the past. We want to change that. We want to break that and make sure that we have a dedicated organization that lives and breathes seals, lives and lubrications and make sure that they make the most out of that business.

Then it's up to us as a management team to make sure that we also collaborate and drive the synergies. But accountability and ownership will be key to drive speed and to drive growth.

And I will take 1 question here from the web. And it's from Klas Bergelind at Citi, and it's let's see Hans, Rickard who wants to answer this one.

It's on the same topic, Specialized Industrial Solutions. Yes. And are you changing the incentive structure here to drive margin improvement in lubrication and seals?

Yes. I think after 4 weeks in the office, it's too early for me to have a definite answer on that. But clearly, we want to focus. And clearly, we want the responsibility and the mandate to drive the improvements we're looking for in these businesses. And right now, as you saw in my slides earlier, the management team is going to be focused on margin expansions. And how we do with the compensation we need to figure out long term. But make no mistake, there is no risk than those management team doesn't know what the focus are right now.

And to me, it's not just about the KPIs and such but it's also the relative weight between them. So it might be the fact that we will keep the same KPIs also for those businesses that they would be incentivized for profitability for growth, for capital efficiency and so forth. But maybe we have a higher weight on profitability than growth in the first year or 2, and then we shift that. And that freedom already have, and that's how we manage our businesses.

We now have a question from Alex Jones at Bank of America.

Back on the auto separation Rickard, I think you talked about synergies. I don't know if you can quantify that now, whether that's coming later? And just qualitatively, how are you minimizing those in terms of the manufacturing setup or contractual relationships between the new entities?

Right. And we will come back to that. So it's a little bit of a cliffhanger answer here because Susanne will take you through that in more depth.

But as we said before, we have launched the rightsizing program to more than compensate for these synergies. And yes, we will have, and you will hear Susanne talk more about it, some contract manufacturing that will be minimized over time and during this kind of midterm section. And we need -- but we need the contract manufacturing as a starting point to not kind of sub optimize our asset as we do the separation, but it will be minimized over time.

And we have a question from the online audience. And this time is from Rory Smith at Oxcap and it's for you Hans, and it's about data centers.

The audience wanted apparently to hear about that. You were absolutely right here. You have a question. You talked about data centers and you gave a number, 3,000 solution per midsized data center. Just wondering if you could expand on that? Basically, what is the chipset value or revenue opportunity for midsized data center or per megawatt, if known?

Yes. So I didn't cover the picture I had, but I'm happy now that I brought the picture. In a data center, there is a lot of applications which needs help from SKF. We have cooling towers. We have fans, we have heat pumps. And that is how we come up with 3,000. Between all these applications, there are so many solutions where we can help.

I honestly don't know exactly what is the revenue opportunity per data center. So I apologize for that. but there's a lot of opportunities. And it's a very diversified range of opportunities. I mean those cooling towers we have big magnetic bearings to pumps. So we have smaller ones. So it's a very, very broad offering, which is attractive in the data centers.

Great to hear. Do we have any questions from the audience? Yes, please?

It's Tim from Barclays. I have a question about the growth target that you set for the industrial business. So if I look at the previous 2 CMDs you had a target of like 5% growth in terms of top line organically. And this time, when we separate business, we have better resources for the growth independency [indiscernible] the 2 group of business. And now we set a target of 4% for the industrial business.

So I'm just wondering your thoughts of kind of step down a little bit in terms of growth target you set for the business. Is that because of the scale that you have grown already into a bigger scale so that it's a higher base? Are you being a little bit more positive because of the economy environment, which you currently have or some other force? Good to here your thoughts.

Do you want to start, and I'll be happy to support.

Well, I actually prefer you to start. I wasn't really on board when we had the 5%.

Yes. We can talk about -- perhaps I can take this. Yes happy to.

So it's about the definition. So the 4% is organic growth and the 5% that is -- the current one for the SKF Group is also including acquisitions. So it's not apples-to-apples, we are comparing. So that is -- and the -- I want to be clear. The aim is to outgrow the market for industrial then. So we expect market to grow around 3%. So and the organic growth then is 4% target. Hopefully, that clarifies.

Any final questions before we head to the break? Yes, Andreas Koski?

Andreas Koski from BNP. Maybe I can follow up on that because you are now assuming market growth of 3%. How does that compare to the historical market growth? And do you expect an acceleration or not?

Well, when we look into the statistics for the industrial bearing market, we recognize that in the last few years, or if we take it in kind of a longer-term kind of a 15-plus kind of time serious. We do see that kind of the average has been around 3 percentage points.

And we see no reasons why that should shift. And we are confident, like Hans described, that we should be able to deliver somewhat higher growth rate than the underlying market, hence, the target of 1 percentage point above the market.

But again, this is an assumption about the 3%. So if 1 day it turns out that the market grown 4%, usually expect us to grow 5%. And if the market grows 2%, you should expect us to grow 3%. So that's kind of the logic to this. But the statistics that we sit on indicates that the industrial bearing market has grown roughly 3%, and that's what we anticipate is going to happen for the future as well.

Thank you, Andreas. And I see more hands, but we have more Q&A session. So that was the end for this one. Thank you, Hans. Thank you, Rickard.

We will now take a break. We will be back here on the hour and for the audience here in Stockholm, please be back 5 minutes before the hour, and enjoy our product exhibition, talk to my colleagues about the value we create for our customers. And I see you back on the hour. Thank you.

[Break]

Welcome back. Before I joined SKF, I have to admit, I never fully understood the deep technical expertise required to make a bearing, nor the level of tailor-made solutions we provide to our customers. And that's what we're going to focus on now, innovation.

So therefore, I'm great to have our CTO, Annika Olme, with me on stage. Hi, Annika. Welcome, and let's start with a big picture on how innovation is driving value at SKF.

Let's do that. And I would like to start with what Hans said earlier today. Hans talked about which are these mega trends that actually play in our favor. And which are the targeted industries where we play, where we grow with profit, and that actually means that for each one of those targeted industries, we need a very clear innovation and product road map and solutions road map because all of these targeted industries need different things. They have different applications. So innovation is really what drives our success in those targeted industries. And we have been working with the customers in these targeted industries for many years, decades. We know what the technology they need, we know the applications they have. We know the customer reality. That is not something that you build overnight. So I will talk today about customer-centric innovation. And how would that actually feeds into the growth agenda that we have.

And how would you say the separation will impact? Will it sharpen our focus?

Indeed it will, but let's start to look at the two businesses from an innovation perspective. The Automotive business, you can see longer development cycles, there are regulations and requirements in automotive that we have to adhere to. And it's, in the end, a different innovation play. If we look at the industrial market, we saw 40 industries, and our targeted industries are, of course, in focus. All of these industries need application-specific customer-specific solutions from us. So we need to serve a more diverse set of needs, often in very harsh environments as well, and I will come back to that later on. Now that is really what allows us also as a pure-play industrial company to focus, to bring our resources into where we have the high profit and high growth opportunities for the future. That is what will be strengthened even further going forward.

And speed of innovation is really picking up, especially in Asia. How are we dealing with that at SKF?

It is very exciting, I think as a technologist at heart, to see how development cycles are shortening, how we can see really innovation speed going up. And we have, for the past decades been building our global R&D footprint. That means that we have a strong presence of R&D in Asia. And as such, we are a part of this movement. We're not looking at it from the outside. We are in there. And that creates a win-win for us because we can actually really double down on that increase of speed because we're there, but we have our heritage. Our long technology history that we built since 1907 in our global R&D capacity. And that means that we can take the best of the best and accelerate because in the end, it is actually true that any customer in any part of this world really want speed and innovation. So there's no difference there.

Thank you. The stage is yours to talk more about the customer-centric innovation, Annika.

Thank you, Sophie. So this is one of our products. It's a bearing, a spherical rolling bearing. And take a look at it. What do you see? You're probably thinking that it's a piece of steel. That cannot be rocket science, right? And you'll be right thinking that because it's actually much more complicated than that. Let me explain, there is no industrial component out there that is subject to more load and stress compared to the bearings. They take all the heat. And as such, let's make analogy out of this. And this is actually an analogy coming from my research organization, they put it really well. Imagine that you stack 10 cars at the tip of your fingernail and balance them. On top of that, you need to keep those cars separate by a lubrication layer that can be as thin as a hundredth of a human hair. We are talking molecular level here. So just imagine that you are standing there with your 10 cars balancing on your fingernail with that hundredth of a hair in between them, that is why it's more complicated than rocket science. We have centuries or at least one century of in-depth knowledge that we have built to be able to manage this, to be able to push the boundaries in our knowledge, material science, metallurgy, AI and software, all of it meets in the bearing world.

I would like to introduce you to how we enable this? How do we work with customer-centric innovation? What does that mean? And how do we do it? There are three pillars and two accelerators in this model. Let me briefly introduce them to you. The first one is the research and technology, building the foundation of knowledge. The second one is product and solutions development, where we take the knowledge and bring it into the customer realm. The third one, we talk about application know-how, everything we know about our customers' applications, and what that means for our solutions. These three pillars are accelerated by external innovation and digitalization and AI.

If I turn then to the first pillar, this is one of the key strengths of SKF. We are here talking about research and technology. We have a lot of unique proprietary knowledge in this space that we have built over decades. In material science, steel and heat treatment, ceramic materials. Digital simulation of everything that we do, but also performance prediction, how can we predict the future, how long will our products last? This is in-depth technology knowledge. It is guided by a robust technology strategy that caters to our future growth, where we build these unique capabilities. And this capability is scarce. It is hard to build, we know that. So as a result of that, we have decided that it makes sense, but we will, in the automotive and industry companies, still continue to use this technical base together. And we see that as a long-term arrangement for automotive and industry going into the future.

This takes me to the next pillar, which is about transforming that application knowledge as well as what we have in our technical drawers, as I mentioned earlier, into products and solutions that mean something to our customers. Here, we differentiate as Automotive and Industrial moving forward, and really, it's fast access to innovation for our customers, creating customer value. And not only that, we do this together with our customers. 70% of our development projects are done together with customers, OEM customers, but also aftermarket customers, building stickiness with those customers, ensuring that we develop what they need, and we do it together. It strengthens also our aftermarket position because we develop those solutions that are application-specific, that will also drive the aftermarket business. So we're driving solutions into those high-profit, high-growth areas.

The third pillar is about application know-how. The strength we have there is, I think, very much exemplified by more than 600 application engineers, our heroes out there. They are out there with our customers every single day with the application knowledge they have. And they serve customers in more -- in 40 different industries, of course, focusing on those targeted industries. And I usually say that one of those application engineers out there in the field, together with our customers in their development department, actually can bring more than 1,500 experts into that room because that is the strength of SKF when we work with our customers through application engineering.

Now we've seen three pillars, right, in the customer-centric innovation. Let me bring you to some examples of what this actually means in real life. The first example comes from the industrial electrical area, industrial electrical motors. So the electrification trend has, of course, been very much influencing this industry over the past years. We can see higher speeds. And also what we can see is actually stray electrical current as a result of the electrification that we need to manage because if that current goes through the bearing, it can not only kill the bearing, it can also hurt the application. So we need to manage that. And what is then our solution? Our solution, and you saw probably some of that out there in the course is a specifically designed hybrid ceramic bearing for the industrial electrical motors, perfect conditions for this product. And what we have brought forward here is an optimized design, a patented solution, and the ceramic value chain as well because what is then the difference between hybrid ceramic bearing and this bearing over here on the table, which has steel rolling elements right here, a ceramic bearing actually has ceramic rolling elements, and what is the point of that? Well, ceramic material is actually insulating electricity, so you will get away from the program of these stray electrical currents. Our customers enjoy, in many cases, 25% less friction because this is also a solution that affects and is able to handle higher speeds, but also, in many cases, 4x the lifetime of the product, and that matters to the customers in the industrial electrical area.

Another favorite example of mine is the metals industry. Walking into steel mill, it is obvious the times I've done that, that this environment is simply brutal. There is high loads and many times, the applications are in more than 1,000 degrees Celsius. We're talking about a truly harsh environment here. And our products need to perform in this hot environment. We need to make sure that they do. And actually, we had a dual opportunity here to grab our customers' value. And that was really, first of all, to ensure that we increase our performance. You don't want the bearings to break. You don't want unplanned downtime in the metals industry. Hans explained what happens in the paper industry. I would say metal industry is maybe even worse. So what we have done is that we've taken all of our knowledge to think about how to increase performance, but not jeopardizing the good cost levels we have. So really bringing the cost down as well. This is an impossible equation, you might think. How do you increase performance and reduce cost at the same time? You do that through technology and innovation. Because with all of our knowledge in all of the diverse technology areas, we were able to bring forward a new solution with a new type of seal, a new design of the bearing itself and a new way to process the heat treatment in our factories, which brought us better performance at lower cost. It is possible. That, in the end, also allows us to scale and grow this solution. So that's what the three pillars do to our customers.

And I would like us to now look into the two accelerators, as I mentioned earlier. The first accelerator, external innovation. So we know that we have a lot of proprietary unique knowledge. But we also need to bring in new technologies. We need to really work with the best of the best also in universities. So that's why external innovation is also a lever for us. And what we do then with the external innovation is that, first of all, we work with 40 different universities. We've done that for many, many years, really bringing that core in-depth knowledge also in house, but we've also started this year SKF Ventures to make sure that we can harvest in a very efficient way, start-ups, technologies coming up through new companies. And also, of course, established companies, how we can collaborate even further. We need to gain speed, and we can do that by harnessing external innovation in our technology and innovation.

The second pillar, digitalization and AI is, of course, on everybody's lips at the moment. A couple of things I want to mention about our intelligent products. You've seen some of them out in the post. So we have a lot of AI and solutions that bring our products to be even better in the intelligence solutions space. But we also have a lot of digital tools at our customers use that serves them, interface, and you can all use it. I'm sure that you will before the day is over because it's available on skf.com. You can ask our SKF product assistant anything of technical nature that we choose to share externally. So that means by asking any question about the weight of this bearing over here perhaps or which bearing should you use in a gearbox or anything like that, you will get the answer in less than 7 seconds. Of course, that means something to our own efficiency as well. That's the second part of digitalization and AI. And as such, we are using AI to improve and automate our full value chain in SKF.

Bringing it all together, what would be better than a customer example. So this is from the machine tool industry. We have a very important customer trust DMG MORI that play in the field. They needed real-time visibility into their machine to performance. And they wanted to have data from sensors within the core of the machine tool in the spindle in the bearing. To -- and together with our knowledge and the knowledge of the DMG MORI Engineers, we developed the SKF Insight superposition bearing system with fiber optic sensing, allowing them to actually improve the performance as well as actually the warranty time of their machine tools to meet the increasing needs. But what's better than to hear from customer itself. So let's hear what Dr. Mori has to say about this.

[Presentation]

What's better than to hear from your customers, right? So we have a strong innovation track record. And you can see some examples of where we have the leading in the past. These are only some of them. Magnetic bearings with more or less zero friction, to the hybrid ceramic bearings. The digital tools that we have and the digital products like the MORI Microlog analyzer and the super precision bearing system. All of this showcases our history.

Now we have 90% of our projects that we run in development that are run for those targeted industries that Hans talked about. And on top of that, all of our projects, we're looking at accretive margins, we're looking at good growth potential. And the portfolio work that we've done that Rickard mentioned earlier over the past two years has positioned us for future growth with profit.

So we will continue as innovation leaders. We will continue with our customer-centric innovation leadership and invent in our core, but also being new and adjacent solutions. Digital and AI will speed us up together with external innovation. This is how we differentiate. This is how we maintain and build entry barriers to this industry. And today, and tomorrow, it is what makes us the technology leader. Thank you.

Thank you, Annika. Now we are going to hear from David Johansson, how we are optimizing our value chain to drive further efficiencies and value. David, welcome on to stage.

Thank you, Sophie, and good afternoon, everyone. Happy to be here. Let's dive a bit deeper now into our footprint, into our supply chain evolution. And this is then from an industrial standpoint, how to become more customer-centric, more business driven in our footprint and related supply chains. Many of you have been following us over a long period of time. And you know the ongoing transformation of our footprint, where regionalization is one key aspect, bringing main volumes closer to customers where it really matters. Secondly, a high degree of automation, so having highly efficient, highly effective manufacturing operations also for small batches, short production series. And thirdly and perhaps most importantly, becoming industry-centric. What Rickard and Hans and Annika has introduced you to this afternoon is really about a selected number of industries where we want to outperform. And our duty then, of course, is to also tailor our value chains according to those industry needs, considering also a high degree of regionalization and a high degree of automation. This is a major transformation exercise. And again, you have been following us since years on this transformation journey.

But let's have a specific look on the industrial transformation, where we put as a target 70% regionalization rate for the business per region or per business area. That means 70% of the sales in the region should also be manufactured in the same region. You see on the percentages here, where are we, where are we coming from, and where are we heading? And you see some differences naturally. Where are we coming from? A very strong European-centered manufacturing, managing a global demand, managing all industries across. So very much an order book-driven manufacturing organization, a functional organization. When we look now on our current state between the regions, we can see that the Americas, we are already within the range, 65%. It's largely the specialized industrial solutions, which is driving this good number. We have a good level of localization for seals, for aerospace, for lubrication. We still need to step up our bearing production and consolidate and modernize this in the Americas. China, we are reaching 70% after a few years of quick acceleration of our capability and capacity here, and I will come back to that. India, Southeast Asia. This is the main geography still to be regionalized from our industrial standpoint. We are actually already strong in automotive. But when we look on our industrial demand and supply, we are currently at 46%, and we aim to grow this up to 70%. And while doing that, continue to adapt our European manufacturing footprint and capability.

Important reminder behind regionalization is that it's not only about shifting capacity. It is really about building also a full value chain capability, very much for what Annika presented, allowing us to be part of the local ecosystem, the local business. This has been one of the key success factors for our acceleration in China and today a leading position in the China market, which is the biggest industrial bearing market globally. The backbone of this is our strong engineering capability, no doubt. And it's a full value chain engineering capability. Where are we today? 20% lead time reduction versus the past. That means we can react more quickly on customer demands. We can capture short-term needs with less inventory risks and requirements. We also see up to 30% cost down in the industrial manufacturing. That comes from both upstream and downstream integration with our capabilities in China, becoming part of a very cost competitive geography. It's the result of consolidation towards the industries that matters in China and, of course, also having access to high end, but also cost-effective CapEx and manufacturing processes in China for China. As I mentioned, we are approaching 70% already. And if we look on the years ahead, it is mainly a continuous further adaptation of our presence in China for China to be even stronger part of the local requirements needs and setting the trends. And in parallel to this, Europe has to continue the adaptation of our profile, our manufacturing profile and role in SKF.

How the European footprint has evolved over the last couple of years, and we are in the midst of it right now is on the one hand, to adapt our large volume manufacturing sites towards the regional demand and regional supply. We have continued the consolidation. And over the last three years, for those who have been following us, you see three major sites being closed, Pianezza, Luton and Avallon. So our consolidation of both number of sites, but more importantly, the industries that you serve, the customers that you serve, the products that you produce is ongoing. It's a big cultural change that we are driving in Europe, having been the central manufacturing globally into becoming much more interested and much more engaged in what makes our local customers tick, what makes our local customers buy and see the difference in SKF products. So it's a big step change in how we actually become -- streamline the value chain in Europe for Europe.

Cost and lead time, same as for China is key for our European footprint, it's also key to step up further in East Europe. You probably know we are in Poland and Bulgaria and those sites are taking a stronger grip on both component supply for all factories across Europe, but also finished goods when it comes to competitive and longer-range production series. In parallel to this adaptation of regional factories, we also have the evolution of a few global centers, managing the long tail or, let's say, the niche assortment globally, because when we reach 70% for most regions, we still need to capture that customer-centric, the industry-focused long tail from somewhere. We have a high level of engineering competence in Europe. And for six sites then, they take this role to also manage the long tail globally. Those are highly customer-centric facilities, but also highly flexible facilities, where short batch manufacturing is key. Gutenberg, maybe many of you have been to our Gutenberg factory, you see a significant transformation of how we do resetting between production batches. What used to take several hours and with manual intervention is today done in less than 20 minutes fully automized. For an industrial pure play, that is a real good value proposition and capability to have. Hans already mentioned it that we have also simplified our long tail, one quarter less when you look on our assortment. And Hans mentioned the benefits for manufacturing sites, but equally so for our engineering resource, where do we spend time. And talking about engineering in those selected global centers, we also gather the full value chain engineering under one roof on one site, from industry, to application, to product and process engineering skills, which fosters of course a creativity and innovation for the customer group that this site is to manage.

I want to bring you to one of these centers. Actually, one that was also recently inaugurated where we have consolidated our capabilities for super position patterns and super position industries. Actually, the one that DMG MORI is acting in. Here, we have brought together our best competencies and latest technologies into one site. And the achievements over the last 2, 3 years is quite remarkable. How we utilize the capacity coming together in one global center plus 30%. How we have improved the throughput time through the factory, minus 30%, and how we have been able to consolidate and drive efficiency from a manning perspective, minus 30% headcount or manpower. Considering that, I want to show what can it look like? How does this global center for super position actually look like? So please join me in this, and let's have a look. Clearly, part of the clean and intelligence strategy. This is a site where actually 0.5 degree Celsius is the maximum deviation allowed in the manufacturing process. So we are talking clean room facilities, and we are also talking no touch manufacturing in order to deliver on the precision and quality needed for those applications and technologies. Highly digital, we have digital twins of both the process, but even the entire facility in order to control diligently operations and precision. We have the brightest minds here, as I said, full value chain engineering, and it is also the place for customers to come and visit us and bring their latest needs, challenges that we co-create around. During the inauguration, we gathered some of the most leading, strongest brand into our site. DMG MORI was one of them. Dr. Mori was on stage with us. And this center is for them to continue to develop their respective leaderships into their industry verticals. So we are really proud of this, as you can hear. And we have received also excellent feedback from customers and partners that we are stepping up the game, and they are also increasing the app towards competition when it comes to enabling better innovation for our customers. Of course, caring about those assets, our optimized footprint requires also a strong operational excellence. And just as a reminder for you following SKF, that's where we are coming from. Of course, having been running industrial manufacturing since 1907, our production system, the SKF production system is a cornerstone of our operational excellence. We run with a lean mindset, and actually this lean mindset helps us to co-create with customers. Our production system is the reason why we have closer partnerships with industrial companies, customers and suppliers compared to competition. And not the least in times like those when Europe needs to come together more strongly, find competitive force against other geographies, this best practice of our operational excellence brings even further opportunities into us. And perhaps most importantly, driving lean is to also be able to cope with high market dynamics and driving resilience in our margin. And if you look back on the last three years, our gross margin based on cost of goods sold has actually been on a positive trajectory, 3 percentage points, where certainly our production system and continuous focus on lean helps us to become more resilient.

And finally then, also approaching efficiency from a net working capital perspective, I want to share a few perspectives on how we have been managing because right now, on the one hand, highly dynamic market, supply chain disruptions and so on. On the other hand, a footprint transformation. So three focus areas has been put in place global governance to make sure that we do the ramp down, ramp up in the most effective way without creating too much of buffer stock and safety buffers for customers. But naturally, such a footprint optimization drives inventory, which we are now coming through. We have put clear targets on BA leaders. This is the net working capital that you need to drive for. And we have, at the same time, it's safeguarding our availability because the last thing you want to do when transforming your footprint is to lose out of the profitable high runners. So we have actually put extra efforts to safeguard availability also of our profitable high runners to maintain our market leadership, but also drive margin improvement. If we look forward, and you saw this morning from the press release, we have more ambitious targets now, driven by, on the one hand, an optimized industrial manufacturing footprint, that helps to take us already midterm into 29%, long term, below 27%.

Industrial footprint is on the one hand, actually Hans area of specialized industrial solutions where we also had a question, what's unique with this? A concentrated value chain where we have had inefficiencies in the past, where we can now step up our net working capital efficiency. And thirdly, a continuous development and modernization of our IT landscape. And becoming an industrial pure play also helps us to standardize IT in our manufacturing at a faster pace.

Summing up this part of our presentation, finalizing the footprint optimization. Key points to remember here is that India is the the main remaining geography that we now need to step up. And according to that, balance European production. Americas also has to be modernized and consolidated further on the bearing side and on our industrial manufacturing. And on the other hand, managing our supply chain continuous development, so leveraging our footprint, but also stepping up both the digital, but also the inventory requirements that we have in Specialized Industrial Solutions.

With this, we should be ready to bring it home. And now back to you, Sophie.

Thank you, David. And so it will be an opportunity for you to ask questions to David and also Annika after the next presentation. So if your question is on the topic of innovation, the business-driven value chain and also the financials and the financial targets, you can submit them now online and -- or if you are here in the audience, wait a few more minutes because now we are bringing it all together here, what you've heard before about in the industrial deep dive. And our CFO, Susanne Larsson, will do that. So Susanne, welcome on to stage.

Thank you. I now will announce all the things that you've been waiting for. And not only that, we have some cliffhangers there since the pause. So let me try to put clarity around all what we have talked about, but more from the financial perspective.

You have already read and heard about the new financial long-term targets where we are announcing them today. On top of that, we are also reconfirming our existing sustainability targets. And I will then elaborate on each on these ones separately. So off we go then.

Organic growth, many of us have talked about that already. So over a business cycle, we expect to grow 4% organically. We do that by looking back over the last 20 years at the industrial bearing market, where we can see that, that has been growing some 3% annually. We have been able to successfully defend our market share over that period. We also think that with a renewed industrial focus, further fueled by the customer-centric innovation, we are well positioned to deliver ahead of market. And that's where we concluded that we will then outperform the market and be 1 percentage point ahead of market. So that's about the organic growth.

Let's talk about the definition of the organic growth and the contract manufacturing that is not included in this definition. In the SKF Group, we have had intercompany transactions for a long time, and actually that is eliminated in our consolidation process. Immediately post spin, this will gross up the top line for the industrial business. This trading will already be significantly reduced at listing, and it will continue to reduce further until midterm and even less long term. And as we have talked about, we want to keep on having some of these contract manufacturing to provide some stability short term post separation. And that's also why we then excluded that from the target. And it will be some 5% in relation to the total sales. So that's the contract manufacturing from industrial to automotive where we take off.

Now I will stay on this picture for quite some time. And this is really why we try to talk about how we will excel further. So we have decided to have a midterm target and the long-term target. And the third phase is a lot about optimization. We need to do some more things. You've heard us talking about that. And the second phase is more about scaling, leveraging further.

So let me start then with taking off in the 15.9. What is that? That is the current industrial segment as we disclose it. So it's the rolling 12 months as per September. We are not disclosing any pro forma information yet since we are in the middle of the separation work. I got the question here in the break. But as we have talked about, the Bearing Solution and the Specialized Industrial Solutions, these are industrial segments that Industrial will consist of tomorrow. So that is something we disclosed before quarter 1 next year.

Moving on then. As we are now building two independent companies, you know that there will be initial dis-synergies and stranded costs. We have talked about that already. Included in this, we will also have the automotive contract manufacturing that is dilutive to the industrial profitability. Initially, this takes our profitability down. That's the gray bar down. As you also know, this is why we launched quarter 2, our rightsizing program that will more than offset this, but of course, by day one, it is not fully compensated. So that's the starting point.

Then we come into what Hans elaborated on, and what Annika also talked about from the customer close innovation. This is really how we reignite growth. This is the impact from the profitable growth, net of inflation. So that's an important contributor. Then we have the regionalization and productivity measure. This is where you heard David talk, where we will finalize the regionalization, but where we need to further optimize our footprint, that we will do during this phase, particularly in Europe in the mature markets, but also in the Americas. In parallel with this, we will, of course, continue to drive lean and productivity, but that's one of the contributors into this. And these measures will take us down to the midterm more than 70% target. So this is -- again, this is an optimization period where we recognize that there are still some work to be done when it comes to finalizing regionalization and optimize further the footprint at the same time as we are leveraging our growth.

Then what? The profitable growth journey continues, so we will continue with an optimized footprint to leverage growth further. And then as we have talked about, already now, we are initiating a review of the industrial supply chain model, changing our ways of working and putting it into a modernized ERP landscape. This will take us gradual benefits, but certainly, not until we have deployed that globally speaking, we will have the full leverage of that. So that will be an important contributor, both from a profitability perspective as from a balance sheet and net working capital optimization.

In this last part, we have one more thing. So today, SKF has functional shared service centers, Finance is the big one out of that. We intend to leverage further global business service end-to-end. So that is also a lever that we include in this last bar. So with all these measures, we believe that we will first optimize and do some further -- let me now comment a little bit on the rightsizing that we commented upon in the quarter two. And I'm really here to just confirm what we have already been saying. So we can conclude that the majority of the people are approached, and we have signed agreements before the year-end. I'm also confirming the savings of SEK 2 billion, where we will also then reconfirm that we will have most of the benefits during 2026 and 2027 in a relatively linear manner. When it comes to the cost, we took that charge already in quarter two, but the cash flow impact will mainly be coming through our cash flow during 2026. So this is really reconfirming what we have already stated.

Capital efficiency then. So here, we will improve our cash conversion from the current levels to 60% as a long-term target. And similarly, our return on capital employed will improve from current levels to a 20% level. To the left in this picture, we see the main drivers for this. Certainly, it's the operating profit, the size of the profit, together with the profitability will, of course, improve and help us.

Net working capital, we have touched on that. We have a relatively high level as a starting point, and we intend to normalize until midterm. Long term, with the supply chain efforts we are taking on, we see that we will have a target of less than 27%. A lot of what we are driving now is around the inventory, obviously.

When it comes to capital CapEx, capital expenditure, it will remain on a 5% level until midterm. And we say that as we have certain automotive spin finalization of regionalization and footprint optimization into that CapEx until midterm to later normalize into a 3.5% of sales.

Finally, dividends will remain as today with a 50% of net profit. So these are really the levers that will bring us an improved cash conversion and return on capital employed.

Another important picture. One-off cost then. It's important to say that to make SKF even stronger, we want to do these things that we are addressing today. We want to finalize the regionalization. We want to finalize the footprint optimization to put that behind the leverage further. So this is something we have really worked through. It will, of course, create is one, of course, IACs one-off cost during this period. But thereafter, we anticipate them to be at a minimum. The first one is the automotive separation. We started to take some charges already in the end of last year. And by September end, we have charged SEK 1 billion through the P&L. We anticipate that there will be another SEK 1.5 billion that is taken before the spin.

The second bar here is around the footprint optimization. As we have talked about, we need to have a rightsized footprint by region, and we are mainly pointing into the European region and Americas here. And after those 5, 3.5 will be -- will impact cash flow and the other one in the half will be noncash impairments. By taking this 6.5 additional, we see that we have come to an end with this kind of one-off charges, and we are ready to bring the value home.

Last, net leverage then. So for the Industrial business, post spin, we will retain the strong investment grade that SKF has today. And we say that because we anticipate the separation to be credit positive as we will be less volatile and the profitability will improve further. With a target of less than 2%, we will also have space for M&A and other transformation initiatives.

Finally, automotive is expected to have a net leverage of less than 1. And we say that considering the industry they operate in and the size of that business. And certainly, we will make sure that there are credit facilities in place before spin.

So by that, I come to an end. I've shared how we will deliver on our financial targets, growth, profitability, cash conversion and return on capital employed. We will retain a strong investment grade and our dividend level, and we will keep our sustainability targets with decarbonized own operation by 2030 and NetZero by 2050. Thank you.

Thank you. Susanne. Please join me for the Q&A session, and I welcome also back up on stage Annika and David. So now we will have a Q&A session focusing on the industrial side of the business and topics are innovation, the business-driven value chain and the financial targets. And we will accept questions from the room, I see several hands already up. And also for our online audience here, please submit your questions if you have registered your attendance.

So -- but let's start with a question from the room here.

Erik Golrang at SEB.

A question for Susanne on the financial targets. So what can you tell us that would best explain why items affecting comparability would be minimal beyond 28%. And if you believe that, why don't you set the long-term margin target on a reported basis and not adjusted basis.

That's a really good one. I think we have had a lot of discussions in the management team and said that we really want to make sure to drive ourselves to completion with these one-offs, to really optimize -- that we have regional and optimized footprint. I think it's good also for our business and our people to be in that environment. But certainly, we want to come to an end with this continuous rightsizing activities. We could have changed KPIs in the middle of the term, but we thought it's better to define what KPIs do we want to have and then we articulate those on this one. But certainly, we will have minimum is IACs post midterm in 2028 as we said. So in reality, we could have reported IAC then because they would be very similar.

And let's have a question we have from Anders Idborg here in the middle.

Just another one on the growth target. So you plan to outgrow the market by 1 percentage point. I'm not 100% that is visible in history that SKF has outgrown the market rather sort of on the market, and could you be a bit clear on what exactly will drive that market outperformance?

I take that.

You can take that start with that. And then if we can have the microphone back, if Hans also want to -- we have a shortage of microphones here. So -- but Susanne please start, if you want.

Looking at the industrial bearing market over a long period of time, that has been growing some 3%. And we conclude that we have been able to defend our position in that. So we have not outperformed the market so far. But I think what we are trying to say with a focus in industrial, both from a technology and innovation perspective being close to the customer, but also certainly in how we have our industry focus, how we have application engineering capabilities, we believe that we are in a good position to outperform. And that's really the difference that we believe that the focused industrial company will enable us to be.

And before perhaps we let Hans in, Annika, some words from you.

So I would say also here, it is important to note that over the past 2 years, we have looked at our R&D portfolio. We have focused 90% of the projects in that portfolio towards the targeted industries that do outgrow some of the other industries that we work with. So that on its own will mean that we will have better leverage of the customer-centric innovation, and that has happened over the past 2 years. So that is a difference, I think, that we can really leverage and talk about here.

Yes. I don't know if I have much more to add here. But if you look back, you also need to recognize that while we are outgrowing in the market we decide to serve, in the last quarters, you have Rickard talked about the last 8 consecutive quarters of decline. We also have a fair amount of pruning involved there. So if we would -- if you're almost done with the pruning now, you will see a completely different trajectory as well moving forward.

We will continue with a question from James Moore at Redburn.

James Moore from Rothschild, not Redburn.

Rothschild, sorry.

Recently changed. Could I just try and squeeze in 3. Could you say whether -- I also industrial bearings was materially more profitable than independent and emerging and you've renamed it. Could you confirm whether it's above the 19%. The second one is you've actively chosen to exit some volume over the last 3, 4 years with both your pricing policy and to a degree that the portfolio rationalization. When it comes out to the choice between price over volume, are you still going to have price as the priority because taking share when price is not the priority is easy, but doing both is hard. I just want to clarify that. And then just finally, on the SEK 6.5 billion, some of that is MFP saving -- MFP oriented, manufacturing footprint oriented. And with the last few years, we've had SEK 1 billion a year of cost of goods sold saving. What sort of pace of saving marries to that? Can we think about a 50% payoff ratio of [ 500 ] a year? Would that be a credible COGS saving from that?

So let me start with the 2 industrial segments of tomorrow then, the Bearing Solutions and the Specialized Industrial Solutions. I think we will not disclose those numbers now precisely, but it's certainly like that, that the Bearing Solutions business is significantly more profitable at this point in time. And as we evolve, the Specialized Industrial Solutions will catch up and be in line with the ambition level or targets that we have disclosed today. That was the first question.

And sorry, there, Susanne, we could add also. We will share pro forma data early next year or somewhere in the first quarter. That's the plan now on these 2 new segments that we will report on.

That's right. So -- we will certainly always have price in mind. I think we are not intending to come back and become a volume business. I don't -- yes, so we will certainly focus on a profitable business as we move along as well. And the savings and the SEK 6.5 billion of savings then, we have also done rightsizing initiatives and regionalizations in the past then. So that is a sizable part of the leverage that we will have in our result, and we will not disclose exactly how much that will deliver itself.

And the next question is from Andreas Koski at BNP Paribas.

Two questions on contract manufacturing. So how much does that contribute to Industrial adjusted EBIT today? And does that business require any working capital to the 33% that we see, that's also part of the contract manufacturing business. So when we exclude the contract manufacturing business, it's actually a bit lower already.

Yes. So the first one is really about what is the impact it has on the profitability of the Industrial today. And today, we do not have any internal profit that is impacting any of the segments. So we do not have any internal profitability measures that is impacting the industrial business out of that. So today, we do not have that. And that is the consequence of what will happen as of tomorrow. So tomorrow, then we will suddenly have a gross up sales with a certain markup typically in line with contract manufacturing levels then. So that is what will be an impact post spin that is not existing at all today. So that is the first one.

Talking then about this stability that it requires during certain until midterm then it will also have an impact on the net working capital because it's a customer similar to others. So we will have to tie net working capital into that. And we will utilize machinery that we have to the extent needed during that mid -- until that mid- and long-term period. So to some extent, yes.

And we have a question from Daniela Costa at Goldman Sachs.

It's actually 2 parts. It touches regionalization, but also touches the financial. I think on the chart you have by 2030 in Americas, Asia, most of the regions outside of Europe, you would still be 70% localized. I guess there's 30% coming from somewhere else. Is that by intent because that's the optimal net of the cost or because it's just too hard to restructure Europe in that time frame? That's part one of the question. And the second part is your working capital to sales target, I think, used to be 25%, and it's now 27% and 29% and then 27%. Can you explain, do you figure out over this process that you actually need to carry more inventory? Is that the...

Should we start with the 70% then? So it's a combination, I think, both of where we are coming from, but also where we have the kind of manufacturing expertise and technology needed to manage a long tail. You have probably been to some of our factories, well-invested factories then with world-class manufacturing like Gothenburg. There is no benefit, let's say, of building up another Gothenburg somewhere else. You have very low manpower on this. It could basically be anywhere in the world. So considering where we are coming from, 70% is sort of a good balance where our footprint can also help globally a long tail. We say 70% plus and the region where I foresee a higher degree is China simply because of the ecosystem that you are operating in. You have customer-specific solutions. You have geographical trends, which we don't see elsewhere.

So I think we will benefit from further pushing that up in China, while for Americas, India, Europe, we come to this level as a suitable one to balance market needs and where we come from. Net working capital is simply the 2 different businesses then. So automotive running on a more efficient net working capital than industrial. Like I mentioned, having high runners, profitable high runners available for industrial, a good serviceability ties up more capital versus the automotive business model, which is definitely on the OEM side, very effective. So I don't know if you would like to.

That's good.

And we have a question from Anders Roslund at Pareto.

Yes. How should you see your targets in relation to the cycle? I mean we are on a trough demand situation now, probably some 10%, 15% in volume below 2018. And hopefully, we'll get another 10% up in the coming years. And in 5 years, we may be in the down cycle again. And how do you interpret your own midterm target? Is it possible that you get a strong cyclical rebound in a couple of years and then go back? Or how do you see the -- over the business cycle?

But I think you're right. It's over a business cycle. So we talk about the organic growth being over a business cycle. And if we continue to be in a, let's call it, a depressed environment like we have a soft market now, if that would remain for long, then it will be more of a challenge certainly. So in our EBIT development, we have the profitable growth as one lever to improve our profitability. That's clear. So I think we see that we need both profitable growth from growth, but we are certainly also taking a lot of measures to improve our cost of doing business, as I tried to illustrate. So it's both of those.

Yes. But what I'm talking about that you could have a short term relatively strong, could be a strong recovery and then flattening out or coming down and -- so still this midterm to long term doesn't fit the cycle.

But you're right. If we have a very strong recovery, we should have much more lever of the fixed cost absorption. That's certainly true as well.

Thank you, Anders. We have a question from John Kim at Deutsche Bank.

Two, if I may. What do you see as the biggest blocks of improvement within the net working capital bridge as you target 27%? And if you could provide any color or assumptions you've made around the tariff situation in your medium-term guide?

What we are elaborating on here is more of a normalized recovery as well, and that will also allow us to normalize the net working capital. So where we are facing low demand currently, which also means that we have customers that are deferring their orders. And we have, over this period, improved our availability, as David talked about. And the consequences of that is that we are actually sitting with a too high net working capital. In a normalized environment, we foresee that we should be able to get back to more of pre-COVID levels. And that's the first step and then fueled further of an industrialized supply chain way of working and new IT environment. Let's say, that was the first one.

Tariffs?

Tariffs. That's right. So tariffs, we have been facing since the Liberation Day. And what we have stated so far is that we have been successful in compensating them out into the market. And that is also the outlook we have provided for the quarter we are within. So net-net, we are, to the vast extent, compensating for that. And if there is anywhere that we actually have a certain net impact, it is mainly in the automotive business area of today.

Maybe I can just add from the indirect, let's say, impact of the tariffs also coming from a European perspective, then we see that on our direct sales, let's say, direct shipments, we are able to push pricing ahead. But we see an uncertainty among our European customers, system makers in Europe, how competitive and how successful will they be on the American market longer term. So from a European market perspective, we can see an increased uncertainty again, with our customer base more from a -- do they need to regionalize more, who will be winning in that market? Will there be trade agreements based on actually a system need in the U.S. and so on. So that's probably the estimate.

But I agree and that might be -- I think Rickard has talked about the wet blanket in the past, but I think that's the biggest risk is that the market is not recovering in the pace that we would have expected without this.

Yes. And we have time for a final question, and it comes from Alex Jones at Bank of America.

Two clarifications, if I can, on the margin bridge. One, given the cycle, people have different views. Could you give us a volume drop-through number that you think about as normalized for the Industrial business? And then the second one on the SEK 3.5 billion cash out linked to restructuring. If we think of that as an investment, should we think of that as hitting your 20% return on capital target in terms of the savings that delivers? Or do you view it as strategic and therefore, not part of that target?

So if I start with the last one then with the SEK 5 billion and then you take away the impairments, you talk about the other SEK 3.5 billion then. So what would that be as a one-off then? So that will be a lot linked to charges and a lot of that will be severance related for people. So that is mainly through the P&L and cash flow and not that much into the balance sheet. The drop-through, Sophie, do we disclose that? I'm not so sure we do that.

No, we are not. And -- but what we have said is that we expect the operating leverage to improve given what we have done in terms of what David just talked about in terms of efficiency in the manufacturing and what you have also seen partly in the margin resilience already.

Thank you so much, Annika, David and Susanne for this Q&A session. We are now heading for the next session here. And now it is time to deep dive into the automotive field and to hear more from Kerstin Enochsson, what are the benefits she's seeing from being a more stand-alone business and from this separation. Kerstin, great to see you. Over to you.

Thank you very much. So finally, automotive. My name is Kerstin Enochsson, and I'm driving the Automotive business within SKF. I'm going to take you on a journey, and we will be covering 2 different aspects. One aspect is where the business is heading and the other aspect is around the separation. So let's talk about what the separation is unleashing, and there are quite many interesting aspects. So around growth, being the low-margin part of the business, it also meant for us that we pruned a lot of business, and we were rather careful with growth. Being a stand-alone business, we do see that there are a lot of growth opportunities, and we are very eager to realize those opportunities.

Around efficiencies, we do see that we now can really optimize the automotive business, both in regards to the company structure, but also in regards to the entire value chain. Speed is extremely important. We talked about it several times before here today. You see more and more car models coming out to the market faster and faster. Development cycles are shorter. That also means that we as suppliers to the automotive industry need to be much faster. And we do see with a new setup that we can adhere to speed in a different way.

Of course, it will be a dedicated management team that is fully focused on automotive. And before we run through more PowerPoint slides, I would like to give you a glimpse on where we are heading.

[Presentation]

Indeed, a very exciting journey. Internally, we talk about the teenager that's moving out. Our last name is SKF, and we are very happy to keep it and to also start a new era. To describe where we are heading, we will be structuring our presentation in 4 different areas. The starting point, growth, efficiency and finally some words on the objectives. So let's start. We are already today well positioned. We have a good starting point. We are a truly global player around manufacturing. We have factories in Brazil, Mexico, several European plants, 3 in India, 1 in Indonesia, 3 in China. We are able to serve our customers with production out of all those different sites and our customers are the global big OEMs.

At the same time, we also have these magical application engineers that Annika talked so nicely about earlier, and they are also positioned out in the market and in many more places because we need to be very close to our customers in order to realize the value in the talks that is happening on a daily basis with the engineering departments. We have a leading position in the area of electric vehicles, commercial vehicles and aftermarket. And our Wheel end products, and I hope that some of you or all of you have had a look outside at the exhibition for you who are here and online, you will need to do it at a later point in time. Those wheel end products are driveline agnostic, meaning that you can put those wheel end products both in EV cars, but also in cars within ICE powertrain.

One thing is important, we are also fighting friction here. And if you have a low friction bearing in your wheel ends, you can extend range with your electric vehicles. It's around 20 kilometers range you can extend with a super low friction bearing. Of course, fuel efficiency for ICE cars is always the name of the game. We have done a lot of portfolio management during the last years. We have pruned our business. We have a very good base to further move on. The pruning was focused mainly on EMEA, and now we are very glad with where we are standing today.

So now let's move on and see what the strategic levers, and Rickard mentioned them earlier on today are and how they are impacting our markets. We talk about 5 different strategic levers. 3 are connected to growth and 2 are connected to efficiency. And you understand that both growth and efficiency in itself are interconnected. If you are lean and faster, you will be able to win more business. So that is the flow.

Coming into accelerating profitable growth. Lever #1 is connected to our core business. We have a lot of great products, and it is about the continuous improvement of those products. Lever #2 is around innovation. And Annika, we talk always very warmly about we need to further excel and also use digital tools to a larger extent to be fast in our responses. Already today, we have like a broad market, but we do see that with technical advancements, both in the area of EVs, but also autonomous-driven cars, there are more opportunities coming. So we will be looking into expanding the addressable market. It can be product-wise, but it can also be in the area of aftermarket and penetrating more into other geographies. I will be coming back to that.

Focus is and will remain on electric vehicles, commercial vehicles and the aftermarket. So how is this playing out in our key end markets, and we have 3 key end markets. It's the passenger vehicle market, and you see upstairs to your right, the pie indicating that this is around 50% of our top line. We have the commercial vehicles market, which is equivalent to around 20% of our top line and then the margin-accretive vehicle aftermarket representing around 30% of our top line. We start with passenger vehicles. Overall, a gigantic market. We talk about 90 million cars that are being produced and sold right now, growth of around 1%. But if you double-click on 1/3 of the market, the market for electric vehicles, that market is growing 17%.

Forecast around electric market has been shifting. It's been going up and down. But we do believe in the electric vehicle market. First of all, there are more and more products being launched or cars being launched with attractive price points. We see a longer range of the vehicles. Infrastructure is being built. And also from a technical perspective, electric vehicles are most efficient to drive -- electric drivetrains are most efficient to bring the car forward, to move the car forward. Electric vehicles have been one of our big bets. I think Hans said it very nicely. If you put focus on things, you can also deliver. We have been putting focus on electric vehicles. We have also been putting focus on developing in China with several partners, and this is now paying off.

So this innovation we are learning about in China, we are bringing back to other global markets in order to fuel developments outside China as well. So let's look into one of the collaborations we are having, and it is with BYD, Build Your Dreams. I think this is a wonderful name actually. BYD is the most successful EV brand there is. They are producing about 4.6 million electric cars. Half of them are fully electric this year. So we have been putting focus here and what is happening, we are together with BYD, developing extreme cars. You see here the beautiful U9 car, a fantastic car to drive, believe me. BYD positioned us as the EV leading technology development partner.

And our bearings, our hybrid ceramic bearings, Annika talked about it with a rotation speed above 30,000 RPM, that is rotations per minute, and that is very fast. All BYD motors are equipped with SKF bearings. So we are pushing limits, we are breaking limits, and we also have a very nice history in doing so. So we have been proving for 78 years in the longest collaboration that Ferrari has with anyone that we are delivering year-over-year on very high innovation. We are also the official bearing supplier to nearly all Formula 1 teams. This is fueling our innovation. We are learning about extraordinary quality levels, and we learn about race, grade, durability. You see a quote here by Fred, who is the Scuderia Ferrari Team Principal, and he talks about the long relationship, how we have made each other successful and the future we are embarking together as well. So we have -- we are pushing limits. We are extremely fast. Now we need to reduce speed.

But one thing is staying with us, and that is durability. Because here in the next segment, I will be talking about the commercial vehicle segment, you need to have high durability. Here, questions like TCO, total cost of ownership are absolutely key. This market has been developing rather sluggish during the last years, but now we see growth demand on tight collaboration. And this collaboration is lasting sometimes for decades because the platforms, the OEMs or the truck makers are developing for a very long time. So growth is recovering. And I would like to put your attention to one subsegment here of this commercial vehicle market, and that is the last mile delivery vans.

And you understand that we, as SKF, are in the sweet spot here because we have, on the one hand side, the need for high durability. On the other hand side, we have electric vans. And those are the vans that are bringing your food home or the Amazon delivery and so on. And here, we are industrializing products as we speak. You also see one of the products outside, which is giving you a glimpse on the innovation we are offering in this field. So some pockets are growing more, much more than the 5% the entire market is growing.

The last key market I will be touching upon is the margin-accretive vehicle aftermarket. I mentioned earlier, it's 30% of our top line. And when you look at this aftermarket and the products we are selling, it's actually much more than bearings. It's bearings, but it's also steering suspension products, it's brakes, it's engine kits. So the product portfolio is much, much wider, especially in Europe. So as a consequence, the mechanic that is serving your car is getting 50% of his needs on spare parts in a blue SKF box. And this is fantastic. This broad product portfolio, we are going to roll out also to other markets. You understand that the brand SKF plays an absolute crucial role in the success of the aftermarket, and we are an extremely well-known player. You see that the SKF customer awareness versus peers is the absolute highest here. So we have a large growing and aging car park, which we are selling into, and we will be expanding the product portfolio going forward also into other geographies.

Now I told you a lot of, say, theory and some statements, but I think it was also time to show you around the one business, what makes us enthusiastic about the future. Just give you a glimpse. You see we are like well positioned. Customers trust us, customers like us, and they award us. And these are the things we have been bringing home, some examples in the last 6 months. And the reasons for choosing SKF, you see here on the right-hand side, it is around being very innovative, being a great collaboration partner, having a global footprint, having superior e-powertrain portfolio and so on. So somehow, we see that our strategies are paying off. Now we have covered the growth area.

The next area we will be covering is efficiency. The separation is allowing us to redesign our setup in 2 ways. Overall, a lean company setup and a leaner one than we have today. And then the entire value chain of automotive, we can redesign to be a pure-play automotive Tier 1. And what are the effects we do see? At listing or we see that any temporary dissynergies can be offset by a leaner headquarter and a leaner and more efficient value chain. We have effects of contract manufacturing on our side as well. It is going to impact our margins. But as we have discussed several times today, these effects will go down over time as we're rapidly going to reduce the amount of contract manufacturing.

So all in all, driving change towards an automotive pure play is positive for us. And I have also a few examples with me so you understand what are the areas we would be tackling in the value chain. So the automotive separation is enabling a pure play. Many things we can do. We can do some redesign on our products because now we only need to adhere to automotive standards. We have heard earlier that there is an enormous requirements on bearings in general, but we don't need to take care of the other 40 industries. We can be purely focused on automotive and the requirements in automotive, and that is what we are going to look into.

We will be redesigning our logistics network, fewer touches, more direct shipments. We will continue to utilize our global footprint, and that is both in the area of global manufacturing, but it is also enabling the global team to work as efficiently as possible and ensuring that we are getting also a high share of services out of lower-cost countries. And we see that we will be able to increase speed in customer interaction. So with that, we see that growth will be spurred. We have a great portfolio already on hand today. We have a strong order pipeline, interesting one business. And with high innovation, our pricing power is high. So this is where we will keep an eye on.

I will be coming now to the last part of the presentation. And here is no news really because we have seen our objectives already. But to be complete here, I will be showing you the objective once more organic growth, above market over a cycle. Adjusted operating margin, high single digit and net leverage below 1. So to sum up, already at listing when the teenager is moving out, we are standing on strong ground on strong feet. We are confident about the upside the separation will be bringing. We have opportunities with more growth, realizing a more optimized structure and being fast in interacting with customers. And all this makes me confident that we will be delivering value with this separation. That was it from my side. And I think we will be continuing with some Q&A.

Yes. That's great. Thank you, Kerstin. Please join me here. And now we have the last Q&A session for this Capital Markets Day at least. It may continue afterwards here for the ones here in Stockholm with the mingle, but at least for our audience online, this is the last one.

And we will focus on automotive, but also the overall value creation as we have Rickard also on stage. And I see some hands. So we'll start Hampus Engellau, Handelsbanken, please.

Just a clarification. I'm sure you're not going to talk about how much you're expecting the market to grow. But when you define the market, are you looking at your split into the market? Because structurally, you would be outgrowing the market on the back of having a bigger exposure to battery electric vehicles. So I'm trying to understand how much you will be driving the growth and you're looking at your weighted growth in the market.

Hopefully, having understood you correctly, Hampus, so how do you define the market? The market is for me the passenger vehicle market, the commercial vehicle market in its totality and the aftermarket. So that is how we define the market where we are confident that we can outgrow the market.

Do we have more questions here in the room? Yes, Olof Larshammar here.

On the contract manufacturing, is the ambition for your business area to then a couple of years out in time, have that in-house? Or will you source it from other suppliers? And could you give an indication on how much CapEx will be needed to set up that production? And then maybe if you like, some indication on CapEx relating to sales for the automotive business area, please?

Yes. So most of the contract manufacturing -- most of the products we are going to contract manufacture and the start, we will be producing in-house going forward. There could be some parts that we externally source. And the ambition is to have all assets needed more or less as part of the separation to be brought into automotive. So it is limited what we would see if there's any additional investments.

And we have a question from our online audience. It's Klas Bergelind at Citi. And this is for you, Rickard and perhaps more about industrial here. So what are the likely savings from the SEK 3.5 billion cash out to improve the margin longer term to above 19%? And how should we think about when these savings will be incremental relative to the SEK 2 billion you already have announced?

Right. And I can't give the exact savings from these initiatives, but they are, as we tried to describe instrumental in order for us to build an efficient platform that can take the underlying operating margin to north of 19%. So clearly, it's a kind of value creation there and a benefit from those investments. If we had the freedom not to do them, we might have been happier, but actually, they need to do it, and we're not shying away from them. They -- by doing it then, we will create an even stronger industrial business. So I think that is important to say that they actually will support the long-term development of this business by cleaning this up. And once and for all, have made up with our legacy. So that's one piece to it.

And the second in relation to the SEK 2 billion, these are 2 different characteristic or 2 different animals, if I may use that word. The SEK 2 billion that we announced is really to drive efficiency in our white collar in our staff, where we have found an opportunity to significantly improve efficiency -- white collar efficiency. The items affecting comparability, the SEK 3.5 billion that we talk about, they are more into the footprint optimization activities and regionalization activities that we still have to do. So 2 different kinds.

Thank you, Rickard. And we've received another question from Rory Smith at Oxcap also on the same topic, and it's about the phasing of the restructuring cash costs through '26, '27 and '28, and we will not provide that details now.

Do we have more questions from the room? Yes, we have Erik Golrang, SEB. And then...

I'll try 2 questions and then you answer them if you want to. First one on the value creation, Rickard. I think we -- I don't know the exact figure, but we're somewhere north of SEK 10 billion in total IAC to facilitate the split and get the full potential. So what do you stack up against that figure in the other end to get to a net positive here?

Well, as we describe with the targets that we set for our business, the growth ambitions that we have, the underlying development and uplift in financial performance and earnings potential and the -- also the return on capital employed, I think, talks for a rather compelling story. So we do see that these investments have created already a stronger industrial business, and we still have a tail to complete, and that will lift the long-term performance of our business.

And then on the automotive side, could you say something about your market share on fully electric vehicles compared to combustion engines and also the -- your average selling or the content you have in electric vehicles compared to nonelectric?

I'll start with the first question. So the market share itself, we don't reveal on electric vehicles, but we have a leading position. Let's put it like this, and we are extremely strong in Asia, specifically in the, say, the high innovative area. That's why the EV leader in the world has been choosing us as the collaboration partner. And your second question, please?

The content for you on fully electric vehicles compared to combustion engines.

Yes. The content, say, in -- the total amount of bearings in an electric car is lower, a pure battery electric vehicle, fully electric vehicle is lower than in a combustion engine car. However, the value is higher as we are talking partly about ceramics or like much more specialized products, also super low friction wheel end bearings that are very popular in electric vehicles. So fewer but higher value altogether.

And we have a question from Anders Idborg, ABG.

This is an industrial question as well. And on China, in particular, I think it would still be a very important piece if you are to even outgrow the market and it's just slightly short of 20% of sales now. I know historically, you've sort of tried different strategies in the good enough market, the premium market, et cetera. And I think you mentioned that you've strengthened your share recently. So I'd just be -- if you could give us a bit more meat on the bone on what's happening in China and why you expect to grow at least with that market growth?

Right. A couple of things I think is important to mention here. In the last few years, we have done a rather significant investments in China to really build a strong manufacturing capability there. We have invested in building a strong supply chain in China for China. And also within Annika's area of responsibility when it comes to innovation, we have really also built a very strong technical capabilities there and a long and very solid technical development capabilities that can co-create with Chinese customers. So we have a very cost competitive base in China. We have a strong reach to customers in China, and we're able to co-create with many of the Chinese OEMs.

And we should bear in mind or remind ourselves that for certain industries, China is the center of gravity for the world, where they're leading the development. It's not just within EVs, as you heard Kerstin talk about. There are also other areas such as high-speed train, which is an important piece of our industrial growth kind of equation, as you heard Hans talk about previously. So China is important, and we do believe that we have a very strong setup in China. We're not complacent. We know that we are up for fair competition, but that's why we continue to drive innovation and make sure that we stay ahead of local competition.

Just a specific follow-up. The wind industry came back a bit in the last quarter after being down. Do you see yourself coming back to where you used to be there?

No. I don't think that we will come back, at least not short term to where it used to be. I think as I said a few times that in that particular industry, we and some other global players will have a role to play, but local competition will take a larger share of that market. And I think that's going to balance out at a lower level than what it used to be. Then we'll see. The quality of the local players, if that will be sustained or not, I think the jury is still out there. But if that works, I think we have a different balance as we see right now.

Because I've seen Andreas Koski. Okay. You [indiscernible].

[indiscernible] apparently. Can I ask you about China, just looking at your local competition, you mentioned wind here. Is it mainly international competitors you have in looking at your other industrial and also within automotive? That's the first question I have.

Well, if I try to answer the industrial one, you can do the automotive one. And if your question is related to wind in particular.

No, outside wind. I'm more looking at your segments, which you've highlighted today and also...

Still, if we count the kind of the global players, us, Timken, Schaeffler and some of the Japanese, we still have the majority of the Chinese market. And actually, the kind of market levels or market share levels have been rather actually stable for quite many years. So the Chinese, they grew up, but they kind of flatten out at a certain level. So it's a rather stable situation in terms of market shares in China at the moment. And also some of our global competitors, they enjoy a strong and sizable market share there, just as we do.

Yes. And could you comment a little bit upon profitability also in the Chinese market? Is it different for group average for your businesses?

We don't really share any insights on margins by region.

So I can't give you any details there.

Okay. And my final question to you, Kerstin. When it comes to the growth going forward here, you mentioned the organic, but do you also see room for bolt-on acquisitions as within the industrial business? And if so, in what segments would you say?

We do see opportunities in the M&A arena as well for bolt-on acquisitions. We are focusing on those 3 different areas we've been alluding to electric vehicles, commercial vehicles and aftermarket, and this would be our primary focus to broaden the product range or access a wider part of the market. You had an earlier question. Do you want me to answer it still around China or -- you asked about competitors, but...

Yes please, go ahead.

So I recollect that you asked if we are in China competing with Western companies or say, with non-Chinese companies or both with Chinese and non-Chinese companies. And we are competing with, say, both areas, both, say, the German, Japanese, Korean competitors, but also with Chinese depending a bit on where you are in the segment in the market segments.

You've also seen your market share being rather flattish over the last years?

Are we talking about China now?

Yes.

We have a very strong position in China.

Then we have Andreas Koski.

So will the automotive business be able to make any modifications to the bearings and start to sell into industrial distributors and industrial customers because it's a higher profitable business?

We have a very firm handshake between the 2. We are not even 2 companies, but when we will be 2 companies that we have a fantastic playing field, each of us. We will be playing in the automotive field and the industrial friends will be playing in the industrial field. And I think there is a lot to accomplish in each of those fields for us.

Absolutely. And -- second one, yes, if it's okay. So if I look at Automotive's organic growth historically, it has performed very well in line with globe -- no regional weighted automotive production or light vehicle production. But in recent years, you have clearly underperformed light vehicle production. Is that only because of the product pruning that you did? Or are there other reasons as well?

It's a combination. I mean, if we talk about current business, it's pruning, but it is also of, say, less interest in going into potentially low-margin business of the future. And the main effects are in EMEA.

And then we have a question from Anders Roslund, Pareto.

I had a question about the common cost of R&D. How will you split, for example, the ceramic bearings area, which is obviously vital for both of you? How will that part of the business be split?

Right. Maybe we should ask Annika to actually step up here and answer this specific question.

As we mentioned earlier, we will collaborate on the base research and technology also for the ceramics area. But the 2 businesses will then develop their own products with that as a base, and they will be different moving forward. So we will still benefit on the basic research and technology related to this very important technology area, but we will have different products going into those different industries over time.

That means that you need to have a cooperation in that area in the future as well.

That's the base research, yes, we will.

It is on the base research and not on the product development level. So it is on the base research and technology, as mentioned earlier.

And then we have a question from James Moore at Rothschild.

Coming back to the specialized business. Of the 3 big businesses, lubrication, aerospace seals, would it be fair to say that the biggest upside is aerospace, and that's a question of rewriting contracts? And in terms of magnetics, very strong growth in recent years as it's moved away from subsea towards other applications like vacuum pumps with energy efficiency and the like. Has the speed of the magnetics business normalized? Or is it still running at hyperscaler plus type levels?

Right. I'd like to remind you from Hans' presentation where he mentioned that he had that little sliding bar on each of those businesses. And if you recall, aerospace, they have come pretty far in improving their profitability and into gearing for growth. So a lot of that hard work has been done in aerospace. For magnetics, it's a highly accretive business for us. It's growing very nicely, but the -- we still see significant growth also driven by the data centers, which is going through the roof actually. So they have a very, very strong order intake, primarily driven from that particular industry at the moment. And then the seals business and lubrication business we call the sliding bars are more towards the left until kind of indicating more emphasis on margin uplift before growing.

That was our final question for this Capital Markets Day. We are soon to wrap up. For those of you who are in Stockholm, you are very welcome to join us after this -- after the presentations now with the mingle. So I hope you do that. And Rickard, do you want to say -- conclude what we have heard about the last 4 hours.

I love to. I love to. And the good news after a few hundred pages, I only have one page. So -- but thank you so much for joining us, both here physically in this room, but also online. And to wrap this up then, I'd like to use this page to illustrate the value creation that we talked about. We are excited about the future for both these businesses. We truly believe that by separating this business, our business into a fully focused industrial business and a fully focused automotive business, it will drive benefits for both entities. And these targets I put up on this chart would not be able to be reached without this separation.

I hope that we have been able to convey to you that we have some ideas on how we're going to drive value and how we're going to create this financial result. Again, remind you on the industrial side, we talked about 3 pillars and 7 levers. That's going to be the emphasis. And for automotive, there were 2 pillars and 5 levers that will drive both growth and profitability. And I'd like to end by actually where I started and leave you with this metaphor. I'm absolutely convinced when the sun shines on both these businesses, they have -- will have the prerequisite for growing to their full potential. So with this, I thank you so much for your attention. And I also thank the audience online, and I wish you a fantastic Tuesday evening. Thank you so much.

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 Sophie Arnius, I'm heading up Investor Relations, and I will also be joined by our CEO and President, Rickard Gustafson; and our CFO, Susanne Larsson. And there will be, of course, opportunities to ask questions before or after their presentations. And there are 2 ways to do that. [Operator Instructions]

With that, let's get started. It's a great pleasure to hand over to you, Rickard.

Thank you so much, Sophie, and good morning, everyone, to this earnings call. And as you heard from Sophie, 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 8 consecutive quarters of negative organic growth, we are actually back to organic growth in the quarter. Actually, it's primarily driven by our Industrial business, where we have seen growth across our geographies, while Automotive is still more volatile and a more negative demand environment.

This performance was actually slightly better than we anticipated walking into this quarter. However, though, the underlying market conditions has not significantly changed in this quarter versus the second quarter. And to some extent, we are also helped 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 Capital Markets Day in a few weeks' time on November 11 in Stockholm, where we will be able to share more lights on this.

When it comes to our Industrial rightsizing initiative that we announced 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 '27. 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 Super-precision bearing center that we are pretty excited about, and I will share some more details around that shortly.

But if we move on and start taking a look at the high-level numbers. Net sales ended at SEK 22.4 billion, 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 make -- 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 is the main -- or the 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 had 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 a 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, the price/mix activities to manage tariffs is part of the organic growth journey. But also some industrial verticals are also standing out. And here, I'd like to mention marine and aerospace. Turning to Automotive, a weak underlying demand that we have seen and especially true for commercial vehicles in this region.

China and Northeast Asia, mid-single-digit 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 for prebuys or policy-driven prebuys 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, while 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 and we have an 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 repeat 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 small but not very sizable also contribution from the rightsizing program. But as I mentioned, most of the value from that program or 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 a really significant impact on the earnings in this quarter, I do believe that the adjusted operating margin performance, not just shy of the same level as last year is a rather 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 us to offset some of those headwinds and maintain the margin. And this is not a onetime 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 cost. So that is 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 schedule, and there are -- I mentioned a couple of times that there are always risks with this massive project like this or a 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 Super-precision 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 and 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 in earlier in the quarter that we have now built a new global cross-functional Super-precision bearing center. It's based in Italy, in Airasca, 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 get from this by getting this under one roof is clear 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, Rickard. Good morning, everyone. So now we will really talk about the financial implications and some of them you have also heard Rickard commenting upon. But let me first start with the 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 0.5 percentage point. However, if we put the one-off cost, the IACs 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 1 percentage point. Quarter 3 one-off cost IACs amounted to SEK 755 million, with the main areas being the automotive separation costs representing SEK 362 million. We had SEK 230 million related to impairment charges of fixed assets and finally, SEK 141 million on ongoing restructuring activities. So net-net, we had an operating profit of SEK 2 billion compared to SEK 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 4. 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, minus 1 percentage points.

The main currencies remain the same. It's U.S. dollar, it's Chinese yen and it's Turkish lira with the main effects vis-a-vis the Swedish krona. And finally, the structure is 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 SEK 1.8 billion, and there are some reasons for that relative weak cash flow, and it comes from what I will address now then. So first of all, we had one-off IAC costs 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 SEK 500 million in the quarter.

In the bar other, we have SEK 300 million negative explained by realized FX effects. Taxes paid in the quarter amounted to SEK 700 million, which is higher than last year, SEK 200 million. However, last year was low, so this is on a normalized level. And then finally, the net working capital, we had the change there of minus SEK 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 3.

Inventories, we are pleased to see decreasing in the quarter, where we saw reductions in both Automotive and Industrial. And before leaving this, I just want us to remember that last year, we had the change in the net working capital where we changed the reporting of consignment stock. So we had both increase in inventory and accounts payable of SEK 1.5 billion 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 SEK 14.5 billion. And if we put the pensions aside, it ended at SEK 7.5 billion. Cash and cash equivalents ended at SEK 7.6 billion and were reduced as a consequence of a bond repayment of SEK 3.3 billion 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 0.6x. Finally, adjusted ROCE 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 quarter 3. By that, we mean that we expect an organic sales to be relatively unchanged quarter 4 year-over-year. The currency impact on the operating profit remains high, and we estimate that to be minus SEK 650 million, applying the rates as per the end of September. The full year tax rate guidance is adjusted to 28%, which is 2 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 SEK 4.5 billion to SEK 4 billion.

And by that, Rickard, I hand back to you.

Thank you so much, Susanne. And if we wrap this up then, as you heard us say, the market conditions continues to be challenging with a lot of volatility and geopolitical uncertainty, which puts a negative push or downward push on demand. But with that said, though, we are very pleased that we, after 8 consecutive quarters of negative organic growth now are back into organic growth. And as you heard us talk about, primarily driven by our Industrial business.

Also pleased that we continue our margin resilience story, where we see that we are managing in this rather volatile environment and managing headwinds in a decent way and holding up our operating margin. And this is due to that we actually execute on what we said that we're going to do. We are driving commercial capabilities. We are standing firm on cost management, and we are continuing to invest in our business in terms of automation and in terms of regionalization.

I'm also pleased to report that we're making strong progress, as I mentioned, in our Automotive separation. It's a lot of work still to be done. It's too early to claim full victory. But so far, we are driving this fully according to plan. And as I mentioned, we have achieved some significant milestones in the quarter. And I'd like to again put some spotlight on the upcoming event in Stockholm in a couple of weeks in November 11, where we look forward to see you all and share more details on how we see our future Industrial business, some key highlights on our future Automotive business and provide some more transparency on the cost also related to the separation.

So with this, I'm going to hand over to Sophie that will then initiate the Q&A session.

Thank you, Rickard. And yes, we hope that many of you can join us in Stockholm for the Capital Markets Day, but there is also an option to join us online. Nevertheless, you need to register and the registration closes on Friday, and you find the link to register on our website. So let's now open up for Q&A.

[Operator Instructions] We will start with a question from the telephone line and from Rory Smith at Oxcap.

It's Rory from Oxcap. I'll stick to one as instructed, Sophie. And that is just if you could unpack that North America and particularly the U.S. performance and even put a number to the volume versus price impact in the quarter. I'm just trying to separate out those tariff price increases from any underlying improvement or otherwise there, that would be great.

Rickard is happy to respond to that question.

Yes. We will not disclose how much is volume and how much is price mix as such. But when it comes to Americas, it is price mix that drives the growth, and we are actually still in negative volume territory in Americas. So that's as far as I can go.

And let's continue with a question from the line of Alex Jones at Bank of America.

Just on the guidance that you've given for Q4, are you pointing for a sequential deceleration in organic growth given you're talking about relatively unchanged? Or I think you talked about unchanged into this quarter and then delivered plus 2%. So is that still in the range of possibilities? And if it's more the former and you are talking about deceleration, can you just explain the moving parts for us, given I'd imagine that the pricing gets sequentially higher as you continue to recoup the tariffs?

Let's hear from Ms. Susanne on this topic.

So what we are really saying is that we do not see a significant change in the market environment quarter 4 over quarter 3. So since quarter 2, I think we are seeing signs of bottoming out. So from the sequential question you asked, we have to remind ourselves that quarter 4 last year, we came in strong, and that we have in mind when we compare quarter-over-quarter, and that is the reason for us to guide flat.

And let's continue with a question from Erik Golrang at SEB.

A question on Automotive just for some perspective. I mean, currency, as you say, continues to be a heavy headwind for you from a profitability perspective and the relative impact on Automotive is quite significant. So I mean, it's a sub-5% margin business on an adjusted basis. Are you -- is this sufficient for the company to be stand-alone? Or is currency dramatically changing the outlook for Automotive?

Rickard, do you want to take this one?

Of course. Erik, as we have said also when we announced our ambition to do this separation, we have higher ambitions for automotive than the current performance. And yes, we have entered up in a more volatile environment maybe than we anticipated before, but we are managing through this. And in our internal plans, when we look forward, we're still very confident that we will create a solid and profitable Automotive business as we move forward. But more details to come in a couple of weeks' time in Stockholm.

And we will continue with a question from Daniela Costa at Goldman Sachs.

My question relates to tariff impacts in Section 232. But first, I guess, a clarification sort of on the bridge on the cost, you have SEK 23 million headwind, which I guess sounds quite small. Is it because you've been selling out of inventory? And then is that repeatable in Q4? How do you size the direct and the indirect inflation coming from Section 232 going forward?

This is a CFO type of question. So Susanne, please.

Daniela, I think we are very pleased to see that we have a cost development, which is only SEK 23 million negative, really flat. And I think what you see is a lot of effort coming in from managing the cost variability, looking into what we have done with automating our manufacturing operation and really driving a lot of cost initiatives, which is necessary from a long time in a negative decline. So I think that is something that we see will continue to be a leverage that we can utilize going forward.

Talking about 232, I think what we are guiding now is to say that we anticipate that the majority of the tariffs and also including 232 will be compensated and not ending up in our P&L.

Including suppliers indirect impact from...

Including that, yes.

And we will continue with a question from Andreas Koski at BNP Paribas.

Just a short one on the prebuy effect in China. What was the impact? How many percentage points did it support the organic growth in this region?

Rickard, please.

Yes. As you know, we normally don't disclose that many details around these things for a number of good reasons, and I'm going to stick to that also today. So I'm not going to give you a percentage as such, but it is -- we do see that some of the organic growth that we report on the Industrial side in the China region is somewhat inflated in the quarter due to this prebuy impact that we don't expect to see in the fourth quarter.

And let's continue with a question from Rizk Maidi at Jefferies.

I just wanted -- for you, Rickard, maybe just to draw a picture on the demand. I think even if I look at China, it does seem that industrial distribution has had maybe perhaps a little bit better performance. And then moving on to Europe, I think earlier this year, you talked about some green shoots. Just maybe if you could just give us an update, it looks like from today's commentary that things are stabilizing, not picking up. And maybe if you could have a comment as well on Americas, just to draw sort of an overall picture.

All right. I will try to do that then. Starting with EMEA then, if we go down that path. As I mentioned, we do see some growth on the Industrial side, especially in a few verticals as such in aerospace and marine. While I do sense that in general terms, we haven't seen a significant uptick in demand in EMEA yet. We're still waiting for that to come. We do feel more confident though that it has truly bottomed out, but activity levels are not yet picking up from that level.

Turning to Americas. Again, as I mentioned on the previous question, the growth there is primarily tariff related, less so on volumes. Aerospace and marine are some green shoots in that particular region. And also industrial distribution is holding up okay. It's not growing, but it's holding up okay, which is also important from a profitability point of view and a mix point of view. So that's positive.

Turning to China, where we do have a mid-single-digit organic growth for the group. Where the Industrial business, as I mentioned, industrial distribution is contributing to that. But I need to remind you that it's also a reclassification that would happen. So that's why the numbers may look more stronger than they actually are. But even if I compare like-for-like, it's a solid and somewhat growing performance also in distribution. So we see that in China. And I already commented on the renewable energy area. And for Automotive, if I just touch on that briefly, we are very pleased to see that we continue at a very solid growth rate when it comes to EVs in that particular region.

And India and Southeast Asia, primarily driven by very good activity levels in economies such as India itself, which is the majority and also like Vietnam, which is a smaller contributor to us where India is it's the most important market for us in that particular region. And in general, good demand levels across Industrial. And I mentioned 2 that stands out a little bit more than others, that is agriculture and materials handling.

Again, I do believe that the tariff situation, the uncertainty is having a negative impact on global demand. We do see where some signs of bottoming out, as I mentioned, but we still wait for the uptick to come back. And as you also heard Susanne, when we guided for Q4, we sense that the underlying kind of dynamics of the business in Q3 was roughly the same as in Q2. And we -- our best estimate is that, that will be also the case for Q4.

Let's continue with a question from John Kim at Deutsche Bank.

I'm wondering if you could give us a little bit more color on the planned listing of your Indian asset. Any color there would be helpful.

Rickard, do you want to bring some color on that?

I'd be happy to. It's a massive achievement in such, but it's not so much to say, it's a kind of odd comment. I hear that myself. But it is a complicated effort to split that business in India, both from a legal point of view and also to get all the authority permits and tax permits. So that has been a rather sizable effort.

And now we have concluded that. Everything is set and done. So now we have a new entity that we are ready then to also put forward to the Indian Stock Exchange, and that's going to happen sometime between now and year-end. So I think that as much as I can say.

We will continue with a question from Tim Lee at Barclays.

So maybe a bit follow-up on the Section 232. Do you have any estimate on the cost impact from Section 232 alone, both directly and indirectly? And have you already made any price hike because of Section 232? And is there any pushback from customers in terms of further price increase? I just want to see whether there will be any comments on the further effectiveness on pricing activities going forward?

Let's have Susanne answering this question.

Talking about the tariff environment, I think that is really one of the uncertainties that makes the demand still not really picking up. So I think the biggest impact of the tariff is the lack of recovery that we see. But generally speaking then, we have been successful in managing the tariff cost. We have worked through the 232 implications for SKF, and we anticipate to be able to take that through with the majority also to our customers. We, of course, have a close relationship with our customers in this, and we are normally applying surcharges while this situation remains.

And if I may add a few more comments. Of course, we are having intense discussions with our customers on these items. And we're not just using price as the only mechanism to compensate for this. We're also pushing forward activities to drive more of our assortment to become USMCA compliance as an example, that's another key component in this.

And when it comes to general price increases, the market is not -- cannot absorb more general price increases, but we will continue to do selective price increases. That has nothing to do with tariffs, but more where we see that we can drive price and especially when we come with new innovation and then we work together and co-create with our customers, we make sure that we also take our fair share of the value that's being created, and that will continue.

We will continue with a question from James Moore at Rothschild & Redburn.

Could I ask a question on the new Specialized Industrial Solutions business, which you basically renamed Independent and Emerging and brought in Hans Landin. Just -- it's going to be like not a third, but coming towards that the future industrial company. And I wondered if you could say 2 things, really, what are you changing to improve the profitability of Specialized? And as Specialized is mostly field lubrication and aerospace, could you say where your confidence is the greatest amongst those 3 for profitability uplift and potentially what you're doing to drive that?

I will ask Rickard to address this one.

And I will give you a cliffhanger. You're right. We are excited about the -- what we then call the new name of this entity. And there are very important and exciting business units that makes up -- makes this up and with very solid growth. And some of them are further down the road and have already done some to reestablish the profitability levels are now in full gear growth and others are still doing some kind of work to further enhance profitability before ramping up their growth.

This is a key component in our future industrial story and growth journey that we foresee. And it's going to be a part and something that we will share in more detail when we're going to put more color to our future Industrial business in November 11. So that's the cliffhanger. So you will see more there. But clearly, we drive them now much more as fully owned subsidiaries of this company than what they were before and without no overhead anymore.

And we should also just clarify what is included in Specialized Industrial Solutions for those of you that have not seen the press release that we had out a few weeks ago. So it's aerospace, it's seals, lubrication and our magnetic business. But as Rickard said, we will come back more on that topic, the interesting topic of Specialized Industrial Solutions at the Capital Markets Day.

We will now continue with a question from Anders Idborg at ABG Sundal Collier.

So you're guiding CapEx to come down, but you're guiding extraordinary items or items affecting comparability to come up. So I was just wondering, could you give us an early look how we should think about those 2 items trending in 2026?

Susanne, can you please respond to this question?

I almost repeat what Rickard had said around cliffhanger. But you're right, the CapEx, we took down that outlook for the full year from SEK 4.5 billion to around SEK 4 billion. And we also say that we sequentially increased the one-off cost into quarter 4. So when we meet at the Capital Markets Day, we will provide some further clarity on how we look upon CapEx moving forward, but also how we look upon the one-off costs and the rightsizing that we are doing, including the spin of Automotive.

We are marketing our Capital Markets Day, as you can hear. So we hope that you all can be there or tune in.

We will continue with a question from Andre Kukhnin at UBS.

Can I just start with a quick clarification first on the change of accounting for consignment stock, could you just explain to us what that is and whether that took place in this quarter? Or is that the quarter a year ago and the impact of it?

Susanne, can you add some light here?

Sorry, I was obviously not clear previously. When you compare the cash flow this quarter 3 compared to last quarter 3 line by line, I just wanted to remind everyone that last year, we did a classification, which is not impacting the change of net working capital as such, but line by line. So we changed the reporting of consignment stock last year and by that, increased our inventories with SEK 1.5 billion, and we also increased our accounts payable with SEK 1.5 billion. So the net-net was 0, but line by line makes it more difficult to compare this year's line by line in the net working capital. Thank you for the question.

And Andre, you have another question as well?

Yes. Sorry to try to squeeze in. But really, I wanted to actually understand the cadence of profitability into Q4 versus Q3 a bit better. Just thinking about obviously normal seasonality, I think you see sort of 70, 80 bps decline normally in Q4 versus Q3. But then we've got, I guess, savings stepping up from the program that you launched last quarter. But then I also note FX of SEK 650 million, I think, guidance versus less than SEK 500 million in Q3.

And then the tariff pass-through, is that margin neutral? Or are you passing through the actual cost increase and hence, there is a bit of a margin headwind. I just wanted to understand whether Q4 will be a normal seasonality or whether the combination of these factors will be it one way or the other.

Rickard, do you want to address this one?

I will try to. I think the answer is yes. We do foresee that it's going to be normal seasonality in Q4. So you should bear that into your estimates. The negatives that we foresee in the quarter -- coming quarter is clearly FX. As we mentioned, probably going to have if we remain at current levels, a negative SEK 600 million impact in Q4. Tariffs, we do say that we largely compensate. We believe that we're going to do that also in Q4, but that means largely means that there is some net negative impact in the numbers, but largely compensate.

On the positives, we do see that we will we do see that we will continue with our cost control. We will continue to drive our portfolio management and price mix activities as we have done in the past. And we do foresee that we will continue to yield benefits from rightsizing -- sorry, from rationalization and from world-class manufacturing. And probably some but not significant also contribution from the rightsizing initiative. Most of that will happen later though. So all in all, but it will be -- we do expect normal seasonality.

And let's continue with a question from Klas Bergelind at Citi.

I was late on the call, lots going on, so you might have covered some of this. But first on North America, I was expecting higher growth driven by the pricing there to compensate for the tariffs. So it seems at least versus what I thought that underlying volumes are weaker. So can you please talk through Rickard, what end markets sort of weakened quarter-on-quarter? I mean, commercial vehicles, heavy machinery. Have you seen any improvement as we went through the quarter and into October? Just curious about the underlying volume development in North America, please.

Right. And yes, Klas, we did touch on this a bit earlier, but I'll try to give you some color to this. When it comes to the numbers I report for Americas, it's both Industrial and Automotive. And we do see growth in our Industrial business, and I have answered another question today where I do acknowledge that the growth in Industrial is driven by price mix. We're still in negative volume territory also on the Industrial side in Americas.

Some areas that is growing nicely in Americas in this quarter is primarily aerospace and marine that have very strong performance. And as you mentioned, in Automotive, we have seen a weak demand when it comes to commercial vehicles in the quarter. And Automotive is also reporting negative organic growth in the region.

Okay. When it comes to -- just one follow-up, and I'm sure you talked about it, Section 232, a lot of questions on this. But have you given any sort of clarity around the share of steel and aluminum out of your COGS at the moment, please, i.e., the share that is subject to the 50% tariff, so we can do -- I mean, we're stumbling a little bit in the dark, right, where we were trying to do our own models. But if you have said anything on that, Rickard?

Susanne, can you please respond to this question?

Yes. So we are not disclosing the share as you're asking for. And at this point, we are mainly saying that we will continue to compensate the majority of this out into the market.

So when we say largely compensate also for Q4, that includes what we know right now related also 232.

In the current scope it has. Yes.

Yes.

Okay. Absolute final one, promise to be quick, is on the spin-out costs. I think when I spoke with Sophie this morning that you're guiding for higher one-offs quarter-over-quarter. I'm trying to understand the composition relative to world-class manufacturing spin-out cost. And also you had that sort of noncash write-down, I think, Susanne, in the third quarter. I'm just -- are we going to see any more? I'm just trying to understand the level of one-offs into the fourth quarter, please?

Yes. Susanne, do you want to?

Yes, I can take that. So you're right, we said that sequentially, we will increase it in quarter 4 over quarter 3. And I also want to just pay -- make you pay attention to our announcement that we are closing a factory in Argentina. So that is something that will also come into the quarter 4 as a one-off charge down. So that, together with a continued high level of effort into the Automotive separation activities are the main reasons for that.

Very good. We will continue with a question from John Kim, Deutsche Bank.

I'm wondering if you could just give a bit of color on your rightsizing, whether your headcount reduction or optimization has gone to plan versus the initial guide? Yes, I'll leave it that.

Right. I'll take this one. The answer is yes. We are progressing well in line with our internal plan and a lot of the necessary negotiations in the different jurisdictions or countries have been completed and the vast majority of people impacted have been informed. And we're now going to start to see that the staff reduction to happen. As I said a couple of times, we do not anticipate a significant impact on our cost base or positive contribution to the cost in the fourth quarter. There will be some, but it will be not be significant. But the vast majority will come as we enter into 2026.

And then we have the final question from the line of Seb Kuenne at RBC.

You raised the tax guidance to 28% from 26% and this is not because of any impairments, not being tax deductible, but more because of your regional profitability structure. Do we now have to assume that the tax rate will also be higher in the coming seasons or coming years? And could you split that between Industrial and Automotive? Is it more Industrial profits being in high tax countries or more the Automotive side?

Susanne, that's a CFO type of question.

It is indeed. So thank you for the question. Yes, we raised the outlook for the full year tax rate from 26% to 28%. And I say that all of that is actually explained by FX. And we have some of our entities with the functional reporting in another currency than they're local, and this is something that is then impacting the tax as well then. So that is the reason fully for us then having that.

And that also means that this is not necessarily something that you can assume is a going concern as we move along, but then having this impact where we have big FX implications as such then. Talking about the 2 stand-alone companies and their relative tax rates, we have not disclosed that yet. So I'll leave that for now.

Sorry, the acoustics was a bit bad. So it's more of a one-off FX issue rather than underlying structural regional split of profits?

Correct.

Very good. That was the final question. So Rickard, please go ahead with your concluding remarks.

Yes. Thank you very much, and thank you all for joining us for this call and for your energizing and engaging questions. As you heard us talk about, we are continuing to maneuver in a rather challenging and volatile environment. With that said, though, we are sticking to our strategy and we're trying to deliver on what we said that we're going to do. And that recipe is working. We continue to report a resilient and somewhat improved earnings that we are pleased about. We are also happy that we now, after 8 consecutive quarters of negative organic growth, entering into a more growth territory and especially that is driven at this time by our Industrial business.

Again, we don't yet say that we've seen the shift and the uptick in the market and the activity levels are rather unchanged, but we are happy also with the progress that we'll make in the strategic transformation of the company.

So with this, I thank you for your attention, and I hope to see you -- many of you either in person or if you join through digital means in a few weeks' time in Stockholm. I wish you a good day, and thank you so much.

Welcome to our Q2 2025 earnings call. We achieved strong underlying margins through effective commercial execution and cost control, navigating well in markets with mixed demand.

In the quarter, we continued to lay a strong foundation for the future. And we will, in this call, update you on the ongoing rightsizing activities.

I'm Sophie Arnius, heading up Investor Relations. With me, I have our CEO, Rickard Gustafson; and our CFO, Susanne Larsson. After their presentations, we will open up for questions. [Operator Instructions]

So with that, happy to hand over to you, Rickard.

Thank you very much, Sophie, and good morning, everyone, and warm welcome to this earnings call.

I am pleased to report another quarter of modern resilience given the market circumstances. As you can see on the right-hand side of this chart, our organic sales was actually rather flattish versus the same quarter last year. And this time, the growth in our industrial business almost offset the decline in automotive.

We have a strong operating margin, adjusted operating margin, despite rather tough market conditions and a significant FX headwind in the quarter.

Our automotive separation is continuing and building momentum. And at the same time, we are creating a more competitive industrial business. And in this earnings call, I like to give some flavor on what we do when it comes to building this competitiveness in our industrial business. I will touch on how we drive operational efficiency through the rightsizing program that we announced in Q1 this year. And I will also touch on how we work with commercial excellence, and here I'm going to use our aerospace business as an example on how we drive progress in that particular field as well.

But let's look into our overall numbers for the quarter. Net sales ended at just north of SEK 23 billion, representing an organic decline of 0.2%. In absolute terms, the decline is significantly worse, almost 10%, but clearly driven by FX.

But turning to the operating margin, there's actually a slight improvement here versus the same quarter last year to 13.3% despite rather tough market conditions, as I said, and FX headwinds.

When it comes to tariffs, we have largely been able to compensate for tariffs in the quarter, so they don't have a significant impact on the margin in this quarter. And as we look into the future and given what we know right now, we anticipate that, that will be the case also in the third quarter that we largely will be able to offset the tariffs and cost increase, where the net impact will be visible in our automotive business.

And the main driver for this strong and resilient margin performance is actually reflected by the diligent work that we continue to drive in the areas that we talked about in the last few quarters. I'm talking about pricing, portfolio management, cost efficiency and good cost control. And on top of that, we also benefit from the automation -- investment in automation and manufacturing footprint that we've done in the last few years that is also helping to upheld the operating margin in the quarter.

Net cash flow is strong, SEK 2.8 billion, up from SEK 2.2 billion in the same quarter last year, and you will get more color on this when you hear Susanne shortly.

Turning to our regions. I'm pleased to say that in this quarter, our industrial business reports organic growth across all our regions, while our automotive business is still facing more difficult market situation with low demand in significant parts of our geographical coverage. Some green shoots there as well, but in general, a rather tough market condition for automotive in general.

But if we take the regions and starting with EMEA, you see an organic decline of just shy of 3%. We have growth in our industrial business, as I mentioned also here, but primarily driven by lubrication, aerospace and magnetics.

There is a continued weak demand in automotive and rather tough market conditions in European automotive market and not at least within light vehicles.

Turning to Americas, also an organic sales decline of just roughly 1%. Here we see good growth in our industrial business, partly driven by price/mix as a consequence of our tariff compensation activities, but we also see strong growth in some industrial verticals, such as aerospace and also off-highway.

Automotive in general is rather weak in Americas in the quarter as a market and also in terms of demand, and both light vehicles and commercial vehicles report rather weak numbers in the quarter.

Turning to China and Northeast Asia. Positive there, an organic growth of 4.3%. We do see an improved industrial demand in the region. However, though, some of it is also timing related due to some policy-driven prebuying effects within our wind business in China. But in general, distribution is holding up well and also generally energy is growing nicely in the region.

In terms of automotive, it's a rather solid development in automotive with a clearly strong growth in EVs, electrical vehicles, in that particular region.

And finally, India and Southeast Asia, good growth, 5% organic growth in the quarter driven by countries or markets such as India, Australia and Indonesia. Turning to some of the industrial verticals that are really growing in the region, it's distribution, rail and agriculture would be examples of that. And it's a rather solid automotive performance also in that particular region.

So if we then turn and look into our segments and starting with our industrial business. This quarter representing 72% of sales and 89% of the adjusted operating profit. After a quite a number of quarters with negative organic growth, I'm really pleased to report a positive organic growth of 2.4% in the quarter, as I mentioned, driven by Asia, but partly timing driven, I mentioned Europe and the industries and businesses there that are growing, aerospace, lubrication and magnetics. While general bearings in Europe is more kind of wait and see, not really taking off. The uncertainties related to tariffs is still putting this wet blanket over the market in Europe. And both on the OEM side, but also in the aftermarket, the distribution market end users are a bit hesitant to play offense and we don't see a lot of stock orders coming through yet.

But in terms of the adjusted operating margin, very strong development, 16.6%, upwards is 16.3%. Again, we have been able to manage tariffs pretty well. We have been good at driving solid price/mix and a good cost efficiency is enabling us to maintain and actually further improve our operating margin in the industrial business.

Turning to automotive, 28% of our sales and 11% of the adjusted operating profit. As I mentioned, a rather tough market conditions with a lot of volatility and low demand. And here, we have an organic decline of 6.2%. As I mentioned, it's primarily driven by Europe and Americas where we see that light vehicles and also commercial vehicles are the main drivers behind the decline, while we see more stable development in China, Northeast Asia and India and Southeast Asia.

But I must say that I do think that the margin performance is actually pretty decent given the circumstances. In an environment of very low volumes and a significant FX headwind, to basically kind of maintain and uphold the adjusted operating margin just north of 5% is pretty good given those circumstances. And again, it comes from the same activities, as I talked about, within industrial, focus on price, portfolio management, cost effectiveness and good cost control or efficiencies and cost control.

And there's not just one thing that contributes. There are many, many things that we work on. But I'd like to draw some color to one item in this quarter, and that's related to cost for material where we do see a positive deviation in the quarter, and that is not due to the pricing of material has gone down, but rather a continuous work from the team to manage our work with our suppliers but also to intelligently find new ways to find a more cost-effective material mix in our end products that is also helping to upheld the margin. So all in all, I think it's a decent performance given the circumstances.

We continue to work with our automotive separation, as I mentioned in my earlier remarks. It continues to gain momentum. But at the same time, we are also working hard to create an even more competitive industrial business. And as I mentioned, I'd like to share some color on this, both when it comes to commercial efficiencies and rightsizing and commercial excellence, and there I'm going to talk about aerospace.

But let's start with the efficiencies. And to just give you some color and background to this, of course, and you know this, this is not something that we have started this quarter. We have been working on this for quite a couple of years to make sure that we adopt and adjust to market conditions and drive productivity within our business.

A couple of things that we've done in the last few years that I think has made a significant impact is the simplified operations and sales organizations. I refer to the decentralized organizational structure that I've put in place that has enabled us to have a more lean setup and drive more efficiencies in that regard. You know that we have invested heavily in regionalization and automation in our manufacturing footprint over the years, and that has helped to increase operational efficiency.

And given that we are now closer to our customers, closer to the market, we are able to have a more agile response to changes in circumstances or demand in different regions. And that has paid off, and I use the illustration on the right-hand side as a proof point of that. The blue line that you see represents sales per FTE from 2020 to 2025 and it's an uptick of north of 30%, as you can see. The grayish bar is the adjusted operating profit per FTE and it also demonstrated an uplift north of 30% in the quarter -- sorry, in the period. Again, a proof point that we've actually done a couple of things to drive our internal productivity.

But we know that we need to do more. And with the automotive separation, that will enable further efficiencies and we need those to make sure that we create long-term competitiveness in our business to cater for profitable growth also in the years to come. And that's why we announced in Q1 the rightsizing program. And today, I'm able to give you some more details and color to that program.

It will imply painfully and regretfully, but necessary a rather significant gross reduction of staff positions in our business. Some 1,700 positions will actually be redundant. Given that we also continue to drive our regionalization and shift some of our business into different regions, there will be some rehire. So the net impact -- FTE impact will be 1,200 there or thereabouts.

It will generate savings of some SEK 2 billion with full run rate savings expected in 2027 and a linear profile during '26 and '27. These savings will more than offset any dis-synergies derived from our automotive separation and it will further strengthen our competitiveness and build the foundation for growth as we move forward. Those savings will come with a restructuring charge, it's around SEK 2 billion. And we take the full amount of this in items affecting comparability in this quarter. The cash impact will be primarily visible during 2026.

So it's a rather sizable program, as we announced in Q1, and now we have been able to provide some more color to this, and it's going to be an item that we will work on as of from now and throughout 2025 and into '26 with full run rate effect in '27, as I mentioned.

Turning to our commercial excellence capabilities. And as I mentioned, I'd like to use the aerospace as an example of this. Aerospace is a significant industrial vertical in our industrial business, as you can see here, representing some 9% of our industrial sales. We have announced a few years ago the strategic review of this industry -- or this aerospace industry, and it has really made some significant inroads and helped us to improve our performance in it.

We have taken some structural actions where we concluded through the strategic review that we want to focus on some core segments, i.e., aeroengine and aerostructure bearings, which would imply that we needed to divest some nonstrategic assets like the Hanover business that we have in the U.S. that's already been divested and also the Elgin business that we also have in the U.S. That transaction is now well underway, but not yet completed.

We have driven our commercial capabilities and have been able to be much better in our pricing management. We have significantly increased our aftermarket presence. And we have secured customer contracts with all major customers beyond 2030. And as we've also said in our strategic review, we want to accelerate our investments to further strengthen this business, and we actually increased investment pace with 2x in this period to drive productivity, automation, but also to cater for the capacity needed to meet the very strong demand in this market.

And you see kind of the results here. From 2022 to '25, we have seen a CAGR of 12% on the net sales in this segment, and at the same time, improved the adjusted operating margin with some 8 percentage points.

And we're now well positioned for the future. We have a very focused portfolio to make sure that we really serve our customers in the aeroengine and aerostructure segment very, very effectively and that we are also a key supplier for defense applications, which in these times is a growing segment.

We have a global footprint primarily with a focus in Americas and in Europe that would also help to protect our customers from geopolitical turbulence. And we have a very modern operation to drive efficiency, to ensure high quality and on-time delivery to our customers.

So all in all, I think we're well positioned here to drive profitable growth, and we're going to use this and replicate the efforts here also in other industrial verticals and business units to further enhance our commercial capabilities.

So with this, it's now time for me to hand over to Susanne to share some more details on the numbers. Please, Susanne.

Thank you, Rickard, and good morning, everyone.

So let's dig deeper into the financials. So as a financial overview here, starting off with the net sales, we are down almost 10%, which is a lot explained by the negative FX year-over-year, where we had an organic development being flat.

Our gross margin was down 2.4% at this point, but this is fully explained by the rightsizing program. So the restructuring charges was mostly impacting COGS as staff people and their costs are related both to COGS and S&A.

The adjusted operating margin strengthened compared to last year from 13% to 13.3%. This in spite of FX headwind of minus 0.9 percentage points, and I will elaborate a little bit more on that on the following page.

As Rickard said, quarter 2 items affecting comparability was sizable and amounted to SEK 1.8 billion of which the rightsizing program that we announced last quarter was fully charged to the result and amounted to SEK 2 billion.

Additionally, automotive separation work and costs are increasing and amounted to SEK 300 million in the quarter. There was an impairment charge of SEK 200 million also to the result. So these costs were finally offset by the profit from the sale of the aerospace business in Hanover amounting to SEK 800 million. And finally, footprint regionalization costs were minor in this quarter, mainly due to timing effects.

So let's look at the bridge where we explained how we came from an operating margin last year of 13% into 13.3% this quarter 2, starting from the left to the right. So organic development, relatively flat, minus 0.2 percentage points where the negative sales volumes were more than compensated by price/mix. The key initiatives for this impacting price/mix was obviously pricing, but also portfolio management and tariff management through price adjustments. The organic impact on the adjusted operating margin was 1.1 percentage points.

Next one is cost. Cost development was well managed, as Rickard elaborated on, and impacted adjusted operating margin slightly positively with plus 0.3 percentage point. And this, in spite of lower sales and manufacturing volumes and tariffs, we had a net positive impact, much explained by material but also cost management and variability of costs.

Currency had a significant impact year-over-year, taking down sales by 9 percentage points and had an impact on adjusted operating margin of minus 0.9 percentage point. The main currencies vis-à-vis was U.S. dollar and CNY, and that caused the main effects.

Finally, we had a couple of structural areas. One was the net divestment of aero Hanover and the other the acquisition that we did last autumn of John Sample Group, and they did not have an impact on the margin.

So cash flow, going from the left to the right, starting with an operating profit that we ended at quarter 2 amounting to SEK 1.3 billion. So then, of course, we add back the depreciation, amortization and the impairment of SEK 1.2 billion. And the third bar, the noncash items, here we reversed the rightsizing charge that has not yet impacted the cash flow of SEK 2 billion, netting of the profit of SEK 800 million from the sales of the aero Hanover business. And that brings us to plus SEK 3.7 billion, where we adjust further noncash items of SEK 200 million negatively.

The paid taxes were SEK 500 million and somewhat lower than last year. And the change in net working capital improved vis-à-vis last year, and this is partly explained by accounts payable.

This brings us to cash flow from operations of SEK 2.8 billion, which is an improvement of SEK 700 million compared to last year.

Further, investing activities for the quarter ended at a net positive SEK 1.1 billion, of which the CapEx amounted to a negative SEK 900 million, but we had a net payment from the divestment of tax of SEK 2 billion. So net-net, cash flow after investments this quarter 2 ended at SEK 3.9 billion compared to SEK 0.9 billion last year.

Balance sheet and some KPIs. This quarter has a similar development as last quarter, very similar. Looking into the net debt, excluding pensions, it decreased from the year-end of SEK 8.7 billion to now almost or a little shy of SEK 8 billion. The net debt in relation to equity ended at 14.4%, and the leverage net debt divided by adjusted EBITDA, 1.0.

Finally, the adjusted return on capital employed amounted to 13.9%, where the capital employed remained on the same level as last year -- or year-end, sorry, while the result in absolute amounts came down and much of this, as we have said, explained by FX.

Now to my last page, and that's around the outlook. So whilst the global economic development makes the outlook uncertain, we expect the organic sales to be relatively unchanged quarter 3 year-over-year. When it comes to FX, we expect a similar effect as we had in quarter 2, so minus SEK 500 million when we apply FX as per the end of June. When it comes to tax and CapEx, the guidance remains unchanged.

So by that, Rickard, over to you.

Thank you very much, Susanne. And to wrap this formal presentation up then, I'd like to summarize by pointing to a few items here. As you heard us say, in the quarter, we have a rather mixed demand where we're back organic growth in the industrial segment, while we still have a rather weak situation in automotive.

Our margin resilience, the journey continues, and we continue to manage effectively in very tough environments and uphold our margins, and we continue to work diligently with all these activities that you heard us talk about for a number of quarters.

The automotive separation, it's an important item and we pay a lot of attention to it. There's a lot of hard work going into that across the organization, but I'm very pleased to see that we continue to build the momentum there.

And the rightsizing of industrial. Yes, it is painful to have to reduce this number of staff positions, but it is all about making sure that we build a very competitive platform for long-term profitable growth, and that's what we're after. And this is enabled by the automotive separation.

So with this, before I hand over to Sophie to help me manage the Q&A, I just wanted to make a reminder of an important date in November this year when we're going to have our Capital Markets Day. Well, we hope to see a lot of you in the sunny Stockholm, as it always is in November, and we know that you can see that the registration will open in August or early September. So keep out and mark your calendars, and I hope to see you in Stockholm.

So with this, we end the formal part of the presentation and then ask Sophie to help me navigate through the Q&As.

Thank you, Rickard. So let us open up for questions then. [Operator Instructions] Let's start with a question from the telephone line here, and it's from Rory Smith at Oxcap.

It's Rory from Oxcap. I've got 3 questions, if I can. Firstly, just on the prebuying that you've seen in China wind. If we think back to Q1, I think you didn't actually see any sort of improvement in that market versus perhaps your competitor who had seen some tick-up in Q1 in China wind, which suggested that you maybe weren't chasing some of the lower returns work there, but obviously, that's now changed and you're seeing some prebuy. So anything that you can add color to there would be greatly appreciated.

And then secondly, just whether you've seen prebuying more generally, specifically in North America?

And then finally, what you've seen in the first couple of weeks in July, whether that's a sort of continuation of Q2 trends? Any color you can give there as well is greatly appreciated.

Rickard, would you like to respond to these 3 questions?

Yes, certainly. Rory, when it comes to the wind question in China, it is policy-driven, the prebuys. And that a number of the customers there, they really try to get orders in before kind of the midyear mark.

You're right, in Q1, we did not see that much. It's more in this quarter. I can't really comment on my competitors, but I do believe that also the Chinese OEMs, they divide their share of wallet among some of the different players and also the industrial ones. And maybe they gave others a larger share of the wallet in Q1 and us a larger share this quarter of these prebuys. That could be one explanation to that particular question.

Secondly, on the general prebuys and in the U.S., I will give the same answer as I did in Q1. We actually don't really see anything. That doesn't mean that it may not actually be there, but we don't see anything that stands out, anything that is tangible. So again, it's the same answer as we did in Q1 on that one.

And then finally, your question on the trading kind of situation now in July versus June, nothing really has changed. We see basically a continuation of what we've seen so far.

Thank you. Let's continue with the next question also from the telephone line, and it comes from Klas Bergelind at Citi.

Klas at Citi. So first, on the growth in Asia, coming back here to the prebuy first, how much did China wind grow? Was it up from a very low level, up 50%? Or did it even double? Just so we understand how much the prebuy impacted growth at the group level?

And then on India and Southeast Asia, am I right that the strong growth here was supported by particularly strong deliveries in the quarter, which might not be sustained? So I'm basically trying to understand to what extent we should carry growth in Asia forward here into the third quarter. I'll start here.

So we had a little bit of trouble to hear you. I heard your question on the wind business in China. Could you repeat after that, so I really got your question correctly, please. I'm sorry for this.

Sure. Can you hear me now?

Yes. Yes.

Okay. So again, it was on the India and Southeast Asia growth where I also think that you had quite strong deliveries in the quarter, which might not be sustained. So for like both regions, I'm trying to understand to what extent we could carry forward some of this growth or how much will basically roll as we go into the third? I hope you could hear me.

Yes, loud and clear. Thank you, and thank you for your patience and for repeating your question, much appreciated.

Starting then on the wind business in China, the wind business in China is roughly 1%...

Yes, it's around 1% of group sales, I would say, just to put it into perspective.

Correct. And exactly how much it's grown in the quarter, we don't really disclose. But we have been at rather low levels for quite some time. So the comparison is pretty easy. So it will quickly ramp up to some sizable percentage. But we do see it as a prebuy. So it is a bit inflated in the quarter.

India is a little bit of a different story or Southeast Asia. There, actually, we see that some volumes that we anticipated in Q1 actually came in Q2. So that's kind of the situation there. So there, I don't think it's more of a prebuy, it's more that there was some timing of volumes that was designed or planned for Q1 that ended up in Q2, especially in Indonesia.

Very clear. My second one is on the guidance of flattish organic growth. I'm trying to understand to what extent this is somewhat boosted by further price increases linked to tariffs? Or if you think some of the improvement to volumes you see in EMEA in the quarter, in particular, could drive the growth further from a volume point of view into the third and more than offset the Hanover then from the prebuy in China? I guess I'm trying to understand the price/mix dynamics relative to the volumes into the third quarter. Also as your mix should have peaked here looking into the rest of the year.

So Rickard, do you want to continue...

Yes. We don't foresee in this guidance a significant change, an uptick EMEA. It's more kind of we are -- at best, we see it's bottoming out, but I don't dare to say that we see an improvement and that's also part of our guidance.

But you're right that we will continue and work hard to compensate for tariffs also in Q3. And our best estimate, as I mentioned, is that we will largely be able to compensate for that through prices and surcharges and that will show up, of course, as part of organic growth going forward.

On the negative side on the price/mix will be the fact that our pruning activities has now come to an end, so that will not support price/mix going forward when we compare quarter-over-quarter. And then also we have a situation where we have had a positive contribution for a couple of quarters where our OEM business have had a larger decline in sales than our distribution business, and therefore, it had the positive mix implication. Now we see that, that difference is equaling and out that the OEM business is not dropping faster than the distribution business, hence, we then have a negative mathematical impact on price/mix. So that will be on the negative side. So these are some of the components that make up our guidance for Q3.

Very clear. My final one is for you, Susanne, on the world-class manufacturing program. Your cash flow is better this quarter than in the first quarter, but you still have a long way to go on the inventory side. The world-class manufacturing program will help, but I guess you need more volumes to get the inventory turns working in your favor.

Can you please update us on where you are on the localization strategy relative to your targets, so we can get a better feeling for that when volumes are coming through to what extent your inventory turns can improve?

So your assumption is partly right then. So talking about the world-class manufacturing, that is continuing and I think we see good impact out of that, and that is also helping us to see the good cost control and cost management that we see in our existing low demand environment and our financial performance.

The regionalization is continuing. So that is something that is ongoing. And we see effects of that when we compare ourselves year-over-year with more and more of regionalization and we anticipate that, that will continue also.

When it comes to the inventory levels, you are right that we are -- we have a high focus on that internally. If we put the FX aside, we can even see that we have a positive trend in reduction of the inventory levels in our business. But certainly, with low demand, small lot series and some short cancellation, I think it's fair to say that when the demand is coming, it will help us to boost the expected effects more.

[Operator Instructions] And we will continue with Daniela Costa from Goldman Sachs.

I wanted to ask sort of regarding portfolio topics. Just you mentioned in terms of parallels on other areas of industrial and aero that you can work on, can you give us a little bit more color on likely size, areas, time line?

And related to portfolio, just a quick clarification. I didn't hear, sorry, if I missed it, you mentioning the risk of delays in the automotive separation that you had mentioned last quarter. So does it mean that we're out of the problem zone and you've gone through those tasks that maybe were more critical?

So Rickard, do you want to comment on these?

Be happy to. Related to the review -- strategic review that we did in aerospace, we did bring -- took some learnings with us and we implement those, and we're kind of being inspired by those in other parts of our business. It's more a generic comment, and there is nothing specific that I can give you and there is any particular time line on this. But clearly, we know that we can drive commercial excellence. We can be more effective in how we set up our aftermarket presence. We can be more effective in our contract management with our customers and so forth. And those type of things are activities or actions that we do in a broader scale in our portfolio.

And on the automotive question on the separation, unfortunately, I'm going to be -- have to say that we're not out of the woods yet. We still have some critical milestones this fall that we need to pass before we know exactly how things are going to play out. But as I said in Q1, that still remains. We are working very, very effectively on this at a high pace. We have a large number of activities that we need to complete, some of them outside of our own control, where we need government approvals or authority approvals and such like that.

We have a tight schedule, a number of activities on the critical path and we don't have a lot of headroom for delays in this. As of today, just as it was in Q1, I have no red flags to report. I have -- none of these risks has yet materialized. But I can't say that we are out of the woods. So it's more kind of the same situation as it was in Q1.

And let's continue with a question from Magnus Kruber at Nordea.

Magnus from Nordea. [Foreign Language]

Apologies, could you comment a little bit about -- yes, sorry. Can you comment a little bit about why the savings program came in with such a high level per FTE? And what drove that higher than previously sort of alluded to level? And also, could you help us a little bit about the dis-synergies that you anticipate to see from the separation, please?

So Susanne, do you want to comment on that one?

Yes. So as we said, we took the full charge of the restructuring program -- or the rightsizing program in this quarter and have worked it through with our different countries and consultation during the quarter. So where we see 1,700 people with a net of 1,200, and we anticipate the saving of SEK 2 billion, so how can we then anticipate that big amount. I think that's how I interpreted your question. And I believe that we will see partly, the main part will, of course, be people related, but we are also anticipating some other impacts that are not related to the individuals, taking down consultants is one of those examples.

Yes. And we have also other initiatives, operational and supply chain-wise, that is adding up to that SEK 2 billion savings number. So as Susanne said, it's not just people related.

Another question on dis-synergies?

Rickard?

Yes, I can comment on those. If your question is if you want me to quantify them, I'm sorry, I'm going to disappoint you. I will not do that at this time. But clearly, as in any separation, there will be some dis-synergies, and that's the case also for us. The exact amount of those, the size of those and so forth, all of that will be very transparently described when we see you in November in Stockholm at the Capital Markets Day.

Thank you. I hope your questions there, Magnus, was answered. So let's continue with a question from John Kim at Deutsche Bank.

Wanted to get a little bit more color on the bridge in terms of the normal components. Can you comment in terms of building blocks on raw mats, energy, logistics? Anything we should think about as we progress through the year in the comps?

That's a question -- that sounds like a CFO question here, Susanne.

Yes. John, so if we talk about the cost component of the bridge, we can see that we have been able to offset some of the volume -- the negative volume impacts from, as you said, material but we can also see that on some of the utilities and logistics. So that has a positive impact. And as Rickard explained, when it comes to material, it's not only a mix, it's also how we work in our operation to both redefine different components and [ speed ] and also how we are utilizing our production better. So I think that is something that we are working hard on. So that is part of the explanation then.

And let's continue with a question from Tore Fangmann at Bank of America.

Yes. Just one more on the outlook for Q3. I guess the stable growth outlook is positively impacted by tariffs, negatively by the prebuy effects you saw in China. Could you disentangle that a bit more and share some detail on how this would have looked without the tariffs and without the prebuy?

So Rickard, do you want to share some light on this?

Tore, I'm sorry, but we will not be able to give you some and do that. But basically, we try and when we do the outlook to give you the best view that we can provide and there are so many different kind of inputs to this guidance. So it's hard to break them apart. It'll just confuse everyone. So you have to see it as a package. And the outlook that we have with relatively unchanged versus same quarter Q3 last year is the best guidance I can give you, and we have to stay as such.

And we will continue with a question from Andreas Koski at BNP Paribas Exane.

I was actually also going to ask about the outlook, but I will skip that one as I don't think it makes any sense. So I will instead ask about the separation costs that increased in the quarter to around SEK 300 million. Would you say that is what we should expect from here until the spin has taken place? And on top of that, we should also add, I guess, more costs related to the regionalization that was low in this quarter? Or how to think about items affecting comparability from now on for the next 12 to 18 months?

Let's hear from Rickard to clarify this.

All right. The separation cost in the quarter of some SEK 340 million, we also say that, that is kind of the separation is building momentum. So you would expect that to actually further increase as we go into Q3 and Q4 as we build the momentum. So it's not a fixed number quarter-by-quarter.

And you're absolutely right, we still have regionalization that we need to complete, and that was due to timing. It was a rather low amount in this -- in quarter 2, some more will be pushed into the second half of the year. So you should expect that as well. So yes, items affecting comparability will continue to be fairly sizable also in the second half.

And just quickly, what do you estimate the cash impact to be from this larger program that you announced now in this quarter?

Susanne?

So when we talk about the rightsizing program of SEK 2 billion, we do not anticipate significant amounts to impact the cash flow for this year. We assume the majority of that, that will come through our cash flow next year.

Yes. And what will the amount be approximately?

So the amount will be similar to the charge we have taken of SEK 2 billion.

Okay. So it's -- yes, all of that will impact the cash flow, but in 2026.

Yes.

So let's continue with a question from Erik Golrang at SEB.

I hope it hasn't been asked, I've had a bad line on and off. So the same issue present today is in industrial only, if I understand correctly, and you say we'll have to wait for the CMD. But when we think about auto and what you might do on the manning side there, any reason to assume that it's going to be a materially different correction level compared to industrial on a relative basis?

So Rickard, please?

Yes. It's a different approach there since this is a business that we are building. And we are now creating the future in automotive organization. A vast majority of the people that will be part of the future automotive business will come from the current organization. But then they also need to build some capabilities that they don't have today as becoming a stand-alone company. So no, you should not anticipate that there is the same approach for automotive given that they basically start from, I wouldn't say blank sheet of paper, but at least they're building a new business.

But they have been a lean business. That's for sure. Thank you, Erik. And we will continue with questions from the telephone line here and the next comes from Tim Lee at Barclays.

I just want to understand a bit more about pricing. So I'm not sure whether you can comment how much pricing you achieved in the second quarter, especially in the U.S. market. And when it comes to the third quarter, do you think there will be more pricing needed? And in volume, how much of the negative volume impact that you see in the EBIT level in the second quarter...

Sorry, Tim, can you -- it was a bad sound here. So could you repeat the volume question there.

Sorry, I was just wondering if you can tell us about the negative impact from volume in your EBIT in the second quarter?

So Rickard...

I can try to do the pricing question. Maybe you do the volume one, Susanne.

Okay. We don't really disclose how much of our price/mix comes from price and how much is mix, so we need to stick to that. But as we said, we have been able to largely compensate the tariff costs through price mechanism. And that is both price increases but also a lot of surcharges. And as we move into Q3, we will not comment on exactly on what the price level of component needed. We will continue to say that we anticipate and we plan to largely compensate for tariffs also in Q3, using the mechanisms, pricing and surcharges also in Q3.

And then on volume, Susanne?

So I think on the volume side, I think what we say is that the organic sales, it was flat, out of which automotive declined 6% and we saw an industrial growing by 2%. And that is, of course, the combination of volume offset by price/mix then. So I think we will not comment on the volume specifically. But we -- so we had a good price/mix then more than compensated for the volume -- the sales volume drop that we saw.

Thank you, Tim. And we have our final question here from Rizk Maidi at Jefferies.

Yes. Can you hear me?

Yes.

Yes. Perfect. Cool. Just a couple of follow-ups. Number one is can you just walk us through the details of the surcharges and how they work? My understanding is that pricing is -- price increases are more sticky. Just how the surcharges would work?

And then secondly, just on the phasing of tariffs. So I think from the cost side, if you could just talk us through how much of a step-up of the tariff costs you will see from Q3 onwards? And just mechanically excluding any efficiencies you do or manufacturing changes, how much of a price plus surcharges you need to offset those?

So I will ask Rickard to address this one.

Sure. Starting with the surcharges and how they work, they are rather time consuming. So our sales organizations across our businesses, they have spent a lot of time with our customers negotiating and debating these surcharges. And then when there are changes to kind of the directions coming from the U.S. administration, we have to go out there again and renegotiate. So to your question how sticky they are, well, a price increase is pretty sticky. Surcharges, as the name indicates, actually will either increase or decrease depending on where the tariffs go. And if tariffs disappear, surcharges will disappear as well. So that's how it work. I hope that is somewhat clear.

And then for Q3, the step-up in tariffs, again, there is a lot of uncertainty. We don't really know where things will end and where the negotiations between U.S. and a number of different countries and the EU where they will end up. So it's hard to second guess. And we won't give a certain number. We do say -- again, I repeat what I said before, we do believe that we will be capable to largely offset surcharges given what we now know and what's being debated at the moment. And the net impact will be primarily visible in our automotive business. Exactly what pricing is needed, we don't really disclose. We are stable. In fact, that we believe that we will be able to compensate -- largely compensate.

Thank you. And that was our final question for this time. And before we wrap up here, Rickard, do you want to share your key highlights of the quarter?

I'd be delighted to. And thank you for your insightful questions and your engagement in our company, much appreciated.

As I said, I think we continue to demonstrate the strong resilience in our business due to all the hard work that the employees of SKF is doing every day across our entire global footprint. And I am pleased to see that we are able to navigate in rather difficult environment with a lot of headwinds from different directions, but still demonstrate a rather robust and resilient performance.

We are excited about the future. We are excited about the momentum that we're building in the auto separation and to create 2 strong and global leading businesses, one pure-play industrial and one pure-play automotive business.

And to get there, especially for industrial side, we need to drive further efficiencies and drive competitiveness. And that will imply some staff reductions. It is regretful, but necessary, and I think we're on the path to build a very strong foundation for long-term profitable growth.

So with that, I thank you so much. And I think we end this call, and I wish you a wonderful summer.