SKF First-quarter report 2024: A more resilient and competitive SKF

Gothenburg, 26 April 2024

Rickard Gustafson, President and CEO:

“Our first quarter performance marked another step towards a more resilient and competitive SKF. In soft market conditions, we delivered a strong adjusted operating margin of 13.4%, somewhat ahead of Q1 2023. The margin improvement clearly demonstrates our improved resilience in a situation where organic growth shifted from +10% in Q1 last year to -7% this year.

The improved performance is explained by our active and ongoing focus on business cycle management, in combination with a continued execution of our ongoing strategic initiatives, such as supply chain and footprint optimization, portfolio management, and enhanced sustainability leadership. All in all, we are well-positioned to capture profitable growth opportunities once demand bounces back again.

Strong margin despite sales decline in Q1

Net sales in the first quarter were SEK 24,699 million in a more challenging economic environment. As expected, we saw a soft customer demand in the quarter with large variations across our different industries. We continued to perform well within our targeted high-growth segments. For example, aerospace, railway, and electric vehicles maintained strong growth rates, fueled by innovative solutions developed in close collaboration with our customers.

Organic growth in India and Southeast Asia (ISEA) was 1% driven by a strong performance in heavy industries and light vehicles. In Europe, Middle East and Africa (EMEA) the organic sales decline was -5%, with negative growth in most industries, while aerospace and railway contributed positively.

Organic growth in China and Northeast Asia (CNEA) was -11% in the quarter, which is mainly explained by the slowdown in wind sales. We don’t expect a short-term recovery in wind and, consequently, we are increasing our focus on other industries, such as heavy industries. Excluding wind, growth in CNEA was relatively flat and we saw a positive development in railway and marine with double-digit growth rates. In the Americas, the sales decline was -10%, driven by the continued negative trend with OEM customers destocking, but also due to our efforts in phasing out lower profit businesses. We are now striving to broaden our customer base in certain industrial verticals and thereby increasing our resilience towards shifting economic cycles. This is a top priority for our new leadership in the region that was announced early in the quarter.

In total, the adjusted operating profit was SEK 3,303 million (3,478 million), corresponding to an adjusted operating margin of 13.4% (13.1%). A strong performance given the decline in net sales. A key contributor has been our ongoing strategic transformation initiatives, including investments in regionalization and in building competitive value chains to ensure that we quickly can ramp up production once demand bounces back. In parallel, we have continued to execute tactical activities to manage the business cycle, where decentralized accountability for pricing, portfolio pruning, and cost management have been vital.

Due to all these activities, our Industrial business continued to perform well in the first quarter and maintained an adjusted operating margin above 16%, while the margin for our Automotive business improved to above 6%.

Cash flow from operations was fairly normal for a first quarter and was SEK 1.8 billion. We continue our active work across all business areas to further improve the net working capital performance with a special focus on inventory reduction.

Continued execution of ongoing strategic initiatives

We continue to diligently work on implementing and executing our strategy, increasing our efficiency, and reducing fixed costs. Key focus areas in 2024 are further optimization of our supply chain and footprint, managing and restructuring our portfolio, and gearing up for intelligent and clean growth. A common theme across these priorities is innovation, where we, together with our customers, develop products and solutions that create significant value. This enables us to defend or increase our market share in many important industrial segments, and thereby re-enforce our position as a leader in the industry.

As a global leader within railway, representing 5% of our total sales and outgrowing the market in recent years, we constantly drive innovation in close cooperation and partnership with our customers, both OEMs and operators, to develop solutions for enhanced fleet efficiency and reliability. As an example, we recently developed new high speed ceramic deep groove ball bearings for railway drives.

To gear up for intelligent and clean growth, investments in decarbonization, high speed rotation and low-friction products and services are key. We have developed a bearing tailored for the robotics industry, with a reduced manufacturing CO2 footprint of 70%, enabling an additional 20% CO2 reduction in the end customer application. This is a great example of how SKF, together with our customers, are laying a foundation for a more sustainable future. I am also encouraged that we have received the Platinum Medal for the fourth year running in the sustainability rating from EcoVadis and the top Climate Change rating available from CDP.

Our strong financial performance due to our ability to mitigate the impact from the economic slowdown, and in parallel effectively execute our strategic transformation, would not have been possible without our dedicated employees. I would like to take this opportunity to express my sincere appreciation to all colleagues and partners across the SKF footprint.

Outlook

We expect to see continued market volatility and geopolitical uncertainty and the business is prepared to tackle different scenarios. Looking into the second quarter of 2024, we expect a mid single-digit organic sales decline. For the full year, we expect a low single-digit organic sales decline, compared to 2023.”

¹⁾Price, mix and volume

Outlook and Guidance

Demand for Q2 2024 compared to the Q2 2023

Looking into the second quarter of 2024, we expect a mid single-digit organic sales decline.

Guidance for Q2 2024

Currency impact on the operating profit is expected to be around SEK 200 million negative compared with the second quarter 2023, based on exchange rates per 31 March 2024.

Guidance 2024

• For the full year, we expect a low single-digit organic sales decline, compared to 2023.
• Tax level excluding effects related to divested businesses: around 26%.
• Additions to property, plant and equipment: around SEK 5.5 billion.

A webcast will be held on 26 April 2024 at 08:00 (CEST):
Sweden +46 (0)8 5051 0031
UK / International +44 (0)207 107 0613
Passcode: 43658997

https://investors.skf.com/en

Aktiebolaget SKF
      (publ)

The financial information in this press release contains inside information that AB SKF is obliged to make public pursuant to the EU Market Abuse Regulation. The information was submitted for publication through the agency of the contact person set out below on 26 April 2024 at 07.00 CEST.

For further information, please contact:
PRESS: Carl Bjernstam, Head of Media Relations
tel: 46 31-337 2517; mobile: 46 722-201 893; e-mail: carl.bjernstam@skf.com

INVESTOR RELATIONS: Sophie Arnius, Head of Investor Relations
tel: 46 31-337 8072; mobile: 46 705-908 072; sophie.arnius@skf.com

SKF is a world-leading provider of innovative solutions that help industries become more competitive and sustainable. By making products lighter, more efficient, longer lasting, and repairable, we help our customers improve their rotating equipment performance and reduce their environmental impact. Our offering around the rotating shaft includes bearings, seals, lubrication management, condition monitoring, and services. Founded in 1907, SKF is represented in approximately 130 countries and has around 17,000 distributor locations worldwide. Annual sales in 2023 were SEK 103,881 million and the number of employees was 40,396. www.skf.com

® SKF is a registered trademark of the SKF Group.

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