AB SKF : Fourth quarter 2021

Year-end report 2021

Press release 3 February

Continued strong demand; results impacted by supply chain bottlenecks and cost inflation

Q4 2021

Net sales: SEK 20,986 million (19,572) Organic growth: 4% (0%) Adjusted operating profit/margin: SEK 2,260 million, 10.8% (2,582, 13.2%)

Full year 2021

Net sales: SEK 81,732 million (74,852) Adjusted operating profit/margin: SEK 10,839 million, 13.3% (9,194, 12.3%)

Looking at the full year, 2021 was very strong for SKF, with solid growth and improved margins. The performance in the first half of the year was especially strong, while the second half of the year saw increasing challenges in the form of supply chain constraints and cost inflation.

During the fourth quarter, we've worked hard to mitigate the evolving cost inflation, which has continued to accelerate. In total, we were able to compensate for about SEK 700 million of the SEK 1,660 million cost increase, which is not a satisfactory level.

Given the continued and exceptionally high levels of cost inflation, we are implementing further broad-based price increases and continuing our focus on cost efficiency, in anticipation of continued supply chain challenges and cost inflation during the new year. This is a necessary step to protect our business and allow for continued investment in innovation and product development, so that we can better support our customers.

The Industrial business delivered organic growth of 9% in the quarter. The strong sales development was driven by significantly higher demand in EMEA and Latin America, while demand in North America and Asia grew at a somewhat lower pace. Demand was generally strong across most industries, especially within industrial drives, industrial distribution, off-highway and heavy industries. The Industrial adjusted operating margin was 13.5% (14.6%).

The Automotive business continued to experience volatile demand, with organic growth at -8%. Despite this, it delivered an adjusted operating margin of 3.7% (10.2%) in part due to the mitigating actions that we announced in the previous quarter.

Our order book is strong and it's great to see a continued sharp increase in demand for electric vehicles, where we have a leading position, as well as in the high-margin aftermarket.

Cash flow in the quarter was SEK 823 million (1,901) and included approximately SEK 700 million from real estate sales. The lower cash flow is mainly attributable to higher inventory levels, which increased by SEK 1,279 million in the quarter,

compared to an inventory reduction of SEK 862 million last year. Supply chain constraints continue to result in higher levels of goods in transit than what we would normally see.

Taking a long-term view, we continue to invest in strengthening our competitiveness and getting closer to our customers.

A good example of the investments we are making is the expansion of our factory in

Xinchang, China. By strengthening our engineering and manufac­ - turing capability, we are improving our competitiveness towards local and global customers. The factory has the capability to produce a wide range of bearings, including for electric vehicles, agriculture and industrial applications, where we see strong growth on a global scale.

This morning we announced the details of our new strategic framework, which will guide our work as we look to grow our

business­ faster and more profitably than before. SKF has a fantastic position from which to build upon, not least given our wide exposure to so many growing segments and the role our offerings play in enabling the shift towards cleaner industrial solutions.

Looking into the first quarter of 2022, we estimate a low single-digit organic sales growth. Industrial is expected to grow while Automotive is expected to decline. For the full year 2022, we expect an organic sales growth of about 5-10%.

In recognition of our strong performance during the year, the Board has proposed a dividend of SEK 7.00.

Rickard Gustafson

President and CEO

Operating margin1)

TARGET 14%

%	13.2	14.0	15.0	13.3	10.8
15
10
5
0	Q4 20	Q1 21	Q2 21	Q3 21	Q4 21

Adjusted operating margin

Revenue growth2)

TARGET 5%

%			33.2
40
20		8.6		7.7	3.8
0	-0.1
-20	Q4 20	Q1 21	Q2 21	Q3 21	Q4 21

Net debt/Equity3)

TARGET <40%

%

40

30
20	9	10	17	13	12
10
0	Q4 20	Q1 21	Q2 21	Q3 21	Q4 21

ROCE1)

TARGET 16%

%
20				15.6
15	12.7	13.1	15.4	14.9
10
5	Q4 20	Q1 21	Q2 21	Q3 21	Q4 21

Carbon Neutral by 20304)

TARGET 0 BY 2030

Thousand ton C02e
800	603
600	492	420
	381	385
400
200
0	2017	2018	2019	2020	2021

SKF's long-term targets shall be achieved over a business cycle

1. Adjusted for items affecting comparability.
2. Including acquisitions, adjusted for divestments.
3. Excluding pension liabilities.
4. Scope 1 & 2 C02e from all SKF manufacturing and logistics units.

2 SKF Year-end report 2021

Key figures

MSEK unless otherwise stated	Q4 2021	Q4 2020	2021	2020
Net sales	20,986	19,572	81,732	74,852
Adjusted operating profit	2,260	2,582	10,839	9,194
Adjusted operating margin, %	10.8	13.2	13.3	12.3
Operating profit	2,594	2,210	10,758	7,069
Operating margin, %	12.4	11.3	13.2	9.4
Adjusted profit before taxes	1,994	2,515	10,143	8,424
Profit before taxes	2,328	2,144	10,063	6,300
Net cash flow after investments before financing	823	1,901	2,100	5,259
Basic earnings per share	3.74	3.36	16.10	9.44
Adjusted earnings per share	3.01	4.17	16.28	14.11

Financial performance

Fourth quarter 2021

Operating profit for the fourth quarter was SEK 2,594 million (2,210). Operating profit included items affecting comparability of SEK +334 million (-371) whereof SEK -51 million (-472) related to ongoing restructuring and cost reduction activities mainly in Europe and SEK +385 million (+100) related to gains on sales of assets and impairments in 2021 and in 2020 customer settlements offset by a VAT credit.

• The adjusted operating profit for the fourth quarter was SEK 2,260 million (2,582). The adjusted operating profit was positively impacted by sales volumes, price and customer mix. Operating profit was negatively impacted by currency effects and cost increases, mainly related to material, logistics and energy costs.

Adjusted operating profit bridge, MSEK	Q4
2020	2,582
Currency impact	-26
Organic sales & Manufacturing volumes	1,017
Cost development	-1,313
2021	2,260

Full year 2021

Operating profit for the year was SEK 10,758 million (7,069). Operating profit included items affecting comparability of SEK -81 million (-2,124) whereof SEK -466 million (-1,683) related to the restructuring and cost reduction program and SEK +385 million net (-442) related to gain on sales of assets and impairments in 2021 and settlements and impairments offset by a VAT credit in 2020.

• The adjusted operating profit for the year was SEK 10,839 million (9,194). The adjusted operating profit was positively impacted by sales volumes, price and customer mix. Operating profit was nega- tively impacted by currency effects and cost increases related to material, logistics and energy.

Adjusted operating profit bridge, MSEK	2021
2020	9,194
Currency impact	-1,465
Organic sales & Manufacturing volumes	5,981
Cost development	-2,871
2021	10,839

• Financial income and expense, net was SEK -266 million (-66). Exchange rate fluctuations had a negative effect in the fourth quarter 2021, while it was positive in 2020.
• Taxes in the quarter was SEK -560 million (-540) resulting in an effective tax rate of 24% (25%).
• Net cash flow after investment before financing in the fourth quarter was SEK 823 million (1,901). Excluding cash flow related to divestments and acquisitions during the quarter it was SEK 90 million (1,901). The difference against last year is mainly driven by working capital development related to inventory levels increasing with higher volumes, supply chain and logistic challenges.
• Net working capital in percent of annual sales was 30.7% in the fourth quarter compared to 26.1% in the fourth quarter 2020. The ratio was negatively affected by higher inventory levels and exchange rate fluctuations.
• Provisions for post-employment benefits net decreased by SEK
  -1,392 million (-784) driven by contributions to funds and changes in discount rates.

• The financial net amounted to SEK -695 million (-770).
• Taxes in 2021 was SEK -2,484 million (-1,826) giving an effective tax rate of 25% (29%). The tax rate in 2020 was negatively impacted by withholding tax on intra-group dividends of SEK -128 million, adjusted for this the tax rate would have been 27%.
• Cash flow after investments before financing was SEK 2,100 million (5,259) and excluding acquisitions and divestments it was SEK 1,407 million (5,243). The higher operating profit was offset by working capital development related to inventory levels increasing with higher volumes, supply chain and logistic challenges.
• Provisions for post-employment benefits net decreased by SEK -3,425 million (-177) mainly as a result of contributions to funds and changes in discount rates.

Key figures	31 Dec 2021	30 Sep 2021	31 Dec 2020
Net working capital, % of 12 months rolling sales	30.7	30.5	26.1
ROCE for the 12-month period, %1)	14.9	15.6	12.7
Net debt/equity, %	38.3	44.0	51.7
Net debt/equity, excluding post-employment benefits, %	12.5	12.9	9.3
Net debt/EBITDA	1.2	1.4	1.8

1) Adjusted for items affecting comparability.

Dividend proposal The Board has decided to propose a dividend of SEK 7.00 per share to the Annual General Meeting.

3 SKF Year-end report 2021

Sales

Net sales, change y-o-y, %		Q4					Full year 2021
Organic1)	Structure	Currency	Total		Organic1)	Structure	Currency	Total

SKF Group	3.8	-	3.4	7.2		12.6	-	-3.4	9.2
Industrial	9.1	-	3.1	12.2		12.2	-	-3.6	8.6
Automotive	-7.9	-	4.1	-3.8		13.7	-	-3.0	10.7
1) Price, mix and volume
		Q4					Full year 2021
Organic sales in local currencies,	Europe,	North	Latin	Asia-	Europe,	North	Latin	Asia-
Middle East	Middle East
change y-o-y, %	and Africa	America	America	Pacific	and Africa	America	America	Pacific
SKF Group	5.6	3.3	6.4	1.2		13.4	8.6	25.9	10.9
Industrial	+++	++	+++	++	+++	+++	+++	+++
Automotive	--	--	---	--		+++	++	+++	+++
		Q4					Full year 2021
	Europe,	North	Latin	Asia-	Europe,	North	Latin	Asia-
Customer industries	Middle East	Middle East
and Africa	America	America	Pacific	and Africa	America	America	Pacific
Organic sales in local currencies, change y-o-y:
Light vehicles	---	---	---	-		+	--	+++	+++
Trucks	--	+++	-	---		+++	+++	+++	+/-
Vehicle aftermarket	+++	+++	++	+++		+++	+++	+++	+++
Aerospace	+/-	---		---		+/-	---		+++
Industrial drives	+++	+++	+++	+++		+++	+++	+++	+++
Energy	---	---	+++	---		++	---	+++	-
Heavy industries	+++	+++	+	--		+++	+++	+	--
Off-highway	+++	+++	+++	--		+++	+++	+++	+++
Railway	+	+++		+++		++	++	+++	-
Agriculture, food and beverage	+++			+		+++	+++	++	++
Marine	++	+++		+++		-	+++		+/-
Electrical	+++	---		--		+++	---	+++	+++
Other industrial	+++	+++	+++	+++		+++	+++	+++	+++
Industrial distribution	+++	+++	+++	+++		+++	+++	+++	+++

Comments on organic sales in local currencies in Q4 2021, compared to Q4 2020

Europe, Middle East and Africa

Industrial: Overall, sales were significantly higher in the quarter. By industry, sales to industrial drives, heavy industries, off- highway, agriculture, food and beverage, other industrial and industrial distribution were significantly higher. Sales to marine were higher while sales to energy industries were significantly lower compared to Q4 2020.

Automotive: Sales in the quarter were lower compared to last year with significantly lower sales to light vehicles and lower sales to trucks. To the vehicle aftermarket it was significantly higher compared to Q4 2020.

North America

Industrial: Sales were higher in the quarter compared to Q4 2020. By industry, sales to industrial drives, heavy industries, off-highway, railway, marine, other industrial and industrial distribution were significantly higher. To aerospace and energy industries it was significantly lower compared to Q4 last year.

Automotive: Sales in the quarter were lower compared to last year, with significantly lower sales to light vehicles and significantly higher sales to trucks and to the vehicle aftermarket.

Asia-Pacific

Industrial: Overall, Sales were higher in the quarter. It was

significantly­higher to industrial drives, railway, marine,

industrial­ distribution and other industrial. To agriculture, food and beverage it was slightly higher, to off-highway and heavy industries it was lower while it was significantly lower to aerospace and energy compared to Q4 last year.

Automotive: Sales were lower in the quarter with significantly higher sales to the vehicle aftermarket, slightly lower sales to light vehicles and significantly lower sales to trucks compared to Q4 2020.

Latin America

Industrial: Overall, sales were significantly higher in the quarter. Sales to industrial drives, energy, off-highway, other industrial and industrial distribution were significantly higher. Sales to heavy industries were slightly higher compared to Q4 last year.

Automotive: Sales in the quarter were significantly lower compared to last year with significantly lower sales to light vehicles, sllightly lower to trucks and higher sales to the vehicle after- market compared to Q4 2020.

4 SKF Year-end report 2021

Segment information1)

MSEK unless otherwise stated

Industrial	Q4 2021	Q4 2020	2021	2020
Net sales	15,135	13,489	58,559	53,912
Adjusted operating profit	2,042	1,963	9,424	8,070
Adjusted operating margin, %	13.5	14.6	16.1	15.0
Operating profit	2,311	1,663	9,309	6,691
Operating margin, %	15.3	12.3	15.9	12.4
Automotive	Q4 2021	Q4 2020	2021	2020
Net sales	5,851	6,083	23,173	20,940
Adjusted operating profit	218	619	1,414	1,124
Adjusted operating margin, %	3.7	10.2	6.1	5.4
Operating profit	283	547	1,450	378
Operating margin, %	4.8	9.0	6.3	1.8

1) Previously published figures for 2020 have been restated to reflect a change in classification of customers between the segments.

Net sales by customer industry	Net sales by customer industry
for Industrial Q4 2021	for Automotive Q4 2021

Agriculture, food and beverage 1% Electrical 1% Marine 3%

Other industrial 5% Aerospace 6% Railway 7% Heavy industries 8%

Off-Highway 9%

Energy 10%

Trucks 18%

Industrial distribution 36%

Light vehicles 47%

Vehicle aftermarket 35%

Industrial drives 14%

Net sales by region	Net sales by region
for Industrial Q4 2021	for Automotive Q4 2021

Latin America 8%		Latin America 15%
North America 20%	EMEA 41%	North America 15%	EMEA 40%
Asia-Pacific 31%		Asia-Pacific 30%

5 SKF Year-end report 2021