AB SKF : First quarter 2021

First-quarter report 2021

Press release 22 April

Strong organic growth and operating profit, while managing cost and currency headwinds

During the first quarter we saw strong sales and demand growth. We also experienced significant headwinds in terms of cost inflation and currency impact, affecting our operating result by SEK 1.3 billion. Despite this, we delivered a very solid adjusted operating result of SEK 2,789 million (SEK 2,572 mil- lion), representing an adjusted operating margin of 14% (12.8%).

Organic sales development in the quarter was 8.6%, with net sales of SEK 19,865 million (SEK 20,085 million). Sales were significantly higher in Latin America and Asia and relatively unchanged in Europe and North America.

We are already implementing measures across both Industrial and Automotive to compensate for rising input costs.

The Industrial business delivered strong results, with an adjusted operating margin of 16.3% (15.5%). The Automotive business continues to perform well, with an adjusted operating margin of 8.9% (6.0%).

The first quarter is historically lower in terms of cash flow generation. The sharp increase in demand in the quarter also contributed to increased working capital. As a result, cash flow was SEK -702 million (SEK 1,930 million).

From this quarter, we will be reporting on our sustainability- related targets as an integrated part of our quarterly report. One of SKF's strengths is our ability to support the development of industries that enable a shift towards a low-carbon world. Our investments in industries such as renewable energy, electric vehicles and railway is paying off, with sales to these industries growing from SEK 4 billion to 7 billion in the last two years.

We are also making progress on our ambitions to reduce CO2 emissions from our own operations.

We continue to capitalize on new ways of working and digitalizing throughout the organization. The sharp increase in demand in the quarter has necessitated an increase of around 200 temporary workers, predominantly in our factories. Permanent staff numbers were unchanged.

Demand has increased gradually since the trough in the second quarter of 2020.

Net sales is expected to continue to grow, reaching pre-COVID levels in the second quarter of 2021: i.e. in line with levels reported in the second quarter of 2019.

After close to seven years as CEO, this will be my last quarterly report. To all colleagues, customers and stakeholders: thank you for your support during these years, making all we have done possible.

Alrik Danielson

President and CEO

As the Board announced in January, Rickard Gustafson will be joining as President and CEO at the latest by 1 July. Alrik Danielson's last working day with SKF will be 30 April. The Board has appointed Niclas Rosenlew as Interim CEO in addition to his current role as Chief Financial Officer.

Operating margin1)

TARGET 14%

%	12.8		13.3	13.2	14.0
15
10		9.4
5
0	Q1 20	Q2 20	Q3 20	Q4 20	Q1 21

Adjusted operating margin

Revenue growth2)

TARGET 5%

	%				8.6
10
0				-0.1
-10	-8.6		-5.1
-20
-30	Q1 20	-25.2	Q3 20	Q4 20	Q1 21
	Q2 20

Net debt/Equity3)

TARGET <40%

%
40
30		21
20	15	16
	9	10
10
0	Q1 20	Q2 20	Q3 20	Q4 20	Q1 21

ROCE1)

TARGET 16%

%
20
15	13.8	12.0	12.1	12.7	13.1
10
5	Q1 20	Q2 20	Q3 20	Q4 20	Q1 21

Carbon Neutral by 20304)

TARGET 0 BY 2030

Thousand ton C02e
800	585	603
600	492
		420	381
400
200
0	2016	2017	2018	2019	2020

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.

Cover picture:

Production of a speherical roller bearing at SKF world-class manufacturing site in Gothenburg.

2 SKF First-quarter report 2021

Key figures

MSEK unless otherwise stated	Q1 2021	Q1 2020
Net sales	19,865	20,085
Adjusted operating profit	2,789	2,572
Adjusted operating margin, %	14.0	12.8
Operating profit	2,699	2,268
Operating margin, %	13.6	11.3
Adjusted profit before taxes	2,586	1,856
Profit before taxes	2,495	2,160
Net cash flow after investments before financing	-702	1,930
Adjusted earnings per share	4.11	3.41
Basic earnings per share	3.91	2.75

Financial performance

First quarter 2021

Operating profit for the first quarter was SEK 2,699 million (2,268). Operating profit included items affecting comparability of SEK -91 million (-304) whereof SEK -91 million (-93) related to ongoing restructuring and cost reduction activities and SEK 0 million (-202) related to customer settlements. The adjusted operating profit for the first quarter was SEK 2,789 million (2,572). The adjusted operating profit was positively impacted by sales and manufacturing volumes, sales price and cost reductions. It was negatively impacted by currency effects, material cost and logistic costs.

Adjusted operating profit bridge, MSEK	Q1
2020	2,572
Currency impact	-761
Organic sales & Manufacturing volumes	780
Cost development	198
2021	2,789

• Financial income and expense, net in the first quarter was SEK -204 million (-412) where last year was negatively affected by exchange rate differences.
• Taxes in the quarter was SEK -646 million (-549) resulting in an effective tax rate of 25.9% (29.6%).
• Net cash flow after investment before financing in the first quarter was SEK -702 million (1,930). The decrease compared to last year is mainly explained by higher working capital driven by higher volumes.
• Net working capital in percent of annual sales was 30.2% in the first quarter compared to 29.5% in the first quarter 2020. The increase is mainly related to higher accounts receivable driven by increased volumes partly offset by higher accounts payable.
• Provisions for post-employment benefits net decreased by SEK
  -1,704 million (+1,521) in the first quarter mainly due to actuarial gains on the gross obligation driven by higher discount rates.

Key figures	31 March 2021	31 December 2020	31 March 2020
Net working capital, % of 12 months rolling sales	30.2	26.1	29.5
ROCE for the 12-month period, %1)	13.1	12.7	13.8
Net debt/equity, %	43.2	51.7	57.6
Net debt/equity, excluding post-employment benefits, %	10.2	9.3	15.2
Net debt/EBITDA	1.6	1.8	1.8

1) Adjusted for items affecting comparability.

SKF First-quarter report 2021 3

Sales

		Q1
Net sales, change y-o-y, %	Organic1)	Structure	Currency	Total

SKF Group	8.6	0.0	-9.7	-1.1
Industrial	5.4	0.0	-9.4	-4.0
Automotive	16.7	0.0	-10.5	6.2
1) Price, mix and volume
Organic sales in local currencies, change		Q1
Europe, Middle	North	Latin	Asia-
y-o-y, %	East and Africa	America	America	Pacific
SKF Group	1.7	-0.4	17.7	26.2
Industrial	+/-	+/-	+++	+++
Automotive	++	-	+++	+++
			Q1
Customer industries	Europe, Middle	North	Latin	Asia-
East 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 Q1 2021, compared to Q1 2020

Europe, Middle East and Africa

Industrial: Overall, sales were relatively unchanged in the quarter. By industry, sales to industrial distribution were significantly higher, sales to heavy industries and to off-highway were higher while sales to the energy, railway, industrial drives and to the agriculture, food & beverage industries were relatively unchanged. Sales to the aerospace and marine industries were significantly lower compared to Q1 2020.

Automotive: Sales in the quarter were higher compared to last year with significantly higher sales to trucks and to the vehicle aftermarket. Sales to light vehicles were slightly higher compared to Q1 2020.

North America

Industrial: Sales were relatively unchanged in the quarter compared to Q1 2020. Sales to industrial distribution, marine and off-highway were significantly higher. Sales to railway were relatively unchanged, sales to industrial drives were slightly lower while sales to all other industries were significantly lower.

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

Asia-Pacific

Industrial: Sales were significantly higher in the quarter. Sales were significantly higher to all industrial segments with the exception of heavy industries which saw relatively unchanged sales and the marine and railway industries where sales were significantly lower compared to Q1 2020.

Automotive: Sales were significantly higher in the quarter. Sales were significantly higher to trucks, light vehicles as well as to the vehicle aftermarket compared to Q1 2020.

Latin America

Industrial: Overall, sales were significantly higher in the quarter. By industry, sales to energy, off-highway, industrial drives and to industrial distribution were all significantly higher. Sales to heavy industries were relatively unchanged compared to Q1 2020.

Automotive: Sales in the quarter were significantly higher compared to last year with significantly higher sales to trucks and to the vehicle aftermarket. Sales to light vehicles were higher compared to Q1 2020.

4 SKF First-quarter report 2021

Segment information1)

MSEK unless otherwise stated

Industrial	Q1 2021	Q1 2020
Net sales	13,788	14,364
Adjusted operating profit	2,247	2,230
Adjusted operating margin, %	16.3	15.5
Operating profit	2,177	2,151
Operating margin, %	15.8	15.0
Automotive	Q1 2021	Q1 2020
Net sales	6,077	5,721
Adjusted operating profit	542	342
Adjusted operating margin, %	8.9	6.0
Operating profit	522	117
Operating margin, %	8.6	2.0

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 for Industrial Q1 2021

Net sales by customer industry for Automotive Q1 2021

Other industrial 5%
Agriculture, food
and beverage 1%	Industrial	Trucks 22%
Electrical 1%	distribution 36%
Marine 2%
Railway 6%		Light vehicles 50%
Off-highway 8%
Heavy industries 8%		Vehicle
Aerospace 8%
	aftermarket 28%
Energy 11%	Industrial drives 14%

Net sales by region for Industrial Q1 2021

Latin America 7%
North America 22%	EMEA 43%
Asia-Pacific 28%

Net sales by region for Automotive Q1 2021

Latin America 13%

North America 16%

EMEA 42%

Asia-Pacific 29%

SKF First-quarter report 2021 5