SKF First-quarter report 2022: Strong growth with improved industrial margin

Gothenburg, 26 April 2022

Rickard Gustafson, President and CEO:

"In the first quarter, we managed to deliver strong results and growth in an external environment characterized by supply constraints and big uncertainties following the war in Ukraine and the Covid-situation in China.

Organic growth in the quarter was 6.5%, driven by strong sales in most regions. The growth in Industrial was very strong with 11%, while Automotive was down by -3%. Net sales were SEK 22,942 million (19,865). It is encouraging to see that several of the segments that we identified as high-growth areas in our strategic framework had a strong first quarter with double-digit growth. Key examples being high-speed machinery, industrial distribution, agriculture, food & beverage and automation.

The adjusted operating profit improved to SEK 3,058 million (2,789). During the first quarter we were able to successfully compensate for cost increases on raw material and components. I'm pleased with the accelerated price realization we've secured so far, but we will continue to drive price relentlessly to mitigate cost inflation.

Our Industrial business delivered a very strong result, with an improved adjusted operating margin of 16.5% (16.3%). Clearly, our competitive offerings are contributing to strong profitable growth in combination with effective measures to mitigate the cost inflation.

Also, our Automotive business performed relatively well during the quarter given the circumstances. Supply chain volatility and continued OEM production delays resulted in lower sales, reduced productivity, and a build-up of inventories. On the positive side, demand for electrical vehicles and the vehicle aftermarket remained strong. All in all, the adjusted operating margin came in at 5.2% (8.9%), which I consider to be acceptable in a volatile automotive market.

Cash flow from operations in the quarter was SEK -271 million (131), which is not satisfactory and something that we're acting on. The negative development was driven by increased inventories, supply and logistics constraints. In China, for example, we were not able to fully deliver our products to customers due to Covid lockdowns.

We see good progress when it comes to implementing our new strategic framework. During the quarter, there has been an increased demand for magnetic technology and hydrogen solutions. Within our service offering, we've announced a partnership with Amazon Web Services, aiming to take scalability of condition monitoring and data analysis to a new level.

The Russian invasion of Ukraine has a severe effect on our operations in both Ukraine and Russia. As a direct consequence, we've concluded that it's impossible for us to continue our operations in Russia, as the basis and stability for our business does not exist. Therefore, and as previously communicated, we're planning for a rapid and controlled exit from the Russian market. As a direct consequence, a write down of SKF's financial assets totaling SEK 500 million will be made during the second quarter. In Ukraine we continue to be operational whenever possible given the prevailing circumstances, however at a lower level than normal.

Looking into the second quarter of 2022, there are continued uncertainties with supply constraints, implications from the war in Ukraine and the Covid-situation in China, which will continue to affect our operations. We anticipate organic sales to grow in Industrial, while organic sales in Automotive most likely will decline. We expect organic sales for the second quarter to be relatively unchanged compared to previous year. For the full year 2022, we expect an organic sales growth of about 4-8%, accounting for our planned exit from Russia.

In these very difficult external circumstances, I'm impressed and proud of all the hard work from SKF employees in all geographies in supporting each other, our customers and safeguarding our business."

Key figures, SEKm unless otherwise stated	Q1 2022	Q1 2021
Net sales	22,942	19,865
Adjusted operating profit	3,058	2,789
Adjusted operating margin, %	13.3	14.0
Operating profit	2,953	2,699
Operating margin, %	12.9	13.6
Adjusted profit before taxes	2,990	2,586
Profit before taxes	2,885	2,495
Net cash flow from operating activities	-271	131
Basic earnings per share	4.36	3.91
Adjusted earnings per share	4.59	4.11

Net sales, change y-o-y, %, Q1	Organic*	Structure	Currency	Total
SKF Group	6.5	-	9.0	15.5
Industrial	10.6	-	9.2	19.8
Automotive	-2.7	-	8.4	5.7

*Price, mix and volume

Organic sales in local currencies, change y-o-y, %, Q1	Europe, Middle East & Africa	The Americas	China and North-East Asia	India and South-East Asia
SKF Group	11.1	8.0	-8.6	15.7
Industrial	+++	+++	-	+++
Automotive	++	+/-	---	++

Outlook and guidance

Demand for the second quarter 2022 compared to the second quarter 2021

We expect organic sales for the second quarter to be relatively unchanged compared to previous year. However, there are significant uncertainties in the market including Covid-related lock-downs in China.

Guidance for the second quarter 2022

Currency impact on the operating profit is expected to be around SEK 200 million compared with the second quarter 2021, based on exchange rates per 31 March 2022.

Guidance 2022

• For the full year 2022, we expect an organic sales growth of about 4-8%. Previous guidance was 5-10%.
• Tax level excluding effects related to divested businesses: around 26%.
• Additions to property, plant and equipment: around SEK 5 billion.

A teleconference will be held on 26 April 2022 at 09:00 (CEST):

Sweden [phone]

UK / International [phone]

Passcode: 410557

https://investors.skf.com/en

Aktiebolaget SKF
      (publ)

This is information that AB SKF is obliged to make public pursuant to the EU Market Abuse Regulation and the Securities Markets Act. The information was submitted for publication, through the agency of the contact person set out above, at 08.00 CEST on 26 April 2022.

For further information, please contact:
PRESS: Carl Bjernstam, Group Communication
tel: [phone]; mobile: [phone]; e-mail: [e-mail]

INVESTOR RELATIONS: Patrik Stenberg, Head of Investor Relations
tel: [phone]; mobile: [phone]; [e-mail]

SKF's mission is to be the undisputed leader in the bearing business. We do this by offering solutions that reduce friction and CO2 emissions, whilst at the same time increasing machine uptime and performance. Our products and services around the rotating shaft include bearings, seals, lubrication management, artificial intelligence and wireless condition monitoring. SKF is represented in more than 130 countries and has around 17,000 distributor locations worldwide. Annual sales in 2021 were SEK 81,732 million and the number of employees was 42,602. www.skf.com

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