SKF Half-year report 2022: Solid growth and increasing price realization helping to mitigate high cost inflation

Rickard Gustafson, President and CEO:

“Review of the second quarter

In the second quarter we saw organic revenue growth above 5%, driven by a general strong demand in most regions, especially within targeted high-growth segments, a somewhat higher automotive sales than anticipated and continued price realization.

Growth in Industrial was 6%, with Automotive delivering growth of 3%. Sales to targeted high-growth segments including railway, automation, agriculture, food and beverage continue to develop at a fast pace, with double-digit organic growth.

Net sales were SEK 23,655 million (20,735), on relatively flat sales volumes.

Our adjusted operating profit fell to SEK 2,473 million (3,118), with an adjusted operating margin of 10.5% (15.0%). The Industrial margin was 13.8% (17.4%) and the Automotive margin was 1.7% (9.1%).

The margin development in the quarter was largely a consequence of exceptionally challenging circumstances in April and May. In these two months, the war in Ukraine and the Chinese lockdown impacted our earnings negatively. As a result of these circumstances, material, utilities and logistics costs increased by approximately SEK 600 million compared to Q1. Market conditions in June were more normalized. This, in combination with further price increase realization, resulted in more stable earnings towards the end of the quarter.

Going forward, we maintain our emphasis on controlling costs and increasing prices, delivering continued stronger price realization quarter by quarter.

Cash flow from operations improved sequentially and was SEK 1,293 million (1,372).

Delivering on our strategy

We continue to focus on creating a more customer centric, profitable, faster growing and leaner SKF. In addition to investing in our targeted growth areas and increasing the pace of automation of our factories, we are also making progress in pruning our portfolio. As an example, within Automotive, we have already decided to exit margin-dilutive business with total sales of over SEK 1,200 million, with further pruning to take place as long-term contracts come up for renewal.

The second quarter saw the launch of the RecondOil Box, making our technology available to a wider market. We have already recorded sales of 400 units, with a fast-growing orderbook, especially within heavy industries and energy.

When it comes to factory consolidation, we have announced a further two site closures during the first half of the year. We also completed our previously announced controlled exit from Russia.

To further strengthen and complement our existing industrial seals offer, we have signed an agreement to acquire Tenute, an Italian seals manufacturer.

As we move to the next phase of executing on our strategy, two changes to Group Management have been announced this morning. Patrick Tong (President, Industrial Sales China and Northeast Asia) and Kent Viitanen (President, Industrial Sales EMEA), both of whom have played significant roles in SKF’s development in recent years, will be leaving SKF during the third quarter. On behalf of everyone in SKF, I wish them well in the future.

Outlook

Looking into the third quarter of 2022, we expect a high single-digit organic sales growth, with an expected recovery in Automotive demand compared to the same quarter last year.

We expect that the high level of volatility in the markets continues with the ongoing war in Europe, high inflation, a risk for Covid-19 related restrictions across many geographies, supply chain bottlenecks and a volatile demand. For the full year 2022, we maintain our outlook of an organic sales growth of about 4-8%.”

Key figures, SEKm unless otherwise stated Q2 2022 Q2 2021 Half year 2022 Half year 2021

Net sales 23,655 20,735 46,597 40,600

Adjusted operating profit 2,473 3,118 5,531 5,907

Adjusted operating margin, % 10.5 15.0 11.9 14.5

Operating profit 1,581 2,878 4,534 5,577

Operating margin, % 6.7 13.9 9.7 13.7

Adjusted profit before taxes 1,990 3,040 4,979 5,626

Profit before taxes 1,097 2,801 3,982 5,296

Net cash flowfrom operating activities 1,293 1,372 1,022 1,503

Basic earnings per share 1.08 4.59 5.44 8.50

Adjusted earnings per share 2.90 5.11 7.49 9.23

Net sales, change y-o-y, %, Q2 Organic1) Structure Currency Total

SKF Group 5.4 -1.9 10.6 14.1

Industrial 6.4 -1.9 10.5 15.0

Automotive 2.7 -1.9 11.1 11.9

1)Price, mix and volume

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

SKF Group 6.1 -1.2 9.8 14.7

Industrial 8.7 -1.3 9.9 17.3

Automotive 0.0 -1.0 9.7 8.7

1)Price, mix and volume

Organic sales in local currencies, change y-o-y, %, Q2 Europe, Middle East & Africa The Americas China & North-East Asia India & South-East Asia

SKF Group 5.6 8.7 -8.3 34.7

Industrial +++ ++ -- +++

Automotive - ++ --- +++

Organic sales in local currencies, change y-o-y, %, Half year Europe, Middle East & Africa The Americas China & North-East Asia India & South-East Asia

SKF Group 8.9 8.1 -8.4 24.7

Industrial +++ +++ - +++

Automotive +/- ++ --- +++

Outlook and guidance

Demand for Q3 2022 compared to Q3 2021

Looking into the third quarter of 2022, we expect a high single-digit organic sales growth, with an expected recovery in Automotive demand compared to the same quarter last year.

We expect that the high level of volatility in the markets continues with the ongoing war in Europe, high inflation, a risk for Covid-19 related restrictions across many geographies, supply chain bottlenecks and a volatile demand.

Guidance for Q3 2022

Currency impact on the operating profit is expected to be around SEK 350 million positive compared with the third quarter 2021, based on exchange rates per 30 June 2022.

Guidance 2022

For the full year 2022, we expect an organic sales growth of about 4-8%.

Tax level excluding effects related to divested businesses: around 28%.

Additions to property, plant and equipment: around SEK 5 billion.

SKF is built on the development, design and manufacture of bearings, seals and lubrication systems.