Q2 2026 SKF India (Industrial) Ltd Earnings Call

July 17, 2026

Sophie Arnius: Welcome to our Q2 2026 Earnings Call. Once again, we navigated dwelling markets with mixed demand. Our strong underlying margin was mainly driven by our Industrial Engineered Solutions segment, which grow in targeted areas, including aftermarket. I am Sophie Arnius, heading up Investor Relations, and with me here in the room, I have our CEO, Rickard Gustafson, and our CFO, Susanne Larsson. After their presentations, there will be opportunities to ask questions. Let me just remind you how you do that.

Speaker #1: So, welcome to our Q2 2026 earnings call. Once again, we navigated challenging markets with mixed demand, and our strong underlying margin was mainly driven by our Specialized Industrial Solutions segment, which grew in targeted areas including aftermarket.

Speaker #1: I'm Sophie Arnius, heading up Investor Relations. With me here in the room, I have our CEO, Rickard Gustafson, and our CFO, Suzanne Anne Larsson.

Speaker #1: After their presentations, there will be an opportunity to ask questions. And let me just remind you how you do that. There are two ways to ask questions.

Sophie Arnius: There are two ways to ask questions. If you have joined via the telephone, you can at any time press star and one to ask a question. If you are instead watching this call via the webcast, you can also, during the call here, type in your questions via the question tab, which you find above the slides. Without further ado, let's get started here. It is a great pleasure to hand over to you, Rickard.

Speaker #1: So, if you have joined via the telephone, you can at any time press star and 1 to ask a question. If you are instead watching this call via the webcast, you can also, during the call here, type in your questions via the question tab, which you will find above these slides.

Speaker #1: So, without further ado, let's get started. It is a great pleasure to hand over to you, Rika.

Speaker #2: Thank you very much, Sophie. And good morning, everyone, and thank you for joining us for this earnings call. Starting on the first page, I draw your attention to the upper right corner with the bar chart, where you see that also in this quarter, we are in positive organic growth territory.

Rickard Gustafson: Thank you very much, Sophie, and good morning, everyone, and thank you for joining us for this earnings call. Starting on the first page and draw your attention to the up right corner with the bar chart, where you see that also in this quarter, we are in the positive organic growth territory. This quarter, we report an organic growth of 1.4%. It is driven by strong growth in Asia and also across our segment, Specialized Industrial Solutions. We do see a remaining and generally soft demand in Europe, whilst the OEM market in Americas shows early signs of improvement driven by certain industrial verticals. Profitability-wise, we have a strong quarter. The adjusted operating margin improves to 13.9% in the quarter. There are some key drivers behind this. Firstly, we do see a significant uplift profitability-wise in our Specialized Industrial Solutions segment.

Speaker #2: This quarter, we report organic growth of 1.4%, driven by strong growth in Asia and also across our segment, Specialized Industrial Solutions.

Speaker #2: We do see generally a remaining and generally soft demand in Europe, while the OEM market in the Americas shows early signs of improvement, driven by certain industrial verticals.

Speaker #2: Profitability-wise, we had a strong quarter. The adjusted operating margin improved to 13.9% in the quarter, and there are some key drivers behind this. Firstly, we saw a significant uplift, profitability-wise, in our Specialized Industrial Solutions segment.

Speaker #2: Secondly, our right-sizing program continues to deliver in this quarter. We have some 350 million in realized benefits, which, as you know, exceeds negative synergies from the separation.

Rickard Gustafson: Secondly, our right sizing program continues to deliver. In this quarter, we have some SEK 350 million in realized benefits, which exceeds negative synergies from the separation. Thirdly, we have also improved our profitability in the Automotive segment, which we are come back to shortly. Furthermore, there are also some limited contribution in the quarter from some support production to Automotive as part of the separation activities, and also some IEEPA tariff refunds that they have received in the quarter. Turning to cash, we have a stable cash flow in the quarter at SEK 2.1 billion, as you can see from this chart. It is somewhat lower than the same quarter last year. In this quarter, we have had cash impact of roughly SEK 700 million from our right sizing activities, our Automotive separation activity, and also from some footprint optimization.

Speaker #2: And thirdly, we have also improved our profitability in the automotive segment, which we will come back to shortly. Furthermore, there was also some limited contribution in the quarter from some support production to automotive as part of the separation activities, and also some IEPA tariff refunds that they have received in the quarter.

Speaker #2: Turning to cash, we have a stable cash flow in the quarter at SEK 2.1 billion. As you can see from this chart, it's somewhat lower than the same quarter last year, but in this quarter we have had a cash impact of roughly SEK 700 million from our right-sizing activities.

Speaker #2: Our automotive separation activity and also some of our footprint optimization. Turning to our strategic priorities, I'm pleased to report that our automotive separation is progressing in line with plan.

Rickard Gustafson: Turning to our strategic priorities, I'm pleased to report that our automotive separation is progressing in line with plan, I will share more details on that shortly. We have also announced an exciting venture in the humanoid space, where I also will come back with more details during my presentation. As part of building a strong business-driven value chain that are fit for purpose for a pure play industrial business, we have also initiated activities to modernize and standardize our IT platform and make them AI enabled for the future. Let's move in and start to look about our organic growth by geography. When I speak here, I'm going to talk about all our three segments. Starting with EMEA, our largest region. You can see there kind of a flattish to negative organic growth.

Speaker #2: And I will share more details on that shortly. We have also announced an exciting venture in the humanoid space, where I will also come back with more details during my presentation.

Speaker #2: And as part of building strong, business-driven value chains that are fit for purpose for a pure-play industrial business, we have also initiated activities to modernize and standardize our IT platforms and make them AI-enabled for the future.

Speaker #2: But let's move in and start to look at our organic growth by geography. And when I speak here, I'm going to talk about all our three segments.

Speaker #2: So, starting with EMEA, our largest region, you can see there's kind of flattish to negative organic growth. But if you pick that apart, you will see that we have very solid growth in Specialized Industrial Solutions, especially driven by aero and magnetics.

Rickard Gustafson: If you pick that apart, you will see that we have very solid growth in Specialized Industrial Solutions, especially driven by aero and magnetics in this region. For automotive, we maintain a rather low demand environment where both light vehicles and commercial vehicles report negative organic growth in the quarter. When it comes to Bearing Solutions, we see some cautiousness in our distribution business where the uncertainty also related to the crisis in the Middle East makes a number of our customers apply kind of better be safe than sorry, and are a bit cautious in investment activities. While on the other hand, there are some on the OEM side, some positive green shoots where we see good progress in heavy industries, agriculture, defense, and also high-speed machinery in Europe. Turning to the Americas, where we have a growth of 2.3%.

Speaker #2: In this region, for automotive, we maintain a rather low demand environment, where both light vehicles and commercial vehicles report negative organic growth in the quarter.

Speaker #2: When it comes to business bearing solutions, we see some cautiousness in our distribution business, where the uncertainty, also related to the crisis in the Middle East, makes a number of our customers apply a kind of 'better be safe than sorry' approach, and are a bit, you know, cautious in investment activities.

Speaker #2: While on the other hand, there are some on the OEM side, some positive green shoots where we see good progress in heavy industries, agriculture, defense, and also high-speed machinery in Europe.

Speaker #2: Turning to the Americas, where we have a growth of 2.3%. Here, I can say that that number is somewhat reduced due to the fact that we have received some tariff refunds, as I mentioned.

Rickard Gustafson: Here I can say that that number is somewhat reduced due to that we have received some tariff refunds, as I mentioned. Underlying organic growth is somewhat bigger than what is reported here. As for Europe, we have very strong magnetics business driven by the AI build-out and the data center build-out in the region. Aerospace are growing very, very nicely in this region. We have a stable organic sales for Bearing Solutions and also for automotive. If we start with Bearing Solutions, we do see that we have defense, heavy industries, high-speed machinery are also, just like for Europe, areas that are growing very nicely at the moment. For auto, it's more flattish, where actually both light vehicles, commercial vehicles in the aftermarket comes in rather flat in the quarter.

Speaker #2: So underlying organic growth is somewhat higher than what is reported here. Also, as in Europe, we have a very strong magnetics business driven by the AI buildout and the data center buildout in the region.

Speaker #2: Also, aerospace is growing very, very nicely in this region. We have stable organic sales for Bearing Solutions and also for Automotive, but we start with Bearing Solutions.

Speaker #2: We do see that we have defense, heavy industries, and high-speed machinery, which are also, just like for Europe, areas that are growing very nicely at the moment.

Speaker #2: And for auto, it is more flattish, where actually both light vehicles, commercial vehicles, and the aftermarket come in rather flat in the quarter. Turning to China and Northeast Asia, there is solid growth north of 3%, where we see continued solid demand development.

Rickard Gustafson: Turning to China and Northeast Asia, solid growth north of 3% where we see a continued solid demand development. Here I like to single out distribution, rail, and high-speed machinery as some examples of high-growth areas for us. For automotive, we're back in growth territory here as well, to some extent driven by light vehicles and the EV export that we now see coming out of China, but also commercial vehicles have a strong quarter in the region. Finally, India and Southeast Asia. Solid growth just shy of 4%, clearly driven by India and Vietnam, growing very nicely as geographies for Bearing Solutions is distribution, wind, and also heavy industries that I would like to highlight as particular good growth areas. For automotive, it's a bit flattish. Very good growth in light vehicles, somewhat offset by commercial vehicles in that region.

Speaker #2: And here, I’d like to single out distribution, rail, and high-speed machinery as some examples of high-growth areas for us. For automotive, we’re back in growth territory here as well.

Speaker #2: And to some extent, driven by light vehicle and the EV export that we now see coming out of China, but also commercial vehicles have had a strong quarter in the region.

Speaker #2: And finally, India and Southeast Asia—solid growth just shy of 4%, clearly driven by India and Vietnam growing very nicely as geographies for bearing solutions, distribution, wind, and also heavy industries that I would like to highlight as particularly good growth areas.

Speaker #2: And for automotive, it is a bit flattish, with very good growth in light vehicles, somewhat offset by commercial vehicles in that region. So, if we then turn to our segments and start with Bearing Solutions—as you can see, representing 55% of group sales and 76% of the adjusted operating profit.

Rickard Gustafson: Turning to our segments and starting with bearing solutions, as you can see, representing 55% of group sales and 76% of the adjusted operating profit. Here we have a flattish organic growth of +0.2 driven by a price mix. We do see a solid growth across Asia offset by a declining development in the EMEA region. We do have some tariff refunds, as I mentioned, that impacts growth somewhat in Americas. Here in Americas, we do see early signs of OEM market improvement from direct and indirect growth in these areas that I mentioned, like data centers, defense, AI, and infrastructure. The adjusted operating profit is solid north of 19%.

Speaker #2: Here we have a flattish organic growth of positive 0.2, driven by price mix. We do see solid growth across Asia, offset by a declining development in the MEA region.

Speaker #2: We do have some tariff refunds, as I mentioned. That impacts growth somewhat in the Americas. But here in the Americas, we do see early signs of OEM market improvement from direct and indirect growth. This is especially evident in areas I mentioned, like data centers, defense, AI, and infrastructure.

Speaker #2: The adjusted operating profit is solidly north of 19%. And to give you some more color on this one, we do have benefits from the right-sizing separation, as I mentioned before.

Rickard Gustafson: To give you some more color on this one, we do have benefits from the right sizing separation, as I mentioned before, that offset negative synergies from the separation and also some of the inflation. We also have some negative cost items from a comparison versus same quarter last year. We have some preparation cost for the IT modernization that I mentioned, and also build up of shared services beyond what we have in finance. We also have less contribution from the world-class manufacturing program this quarter versus the same quarter last year. Moving on to specialized industrial solutions, representing 20% of sales and 22% of the adjusted operating profit. Here we do see very solid growth north of 8%, as you can see on this chart, it's actually not just price mix.

Speaker #2: That offset negative synergies from the separation and also some of the inflation. But we also have some negative cost items from a comparison versus the same quarter last year.

Speaker #2: We have some preparation costs for the IT modernization that I mentioned, and also the build-up of shared services beyond what we have in Finance.

Speaker #2: And we also have less contribution from the World Class Manufacturing program this quarter versus the same quarter last year. Moving on to Specialized Industrial Solutions, representing 20% of sales and 22% of the adjusted operating profit.

Speaker #2: Here we do see very solid growth, north of 8%, as you can see on this chart. And it's actually not just price/mix. Price/mix is part of the equation, and an important part, but also volume—underlying volume—is driving growth here.

Rickard Gustafson: Price mix is part of the equation and an important part, but also volume. Underlying volume is driving growth here. All units contributing to the growth, but with a particular emphasis on aerospace and magnetics. The adjusted operating margin increases significantly up from last year of just north of 10% to over 15% in this quarter. The main drivers behind this very positive development are threefold. Firstly, we have a strong aftermarket growth across our business segments or business units, I should say, that make up this segment. Secondly, as I mentioned, our aero and magnetic business are growing faster than our lubrication and seals business, that implies a positive mix, margin mix for us. Thirdly, we also have a very strong margin uplift in our lubrication business, both from pricing activities but also for good success in growing our automated lubrication systems.

Speaker #2: All units contributed to growth, with a particular emphasis on aerospace and magnetics. The adjusted operating margin increased significantly, up from just north of 10% last year to over 15% this quarter.

Speaker #2: And the main drivers behind this very positive development are threefold. Firstly, we do have strong aftermarket growth across our business segments—or business units, I should say—that make up this segment.

Speaker #2: Secondly, as I mentioned, our aero and magnetic business are growing faster than our lubrication and seals business, and that implies a positive mix.

Speaker #2: Margin mix for us. And thirdly, we also have a very strong margin uplift in our lubrication business, both from pricing activities but also due to good success in growing our automated lubrication systems.

Speaker #2: And for those of you who joined us for the Q1 call, we did do a deep dive on the lubrication business, and there I tried to highlight the importance of automated lubrication systems in our lubrication portfolio.

Rickard Gustafson: For those of you who joined us for the Q1 call, we did do a deep dive on the lubrication business, and there I tried to highlight the importance of automated lubrication systems in our lubrication portfolio. We're pretty pleased to see that growth. Turning to Automotive, representing 25% of sales and 11% of the adjusted operating profit. Here, we are still in a declining growth environment, -1.4% in the quarter. As I mentioned, there's generally challenging market conditions, especially in EMEA, where both light vehicles and commercial vehicles are down. Good development in China and Southeast Asia, as I mentioned, both on commercial vehicles but also light vehicles. EV export is driving growth there. In Americas, as I said, it's more flattish across light vehicles, commercial vehicles, and the aftermarket.

Speaker #2: So we're pretty pleased to see that growth. Turning to automotive, which represents 25% of sales and 11% of the adjusted operating profit, here we are still in a declining growth environment—negative 1.4% in the quarter.

Speaker #2: And as I mentioned, there are generally challenging marketing decisions, especially in the media where both light vehicles and commercial vehicles are down. Good development in China and Northeast Asia, as I mentioned, both on commercial vehicles but also light vehicles, and EV export is driving growth there.

Speaker #2: And in the Americas, as I said, it's more flattish across light vehicles, commercial vehicles, and the aftermarket. But despite that, we have a declining growth.

Rickard Gustafson: Despite that we have a declining growth, we are able to improve the adjusted operating margin up to 5.7%, also visible on this slide. We are starting to see benefits being realized from becoming a more separated business. We continue to see solid cost development, mainly driven by manufacturing efficiency and procurement management. If we then leave the quarter and the numbers, before I turn to Susanne to give you some more details, I would like to take this opportunity to do a few deep dives. I want to start with the venture around humanoids that we announced a few weeks or days ago. As we mentioned in the past, we have done a rather thorough study here to identify where we should play in this potential market.

Speaker #2: We are able to improve the adjusted operating margin up to 5.7%, also visible on this slide. And we are starting to see benefits being realized from becoming a more separated business.

Speaker #2: And we continue to see solid cost development, mainly driven by manufacturing efficiency and procurement management. If we then leave the quarter and the numbers, and before I turn back to Suzanne to give you some more details, I'd like to take this opportunity to do a few deep dives.

Speaker #2: And I want to start with the venture around humanoids that we announced a few days or weeks ago. As we mentioned in the past, we have done a rather thorough study here to identify where we should play in this potential market.

Speaker #2: And we have concluded that we should focus on humanoids for industrial applications, and that we will remain a component supplier, and that we should partner with key system manufacturers to rapidly build a proposition that covers most of the need for industrial humanoids.

Rickard Gustafson: We have concluded that we should focus on humanoids for industrial applications and that we will remain a component supplier and that we should partner with key system manufacturers to rapidly build a proposition that covers most of the need for industrial humanoids. With that said, we also remain open to explore potential expansions to this as this market matures and we learn more. On the right-hand side, I will try to give you some flavor of the bearings kind of contribution to humanoid and the number of positions where there are bearings. In a humanoid, there are more than 120 bearings. If you divide the value of those bearings broken down by bill of material, you find that roughly 45% of the bearing value is found in bearings like cross rollers and flexible bearings. They go into something that is called Harmonic Drives.

Speaker #2: But with that said, we also remain open to exploring potential expansions to this as this market matures and we learn more. On the right-hand side, I'll try to give you some flavor of the bearings' kind of contribution to humanoid and the number of positions where there are bearings.

Speaker #2: And in a humanoid, there are more than 120 bearings. And if you divide the value of those bearings, broken down by bill of material, you find that roughly 45% of the bearing value is found in bearings like cross rollers and flexible bearings.

Speaker #2: They go into something that is called harmonic drives. And I'll come back to harmonic drives shortly. In this scenario, we don't really have an offering today, but that's where the venture will lead. The drive will come into play and really, you know, bridge that gap rapidly.

Rickard Gustafson: I will come back to Harmonic Drives shortly. In this scenario, we do not really have an offering today, but that is where the venture with Leader Drive will come into play and really bridge that gap rapidly. Some 35% of the bearings, they are related to thin section and other type of bearings. Here we already have capabilities and knowledge in-house that we intend to build further and accelerate internally. From these two, we have some 80% coverage of the need for humanoids. The remaining 20%, they are related primarily to what is called miniature bearings that you find in hands and in fingers of a humanoid.

Speaker #2: Then, some 35% of the bearings are related to thin section and other types of bearings, and here we already have capabilities and knowledge in-house that we intend to build further and accelerate internally.

Speaker #2: So from these two, we have some 80% coverage of the need for humanoids. Then the remaining 20%, they are related primarily towards what are called miniature bearings that you find in the hands and in the fingers of humanoid.

Speaker #2: This is an area where we don't really have coverage, and we are still assessing if we should do a greenfield here, or if we should try to find a partner to also include this in our portfolio.

Rickard Gustafson: This is an area we do not really have a coverage and where we are still assessing if we should do a greenfield here or if we should try to find a partner to also include this in our portfolio for humanoids or not. 80% is what we now have coverage. Turning to the venture itself, a little bit on Leader Drive. It is a manufacturer of Harmonic Drives and other robotic precision components. You may wonder, what is a Harmonic Drive? Let me try to the best of my ability to explain that for you very quickly. A Harmonic Drive is the gearbox of a rotating actuator with flexible gears that can continuously deform during operations, enabling high precision and torque.

Speaker #2: For humanoids or not. But 80% is what we now have coverage. Turning to the venture itself, and a little bit on LeaderDrive, it's a manufacturer of harmonic drives and other robotic precision components.

Speaker #2: And you may wonder, what is a harmonic drive? Let me try, to the best of my ability, to explain that for you very, very quickly.

Speaker #2: An amoric drive is the gearbox of a rotating actuator, with flexible gears that can continuously deform during operation, enabling high precision and torque.

Speaker #2: And for this type of gearboxes or harmonic drives, Leader Drive is the clear number one in China and a clear number two globally, after the Japanese company HDI, which was the first to commercialize a harmonic drive.

Rickard Gustafson: For this type of gearboxes or Harmonic Drives, Leader Drive is the clear number 1 in China and clear number 2 globally after the Japanese company HGI was the first to commercialize a Harmonic Drive. Leader Drive, they supply manufacturers for both traditional robots and humanoids, and the main emphasis will be on humanoids, and they have customers both in China and outside China. Before this venture, they produced in-house the cross roller and flexure bearings that are needed for these Harmonic Drives in-house. With the venture, that will be carved out and moved into the venture. The venture, it will provide a fast track for SKF into this new exciting growth area.

Speaker #2: Leader Drive supplies manufacturers for both traditional robots and humanoids, and the main emphasis will be on humanoids. They have customers both in China and outside China.

Speaker #2: And before this venture, they produced in-house the cross roller and flexible bearings that are needed for these harmonic drives in-house. Now, with the venture, that will be carved out and moved into the venture.

Speaker #2: And the venture, it will provide a fast track for SKF into this new, potentially exciting growth area. So Leaderdrive will contribute with their cross roller and flexible bearing production, and our contribution will be large-scale manufacturing know-how—supporting in actually scaling up and industrializing this, and then coupling with our own engineering and innovation capabilities.

Rickard Gustafson: Leader Drive will contribute with their cross roller and flexible bearing production, and our contribution will be large-scale manufacturing know-how, support in actually scaling up and industrializing this, and coupled with our own engineering innovation capabilities. SKF will be the majority owner of this venture, 60% ownership, and the future IP will be retained within SKF. The venture will start with a very strong position in Chinese market, which we can scale globally. We will also have capability to support all types of robots, traditional cobots, and humanoids. Clearly, the main emphasis will be on building humanoids for industrial usage. We expect this venture to be operational by the end of this year. Turning to Automotive and the separation. I am very pleased to report that the separation is progressing with speed and fully aligned to our plan.

Speaker #2: So SKF will be the majority owner of this venture, with 60% ownership, and the future IP will be retained within SKF. The venture will start with a very strong position in the Chinese market, which can then scale globally.

Speaker #2: We will also have the capability to support all types of robots—traditional, cobots, and humanoids—but clearly, the main emphasis will be on building humanoids for industrial usage.

Speaker #2: And we expect this venture to be operational by the end of this year. Turning to automotive and the separation, I am very pleased to report that the separation is progressing with speed and is fully aligned to our plan.

Speaker #2: Automotive is now structurally separated—and also from an IT point of view. The board of Automotive, or SKF Veritevo, has appointed Carsten Enochson as the CEO, tasked to build an even stronger standalone Automotive business.

Rickard Gustafson: Automotive is now structurally separated and also from an IT point of view. The board of Automotive or SKF Vertevo, they have appointed Kerstin Enochsson as the CEO, tasked to build an even stronger standalone Automotive business. Overall, we are on track to complete the planned separation and listing by Q4 this year. This slide is also something that we used at the Capital Markets Day in November to lay out the 5 strategic levers that makes the foundation for the full potential plan of SKF Vertevo. In Q1, I gave some color to some of those levers, and this quarter, I would like to draw your attention to lever number 4, a lean company setup. As I mentioned before, we now see tangible benefits from operating as an independent company. A lean company setup drives speed, cost efficiency, and customer centricity.

Speaker #2: So overall, we are on track to complete the planned separation and listing by Q4 this year. This slide is also something that we used at the Capital Markets Day in November to lay out the five strategic levers that lay as and make the foundation for the Full Potential Plan of SKF Veritevo.

Speaker #2: And in Q1, I gave some color to some of those levers, and this quarter I'd like to draw your attention to lever number four: the lean company setup.

Speaker #2: As I mentioned before, we now see tangible benefits from operating as an independent company. A lean company setup drives speed, cost efficiency, and customer centricity.

Speaker #2: And let me provide you with a concrete example of how we actually accomplish this. In the past, preparing complete design packages for truck matched units was a very manual and time-consuming process.

Rickard Gustafson: Let me provide you with a concrete example on how we actually accomplished this. In the past, preparing complete design packages for Truck Matched Unit was a very manual and time-consuming process, taking more than 4 hours to complete. Now, using AI-based automation, customer, factory, and supplier drawings are created in less than 4 minutes. This is, of course, creating significant value from a cost efficiency point of view. It also enable us to more rapidly respond to customer quotes, so it drives speed and also customer centricity. It is freeing up valuable engineering time on innovation rather than spending time on documentation. I stop there, and I turn back and hand over to Susanne to take you through the numbers.

Speaker #2: Taking more than four hours to complete, now using AI-based automation, customer, factory, and supplier drawings are created in less than four minutes. This is, of course, creating significant value from a cost-efficiency point of view. It also enables us to more rapidly respond to customer quotes, so it drives speed and also customer centricity.

Speaker #2: And it's freeing up, you know, valuable engineering time for innovation, rather than spending time on documentation. So I'll stop there and hand back to Suzanne to take us through the numbers.

Speaker #1: Thank you. Good morning, everyone. So let me start with the profit and loss and the overview, then. As we have touched upon already, net sales were flat year-over-year, with an organic growth of 1.4%, which was then offset by both currency and structure.

Susanne Larsson: Thank you. Good morning, everyone. Let me start with the profit and loss and the overview. As we have touched upon already, net sales was flat year-over-year, with an organic growth of 1.4% being then offset by both currency and structure. We had an adjusted gross profit margin that improved by 1.1% to 32.7%, which we could also see visible in the strong adjusted operating margin that improved from 13.3% to 13.9%. I will come back to the different components of that on the following page here. Talking about one-off costs IAC in the quarter, they amounted to SEK 1 billion, where Automotive separation costs represented roughly half of the part, and the other half was related to the consolidation of our Americas footprint that we announced early in Q2. Out of that restructuring charge, SEK 345 million was related to impairment of assets.

Speaker #1: We had an adjusted gross profit margin that improved by 1.1% to 32.7%, which we could also see reflected in the strong adjusted operating margin that improved from 13.3% to 13.9%.

Speaker #1: I will come back to the different components of that on the following page here. Talking about one-off costs, IAC in the quarter amounted to 1 billion KR, where automotive separation costs represented roughly half of the part and the other half was related to the consolidation of our America's footprint that we announced early in this quarter, early in Q2.

Speaker #1: And out of that, the restructuring charge of 345 was related to impairment of assets. I also just want to remind us that last year, at this point in time, we took a charge of 2 billion linked to the right-sizing program that we are now implementing, and we also had a profit of 800 million from the divestment of the aerospace business handover.

Susanne Larsson: I also just want to remind us that last year, at this point in time, we took a charge of SEK 2 billion linked to the rightsizing program that we are now implementing, and we also had a profit of SEK 800 million from the divestment of the aerospace business handover. All in all, in absolute amounts, both adjusted and non-adjusted operating profit as well as net profit was higher than last year, largely explained by less IACs, improved operational performance, but also reduced FX headwind. All together, we ended at an earnings per share of SEK 2.8 per share and an adjusted one of SEK 5 per share. Let's look at the components that is building up our strong adjusted operating margin of 13.9%. Starting then with the organic growth impact. We see a solid price mix that is the main contributor to the improved result.

Speaker #1: All in all, in absolute amounts, both adjusted and non-adjusted operating profit as well as net profit were higher than last year. This was largely explained by fewer IACs, improved operational performance, but also reduced FX headwind.

Speaker #1: Altogether, we ended at an earnings per share of 2.8 KR per share, and an adjusted one of 5 KR per share. So let's look at the components that are building up our strong adjusted operating margin of 13.9%.

Speaker #1: Starting then with the organic growth impact, we see a solid price mix that is the main contributor to the improved result, and as mentioned previously, it's mainly deriving from the SIS segment.

Susanne Larsson: As mentioned previously, it's mainly deriving from the SIS segment. Organic sales were negatively impacted by the customer refunds Rickard talked about from the IEEPA tariff reclaims, which we have received the majority of during Q2. Payments to customers will follow the completion of the refunds, so they have not yet been done. The result impact of the tariff all in all around the reclaim is somewhat positive in the Q2 result. Also in this quarter, we had some support production ahead of the separation related to the transfer of production to Automotive. Whilst the production volumes were positive in the organic, the result impact was limited because these higher production volumes led to temporary, less efficient production impacting our cost negatively. Net, we had a very limited result impact of that support production.

Speaker #1: Organic sales were negatively impacted by the customer refunds Richard talked about from the EPA tariff reclaims, which we have received the majority of during Q2.

Speaker #1: Payments to customers will follow the completion of the refunds, so they have not yet been done. The result impact of the tariff, all in all, around the reclaim is somewhat positive in the Q2 results.

Speaker #1: Also, in this quarter, we had some support production ahead of the separation related to the transfer of production to automotive. So, whilst the production volumes were positive in the organic, the result impact was limited because these higher production volumes led to temporarily less efficient production, impacting our costs negatively.

Speaker #1: So, net-net, we had a very limited result impact from that support production. With respect to the support production, we expect that to continue also in the second half of the year.

Susanne Larsson: With respect to the support production, we expect that to continue also in the H2 of the year. Some further comments related to the cost development. Our rightsizing activities contributed with some SEK 350 million of savings, and they continue to more than offset the separation-related negative synergies. Material cost savings remain positive, and particularly in the Automotive segment. The overall cost development remained unfavorable, driven by weaker productivity in the support reduction that I just talked about. We see a wage inflation in tariff costs and some industrial transformation initiatives. We continued to largely compensate for the tariff costs also in Q2, and we expect to continue to do so also in Q3. As I've already mentioned, we had the slight positive effects from the tariff reclaims in the Q2 itself.

Speaker #1: Some further comments related to the cost development: our right-sizing activities contributed with some 350 million of savings, and they continue to more than offset the separation-related negative synergies.

Speaker #1: Material cost savings remain positive, particularly in the automotive segment. The overall cost development remained unfavorable, driven by weaker productivity in the support production that I just talked about.

Speaker #1: We see wage inflation and tariff costs, as well as some industrial transformation initiatives. We continued to largely compensate for the tariff costs also in Q2, and we expect to continue to do so in Q3.

Speaker #1: And as I've already mentioned, we had a slight positive effect from the tariff reclaims in Q2 itself. With respect to currency, the impact is notable but much less severe than what we have faced in previous quarters.

Susanne Larsson: With respect to currency, the impact is notable but much less severe than what we have faced the previous quarters. They impact our sales by a reduced 0.8 percentage point, and it reduced the profit by 0.3 percentage point, mainly driven by a weakening dollar vis-à-vis SEK conversion year-over-year. Finally, we have the structure column, and that is representing the divestment on the aerospace business LGM that we closed during Q1 earlier this year. Let's move into cash flow. If I start with EBITDA for the Q2, that amounted to 3.5 billion SEK and non-cash items and tax payments made the cash flow before changes in network and capital to end at 3.2 billion SEK compared to 2.9 billion SEK last year. Tax payments was fully in line with last year's payment.

Speaker #1: So, the impact on our sales was a reduction of 0.8 percentage points, and it reduced profit by 0.3 percentage points, mainly driven by a weakening dollar versus Swedish krona conversion year over year.

Speaker #1: Finally, we have the structure column, and that is representing the divestment of the aerospace business, LGN, that we closed during Q1 earlier this year.

Speaker #1: Let's move into cash flow. If I start with EBITDA for the quarter, Q2, that amounted to 3.5 billion Swedish kronor. Non-cash items and tax payments made the cash flow before change in net working capital end at 3.2 billion, compared to 2.9 billion last year.

Speaker #1: Tax payments were fully in line with last year's payment. Then we had a high net working capital buildup of minus SEK 1.1 billion, and this is mainly explained by the buildup of safety stock linked to automotive channel transfers together with higher accounts receivable caused by the ongoing separation of Automotive.

Susanne Larsson: We had the high net working capital buildup of -1.1 billion SEK, and this is mainly explained by the buildup of safety stock linked to automotive channel transfers, together with higher accounts receivable caused by the ongoing separation of automotive. Looking at the graph to the right, I would like to recall that we announced the rightsizing initiative in Q2 last year, and since then, we are paying out gradually every quarter the 2 billion SEK that we accrued through the P&L a year ago. The automotive separation started in the late part of 2024. However, the speed of the separation has been at its peak during the H1 of this year, where separation initiatives are now being finalized, and we are moving in doing listing preparations.

Speaker #1: Looking then at the graph to the right, I would like to recall that we announced the right-sizing initiative in Q2 last year, and since then we are paying out gradually every quarter the $2 billion that we accrued through the P&L a year ago.

Speaker #1: The automotive separation started in the latter part of 2024. However, the speed of the separation has been at its peak during the first half of this year, where separation initiatives are now being finalized and we are moving into listing preparations.

Speaker #1: In the quarter two cash flow, we included $700 million of payments linked to such IAC charges, and with respect to quarter one, last quarter, we had a similar $700 million paid then.

Susanne Larsson: In the Q2 cash flow, we included 700 million SEK of payments linked to such IAC charges, and with respect to Q1, last quarter, we had a similar 700 million SEK paid. Finally, we had the CapEx of 700 million SEK in the Q2 and the year to date of 1.5 billion SEK. Comparable numbers last year was 900 million SEK in this quarter and 1.8 billion SEK for the full H1 last year. Balance sheet and return on capital then. Our net debt excluding post-employment benefits, Q2 over Q1 increased by 1 billion SEK to 7.3 billion SEK, mainly driven by the dividend payment in Q2, net of cash inflows from our operations. Net debt divided by equity excluding pensions ended at 12.3 compared to 10.2 at year-end.

Speaker #1: Finally then we had the capex of 700 million in the quarter two and the year to date of 1 and a half billion. Comparable numbers last year was 900 in this quarter and 1.8 for the full first half year last year.

Speaker #1: Balance sheet and return on capital, then. Our net debt, excluding post-employment benefits, Q2 over Q1, increased by 1 billion to SEK 7.3 billion, mainly driven by the dividend payment in Q2, net of cash inflows from our operations.

Speaker #1: Net debt divided by equity excluding pensions ended at 12.3 compared to 10.2 at year end. Net debt in relation to adjusted EBITDA excluding pensions ended at 0.5 which is one sorry which is 0.1 above last quarter.

Susanne Larsson: Net debt in relation to adjusted EBITDA excluding pensions ended at 0.5, which is 0.1 above last quarter. If we look at net debt in relation to adjusted EBITDA and include pension, we ended at 0.9. Adjusted ROCE improved to 14.5 vis-à-vis 14.4 last quarter and 14.3 at year-end. This is as a result of the somewhat improved result and reduced total assets. All in all, our net debt remains on a low level, and our liquidity is high, 12.5 billion SEK, vis-à-vis 8.4 billion SEK in the previous quarter. This is a lot explained by the drawdown of the EIB loan, where we now have $500 million in loan. Additionally, we have another 800 million EUR of undrawn credit facilities.

Speaker #1: If we then look at net debt in relation to adjusted EBITDA and include pension we ended at 0.9. Adjusted ROSE improved to 14.5 visa 14.4 last quarter and 14.3 at year end.

Speaker #1: So this is as a result of a somewhat improved result and reduced total assets. All in all our net debt remains on a low level and our liquidity is high 12 and a half billion.

Speaker #1: Visa 8.4 in the previous quarter, and this is largely explained by the drawdown of the EIB loan, where we now have €500 million in loan.

Speaker #1: Additionally, we have another €800 million of undrawn credit facilities. That brings me to the last page, which is about the outlook.

Susanne Larsson: That turns me to the last page, that is around the outlook then, where we say that for Q3 then, with given signs on improved market demand in certain industries, we expect the organic sales to strengthen somewhat in Q3 year-over-year. Considering still the geopolitical turmoil and the conflict in Middle East, there is certainly remaining unpredictability. Guidance also for Q3 around currency on the operating profit. That is estimated to SEK +100, applying the exchange rate as per the end of June. Moving on to guidance for the full year, talking tax levels excluding effects from divestments and ongoing Automotive separation, we now guide at 29%, which is a slight increase compared to the earlier announcement of 28%.

Speaker #1: Where we say that for quarter three, and with given signs of improved market demand in certain industries, we expect the organic sales to strengthen somewhat in quarter three, year over year.

Speaker #1: Considering still the geopolitical turmoil and the conflict in the Middle East, there is certainly remaining unpredictability. Guidance also for quarter three around currency: on the operating profit, that is estimated to a positive 100, applying the exchange rate as per the end of June.

Speaker #1: Moving on to guidance for the full year. Talking tax levels, excluding effects from divestments and ongoing automotive separation, we now guide at 29%, which is a slight increase compared to the earlier announcement of 28%.

Speaker #1: And we do that because we have changed the assessment of evaluation reserve linked to the consolidation of our footprint in America, and you see the tax cost for that coming through the P&L in this very quarter. That means that the full-year tax rate is then rather around 29% than 28%.

Susanne Larsson: We do that because we have changed the assessment of evaluation reserve linked to the consolidation of our footprint in America, and you see the tax cost for that coming through the P&L in this very quarter. That means that the full year tax rate is then rather around 29% than 28%. Additions to property, plant, and equipment, we now take down SEK 1 billion and guide to SEK 4 billion. This is mainly explained by further optimizing both existing assets, but also our planned investments. Finally, then when it comes to one-off costs in this year, IAC is related to the Automotive separation as well as our footprint optimization. We remain with SEK -2.5 to 3 billion, fully in line with what we have communicated previously and also at the Capital Markets Day in the end of last year. Rickard, over to you.

Speaker #1: Additions to property plant and equipment we now take down 1 billion and guide to 4 billion and this is mainly explained by further optimizing both existing assets but also our planned investments.

Speaker #1: And finally, when it comes to one-off costs in this year, IACs are related to the automotive separation as well as our footprint optimization.

Speaker #1: We remain with a minus $2.5 to $3 billion, fully in line with what we have communicated previously and also at the Capital Market Day at the end of last year.

Speaker #1: Richard over to you.

Speaker #2: Thank you Susan. And let's wrap the formal presentation up before we head into Q&A. I do think that we close a rather strong quarter and there are some key highlights I like you to take away from this conversation or this call.

Rickard Gustafson: Thank you, Susanne. Let's wrap the formal presentation up before we head into Q&A. I do think that we closed a rather strong quarter, there are some key highlights I'd like you to take away from this conversation or this call. Firstly, we continue to deliver on our right sizing program at speed and with accuracy. In the quarter we have some SEK 350 million in benefits, as you heard both me and Susanne mention. We do have a strong operational profitability uplift in our specialized industrial solution segments coupled with the solid growth. As you recall from our Capital Markets Day, this is one of the key pillar for us to reach our mid- and long-term profitability targets. We're pleased to see that that is moving in the right direction. We're excited about the humanoids venture.

Speaker #2: Firstly, we continue to deliver on our right-sizing program at speed and with accuracy. In the quarter, we have some $350 million in benefits, as you heard both me and Susan mention.

Speaker #2: We do have a strong operational profitability uplift in our specialized industrial solution segments coupled with a solid growth. And as you recall from our capital markets day this is one of key pillar for us to reach profitability targets.

Speaker #2: So we're pleased to see that that is moving in the right direction. We're excited about the humanoid venture. We are we know that this is an industry that is a kind of in its early phase stage but it's being formed now and we are keen to participate in that.

Rickard Gustafson: We know that this is an industry that is kind of in its early phase, stage, but it's being formed now and we are keen to participate in that. We also can learn this market and also play a role in defining the standards for how this market's going to play out. Therefore, we are excited about this venture that will give us a fast track into this segment. Finally, the separation progress is going according to plan, and we stay firm in delivering on and completing this by Q4 this year. On a personal note, I would like to take this opportunity to also congratulate Kerstin Enochsson to her promotion. With that, I hand you back to the safe hands of Sophie to manage the Q&A session.

Speaker #2: So we also can learn this market, and also play a role in defining the standards for how this market's going to play out. Therefore, we are excited about this venture that will give us a fast track into this segment.

Speaker #2: And finally, the separation progress is going according to plan, and we stay firm in delivering on and completing this by Q4 this year.

Speaker #2: And on a personal note, I would like to take this opportunity to also congratulate Cashin Enoxon on her promotion. So, with that, I hand you back to the safe hands of Sophie to manage the Q&A session.

Speaker #1: Thank you, and we look forward to your questions. I can see there is a big interest in asking questions. So, let's limit yourself to one question, and then of course, if time allows, you're welcome to rejoin the queue.

Sophie Arnius: Thank you. We look forward to your question. I can see there is a big interest to ask questions. Let's limit yourself to one question, then, of course, if time allows, you are welcome back to rejoin the queue. Before we go to questions, let me just remind you on how to ask a question. If you are dialing in via the telephone, you press star and 1, and if you would like to withdraw, you press star and 2. We will of course also accept questions from our audience watching via the webcast. You can already now type in your questions in the tab that is above the slides. Let's start with a question here from the telephone line, and it is from Jit Sinha at JP Morgan. Please go ahead, Jit.

Speaker #1: But before we go to questions let me just remind you on how to ask a question. So if you are dialing in via the telephone you press star and one and if you would like to withdraw you press star and two.

Speaker #1: And we will of course also accept questions from our audience watching via the webcast. And so you can already now type in your questions in the tab that is above the slides.

Speaker #1: And let's start with a question here from the telephone line and it is from Chit Sinha at JP Morgan. Please go ahead Chit.

Speaker #3: Yeah morning record Susan and Sophie. Thank you for taking my question. So just if I could ask about the tariff retains in in the quarter.

Jit Sinha: Morning, Rickard, Susanne, and Sophie. Thank you for taking my question. Just if I could ask about the tariff retains in the quarter, could you please quantify the impact on sales, then of course, the benefit on the margin in the quarter? I think you mentioned that you received the majority in this quarter, does that imply that we should expect a bit more in Q3? Thank you.

Chit Sinha: Morning, Rickard, Susanne, and Sophie. Thank you for taking my question. Just if I could ask about the tariff retains in the quarter, could you please quantify the impact on sales, then of course, the benefit on the margin in the quarter? I think you mentioned that you received the majority in this quarter, does that imply that we should expect a bit more in Q3? Thank you.

Speaker #3: Could you please quantify the impact on sales, and then, of course, the benefit on the margin in the quarter? I think you mentioned that you received the majority in this quarter, so does that imply that we should expect a bit more in Q3?

Speaker #3: Thank you.

Speaker #1: So we will not quantify it but we are stating that the majority of the EPA tariff refunds have been received during the second quarter and then since we had certain surcharges to customers we are also accruing a reduced sales price then as a consequence.

Susanne Larsson: We will not quantify it, but we are stating that the majority of the IEEPA tariff refunds have been received during Q2. Since we had certain surcharges to customers, we are also accruing a reduced sales price then as a consequence. We have still not paid the customers because we are still waiting for some of that refunds to complete during Q3. By that, the first big chunk is coming to an end. This is the quarter where we see the significant impact of it. Similar to when we had the tariff cost, where we, to the vast majority offset, we are also generally guiding that now it is the opposite way around, we have a slight positive impact, and that is the only indication we give on that.

Speaker #1: We have still not paid the customers because we are still waiting for some of those refunds to complete during quarter three. But by then, the first big chunk is coming to an end.

Speaker #1: So we this is the quarter where we see the significant impact of it. And similar to when we had the tariff cost where we to the vast majority offset we are also generally guiding that now it's the opposite way around but we we have a slight positive impact and that's the only indication we give on that.

Speaker #3: Thank you. I'll rejoin the queue.

Jit Sinha: Thank you. I will rejoin the queue.

Chit Sinha: Thank you. I will rejoin the queue.

Speaker #1: Thank you. And let's continue with a question from Daniela Costa at Goldman Sachs.

Sophie Arnius: Let's continue with a question from Daniela Costa at Goldman Sachs.

Speaker #4: Hi good morning. Thank you for taking my question. I wanted to ask on the on the EBIT bridge I guess apart from the tariffs the other two things that you mentioned sort of that move that bridge different to to normal is the overproduction points.

Daniela Costa: Hi. Good morning. Thank you for taking my question. I wanted to ask, on the EBIT bridge, I guess apart from the tariffs, the other two things that you mentioned, sort of that move that bridge different to normal is the overproduction points, and the savings net of synergies. First, can you comment that if we should assume the overproduction more or less at a similar pace to what we had in H1, or if that's going to unwind down as we get to the spin? On the savings, you've accelerated the savings bar from 300 to 350. Should we think about it accelerating as well? I believe before you had sort of talked about it as more linear going forward. If you could help with those two items.

Speaker #4: and the the savings net off synergies. first can you comment that if we should assume the overproduction more or less at a similar pace to what we had in the first half or if that's going to unwind down as we get to the spin and then on the savings you've accelerated the savings bar from 300 to 350 should we think about it accelerating as well I believe before you had sort of talked about it has more linear going forward so if you could help with those two items.

Speaker #1: Will you take this one, or both? Yeah.

Sophie Arnius: Will you take this one or both? Yeah.

Speaker #4: hello Daniela. So starting off with the overproduction that we had now both in quarter one as well as quarter two we envisage that that will remain in in the second half in a similar manner.

Susanne Larsson: Hello, Daniela. Starting off with the overproduction that we have now, both in Q1 as well as Q2, we envisage that that will remain in H2 in a similar manner. We will have two different things that explaining that really. The first one is really to prepare the channel transfers ahead of them taking place and being moved in real life. That is the kind of overproduction we have seen now in Q1 and Q2, and we will, to some extent, also see in Q3. What we will also see in H2 of the year is a buildup of automotive being a standalone company. We will seek automotive as a separate customer. They will have unique SKUs and automotive is starting also to build their own stock for the aftermarket primarily.

Speaker #4: Then we will have two different things that explaining that really. So so the first one is really to prepare the channels transfers ahead of of them taking place and being moved in real life.

Speaker #4: That is the kind of overproduction we have seen now in Q1 and Q2, and we will to some extent also see it in Q3.

Speaker #4: Then, what we will also see in the second half of the year is a buildup of Automotive being a standalone company, and that allows them to have—I mean, we will see Automotive as a separate customer. They will have unique SKUs, and Automotive is also starting to build their own stock for the aftermarket, primarily.

Speaker #4: So, that is a stock buildup and preparation that is coming ahead of the spin of Automotive. Both of those will allow us to have a similar level of support production, if we call it that, also in the second half of the year.

Susanne Larsson: That is a stock buildup and preparation that is coming ahead of the spin of automotive. Both those will allow us to have a similar level of support production, if you call it that, also in the H2 of the year. When it comes to the savings, the right sizing initiatives, net of the synergies, or the saving itself, you're right. We saw SEK 300 million in Q1, and we saw SEK 350 million now in Q2, which allowed us to have somewhat of a positive impact. Moving on now, it will be on a linear basis, and we will have a limited result impact as we move along, but it will continue to be on a linear path with a limited result impact.

Speaker #4: When it comes to this the the savings then the right the right sizing initiatives net of the synergies then what the saving itself then you're right we we we we saw a 300 million in quarter one and we saw a 350 million now in quarter two which allowed us to have somewhat of a positive impact.

Speaker #4: Moving on now, it will be on a linear basis and we will have more and more of a—I mean, it will be a limited result impact as we move along, but it will continue to be on a linear path with a limited result impact.

Speaker #1: Yeah sorry linear has per increasing 300 350. Just add that we we see negative synergies we saw in Q2 was very much in line with what you we saw in Q1 and we expect that to continue on the same you know level.

Daniela Costa: Sorry, linear has been increasing SEK 350?

Susanne Larsson: Sorry. The negative synergies we saw in Q2 was very much in line with what we saw in Q1, and we expect that to continue on the same level. For the full year, we expect a positive net impact from the right sizing savings versus the negative synergies.

Speaker #1: So, for the full year, we expect a positive net impact, then, from the right-sizing savings versus the negative synergies.

Speaker #4: Okay I'll I'll follow up. Thank you very much.

Daniela Costa: Okay. I'll follow up. Thank you very much.

Speaker #1: And we have a question here from the webcast and it's from Andrea Kuchni at UBS. And it's also about this support production. And if we expect that to become more efficient in second half and hence benefit profitability.

Sophie Arnius: We have a question here from the webcast, and it is from Andrei Kuknin at UBS. It is also about this support production and if we expect that to become more efficient in H2 and hence benefit profitability. Susanne, do you want to?

Speaker #1: Susan do you want to yeah.

Susanne Larsson: Yeah.

Speaker #4: So why did we—I can do that. So, probably putting some light on why we had less positive benefits out of it now in the second quarter compared to the first one.

Susanne Larsson: I can do that. Probably putting some light on why we had less positive benefits out of it now in Q2 compared to Q1, and that is because we have that additional production in channels that are fully, to a big extent, loaded already. I think that is not the majority of the channels. I think we have had less benefits of that now when we are into certain channel transfers of full load. That is the consequence we have. We envisage that in H2. I think we envisage a certain but limited positive benefit of the support reduction that we will have also in H2, somewhat of a positive.

Speaker #4: And that is because we are just—I mean, we have that additional production in channels that are, to a large extent, already fully loaded.

Speaker #4: So I think that is not the majority of the channel. So I think we have had less benefits of that now, when we are into certain channel transfers of full load.

Speaker #4: So that's the consequence we have. Do we envisage that in the second half of the year? I think we envisage a certain, but limited, positive benefit from the support production that we will have also in the second half of the year.

Speaker #4: Somewhat of a positive.

Speaker #1: and also we we we got a a question here from Andrea and just to clarify that when we said and it's about the timeline for the automotive separation and we may have said by Q4 we don't mean by end of September then.

Sophie Arnius: Also we got a question here from Andrei, just to clarify that when we said, it is about the timeline for the automotive separation, and we may have said by Q4, we do not mean by end of September. It is during Q4, we aim for a listing and separating then automotive. Of course, given shareholders approval and that the Board of Directors propose that.

Speaker #1: So it it's during Q4 we aim for listing and and separating then of the motive. Of course given shareholders approval and that the board of directors propose that.

Speaker #4: Correct.

Rickard Gustafson: Correct.

Speaker #1: So let's continue with a question from our telephone audience then, and this time it comes from John Kim at Deutsche. John, please go ahead.

Sophie Arnius: Let's continue with a question from our telephone audience. This time it comes from John Kim at Deutsche. John, please go ahead.

Speaker #5: Hi, good morning. Thanks for the opportunity. I'm wondering if we could go back to the humanoids opportunity. It would be helpful to get a little more color here about SKF's longer-term strategy.

John Kim: Hi, good morning. Thanks for the opportunity. I'm wondering if we could go back to the humanoids opportunity. It'd be helpful to get a little more color here about SKF's longer term strategy. When you think about your JV partnership with LeaderDrive, is this an exclusive relationship in the sense that you would use them as your primary path to market in China? Are you open, able to form additional JVs to perhaps other participants or entry points? Thank you.

Speaker #5: When you think about your JV partnership with with Leader Drive is this an exclusive relationship in the sense that you would use them as your primary path to market in China or are you open able to form additional JVs with perhaps other participants or or entry points.

Speaker #5: Thank you.

Speaker #6: Well thank you. and we will be the venture will be a key supplier to Leader Drive but it will not be an exclusivity. We will also have the ability to form partnership with others and we can also we are free to develop other ventures outside of China as well.

Rickard Gustafson: Well, thank you. The venture will be a key supplier to LeaderDrive, but it will not be in exclusivity. We will also have the ability to form partnership with others, and we are free to develop other ventures outside of China as well.

Speaker #5: Okay, quick follow-up question if I may. If we think about the scope here in the medium term, is the intent to stay very focused on bearings, or would you look to build partnerships for adjacent capabilities or subsystem components, perhaps like some of your peers?

John Kim: Okay. Quick follow-up question, if I may. If we think about the scope here in the medium term, is the intent to stay very focused on bearings, or would you look to build partner for adjacent capabilities or subsystem components, perhaps like some of your peers have?

Speaker #6: Right. as as I mentioned during my presentation I do not roll that out that we will move into some adjacent capabilities or areas related to the humanoids.

Rickard Gustafson: As I mentioned during my presentation, I do not rule that out that we will move into some adjacent capabilities or areas related to the humanoids. Right now, we are focused on building this presence to really be a strong component supplier for industrial humanoids. As this market evolves, we will assess opportunities, and if something emerge, we will let you know.

Speaker #6: Right now, we are focused on building this presence to really be a strong component supplier for industrial humanoids. As this market evolves, we will assess opportunities, and if something emerges, we will let you know.

Speaker #5: Okay. Thank you.

John Kim: Okay. Thank you.

Speaker #1: And before we take the next question, I see that some have withdrawn their questions. So there are opportunities to ask questions, so just press star and one to enter the telephone queue again.

Sophie Arnius: Before we take the next question, I see that some withdraw their questions, so there are opportunities to ask questions. Just press Star and One to enter the telephone queue again. We will continue with a question from Tore Fangmann at Bank of America. Tore, please go ahead.

Speaker #1: we will continue with a question from Tore Fangman at Bank of America. Tore please go ahead.

Speaker #7: Good morning. Thank you for taking my question. Also, one on humanoids here—my question would be: what percentage of the bill of materials of the humanoid do you estimate would be bearings, going forward? And therefore, do you have any estimate of the size of the addressable market for you?

Tore Fangmann: Good morning. Thank you for taking my question also on humanoids here. My question would be what percentage of the bill of materials of the humanoid do you estimate would bearings be going forward? Therefore, do you have any estimate of the size of the addressable market for you? Thank you.

Speaker #7: Thank you.

Speaker #6: Not off the top of my head I can give you that. I can try to describe, you know, the bill of material, and the value of the different bearings that make up a humanoid.

Rickard Gustafson: Not on top of my head I can give you that. I tried to describe the bill of material, the value of the different bearings that makes up the humanoid. We have then coverage with the future venture with Leader Drive of roughly 8% of the assortment needed to support humanoids. We still lack the miniature bearings, and as I said, the jury's still out if we're going to go greenfield or if we're going to partner up with someone to also close that gap. The total value of the humanoids and the size and the potential market, I think it's rather difficult to assess. There are a number of different sources that have done thorough analysis of this that indicates a rather significant market potential. I going to refrain from actually claiming if they're right or wrong, but rather refer to them as a source.

Speaker #6: And we have then coverage with the future venture with Leader Drive of roughly 8% of the assortment needed to support humanoids. We still lack the miniature bearings, and as I said, you know, the jury is still out if we're going to go greenfield or if we're going to partner up with someone to also close that gap.

Speaker #6: But the total value of the humanoids and the size and the potential market—I think it's rather difficult to assess. There are a number of different sources that have done thorough analysis of this that indicates a rather significant market potential.

Speaker #6: So I’m going to refrain from actually claiming if they're right or wrong, but rather refer to them as a source.

Speaker #7: Perfect, thank you. And may I just ask one clarification, following up on the first question that we have coming from Jid, which was on the tariff reclaim impact.

Tore Fangmann: Perfect. Thank you. May I just ask one clarification, following up on the first question that we have coming from Jit, which was on the tariff reclaim impact. Just wondering here, you said reclaims have been awarded to you, but you have not as of now refunded your customers yourself. Should we see this as a cash drag into Q3, or is this also on a profitability basis drag? Thank you.

Speaker #7: just wondering here you said reclaims have been awarded to you but you have not as of now refunded the your your customers yourself. So should we see this as a cash drag into Q3 or is this also on profitability basis a drag?

Speaker #7: Thank you.

Speaker #1: Thanks for that clarification. So, you are right. So, we have got it into our wallet and we have not yet paid the customer.

Susanne Larsson: Thanks for that clarification. You are right. We have got it into our wallet, and we have not yet paid the customer. It will be a heavy exercise to do that. We are awaiting that all of that is finalized, even if the majority is already paid to us. The consequence in the following quarter will be on the cash flow, as you rightly indicate.

Speaker #1: It will be a heavy exercise to do that. So we are awaiting that all of that is finalized, even if the majority is already paid to us.

Speaker #1: So the consequence in the following quarter will be on the cash flow, as you rightly indicate.

Speaker #7: Thank you.

Tore Fangmann: Thank you.

Speaker #1: And we will continue with a question from Tim Lee at Barclays Tim please go ahead.

Sophie Arnius: We will continue with a question from Tim Lee at Barclays. Tim, please go ahead.

Speaker #8: Hi. Thanks for taking my question. Can I ask you about the the demand development into the second quarter? How do you see the momentum into the quarter compared to last quarter?

Tim Lee: Hi, thanks for taking my question. Can I ask you about the demand development into the first quarter? How do you see the momentum in the quarter compared to last quarter? You're guiding somewhat higher organic growth on year-on-year basis. How do you see sequentially, whether it will be like an acceleration from Q2?

Speaker #8: And you guided somewhat higher organic growth on a year-on-year basis. How do you see this sequentially? Will there be an acceleration from the second quarter?

Speaker #1: And, sorry—sorry, Tim. We didn't catch that. So, it would be great if you could just repeat your question there.

Sophie Arnius: Sorry, Tim. We didn't catch that, so great if you can just repeat your question there.

Speaker #8: Sorry. Continue now. Hello.

Tim Lee: Sorry, can you hear me now? Hello?

Speaker #1: Yes, Tim, we can hear you, but if you can repeat your question, that would be splendid.

Sophie Arnius: Tim, we can hear you, but if you can repeat your question, that would be splendid.

Speaker #8: Yeah, sure. So I'm just trying to understand the demand development into the third quarter. How do you see the momentum sequentially compared to last quarter?

Tim Lee: Yeah, sure. I'm just trying to understand the demand development into Q3. How do you see the momentum sequentially compared with last quarter? You're guiding a somewhat higher organic growth on a year-on-year basis. How do you see the comparison with Q2? Would it be like an acceleration?

Speaker #8: And your guidance suggests somewhat higher organic growth on a year-on-year basis. How do you see the comparison with the second quarter? Would it be more of an acceleration?

Speaker #1: So Richard, you are eager to talk about the demand development going into Q3 here then.

Sophie Arnius: Rickard, you are eager to talk about the demand development going into Q3 here then?

Speaker #5: Yeah.

Rickard Gustafson: Yeah. The guidance is not just a comparison to the same quarter last year. It's actually based on a somewhat increased activity level, as I mentioned, especially among OEMs and with a particular emphasis on Americas. A maintained solid demand in India, Vietnam, and China, Northeast Asia. Also as I mentioned, we see some positive movements also on the OEM side in Europe, maybe not to the same extent as it's been the case in Americas. Right now the current trading, I don't have much insight early on into Q3, there's nothing that says that we should not believe in that outlook.

Speaker #6: The guidance is not just a comparison to the same quarter last year. It's actually based on a somewhat increased activity level, as I mentioned, especially among OEMs, with a particular emphasis on the Americas.

Speaker #6: And it maintains solid demand in India Vietnam and also in China Northeast Asia. and and also as I mentioned the we see some positive movements also on the OEM side in Europe but maybe not to the same extent.

Speaker #6: As has been the case in the Americas. And right now, with the current trading, I don't have much insight early on into Q3, but there's nothing that says we should not believe in that outlook.

Speaker #1: No that's our our best view. And and as as we talked about earlier here in the call it is certain industries we are seeing a a better demand and it's very much driven by infrastructure and defense and and data centers.

Sophie Arnius: No, that's our best view. As we talked about earlier here on the call, it is certain industries we are seeing a better demand, it's very much driven by infrastructure, defense, and data centers. Answer your question then, Tim.

Speaker #1: Answered your question then, Tim.

Speaker #8: Yeah thank you. I'll back to the queue.

Tim Lee: Yeah, thank you. I will back to the queue.

Speaker #1: We will continue with a question from Andreas Koski at BNB Paribas. Andreas please go ahead.

Sophie Arnius: We'll continue with a question from Andreas Koski at BNP Paribas. Andreas, please go ahead.

Andreas Koski: Thank you. Good morning. I want to ask about CapEx. You have now lowered your CapEx by 20% from SEK 5 billion to SEK 4 billion for this year. Can you give us an understanding what we should expect for the coming years, will that also be lower than what you had previously expected? Thank you.

Speaker #5: good morning. so I want to ask about

Speaker #8: capex. So you have now lowered your capex by 20% from 5 to 4 billion. for this year but can you give us an understanding what we should expect for the coming years?

Speaker #8: Will that also be lower than what you had previously expected? Thank you.

Speaker #1: So, while being very busy on the automotive separation, we have also challenged ourselves to see whether we can actually optimize existing equipment additionally.

Susanne Larsson: While being very busy on the automotive separation, we have also challenged ourselves to see whether we can actually optimize existing equipment additionally, and also looked into what sits in the pipe and see if we can do additions also there. That allows us actually to take them down the SEK 5 billion to SEK 4 billion as the guidance. We do not see that that falls over to next year, but actually concluding that we will be better off than what we first thought from a cash flow and CapEx perspective. When it comes to general guidance, we will remain with the 5% of sales, then the industrial sales then until midterm, considering also that we have footprint optimization ahead of ourselves. That we see will also call for some of the CapEx. From midterm, we will normalize into something more like 3.5% of sales.

Speaker #1: And we also looked into what sits in the pipeline and whether we can do additions there as well. That actually allows us to bring the $5 billion guidance down to $4 billion.

Speaker #1: And we do not see that that falls over to next year, but actually, concluding that we will be better off than what we first thought from a cash flow and CapEx perspective.

Speaker #1: Then, when it comes to general guidance, we will remain with the 5% of sales in the industrial sales, then until midterm, considering also that we have footprint optimization ahead of ourselves.

Susanne Larsson: When it comes to general guidance, we will remain with the 5% of sales, then the industrial sales then until midterm, considering also that we have footprint optimization ahead of ourselves. That we see will also call for some of the CapEx. From midterm, we will normalize into something more like 3.5% of sales. This reduction that we see this year will not make us adjust future outlooks and guidance that we have already provided, Andreas.

Speaker #1: and that that we see will also call for some of the capex. And then from midterm we will normalize into something more like 3 and a half percent of sales.

Speaker #1: So this reduction that we see this year then will not make us adjust future outlooks and guidance that we have already provided Andreas.

Susanne Larsson: This reduction that we see this year will not make us adjust future outlooks and guidance that we have already provided, Andreas.

Speaker #5: Okay, so it's still 5% of sales. Can I also ask, because it's additions to property, plant, and equipment, should we expect any investments or capex in intangibles, or is it only tangible capex that you more or less have?

Andreas Koski: It's still 5% of sales. Can I also ask, because it's additions to property, plant, and equipment, should we expect any investments in, or CapEx in intangibles? Or is it only tangible CapEx that you ordered?

Speaker #1: That's a good question. So, when we talk about it from this perspective, it's fixed assets; it's not intangible assets that come from potential M&A activities.

Susanne Larsson: That's a good question. When we talk about it from this perspective, it's fixed assets. It's no intangible asset that comes from potential M&A activities. There we are talking about accelerating, doing more of both on acquisitions, and that is not guided in this CapEx number.

Speaker #1: So, there we are talking about accelerating, doing more of both on acquisitions, and that is not guided in this capex number.

Speaker #5: No, no, so I did—I did, I meant actually internally generated intangibles, if you invest in, I guess.

Andreas Koski: I meant actually internal generated intangibles. If you invest in, I guess, IT or something.

Speaker #1: For instance, no, we actually expense that as we build it. So we do not put internal or that into our own balance sheet.

Susanne Larsson: For instance, no, we actually expense that as we build it. We do not put internal R&D into our own balance sheet. You should not expect that.

Speaker #1: So you should not expect that.

Speaker #5: Understood. Thank you.

Andreas Koski: Understood. Thank you.

Sophie Arnius: Thank you. Let's continue with a question from Will Mackie at Kepler Cheuvreux. Will, please go ahead.

Speaker #1: Thank you. Let's continue with a question from Will Mackey at Kepler Cheuvreux. Will, please go ahead.

Speaker #7: Yeah, very good morning, and thank you for making the time. I'd like to come back to the question of cost evolution through the first and second quarter, and the actions you're taking across the business to compensate.

Will Mackie: Yeah, very good morning, and thank you for making the time. I'd like to come back to the question of cost evolution through Q1 and Q2 and the actions you're taking across the business to compensate. There are a number of times you've commented on price and cost. The question is, could you please elaborate on the level of pricing, how it evolved through H1, and your thinking about pricing into H2? Particularly perhaps a comment on regional pricing or channel pricing depending on the customer segment. Where you're able to develop a positive price cost in H2 and where perhaps there are more tensions to achieve the offset to costs. Thank you.

Speaker #7: There are a number of times you've commented on price and cost. So the question is could you please elaborate on the level of pricing how it evolved through the first half and your thinking about pricing into the second half and particularly perhaps a comment on regional pricing or channel pricing depending on the customer segment.

Speaker #7: So, where were you able to develop a positive price-cost in H2, and where perhaps there are more tensions to achieve the offset to costs?

Speaker #7: Thank you.

Speaker #6: And thank you. I'll I'll try to give some color to this. starting in in the as you heard us say for the the growth in this quarter is primarily coming from price mix.

Rickard Gustafson: Thank you. I'll try to give some color to this. Starting, as you heard us say, the growth in this quarter is primarily coming from price mix. We are taking the opportunities where we can to do selective price increases. We have continued to do that throughout the quarter, and we plan to do that as we move forward. We have also been proactive and already taking price increases in certain geographies to compensate for increased energy costs and logistic costs. That has happened in Q2, so it has not had a significant impact yet, but it will have an impact as we move forward.

Speaker #6: So we are taking the opportunities where we can to do selective price increases. We have continued to do that throughout the quarter, and we plan to do that as we move forward.

Speaker #6: We have also been proactive and already taking price increases in certain geographies to compensate for increased energy costs and logistic costs. So that has happened in Q2.

Speaker #6: So it had not had a significant impact yet. But it will have an impact as we move forward. I I will not guide by geography or by area where we do see price increases going forward.

Rickard Gustafson: I will not guide by geography or by area where we do see price increases going forward, but I can promise you that we will continue down this path to do selective price increases wherever we can and try to be as proactive as we can to compensate for unexpected inflation as it occurs. That's what we have done in the last few quarters in this volatile environment we operate in, and we intend to continue down that path.

Speaker #6: But I can promise you that we will continue down this path to do selective price increases wherever we can and try to be as proactive as we can to compensate for unexpected inflation as it occurs.

Speaker #6: That's what we have done in the last few quarters in this volatile environment where we operate, and we intend to continue down that path.

Speaker #5: Clear. Thank you.

Will Mackie: Clear. Thank you.

Speaker #1: And we will continue with a question from Rory Smith at Oxcap, and it's from the webcast here. The question is if we can give more color on the net impact from right-sizing benefits versus negative synergies.

Sophie Arnius: We will continue with a question from Rory Smith at OxCap, and it's from the webcast here. It's if we can give more color on the net impact from right sizing benefits versus negative synergies, and from a year-over-year perspective here with the comps that are now coming up for Q3 and Q4. Perhaps I can answer this one. You are absolutely right there, Rory. We did get savings from this right sizing program already. Some in Q3, we said less than 100 SEK last year, and then we had 190 million SEK in Q4. Of course, there will be a tougher comps in Q4.

Speaker #1: And from year over year perspective here with the comps that are now coming up for Q3 and Q4. And perhaps I can answer this one and it's it's you are absolutely right there Rory.

Speaker #1: We did get savings from this right-sizing program already, some in Q3. We said less than 100 last year, and then we had 190 million Swedish kronor in Q4.

Speaker #1: So of course there will be a tougher comps in Q4. for we expect as Suzanne already said the right sizing savings to to con to to be linear.

Sophie Arnius: We expect, as Susanne already said, the right-sizing savings to be linear from now up until Q4 2027 with the SEK 2 billion, and the negative synergies to be fairly on the same level as we have seen in Q1 and Q2. For the full year, we don't guide specifically for Q3 and Q4. For the full year, we expect positive net impact from the savings versus the negative synergies. Of course, bearing in mind with what you said, and I'm sure you can do the math, it will be tougher in Q4 than it will be in Q3. I believe we have time for a final question, and it will come from the telephone line, and it's from John Kim at Deutsche Bank. John, please go ahead.

Speaker #1: From now up until then, Q4 '27, with the $2 billion and the negative synergies to be fairly on the same level as we have seen in Q1 and Q2.

Speaker #1: So for the full year we don't guide specifically for Q3 and Q4. For the full year year we expect positive net impact from the savings versus then the negative synergies.

Speaker #1: But of course, bearing in mind what you said—and I'm sure you can do the math—it will be tougher in Q4 than it will be in Q3.

Speaker #1: So, I believe we have time for a final question, and it will come from the telephone line. It's from John Kim at Deutsche Bank.

Speaker #1: John please go ahead.

John Kim: Hi, thanks for the second opportunity. Appreciate it. One of the things I'm thinking through here is you had a number of different impacts, positive and negative in the quarter. If we could drill down into Industrial, if we think about the margin progression in SIS, is there any sense or steer you could give us on how the margin evolved from mix effects versus perhaps the margin management initiatives on lubrication and seals? Was this more of a mix effect or the start of the self-help and the repricing story?

Speaker #5: Hi, thanks for the second opportunity. I appreciate it. One of the things I'm kind of thinking through here is, you had a number of different impacts—positive and negative—in the quarter.

Speaker #5: If we could drill down into industrial if we think about the margin progression in SIS is there any sense or or steer you could give us on how the margin evolved from mix effects versus perhaps the margin management initiatives on lubricants and seals?

Speaker #5: Was this more of a mix effect or the start of the the self-help and and the repricing story?

Speaker #6: Well, we will not break up the organic growth and tell you how much is coming from price and mix, and how much is coming from volume growth.

Rickard Gustafson: Well, we will not break up the organic growth and tell you how much is coming from price and mix and from volume growth. Both contribute to the growth. We do see, and as planned and as needed, a rigorous work in the different business units to drive efficiencies and also ensure that we expand into those verticals or segments that we're focusing on that will lift the overall performance of each business unit. They are progressing well. As we said before, magnetics and Aerospace is somewhat ahead of lubrication and seals in that regard. As I also mentioned, they are moving fast.

Speaker #6: But it is, you know, both contribute to the growth. We do see, and as planned and as needed, a rigorous work in the different business units to drive efficiencies, and also ensure that we expand into those verticals or segments that we're focusing on, that will lift the overall performance of each business unit.

Speaker #6: They are progressing well. as we said before you know magnetics and aerospace is somewhat ahead of lubricant lubrication and seals in that regard. But as I also mentioned that they are moving fast and in this quarter I like to highlight lubrication that has done a significant uplift also on their profitability performance while growing rapidly by by doing a you know solid price activities making sure that they are managing their portfolio to lift the mix and again moving forward in the automated lubrication space and also making sure that take advantage of the lucrative aftermarket.

Rickard Gustafson: In this quarter, I'd like to highlight lubrication that has done a significant uplift also on their profitability performance while growing rapidly by doing solid price activities, making sure that they are managing their portfolio to lift the mix, and again, moving forward in the automated lubrication space and also making sure that take advantage of the lucrative aftermarket.

Speaker #1: And if I may add, they have also done a lot of, you know, also operational measures, lubrication, and we’ve got a question here from Anders Idborg at ABG.

Sophie Arnius: If I may add, they have also done a lot of operational measures in lubrication. We got a question here from Anders Idborg at ABG Sundal Collier, also about lubrication. I think, Anders, your question was also answered here by Rickard. Of course, as Rickard said earlier, SIS is an important pillar for us to reach the industrial margin targets, midterm and long term. Lubrication did well in Q2, but we have a higher ambition than that, so still opportunities. With that, we unfortunately need to end this Q&A session. Time flies, and I leave it back to Rickard.

Speaker #1: Sundal Collier. Also about lubrication. So I think Anders you your question was also answered here by by by Rickard. And of course as Rickard said earlier SAS is an important you know pillar for us for the to reach the industrial margin targets midterm and long term.

Speaker #1: And we have, lubrication did well in Q2, but we expect it, you know, we have higher ambition than that. So, still opportunities. So, with that, we unfortunately need to end this Q&A session—time flies—and I leave it back to Rickard.

Speaker #5: Thank you very much, and thank you for joining. I know there are a number of other companies reporting today, so we are honored that you paid attention to us.

Rickard Gustafson: Thank you very much, and thank you for joining. I know there are a number of other companies report today, so we are honored that you paid attention to us. As I mentioned in my closing remarks, I do think that we closed a rather strong quarter behind us. We are excited about the future and our ability to deliver on our separation and build two even stronger businesses, one fully dedicated industrial and one for the dedicated automotive business. With that, I think we close this out, and I wish you all a wonderful summer. Thank you very much.

Speaker #5: as I mentioned in my closing remarks I do think that we close a rather strong quarter behind us. we are excited about the future and our ability to deliver on our separation and build two even stronger businesses one fully dedicated industrial and one fully dedicated automotive business.

Q2 2026 SKF India (Industrial) Ltd Earnings Call

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