AB SKF (publ) (SKFB) Earnings Call Transcript & Summary

Welcome, everyone, to SKF's Capital Markets Day 2022, coming to you live from The Smith Centre, here at the London Science Museum. My name is Stephanie Johansson, and I'll be your moderator throughout today's session. It's been 10 years since SKF was here last time at this venue, and 2 years since the last Capital Markets Day, which was fully digital. So it's very nice to have a live audience and see you all sitting here in front of me today. Today, I will be joined by SKF's management and other members of the leadership team who will be enlightening us, giving us their insights into what's happening on the strategy they launched back in February. And just sometimes for today, a short agenda. We'll be breaking for lunch at about 1:00 p.m., take a 1-hour lunch break, and we'll be wrapping things up probably around 4:00 p.m. this afternoon. So we hear from all of our presenters. And then at the end of the day, we'll have a joint Q&A session. So since February, since the intelligent and clean growth strategy was launched, so much has happened, both behind the walls of SKF and, of course, far beyond those walls. But SKF has forged on, accelerating on its strategy, moving from long-term planning and targets to really bringing that strategy to life. So let's get a progress report. And now I'd like to invite up SKF's President and CEO, Rickard Gustafson. Welcome.

So Rickard, before we actually talk about the strategy, let's talk about why we're here and maybe with this amazing painting behind us.

Thank you. It's fantastic. And first and foremost, warm welcome, everyone. And also warm welcome to those of you who follow us online. What I'm really pleased that we are actually gathered here in this particular building. And I agree with you, this kind of painting is from the GE factory up in Birmingham from the '50s. And I think it tells a pretty powerful story. That plant would be much without bearings, as you can see. So it's a natural space for us to be today. So I hope that drives it pretty nicely.

And as we heard in the introduction film, 20% of global energy consumption goes to overcoming friction. That's a pretty staggering number. And as a company that was founded back in 1907, with the purpose to reduce friction, I think you can really play a key role in this, how so?

Right. I agree with you, Stephanie. It's really mind-blowing to me that 20% of world's energy is actually wasted through friction. But with that said though, from an SKF point of view, it's great news. Because truly, the -- our reason to be is to help our customers to drive energy efficiency, reduce friction and also then reduce energy waste. That's what we do. That's the value that we provide to our customers. I -- it's also clear that when we look into this and also our capabilities, how that -- we can help and will help new emerging industries in cleantech also to evolve and grow. So we do have a very important role to play in many different industries. And that is also very evident when we reach out to our customers and ask them for feedback. How do they view us? And in a recent and independent customer survey, a clear message came through. As you can see here on this chart, our customers, they truly rate us highly. And from a Net Promoter Score, we outperformed the market average. And what the customer tells us, it's clear that they value what's in our product and the performance from our products, our reliability, our geographical reach, our technology breadth and also our innovative spirit. That's what they say and that's why they want to do business with us. I think these values, they are also the reason why we have such a strong position in so many different industries that we're going to share with you today.

So if we focus then on the strategy progress that's been made, tell us how you are bringing it to life.

I'd be happy to. And you will recall that we launched the strategic framework, intelligent and clean growth, back in February this year. And since then, we have worked extremely hard and diligent to deploy this strategy across our business areas. But before we go into more details of what we've done and how we intend to drive this forward, I'd actually like to reflect a bit, because clearly, the world did not play out as we anticipated when we launched this in beginning of this year. Actually, just after we launched this, we were facing a significant new challenge that we were not expecting. And we have -- we're facing a war in Europe. And of course, our first and foremost focus has been the well-being and safety of our people and that's still our main emphasis and focus. And clearly, we have worked hard to ensure that our customers have not been impacted by this. And I'm really proud to say that our factory in the Ukraine, in Lutsk, has been operational throughout this period. A rather astonishing performance from a -- customers have not been impacted by this. And I'm really proud of this number of people across SKF. But didn't stop there, we also have to face the situation with Russia and our business there. And rather quickly, we took a necessary but regretful decision to exit Russia. And the team did that in a controlled way within less than 6 months with minimal impact on customers outside Russia, also a rather strong performance. But I can't ignore the ongoing pandemic. Most of us live now in countries where we're back to more normal type of living again, but that's not true across the globe. And we all know what's going on in China, where there's still significant restrictions. And this spring was really, really problematic with a solid and big close down in both April and entire -- and May, having massive impact on supply chains, on our customers and also our employees. But again, I think we have managed well in those circumstances. And I give a lot of praise to all my colleagues in China for managing through this in a very, very difficult time. And then, of course, we also have to talk about the ongoing inflation environment, where we're now facing an inflation that we haven't seen in decades that we need to manage. And of course, our focus, again, has always been how do we make sure that supply chain constraints does not harm our customers? But yes, we have to push price. And we have to go after price and compensate for this ongoing cost inflation. And we have done a lot. I will talk about that, but we also acknowledge that we continue and we need to do even more. But with all of this said, though, I still firmly believe that the strategic framework, the intelligent and clean growth framework, is still as valid and relevant as it was when we launched it. And maybe even more important now to stay firm on our course to deliver on our financial targets and also in the future to unlock the full potential of our company. The key is rather how do we accelerate the implementation on this. And we have not been standing still since February. We've done quite a bit. And yes. we're going to summarize it a little bit after the launch. Really, already in March, we made a significant reorganization of the company, followed that up by putting in new operating model in place, having all of a sudden 6 kind of autonomous business areas with full end-to-end responsibility for their entire value chains, their balance sheet and their P&Ls, a significant change. And through that, we've also worked to develop our management team and we're coming to a kind of a -- to an end to this or we start to be complete with 2 recent additions. One being, Annika Olme, who joined in October as our new CTO, and you will see her on stage shortly. And the other one being, also joining in October, Henry Wang, heading up our China and Northeast Asia region. Henry is not here today, but I'm sure you will have a chance to meet him in future events like this in the near future. But we've done all of this for a number of clear reasons. We really want to make sure that we get closer to our customers, that we get more customer centricity. We want to build transparency and accountability across our business areas. We want to drive speed in our decision-making. And of course, we want to drive further efficiencies. And I'm absolutely convinced that by having these business entities as well, with full end-to-end accountability, would further develop more leaders within SKF with strong business acumen that can help us to take our intelligent and clean growth framework forward.

And Rickard, you mentioned the operating model that you introduced back in the spring and these 6 new business areas. Maybe tell us a little bit more about those changes that have been made.

I'd love to. And I'm going to touch on a number of things today. But first, I'd like to stress that we have worked hard to deploy the strategy in all these different business areas, across our different geographies. And today, you're going to hear from Manish, who heads up India and Southeast Asia; and also from John, who heads up Americas, how they have deployed this framework into their respective business areas. But we want to bring this framework to life today to you and give you some more insights. I'm going to touch on 3 or 5 main levers, how we see we're going to drive profitable growth. I'm going to cover 3 in my kind of introduction here. I'm going to talk about our targeted growth areas, I'm going to talk to you how we think about our portfolio management, which is key to our strategic framework and also how we think about commercial excellence. But there are other dimensions to profitable growth, and of course, one being technology and innovation, and that's where Annika will come on stage and share how she aligns her efforts and her focus to support our growth objectives within the framework. And of course, we cannot be and we cannot grow if we're not competitive and efficient. And you're going to hear from Niclas later on today how we drive efficiency in our business in terms of regionalization, in terms of cost efficiency and also on inventories and how we're going to -- aim to reduce those to increase our net working capital. But let me start by the targeted growth areas. And -- already, when we were in the makings of this strategic framework, we really worked hard to identify significant areas where we think there are sustainable size for a bearing industry, where we see strong growth trajectories and growth potential. And where we, as SKF, clearly, have a value add where we are a clear #1 or #2. And you can see some of that on this chart and to the Industrial distribution, Drives, Agriculture, Rail, just to mention a few. Those are the areas where we believe that we can play and we can add significant value and grow hand-in-hand with our customers. If we then look into how do we then perform in the first 9 months of this year. And on average, we have reported, as you probably know, a core growth of around 8% so far. But in these targeted segments, 9 months of this year, and on average, we have reported, as you probably know, a core growth of around 8% so far. But in these targeted segments, for the majority of them being with one exception, we have demonstrated strong double-digit growth, clearly ahead of the market. And I think our focus and our emphasis and our value-add really pays dividend in those segments. And this is how we think. This is what you should expect from SKF going forward, that our capacity, our resources, our capital and also huge potential bolt-on acquisitions will be aimed to further support growth in these targeted segment of ours. But as I also mentioned, touched upon that, there is one other key megatrend that will further amplify our growth opportunities and that is sustainability. And sustainability for us is really becoming a competitive advantage. And I'd like to bring that to life also in this kind of context. Of course, all of our customers, they strive to reduce their CO2 footprint and they put pressure on their suppliers. And of course, they put pressure on us. And we are willing to accept that challenge because sustainability has been core to what we've done for many, many years. And we have set aggressive targets. We want to be net zero in our own operations, i.e., Scope 1 and Scope 2 already by 2030. And we're making strong progress there. And in many of our factories, we are already there due to the fact that we have access to clean energy to a large extent. What we have done to make -- to create a competitive advantage is that we are breaking down our entire CO2 footprint across the entire value chain by bearing in a very trustworthy and transparent way, and we share that with our customers. And today, we win business because we are better than our competitors to explain what footprint our bearings bring to their applications, a clear competitive advantage today.

So Rickard, you mentioned earlier portfolio management is also going to be a key driver in this. So it's both, from what I understand, on the high strategic level but also more of a tactical level. Can you take us through what you mean by that?

Yes, I'd love to. And before I go into the details there, clearly, portfolio management is a fundamental part of our intelligent and clean growth framework. And it's somewhat new to SKF. Quite honestly. Now we view our portfolio as -- or our business as a rather exciting set of businesses, the portfolio of businesses, some dependent and -- sorry, dependent on each other and integrated on each other but also strong individual contributors. This is the way we operate. And when you slice and dice our portfolio, now I refer to our kind of a giant Rubik's cubes many times. I'm going to share 3 dimensions with you today in terms of portfolio management, 2 more -- being more strategic and 1 more tactical. Starting with 2 strategic. Firstly, I'm going to share how we slice this on an industry level. Then secondly, how we do it by business area or business unit. And then on the tactical point of view, I'm going to share some details on what it looks like when we slice it by customer. But let's start by the industry. And I'm going to use this chart to illustrate how we do this by industry. Each bubble here on this chart represents a industry of ours, and where we plot it on 2 dimensions, growth and profitability. And as you can see, the vast majority of our industries, they are pretty well positioned in these 2 dimensions. But there are also a few where you see a need for improvement and where you can further move things into different -- in different directions. And you can rest assured that for each and every bubble on this chart, we have tangible plans and tactics in play on how to move these across these 2 dimensions. But today, we're going to bring 4 to life to you. We're going to talk about tangible activities on how we're going to move these 4 industries on these 2 dimensions. You're going to hear Brian -- sorry, Stefan, start with Stefan, you're going to hear starting with Stefan share the insights on what we do with these 4 industries on these 2 dimensions. You're going to hear Brian -- sorry, Stefan, start with Stefan, you're going to hear starting with Stefan share the insights on what we do within the rail industry and our strong position there and use that to further accelerate growth. You will hear from Brian, on our extremely strong position that we've built over the years in agriculture, or ag business. And new innovation coming into play that will really help us to further accelerate also profitable growth in that particular segment. You're going to hear John share some light on a relatively small segment of ours, the food and bev, but an extremely exciting segment where we have capabilities and opportunities to really accelerate strong profitable growth. So I think that's going to be a powerful story that you'll hear from John. And then you're also going to hear from David, where he's going to explain his journey to transform a sub-performing combustion powertrain business into a high-performing EV powertrain business. So these kind of tactics and strategies by industry segments is a vital cornerstone to our intelligent and clean growth framework. But let's move into the other strategic dimension and the business area, our business unit dimension. And then within Thomas' business, what we call Independent and Emerging businesses, we find a broad set of autonomous businesses, being Lubrication, being Seals, being Marine, RecondOil and Magnetics. And Thomas and Aldara will bring in all the Magnetics business and the RecondOil business into more details and share more insights there and our exciting opportunities there shortly. I would like to stay a little bit more focused on the Aerospace business for a second. As you probably know, we have a very, very strong aerospace position and an exciting business in this area. We are covering both aircraft and helicopters. We have within what we call Aerospace, there are 3 kind of distinct business areas within aerospace, it's being engines, airframes and more advanced seals. Collectively, they make up a sizable business, just shy of SEK 5 billion, some 2,600 colleagues of ours and 12 distinct or dedicated manufacturing sites scattered across the globe, primarily here in the U.K., Italy, France, U.S. and China, a sizable and exciting business. But it's also a business that has been extremely impacted by the pandemic and experienced significant volatility. And trust me, I've seen that volatility from the inside in my previous life and that's painful. But also now, you can see that there's a big bounce back in this industry. And we also recognize that here, there's an active ongoing consolidation in this industry. And we believe that there is significant potential for additional shareholder value to actively participate in this ongoing consolidation. That's why we, today, announced that we have initiated what we call a strategic review of our Aerospace business, with the aim to further enhance the performance or its position within the aerospace industry. You should see this as a clear evidence that we are serious about our performance management activities. We will constantly look for opportunities to improve our performance or drive the shareholder value through portfolio optimization. And this particular one, with the aerospace that we're now embarked upon, has been something that really comes as a clear result of our focus on our strategic work. Through solid analytics within the company and discussions within group management and our Board of Directors naturally and has not been imposed on us from the outside, as some of you may have read in recent news. It's clearly part of our strategic framework.

And Rickard, what will be the time line for this strategic review?

Right. I don't want to commit to a certain time line because it is a strategic review, which means that we have not concluded which way we want to go. It can be either we can play in the game for -- actually acquiring more to strengthen your business or actually exit some or sell parts of your business in order to drive the shareholder value we discussed. So time will tell, but the journey is on. And I can -- but you should be absolutely sure that the aerospace team, they are working very, very hard and they are still committed to really deliver and maximize the potential of this business and stay focused on leveraging on those growth opportunities that we're now seeing in this bounce back in this industry.

So if we shift to the last dimension of portfolio management focus on customers, can you maybe talk about that, this pruning aspect?

Of course, I'd love to. And -- to do this, I'd like to share this kind of illustration with you. It shows our operating margin by customer. And clearly, you can see that vast majority of our customer contracts contribute nicely to our profitability. But not surprisingly, there are is also a tale, a tale of sub-performing contracts with customers that needs to be addressed. And that's why our new operating model also come into play, because each of the 6 business areas are now charged to, on a regular basis, constantly review their bottom performing accounts and define clear action plans on how their business areas are now charged to, on a regular basis, constantly review their bottom performing accounts and define clear action plans, on how they're either going to move it into profitability or a profitability level of our desire within a reasonable time frame or actually exit that business. Then we follow this up with our operating rhythm, where we meet and discuss the business performance of our business areas every single quarter and also keep an eye on how we're doing in this pruning of the portfolios. So I'm absolutely convinced that over time, as we get this new operating model and operating rhythm to work, you will see that, that's going to help to lift our underlying operating margin for the group.

And I know price is also one of these operational levers. So what's being done there? And is it enough?

No. That's a good question. And I'd like to put pricing into certain different type of context. I see it as part of a commercial excellence, commercial capabilities that we, as a business, need to develop. And price is, of course, an important fundamental piece of driving profitable growth, especially in the environment that we experience right now with high inflation. And we do believe that we have pricing power. And we have demonstrated quarter-over-quarter that our price mix and the trajectory of our price/mix is moving in the right direction. And for those of you who remember and recall when we announced our Q3 numbers, we draw your attention to that -- in that particular quarter, price/mix contributed SEK 1.8 billion positively to our results. However, we do acknowledge that the headwinds were even harder, and we had a deteriorating margin development. So we are not happy. And we know that we need to do more, and we continue to drive this aggressively. But it's not just price, but it's part of it, but also commercial excellence, I think, is key. And we know that we need to do more also to build strong commercial capabilities in our businesses to be resilient in a volatile environment. And there are 4 areas where we put a lot of emphasis at the moment. Firstly, we're looking into how do we improve our processes and governance in terms of sales processes and governance. We need strong governance in all our business areas to ensure that we minimize or, most preferably, eliminate any leakage, price leakage in our businesses. We need to continue to upgrade our analytical capabilities and our tools to ensure that we have equipped our sales reps with facts and figures and data as they engage in the conversation with our customers. And that we also have more forward leaning indicators so that we can be more proactive in those discussions than we have been in the past. We've got to be faster there. We also need to look into our sales structures. And here, I'm going to primarily focus on Europe because we have a heritage in our business that each country in Europe or EMEA has built its own kind of sales structure, and that is now being changed. And you're going to hear a little bit more about that when we get back to Niclas' session. And last, but absolutely not least, is what do we do in terms of our sales incentives? How do we align them so they actually are driving the right behavior and the right performance that we want to see? We want to make sure that we drive profitable growth, not just growth. And we want to make sure that our sales reps feel that they have skin in the game and the reason to also actively participate in the pruning activities that I described before. So sales incentives also would be key to this. So I believe that strong commercial excellence and capabilities are key to any profitable growth journey that you need to embark upon. And I believe also if we're now facing a recession to build these capabilities, be -- might be even more important.

So you mentioned driving profitable growth there. All these building blocks that you've mentioned now, how will they concretely do that? Why do you believe this will succeed?

There are a number of reasons for that, but, to me, this framework that -- this operating model that we put in place is more than just an organizational change or a strategic framework, it's actually a cultural transformation of SKF that we embarked upon. Really by driving this, as I said, we want to make sure that we get more transparency, more accountability, get close to our customers. Those are key that we continue to drive efficiency. It's absolutely vital. And this thing with portfolio management, it's so key because it's going to force us to also deselect where we should not play and redeploy our efforts and focus on the areas where we truly have significant value add and strong growth opportunities, as you've seen in a number of these examples. And I think you will hear more about that and bring that to life from my colleagues here shortly.

Thank you very much, Rickard. We'll see you later on this afternoon.

Thank you so much.

Thank you. So let's shift focus now and hear how innovation and technology development are enabling this intelligent and clean growth strategy. I'd like to welcome up SKF's new CTO, Annika Olme. Welcome.

So this is just a teaser of something to come later on, right? You have to have some good stuff with you on stage as well. So I'm really happy to be here actually. This venue is great. It has an industrial heritage. And I've spent 15 years at SKF. I'm really happy to be here actually. This venue is great. It has an industrial heritage. And I've spent 15 years at SKF, and then now I've been out of SKF for about 5.5 years, and I'm 2 months back in. And it's really, really exciting to see all of the opportunities that we have in front of us. And of course, being passionate about technology, this is what I will talk about now today. And the intelligent and clean growth, I will speak about that from a technology perspective. So what are we really doing in our R&D investments to ensure that we innovate and move forward and connect to that growth? What I will mention here has 2 themes. First of all, focus and second of all, partnership. It's about how we focus and how we actually partner with others to become stronger. Really listening to the words that Rickard mentioned, 20% of the world's energy is used to overcome friction. That's a staggering number, right? And we are at the core of that. This is our core. And I would like to share a little bit more on how actually development and innovation plays a really big part of this. In a recent EU study, it was then concluded that 80% of the eco footprint or the environmental impact of the product is actually determined in the design stage of that product. So when you actually make the product or design the product. So that means that technology and innovation is really at the heart of this challenge that we have. So we are doing a couple of different things to actually address this to make sure that we and our customers are able to do the right thing here. We're looking at a couple of pictures on the screens. As you can see, and you can also look a little bit more down here in the exhibition later on, on some ways that we actually work with ourselves and with our customers to ensure that we capture those 80% of opportunity to have the right eco footprint of our products. So one way that we tackle this is through improved design tools. And one of the design tools that are on display over here is actually our CO2 calculator. So with digital means, we let our customers actually know how do our products in their particular industry and application affects the CO2 emissions for them, so how much comes from our product, how much comes from their operations to enable them to make the right choices. The other part also, if you want to dig in a little bit deeper, we have an application that we share with our customers, SKF Bearing Select. And it used to be really looking at the reliability and the life of the products and optimizing that in the application, but now you can also look at the CO2 impact of your different choices of design that you make when our customers design their applications. So really bringing our knowledge to our customers' fingertips in making these choices. But it's also about people and awareness and how we put requirements on our products when we design them. So we're really working on awareness of sustainability and how we put requirements on the products that we make. So please make sure that you take a look over there a little bit later on during lunch. Intelligent and clean, let's stay a little bit with those 2 words and what they mean in terms of technology. Intelligent is really -- one part is really about data-driven intelligent products that are able to provide our customers with insights from data, from sensors, but also combined with our knowledge, which is unique for SKF. The other part is really about making intelligent offers to our customers. So specific customers and specific industries have different needs. So we need to make sure that we are application-specific and smart and intelligent in our offers. Clean, that's all about an environmentally sound business where we are transparent and responsible when we do business. And transparency is also about being able to tell our customers what is the impact on the environment for this product, data-driven and true numbers. The second part is also, of course, how we help our customers to save energy, reduce friction, but also how we support the clean and green industries, like railway, like wind, like the electrification area. So how do we manage and how do we look at this growth? Where do we expect it to come from? So we're looking at 75% of the growth that we are projecting until 2030 to come from existing products, existing markets and new markets. That requires a lot from us, and I will come back to that. 25% of our projected growth until 2030 is expected to come from new products. And here, technology, innovation, bringing new things onto the market is, of course, core. And how do we then do that? So our R&D investment allocation today, we are spending about 62% of our R&D investments on Sustain, and that means really to keep our core products, #1. So how do we stay #1? How do we make sure that this 75% growth that we are expecting to come from existing products really happens in existing markets, in new markets? We are spending some 25% -- sure that this 75% growth that we are expecting to come from existing products really happens in existing markets, in new markets. We are spending some 25% of our R&D investment on creating new products, application-specific offers for specific customer groups where we add value. Some 13% is spent on innovation or innovate, and this is about making these broad innovations, new technologies that will keep us competitive in the long run. So for the future, you can see the arrows here, we are expecting to increase our R&D spend and our efforts, especially on the Extend and the Innovate part, to ensure this 25% growth coming from new products. And I would like to dive into those areas a little bit more to share some examples with you on what is it actually that we do in these areas. And a great example of the Sustain. So an existing product that we've had for a number of years that really has high growth potential, it's the hybrid bearings or the ceramic bearings. And if you look at it, our ceramic bearing, our hybrid bearing is really a bearing, which has steel rings, but the rolling elements are made of a ceramic material. It's much lighter than steel, so that's one part. And it looks something like this, nice color. I actually have a pair of earrings with ceramic bone, so I would wear them next time. So the ceramic bearings or our hybrid -- the hybrid range, this one is really exciting because we are looking at some core customer value coming from doing this. So one of the things that are really key in this is that this material is electrically insulating, and that means that there is no current -- electric current running through the bearing. And that actually saves the bearing's life itself when you have electricity in the surroundings of a bearing, but it also saves the application that the bearing sits in. This is a core, core value. And really looking at this, we are looking at a product that we've had for a while that has extensive growth potential. And we will talk about that later on in railway, and it's also very much electrification in different areas, and my colleagues will share a little bit more on that later on. If we look into the Extend area, I think a really good example of this extension of new products to application-specific area is the agricultural industry and the agri hub, where we have really a tiered offer to different levels of customer needs, and the agri hub is a great example of that. We have the T100 offer that really, really caters to the agricultural industry, the agricultural machinery on a really good price point. And we also have the T400 soon to be released, and that one is for those users within that industry that has harsher environment. They require more life, and we can actually charge a little bit more for that as well. It brings more value to the customer. So that is what we're doing in agriculture but it's also relevant for many other industries. Brian will speak a little bit more about this, and you will learn more about this later on. An exciting example in the Innovate area is really looking a bit like this, and you could say this is just a bearing, what's the big deal, but it is a big deal because actually, years and years of creating knowledge in SKF, creating a lot of different capabilities and knowledges has come together to this. And this is also when innovating with partnerships. So one way of partnering is to innovate with a customer. In this case, we have worked together with ABB. ABB has the goal of having really a low CO2 emission electrical motor, and this is a big part of that. Remember the friction targets, right? So also the CO2 impact. So through all of these capabilities and knowledge that we have, we've managed to lower the CO2 impact of this product by 75%. And how did we then do that? Well, there were a couple of different things that we did. And actually, we adapted the design of the bearing with all of the knowledge we have on designing bearings, of course, reducing actually the steel usage, but also reducing the friction with some 30%. Another part that we brought into this was really the raw material sourcing. So this is then made by 100% scrap and recycled steel instead of using iron ore. That is also lowering the CO2 significantly. A couple of areas also interesting here is carbon-based into bio-based materials. So we're using bio-based polyamide cage in here and the [ sheen ] that you can see here is also a bio-based polyamide, and also a bio-based grease inside this bearing to lubricate it. And that is also based on years of knowledge about how do we actually use these types of lubricants with less and less oil content. So that doesn't come overnight either. And it all comes together in 75% less CO2 impact and I think that's just amazing -- 5% less CO2 impact, and I think that's just amazing. So partnerships is really, really important here. We cannot do everything ourselves. And we have entered in a partnership together with Combient Foundry. There was a release on LinkedIn yesterday. Some of you might have seen that. Combient Foundry gathers companies like Atlas Copco, Autoliv, KONE, Husqvarna Group, Scania as well as Stora Enso. And within this partnership, we get access to, of course, the partners themselves, but also a network of more than 1,000 start-ups across the world, bringing in new technologies, the technologies that are not traditionally in our core, but that we need to grow. So we're looking forward to growing this partnership in the next years and announced yesterday, as I said. Another really exciting adjacent technology that we will also come back to, both in railway and automotive later on, is additive manufacturing or 3D printing. And there's some examples down here in the exhibition also of that. This is, of course, an industry that we all need to care about, right, being a manufacturing company, and we will comment on that a little bit later on. But it's also key for partnerships, right? And last example of partnerships is what we have done together with AWS, or Amazon Web Services, on the SKF Axios solution, bringing really some abilities to our customers to get insights on their applications on all levels, and John will comment on that a little bit later on. So all in all, we are investing in both exciting and clean growth in order to, in clean growth. And we are doing that through focusing our own efforts, but also through partnerships and really going for those high-growth segments where we can get the growth that we need.

I have a few questions. Thanks for sharing all those great examples. You made it pretty clear that innovation and technology development are going to be crucial in enabling this strategy. But if you can pick kind of one thing, key factor, that's going to get you that, what's that?

So I'm actually going to say 2 things. No, I think one thing is really core here. For the 75% growth that we are looking for, for our existing products, we have to be #1. We have to stay at #1 with our competencies, capabilities and knowledge. So that's one core. But the other thing I would really like to highlight again is for us to focus on the growth segments, to focus on where innovation and R&D actually has the best return of investment in growth -- profitable growth for us. The focus is core.

And a question about R&D spend because back in February, it was announced that it would be increased by 50% by 2030. So will you do that?

Yes, we are on our trajectory to do that. We are increasing our investments. But also, we are making sure that we know what we spend money on, that we are spending money on the right things, at the right time to ensure that we get the growth we need. So focus again, and really making sure that we get the return of investment of R&D.

So finally, then when it comes to innovation, what would you say kind of sets SKF apart from the competition?

Yes, this was a discussion actually before with some of the audience. So I think a core strength for us is around the sustainability area. We have worked with this for a long time. You see that it's not a section in this meeting, it's rather that we will talk about it. And we do have really some traction, both on products or our own operations and all of those areas. And I think that sets us apart.

Okay. Thank you very much, Annika.

Thank you.

Talk to you a little bit later. So now let's shift gears and now focus on SKF's Industrial business and 2 areas where SKF considers itself really a true market leader, and that's Agriculture and Railway. So let's kick things off with railway, and I'd like to welcome up Stefan Gladeck, who is SKF Director of EMEA Railway.

Hello. Good morning, everybody. I also brought a nice piece with me. It went through Customs at the airport, at least I impressed the Customs officer, when I told her, it was a lady, that's a 3D printed piece. I impressed her, obviously. So it's a great pleasure for me to speak about railways and the ambitions we have in railways. I hear railways from you Rickard, I hear it from Annika, I hear it all over the place, so that is kind of music to my ears, I have to say. I would like to start with the major drivers of this industry. And before I start speaking about urbanization, I would be curious, how did you get this morning to this place? Did you take the metro? Maybe you raise your hand. Who of you did take the metro? Oh, that's a bad ratio. Next time -- there's a railway station just around the corner, so please. But if we talk about urbanization, think about a city like London, Shanghai, Mumbai, New York City, Rio de Janeiro, just around the world, Berlin, and I will come back to Berlin later on without public transportation and without rolling stock, trump metro commute trains, Think about it. And that explains why for the further ongoing organization, we need rolling stock for the next years to come. Digitalization is not by far, not a trend anymore. And it's one of the major building blocks of the transformation this industry, the railway industry is going through as we intelligent and clean. I associate very much intelligent with digitalization. I associate very much sustainability with clean. There are tons of opportunities of taking data from rolling stock, for example, from our products. If it is a gearbox bearing attraction motor bearing or wheel set bearing and then makes the best out of it, value for the operator for the franchise takers as you have a lot of them in the U.K. for the maintainers, but also for us and the passengers -- franchise takers as you have a lot of them in the U.K. for the maintainers but also for us and the passengers riding on the train and of course, for SKF as a supplier into this industry. Globalization, in short words, think global, act local. And it's not a contradiction to regionalization and localization. Regionalization and localization is going hand-in-hand with customer requirements. And having, for example, engineering, production, customer service and many other services for our customers close to them is key as well as it close. It is very important for us to have suppliers close to us. Sustainability is already a reality with the shift to net-zero emissions and the push from many governments across the world for what we call the road-to-rail shift. I would like to quote at this very moment, the CPO of Deutsche Bahn, I'm German. So I have -- I'm very close to Deutsche Bahn and, of course, other global railway operators and customers. But Mr. [ Cote ] was saying at the railway form of Deutsche Bahn last year in September, CO2 is -- will not become, it is the new currency. And it happens. We see it in specifications, I can tell you. Finally, talking about the modernization of fleet programs. Many of the trains in service, maybe 5, 10 years old have another 20 years to go, and they are not aligned with the new regulations and the new kind of trends in this industry in terms of digitalization and sustainability. So they call, they cry for upgrades, and this is a fantastic opportunity for us as well. Looking at our kind of growth ambitions. And the baseline is the SEK 4 billion we will achieve this year with our global railway business. And -- about the other numbers, let me explain a little bit. Most of the established and railway experienced research institutions are forecasting a sustainable growth in railways, actually, not only until 2025, far beyond until 2030. And as rail is the most sustainable way of transportation, me as a railway guy, I have to say it like this. It is seen as a backbone and a key contributor to the CO2-neutral mobility and operations. We concluded in our growth assessment, 3 different studies from these railway expertise with 4% year-over-year until '25. And actually, in some of the studies, some will go to 2026, some to '27 and '28. This is kind of continuous number, this 4%, you will see. And by the way, this includes inflation. Well, before I start talking about the number you see on the screen, the 7%, well, we aim to generate substantial growth in areas where we have low market shares and there are some where we have low market shares. And then there is, of course, the digitalization and sustainability part which is becoming, I repeat myself and refer to what Mr. [ Cote ] said from Deutsche Bahn and many other industry leaders from the big OEMs, it becomes a criteria award topic, precisely what you were referring to, Rickard, when you showed this -- the number on the screen that we are asked, okay, how much is this disparing Scope 1, Scope 2, CO2 emission? How is it disparing in use in terms of CO2 emission. And we have to give numbers to our customers, not out of the air, not out of the blue, really concrete numbers, and they are fixed in contracts. Let me come to freight transportation. If I would have the time to ask you all what you bet, how much freight cars we have in operation around the world as we sit here, 5.2 million freight cars in operation more than 90,000 freight locomotives. And by the way, many of them diesel powered. And I don't need to tell you that diesel doesn't have a bright future. So looking for new drives. I just would like to come to the European freight market, which is undergoing heavy modernization, automatization, digitalization activities. And I can tell you, there's a huge demand over the next years only in Europe for new locomotives and it's not going to be diesel locomotives for new chanting locos and it's not going to be diesel chanting locals and for 10,000s of freight cars. Germany's governments across Europe are not only funding the road to rail shift with heavy budgets. They also define in loss the CO2 emission to be saved. I would like to refer, again, sorry, Germany, the Klimaschutzgesetz, the climate protection law, which was set out by the new government in Germany associated with a big budget, but with a clear target, you have to save 48% of CO2 by 2030. And there is another topic. There are new high-speed trains, very high speed trains, electrical multiple units, no diesel multiple units with alternative traction options, battery-powered, hydrogen fuel cells and so on and so on, and they are on a continuous growth path. And we have a strong position with our portfolio. wheel set bearings drives portfolio for gearboxes and motors for the propulsion part with our bearings in this area. And I believe with our product portfolio and the extraordinary measures -- wheel set bearings drives portfolio for gearboxes and motors for the propulsion part with our bearings in this area. And I believe with our product portfolio and the extraordinary measures we are taking in terms of sustainability as it was described by [ Alrick ], also by you, Rickard. We have excellent opportunities and also in the -- of digitalization to outperform the growth. And that's how we come to the number of 7% year-over-year until 2025. And I tend to say beyond up to 2030. I would like to tell you how we want to get there. I only had 10 minutes to speak about it. So I picked three cases. One thing is about the life cycle partnership we are entering with customers. For me, our top leaders in the industry, the OEMs, but also the operators and also some Tier 1 suppliers are for me, technical partners. And we entered with one into a life cycle partnership. Trains are designed for an operational life of 30 years and more, 32, 33, 35 years. And for this reason, our OEM customers are entering into life cycle commitments with their customers. And -- we did actually the same thing. In 2021, for the first time, we signed also into such a long and life cycle commitment with our customer. The operator, in this case, is Berliner Verkehrsbetriebe, you might recognize, BVG, yellow trains. And we signed for a contract of 606 coaches. We have various products in this train. Our contract was mainly focused -- the performance, key was mainly focused on wheel set bearings, and we're talking 10,000 wheel set bearings. And we committed ourselves on 32 years of life cycle cost commitment. By the way, this train has on the traction motor side, hybrid bearings, 100%, 100% delivered by SKF. Under this contract, very important to say, we do the refurbishment services in our newly inaugurated refurbishment center in Schweinfurt. We have some 20 refurbishment centers around the world. I would claim in the key railway hotspots. One of them, Schweinfurt, yes, but not so far away from here, we have also one, Luton and we lately announced we will have one in Kiruna. So you might say Kiruna hotspot for railway, Yes, there is a very important customer who needs our help to be serviced with its railway bearings. What I tried to say with this slide and what I try to say where we make the difference is our customers don't need us only for today and tomorrow. They need us also for the day after tomorrow. Well, digitalization, turning data into action. I just would like to start right away with the summary of the slide, and I hope I get the message over to you. A more digital railway is driving sustainability. And this is done via data acquisition, and we have quite some experience here. More than 20 years, we are supplying equipment for condition monitoring and predictive maintenance into rolling stock equipment. So we have experience here. what we are doing different now. The data is processed into our cloud and turned into actionable information via SKF algorithms. And all this to enable and improve and to make at the end decisions, customers to make decisions, but also we -- to help our customer to make a decision. Such a decision could be, for example, to extend the maintenance interval, which is really a significant cost improvement for our customer. And helps them to reduce costs of course. But another element is also if you do the extension of the maintenance interval, you have a sustainability effect in terms of the improved carbon footprint balance sheet. Another aspect on this is that we have, since 2 years, what we call a rail digital transformation program we have developed for our customer interfaces. And this is not PowerPoint. You can actually visit customers here in the U.K. widely used with OES customers, where they use digital platforms where they have real-time data coming from the trains and we see precisely the condition of our products in service. And they use it for their maintenance fleet programs as well. So digital transformation drives sustainability. And I hope I could transform this message to you guys. Now talking about customer-centric innovation. We heard about reducing friction, reducing weight, the same applies, of course, for railways. And we have the situation that we announced during InnoTrans 2022 in Berlin, for example, talking about weight, a new developed Y25 axle box. And it's, to my knowledge, one of the lightest axle boxes in the marketplace for freight applications. And of course, we are working in many other fields to support friction reduction, weight reduction for all kind of railway applications. But I would like to come to the sample case, the one which impressed the Customs Officer at London Heathrow Airport. I believe here we see the combination of digitalization and sustainability in one little piece from my perspective. 3D-printed, additive manufacturing, we started to work in this field quite some time ago. We have actually stolen with pride if I may say, so from our automotive colleagues, David will definitely touch on it and learned quite a lot. This one is in a wheel set bearing, and we tested under true conditions, we call it end conditions, European norm conditions. So European norm defines more or less the operational pattern, and we tested it. And we found it with excellent norm conditions. So European on defines more or less the operational pattern and we tested it. And we found it with excellent characteristics after the test. The issues you might ask yourself, why is it not in operation, very simple. There is no standard in norm to it, but we don't want to wait that somebody comes up with a standard and norm. We try to set the scene. And by the way, we are not only printing, this type of material, we also print cast material for axle boxes. Coming to the slide. Of course, you have this advantage of the build to print, which means you don't have inventory. You push the button on your computer -- and here, you have a piece within short. So no problem on lead times. And then the other thing is prototyping, but not only prototyping. We really try to aim for going into serial production. But I believe that requires a little bit more time. Let me come to the end. Railway industry is globally on a steady growth path, and we want to outperform this with the number I've shown to you with innovation, innovative products, further drive the journey on friction reduction, weight reduction, sustainability and digitalization. And of course, don't relax on our strong position we have in the railway market. I thank you for your attention. And I would like to hand over to Brian to talk about Agri. Please, Brian.

Thank you, Stephanie. Let me be the first to say good afternoon since it is afternoon now. And thank you for joining. It's really a privilege to be here to talk about SKF's global agricultural business. As Rickard presented, Ag is one of our key strategic segments in our long-term plan. I think it's important to start with a look back on our results in order to set the stage for why we are so confident that we'll be able to double this business by 2030. Our mission is absolutely clear, to drive profitable and sustainable growth above the market. And as you can see, looking back the previous 7 years, we've achieved this with a compounded annual growth rate of greater than 13.5% and doubling our business since 2016 versus the market's growth of roughly 5%. We are clearly winning share and positioning ourselves as the brand of choice going forward. with an ambition to clearly continue strong compounded annual growth rates. Of course, we cannot predict the ag market will do over the next 7 or 8 years, but we are confident on an annual basis, we'll be able to outperform Ag is a cyclical business and when the market cools, that's when our Ag customers and companies often focus on new product development and redesign of existing. We SKF double down during this time. to get closer to our customers, connecting closer on these new opportunities. So when the market bounces back, we actually get an exponential bump in our business. This is exactly what happened during the last slowdown, and is reflected in our historical growth rates since 2016. With this growth over the past 7 years, SKF is now arguably the leader in market share in Ag. In addition, we have the widest and broadest Ag bearing and seal portfolio to the industry with reach to OE and aftermarket channels. But what sets us apart, what truly sets us apart is our deep knowledge around Ag and our global way of working, which I'll walk through now. Our strategic approach is to drive that outside-in engagement with global and regional leaders to develop industry-leading solutions based on their voice and their market needs, acting borderless as many of our customers are global with an entrepreneurial spirit and a can-do attitude. Everything we do revolves around the customer. A truly customer-centric approach to the business. Our frontline team of sales and application engineers, they connect and are the main connectors to the customer. And as I mentioned, engage early in the development process. This is very, very important. You need to be present early on. These teams leverage and apply our deep knowledge and technical competency depending on the customer's application and machine. Agri has many different industries or subindustries may I say, that are significantly different knowledge is needed. For example, seating, tillage and harvesting, it's a rather harsh environment, obviously, bearing is running close to the ground, deep ceiling knowledge is required as contamination is the failure point. When you look at tractors, transmission and drivetrains in Ag, it's a relatively clean environment, but a heavier loaded and compound loads. This requires extensive knowledge around fatigue and metallurgy. While [ Alon ] and Garden, which targets light commercial and even consumer products, requires knowledge around reducing friction and actually reducing cost given the competitive nature of this business. With the customers' requirements fully understood, our application team seamlessly and quickly connects to our regional competency centers spread throughout the world. These competency centers have the responsibility to connect the full value chain. They play a pivotal role in prioritizing projects. The funnel is quite large, but prioritizing, focusing on those have the greatest impact to SKF's top line, but actually, more importantly, to our bottom line. They act as a bridge to our R&D, bringing those customer requirements forward. And they coordinate the timing and action for everything from finalizing the designs, prototypes and testing and validation. And finally, they leverage our extensive manufacturing footprint and steer the opportunity to the factory that's in the best position to industrial -- and finally, they leverage our extensive manufacturing footprint and steer the opportunity to the factory that's in the best position to industrialize the opportunity. This all adds up to a fully connected value chain that enables us to be quick and responsive to the market opportunity. Ag, of course, is a very seasonal business. And meeting these tight testing windows is critical to be gaining those awards. This way of working, we believe, is clearly the best-in-class and a significant differentiator from our competitors. As we visualize and position the ag business into the future, we're also guided by the global industry macro trends. In the broadest context, global population is growing. Today, it sits at 8 billion. It's estimated to be 9 billion by 2030, some 6% increase. In other words, there are more people to feed. Limited land, at least limited plantable land and the difficulty securing labor along with the drive to reduce greenhouse gases by 2030. In turn, this leads to the trends in machines and equipment to drive for faster, more reliable equipment for greater productivity, precision farming maximize the yield per acre, improve crop yields and a greater push towards electrification and autonomous. I'd like to now show an example of this new innovation guided from the market drivers I just discussed, as [ Annekan ] mentioned, we're getting ready to launch our second-generation T400 tillage hub. We set out to improve on the original design, something that checked all the boxes. We have improved sealing and a capability with lighter drag, which reduces fuel and energy needed to drive the implement. A better seal also contributes to greater uptime, something that's very critical in a farmer's very compressed schedule. A more robust solution designed for higher speeds and larger commercial farms where productivity again in yield are critical. This all added up in our initial lab test to a 4 times greater life than our T100, 4 times better life with a solution. We're a truly industry-leading solution, and we're really excited about this launch, and we have great expectations. I'd like to wrap up now with this. We are confident in Ag is positioned to deliver profitable and sustainable growth for SKF from these three perspectives. Number one, the market. Ag continues to show really strong long-term fundamentals. With population growth, feeding the world will continue to be a challenge. Our position by leveraging our strength and competencies with those relationships with the global leaders. We're positioned to be the development partner of choice as those customers embark on the future of farming. And our solutions, we will continue to invest, we'll continue to innovate in order to deliver valued solutions that our customer and their end users value allowing SKF to win and very importantly, get paid for this step-up in performance. Clearly, we're excited. That's a Sunrise, not a sunset. We think the future is quite bright in agricultural. And again, thank you all for your time.

And maybe we can bring up Stephanie again. I have a couple of questions for you as a follow-up. And Brian, as you mentioned, SKF, you said, is a true market share leader here in Agri. So do you see any other areas where there's untapped potential.

For you. Yes. No, it's a great question. Thank you, Stephanie. The profile of the ag is I'd roughly say 70% OEM and 30% aftermarket. Our profile our SKF business is more like 87%. So with only 13% market share, let's say, or 13% of our profile of our business in aftermarket, we see this as a great opportunity for growth. So we're going to be focusing more on the aftermarket. It's also extremely profitable, as you all know. So a great opportunity to grow share, but again, focus on growing our profitability. The other area that I would say is a growth area is when you look geographically, we're extremely strong in Europe and extremely strong in North America. Latin America is a very rich farm area as well. And we see that as a great opportunity. We do well there, we can do more. And then we look at India and we look at China as great opportunities for additional growth.

And Stephanie, the contract you mentioned, the 32-year long life cycle contract, that's pretty impressive. So how unique is that? And is it profitable?

Well, first of all, for us, it is indeed unique. But for our customers, OEMs, it's quite a common way of working with the end users. The tricky part here is, of course, we are taking kind of a risk but we do the risk mitigation to a very thorough design work, but also testing. As we speak, we are testing the application. It's kind of a subsystem with the wheel set bearing and the axle box. We are testing beyond what is required from the standards to be really on the safe side. Now coming to the second part of your question, it's about the profitability. It's very much on us and with the combination of the refurbishment in -- part of your question, it's about the profitability. It's very much on us. And with the combination of the refurbishment services we are doing, it's on us how we can drive the profitability from a medium to a very high profitability. And the other part is what I believe is very important we are for 32 years of the life of the train with our product on the wheel set.

And you talked a lot about digitalization. So I'm curious when it comes to data and diagnostics. Where are you in compared to what the competitors are doing?

Well, there are many out there which are collecting data. And they are doing not a bad job, I would say. But the difference is, and that is where we have a strong point. We know, so to say, the algorithms, we know the behavior, we know the firmware of our product. We know what is healthy and what is not healthy. So when it comes to the condition of the product bearing, we know precisely when to do what in terms of the maintenance. And there's another nice thing, which I forgot to mention earlier when we were talking about refurbishment. We are doing -- we are equipping our bearings with the DMC code, Datamatics code, the QR code. And we do that, for example, in Moncalieri, our Italian railway service center, but also now in Schweinfurt. With this particular contract, so customer has full traceability for the whole lifetime. It's like a fingerprint on the bearing QR code and in and outer.

Interesting. So to finish off then, Brian, we'll finish off with you. You both talked about customer value. I'm thinking -- you also talked about testing? How important is that in the process with your customers?

Thanks for the question, Stephanie. Actually, we work obviously collaborate with our customers, but we spend a lot of time in the field. And over the years, we've developed very specific test methods and test rigs with the whole goal to simulate what really goes on out in the field. And we use this primarily for our own design, our own R&D and to validate before we bring this solution to the customer. But more and more, we're working with these customers there -- they're using our data and our insights in order to model it into their systems. And in some cases, it actually speeds up the release to market because they're able to do lab testing, rely on our lab testing as a forward approach for their validation. So we get to market quicker and more effective.

Great. Thank you to both of you very much. Thank you.

So now we're going to shift to the regions where SKF is winning in the regions, and we're going to start off with the Americas. And I'd like to invite up John Schmidt, who is President of the Industrial Region Americas.

Thank you, Stephanie. Again, good afternoon, everybody. So today, I want to talk about how we're creating customer value that delivers sustainable, profitable growth. And to do that, I want to go through two examples to illustrate a few aspects of the strategy that Rickard highlighted in the beginning. One of those is having a regionalized competitive supply chain. And for the Americas, that's very important as we are a net importer. 40% of what we sell is made in our region. Secondly, we're going to talk about this new operating model and how that really works, having the end-to-end responsibility in the region and how that results in us acting with greater speed and more efficiency. The third aspect we'll talk about, you've heard from Rickard portfolio management in a few different dimensions. We're going to talk about an example in our services business around portfolio management. And then lastly, I'll touch on the power of leveraging partnerships to accelerate our growth. So we talk about that there's a focus area for us that's agriculture and food and beverage. You've heard Brian talk about our agricultural business. The example I want to cover is the other side of that, I'll talk about a food and beverage example and then we'll talk service. So if we go to this customer that's called Heat and Control, and you can see the equipment that we'll talk about. The blue ring in the upper left-hand corner is the bearing solution that we'll highlight here. Heat and Control is a company that makes unique high-performance equipment for processing. And in this case here, I'm going to talk about the value proposition in action. How do we actually do this and highlight a few aspects of our strategy in that. So first and foremost, we're guided by the voice of the customer. And as Brian talked about, that's this leveraging the deep application knowledge. But what's very important here is about collaborating with the customer and the last bullet is critical. It's about having a local fully connected team in the region accountable, that's how we work with speed with the customer. So I want to walk through an example that illustrates that. So this starts with a customer saying, "I have a seal problem, help me." They know we're experts in this and they bring us in. We don't launch right into the seal issue, we just take a step back and say, wait a minute here, what are you using this and what are you ultimately trying to accomplish? And in that discussion, we bring our two engineering teams together, and with the team, very quickly, one of the worst first to realize is it's not a seal problem, that's a symptom. What we have as a structural rigidity issue is and the good news is that we have a solution for that. We have a slewing bearing that we can put in there that will solve that, but there's even better news. That bearing can be manufactured in our La Silla, Mexico facility, which is where we recently did a world-class manufacturing investment that allows us to have state-of-the-art technology for manufacturing the solution in the region with the customer. So we kept going down this journey with them. I'm trying to understand what they really want to accomplish in the application. And the other thing we did was we brought in some mating parts that help simplify their assembly process. So the gearing gets incorporated into the bearing. And again, this technology we invested in Mexico makes that quite easy to in an automated way, incorporate into the design. So let's talk about the -- what's the end solution, what did it deliver? So it's backward compatible. We get longer service life. We get maintenance free. And as I talked about, we bring components into the design. But the last part is really important, speed to market. The way of working and leveraging what we have is how we move much quicker with this customer on this. And this process worked so well that we weren't even through this one and the customer brought another application on the table completely different same process, different outcome different solution. But after doing two of those, the customer is very excited about this and it's had a big impact on a product they're launching. So they actually wanted to leverage SKF in marketing this. And they want to explicitly highlight working with SKF and the value of working with us to create this solution. And you can see a quote here from Blake at Heat and Control, and he highlights a couple of key aspects of how we work together in this. It's that we develop a partnership that's key, and it did create a customized solution. But really, the last part, it's transforming the horizontal motioning -- aspect of how we work together in this. It's that we develop a partnership. That's key, and it did create a customized solution. But really, it's the last part, it's transforming the horizontal motion conveying category. So working with the customer, leveraging our technology, bringing all the components in the region. So we had product development, application engineering. We have the solution that we had the factory in La Silla involved, we leveraged technical specialists and seals out of our Salt Lake City facility. That whole team helped create a technical step up in the application with the customer. So let's talk about -- we talk about sales growth. This helped the customer grow their business what did it do for SKF. So this is a relatively small customer for us. With the solution you see on the screen there, our sales this year have increased 20x what they were last year. With the second solution I talked to you about the kind of guy kicked in right after this, that will take our sales next year for this customer to 2 to 3x off of this year. So you can see the value creation and how we've generated significant growth, and we've helped the customer in growing their business. And this just illustrates the strategy and action in food and beverage. And Rickard talked about how this is a relatively small area now. And you can see now how we're quite excited about the opportunity in food and beverage. So let's switch gears and talk about services and then touch on another couple of aspects of the strategy. So here, I want to talk about portfolio management, and we'll talk about partnerships. So if we look at our service business, what we're trying to accomplish here in the Americas is we have a -- for those who followed us for a number of years, you know you've heard of our Latin American service business, it's a very large business, creates tremendous value, improving reliability. It's also actually an area where we've done a lot with sustainability and putting the circular economy, bringing it to life in the contracts. So naturally, the goal is to transplant that into the North American team and leverage those capabilities. Truth be told, over the last few years, we haven't been satisfied with the level of growth and traction on that. So what we did here is we looked at the portfolio, took a deep dive on it and really trimmed it a bit and refined the portfolio that we offer in the North American market, but we also did something else. We needed to speed up sales. We looked at the sales cycle and looked at how the portfolio was positioned with the customer. The net result of those two things resulted in the North American service business now growing above our average and growing profitably. So this is the impact of that. And while that's good, there's another step we need because that focus is on critical assets. because we're typically focused on things like paper, mining, steel, big process industries, and there we focus on the critical assets. And these solutions we typically offer hit that spot. But we needed to address something that hit the "noncritical assets" which is really the big universe of assets. And to that, as we've talked about we wanted to go to lever look at partnerships. And [ Alrick ] talked about the power of partnerships and that being important to us. Here, we partner with AWS. And the net result is we're piling this first in North America. We're launching SKF Ag skills. And what this does is it really hits the mark on that other part of all the -- for noncritical assets, we're giving customers something will allow us to monitor much more assets because it gives -- it's automated, has AI-driven analytics in your hand. So it's giving people actionable insights, but very importantly, at a very good enter cost level and basically easy to implement. So you need this to be seamless out of the box, really easy to use. So whether it's five sensors, 500 or 1,000, it needs to be easy to implement. There's different challenges for the noncritical assets than the critical which we normally look at. So if we look -- if we step back at our portfolio and say now and then we have it covered. So on the left side, you see the advanced portfolio. So whether it's wired, wireless, and that's where we focused our portfolio management, addressing that. But we had a hole in our portfolio on the right there. And through a partnership, we quickly addressed what we need for the noncritical assets. So whether you're a customer that needs the state-of-the-art technology for the most critical assets or whether you're entry level, now the portfolio covers the full breadth. To put in perspective, what that means in terms of growth potential, the attainable number of assets that we can now measure is some 50 to 100x greater than when we were only focused on a sliver of the most critical assets in a specific area of the big process industries. Now with this technology, you can apply it just about anything. So it just creates a much bigger universe for us to start making an impact and connect with more customers. So in summary, when we talk through this, I think you can hear that we've made some significant traction in some key areas of the strategy. Whether it's having a regionalized footprint that's competitive, combining that with this different way of working, having end-to-end accountability in the region. So you have all the resources at the customer bring in your very best with speed and that you can see in our Heat and Control example in the growth or if you look at portfolio management, which has been talked about, and you'll hear more about that, what that's -- how that's transformed our North American service business. And then lastly, if you look at partnerships, power of looking outside when you need to leverage an external partner, in this case, to fill a key hole in the portfolio and allow us to accelerate our growth. With these examples, we see good traction already early on with the way we're driving the strategy. And so frankly, we're very excited about the future. And with that, I thank you for your time, and I'd like to turn it over to my colleague, Manish.

Thank you, John. I'm going to be the second person after Brian to wish you good afternoon. But more importantly, Brian mentioned population growth in the world. He said we'll grow from 8 billion to 9 billion -- but more importantly, Brian mentioned population growth in the world. He said we'll grow from 8 billion to 9 billion by 2030. Guess where the additional $1 billion will be living. India or Southeast Asia. Today, we'll talk about how we are -- I believe, certainly, we are punching way below our weight in SKF's global business. SKF India operations is about 4% or 5% of what we do globally. And of course, we can do and we must do much more India is today the world's fifth largest economy with expectations, it will become the third largest economy by 2030 behind just the U.S. and China. GDP growth sits at 6.5%, 7% every year, the rest of this decade. So we have to play a much bigger role in India. We think -- and you'll hear our story today, we think we can double our business in India in the next 5 years, growing at about 15% CAGR versus market growth of only about 7%. When I say only still a large number, but 7% CAGR. So we plan to double our business in India in 5 years. How we'll get there is through regionalization. You heard Rickard talk about in his opening remarks about how regionalization is a key part of this new strategic framework. And today, we'll share with you three examples of regionalization in India. And of course, when you think of regionalization, we think mainly of manufacturing, how can we make more locally, but we'll talk to you today about regionalization across the entire value chain. So an example from technology, an example, of course, from manufacturing, an example from sourcing and how it's good for our customers and it's, of course, good for us. For customers, it helps them become closer to their customers, cuts their lead times allows them to develop products and solutions locally. And of course, it's great for us. We become more sticky with them we also become much more cost competitive and improving our margins. The first example we have is around technology or application development, which goes hand-in-hand with that. how we can work very closely with customers in bringing to life new products and solutions more adapted for that market. Some of you may know, many of you may not know, we have a very large engineering center in India. We call it the Global Technology Center India or GTCI. We employ more than 200 engineers there. We really work on cutting-edge technology development, it's product design, simulation, predictive diagnostics, life cycle, et cetera, et cetera. A few months ago, we had a power transmission customer called Premium Motion. They came to us and said, "Can SKF help partner with them to develop a solar tracking system." If you don't know what that is, it's a tracking system, which allows the PV panels to follow the sun. So when the sun moves east to west, this panel also moves along with the sun, it allows the panel to absorb most of the radiation during the sunlight hours, and that's good for creating more energy. You see an example here. This is from -- this picture here is from [ Bhardala ] power plant. It's a world's -- solar plant. It's the world's largest solar plant in the world. Up north near Rajasthan, the average temperatures here are 46 to 48 degrees C. That's average, not peak time. It's really important to us. Anyway, so these folks came to us and our engineers raced around the clock to work with them. We adapted the ISO standards. The tracking systems are a combination of actuators, gearboxes and motors. What they wanted differently this time was they wanted this tracking system to work not just with one panel. They wanted to work with four or six panels at one time which meant they want the bearings to have a higher power density, a much higher load carrying capacity. And of course, given the conditions at many of these solar farms, wanted to be absolutely low maintenance. So our engineers at GTCI worked with the customer, adapting the ISO standards, working with raceways, change in contact angles. And within 2.5 months, not only had we built designed a new kind of bearing. We'd also made a pilot production of 5,000 bearings at our plant in Pune. And these 5,000 bearings are now in field testing right now. We think they're going well. We think we'll get to about 200,000 bearings with just this customer. But why this is important, India gets a lot of sunlight, as you know. 4 of the 10 largest solar farms are in India. There are two in China, one in Egypt. I think John, one in the U.S., a couple in the Middle East. But 4 of the 10 largest solar farms are in India. So the potential here is so much more than just this one customer. We think while the market will grow at about only 7% CAGR, we want to grow 10x that revenue in just this market and gain share of about 10%. So that's an example regional CAGR. We want to grow 10x that revenue in just this market and gain share of about 10%. So that's an example of regionalization of technology. The next one we have is regionalization of manufacturing. How can we cut lead times to make our customers more competitive. KHD Humboldt is a German company. They came to us in India. These guys, by the way, are the world's largest supplier of OEM machinery to cement plants. When you think infrastructure, you have to think cement. These guys have been in India for many, many years, our share with them, zero. Why? Because we were importing, well, these guys make roller presses, which go into cement plants. They are the world's largest installed base of roller presses, which if you don't know what that is, that's okay. They are the presses grind clinker, which goes into cement. And those presses need four CRBs. Our share with them zero. Why? Because we were importing these rollers and the bearings from China and Europe. Lead times of 13 months, if you're lucky, 18 months, 15 months to norm. And of course, which customer wants to wait that long. Therefore, our share was zero. In the last few months, we have now developed local manufacturing capability. We are now manufacturing rollers in Rajkot and using those rollers to manufacture bearings in our Ahmedabad factory, our share with this guy now, 45%. And again, if you're looking at doubling our business in India, we have to be in the infra space because most of the CapEx in India, and in fact, Southeast Asia will be driven by infra bills, new infra bills. And we have to be in cement. And if we did not do this manufacturing locally, we really would have no chance to grow our business to where you want to be. So that's manufacturing regionalization. The third example we have is around, again, renewables, but this time wind, around sourcing. So we spoke of technology in the first example, manufacturing in the second, and now sourcing in this example. Wind turbines rotate very, very slowly. There's a gearbox, which converts or that -- or corrects rotational speed so we can generate electricity at the right frequency yield by the grid. This gearbox sits in between the blade shaft, the main shaft and the generator shaft. In this case, we have a reasonable share in the gearbox business in India, but not good enough. And while we manufacture the bearings in India, the steel for those bearings comes from Sweden. If you thought the lead times on the previous example were bad, you should hear these lead times here. 18 months minimum. Now given that wind is a long-cycle business, we get that. But nevertheless, 18 months minimum to import the steel, then turn that into a bearing clearly not a great place for us to be gaining share. So over the last 1 year, we have now localized that steel in India. 2 grades of steel, grade 255 and grade 170 have gone through all the testing internally and externally, localized, approved. It's cut lead times to half where we were earlier, made us much more cost competitive. And we really hope to grow much higher than market CAGR here. Today, our share is about 20-odd percent in the gearbox industry. We want to get to 32% in this space, and we are well on our way to get there. So hopefully, you saw good examples today of regionalization. These were India examples where you could apply the same to many of our regions around the world. Absolutely. You saw good examples on technology, manufacturing, sourcing, helping us get closer to our customers, gain more share with them, become -- become more sticky with them, become more cost competitive, be more profitable. And 5 years' time, I hope to come back and see all of you and said, yes, we have now doubled our India business. Thank you.

Thank you, Manish. You can actually stay on stage. I mean we can invite John up as well. Amazingly hear those cases on how to speed, how fast you've been in really a lot of these cases. But John, maybe we'll start with you. You mentioned the [indiscernible]. Case and I know we have it on display here, too. Maybe you can talk a little bit about that, kind of what the status is on it.

Yes. Thanks. First of all, it is on display in the back corner there is a video, you can watch on it. So we're piling is in North America, as I said. And so right now, we're in the mode of putting the infrastructure and processes in place. But the part that's really -- that we're really excited about is we're doing customer pilots. And the customer pilots are really validating aspects of the ease of installation, easy to get these things out of the box and get running. And that's actually fueling a lot of creativity on how you can deploy it from a typical maybe the more critical asset type solution. So early stages as we're putting this together and putting everything we need to rev this up, we're really excited about what we're seeing in all the pilots that we're running.

And if we maybe talk about sustainability, which everyone has talked about it, I think you talked about it being a competitive advantage for SKF. What is it like in your region, John? Do you kind of see it as being almost a way to win contracts. Is it important for your customers?

Yes, it is absolutely important. And I can tell you there's some specific examples recently. If I look, particularly in Latin America, we have some service contracts we won recently that the qualification or the criteria is absolutely important. And I can tell you there's some specific examples recently that the qualification of the criteria for deciding who wins the contract had a very significant component that was related to how we impact on sustainability. Now the good thing for that -- for us is that, that plays to our strength because we've been piling, we have an offer that whether it's RecondOil, remanufacturing bearings and the various other things we've been driving that are quite measurable. And as Richard talked about, we can actually quantify what the impact is. So there is a much bigger push for this to be part of the decision criteria. And we actually think this actually is something we're excited about because it's a differentiator. There's no question when you look at what we bring to offer here.

And Manish, would you agree that kind of the same in your region, are customers more demanding it today?

Well, they were requesting a few years ago, but nice choice of words, i think, they're demanding it now. They're demanding and not just PowerPoint slides. That's a big change. They are asking us specifically tell us what are your net 0 goes? What are your govern disclosure norms? And how will you get there and share with us the progress granted, then not everyone is in the same place, John where your customers are in the Americas, but I think the journey has begun. And if we have to win more in India and Southeast Asia, we have to become more cognizant of these customer demands.

Okay. Thank you so much to both of you.

Thank you.

Thank you. Let's move on to our last session before lunch, turn to emerging technologies and growth bets within SKF. And I'd like to now welcome Thomas Frost, who is President of Independent and emerging business.

Thank you. Thank you. Good for you.

And we'll be up shortly to talk about RecondOil. So -- but we'll start with you if you can kind of give us an overall picture of this business. I know it's a very wide and varied portfolio.

Absolutely. So let's go to the first slide. So well, I had the pleasure to lead this part of SKF's business for the past couple of years. And what we did actually, in addition to renaming it early this year to independent and emerging business. I think the other part of this was really clarify more end-to-end responsibility, full value chain to ensure that we continue to even accelerate the focus on these different businesses. So there are now 7 businesses all in all, where you have 4 of them being more established, so to say, sales lubrication, aero and marine, where 3 are more of the emerging kind. So we have RecondOil. We see it over there. On the left side, we have magnetic bearings. We see some examples down there. And we also have a technology we call Lascading, we have in this business. So it's quite exciting and portfolio of businesses. But quite sizable as well, just shy of SEK 20 billion in sales outlook for '22, good growth rates. We are some 9,000 people all over the world with around 43 sites we are operating from.

And so we're going to focus on 2 of those areas where you see real potential, tell us about those 2?

Yes. When we did the strategic review here, end of last year, ending up to the strategy we concluded earlier this year, we selected 2 areas to pressure test, so to say, in terms of what we see in terms of future opportunities, so magnetic bearings and record. So I thought I'll talk a little more about these 2 today.

Okay. So if we start off then with magnetic bearings, tell us a little bit about how this can really enable industrial development, green industrial development.

Yes. Magnetic bearings is a journey for SKF over the last 20 years. We did the first acquisition back in 2000. We acquired a company in Canada in Calgary. And a few years later, we did an additional acquisition in France, a company called STM, and this is today the backbone of this business. We have some 250 people and been growing double digits here for the past couple of years. And what we saw when we did the strategy work, we are actually proving now in real life. We are actually growing at the pace, maybe even slightly ahead, and we will be passing SEK 1 billion here shortly in sales. And when you look at this technology, what does it actually do? It's not lower, just lower friction. There is no friction. To imagine yourself the shaft is hovering on a magnetic field, it's pretty cooler.

And we actually have a -- we see one levitating going back there at the back, we can look at there.

And it's not just less agree with lubricant. There is no lubricant in this technology. We talk about condition monitoring, you heard John talk about the condition monitoring. And traditionally, with this technology, you listen to the bearing and so is the bearing in the right state here, and you can determine them when it's time to replace the bearing in good time. Here, we don't have to monitor the bearing because there's nowhere, there's no friction. But the interesting thing to position the shaft in the main field, you have sensor in the nonrotating partner. And we position the shaft around 15,000 times per second. Well, we've got a gap which is fractions of a millimeter. So you better keep it right down. But what we see now based on much higher computational power, you can also listen to the entire machine. So if you imagine yourself a process running in perfect condition, you can take a footprint of that. Now it runs perfectly. And then you can listen to that footprint versus the actual and this you can hear through the bearing. So a lot of our R&D here going forward will be around building those digital twins where you actually can use the bearings as a sensor of the whole machine.

And I know actually digital twins are one of the things in use or in the works at one of your customers at TAM Turbo, who builds air compressors in Finland. So let's actually have a look at that case and see this technology at work. [Presentation]

Powerful illustration. And I think we have on the slide here. Avi, basically, we can talk about this technology in all areas of compression. We talked about we saw an example of air here, you have chillers, which is cooling in every shape and form. And this is, of course, in relation then to the demands we have sustainability requirements we see going forward where we believe very much in a fantastic future for this technology. Actually up on the left-hand side there is a quite interesting technology is related to gas compression. And the unique thing with this is that this compressor stands on the seabed 500 meters below sea level. Why do you want to put it there? You know what it is in a gas well at certain point, it loses his self precious. You need to put more pressure in there to get the gas up. But you have, of course, a pressure drop, the further away the compressor is. So if you can put the compressor close to the well, you can get more gas up. This we did a couple of years ago is in the North Sea. It was a kind of R&D project. And now it's been running for close to 7 years, I think, with 100% availability. So the gas industry is looking now very, very closely to this for going forward to explore this technology across the world. And I'd say that we are probably the only one who can master this technology in this field. It's very, very advanced.

So a lot of possible.

But also maybe it's worthwhile mentioning, you see here on the slide hydrogen, actually, quite some technologies used in hydrogen compression is technology is coming from the oil and gas industry. And we can see here, we have actually one example where we know it's coming. We didn't just know at what pace it would be coming. And already this year, we see a quite significant part of the bag baring business is related to hydrogen liquefaction.

So big potential there. So let's move over to the other focus area we're going to talk about today, lubrication management. Tell us a little bit about that business before we go to RecondOil.

Lubrication is, of course, is a critical element of any tribological system. So if you are a bearing company, you better know a lot about lubrication. So what we have done over there past 20 years, we have acquired ourselves in an absolute leading position in lubrication systems. And for you have followed SKF. We have done a number of acquisitions in this area. As you saw before, it's quite a sizable business today, over SEK 7 billion in sales. And where do we see the opportunities there. Of course, vast majority of the world's applications are still manually lubricated. So can you do it in a more automatic ways is, of course, a way to reduce waste. We also know that a lot of bearings failure because of lack of lubrication or poor lubrication or rod lubrication. So everything you can do there to improve that, our bearings will work better. And lubrication management, that is what you do, for example, in a factory, the process around lubrication management, it's around 2%, 3% of the typical maintenance budget. But in terms of the actual indirect costs are not doing this in a proper way. It's 40% to 50%. So it's becoming absolutely mission-critical for our end customers. And John was talking earlier about our service business and how we are trying to grow that. And of course, lubrication management and all the capabilities we have there is a very, very critical element of accelerating our service business going forward.

And so let's actually hear now about the SKF RecondOil offer.

No, let's do that. And maybe before Aldara joins me here, which you might have read about this small acquisition we did 3 years ago. Swedish start-up. And of course, it goes into the lubrication management total offer, but we have been managing separately here because it was a startup and to make sure that we kept the right focus and drive in terms of development. So quite exciting. So Aldara.

Welcome, Aldara. Now you can talk a little bit maybe about what the overall benefits are of this and tell us a little bit about the SKF RecondOil technology.

Yes. Thanks, Stephanie. Well, of course, if we think a little bit about the lubricant market business, we have mostly a new industry that has linear use of a limited natural resource is the steel was we extract, will we find, we use and we dispose. And we can all agree that this is not the path for the future. even the lubricant manufacturers recognize this reality, as Thomas will tell you a little bit later. So with the acquisition of RecondOil, what SKF has found is the actual key to enable circularity in this industry. And how do we do that actually with our unique technology, what we do is eliminate contaminants down to the nano level from the oil. So we made it possible to use it over and over and over again. And what this means in terms of environmental impact is that every time we don't need to extract a cubic meter oil and we can regenerate it, we reduced the CO2 emissions by 96%. And to put that a little bit in numbers, we talk from 3.8 tons down to 8 kilograms of CO2 when we do this. But I think furthermore, when we generate and we continue using the oil, also when we continue to scan the oil. We maintain it at an optimal or lubrication performance. And that will have a clear impact on reliability, on friction, and it will be quite critical for both SKF products and processes, actually.

And I know you started off by implementing it in your own factories. Why didn't you do that?

Well, it was a twofold reason, I would say. First of all, as Thomas said, RecondOil was acquired slightly less than 3 years ago. So this was the best way for us to truly accelerate the development, validation and optimization of our technology. So we've basically gone from innovative concept to fully proven globally deployed Industrial Solutions in under 3 years, when it's quite remarkable. So that is the RecondOil type of things. Of course, for SKF, we have heard a lot about intelligent banking during the day. And this is, I think, the very definition of intelligent and claim for manufacturing. So how do we actually support our net 0 ambitions within SKF. So what we have done is to install these solutions in 2 of the most critical manufacturing processes for SKF. Quenching, that is the very beginning, let's say, of the life of a bearing is where we define the structure that will determine the life of this very but also on the very, very last manufacturing processes, various holding. And that will have a direct impact on the surface finishing of our products. And I think you have heard from Amit, of course, and Ricard 20% of the energy in the world lost to friction. And here, what we have seen with the installation of the RecondOil technology is that we make our services simply by using them in this process. 20% smoother that will have a clear impact on the friction of wherever that bar goes into application. And we have 2 cases where we have implemented this in our automotive manufacturing for hub bearing units where we reduced 20% of the fiber down bearing goes into application. And we have 2 cases where we have implemented this in our automotive manufacturing for hub bearing units where we reduced 20% of the final roughness of these products. Of course, it will have an impact on friction, but it will also have a clear impact on the noise and vibration of these components. This is not very critical today because we have the combustion engine to cover all of this noise, but it will be a clear differentiator further on our electrification journey that David will tell you all about after lunch. And also, the last step that we did with our manufacturers, we installed 2 systems in SKF Skewinefood and SKF Ceftola where we offer this oil regeneration service to our customers as well. So for example, in SKF Ceftola on from, we have one of the factories for the Volkswagen Group as a recurring customer where they send one of their critical oil to our factory for regeneration.

And I know we see some of the systems there on the screen, but you actually brought a display in the SKF RecondOil box. Let's see here if we I join me here.

I did not bring it in my age like stuff.

You didn't put it in your suitcase. But tell us what role this is going to play in the next phase of RecondOil.

Well, as I was saying before, the main path of RecondOil has been developing a validation of this technology. So our next challenge is to scale this up. And as you can see a bit here, we are doing that by literally scaling down. What you can see here is, yes, we're a RecondOil box, and you can see the footprint is around maybe 1 square meter that if you compare to our stand-alone solutions, those are around 50 square meters. So with the RecondOil box, we're basically reducing all barriers of entry to bring this technology to our customers. So we're reducing the footprint, obviously, the complexity, the cost. At the same time that we are increasing flexibility. I mean, what you see here is a 1 chamber system. But basically, with the same control system that you have in this part, we can add different numbers of liters depending on the demands of the lubrication system at the customer.

So it's modular?

Very modular indeed.

Compact the modular, I guess. Okay. So if we go back then tell me what are then the overall value drivers for customers if we boil it down to a few.

Yes. Well, I think we have established a sustainability, of course, is one of the key values, reliability as well as we have seen in our factories. I mean we keep the oil constantly in your machine will run better and longer. And what we are exploring now is what is actually the effect on efficiency. We have seen this in our manufacturing processes, but when we install this at the customer. And we have worked very closely with our colleagues in technology and also with final end customers to validate this potential. And we have seen very, very good indications, for example, of the average efficiency that is continuously clean oil coming into an application. We have done some testing for gearboxes, for example. When we can reduce the temperature by always having this optimal lubrication properties, and that could have an impact of around 10% on the energy efficiency of that application. So if you think actually about it with particularly with lubricants. When we talk about sustainable technology, there's always a little bit of a stigma around it. It might be sustainable, but it's never quite as good as a traditional one. And with the RecondOil solution, where we have eliminated all those trade-offs. You reduce your environmental impact, you increase your reliability and your energy efficiency. That is through sustainability, if you think about it.

And I imagine it must be kind of a door opener of customers to all of SKF. So maybe talk about a few customer cases.

Yes. And it's a bit interesting how this technology has been placed with customers. So on the price on side, you have an aluminum manufacturer in France, where we actually don't provide any of the critical bearings. But of course, they will have the very ambitious sustainability targets for themselves. So the recoil box was our opener for SKF into this customer that has been followed for other offers on sealing and lubrication systems, for example. Then we have another customer on the energy sector, West Energy in Finland, where the installation of the recoil box in some of their critical hydraulic systems have brought down their maintenance cost by 80%. So the reliability aspect of the technology. And also, we have an example with a heavy vehicle parts we have here, where we have installed the recoil box in actually the manufacturing of the under courage for the -- of highway vehicles. And hopefully, soon, we will also be able to offer a mobile solution for the actual system. And this is 1 of 5 oil as a Service contracts that we have signed in Italy recently, averaging 2 years and totaling SEK 2 million. And what is different with this is that we have moved from a transactional sale to a performance-driven fee-based contracts that link us to the customer for in a much closer collaboration, of course. And lastly, I would like to mention Marine, one of our end-to-end technologies very, very stringent demands on sustainability for the marine applications. And one of the area actors of RecondOil, we have replaced the RecondOil box in several stabilize systems, and we are working very, very closely with our colleagues in Marine to bring this to the next level, the energy efficiency part. So what if we could put this in the propulsion system. There we provide betting for the main shop. We provide sealing. We provide lubrication systems. So this sims just a perfect fit for that. And it's a very, very exciting project that we're embarking ourselves on.

It will be exciting to follow that. Let's invite Thomas back up. I have a question, a follow-up question for you then about the lubricant companies. What are they saying about this? Are they interested in this technology?

Yes, they are very interested. But actually, when we did it, it happened very fast. And of course, we sat on to, as Aldara was saying here, developing very quickly and using our own factories. But we're also a very big customer of the lubricants. So we work with the big lubricant companies. And of course, this technology gained quite some interest on. And it say, over the last couple of years, we have been engaging more and more and more. And towards in addition to working together in our own factories, also look at how can we explore let more and more. And towards in addition to working together in our factories, also look at how can we explore leveraging this technology in a closer partnership. So a couple of months ago, we announced collaboration with Quaker Houghton, one of the largest providers of process lubricant in the world. And if you follow SKF, you might see that yesterday. We released a press release together with the BP Castrol, pretty famous name in this industry, where we'll be looking then jointly to great end customer value. And for me, by the end of the day, it is to make this happen as what Aldara said before, it's about an oil and it's about the chemistry in this and how to gave that level of canines. So you can avoid oxidization and by the end of the day, keep the oil or the lubricant for life, it becomes an asset. And I think this -- so you can kind of say we are trying to enter into new market a circular economy market for lubricants. That's the market we are coming into. And what I see in addition, of course, to that we open up the go-to-market channels for this technology. It plays hand in hand. So we do a lot of development. Of course, can we then tune these oils. So it's perfectly compatible. In addition to keeping it alive for life, so the asset life, you might have to what you can say, readditivate oil. The additives are the part of the oil, which actually gives a functional properties, so it's worked in a certain application. And of course, it's not our knowledge what they have put in there. But what we also see here is that there will be incentive for the lubricant companies to actually provide that surface. And then we can enter that market of full circular use of oil. The technology is there.

So exciting. Thank you so much to both of you. Thank you very much. And now I'm sure everyone is hungry. So we're going to break for an hour for lunch, and we'll see you back in 1 hour, all of you online as well. Thank you very much. [Break]

So welcome back, everyone, here at the Science medium and also to our audience online. Welcome to our afternoon session of SKF Capital Markets Day 2022. So this afternoon, now we're going to focus on, first, the automotive business at SKF. And to do that, I would like to invite up the President of SKF Automotive, David Johansson. Welcome up, David.

Thank you, Stephanie.

So let's start off as we see here. In February, it was announced that this SKF as part of the strategy would be one independent global automotive business. So tell us what you mean by that and what the ambitions are for the business.

Yes. Let's start with the ambition. So 2021, we were selling roughly SEK 21 billion to the automotive industry. If we look up to 2025, we are expecting average growth of 9% per year. So ending somewhere around SEK 29 billion. That's basically in line with the overall group, so in line with the strategic so ending somewhere around SEK 29 billion. That's basically in line with the overall group, so in line with the strategic framework as well, which was launched. But more importantly, and I think that's the story also that we will talk about today is more about the profitability. Early this year, we were down below 2% operating margin in our automotive business. And when we look on the journey up to 2025, we are aiming at 8%. So the key expectation on me on the team, on the automotive business is, of course, how do we turn our business into a sustainable profit generation. And I will try to talk a bit about that story today. If we look on this bridge, let's say, from 1.8% up to 8%, the operating model, which we also launched, we call it an autonomous or independent automotive business. Basically, what that means is that we can take control of the value chain. And I think automotive is about having control of your value chain. You need to control the cost, you need to drive efficiency. You need to know where you are aiming and you need to have transparency. So in this improvement, up to 8%, 2025, roughly 3% to 4% of that operating margin improvement is coming from portfolio and on quick growth or rapid growth in selected segments, you saw the percentage already. Another 2%, 3% simply on cost. So cost in the value chain that we drive out cost an additional 1% roughly coming from being more tight on our contractual agreements on annual cost downs or quick cash, whatever you call it.

So before then -- before we shift to the strategic growth areas, we're going to be focusing on, let's start with where we are now and the financials, maybe tell us the actions that are in place there.

Yes. I think already in Richard's session, we spoke about the dynamics that we have had in the industry in general during the year, and perhaps automotive has been even worse. Adding to automotive was also the semiconductor crisis. which has really made also demand supply very dynamic. But then we had the Ukraine war situation. We have a manufacturing base in Ukraine. And of course, COVID lockdowns up and down in China has also impacted our business. Those are all external factors. I would say internally, we also came into this crisis, which with a quite weak business portfolio and actually difficult to answer who are we in automotive. And you might have asked this question to SKF 2. Who is SKF in automotive? And I think we have been struggling a bit on that point. Who are we? So we had urgently, of course, to deal with pricing and compensation, how do we stop falling. We had a massive cost inflation hitting to us, not only driven by energy, but also, of course, resourcing of materials, resourcing of steel also away from Russia, which also Richard mentioned. So pricing and compensation with a high sense of urgency was, of course, key. Q2, Richard mentioned SEK 1.2 billion in pruning. So we started to attack also the existing business portfolio and start to take out what is no longer relevant for us, what is no longer attractive or meaningful for our journey ahead. Then what I mentioned, organizational efficiency I think in the new operating model, we have a chance to make it very clear, what's the accountability of the colleagues and people in our organization, the factories involved and so on. So we started to drive that. And one key point mentioned here on the slide is the full transparency. And I must say here, we have been lacking. I came into automotive 2019 when I was still based in China. And one key element for us to bring forward was the transparency. So really know what's happening between your left-hand in manufacturing and supply chain and you're right-hand and sales customer. So then if we turn to the growth areas that you're going to really focus on and reposition SKF portfolio tell us what those are? Relatively simple. So 3 areas selected for profitable growth. That's it. One is join the electrification trend, which is obviously happening not only the electric powertrain but also selected parts of where we land actually makes a difference. So electric vehicles, strong growth, commercial vehicles, mainly Asia. I will talk a bit more about what's happening in Asia right now, but the upgrade of commercial vehicle fleets, buses and trucks in China and India predominantly. Super interesting, we can lead the trend. And thirdly, the aftermarket potential. We have a strong brand, and we'll come back also to this one a bit later. The cultural change related to this is to dare to be selective. So we also have 2 areas in the background of repositioning, shifting our portfolio. One is the famous passenger vehicle wheel lens, hub bearings and the secondary is the drive control. So suspension and steering basically, where portfolio, we need to go quite hard on the portfolio management aspect and find where can we create value here. So that we can also capture value in a more sustainable way. 2025, it will look roughly like this. So 3 buckets, 1/3 of our business will be related to powertrain, 1/3 of the business will be related to wheel ends. That is both commercial vehicle wheel end, so truck hub unit, bus hub unit and passenger vehicle hub units. And the vehicle aftermarket another third. So truck hub unit, bus hub unit and passenger vehicle hub units and the vehicle aftermarket and other third, relatively balanced. And if we come back to the famous part of the hub bearings, which is done only one part of the wheel ends, it will be less than 20% of the total business that we are turning. And that's a quite big contrast to where SKF automotive used to be in the past where the hub bearings were the majority of our business and perhaps where we were pushing the hardest. But now powertrain is coming up strongly as a growth area for us due to electrification.

Yes. And so we see there 1/3 of the business will be in powertrain. If we focus on electric powertrains, why is SKF so strong? And that's my lease.

I think you have heard it between the lines at least early on today that with electrification comes higher speeds, that's music to our ears and also comes stringent requirements on noise and vibration. So finally, also in the powertrain of a vehicle of a passenger vehicle, you have the requirement suiting the core capabilities of SKF very well now. Those are areas that we have been working on in industrial drives since the early days of electrification. So powertrain is coming our way, let's say, and becoming much more a part of our core capability. Another key aspect is that we have-- SKF has proactively invested seeing that electrification is coming, mainly in China, but we should also recall that 60% of the EV business is today in China. So China is huge. And we have been proactively investing in having a full value chain capability what Manish is talking about in India for EV, we have it in China, all the way from advanced product development to the supply chain. We can also be a local partner to customers, and we are a clear market leader in the China EV market today, explaining some of that 66% that you see here in our growth.

How then is the financial performance in EV powertrains? Is there a positive trend there?

Right. So let's again start with the volume. So the overall powertrain business of ours is SEK 6.5 billion last year. This will grow despite the pruning that we do, despite the portfolio management activities I spoke about up to SEK 9.5 billion in 2025. So what's that, some 10% CAGR. That is overall powertrain. If you then look on the EV-related part, it will grow 45% per year. So we had 66% this year. Coming into next year, it will somewhat slow down, but over this period averaged 45% growth, the market is at 30% why we outperformed the overall market is that we are really strong in China but also now rapidly growing in the other markets, too, and actually building up a similar full value chain capability in North America. Margin journey. So again, coming from a very fragmented and diverse portfolio, we zoom in basically on 3 bearing types, the DGBB, deep grew ball bearings, the cylindricals and the tapers, focus on the high-speed shaft and the reducer. And of course, having a more simple approach and more narrow range and creating better value for customers, we can also create better value for our shareholders. So 3.2% was 2021, 9% will be our operating margin 2025.

And you have a few key customer cases when it comes to electric powertrains. So tell us what SKF is doing with its partners in this area.

Right. We had a press release earlier this year with -- about our collaboration with New actually since the founding of Neo SKF has been the application development partner for the electric powertrain. Neo is playing more in the high-end EV, one of the newcomers, let's say, still in the China, in the booming China EV market and now going global. So I think you start to see some news running here on the streets, and they are launching in Germany since a couple of months, high-performance cars. Interesting here, what Anika referred to as a core capability with the hybrid bearings, Neo is one of the front runners in introducing ceramic balls, ceramic ball bearings in their drivetrains. Why? Run higher speeds, the higher you're going speeds the better power density, meaning the smaller powertrain we can put into the car. But you also have the quick charging capability, 800 volts. And that is introducing an increased risk of having electric damage somewhere in your electric drive system. And like Anika explained also here with a ceramic ball, you basically insulate the system and remove that risk. The hybrid revolution is then not only pushed by Neo, but we really see this part of the business expanding quickly next year. We have a full value chain locally to serve new in China, and now we tag along for the European market launch. If we look on the more conventional players or the long established players, we also mentioned a case with Volvo cars earlier this, they see more conventional players, so the long established players, we also mentioned a case with Volvo cars earlier this year. Volvo is also pushing the electrification agenda quite ambitiously. But important differentiator for Volvo is also sustainability. So just like we have been, want to be, intend to be the front runner in sustainability, so we sit with Volvo. So we tag along on this journey also connecting to Polestar, of course, in their drive systems and their wheel length in really taking on the race towards carbon-neutral passenger vehicle solutions.

So their carbon neutrality sustainability, that constant strive to reduce friction is also really a part of your technical partnership with F1 team Scuderia Ferrari, which you've had for 75 years. Tell us about that.

Yes, 75 years of constantly driving for reduced friction, and of course, power density and higher speeds. So we are proud of this partnership. We are not only in Ferrari cars, by the way. We are probably in all cars that you see racing, but Ferrari means something special for us. And this year, we also took on the next level of challenge. For you following F1, you know that they are also heading down towards net-0 2030 just like we do. So together with Ferrari, we decided to take this challenge jointly. Let's have a quick look on that. [Presentation]

And you can actually see we have a longer version in the exhibit film explaining concretely what you're doing together with Ferrari to meet those goals. So David, what are the other links between F1 and the overall automotive business at SKF?

One we mentioned already. The ceramic balls actually started in Formula 1 years and years ago. Lighter power density, again, having the chance for higher speeds. So now we see from this year, massively growing next year coming into mainstream applications, one example. 3D printing was up earlier, Stephan's famous cage. We are also starting 3D printing in F1. This year, we have proven that for the powertrain bearings, you can actually achieve at least the same performance. But what is interesting then is, of course, that you can disruptively work on new designs, and you can also make it net-0. So two examples, I think, of how F1 and the race is helping us to bring innovation into mainstream applications.

And F1 is really a test bed for innovation. We know sustainable innovation is in SKF's DNA. So can you share other examples of what your automotive team is doing in regards to innovation?

Let's come back to the second focus area. So we spoke a lot about electrification, but commercial vehicle is very interesting. And what's happening in China and India right now is that the fleet owners and also governments are pushing the requirements up, quality, comfort, but also total cost of ownership. This, of course, means that also the wheel lengths and the powertrains need to perform better. Actually, I see many similarities to railway, which is my background, where we were heading down the race to 2 million, 3 million-kilometer bearings. Commercial vehicles are basically heading the same way. So strong links between the technology development in Stephan's business and what we are doing in Automotive. So commercial vehicle innovation, I would say, has shifted from Europe to China. China is today the fast-moving country when it comes to extending maintenance interval, extending service life and also trying new innovations. So similar, again, to the India story, where we also have now a full capability for commercial vehicle wheels lengths in China, we are also, let's say, independent in how we can run with the local players a full value chain engagement and those are big players. Another area, intelligent and clean we have also introduced. So what does this mean? We also start to sensorize more and more chassis and powertrains. Here, it's not what John mentioned in process industries or in general industry to sell and provide sensors. This is actually to learn more about the application, to master the application deeper together with the customer. So this is an area where we work with selected partners, selected customers, equipping their test benches or vehicles with advanced monitoring systems and then plugging it into our simulation software and so on. Main driver not only to have a more reliable powertrain, but predominantly to shorten the time to market. And I think what China EV players are doing now is to challenge the whole status quo in time to market for vehicles and virtual validation, meaning the possibility to simulate is 1 key enabler in that and that's this co-investment done between us and selected OEMs, Tier 1s to help to speed up time to market.

So if we turn to the final portion here of the 3 different growth areas, vehicle aftermarket, it's always been a strong part of the automotive portfolio. What are the plans for that?

We are growing quite well the last couple of years. It's an important part of our business. We have expanded our range. We have expanded our reach, and we will continue to do that. But also in this area, actually some cleaning ongoing, also to simplify our range a bit to be strong at core, where can we differentiate, where can our brand and our efforts add value. We have similar growth numbers as what we spoke in powertrain. So remember the 3 buckets. This journey is also from roughly SEK 6.5 billion to SEK 9.5 billion in 2025 with double-digit operating margin. Last point about vehicle aftermarket and why we put this as a third focus area is that it's also counter cyclical typical to the OE business. So in terms of making sustainable profit generation, we need a strong VA business. And personally, I believe we can push this area even stronger. Thanks to the strong brand heritage of SKF and also the engineering capability that we have.

So David, then to sum up, what are kind of your reflections about the overall journey forward for SKF Automotive?

I think the main journey so far since I joined this position February, March, has been to try to simplify. I think we need to simplify for the full value chain. Who are we in this business? Where can we add value so that we can capture value and daring to challenge that old culture that we need to be everywhere. It's not true. So it's also really spending time with customers, not only on price increases, but also explaining what's our contribution in new mobility. Three growth areas, I think a high sense of urgency in the team. And finally, a more balanced portfolio that to me is much more linked to the core of SKF, as I know SKF than what Automotive used to be in the past, not only railway, but imagine electrification, electric drive systems now finally coming into cars. It's close to our core. So those are my main reflections that finally, I think we find a natural home and way forward for this business to inside us.

Thanks, David. And maybe we can bring up Rickard, maybe you can comment because I know there has been a discussion in the last few years around SKF's Automotive business. What do you want to say around that?

No, it's true. And I'm going to reinforce what I said when we launched the strategy back in February, and I think David articulated very, very clearly. The Automotive business is an integrated and important piece of our portfolio, and you have found your home within this. And clearly, there are synergies and dependencies leverage between the Industrial business and Automotive business. We have not been pleased in the past with the profitability of this business unit. And with the strategy that are now being deployed by David and the team, I'm absolutely convinced that we will deliver a solid and sustainable business that will be a part of SKF long term. But what I also said back in February was that I wanted to create more strategic flexibility, and I still stand for that. And when we hear about the investments that we do in terms of regionalization, in terms of world-class manufacturing and other things that I know Niclas is going to talk about. We're also going to do that with a lens on our eyes saying that how can we use this to further create more autonomousness within Automotive. So that long-term strategic flexibility is something I think is a value add. Then you may not use that flexibility, but at least you have it.

Maybe we can bring up Annika also to comment here because both David and Stephan mentioned 3D printing, additive manufacturing. Do you kind of see the potential here for SKF's future?

I definitely see the potential. I mean there's a couple of different parts of additive manufacturing that are relevant. And part of that is for plastic materials and the other one is for metallic materials. And of course, metallic materials, we've seen an example here with the F1 collaboration. But I see really the strength of additive manufacturing when it comes to metals is really on serial production moving forward. And that is really why it's interesting to any manufacturing company that manufactures something in metal to really look into this. That technology needs to move forward. And also, we need to be better at designing for additive. It gives us a lot of design freedom. And with our core competence and knowledge, actually, we can then actually do more. So you can also ask yourself then, is this then a disruptor? Is this a risk for us? Is this a threat? And you could say, yes, of course, it's disruptive in terms of manufacturing, but you can't just manufacture bearing without the core knowledge and the key competence that we have. It's an opportunity for us actually to have more smart manufacturing and also, I would say, costs down, actually.

Thank you very much, Annika, Rickard and David. Thank you for the session. So now let's switch over to the financial side of things and to do that, to talk about productivity and performance is SKF's CFO, Niclas Rosenlew. Welcome up. Welcome, Niclas. So earlier, we heard Rickard talk about in his presentation about a few of these key operational levers, he talked about growth areas, price, portfolio management. I know there are many more key activities in place with the effort really to improve relevance, competitiveness and, of course, financial -- drive financial performance. What are those?

Sure. So good afternoon, everyone. And hopefully, you now have a picture from all of my colleagues of actually, the fantastic potential and the fantastic current business that we have. What I will focus on is productivity and efficiency. And let's start off with just giving you a picture of how we work with efficiency and productivity. So see it as part of our strategy, see it as part of our portfolio management. David was just talking about focus similarly here. We picked a couple of focus areas when it comes to efficiency and productivity. So this is an overall framework for how we work with efficiency and productivity actually across SKF. And saying that, we decided on an overall framework, but actually the work, the deliverables, the accountability sits in each and every business area. But every business area is actually working within the same framework. So we are looking at all of these 6 buckets within each and every business area. For some, something matters more; for some other business area, it matters maybe less; something there's maybe something that matters more. But you've heard my colleagues, you've heard Rickard about the 2 first ones. So price excellence, where we have a clear target of essentially price exceeding inflation. So that is something that we want to have deeply ingrained in the organization. So price exceeding cost. Secondly, portfolio management. Again, you heard a lot about that. For instance, David talking about that. And there, it's very much about enabling profitable growth in general. What I'll talk about is the other 4 areas. So the other 4 bubbles to the right. We have what we call operate more efficiently. That's how we work, how many we are, primarily in staff functions, there we have a target of SEK 2 billion cost out by end of next year, so end of 2023. World-class manufacturing, that's been a theme here throughout. All of my colleagues actually have talked about it. There, we have a target of business benefits of SEK 5 billion or more by 2025. Purchasing is an area we haven't really talked about too much before. Similarly, there, a clear target, clear ambition, how we work on it also. I'll come back to that, where we have a target of 2% to 3% out -- cost out essentially gross. And then net working capital, last but not least, a big area for us. We tie up a lot of net working capital, where we have a target of getting to 25% of sales and hopefully beyond also. So I'll talk about the 4 I just mentioned about, and I'll take them 1 by one. Operate more efficiently. This was something that we actually launched, communicated some months back in connection with Q3 results. As said, we talk about SEK 2 billion cost out by the end of next year, end of 2023. It will have an effect on approximately 1,000 staff roles. So here, we talk about staff, not manufacturing, but staff roles across the globe. And it will come at an estimated restructuring cost of roughly SEK 1 billion over the next 12 months or so. And just to give you a bit of flavor of what this is. So while we say that it's global. All of us in the room also are very familiar with this and are working on it. But the main -- or the large part of it is actually related to our European operations. As an example, Rickard mentioned it here earlier, we've had a -- would I say a reasonably fragmented sales operation in Europe, quite focused on every country. What we are now doing is we are consolidating sales in Europe. We have nominated just 2 months back a sales head for Europe, Mathias [indiscernible] and now the next wave is coming where we actually look at, okay, how many managers do we have? Do we need everything? Are there certain functions within sales, sales support, for instance, which we can shift more to call it, service center type of setups. Very similar approach to manufacturing. Also, across the globe, but in particularly focusing on Europe, where we have a new Head of Manufacturing, A.J., looking at overall European manufacturing and seeing what we can actually rationalize and what costs we can take out. In saying manufacturing, there's actually quite a lot of staff rolls in manufacturing. IT, similar approach there. There, it's actually more about having been quite central in IT and now moving out IT more closer to customers, so essentially to our business areas. And then we are looking at stuff like, for instance, consultancy spend where we also see some potential. And actually, the background to this is, yes, we need to take cost out. I mean we are in a high inflation environment, and there's a lot of cost pressure, but it's even more so back to the strategy and how we work the operating model with 6 business areas and a relatively lean corporate center. So that's the main driver. That's the main reason for doing this, and that's also where we see the potential coming.

Yes. World-class manufacturing is the next lever here. Can you tell us how that program is going?

Yes. So world-class manufacturing. We have some 80-plus manufacturing sites all across the world and world-class manufacturing is really to making the best out of our manufacturing. It comes in different shapes and forms, but you can categorize it, you can see it as automation and digitalization. You can see it as regionalization. Manish talked about that quite a lot, other colleagues as well. And then you can see it as footprint, meaning footprint rationalization, where do we have sites, which are in the wrong spot or are just not efficient. So those 3 buckets. Two years ago in the CMD, you mentioned it was fully virtual CMD, that's where we said that we are going to have SEK 5 billion of business benefits by 2025. And we are now at approximately SEK 2 billion of business benefits, meaning that there's another SEK 3 billion to go for the next few years. And just to give you a picture where this business benefits are coming from, it's roughly 2/3 coming from regionalization and then 1/3 coming from automation, digitalization, roughly.

And where do we see the SEK 2 billion in the results?

Yes. So as we're all aware, I mean, we have quite significant have had in the last few quarters, quite significant headwinds from cost inflation, which we need to offset with pricing and we aren't there yet. So you see pressure coming from there. But underlying the SEK 2 billion is something that we very clearly see in the business.

And with regards to world-class manufacturing, a lot of it is about automating your factories. And we have a really good example of the factory in Gothenburg, the D factory, what's been done there, that investment. Let's have a look. [Presentation]

Hopefully, that brought it a bit into kind of like what we are talking about when we talk about automation. And Costa there, who you saw talking, he's actually a pretty good paddle player. So if you want to know more better play paddle and you more than welcome to Gothenburg and have a chat with Costa. So that's -- and that's just 1 example, Gothenburg. We have similar examples across the world.

So then if we shift to purchasing then, it's another lever to improve financial performance. What's being done there? I know you have a global program in place for this. Maybe explain that.

Yes. Purchasing. We spent roughly SEK 50 billion per year on purchasing. So you can just imagine that even a small slice of efficiency, a small percentage point of savings has quite a big impact on our bottom line. And here, we've actually in the past months or so -- past 6 months or so, actually, taken a look at what we can do. I mean, purchasing is, of course, something that we've worked on for ever. But what can we do in a bit more structured way actually to get more efficiencies out of purchasing? And at the bottom of this slide, you see price and competition. That's the nuts and bolts. That's what purchasing does every day, negotiations, competition between suppliers and so on. But it's also stuff like looking at contract structures, clauses, inflation clauses, stuff like that. But that's the nuts and bolts. The kind of new things of focus areas come from looking at direct materials and indirect materials separately. Regionalized supply base. So here, there's a very strong link again back to, for instance, Manish, what he talked about regionalizing also supply we do see good savings potentials there of efficiency. Design to value is something Annika was talking about. So how do we make sure that we minimize the material content? How do we make sure that we pick the right sort of specifications, not too much, not too little and again, good potential there. When it comes to indirect It's, for instance, looking at our real estate footprint. So it's both how does the real estate footprint look like, more than 200 sites across the world. Are we paying the right rent or not the right rent, owning or not, facility management, then we have stuff which have become quite for obvious reasons, quite relevant recently, energy management, and then we actually have logistics being part of the program as well.

So we've heard now then purchasing. We had world-class manufacturing, and operational efficiency. We know there are levers to improve financial performance. But what else are you doing to improve net working capital? What will the self-funding play?

Yes. And that's a very, very important part of what we do. I mean, we -- the strategy needs to be self-funding. So essentially, we need to generate enough cash flow to distribute to our shareholders, to do the investments that we are planning to do and have done and then more. So self-funding is a very, very important cornerstone of the strategy. And if you think about our cash flow, of course, we heard a lot about initiatives to further enhance the margin, increase the profitability. But as you know, the other big component is net working capital. And net working capital, looking back in time for SKF has been somewhere between 26% and 30% of sales. So not an insignificant amount of money tied up in net working capital. If you look at the trend, you've seen a downward trend. So moving into so to say, right direction up until, say, 18 months ago or so. What happened 18 months ago, the supply chain bottlenecks in the world. So that's then what's been driving up the net working capital in the last 1.5 years. If you then zoom in on net working capital and what is net working capital for SKF. It's primarily about inventories. Yes, the rest has a meaning receivables, payables. We can get better there as well, but it's really about inventories. And to get to a 25% net working capital to sales, we really need to work on reducing our inventories. Essentially, this means to get to 25% net working capital of sales we need to get to roughly 20% or less inventories to sales. So that's what we are working on. And this is, again, back to why will we do this, or how will we do this? How credible is it? A key pillar here is actually, again, the operating model, where each and every business area, of course, has a profit and loss P&L responsibility, but also cash flow and net working capital responsibility. And this is just since 6 months ago or so. But we already see, and hopefully, my colleagues can or will say the same if you chat with them afterwards, we already do see a lot more focus on inventories and what -- how we work on them and how we will drive down the inventories.

So Niclas, all these factors that you've talked about now, they're obviously behind the increased CapEx. So what level can we expect going forward?

Yes. I mean, CapEx again, what's CapEx for SKF, it's at least up until now, it's been about manufacturing. It's been about regionalization. It's been about automation like we saw in the film from Gothenburg and digitalization. So that's CapEx. Historically, if we go back a few years. CapEx was roughly 3% of sales. We've deliberately decided to take it up a few notches, quite a few notches and this year will be somewhere around 5.5%. Why do we do this? Why do we think it makes sense? Well, first of all, we do see good returns. Roughly speaking, the average payback 3 to 4 years. But again, it's very much now related to regionalization and then automation. We see that these efforts, regionalization and automation will go on for some time. So stay up until 2025, give or take, will be at roughly similar levels. After that, we do see that we can take it down a notch. So that's kind of how we think about CapEx.

And what about green investments and what's in the pipeline there, Niclas?

Yes. That's a favorite area. So green, when it comes to CapEx, also very, very relevant. So essentially, we are investing in 2 types of sustainability initiatives. In our own manufacturing, we heard about it earlier. We have an ambition and are well on track there to be net-0 in our own operations, in our own manufacturing by 2030. So investing, for instance, in the stuff that we just saw in the Gothenburg video but then also investing in applications for our customers, emerging industries, current industries. And here, for instance, the MAG bearings for hydrogen is a relevant example.

So SKF's strong financial position must be beneficial as we head into an even more challenging market going forward. So how will you be able to leverage on your strong balance sheet?

Yes. And again, back to kind of self-funding, very important principle for us. And if you look back in time, the last few years, how have we used our cash, how have we distributed cash generation. We have a policy of paying roughly 50% of our net profit in dividend. So that's been part of the usage. As discussed, we have continued to invest and actually invest more that's been another chunk of the usage historically. And then there's been some more. And with this some more, we've actually strengthened our balance sheet. And if you just look at the balance sheet or debt ratios, we've gone in 2016 from net debt-to-EBITDA from 2.9 to 1.5. And then net debt to equity 65% to 22%. And this is actually now -- it's very helpful, of course, in the last couple of turbulent years, it's anyway been a strength but this is actually a very good foundation to stand on when we look forward into the future and all the exciting initiatives that we've heard about here earlier today. So what -- how we intend to use the cash going forward. Again, self-funding, super important. Shareholder distribution, very important, will continue to invest. And then there will actually be some incremental capacity for -- to support the strategy.

So Niclas, 2 years ago, you launched quite ambitious financial target. So -- and you've chosen to maintain those, why?

Yes. So we are essentially reconfirming our long-term financial targets. And we are quite well on track here. So out of the 6 targets we have, 4 of them are there or thereabout. So say, in green, while 2 are clearly not there yet. So there, we have some work to be done. But if I just comment on a few of these. So what comes to revenue growth, we confirm 5% over a cycle. So this is the hard number. And hopefully, some of these examples that you've heard earlier today gives you some comfort that this is achievable. Of course, we are not going to stop by 5%. We see additional potential. As we talked about, we see -- have an ambition to double the size of the business. But when we talk about hard-coded financial targets, it's 5% sales growth. When it comes to operating margin, where we clearly are not there today, hopefully, some of these examples that we've discussed, some of these initiatives, again, give you comfort that this is well within reach so the 14%. What comes to return on capital employed? It's very much about focusing on net working capital and getting it down to 25% -- towards 25%. There's no quick fixes in this world, but towards 25% of sales. Dividend, that's what it is, 50% of net profit. the balance sheet is strong. And then when it comes to our net-0 ambition, sustainability ambitions. Again, 2030, all our manufacturing, all Scope 1 and Scope 2 needs to be net-0. Then we have a longer-term ambition 2050, also everything in Scope 3 to be net-0. And here, we are quite well on our way, and it's quite an exciting journey. We actually -- it's not only an investment, we actually, as we've heard here earlier, it's also a business opportunity.

Thank you so much, Niclas. So you can actually stay on stage, and we'll invite Rickard for a short summary of this session.

Yes, right. We're coming now to the end of the formal part of our presentation, and I will do a quick recapture and summary. I hope that we have been able to clearly articulate our reason to be that there are significant value that we can provide to our customers to really help them grow and also develop new exciting opportunities in new exciting industries. I hope we have also been able to bring our strategic framework to live. That is more than just a piece of paper, but actually a significant transformation on cultural transformation that we embarked upon. We have clear ideas on how we're going to drive our business and also where we see opportunities to further focus and quite honest, also deselect where we should not play. And I think that was also a clear message that I hope we're able to present today. We truly believe that this operating model that we have established is really going to drive our business forward and drive our business acumen going forward that will help us to achieve our long-term financial goals and quite honestly, also beyond that, unlock our full potential. But before we end, I also like to just reiterate what we said at the end when we presented Q3, i.e., what is our forecast for the full year. And there is no change. We are sticking to the same message as we did back then, i.e., that for this full year, we are aiming for around 4 -- a range of 4% to 8% of organic growth. We believe that we're going to deliver some 10% or about 10% organic growth in the fourth quarter. And quite honestly, we are also -- as we said in Q3, we think that we're going to end up in the upper end of this 4% to 8% range. So with that, I sincerely thank you all for your attention so far and also to the viewers online for your attention for staying with us during these few hours. And it's time for the interaction piece of this, the Q&A session. So Stéphane, will you help facilitate?

Yes. Let's open up for questions. Okay.

We got the mic. The mic is coming. Yes.

Yes. So let's start on the front here. Go ahead.

Thank you Lars from Barclays. Can I start with portfolio maybe, both on aero and on automotive. First, maybe starting on automotive, the SEK 1.2 billion sort of earmarked, that feels like a relatively small part of the overall automotive. What's the scope beyond that? And for the margin improvement potential associated with the portfolio, I think you clubbed it together with higher growth or outgrowth in the high-margin businesses for 3 -- combined 3% or 4%. Maybe you can give us a sense of what can you achieve just purely from portfolio on that? And if I can, sticking with portfolio aerospace. For me, it was a slightly confused message in so far as your both a seller a potential buyer. I wonder whether you could drill down a little bit into that and specifically, maybe talk about the Seals business within aerospace and more broadly across the group, is Seals a subscale business for you? Is that an area that you need to rethink and what are the implications more broadly, not just in aerospace, but across the group for that, please?

All right. Thank you for those questions. I'll try to start with the aerospace question. And then I think I'm going to refer to David to look into answer the automotive part of this question. Well, I may disappoint you here because I -- as I said, we have initiated a strategic review of our aerospace business. And yes, we do see there is an ongoing consolidation in this industry, and we are keen to explore how we can leverage that to drive further shareholder value. And it's true that, as I said, there are 3 distinct business areas within our aerospace business. And we need now to do our thorough homework, how can we best play in this space. It could be everything from a full divestment or partial divestments also us acquiring something to further strengthen our position. So I'm going to leave you with that hanging out there, and we will come back as we have drilled this down further. But also to your question, should you expect more. And I think without being too bold, I think the answer is probably yes. We will constantly assess our portfolio. We will constantly see how can we drive further shareholder value, improve our profitability by optimizing our portfolio, exactly what those are. That is something that we will come back to. But it's important to me that I also stress when we talk about portfolio management, it's not just these big strategic bets where you may be bolt-on acquisitions or divestments. A clear and important part of this, is as we try to describe here that we have very, very tangible and tactical plans on how we want to move our industry segments in both terms of profitability and growth and the tactile activities that we work hard on to ensure that we constantly look into our portfolio, identify nonperforming parts of the portfolio and take action on those. That's going to drive long-term profitability or enhance profitability in our business. So we got to be able to see both the strategic thing on the portfolio and the tactile part portfolio. So with that, I think, David, would you also share some lights to the automotive part of this?

You comment on automotive. It's 1.2, 1.3. That's the active part, which was quite early on. So looking at the strategic framework, what's clearly out of scope in terms of strategic attractiveness. So active phase out, then, of course, as you can also probably guess behind those numbers, there is quite a lot of passive phase out as well. We have a lot of contractual commitments, of course, and we have been analyzing all of them to see what business do we intend to prolong. Pricing then becomes the main vehicle to be working on to make sure that the contractual commitments that we are having that they are delivering the profitability that we're expecting. So you could say in reality, if you look on the phase out, it's much more than what you see in the 1.2, but it's passively done over the cycle of a contract.

Okay. Thank you, David. Next question here in the front row. Yes.

Klas at Citi. So my first one is on the performance-based contracts, which is -- it's been around SEK 1 billion, mainly geared to LatAm, Pulp & Paper and metals critical assets has been there for quite some time. And now you talk about expanding this to noncritical assets. You talk about not value, but from a volume potential of 50x to 100x in terms of where you can sort of expand this business in areas. We've heard a lot of examples around growth in, i.e., at the BA and at the regional level. But I was just wondering whether you can help us with that SEK 1 billion, Rickard, in terms of 2030 ambition. If you ask companies OEMs like ABB, they would say that they have their own condition monitoring. So also curious about how captive these opportunities start here.

Right. I'm not going to give you an exact number of how big this might be. But the way we view this, and I think that also came out pretty clearly from what John was presenting, is that we see this as an opportunity to also create stickiness with our customers. This is one way to get into their business and support them, and help them to improve their business. And over time, we can then build relationships. We then open up new opportunities in terms may be in part of some of the new applications that they are developing, or we find opportunities to go in with some lubrication solutions. Or even other areas for how we can sell our bearings and our other types of services. So I think that we may have shifted focus on saying that this whole thing with the -- this condition monitoring and all of that, that should be as a separate and -- a separate business model as such. We now think it more as an integrated part of our total offering to our customer, to create stickiness and over time build relationships and value.

My second one is around cash flow. And I'm trying to think about the incentives. So Rickard, you talked about the sales incentives, given everyone P&L and cash flow responsibility. Working capital has been quite central within SKF before, and now you're decentralizing that as well, which is great to see. Can you talk about the incentive structure in terms of how it's weighted, the growth, the cash flow? You say, Niclas, that is coming through, but I'm interested in really how this is incentivized.

Right. I can start rough, and then Niclas, just maybe you can follow up. When we talk about the centers, we need to also be clear what types of the centers we talk about. There are -- most of the leaders and managers, they have a clear short-term incentive targets. And they are basically divided both in terms of growth and profitability and net working capital and sustainability. Those are the 4 dimensions that we measure all our leaders on. And they will have no targets to deliver and that we put on. My comments on those other incentives primarily related to the sales incentives so that we don't -- because we do have historically in SKF, have had areas where our sales reps have been incentivized on profitable growth with both dimensions, margin improvement and growth. But there have also been parts in our business where primarily being growth. And that's maybe not where we want to be any more. And again, this whole thing with portfolio management, which are trying to stress is something kind of new to SKF. We also need to ensure that our sales should feel that they have can be part of that. So they are not being penalized for actually pruning nonperforming accounts. So we have to manage this and think through the incentives we use for different parts of our business and different professions within SKF. So...

And then, specifically, Rickard, just to add to -- I mean, we have an annual bonus program. And Rickard mentioned the 4 elements of the bonus program. So it's sales growth, its operating margin, net working capital and then net-zero. The balance this year has been 30%, 30%, 30% and 10%. So that's one element. Now looking into next year, which we are, as we speak, looking into what should the balance be, do we shift things? But maybe more importantly this year, we have had a bonus scheme, which is the same for everyone across SKF. So we have not had the BA element in the bonus scheme this year. And that was done deliberately. We wanted this to get up and running. We didn't want people to start suboptimizing or competing or whatever. Is that here forever? Probably not. So we're also looking into that. So -- but it is quite an important thing that we have as a tool to kind of shift the focus, for instance, to put the spotlight on cash flow and net working capital.

I think we have, I think, over there. Yes. You've been patient.

It's Andre from Credit Suisse. I wanted to ask about your targets and prioritization there. You've got, obviously, the 5% that you upheld. We talked about doubling the company potentially. At the same time, you've got a margin target that it sounds like you have to do quite of pruning to achieve. So could you talk about how you balance these 2? Is there a priority to one versus the other, given that just automotive pruning is about 5% of the group, you've got -- it sounds like a lot more going under the surface there as well, plus potentially aerospace? Yes.

Yes. Well, thank you for bringing that question on. It's an important one. And I'd like to be very, very clear: If we have to select between profitability and growth, we pick profitability every single day. That needs to be clear. We are in this game to drive profitable growth. But with that said, though, we truly believe that there are opportunities. And I hope that we're able to bring that to life. There are a number of opportunities where we can do both, where we can further enhance our business and drive profitable growth. And that's what we're going to go after. And yes, we will work with our portfolio. Yes, we will deselect. And there are not just, in automotive, that we have embarked and then started this. This is also happening in all our business areas. Where we now look very differently to this, and it's all about driving up the profitability and the growth. And then I'd like to take this opportunity as well. I know you loaded to Niclas, and I know that when we launched the strategy, we talked of doubling the size of our business, there were a lot of question marks and skepticism around this. And I'd like to reinforce. I'm trying to clarify this as -- if we were unclear, then I apologize. We believe that we have and we are committed to our financial targets to grow this business of -- in the range of 5% organically. That's really the aim. With this doubling the size of business, again, I hope that you saw some light to that today. We believe that this business has magnificent potential. And I want to inspire my SKF colleagues to strive for something even bigger. We believe that the full potential should be longer term, something like double the size of the business. Now we internally need to aim for, but that's different from having a firm, hard target. So I hope that helps to clarify why we said what we said.

Great. And if I may, just a couple of specific ones. One on automotive aftermarket growth. Just wanted to follow up on that. Is this something that you want to kind of go after quickly? And does that mean kind of more feet on the street? Maybe more aggressive with the product offer or something like that? And the second specific I had, if I may load them straight away, was on agriculture example, the T400 versus T100 with that 4x life extension. Natural question to ask would come, do you get 4x the price for that T400 versus 100, if I may ask?

All right. So we can maybe start with David. And then Brian, you can maybe -- but go ahead.

Yes. Talking about T100 [indiscernible] but it's actually also a lot happening on the go-to-market channels right now. So we are quickly growing in digital sales. So also launching through e-marketing and through e-sales more of our range. But indeed, we are also exploring new markets, new geographical markets, one being within Manish geographical responsibility, Southeast Asia. Here, it's a very limited market for us today, where we see tremendous growth opportunities. And even in mature markets like North America, we can also add additional products. So it's -- I would say it's less about adding feet on the street and more about actually adding products to our portfolio. Brian, please?

Okay. Brian, maybe you can take the agri question.

Yes. No, thank you for the question. Yes, 4x greater life in our life testing. So we're in field validation on that right now. We kind of think 25% to 30%, 35% is going to be the sweet spot. We'll be more profitable at that level. And it will certainly be attractive, given the improved yield and productivity that we'll get. So we're kind of thinking in that range. We haven't finally set the price, but clearly, it will not be at 4x the price.

Yes. Maybe shall I take a couple on the side of the room. Yes, go ahead.

It's Daniela from Goldman Sachs. The first thing I wanted to ask was regarding -- I think it was mentioned on the North America presentation that you produced 40% domestically, or in America of what you have there. I think in the past, you had mentioned in China, you imported 40%. So can you recall as, sort of, what is the ultimate goal and balance in terms of regionalization that you can do maybe as a start? And then I wanted to come back to the 4 to 5 planned cut target that I don't think I saw in the slides today. But if that is still the case, then maybe if it's backed by a plus 4 or 5? Or how -- what's the balance of this whole regionalization?

Right. Thank you. Good to see you. And I'll start by trying to address this regionalization targets that we have or ambitions, I should say. Yes, it's true that we are not where we want to be from that point of view and that we do have too much production in Europe, and we are not in the same level of localization or regionalization in Americas, in China or in India for that sake. So that's areas where we need working on. In China, we have gone -- come quite far. And there, we aim to be at around 80% within the next few years. We won't get reach to 100%. And John and in Americas, I also embarked upon a journey and we are especially building out our capacity in Mexico at the moment. That's also going to lift us not to 80%, I would believe, in the near future, but we're aiming in that direction. And as you heard Manish say that that's an area where I think we actually underinvested in quite full year, and where we see significant potential. And I think Manish brought that to life in a brilliant way, that while doing this, we all see further profitable growth opportunities by doing it. So it is an important piece of our equation. And we -- a significant chunk of those investments that Niclas talked about for what we plan for the future will go into regionalization.

Yes. And on the plant closures, so we do have and have had a goal to announce 4 to 5 plant closures every year, on average. Since 2019, we have actually -- we are now at 18 since 2019. So give or take 4 to 5 per year so far, and that's something we are intending to continue with as well.

Very clear on the 80%. What was the time line for that? Does you have a specific time line?

I was thinking what have we disclosed before. But look into -- think about 2025-ish.

And that's Daniela, maybe just to add. I mean that's -- I mean the chart with the CapEx 2020, up until 2025, it's high, and then it goes down. I mean this is the driver, essentially.

Yes, Sebastian Kuenne, RBC. I have a question regarding the automotive business. So you mentioned very high growth rates or you expect high growth rates for BEV, powertrain, for that business. But then at the same time, you say we have to shift to hybrid bearings, which have a price tag of Factor 5, Factor 10. So I was wondering if that is already included in your growth outlook, that shift to hybrid? And then for hybrid, is there a significantly different profit profile for these type of bearings, given that the competition is probably less intense?

So first question, yes, it's included, Kuenne. So in the growth to SEK 9.5 billion, the hybrid revolution is included from a sales price perspective, too. And the content in an electric drive system would typically be that the high-speed shaft, so the motor shaft, is where you would find 1 or 2 hybrid bearings. So...

It is hybrid bearings inside the powertrain.

Inside the motor, but then you have the reducer side with 4 to 6 bearings, in addition. You have a high-speed shaft, electric motor and you have the reducer totally 8 -- 6 to 8 bearings typically. And the hybrid would be on the high-speed shaft. And typically, just on one position, and then you would have perhaps a brush on the other side. So hybrid complements nicely. And as you say, we have invested in this product range since typically just on 1 position. And then you would have perhaps a brush on the other side. So hybrid complements nicely. And as you say, we have invested in this product range since decades, I would say. And we are leading in other application areas in railway or in other industries. So naturally, we would have an improved operating margin contribution from this. But put it in the perspective that it's 1 -- still 1 out of 6 or 1 out of 8 bearings. So it's not phenomenal part of the growth that you see here, even though it will add nicely to our bottom line.

Understood. And then a question to record the discussions we heard today was on rail, agriculture in India, so very nice growth opportunities. But could you give us maybe 1 or 2 examples of end markets where you think this is too difficult, it's too volatile, it's maybe not worth to assume further. Or even products or product categories where you say competition is so intense. It's such a commoditized business or product for us that we actively want to reduce, maybe 1 or 2 specific examples there.

Well, I got to be a bit careful how I express myself here. So it's also a bit from -- there are also competitors out there, I guess, listening to what we're saying here today. So we want to keep some of this to ourselves. But clearly, I think I'm going to refer back to some of the examples you heard from David, where we have identified some areas where we recognize that this is a commodity. And we don't really see any significant value in continuing to try to push this commodity because we will not stand out. We will not -- we don't have any unique value add that customers are willing to pay for. And you see some of that not largely, but in some other industrial aspects as well. And that's what we're trying to proven out. Today, I shared with you how we slice the portfolio from a customer point of view. But I also need to -- even though I didn't bring those 2 to you, to your attention today, but of course, we're also looking into our portfolio from a product point of view. And we have a fairly sizable product portfolio. And again, when we share that, we will see roughly the same pattern as we saw from a customer point of view. The vast majority will contribute very nicely to our profitability. But there is a tail of products that is underperforming, and either because they are a commodity or maybe because they are more adding complexity and not really something that many customers really has a demand for on a more -- on a regular basis. So it becomes more of a subscale type of product for us and dragging us down a bit. So yes, we will attack those as well. But I think we keep some of the details to ourselves.

What about wind? Wind market, I mean.

Sure, I'll be happy to talk about wind. As you saw on our chart, wind was one of those focus areas where we do not see strong double-digit growth, but on the contrary actually a contraction, for a number of reasons. And also somewhat because we compare to a period where there was strong incentives, especially in China, significant growth there. So some of that is kind of natural explanations. But it's true. Our wind business is not a business where we feel that we have an equally good profitability in all our geographies. In some, we are making very, very good returns, and we are excited to continue to invest there. But in some of our business areas, we're not where we want to be. And we're actually rethinking if we will continue to be there. And the same kind of logic will apply. Do we believe that we have a plan to move this into a profitability level that is acceptable within a reasonable time frame? We will go for it. If not, we will rethink that. And again, I keep to myself where we make money and where we may not be as happy about our earnings, but it's not a homogeneous business for us. That's for sure.

If you take one on other side -- yes, and then we have at the back too, but maybe I know some people have been waiting there too, and then you can be up next.

It's Andrew Wilson from JPMorgan. I've got 2. If I can start with -- it's kind of a cultural question. You've talked a lot about the change in the operating model and also different parts of the business is trying to do very different things. So part of the business trying to grow, parts of the business more focused on premium. Do you feel like you need different people within the business? I'm not so much talk about people in this. I'm talking about the people who have had more responsibility put on to them. And it seems to me that you are trying to run SKF in quite a different way than it's been run previously. Do you expect to see quite a lot of churn? Or do you think you have that right level of capability within the business? Let's start there.

Good question, and I will try to answer it. But I'd like to start by saying we are blessed with great people. So in general terms, we have fantastic capabilities and great people across all our geographies, all our different business areas. But of course, we need to constantly evolve, and we need to bring in new capabilities and new talent. Just looking at my management team, there has been some churn there, and we built or rebuilt a new team but therefore -- for different reasons. And to ensure that we have the right business acumen in our leadership team, and in my leadership team. And of course, that also will -- you will see similar things happening in other parts of our business. And I truly hope that this operating model of ours will drive a different type of leadership, have built this over time. It won't happen overnight, but -- we come from a history where we had been more functional oriented and very few people have felt responsibility for the end-to-end of their business area. Now more and more people start to get that accountability and responsibility that would drive a different type of leadership and a different type of what I call, I hope you understand the word, business acumen, if that makes sense. So yes, and I'm sure that a number of great people, they will evolve nicely into this. And I think there were also some cases where we need to invoke some new talent as well.

And second question, and apologies for pressing you on this. But as you kind of acknowledge it's been a big discussion on the automotive business, I kind of took your comment to be at present, you see it having a good future within SKF, obviously we heard about a lot of the opportunity, but essentially, about it being part of SKF, SKF to have an automotive business. And then almost in the next sense, I thought you sort of talked about retain that flexibility. I just wanted to make sure that I didn't get the wrong message. I mean, I sort of read that today, the best case is it stays, we'll continue to review that going forward? Or is it a firm that will stay a part of SKF?

Right. Let me try to clarify that if I was unclear. Our automotive business is an important integrated part of our portfolio. And as I said, we have not been happy with the profitability of this part of our portfolio, but I truly believe in the strategic direction that Dave and his team has built will take this business into a sustainable and structural business that will fit nicely into our portfolio. So that's kind of the foundation. But I don't have a crystal ball. Neither do you, I think. And we never know what the world will look like in the future. And maybe 5 years down the road, maybe the paradigm has shifted completely. And that's what I mean as I think it's important to have strategic flexibility, because then you have a possibility to act if necessary. I don't see that need now. But again, what will the world look like in 5 years? I couldn't foresee what's going to happen in 2022.

Okay. Here at the back of the room, maybe you can stand up.

This is James Moore from Redburn. I've got a few, if I could. CapEx, Niclas, you mentioned up to 5.5%, then to 25 down a notch. Would you care to quantify whether we might go down to 4.5% or 3.5% at that point? That's the first one. We can go one at a time, if you like. CapEx to sales. Go up to 5.5%, stay there for 3 years, and then you said it will go down a notch. What does that really mean? 3.5%, 4.5%?

No. So we are 5.5% now. See it as plus/minus 0.5%, I just stick my neck out. I know you will call me and complain me immediately when it's 0.55%. But anyway, plus/minus 0.5%. Then -- and very much related to regionalization. And these are no small initiatives, building up capacity in Mexico, in India, in China. But as far as we see today, we are well on our way towards becoming -- clearly more regional, towards 80%, not fully in all places, but towards those sort of levels. End of 2025, it's -- there's no magic at 31st of December, 2025. But there and thereabout, we see that we have gotten at least quite significantly further. We see we can take it down a notch and exactly where it's going, 4%, 4.5%, something like that, maybe. And as you saw from our history, we had 3%, but that's starting to be mainly just to say maintenance CapEx. So it's a bit -- it's not right to go that down but less than 5.5% more than 3%, and that's where I get to 4%, 4.5%.

Very helpful. And on innovation, I think you mentioned by 2030, 25% of group sales and then I think it was would come from new products. And I just wondered over 8 years, whether if you would look back over 8 years, that pace of churn of innovation, is that a major step change? Or is it broadly comparable to history?

Maybe if I start. And Annika, please jump in here and help out. But again, without being judging the past, so to say, but I can say when I came into this business, I have not been pleased with the speed to market. I don't think that we have churned out enough innovation at speed over the last few years. I think we can do better there. And that's also what I envision that Annika and her team, by putting more emphasis and more focus and aligning our innovative initiatives with the overall strategic framework and the growth bets that we have in there will help us in speed clock speed, because clock speed has not been where I want to see it.

And adding on to that, of course, that is one part that we need to address. 25% of the growth that we foresee would be coming from new products. So that was the statement that I made. And of course, that will require us to do more investments. Make some bets, so some of them will fail. So that means that we have to be bold and there to really find the growth bets. And if they fail, we should cherish that. And -- that's what we need to do, right, to find a number of areas that will give us that 25% growth. And as mentioned before, that also requires us to step up on the investment on that side.

And last one, if I could be so greedy was just on automotive. You mentioned SEK 1.2 billion to SEK 1.3 billion of active sales exit. And then we talked about some additional passive exit, may be using pricing and contracts. Your American friend did a similar job over 15 years, Timken, I'm thinking. Could you scale the passive exit potential? Is it bigger than the active? And on the active -- what is it exactly? Is it specific technologies or channels or customers or geographies?

Yes. I'll try to guide on this one. For the active ones, I would say, more related to product assortment and to application areas. But you know it probably -- the 2 comes together quite nicely. So we really focus our core capability the bearing times I mentioned before, the deep growth and the cylindrical and tapers. Because in reality, that is what is needed in an electric powertrain. So focus on the core, and hybrids is part of that. Is the passive part larger? Naturally, yes, because of the ongoing transformation in the market as well. So take the technological shift which is happening in the market, and of course, that is also guiding, let's say, our journey forward on -- where we phase out more quickly and where we stay. And I would -- between the passenger vehicle and commercial vehicle, which we spoke about today, naturally in commercial vehicles, we will stay a bit longer on the combustion engine powertrains, take automatic transmissions, take the Indian market. Naturally, we will be there a bit longer because there, you have probably 10 years before you have full electrification, while we can still create value for those customers, and so to capture value. So that's probably as detailed guidance I can give you right now.

Thank you. Any other questions?

It's Daniel Cunliffe from SocGen. Just a question on the timing of the net working capital and your guidance there. You talked about 25%. Given that you've gone from, I think, 26% to about 36% in the last 18 months or so, is this sort of more of a near-term target? Or is that also 2025? And then just as a quick follow-up, the margin impact of that sort of net working capital or inventory reduction. How do you plan to offset that? And what roughly would you anticipate that kind of margin headwind would be, if any?

Yes. No. I mean as I mentioned, as I said, this is definitely a long-term target. It's a journey. And exactly, as you say, I mean, we are not going to go down from current levels of 27%, 28% inventories to 20% in the blink of an eye. So we talk more about 2025. What we see now happening here and now. I mean, a driver for why it's gone up, the net working capital has gone up, again, it's very much related to inventories. And inventories is related to the supply chain challenges. Of course, we do see that things are easing off gradually, not particularly quickly, but they are easing off. And we do see that, that will bring down our inventories, but we need to go to get to 25% of sales. We need to go beyond that. So it will come down driven by the market. That's the kind of first thing that you'll see. But then where we can actually do something in addition and really work on it, that's what -- where we should see real reduction towards 20% and hopefully even less than 20%. So this will be a gradual shift. And then on your margin, how will it impact the margin? I mean the -- I would say that the best way, or the way we see it, the way I see it, is that this is going to be a gradual thing. So there's not going to be a major impact on the margin or anything disruptive at least.

Thank you. Any more questions?

We got more.

It's Andre again. Thank you for taking the follow-up. And thank you for the bubble chart. I was just trying to go through in a bit more detail as we appreciate or try to name all these bubbles from now on. But there seems to be 2 that kind of are below the margin line and a quite substantial in size. So I guess a couple of questions. Firstly, are the bubbles to scale in terms of businesses, sizes? And secondly, on those 2, have we discussed them today? Are they kind of in pruning of automotive? Are they in something else? Because it looks like if you get these shifted to the average, then that takes you kind of 3/4 of the way there.

Well, thank you for scrutinizing our charts. They are an illustration. And as I said in my presentation, we have tangible plans and tactics for all the bubbles on that chart. And we decided to bring 4 more clearly to your attention today and you know with examples how we're really going to drive that. But there are tangible and equally nailed out to detailed plans for all of them. But actually not going to share exactly with you what -- which bubble is what in that chart. It's actually a little bit of our secret here.

Joking aside, but maybe joking, but we had that discussion with all the charts that will -- this very challenging audience sit there with -- measure the exact size and there's real facts behind. But not going to reveal exactly the millimeters and so on and what scale it is, but...

But for me, It's the second half of that question. Have we discussed the bubbles that are below the line...

Well, you saw the 4 were roughly where they are and where we want to take them. So I'll leave you with that.

Klas here. Two follow-ups. So the inventory reduction in terms of destocking and following on to Dan's question, I thought that this was linked to the regionalization. So when you are moving out production from Europe and you're localizing more, you get less goods in transit between the regions, you are tying up too much working capital. It's clearly an effect from that, right? Going beyond 2025. That's my first one.

Yes. No, absolutely. You are right. So here and now, we've been the last 18 months, increasing our inventories a lot, and that's been due to supply chain bottlenecks out in the world. So that's what I was saying that, that we see gradually normalizing, fading away. Then to go to the next level, which would take us to a better level than what we've been historically actually. That's where the real effort comes in. And yes, the regionalization is a big, big driver for this. Manish mentioned it here earlier, less time shipping stuff across the world and so on. So that's a big driver.

Great. My follow-up is on lubrication. The USD 60 billion is the industrial lubrication market and we have the RecondOil box. We spoke about this before, Thomas, but I'm going to try this again. The RecondOil box, which is SEK 50 billion. So we're talking about the hydraulic opportunity being roughly 10% of that SEK 60 billion. I was just wondering -- then we have automotive on top, of course. So I was just wondering the growth between the RecondOil box versus general U.S. -- or the industrial lubrication would be super interesting to hear.

Thomas?

Yes, of course, we -- the market we are talking about here the USD 60 billion, that's the industrial lubricant market. And as you heard before, I mean, this has been a technology start-up. And initially focusing very much on the further development and internally in SKF, so it's just quite recently that we have started to engage in the external market. I think the SEK 50 billion, to my understanding, was coming from discussion earlier this year. And that was more what we saw as an initial target market. And then we were looking at hydraulics and metalworking, which is around 30% of the total SEK 60 billion there.

Any growth? Sorry, growth? Or is that out-year TAM or...

Look, as I said here, during lunch where we spoke about this, of course, we have a very, very ambitious target here for 2025 and onwards. But I think the initial focus here now, as you heard also Aldara talking about, is to get it out to explore it, to open up for the channels of market, but also to build a model which is scalable. Then let's see where we end up. It's a tremendous opportunity.

Andreas Koski from BNP. On pricing strategies and this year's performance because we have seen your margin coming down quite a long way and looking at your -- both European competitor and U.S. competitors, they've been able to improve margins year-over-year in the third quarter. So something went obviously wrong for you to be able to offset the cost of inflation. Maybe you can go through what has happened? Why haven't you been able to offset the cost inflation? And what will you do to make sure that this will never happen again?

Well, it's a very good question, of course. And I hope that we've been clear that we are not happy with this performance. And we know that we will do better. And we have put a lot of emphasis on our pricing activities. And I think it's -- I think that regardless that we haven't been able to offset the cost inflation fully. I think that chart with a quarter-over-quarter improvement in terms of price/mix, it's not that actually noncompetitive. I'm not sure that our competitors are doing extremely better there. But with that said though, the margin deterioration is not acceptable. We are putting a lot of emphasis on this, and we truly believe and expect that this should be much better as we move forward. We are determined to offset the cost inflation. We have said that before, and that determination remains.

I know you're normally hesitant of giving this. But if you look at raw material prices today, freight rates today, energy prices today, can you share some light on what we should expect in terms of cost inflation in 2023?

Yes. I mean, starting with material, which is kind of the biggest bucket, we've seen material prices, market prices come down already for some time. Just a reminder that we buy very little raw materials. We buy -- most of what we buy is components. So that means that there's a delay between the market price and then what you see in our P&L. Rule of thumb, 6 to 9 months, but varies. But yes, we have seen those coming down. And that essentially should mean that our cost also after some delay will start to come down. When it comes to logistics, again, referring back to supply chain bottlenecks. We have seen sea freight prices, costs come down significantly. And not only that, but also the bottlenecks opening up. So overall, yes, we've started to see logistics to come down. Saying that, as you know, I mean, road transport, slightly different story. So also within logistics, you have different types of stories. But overall, coming down. Energy is very volatile. It's mainly -- the main issue is in Europe, less so in the other regions. And then the new thing, which we expect to have the opposite impact, if we -- with what we know today and assuming today will continue, we do think inflation will start to moderate in these areas that I just covered. Personnel costs is going to go the other way.

And in total. And in total, that into -- I'm just kidding. I had a last question on innovation as well, if I you want to follow...

Sure, of course. No. No. No fire away.

Right. On innovation, how many SKUs do you have? How many do you phase out every year? And how many new products do you launch every year?

Yes. So that's a good question because it's actually also -- on the back of that question is also, how do you define a new product, right? So we define a new product with being a new port number of course now. So if we do something that we haven't done before, that's a new product. And that can be an application-specific offer with some new content, or it can be a completely new product. And I don't have really a good number for you to say that it's 5 or it's 55 or -- but really, what we're aiming for is to get the growth number in place. So the sales number is what we're aiming for here. We have been releasing a quite large number of new products. Actually over the past years, we are measuring on those new part numbers, how much sales comes from that, and that's one KPI that we're using. But I have a hard time giving you really a clear number of how many. It's more that we're aiming for this growth of 25% that we're looking at.

On an SKU level, we have a very, very large number because -- sometimes we package a bearing in 1 box and sometimes we package 2 bearings in another box. And that's a different SKU. So yes, we're talking about hundred of thousands of SKUs.

And then you can, of course, argue if that is a new product.

Any other questions from the live audience here? Otherwise, I think we have a few online. Yes. Did you have a few questions from the chat?

Yes. We have a question from UBS here for you, David. If you can comment on SKF's market position and market share and powertrain for EVs and in particular, on a regional basis in China.

Okay. I think I mentioned also in the presentation that we have a market-leading position in China for the EV powertrain. We can add to that we started on the high-speed shaft. So coming back to the discussion we had here earlier, meaning the ball-bearing side because that's where we had built up the capability most strongly first. And now we are following through on the more slow rotating part, meaning the reducer, meaning tapers and cylindricals. But all in all, a clear market-leading position in China for what we do.

No other questions? Okay. No other questions from the audience line? Okay. So we're pretty much out of time anyway. So that concludes then SKF Capital Markets Day 2022. I want to thank you all for joining us here in London and all of you joining online. The full session will be available shortly on skf.com. Thanks again for watching.

Thank you so much.