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

A warm welcome to SKF's Capital Markets Day 2025. My name is Sophie Arnius. I'm heading up Investor Relations and will also be today's moderator. The headline behind me on the screen tells you what today we'll focus on, how we are unlocking value by creating two even sharper businesses, Industrial and Automotive. Let's look at the rundown for today. Our CEO and President, Rickard Gustafson, will kick things off, giving you an overview of the separation and the value it unlocks. After that, we will have a closer look at our industrial business and the growth opportunities that a much clearer focus will bring. We will also look at our customer-centric innovation model and the value it brings. Then we will also have a deep dive into the business-driven value chain. And what do we need to do to adapt to our needs of customers tomorrow as well as increase our efficiencies further. And then Susanne Larsson, our CFO, will translate all of this into the newly published financial targets for the SKF Group post Automotive separation. We will end the day as zooming in on Automotive and look at what are the benefits they see from this separation? There will, of course, be opportunities to ask questions, both from our audience here in the room in Stockholm as well as for you that have registered to watch this event online. And as soon as you have your questions, please submit them, and you do that in the column to the right. There will be three Q&A sessions today. The first one that is just before the break will focus on the overall value creation of this separation, as well as how we are reuniting growth at Industrial. The second one is purely focusing on Industrial. And here, the topics are innovation, the business-driven value chain and the financial targets. And we will end the day with the third and last Q&A session, and that will primarily focus on automotive, but also our CEO will join that. So also questions on the value creation potential is also in that Q&A. With that, we are ready to get started from our side. I hope you are. So it's a great pleasure to introduce our CEO and President, Rickard Gustafson, to talk about the value creation from this separation. Rickard, please.

And thank you very much, Sophie. And good afternoon, and a warm welcome to all of you here at At Six. And of course, a warm welcome to those of you who follow this event also online. Today is a big day for us. It was roughly a year ago, in September last year, when we announced our plans to drive further value by actually splitting our company into 2 distinct businesses, one, fully dedicated Industrial business and a fully focused Automotive business. And today, we are eager to share our future plans for both these businesses, how we're going to drive value in the focused Industrial business, and how we drive value in our Automotive business. And also share, as you know, our long-term financial targets for our future Industrial business and indicative objectives for our future Automotive business. But before we go there and before we look into the windshield and into the future, I think it's prudent that we also spend some time to look in the rear mirror and reflect a bit on the journey that we have embarked upon so far and what we have accomplished to date. And as you know, or at least I guess some of you know, back in 2022, we did launch a strategic framework that we named intelligent and clean growth. And since then, we have been very, very focused on delivering on those activities that made up that framework intelligent and clean growth. And I'd like to draw your attention to a couple of things that I believe has had a significant impact on our business. Firstly, if you may recall, we said that we're going to move our business from a more functional organizational structure to a decentralized regional operating model, and we have done that. And that model is now fully embedded into our operations globally and has been further refined over the years. We also said that we're going to accelerate and focus and drive investment into regionalization, and automation. That has also been the case. And then actually, we have been forced to further accelerate our own plans due to the geopolitical turmoil that we experienced in the last few years. Here, we still have more work to do, and you will hear David later on talk about what still needs to be done to reach the full scale of the regionalization. We also talked a lot in the beginning about portfolio management. And portfolio management came in different dimensions. We had some strategic dimensions where we also divested some non-core assets. We talked about from a customer dimension where we dare to walk away from some unprofitable business. But we also have done it by looking into our assortment and actually simplified our assortment quite a bit in the last few years. And I know that Hans will touch upon that during his session as well. Customer-centric innovation is key to us. We have built this company on tactical innovation. That's need to be the core as we move forward. But what we have done differently in the last few years that we have steered our capacity and resources to be more aligned with our growth objectives in those industrial verticals where we see the best opportunities for profitable growth and that needs to continue. We have enhanced our cost management capabilities and also been more advanced when it comes to commercial excellence, enable us to better leverage our pricing leverage in the market. And finally, we also said back in 2022 that we want to create a more autonomous Automotive business. And here we are today, hopefully taking some of the final steps in that particular journey. And so far, I think that these activities and this strategic framework has played to our advantage. It has yielded some solid dividend. And when we started this journey, we were enjoying some strong organic growth, to some extent, fueled by inflation and corresponding pricing, but then that turned into a period of low demand. And as many of you know, we have been reporting 8 consecutive quarters of negative organic growth. Clearly, painful, but I also like to remind you that some of that negative organic growth is actually self-inflicted. We have done what we said we're going to do when it comes to portfolio management, as I mentioned before. And also when Russia invaded Ukraine back in 2022, SKF was one of the first companies to actually exit and leave that market behind. But despite this, we are convinced that we know that we have been able, on a global basis, being able to actually sustain our market share. And I think that's the proof point of the value that we create to our customers. But from a profitability point of view, we have also shown more resilience. And I'd like to draw your attention to the straight line on this chart where you'll see that our adjusted operating margin is holding up pretty well in times of strong growth and in times of more challenging demand environment. And actually, we have been able to improve it somewhat in the last few years. So, that's history. But then when we look into the future then, why are we so convinced that we can create value by splitting the company into two. And before I go into the details, I'd like to actually leave you with a metaphor. I see our Industrial business and our Automotive business as two trees that was planted a bit too close to each other. So as they grow, they compete for the safe sunlight and they actually also shadow each other and thereby hinder their full development and potential. And by creating some more space between them, both businesses will have access and enjoy the full sunshine and actually have a chance and have the prerequisites to deliver on their full potential. But of course, there are also some fundamental business dynamics behind this, why we believe that this is the right thing to do. And I think we shared this chart back in September last year. And the business fundamental drivers for why we believe that this is right thing to do is remains the same is still as relevant. Clearly, the Automotive business continues to be significantly impacted by the ongoing transformation driven by electrification and the dynamics in terms of contracts and volumes are very different in Automotive and Industrial, where Automotive is all about long-term contracts, high volumes, significant large batches, while Industrial is complete opposite where it's very much more shorter contracts, more smaller batches and where adaptation, agility and also accessibility are key fundamental components for success. So that's definitely something that also will impact and drive our how we set up our business going forward. But we also said, that we know that to do this, to separate these 2 businesses, it's a massive task. We know that when we enter into this, and we still recognize that, that is the case. I said it before, and I tried to be very prudent or at least transparent about this at our quarterly report [ tabs ], that we are running a very tight time schedule. And we have thousands and thousands of activities that need to be delivered, where many of those activities are on the critical path. And we have not a lot of headroom for mistakes or for delays. But I'm very pleased to say that I'm still can -- with a straight face to tell you that I have no red flags to share. We are driving this massive program according to our original plan, and we're still confident that we will be operationally ready to lift our Automotive business by mid-2026, as we said, when we embarked upon this. But all this hard work and these efforts is actually worth it because it generates significant value. And some of you have probably read about our long-term financial targets. And clearly, we're going to put some more light to them here today. But here's how we see the value being created. For our industrial business, we're talking about an ability to grow more than 1 percentage points ahead of the industrial bearing market. So you're on this page to talk about 4%. That actually implies an underlying bearing market growth of 3%, hence 4% growth here. We do sense that we can drive up our earnings profile even further. And in the midterm, and mid-term I mean 2 to 3 years, we're going to hit north of 17% and then finalize a few things in our restructuring and then go for the full potential, where we believe it should be north of 19% adjusted operating margin. And also you can see return on capital employed will also significantly lift up to 20%. And for Industrial -- sorry, for Automotive, they're kind of indicative objectives. They also generate value where they see opportunities to grow ahead of the automotive market and also a high single-digit operating margin. So again, rather exciting and clearly value creation when the sun can shine on both these fantastic trees. But let me take a few minutes and walk you through the high levels of the value creation plans that we have for each of these businesses. And I'll start with automotive. You will hear Kerstin later on today, share her views and her words to this. But they are going for growth. And they're going for growth because they know that they better can steer the investment towards high-growth and margin accretive opportunities. They also see opportunities to really establish a value chain that is fit for purpose for an automotive Tier 1 supplier. And by being a smaller business, fewer layers and a leaner structure that can be faster in go to market, they can be even faster responding to customer needs and thereby increase their competitiveness. And what will the starting point look like? Well, we're going to send them off with a pretty good platform to start with. They all in today enjoy a global footprint where we have capabilities, both manufacturing and R&D and engineering capabilities close to the customers on a global scale. They will continue to put emphasis on the key areas where we have a very strong position today and where we know that we can create even further value. I'm talking about electrical vehicles. I'm talking about commercial vehicles and also how we're going to ramp further the margin accretive aftermarket business. In order to do that, to deliver on their value creation, they have identified kind of 2 pillars and 5 levers. Three of these levers, they are tailored towards growth and two more tailored towards effectiveness and productivity. And I'm not going to steal Kerstin's thunder here, but she will talk about how they will unleash growth but really staying focused on driving value in those areas where I mentioned EVs, commercial vehicles and vehicle aftermarket. They will continue to drive innovation. Innovation is key to stay ahead of the market of the competitors and work very, very closely with the world-leading manufacturers of vehicles globally and join them in their innovation journeys. And then clearly, also there are opportunities to extend the addressable market that today that is stopping automotive from its full potential. There are more opportunities that they can unlock in other parts of this market. And then, the 2 levers later to kind of more efficiency, tailors to what I said before, how they set up a supply chain and logistics system that is actually fit for purpose for that type of business that they are in, and also how they rig this new structure, this new organization in a lean and efficient manner. So that will be the key 5 levers that will unlock the full potential of our future automotive business. But as I said, more of this from Kerstin shortly. Turning then to Industrial. Again, a rather solid platform to start from. Already today, we are the #1 player in the industrial bearing business and we do have significant and deep capabilities and know-how and presence in a broad range of industrial verticals, many of them that will enjoy significant growth driven by some key mega trends that you will hear Hans talk about shortly. We already have a strong global footprint, you know that, and we have a significant market presence and reach in the market through a world-class distribution network and access to sizable aftermarket business. So based on this, we're going to continue to build our Industrial business. And we're going to start to talk about our industrial business somewhat differently as we move forward. I'm going to talk about 2 segments. We're going to talk about big bearing solutions, which represents some 75% of our Industrial net sales. And here, you find our geographical business areas, as you know them today. But we're also going to have something that we call specialized Industrial Solutions that represents some 25% of net sales, industrial net sales, I should say. And these businesses, they enjoy clear and separate value chains that they control themselves. And we're going to run them as fully owned subsidiaries. And here, you find businesses such as Aerospace, Magnetics, Lubrication and Seals, and more details to come shortly. But that's really how we see our Industrial business as we move forward. And how do we create value here? Well, similar to Automotive, we have some pillars and some levers. This time, we have 3 pillars and 7 levers. And let me take a few seconds to take you through them and try to explain what's new, what's different. Starting with reignite growth. We have to come back to growth. It's important for us as a vital component of our value creation. And here, we have 4 levers that's going to drive growth for us, starting with basically doubling down on those industrial verticals where we have significant capabilities and a very strong foothold that is also enjoying some growth from these megatrends that I talked about. That is not so much new. We talked about that before, but I think we're even sharper in how we define our capabilities in those areas. And again, this is something that Hans will take you through shortly in more detail. But then lever 2 through 4 are more new. We will put more emphasis on driving growth in service and intelligent solutions businesses, a highly interesting area that also creates stickiness with end users. Here we see significant growth opportunities. And the pillar #3, to really reignite growth in what we now call specialized industrial solutions. Here though, I need to be honest, for some of those business units, we're not yet pleased where they are in terms of profitability. So they need to fix the profitability before we only allow them to grow to their full potential. But we have plans to do that. And over time, they will contribute significantly to the growth. And then finally, M&A or acquisitions. And I'm not talking about transformational targets that we're going after, but rather building an engine that constantly every year generates a number of small bolt-on acquisitions. That's what we're after. And I do admit that when we launched our intelligent and clean framework a couple of years ago, I felt that I had 2 broad change agenda and we did not have management bandwidth at that time to actually pursue an M&A agenda. Now it's time to change that. Now it's time to really make sure that we use this lever as well to drive growth going forward. Turning to the second pillar and our fifth lever, innovation. Innovation, as I mentioned before, is key to us. We have to continue to drive innovation, to stay ahead of competition and avoid falling into the commoditization trap. Here, it's really about working very, very closely with our customers to co-create with them to deliver solutions and also solve their problems. That will support our growth objectives, but also by designing smarter products with less cost of material, it also enable a more efficient value chain and cost equation. So it's going to support both dimensions here. And Annika will share more light to this during our session. And then on the business-driven value chains. Here, we do recognize that we have still some work to do to complete the journey that we worked upon when it comes to regionalization and footprint transformation. But on top of that, we do see significant opportunity to really build a solid and robust and modern data-driven platform for our supply chain. That has the potential to significantly improve our operational capabilities and also operational effectiveness going forward. And this section is what you're going to hear David talk about as he enters the stage shortly. But to reach the targets, we do see that we have to speed it up in 2 phases, where we have the first distinguished phase that we call kind of in mid-term that we call building the value. And again, when I say mid-term, I mean 2 to 3 years from now. We have some work to do there in order to reach the north of 70% operating margin that aiming for short term or mid-term, if may use that term, then. Really, we need to leverage growth. We need to make sure that we lift the operating margin of our Special Industrial Solution (sic) [ Specialized Industrial Solutions ] business to be on par with our Bearing business. We need clearly to continue to drive innovation and put new products into the market and solve our customers' problem. And when it comes to our business-driven value chains, yes, we do have some work to complete, as I mentioned, our regionalization and footprint. We need to start to invest and build this new future platform for our supply chain that's going to cater for growth as we move forward. And we do have some -- not big, but some dis-synergies from the separation that we need to manage. We need to deliver on the rightsizing program that we put in place. And in order to create some safeguard optimization of our assets during a transition period, there will also be some contract manufacturing between Industrial and Automotive, but that would be minimized over time. And you will hear Susanne talk more about that during her session. But once we've done that, we do believe that we can reach the 19% target by truly leveraging a fully flexible platform, an industrial business that is fit for purpose and can really compete effectively both in terms of growth, in terms of innovation and in terms of effectiveness. So by this, I hope I provided some color to how we see the value to be created and allowing the sun on shine on both businesses, both can really be at the very, very best and reach the full potential. So with this, I thank you for your attention, and I hand you back to Sophie. That will take us forward on the agenda. So thank you so much.

Thank you, Rickard. And Rickard will be back answering questions already after the next presentation. And if you wonder where you can get the presentation material that we are showing on the screen behind me, that will be available later this evening. And if you would like to see this recording or event again, it's a possibility to do so already tomorrow when the on-demand version will be available on our website. Now let's turn our focus on the industrial business. And first out is Hans Landin that will share with us how pure industrial play will position us better to leverage global megatrends and outgrow the market. Hans, welcome onto stage.

Well, good afternoon, everyone. And I have one confession to make upfront. I have spent my whole life in bearings and power transmission markets. It's just a wonderful place. I just love it. Here, at SKF, I have just taken over the role of our Specialized Industrial Solutions business. And before that, I started our journey on commercial excellence on the bearing side. In my session, I want to kind of take over here where Rickard left, which is, as you heard, we are now creating a new fully focused industrial SKF with an opportunity to outgrow. So, I would try to spend some time here and explain for you how are we actually going to do this outgrow thing? And we have our 4 tactics, which we are going to pursue. First of all, you're going to hear me talk about how we're going to leveraging attractive industries and geographies, obviously strong megatrends. Then how we're going to scale our recurring service and intelligent solutions business. Here, Rickard talked about how we need to accelerate now the Specialized Industrial Solutions business. And lastly, I will spend some time explaining how we're going to contribute with some M&A as well to our organic growth efforts. So, without further ado, lets go into our first tactics here, which is all about how we're going to position our industries to markets and geographies where we not only see strong profit pool, but which is also very much in line with strong tailwind coming from a couple of megatrends. Now on the industrial side of SKF, we are paying particular attention to 4 megatrends that you see here behind me. I'm sure that you are very well aware of these trends. So I'm not going to spend too much time on them, but rather give you a few remarks. In digitalization automation, this has been going now for decades. When we started with Internet, smartphones, Industry 4.0, and now the big thing is obviously AI and all the demand we see being driven by that. In decarbonization and electrification area, we continue to see more and more emphasis on sustainability, circularity, and with that, the need for more energy-efficient way of operating. And you may want to benefit from knowing that 20% TF Industrial business comes in, where we have a mission to fight friction in every day when we come to work. So we have unique opportunity to play in the area of decarbonization and electrification. Urbanization is continuing. We see people moving into cities with increased demand on transportation and food industry, et cetera. And then lastly, unfortunately, I think you agree with me that we're now seeing an increased geopolitical tension in the world at the level, at least few of us has ever seen in our professional careers. And with that, we're seeing increased defense spends all over the world and, as such, we think infrastructure and defense will be a new megatrend, which a company like SKF needs to follow. So now the logical question is, so what industries will then benefit from the tailwind of these megatrends? And there are a couple of industry groups, which we at SKF are really looking closely at. And the reason is we think they are going to have a strong tailwind from the megatrends we just talked about. For example, here, you see industry mobility and defense. And behind me here, you see blue dots and the blue dots indicating that we think those industries is going to have the prime driver from the mega trends I just explained. 27% of SKF's OEM sales last year was coming from the industrial mobility and defense industry. So as you can see, a large portion of our business is seeing fueled demand from these megatrends. If I were to add up our exposure to all those industry groups, it's no less than 65% of our OE sales. So if you believe in these megatrends, you see that SKF Industry is very well positioned to capitalize on those megatrends and the demand coming from them for years to come. Now let's take a look at what is our position then within those industry groups. And as you can see here from the slide behind me, we have a leadership position across the board here. In interest of time, I'm not going to spend too much time and explain for you why but let me just say that we have now in the new industrial spirit at SKF, detailed go-to-market plans for every single one of these industrial verticals. And every single vertical here have their own unique drivers and demands, which we now plan to respond to. I just want to spend a few words maybe on heavy industry. Heavy industry, as you know, is an environment where reliability, robustness and making sure that you don't have unplanned equipment going down. It's really a great place for SKF and the reliability and the performance of our products offering this industry. We have enjoyed a leading position here over decades. And that is enabling us to have a very remarkable and sizable installed base, which now every year [indiscernible] reoccurring margin accretive aftermarket opportunities. So we really are proud over our #1 leadership position in heavy industry, and also helps us to be more resilient over the business cycle. Advanced technology, we have a good base position. We're #2, #3 in areas such as medical and automation. And I don't want to steal the thunder of Annika who's going to come up here and talk to you after the break about how we're using technology to advance customer value. So you will hear more from Annika, which is about how we are advancing in advanced technology. So now I think the real question is [ great ] SKF, if you identify these megatrends. They're going to help underlying demand in industries you're heavily exposed to. But how do you outgrow? So I have brought a couple of examples which I would like to show you, which is a good examples of how SKF Industrial is operating and how we're outgrowing in those industries. The first example I brought with me today is on railway. The railway industry is an industry which fits very well with SKF. We have a unique application and sales group dealing only the railroad. We understand the uniqueness of this industry better than most. We have a footprint all over the world to respond to our customers' needs. And very often do we work hand to hand together with our customers, so we are designing in new technology advanced solutions, which helps the rail will become better for tomorrow, and we become an integrated part in our customers' application. You can see from the picture behind me that there is many applications where a company like SKF is active today, adding value, and we do no less than 3 million different products to the railroad every year. Now, I mentioned our focus in this industry and how well we are positioned to serve them, and the ultimate proof of that is actually okay SKF, what are you doing then in this industry? And over the last couple years you can see behind me we've been able to grow about 9% CAGR, a pretty significant outgrowth versus this industry. Last year, we posted SEK 5 billion in sales from railroad. We believe that railroad is going to benefit from two of the megatrends I just explained before both urbanization as well as sustainability electrification as more people choose to transport themselves and their goods on railway. We think this industry as such is going to have a future growth rate of around 4%. The other example I brought with me today is from defense. This is also a very unique business, as you can imagine, full of different legal requirements, certifications, but needless to say, the technology and the mission critical of this industry is unique. I mean very much we're talking about the difference between our solutions, working or failing will be difference between life and death in many applications. You can see our diversification in how we are dealing with our defense customers. We are in the air, we're on the ground, we are on water and even underwater. As we are now a focused industrial SKF in the future, we will be able to even better put our investments and resources in unique businesses, such as defense. And how we're doing it today is actually working well. We have enjoyed 14% CAGR in defense over the last years. We posted SEK 2 billion in sales in defense last year. We expect the demand from defense to continue to be strong. We expect about 7% to 8% CAGR in the years to come. The third example I brought with me is on data centers. And I figured if I don't bring an example of data centers, each and everyone is probably going to ask me anyway. So here is data centers. This business is absolutely booming today, as you know. And what is more exciting for us at SKF is how well this industry, their drivers and their challenges is matching what SKF is really good at. I don't know how many of you have actually been to a data center. But for those of you who have, you're probably left those sides fairly impressed by just the pure size of these units. This is a big business. The new hyperscale data centers, they are a size of 150 football fields together. And if you look at data centers today, they have very unique challenges. You probably felt it if you had a chance to visit one. The temperature in the data center is a challenge. All these servers are generating a lot of heat. We're also consuming a lot of power. So for us to come up with solutions, which can be more energy efficient and scope with the heat is obviously very strong value propositions. We do very well in data centers. There's over 3,000 mission critical components, which SKF is helping this industry with. We have a dedicated team working with data centers and the results have been good. 26% CAGR over the last years is what SKF has been able to pull off. We think that the market looks very positive also for the future, capitalizing on good megatrends and how we're outgrowing and winning in key markets. We talked a lot about which industries we think will be having strong tailwinds. I now would like to take a moment and reflect on a couple of geographies, which we think would be also more interesting for SKF from a growth point of view than others. Behind me, you see a map of the world and you see 11 countries marked in blue. These countries are there because we believe that those countries have a higher growth rate than others, and as such, represents good opportunity for SKF for profitable growth. As we are now a focused industrial company, we will be able to tailor our investments put our infrastructure and resources and skills where we think we have best return on it. So you're going to see more from SKF in some of these countries. We already are doing a good job there. We believe that we outgrow the market with about 4 percentage points over the last couple of years. We have a very strong brand, which we are capitalizing. We're expanding our distribution network. And these countries represented a meaningful chunk of, or part of the bearing demand. About 10% of the global bearing demand is coming from these countries. I guess you're not supposed to have a favorite country, but my favorite country among goes in blue is probably going to be India for the next couple of years. And why do I say that? I'm pretty excited by the increased export we see coming out of India, the big domestic market and how that market is also growing, driven by an increased middle class, which is now looking for higher performing products, higher-quality product, et cetera, which is driving demand for exactly the type of business and value creation SKF is known for. David is going to come up here after the break and explain for you a little bit what we now are doing is a focused industrial in the area of India to be even better suited to continue to outgrow and take advantage of this strong geography. With that, I'm going to ask Sophie to join me again back on the stage because I heard that she wants to talk to me about commercial excellence.

Yes, that's a favorite topic of mine. Thank you, Hans. So you joined SKF back in 2023 to strengthen our commercial capabilities. What has been done so far and what is yet to come?

Yes, that's a great question. Thanks for asking that. Well, a lot has been done, but as we started to dive into really driving commercial excellence at SKF, we had to go back to basics. We had to go back and understand what is the customer wants to have from a company like SKF and where do we have the fit with our products and offerings. So, we did that first, decided where we're going to be, which markets we're going to serve. The other thing we had to do was looking our product portfolio, making sure we have the benefits, the features and the cost structure, which are enabling us to successfully compete in those markets we just agree that we're going to go after.

And let's stay with portfolio management there. Could you elaborate more on that topic because that's something we have talked quite a lot about in the past year, or the last couple of years.

Yes, your right. And I think there are two things about product management or program management, I would really like to emphasize, which we've worked on. The first one is we found a good opportunity to actually make our portfolio sharper by simply reduce it, make it more modern, make it more suitable for our customers. So over the last 18 months, we've been able to reduce our product line and assortment, but no less than 25%. And doing so, making it even better for our customers, but significantly simplify the complexity in our own operations. The other thing we've done is we also said here are the customers in the market, which is not critical for SKF. So our product team has worked very closely with our commercial teams around the world and done a fair amount of pruning, which has -- both of those things has, in a meaningful way, helped our resilience in the last quarters.

Let's zoom in on pricing because that's a topic I know analysts and investors are very interested in. And we have gone more from a cost-plus approach to value-based pricing. Where are we on that scale? And what's the next step here?

Yes. Well, as you know, pricing is my favorite topic. And you're right, we had to do a little bit of a transformation here at SKF into value-based pricing. And we offer very much tailor-made, unique solutions for our customers. And we need to make sure we get paid for the value we are bringing. So we're doing much more of that now than we did before. We have put together pricing teams around the world, new processes, we have new tools, which are enabling our teams to better quantify big data and the value of the benefit and the features of our products. So you can expect to see much more value-based pricing from SKF in the future as well.

That's great. And another topic I know the capital market is very interested in is aftermarket. So I leave it with you, Hans.

Yes. Well, that's a perfect kind of lead-in into the next session here in my presentation, which is about how we are enhancing our relationship with end users and also, obviously, with the aftermarket. And that's the second tactic here, which is we really want to scale our recurring service and intelligent solution business. So let me talk first a little bit about end users or aftermarket and our service business. And I think it's very important for you to take with you today that over 50% of our sales is coming from this margin accretive portfolio. So here, we obviously would like to, first of all, defend our strong position, but see what we can do to grow it further. And that leads us into how we are servicing end users around the world? We are servicing end users mostly by distributors. And here, you can probably rightly so say that I'm a little bit biased, but I'm convinced that we have the best distributors in the world. And that's part of the reason why we are #1 in the bearing distribution today globally. Not only do we have the best distributor partners who every day, make sure that we have reached to every corner of the world where there is a potential customer of SKF, but we have also 7,000 of them. As a focus industrial, aftermarket and end users is becoming an even more important and highly focused area for SKF. We now have, for example, processes and systems in place where we can actually track when we are doing OEM business, we already think, what will be the aftermarket coming out of this? How are we going to capture this aftermarket? What would be the financial return of this aftermarket? So we always have aftermarket and end users now in mind in pretty much every business transaction we do. This focus has yielded results. Over the last years, we believe that we have gained 2 percentage points of market share in the global bearing distribution. Moving forward, we want to continue on that journey and be the best partner for our distributors around the world as well as end users. And what will be the working on? We will be working on primarily 2 things. One is to be easier to do business with. And that could be as simple as being able to respond faster, shorter lead times allowing our distributors to buy in lower quantities of products, for example, but also be available, being available for helping them answering questions, whether it's with new digital tools or with more SKF experts sitting around the world helping them. The other thing we will do is we continue to expand our portfolio, our products and solutions tailored to end users and aftermarket customers around the world. So with that, I would like to talk about service and our Intelligent Solutions business because this is very much how we're going to further enhance our relationship with our end users around the world. There is really no better way to increase how you work with an end user, then to work with him or her every day in their environment, solving their problems and overcoming issues and most important, prevent them to even happen. Services for SKF now as we are focusing on this on the industry side, something which you heard Rickard said before, we're going to double down in services. And the reason is because the strong value it offers, both SKF and our customers. We have today 4 key service offers, its condition monitoring, its reliability solutions, predictive maintenance as well as remanufacturing. Service is as far away from a commodity you can come. Service is all about knowledge. And since the first day in 1907, when SKF started to manufacture bearings, there's been no one out there more than SKF who have seen more applications, more customers, more bearing issues than we have. So we have the utmost knowledge, which we now are translating into the value for our customers. I would like to just, I guess, envision that you're standing in front of, let's say, a big paper mill machine making hundreds and hundreds of meters of paper every second. Can you envision that in front of you? There's a lot of things going on in this facility making papers and all of a sudden, one of the most critical applications break down. You have papers all over the place. It's a safety hazard not to mention the money you're losing every second, every minute, every hour that event happened. What SKF's service business is all about is to prevent that event to even happen in the first place. We now have a dedicated service team, which is responsible for making sure we have the best value proposition out there. We're linking that with our regional service people, which are all over with our customers, and this is actually working very well. We have enjoyed a 10% CAGR in our service and intelligent solution business over the last years. We now have no less than 4 million assets around the world, which is 24/7 being monitored by SKF service people. And 3,000 customers has told SKF, I want you to help me build my equipment, make sure they don't break down. So 3,000 customers are now having service contracts with SKF. I was trying to kind of make you feel like what it is in the facility and how this could be valuable, but I've brought another example of that to maybe just reinforce again how service is bringing tremendous value for SKF as well as our customers. This is a customer SKF has been working with for many, many years. This customer is operating in an underground mine operation, 1,000 meters done under the surface. And as you can imagine, down in that mine, it is everything else, but the nice clean environment we are sitting in here today. And the last thing you want to have there is to ever happen to have a safety event going on when you're 1,000 meters down below the ground, or having one of your most critical assets go down. So this is a very good example for how we add value for service. If we go back 20 years, we enjoyed a very strong business with this customer where we sold and he enjoyed bearings and different sealing solutions. Over the next 10 years, we added lubrications. We added some more spare parts, and we enjoyed a good steady 4% CAGR in that business. Not bad. But if you look at the same journey on the service side, 20 years ago, we did a tiny bit of field service. We then added condition monitoring. We added mechanical service and in-house services. And over the same time period, our service revenue grew by 18%, tremendously higher CAGR than what we were seeing on the product side. If we now fast-forward to the last 10 years, we continue to add remanufacturing, reliability solutions as well as we actually entered into partnership agreements with this customer, and we enjoyed another 12% CAGR over this time period. So looking at this customer today, versus 20 years ago, you see a big shift. First of all, we have been able to grow and outgrow by adding services. But you can also see that our service portfolio is now 1.5x larger than what we would have been if we were a product-only company. For the customer, this has offered tremendous value. He's been running a safer operations. He has been able to reduce his cost of operation and more predictable operation as well. For SKF, service is margin accretive and it's also using less capital. So this is a true win-win, both for the customer as well as for us at SKF. The second example I brought is because of remanufacturing. Remanufacturing is really gaining traction. And the whole concept of remanufacturing is simply avoid throwing a bearing or a shaft or other critical component away, and yes, instead remanufacturing it to as new condition and get it back in your operation, saving a lot of money, saving a lot of time, and most important, you're saving a lot of CO2 emissions by doing this. So you see the values behind me. I'm not going to repeat them for you. But this is another good example, how SKF service solutions are offering tremendous value for clients around the world. This happens to be a steel mill here in Europe. By that, I think we're ready now to look at the third tactics, which is to accelerate our Specialized Industrial Solutions businesses. And this is a little bit extra close to my heart since a few weeks ago, I was asked to led up these businesses. You saw this slide before from Rickard. And he did a very good explanation of how we now are going to focus on the bearing side with focused regional business areas, and how we're now going to focus on the Specialized Industrial Solutions businesses as a focused area. But I would like to spend a few minutes on explaining is the synergies and the value by having these two, thus they are standalone, and they are focusing on their unique businesses. There are still a lot of synergies and opportunities between them. So just a few reflections. Very often, we see the same customers between the 2 groups, customers with similar business drivers. They have -- they're looking for reliability. They have critical applications. Performance matters. Both on the Bearing side and Specialized Industrial Solutions, we are going after industries with repetitive and lucrative aftermarket events, same thing in both sides. When we have aftermarket events, typically, we're using the same distributors. So as you can hear, there's a lot of similarities between the two groups. Another thing is on technology. By also having bearings, seals, lubrication, we have knowledge of the whole ecosystem, which needs to work for our customers to really benefit the most what we can offer. So another tremendous value for us and also customers getting much more sense of security when they know they're dealing with the bearing expert, sealing expert, lubricant expert over by one company. With that said, let's spend a few seconds and minutes here on what is now this specialized industrial solutions businesses. Well, as Rickard just explained, it consists of 4 stand-alone end-to-end responsible businesses. You can see from the slide behind me that aerospace is the largest business, roughly 40% of this business unit's revenue. Lubrication is the second largest, then seals and magnetic is the smallest one. You also heard from Rickard that we are not fully satisfied with the financial performance of this business unit today. That is our key priority right now is to expand our margins and our target is to come up with the same margins as we have on the bearing solutions within 2, 3 years from now. All these businesses are in different phases in that journey. Lubrication and seals are fully focused on margin expansions versus on aerospace. We have done already much more work on that and we are looking for growth. So also in our Magnetic Mechatronic Solution business. So let me give you a little bit more flavor of what those businesses are all about. Let's start with aerospace. We are a leading supplier on the bearing side to the aerospace business as well as the air-based defense industry. We are particularly strong in aerospace engines. I mentioned that we have worked on improving our profitability for quite some time. And I will soon give an example showing that we are actually doing very well. So even though we are pleased, we still have more to do, but there are a lot of opportunity for us now for seeking profitable growth. I have a little silly graph in the lower left-hand corner on the slide behind me. On the left hand there, you can see that management's focus is on margin expansion. On the right side, we are focused on profitable growth. And as you can see from this little heat map, if I use that word, the Aerospace business has now tilted towards the profitable growth area. Let me give you a little bit of example of what actually is happening in the aerospace industry, and what we've done for improving our margins. First of all, for those of you who are like me frequent flyers, I think you would appreciate the aspect of safety, performance and liability when we're sitting up in the airplane. What you may not know is there's over 2,000 bearings in this aircraft. As such, a great opportunity for SKF. And you can also see from this schematic here that these applications from the tail to the aircraft to the nose for a company like SKF. So by streamline our offering, and go after operational excellence, also a lot of commercial improvements, we've been able to improve our margins in our aerospace business by 8 percentage points over the last few years. 8 percentage points is pretty remarkable improvement. But we are not fully happy yet, and we are working for even more expansions in the years to come. At the same time, we've been able to improve our margins. We also have outgrown the industry, and we have posted a 14% CAGR in our aerospace revenue. So we've been able to balance in this expanding our margins while outgrowing the industry. Looking forward, we believe that the commercial aerospace industry is having a strong market in front of them with about 6% CAGR for the years to come. I now would like to change to lubrication. We call our lubrication business, lubrication lifetime solutions because that's really what it is. If you think about the role of lubricants, as a bearing company, we probably know this better than most. But most bearings which we see failing, it's failing because of either the wrong lubricants, not enough lubricants, too much lubricants. This is a very critical part of our rotating system, the lubricant. And this is exactly what SKF lifetime lubrication systems do. We're providing automatically the right grease or lubricant at the right time in the right quantity. You see a picture behind me, which happens to be a bottling plant. This facility has 3,000 points, which needs lubricants. And as you can imagine, if you're going to do that manually, there's a fair chance that some of us will get one of those 3,000 points. There's also a fair chance that someone is putting too much reason that impressive both look at this wonderful [indiscernible] recorded. Safety has it as well. You see on this picture, the beautiful stainless fuel cabinet. This is SKF's lifetime solution coming in work. So a tremendous value proposition here on safety in reducing the cost of the life of equipment as well as sustainability aspect. This is one of my favorite businesses of this -- of the simple reason that the value proposition is enormous. This business should be one of SKF's absolute best businesses when we have optimized it. But you can see from the heat map, we are on the left side. Management is now viciously working on margin expansion as the first priority. We are working on portfolio management. We're working at commercial excellence. We're working at improving our operations as well as realization to be faster, quicker to our customers and more cost competitive. So there's more work to be done here. But I look forward to come back to you in the future and explain what a wonderful lubrication lifetime solutions business we have also from a bottom line point of view. The next business I want to give you some highlights of is our sealing solution. If you grab a seal and you have this normal piece of rubbing your hand, you may not think much about it. But it's actually a very highly engineered and very critical component for rotating parts like bearings to have a chance to work. We need to keep the debris out. We need to keep the lubricants in, and that's not an easy task while the whole thing is moving. Our sealing business should also be a really good business of SKF. The market is fragmented. The strong value proposition to customers. But also here, our main focus right now is margin expansions of similar type of activities, as I just explained, in our lubrication business. Lastly, I want to share with you a little bit about our magnetic mechatronic solutions. I don't know how many of you know what a magnetic bearing is, but it's a highly technical, very unique bearing, which we customize for every customer and every application. If you're familiar with the bearing, you typically have an outer ring, an inner ring and is separated by rollers or balls which is taking all the load, which the application needs to carry. In the magnetic bearing, we are relying on magnetic levitation to separate the shaft from the outer. So you basically have a shaft floating in air. So if you're looking for the ultimate low friction way of providing a bearing, magnetic is a fantastic solution. There's also no mechanical context, so it's very favorable from a wear point of view, very, very unique, customized and provide enormous value for the right application. This business we really like. It's margin accretive for SKF. It is benefiting from many megatrends. You heard me talk about data centers before. We're using a lot of magnetic bearings in data centers around the world today. And our focus right now is to continue with this profitable business, keep up with the high demand we're having make sure we have the capacity to continue to outgrow and thrive here. So this is a really good business, which we look forward to make even better. Lastly, I want to give you some comments on our 4 tactics, but we want to recognize our reduction in growth, but some complementary M&A. So you heard Rickard talk about M&A now being part of our tools and portfolio moving forward. We have done quite a bit of change to our M&A processes. We have a new M&A game plan with stronger governance, both from a central point of view, but most important, making sure that the ownership resides down in the business where the business actually is going to happen. We are focusing on long-term value-accretive bolt-ons. You heard Rickard said before, we are not trying to find big transformational moves, we're rather looking for SEK 250 million to SEK 1 billion type of sales companies. We are looking to fill white spaces where we either want to expand because of product expansions, geographic expansions or where there are technology which we would like to have. We also like businesses with high degree of aftermarket and service. Very important for us is we're looking for complementary customers -- I'm sorry, companies, which are adjacent to the market space and the solutions we have today. There's 2 main reasons for that. First of all, obviously, we see larger synergy cases that way, but we also want to make sure we fully understand their customers and their business. So with that, I'm going to close, and I know this has been a long session. And I appreciate that you guys stuck with me. But the key takeaway, which I want you to remember here is, in this new full industrial focused SKF, which we are creating, we have detailed go-to-market plans for each and every one of these industry verticals, which you heard me talk about. We have new processes and governance to make sure that we execute and deliver on those game plans. You have heard me talk about 4 tactics, which we relent is going to drive. And we already now see the momentum from this new way of operating. And based on that, we are very convinced that we will continue to outgrow and reach our objective of 1% outgrowth over the next business cycle. So with that, I thank you so much for your attention. And I welcome Sophie back up again.

Thank you. Thank you, Hans. Don't run away Hans. It's time now for Q&A, and I would also like to welcome Rickard back on to stage. So please take your seats, gentlemen. We will now open up for questions. I see many hands in the room, that's great. Just wait for the microphone. And when you get that, please introduce yourself with the name of the company represent. We will also take questions from the website. And we will start with a question here from the room. So John Kim, please.

John Kim from Deutsche Bank. Wondering if we could focus down on industrial co. It's quite interesting what you said about service and aftermarket. Where do you think you are in terms of current penetration rate? Or how big is the addressable market versus what you do today?

Do you want to take that?

Hans, Please?

Yes, I'll be happy to. We don't really reveal how big of a market share we have, but we are clearly the leader in both aftermarket as well as in the end user side and the good news is there's plenty more markets for us to penetrate, but we are coming from a very strong position where we have the majority of the shares. I don't know if you want to add any more flavor?

No, I think you're right. And it is an exciting area. Clearly, I heard us, we will definitely focus there. It will be an instrumental part of our growth journey going forward.

Let's continue with that question. And Magnus, please wait. There is a question from Johan Sjöberg over there so -- but you are next, I guess.

Look, I can ask you about your midterm margin target and what sort of market growth that assumes. I mean, you're currently at around about 16%, and you're targeting 17% over the coming 2 to 3 years. Is that just on the back of cost cuts? Or just to hear your thinking about organic growth? You need some tailwind to achieve that target. I guess you need that for the 19% target, but I just want to hear your thoughts about how? That's it, please.

No, that is true. There will be some requirements also for the midterm target that will come from growth. But can I ask you to hold that question because we're going to break that down for you during the sun session and share more of a bridge on how we're going to get to the 17% and the 19% target. So if it's okay, if you haven't received your answer during Susanne's session, we will come back to it.

That's a cliffhanger. So stay tuned. And then we have Magnus Kruber from the Nordea.

First, can I ask you what the current return on capital employed for the Industrial business as person today?

Could you repeat that?

Yes, sorry. What is the current return on capital employed for the industrial business today?

Well, we don't break it down by the segments.

No. And we'll also touch on that in Susanne's presentation. So it's much now referred back to Susanne. But we will not provide a pro forma on this Capital Markets Day. We will provide some numbers and some indications, but not on return on capital employed for industrial. Let's have Daniela Costa.

Maybe some clarification to understand a little bit of background about how you chose those store things that you put inside specialized because it seems like 2 of them are margin cases, lubrication and sales, and 2 our higher-growth areas, magnetic and aero. But you had other higher road areas in the presentation who are which aren't in specialized. So what is common between the 4. Why should we read that there's a different line of sight on how you're observing these businesses in the next couple of years? And what will you do with them maybe a further portfolio actually later down the line? Or what's the commonality?

No, I'll start, and please feel free to jump in, Hans. But the idea with the special industry solution is that we have those business units that actually have a rather end-to-end and unique value chain. And we really want to leverage that and make sure that the business units feel that they have the accountability and also the freedom to develop those businesses to its full potential. And we are -- or I can say I am in favor of the decentralized model. And I want to push the accountability out of those businesses. That's why we're going to view them and treat them as fully owned subsidiaries. So the commonality is that they have the unique value chain. Then we want to grow them. And as Hans pointed out, they are not in the same phase of the development at the moment. Two of them are more into kind of already into the growth mode and with a solid profitability, while 2 of them, we still believe should increase the profitability before they start to grow too much, but we do see significant growth opportunities for all 4 just that we want to make sure that we fix them before they grow them. So that's kind of the mindset that we operate on there. And then finally, your question is are you setting up for a future kind of portfolio activity, i.e., separating them out or divesting them. And that is not -- that is not the intention because as also Hans described, they are clearly an integrated part of the totality of a bearing on industrial bearings. And there are a lot and a lot of cross-selling and fertilization between the businesses that we're eager to go after. One example would be agriculture. We have a fantastic business in agriculture where our solutions are really driving growth and in high demand for many of the key OEMs. And the reason for that is not really because our bearing is so much stronger than anyone else's, it's actually the sealing that is a secret sauce that makes them so unique. So they do come together. So no, the intention not to separate them. Did not miss anything?

Well, you said a lot of good things. I think the only thing I can add is focus yields results. And I think we have seen the time and time after again when SKF decides to really focus on doing something, we do it very well. So now we have 4 companies, which are going to have full focus, and we think this will be a biggest answer we do well if we do that.

And we will have 1 question here from the online audience, and it's from Rizk Maidi of Jefferies. And it's on this topic we're just talking about, Specialized Industrial Solutions and the margin. And how much of the margin improvement to more than 70% is margin that is driven by the improvement in the specialized industrial solution?

On the 70%?

Yes.

Right. Some, but not much. The -- as also Hans alluded to, that we do see that for the long-term target, clearly, the specialized Industrial Solutions uplift in margin will contribute to the long-term target, less so to the midterm target. But clearly, it's not going to stand still in the next 2 to 3 years. So there will be some contribution, but the big jump is more for the long-term target.

We have a question from Olof Larshammar, I believe. So Linda, please if you can. Olof just raise your hand. So Linda can see you.

I think an interesting to say the slide with routing aftermarket in the underground mine. But just so how do you make sure that you're not starting to compete with all the distributors that you have if ask starting to offer conditional monitoring and taking some aftermarket business? And maybe also a follow-up. Could it be possible that you are starting to target distributors that are bolt-on acquisitions?

Yes. Well, that's an excellent question. Thanks for asking that one. The way we see our service business is actually a way for us together distributors, enhancing our attractiveness to end users. Then we have to break down service into various services. I mean there are very sophisticated services where SKF has the competence and have to do it and there is call it, lighter services, where actually this represents an opportunity now for distributors to also enhance their business. So this is not either or this is actually both.

Very good. We have a question from Hampus Engellau with Handelsbanken.

Maybe looking forward, you're spending more on CapEx and also restructuring to achieve your targets? How should we think of M&A in terms of that with the first phase and second phase? And why didn't you include M&A in the growth target?

Right. In the growth target, we have stayed focused on the organic growth. As you will hear later on when we go through the financials in Susanne's section, you will also see that there are in order to reach the long-term targets, we also imply that there will be some contribution also from M&A activities. So they are a part of it. And we are confident that we have a balance sheet that has a lot of headroom to also cope for ongoing and ongoing kind of yearly generation of small bolt-on acquisitions. So that is part of the equation. So again, I think you're going to -- you should expect us to be more active in the M&A field in the -- already from starting now, but it's going to take some time to really build that machinery that we have a constant throughput of targets that would then close on a yearly basis. So I'm sure you will get some more answers during Susanne's session as well.

And the next question is from [indiscernible]. We have a microphone on the way here.

Yes. I have a question regarding the decentralized organization here specialized that you emphasize now that ceilings and lubrication will be more independent. But at the same time, you talk about the cross-selling, it's a little bit contradictive.

Hans, do you want to?

You can start and I...

Yes. I tried to explain the synergies we see having both parties together. But as we talk about driving the business, we really need to have someone who's waking up every day, committed to what's best for our sealing customers and our lubrication customers. And this is where our focus yielding results in comes in. Where we are seen the synergies is we are going to work together, though. So as we are jointly developing an application, we will come together and do the best solution for our customers, for example. So we need to drive the business as a focused business, but we should still be able to take advantage of the combined resources and skills we have.

Truly. And to be brutal honest, I think in the past, when we have tried to actually integrate all different capabilities to one sales force. I don't think we have really mastered that in a brilliant way. I think many of our sales reps are either in a very, very deep knowledge and comfortable in the selling bearings or lubricants, not both of them. So trying to force them to do both, we have lost focus. And we have put more emphasis on bearings rather than sales and lubricants in the past. We want to change that. We want to break that and make sure that we have a dedicated organization that lives and breathes seals, lives and lubrications and make sure that they make the most out of that business. Then it's up to us as a management team to make sure that we also collaborate and drive the synergies. But accountability and ownership will be key to drive speed and to drive growth.

And I will take 1 question here from the web. And it's from Klas Bergelind at Citi, and it's let's see Hans, Rickard who wants to answer this one. It's on the same topic, Specialized Industrial Solutions. Yes. And are you changing the incentive structure here to drive margin improvement in lubrication and seals?

Yes. I think after 4 weeks in the office, it's too early for me to have a definite answer on that. But clearly, we want to focus. And clearly, we want the responsibility and the mandate to drive the improvements we're looking for in these businesses. And right now, as you saw in my slides earlier, the management team is going to be focused on margin expansions. And how we do with the compensation we need to figure out long term. But make no mistake, there is no risk than those management team doesn't know what the focus are right now.

And to me, it's not just about the KPIs and such but it's also the relative weight between them. So it might be the fact that we will keep the same KPIs also for those businesses that they would be incentivized for profitability for growth, for capital efficiency and so forth. But maybe we have a higher weight on profitability than growth in the first year or 2, and then we shift that. And that freedom already have, and that's how we manage our businesses.

We now have a question from Alex Jones at Bank of America.

Back on the auto separation Rickard, I think you talked about synergies. I don't know if you can quantify that now, whether that's coming later? And just qualitatively, how are you minimizing those in terms of the manufacturing setup or contractual relationships between the new entities?

Right. And we will come back to that. So it's a little bit of a cliffhanger answer here because Susanne will take you through that in more depth. But as we said before, we have launched the rightsizing program to more than compensate for these synergies. And yes, we will have, and you will hear Susanne talk more about it, some contract manufacturing that will be minimized over time and during this kind of midterm section. And we need -- but we need the contract manufacturing as a starting point to not kind of sub optimize our asset as we do the separation, but it will be minimized over time.

And we have a question from the online audience. And this time is from Rory Smith at Oxcap and it's for you Hans, and it's about data centers. The audience wanted apparently to hear about that. You were absolutely right here. You have a question. You talked about data centers and you gave a number, 3,000 solution per midsized data center. Just wondering if you could expand on that? Basically, what is the chipset value or revenue opportunity for midsized data center or per megawatt, if known?

Yes. So I didn't cover the picture I had, but I'm happy now that I brought the picture. In a data center, there is a lot of applications which needs help from SKF. We have cooling towers. We have fans, we have heat pumps. And that is how we come up with 3,000. Between all these applications, there are so many solutions where we can help. I honestly don't know exactly what is the revenue opportunity per data center. So I apologize for that. but there's a lot of opportunities. And it's a very diversified range of opportunities. I mean those cooling towers we have big magnetic bearings to pumps. So we have smaller ones. So it's a very, very broad offering, which is attractive in the data centers.

Great to hear. Do we have any questions from the audience? Yes, please?

It's Tim from Barclays. I have a question about the growth target that you set for the industrial business. So if I look at the previous 2 CMDs you had a target of like 5% growth in terms of top line organically. And this time, when we separate business, we have better resources for the growth independency [indiscernible] the 2 group of business. And now we set a target of 4% for the industrial business. So I'm just wondering your thoughts of kind of step down a little bit in terms of growth target you set for the business. Is that because of the scale that you have grown already into a bigger scale so that it's a higher base? Are you being a little bit more positive because of the economy environment, which you currently have or some other force? Good to here your thoughts.

Do you want to start, and I'll be happy to support.

Well, I actually prefer you to start. I wasn't really on board when we had the 5%.

Yes. We can talk about -- perhaps I can take this. Yes happy to. So it's about the definition. So the 4% is organic growth and the 5% that is -- the current one for the SKF Group is also including acquisitions. So it's not apples-to-apples, we are comparing. So that is -- and the -- I want to be clear. The aim is to outgrow the market for industrial then. So we expect market to grow around 3%. So and the organic growth then is 4% target. Hopefully, that clarifies. Any final questions before we head to the break? Yes, Andreas Koski?

Andreas Koski from BNP. Maybe I can follow up on that because you are now assuming market growth of 3%. How does that compare to the historical market growth? And do you expect an acceleration or not?

Well, when we look into the statistics for the industrial bearing market, we recognize that in the last few years, or if we take it in kind of a longer-term kind of a 15-plus kind of time serious. We do see that kind of the average has been around 3 percentage points. And we see no reasons why that should shift. And we are confident, like Hans described, that we should be able to deliver somewhat higher growth rate than the underlying market, hence, the target of 1 percentage point above the market. But again, this is an assumption about the 3%. So if 1 day it turns out that the market grown 4%, usually expect us to grow 5%. And if the market grows 2%, you should expect us to grow 3%. So that's kind of the logic to this. But the statistics that we sit on indicates that the industrial bearing market has grown roughly 3%, and that's what we anticipate is going to happen for the future as well.

Thank you, Andreas. And I see more hands, but we have more Q&A session. So that was the end for this one. Thank you, Hans. Thank you, Rickard. We will now take a break. We will be back here on the hour and for the audience here in Stockholm, please be back 5 minutes before the hour, and enjoy our product exhibition, talk to my colleagues about the value we create for our customers. And I see you back on the hour. Thank you. [Break]

Welcome back. Before I joined SKF, I have to admit, I never fully understood the deep technical expertise required to make a bearing, nor the level of tailor-made solutions we provide to our customers. And that's what we're going to focus on now, innovation. So therefore, I'm great to have our CTO, Annika Olme, with me on stage. Hi, Annika. Welcome, and let's start with a big picture on how innovation is driving value at SKF.

Let's do that. And I would like to start with what Hans said earlier today. Hans talked about which are these mega trends that actually play in our favor. And which are the targeted industries where we play, where we grow with profit, and that actually means that for each one of those targeted industries, we need a very clear innovation and product road map and solutions road map because all of these targeted industries need different things. They have different applications. So innovation is really what drives our success in those targeted industries. And we have been working with the customers in these targeted industries for many years, decades. We know what the technology they need, we know the applications they have. We know the customer reality. That is not something that you build overnight. So I will talk today about customer-centric innovation. And how would that actually feeds into the growth agenda that we have.

And how would you say the separation will impact? Will it sharpen our focus?

Indeed it will, but let's start to look at the two businesses from an innovation perspective. The Automotive business, you can see longer development cycles, there are regulations and requirements in automotive that we have to adhere to. And it's, in the end, a different innovation play. If we look at the industrial market, we saw 40 industries, and our targeted industries are, of course, in focus. All of these industries need application-specific customer-specific solutions from us. So we need to serve a more diverse set of needs, often in very harsh environments as well, and I will come back to that later on. Now that is really what allows us also as a pure-play industrial company to focus, to bring our resources into where we have the high profit and high growth opportunities for the future. That is what will be strengthened even further going forward.

And speed of innovation is really picking up, especially in Asia. How are we dealing with that at SKF?

It is very exciting, I think as a technologist at heart, to see how development cycles are shortening, how we can see really innovation speed going up. And we have, for the past decades been building our global R&D footprint. That means that we have a strong presence of R&D in Asia. And as such, we are a part of this movement. We're not looking at it from the outside. We are in there. And that creates a win-win for us because we can actually really double down on that increase of speed because we're there, but we have our heritage. Our long technology history that we built since 1907 in our global R&D capacity. And that means that we can take the best of the best and accelerate because in the end, it is actually true that any customer in any part of this world really want speed and innovation. So there's no difference there.

Thank you. The stage is yours to talk more about the customer-centric innovation, Annika.

Thank you, Sophie. So this is one of our products. It's a bearing, a spherical rolling bearing. And take a look at it. What do you see? You're probably thinking that it's a piece of steel. That cannot be rocket science, right? And you'll be right thinking that because it's actually much more complicated than that. Let me explain, there is no industrial component out there that is subject to more load and stress compared to the bearings. They take all the heat. And as such, let's make analogy out of this. And this is actually an analogy coming from my research organization, they put it really well. Imagine that you stack 10 cars at the tip of your fingernail and balance them. On top of that, you need to keep those cars separate by a lubrication layer that can be as thin as a hundredth of a human hair. We are talking molecular level here. So just imagine that you are standing there with your 10 cars balancing on your fingernail with that hundredth of a hair in between them, that is why it's more complicated than rocket science. We have centuries or at least one century of in-depth knowledge that we have built to be able to manage this, to be able to push the boundaries in our knowledge, material science, metallurgy, AI and software, all of it meets in the bearing world. I would like to introduce you to how we enable this? How do we work with customer-centric innovation? What does that mean? And how do we do it? There are three pillars and two accelerators in this model. Let me briefly introduce them to you. The first one is the research and technology, building the foundation of knowledge. The second one is product and solutions development, where we take the knowledge and bring it into the customer realm. The third one, we talk about application know-how, everything we know about our customers' applications, and what that means for our solutions. These three pillars are accelerated by external innovation and digitalization and AI. If I turn then to the first pillar, this is one of the key strengths of SKF. We are here talking about research and technology. We have a lot of unique proprietary knowledge in this space that we have built over decades. In material science, steel and heat treatment, ceramic materials. Digital simulation of everything that we do, but also performance prediction, how can we predict the future, how long will our products last? This is in-depth technology knowledge. It is guided by a robust technology strategy that caters to our future growth, where we build these unique capabilities. And this capability is scarce. It is hard to build, we know that. So as a result of that, we have decided that it makes sense, but we will, in the automotive and industry companies, still continue to use this technical base together. And we see that as a long-term arrangement for automotive and industry going into the future. This takes me to the next pillar, which is about transforming that application knowledge as well as what we have in our technical drawers, as I mentioned earlier, into products and solutions that mean something to our customers. Here, we differentiate as Automotive and Industrial moving forward, and really, it's fast access to innovation for our customers, creating customer value. And not only that, we do this together with our customers. 70% of our development projects are done together with customers, OEM customers, but also aftermarket customers, building stickiness with those customers, ensuring that we develop what they need, and we do it together. It strengthens also our aftermarket position because we develop those solutions that are application-specific, that will also drive the aftermarket business. So we're driving solutions into those high-profit, high-growth areas. The third pillar is about application know-how. The strength we have there is, I think, very much exemplified by more than 600 application engineers, our heroes out there. They are out there with our customers every single day with the application knowledge they have. And they serve customers in more -- in 40 different industries, of course, focusing on those targeted industries. And I usually say that one of those application engineers out there in the field, together with our customers in their development department, actually can bring more than 1,500 experts into that room because that is the strength of SKF when we work with our customers through application engineering. Now we've seen three pillars, right, in the customer-centric innovation. Let me bring you to some examples of what this actually means in real life. The first example comes from the industrial electrical area, industrial electrical motors. So the electrification trend has, of course, been very much influencing this industry over the past years. We can see higher speeds. And also what we can see is actually stray electrical current as a result of the electrification that we need to manage because if that current goes through the bearing, it can not only kill the bearing, it can also hurt the application. So we need to manage that. And what is then our solution? Our solution, and you saw probably some of that out there in the course is a specifically designed hybrid ceramic bearing for the industrial electrical motors, perfect conditions for this product. And what we have brought forward here is an optimized design, a patented solution, and the ceramic value chain as well because what is then the difference between hybrid ceramic bearing and this bearing over here on the table, which has steel rolling elements right here, a ceramic bearing actually has ceramic rolling elements, and what is the point of that? Well, ceramic material is actually insulating electricity, so you will get away from the program of these stray electrical currents. Our customers enjoy, in many cases, 25% less friction because this is also a solution that affects and is able to handle higher speeds, but also, in many cases, 4x the lifetime of the product, and that matters to the customers in the industrial electrical area. Another favorite example of mine is the metals industry. Walking into steel mill, it is obvious the times I've done that, that this environment is simply brutal. There is high loads and many times, the applications are in more than 1,000 degrees Celsius. We're talking about a truly harsh environment here. And our products need to perform in this hot environment. We need to make sure that they do. And actually, we had a dual opportunity here to grab our customers' value. And that was really, first of all, to ensure that we increase our performance. You don't want the bearings to break. You don't want unplanned downtime in the metals industry. Hans explained what happens in the paper industry. I would say metal industry is maybe even worse. So what we have done is that we've taken all of our knowledge to think about how to increase performance, but not jeopardizing the good cost levels we have. So really bringing the cost down as well. This is an impossible equation, you might think. How do you increase performance and reduce cost at the same time? You do that through technology and innovation. Because with all of our knowledge in all of the diverse technology areas, we were able to bring forward a new solution with a new type of seal, a new design of the bearing itself and a new way to process the heat treatment in our factories, which brought us better performance at lower cost. It is possible. That, in the end, also allows us to scale and grow this solution. So that's what the three pillars do to our customers. And I would like us to now look into the two accelerators, as I mentioned earlier. The first accelerator, external innovation. So we know that we have a lot of proprietary unique knowledge. But we also need to bring in new technologies. We need to really work with the best of the best also in universities. So that's why external innovation is also a lever for us. And what we do then with the external innovation is that, first of all, we work with 40 different universities. We've done that for many, many years, really bringing that core in-depth knowledge also in house, but we've also started this year SKF Ventures to make sure that we can harvest in a very efficient way, start-ups, technologies coming up through new companies. And also, of course, established companies, how we can collaborate even further. We need to gain speed, and we can do that by harnessing external innovation in our technology and innovation. The second pillar, digitalization and AI is, of course, on everybody's lips at the moment. A couple of things I want to mention about our intelligent products. You've seen some of them out in the post. So we have a lot of AI and solutions that bring our products to be even better in the intelligence solutions space. But we also have a lot of digital tools at our customers use that serves them, interface, and you can all use it. I'm sure that you will before the day is over because it's available on skf.com. You can ask our SKF product assistant anything of technical nature that we choose to share externally. So that means by asking any question about the weight of this bearing over here perhaps or which bearing should you use in a gearbox or anything like that, you will get the answer in less than 7 seconds. Of course, that means something to our own efficiency as well. That's the second part of digitalization and AI. And as such, we are using AI to improve and automate our full value chain in SKF. Bringing it all together, what would be better than a customer example. So this is from the machine tool industry. We have a very important customer trust DMG MORI that play in the field. They needed real-time visibility into their machine to performance. And they wanted to have data from sensors within the core of the machine tool in the spindle in the bearing. To -- and together with our knowledge and the knowledge of the DMG MORI Engineers, we developed the SKF Insight superposition bearing system with fiber optic sensing, allowing them to actually improve the performance as well as actually the warranty time of their machine tools to meet the increasing needs. But what's better than to hear from customer itself. So let's hear what Dr. Mori has to say about this. [Presentation]

What's better than to hear from your customers, right? So we have a strong innovation track record. And you can see some examples of where we have the leading in the past. These are only some of them. Magnetic bearings with more or less zero friction, to the hybrid ceramic bearings. The digital tools that we have and the digital products like the MORI Microlog analyzer and the super precision bearing system. All of this showcases our history. Now we have 90% of our projects that we run in development that are run for those targeted industries that Hans talked about. And on top of that, all of our projects, we're looking at accretive margins, we're looking at good growth potential. And the portfolio work that we've done that Rickard mentioned earlier over the past two years has positioned us for future growth with profit. So we will continue as innovation leaders. We will continue with our customer-centric innovation leadership and invent in our core, but also being new and adjacent solutions. Digital and AI will speed us up together with external innovation. This is how we differentiate. This is how we maintain and build entry barriers to this industry. And today, and tomorrow, it is what makes us the technology leader. Thank you.

Thank you, Annika. Now we are going to hear from David Johansson, how we are optimizing our value chain to drive further efficiencies and value. David, welcome on to stage.

Thank you, Sophie, and good afternoon, everyone. Happy to be here. Let's dive a bit deeper now into our footprint, into our supply chain evolution. And this is then from an industrial standpoint, how to become more customer-centric, more business driven in our footprint and related supply chains. Many of you have been following us over a long period of time. And you know the ongoing transformation of our footprint, where regionalization is one key aspect, bringing main volumes closer to customers where it really matters. Secondly, a high degree of automation, so having highly efficient, highly effective manufacturing operations also for small batches, short production series. And thirdly and perhaps most importantly, becoming industry-centric. What Rickard and Hans and Annika has introduced you to this afternoon is really about a selected number of industries where we want to outperform. And our duty then, of course, is to also tailor our value chains according to those industry needs, considering also a high degree of regionalization and a high degree of automation. This is a major transformation exercise. And again, you have been following us since years on this transformation journey. But let's have a specific look on the industrial transformation, where we put as a target 70% regionalization rate for the business per region or per business area. That means 70% of the sales in the region should also be manufactured in the same region. You see on the percentages here, where are we, where are we coming from, and where are we heading? And you see some differences naturally. Where are we coming from? A very strong European-centered manufacturing, managing a global demand, managing all industries across. So very much an order book-driven manufacturing organization, a functional organization. When we look now on our current state between the regions, we can see that the Americas, we are already within the range, 65%. It's largely the specialized industrial solutions, which is driving this good number. We have a good level of localization for seals, for aerospace, for lubrication. We still need to step up our bearing production and consolidate and modernize this in the Americas. China, we are reaching 70% after a few years of quick acceleration of our capability and capacity here, and I will come back to that. India, Southeast Asia. This is the main geography still to be regionalized from our industrial standpoint. We are actually already strong in automotive. But when we look on our industrial demand and supply, we are currently at 46%, and we aim to grow this up to 70%. And while doing that, continue to adapt our European manufacturing footprint and capability. Important reminder behind regionalization is that it's not only about shifting capacity. It is really about building also a full value chain capability, very much for what Annika presented, allowing us to be part of the local ecosystem, the local business. This has been one of the key success factors for our acceleration in China and today a leading position in the China market, which is the biggest industrial bearing market globally. The backbone of this is our strong engineering capability, no doubt. And it's a full value chain engineering capability. Where are we today? 20% lead time reduction versus the past. That means we can react more quickly on customer demands. We can capture short-term needs with less inventory risks and requirements. We also see up to 30% cost down in the industrial manufacturing. That comes from both upstream and downstream integration with our capabilities in China, becoming part of a very cost competitive geography. It's the result of consolidation towards the industries that matters in China and, of course, also having access to high end, but also cost-effective CapEx and manufacturing processes in China for China. As I mentioned, we are approaching 70% already. And if we look on the years ahead, it is mainly a continuous further adaptation of our presence in China for China to be even stronger part of the local requirements needs and setting the trends. And in parallel to this, Europe has to continue the adaptation of our profile, our manufacturing profile and role in SKF. How the European footprint has evolved over the last couple of years, and we are in the midst of it right now is on the one hand, to adapt our large volume manufacturing sites towards the regional demand and regional supply. We have continued the consolidation. And over the last three years, for those who have been following us, you see three major sites being closed, Pianezza, Luton and Avallon. So our consolidation of both number of sites, but more importantly, the industries that you serve, the customers that you serve, the products that you produce is ongoing. It's a big cultural change that we are driving in Europe, having been the central manufacturing globally into becoming much more interested and much more engaged in what makes our local customers tick, what makes our local customers buy and see the difference in SKF products. So it's a big step change in how we actually become -- streamline the value chain in Europe for Europe. Cost and lead time, same as for China is key for our European footprint, it's also key to step up further in East Europe. You probably know we are in Poland and Bulgaria and those sites are taking a stronger grip on both component supply for all factories across Europe, but also finished goods when it comes to competitive and longer-range production series. In parallel to this adaptation of regional factories, we also have the evolution of a few global centers, managing the long tail or, let's say, the niche assortment globally, because when we reach 70% for most regions, we still need to capture that customer-centric, the industry-focused long tail from somewhere. We have a high level of engineering competence in Europe. And for six sites then, they take this role to also manage the long tail globally. Those are highly customer-centric facilities, but also highly flexible facilities, where short batch manufacturing is key. Gutenberg, maybe many of you have been to our Gutenberg factory, you see a significant transformation of how we do resetting between production batches. What used to take several hours and with manual intervention is today done in less than 20 minutes fully automized. For an industrial pure play, that is a real good value proposition and capability to have. Hans already mentioned it that we have also simplified our long tail, one quarter less when you look on our assortment. And Hans mentioned the benefits for manufacturing sites, but equally so for our engineering resource, where do we spend time. And talking about engineering in those selected global centers, we also gather the full value chain engineering under one roof on one site, from industry, to application, to product and process engineering skills, which fosters of course a creativity and innovation for the customer group that this site is to manage. I want to bring you to one of these centers. Actually, one that was also recently inaugurated where we have consolidated our capabilities for super position patterns and super position industries. Actually, the one that DMG MORI is acting in. Here, we have brought together our best competencies and latest technologies into one site. And the achievements over the last 2, 3 years is quite remarkable. How we utilize the capacity coming together in one global center plus 30%. How we have improved the throughput time through the factory, minus 30%, and how we have been able to consolidate and drive efficiency from a manning perspective, minus 30% headcount or manpower. Considering that, I want to show what can it look like? How does this global center for super position actually look like? So please join me in this, and let's have a look. Clearly, part of the clean and intelligence strategy. This is a site where actually 0.5 degree Celsius is the maximum deviation allowed in the manufacturing process. So we are talking clean room facilities, and we are also talking no touch manufacturing in order to deliver on the precision and quality needed for those applications and technologies. Highly digital, we have digital twins of both the process, but even the entire facility in order to control diligently operations and precision. We have the brightest minds here, as I said, full value chain engineering, and it is also the place for customers to come and visit us and bring their latest needs, challenges that we co-create around. During the inauguration, we gathered some of the most leading, strongest brand into our site. DMG MORI was one of them. Dr. Mori was on stage with us. And this center is for them to continue to develop their respective leaderships into their industry verticals. So we are really proud of this, as you can hear. And we have received also excellent feedback from customers and partners that we are stepping up the game, and they are also increasing the app towards competition when it comes to enabling better innovation for our customers. Of course, caring about those assets, our optimized footprint requires also a strong operational excellence. And just as a reminder for you following SKF, that's where we are coming from. Of course, having been running industrial manufacturing since 1907, our production system, the SKF production system is a cornerstone of our operational excellence. We run with a lean mindset, and actually this lean mindset helps us to co-create with customers. Our production system is the reason why we have closer partnerships with industrial companies, customers and suppliers compared to competition. And not the least in times like those when Europe needs to come together more strongly, find competitive force against other geographies, this best practice of our operational excellence brings even further opportunities into us. And perhaps most importantly, driving lean is to also be able to cope with high market dynamics and driving resilience in our margin. And if you look back on the last three years, our gross margin based on cost of goods sold has actually been on a positive trajectory, 3 percentage points, where certainly our production system and continuous focus on lean helps us to become more resilient. And finally then, also approaching efficiency from a net working capital perspective, I want to share a few perspectives on how we have been managing because right now, on the one hand, highly dynamic market, supply chain disruptions and so on. On the other hand, a footprint transformation. So three focus areas has been put in place global governance to make sure that we do the ramp down, ramp up in the most effective way without creating too much of buffer stock and safety buffers for customers. But naturally, such a footprint optimization drives inventory, which we are now coming through. We have put clear targets on BA leaders. This is the net working capital that you need to drive for. And we have, at the same time, it's safeguarding our availability because the last thing you want to do when transforming your footprint is to lose out of the profitable high runners. So we have actually put extra efforts to safeguard availability also of our profitable high runners to maintain our market leadership, but also drive margin improvement. If we look forward, and you saw this morning from the press release, we have more ambitious targets now, driven by, on the one hand, an optimized industrial manufacturing footprint, that helps to take us already midterm into 29%, long term, below 27%. Industrial footprint is on the one hand, actually Hans area of specialized industrial solutions where we also had a question, what's unique with this? A concentrated value chain where we have had inefficiencies in the past, where we can now step up our net working capital efficiency. And thirdly, a continuous development and modernization of our IT landscape. And becoming an industrial pure play also helps us to standardize IT in our manufacturing at a faster pace. Summing up this part of our presentation, finalizing the footprint optimization. Key points to remember here is that India is the the main remaining geography that we now need to step up. And according to that, balance European production. Americas also has to be modernized and consolidated further on the bearing side and on our industrial manufacturing. And on the other hand, managing our supply chain continuous development, so leveraging our footprint, but also stepping up both the digital, but also the inventory requirements that we have in Specialized Industrial Solutions. With this, we should be ready to bring it home. And now back to you, Sophie.

Thank you, David. And so it will be an opportunity for you to ask questions to David and also Annika after the next presentation. So if your question is on the topic of innovation, the business-driven value chain and also the financials and the financial targets, you can submit them now online and -- or if you are here in the audience, wait a few more minutes because now we are bringing it all together here, what you've heard before about in the industrial deep dive. And our CFO, Susanne Larsson, will do that. So Susanne, welcome on to stage.

Thank you. I now will announce all the things that you've been waiting for. And not only that, we have some cliffhangers there since the pause. So let me try to put clarity around all what we have talked about, but more from the financial perspective. You have already read and heard about the new financial long-term targets where we are announcing them today. On top of that, we are also reconfirming our existing sustainability targets. And I will then elaborate on each on these ones separately. So off we go then. Organic growth, many of us have talked about that already. So over a business cycle, we expect to grow 4% organically. We do that by looking back over the last 20 years at the industrial bearing market, where we can see that, that has been growing some 3% annually. We have been able to successfully defend our market share over that period. We also think that with a renewed industrial focus, further fueled by the customer-centric innovation, we are well positioned to deliver ahead of market. And that's where we concluded that we will then outperform the market and be 1 percentage point ahead of market. So that's about the organic growth. Let's talk about the definition of the organic growth and the contract manufacturing that is not included in this definition. In the SKF Group, we have had intercompany transactions for a long time, and actually that is eliminated in our consolidation process. Immediately post spin, this will gross up the top line for the industrial business. This trading will already be significantly reduced at listing, and it will continue to reduce further until midterm and even less long term. And as we have talked about, we want to keep on having some of these contract manufacturing to provide some stability short term post separation. And that's also why we then excluded that from the target. And it will be some 5% in relation to the total sales. So that's the contract manufacturing from industrial to automotive where we take off. Now I will stay on this picture for quite some time. And this is really why we try to talk about how we will excel further. So we have decided to have a midterm target and the long-term target. And the third phase is a lot about optimization. We need to do some more things. You've heard us talking about that. And the second phase is more about scaling, leveraging further. So let me start then with taking off in the 15.9. What is that? That is the current industrial segment as we disclose it. So it's the rolling 12 months as per September. We are not disclosing any pro forma information yet since we are in the middle of the separation work. I got the question here in the break. But as we have talked about, the Bearing Solution and the Specialized Industrial Solutions, these are industrial segments that Industrial will consist of tomorrow. So that is something we disclosed before quarter 1 next year. Moving on then. As we are now building two independent companies, you know that there will be initial dis-synergies and stranded costs. We have talked about that already. Included in this, we will also have the automotive contract manufacturing that is dilutive to the industrial profitability. Initially, this takes our profitability down. That's the gray bar down. As you also know, this is why we launched quarter 2, our rightsizing program that will more than offset this, but of course, by day one, it is not fully compensated. So that's the starting point. Then we come into what Hans elaborated on, and what Annika also talked about from the customer close innovation. This is really how we reignite growth. This is the impact from the profitable growth, net of inflation. So that's an important contributor. Then we have the regionalization and productivity measure. This is where you heard David talk, where we will finalize the regionalization, but where we need to further optimize our footprint, that we will do during this phase, particularly in Europe in the mature markets, but also in the Americas. In parallel with this, we will, of course, continue to drive lean and productivity, but that's one of the contributors into this. And these measures will take us down to the midterm more than 70% target. So this is -- again, this is an optimization period where we recognize that there are still some work to be done when it comes to finalizing regionalization and optimize further the footprint at the same time as we are leveraging our growth. Then what? The profitable growth journey continues, so we will continue with an optimized footprint to leverage growth further. And then as we have talked about, already now, we are initiating a review of the industrial supply chain model, changing our ways of working and putting it into a modernized ERP landscape. This will take us gradual benefits, but certainly, not until we have deployed that globally speaking, we will have the full leverage of that. So that will be an important contributor, both from a profitability perspective as from a balance sheet and net working capital optimization. In this last part, we have one more thing. So today, SKF has functional shared service centers, Finance is the big one out of that. We intend to leverage further global business service end-to-end. So that is also a lever that we include in this last bar. So with all these measures, we believe that we will first optimize and do some further -- let me now comment a little bit on the rightsizing that we commented upon in the quarter two. And I'm really here to just confirm what we have already been saying. So we can conclude that the majority of the people are approached, and we have signed agreements before the year-end. I'm also confirming the savings of SEK 2 billion, where we will also then reconfirm that we will have most of the benefits during 2026 and 2027 in a relatively linear manner. When it comes to the cost, we took that charge already in quarter two, but the cash flow impact will mainly be coming through our cash flow during 2026. So this is really reconfirming what we have already stated. Capital efficiency then. So here, we will improve our cash conversion from the current levels to 60% as a long-term target. And similarly, our return on capital employed will improve from current levels to a 20% level. To the left in this picture, we see the main drivers for this. Certainly, it's the operating profit, the size of the profit, together with the profitability will, of course, improve and help us. Net working capital, we have touched on that. We have a relatively high level as a starting point, and we intend to normalize until midterm. Long term, with the supply chain efforts we are taking on, we see that we will have a target of less than 27%. A lot of what we are driving now is around the inventory, obviously. When it comes to capital CapEx, capital expenditure, it will remain on a 5% level until midterm. And we say that as we have certain automotive spin finalization of regionalization and footprint optimization into that CapEx until midterm to later normalize into a 3.5% of sales. Finally, dividends will remain as today with a 50% of net profit. So these are really the levers that will bring us an improved cash conversion and return on capital employed. Another important picture. One-off cost then. It's important to say that to make SKF even stronger, we want to do these things that we are addressing today. We want to finalize the regionalization. We want to finalize the footprint optimization to put that behind the leverage further. So this is something we have really worked through. It will, of course, create is one, of course, IACs one-off cost during this period. But thereafter, we anticipate them to be at a minimum. The first one is the automotive separation. We started to take some charges already in the end of last year. And by September end, we have charged SEK 1 billion through the P&L. We anticipate that there will be another SEK 1.5 billion that is taken before the spin. The second bar here is around the footprint optimization. As we have talked about, we need to have a rightsized footprint by region, and we are mainly pointing into the European region and Americas here. And after those 5, 3.5 will be -- will impact cash flow and the other one in the half will be noncash impairments. By taking this 6.5 additional, we see that we have come to an end with this kind of one-off charges, and we are ready to bring the value home. Last, net leverage then. So for the Industrial business, post spin, we will retain the strong investment grade that SKF has today. And we say that because we anticipate the separation to be credit positive as we will be less volatile and the profitability will improve further. With a target of less than 2%, we will also have space for M&A and other transformation initiatives. Finally, automotive is expected to have a net leverage of less than 1. And we say that considering the industry they operate in and the size of that business. And certainly, we will make sure that there are credit facilities in place before spin. So by that, I come to an end. I've shared how we will deliver on our financial targets, growth, profitability, cash conversion and return on capital employed. We will retain a strong investment grade and our dividend level, and we will keep our sustainability targets with decarbonized own operation by 2030 and NetZero by 2050. Thank you.

Thank you. Susanne. Please join me for the Q&A session, and I welcome also back up on stage Annika and David. So now we will have a Q&A session focusing on the industrial side of the business and topics are innovation, the business-driven value chain and the financial targets. And we will accept questions from the room, I see several hands already up. And also for our online audience here, please submit your questions if you have registered your attendance. So -- but let's start with a question from the room here. Erik Golrang at SEB.

A question for Susanne on the financial targets. So what can you tell us that would best explain why items affecting comparability would be minimal beyond 28%. And if you believe that, why don't you set the long-term margin target on a reported basis and not adjusted basis.

That's a really good one. I think we have had a lot of discussions in the management team and said that we really want to make sure to drive ourselves to completion with these one-offs, to really optimize -- that we have regional and optimized footprint. I think it's good also for our business and our people to be in that environment. But certainly, we want to come to an end with this continuous rightsizing activities. We could have changed KPIs in the middle of the term, but we thought it's better to define what KPIs do we want to have and then we articulate those on this one. But certainly, we will have minimum is IACs post midterm in 2028 as we said. So in reality, we could have reported IAC then because they would be very similar.

And let's have a question we have from Anders Idborg here in the middle.

Just another one on the growth target. So you plan to outgrow the market by 1 percentage point. I'm not 100% that is visible in history that SKF has outgrown the market rather sort of on the market, and could you be a bit clear on what exactly will drive that market outperformance?

I take that.

You can take that start with that. And then if we can have the microphone back, if Hans also want to -- we have a shortage of microphones here. So -- but Susanne please start, if you want.

Looking at the industrial bearing market over a long period of time, that has been growing some 3%. And we conclude that we have been able to defend our position in that. So we have not outperformed the market so far. But I think what we are trying to say with a focus in industrial, both from a technology and innovation perspective being close to the customer, but also certainly in how we have our industry focus, how we have application engineering capabilities, we believe that we are in a good position to outperform. And that's really the difference that we believe that the focused industrial company will enable us to be.

And before perhaps we let Hans in, Annika, some words from you.

So I would say also here, it is important to note that over the past 2 years, we have looked at our R&D portfolio. We have focused 90% of the projects in that portfolio towards the targeted industries that do outgrow some of the other industries that we work with. So that on its own will mean that we will have better leverage of the customer-centric innovation, and that has happened over the past 2 years. So that is a difference, I think, that we can really leverage and talk about here.

Yes. I don't know if I have much more to add here. But if you look back, you also need to recognize that while we are outgrowing in the market we decide to serve, in the last quarters, you have Rickard talked about the last 8 consecutive quarters of decline. We also have a fair amount of pruning involved there. So if we would -- if you're almost done with the pruning now, you will see a completely different trajectory as well moving forward.

We will continue with a question from James Moore at Redburn.

James Moore from Rothschild, not Redburn.

Rothschild, sorry.

Recently changed. Could I just try and squeeze in 3. Could you say whether -- I also industrial bearings was materially more profitable than independent and emerging and you've renamed it. Could you confirm whether it's above the 19%. The second one is you've actively chosen to exit some volume over the last 3, 4 years with both your pricing policy and to a degree that the portfolio rationalization. When it comes out to the choice between price over volume, are you still going to have price as the priority because taking share when price is not the priority is easy, but doing both is hard. I just want to clarify that. And then just finally, on the SEK 6.5 billion, some of that is MFP saving -- MFP oriented, manufacturing footprint oriented. And with the last few years, we've had SEK 1 billion a year of cost of goods sold saving. What sort of pace of saving marries to that? Can we think about a 50% payoff ratio of [ 500 ] a year? Would that be a credible COGS saving from that?

So let me start with the 2 industrial segments of tomorrow then, the Bearing Solutions and the Specialized Industrial Solutions. I think we will not disclose those numbers now precisely, but it's certainly like that, that the Bearing Solutions business is significantly more profitable at this point in time. And as we evolve, the Specialized Industrial Solutions will catch up and be in line with the ambition level or targets that we have disclosed today. That was the first question.

And sorry, there, Susanne, we could add also. We will share pro forma data early next year or somewhere in the first quarter. That's the plan now on these 2 new segments that we will report on.

That's right. So -- we will certainly always have price in mind. I think we are not intending to come back and become a volume business. I don't -- yes, so we will certainly focus on a profitable business as we move along as well. And the savings and the SEK 6.5 billion of savings then, we have also done rightsizing initiatives and regionalizations in the past then. So that is a sizable part of the leverage that we will have in our result, and we will not disclose exactly how much that will deliver itself.

And the next question is from Andreas Koski at BNP Paribas.

Two questions on contract manufacturing. So how much does that contribute to Industrial adjusted EBIT today? And does that business require any working capital to the 33% that we see, that's also part of the contract manufacturing business. So when we exclude the contract manufacturing business, it's actually a bit lower already.

Yes. So the first one is really about what is the impact it has on the profitability of the Industrial today. And today, we do not have any internal profit that is impacting any of the segments. So we do not have any internal profitability measures that is impacting the industrial business out of that. So today, we do not have that. And that is the consequence of what will happen as of tomorrow. So tomorrow, then we will suddenly have a gross up sales with a certain markup typically in line with contract manufacturing levels then. So that is what will be an impact post spin that is not existing at all today. So that is the first one. Talking then about this stability that it requires during certain until midterm then it will also have an impact on the net working capital because it's a customer similar to others. So we will have to tie net working capital into that. And we will utilize machinery that we have to the extent needed during that mid -- until that mid- and long-term period. So to some extent, yes.

And we have a question from Daniela Costa at Goldman Sachs.

It's actually 2 parts. It touches regionalization, but also touches the financial. I think on the chart you have by 2030 in Americas, Asia, most of the regions outside of Europe, you would still be 70% localized. I guess there's 30% coming from somewhere else. Is that by intent because that's the optimal net of the cost or because it's just too hard to restructure Europe in that time frame? That's part one of the question. And the second part is your working capital to sales target, I think, used to be 25%, and it's now 27% and 29% and then 27%. Can you explain, do you figure out over this process that you actually need to carry more inventory? Is that the...

Should we start with the 70% then? So it's a combination, I think, both of where we are coming from, but also where we have the kind of manufacturing expertise and technology needed to manage a long tail. You have probably been to some of our factories, well-invested factories then with world-class manufacturing like Gothenburg. There is no benefit, let's say, of building up another Gothenburg somewhere else. You have very low manpower on this. It could basically be anywhere in the world. So considering where we are coming from, 70% is sort of a good balance where our footprint can also help globally a long tail. We say 70% plus and the region where I foresee a higher degree is China simply because of the ecosystem that you are operating in. You have customer-specific solutions. You have geographical trends, which we don't see elsewhere. So I think we will benefit from further pushing that up in China, while for Americas, India, Europe, we come to this level as a suitable one to balance market needs and where we come from. Net working capital is simply the 2 different businesses then. So automotive running on a more efficient net working capital than industrial. Like I mentioned, having high runners, profitable high runners available for industrial, a good serviceability ties up more capital versus the automotive business model, which is definitely on the OEM side, very effective. So I don't know if you would like to.

That's good.

And we have a question from Anders Roslund at Pareto.

Yes. How should you see your targets in relation to the cycle? I mean we are on a trough demand situation now, probably some 10%, 15% in volume below 2018. And hopefully, we'll get another 10% up in the coming years. And in 5 years, we may be in the down cycle again. And how do you interpret your own midterm target? Is it possible that you get a strong cyclical rebound in a couple of years and then go back? Or how do you see the -- over the business cycle?

But I think you're right. It's over a business cycle. So we talk about the organic growth being over a business cycle. And if we continue to be in a, let's call it, a depressed environment like we have a soft market now, if that would remain for long, then it will be more of a challenge certainly. So in our EBIT development, we have the profitable growth as one lever to improve our profitability. That's clear. So I think we see that we need both profitable growth from growth, but we are certainly also taking a lot of measures to improve our cost of doing business, as I tried to illustrate. So it's both of those.

Yes. But what I'm talking about that you could have a short term relatively strong, could be a strong recovery and then flattening out or coming down and -- so still this midterm to long term doesn't fit the cycle.

But you're right. If we have a very strong recovery, we should have much more lever of the fixed cost absorption. That's certainly true as well.

Thank you, Anders. We have a question from John Kim at Deutsche Bank.

Two, if I may. What do you see as the biggest blocks of improvement within the net working capital bridge as you target 27%? And if you could provide any color or assumptions you've made around the tariff situation in your medium-term guide?

What we are elaborating on here is more of a normalized recovery as well, and that will also allow us to normalize the net working capital. So where we are facing low demand currently, which also means that we have customers that are deferring their orders. And we have, over this period, improved our availability, as David talked about. And the consequences of that is that we are actually sitting with a too high net working capital. In a normalized environment, we foresee that we should be able to get back to more of pre-COVID levels. And that's the first step and then fueled further of an industrialized supply chain way of working and new IT environment. Let's say, that was the first one.

Tariffs?

Tariffs. That's right. So tariffs, we have been facing since the Liberation Day. And what we have stated so far is that we have been successful in compensating them out into the market. And that is also the outlook we have provided for the quarter we are within. So net-net, we are, to the vast extent, compensating for that. And if there is anywhere that we actually have a certain net impact, it is mainly in the automotive business area of today.

Maybe I can just add from the indirect, let's say, impact of the tariffs also coming from a European perspective, then we see that on our direct sales, let's say, direct shipments, we are able to push pricing ahead. But we see an uncertainty among our European customers, system makers in Europe, how competitive and how successful will they be on the American market longer term. So from a European market perspective, we can see an increased uncertainty again, with our customer base more from a -- do they need to regionalize more, who will be winning in that market? Will there be trade agreements based on actually a system need in the U.S. and so on. So that's probably the estimate.

But I agree and that might be -- I think Rickard has talked about the wet blanket in the past, but I think that's the biggest risk is that the market is not recovering in the pace that we would have expected without this.

Yes. And we have time for a final question, and it comes from Alex Jones at Bank of America.

Two clarifications, if I can, on the margin bridge. One, given the cycle, people have different views. Could you give us a volume drop-through number that you think about as normalized for the Industrial business? And then the second one on the SEK 3.5 billion cash out linked to restructuring. If we think of that as an investment, should we think of that as hitting your 20% return on capital target in terms of the savings that delivers? Or do you view it as strategic and therefore, not part of that target?

So if I start with the last one then with the SEK 5 billion and then you take away the impairments, you talk about the other SEK 3.5 billion then. So what would that be as a one-off then? So that will be a lot linked to charges and a lot of that will be severance related for people. So that is mainly through the P&L and cash flow and not that much into the balance sheet. The drop-through, Sophie, do we disclose that? I'm not so sure we do that.

No, we are not. And -- but what we have said is that we expect the operating leverage to improve given what we have done in terms of what David just talked about in terms of efficiency in the manufacturing and what you have also seen partly in the margin resilience already. Thank you so much, Annika, David and Susanne for this Q&A session. We are now heading for the next session here. And now it is time to deep dive into the automotive field and to hear more from Kerstin Enochsson, what are the benefits she's seeing from being a more stand-alone business and from this separation. Kerstin, great to see you. Over to you.

Thank you very much. So finally, automotive. My name is Kerstin Enochsson, and I'm driving the Automotive business within SKF. I'm going to take you on a journey, and we will be covering 2 different aspects. One aspect is where the business is heading and the other aspect is around the separation. So let's talk about what the separation is unleashing, and there are quite many interesting aspects. So around growth, being the low-margin part of the business, it also meant for us that we pruned a lot of business, and we were rather careful with growth. Being a stand-alone business, we do see that there are a lot of growth opportunities, and we are very eager to realize those opportunities. Around efficiencies, we do see that we now can really optimize the automotive business, both in regards to the company structure, but also in regards to the entire value chain. Speed is extremely important. We talked about it several times before here today. You see more and more car models coming out to the market faster and faster. Development cycles are shorter. That also means that we as suppliers to the automotive industry need to be much faster. And we do see with a new setup that we can adhere to speed in a different way. Of course, it will be a dedicated management team that is fully focused on automotive. And before we run through more PowerPoint slides, I would like to give you a glimpse on where we are heading. [Presentation]

Indeed, a very exciting journey. Internally, we talk about the teenager that's moving out. Our last name is SKF, and we are very happy to keep it and to also start a new era. To describe where we are heading, we will be structuring our presentation in 4 different areas. The starting point, growth, efficiency and finally some words on the objectives. So let's start. We are already today well positioned. We have a good starting point. We are a truly global player around manufacturing. We have factories in Brazil, Mexico, several European plants, 3 in India, 1 in Indonesia, 3 in China. We are able to serve our customers with production out of all those different sites and our customers are the global big OEMs. At the same time, we also have these magical application engineers that Annika talked so nicely about earlier, and they are also positioned out in the market and in many more places because we need to be very close to our customers in order to realize the value in the talks that is happening on a daily basis with the engineering departments. We have a leading position in the area of electric vehicles, commercial vehicles and aftermarket. And our Wheel end products, and I hope that some of you or all of you have had a look outside at the exhibition for you who are here and online, you will need to do it at a later point in time. Those wheel end products are driveline agnostic, meaning that you can put those wheel end products both in EV cars, but also in cars within ICE powertrain. One thing is important, we are also fighting friction here. And if you have a low friction bearing in your wheel ends, you can extend range with your electric vehicles. It's around 20 kilometers range you can extend with a super low friction bearing. Of course, fuel efficiency for ICE cars is always the name of the game. We have done a lot of portfolio management during the last years. We have pruned our business. We have a very good base to further move on. The pruning was focused mainly on EMEA, and now we are very glad with where we are standing today. So now let's move on and see what the strategic levers, and Rickard mentioned them earlier on today are and how they are impacting our markets. We talk about 5 different strategic levers. 3 are connected to growth and 2 are connected to efficiency. And you understand that both growth and efficiency in itself are interconnected. If you are lean and faster, you will be able to win more business. So that is the flow. Coming into accelerating profitable growth. Lever #1 is connected to our core business. We have a lot of great products, and it is about the continuous improvement of those products. Lever #2 is around innovation. And Annika, we talk always very warmly about we need to further excel and also use digital tools to a larger extent to be fast in our responses. Already today, we have like a broad market, but we do see that with technical advancements, both in the area of EVs, but also autonomous-driven cars, there are more opportunities coming. So we will be looking into expanding the addressable market. It can be product-wise, but it can also be in the area of aftermarket and penetrating more into other geographies. I will be coming back to that. Focus is and will remain on electric vehicles, commercial vehicles and the aftermarket. So how is this playing out in our key end markets, and we have 3 key end markets. It's the passenger vehicle market, and you see upstairs to your right, the pie indicating that this is around 50% of our top line. We have the commercial vehicles market, which is equivalent to around 20% of our top line and then the margin-accretive vehicle aftermarket representing around 30% of our top line. We start with passenger vehicles. Overall, a gigantic market. We talk about 90 million cars that are being produced and sold right now, growth of around 1%. But if you double-click on 1/3 of the market, the market for electric vehicles, that market is growing 17%. Forecast around electric market has been shifting. It's been going up and down. But we do believe in the electric vehicle market. First of all, there are more and more products being launched or cars being launched with attractive price points. We see a longer range of the vehicles. Infrastructure is being built. And also from a technical perspective, electric vehicles are most efficient to drive -- electric drivetrains are most efficient to bring the car forward, to move the car forward. Electric vehicles have been one of our big bets. I think Hans said it very nicely. If you put focus on things, you can also deliver. We have been putting focus on electric vehicles. We have also been putting focus on developing in China with several partners, and this is now paying off. So this innovation we are learning about in China, we are bringing back to other global markets in order to fuel developments outside China as well. So let's look into one of the collaborations we are having, and it is with BYD, Build Your Dreams. I think this is a wonderful name actually. BYD is the most successful EV brand there is. They are producing about 4.6 million electric cars. Half of them are fully electric this year. So we have been putting focus here and what is happening, we are together with BYD, developing extreme cars. You see here the beautiful U9 car, a fantastic car to drive, believe me. BYD positioned us as the EV leading technology development partner. And our bearings, our hybrid ceramic bearings, Annika talked about it with a rotation speed above 30,000 RPM, that is rotations per minute, and that is very fast. All BYD motors are equipped with SKF bearings. So we are pushing limits, we are breaking limits, and we also have a very nice history in doing so. So we have been proving for 78 years in the longest collaboration that Ferrari has with anyone that we are delivering year-over-year on very high innovation. We are also the official bearing supplier to nearly all Formula 1 teams. This is fueling our innovation. We are learning about extraordinary quality levels, and we learn about race, grade, durability. You see a quote here by Fred, who is the Scuderia Ferrari Team Principal, and he talks about the long relationship, how we have made each other successful and the future we are embarking together as well. So we have -- we are pushing limits. We are extremely fast. Now we need to reduce speed. But one thing is staying with us, and that is durability. Because here in the next segment, I will be talking about the commercial vehicle segment, you need to have high durability. Here, questions like TCO, total cost of ownership are absolutely key. This market has been developing rather sluggish during the last years, but now we see growth demand on tight collaboration. And this collaboration is lasting sometimes for decades because the platforms, the OEMs or the truck makers are developing for a very long time. So growth is recovering. And I would like to put your attention to one subsegment here of this commercial vehicle market, and that is the last mile delivery vans. And you understand that we, as SKF, are in the sweet spot here because we have, on the one hand side, the need for high durability. On the other hand side, we have electric vans. And those are the vans that are bringing your food home or the Amazon delivery and so on. And here, we are industrializing products as we speak. You also see one of the products outside, which is giving you a glimpse on the innovation we are offering in this field. So some pockets are growing more, much more than the 5% the entire market is growing. The last key market I will be touching upon is the margin-accretive vehicle aftermarket. I mentioned earlier, it's 30% of our top line. And when you look at this aftermarket and the products we are selling, it's actually much more than bearings. It's bearings, but it's also steering suspension products, it's brakes, it's engine kits. So the product portfolio is much, much wider, especially in Europe. So as a consequence, the mechanic that is serving your car is getting 50% of his needs on spare parts in a blue SKF box. And this is fantastic. This broad product portfolio, we are going to roll out also to other markets. You understand that the brand SKF plays an absolute crucial role in the success of the aftermarket, and we are an extremely well-known player. You see that the SKF customer awareness versus peers is the absolute highest here. So we have a large growing and aging car park, which we are selling into, and we will be expanding the product portfolio going forward also into other geographies. Now I told you a lot of, say, theory and some statements, but I think it was also time to show you around the one business, what makes us enthusiastic about the future. Just give you a glimpse. You see we are like well positioned. Customers trust us, customers like us, and they award us. And these are the things we have been bringing home, some examples in the last 6 months. And the reasons for choosing SKF, you see here on the right-hand side, it is around being very innovative, being a great collaboration partner, having a global footprint, having superior e-powertrain portfolio and so on. So somehow, we see that our strategies are paying off. Now we have covered the growth area. The next area we will be covering is efficiency. The separation is allowing us to redesign our setup in 2 ways. Overall, a lean company setup and a leaner one than we have today. And then the entire value chain of automotive, we can redesign to be a pure-play automotive Tier 1. And what are the effects we do see? At listing or we see that any temporary dissynergies can be offset by a leaner headquarter and a leaner and more efficient value chain. We have effects of contract manufacturing on our side as well. It is going to impact our margins. But as we have discussed several times today, these effects will go down over time as we're rapidly going to reduce the amount of contract manufacturing. So all in all, driving change towards an automotive pure play is positive for us. And I have also a few examples with me so you understand what are the areas we would be tackling in the value chain. So the automotive separation is enabling a pure play. Many things we can do. We can do some redesign on our products because now we only need to adhere to automotive standards. We have heard earlier that there is an enormous requirements on bearings in general, but we don't need to take care of the other 40 industries. We can be purely focused on automotive and the requirements in automotive, and that is what we are going to look into. We will be redesigning our logistics network, fewer touches, more direct shipments. We will continue to utilize our global footprint, and that is both in the area of global manufacturing, but it is also enabling the global team to work as efficiently as possible and ensuring that we are getting also a high share of services out of lower-cost countries. And we see that we will be able to increase speed in customer interaction. So with that, we see that growth will be spurred. We have a great portfolio already on hand today. We have a strong order pipeline, interesting one business. And with high innovation, our pricing power is high. So this is where we will keep an eye on. I will be coming now to the last part of the presentation. And here is no news really because we have seen our objectives already. But to be complete here, I will be showing you the objective once more organic growth, above market over a cycle. Adjusted operating margin, high single digit and net leverage below 1. So to sum up, already at listing when the teenager is moving out, we are standing on strong ground on strong feet. We are confident about the upside the separation will be bringing. We have opportunities with more growth, realizing a more optimized structure and being fast in interacting with customers. And all this makes me confident that we will be delivering value with this separation. That was it from my side. And I think we will be continuing with some Q&A.

Yes. That's great. Thank you, Kerstin. Please join me here. And now we have the last Q&A session for this Capital Markets Day at least. It may continue afterwards here for the ones here in Stockholm with the mingle, but at least for our audience online, this is the last one. And we will focus on automotive, but also the overall value creation as we have Rickard also on stage. And I see some hands. So we'll start Hampus Engellau, Handelsbanken, please.

Just a clarification. I'm sure you're not going to talk about how much you're expecting the market to grow. But when you define the market, are you looking at your split into the market? Because structurally, you would be outgrowing the market on the back of having a bigger exposure to battery electric vehicles. So I'm trying to understand how much you will be driving the growth and you're looking at your weighted growth in the market.

Hopefully, having understood you correctly, Hampus, so how do you define the market? The market is for me the passenger vehicle market, the commercial vehicle market in its totality and the aftermarket. So that is how we define the market where we are confident that we can outgrow the market.

Do we have more questions here in the room? Yes, Olof Larshammar here.

On the contract manufacturing, is the ambition for your business area to then a couple of years out in time, have that in-house? Or will you source it from other suppliers? And could you give an indication on how much CapEx will be needed to set up that production? And then maybe if you like, some indication on CapEx relating to sales for the automotive business area, please?

Yes. So most of the contract manufacturing -- most of the products we are going to contract manufacture and the start, we will be producing in-house going forward. There could be some parts that we externally source. And the ambition is to have all assets needed more or less as part of the separation to be brought into automotive. So it is limited what we would see if there's any additional investments.

And we have a question from our online audience. It's Klas Bergelind at Citi. And this is for you, Rickard and perhaps more about industrial here. So what are the likely savings from the SEK 3.5 billion cash out to improve the margin longer term to above 19%? And how should we think about when these savings will be incremental relative to the SEK 2 billion you already have announced?

Right. And I can't give the exact savings from these initiatives, but they are, as we tried to describe instrumental in order for us to build an efficient platform that can take the underlying operating margin to north of 19%. So clearly, it's a kind of value creation there and a benefit from those investments. If we had the freedom not to do them, we might have been happier, but actually, they need to do it, and we're not shying away from them. They -- by doing it then, we will create an even stronger industrial business. So I think that is important to say that they actually will support the long-term development of this business by cleaning this up. And once and for all, have made up with our legacy. So that's one piece to it. And the second in relation to the SEK 2 billion, these are 2 different characteristic or 2 different animals, if I may use that word. The SEK 2 billion that we announced is really to drive efficiency in our white collar in our staff, where we have found an opportunity to significantly improve efficiency -- white collar efficiency. The items affecting comparability, the SEK 3.5 billion that we talk about, they are more into the footprint optimization activities and regionalization activities that we still have to do. So 2 different kinds.

Thank you, Rickard. And we've received another question from Rory Smith at Oxcap also on the same topic, and it's about the phasing of the restructuring cash costs through '26, '27 and '28, and we will not provide that details now. Do we have more questions from the room? Yes, we have Erik Golrang, SEB. And then...

I'll try 2 questions and then you answer them if you want to. First one on the value creation, Rickard. I think we -- I don't know the exact figure, but we're somewhere north of SEK 10 billion in total IAC to facilitate the split and get the full potential. So what do you stack up against that figure in the other end to get to a net positive here?

Well, as we describe with the targets that we set for our business, the growth ambitions that we have, the underlying development and uplift in financial performance and earnings potential and the -- also the return on capital employed, I think, talks for a rather compelling story. So we do see that these investments have created already a stronger industrial business, and we still have a tail to complete, and that will lift the long-term performance of our business.

And then on the automotive side, could you say something about your market share on fully electric vehicles compared to combustion engines and also the -- your average selling or the content you have in electric vehicles compared to nonelectric?

I'll start with the first question. So the market share itself, we don't reveal on electric vehicles, but we have a leading position. Let's put it like this, and we are extremely strong in Asia, specifically in the, say, the high innovative area. That's why the EV leader in the world has been choosing us as the collaboration partner. And your second question, please?

The content for you on fully electric vehicles compared to combustion engines.

Yes. The content, say, in -- the total amount of bearings in an electric car is lower, a pure battery electric vehicle, fully electric vehicle is lower than in a combustion engine car. However, the value is higher as we are talking partly about ceramics or like much more specialized products, also super low friction wheel end bearings that are very popular in electric vehicles. So fewer but higher value altogether.

And we have a question from Anders Idborg, ABG.

This is an industrial question as well. And on China, in particular, I think it would still be a very important piece if you are to even outgrow the market and it's just slightly short of 20% of sales now. I know historically, you've sort of tried different strategies in the good enough market, the premium market, et cetera. And I think you mentioned that you've strengthened your share recently. So I'd just be -- if you could give us a bit more meat on the bone on what's happening in China and why you expect to grow at least with that market growth?

Right. A couple of things I think is important to mention here. In the last few years, we have done a rather significant investments in China to really build a strong manufacturing capability there. We have invested in building a strong supply chain in China for China. And also within Annika's area of responsibility when it comes to innovation, we have really also built a very strong technical capabilities there and a long and very solid technical development capabilities that can co-create with Chinese customers. So we have a very cost competitive base in China. We have a strong reach to customers in China, and we're able to co-create with many of the Chinese OEMs. And we should bear in mind or remind ourselves that for certain industries, China is the center of gravity for the world, where they're leading the development. It's not just within EVs, as you heard Kerstin talk about. There are also other areas such as high-speed train, which is an important piece of our industrial growth kind of equation, as you heard Hans talk about previously. So China is important, and we do believe that we have a very strong setup in China. We're not complacent. We know that we are up for fair competition, but that's why we continue to drive innovation and make sure that we stay ahead of local competition.

Just a specific follow-up. The wind industry came back a bit in the last quarter after being down. Do you see yourself coming back to where you used to be there?

No. I don't think that we will come back, at least not short term to where it used to be. I think as I said a few times that in that particular industry, we and some other global players will have a role to play, but local competition will take a larger share of that market. And I think that's going to balance out at a lower level than what it used to be. Then we'll see. The quality of the local players, if that will be sustained or not, I think the jury is still out there. But if that works, I think we have a different balance as we see right now.

Because I've seen Andreas Koski. Okay. You [indiscernible].

[indiscernible] apparently. Can I ask you about China, just looking at your local competition, you mentioned wind here. Is it mainly international competitors you have in looking at your other industrial and also within automotive? That's the first question I have.

Well, if I try to answer the industrial one, you can do the automotive one. And if your question is related to wind in particular.

No, outside wind. I'm more looking at your segments, which you've highlighted today and also...

Still, if we count the kind of the global players, us, Timken, Schaeffler and some of the Japanese, we still have the majority of the Chinese market. And actually, the kind of market levels or market share levels have been rather actually stable for quite many years. So the Chinese, they grew up, but they kind of flatten out at a certain level. So it's a rather stable situation in terms of market shares in China at the moment. And also some of our global competitors, they enjoy a strong and sizable market share there, just as we do.

Yes. And could you comment a little bit upon profitability also in the Chinese market? Is it different for group average for your businesses?

We don't really share any insights on margins by region. So I can't give you any details there.

Okay. And my final question to you, Kerstin. When it comes to the growth going forward here, you mentioned the organic, but do you also see room for bolt-on acquisitions as within the industrial business? And if so, in what segments would you say?

We do see opportunities in the M&A arena as well for bolt-on acquisitions. We are focusing on those 3 different areas we've been alluding to electric vehicles, commercial vehicles and aftermarket, and this would be our primary focus to broaden the product range or access a wider part of the market. You had an earlier question. Do you want me to answer it still around China or -- you asked about competitors, but...

Yes please, go ahead.

So I recollect that you asked if we are in China competing with Western companies or say, with non-Chinese companies or both with Chinese and non-Chinese companies. And we are competing with, say, both areas, both, say, the German, Japanese, Korean competitors, but also with Chinese depending a bit on where you are in the segment in the market segments.

You've also seen your market share being rather flattish over the last years?

Are we talking about China now?

Yes.

We have a very strong position in China.

Then we have Andreas Koski.

So will the automotive business be able to make any modifications to the bearings and start to sell into industrial distributors and industrial customers because it's a higher profitable business?

We have a very firm handshake between the 2. We are not even 2 companies, but when we will be 2 companies that we have a fantastic playing field, each of us. We will be playing in the automotive field and the industrial friends will be playing in the industrial field. And I think there is a lot to accomplish in each of those fields for us.

Absolutely. And -- second one, yes, if it's okay. So if I look at Automotive's organic growth historically, it has performed very well in line with globe -- no regional weighted automotive production or light vehicle production. But in recent years, you have clearly underperformed light vehicle production. Is that only because of the product pruning that you did? Or are there other reasons as well?

It's a combination. I mean, if we talk about current business, it's pruning, but it is also of, say, less interest in going into potentially low-margin business of the future. And the main effects are in EMEA.

And then we have a question from Anders Roslund, Pareto.

I had a question about the common cost of R&D. How will you split, for example, the ceramic bearings area, which is obviously vital for both of you? How will that part of the business be split?

Right. Maybe we should ask Annika to actually step up here and answer this specific question.

As we mentioned earlier, we will collaborate on the base research and technology also for the ceramics area. But the 2 businesses will then develop their own products with that as a base, and they will be different moving forward. So we will still benefit on the basic research and technology related to this very important technology area, but we will have different products going into those different industries over time.

That means that you need to have a cooperation in that area in the future as well.

That's the base research, yes, we will.

It is on the base research and not on the product development level. So it is on the base research and technology, as mentioned earlier.

And then we have a question from James Moore at Rothschild.

Coming back to the specialized business. Of the 3 big businesses, lubrication, aerospace seals, would it be fair to say that the biggest upside is aerospace, and that's a question of rewriting contracts? And in terms of magnetics, very strong growth in recent years as it's moved away from subsea towards other applications like vacuum pumps with energy efficiency and the like. Has the speed of the magnetics business normalized? Or is it still running at hyperscaler plus type levels?

Right. I'd like to remind you from Hans' presentation where he mentioned that he had that little sliding bar on each of those businesses. And if you recall, aerospace, they have come pretty far in improving their profitability and into gearing for growth. So a lot of that hard work has been done in aerospace. For magnetics, it's a highly accretive business for us. It's growing very nicely, but the -- we still see significant growth also driven by the data centers, which is going through the roof actually. So they have a very, very strong order intake, primarily driven from that particular industry at the moment. And then the seals business and lubrication business we call the sliding bars are more towards the left until kind of indicating more emphasis on margin uplift before growing.

That was our final question for this Capital Markets Day. We are soon to wrap up. For those of you who are in Stockholm, you are very welcome to join us after this -- after the presentations now with the mingle. So I hope you do that. And Rickard, do you want to say -- conclude what we have heard about the last 4 hours.

I love to. I love to. And the good news after a few hundred pages, I only have one page. So -- but thank you so much for joining us, both here physically in this room, but also online. And to wrap this up then, I'd like to use this page to illustrate the value creation that we talked about. We are excited about the future for both these businesses. We truly believe that by separating this business, our business into a fully focused industrial business and a fully focused automotive business, it will drive benefits for both entities. And these targets I put up on this chart would not be able to be reached without this separation. I hope that we have been able to convey to you that we have some ideas on how we're going to drive value and how we're going to create this financial result. Again, remind you on the industrial side, we talked about 3 pillars and 7 levers. That's going to be the emphasis. And for automotive, there were 2 pillars and 5 levers that will drive both growth and profitability. And I'd like to end by actually where I started and leave you with this metaphor. I'm absolutely convinced when the sun shines on both these businesses, they have -- will have the prerequisite for growing to their full potential. So with this, I thank you so much for your attention. And I also thank the audience online, and I wish you a fantastic Tuesday evening. Thank you so much.