Operator: Welcome to the presentation of our Third Quarter Results. As of this quarter we will use videos [on teams] instead of the [indiscernible] telephone conference. This also means that we will use the chat function for the Q&A Session. So please post your questions there and we will answer them after the presentation. Today’s speakers are our President and CEO; Alrik Danielson and our CFO, Niclas Rosenlew.

With that I’ll leave the word to Alrik.

Alrik Danielson: Thank you, Patrick and welcome to the SKF Q3 call and I tell you I’m so pleased to stand here in front of you also this quarter to present yet another solid set of numbers. As you know, we’ve been working many years and hard now to implementing our strategy and it’s starting to drive the numbers for real. Despite a 5% lower sales than last year, we managed to create a 13+% operating margin. I think this must be some kind of record in SKF’s history as we look back and see how far back we’ve to go for to see these kind of numbers.

Of course, this is based on this that we’re actually doing what we set out to do and it’s starting to have these kind of results. Cash flow, if you remember the second quarter due to the low sales we were suffering, now we’ve come back strong and we’ve shown again that cash flow is important for SKF and we’ve delivered more than almost SEK 2.3 billion in positive cash flow during the quarter. If we look at the next picture, we saw the industrial business having also very good performance, you could imagine with a drop in organic sales of almost 7%, we managed to tick in with an almost 16% operating margin. And we saw high volumes in Asia and Latin America, we saw significantly lower volumes in Europe and North America at nevertheless we managed this excellent results and again thank you to everybody. I mean, it seems like this is going to be my team, thank you because it’s of course a lot of hard work behind it.

The picture you see here is a -- that we’re doing for tidal wave energy where we will help to harness the energy in the tidal streams of the cost and this is yet another example I think where we’re putting our knowledge to use to develop solutions for energy and environmentally friendly technology. If you take the next step, we’re talking about the different areas, we can see that what we’ve done and we’ve been talking Europe-for-Europe, Americas-for-Americas and Asia-for-Asia this quarter, the highlight is on North America where we’ve invested 300, we’ve announced investments of SEK 350 million in expanding our manufacturing in Sumter for slewing bearing in South Carolina that we’re putting SEK 200 million investment in locating manufacturing of taper roller bearing in Mexico, coming from China. It is not only going from Europe or to China, but it’s also going the other way round and this is what possible with Industry 4.0 automation and digitalization. You can basically be competitive with the right technology, competitive everywhere. And this means that we’re actually consolidating the North America completely according to the strategy that we’ve set out.

If we turn to the next page, talk about automotive. I’m also so pleased to see that the high pace of transformation that we’ve been driving now for a while is really starting to give results and despite a slightly lower organic sales in the quarter compared to last year, we managed to create an operating margin of 7.4%. We continue as you can see in this picture, this is what I want to show with this to grow in the electrical vehicle tied with excellent new offers and a good traction in the electrical powertrain all over the world and I’m really pleased because we know that this is of course, this is the future. And as of this month, [indiscernible] is helping me as a new responsible for our automotive business in SKF and I’m really pleased with that and that will give us increased traction in this area. Next page, I just have to talk about clean tech and what we’re doing and about in June 2019, we acquired a new technology now we’ve developed it, it’s our technology, we have a possibility of cleaning oil down to nano particulars and you can imagine it’s not only about reusing oil or bettering very big environmental effect, but also lower cost, but also with absolutely clean oil machines work better.

So it’s right into our strategic goal of providing fee based businesses based on longer and longer lead times. I’m really excited to have our first experiment on this. Customers, we’re deploying this in Italy, in Germany, in China, in Latin America and we’re quickly sort of marking this technology available. We will talk more about this on the 4 November during our Capital Markets Day, but I’m so excited about this and how this fits perfectly into our deliverables around the world. And with those words, I think I’ll stop here and I leave the word to you now, Niclas.

Niclas Rosenlew: Thank you, Alrik. Sequentially our sales improved significantly albeit from a very low level seen in Q2 compared to last year. Our net sales decreased by 11.6% in the third quarter, organic sales were 5.1% lower than last year. A currency effect on sales was negative in the quarter by 6.5% with the largest effect as usual coming from the dollar, euro and the renminbi. Starting off with our sales performance, despite the lower sales we had a strong operating profit and as you know, we’ve been working hard on improving our flexibility and our ability to proactively adjust the market fluctuation.

This flexibility has truly been put to a test in the last couple of quarter and during this year and we can now clearly see that we’re delivering on the effort. I want to extend the big, big thanks to our colleagues who have all contributed to this. In the third quarter, our adjusted operating profit was SEK 2.5 billion corresponding to a margin of 13.3%. And our effort to transform how we work actually continues very much continuous, we’re investing in innovation, we’re improving our competitiveness and we’re adapting our operations and our ways of working and we’re going to continue to do that. So our profits improved despite the lower sales and currency headwinds as we continue to invest in innovation and invest in competitiveness and also deliver structural cost savings.

And let’s go through the profit bridge one-by-one here. Firstly, we had a currency impact which was negative by SEK 276 million compared to last year; on the other hand our operational performance was SEK 471 million positive year-over-year. Specifically commenting on our operational performance, the organic sales and manufacturing volumes were lower by SEK 624 million, we had a negative effect from lower sales and production volumes. But then, on the other hand both price and mix were positive in the quarter. Cost development continued to be very good and we saw net cost productions amounting to SEK 1.1 billion compared to last year and as Alrik mentioned, the SEK 1.1 billion included about SEK 100 million of government contribution.

During the quarter, we continued to kind of form the company and form the operations and we had a net reduction of about 650 permanent employees and this in addition to the reduction we’ve had in the first half of the year. These efforts will very much continue and as a result we expect to see a continued elevated level of restructuring cost also during the remaining part of the year. Commenting on industrial and automotive, so in terms of industrial, the net sales decreased by 6.9%, the sales were higher in Asia and Latin America while sales force was significantly lower in Europe and North America. The adjusted operating margin as I recommended was 15.8% very pleased with that compared to 13.9% last year. Cost savings contributed positively to the result while the lower sales and production volumes had a negative effect.

On the other hand for automotive, the organic sales were about flat, so declined 0.7% in the third quarter with sales volumes being significantly higher in Asia, higher in Latin America, lower in North America and significantly lower in Europe. The automotive business had an adjusted operating margin of 4% also quite pleased with that compared to 4.6% last year and cost reductions contributed positively. What comes to our working capital, it was 28.7% of sales at the end of the quarter which was 1.2 percentage points better than at the end of the third quarter last year. We reduced our inventories during the quarter and inventories as a percentage of sales improved compared to both last year and the previous quarter sequentially and then on the other hand, we increased our receivables and payables. In terms of cash flow which is and has been and will be a focus area for us.

Our cash flow in Q3 excluding acquisitions and divestments was SEK 2.3 billion compared to SEK 2.1 billion last year; also something we are quite pleased with. Our net working capital contributed positively and we had slightly lower investments than last year. Saying that we continue to invest at similar levels as last year despite the economic downturn. The cash flow for the last 12 months is SEK 4.3 billion. So we continue to generate positive cash flows also throughout this economic cycle.

In terms of our net debt equity ratio, we continue to have a very strong balance sheet including liquidity. The net debt to equity ratio was 59.8% at the end of the quarter and excluding leasing and pensions it was 8.5%. The provisions for pensions net increased by SEK 636 million in the third quarter and this was mainly due to changes in discount rates. And with that back to you, Alrik.

Alrik Danielson: Thank you, Niclas.

Well, summarizing our strategy implementation is giving the results that we are expecting despite lower sales and extremely good operating margin with very strong cash flows. We continue to invest for the future in our business. We have that capability and we are pushing new technologies like never before. With those words I hope we will see you back on the Capital Market Day on 4 November to discuss more about this fantastic journey that we're on. Thank you very much.

With those words over to you Patrik. A -

Patrik Stenberg: Thank you, Alrik. The first two questions are on margins. Congratulations to a good quarter can give some more information on how you achieved the 13.3% margin?

Alrik Danielson: Sure. If I take that one.

So as discussed we had a lower sales and despite this we actually had a pretty strong operating profit and this is something that we've been working on for quite some time. It's very much about the transformation of SKF and the kind of flexibility and our ability to adjust or proactively adjust to market fluctuations is one of the key things that we have been working on. And of course, as we all know, I mean, the last couple of quarters have been just extremely volatile. So both downs as we saw extreme downs in Q2 and then some stabilization in Q3. So the flexibility that we have been building and continue to build has really been put to a test.

We are quite happy with delivering on that. Specifically in the quarter we had negative, obviously negative effect from sales, from volumes, production volumes, price and mix were both positive and then cost development continue to be actually very good, SEK 1.1 billion and out of that SEK 1.1 billion we had SEK 100 million in government contributions. So all in all, I mean, we are quite pleased with it. So why the strong result it's a combination of many things and we continue to deliver and are determined to continue to deliver in the future as well.

Patrik Stenberg: Thank you.

Then we have one question on automotive. How was the 7.4% automotive margin possible?

Alrik Danielson: Well, there is of course, one of the main reasons is that we had a very-very strong recovery and if you see we were almost back on last year's volumes as far as deliveries. And since, we have already been working on sort of a program as I think I have mentioned also last quarter on a push for a new profitability level in automotive. We have actually been taking down our costs very-very strongly and simplifying the organization, integrating manufacturing, increasing focus on regionalization and things like that. And of course, all that has not come to fruition yet, but during this up time then it was possible for us to deliver this result.

I don't promise we will now every quarter have the same record of margin level but I am quite confident that we will in long term improve the automotive business profitability for SKF.

Patrik Stenberg: Thank you. A lot of questions coming in here. We have received a couple of questions on demand. First one, how did demand develop during the quarter?

Alrik Danielson: Yes.

Just I mean, if we look at this for over a slightly longer period I mean, as you know I mean, we had a pretty drastic decline in Q2 and gradually during Q2 it leveled off a bit and that kind of continued throughout Q3 as well. So overall, minus 5% organic and gradual improvement over the quarter.

Patrik Stenberg: Okay. Second question on demand. How has Q4 started? What is the current rate in October?

Alrik Danielson: Sure if I take that one as well.

So of course, we need to remember, at least we keep in mind that it's a very-very fragile economy and market out there and the best we can do is just to make sure that we have the flexibility and continue to deliver on our long-term plan. But specifically, how the quarter four started roughly in line with Q3. So that round about minus 5% year-on-year.

Patrik Stenberg: Okay. Can you give some more color on which particular customer segments that did well or did less well during the third quarter?

Alrik Danielson: Well, you can understand as I already mentioned a little bit with automotive of course coming back very strongly, trucks of highway vehicle aftermarket as well, where we saw also wind for instance and all these businesses that are a little bit dependent on stimulus from government has been doing very well.

Wind in China has been very strong. On the downside well, industrial drives, railways, heavy industry not so well so forth and of course aerospace, you can understand that aerospace has been very much dampened. Why we were doing relatively well I think, I am not, I think we actually did quite well and it's helicopters, it's non-commercial airlines, sorry, aircrafts that has sort of sustained the business we have. And as much as we now see quick recovery it's hard to see how the commercial aircraft business will come back in the short term. So I think we will have to live with a lower sales in that part whilst as I said helicopters and non-commercial has been going relatively well.

So in short anything to add with that?

Patrik Stenberg: Another question relating to demand in a way. It's on pricing. How did pricing develop in the quarter?

Alrik Danielson: So as mentioned both mix and pricing was positive in the quarter as we've had now for some time in particular on pricing. So positive is the short answer, yes.

Niclas Rosenlew: And I can say that we have still not felt any big difference or changes in the pricing in the marketplace yet.

So it's still sort of stable.

Patrik Stenberg: Good. There is a specific question on the shop volatility here. There is a question on have you lost out on any business due to not being able to deliver given the sharp sequential rebound that we've seen?

Alrik Danielson: I would say that's one of the things that I'm extremely pleased with if I look at how we've handled this. We saw the downturn in Q2.

We managed to go down without really building any inventory and then we have managed to sort of accompany the business up and especially in the automotive field how short close to what the customers are truly needed. And here I think the learning from before, from what we have done before that you're so close to the customer that you actually can react. And of course, if you look at also on the component side which is sometimes what holds us back. Since basically in Europe where we have a lot of our manufacturing we're still below last year. Of course, we have been able to sort of get in the components and so forth.

So I would argue that we have probably, we think we've done a little bit better than market as far as availability so far in the quarter.

Patrik Stenberg: Thank you. Another question on inventories actually. How are the inventory levels in the market, pipeline inventories as well as I understand it?

Alrik Danielson: Well, my assessment is right now if you look at it I think that inventories levels are low at this point. I don't think there is any assuming let's say low in the sense there is no big inventory levels.

In the U.S. with some distributors we saw during the beginning of the COVID, they had already destocking trend in the marketplace. Some of them have a lot of inventory. I thought it was going to end basically by beginning of this year and now with COVID, we have seen it continued a little bit but now it's actually coming to an end. So my assessment is that inventory levels are not high in the value chain at this point.

Patrik Stenberg: Thank you. Question on market shares. I would like to ask whether SKF won the market share in China, both in the automotive or industrial segments?

Alrik Danielson: Well, many times it doesn't really work like that in the sense that market shares are trends that work over a longer period. So if there are changes they are relatively small. What I do think though is that we've been good at delivering.

So compared to what I've seen, what I've heard from others, we have been many times being able to deliver so in that sense I think we have done well during the quarter. And there is a lot of new business coming of course. I mean, there is lot of new activities going on with customers around the world. So from that point of view it's positive.

Patrik Stenberg: Thank you.

Alrik Danielson: But of course that's not this quarter.

Patrik Stenberg: Another follow-up question on China. This question about what is your growth outlook for China and in particular bearings to the energy and construction equipment?

Alrik Danielson: I understand the question we see as we have talked about now for several quarters that the wind and the energy sector in China is very, very strong and maybe we thought, maybe half a year ago we thought that maybe these subsidies and this push from the government was going to subside by the end of this year, but I'm not so sure anymore how that is going to play out. So maybe that we still have a quite a strong market here and of course that's we are investing. We have announced investments in China.

We're investing this. We're preparing ourselves. From my point of view, we are more and more competitive. So it's something that we believe is going to be positive. It will go up and down like all businesses that are dependent on government but that is good.

As far as construction it's the same. What do you do when you have a situation where you need to give stimulus to the economy. One of the areas where you can actually give stimulus that creates jobs, that creates business is within the construction sector. So I think that we will see that not only in China, but also in the rest of the world as a result of the stimulus that we see but that's from a general point of view. That's not related specifically to SKF.

Patrik Stenberg: Thank you. Moving over to questions on cost. Can you give some more details on the SEK 1 billion cost reduction that you saw in Q3?

Niclas Rosenlew: Yes. So SEK 1.1 was the total and SEK 100 million roughly in government contributions. So SEK 1 billion.

As you saw we reduced net reduction of permanent employees of 650 during the quarter and this was on top of what we had done already during first half and then there were a number of other things. Some of them short term. Some of them permanent. So very much a continuation. I mean, especially we too may not focus on the permanent actions and we are quite determined to take our cost base down to keep it at the lower level.

But it's continuous work and many small streams.

Patrik Stenberg: Another question. Can I ask about your excellent savings of around SEK 1 billion? What proportion are temporary and will reverse in 2021 and what proportion are sustainable please?

Niclas Rosenlew: Yes. As you understand I mean, it's a bit of a tricky one because how do you categorize what's permanent and what's temporary? I mean, as an example of course like everyone else we've seen a radical reduction in travel and how much will that come back to eventually is a bit hard to say. But I mean, a very rough view is half and half of that SEK 1 billion kind of more temporary in nature or more permanent in nature.

Alrik Danielson: And I agree. Having said that though of course, as we continue to simplify and develop our footprints, etcetera, etcetera, some of these new activities will come in also to compensate what is today and maybe more of a temporary nature. So even though we have now a very strong quarter behind us, we're not going to stop and we're going to continue on our journey to make SKF more competitive, more agile, more innovative going forward.

Patrik Stenberg: Yet another question on costs. How sustainable is this cost reduction?

Niclas Rosenlew: I think this is similar to the previous question.

But again, I'm very much echo what Alrik just said, I mean this is something we constantly continuously work on. It's not just a reaction on the economy per se, I mean, we are truly kind of going through a transformation of SKF. And what we push, what we work on is of course the more sustainable ones, sustainable cost savings. So again, rough estimate but out of the ones we delivered in Q3 roughly half and half permanent versus short term.

Alrik Danielson: But we also have a lot of interesting technologies and new things coming in to help our top line going forward in the midterm and that's also something that is going to be very interesting to follow.

We will talk more about that on the 4 November.

Niclas Rosenlew: Yes. Maybe just to add I mean for those who kind of consider kind of modeling of course, going forward the comparable becomes more challenging. So don't assume a billion every quarter even though we've delivered now two quarters in a row around about a billion in savings.

Patrik Stenberg: A question on items affecting comparability.

What did the 550 million in the third quarter relate to?

Niclas Rosenlew: Yes. So roughly 460 out of the 550 related to restructuring so essentially that's a kind of employee related, redundancy related and again 650 net reduction in terms of workforces is what we delivered in Q3 and then the remaining part roughly 90 million also related to customer settlements.

Patrik Stenberg: Thank you. Staying on the topic of items affecting comparability. What level can we expect going forward?

Niclas Rosenlew: Yes.

That's a good one and good to keep in mind. I mean, as we've said, we are on a transformation journey and we are by no means done with that. So you should expect to see a higher than normal and elevated IAC level also going forward in the near future.

Patrik Stenberg: Thank you. Then we have a question on cash flow specifically and targeting why was cash flow so negative in the second quarter and now suddenly quite positive?

Niclas Rosenlew: Yes.

Maybe just a reminder first on second quarter where we saw a really sharp reduction at minus 25% in sales year-on-year and then by the end of the quarter it started to level off and come back and we were actually building some receivables in the end of the quarter. So that was a reason for the negative cash flow in Q2. But as we said back then, should look at this over slightly longer period of time and now we did indeed have a strong cash flow in Q3 more normal level I would say. And of course, results helped, inventories came down a bit. Payables were good.

Receivables on the other hand were a bit negative. So many streams, but maybe in a nutshell results of course driven, inventories down and then we had a slightly lower investment level compared to last year.

Alrik Danielson: And from my point of view, I mean, it's interesting to remember that as long as there is not any sort of default that a customer, big customers default thing and there are some money sort of disappearing, it will always come back. So one of the forties of SKF is cash flow and it's always been and we will try to see to it that it always is. So when you see these fluctuations, they are completely normal and when you have this kind of enormous volatility as long as there is no big things happening, extraordinary things happening it will eventually come back to strong cash flow.

That's SKF.

Patrik Stenberg: Thank you. Cash flow related question I would say, about inventories. How do you see your inventories developing given both demand fluctuations and also in relation to your 25% net working capital targets?

Niclas Rosenlew: Yes. I mean we reduce the inventory slightly around 500 million - 600 million in quarter three and the networking capital as a percentage of sales we also improved it slightly both year-on-year and sequentially.

And of course, I mean, long term and this relates to Alrik's comment about cash flow being a stronghold that is something that we continue to work on, to improve net working capital efficiency over time, but don't expect any major swings.

Alrik Danielson: And I know this is one of those things where, see in 2015 I even sharpened a little bit the pressure on ourselves by increasing the target and of course intuitively understand as we deliver on our region for region supply chain, this is going to be one of these real contributors. So of course, as we now accelerate our footprints activities, etcetera. we will start seeing more the fruits of this coming into these kind of numbers in the mid-term, long-term future in the next few years so to speak. So it'll come in terms of investments done to consolidate the footprint and increase automation, are you considering accelerating this further given the results so far, is that possible or you are going as fast as you can already?

Niclas Rosenlew: Well, it's interesting.

It's a very interesting Patrik. Very good question. What I see here is that when we started this journey, of course, you have to learn, it's relatively new what you are doing, you are sort of accelerating. And you see now how we have quite a high speed. We will talk more about this on 4 November exactly what more in detail what we are doing.

And then you come to the situation where you have right now very high swings and of course when you have high swings there are somethings also that you may not be able to do that you can do in more easy when you have sort of normal stable situation. So I owe you. We are at a very high speed right now that could be maybe something we could do to speed up, but first we need a little bit more stability in the demand so that we can sort of do the things. When things are on this, like it's been doing this year it's more difficult even though we are actually doing all the things we are doing. Look just what we have announced for this quarter with consolidating and investing in the U.S.

Last quarter we announced everything we are doing also in Asia and so forth. I think this a good speed. Maybe a little bit faster we could go, but it's already good speed.

Patrik Stenberg: Thank you. Okay.

Please can you give us some estimate of how much you think the quarter benefited from restocking in value chain and second add on to that in addition can you please elaborate on the trends you have seen October so far?

Alrik Danielson: I will take that. My assessment, in a general term I don't think there has been a restocking I mean there has been increase of demand. Yes, but I don't think that there has been really a restocking in the value chain. That's not my sentiment. It's actually so we had a very sharp drop then in the recovery that has been sort of things you need to do that you should have done during the lockdowns that you are now doing etcetera.

So and in distribution I don't really feel that there is a lot of stocking in the value chain. Maybe on the contrary I think there maybe even some needs going forward to replenish. And as we said in the beginning here, just to reiterate that so far we have seen this quarter starting off more or less like the quarter three ended.

Patrik Stenberg: Thank you. Two more questions.

On aerospace firstly, can you elaborate on your aerospace exposure and what you are facing in terms of demand developments as you are in Q3? And what you expect for the fourth quarter and for next year?

Niclas Rosenlew: I mean, of course, you can understand that demands are down significantly. And the good thing is that when in the factories that are predominantly affected by the civil aviation, we have already done the restructuring. We have come very far in that. So honestly the team has done a very, very good job and very, very fast and very active of getting those costs out of the equation quickly. And why could we do it because we realized very early on that the rebound on the commercial side is going to take time.

So it means we structure, we take our cost down and then we can follow when we see it coming up, we could follow it. So from that point of view, I think we have done better than I expected and then when it comes to the non-- I think it's going on along quite well and I don't see any reason why in the next coming future there will be big changes. But for us of course, it's considerably lower total volume in aerospace and aerospace is not that much of our business and from a profitability standpoint we have been doing well in the quarter.

Patrik Stenberg: Thank you. Second question in regard to pricing.

And this particular analyst he says, we have heard from industry context that both you SKF and Timken recently have announced price increases in industrial distribution in Europe with effect from Q4. Is this something you can comment on?

Niclas Rosenlew: Yes. Well, I mean I think we have gone out with the price increase to the distribution and I expect it to do well. So it's a normal price increase.

Patrik Stenberg: Question on manufacturing.

Did you have problems in your manufacturing operations due to the COVID-19 infection?

Alrik Danielson: Yes. We have and if you take Q2, I mean, it's already behind us. We remember, we were stopped but also now we've had some issues for instance in the U.K. around the area where we have our Luton factory, there was a outbreak and the authorities went down and cooled down our possibility so to speak or impeded our possibility to produce. All in all, I think we've handled this extremely good and we've had a few cases but they have been handled in a good way and we have not had any major disruption apart from this one.

Patrik Stenberg: Thank you. Question on China, have you had any discussions with the Chinese government after Sweden's decision to ban Huawei and ZTE? Could this impact business at all?

Niclas Rosenlew: It's so fresh that I can't, I mean it's too fresh this incident. So it hasn't affected it, as far as I know there is we haven't had any questions from the government so far. What I hope for is that like we heard from President Xi just I think during the weekend where he said let's try to find our differences and let's see to it. I really hope that we understand that a good way forward for the world is to understand each other and trade with each other.

So I hope that this will be resolved, but so far I can't say that we haven't, it's too fresh. And if you ask me if it could of course potentially it could, but I think that if you look at SKF I think we have been so many years in China and I think that just as we are, I hope perceived that local producer wherever we are, I hope that it seemed that we are a good citizen both in the U.S. and China and Europe and wherever we are and that's going to be the prevailing understanding of SKF wherever we go.

Patrik Stenberg: Thank you. Question on targets actually.

SKF has been very close to its long run margin target of the last three years and this year despite the unmarked disruptions it is returning with very strong margins. Is the long-term target still ambitious enough or should we think there is upside to it?

Niclas Rosenlew: Well I mean the long term targets are what we have. That's what we have and we'll cover that more in detail in our Capital Markets Day on 4 November. So I hope you'll join that discussion. Of course, I mean this is why we are here.

I mean, we are here to deliver a good business and constantly improve the business. So we don't stop even though we have a certain figure somewhere. We don't stop there, but we constantly kind of challenge ourselves and want to go for something better just part of daily life.

Alrik Danielson: And if you recall I set these targets when I came in 2015, we set these targets we have today because at that time it was not in my mind that we could reach let's say higher than 12% at that time in the near few years where we set those targets. And as we work with SKF, making SKF more and more profitable and more and more agile and what we have presented and what we are showing.

Of course, we will reach the target and we will set eventually new targets for ourselves. So don't, rest assured we're doing the best we can and I'm always trying to see to it. We're all trying to see to it that whoever is short in SKF should lose money.

Patrik Stenberg: The question on dividends actually and a question from Daniela. Shall we read anything into your fourth quarter cash flow projections or your capital allocation priorities on the back of your decision to cancel the second dividend?

Niclas Rosenlew: No, no.

I mean, of course, as we all know, I mean, it is a fragile world, fragile economy and the decision to not call an EGM and go for the kind of other part of the dividend for 2019 was based on that. But I would say that there is nothing else that you should read into this as a signal.

Alrik Danielson: And you know that we have a policy where our idea is to have 50% of our net profit as dividend and if you look at the past, we've always been some years above, some below. This year is a very special year. I'm sure stay with us.

You'll get your money.

Patrik Stenberg: Thank you. A couple of more questions on sales actually. Hi could you talk about how organic sales developed during the quarter actually what was the end rate at the end of the quarter compared to the beginning?

Niclas Rosenlew: Yes. And that was what we mentioned earlier here today that I mean it's almost like you should look back into the kind of worst months going back into March, April and then there has been a gradual kind of leveling off for improvement or less negative since then and that's also what we saw during Q3.

But again, would not read too much into kind of the weekly or daily or monthly sales because it is just very volatile and I mean what we do is that we make sure that we manage that volatility in the best possible way and then obviously grab opportunities on the customer side.

Patrik Stenberg: Yet another question on sales actually. Was there any particular difference between industrial and automotive throughout the quarter in terms of performance?

Niclas Rosenlew: Yes. I mean, automotive was relatively seen actually strong. It was 0.7% down year-on-year while industrial was roughly 7% down year-on-year.

So in that sense I mean automotive actually had quite a strong or we had quite a strong quarter in automotive compared to industrial.

Alrik Danielson: And it goes into the way it works. Automotive factories if you understand during the lockdown, they were completely closed and then when they start again there is sort of a little bit of a backlog and then the recovery was much faster while industrial dynamics made it smoother so to speak the effect in industrial. So it goes with the kind of business.

Patrik Stenberg: Thank you.

A question targeting customer discussions and COVID. Has the recent COVID developments changed the conversations you have with customers? Is there any, is there more uncertainty now compared to a month or two ago?

Niclas Rosenlew: In the conversation I can't say that changes have come yet because of course what you see now as compared to the spring was. In the spring it was a lockdown of the value chain. That is not happening this time. Now it's more of a curfew at least in Europe because sort of a curfew where people are not allowed to go out at night, etcetera, but during the day things are going about as they were before.

So this one is a little bit different from my perspective. So it's more long-term. How long will these curfews be and what are the effects of those on the long-term demand of certain products more than actually right now in this moment.

Patrik Stenberg: Thank you. A question for you Niclas from Eric.

The leverage on the organic sales was relatively high at close to 60%, 58% to be specific. What drives that? Sorry the leverage on the organic sets the drop through?

Niclas Rosenlew: Yes. I mean again, I mean it's a combination of many things but we've had, we've delivered quite well on our cost savings as discussed and not only cost savings it's more of a structural change that we are working on. And then, on the other hand it's the competitiveness. The gross margin element of it.

Patrik, do you want to add anything there?

Alrik Danielson: I think you covered it well. I think nothing to add there.

Patrik Stenberg: So we are coming to towards the end of the hour here, where I've got 10 more minutes and a couple of more questions. You said that you take further restructuring costs. What will these enable in terms of savings or layoffs? Headcount was 41,174 people in the quarter.

Based on actions taken where is that figure at the year end this year?

Niclas Rosenlew: Yes. And I don't want to give an exact figure on headcount for the year end, but as you know I mean we are, this is more of a structural change that we are working on a transformation of SKF, building of a stronger, more resilient, more competitive SKF that we are working on and the head count figures the 41,000 that you mentioned. The changes, the reductions that you've seen on net reductions so on the one hand there are areas where we've actually added we've recruited really good excellent talent and then on the other hand there is areas where we see that going forward there will be a less of a need for talent. So it's a structural change that we are working on. And I said earlier we are not done with it.

So we'll continue to work on it. So it's both reduction, but it's also strengthening certain areas where we see a high potential.

Alrik Danielson: And I think that's the way how you should see. It's not so much one quarter or another of course you can understand during the COVID, we have been acting very strongly. But honestly, if you remember going back we already started this development preparing for it years ago and when we saw a little bit of a softer market 2019, we already started with this kind of activities and there will be, I hope SKF will be a fantastic employer for many, many people and I hope that we will have a growth story in the future where we can grow people again.

But of course, digitalization, new ways of working will enable a different kind of efficiency in SKF over the long term and we are determined to do that but at the same time being a good employer and taking care of, good care of our people.

Patrik Stenberg: Thank you. There is a question on risk. First one is on exit rates I think we covered that one. The second one is more specifically on the impact from manufacturing to EBIT in the court and I think he's looking for the effect from us under producing or reducing inventories on EBIT?

Niclas Rosenlew: Yes.

And specifically the inventory result on EBIT was a negative roughly 100 million, 110 million that's something.

Patrik Stenberg: No. [indiscernible] we had a reduction of almost 600 million in finished goods inventory. So that's good. Makes good sense.

Second question was there an impact from customer distributed stocking decisions on your sales in either industrial or automotive in the third quarter?

Niclas Rosenlew: As I say, my assessment today is that the underlying change in automotive was actually sort of demand. Our customers were running at high rates and you see some we talked about it before, you see some areas where the demand is not stocking, it's real. So my assessment is that there has not been so much of this in this quarter of restocking and that some people are probably quite tight on stock. So that's how I see.

Patrik Stenberg: Thank you.

Got a question on [indiscernible], can you comment on [indiscernible] which have fallen from 15% to 9%? Are there one off effects that we should expect to unwind as we go forward? It seems counter intuitive that minus have improved, but returns have not perhaps effects on the balance sheet?

Niclas Rosenlew: Yes. I mean of course, one factor to consider here is that IAC or one-offs, one off costs have been as we all know quite high as we've taken action on the restructuring and building of a new stronger SKF. So that's one element. And then of course, the other element is that with the actions, many of the actions we've done we've actually strengthened. Our capital employed has increased.

So it's a net effect of that. I would say in the long run again no change, I mean we still very much care about return on capital employed and continue to work on that and pretty confident it will line up. Development will eventually turn. And by the way, I mean it's a 12-month rolling figure. So what you see there is of course the effect for the past 12 months including Q2.

Patrik Stenberg: Thank you. Getting towards the last couple of questions here. About the new factory in Sumter, the new factory in Sumter sounds highly automated and really technologically advanced. Could you share more about its capability, improving flexibility and efficiency?

Niclas Rosenlew: Yes. I mean all the investments we are doing now are in this range.

We're trying to push all the best learnings from what we're doing in the rest of the world and look on always improving. So what we are doing in Sumter is based on what we have learned before. What we do in [indiscernible] is learning from what we have done in Sweden and continuously. So this will be an excellent factory and with the way we look at the demand situation also with less possibilities maybe of products coming from Asia into America in the future with the kind of automation and flexibility we have, we are absolutely sure we have an excellent base for the future out of Sumter that where we will be absolutely competitive and flexible to demand. So it's going to be a good one.

Patrik Stenberg: Thank you. We have the very last question before we need to close this conference call. It's about China. Can you talk about how China or your Chinese business has developed throughout the quarter? How Q4 has started in China?

Niclas Rosenlew: Yes. Well, we saw a very strong as I think if you follow the general media you see that if you look at what the GDP developments in China, you can realize that it's been very strong and also for us in many of the areas where we are wind and in the businesses where the government has been going strong, it's been a strong quarter for us automotive and so forth.

And before I was a little bit thinking that maybe it was going to level off especially some of the wind business was going to be a little bit weaker in Q4 because of the national seasonality of the way the government was going to give support and so forth. I'm not so sure anymore. So maybe it started strong in the same way in Q4 and I have good hopes for the inclusion of the business for us this quarter also in China.

Patrik Stenberg: Thank you. We also got one very final question here.

It relates to the overall transformation program at SKF. Can you please give us scope of the overall transformation for SKF? What are the total savings expected and over what timeline and with that before leaving the final words to Alrik and Niclas. I would like to welcome you all to the Capital Market Day that will be held next week on the 4th of November and we will cover these this in detail.

Niclas Rosenlew: Yes and that's maybe the best way to answer this we will during our Capital Market Day so this is a good teaser in doing in a few, in just a little bit more actually that's exactly basically a week from now, we will be going to the more details in exactly how this will play out with much more detail. So instead of me preempting that why don't you come back and listen to us on the 4 November and we'll give you more details around exactly what's going to happen in SKF in the forthcoming years on this topic.

Patrik Stenberg: Thank you, Alrik and thank you Niclas and thank you all for listening. This was a first in this new format. I hope you enjoyed it. If not please let us know and we'll try to adapt. Thank you.

Niclas Rosenlew: Thank you very much.

Alrik Danielson: Thank you.

Niclas Rosenlew: See you next quarter. See you on the November 4. Sorry.