Disclaimer: This transcript is designed to be used alongside the freely available audio recording on this page. Timestamps within the transcript are designed to help you navigate the audio should the corresponding text be unclear. The machine-assisted output provided is partly edited and is designed as a guide.:

Operator: 00:02 Good morning everyone, and welcome to the SKF third quarter twenty twenty one results call. My name is Emily and I will be coordinating your call today. [Operator Instructions] I will now hand the call over to Patrik Stenberg, Director of Investor Relations.

Patrik, please go ahead.

Patrik Stenberg: 00:29 Good morning to all and welcome to the conference call on the third quarter results. As usual, we will start with the presentation by our CEO, Rickard Gustafson followed by presentation by Niclas Rosenlew, our CFO. Following the initial presentations, we will be ready to take on your questions and for that session, please make use of the dialing number provided in the invite. If you prefer you can also use the chat function.

00:55 With that brief introduction, I'll leave the word to Rickard.

Rickard Gustafson: 01:00 Thank you, Patrik and good morning everyone. The third quarter saw continued solid demand. Our industrial business, which represents approximately seventy five percent of sales maintained its strong momentum, despite supply chain challenges exceeding our expectations. In addition, our automotive business was also significantly impacted by reduced production amongst key car manufacturers, especially in September.

01:31 Through diligent efforts and effective actions, we have been able to mitigate supply chain headwinds to large extent, especially within our industrial business. Organic growth in the quarter came in at eight percent with industrial growing by very strong thirteen percent and automotive down by five percent. Net sales were twenty point one billion Swedish krona compared to eighteen point six billion the same quarter last year. 02:02 We saw double digit growth in EMEA and Latin America, North America saw continued strong growth, Asia is still growing, but at a lower, slightly lower rate than before. The adjusted operating profit ended at two point seven billion Swedish krona versus two point five billion last year, corresponding to an adjusted operating margin of thirteen point three percent, which is roughly flat versus last year.

02:32 Our industrial business delivered a strong result further increasing its adjusted operating margin to seventeen percent. This is especially satisfying giving a challenging quarter in terms of cost inflation in raw material, transportation, and energy. Our automotive business was impacted by reduced production of key customers, often with short notice, resulting in lower sales, reduced productivity, and a build-up up of inventories. 03:05 These delays intensified during the quarter with a sales drop of more than fifteen percent in September only. And as a consequence, the adjusted automotive operating margin was negatively impacted and came in at four percent compared to eight percent in Q3 last year.

03:26 Cash flow generation in the quarter was one point five billion Swedish krona compared to two point three billion last year. The drop versus last year is driven by a higher footprint and efficiency investments and increased inventories caused by the constrained supply chain situation. All in all, continued strong industrial performance in a volatile quarter with automotive challenges. 03:55 Speaking about supply chain challenges. This is an area that has caused significant headwinds in the quarter, impacting both cost and availability of raw materials, components, logistics and energy costs.

However, through effective measures, we have been able to mitigate approximately two thirds of these cost increase. 04:20 Throughout the third quarter, demand within our industrial business maintained strong, but due to logistical bottlenecks we have struggled to fulfil the demand and therefore missed out to some additional growth opportunities. 04:35 As illustrated by the chart on freight rates, these costs have continued to increase at a very rapid pace. At the end of the quarter, rates were four point six times higher than the same quarter last year and one point seven times higher than the previous quarter. 04:52 We are currently managing a moving target where mitigating actions have a somewhat longer lead time than the direct cost inflation, but we remain diligent and confident in our efforts going forward.

05:07 Within our automotive business, we have also faced additional challenge derived from the global shortage of components. The component shortage has called several of our automotive OEM customers to reduce or postpone production often at short notice. Naturally, this has had a direct negative impact on our automotive sales and margin figures in the quarter. In addition, it has increased our inventories. 05:39 Taking a deeper look into our two segments, starting with industrial, which I highlight before, represent approximately seventy five percent of our sales and eighty five percent of our profits.

05:51 We recorded an organic growth of thirteen percent at the solid adjusted operating margin of almost seventeen percent. Latin America growing some twenty seven percent, EMEA growing by eighteen percent, and North America growing by fourteen percent. Growth in Asia was approximately four percent, a moderation from previously high levels due to the development in China. 06:19 Demand in China continues to be high in many segments, but as expected, overall growth is held back by weaker demand in the wind industry. In contrast, sales in India showing strong growth.

Organic sales in EMEA, Asia, and Latin America are now at a level about what we saw before the pandemic. All in all, net sales reached almost fifteen billion Swedish krona. 06:49 From an industry perspective, we are seeing particularly strong growth in industrial drives, industrial distribution and off highway applications. One win in the quarter is a contract sign with the Berlin underground. We have entered into long term agreement to equip and service rolling stock for the U-Bahn in Germany.

The contract includes a number of SKF solutions ranging from wheel set bearings and axel boxes to lubrication systems. 07:24 Turning to the automotive business, representing some twenty five percent of sales and some fifteen percent of our profits. Automotive, was significantly challenged by the customer closed down, which were driven by logistic bottlenecks and component shortages. As discussed, sales for car manufacturers across all regions were affected by these disruptions. 07:49 We note the negative sales development across all regions with North America most impacted with a decline of twelve percent compared to last year followed by Asia Pacific down six percent and EMEA and Latin America down a three percent respectively.

However, as a contrast, we see continued growth in the vehicle after markets across all regions. 08:17 On the positive side, we're well positioned within the electrical vehicles market and currently more than two thirds of our powertrain bearing orders are for fully electric cars. SKF’s business within electric vehicles is growing and for twenty twenty one, sales are expected to reach approximately eight hundred million Swedish krona, an increase by more than eight percent versus last year at acceptable margins. 08:46 Looking ahead, we continue to see an accelerating momentum with orders outperforming sales. We have a strong collaboration with OEM customers all over the world and we have reason being selected by GM as their partner for the Hummer EV.

09:03 All in all, organic sales were down by five percent and adjusted operating margin was four percent. Even though we are far from satisfied with automotive results, it has been difficult to fully mitigate an extremely challenging and volatile supply chain situation in the global automotive industry. However, we are naturally taking specific actions to manage the situation to the best of our ability. 09:34 To illustrate the volatility in the current market conditions, a growth within global light vehicle production for almost fifty percent at the previous quarters has quickly turned into eighteen percent decline in the quarter. Unfortunately, there are yet no signs that the situation will improve in the fourth quarter.

09:56 To safeguard our business, we have initiated several measures to mitigate situation. Production adjustment across our entire automotive footprint to reduce variable costs. We are reassessing our commercial terms and conditions in our contracts. And finally, we are aggressively pursuing purchasing opportunities. 10:18 In addition, in general terms, we must also continue to drive our manufacturing footprint and agenda forward at a high pace.

We are maintaining a high pace on investments and consolidation of our manufacturing footprint. The last time we met, we had closed six sites since twenty nineteen and at year-end, we will have permanently closed twelve manufacturing units. 10:47 Some of these initiatives have regretfully a negative impact on some employees, but they are absolutely necessary to align our manufacturing footprint with customer demand to increase automation levels and secure growth opportunities. We continue to invest in our factors and investments are expected to reach three point eight billion Swedish krona for the full-year. 11:14 These investments make us more flexible and efficient, as well as being an important foundation for winning more business from customers in fast growing segments and regions.

So far, these investments and consolidation efforts have realized one point two billion Swedish krona of the five billion annual savings that we expect to generate by the end of twenty twenty five. 11:44 Last year, we announced the goal to achieve net zero emissions by twenty thirty for all our operations, which includes Scope 1 and Scope 2. As you see from this chart, we have already made significant progress on reducing emissions from our own operations. 12:04 It is absolutely important to highlight that we've been able to decouple business growth from emissions caused by our production activities, by driving energy efficiency, waste elimination, and increasing use of renewable energy. But we cannot focus on Scope 1 and 2 and ignore Scope 3.

We need to focus on our entire value chain. 12:31 Last week, we announced an even more ambitious goal to take our entire value chain to net zero greenhouse gas emissions by twenty fifty. There all as several customers that require net zero products, especially within segments such as renewables and automotive. This demand has increased during the last couple of years, and we expect it to continue to increase going forward. 12:59 We estimate SKF’s Scope 1, 2, and 3 and that is upstream emissions from approximately one point eight million tons of CO2 per year of which Scope 1 and 2 represents around one-fourth.

The largest part of our emission is caused by sourcing direct material, primarily steel and steel components followed by emissions from our own operations and logistics. 13:29 To reach this very ambitious goal, we need to collaborate broadly with customers, partners, and suppliers. As one example, to accelerate the availability of green steel, we have joined forces with organizations such as SteelZero, Responsible Steel, and Lulea University. By committing to this goal, we’re also strengthening our position as a leading company within the industry in technology development to sustainability and thereby also strengthening our leading position in the bearing industry. 14:08 At our Q2 presentation in July, I inform you that I intend to initiate a strategic review project to unlock our full potential.

This work is now being conducted at high pace and involving a large number of colleagues across all parts of SKF. We are looking at our business from many angles and perspectives. 14:33 From an outside-in point of view, we are assessing how global megatrends such as sustainability, digitalization, regionalization, and a shift towards the east will impact our customers and then ultimately us. We are scrutinizing our current portfolio performance, assessing additional growth opportunities, challenging our cost competitiveness and how we can best align our global footprint and future investments, plans to stay relevant and win. 15:08 Furthermore, we are taking a deep look into our operating model, digital capabilities and ways of working to further accelerate speed agility, accountability, and customer centricity.

By the end of this year, we aim to have a clear roadmap to accelerate our profitable growth, unlock our full potential and deliver on our financial operational targets. 15:37 I’m fully convinced of our ability to continue to build on our strong brand and technological leadership. The review will be completed by the turn of the year, and I'm truly looking forward to presenting the outcome in conjunction with our full year results in early twenty twenty two. 15:57 So, with this, it's time to hand over to our CFO, Mr. Niclas Rosenlew, to take you through some of the more financial details.

Over to you, Niclas.

Niclas Rosenlew: 16:09 Thank you, Rickard. Before reviewing our results in more detail, I do take the opportunity to comment on the cover picture you see here on the screen. What you see is the sun raising over Gothenburg, the low building to the right is our factory, which recently became CO2 neutral. To the left, you have our warehouse, which has been converted to our headquarters.

It has the highest environmental platinum lead ranking and also the highest well platinum ranking for health and well-being. These are some concrete measures we are taking to ensure a competitive edge also going forward. 16:57 So, with that, let's move on to the results. As Rickard mentioned, we had a strong demand in industrial and a lower demand within automotive in Q3. Compared to last quarter, our net sales increased by eight point three percent in the quarter.

Organic sales increased by seven point seven percent compared to last year, where industrial grew by thirteen percent and automotive declined by five percent. 17:31 The currency effect on sales has changed to a tailwind at positive zero point six percent in the quarter, with the largest positive effects coming from Chinese renminbi, Brazilian real and the Swedish krona. 17:51 In Q3, we had a strong operating profit considering the volatile environment. The recent quarters have been very volatile with significant swings in demand and extremely constrained supply chains. This has put the whole organization and the whole industry and value chain to a test, and I'm pleased to say that we managed to serve most of our customers well in this situation.

18:20 While we could have achieved more in sales, had it not been for the supply squeeze, our flexibility and lower cost base did contribute to the solid profit and strong margin resilience. 18:35 In Q3, we continue to experience cost inflation on both components and on transports. Despite that, our adjusted operating profit was two thousand six hundred and seventy two million corresponding to a margin of thirteen point three percent. Let's go through the profit bridge. 19:02 Firstly, we had a currency headwind of negative ninety two million, compared to last year.

Material and logistics costs continued to increase as Rickard Gustafson mentioned. The combined headwinds from increased prices and materials, components, and logistics amounted to nine hundred and sixty four million compared to Q3 last year. 19:30 On the other hand, our organic sales and manufacturing volumes contributed with a positive one thousand three hundred and sixty million. To mitigate cost inflation, we’ve taken a number of measures including increasing prices. Price mix was positive.

However, there is a lag between increasing prices and price realization and we are not fully able to compensate for the cost inflation. 20:04 In the quarter, price mix offset approximately two-thirds of the higher material and logistics costs. The work continues, and we do remain confident that we can mitigate current inflation going into twenty twenty two. You can also see this in our industrial margins, which increased year on year. 20:30 Costs were one hundred and seven million higher last year and then to sum up all of this despite strong headwinds from our increased material and logistics costs, our operating profit improved to a solid two thousand six hundred and seventy two million with a thirteen point three percent margin.

20:54 Moving on to cash flow, net cash flow after investments before financing in the third quarter was one thousand four hundred and seventy million, compared to two thousand two hundred and sixty six last year. The decrease compared to last year is driven by higher working capital and higher investments, partly offset by higher operating profits. 21:20 In the quarter, inventories increased. We estimate that we have close to one billion of excess inventories due to the supply squeeze in the market with some half of this being within automotive. Net working capital in percent of annual sales was thirty point five percent in the quarter compared to twenty eight point seven in the third quarter twenty twenty.

The increase in the ratio was mainly driven by exchange rate fluctuations. 21:57 Return on capital employed continued to improve and was fifteen point six percent for the last twelve months. This being good progress towards our target of sixteen percent. We continue to have a strong balance sheet and solid liquidity. Our net financial debt amounted to two point nine billion and the net debt to equity ratio, excluding tensions was twelve point nine percent at the end of the quarter.

22:31 With that, I hand back to you Rickard for closing remarks.

Rickard Gustafson: 22:37 Well, thank you, Niclas. And to summarize, the third quarter saw continued solid demand. The industrial business maintained its strong momentum both in terms of growth and profitability. The automotive business was however, significantly impacted by the reduced production among key customers.

23:00 As a group, we report an adjusted operating profit of two point seven billion Swedish krona at a stable margin above thirteen percent. Our industrial business delivered a strong result further increasing its adjusted operating margin to seventeen percent despite very challenging conditions during the quarter, including cost inflation and constrained logistics. 23:28 On a group level, we continue to consolidate a manufacturing footprint with the further six sites to be closed by the end of the year. Taking the total since twenty nineteen to twelve. Taking a long term view, I remain convinced on our ability to continue to build on our strong brand and technological leadership.

23:52 We have commenced a strategic review initiative, which will help us identify how to maximize the full potential of our current business, as well as prioritize future technology and footprint investments. The review will be completed by the turn of the year and presented in conjunction with our full year results in early twenty twenty two. 24:18 And finally, before we go into the Q and A session, just a few reflections on the short term future. Looking into fourth quarter, we expect a continued solid demand across all our industrial businesses. Demand development in our automotive business would remain uncertain, we supply constraints and production delays resulting in a very different market conditions than those experienced in the fourth quarter last year.

24:49 For the SKF Group, given the uncertainties in the market, we expect organic sales for the fourth quarter to be in line with what we saw the previous year. 25:01 With that, we conclude the formal presentation. I hand back to Patrik to facilitate the Q and A sessions. Over to you, Patrik.

Patrik Stenberg: 25:09 Thank you, Rickard and Niclas for the presentations.

We will now move over to the questions part. We will start with the questions you have submitted over the phone. So, with that, I'll leave the word to your operator. Please go ahead.

Operator: 25:29 Thank you very much.

[Operator Instructions] Our first question today comes from Klas Bergelind from Citi. Please go ahead.

Klas Bergelind: 25:54 Yes. [Indiscernible] So my first one is on your guidance, and it seems like it's driven mainly by all those uncertainties. But your growth in Asia is slowing as well, we know you have a tough [Multiple Speakers], particularly on the wind side in China.

We have had very, very strong growth in onshore in particular, which is now leveling off. But I'm also interested to hear Rickard, what you see outside wind? Do you see any General Industrial segment slowing as well towards the end of the quarter? As you say that the guidance is for all segments to still be strong in industrial, but it's a little bit strange considering what we see in China out there, I will start with that one.

Rickard Gustafson: 26:37 Good morning, Klas. It is correct that we do see some maintain challenges in the fourth quarter for our automotive business, while on the other hand we see a solid demand development for industrial across all our regions, to be honest. When it comes to China, yes, we have seen a somewhat of a slowdown in China, but so far is primarily within our expectations related to wind as we refer to, while other segments are maintaining a rather good momentum.

27:11 So, but of course, our wind business in China has enrolled the sizeable and has an impact on the totality for us in China. But there's no kind of other or general weaknesses in the markets that we have noticed besides what we already had talked about.

Klas Bergelind: 27:31 Okay, very good. My second one is on the specific actions in autos, could you be more specific, perhaps what does it mean for profitability. It's a pretty big volume decline here for autos into the fourth quarter as implied by your guide considering that you guide for organic, and then you have price mix, so underlying volumes to be down at group levels, somewhat lower and that would indicate autos down quite a bit.

So, I assume that the autos margin could get even weaker sequentially, quite a lot weaker perhaps before savings kick in. So, if you could comment on that that would be very helpful.

Rickard Gustafson: 28:10 I'll be happy to. And I see this a little bit at the moment that we are chasing a moving target within automotive. As we explained during our presentation, we saw a very quick and maybe a bit unexpected drop in sales in the month of September, where the last two weeks were very weak in auto.

So, we have then to initiate, of course, mitigating actions to safeguard our business. 28:39 We are attacking this short term with a broad set of activities all from further emphasis on procurement, of course. We are definitely taking actions in our own production to align our output with the demand development. And finally, we are actively pursuing everything that we can relate to what I call the commercial terms of our contract to see what else we can do in order to mitigate some of these negative implications. 29:14 Going forward, as far as we can tell, we don't dare to guess that it will be less volatile in Q4, but probably be hopefully a bit more stable once we get into the new year, but we are preparing for a rather volatile Q4 and we are taking all the actions that we can, that we can in order to mitigate the situation to the extent possible.

But it is true also that what you indicate, unfortunately, some of those mitigating actions have some lead time to be, you know, to show up in our P and L while, you know, the cost inflation or the actions taken because some of our customers have a more immediate impact. So, that's why I say that we are chasing a moving target here.

Niclas Rosenlew: 29:56 Maybe just to add Klas. As you know, I mean the underlying demand we still see there. So, people essentially buying cars and it's also within automotive, it's a bit of a mix picture where it's really cars, passenger vehicles, which is hit, while the aftermarket business is quite strong and trucks we can say somewhere in between.

It’s really cars that we are talking about and it's our customers OEMs shutting down their production because they don't have other components, but the underlying demand we still see being there and being strong.

Klas Bergelind: 30:41 Yeah. No, that I know. Very quick final one for your Niclas. On the temporary savings, to what extent did they go back? Did I hear you correctly that you didn't have any temporary savings or sort of COVID-related savings in the P and L anymore.

Have they all gone back here interested in?

Niclas Rosenlew: 30:59 Yeah. I mean, the temporary savings are, you can say gone or back as a cost. However, the permanent savings that we talked about to a large degree permanent and still there.

Klas Bergelind: 31:16 Thank you.

Niclas Rosenlew: 31:18 Thank you.

Operator: 31:23 Our next question today comes from Daniela Costa from Goldman Sachs. Daniela, your line is now open.

Daniela Costa: 31:29 Hi good morning. I will ask the questions if possible as well. First one, regarding sort of what you said that you couldn't ship all you wanted in 3Q and sounds like in 4Q is the same situation, as you've mentioned.

So, should – do you think it's reasonable to assume that you will be able to ship those in the first part of twenty twenty two or is there a risk that those orders go to someone else or just these appear altogether? That's my first question. And then my second question is more regarding like you will have a very limited gearing, financial gearing by the end of the year, it sounds like. And so, wondering like your thoughts on how the historical capital allocation of SKF has been between dividends, CapEx, M and A and how you're thinking about that going forward. There are several other Swedish-listed companies that frequently have used for example special distributions, would that be something that you would rule out? Thank you.

Rickard Gustafson: 32:28 Thank you, Daniela and I'll answer the first part of your question, then Niclas will take the second part of your question or your second question.

It is correct that we could have sold more if we were able to ship more during the quarter as we mentioned. We have been forced to do some rather significant prioritization among our customer base on where we – who should get the orders and our shipments. 32:55 I think that that will be, we're going to be required to continue that in the fourth quarter. However, though, we even though we see some maintained challenges in the fourth quarter where, you know, we do not foresee that this is going to be, you know, going on forever, but things we light up again. We will get back to normality and underlying demand is still very strong within our industrial business.

33:24 So, I think that's really what we think about the future. And then of course, we're going to do everything in our power to fulfill all the orders that we get in Q4, even though we do acknowledge there are some challenges within the global logistic flows at the moment.

Niclas Rosenlew: 33:47 And just to add to that, I mean as far as we know as far as we see, I mean, it's not about losing to competition. I mean, competition is having experiencing the same supply squeeze. So, it's really pretty much affecting everyone.

If anything, we feel that we've been doing relatively seen good job here and if anything, taking share rather than losing share. 34:20 On the kind of strong balance sheet and gearing, you're right, I mean, it's been a kind of a long term trend and it's been something that we've been working on and expect it to continue to strengthen obviously over time, what comes to what to do about it or if there’s access cash. I think for the moment, we are quite happy with a strong balance sheet and have been so in particular during the kind of COVID era. 34:58 And of course, M and A is absolutely on the agenda going forward, it's part of the strategic review also that Rickard mentioned here. And what comes to special distribution or dividends and so on, it's of course something that the board, board will then consider, but in general, we are quite happy now with strong balance sheet and that will help us going forward.

35:28 What comes to investments, we don't see any major shift, it's something that will come back as part of the strategic review. We do continue to invest in areas where we see that we can grow long-term and then also taking some measures to ensure competitiveness, digitalizing our production.

Daniela Costa: 35:53 Thank you.

Operator: 36:01 Our next question comes from James Moore from Redburn. James, your line is now open.

James Moore: 36:07 Good morning everyone, Rickard, Niclas, Patrik. And I have three if I could. Firstly, on raw materials and logistics, could you split the nineteen sixty four into logistics versus more materials, and if you also want to split more on that into peer price versus volume, that will be great? But also, could you give us a feeling for the fourth quarter impact from raw material logistics if current rates persist? That's my first question. Maybe go one at a time?

Rickard Gustafson: 36:35 Yes. Thank you, James.

Thanks, James. So, the nine sixty, roughly two-thirds materials one-third logistics. And really the most of it, we can say almost all of it is price rather than volume. And then what comes to Q4, we expect that the inflation, the squeeze continues to have an effect, but we don't see any kind of major change there.

James Moore: 37:15 Thank you.

And you mentioned the exit rate were automotive. I wondered if you could mention the exit rate for industrial and within the zero percent 4Q organic sales guidance, could you give us a flavor for automotive versus industrial? I know you don’t normally, but we're in strange times.

Niclas Rosenlew: 37:38 Yes, we are in strange times, but I think that we do guide on the holistic perspective of the business. So, we stick to what we said, is that, I think that's the best guidance that we can give that we do see maintained and solid development in our industrial business, while more volatility will maintain within automotive and net-net we foresee a flat net sales development versus same quarter last year. We will not split it further that, unfortunately.

James Moore: 38:11 Maybe I could try it a different way, do you think you're aligned with global automotive production trends or do you think are lagged? In other words, the pain that we saw globally, mid-teens global auto production decline, do you think are a bit behind that or you see the impact coincidently in the third quarter?

Rickard Gustafson: 38:30 I think we see that. We are hit by this instantly actually since what happened is that the car OEMs, primarily the car OEMs brought in general within automotive industry. They have canceled their orders with extreme short notice. We're talking a few days maximum. I think it’s an instant impact on our business.

However though, as you heard Niclas also mentioned, and what we said in the presentation, the vehicle aftermarket is continuing to develop very, very strongly and in certain specific pockets such as EVs and so forth. 39:15 We maintain and strength our position, but I think the implication for us in terms of automotive has been an instant hit for us.

James Moore: 39:27 Very helpful and finally, just on China, would it be possible to quantify what's happening because we can see general industrial and auto trends in China, but I'm trying to scale the wind impact. I’m assuming wind could be down as much as fifty percent given the feed in tariff, so I was wondering if all China is down say double-digits in the quarter. Anything you can do to help quantify that? And the wind impact would be great.

Niclas Rosenlew: 39:54 I guess, as Rickard said earlier, I mean, China, I mean, wind has weakened quite a lot to last year's levels and this is not unexpected. This was in the works and this was in our plants quite clear since seen some time back, so nothing surprising there and it is a business that follows certain cycles and trends and we do expect long term that wind is a very strong business also in China. And you mentioned the tariffs there as a reason. 40:37 In many other segments in China, we actually see very good development and very good demand. So, it's a mixed bag, but that's still a positive one.

But in terms of growth rates, there is a clear moderation, but again, not unexpected at all.

James Moore: 41:03 Thank you very much.

Operator: 41:10 Our next question today comes from Erik Golrang from SEB. Erik, your line is now open.

Erik Golrang: 41:17 Thank you.

One question left that hasn’t been answered. I'm sorry, if that's been asked as well. I had a bad line on the call. On the strategic review, is there any reason you assume that there won't be a plan to exit materially parts of the business in the other end of that?

Rickard Gustafson: 41:33 Well, I don't want a second guest outcome of this initiative that we now are undertaking here, but as I tried to describe in my presentation, we are looking into our business from a number of different angles and lenses. And of course, both from an outside in an inside out point of view.

41:52 Yes, we are scrutinizing on our portfolio. Yes, we are assessing the profitability and our competitiveness in certain areas. But I also like to stress that we believe that there are still significant growth opportunities within our existing business to go after, and what we can do to unlock that is something that I think is going to be an important piece to this as well. 42:18 But I need to ask you to rest your case and they give us be a bit patient. We will come back once we're ready with the full analysis and then we can be more specific.

But we are looking at all parts of our business, and we don't have any [indiscernible] when we do this work.

Erik Golrang: 42:40 Okay, thanks and appreciate [indiscernible], but just a follow-up, do you think you will prioritize growth over margins, instead of sorting out what will remain and what potentially goes?
Rickard Gustafson : 42:53 I'm a big believer in profitable growth. That's what I'm going to go after.

Erik Golrang: 43:00 Sounds good. Thank you.

Rickard Gustafson: 43:02 Thank you.

Niclas Rosenlew: 43:03 Thank you.

Operator: 43:07 Our next question comes from Alexander Virgo from Bank of America. Alexander, please go ahead.

Alexander Virgo:
t:
Rickard Gustafson : 43:57 If I start with the second one, price mix, so I said, two-thirds of the material and logistics inflation is price mix, a positive impact from price mix.

We'd rather not break it down because it's always a bit of math behind that what's price and what’s mix and it can also be interpreted in different ways. But overall, they can – a lot of measures on the pricing side, and we see that it's developing actually in a positive way. 44:38 It's a long term kind of job. We continue to do it. It's not the one-off.

We have continued to do it. We'll continue to work on prices and increasing prices. But two-thirds out of the roughly one billion was the effect in Q3.

Niclas Rosenlew: 45:00 On the inventories, has been discussed, we have built some inventories in the third quarter as we normally do not do due to the logistic congestion we've had and also due to the automotive challenges. So, in terms of the bridge, we do have a net positive contribution from this.

I would say at roughly one hundred and forty million in the quarter compared to the third quarter of last year.

Alexander Virgo: 45:29 Very helpful. Thank you.

Operator: 45:37 Our next question comes from Joe Bunch from Joel Spungin from Berenberg. Joel, your line is now open.

Joel Spungin: 45:44 Yes. Good morning. I just had a question with regards to cash flow. And I mean if we look at the specific cash flows year to date, obviously, your operating cash generation is down. I understand that’s largely due to change in working capital.

But actually, you've got about one point five billion of items that have gone into either the other line or the other non-cash line, so that's pretty significant number. I was wondering if you could just maybe break that out a little bit more. And just if there's anything you can say with regards to what those numbers might look like on a full year basis, that would be helpful? And then as a sort of more general question with regards to cash generation, I think if you look at the long term performance of the business in terms of cash flow has been quite volatile. And within the strategic review is that something that you'll be giving consideration to how to perhaps get a more stable cash generation performance from the business?

Niclas Rosenlew: 46:48 Maybe on the general cash flow, just we had, we've had an improvement now in cash flow, and this year the cash flow has really as you said been impacted by the supply situation in the world and then of course, the growth we had or the growth that we've had throughout the year. So, I would say quite expected that we tie up cash or working capital in a growth phase.

And for Q3 specifically, I’d take the opportunity to comment on that. 47:32 The inventories went up and typically during second half, we consume inventories, so they go down and that's purely again related to the supply squeeze. As I said, one billion roughly in excess inventories now that we don't expect to stay there. Eventually it will go out and the situation will normalize. 47:57 So, I don't think we see positive development in terms of cash flow long term, but of course, on a quarterly level there will be some volatility.

On the other, I would say that if we can come back offline just to make sure that we don't consume all the time on that. So, we'll come back offline just to explain what that includes. 48:22 And your question regarding how we will look at to cash into the strategic review. I would say that what we primarily after there is that we trying to assess our capital allocation to ensure that, to scrutinize how we've done that in the past and how we see where we want to deploy, how we want to deploy the capital going forward. 48:43 And again, I'm not growing any pre-conclusions here and say that there might be any changes, but it’s definitely on the agenda and we're looking into it to ensure that we have the best capital allocation that supports our future growth objectives.

48:58 Still to add, I mean, of course, we do see significant opportunities a bit like Rickard said here, in more effective working capital. And as you know, I mean, we do have a long term goal to get to around twenty five percent instead of thirty percent as a percentage of sales and that absolutely still remains and we believe is within reach also.

Joel Spungin: 49:28 Okay. Thank you very much.

Operator: 49:33 At time we have no further questions on the telephone lines.

I'll now hand back to Patrik Stenberg to take your webcast questions.

Patrik Stenberg: 49:45 From Ben at Morgan Stanley. Please, Rickard, can you give us some first impressions as CEO and be honest? What do you think has left us well and what does the company do less well?

Rickard Gustafson: 49:59 First of foremost, I think this company has a great foundation to build upon. We have a strong global footprint. We have a well-recognized brand.

We have deep expertise and skills within our industry. And I also think that we have proven that we have an ability also to execute and drive efficiencies in the organization, which we need to build upon. But areas for us I still think that we can improve, I still think we are not as customer centric as I wish us to be. 50:35 I still believe that we can do a further job and a better job and maybe identifying tangible growth opportunities and put a robust action plan behind those opportunities to realize them. I think that scenario where we can strengthen our capabilities.

And quite honestly, when I speak to my colleagues and I've done a number of interviews and dialogues with colleagues and also some formal surveys. 51:05 It's a clear message coming back that we are perceived to be bit too bureaucratic and maybe that, decisions are not where, you know, the decision power is not allocated out close to the markets and close the customer to the extent that people wish it to be, which makes us a bit slow and maybe less agile and slowdown our clock speed. So, I think there are a number of things that we need to do, but again, you know, I'll save my fire until I concluded the work.

Patrik Stenberg: 51:41 Thank you. Second question, also from Ben.

In terms of the strategic review, is this more focused on capital allocation and growth M and A or could it involve divestments on entire business lines?

Rickard Gustafson: 51:53 As I mentioned, we are scrutinizing our business from different angles and really looking to how can we unlock the full potential of what we're doing? And again, to me, it's a primary question on how can we really capture a lot of that growth opportunity that still exists out there that we have not yet fully tapped into. So, I think that's going to be a major theme as we move forward.

Patrik Stenberg: 52:21 Thank you. Moving on to a question from Andreas Koski. Good morning.

Could you help us better understand your outlook of flat organic growth by giving some indication of what organic growth you expect for your divisions?

Rickard Gustafson: 52:34 Well, I think we had that question and as we said, we are not breaking it down into to that level. We stay on a rather high level, holistic test perspective, where we see a solid demand maintained within our industrial business, while automotive will continue to be volatile in Q4. And all in all, we see a rather flattish development of our net sales versus the same quarter last year. We don't break it down further – into further details than that.

Patrik Stenberg: 53:09 Thank you.

Question from Daniela at Goldman. Is the shift towards the east still as relevant today as before, given the pandemic? Several company's customers are reconsidering long supply chain, and we focus more on localization rather than moving to these. Rickard Gustafson : 53:27 Yes, I think it's in a – and a very relevant question. And the way we see it is that we continue with our regionalization. We want to make sure that we are close to our customers and we need to strengthen our footprint in these and on the same time, we also need continued strength in foot in Americas for example, to think that journey is ongoing.

When I think about their move to the east, it's also clear that in some industries, what I call the center of gravity where R and D and the leading mines will be in certain industries will most likely be in parts of China or in Asia going forward. And that means that we also need to consider what that means for us, and any potential you know, changes on how we deploy our resources and where we build our center of excellence so to say. 54:19 So, I think the theme of move to these is still relevant, but maybe with a different tonality to it than in the past.

Patrik Stenberg: 54:32 Thank you. One question from Andrew at JPMorgan.

Can you please help us understand your expectations on cost development in the fourth quarter, including any additional cost saving actions given some of the challenges you've seen currently?

Niclas Rosenlew: 54:50 Well, firstly, of course, as Rickard mentioned in automotive, we are taking specific special actions and including cost actions, as Rickard mentioned. Then in general, on a general level, I think the big picture still remains that, I mean, over time, we see that we can make SKF more efficient and that includes of course, taking some cost out, but it also includes ensuring that we invest in product competitiveness including product, cost and so on and so on. So that's definitely a journey, which will continue long term.

Patrik Stenberg: 55:39 Thank you, Niclas. Now, we're running out of questions.

So, I think we used the last two minutes for us on summing up from Rickard. So, some final words on your side and other than that we thank you all for listening in.

Rickard Gustafson*: 55:54 Well, thank you for your attention and much appreciated. I just can reconfirm what we've said that we close a third quarter, which we believe reports a stable development in terms of growth with the organic growth of around eight percent. You know it’s a mix bag that we present with very, very strong development in our industrial business, and I like to reinforce that it's approximately seventy five percent of our business is classified as industrial, where we see double-digit growth of thirteen percent and further improved margins to seventeen percent in an environment that has been very, very challenging.

56:36 So, I think we demonstrate that some of our mitigating actions are actually working and are moving forward and developing our business in the right direction. Automotive is a different story where we have had a very, very troublesome and volatile situation with significant customers that have with short notice closed down their operations there, but actually do not own the orders that they have with us that had had a significant impact on our growth in automotive. So, turning into negative growth in the quarter, while also moving our margins in the wrong direction. 57:16 So more work to be done there, but we believe that this will be managed through and the underlying demand within automotive is still strong and will come back and we're pleased that we also strengthened our position in the electric vehicle markets, which we believe will be a [positive] [ph] growth going forward. 57:37 The work continues with driving cost efficiency in our business and we are pleased to see that we can report progress on our footprint initiative where we are closing down some additional six production units in our business, while we continue to invest in growth opportunities, in other parts of the world and also strengthening our automation and digitalization efforts in our remaining European footprint.

58:05 So, I think we're making still progress, and we are looking into further opportunities. And as I said a couple of times, once we concluded our own assessments, we will come back to and share how we see the future and how we believe that we can unlock the full potential of this great company called SKF. 58:23 So, with that, thank you so much for your attention today, and we wish you a continued good day.