Patrik Stenberg: Good afternoon to you all and welcome to the Q4 Conference Call for SKF. As usual we have our CEO, Mr. Alrik Danielson as the main speaker; and present in the room is our CFO, Christian Johansson; and Mr. Theo, Head of Media Relations and myself Patrik. We will spend about 20, 30 minutes on the presentation.

After that we'll be more than happy to answer your question. With that brief introduction, I will leave the word to Alrik.

Alrik Danielson: Thank you very much, Patrik, and welcome to this Q4 conference call. Well, the fourth quarter was a strong quarter with good sales growth, solid margin and a strong cash flow. We saw continued growth in industrial operations while automotive sales was slightly lower.

In total, sales grew organically by 5% and our operating profit was SEK2.9 billion with a margin of 13.7%. We have reduced our inventories during the quarter. Cash flow was strong at SEK4.3 billion and our net debt ratio is now below 50%. In light of our strong performance, the board has decided to propose to raise a dividend to SEK6. If you turn to the next slide, talking about the industrial business.

It continues it's strong performance. In Q4, we saw increased sales volumes in our three largest regions Europe, North America and Asia. Organic sales growth was 8.8% and operating margin reached 18.3% in the quarter. For the full year organic growth was 9.4% and operating margin was 15.6%. If we turn to the next page and talk about the automotive business and it remained resilient.

In Q4, organic sales declined by 3.7% due to the drop in European car sales, resulting from the implementation of new test cycles and a slowdown in Asia. For the full year, organic growth was a 2.1% and operating margin was 6.4%. If we turn to the next slide and talk about our targets, you can see 2018 had been a very strong year for SKF. We've had record sales, record operating profit and record cash flow. Each of the four quarter has also individually been the best so far for SKF.

If we look at the full year numbers, we are performing on four out of our five financial targets. Organic growth was 7.1% clearly above the target of 5%, operating margin was 12.9%, compared to the target of 12% and the net debt ratio was 49%, compared to the target of below 80%. And the return on capital employed was 17.6%, compared to the target of 16%. Throughout the year we have been working to reduce our inventories and we are making progress towards the target of net working capital. We are now at 27.8%, so there is still some work left before we can reach to 25% target.

If we go to the next page and talk a little bit about the regions. We saw Europe with a strong industrial demand with significantly higher volumes in most industries and a growth of 1.5%. Over automotive volumes in Europe were slightly lower in Q4, but there continue to be large differences. We saw higher volumes for trucks and lower for cars due to the implementation of the WLTP test cycles. And the vehicle service market was relatively unchanged.

Asia, we saw a growth of 8% with the industrial business significantly higher demand in most of our customer industries such as energy, railway, agriculture, energy, food and beverage, marine to name a few. Automotive volumes were lower than last year with lower volumes for cars, significantly lower volumes for trucks, and slightly lower volumes for our vehicle aftermarket. Organic sales grew strongly in North America with 11%. We saw significantly higher industrial demand and some of the segments were industrial drives, aerospace, energy, agriculture, food and beverage, railway, industrial distribution to name a few. Automotive volumes were relatively unchanged with significantly higher volumes to trucks and higher to car segment.

Sales in the vehicle market were significantly lower though. In Latin America, volumes were relatively unchanged compared to last year. However, we saw significantly higher volumes to the industrial and significantly lower volumes to the automotive. If we then turn to the next slide and talk a little bit about some highlights. We inaugurated just a week ago our new production line in Valenciennes in France where we make bearings for the Aeroengine side of the business and we have now a fully automated production line with an autonomy of 35 hours.

You can call it a ghost channel if you will. And we had a big event there with customers like SAFRAN and celebrating now the ramp-up of the new LEAP engine that you know is going to account for a solid growth for SKF during the next coming years. And it was interesting to see coming back and looking at what SKF is doing. We're also in Valenciennes refurbishing bearings for the automotive -- sorry for the aerospace and the aerospace engines. And there was bearings coming back from a German airline of significant size after 65,000 hours.

And SKF is now going to refurbish these bearings and in about a month or so, they will be back in action. So, really good stuff coming out of the aerospace factory in Valenciennes. And I wanted to share that with you. It was one of those moment of saying the investments we're doing, they're bearing fruits and we are now very strong in this segment. So, with those words, I want to hand over to Christian.

Christian?

Christian Johansson: Thank you, Alrik. Good afternoon to all of you. As usual I will take you through the details of our financials in the quarter. So, if you turn to next page, I will start with sales development. Net sales increased by 8.8% in the fourth quarter.

We recorded organic sales growth for the ninth quarter in a row with strong growth in our industrial business, growth in all -- when it comes to industrial, all three main regions and in most customer industries. Automotive sales over lower in the quarter due to lower volumes in Asia and in Europe. So as a total organic sales increased by 5%. Currency effect on sales was positive in the quarter by 4.8% with the largest effects as usual coming from the dollar followed by euro and Chinese renminbi, but also from Argentinian peso. Factory component was negative 1% related to the divestment of labs that we closed by the end of November, so we have one month there.

If you turn to the next page, operating profit by quarter have shown a strong positive trend during the year also in quarter four. And as you've heard, the operating profit was SEK2.9 billion in the quarter, some SEK885 million higher than in the fourth quarter last year. And for the full year 2018, we are at about SEK11 billion operating income, which is the highest operating income in a single year in history for SKF. And each of the four quarters as also Alrik expressed has also individually the best quarter so far in SKF history. And when it comes to the fourth quarter, it is a record quarter also, if we adjust for the net positive effect from divestment and impairment and restructuring costs.

So, if we move to the next page I'll take you through the operating profit bridge for the quarter from left to right. Firstly, then the green bar, we have a positive effect from divested companies of SEK1.261 billion, mainly related to the capital gain from the last divestment. We have a currency impact positive of SEK26 million compared to last year. And if we move to the operating performance, it decreased by SEK402 million year-over-year, but if we adjust for the year-over-year effect from impairments, customer settlements and restructuring which I come back to the operating performance increased by SEK74 million. So within operating performance then organic sales and manufacturing volumes contributions from there increased by SEK639 million.

Including positive effects from sales volume, from price mix, from fixed cost contribution, from higher production volumes and also a negative effect year-over-year of some SEK110 million from reduced finished goods inventories in the quarter. When it comes to price mix, we continue to see a clearly positive effects from pricing. Mix was positive in the quarter with industrial business growing stronger than automotive. On the cost performance, this quarter you have the cost bar splitted in two on this slide, so firstly we have costs in the quarter for impairments of assets and customer settlements and restructuring, which were SEK476 million higher than last year. Impairments and customer settlements were SEK282 million, well in line with our guidance that we issued to you earlier in December.

Restructuring costs in the quarter were SEK194 million, higher than last year, which isn't more than what we guided for in the third quarter conference call. If we look at the lower box in the cost bar, the orange one, the cost development of our operating costs they were SEK565 million higher than last year, which is clearly better cost performance than what we discussed in the con call. So, if I give some comments to the bridge then when it comes to expectations or guidance for quarter one, again same order M&A loss results from divested companies of about SEK 50 million in the quarter and price mix continue to see clearly positive effects from price/mix in the first quarter. Inventories we expect to see unchanged finished goods inventories versus quarter four. But considering them that we built inventories in the first quarter 2018 we will have – we will see year-over-year effect in the bridge of about SEK 80 million negative.

Cost development for the first quarter same bridge effect as in quarter four. So the SEK 565 million so the lower one – lower box so SEK 565 million is the guidance for quarter one. And when it comes to restructuring, we have a neutral year-over-year effect. So if we turn page performance by customer group. Industrial organic mix sales increased by 9.2% increased in all three regions strongest growth in Asia and North America.

Reported margin 18.3% compared to 12.8% last year, contributions from increased sales and manufacturing volumes was positive together with a clearly positive effect from price mix. If you take the underlying performance, adjusted for the last divestment in the cost for impairment and restructuring and currency we had a positive operating leverage in the quarter. Moving to automotive organic sales declined by 3.7%. Car sales in Europe continue to be impacted by a new test cycles and in Asia we saw lower truck and car sales especially in China. Operating margin was 2.1% compared to 5% last year and obviously was impacted by negative year-over-year effects from customer settlements and restructuring.

And if you take the underlying performance it was a resilient negative effect from lower volume and increased material costs partially offset by pricing. Turn page. So some highlights to the lower parts of income statements. Take the financial net in the fourth quarter was negative SEK 266 million somewhat higher than we guided for and the main reason for that is that we have in the quarter adjusted reporting of our Argentinean business to hyperinflation accounting, which gave a negative effect of SEK 58 million in the quarter. For the full year, we came in at SEK 861 million which is an improvement compared to last year both coming down from a lower interest expenses and a better interest income net.

Taxes in the quarter negative SEK 453 million given an effective tax rate of 17%, this was positively affected by the divestment in the quarter, and if we adjust for that, the tax rate was 25%. Last year fourth quarter as you remember, we had impacts of the changes of the U.S. tax rates, which were positive in the quarter. So if you take the taxes for the full year of 2018 SEK 2.6 billion the effective tax rate was 26% adjusted for the divestment the full year tax rate was 28% and that should be compared then to the full year adjusted tax rate last year of 31%. So clearly tax rates have come down.

Earnings per share was SEK4.63 compared to SEK4.12 last year and full year SEK16 compared to SEK12, full year 2017. If you turn page, cash flow strong in the quarter. Cash flow excluding M&A activities was SEK1.937 billion compared to SEK1.8 billion previous year, positive impact from higher operating profit and reduced working capital. And I would also like to add that, as we have talked about the cash flow is improved, although we have higher investment in property, plant and equipment. Cash flow for the full year same definition was SEK6 billion compared to SEK4.2 billion last year and here we have for the full year increased the CapEx by about SEK400 million versus 2017.

So, next page. Net working capital as you've heard 27.8% of sales at the end of the fourth quarter, reduced from 29% the year, fourth quarter last year positively impacted by currency and by the divestment of linear actuation. But we clearly see good progress when it comes to inventories, trade receivables with sequential improvements over the last quarters. And as we have communicated to you previously we are reducing finished goods inventories still with good availability to meet our customers' demand. So if we move to next page.

Net debt equity ratio continue to improve in the quarter was 49% by the year-end. Net debt equity excluding pensions it reduced further to 13% and the net debt in absolute value was about SEK17 billion by the end of the year. So we have taken that down by more than SEK14 billion since the first quarter of 2015. And sale of business contributed to the reduction in this quarter by about SEK2.4 billion. If you turn to the next page.

So finally then some additional guidance, financial net expected to be around SEK200 million negative. When it comes to currency impact exchange based on the exchange rates by end of the year, we foresee operating profits to be positively impacted by about SEK140 million compared to the fourth quarter last year. And if we take more recent exchange rates from the 24th of January, the positive effect would be around SEK200 million. Tax rate we guide for the same level as 2018 of 28% and then when it comes to addition to plants and property the guidance for 2019 full year is SEK2.8 billion. So with that, I give the word back to Alrik.

Alrik Danielson: Thank you, Christian. Well to summarize the quarter, you can see that we have a very strong finish to record year. [indiscernible] we had a good sales growth, excellent profit and a strong cash flow. In 2018, we saw good growth in both our industrial and automotive businesses. Sales grew organically by 7% and our operating profit was more than SEK11 billion given an operating margin of 12.9%.

Cash flow was SEK8.3 billion. We have worked hard to strengthen our balance sheet and we have brought our net debt ratio down to 49%, well below our target of 80%. In light of our strong performance, the board has decided to propose to raise the dividend to SEK6. And entering the first quarter, we expect to see relatively unchanged volumes for SKF. So if we take and move to the next page, and I'll tell you and just read to you the demand outlook.

Since the beginning of last year, we have seen a broad-based recovery in most markets and this has continued into 2018. We expect to see relatively unchanged volume in the first quarter as I said. Demand for SKF’s product and services is expected to be relatively unchanged for the group including slightly higher demand for industrial and lower demand for automotive. Demand is expected to be higher in North America, slightly higher in Asia, relatively unchanged in Latin America and slightly lower in Europe. So with those words, I leave it to you Patrik.

Patrik Stenberg: Thank you, Alrik. And now I think we will be more than happy to go over to Q&A. So operator please.

Operator: Surely, sir. Ladies and gentlemen, we will now begin the question-and-answer session.

[Operator Instructions] And your first question comes from the line of Andre Kukhnin. Thank you. Your line is open.

Andre Kukhnin: Yes, good afternoon. Thanks for taking my questions.

I'll go one at a time. Just first question on that other line. I'm sorry to start with the most obscure part of the bridge, but could you give us a bit of color on what turned out better there versus the discussion three months ago? I think from memory there was raw materials at 160 that we discussed, and I think normal inflation was kind of just under 300 and then the other items. So just keen to learn what worked out better and how we should think about it for 2019 please?

Alrik Danielson: I'm happy to do that, and as you say, we have done clearly better when it comes to cost management in the quarter than what we reported, so at the time and a few comments on that. I mean costs have started to go out.

I can just mention that we have net excluding if you take the divestment; we have reduced headcount in the quarter by around 800. So that's the cost management then what I expected. We also talked about that we had a high activity levels and we had high activity levels when it comes to R&D, different IT implementations, and also when it comes to implementing our footprint activities. And we have executed on that in a better way than what we foresaw, so we come out better than expected there as well. Then when it comes to tariffs, we discussed that as well that we have pot in the bridge now since we have the gross reporting, we have rising effects from tariffs, we have cost effect.

We cannot lower also some tariffs in the quarter and the main reason for that is that that has been the U.S. government decision taken to exempt some bearing categories. And that, obviously, means we have less costs. But I would just to emphasize there, as you know, we have reported also that we have been working on mitigations and compensated there. So, we don't have profit effects from that, but we have lower costs.

So, I would say, overall, we have done better than what we foresaw when it comes to the cost.

Andre Kukhnin: And mix of that when you say about the same effect for Q1 2019 is that pretty similar? Because you'll have -- technically you may have one more month of tariffs already in that Q1 if nothing changes unless three?

Alrik Danielson: I don't know what you mean by one more month of tariffs, we still have three months?

Andre Kukhnin: Sorry, I was -- so what I meant was when you say it's same impact in Q1 2019 of SEK565 million negative, do you expect a similar mix of the items?

Alrik Danielson: I mean if you take that inflation, it's -- as far as we can read out, it's as we guide it. We have a higher bit of inflation in energy. As you know energy prices are material costs. Clearly, we are -- we came out even slightly worse than what we discussed for the quarter.

So, SEK180 million, I don't see any changes for the first quarter when it comes to material cost. So, that will remain also in the bridge. And the other items. I mean the remaining parts will also be there and roughly the same mix when it comes to the tariffs and our activities to implement footprint and different investments in world-class and so on.

Andre Kukhnin: Great.

Thank you. And my other question was on pricing. In terms of Q4, can you confirm that price effect was more positive than it was in Q3 or was it broadly similar? And then thinking about 2019, we've heard about your peers looking to raise prices from the start of the year and frankly, heard about you thinking of doing that later on in H1. Could you maybe comment on what your pricing intentions are broadly?

Alrik Danielson: Well, this is Alrik. Yes, we are, of course, continuing to leverage on the pricing power there is in the market and, of course, we will follow.

And lead -- I argue that in many cases, we are the leading one, but this is absolutely clear, and there will some carryover also in -- from 2018 into the automotive space, for instance.

Andre Kukhnin: Got it. And then Q4 versus Q3, can you comment?

Christian Johansson: I mean Q4 versus Q3 it's relatively unchanged I would say when it comes. So, it's clearly strongly positive in the quarter. And I mean moving into quarter one, you know that the raised prices in 2018 Q1, but we are still seeing the quarter as fairly positive price/mix effect also in quarter one.

Andre Kukhnin: Got it. Thanks so much for your time.

Operator: Thank you. Next question comes from the line of Lars Brorson. Thank you, your line is open.

Lars Brorson: Thanks very much. Hi Alrik. Question, I had two if I could. Firstly, on the one-offs may be more of a bookkeeping question. But I was keen, Christian, just to get a little bit of color on the divisional split.

Am I right to understand that all the SEK1.2 billion of gains coming from the linear activation sale is all coming in industrial? And secondly, can you help me understand the SEK274 million and SEK288 million, what comes in industrial and what comes in auto please? Thanks.

Christian Johansson: Yes, linear activation is an industrial business. For the remaining part, I would advise you with -- to use the business -- the proportions of the business as the split.

Lars Brorson: Okay. So for me that means a greater part of these SEK 282 million – sorry, because I saw all the customer settlement really were in auto which would imply most or all of the impairments therefore are coming in industrial.

Is that fair?

Alrik Danielson: I mean, if you want to go down to those decimals yes.

Lars Brorson: And why it matters because the division margin trends are difficult to track this quarter? But that's helpful. Secondly, if I could just talk – if we could talk a little bit Alrik about the industrial distribution segment, it's slowing down somewhat in Europe and Asian you're still seeing a very strong U.S. business. I think it's been clear this earning season we've seen U.S.

distributors quite busy restocking ahead of tariffs. Could you help us understand a little bit what you see on the ground there and whether you see that supporting your business in Q4 and potentially getting into Q1? How we should think about your broad industrial distribution business through 2019?

Alrik Danielson: Well, from our point of view, we guided – we guide for one quarter. And what we see is one of the things that we wouldn't be working on very hard during the last year is to get away from this year end buying that we used to have. And the more even demand pattern and the main thing is what I think we see is in the U.S. that there is a good business underlying business and that there is actually less of this volatility in the stocking than what we used to have.

So all-in-all, it's as we guided it's positive.

Lars Brorson: And – sorry. And just finally any regional color on the automotive demand outlook into Q1? I was keen to understand what you see in Europe and China respectively as we get into those 2019?

Christian Johansson: What we see is basically the same. The big question of course is when in Europe what's going to happen now when more and more companies actually get their cars models and if we will see some better numbers going forward in Europe. But otherwise it's the weaknesses as we see it also in Q4 continuing.

Lars Brorson: Thanks.

Operator: Thank you. And next question comes from the line of Gael de Bray. Thank you. Your line is open.

Gael

de Bray: Thanks very much. I got a question about the North American performance, which is obviously pretty strong. And it seems there was some kind of acceleration in demand in the course of 2018 and particularly in heavy industries as well as in the energy segment. So, could you perhaps comment a little bit about that in light of the recent volatility in oil and gas prices? And I mean, also what's your exposure to U.S. wins business specifically? So that's well question number one and two, I guess.

And then question number three is about the FX impact that we got this quarter, which was actually I think smaller than expected and relatively negligible this quarter. And then you expect, of course a much bigger positive impact in Q1. So I'm just trying to understand, what are the moving parts here in terms of currencies really?

Christian Johansson: Well, if you take the energy, I mean, it's – we've been doing well in the industry in win during the end of last year and as you remember this is a little bit like it is you have win parts being deployed and the business growing and we have seen that grow. So relatively, the energy sector has of course been expended in the North America for us. But it's not the biggest part of our business by far.

So, it's relatively modest part of our business. As you know the industrial distribution is actually the most important segment we have in the U.S. So, but, we expect still to continue with a good momentum in the heavy industry and in the wind going into the next quarter.

Alrik Danielson: When it comes the currency question, I mean, if you take the Q4 I would say, you are right, we guided for somewhat higher. I would say one clear negative in that in is Argentina with a peso there, which has impacted negatively.

If you take quarter one I will say, it's the mainly dollar issue, more positive effect from the dollar. I also want to like to add on currency for those -- I mean, if you take the currency effect in the fourth quarter, if you take the 4.8% in the sales impact on currency and then you take the SEK25 million of profit, you clearly see that we have a week leverage on the currency. And as you know with our currency exposure that mainly comes from that we have a negative effects from the strong euro. So, if you imply that and when you look at margins, obviously you will get negative effects margin wise from the currency as such. But that's how our currency footprints look like.

And of course, this is something we are working on. Gael

de Bray: All right. Thank you.

Operator: Thank you. Next question comes from the line of Markus Almerud.

Thank you, your line is open.

Markus Almerud: Yes. Good afternoon. So just if I can ask about the daily sales rate that you have seen in different regions and especially in the industrial segments given what's going on the macro front. So what did you see throughout the quarter in Europe and also North America and then China? And how much -- what growth did you see in China, and what is the mod there on the ground? That's my first question.

Alrik Danielson: I mean you were down in -- you are talking about the differences in days between the quarters and so on. And I don't have that in top of my head. You know Patrick in the quarter, if you have? I am working…

Markus Almerud: No -- sorry if I can just a bit. Not the number of days, but more…

Alrik Danielson: So, that's not any significantly impact. And I mean, when you talk about daily sales rates I mean, that's too narrow.

I mean, I don't have that clear for me to share with you. But I mean, your question was also on China.

Markus Almerud: Yes.

Alrik Danielson: And then, I mean, we -- in general I mean, we have -- we too still see sales a very strong industrial numbers coming here in China in the quarter in the fourth quarter. But as you've heard on automotive side, car side, especially trucks have been weak I would say also the -- related to that you had good sales growth in 2017 related to legislation change.

So trucks have been week in China full year, but cars week and significantly towards the end of the year. And that's what you see there in the automotive and numbers coming through.

Markus Almerud: Okay. What I was – just going back to the first question that, I mean, what I was asked, there was obviously how -- I mean, if you saw demand weaken throughout the quarter, it was fairly stable in Europe in particular. There was…

Christian Johansson: I mean, we don't see any trends during the quarter.

Alrik Danielson: There's always a little bit -- and especially in Europe and the U.S. just before Christmas and New Years, there's always a little bit of a delay. But it's nothing that – it's completely normal, so to speak, these kind of behaviors. So there is no conclusion to draw from the fact that just before Christmas in Europe and the U.S. it usually decrease a little bit.

But that's like – it happens every year.

Markus Almerud: Okay. And then, if I can ask on automotive, so we discussed it at the Capital Markets Day with the automotive management about the WDL impact on automotive volumes. And they were expecting them to kind of bounce back. And are you seeing that? And what are your customers telling you right now as we go into the New Year?

Christian Johansson: Well, the effects right now what we saw in Q4 from the different car manufacturers was no immediate -- I mean, there was a complete in-line sort of with the kind of development that we have seen without any major differences.

So it's still to be seen. But as we have guided, we think this is relatively correct what we see going forward, exactly as we have guided.

Markus Almerud: Okay. Thank you very much.

Operator: Thank you.

And your next question comes from the line of James Moore. Thank you. Your line is open.

James Moore: Yes. Good afternoon, everyone.

Alrik and Christian, thanks for taking my questions. I have three, if I can and I'm happy to go one at a time if you like. My first is on peer price. Thank you very much for the helpful bridge commentary, Christian. And without hard numbers, I may prefer not to.

And I listened to your comment about similar in the fourth quarter to the third quarter, but can you say in this particular pricing cycle which quarter you see the peak is being, is it that we've already had it? Or you still think that the year-on-year number could go up slightly into the first quarter? Or we already had it in the third quarter? If you could help with that, that would be great?

Christian Johansson: I mean – and that's a hard one to give you a response to, sorry, James. I mean, you know also that the references are coming up also. So, no, I will not comment on that. But we see still clearly positive effects from pricing. I can not give you more.

Alrik Danielson: And we will of course continue as we have said before, James. Through all these years I think we have shown that we have differentiated value propositions and that there are good possibilities for us to capture value. And what we have seen now in Europe where our competitors are, also moving, it's also something positive. So there is still a momentum going forward and I think you will see that coming. However – and the carryover from last year, as far as automotive is also positive.

However, of course, depending on what happens with steel prices going forward during next quarters, will of course influence the whole dynamics, but it will be on both sides, if you understand.

James Moore: I do. Thank you. And in terms of your world-class plant-by-plant automation efforts, you always said it would take some time before the savings kick-in and you've done the number of actions in the last few years. I get a sense that 2019 could be a more meaningful savings year from that than say 2018 was versus 2017, is that fair?

Alrik Danielson: Yes.

There are two things happening. When you have a stable demand and where we've been struggling as you noted in 2018 to catch up with demand. And during those times when you are struggling to catch up you can -- it's more difficult to implement the changes in the factories. Now once the demand is more stable, our ability to sort of speed on with our investments and get the -- reap the benefits are of course increasing.

James Moore: I see.

Alrik Danielson: And we're getting better at it James. We are getting better at.

James Moore: Okay, thanks. And lastly, currently to your point about the margin in the quarter and the negative impact, is that particularly skewed to one of the two divisions?

Christian Johansson: The currency impact on the 25 I mean when it comes to -- I mean generally you can say that we have a more balance currency footprint in automotive.

James Moore: Thank you.

Christian Johansson: So you have more -- I would say generally more of the currency effect coming in, that's true.

James Moore: Thanks guys.

Operator: Thank you. And your next question comes from the line of Andreas Koski. Thank you.

Your line is open.

Andreas Koski: Thank you very much. Most of my questions have already been answered. So maybe I can ask about your reporting structure. This quarter you started to mention the restructuring costs again, but you don't want to split it up on the different divisions.

Is this how we should expect you to report going forward? I mean, that you will mention the restructuring number, but that you will not split it into the different divisions?

Alrik Danielson: I mean, you know we have taken items affecting our compatibilities, and so while in our reporting and that should remain like that. But since we have significant things here in the fourth quarter and that's why we also released the best release in early December to help you to guide you in that. So I hope you appreciate that.

Christian Johansson: But no change there in our reporting structure.

Alrik Danielson: And of course, as we make investments in factories and so forth we will try to be as transparent as we have always been.

Andreas Koski: Okay. And why do you not want to give us a split between the divisions more than just the proportion of sales or if it is the proportion of EBIT?

Christian Johansson: I mean, let's not bring out that. I mean don’t -- by the fact that we don't have items affecting comparability as an official reporting line. We don't have any official definitions of -- that we can release in the report like that. So we try to guide you with our comments and I hope you appreciate that and…

Andreas Koski: I do I do.

Christian Johansson: Yes. So -- that's how we will -- when it's meaningful like in this quarter we will help you with that and when we do a bigger footprint events and so on you get these numbers too. But we will not change any reporting related to that. But I understand why you're asking.

Andreas Koski: Okay.

And secondly just also I understand you correctly. You do not expect the price mix component to accelerate in the first quarter. Is that right?

Christian Johansson: We haven't comment on that. We say that, we will have a clear positive price mix component in the bridge in quarter one.

Andreas Koski: Okay.

And that's what you had in Q4 as well I guess?

Alrik Danielson: Yes. It was a clear positive in Q4 as well.

Andreas Koski: Thank you very much.

Operator: Thank you. And your next question comes from the line of Johan Sjöberg.

Thank you. Your line is open.

Johan Sjöberg: Thank you. I had a question on China and also the impact on slowing auto in China. Has that been impacting your general – or customer more into the general economy would I say? Have you seen any impact so far from that?

Alrik Danielson: Automotive is of course a very important part of the Chinese economy.

And when we listen carefully, we look on how the government is now looking at how to try to stimulate the automotive going forward. We hope that they will be successful. But its part of the general economy of course it is.

Johan Sjöberg: And can I ask you Christian also a little bit about the cost in Q1 when you guided for SEK 565 million. Would you care to stay that into raw material and also what is fixed cost roughly?

Christian Johansson: Yeah.

I can share that with you raw material – we talk material. So net effects on all the raw material and price negotiations what have you. We expect that also bridge wise to be unchanged versus fourth quarter. So we are at SEK 180 million negative.

Johan Sjöberg: So SEK 180 million in Q1 and also roughly SEK 180 million in Q4 as well?

Christian Johansson: Yes.

Johan Sjöberg: Yeah. Great. Thanks a lot.

Operator: Thank you. And next question comes from the line of Andre Kukhnin.

Thank you. Your line is open.

Andre Kukhnin: Thanks very much for taking my follow-ups. I just wanted to double check on pricing and given everything you said and the intention to raise could you give us some color on why you not going as early as January with this?

Alrik Danielson: I mean, we cannot comment on –

Christian Johansson: I think we've proven in the last years that we are good at this and this is how you calibrate the different markets and how we have been increasing and it's not only that list increase that you understand as part of the pricing. It's a much, much more complicated but also with many more possibilities to work with price.

I think what you will see is that SKF is diligently recovering the costs inflation in the marketplace and more than that, and that we have a clear intention to continue with the same policy going forward.

Andre Kukhnin: Okay. Okay. So it's kind of tactical rather than anything?

Alrik Danielson: Come and meet me one day and I will explain to you in detail, how our pricing in the different market segments and things that are actually conducted in.

Andre Kukhnin: I definitely will.

Can I just well – we still have more time. Can I just check on a couple of other things? On VSM you said that those down significantly in North America and also down in Asia. Could you give us some color on what's going on there?

Christian Johansson: I mean I think it's definitely so that as -- there is industrial dynamics clearly in this, we believe, in the end of the year and -- but more than that I cannot say.

Andre Kukhnin: So, U.S. is a blip for you in Q4 or you sort of exchanging dynamic?

Christian Johansson: No, I mean there's clearly sort of destocking in the end of the year given the better availability that we see in the marketplace.

But I can't say more than that.

Andre Kukhnin: Got it. And then very final one. On your kind of plan for inventory and cash flow management for 2019, the guidance for Q1 is clear and I presume with that, you will be taking out at the usual set of ratio if you are taking SEK80 million P&L hit, there will be somewhere just over SEK300 million of inventory turned into cash. But how should we think about the rest of the year if we carry on in this say stable-ish volume environment.

Would you intend to take inventory down further? And then maybe more for Christian, how would that work on the bridge or do you expect to work bridge given that you already started in Q2 2018 should that turn to neutral if you're taking out inventory at the same pace as you did in the last nine months of 2018?

Christian Johansson: I pass the bridge discussion, but I think you've heard -- I mean we were reasonably explicit on our ambitions when it comes to working capital to sales ratio going forward at the Capital Market Day. And you also got some flavor on the activities we are working on with integrated planning systems and other activities that -- and also, of course, all we have to do with our world-class investments improve flexibly and so on. That should give results. I expect that to gradually give results. Independently, if you have these other cycles because that's -- we are improving our way -- we're working on that.

So, I cannot give you a number on that. I know, of course, if volumes would drop, inventories would drop more also, but I mean that's just speculation. We are working on performance improvements and that that we should see effective.

Andre Kukhnin: Okay. And sorry, in Q4, the move on inventory sequentially on the balance sheet was SEK160 million and that, I guess, was lifted by FX and then taken down by disposal.

What was the underlying move in Q4?

Christian Johansson: I mean in the Q4 in the absolute terms or in the Q4 year-over-year FX because you had also last year FX there. So--

Andre Kukhnin: Yes, simply sequential--

Christian Johansson: In the level of -- in fixed currency and so on somewhere SEK550 million. So, I would -- I don't remember exactly because SEK250 million this year and SEK300 million last year or vice versa, but that's where we are. So, it was a good improvement there.

Andre Kukhnin: So, SEK550 million is the full year inventory reduction basically like-for-like?

Christian Johansson: Full year, it's a Q4 year-over-year again the SEK110 million that we mentioned.

Andre Kukhnin: Right. And that is SEK550 million? Okay, great. Thank you.

Patrik Stenberg: Thank you so much. We thank you very much for listening into this Q4 conference call for SKF.

We do look forward to meeting with you within the next couple of days. Thank you so much. Bye, bye.