Thank you very much, and good morning, everybody. This SKF conference call for the first quarter results 2010, we lost around one hour, and here from SKF R, Tom Johnstone, President and CEO; Tore Bertilsson, Executive Vice President and CFO; Ingalill Östman, Senior Vice President Group Communication; and myself, Marita Björk, Head of Investor Relations.

After an introduction by Tom, we will be ready to take your questions. Over to you, Tom.

Thank you very much, Marita, and good morning, everybody. This morning we released our full report for the first quarter, which was a strong quarter for the SKF Group and a great start to the year.

In particular the operating profit and operating margin were very good, and as you can see they're now back towards our target level. Our sales volume growth was 5.3% compared to the same quarter last year, with a mixed picture between the divisions, and our manufacturing was up more than double that growth.

That's why you see the operating margin levels you do, particularly in the two manufacturing divisions. The mix of sales between the divisions affected the price mix, making it slightly negative.

I'll come back to that. I think that when we look back over the last six quarters, since the middle of 2008, we can see that all the steps which we have taken to prepare for any downturn, combined with the steps we took during the last year, are paying off.

I think that they show that SKF is more resilient today. Cash flow in the quarter was okay and remains positive.

The first quarter for us always has a lower cash flow, and it's particularly true this year, with the big increase that we saw in our accounts receivables, driven by the strong sales in March. If you remember I said at the start of the year this would be an effect coming from the year-end, especially at the start, due to the higher sales from along March replacing lower sales from December and January.

In our cash flow there is nothing strange here. It's the accounts receivables.

During the quarter we continued investing in our business and opened the ninth solution factory for the group in Houston in Texas, which will have a main focus on energy. Right at the start of this quarter we opened the two new factories in India.

The Haridwar factory makes ball bearings used mainly in the two-wheeler market and in the vehicle service market. The Ahmedabad factory, which is really a sister factory to Dalian because it's got the same technology and similar large-size products, that was opened also, and it will mainly focus on the Indian and of course the Asian markets.

It's important to note that we built both these factories to LEED-type standards, which means we take full care of the environment when we're building the factories, as well as when we operate the factories. We will open the third factory, which we're building just now in Tver in Russia, at the start of the next quarter, beginning of July, and again it is built to the LEED standards.

Let's move on and look in more detail at the performance in the first quarter, then we can look at how we see the second quarter and going ahead. I'd like to start by looking at volume development for the group and comment per division and region.

I forecasted in January that we expected volume to be slightly up, and it was a little bit better than that, with a growth of 5.3%, and the main difference was the strong volume development in the automotive division, which had a growth of over 26%. The service division had good growth and positive growth, but we still saw a decline in our industrial division of more than 12%, driven primarily by a weak aerospace business and a weak renewable energy business, and that we saw particularly in the European businesses.

In the quarterly presentation available on our website, you will see the sales development per region. Let us walk around the world and start with Asia.

There you can see the sales were up by over one third in the Asian region, which is a very, very strong growth. China was strong: car, truck, railway, wind energy, to name a few segments doing well.

India was also very, very strong with two-wheelers, car, truck, vehicle aftermarket, but also the broad industrial businesses showing a strong development. In India, I've got to say, our problem just now is keeping up with the market growth, because it continues to be very strong there.

Southeast Asia in total developed very well, and I can confirm also that the two-wheeler business in Indonesia is going well. In Latin America, we see a strong growth also, with sales up over 20%.

Brazil is developing very, very well for us, and we expect that to continue, both in the automotive side and in the industrial side. We also see very good growth in other main markets in Latin America, such as Argentina, Peru, etc.

We can see, I've got to say, some effect of lower sales in Chile just now as a result of the terrible earthquake that they suffered there, but of course that doesn't affect our overall development in Latin America. Switching up to North America, our car business was very, very strong.

Production of light vehicles was up nearly 70%, as was our sales. We also saw some signs of a positive development in the industrial business, for example for construction equipment, but the aerospace in USA was weak.

In the service division in USA, we continued to be affected by the destocking of our main distributors in the USA, and I've got to say that will continue in the coming quarters. Switching over to Europe, we still saw a decline year on year, in Europe in total, driven by lower sales in our industrial business.

Our main automotive businesses showed very, very strong growth: cars, trucks, vehicle service market were very good. We also saw some growth in our electrical business, but not quite as strong as the other businesses in automotive.

General industry, that's things like pumps, compressors, small industrial gearboxes, etc., and the industrial aftermarket showed a slight growth, but we did not see a strong year-on-year growth in the heavy industry, the heavy metals, paper equipment, etc. It didn't do year on year, but I've got to say starting, especially paper, to develop positively from a trend viewpoint.

Wind energy was down a lot year on year in Europe for us. If you look at that and we say, you must remember that last year in the first quarter, wind energy business was still growing for SKF.

Therefore, we were comparing a quarter where we were into declining sales in the second quarter last year and the rest of last year. We're comparing that same sort of trend with a strong first quarter last year.

We think, if I look at wind energy in Europe, that it's probably bottomed out now, but it's not moving back into growth. Aerospace in Europe was weak and continued weak, although probably it is starting to bottom out there.

We talk Europe in total, but I should maybe comment that we're seeing more positive signs from Central East Europe, with countries like the Czech Republic, Turkey, Hungary, and Russia developing positively. If I look overall for the quarter, we saw very good growth, some strong growth in Asia and Latin America, some stabilisation in North America, but Europe still down year on year, primarily due to the weaker industrial businesses.

Switching to production, as last year we were running production below sales to reduce our inventories, and this year we're running production just slightly above sales, which means, of course, a big, big swing year on year, resulting in our manufacturing having growth this year in the first quarter compared to the first quarter last year of something a little bit more than double our sales growth. A low double-digit growth in our manufacturing compared to last year.

In the quarter, our inventories increased by a little bit less than 200 million Swedish kronor in fixed currencies, but virtually all of this is goods which are on ships just now and on their way to customers. From that viewpoint, we didn't really build inventory.

Production was only a little bit above sales in the quarter. This increase in manufacturing, of course, had a positive effect on our operating profit and our cost absorption.

If you remember, in the first quarter last year, I told you that when you break production as fast as we were doing at that time, it had a big effect on your results, since many of your costs, short term, are fixed. If you remember, you saw that in both manufacturing divisions operating margins last year in the first quarter.

The opposite happened this quarter. We increased production as quickly as we did.

When you increase production as quickly as we did during the quarter, you have a more positive effect on the results. Again, look at the automotive and industrial division margins, you can see that there.

We had some savings, of course, which are built into our result. The restructuring programs we've announced, and which are well under implementation, gave us savings of a little under 200 million SEK in the quarter.

In addition, we still had some 8,000 people in short-time working, even if, when I look at it, they're working less short time now than they were working last year. Even so, we still had 8,000 people on short-time working, which gave us some 150 million SEK in savings from short-time working.

If I combine the two together, the restructuring and short-time working, then you'll see that we got savings a little under 350 million SEK in the quarter due to these two programs. In terms of one-off costs, our first quarter operating profit this year had some 90 million SEK for restructuring, and you must compare that to, remember, last year we had 175 million SEK in the first quarter last year.

Of the 90 million SEK, this is virtually all in the Industrial division and refers to the early retirement and voluntary reduction program we have run here in Gothenburg. We will start to see the savings in the second quarter, but we'll get the full savings in the third quarter, and that will be around 50 million SEK per year.

Now let's switch over to price mix. It was negative in the quarter, first time in over 44 quarters to be negative.

I must say I'm not too concerned because the reason for it was the intradivisional mix. We had the exact opposite picture this year compared to what we saw last year.

This year we had a strong growth year on year in the Automotive division and a big decline in the Industrial division. If I try to do the calculation of the negative intradivisional effect on price mix, it was some 1 to 2 points in the quarter.

The Industrial and Service divisions both had positive price mix in the quarter, but the Automotive division had a slightly negative price mix due to better sales to the OEM markets, the car, the truck producers, than to the aftermarket. Going forward, I expect that price mix will have a similar picture to what we've seen in the last two quarters, and again will depend on how the intradivisional mix plays out.

We should remember that we've increased our list prices for the industrial market place. We've increased them in all regions of the world now, and we'll see a small effect in the second quarter, mainly in the Service division.

Switching to material costs, we are seeing a big increase in surcharges now due to higher scrap and higher scrap surcharges, and of course we all know and can see what's happening in the iron ore market, which has an influence on the scrap price. I should remind you that we predominantly make our, or the steel we use is predominantly made from scrap, not from iron ore.

Of course the scrap price is affected by what happens on the iron ore market as well. If you look at that scrap charges, surcharges, are now up something like 40%, higher than where they were at the start of the year.

We're also seeing increases in actual steel prices in some markets, for some of the Asian markets where we don't have the surcharge system. If you look at it, what you can see is the increasing surcharges and the increasing steel prices will be somewhat of a headwind in the coming quarters.

Turning now to some financial issues, the financial net was minus 197 in the quarter, broadly in line with guidance. Going forward, we expect, however, the normal financial net to be a little lower, around 150 million SEK.

Taxes in the quarter were in line, and I would say going forward you should look at around 30% from the taxes as well. Let me now go over to the outlook for the second quarter of this year.

We expect that the year-on-year volume development will be significantly higher. The second quarter this year will be significantly higher compared to the second quarter last year, but slightly higher sequentially.

From a regional viewpoint, we expect Asia and Latin America to continue to grow sequentially. They'll be significantly up year on year.

In North America, we expect it to develop positively, and we say again driven by the car business and of course a little bit of truck business, but also segments like construction equipment developing well in North America. North America will be slightly higher sequentially, but of course higher year on year.

I would say still Europe in total remains the most uncertain region, but we feel that for SKF Europe has bottomed in the first quarter and will start to develop positively in the second quarter, be a little bit up sequentially, which, of course, will be due to last year going down at that time, higher year on year. From a division and industry viewpoint, we'll continue to see a strong development, I think, in the Automotive division.

We expect car production year on year to be flat. If we look in Europe, we expect it to be roughly flat year on year, but it will be a little bit down compared to the first quarter due to the ending of certain incentives.

In North America, we expect car and light vehicle production to be up significantly year on year. That's clear.

Something around the same level as we saw in the first quarter. Asia and Latin America, I think for car products will also continue to develop well.

If I look at the truck industry, it's developing very positively just now and will continue to grow, as is the vehicle service market, and as I say we expect that to continue. Two-wheels will also be strong, but you know that's mainly the Asian primarily for us, India and Indonesia.

The general industry sectors will be up, as will the industrial aftermarket, which means the service division will be significantly up compared to last year. Industrial division remains more challenging, with general industry like pumps, compressors, gearboxes developing positively.

Now we can also see from a trend viewpoint heavy industries like construction equipment and pulp and paper developing positively. However, as I said right earlier, the wind energy business and the aerospace business will still be weak in the second quarter.

Overall, what does it mean? It means a slight growth for us in terms of volume sequentially and of course significantly up year on year.

From a manufacturing viewpoint, we increased the production level during the first quarter, and in March it was up again on what we produced in January from a daily rate. As we see it just now, we will keep that March daily production rate in the second quarter, which means it will be up on average compared to the first quarter, and of course, because we were taking production down last year, that means significantly up year on year.

Therefore, in summary for the first quarter, strong quarter, and I think the result showed, as I said earlier, the steps we have taken and are continuing to take are making SKF more resilient. We continue to invest in business in the quarter and in what we see as the faster-growing segments and areas and in geographies, with the opening of the solution factory in USA and the two new factories in India.

From a volume development viewpoint, we moved back into growth after five quarters of declining volume. It seems that the worst is now behind us.

Only West Europe has had to move into growth, and that we expect to see in the second quarter. In summary for the second quarter then, volume is expected to be slightly higher sequentially, which means that it will be significantly higher than last year.

Manufacturing will remain around the March level, significantly up on last year. Price mix will be a challenge in the quarter, and the exact absolute figure will be very dependent on the intra-divisional mix.

Currency and raw materials will be headwinds in the quarter, but we'll continue, as a group, to focus on strengthening SKF, and I can tell you we already plan to launch a number of new products during the quarter. I think I should stop there now, and I'll put it back to you, Marita, and over to questions.

Thank you very much.

Thank you, Tom. Now it's time for the Q&A session.

Please go ahead with the first question. Yes,

Hi, good morning, it's Guillermo Peigneux from Morgan Stanley. Just a question regarding your manufacturing activity levels for Q2.

Are you going to be also producing more than you're going to be selling? You're going to be, in a way, having the same sort of cost absorption positive influence in your results second quarter?

Then a second question regarding your pricing strategies for the second quarter 2010. Obviously you put price increases up in the service division, 4% in Europe, or 3.7% in Europe, and 4% in the U.S.

Is that also creating a positive price effect for the other two divisions, given the fact that the intergroup sales go to service and then they sell out? Are we going to see also positive impact in pricing in industrial and automotive?

Thank you.

Okay. If I take the manufacturing, it will be a little bit more than sales, but not much more than sales in the second quarter as we see it just now.

As I said in the first quarter, we increased inventories by a little bit less than 200 million SEK, but the bulk of that is for customers. We'll run a similar sort of gap in the second quarter.

Exactly what it means will depend on how the sales develop, but it will be a little bit more to put some inventories in. Therefore we will get some benefit from the cost absorption.

Again, I would only say, as I say, when you change the manufacturing very quickly, you get a short-time, a little bit better benefit. As we're now running at that new level, then maybe the benefit will be a little bit less, but not dramatically there.

In terms of the pricing for the service division out to the market, yeah, you will see as that comes in. Remember it comes in in the second quarter, but you will see a little bit for the effect, of course, back in the manufacturing divisions as well from that.

Thank you very much.

Thank you.

Thank you, Guillermo. Next question, please.

Good morning, Tom. Good morning, Marita.

Just a couple of very quick questions. The first one, Tom, is just on the aero business, which the aerospace cycle has been one of the sort of positive surprises over the last few months, and we're now seeing some of the engine suppliers particularly talking about aftermarket volumes recovering.

Just wondering if there's anything additional in that business that's beyond the cyclical that's hitting you in terms of, I don't know, programs that you're on or you're not on that's meaning that that's weaker than the underlying industry? The other question was just as thinking as we go through the next few quarters in terms of you bringing people back from the short-term working arrangements, how we should think about that in terms of your cost line.

Thank you.

If I say in the aerospace, I don't think there is anything special. I think we've just been hit by the normal trend in that market.

I think if you actually listen to the aircraft producers, they're all talking about taking steps to increase production, but into next year. I think it's probably too little to see in the segment outlook in our presentation.

We've started to take the decline in the aero down a little bit there into the second quarter. I think we're reaching the lower level there in the aerospace business, and probably as we go into the third quarter, we'll see it reach there, and I expect it then to start to slowly come back again.

I don't think there's anything special within that. Within the short-term working, I think, as I said earlier, we said about 150 million Swedish kronor due to that in the first quarter, and you'll see that that's steadily coming down quarter by quarter compared to what we were seeing during last year, and that's because we're bringing the people back in.

I don't think there'll be any major negative effects in bringing the people back. I think what you will see, though, is of course the uptick isn't quite as good because you lose the short-term working saving.

The uptick isn't quite as good, but I don't think it'll be anything significant.

Just maybe a bit of a follow-up to that, just in terms of labor relations at the moment. Obviously, we've gone from the worst of conditions to a recovery, particularly in the emerging markets, which is quite strong.

Just wondering if you're starting to see any of your unions, which were very flexible during the downturn, starting to talk about maybe having some of that flexibility repaid, any upwards pressure on wages at all?

There is, of course, a different picture wherever you are in the world. I think in the Asian marketplace, in areas India, China, these areas which have been stronger growing, then there is a strong inflationary pressure in these countries anyway.

We're seeing that because the demand situation is quite good. In our European and American operations, I think the flexibility has worked both ways.

We've worked a lot to protect and try to avoid reducing people unnecessarily during the period there. I think that flexibility works both ways.

I think we have had a very, very good cooperation from our people and from our unions during the period, which has helped us manage the downturn. That's not just the systems which the governments have in place.

I'd say also bilateral agreements we've made, such as here in Sweden. That's worked very well, and I expect that to continue going forward.

I don't expect any major effects in that, at least in the short term.

Thanks very much.

Welcome.

Thank you, Sam. Next question, please.

Yes, good morning, Patrick Sjöblom from Cheuvreux. Two questions if I may.

You had about 600 million net working capital outflow. Could you help us to just split that up on inventories, receivables, and payables, just to tie into the question on effects from better cost absorption, et cetera, in the quarter?

Then I come back to the other question afterwards.

I can say that I don't have all the figures in front of me just now, but I can say that we had a couple of... You have some currency effects in that as well.

We must take care. I do know our inventories, as I said, went up a little bit less than 200.

Our accounts receivable went up something like 1.2 billion, approximately there, and our payables went down, if I remember correct. Our payables went up if I remember correctly around 400 or so million, and then you got currency effects.

I would say in accounts receivable, Patrick, one thing, although that looks a big increase, the number of days outstanding that we had from our customers stays virtually the same at the end of March compared to the end of December there. Therefore what you see is the basic change that we've seen, as I mentioned in my speech, is the fact that you have around December and January lower sales due to the holidays, due to Christmas period.

March this year was the first year in, or the first month in four years to have 23 days in it. It was a long month, which meant we had longer sales in the month there.

The effect is just purely a movement due to the higher sales in the month of March there.

All right, thank you very much. Then just more of a housekeeping question.

Could you just update us on what share of your production is based in Europe and how much of that output goes by air freight?

I can tell you roughly our movement of air freight is a little bit less than 5% of our shipments, is roughly that, using air freight. That's not just in Europe, that's in total using that.

It is a combination of shipments of final goods to customers, but also a combination to that is some components that we have in some of our European factories that we ship to other factories around the world there. That part is affected just now due to the stopping freight traffic there.

Of course we're taking alternative routes to use alternative methods for transportation, there is no major effect yet, but let's see how that develops going forward.

Thank you very much.

Welcome.

Thank you, Patrick. The next question, please.

Thanks very much, Colin Gibson from HSBC. Two questions, please.

Tom, you alluded to the new iron ore pricing regime. Could I perhaps invite you to slightly amplify on what you think the effects of iron ore pricing, steel pricing may be on your business in the second half of the year?

Secondly, when it comes to the daily volume trends in automotive, you seem pretty optimistic about them for the second quarter of the year. How do you feel at this point about the risk that they weaken again in the second half, or do you think it's increasingly likely that they'll stay strong in the second half of the year?

Finally, not a question, well, just a clarification. I think there are some typos in the version of the press release that you emailed out to analysts at 7 a.m.

The outlook statement that you emailed out at 7 a.m. is not the same as the outlook statement that is in this PowerPoint or that is currently on your website.

Just be aware of that. Thanks.

We checked that. Thank you so much, Colin.

I'll get that checked. If I go back to iron ore, the iron ore situation, I think what's happening now with the move to quarterly contracts, etc., the iron ore situation is that there is, it will bring some more volatility.

You've seen that just now on the pricing. You can see that if you look at, for example, the scrap index, which is happening just now, you can see that, and also what's happening with scrap prices, they've gone up quite a bit.

I think in the short term it will put some more volatility into the pricing of steel. Now, if you remember, a lot of the steel that we buy is related to, it has a base price, but it also has surcharges related to that.

We're already seeing the surcharges coming in from the change on the normal index of scrap there. It will mean that we're seeing higher prices, and I did mention that we see the scrap surcharge is something like 40% higher now than they were at the start of the year.

It is moving already. How will that go forward?

It will depend basically how the demand situation develops. I do think that this moving to quarterly contracts, etc., will put much more volatility into the pricing in the marketplace.

If I look at automotive, what can I say? I would say if I take car, let's take automotive being the car and light vehicle production, I think it's clear that when we look at it just now, we see the second quarter, if I look around the world, we still see very good growth in the second quarter in the Asian markets, Korea, etc., etc., both year on year but also sequentially.

I would say in North America, if I take the light vehicle production in North America, it will be up, I don't know, 60-65% compared to second quarter last year, but relatively flat second quarter versus first quarter. If I look at the light vehicle production in Europe, I would say it will be relatively flat year on year in the second quarter.

It may be a little bit down in the second quarter compared to the first quarter. Going forward, you raise a very good question.

I think that you could see, especially in Europe, a negative effect in the second half of this year due to the ending of the incentive programs there. Let's see how we go during the second quarter.

Thanks a lot.

You're welcome, Colin.

Thank you, Colin. Next question, please.

Here's

Hello, everyone. Two questions.

One on production compared to sales. At the group level, you've told us that production was slightly above sales.

Could you tell us how divisional production compared to sales? Could you please give us an estimate of the effect it had on each division's EBIT?

That's my first question. The second question is on pricing.

Could you tell us how competitors reacted to the price increases you have implemented so far and how price-elastic demand has been, how successful you believe the price increases have been so far? Thank you.

Sure. As production, as you rightly say, was a little bit higher than sales for the group, and I would say the same for both the divisions there in total.

We saw, of that 200 million, increases in both the divisions. Maybe a little bit more in the industrial marketplace because a lot of that is for goods going overseas.

As I mentioned there, of the little bit less than 200 million set inventory build, a lot of that is goods in transit going to customers, and that's mainly into the service division area. That therefore means industrial is a little bit better there, a little bit more above sales than automotive was.

Of course that has a positive effect in each of the divisions' margins, but I don't go into the details of how that works. If I look at the pricing, we have seen some moves of pricing from some of the competitors, but not from all of them.

In all areas of the world, we've seen some steps. We now have an announcement in to all areas of the world of our pricing, and it's right at the start.

We're right at this period now of these prices being implemented there. It is still a tough negotiation underway with our customers.

I think what you now see is that with the iron ore prices going up, with the raw material prices, with scrap, etc. going up, and steel prices going up, I think the steps that we took to move prices are fully justified based on what we are seeing coming through on raw material, etc.

there. We will continue to work to get them implemented there, but we've not seen really any effect of it yet, and I don't think we'll see the full effect in the second quarter.

We'll start to see the effect during the second quarter, primarily in the service division.

All right, thank you. Just one quick follow-up maybe.

Could you tell us when you expect to return to a gradual slight destocking process to return to the normalized inventory to sales ratio you wish to achieve?

We're at 21% just now in inventory to sales, and of course a longer-term target is to get to 18%, but that will take some time to get to. Right now at the moment our high focus is on improving our service level to the market, especially these emerging markets.

It will take us a little bit of time to get there. I don't want to give you a date on that yet.

All right, thank you.

You're welcome. Thank you.

Thank you very much. Next question, please.

Good morning, Tom. Good morning, Marita.

Two questions, please. Your gross margins took a very significant step up in Q1 over Q4, and, well, the first question is if this is mainly due to the high production rates, and the follow-up then would be, if that comes from the month of March, what will the impact be in Q2 when you also have three months of higher production rates, or two months, I should say?

Yeah. It was driven primarily by the production, but of course the cost reduction steps that we’ve put in place.

It was driven by both of these steps there. Of course March was a longer month for us there as well with it.

I don’t expect to see a dramatic change as we look at the second quarter, because remember on the other side we have the higher raw material costs starting to come into our operations.

Fair. Then just a quick one, in the cash flow statement, there’s the other line of 668 million.

Can you please tell us what that is?

I’d like Tore take that one, if I could, then I can drink a little glass of water. Tore.

This is Tore Bertilsson. That's.

Under that line you have things like payouts under post employment benefits, you have financial costs being paid out, and you also have quite some balances between the lines on intra-group relations where you have currency changes, et cetera. It’s nothing strange in that.

That’s the sort of line which varies from quarter to quarter.

Fantastic. Thank you very much.

Thank you, Fredric. Next question, please.

Morning, Tom. Morning, Marita.

It’s Ben from Merrill Lynch. Two questions, please.

Firstly, you talked a lot about last year about some of the exceptional cost cuts that you did: no air travel, lower marketing, and stuff like that. I guess short-term air travel costs probably go lower, but when you look into the second half of the year and 2011, how much cost do you need to put back into the business to start supporting the growth that we’re going to get?

That’s the first one. Then secondly, just coming back to Q2 guidance, I guess you gave us a steer for Q1 of low single-digit.

Can you give us a little bit more color on the kind of year-on-year growth rate that you think we might get? Difficult to model, given how easy comparatives are.

Thank you.

Sure. If you take that on S&A, as you rightly point out, what you see in S&A, the sales and administration expenses, travel, advertising, all the things that we reduced back during last year.

We are now pushing the investments in the business. I’d say the best way to look at that is to do a percent-to-sales type calculation.

We’re around 14% now, and look at how that goes, and maybe there’ll be a little bit of productivity in that. I would say look at that sort of figure there.

It is the better way to do it rather than give you a monetary figure, because part of that is also related to shipment costs, this cost to ship to our people there. I think that’s very important there.

And

the second question was?

Just in terms of the year-on-year volume growth rate. Yeah,

I couldn’t read my writing. Sorry.

With it there. Yeah.

it’s clear that I expect the volume growth in the second quarter to be year-on-year to be quite a bit better than what we saw in the first quarter there. I’d say it’s up at the upper end of the single digits, to be quite honest.

Thanks, Tom.

Next question, please. Yes,

Yes, thank you. Good morning.

Yes, to help us to understand the dynamics of the wind and aero demand situation last year, you mentioned that wind was still strong in the first quarter. Could you help us with the level, what happens with the demand going into the second quarter and onwards last year?

That’s the first question. My second question would be if you net the savings from restructuring and short-term working, you mentioned just shy of 350 in the first quarter.

How is that net looking in the coming quarters on those two savings? Thank you.

I would say I’ll take that one first. That’s the easy one.

It will be a little bit less than that because of short-time working people coming back there. I would say the savings for the restructuring, which was a little bit under 200, that should be fine, something similar in the second quarter.

Probably, though, the 150 that we got from short-time working will be a little bit less in the second quarter as we’re bringing people back from a production viewpoint there. If you go on wind, then what we see in wind now going forward is we see it stabilizing going forward.

In the first quarter we still had growth, then it dropped off a lot in the second quarter. If I remember correctly, we had high single-digit growth in wind in the first quarter, and the change in the second quarter brought it into a situation which was more or less zero for the half year.

We lost all the growth of the first quarter in the second quarter, from my memory, in that sort of area. Now what we see is especially in Europe and North America, it has stabilized, but we do not see growth, and we don’t even see that in our order book, any growth coming forward.

I’ve got to comment, however, that we do see good growth in wind energy in markets India. We do see good growth in wind energy in total in markets China.

It’s Europe and North America that we’re not seeing growth. I think the level will be relatively the same second quarter compared to the first quarter for wind.

If I listen to what I hear from wind energy producers or equipment producers, then we should see some improvement in the second half of the year, but we don’t see that yet in our order book.

Perfect. Yes, a short one.

On the FX, 200 million negative on EBIT, should I divide that by 20% on auto and service each and the balance in industrial, or what’s the right split?

I think it’s roughly in that area.

Okay. Perfect.

Finally, if you can, is it possible to give us some understanding of the capacity utilization in March compared to the first part of the quarter? I know this is tricky; we have discussed this before, but just to get the feel of the dynamics when you’re changing the production.

It’s clear that in some of the areas, especially the smaller stuff and some of the automotive stuff, I would say the capacity utilization increased, of course, a bit in the quarter. I don’t have the exact figure how March was, though, compared to January, February, but it was up a bit because the production was up a few percent on daily sales rate in March compared to January.

I don’t have the utilization in the top of my head.

Very clear. Thank you so much.

Welcome.

Thank you, Peder. Next question, please.

Good morning, Tom. Good morning, Tore.

Good morning, Marita. Three quick questions, please.

The first one is on the margins going forward. You highlighted a little bit of headwind on the raw materials front, perhaps a little bit on the mix, and then the short-term workweeks, which could come out at some stage, 150 million.

Just two quick questions on this front. Could we see more of an increase in list prices going forward?

You highlighted about 4% in two regions. Secondly, how do you see those margins developing going forward?

Are we going to see a bit of a squeeze going forward because we had a bit of a benefit in the first quarter?

If I take the list prices, just to clarify, it’s not just the two regions. We’ve moved list prices now in all regions of the world, similar amounts, a little bit change from a percentage viewpoint because there’s some currency effects in some of them.

Just to be clear, we’ve moved list prices in all areas of the world. I would say you’re right.

If you look at it, we have a little bit of a headwind, as you rightly point out, from raw material and mix, but we remember also we have a little bit benefit from the sales volume being slightly up sequentially and from the production volume there as well. I think we will still see a good development from SKF in the second quarter there.

I don't see any concerns from that.

Randy, the second question is you highlighted in the automotive market that you expect the sequential development to be higher than what you saw previously, although you say that cars is going to be flat to down perhaps a little bit in Europe. I'm wondering how strong trucks and the vehicle aftermarket sales will be.

Trucks, vehicle aftermarket, two-wheelers, you mustn't forget that as well. All these areas are developing very positively, and if you look at the segment guidance, you see we've actually moved trucks and electrical two-wheelers down, and we've increased the sequential development in these areas.

These will continue to develop positively. Remember also, whilst we're seeing cars sequentially be relatively flat, it's still a growth year-on-year because of where the production and things were last year.

Sure. The last question is quickly you mentioned construction equipment in North America improving from the lows.

Could you give any sort of quantification here?

Significantly. It's gone up significantly there.

I don't want to give the percentage, but really it's gone up significantly. We can see that, and that was something we talked about, if you remember, at the full year report, Nico.

We said that we would see things developing that way. We've seen that.

Fantastic. Thank you.

Welcome.

Thank you, Nico. Next question, please.

Good morning. Could I ask two questions moving away from details and on a somewhat more broad level?

When it comes to potential acquisitions, have you noticed anything in terms of the availability of targets? Have you done anything to your level of ambition and eagerness given how well you've come out of the crisis in the past 18 months or so?

On the same topic of that crisis, second question, Tom, you obviously had a bit of controversy in introducing the 12% EBIT margin target some years ago. Now given how well SKF has come through the more severe stage of the global economic crisis and the sort of state of health you find the company in today, are you thinking again about that margin target if you look forward from here in terms of perhaps thinking about revising it upward rather than downward, if at all?

Let's take two very good questions. Let's take the acquisition side.

It's clear that, as you said, we've been more resilient through this downturn in our business and recovery that we've seen there, and we have a strong financial position. Therefore, from that side we are working on acquisitions.

I say that every quarter, and I've got to say that nothing's come through yet. We are looking to see what we can do, and we are actively working to see what we can do here centrally on that.

Is there things right hot on the table right at this moment? No, but there is a lot more activity to do things that would be important, which would be, and I would say they would be somewhat larger than what we've done in the past, clearly, because I think that they would be the ones that would make the step change that we would need to make in our business.

Regarding the EBIT target, let's stabilize first and show that we're running around the 12% level. Remember we never said that's a ceiling for us there.

As we did in the past, we've gone above that level, and that's something that we want to stabilize around there, and then let's decide what we do going forward.

Just to follow up, Tom, on the EBIT margin target, if you were to describe your level of conviction on how well you can achieve that going forward, would it be fair to say that you would have a more upward tilt in terms of your thinking today rather than a downward tilt?

I think it's clear that through Q2, operationally at this stage, around the target level already, when we're still at the early part of the recovery in the business shows that we've bounced back in a good way and shows that the benefits that we've seen from the cost reduction, we expect to see coming into our margins going forward, which therefore means the margins should be better.

Thanks very much.

Thank you, Johan. The next question, please.

Yes, hi. Good morning, everybody.

Hello. Yes, hi.

Good morning. Yes, I'm actually calling about the hot topic of the day, except the SKF report, of course, which is the volcanic ash cloud.

A couple of manufacturers out there have indicated that they have been affected by this. For example, transportation of spare parts to their plants have been delayed.

I wonder if SKF has been affected in any way here.

It's clear. The first effect is we've got a lot of people around the places which are in different areas.

About less than 400 people we have around there. Secondly, from an SKF viewpoint, looking at it, as I mentioned earlier, we have less than 5% of the goods that we ship to our customers and also things coming in that are during freight transport.

Of course there is some effect to us because these shipments are not moving at the moment. It's not significant at this moment in time.

We must see how that develops going forward. It's a day-by-day case.

We are working on alternative routes to move parts into operations, etc. To minimize an impact.

I can't say we've had any real impact at this moment in time. Of course, I think the issue becomes not how it is today.

If this continues over a longer period of time, and by that I'm talking a couple of weeks, two, three, four weeks, then of course that will start to affect business. I think also what it will start to affect is the cost of transportation.

The cost of doing things will be affected. We can already see that on companies who are looking at air freight rates.

The costs are higher. Secondly, even road transport, rail transport will go up there.

I'd say, in short, in the short term, we've not seen any specific effect that's significant in our operations. If this continues for some time, then of course we will see some effect due to that small percentage that we use air freight for.

That's great. Thank you so much, Tom.

Welcome.

Thank you. Next question, please.

Yes, thank you, and good morning. Just a couple of follow-ups, I guess.

Normally, first regarding inventories, normally you have sort of a seasonal build-up ahead of the holiday season, and just wondering if there is any reason to expect this will be more pronounced this year, maybe because customers have cut down on inventories to a larger extent than previous holiday seasons.

I don't think much will be more pronounced this year. I think there will be, as you say, some increase.

We saw some in the first quarter. As I said earlier, a lot of that's on weight to customers and goods in transit.

I think we'll see some in the second quarter as well. It will not be more pronounced this year compared to a normal year, not compared to last year but a more normal year.

All right. Then maybe a little bit about your profitability.

I guess it's improving, and is it a problem when negotiating prices with the sort of automotive manufacturers having a larger problem getting their earnings in line?

Of course, there are two different ends to improving profitability. One is the right thing for us to do focusing on cost, focusing on what we are doing in our operations to improve our profitability so we give a better return to our shareholders.

On the other side, it doesn't make any easier our discussions with customers there. As you rightly say, it makes it a tough challenge in the discussions with customers.

We must look at each business and look at the value we deliver to our customers. If we can justify the value we deliver to our customers, we should be paid for that value.

If we can't justify it, then customers won't pay and they won't buy from us. The profitability is a result of many actions that we are doing to on one side manage our costs and on the second side prove the value we deliver to our customers.

That's what we must continue to focus on, and that's what our salespeople focus on in the discussion with the customers. Of course it makes it a little bit more challenging.

Thanks.

Welcome, Mats.

Thank you, Mats. Next question, please.

Hi, yes, it's Colin Gibson again. Just a quick follow-up, and again a slightly longer-term question, the couple that Johan asked.

This one on pricing. I went back and looked, and I think I added the numbers up correctly.

Since the quarter that Sune Carlsson took over as chief executive, which is, we'll call it ten years, it's slightly more, you've increased pricing about 30%, or price mix, I should say, about 30%. Obviously I can't see exactly how much of that in retrospect is price and how much of that is mix.

What do you think, looking forward, perhaps not over the next ten years, which might be a bit of a challenge, but anyway, looking forward, do you think you will be able to increase price mix at the same pace that you have done over the past decade, or do you think it's inevitable that that pace will have to slow a little?

I think if you look at it actually, there were two phases in that development. I think up until about three years ago, the phase was more the 1%, 2% per year as an average.

Then up three, four years ago, we then stepped that up, and I think part of that was driven by raw material, input and the raw material costs. You'll see actually there's two steps, I think, Colin, when you look at it there, if you do the split.

I did it before, but I don't know the figures in my head, but if you do the split, I think it's up to three, four years ago, it was 1%, 2% average, and then that average stepped up quite a bit there. I think it's more likely to be the more normalized figure than what we've seen in the last three or four years.

Unless, however, raw material costs explode even further going forward, and that will have a different effect on the price mix there.

If we try to abstract away for the sake of argument from raw material pass-through, you think the outlook for price mix today is as good as it was two years ago, or five years ago, or ten years ago?

I think it's as good as it was five to ten years ago, because part of it is pricing, but a lot of it is mix, and a lot of it is value we deliver to our customers. That is exiting loss-making businesses, but also bringing in new products which have got more value and better margins.

I would say that we have equally as good a chance improving that going forward as we had in the past.

That's great. Thanks a lot.

Hey, Colin, one other point. You raised in the outlook.

I think the outlook is right in both. That's what I've been told.

Fine. I'll take it up with that.

Thank you.

Thanks.

Thank you, Colin. Next question, please.

Hi, morning. I was wondering actually if you could say a little bit more about automotive.

This is the division you've been working on for a long, long time, and you seem to have brought through some excellent margins in this quarter as demand has surged. Where do you think you can take this business now in terms of margin going forwards?

The second question really is just that you state that everything's going brilliantly in China, India, and South America. What's going to go wrong there?

Okay. Let me take automotive.

I think, frankly, the team have done a great job in bringing the automotive up to where it is. 7.2% margin is a record for that division, and we must remember that they are still not back to the volume levels they had a couple of years ago.

I think they've done a great job in doing that. I think what we've got to do initially is to make sure we can get that as a sustainable business type level, and then let's see what we do going forward.

It's the same sort of things as we said from the margin of the group. Let's see how we look at that going forward.

If I go in the other markets, I don't think I used the brilliant word. I think I said we're developing very well, Roddy, but having said that, I think if you look at it clearly in China, one, we see positive development in other businesses.

Of course, what happens with liquidity in the market and how the government manages that could be an influence on the development down there, but we do have a positive outlook there. In India, I think the big issue, we see very strong development in India, but you can see inflation going up in India, which I think is one factor, and how the government manages that can influence that.

Of course, for both these markets as well, there's not just how they develop internally, but how they develop on the export market and what happens to the world economy going forward. I think I am still optimistic and positive that development markets like China and India, and of course then related to that Latin America due to the commodities and the use or the need for the commodities, et cetera, should still be quite positive.

Will it be the same as we've seen in the last 12 months? Let's see how it develops going forward, but I still have a positive outlook on them, even if there are some issues on liquidity, inflation, et cetera, coming through.

Can I ask, you've just opened a couple of factories and profitability is improving again. Do you need to actually turn on the capital expenditure once more?

It's a good question as well. I think for this quarter we still, these factories were planned actually even right in the middle of the downturn.

I think that's an important step is that even though we saw the market going down dramatically, we were still building these markets for the faster-growing regions and businesses that we have, and the Haridwar factory in particular, we're ramping up as fast as we can to meet that market demand down there. Ahmedabad will take a normal ramp-up.

I would say going forward, I don't see a need for a significant number of new greenfield sites for SKF. There'll always be one or two that we need to do.

I do see the need for us to increase production and operations. Does that mean that we will go dramatically up in plant and property?

Not this year. We'll stay around the 1.5 billion this year and probably into next year.

Going forward, if that strong development continues, then of course we need to support that with local production. Some of that will come through the movement of production from west to east, which means not significant capital moving into existing facilities.

At this stage, we don't see a need to take up plant and property beyond, as I say, 1.5 billion this year, and we'll still keep it fairly tight next year as well as we see it.

Thank you very much indeed.

Roddy.

Thank you, Roddy. Now it's 10 o'clock, but we will continue to take questions.

Next question, please.

Yes, it's a very short question about China. A couple of months ago you mentioned that growth in China was pre-crisis levels, around 30% year on year.

Is it that sort of level we talk about now as well?

Yes. Yes, Anders.

Still very, very strong. Absolutely.

Yes.

Okay. Thank you.

Welcome.

Anders? Next question, please.

Hi. Good morning again.

Just regarding China, precisely, I think wind and rail is very important for you in that market. We hear that wind is coming under significant pressure because of oversupply, and I was wondering whether that actually impacts your outlook there in the future, and also if you could give us an indication of how much, let's say, how much wind in China relative to total sales in China maybe.

Then on rail, obviously for the time being it's still very positive, but what do you see there in terms of outlook for the next few quarters? Thank you.

If I take rail first, Guillermo. It's clear that I think rail in China will develop positively in the next quarters.

Last year at the start of the year it was very much passenger rail driven for us because the freight business was not so strong. The freight business started to improve in the second part of the year, and I think going forward the freight business will improve.

Freight rail, I think, will continue to develop positively. I do hear your comments and read the same regarding the wind energy business down there.

We see a positive development there. If I combine everything that goes into the wind energy, we still see a positive development there.

Let's see how that goes going forward and what happens vis-à-vis the usage and installation of that. We expect it still to develop positively, maybe not at the growth that we saw before, though.

And

last question from my side: have you seen Chinese competitors moving up the technology ladder, or do you still see that whenever technology gets intensive, they're not there competing with you?

It's clear that our competitors, local competitors there, are improving their products as well, but so are we, and we're continuing to move the base. Things like, for example, the new Nautilus bearing that we use a lot for wind energy is one example.

It's setting a new benchmark, and we're bringing that and manufacturing that now in our operation in Dalian as well. These things like that, I think, are important for us to keep moving the playing field.

We must remember that we are unique in the fact that we have these five technology platforms, which our competitors in China don't have. When we talk to areas like wind, or the car industry, or other industries, we have more than just bearings to talk about.

We talk about a lot more other products as well and other solutions and other ways of integrating there, which means that in areas like wind, in areas like steel, we're able to move up the value chain in a different way than our competitors can do.

Welcome, Guillermo.

Thank you, Guillermo. Next question, please.

Okay. Could you give the instructions once more if there is a question?

Okay.

Hi there. Just one more please, Tom.

Just on restructuring, firstly, could you just give a bit of color on what you expect in terms of charges for the full year? You've taken a little bit in the first quarter.

Then I guess just more the kind of run rate of restructuring for the next couple of years. You did a lot last year, maybe more than you planned back in '07 and '08.

As you look at your footprint, is there a lot to do? Are you going to keep restructuring, or do you think maybe ease off on that a little bit going forward?

I think last year was an extraordinary year in terms of restructuring. I think we will move back to the more normalized level of restructuring for the group, which is more the few hundred million SEK per year, and this year will be no different.

We'll go back to a more normal way and then stepwise move our footprint. We have work to do in our footprint, but that'll be a stepwise process that we see going forward.

Great. Thanks, Tom.

Welcome, Ben.

Thank you, Ben. Are there any more questions?

Thank you very much. Thank you all for listening in to this conference, and goodbye.

Thank you. Goodbye.