AB SKF (publ)

Welcome to our Q2 2025 earnings call. We achieved strong underlying margins through effective commercial execution and cost control, navigating well in markets with mixed demand.

In the quarter, we continued to lay a strong foundation for the future. And we will, in this call, update you on the ongoing rightsizing activities.

I'm Sophie Arnius, heading up Investor Relations. With me, I have our CEO, Rickard Gustafson; and our CFO, Susanne Larsson.

After their presentations, we will open up for questions. [Operator Instructions] So with that, happy to hand over to you, Rickard.

Thank you very much, Sophie, and good morning, everyone, and warm welcome to this earnings call. I am pleased to report another quarter of modern resilience given the market circumstances.

As you can see on the right-hand side of this chart, our organic sales was actually rather flattish versus the same quarter last year. And this time, the growth in our industrial business almost offset the decline in automotive.

We have a strong operating margin, adjusted operating margin, despite rather tough market conditions and a significant FX headwind in the quarter. Our automotive separation is continuing and building momentum.

And at the same time, we are creating a more competitive industrial business. And in this earnings call, I like to give some flavor on what we do when it comes to building this competitiveness in our industrial business.

I will touch on how we drive operational efficiency through the rightsizing program that we announced in Q1 this year. And I will also touch on how we work with commercial excellence, and here I'm going to use our aerospace business as an example on how we drive progress in that particular field as well.

But let's look into our overall numbers for the quarter. Net sales ended at just north of SEK 23 billion, representing an organic decline of 0.2%.

In absolute terms, the decline is significantly worse, almost 10%, but clearly driven by FX. But turning to the operating margin, there's actually a slight improvement here versus the same quarter last year to 13.3% despite rather tough market conditions, as I said, and FX headwinds.

When it comes to tariffs, we have largely been able to compensate for tariffs in the quarter, so they don't have a significant impact on the margin in this quarter. And as we look into the future and given what we know right now, we anticipate that, that will be the case also in the third quarter that we largely will be able to offset the tariffs and cost increase, where the net impact will be visible in our automotive business.

And the main driver for this strong and resilient margin performance is actually reflected by the diligent work that we continue to drive in the areas that we talked about in the last few quarters. I'm talking about pricing, portfolio management, cost efficiency and good cost control.

And on top of that, we also benefit from the automation -- investment in automation and manufacturing footprint that we've done in the last few years that is also helping to upheld the operating margin in the quarter. Net cash flow is strong, SEK 2.8 billion, up from SEK 2.2 billion in the same quarter last year, and you will get more color on this when you hear Susanne shortly.

Turning to our regions. I'm pleased to say that in this quarter, our industrial business reports organic growth across all our regions, while our automotive business is still facing more difficult market situation with low demand in significant parts of our geographical coverage.

Some green shoots there as well, but in general, a rather tough market condition for automotive in general. But if we take the regions and starting with EMEA, you see an organic decline of just shy of 3%.

We have growth in our industrial business, as I mentioned also here, but primarily driven by lubrication, aerospace and magnetics. There is a continued weak demand in automotive and rather tough market conditions in European automotive market and not at least within light vehicles.

Turning to Americas, also an organic sales decline of just roughly 1%. Here we see good growth in our industrial business, partly driven by price/mix as a consequence of our tariff compensation activities, but we also see strong growth in some industrial verticals, such as aerospace and also off-highway.

Automotive in general is rather weak in Americas in the quarter as a market and also in terms of demand, and both light vehicles and commercial vehicles report rather weak numbers in the quarter. Turning to China and Northeast Asia.

Positive there, an organic growth of 4.3%. We do see an improved industrial demand in the region.

However, though, some of it is also timing related due to some policy-driven prebuying effects within our wind business in China. But in general, distribution is holding up well and also generally energy is growing nicely in the region.

In terms of automotive, it's a rather solid development in automotive with a clearly strong growth in EVs, electrical vehicles, in that particular region. And finally, India and Southeast Asia, good growth, 5% organic growth in the quarter driven by countries or markets such as India, Australia and Indonesia.

Turning to some of the industrial verticals that are really growing in the region, it's distribution, rail and agriculture would be examples of that. And it's a rather solid automotive performance also in that particular region.

So if we then turn and look into our segments and starting with our industrial business. This quarter representing 72% of sales and 89% of the adjusted operating profit.

After a quite a number of quarters with negative organic growth, I'm really pleased to report a positive organic growth of 2.4% in the quarter, as I mentioned, driven by Asia, but partly timing driven, I mentioned Europe and the industries and businesses there that are growing, aerospace, lubrication and magnetics. While general bearings in Europe is more kind of wait and see, not really taking off.

The uncertainties related to tariffs is still putting this wet blanket over the market in Europe. And both on the OEM side, but also in the aftermarket, the distribution market end users are a bit hesitant to play offense and we don't see a lot of stock orders coming through yet.

But in terms of the adjusted operating margin, very strong development, 16.6%, upwards is 16.3%. Again, we have been able to manage tariffs pretty well.

We have been good at driving solid price/mix and a good cost efficiency is enabling us to maintain and actually further improve our operating margin in the industrial business. Turning to automotive, 28% of our sales and 11% of the adjusted operating profit.

As I mentioned, a rather tough market conditions with a lot of volatility and low demand. And here, we have an organic decline of 6.2%.

As I mentioned, it's primarily driven by Europe and Americas where we see that light vehicles and also commercial vehicles are the main drivers behind the decline, while we see more stable development in China, Northeast Asia and India and Southeast Asia. But I must say that I do think that the margin performance is actually pretty decent given the circumstances.

In an environment of very low volumes and a significant FX headwind, to basically kind of maintain and uphold the adjusted operating margin just north of 5% is pretty good given those circumstances. And again, it comes from the same activities, as I talked about, within industrial, focus on price, portfolio management, cost effectiveness and good cost control or efficiencies and cost control.

And there's not just one thing that contributes. There are many, many things that we work on.

But I'd like to draw some color to one item in this quarter, and that's related to cost for material where we do see a positive deviation in the quarter, and that is not due to the pricing of material has gone down, but rather a continuous work from the team to manage our work with our suppliers but also to intelligently find new ways to find a more cost-effective material mix in our end products that is also helping to upheld the margin. So all in all, I think it's a decent performance given the circumstances.

We continue to work with our automotive separation, as I mentioned in my earlier remarks. It continues to gain momentum.

But at the same time, we are also working hard to create an even more competitive industrial business. And as I mentioned, I'd like to share some color on this, both when it comes to commercial efficiencies and rightsizing and commercial excellence, and there I'm going to talk about aerospace.

But let's start with the efficiencies. And to just give you some color and background to this, of course, and you know this, this is not something that we have started this quarter.

We have been working on this for quite a couple of years to make sure that we adopt and adjust to market conditions and drive productivity within our business. A couple of things that we've done in the last few years that I think has made a significant impact is the simplified operations and sales organizations.

I refer to the decentralized organizational structure that I've put in place that has enabled us to have a more lean setup and drive more efficiencies in that regard. You know that we have invested heavily in regionalization and automation in our manufacturing footprint over the years, and that has helped to increase operational efficiency.

And given that we are now closer to our customers, closer to the market, we are able to have a more agile response to changes in circumstances or demand in different regions. And that has paid off, and I use the illustration on the right-hand side as a proof point of that.

The blue line that you see represents sales per FTE from 2020 to 2025 and it's an uptick of north of 30%, as you can see. The grayish bar is the adjusted operating profit per FTE and it also demonstrated an uplift north of 30% in the quarter -- sorry, in the period.

Again, a proof point that we've actually done a couple of things to drive our internal productivity. But we know that we need to do more.

And with the automotive separation, that will enable further efficiencies and we need those to make sure that we create long-term competitiveness in our business to cater for profitable growth also in the years to come. And that's why we announced in Q1 the rightsizing program.

And today, I'm able to give you some more details and color to that program. It will imply painfully and regretfully, but necessary a rather significant gross reduction of staff positions in our business.

Some 1,700 positions will actually be redundant. Given that we also continue to drive our regionalization and shift some of our business into different regions, there will be some rehire.

So the net impact -- FTE impact will be 1,200 there or thereabouts. It will generate savings of some SEK 2 billion with full run rate savings expected in 2027 and a linear profile during '26 and '27.

These savings will more than offset any dis-synergies derived from our automotive separation and it will further strengthen our competitiveness and build the foundation for growth as we move forward. Those savings will come with a restructuring charge, it's around SEK 2 billion.

And we take the full amount of this in items affecting comparability in this quarter. The cash impact will be primarily visible during 2026.

So it's a rather sizable program, as we announced in Q1, and now we have been able to provide some more color to this, and it's going to be an item that we will work on as of from now and throughout 2025 and into '26 with full run rate effect in '27, as I mentioned. Turning to our commercial excellence capabilities.

And as I mentioned, I'd like to use the aerospace as an example of this. Aerospace is a significant industrial vertical in our industrial business, as you can see here, representing some 9% of our industrial sales.

We have announced a few years ago the strategic review of this industry -- or this aerospace industry, and it has really made some significant inroads and helped us to improve our performance in it. We have taken some structural actions where we concluded through the strategic review that we want to focus on some core segments, i.e., aeroengine and aerostructure bearings, which would imply that we needed to divest some nonstrategic assets like the Hanover business that we have in the U.S.

that's already been divested and also the Elgin business that we also have in the U.S. That transaction is now well underway, but not yet completed.

We have driven our commercial capabilities and have been able to be much better in our pricing management. We have significantly increased our aftermarket presence.

And we have secured customer contracts with all major customers beyond 2030. And as we've also said in our strategic review, we want to accelerate our investments to further strengthen this business, and we actually increased investment pace with 2x in this period to drive productivity, automation, but also to cater for the capacity needed to meet the very strong demand in this market.

And you see kind of the results here. From 2022 to '25, we have seen a CAGR of 12% on the net sales in this segment, and at the same time, improved the adjusted operating margin with some 8 percentage points.

And we're now well positioned for the future. We have a very focused portfolio to make sure that we really serve our customers in the aeroengine and aerostructure segment very, very effectively and that we are also a key supplier for defense applications, which in these times is a growing segment.

We have a global footprint primarily with a focus in Americas and in Europe that would also help to protect our customers from geopolitical turbulence. And we have a very modern operation to drive efficiency, to ensure high quality and on-time delivery to our customers.

So all in all, I think we're well positioned here to drive profitable growth, and we're going to use this and replicate the efforts here also in other industrial verticals and business units to further enhance our commercial capabilities. So with this, it's now time for me to hand over to Susanne to share some more details on the numbers.

Please, Susanne.

Thank you, Rickard, and good morning, everyone. So let's dig deeper into the financials.

So as a financial overview here, starting off with the net sales, we are down almost 10%, which is a lot explained by the negative FX year-over-year, where we had an organic development being flat. Our gross margin was down 2.4% at this point, but this is fully explained by the rightsizing program.

So the restructuring charges was mostly impacting COGS as staff people and their costs are related both to COGS and S&A. The adjusted operating margin strengthened compared to last year from 13% to 13.3%.

This in spite of FX headwind of minus 0.9 percentage points, and I will elaborate a little bit more on that on the following page. As Rickard said, quarter 2 items affecting comparability was sizable and amounted to SEK 1.8 billion of which the rightsizing program that we announced last quarter was fully charged to the result and amounted to SEK 2 billion.

Additionally, automotive separation work and costs are increasing and amounted to SEK 300 million in the quarter. There was an impairment charge of SEK 200 million also to the result.

So these costs were finally offset by the profit from the sale of the aerospace business in Hanover amounting to SEK 800 million. And finally, footprint regionalization costs were minor in this quarter, mainly due to timing effects.

So let's look at the bridge where we explained how we came from an operating margin last year of 13% into 13.3% this quarter 2, starting from the left to the right. So organic development, relatively flat, minus 0.2 percentage points where the negative sales volumes were more than compensated by price/mix.

The key initiatives for this impacting price/mix was obviously pricing, but also portfolio management and tariff management through price adjustments. The organic impact on the adjusted operating margin was 1.1 percentage points.

Next one is cost. Cost development was well managed, as Rickard elaborated on, and impacted adjusted operating margin slightly positively with plus 0.3 percentage point.

And this, in spite of lower sales and manufacturing volumes and tariffs, we had a net positive impact, much explained by material but also cost management and variability of costs. Currency had a significant impact year-over-year, taking down sales by 9 percentage points and had an impact on adjusted operating margin of minus 0.9 percentage point.

The main currencies vis-à-vis was U.S. dollar and CNY, and that caused the main effects.

Finally, we had a couple of structural areas. One was the net divestment of aero Hanover and the other the acquisition that we did last autumn of John Sample Group, and they did not have an impact on the margin.

So cash flow, going from the left to the right, starting with an operating profit that we ended at quarter 2 amounting to SEK 1.3 billion. So then, of course, we add back the depreciation, amortization and the impairment of SEK 1.2 billion.

And the third bar, the noncash items, here we reversed the rightsizing charge that has not yet impacted the cash flow of SEK 2 billion, netting of the profit of SEK 800 million from the sales of the aero Hanover business. And that brings us to plus SEK 3.7 billion, where we adjust further noncash items of SEK 200 million negatively.

The paid taxes were SEK 500 million and somewhat lower than last year. And the change in net working capital improved vis-à-vis last year, and this is partly explained by accounts payable.

This brings us to cash flow from operations of SEK 2.8 billion, which is an improvement of SEK 700 million compared to last year. Further, investing activities for the quarter ended at a net positive SEK 1.1 billion, of which the CapEx amounted to a negative SEK 900 million, but we had a net payment from the divestment of tax of SEK 2 billion.

So net-net, cash flow after investments this quarter 2 ended at SEK 3.9 billion compared to SEK 0.9 billion last year. Balance sheet and some KPIs.

This quarter has a similar development as last quarter, very similar. Looking into the net debt, excluding pensions, it decreased from the year-end of SEK 8.7 billion to now almost or a little shy of SEK 8 billion.

The net debt in relation to equity ended at 14.4%, and the leverage net debt divided by adjusted EBITDA, 1.0. Finally, the adjusted return on capital employed amounted to 13.9%, where the capital employed remained on the same level as last year -- or year-end, sorry, while the result in absolute amounts came down and much of this, as we have said, explained by FX.

Now to my last page, and that's around the outlook. So whilst the global economic development makes the outlook uncertain, we expect the organic sales to be relatively unchanged quarter 3 year-over-year.

When it comes to FX, we expect a similar effect as we had in quarter 2, so minus SEK 500 million when we apply FX as per the end of June. When it comes to tax and CapEx, the guidance remains unchanged.

So by that, Rickard, over to you.

Thank you very much, Susanne. And to wrap this formal presentation up then, I'd like to summarize by pointing to a few items here.

As you heard us say, in the quarter, we have a rather mixed demand where we're back organic growth in the industrial segment, while we still have a rather weak situation in automotive. Our margin resilience, the journey continues, and we continue to manage effectively in very tough environments and uphold our margins, and we continue to work diligently with all these activities that you heard us talk about for a number of quarters.

The automotive separation, it's an important item and we pay a lot of attention to it. There's a lot of hard work going into that across the organization, but I'm very pleased to see that we continue to build the momentum there.

And the rightsizing of industrial. Yes, it is painful to have to reduce this number of staff positions, but it is all about making sure that we build a very competitive platform for long-term profitable growth, and that's what we're after.

And this is enabled by the automotive separation. So with this, before I hand over to Sophie to help me manage the Q&A, I just wanted to make a reminder of an important date in November this year when we're going to have our Capital Markets Day.

Well, we hope to see a lot of you in the sunny Stockholm, as it always is in November, and we know that you can see that the registration will open in August or early September. So keep out and mark your calendars, and I hope to see you in Stockholm.

So with this, we end the formal part of the presentation and then ask Sophie to help me navigate through the Q&As.

Thank you, Rickard. So let us open up for questions then.

[Operator Instructions] Let's start with a question from the telephone line here, and it's from Rory Smith at Oxcap.

It's Rory from Oxcap. I've got 3 questions, if I can.

Firstly, just on the prebuying that you've seen in China wind. If we think back to Q1, I think you didn't actually see any sort of improvement in that market versus perhaps your competitor who had seen some tick-up in Q1 in China wind, which suggested that you maybe weren't chasing some of the lower returns work there, but obviously, that's now changed and you're seeing some prebuy.

So anything that you can add color to there would be greatly appreciated. And then secondly, just whether you've seen prebuying more generally, specifically in North America?

And then finally, what you've seen in the first couple of weeks in July, whether that's a sort of continuation of Q2 trends? Any color you can give there as well is greatly appreciated.

Rickard, would you like to respond to these 3 questions?

Yes, certainly. Rory, when it comes to the wind question in China, it is policy-driven, the prebuys.

And that a number of the customers there, they really try to get orders in before kind of the midyear mark. You're right, in Q1, we did not see that much.

It's more in this quarter. I can't really comment on my competitors, but I do believe that also the Chinese OEMs, they divide their share of wallet among some of the different players and also the industrial ones.

And maybe they gave others a larger share of the wallet in Q1 and us a larger share this quarter of these prebuys. That could be one explanation to that particular question.

Secondly, on the general prebuys and in the U.S., I will give the same answer as I did in Q1. We actually don't really see anything.

That doesn't mean that it may not actually be there, but we don't see anything that stands out, anything that is tangible. So again, it's the same answer as we did in Q1 on that one.

And then finally, your question on the trading kind of situation now in July versus June, nothing really has changed. We see basically a continuation of what we've seen so far.

Thank you. Let's continue with the next question also from the telephone line, and it comes from Klas Bergelind at Citi.

Klas at Citi. So first, on the growth in Asia, coming back here to the prebuy first, how much did China wind grow?

Was it up from a very low level, up 50%? Or did it even double?

Just so we understand how much the prebuy impacted growth at the group level? And then on India and Southeast Asia, am I right that the strong growth here was supported by particularly strong deliveries in the quarter, which might not be sustained?

So I'm basically trying to understand to what extent we should carry growth in Asia forward here into the third quarter. I'll start here.

So we had a little bit of trouble to hear you. I heard your question on the wind business in China.

Could you repeat after that, so I really got your question correctly, please. I'm sorry for this.

Sure. Can you hear me now?

Yes. Yes.

Okay. So again, it was on the India and Southeast Asia growth where I also think that you had quite strong deliveries in the quarter, which might not be sustained.

So for like both regions, I'm trying to understand to what extent we could carry forward some of this growth or how much will basically roll as we go into the third? I hope you could hear me.

Yes, loud and clear. Thank you, and thank you for your patience and for repeating your question, much appreciated.

Starting then on the wind business in China, the wind business in China is roughly 1%...

Yes, it's around 1% of group sales, I would say, just to put it into perspective.

Correct. And exactly how much it's grown in the quarter, we don't really disclose.

But we have been at rather low levels for quite some time. So the comparison is pretty easy.

So it will quickly ramp up to some sizable percentage. But we do see it as a prebuy.

So it is a bit inflated in the quarter. India is a little bit of a different story or Southeast Asia.

There, actually, we see that some volumes that we anticipated in Q1 actually came in Q2. So that's kind of the situation there.

So there, I don't think it's more of a prebuy, it's more that there was some timing of volumes that was designed or planned for Q1 that ended up in Q2, especially in Indonesia.

Very clear. My second one is on the guidance of flattish organic growth.

I'm trying to understand to what extent this is somewhat boosted by further price increases linked to tariffs? Or if you think some of the improvement to volumes you see in EMEA in the quarter, in particular, could drive the growth further from a volume point of view into the third and more than offset the Hanover then from the prebuy in China?

I guess I'm trying to understand the price/mix dynamics relative to the volumes into the third quarter. Also as your mix should have peaked here looking into the rest of the year.

So Rickard, do you want to continue...

Yes. We don't foresee in this guidance a significant change, an uptick EMEA.

It's more kind of we are -- at best, we see it's bottoming out, but I don't dare to say that we see an improvement and that's also part of our guidance. But you're right that we will continue and work hard to compensate for tariffs also in Q3.

And our best estimate, as I mentioned, is that we will largely be able to compensate for that through prices and surcharges and that will show up, of course, as part of organic growth going forward. On the negative side on the price/mix will be the fact that our pruning activities has now come to an end, so that will not support price/mix going forward when we compare quarter-over-quarter.

And then also we have a situation where we have had a positive contribution for a couple of quarters where our OEM business have had a larger decline in sales than our distribution business, and therefore, it had the positive mix implication. Now we see that, that difference is equaling and out that the OEM business is not dropping faster than the distribution business, hence, we then have a negative mathematical impact on price/mix.

So that will be on the negative side. So these are some of the components that make up our guidance for Q3.

Very clear. My final one is for you, Susanne, on the world-class manufacturing program.

Your cash flow is better this quarter than in the first quarter, but you still have a long way to go on the inventory side. The world-class manufacturing program will help, but I guess you need more volumes to get the inventory turns working in your favor.

Can you please update us on where you are on the localization strategy relative to your targets, so we can get a better feeling for that when volumes are coming through to what extent your inventory turns can improve?

So your assumption is partly right then. So talking about the world-class manufacturing, that is continuing and I think we see good impact out of that, and that is also helping us to see the good cost control and cost management that we see in our existing low demand environment and our financial performance.

The regionalization is continuing. So that is something that is ongoing.

And we see effects of that when we compare ourselves year- over-year with more and more of regionalization and we anticipate that, that will continue also. When it comes to the inventory levels, you are right that we are -- we have a high focus on that internally.

If we put the FX aside, we can even see that we have a positive trend in reduction of the inventory levels in our business. But certainly, with low demand, small lot series and some short cancellation, I think it's fair to say that when the demand is coming, it will help us to boost the expected effects more.

[Operator Instructions] And we will continue with Daniela Costa from Goldman Sachs.

I wanted to ask sort of regarding portfolio topics. Just you mentioned in terms of parallels on other areas of industrial and aero that you can work on, can you give us a little bit more color on likely size, areas, time line?

And related to portfolio, just a quick clarification. I didn't hear, sorry, if I missed it, you mentioning the risk of delays in the automotive separation that you had mentioned last quarter.

So does it mean that we're out of the problem zone and you've gone through those tasks that maybe were more critical?

So Rickard, do you want to comment on these?

Be happy to. Related to the review -- strategic review that we did in aerospace, we did bring -- took some learnings with us and we implement those, and we're kind of being inspired by those in other parts of our business.

It's more a generic comment, and there is nothing specific that I can give you and there is any particular time line on this. But clearly, we know that we can drive commercial excellence.

We can be more effective in how we set up our aftermarket presence. We can be more effective in our contract management with our customers and so forth.

And those type of things are activities or actions that we do in a broader scale in our portfolio. And on the automotive question on the separation, unfortunately, I'm going to be -- have to say that we're not out of the woods yet.

We still have some critical milestones this fall that we need to pass before we know exactly how things are going to play out. But as I said in Q1, that still remains.

We are working very, very effectively on this at a high pace. We have a large number of activities that we need to complete, some of them outside of our own control, where we need government approvals or authority approvals and such like that.

We have a tight schedule, a number of activities on the critical path and we don't have a lot of headroom for delays in this. As of today, just as it was in Q1, I have no red flags to report.

I have -- none of these risks has yet materialized. But I can't say that we are out of the woods.

So it's more kind of the same situation as it was in Q1.

And let's continue with a question from Magnus Kruber at Nordea.

Magnus from Nordea. [Foreign Language] Apologies, could you comment a little bit about -- yes, sorry.

Can you comment a little bit about why the savings program came in with such a high level per FTE? And what drove that higher than previously sort of alluded to level?

And also, could you help us a little bit about the dis-synergies that you anticipate to see from the separation, please?

So Susanne, do you want to comment on that one?

Yes. So as we said, we took the full charge of the restructuring program -- or the rightsizing program in this quarter and have worked it through with our different countries and consultation during the quarter.

So where we see 1,700 people with a net of 1,200, and we anticipate the saving of SEK 2 billion, so how can we then anticipate that big amount. I think that's how I interpreted your question.

And I believe that we will see partly, the main part will, of course, be people related, but we are also anticipating some other impacts that are not related to the individuals, taking down consultants is one of those examples.

Yes. And we have also other initiatives, operational and supply chain-wise, that is adding up to that SEK 2 billion savings number.

So as Susanne said, it's not just people related.

Another question on dis-synergies?

Rickard?

Yes, I can comment on those. If your question is if you want me to quantify them, I'm sorry, I'm going to disappoint you.

I will not do that at this time. But clearly, as in any separation, there will be some dis-synergies, and that's the case also for us.

The exact amount of those, the size of those and so forth, all of that will be very transparently described when we see you in November in Stockholm at the Capital Markets Day.

Thank you. I hope your questions there, Magnus, was answered.

So let's continue with a question from John Kim at Deutsche Bank.

Wanted to get a little bit more color on the bridge in terms of the normal components. Can you comment in terms of building blocks on raw mats, energy, logistics?

Anything we should think about as we progress through the year in the comps?

That's a question -- that sounds like a CFO question here, Susanne.

Yes. John, so if we talk about the cost component of the bridge, we can see that we have been able to offset some of the volume -- the negative volume impacts from, as you said, material but we can also see that on some of the utilities and logistics.

So that has a positive impact. And as Rickard explained, when it comes to material, it's not only a mix, it's also how we work in our operation to both redefine different components and [ speed ] and also how we are utilizing our production better.

So I think that is something that we are working hard on. So that is part of the explanation then.

And let's continue with a question from Tore Fangmann at Bank of America.

Yes. Just one more on the outlook for Q3.

I guess the stable growth outlook is positively impacted by tariffs, negatively by the prebuy effects you saw in China. Could you disentangle that a bit more and share some detail on how this would have looked without the tariffs and without the prebuy?

So Rickard, do you want to share some light on this?

Tore, I'm sorry, but we will not be able to give you some and do that. But basically, we try and when we do the outlook to give you the best view that we can provide and there are so many different kind of inputs to this guidance.

So it's hard to break them apart. It'll just confuse everyone.

So you have to see it as a package. And the outlook that we have with relatively unchanged versus same quarter Q3 last year is the best guidance I can give you, and we have to stay as such.

And we will continue with a question from Andreas Koski at BNP Paribas Exane.

I was actually also going to ask about the outlook, but I will skip that one as I don't think it makes any sense. So I will instead ask about the separation costs that increased in the quarter to around SEK 300 million.

Would you say that is what we should expect from here until the spin has taken place? And on top of that, we should also add, I guess, more costs related to the regionalization that was low in this quarter?

Or how to think about items affecting comparability from now on for the next 12 to 18 months?

Let's hear from Rickard to clarify this.

All right. The separation cost in the quarter of some SEK 340 million, we also say that, that is kind of the separation is building momentum.

So you would expect that to actually further increase as we go into Q3 and Q4 as we build the momentum. So it's not a fixed number quarter-by-quarter.

And you're absolutely right, we still have regionalization that we need to complete, and that was due to timing. It was a rather low amount in this -- in quarter 2, some more will be pushed into the second half of the year.

So you should expect that as well. So yes, items affecting comparability will continue to be fairly sizable also in the second half.

And just quickly, what do you estimate the cash impact to be from this larger program that you announced now in this quarter?

Susanne?

So when we talk about the rightsizing program of SEK 2 billion, we do not anticipate significant amounts to impact the cash flow for this year. We assume the majority of that, that will come through our cash flow next year.

Yes. And what will the amount be approximately?

So the amount will be similar to the charge we have taken of SEK 2 billion.

Okay. So it's -- yes, all of that will impact the cash flow, but in 2026.

Yes.

So let's continue with a question from Erik Golrang at SEB.

I hope it hasn't been asked, I've had a bad line on and off. So the same issue present today is in industrial only, if I understand correctly, and you say we'll have to wait for the CMD.

But when we think about auto and what you might do on the manning side there, any reason to assume that it's going to be a materially different correction level compared to industrial on a relative basis?

So Rickard, please?

Yes. It's a different approach there since this is a business that we are building.

And we are now creating the future in automotive organization. A vast majority of the people that will be part of the future automotive business will come from the current organization.

But then they also need to build some capabilities that they don't have today as becoming a stand-alone company. So no, you should not anticipate that there is the same approach for automotive given that they basically start from, I wouldn't say blank sheet of paper, but at least they're building a new business.

But they have been a lean business. That's for sure.

Thank you, Erik. And we will continue with questions from the telephone line here and the next comes from Tim Lee at Barclays.

I just want to understand a bit more about pricing. So I'm not sure whether you can comment how much pricing you achieved in the second quarter, especially in the U.S.

market. And when it comes to the third quarter, do you think there will be more pricing needed?

And in volume, how much of the negative volume impact that you see in the EBIT level in the second quarter...

Sorry, Tim, can you -- it was a bad sound here. So could you repeat the volume question there.

Sorry, I was just wondering if you can tell us about the negative impact from volume in your EBIT in the second quarter?

So Rickard...

I can try to do the pricing question. Maybe you do the volume one, Susanne.

Okay. We don't really disclose how much of our price/mix comes from price and how much is mix, so we need to stick to that.

But as we said, we have been able to largely compensate the tariff costs through price mechanism. And that is both price increases but also a lot of surcharges.

And as we move into Q3, we will not comment on exactly on what the price level of component needed. We will continue to say that we anticipate and we plan to largely compensate for tariffs also in Q3, using the mechanisms, pricing and surcharges also in Q3.

And then on volume, Susanne?

So I think on the volume side, I think what we say is that the organic sales, it was flat, out of which automotive declined 6% and we saw an industrial growing by 2%. And that is, of course, the combination of volume offset by price/mix then.

So I think we will not comment on the volume specifically. But we -- so we had a good price/mix then more than compensated for the volume -- the sales volume drop that we saw.

Thank you, Tim. And we have our final question here from Rizk Maidi at Jefferies.

Yes. Can you hear me?

Yes.

Yes. Perfect.

Cool. Just a couple of follow-ups.

Number one is can you just walk us through the details of the surcharges and how they work? My understanding is that pricing is -- price increases are more sticky.

Just how the surcharges would work? And then secondly, just on the phasing of tariffs.

So I think from the cost side, if you could just talk us through how much of a step-up of the tariff costs you will see from Q3 onwards? And just mechanically excluding any efficiencies you do or manufacturing changes, how much of a price plus surcharges you need to offset those?

So I will ask Rickard to address this one.

Sure. Starting with the surcharges and how they work, they are rather time consuming.

So our sales organizations across our businesses, they have spent a lot of time with our customers negotiating and debating these surcharges. And then when there are changes to kind of the directions coming from the U.S.

administration, we have to go out there again and renegotiate. So to your question how sticky they are, well, a price increase is pretty sticky.

Surcharges, as the name indicates, actually will either increase or decrease depending on where the tariffs go. And if tariffs disappear, surcharges will disappear as well.

So that's how it work. I hope that is somewhat clear.

And then for Q3, the step-up in tariffs, again, there is a lot of uncertainty. We don't really know where things will end and where the negotiations between U.S.

and a number of different countries and the EU where they will end up. So it's hard to second guess.

And we won't give a certain number. We do say -- again, I repeat what I said before, we do believe that we will be capable to largely offset surcharges given what we now know and what's being debated at the moment.

And the net impact will be primarily visible in our automotive business. Exactly what pricing is needed, we don't really disclose.

We are stable. In fact, that we believe that we will be able to compensate -- largely compensate.

Thank you. And that was our final question for this time.

And before we wrap up here, Rickard, do you want to share your key highlights of the quarter?

I'd be delighted to. And thank you for your insightful questions and your engagement in our company, much appreciated.

As I said, I think we continue to demonstrate the strong resilience in our business due to all the hard work that the employees of SKF is doing every day across our entire global footprint. And I am pleased to see that we are able to navigate in rather difficult environment with a lot of headwinds from different directions, but still demonstrate a rather robust and resilient performance.

We are excited about the future. We are excited about the momentum that we're building in the auto separation and to create 2 strong and global leading businesses, one pure-play industrial and one pure-play automotive business.

And to get there, especially for industrial side, we need to drive further efficiencies and drive competitiveness. And that will imply some staff reductions.

It is regretful, but necessary, and I think we're on the path to build a very strong foundation for long-term profitable growth. So with that, I thank you so much.

And I think we end this call, and I wish you a wonderful summer.