AB SKF (publ)

A warm welcome to this call where we will focus on SKF performance in Q1 2026. And we had a strong start of the year in terms of margin successful and navigating in volatile market conditions.

I am Sophie Arnius, heading up Investor Relations. And today, I'm joined by our CEO, Rickard Gustafson; and our CFO, Susanne Larsson.

After the presentation, there was an opportunity to ask questions. And there are ways to do that.

[Operator Instructions] So without further ado. It's a great pleasure to hand over to you, Rickard, please.

A warm welcome to all of you for joining us at this quarterly report. During the quarter, we continued to execute on our strategic priorities to strengthen our position in high-value industrial segments and advancing the separation of our automotive business, and in the quarter, we do deliver a strong performance despite volatile market conditions.

As you can see from the right-hand side of this chart, organic growth came in at 2.4%, in line with our guidance, driven by solid organic growth in Specialized Industrial Solutions and Bearing solutions that more than offset continued weakness in automotive demand. The adjusted operating margin is holding up well at 13.5% despite a significant headwind from FX or currency.

And the main drivers behind this strong margin are fourfold. Firstly, we have a better and improved margin in our Specialized Industrial Solutions segment.

Secondly, we have a strong mix in the quarter, primarily driven by the fact that the industrial business segments are growing faster than our automotive business segment. Thirdly, we have been successful in our rightsizing activities and actually coming in somewhat stronger than we anticipated in the beginning of the quarter, equating to some SEK 300 million of savings in the quarter, which means a slight positive net after incurred dissynergies.

And fourthly, we have an increased production volume as we continue to build safety stock for ahead of the plan as the transfer for the automotive separation. Cash flow is weak in the quarter, negative SEK 0.4 billion, as you can see also on the chart.

And there are 4 drivers behind this. And Susanne will shortly take you through that in more detail, but the key highlights are, that we build those safety stocks that I mentioned before that is contributing to our margin.

We are taking restructuring charges for the rightsizing program that we're on. We have a somewhat higher accounts receivable due to that sales were somewhat stronger at the end of the quarter.

And there are also some unfortunate timing effects in AP accounts payable in the quarter. On our continued strategic priorities, we do see that our efforts to create a more separated and focused automotive business is starting to yield benefits, and we see that is laying a foundation for strong profitable growth, that we'll touch upon later in this presentation.

And in this quarter, we also, for the first time, report our business with -- in different segments. And I will also take you through that just to remind you.

And in this -- during this year, we're going to spend some time at every quarter to share some more lights on the different business units that make up our segments specialized industrial solutions to educate you and share some more insights on what we do in those areas. And first out this quarter will be lubrication.

But starting with the segment. And I'm sure that you've already studied this, but just to remind everyone, so we're all on the same page.

Going forward, we're going to report our Industrial business in 2 main segments: the Bearing Solutions and Specialized Industrial Solutions. And in this Specialized Industrial Solutions, we have 4 business units: automotive, magnetics, seals and lubrication.

We also have a small other segment in Industrial, where we host our head office or lean corporate center, as we call it internally, and that cost was primarily distributed to the different segments. Now it's wholly clear and here, we'll also find trading between industrial and automotive as we move forward.

And then, of course, as long as we have automotive as part of our company, they will be in their own segment. And here, they have their fully loaded cost and their own headquarter costs.

So this will, to the extent possible, mirror what automotive will look like also after we have completed the separation. If we then move on and start to focus on the quarter and starting by organic growth by geographical region.

And my comments on this page will cover all 3 segments of our business. Starting with our largest region, EMEA, where we have a negative organic growth of 1%, where we do see solid organic growth in Specialized Industrial Solutions in all 4 business units, but especially strong in aerospace and magnetics.

For automotive, demand remains somewhat weak and especially when it comes to light vehicles. When it comes to Bearing Solutions, we still wait for the market to turn where we have seen a rather weak development or somewhat weaker should rather say, development in distribution and services in the quarter.

While there are some specific and encouraging green shoots as well especially someone like I like to highlight, would be agriculture and high-speed machinery. Turning to Americas, where we have a solid growth of 4%, to a large extent, driven by price/mix activities in that particular market.

But also here, we see some industrial verticals that really stand out. Aero being one, agriculture being another and also here, high-speed machinery to some extent, driven by the fast growth in the data center development in that particular region.

It's also encouraging to note that we have strong growth in our automotive aftermarket in this particular region. China, Northeast Asia, very stable growth at 4.5% with a solid organic growth in both Bearing Solutions and Specialized Industrial Solutions.

We do see a strong demand in aftermarket and rail on the industrial side to some extent driven by easy comparisons versus the same quarter last year. And for automotive, it's actually opposite, where we do report a negative organic growth in the quarter due to tough comparisons, especially for light vehicles in this particular region.

India and Southeast Asia remains very strong across all 3 business segments and some industries to really highlight here of significant growth will be heavy industries, again, agriculture and also light vehicles. If we then move and take a look at our segments and starting with our largest segment, Bearing Solutions, as you can see on the chart on the top right, representing more than 50% of our net sales and more than 75% of our adjusted operating profit.

Organic growth came in at 2.4% for the segment as a whole. But demand is largely similar as we saw in Q4.

We do see an improved demand in Asia that is offset by very low or weak demand in EMEA where we see that, especially on the distribution side and tailored towards rail is rather low. And here, we also see an impact from the Middle East crisis that also shine through in this particular region.

The adjusted operating margin is 19.3%, which is very stable despite significant headwind from FX. And the main drivers here for the strong margin is a good development when it comes to price and mix.

Here, we have the benefit, as I mentioned before, from the rightsizing activities that provide a somewhat net positive impact after the synergies. We do have a positive bridge effect from the world-class manufacturing program that we concluded at the end of last year.

And here, we also see some benefits from the fixed cost absorption due to higher production volume as we build safety stock ahead of planned asset transfers. Moving to Specialized Industrial Solutions, representing some 20% of sales and roughly 20% of our adjusted operating profit.

Very strong organic growth, almost 9% in the quarter, strong price/mix execution across all 4 business units. And as I mentioned before, especially strong momentum in the segments of business units, Aerospace and Magnetic Solutions.

The adjusted operating margin is improving to 13.3% despite tough headwind from currency. And the main drivers behind the strong margin development is for both-- but listen, I'd like to highlight two things.

Firstly, it is a positive mix impact, where our air and magnetic businesses are growing faster than our lubrication and seals businesses. And then also that for all business units, as I mentioned before, we have strong progress or some growth in aftermarket in all segments.

The other area I'd like to draw your attention to is that we have a better product mix, both in lubrication and seals. And for lubrication, we have seen good growth in something that we call automated lubrication systems, which is an important piece of the lubrication story, which I will come back to shortly and provide some more lights on.

And then turning to automotive. In this quarter, representing some 26% of sales and 10% of our adjusted operating profit.

Again, market conditions remain challenging. And you see we have a negative organic decline of some 2%, where we see negative growth in EMEA driven by light vehicles and commercial vehicles.

We have flat growth in Americas, where negative growth in light vehicles is offset by a strong development in aftermarket that I mentioned briefly before. In China, Northeast Asia, we are a negative growth territory, driven by tough comparison on the light vehicle area.

And for India, Southeast Asia, we have strong growth driven significantly by light vehicles and also aftermarket. The margin is robust around 5% in the quarter.

And the main drivers behind this performance is again mix, where a strong aftermarket development that I mentioned a couple of times. We also see that our automotive business becoming more separated, drives efficiencies in the operational setup that is also yielding benefits.

And another area is also that we have been very effective when it comes to purchasing and procurement activities to reduce cost. On the negative side, we do have some reduced fixed cost absorption by lower volumes and of course, as you can see on the chart, also a significant headwind from currency.

So with that, I would like to hand over to Susanne, who will take you through the numbers in more detail. No, I will not.

Sorry, my mistake. Clearly, I promise you some deep dives.

So let me do those first. Let's start by providing some more clarity on our lubrication business.

And as you can see on the left-hand side, our lubrication business is roughly represents some SEK 5 billion of sales. And seeing in the pie chart, the vast majority of those SEK 5 billion comes from something we call automated lubrication systems.

And if we double click on that, and focus on the right-hand side on this chart, you will see that our automated lubrication system, they do cover 3 distinct value chains for OEM Solutions, Engineered Solutions and Aftermarket and services. And the value that our automated systems bring to the customers are rather significant because they provide more reliable and sustainable performance, securing the correct lubricant to the right areas in the right time and at the right amount.

This drives cost reduction and clearly, a reduction of total cost of ownership and increased efficiency for our customers. And by building a strong relationship with these customers, that also yields good cross-sell opportunities for us when it comes to Bearing Solutions and sealing solutions.

But we also said that we need to lift the adjusted operating margin in this particular business. And there are 3 pillars to our transformation that we have embarked on to further strengthen our lubrication business.

Firstly, we want to convert more of our manual solutions to automated lubrication solutions and services. Secondly, we need to build strong streamlined products and value chains to really cater for these unique offerings for OEMs, engineered solutions and aftermarket and service.

And thirdly, we still need to do some optimization with footprint to drive further cost efficiency and also drive regionalization primarily in the Asia Pacific region, as you can see on this chart. Turning to automotive.

As you may recall, when we presented automotive at the Capital Markets Day, we provided the road map for the future that consisted of 2 strategic pillars and 5 strategic levers. And this is the page that we used back then.

I do not intend to take it through all the 5 levers today, but I would like to provide some more color on 2 of them. The first one relating to how we win in leading segment and the third one, how we address the expandable or how we expand the addressable market.

And by being a more separated, dedicated automotive business, we already now start to see that we are tied to our customers. We are faster in our response times, and we are more focused and more efficient, and that is yielding benefits.

We continue to win in leading segments. And as you can see, we have increased our hit ratio when it comes to winning OE RFQs significantly compared to the situation before we announced the separation.

But it was even further or even more good news is that it's not just to be increase the hit ratio significantly, but the value of those contracts that I will have also increased significantly, that builds a great platform for future growth opportunities. On the addressable market, we have been very systematic and focused in driving new distribution channels and broaden our product portfolio.

And due to this work, we have signed several new distribution agreements across North America and Europe that are expected to yield some SEK 1 billion of sales over the coming 4 years. Again, another piece of building a strong platform for future growth opportunities.

And now it's time to actually hand over to Susanne to take us through the numbers in more detail.

Thank you, Rickard, and good morning, good afternoon, everyone. Happy to do so.

Starting off with an overview. Net sales was down 8.7% in the quarter, and this was mainly driven by the currency headwind of 9.9% negative.

The gross margin ended at 29.3%, and that was down 0.5 percentage point compared to last year. In the quarter, we delivered a strong adjusted operating margin of 13.5%, which was flat year-over-year, and I will come back to that even more on the following page.

The one-off items affecting comparabilities in the quarter amounted to a negative SEK 308 million, where the automotive separation costs represented a negative SEK 464 million, the optimization of the industrial footprint, a negative SEK 81 million. And then we had impairments of fixed assets and some other one-offs of minus SEK 178 million.

Finally, we also recorded a capital gain from the divestment of Elgin that we reported on in the early part of quarter 1, and that amounted to [ SEK 450 million ] million. In absolute amount, the adjusted and non-adjusted operating profit, together with the net profit was lower than last year, much explained by adverse currency effects.

Altogether, we ended at an earning EPS of SEK 3.6 and an adjusted EPS would have been [ SEK 4.25 ]. If we move on to the bridge analysis then.

So as I said, adjusted operating margin was flat year-over-year despite strong currency headwinds, tariffs and negative synergies from our ongoing separation, and this is certainly a proof point of our strong underlying performance. From an organic growth of 2.4%, we delivered a contribution to the result of 2.1 percentage points.

We had growth in both sales and manufacturing volumes together with a very solid price mix actions, particularly in the specialized industrial solutions. This explains the positive drop-through together with production volumes exceeding sales, driven by stock buildup ahead of the channel transfer related to the automotive separation.

On the cost side, as we talked about in the quarter 4 earnings, we have negative synergies from the automotive separation that were included as reported in quarter 1 as automotive now operates independently with their own dedicated IT management and administrative structures. However, the strong momentum in the rightsizing program delivered higher-than-expected savings in the quarter, compensating for this effect.

The rightsizing savings in the quarter amounted to SEK 300 million and we expect the run rate of the savings to be fairly linear from the SEK 1.2 billion we had in quarter 1 to the SEK 2 billion we aim for in the end of quarter 4 2027. For the full year 2026, we expect these savings to continue to be somewhat higher than the negative dissynergy effect.

Further on the cost side, material costs declined in quarter 1, primarily driven by automotive and in line with what we have reported also recent quarters. We continue to largely compensate for tariff costs also in [ quarter 1 and we expect to continue to do that also in the quarter 2.

So net-net, with all this said, cost ended largely flat at minus [ SEK 17 million ]. With respect to the currency, we had a significant headwind that continued in quarter 1, explained much by the weaker dollar and sale year-over-year.

FX impacted the adjusted operating margin for the group of 2.1 percentage points. Finally, in the structure here, it's represented by the net divestment of Hanover that we reported in quarter 2 last year and the second aerospace divestment in Elgin that we now closed in the first quarter of this year.

Moving on, cash flow. Let me report on that.

We recorded a weak operating cash flow in the quarter of a negative SEK 446 million. mainly driven by some SEK 700 million of payments related to IACs and the working capital build up.

Our operating profit landed at SEK 2.6 billion, which was some SEK 240 million lower than quarter 1 last year, partly explained by adverse currency effects. Depreciation, amortization and impairment was about SEK 300 million lower than last year and was SEK 960 million.

It's lower than last year because last year included impairment charges that we took. Noncash items and others amounted to a negative minus SEK 1.175 million compared to SEK 735 million negative of last year.

This increase is partly explained by the severance payout of earlier announced rightsizing that are more -- that are sizable this quarter. Taxes that was paid ended at SEK 580 million slightly less than last year and also slightly lower than quarter 4.

Then we have a high net working capital buildup of SEK 2.3 billion compared to SEK 1.8 billion last year. This is explained by the separation-related buildup of stock, accounts receivable that increased due to strong sales in the end of the quarter, and that we had negative development of accounts payable, mainly explained by poor timing effects.

Our capital expenditure in the quarter amounted to a negative SEK 772 million which offset the cash inflow of a net SEK 800 million related to the sale of Elgin and sales of a property. Moving on to the balance sheet and the return on capital [ employed.

] We had a net debt, excluding post-employment benefits that increased by some SEK 600 million in quarter 1 compared to year-end due to the negative cash flow. Still we remain on low levels.

Net debt in relation to equity excluding pensions, ended at 10.7% compared to 10.2% at year-end. Net debt in relation to adjusted EBITDA remained on the same level as year-end, namely 0.8x.

The adjusted return on capital employed remained stable in the quarter 1 at 14.4% compared to 14.3% level at year-end. Finally, later today, we will have our Annual General Meeting to which the Board has proposed a dividend of SEK 7.75 per share to be paid in 2 installments, 1 now in April and another 1 in October.

This takes us to my last slide around outlook and guidance. So the outlook for the quarter, as you have heard us talking about, we expect the market demand in the quarter 2 to remain at similar levels as and thus expect organic growth to be relatively unchanged, given more unfavorable comparisons year-over-year.

Then of course, the conflict in Middle East amplifies uncertainty to this outlook. The FX guidance for quarter 2.

So due to sequentially more favorable FX rates, currency guidance for quarter 2 is estimated to minus SEK 100 million year-over-year based on the rates we had by the end of March. The guidance for the full year remains the same as we announced in quarter 4 and that means that we have a tax excluding impact from divestments on the automotive separation to be estimated around 28%.

We remain with capital expenditure outlook for the full year of some SEK 5 billion and the one-off costs related to automotive separation and our footprint optimization is expected to be in the range of negative SEK 2.5 billion to SEK 3 billion this year, which is completely in line with the SEK 6.5 billion guidance we talked about at our Capital Market Day in November. The capital gain from Elgin that we reported now in the first quarter is not included in this estimate.

By that, I hand over to you, Rickard.

Thank very much, Susanne. And let me just briefly wrap this up before we hand over to the Q&A session.

We do see a strong execution in the quarter, and we are pleased that our rightsizing activities are continued at a high pace and in the quarter coming in somewhat better than we anticipated at SEK 300 million as you heard us say, providing a slight positive net after taking off the incurred dissynergies as well. And for the full year, we do believe that our rightsizing will somewhat be activities will somewhat provide a positive net also for the full year.

We do see a strong margin despite significant headwinds, especially from FX, driven by good price and mix actions but also a disciplined cost management and we are pleased to see that we have improved our profitability or margin in our Specialized Industrial Solutions segment in the quarter. We do report our news -- first time, we now report our new structure, which is another proof point and step that we are advancing our separation activities for our automotive business.

And we stand firm, we do plan to finalize these in Q4, as we mentioned in the previous quarter, Q4 this year, as we mentioned in the previous quarter. We are creating 2 strong independent businesses, 1 fully dedicated and fully focused industrial business and 1 fully focused automotive business that will unlock the full potential for both businesses as we move forward.

And we are pleased that we are continuing while doing all this change that we continue to progress on our strategic initiatives and that will strengthen our position in high-value industrial segments to build a strong platform for future profitable growth. So with that, I'd like to hand back to Sophie to help us get through the Q&A session.

Thank you, Rickard. So now it's time for opening up for questions.

And I know that there are many of you that want to ask questions. So please limit it to one question per person.

And if time allows, of course, you are very much welcome to so to say rejoin the Q&A queue again. And hopefully, we can also have time to answer your follow-up question.

[Operator Instructions] We will start with a question from our telephone line, and it comes from Alex Jones at Bank of America.

Great. If I could ask about tariffs, please.

Obviously, there have been changes recently to Section 232 on steel and aluminum. Could you talk a little bit the impact on your business given the higher rates and the lack of USMCA exemptions and sort of what actions you're taking in terms of pricing, cost actions, et cetera, to mitigate that?

And is that something that already impact Q2 and as part of your outlook that you can continue to largely offset those tariff impacts, or given your inventories, will that be something we see more effects from into Q3 and H2. And if it's the latter are you confident in still offsetting tariffs under this new Section 232 regime?

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

Happy to. Since this tariff situation started a year ago, we have been able through active price and mix actions being able to offset and mitigate the vast majority of the impact from these tariffs and what we know right now, we're going to continue to do so also in Q2 and as we move forward.

And your specific question on 232 is actually less impacting us because previously, we had some taxes on 50% of the value of our bearings. Now it's significant.

Now it's 100% of the bearing, but bearings are fall in the category of 25% tax. So basically, it's a wash for us.

So it will not have -- we don't see that that's going to have a significant implication. And therefore, our price mechanisms, both in terms of price increases and surcharges should be able to continue to offset the cost for tariffs also at the levels that are now being predicted through the change in 232.

We will continue with a question from our webcast audience, and it comes from John Kim at Deutsche Bank. And the question is, if we can help him with some color on price mix and volumes in Bearing Solutions and Specialized Industrial Solutions.

And if we see the Q1 margin improvement year-over-year in Specialized Industrial Solutions, as indicative of the year or more time and place. Rickard, do you want to take this one?

Yes. I think the margin improvement that we've seen in the quarter, as I described, came from particular activities or 2 drivers, one being mix and other being a good kind of product development or product portfolio development.

We don't guide by segment for the -- with the margins. I can't really say so much more than that, but we do not -- we do believe that our specialized industrial solutions business will follow the same kind of seasonality as our Bearing Business.

Yes. So that means Rickard that, as you said, Q1 is typically the strongest quarter.

And we can also say that as we talked about at the Capital Markets Day we target or aim for a margin in the ballpark of where we have the bearing solutions margin midterm. So it's an important driver for us to deliver on the plus 17% adjusted operating margin target for the SKF post automotive separation midterm.

So with that, let's continue with a question from our telephone line, and it comes from Rory Smith at Oxcap.

It's Rory from Oxcap. I actually just wanted to come back to that point on volume versus price mix in Bearing Solutions in the quarter.

If you could put a number on either a percentage point of the growth or an absolute number on how much of that was volume and how much of that volume was over production on the sort of building inventories ready for the spin. And has that stopped as of Q2?

Any sort of numbers around that particular point would be really helpful.

So we have somewhat of an overproduction, which is helping us on the organic development. So that really means that we have built some additional stock, which doesn't really sit in the sales yet.

It sits in the production results. So when it comes to price mix, I think it is really explained by a strong a strong portfolio, both pruning and mix with a good aftermarket business in the SIS sector particularly, and also good price management particularly in Industrial Americas, partly caused by the tariff situation.

And if I may here, just add on that overproduction it's around SEK 100 million than for the group impacting earnings positively, and it's in the organic bucket, as Susanne said. And it has to do with us producing more in Bearing Solutions ahead of the planned separation here.

It's in line with our plan to separate automotive.

Thank you, Rory. We will continue with a question from Sinha at JPMorgan.

My question is just on the savings versus the dissynergies that you saw first in the quarter and then I guess what you're saying on for the full year. So for Q1, I think the savings delivered was maybe perhaps faster or stronger than maybe we had.

So is that the positive impact in the quarter? Was that just more of the savings delivered rather than dissynergies perhaps being lower than first anticipated?

And then just on the full year comment, does this mean that for each quarter, the savings will be able to compensate for the negative dissynergies? Or is it just that Q1 was more net positive?

And as we go into the year, the bridge benefit into Q3, Q4 of the savings will be lower, and therefore, dissynergies will be higher?

Please share some light on this one.

Sure. No, your comment was correct that we do see experience that we had somewhat higher savings from our rightsizing program in the quarter than we maybe anticipated walking into the quarter.

The dissynergies have not changed or are in line with our expectation. And even though we don't quantify them, we do provide an indication that with SEK 300 million of savings, that indicates a slight net positive contribution after dis-synergies.

And as we move forward, we do believe that the dissynergies will roughly be at the level that we've seen in Q1 throughout the rest of the year quarter-by-quarter. And when we get talking about the savings for the full year, as I mentioned, we do believe that savings will be slightly net positive over our dissynergies, but in the second half, we're also going to meet the pay where we started to yield some benefits already in Q4 from the rightsizing.

And we will continue with a question from Daniela Costa at Goldman Sachs.

I also just wanted to ask a clarification on the question regarding overproduction, whether that's going to continue Q into and after or not. But my main question was regarding now that you've mentioned you have this new higher -- more contracts in automotive than you expected when you preannounced before the announcement of the spin.

Does that change any way how you think about the contract manufacturing timing and the impact that can have in industrial?

Rickard, will you talk about the overproduction and the contract manufacturing here?

Yes. We do believe that there might be some overproduction, building some additional safety stock also in Q2 as we move forward with the planned separation and the planned asset transfer.

So there might be some also in Q2 that you should expect. And when it comes to the speed of the asset transfers, the solid progress in winning new contracts and also in the winning the RFQs that I mentioned and the improved value of those contracts is, of course, positive.

That doesn't really change our ambition in terms of speed of moving assets. and thereby faster reducing the contract manufacturing.

We're already trying to do that with the highest possible speed that is doable. And we have put up a very, very aggressive scheme for ourselves on how to move all of these assets around at the shortest time possible.

Thank you, Rickard. And it's -- we also got questions on the same topic here from William Mackie at Kepler Cheuvreux.

So Will, I hope you also got your question answered here. So let's continue with another question from the telephone line.

And this time, it's from Klas Bergelind at Citi.

I just want to come back on the rightsizing that came in better than expectations. So I just want to look at the full year.

You say that this can be somewhat positive versus somewhat negative before, i.e. the difference between rightsizing and the synergies.

What delta is that in your view? Was somewhat negative before, perhaps SEK 200 million?

And when I do the sort of linear savings against the synergies now, I get to that to the sort of SEK 50 million to SEK 100 million plus. I just want to understand the delta a little bit better between the negative to the somewhat positive.

I don't know if you can help me with that.

But you're right. We have a good momentum in the rightsizing, and we even came in a little bit stronger than what we anticipated in quarter 4, and that good pace continues now with having realized savings of SEK 300 million, which is then somewhat positive instead of more than kind of the opposite somewhat negative that we guided on.

We believe that we will have a fairly linear development still. But I think the assumption that we're providing to have a net that is in the range of some SEK 100 million would be appropriate for the year of positive rightsizing compared to the synergy part.

Perfect. Very quick one for you, Rickard.

I just want to come back to Section 232. It's now 25% of total value of the bearings versus 50% on steel and aluminum copper content before.

I get a higher tariff impact for you from April 6, no drama, but still a bit higher. So, sorry, Rickard, can you explain more why this is a wash for you?

I didn't fully get that.

No, you're right. Previously, or the current scheme, we do pay roughly, if I kind of paint with a broader brush, 50% tariffs on 50% of the product value.

Now we're going to pay kind of 25% on 100% of the product value. So that's why I said it's going to be a wash.

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

So my understanding is that you started to see stronger sales in March compared to the previous 2 months of the first quarter. So I just wonder why are you not being more positive in your outlook for the second quarter?

Why are you not expecting that higher sales level that you saw in March continue to accelerate into the second quarter?

Rickard, would like to answer this one, I see.

Right. Normally, in the first quarter, we do see that the March is somewhat stronger than January and February.

But what we said is that we saw that it was unusually stronger this quarter than what we've seen in the past. So that has an impact also on AR, as we mentioned.

Now when we look into the trading activities and also what we see in April, we do see that it follow normal seasonality, and we cannot really point to a significant uptick in activities. And therefore, our best estimate is that the activity levels will be roughly the same in Q2 as it was in Q1.

And therefore, the comparison will indicate that we will see a somewhat positive growth.

Can I just follow up? So you are not expecting weaker demand in the, say, in the coming months and in April because of the situation in the Middle East that could potentially come on top of your outlook?

What we see right now that the Middle East situation is included in our outlook. Just to state -- kind of put this in context, Middle East for us equates to roughly 1% of group sales.

So it's not massive. And it has been having an impact, as I mentioned, especially in Bearing Solutions for EMEA during Q1, and that is probably the case also in Q2.

And let's hope that this war ends soon. But given what we see right now and the best estimate we can give is what we now have actually is the outlook that we provided.

Thank you, Andreas. And we will continue with a question here from the webcast audience, and it comes from Olof Larshammar at Danske Bank.

And it goes like this. I've heard that some of your competitors have recently announced list price increases in distribution to compensate for recent increases in energy and steel cost post war in Iran.

Have SKF announced similar increases? Or is that to come?

Susanne, please?

So generally, I think over -- ever since the Liberation Day with a sizable tariff that we have been facing, we have been successful in passing through the majority of that with price increases or surcharges. Now when we are facing the Middle East crisis, we are taking similar actions as soon as possible.

And that means that we are out in the market adjusting our price list during this quarter already and anticipate to have somewhat an effect on that already in quarter 2.

Thank you. And let's go back to the telephone line.

And we have a question here from Tim Lee at Barclays.

So, another question has probably asked, we just want to follow up a little bit on the margin. I think there's also one aspect that you mentioned will be on the pre-buy impact in vehicle after market segments.

And how was the impact in the quarter, and whether it will be similar, like, repeating this in the coming quarter? And what's the reason for that pre-buy?

Tim, let me clarify a little bit about that prebuy impact. So for group, it was marginal in terms of group margin and say it was 40 bps on automotive margin.

Let's continue with a question here from our webcast audience. And also, I believe that also answer your questions that you sent in here.

So otherwise, please come back to us. We have a question from William Mackie again at Kepler Cheuvreux.

It's on net working capital here. Net working capital as a percentage of rolling sales surged to 34.6% from 30.4% at year-end, adding approximately SEK 1.8 billion to SEK 2 billion of incremental cash absorption relative to the prior normal range.

What is the expected net working capital to sales ratio at year-end '26 on management's base case? And what point do separation -- and at what point do separation-driven safety stocks normalize?

So this is really a CFO question. Susanne, please?

Yes. So we ended last year at around 32%.

And as you rightly say, we have increased up to 34% of sales this quarter, partly explained by buildup of stock to cater for the planned channel transfers. We anticipate some overproduction and hence, having certain stock implications also in the next quarter.

And we believe that will normalize during the end of this year. So that's what we see.

This means that what we talked about as normalized at the Capital Markets Day of some 29% of sales until long term coming down to 27% will not realize this year. So this year is more of a year where we will be in line with what we had last year full year value.

And we will face some negative implications until the separation really.

Thank you. And let's continue with a question from the telephone line, and it comes from John Kim at Deutsche Bank.

I was wondering if we could talk a little bit about the separation. I think it's still scheduled for November 20 -- this year.

Can you talk about signposts when we should expect different kind of processes and documents?

Rickard, do you want to share some light?

I will. And we do plan and we are committed to finalize this process during Q4 this year.

So we reconfirm that. That means that you should expect to hear more to get information brochure and prospectus will come during this fall.

So after summer, you should expect to start to see more communication in terms of information brochure then followed by a extra Annual General Meeting or an EGM. And then, of course, the automotive team will be out there with their own Capital Markets Day communication also during fall this year.

So basically, more information will follow here second half. Thank you, John.

Let's continue with a question from Chit Sinha at JPMorgan.

Can you just provide more color on the decision to consolidate the Americas facility? If I'm correct, you were adding capacity to Monterrey early last year?

And then was this expected when you issued the 2026 guide?

Well the consolidation in Americas and the closure of the Monterrey factory and moving that into 2 other factories in the Mexico region was part of the plan for our separation. It was included in the framework we gave at the Capital Markets Day for the cost of the footprint consolidation and the items affecting comparability that we need to take in midterm over the next few years to come.

So that has always been the plan. When the investment decision was taken a couple of years ago to build this capability or this factory was based on a very different outlook when it comes to how the Americas electrification of the light vehicle fleet and the speed of that, that has really been a very, very significant change in those forecasts since then.

And hence, this factory is actually oversized, and we will be much better off by consolidating our industrial footprint in one part of Mexico and our automotive footprint in another part of Mexico. And as I said, this was part of the guidance that we gave at the Capital Markets Day.

Thank you, Rickard. We will continue with a question from the webcast.

Here is from Rory Smith at Oxcap, and it's on Middle East. So have we seen anything at all in our supply chains?

And Rory is thinking specifically about lubricants, but any comment is appreciated. Rickard, I hand it to you.

Again, just to put this in context, our total net sales in the region equates to roughly 1% of our sales. So the direct impact from that point of view is not massive for us.

Clearly, the increases in fuel prices has an impact. And as you heard Susanne mentioned, we are already taking actions in order to compensate ourselves for increased fuel costs.

But to your specific question, have we seen any disturbances in our supply chains? We can't really point to anything of any significance so far.

And that has not been the case for us. And furthermore, I do believe that the -- maybe the biggest concern that we have regarding how long this conflict will last is what this will do to global demand.

And that question, I think we all can speculate and we only will know once we see the war come to an end.

Thank you. And it's now time for the final question here, and it comes from Andreas Koski at BNP Paribas.

It's a housekeeping question for Susanne, because when I look at your outlook, you're guiding for a tax level of 28%, but that's excluding effects related to divested businesses and the separation of the automotive business. So I wonder if there will be any significant tax implications because of the auto spin.

And then secondly, you're also guiding for a CapEx level of SEK 5 billion, and that is excluding CapEx related to the separation of the auto business. So also there, will the separation of the auto business lead to a lot of extra CapEx in 2026 that we should take into account?

So coming -- first, taking the 28% tax guidance then. And yes, we are -- as part of the separation country by country, we are facing some legislative implications on tax.

And that actually will happen also as we finalize the separation country by country. So we had that in last year's result to some extent, and we envisage that to happen also in this.

And that's why we guide on the underlying 28% being the kind of guidance for 2026. Then you had the question, let's see what that was.

What was that?

We're guiding on CapEx for the full year now of around SEK 5 billion, and it's total CapEx for the group, so including automotive separation. Just to clarify that.

Thank you, Andreas. And I hand over -- and that concludes the Q&A session for this time, and I hand over to you, Rickard.

Thank you, Sophie. And thanks to all of you in the audience for joining us on this call and for your insightful questions.

I believe that we do deliver a strong report in Q1 this year. We are pleased with a couple of things, especially pleased with a couple of things in this quarter.

The fact that we are seeing an improved margin in our Specialized Industrial Solutions is very strong and positive. The fact that we are delivering ahead of our own plans when it comes to the rightsizing activities yielding a slight positive net after the synergies.

It's also something I think is strong. And also in general, that our automotive business is demonstrating that they can and will build an even stronger platform for future growth as they now become more independent and that also made them deliver a stable margin despite rather tough headwinds from FX.

It's also a good sign. And we are determined to conclude our separation by Q4 this year, as I mentioned.

And we are excited about the future of the industrial business, building even stronger foothold and presence in key industrial verticals where we can really add significant value and drive further profitable growth. So with that, I thank you so much for your attention, and I wish you a great week ahead.