SKF — Annual Report (ESEF) 2022

Mar 1, 2023

Annual Report 2022

Intelligent and clean growth

Did you know that 20% of all energy is used to overcome friction? Our aim is to minimize that waste.

FINANCIAL STATEMENTS, PARENT COMPANY

Parent Company, AB SKF ........................................................................................... 80
Parent Company income statements ........................................................................... 80
Parent Company statements of comprehensive income ............................................................................... 80
Parent Company balance sheets ............................................................................... 81
Parent Company statements of cash flow ................................................ 82
Parent Company statements of changes in equity ................................... 82
Notes to the financial statements of the Parent Company ................... 83
Proposed distribution of surplus ............................................................... 89
Auditor’s Report ........................................................................................... 90

SUSTAINABILITY STATEMENTS

............................................................................................. 92
Sustainability governance .......................................................................... 93
SKF’s material topics ................................................................................... 99
Economic category ........................................................................................ 99
Environmental category ........................................................................... 102
Social category ........................................................................................... 110
GRI content index ....................................................................................... 121
The EU Taxonomy ...................................................................................... 126
Auditor’s Limited Assurance Report on the Sustainability Report and statement regarding the Statutory Sustainability Report .......... 130

CORPORATE GOVERNANCE REPORT

.................................................................................. 131
Board of Directors ..................................................................................... 136
Auditor’s Report on the Corporate Governance Report ...................... 139
Group Management ................................................................................... 140

GROUP DATA

.................................................................................................. 142
Seven-year review ...................................................................................... 142
Three-year review ..................................................................................... 143
Per-share data ........................................................................................... 143
Distribution of shareholding .................................................................... 143
Definitions ................................................................................................... 144
Alternative performance measures ....................................................... 145
General information .................................................................................. 146

REMUNERATION REPORT

........................................................................................ 147

Contents

THIS IS SKF

2022 in brief ..................................................................................................... 4
This is the SKF Group ...................................................................................... 6
Industrial and Automotive businesses ........................................................ 8
We are SKF ..................................................................................................... 10
President’s letter .......................................................................................... 11

VALUE CREATION AND STRATEGY

.................................................................................. 14
Invest and join our journey .......................................................................... 15
Trends and drivers ....................................................................................... 17
Strategic value creation ............................................................................... 18
Sustainability framework ........................................................................... 25
Long-term targets ....................................................................................... 26
Sustainability targets .................................................................................. 28

THE BEARING MARKET

............................................................................................... 30
Preferred brand in the global bearing market ........................................ 31
The bearing market, SKF’s regions ........................................................... 32
SKF’s global presence .................................................................................. 33

RISKS AND THE SHARE

............................................................................................... 36
Risk management ......................................................................................... 37
The SKF share................................................................................................ 40
Capital structure, financing, credit rating and dividend policy .............................................................................................. 42
Nomination of Board members and notice of Annual General Meeting .............................................................. 42

FINANCIAL STATEMENTS

.......................................................................................... 43
Consolidated income statements .............................................................. 44
Consolidated statements of comprehensive income ........................................................................... 44
Consolidated balance sheets ....................................................................... 46
Consolidated statements of cash flow ....................................................... 48
Consolidated statements of changes in equity ....................................... 51
Notes to the consolidated financial statements ...................................... 52

SUSTAINABILITY REPORT

Sustainability disclosures in the Annual Report have undergone limited assurance engagement by SKF’s auditors. See the Auditor’s Limited Assurance Report on the Sustainability Report and statement regarding the Statutory Sustainability Report on page 130.

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894500JU9WRAJQOVBI12	2016-01-01	2016-12-31

THIS IS SKF

BACK TO START

PRESIDENT’S LETTER

VALUE CREATION AND STRATEGY

THE BEARING MARKET

RISKS AND THE SHARE

SUSTAINABILITY

STATEMENTS

CORPORATE GOVERNANCE

REMUNERATION REPORT

GROUP DATA

FINANCIAL STATEMENTS

2022 in brief

SKF’s long-term targets

• A new strategic framework, including a decentralized operating model and organizational structure, was presented and implemented.
• Decision to cease all business and operations in Russia. The Russian business was divested in the second quarter.
• Issued a second Green Bond, which raised EUR 400 million to fund eligible green projects in accordance with our Green Finance Framework.
• Acquisition of Tenute, an Italian seals manufacturer that develops and manufactures sealing solutions for various industrial applications.
• Investments of a total of SEK 1.25 billion to increase our regional capabilities and competitiveness across China, India and Southeast Asia.
• Awarded top sustainability ratings, including a Platinum medal from EcoVadis, and an A– Climate Change rating from the CDP.

	Target	2022 outcome
Operating margin 1)	14%	10.5%
Revenue growth 3)	5%	8.1%
Net debt 4) /equity	<40%	19.3%
ROCE 1)	16%	12.6%
Dividend pay-out ratio	50%	65.7%
Net zero by 2030 emissions 5)	zero	–46.5%

The long-term targets shall be achieved over a business cycle.
1) Adjusted for items affecting comparability.
2) Net cash flow from operating activities.
3) Including acquisitions, adjusted for divestments.
4) Excluding pension liabilities.
5) Absolute reduction in scope 1 and 2 emissions since 2015 base year.

SKF ANNUAL REPORT 2022

THIS IS SKF

• BACK TO START
• PRESIDENT’S LETTER
• VALUE CREATION AND STRATEGY
• THE BEARING MARKET
• RISKS AND THE SHARE
• SUSTAINABILITY STATEMENTS
• CORPORATE GOVERNANCE
• REMUNERATION REPORT
• GROUP DATA
• FINANCIAL STATEMENTS

Our Automotive business

	2022	2021	2020
MSEK
Net sales
Operating margin 1)	3.6%	3.9%	0%

One of the leaders in e.g. the development of components for automotive electrification and wheel-end solutions. A strong position in application-driven powertrain solutions, and a strong global position in the aftermarket with an extensive distribution network.

• Customized bearings, seals and related products for e-powertrain, wheel-end, driveline, engine, suspension and steering applications to manufacturers of electrical vehicles and commercial vehicles.
• Supplying the vehicle aftermarket with spare parts, both directly and indirectly through a network of more than 10,000 distributors.

Net sales by geographic area - Automotive

• China and Northeast Asia, 16%
• India and Southeast Asia, 10%
• The Americas, 32%
• Europe, Middle East and Africa, 42%

Net sales by customer industry - Automotive

• Light vehicles, 50%
• Vehicle aftermarket, 32%
• Commercial vehicles, 18%

Net sales by geographic area - Automotive

• China and Northeast Asia, 16%
• India and Southeast Asia, 10%
• The Americas, 32%
• Europe, Middle East and Africa, 42%

BY REGION

Demand rebounded strongly from last year with an organic growth of 7.2%, driven by light vehicles. The adjusted operating margin was 3.6%, mainly impacted by material and energy costs, which was not fully offset by a positive price/mix. Our ceramic bearings offer to the EV industry continues to strengthen, with significant new OEM contracts signed in both China and Europe.

Development 2022

1. Our offering
2. Our position
3. 130 – 150 MARKET VALUE 2), SEK BILLION
4. 4% to 6% BEARINGS MARKET DEVELOPMENT
5. 2022
6. 28% SHARE OF NET SALES
7. 8% SHARE OF OPERATING PROFIT

1) Adjusted for items affecting comparability
2) Total value of accessible bearings market

SKF ANNUAL REPORT 2022

THIS IS SKF

• BACK TO START
• PRESIDENT’S LETTER
• VALUE CREATION AND STRATEGY
• THE BEARING MARKET
• RISKS AND THE SHARE
• SUSTAINABILITY STATEMENTS
• CORPORATE GOVERNANCE
• REMUNERATION REPORT
• GROUP DATA
• FINANCIAL STATEMENTS

We are SKF

Kristine Ahlborg Delvin
Global Graduate Sustainability, Sweden

“My MSc in Industrial Ecology has given me the tools to apply a system perspective considering people, the environment and society that helps me contribute to the projects I am involved in through SKF’s Global Graduate Programme. For example, I am managing a project on biodiversity aiming to understand SKF’s ability to make a positive contribution to this global issue.”

Yair Zeinberg
Automotive Business Development Manager, Latin America

“SKF is one of the top-of-mind brands by mechanics. Development and engineering teams are therefore always working with a one-stop shop strategy to deliver a complete product portfolio to meet the market needs. But this challenge is only possible thanks to our teamwork and integration.”

Sangho Kim
Senior Buyer, Republic of Korea

“In our pull-oriented production system, eliminating waste is very important. The best way to do this is to improve my own skills and understanding of the whole process. For example, by having a good understanding of the procurement process and knowing exactly where the costs occur, I can reduce the unnecessary costs.”

Bogdan Volchok
Managing Director SKF Ukraine

“Naturally, 2022 was a very difficult year for us and what we experienced is something that you cannot prepare for. In this difficult external environment, family, our local team and our common purpose helped us to stay up and keep the business going. When you run a business in such conditions, you don’t have time for analysis, you just make immediate decisions driven by customer demand and needs. All the time, we have received strong support from SKF as a company, from various local units and employees. This support was, and still is, incredibly important and does not make us feel alone. For 2023, we hope that peace will come and that we will be able to continue the development of our business.”

Being able to successfully implement a strategy that will change SKF in the long-term depends on having people in the company with the necessary skills. We need to develop people who know the business and context of SKF, but also bringing new people on-board with new sets of skills and mindsets.

SKF ANNUAL REPORT 2022

THIS IS SKF

• BACK TO START
• PRESIDENT’S LETTER
• VALUE CREATION AND STRATEGY
• THE BEARING MARKET
• RISKS AND THE SHARE
• SUSTAINABILITY STATEMENTS
• CORPORATE GOVERNANCE
• REMUNERATION REPORT
• GROUP DATA
• FINANCIAL STATEMENTS

“We have an outstanding position in our industry”

2022 was a year in which we accelerated our strategic development in earnest. But our journey has only started, and we will continue to work hard on delivering on our promises and to further strengthen our company.

CEO Rickard Gustafson

SKF ANNUAL REPORT 2022

THIS IS SKF

• BACK TO START
• PRESIDENT’S LETTER
• VALUE CREATION AND STRATEGY
• THE BEARING MARKET
• RISKS AND THE SHARE
• SUSTAINABILITY STATEMENTS
• CORPORATE GOVERNANCE
• REMUNERATION REPORT
• GROUP DATA
• FINANCIAL STATEMENTS

Looking back at 2022, what are your reflections on what happened inside SKF, as well as externally?

“It has for sure been a very special year with a lot of exciting and energizing opportunities, but also a year with very difficult external circumstances. The main milestone for me was our new Intelligent and Clean strategy that we launched in February. Since then, we have worked diligently on executing the strategy, including the implementation of a new organization and a new operating model. Our continued focus is on creating a more customer centric, profitable, faster growing and leaner SKF. In hindsight, 2022 also brought significant unforeseen disruptions in the world around us where we have had to navigate challenges associated with the war in Ukraine, the pandemic and related lock downs, particularly in China, as well as a high and accelerating global cost inflation. The war in Ukraine has of course had a massive impact on many societies, organizations and businesses. For SKF, it caused significant challenges to our supply chain and production robustness, but even more alarming, to the safety and well-being of our 1,100 colleagues in Ukraine. Naturally, people safety has maintained our top priority throughout the crisis. I’m both proud and impressed by our colleagues’ ability to keep our Lutsk factory operational given the extreme conditions. To see the continuous support with numerous local initiatives from colleagues across SKF’s global operations to help people in need really warmed my heart. The war also meant that we had to take a regretful, but necessary, decision to exit Russia. The entire exit process was swiftly executed in a controlled manner and was completed within a six-month period. When it comes to our financial results for 2022, we delivered strong organic growth at 8.1%. Despite all our efforts, the external headwinds had a substantial effect on our earnings bringing the adjusted operating margin for the year to 10.5%.”

How have you worked with implementing the strategy during 2022?

“In addition to addressing these macro challenges, we have worked hard on delivering on our promises and to further strengthen our offering and competitiveness. Acceleration of our strategy is key to this, and I’m pleased to say that we made some good progress in 2022. Following the launch of our strategy in February, our new organization became operational in March and our new operating model with six business areas with full end-to-end accountability was effective as of May. We also have a new management team in place to drive the continued transformation. All-in-all this brings us closer to our customers, it brings transparency and accountability, and it improves speed in decision making.”

What else has been done to drive profitable growth?

“Our targeted high growth segments represent a significant part of our sales and, in 2022, we saw double-digit growth in most of these industries. By investing in these growth areas, we are also delivering on our strategic transformation. We are also making progress in transforming and pruning our portfolio. Portfolio management is an important piece in our work to create an even stronger and sharper SKF. There are many dimensions to portfolio management where our continued focus is on creating a more customer centric, profitable, faster growing and leaner SKF. This includes looking at our portfolio from industry, business and customer perspectives. One example is the strategic review of our Aerospace business which we announced in 2022. In addition, we are increasing the pace of automation in our factories, as well as reducing fixed costs. With all these activities and more, both in 2022 and onwards, I’m confident that we are on our way towards reaching our long-term targets.”

20% of all energy is used to overcome friction. How can SKF minimize that waste?

“Sustainability is an integral part of SKF and has been for many years. We have come a long way in terms of making our own operations more energy efficient, and in combination with the use of green energy, we strive for zero emissions in our own operations by 2030. In 2022, we reached another major milestone on our 2030 journey. For the first time, more than half of all the electricity used in our operations around the world was generated from renewable energy sources like wind and solar. We also continue to support the UN Global Compact initiative and its principles and the Global Goals for 2030.

SKF ANNUAL REPORT 2022

THIS IS SKF

• BACK TO START
• PRESIDENT’S LETTER
• VALUE CREATION AND STRATEGY
• THE BEARING MARKET
• RISKS AND THE SHARE
• SUSTAINABILITY STATEMENTS
• CORPORATE GOVERNANCE
• REMUNERATION REPORT
• GROUP DATA
• FINANCIAL STATEMENTS# SKF ANNUAL REPORT 2022

THIS IS SKF

BACK TO START
PRESIDENT’S LETTER
VALUE CREATION AND STRATEGY
THE BEARING MARKET
RISKS AND THE SHARE
SUSTAINABILITY
STATEMENTS
CORPORATE GOVERNANCE
REMUNERATION REPORT
GROUP DATA
FINANCIAL STATEMENTS

The fact that 20% of all energy used in the world is wasted in overcoming friction is truly astonishing. As combatting friction is crucial in reducing energy waste in any operation, we are instrumental in helping our customers to achieve this. In fact, process efficiency and elimination of energy losses are becoming even more important to customers. As is the environmental footprint of their suppliers. Our own efforts and remanufacturing capabilities, in combination with our leading ability to share CO2e footprint per bearing transparently with our customers is already a competitive advantage to win business. In addition to reducing energy waste, we are also an integral part of new and rapidly growing emerging clean-tech industries. This means that the general mega trend to strive for a more sustainable future further amplifies our growth potential.”

What will be most important for SKF in 2023?
“It’s all about delivering, operationally as well as financially. The continued implementation of our strategy will be focused on several key operational levers for profitable growth. These include activities related to the targeted growth areas, portfolio management, pricing, technology and innovation, and efficiency. In addition, we will address various areas to further strengthen our commercial excellence, for example by improving processes and governance, as well as upgrading analytical capabilities and tools to ensure data driven decisions and leading indicators.”

What makes SKF unique and why will you succeed?
“We have an outstanding position in our industry. Our customers appreciate our consistent and excellent quality, the performance of our products and services, our broad customer offering and our global presence and wide reach. I see our leading position in many industrial niches and segments as a proof point of the significant customer value that we provide. At the same time, there are a lot of things that are changing in this great company of ours. We are on a cultural transformation, and with our new organization with clear ownership and accountability, combined with a data-driven and decentralized operating model, we have several important building blocks in place to accelerate our transformation. Finally, at SKF, we have great people! In a year such as 2022 with very difficult external circumstances, I’m impressed and proud of all the hard work from our employees in all geographies in supporting each other, our customers and safeguarding our business. This makes me absolutely convinced that our exciting journey will continue in 2023.”

We have come a long way in terms of making our own operations more energy efficient.

Financial statements

FINANCIAL STATEMENTS OF THE PARENT COMPANY

• Parent Company income statements and statements of comprehensive income ..................................................................... 80
• Parent Company balance sheets ........................................................ 81
• Parent Company statements of cash flow ........................................ 82
• Parent Company statements of changes in equity ......................... 82

NOTES TO THE FINANCIAL STATEMENTS OF THE PARENT COMPANY

• Note 1 Accounting policies ............................................................ 83
• Note 2 Revenues and operating expenses ................................. 83
• Note 3 Financial income and financial expenses ...................... 83
• Note 4 Appropriations .................................................................... 84
• Note 5 Taxes ..................................................................................... 84
• Note 6 Intangible assets ................................................................ 84
• Note 7 Property, plant and equipment ....................................... 85
• Note 8 Investments in subsidiaries ............................................. 85
• Note 9 Investments in equity securities ..................................... 87
• Note 10 Provisions for post-employment benefits .................... 88
• Note 11 Loans..................................................................................... 88
• Note 12 Salaries, wages, other remunerations, average number of employees and men and women in Management and Board ................................................... 88
• Note 13 Contingent liabilities .......................................................... 88

Consolidated income statements and consolidated statements of comprehensive income .................................................................... 44

Comments on the consolidated income statements ..................... 45

Consolidated balance sheets .............................................................. 46

Comments on the consolidated balance sheets ............................. 47

Consolidated statements of cash flow ............................................... 48

Comments on the consolidated statements of cash flow .............. 49

Consolidated statements of changes in equity and comments ... 51

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

• Note 1 Accounting policies ........................................................... 52
• Note 2 Segment information ........................................................ 53
• Note 3 Acquisitions ......................................................................... 55
• Note 4 Divestment of businesses ................................................ 55
• Note 5 Research and development .............................................. 55
• Note 6 Expenses by nature ........................................................... 56
• Note 7 Other operating income and expenses .......................... 56
• Note 8 Financial income and financial expenses ...................... 56
• Note 9 Taxes ..................................................................................... 57
• Note 10 Intangible assets ................................................................ 58
• Note 11 Property, plant and equipment ....................................... 60
• Note 12 Right-of-use assets ........................................................... 62
• Note 13 Inventories ........................................................................... 63
• Note 14 Financial assets .................................................................. 64
• Note 15 Other short-term assets .................................................. 65
• Note 16 Share capital ....................................................................... 66
• Note 17 Earnings per share ............................................................. 66
• Note 18 Provisions for post-employment benefits .................... 66
• Note 19 Other provisions and contingent liabilities ................... 70
• Note 20 Financial liabilities .............................................................. 71
• Note 21 Other short-term liabilities .............................................. 72
• Note 22 Related parties including associated companies......... 72
• Note 23 Remuneration to key management ................................ 72
• Note 24 Fees to the auditors ........................................................... 76
• Note 25 Average number of employees ........................................ 76
• Note 26 Financial risk management ............................................. 77
• Note 27 Non-controlling interests ................................................. 79

Amounts in MSEK unless otherwise stated. Amounts in parentheses refer to comparable figures for 2021. The Administration Report is presented on pages 14–89. It has been audited by SKF’s external auditors. See the Auditor’s Report on pages 90–91. According to the Swedish Annual Accounts Act chapter 6, §11, SKF’s statutory sustainability report is prepared as a separate report. The scope of this Sustainability Report is presented on page 92.

Contents
SKF ANNUAL REPORT 2022 43
THIS IS SKF
BACK TO START
PRESIDENT’S LETTER
VALUE CREATION AND STRATEGY
THE BEARING MARKET
RISKS AND THE SHARE
SUSTAINABILITY
STATEMENTS
CORPORATE GOVERNANCE
REMUNERATION REPORT
GROUP DATA
FINANCIAL STATEMENTS

	January–December
MSEK	Note	2022
Net sales	2	96,933
Cost of goods sold	6	–72,465
Gross profit		24,468
Research and development expenses	5	–3,177
Selling expenses	6	–11,362
Administrative expenses	6	–661
Other operating income	7	1,321
Other operating expenses	7	–2,081
Income from associated companies	7	24
Operating profit		8,532
Financial income	8	120
Financial expenses	8	–1,359
Profit before taxes		7,293
Income tax	9	–2,438
Net profit		4,855
Net profit attributable to:
Shareholders of AB SKF		4,469
Non-controlling interests		386
Basic earnings per share (SEK)	17	9.81

	January–December
MSEK	Note	2022
Net profit		4,855
Items that will not be reclassified to the income statement
– Remeasurements of post-employment benefits	18	3,674
Income tax	9	–898
		2,776
Items that may be reclassified to the income statement
– Currency translation adjustments		3,846
Assets at fair value through other comprehensive income	14	–16
Income tax	9	4
		3,834
Other comprehensive income, net of tax		6,610
Total comprehensive income		11,465
Total comprehensive income attributable to Shareholders of AB SKF		10,998
Non-controlling interests		467

Consolidated income statements
Consolidated statements of comprehensive income
SKF ANNUAL REPORT 2022 44
THIS IS SKF
BACK TO START
PRESIDENT’S LETTER
VALUE CREATION AND STRATEGY
THE BEARING MARKET
RISKS AND THE SHARE
SUSTAINABILITY
STATEMENTS
CORPORATE GOVERNANCE
REMUNERATION REPORT
GROUP DATA
FINANCIAL STATEMENTS

Comments on the consolidated income statements

General
The# Group financial review

Group’s income statement for 2022 included the result of one smaller acquired business in Belgium for the period 10 January–31 December. It also included the result from the divested business in Russia for the period 1 January–30 April and the divested business in Mozambique for the period 1 January–30 November.

Net sales

In 2022, net sales amounted to MSEK 96,933 (81,732) corresponding to an increase of 18.5% compared to 2021. The change of the Swedish krona towards other currencies had a positive impact in 2022 of +11.9%. Structural changes accounted for –1.5%. Net sales in local currencies increased with 8.1%, driven by higher sales volumes in all regions.

Sales development y-o-y, %

Sales development y-o-y, %	Q1	Q2	Q3	Q4	Full year
Organic	6.5	5.4	11.0	9.7	8.1
Structure	—	–1.9	–2.0	–1.8	–1.5
Currency	9.0	10.6	15.0	13.0	11.9
Total	15.5	14.1	24.0	20.9	18.5

Operating profit

Operating profit for the year was MSEK 8,532 (10,758). Operating profit was positively impacted by sales volumes, price, customer mix and currency effects. Operating profit was negatively impacted by cost increases, mainly related to material, energy, and logistics. Operating profit included items affecting comparability of MSEK –1,672 (–81) whereof MSEK –675 related to the divestment of the business in Russia, MSEK –851 (–466) related to restructuring and cost reduction program mainly in Europe and MSEK –146, net (+385) related to impairments, customer settlements and gain from sale of business in 2022 and gain on sales of assets and impairments in 2021.

Financial income and expenses, net

The financial income and expenses, net for 2022 was MSEK –1,239 (–695). Exchange rate fluctuations had a more negative effect in 2022 compared to 2021 and interest expenses was higher in 2022. For more information about the changes year-over-year, see Note 8.

Taxes

The effective tax rate for the year was 33% (25). The tax rate in 2022 was negatively impacted by the loss from divestment of business in Russia. Adjusted for this the tax rate would have been 31%. For more information, see Note 9.

Values by quarter

MSEK	Q1	Q2	Q3	Q4	Full year
Net sales	22,942	23,655	24,975	25,361	96,933
Operating profit	2,953	1,581	1,929	2,069	8,532
Profit before taxes	2,885	1,097	1,618	1,693	7,293
Basic earnings per share (SEK)	4.36	1.08	2.41	1.96	9.81

Consolidated balance sheets

As of 31 December

MSEK	Note	2022	2021
ASSETS
Non-current assets
— Goodwill	10	12,351	10,924
— Other intangible assets	10	5,842	6,018
— Property, plant and equipment	11	24,897	20,723
— Right-of-use assets	12	3,084	2,661
— Long-term financial assets	14	1,224	1,213
— Deferred tax assets	9	3,173	3,839
— Other long-term assets		557	461
		51,128	45,839
Current assets
— Inventories	13	26,052	20,997
— Trade receivables	14	16,905	13,972
— Other short-term assets	15	5,614	5,163
— Other short-term financial assets	14	969	438
— Cash and cash equivalents	14	10,255	13,219
		59,795	53,789
Total assets		110,923	99,628
EQUITY AND LIABILITIES
— Equity attributable to shareholders of AB SKF		51,927	43,645
— Equity attributable to non-controlling interests	27	2	116
		51,929	43,761
Non-current liabilities
— Long-term financial liabilities	20	18,933	13,293
— Long-term lease liabilities	12, 20	2,286	2,179
— Provisions for post-employment benefits	18	8,748	11,781
— Deferred tax provisions	9	1,365	1,040
— Other long-term provisions	19	1,066	1,412
— Other long-term liabilities		42	33
		32,440	29,738
Current liabilities
— Trade payables	20	11,594	9,881
— Short-term provisions	19	1,239	1,105
— Short-term lease liabilities	12, 20	635	579
— Other short-term financial liabilities	20	281	3,285
— Other short-term liabilities	21	10,691	9,675
		24,440	24,525
Total equity and liabilities		110,923	99,628

Comments on the consolidated balance sheets

Net working capital

On 31 December 2022, net working capital as percentage of sales was 32.4% (30.7) consisting of the following components:

• Inventories amounted to MSEK 26,052 (20,997) being 26.9% (25.7) of annual sales. The increase in inventories was attributed to currencies by MSEK 1,957 and to volumes by MSEK 3,098 net of divestments and acquisitions.
• Trade receivables amounted to MSEK 16,905 (13,972) which is 17.4% (17.1) of annual sales. The change in trade receivables was attributable to currencies with MSEK 1,136 and to volume increase with MSEK 1,797, net of divestments and acquisitions. The average days of outstanding trade receivables were 64 days (64).
• Trade payables amounted to MSEK 11,594 (9,881) corresponding to 12.0% (12.1) of annual sales. The change attributable to currencies was MSEK 824 and the remaining MSEK 889 was due to volume increase, net of divestments and acquisitions.

Plant and property

On 31 December 2022, plant and property amounted to MSEK 24,897 (20,723). This was as a percentage of annual sales 25.7% (25.4). The change attributable to currencies was MSEK 1,516.

Net debt

Net debt amounted to MSEK 19,034 (17,360) at the end of 2022.

Post-employment benefit provisions totalled MSEK 8,621 (11,711) at year end, representing a net decrease of MSEK 3,090 (net decrease of 3,425), which was attributable to:

• Cash payments of MSEK –1,080 (–1,740)
• Actuarial gains and losses of MSEK –3,674 (–2,751)
• Expenses of MSEK +736 (+684)
• Acquired/divested businesses of MSEK 0 (0)
• The remainder was attributable to currency translation differences.

Loans totalled MSEK 18,346 (16,454), at the end of 2022, representing an increase of MSEK 1,892. The change was primarily attributable to a net increase between the repayment of a bond due and a new bond issued during the year of MSEK 1,044 and currency translation effects of MSEK 862.

Equity

During the year, equity increased from MSEK 45,365 to MSEK 54,043. Net profit amounted to MSEK 4,855 (7,579) and dividends paid were MSEK 3,249 (3,012). Currency translation had a negative effect of MSEK –3,846 (–2,759). Remeasurements had a positive net of tax effect of MSEK 2,780 (2,059).

The capital structure target is a net debt/equity ratio, excluding pension liabilities, below 40%. This together with the self-funding principle in the new strategic framework, operating cash flow to fund investments and shareholder distribution, underpins the Group’s financial flexibility and its ability to execute on the strategy, while maintaining a strong credit rating. On 31 December 2022, the net debt/equity ratio, excluding pension liabilities was 19.3% (12.5).

Consolidated statements of cash flow

January–December	MSEK	Note	2022	2021
Operating activities
Operating profit			8,532	10,758
Adjustments for
— Depreciation, amortization and impairment	6	3,784	3,305
— Net gain on sales of businesses and property, plant and equipment		598	–436
— Other non-cash items		1,530	–758
— Income taxes paid		–2,572	–2,250
— Contributions to and payments under post-employment defined benefit plans	18	–882	–810
— Associated companies		–87	66
Changes in working capital
— Inventories		–3,233	–4,308
— Trade receivables		–1,900	–931
— Trade payables		990	970
— Other operating assets and liabilities, net		237	322
— Interest and other financial items		–1,356	–680
Net cash flow from operating activities		5,641	5,248
Investing activities
— Additions to intangible assets	10	–183	–68
— Additions to property, plant and equipment	11	–5,030	–3,822
— Sales of property, plant, equipment, and intangible assets	10, 11	176	52
— Acquisitions of businesses, net of cash and cash equivalents	3	–83	–40
— Divestments of businesses, net of cash and cash equivalents	4	–133	733
— Investment in/sale of equity securities		–93	–3
Net cash flow used in investing activities		–5,346	–3,148
Net cash flow after investments before financing		295	2,100
Financing activities
— Proceeds from medium- and long-term loans		4,402	3,148
— Repayments of medium- and long-term loans		–3,358	–2,126
— Payments of leases		–809	–738
— Cash dividends to shareholders of AB SKF and non-controlling interests		–3,249	–3,012
— Funding of post-employment benefits		–198	–930
— Investments in financial assets		–304	–33
— Sales of financial assets		116	178
Net cash flow used in/from financing activities		–3,400	–3,513
Net cash flow		–3,105	–1,413
Cash and cash equivalents at 1 January		13,219	14,050
— Cash effect excluding acquired/sold businesses		–2,963	–1,386
— Cash effect from acquired/sold businesses		–143	–27
— Translation effect		142	582
Cash and cash equivalents on 31 December		10,255	13,219	# FINANCIAL STATEMENTS

Comments on the consolidated statements of cash flow

The consolidated statements of cash flow have been adjusted for exchange rate effects arising upon the translation of foreign subsidiaries’ balance sheets to SEK, as these do not represent cash flows. Cash and cash equivalents comprise cash free, cash on time deposits at banks and debt securities maturing within three months at the time of the investment.

Cash flow from operating activities

Net cash flow from operating activities, which is the primary cash flow measure used in the Group, amounted to MSEK 5,641 (5,248) in 2022. Other non-cash items included expenses for which the cash flow has not yet occurred. The most significant items were related to unrealized exchange differences and expenses on the post-employment benefits. Interest and other financial items included interest paid of MSEK –334 (–239), interest received of MSEK 94 (24), and the remainder related primarily to realized derivatives on commercial flows between Group companies.

Cash flow after investments before financing

Cash flow after investments before financing reached MSEK 295 (2,100) in 2022. Adjusted for acquisitions and divestments of businesses, the cash flow amounted to MSEK 511 (1,407). During the year the Group acquired two smaller businesses which generated a net cash outflow of MSEK –83. The Group also sold the businesses in Russia and Mozambique which resulted in a cash outflow of MSEK –133.

Cash flow used in financing activities

The Group’s debt structure improved in 2022, by net of repayment of a EUR bond due during the year and with the issuing of a new MEUR 400 bond with maturity 2028. Cash flow used in financing activities included a payment of MSEK –198 (–930), net of taxes, related to contribution to the defined benefit retirement plan in the USA.

Cash flow from operating activities

Quarter	2022	2021	2020
12-month rolling	5,641	5,248	---

Additions to property, plant and equipment

Year	MSEK
2022	4,582
2021	4,551
2020	3,218

Paid dividend per A and B share

Year	SEK
2022	7.00
2021	6.00
2020	5.75

The Board of Directors’ proposed distribution of surplus for the year 2022, which is subject to approval at the Annual General Meeting in March 2023, includes an ordinary dividend of SEK 7 per share, see Note 16.

Change in net debt

	2022 Closing balance	Cash change	Businesses acquired/sold	Other non-cash changes	Translation effect	2022 Opening balance
Loans 1)	18,346	1,044	15	–29	862	16,454
Post-employment benefits, net 2)	8,621	–1,080	1	–2,929	918	11,711
Lease liabilities	2,921	–809	–44	726	290	2,758
Other short-term financial assets 3)	–599	–220	–4	1	–32	–344
Cash and cash equivalents	–10,255	2,963	143	—	–143	–13,219
Net debt	19,034	1,898	111	–2,231	1,895	17,360
Derivatives 4) included in Other financing items	—	—	—	—	—	—

	2021 Closing balance	Cash change	Businesses acquired/sold	Other non-cash changes	Translation effect	2021 Opening balance
Loans 1)	16,454	1,022	—	–51	243	15,240
Post-employment benefits, net 2)	11,711	–1,740	—	–2,183	498	15,136
Lease liabilities	2,758	–738	—	756	156	2,584
Other short-term financial assets 3)	–344	113	—	15	–22	–450
Cash and cash equivalents	–13,219	1,386	27	—	–582	–14,050
Net debt	17,360	43	27	–1,463	293	18,460
Derivatives 4) included in Other financing items	—	—	—	—	—	—

1) Excludes derivatives, see Note 20.
2) Other non-cash changes includes remeasurements as well as expenses on defined benefit plans, see Note 18.
3) Other short-term financial assets excludes derivatives, see Note 14. Cash change of MSEK –220 (113) is explained by investment in financial assets of MSEK –291 (–14) and sale of financial assets of MSEK 71 (127).
4) Financing activities to hedge short- and long-term loans. Other financing items in cash flow include cash flow from derivatives as stated in the table and interest premium for the repayment of loans.

Consolidated statements of changes in equity

	Equity attributable to owners of AB SKF						Non- controlling interests	Total
	Share capital	Share premium	FV OCI reserve	Translation reserve	Retained earnings	Subtotal
Opening balance 1 January 2021	1,138	564	91	–1,268	33,785	34,310	1,402	35,712
Net profit	—	—	—	—	7,331	7,331	248	7,579
Hyperinflation adjustment	—	—	—	—	146	146	—	146
Components of other comprehensive income
Currency translation adjustments	—	—	—	2,637	—	2,637	122	2,759
Change in FV OCI assets and cash flow hedges	—	—	96	—	—	96	—	96
Remeasurements	—	—	—	—	2,751	2,751	—	2,751
Income taxes	—	—	—	1	–693	–692	—	–692
Transactions with shareholders
Non-controlling interest	—	—	—	—	—	—	—	—
Cost for Performance Share Programmes, net	—	—	—	—	25	25	—	25
Dividends	—	—	—	—	–2,959	–2,959	–52	–3,011
Closing balance 31 December 2021	1,138	564	187	1,370	40,386	43,645	1,720	45,365
	Equity attributable to owners of AB SKF						Non- controlling interests	Total
	Share capital	Share premium	FV OCI reserve	Translation reserve	Retained earnings	Subtotal
Net profit	—	—	—	—	4,469	4,469	386	4,855
Hyperinflation adjustment	—	—	—	—	444	444	—	444
Components of other comprehensive income
Currency translation adjustments	—	—	—	3,765	—	3,765	81	3,846
Change in FV OCI assets and cash flow hedges	—	—	–16	—	—	–16	—	–16
Remeasurements	—	—	—	—	3,674	3,674	—	3,674
Income taxes	—	—	—	4	–898	–894	—	–894
Transactions with shareholders
Non-controlling interests	—	—	—	—	—	—	–1	–1
Cost for Performance Share Programmes, net	—	—	—	—	27	27	—	27
Dividends	—	—	—	—	–3,187	–3,187	–62	–3,249
Other	—	—	—	—	—	—	–8	–8
Closing balance 31 December 2022	1,138	564	171	5,139	44,915	51,927	2,116	54,043

1) See Note 27 for details.
2) See Note 23 for details.
3) See Note 1 for details.

Fair value other comprehensive income reserve

The fair value other comprehensive income (FV OCI) reserve accumulates changes in the fair value of assets recognized directly in other comprehensive income, net of tax, with the exception of any dividends and any impairment losses. See Note 14 for details on FV OCI assets.

Hedging reserve

The hedging reserve accumulates activity related to cash flow hedges, net of tax, being both changes in fair value as well as amounts released to the income statement. See Note 26 for details on hedging activity.

Translation reserve

Exchange differences relating to the translation from the functional currencies of the SKF Group’s foreign subsidiaries into SEK are accumulated in the translation reserve. Upon the sale of a foreign operation, the accumulated translation amounts are recycled to the income statement and included in the gain or loss on the disposal. Additionally, gains and losses on hedging instruments meeting the criteria for hedges of net investments in foreign operations, are recognized in the translation reserve net of tax. See Note 26 for details.

Notes to the consolidated financial statements

1 Accounting policies

Basis of presentation

The consolidated financial statements are prepared in accordance with International Financial Reporting Standards (IFRS) as adopted by the European Union (EU). Furthermore, the Group is in compliance with the Swedish Financial Reporting Board’s RFR 1, Supplementary Accounting Rules for Groups, as well as their interpretations (UFR). The Annual Report of the Parent Company, AB SKF, has been signed by the Board of Directors on 1 March 2023. The income statement and balance sheet, and the consolidated income statement and consolidated balance sheets are subject to adoption at the Annual General Meeting on 23 March 2023. The consolidated financial statements are prepared on the historical cost basis except as disclosed in the accounting policies below or in respective note.

Basis of consolidation

The consolidated financial statements include the Parent Company, AB SKF and those companies in which it directly or indirectly exercises control, and hereafter is referred to as “the Group”, “SKF” or “the SKF Group”. Control exists when the Group has the right to direct the relevant activities of a company, is exposed to variable returns and can use those rights to affect those returns. For the vast majority of the Group’s subsidiaries, control exists via 100% ownership. There is also a very limited number of subsidiaries controlled by SKF where ownership is between 50–100%. The largest of such companies is SKF India Ltd. that is a publicly listed company in India of which the Group has control via ownership of 52.6% of the voting rights. For the subsidiaries where less than 100% is owned, the non-controlling interests are shown separately within equity.

Translation of foreign financial statements and items denominated in foreign currency

AB SKF’s functional currency is the Swedish krona (SEK), which is also the Group’s reporting currency. All foreign subsidiaries report in their functional currency, being the currency of the primary economic environment in which the subsidiary operates.# Accounting Policies, cont.

Upon consolidation, all balance sheet items are translated to SEK based on the year-end exchange rates. Income statement items are translated at average exchange rates, with an exception for those mentioned below in hyperinflation reporting. The accumulated exchange differences arising from these translations are recognized via other comprehensive income to the translation reserve in equity. Such translation differences are reclassified into the income statement upon the disposal of the foreign operation. Transactions in foreign currencies during the year have been translated at the exchange rate prevailing at the respective transaction date. Assets and liabilities denominated in a foreign currency, primarily receivables and payables and loans, have been translated at the exchange rates prevailing at the balance sheet date. Exchange gains and losses related to trade receivables and payables and other operating receivables and payables are included in other operating income and other operating expenses. The exchange gains and losses relating to other financial assets and liabilities are included in financial income and financial expenses.

Exchange rates

The following exchange rates have been used when translating the financial statements of foreign subsidiaries operating in the countries into SEK:

Country	Unit	Currency	2022	2021	2022	2021
Argentina	1	ARS	0.08	0.10	0.06	0.09
China	1	CNY	1.50	1.43	1.50	1.42
EMU countries	1	EUR	10.63	10.99	11.13	10.23
India	100	INR	12.86	12.53	12.61	12.16
Brazil	1	BRL	1.96	1.72	1.97	1.59
United Kingdom	1	GBP	12.46	12.71	12.58	12.18
USA	1	USD	10.10	9.25	10.43	9.05

Hyperinflation reporting

Argentina is classified as a hyperinflation economy since 2018 and during 2022 Turkey has been classified as a hyperinflation economy. Since SKF has operations in these countries, the Group has applied IAS 29 Financial Reporting in Hyperinflationary Economies and restated the financial statements accordingly. Comparative figures for 2021 have not been restated for Turkey. The Argentinian index used in the restatement is the Argentinian Consumer Price Index published by the Argentinian Statistical Institute and amounted to 1,134.6 (582.5) as per 31 December 2022. The Turkish index used in the restatement is the Consumer Price Index published by the Turkish Statistical Institute and amounted to 1,128.5 as per 31 December 2022.

Revenue

Revenue consists of sales of products or services in the normal course of business. Service revenues are defined as business activities, billed to a customer, that do not include physical products or where the supply of any product is subsidiary to the fulfilment of the contract. Any products that are included in service contracts are reported as separate performance obligations and classified as revenue from products. Revenue is recognized when the control has been transferred to the customer. Sales are recorded net of allowances for volume rebates, sales returns and other variable considerations if it is highly probable that they will occur. Revenues from products are recognized at a point in time. Revenues from service and/or maintenance contracts are either recognized at a point in time or over time. In those contracts where the service is delivered to the customer over time, the revenue is accounted for over the duration of the contract with the use of either the input or output methods. These are different methods to measure the progress towards a complete satisfaction of a performance obligation. Revenue from all other service contracts is accounted for at a point in time. Any anticipated losses on contracts are recognized in full in the period in which losses become probable and estimable. For revenue presented per customer industry, segment and geographic area, see Note 2.

Critical accounting estimates and judgements

Management believes that the following areas contain the most key judgements and the most significant sources of estimation uncertainty used in the preparation of the financial statements, where a different opinion or estimate could lead to significant changes to the Group’s financial statements in the upcoming year.

• Judgement on the realizability of deferred tax assets (Note 9).
• Judgements in recoverability of the carrying value of internally developed software (Note 10).
• Estimates and key assumptions used in impairment testing of intangible assets (Note 10).
• Judgements used in determining extension options for right of use assets (Note 12).
• Significant assumptions used in the calculation of the post employment benefit obligations (Note 18).
• Judgements used in the recognition and disclosure of provisions and contingent liabilities (Note 19).
• Climate risks are taken into consideration in investing decisions and impairment testing.

Climate risk assessment

SKF sees both risks and opportunities related to climate, but no known material climate related risks affecting the financial statements of 2022 for the SKF Group have been identified. SKF’s core business is based on well-established technology and the Group is diversified in terms of products, customers, geographic market and industries. Based on this diversification, SKF does not anticipate that climate related business risks will have substantive financial or strategic impact on Group level. Some specific market sectors will be negatively affected, such as the demand for SKF products to diesel and gasoline engines. However, other sectors will be positively affected, such as the market demand for SKF products to electric motors. Overall, SKF believes that the climate-related business opportunities outweigh the risks.

New accounting principles 2022

IASB issued several new and amended accounting standards that were endorsed by EU, effective date 1 January 2022. None of these has had a material effect on the SKF Group’s financial statements.

The amendments to IFRS 7, IFRS 9 and IFRS 16 are attributable to the reform for reference interest rates – Phase 2 and provide guidance on how the effects of the reform are to be reported. In short, the changes in Phase 2 mean that it enables companies to reflect the effects of changing from reference rates such as “STIBOR” to other reference rates without giving rise to accounting effects in reported amounts that would not provide useful information to users of financial reports. The Group assessed that Phase 2 had no significant impact as the use of hedge accounting is very limited.

New accounting principles 2023

IASB issued several amended accounting standards that were endorsed by EU, effective date 1 January 2023. None of these are expected to have a material effect on the SKF Group’s financial statements.

COVID-19

The industries and regions in which SKF operates have been impacted by the effects related to the spread of COVID-19. Due to this there have been uncertainties in demand and revenue growth as well as supply chain challenges which have led SKF to perform several initiatives to reduce costs.

Segment information

Each operating segment is defined as those business activities that may earn revenues or incur expenses, whose operating results are regularly reviewed by the chief operating decision maker (CODM) and for which discrete financial information is available. In the case of SKF, the CODM is defined as Group Management which makes decisions about allocation of resources to the segments and also to assess their performance on a regular basis. The internal reporting package comprises two segments, Industrial and Automotive. This segment information includes sales and operating profit related to all significant industrial and automotive customers. Segment profit represents the business result generated by the capital employed of the segment and includes allocated corporate expenses and eliminations. Segment assets include all operating assets used and controlled by a segment and consists principally of property plant and equipment, intangible assets, external trade receivables and inventories.

Net sales by customer industry

Industrial

Automation, 1%	1		High speed machinery and electrical drives, 10%	1
Traditional energy, 2%	2		Heavy industries, 8%	2
Material handling, 2%	3		Aerospace, 7%	3
Agriculture, food & beverage, 5%	4		Other industrial, 7%	4
Marine, 2%	5		Renewable energy, 7%	5
Off-highway, 2%	6		Railway, 7%	6
Railway, 5%	7		Agriculture, food and beverage, 6%	7
Aerospace, 5%	8		Off-highway, 3%	8
Renewable energy, 5%	9		Marine, 3%	9
Other industrial, 5%	10		Material handling, 3%	10
Heavy industries, 6%	11		Automation, 2%	11
High speed machinery & electrical drives, 7%	12		Traditional energy, 2%	12
Industrial distribution, 35%	13		Industrial distribution, 25%	13

Automotive

Light vehicles, 14%	1		Light vehicles, 50%	1
Vehicle aftermarket, 9%	2		Vehicle aftermarket, 32%	2
Commercial vehicles, 5%	3		Commercial vehicles, 18%	3

Net sales by geographic area

• China and Northeast Asia, 21%
• India and Southeast Asia, 9%
• The Americas, 28%
• Europe, Middle East and Africa, 42%

Net sales Contribution to profit before tax

	MSEK
	2022	2021	2022
Industrial	69,517	58,556	7,874
Automotive	27,416	23,176	658
Subtotal operating segments	96,933	81,732	8,532
Financial net	—	—	–1,239
Total

Geographic disclosure

MSEK	Net sales by customer location	Non-current assets
	2022	2021
Sweden	2,130	1,871
Europe, Middle East & Africa excl. Sweden	35,531	31,872
The Americas	29,936	22,713
China & Northeast Asia	20,137	18,375
India & Southeast Asia	9,199	6,901
Eliminations	—	—
Total	96,933	81,732

Net sales are allocated according to the location of the respective customer. Of the Group’s total net sales by customer location, 19% (18) were located in USA, 18% (20) in China, and 9% (9) in Germany. Non- current assets exclude financial assets, deferred tax assets and post-employment benefit assets. Non- current assets are allocated according to the location of the subsidiaries. Of the Group’s total non-current assets as defined above, 30% (30) were located in USA, 15% (15) in Germany, and 13% (13) in China.

Net sales by geographic area

Industrial

China and Northeast Asia, 22%
India and Southeast Asia, 9%
The Americas, 27%
Europe, Middle East and Africa, 42%

Net sales by geographic area

Automotive

China and Northeast Asia, 16%
India and Southeast Asia, 10%
The Americas, 32%
Europe, Middle East and Africa, 42%

3 Acquisitions

All business combinations are accounted for in accord- ance with the purchase method. At the date of acqui-sition, when control is obtained, the acquired assets, liabilities and contingent liabilities (net identifiable assets) are measured at fair value. Any excess of the cost of acquisition over fair values of net identifiable assets of the acquired business is recognized as goodwill. Companies acquired during the year are included in the financial statements as of acquisition date. In 2022, SKF had a cash outflow of MSEK 83 for the acquisition of two smaller businesses, Laser Cladding Venture n.v, an additive manufacturing company based in Belgium and Tenute, an Italian seals manu- facturer. In 2021, SKF had a cash outflow of MSEK 40 for the acquisition of two smaller businesses, Edge AB, an industrial consultancy firm based in Lulea, Sweden and EFOLEX AB, a Gothenburg-based manufacturer of the Europafilter-branded industrial lubrication and oil filtration systems.

MSEK	2022	2021
Total fair value of net assets acquired	74	5
Intangible assets, excluding goodwill	46	—
Property, plant and equipment	14	—
Current assets	59	7
Non-current liabilities	–5	—
Current liabilities	–40	–3
Goodwill	44	36
Total acquisition cost	118	41
Deferred consideration	–17	—
Cash and cash equivalents acquired	–18	–1
Cash outflow	83	40

4 Divestment of businesses

During 2022, the Group divested its business in Russia and a smaller business in Mozambique, resulting in a total cash outflow of MSEK –133 and a net loss of MSEK –672. During 2021, the Group executed a real estate sale, resulting in a total cash inflow of MSEK 733 and a net gain of MSEK 397.

MSEK	2022	2021
Goodwill	—	—
Other intangible assets	—	—
Property, plant and equipment	171	343
Deferred tax assets	25	—
Other non-current assets	172	—
Current assets	489	32
Deferred tax provisions	—	—
Non-current liabilities	—	—
Current liabilities	–157	–10
Non-controlling interest	—	—
Net assets disposed of	700	365
Profit/loss	–672	397
Total consideration	28	762
Cash and cash equivalents divested	–161	–29
Cash outflow for previous years divestments	—	—
Total cashflow	–133	733

5 Research and development

Research and development expenditure, excluding developing IT solutions, totalled MSEK 3,177 (2,751), corresponding to 3.3% (3.4) of annual sales.

Research and development % of net sales

2018  2019  2020  2021  2022
 3.0%  3.2%  3.3%  3.4%  3.3%

Research and development MSEK

2018    2019    2020    2021    2022
1,886   2,152   2,384   2,751   3,177

6 Expenses by nature

MSEK	2022	2021
Employee benefit expenses including social charges	26,702	24,270
Raw material and components consumed, including traded products	33,244	27,426
Change in work in process and finished goods	–1,152	–2,809
Depreciation, amortization and impairments	3,784	3,305
Other expenses, primarily purchased services, shop supplies and utilities	25,087	19,266
Total operating expenses	87,665	71,458

1) Previously published figures for 2021 have been corrected through reclassification between cost types of MSEK 5,618.

7 Other operating income and expenses

MSEK	2022	2021
Depreciation and amortization	96,933	81,732
Impairments	7,293	10,063
Additions to property, plant and equipment, intangible assets and right-of-use assets	5,138	3,862

MSEK	Industrial	Automotive
	2022	2021
Depreciation and amortization	3,225	2,863
Impairments	129	33
Additions to property, plant and equipment, intangible assets and right-of-use assets	5,138	3,862
Total	3,655	3,272

Assets	Liabilities
MSEK	2022
Industrial	65,472
Automotive	20,167
Subtotal operating segments	85,639
Financial and tax items	16,577
Eliminations and other unallocated items	8,707
Total	110,923

liabilities include all operating liabilities used and con-trolled by a segment and consists principally of exter-nal trade payables, other provisions as well as accru-als. Reconciling items to the Group’s reported assets and liabilities include consolidation eliminations, all tax-related balances as well as items of a financial, interest bearing nature, including post-employment benefit assets and provisions. Asymmetrical allocations affecting the segments relate primarily to post-employment benefits where non-financial expenses are allocated to the segments although the related provision is not. Additionally, receivables and payables relating to sales between segments, are not allocated to the segments. Such items are sold to and settled directly with SKF Treasury Centre, the Group’s internal bank, thereby becoming financial in nature. Industrial is structured according to a regional approach and is managed as one segment comprising of four regions: Europe and Middle East and Africa The Americas, China and Northeast Asia, India and Southeast Asia. Industrial sells to customers in the global industrial market, directly and indirectly through SKF’s world-wide distributor network. Key customers are compa-nies within industrial drives, heavy industry (such as metals, mining, cement, and pulp and paper), other industrial (such as automation and machine tool), railway, marine, energy (such as wind, oil and gas) and aerospace. These customer industries are served both directly to OEMs and end-users as well as indirectly through SKF’s network of industrial distributors. Automotive sells to customers in the global auto-motive market, directly or indirectly through SKF’s distributor network. Key customers are manufac-turers of cars, light and heavy trucks, trailers, buses, two-wheelers and the vehicle aftermarket. For more information on the customer industries and related products, see pages 8–9. Previously published segment figures for 2021 have been restated to reflect current organizational structure.

8 Financial income and financial expenses

MSEK	2022	2021
Interest income	135	35
Interest expense	–406	–308
Net gains/losses:
Net interest cost on post-employment benefits	–182	–146
Exchange differences, net	–753	–193
Other financial income including dividends	147	50
Other financial expense 1)	–180	–133
Financial net	–1,239	–695

1) Includes costs for Treasury Function. Other financial expense includes costs related to unwinding the dis-count on provisions, bank charges and other transactional related costs. The below table specifies which category of financial instru-ment that gave rise to the financial income and expense as described above. For a specification of the underlying financial assets and financial liabilities to these categories, see Note 14 and Note 20.

Financial net specified by category of financial instruments (MSEK)	2022			2021
	Interest income	Interest expense	Net gains/ losses	Interest income	Interest expense
Financial assets/liabilities at fair value through profit or loss
Designated upon initial recognition	51	—	—	1	—
Derivatives held for trading	—	–55	–707	1	–6
Derivatives held for hedge accounting	—	—	—	—	—
Financial assets classified as amortized cost	84	—	101	33	—
Financial assets classified as fair value through other comprehensive income	—	—	1	—	—
Other financial liabilities, primarily loans	—	–351	–1	—	–302
Other liabilities including post-employment benefits	—	—	–362	—	—
Total	135	–406	–968	35	–308

Derivatives classified as held for trading are mainly used for economic hedging, which mitigate the effect of cer-tain items in the categories loans and receivables and other liabilities. Net gains/losses are mainly exchange differences and changes in fair value for all the categories except for other liabilities, which includes primarily net interest costs on post-employment benefits and other financial expenses.# Notes

9 Taxes

Accounting policy

Taxes include current taxes on profits, deferred taxes and other taxes such as taxes on capital, actual or potential withholding taxes on current and expected transfers of income from Group companies and tax adjustments relating to prior years. Income taxes are recognized in the income statement, except to the extent that they relate to items directly taken to other comprehensive income or to equity, in which case they are recognized in other comprehensive income or directly in equity. All the companies within the Group calculate current income taxes in accordance with the tax rules and regulations of the countries where the income is taxable. The Group applies the required balance sheet approach for measuring deferred taxes, where deferred tax assets and provisions are recorded based on enacted tax rates for the expected future tax consequences when the asset is realized or debt regulated. These tax rates are applied on existing differences between accounting and tax reporting bases of assets and liabilities, as well as for tax loss and tax credit carry-forwards. Such tax loss and tax credit carry-forwards can be used to offset future income.

Accounting estimates and judgements

Significant management judgment is required in determining current tax liabilities and assets as well as deferred tax provisions and assets. The process involves estimating the current tax together with assessing temporary differences arising from differing treatment of items for tax and accounting purposes. The preprocess also involves judgements when there is uncertainty over income tax treatments. In particular, management assesses the likelihood that deferred tax assets will be recoverable from future taxable income. Deferred tax assets are recorded to the extent that it is probable in management’s opinion that sufficient future taxable income will be available to allow the recognition of such benefits. Realizability of net deferred tax assets are assessed by management based on the individual company’s profitability history, forecasts of taxable profits as well as length to expiry of the asset.

The SKF Group had total unrecognized deferred tax assets of MSEK 205 (183), whereof MSEK 76 (101) related to tax loss carry-forwards and MSEK 129 (82) related to other deductible temporary differences. These were not recognized due to the uncertainty of future profit streams. Unrecognized deferred tax assets of MSEK 1 (0) related to taxlx losses and will expire during the period 2023 to 2027. The remaining unrecognized assets will expire after 2027 and/or may be carried forward indefinitely. The change in the balance of unrecognized deferred tax assets that reduced current tax expense was MSEK 41 (11) mainly relating to the use of tax loss carry-forwards. The change in the balance ofuof unrecognized deferred tax assets that impacted deferred tax expense was MSEK –63 (–11) which resulted from a revised judgement on the realizability of certain tax assets in future years.

Gross value of tax loss carry-forwards

As of 31 December 2022, the Group had tax loss carry-forwards amounting to MSEK 4,632 (4,426), which are available for offset against taxable future profits. Such tax loss carry-forward expire as follows:

	2022	2021
2023–2027	109
2028 and thereafter	460
Never	4,063

Tax expense (MSEK)	Income statement	Other comprehensive income	Total taxes	Income statement	Other comprehensive income	Total taxes
2022
Current taxes	–2,429	—	–2,429	–1,951	—	–1,951
Deferred taxes	–9	–894	–903	–533	–692	–1,225
Total	–2,438	–894	–3,332	–2,484	–692	–3,176

Taxes charged to other comprehensive income included MSEK -898 (–694) related to remeasurements of post-employment benefits, MSEK 0 (1) related to cash flow hedges and MSEK 4 (1) related to net investment hedges.

Reconciliation of the statutory tax in Sweden to the actual tax (MSEK)

	2022	2021
Tax calculated using statutory tax rate in Sweden	–1,502	–2,073
Difference between statutory tax rate in Sweden and foreign subsidiaries	–408	–340
Other taxes	–64	–55
Tax credits and similar items	42	28
Non-deductible/non-taxable profit items	–403	–48
Changes in tax rates	–38	—
Tax loss carry-forwards	–12	–56
Current tax referring to previous years	–5	10
Other	–48	50
Tax expense Income Statement	–2,438	–2,484

The corporate statutory income tax rate in Sweden was 20.6% (20.6). The actual tax rate on profit before taxes was 33.4% (24.7).

Gross deferred taxes per type (MSEK)	2022 Deferred tax assets	2022 Deferred tax liabilities	2021 Deferred tax assets	2021 Deferred tax liabilities
Intangibles and other assets	33	1,519	27	1,377
Property, plant and equipment	30	1,083	52	932
Inventories	668	507	555	409
Trade receivables	107	2	57	2
Provisions for post-employment benefits	1,736	132	2,643	62
Other accruals and liabilities	1,060	10	1,018	1
Tax loss carry-forwards	896	—	835	—
Tax credit carry-forwards	268	—	185	—
Other	328	65	286	77
Gross deferred taxes	5,126	3,318	5,658	2,859
Net deferred taxes presented in the Consolidated balance sheet	3,173	1,365	3,839	1,040

10 Intangible assets

Accounting policy

Intangible assets are stated at initial cost less any accumulated amortization and any impairment. Amortization is made on a straight line basis over the estimated useful lives and begins once the asset is ready for its intended use. The useful lives are based to a large extent on historical experience, the expected application, as well as other individual characteristics of the asset. The useful lives are:

• Patents and similar rights up to 11 years.
• Software in use 4–12 years.
• Customer relationships 10–15 years.
• Product development expenditures 3–7 years.
• Technology acquired in business combinations 15–18 years.
• Other intangibles 3–5 years.
• Strategic tradenames indefinite.
• Goodwill indefinite.

Amortization and impairments are included in cost of goods sold, selling expenses or administrative expenses depending on where the assets have been used.

Internally developed intangibles

The Group’s most significant internally developed intangibles are software in use, developed for internal purposes and to a minor extent product development. The amortization plan for SKF ERP Programme (SEP) is a straight-line amortization for the rest of the useful life, with an amortization rate of 10%.

Intangible assets with definite useful lives

Intangible assets with definite useful lives are tested for impairment whenever events or changes in circumstances indicate that the carrying value may not be recoverable. The determination is usually performed at the cash generating unit (CGU) level but could also be at the individual asset level. Factors that are considered important are:

• Underperformance relative to historical and forecasted operating results;
• Significant negative industry or economic trends;
• Significant changes relative to the asset including plans to discontinue or restructure the operation to which the asset belongs.

When there is an indication that the carrying value may not be recoverable based on the above indicators, the profitability of the CGU to which the asset belongs is analyzed to further confirm the nature and extent of the indication. If an indication is confirmed, an impairment loss is recognized to the extent that the carrying amount of the affected assets exceeds its recoverable amount.

Intangible assets with indefinite useful lives

Goodwill and other intangible assets with indefinite useful lives have been allocated to CGUs, and are tested for impairment annually and whenever an indication of impairment exists. The impairment test is carried out at the lowest level at which these assets are monitored by management. The lowest CGU level used for impairment test is the segment level, Industrial and Automotive.

Accounting estimates and judgements

Significant management judgement is required in determining if development expenditures should be capitalized. Such expenses are only capitalized when it is probable that they will result in future economic benefits for the Group and the expenditures during the development phase can be reliably measured. The Group applies stringent criteria before a development project results in the recording of an asset, which include the ability to complete the project, evidence of technical feasibility, intention and ability to use or sell the asset. When evaluating software for internal use, management specifically considers new functionality and/or increased standard of performance to be strong evidence that future economic benefits will be achieved.In evaluating product development projects, management considers the existence of a customer order as significant evidence of technological and economic feasibility. All other research expenditures as well as development expenditures not meeting the capitalization criteria, are charged to research and development expenses in the income statement when incurred. When there is an indication that the carrying value may not be recoverable, the carrying amount of the asset is compared against its recoverable amount. The recoverable amount is the greater of the estimated fair value less costs to sell and value in use. In assessing value in use, a discounted cash flow model (DCF) is used. This assessment contains a key source of estimation uncertainty because the estimates and assumptions used in the DCF model encompass uncertainty about future events and market conditions. The actual outcomes may be significantly different. However, estimates and assumptions are reviewed by management and are consistent with internal forecasts and business outlook. The DCF model involves the forecasting of future operating cash flows over a five-year period and includes estimates of revenues, production costs and working capital requirements, as well as a number of assumptions, the most significant being the revenue growth rates and the discount rate. These forecasts of future operating cash flows are built up from business strategic plans representing management’s best estimates of future revenues and operating expenses using historical trends, general market conditions, industry trends and forecasts including climate related risks and other currently available information. Estimates are extrapolated using growth rates determined on an individual CGU basis, reflecting a combination of product, industry and country growth factors. A terminal value is then calculated based on the Gordon Growth model, which includes a terminal growth factor representing an outlook not exceeding the market growth for the industry. Forecasts of future operating cash flows are adjusted to present value by an appropriate discount rate derived from the Group’s cost of capital, considering the long-term government bond rate, the corporate spread, the market risk premium, the country risk premium where applicable, and the systematic risk of the CGU at the date of evaluation. Management determines the discount rate to be used based on the risk inherent in the related activity’s current business model and industry comparisons.

SKF ANNUAL REPORT 2022 58

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MSEK 2021

Closing balance	Additions	Businesses acquired/ sold	Disposals	Impairments	Other 1)	Translation effects	2021 Opening balance
Acquisition cost
Goodwill	11,493	—	36	—	—	–44	611
Patents, tradenames and similar rights	2,942	15	—	—	—	–3	225
Internally developed software	2,666	45	—	—	—	—	4
Customer relationships	4,700	—	—	—	—	2	320
Leaseholds	279	—	—	—	—	—	33
Product development	361	1	—	—	—	—	13
Technology	1,214	—	—	—	—	—	84
Other intangible assets	232	7	—	—	—	–6	4
Total	23,887	68	36	—	—	–51	1,294

MSEK 2021

Closing balance	Amortizations	Businesses acquired/ sold	Disposals	Impairments	Other 1)	Translation effects	2021 Opening balance
Accumulated amortization and impairments
Goodwill	569	—	—	—	—	–46	–158
Patents, tradenames and similar rights	529	29	—	—	2	14	–1
Internally developed software	1,376	184	—	—	—	—	5
Customer relationships	3,283	274	—	—	—	1	191
Leaseholds	110	5	—	—	—	—	12
Product development	197	12	—	—	—	—	7
Technology	796	74	—	—	—	—	55
Other intangible assets	85	4	—	—	—	–18	1
Total	6,945	582	—	—	2	–49	112

Net book value 16,942 16,242

1) Includes reclassification between categories.

MSEK 2022

Closing balance	Additions	Businesses acquired/ sold	Disposals	Impairments	Other	Translation effects	2022 Opening balance
Acquisition cost
Goodwill	12,999	—	44	—	—	12	1,450
Patents, tradenames and similar rights	3,395	11	45	—	—	–4	401
Internally developed software	2,701	19	—	—	—	2	14
Customer relationships	5,221	—	1	—	—	–86	606
Leaseholds	89	126	—	—	—	–328 1)	12
Product development	307	—	—	—	—	–85	31
Technology	1,371	—	—	—	—	—	157
Other intangible assets	191	27	—	—	—	–77	9
Total	26,274	183	90	—	—	–566	2,680

MSEK 2022

Closing balance	Amortizations	Businesses acquired/ sold	Disposals	Impairments	Other	Translation effects	2022 Opening balance
Accumulated amortization and impairments
Goodwill	648	—	—	—	—	–1	80
Patents, tradenames and similar rights	573	20	—	—	3	–14	35
Internally developed software	1,586	199	—	—	—	–1	12
Customer relationships	3,915	295	—	—	—	–86	423
Leaseholds	29	4	—	—	—	–91 1)	6
Product development	217	17	—	—	72	–85	16
Technology	1,002	99	—	—	—	—	107
Other intangible assets	111	7	—	—	—	12	7
Total	8,081	641	—	—	75	–266	686

Net book value 18,193 16,942

1) Includes reclassification from Intangible assets to Right-of-use assets.

SKF ANNUAL REPORT 2022 59

THIS IS SKF BACK TO START PRESIDENT’S LETTER VALUE CREATION AND STRATEGY THE BEARING MARKET RISKS AND THE SHARE SUSTAINABILITY STATEMENTS CORPORATE GOVERNANCE REMUNERATION REPORT GROUP DATA FINANCIAL STATEMENTS NOTES

Impairment losses

Impairments amounted to MSEK –75 (–2) in 2022.

Intangibles with indefinite useful lives

Certain tradenames and trademarks are considered to have indefinite useful lives as the Group anticipates to continue to promote these brands in the foreseeable future. This includes the tradenames and trademarks in Lincoln MSEK 1,377 (1,195), Kaydon Friction MSEK 805 (702), PEER MSEK 224 (195), GBC MSEK 238 (206) and others MSEK 96 (95).

Significant intangibles

Internally generated software related primarily to the development of SEP to create and deploy improved processes and solutions across the Group. The balance of capitalized expenditures was MSEK 1,096 (1,240), including amortizations of MSEK –184 (–174) made during 2022. Remaining useful life is six years. Other individual intangible assets that are material for the Group include the customer relationships for Lincoln amounting to MSEK 438 (521) having a remaining useful life of three years, and for Kaydon amounting to MSEK 639 (654) having a remaining useful life of six years.

CGUs with significant intangibles

The CGUs follow the segment reporting. The table below shows goodwill and other intangibles with indefinite useful lives allocated to the CGUs Industrial and Automotive, as well as some crucial rates that were used for the DCF calculation.

| | 2022 | | 2021 | | | |
| :---------------- | :------- | :---------------- | :------- | :---------------- | :---------------- |
| | Industrial | Automo­tive | Industrial | Automo­tive | | |
| Goodwill, MSEK | 11,907 | 444 | 10,535 | 389 | | |
| Tradenames, MSEK | 2,406 | 238 | 2,092 | 206 | | |
| Average revenue growth rate, % | 8.7 | 4.8 | 6.5 | 4.6 | | |
| Discount rate, pre tax, % | 10.2 | 11.0 | 9.2 | 9.7 | | |
| Terminal growth factor, % | 2.5 | 2.5 | 2.5 | 2.5 | | |

The recoverable amounts used in the testing of the CGUs have been calculated based on value in use using the DCF model as described in Accounting estimates and judgements. The most significant assumptions are the discount rate and the growth rates, being both the revenue growth rates and the terminal growth factor. Revenue growth rates are expressed in the above table as the average growth rate over the five-year forecast period. The same discount rate is applied to all cash flows in the five-year forecast period. Additional information on the forecast period as well as the discount rate and growth rates and how they are calculated is described in accounting estimates and judgements above. A number of sensitivity analyzes were performed to evaluate if any reasonable possible adverse changes in assumptions would lead to impairment. The analyzes focused around decreasing the revenue growth rates to zero, and increasing the discount rate by two percentage points, each taken individually and while holding all other assumptions constant. No impairment needs were indicated.

Accounting policy

Machinery and supply systems, land, buildings, tools, office equipment and vehicles are stated in the balance sheet at cost, less accumulated depreciation and any impairment loss. A component approach to depreciation is applied. This means that where items of property, plant and equipment are comprised of different components having a cost significant in relation to the total cost of the items, such components are depreciated separately. Depreciation is provided on a straight-line basis and is calculated based on cost. The rates of depreciation are based on the estimated useful lives of the assets, which are subject to annual review. The useful lives are:

• 33 years for buildings and installations.
• 10–20 years for machinery and supply systems.
• 10 years for control systems within machinery and supply systems.
• 4–5 years for tools, office equipment and vehicles.

11 Property, plant and equipment

Depreciation and impairments are included in cost of goods sold, selling expenses or administrative expenses depending on where the assets have been used.

Accounting estimates and judgments

The useful lives are based upon estimates of the periods during which the assets will generate revenue and are based to a large extent on historical experience of usage and technological development. It also includes estimates related to investments connected to the green transition as part of SKF’s strategy. Property, plant and equipment is tested for impairment whenever events or changes in circumstances indicates that the carrying value may not be recoverable.# Geographical distribution of property, plant and equipment 2021–2022

	2022	2021
China & Northeast Asia	27%	24%
India & Southeast Asia	5%	6%
The Americas	18%	16%
Europe, Middle East & Africa	50%	54%

10 Intangible assets, cont.

SKF ANNUAL REPORT 2022 60

THIS IS SKF BACK TO START
PRESIDENT’S LETTER
VALUE CREATION AND STRATEGY
THE BEARING MARKET
RISKS AND THE SHARE
SUSTAINABILITY
STATEMENTS
CORPORATE GOVERNANCE
REMUNERATION REPORT
GROUP DATA
FINANCIAL STATEMENTS
NOTES

MSEK	2022 Closing balance	Additions	Businesses acquired/sold	Disposals	Impairments	Other	Translation effects	2022 Opening balance	Acquisition cost
Buildings	11,469	549	–65	–74	—	241	758	10,060	—
Land and land improvements	1,032	6	–21	–29	—	4	64	1,008	—
Machinery and supply systems	39,864	2,123	–150	–287	—	356	2,954	34,868	—
Machine tooling and factory fittings	5,493	309	–2	–70	—	207	418	4,631	—
Assets under construction including advances	2)	5,658	2,043	–11	–2	—	–390	206	3,812
Total	63,516	5,030	–249	–462	—	418	4,400	54,379	—

MSEK	2022 Closing balance	Depre ciation	Businesses sold	Disposals	Impairments	Other	Translation effects	2022 Opening balance	Accumulated depreciation and impairments
Buildings	5,793	344	–23	–42	16	138	413	4,947	—
Land improvements	290	5	–6	–2	—	–26	22	297	—
Machinery and supply systems	28,417	1,601	–60	–250	30	–124	2,139	25,081	—
Machine tooling and factory fittings	4,119	338	–3	–66	7	214	298	3,331	—
Total	38,619	2,288	–92	–360	53	202	2,872	33,656	—

Net book value | 24,897 | 20,723 | | | | | | |

MSEK	2021 Closing balance	Additions	Businesses acquired/sold	Disposals	Impairments	Other	Translation effects	2021 Opening balance	Acquisition cost
Buildings	10,060	272	–352	–17	—	100	493	9,564	—
Land and land improvements	1,008	3	—	–7	—	–5	28	989	—
Machinery and supply systems	34,868	1,259	—	–250	—	190	1,645	32,024	—
Machine tooling and factory fittings	4,631	345	1	–114	—	21	217	4,161	—
Assets under construction including advances	2)	3,812	1,943	—	–64	—	–565	143	2,355
Total	54,379	3,822	–351	–452	—	–259	2,526	49,093	—

MSEK	2021 Closing balance	Depre ciation	Businesses sold	Disposals	Impairments	Other	Translation effects	2021 Opening balance	Accumulated depreciation and impairments
Buildings	4,947	273	–9	–12	1	2	193	4,499	—
Land improvements	297	6	—	–7	—	3	18	277	—
Machinery and supply systems	25,081	1,456	—	–308	21	–307	1,124	23,095	—
Machine tooling and factory fittings	3,331	273	—	–113	7	–15	118	3,061	—
Total	33,656	2,008	–9	–440	29	–317	1,453	30,932	—

Net book value | 20,723 | 18,161 | | | | | | |

1) Includes reclassification between categories.
2) Contractual commitments for acquisition of PPE not yet booked amounted to MSEK 0 (0).

11 Property, plant and equipment, cont.

SKF ANNUAL REPORT 2022 61

THIS IS SKF BACK TO START
PRESIDENT’S LETTER
VALUE CREATION AND STRATEGY
THE BEARING MARKET
RISKS AND THE SHARE
SUSTAINABILITY
STATEMENTS
CORPORATE GOVERNANCE
REMUNERATION REPORT
GROUP DATA
FINANCIAL STATEMENTS
NOTES

BACK TO THIS
PRESIDENT ’S
START
IS SKF
LETTER
VALUE CREATION
AND STRATEGY
THE BEARING
MARKET
RISKS AND
THE SHARE
FINANCIAL
STATEMENTS
SUSTAINABILITY
STATEMENTS
CORPORATE
GOVERNANCE
DATA
GROUP
REMUNERATION
REPORT
NOTES

12 Right-of-use assets

Accounting policy

All lease contracts are recognized in the balance sheet, at commencement date, as a right-of-use asset and a lease liability. A contract is or contains a lease if it conveys, to the Group, the right to control the use of an identified asset for a period of time in exchange for a consideration. A right-of-use asset and a lease liability is recognized for all leases with a term of more than 12 months unless the underlying asset is of low value. The right-of-use asset is subsequently accounted for with the same regulations as Property, plant and equipment.

The lease liability is discounted using the interest rate implicit in the lease, if that rate can be readily determined. If that rate cannot be readily determined, the incremental borrowing rate is used. The incremental borrowing rate is established by the Group’s treasury centre based on currency and maturity of lease contracts. The lease term is determined as the non-cancellable period of the lease, together with periods covered by an option to extend the lease if the lessee is reasonably certain to exercise that option, and periods covered by an option to terminate the lease if the lessee is reasonably certain not to exercise that option. The Group also applies the practical expedient for fixed non-lease components and includes them together with any lease component in the contract. Any future lease modification not registered as a separate contract, is recognized as a remeasurement of the lease liability and an adjustment to the right-of-use asset.

Accounting estimates and judgments

Management judgement and assumptions are required to determine the value of the right-of-use assets and the present value of the lease liability. Such judgement and assumptions involve identifying the lease, defining the lease term and defining the discount rate.

MSEK	2022	2021
Short-term lease expenses	248	198
Low-value asset lease expenses	62	61
Variable lease payments not included in lease liability	19	15
Other	7	3
Total	336	277

The lease expenses for short-term leases, low-value assets and variable lease payments amount to MSEK 336 (277). The lease expenses correspond in all material aspects to the cash flow for those leases.

During 2022, total cash outflow related to leases amounted to MSEK 809 (738). Interest expenses related to leases amount to MSEK 119 (106).

MSEK	2022 Closing balance	Additions	Modifications	Impairments	Reclassification	Translation effects	2022 Opening balance	Acquisition cost
Premises	4,154	379	–187	—	–66	371	3,657	—
Vehicles	745	134	12	—	–49	39	609	—
Forklifts	280	53	–3	—	–23	19	234	—
Machinery	28	—	2	—	–3	1	28	—
Office equipment	20	1	–1	—	–2	2	20	—
Other	368	—	20	—	359	–1	–10	—
Total	5,595	567	–157	—	216	431	4,538	—

MSEK	2022 Closing balance	Depre ciation	Modifications	Impairments	Reclassification	Translation effects	2022 Opening balance	Accumulated depreciation and impairments
Premises	1,706	507	–169	—	–	66	126	1,308
Vehicles	502	146	–17	—	–49	35	387	—
Forklifts	184	62	–5	1	–23	11	138	—
Machinery	38	2	–2	—	–3	3	38	—
Office equipment	16	4	–1	—	–2	1	14	—
Other	65	5	23	—	48	1)	–3	–8
Total	2,511	726	–171	1	–95	173	1,877	—

Net book value | 3,084 | 2,661 | | | | | |

1) Includes reclassifaction from Intangibles to Right-of-use asset.

MSEK	2021 Closing balance	Additions	Modifications	Impairments	Reclassi- fication	Translation effects	2021 Opening balance	Acquisition cost
Premises	3,657	401	2	—	–81	216	3,119	—
Vehicles	609	118	9	—	–73	14	541	—
Forklifts	234	37	2	—	–15	8	202	—
Machinery	28	—	–4	—	–3	2	33	—
Office equipment	20	2	–4	—	2	—	20	—
Other	–10	—	2	—	–16	–2	6	—
Total	4,538	558	7	—	–186	238	3,921	—

MSEK	2021 Closing balance	Depre ciation	Modifications	Impairments	Reclassi- fication	Translation effects	2021 Opening balance	Accumulated depreciation and impairments
Premises	1,308	441	–60	2	–81	74	932	—
Vehicles	387	169	–44	—	–76	15	323	—
Forklifts	138	42	–4	—	–12	4	108	—
Machinery	38	22	–5	—	–2	1	22	—
Office equipment	14	4	–1	—	—	–1	12	—
Other	–8	4	–4	—	–15	—	7	—
Total	1,877	682	–118	2	–186	93	1,404	—

Net book value | 2,661 | 2,517 | | | | | |

12 Right-of-use assets, cont.

13 Inventories

Accounting policy

Inventories are stated at the lower of cost (first-in, first-out basis) or market value (net realisable value). Initially raw materials and purchased finished goods are valued at actual purchase costs and work in progress and manufactured finished goods are valued at actual production costs. Production costs include direct costs such as material and labour, as well as manufacturing overhead as appropriate.

Accounting estimates and judgements

Adjustments to the cost of inventory may be necessary when the cost exceeds net realisable value. Net realisable value is defined as selling price less costs to complete and costs to sell. The estimates used in determining net realisable value are a source of estimation uncertainty. As future selling prices and selling costs are not known at the time of assessment, management’s best estimates are used based on current price and cost levels. Adjustments to net realisable value also include estimates of technical and commercial obsolescence on an individual subsidiary basis. Commercial obsolescence is assessed by the rate of turnover and ageing as risk indicators.

MSEK	2022	2021
Finished goods	14,417	11,686
Raw materials and supplies	9,446	6,901
Work in process	2,189	2,410
Total	26,052	20,997

Inventory values are stated net of a provision for net realizable value of MSEK 1,517 (1,353). The amount charged to expense for net realizable provisions during the year was MSEK 135 (70). Reversals of net realizable provisions during the year were MSEK 29 (47).

SKF ANNUAL REPORT 2022 63

THIS IS SKF BACK TO START
PRESIDENT ’S LETTER
VALUE CREATION AND STRATEGY
THE BEARING MARKET
RISKS AND THE SHARE
SUSTAINABILITY
STATEMENTS
CORPORATE GOVERNANCE
REMUNERATION REPORT
GROUP DATA
FINANCIAL STATEMENTS
NOTES

14 Financial assets

Accounting policy

Financial assets are classified in three categories and are based on the Groups business model for managing the asset and the asset’s contractual cash flow characteristics. The assets can be measured at amortized cost, fair value through other comprehensive income (FVOCI) or fair value through profit or loss (FVPL). Financial assets are recognized in the balance sheet when the Group becomes a party to the contractual provisions of a financial instrument. Financial assets are initially measured at fair value, which is normally equal to cost. Settlement day recognition is applied for purchases and sales of financial assets. Financial assets measured at amortized cost are calculated using the effective interest method. For disclosure purpose, fair values have been calculated using valuation techniques, mainly discounted cash flow analyses based on observable market data.# Financial Assets and Fair Value Measurements

For current receivables, such as trade receivables, the carrying amount is considered to correspond to fair value. Equity securities are measured at fair value. The Group has elected to classify Equity securities at FVOCI since these investments are held as long-term strategic investments. There is no reclassification of fair value gain or loss when the investment is derecognized and the dividends from those investments are recognized in profit or loss when the Group has the right to receive the payment. Debt securities are valued at fair value based on the current bid price for the securities and they are classified as either at FVPL or at FVOCI depending on the Group's model for managing those securities and on the characteristics of the cash flows. Derivatives are categorized as held for trading unless they are subject to hedge accounting. Derivatives classified as held for trading are mainly derivatives used in economic hedges where the changes in fair value are taken directly through profit or loss. Financial assets and allowance for doubtful accounts, are recognized with the use of a forward-looking ‘expected-loss’ impairment model which indicates when the asset may not be recovered. The forward-looking information should capture changes in the market that the customers operate in. Financial assets are derecognized when the contractual rights to the cash flow have expired or been transferred together with substantially all risks and rewards.

Accounting Estimates and Judgements

An allowance for doubtful accounts for expected losses on trade receivables is maintained. When evaluating the need for an allowance, management considers the aging of trade receivable balances, historical write-off experience of customer with similar characteristics. Management also makes an estimation of expected credit losses based on market conditions. Where discounted cash flow techniques are used, the future cash flows are determined (if not stated explicit in the contract) based on the best assessment by management and discounted using the market interest rate for similar instruments.

Financial Assets per Category 2022

	Fair value through profit or loss	Amortized cost	Fair value through other comprehensive income	At initial recognition	Trading	Total	Of which current
MSEK
Trade receivables	16,905	—	—	—	16,905	16,905	16,905
Cash and cash equivalents	8,169	—	2,086	—	10,255	10,255	10,255
Equity securities	—	395	—	—	395	—
Marketable securities	—	—	746	—	746	—
Hedging derivatives	—	—	—	—	—	—
Trading derivatives	—	—	370	—	370	370
Debt securities	—	20	10	—	30	10
Other loans and receivables	652	—	—	—	652	589
Carrying amount	25,726	415	2,096	1,116	29,353	28,129
Fair value	25,726	415	2,096	1,116

Financial Assets per Category 2021

	Fair value through profit or loss	Amortized cost	Fair value through other comprehensive income	At initial recognition	Trading	Total	Of which current
MSEK
Trade receivables	13,972	—	—	—	13,972	13,972	13,972
Cash and cash equivalents	6,320	—	6,899	—	13,219	13,219	13,219
Equity securities	—	402	—	—	402	—
Marketable securities	—	—	736	—	736	—
Hedging derivatives	—	—	—	—	—	—
Trading derivatives	—	—	94	—	94	94
Debt securities	—	21	6	—	27	6
Other loans and receivables	392	—	—	—	392	338
Carrying amount	20,684	423	6,905	830	28,842	27,629
Fair value	20,684	423	6,905	830

Financial assets categorized as amortized cost are assets held to collect contractual cash flows. These include trade receivables, loans granted, funds held with banks and deposits comprising principally of funds held with landlords and other service providers, for which substantially all initial investment is expected to be recovered. Debt securities and strategic investments in equity securities are categorised as FVOCI. The exception is debt securities held by SKF Treasury Centre which are categorised as FVPL. Financial instruments are at FVPL when the Group manages such investments and makes purchase and sale decisions based on their fair value. Derivatives are categorized as trading derivatives unless they are subject to hedge accounting.

Fair value hierarchy for financial assets at fair value (MSEK)

	Level 1	Level 2	Level 3	2022	Level 1	Level 2	Level 3	2021
Fair value through other comprehensive income
Equity securities	328	—	67	395	349	—	—	349
Debt securities	20	—	—	20	21	—	—	21
Fair value through profit or loss
Debt securities	10	—	—	10	—	—	—	—
Trading securities	—	—	746	746	680	—	62	742
Cash and cash equivalents	2,086	—	—	2,086	6,899	—	—	6,899
Hedging derivatives	—	—	—	—	—	—	—	—
Trading derivatives	—	370	—	370	—	94	—	94
Total	2,444	370	813	3,627	7,949	94	62	8,105

Financial assets recorded at fair value, which include the columns Fair value through other comprehensive income and Fair value through profit or loss are disclosed above according to the hierarchy that shows the significance of the inputs used in the fair value measurements as defined in IFRS 13. The carrying amount is a reasonable approximation of fair value. Level 1 includes financial instruments with a quoted price in an active market. Level 2 bases fair value on models that utilize observable data for the asset or liability other than the quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e., as prices) or indirectly (i.e., derived from prices). Such observable data may be market interest rates and yield curves. Level 3 bases fair value on a valuation model, whereby significant input is based on unobservable market data. Cash and cash equivalents includes cash free and cash on time deposits at banks and debt securities maturing within three months at the time of the investment. Cash and cash equivalents are measured at amortized cost and fair value through profit and loss.

Past due, net of allowance

Trade receivables by due date (MSEK)

	Carrying amount	Not yet due	1–30 days	31–60 days	61–90 days	> 91 days
2022	16,905	14,574	1,613	435	222	61
2021	13,972	12,284	1,201	254	127	106

The average days outstanding of trade receivables in 2022 were 64 days (64). Trade receivables as a percentage of annual net sales totalled 17.4% (17.1). Trade receivables included receivables sold with recourse amounting to MSEK 109 (89). The risk of customer default for these receivables has not been transferred in such a way that the financial assets qualify for derecognition.

The table below shows the development of the reserve for credit losses on trade receivables.

Specification of reserve for credit losses (MSEK)

	2022	2021
Opening balance 1 January	424	395
Additions	271	117
Reversals	–229	–95
Changes through the income statement	42	22
Allowances used to cover write-offs	–49	–22
Acquired/Divested companies	–4	—
Currency translation adjustments	33	29
Closing balance 31 December	446	424

Other short-term assets

MSEK	2022	2021
Value added tax receivables, net	2,620	2,421
Income tax receivables	866	1,009
Prepaid expenses	738	637
Accrued income	177	120
Advances to suppliers	236	119
Other current receivables	977	857
Total	5,614	5,163

Cash and Cash Equivalents (MSEK)

	2022	2021
Cash	4,238	8,424
Cash Equivalents	6,017	4,795
Total	10,255	13,219

Share Capital

Number of shares authorized and outstanding

	A Shares	B Shares	Total	Share Capital (MSEK)
Opening balance 1 January 2021	31,371,055	423,980,013	455,351,068	1,138
Conversion of A shares to B shares	–867,122	867,122	—
Closing balance 31 December 2021	30,503,933	424,847,135	455,351,068	1,138
Conversion of A shares to B shares	–1,100,000	1,100,000	—
Closing balance 31 December 2022	29,403,933	425,947,135	455,351,068	1,138

An A share has one vote and a B share has one-tenth of a vote. At the Annual General Meeting on 18 April 2002, it was decided to insert a share conversion clause in the Articles of Association which allows owners of A shares to convert those to B shares. Since the decision was taken, 197,532,814 A shares have been converted to B shares. The quota value for all shares is SEK 2.50.

Dividend Policy

The SKF Group’s dividend and distribution policy is based on the principle that the total dividend should be adapted to the trend for earnings and cash flow while taking account of the Group’s development potential and financial position. The Board of Directors’ view is that the ordinary dividend should amount to around one half of the SKF Group’s average net profit calculated over a business cycle. If the financial position of the SKF Group exceeds the target for capital structure, which is described in Note 26, an additional distribution to the ordinary dividend could be made in the form of a higher dividend, a redemption scheme or as a repurchase of the company’s own share. On the other hand, in periods of more uncertainty a lower dividend ratio could be appropriate.

Dividend Payments

The total surplus of the Parent Company amounted to MSEK 24,061 (23,627), see page 89. The Board has decided to propose to the Annual General Meeting, on 23 March 2023, a dividend of SEK 7.00 per share to be paid to the shareholders. The proposed dividend for 2022 is payable to all shareholders on the Euroclear Sweden AB’s public share register as of 27 March 2023. The total proposed dividend to be paid is MSEK 3,187 (3,187). The dividend is subject to approval by shareholders at the Annual General Meeting and has not been included as a liability in these financial statements. On 31 March 2022, a dividend of SEK 7.00 per share was paid to the shareholders.# 17 Earnings per share

	2022	2021
Net profit attributable to owners of AB SKF (MSEK)	4,469	7,331
Weighted average number of ordinary shares outstanding	455,351,068	455,351,068
Basic earnings per share (SEK)	9.81	16.10
Dilutive shares from Performance Share Programmes	—	—
Weighted average diluted number of shares	455,351,068	455,351,068
Diluted earnings per share (SEK)	9.81	16.10

Basic earnings per share is calculated by dividing the net profit or loss attributable to shareholders of the Parent Company by the weighted average number of ordinary shares outstanding during the period. Diluted earnings per share is calculated using the weighted average number of shares outstanding during the period adjusted for all potential dilutive ordinary shares. Performance shares are considered dilutive if vesting conditions are fulfilled on the balance sheet date. Shares from the Performance Share Programme are not considered dilutive.

18 Provisions for post-employment benefits

Accounting policy

The post-employment provisions and assets arise from defined benefit obligations in plans which are either unfunded or funded. For the unfunded plans, benefits paid out under these plans come from the all-purpose assets of the company sponsoring the plan. The related provisions carried in the balance sheet represent the present value of the defined benefit obligation. For funded defined benefit plans, the assets of the plans are held in trusts legally separate from the Group. The related balance sheet provision or asset represents the deficit or excess of the fair value of plan assets over the present value of the defined benefit obligation. However, an asset is recognized only to the extent that it represents a future economic benefit which is actually available to the Group, for example in the form of reductions in future contributions or refunds from the plan. When such excess is not available it is not recognized, but it is disclosed in the note as an asset ceiling adjustment.

The projected unit credit method is used to determine the present value of all defined benefit obligations and the related current service cost. Valuations are carried out quarterly for the most significant plans and annually for other plans. External actuarial experts are used for these valuations and estimating the obligations and costs involves the use of assumptions. Remeasurements arise from changes in actuarial assumptions and experience adjustments, being differences between actuarial assumptions and what has actually occurred. They are recognized immediately in other comprehensive income and are never reclassified to the income statement.

For all defined benefit plans the cost charged to the income statement consists of current service cost, net interest cost and when applicable past service cost, curtailments and settlements. Any past service cost is recognized immediately. Net interest cost is classified as financial expense while all other expenses are allocated to the operations based on the employee’s function as manufacturing, selling or administrative.

The defined benefit accounting described above is applied only in the consolidated accounts. Subsidiaries, as well as the Parent Company, continue to use the local statutory pension calculations to determine pension costs, provisions and assets in the standalone statutory reporting, and when applicable funding requirements. Some post-employment benefits are also provided by defined contribution schemes, where the Group has no obligation to pay benefits after payment of an agreed-upon contribution to the third party responsible for the plan. Such contributions are recognized as expense when incurred.

Accounting estimates and judgements

Significant judgements and assumptions are required to determine the present value of all defined benefit obligations and the related costs. Such assumptions vary according to the economic conditions of the country in which the plan is located and are adjusted to reflect market conditions at valuation point. However, the actual costs and obligations that in fact arise under the plans may be materially different from the estimates based on the assumptions due to changing market and economic conditions. The most significant assumptions can vary per plan but in general include discount rate, pension increase rate, salary growth rate and longevity. These assumptions are established for each plan separately.

The discount rate for each plan is determined by reference to yields on high quality corporate bonds (AA-rated corporate bonds as well as mortgage bonds for the plans in Sweden) having maturities matching the duration of the obligation. The pension increase rate assumption is relevant mainly for retired plan members, and refers to the indexation of pension payments tied primarily to inflation. The salary growth rate is relevant for active plan members and reflect the long-term actual experience, the near term outlook and assumed inflation. Longevity reflects the life expectancy of plan members and is established based on mortality tables used for each plan.

2022

	USA pension	USA medical	Germany pension	U.K. pension	Sweden pension	Other	Total
Present value of unfunded defined benefit obligation	383	563	606	—	252	798	2,602
Present value of funded defined benefit obligation	7,553	—	8,565	3,257	2,099	1,643	23,117
Less: Fair value of plan assets	–6,886	—	–4,746	–3,114	–761	–1,581	–17,088
Impact of asset ceiling	—	—	—	—	—	–10	–10
Total	1,050	563	4,425	143	1,590	850	8,621
Reflected as Other long-term assets	—	—	—	—	—	–127	–127
Provisions for post-employment benefits	1,050	563	4,425	143	1,590	977	8,748
Total	1,050	563	4,425	143	1,590	850	8,621

2021

	USA pension	USA medical	Germany pension	U.K. pension	Sweden pension	Other	Total
Present value of unfunded defined benefit obligation	416	649	728	—	317	868	2,978
Present value of funded defined benefit obligation	8,638	—	10,206	4,838	2,777	1,722	28,181
Less: Fair value of plan assets	–7,836	—	–4,737	–4,510	–794	–1,571	–19,448
Total	1,218	649	6,197	328	2,300	1,019	11,711
Reflected as Other long-term assets	—	—	—	—	—	–71	–71
Provisions for post-employment benefits	1,218	649	6,197	328	2,300	1,090	11,782
Total	1,218	649	6,197	328	2,300	1,019	11,711

The Group sponsors post-employment defined benefit plans in a number of subsidiaries. The most significant plans are the pension plans in USA, Germany, U.K., and Sweden, which supplement the social security pensions in these countries.

USA

The major U.S. pension plans represent around 89% of the total U.S. obligation. Benefits are based on length of service and average final salary or a years of service multiplier. All these plans are closed for new entrants, who instead are covered by defined contribution pension solutions. The salary and non-Union defined benefit pension plans have been frozen as of December 2016 and in 2021 the remaining active accruing plans were frozen, hence no additional service cost will be accrued for these plans. Governance of the plans lies with a benefit board whose members are chosen by the board of directors of the U.S. subsidiary. The plans are subject to regulatory minimum funding requirements based on an adjusted statutory pension formula which in the case of funding deficits, require contributions to achieve full funding in seven years. The U.S. subsidiary also sponsors post-retirement health care plans which are closed for new entrants. The plans provide health care and life insurance benefits for eligible retired employees. The company is entitled to receive a subsidy under the U.S. Medicare Program Part D, for prescription drug costs for certain plan participants. On 31 December 2022, this reimbursement right totalled MSEK 1 (1).

Germany

The major German pension plans represent around 91% of the total German obligation. Benefits are based on length of service and final salary, and are indexed when paid. The majority of entitlement conditions are determined in accordance with a governmental pensions act. A plan change affecting around 75% of the participants of the major German pension plan occurred from 1 January 2018. For these participants defined contributions are made, and the value of the contributions is guaranteed to the participants as required by German law. Thus, this plan also qualifies as a defined benefit plan even if the benefit for the participants is equal to the contributions made into the plan.

18 Provisions for post-employment benefits, cont.# 18 Provisions for post-employment benefits, cont.

The table below shows the reconciliation of the opening and closing balances of the present value of defined benefit obligations and the fair value of plan assets for the years ended December 31, 2022 and 2021.

	2022	2021
MSEK
	Present value of obligation	Fair value of plan assets
Opening balance 1 January	31,159	–19,448
Interest expense/(income)	583	–401
Current service cost	536	—
Past service cost	9	—
Settlements	–7	2
Other	3	11
Subtotal expenses	1,124	–388
Difference between actual return and interest income	—	3,600
Actuarial (gains)/losses – demographic assumptions	–58	—
Actuarial (gains)/losses – financial assumptions	–8,012	—
Experience adjustments	805	—
Change in asset ceiling	—	–9
Subtotal remeasurements in OCI	–7,265	3,591
Employer contribution	—	–466
Employee contribution	25	–5
Benefit payments	–1,833	1
Subtotal cash flow	–1,808	728
Other	7	2
Translation differences	2,502	–1,583
Closing balance 31 December	25,719	–17,098

1. Cash outflows for 2023 are expected to be some MSEK 831 which include contributions to funded plans as well as payments made directly by the companies under unfunded plans and partially funded plans.
2. Other includes reclassification of the German pension plans from defined contribution plans to defined benefit plans for 2021.

Components of total post-employment benefit expenses (MSEK)

	2022	2021
Post-employment defined benefit expense	736	684
Post-employment defined contribution expense	682	575
Total post-employment benefit expenses	1,418	1,259
Whereof amounts charged to:
Cost of goods sold	681	658
Selling expenses	489	435
Administrative expenses	66	20
Financial expenses	182	146
Total	1,418	1,259

United Kingdom

The major plans in the U.K. represent around 91% of the total U.K. obligation. Benefits under these plans are based on length of service and a career average revalued earnings basis, and are indexed when paid. As of April 2012, these plans are closed to new entrants, who instead are entitled to defined contribution pension solutions. Responsibility for the governance of the plan lies jointly with the subsidiary and a board of trustees comprised of representatives of the subsidiary as well as plan participants in accordance with the Plan constitution. The plan is subject to statutory funding objectives based on the local pension calculation which in the case of funding deficits have an agreed recovery plan to achieve full funding in ten years.

Sweden

The major plan in Sweden is the ITP plan and it represents around 90% of the total Swedish obligation. Benefits are based on final salary and are indexed when paid. Benefits are established in accordance with a collective agreement established between participating Swedish companies. The plan is closed for employees born after 1978, who instead are entitled to a defined contribution pension solution. The Swedish subsidiaries are required to have credit insurance which covers all pension obligations in case of insolvency. For the Swedish subsidiaries, the portions of the ITP pension financed through insurance premiums to Alecta only cover family pension, health insurance and TGL and as such are immaterial. There are no regulatory funding requirements, however voluntary funding has been provided for the plans through a foundation, which is governed jointly by the company and employee representatives. The foundation must comply with government regulations.

Other

The most significant plans include the funded pension plans in Switzerland, Canada and Belgium. Additionally, there are retirement indemnity plans in France and termination indemnity plans in Italy, where lump sum payments are made upon retirement and termination respectively.

SKF ANNUAL REPORT 2022 68
THIS IS SKF
BACK TO START
PRESIDENT ’S LETTER
VALUE CREATION AND STRATEGY
THE BEARING MARKET
RISKS AND THE SHARE
SUSTAINABILITY
STATEMENTS
CORPORATE GOVERNANCE
REMUNERATION REPORT
GROUP DATA
FINANCIAL STATEMENTS
NOTES

Plan asset composition (MSEK)

	2022			2021
	Quoted	Unquoted	Total	Quoted	Unquoted	Total
Government bonds	1,533	—	1,533	1,721	—	1,721
Corporate bonds	6,077	—	6,077	6,072	—	6,072
Equity instruments	4,767	395	5,162	6,223	434	6,657
Real estate	254	1,861	2,115	259	1,648	1,907
Other, primarily cash and other financial receivables	1,115	1,086	2,201	2,174	917	3,091
Total	13,746	3,342	17,088	16,449	2,999	19,448

To enable consistent, proactive and effective management of the post-employment benefits in line with its business strategy and values, the SKF Group established a Global Pension Committee, a governance body who is responsible to align post-employment benefits to SKF Global Pension Policy. SKF Global Pension Policy sets out principles for managing SKF´s pension and other long-term employee benefits within SKF globally. The SKF Group strives to balance risk in the investments of plan assets, by aiming for a range of 30–50% equity instruments with the remainder in lower risk/fixed income investments such as corporate and government bonds. The investment positions for the major pension plans are managed within the asset-liability matching framework. Within this framework, the Group’s objective is to match plan assets to the pension obligations by investing in securities with maturities that align with the benefit payments as they fall due and in the appropriate currency. SKF Treasury Centre regularly monitors how the duration and the expected yield of the investments are matching the expected cash outflows arising from the pension obligations. Final investment decisions are taken by the local subsidiary/trustee together with SKF Treasury Centre.

18 Provisions for post-employment benefits, cont.

2022

Significant weighted-average assumptions at end of year

	USA pension	USA medical	Germany pension	U.K. pension	Sweden pension	Other
Discount rate	5.2	5.1	3.8	4.5	3.5	3.5
Pension increase rate 1)	n/a	n/a	2.0	2.9	2.0	n/a
Salary growth rate 2)	n/a	n/a	2.3	3.1	3.4	5.2
Longevity male/female 3)	20.7/22.6	20.6/22.6	21.0/23.5	22.0/24.4	22.0/25	17.0/24.9
Weighted average duration of the plan (in years) 4)	8.7	7.4	15.4	16.1	18.5	8.0

2021

Significant weighted-average assumptions at end of year

	USA pension	USA medical	Germany pension	U.K. pension	Sweden pension	Other
Discount rate	2.7	2.6	1.2	1.8	1.5	1.3
Pension increase rate 1)	n/a	n/a	3.0	3.3	1.8	n/a
Salary growth rate 2)	n/a	n/a	2.2	3.3	3.1	3.2
Longevity male/female 3)	20.6/22.5	20.5/22.5	20.4/23.9	21.9/24.3	22.1/24.9	21.0/24.0
Weighted average duration of the plan (in years) 4)	10.1	9.4	18.5	19.1	21.2	10.7

1. Pension increase rate refers to indexation primarily tied to inflation.
2. Salary growth rate for the U.S. pension is n/a as no additional service cost will be accrued for these plans.
3. Longevity is expressed as the life expectancy of a current 65 year old in number of years.
4. Represents the average number of years remaining until the obligation is paid out.
   n/a = assumptions not applicable or not significant for the plan.

Sensitivity analysis of significant assumptions

Change in actuarial assumption	Impact on defined benefit obligations, MSEK
Discount rate +1%	–2,510
	3,141
Salary growth rate +0.5%	271
	–260
Pension increase rate +0.5%	1,097
	–1,004
Longevity +1 year	831
	–835

The sensitivity analysis is based on the change in one assumption while holding all other assumptions constant, see notes to previous table. In practice, this is unlikely to occur, and changes in some of the assumptions may be correlated. When calculating the sensitivity analysis of the DBO to changes in assumptions the same method has been applied as when calculating the pension liability recognized within the obligation. The sensitivity analysis considers the most significant plans in the U.S., Germany, U.K. and Sweden, and it has been prepared consistently with prior years.

SKF ANNUAL REPORT 2022 69
THIS IS SKF
BACK TO START
PRESIDENT ’S LETTER
VALUE CREATION AND STRATEGY
THE BEARING MARKET
RISKS AND THE SHARE
SUSTAINABILITY
STATEMENTS
CORPORATE GOVERNANCE
REMUNERATION REPORT
GROUP DATA
FINANCIAL STATEMENTS
NOTES

19 Other provisions and contingent liabilities

Accounting policy

In general, a provision is recognized when there is a present obligation as a result of a past event, it is probable that an outflow of resources will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. The amount recognized as provisions is management’s best estimate of the future cash flows necessary to settle the obligations at the balance sheet date, and the timing of settlement is uncertain. Claims include both provisions for litigation and warranties, and represent management’s best estimate of the future cash flows necessary to settle obligations. Other long-term employee benefits refer to benefits earned and expected to be settled before employment ends. These provisions are calculated using the projected unit credit method and remeasurements (actuarial gains and losses) are recognized immediately in the income statement. Restructuring programmes are defined as activities that materially change the way a unit does business. Any related restructuring provisions are recognized when a detailed formal plan has been established and a public announcement of the plan has occurred thereby creating a valid expectation that the plan will be carried out. When an obligation does not meet the criteria for recognition it may be considered a contingent liability and disclosed.Contingent liabilities represent possible obligations whose existence will be confirmed only by the occurrence or non-occurrence of one or more uncertain future events not wholly within the control of the Group. They also include existing obligations where it is not probable that an outflow of resources is required, or the outflow cannot be reliably quantified.

Accounting estimates and judgements

Significant management judgement is required in determining the existence and amount of provisions. As the estimates may involve uncertainty about future events outside the control of the Group, the actual outcomes may be significantly different. Claims include both provisions for litigation and warranties, and represent management’s best esti- mate of the future cash flows necessary to settle obligations, although the timing of the settlement is un certain. Provisions for litigation are based on the nature of the litigation, the legal process in the appli- cable jurisdiction, the progress of the cases, the opinions of internal and external legal counsel and advisers regarding the outcome of the case and expe- rience with similar cases. Tax claims in different countries and in different stages of the claim that do not meet the definition of tax liability are recognized as contingent liabilities. SKF is part of investigations regarding possible violations of anti-trust rules, class action claims and lawsuits. SKF is subject to an investigation in Brazil by the General Superintendence of the Administrative Council for Economic Defense, regarding an alleged violation of antitrust rules by several companies active on the automotive aftermarket in Brazil. As per management judgement, these investigations did not qualify for recognition as other provisions or contin- gent liabilities. Warranty provisions involve estimates of the out- come of claims resulting from defective products, which include estimates for potential liability for dam- ages caused by such defects to the Group’s customers. Assumptions are required for anticipated returns and for cost for replacing defective products and/or compensating customers for damage caused by the Group’s products. These assumptions consider histor- ical claims statistics, expected costs to remedy and the average time lag between faults occurring and claims against the Group. Restructuring provisions involve estimates of the timing and cost of the planned future activities where the most significant estimates relates to the costs necessary to settle employee severance/separation obligations, as well as the costs involved in contract cancellations and other exit costs. These estimates are based on historical experience as well as the cur- rent status of negotiations with the affected parties and/or their representatives. Claims decreased during 2022 with MSEK –25, related to warranty claims. In 2022, the total restructuring cost amounted to around MSEK 851, whereof MSEK 498 refers to pro- visions, and includes the consolidation of factories in Europe as well as a general reduction in headcount driven by new ways of working and simplified organi- zational structures. This cost includes voluntary and involuntary termination benefits spread over several countries. The majority of the remaining restructuring provisions are expected to be settled in 2023 and 2024. The largest items in other employee benefits are jubilee bonus in Italy, part-time retirement program- mes in Germany and special payroll tax in Sweden. Other provisions primarily include insurance and worker’s compensation as well as environmental commit ments.

MSEK	2022 Closing balance	Provisions for the year	Utilized amounts	Reversal unutilized amounts	Other	Translation effect	2022 Opening balance
Claims	263	93	–75	–64	–4	25	238
Other employee benefits	990	202	–401	–42	–223	54	580
Restructuring	824	680	–485	–43	–87	70	959
Other	440	214	–78	–46	–43	41	528
Total	2,517	1,189	–1,039	–195	–357	190	2,305

MSEK	2021 Closing balance	Provisions for the year	Utilized amounts	Reversal unutilized amounts	Other	Translation effect	2021 Opening balance
Claims	296	107	–143	–88	86	5	263
Other employee benefits	1,351	391	–296	–511	37	18	990
Restructuring	1,142	419	–633	–142	–2	40	824
Other	693	189	–94	–222	–144	18	440
Total	3,482	1,106	–1,166	–963	–23	81	2,517

MSEK Of which current

Claims	129
Other employee benefits	3
Restructuring	871
Other	236
Total	1,239

MSEK Of which current

Claims	102
Other employee benefits	48
Restructuring	771
Other	184
Total	1,105

Contingent liabilities at nominal values (MSEK)

	2022	2021
Guarantees	51	47
Tax claims	729	347
Other contingent liabilities	32	28
Total	812	422

20 Financial liabilities

Accounting policy

Financial liabilities are recognized in the balance sheet when the Group becomes a party to the con- tractual provisions of a financial instrument. Financial liabilities are initially recorded at fair value, which is normally equal to acquisition cost. Transaction costs are included in the initial measurement of financial liabilities that are not subsequently measured at fair value through the income statement. Derivatives are recognized at trade date. Financial liabilities, excluding derivatives, are classified as Other financial liabilities measured at amortized cost. Amortized cost is measured using the effective interest method. The carrying amount of liabilities that are hedged items, for which fair value hedge accounting is applied, are adjusted for gains or losses attributable to the hedged risks. Derivatives are classified into the category Fair value through profit or loss. Financial liabilities are derecognized when they are extinguished.

Accounting estimates and judgements

For disclosure purposes, fair values of financial liabili- ties have been calculated using valuation techniques, mainly discounted cash flow analyses based on observable market data.

MSEK	2022 Carrying amount	2022 Fair value	2021 Carrying amount	2021 Fair value
Long-term financial liabilities
MSEK 900 2024	899	875	899	922
MSEK 2,100 2024	2,098	2,134	2,097	2,153
MEUR 300 2025	3,095	3,113	3,118	3,143
MUSD 100 2027	1,042	1,076	905	1,057
MEUR 400 2028	4,213	4,273	—	—
MEUR 300 2029	3,326	2,881	3,057	3,243
MEUR 300 2031	3,290	2,666	3,019	3,079
Long-term lease liabilities	2,286	2,286	2,179	2,179
Other long-term loans	212	227	181	197
Derivatives held for hedge accounting	758	758	18	18
Derivatives held for trading	—	—	—	—
Subtotal long-term financial liabilities	21,219	20,289	15,473	15,991
Short-term financial liabilities
MEUR 296 2022	—	—	3,031	3,094
Trade payables 2023	11,594	11,594	9,881	9,881
Short-term lease liabilities 2023	635	635	579	579
Short-term loans 2023	170	170	147	147
Derivatives held for hedge accounting 2023	—	—	—	—
Derivatives held for trading 2023	111	111	106	106
Subtotal short-term financial liabilities	12,510	12,510	13,744	13,807
Total	33,729	32,799	29,217	29,798

Derivatives are measured at fair value and fall into Level 2 of the fair value hierarchy. See Note 14 for a description of the fair value hierarchy. The maturities for bonds and loans stated in the table below are based on the earliest date on which they can be required to be repaid. Two of the loans are subject to fair value hedging. The fixed EUR interest on the MEUR 300 loan has been swapped into floating USD interest rate and the fixed EUR interest on the MEUR 400 loan has been swapped into floating EUR interest rate. More information regarding financial risk manage- ment and hedge accounting can be found in Note 26. Methods used for establishing fair value are described in Note 14. Interest rates for the loans are disclosed in Note 11 of the Parent Company. The Group does not have any pledged assets to secure financial liabilities.

MSEK	2022	2021
Employee related accruals	3,792	3,366
Accrual for rebates	1,622	1,270
Income tax payable	735	972
Deferred income	340	245
Customer advances	430	315
Value added taxes payable, net	808	640
Other current liabilities	893	834
Other accrued expenses	2,071	2,033
Total	10,691	9,675

FAM is a privately owned holding company that manages assets as an active owner with a long-term ownership horizon. FAM is owned by Wallenberg Investments AB, which is owned by the three largest Wallenberg foundations – the Knut and Alice Wallenberg Foundation, the Marianne and Marcus Wallenberg Foundation and the Marcus and Amalia Wallenberg Foundation. The Foundations have, since 1917, granted funding to excellent researchers and research projects beneficial to Sweden, primarily to Swedish universities. The SKF Group has had no indication that FAM has obtained its ownership interest in the Group for other than investment purposes. No significant transactions have been identified between the parties with the exception of dividend paid during the year to FAM. At the end of 2022 FAM is the major shareholder of the Parent Company, holding 28.9% (29.3) of the vot- ing rights and 15.0% (14.0) of the share capital. Investments in associated companies include a 28% shareholdning of Sunstrength Renewables Pvt Ltd. in India, a 42% shareholding of Ningbo Hyatt Roller Co. Ltd in China, a 20% shareholding of Colinx, LLC in USA, a 50% shareholding of Wuhan Economos seals technology Co., Ltd. in China, and a 25% shareholding of Schwarz GmbH Technischer Großhandel in Germany. During 2022, significant influence has been obtained in Hunan SUND Technologies Co., Ltd. in China as SKF has a representative in the company’s board.# 21 Other short-term liabilities

22 Related parties including associated companies

The shareholding amounts to 7%. Previous year a 25% shareholding in Simplex Turbolo Co. Ltd. in UK was reported. The shareholding was divested during 2022.

Transactions with Associated companies (MSEK)	2022	2021
Sales of goods and services	64	55
Purchases of goods and services	550	437
Receivables as of 31 December	37	37
Liabilities as of 31 December	9	50

Other related party transactions include remuneration to key management as specified in Note 23. For a list of significant subsidiaries, see Note 8 to the financial statements of the Parent Company. No other significant transactions with related parties have occurred.

23 Remuneration to key management

Salaries and other remunerations for SKF Board of Directors, President and Group Management

Principles of remuneration for Group Management

In March 2022, the Annual General Meeting adopted the Board’s proposal for principles of remuneration for Group Management, which are summarized below. Group Management is defined as the President and the other members of the management team. The principles shall apply to remuneration agreed and amendments to remuneration already agreed, after the adoption of the principles by the Annual General Meeting 2022, and, in other cases, to the extent permitted under existing agreements.

The objective of the principles is to ensure that the SKF Group can attract and retain the best people in order to contribute to the SKF Group’s mission and business strategy, its long-term interests and sustainability. Remuneration for Group Management shall be based on market competitive conditions and at the same time support the shareholders’ best interests.

The total remuneration package for a Group Management member shall consist of the following components: fixed salary, variable salary, pension benefits, conditions for notice of termination and severance pay, and other benefits such as a company car. The components shall create a well-balanced remuneration reflecting individual performance and responsibility as well as the SKF Group’s overall performance.

The Annual General Meeting also, irrespective of the principles of remuneration for Group Management, resolved on SKF’s Performance Share Programme 2022 for senior managers and key employees, where Group Management is included. For more information on SKF’s Performance Share Programme 2022, see page 75.

Fixed salary

The fixed salary of a Group Management member shall be at a market competitive level. It shall be based on competence, responsibility, experience and performance. The SKF Group shall use an internationally well-recognized evaluation system, in order to evaluate the scope and responsibility of the position. Market benchmarks shall be conducted on a yearly basis. The performance of Group Management members shall be continuously monitored during the year and shall be used as a basis for annual reviews of fixed salaries.

Variable salary

The variable salary of a Group Management member shall run according to a performance-based programme. The purpose of the programme shall be to motivate and compensate value-creating achievements in order to support operational, financial and sustainability targets and thereby promote the SKF Group’s business strategy, sustainability and long-term interests. The performance-based programme shall have predetermined and measurable criteria which can be both financial and non-financial and which contribute to the company’s long-term and sustainable development.

The criteria shall primarily be based on the annual financial performance of the SKF Group, such as financial result, growth and capital efficiency and shall promote sustainability targets of the SKF Group. The satisfaction of criteria for awarding variable salary shall be measured over a period of one year. The maximum variable salary shall vary between 50 to 70% of the accumulated annual fixed salary of Group Management members.

SKF ANNUAL REPORT 2022 72

THIS IS SKF BACK TO START PRESIDENT’S LETTER VALUE CREATION AND STRATEGY THE BEARING MARKET RISKS AND THE SHARE SUSTAINABILITY STATEMENTS CORPORATE GOVERNANCE REMUNERATION REPORT GROUP DATA FINANCIAL STATEMENTS NOTES

Other benefits

The SKF Group may provide other benefits to Group Management members in accordance with local practice. Premiums and other costs relating to such benefits shall depend on and follow local conditions and local practice but shall represent, as a general rule, a limited value and may amount to not more than 10% of the accumulated annual fixed salary of the members of Group Management. Other benefits can for instance be a company car or health and medical insurance.

Pension

The SKF Group shall strive to establish pension plans based on defined contribution models, which means that a premium is paid amounting to a certain percentage of the employee’s annual salary. The commitment in these cases is limited to the payment of an agreed premium to an insurance company offering pension insurance.

A Group Management member shall normally be covered by, in addition to the basic pension (for Swedish members usually the ITP pension plan), a supplementary defined contribution pension plan. By offering this supplementary defined contribution plan, it is ensured that Group Management members are entitled to earn pension benefits based on the fixed annual salary above the level of the basic pension.

The normal retirement age for Group Management members shall be 65 years. For employments governed by rules other than Swedish, pension benefits and other benefits may be duly adjusted for compliance with mandatory rules or established local practice, taking into account, to the extent possible, the overall purpose of the principles. For employments governed by Swedish rules, the premium for the supplementary pension plan shall be linked to age and amount to a maximum of 40% of the accumulated annual fixed salary not covered by any other pension plan.

Notice of termination and severance pay

A Group Management member may terminate his/her employment by giving six months’ notice. In the event of termination of employment at the request of the company, employment shall cease immediately. The Group Management member shall however receive a severance payment related to the number of years’ of service, provided that it shall always be maximized to two years’ fixed salary.

Salary and terms of employment for employees

When preparing the principles, the Board of Directors has paid regard to the salary and terms of employment of the employees of the company. Information about employees’ total remuneration, the components of the remuneration and the growth and growth rate over time have been part of the basis for the Board of Director’s and the Remuneration Committee’s evaluation of the fairness of the principles of remuneration and the limitations which the principles entail.

The decision-making process to determine, review and implement the principles

The Board of Directors has established a Remuneration Committee. The Committee consists of a maximum of four Board members. The Remuneration Committee prepares all matters relating to the principles of remuneration for Group Management, as well as the terms of employment for the President. The principles of remuneration for Group Management are presented by the Remuneration Committee to the Board of Directors that, at least every fourth year, submits a proposal for such principles to the Annual General Meeting for approval. The principles of remuneration shall be valid until new principles have been adopted by the Annual General Meeting. The Board of Directors must approve the terms of employment for the President. The Remuneration Committee shall also monitor and evaluate programmes for variable remuneration for Group

23 Remuneration to key management, cont.

Management, the application of the principles of remuneration for Group Management and applicable remuneration structures and levels of the SKF Group. The members of the Remuneration Committee are independent of the SKF Group and Group Management. The President and other members of Group Management shall not be present when the Board of Directors process and resolve on remuneration related matters in so far as they are affected by such matters.

The Board of Directors’ right to derogate from the principles of remuneration

The Board of Directors may derogate from the principles of remuneration decided by the Annual General Meeting, in whole or in part, if in a specific case there is special cause for the derogation and a derogation is necessary to serve the SKF Group’s long-term interests, including its sustainability, or to ensure the SKF Group’s financial viability. As set out above, the Remuneration Committee’s tasks include preparing the Board of Directors’ resolutions in remuneration related matters. This includes any resolutions to derogate from the guidelines.

Board of Directors

The Chair of the Board and the Board members are remunerated in accordance with the decision taken at the Annual General Meeting. At the Annual General Meeting of AB SKF held in 2022 it was decided that the Board should be paid fees according to the following:

• an allotment of SEK 2,530,000 to the Chair of the Board and with SEK 825,000 to each of the other Board members; and
• an allotment of SEK 285,000 to the Chair of the Audit Committee, with SEK 210,000 to each of the other members of the Audit Committee, with SEK 165,000 to the Chair of the Remuneration Committee and with SEK 130,000 to each of the other members of the Remuneration Committee.

A prerequisite for obtaining an allotment is that the Board member is elected by the Annual General Meeting and not employed by the company.# 23 Remuneration to key management, cont.

President and Chief Executive Officer Rickard Gustafson, President and Chief Executive Officer of AB SKF has received remuneration from the company during 2022 governed by the remuneration principles decided upon by the Annual General Meeting; salary and other remunerations amounted to a total of SEK 17,496,263 of which 14,634,867 SEK was fixed annual salary and other benefits. Alrik Danielson, former President and Chief Executive Officer of AB SKF, has received remuneration from the company in year 2022 in accordance with the remuneration principles of a total of SEK 13,844,639 of which SEK 11,921,879 was severance payment and SEK 1,922,760 was variable salary related to 2021 year’s performance. The pension arrangement for Rickard Gustafson and Alrik Danielson is a combination of the ITP scheme and a defined contribution of 40% of the annual fixed salary above 30 income base amounts. Rickard Gustafson’s shareholdings (own and/or held by related parties) in the company as well as material shareholdings or other holdings (own and/or held by related parties) in companies with which the company has important business relationships are listed in the Corporate Governance Report.

Group Management

The SKF’s Group Management, consisting of 11 people at the end of the year, received in 2022 (exclusive of the President) salary and other remunerations amounting to a total of SEK 92,675,082 of which SEK 71,707,325 was fixed annual salary, SEK 16,756,751 was variable salary related to 2021 year’s performance, and SEK 4,211,006 was allotment of shares under the Performance Share Programme 2019.

The variable salary for Group Management was according to a short-term performance-based programme primarily based on the financial performance of the SKF Group with criteria such as operating profit and cash flow. SKF’s Performance Share Programmes are further described on page 75. In the event of termination of employment at the request of the company of a person in Group Management, that person will receive a severance payment amounting to a maximum of two years’ salary. For Group Management the Board has decided on a defined contribution supplementary pension plan. The plan entitles Group Management members covered to receive an additional pension over and above the basic pension (for Swedish members usually the ITP pension plan). The contributions paid for Group Management members covered by the defined contribution plan are based on each individual’s pensionable salary (normally the fixed monthly salary excluding holiday pay, converted to yearly salary) exceeding the level of the basic pension (for Swedish members 30 income base amounts). Group Management members are never covered by both defined benefit pension and defined contribution pension for the same part of their pension entitlements. The normal retirement age is 65 years.

	Fixed salary and other benefits 1) / fixed Board remuneration	Short-term variable salary	Performance Share Programmes	Remuneration for committee work	Gross pension costs	pension costs 2)
	Amounts in SEK	Amounts paid in 2022 3)	Amounts expensed in 2022 3)	Amounts paid in 2022 3)	Amounts expensed in 2022 3)	Amounts expensed in 2022 3)
		Amounts expensed in 2022 3)	Amounts paid in 2022 related to 2021 3)	Amounts expensed in 2022 3)
			Amounts expensed in 2022 3)
			Amounts paid in 2022 related to prior years 3)
			Amounts expensed in 2022 3)
			Total expensed in 2022	Total expensed in 2021
			Total expensed in 2021
Board of directors of AB SKF
Hans Stråberg	2,415,000	2,530,000	—	—	—	375,000
Hock Goh	787,500	825,000	—	—	—	—
Barb Samardzich	375,000	—	—	—	—	—
Colleen Repplier	787,500	825,000	—	—	130,000	130,000
Geert Follens	787,500	825,000	—	—	210,000	210,000
Håkan Buskhe	787,500	825,000	—	—	415,000	415,000
Susanna Schneeberger	787,500	825,000	—	—	—	—
CEO	14,634,867	15,496,287	2,861,396	4,352,487	—	5,380,450
Former CEO	11,921,879 4)	—	1,922,760	—	—	—
Former acting CEO 5)	—	—	—	—	—	—
Group Management 6) 7)	71,707,325	68,057,796	16,756,751	16,728,600	4,211,006	3,584,681
whereof AB SKF	44,179,627	40,530,098	9,664,725	8,809,766	3,304,119	3,366,144
Total 2022	104,991,572	90,209,082	21,540,907	21,081,087	4,211,006	8,965,131
whereof AB SKF	77,463,874	62,681,384	14,448,881	13,162,253	3,304,119	8,746,594
Total 2021	76,112,463	65,247,261	13,867,673	21,019,266	13,964,369	20,005,419
whereof AB SKF	56,281,026	45,415,824	8,144,714	13,284,908	11,638,084	17,096,734

1) Other benefits include for example company car and medical insurance.
2) Represents premiums paid under defined contribution plans as well as gross service costs under defined benefit plans.
3) Amounts paid represent the cash outflow and are amounts received by the individual during a specific calendar year. These amounts include remuneration for services rendered during given calendar year such as salary, but can also include remuneration for services rendered in a prior year where payment occurs subsequent to that year, for example the variable salary programmes. Amounts expensed refer primarily to the costs for the Group for services rendered during a specific calendar year by the individual, but can also include adjustments or reversals related to prior years. Consequently, differences between amounts paid and amounts expensed can arise as timing of the expense can be occurring in a different calendar year than the cash outflow to the individual.
4) Compensation for the non-compete undertaking is not included in the table.
5) Compensation specifically for the assignment as acting CEO. Niclas Rosenlew’s ordinary compensation as CFO is not included in the amount.
6) Total pension obligations, for SKF Group, related to Group Management (including CEO) were MSEK 64.
7) Exclusive of CEO.

SKF ANNUAL REPORT 2022 73
THIS IS SKF BACK TO START
PRESIDENT’S LETTER
VALUE CREATION AND STRATEGY
THE BEARING MARKET
RISKS AND THE SHARE
SUSTAINABILITY
STATEMENTS
CORPORATE GOVERNANCE
REMUNERATION REPORT
GROUP DATA
FINANCIAL STATEMENTS
NOTES

SKF ANNUAL REPORT 2022 74
THIS IS SKF BACK TO START
PRESIDENT’S LETTER
VALUE CREATION AND STRATEGY
THE BEARING MARKET
RISKS AND THE SHARE
SUSTAINABILITY
STATEMENTS
CORPORATE GOVERNANCE
REMUNERATION REPORT
GROUP DATA
FINANCIAL STATEMENTS
NOTES

SKF’s Performance Share Programme

Performance Shares

The Annual General Meeting 2022 decided on the introduction of SKF’s Performance Share Programme 2022. The programme covers a maximum of 225 senior managers and key employees in the SKF Group, including Group Management, with the opportunity of being allotted, free of charge, SKF shares of series B. Under the programme, no more than 1,000,000 SKF shares of series B, may be allotted. The allotment of shares shall be related to the level of achievement of the TVA target level, as defined by the Board of Directors, and the SKF Group Net Zero 2030 objective. 90% of the maximum allocation of shares under the programme is based on the level of TVA increase. The allocation of shares is based on the level of TVA increase during the financial years 2022–2024 compared to the financial year 2021. The fair value of the SKF series B shares at grant date was determined as SEK 139.8 for SKF’s Performance Share Programme 2022. The dividend compensation amount is recognized as employee benefit expense separate from the share-based compensation expense. The cost for the programmes is adjusted annually for changes to the number of shares expected to vest and for the forfeitures of the participants’ rights that no longer satisfy the programme conditions. Provisions for social costs to be paid by the employer in connection with share-based compensation programmes are calculated based on the fair value of the SKF B share at each reporting date and expensed over the vesting period. Allotment of shares under SKF’s Performance Share Programme requires that the persons covered by each of the programmes are employed in the SKF Group during the entire three year calculation period.

• SKF’s Performance Share Programme 2019: Allotment of shares was made in February 2022. In total, 200,010 SKF class B shares were allotted pursuant to the terms of the programme, based on the degree of achievement of TVA during the three year period 2019–2021.
• SKF’s Performance Share Programme 2020: Allotment of shares was made in February 2023. In total 225,779 SKF class B shares were allotted pursuant to the terms of the programme, based on the degree of achievement of TVA during the three year period 2020–2022.
• SKF’s Performance Share Programme 2021: Allotment of shares may be made following the expiry of the three year calculation period, i.e. during 2024, if all the conditions of the programme are met and the allotment is approved by the Board.
• SKF’s Performance Share Programme 2022: Allotment of shares may be made following the expiry of the three year calculation period, i.e. during 2025, if all the conditions of the programme are met and the allotment is approved by the Board.

Amounts expensed 2022 for all programmes were MSEK 83 (95) excluding social charges.

	2022	2021
Men and women in Board of Directors and Group Management
Number of persons	Whereof men	Number of persons
The Group Board of Directors of the Parent company incl. CEO	7	71%
Group Management incl. CEO	12	83%
Parent Company
Board of Directors of the Parent company incl. CEO	7	71%
Group Management incl. CEO	8	75%
• CEO and President: 36,500 shares
• Other members of Group Management: 13,000 shares
• Managers of large business units and similar: 4,500 shares
• Other senior managers: 3,000 shares
• Other key persons: 1,250 shares

Before the number of shares to be allotted is finally determined, the Board shall examine whether the allotment is reasonable considering SKF’s financial results and position, the conditions on the stock market as well as other circumstances, and if not, as determined by the Board, reduce the number of shares to be awarded to the lower number of shares deemed appropriate by the Board. If the TVA increase exceeds the threshold level for allotment of shares but the final allotment is below 5% of the target level, payment will be made in cash instead of shares, whereupon the amount of the cash payment shall correspond to the value of the shares calculated on the basis of the closing price for SKF’s B share the day before settlement.

The share-based compensation programmes of the Group are mainly equity-settled through the SKF Group’s Performance Share programmes. The fair value of the SKF B share at grant date is calculated as the market value of the share excluding the present value of expected dividend payments for the next three years. The estimated cost for these programmes, which is based on the fair value of the SKF B share at grant date and the number of shares expected to vest, is recognized as an operating expense with a corresponding offset in equity.

Remuneration to key Management, cont.

Fees to the SKF Group statutory auditors were split as follows (MSEK)

	2022	2021
Deloitte
Audit fees	57	50
Where of Deloitte AB	12	10
Audit related fees	2	2
Where of Deloitte AB	2	2
Tax fees	2	7
Where of Deloitte AB	—	2
Other fees	2	3
Where of Deloitte AB	1	2
PricewaterhouseCoopers
Audit fees	—	1
Where of PricewaterhouseCoopers AB	—	—
Audit related fees	—	—
Where of PricewaterhouseCoopers AB	—	—
Tax fees	—	0
Where of PricewaterhouseCoopers AB	—	—
Other fees	—	—
Where of PricewaterhouseCoopers AB	—	—
Total	63	63

The Parent Company’s share (MSEK)

	2022	2021
Deloitte
Audit fees	9	7
Audit related fees	2	2
Tax fees	—	1
Other fees to auditors	1	1
Total	12	11

Audit fees related to examination of the Annual Report and financial reporting and the administration by the Board and the President as well as other tasks related to the duties of a company auditor. Audit related fees are mainly attributable to the review of the SKF’s sustainability report. Tax fees related to tax consultancy and tax compliance services. All other assignments were defined as other.

Fees to the auditors

	2022	2021
Number of employees
Parent Company in Sweden	701	689
Subsidiaries in Sweden	1,949	1,900
Subsidiaries abroad	38,123	38,272
Total	40,773	40,861
Whereof men,%
Parent Company in Sweden	66	66
Subsidiaries in Sweden	81	81
Subsidiaries abroad	78	76
Total	78	75

Geographic specification of average number of employees in subsidiaries abroad

	2022	Whereof men,%	2021	Whereof men,%
France	2,215	82	2,197	82
Italy	2,854	78	3,039	70
Germany	4,949	87	5,142	88
Other Western Europe excluding Sweden	3,304	82	3,163	83
Central and Eastern Europe	4,047	62	4,301	65
USA	3,657	73	3,677	74
Canada	189	79	192	80
Mexico	1,837	70	1,649	69
Latin America	3,142	88	3,303	88
China	6,833	71	6,390	69
India	2,688	92	2,730	95
Other Asian countries/Pacific	2,025	82	2,104	82
Middle East and Africa	383	73	385	69
Total	38,123	78	38,272	76

Average number of employees

were reduced through netting from MSEK 77,793 (70,357) to MSEK 6,206 (6,594). This amount represented the Group’s main transaction exposure excluding hedges.

Net currency flows (MSEK)

	2022	2021
CAD	949	747
CNY	2,249	2,666
DKK	622	626
EUR	–7,856	–6,833
RUB	333	958
THB	567	427
TRY	1,395	909
USD	5,667	5,331
Other 1)	2,280	1,763
SEK	–6,206	–6,594

1) Other is a sum comprising 11 different currencies.

Based on the assumption that the net currency flows will be the same as in 2022, the below graph represents a sensitivity analysis that shows the effect in SEK on operating profit of a 5% weaker SEK against all other currencies. The effect on equity is the below result after tax. The effects of fluctuations upon the translation of subsidiaries’ financial statements into the Group’s presentation currency are not considered.

Translation exposure

Translation exposure is defined as the Group’s exposure to currency risk arising when translating the results and net assets of foreign subsidiaries to SEK. Based on 2022 operating profits in local currencies, the below graph represents a sensitivity-analysis that shows the effect in SEK on the translation of operating profits of a 5% weaker SEK against all other currencies. To reduce the translation exposure of net assets, the Group has hedged some of its net investment in foreign subsidiaries, for details see pages 78 –79.

The Group’s overall financial objective is to create value for its shareholders. Over time, the return on the shareholders’ investment in the SKF share should exceed the risk-free interest rate by around six percentage points. This is the basis for the Group’s long-term financial objectives and the financial performance management model. The SKF Group defines its managed capital as the capital employed. One of the Group’s long term financial targets is to achieve a return on capital employed of 16%. The capital structure target of the Group is a net debt/equity ratio, excluding pension liabilities of below 40%.

Key figures

	2022	2021
Total equity, MSEK	54,043	45,365
Gearing, %	35.6	40.5
Equity/assets ratio, %	48.7	45.5
Net debt/equity ratio, excluding post-employment benefits, %	19.3	12.5
Adjusted Return on capital employed 2), %	12.6	14.9

1) Definition of these key figures is available on page 144.
2) Adjusted for items affecting comparability.

This together with the self funding principle in the new strategic framework, operating cash flow to fund investments and shareholder distribution, underpins the Group’s financial flexibility and its ability to execute on the strategy while maintaining a strong credit rating. The Group’s policy and structure of debt financing are presented below. The SKF Group’s operations are exposed to various types of financial risks; market risks (being currency risk, interest rate risk and other price risks), liquidity risks and credit risks, each being discussed below. The Group’s risk management incorporates a financial policy that establishes guidelines and definitions of currency, interest rate, credit and liquidity risks and establishes responsibility and authority for the management of these risks. The policy states that the objective is to eliminate or minimize risk and to contribute to a better return through the active management of risks. The management of the risks and the responsibility for all treasury operations are largely centralized at SKF Treasury Centre, the Group’s internal bank. The policy sets forth the financial risk mandates and the financial instruments authorized for use in the management of financial risks. Financial derivative instruments are used primarily to manage the Group’s exposure to fluctuations in foreign currency exchange rates and interest rates. The Group also uses financial derivative instruments for trading purposes, according to Group policy.

Market risk – Currency risk

The Group is exposed to changes in exchange rates in the future flows of payments related to firm commitments and forecasted transactions and to loans and investments in foreign currencies, i.e. transaction exposure. The Group’s accounts are also affected by translating the results and net assets of foreign subsidiaries into SEK, i.e. translation exposure.

Transaction exposure

Transaction exposure mainly arises as a result of intra-Group transactions between the Group’s manufacturing companies and the Group’s sales companies, situated in other countries and selling the products to end-customers normally in local currency on their local market. In some countries, transaction exposure may arise from sales to external customers in a currency different from the local currency. The Group’s principal commercial flows of foreign currencies pertain to exports from Europe to North America and Asia and to flows of currencies within Europe. Currency rates and payment conditions to be applied to the internal trade between SKF companies are set by SKF Treasury Centre.# 26 Financial risk management

Currency exposure and risk is primarily, and to a large extent, reduced by netting internal transactions. The currency flows between SKF companies managed by SKF Treasury Centre.

Effect of transactional currency flows on operating profits of a 5% weaker SEK

MSEK      | THB | RUB | EUR | USD | TRY | CAD | DKK | CNY | Other 1)
----------|-----|-----|-----|-----|-----|-----|-----|-----|----------
-400      |     |     |     |     |     |     |     |     |
-300      |     |     |     |     |     |     |     |     |
-200      |     |     |     |     |     |     |     |     |
-100      |     |     |     |     |     |     |     |     |
0         |     |     |     |     |     |     |     |     |
200       |     |     |     |     |     |     |     |     |
100       |     |     |     |     |     |     |     |     |

1) Other is a sum comprising 11 different currencies.

Effect of translation on operating profits to SEK of a 5% weaker SEK

MSEK      | INR | GBP | USD | CNY | EUR | Other 1)
----------|-----|-----|-----|-----|-----|----------
0         |     |     |     |     |     |
20        |     |     |     |     |     |
10        |     |     |     |     |     |
30        |     |     |     |     |     |
60        |     |     |     |     |     |
50        |     |     |     |     |     |
40        |     |     |     |     |     |

1) Other is a sum comprising 47 different currencies.

Market risk – Interest rate risk

The Group defines interest rate risk as the risk of negative fluctuations in the Group’s cash flow caused by changes in the interest rates. At year-end, total interest bearing financial liabilities amounted to MSEK 29,888 (30,923) and total interest-bearing financial assets amounted to MSEK 11,682 (14,374). Liquidity management is concentrated to SKF Treasury Centre. By matching the duration of investments and borrowings, the interest rate exposure of the Group can be reduced. To manage the interest rate risk and currency risk in the borrowing, the Group uses cross-currency interest rate swaps, where fixed EUR interest rates are swapped into floating USD and floating EUR.

SKF ANNUAL REPORT 2022 77

THIS IS SKF
BACK TO START
PRESIDENT’S LETTER
VALUE CREATION AND STRATEGY
THE BEARING MARKET
RISKS AND THE SHARE
SUSTAINABILITY
STATEMENTS
CORPORATE GOVERNANCE
REMUNERATION REPORT
GROUP DATA
FINANCIAL STATEMENTS
NOTES

As of the balance sheet date, given the prevailing amount of net interest-bearing liabilities, an unfavorable change of the interest rates by 1% would have reduced pre-tax profit for the year, including the effect of derivatives, by around MSEK 60 (–70). For details on interest rates of individual loans, see Note 11 of the Parent Company’s financial statements.

Market risk – Price risks

Market risks also include other price risks, where the relevant risk variables for the Group are stock exchange prices or indexes. As of 31 December, the Group held investments in equity securities with quoted stock prices, amounting to MSEK 395 (402), which are categorized as fair value through other comprehensive income. If the market share prices had been 5% higher/lower at the balance sheet date, the available-for-sale reserve in equity would have been MSEK 20 (20) higher/lower.

Liquidity risk

Liquidity risk, also referred to as funding risk, is defined as the risk that the Group will encounter difficulties in raising funds to meet commitments. Group policy states that, in addition to current loan financing, the Group should have a payment capacity in the form of available liquidity and/or long-term committed credit facilities. As of the balance sheet date, in addition to its own liquidity, the Group had one unutilized committed credit facility of MEUR 500 syndicated by nine banks that will expire in 2025, and one unutilized committed credit facility of MEUR 250 that will expire in 2023. A good rating is important in the management of liquidity risks. As of 31 December 2022 the long-term rating of the Group is Baa1 by Moody’s Investors Service and BBB+ by Fitch Ratings, both with stable outlook.

The table below shows the Group’s contractually agreed and undiscounted interest payments and repayments of the non-derivative financial liabilities and derivatives with payment flows. All instruments held on 31 December 2022 for which payments were

26 Financial risk management, cont.

income statement as financial income or expense or in the operating result depending on the nature of the hedged item.

Fair value hedges

Hedge accounting is applied to derivative financial instruments which are effective in hedging the exposure to changes in fair value in foreign borrowing. Changes in the fair value of these derivative financial instruments designated as hedging instruments are recognized in the income statement under financial items. The carrying amount of the hedged item (the financial liability) is adjusted for the gain or loss attributable to the hedged risk. The gain or loss is recognized in the income statement under financial items. If a hedge relationship is discontinued, the accumulated adjustment to the carrying amount is amortized over the duration of the life of the hedged item. The SKF Group hedges the fair value risk of financial liabilities on December 2022, by using cross-currency interest rate swaps. The MEUR 300 loan with fixed interest payments has been swapped into floating USD interest. In addition, the MEUR 400 bond, which is due in 2028, with fixed interest payments has been swapped into floating EUR interest. Maturity and carrying amount are disclosed in Note 20. The effectiveness of the hedging relationship is measured at inception of the hedge relationship and prospectively to ensure that the economic relationship between hedge item and hedging instrument remains. When the effectiveness was being measured, the change in the credit spread was not taken into account for calculating the change in the fair value of the hedged item. As the list of the fair values of derivatives shows (see table in the Derivatives section below), the Group had designated interest rate derivatives for a net amount of MSEK –758 (–18) as fair value hedges as of 31 December 2022. The following table shows the changes in the fair value of the hedges recorded in interest expense during the year.

contractually agreed were included. Planning data for future, new liabilities was not included. Amounts in foreign currency were translated at closing rate. The variable interest payments arising from the financial instruments were calculated using the last interest rates fixed before 31 December 2022. Financial liabilities were assigned to the earliest possible time period when they can be required to be repaid.

2022 Cash flows MSEK | 2023      | 2024      | 2025–2027 | 2028 and thereafter
--------------------|-----------|-----------|-----------|-------------------
Loans               | –601      | –3,330    | –4,733    | –11,018
Trade payables      | –11,594   | —         | —         | —
Derivatives, net    | –275      | —         | –530      | –228
Lease liabilities   | –677      | –895      | –894      | –599
Total               | –13,147   | –4,225    | –6,157    | –11,845

Credit risk

Credit risk is defined as the Group’s exposure to losses in the event that one party to a financial instrument fails to discharge an obligation. The SKF Group is exposed to credit risk from its operating activities and certain financing activities. The maximum exposure to credit risk for the Group amounted to MSEK 28,958 (28,440) as of the balance sheet date. The exposure is represented by total financial assets that are carried on the balance sheet with the exception of equity securities. No granting of significant financial guarantees increasing the credit risk and no significant collateral agreements reducing the maximum exposure to credit risk existed as of the balance sheet date.

Credit risk (MSEK) | 2022   | 2021
-------------------|--------|--------
Trade receivables  | 16,905 | 13,972
Other receivables  | 1,428  | 1,155
Derivatives        | 370    | 94
Cash and cash equivalent | 10,255 | 13,219
Total              | 28,958 | 28,440

At operational level, the outstanding trade receivables are continuously monitored locally in each area. The Group’s concentration of credit risk related to trade receivables is mitigated primarily due to its many geographically and industrially diverse customers. Trade receivables are subject to credit limit control and approval procedures in all subsidiaries. With regard to treasury related activities, the Group’s policy states that only well-established financial institutions are approved as counterparties. The SKF Group has signed ISDA agreements (International Swaps and Derivatives Association, Inc.) with nearly all of these financial institutions. ISDA is classified as an enforceable netting arrangement. One feature of the ISDA agreement is that it enables the SKF Group to calculate its credit exposure on a net basis per counterparty, i.e. the difference between what the Group owes and is owed. The agreement between the Group and the counterparty allows for net settlement of derivatives when both elect to settle net. In the event of default of one of the counterparties the other counterpart of the netting agreement has the option to settle on a net basis. Transactions are made within fixed limits and credit exposure per counterparty is continuously monitored. As of the balance sheet date the Group had derivative assets of around MSEK 369 (94) and derivative liabilities of around MSEK 852 (117) subject to enforceable master netting arrangements.

Hedge accounting

The Group manages risks related to the volatility of balance sheet items and future cash flows, which otherwise would affect the income statement, by hedging. A distinction is made between cash flow hedges, fair value hedges and hedges of net investment in foreign operations based on the nature of the hedged item. Derivative instruments which provide effective economic hedges, but are not designated for hedge accounting by the Group, are accounted for as trading instruments. Changes in the fair value of these economic hedges are immediately recognized in the

SKF ANNUAL REPORT 2022 78

THIS IS SKF
BACK TO START
PRESIDENT’S LETTER
VALUE CREATION AND STRATEGY
THE BEARING MARKET
RISKS AND THE SHARE
SUSTAINABILITY
STATEMENTS
CORPORATE GOVERNANCE
REMUNERATION REPORT
GROUP DATA
FINANCIAL STATEMENTS
NOTES

MSEK                | Financial expense 2022 | Financial expense 2021
--------------------|------------------------|------------------------
Financial liabilities (hedged items) | 522                    | 70
Cross-currency-interest-rate swaps (hedging instruments) | –531                   | –69
Difference (inefficiency) | –9                     | 1

Hedges of net investments

Hedge accounting is applied to financial instruments which are effective in offsetting the exposure to translation differences arising when the net assets of foreign operations are translated into the Group’s functional currency. Any gain or loss on the hedging is recognized in the foreign currency translation reserve via other comprehensive income.## Financial Risk Management, cont.

As of the balance sheet date net investments in foreign operations for a nominal amount of MEUR 0 (30) were hedged by the Group against changes in the EUR/SEK exchange rates. EUR loan for an amount of MEUR 0 (30) and derivatives for an amount of MEUR 0 (0) were designated as hedge instruments. The result of the hedges totaled MSEK –21 (–6) before tax in 2022 and was recognized as a translation difference in other comprehensive income. During the year no gains/losses (0) have been recycled from other comprehensive income to the income statement, matching the recycling of the hedged subsidiary’s cumulative translation differences.

Derivatives

The table below shows the fair values of the various derivatives carried as of 31 December reflected as assets in Note 14 and liabilities in Note 20. A distinction is made depending on whether these are part of an effective hedging relationship or not.

Derivative net (MSEK)	Category	2022	2021
Interest rate and currency swaps	Fair value hedges	–758	–18
	Hedge accounting
Currency forwards/ currency options	Economic hedges	—	—
	Trading	260	–11
Share swaps	Economic hedges	—	—
	Trading	–499	–29
		26

Financial risk management, cont.

Accounting policy

Subsidiaries that the Group controls, but owns less than 100% in, are consolidated into the Group’s financial statements. The category “non-controlling interests (NCI)” in the equity report accumulates the portion of a subsidiary’s equity that is not attributable to the owners of AB SKF.

Significant non-controlling interests

During 2022, there has been no change in significant non-controlling interests. The largest non-controlling interest is SKF India Ltd. The non-controlling interests holds a 47.4% (47.4) shareholding in the company. This represents 2.4% (2.2) of the Group’s total equity.

The tables present the summarized financial information of SKF India Ltd.

January–December

Summarized income statement (MSEK)	2022	2021
Net sales	5,378	3,973
Operating profit	1,027	675
Net income	672	435
Other comprehensive income	72	161
Total comprehensive income	744	596
Profit allocated to NCI	319	206
Dividends paid to NCI	–45	–40

As of 31 December

Summarized balance sheet (MSEK)	2022	2021
Non-current assets	741	608
Current assets	3,208	2,627
Total assets	3,949	3,235
Equity attributable to shareholders of AB SKF	1,465	1,123
Equity attributable to NCI	1,321	1,013
Non-current liabilities	54	45
Current liabilities	1,109	1,054
Total equity and liabilities	3,949	3,235

27

SKF ANNUAL REPORT 2022

PARENT COMPANY

AB SKF, corporate identity number 556007-3495, which is the Parent Company of the SKF Group, is a registered Swedish limited liability company domiciled in Gothenburg. The headquarters’ address is AB SKF, SE-415 50 Gothenburg, Sweden. AB SKF is the company within the Group that makes the strategic decisions and pays for the research and development. AB SKF owns and controls the Intellectual Property Rights within the Group. Subsidiaries perform tasks decided by AB SKF and thus have a limited commercial liability. Dividend income from consolidated subsidiaries amounted to MSEK 3,019 (2,010). Net investments in subsidiaries increased by MSEK 367 (–421) whereof MSEK –165 (–60) is attributable to impairments and MSEK 533 (70) related to capital contributions. Shares with a booked value of MSEK 0 (–354) were sold during the year.

Risks and uncertainties in the business for the Group are described in the Administration Report for the Group. The financial position of the Parent Company is dependent on the financial position and development of the subsidiaries. A general decline in the demand for the products and services provided by the Group could mean lower residual profit and lower dividend income for the Parent Company, as well as a need for write-down of the values in the shares in subsidiaries. Due to the wide spread of markets, geographically as well as operationally in which the subsidiaries operate, the risk that the financial position for the Parent Company will be negatively affected is assessed as small. Unrestricted equity in the Parent Company amounted to MSEK 24,061.

Parent Company income statements

January–December

MSEK	Note	2022	2021
Revenue	2	6,658	7,775
Cost of revenue	2	–5,923	–5,036
General management and administrative expenses	2	–1,799	–1,470
Other operating income and expenses, net	2	8	0
Operating profit		–1,056	1,269
Financial income and expenses, net	3	3,549	2,325
Profit after financial items		2,493	3,594
Appropriations	4	1,115	–793
Profit before tax		3,608	2,801
Income taxes	5	5	–54
Net profit		3,613	2,747

January–December

MSEK	Note	2022	2021
Net profit		3,613	2,747
Items that may be reclassified to the income statement
Assets at fair value through other comprehensive income	9	–15	95
Other comprehensive income, net of tax		–15	95
Total comprehensive income		3,598	2,842

SKF ANNUAL REPORT 2022

80

Parent Company balance sheets

As of 31 December

MSEK	Note	2022	2021
ASSETS
Non-current assets
Intangible assets	6	1,234	1,371
Property, plant and equipment	7	78	63
Investments in subsidiaries	8	22,442	22,074
Long-term receivables from subsidiaries		18,387	13,022
Investments in equity securities	9	338	349
Other long-term receivables		113	167
Deferred tax assets	5	398	312
		42,990	37,358
Current assets
Short-term receivables from subsidiaries		5,555	6,958
Other short-term receivables		145	140
Prepaid expenses and accrued income		203	130
Cash and cash equivalents	10	3	5,913
		5,913	7,231
Total assets		48,903	44,589

As of 31 December

MSEK	Note	2022	2021
EQUITY AND LIABILITIES
Equity
Restricted equity
Share capital		1,138	1,138
Statutory reserve		918	918
Capitalized development reserve		—	—
		2,056	2,056
Unrestricted equity
Fair value reserve		148	163
Retained earnings		20,300	20,717
Net profit		3,613	2,747
		24,061	23,627
		26,117	25,683
Untaxed reserves	4	—	—
Provisions
Provisions for post-employment benefits	10	602	430
Other provisions		64	15
		666	445
Non-current liabilities
Long-term loans	11	18,386	13,023
		18,386	13,023
Current liabilities
Short-term loans	11	—	3,031
Trade payables		495	320
Short-term liabilities to subsidiaries		2,581	1,488
Other short-term liabilities		153	132
Accrued expenses and deferred income		505	467
		3,734	5,438
Total shareholders’ equity and liabilities		48,903	44,589

SKF ANNUAL REPORT 2022

81

Parent Company statements of changes in equity

MSEK	Share capital 1)	Statutory reserve	Capitalized development reserve	Fair value reserve	Retained earnings	Total
Opening balance 1 January 2021	1,138	918	99	68	23,578	25,801
Net profit	—	—	—	—	2,747	2,747
Components of other comprehensive income
Change in assets to fair value through other comprehensive income	—	—	—	95	—	95
Capitalized development reserve	—	—	–99	—	99	0
Transactions with shareholders
Cost under Performance Share Programmes 2)	—	—	—	—	0	0
Dividends	—	—	—	—	–2,960	–2,960
Closing balance 31 December 2021	1,138	918	0	163	23,464	25,683
Net profit	—	—	—	—	3,613	3,613
Components of other comprehensive income
Change in assets to fair value through other comprehensive income	—	—	—	–15	—	–15
Capitalized development reserve	—	—	—	—	—	—
Transactions with shareholders
Cost under Performance Share Programmes 2)	—	—	—	—	23	23
Dividends	—	—	—	—	–3,187	–3,187
Closing balance 31 December 2022	1,138	918	0	148	23,913	26,117

1) The distribution of share capital between share types and the quota value is shown in Note 16 to the Consolidated financial statements.
2) See Note 23 to Consolidated financial statements for information about Performance Share Programmes.

Restricted equity includes share capital and statutory reserves as well as capitalized development reserves which are not available for dividend payments. Unrestricted equity includes retained earnings which can be distributed to shareholders. It also includes the fair value reserve which accumulates the changes in fair value of available-for-sale assets.

Parent Company statements of cash flow

January–December

MSEK	Note	2022	2021
Operating activities
Operating loss/profit		–1,056	1,269
Adjustments for
Depreciation, amortization and impairments	6, 7	214	202
Other non-cash items		338	126
Payments under post-employment defined benefit plans	10	–38	–36
Income taxes paid/received		–20	—
Changes in working capital
Trade payables		175	140
Other operating assets and liabilities, net		–564	–2,394
Interest received		270	203
Interest paid		–281	–252
Other financial items		–73	404
Net cash flow from operating activities		–1,035	–338
Investing activities
Additions to intangible assets	6	–70	–112
Additions to property, plant and equipment	7	–22	–4
Sales of property, plant and equipment	7	—	17
Dividends received from subsidiaries	3	3,819	2,010
Investments in subsidiaries	8	–533	–464
Sales of shares in subsidiaries	8	—	354
Capital repayments from subsidiaries	8	—	472
Investments in equity securities	9	–5	–1
Net cash flow used in investing activities		3,189	2,272
Net cash flow after investments before financing		2,154	1,934
Financing activities
Proceeds from medium- and long-term loans		4,276	3,045
Repayment of medium- and long-term loans		–3,236	–2,018
Cash dividends to AB SKF’s shareholders		–3,187	–2,960
Net cash flow used in financing activities		–2,147	–1,933
Increase(+)/decrease(–) in

Basis of presentation

The financial statements of the Parent Company are prepared in accordance with the “Annual Accounts Act” and The Swedish Financial Reporting Board recommendation RFR 2, “Accounting for Legal Entities” as well as their interpretation (UFR). In accordance with RFR 2, IFRS is applied to the greatest extent possible under Swedish legislation, but full compliance is not possible. The areas in which the Parent Company’s accounting policies differ from the Group’s are described below. For a description of the Group’s accounting policies, see Note 1 to the Consolidated financial statements.

Post-employment benefits

AB SKF reports pensions in the financial statements in accordance with RFR 2. According to RFR 2, IAS 19 shall be adopted regarding supplementary disclosures when applicable.

Investments in subsidiaries

Investments in subsidiaries are recorded at acquisition cost, reduced by any impairment.

Untaxed reserves

The tax legislation in Sweden allows companies to make provisions to untaxed reserves. Hereby, the companies may, with certain limits, allocate and retain profits in the balance sheet instead of immediate taxation. The untaxed reserves are taken into taxation at the time of their dissolution. In the event that the business shows losses, the untaxed reserves may be dissolved in order to cover the losses without any taxation.

Equity

When development expenses are capitalized for internal development of intangible assets, a corresponding amount is transferred from retained earnings to a reserve for capitalized development in restricted equity. The reserve is released to retained earnings upon amortization of the capitalized development.

Intangible assets

According to Swedish legislation, goodwill has a definite useful life. The useful life amounts to eight years and the amortization follows a linear pattern.

Leases

RFR 2 allows an exception from IFRS 16 which the Parent Company has applied. Lease contracts are reported as operational leases.

1 Accounting policies

AB SKF is the company within the Group that makes the strategic decisions and pays for the research and development and is as such entitled to residual profits. Consequently the revenues are comprised of residual profits and royalties from subsidiaries.

2 Revenues and operating expenses

	2022	2021
Income from participations in Group companies
Dividends from subsidiaries	3,819	2,010
Other financial income from investments in subsidiaries	–2	483
Impairment and disposals of investments in subsidiaries	–165	–60
	3,652	2,433
Financial income
Interest income from subsidiaries	270	203
Interest income from external parties	1	—
	271	203
Financial expenses
Interest expenses to subsidiaries	–72	–73
Interest expenses to external parties	–266	–202
Other financial expense	–36	–36
	–374	–311

Cost of revenue include research and development expenses totalling MSEK 2,874 (2,501). Of the total operating expenses, MSEK 4,185 (3,782) was invoiced from subsidiaries.

3 Financial income and financial expenses

5 Taxes

Appropriations (MSEK)	2022	2021
Paid/received group contribution	1,115	–793
Untaxed reserves
Change in accelerated depreciation reserve	—	—
	1,115	–793
Untaxed reserves in the balance sheet
Accelerated depreciation reserve	—	—
	4

Taxes on profit before tax (MSEK)	2022	2021
Current taxes	—	—
Other taxes	–81	–65
Deferred tax	86	11
	5	–54

Net deferred assets per type net (MSEK)	2022	2021
Provisions for post-employment benefits	129	126
Tax credit carry forwards	266	186
Tax loss carry forwards	3	—
Other	—	—
Deferred tax assets	398	312

Reconciliation of the statutory tax in Sweden and the actual tax (MSEK)
| | 2022 | 2021 |
| :--------------------------------------------------------------- | -----: | -----: |
| Tax calculated using the statutory tax rate in Sweden | –743 | –577 |
| Non-taxable dividends and other financial income | 787 | 526 |
| Tax referring to previous years | 24 | 23 |
| Other non-deductible and non-taxable profit items, net | –63 | –26 |
| Actual tax | 5 | –54 |

The corporate statutory income tax rate in Sweden is 20.6% (20.6).

6 Intangible assets

MSEK	Closing balance	Additions	Impairments	Derecognitions	Opening balance
2022
Acquisition cost
Goodwill	42	7	—	—	35
Technology, Intellectual property and similar items	1,058	45	—	—	1,013
Internally developed software	2,308	18	—	—	2,290
	3,408	70	—	—	3,338
MSEK	Closing balance	Amortization	Impairments	Derecognitions	Opening balance
2022
Accumulated amortization
Goodwill	31	6	—	—	25
Technology, Intellectual property and similar items	944	19	—	—	925
Internally developed software	1,199	182	—	—	1,017
	2,174	207	—	—	1,967
Net book value	1,234				1,371

MSEK	Closing balance	Additions	Impairments	Derecognitions	Opening balance
2021
Acquisition cost
Goodwill	35	—	—	—	35
Technology, Intellectual property and similar items	1,013	—	—	—	1,013
Internally developed software	2,290	38	—	—	2,252
	3,338	38	—	—	3,300
MSEK	Closing balance	Amortization	Impairments	Derecognitions	Opening balance
2021
Accumulated amortization
Goodwill	25	5	—	—	20
Technology, Intellectual property and similar items	925	16	—	—	909
Internally developed software	1,017	174	—	—	843
	1,967	195	—	—	1,772
Net book value	1,371				1,528

See Note 10 to the Consolidated financial statements for information on the internally developed software including impairment. Technology and similar items are amortized over eight years.

7 Property, plant and equipment

MSEK	Closing balance	Additions	Disposals	Opening balance
2022
Acquisition cost
Buildings	5	—	—	5
Machine toolings and factory fittings	86	5	—	81
Assets under construction including advances	44	17	—	27
	135	22	—	113
MSEK	Closing balance	Depreciation	Disposals	Opening balance
2022
Accumulated depreciation
Buildings	3	—	—	3
Machine toolings and factory fittings	54	7	—	47
	57	7	—	50
Net book value	78			63

MSEK	Closing balance	Additions	Disposals	Opening balance
2021
Acquisition cost
Buildings	5	—	—	5
Machine toolings and factory fittings	81	—	—	81
Assets under construction including advances	27	4	–17	40
	113	4	–17	126
MSEK	Closing balance	Depreciation	Disposals	Opening balance
2021
Accumulated depreciation
Buildings	3	—	—	3
Machine toolings and factory fittings	47	7	—	40
	50	7	—	43
Net book value	63			83

8 Investments in subsidiaries

Investments in subsidiaries held on 31 December (MSEK)	2022	Additions	Impairment	Disposals and capital repayments	2021	Additions	Impairment	Disposals and capital repayments	2020
Investments in subsidiaries	22,442	533	–165	—	22,074	464	–60	–826	22,496

The Group is composed of 172 legal entities (subsidiaries), where AB SKF is the ultimate parent either directly or indirectly via intermediate holding companies. The vast majority of the Group’s subsidiaries perform activities related to manufacturing and sales. A limited number are involved in central Group functions such as treasury or reinsurance, or as previously mentioned, act as intermediate holding companies. This legal structure is designed to effectively manage legal requirements, administration, financing and taxes in the countries in which the Group operates. In contrast, the Group’s operational structure described in the Administration Report, gives a better overview of how the Group runs its business. See also Note 2 to the Consolidated financial statements.

The tables below list firstly, the subsidiaries owned directly by the Parent Company, and secondly, the most significant of the remaining subsidiaries of the Group. Taken together these subsidiaries account for more than 90% of the Group’s sales and for more than 90% of the Group’s manufacturing facilities.

Book value (MSEK)	Name of directly owned subsidiaries	Country/Region	Registration number	No. of shares	% ownership	2022	2021	Main activities 1)
	SKF Argentina S.A.	Argentina	—	14,677,299	86.25	2) 94	94	M,S
	SKF Australia Pty. Ltd.	Australia	—	96,500	100	—	—	S
	SKF Österreich AG	Austria	—	200	100	176	176	M,S
	SKF Belgium NV/SA	Belgium	—	1,778,642	99.9	2) 109	109	S
	SKF Logistics Services Belgium NV/SA	Belgium	—	29,907,952	99.9	2) 28	28	O
	SKF do Brasil Ltda.	Brazil	—	517,294,748	99.9	2) 626	626	M,S
	SKF Bearings Bulgaria EAD	Bulgaria	—	24,664,309	100	202	202	M,S
	SKF Canada Ltd.	Canada	—	130,000	100	58	58	M,S
	SKF Chilena S.A.I.C.	Chile	—	88,191	99.9	2) —	—	S
	SKF (China) Co. Ltd.	China	—	133,400	100	1,135	1,135	O
	SKF China Ltd.	China	—	11,000,000	100	15	15	S
	SKF CZ, a.s.	Czech Republic	—	430	100	10	10	S
	SKF Danmark A/S	Denmark	—	5	100	7	7	S
	Oy SKF Ab	Finland	—	48,400	100	12	12	M,S
	SKF Holding France S.A.R.L.	France	—	1	100	3,371	3,371	O
	SKF GmbH	Germany	—	1,000	100	1,573	1,573	M,S
	SKF Lubrication Systems Germany GmbH	Germany	—	2,574	10.1	2) 223	223	M,S
	SKF Hellas S.A.	Greece	—	2,000	100	—	—	S
	SKF Svéd Golyóscsapágy Zrt	Hungary	—	20	100	—	—	S
	SKF Engineering and Lubrication India Private Ltd.

Name of directly owned subsidiaries	Country/Region	Registration number	No. of shares	% ownership	2022 Book value (MSEK)	2021 Book value (MSEK)	Main activities 1)
SKF Korea Ltd.	Republic of Korea	—	128,667	100	74	74	M,S
SKF Sealing Solutions Korea Co., Ltd.	Republic of Korea	—	153,320	51	15	15	M,S
SKF Asia Pacific Pte. Ltd.	Singapore	—	1,000,000	100	—	—	S
Barseco (PTY) Ltd.	South Africa	—	1,422,480	100	157	157	O
SKF Española S.A.	Spain	—	3,650,000	100	383	383	M,S
SKF Förvaltning AB	Sweden	556350-4140	124,500	99.6	4,144	4,144	O
SKF International AB	Sweden	556036-8671	20,000	100	1,320	1,320	O
Återförsäkringsaktiebolaget SKF	Sweden	516401-7658	30,000	100	125	125	O
Bagaregården 16:7 KB	Sweden	916622-8529	—	99.9	99	99	O
SKF Eurotrade AB	Sweden	556206-7610	83,500	100	12	12	S
SKF Lager AB	Sweden	556219-5288	2,000	100	—	—	O
AB Svenska Kullagerfabriken	Sweden	556210-0148	1,000	100	—	—	O
The Waste Company Sweden AB	Sweden	559128-2016	50,000	100	—	—	O
SKF Efolex AB	Sweden	559233-1275	2,500	100	2	31	O
SKF Edge AB	Sweden	556785-4640	1,000	100	2	9	O
SKF Verwaltungs AG	Switzerland	—	500	100	502	502	O
SKF Taiwan Co. Ltd.	Taiwan	—	169,475,000	100	102	102	S
SKF (Thailand) Ltd.	Thailand	—	1,847,000	92.4	37	37	S
SKF B.V the Netherlands	the Netherlands	—	1,450	100	304	304	S
SKF Holding Maatschappij Holland B.V.	the Netherlands	—	60,002	100	423	423	O
Trelanoak Ltd.	United Kingdom	—	6,965,000	100	120	120	O
PSC SKF Ukraine	Ukraine	—	1,267,495,630	100	207	207	M,S
SKF USA Inc.	USA	—	1,000	100	4,155	4,155	M,S
SKF Venezolana S.A.	Venezuela	—	20,014,892	100	—	—	O
India	—	—	1,196,450	52.8	314	314	M,S
PT. SKF Indonesia	Indonesia	—	22,666,055	45.8	87	87	M,S
PT. SKF Industrial Indonesia	Indonesia	—	53,411	60	26	26	M,S
SKF AI Ltd Israel	Israel	—	2,413,322	100	220	220	S
SKF Industrie S.p.A Italy	Italy	—	465,000	100	912	912	M,S
SKF Japan Ltd.	Japan	—	32,400	100	174	174	M,S
SKF Malaysia Sdn Bhd	Malaysia	—	1,000,000	100	57	57	S
SKF de México, S.A. de C.V.	Mexico	—	375,623,529	99.9	600	204	M,S
SKF New Zealand Ltd.	New Zealand	—	375,000	100	11	11	S
SKF Norge AS	Norway	—	50,000	100	—	—	S
SKF del Peru S.A.	Peru	—	2,564,903	99.9	—	—	S
SKF Philippines Inc.	Philippines	—	8,395	100	20	20	S
SKF Financial Services Poland sp.zoo	Poland	—	—	100	37	30	O
SKF Polska S.A.	Poland	—	3,701,466	100	156	156	M,S
SKF Portugal-Rolamentos, Lda.	Portugal	—	64,843	100	5	4	S

1) M=Manufacturing, S=Sales, O=Other incl treasury, reinsurance, holding and/or dormant activities.
2) Parent Company together with subsidiaries own 100%.
3) Parent Company together with subsidiaries own 52.6%.

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8 Investments in subsidiaries, cont.

Name of indirectly owned subsidiaries	Country /Region	% Ownership	Owned by subsidiary in	Main activities 1)
Alemite LLC	USA	100	USA	M,S
Beijing Nankou SKF Railway Bearings Co. Ltd.	China	51	China	M,S
BFW Coupling Services Ltd.	Canada	100	Canada	S
Cooper Roller Bearings Co. Ltd.	United Kingdom	100	United Kingdom	M
Kaydon Corporation	USA	100	USA	M
Kaydon S de R.L. de C.V.	Mexico	100	the Netherlands	M
Lincoln Industrial Corporation	USA	100	USA	M
M3M S.A.S	France	100	France	M
Ningbo General Bearing Ltd.	China	100	Barbados	M,S
PEER Bearing Company	USA	100	USA	S
PEER Bearing Company, Changshan (CPZ1)	China	100	China	M
SKF (China) Sales Co. Ltd.	China	100	China	S
SKF (Dalian) Bearings and Precision Technologies Co. Ltd.	China	100	China	M
SKF (Jinan) Bearings & Precision Technology Co. Ltd.	China	100	China	M
SKF (Schweiz) A.G.	Switzerland	100	Switzerland	S
SKF (Shanghai) Automotive Technologies Co. Ltd.	China	100	China	M
SKF (U.K.) Ltd.	United Kingdom	100	United Kingdom	M,S
SKF (Xinchang) Bearings and Precision Technologies	China	100	China	M
SKF (Zambia) Ltd.	Zambia	100	Sweden	S
SKF Aeroengine France S.A.S	France	100	France	M,S
SKF Aerospace France S.A.S.	France	100	France	M,S
SKF Bearing Industries (Malaysia) Sdn Bhd	Malaysia	100	the Netherlands	M
SKF Distribution (Shanghai) Co. Ltd.	China	100	China	S
SKF Economos Deutschland GmbH	Germany	100	Austria	S
SKF France S.A.S	France	100	France	M,S
SKF Intelligent Clean Technology (Shanghai)	China	100	China	M,S
SKF Latin Trade S.A.S	Colombia	100	Chile	S
SKF Lubrication Systems CZ s.r.o	Czech Republic	100	Germany	M
SKF Magnetic Mechatronics S.A.S	France	100	France	M,S
SKF Marine GmbH	Germany	100	Germany	M,S
SKF Marine Singapore Pte Ltd.	Singapore	100	Germany	S
SKF Mekan AB	Sweden	100	Sweden	M
SKF Metal Stamping S.R.L	Italy	100	Italy	M,S
SKF RecondOil AB	Sweden	100	Sweden	M,S
SKF Sealing Solutions Austria GmbH	Austria	100	Austria	M,S
SKF Sealing Solutions GmbH	Germany	100	Germany	M,S
SKF Sealing Solutions (Qingdao) CO.	China	100	Austria	M,S
SKF Sealing Solutions S.A. de C.V.	Mexico	100	USA	M,S
SKF Sealing Solutions (Wuhu) Co. Ltd.	China	100	China	M,S
SKF Seals Italy S.p.A.	Italy	100	Italy	S,M
SKF Slovensko, spol. S.r.o.	Slovakia	100	Sweden	S
SKF South Africa (Pty) Ltd.	South Africa	70	South Africa	S
SKF Steyr Liegenschaftsvermietungs GmbH	Austria	100	Austria	O
SKF Sverige AB	Sweden	100	Sweden	M,S
SKF Türk Sanayi ve Ticaret Limited Sirketi	Turkey	100	Belgium	S
SKF Uruguay S.A	Uruguay	100	Argentina	S
SKF Vietnam Co. Ltd.	Vietnam	100	Singapore	S
Stewart Werner Corporation of Canada	Canada	100	USA	S
Venture Aerobearings LLC.	USA	51	USA	M
Vesta Si Sweden AB	Sweden	100	Sweden	M

1) M=Manufacturing, S=Sales, O=Other incl treasury, reinsurance and/or holding activities.

Name and location	Holding in percent	Number of shares	Currency	2022 Book value (MSEK)	2021 Book value (MSEK)
Wafangdian Bearing Company Limited, China	19.7	79,300,000	HKD	316	332
Other			SEK	22	17
				338	349

9 Investments in equity securities

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10 Provisions for post-employment benefits

Amount recognized in the balance sheet (MSEK)	2022	2021
Present value of funded pension obligations	705	546
Fair value of plan assets	–292	–313
Net obligation	413	233
Present value of unfunded pension obligations	189	197
Net provisions	602	430

Change in net provision for the year (MSEK)	2022	2021
Opening balance 1 January	430	431
Defined benefit expense	210	35
Pension payments	–38	–36
Closing balance 31 December	602	430

Components of expense (MSEK)	2022	2021
Pension cost	174	56
Interest expense	15	17
Return on plan assets	21	–38
Defined benefit expense	210	35
Defined contribution expense	115	119
Total post-employment benefit expense	325	154

All white collar workers of the Company are covered by the ITP-plan according to collective agreements. Additionally, the Company sponsors a complementary defined contribution (DC) scheme for a limited group of managers. This DC scheme replaced the previous supplementary defined benefit plan which from 2003 is closed for new participants. The calculation of defined benefit pension obligations has been made in accordance with regulations stipu- lated by the Swedish Financial Supervisory Authority, FFFS 2007:24 and FFFS 2007:31. The discount rate for the ITP-plan was 2.85% (3.84) and for the other defined benefit plan it was 2.51% (0.39).

Next year’s expected cash outflows for pension obligations are MSEK 165. In January 2022, the calculation basis for discount rate was changed by –1%, life expectancy and consoli- dation reserve, which meant a substantial increase in AB SKF’s pension liability. In January 2023, the pen- sion debt is expected to increase significantly due to the accrual of debt for free bond holders according to the inflation index of 10.84%.

11 Loans

MSEK	Maturity	Interest rate	Carrying amount 2022	Fair value 2022	Carrying amount 2021	Fair value 2021
Bonds
MEUR	296	2022	1.63	—	—	3,031
MSEK	900	2024	1.13	899	875	899
MSEK	2,100	2024	3.49	2,098	2,134	2,097
MEUR	300	2025	1.25	3,324	3,113	3,046
MUSD	100	2027	4.06	1,043	1,076	905
MEUR	400	2028	3.13	4,406	4,273	—
MEUR	300	2029	0.88	3,326	2,881	3,057
MEUR	300	2031	0.25	3,290	2,666	3,019
			18,386	17,018	16,054	16,691

	2022	2021
1) Salaries, wages and other remuneration	817	798
Social charges (whereof post- employment benefit expense)	585 (325)	466 (154)

1) 2021 includes cost of MSEK 59 related to 2020s short-term variable salary programme. See Note 23 to the Consolidated financial statements for information on remuneration to the Board and President as well as men and women in management and the Board. Refer to Note 25 to theConsolidated 13 Contingent liabilities financial statements for the average number of employees and to Note 24 to the Consolidated financial statements for fees to the auditors.

13 Contingent liabilities

MSEK	2022	2021
General partner	2	4
Other contingent liabilites	30	24
UK Pension guarantee	160	—
Total	192	28

General partner relates to liabilities in limited partner ship Bagaregården 16:7. Other contingent liabilities refer to guarantee commit ment regarding pension liabilities in the Swedish subsidiaries.# SKF ANNUAL REPORT 2022

Proposed distribution of surplus

	SEK
Fair value reserve	147,225,341
Retained earnings	20,300,330,868
Net profit for the year	3,613,048,508
Total surplus	24,060,604,717

The Board of Directors and the President recommend to the shareholders, a dividend of SEK 7.00 per share 1) SEK 3,187,457,476 2) to be carried forward:

	SEK
Fair value reserve	147,225,341
Retained earnings	20,725,921,900
Total	24,060,604,717

The results of operations and the financial position of the Parent Company, AB SKF, and the Group for the year 2022 are given in the income statements and in the balance sheets together with related notes. The Board of Directors and the President certify that the annual financial report has been prepared in accordance with generally accepted accounting principles in Sweden and that the consolidated accounts have been prepared in accordance with the international set of accounting standards referred to in Regulation (EC) No 1606/2002 of the European Parliament and of the Council of 19 July 2002 on the application of international accounting standards, and give a true and fair view of the position and profit or loss of the Company and the Group, and that the management report for the Company and for the Group gives a fair review of the development and performance of the business, position and profit or loss of the Company and the Group, and describes the principal risks and uncertainties that the Company and the companies in the Group face.

Hans Stråberg, Chair
Hock Goh, Board member
Colleen Repplier, Board member
Geert Follens, Board member
Håkan Buskhe, Board member
Susanna Schneeberger, Board member
Rickard Gustafson, President and CEO, Board member
Jonny Hilbert, Board member
Zarko Djurovic, Board member

Our auditors’ report for this Annual Report and the consolidated Annual Report was issued March 1 2023.

Deloitte AB
Hans Warén
Authorized Public Accountant

1) Suggested record day for right to dividend, 27 March 2023.
2) Board Members’ statement: The members of the Board are of the opinion that the proposed dividend is justifiable considering the demands on Company and Group equity imposed by the type, scope and risks of the business and with regards to the Company’s and the Group’s financial strength, liquidity and overall position.

Gothenburg, March 1 2023

Auditor’s report

To the general meeting of the shareholders of AB SKF (publ) corporate identity number 556007-3495

Report on the annual accounts and consolidated accounts

Opinions

We have audited the annual accounts and consolidated accounts of AB SKF (publ) for the financial year 1 January–31 December 2022. The annual accounts and consolidated accounts of the company are included on pages 14–89 in this document.

In our opinion, the annual accounts have been prepared in accordance with the Annual Accounts Act and present fairly, in all material respects, the financial position of the parent company as of 31 December 2022 and its financial performance and cash flow for the year then ended in accordance with the Annual Accounts Act.

The consolidated accounts have been prepared in accordance with the Annual Accounts Act and present fairly, in all material respects, the financial position of the group as of 31 December 2022 and their financial performance and cash flow for the year then ended in accordance with International Financial Reporting Standards (IFRS), as adopted by the EU, and the Annual Accounts Act.

The statutory administration report is consistent with the other parts of the annual accounts and consolidated accounts.

We therefore recommend that the general meeting of shareholders adopts the income statement and balance sheet for the parent company and the group.

Our opinions in this report on the annual accounts and consolidated accounts are consistent with the content of the additional report that has been submitted to the parent company’s audit committee in accordance with the Audit Regulation (537/2014) Article 11.

Basis for Opinions

We conducted our audit in accordance with International Standards on Auditing (ISA) and generally accepted auditing standards in Sweden. Our responsibilities under those standards are further described in the Auditor’s Responsibilities section.

We are independent of the parent company and the group in accordance with professional ethics for accountants in Sweden and have otherwise fulfilled our ethical responsibilities in accordance with these requirements. This includes that, based on the best of our knowledge and belief, no prohibited services referred to in the Audit Regulation (537/2014) Article 5.1 have been provided to the audited company or, where applicable, its parent company or its controlled companies within the EU.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinions.

Key Audit Matters

Key audit matters of the audit are those matters that, in our professional judgment, were of most significance in our audit of the annual accounts and consolidated accounts of the current period. These matters were addressed in the context of our audit of, and in forming our opinion thereon, the annual accounts and consolidated accounts as a whole, but we do not provide a separate opinion on these matters.

Valuation of Goodwill

As of 31 December 2022, AB SKF (publ) accounts for goodwill in the consolidated balance sheet amounting to SEK 12 351 M. The value of the goodwill is dependent on future income and profitability in the cash-generating units, to which the goodwill refers, and is assessed for impairment at least once a year. Management bases its impairment test on several judgements and estimates such as growth, EBIT development and cost of capital (WACC) as well as other complex circumstances. Incorrect judgements and estimates may have a significant impact on the group’s result and financial position. Management has not identified any need for impairment for any of the cash-generating units within the Group. For further information, see Note 1 about critical judgments and estimates and Note 10 about intangible assets.

Our audit procedures included, but were not limited to:

• Review and assessment of SKF’s procedures and model for impairment tests of goodwill and evaluation of judgements and estimates made, that the procedures are consistently applied and that there is integrity in calculations;
• Verification of input data in calculations including information from business plans for the forecast period;
• Test of head room for each cash-generating unit by performing sensitivity analyses; and
• Review of the completeness in relevant disclosures to the financial reports.

When performing the audit procedures our valuation experts have been involved.

Other information than the annual accounts and consolidated accounts

This document also contains other information than the annual accounts and consolidated accounts and is found on pages 1–13 and 90–150. The Board of Directors and the Managing Director are responsible for this other information. Our opinion on the annual accounts and consolidated accounts does not cover this other information and we do not express any form of assurance conclusion regarding this other information.

In connection with our audit of the annual accounts and consolidated accounts, our responsibility is to read the information identified above and consider whether the information is materially inconsistent with the annual accounts and consolidated accounts. In this procedure we also take into account our knowledge otherwise obtained in the audit and assess whether the information otherwise appears to be materially misstated. If we, based on the work performed concerning this information, conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard.

Responsibilities of the Board of Directors and the Managing Director

The Board of Directors and the Managing Director are responsible for the preparation of the annual accounts and consolidated accounts and that they give a fair presentation in accordance with the Annual Accounts Act and, concerning the consolidated accounts, in accordance with IFRS as adopted by the EU.

The Board of Directors and the Managing Director are also responsible for such internal control as they determine is necessary to enable the preparation of annual accounts and consolidated accounts that are free from material misstatement, whether due to fraud or error.

In preparing the annual accounts and consolidated accounts, The Board of Directors and the Managing Director are responsible for the assessment of the company’s and the group’s ability to continue as a going concern. They disclose, as applicable, matters related to going concern and using the going concern basis of accounting. The going concern basis of accounting is however not applied if the Board of Directors and the Managing Director intend to liquidate the company, to cease operations, or have no realistic alternative but to do so.

The Audit Committee shall, without prejudice to the Board of Director’s responsibilities and tasks in general, among other things oversee the company’s financial reporting process.# Report on other legal and regulatory requirements

Opinions

In addition to our audit of the annual accounts and consolidated accounts, we have also audited the administration of the Board of Directors and the Managing Director of AB SKF (publ) for the financial year 1 January–31 December 2022 and the proposed appropriations of the company’s profit or loss. We recommend to the general meeting of shareholders that the profit to be appropriated in accordance with the proposal in the statutory administration report and that the members of the Board of Directors and the Managing Director be discharged from liability for the financial year.

Basis for Opinions

We conducted the audit in accordance with generally accepted auditing standards in Sweden. Our responsibilities under those standards are further described in the Auditor’s Responsibilities section. We are independent of the parent company and the group in accordance with professional ethics for accountants in Sweden and have otherwise fulfilled our ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinions.

Responsibilities of the Board of Directors and the Managing Director

The Board of Directors is responsible for the proposal for appropriations of the company’s profit or loss. At the proposal of a dividend, this includes an assessment of whether the dividend is justifiable considering the requirements which the company’s and the group’s type of operations, size and risks place on the size of the parent company’s and the group’s equity, consolidation requirements, liquidity and position in general. The Board of Directors is responsible for the company’s organization and the administration of the company’s affairs. This includes among other things continuous assessment of the company’s and the group’s financial situation and ensuring that the company’s organization is designed so that the accounting, management of assets and the company’s financial affairs otherwise are controlled in a reassuring manner. The Managing Director shall manage the ongoing administration according to the Board of Directors’ guidelines and instructions and among other matters take measures that are necessary to fulfill the company’s accounting in accordance with law and handle the management of assets in a reassuring manner.

Auditor’s responsibility

Our objective concerning the audit of the administration, and thereby our opinion about discharge from liability, is to obtain audit evidence to assess with a reasonable degree of assurance whether any member of the Board of Directors or the Managing Director in any material respect:

• has undertaken any action or been guilty of any omission which can give rise to liability to the company, or
• in any other way has acted in contravention of the Companies Act, the Annual Accounts Act or the Articles of Association.

Our objective concerning the audit of the proposed appropriations of the company’s profit or loss, and thereby our opinion about this, is to assess with reasonable degree of assurance whether the proposal is in accordance with the Companies Act. Reasonable assurance is a high level of assurance but is not a guarantee that an audit conducted in accordance with generally accepted auditing standards in Sweden will always detect actions or omissions that can give rise to liability to the company, or that the proposed appropriations of the company’s profit or loss are not in accordance with the Companies Act. A further description of our responsibilities for the audit of the management’s administration is located at the Swedish Inspectorate of Auditors website: www.revisorsinspektionen.se/revisornsansvar. This description forms part of the auditor’s report.

The auditor’s examination of the Esef report

Opinions

In addition to our audit of the annual accounts and consolidated accounts, we have also examined that the Board of Directors and the Managing Director have prepared the annual accounts and consolidated accounts in a format that enables uniform electronic reporting (the Esef report) pursuant to Chapter 16, Section 4 a of the Swedish Securities Market Act (2007:528) for AB SKF (publ) for the financial year 1 January–31 December 2022. Our examination and our opinion relate only to the statutory requirements. In our opinion, the Esef report has been prepared in a format that, in all material respects, enables uniform electronic reporting.

Basis for opinion

We have performed the examination in accordance with FAR’s recommendation RevR 18 Examination of the Esef report. Our responsibility under this recommendation is described in more detail in the Auditors’ responsibility section. We are independent of AB SKF (publ) in accordance with professional ethics for accountants in Sweden and have otherwise fulfilled our ethical responsibilities in accordance with these requirements. We believe that the evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Responsibilities of The Board of Directors and the Managing Director

The Board of Directors and the Managing Director are responsible for the preparation of the Esef report in accordance with the Chapter 16, Section 4 a of the Swedish Securities Market Act (2007:528), and for such internal control that the Board of Directors and the Managing Director determine is necessary to prepare the Esef report without material misstatements, whether due to fraud or error.

Auditor’s responsibility

Our responsibility is to obtain reasonable assurance whether the Esef report is in all material respects prepared in a format that meets the requirements of Chapter 16, Section 4 (a) of the Swedish Securities Market Act (2007:528), based on the procedures performed. RevR 18 requires us to plan and execute procedures to achieve reasonable assurance that the Esef report is prepared in a format that meets these requirements. Reasonable assurance is a high level of assurance, but it is not a guarantee that an engagement carried out according to RevR 18 and generally accepted auditing standards in Sweden will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of the Esef report.

The firm applies International Standard on Quality Management 1, which requires the firm to design, implement and operate a system of quality management including policies or procedures regarding compliance with ethical requirements, professional standards and applicable legal and regulatory requirements.

The examination involves obtaining evidence, through various procedures, that the Esef report has been prepared in a format that enables uniform electronic reporting of the annual accounts and consolidated accounts. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement in the report, whether due to fraud or error. In carrying out this risk assessment, and in order to design audit procedures that are appropriate in the circumstances, the auditor considers those elements of internal control that are relevant to the preparation of the Esef report by the Board of Directors and the Managing Director, but not for the purpose of expressing an opinion on the effectiveness of those internal controls. The examination also includes an evaluation of the appropriateness and reasonableness of assumptions made by the Board of Directors and the Managing Director.The procedures mainly include a validation that the Esef report has been prepared in a valid XHMTL format and a reconciliation of the Esef report with the audited annual accounts and consolidated accounts. Furthermore, the procedures also include an assessment of whether the consolidated statement of financial performance, financial position, changes in equity, cash flow and disclosures in the Esef report have been marked with iXBRL in accordance with what follows from the Esef regulation. Deloitte AB was appointed auditor of AB SKF (publ) by the general meeting of the shareholders on 25 March 2021 and has been the company’s auditor since 25 March 2021. Gothenburg, March 1, 2023 Deloitte AB Hans Warén Authorized Public Accountant

SKF ANNUAL REPORT 2022 91

THIS IS SKF

BACK TO START

PRESIDENT’S LETTER
VALUE CREATION AND STRATEGY
THE BEARING MARKET
RISKS AND THE SHARE
SUSTAINABILITY
STATEMENTS
CORPORATE GOVERNANCE
REMUNERATION REPORT
GROUP DATA
FINANCIAL STATEMENTS

Group Management as of 31 December 2022

Rickard Gustafson
President and CEO
Born 1964
MSc from the Institute of Technology at Linköping University, Sweden. Employed since 2021
Previous positions President and CEO of SAS Group, CEO of the insurance company Codan/Trygg Hansa and he has held several positions within General Electric. Board member Telia Company and The Confederation of Swedish Enterprise
Shareholding 9,600 SKF B

John Schmidt
President, Industrial Region Americas
Born 1969
Bachelor of Science, Mechanical Engineering from the Pennsylvania State University. Employed since 2001 and 1993–1998
Previous positions President, Industrial Sales Americas, President and CEO SKF USA Inc, Vice President Industrial Market NAM and several other positions within SKF.
Shareholding 25,883 SKF B

Aldo Cedrone
Acting President, Industrial Region Europe Middle East and Africa
Born 1958
Master in Mechanical Engineering from Università di Roma, “La Sapienza”. Employed since 1989 and 1985–1987
Previous positions Director Ball Bearing Cluster & Managing Director SKF Italy, Director Manufacturing within Industrial Market and Automotive Market and Business unit Director for Powertrain & TW.
Shareholding 869 SKF B

Manish Bhatnagar
President, Industrial Region India and Southeast Asia
Born 1969
Master of Business Administration from Indian Institute of Management, Calcutta, and B.E. in Electronics Engineering from Birla Institute of Technology & Science, Pilani, India. Employed since 2018
Previous positions Senior roles at General Electric and Danaher. Board member SKF India Ltd.
Shareholding 930 SKF B

Henry Wang
President Industrial Region China and Northeast Asia
Born 1968
Master of Business Administration from the University of Calgary and a Bachelor of Engineering from Shanghai Jiaotong University. Employed since October 2022 and 1997–2019
Previous positions President of Alstom’s operations in China, CEO of KUKA in China, Head of SKF Industrial Sales in China as well as several other positions within SKF.
Shareholding 0 SKF B

David Johansson
President, Automotive
Born 1980
Master in Science; Industrial Marketing, Electrical Engineering at Chalmers University of Technology, Gothenburg. Employed since 2005
Previous positions Director, Global Railway and China Mobility business, Director, China Automotive, Aerospace and Railway business, Director, Global Marine Business Unit and several other positions within SKF. Board member SKF India Ltd.
Shareholding 1,500 SKF B

140SKF ANNUAL REPORT 2022

THIS IS SKF

BACK TO START

PRESIDENT’S LETTER
VALUE CREATION AND STRATEGY
THE BEARING MARKET
RISKS AND THE SHARE
SUSTAINABILITY
STATEMENTS
CORPORATE GOVERNANCE
REMUNERATION REPORT
GROUP DATA
FINANCIAL STATEMENTS

Group Management as of 31 December 2022, cont.

Thomas Fröst
President, Independent and Emerging Business
Born 1962
Degree in Industrial Economics from Chalmers University of Technology. Employed since 1988
Previous positions President, Industrial Technologies, Director Industrial Units, Head of Industrial Marketing, and several other positions within SKF.
Shareholding 1,904 SKF B

Joakim Landholm
Senior Vice President, Group Operations
Born 1969
Master of Science from Stockholm School of Economics. Employed since February 2022
Previous positions CEO Hector Rail, Chief Commercial Officer SAS and senior positions at Codan/Trygg Hansa and GE Capital. Board member SKF India Ltd.
Shareholding 4,090 SKF B

Annika Ölme
Chief Technology Officer and Senior Vice President, Technology Development
Born 1973
Master of Science in Electrical Engineering from Chalmers University of Technology and a Master of Business Administration from Waikato University. Employed since October 2022 and 2002–2017
Previous positions CTO and Head of Engineering at SAAB Radar Solutions, Managing Director of Arcam, a subsidiary of General Electric and several various positions within SKF. Board member Image Systems AB and Jacob Wallenberg Foundation
Shareholding 45 SKF B

Niclas Rosenlew
Chief Financial Officer and Senior Vice President, Group Finance
Born 1972
Master of Science in Finance, Hanken, Swedish School of Economics. Employed since 2019
Previous positions CFO of Basware and senior positions within Microsoft, Nokia and Deutsche Bank.
Shareholding 8,640 SKF B

Mathias Lyon
General Counsel and Senior Vice President, Group Legal & Compliance
Born 1975
Master of Laws, Faculty of Law at Lund University. Employed since 2012
Previous positions SKF Deputy General Counsel and several other positions at Volvo, AstraZeneca, Mannheimer Swartling and Rosengrens.
Shareholding 2,062 SKF B

Ann-Sofie Zaks
Senior Vice President, Group People Experience and Communication
Born 1976
Bachelor’s degree, Innovation Program with special focus on Behavioural Science from University college of Mälardalen. Employed since 2001
Previous positions People Experience Director Bearing Operations, Program manager, Group People Transformation initiative and several other positions within SKF.
Shareholding 5,584 SKF B

141SKF ANNUAL REPORT 2022

THIS IS SKF

BACK TO START

PRESIDENT’S LETTER
VALUE CREATION AND STRATEGY
THE BEARING MARKET
RISKS AND THE SHARE
SUSTAINABILITY
STATEMENTS
CORPORATE GOVERNANCE
REMUNERATION REPORT
GROUP DATA
FINANCIAL STATEMENTS

Seven-year review

MSEK unless otherwise stated

	2022	2021	2020	2019	2018	2017	2016
Income statements
Net sales	96,993	81,732	74,852	86,013	85,713	77,938	72,589
Operating expenses incl. associated comp.	–88,401	–70,974	–67,783	–76,618	–74,664	–69,346	–65,062
Operating profit	8,532	10,758	7,069	9,395	11,049	8,592	7,527
Financial income and expense, net	1,239	–695	–769	–926	–861	–934	–788
Profit before taxes	7,293	10,063	6,300	8,469	10,188	7,658	6,739
Taxes	2,438	–2,484	–1,826	–2,677	–2,603	–1,898	–2,530
Net profit	4,855	7,579	4,474	5,792	7,585	5,760	4,209
Balance sheets
Intangible assets	18,193	16,942	16,242	18,397	17,722	17,360	19,568
Deferred tax assets	3,173	3,839	4,800	4,437	3,563	3,633	3,806
Property, plant and equipment	24,897	20,723	18,161	18,420	16,688	15,762	15,746
Right of use assets	3,084	2,661	2,517	2,991	—	—	—
Non-current financial and other assets	1,781	1,674	1,939	2,019	1,964	1,627	1,688
Inventories	26,052	20,997	15,733	18,051	17,826	17,122	15,418
Trade receivables	16,905	13,972	12,286	14,006	13,842	13,416	13,462
Other current assets	16,838	18,820	18,879	15,787	15,568	12,283	14,219
Total assets	110,923	99,628	90,557	94,108	87,173	81,203	83,907
Equity	54,043	45,365	35,712	37,366	35,452	29,823	27,683
Provisions for post-employment benefits	8,748	11,781	15,170	15,366	12,894	12,309	13,945
Deferred tax provisions	1,365	1,040	792	960	1,118	1,100	1,380
Other provisions	2,305	2,517	3,482	2,474	2,541	2,275	2,224
Financial liabilities	22,135	19,336	18,349	19,017	17,157	18,508	23,650
Trade payables	11,594	9,881	8,459	8,266	7,831	7,899	7,100
Other liabilities	10,733	9,709	8,593	10,659	10,180	9,289	7,925
Total equity and liabilities	110,923	99,628	90,557	94,108	87,173	81,203	83,907

MSEK unless otherwise stated

	2022	2021	2020	2019	2018	2017	2016
Key figures 1)
Operating margin, %	8.8	13.2	9.4	10.9	12.9	11.0	10.4
EBITA	9,173	11,340	7,681	10,008	11,541	9,064	8,016
EBITDA	12,316	14,064	10,470	12,892	13,522	10,916	9,895
Return on capital employed, %	10.6	14.8	9.8	13.2	17.6	14.2	11.9
Return on equity, %	9.5	18.8	12.1	15.7	22.8	20.4	16.5
Net working capital, % of sales	32.4	30.7	26.1	27.7	27.8	29.0	30.0
Net debt/equity, %	35.2	38.3	51.7	59.3	49.1	71.3	84.4
Net debt/EBITDA, %	1.5	1.2	1.8	1.7	1.3	1.9	2.4
Turnover of total assets, times	0.90	0.85	0.79	0.90	1.00	0.96	0.89
Gearing, %	35.6	40.5	48.0	47.1	45.0	49.9	55.3
Equity/assets, %	48.7	45.5	39.4	39.7	40.7	36.7	33.0
Net cash flow after investments before financing	295	2,100	5,259	4,953	8,326	4,753	7,717
Investments and employees
Additions to property, plant and equipment	5,030	3,822	3,332	3,461	2,647	2,243	1,869
Research and development expenses	3,177	2,751	2,515	2,691	2,591	2,395	2,246
Patents – number of first filings	240	241	200	201	202	192	191
Average number of employees	40,773	40,861	38,385	41,559	42,565	43,814	43,508
Number of employees registered at 31 December	42,641	42,602	40,963	43,360	44,428	45,678	44,868

1) See page 144 for definitions.

142SKF ANNUAL REPORT 2022

THIS IS SKF

BACK TO START

PRESIDENT’S LETTER
VALUE CREATION AND STRATEGY
THE BEARING MARKET
RISKS AND THE SHARE
SUSTAINABILITY
STATEMENTS
CORPORATE GOVERNANCE
REMUNERATION REPORT
GROUP DATA
FINANCIAL STATEMENTS

Three-year review

MSEK unless otherwise stated

	2022	2021 1)	2020 1)
Industrial
Net sales	69,516	58,559	53,912
Operating profit	7,875	9,289	6,778
Operating margin, %	11.3	15.9	12.6
Assets and liabilities, net	51,108	44,127	38,681
Registered number of employees	36,744	36,136	34,590
Automotive
Net sales	27,417	23,173	20,940
Operating profit	657	1,469	291
Operating margin, %	2.4	6.3	1.4
Assets and liabilities, net	14,504	10,885	8,776
Registered number of employees	3,270	3,392	3,399

1) Previously published figures have been restated to conform to the current Group structure.# SKF ANNUAL REPORT 2022

THIS IS SKF

BACK TO START
PRESIDENT’S LETTER
VALUE CREATION AND STRATEGY
THE BEARING MARKET
RISKS AND THE SHARE
SUSTAINABILITY
STATEMENTS
CORPORATE GOVERNANCE
REMUNERATION REPORT
GROUP DATA
FINANCIAL STATEMENTS

Per-share data

SEK per share unless otherwise stated

	2022	2021	2020	2019	2018	2017	2016
Earnings per share	9.81	16.10	9.44	12.20	16.0	12.02	8.75
Dividend per A and B share	7.00	7.00	6.50	3.00	6.00	5.50	5.50
Total dividends, MSEK	3,188	3,188	2,960	1,366	2,732	2,504	2,504
Purchase price of B shares at year-end on NASDAQ Stockholm	159.15	214.5	213.4	189.4	134.5	182.2	167.6
Equity per share	114	96	75	78	74	62	57
Yield (B), %	4.4	3.3	3.0	1.6	4.5	3.0	3.3
P/E ratio, B (share price/earnings per share)	16.2	13.3	22.6	15.5	8.4	15.2	19.2
Cash flow from operations, per share	12.4	11.5	18.2	20.7	18.3	14.1	15.7
Cash flow, after investments and before financing, per share	0.7	4.6	11.6	10.9	18.3	10.4	17.0

1) See page 144 for definitions.
2) According to the Board’s proposal for the year 2022.

Distribution of shareholding

Shareholding	Number of shareholders	%	Number of shares	%
1–1,000	70,511	88.4	15,308,201	3.4
1,001–10,000	8,453	10.6	22,667,305	5.0
10,001–100,000	621	0.8	17,523,511	3.9
100,001–	180	0.2	339,350,584	74.5
Anonymous ownership	—	—	60,501,467	13.3
Total	79,765	100	455,351,068	100

Source: Monitor, Modular Finance as of 31 December 2022.

Definitions

SKF has applied the guidelines issued by ESMA (European Securities and Markets Authority) on APMs (Alternative Performance Measures). These key figures are not defined or specified in IFRS but provides complementary information to investors and other stakeholders on the company's performance. These measures are used internally by management, as a complement to IFRS measures, as basis for business decisions. The alternative performance measures, defined by SKF Group, may not be comparable to similar measures presented by other groups.

• Adjusted operating profit: Operating profit excluding items affecting comparability.
• Adjusted operating margin: Operating profit margin excluding items affecting comparability.
• Average number of employees: Total number of working hours of registered employees, divided by the normal total working time for the period.
• Basic earnings per share in SEK (as defined by IFRS): Net profit less non-controlling interests divided by the ordinary number of shares.
• Capital employed: Twelve months rolling average of total assets less the average of non-interest bearing liabilities.
• Currency impact on operating profit: The effects of both translation and transaction flows based on current assumptions and exchange rates compared to the corresponding period last year.
• Debt: Loans plus provisions for post-employment benefits, net.
• Dividends pay-out ratio: Dividends paid in relation to net income for the year the dividend relates to.
• EBITA (Earnings before interest, taxes and amortization): Operating profit before amortizations.
• EBITDA (Earnings before interest, taxes, depreciation and amortization): Operating profit before depreciations, amortizations, and impairments.
• Equity/assets ratio: Equity as a percentage of total assets.
• Equity per share: Equity excluding non-controlling interests divided by the ordinary number of shares.
• Gearing: Debt as a percentage of the sum of debt and equity.
• Gross margin: Gross income as a percentage of net sales.
• Items affecting comparability: Significant income/expenses that affects comparability between accounting periods. This includes, but is not limited to, restructuring costs, impairments and write-offs, currency exchange rate effects caused by devaluations and gains and losses on divestments of businesses.
• Net debt: Debt less short-term financial assets excluding derivatives.
• Net debt/EBITDA: Net debt, as a percentage of twelve months rolling EBITDA.
• Net debt/equity: Net debt, as a percentage of equity.
• Net working capital as % of annual sales (NWC): Trade receivables plus inventory minus trade payables as a percentage of twelve months rolling net sales.
• Operating margin: Operating profit, as a percentage of net sales.
• Organic growth: Sales excluding effects of currency and acquired and divested businesses.
• Revenue growth: Sales excluding effects of currency and divested businesses.
• P/E ratio: Share price at year end divided by basic earnings per share.
• Registered number of employees: Total number of employees included in SKF’s payroll at the end of the period.
• Return on capital employed (ROCE): Operating profit/loss plus interest income, as a percentage of twelve months rolling average of total assets less the average of non-interest bearing liabilities.
• Return on equity (ROE): Profit/loss after taxes as a percentage of twelve months rolling average of equity.
• Turnover of total assets: Net sales in relation to twelve-month rolling average of total assets.
• Total value added (TVA): TVA is the operating profit, less the pre-tax cost of capital. The pre-tax cost of capital is based on a weighted cost of capital with a risk premium of 6% above the risk-free interest rate.

Alternative performance measures

MSEK unless otherwise stated

	2022	2021
EBITA & EBITDA
Net profit	4,855	7,579
Taxes	2,438	2,484
Financial income and expense, net	1,239	695
Operating profit	8,532	10,758
Amortizations of intangible assets	641	582
EBITA	9,173	11,340
Depreciation and impairments of intangible and tangible assets	3,143	2,724
EBITDA	12,317	14,064
Adjusted operating profit
Operating profit	8,532	10,758
Items affecting comparability 1)	1,672	81
Adjusted operating profit	10,204	10,839
Net work capital (NWC), % of 12 months rolling sales
Total net sales (rolling 12-months)	96,933	81,732
Inventory	26,052	20,997
Trade receivables	16,905	13,972
Trade payables	–11,594	–9,881
Net Working Capital	31,363	25,088
NWC, % of 12 months rolling sales	32.4	30.7
Return on Equity (ROE) for the 12-month period, %
Net profit (rolling-12 months)	4,855	7,579
Equity (rolling 12-month average)	50,943	40,336
ROE for the 12-month period, %	9.5	18.8
Capital employed (rolling 12-months average)
Total assets	108,014	95,633
Provisions	3,567	3,806
Other non-current liabilities	28	30
Trade payables	11,415	8,993
Other current liabilities	11,062	9,910
Non-interest bearing liabilities	26,073	22,739
Capital employed (rolling 12-months average)	81,942	72,895
Return on capital employed (ROCE) for the 12-month period, %
Operating profit (rolling 12-months)	8,532	10,758
Interest income – external (rolling 12-months)	135	35
Operating profit plus interest income	8,667	10,793
Capital employed (rolling 12-months average)	81,942	72,895
ROCE for the 12-month period, %	10.6	14.8

MSEK unless otherwise stated

	2022	2021
Adjusted return on capital employed (ROCE) for the 12-month period, %
Adjusted operating profit (rolling 12-months)	10,204	10,839
Interest income – external (rolling 12-months)	135	35
Adjusted operating profit plus interest income	10,339	10,874
Capital employed (rolling 12-months average)	81,942	72,895
Adjusted ROCE for the 12-month period, %	12.6	14.9
Debt & net debt
Long term loans – total	18,175	13,275
Current financial liabilities	916	3,864
Short term derivative liabilities	–111	–106
Post-employment benefits – other	760	977
Post-employment benefits – pension	7,988	10,804
Defined benefit assets	–127	–71
Long term lease liabilities	2,286	2,179
Debt	29,888	30,923
Current financial assets	–11,224	–13,657
Short term derivative assets	370	94
Net debt	19,034	17,360
Gearing, %
Shareholder's equity	54,043	45,365
Debt	29,888	30,923
Gearing, %	35.6	40.5
Equity/assets ratio, %
Shareholder's equity	54,043	45,365
Total assets	110,923	99,628
Equity/assets ratio, %	48.7	45.5
Net debt/equity, %
Shareholder's equity	54,043	45,365
Net debt	19,034	17,360
Net debt/equity, %	35.2	38.3
Net debt/equity, excl post-employment benefits, %
Shareholder's equity	54,043	45,365
Net debt, excluding post-employment benefits	10,413	5,650
Net debt/equity, excl post-employment benefits, %	19.3	12.5
Net debt/EBITDA, %
Net debt	19,034	17,360
EBITDA (rolling 12 months)	12,317	14,064
Net debt/EBITDA, %	1.5	1.2

1) For more information, see page 45.

General information

Annual General Meeting

The Annual General Meeting will be held at Radisson Blu Scandinavia Hotel, Södra Hamngatan 59, Gothenburg, Sweden, at 14:00 on Thursday, 23 March 2023. The Board of Directors has decided that the shareholders shall be able to exercise their voting rights by postal voting in accordance with the company’s articles of association. For more information about the Annual General Meeting including preconditions for participation and instructions for postal voting can be found in the notice and is available at www.skf.com.

Payment of dividend

The Board of Directors proposes a dividend of SEK 7.00 per share for 2022. Monday, 27 March 2023 is proposed as the record date. Subject to resolution by the Annual General Meeting, it is expected that Euroclear will distribute the dividend on Thursday, 30 March 2023.

Financial information and reporting

Publishing dates for financial reports in 2023:

• Annual Report 2022: 1 March
• Q1 report: 27 April
• Q2 report: 19 July
• Q3 report: 27 October
• Q4 report: 9 February 2024

The reports are available in Swedish and English on investors.skf.com. A subscription service for press releases and interim reports, sent via e-mail or SMS, is available on the website.# Contact Information

Patrik Stenberg
Director SKF Group Investor Relations and Mergers & Acquisitions
email: patrik.stenberg@skf.com
www.investors.skf.com

Theo Kjellberg
Director Group Communication
email: theo.kjellberg@skf.com

SKF Group Headquarters
SE-415 50 Gothenburg, Sweden
Telephone: +46 31 337 10 00
www.skf.com
Company reg.no 556007-3495

CAUTIONARY STATEMENT

This report contains forward-looking statements that are based on the current expectations of the management of SKF. Although management believes that the expectations reflected in such forward-looking statements are reasonable, no assurance can be given that such expectations will prove to have been correct. Accordingly, results could differ materially from those implied in the forward-looking statements as a result of, among other factors, changes in economic, market and competitive conditions, changes in the regulatory environment and other government actions, fluctuations in exchange rates and other factors mentioned in the Administration Report in this Annual Report.

® SKF, ALEMITE, SKF Axios, BeyondZero, DST, GBC, HYATT, INSOCOAT, KAYDON, Lincoln, PEER, RecondOil, SKF4U, SKF INSIGHT are registered trademarks of the SKF Group.

© SKF GROUP 2023 All rights reserved. Please note that this publication may not be copied or distributed, in whole or in part, unless prior written permission is granted. Every care has been taken to ensure the accuracy of the information contained in this publication, but no liability can be accepted for any loss or damage whether direct, indirect or consequential arising out of the use of the information contained herein. The report is originally written in English and translated to Swedish.

PUB GCR/R1 19520 EN · March 2023

SKF Annual Report 2022 was published on 1 March 2023.
Produced by AB SKF and Solberg Kommunikation.
Photo credits: SKF Group, Magnus Cimmerbeck, Anatol Kotte, Oscar Hyltbring, John Hagby, Magnus Fond. Certain images used under license from Shutterstock.com and with the courtesy of Siemens Mobility, Volvo Cars, NIO and Goldwind.

146 SKF ANNUAL REPORT 2022

THIS IS SKF

• BACK TO START
• PRESIDENT ’S LETTER
• VALUE CREATION AND STRATEGY
• THE BEARING MARKET
• RISKS AND THE SHARE
• SUSTAINABILITY STATEMENTS
• CORPORATE GOVERNANCE
• REMUNERATION REPORT
• GROUP DATA
• FINANCIAL STATEMENTS

147 SKF ANNUAL REPORT 2022

THIS IS SKF

• BACK TO START
• PRESIDENT ’S LETTER
• VALUE CREATION AND STRATEGY
• THE BEARING MARKET
• RISKS AND THE SHARE
• SUSTAINABILITY STATEMENTS
• CORPORATE GOVERNANCE
• REMUNERATION REPORT
• GROUP DATA
• FINANCIAL STATEMENTS

Remuneration Report

Introduction

This remuneration report provides an outline of how AB SKF’s principles for remuneration for Group Management (the “remuneration principles”), adopted by the Annual General Meeting 2020 and revised in 2022, have been implemented in 2022. The report also provides details on the remuneration of AB SKF’s CEO. In addition, the report contains a summary of AB SKF’s outstanding share and share-price related incentive programs.

The report has been prepared in compliance with Chapter 8, Sections 53 a and 53 b of the Swedish Companies Act (2005:551) and the Remuneration Rules issued by the Swedish Corporate Governance Board. Information required by Chapter 5, Sections 40–44 of the Annual Accounts Act (1995:1554) is available in note 23 on p. 72–75 in the company’s annual report for 2022 (the “annual report 2022”). Information on the work of the Remuneration Committee in 2022 is set out in the corporate governance report, which is available on p. 132–138 in the annual report 2022.

Remuneration of the Board of Directors is not covered by this report. Such remuneration is resolved annually by the Annual General Meeting and disclosed in note 23 on p. 72–75 in the annual report 2022.

Key developments 2022

The CEO summarizes the company’s overall performance in his statement on page 11–13 in the annual report 2022.

Overview of the application of the remuneration principles in 2022

The objective of the remuneration principles is to ensure that the SKF Group can attract and retain the best people in order to contribute to the SKF Group’s mission and business strategy, its long-term interests and sustainability. Remuneration for Group Management shall be based on market competitive conditions and at the same time support the shareholders’ best interests. Variable salary covered by the principles shall be linked to predetermined and measurable criteria, aiming to promote the SKF Group’s business strategy and long-term interests, including its sustainability.

The total remuneration package for a Group Management member shall consist of the following components: fixed salary, variable salary, pension benefits, conditions for notice of termination and severance pay, and other benefits such as a company car. The components shall create a well-balanced remuneration reflecting individual performance and responsibility as well as the SKF Group’s overall performance. The Annual General Meeting may also – irrespective of the principles – resolve on other remuneration components, e.g. SKF’s Performance Share Programme. The principles are found at www.skf.com.

The remuneration principles, adopted by the Annual General Meeting 2020 and revised in 2022, have been fully implemented. No deviation from the principles have been decided and no derogations from the procedure for implementation of the principles have been made.

Table 1 – Total CEO remuneration in 2022 (kSEK)
	Fixed remuneration		Variable remuneration		Extraordinary items	Pension expense	Total remuneration 2)	Proportion of fixed and variable remuneration	Total remuneration 3)
	Base salary	Other benefits	One-year variable	Multi-year variable 1)
Rickard Gustafson, CEO	14,460	175	4,352	—	—	5,780	24,767	82% / 18%

1) Disbursements may or may not have been made during the year.
2) Allotment of shares under the SKF Performance Share Programme is not covered by the remuneration principles and is reported separately under share based remuneration below.
3) The auditor’s report regarding the company’s compliance with the principles is available on www.skf.com. No remuneration has been reclaimed.

In addition to remuneration covered by the remuneration principles, the Annual General Meetings of the company have resolved to implement SKF Performance Share Programme for senior managers and key employees.

Application of performance criteria

The performance measures for the CEO’s variable remuneration have been selected to deliver the company’s strategy and to encourage behavior which is in the long-term interest of the company. In the selection of performance measures, the strategic objectives, sustainability, short-term and long-term business priorities for 2022 have been taken into account.

The performance measures for the CEO’s variable cash remuneration have been divided equally between adjusted operating margin, net working capital and organic growth. There is also one criterion linked to reduction of greenhouse gas emissions. To determine the range for the parameters, both the business plan and the final result of the year before is the baseline. The reduction of CO2e emissions criterion is related to the SKF Group net zero 2030 objective.

During 2022, the financial performance measures were partly met and the net zero 2030 measure was fully met. The outcome was therefore that 43% of the maximum variable cash remuneration was earned by the CEO during the year; 0% relating to adjusted operating margin, 0% relating to net working capital, 33% relating to organic growth and 10% related to the reduction of CO2e emissions.

Comparative information on the change of remuneration and company performance

2020 was the first reference year and therefore no year over year changes for the previously reported financial years (RFY) will be presented. Coming years will be added so that the annual change over the last five years will be visible.

Share-based remuneration

Outstanding share-related incentive plans

Since 2008 the Annual General Meeting has resolved each year upon the SKF Performance Share Programme for senior managers and key employees. The SKF Performance Share Programmes for 2020–2022 have been ongoing during 2022. The number of shares that may be allotted must be related to the degree of achievement of the Total Value Added (TVA) target level, as defined by the Board, for the TVA development during a three-year calculation period. From the SKF Performance Share Programme 2022 a performance criterion related to the reduction of CO2e emissions has been included.

The performance criteria used to assess the outcome of the proposed SKF Performance Share Programme is distinctively linked to the business strategy and thereby to the SKF Group’s long-term value creation, including its sustainability. These performance criteria include a clear link to the SKF Group’s yearly growth, long-term financial targets and capital efficiency. For further information on said SKF Performance Share Programme, including the criteria which the outcome depends on, please refer to the Board of Directors’ proposal on SKF’s Performance Share Programme 2022 which can be found on www.skf.com.

At the end of 2022, the SKF Performance Share Programme 2020 expired. Allotment of shares was subject to the satisfaction of performance conditions during the three-year period 2020 –2022, compared to the financial year 2019. Since the threshold level of the TVA was met and the TVA target was partly met, as decided by the Board, the participants of the programme were awarded 43% allotment of shares under the programme.In total, around 226,000 SKF B shares were allotted under the programme, corresponding to approximately 0.05% of the total number of outstanding shares. Allotment of shares requires that the persons covered by the programme are employed in the SKF Group during the entire calculation period. The CEO Rickard Gustafson, that joined in 2021, did not participate in the Performance Share Programme 2020 and was therefore not awarded any allotment of shares under the programme. No CEO allotment of shares was therefore awarded. The CEO Rickard Gustafson participates in the Performance Share Programme 2021 and the Performance Share Programme 2022. Allotment of shares may be made following the expiry of the three-year calculation period, i.e. during 2024 and 2025 respectively, if all the conditions of the programme are met and the allotment is approved by the Board.

Table 2 – Change of remuneration and company performance over the last reported financial years (kSEK)

	2022	2022 vs. 2021	2021 vs. 2020
President remuneration	24,767	+868 (+3.6%)	+2,506 (+11.7%)
Adjusted operating profit 1)	10,204,000	–635,000 (–5.9%)	+1,645,000 (+17.9%)
Cash flow 2)	5,641,000	+393,000 (+7.5%)	–3,017,000 (–36.5%)
Average remuneration on a full-time equivalent basis of employees in AB SKF	1,051	+3 (+0.3%)	+18 (+1.7%)

1) Alrik Danielson (Jan–April), Niclas Rosenlew (May), Rickard Gustafson (June–Dec).
2) Operating profit excluding items affecting comparability.
3) Net cash flow from operating activities.

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SKF ANNUAL REPORT 2022

THIS IS SKF
BACK TO START
PRESIDENT ’S LETTER
VALUE CREATION AND STRATEGY
THE BEARING MARKET
RISKS AND THE SHARE
SUSTAINABILITY
STATEMENTS
CORPORATE GOVERNANCE
REMUNERATION REPORT
GROUP DATA
FINANCIAL STATEMENTS

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