SKF

Annual Report (ESEF) • Mar 7, 2025

894500JU9WRAJQOVBI122024-01-012024-12-31894500JU9WRAJQOVBI122023-01-012023-12-31894500JU9WRAJQOVBI122024-12-31894500JU9WRAJQOVBI122023-12-31894500JU9WRAJQOVBI122022-12-31894500JU9WRAJQOVBI122022-12-31ifrs-full:IssuedCapitalMember894500JU9WRAJQOVBI122022-12-31ifrs-full:SharePremiumMember894500JU9WRAJQOVBI122022-12-31ifrs-full:ReserveOfGainsAndLossesOnFinancialAssetsMeasuredAtFairValueThroughOtherComprehensiveIncomeMember894500JU9WRAJQOVBI122022-12-31ifrs-full:ReserveOfExchangeDifferencesOnTranslationMemberiso4217:SEKiso4217:SEKxbrli:shares894500JU9WRAJQOVBI122022-12-31ifrs-full:RetainedEarningsMember894500JU9WRAJQOVBI122022-12-31ifrs-full:EquityAttributableToOwnersOfParentMember894500JU9WRAJQOVBI122022-12-31ifrs-full:NoncontrollingInterestsMember894500JU9WRAJQOVBI122022-12-31skf:TotalMember894500JU9WRAJQOVBI122023-01-012023-12-31ifrs-full:IssuedCapitalMember894500JU9WRAJQOVBI122023-01-012023-12-31ifrs-full:SharePremiumMember894500JU9WRAJQOVBI122023-01-012023-12-31ifrs-full:ReserveOfGainsAndLossesOnFinancialAssetsMeasuredAtFairValueThroughOtherComprehensiveIncomeMember894500JU9WRAJQOVBI122023-01-012023-12-31ifrs-full:ReserveOfExchangeDifferencesOnTranslationMember894500JU9WRAJQOVBI122023-01-012023-12-31ifrs-full:RetainedEarningsMember894500JU9WRAJQOVBI122023-01-012023-12-31ifrs-full:EquityAttributableToOwnersOfParentMember894500JU9WRAJQOVBI122023-01-012023-12-31ifrs-full:NoncontrollingInterestsMember894500JU9WRAJQOVBI122023-01-012023-12-31skf:TotalMember894500JU9WRAJQOVBI122022-01-012023-12-31ifrs-full:RetainedEarningsMember894500JU9WRAJQOVBI122023-12-31ifrs-full:IssuedCapitalMember894500JU9WRAJQOVBI122023-12-31ifrs-full:SharePremiumMember894500JU9WRAJQOVBI122023-12-31ifrs-full:ReserveOfGainsAndLossesOnFinancialAssetsMeasuredAtFairValueThroughOtherComprehensiveIncomeMember894500JU9WRAJQOVBI122023-12-31ifrs-full:ReserveOfExchangeDifferencesOnTranslationMember894500JU9WRAJQOVBI122023-12-31ifrs-full:RetainedEarningsMember894500JU9WRAJQOVBI122023-12-31ifrs-full:EquityAttributableToOwnersOfParentMember894500JU9WRAJQOVBI122023-12-31ifrs-full:NoncontrollingInterestsMember894500JU9WRAJQOVBI122023-12-31skf:TotalMember894500JU9WRAJQOVBI122024-01-012024-12-31ifrs-full:IssuedCapitalMember894500JU9WRAJQOVBI122024-01-012024-12-31ifrs-full:SharePremiumMember894500JU9WRAJQOVBI122024-01-012024-12-31ifrs-full:ReserveOfGainsAndLossesOnFinancialAssetsMeasuredAtFairValueThroughOtherComprehensiveIncomeMember894500JU9WRAJQOVBI122024-01-012024-12-31ifrs-full:ReserveOfExchangeDifferencesOnTranslationMember894500JU9WRAJQOVBI122024-01-012024-12-31ifrs-full:RetainedEarningsMember894500JU9WRAJQOVBI122024-01-012024-12-31ifrs-full:EquityAttributableToOwnersOfParentMember894500JU9WRAJQOVBI122024-01-012024-12-31ifrs-full:NoncontrollingInterestsMember894500JU9WRAJQOVBI122024-01-012024-12-31skf:TotalMember894500JU9WRAJQOVBI122024-12-31ifrs-full:IssuedCapitalMember894500JU9WRAJQOVBI122024-12-31ifrs-full:SharePremiumMember894500JU9WRAJQOVBI122024-12-31ifrs-full:ReserveOfGainsAndLossesOnFinancialAssetsMeasuredAtFairValueThroughOtherComprehensiveIncomeMember894500JU9WRAJQOVBI122024-12-31ifrs-full:ReserveOfExchangeDifferencesOnTranslationMember894500JU9WRAJQOVBI122024-12-31ifrs-full:RetainedEarningsMember894500JU9WRAJQOVBI122024-12-31ifrs-full:EquityAttributableToOwnersOfParentMember894500JU9WRAJQOVBI122024-12-31ifrs-full:NoncontrollingInterestsMember894500JU9WRAJQOVBI122024-12-31skf:TotalMember894500JU9WRAJQOVBI122022-01-012022-12-31894500JU9WRAJQOVBI122021-01-012021-12-31894500JU9WRAJQOVBI122020-01-012020-12-31894500JU9WRAJQOVBI122019-01-012019-12-31894500JU9WRAJQOVBI122018-01-012018-12-31 2024 ANNUAL AND SUSTAINABILITY REPORT THIS IS SKF SKF Group ................................................................................................................. 3 Industrial and Automotive businesses ...................................... 5 2024 in brief ........................................................................................................... 6 President’s letter ............................................................................................... 7 Why invest in SKF? .......................................................................................... 10 Strategic focus: Separation of our Automotive business ......................................................................... 11 STRATEGY AND VALUE CREATION ....................................... 12 Drivers for long-term sustainable growth ............................... 13 Our strategy: Intelligent and clean ................................................. 14 Growth areas ............................................................................................. 15 Growth enablers .................................................................................... 17 Strategic focus: Innovation ................................................................... 18 Long-term targets ............................................................................................ 19 THE BEARING MARKET ........................................................................ 21 The global bearing market ...................................................................... 22 The bearing market, by region ............................................................ 23 SKF’s global presence ................................................................................. 24 Strategic focus: Regionalization ...................................................... 25 RISKS AND THE SHARE ....................................................................... 26 Risk management ............................................................................................. 27 The SKF share ...................................................................................................... 29 Capital structure, financing, credit rating and dividend policy ........................................................................................ 31 Nomination of Board members and notice of Annual General Meeting .................................................. 31 FINANCIAL STATEMENTS ................................................................. 32 Consolidated income statements .................................................. 33 Consolidated statements of comprehensive income ....................................................................... 33 Consolidated balance sheets .............................................................. 35 Consolidated statements of cash flow ...................................... 37 Consolidated statements of changes in equity ............... 40 Notes to the consolidated financial statements ............ 41 FINANCIAL STATEMENTS, PARENT COMPANY ..................................................................................... 69 Parent Company, AB SKF ......................................................................... 69 Parent Company income statements ......................................... 69 Parent Company statements of comprehensive income .............................................................................. 69 Parent Company balance sheets ..................................................... 70 Parent Company statements of cash flow ............................. 71 Parent Company statements of changes in equity ...... 71 Notes to the financial statements of the Parent Company ............................................................................... 72 Proposed distribution of surplus ..................................................... 78 Auditor’s Report ................................................................................................. 79 SUSTAINABILITY REPORT ................................................................ 81 Sustainability targets .................................................................................. 82 General information ....................................................................................... 83 Environmental ...................................................................................................... 96 Social ............................................................................................................................. 124 Governance ............................................................................................................. 137 Auditor’s Limited Assurance Report on the Sustainability Report and statement regarding the Statutory Sustainability Report ............................................. 149 ADMINISTRATION REPORT The Administration Report has been audited by SKF’s external auditors. See the Auditor’s Report on pages 79–80. 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 149. The definition of the Statutory Sustainability Report is presented on page 83. CORPORATE GOVERNANCE REPORT The Corporate Governance Report examined by the auditors can be found on pages 150–160. The Auditor’s Report on the Corporate Governance Report can be found on page 161. REMUNERATION REPORT The Remuneration Report can be found on pages 168–174. Contents CORPORATE GOVERNANCE REPORT ................................ 150 Board of Directors ............................................................................................ 155 Group Management ........................................................................................ 158 Auditor’s Report on the Corporate Governance Report ........................................................... 161 GROUP DATA ....................................................................................................... 162 Seven-year review ........................................................................................... 162 Three-year review ............................................................................................ 163 Per-share data ...................................................................................................... 163 Distribution of shareholding ................................................................. 163 Definitions ................................................................................................................ 164 Alternative performance measures .............................................. 165 General information ....................................................................................... 167 REMUNERATION REPORT ................................................................. 168 THIS IS SKF BAC K TO START PRESIDENT’S LETTER STRATEGY AND VALUE CREATION THE BEARING MARKET RISKS AND THE SHARE SUSTAINABILITY REPORT CORPORATE GOVERNANCE REMUNERATION REPORT GROUP DATA FINANCIAL STATEMENTS around 20% of all energy produCed is used to overCome friCtion. Today, around 20% of all energy is spent overcoming friction. At SKF, we fight friction to reduce energy waste and make the most of the resources around us. As a leading technology and engineering company, we deliver value at every step of our customers’ journey. From the design phase, integrating our solutions into customers’ products, to ongoing support throughout their lifecycle, we provide peace of mind. Built on a century of expertise and a profound understanding of our customer applications, we’ve established a global presence and a brand trusted across industries. This allows us to offer tailored solutions – whether optimizing for speed, durability or efficiency – paving the way for a sustainable, resource- efficient future. 3SKF ANNUAL REPORT 2024 THIS IS SKF BAC K TO START PRESIDENT’S LETTER STRATEGY AND VALUE CREATION THE BEARING MARKET RISKS AND THE SHARE SUSTAINABILITY REPORT CORPORATE GOVERNANCE REMUNERATION REPORT GROUP DATA FINANCIAL STATEMENTS Our offering With hands-on experience in over 40 industries, we provide a comprehensive portfolio and knowledge built on our core technology platforms: bearings and bearing units, seals, lubrication systems, intelli- gent solutions, such as condition monitoring, and services. By integrating these platforms, we deliver customized solutions that combine products, tech- nologies, and services with flexible new business models to meet each customer’s unique needs. Bearings and bearing units Seals Lubrication systems Intelligent solutions Services Our presence In 1907, SKF patented the double row self-aligning ball bearing and became a global company in just ten years. Today, SKF is a trusted and leading global industrial brand with a presence in 130 countries. We operate across four regions, to serve customers with speed and responsiveness. 38,743 employees 130 countries >17,000 distributors Net sales by geographic area China and Northeast Asia, 18% India and Southeast Asia, 10% The Americas, 31% Europe, Middle East and Africa, 41% Share of Group net sales 4SKF ANNUAL REPORT 2024 THIS IS SKF BAC K TO START PRESIDENT’S LETTER STRATEGY AND VALUE CREATION THE BEARING MARKET RISKS AND THE SHARE SUSTAINABILITY REPORT CORPORATE GOVERNANCE REMUNERATION REPORT GROUP DATA FINANCIAL STATEMENTS Our offering • Supplying more than 40 industries globally with products and services, both directly and indirectly through a network of more than 7,000 distributors. • Broad product range of bearings, seals, lubrication systems and power transmission products. • Rotating shaft services and solutions for machine health assessment, reliability engineering and circular solutions such as remanufacturing and the Infinium product offering (bearings designed for circular performance). The Industrial business 1) Adjusted for items affecting comparability. 2) Total value of accessible bearings market translated to SEK. The Automotive business Our offering • Customized bearings, seals and related products for e-powertrain, driveline, engine, wheel-end, suspen- sion, 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. Our position One of the leaders in innovative bearing products to drive the shift to electrification and ensure the highest efficiency in electric and commercial vehicles. A strong global position in the after market with an extensive product assortment and distribu- tion network. The automotive bearings market 2024 2) Estimated value 155–175 SEK bn Development –3 to –5% of net sales 70% of net sales 30% of operating profit 1) 89% of operating profit 1) 11% Our position A leading position in industries such as railway, aerospace, heavy industries and industrial distribution markets, and a prominent position in other industries. The industrial bearings market 2024 2) Estimated value 310–330 SEK bn Development –5 to –7% 5SKF ANNUAL REPORT 2024 THIS IS SKF BAC K TO START PRESIDENT’S LETTER STRATEGY AND VALUE CREATION THE BEARING MARKET RISKS AND THE SHARE SUSTAINABILITY REPORT CORPORATE GOVERNANCE REMUNERATION REPORT GROUP DATA FINANCIAL STATEMENTS 2024 in brief 0 5 12 222120 23 24 15 Cash flow 2) 5.2 8.3 13.8 10.8 5.6 SEK billion 0 25 50 75 222120 23 24 120 100 Net sales 81.7 96.9 103.9 98.7 75.0 SEK billion 0 5 15 10 23 24222120 % 12.3 13.3 12.5 12.3 10.5 Operating margin 1) Resilient margin in a soft market We upheld a resilient adjusted operating margin of 12.3%, driven by solid cost management and robust price/mix actions. This was despite de - clining volumes in a weak market environment and significant negative currency effects. Net sales declined by 5.4%. Continued strong financial position We maintained our solid financial position with a robust balance sheet and strong cash flows. This enabled us to continue investing in long-term profitable growth initiatives, including innovation, enhancing our value chain and more actively ex - ploring smaller acquisition opportunities. As of 31 December, net debt/EBITDA was 1.1 and our cash flow from operations was SEK 10.8 billion. Innovation is key to profitable growth We invested approximately 3.4% of our revenue in R&D. Moreover, we presented technologically innovative solutions tailored for customers in focused industrial segments at our first virtual Tech & Innovation Summit. This summit will now be a yearly event introducing new innovations bringing further value add to our customers. Inno- vation is a cornerstone in developing our leading customer value proposition and one of the most important enablers for long-term, profitable organic growth. Sustainability is in our DNA We reduced our CO 2 Scope 1 & 2 emissions by 59% vs 2019. The main driver has been a signifi- cant progress in the amount of renewable elec- tricity sourced, with the biggest contribution from China. Also, our energy management pro- gramme continues to contribute to reduced energy demand. We are on track towards our goal, to significantly cut our emissions by 2030 and achieve net-zero greenhouse gas emissions in our supply chain by 2050. 12.3 Net sales, SEK billion Operating margin 1) , % Cash flow 2) , SEK billion 98.7 10.8 1) Adjusted for items affecting comparability. 2) Net cash flow from operating activities. More about SKF’s long-term targets, see pages 19–20. SKF initiates a separation of its Automotive business The Board of Directors of SKF has decided to initiate a separation of SKF’s Automotive business with the objective of a separate listing on Nasdaq Stockholm through a Lex Asea distribution to SKF’s share- holders. Read more in the President’s letter, pages 7–9 and on page 11. SKF divests non-core Aerospace operation for SEK 2.3 billion An agreement was signed to divest our ring and seal operation in Hanover, USA, representing annual sales of approximately SEK 700 million, for a total value of approximately SEK 2.3 billion. Aerospace will remain as one of our largest customer industries and we will continue to invest and strengthen our position in core Aerospace segments related to the aeroengine and aero structure bearing offers. 6SKF ANNUAL REPORT 2024 TH IS IS SKF BAC K TO START PRESIDENT’S LETTER STRATEGY AND VALUE CREATION THE BEARING MARKET RISKS AND THE SHARE SUSTAINABILITY REPORT CORPORATE GOVERNANCE REMUNERATION REPORT GROUP DATA FINANCIAL STATEMENTS “We are Well positioned to Capture profitable groWth” CEO Rickard Gustafson 7SKF ANNUAL REPORT 2024 TH IS IS SKF BAC K TO START PRESIDENT’S LETTER STRATEGY AND VALUE CREATION THE BEARING MARKET RISKS AND THE SHARE SUSTAINABILITY REPORT CORPORATE GOVERNANCE REMUNERATION REPORT GROUP DATA FINANCIAL STATEMENTS How has SKF navigated the dynamic market conditions in 2024? “The world continued to be characterized by geo- political uncertainty and a turbulent macroeconomic environment, leading to decreasing volumes across most geographies and industrial verticals. In this context, I am very pleased, that for the full year 2024, we were able to uphold a resilient adjusted operating margin of 12.3% despite a negative organic growth of 5.4%. While many of the external factors are out of our control, I am pleased that we continued to improve on what we can influence–our active and diligent strategy execution. This includes staying close to our customers through a decentralized organization and active portfolio management where we work across customer industries and product lines to improve our operational performance and focus on higher margin businesses. It also includes the ongoing regionali- zation of our value chains where our regionalization rates in Asia and Americas increased by five and three percentage points respectively, reaching almost 70% in 2024. Finally, I would also like to emphasize our customer driven innovation and diligent cost management which also contributed to our earnings resilience. With a proven track record within areas such as regionalization, portfolio and cost manage- ment, we will continue to actively drive our strategic agenda also going forward. All in all, we have managed to improve our competi- tiveness and re-enforce our position as one of the true leaders in the bearing industry. Our ability to manage short-term challenges while, at the same time, continuing to invest in our future, makes us well positioned to capture profitable growth once demand bounces back.” Why should the Automotive business become independent? “Our ambition is to create a stand-alone Automotive business and list it on Nasdaq Stockholm. This is a natural next step from our decision in 2022 to make the Automotive business more autonomous to ensure greater strategic flexibility. Both our Industrial and Automotive businesses are amongst the global lead- ers in their respective fields, but they are in many ways different in terms of business dynamics, end markets and success drivers. As stand-alone businesses, both Industrial and Automotive will be able to have a clearer focus on distinct opportunities enabling increased customer value and transformation speed, as well as im proved efficiency and competitiveness. By establishing two focused and independent businesses, tailored to their specific needs, we expect to unlock long-term value and to accelerate profitable growth in both Industrial and Automotive.“ What other strategic activities did you implement last year? “We have achieved a lot, but one key example is our investment in regionalization, where we have worked hard on optimizing our footprint, and on creating competitive and resilient local value chains. This, in combination with our decentralized organizational structure, increases the agility and accountability throughout the organization, enabling an enhanced performance in a volatile external market environment. Another important strategic area is our ongoing portfolio transformation. Apart from the Board of Directors’ decision to initiate the creation of a sepa- rate Automotive business, last year we also signed an agreement to divest our ring and seal operation in Hanover, USA, which was identified as non-strategic in the strategic review of our Aerospace business in 2023. Aerospace will remain one of our largest indus- trial verticals and we will continue to invest to further strengthen our position in core Aerospace segments to optimize our business potential. But portfolio management is not just about carve outs and divestments. We are also targeting to gradu- ally accelerate profitable growth through smaller bolt- on acquisitions and we have started to build a pipe- line of interesting M&A prospects. The acquisition of John Sample Group in October exemplifies this, as it further strengthens our lubrication offering and position in the key markets Indonesia and Australia.” What else have you done to gear up for intelligent and clean growth? “Our strategy is designed to create significant cus- tomer value in targeted markets through sustained innovation leadership and increased agility. To sup- port this, we have better aligned our innovation port- folio to focus on customer needs in targeted segments, leveraging mega trends such as electrification and sustainability. Working closely with our customers enables us to accelerate profitable growth and re- enforce our position as one of the true leaders in the bearing industry. Innovation and technology development are at the core of SKF, and it makes me proud every time I hear customers explain the value they gain from our prod- ucts and solutions, and how we contribute to their success. We are not just bringing innovations and new solutions to established and mature industries, like high-speed ceramic bearings to enhance railway fleet efficiency and reliability. We are also enabling new industries and technologies to flourish, like renewable sources as tidal energy. To gear up for intelligent and clean growth, we are also investing in decarbonization, high-speed rota- tion, and low-friction products and services. As an example, last year, we developed a bearing tailored for the robotics industry with a 70% reduction in Thanks to our diligent strategy execution in 2024, we maintained a resilient adjusted operating margin despite challenging market conditions. A key strategic initiative was the decision to initiate the establishment of Automotive as an independent business. This, along with other value-adding activities, is positioning us to capitalize on profitable growth opportunities as demand recovers. Our strategy is designed to create significant customer value in targeted markets through sustained innovation leadership and increased agility. “ 8SKF ANNUAL REPORT 2024 TH IS IS SKF BAC K TO START PRESIDENT’S LETTER STRATEGY AND VALUE CREATION THE BEARING MARKET RISKS AND THE SHARE SUSTAINABILITY REPORT CORPORATE GOVERNANCE REMUNERATION REPORT GROUP DATA FINANCIAL STATEMENTS manufacturing CO 2 foot print, enabling an additional 20% reduction in the end customer application. In another project, together with the Austrian company Voest alpine, we successfully produced the first proto type bearing made from steel containing hydro- gen direct reduced iron. A true breakthrough in our efforts to decarbonize the entire bearing production process. We are on track and fully committed to achieving our target to have decarbonized global operations by 2030. I am encouraged by the recognition we receive for our efforts, including the Platinum Medal in the sustainability rating EcoVadis for the fifth consecu- tive year and the highest Climate Change rating from CDP. We also continue to support the UN Global Compact initiative, its principles and the Global Goals for 2030.” What roles do your people and culture play in the strategy execution? “Strategy and culture are deeply interconnected, and our culture, leadership and people are fundamental to the successful execution of our strategy. For example, we are now a more forward-thinking organization, enabling us to act with greater innovation and ambi- tion. This mindset will be essential moving forward, not least in our task to initiate the establishment of Industrial and Automotive as two fit-for-purpose in - dependent businesses. Innovation also demands bold thinking and our engineering expertise keeps us at the forefront. I am also encouraged by our progress in gender diversity, as diverse perspectives enhance innovation, competitiveness and our employer value proposition. In 2024, we increased women-in-leader- ship positions by 4%, and we were also recognized as a “Leader in Diversity” by Financial Times. Since establishing our purpose in 2023, we have made substantial progress in embedding it into our global operations. Visiting our facilities worldwide, I am continually impressed by how our purpose is locally integrated into our operations and daily practices. This does not only bring our purpose to life but also helps us to develop as individuals and as a company. These examples show that success ultimately depends on people. At SKF, we are fortunate to have exceptional individuals and I would like to extend my heartfelt gratitude to all our dedicated employees for your efforts throughout 2024 in managing the busi- ness cycle, discovering breakthrough innovations and effectively executing our strategic transformation. These achievements would not have been possible without your commitment and hard work.” What will be most important for SKF in 2025? “2025 will be another year of execution. Our primary focus will, as always, be on working closely with our customers and supporting them with their business needs and sustainability efforts. We will continue to develop our business and execute on our strategy, with a focus on finalizing initiated activities rather than adding new ones. One key strategic initiative will naturally be the establishment of two independent businesses. In 2025, we will remain focused on making SKF even more innovative, agile and competitive, ready to capitalize on profitable growth opportunities as demand improves. Together with our customers, partners and suppliers we will continue to re-imagine rotation for a better tomorrow.” In 2025, we will remain focused on making SKF even more innovative, agile and competitive. “ 9SKF ANNUAL REPORT 2024 THIS IS SKF BAC K TO START PRESIDENT’S LETTER STRATEGY AND VALUE CREATION THE BEARING MARKET RISKS AND THE SHARE SUSTAINABILITY REPORT CORPORATE GOVERNANCE REMUNERATION REPORT GROUP DATA FINANCIAL STATEMENTS Why invest in SKF? Targeting markets leveraging megatrends Our competitive edge lies in an integrated approach, combining advanced technology with deep industry- specific expertise to deliver customized solutions across more than 40 industries. As a trusted partner to our diverse customer base, we address critical customer needs in key industries – from electric vehicles, mining and railway to food and beverage, and renewable energy. We have a targeted approach to establish leadership in markets where megatrends such as electrification and sustainability drive caters for recurring replacement cycles in diverse industrial sectors. Additionally, we deliver value to our customers through services like condition monitoring, which optimize maintenance processes while provid- ing SKF with growing and profitable revenue streams. Accelerating technology development Building on a strong track record in cutting-edge technology and with extensive application expertise, we accelerate technology development to sustain our leadership in innovation. Reducing friction and improving energy efficiency addresses a pressing global need, as nearly 20% 1) of all energy is used to overcome friction. In recent years, we have trans- formed our innovation portfolio, with over 90% of the projects focusing on selected key segments and all these projects target an adjusted operating margin well above the Group’s financial target of 14%. Our tailored solutions add value to customers by improving performance, reducing downtime and increasing cost efficiency, all of which build customer loyalty and grow the aftermarket. Backed by a robust balance sheet, we continue to invest in new technology and smaller bolt-on acquisitions, keeping us at the fore- front in areas like materials science, condition moni- toring, and lubrication management. Delivering shareholder value Operational resilience and strong commercial exe- cution are essential to succeeding in our targeted segments. With the ongoing regionalization of the manufacturing footprint and supply chains closer to our customers, we can serve them better and faster, as well as improve adaptability to global shifts and cost-effectiveness. Our decentralized organization, formed in 2022, reinforces agility and accountability to faster adapt to changing market dynamics. In 2024, we have further strengthened our commercial exe- cution through focused portfolio management with reduced complexity and improved service, as well as implementation of value- based pricing initiatives. In short, our strategy is designed to deliver on our financial targets, i.e. driving margin improvement and pur suing profitable growth, which reinforces our ability to deliver long-term shareholder value. It remains effective even in a softer market, as shown in 2024, when we almost maintained our margin despite signif- icantly lower volumes. Building on our strengths Extensive innovation track-record Global customer reach Strong brand reputation Financial strength We have set a clear direction Increased focus and shifting exposure to attractive markets, leveraging mega trends Accelerating technology development for sustained innovation leadership Enhancing commercial and operational efficiency For margin expansion and long-term profitable growth 14% 5% Adjusted operating margin 14% 2) Revenue growth 5% 2, 3) As one of the global leaders in bearing technology and industrial solutions, SKF combines a century of engineering expertise with a trusted brand and strong customer relationships. Our strategy focuses on creating significant customer value in targeted markets by leveraging megatrends to drive growth and margin expansion. With a commitment to inno vation and operational and commercial excellence, we have a strong platform to progress towards our targets and deliver sustainable, long-term value. 1) Source: Review article on ‘’Influence of tribology on global energy consumption, costs and emissions’’ by Kenneth Holmberg and Ali Erdemir 2) Financial targets to be achieved over a business cycle. 3) Sales excluding effects of currency and divested businesses. demand, while leveraging our strong position in large- scale industries where uptime is critical. Our extensive geographical reach, combined with our first mover advantage in major markets like China and India, positions us strongly to capitalize on growth in emerging markets. Aftermarket a prioritized area A key focus is to further strengthen our strong service and aftermarket position, where our robust network with distributors and operations across 130 countries Prioritizing margin expansion and improve quality of sales Once margin target is reached, grow profitably in selected markets 10SKF ANNUAL REPORT 2024 THIS IS SKF BAC K TO START PRESIDENT’S LETTER STRATEGY AND VALUE CREATION THE BEARING MARKET RISKS AND THE SHARE SUSTAINABILITY REPORT CORPORATE GOVERNANCE REMUNERATION REPORT GROUP DATA FINANCIAL STATEMENTS SKF’s Board of Directors has decided to initiate a separation of SKF’s Automotive business with the objective to list it on Nasdaq Stockholm, aiming to unlock the full potential in the Auto motive and Industrial businesses. Both businesses are amongst the global leaders in their respective fields and, with a clearer focus, will increase customer value and leverage their strategies as stand-alone busi- nesses. Unlocking the fUll potential for two global leaders STRATEGIC FOCUS Separation of our Automotive business The business environments, customer bases, and growth drivers for our Industrial and Automotive businesses require focused strate- gies. By establishing two fit-for- purpose independent businesses, we expect to accelerate profitable growth in both. For the Automotive business, independence will bring increased agility, adapting faster to the trans- forming global automotive market. By making its own strategic decisions and investments, the business will better capture growth opportunities and accelerate ongoing profitability improvements. The decision to initiate the establishment of a standalone business is a natural progression after we, in 2022, began developing a more autonomous Auto motive business to enable greater strategic flexibility. The separation also strengthens our Industrial business’s position as a globally focused industrial technology leader, delivering customer value through high-quality and sustainable solutions. By connecting operations closer to industrial customers’ needs, the aim is to accelerate growth, improve efficiency, increase responsiveness and improve end-user experiences. With a sharper focus, the Industrial business is better positioned to grow faster across core sectors such as aerospace, railway, food and beverage, and high-speed machinery. Preliminary separation timetable The Board of Directors intends to present a proposal for the distribution and listing of the Automotive business at a shareholder meeting during 2026. If approved, shareholders of AB SKF will receive shares in the newly independent Auto motive business in proportion to their share- holding in AB SKF. The intention is then to list this business on Nasdaq Stockholm. The separa- tion is expected to meet the Lex Asea require- ments, allowing a share distribution exempt from Swedish tax. More information on the ambitions for both our Industrial and Automotive businesses will be provided at the Capital Markets Day on 11 November 2025. 11SKF ANNUAL REPORT 2024 THIS IS SKF BACK TO START PRESIDENT’S LETTER STRATEGY AND VALUE CREATION THE BEARING MARKET RISKS AND THE SHARE SUSTAINABILITY REPORT CORPORATE GOVERNANCE REMUNERATION REPORT GROUP DATA FINANCIAL STATEMENTS strategy and value creation Our strategy focuses on creating significant customer value in targeted markets by leveraging megatrends to drive growth and margin expansion. With a commitment to innovation and operational and commercial excellence, we have a strong platform to progress towards our targets and deliver sustainable, long-term value. Fighting friction Did you know that SKF’s solutions help fighting friction in the railway industry? Our low friction railway bearings can reduce the total energy consumption of a train by at least 1%, making each train not only more efficient but also cleaner, saving thousands of kWh annually. 12SKF ANNUAL REPORT 2024 THIS IS SKF BACK TO START PRESIDENT’S LETTER STRATEGY AND VALUE CREATION THE BEARING MARKET RISKS AND THE SHARE SUSTAINABILITY REPORT CORPORATE GOVERNANCE REMUNERATION REPORT GROUP DATA FINANCIAL STATEMENTS Drivers for long-term sustainable growth Long-term global shifts driven by technology, societal changes, economic factors and environ- mental concerns are transforming the world signifi- cantly. Adapting to these megatrends and key shifts is crucial for shaping our strategy and achieving sustainable, profitable growth. Sustainability Leading decarbonization efforts Addressing climate change and environmental pro- tection is a critical global challenge, driving shifts in energy, transportation and consumption, as well as influencing more regulations. At SKF, we support the transition to a sustainable economy with an exten- sive offering, including remanufacturing and intelli- gent solutions that help our customers reduce waste and extend product life. We are also committed to decarbonizing our operations, reducing greenhouse gas emissions in the value chain and continuously improving sus tainability practices across our pro- cesses, meeting evolving regulations and environ- mental demands. Electrification Cleaner, more effective industries Electrification is crucial for reducing carbon emis- sions in transportation, with electric vehicles (EVs) and trains offering additional societal benefits such as improved urban air quality and noise reduction. The demand for electrification is transforming indus- tries, especially with the rise of EVs and electric drives in industrial sectors. At SKF, we are responding to this shift by providing a portfolio of innovative solutions, including low-friction, current isolating, low-weight bearings that improve E-powertrain efficiency and increase vehicle range. As a market leader in railway solutions, we are also driving fleet efficiency and reliability with cutting-edge techno- logies and services. Digitalization Building intelligent value chains The rapid advancement of technologies like artificial intelligence (AI) and automation is transforming indus- tries and reshaping the value chain. At SKF, we invest in digitalization to streamline business interactions and enable smarter decision-making within our oper- ations. By integrating AI, we aim to boost operational efficiency and enhance customer value. Our focus is on building intelligent, clean value chains that en- hance both how we operate the customer experience. Regionalization Adapting operations for a global shift Geopolitical power shifts and conflicts are putting pressure on global trade, making it necessary to adopt a competitive region-for-region approach in sourcing, manufacturing and sales. This strategy strengthens supply chain resilience and ensures shorter lead times, improved service and better availability for our customers. For several years, we have been acceler- ating investments in regionalizing our value chain and operations, bringing our footprint closer to customers. This transformation strengthens our competitive- ness, enables us to capture profitable growth and ensures a more resilient and adaptable supply chain. 13SKF ANNUAL REPORT 2024 THIS IS SKF BACK TO START PRESIDENT’S LETTER STRATEGY AND VALUE CREATION THE BEARING MARKET RISKS AND THE SHARE SUSTAINABILITY REPORT CORPORATE GOVERNANCE REMUNERATION REPORT GROUP DATA FINANCIAL STATEMENTS High-growth segments Services and Aftermarket New technologies Portfolio management Growth areas, pages 15–16 Growth enablers, page 17 Accelerate technology development Digitalize the full value chain Regionalized and competitive supply chain Operate more efficiently – closer to customers Our strategy: Intelligent and clean SKF’s strategy is centred around two key concepts: intelligent and clean. Intelligent reflects our com- mitment to providing connected and customized solutions for customers while utilizing technology to improve operational efficiency. Clean empha- sizes our role in driving a more sustainable industry and conducting our business transparently and respon sibly. Capturing profitable growth Our approach to capturing profitable growth focuses on several strategic priorities. First, we aim to strengthen our position in high-growth segments where SKF already has a strong foothold. We are also reviewing our portfolio to concentrate on our most profitable segments, customers and products. In addition, we are developing solutions for emerging industries that leverage new technologies, as well as strengthening our service offering. Identified growth enablers To achieve these ambitions, we have identified several growth enablers. One is increasing the pace and impact of technology development, which is critical for maintaining our competitive edge. We are also digitalizing the entire value chain to improve efficiency and connectivity across operations. Continued investment in automation and regionali- zation helps us stay agile and close to our custom- ers, while a more efficient organizational structure supports these efforts. Resilience and adaptability By operating close to our customers, our strategy ensures resilience and adaptability. This approach enables us to respond more swiftly to shifts in market conditions. At the same time, we continue to strengthen our foundation through investments in competitive, resilient value chains, strategic and tactical portfolio management, and positioning ourselves as leaders in intelligent, sustainable inno- vation – all of which set SKF on a path toward long- term success. Our focused commitment to innovation, portfolio management and operational excellence is key in driving margin expansion. These priorities, aligned with our broader strategy, bolster our resilience in softer market conditions and lay the foundation for sustainable, profitable growth in the years ahead. 2024 – A year of improved resilience in a soft market • Focus on productivity and cost efficiency • Strengthening the foundation to capture industrial profitable growth • Creating competitive and resilient value chains • Managing and restructuring our portfolio on strategic and tactical levels • Gearing up for intelligent and clean leadership 14SKF ANNUAL REPORT 2024 THIS IS SKF BACK TO START PRESIDENT’S LETTER STRATEGY AND VALUE CREATION THE BEARING MARKET RISKS AND THE SHARE SUSTAINABILITY REPORT CORPORATE GOVERNANCE REMUNERATION REPORT GROUP DATA FINANCIAL STATEMENTS High-growth segments Positioned for growth in high-impact industries New technologies Advancing sustainable innovation for emerging industries SKF is amongst the leaders in several high-growth industries, where structural expansion aligns with our core strengths. We are focused on sectors where we add significant value through our advanced engineering capabilities, and where growth potential is substantial. Key industries include high-speed machinery, electrical drives, agriculture and food & beverage, all of which benefit from trends like automation and electrification. Driving a sustainable future Furthermore, we show our leadership in clean and intelligent applications, including railway sectors. We are well aligned with global megatrends linked to sustainability, such as electrification, and strategi- cally positioned to contribute to industries focused on cleaner energy and smarter, more efficient operations. We are actively developing offerings to support emerging industries such as hydrogen processing and carbon capture, where our existing technologies, like magnetic bearings, are unlocking new business opportunities. Magnetic bearings, a key growth area, are ideal for high-speed, low-vibration applications, making them critical for industries that demand pre- cision and efficiency. These bearings minimize energy loss and reduce the need for maintenance, supporting the long-term efficiency required in cutting-edge applications such as hydrogen production. Environmental benefits Another example of our innovation is RecondOil, our smart oil regeneration technology. RecondOil provides tailored solutions across various industries, delivering both financial and environmental benefits by reducing waste and enhancing sustainability. Additionally, our advancements in connectivity enable customers to easily access data on machine performance, leveraging AI to predict bearing failure and improve operational efficiency. Growth through innovation Our strengths in innovation, quality, performance and product range ensure we are well positioned to outpace market growth. Recent investments in tech- nology and innovation have boosted profitability, partic ularly in high-growth segments like railway, agriculture and machine tools. We are expanding our global leadership in railway, continuing to drive growth through tailored, application-specific solu- tions designed for critical and demanding industrial applications. With a strong customer focus combined with out- lined strategic initiatives, we are laying a solid foun- dation at SKF to capture industrial profitable growth and reinforce our leadership in key sectors, ensuring we remain at the forefront of innovation and value creation in the markets we serve. A leader in energy efficiency With the rise of electric applications demanding higher voltages, frequencies, and operational speeds, our ceramic bearings have emerged as the optimal choice. These bearings reduce fric- tion, extend component life and significantly boost energy efficiency, catering to the needs of industries transitioning towards electrified systems, from electric vehicles to renewable energy infrastructure. By channelling our R&D efforts into high- growth, high-margin segments, we are strategi- cally transforming our portfolio to reinforce our position as a leader in advanced, energy- efficient solutions. Our commitment is to help customers stay competitive while ensuring our technologies contribute meaningfully to a cleaner, more efficient future for both people and the planet. 1 7.9 kilotonnes 17.9 kilotonnes of CO2 emissions were saved using our RecondOil solutions. SKF is driving a sustainable future through leadership in clean and intelligent applications, including railway sectors. 15SKF ANNUAL REPORT 2024 THIS IS SKF BACK TO START PRESIDENT’S LETTER STRATEGY AND VALUE CREATION THE BEARING MARKET RISKS AND THE SHARE SUSTAINABILITY REPORT CORPORATE GOVERNANCE REMUNERATION REPORT GROUP DATA FINANCIAL STATEMENTS Services and Aftermarket Expanding excellence in aftermarket solutions Portfolio management Portfolio realignment for profitable transformation SKF’s service and aftermarket business, represen- ting approximately 47% of total sales, is a key area of focus for growth and profitability. With over 17,000 distributors worldwide, we are amongst the market leaders, supported by strong partnerships and our expertise in application engineering, artificial intelli- gence and machine learning. Growing recurring revenues Our goal is to expand this segment further, increasing both sales and profitability by refocusing on growing recurring revenues and appealing to a broader market. New technologies and partnerships will provide greater scale and easier access to our data analysis and machine performance capabilities, strengthening customer value. A full-cycle support Our comprehensive service portfolio is designed to support customers at every stage of their equipment’s Effective portfolio management is a critical com- ponent of SKF’s strategy. This involves refining and reshaping our portfolio of products, customers, and segments to align with our strategic goals, with the ultimate aim of improving profitability. We are shifting our portfolio, focusing on growing profitable areas and addressing or exiting less profitable ones. This approach puts stricter performance requirements on each business segment, especially in Automotive, where we are building strong positions in growth areas like electric vehicles, commercial vehicles, and aftermarket services. A more resilient portfolio To drive this portfolio shift, we are leveraging inter- nal repositioning, focused innovation efforts and acquisitions to strengthen profitable segments while phasing out or optimizing less lucrative ones. In aerospace, we have refocused our portfolio on core areas such as aeroengine and aerostructure, con cen- trating on high-value, growth-oriented segments. Meanwhile, bolt-on acquisitions in the lubrication lifecycle – from design and installation to operation, maintenance and eventual reuse. This full-cycle sup- port includes predictive maintenance, remanufactur- ing, engineering, mechanical services, and training, ensuring that customers achieve maximum perfor- mance and extended asset life. To add further value to our services, we integrate cutting-edge technolo- gies such as condition monitoring equipment and AI-enabled solutions. These advancements allow customers to continuously monitor their machinery and predict potential issues before they occur, optimizing performance, reducing downtime and lowering maintenance costs. In line with our commitment to sustainability, SKF’s remanufacturing services play a significant role in supporting cleaner industries. By extending the life of components, particularly in industrial and railway applications, we help customers reduce their CO 2 emissions and minimize waste, contributing to a circular economy and global environmental goals. systems business during 2024 have strength- ened our offerings with advanced tech nologies that support operational efficiency and sustain- ability for our clients. This approach generates a more resilient and profitable portfolio, enabling us to remain agile and responsive to changing market demands. The right business mix Our commitment to growth also includes tactical portfolio evaluation efforts, ensuring we target the right mix of products, customers, and services across all divisions. By combining data-driven insights with improving commercial capabilities, we are strengthening our leadership in industrial applications and positioning ourselves as a pre- ferred provider for advanced, sustainable solu- tions. Aligning our operations with global mega- trends in sustainability and electrification, we aim to set new standards in industrial innovation, strengthening our competitiveness and resilience for the future. +6.6% 6.6% growth in reliability services and solutions, leveraging cutting-edge condition monitoring technologies. Our active portfolio management efforts have had a significant positive contribution to our margins. Rickard Gustafson, CEO “ 16SKF ANNUAL REPORT 2024 THIS IS SKF BACK TO START PRESIDENT’S LETTER STRATEGY AND VALUE CREATION THE BEARING MARKET RISKS AND THE SHARE SUSTAINABILITY REPORT CORPORATE GOVERNANCE REMUNERATION REPORT GROUP DATA FINANCIAL STATEMENTS Accelerate technology development Regionalized and competitive supply chain Operate more efficiently–closer to customers Digitalize the full value chain Increased investments in technology and inno- vation are central to strengthening SKF’s customer value proposition and driving profitable growth. By working with R&D throughout the entire value chain, we can bring new products to market faster, particu- larly in high-growth segments in line with our long- term strategic goals. Our external collaborations and partnerships also provide a technological edge, accelerating our time to market and strengthening our competitiveness. A strong R&D foundation With over 100 years of innovation, SKF has built a strong technological foundation and established a leadership position in the industry. To maintain and reinforce this position, we are increasing invest- ments in key areas such as predictability, advanced As part of our journey to become even more relevant for our customers, we are investing in the digitaliza- tion of our full value chain. This will enable growth, reduce working capital and increase cost competi- tiveness. With the ambition of becoming a data- driven company, we are allocating significant efforts to gain actionable insights across the value chain through advanced analytics. Before digitalizing, we are re-engineering processes to ensure they To further improve our competitiveness and support our growth ambitions, we are continuously improving and regionalizing our manufacturing and supply base. We are continuously investing in opti- mizing our global footprint through strategic invest- ments in automation, regionalization and rationali- zation. These initiatives are designed to boost efficiency and meet the evolving needs of our customers more effectively. Focus on costs and the value proposition In addition to manufacturing, we have increased our ambitions within purchasing, focusing on design-to- value, regionalizing our supply chain, and unlocking areas with untapped potential. By driving these initiatives, we are not only reducing costs but also strengthening our overall value proposition. We are continuously developing our business and ways of working to remain competitive and relevant. Our strategy focuses on turning synergies and prio r- ities into greater efficiency and lower fixed costs. In 2022, we implemented a decentralized operating model with full operational and financial account- ability placed closer to our customers, improving both service and relationships. In 2024, we have continued to fine-tune this model, streamlining our organization to enhance service to our customers. A key step in materials, applied AI and manufacturing technolo- gies. These investments enable us to continue shifting our innovation portfolio toward high-growth industries and high-margin opportunities, ensuring we stay ahead of emerging trends. Together with our innovation partners, we are becoming stronger and more agile, positioning our- selves to meet the future needs of our cus tomers and drive long-term growth. are efficient and effective, while also advancing auto- mation and robotics in our operations. In the past year, we have focused on executing our new digital strategy, with ownership of the digital transformation moving closer to the business and customers. This has enabled the development of customer facing digital tools tailored to local market needs. Our AI Center of Excellence plays a key role in using AI to further improve process efficiency. In 2024, we made progress with several major projects aimed at driving cost competitiveness and improving lead times for customers. Exam- ples include the extensive downsizing actions in Germany and the regionalization efforts in key markets such as India, China and Southeast Asia. These are significant steps to ensure SKF’s long-term resilience and leadership in the market. this journey is the decision to initiate the separa- tion of Automotive, enabling it to operate more in dependently, which strengthens both the Auto- motive and Industrial business. Additionally, our drive for efficiency is sup- ported by regionalization, digital transformation, strong cost management and a clear set of strategic priorities. Together, these initiatives position us to better serve our customers and drive sustainable growth. 3.8 SEK billion in business benefits from our World Class Manufacturing initiative launched in 2019. 90% More than 90% of the innovation portfolio pro- jects are focused on our high-growth segments. 3.8 sek billion Growth enablers 17SKF ANNUAL REPORT 2024 THIS IS SKF BACK TO START PRESIDENT’S LETTER STRATEGY AND VALUE CREATION THE BEARING MARKET RISKS AND THE SHARE SUSTAINABILITY REPORT CORPORATE GOVERNANCE REMUNERATION REPORT GROUP DATA FINANCIAL STATEMENTS value through innovation leadership STRATEGIC FOCUS Innovation For customers, SKF’s innovations deliver tailored solutions that improve operational efficiency, sustaina bility and cost-effectiveness. New prod- ucts, such as intelligent monitoring systems, low- maintenance seals and high-precision bearings, cater to industry-specific needs across s ectors like railway, machine tools and heavy industries such as pulp and paper, metals and mining. These solutions increase reliability, extend service life and provide safer work environments, directly addressing the demands for energy efficiency and high performance as well as environmental responsibility. As a global leader within railway, we are com- mitted to developing cutting-edge solutions that With technology development at the core, our strategy is designed to create significant value in targeted markets through inno vation, efficiency and agility. address the demands of challenging track con- ditions but also the need for more efficient drive lines, helping the rail sector to continue its journey toward greater efficiency and sustaina bility. In 2024, we introduced advanced bearings specifi- cally designed for railway gearboxes, addressing the demands of aging rail infra structure and challenging track conditions. These new bearings withstand twice as many load cycles and feature reduced weight and friction, improving high-speed performance and energy efficiency. With up to 20% less friction in single shaft positions, they enable lighter, more efficient gearbox designs, improving overall reliable performance in the rail sector. In 2024, SKF invested 3.3 BSEK in research and development, resulting in a strong product and services pipeline, bringing significant customer value and driving profitable growth. Additionally, SKF works closely with various universities and start-up companies across the world to strengthen research, develop new technologies and acceler- ate innovation. By providing solutions to custom- ers to minimize friction and energy waste in their operations, SKF continues to support the global transition toward sustainability. 90% In recent years we have transformed our innovation port folio so that more than 90% of the projects are focused on our high-growth segments. All these projects target an adjusted operating margin well above our target of 14%. 18SKF ANNUAL REPORT 2024 THIS IS SKF BACK TO START PRESIDENT’S LETTER STRATEGY AND VALUE CREATION THE BEARING MARKET RISKS AND THE SHARE SUSTAINABILITY REPORT CORPORATE GOVERNANCE REMUNERATION REPORT GROUP DATA FINANCIAL STATEMENTS Target 5% 2024 outcome –5.4% 2020–2024 average 1.8% Target <40% 2024 outcome 14.1% 2020–2024 average 13.8% Long-term targets SKF’s long-term targets shall be achieved over a business cycle. 1) Sales excluding effects of currency and divested businesses. 2) Excluding pension liabilities. Adjusted operating margin Revenue growth 1) Net debt 2) /equity Target 14% 2024 outcome 12.3% 2020–2024 average 12.2% Key levers to reach the target • Optimizing the value chain including increased cost-competitiveness and regionalization of our manufacturing footprint • Enhanced commercial excellence including portfolio and price management • Shifting exposure to attractive markets as well as products and solutions underpinned by innovation leadership 2024 outcome The adjusted operating margin was 12.3%. Positive impact from price and customer mix as well as from cost development. Negative impact from sales and manufacturing volumes and currency effects. Key levers to reach the target • Shifting exposure to attractive markets, leveraging mega trends • Enhanced commercial excellence including portfolio and price management • Selected acquisitions 2024 outcome Organic sales declined by –5.4% compared to 2023, driven by challenging market conditions. Sales grew in India and Southeast Asia and declined in all other geographies. Industrial sales declined by –5.7% and Automotive sales declined by –4.9%. 2024 outcome Net debt/equity increased from 13.9% to 14.1% in 2024. Financial assets decreased by SEK 2.4 billion driven by repayment of loans and financial liabilities decreased by SEK 2.1 billion. 8 4 0 12 16 % 23222120 24 5 0 –10 –5 10 15 % 23222120 24 20 10 0 30 40 50 % 23222120 24 19SKF ANNUAL REPORT 2024 THIS IS SKF BACK TO START PRESIDENT’S LETTER STRATEGY AND VALUE CREATION THE BEARING MARKET RISKS AND THE SHARE SUSTAINABILITY REPORT CORPORATE GOVERNANCE REMUNERATION REPORT GROUP DATA FINANCIAL STATEMENTS Adjusted ROCE Dividend pay-out ratio Decarbonized operations by 2030 2) SKF’s long-term targets shall be achieved over a business cycle. 1) According to the Board’s proposal for the year 2024. 2) 95% reduction in scope 1 and 2 emissions by 2030 vs. 2019. Target 16% 2024 outcome 14.2% 2020–2024 average 14 % 10 5 0 15 20 % 23222120 24 Target 50% 2024 outcome 51.2 % 2020–2024 average 55% 40 20 0 60 80 % 222120 23 24 Key levers to reach the target • Improved profitability • More efficient working capital management through digitalized value chain and regionalization 2024 outcome Return on capital employed decreased to 14.2% in 2024. Capital employed decreased due to lower adjusted operating profit as well as higher tangible assets. Dividend policy The ordinary dividend should amount to around one half of SKF’s average net profit 2024 outcome 1) The pay-out ratio in 2024 was 51.2% and the five-year average was 55%. How to reach the target • Process improvements • Energy efficient machinery • Usage of renew able energy • Phase out of fossil fuel use 2024 outcome 59% reduction vs 2019 base year – well ahead of the 2030 goal trajectory. 2024 outcome –59% 200 100 0 300 400 22212019 23 24 500 thousand tonnes CO 2 e Long-term targets cont. 20SKF ANNUAL REPORT 2024 THIS IS SKF BACK TO START PRESIDENT’S LETTER STRATEGY AND VALUE CREATION THE BEARING MARKET RISKS AND THE SHARE SUSTAINABILITY REPORT CORPORATE GOVERNANCE REMUNERATION REPORT GROUP DATA FINANCIAL STATEMENTS Fighting friction Did you know that SKF’s innovative and co-created solutions help fight friction in the aerospace industry by addressing customer challenges and optimizing performance? the bearing market The global bearing market, valued to nearly SEK 500 billion, is a critical segment of the machinery industry. The market is led by SKF, along with other major international players like Schaeffler, Timken, NSK, NTN, and JTEKT. Asia- Pacific is the largest and fastest- growing region. 21SKF ANNUAL REPORT 2024 THIS IS SKF BACK TO START PRESIDENT’S LETTER STRATEGY AND VALUE CREATION THE BEARING MARKET RISKS AND THE SHARE SUSTAINABILITY REPORT CORPORATE GOVERNANCE REMUNERATION REPORT GROUP DATA FINANCIAL STATEMENTS Growth, consolidation, innovation, and sustainability The global bearing market is experiencing steady long-term growth, driven by demand from automotive, aerospace, and industrial sectors, as well as emerging applications in renewable energy, electric vehicles (EVs), and smart infrastructure. In 2024, the market faced negative growth. Despite this setback, the long- term growth potential remains robust, with key players such as SKF, Schaeffler, Timken, NSK, NTN, and JTEKT driving innovation in high-performance and sensor-enabled bearings. Importance of global brands Today’s bearing industry shows a clear trend of consolidation, with fewer, larger, and increasingly globalized manufacturers and distributors dominating the space. This shift underscores the importance of recognized global brands and high-quality products. Market value by customer industries 1) Distribution business ~30% Industrial distribution and vehicle independent aftermarket. Automotive OEM ~30% Industrial original equipment bearing markets ~40% Including manufacturers of light and heavy industrial machines and equipment, as well as aerospace, off-highway and railway vehicles. 1) Total world demand of bearings 2024. Market value by customer industries 1) The top six manufacturers account for about 55% of the global rolling bearing market. Chinese manu- facturers hold about 25%, primarily in Asia-Pacific. The remaining 20% is comprised of smaller regional and niche bearing companies. Largest market in Asia-Pacific Geographically, the Asia-Pacific region stands as the largest market, with a robust manufacturing base and growth in automotive production, especially in China and India. Meanwhile, Europe and North America are seeing increased demand in aerospace, railway, and renewable energy applications, which is also driving innovation. SKF’s business is structured across four key regions: the Americas; Europe, Middle East, and Africa; India and Southeast Asia; and China and Northeast Asia. Rapid technology development Technological advancements are reshaping the bearing market. Industry 4.0 and IoT integration are enabling sensor-equipped bearings with real-time monitoring of critical parameters like temperature, vibration, and load. This technology improves per- formance and extends the lifespan of bearings in applications like heavy industry and precision manu- facturing. As the shift to electrification intensifies, demand is growing for low-friction, high-efficiency bearings designed to reduce energy losses. Growing environmental concerns is also pushing for energy- efficient bearing solutions and the use of sustainable materials in manufacturing. 22SKF ANNUAL REPORT 2024 THIS IS SKF BACK TO START PRESIDENT’S LETTER STRATEGY AND VALUE CREATION THE BEARING MARKET RISKS AND THE SHARE SUSTAINABILITY REPORT CORPORATE GOVERNANCE REMUNERATION REPORT GROUP DATA FINANCIAL STATEMENTS The bearing market, by region 2014 2024 Market value and growth by region 0 40 80 120 160 240 BSEK 200 China and Northeast Asia The Americas Europe, Middle East and Africa India and Southeast Asia During the last 10 years, the highest market growth is seen in China and Northeast Asia and India and South- east Asia with growth rates around 50% and 100% respectively. More limited growth is seen in Europe, Middle East and Africa, around 35% and the Americas, around 35%. SKF region Market characteristics Largest markets Largest customer industries Europe, Middle East and Africa Approximate share of the total world bearing market 24% Market value SEK 110–120 bn Market growth 2024 Large decline Market growth 2014–2024 Low Western Europe is the largest sub-region by size but has shown a relatively weaker long-term growth. Here, important OEM industries are light vehicles, renewable energy, industrial drives and trucks. Eastern Europe and Middle East and Africa sub- regions are highly dependent on industrial and auto- motive after markets. These sub-regions are smaller in size but have shown a relatively higher long-term growth. Germany, Italy, France. Industrial distribution, light vehicles, trucks, vehicle aftermarket, industrial drives, aero- space, and renewable energy. The Americas Approximate share of the total world bearing market 25% Market value SEK 115–125 bn Market growth 2024 Medium decline Market growth 2014–2024 Low The market in the Americas is highly dependent on the U.S. market, which is the second largest bearing market in the world. Here, OEM segments as light vehicles, off-highway and aerospace are large. Latin American sub-region shows higher long-term growth than North America. Latin America is largely depending on the industrial and automotive aftermarket since few global OEMs are present. USA (~75% of regional market), Mexico, Brazil. Light vehicles, industrial distribution, vehicle aftermarket, off- highway, aerospace, and industrial drives. China and Northeast Asia Approximate share of the total world bearing market 42% Market value SEK 190–210 bn Market growth 2024 Medium decline Market growth 2014–2024 Medium This region mainly consists of three of the top-5 bearing countries globally: China, Japan and Korea. Together, they represent ~40% of global bearings demand. The Chinese market represents ~30% of global demand. The region is by far the single most important market for electrical demand. In addition, the region has the highest global bearing demand e.g. for light vehicles, industrial drives, heavy industries, renewable, lifts and escalators. China (~70% of regional market), Japan, Korea. Light vehicles, industrial distribution, industrial drives, electrical, and renewable energy. India and Southeast Asia Approximate share of the total world bearing market 9% Market value SEK 40–50 bn Market growth 2024 Medium Market growth 2014–2024 High This region is the smallest by size. However, it has the highest global bearings demand for the two-wheeler market. India and Southeast Asia is largely dependent on the Indian market, with ~55% of the regional demand and ~5% of global demand. The Southeast Asia sub-region is largely dependent on the industrial and automotive aftermarket. India (55% of regional market). Industrial distribution, vehicle aftermarket, light vehicles, and two-wheeler. Please note that the total value of accessible bearings market has been translated to SEK. 23SKF ANNUAL REPORT 2024 THIS IS SKF BACK TO START PRESIDENT’S LETTER STRATEGY AND VALUE CREATION THE BEARING MARKET RISKS AND THE SHARE SUSTAINABILITY REPORT CORPORATE GOVERNANCE REMUNERATION REPORT GROUP DATA FINANCIAL STATEMENTS SKF region Net sales Share of group net sales Employees 1) SKF’s position Europe, Middle East and Africa 18,766 One of the leaders with strong presence in all industry segments, especially in aerospace, industrial distri bution, railway, off- highway, and heavy industries. The Americas 8,013 Strong position in most industry segments; industrial distribution, vehicle aftermarket, industrial drives, aerospace, and off- highway. China and Northeast Asia 7, 6 2 1 A growing position with a strong presence in certain industry segments; industrial distribution, renewable energy, railway, heavy industries, trucks, and industrial drives. India and Southeast Asia 3,331 One of the leaders in many of the larger industry segments, especially in industrial distribution, two- wheelers and vehicle aftermarket. Strong position also in railway, off-highway, heavy industries and industrial drives. 2024 2023 2022 2024 2023 2022 2024 2023 2022 2024 2023 2022 2024 39,776 MSEK Change –6% 2024 30,758 MSEK Change –1% 2024 18,158 MSEK Change –11% 2024 10,030 MSEK Change +2% 41% 31% 18% 10% Men Women Men Women Men Women Men Women 22%78% 23%77% 34%66% 12%88% SKF’s global presence 1) Average, full time employees. 24SKF ANNUAL REPORT 2024 THIS IS SKF BACK TO START PRESIDENT’S LETTER STRATEGY AND VALUE CREATION THE BEARING MARKET RISKS AND THE SHARE SUSTAINABILITY REPORT CORPORATE GOVERNANCE REMUNERATION REPORT GROUP DATA FINANCIAL STATEMENTS Increased regIonalIzatIon for the benefIt of our customers STRATEGIC FOCUS Regionalization Regionalization is transforming SKF into a more agile, efficient and resilient organization, bringing tangible benefits directly to our customers. By relocating pro duction closer to key markets, we are en suring faster deliveries, improved service and ready access to critical spare parts. Our strategy is grounded in a competitive and customer- centric approach. In recent years, pro- duction has shifted from Europe to Asia, particularly China, with expansions into India and Southeast Asia. In China, for example, regionalization has reduced lead times by 25% in five years, demon- strating how we are improving service levels and responsiveness for our customers. At the core of our regionalization initiative is a strong commitment to shorter lead times and improved product availabil- ity. These advancements allow us to respond swiftly and reliably to customer demands, while keeping abreast of market fluctuations and regulations. In addition to improving service, localizing produc- tion reduces emissions and transportation costs, supporting sustainability and boosting competitive- ness through regional opportunities in Eastern Europe and Asia. This approach combines respon- siveness, efficiency and sustainability, and enabling us to build a supply chain that is faster, smarter and more environmentally responsible. With global reach and local roots, we are well positioned to deliver value and help our customers to succeed in an ever-changing world. –25% Lead time shortened by 25% since 2019 in China. 202220212020 20242023 50 60 70 80 % 2019 Average Lead Times (days) Regionalization rate 25SKF ANNUAL REPORT 2024 THIS IS SKF BACK TO START PRESIDENT’S LETTER STRATEGY AND VALUE CREATION THE BEARING MARKET RISKS AND THE SHARE SUSTAINABILITY REPORT CORPORATE GOVERNANCE REMUNERATION REPORT GROUP DATA FINANCIAL STATEMENTS risks and the share SKF’s overall financial objective is to create value for its shareholders. To support this, we have applied an integrated approach to risk mitigation and implemented an enterprise risk management process that covers all parts of the Group. Fighting friction Did you know that SKF’s solutions help fight friction in the pulp and paper industry? With cutting-edge, innovative, highly efficient bear- ings and automated lubrication systems, we tackle critical cost, sustainability, and digital transformation challenges. 26SKF ANNUAL REPORT 2024 THIS IS SKF BACK TO START PRESIDENT’S LETTER STRATEGY AND VALUE CREATION THE BEARING MARKET RISKS AND THE SHARE SUSTAINABILITY REPORT CORPORATE GOVERNANCE REMUNERATION REPORT GROUP DATA FINANCIAL STATEMENTS Assessments are made by the six business areas, Technology Development and other Group functions. Risk assessments Risk management The SKF Group considers risk management to be essential and takes an integrated approach to risk mitigation through inclusion in strategy execution, business planning and operations. The SKF Group operates in many different industries and geographical areas. As a result, the SKF Group is exposed to various types of risks. SKF appreciates that there are risks associated with the macro environment such as the geopolitical landscape, the state of global markets and significant industry and technological shifts. There are also The result is shared yearly with Group Manage- ment and the Audit Committee. There is also a half-year internal assessment to monitor changes and make sure mitigation actions are in place and delivering expected result which is presented to Group Management. Audit Committee SKF strategy development and execution Risk owners Annual Report The consolidated risk assessment is shared with the Audit Committee. The Business areas risk assessments are used as input to strategy develop- ment and execution. Risk owners manage risk mitigation and follow-up. A high level overview is shared externally in the Annual Report. SKF Group ERM process business risks including supply chain disruptions, information and cybersecurity threats, and challenges in attracting talent in a competitive labour market. Additionally, there are legal and compliance risks arising from the increased regulatory demands and internal governance and coordination within the Group as well as ongoing regulatory investigations and processes. SKF has implemented an enterprise risk manage- ment (ERM) process that covers all parts of the Group, see illustration below. The risk impact includes impact on strategy, long term financial performance, as well as brand and reputation. The Group Risk Manager 1) , who is part of the central group functions and reports to the CFO and to the Audit Committee, is overall re - sponsible for the ERM process and consolidates the risks and the mitigating activities. The risks high- lighted on the next page are the main risks identified during the 2024 Group ERM process. The main areas of opportunity are described on pages 12–17. For information about financial risks including currency risks, interest risks, liquidity risks and credit risks, see Note 26 on pages 66–68. For information about ongoing compliance related investigations, see Note 19 on page 59. As with other risks, SKF applies an integrated approach to the identification and management of risks related to sustainability. The sustainability risks have been identified through the double materiality assessment (DMA). More information on the DMA on pages 89 and 95. 1) Director, Global Finance Sustainability and Operations Business area representa- tives consolidate the risks. Discussions are facilitated by the Group Risk Manager 1) . Risk consolidation Group Management reviews the consolidated assessment. Group Management review 27SKF ANNUAL REPORT 2024 THIS IS SKF BACK TO START PRESIDENT’S LETTER STRATEGY AND VALUE CREATION THE BEARING MARKET RISKS AND THE SHARE SUSTAINABILITY REPORT CORPORATE GOVERNANCE REMUNERATION REPORT GROUP DATA FINANCIAL STATEMENTS Risk Trend Mitigation Geopolitical tensions War and other major events, sanctions, tariffs and other trade barriers. Regionalize and create more flexible supply chains. Information and cyber security Increasing legal and customer requirements to adhere to information security standards such as NIS2, NIST, RED and TISAX. A general increase in risks of information and cyber security breaches and threats. Continuous training and awareness of information security. Enhance the cyber defence and resilience of SKF’s manufacturing sites, supply chain continuity, critical digital solutions including supplier and third- party deliveries. Cost increase and cost volatility Volatility in material, logistics and energy prices are rapidly changing the cost structure of the company. Volatility in volumes put further pressure on cost flexibility. Portfolio management and pricing activities in all regions to offset cost increases. SKF is accelerating the work to increase flexibility and reduce fixed costs by adjusting our organization in line with the new operating model, reallocating production volumes for optimization. Speed of digitalization Increasing demands for a fully connected value chain and excellent digital customer experi- ence, as well as the rapid development of AI-based solutions are placing high demands on the speed of the digital transformation. Strategic initiatives in place to ramp up digitalization including strengthening capabilities, investing in digital talents, modernizing, harmonizing and simplifying the IT landscape. Supply chain effectiveness Risk of disruption, or increasing lead times, due to supplier/regional dependencies. Addi- tionally, inventory management and demand forecasting inefficiencies may arise from market demand uncertainties . Review of supplier localization, footprint, increase dual sourcing alternatives, consolidation, inventory optimization and digitalization of the supply chain. Risk Trend Mitigation Speed of innovation Introduction of disruptive and quickly changing new technologies. Technology strategy with Technology radar to monitor new and emerging technologies defined, populated and implemented. Strengthening and clarifying our Innovation portfolio, including open innovation with external parties, where we have established a network of start- up platforms in several geographies. Clear portfolio follow-up to ensure pipeline. People and leadership There is a fierce competition in the labour market, where the success of companies is dependent on the ability to attract, develop and retain critical competences and capabilities. SKF is committed to being the employer of choice by prioritizing the employee experience. Key elements include purpose, culture, engagement, leadership, competence and work methods. Additionally, diver- sity and inclusion are emphasized to attract a broader recruitment base and build a more dynamic work- force. Manufacturing footprint and regionalization Risk of regional economic shifts impacting competitiveness of global supply chains. High levels of footprint regionalization still required to offset risks of regional crises. Updated manufacturing strategy and governance, including prioritised investment planning, compe- tence planning and regional supplier development. Development of step-up manufacturing technologies for scalable deployment. Legal compliance Antitrust risks in relation with distributors. Regulatory requirements within trade com- pliance, export control and international sanctions. New and enforced legal require- ments within information security, environ- mental sustainability and human rights. Increased expectations for due diligence. Continuous training and awareness in key risk areas. Third party risk due diligence and monitoring including ESG compliance. Operational ownership of compli- ance, management commitment including compre- hensive compliance risk assessments. Governance and internal coordination Unclear responsibilities, mandate and insufficient global alignment. Strategic initiatives to clarify mandates, responsibilities as well as creating forums for strategic coordination, alignment and decision making. Main risks 28SKF ANNUAL REPORT 2024 THIS IS SKF BACK TO START PRESIDENT’S LETTER STRATEGY AND VALUE CREATION THE BEARING MARKET RISKS AND THE SHARE SUSTAINABILITY REPORT CORPORATE GOVERNANCE REMUNERATION REPORT GROUP DATA FINANCIAL STATEMENTS The SKF share SKF’s A and B shares are listed on the Nasdaq Stock- holm, Large Cap stock exchange and are included in several indexes. In 2024, the share price increased by 2% for the SKF A share and 3% for the SKF B share. The total number of SKF shares traded on Nasdaq Stockholm was 311,541,518. SKF’s B shares are also traded on other markets outside Nasdaq Stockholm. The total number of shares traded on these marketplaces combined in 2024 was 933,797,027. (Source: Modular Finance AB). SKF’s American Depositary Receipts (ADRs) are traded on the OTC market. As per 31 December 2024, the Company’s share capital amounted to SEK 1,138,377,670 and the total number of shares amounted to 28,983,999 shares of Series A and 426,367,069 shares of Series B. The number of votes in the Company amounted to 71,620,705.9. Rights associated with the different share types are further elaborated in the Corporate Governance Report on pages 150–160. Share conversion Owners of A shares have an option to convert these to B shares. In 2024, 322,934 shares were converted. As of 31 December 2024, A shares were 6.4% (6.4) of the total number of shares. Dividend and total return The Board of Directors proposes to the Annual General Meeting that a dividend of SEK 7.75 per share be paid for 2024. The total return from investing in the SKF A share over the past three years was 5.0% andfor the SKF B share 8.3%. (Source: Modular Finance AB). Ownership structure As per 31 December 2024, SKF had 78,082 share- holders. Around 33.6% of the share capital was owned by foreign investors, around 43.0% by Swedish companies, institutions and mutual funds and around 8.8% by private Swedish investors (Source: Modular Finance AB). Most of the shares owned by foreign investors are registered through trustees, which means that the actual shareholders are not officially registered. FAM AB, which is wholly owned by Wallenberg Investments AB, in its turn owned by the three largest Wallenberg Foundations, is the only shareholder with a shareholding representing more than 10% of the voting rights in SKF. Per 31 December 2024 the company owned none of its own shares. Information to shareholders Financial reports and further information about the share can be found at investors/skf.com. A list of analysts following SKF and the opportunity to sub- scribe to information from SKF is also available on the website. Sustainability indexes Based on the 2024 submission, SKF has been rated A- within the CDP rating system which signifies that SKF is taking co ordinated action on climate issues. SKF is also evaluated as Platinum (in the top 1% of companies in its sector) via the EcoVadis supplier sustainability evaluation platform which is used by many of the Group’s global customers to understand supplier sustainability performance. 0 75 150 225 202420232022 0 25 50 75 B share Nasdaq Stockholm_PI (normalized against the B share ) A share Number of B shares traded at Nasdaq Stockholm, million Number of B shares traded at Nasdaq Stockholm, million Million 100 300 SEK Share development 2022–2024 29SKF ANNUAL REPORT 2024 THIS IS SKF BACK TO START PRESIDENT’S LETTER STRATEGY AND VALUE CREATION THE BEARING MARKET RISKS AND THE SHARE SUSTAINABILITY REPORT CORPORATE GOVERNANCE REMUNERATION REPORT GROUP DATA FINANCIAL STATEMENTS The ten largest shareholders sorted by voting rights Number of shares Share capital, % Voting rights, % FAM AB 68,317,539 15.0% 29.1% Cevian Capital 36,124,429 7.9% 5.0% AFA Försäkring 3,846,138 0.8% 4.0% Livförsäkringsbolaget Skandia 4,019,722 0.9% 2.6% BlackRock 13,979,116 3.1% 2.0% Harris Associates 13,722,429 3.0% 1.9% Vanguard 13,650,212 3.0% 1.9% SEB-Stiftelsen 1,650,000 0.4% 1.8% Handelsbanken Fonder 10,686,860 2.3% 1.5% Swedbank Robur Fonder 9,947,219 2.2% 1.4% Source: Modular Finance AB as of 31 December 2024. Geographic ownership 2024 Others, 2.2% Unknown country, 11.8% Europe excl Sweden, 12.8% USA, 19.6% Sweden, 53.5% –40 –20 –30 0 –10 10 20 Jan 2022 Jan 2023 Jan 2024 Dec 2024 Total return 2022−2024 Return SKF B Total return SKF B (including dividends) 30% Data per share 1) SEK per share unless otherwise stated 2024 2023 Earnings per share 14.22 14.04 Dividend per A and B share 7.75 2) 7.50 Total dividends, MSEK 3,529 2) 3,415 Purchase price of B shares at year-end on Nasdaq Stockholm 207.6 201.3 Equity per share 131 116 Yield (B), % 3.7 2) 3.7 P/E ratio, B (share price/earnings per share) 14.6 14.3 Cash flow from operations, per share 23.7 30.3 Cash flow after investments before financing, per share 11.4 17.4 1) See page 164 for definitions 2) According to the Board’s proposal for the year 2024. ADDITIONAL INFORMATION There are no regulations under Swedish law or under the Articles of Association limiting the transferability of SKF shares. Furthermore, to the best of SKF’s knowledge, no agreements exist between share holders limiting the right to transfer SKF shares (e.g. by pre-emption or first refusal clauses). No restrictions exist limiting the number of votes that each shareholder may cast at a shareholders’ meeting. There are no existing agreements between SKF and any board member or employee, allowing them to receive special compensation in the event of resignation, dismissal without cause, or termination of employment as a consequence of a public take over bid for the shares in AB SKF. Source: Modular Finance AB as of 31 December 2024. 30SKF ANNUAL REPORT 2024 THIS IS SKF BACK TO START PRESIDENT’S LETTER STRATEGY AND VALUE CREATION THE BEARING MARKET RISKS AND THE SHARE SUSTAINABILITY REPORT CORPORATE GOVERNANCE REMUNERATION REPORT GROUP DATA FINANCIAL STATEMENTS Capital structure, financing, credit rating and dividend policy Capital structure The capital structure target is a net debt/equity ratio, excluding pension liabilities, below 40%. This together with the self-funding principle in the strate- gic framework, operating cash flow to fund invest- ments 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 2024, the net debt/equity ratio, excluding pension liabilities was 14.1% (13.9). Financing SKF’s policy is to have long-term financing of its operations. As of 31 December 2024, the average maturity of SKF’s loans was approximately four years. SKF has four notes issued on the European bond market. EUR 300 million per 2025, EUR 400 million per 2028, EUR 300 million per 2029, and one with an out- standing amount of EUR 300 million, due in 2031. The bonds maturing in 2028 and 2029 are both issued under SKF’s Green Finance Framework. According to the conditions of the notes, the notes’ interest rate may increase by 5% in case of a change of control of the company in combination with a rating downgrade to a non- investment grade as a con sequence of this. Change of control meaning any party/concerted parties acquiring more than 50% of SKF’s share capital or SKF’s shares carrying more than 50% of the voting rights. In addition to the bonds mentioned before, SKF also has one bilateral loan of USD 100 million due in 2027. Furthermore, SKF has signed a long-term credit facility of EUR 430 million, with the European Invest- ment Bank, which by the year end was unutilized. In addition to its own liquidity, AB SKF has one unutilized committed credit facility of MEUR 800, syndicated with ten banks that will expire in 2029, with one 1-year extension option. Credit rating On 31 December 2024, the Group had a Baa1 rating from Moody’s Investors Service and a BBB+ rating from Fitch Ratings, both with a stable outlook. SKF intends to keep a strong credit rating, which is re - flected in its capital structure targets. Dividend policy SKF’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 considering the Group’s development potential and financial position. The Board of Directors’ view is that the ordinary dividend pay-out ratio should amount to around one half of SKF’s average net profit calculated over a business cycle, which is reflected in SKF’s long-term financial targets. If the financial position of the SKF Group exceeds the targets for the capital structure an additional distribution to the ordinary dividend could be made in the form of a higher divi- dend, a redemption scheme or a repurchase of the company’s own shares. On the other hand, in periods of more un certainty a lower dividend ratio could be appropriate. Based on the operating performance, cash gene- ration capacity and outlook, the Board has decided to propose to the Annual General Meeting a dividend of SEK 7.75 (7.50) per share. This proposal is subject to a resolution by the Annual General Meeting in April 2025, see page 78, Proposed distribution of surplus. Remuneration to Group Management The principles of remuneration for Group Manage- ment members were adopted at the annual general meeting in 2020 and revised in 2022 and are sum- marized in the Annual Report 2024, Consolidated Financial Statements, Note 23. NOMINATION OF BOARD MEMBERS AND NOTICE OF ANNUAL GENERAL MEETING In addition to specially appointed members and deputies, the company’s Board of Directors shall according to the Articles of Association, comprise a minimum of five and a maximum of twelve members, with a maximum of five deputies. The Annual General Meeting shall, inter alia, determine the number of Board members and deputy Board members, and preside over the elections of Board members and deputy Board members. Notice to attend an Annual General Meeting and notice to attend an Extra General Meeting where an issue relating to a change in the Articles of Association will be dealt with, shall be issued no earlier than six weeks and no later than four weeks prior to the General Meeting. Notice to attend an Extra General Meeting for other matters shall be issued no earlier than six weeks and no later than three weeks prior to the General Meeting. 31SKF ANNUAL REPORT 2024 Fighting friction Our innovative solutions for the food and beverage industry help you secure contamination- free food processing and achieve more energy efficient pro- duction. So come dinnertime, people can enjoy what’s served knowing it’s both safe and responsibly produced with minimal environmental impact. Financial statements Consolidated income statements and consolidated statements of comprehensive income ........................................... 33 Comments on the consolidated income statements .............. 34 Consolidated balance sheets ............................................................. 35 Comments on the consolidated balance sheets ....................... 36 Consolidated statements of cash flow ............................................ 37 Comments on the consolidated statements of cash flow ...... 38 Consolidated statements of changes in equity and comments ........................................................................ 40 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Note 1 Accounting policies .......................................................... 41 Note 2 Segment information ........................................................ 42 Note 3 Acquisitions .......................................................................... 44 Note 4 Divestment of businesses .............................................. 44 Note 5 Research and development ........................................... 44 Note 6 Expenses by nature ........................................................... 45 Note 7 Other operating income and expenses .................... 45 Note 8 Financial income and financial expenses .............. 45 Note 9 Taxes......................................................................................... 46 Note 10 Intangible assets ................................................................ 47 Note 11 Property, plant and equipment ..................................... 49 Note 12 Right-of-use assets ............................................................ 51 Note 13 Inventories ............................................................................. 52 Note 14 Financial assets .................................................................. 53 Note 15 Other short-term assets .................................................. 54 Note 16 Share capital......................................................................... 55 Note 17 Earnings per share ............................................................. 55 Note 18 Provisions for post-employment benefits ............... 55 Note 19 Other provisions and contingent liabilities ............ 59 Note 20 Financial liabilities ............................................................. 60 Note 21 Other short-term liabilities ............................................. 61 Note 22 Related parties including associated companies ............................................................................. 61 Note 23 Remuneration to key management ............................ 61 Note 24 Fees to the auditors ........................................................... 65 Note 25 Average number of employees ..................................... 65 Note 26 Financial risk management .......................................... 66 Note 27 Non-controlling interests ................................................ 68 Note 28 Assets and liabilities classified as held for sale ..................................................................... 68 FINANCIAL STATEMENTS OF THE PARENT COMPANY Parent Company income statements and statements of comprehensive income ..................................................................... 69 Parent Company balance sheets ....................................................... 70 Parent Company statements of cash flow ..................................... 71 Parent Company statements of changes in equity .................... 71 NOTES TO THE FINANCIAL STATEMENTS OF THE PARENT COMPANY Note 1 Accounting policies ........................................................... 72 Note 2 Revenues and operating expenses ............................ 72 Note 3 Financial income and financial expenses .............. 72 Note 4 Appropriations ..................................................................... 73 Note 5 Taxes......................................................................................... 73 Note 6 Intangible assets ................................................................ 73 Note 7 Property, plant and equipment ..................................... 74 Note 8 Investments in subsidiaries ........................................... 74 Note 9 Investments in equity securities ................................. 76 Note 10 Provisions for post-employment benefits ............... 77 Note 11 Loans ........................................................................................ 77 Note 12 Salaries and wages, other remunerations, average number of employees and men and women in Management and Board ............................. 77 Note 13 Contingent liabilities ......................................................... 77 Note 14 Subsequent events ............................................................ 77 Amounts in MSEK unless otherwise stated. Amounts in parentheses refer to comparable figures for 2023. The Administration Report is presented on pages 12–78. It has been audited by SKF’s external auditors. See the Auditor’s Report on pages 79–80. 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 81. 32SKF ANNUAL REPORT 2024 THIS IS SKF PRESIDENT’S LETTER STRATEGY AND VALUE CREATION THE BEARING MARKET RISKS AND THE SHARE SUSTAINABILITY REPORT CORPORATE GOVERNANCE REMUNERATION REPORT GROUP DATA FINANCIAL STATEMENTS BACK TO START Consolidated income statements January–December MSEK Note 2024 2023 Net sales 2 98,722 103,881 Cost of goods sold 6 –71,349 –77,541 Gross profit 27,373 26,340 Research and development expenses 5 –3,326 –3,303 Selling expenses 6 –12,763 –11,450 Administrative expenses 6 –601 –607 Other operating income 7 1,263 2,696 Other operating expenses 7 –1,645 –2,652 Income from associated companies 38 60 Operating profit 10,339 11,084 Financial income 8 479 413 Financial expenses 8 –1,729 –2,316 Profit before taxes 9,089 9,181 Income tax 9 –2,202 –2,404 Net profit 6,887 6,777 Net profit attributable to: Shareholders of AB SKF 6,474 6,395 Non-controlling interests 413 382 Basic earnings per share (SEK), before and after dilution 17 14.22 14.04 Consolidated statements of comprehensive income January–December MSEK Note 2024 2023 Net profit 6,887 6,777 Items that will not be reclassified to the income statement Remeasurements of post-employment benefits 18 731 –297 Assets at fair value through other comprehensive income 14 80 — Income tax 9 –150 83 661 –214 Items that may be reclassified to the income statement Currency translation adjustments 2,914 –3,136 Assets at fair value through other comprehensive income 14 — –82 Income tax 9 — — 2,914 –3,218 Other comprehensive income, net of tax 3,575 –3,432 Total comprehensive income 10,462 3,345 Total comprehensive income attributable to Shareholders of AB SKF 9,938 3,082 Non-controlling interests 524 263 33SKF ANNUAL REPORT 2024 THIS IS SKF PRESIDENT’S LETTER STRATEGY AND VALUE CREATION THE BEARING MARKET RISKS AND THE SHARE SUSTAINABILITY REPORT CORPORATE GOVERNANCE REMUNERATION REPORT GROUP DATA FINANCIAL STATEMENTS BACK TO START Comments on the consolidated income statements General The Group’s income statement for 2024 included the result of the acquired John Sample Group’s Lubrica- tion and Flow Management business for the period 1 November–31 December. It also included the result for two of the minor acquired businesses within mag- netic bearings for the period 1 January–31 December and 1 May–31 December. Net sales In 2024, net sales amounted to MSEK 98,722 (103,881) corresponding to a decrease of –4.9% compared to 2023. The change of the Swedish krona towards other currencies had a positive impact in 2024 of +0.4%. Structural changes accounted for +0.1%. Net sales in local currencies decreased with –5.4%. Sales development y-o-y, % Q1 Q2 Q3 Q4 Full year Organic –7.0 –6.6 –4.4 –3.1 –5.4 Structure 0.1 0.1 0.0 0.3 0.1 Currency 0.0 0.9 –3.6 3.9 0.4 Total –6.9 –5.6 –8.0 1.1 –4.9 Operating profit Operating profit for the year was MSEK 10,339 (11,084). Operating profit included items affecting comparability of MSEK –1,844 (–1,893), whereof MSEK –1,497 (–1,398) related to ongoing restructur- ing and cost reduction activities, factory closures and expenses related to the separation of the Auto- motive business, and MSEK –347 (–176) related to impairment of assets. 2023 also included MSEK 18 related to the divestment of business within lubrica- tion and MSEK –338 related to currency devaluation in Argentina. Financial income and expenses, net The financial income and expenses, net for 2024 was MSEK –1,250 (–1,903). Exchange rate fluctuations had a more negative effect in 2023, compared to 2024, whereof MSEK –250 related to the devaluation in Argentina in December 2023. For more information about the changes year-over-year, see Note 8. Taxe s The effective tax rate for the year was 24.2% (26.2). For more information, see Note 9. Values by quarter MSEK Q1 Q2 Q3 Q4 Full year Net sales 24,699 25,606 23,692 24,725 98,722 Operating profit 2,993 2,489 2,526 2,331 10,339 Profit before taxes 2,722 2,112 2,241 2,014 9,089 Basic earnings per share (SEK) 4.15 3.36 3.40 3.31 14.22 2023 2024 Operating profit development y-o-y Organic sales & manufacturing volumes Cost development Currency impact Items affecting comparability Divested businesses 0 5,000 10,000 15,000 20,000 SEK million –839 10,339 11,084 –656 699 8 43 202220212020 20242023 Operating profit 0 2.5 5.0 7.5 10.0 12.5 SEK billion 34SKF ANNUAL REPORT 2024 THIS IS SKF PRESIDENT’S LETTER STRATEGY AND VALUE CREATION THE BEARING MARKET RISKS AND THE SHARE SUSTAINABILITY REPORT CORPORATE GOVERNANCE REMUNERATION REPORT GROUP DATA FINANCIAL STATEMENTS BACK TO START Consolidated balance sheets As of 31 December MSEK Note 2024 2023 ASSETS Non-current assets Goodwill 10 12,574 11,962 Other intangible assets 10 4,671 5,045 Property, plant and equipment 11 30,470 26,820 Right-of-use assets 12 3,564 2,961 Long-term financial assets 14 1,424 1,170 Deferred tax assets 9 3,369 3,107 Investments in joint ventures and associated companies 22 565 467 Other long-term assets 982 454 57,619 51,986 Current assets Inventories 13 26,182 23,194 Trade receivables 14 16,600 16,811 Other short-term assets 15 6,057 5,859 Other short-term financial assets 14 330 742 Cash and cash equivalents 14 11,031 13,311 60,200 59,917 Assets classified as held for sale 28 1,594 — Total assets 119,413 111,903 EQUITY AND LIABILITIES Equity attributable to shareholders of AB SKF 59,649 52,743 Equity attributable to non-controlling interests 27 2,320 2,213 61,969 54,956 Non-current liabilities Long-term financial liabilities 20 12,685 15,687 Long-term lease liabilities 12, 20 2,714 2,207 Provisions for post-employment benefits 18 8,502 8,797 Deferred tax provisions 9 1,905 1,220 Other long-term provisions 19 1,424 1,339 Other long-term liabilities 80 83 27,310 29,333 Current liabilities Trade payables 20 12,553 11,236 Short-term provisions 19 1,157 1,245 Short-term lease liabilities 12, 20 802 629 Other short-term financial liabilities 20 4,559 3,431 Other short-term liabilities 21 10,930 11,073 30,001 27,614 Liabilities classified as held for sale 28 133 — Total equity and liabilities 119,413 111,903 0 5 10 15 20 % 202420232022 Return on capital employed 0 10 20 30 40 50 % 202420232022 Equity/assets 0 10 20 40 30 50 % 202420232022 Gearing 35SKF ANNUAL REPORT 2024 THIS IS SKF PRESIDENT’S LETTER STRATEGY AND VALUE CREATION THE BEARING MARKET RISKS AND THE SHARE SUSTAINABILITY REPORT CORPORATE GOVERNANCE REMUNERATION REPORT GROUP DATA FINANCIAL STATEMENTS BACK TO START Comments on the consolidated balance sheets Net working capital On 31 December 2024, net working capital as percentage of sales was 30.6% (27.7) consisting of the following components: • Inventories amounted to MSEK 26,182 (23,194) corresponding to 26.5% (22.3) of annual sales. The increase in inventories was attributed to volumes by MSEK 2,345, net of divestments and acquisi- tions, and to currencies by MSEK 1,305. • Trade receivables amounted to MSEK 16,600 (16,811) corresponding to 16.8% (16.2) of annual sales. The change in trade receivables was attrib- utable to volume decrease with MSEK –783, net of divestments and acquisitions, and to currencies with MSEK 572. The average days of outstanding trade receivables were 67 days (64). • Trade payables amounted to MSEK 12,553 (11,236) corresponding to 12.7% (10.8) of annual sales. The change attributable to volume was MSEK 884, net of divestments and acquisitions, and the remaining MSEK 433 was attributable to currencies. Property, Plant and Equipment On 31 December 2024, property, plant and equipment amounted to MSEK 30,470 (26,820) corresponding to 30.9% (25.8) of annual sales. The change attributable to currencies was MSEK 4,972. Net debt Net debt amounted to MSEK 16,472 (16,191) at the end of 2024. Post-employment benefit provisions totalled MSEK 7,729 (8,578) at year-end, representing a net decrease of MSEK 848 (net decrease of 43), which was attributable to: • Cash payments of MSEK –1,411 (–1,272) • Actuarial gains and losses of MSEK –731 (297) • Expenses of MSEK 945 (1,025) • Acquired/divested businesses of MSEK 0 (0) • The remainder was attributable to currency translation differences. Loans totalled MSEK 16,526 (18,496), at the end of 2024, representing a decrease of MSEK –1,970. The change was primarily attributable to the repayment of matured bonds of MSEK –2,689. Equity During the year, equity increased from MSEK 54,956 to MSEK 61,969. Net profit amounted to MSEK 6,887 (6,777) and dividends were MSEK 3,833 (3,357). Currency translation had a positive effect of MSEK 2,914 (–3,136). Remeasurements had a positive net of tax effect of MSEK 732 (–214). 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 divi- dends, underpins the Group’s financial flexibility and its ability to execute on the strategy, while maintain- ing a strong credit rating. On 31 December 2024, the net debt/equity ratio, excluding pension liabilities was 14.1% (13.9). 0 10 20 30 40% Net working capital as % of annual sales Trade payables Trade receivables Inventories Target Net working capital Q1 2022 Q2 Q3 Q4 Q1 2023 Q2 Q3 Q4 Q1 2024 Q2 Q3 Q4 0 10 20 40 % 60 50 2020 20242021 2022 2023 30 Property, Plant and Equipment as % of net sales 0 5 10 15 20 30 SEK billion Property, Plant and Equipment Property, Plant and Equipment % of net sales 25 0 40 80 120 % 160 2020 2021 2022 2023 2024 Net debt/equity 0 10 20 30 40 SEK billion Net debt Net debt/equity ratio 36SKF ANNUAL REPORT 2024 THIS IS SKF PRESIDENT’S LETTER STRATEGY AND VALUE CREATION THE BEARING MARKET RISKS AND THE SHARE SUSTAINABILITY REPORT CORPORATE GOVERNANCE REMUNERATION REPORT GROUP DATA FINANCIAL STATEMENTS BACK TO START Consolidated statements of cash flow January–December MSEK Note 2024 2023 Operating activities Operating profit 10,339 11,084 Adjustments for Depreciation, amortization and impairment 6 4,432 4,297 Net gain/loss on sales of businesses and property, plant and equipment –15 2 Other non-cash items 961 1,528 Income taxes paid –2,357 –2,593 Contributions to and payments under post-employment defined benefit plans 18 –1,206 –1,060 Associated companies –23 –98 Changes in working capital Inventories –2,224 1,709 Trade receivables 872 –656 Trade payables 850 43 Other operating assets and liabilities, net –302 378 Interest and other financial items –535 –851 Net cash flow from operating activities 10,792 13,783 Investing activities Additions to intangible assets 10 –14 –11 Additions to property, plant and equipment 11 –5,077 –5,749 Sales of property, plant, equipment, and intangible assets 10, 11 80 68 Acquisitions of businesses, net of cash and cash equivalents 3 –587 — Divestments of businesses, net of cash and cash equivalents 4 — 25 Investment in/sale of equity securities –4 –200 Net cash flow used in investing activities –5,602 –5,867 Net cash flow after investments before financing 5,190 7,916 January–December MSEK Note 2024 2023 Financing activities Proceeds from medium- and long-term loans 464 122 Repayments of medium- and long-term loans –3,153 –122 Payments of leases –885 –863 Cash dividends to shareholders of AB SKF and non-controlling interests –3,832 –3,357 Funding of post-employment benefits –210 –212 Investments in financial assets –30 –419 Sales of financial assets 73 339 Net cash flow used in/from financing activities –7,573 –4,512 Net cash flow –2,383 3,404 Cash and cash equivalents at 1 January 13,311 10,255 Cash effect excluding acquired/sold businesses –2,493 3,404 Cash effect from acquired/sold businesses 110 — Translation effect 103 –348 Cash and cash equivalents on 31 December 11,031 13,311 37SKF ANNUAL REPORT 2024 THIS IS SKF PRESIDENT’S LETTER STRATEGY AND VALUE CREATION THE BEARING MARKET RISKS AND THE SHARE SUSTAINABILITY REPORT CORPORATE GOVERNANCE REMUNERATION REPORT GROUP DATA FINANCIAL STATEMENTS BACK TO START 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 comprises of cash free, cash on time deposits at banks and debt securities matur- ing 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 10,792 (13,783) in 2024. Other non-cash items included expenses for which the cash flow has not yet occurred. The decline in cash flow from operating activities is mainly driven by lower operating profit as well as negative changes in working capital where the most negative impact is coming from changes in inventories. Interest and other financial items included interest paid of MSEK –786 (–799), interest received of MSEK 443 (403), 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 5,190 (7,916) in 2024. Adjusted for acquisitions and divestments of businesses, the cash flow amounted to MSEK 5,777 (7,891). During the year the Group acquired the John Sample Group and two smaller businesses within magnetic bearings which generated a net cash outflow of MSEK –587 (25). Cash flow used in financing activities Cash flow used in financing activities included a payment of MSEK –210 (–212), net of taxes, related to contribution to the defined benefit retirement plan in the USA. 20232022 2024 Cash flow from operating activities 0 3,000 6,000 9,000 12,000 15,000 MSEK 202420232022 Additions to Property, Plant and Equipment 0 1,500 3,000 4,500 6,000 MSEK 202420232022 Cash flow from operating activities –1,000 1,000 2,000 3,000 4,000 MSEK 0 0 4,000 12,000 8,000 MSEK 16,000 Quarter 12-months rolling Q4Q3 Q4 Q2 Q3 Q4Q2Q1 Q3Q2 Q1Q1 0 100 300 400 200 500 MEUR 2025 2027 2028 2029 2031 Debt structure 20232022 2024 Paid dividend per A and B share 0 2 4 8 SEK 6 The Board of Directors’ proposed distribution of surplus for the year 2024, which is subject to approval at the Annual General Meeting in April 2025, includes an ordinary dividend of SEK 7.75 per share, see Note 16. 38SKF ANNUAL REPORT 2024 THIS IS SKF PRESIDENT’S LETTER STRATEGY AND VALUE CREATION THE BEARING MARKET RISKS AND THE SHARE SUSTAINABILITY REPORT CORPORATE GOVERNANCE REMUNERATION REPORT GROUP DATA FINANCIAL STATEMENTS BACK TO START Comments on the consolidated statements of cash flow, cont. Change in net debt MSEK 2024 Closing balance Cash changes Businesses acquired/sold Other non-cash changes Translation effect 2024 Opening balance Loans 1) 16,526 –2,689 5 23 691 18,496 Post-employment benefits, net 2) 7,729 –1,416 — 237 330 8,578 Lease liabilities 3,516 –885 26 1,355 184 2,836 Other short-term financial assets 3) –268 8 — 152 –20 –408 Cash and cash equivalents –11,031 2,493 –110 — –103 –13,311 Net debt 16,472 –2,489 –79 1,767 1,082 16,191 Derivatives 4) included in Other financing items — — — — — — MSEK 2023 Closing balance Cash changes Businesses acquired/sold Other non-cash changes Translation effect 2023 Opening balance Loans 1) 18,496 — — 9 141 18,346 Post-employment benefits, net 2) 8,578 –1,272 — 1,339 –110 8,621 Lease liabilities 2,836 –863 — 864 –86 2,921 Other short-term financial assets 3) –408 –106 — 4 293 –599 Cash and cash equivalents –13,311 –3,404 — — 348 –10,255 Net debt 16,191 –5,645 — 2,216 586 19,034 Derivatives 4) included in Other financing items — — — — — — 1) Excludes derivatives, see Note 20. 2) Other non-cash changes include remeasurements as well as expenses on defined benefit plans, see Note 18. 3) Other short-term financial assets exclude derivatives, see Note 14. Cash changes of MSEK 8 (–106) is explained by investment in financial assets of MSEK –7 (–402) and sale of financial assets of MSEK 15 (296). 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. 39SKF ANNUAL REPORT 2024 THIS IS SKF PRESIDENT’S LETTER STRATEGY AND VALUE CREATION THE BEARING MARKET RISKS AND THE SHARE SUSTAINABILITY REPORT CORPORATE GOVERNANCE REMUNERATION REPORT GROUP DATA FINANCIAL STATEMENTS BACK TO START Consolidated statements of changes in equity Equity attributable to owners of AB SKF Non- Share Share FV OCI Translation Retained controlling MSEK capital premium reserve reserve earnings Subtotal interests 1) Total Opening balance 1 January 2023 1,138 564 171 5,139 44,915 51,927 2,116 54,043 Net profit — — — — 6,395 6,395 382 6,777 Hyperinflation adjustment 3) — — — — 929 929 — 929 Components of other comprehensive income Currency translation adjustments — — — –3,020 — –3,020 –116 –3,136 Change in FV OCI assets — — –82 — — –82 — –82 Remeasurements of post-employment benefits — — — — –297 –297 — –297 Income taxes — — — — 82 82 1 83 Transactions with shareholders Non-controlling interests — — — — — — — — Cost for Performance Share Programmes, net 2) — — — — –5 –5 — –5 Dividends — — — — –3,187 –3,187 –170 –3,357 Other — — — — 1 1 — 1 Closing balance 31 December 2023 1,138 564 89 2,119 48,833 52,743 2,213 54,956 Net profit — — — — 6,474 6,474 413 6,887 Hyperinflation adjustment 3) — — — — 389 389 — 389 Components of other comprehensive income Currency translation adjustments — — — 2,803 — 2,803 111 2,914 Change in FV OCI assets — — 80 — — 80 — 80 Remeasurements of post-employment benefits — — — — 731 731 — 731 Income taxes — — — — –150 –150 — –150 Transactions with shareholders Non-controlling interests — — — — — — — — Cost for Performance Share Programmes, net 2) — — — — –20 –20 — –20 Dividends — — — — –3,416 –3,416 –417 –3,833 Other — — — — 15 15 — 15 Closing balance 31 December 2024 1,138 564 169 4,922 52,856 59,649 2,320 61,969 1) See Note 27 for details. 2) See Note 23 for details. 3) See Note 1 for details. Fair value through other comprehensive income reserve The fair value through other comprehensive in - come (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. 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 in cluded 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. 40SKF ANNUAL REPORT 2024 THIS IS SKF PRESIDENT’S LETTER STRATEGY AND VALUE CREATION THE BEARING MARKET RISKS AND THE SHARE SUSTAINABILITY REPORT CORPORATE GOVERNANCE REMUNERATION REPORT GROUP DATA FINANCIAL STATEMENTS BACK TO START 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). Further more, the Group is in com pliance with the Swedish Financial Reporting Board’s RFR 1, Supplementary Accounting Rules for Groups, as well as their inter pret- ations (UFR). The Annual Report of the Parent Company, AB SKF, has been signed by the Board of Directors on 7 March 2025. The income statement and balance sheet, and the consoli- dated income statement and consolidated balance sheets are subject to adoption at the Annual General Meeting on 1 April 2025. 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 activi- ties of a company, is exposed to variable returns and canuse 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 sub sidiaries 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. Upon consolidation, all balance sheet items are translated to SEK based on the year-end ex change 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 in - come 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, prim arily receivables, 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 in cluded in financial income and financial expenses. Exchange rates The following exchange rates have been used when trans- lating the financial statements of foreign sub sidiaries operating in the countries into SEK: Hyperinflation reporting Argentina is classified as a hyperinflation economy since 2018 and since 2022 Turkey is classified as a hyper- inflation economy. Since SKF has operations in these countries, the Group has applied IAS 29 Financial Report- ing in Hyperinflationary Economies and restated the finan- cial statements accordingly. The Argentinian index used in the restatement is the Argentinian Consumer Price Index published by the Argentinian Statistical Institute and amounted to 7,694.0 (3,533.2) as per 31 December 2024. The Turkish index used in the restatement is the Consumer Price Index published by the Turkish Statistical Institute and amounted to 2,684.6 (1,859.4) as per 31 December 2024. Revenue Revenue consists of sales of products or services to both end customers and distributors 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 trans- ferred to the customer. Sales are recorded net of allow- ances 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 con- tracts 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 perfor- mance 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 determening 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. Average rates Year-end rates Country Unit Currency 2024 2023 2024 2023 Argentina 1 ARS 0.01 0.04 0.01 0.01 China 1 CNY 1.47 1.50 1.51 1.41 EMU countries 1 EUR 11.44 11.47 11.46 11.06 India 100 INR 12.63 12.84 12.87 12.02 Brazil 1 BRL 1.97 2.12 1.78 2.06 United Kingdom 1 GBP 13.53 13.20 13.83 12.74 USA 1 USD 10.57 10.61 11.01 10.00 SKF ANNUAL REPORT 2024 41 TH IS IS SKF PRESIDENT’S LETTER STRATEGY AND VALUE CREATION THE BEARING MARKET RISKS AND THE SHARE SUSTAINABILITY REPORT CORPORATE GOVERNANCE REMUNERATION REPORT GROUP DATA FINANCIAL STATEMENTS BACK TO START NOTES 1 Accounting policies, cont. Climate risk assessment SKF sees both risks and opportunities related to climate, but no known material climate related risks affecting the financial statements of 2024 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 prod- ucts, customers, geographic markets 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 for diesel and gasoline engines. However, other sectors will be positively affected, such as the mar- ket demand for SKF products for electric motors. Overall, SKF believes that the climate-related business opportuni- ties outweigh the risks. New accounting principles New accounting principles 2024 IASB issued several amended accounting standards that were endorsed by EU, effective date 1 January 2024. None of these had a material effect on the SKF Group’s financial statements. The Group has applied the temporary exception issued by the IASB in May 2023 from the accounting requirements for deferred taxes in IAS 12. Accordingly, the Group neither recognizes nor discloses information about deferred tax assets and liabilities related to Pillar 2 income taxes. On 13 December 2023, the government in Sweden, where the parent company is incorporated, enacted the Pillar 2 income taxes legislation effective from 1 January, 2024. Under the legislation, the Parent Company will be required to pay top-up tax on profit of its subsidiaries that are taxed at an effective tax rate of less than 15 percent. SKF Group has analyzed the 2024 financial figures and concluded that the Group is not expecting any additional material top-up tax. The Group is continuing to assess the impact of Pillar 2 income taxes legislation on its future financial performance. statements. New accounting principles 2025 IASB issued several amended accounting standards that were endorsed by EU, effective date 1 January 2025. None of these are expected to have a material effect on the SKF Group’s financial. 2 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 prop- erty, plant and equipment, intangible assets, external trade receivables and inventories. Segment liabilities include all operating liabilities used and controlled by a segment and 2 Segment information, cont. Net sales by customer industry – Total Industrial distribution, 27% 1 Aerospace, 7% 2 Heavy industries, 6% 3 Other industrial, 4% 4 5 Railway, 6% High speed machinery and electrical drives, 5% 6 Agriculture, food and beverage, 3% 7 Renewable energy, 3% Off-highway, 2% 8 9 Marine, 2% 10 Traditional energy, 2% 11 Material handling, 2% 12 Automation, 1% 13 Light vehicles, 15% 1 Vehicle aftermarket, 10% 2 Commercial vehicles, 5% 3 Net sales by customer industry – Industrial Industrial distribution, 38% 1 Aerospace, 10% 2 Heavy industries, 8% 3 Other industrial, 6% 4 5 Railway, 8% High speed machinery and electrical drives, 8% 6 Agriculture, food and beverage, 5% 7 Renewable energy, 4% Off-highway, 3% 8 9 Marine, 3% 10 Traditional energy, 3% 11 Material handling, 2% 12 Automation, 2% 13 13 2 3 4 5 7 1 6 10 11 12 8 9 Net sales by customer industry – Automotive Light vehicles, 52% 1 Vehicle aftermarket, 32% 2 Commercial vehicles, 16% 3 1 2 3 1 2 3 7 6 5 8 9 2 3 1 4 13 10 11 12 SKF ANNUAL REPORT 2024 42 TH IS IS SKF PRESIDENT’S LETTER STRATEGY AND VALUE CREATION THE BEARING MARKET RISKS AND THE SHARE SUSTAINABILITY REPORT CORPORATE GOVERNANCE REMUNERATION REPORT GROUP DATA FINANCIAL STATEMENTS BACK TO START NOTES 2 Segment information, cont. consists principally of external trade payables, other provisions as well as accruals. Reconciling items to the Group’s reported assets and liabilities include consolida- tion 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 provisions are not. Additionally, receivables and payables related to sales between segments are not allocated to the seg- ments. 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, 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 worldwide distributor network. Key customers are companies 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 and solar) 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 net- work. Key customers are manufac turers of cars, light and heavy trucks, trailers, buses, two-wheelers and the vehicle aftermarket. For more information about the segments and their related products, see page 5. Previously published segment figures for 2023 have been restated to reflect current organizational structure. Net sales are allocated according to the location of the respective customer. Of the Group’s total net sales by customer location, 19% (19) were located in USA, 15% (17) in China, and 8% (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, 27% (27) were located in USA, 12% (13) in Germany, and 12% (13) in China. Net sales by geographic area – total China and Northeast Asia, 18% India and Southeast Asia, 10% The Americas, 31% Europe, Middle East and Africa, 41% Net sales by geographic area – Industrial China and Northeast Asia, 19% India and Southeast Asia, 10% The Americas, 30% Europe, Middle East and Africa, 41% Net sales by geographic area – Automotive China and Northeast Asia, 16% India and Southeast Asia, 11% The Americas, 33% Europe, Middle East and Africa, 40% Net sales by Contribution to customer industri profit before tax MSEK 2024 2023 2024 2023 Industrial 69,475 73,393 9,285 9,735 Automotive 29,247 30,488 1,054 1,349 Subtotal operating segments 98,722 103,881 10,339 11,084 Financial net — — –1,250 –1,903 Total 98,722 103,881 9,089 9,181 Additions to property, Depreciation and plant and equipment, intangible amortization Impairments assets and right-of-use assets MSEK 2024 2023 2024 2023 2024 2023 Industrial 3,580 3,591 310 150 5,039 5,350 Automotive 506 556 36 — 987 949 Total 4,086 4,147 346 150 6,026 6,299 Assets Liabilities MSEK 2024 2023 2024 2023 Industrial 70,089 65,444 15,427 15,036 Automotive 22,719 20,242 6,568 5,631 Subtotal operating segments 92,808 85,686 21,995 20,667 Financial and tax items 17,710 19,596 30,113 30,996 Eliminations and other unallocated items 8,895 6,621 5,337 5,284 Total 119,413 111,903 57,445 56,947 Net sales by Non-current Geographic disclosure customer location assets MSEK 2024 2023 2024 2023 Sweden 2,248 2,440 3,354 3,615 Europe, Middle East and Africa excl. Sweden 37,528 39,859 18,262 16,716 The Americas 30,758 31,193 17,826 15,706 China and Northeast Asia 18,158 20,509 10,316 9,292 India and Southeast Asia 10,030 9,880 2,491 1,558 Eliminations — — –196 603 Total 98,722 103,881 52,053 47,490 SKF ANNUAL REPORT 2024 43 TH IS IS SKF PRESIDENT’S LETTER STRATEGY AND VALUE CREATION THE BEARING MARKET RISKS AND THE SHARE SUSTAINABILITY REPORT CORPORATE GOVERNANCE REMUNERATION REPORT GROUP DATA FINANCIAL STATEMENTS BACK TO START NOTES 3 Acquisitions Accounting policy All business combinations are accounted for in accord- ance with the purchase method. At the date of acquisition, 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 ident ifi able 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 2024, SKF had a cash outflow of MSEK 565 for the acuqisition of John Sample Group’s Lubrication and Flow Management businesses. See table below. This acquisi- tion strengthens SKF’s regional capabilities in Southeast Asia, with a particular focus on customers in engineered solutions, heavy industries and mobile equipment. In 2024, SKF also had a cash outflow of MSEK 22 for the acquisi- tion of two smaller businesses within the magnetic bearing business in Europe. In 2023, SKF had no acquisition of businesses. MSEK 2024 2023 Total fair value of net assets acquired Intangible assets, excluding goodwill 239 — Property, plant and equipment 5 — Right-of-use assets 26 — Non-current assets 14 — Current assets 327 — Non-current liabilities –78 — Current liabilities –105 — Fair value net assets acquired 428 — Goodwill 240 — Total acquisition cost 668 — Cash and cash equivalents acquired –103 — Cash outflow 565 — 4 Divestment of businesses During 2024, the Group has no divestment of businesses. During 2023, the Group divested Spandau Pumpen, a smaller business within lubrication, resulting in a total cash in-flow of MSEK 25. MSEK 2024 2023 Goodwill — — Other intangible assets — — Property, plant and equipment — 7 Deferred tax assets — — Other non-current assets — — Current assets — — Deferred tax provisions — — Non-current liabilities — — Current liabilities — — Non-controlling interest — — Net assets disposed of — 7 Profit/loss — 18 Total consideration — 25 Cash and cash equivalents divested — — Cash outflow for previous years divestments — — Total cashflow — 25 5 Research and development 0 1 2 3 5 4 % 6 20222021 2020 2023 2024 Research and development % of net sales 0 500 1,000 1,500 3,000 MSEK 2,500 2,000 Research and development Research and development % of net sales Research and development expenditure, excluding developing IT solutions, totalled MSEK 3,326 (3,303), corresponding to 3.4% (3.2) of annual sales. SKF ANNUAL REPORT 2024 44 TH IS IS SKF PRESIDENT’S LETTER STRATEGY AND VALUE CREATION THE BEARING MARKET RISKS AND THE SHARE SUSTAINABILITY REPORT CORPORATE GOVERNANCE REMUNERATION REPORT GROUP DATA FINANCIAL STATEMENTS BACK TO START NOTES 6 Expenses by nature MSEK 2024 2023 Employee benefit expenses including social charges 28,023 29,242 Raw material and components consumed including traded products 32,972 36,446 Change in work in process and finished goods –1,347 880 Depreciation, amortization and impairments 4,432 4,297 Other expenses, primarily purchased services, shop supplies and utilities 23,959 22,036 Total operating expenses 88,039 92,901 Depreciation, amortization 2024 2023 and impairments are accounted for as (MSEK) Depre ciation Amortization Impairments Total Depre ciation Amortization Impairments Total Cost of goods sold 3,014 84 196 3,294 3,037 97 146 3,280 Selling expenses 432 556 150 1,138 453 560 4 1,017 Total 3,446 640 346 4,432 3,490 657 150 4,297 7 Other operating income and expenses MSEK 2024 2023 Other operating income Exchange gains on trade receivables/payables 1,042 2,472 Profit from sale of property, plant and equipment 81 105 Profit from divestment of businesses — 18 Other 140 101 Total 1,263 2,696 Other operating expenses Exchange losses on trade receivables/payables –1,316 –2,743 Loss from sale of property, plant and equipment –59 –80 Other –271 171 Total –1,645 –2,652 Other operating income and expenses, net –382 44 8 Financial income and financial expenses MSEK 2024 2023 Interest income 436 562 Interest expenses –816 –943 Net gains/losses: Net interest cost on post-employment benefits –273 –357 Exchange differences, net –396 –1,088 Other financial income including dividends 66 56 Other financial expenses 1) –267 –133 Financial net –1,250 –1,903 1) Includes costs for Treasury Function. Other financial expenses includes costs related to unwind- ing 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 expenses as described above. For a specification of the underlying financial assets and financial liabilities to these categories, see Note 14 and Note 20. 2024 2023 Interest Interest Net gains/ Interest Interest Net gains/ Financial net specified by category of financial instruments (MSEK) income expenses losses income expenses losses Financial assets/liabilities at fair value through profit or loss Designated upon initial recognition 264 — — 238 — — Derivatives held for trading — –274 –50 — –233 146 Financial assets classified as amortized cost 172 — –264 324 — –445 Financial assets classified as fair value through other comprehensive income — — 1 — — 2 Other financial liabilities, primarily loans — –542 –17 — –710 –735 Other liabilities including post-employment benefits — — –541 — — –490 Total 436 –816 –870 562 –943 –1,522 Derivatives classified as held for trading are mainly used for economic hedging, which mitigate the effect of certain items in the categories loans, receivables and other liabili- ties. 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. SKF ANNUAL REPORT 2024 45 TH IS IS SKF PRESIDENT’S LETTER STRATEGY AND VALUE CREATION THE BEARING MARKET RISKS AND THE SHARE SUSTAINABILITY REPORT CORPORATE GOVERNANCE REMUNERATION REPORT GROUP DATA FINANCIAL STATEMENTS BACK TO START 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 relat- ing 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 regula- tions 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. For information regarding Pillar 2 see Note 1 Accounting policies. Accounting estimates and judgements Significant management judgment is required in deter- mining current tax liabilities and assets as well as deferred tax provisions and assets. The process involves estimating the current tax together with assessing tem- porary differences arising from differing treatment of items for tax and accounting purposes. The process 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 re - cognition of such benefits. Realizability of net deferred tax assets are assessed by management based on the individual company’s profita- bility history, forecasts of taxable profits as well as length to expiry of the asset. The assessment regarding the possi- bility of utilizing deferred tax assets attributable to tax loss carry-forwards includes climate-related risks and its impact on future expected taxable profits. The SKF Group had total unrecognized deferred tax assets of MSEK 108 (88), whereof MSEK 60 (33) related to tax loss carry- forwards and MSEK 48 (55) related to other deductible temporary differences. These were not recog- nized due to the uncertainty of future profit streams. Unrecognized deferred tax assets of MSEK 50 (6) related to tax losses and will expire during the period 2025 to 2029. The remaining unrecognized assets will expire after 2029 and/or may be carried forward indefinitely. The change in the balance of unrecognized deferred tax assets that reduced current tax expense was MSEK 8 (21) mainly relating to the use of tax loss carry-forwards. The change in the balance of unrecognized deferred tax assets that impacted deferred tax expense was MSEK –28 (96) which resulted from a revised judgement on the realiza- bility of certain tax assets in future years. Gross value of tax loss carry-forwards As of 31 December 2024, the Group had tax loss carry- forwards amounting to MSEK 4,052 (4,088) recognized in the balance sheet, which are available for offset against taxable future profits. Such tax loss carry-forwards expire as follows: 2025–2029 658 2030 and thereafter 149 Never 3,245 2024 2023 Other Other Income comprehensive Total Income comprehensive Total Tax expenses (MSEK) statement income taxes statement income taxes Current taxes –2,077 — –2,077 –2,373 — –2,373 Deferred taxes –125 –150 –275 –31 83 52 Total –2,202 –150 –2,352 –2,404 83 –2,321 Taxes charged to other comprehensive income included MSEK –150 (83) related to remeasurements of post- employment benefits and MSEK 0 (0) related to net investment hedges. Reconciliation of the statutory tax in Sweden to the actual tax (MSEK) 2024 2023 Tax calculated using statutory tax rate in Sweden –1,872 –1,891 Difference between statutory tax rate in Sweden and foreign subsidiaries 253 –403 Other taxes –50 –88 Tax credits and similar items 49 34 Non-deductible/Non-taxable profit items –914 127 Changes in tax rates — — Tax loss carry-forwards 95 –76 Current tax referring to previous years 150 122 Other 87 –229 Tax expense in the Income Statement –2,202 –2,404 The corporate statutory income tax rate in Sweden was 20.6% (20.6). The actual tax rate on profit before taxes was 24.2% (26.2). 2024 2023 Deferred tax Deferred tax Deferred tax Deferred tax Gross deferred taxes per type (MSEK) assets liabilities assets liabilities Intangibles and other assets 289 1,365 151 1,322 Property, plant and equipment 111 1,388 72 1,209 Right of use assets 52 239 — — Inventories 743 622 643 499 Trade receivables 109 3 71 3 Provisions for post-employment benefits 1,559 140 1,667 196 Other accruals and liabilities 1,324 41 1,310 99 Tax loss carry-forwards 690 — 828 — Tax credit carry-forwards 339 — 349 — Other 137 92 179 55 Gross deferred taxes 5,353 3,890 5,270 3,383 Net deferred taxes presented in the Consolidated balance sheet 3,369 1,905 3,107 1,220 SKF ANNUAL REPORT 2024 46 TH IS IS SKF PRESIDENT’S LETTER STRATEGY AND VALUE CREATION THE BEARING MARKET RISKS AND THE SHARE SUSTAINABILITY REPORT CORPORATE GOVERNANCE REMUNERATION REPORT GROUP DATA FINANCIAL STATEMENTS BACK TO START NOTES 10 Intangible assets Accounting policy Intangible assets are stated at initial cost less any accu- mulated 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 depend- ing on where the assets have been used. Internally developed intangibles The Group’s most significant internally developed intangi- bles are software in use, developed for internal purposes, and to a minor extent product development. The amortiza- tion plan for SKF ERP Programme (SEP) is based on a use- ful life of 10 years. 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 gener- ating 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 profita- bility 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 recog- nized 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 use- ful lives have been allocated to CGUs, and are tested for impairment annually and whenever an indication of impair- ment exists. The impairment test is carried out at the low- est level at which these assets are monitored by manage- ment. 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 deter- mining 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 expendi- tures 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 dis- counted 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 re - viewed by management and are consistent with internal forecasts and business outlook. The DCF model involves the forecasting of future oper- ating cash flows over a five-year period and includes esti- mates 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 re pres en- ting 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 informa- tion. Estimates are extrapolated using growth rates deter- mined on an individual CGU basis, reflecting a combina- tion 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 evalua- tion. 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 2024 47 TH IS IS SKF PRESIDENT’S LETTER STRATEGY AND VALUE CREATION THE BEARING MARKET RISKS AND THE SHARE SUSTAINABILITY REPORT CORPORATE GOVERNANCE REMUNERATION REPORT GROUP DATA FINANCIAL STATEMENTS BACK TO START NOTES 10 Intangible assets, cont. 2024 2024 Closing Businesses Translation Opening MSEK balance Additions acquired/sold Disposals Impairments Other 1) effects balance Acquisition cost Goodwill 13,148 — 263 — — –694 1,000 12,579 Patents, tradenames and similar rights 3,377 1 1 — — –189 283 3,281 Internally developed software 2,717 10 2 — — 27 –1 2,679 Customer relationships 5,113 — 80 — — –406 400 5,039 Leaseholds 93 — 2 — — –1 7 85 Product development 231 — — — — — 8 223 Technology 1,388 1 — — — –133 112 1,408 Other intangible assets 319 2 154 — — –29 –8 200 Total 26,386 14 502 — — –1,425 1,801 25,494 2024 2024 Closing Amorti- Businesses Translation Opening MSEK balance zations acquired/sold Disposals Impairments Other 1) effects balance Accumulated amortization and impairments Goodwill 574 — — — — –106 63 617 Patents, tradenames and similar rights 580 26 — — — –45 21 578 Internally developed software 2,049 171 — — 127 6 –1 1,746 Customer relationships 4,370 309 — — — –317 323 4,055 Leaseholds 28 — — — — — 2 26 Product development 207 7 — — — — 7 193 Technology 1,176 105 — — — –131 93 1,109 Other intangible assets 157 22 — — — –25 –3 163 Total 9,141 640 — — 127 –618 505 8,487 Net book value 17,245 17,007 1) Includes reclassification between categories and assets held for sale related to Aerospace operations in the USA (see note 28). 2023 2023 Closing Businesses Translation Opening MSEK balance Additions acquired/sold Disposals Impairments Other 1) effects balance Acquisition cost Goodwill 12,579 — — — — — –420 12,999 Patents, tradenames and similar rights 3,281 4 — — — 1 –119 3,395 Internally developed software 2,679 3 — –16 — –6 –3 2,701 Customer relationships 5,039 — — –8 — –16 –158 5,221 Leaseholds 85 — — — — 2 –6 89 Product development 223 — — — — –79 –5 307 Technology 1,408 — — — — 77 –40 1,371 Other intangible assets 200 4 — — — 3 2 191 Total 25,494 11 — –24 — –18 –749 26,274 2023 2023 Closing Amorti- Businesses Translation Opening MSEK balance zations acquired/sold Disposals Impairments Other 1) effects balance Accumulated amortization and impairments Goodwill 617 — — — — — –31 648 Patents, tradenames and similar rights 578 24 — — — –14 –5 573 Internally developed software 1,746 180 — –13 4 –8 –3 1,586 Customer relationships 4,055 302 — –8 — –25 –129 3,915 Leaseholds 26 — — — — –1 –2 29 Product development 193 7 — — — –28 –3 217 Technology 1,109 105 — –3 — 41 –36 1,002 Other intangible assets 163 39 — — — 15 –2 111 Total 8,487 657 — –24 4 –20 –211 8,081 Net book value 17,007 18,193 1) Includes reclassification between categories. SKF ANNUAL REPORT 2024 48 TH IS IS SKF PRESIDENT’S LETTER STRATEGY AND VALUE CREATION THE BEARING MARKET RISKS AND THE SHARE SUSTAINABILITY REPORT CORPORATE GOVERNANCE REMUNERATION REPORT GROUP DATA FINANCIAL STATEMENTS BACK TO START NOTES 10 Intangible assets, cont. Impairment losses Impairments amounted to MSEK –127 (–4) in 2024 and are related to SKF ERP Programme (SEP). 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 1,453 (1,320), Kaydon MSEK 705 (772), Peer MSEK 237 (215), GBC MSEK 251 (228) and others MSEK 81 (84). Part of Kaydon trademarks are classified as held for sales (see note 28). Significant intangibles Internally generated software related primarily to the devel- opment of SEP to create and deploy improved processes and solutions across the Group. The balance of capitalized expenditures was MSEK 634 (924), including amortizations of MSEK –163 (–188) and impairments of MSEK –127 (0) made during 2024. Remaining useful life is four years. Other individual intangible assets that are material for the Group include the customer relationships for Lincoln amounting to MSEK 158 (293) having a remaining useful life of two years, and for Kaydon amounting to MSEK 340 (488) having a remaining useful life of four years. CGUs with significant intangibles The CGUs follow the segment reporting. The table shows goodwill and other intangibles with in definite useful lives allocated to the CGUs Industrial and Automotive, as well as some crucial rates that were used for the DCF calculation. 2024 2023 Auto- Auto- Industrial motive Industrial motive Goodwill, MSEK 12,189 385 11,571 391 Tradenames, MSEK 2,406 238 2,307 228 Average revenue growth rate, % 7.1 3.9 4.9 5.0 Discount rate, pre tax, % 10.6 11.1 12.7 13.3 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 judge- ments. 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 infor mation 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, increasing the discount rate by two percentage points and decreasing the operating margin by two percentage points. Each taken individually and while holding all other assumptions constant. No impairment needs were indicated. 11 Property, plant and equipment 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. 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. 30% 2024 29% 2023 China and Northeast Asia 4% 7% 20242023 India and Southeast Asia 17% 2024 17% 2023 The Americas 2024 47% 2023 49% Europe, Middle East and Africa 2023 2024 Geographical distribution of property, plant and equipment 2023–2024 SKF ANNUAL REPORT 2024 49 TH IS IS SKF PRESIDENT’S LETTER STRATEGY AND VALUE CREATION THE BEARING MARKET RISKS AND THE SHARE SUSTAINABILITY REPORT CORPORATE GOVERNANCE REMUNERATION REPORT GROUP DATA FINANCIAL STATEMENTS BACK TO START NOTES 11 Property, plant and equipment, cont. 2024 Businesses 2024 MSEK Closing balance Additions acquired/sold Disposals Impairments Other 1) Translation effects Opening balance Acquisition cost Buildings 13,723 981 — –43 — 84 540 12,161 Land and land improvements 832 87 — –3 — 15 28 705 Machinery and supply systems 44,197 2,800 — –577 — –268 1,981 40,261 Machine tooling and factory fittings 5,979 364 6 –191 — –129 263 5,666 Assets under construction including advances 2) 7,239 845 — — — –930 372 6,952 Total 71,970 5,077 6 –814 — –1,228 3,184 65,745 2024 2024 MSEK Closing balance Depre ciation Businesses sold Disposals Impairments Other Translation effects Opening balance Accumulated depreciation and impairments Buildings 6,434 352 — –10 –20 –152 265 5,999 Land improvements 129 10 — — 18 –196 18 279 Machinery and supply systems 29,976 1,910 — –584 207 –1,361 1,341 28,463 Machine tooling and factory fittings 4,961 376 — –155 12 380 164 4,184 Total 41,500 2,648 — –749 217 –1,329 1,788 38,925 Net book value 30,470 26,820 2023 Businesses 2023 MSEK Closing balance Additions acquired/sold Disposals Impairments Other 1) Translation effects Opening balance Acquisition cost Buildings 12,161 809 — –41 — 163 –239 11,469 Land and land improvements 705 1 — –12 — 26 –342 1,032 Machinery and supply systems 40,261 2,243 –26 –592 — –88 –1,140 39,864 Machine tooling and factory fittings 5,666 575 –12 –72 — –181 –137 5,493 Assets under construction including advances 2) 6,952 2,121 –1 –1 — –322 –503 5,658 Total 65,745 5,749 –39 –718 — –402 –2,361 63,516 2023 2023 MSEK Closing balance Depre ciation Businesses sold Disposals Impairments Other 1) Translation effects Opening balance Accumulated depreciation and impairments Buildings 5,999 299 — –7 96 –26 –156 5,793 Land improvements 279 6 — –1 — –5 –11 290 Machinery and supply systems 28,463 1,985 –21 –542 42 –737 –681 28,417 Machine tooling and factory fittings 4,184 363 –11 –81 7 49 –262 4,119 Total 38,925 2,653 –32 –631 145 –719 –1,110 38,619 Net book value 26,820 24,897 1) Includes reclassification between categories and assets held for sale related to Aerospace operations in the USA. 2) Contractual commitments for acquisition of property, plant and equipment not yet booked amounted to MSEK 2 (0) . SKF ANNUAL REPORT 2024 50 TH IS IS SKF PRESIDENT’S LETTER STRATEGY AND VALUE CREATION THE BEARING MARKET RISKS AND THE SHARE SUSTAINABILITY REPORT CORPORATE GOVERNANCE REMUNERATION REPORT GROUP DATA FINANCIAL STATEMENTS BACK TO START 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 sub sequently 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 SKF Treasury Centre based on currency and maturity of lease contracts. The lease term is deter- mined 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 sepa- rate contract, is recognized as a remeasurement of the lease liability and an adjustment to the right-of-use asset. For more information on lease liabilities, see Note 20. 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 a lease, defining the lease term and defining the discount rate. Lease expenses for short-term leases, low-value assets and variable lease payments amounted to MSEK 395 (408). The lease expenses correspond in all material aspects to the cash flow for those leases. During 2024, total cash outflow related to leases amounted to MSEK 1,048 (989), of which interest expenses related to leases amounted to MSEK 163 (126) . MSEK 2024 2023 Short-term lease expenses 310 329 Low-value asset lease expenses 66 68 Variable lease payments not included in lease liability 14 14 Other 5 –3 Total 395 408 2024 2024 Closing Opening MSEK balance Additions Modi fications Impairments Reclassi fication 1) Translation effects balance Acquisition cost Premises 5,086 703 246 — –253 263 4,127 Vehicles 1,040 189 41 — –37 28 819 Forklifts 345 41 13 — –16 8 299 Machinery 36 1 — — 5 — 30 Office equipment 7 — — — — — 7 Other 375 1 –7 — –16 25 372 Total 6,889 935 293 — –317 324 5,654 2024 2024 Closing Opening MSEK balance Depre ciation Modi fications Impairments Reclassi fication Translation effects balance Accumulated depreciation and impairments Premises 2,210 536 11 2 –223 110 1,774 Vehicles 714 187 1 — –59 17 568 Forklifts 253 59 — — –15 6 203 Machinery 43 4 1 — –6 1 43 Office equipment 12 1 — — –1 — 12 Other 93 11 –5 — –10 4 93 Total 3,325 798 8 2 –314 138 2,693 Net book value 3,564 2,961 1) Includes reclassification for assets held for sale related to Aerospace operations in the USA. SKF ANNUAL REPORT 2024 51 THIS IS SKF PRESIDENT’S LETTER STRATEGY AND VALUE CREATION THE BEARING MARKET RISKS AND THE SHARE SUSTAINABILITY REPORT CORPORATE GOVERNANCE REMUNERATION REPORT GROUP DATA FINANCIAL STATEMENTS BACK TO START NOTES 12 Right-of-use assets, cont. 2023 2023 Closing Reclassi- Translation Opening MSEK balance Additions Modifi cations Impairments fication effects balance Acquisition cost Premises 4,127 333 114 — –356 –118 4,154 Vehicles 819 138 40 — –98 –6 745 Forklifts 299 38 12 — –24 –7 280 Machinery 30 4 — — –2 — 28 Office equipment 7 — — — –13 — 20 Other 372 26 — — 2 –24 368 Total 5,654 539 166 — –491 –155 5,595 2023 2023 Closing Reclassi- Translation Opening MSEK balance Depre ciation Modifi cations Impairments fication effects balance Accumulated depreciation and impairments Premises 1,774 576 –132 — –322 –54 1,706 Vehicles 568 159 –1 — –90 –2 502 Forklifts 203 51 — — –23 –9 184 Machinery 43 7 — — –2 — 38 Office equipment 12 8 — — –12 — 16 Other 93 36 — 1 –1 6 65 Total 2,693 837 –133 1 –464 –59 2,511 Net book value 2,961 3,084 13 Inventories Accounting policy Inventories are stated at the lower of cost (first-in, first-out basis) or market value (net realizable value). Initially raw materials and purchased finished goods are valued at actual purchase costs, and work in process and manufac- tured 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 realizable value. Net realizable value is defined as selling price less costs to complete and costs to sell. The estimates used in determining net realiz- able 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 realizable 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 2024 2023 Finished goods 14,573 12,709 Raw materials and supplies 9,294 8,390 Work in process 2,315 2,095 Total 26,182 23,194 Inventory values are stated net of a provision for net realiz- able value of MSEK 1,849 (1,599). The amount charged to expense for net realizable provisions during the year was MSEK 252 (207). Reversals of net realizable provisions during the year were MSEK 26 (86). SKF ANNUAL REPORT 2024 52 THIS IS SKF PRESIDENT’S LETTER STRATEGY AND VALUE CREATION THE BEARING MARKET RISKS AND THE SHARE SUSTAINABILITY REPORT CORPORATE GOVERNANCE REMUNERATION REPORT GROUP DATA FINANCIAL STATEMENTS BACK TO START 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 characteris- tics. 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 provi- sions of a financial instrument. Financial assets are ini- tially 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 calcu- lated using the effective interest method. For disclosure purpose, fair values have been calculated using valuation techniques, mainly discounted cash flow analysis based on observable market data. 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 have elected to classify Equity securities at FVOCI since these investments are held as long-term strategic invest- ments. There is no reclassification of fair value gain or loss when the investments are derecognized and the dividends from those investments are recognized in profit or loss when the Group have the right to receive the payments. 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 character- istics of the cash flows. Derivatives are categorized as held for trading unless they are subject to hedge accounting. Derivatives classi- fied as held for trading are mainly derivatives used in eco- nomic 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, and 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 manage- ment and discounted using the market interest rate for similar instruments. Financial assets per category 2024 Fair value through profit or loss Fair value through other comprehensive At initial Of which MSEK Amortized cost income recognition Trading Total cur rent Trade receivables 16,600 — — — 16,600 16,600 Cash and cash equivalents 6,619 — 4,412 — 11,031 11,031 Equity securities — 400 — — 400 — Marketable securities — — — 918 918 — Trading derivatives — — — 62 62 62 Debt securities — 26 — — 26 — Other loans and receivables 348 — — — 348 268 Carrying amount 23,567 426 4,412 980 29,385 27,961 Fair value 23,567 426 4,412 980 Financial assets per category 2023 Fair value through profit or loss Fair value through other comprehensive At initial Of which MSEK Amortized cost income recognition Trading Total cur rent Trade receivables 16,811 — — — 16,811 16,811 Cash and cash equivalents 8,803 — 4,508 — 13,311 13,311 Equity securities — 313 — — 313 — Marketable securities — — — 769 769 — Trading derivatives — — — 333 333 333 Debt securities — 30 — — 30 6 Other loans and receivables 467 — — — 467 403 Carrying amount 26,081 343 4,508 1,102 32,034 30,864 Fair value 26,081 343 4,508 1,102 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 land- lords 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 cate gorised 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. SKF ANNUAL REPORT 2024 53 THIS IS SKF PRESIDENT’S LETTER STRATEGY AND VALUE CREATION THE BEARING MARKET RISKS AND THE SHARE SUSTAINABILITY REPORT CORPORATE GOVERNANCE REMUNERATION REPORT GROUP DATA FINANCIAL STATEMENTS BACK TO START NOTES 14 Financial assets, cont. Fair value hierarchy for financial assets at fair value (MSEK) Level 1 Level 2 Level 3 2024 Level 1 Level 2 Level 3 2023 Fair value through other comprehensive income Equity securities 400 — — 400 313 — — 313 Debt securities 26 — — 26 30 — — 30 Fair value through profit or loss Trading securities — — 918 918 — — 769 769 Cash and cash equivalents 4,412 — — 4,412 4,508 — — 4,508 Hedging derivatives — 62 — 62 — — — — Trading derivatives — — — — — 333 — 333 Total 4,838 62 918 5,818 4,851 333 769 5,953 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 approxi- mation 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 inter- est 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 the time of the investment. Cash and cash equivalents are measured at amortized cost and fair value through profit and loss. Cash and Cash equvialents (MSEK) 2024 2023 Cash 6,434 6,200 Cash Equivalents 4,597 7,110 11,031 13,311 Past due, net of allowance Carrying Not yet 1–30 31–60 61–90 Trade receivables by due date (MSEK) amount due days days days > 91 days 2024 16,600 14,448 1,528 371 150 103 2023 16,811 14,191 1,677 485 199 259 The average days outstanding of trade receivables in 2024 were 67 days (64). Trade receivables as a percentage of annual net sales totalled 16.8% (16.2). Trade receivables included receivables sold with recourse and amounted to MSEK 49 (74). 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 shows the development of the reserve for credit losses on trade receivables. Specification of reserve for credit losses (MSEK) 2024 2023 Opening balance 1 January 403 446 Additions 474 115 Reversals –382 –115 Changes through the income statement 92 — Allowances used to cover write-offs –69 –25 Acquired/Divested companies 3 2 Currency translation adjustments 15 –20 Closing balance 31 December 445 403 15 Other short-term assets MSEK 2024 2023 Value added tax receivables, net 2,364 2,326 Income tax receivables 1,555 1,265 Prepaid expenses 897 951 Accrued income 231 208 Advances to suppliers 316 467 Other current receivables 694 642 Total 6,057 5,859 SKF ANNUAL REPORT 2024 54 THIS IS SKF PRESIDENT’S LETTER STRATEGY AND VALUE CREATION THE BEARING MARKET RISKS AND THE SHARE SUSTAINABILITY REPORT CORPORATE GOVERNANCE REMUNERATION REPORT GROUP DATA FINANCIAL STATEMENTS BACK TO START NOTES 16 Share capital Number of shares authorized and outstanding Share capital A Shares B Shares Total (MSEK) Opening balance 1 January 2023 29,403,933 425,947,135 455,351,068 1,138 Conversion of A shares to B shares –97,000 97,000 — — Closing balance 31 December 2023 29,306,933 426,044,135 455,351,068 1,138 Conversion of A shares to B shares –322,934 322,934 — — Closing balance 31 December 2024 28,983,999 426,367,069 455,351,068 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, 197,952,748 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 finan- cial position. The Board of Directors’ view is that the ordi- nary 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 add itional 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 22,839 (23,198), see page 78. The Board has decided to propose to the Annual General Meeting, on 1 April 2025, a dividend of SEK 7.75 per share to be paid to the share- holders. The proposed dividend for 2024 is payable to all shareholders on the Euroclear Sweden AB’s public share register as of 3 April 2025. The total proposed dividend to be paid is MSEK 3,529 (3,415). The dividend is subject to approval by shareholders at the Annual General Meeting and has not been included as a liability in the balance sheet. On 4 April 2024, a dividend of SEK 7.50 per share was paid to the shareholders. 17 Earnings per share 2024 2023 Net profit attributable to owners of AB SKF (MSEK) 6,474 6,395 Weighted average number of ordinary shares outstanding 455,351,068 455,351,068 Basic earnings per share (SEK) 14.22 14.04 Dilutive shares from Performance Share Programmes — — Weighted average diluted number of shares 455,351,068 455,351,068 Diluted earnings per share (SEK) 14.22 14.04 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 con sidered 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 sepa- rated 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 recog- nized, 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 assump- tions 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 in - come statement consists of current service cost, net inter- est cost and when applicable past service cost, curtail- ments and settlements. Any past service cost is recog nized 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 manu- facturing, selling or administrative. SKF ANNUAL REPORT 2024 55 THI S IS SKF PRESIDENT’S LETTER STRATEGY AND VALUE CREATION THE BEARING MARKET RISKS AND THE SHARE SUSTAINABILITY REPORT CORPORATE GOVERNANCE REMUNERATION REPORT GROUP DATA FINANCIAL STATEMENTS BAC K T O START NOTES 18 Provisions for post-employment benefits, cont. The defined benefit accounting described before 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 stand-alone statutory report- ing, 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 respon sible 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 obliga- tions 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 mar- ket 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 matur- ities 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 pay- ments 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. 2024 USA USA Germany United Kingdom Sweden Amounts recognized in the consolidated balance sheet (MSEK) pension medical pension pension pension Other Total Present value of unfunded defined benefit obligation 315 519 633 — 280 793 2,540 Present value of funded defined benefit obligation 7 ,007 — 9,608 2,984 2,403 1,750 23,752 Less: Fair value of plan assets –6,479 — –5,927 –3,677 –884 – 1,601 –18,568 Impact of asset ceiling — — — — — 5 5 Total 843 519 4,314 –693 1,799 947 7,729 Reflected as: Other long-term assets — — — — — –773 –773 Provisions for post-employment benefits 843 519 4,314 –693 1,799 1,720 8,502 Total 843 519 4,314 –693 1,799 947 7,729 2023 USA USA Germany United Kingdom Sweden Amounts recognized in the consolidated balance sheet (MSEK) pension medical pension pension pension Other Total Present value of unfunded defined benefit obligation 367 518 627 — 288 733 2,533 Present value of funded defined benefit obligation 6,958 — 9,039 3,205 2,431 1,547 23,180 Less: Fair value of plan assets –6,399 — –5,201 –3,378 –772 –1,375 –17,125 Impact of asset ceiling — — — — — –10 –10 Total 926 518 4,465 –173 1,947 895 8,578 Reflected as: Other long-term assets — — — — — –219 –219 Provisions for post-employment benefits 926 518 4,465 –173 1,947 1,114 8,797 Total 926 518 4,465 –173 1,947 895 8,578 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 USA pension plans represent around 89% of the total USA obligation. Benefits are based on length of service and average final salary, or a years of service multi plier. All these plans are closed for new entrants, who instead are covered by defined contribution pension solu- tions. 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 USA subsidiary. The plans are subject to regulatory minimum funding requirements based on an adjusted statutory pen- sion formula, which in the case of funding deficits require contributions to achieve full funding in seven years. The USA 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 partici pants. On 31 December 2024, this reimbursement right totalled MSEK 1 (1). Germany The major German pension plans represent around 92% 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 accord ance 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. SKF ANNUAL REPORT 2024 56 THI S IS SKF PRESIDENT’S LETTER STRATEGY AND VALUE CREATION THE BEARING MARKET RISKS AND THE SHARE SUSTAINABILITY REPORT CORPORATE GOVERNANCE REMUNERATION REPORT GROUP DATA FINANCIAL STATEMENTS BAC K T O START NOTES 18 Provisions for post-employment benefits, cont. United Kingdom The major plans in the U.K. represent around 92% of the total U.K. obligation. Benefits under these plans are based on length of service and a career average revalued earn- ings 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 partici- pants in accordance with the Plan constitution. The plan is subject to statutory funding objectives based on the local pension cal culation, 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 solu- tion. 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 repre- sentatives. 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 retire ment indemnity plans in France and termi- nation indemnity plans in Italy, where lump sum payments are made upon retirement and termination respectively. 2024 2023 Present value Fair value of Present value Fair value of MSEK of obligation plan assets Total of obligation plan assets Total Opening balance 1 January 25,713 –17,135 8,578 25,719 –17,098 8,621 Interest expenses/(income) 980 –707 273 1,092 –735 357 Current service cost 492 — 492 460 — 460 Past service cost 2 — 2 42 — 42 Settlements –3 2 –1 –4 2 –2 Other 160 19 179 153 15 168 Subtotal expenses 1,631 –686 945 1,743 –718 1,025 Difference between actual return and interest (income)/expenses — –897 –897 — –336 –336 Actuarial (gains)/losses – demographic assumptions 70 — 70 –129 — –129 Actuarial (gains)/losses – financial assumptions 28 — 28 694 — 694 Experience adjustments (gains)/losses 89 — 89 74 — 74 Change in asset ceiling — —21 –21 — –6 –6 Subtotal remeasurements in OCI 187 –918 –731 639 –342 297 Employer contribution — –686 –686 — –578 –578 Employee contribution 42 –6 36 21 4 25 Benefit payments –1,676 910 –766 –2,005 1,286 –719 Subtotal cash flow 1) –1,634 218 –1,416 –1,984 712 –1,272 Other 61 –25 36 –34 51 17 Translation differences 334 –17 317 –370 260 –110 Closing balance 31 December 26,292 –18,563 7,729 25,713 –17,135 8,578 1) Cash outflows for 2025 are expected to be some MSEK 876 which include contributions to funded plans as well as payments made directly by the companies under unfunded plans and partially funded plans. Components of total post-employment benefit expenses (MSEK) 2024 2023 Post-employment defined benefit expenses 945 1,025 Post-employment defined contribution expenses 693 555 Total post-employment benefit expenses 1,638 1,580 Whereof amounts charged to: Cost of goods sold 736 731 Selling expenses 498 394 Administrative expenses 131 98 Financial expenses 273 357 Total 1,638 1,580 SKF ANNUAL REPORT 2024 57 THI S IS SKF PRESIDENT’S LETTER STRATEGY AND VALUE CREATION THE BEARING MARKET RISKS AND THE SHARE SUSTAINABILITY REPORT CORPORATE GOVERNANCE REMUNERATION REPORT GROUP DATA FINANCIAL STATEMENTS BAC K T O START NOTES 18 Provisions for post-employment benefits, cont. 2024 2023 Plan asset composition (MSEK) Quoted Unquoted Total Quoted Unquoted Total Government bonds 4,600 — 4,600 1,535 — 1,535 Corporate bonds 6,356 — 6,356 6,193 — 6,193 Equity instruments 3,237 1,837 5,074 3,739 229 3,968 Real estate 260 827 1,087 205 2,497 2,702 Other, primarily cash and other financial receivables 373 1,078 1,451 1,600 1,127 2,727 Total 14,826 3,742 18,568 13,272 3,853 17,125 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 invest- ments of plan assets by aiming for a range of 30–50% in 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 frame- work. 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. 2024 Significant weighted-average assumptions USA USA Germany U.K. Sweden at end of year pension medical pension pension pension Other Discount rate 5.4 5.4 3.4 5.7 3.5 3.1 Pension increase rate 1) n/a n/a 2.0 3.2 2.0 n/a Salary growth rate 2) n/a n/a 2.2 3.2 3.4 4.4 Longevity male/female 3) 20.8/22.5 20.7/22.7 20.8/24.2 21.5/23.4 20.0/24.3 19.7/23.1 Weighted average duration of the plan (in years) 4) 8.2 7.1 14.6 13.5 17.5 8.5 2023 Significant weighted-average assumptions USA USA Germany U.K. Sweden at end of year pension medical pension pension pension Other Discount rate 4.9 4.9 3.4 4.3 3.2 2.9 Pension increase rate 1) n/a n/a 2.0 3.0 2.0 n/a Salary growth rate 2) n/a n/a 2.3 3.0 3.4 6.6 Longevity male/female 3) 20.7/22.6 20.6/22.6 20.7/24.1 21.9/23.9 20.0/25.0 18.9/22.3 Weighted average duration of the plan (in years) 4) 8.7 7.5 15.1 16.0 18.4 5.9 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. Impact on defined benefit obligations, Sensitivity analysis of significant assumptions Change in actuarial assumption MSEK Discount rate +1% –2,451 –1% 3,052 Salary growth rate +0.5% 224 –0.5% –211 Pension increase rate +0.5% 893 –0.5% –801 Longevity +1 year 819 –1 year –632 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 defined benefit obligations 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 USA, Germany, U.K. and Sweden, and it has been prepared consistently with prior years. SKF ANNUAL REPORT 2024 58 THI S IS SKF PRESIDENT’S LETTER STRATEGY AND VALUE CREATION THE BEARING MARKET RISKS AND THE SHARE SUSTAINABILITY REPORT CORPORATE GOVERNANCE REMUNERATION REPORT GROUP DATA FINANCIAL STATEMENTS BAC K T O START NOTES 19 Other provisions and contingent liabilities Accounting policy In general, a provision is recognized when there is a pre- sent 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 provi- sions 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 warran- ties, and represent management’s best estimate of the future cash flows necessary to settle obligations. Claims that, according to management’s best estimate, are too uncertain or judged not to give rise to future cash out, are not included in the amounts set out below, even though such claims may be material. Other long-term employee benefits refer to benefits earned and expected to be set- tled before employment ends. These provisions are calcu- lated using the projected unit credit method and remeas- urements (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 announce- ment 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 recog- nition it may be considered a contingent liability and dis- closed. 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 in - clude 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 deter- mining 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 warran- ties, and represent management’s best estimate of the future cash flows necessary to settle obligations, although the timing of the settlement is un certain. Provisions for liti- gation are based on the nature of the litigation, the legal process in the applicable 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 viola- tions 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 Eco- nomic Defense, regarding an alleged violation of antitrust rules by several companies active on the automotive after- market in Brazil. As per management judgement, these investigations did not qualify for recognition as other pro- visions or contingent liabilities. Warranty provisions involve estimates of the outcome of claims resulting from defective products, which include estimates for potential liability for damages caused by such defects to the Group’s customers. Assumptions are required for anticipated returns and costs replacing defec- tive products and/or compensating customers for damage caused by the Group’s products. These assumptions con- sider historical 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 costs 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 experi- ence as well as the current status of negotiations with the affected parties and/or their representatives. Claims increased during 2024 with MSEK 14, related to warranty claims. In 2024, the total restructuring costs amounted to MSEK 1,497, whereof MSEK 1,363 refers to provisions, and includes closure and consolidation of factories as well as a general reduction in headcount driven by new ways of working and simplified organizational structures. This cost includes voluntary and involuntary termination benefits spread over several countries. The majority of the remain- ing restructuring provisions are expected to be settled in 2025. The largest items in other employee benefits are pen- sion provisions in Italy, worker’s compensation in USA and special payroll tax in Sweden. Other provisions primarily include insurance, contrac- tual-, and environmental commit ments. 2024 Reversal 2024 Closing Provisions Utilized unutilized Translation Opening MSEK balance for the year amounts amounts Other effect balance Claims 267 164 –103 –56 1 8 253 Other employee benefits 687 138 –203 –3 –33 32 756 Restructuring 1,037 1,363 –1,376 –23 –31 47 1,057 Other 590 242 –86 –110 8 18 518 Total 2,581 1,907 –1,768 –192 –55 105 2,584 2023 Reversal 2023 Closing Provisions Utilized unutilized Translation Opening MSEK balance for the year amounts amounts Other effect balance Claims 253 123 –76 –6 –21 –5 238 Other employee benefits 756 420 –325 57 34 –10 580 Restructuring 1,057 1,171 –1,020 –44 — –9 959 Other 518 151 –67 –62 –24 –8 528 Total 2,584 1,865 –1,488 –55 –11 –32 2,305 2024 MSEK Of which current Claims 204 Other employee benefits 55 Restructuring 622 Other 276 Total 1,157 2023 MSEK Of which current Claims 166 Other employee benefits 146 Restructuring 690 Other 243 Total 1,245 Contingent liabilities at nominal values (MSEK) 2024 2023 Guarantees 45 61 Tax claims 2,203 874 Other contingent liabilities 52 19 Total 2,300 954 SKF ANNUAL REPORT 2024 59 THI S IS SKF PRESIDENT’S LETTER STRATEGY AND VALUE CREATION THE BEARING MARKET RISKS AND THE SHARE SUSTAINABILITY REPORT CORPORATE GOVERNANCE REMUNERATION REPORT GROUP DATA FINANCIAL STATEMENTS BAC K T O START NOTES 20 Financial liabilities Accounting policy Financial liabilities are recognized in the balance sheet when the Group becomes a party to the contractual provi- sions 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 settled. Accounting estimates and judgements For disclosure purposes, fair values of financial liabilities have been calculated using valuation techniques, mainly discounted cash flow analyses based on observable market data. 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, due in 2025, has been swapped into floating USD interest rate and the fixed EUR interest on the MEUR 400 loan, due in 2028, has been swapped into floating EUR interest rate. More information regarding financial risk management 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. Supply chain financing arrangement SKF has supply chain financing arrangement (SCF) with a bank under which the bank offers suppliers the option to receive earlier payments. The principal purpose of this arrangement is to facilitate efficient payment processing and enable the suppliers to receive payments from the bank before the invoice due date. Due dates for the trade payables within SCF are 60–150 days after invoice date. Trade payables not part of the arrangement have payment due dates of 30–180 days after invoice date. As of 31 December 2024, trade payables under SCF amounted to MSEK 1,546 (1,806) whereof MSEK 1,089 have already been received by the suppliers. There were no material business combinations or foreign exchange differences or other non-cash transfers relating to the carrying amount of liabilities subject to SCF. 2024 2023 MSEK Maturity Carrying amount Fair value Carrying amount Fair value Long-term financial liabilities MUSD 3 2025 — — 3 3 MEUR 300 2025 — — 3,177 3,192 MUSD 100 2027 1,101 1,128 1,000 1,033 MEUR 400 2028 4,557 4,617 4,363 4,422 MEUR 300 2029 3,429 3,224 3,307 3,051 MEUR 300 2031 3,307 3,048 3,275 2,865 Long-term lease liabilities 2026 and thereafter 2,714 2,714 2,207 2,207 Other long-term loans 2026–2030 200 200 200 201 Derivatives held for hedge accounting 91 91 362 362 Derivatives held for trading — — — — Subtotal long-term financial liabilities 15,399 15,022 17,894 17,336 Short-term financial liabilities MSEK 900 2024 — — 900 894 MSEK 2,100 2024 — — 2,100 2,116 MUSD 3 2025 3 3 13 13 MEUR 300 2025 3,444 3,400 — — Trade payables 2025 12,553 12,553 11,236 11,236 Of which trade payable under vendor financing arrangement 1,546 1,546 1,806 1,806 Short-term lease liabilities 2025 802 802 629 629 Short-term loans 2025 485 485 158 158 Derivatives held for hedge accounting 2025 — — — — Derivatives held for trading 2025 627 627 260 260 Subtotal short-term financial liabilities 17,914 17,870 15,296 15,306 Total 33,313 32,892 33,190 32,642 SKF ANNUAL REPORT 2024 60 THI S IS SKF PRESIDENT’S LETTER STRATEGY AND VALUE CREATION THE BEARING MARKET RISKS AND THE SHARE SUSTAINABILITY REPORT CORPORATE GOVERNANCE REMUNERATION REPORT GROUP DATA FINANCIAL STATEMENTS BAC K T O START NOTES 21 Other short-term liabilities MSEK 2024 2023 Employee related accruals 3,700 4,144 Accrual for rebates 1,728 1,577 Income tax payables 949 965 Deferred income 449 368 Customer advances 415 434 Value added taxes payables, net 659 916 Other current liabilities 925 795 Other accrued expenses 2,105 1,874 Total 10,930 11,073 22 Related parties including associated companies 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 founda- tions the Knut and Alice Wallenberg Foundation, the Mari- anne 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 2024 FAM is the major shareholder of the Parent Company, hold- ing 29.0% (29.0) of the voting rights and 15.0% (15.0) of the share capital. Investments in associated companies include a 27% shareholding of Sunstrength Renewables Pvt. Ltd. in India, a 26% shareholding in Clean Max Taiyo Pvt. Ltd. in India, a 42% shareholding of Ningbo Hyatt Roller Co. Ltd. in China, a 30% shareholding in Sinoma Precision Bearings Co. Ltd. in China, a 20% shareholding of Colinx, LLC. in USA, a 50% shareholding of Wuhan Economos seals technology Co. Ltd. in China, a 5% sharholding in Hunan SUND Technologies Co. Ltd. in China and a 25% shareholding of Schwarz GmbH Technischer Großhandel in Germany. Transactions with Associated companies (MSEK) 2024 2023 Sales of goods and services 41 39 Purchases of goods and services 528 511 Receivables as of 31 December 92 95 Liabilities as of 31 December 17 4 Other related party transactions include remuneration to key manage ment as specified in Note 23. For a list of significant sub sidiaries, see Note 8 to the financial state- ments of the Parent Company. No other significant trans- actions 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 of Director’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 agree- ments. 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 strat- egy, its long-term interests and sustainability. Remunera- tion for Group Management shall be based on market com- petitive conditions and at the same time support the shareholders’ best interests. The total remuneration package for a Group Manage- ment 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. Additionally, the Annual General Meeting 2024, irrespective of the principles of remuneration for Group Management, resolved on SKF’s Performance Share Pro- gramme 2024 for senior managers and key employees, where Group Manage ment is included. For more informa- tion on SKF’s Performance Share Programme 2024, see page 63. 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, sustain ability and long-term interests. The performance-based programme shall have pre- determined and measurable criteria which can be both financial and non-financial and which contribute to the company’s longterm 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 sustaina- bility 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. Other benefits The SKF Group may provide other benefits to Group Manage ment 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. SKF ANNUAL REPORT 2024 61 THIS IS SKF PRESIDENT’S LETTER STRATEGY AND VALUE CREATION THE BEARING MARKET RISKS AND THE SHARE SUSTAINABILITY REPORT CORPORATE GOVERNANCE REMUNERATION REPORT GROUP DATA FINANCIAL STATEMENTS BACK TO START NOTES 23 Remuneration to key management, cont. 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 Man- agement 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 gov- erned by Swedish rules, the premium for the supplemen- tary 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 imme diately. The Group Manage- ment 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 Remunera- tion 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 prin ciples 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 Meet- ing 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 Manage ment, 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 inde- pendent 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 sustaina- bility, 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 resolu- tions to derogate from the guidelines. During 2024 the Board of Director’s decided to derogate from the principles of remuneration during one occasion. More information under the heading “Incentive program in connection with the creation of two robust and high-per- forming businesses” further down on this page. President and Chief Executive Officer Rickard Gustafson, President and Chief Executive Officer of AB SKF has received remuneration from the company during 2024 governed by the remuneration principles decided upon by the Annual General Meeting; salary and other remunerations amounted to a total of 24,906,228 SEK of which 15,997,871 SEK was fixed annual salary and other benefits. The pension arrangement for Rickard Gustafson is a combination of the ITP scheme and a defined contribution of 40% of the annual fixed salary above 30 income base amounts. The retirement age for the President and Chief Executive Officer is 65 years. Rickard Gustafson’s shareholdings (own and/or held by related parties) in the company is listed in the Corporate Governance Report. Group Management The SKF’s Group Management, consisting of 12 people at the end of the year, received in 2024 (exclusive of the President) salary and other remunerations amounting to a total of SEK 95,287,924 of which SEK 67,904,423 was fixed annual salary, SEK 27,383,501 was variable salary related to 2023 year’s performance, and SEK 11,564,178 was allotment of shares under the Performance Share Programme 2021. The variable salary for Group Management was accord- ing to a short-term performance-based programme primar- ily 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 63. 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 mem- bers 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 pen- sion and defined contribution pension for the same part of their pension entitlements. The normal retirement age is 65 years. Incentive program in connection with the creation of two robust and high-performing businesses As communicated in September 2024, the Board of Direc- tors of AB SKF has decided to initiate a separation of the Group’s Automotive business with the objective of a sepa- rate listing on Nasdaq Stockholm. In order to incentivize sustained dedication, focus and commitment from Group Management to reach the ambitious goals to timely, effi- ciently and successfully create two robust and high-per- forming businesses and at the same time drive business result and growth, the Board of Directors has decided to implement a separate incentive programme. The carrying out of a transformative project as described above while at the same time drive business result is deemed by the Board of Directors to constitute a special cause to moti- vate a deviation from the principles of remuneration and introduce an additional remuneration component to meet SKF’s long-term interests. By investing in this programme, SKF creates a powerful motivator to, as far as possible, ensure successful execu- tion of the separation and listing initiatives as well as the SKF ANNUAL REPORT 2024 62 THIS IS SKF PRESIDENT’S LETTER STRATEGY AND VALUE CREATION THE BEARING MARKET RISKS AND THE SHARE SUSTAINABILITY REPORT CORPORATE GOVERNANCE REMUNERATION REPORT GROUP DATA FINANCIAL STATEMENTS BACK TO START NOTES 23 Remuneration to key management, cont. highest level of engagement from Group Management in reaching the ambitious goals and identified critical objec- tives key to the Group’s long-term success.The incentive programme offers the opportunity to be awarded a cash contribution in the form of a multiple of the monthly fixed salary. The performance period runs from 17th of Septem- ber 2024 until a successful listing on Nasdaq Stockholm of the Automotive business. Listing on Nasdaq Stockholm is subject to the approval of the shareholders at a general meeting. Payout will be made, following a decision by the Board of Directors, in the months following the potential listing on Nasdaq Stockholm. The level of achievement and hence the level of payout under the programme is measured against certain pre-determined performance criteria. Provided that the performance criteria are fully met, a group management member may be awarded a maximum cash contribution equal to an amount set between six and twelve months of fixed salary. The perfor- mance criteria are Timeline; the objective of following the listing timeline including that the Automotive business is successfully listed on Nasdaq Stockholm, Target Delivery; an assessment based on the achievement of key delivera- bles in the project, and Cost Reduction; targets to identify and mitigate stranded costs and dis-synergies. The three performance criteria are weighted as follows: Timeline 50%, Target delivery 25% and Cost reduction 25%. A precondition for payout under the programme is that the participants employment has not been terminated. The awarded cash payment is not included in pensionable sal- ary. The Board of Directors may modify or terminate the programme. The Board of Directors will also, before final payout is determined, examine whether payout is reasona- ble considering the Group’s financial results and position, the conditions on the stock market as well as other circum- stances, and if not, as determined by the Board of Directors, reduce the cash contributions to be awarded to a lower amount deemed appropriate by the Board of Directors. The estimated maximum cost of the incentive programme, including social charges, is MSEK 72. This amount will be recognized as an operating expense over the performance period, adjusted in relation to the forecasted outcome. SKF’s Performance Share Programme Performance Shares The Annual General Meeting 2024 decided on the intro- duction of SKF’s Performance Share Programme 2024. The programme covers senior managers and key employ- ees 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 total value added (TVA) target level, as defined by the Board of Directors, and the SKF Group’s CDP Climate Change score. The TVA performance measure is weighted 80% and the CDP Climate Change score per- formance measure is weighted 20%. The performance period is three years. Over the three-year programme period, the TVA performance target range is set annually by the Board against the baseline of the actual TVA achieved in the previous year. In order for allocation of shares to take place the aver- age TVA development must exceed a certain minimum level (the threshold level). In addition to the threshold level a target level is set. Maximum allotment is awarded if the target level is reached or exceeded. The CDP Climate Change score performance achieve- ment is the weighted average of the annual performance achievement, based on the criteria in the below table. CDP Climate Change score Performance achievement A 100% A– 75% B 50% 2GWh of energy per year. By avoiding wasted material at SKF, the waste associated with the embedded energy and emissions upstream are also avoided. SKF also strives to increase the use of renewable, low-carbon or recycled materials. Periodic audits of compliance to the SKF Code of Con- duct are performed and a whistle-blowing process is avail- able at local and global levels, to ensure human rights respect for employees at SKF and in the value chain. SKF also integrates equality into the people processes, for example learning and development, succession planning and recruitment. Downstream SKF works to continuously reduce any negative down- stream impact relating to its business. This starts with ensuring compliance with laws and regulations and avoiding materials and substances hazardous to people and the environment. The purpose of SKF’s products and solutions is to make things work better and run faster, longer, cleaner and more safely. SKF believes that business can drive prosperity and growth to overcome social issues over time. The work related to human rights focuses on adhering to export con- trol regulation and ensuring that SKF’s distributors adhere to the SKF Code of Conduct. In the product development phase, there is increasing focus on designing for circularity to enable reuse, remanu- facturing and refurbishment. Products are designed for disassembly, modularity, repairability, or recyclability. The design also aims to increase material efficiency to reduce material input and optimize manufacturing and supply chains to reduce waste generation. SKF enables improvements in customers’ sustainability performance through products, services, business models and value propositions. The improvements include for example increased energy efficiency, reduced greenhouse gas emissions and improved safety. The Group also develops new cleantech solutions through partnerships, business development, and acquisitions. The focus is on technologies that help enable cleantech areas such as renewable energy, electric vehicles, and railway applica- tions, which will help to improve performance of current cleantech solutions as well as enable new innovations. The Group aims to support the growth of these technol- ogies and industries, which in turn will help to reduce envi- ronmental impact on a large scale. SKF is also growing its circular solutions such as bearing remanufacturing, a sys- tem for re-using oil (RecondOil) and Laser Metal Deposi- tion (LMD). Bearing remanufacturing avoids the need of replacement with a new bearing and therefore the large majority of the greenhouse gas emissions from bearing production. In addition to emissions associated with raw materials and energy use being avoided, it also provides the customers with lower costs and in many cases, better availability compared to replacing with new products. SKF RecondOil is a service that provides a solution for the complete recovery and reuse of industrial oil. It uses Dou- ble Separation Technology (DST) to remove contaminants from the oil, allowing it to be used again and again. This reduces the environmental impact of industrial oil use and can save on maintenance costs. Upstream and downstream logistics SKF’s global upstream and downstream logistics require- ments and networks are large and complex. SKF strives to reduce emissions and at the same time improve cost efficiency. This is done by reducing transport demand, optimizing transport efficiency and making use of trans- port decarbonization opportunities. Interests and views of stakeholders SKF aims to align its business practices with the needs and expectations of its stakeholders. Stakeholder groups are defined as entities or individuals that may influence and/or be influenced by SKF’s activities. These different stakeholders have specific concerns for sustainability- related topics. Through ongoing dialogues, SKF aims to understand the stakeholder groups’ positions, concerns, and expectations. This continuous interaction informs the Group’s sustainability efforts, projects, and processes, allowing alignment with the interests and views expressed by stakeholders. Guided by the principle of being a responsible company, SKF’s stakeholder engagement adheres to international norms and codes, including the United Nations Guiding Principles on Business and Human Rights and the OECD Guidelines for Multinational Enterprises on Responsible Business Conduct. The input to SKF’s sustainability activi- ties is collected from customers, investors and analysts, employees, union organizations, and representatives from civil society, and is collected via interviews, surveys, con- ferences, meetings, and data analysis. The work to engage with the stakeholder groups is conducted by the respec- tive functions within the Group. The insights are used to inform both the due diligence processes and the double materiality assessment. SKF further ensures that the views of stakeholders are communicated to the Board of Direc- tor’s Sustainability & Ethics Committee. SKF ANNUAL REPORT 2024 87 THI S IS SKF PRESIDENT’S LETTER STRATEGY AND VALUE CREATION THE BEARING MARKET RISKS AND THE SHARE SUSTAINABILITY REPORT CORPORATE GOVERNANCE REMUNERATION REPORT GROUP DATA FINANCIAL STATEMENTS BAC K TO START Strategy, cont. Stakeholders’ interests and views on SKF’s sustainability- related activities and initiatives Stakeholder How engagement is organized and purpose of engagements Summary of insights from engagement Examples of how outcomes of the engagement are taken into account by SKF Customers Customers’ input is sought and received via sales, marketing operations and activities carried out by the Group. These range from global discussions with key account managers to daily conversations between customer representatives and SKF’s local account managers. SKF also collects key issues and concerns from customer surveys and assessments. Customers are expecting SKF to be a business partner with strong ethics and engineering expertise that provides innova- tive and reliable products that contribute to the customers’ climate targets and energy efficiency. Development of new innovative products and services and improvements in existing portfolio. Investors and analysts SKF takes an active approach in communicating the Group’s strategy and performance to existing and potential investors, analysts and media. Information is provided through various channels, such as the quarterly financial reports, meetings with investors, ESG ratings, the com pany’s website and press releases. Capital Markets Days are held to present the strategy, targets and the different busi- nesses in more detail. SKF receives feedback from investors via discussions during investor meetings. For SKF to be a long-term profitable investment, investors expect the Group to deliver on its sustainability targets, con- tribute to the climate transition and future-proof its opera- tions and product portfolio. Improvement plans for ESG ratings and incorporating sustain- ability activities and progress in quarterly financial reporting. Employees and union organizations SKF holds an annual World Union Council meeting during which employee representatives meet with Group Management. This is a form of social dialogue to make sure that the framework based on the SKF Code of Conduct is deployed across the Group. Employee representatives are also members of SKF’s Board, see SKF’s Corporate Governance Report, on pages 150–160. In addition, SKF carries out periodic employee feedback surveys to drive continuous improvements of the working climate. Employees and union organizations expect SKF to be a responsible company and employer with clear focus on employee health and safety, training and development, and diversity and inclusion as well as being an industry leader in sustainability. Global and local initiatives for training and development and general improvements and action plans. Civil society The communities in which SKF operates are important stakeholders for the company and their input helps shape local SKF activities. Local SKF organizations interact with their surrounding communi- ties through various activities and initiatives ranging from business related matters to volunteer work, charity work, sponsoring and local networks collaboration. Local media is also considered to repre- sent civil society. Formal and informal networks are used to share experiences and ideas with other companies, topic experts and non-governmental organizations (NGOs). Civil society expects SKF to be a responsible corporate citizen and that the Group contributes positively to the communities in which it operates. Aligning business model and strategy with legal requirements and engagement in local and global initiatives. Suppliers Suppliers’ input on material topics is managed via SKF’s Responsible Sourcing programme. Local sourcing offices enable close communication on daily operations. On-site audits and training provide feedback to SKF on suppliers’ performance related to quality and sustainability as part of a total cost assessment of supplier development. The SKF Code of Conduct for suppliers and sub-contractors is the standard used during audits and screening. Suppliers expect SKF to be a transparent business partner that collaborates on sustainability topics such as decarbon- izing the supply chain and upholding strong due diligence practices. Collaborations for developing low-carbon products and materials and updated supplier sustainability standards. SKF ANNUAL REPORT 2024 88 THI S IS SKF PRESIDENT’S LETTER STRATEGY AND VALUE CREATION THE BEARING MARKET RISKS AND THE SHARE SUSTAINABILITY REPORT CORPORATE GOVERNANCE REMUNERATION REPORT GROUP DATA FINANCIAL STATEMENTS BAC K TO START Strategy, cont. Impact materiality Financial materiality Pollution Water & marine resources Biodiversity & ecosystems Affected communities Consumers and end-users Workers in the value chain Climate change Circular economy Own workforce Business conduct Low High High Material impacts, risks and opportunities and their interaction with strategy and business model SKF has for several years performed materiality assess- ments annually to identify impacts on the environment and society as well as sustainability-related risks and opportunities. In 2024, SKF performed a double materiality assessment covering impact materiality as well as finan- cial materiality. The outcome is aggregated and presented per ESRS topic, showing that Climate change, Circular economy, Own workforce, Workers in the value chain and Business conduct are the Group’s material sustainability topics. For environmental topics, the Group’s material negative impacts are related to the use of energy and materials in the development and manufacturing of products. Both transitional and physical climate risks are material to SKF. However, SKF’s efforts related to circularity and decarbon- ization are aiming at mitigating negative impacts while also contributing to positive impacts beyond the mitigat- ing activities. Here, SKF has material opportunities when increasing energy efficiency for its customers and provid- ing products with improved circular performance such as remanufactured bearings and re-using oil. For SKF’s own workforce, material impacts are primarily related to health and safety and diversity and inclusion. Being a global company with complex supply chains and providing solutions and operating in all industries, SKF is automatically subject to potential risks related to business conduct and potential negative impacts on work- ers in the value chain. To reduce any potential negative impacts and risks, SKF is continuously implementing mitigating activities such as being a responsible business partner to both suppliers and customers where SKF can contribute with positive impacts and capture opportuni- ties. Furthermore, the material impacts, risks and opportu- nities have a clear link to the Group’s strategic sustainabil- ity efforts, targets, and ambitions of caring for people and ensure health and safety for own workforce (S1) and work- ers in the value chain (S2), achieving net-zero by 2050 for climate change (E1) and doing business responsibly for business conduct (G1) as well as the pursuit of circularity for circular economy (E5). For more information on the impacts, risks, and oppor- tunities (IRO’s) on sub-topic level as well as SKF’s response to these IROs, please see the next pages and the topical sections. In this report only topics reaching the thresholds of the materiality analysis described on page 95 are presented in full. Limited information on some of the topics that did not reach the thesholds is available on pages 140–141. The result of the double materiality clearly follows SKF’s purpose “Together, we re-imagine rotation for a better tomorrow” and the Group’s long- lasting sustainability framework SKF Care; • Business Care A clear focus on customers, financial performance and shareholder returns – combined with the highest standards for sustainability and ethical behaviour. • Employee Care Sustaining a safe work environment, personal development, health and well-being of employees at SKF, as well as people in the supply chain. • Environment Care Continuously reducing the environ- mental impact from SKF’s operations, and those of suppliers and customers. • Community Care Making positive contributions to the communities in which SKF operates. SKF ANNUAL REPORT 2024 89 THI S IS SKF PRESIDENT’S LETTER STRATEGY AND VALUE CREATION THE BEARING MARKET RISKS AND THE SHARE SUSTAINABILITY REPORT CORPORATE GOVERNANCE REMUNERATION REPORT GROUP DATA FINANCIAL STATEMENTS BAC K TO START Climate change IRO number Description of material IRO Type of material IRO Value chain Time horizon Description of the IRO’s in relation to SKF Climate change mitigation 1 Innovating and providing prod- ucts for the climate transition Positive impacts Downstream Short-term SKF has a portfolio of products and services that mitigate customers’ negative impacts such as greenhouse gas emissions or pollution. However, SKF’s most significant positive impact lies in its ability to innovate and provide products that enables the transition to a low-carbon economy. Specifically, SKF is providing solutions that enable the growth of cleantech industry, electrification, and renewable energy as well as the demand for products with improved circular performance. 2 Greenhouse gas emissions from own operations and value chain (scope 1, 2, 3) Negative impacts Full value chain Short-term SKF’s operations and value chain generates greenhouse gas emissions. SKF has a long track-record of responding to its negative impacts through mitigating activities aimed at both its own operations as well as upstream and downstream value chain. 3 Cost of decarbonization Risks Upstream and own operations Mid-term Climate change mitigation requires investments to reduce the emissions in both scope 1, 2, and 3. SKF is responding to this risk by for example investing 3 billion SEK for the phase-out of fossil fuels in own operations by 2030. For scope 3, transitional risks such as increased steel prices due to limited supply of green steel may be a financial risk. SKF is responding to this risk by close collaboration with suppliers and engagements in cross-industry collaborations such as Responsible Steel and SteelZero. 4 Winning business by providing products and services that enable the climate transition Opportunities Downstream Long-term With a strong focus on innovative, energy efficient and low-carbon product and services, SKF has the opportunity to be a preferred busi- ness partner to its customers. Climate change mitigation is a significant financial opportunity for SKF. By providing innovative products, SKF is likely to benefit from the growth of electrification and renewable energy as well as other emerging technologies like energy storage, hydrogen and carbon capture. Climate change adaptation 5 Physical climate risks Risks Own operations and upstream Long-term As global warming escalates, physical climate-related risks are increasingly likely to disturb both SKF’s operations and supply chain leading to increased costs of operations and materials. Climate-related disasters such as flooding, droughts and extreme weather events are already becoming more and more common. SKF is responding to any potential risks by improving scenario analysis and implementing necessary protection mechanisms. Energy 6 Reducing friction and increasing energy efficiency Positive impacts Downstream Short-term SKF’s products aim to reduce friction, which leads to increased energy efficiency for customers and thus significantly contributes to society and planet. 7 Use of fossil energy Negative impacts Full value chain Short-term SKF still has depencency on fossil energy in its own operations and its upstream and downstream value chain. SKF is aiming to mitigate this actual negative impact through energy efficiency as well as to phase out fossil fuels in its own operations. 8 Energy price fluctuations Risks Own operations and upstream Short-term Energy price fluctuations pose a material financial risk for SKF. For instance, geopolitics can cause energy crises which may affect the energy costs of SKF’s own operations and upstream supply chain, especially for energy-intensive materials like steel. SKF is mitigating these risks for example by investing in energy efficiency within its own operations. 9 Winning business by providing energy efficient solutions Opportunities Downstream Short-term Energy efficiency is a significant financial opportunity for SKF. For instance, SKF can enable energy efficiency improvements for its customers in various sectors, such as compressors, chillers, heat pumps, automotive and industrial drives, by providing innovative products and solutions like magnetic bearings, hybrid bearings and low-carbon products. Strategy, cont. SKF ANNUAL REPORT 2024 90 THI S IS SKF PRESIDENT’S LETTER STRATEGY AND VALUE CREATION THE BEARING MARKET RISKS AND THE SHARE SUSTAINABILITY REPORT CORPORATE GOVERNANCE REMUNERATION REPORT GROUP DATA FINANCIAL STATEMENTS BAC K TO START Resource use and circular economy IRO number Description of IRO Type of material IRO Value chain Time horizon Description of the IRO’s in relation to SKF Resource inflows 10 Increasing demand for products and business models with improved circular performance Positive impacts Full value chain Mid-term By providing more circular solutions like a system for re-using oil (RecondOil), SKF reduces the demand for virgin materials, same for remanufactured bearings and other services and therefore has an important positive impact on the planet. Even though these products with improved circular performance are still a smaller part of the business, SKF believes that the future potential positive impact of this is important. In addition, SKF is collaborating with suppliers and customers as well as engaging in cross-industry collaborations such as Responsible Steel and Steel Zero to increase material utilization, reducing waste and fostering sustainable resource cycles. 11 Use and reliance on virgin raw materials such as steel Negative impacts Upstream Short-term SKF’s sourcing of raw materials has a significant negative impact from a lifecycle perspective. The main upstream environmental impact comes from the sourcing of metal components and is associated to scarcity of resources, energy and emissions. In addition to steel, SKF sources materials for lubricants and seals that often originates from non-renewable sources. SKF has initiated a circularity program showing a strategic commitment to transitioning into a circular company. The program includes improving the circularity of the supply chain and refining operational practices, including optimizing material utilization, reducing waste and fostering sustainable resource cycles. Resource outflows 12 Designing, developing and providing solutions for circularity Positive impacts Downstream Mid-term SKF is developing products and services that have an important positive impact on the circularity transition and the planet. Further, during the product development phase, SKF is increasing the focus on designing for circularity to enable reuse, remanufacturing and refurbishment. Products are designed for disassembly, modularity, repairability or recyclability. The design also aims to increase material efficiency to reduce material input and optimize manufacturing and supply chains to reduce waste generation. 13 Limited closed-loop product flows for all SKF’s products Negative impacts Full value chain Short-term Even though SKF is pushing for more circularity of products, most of the products and materials leaving its operations are not in a closed recycling loop. While steel is usually recycled at end-of-life, it is often melted down to a lower quality than what SKF can re-use as a bearing steel. Furthermore, seals and lubricants are usually not re-cycled. Therefore, SKF considers its negative impact in this area as material. SKF is responding to the impact by engaging with customers, suppliers and cross-industry collaborations such as ResponsibleSteel and SteelZero to increase material utilization, reduce waste and foster sustainable resource cycles. 14 Winning business in a circular economy Opportunities Downstream Short-term SKF is increasing its readiness for a circular economy that is necessary to meet not only the Paris agreement but also mitigating risks of geopolitics and resource scarcity. SKF can provide products and services that meet customer circularity targets as well as climate targets. SKF therefore sees significant financial opportunities related to resource outflows. Waste 15 Waste generated in own operations Negative impacts Own operations Short-term SKF generates waste in its own operations and has an important actual negative impact on the planet. SKF is responding to this negative impact by increasing recycling rates and other circular solutions such as increasing material utilization and fostering sustainable resource cycles. Strategy, cont. SKF ANNUAL REPORT 2024 91 THI S IS SKF PRESIDENT’S LETTER STRATEGY AND VALUE CREATION THE BEARING MARKET RISKS AND THE SHARE SUSTAINABILITY REPORT CORPORATE GOVERNANCE REMUNERATION REPORT GROUP DATA FINANCIAL STATEMENTS BAC K TO START Own workforce IRO number Description of IRO Type of material IRO Value chain Time horizon Description of IRO’s in relation to SKF Working conditions 16 Work-related injuries and ill health of own workforce Negative impacts Own operations Short-term SKF recognizes that work-related injuries and ill health occur in the workplaces even if the health and safety of employees, contractors, agency workers and visitors is a top priority for SKF. Safety always comes first and SKF is convinced that all work- related injuries and ill-health can be prevented by proactively assessing health and safety risks to eliminate hazards, reduce risks and ultimately improve the work environment. SKF has a Group-wide EHS management system that supports this approach. Along with the Zero Accidents program and proactive reporting of near misses and unsafe conditions, it aims to prevent all workplace accidents. SKF’s active measures reduce the likelihood of critical inci- dents, but the potential severity still makes SKF consider the impact significant. 17 Secure employment, collective bargaining and freedom of association Positive and nega- tive impacts Own operations Mid-term SKF’s approach to secure employment, collective bargaining agreements, and freedom of association prevents unfair treatment based on gender, culture, ethnicity and other factors. This can be seen as an initiative to mitigate important negative impacts. At the same time, by creating a more secure, attractive and engaging work environment, these measures also serve to create a potential important positive impact for the own workforce as well as their families, communities and society as a whole. 18 Inability to attract and retain critical competences and capabilities Risks Own operations Short-term There is fierce competition in the labour market, and the success of companies is dependent on their ability to attract, develop and retain critical competences and capabilities. If SKF does not succeed in providing good working-conditions, this can lead to high employee turnover rates, which can generate financial risks caused by weakened results. SKF is responding to this risk by taking a holistic approach in strengthening the Group as an employer of choice, putting the employee experience at the center, including providing safe and healthy working conditions. Purpose, culture, employee engagement, leadership, health and safety, competence and way of working are all key building blocks in this area. Equal treatment and opportunities for all 19 Enabling a diverse and inclusive workplace Positive impacts Own operations Short-term SKF takes a holistic approach in strengthening diversity of thoughts. SKF commits to providing equal opportunities irrespective of ethnic back- ground, race, religion, age, gender, disability, sexual orientation, outlook or social status. The Group wants everyone in the workforce to feel welcome to come as they are. Purpose, culture, employee engagement, leadership, competence and ways of working are all key building blocks in this area. By working with this purpose, SKF contributes with actual positive impacts beyond mitigating negative impacts. 20 Discrimination and non- equal treatment of own workforce Negative impacts Own operations Mid-term Employees who experience discrimination or unequal treatment may suffer from stress, anxiety and other mental health issues. This can nega- tively affect the employee’s overall well-being and quality of life. The potential negative impact is deemed material based on its severity to the individual’s health. SKF is mitigating any potential negative impact through, for example, the quarterly SKF Team Pulse survey, where SKF can estimate the employee experience from an equal opportunity perspective. Furthermore, employees are requested to report any behaviour that is not in line with the SKF Code of Conduct to their manager, the local People Experience channels or to other senior managers. Employees can also raise concerns or seek advice through the third-party hosted SKF Ethics and Compliance Reporting Line. 21 Diversity and inclusion increasing innovation and business performance Opportunities Own operations Mid-term Research shows that diverse and inclusive teams are more productive, increase market shares and are more likely to expand into new markets. Further, they are important for attracting and retaining talent. By fostering diverse teams and inclusive leadership SKF can enable an innova- tive environment that contributes with important financial opportunities for the Group. SKF takes a holistic approach in strengthening diversity of thoughts. Purpose, culture, employee engagement, leadership, competence and ways of working are all key building blocks in this area. Other work-related rights 22 Human rights of own workforce Negative impacts Own operations Short-term Other work-related rights include human rights such as zero tolerance against child labour and forced labour. The important severity of such a negative impact makes it material for SKF, despite its low likelihood. SKF is responding to this potential negative impact by adhering to inter- national standards and guidelines and implements the SKF Code of Conduct in all operations. Periodic code of conduct compliance audits are performed and a whistle-blowing process is available at local and global levels. Strategy, cont. SKF ANNUAL REPORT 2024 92 THI S IS SKF PRESIDENT’S LETTER STRATEGY AND VALUE CREATION THE BEARING MARKET RISKS AND THE SHARE SUSTAINABILITY REPORT CORPORATE GOVERNANCE REMUNERATION REPORT GROUP DATA FINANCIAL STATEMENTS BAC K TO START Workers in value chain IRO number Description of IRO Type of material IRO Value chain Time horizon Description of IRO’s in relation to SKF Working conditions 23 Improving working conditions together with suppliers Positive impacts Upstream Short-term The SKF Code of Conduct for suppliers and sub-contractors mandates fair work conditions and health and safety standards. Through SKF’s Responsible Sourcing Programme, the Group is actively collaborating with suppliers to improve working conditions in risk regions, resulting in positive impacts for workers in the value chain. 24 Unsafe working conditions for workers in the value chain Negative impacts Upstream Mid-term SKF’s upstream value chain for both direct and indirect materials is widespread both geographically and across sectors, where some regions and sectors come with potential risks related to working conditions. SKF is responding to these potential negative impacts by conducting audits and actively improving working conditions in risk regions and sectors. Further, these risks are addressed by SKF’s Responsible Sourcing Programme that covers all of SKF’s suppliers but uses a risk-based approach. SKF also has a grievance mechanism in place for incidents at supplier sites. Equal treatment and opportunities for all 25 Responsible Sourcing Programme improving equal treatment Positive impacts Upstream Mid-term The SKF Code of Conduct for suppliers and sub-contractors mandates a harassment-free workplace. Through SKF’s Responsible Sourcing Programme, the Group is actively collaborating with suppliers to improve equal treatment and opportunities for all which has an actual positive impact for workers in the value chain. 26 Harassment and discrimination Negative impacts Upstream Mid-term Equal treatment in the workplace includes discrimination of persons with disabilities and measures against violence and harassment. SKF’s upstream value chain for both direct and indirect materials is widespread both geographically and across sectors, where some regions and sectors comes with potential risks related to discrimination. SKF recognizes its responsibility to mitigate these potential important negative impacts. The SKF Code of Conduct for suppliers and sub-contractors highlights the importance of a harassment- free environment, and these issues are therefore considered critical checkpoints for the SKF Code of Conduct for suppliers and sub-contractors audits. Other work-related rights 27 Violations of human rights Negative impacts Upstream Mid-term SKF’s upstream value chain for both direct and indirect materials is widespread both geographically and across sectors, where some regions and sectors comes with potential risks related to human rights including forced labour and child labour. While the likelihood of certain rights violations, such as child labor, may be low, the severity of the potential negative impact makes the impact material for SKF. SKF is responding to these potential negative impacts by conducting audits and actively working to improve working conditions in risk regions and sectors. Further, these risks are addressed by SKF’s Responsible Sourcing Programme that covers all of SKF’s suppliers but uses a risk-based approach focusing auditing on tier one and sometimes tier two or three suppliers. SKF also has a grievance mechanism in place for incidents at supplier sites. Strategy, cont. SKF ANNUAL REPORT 2024 93 THI S IS SKF PRESIDENT’S LETTER STRATEGY AND VALUE CREATION THE BEARING MARKET RISKS AND THE SHARE SUSTAINABILITY REPORT CORPORATE GOVERNANCE REMUNERATION REPORT GROUP DATA FINANCIAL STATEMENTS BAC K TO START Business conduct IRO number Description of IRO Type of material IRO Value chain Time horizon Description of IRO’s in relation to SKF Corporate culture 28 Fostering a strong corporate culture for a better tomorrow Positive impacts Own operations Short-term SKF’s corporate culture entails the Groups purpose, values, and policies where the SKF Code of Conduct is fundamental. Successfully fostering a strong corporate culture leads to increased efficiency and a more positive influence on the world. SKF’s corporate culture guides its business conduct, ensuring that all decisions made align with the Group’s core values and principles. This adherence to a strong ethical framework, including anti-corruption and anti-bribery programs, results in better decision-making across the company contributing with a positive impact not only to the own operations and value chain, but also society at large. 29 Breaches against the SKF Code of Conduct Negative impacts Own operations Short-term Breaches against the SKF Code of Conduct, are considered to have an important negative impact. Despite it being assessed as unlikely due to SKF’s efforts of fostering a strong corporate culture, its severity is still considered material. SKF responds to this by fully incor- porating its values in the corporate culture in all regions via training and awareness, risk assessments, investigations, audits and internal controls. Protection of whistle-blowers 30 Protection of whistle-blowers Positive impacts Full value chain Short-term SKF provides a globally available whistle-blowing service, the SKF Ethics and Compliance Reporting Line, which is also accessible exter- nally for suppliers and customers. SKF’s Group Whistle-blowing policy prohibits any retaliation towards anyone raising concerns in good faith. SKF goes beyond legal requirements as the Group is convinced that protecting whistleblowers is integral to fostering a culture of transparency and trust within the company. The positive impact is therefore considered material. Corruption and bribery 31 Corruption and bribery leading to fines and/or reputational damage Risks Own operations Short-term SKF recognizes the significant financial risk associated with corruption and bribery. In response, SKF has over many years had a strong focus on business ethics in its corporate values and continues to incorporate these values in the corporate culture in all regions through training and awareness, risk assessments, investigations, audits and internal controls. Strategy, cont. SKF ANNUAL REPORT 2024 94 THI S IS SKF PRESIDENT’S LETTER STRATEGY AND VALUE CREATION THE BEARING MARKET RISKS AND THE SHARE SUSTAINABILITY REPORT CORPORATE GOVERNANCE REMUNERATION REPORT GROUP DATA FINANCIAL STATEMENTS BAC K TO START Description of the process to identify and assess material impacts, risks and opportunities Double materiality assessment SKF’s double materiality assessment (DMA) considers both impact materiality and financial materiality. The assessment therefore takes into account both how SKF affects society and the planet and how a sustainability topic impacts SKF through financial risks or opportunities. By evaluating the Group’s materiality from both perspec- tives, SKF can identify and report on the most relevant sustainability matters as well as to allocate resources efficiently and shape strategies accordingly. Methodologies and assumptions SKF’s DMA follows the European Sustainability Reporting Standards (ESRS) 1 requirements as regulated within the Corporate Sustainability Reporting Directive (CSRD). The following steps were conducted for the process of identify- ing sustainability related impacts, risks, and opportunities. For more information on stakeholder views and interests please see Interests and views of stakeholders on page 87. Criteria for assessing impacts, risks, and opportunities • Scale of impact: How severe the negative impact is or how beneficial the positive impact is to people or the environment. The scale ranges from none to significant. • Scope of impact: How widespread the negative or posi- tive impact is. When it comes to environmental impact, the extent can be understood as the extent of environ- mental damage or geographical spread. When it comes to the impact on people, the extent can be understood as the number of people who are negatively affected. The scope ranges from minimal to global. • Irremediability of impact: Whether the negative impact can be remedied, meaning that the environment or the affected persons are restored to their previous state. The irremediability ranges from very easy to remediate to irreversible. • Likelihood: Impacts, risks, and opportunities have been identified as actual or potential. Likelihood for potential impacts ranges from unlikely to high. • Financial risks or opportunities: Considers how a sus- tainability topic affects, among other things, current and future price/cost, availability, supply and demand for re - sources, management of resources and policy/regulatory constraints, which can affect the company’s economic value and market share. The assessment also considers the future ability for continued relationships and ex - changes with, among other things, financial institutions, suppliers, contractors, customers, and society at large. A. Understanding SKF’s business context The understanding of SKF’s context builds on the Group’s long history of identifying and managing sustainability related impacts, risks and opportunities, as well as research, benchmarking and internal projects and programmes. In this step, SKF analyzed previous materiality assessments, business plans, strategy, financial statements and other information. Furthermore, the step included mapping of SKF’s value chain in line with the Group’s due diligence pro- cess, including for example geographic locations of its own activities as well as affected stakeholders. SKF has also examined the legal and regulatory landscape, media reports, sector-specific benchmarks, global sustainability risks such as the triple planetary crisis and scientific articles. B. Identify SKF’s actual and potential impacts, risks, and opportunities For this step, SKF used the list of topics presented in ESRS 1 paragraph AR16 as a foundation for identifying its actual and potential impacts, risks and opportunities across the Group’s own operations and in its upstream and downstream value chain. Through the understanding of the context, SKF has identified both actual and potential posi- tive and negative impacts as well as financial risks and opportunities relating to environmental, social and govern- ance matters. C. Assessment of impacts, risks and opportunities and defining thresholds The process, criteria and thresholds for impact materiality assessment differ from financial materiality assessment. Impact materiality assessment and thresholds Each identified actual or potential impact was assessed based on severity and likelihood. The criteria considered for severity of an actual negative impact are scale, scope and irremediable character. For actual positive impacts, the criteria are scale and scope. All assessment criteria can make an impact material. Potential positive and nega- tive impacts also include an assessment on likelihood of occurrence in a short-term, medium-term, and/or long-term time horizon. SKF defines short-term as within a year, medium-term as between one and five years and long-term as beyond five years. In the case of a potential negative impact on human rights, the severity of the impact takes precedence over the probability. Based on the criteria, a positive or negative impact can be assessed as minimal, informative, important, signifi- cant, or crucial. SKF’s threshold for impact materiality is from important and up, meaning that the impact is consid- ered material if it is important, significant or crucial. Financial materiality assessment and thresholds Each identified actual or potential sustainability-related risk and opportunity was assessed based on its likelihood and impact on SKF’s financial results and performance. The threshold for financial materiality follows SKF’s ERM process and thresholds for risk to the Group’s finan- cial results. Thus, a risk or opportunity can be assessed as minimal, informative, important, significant or crucial. As for impact materiality, SKF’s threshold for financial materiality is from important and up, hence the risk or opportunity is considered material if the impact is impor- tant, significant or crucial. D. Summary and validation of material ESRS subtopics The results of the impact and financial materiality of the ESRS subtopics were consolidated on Group level and reviewed together with sustainability representatives from SKF’s Business Areas, Group functions related to sustainability and relevant subject matter experts. Further- more, the results were validated against stakeholder views and expectations. The validation of the DMA follows SKF’s sustainability governance model. The summarized results for SKF’s DMA can be found under Material impacts, risks and oppor tunities and their interaction with strategy and business model on page 89. Material sustainability matters D A B C B C Summary and validation of material sustainability topics Context, business model, value chain, business relationships Impact materiality Identify actual and potential positive and negative impacts related to sustain- ability topics Assessment of impacts and defining thresholds Financial materiality Identify actual and potential sustainability- related risks and opportunities to the company Assessment of risks and opportunities and defining financial thresholds Stakeholders' views and interests SKF ANNUAL REPORT 2024 95 THI S IS SKF PRESIDENT’S LETTER STRATEGY AND VALUE CREATION THE BEARING MARKET RISKS AND THE SHARE SUSTAINABILITY REPORT CORPORATE GOVERNANCE REMUNERATION REPORT GROUP DATA FINANCIAL STATEMENTS BAC K TO START Environmental Contextual Information The EU Taxonomy is part of EU’s Green Deal and is a key enabler for delivering on the EU’s environmental goals by 2050. It is a classification system that defines and quanti- fies how environmentally sustainable economic activities support the transition towards an economy consistent with the EU´s six environmental objectives: Climate change mitigation, Climate change adaptation, Sustainable use of water and marine resources, Transition to a circular econ- omy, Pollution prevention and Protection of biodiversity and ecosystems. SKF is eligible for six economic activities under the EU Taxonomy covering manufacturing of components for the Automotive Industry, Railway Industry, Magnetic Bearings, Condition Monitoring hardware and services and Owner- ship and leasing of company cars and buildings. During 2024 SKF has assessed EU Taxonomy alignment for the economic activities in scope. Economic activities are reported as Taxonomy-aligned if they: 1. have a significant contribution to one or more of the six environmental objectives, 2. do no significant harm (DNSH) to any of the other environmental objectives, and 3. meet the minimum safeguards criteria related to human rights and business ethics. Summary SKF launched a cross-functional project in 2024 to reassess eligibility and evaluate the technical screening criteria for alignment with SKF’s in-scope activities. The findings from this project serve as the foundation for this year’s reporting and the improvement initiatives that are planned to increase alignment. The assessment for the first requirement shows that SKF’s products and services for fully electric vehicles and electric railways make significant contributions to Climate Change Mitigation.Additionally, SKF’s Condition Monitor- ing services significantly contribute to Circular Economy by assisting customers in monitoring the performance of the rotating shaft, thereby enabling measures to extend the lifespan of components. The assessment for the second requirement shows that it is not possible for SKF to claim full alignment for all eligible SKF products, primarily due the pollution requirements concerning use of substances of concern in relevant prod- ucts. These requirements extend beyond current legisla- tion and will require efforts throughout the supply chain to achieve alignment. The assessment for the third requirement shows that SKF fulfills the requirements and, consequently, SKF can claim alignment for condition monitoring services, and has identified actions to further align the Group’s products with the EU Taxonomy read about the minimum safe- guards on page 97. Substantial contribution to climate change mitigation SKF’s products manufactured for the automotive industry are eligible under CCM 3.18 Manufacture of automotive and mobility components. By manufacturing components specifically designed for zero-emission vehicles in cate- gories M, N, and L, SKF makes a substantial contribution to Climate change mitigation. SKF’s products manufactured for the railway industry are eligible under CCM 3.19 Manufacture of rail rolling stock constituents. The components supplied for electric trains that meet the technical screening criteria make a substan- tial contribution to Climate change mitigation. SKF’s magnetic bearing portfolio is eligible under CCM 3.6 Manufacture of low carbon technologies. Mag- netic bearings are designed to minimize friction, resulting in reduced emissions and thus substantially contributing to Climate change mitigation. However, this contribution has not yet been validated through a third-party verified Life Cycle Assessment (LCA), even though peer reviewed academic studies reflect these results of lower emission relative to conventional bearings. In addition to manufacturing activities, SKF’s purchased and leased company cars are eligible under CCM 6.5 Transport by motorbikes, passenger cars and light com- mercial vehicles. SKF fulfils the substantial contribution criteria for all fully electric vehicles. However, there are challenges collecting data to verify DNSH criteria, particu- larly regarding tires, resulting in non-alignment. SKF’s acquisition and ownership of buildings, such as office space, are eligible under CCM 7.7 Acquisition and ownership of buildings. SKF has a Sustainable Buildings Policy which requires all new large constructions (includ- ing significant refurbishments), which are to be owned or leased by SKF, to be certified according to LEED (Leadership in Energy and Environmental Design) Gold at a minimum. The policy also states that EU Taxonomy alignment should be evaluated. EU Taxonomy alignment is however not mandatory but could complement the LEED certification. Substantial contribution to circular economy SKF’s condition monitoring solutions, including both services and hardware, are captured under activity CE 4.1 Provision of IT/OT data-driven solutions. By offering remote monitoring and predictive maintenance, the condition monitoring solutions aim to detect and diagnose potential issues or abnormalities before they lead to equipment failure, downtime, or safety hazards which in turn signifi- cantly contributes to the Circular economy. SKF EU Taxonomy Eligible activities and KPIs EU Taxonomy activities eligible for SKF SKF Activity Turnover Capex Opex CCM 3.6 Manufacture of other low carbon technologies Manufacturing of Magnetic Bearings Eligible Eligible Eligible CCM 3.18 Manufacture of automotive and mobility components Manufacturing of components for selected vehicle categories within the Automotive industry segment Eligible Eligible Eligible CCM 3.19 Manufacture of rail rolling stock constituents Manufacturing of rail rolling stock constituents within the Railway industry segment Eligible Eligible Eligible CE 4.1 Provision of IT/OT data-driven solutions Condition monitoring solutions, including both the hardware and services Eligible Eligible Eligible CCM 6.5 Transport by motorbikes, passenger cars and light commercial vehicles Leased and acquired company cars Eligible CCM 7.7 Acquisition and ownership of buildings Leased and acquired buildings Eligible EU Taxonomy disclosures SKF ANNUAL REPORT 2024 96 THI S IS SKF PRESIDENT’S LETTER STRATEGY AND VALUE CREATION THE BEARING MARKET RISKS AND THE SHARE SUSTAINABILITY REPORT CORPORATE GOVERNANCE REMUNERATION REPORT GROUP DATA FINANCIAL STATEMENTS BAC K TO START The condition monitoring solutions include various methods for monitoring machinery during operation. Techniques such as vibration analysis, acoustic emission, thermography and lubrication analysis are employed to predict maintenance needs and identify abnormalities. These techniques ensure optimal performance and expand the lifespan of equipment. Condition monitoring solutions typically consist of two components: a hardware component, such as a sensor, and a service component, like data analysis. The hardware is engineered for high durability to meet customer require- ments regarding the lifetime of the hardware. There is also an instruction on how to handle waste at the hardware’s end of life, in addition to the WEEE label. However, addi- tional actions to verify design aspects and waste manage- ment have been identified and is planned to be conducted for SKF to fully meet the substantial contribution criteria. Minimum Safeguards The Minimum Safeguards ensure that companies meet certain standards when it comes to human rights including workers’ rights, taxation, fair competition and prevention of bribery. SKF has during the year assessed Minimum Safeguard criteria and concluded alignment against applicable criteria. SKF is committed to conducting its business in accordance with applicable laws and regulations and adheres to international standards and guidelines in cluding OECD guidelines for Multinational Companies, UN guiding principles on business and human rights, the International Bill of Human Rights, Global Compact’s Ten principles, ILOs Declaration on Fundamental Prin- ciples and Rights at Work and the International Chamber of Commerce (ICC) Charter. These applicable laws and regulations on human rights are reflected in the SKF Code of Conduct, publicly available on skf.com. As part of the due diligence process, SKF has identified human rights impacts through a Human Rights Impact Assessment, carried out during 2023. The assessment included evaluation and determination of these impacts. Read more about identified impacts on page 89. The human rights impact assessment is planned to be updated in 2025 to ensure continuous improvement and further strengthening due diligence efforts. In terms of anti-corruption, SKF has robust measures and processes to combat bribery and corruption, which are detailed further on page 137. SKF business activities are carried out in accordance with applicable competi- tion laws, and training on this topic is mandatory for all employees. Regarding taxation, SKF applies all relevant tax regulations and follows a publicly available tax policy, operating in line with internationally recognized standards including OECD guidelines. By maintaining these safe- guards, SKF ensures transparency, accountability and ethical practices across all operations, reinforcing our commitment to sustainable and responsible business conduct. DNSH Climate change adaptation Based on this year’s assessment, SKF has determined that manufacturing sites and real estate facilities partially fulfil the Do No Significant Harm (DNSH) Climate change adap- tation criteria. Currently, there is a loss prevention process in place to address existing physical climate risks. Addi- tionally, SKF has invested in a system designed to account for future physical climate risks across various scenarios projected up to the year 2100. SKF has an ongoing project for further embedding physical climate risks into existing procedures and developing site level adaptation plans where significant risks are identified. SKF’s current efforts related to Climate Change Adapta- tion are outlined in more detail on pages 102–119. DNSH Water and marine resources Based on this year’s assessment, SKF manufacturing sites fulfil the DNSH Water and marine resources criteria. SKF operations are not considered to be water intensive, however, water is relevant at specific locations. Water is sourced primarily from municipal supplies and other sources like wells and surface water, adhering to regional regulations. Performance is monitored for sites located in areas of actual and potential water stress. SKF leverages the Aqueduct Water Risk Atlas (World Resources Institute) framework for water stress and scar- city assessments, identifying 18 sites in water-stressed areas. These sites are required to implement plans to mini- mize water usage. SKF’s EHS management system includes a procedure on wastewater and storm water discharge to avoid dis- charging polluted water and to minimize water usage. After use, water is treated and discharged into surface water or sewage systems, meeting local quality standards to mitigate environmental impacts. These measures are expected to also secure that SKF manufacturing sites do not hamper marine waters. SKF also works with upstream water users, such as steel and energy suppliers, to reduce water use, for example by requiring that suppliers adopt the ISO 14001 standard. Given the low water intensity of SKF’s operations and the adherence to wastewater treatment standards, the Group’s impact on local community water availability and quality is low. DNSH Biodiversity Based on this year’s assessment, SKF has concluded that further investigations are necessary to verify compliance with the DNSH biodiversity criteria. SKF’s operations are not considered to have significant risk of impacting biodiversity. The manufacturing facilities are situated in industrial areas, which are typically charac- terized by low levels of biodiversity. Moreover, all SKF manufacturing sites are certified according to ISO 14001 Environmental Management System. The EHS Management system includes processes for identifying environmental risks and opportunities, however, biodiversity is not spe- cifically addressed. SKF plans to integrate biodiversity components in these processes. In 2023, SKF improved its understanding of biodiversity impacts and has initiated the use of a biodiversity assess- ment tool to evaluate proximity of its manufacturing facili- ties to biodiversity-sensitive areas. SKF will evaluate the possibility to scale the use of the tool across the organization. DNSH Circular economy Based on this year’s assessment, SKF has concluded that manufacturing sites fulfil the DNSH Circular economy cri- teria with the exception to certain identified improvement areas pertaining to magnetic bearings (CCM 3.6) which need to be addressed to further strengthen current efforts. The requirements of the DNSH criteria related to Circu- lar economy are specific to economic activities CCM 3.6, CCM 3.18, and CCM 3.19. To meet these requirements, SKF must evaluate, and where possible, implement techniques that promote the a) reuse of secondary raw materials and components, b) design of products for high durability, re - cyclability, easy disassembly and adaptability, c) prioriti- zation of recycling over disposal in waste management and d) ensurance of information and traceability of substances of concern throughout the product lifecycle. SKF’s current recycling guidelines and Sustainability Design Aspect doc- uments address points a-c in the DNSH criteria for circular economy and are implemented within the automotive and railway business areas (CCM 3.18 and CCM 3.19). SKF has identified improvement areas against current efforts pertaining to design aspects and waste manage- ment processes for magnetic bearings (CCM 3.6) which are needed to fully align with the criteria. Regarding the traceability of substances (point d), SKF ensures traceability of substances of concern until products are delivered to customers, providing information through for example REACH/RoHS certificates. Addition- ally, SKF has a hazardous substances policy covering traceability in the value chain, and sustainability stand- ards for suppliers. DNSH Pollution Based on this year’s assessment, it was concluded that while SKF follows all applicable legal requirements for restricted and declarable substances in products, this does not fully align with the EU Taxonomy requirements for Substances of very high concern (SVHC), as well as other substances with similar hazard classes as SVHCs. This is a challenge, requiring extensive efforts throughout the supply chain. EU Taxonomy disclosures cont. SKF ANNUAL REPORT 2024 97 THI S IS SKF PRESIDENT’S LETTER STRATEGY AND VALUE CREATION THE BEARING MARKET RISKS AND THE SHARE SUSTAINABILITY REPORT CORPORATE GOVERNANCE REMUNERATION REPORT GROUP DATA FINANCIAL STATEMENTS BAC K TO START SKF regularly engages with suppliers on the presence of SVHCs and substances of concern. Data is systematically managed within a compliance database and operations are ISO 9001 and 14001 certified, ensuring validated sup- porting processes. SKF also has a Restricted Substances List (RSL), to help assess alternatives as new restricted substances are added through legal requirements. When technically feasible, SKF takes efforts to eliminate SVHCs and seek alternative non-hazardous substances. To fully meet the DNSH Pollution criteria, SKF must exceed the legal requirements. SKF will continue exploring potential alternative substances to replace hazardous materials. In addition to this research, an engagement program will be implemented with suppliers to assess the feasibility of eliminating SVHCs from the supply chain. Accounting Policies Total turnover corresponds to net sales in the consolidated financial statement. Eligible turnover for CCM 3.6, CCM 3.18, CCM 3.19 and CE 4.1 corresponds to the net sales for specific products and services sold. Total capital expenditures (Capex) covers investments in tangible assets, intangible assets and right-of-use assets considered before depreciation, amortization and any re-measurements and correspond to the additions in Note 10, 11 and 12 to the consolidated financial statement. Capital expenditures resulting from business mergers and acquisitions is also included and is part of the reported amount for businesses acquired/sold in Note 10 and Note 11. Total operational expenditures (Opex) correspond to research and development costs, short-term leases, main- tenance and repair costs, including building renovation and day-to-day servicing of assets and property. Eligible Capex and Opex are allocated based on net sales for turover generating activities, since a majority of SKF’s factories produce both eligible and non-eligible products. The reporting on aligned Turnover, Capex and Opex for condition monitoring services is impacted by the possi- bility to separate services and hardware in the sales data. Revenue streams that include both services and hardware have been excluded for the cases where a separation has not been possible. EU Taxonomy disclosures cont. Mandatory table related to nuclear and fossil gas activities Row Nuclear energy related activities 1. The undertaking carries out, funds or has exposures to research, development, demonstration and deployment of innovative electricity generation facilities that produce energy from nuclear processes with minimal waste from the fuel cycle. No 2. The undertaking carries out, funds or has exposures to construction and safe operation of new nuclear installations to produce electricity or process heat, including for the purposes of district heating or industrial processes such as hydrogen production, as well as their safety upgrades, using best available technologies. No 3. The undertaking carries out, funds or has exposures to safe operation of existing nuclear installations that produce electricity or process heat, including for the purposes of district heating or industrial processes such as hydrogen production from nuclear energy, as well as their safety upgrades. No Fossil gas related activities 4. The undertaking carries out, funds or has exposures to construction or operation of electricity generation facilities that produce electricity using fossil gaseous fuels. No 5. The undertaking carries out, funds or has exposures to construction, refurbishment, and operation of combined heat/cool and power generation facilities using fossil gaseous fuels. No 6. The undertaking carries out, funds or has exposures to construction, refurbishment and operation of heat generation facilities that produce heat/cool using fossil gaseous fuels. No SKF ANNUAL REPORT 2024 98 THI S IS SKF PRESIDENT’S LETTER STRATEGY AND VALUE CREATION THE BEARING MARKET RISKS AND THE SHARE SUSTAINABILITY REPORT CORPORATE GOVERNANCE REMUNERATION REPORT GROUP DATA FINANCIAL STATEMENTS BAC K TO START Financial year 2024 Year Substantial contribution criteria DNSH criteria (Do No Significant Harm) Economic activites Code/codes (a) Turnover MSEK Proportion of Turnover, 2024 % Climate change mitigation Y; N; N/EL Climate change adaption Y; N; N/EL Water Y; N; N/EL Pollution Y; N; N/EL Circular Economy Y; N; N/EL Biodiversity Y; N; N/EL Climate change mitigation Y/N Climate change adaption Y/N Water Y/N Pollution Y/N Circular Economy Y/N Biodiversity Y/N Minimum safeguards Y/N Proportion of taxonomy aligned (A1) or eligible (A2) turnover, 2023 % Category (enabling activity) E Category (transitional activity) T A. TAXONOMY-ELIGIBLE ACTIVITIES A.1 Environmentally sustainable activities (Taxonomy- aligned) Turnover of environmentally sustainable activities Taxonomy-aligned (A.1) Of which Enabling E Provision of IT/OT data-driven solution CE 4.1 212 0 N/EL N/EL N/EL N/EL Y N/EL Y Y Y Y Y Y Y 0 E Of which Transitional T A.2 Taxonomy-eligible but not environmentally sustainable activities (not Taxonomy-aligned activities) EL; N/EL EL; N/EL EL; N/EL EL; N/EL EL; N/EL EL; N/EL Manufacture of other low carbon technologies CCM 3.6 1,145 1 EL N/EL N/EL N/EL N/EL N/EL 0 Manufacture of automotive and mobility components CCM 3.18 28,625 29 EL N/EL N/EL N/EL N/EL N/EL 29 Manufacture of rail rolling stock constituents CCM 3.19 5,393 5 EL N/EL N/EL N/EL N/EL N/EL 5 Provision of IT/OT data-driven solution CE 4.1 2,239 2 N/EL N/EL N/EL N/EL EL N/EL 2 Turnover of Taxonomy-eligible but not environmentally sustainable activities (not Taxonomy-aligned activities) (A.2) 37,402 38 EL N/EL N/EL N/EL EL N/EL 37 A. Turnover of Taxonomy-eligible activities (A.1+A.2) 37,614 38 EL N/EL N/EL N/EL EL N/EL 37 B. TAXONOMY-NON-ELIGIBLE ACTIVITIES Turnover of Taxonomy- non-eligible activities (B) 61,108 62 Total (A + B) 98,722 100 EL = Eligible N/EL = Non eligable Proportion of turnover/Total turnover % Taxonomy-aligned per objective Taxonomy-eligible per objective CCM 36 CCA WTR CE 2 PPC BIO EU Taxonomy disclosures cont. SKF ANNUAL REPORT 2024 99 THI S IS SKF PRESIDENT’S LETTER STRATEGY AND VALUE CREATION THE BEARING MARKET RISKS AND THE SHARE SUSTAINABILITY REPORT CORPORATE GOVERNANCE REMUNERATION REPORT GROUP DATA FINANCIAL STATEMENTS BAC K TO START EU Taxonomy disclosures cont. Financial year 2024 Year Substantial contribution criteria DNSH criteria (Do No Significant Harm) Economic activites Code/codes (a) CapEx MSEK Proportion of CapEx , 2024 % Climate change mitigation Y; N; N/EL Climate change adaption Y; N; N/EL Water Y; N; N/EL Pollution Y; N; N/EL Circular Economy Y; N; N/EL Biodiversity Y; N; N/EL Climate change mitigation Y/N Climate change adaption Y/N Water Y/N Pollution Y/N Circular Economy Y/N Biodiversity Y/N Minimum safeguards Y/N Proportion of taxonomy aligned (A1) or eligible (A2) CapEx, 2023 % Category (enabling activity) E Category (transitional activity) T A. TAXONOMY-ELIGIBLE ACTIVITIES A.1 Environmental sustainable activities (Taxonomy- aligned) CapEx of environmental sustainable activities Taxonomy-aligned (A.1) Of which Enabling E Provision of IT/OT data-driven solution CE 4.1 14 0 N/EL N/EL N/EL N/EL Y N/EL Y Y Y Y Y Y Y 0 E Of which Transitional T A.2 Taxonomy-eligible but not environmental sustainable activities (not Taxonomy-aligned activities) EL; N/EL EL; N/EL EL; N/EL EL; N/EL EL; N/EL EL; N/EL Manufacture of other low carbon technologies CCM 3.6 30 0 EL N/EL N/EL N/EL N/EL N/EL 0 Manufacture of automotive and mobility components CCM 3.18 1,743 27 EL N/EL N/EL N/EL N/EL N/EL 34 Manufacture of rail rolling stock constituents CCM 3.19 389 6 EL N/EL N/EL N/EL N/EL N/EL 4 Provision of IT/OT data-driven solution CE 4.1 99 2 N/EL N/EL N/EL N/EL EL N/EL 2 Transport by motorbikes, passenger cars and light commercial vehicles CCM 6.5 24 0 EL N/EL N/EL N/EL N/EL N/EL 0 Acquisition and ownership of buildings CCM 7.7 304 5 EL N/EL N/EL N/EL N/EL N/EL 2 CapEx of Taxonomy-eligible but not environmentally sustainable activities (not Taxonomy-aligned activties) (A.2) 2,588 40 EL N/EL N/EL N/EL EL N/EL 41 A. CapEx of Taxonomy eligible activities (A.1+A.2) 2,602 40 EL N/EL N/EL N/EL EL N/EL 41 B. TAXONOMY-NON-ELIGIBLE ACTIVITIES CapEx of Taxonomy- non-eligible activities (B) 3,933 60 Total (A + B) 6,535 100 EL = Eligible N/EL = Non eligable Proportion of CapEx/Total CapEx % Taxonomy-aligned per objective Taxonomy-eligible per objective CCM 38 CCA WTR CE 2 PPC BIO SKF ANNUAL REPORT 2024 100 THI S IS SKF PRESIDENT’S LETTER STRATEGY AND VALUE CREATION THE BEARING MARKET RISKS AND THE SHARE SUSTAINABILITY REPORT CORPORATE GOVERNANCE REMUNERATION REPORT GROUP DATA FINANCIAL STATEMENTS BAC K TO START Financial year 2024 Year Substantial contribution criteria DNSH criteria (Do No Significant Harm) Economic activites Code/codes (a) OpEx MSEK Proportion of OpEx , 2024 % Climate change mitigation Y; N; N/EL Climate change adaption Y; N; N/EL Water Y; N; N/EL Pollution Y; N; N/EL Circular Economy Y; N; N/EL Biodiversity Y; N; N/EL Climate change mitigation Y/N Climate change adaption Y/N Water Y/N Pollution Y/N Circular Economy Y/N Biodiversity Y/N Minimum safeguards Y/N Proportion of taxonomy aligned (A1) or eligible (A2) OpEx, 2023 % Category (enabling activity) E Category (transitional activity) T A. TAXONOMY-ELIGIBLE ACTIVITIES A.1 Environmental sustainable activities (Taxonomy- aligned) OpEx of environmental sustainable activities Taxonomy-aligned (A.1) Of which Enabling E Provision of IT/OT data-driven solution CE 4.1 9 0 N/EL N/EL N/EL N/EL Y N/EL Y Y Y Y Y Y Y 0 E Of which Transitional T A.2 Taxonomy-eligible but not environmental sustainable activities (not Taxonomy-aligned activities) EL; N/EL EL; N/EL EL; N/EL EL; N/EL EL; N/EL EL; N/EL Manufacture of other low carbon technologies CCM 3.6 139 3 EL N/EL N/EL N/EL N/EL N/EL 0 Manufacture of automotive and mobility components CCM 3.18 1,315 25 EL N/EL N/EL N/EL N/EL N/EL 23 Manufacture of rail rolling stock constituents CCM 3.19 299 6 EL N/EL N/EL N/EL N/EL N/EL 5 Provision of IT/OT data-driven solution CE 4.1 235 4 N/EL N/EL N/EL N/EL EL N/EL 5 OpEx of Taxonomy-eligible but not environmentally sustainable activities (not Taxonomy-aligned activities) (A.2) 1,988 38 EL N/EL N/EL N/EL EL N/EL 33 A. OpEx of Taxonomy eligible activities (A.1+A.2) 1,997 38 EL N/EL N/EL N/EL EL N/EL 33 B. TAXONOMY-NON-ELIGIBLE ACTIVITIES OpEx of Taxonomy- non-eligible activities (B) 3,288 62 Total (A + B) 5,285 100 EL = Eligible N/EL = Non eligable Proportion of OpEx/Total OpEx % Taxonomy-aligned per objective Taxonomy-eligible per objective CCM 33 CCA WTR CE 5 PPC BIO EU Taxonomy disclosures cont. SKF ANNUAL REPORT 2024 101 THI S IS SKF PRESIDENT’S LETTER STRATEGY AND VALUE CREATION THE BEARING MARKET RISKS AND THE SHARE SUSTAINABILITY REPORT CORPORATE GOVERNANCE REMUNERATION REPORT GROUP DATA FINANCIAL STATEMENTS BAC K TO START SKF’s climate approach SKF bases its climate position and strategy on science, and is committed to the Paris Agreement’s goal of limiting global warming to 1.5 °C. The Group’s full value chain cli- mate goals were approved 2023 by the Science Based Targets initiative (SBTi). SKF’s largest contribution to the transformation to a net-zero future lies in what can be achieved with, and for, it’s customers. With a strategic focus on clean technology industries at all stages of industrialization, SKF is develop- ing products, solutions and services that enable these technologies to develop, making them competitive and supporting the need for rapid growth in the coming years. SKF can contribute to significant energy and carbon savings for customers in all industries by optimizing the design of it’s products. This is done by making them e.g. lighter, more efficient, longer-lasting and repairable, as well as improving the performance of the customers’ products by optimizing system designs through advanced modelling and simulation. For example. SKF’s service offering, including condition monitoring, reliability services and asset optimization, is fundamentally focused on the removal of waste from customer processes and value chains. Such contracts aim to eliminate energy, material, and transportation waste, and consequently reduce emis- sions. With a combination of these approaches, SKF has the potential to make a profound contribution to the transi- tion to a net-zero world and, at the same time drive innova- tion and growth for SKF and its customers. However, SKF’s moral and business obligations are not limited to its ability to enable transformation with custom- ers. SKF must of course address carbon emissions of its own operations and activities, as well as those in its extended supply chain. While the scale of these impacts may be relatively small compared to those of its customers’ products, processes, and systems, they are still significant. By addressing them, SKF sets a positive example for cus- tomers, suppliers and other stakeholders, and creates long- term competitive advantages by reducing costs and risks. SKF has been measuring and acting on carbon emis- sions from its own production activities for more than 20 years, and has in that time achieved continued eco- nomic growth while reducing its greenhouse gas emissions impact in real terms. The Group has also been working for several years to understand and reduce the carbon impact of its suppliers, as well as other activities such as logistics and business travel. Material impacts, risks and opportunities and their interaction with strategy and business model(s) SKF performs resilience analysis on its own operations, strategy, business model and value chain in various ways. This includes resilience analysis relating to risks and opportunities coming from climate mitigation conducted on the full value chain, including upstream supply chain, SKF’s direct operations and customers. Resilience analysis of adaptation and physical climate risks is primarily focused on SKF operations and, to an increasing extent, on the upstream supply chain. Downstream physical risks are not yet in the scope of the resilience analysis, mainly due to the highly diversified (both regionally and industry-wise) and global nature of SKF’s customer base – which effectively decreases many of the relevant physical risks. Resilience is evaluated based on scenario input in short (0-1 years), medium (1–5 years) and long term (5–30 years). In general, SKF performs resilience analysis for climate topics by using externally published scenarios. Depending on the topic, one or more scenarios are applied, including the IEA SDS, IEA Net Zero, RCP 2.6, 6.0 and 8.5 and other industry specific scenarios. Cross-functional teams make use of the scenarios to identify and quantify specific SKF risks and opportunities, which are then addressed within the relevant strategies, organisations and processes. The set-up of the cross- functional teams depends on the topic, but may for example include Sales and Marketing, Business Develop- ment, Manufacturing Operations, Loss Prevention & Risk, Purchasing, Group Legal, Group Real Estate and Facility Management and Group Sustainability. Short-term climate risks and opportunities are inte- grated into the yearly operational business planning and follow-up. Medium-term and long-term climate risks and opportunities are integrated into the strategic business planning. The Group’s climate targets typically cover a longer time horizon, for example, the target to decarbonize SKF’s operations by 2030 and achieve net-zero green- house gas emissions in the value chain by 2050. This is to make sure that long-term climate-related risks and oppor- tunities are proactively identified. In some cases, individual strategic initiatives are con- ducted to investigate specific risks, opportunities and impacts, and find ways to address these in existing strate- gies and business models. Naturally, the future orientation of resilience analysis means that it is subject to uncertainties. For example, the speed and scale of the implementation of many aspects of industrial decarbonization in the industries and regions which SKF serves is heavily dependent on government interventions, such as incentives and taxes. If these policies do not materialise, or if they develop more slowly or quickly than predicted, this can impact the prospects for SKF’s growth. There are also uncertainties around which technology paths that will be followed. For example, it is uncertain how quickly and to what extent carbon capture and storage (CCS) will scale up as a major technology to allow the con- tinued use of fossil fuels. SKF tries to address these types of uncertainties by using a range of climate scenarios in the formulation of the Group’s strategy. As a result of the processes described above the main climate-related risks and opportunities have been identi- fied and are highlighted below. • Opportunities for business growth resulting from the climate transformation (renewable energy, energy storage, energy efficiency, electrification, circular business models etc.) • Current and emerging regulatory risks relating to increased energy and raw materials costs in SKF operations and upstream supply chain, increased reporting requirements etc. • Physical risks to continuity of production and supply posed by increased occurrence of extreme weather events, flooding, water scarcity etc. Risks which exist but do not meet the materiality threshold include; • Risks of contraction of certain industries (unabated coal, oil and gas for example) resulting in loss of business for SKF. • Reputational risks and opportunities. Climate change adaptation and mitigation Material impacts, risks and opportunities IRO and value chain Description Climate change mitigation Positive impacts Downstream Innovating and providing products and services for the climate transition Negative impacts Full value chain Greenhouse gas emissions from own operations and value chain (scope 1, 2, 3) Risks Upstream and own operations Cost of decarbonization Opportunities Downstream Winning business by providing products and services that enable the climate transition Climate change adaptation Risks Own operations and upstream Physical climate risks Energy Positive impacts Downstream Reducing friction and increasing energy efficiency Negative impacts Full value chain Use of fossil energy Risks Own operations and upstream Energy price fluctuations Opportunity Downstream Winning business by providing energy efficient solutions SKF ANNUAL REPORT 2024 102 THI S IS SKF PRESIDENT’S LETTER STRATEGY AND VALUE CREATION THE BEARING MARKET RISKS AND THE SHARE SUSTAINABILITY REPORT CORPORATE GOVERNANCE REMUNERATION REPORT GROUP DATA FINANCIAL STATEMENTS BAC K TO START Examples of how the risks and opportunities have been identified are presented below; Opportunities for business growth resulting from the climate transformation SKF uses several scenarios, including IEA SDS, IEA Net Zero and other industry specific scenarios, to inform and check the robustness of key aspects of the Group strategy. For example, several years ago, such input helped the Automotive Business Area to identify electrification as a key climate-related trend within the passenger car indus- try. This led to a focus on innovation and development of competitive solutions needed to enable electric vehicle drivetrains. Several partnerships between SKF and key OEMs and tier one suppliers were established and as a result, SKF can now provide a complete package offering of bearings and seals featuring high speed, thin sections and electric current insulation options. Power density and friction reduction are some of the main drivers of current and new vehicles, and SKF has become a leader by devel- oping low friction bearings for electric vehicles. Similar work is ongoing within SKF’s industrial business. For example, during 2024 a comprehensive study was completed, looking at industrial climate-related technolo- gies, including the synergies between SKF’s offering and projections of growth potential based on IEA Net Zero and other scenarios. The output of this study has validated some existing aspects of SKF’s growth strategy, such as the focus on developing solutions for the emerging green hydrogen industry. The study also identified new opportu- nities for growth within other fast evolving technologies related to decarbonization. As part of the Group’s climate and strategic objectives, SKF provides yearly aggregated revenue data from SKF customer solutions enabling cleantech growth in areas where SKF’s customer solutions clearly contribute to cli- mate change mitigation and circular economy, including: renewable energy, electric vehicles, electric railway, recy- cling industry, bearing remanufacturing, RecondOil and magnetic bearing solutions. The total revenue from cus- tomer solutions enabling cleantech amounted to SEK 10.2 billion in 2024. SEK billion 2024 2023 1) 2022 1) Total revenues from customer solutions enabling cleantech 10.2 10.6 10.1 1) Previously published figures have been restated based on adaptation of the scope to better reflect and align with the sectors of the EU Taxonomy. Current and emerging regulatory risks relating to increased energy and raw material costs in SKF operations and upstream supply chain, increased reporting requirements etc – risk identification Carbon taxes and increasing cost of steel The production of steel is energy and greenhouse gas emission intensive. For many years, SKF has been working actively in collaboration with suppliers to reduce green- house gas emissions in the supply chain. As the EU Carbon Border Adjustment Mechanism (CBAM) moves into deployment, this will increase costs for some raw materials, mainly steel, imported to the EU by SKF. Dis- cussions to introduce similar mechanisms are ongoing in the United States, although taxation might not be the pre- ferred method there. The effect will be higher on steel with high embodied greenhouse gas emissions. During the last few years, SKF has simulated potential outcomes of the CBAM to understand the potential impact. SKF has also accelerated the collection of energy and greenhouse gas emission data from its major steel and forging suppliers, representing most of the value, weight and environmental impact in the upstream supply chain. Through scenario analysis and financial simulation on cost increase at different levels of greenhouse gas emission taxation, SKF has increased the understanding of this risk, the potential financial impact to SKF and actions the Group can deploy to mitigate this risk. SKF has prepared the process and systems needed to comply with the CBAM and is addressing the implications of this and other poten- tial legislations in its global sourcing strategy. Increasing cost of energy A structural transformation is expected in the energy sector and massive investments are planned globally to develop a more efficient and clean energy production. One of the most immediate and obvious financial risks, related to climate change for SKF and its value chain, is an increased cost of energy. This is linked to, for example, carbon taxation but also to an increasing demand due to an increase in products that run on electricity. Based on the IEA SDS and Net Zero scenarios, SKF has analysed the impact from an increased cost of energy and defined actions to minimize that impact. The best way to mitigate this risk is to reduce the energy demand. In 2024, SKF continued to focus on energy effi- ciency within its operations, delivering a 3.5% improvement in efficiency. In terms of spend, electricity makes up most of the energy cost, together with a smaller share of natural gas, heat, fuel oil, LPG and biomass. To give an indication of the potential financial impact, based on 2024 data, a 20% increase in costs related to energy used in SKF opera- tions would impact the Group’s result by around MSEK 320 million. SKF also works to improve energy and carbon effi- ciency in its supply chain, as described later in this section. Physical risks to continuity of production and supply posed by increased occurrence of extreme weather events, flooding, water scarcity etc – risk identification SKF has developed a bottom-up and top-down approach towards physical risk scenario analysis. The bottom-up approach is long standing and based on the Group’s EHS management system and loss prevention processes. Oper- ating units are required to identify physical risks including those related to climate change and develop mitigation measures based on this. The top-down approach is based on the the high- emissions RCP8.5 global warming scenario published by the IPCC. A cross-functional team has performed a quanti- tative and qualitative assessment of the potential risks and the effectiveness of existing mitigation measures. Further development of both the bottom-up and top- down processes is underway. Going forward, the RCP 8.5 scenario will be used in order to apply the precautionary approach in defining mitigation measures. The tool con- siders all the main climate-related hazards as defined in the EU delegated regulation (EU 2021/2139) and provides location-based indications of the hazards in the short, medium and long term. Risks of contraction of certain industries, resulting in loss of business for SKF – risk identification This is below the materiality threshold, the sale of products and solutions to coal, oil and gas extraction and process- ing, and use in power generation represents less than 2% of SKF’s total revenues. Under scenarios such as IEA Net Zero and IEA SDS, a sharp reduction in demand for una- bated coal, oil and gas use can be anticipated, which could translate to a reduction in SKF’s business in these sectors. These impacts have been considered in the formulation of related strategies. Reputational risks and opportunities SKF identifies and manages climate-related reputational risks through continuous monitoring of environmental trends and stakeholder expectations. By incorporating cli- mate considerations into strategic planning, SKF ensures its operations meet global sustainability standards. Trans- parent communication with stakeholders is maintained to demonstrate SKF’s commitment to environmental respon- sibility and proactive risk management. This approach helps protect the company’s reputation and supports its goal of a sustainable future. Management of climate risks in strategy and operations Measures are in place to mitigate the identified risks to assets and business activities. These are integrated into relevant strategies, processes and plans. Current and emerging regulatory risks relating to increased energy and raw material costs in SKF operations and upstream supply chain, increased reporting requirements etc. – risk management Operations SKF has a globally certified energy management system for its major manufacturing locations according to ISO50001 and a centralized function to manage strate- gic energy sourcing decisions. To increase focus and drive improvements in both energy and greenhouse gas emission performance, SKF has defined yearly energy efficiency targets for all major manufacturing units. Climate change adaptation and mitigation cont. SKF ANNUAL REPORT 2024 103 THI S IS SKF PRESIDENT’S LETTER STRATEGY AND VALUE CREATION THE BEARING MARKET RISKS AND THE SHARE SUSTAINABILITY REPORT CORPORATE GOVERNANCE REMUNERATION REPORT GROUP DATA FINANCIAL STATEMENTS BAC K TO START Progress towards these targets is followed up monthly for each unit. In addition to this, SKF has defined policies and allocated investment frames to decarbonize its operations by 2030 as explained in the section on SKF’s own opera- tions – scope 1 and 2 on page 104. SKF includes climate performance in both short- and long-term variable salary bonus schemes, see page 84. Supply chain The GHG emissions resulting from extraction and process- ing of the raw materials and components that SKF buys are significantly larger than those resulting from the Group’s direct manufacturing operations. For several years, SKF has worked to influence energy intensive suppliers to implement energy management systems certified accord- ing to ISO 50001. SKF has accelerated the collection of energy and green- house gas emission data from its major steel and forging suppliers representing most of the value, weight and environmental impact in the upstream supply chain. Organizational carbon footprints of SKF show that, of all the raw material inputs, steel production generates the most significant greenhouse gas impact, from raw material to finished product. SKF is acting to measure and reduce this impact in accordance with its net-zero strategy. This involves working directly with steel suppliers as well as advocating for the needed changes through active mem- bership of multi-stakeholder initiatives such as SteelZero and the ResponsibleSteel initiative. SKF is also applying internal shadow carbon pricing as described on page 119. The Group also works to reduce emissions from trans- portation. To reduce environmental impact, as well as costs, SKF works to develop new business models. One example is the efforts to predict maintenance needs and enable cost efficient repairs and services within the customers’ processes. This reduces unplanned shutdowns, which are often linked to significant waste of energy, materials and related greenhouse gas emissions. In addition, SKF works to collect bearings and units for refurbishment or remanu- facturing, which can cut energy and emissions by up to 90%, compared to the production of a new bearing. Physical risks to continuity of production and supply posed by increased occurrence of extreme weather events, flooding, water scarcity etc. – risk management As described above, SKF works to mitigate the physical climate risks in two main ways, bottom-up and top-down. Bottom-up, SKF units are required to understand rele- vant climate risks by making use of a third-party tool which defines the level of risk from different chronic or acute physical climate aspects, based on the unit’s location. This shall then be integrated in the sites overall planning for risk mitigation, which may for example include improved flood resilience measures. Top-down, the same tool is utilized in SKF’s manu- facturing footprint program, where a specific location’s vulnerability to climate related chronic and acute risks is part of the overall evaluation of long-term viability and investment planning. Risks of contraction of certain industries resulting in loss of business for SKF – risk management Like many global industrial companies with a diversified customer base, SKF operates in sectors associated with fossil fuel extraction and energy generation, specifically, the coal, oil and gas sectors. The Group’s business in these sectors represents a small proportion of the overall business. It is anticipated that these sectors will gradually transform or become less relevant in the coming years depending on how widely carbon capture and storage technologies (CCS) are adopted. SKF anticipates significant growth in revenues from cleantech areas such as renewable energy, electrification and hydrogen. This growth is expected to more than offset the loss from the fossil fuel business. The Group’s business in transportation sectors, such as automotive, rail, shipping and air is significant and growing. Many of these sectors still use fossil fuels. How- ever, a major part of SKF’s R&D work is focused on improv- ing the energy and carbon efficiency of these sectors. Description of the processes to identify and assess material climate-related impacts, risks and opportunities SKF has worked with life cycle assessments (LCA) since the early 2000s and, over the years, has conducted numer- ous studies on a broadly representative sample of prod- ucts and solutions. The knowledge acquired by doing this, together with a recently executed organizational carbon footprint study, allows SKF to estimate the size of green- house gas impacts for all significant activities occurring along the full value chain. These are visualized in the graph on this page. To make the greatest impact on reducing global emis- sions, prioritization is necessary. Therefore, the focus is on activities that make the greatest material impact. Near term (2030) targets are applied, and primary data is used to follow the performance wherever possible. Relatively small impacts, or those which are not possible to influence directly, are reported mainly using secondary data. Based on this the following sub-targets and approaches have been established. SKF operations scope 1 and scope 2 This covers scope 1 and 2 emissions from electricity, gas, district heat and other energy sources used at SKF facili- ties as well as other greenhouse gas emissions related to the process, for example emissions from process gases. All SKF factories, testing and research centres, larger warehouses and offices around the world are included. SKF’s detailed approach to addressing these emissions is described in section Transition plan for climate change mitigation including actions and resources in relation to climate change policies starting on page 108. See the table on page 118 for an explanation of emission scopes. Calculations are based on CO 2 and other GHG gases, when available. For Scope 1&2 emissions SKF uses the opera- tional control approach, Scope 3, category 1 (direct and indirect materials) Direct material is the most significant contributor to SKF’s upstream scope 3 emissions and covers bought materials Tonnes CO₂e End of Life Treatment of Sold Products Waste Generated in Operations Business Travel Use of Sold Products Employee Commuting Downstream Transportation and Distribution Scope 1 Scope 2 Scope 3 Fuel and Energy Related Activities Upstream Transportation and Distribution Purchased Goods and Services Capital Goods 0 2,400,000 3,600,000 1,800,000 1,200,000 600,000 3,000,000 Estimated GHG emissions (tonnes), base year 2019 Climate change adaptation and mitigation cont. SKF ANNUAL REPORT 2024 104 THI S IS SKF PRESIDENT’S LETTER STRATEGY AND VALUE CREATION THE BEARING MARKET RISKS AND THE SHARE SUSTAINABILITY REPORT CORPORATE GOVERNANCE REMUNERATION REPORT GROUP DATA FINANCIAL STATEMENTS BAC K TO START and components that are directly applied in SKF’s prod- ucts. This includes mainly steel, but also other materials that are purchased in large volumes, such as rubber, where the embodied emissions are high. It covers impacts that occur at all stages of the supply chain, from raw material extraction and scrap sourcing to steel production and sub- sequent processing. SKF’s detailed approach to addressing these emissions is described starting on page 112 of this report. SKF also purchases indirect materials, such as work clothes, consumables such as hydraulic oil and other process media and grinding wheels. Performed LCA and carbon footprint studies have shown that the emissions associated with the production of these items are small in comparison to the other aspects listed above. Therefore, indirect material is not included in the scope of emission reporting. However, SKF communicates its ambitions and requirements to these suppliers and includes these requirements in the supplier selection criteria. SKF uses IT services, such as servers and cloud storage, through various arrangements. The emissions associated with providing these services are estimated to be around 22,000 tonnes a year which is insignificant compared to emissions in other scope 3 categories. Together with suppliers, SKF will continue the work to find low and, eventually, zero carbon solutions. Scope 3, category 3 (fuel and fuel related energy) This refers to the GHG emissions resulting from the activi- ties which occur pre-energy generation and from the distri- bution and transmission of the energy which SKF uses in its operations, such as the extraction, processing and transportation of fuels used in power stations. Scope 3, category 4 (upstream transportation and distribution) This covers the emissions from about 80% of the outbound flows contracted by SKF, and around 70% from inbound contracted flows. The Group intends to further improve the process for collecting data on the upstream emissions for these cate- gories in the coming years. SKF’s detailed approach to addressing these emissions is described on page 113. Scope 3, category 6 (business travel) This covers the emissions associated with business travel, which includes visits to customers, suppliers, SKF facili- ties and other stakeholders. SKF works to reduce this impact in several ways, including using virtual meeting tools, promoting lower carbon transportation such as rail instead of air travel, and providing low carbon company vehicles. Scope 3, category 7 (employee commuting) This covers emissions caused by SKFs employees travel- ling to and from work, and currently results in around 48,000 tonnes per year. SKF is already working on reduc- ing this in different ways, such as increasing the use of digital workplaces, encouraging lower carbon transporta- tion and providing bus services for employees in certain countries. This work will be intensified, primarily through national management teams, as each country has different challenges and opportunities. Scope 3, category 11 (direct emissions from customer use phase) Although the majority of SKF’s products have indirect use phase emissions, a few products have direct ones. Examples of such products are magnetic bearings, in - cluding the corresponding electric motors when provided along with magnetic bearings, lubrication systems, sys- tems for re-using oil and some solutions for the marine business. Some of these products are classified as inter- mediate products, like magnetic bearings and electric motors. Others can be a stand-alone product system like the system for re-using oil. Climate related hazards Upstream supply chain SKF operations Logistics Customer operations Chronic Heat Stress Sea level rise Water Stress Coastal erosion Risk Could impact long term viability of critical supplier locations. Mitigation Working to map critical supplier risks in this regard. Risk Could impact long term viability of SKF sites in at risk locations. Mitigation Identification of at risk locations, driving local mitigation measures Risk Limited due to highly diversified customer base (geography, industry). Acute Cold wave Wildfire Cyclones Hurricanes Typhoons Storms Tornado Heavy precipitation Flood Avalanche Risk Supply chain disruption due to extreme weather events. Mitigation Multi-sourcing for strategic materials / components. Overall supply chain risk management. Risk SKF production disruption due to extreme weather events. Mitigation Diversified production locations, local emergency response planning and mitigation planning. Climate change adaptation and mitigation cont. Summary of physical climate risks in the SKF value chain SKF ANNUAL REPORT 2024 105 THI S IS SKF PRESIDENT’S LETTER STRATEGY AND VALUE CREATION THE BEARING MARKET RISKS AND THE SHARE SUSTAINABILITY REPORT CORPORATE GOVERNANCE REMUNERATION REPORT GROUP DATA FINANCIAL STATEMENTS BAC K TO START Scenario analysis SKF uses scenario analysis to help identify and quantify climate related risks in the full value chain. Depending on the topic, one or more scenarios are applied, examples include the IEA SDS, IEA Net Zero, RCP 2.6, 6.0 and 8.5 and other industry specific scenarios. Cross functional teams then make use of the scenarios to identify and quantify specific SKF implications (risks or opportunities) and these are then addressed within the relevant strate- gies, organisations, and processes. The make-up of the cross-functional teams depends on the topic but, for example may include Sales and Marketing; Business Development; Manufacturing Operations; Loss Prevention & Risk; Purchasing; Group Legal; Group Real Estate and Facility Management; and Group Sustainability. Short-term (less than one year) climate risks and oppor- tunities are integrated into yearly operational business planning and follow-up. Medium-term (one to five years) and long-term (>five years) climate risks and opportunities are integrated into strategic business planning. The Group’s climate targets typically cover a longer time horizon, for example, the target to decarbonize SKF’s operations by 2030 and achieve net- zero greenhouse gas emissions in the value chain by 2050, This is to make sure that long term climate-related risks and opportunities are proactively identified. In some cases, individual strategic initiatives have been initiated to investigate specific risks, opportunities and impacts and find ways to address these in existing strate- gies, business models etc. Depending on the topic, SKF makes use of multiple sce- narios, or a combination of them ranging from optimistic (IEA Net Zero) to pessimistic (RCP 8.5). Typically, each scenario will have underlying assump- tions about the speed and scale of different mitigation technologies and approaches, and these form the basis of SKF’s evaluation of future opportunities and risk. For example, when seeking to understand the speed and scale of increases in climate mitigation technologies, a future business growth range is established – based on the opti- mistic (Net Zero) and less optimistic (Published Policy Scenario). This range may be further adapted based on other specialist input. Factors which influence the speed and scale of specific mitigation technologies industrialisa- tion include government policy, incentives, thresholds, technology readiness, market readiness and regional variations. When seeking to understand and quantify climate phys- ical risks SKF applies the precautionary principle and assumes the worst scenario RCP 8.5. SKF has acquired a tool from a third party which takes the specific coordinates of SKF locations and those of critical suppliers and pro- vides input on the relevant physical risks in terms of expected severity, frequency etc. During 2024, all SKF’s critical production and warehousing facilities have been evaluated using this tool. This evaluation confirmed that a number of locations are in high-risk areas and these will be addressed in the top-down approach to climate physical risk management described previously, Where applicable the output of these scenarios is uti- lized to understand implications on aspects such as potential future revenue growth, risk of supply chain dis- ruptions etc. Risks and opportunities based on climate related transi- tion events are addressed in various aspects of the Group and Business Area strategy. They are identified as part of the strategic planning process using tools such as sce- nario analysis and resilience analysis described on page 89. A variety of scenarios are applied including IEA Net Zero scenario which is aligned with the Paris agreement. As explained on page 89, overall, the opportunities pre- sented by transition related events significantly out-weigh the risks. The type, impact magnitude and timing of climate- related transition events is typically dependent on the scenario being considered. For example, under the IEA Net Zero scenario, specific government policies aimed at incentivizing low carbon energy generation, energy efficiency and penalizing high carbon activities can be anticipated and SKF’s response to these forms part of the strategy. Other anticipated climate-related transition events such as technology changes and market changes are also extrapolated from scenario inputs and utilized in strategy development. For example, SKF’s strategy towards the global steel industry addresses the deployment of iron ore carbon reduction technologies, SKF’s strategy towards the energy sector anticipates a rapid increase in the share of renewable electricity generation in most regions. Climate change adaptation and mitigation cont. Summary of climate transition risks and opportunities Category Description Potential risk Mitigation measures Opportunities Capitalization measures Legal and policy Changes in laws and regulations related to climate change. Increased energy and raw material costs Focus on energy and carbon efficiency in SKF operations and supply chain. Increased demand for solutions improving energy efficiency, circularity. Focus on development of energy efficient, circular offers. Market Shifts in market demand towards low- carbon products and services. Loss of market share, reduced revenue in unabated fossil fuel sectors. The at risk sectors are a small part of overall business. Ongoing work to grow cleantech business. Growth in cleantech, low carbon industries – renewable energy, hydrogen etc. Focus on cleantech industries. Technology Technological advancements that may replace current technologies e.g. internal combustion engines. SKF misses opportunities to grow by enabling emerging green technologies. SKF is bound to locked-in carbon tech- nologies. Focus on cleantech industries in full range of TRL. Proactive approach, for example development of solutions for e-drive in automotive. Growth in cleantech, low carbon industries – electrification, renewable energy, hydrogen etc. Strategic focus on cleantech industries. Reputation Negative public perception due to inadequate climate action. Loss of brand value, customer trust. Enhancing transparency, proactive communication strategies. Enhanced brand loyalty, attracting eco-conscious customers. Clear focus on promoting SKF's climate solutions and approach with transparency and credible communi- cations. SKF ANNUAL REPORT 2024 106 THI S IS SKF PRESIDENT’S LETTER STRATEGY AND VALUE CREATION THE BEARING MARKET RISKS AND THE SHARE SUSTAINABILITY REPORT CORPORATE GOVERNANCE REMUNERATION REPORT GROUP DATA FINANCIAL STATEMENTS BAC K TO START Towards net-zero emissions SKF has been reporting and reducing its greenhouse gas emissions since the early 2000s, and has for many years demonstrated a decoupling of its revenue growth from scope 1 and 2 emissions. The Group’s current net-zero targets and strategy are validated and approved by the Science Based Targets initiative and are aligned with the Paris agreement’s 1.5 °C scenario. 2019 Base year 2030 2050 Examples of activities • Play a leading role in improving energy and material efficiency, the enabling of cleantech and decarbon- ization solutions for customers. • Drive the emission reduction plans with suppliers. • Reduce the embodied greenhouse gas emissions from components and materials such as forgings, rings and rolling elements that SKF purchases, primarily through the increased use of re newable energy by suppliers. • Optimize logistics efficiency and decarbonize transportation. 2050 Net-zero greenhouse gas emissions in the entire value chain Examples of activities 2024 • Shadow carbon price policy published. • Airfreight avoidance policy published. • Laser metal depostion enhances the circularity of bearings. • Significant increase of renewable electricity sourcing in India and China • Accelerated deployment of de - carbonization investment frame with 373 MSEK allocated Examples of activities 2019–2023 • Energy and material efficiency improvements and increasing share of renewable energy. • Working to promote and advocate the decarbonization of steel pro- duction with other industrial steel consumers in the SteelZero and ResponsibleSteel initiatives. • Developing and delivering solutions to enable cleantech growth – e.g. EV’s, wind, hydrogen. • Optimized design of products resulting in significant energy and carbon savings for customers. • Climate work and reduction of green- house gas emissons as part of the company’s short- and long-term bonus program. • Issued the first Green Bond in 2019 and the second in 2022, making sure we invest in projects that sup- port the transformation journey. • Deployment of decarbonization investment frame 2030 Decarbonized operations = 95% reduction in scope 1 and 2 emissons by 2030 vs. 2019 32% reduction in emissions from purchased direct materials 35% reduction in emissions from inbound and outbound logistics Climate change adaptation and mitigation cont. SKF ANNUAL REPORT 2024 107 THI S IS SKF PRESIDENT’S LETTER STRATEGY AND VALUE CREATION THE BEARING MARKET RISKS AND THE SHARE SUSTAINABILITY REPORT CORPORATE GOVERNANCE REMUNERATION REPORT GROUP DATA FINANCIAL STATEMENTS BAC K TO START Transition plan for climate change mitigation including actions and resources in relation to climate change policies SKF is a relatively energy intensive business directly using energy, mainly in the form of electricity and gas, in its operations around the world (scope 1 and 2). In addition, SKF utilizes materials and services which can be energy and carbon intensive, such as transports and raw material in production and processing (scope 3 upstream). Certain SKF products also generate indirect emissions during the use-phase (scope 3 downstream). The combined impact of these direct and indirect emissions (scope 1, 2 and 3 upstream and downstream) is more than three million metric tons of greenhouse gas emissions per year. SKF has been working to measure, report and reduce its greenhouse gas emissions since the early 2000s, with good results. Throughout SKF’s more than 20-year focus on climate, it has always sought credible and independent third-party input on its climate strategy and goals. As such, in 2021, SKF committed to having its climate targets validated and approved by the Science Based Target initiative (SBTi). This validation process involved detailed discussions and exchanges with the SBTi between July 2021 and March 2023. In March 2023, the SBTi validated SKF’s long- and short-term targets. The approved targets are aligned with the 1.5 °C trajectory which was agreed at COP 21 in Paris 2015. Levers and actions SKF has defined several strategic levers and related actions and objectives which, when applied in combina- tion, aim to reach the Groups SBTi approved climate goals. These are focused on the most significant impacts, specifically scope 1 and 2, and scope 3 categories 1, 3, 4 and 11. SKF own operations – scope 1 and 2 SKF’s goal to decarbonize its operations requires, as veri- fied by SBTi, a 95% reduction in the scope 1 and 2 emis- sions by 2030 compared to 2019. The main strategic levers to achieve this include a focus on energy efficiency, the sourcing and generation of renewable energy and phasing out direct fossil fuel use through electrification or the use of bio-fuels. During 2024 there has been significant progress in the development, understanding and aggregation of the plans for decarbonization. Each factory has developed a decar- bonization road map which sets the emissions reduction trajectory for the site, and the investments needed, to achieve the 2030 decarbonization objectives, addressing all three of the described strategic levers. For energy effi- ciency and fossil fuel phase out, these plans are further defined in a Group-wide database in which the detailed actions, investments and expected improvements are described. Energy efficiency – levers to reduce scope 1 and 2 emissions SKF has an energy management system globally certified according to ISO 50001:2018. The certificate covers the 47 most energy intensive operations making up more than 80% of the Group’s total energy use. SKF applies a Group- wide energy efficiency improvement target to all units within the scope of the ISO 50001 standard, of 5% com- pared to the factory, Business Area or Group energy base- line. The baseline is established using linear regression of the previous two years’ monthly energy use compared to value added (a measure of production activity, which is known to correlate with energy demand). This KPI reduces distortions associated with more simplistic measurements of energy performance such as production volume varia- tions, and allows a focus on the real underlying energy per- formance. In 2024, the performance against this target was 3,5% compared to the 5.0% target indicating an underlying energy efficiency saving of 33 GWh. This includes all types of energy except energy used for building heating and cooling. To drive development and planning of energy savings activities, the Group-wide database with detailed actions is used to show if factories, Business Areas and the Group has defined and planned sufficient actions to meet the objectives for future periods. In addition, looking at the 2030 time horizon, the decarbonization road map requires the sites to plan for continually improving energy effi- ciency. Factory, Business Area and Group performance towards the energy efficiency target is followed up on a monthly basis using the energy efficiency KPI, and the Group-wide database. A high-level review of the performance and plans is conducted by the Chief Sustainability Officer together with each Business Area President on a half-year basis. Renewable energy – levers to reduce scope 2 emissions SKF has a centralized function to manage strategic energy sourcing decisions for the Group, including the sourcing of renewable energy, primarily electricity. Through this func- tion, a roadmap defining the transition towards 100% renewable electricity for all SKF units by 2030 has been defined and is being deployed and followed up. The Group is a member of the RE100 initiative and follows their tech- nical criteria when purchasing renewable electricity. In its work to define and deploy the renewable electricity road- map SKF is also supported by a third-party energy service provider. Various approaches are applied in the sourcing of renewable electricity, including the use of power purchase agreements, virtual power purchase agreements, bundled and un-bundled environmental attribute certificates and long-term Renewable Energy Certificate agreements (RECs). Although the most significant contribution will come from the Group’s renewable electricity sourcing approach, SKF is also expanding the use of on-site solar panel instal- lations for self-generation of renewable electricity. Some SKF locations make use of district heating to pro- vide building heating. Due to the very specific and local nature of the district heating systems, the work to decar- bonize district heating supply is driven at site-level, with the anticipated results, actions and investments included in the site-level decarbonization roadmap, Fossil fuel phase out – levers to reduce scope 1 emissions SKF makes direct use of fossil fuels at the majority of its locations around the world, primarily fossil natural gas, which is burnt for both building and process heating. These emissions must be reduced from around 53,000 tonnes per year in 2019 to close to an estimated 10,000 tonnes by 2030 to achieve SKF’s scope 1 and 2 decarboni- zation objective. The main strategic levers applied to Climate change adaptation and mitigation cont. SKF Scope 1 and 2 – Mitigation activities Increase in activity Scope of reporting Efficiency electricity Reductions by 2024 Baseline 2019 Renewable district heat Process changes in HT HT furnaces electrification and utilization improvements Electrification of heating Efficiency HVAC Renewable electricity Residual emmissions SBTi commitment Reductions scope 1 fugutive and diffuse Renewable fuels 150,000 0 200,000 250,000 50,000 100,000 450,000 Tonnes CO₂e 400,000 350,000 300,000 SKF ANNUAL REPORT 2024 108 THI S IS SKF PRESIDENT’S LETTER STRATEGY AND VALUE CREATION THE BEARING MARKET RISKS AND THE SHARE SUSTAINABILITY REPORT CORPORATE GOVERNANCE REMUNERATION REPORT GROUP DATA FINANCIAL STATEMENTS BAC K TO START achieve this are a ban on any future investments in plant or equipment running on fossil fuels and the establishment of a specific investment frame which is intended to fund electrification of assets using fossil fuel or switching to sustainable bio-based alternatives such as biomethane. The Group Fossil fuel phase out policy bans any new investment in equipment to be used in SKF which requires fossil fuel and requires that any remaining fossil fuel use is phased out before 2030. An investment frame of 3,000 MSEK was established in 2023 and is to be applied at the latest by 2028 exclusively for investments needed to deliver on the decarbonization plan in general and the fossil fuel phase out in particular. Further, SKF has a Sustainable buildings policy setting requirements for new buildings in terms of decarbonization and the use of the USGBC’s LEED 4.1 standard. As with energy efficiency, Group progress towards the fossil fuel phase out target is followed up on a monthly basis and a high-level review of the performance and plans is conducted by the Chief Sustainability Officer together with each Business Area president on a half-year basis. To drive development and planning of fossil fuel phase- out activities, the Group-wide database with detailed actions is used to show if factories, Business Areas and the Group, has defined and planned sufficient actions to meet objectives for future periods. The relative contribution of these strategic levers toward the achievement of the decarbonized operations 2030 goal is described in the graph on page 108. Upstream emissions from SKF suppliers – scope 3, category 1 SKF’s goal is to reduce the upstream, scope 3, category 1 emissions by 32% by 2030 compared to 2019 and to achieve net-zero by 2050 or before, requiring a 90% reduc- tion in scope 3 emissions by 2050. There are several strategic levers which SKF utilizes to achieve these goals, focusing on improving material effi- ciency, increasing circularity, increasing the use of second- ary materials, increasing the use of renewable energy in the supply chain and the use of emerging and new tech- nologies to produce very low carbon embodied materials. In 2024, SKF’s procurement strategy continued to focus heavily on steel and steel components, which constitute the most significant volume of materials sourced, both in terms of weight and value. During this period, SKF pur- chased approximately 586,000 tonnes of steel and steel components. In comparison, the Group sourced around 4,727 tonnes of rubber which, next to steel, is one of the most important materials for SKF, utilized in finished seals or as a raw material for producing seals. Product carbon footprint studies for materials and com- ponents of bearings have shown that the embodied carbon in the steel materials and components purchased by SKF accounts for approximately 70% of the total emissions generated across the value chain, from raw material extraction to the delivery of finished products to customers. SKF has prioritized the decarbonization of its upstream value chain for steel and so far the majority of the meas- ures are focused on this area. As progress is made in the decarbonization of steel, SKF plans to extend its efforts to other critical purchased materials and components. A more detailed exploration of each of the strategic levers is provided below. Improving material efficiency SKF has been working on all aspects of material efficiency in its operations and supply chain for many years. This is driven both by the environmental imperative and by the need for cost efficiency in a competitive market. The work covers aspects such as improved process control and quality, leading to the avoidance of scrap. It also focuses on optimizing component design and tolerancing, to mini- mize the amount of material needed to be removed before arriving at the finished product. Alternative process routes which allow near-net shape components to be produced are also utilized where feasible. Increased circularity SKF’s focus on developing solutions toward the circular economy decreases upstream direct material emissions in a number of ways. Examples of this include the increased use of re- manufacturing of used bearings. This allows bearings which would potentially have been scrapped and replaced with new ones to be put back into service, avoiding emis- sions that would have been generated in production of a new bearing, both in the upstream value chain and in SKF. Increasing the use of secondary materials The production of virgin steel, that is steel produced mainly from reduced iron ore, is far more carbon intensive than producing steel from re-melting of scrap. Therefore, increasing the use of scrap-based steel production is an important lever in the reduction of direct material (scope 3, category 1) emissions. SKF’s Business Areas include this aspect in the development of their steel sourcing road- maps. Currently around 54% of the total volume of steel sourced by SKF comes from scrap-based steel and it is expected that this will increase significantly in the coming years. While SKF recognizes that increasing the utilization of scrap is needed as part of the overall global transforma- tion towards very low embodied carbon steel, it is impor- tant to recognize that the limited availability of scrap com- pared to the global demand, means that it is only one of several measures needed. Increased use of renewable energy in the supply chain SKF promotes the use of renewable energy by its suppliers as a means to reduce the carbon intensity of their produc- tion processes and the products which they supply. SKF’s sustainability standard for suppliers summarizes the Group’s expectations on suppliers to evaluate and make use of renewable electricity. SKF also supports suppliers in their development of renewable energy sourcing approaches through training and other means. Use of emerging and new technologies The dominance of iron and steel production in the total upstream greenhouse gas emissions impact of SKF results in a focus on emerging technologies that enable a drastic reduction of these emissions, often referred to as green steel technologies. SKF is actively involved in the develop- ment and evaluation of such solutions with selected part- ners such as Voestalpine (hydrogen reduced iron) and Ovako (Electric Arc Furnace with 97% recycled content, powered by renewable electricity). Communication of SKF’s requirements and expectations to suppliers SKF’s sustainability standard for suppliers was updated in 2024 and sets out in detail the Group’s expectations and requirements in these aspects. Suppliers are required to provide SKF with scope 1, 2, and 3 (upstream) emissions data in CO 2 e for the materials and products supplied. This data must be reported in accordance with SKF’s Greenhouse gas reporting supplier guideline, following the Greenhouse Gas (GHG) Protocol. Suppliers are encouraged to procure renewable electricity and must follow the GHG Protocol for their scope 2 report- ing requirements. SKF does not accept the purchase of carbon offsets or climate compensation as a means to reduce supplier scope 1, 2, or 3 impacts. Additionally, suppliers of steel and steel products must achieve specific certifications or targets by 2030, such as Responsible Steel certification, SBTi approved targets, or delivery of low embodied carbon steel according to the SteelZero definition. All suppliers are expected to set reduction targets aligned with SKF’s goals, prioritize energy and material efficiency and source renewable or low carbon energy. They must also share planned and completed actions towards these targets upon SKF’s request. Energy management is another key requirement, with suppliers needing to monitor and manage their energy performance, set goals for improved energy efficiency, and provide relevant details to SKF when requested. The relative contribution of these strategic levers toward the achievement of the 2030 mid-term net-zero objective is summarized below. Upstream fuel and energy related activities – scope 3, category 3 This refers to the greenhouse gas emissions resulting from activities that occur before energy generation, as well as from the distribution and transmission of the energy used in SKF’s operations. These activities include the extrac- tion, processing and transportation of fuels used in power stations, as well as emissions resulting from transmission and distribution. The impact of these emissions is signifi- cant, amounting to 60,372 tonnes in 2024. SKF aims to reduce these emissions through three strategic levers. Climate change adaptation and mitigation cont. SKF ANNUAL REPORT 2024 109 THI S IS SKF PRESIDENT’S LETTER STRATEGY AND VALUE CREATION THE BEARING MARKET RISKS AND THE SHARE SUSTAINABILITY REPORT CORPORATE GOVERNANCE REMUNERATION REPORT GROUP DATA FINANCIAL STATEMENTS BAC K TO START Firstly, as part of SKFs decarbonised operations pro- gram, the group will reduce energy demand by improving energy-efficiency of its operations. At the same time SKF increases the sourcing of renewable energy by transition- ing away from fossil fuels to eliminate the upstream impacts associated with extraction, processing and trans- portation, which constitute the largest portion of these emissions. Secondly, SKF is addressing emissions from power generation, distribution and transmission equipment by collaborating with customers in relevant sectors. For instance, SKF is assisting the cement and steel industries in their decarbonization journey by offering solutions that help avoid waste and emissions. Thirdly, SKF is actively engaging in multi-stakeholder initiatives such as SteelZero and RE100. Through these initiatives, SKF promotes and advocates for the systemic changes necessary to achieve significant reductions in emissions across these industries. Emissions from logistics – scope 3, category 4 Considering SKF contracted logistics flows, SKF covers about 80% of outbound and 70% of inbound transporta- tion. The Group focuses on reducing transportation green- house gas emissions in four main areas: Airfreight avoidance: SKF implemented a global air- freight avoidance policy in 2024 with the objective to reduce airfreight and promote less carbon intensive trans- port modes. The Group also works closely with customers and suppliers to shift from airfreight to sea and rail trans- portation. Decrease transports: SKF aims to accelerate inter- regional activities, thereby lowering the need for global transports. Decarbonizing transportation: SKF focuses on reduction of airfreight by shifting to other less carbon intensive modes, e.g. ocean, rail. SKF also works on introducing electric vehicle solutions in collaboration with suppliers. Another lever is to use less carbon intensive fuel types, e.g. HVO100 instead of diesel. Optimizing transportation: SKF will further reduce emissions by improving fill rates and optimizing transport modes. The relative contribution of these strategic levers toward the achievement of the 2030 mid-term net-zero objective is summarized below. Emissions from business travel – scope 3, category 6 SKF works to reduce emissions from business travel in two main ways. Firstly, the use of virtual meetings is promoted as an alternative to physical meetings. SKF has invested heavily in the IT infrastructure needed to make this feasible. Secondly, through the Group’s travel policy and on-line travel booking solutions, SKF encourages employees to use more carbon efficient transport modes where it is feasible to do so. Emissions from use of sold products – scope 3, category 11 As part of the Group’s SBTi approved net-zero goal, SKF is reporting on the downstream greenhouse gas impacts resulting from the use of products and services (category 11). This relates only to the directly powered electrical sys- tems which SKF delivers to some customers – mainly mag- netic bearing and electric motor systems, and lubrication systems. Very often these systems enable improved energy efficiency for the customers. As an example, in a plant in China SKF used a magnetic bearing solution for chillers. Compared to chillers with tra- ditional screw compressors installed at the same factory the new solution will save around 40% energy or more than 60,000 MWh over their life span. With the current average carbon intensity of electricity generation in China, this represents more than 35,000 tonnes of avoided CO 2 e in the lifetime of the machines. While there is not yet a widely adopted framework for the accounting of such avoided emissions, solutions of this kind play a significant role in reducing customer and, therefore, global emissions. Following this, and since these systems directly con- sume electricity, the associated emissions are reported under scope 3, category 11. Assuming the global average electricity emission factor and allocation factor to account for the energy used by SKF’s products, the Group esti- mates that they result in direct use-phase emissions totaling around 1 million tonnes CO 2 e annually. While SKF continually works to further improve the energy efficiency of these systems, the main lever for reducing the related emissions is the utilization of low carbon and renewable electricity by the customers and end-users buying and operating the systems. This is beyond the control of SKF, although SKF actively promotes a transition to decarbonized power through the participa- tion in the RE100 and WeMeanBusiness coalitions. As these decarbonization efforts continue, emissions can be anticipated to be reduced accordingly. Investments to support the transition plan Execution of the various strategic levers described above requires investments in various forms such as CapEx and additional organizational resources and competence. These investments are executed utilizing two main mechanisms: SKF internal allocation of climate specific investment frames • Decarbonization investment frame Targeted financing of investments focused on sustainability • Green Finance (bond issuance and utilization) • EIB credit facility The decarbonization investment frame The near elimination of direct fossil fuel use in SKF (scope 1 emissions) is a particularly challenging aspect of the overall transition plan. For comparison, scope 2 emissions (which mainly relate to electricity use), can be avoided rel- atively simply and cost effectively through the purchase of renewable electricity, whereas scope 1 emission reduction often requires significant capital investment at the site. Examples of the needed investments include electrifica- tion of building heat using heat pumps or process heating and associated system improvements which are needed to increase feasibility. In many cases the financial payback of these types of investments is longer than normal and therefore an inter- vention from SKF is required to make sure that the invest- ments take place. Based on a detailed understanding of the situation at SKF’s factories around the globe, it was estimated that during 2023 to 2028 around EUR 300 million will be needed to achieve our 2030 scope 1 reduction objective. SKF then defined an investment frame and process for the alloca- tion and follow up of its utilization. During 2023 and 2024 a total of EUR 33 millions of this frame has been utilized, with the remainder planned to be utilized during 2025 to 2028. Note that some of this is funded at a Group financ- ing level via the green bonds (see table on the next page). Climate change adaptation and mitigation cont. –3 100 68 –17 –10 –2 0 20 40 100 1) 80 60 Expected contribution of strategic levers to the achievement of S3, C1 2030 goal Switch to scrap H2 DRI Inc. RE use 2030 objective Supplier efficiency 2019 Scope 3, C1 –15 100 65 –10 –7 –3 0 20 40 100 1) 80 60 Relative contribution of strategic levers to the achievement of S3, C4 2030 goal Airfrieght avoidance Optimization Fuel switching and EV solutions 2030 Regionalization 2019 Scope 3, C4 1) Base year 2019 =100 SKF ANNUAL REPORT 2024 110 THI S IS SKF PRESIDENT’S LETTER STRATEGY AND VALUE CREATION THE BEARING MARKET RISKS AND THE SHARE SUSTAINABILITY REPORT CORPORATE GOVERNANCE REMUNERATION REPORT GROUP DATA FINANCIAL STATEMENTS BAC K TO START Upstream The Group’s main upstream greenhouse gas impacts relate to the production and processing of raw materials and components, mainly steel, used to produce finished prod- ucts. While steel production is energy and carbon inten- sive, the SKF scope 3, category 1 strategy outlined above mitigates the risk of locking in greenhouse gas emissions. For example, SKF’s sourcing roadmaps include plans to move to less carbon intensive steel production routes – using increased scrap content and EAF type furnaces rather than the far more energy and carbon intensive ore- based BOF process, switching to alternative iron reduction technologies such as hydrogen when it becomes available, and promoting renewable energy use in the full upstream value chain. In addition, SKF’s use of shadow carbon pric- ing when making significant steel and steel component sourcing decisions gives information on the future cost of carbon and helps promote the selection of lower carbon intensity supply options. SKF operations SKF production facilities use electricity as the main energy source (~70%), however fossil fuels are still used in some cases in applications such as building and process heating. As outlined in the section above on fossil fuel phase out, future investments and assets designed to run on fossil fuels are prohibited by the fossil fuel phase-out policy. The policy also requires that existing fossil fuel using assets to be phased out before 2030 and the EUR 300 mil- lion investment frame is set aside to assure the investments needed to make this happen. Therefore, the risk of locked- in emissions in SKF operations is effectively mitigated. Downstream – customers SKF has a highly diversified customer base both geograph- ically and in terms of the variety of industries served. The Group’s business towards the coal, oil and fossil gas indus- tries amounts to less than 2% of total turnover. Under sev- eral published climate scenarios, for example the IEA Net Zero, a significantly reduced demand for unabated use of fossil fuel can be anticipated, which would translate into lower demand for SKF products and solutions towards these sectors. However, SKF’s strategy to focus growth of business that enables cleantech industries such as renewable energy generation, energy storage, biofuels and carbon capture and storage should more than offset the reduction in demand from unabated fossil fuel sectors. Certain SKF products such as the system for re-using oil (RecondOil), magnetic bearings and lubrication systems make direct use of energy and as such generate scope 3, category 11 emissions. In most cases the power source for these machines is electricity, therefore, as power grids are decarbonized, these emissions will reduce. Strategy behind transition plan The strategy to identify, prioritize and address the various opportunities and risks related to the climate transition is integrated with the overall business strategy of the Group. Below are some examples of how this is being achieved. Material and component purchasing Modelling of the impact of carbon pricing and customer demands for lower embodied carbon materials is incorpo- rated into the formulation of the overall strategic context. This, along with other important contextual information informs the overall direct materials sourcing strategy as well as marketing and promotion of lower embodied car- bon products to customers. Based on this, each Business Area has developed a direct material sourcing decarboni- zation roadmap. The performance and planning of these are reviewed bi-annually. SKF operations Top-down, the investments needed to finance the de - carbonization of SKF operations in accordance with the Group objectives have been defined, and specific invest- ment frames have been allocated. Bottom-up, each factory has formulated a decarbonization roadmap in which the investments and resources needed to achieve the factories’ decarbonization objectives are defined. These bottom-up roadmaps are consolidated at Business Area and Group level in order to validate them and confirm that the overall objectives can be achieved within the defined timeframe. The plans are then integrated in the factory and Business Area business plans and strategies. Progress is followed up using a mix of lagging KPI’s such as energy efficiency improvement, scope 1 and 2 reduction and leading KPI’s such as the utilization of the investment frame. Logistics Key to achieving the Group’s targets for reduction of logistics- related emissions is the realization of SKF’s global footprint strategy. This involves the consolidation and rationalization of SKF factories, warehouses, and other operations as well as the upstream supply chain. The overall aim is to be more closely aligned geographi- cally with the Group’s customer footprint. In addition to financial and operational improvements, the footprint strategy will significantly reduce the logistics demand in terms of transport distance inbound and outbound. Each Business Area has developed a footprint plan. The overall footprint program is coordinated at Group level, and the investments and resources needed to deliver on these plans are integrated into yearly business plans and strategy at Business Area and Group level. Climate change adaptation and mitigation cont. Green Finance Categories Total value euro million Allocation 2019-2023 Allocation 2024 Planned allocation 2025-2028 Financial mechanism Decarbonization investment frame Electrification & related topics 300 5 33 200 SKF internal allocation Green Bond SKF World Class Manufacturing, Investments and acquisitions in production capacity, technology, testing and tooling for cleantech, Green buildings, Renewable energy, Improving process/facility energy or resource efficiency, Cleantech R&D, Product and process related R&D 700 633 67 TBD Use of proceeds Green Finance SKF’s Green Bonds are significant financial instruments that aligns with the company’s sustainability commitment and climate targets. Two such bonds have been issued, the first for EUR 300 million in November 2019 and the second for EUR 400 million in September 2022. These are used to fund eligible projects in accordance with SKF’s Green Finance Framework. These include capital investments in plant and equipment and product research and develop- ment related to cleantech. As such, the green bonds play a crucial role in financing SKF’s transition plan for climate change mitigation. By the end of 2024, SKF had financed 220 projects amounting to EUR 700 million. These projects span across various regions and sectors. EIB credit facility On the 22nd of November 2024, SKF secured a EUR 430 million credit facility from the European Investment Bank (EIB), to support its R&D efforts focused on sustainable technologies which was unutilized by the year end. This financing will enable SKF to accelerate the design and development of technologies that contribute to the green transition and sustainability. The EIB is considered the climate bank of the European Union, and their financ- ing supports the European Green Deal, the EU’s plan to achieve net zero emissions by 2050. Locked-in greenhouse gas emissions The potential for locked-in greenhouse gas emissions along the SKF value chain has been evaluated and can be summarised as follows. SKF ANNUAL REPORT 2024 111 THI S IS SKF PRESIDENT’S LETTER STRATEGY AND VALUE CREATION THE BEARING MARKET RISKS AND THE SHARE SUSTAINABILITY REPORT CORPORATE GOVERNANCE REMUNERATION REPORT GROUP DATA FINANCIAL STATEMENTS BAC K TO START Business development, research and development SKF has defined several global strategic customer indus- tries and has established corresponding organizations and processes. The aim is to assure the identification of impor- tant trends as well as technical and commercial require- ments for these industries, and to assure that SKF has a suitable range of products and solutions to meet the exist- ing and anticipated needs of each customer industry. The climate transformation is an important trend in most of the customer industries, as well as the implications of this in terms of growth opportunities and the need of new offers are integrated into the related strategies and business plans and followed up as an integral part of the overall business planning and review process. The transition plan has been developed and continues to evolve with a cross-functional approach. This work is coordinated by Group Sustainability with the objective to ensure effective ownership and integration of the relevant aspects in the Business Areas, regions and various Group functions. The plan has been reviewed and approved by Group Management and the Board, and regular updates are pro- vided via the various governance forums described in the section General information on page 83. Implementation of the transition plan 2024 saw a continuation of the successful deployment of SKF’s climate transition plan. Progress can be summarized and evaluated based on actual performance development and actions and decisions taken which will support future deployment and performance. It is important to recognize that some elements of the transition plan are quite mature – for example SKF has been working to reduce scope 1 and 2 emissions for more than 20 years, while others are rela- tively new. As an example, the ability to measure scope 3 category 1 emissions was only realized in the last three years. However, even if the level of maturity differs the overall trajectory of implementation is positive in almost all cases. Considering a value chain approach, progress can be summarized as follows: Scope 1 and 2 (SKF operations) 2024 strategic decisions and actions Building on SKF’s more than 20-year focus on reducing scope 1 and 2 emissions, a number of important strategic decisions and actions were taken during 2024. Bottom-up and top-down decarbonization roadmaps at site and Business Area level were further refined. Projects and actions have been identified as input to these road- maps. The execution of the roadmaps has again been followed up at Business Area and Group level through governance forums such as the half-year EHS and net- zero reviews. Read more in the Governance section on page 137. A continued focus on energy efficiency has delivered an improvement in performance of 3.5%. The Energy Effi- ciency and Decarbonization Investment frame (3 BSEK announced in 2023) to be invested between 2023 and 2028 was further utilized to fund reduction and elimination activities targeting emissions within scope 1 and district heating in scope 2. Progress was made on the switch to renewable electric- ity, with notable contracts being signed in Europe and Asia. For example, in June 2024, SKF signed a long-term renewable electricity strip agreement in India. These are so called long term renewable electricity certificate (REC) strip agreements, signed with project developers that invest and build solar plants. 2024 performance The combined scope 1 and 2 emissions from 2024 were reduced by 82,382 tonnes compared to 2023. The figure below on the left shows that this result puts SKF ahead of the reduction trajectory to achieve a 95% reduction by 2030. The main contributors to this result are as follows; • A 3.5% improvement in energy efficiency. • The share of renewable electricity used increased to 72%. In addition to electricity consumption defined in table Energy consumption and mix on page 117, a total of 28 GWh electricity use came from self-generated non-renewable fuel-based sources. • An increase from 64% (2023) to 72% (2024) in the amount of renewable energy sourced provides the most significant contribution. • Production activity has decreased slightly but it has a low impact on reduced energy demand. • A 7% reduction of emissions related to fossil fuels and district heating following decarbonization activities. Climate change adaptation and mitigation cont. 16 18 20 22 24 26 28 2030 0 100,000 200,000 500,000 600,000 400,000 300,000 700,000 Scope 1 Scope 2 Target Scope 1 and 2 Base year for 2030 goal 95% reduction vs 2019 Year Scope 1 and 2 greenhouse gas emissions Tonnes performance and outlook 20222021 2020 2023 20242019 Scope 3, Category 1 development 0 500,000 1,000,000 2,500,000 2,000,000 1,500,000 Tonnes of greenhouse gas emssions Tonnes of metal purchased 0 200,000 400,000 800,000 600,000 1,000,000 Scope 3, Category 1 (direct material supplies) 2024 strategic decisions and actions During 2024, a number of important decisions related to scope 3, category 1 emissions reductions were made. As described on page 119, in July 2024 SKF introduced mandatory shadow carbon pricing for certain categories of steel sourcing. This is intended to sensitize SKF colleagues, suppliers and customers to the potential impact of future carbon pricing and to steer supplier and process selection towards lower carbon options. SKF Business Areas are developing roadmaps for the achievement of the 2030 scope 3, category 1 objective (a 32% reduction compared to 2019) using the various strategic levers outlined on page 112. SKF’s sustainability standard for suppliers was updated in July of 2024, introducing more detailed and precise requirements on supplier reporting and reduction of green- house gas emissions. These include: • A clear instruction that the use of carbon offsetting or climate compensation is not accepted by SKF as a means to reducing supplier emissions. • More clarity on the definition of green/low carbon electricity is provided. • Clarification on the need for suppliers to identify and mitigate for relevant climate physical risks. SKF ANNUAL REPORT 2024 112 THI S IS SKF PRESIDENT’S LETTER STRATEGY AND VALUE CREATION THE BEARING MARKET RISKS AND THE SHARE SUSTAINABILITY REPORT CORPORATE GOVERNANCE REMUNERATION REPORT GROUP DATA FINANCIAL STATEMENTS BAC K TO START 2024 performance The scope 3, category 1 emissions from SKF’s direct material purchases in 2024 was 1,410,542 tonnes, with a reduction of 177,939 tonnes compared to 2023. The main contributors to this result were: • Due to market conditions and reduced demand the overall volume of steel (by weight) and steel compo- nents purchased by SKF was reduced by 13%. • The use of scrap-based steel increased by 5% from 49% to 54% The graph on the previous page shows the development of these emissions and the purchased weight of direct materials over time. Scope 3, category 4 (logistics) 2024 strategic decisions and actions During 2024, SKF continued the footprint and regionaliza- tion strategy, which aims to assure that SKF’s production facilities are closer to regional customers and suppliers, thereby reducing the need for long-distance transports and the associated emissions. 2024 also saw the introduction of an air-freight avoid- ance policy which aims to minimize the use of airfreight due to its significant environmental and financial impacts. Based on SKF specific data, airfreight emissions are approximately 40 times greater than sea freight, 35 times greater than rail freight, and 8 times greater than road freight. The policy applies to the entire Group for both inbound and outbound transportation. Planned airfreight should be reduced by evaluating and utilizing alternative transport modes, and unplanned airfreight should only be used in urgent situations to avoid major disruptions. All unplanned airfreight cases must be reported and analyzed using problem-solving techniques to prevent future occur- rences. During 2024, SKF has also started working with external specialist consultants to map and prioritize the various types of green transport solutions which are developing in the market so as to inform any future use of these solutions. 2024 performance Transport emissions KPI increased 2024 by +3% compared to 2023. In spite of good efforts in reducing transport emission footprint in all transport modes except ocean freight, these were wiped out by increased transport work in our global ocean freight lanes due to geopolitical circumstances. Transport work (tonnes/km) increased by 20%, due to increased freight lane distances on eastbound lanes. Ocean freight volumes only increased by 6–7%, so main reason for increased tonnes/km is increased distances. Due to this the emissions for ocean freight increased by approximately 30%. Climate change adaptation and mitigation cont. Avoiding airfreight In a significant move towards decarbonization and cost efficiency, Anastasiya Merkulova, Sustainability and Logistics Project Manager within EMEA, spearheaded a project to avoid airfreight for the sales unit in Kazakhstan follow- ing a warehouse closure. By shifting the supply chain to truck shipments from Schweinfurt via the Caspian Sea, the initiative resulted in sub- stantial environmental and financial benefits. The project achieved monthly greenhouse gas emissions savings of approximately 350 tonnes, equivalent to removing 300 new European cars from the road for a year, and reduced shipping costs by EUR 2.6 million annually. Despite an increase in delivery time from 3–7 days to 24–35 days, the market successfully adapted to the new schedule, demonstrating the feasibility of sustainable logistics solutions. First bearing produced from green steel During 2024, SKF and Voestalpine Wire Tech- nology announced the successful production of the first spherical roller bearing using green steel made from hydrogen direct reduced iron (H-DRI). The bearings are now under rig testing with the aim to demonstrate the technical via- bility of this new, potentially very low carbon steel production method. 20222021 2020 2023 20242019 Scope 3, Category 4 development 0 50,000 100,000 250,000 CO₂e, K tonnes 200,000 150,000 Air Express Ocean Rail Road Weight 0 200,000 400,000 800,000 600,000 K tonnes transported 1,000,000 20222021 2020 2023 20242019 Scope 3, Category 6 development 0 3,000 6,000 15,000 Tonnes CO₂e 12,000 9,000 Air Scope 3, category 6 (business travel) 2024 performance The scope 3 category 6 emissions from 2024 increased by 1 207 tonnes compared to 2023 due to a corresponding increase in business travel. The table below shows the development of these emissions over time. During 2024, SKF continued to communicate the impor- tance of questioning the need for business travel to all employees, only using it when virtual meetings options are not feasible. In addition the selection of lower carbon modes of transport was also highlighted. In 2024, Group Management also approved a new KPI for measuring and following up business travel. The KPI is defined as tonnes of CO 2 e from business travel (flights) / number of white collar employees. The focus will be on white collars (staff) since this is the employee category doing the majority of travel. SKF will introduce a yearly target to improve this KPI which is –5% per annum. Business travel (air travel) Tonnes 2024 2023 2022 CO 2 e emissions from air travel (scope 3, category 6) 11,593 10,386 6,395 Policies related to climate change mitigation and adaptation SKF has defined and implemented a number of policies, management systems, procedures and instructions intended to address climate change mitigation, climate change adaptation and energy efficiency. These are summarized on pages 114–115. SKF ANNUAL REPORT 2024 113 THI S IS SKF PRESIDENT’S LETTER STRATEGY AND VALUE CREATION THE BEARING MARKET RISKS AND THE SHARE SUSTAINABILITY REPORT CORPORATE GOVERNANCE REMUNERATION REPORT GROUP DATA FINANCIAL STATEMENTS BAC K TO START Climate change adaptation and mitigation cont. Policy Instruction Management system Mitigation Adaptation Energy efficiency How policy adresses topic Linkage to IRO Time horizon Publicly available Fossil fuel phase out policy To accelerate the decarbonization of SKF’s operations and to reach the Group’s 2030 decarbonization goal (95% reduction of Scope 1 and 2 greenhouse gas emissions by 2030 vs 2019), and thereby support the goal for 2050 in the full value chain, the following rules apply to all SKF manufacturing, warehouse, R&D and larger sales facilities: • No investments shall be made in new assets which use fossil fuel. Any deviations from this policy must be reviewed with SKF’s Net-Zero team and approved by the Group Investment Committee. • It is mandatory to stop the use of fossil fuels and fossil-based district heat (in existing facilities and assets) within 2029. Direct fossil gas use may be replaced with electrification (using renewable electricity) or approved non-fossil fuel alternative. When processes are outsourced to subcontractors, an evaluation should be made to determine if this results in an increase in upstream use of fossil fuels. For decisions where this is the case, they should be approved by the Business Area’s sustainability and supply chain managers. • A specific investment frame – the ‘Decarbonization investment frame’ shall, where a pplicable, be used to fund the necessary investments to achieve this. Reduces reliance of fossil fuels, associated environmental impact and future carbon costs. Avoids carbon lock-in. 2030 N Group EHS Policy SKF should systematically work to understand and address sustainability impacts of our operations and supply chain, and of our customers, so that sustainability is truly embedded in the way business is made. Through the policy, SKF commits to proactively assess health and safety risks, environmental and energy impacts and systematically define, document and implement improvement plans which aim to eliminate hazards, reduce risks, and avoid or reduce impacts. Energy performance should be continually improved by applying or promoting technological and organisa- tional measures along the full value chain. Assures energy and environmental performance consistently improves and compliance obligations are met. Ongoing Y Group Energy Sourcing Committee (GESC) The GESC is a forum with ultimate authority to decide on commercial and environmental issues to energy sourcing across SKF. The aim is to reduce cost and carbon intensity in the energy supply for the SKF Group. This group and related instruction drives the deployment or renewable energy at SKF. The representatives from relevant SKF functions shall meet regularly (at least quarterly). The environmental aspects related to sourcing of renewable energy, for electricity, should be compliant with RE100 criteria. Reduces reliance of fossil fuels, associated environ- mental impact and future carbon costs. 2030 N Shadow Carbon Pricing Policy This policy aims towards internalizing the environmental cost of steel and steel components within SKFs supply chain by implementing a Shadow Carbon Price (SCP). The SCP, while not a direct expense, should be calculated and used in conjunction with other parameters to influence supplier selection for all major direct material sourcing decisions related to steel bar, tube and wire. Steel tube, bar and wire are in the initial scope due to their high greenhouse gas emissions impact and relative ease of shadow carbon price calculation. Other components and materials will be added later. Reduces reliance on carbon intensive material and/or suppliers and associated environmental impact and future carbon costs. Ongoing N Airfreight Policy Planned airfreight should be kept to the minimum. Supply chains should be based on road & ocean freight as standard. Deviation from this must be aligned and approved by BA president. Customer delivery leadtimes should not be based on airfreight delivery. Air freight should only be considered if it provides a vital solution for timely delivery. If such need occurs, quantity should be kept to the minimum (possible order split considered). Reduces greenhouse gas emissions impact of logistics and related costs for transportation. Ongoing N SKF ANNUAL REPORT 2024 114 THI S IS SKF PRESIDENT’S LETTER STRATEGY AND VALUE CREATION THE BEARING MARKET RISKS AND THE SHARE SUSTAINABILITY REPORT CORPORATE GOVERNANCE REMUNERATION REPORT GROUP DATA FINANCIAL STATEMENTS BAC K TO START Climate change adaptation and mitigation cont. Policy Instruction Management system Mitigation Adaptation Energy efficiency How policy adresses topic Linkage to IRO Time horizon Publicly available Sustainable Buildings Policy The policy sets out the sustainability requirements which shall be applied in the design and construction of major new facilities which are to be owned or leased by SKF. All new constructions (including significant refurbishments) with a total gross area (TGA) > 2500 M2 which are to be owned or leased by SKF, shall be decarbonized and shall be certified according to LEED v4.1 Gold level or better. Deviations from this requirement must always be approved by the Group’s investment committee. Avoids carbon-lock in, increased robustness in the face of future energy and carbon costs. Ongoing Y SKF Group Business Travel Policy This policy sets out the requirements which all SKF employees shall follow for business travel. Environmental impact should be limited. Virtual meetings should be the first choice for both external and internal meetings. All travellers should strive to choose the most environmentally friendly travel option when feasible. Reduces greenhouse gas emissions impact of business travel and related costs for transportation. Ongoing N SKF Group Instruction on the provision of sustainability information to customers Increasingly, customers are motivated to understand their suppliers’ sustainability approach and performance and are therefore requesting that their suppliers provide them with related information. Information should be provided in a consistent and transparent way. This Group Instruction therefore defines the way in which SKF shall respond to such customer requests. Protects against reputational damage. Ongoing N Energy Management System SKF has an energy management system globally certified according to ISO 50001:2018. The certificate covers the 47 most energy intensive operations making up about 80% of the Group’s total energy use and helps drive continual improvement in energy performance by utilizing the plan-do-check-act cycle. Increased resilience vs. future energy and carbon cost increases, Ongoing N Environmental Management system SKF has an environmental management system globally certified according to ISO 14001:2015. The certificate covers all significant SKF manufacturing, warehouse and research and development operations and helps drive continual improvement in environmental performance by utilizing the plan-do-check-act cycle. Assures compliance with applicable legislation. N SKF Sustainability standard for suppliers The SKF Sustainability Standard for Suppliers covers SKF’s requirements and expectations in respect of social responsibility and human rights, health and safety and environmental protection – including climate change mitigation and adaptation and ethical and compliant business conduct. Reduces reliance on carbon intensive material and/or suppliers and associated environmental impact and future carbon costs. Y SKF ANNUAL REPORT 2024 115 THI S IS SKF PRESIDENT’S LETTER STRATEGY AND VALUE CREATION THE BEARING MARKET RISKS AND THE SHARE SUSTAINABILITY REPORT CORPORATE GOVERNANCE REMUNERATION REPORT GROUP DATA FINANCIAL STATEMENTS BAC K TO START Targets related to climate change mitigation and adaptation SKF has defined GHG emission reduction targets for all material impacts and these have been approved both in the short term (2030) and long term (2050) as aligned with the 1.5 degree scenario by the SBTi. The GHG reduction targets are presented in the table. Please read in more detail on how SKF tracks the overall progress towards the adopted targets over time starting on page 108. The targets are set through dialogues with selected external stakeholders such as the SBTi, combined with input from internal experts who represent stakeholders’ views using existing channels of interaction. Read more about how the targets were established in the ‘Reporting Principles’ section on the next page. In addition to these objectives, SKF has also estab- lished a number of sub-targets which are helpful in the drive and follow up of strategic levers such as energy efficiency and renewable electricity use and these are summarized below. Please refer to the policy matrix on pages 114–115 to understand how the targets are interconnected with the respective policies. Summary of SKF’s climate goals, including those approved by the SBTi Purchased direct material Logistics Other upstream impacts SKF’s own operations Downstream GHG Reporting scope Scope 3, category 1 Scope 3, category 4 Scope 3, other Scope 1 & 2 Scope 3, category 11 2025 15% absolute reduction in emissions from forgings and rings suppliers vs 2019. 40% reduction in CO 2 e emissions per tonne of goods shipped to end customers, base year 2015. TBD 40% absolute reduction of CO 2 e emissions from manufacturing per tonne of bearings sold, base year 2015. TBD 2030 32% absolute reduction in emissions from direct material vs 2019. 35% absolute reduction vs 2019. TBD 95% absolute reduction vs 2019. 2035 43% absolute reduction in emissions from direct material vs 2019. 55% absolute reduction vs 2019. TBD 2040 60% absolute reduction in emissions from direct material vs 2019. 77% absolute reduction vs 2019. TBD 2050 Net-zero emissions through 95% reduction of scope 1 and 2, and 90% reduction of scope 3 vs 2019. Remaining emissions addressed via Carbon Dioxide Removals. Description % Target Timeframe Purpose 2024 2023 2022 2021 2020 Manufacturing energy efficiency improvement 5% Improvement Year-on-Year Drive focus on energy efficiency at unit and BA level 3.5 4.7 3.8 1.7 2.3 100% renewable electricity use 100% 2030 Drive the increase in renewable electricity use in accordance with RE 100 requirements 72 64 54 49 39 Scope 1 &2 reduction 95% Reduction 2030 (2019 base year) Drive focus on fossil fuel phase out related to energy used in SKF operations 59 39 26 12 9 Scope 1 & 2 reduction pertonnes of sold bearings 40% Reduction 2025 (2015 base year) Previous goal (set before SBTi targets) 76 66 60 51 36 Logistics Scope 3, C4 emissions per tonnes of goods shipped 40% Reduction 2025 (2015 base year) Previous goal (set before SBTi targets) 7 10 +6 +27 +2 Climate change adaptation and mitigation cont. Reporting principles SKF follows the GHG protocol corporate reporting stand- ard. In common for all scopes and categories is that primary data is preferred over secondary data, and that mass allocation is preferred over economic allocation. SKF’s reported scope 2 emissions are calculated based on the market-based method. The base year is 2019 for all the SBTi-approved targets. This was a fairly typical year in terms of demand, production output etc. prior to the disruption caused by the pandemic. Building heating is relatively small (~20%) of the total energy use related to scope 1 and 2, and comes mainly from the operations in Europe and North America. 2019 was not a particular outlier in terms of average degree days for these regions. The table Energy consumption and mix, data for re newable energy has been accounted for only where supplier specific statements are available. Non-renewable grid mixes accounted for as fossil energy unless data for nuclear grid mix (only 2024) has been possible to acquire. SKF ANNUAL REPORT 2024 116 THI S IS SKF PRESIDENT’S LETTER STRATEGY AND VALUE CREATION THE BEARING MARKET RISKS AND THE SHARE SUSTAINABILITY REPORT CORPORATE GOVERNANCE REMUNERATION REPORT GROUP DATA FINANCIAL STATEMENTS BAC K TO START Climate change adaptation and mitigation cont. SKF uses a cross-sector emission pathway in line with limiting global warming to 1.5°C. Targets are determined using 1.5˚C-aligned pathways from the SBTi. The most important scenario is the IEA Net Zero Emissions (NZE) scenario. The targets have been established in the context of a solid understanding of potential future changes in sales, production volume and the impact of technological, opera- tional and market-related changes. For example, in deter- mining the achievability of the 2030 goals for scope 3, category 1 (direct materials) the impact of moving to lower carbon intensity steel production techniques (scrap-based steel combined with the use of renewable energy) has been anticipated. Similarly, the feasibility of the 2030 goal for scope 3, category 4 was evaluated in the light of antici- pated impacts of SKF’s regionalization and manufacturing footprint plans, bringing SKF’s production locations closer to customers and suppliers. The targets are consistent with the GHG reporting boundaries with the following exceptions: • Scope 3 categories 2, 5, 8, 10, 12, 13, 14 and 15 are not considered material and therefore only 2050 targets are defined for the time being. • Scope 3 categories 3 and 7 have a material impact, however targets medium-term have not yet been defined. In the case of scope 3, category 3 this is due to the very low possibility for SKF to measure the direct results of its efforts to support the reduction of this impact. In the case scope 3, category 7 SKF has not yet defined a target or direct way to measure this impact. Notes on scope 3, category 1 (purchased goods and services) Measuring, reporting and reducing the upstream scope 3 category 1 emissions from direct material production is a critical challenge. It is, however, a relatively new dimension for both SKF and the industry as a whole and the majority of the Group’s suppliers, and their suppliers. Along with partners in the supply chain, SKF is therefore learning and evolving its approach so that the completeness, accuracy and value of this data as a management tool is improving every year. SKF’s reporting makes use of primary data (information collected from suppliers on their full value chain carbon intensity multiplied by weight supplied to SKF), directly from suppliers, whenever possible and where this is not possible, credible secondary data sources are applied. The main data SKF requests from suppliers is their greenhouse gas intensity (kg of CO 2 e by kg of product). This is then multiplied by the total weight of products delivered to SKF to give the total emissions. Although more complex and challenging to collect, primary data is pre - ferred since it captures specific supplier performance year on year and shows the impact of supplier choice, which is not possible when using secondary data. As a result of the increased use of primary data com - pared to the approach taken in the 2023 report, the accu- racy of the reporting has improved and the annual emis- sions from 2019 to 2023 have been re-calculated. This has changed the previous years reported values, with a base - line (2019) increase of approximately 8%. In a small number of cases, steel suppliers were not able to provide their upstream scope 3 emissions. In these cases, SKF applies an assumption of the upstream scope 3 impact. This is made using the experience gathered by SKF in collecting primary data from other, similar suppliers. On average, this assumption increases the total scope 1 and 2 impact for the suppliers by +65%. In the meantime SKF works to assure that the suppliers provide direct declarations for their scope 3 impact. It is also important to note that SKF has focused on the main raw material inputs to the Group which is the steel used in the rings and rolling elements of rolling bearings. As previously stated, during 2024 more categories have been investigated such as rubber and plastics, and these are also being introduced into the reporting scope. Notes on scope 3, category 4 (logistics) Considering scope 3 category 4, emissions from upstream and downstream transportation, SKF covers approximately 80% of the emissions resulting from outbound flows (where SKF controls the transport), and around 70% inbound. SKF uses emission factors coming from NTM, the Swedish Network for transport measures. SKF intends to further improve the process for collecting emissions for these categories during 2024 to achieve a more complete cover- age of this aspect. Depending on the data availability, SKF applies one of two methods to calculate and aggregate these emissions. Method 1: Transport statistics are collected from transport suppliers and the emissions are calculated using a tool developed by SKF. The tool calculates emissions based on modelling of the SKF transport network and uses emission factors per mode of transport combined with the distance and weight shipped. Method 2: Transport emission reports are collected directly from transport suppliers and aggregated. Method 1 is used for all SKF-operated transports except for express shipments, where method 2 is used. In both cases, the emissions reported are greenhouse gases with a well-to-wheel scope. Energy consumption and mix GWh 2024 2023 2022 2021 Fuel consumption from coal and coal products 0 0 0 0 Fuel consumption from crude oil and petroleum products 5.1 5.5 6.1 7.6 Fuel consumption from natural gas 222.7 241.0 268.6 274.8 Fuel consumption from other fossil sources 16.6 19.1 18.6 17.7 of which Fuel consumption from LPG 16.6 19.1 18.6 17.7 Consumption of purchased or acquired electricity, heat steam and cooling from fossil sources 278.2 491.0 703.2 814.0 of which Purchased electricity (fossil sources) 223.3 409.6 589.0 672.6 of which Purchased heat and cooling (fossil sources) 54.9 81.4 114.2 141.4 Total fossil energy consumption 523 757 996 1,114 Share of fossil sources in total energy consumption, % 35 49 59 63 Consumption from nuclear source 70 1) 1) 1) of which Purchased electricity (nuclear) 70 1) 1) 1) Total consumption from nuclear sources 70 1) 1) 1) Share of consumption of nuclear sources in total energy consumption, % 5 1) 1) 1) Fuel consumption from renewable sources, including biomass 28.2 17.9 19.4 20.1 of which Fuel consumption from biomethane and biogas (renewable) 17.3 17.9 19.4 20.1 of which Fuel consumption from biomass (renewable) 10.9 1) 1) 1) Consumption of purchased or acquired electricity, heat steam and cooling from renewable sources 838.3 759.0 661.5 623.1 of which Purchased electricity (renewable) 790.8 734.5 661.5 623.1 of which Purchased heat and cooling (renewable) 47.4 24.5 1) 1) Consumption of self-generated non-fuel renewable energy 35.3 23.5 16.5 6.9 of which Self-generated electricity (non-fuel renewable) 35.3 23.5 16.5 6.9 Total renewable energy consumption 902 800 697 650 Share of renewable sources in total energy consumption, % 60 51 41 37 Total energy consumption 1,494 1,557 1,694 1,764 1) Data is not available or not possible to verify historically. SKF ANNUAL REPORT 2024 117 THI S IS SKF PRESIDENT’S LETTER STRATEGY AND VALUE CREATION THE BEARING MARKET RISKS AND THE SHARE SUSTAINABILITY REPORT CORPORATE GOVERNANCE REMUNERATION REPORT GROUP DATA FINANCIAL STATEMENTS BAC K TO START Energy & GHG intensity based on net revenue All SKF activities are considered to be in high climate impact sectors. 2024 2023 2022 Net revenue 98,722 103,881 96,933 GWh 1.494 1,557 1,694 Total CO 2 e, tonnes (Scope 1 and 2) 171,358 253,740 310,331 GHG intensity tonnes/MSEK 1.74 2.44 3.20 Energy intensity MWh/MSEK 15.14 14.99 17.47 Carbon intensity continues to reduce reflecting further increases in renewable energy sourcing and improvements in efficiency. Energy intensity increased slightly due to reduced volume, however energy efficiency improved. Gross Scopes 1, 2, 3 and total GHG emissions Targets Base year 2019 2024 % change 2024 vs 2023 2030 (2050) Annual % target/ base year Comment on development Scope 1 Gross scope 1 58,135 45,853 –7.8 8.6 1 % from ETS 9.17 2 Scope 2 Gross location-based 518,500 392,255 –12 1 Gross market-based 360,873 125,505 –38 8.6 3 Significant scope 3 GHG emissions 1. Purchased goods and services 1,675,800 1,410,542 –11 2.9 1 2. Capital goods 16,500 25,385 –12 4 3. Fuel- and energy-related activities (not included in scope 1 or 2) 97,527 60,372 –3.1 5 4. Upstream transportation and distribution 171,802 167,448 2.1 3.2 1 5. Waste generated in operations 37,019 34,433 –21 6 6. Business travel 12,954 11,593 12 1 7. Employee commuting 56,132 48,429 –4.8 7 8. Upstream leased assets 0 0 0 NA 9. Downstream transportation and distribution NA NA NA NA 10. Processing of sold products 8,398 8,885 –11 9 11. Use of sold products 1,012,016 1,217,202 12 2.5 10 12. End-of-life treatment of sold products 21,713 22,119 –9.2 11 13. Downstream leased assets NA NA NA NA 14. Franchises NA NA NA NA 15. Investments NA NA NA NA Total GHG emissions Total location-based 3,686,496 3,444,517 Total market-based 3,528,869 3,177,767 Climate change adaptation and mitigation cont. Comments on the development (reference in right hand column in the table). • 1 and 3 See comments included under ‘2024 performance’ in relevant section of ‘Implementation of transition plan’ • 2 Only one boiler system at SKF’s factory in Airasca, Italy is included in the EU ETS, with annual emissions of 4,206 tonnes of CO 2 e. • 5 and 7 Scope 3 categories 3 and 7 have a material impact, however targets medium-term have not yet been defined. In the case scope 3, category 7, SKF has not yet defined a target or direct way to measure this impact. • 10 The change vs. 2023 reflects mainly change in number of sold products which generate scope 3, category 11 emissions. • 4, 6, 9 and 11 No significant impacts, the estimated green- house gas emissions is based on secondary data. Additional notes on the calculation of Scope 3 emissions This table shows GHG emissions aggregated per scope and category. They can be reported directly by suppliers or, calcu- lated using data collected from suppliers or SKF operations or, a combination of both. When emissions factors are used, they are evaluated and selected from commercial datasets or SKF LCA studies. Mass allocation is used except for data categories for which mass data is unavailable, for these economic allocation is used. Estimates can be used for data categories with a small con- tribution and influence on the overall carbon footprint. More specifically; Scope 3, category 2 – an emission factor based on a selection of repre- sentative production machines is derived and leveraged for calculating emissions for all capex investments. Scope 3, categories 3 and 5 – calculated using waste data and energy data published on skf.com, combined with emissions factors selected from commercial datasets. Scope 3, category 6 – covers air travel in most regions based on data obtained from travel agencies. Scope 3, category 7 – based on number of employees, region and typical commuting patterns. Scope 3 category 10 and 12 – the weights of sold products are l everaged and assumptions are applied related to product mounting and end-of-life treatment method. Scope 3, Category 11 – based on estimation of the total direct energy use by relevant SKF products multiplied by a global average electricity emission factor. The reporting methodology for other scope 1, 2 and 3 categories is described on page 116. Sources of emissions Tonnes, conversion factors in tonne per unit in brackets 2024 2023 2022 Direct (scope 1) LPG (3.0 per tonne) 3,638 4,197 3,696 Fuel oil (3.0 per tonne) 1,477 1,639 1,543 Natural gas (0.002 per cubic meter) 40,621 43,880 47,576 Biomass (0.04 per tonne) 117 – – Supplied (scope 2), market-based Electricity 117,817 195,978 239,866 District heating and cooling 7,688 8,046 17,650 Total CO 2 e emissions, market-based 171,358 253,740 310,331 Scope 1 emission factors have been derived from DEFRA, except Gothenburg where the local RED-Cert standard has been applied. Scope 2 contractual emission factors have been provided by relevant electricity suppliers. Scope 2 location based emission factors have been taken from IEA, DEFRA and other recognized data sources. Emission factors from DEFRA are used for district heat except certain sites in Germany, Sweden and Poland where specific emission factors from suppliers are provided by the local district heat provider. SKF ANNUAL REPORT 2024 118 THI S IS SKF PRESIDENT’S LETTER STRATEGY AND VALUE CREATION THE BEARING MARKET RISKS AND THE SHARE SUSTAINABILITY REPORT CORPORATE GOVERNANCE REMUNERATION REPORT GROUP DATA FINANCIAL STATEMENTS BAC K TO START Additional underlying data – useful to better understand Scope 1, 2 and 3 trends Scope 3, Category 1 Table showing total weight of materials components purchased Year GHG emissions from steel material and related components, Scope 3 cat. 1 (tonnes CO 2 e) Steel material and related components, Scope 3 cat. 1 (tonnes shipped) 2024 1.410.542 586,062 2023 1.588.482 676,747 2022 1,891,851 737,3 58 Scope 3, Category 4 Year GHG emissions from transports Scope 3 (tonnes CO 2 e) Transport Works (tonnes shipped) 2024 167,448 298,102 2023 163,991 300,092 2022 213,061 330,904 2021 227,228 295,249 2015 155,611 257,023 Baseline recalculated from 2015 due to methodology change of counting inbound volumes in India and USA Transport Mode Transport Works (tonnes shipped, % of total) GHG emissions (% of total) Tonne Kilometer (% of total) Road 70 23 9 Sea 29 46 90 Air 1 26 1 Rail 1) 0 0 0 Express <1 4 n/a 1) No rail connection available between Europe-Asia due to war in Ukraine. Biogenic scope 1 emissions Tonnes COe 2 , biogenic 2024 Solid biomass 3,853 Biomethane 3,456 Scope 1 Total 7,310 Scope 2 Total Data has not yet been possible to acquire. Scope 3 Total Data has not yet been possible to acquire. Climate change adaptation and mitigation cont. GHG removals and GHG mitigation projects financed through carbon credits SKF does not make use of carbon credits and has no plans to do so. Internal carbon pricing Shadow Carbon Price for direct material purchasing Scope 3, category 1 emissions from direct material purchasing account for approximately 1.5 million tonnes of CO2e annually, representing 80% of the total cradle- to-gate greenhouse gas emissions for the SKF Group. A significant portion (90%) of these emissions is attributed to the sourcing of steel and steel components. SKF has set ambitious goals to reduce these emissions by 32% by 2030, compared to a 2019 baseline. The primary levers to achieve this reduction are described in the transi- tion plan section above. While efficiency gains and re-manufacturing are driven by cost and growth perspectives, transitioning to less carbon-intensive steel and renewable electricity is more complex. Currently, there are limited external economic drivers for these changes, except in specific industries, for example, the automotive industry and in certain regions, such as the EU. Therefore, SKF has determined that internal intervention is needed in the form of a shadow carbon pricing approach. Lower carbon intensity steel often incurs higher costs due to increased production expenses and regional price differentials. Executing these lower carbon strategies pre- maturely could reduce SKF’s competitiveness if customers are not ready to recognize the value or if legislation has not yet mandated it. Certain sectors already require lower embodied gren- house gas emissions in steel. EU policies like the Carbon Border Adjustment Mechanism (CBAM) and the phasing out of free emissions allocations in the EU Emissions Trad- ing Scheme (ETS) are expected to create a carbon price of EUR 100-150 per tonne by the late 2020s. For other regions and industries, the timing of customer demands or legisla- tion is less clear. Therefore, SKF is developing a shadow carbon price to raise awareness among purchasing, prod- uct line, sales and marketing functions without yet incor- porating it into standard cost calculations and pricing. Policy approach The policy mandates that the shadow carbon price shall be included in customer discussions whenever possible, providing examples of how to apply the principles. The purchasing team in SKF are responsible for calculating the embodied carbon of materials and the shadow carbon price. The initial focus is on bar, tube, and wire, which repre- sent 70–80% of the total upstream greenhouse gas emis- sions impact from steel. Manual calculations will be per- formed by nominated Business Area personnel for these categories. The calculation of a shadow carbon price is mandatory for sourcing decisions exceeding 10 MSEK annually. Carbon price application SKF is applying a CO 2 e price of EUR 100 per tonne, based on anticipated EU ETS carbon prices for the next year or two. This price may be adjusted going forward. Compliance has been required from 1 July 2024. Shadow carbon pricing applied in energy saving investments As well as the shadow carbon price applied for direct material purchases, SKF also applies a form of shadow carbon pricing in the investment process, when there is an impact on energy use. This approach requires that the baseline financial scenario for any investment uses an anticipated cost for Energy Attribute Certificates (EAC). Considering RE100’s technical requirements for EACs for renewable electricity or additional cost of sourcing approved renewable fuel alternatives, such as e.g. sustain- able bio methane, SKF anticipates significantly higher EAC costs, which will vary depending on the region. The inclu- sion of an anti cipated future cost of EACs in the financial baseline (the calculation of what happens if the invest- ment is not made) significantly improves the payback time for the energy or carbon-saving investment and therefore increases the probability that it will be approved. All energy-saving or GHG-reducing investment projects are tracked in a central database known as the FTJ Energy and Carbon Savings Tracker. Specific instructions are pro- vided to the units explaining how this shadow EAC price should be included in the financial payback calculation. All investments are scrutinized at the Business Area level, and a sample of them at the Group level. SKF ANNUAL REPORT 2024 119 THI S IS SKF PRESIDENT’S LETTER STRATEGY AND VALUE CREATION THE BEARING MARKET RISKS AND THE SHARE SUSTAINABILITY REPORT CORPORATE GOVERNANCE REMUNERATION REPORT GROUP DATA FINANCIAL STATEMENTS BAC K TO START Resource use and circular economy Material impacts, risks and opportunities IRO and value chain Description Resource inflows Positive impacts Full value chain Increasing demand for products and business models with improved circular performance Negative impacts Upstream Use and reliance on virgin raw materials such as steel Resource outflows Positive impacts Downstream Designing, developing and providing solutions for circularity Negative impacts Full value chain Limited closed-loop product flows for all SKF’s products Opportunities Downstream Winning business in a circular economy Waste Negative impacts Own operations Waste generated in own operations Description of the processes to identify and assess material resource use and circular economy- related impacts, risks and opportunities Impacts The transition from a linear to a circular business cuts across the whole of SKF, from managing resource inflows in the global supply chains, through the factories, to reduc- ing outflows like waste created in the delivery of products and services to customers. Within SKF’s own operations, itis necessary to eliminate waste, improve waste treat- ment and ensure efficient use of materials by focusing on circular economy strategies such as remanufacturing and recycling. SKF has screened its assets and activities and engaged with stakeholders, including customers, employ- ees, suppliers and civil society, to identify actual and potential impacts in the Group’s own operations and the upstream and downstream value chain. Customers empha- size decarbonization and energy efficiency, aligning with SKF’s sustainability goals, while suppliers focus on trans- parent sustainability practices, and civil society expects SKF to reduce environmental impacts and support circular economy objectives. There is ongoing consultation with communities local to sites, with no significantly affected communities identified in relation to SKF’s resource use. More on stakeholder dialogue on page 88. Risks Risks related to circularity extend to resource inflows, resource outflows and waste management amidst growing regulatory pressure and focus on resources and waste. SKF relies on materials like steel, primarily from recycled sources, but faces challenges in availability and consist- ency of global supplier data. A significant environmental challenge comes from SKF’s reliance on virgin raw materials, which poses pollution, processing, energy, transport and emissions-related risks. Remaining in a linear business model poses further risks such as rising material costs, supply chain disruptions and the risk of regulatory non-compliance as governments increasingly tighten circular economy regulations. There are also reputational risks if SKF does not shift more rapidly towards circularity, given the increasing focus on sustainability from stakeholders and customers alike. Risks extend to other materials such as rubber, oils and greases compounded by growing regulatory pressure and attention on resource scarcity. Opportunities Transitioning to a circular economy presents opportunities to optimize material flows, reduce costs, and position SKF as a leader in sustainable manufacturing. The company is actively increasing recycling, remanufacturing and waste reduction efforts across its business units. Key units include manufacturing, supply chain and procurement, R&D and innovation, and service and maintenance, all of which are working to scale circular solutions that extend product life-cycles, improve resource efficiency and mini- mize waste. By designing products for circularity, ensuring modular- ity, repairability and recyclability, SKF is creating solutions that will have a significant positive impact on the circular economy transition. In leveraging these strategies, SKF aims to increase the proportion of revenues from circular business models and help its customers transition towards circularity, thus reducing both the environmental footprint and dependency on virgin materials. Circular solutions, such as remanufacturing and the RecondOil offer growth potential by extending product life-cycles, reducing waste and lowering costs for customers. As industries adopt circular economy practices, demand for reuse will increase, positioning SKF as a leader in this space. Policies SKF has established policies to manage key impacts, risks and opportunities related to resource use and the circular economy across its operations and value chain. These policies are designed to ensure the identification, assess- ment and remediation of material impacts and risks in alignment with circular economy principles. The policies are continually reviewed and updated to address new risks and opportunities as identified through materiality assessments. These policies also drive the implementation of circular economy strategies such as recycling and waste treatment ensuring SKF and its value chain are aligned with sustainability objectives. More information about SKF’s policies can be found on page 142. SKF ANNUAL REPORT 2024 120 THI S IS SKF PRESIDENT’S LETTER STRATEGY AND VALUE CREATION THE BEARING MARKET RISKS AND THE SHARE SUSTAINABILITY REPORT CORPORATE GOVERNANCE REMUNERATION REPORT GROUP DATA FINANCIAL STATEMENTS BAC K TO START Resource use and circular economy cont. Actions and resources related to resource use and circular economy Circularity will eventually transform SKF’s materials, pro- duction, supply chain, business models and culture. SKF has therefore defined a multitude of actions driven locally and globally based upon the known impacts, risks and opportunities presented by the circular economy. SKF’s Circularity programme identified over 100 initiatives taking place throughout the business relating to circularity. Key areas of action include: • Remanufacturing at SKF promotes circularity by extending the lifespan of products across industries including the railway, metals and aerospace industries. A bearing typically replaced every three years can be remanufactured twice to last up to nine years, effectively performing the function of three new bearings. Addition- ally, remanufacturing ensures that high-quality steel remains in the recycling loop, either by reusing it in bearings or recycling it into high-quality steel for new products. • RecondOil double separation technology (DST) en hances the circularity of industrial oil by re generating it into a reusable asset, preventing it from aging and eliminating the need for new oil purchases. By removing even the smallest contaminants, DST allows the same oil to be used indefinitely across various industries, reducing waste and carbon footprint. This technology not only saves costs but also improves perfor mance and extends machine life. • Laser metal deposition (LMD) enhances the circu- larity of bearings by allowing for repeated use through the application of metallurgically bonded coatings that resist wear and corrosion. The process uses only 15% of the steel needed for new bearings and the sub- sequent remanufacturing also reduces CO 2 emissions by up to 80%. Tested in real-life manufacturing condi- tions, LMD-coated bearings demonstrate high durability and minimal wear. These actions are aligned with SKF’s objectives to miti- gate material impacts and risks, particularly in relation to resource inflows and outflows. For example, remanufac- turing directly addresses the risks of resource scarcity and Circular solutions /Business models Remanufacturing as a service Bearing for improved circularity Housing for improved circularity Performance solution 100/100 contract for remanufacturing and supply in railway Certified Pre-owned Collect and sell remanufacturable bearings RecondOil Circular oil for life Predictive maintenance Offer maintenance activities to ensure extended life of bearings Eliminate waste and pollution Legal – ensures compliance, protects immaterial assets and creates clear framework for circular business models. Data & AI – optimizes the process, including predictive maintenance, optimizing remanufacturing processes and efficiency improvements in material flows. Upskilling – equipping the workforce with the necessary skills for a circular economy, such as experience in remanufacturing, data analysis, and sustainable practices. Re-imagine circularity for a better tomorrow Green and efficient supply • Embed circularity in supplier relationships and increase yield of steel • Secondary materials first • Recyclable/bio-based materials Circulate materials • Recycling and reuse of grinding swarf • Recirculate components • Recycling and reuse of oil and grease • Cycle back (e.g. paper, packaging) SKF’s operations SKF’s offering Material efficiency • Increase direct material efficiency • Standardize material sourcing • Reduction of indirect materials purchased Equipment lifecycle • Refurbishment and reuse of equipment • Repair and maintenance of equipment • Recycling of equipment Technological and product development • Design for remanufacturing • Standardization of design and technology • AI supported Data Management and Analytics Circularity cuts across SKF’s whole business To help visualize and communicate the company wide transformation and the ongoing circularity related activities SKF developed the following framework: SKF ANNUAL REPORT 2024 121 THI S IS SKF PRESIDENT’S LETTER STRATEGY AND VALUE CREATION THE BEARING MARKET RISKS AND THE SHARE SUSTAINABILITY REPORT CORPORATE GOVERNANCE REMUNERATION REPORT GROUP DATA FINANCIAL STATEMENTS BAC K TO START rising costs by extending product lifecycles, while Recond- Oil and LMD tackle the potential impacts of waste. By implementing these circular economy strategies, SKF not only mitigates risks but also capitalizes on busi- ness opportunities, such as meeting the increasing demand for circular products and services. These actions, amongst others, help ensure compliance with evolving reg- ulatory requirements and achieve the objectives outlined in SKF’s sustainability policies, particularly regarding reuse and sustainable resource utilization to help mitigate material risks. Targets related to resource use and circular economy SKF’s circularity targets focuses on resource inflows and improving waste management. The volontary targets reflects SKF’s proactive approach to sustainability and directly address the most material impacts, risks and opportunities. To ensure focus the Group has chosen to prioritize two targets relating to circularity this year — specifically addressing circular material use (inflows) and waste management. By focusing on reducing SKF’s reliance on primary materials like steel, improving re - source utilization, and fostering sustainable resource cycles, the aim is to mitigate the upstream environmental impacts associated with resource scarcity, energy use and emissions. In the coming years, SKF will evaluate and introduce additional targets to further focus efforts and address material impacts, risks and opportunities across the value chain. Target 1 – Buy and use 100% net zero steel by 2050, or earlier SKF’s largest material inflow, by far, is steel. The Group’s target is to buy and use 100% net-zero steel by 2050, or earlier. This target is aligned with the SteelZero initiative, a global collaboration aimed at transitioning to a net-zero steel industry. Until new technologies are scaled, the best way to reduce emissions is to increase the use of recycled steel and reduce the production of virgin steel. This target addresses key material impacts related to steel produc- tion. By transitioning to net-zero steel, SKF aims to reduce its total environmental footprint by supporting sustainable steel production methods. This commitment extends glob- ally across SKF’s supply chain to ensure access to net-zero steel in all operational geographies. The timeframe includes interim milestones to track progress towards this long-term goal, acknowledging the challenges in transforming the steel industry, but ensuring continuous improvements along the way. The approach necessitates cleaner production methods and higher Resource use and circular economy cont. Non-renewable material 2024 Tonnes 2023 1) Tonnes 2022 1) Tonnes Metal as raw material from external suppliers 410,644 475,686 621,794 Rubber as raw material from external suppliers 4,727 4,956 5,087 Oils 7,188 8,054 8,982 Greases 2,134 2,322 2,424 recycling rates, supported by collaboration with other SteelZero participants to drive industry-wide change. Regular reviews will assess whether SKF is on track or if adjustments are needed to accelerate progress, ensuring the target’s alignment with the Group’s broader sustain- ability and circular economy objectives. Target 2 – A recycling rate above 80% for grinding swarf Grinding swarf is a mix of small metal particles and abra- sives mixed with emulsion. The Group objective is to achieve recycling at a rate above 80% year by year. Grind- ing swarf is a focus area for SKF and other metalworking companies due to its classification as hazardous waste, which can pose environmental risks if not properly man- aged. However, it also presents an opportunity to recover valuable metal content for reuse in other applications. The target to achieve and maintain an 80% recycling rate applies to all SKF sites that generate grinding swarf as a waste material. While SKF has historically achieved this target, maintaining it has proven difficult due to, for example, variations in regional legislation or volatile scrap prices. Progress towards this objective is closely moni- tored through governance forums, such as the half-year EHS reviews conducted with Business Areas. SKF is con- stantly working to find business partners who can use grinding swarf as input to their production, both as direct and indirect material. During 2024, the rate of recycled or reused grinding swarf decreased to 65% compared to 66% the previous year. Resource inflows SKF uses various materials in production, including metals (predominantly steel), rubber, solvents, hydraulic oil and grease. Much of the steel purchased by the Group is produced by re-melting steel scrap, as this provides favourable material properties. SKF does not report any renewable materials or recycled input material. The most significant part of the material used comes from compo- nents which have been machined and refined along the value chain. This means that SKF does not have direct influence over the source of the material but only the spec- ified quality. In general, the steel used by SKF during 2024 is made from around 54% of scrap, and SKF is working to increase this percentage. Resource outflows Products As the shift to circularity gathers pace, customers are increasingly seeking re-use solutions for their products. Some of this volume will be given a next service life in SKF’s remanufacturing centres, but SKF is also actively involved with customers who are developing their own or third-party recovery and re-use capacity which in turn will increase the economic viability of re-use. When SKF’s products are dismounted at the end of their first service life, it needs to be feasible that preparation for re-use can take place. SKF has assessed a sample of the Group’s product families for repairability using the DIN (German Institute for Standardization) Quality Classifica- tion for Circular Processes. DIN scores range from 0 to 1, where 0 signifies purely linear products and 1 perfectly circular products. In the estimate of repairability across 11 product families, over two thirds of the products reviewed scored 0.80. This analysis provides insight for SKF’s prod- uct and engineering teams about where improvements in durability can be made by better enabling remanufacturing and refurbishment. There is no industry benchmark available to analyze the expected durability of SKF’s products in relation to indus- try average. However, SKF has, developed a lifecycle model of bearings, analyzing the expected durability. 2024 saw the introduction of circular design principles into the product development process. Building on existing environmental guidelines, these design principles include emphasizing the design of products for durability and easy repair to extend their lifespan. 1) Past data are restaded for divested units and data amendment SKF ANNUAL REPORT 2024 122 THI S IS SKF PRESIDENT’S LETTER STRATEGY AND VALUE CREATION THE BEARING MARKET RISKS AND THE SHARE SUSTAINABILITY REPORT CORPORATE GOVERNANCE REMUNERATION REPORT GROUP DATA FINANCIAL STATEMENTS BAC K TO START Biological materials and packaging Much of SKF’s packaging materials are marked with re - cycling symbols. Local markets have different legislation regarding symbols and certification on packaging material. SKF follows local legislation on the printing of packaging symbols. Additionally, SKF is actively encouraging cus- tomers to adopt reusable packaging solutions. These can be returned and reused, minimizing waste and promoting a more sustainable, circular approach. Resource use and circular economy cont. By promoting both reuse and recycling, SKF maximizes the lifecycle of its packaging, aligning with the cascading use of materials to reduce waste and enhance sustaina- bility. In a single-stage cascade, packaging that cannot be reused can still be recycled, extending its utility. In a multi- stage cascade, SKF’s focus on return and reuse allows packaging to be repurposed multiple times before disposal or recycling. Even when it reaches the end of its material life, the high recyclability of SKF’s packaging ensures it can still contribute to resource conservation. Recyclable packaging material Packaging material Waste Hierarchy Type Carton boxes Recyclable as paper Product packaging Industrial KLT Returnable to SKF for reuse Product packaging Industrial packing cartons Recyclable as paper Product packaging Plastic Recyclable as plastic Product packaging Plastic tubes Recyclable as plastic Product packaging Plywood boxes Recyclable as wood Product packaging Pouches Recyclable as plastic Product packaging ProofBox Returnable to SKF for reuse or recycle as plastic Product packaging Corrugated transport box Recyclable as paper Transport packaging Corrugated paper pallet Recyclable as paper Transport packaging One-way plywood box Recyclable as wood Transport packaging One-way pallet Recyclable as wood Transport packaging Plastic strapping Recyclable as plastic Transport packaging Standard SKF pallet and collar Returnable to SKF for reuse or recycle as plastic Transport packaging Waste SKF works to avoid waste generation in several ways. Upstream, this includes the use of near-net shape produc- tion technologies such as cold rolling, thereby minimizing the amount of material which needs to be removed in sub- sequent processes. Examples within SKF’s operations include avoidance of scrap and excessive material use through optimized processes. Downstream, SKF works with its remanufacturing approach to extend the life of SKF products and the systems in which they operate, thereby avoiding waste. Almost all recycling, reuse and recovery of waste which is diverted from disposal is undertaken by external companies such as steel plants, waste manage- ment and recycling companies. SKF is performing recycling of lubrication oil at some sites using SKF’s RecondOil solution, but this is not yet reported separately. As part of the Group’s overall responsible sourcing approach, SKF requires that waste management compa- nies and other companies making use of SKF’s residual materials operate in full compliance with the SKF Code of Conduct and therefore all applicable local legislation. The Group reports disposal methods by reuse, recycling and incineration with and without energy recovery and landfill. Local objectives are required to be established by the Group and these shall drive sites upwards in the waste hierarchy. The amounts of residual material and recycling rate are disclosed below, and in more detail in the Environ- mental data spreadsheet available at skf.com. SKF reports all significant residuals and waste site-by-site. In this report, SKF highlights the most significant residu- als, recycling rates and the amount of waste sent to land- fill. The data on weight of waste generated comes from both SKF measurements and those made by the waste management companies, depending on the fraction and the location. Non-hazardous waste Tonnes 2024 2023 1) 2022 1) Total residuals generated 106,924 130,567 132,856 Recycled or reused 82,946 97,949 106,880 Recycling rate, % 78 75 80 Incinerated with energy recovery 7,600 8,159 8,629 Incinerated without energy recovery 1,861 2,255 1,970 Landfill 14,518 22,204 15,377 1) Past data are restated for divested units and data amendment. Hazardous waste, grinding swarf Tonnes 2024 2023 1) 2022 1) Total 19,833 21,362 23,709 Recycled or reused 12,826 14,125 16,328 Recycling rate, % 65 66 69 Incinerated with energy recovery 619 653 430 Incinerated without energy recovery 3,198 4,310 5,076 Landfill 3,190 2,274 1,875 1) Past data are restated for divested units and data amendment. SKF ANNUAL REPORT 2024 123 THI S IS SKF PRESIDENT’S LETTER STRATEGY AND VALUE CREATION THE BEARING MARKET RISKS AND THE SHARE SUSTAINABILITY REPORT CORPORATE GOVERNANCE REMUNERATION REPORT GROUP DATA FINANCIAL STATEMENTS BAC K TO START Material impacts, risks and opportunities and interaction with strategy and business model To stay competitive, and to deliver on the strategy and objectives set out by the Group, SKF needs to attract, develop and retain a diverse and effective workforce with critical competences and capabilities. SKFs’ people ambitions are an integral part of the over- all strategy and are clarified in the SKF 2030 People Agenda, which is valid for all parts of the Group. The top three strategic priorities are Culture & Leadership, Work- force for the Future, and Employee Experience. The strate- gic priorities are further broken down into the following strategic areas: • Purpose • Values & Employee Value Proposition (EVP) • Leadership development • Diversity, trust and inclusion • Organize for growth & innovation • Future dimensioning of workforce • High-performing organization • Wellbeing in change • People engagement • Reward & recognition The strategic priorities and the strategic areas serve as the framework when yearly ambitions, activities and targets are defined and followed up. The People Experience function is represented in SKF’s Group Management by the Senior Vice President People Experience & Communication. SKF commits to providing equal opportunities irre- spective of ethnic background, race, religion, age, gender, disability, sexual orientation, outlook or social status. By working with this purpose, SKF contributes with actual positive impacts beyond mitigating negative impacts. By fostering diverse teams and inclusive leadership SKF can enable an innovative environment that contributes with important financial opportunities for the Group. Purpose, culture, employee engagement, leadership, com- petence and ways of working are all key building blocks in this area. Safety always comes first and SKF is convinced that all work-related accidents can be prevented. Being a manu- facturing company with a large number of employees, SKF has a potential negative impact on the own workforce’s health and safety. The Group has a global management system with focus on hazard elimination and risk mitiga- tion. SKF’s zero accidents program, supported by proactive reporting of unsafe conditions, aims to prevent all work- place accidents. Implementing measures to mitigate nega- tive impacts reduces the likelihood of critical consequences. Due to the severity of health and safety incidents, SKF considers these impacts significant. SKF’s approach to secure employment, collective bar- gaining agreements and freedom of association, prevents unfair treatment based on gender, culture, ethnicity or other factors. This can be seen as an initiative to mitigate important negative impacts. At the same time, by creating a more secure, attractive and engaging work environment, these measures also serve to create a potential positive impact for the workforce as well as for their families, com- munities and society as a whole. Other work-related rights include human rights such as zero tolerance against child labour and forced labour. The severity of such a negative impact makes it material for SKF, despite its low likelihood. SKF is responding to this potential negative impact by adhering to international standards and guidelines and enforcing the SKF Code of Conduct policy in all its operations. Periodic Code of Conduct compliance audits are performed and a whistle- blowing process is available at local and global levels. SKF has conducted a human rights impact assessment, and while these impacts are predominantly linked to the supply chain, they are also relevant to SKF’s own operations for the impacts identified for own workforce. For further infor- mation, please see “Workers in the value chain – material impacts, risks and opportunities and their interaction with strategy and business model” on page 134. If SKF does not succeed in providing good working con- ditions, this can lead to high employee turnover rates that can generate financial risks through weakened results. Negative consequences could also include reduced investments, fewer innovations, decreased market share and poor wellbeing. SKF is responding to this by taking a holistic approach in strengthening the Group as an employer of choice, by putting the employee experience at the center, including providing safe and healthy working conditions, well-being, purpose and values as well as a fair and transparent reward and recognition system. SKF Group Management and People Experience have a regular dialogue with the SKF World Union Council (WUC) and the European Work Council (EWC) according to the global framework agreement based on the SKF Code of Conduct. Issues relating to significant changes at SKF are always handled in close collaboration between Group Management, the WUC, the EWC and local unions. As SKF Group operates under Swedish legislation and the Swedish Corporate Governance Code, employee repre- sentatives are part of the Board of Directors of AB SKF. Among other things, this means that employee representa- tives from white and blue collar unions have direct insight on Board level issues and the strategic outlook for the Group. As the trade unions in SKF play an integral part in shaping the methods and content of employee engage- ment, a people follow up is always on the agenda when the WUC meets the company representatives at the annual summit. Employees who experience discrimination or unequal treatment may suffer from stress, anxiety and other mental health issues. This can negatively affect the employee’s overall well-being and quality of life. The potential negative impact is deemed material based on its severity to the individual’s health. SKF is mitigating any potential nega- tive impact through, for example, the quarterly SKF Team Pulse survey, where SKF can measure the employee experience from wellbeing. Furthermore, employees are requested to report any behaviour that is not in line with SKF Code of Conduct to their manager, the local People Experience channels or to other senior managers. Social Own workforce Material impacts, risks and opportunities IRO and value chain Description Working conditions Negative impacts Own operations Work-related injuries and ill health of own workforce Positive and negative impacts Own operations Secure employment, collective bargaining and freedom of association Risks Own operations Inability to attract and retain critical competences and capabilities Equal treatment and opportunities for all Positive impacts Own operations Enabling a diverse and inclusive workplace Negative impacts Own operations Discrimination and non-equal treatment of own workforce Opportunities Own operations Diversity and inclusion increasing innovation and business performance Other work-related rights Negative impacts Own operations Human rights of own workforce SKF ANNUAL REPORT 2024 124 THI S IS SKF PRESIDENT’S LETTER STRATEGY AND VALUE CREATION THE BEARING MARKET RISKS AND THE SHARE SUSTAINABILITY REPORT CORPORATE GOVERNANCE REMUNERATION REPORT GROUP DATA FINANCIAL STATEMENTS BAC K T O START Employees can also raise concerns or seek advice through the third-party hosted SKF Ethics and Compliance Reporting Line. Policies related to own workforce SKF gives top priority to the health and safety of employ- ees, contractors, agency workers and visitors. This is clearly stated in the Group EHS policy together with SKF’s commitment to provide safe and healthy working condi- tions to prevent work-related injury and ill health, as well as to assure well-being in the work environment, as described in SKF’s Employee Wellbeing policy. This com- mitment is supported by the Group’s occupational health and safety management system. Related procedures and programs are designed to maintain and continually improve a safe and healthy work environment by proac- tively assessing health and safety risks and eliminate hazards, reduce risks and ultimately improve the work environment. The Group EHS Policy is available both internally and externally. To ensure focus and awareness of the aim and ambition in the Group EHS Policy, a mandatory e-learning and policy commitment is part of employee induction and is renewed periodically. The Group EHS Policy includes a commitment to assure well-being in the work environment, and is complemented by SKF’s Employee Well-being policy, which includes psy- chological health, life balance and healthy life choices. The overall EHS governance in SKF emphasizes line ownership for health and safety. EHS managers are appointed in the regions, Business Areas and local man- agement teams across SKF. Working as part of the opera- tional management teams, these individuals make sure that appropriate attention, resources and investments are given to health and safety in their respective units. They are supported in this work by the long established EHS country coordinators who provide local expertise, guid- ance and support to the sites. At SKF Group, the Equal Pay Policy is established to ensure that all employees are treated fairly by receiving equal pay for equal work. The policy aims to ensure that all employees receive equal pay for equal work, regardless of their race, gender, age, national origin, disability, religion, sexual orientation, union membership or political affilia- tion, by conducting regular audits, monitoring starting salaries, providing training and addressing any instances of pay discrimination. Processes for engaging with own workforce and workers’ representatives about impacts To strengthen the position as an employer of choice as well as the employee experience, SKF is intensifying employee involvement to develop an attractive workplace. Regular business area townhalls and team meetings with Q&A opportunities ensure ongoing workforce dialogue across the organization. The quarterly employee satisfac- tion survey SKF Team Pulse, is recognized as an essential tool and has a global reach. Since Q3 2023, diversity and inclusion, as well as health and well-being related ques- tions have been incorporated into the SKF Team Pulse. This employee survey is anonymous and allows each employee to give a score on a scale of 0 to 10 (with 10 being most positive) to assess how SKF is doing on those drivers. In the most recent Team Pulse survey (Q4 2024), SKF’s Diversity & Inclusion score was 8.1, aligning with the manufacturing benchmark, which is derived from the employee survey system comparing results across the industry. The Health & Well-being score of SKF was at 8.0, which is 0.2 points above the manufacturing benchmark. Each team gives input on a quarterly basis and receives a team result (teams with less than five employees get an elevated report, due to anonymity requirements). The teams are encouraged to work with improvement activities. The tool covers staff and workers, and participation is encour- aged from the top of SKF. The SKF Engagement score in Q4 2024 was 7.9 which is 0.4 points higher compared to the manufacturing benchmark. Managers are organizing quarterly team meetings to collaboratively review their team’s survey dashboard for each driver, assess trends and identify areas for improve- ments. The SKF Team Pulse has demonstrated to be a power- ful tool to analyze what is going well and what can be improved. Beyond the score, employees can also leave anonymous comments which give valuable insights on their overall employee experience. Going forward, a new “wellbeing-in change” roadmap is being developed to further incorporate well- being into the entire organization, fostering a sense of belonging in a healthy inclusive environ ment, with a healthy work-life balance for all. Restricted only by rules of anonymity, SKF uses the data to better understand how the employees perceive their working conditions and to determine improvement areas and actions. The result is also used to understand per cep- tions using different demographic parameters, such as age and gender. The overall aggregated response rate is 78%, but SKF is challenged to increase the share of respondents among the worker category. This was observed by the Group Manage ment, and easier access to digital tools remains a priority for 2025. The Digi4All project aims at including all employees in the digital landscape. The SKF Team Pulse survey results and participation rates are now part of the “Let’s Talk” Quarterly calls with the SKF’s Group CEO open to the entire SKF workforce, where not only financial results are presented, but also people related topics. During 2024 the SKF Team Pulse has been further developed, to incorporate additional questions regarding diversity, equity, inclusion, health and well-being and spe- cific SKF questions. The dashboard results are shown in the table on page 128. SKF is a truly international company, with organizations present in many different cultures and contexts. Account- ability and mandate are moved as close to the business as possible. Decentralization comes with the risk of differ- ences in practice also in the labour relations area. This could impact the employee experience at SKF and the overall SKF brand. Labour relations have a strong presence in the SKF Code of Conduct and strong labour affair rela- tions are a foundation that SKF needs to maintain and develop. Open information sharing and dialogue builds a strong culture, with high loyalty and trust. This is pro- tected by the Global Framework Agreement and by having the Labour Affairs Director as part of the Global People Experience Management team. Own workforce cont. SKF Team Pulse SKF is using the Team Pulse survey to understand the perceptions of all employees and encourage them to actively contribute to making SKF a great place to work. The survey is a quick and simple way to capture opinions, create dialogue within teams and influence. • Performed quarterly. • Score from 1 to 10. • 18 rotating questions out of 44, covering engagement, health and well-being, and diversity and inclusion. • Multiple touchpoints such as QR code, emails and SMS messages to encourage participation. • Strictly anonymous. • Report only generated for teams of 5 and over. • Workday Peakon is the external supplier of the SKF Team Pulse. The manufacturing benchmark is provided by Workday Peakon and is an average ofindustry standard. SKF ANNUAL REPORT 2024 125 THI S IS SKF PRESIDENT’S LETTER STRATEGY AND VALUE CREATION THE BEARING MARKET RISKS AND THE SHARE SUSTAINABILITY REPORT CORPORATE GOVERNANCE REMUNERATION REPORT GROUP DATA FINANCIAL STATEMENTS BAC K T O START The main priority of the relationship between labour and management is to ensure that the Global Framework Agreement between SKF and the unions works in practice. This is based on the SKF Code of Conduct and the work focuses on labour management relations between SKF Group and workers within SKF Group and its subsidiaries. SKF also collaborates with other companies in formal and informal networks. Issues relating to significant changes at SKF, such as acquiring, divesting, or consolidating oper- ations, are always discussed and resolved openly and con- structively with union leaders locally and with the leader- ship of the SKF World Union Council (WUC). The precise approach must be adapted to the specific conditions of each occasion. The European Work Council (EWC) directive is the base for European related issues. SKF makes it clear in its Code of Conduct that all employees have the right to join a union and bargain col- lectively. Continuous dialogue is ongoing to ensure that it works for both SKF and the union members. The WUC, which today includes 20 countries, listed in section Collec- tive bargaining coverage and social dialogue on page 130, meets every year to openly discuss labour issues and to share what is on the Group’s agenda. An EWC meeting involving only European delegates is held in conjunction to the WUC meeting. All countries fulfilling the EWC/WUC agreement requirements and with major operations, have the right to send appointed union officials or observers to the SKF EWC/WUC meeting. In 2024, the annual EWC and WUC meeting was held in the third week of October following normal procedures. It was held in Poznan with online translations. During this one-week event, the EWC meeting was conducted sepa- rately, according to the EU directive. This was followed by the WUC meeting with representatives from Group Manage ment and included a factory tour as well as inter- nal meetings between the delegates. The main topics for the day with Group Management were the initiated separa- tion of the Automotive business, and the implications this could have on the organization, flexibility and digitalization. The focus areas were employment, environment, health and safety and digitalization. Overall, SKF’s setup with the WUC is seen as a forum for addressing and deploying global initiatives between Group Management and the unions. All WUC meetings are followed up with lessons learned discussions, to have new practices introduced at the next meeting. The chairperson of WUC is continuously inter- acting with representatives in the different countries and Group Management. When needed the chairperson brings issues to the Steering Committee, which includes internal and external union representatives. Worker participation, consultation and communication on occupational health and safety The employees are key stakeholders for occupational health and safety, and as part of the governance structure, health and safety committees are available on all sites certified according to ISO 14001/ISO 45001 with more than 50 employees, to ensure effective communication with employee representatives. SKF health and safety committees operate on site or on unit management level with the objective to bring together employee and management representatives to discuss and agree on needed measures to improve the health and safety performance at the site or unit. The committees meet at least once per quarter and decisions taken shall be communicated to the workforce and acted and followed up on. The committees are often involved in accident and incident investigations and may define additional correc- tive or preventative measures based on this. Employee representatives are appointed to the health and safety com mittees by the employees in line with SKF WUC processes. A Group level health and safety committee is also estab- lished with representatives from the World Union Council, Group EHS and Group People Experience. This committee meets formally once per quarter, however more frequent update meetings are conducted as needed. Processes to remediate negative impacts and channels for own workforce to raise concerns SKF employees are requested to report behaviour that is not in line with the SKF Code of Conduct to their manager, local People Experience function or to other senior manag- ers. Employees can also raise concerns or seek advice via the SKF Ethics and Compliance Reporting Line, read more on page 138. The SKF Ethics and Compliance Reporting Line is also available to external parties, such as suppliers and distributors, through skf.com. SKF has a Group Whistle-blowing policy, which is based on the EU Whistle-blowing Directive and prohibits retaliation towards anyone raising concerns in good faith. During 2024, 456 concerns were reported to the central functions via the SKF Ethics and Compliance Reporting Line or via other channels. The major types of concerns reported were workforce management 25%, leadership issues 17% and discrimi- nation or harassment 16%. In addition to the concerns reported to the central functions, grievances related to ethics and compliance are reported to, and managed by, local management. All reported concerns are reviewed and assessed by Group Compliance, for assignment to an appropriate investigator. Concerns deemed as critical are communicated on a case-by-case basis to the General Counsel, to the Board of Director’s Sustainability & Ethics Committee and/or to the Audit Committee. Additional reviews related to human rights and working ethics in own operations SKF’s manufacturing units are subject to an ethics review including relevant aspects on the SKF Code of Conduct with a risk-based periodicity. In 2024, 15 such reviews were carried out. In addition, sites undergo audits on specific topics and most audits related to human rights focus on health and safety. SKF also carries out site audits at suppliers. Taking action on material impacts on own workforce, and approaches to managing material risks and pursuing material opportunities related to own workforce, and effectiveness of those actions Health and safety Occupational health and safety management system At SKF, creating a safe work environment is not just a legal and ethical obligation, it is also a strategic advantage that leads to significant improvements in performance. SKF has established and deployed a Group-wide health and safety management system according to the ISO 45001:2018 standard. High-level requirements on health and safety are defined in the Group’s EHS Policy and detailed instructions and procedures are integrated within the environment, energy, health and safety management system at Group, country and site level. The system drives compliance with legal requirements and those defined by the Group, its customers and other stakeholders. The system also provides a framework to drive continuous improvement in health and safety per- formance. The scope of the management system includes physical and psychological health and safety. It covers employees at SKF sites, in commute or working for SKF off-site (such as maintenance engineers at a customer to SKF), contrac- tors, and visitors at SKF sites. The health and safety of SKF’s employees is seen as a paramount asset, and the Group’s EHS Management System is designed to uphold and maintain a safe and healthy work environment for all employees and others working on or visiting SKF premises. When SKF employees feel secure and valued, they are more likely to be engaged and motivated. For more information on the management system and its coverage, se page 132. More information on the metrics related to health and safety can be found under “Health and safety metrics” on page 132. Hazard identification, risk assessment and incident investigation SKF and its subsidiaries apply tools and processes as prescribed in the management system and according to legal requirements to prevent accidents and ill-health. Risk assessments are carried out on a regular basis at all levels from shop floor to office. The quality of the risk assessments is assured by defined Group requirements and provision of training for EHS staff and other persons under taking them. Risk assessments are a part of internal and external audits, where typically a sample of risk assessments and corrective and preventative actions are reviewed. Measures to mitigate or eliminate the identified risks are defined and implemented and risk assessments are reviewed and updated periodically or after an accident or serious near miss has occurred. Recordable accidents are reported and followed up both at the unit level and further up in the organization all the way up to the Group level. Own workforce cont. SKF ANNUAL REPORT 2024 126 THI S IS SKF PRESIDENT’S LETTER STRATEGY AND VALUE CREATION THE BEARING MARKET RISKS AND THE SHARE SUSTAINABILITY REPORT CORPORATE GOVERNANCE REMUNERATION REPORT GROUP DATA FINANCIAL STATEMENTS BAC K T O START Thorough investigations, which result in corrective and preventative actions, must be deployed after each record- able accident. In cases where the issue is linked to risks which may be relevant for other units, the causes of the accident and the corrective and preventative measures to avoid repeating it are shared within the organization. In certain cases, changes may be needed in the Group-level management system as part of a preventative measure. All employees are required to report accidents, inci- dents and unsafe conditions and behaviours, as they are vital sources of improvements and indicate opportunities to better control the associated risk. Health and safety incidents reported must be addressed at the local level but are not required to be reported in detail further up in the organization. Only the total number of such cases should be reported for the unit as this gives an indi- cation of the level of safety-related activity. No distinction is made between SKF employees, agency workers or other persons on-site for the identification and control of risks. SKF employs Health and safety coordinators with exper- tise to support team leaders and managers at all levels in the organization. Training is also organized on health and safety procedures, roles and responsibilities. Based on the risk assessment carried out for a specific machine, process or role, employees receive training so that they understand the risks and how to manage them by following defined procedures or wearing personal protec- tive equipment, for example. Any employee who intention- ally ignores the defined safety rules will face disciplinary measures to protect themselves and their colleagues from unsafe behaviours. When defining corrective or preventative actions in response to identified risks, SKF’s management system requires that the hierarchy of control measures principles are applied. The first option is hazard elimination. If this is not possible, substitution, engineering controls, admin- istrative controls and, finally, personal protective equip- ment. SKF’s employees also work at customers’ sites, at suppliers or other locations outside SKF premises. As part of the process of defining such off-site activities, SKF assesses health and safety risks. Occasionally, risks not previously identified by the customer or supplier are found, and in such cases, control measures must be agreed before work commences. Worker training on occupational health and safety All employees and agency workers are provided health and safety training, as well as other Code of Conduct training as part of the introduction process. More specific training is provided depending on the job description. Specific training for potentially hazardous jobs, such as working with electricity, at heights, hot work and so on is manda- tory for employees working with these aspects. These jobs are identified at each site or unit based on risk assess- ments and legal requirements to ensure applicable cover- age and provision of adequate training. All trainings are provided during work hours. The efficiency is assessed based on accident rates in combination with severity rates, which are expected to be reduced towards zero over time. Promotion of worker health SKF is committed to promoting employee health and well-being beyond occupational safety, by offering variety of health-promoting activities. Employees have access to locally defined health promotion programs, which include regular health screenings and initiatives around HIV/AIDS prevention, substance abuse, obesity, healthy living, and stress management. Where feasible, SKF facilities provide additional resources to support physical health, such as on-site or subsidized exercise facilities, healthy food options, and professional health guidance. These efforts align with SKF’s Employee Wellbeing Policy, which takes a holistic approach to supporting both physical and mental health. Managers play a key role in fostering a healthy work environment by recognizing the risks and opportunities related to employee well-being. Their actions directly influence the psychological health and resilience of SKF’s workforce. Employee well-being is deeply embedded in SKF’s culture, reflecting SKFs core values of care. SKF’s well-being initiatives focus on three primary areas: psychological health and safety, work-life balance, and healthy lifestyle choices. Confidentiality is strictly maintained in compliance with data privacy regulations. To continuously assess and improve well-being, SKF in corporates health-related questions into its quarterly employee survey, The SKF Team Pulse. The anonymous survey allows employees to rate SKF’s performance in well-being areas on a scale of 0 to 10, with 10 being the most positive. Managers are encouraged to review survey results regularly with their teams, using the data to identify trends and implement targeted well-being improvements. For more information on the SKF Team Pulse see page 125. Diversity, equity and inclusion Diversity, equity, and inclusion (DEI), along with non- discrimination and equal opportunity, are key elements of SKF’s People Agenda. The SKF Code of Conduct mandates that all employees shall be treated equally, fairly and with respect, regardless of race, colour, ethnicity, gender, sex, sexual orientation, age, civil or social status, national origin or nationality, disability or diverse abilities, medical conditions (including pregnancy), genetic information, caste, religion, union membership, political affiliation or any other unique or ordinary trait. Own workforce cont. In 2024, several ongoing DEI initiatives have been expanded and new ones introduced. SKF has intensified its focus across multiple touchpoints to stay appealing and competitive for both current and potential employees. These efforts encompass learning and development, competency evaluations, and the use of more inclusive language in job postings, to attract top talents from various backgrounds. A new Diversity & Inclusion Global Ambition plan has been rolled out in 2024, stretching until 2030, offering a comprehensive framework tailored to each business area and region’s specific needs. This strategy integrates DEI initiatives and KPIs into SKF’s processes, impacting all major interactions with the current and future workforce. A comprehensive scorecard of KPIs has been developed to measure and track progress on a quarterly basis. Global Gender ‘Balance’ Senior leaders from 19% women to > 35% by 2030 Global Gender ‘Balance’ Managers from 19% women to > 30% by 2030 Global Gender ‘Balance’ SKF total employees from 22% women to > 30% by 2030 Global Diversity Pulse score: Never below 8.0 Global Inclusion Question Pulse score: Never below 8.0 Multi-dimensional experience, 80% of senior leaders Diverse teams, departments across all of SKF – measure progress (... experiences, age, generational span, gender, nationalities, perspectives ...) More ambitious regionally set targets + local D&I activities = foundation for the global SKF ambition SKF ANNUAL REPORT 2024 127 THI S IS SKF PRESIDENT’S LETTER STRATEGY AND VALUE CREATION THE BEARING MARKET RISKS AND THE SHARE SUSTAINABILITY REPORT CORPORATE GOVERNANCE REMUNERATION REPORT GROUP DATA FINANCIAL STATEMENTS BAC K T O START SKF’s People KPIs are not limited to gender, but stretch across a wider spectrum of diversity and inclusion indica- tors, such as the SKF Diversity Pulse Score and Inclusion Pulse score from the SKF Team Pulse survey. These are now part of the comprehensive People Experience (PX) Scorecard, among a variety of People KPIs spanning across the globe and the business areas. People Business Reviews are being held with the Busi- ness Areas and Group Management twice a year, conducted by PX. These review meetings are not limited to gender balance KPI follow-ups, but equally include senior leaders’ mix of experience across different units and roles, existing succession plans and diversity and inclusion initiatives per region and Business Area. Workshops and training material are available via the learning academy and internal Sharepoint sites to build further awareness on unconscious bias, psychological safety and the positive impact of human - centric leadership. The next phase of the SKF Global D&I Ambition is to build diversity, equal opportunity and inclusion further into the fabric of SKF’s DNA across all Business Areas, regions and relevant processes. This plan incorporates many of the successful local initiatives already in place, which are tailored to regional needs, driven by SKF’s Purpose and Values of Collaboration, Curiosity, Courage and Care, such as: • Expanding an SKF D&I community network around the globe with regional ambassadors. • Female networks. • Partnership with Mitt Liv, The International Council of Swedish Industry and Swedish Chamber of Commerce D&I committee partnerships. • DEI Council Americas. • Employee Resource Groups, promoting inclusion of e.g. neurodiversity, veterans, LGBTQ+, employees with disabilities (or rather different abilities) and other underrepresented affinity groups. • Wellness rooms and daycare facilities in India and Indonesia. • Partnership with Universeum National Science Centre Sweden, to promote women in Science Technology Engineering Mathematics. • Family days at SKF facilities around the world. • Diversity Calendar celebrations such as World Mental Health Day, Pride month, Veterans’ Day and International Women’s Day among others. • Inclusive promotion and recruitment processes. • “Psychological Safety”, “Better Together”, Linkedin DEI learnings. Equal treatment and opportunities for all SKF integrates equality into the people processes, such as learning and development, succession planning and recruitment. The recruitment principles are based on the SKF Code of Conduct and facilitate skills-based recruit- ment by utilizing an ability test. The test used is a scienti- fically robust instrument, reviewed and certified by a third party verification organ. As part of the new Global D&I Ambition plan 2024–2030, in 2024 SKF commissioned a thorough study through an independent consulting firm of all its internal processes and practices with the lens of “Equal Treatment and Opportunities for All” to identify further improvement areas for diversity, equity and inclusion. This assessment consisted of existing SKF policies reviews, as well as leadership, subject matter experts and employee focus groups interviews regarding all touchpoints in the employee process. Through this in-depth analysis, which was finalized at the end of 2024, a detailed action plan has been developed that is being incorporated into the overall SKF Global D&I Ambition. See the figure on page 127. Targets related to managing material negative impacts, advancing positive impacts, and managing material risks and opportunities Health and safety SKF’s overall health and safety ambition, established in 2000, is to reach zero accidents. In addition, accident rate and severity rate are monitored together with other cate- gories of incidents described in the health and safety pyra- mid on page 132. In this pyramid, near misses and unsafe conditions and behaviours are presented and monitored to ensure increasing proactivity in health and safety management. Site, Business Area and Group performance towards the zero accidents target is followed up on a monthly basis using a monthly safety data report, and the above-mentioned metrics and rates, as well as through integration into quarterly performance reviews. A high- level review of the performance and plans is conducted with each Business Area at the half-year EHS reviews. SKF’s accident rate has steadily decreased over the last two decades. The accident rate is calculated as the num- ber of recordable accidents per 200,000 worked hours per year, which approximately corresponds to the number of accidents per 100 full-time employees per year. In 2024, the rate reached an all-time low of 0.59 (compared to 0.64 in the previous year), demonstrating that the ongoing efforts in health and safety are driving continuous per- formance improvements. People Experience Group People Experience has started to establish a PX Scorecard that includes goals and KPIs for the most relevant metrics, following the People Agenda and the Strategic priorities. These KPIs are followed up with all Business Areas and Regions on a at least quarterly basis. Every Business Area has set own targets which could differ from the global targets, depending on businesss- climate, region or other factors. However, the global aver- age for each KPI should be met as a minimum. See figure on page 127. SKF Global D&I Gender Targets 2030 While employment decisions are always based on the skills and qualifications of the candidates, SKF is taking further action to achieve a better gender balance across all levels in the company, with measurable KPI’s and initiatives throughout; • Gender balance targets have been established across SKF’s global workforce. The target is to reach a mini- mum of 30% female workers by 2030 (compared to 22% in 2023). • A gender balance target of a minimum of 30% female managers by 2030 has been established for managerial positions globally (compared to 19% in 2023). Own workforce cont. • The gender target for senior leaders has been raised to a minimum of 35% female leaders by 2030 (compared to 19% in 2023). • Specific gender target KPIs have also been set by Business Areas and regions. • Elevate, a global virtual programme for SKF‘s women leadership and career development was run for the 5th consecutive year, with over 100 women participating each year. • SKF’s Global Leadership development programs and the Global Graduate Program each have gender balance targets for every graduating class • SKF is participating in the UN Global Compact Target Gender Equality Programme, a nine-month programme (started in June 2024) to accelerate the journey in reaching ambitious targets for womens’ representation, equal pay and leadership in business. SKF Team Pulse result Q4 2024 Drivers 2024 Manufacturing benchmark Diversity and Inclusion 8.1 8.1 Health and Well-being 8.0 7.8 Engagement 7.9 7.5 SKF ANNUAL REPORT 2024 128 THI S IS SKF PRESIDENT’S LETTER STRATEGY AND VALUE CREATION THE BEARING MARKET RISKS AND THE SHARE SUSTAINABILITY REPORT CORPORATE GOVERNANCE REMUNERATION REPORT GROUP DATA FINANCIAL STATEMENTS BAC K T O START Employees age groups and terminations 2024 Female Male Grand Total Under 30, % 30–50, % Over 50, % Terminated Female Terminated Male Terminated Total Europe, Middle East and Africa 4,494 16,036 20,530 11.37 49.43 39.19 574 1,874 2,448 The Americas 1,870 6,200 8,070 15.54 58.29 26.17 588 1,663 2,251 China and Northeast Asia 1,782 4,366 6,148 14.85 76.61 8.54 179 544 723 India and Southeast Asia 684 3,311 3,995 21.99 57.74 20.27 165 407 572 Grand total 8,827 29,910 38,737 13.89 56.45 29.66 1,506 4,488 5,994 Employee hires and turnover 2024 New hires Female New hires male New hires Total New hires under 30 New hires 30–50 New hires over 50 New hires under 30, % New hires 30–50, % New hires over 50, % Turnover Female, % Turnover Male, % Turnover under 30, % Turnover 30–50, % Turnover over 50, % Turnover Total, % Europe, Middle East and Africa 374 801 1,175 668 417 90 16.6 10.3 2.2 12.24 10.96 26.6 7.4 11.9 11.2 The Americas 528 1,182 1,710 652 921 137 16.2 22.8 3.4 30.47 24.89 49.7 24.6 17.9 26.1 China and Northeast Asia 104 306 410 199 206 5 4.9 5.1 0.1 9.64 11.82 18.7 10.0 10.5 11.2 India and Southeast Asia 394 346 740 512 215 13 12.7 5.3 0.3 36.26 12.07 40.2 8.7 13.9 14.9 Grand total 1,400 2,635 4,035 2 031 1 759 245 50.3 43.6 6.1 16.86 14.13 32.3 11.9 13.1 14.7 Number of employees per region – headcount 2024 Europe, Middle East and Africa 20,530 The Americas 8,070 China and Northeast Asia 6,148 India and Southeast Asia 3,995 Total 38,743 Own workforce cont. Characteristics of the undertaking’s employees All SKF employees, as well as the majority of the non- employee workforce, are maintained in a central master data system at SKF. All data provided in this chapter will be based on this repository. The numbers for 2024 will be including also the employees from acquisitions being made throughout the year. For the breakdown of employee figures into gender we are differentiating between male and female. This is due to the current system setup. This however does not mean in Number of employees by contract type 2024 Female Male Number of employees 8,830 29,913 Number of permanent employees 8,244 28,880 Number of temporary employees 586 1,033 Number of full-time employees 8,328 29,533 Number of part-time employees 502 380 Number of employees by gender – headcount 2024 Male 29,913 Female 8,830 Total 38,743 Number of employees by contract type, by region 2024 Americas CNEA EMEA ISEA Number of employees 8,070 6,148 20,530 3,995 Number of permanent employees 7,826 6,132 19,578 3,588 Number of temporary employees 244 16 952 407 Number of full-time employees 8,063 6,145 19,668 3,985 Number of part-time employees 7 3 862 10 any way that SKF is discriminating any individual due to the gender. As stated in the SKF Code of Conduct, SKF has “… zero-tolerance for discrimination. All employees shall be treated equally, fairly, and with respect, regardless of race, colour, ethnicity, gender, sex, sexual orientation, age, civil or social status, national origin or nationality, disability or diverse abilities, medical conditions (including pregnancy), genetic information, caste, religion, union membership, political affiliation, or any other unique or ordinary trait.” When it comes to the contract-type we are differen- tiating between permanent and temporary contracts as well as part-time and full-time, however not breaking down into non-guaranteed hourly employees. Please be aware that all numbers are based on Head- count figures and the numbers are disclosed based on the end of the reporting period. SKF ANNUAL REPORT 2024 129 THI S IS SKF PRESIDENT’S LETTER STRATEGY AND VALUE CREATION THE BEARING MARKET RISKS AND THE SHARE SUSTAINABILITY REPORT CORPORATE GOVERNANCE REMUNERATION REPORT GROUP DATA FINANCIAL STATEMENTS BAC K T O START These are: Time and material, Service contracts, Fixed price as well as Non-commercial resources. The data is, just like the employee headcount, being collected in the central employee master data system. However, this system only covers non-employees with IT access, it does not reflect the total population, especially in the “Time and material” category. The estimate is that approximately 3,000 additional profiles should be included here. Non-employee category Description Type of payment Fixed price resource Fixed price for a well-defined assignment scope with deliverables attached to clearly mapped milestones and payments connected to the successful delivery Pre-negotiated cost/price and resource part of a project deliverable Non-commercial resource None of the above categories, but still requiring IT access and therefore needs to have a profile in SKF master data application According to contract Service contract resource Providing a specific level of services for an extended period. Clearly defined scope and service level agreement Terms can vary depending on service (for example: outsourced IT services, equipment maintenance and out- sourced business functions such as cleaning services) Time and material Resource Paid based on the time and materials used to deliver an assignment/project, with a clearly defined start- and end-date A pre-negotiated rate (Consultant or contingent workforce) Based on this categorization, this is the headcount as of 31 December 2024: Fixed price resource 778 Non-commercial resource 584 Service contract resource 3,855 Time and material resource 2,645 Undefined 811 Grand total 8,673 Collective bargaining coverage and social dialogue SKF has established collective bargaining agreements and social dialogue structures in most countries where the company operates, ensuring that employees have access to formal representation and negotiation mechanisms. Social dialogue refers to discussions, consultations, and negotiations between employers and employees (or their representatives) to promote fair working conditions, Characteristics of non-employees in the undertaking’s own workforce SKF is, as most other companies in the manufacturing industry, relying on external workforce in different domains spanning from IT to Manufacturing and Logistics as well as Finance and other parts of the organization. The type of external workforce is usually divided into four categories which are further described in the table below. Own workforce cont. wages, and rights in the workplace. The countries listed here (considering those where SKF has a direct workforce presence and more than 50 employees) have collective bargaining agreements signed by local Unions and/or WUC/EWC : Argentina, Austria, Belgium, Brazil, Bulgaria, Canada, Chile, China, Czech Republic, Finland, France, Germany, India, Indonesia, Italy, Japan, Republic of Korea, Malaysia, Mexico, Netherlands, Poland, Singapore, Spain, Sweden, Taiwan, Thailand, Ukraine, The United Kingdom and The United States. In a few countries, SKF has not yet established local collective bargaining agreements due to complex labor market conditions and external challenges. This includes Australia, Colombia, Peru, and South Africa. However, ensuring fair working conditions for all employees remains a priority. Through SKF’s global framework, employees in these countries are covered under corporate and regional agreements that uphold the same high labor standards worldwide. Furthermore, SKF is actively working to strengthen local engagement with union councils and social dialogue structures in these regions to enhance employee representation and participation. SKF is actively engaged in global labor representation through the SKF World Union Council (WUC) and the Euro- pean Work Council (EWC), which facilitate discussions on labor conditions, policies, and agreements across regions. While Colombia, Peru, and South Africa do not have direct representation in these councils, group-level agreements apply to all SKF employees worldwide. SKF is a member of the International Council of Swedish Industry (NIR), which supports Swedish companies in global markets by promoting responsible business conduct and sustainable labor practices. Through NIR, SKF partici- pates in the Swedish Workforce Program, an initiative aimed at strengthening collaboration between manage- ment and employees, regardless of union presence, in selected international markets where Swedish companies operate. Additionally, SKF works with Business Sweden, a joint initiative between the Swedish government and industry leaders, to promote responsible and sustainable labor practices globally. These efforts help Swedish companies, including SKF, navigate local labor conditions while ensur- ing alignment with international labor standards. For country with +50 employees % Collective bargaining coverage Employees European Economic Area 96 Employees non-European Economic Area 94 Social dialogue Workplace representation (European Economic Area only) 99 SKF ANNUAL REPORT 2024 130 THI S IS SKF PRESIDENT’S LETTER STRATEGY AND VALUE CREATION THE BEARING MARKET RISKS AND THE SHARE SUSTAINABILITY REPORT CORPORATE GOVERNANCE REMUNERATION REPORT GROUP DATA FINANCIAL STATEMENTS BAC K T O START Diversity metrics Own workforce cont. 13.9% 29.7% 56.5% Total employees per region by age groups Total employees refers to the total number of employees in SKF as per end of 2024. Age structure <30: 15.5% 30–50: 58.3% >50: 26.2% 15.5% 26.2% 58.3% The Americas Age structure <30: 14.9% 30–50: 76.6% >50: 8.5% 8.5% 14.9% 76.6% China and Northeast Asia Age structure <30: 11.4% 30–50: 49.4% >50: 39.2% 11.4% 39.2% 49.4% Europe, Middle Eastand Africa Age structure <30: 22.0% 30–50: 57.7 % >50: 20.3% 20.3%22.0% 57.7% India and Southeast Asia Adequate wages SKF pays adequate wages to all employees, and ensures that wages and other benefits meet at least the adequate wages benchmarks and are rendered in full compliance with laws and collective agreements. Staff salaries are set based on evaluation of performance and position, to ensure internal equity and to pay people fairly. Salary setting also follows legislation and/or union agreements as locally applicable. Training and skills development metrics In an era of constant change, SKF has embraced a culture of continuous learning to maintain a competitive edge. Recognizing the risks associated with skill gaps, talent attrition, and a weakened employer brand, SKF has prior- itized initiatives that creates the right environment and foster self-driven learning and development. This commit- ment is critical in positioning SKF as a forward-thinking employer offers personal and professional growth. To track progress, SKF leverages a global Learning Management System which monitors skills development The Board The Board refers to the SKF Board of Directors which makes up the highest governance body for the organization. The percentage refers to Board members elected by the annual general meeting. For more information, see page 155–156. 30%70% 30%70% 30%70% 202220232024 Board of Directors Women Men Women Men Age structure <30: 0% 30–50: 20% >50: 80% 20% 80% Including CEO. Excluding Employee representatives. Group Management Group Management is the operational management team of the SKF Group. For more information, see page 158–159. 23%77% 2022 17%83% 23%77% 20232024 Group Management Age structure <30: 0% 30–50: 30.8% >50: 69.2% 30.8% 69.2% Total employees Total employees refers to the total number of employees in SKF as per end of 2024. 2023 22%78% 2024 23%77% 2022 22%78% Women Men Age structure <30: 13.9% 30–50: 56.5% >50: 29.7% Top Management Top Management refers to the around top 400 managers in the SKF Group. The actual number in this population changes over time. 19%81% 16%84% 23%77% 202220232024 Higher Management Women Men Age structure <30: 0% 30–50: 52.6% >50: 47.4% 47.4% 52.6% Managers Managers refers to the employees who have direct reports. 81% 19% 79% 21% 2023 82% 18% 20222024 Managers Women Men Age structure <30: 1.8% 30–50: 29.5% >50: 68.7% 68.7% 29.5% 1.8% SKF ANNUAL REPORT 2024 131 THI S IS SKF PRESIDENT’S LETTER STRATEGY AND VALUE CREATION THE BEARING MARKET RISKS AND THE SHARE SUSTAINABILITY REPORT CORPORATE GOVERNANCE REMUNERATION REPORT GROUP DATA FINANCIAL STATEMENTS BAC K T O START aligned with strategic competencies. The goal is to empower individuals to future-proof their development and, concurrently, future-proof the organization’s ability to deliver. SKF’s legacy of success is built upon the collective competencies and capabilities of its employees. The per- sonal dedication of its employees to their own competence development is a critical factor in maintaining up-to-date competencies. In 2024, staff employees recorded an average of 14.2 formal learning hours in the SKF learning management system, while workers recorded an average of 3.5 hours. In addition to these metrics, SKF emphasizes the signifi- cance of informal learning – gained through daily inter- actions, knowledge sharing, and collaboration. The infor- mal and social learning time is not included in the formal learning hours neither is any external formal learning. Recorded hours of formal learning in SKFs global learning management system, average / employee 2024 2023 Staff 1) Workers 2) Staff 1) Workers 2) Tot 14.2 3.5 9 2 Women 14.4 4.3 N/A N/A Men 14.1 3.4 N/A N/A 1) Staff = white collar 2) Workers = blue collar In early 2024, SKF launched an extensive content library from LinkedIn Learning, available to all staff and interested workers, enriching opportunities for skill development and enabling a flexible, on-demand learning experience. This initiative supports our strategy to build critical competen- cies in a resource efficient way. To further reinforce our core values of Collaboration, Curiosity, Courage, and Care, SKF introduced Learning Week for all employees with access to an SKF email address — a quarterly event offer- ing brief daily learning sessions, each concluding with reflections or collaborative exercises in the end of the week. SKF Team Pulse encompasses all employees globally. In the field of growth and learning SKF are above benchmark. According to SKF Team Pulse, the employees feel a sense of professional growth and support within the organiza- tion, recognizing pathways for career and skill develop- ment, fostered by the encouragement and guidance they receive from managers and mentors. The Group People Experience function sets the strate- gic direction for learning at SKF. Our global platform pro- vides tailored training for various user groups, including external partners, and serves as a compliance tracker, reinforcing our commitment to regulatory standards and the SKF Code of Conduct. During 2024 SKF has initiated a pre-study on skills-based Talent Management to identify and strengthen talent practices, aiming to boost competi- tiveness and adaptability in a dynamic market landscape. SKF Academies ensure that competence development aligns with SKFs strategic business goals. Local initiatives and teams ensure that learning content is tailored to regional needs. SKF Manufacturing Academy continued its focus on digitalization, maintenance, automation and SKF Produc- tion System. By combining digital learning with physical training in learning centers within the factories, employees engage with both hands-on equipment and digital courses in their local language. This approach allows scalable, standardized training, ensuring that all employees, regard- less of location, have access to essential knowledge and skills in its pursuit of innovative solutions. SKF Technology Academy supports the SKFs technol- ogy strategy by training and skill development in key future technology areas to ensure long term success. The aim is to empower employees to engage with emerging technolo- gies, translating strategic goals into actionable expertise. An example is the rollout of an AI program for all employees which includes a “train the trainer” concept. SKF is committed to fostering leadership at all levels. To do so, the SKF Leadership Academy highlights two initiatives during the year. The Self-Growth Leadership initiative supports employees on their leadership journey by focusing on self-awareness and personal development, through guided sessions with trained accelerators. For middle and senior leadership, the academy offers the Boost leadership program, which focuses on accelerating strategy, leadership development and building global networks. Clear expectations are a cornerstone of management at SKF. Managers are collaborating with their teams to define individual and collective goals, with focus on developing yourself, others and the business linking them to the Own workforce cont. 200 220 240 260 280 20222021 2020 2023 2024 Proactive incident reporting vs accidents 0 20,000 40,000 80,000 60,000 Proactive incident reporting Serious recordable and recordable accidents Serious recordable accidents Recordable accidents First aid incidents Near miss incidents Unsafe conditions and behaviours Serious recordable accidents Recordable accidents First aid incidents Near miss incidents Unsafe conditions and behaviours 3 204 1,490 3,794 75,551 broader company strategy. Supported by a global plat- form, this process enables a dynamic and updated dia- logue on progress and priorities throughout the year. An annual performance review meeting, integral to our talent management and salary review process, helps to define an overall performance rating. In 2024, this platform supported the performance process for more then 13,500 employees. Following the global performance review process, which is a prerequi- site for the salary review process, comparing the number of completed performance reviews against the total num- ber of employees and those eligible for salary review. This transparent metric underlines SKFs commitment to the continuous professional development of its workforce. Performance reviews Female Male Total Performance reviews com- pleted (total employees) 8,830 (43.5%) 29,913 (32.7%) 38,743 (35.2%) Performance reviews completed (eligible employees) 3,444 (97.10%) 9,027 (96.6%) 12,471 (96.8%) Health and safety metrics SKF gives top priority to health and safety. The obvious reason to work systematically with health and safety is to prevent accidents and avoid negative health effects and to create a more sustainable company. Proactive work is the main feature of EHS management and means that work is done today to prevent something from happening tomorrow or in the future. All health and safety incidents are addressed and managed locally where the incident occurred, or was identified, with support from other parts of the organiza- tion if needed. Health and safety data is consolidated in the Group’s main reporting and consolidation tool. During 2023 and 2024, there has been additional focus on pro-active health and safety management driving identification of near misses, unsafe conditions and behaviours. This proactive approach helps to ensure proper risk mitigation and prevention of future accidents. In the last few years, with enlarged focus during 2024, an incident management software application has been developed. The application makes it possible to capture and investigate incidents in an effective way and to man- age incidents in a proactive way to avoid causing harm in the future. After full deployment of the application, all inci- dents around SKF will be captured, verified, investigated, and closed in this system. Roll-out to a few sites started in September 2024 and by the end of the year 40% of SKF’s operations had started using the application. Employees covered by an occupational health and safety management system 77%, or around 30,000 employees are covered by the certi- fied health and safety management system. The system focuses on the manufacturing sites, workshops, logistics and technical centres. In addition, 85% of the agency workers under SKF’s management control (around 3,800 people) are also covered by the health and safety manage- ment system. No specific type of workers or staff are excluded. SKF ANNUAL REPORT 2024 132 THI S IS SKF PRESIDENT’S LETTER STRATEGY AND VALUE CREATION THE BEARING MARKET RISKS AND THE SHARE SUSTAINABILITY REPORT CORPORATE GOVERNANCE REMUNERATION REPORT GROUP DATA FINANCIAL STATEMENTS BAC K T O START Remuneration metrics (pay gap and total remuneration) The Gender Pay Gap Eliminating the unadjusted gender pay gap is an important area of work for SKF. Differences in remuneration as shown by the gender pay have been identified being mainly due to a higher proportion of men in higher level positions and are a sign of lack of equal access to opportunities, such as career advancement and recruitment to senior positions, for women. In 2024, People Experience colleagues globally were trained to perform equal pay analysis which the SKF Equal Pay Policy requires. Managers were given access to e-learning on salary setting which included training on pay equity, gender pay gaps and pay transparency. The People Experience function held action planning sessions to identify actions to decrease gender pay gaps. The people experience scorecard includes a new target for the reduc- tion of gender pay gaps. SKF has also signed up for the UN Target Gender Equality program, running nine months, starting June 2024. The gender pay gap for 2024 is 19.1%. The gender pay gap is based on all employees’ total remuneration per contracted hour paid out during 2024 and is not directly comparable to the gender pay gaps reported in base pay Own workforce cont. of staff employees in previous years. The data excludes employees from acquisitions made during Q4 2024. The gender pay gap in base pay for staff employees in the previous two reporting periods was 16% (2023) and 17% (2022). The global unadjusted gender pay gap is an indicator of gender representation in SKF’s global workforce, measuring the difference in average pay between men and women worldwide. This metric compares the average pay by gender across all roles collectively, regardless of level or job type. SKF’s gender pay gap reflects the extent to which women are underrepresented in senior and higher-paid roles while being overrepresented in junior and lower-paid positions. It is important to distinguish the gender pay gap from equal pay. SKF is committed to ensuring that employees are paid equally for the same work or work of equal value. As part of the annual salary review cycle, SKF conducts equal pay analyses and takes action to address any identified discrepancies. The annual total remuneration ratio – CEO to median employee pay ratio The annual total remuneration ratio of the highest paid individual to the median annual total remuneration for all employees is 75:1. The CEO to median employee remuneration ratio is sensitive to exchange rate fluctuations which can influence year-on-year comparisons. Incidents, complaints and severe human rights impacts Incidents of discrimination and corrective actions taken During 2024, 75 reports related to discrimination and harass ment have been received through the SKF Ethics and Compliance Reporting Line. These cases are normally assigned to local investigators (mainly People Experience country leads) and actions are taken on a local level. SKF has had a process in place since 2021 so that concerns about harassment and discrimination reported locally (e.g. via email or in person to People Experience) are also reported and documented centrally. Operations and suppliers in which the freedom of association and collective bargaining may be at risk All employees are covered by collective agreement or the SKF Framework agreement. The overall approach from the state towards union membership and the level of independence of trade unions in certain countries where SKF has operations, creates challenges in this respect. SKF works pragmatically with the WUC and the appointed union representatives to try and address these challenges. Please refer to page 130 for a description of the SKF WUC’s work related to collective bargaining agreements. Informa- tion on which countries SKF has operations in is available on skf.com/locations. Operations and suppliers at significant risk for incidents of child labour The risk for child labour in SKF’s operations is very low but the issue is nonetheless included in SKF’s internal audits. The risk for child labour at SKF suppliers is higher and therefore the supplier audits have a high focus on this. However, due to the nature of suppliers and the long stand- ing relationship with them, the cases are extremely rare. During 2024, SKF found no cases of child labour at its own operations and no cases at SKF’s suppliers. Operations and suppliers at significant risk for incidents of forced or compulsory labour The issue of forced, bonded and compulsory labour is included in the SKF Code of Conduct and internal and supplier audits. During 2024, SKF found no cases of forced or compulsory labour at its own operations and no cases at SKF’s supplier. SKF applies regional risk characterization from tools such as Maplecroft to help identify countries with these potential risks. Health and safety incident statistics 2024 2023 1) 2022 Work related fatalities 0 3 0 Serious recordable accidents 3 3 2 Recordable accidents 204 223 249 First aid incidents 1,490 1,631 1,799 Near miss incidents 3,794 4,268 3,601 Unsafe conditions and behaviours 75,551 58,761 34,830 Worked hours (x 200,000) 348 358 371 Accident rate 0.59 0.64 0.68 1) 2023 figures include three fatalities and five recordable accidents resulting from the Russian missile attack on the Lutsk factory in Ukraine. Newly acquired sites and companies are given a time period before being included in the scope. All certified sites are subject to internal audit every one to three years. The data has been collected from the SKF financial report- ing system using headcount data for sites and units included in the Group’s ISO 45001:2018 certification. SKF engages a third-party certification body to audit for com- pliance to this standard at Group and site level. In addition to these external audits, a number of SKF employees are qualified as Group internal auditors and these individuals also audit sites to assure compliance with the standards, the EHS policy and related Group instructions and require- ments. Read more on the certification on skf.com/45001. Work-related health and safety incidents Serious recordable accidents and recordable accidents are reported within three working days while other incident types can be reported monthly. SKF reports accidents for employees and non- employees where SKF has management control together as these types of workers are treated equally when it comes to health and safety management, including hazard elimi- nation, risk management and corrective and preventive actions when incidents have occurred. For non- employees, where SKF does not have management control, the number of incidents are recorded separately. SKF ANNUAL REPORT 2024 133 THI S IS SKF PRESIDENT’S LETTER STRATEGY AND VALUE CREATION THE BEARING MARKET RISKS AND THE SHARE SUSTAINABILITY REPORT CORPORATE GOVERNANCE REMUNERATION REPORT GROUP DATA FINANCIAL STATEMENTS BAC K T O START Material impacts, risks and opportunities and their interaction with strategy and business model SKF’s supply chain consists of tens of thousands of sup- pliers globally. Producing and transporting products or services benefits local economies and provides economic opportunity for workers in the value chain. While most governments where our suppliers operate have established legal infrastructure on human rights, companies also have a responsibility to respect human rights. This means addressing the adverse impacts of our global operations and value chain, which could otherwise have negative impact on SKF in terms of supply interruption and reputation. In 2023 SKF conducted an analysis to identify human rights impacts through a Human Rights Impact Assess- ment, which included workshops to evaluate and deter- mine the salience of these impacts. The primary risks are mainly associated with the supply chain. The outcome of the assessment highlights salient risks related to working conditions, discrimination, freedom of association and collective bargaining. While these risks are predominantly linked to the supply chain, they are also relevant to SKF’s Workers in the value chain Material impacts, risks and opportunities IRO and value chain Description Working conditions Positive impacts Upstream Improving working conditions together with suppliers Negative impacts Upstream Unsafe working conditions for supply chain workers Equal treatment and opportunities for all Positive impacts Upstream Responsible Sourcing Programme improving equal treatment Negative impacts Upstream Harassment and discrimination Other work-related rights Negative impact Upstream Violations of human rights own operations. Additionally, SKF is closely monitoring other human rights issues including child labor and young workers as well as forced or bonded labor. The Impact Assessment is planned to be updated in 2025 to ensure continuous improvement, further strengthening due diligence efforts. SKF’s entity in Germany has also established the necessary procedures and responsibilities for compliance to the German Supply Chain Due Diligence Act (LkSG), which includes human rights due diligence efforts in the upstream value chain. Since most risks are associated with the supply chain, SKF conducts due diligence through its Responsible Sourcing Program. SKF commits to sustaining a safe work environment, personal development, health and well-being of all employees at SKF, as well as people in the supply chain. Management and oversight Workers in the value chain is a material topic for SKF and is included under the governance of the Sustainability & Ethics commitee on the SKF Board. SKF’s Responsible Sourcing program addresses risks for social and environmental negative impacts in the supply chain, and works to ensure effective deployment of the SKF Code of Conduct for suppliers and sub-contractors. Policies, processes, and procedures are built and imple- mented under the program, which is overseen by the Responsible Sourcing Committee and managed by Group Sustainability. SKF has auditors around the world dedi- cated to implementing the Responsible Sourcing program and executing audits on the SKF Code of Conduct for sup- pliers and sub-contractors adherence. Workers’ perspec- tives are captured through worker interviews and a series of audit questions on for example human rights and health and safety. Supplier assessment and supplier audits are managed by SKF Regional Responsible Sourcing auditors in collaboration with the relevant purchasing organization. When necessary or if requested, some audits are out- sourced to a third-party company. In 2024, this was done in China and North East Asia as a response to a request. Non- compliance case management activities have led to changes in purchasing practices, including updates to policies, strategies and business models. Auditors in five countries provide ongoing support, guid- ance and training to regional purchasing teams. This helps them align purchasing practices with program expecta- tions and understand the importance of these practices and their impact on workers and suppliers worldwide. Purchasing teams focus on communicating expectations to suppliers and engaging with them to take remediation action if necessary. The remediation process follows legiti- mate procedures. When adverse impacts are identified through supplier assessments and audits, suppliers must submit corrective action reports to SKF. Upon review and within the timeline provided by the suppliers, on-site vali- dation is arranged to ensure corrections comply with all applicable laws and respect internationally recognized human rights, wherever they operate. Suppliers who fail to address critical deviations over time risk having their con- tracts with SKF terminated. SKF’s grievance mechanism, the SKF Ethics and Com- pliance Reporting Line, allows workers in the value chain to raise concerns directly to SKF. Significant deviations from audits as well as reported concerns through the whistle- blowing channel deemed critical are escalated to SKF Group’s Responsible Sourcing Committee. At the same time, SKF Group Compliance is informed. In SKF, regions and countries are assigned risk levels based on publicly available resources on risks, such as Verisk Maplecroft, regarding human rights, environment and corruption. The high-risk region list is approved by the Responsible Sourcing Committee, and is continuously updated. Currently, 40 countries in Asia, 18 countries in America, 44 countries in Africa, 1 country in Oceania and 5 countries in Europe are defined as high-risk by SKF. As part of this approach, current trends in the domestic and international labour markets are monitored to identify growing risk areas in the supply chain and update the SKF Code of Conduct for suppliers and sub-contractors as well as audit practices, based on any new trends. Suppliers in all countries and regions are typically sub- ject to quality audits where weight on Code of Conduct questions is lighter, while suppliers in countries and regions that fall into higher levels of risk are subject to regular code of conduct audits. Value chain workers categories covered by audit activities under the responsible sourcing program include: • Workers from upstream product suppliers. Steel and steel components, such as forgings, rings and rolling elements represent by far the most significant direct material input to SKF. Direct material suppliers making up 90% of SKF’s spend are automatically subject to audits if they are in high-risk regions. These can be suppliers in tier one, tier two and beyond. Suppliers for components, such as plastics and polymers, sheet metal parts and ceramics and finished products are also constantly monitored for adverse impacts on work- ers. Suppliers of indirect materials including grinding wheels, abrasives, grease and packaging are also in scope. • Supplier workforce at SKF locations. Staff and service providers from suppliers working at SKF sites are included in the scope of the supplier audit. This includes personnel from service suppliers who handle cleaning, catering, security and other services at SKF locations. Additionally, staff involved in inspection and sorting activities, primarily at sites manufacturing products for the automotive sector, are also covered by the audit. • Young workers, migrant workers and women are rela- tively more vulnerable to negative impacts. To respond to the changing external operating environment, SKF has significantly expanded the narratives in the SKF Code of Conduct for suppliers and sub-contractors to address issues of child labour, forced labour, abuse and harassment, and added requirements on recruitment practices and grievance system. • Workers from logistics, distributors and SKF associ- ated companies. Considering SKF contracted logistics flows, SKF covers about 80% of outbound and 70% of inbound transportation. The work related to human rights for people at SKF’s distributors currently focuses on adhering to export control regulations and ensuring they adhere to the SKF Code of Conduct for Distributors. SKF recognizes that potential adverse human rights impact on workers in logistics, distributors and SKF associated companies and joint ventures, are currently not in the SKF Code of Conduct compliance monitoring scope. The Responsible Sourcing Committee is informed and will decide on how to move forward in 2025. For more information on SKF associated compa- nies see page 61. SKF has a net-zero objective for greenhouse gas emissions from its own operations by 2030 and for the full upstream value chain by 2050. Given that steel accounts for 95% of SKF ANNUAL REPORT 2024 134 THI S IS SKF PRESIDENT’S LETTER STRATEGY AND VALUE CREATION THE BEARING MARKET RISKS AND THE SHARE SUSTAINABILITY REPORT CORPORATE GOVERNANCE REMUNERATION REPORT GROUP DATA FINANCIAL STATEMENTS BAC K T O START Workers in the value chain cont. the weight of SKF’s products, SKF has pledged to source at 100% net zero steel by 2050. This commitment will influence green production practices in SKF’s steel supply chain, where the risks and opportunities for workers in the steel industry are considered higher. Over the 18 years of implementing the responsible sourcing program, supplier improvement has been one of the greatest values. SKF is not only enhancing its supply chain but also setting positive examples in society. The Group sees direct positive developments based on their demands. For example, during a supplier audit in India, document reviews revealed a failure to pay equal wages to women and men. The supplier was required to make reme- diation and subsequently began paying women equally. Policies related to value chain workers SKF is committed to respecting internationally recognized human rights. Respect of the UN Guiding Principles on Business and Human Rights, ILO Declaration on Funda- mental principles and Rights at Work and OECD Guidelines for Multinational Enterprises is included both in SKF pur- chasing contracts and the SKF Code of Conduct for suppli- ers and sub-contractors. Suppliers are expected to respect human rights and safeguard the well-being of workers within their own business operations, and also to cascade the requirements to their own supply chains accordingly. The SKF Responsible Sourcing program sets expecta- tions on suppliers aligned with the SKF Code of Conduct for suppliers and sub-contractors, monitors supplier per- formance against those expectations and works to con- tinuously improve the supply chains. SKF’s expectations on suppliers are set out in the SKF Sustainability standard for suppliers and SKF Code of Conduct for suppliers and sub-contractors, which apply to all types of suppliers and sub-contractors. Expectations on distributors are estab- lished in the SKF Code of Conduct for Distributors and the SKF Code of Conduct for Agents and other intermediaries. These policies cover all value chain workers, and address fundamental issues such as child labour, working condi- tions, forced labour, harassment and discrimination in the workplace. SKF’s purchasing teams choose which suppliers to work with and are key to achieving SKF’s responsible sourcing objectives. Their actions are guided by above mentioned policies. Purchasing practices are continuously reviewed to ensure alignment with the SKF Code of Conduct for suppliers and sub-contractors and to avoid potential conflicts with SKF policies. SKF communicates policies to all business relation- ships in the value chain in various ways, including at supplier conferences, via the supplier web-portal, during risk-based supplier Code of Conduct audits, supplier training on the Code of Conduct and as a normal part of the supplier development process. Processes for engaging with value chain workers about impacts Supplier screening All potential suppliers are initially screened using a set of minimum criteria related to the SKF Code of Conduct for suppliers and sub-contractors and quality demand. These must be met to be considered as an SKF supplier. Risk aspects on human rights and labour rights, environment and governance are included, as well as specific risks on supplier type and product or service. Suppliers may be required to submit documented evidence to support that they meet the minimum criteria. Assessment of the docu- ments is done by SKF auditors. Screening is the initial step to identify potential sustainability risks in the supply chain and might be followed by supplier audits. Risk management This includes evaluation of suppliers with a risk assess- ment tool covering direct material suppliers in high-risk regions. In addition, when risks to people, the environment or business ethics are flagged during supplier audits, or SKF staff visiting suppliers, such as during a quality review, the suppliers are escalated to be audited. Auditing any type of supplier is done using SKF’s own risk tool and audits, of which some are unannounced, and are always done on suppliers’ locations by SKFs own internal respon- sible sourcing auditors or third-party auditors. Supplier audits Suppliers must maintain on-site documentation that demonstrates compliance with requirements of the SKF Code of Conduct for suppliers and sub-contractors. They must also allow SKF auditors full access to production facilities, worker records, including worker recruitment records, labour contracts, wage records and time sheets, production records and worker interviews. The Code of Conduct audit procedure is based on a checklist with 62 specific questions focusing on a wide range of aspects such as human rights, labour rights, environment, health and safety. This checklist was revised during 2024 to be fully in line with the new the SKF Code of Conduct for suppliers and sub-contractos. For example, questions related to impacts on vulnerable groups of workers, including women workers, workers with disabilities and migrant workers was added. Questions about Diversity, Equity and Inclusion (DEI) were also included to raise supplier awareness. Audit scores are assigned to all audited suppliers based on their com- pliance and risk levels. The score values will be adjusted in accordance with the updated checklist, but currently consist of the following classifications: • Fully approved (score range 0–80): Highest level of compliance. • Business approved (score range 81–199): General compliance with minimal deviations to be addressed. • Conditionally approved (score range 200–800): More critical deviations that shall be remediated. • Not approved (score range over 800): significant deviations that may lead to supplier business exit with SKF. The audit checklist is designed to assess compliance in the following areas: • Child labour • Forced labour • Health and safety • Labour union • Discrimination/Disciplinary • Compensation • Working hours • Environment management • Code of Conduct Deviation remediation Suppliers are expected to take necessary corrective actions to promptly remediate any deviations found during audits, following a defined timeline, including timely preparation and submission of a Corrective Action Report (CAR). The auditor evaluates the CAR activities to ensure that corrective plans are actionable and within reasonable timelines. Follow-up audits for CAR verification and re- audits of suppliers are conducted with a frequency depending on their performance in prior audits. Suppliers that fail to address critical deviations over time risk having their contracts with SKF terminated. Processes to remediate negative impacts and chan- nels for value chain workers to raise concerns Concerns and remediation SKF recognizes the importance of having effective griev- ance mechanisms in place for all workers in the supply chain. The SKF Ethics and Compliance Reporting Line is open to all suppliers and supply chain workers to raise concerns directly to SKF. Group Ethics and Compliance manages all reports made through the reporting line and other channels. Read more on page 126. SKF continues to explore opportunities to increase awareness and accessibility of reporting options. During 2024, information was distributed through supplier audits on accessing and engaging with SKF’s Ethics and Compli- ance Reporting Line to major suppliers. Specific questions about reporting line awareness were also added in the Code of Conduct audit checklist, and the reporting line will be promoted on the SKF supplier web-portal in 2025. At year-end of 2024, 0 concerns were received from value chain workers. SKF has the Group Whistleblowing policy in place to safeguard the identity of reporters and other individuals mentioned in the report. The policy strictly prohibits any form of retaliation against those who report concerns in good faith. Once a concern is reported, it can only be accessed by Group Ethics and Compliance. If a violation is identified for value chain workers, SKF will collaborate with business partners to address and remediate the negative impacts. When necessary, SKF may also partner with recognized external resources to support capacity building and remediation on human rights issues, ensuring that the solutions are effective. Taking action on material impacts on value chain workers, and approaches to managing material risks and pursuing material opportunities related to value chain workers, and effectiveness of those actions Managing non-compliance and risk By policy, suppliers are required to remediate any identi- fied deviations with the SKF Code of Conduct for suppliers SKF ANNUAL REPORT 2024 135 THI S IS SKF PRESIDENT’S LETTER STRATEGY AND VALUE CREATION THE BEARING MARKET RISKS AND THE SHARE SUSTAINABILITY REPORT CORPORATE GOVERNANCE REMUNERATION REPORT GROUP DATA FINANCIAL STATEMENTS BAC K T O START Workers in the value chain cont. and sub-contractors, even if the audit result is Fully approved or Business approved. The follow-up and re- auditing requirements allows monitoring whether identi- fied deviations remain or have been corrected. Suppliers are expected to make continuous improve- ment. Approximately 64% of audits conducted in 2020 –2022 resulted in suppliers receiving the score Condition- ally approved. In 2023 and 2024, the rate dropped to 37.7% and 31.1% respectively. This improvement is primarily attributed to increased engagement and leadership inter- vention from the purchasing team, which has actively collaborated with suppliers to ensure compliance with SKF’s Code of Conduct. Notably, the audit population has remained relatively stable over the years – 104, 123, 117, and 138 in 2020, 2021, 2022 and 2023, respectively – indi- cating that the improvement is not due to change in the supplier base but rather a direct result of enhanced com- pliance measures and follow-up actions. The improvements are realized through joint efforts. SKF auditors work with purchasing teams to engage the supplier to communicate the results and expectations for remediation and may escalate to regional purchasing management when needed. Where serious issues are not remediated over time or unacceptable deviations are identified through audits, this will result in termination of a supplier’s contract with SKF. In 2024, unacceptable deviations were found at one sup- plier in India. This case was escalated to the Responsible Sourcing committee, who decided to assign specific sup- port to help the supplier improve. However, the contract with the supplier was terminated. Child labour and forced labour In 2022 SKF significantly expanded the narratives in the SKF Code of Conduct for suppliers and sub-contractors to address child labour and forced labour. Requirements related to child labour and forced labour were further clarified by prohibiting the use of child labour in any form, as well as all types of forced labour, including all forms of slavery, prison labour, human trafficking, restriction on freedom of movement, any other excessive means, or other forms of intimidation. For more details, see SKF Code of Conduct for suppliers and sub-contractors. If child labour is discovered in the supply chain, SKF’s child labour remediation process will be followed to pro- tect child workers from further harm. Training and communication SKF conducts regular training programs with suppliers related to the SKF Code of Conduct for suppliers and sub-contractors. From 2020 to 2023, a total of 389 sup- pliers participated in classroom training sessions at SKF. In 2024, three training sessions for 200 suppliers were con- ducted in different countries – China, India, and Americas, focusing on the Code of Conduct and audit process to enhance suppliers’ understanding of SKF’s expectations on social and environmental performance and assessment. Occupational health and safety are also central element in courses held by SKF for customers on mounting and dis- mounting SKF’s products. Training feedback was collected after each session where suppliers were asked to provide the three most important takeaways from the training. The data for 2024 shows that employment practices, machine safety and chemical handling ranked highest. Internally, training of buyers regarding the Responsible Sourcing program is conducted on a regular basis. To strengthen compliance and expand the coverage of SKF’s Code of Conduct audits for its suppliers, a new auditor has been trained in Brazil. In 2024, training of buyers took place in regional purchasing offices in China, where eleven buyers participated. SKF’s purchasing teams choose which suppliers to work with and play an important role in the process of supplier improvement, and their decisions can impact workers worldwide. The outcome from the trainings shows a significant drop in the number of sup- pliers receiving the score Conditionally approved, and a steady increase in the number of new suppliers receiving Business approved or Fully approved audit results over the years. Partnerships and stakeholder collaborations SKF collaborates with a range of stakeholder groups, including workers in the value chain, to avoid or mitigate human rights risks. SKF Group Management meets annu- ally with the SKF World Union Council according to the Global Framework Agreement. SKF also maintains dialogues with peers and Non Government Organizations via networks such as the UN Global Compact, Transparency International, Rail sponsible, Roundtable on Sustainable Palm Oil and ResponsibleSteel Initiative (RSI). RSI is a multi-stakeholder initiative which has defined a standard to be applied in the steel value chain which seeks to assess how companies address salient human rights, as well as environmental risks in the full steel value chain, from scrap or raw material to finished steel. SKF promotes the use of this standard in the relevant parts of its supply chain. Responsible sourcing of raw materials from conflict affected and high-risk areas SKF supports the cessation of violence and human rights violations associated with the mining of specific minerals from regions classified as conflict regions, for example the eastern portion of the Democratic Republic of the Congo and surrounding countries. Suppliers are required to adopt a policy for responsible sourcing of the 3TG’s (Tin, Tantalum, Tungsten and Gold) plus Cobalt and Mica. If SKF discovers the use of minerals produced in facilities that are consid- ered to be non-conflict free in any mate rials, parts or com- ponents, appropriate actions and due diligence will be performed to transition to products that are conflict free. SKF is a member of the Responsible Minerals Initiative. Sustainability indexes The participation in various globally recognized sustain- ability evaluation platforms helps SKF to benchmark and refine its process and approach for risk mitigation and remediation for workers in the value chain through effective solutions. Addressing systemic risks to workers’ well-being, and supplier engagement Systemic risks such as forced labour, unsafe working conditions, and gender inequity require collective action by collaborating and engaging suppliers and other stake- holders to bring positive and lasting protection of workers’ well-being. This work at SKF is in the early stages, and will be scaled up in the coming years. Health and Safety related to Workers in the Value Chain SKF is committed to promoting health and safety not only for its own employees but also for workers throughout the value chain. This commitment is demonstrated by requiring suppliers and subcontractors to adhere to the principles outlined in the SKF Group EHS Policy. As part of the SKF Code of Conduct for suppliers and subcontractors, the Group conducts on-site audits cover- ing a wide range of sustainability topics, including health and safety. For more details, please refer to page 135. In 2024, two tragic events involving workers in the value chain were reported. In May 2024, a truck driver passed away at the Changshan site in China. Authorities concluded that the death was due to natural causes; it is mentioned here because it occurred at an SKF site. In July 2024, an accident at the Lutsk site in Ukraine resulted in the death of a contracted electrician. The incident has been thoroughly investigated and addressed by the authorities and all involved parties. Targets related to managing material negative impacts, advancing positive impacts, and managing material risks and opportunities Supplier improvement target SKF collects data and reports on the Group’s impact, mak- ing sure constant improvement is made towards targets. Since early 2024, SKF Group Supply Chain has set a target for the reduction of Conditionally approved suppliers in the audited supplier pool from the baseline 2020 to 2023, when there were 167 active Conditionally approved sup- pliers in total. The target was to reduce the number of Conditionally Approved suppliers by 16% (27 suppliers) by transitioning them to Business Approved or Fully Approved status by the end of 2024. As a result, the number of sup- pliers who moved from Conditionally Approved to Business Approved or Fully Approved surpassed the initial target, achieving a 25% reduction instead of the projected 16%. The progress of supplier improvement is tracked and moni- tored by Group Supply Chain and Group Sustainability throughout the year. SKF ANNUAL REPORT 2024 136 THI S IS SKF PRESIDENT’S LETTER STRATEGY AND VALUE CREATION THE BEARING MARKET RISKS AND THE SHARE SUSTAINABILITY REPORT CORPORATE GOVERNANCE REMUNERATION REPORT GROUP DATA FINANCIAL STATEMENTS BAC K T O START Business conduct policies and corporate culture The SKF Code of Conduct represents the DNA of SKF and describes the principles of SKF’s corporate culture, thus outlining SKF’s fundamental responsibilities and business conduct expectations. The SKF Code of Conduct is embodying SKF’s purpose and serves as a compass for ethical business conduct, promoting a culture of integrity and trust and helping SKF’s employees to stay true to SKF’s core values: Collaboration, Curiosity, Courage and Care. The SKF Code of Conduct sets not only SKF’s expec- tations in relation to legal compliance, but also outlines the skills, attitude and mindset expected of SKF employees in terms of how to behave and interact with SKF’s business partners and each other. Senior Management sets the tone from the top and ensures operational ownership of compliance to the SKF Code of Conduct. There are several subordinate policies and instructions related to the SKF Code of Conduct which further defines the details of the commitments in the Code. The SKF Code of Conduct and its subordinate policies and instructions applies to all SKF’s units and employees world- wide. It is accessible online both internally and externally. For managing third parties, the Group has a SKF Code of Conduct for suppliers and subcontractors, as well as one for distributors, agents and intermediaries, publicly available on skf.com. A new and improved SKF Code of Conduct launched 2024 In 2024, SKF launched an updated SKF Code of Conduct to align with its new purpose, values and an evolving regulatory and technological landscapes. While SKF’s core commitments remain unchanged, SKF recognized the need to refresh the SKF Code of Conduct to align with both external and internal developments, ensuring its continued relevance and effectiveness. As part of the process to revise the SKF Code of Conduct, SKF engaged in an inclusive dialogue with employees rep- resenting different functions of the Group through surveys and interviews to identify their needs and expectations, conducted extensive research, and benchmarked against external standards. Representatives of the World Union Council were part of the steering committee for the SKF Code of Conduct update project and represented the employee stakeholder group. The revised SKF Code of Conduct includes significant updates in content, structure, language, and tone. The content was expanded to address the emerging issues from legal requirements and key stakeholders in many areas of the organization, providing clearer guidance. The new Code is organized around Governance, Social, and Environmental (GSE) criteria, enhancing the ESG approach by recognizing that robust governance is essen- tial to mitigate and prevent non-compliance in social and environmental areas. This underlines SKF’s commitment to a comprehensive sustainability agenda across the entire value chain. The updated version is approved by SKF’s Board of Directors, Group Management and trade union representatives. Key contents in the SKF Code of Conduct In the SKF Code of Conduct, the company recognizes the strong responsibility towards people and business partners, the society and communities SKF operates in, the environment and the climate. The SKF Code of Conduct outlines SKF’s overarching commitments and responsibilities in the areas of Govern- ance, Social and Environment. The governance section of the SKF Code of Conduct covers governance, ethics and compliance related topics, namely fair business and competition, anti-corruption and ethical behavior, international trade compliance, secure use of company information, assets and resources and innovation and responsible use of technologies. The social section of the SKF Code of Conduct covers people, social topics and human rights related topics, namely care for people and respect for human rights, diversity, equity and inclusion, health and safety and privacy, integrity and security. The environmental section of the SKF Code of Conduct covers environment, climate and resource related topics, namely environmental sustainability and integrity, circu- larity and environment and use of resources. Building on the SKF Code of Conduct, the Group main- tains efficient governance to ensure adherence to applicable rules and legislations in all the above-mentioned areas. To further strengthen this governance, SKF plans to review the Group Policies and the overall policy governance struc- ture starting in 2025. Additional policies in relation to business conduct matters The following policies are detailing the overarching commitments related to business conduct matters in the SKF Code of Conduct: • Group Anti-Corruption policy, including zero tolerance for corrupt activity including inappropriate gifts or hospitality, bribery, facilitation payments and conflict of interest as well as SKF’s policy to not give political donations. • Group Anti-trust policy, including zero tolerance for engagement in activities detailed in the policy which may constitute violations of applicable antitrust laws and regulations. Governance Business conduct Material impacts, risks and opportunities IRO and value chain Description Corporate Culture Positive impacts Own operations Fostering a strong corporate culture for a better tomorrow Negative impacts Own operations Breaches against the SKF Code of Conduct Protection of whistle-blowers Positive impacts Full value chain Protection of whistle-blowers Corruption and bribery Risks Own operations Corruption and bribery leading to fines and/or reputational damage SKF ANNUAL REPORT 2024 137 THI S IS SKF PRESIDENT’S LETTER STRATEGY AND VALUE CREATION THE BEARING MARKET RISKS AND THE SHARE SUSTAINABILITY REPORT CORPORATE GOVERNANCE REMUNERATION REPORT GROUP DATA FINANCIAL STATEMENTS BAC K T O START • Group Insider policy, including information on require- ments and obligations related to the prohibition of insider trading. • Group Export Control policy, requiring full compliance with applicable export control laws and regulations when exporting products, associated technical data and technical services or when involving parties or destinations covered by these regulations. • Group Policy on Data Privacy, describing the minimum requirements on how SKF shall collect, process and protect personal data. • Group Whistle-blowing policy, including information on SKF’s procedures for raising concerns including the whistleblowing channel as well as SKF’s policy of non-retaliation. These policies are all part of SKF’s compliance programme and supplemented by more detailed Group instructions where appropriate. Both group policies and instructions are accessible online internally. Third party standards and initiatives In the Group’s business conduct policies, SKF commits to the following internationally recognized principles, guide- lines and initiatives which promote sustainable and ethical business practices: • The United Nations Global Compact and the United Nations Guiding Principles on Business and Human Rights. • The International Labour Organization’s core conventions. • OECD’s Guidelines for Multinational Companies on Responsible Business Conduct. Implementation, training and awareness SKF has implemented a Group-wide compliance program to prevent, detect and correct non-compliance with legis- lation and policies as well as ensure a corporate culture based on ethical business conduct and good business practices. This program adheres to international guidelines from the EU, the US and the UK authorities (Department of Justice, UK Bribery Act, and EU ICP) and includes the elements of management commitment, risk assessment, training and awareness, policies, procedures and whistle- blowing, investigations and audits. SKF adopts a decentralized operating model, where accountability and commitment to compliance including the SKF Code of Conduct and SKF’s corporate culture, rest at the Business Areas. The Group-wide compliance program, together with common processes and tools gov- erned by the respective corporate functions provides the respective Business Areas with the framework and ensures compliance, risk management and synergies across the Group. Adherence to local laws is the responsibility of the respective legal entities. SKF’s major sites have inhouse lawyers that monitor and support the companies to comply with local requirements beyond the requirements in the Group’s compliance program. In light of the decentralised operating model, the Business Area Presidents are responsible for the effective implementation of the SKF Code of Conduct and the Ethics & Compliance programme in their respective busi- ness areas. The Chief Compliance Officer follows up on the Business Areas’ implementation of the same with the Business Area presidents. In addition, the Chief Compli- ance Officer chairs the SKF Compliance Leadership Team consisting of management representatives from all Busi- ness Areas. The team shall ensure that priorities and activities are aligned across the Business Areas, as well as drive risk assessment, participate in investigations and ensure an operational ownership of compliance in the business operations. To ensure employee awareness and effective communi- cation of Group policies and measures, SKF conducts periodic global awareness campaigns, such as the Global Compliance week, and have all policies readily accessible online. In addition, there is a Group-wide program of online training courses for general awareness on compliance and business ethics that are mandatory for all employees having an SKF email address. The training courses cover a wide range of topics, providing general awareness of the policies on good business conduct, such as Antitrust in relation to competitors 94%, Corruption at SKF 96%, How to avoid antitrust risks in the sales channel 99%, Ethical leadership 85% and Reporting ethical concerns 96%. The numbers represents the percentage of the total num- ber of the employees in scope who have completed the training as per January 2025. Every employee with an SKF email address is assigned an onboarding package of train- ings when starting at SKF. To ensure continuous awareness and coverage of any changes in requirements or expecta- tions, all trainings are refreshed with a frequency of one to three years depending on the subject of the training. In addition, all employees with an SKF email address are required to commit to the SKF Code of Conduct on an annual basis. The trainings are also available on-demand online for employees with access to the internal learning portal. Identification, reporting and investigation of concerns SKF has several mechanisms for identifying concerns about behaviour contradicting the SKF Code of Conduct and underlying policies, such as management reviews, internal controls, internal audits and Code of Conduct audits (Responsible Sourcing programme). Where SKF employees experience or notice behaviours that are not in line with SKF’s Code of Conduct they are requested to report it to their manager, local People Experi- ence function or to other senior managers. Employees can also raise concerns or seek advice via the SKF Ethics and Compliance Reporting Line, a whistle-blowing line which is set up subject to the legal requirements in the EU Whistle- blowing Directive. The reporting line consists of an external system hosted by a third party. Reports can be made anony mously, unless this is prohibited by local legislation. The SKF Ethics and Compliance Reporting Line is also available to external parties, such as suppliers and distri- butors, through skf.com. SKF employees and others can report concerns in their own language via a designated web portal or by calling a local telephone number (tele- phone service is available only in Brazil and Mexico). SKF is committed to investigating business conduct incidents, including incidents of corruption and bribery, promptly, independently and objectively. All concerns that are reported to the SKF Ethics & Compliance Reporting Line, via other channels, or otherwise identified by the central functions through other mechanisms are reviewed and assessed by Group Compliance, for assignment to an appropriate investigator. Concerns deemed as critical are communicated on a case-by-case basis to the General Counsel and SVP Legal & Compliance, to the Board of Director’s Sustainability & Ethics Committee and/or to the Audit Committee. In addition, the Chief Compliance Officer directly reports material compliance issues, risks, findings and root causes, as well as remediation plans where appropriate, to the Board of Directors’ Sustainability and Ethics Committee, and the Audit Committee on a continuous basis. The number of concerns reported and investigated is animportant KPI of the effectiveness of SKF’s compliance program. The goal is to increase awareness about and compliance with the SKF Code of Conduct, for example via additional e-learnings, to gradually decrease the number of serious concerns reported and investigated. Internal control issues, training completion rates and the number of reported and substantiated ethical concerns give SKF indications on the need for improving the com- pliance program. Business conduct cont. SKF ANNUAL REPORT 2024 138 THI S IS SKF PRESIDENT’S LETTER STRATEGY AND VALUE CREATION THE BEARING MARKET RISKS AND THE SHARE SUSTAINABILITY REPORT CORPORATE GOVERNANCE REMUNERATION REPORT GROUP DATA FINANCIAL STATEMENTS BAC K T O START SKF’s compliance program actions to prevent or miti- gate risks are focused on the main risks identified in the Group’s yearly compliance risk assessment. During 2024 SKF engaged approximately 400 managers from all Busi- ness Areas, regions and corporate functions in a self- assessment of key compliance risks. The number of units participating is a KPI for the quality of the risk assessment. The conclusions of the risk assessment are the basis for mitigation plans per Business Area and for the Group. SKF has dedicated Legal & Compliance officers in all Business Areas. Together with the Chief Ethics & Compli- ance Officer, the Business Areas develop a compliance plan based on risks and incidents. This is approved by the Sustainability & Ethics Committee on an annual basis. Positive examples of the compliance activities, such as employee and business partner engagement, are shared with the Group’s Compliance Core Team. Prevention and detection of corruption and bribery SKF addresses anti-corruption and anti-bribery as part of the Group’s compliance program as described on page 138. The SKF Code of Conduct outlines the overall prohibi- tion of corrupt practices, including bribery, and is supple- mented by the Group compliance program on anti- corruption which includes different elements to support the prevention and detection of corruption and bribery, such as policies, instructions and guidelines as well as trainings. Prohibition of corruption and bribery is also included in the SKF Code of Conduct for suppliers and sub-contractors, the SKF Code of Conduct for Distributors and the SKF Code of Conduct for Agents and other Inter- mediaries. Business conduct cont. The Group Anti-Corruption Policy, described on page 137, is supplemented by instructions to provide more detailed requirements related to the overarching prohibition on corrupt practices. These are: • Group Instruction on Anti-Corruption • Group Instructions on the Use of Gifts and Other Favors • Group Instructions on the use of Agents and other Intermediaries • Group Instructions on Charitable Activities • Group Instructions for Sponsorship The Group also provides guidelines related to conflict of interest as well as a due diligence checklist to be used when appointing and using distributors and agents. The policies, instructions and guidelines are all readily accessible online internally for all employees, and the SKF Code of Conducts are readily accessible online both inter- nally and externally. The Code of Conducts for third parties are provided to the third party or otherwise referenced as part of the onboarding and thereafter when required. When a supplier is subject to SKF’s Code of Conduct audit as described on page 134, compliance with the SKF Code of Conduct for suppliers and sub-contractors including sec- tions related to prohibition of corruption and bribery is audited. To support general awareness about anti-corruption and anti-bribery in the Group, SKF provides group-wide e-learnings, such as “Corruption at SKF” and “Reporting ethical concerns” as described on page 138. In addition, all staff employees are assigned a conflict of interest train- ing for general awareness purposes every year, that also includes a step where the employee shall confirm that any conflicts of interests will be disclosed as per SKF’s policy. As described page 137, the Business Areas presidents are responsible for implementing the Anti-Corruption com- pliance program in their respective business area, thus also responsible for providing further trainings to address Business Area specific risks as well as to conduct due diligence when required. Allegations and incidents of corruption and bribery are addressed as described page 137. SKF is continuously working to strengthen its efforts to fight corruption. In 2025, the Group intends to review the anti-corruption compliance, including the potential need to update and/or expand the trainings provided by the Group, as well as to strengthen the third-party due dili- gence process by updating the minimum requirements and process for third party due diligence. Operations assessed for risks related to corruption SKF’s compliance risk assessment for 2024 indicates that the risk of corruption is in general low, while slightly higher in regions of high risk of corruption. The identified main corruption risk is conflict of interest, especially in high-risk regions. In addition, SKF assesses that it is more at risk for corruption where distributors and agents are used to rep- resent SKF when interacting with governments or state- owned entities in countries with a high corruption risk. Together with Group Compliance, each business area con- solidates the results and sets an action plan in accordance with the results. At SKF’s manufacturing units, risk based ethics and compliance reviews are carried out, in conjunc- tion with environmental, health and safety audits. The pur- pose is to assist units in their work to identify and address specific ethics and compliance risks, including corruption. During 2024, 15 such reviews have been carried out. Incidents of corruption or bribery During 2024, SKF confirmed 15 incidents of corruption or bribery, whereof 5 of these led to employees being dismissed and 5 employees being disciplined. SKF had 3 confirmed incidents when contracts with business part- ners were terminated or not renewed due to violations related to corruption. Local units have, based on root cause for the breaches in procedures and standards, taken appropriate measures, such as strengthened internal controls and updated procedures. SKF was neither convicted nor liable to pay any fines for violation of anti-corruption or anti-bribery laws. SKF ANNUAL REPORT 2024 139 THI S IS SKF PRESIDENT’S LETTER STRATEGY AND VALUE CREATION THE BEARING MARKET RISKS AND THE SHARE SUSTAINABILITY REPORT CORPORATE GOVERNANCE REMUNERATION REPORT GROUP DATA FINANCIAL STATEMENTS BAC K T O START Additional information Water SKF operations are not considered to be water intensive, however, water is relevant at specific locations. Performance is monitored for sites located in areas of actual and potential water stress. Interactions with water as a shared resource and management of water discharge-related impacts Water is used at SKF’s sites for processes and civil pur- poses (toilets, showers, cooking facilities, etc.). Focus on efficient water use is applied in various ways. For example, in new factory building projects the latest technologies have been put in place to achieve minimal impact on local resources. In addition, practices like closed loop systems for industrial water used and rainwater harvesting are com- mon in many SKF facilities. Water withdrawal is metered at site level for ”water from municipal supply” (the most common source) and ”water from other sources”. The first is the aqueducts supply and the second includes supply by wells or other surface sources (such as rivers and creeks) practiced according to local regulations. There are no cases of sourcing from the sea, or local water production. Water is discharged in sur- face water or sewage systems after treatment, with quality levels according to local regulations and in this way, water related impacts are addressed. Numerous lifecycle assessments (according to ISO 14044:2006) have been conducted both on product and process levels, and water impacts have been identified. The main findings from these studies are that SKF’s direct water use is relatively insignificant compared to upstream use in energy generation, steel production, etc. However, SKF recognizes the increased importance of water effi- ciency and other measures at sites located in areas of water scarcity. SKF uses the World Resources Institute’s tools to identify those sites in areas of water stress or projected water stress. These sites are then required to define improvement plans to drive reduced water intensity through various means (see table). Efforts to improve water efficiency have shown a positive trend at most of the sites within scope. At the same time, it is acknowledged that this is a learning process, and there are still areas with room for improvement. SKF remains committed to enhanc- ing its water conservation strategies to achieve even better results. In other locations the nature of SKF’s processes, where most systems using water are closed loop, means that SKF typically does not represent a major water user in the local industrial context. Due to low water intensity of SKF’s direct operations and the measures in place to follow applicable wastewater treatment requirements, the chances of SKF water usage impacting local community water availability or quality are very low. As part of the Group’s overall environmental approach, SKF works with upstream users of water, such as steel and energy suppliers, to reduce water use. For example, by switching to renewable electricity sources, a dramatic reduction in water needed per/kWh can be achieved com- pared to thermal power sources. The SKF requirements for suppliers to adopt the ISO 14001 standard will also help increase focus on water by the direct material suppliers. Water efficiency performance for sites in water stressed areas Site KPI 2024 vs. 2023, % Ahmedabad –39 Bangalore: DGBB –41 Bangalore: Lincoln +38 Bari +55 Cajamar and Jordanésia –28 Chakan 1) +71 Dalian +13 Haridwar –8 Jakarta +1 Jinan –22 La Silla –17 Monterrey: Solution Factory 1) +7 Mysore –27 Nairobi 1,2) — Nankou –12 Puebla –5 Pune –31 Shanghai ATC –27 The KPI for manufacturing sites is water intensity calculated as water withdrawal / production volume. Non-manufacturing sites, marked; 1) KPI for water intensity calculated as water withdrawal/average number of full time employees. 2) Included in scope during 2023. Data to calculate the KPI is not available. Water withdrawal by source As the clear majority of SKF’s factories are in industrial zones, water is supplied by municipalities. Other sources have not been considered significant. Therefore, SKF monitors total water withdrawal at sites and not per with- drawal by source. As the reporting is based on actual measurements from water suppliers or at SKF sites, no specific assumptions are referred to. Water withdrawal 1,000 cubic metres 2024 2023 2) 2022 2) Water from municipal supply 1,527 1,668 1,884 Water from other sources 1) 869 1,018 1,307 Water withdrawal total 2,396 2,686 3,191 1) Other sources is mostly wells from which water is extracted. 2) Past data are restated for divested units and data amendment. Water discharge Water discharge follows regional regulations. The flow goes to local sewage systems or to surface water flow in compliance with mentioned regulations for the quality of discharged water (suspension, temperature, etc.). Metered discharge flows are thus not reported. SKF ANNUAL REPORT 2024 140 THI S IS SKF PRESIDENT’S LETTER STRATEGY AND VALUE CREATION THE BEARING MARKET RISKS AND THE SHARE SUSTAINABILITY REPORT CORPORATE GOVERNANCE REMUNERATION REPORT GROUP DATA FINANCIAL STATEMENTS BAC K T O START SKF has an objective to eliminate emissions from the use of volatile organic compounds (VOC) in washing processes for bearings and bearing components by 2025. These washing processes are the main source of VOC emissions from the Group’s operations. In 2024, the Group achieved a significant reduction in VOC emissions. As the deadline for meeting the objective SKF does not currently have any targets or KPIs related to biodiversity on a Group level. SKF is working to improve its understanding of the impact and dependencies of bio- diversity as well as associated risks and opportunities through the full value chain. An assessment conducted in 2023 shows that SKF has potential impacts on the direct drivers of biodiversity loss specifically in terms of climate change, land use change, and pollution. To mitigate the impacts on these drivers of biodiversity loss, SKF sees strong synergies with meeting its decarbonization targets, increasing its circular use of products and resources, and reducing its risks of pollution through strong environ- mental management. The assessment shows that SKF’s dependency on steel and its related environmental impacts from both produc- tion and mining is critical for the Group to address also from a biodiversity perspective. Reducing use of virgin resources, re-using materials and products, and increasing the use of recycled materials are key for SKF to meet its net-zero goals, as well as to reduce its impact on bio- diversity, pollution, and land use. For SKF’s targets, KPIs, and activities related to climate change, please see page 102. For SKF’s targets, KPIs, and activities related to resource use and circular economy, please see page 120. Going forward, SKF will continue to improve its under- standing of its impact on local flora and fauna in relation to the company’s sites across the globe. SKF will also further address how it integrates biodiversity-related impact, risks and opportunities in its environmental management system for sites near or in proximity to protected areas and Key Biodiversity Areas. approaches, each Business Area has intensified efforts to address the remaining VOC emissions, ensuring timely elimination. The Group will continue to support the development of action plans for sites with the highest emissions. Pollution of air Biodiversity Group objective: Eliminate emissions of volatile organic compounds from washing of bearings and bearing components by 2025 Tonnes 2024 2023 1) 2022 1) VOC (volatile organic compounds) total use 615 637 755 VOC (volatile organic compounds) emitted to the atmosphere (washing of bearings and components in bearings manufacturing) 98 122 135 1) Past data are restated for divested units and data amendment. SKF ANNUAL REPORT 2024 141 THI S IS SKF PRESIDENT’S LETTER STRATEGY AND VALUE CREATION THE BEARING MARKET RISKS AND THE SHARE SUSTAINABILITY REPORT CORPORATE GOVERNANCE REMUNERATION REPORT GROUP DATA FINANCIAL STATEMENTS BAC K T O START Policies Description Link to material topics SKF Code of Conduct The policy that all other policies and instructions shall adhere to. All SKF Group Anti corruption policy Zero tolerance for corrupt activity including inappropriate gifts or hospitality, bribery, facilitation payments and conflict of interest as well as SKF’s policy to not give political donations. Governance Group Antitrust policy Zero tolerance for engagement in activities detailed in the policy and which may constitute violations of applicable antitrust laws and regulations. Governance SKF Group Insider policy Requirements and obligations related to the prohibition of insider trading. Governance SKF Group Policy on Export Control Full compliance with applicable export control laws and regulations when exporting products, associated technical data and technical services or when involving parties or destinations covered by these regulations. Governance SKF Group Policy on Data Privacy Minimum requirements on how SKF shall collect, process and protect personal data. Governance SKF Group Whistleblowing policy Procedures for raising concerns including the whistleblowing channel as well as SKF’s policy of non-retaliation. Governance, Own workforce Group Environmental, Energy, Health and Safety Policy This policy enables a culture where EHS awareness, involvement, and accountability is integrated into SKF’s business activities and decision-making processes. It provides guidance to proactively assess health and safety risks, as well as environmental and energy impacts, aiming to eliminate hazards, reduce risks, and minimize negative impacts. Own workforce, Workers in the value chain, Climate change, Resource use and Circular Economy SKF Employee Wellbeing policy Requirements for promoting and protecting employee wellbeing. Own workforce SKF Code of Conduct for SKF Distributors Expectations on SKF’s full value chain to act in an economically, socially and ethically responsible manner Workers in the value chain SKF Code of Conduct for suppliers and sub-contractors Expectation on suppliers to protect human rights and safeguard the well-being of workers within their own business operations, and also to cascade the requirements to their own supply chains acccordingly. Addresses Resource Use and Circular Economy in the Environmental impact part. Workers in the value chain, Resource Use and Circular Economy SKF Group Equal Pay Policy Responsibility to treat all employees equally, fairly and with respect regardless of race, gender, age, national origin or nationality, disability, caste, religion, sexual orientation, union membership or political affiliation. Furthermore, SKF shall provide non-discriminatory working conditions and promote diversity. Own workforce, Workers in the value chain Fossil fuel phase out policy Aims to accelerating the decarbonization of SKF’s operations and reaching the Group’s 2030 decarbonization goal. Climate change Shadow Carbon Pricing Policy Aims at internalizing the environmental cost of steel and steel components within our supply chain by implementing a Shadow Carbon Price. Climate change Airfreight Avoidance Policy Aims at reducing greenhouse gas emissions impact of logistics and related costs for transportation. Climate change SKF Group Business Travel Policy Aims at limiting the environmental impact from business travels. Climate change SKF Sustainable Buildings Policy Requirements for the design and construction of major new facilities which are to be owned or leased by SKF. Climate change SKF Policy for hazardous substances in products Aims to protect the environment and the health of people from harmful substances. Resource use SKF Conflict mineral policy This policy describes SKF’s supports for efforts to end the violence and human rights violations involved in the mining of so called conflict minerals. Workers in the value chain Policies A Group Policy is authorized by the CEO and owned by the relevant member of Group management. A Group Instruction is authorized by the relevant member of Group management, and (in many cases) provides details to a related Group Policy. Group Policies and Group Instructions are applicable to all employees and units in the SKF Group, with the exception of the SKF Code of Conduct for distributors, suppliers and sub- contractors. SKF ANNUAL REPORT 2024 142 THI S IS SKF PRESIDENT’S LETTER STRATEGY AND VALUE CREATION THE BEARING MARKET RISKS AND THE SHARE SUSTAINABILITY REPORT CORPORATE GOVERNANCE REMUNERATION REPORT GROUP DATA FINANCIAL STATEMENTS BAC K T O START TCFD TCFD is the Task Force on Climate-related Financial Dis- closures initiated by the Financial Stability Board. The aim with the initiative is to develop a set of recommendations for voluntary and consistent climate-related financial risk disclosures. SKF reports according to the TCFD recom- mendations since 2020. SKF is also a respondent to the CDP Climate Change survey and achieved an A– score for its 2024 submission. The Group’s submission is publicly available on the CDP website. CDP has aligned their survey with the TCFD and the SKF response provides a further, more detailed resource for stakeholders wishing to gain a deeper under- standing of SKF’s climate risks and opportunities and how the company is addressing these. Governance Strategy Risk management Metrics and targets The board’s oversight of climate-related risks and opportunities. See pages 27–31, 83–85, 153 Identified climate-related risks and opportunities over the short, medium, and long term. See pages 89–94, 102–106 Processes for identifying and assessing climate-related risks. See pages 102–106 Metrics used to assess climate-related risks and opportunities in line with strategy and risk management process. See pages 85–89 Management’s role in assessing and managing climate-related risks and opportunities. See pages 83–85, 102–106 , 169 Impact of climate-related risks and opportunities on the organization’s busi- nesses, strategy, and financial planning. See pages 89–94, 102–106 Processes for managing climate-related risks. See pages 102–106 Scope 1, Scope 2, and, if appropriate, Scope 3 greenhouse gas emissions, and the related risks. See pages 102–106 Resilience of the organization’s strategy, taking into consideration different climate-related scenarios, including a 2°C or lower scenario. See pages 102–106 How processes for identifying, assessing, and managing climate-related risks are integrated into the organization’s overall risk management. See page 102–106 Targets used to manage climate-related risks and opportunities and performance against targets. See pages 102–106 SKF ANNUAL REPORT 2024 143 THI S IS SKF PRESIDENT’S LETTER STRATEGY AND VALUE CREATION THE BEARING MARKET RISKS AND THE SHARE SUSTAINABILITY REPORT CORPORATE GOVERNANCE REMUNERATION REPORT GROUP DATA FINANCIAL STATEMENTS BAC K T O START Omission GRI standard/Other source Disclosure Location Requirement(s) omitted Reason Explanation GENERAL DISCLOSURES GRI 2: General Disclosures 2021 2-1 Organizational details 4–5, 86–87 2-2 Entities included in the organization’s sustainability reporting 83 2-3 Reporting period, frequency and contact point 83 2-4 Restatements of information 83 2-5 External assurance 83, 149 2-6 Activities, value chain and other business relationships 12–18, 23–24, 86–87 2-7 Employees 124–133 SKF reports data on employees by gender, age group, regions, and contract type. However, non-guaranteed hours are not currently reported. SKF is preparing for upcoming legal requirements in this area. 2-8 Workers who are not employees 130 2-9 Governance structure and composition 83–85, 150–160 2-10 Nomination and selection of the highest governance body 150–160 2-11 Chair of the highest governance body 150–160 2-12 Role of the highest governance body in overseeing the management of impacts 83–85 2-13 Delegation of responsibility for managing impacts 83–85 2-14 Role of the highest governance body in sustainability reporting 83–85 2-15 Conflicts of interest 61 2-16 Communication of critical concerns 126, 138–139, 142 2-17 Collective knowledge of the highest governance body 83–85 2-18 Evaluation of the performance of the highest governance body 150–160 2-19 Remuneration policies 61–64 2-20 Process to determine remuneration 61–64 Statement of use AB SKF has reported in accordance with the GRI Standards for the period 2024-01-01–2024-12-31 GRI 1 used GRI 1: Foundation 2021 Applicable GRI Sector Standard(s) No applicable GRI sector standards exists GRI content index SKF ANNUAL REPORT 2024 144 THI S IS SKF PRESIDENT’S LETTER STRATEGY AND VALUE CREATION THE BEARING MARKET RISKS AND THE SHARE SUSTAINABILITY REPORT CORPORATE GOVERNANCE REMUNERATION REPORT GROUP DATA FINANCIAL STATEMENTS BAC K T O START Omission GRI standard/Other source Disclosure Location Requirement(s) omitted Reason Explanation GENERAL DISCLOSURES CONT. 2-21 Annual total compensation ratio Information unavailable /incomplete The median annual total compensation for all employees and the median percentage increase in total compensation for all employees have not been collected yet. Base salary for blue collar workers, local short-term variable pay, long-term variable pay and other remuneration and benefits cannot be obtained to calculate total compensation, as this data is not stored in the global HR system. This applies to all locations and legal entities. The remuneration and change of remuneration for the President compared to the remuneration and change of the average remuneration of employees in AB SKF is reported in the Remuneration Report. 2-22 Statement on sustainable development strategy 12–18, 86–87 2-23 Policy commitments 83–84, 114–115, 142 2-24 Embedding policy commitments 83–84, 114–115, 142 2-25 Processes to remediate negative impacts 89–95, 103–106, 108–116, 122–123, 126–129, 137–139, 142 2-26 Mechanisms for seeking advice and raising concerns 126, 138–139, 142 2-27 Compliance with laws and regulations 137–139 2-28 Membership associations 85 2-29 Approach to stakeholder engagement 87–88 2-30 Collective bargaining agreements 130 MATERIAL TOPICS GRI 3: Material Topics 2021 3-1 Process to determine material topics 95 3-2 List of material topics 89–94 Anti-corruption and competition law GRI 3: Material Topics 2021 3-3 Management approach 83–85, 142 GRI 205: Anti-corruption 2016 205-1 Operations assessed for risks related to corruption 139 205-3 Confirmed incidents of corruption and actions taken 139 GRI 206: Anti-competitive Behavior 2016 206-1 Legal actions for anti-competitive behavior, anti-trust, and monopoly practices 139 GRI content index cont. SKF ANNUAL REPORT 2024 145 THI S IS SKF PRESIDENT’S LETTER STRATEGY AND VALUE CREATION THE BEARING MARKET RISKS AND THE SHARE SUSTAINABILITY REPORT CORPORATE GOVERNANCE REMUNERATION REPORT GROUP DATA FINANCIAL STATEMENTS BAC K T O START Omission GRI standard/Other source Disclosure Location Requirement(s) omitted Reason Explanation MATERIAL TOPICS CONT. Enabling cleantech growth GRI 3: Material Topics 2021 3-3 Management approach SKF Specific topic Revenue from sales to cleantech areas 103 Energy use and efficiency, climate change and greenhouse gas emissions GRI 3: Material Topics 2021 3-3 Management approach 83–85, 102 GRI 302: Energy 2016 302-1 Energy consumption within the organization 117 302-3 Energy intensity 118 302-4 Reduction of energy consumption 108 GRI 305: Emissions 2016 305-1 Direct (Scope 1) GHG emissions 104, 118 305-2 Energy indirect (Scope 2) GHG emissions 104, 118 305-3 Other indirect (Scope 3) GHG emissions 118, 119 SKF has substantially increased the scope of scope 3 reporting in 2022 to include a significant amount to the emissions related to its direct material suppliers (steel and forging suppliers), however this does not cover the entire potentially applicable Scope 3 emissions. SKF intends to continue to increase the scope of reported Scope 3 emissions in the coming years. 305-4 GHG emissions intensity 118 Material waste and environmental compliance GRI 3: Material Topics 2021 3-3 Management approach 120–123 GRI 301: Materials 2016 301-1 Materials used by weight or volume 123 GRI 303: Water and Effluents 2018 303-1 Interactions with water as a shared resource 140 303-2 Management of water discharge-related impacts 140 303-3 Water withdrawal 140 303-4 Water discharge 140 Water discharge follows regional regulations. The flow is going to local sewage systems or to surface water flow in compliance to mentioned regulations for the quality of discharged water (suspension, temperature, etc.). Metered discharge flows are thus not reported. GRI 306: Waste 2020 306-2 Management of significant waste-related impacts 123 306-3 Waste generated 123 306-4 Waste diverted from disposal 123 306-5 Waste directed to disposal 123 SKF reports only grinding swarf separately as its main hazardous waste. Resource outflows 122–123 Resource outflow was a new material topic 2023. SKF aims to develop KPIs on this topic going forward. GRI content index cont. SKF ANNUAL REPORT 2024 146 THI S IS SKF PRESIDENT’S LETTER STRATEGY AND VALUE CREATION THE BEARING MARKET RISKS AND THE SHARE SUSTAINABILITY REPORT CORPORATE GOVERNANCE REMUNERATION REPORT GROUP DATA FINANCIAL STATEMENTS BAC K T O START Omission GRI standard/Other source Disclosure Location Requirement(s) omitted Reason Explanation MATERIAL TOPICS CONT. Employment GRI 3: Material Topics 2021 3-3 Management approach 83–85, 124–126 GRI 401: Employment 2016 401-1 New employee hires and employee turnover 129 Labor/management relations GRI 3: Material Topics 2021 3-3 Management approach 83–85, 124–126 GRI 402: Labour/Management Relations 2016 402-1 Minimum notice periods regarding operational changes 130 Occupational health and safety GRI 3: Material Topics 2021 3-3 Management approach 83–85, 124–126 GRI 403: Occupational Health and Safety 2018 403-1 Occupational health and safety management system 126 403-2 Hazard identification, risk assessment, and incident investigation 126–127 403-3 Occupational health services 127 403-4 Worker participation, consultation, and communication on occupational health and safety 127 403-5 Worker training on occupational health and safety 127 403-6 Promotion of worker health 127–128 403-7 Prevention and mitigation of occupa- tional health and safety impacts directly linked by business relationships 137 403-8 Workers covered by an occupational health and safety management system 132 403-9 Work-related injuries 132 Training and education GRI 3: Material Topics 2021 3-3 Management approach 83–85, 124–126 GRI 404: Training and Education 2016 404-2 Programs for upgrading employee skills and transition assistance programs 131–132 404-3 Percentage of employees receiving regular performance and career development reviews 132 GRI content index cont. SKF ANNUAL REPORT 2024 147 THI S IS SKF PRESIDENT’S LETTER STRATEGY AND VALUE CREATION THE BEARING MARKET RISKS AND THE SHARE SUSTAINABILITY REPORT CORPORATE GOVERNANCE REMUNERATION REPORT GROUP DATA FINANCIAL STATEMENTS BAC K T O START Omission GRI standard/Other source Disclosure Location Requirement(s) omitted Reason Explanation MATERIAL TOPICS CONT. Diversity and equal opportunity GRI 3: Material Topics 2021 3-3 Management approach 83–85, 124–126 GRI 405: Diversity and Equal Opportunity 2016 405-1 Diversity of governance bodies and employees 131 405-2 Ratio of basic salary and remuneration of women to men 133 Human rights and non-discrimination GRI 3: Material Topics 2021 3-3 Management approach 83–85, 124–126, 134 GRI 406: Non-discrimination 2016 406-1 Incidents of discrimination and corrective actions taken 133 GRI 407: Freedom of Association and Collective Bargaining 2016 407-1 Operations and suppliers in which the right to freedom of association and collective bargaining may be at risk 133 GRI 408: Child Labour 2016 408-1 Operations and suppliers at significant risk for incidents of child labour 133 GRI 409: Forced or Compulsory Labour 2016 409-1 Operations and suppliers at significant risk for incidents of forced or compulsory labour 133 412-1 Operations that have been subject to human rights reviews or impact assessments 126, 133 Supplier assessments GRI 3: Material Topics 2021 3-3 Management approach 83–85, 91, 94 120, 137 GRI 308: Supplier Environmental Assessment 2016 308-1 New suppliers that were screened using environmental criteria Percentage cannot be disclosed. The total number of new suppliers is not known. 308-2 Negative environmental impacts in the supply chain and actions taken 91, 108–110 GRI 414: Supplier Social Assessment 2016 414-1 New suppliers that were screened using social criteria 52 suppliers have been audited, total number of suppliers assessed in other ways cannot be disclosed. 414-2 Negative social impacts in the supply chain and actions taken 135 Socioeconomic compliance GRI 3: Material Topics 2021 3-3 Management approach 83–85 GRI 2-27: Compliance with laws and regulations 2-27 Non-compliance with laws and regulations in the social and economic area 139 GRI content index cont. SKF ANNUAL REPORT 2024 148 THI S IS SKF PRESIDENT’S LETTER STRATEGY AND VALUE CREATION THE BEARING MARKET RISKS AND THE SHARE SUSTAINABILITY REPORT CORPORATE GOVERNANCE REMUNERATION REPORT GROUP DATA FINANCIAL STATEMENTS BAC K T O START Auditor’s Limited Assurance Report on the Sustainability Report and statement regarding the Statutory Sustainability Report To AB SKF (publ.), corporate identity number 556007-3495 Introduction We have been engaged by the Board of Directors of AB SKF to undertake a limited assurance engagement of the AB SKF Sustainability Report for the year 2024. The Company has defined the scope of the Sustainability Report on page 2 in connection to the table of content in Annual Report and the Statutory Sustainability Report on page 83. Responsibilities of the Board of Directors and the Executive Management The Board of Directors and the Executive Management are responsible for the preparation of the Sustainability Report including the Statutory Sustainability Report in accordance with the applicable criteria and the Annual Accounts Act, according to the previous version applied before 1 July 2024, respectively. The criteria are defined on page 83 in the Sustainability Report, and are part of the Sustainability Reporting Guidelines published by GRI (Global Reporting Initiative), which are applicable to the Sustainability Report, as well as the accounting and calculation principles that the Company has developed. This responsibility also in - cludes the internal control relevant to the preparation of a Sustainability Report that is free from material misstate- ments, whether due to fraud or error. Responsibilities of the auditor Our responsibility is to express a conclusion on the Sustainability Report based on the limited assurance procedures we have performed and to express an opinion regarding the Statutory Sustainability Report. Our engage- ment is limited to historical information presented and does therefore not cover future-oriented information. We conducted our limited assurance engagement in accordance with ISAE 3000 (revised) Assurance Engage- ments Other than Audits or Reviews of Historical Financial Information. A limited assurance engagement consists of making inquiries, primarily of persons responsible for the preparation of the Sustainability Report, and applying analytical and other limited assurance procedures. Our examination regarding the Statutory Sustainability Report has been conducted in accordance with FAR’s accounting standard RevR 12 The auditor’s opinion regarding the Statu- tory Sustainability Report. A limited assurance engage- ment and an examination according to RevR 12 is different and substantially less in scope than an audit conducted in accordance with International Standards on Auditing and generally accepted auditing standards in Sweden. The firm applies International Standard on Quality Management 1, which requires the firm to design, imple- ment and operate a system of quality management in - cluding policies or procedures regarding compliance with ethical requirements, professional standards and applicable legal and regulatory requirements. We are in dependent of AB SKF in accordance with professional ethics for accountants in Sweden and have otherwise fulfilled our ethical responsibilities in accordance with these requirements. The limited assurance procedures performed and the examination according to RevR 12 do not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. The conclusion Gothenburg, March 7, 2025 Deloitte AB Lennart Nordqvist Expert Member of FAR Hans Warén Authorized Public Accountant based on a limited assurance engagement and an exami- nation according to RevR 12 does not provide the same level of assurance as a conclusion based on an audit. Our procedures are based on the criteria defined by the Board of Directors and the Executive Management as described above. We consider these criteria suitable for the preparation of the Sustainability Report. We believe that the evidence we have obtained is sufficient and appropriate to provide a basis for our conclusion below. Conclusion Based on the limited assurance procedures we have performed, nothing has come to our attention that causes win all material respects, in accordance with the criteria defined by the Board of Directors and Executive Management. A Statutory Sustainability Report has been prepared. SKF ANNUAL REPORT 2024 149 THI S IS SKF PRESIDENT’S LETTER STRATEGY AND VALUE CREATION THE BEARING MARKET RISKS AND THE SHARE SUSTAINABILITY REPORT CORPORATE GOVERNANCE REMUNERATION REPORT GROUP DATA FINANCIAL STATEMENTS BAC K T O START corporate governance report Fighting friction SKF supports the hydrogen journey from produc- tion to end usage. From efficient production methods to storage and transport solutions, we are committed to pioneering this development to support you in achieving reliability and efficiency every step of the way. 150SKF ANNUAL REPORT 2024 THIS IS SKF PRESIDENT’S LETTER STRATEGY AND VALUE CREATION THE BEARING MARKET RISKS AND THE SHARE SUSTAINABILITY REPORT CORPORATE GOVERNANCE REMUNERATION REPORT GROUP DATA FINANCIAL STATEMENTS BACK TO START Introduction SKF applies the principles of sound corporate gov- ernance as an instrument for increased competitive- ness and to promote confidence in SKF among all stakeholders. Among other things, this means that the company maintains an efficient organizational structure with clear areas of responsibility and clear rules for delegation and decision making together with an accountability framework, that the financial and sustainability reporting is transparent and that processes governing such reporting is paved by a robust risk management and assurance framework and that the company in all respects maintains good corporate citizen ship. SKF is purposefully working to ensure sustaina- bility, ethics and compliance to achieve a positive development over the short, medium and long term. More information is found on pages 83–85 in the Sustainability Report for the Group in the Annual Report 2024. The corporate governance principles applied by SKF are based on Swedish law, in particular the Swedish Companies Act and the Swedish Annual Accounts Act, and the regulatory system of NASDAQ Stockholm AB (Stockholm Stock Exchange) as well as the Swedish Code of Corporate Governance (the “Code”) issued by the Swedish Corporate Govern- ance Board and the AB SKF Articles of Association. Information under the Annual Accounts Act Chap- ter 6, § 6, sections 3–4, are found on pages 29–31 of the Administration Report for the Group in the Annual Report 2024. Swedish Code of Corporate Governance The Code was originally introduced on 1 July 2005 by the Swedish Corporate Governance Board. The Code has been revised several times since the introduction and the applicable Code is available at the website of the Swedish Corporate Governance Board, www.corporategovernanceboard.se. It is considered good stock exchange practice for Swedish companies whose shares are traded on a regulated market to apply the Code. SKF applies the Code and this Corporate Governance Report has been prepared in accordance with the Code as well as the Swedish Annual Accounts Act. Furthermore, SKF has provided information on the company’s web- site in line with the Code requirements. The Annual General Meeting in 2024 was also held in accordance with the Code rules. The auditor of the company has read and performed a statutory examination of the Corporate Governance Report. General information about how the company is managed The shareholders’ meeting is the company’s highest decision-making body. An Annual General Meeting of shareholders shall be held annually and within six months after the end of the financial year. At the Annual General Meeting the shareholders may exer- cise their voting rights to part take in decision making of the company for example in relation to the compo- sition of the Board of Directors, the adoption of prin- ciples of remuneration for Group Management and the election of external auditors. SKF has issued A and B shares. An A share entitles the shareholder to one vote and a B share to one-tenth of a vote. In all other aspects, SKF’s class A and B shares have the same rights. The Board of Directors has a responsibility for the company’s organisation and for the oversight of the management of the company’s affairs and is, together with the President and CEO and Group Manage ment defining and continuously monitoring SKF’s purpose, strategy, values and drivers. The Board of Directors also continuously evaluates economic, environmental, social and governance aspects of the SKF Group’s performance. The Chair of the Board of Directors shall direct the work of the Board and monitor that the Board fulfils its obligations. The Board of Directors annually adopts written rules of procedure for its internal work and written instructions. For more details on the rules of procedures and the written instructions, Corporate Center Business Areas Shareholders through shareholders’ meeting Board of Directors President and CEO Group Management Internal audit Audit Committee External auditors Remuneration Committee Nomination Committee 1 22.1 Sustainability and Ethics Committee 2.2 2.3 3 4 5 see below under the heading “Activities of the Board of Directors”. The President of the company, who is also the Chief Executive Officer, is appointed by the Board of Directors and handles the day-to-day management of the company’s business in accordance with the guidelines and instructions from the Board. The approval of the Board of Directors is, for example, required in relation to investments and acquisitions above certain amounts, as well as for the appoint- ment of certain senior managers. The President and CEO is supported by a Group Management team, see pages 158–159 in the Annual Report 2024. SKF is structured in two reporting segments, the Industrial and Automotive businesses. The Auto- motive business is a global organization while the Industrial business is organized in four industrial regions: The Americas (Americas), Europe, Middle East and Africa (EMEA), India and Southeast Asia (ISEA) and China and Northeast Asia (CNEA), and also includes five independent global business units, collectively referred to as Independent and Emerging businesses. All of the above mentioned business areas are respectively accountable for their own operational and financial performance. Further, there is a lean corporate center consisting of six Group staff functions: Group Operations, Group Technology Development, Group Commercial Excellence Bearings, Group Finance, Group Legal & Compliance and Group People Experience & Communication. The manage- ment of SKF’s operations is based on a decentralised operating model for the business areas achieving decision making close to the customer and the goal of serving customers with increased speed and responsiveness, however within a set of account ability frameworks ensuring compliance, risk management and synergies across the SKF Group. The corporate center governs these defined frameworks being fundamental requirements for the management of the SKF Group. Within these frameworks, defined processes, policies and instructions are in place to manage risk, strategically important matters, and ensure compliance. Furthermore, certain transactions/ arrangements of high value or strategic importance are referred to the relevant decision- making bodies and ultimately the President and CEO and/or the Board of Directors. 151SKF ANNUAL REPORT 2024 THIS IS SKF PRESIDENT’S LETTER STRATEGY AND VALUE CREATION THE BEARING MARKET RISKS AND THE SHARE SUSTAINABILITY REPORT CORPORATE GOVERNANCE REMUNERATION REPORT GROUP DATA FINANCIAL STATEMENTS BACK TO START 1 Nomination Committee At the Annual General Meeting of AB SKF it was resolved that the company shall have a Nomination Committee formed by four members appointed by each one of the four largest shareholders with regard to the number of votes held as well as the Chair of the Board of Directors. When constituting the Nomi- nation Committee, the shareholdings per the last banking day in August each year would determine which shareholders are the largest with regard to the number of votes held. The names of the four mem- bers were to be published as soon as they had been elected, however, not later than six months before the next Annual General Meeting. The Nomination Com- mittee shall remain in office until a new Nomination Committee has been appointed. In a press release on 11 September 2024, it was announced that a Nomination Committee consisting of the following members, together with the Chair of the Board of Directors, had been appointed in prepa- ration of the Annual General Meeting 2025: • Marcus Wallenberg, FAM • Philip Ahlgren, Cevian Capital • Anders Algotsson, AFA Försäkring • Anders Jonsson, Skandia The Nomination Committee is to furnish proposals in the following matters to be presented to, and resolved by, the Annual General Meeting in 2025: • proposal for Chair of the Annual General Meeting • proposal for Board of Directors • proposal for Chair of the Board of Directors • proposal for remuneration to the Board of Directors • proposal for auditor • proposal for remuneration to the auditor • to the extent deemed necessary, proposal for new instructions for the Nomination Committee. The proposals of the Nomination Committee were published in a press release dated 22 January 2025 and in connection with the notice to the Annual General Meeting 2025. Board members elected by the Annual General Meeting Independence in relation to the company/senior management Independence in relation to the major shareholders 1) of the company Executive director Female Board members Hans Stråberg (Chair) Håkan Buskhe (Vice Chair) Hock Goh Geert Follens Susanna Schneeberger Rickard Gustafson Beth Ferreira Therese Friberg Richard Nilsson Niko Pakalén Total 9/10 (90%) 8/10 (80%) 1/10 (10%) 3/10 (30%) 1) Major shareholders are, according to the Code, defined as those controlling ten per cent or more of the shares or votes in the company. 2 The Board of Directors Composition and remuneration of the Board The Board of Directors shall, in addition to specially appointed members and deputies, according to the Articles of Association of SKF, comprise a minimum of five and a maximum of twelve Board members, with a maximum of five deputies. The Board mem- bers are elected each year at the Annual General Meeting for the period up to the end of the next Annual General Meeting. The Nomination Committee proposes decisions to the Annual General Meeting regarding electoral and remuneration issues, including proposals for the composition and remuneration of the Board of Direc- tors. As reflected in the Nomination Committee’s statement regarding the composition of the proposed Board of Directors and the proposed remuneration presented to the Annual General Meeting 2024, the Nomination Committee has applied the provisions in the Code as diversity policy. The objectives of the diversity policy is for the Board of Directors to have a composition appropriate to the company’s opera- tions, phase of development and other relevant circumstances; that the Board members elected by the shareholders’ meeting collectively are to exhibit diversity in terms of for example gender, nationality, age and industrial experience and breadth of qualifi- cations, experience and background; and that the company is to strive for gender balance on the Board. In front of the Annual General Meeting 2024 the Board members in office were all proposed to be re-elected as they, according to the Nomination Committee, are assessed to possess expertise in key areas for SKF such as financial management, digital transformation, sustainability and technological inno- vation. The Annual General Meeting 2024 resolved to appoint Board members in accordance with the Nomination Committee’s proposal. Ten Board members, including the Chair, were elected at AB SKF’s Annual General Meeting held in the spring of 2024. In addition, the SKF labor unions have appointed two Board members and two deputy Board members. No Board member, except for the President and CEO, is included in the management of the company. Information on the composition and remuneration of the Board members decided upon by the Annual General Meeting 2024 can be found in the Annual Report 2024, Consolidated Financial Statements, Note 23. Independence requirements The Nomination Committee has a responsibility to take independence into consideration in its proposal for Board of Directors. The Board of Directors has been considered to comply with the requirements of the Code regarding independence. The table below shows the Board members’ in - dependence according to the requirements of the Code in relation to the company and major shareholders 1) . Activities of the Board of Directors The Board of Directors held ten meetings in 2024. The Board members were present at the Board meet- ings as described in the table on the next page. The Board of Directors adopts written rules of procedure annually for its internal work. These rules prescribe i.a.: • the number of Board meetings and when they are to be held, • the items normally included in the Board agenda, and • the presentation to the Board of reports from the external auditors. The Board of Directors has also issued written instructions on: • when and how information required for the Board’s assessment of the company’s and the Group’s financial position shall be collected and reported to the Board, and • the allocation of the tasks between the Board and the President and CEO. 152SKF ANNUAL REPORT 2024 THIS IS SKF PRESIDENT’S LETTER STRATEGY AND VALUE CREATION THE BEARING MARKET RISKS AND THE SHARE SUSTAINABILITY REPORT CORPORATE GOVERNANCE REMUNERATION REPORT GROUP DATA FINANCIAL STATEMENTS BACK TO START Issues dealt with by the Board of Directors in 2024 include i.a. strategy execution, market outlook and the geopolitical situation, cash flow and investment analysis, financial and sustainability reporting, capital structure, acquisitions and divestments of com- panies, the continued implementation of the decen- tralized operating model, in cluding material organiza- tional changes of the Group and management issues including the decision to initiate a separation of the automotive business with the intention to list the company on Nasdaq Stockholm. The Board of Directors continuously evaluates economic, environmental, social and governance aspects for the Group’s performance and reviews specific issues such as accident rates, greenhouse gas emissions and Code of Conduct adherence. Each new Board member has to go through a gen- eral introduction training about the SKF Group. The Board of Directors visits on a regular basis different SKF sites in order to enhance knowledge about the SKF Group. Board Committee work Certain topics of strategic importance for the com- pany have, through the Boards written rules of proce- dure and Board Charters, been assigned to the Board Committees to prepare and give recommendations on to the wider Board of Directors before any deci- sions are made, for example matters relating to remu- neration to the President and CEO, principles of remuneration for Group Management, sustainability strategy and management of material sustainability impacts, risks and opportunities, as well as financial and sustainability reporting and ethics and compli- ance. The President and CEO is supported by the Group Management team and subject matter experts in preparation of materials and reports to the Board in specific topics. 2.1 Remuneration Committee The Board of Directors of AB SKF has in accordance with the principles in the Code estab- lished a Remuneration Committee consisting of the Chair of the Board, Hans Stråberg as Chair, Vice Chair of the Board Håkan Buskhe and the board members Susanna Schneeberger and Niko Pakalén. The Remuneration Committee prepares matters related to the principles of remuneration for Group Management and employment conditions for the President and CEO as well as supporting the succes- sion planning for Group Management. The principles of remuneration for Group Management shall be sub- mitted to the Board of Directors, which shall submit a proposal for such remuneration principles to the Annual General Meeting for approval at least every fourth year. The employment conditions for the Presi- dent shall be approved by the Board of Directors. Presence during Board and Committee meetings Name of the board member Presence Board meetings/ Total number of meetings 1) Presence Audit Committee meetings/ Total number of meetings 1) Presence Remuneration Committee meetings/ Total number of meetings 1) Presence Sustainability and Ethics Committee meetings/ Total number of meetings 1) Hans Stråberg (Chair) 10/10 7/7 (Chair) 5/5 — Håkan Buskhe (Vice Chair) 10/10 7/7 5/5 (Chair) 3/3 Hock Goh 10/10 — — 3/3 Geert Follens 10/10 7/7 — 3/3 Susanna Schneeberger 10/10 — 5/5 — Rickard Gustafson 10/10 — — — Beth Ferreira 10/10 — — 2/2 Therese Friberg 10/10 7/7 — — Richard Nilsson 10/10 (Chair) 7/7 — — Niko Pakalén 10/10 — 5/5 3/3 Jonny Hilbert (employee representative) 10/10 — — — Zarko Djurovic (employee representative) 9/10 — — — Total presence by board members in percentage 99.2% 100% 100% 100% Thomas Eliasson (deputy employee representative) 10/10 — — — Steve Norrman (deputy employee representative) 6/10 — — — 1) Total number of meetings is dispalyed for each board member, based on the number of board meetings held during the time they were each elected during the year. The Remuneration Committee continuously moni- tors and evaluates the SKF Group’s remuneration package for Group Management. No later than three weeks prior to the Annual General Meeting the Board of Directors submits on the company’s web site, in accordance with the Swedish Companies Act and the principles in the Code, a remunera tion report attached hereto on pages 168–174. The Remuneration Committee held five meetings in 2024. The members of the committee were present at the meetings as shown in the table below. 2.2 Sustainability and Ethics Committee The Board of Directors of AB SKF has estab- lished a Sustainability and Ethics Committee. The Sustainability and Ethics Committee consists of the Vice Chair of the Board, Håkan Buskhe, as Chair and the board members Hock Goh, Geert Follens, Beth Ferreira and Niko Pakalén. The Sustainability and Ethics Com mittee oversees SKF’s strategy related to sustain ability and ethics. The work also includes to review, monitor and keep informed on the strategic objectives, initiatives, and the implementation thereof for a sustain able development, mitigation and action on impacts, risks and opportunities of SKF and monitoring of progress against externally communicated sustainability targets related to among other things climate, environment and safety. Based on SKF Care, the committee also handles items relating to SKF’s values, employee organization including talent acquisition, development, retention and planning, business and work ethics, compliance, community care, environment, health and safety. The Sustainability and Ethics Committee held three meetings in 2024. More on SKFs Sustainability and Ethics Committee’s role in SKF’s sustainability governance is found in the Sustainability Report on page 84. The members of the committee were present at the meetings as shown in the table below. 153SKF ANNUAL REPORT 2024 THIS IS SKF PRESIDENT’S LETTER STRATEGY AND VALUE CREATION THE BEARING MARKET RISKS AND THE SHARE SUSTAINABILITY REPORT CORPORATE GOVERNANCE REMUNERATION REPORT GROUP DATA FINANCIAL STATEMENTS BACK TO START 2.3 Audit Committee The Board of Directors of AB SKF has in accordance with the principles of the Swedish Com- panies Act and the Code appointed an Audit Commit- tee. The Audit Committee consists of the board mem- ber Richard Nilsson, as Chair, the Chair of the Board, Hans Stråberg, the Vice Chair of the Board, Håkan Buskhe, and the Board members Geert Follens and Therese Friberg. The Audit Committee oversees and ensures the quality and reliability of the accounting and financial and sustainability reporting processes and reports, monitors the effectiveness of the Group’s internal control over financial and sustainability reporting, audit and risk management processes and the ade- quacy of the Group’s controls for compliance with laws and regulations. The Audit Committee also reviews and monitors the work of external auditors as well as makes prepa rations in relation to the nomi- nation of external auditors. The Audit Committee held seven meetings in 2024. The members of the committee were present at the meetings as shown in the table on the previous page. Assessment The members of the Board of Directors assess the representation of relevant competences amongst the members of the Board as well as the quality of the work of the Board through the completion of a question naire and following interviews. The result is then discussed at a Board meeting. The Nomina- tion Committee has been provided with the result of the assessment. 3 President and Chief Executive Officer The Board of Directors has delegated the day-to-day management of AB SKF (publ) and the SKF Group’s operations to the President and CEO, including an authorization to make decisions and govern issues that are not exclusively under the authority of the Board. It is the President and CEO’s responsibility to implement and ensure that the SKF strategy, purpose, long term financial targets and operational objectives determined by the Board of Directors are carried out and that effective govern- ance and control is maintained. The President and CEO is also responsible for preparing materials to the Board of Directors in front of the Board meetings and keeping the Board informed on SKF’s financial position, development, risks and opportunities. The President and CEO’s role, areas of responsibility and authorizations are described in more detail in the CEO instruction each year adopted by the Board of Directors. More information on SKF’s President and CEO is found on page 158 in the Annual Report. 4 The auditor of the company The task of the auditor is to audit, on behalf of the shareholders, the Annual Report including SKF’s financial and sustainability reporting and reporting processes and also to audit the Board of Directors’ and the President and CEO’s management of the company. The SKF Articles of Association states that the auditor shall be elected for a period of four years. AB SKF’s Annual General Meeting 2021, elected Deloitte AB (Deloitte) as auditor for the time up to the closing of the Annual General Meeting in 2025. Hans Warén is the auditor in charge. Hans Warén has many years of experience as auditor in a number of other listed companies, and is currently the lead auditor for Industri värden, Mölnlycke Healthcare, and Atrium Ljungberg. The auditor shall according to a resolution of the Annual General Meeting be remunerated in accord- ance with approved invoice. SKF has a procedure in place whereby all matters that are intended to be handled by the elected auditors are evaluated in relation to the independence requirements and are approved or, as the case may be, rejected, by the Audit Committee. Deloitte applies a similar procedure and issues annually, in addition thereto, a written statement to the Audit Committee stating that the audit firm is independent in relation to SKF. Deloitte has during 2024 been involved in matters besides the audit assignment. These matters have primarily concerned tax and sustainability services. The total fees for Deloitte’s services besides auditing in 2024 amount to MSEK 3. Financial and sustainability reporting The Board of Directors is responsible for document- ing how the quality of the financial and sustainability reporting is secured and how the company communi- cates with its auditor. The Audit Committee assists the Board of Directors by preparatory work to secure the quality of the com- pany’s financial and sustainability reporting. This is, for example, achieved through the Audit Committee’s review of the financial and sustainability information and the company’s internal financial controls. The Board of Directors had two meetings with the auditors in 2024 and has been provided with the audit and its result. Within the scope of its work, which includes reviewing the extent of the external audit and evaluating the performance of the external auditors, the Audit Committee met with the auditors in connection with six Audit Committee meetings. In addition to that, the auditors gave both the Audit Committee and the Board of Directors information in writing regarding matters including the planning and implementation of the audit and an assessment of the risk position of the company. 154SKF ANNUAL REPORT 2024 THIS IS SKF PRESIDENT’S LETTER STRATEGY AND VALUE CREATION THE BEARING MARKET RISKS AND THE SHARE SUSTAINABILITY REPORT CORPORATE GOVERNANCE REMUNERATION REPORT GROUP DATA FINANCIAL STATEMENTS BACK TO START The Board of Directors Hans Stråberg Chair, Board member since 2018 Born 1957 Education Master of Science in Engineering from Chalmers University of Technology, Gothen burg. Job experience President and CEO of Electrolux AB 2002–2010. Several leading positions within the Electrolux Group in Sweden and USA since 1983. Former EU Co-Chair TABD, Trans- Atlantic Business Dialogue. Other assignments Chair of Atlas Copco AB, Roxtec AB, and Anocca AB. Board member of Investor AB and Member of the Royal Swedish Academy of Engineering Sciences. Shareholding (own and/or held by related parties 1) ) 73,000 SKF B Håkan Buskhe Vice Chair, Board member since 2020 Born 1963 Education Master of Science, Licentiate of Engineering, Chalmers University of Technology, Gothen- burg. Job experience CEO of FAM AB, owned by Wallenberg Investments AB. Previous senior positions include CEO of Saab AB, 2010–2019, and CEO of E.ON Nordic AB, 2008–2010. Other assignments Chair of IPCO AB, Vice Chair of Stora Enso Oyj, board member of FAM AB, Kopparfors Skogar AB, The Grand Group, Navigare Ventures AB, Qarlbo Energy AB, Swedish Defense University and Industrikraft AB. Shareholding (own and/or held by related parties 1) ) 5,000 SKF B Hock Goh Board member since 2014 Born 1955 Education Bachelor’s Degree (honours) in Mechanical Engineering from Monash University, Australia, completed the Advanced Management Program at INSEAD. Job experience Operating Partner of Baird Capital Partners Asia, 2005–2012. Several senior management positions in Schlumberger Limited, 1995–2005, President of Network and Infra structure Solu- tions division in London, President Asia and Vice President and General Manager China. Shareholding (own and/or held by related parties 1) ) 0 SKF B Geert Follens Board member since 2019 Born 1959 Education Master of Science in Electromechanical Engineering and a post-graduate degree in Business Economics from the university of Leuven, Belgium. Job experience Senior Executive Vice President and Business Area President Vacuum Technique at Atlas Copco AB. Several leading positions within the Atlas Copco Group in Sweden, Belgium and the U.K. since 1995, including General Manager of Atlas Copco Compressor Technique customer center, President of the Portable Energy division and President of the Industrial Air division. Other assignments Board member of AB Electrolux. Shareholding (own and/or held by related parties 1) ) 1,500 SKF B Susanna Schneeberger Board member since 2020 Born 1973 Education Master of European Affairs (MBA) and Master of Science in International Business, Lund University. Job experience Senior advisor and several leading positions including Chief Digital Officer and executive board member of the KION Group, 2018–2020, CEO of Demag Cranes & Components, 2015– 2018, and various senior positions in the Trelle- borg Group 2007–2014. Other assignments Chair of Yunex GmbH. Board member of Modulaire Group and Sandvik AB. Shareholding (own and/or held by related parties 1) ) 1,000 SKF B 1) SKF has chosen to apply the following definition of “related parties” when calculating the shareholdings: close relatives and legal entities set up for the benefit of the board member or his/hers close relatives. Other assignments and shareholdings shows assignments and shareholdings per 31 December 2024. 155SKF ANNUAL REPORT 2024 THIS IS SKF PRESIDENT’S LETTER STRATEGY AND VALUE CREATION THE BEARING MARKET RISKS AND THE SHARE SUSTAINABILITY REPORT CORPORATE GOVERNANCE REMUNERATION REPORT GROUP DATA FINANCIAL STATEMENTS BACK TO START Rickard Gustafson President and Chief Executive Officer Board member since 2021 Born 1964 Education Master of Science from the Institute of Tech nology at Linköping University. Job experience Previous senior positions include President and CEO of the SAS Group 2011–2021, CEO of the insurance company Codan/Trygg-Hansa and several positions within General Electric. Other assignments Board member of Telia Company and Confederation of Swedish Enterprise. Shareholding (own and/or held by related parties 1) ) 22,500 SKF B Beth Ferreira Board member since 2023 Born 1973 Education Bachelor of Science in International Studies, Emory University, Atlanta. Job experience Chief Executive Officer, Life Technology and formerly Divisional Managing Director at IMI plc 2020–present. Previous senior positions include multiple Group President roles at Illinois Tool Works (ITW) 2014–2020, multiple President roles in Belden 2008–2014, and various marketing and commercial roles in Ingersoll Rand 1997–2008. Shareholding (own and/or held by related parties 1) ) 2,500 SKF B Therese Friberg Board member since 2023 Born 1975 Education Bachelor’s Degree in Business Administration, Stockholm University. Job experience Group CFO and Executive Vice President of Electrolux. Several leading positions within the Electrolux Group since 1999, including CFO, Major Appliances EMEA, Head of Group Business Control and Sector Controller Home Care & SDA. Shareholding (own and/or held by related parties 1) ) 0 SKF B Richard Nilsson Board member since 2023 Born 1970 Education Bachelor of Science in Business Administration and Economics, Lund University. Job experience Investment Director at FAM AB. Employed by FAM since 2008. Previous positions include equity research analyst at SEB Enskilda, 2000–2008, Alfred Berg 1995–2000 and Handelsbanken 1994–1995. Other assignments Board member of Stora Enso Oyj, IPCO Holding AB and group companies, GROPYUS AG, Cinder Invest AB and TBox Sweden AB. Shareholding (own and/or held by related parties 1) ) 12,000 SKF B Niko Pakalén Board member since 2023 Born 1986 Education Master of Science in Economy and Business Administration, Helsinki School of Economics (today Aalto University). Job experience Partner at Cevian Capital since 2017. Several manage ment positions within Cevian Capital 2011–2016 and associate at Danske Bank Corporate Finance 2009–2011. Other assignments Chair of Human Practice Foundation Sweden. Member of the Board of Metso Corporation. Shareholding (own and/or held by related parties 1) ) 0 SKF B 1) SKF has chosen to apply the following definition of “related parties” when calculating the shareholdings: close relatives and legal entities set up for the benefit of the board member or his/hers close relatives. 156SKF ANNUAL REPORT 2024 THIS IS SKF PRESIDENT’S LETTER STRATEGY AND VALUE CREATION THE BEARING MARKET RISKS AND THE SHARE SUSTAINABILITY REPORT CORPORATE GOVERNANCE REMUNERATION REPORT GROUP DATA FINANCIAL STATEMENTS BACK TO START Jonny Hilbert Board member since 2015 Born 1981 Education and job experience Employed in the SKF Group since 2005. Other assignments Chair of Unionen, SKF, Gothenburg. Shareholding (own and/or held by related parties 1) ) 0 SKF B Zarko Djurovic Board member since 2015 Born 1977 Education and job experience Employed in the SKF Group since 2006. Other assignments Chair of Metalworker’s Union, SKF, Gothenburg. Shareholding (own and/or held by related parties 1) ) 0 SKF B Thomas Eliasson Deputy Board member since 2021 Born 1965 Education and job experience Employed in the SKF Group since 1984. Other assignments Chief Safety Representative and Board member of Unionen at SKF in Gothenburg. Shareholding (own and/or held by related parties 1) ) 0 SKF B Steve Norrman Deputy Board member since 2021 Born 1965 Education and job experience Employed in the SKF Group since 1994. Other assignments Vice Chair and Safety Officer of Metalworker’s Union, SKF, Gothenburg. Shareholding (own and/or held by related parties 1) ) 0 SKF B Employee representatives 1) SKF has chosen to apply the following definition of “related parties” when calculating the shareholdings: close relatives and legal entities set up for the benefit of the board member or his/hers close relatives. 157SKF ANNUAL REPORT 2024 THIS IS SKF PRESIDENT’S LETTER STRATEGY AND VALUE CREATION THE BEARING MARKET RISKS AND THE SHARE SUSTAINABILITY REPORT CORPORATE GOVERNANCE REMUNERATION REPORT GROUP DATA FINANCIAL STATEMENTS BACK TO START Group Management Rickard Gustafson President and CEO Employed since 2021 Born 1964 Education Master of Science from the Institute of Technology at Linköping University. Job experience President and CEO of the SAS Group, CEO of the insurance company Codan/Trygg-Hansa and several positions within General Electric. Other assignments Board member of Telia Company and The Con federation of Swedish Enterprise. Shareholding 22,500 SKF B Manish Bhatnagar President, Industrial Region Americas Employed since 2018 Born 1969 Education Master of Business Administra- tion from Indian Institute of Management Calcutta, and B.E. in Electronics Engineering from Birla Institute of Technology & Science, Pilani, India. Job experience President, Industrial Region India and Southeast Asia and senior roles at General Electric and Danaher. Other assignments Board member of SKF India Ltd. Shareholding 4,852 SKF B David Johansson President, Industrial Region Europe Middle East and Africa Employed since 2005 Born 1980 Education Master of Science; Industrial Marketing, Electrical Engineering at Chalmers University of Tech nology, Gothenburg. Job experience President Automotive, Director, Global Railway and China Mobility business, Director, China Auto- motive, Aerospace and Railway business and several other positions within SKF. Shareholding 4,262 SKF B Henry Wang President, Industrial Region China and Northeast Asia Employed since 2022 and 1997–2019 Born 1968 Education Master of Business Administra- tion from the University of Calgary and a Bachelor of Engineering from Shanghai Jiaotong University. Job experience 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 Mukund Vasudevan President, Industrial Region India and Southeast Asia Employed since April 2024 Born 1969 Education Master of Business from Univer- sity of Chicago, Booth School of Business; Bachelor of Technology from Indian Institute of Tech- nology, Mumbai. Job experience Managing Director Moglix (eCommerce startup), Managing Director Ecolab-South Asia, Vice President Pentair-India, Engagement Manager McKinsey & Company. Shareholding 0 SKF B Kerstin Enochsson President, Automotive Employed since 2023 Born 1975 Education Master’s Degree in Law from Freie Universität, Berlin and MBA from ESCP-EAP European School of Management, Paris. Job experience Head of Procurement and Supply Chain, Vice President Corporate Strategy & Project Office, both at Volvo Car Group. Global Director Parts at Volvo Construction Equipment and several other senior positions. Other assignments Board member of SSAB. Shareholding 0 SKF B Thomas Fröst President, Independent and Emerging Business Employed since 1988 Born 1962 Education Master of Science in Industrial Economics from Chalmers University of Technology, Gothenburg. Job experience President, Industrial Technolo- gies, Director Industrial Units, Head of Industrial Marketing, and several other positions within SKF. Shareholding 9,892 SKF B Other assignments and shareholdings shows assignments and shareholdings per 31 December 2024. 158SKF ANNUAL REPORT 2024 THIS IS SKF PRESIDENT’S LETTER STRATEGY AND VALUE CREATION THE BEARING MARKET RISKS AND THE SHARE SUSTAINABILITY REPORT CORPORATE GOVERNANCE REMUNERATION REPORT GROUP DATA FINANCIAL STATEMENTS BACK TO START Joakim Landholm Senior Vice President, Group Operations and Chief Sustainability Officer Employed since 2022 Born 1969 Education Master of Science from Stockholm School of Economics. Job experience CEO Hector Rail, Chief Commer- cial Officer SAS and senior positions at Codan/Trygg-Hansa and GE Capital. Other assignments Board member of Sdiptech AB. Shareholding 4,090 SKF B Annika Ölme Chief Technology Officer and Senior Vice President, Technology Development Employed since 2022 and 2002–2017 Born 1973 Education Master of Science in Electrical Engineering from Chalmers University of Technology and a Master of Business Administra- tion from Waikato University. Job experience CTO and Head of Engineering at SAAB Radar Solutions, Managing Director of Arcam, a subsidiary of General Electric and various positions within SKF. Shareholding 45 SKF B Hans Landin Senior Vice President, Group Commercial Excellence Bearings Employed since 2023 Born 1972 Education Master of Science in Mechanical Engineering at Chalmers Univer- sity of Technology, Gothenburg. Job experience Group Vice President and Officer and several other senior posi- tions at the Timken Company. Other assignments Board member of Beijer Alma AB. Shareholding 600 SKF B Niclas Rosenlew Chief Financial Officer and Senior Vice President, Group Finance Employed since 2019 Born 1972 Education Master of Science in Finance, Hanken, Swedish School of Economics. Job experience Senior positions within Basware, Microsoft, Nokia and Deutsche Bank. Shareholding 18,297 SKF B Mathias Lyon General Counsel and Senior Vice President, Group Legal and Compliance Employed since 2012 Born 1975 Education Master of Laws, Faculty of Law at Lund University. Job experience SKF Deputy General Counsel and several other positions at Volvo, AstraZeneca, Mannheimer Swartling and Rosengrens. Shareholding 8,205 SKF B Ann-Sofie Zaks Senior Vice President, Group People Experience and Communication Employed since 2001 Born 1976 Education Bachelor’s Degree, Innovation Program with special focus on Behavioural Science from University college of Mälardalen. Job experience People Experience Director Bearing Operations, Program manager, Group People Trans- formation initiative and several other positions within SKF. Other assignments Board member of International Council of Swedish Industry (NIR). Shareholding 12,004 SKF B Changes in Group Management in 2024 In February, John Schmidt, President, Industrial Region Americas, stepped down from his role in Group Management. In July, SKF announced that Niclas Rosenlew, Chief Financial Officer and Senior Vice President, had decided to leave the com- pany and step down from his role in Group Manage- ment in December 2024. Changes in Group Management in 2025 In September, SKF announced the appoint- ment of Susanne Larsson as new Chief Financial Officer and Senior Vice President. Susanne joined SKF in February 2025. Read about her previous experience at skf.com 159SKF ANNUAL REPORT 2024 THIS IS SKF PRESIDENT’S LETTER STRATEGY AND VALUE CREATION THE BEARING MARKET RISKS AND THE SHARE SUSTAINABILITY REPORT CORPORATE GOVERNANCE REMUNERATION REPORT GROUP DATA FINANCIAL STATEMENTS BACK TO START 5 Internal control and risk management regarding financial reporting SKF uses the established framework developed by the Committee of Spon soring Organizations of the Treadway Commission (COSO) as a foundation. SKF has implemented these requirements as a Group standard, SKF Internal Control Standard (SICS) for all Group Companies. Through its policies, instructions and organizational structure, SKF has documented the division of responsibility throughout the SKF organization. This is reflected in the fact that policies and instructions, where applicable, are developed on the basis of internationally accepted standards and/or best practice. Policies and instructions are reassessed by the responsible central function based on the need to adapt these to changes in require- ments and legislation. SKF is a process-oriented company and includes integrated risk assessment with the business pro- cesses such as business planning. In the area of control activities, SKF has documented all the critical finance processes and controls for the parent company and subsidiary companies. The documen- tation standards require that relevant controls in the business processes are described and performed. When deficiencies in individual controls are identi- fied, action plans are created to remediate control gaps. A selection of defined control activities are tested annually. SKF has a risk approach to controls, control testing and actions to remediate control gaps. During 2024 self-assessments and control test activ- ities have been performed in finance processes cross the regions including also smaller entities that are not covered by external auditors. SKF has information and communication systems and procedures in place in order to ensure the com- pleteness and correctness of the financial reporting. Accounting and reporting instructions are updated when necessary. These instructions are available to all relevant employees together with training material. Changes to accounting and reporting instructions are communicated regularly. Detailed financial process and control documentation are stored centrally and/ or locally. This enables access to individual control documentation and analysis of results from the test- ing of SKF’s financial internal control system. SKF has an internal control function, with the main responsibility to support the business to implement and maintain good internal control as well as to perform control testing to evaluate adherence with the framework and identify control weaknesses. The internal audit department conducts high level risk-based process audits within prioritized areas. The internal audit and internal control functions report to the Global Finance Sustainability & Opera- tions Director who regularly submits reports to the Audit Committee of the Board of Directors. The Board of Directors receives regular financial reports and the Group’s financial position and development are dis cussed at every Board meeting. The Audit Com- mittee of the Board of Directors reviews all interim and annual financial and sustainability reports before they are released to the public. Gothenburg, 7 March 2025 The Board of Directors © 2013 Internal Control- Integrated Frame- work Committee of Sponsoring Organizations of the Treadway Commission (COSO). All rights reserved. Used with permission. Operations Control Environment Risk Assessment Control Activities Information & Communications Monitoring activities Entity Level Division Operating Unit Function Reporting Compliance 160SKF ANNUAL REPORT 2024 THIS IS SKF PRESIDENT’S LETTER STRATEGY AND VALUE CREATION THE BEARING MARKET RISKS AND THE SHARE SUSTAINABILITY REPORT CORPORATE GOVERNANCE REMUNERATION REPORT GROUP DATA FINANCIAL STATEMENTS BACK TO START Auditor’s report on the Corporate Governance Statement To the general meeting of the shareholders in AB SKF (publ), corporate identity number 556007-3495 Engagement and responsibility It is the Board of Directors who is responsible for the corporate governance statement for the financial year 2024-01-01–2024-12-31 on pages 150–160 and that it has been prepared in accordance with the Annual Accounts Act. The scope of the audit Our examination has been conducted in accordance with FAR’s standard RevU 16 The auditor’s examina- tion of the corporate governance statement. This means that our examination of the corporate govern- ance statement is different and substantially less in scope than an audit conducted in accordance with International Standards on Auditing and generally accepted auditing standards in Sweden. We believe that the examination has provided us with sufficient basis for our opinions. Opinions A corporate governance statement has been pre- pared. Disclosures in accordance with chapter 6 sec- tion 6 the second paragraph points 2–6 the Annual Accounts Act and chapter 7 section 31 the second paragraph the same law are consistent with the annual accounts and the consolidated accounts and are in accordance with the Annual Accounts Act. Gothenburg, 7 March, 2025 Deloitte AB Hans Warén Authorised Public Accountant 161SKF ANNUAL REPORT 2024 THIS IS SKF PRESIDENT’S LETTER STRATEGY AND VALUE CREATION THE BEARING MARKET RISKS AND THE SHARE SUSTAINABILITY REPORT CORPORATE GOVERNANCE REMUNERATION REPORT GROUP DATA FINANCIAL STATEMENTS BACK TO START Seven-year review MSEK unless otherwise stated 2024 2023 2022 2021 2020 2019 2018 Income statements Net sales 98,722 103,881 96,993 81,732 74,852 86,013 85,713 Operating income/expenses incl. associated comp. –88,383 –92,797 –88,401 –70,974 –67,783 –76,618 –74,664 Operating profit 10,339 11,084 8,532 10,758 7,069 9,395 11,049 Financial income and expense, net –1,250 –1,903 –1,239 –695 –769 –926 –861 Profit before taxes 9,089 9,181 7,293 10,063 6,300 8,469 10,188 Taxes –2,202 –2,404 –2,438 –2,484 –1,826 –2,677 –2,603 Net profit 6,887 6,777 4,855 7,579 4,474 5,792 7,585 Balance sheets Intangible assets 17,245 17,007 18,193 16,942 16,242 18,397 17,722 Deferred tax assets 3,369 3,107 3,173 3,839 4,800 4,437 3,563 Property, plant and equipment 30,470 26,820 24,897 20,723 18,161 18,420 16,688 Right of use assets 3,564 2,961 3,084 2,661 2,517 2,991 — Non-current financial and other assets 2,971 2,091 1,781 1,674 1,939 2,019 1,964 Inventories 26,182 23,194 26,052 20,997 15,733 18,051 17,826 Trade receivables 16,600 16,811 16,905 13,972 12,286 14,006 13,842 Other current assets 19,012 19,912 16,838 18,820 18,879 15,787 15,568 Total assets 119,413 111,903 110,923 99,628 90,557 94,108 87,173 Equity 61,969 54,956 54,043 45,365 35,712 37,366 35,452 Provisions for post-employment benefits 8,502 8,797 8,748 11,781 15,170 15,366 12,894 Deferred tax provisions 1,905 1,220 1,365 1,040 792 960 1,118 Other provisions 2,582 2,584 2,305 2,517 3,482 2,474 2,541 Financial liabilities 20,760 21,954 22,135 19,336 18,349 19,017 17,157 Trade payables 12,553 11,236 11,594 9,881 8,459 8,266 7,831 Other liabilities 11,142 11,156 10,733 9,709 8,593 10,659 10,180 Total equity and liabilities 119,413 111,903 110,923 99,628 90,557 94,108 87,173 MSEK unless otherwise stated 2024 2023 2022 2021 2020 2019 2018 Key figures 1) Operating margin, % 10.5 10.7 8.8 13.2 9.4 10.9 12.9 EBITA 10,971 11,741 9,173 11,340 7,681 10,008 11,541 EBITDA 14,771 15,381 12,316 14,064 10,470 12,892 13,522 Return on capital employed, % 12.1 13.3 10.6 14.8 9.8 13.2 17.6 Return on equity, % 11.7 12.0 9.5 18.8 12.1 15.7 22.8 Net working capital, % of sales 30.6 27.7 32.4 30.7 26.1 27.7 27.8 Net debt/equity, % 26.6 29.5 35.2 38.3 51.7 59.3 49.1 Net debt/EBITDA 1.1 1.1 1.5 1.2 1.8 1.7 1.3 Turnover of total assets, times 0.85 0.90 0.90 0.85 0.79 0.90 1.00 Gearing, % 30.9 35.2 35.6 40.5 48.0 47.1 45.0 Equity/assets, % 51.9 49.1 48.7 45.5 39.4 39.7 40.7 Net cash flow after investments before financing 5,190 7,916 295 2,100 5,259 4,953 8,326 Investments and employees Additions to property, plant and equipment 5,078 5,749 5,030 3,822 3,332 3,461 2,647 Research and development expenses 3,326 3,303 3,177 2,751 2,515 2,691 2,591 Patents – number of first filings 261 245 240 241 200 201 202 Average number of employees 37,731 39,672 40,773 40,861 38,385 41,559 42,565 Number of employees registered at 31 December 38,743 40,396 42,641 42,602 40,963 43,360 44,428 1) See page 164 for definitions. 162SKF ANNUAL REPORT 2024 THIS IS SKF PRESIDENT’S LETTER STRATEGY AND VALUE CREATION THE BEARING MARKET RISKS AND THE SHARE SUSTAINABILITY REPORT CORPORATE GOVERNANCE REMUNERATION REPORT GROUP DATA FINANCIAL STATEMENTS BAC K TO START Three-year review MSEK unless otherwise stated 2024 2023 1) 2022 1) Industrial Net sales 69,475 73,393 69,354 Operating profit 9,285 9,735 7,838 Operating margin, % 13.4 13.3 11.3 Assets and liabilities, net 54,662 50,420 50,387 Registered number of employees 32,465 34,017 35,965 Automotive Net sales 29,247 30,488 27,579 Operating profit 1,054 1,349 694 Operating margin, % 3.6 4.4 2.5 Assets and liabilities, net 16,151 14,611 15,255 Registered number of employees 3,879 4,089 4,049 1) Previously published figures have been restated to conform to the current Group structure. For more information refer to Note 2 in the consolidated financial statements. SEK per share unless otherwise stated 2024 2023 2022 2021 2020 2019 2018 Earnings per share 14.22 14.04 9.81 16.10 9.44 12.20 16.0 Dividend per A and B share 7.75 1) 7.50 7.00 7.00 6.50 3.00 6.00 Total dividends, MSEK 3,529 2) 3,415 3,188 3,188 2,960 1,366 2,732 Purchase price of B shares at year-end on NASDAQ Stockholm 207.6 201.3 159.2 214.5 213.4 189.4 134.5 Equity per share 131 116 114 96 75 78 74 Yield (B), % 3.7 2) 3.7 4.4 3.3 3.0 1.6 4.5 P/E ratio, B (share price/earnings per share) 14.6 14.3 16.2 13.3 22.6 15.5 8.4 Cash flow from operations, per share 23.7 30.3 12.4 11.5 18.2 20.7 18.3 Cash flow after investments and before financing, per share 11.4 17.4 0.7 4.6 11.6 10.9 18.3 1) See page 164 for definitions. 2) According to the Board’s proposal for the year 2024. Distribution of shareholding Shareholding Number of shareholders % Number of shares % 1–1,000 69,375 88.85 14,423,531 3.17 1,001–10,000 7,885 10.10 21,116,638 4.64 10,001– 822 1.05 365,384,064 80.25 Anonymous ownership — — 54,426,835 11.95 78,082 100 455,351,068 100 Source: Modular Finance as of 31 December 2024. Per-share data 1) 163SKF ANNUAL REPORT 2024 THIS IS SKF PRESIDENT’S LETTER STRATEGY AND VALUE CREATION THE BEARING MARKET RISKS AND THE SHARE SUSTAINABILITY REPORT CORPORATE GOVERNANCE REMUNERATION REPORT GROUP DATA FINANCIAL STATEMENTS BAC K TO START SKF has applied the guidelines issued by ESMA (European Securities and Markets Authority) on APMs (Alter native Performance Measures). These key figures are not defined or specified in IFRS but provides complementary informa- tion to investors and other stakeholders on the com pany’s performance. These measures are used internally by man- agement, as a complement to IFRS measures, as basis for business decisions. The alter native 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. Adjusted return on capital employed (Adjusted ROCE) Return on capital employed (ROCE) excluding items affecting comparability. Average number of employees Total number of working hours of registered em ployees, 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 trans action 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. Definitions 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/Adjusted EBITDA Net debt, in relation to twelve months rolling EBITDA. excluding items affecting comparability. Net debt/EBITDA Net debt, in relation to 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 dividend 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. 164SKF ANNUAL REPORT 2024 THIS IS SKF PRESIDENT’S LETTER STRATEGY AND VALUE CREATION THE BEARING MARKET RISKS AND THE SHARE SUSTAINABILITY REPORT CORPORATE GOVERNANCE REMUNERATION REPORT GROUP DATA FINANCIAL STATEMENTS BAC K TO START Alternative performance measures MSEK unless otherwise stated 2024 2023 EBITA and EBITDA Net profit 6,887 6,777 Taxes 2,202 2,404 Financial income and expense, net 1,250 1,903 Operating profit 10,339 11,084 Amortizations of intangible assets 632 657 EBITA 10,971 11,741 Depreciation and impairments of intangible and tangible assets 3,800 3,640 EBITDA 14,771 15,381 Adjusted EBITA and Adjusted EBITDA Net profit 6,887 6,777 Taxes 2,202 2,404 Financial income and expense, net 1,250 1,903 Items affecting comparability 1,844 1,893 Adjusted Operating profit 12,183 12,977 Amortizations of intangible assets 632 657 Adjusted EBITA 12,815 13,634 Depreciation 3,455 3,490 Adjusted EBITDA 16,270 17,124 Adjusted operating profit Operating profit 10,339 11,084 Items affecting comparability 1) 1,844 1,893 Adjusted operating profit 12,183 12,977 Net working capital (NWC) of 12-months rolling sales Total net sales 98,722 103,881 Inventories 26,182 23,194 Trade receivables 16,600 16,811 Trade payables –12,553 –11,236 Net working capital 30,229 28,768 NWC of 12-months rolling sales, % 30.6 27.7 1) For more information, see page 34. MSEK unless otherwise stated 2024 2023 Return on Equity (ROE) (rolling 12-months average) Net profit 6,887 6,777 Equity (rolling 12-months average) 58,852 56,511 ROE (rolling 12-months average), % 11.7 12.0 Capital employed (rolling 12-months average) Total assets 116,558 115,434 Provisions 4,158 3,658 Other non-current liabilities 90 58 Trade payables 11,777 11,877 Other current liabilities 11,612 11,953 Non-interest bearing liabilities 27,636 27,546 Capital employed (rolling 12-months average) 88,922 87,888 Return on capital employed (ROCE) (rolling 12-months average) Operating profit 10,339 11,084 Interest income – external 436 562 Operating profit plus interest income 10,775 11,645 Capital employed (rolling 12-months average) 88,922 87,888 ROCE (rolling 12-months average), % 12.1 13.3 Adjusted return on capital employed (ROCE) (rolling 12-months average) Adjusted operating profit 12,183 12,977 Interest income – external 436 562 Adjusted operating profit plus interest income 12,619 13,539 Capital employed (rolling 12-months average) 88,922 87,888 Adjusted ROCE (rolling 12-months average), % 14.2 15.4 165SKF ANNUAL REPORT 2024 THIS IS SKF PRESIDENT’S LETTER STRATEGY AND VALUE CREATION THE BEARING MARKET RISKS AND THE SHARE SUSTAINABILITY REPORT CORPORATE GOVERNANCE REMUNERATION REPORT GROUP DATA FINANCIAL STATEMENTS BAC K TO START MSEK unless otherwise stated 2024 2023 Debt and Net debt Long term loans – total 12,594 15,325 Current financial liabilities 5,361 4,060 Short term derivative liabilities –627 –260 Post-employment benefits – other 810 780 Post-employment benefits – pension 7,692 8,017 Defined benefit assets –773 –219 Long term lease liabilities 2,714 2,207 Debt 27,771 29,910 Current financial assets –11,361 –14,053 Short term derivative assets 62 334 Net debt 16,472 16,191 Gearing Shareholder's equity 61,969 54,956 Debt 27,771 29,910 Gearing, % 30.9 35.2 Equity/assets ratio Shareholder's equity 61,969 54,956 Total assets 119,413 111,903 Equity/assets ratio, % 51.9 49.1 Net debt/equity Shareholder's equity 61,969 54,956 Net debt 16,472 16,191 Net debt/equity, % 26.6 29.5 Net debt/equity, excl post-employment benefits Shareholder's equity 61,969 54,956 Net debt, excluding post-employment benefits 8,743 7,613 Net debt/equity, excl post-employment benefits, % 14.1 13.9 Net debt/Adjusted EBITDA Net debt 16,472 16,191 Adjusted EBITDA 16,270 17,124 Net debt/Adjusted EBITDA 1.0 0.9 Net debt/EBITDA Net debt 16,472 16,191 EBITDA 14,771 15,381 Net debt/EBITDA 1.1 1.1 Alternative performance measures, cont. 166SKF ANNUAL REPORT 2024 THIS IS SKF PRESIDENT’S LETTER STRATEGY AND VALUE CREATION THE BEARING MARKET RISKS AND THE SHARE SUSTAINABILITY REPORT CORPORATE GOVERNANCE REMUNERATION REPORT GROUP DATA FINANCIAL STATEMENTS BAC K TO START General information Annual General Meeting The Annual General Meeting will be held at Radisson Blu Scandinavia Hotel, Södra Hamn gatan 59, Gothen- burg, Sweden, at 14.00 on Tuesday, 1 April 2025. The Board of Directors has decided that the share- holders shall be able to exercise their voting rights by postal voting in accordance with the company’s articles of association. Payment of dividend The Board of Directors proposes a dividend of SEK 7.75 per share for 2024. Thursday, 3 April 2025 is proposed as the record date. Subject to resolu- tion by the Annual General Meeting, it is expected that Euroclear will distribute the dividend on Tuesday, 8 April 2025. Financial information and reporting Publishing dates for financial reports in 2025: Annual Report 2024 7 March Q1 report 25 April Q2 report 18 July Q3 report 29 October Q4 report 30 January 2026 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 Sophie Arnius Head of Investor Relations investors.skf.com Carl Bjernstam Head of Media Relations SKF Group Headquarters SE-415 50 Gothenburg, Sweden Telephone: +46 31 337 10 00 www.skf.com Company registration no 556007-3495 Cautionary statement This report contains forward-looking statements that are based on the current expectations of the manage- ment of SKF. Although management believes that the expectations reflected in such forward-looking state- ments 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, fluctua- tions in exchange rates and other factors mentioned in the Administration Report in this Annual Report. AB SKF is obliged to make this Annual Report public pursuant to the Securities Markets Act. The report was submitted for publication through the agency of the contact persons set out above, on 7 March 2025 at 13.00 CET. ® SKF, ALEMITE, DST, GBC, KAYDON, Lincoln, PEER, and RecondOil are registered trademarks of AB SKF (publ). © SKF GROUP 2025. 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 by SKF for any loss or damage whether direct, indirect or consequential arising out of the use of the information contained herein. PUB GCR/R1 20015 EN · March 2025 SKF Annual Report 2024 was published on 7 March 2025. Produced by AB SKF and Solberg Kommunikation. Photo credits: SKF Group, Robin Aron, STARK, John Hagby and Magnus Fond. Certain images used under license from Shutterstock.com. 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. 167SKF ANNUAL REPORT 2024 THIS IS SKF PRESIDENT’S LETTER STRATEGY AND VALUE CREATION THE BEARING MARKET RISKS AND THE SHARE SUSTAINABILITY REPORT CORPORATE GOVERNANCE REMUNERATION REPORT GROUP DATA FINANCIAL STATEMENTS BAC K TO START remuneration report 168SKF ANNUAL REPORT 2024 THIS IS SKF PRESIDENT’S LETTER STRATEGY AND VALUE CREATION THE BEARING MARKET RISKS AND THE SHARE SUSTAINABILITY REPORT CORPORATE GOVERNANCE REMUNERATION REPORT GROUP DATA FINANCIAL STATEMENTS BAC K TO START This report describes how the principles of remuner- ation for Group Management, adopted by the Annual General Meeting 2020 and revised in 2022, have been implemented in 2024. The report has been pre- pared in accordance with the Swedish Companies Act and the remuneration rules issued by the Stock Market Self-Regulation Committee. SKF’s view upon remuneration Remuneration is an important component of SKF’s total employee offering. The objective of the remu- neration principles is to ensure that the SKF Group can attract and retain the best people to contribute to the SKF Group’s mission, long-term interests and business strategy. Remuneration for Group Manage- ment, including the President and CEO, shall be based on market competitive conditions while align- ing with the best interests of shareholders. Closely linked to long term ambitions, targets and strategy SKF’s strategy is centred around two key concepts: Intelligent and clean. Intelligent reflects, among other things, the commitment to providing connected and customized solutions for customers while utilizing technology to improve operational efficiency. Clean emphasize SKF's role in driving a more sustainable industry and conducting business transparently and responsibly. To capture profitable growth, SKF is focusing on several strategic priorities: • Strengthening the position in high-growth seg- ments where SKF already holds a strong foothold. • Review the portfolio in order to concentrate on the most profitable segments, customers, and products. • Develop solutions for emerging industries that leverage new technologies. • Refocus the service business to deliver more value. Central to the strategy is also the continued work towards net-zero greenhouse gas emissions in the entire value chain by 2050, with significant reduc- tions in scope 1 and 2 already by 2030. SKF’s variable salary programmes effectively support the strategic objectives by aligning incen- tives with key areas of focus. Both the one-year and multi- year variable programmes are pre determined, measurable and structured to balance growth, profitability, operational efficiency and the reduction of greenhouse gas emissions, thereby driving both financial performance and sustainability. Read more about the performance measures on pages 19 –20. Transparency and comparability When it comes to salaries and compensation, SKF is commited to be transparent and open about the principles and actual outcomes. This also includes performance measures and criteria for variable compensation components. Stakeholder dialogue is important to SKF, and this report takes into account, views, opinions and feed- back from shareholders. Key highlights 2024 For information about key highlights 2024, please see the President´s letter on pages 7–9 in the SKF Annual Report 2024. Remuneration to the Group Management, including the President and CEO, is governed by a set of prin- ciples of remuneration adopted by the shareholders at the Annual General Meeting. The principles of remuneration shall be adopted by the shareholders at least every fourth year. The principles currently in force were first adopted in 2020 and revised in 2022. The principles are found on the Group’s web- page, www.skf.com and are further described in note 23 on pages 61–64 in the Group's Annual Report for 2024 (the “Annual Report 2024”) which also contain information on remuneration payments expensed during the year as required by Chapter 5, Sections 40–44 of the Annual Accounts Act (1995:1554). SKF ’s Board of Directors has established a Remu- neration Committee responsible for the preparation of matters relating to remuneration to the Group Management. The Remuneration Committee has no executive directors i.e. no-one from the Group Management is part of the Remuneration Commit- tee. Information on the work of the Remuneration Committee in 2024 is set out in the Corporate Gov- ernance report, which is available on pages 150–160 in the Annual Report 2024. Remuneration of the Board of Directors is not covered by the remunera- tion report. Such remuneration is resolved annually by the Annual General Meeting and disclosed in note 23 on page 61–64 in the Annual Report 2024. Each year, the Remuneration Committee evalu- ates the overall remuneration package to Group Management and proposes to the Board of Direc- tors, who resolve on the level, components and design of Group Management remuneration and incentive programmes for the forthcoming year in accordance with the principles of remuneration. This includes components such as fixed salary and the short term variable salary programme. In addi- tion to remuneration covered by the principles of remuneration, the Annual General Meeting of the Group has resolved to implement a performance share programme for senior managers and key employees. More information is found on pages 170 and 173. As communicated in September 2024, the Board of Directors has decided to initiate a separation of the Group’s Automotive business with the objective of a separate listing on Nasdaq Stockholm. To incentivize sustained dedication, focus and com- mitment from Group Management to achive the ambitious goals to timely, efficiently and success- fully create two robust and high-performing busi- nesses and while simultanously driving business results and growth, the Board of Directors has decided to introduce a separate incentive pro- gramme. Implementing a transformative project as described above while at the same time managing ongoing business performance is deemed by the Board of Directors to constitute a special cause to motivate a deviation from the principles of remuner- ation and introduce an additional remuneration component to align with SKF’s long-term interests. Further information on this incentive programme is available on page 174. Beyond the deviation described above, the princi- ples of remuneration have been fully implemented and no derogations from the procedure for imple- mentation of the principles have been made. The auditor’s report regarding the Group’s compliance with the principles is available on www.skf.com. No remuneration has been reclaimed. This remuneration report has been prepared in compliance with Chapter 8, Sections 53 a and 53 b of the Swedish Companies Act (2005:551) and the Rules on Remuneration to directors and Incentive programs issued by the the Stock Market Self-Regulation Committee. Remuneration governance 169SKF ANNUAL REPORT 2024 THIS IS SKF PRESIDENT’S LETTER STRATEGY AND VALUE CREATION THE BEARING MARKET RISKS AND THE SHARE SUSTAINABILITY REPORT CORPORATE GOVERNANCE REMUNERATION REPORT GROUP DATA FINANCIAL STATEMENTS BAC K TO START Remuneration structure In accordance with the principles adopted by the Annual General Meeting 2020 and revised in 2022, the total remuneration package for Group Manage- ment members, including the President and CEO, shall consist of fixed salary, variable salary, pension Components Description in brief Fixed salary The fixed salary of a Group Management members shall be at a market competitive level and determined based on competence, responsibility, experience and performance. SKF Group uses an internationally well-recognized evaluation system to evaluate the scope and responsibilities 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. One-year variable salary The variable salary of Group Management members shall be determined according to a performance- based programme. The satisfaction of criteria for awarding variable salary shall be measured over a period of one year. The maximum variable salary is set between 50% to 70% of the accumulated annual fixed salary of Group Management members. Purpose of the programme The purpose of the programme is to motivate and compensate value-creating achievements to support operational, financial and sustainability targets, thereby promoting the SKF Group’s business strategy, sustainability and long-term interests. The performance-based programme shall have pre- determined and measurable criteria which can be both financial and non- financial. Description and purpose of the performance criteria SKF’s variable salary programme aligns well with the strategy by directly incentivizing key perfor- mance areas that support long-term ambitions. Below is an explanation of how each performance criterion corresponds to the strategy: 1. Adjusted operating margin: This metric encourages profitability and is aligned to SKF´s focus on optimizing value creation and achieving profitable growth. Rewarding improvements in operating margin supports enhancements in efficiency and cost management, and also supports the review of the portfolio to focus on more profitable segments, customers, and products. 2. Net working capital: Managing net working capital effectively ensures liquidity and operational efficiency, which is crucial for the ability to make investments and sustain growth. 3. Organic growth: By incentivizing organic growth, SKF encourage innovation and market expan- sion. This aligns with the strategy to focus on customer value creation, high-growth segments and new technologies, driving sustainable and profitable growth. 4. Reduction of greenhouse gas emissions: This component directly supports SKF’s commitment to sustainability and achieving net-zero greenhouse gas (GHG) emissions in the entire value chain by 2050, with significant reductions in scope 1 and 2 already by 2030. By linking variable salary to emission reductions, SKF ensures that activities aimed at reducing GHG emissions are integrated into everyday business operations, reinforcing the strategy of enabling a more sustainable industry. Components Description in brief Multi-year variable remuneration The multi-year variable for Group Management consists of shares received under SKF’s Performance Share Programme. Purpose of the programmes The purpose is to motivate senior managers beyond their regular cash-based compensation and to align their interests with those of the Group's shareholders. Description and purpose of the performance criteria The programmes have pre-determined and measurable performance criteria that are distinctively linked to the business strategy and thereby to the SKF Group’s long-term value creation, including its sustainability. 1. Total Value Added (TVA): This metric is a simplified economic value-added measure supporting SKF´s focus on greater operating profit, capital efficiency and profitable growth. 2. CDP Climate Change score: This component measures and incentivizes SKF’s performance relating to climate change and environmental impact and reinforces the strategy of enabling a more sustainable industry. From PSP 2023 and onwards this criterion replaces the previous CO2 emission reduction target used in PSP 2022 programme. 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 be, for instance, 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. In addition to the basic pension, Group Management member shall normally be covered by a supplementary defined contribution pension plan. By offering this supplementary defined contribution plan, it is ensured that Group Management members are enti- tled 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. Severance pay In the event of termination of employment at the request of the company, the Group Management member shall receive a severance payment based on their years of service, up to a maximum of two years’ fixed salary. benefits, conditions for notice of termination and severance pay, and other benefits. The components shall create a well-balanced remuneration reflecting individual performance and responsibility as well as the SKF Group’s overall performance. 170SKF ANNUAL REPORT 2024 THIS IS SKF PRESIDENT’S LETTER STRATEGY AND VALUE CREATION THE BEARING MARKET RISKS AND THE SHARE SUSTAINABILITY REPORT CORPORATE GOVERNANCE REMUNERATION REPORT GROUP DATA FINANCIAL STATEMENTS BAC K TO START Change of remuneration for the President and CEO and company performance over the last reported financial years (kSEK) 1) 2024 2024 vs. 2023 2023 vs. 2022 2022 vs. 2021 2021 vs. 2020 Remuneration 30,201 –5,789 (–16%) +11,223 (+45%) 2) +868 (+3.6%) +2,506 (+11.7%) Adjusted operating profit 3) 12,183,000 –794,000 (–6%) +2,773,000 (+27%) –635,000 (–5.9%) + 1,645,000(+17.9%) Cash flow 4) 10,792,000 –2,991,000 (–22%) +8,142,000 (+144%) +393,000 (+7.5%) –3,017,000 (–36.5%) Change in average remuneration on a full-time equivalent basis of employees in AB SKF 1,087 –50 (–4%) +86 (+8%) +3 (+0.3%) +18 (+1.7%) 1) 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. 2) The development of the President and CEO remuneration between 2022 to 2023 relates to a 2% increase on the fixed salary, an 18% increase related to improved results in the one-year variable salary programme and a 25% increase related to the multi-year variable salary programme (SKF Performance Share Program 2021). The SKF PSP 2021 was the first multi-year incentive program in which the President andCEO participated in and was allotted shares. 3) Operating profit excluding items affecting comparability. 4) Net cash flow from operating activities. Total remuneration in 2024 (kSEK) Fixed remuneration Variable remuneration Year Fixed salary (includ- ing vacation pay) Other benefits Pension expense One-year variable salary Multi-year variable salary Extraordinary items Total Proportion of fixed and variable remuneration, % Rickard Gustafson, President and CEO 2024 15,712 266 6,013 4,582 3,628 1) — 30,201 73/27 2023 14,970 222 5,573 8,928 6,297 — 35,990 58/42 1) The multi-year variable consists of the PSP 2022 programme that vested on 7 February 2025. The share price at vesting was 221.40. Total remuneration of the President and CEO 2024 The table below sets out the total remuneration earned to SKF's President and CEO. variable Proportion of fixed and variable renumeration Variable renumeration, 27% Fixed renumeration, 73% 2024 2023 Pension expense Multi-year variable salary One-year variable salary Fixed salary 0 40 MSEK 32 24 16 8 Total remuneration CEO Comment on the development for 2024 The table above shows the CEO and average employee remuneration, along with the Group’s financial performance development from 2020 to 2024. As can be seen, compared to the average employee remuneration, there is a higher variance in the CEO’s remuneration, as it is more influenced by variable components that depend on SKF’s financial performance. In 2024, the SKF financial performance is strong, though slightly softer compared to the previous year. This is reflected in the lower CEO remuneration for 2024 compared to last year. 171SKF ANNUAL REPORT 2024 THIS IS SKF PRESIDENT’S LETTER STRATEGY AND VALUE CREATION THE BEARING MARKET RISKS AND THE SHARE SUSTAINABILITY REPORT CORPORATE GOVERNANCE REMUNERATION REPORT GROUP DATA FINANCIAL STATEMENTS BAC K TO START One-year variable remuneration The Board of Directors, each year, after preparation in the Remuneration Committee, resolve on the per- formance criteria for the one-year variable remunera- tion programme. The performance criteria for the President and CEO’s variable remuneration have been selected to deliver the SKF Group's strategy and to encourage behaviour which is in the long-term Performance criteria 1) Relative weighting of the performance criteria Actual result 2024 Performance achievement 2024 Actual award 2024, KSEK Rickard Gustafson, President and CEO Adjusted operating margin 50% 12.3% 32.5% Net working capital 30% 31.2% 0% Organic growth 10% –5.4% 0% Reduction greenhouse gas emission 10% >33,290 CO 2 e metric tonnes reduction 2) 10% 100% 42.5% 4,582 One-year variable performance 2024 and remuneration of the President and CEO Performance criteria 1) Relative weighting of the performance criteria Rickard Gustafson, President and CEO Adjusted operating margin 40% Net working capital 20% Organic growth 30% Reduction greenhouse gas emission 10% 100% 1) The criteria for adjusted operating margin, net working capital and organic growth can result in an outcome between 0% and 120%. The payout is linear between minimum and target and target and maximum. The Greenhouse gas emission reduction criterion can only result in either a 0% payout if the target is not achieved or a 100% payout if the target is achieved or exceeded. However, the total outcome for the one-year variable remuneration is capped and cannot generate more than a 100% payout. 2) See more details on achieved CO 2 reduction in the Sustainability Report. Performance criteria and weighting for the 2025 one-year variable remuneration programme interest of the SKF Group. In the selection of per- formance criteria, the strategic objectives, sustaina- bility, short-term and long-term business priorities for 2024 have been taken into account. The first table describes how the performance criteria for the one-year variable remuneration were applied during the year. For the 2025 programme, the Board have resolved on the same performance criteria as for the 2024 programme with a slight change in the relative weighting of the performance criteria (compared to the 2024 programme). See second table for the 2025 performance criteria. 172SKF ANNUAL REPORT 2024 THIS IS SKF PRESIDENT’S LETTER STRATEGY AND VALUE CREATION THE BEARING MARKET RISKS AND THE SHARE SUSTAINABILITY REPORT CORPORATE GOVERNANCE REMUNERATION REPORT GROUP DATA FINANCIAL STATEMENTS BAC K TO START Performance Share Programme expired in 2024 The SKF Performance Share Programme 2022 expired at the end of 2024. Programme Performance period Vesting Performance criteria Conditions Relative weighting performance criteria Possible outcome Maximum share awards granted to CEO Actual result Performance achievement Number of shares alloted PSP 2022 1 Jan 2022– 31 Dec 2024 February 2025 TVA Average of the Annual TVA over the performance period compared to the actual TVA of 2021 90 % 0%–100% 32,850 6,070 MSEK 34.89% Reduction of Co 2 emission 1) Average annual Co 2 reduction equal to or above 41,100 metric tonnes 10 % 0% or 100% (binary) 3,650 >41,100 metric tonnes 2) 10% 100% 36,500 44.89% 16,385 Ongoing Performance Share Programme Programme Performance period Performance criteria Conditions Relative weighting performance criteria Possible outcome Maximum share awards granted to CEO PSP 2023 1 Jan 2023– 31 Dec 2025 Total Value Added (TVA) Over the performance period, the TVA performance target range is set annually against the baseline of the actual TVA achieved in the previous year. The overall performance achievement for the TVA performance measure of the programme is the average of achievements of the annual TVA targets. 80 % 0%-100% CDP Climate Change score 1) Weighted average of the annual performance achievement for the performance period. An average score of A (CDP score) gives an outcome of 100%. An average score of below B (CDP score), gives a 0% outcome. 20 % 0%–100% 100% 54,904 3) Programme Performance period Performance criteria Conditions Relative weighting performance criteria Possible outcome Maximum share awards granted to CEO PSP 2024 1 Jan 2024– 31 Dec 2026 Total Value Added (TVA) Over the performance period, the TVA performance target range is set annually against the baseline of the actual TVA achieved in the previous year. The overall performance achievement for the TVA performance measure of the programme is the average of achievements of the annual TVA targets. 80 % 0%-100% CDP Climate Change score Weighted average of the annual performance achievement for the performance period. An average score of A (CDP score) gives an outcome of 100%. An average score of below B (CDP score), gives a 0% outcome. 20 % 0%–100% 100% 54,386 4) 1) From the SKF Performance Share Programme 2023 and programmes thereafter a performance criterion related to the CDP Climate Change score has been included in the programme and replaces the previous sustainability criterion (CO 2 emission) used in the 2022 programme. 2) See more details on CO 2 emissions reductions in the Sustainability report 3) Shares corresponding to a value of 75% of the fixed salary. 4) Shares corresponding to a value of 75% of the fixed salary. PSP, performance periods 20232022 PSP 2022 PSP 2024 PSP 2023 2024 2025 2026 Multi-year variable remuneration (Performance Share Programme) Since 2008 the Annual General Meeting has resolved each year upon a multi-year variable renumeration programme, the SKF Performance Share Programme (PSP) for senior managers and key employees. The performance criteria used to assess the outcome for each of the currently running programmes are distinctively linked to the business strategy and, thereby, to the SKF Group’s long-term value creation, including its sustainability. For further information on all currently running Performance Share Programmes, please see below. 173SKF ANNUAL REPORT 2024 THIS IS SKF PRESIDENT’S LETTER STRATEGY AND VALUE CREATION THE BEARING MARKET RISKS AND THE SHARE SUSTAINABILITY REPORT CORPORATE GOVERNANCE REMUNERATION REPORT GROUP DATA FINANCIAL STATEMENTS BAC K TO START Creation of two robust and high-performing businesses To incentivize sustained dedication, focus, and commitment from Group Management to reach the ambitious goals, the Board of Directors has decided to implement a separate incentive program for Group Management. The goals include timely, efficient, and successful creation of two robust and high- performing businesses while driving business results and growth. This follows the announcement in September 2024 of the decision by the Board of Directors to initiate a separation of the Automotive business with the objective of a separate listing on Nasdaq Stockholm. By investing in this programme, SKF creates a powerful motivator to, as far as possible, ensure successful execution of the separation and listing initiatives as well as the highest level of engagement from Group Management in reaching the ambitious goals and identified critical objectives key to the Group's long-term success. The incentive programme offers the opportunity to be awarded a cash contribution in the form of a multiple of the monthly fixed salary. The perfor- mance period runs from 17 September 2024 until a successful listing on Nasdaq Stockholm of the Auto- motive business. Listing on Nasdaq Stockholm is subject to the approval of the shareholders at a general meeting. Payout will be made, following a decision by the Board of Directors, in the months following the potential listing on Nasdaq Stockholm. The level of achievement and hence the level of payout under the programme is measured against certain pre- determined performance criteria. Pro- vided that the performance criteria are fully met, the President and CEO may be awarded a cash contribution equal to twelve months of fixed salary. The per formance criteria are: Timeline, the objective of following the listing timeline including the Auto motive business being successfully listed on Nasdaq Stockholm, Target Delivery, an assessment based on the achievement of key deliverables in the project, and Cost Reduction, targets to identify and mitigate stranded costs and dis-synergies. The three performance criteria are weighted as follows: Timeline 50%, Target delivery 25% and Cost reduction 25%. A precondition for payout under the programme is that the participants´ employment has not been terminated. The awarded cash payment is not in - cluded in pensionable salary. The Board of Directors may modify or terminate the programme. Before determing the final payout, the Board of Directors will assess whether the payout is reasonable considering the Group's financial results and posi- tion, the stock market conditions and other relevant factors. If deemed necessary, the Board may reduce the cash contributions to a lower amount considered appropriate. 174SKF ANNUAL REPORT 2024 THIS IS SKF PRESIDENT’S LETTER STRATEGY AND VALUE CREATION THE BEARING MARKET RISKS AND THE SHARE SUSTAINABILITY REPORT CORPORATE GOVERNANCE REMUNERATION REPORT GROUP DATA FINANCIAL STATEMENTS BAC K TO START AB SKF SE-415 50 Gothenburg, Sweden Telephone +46 31 337 10 00 www.skf.com