Industrial Market, Strategic Industries 18 September 2018 CMD 2014

Speakers Rakesh Makhija President Industrial Market, Strategic Industries Bernd Stephan Director Business unit Renewable Energy Robert Law Director Business unit Lubrication CMD 2014

Agenda Strategic Industries overview Strategy and market direction Significant news Growth drivers Asset life cycle and service China Manufacturing Cost reduction programs Footprint Application specific offers Renewable Energy business unit Lubrication business unit Outlook and key business message CMD 2014

Strategic Industries overview 1 Strategic Industries overview

Strategic Industries Net sales 2013 = SEK 18,929 million Number of employees = 17,628 Full responsibility for sales to both OEM and end users, as well as business development, manufacturing and engineering % of net sales by geographical area (2013): Asia, Pacific Europe North America CMD 2014 18 September 2018 CMD 2014

Strategy and market direction 2 Strategy and market direction

Our mission – “clear leadership” Leadership in everything we do Value Innovation Cost Strong financial performance Profit Cash flow Customers are first priority An entrepreneurial culture – seeking new horizons Execution with speed CMD 2014

Value & cost leadership “Market leadership & profitable growth” “Meet customer needs through speed & innovation” “Cost leadership & flexibility” Asset life cycle per industry Service business Strategic customer relationship Customer service levels China, India, USA and Germany Geographic expansion Acquisitions New market offers Application specific offers New technologies Position technology leadership New processes SKF BeyondZero Cost reduction Integrated cost reduction and manufacturing supply optimization Asset utilization Manufacturing footprint Business Excellence/Lean Quality Safety CMD 2014

3 Significant news

Aerospace SAFRAN announced the award of the strategic LEAP program to SKF Renewed long-term agreements with major partners such as GE Avio SrL, Rolls-Royce, AgustaWestland, HAL and Techspace Aero Reinforced partnering with Boeing with a new contract for advanced sealing solutions SKF Aerospace Innovation Centers: Falconer (US) and INSA Lyon (France) on major topics such as condition monitoring and next generation of airframe and aero engine bearings CMD 2014 18 September 2018 CMD 2014

Renewable Energy Strategic partnerships in China with Envision Energy, a global leading provider of wind turbines, and with Longyuan, the largest IPP wind farm owner and operator in China Gained several significant supply agreements with Goldwind Received the Best Technical and Service Award 2013 from Envision Energy, Technical Cooperation Award from Goldwind and the Supplier of the Year 2013 from Nanjing Gearbox China CMD 2014

Precision Inauguration of a super-precision bearings manufacturing channel in Pinghu, China Increased number of orders in the automation industry, including an order worth of SEK 33 million Launched a new pillar CPMT (SKF Telescopic pillar for medical procedure equipment) with great market response CMD 2014

Railway & Off-highway Photo: BEUMER Group GmbH & Co. KG Order for 40,000 compact tapered bearing units for Russian freight car OEM, Tikhvin Freight Car Assembly Plant (TVSZ) Continued very strong development of the passenger train segment business in China Ongoing tests of SKF Insight with three European railway customers Slewing bearing orders from several major OEMs in China and strengthened SKF position for tunnel boring applications CMD 2014 CMD 2014

Lubrication Secured a 70% share for automatic lubrication systems from a major European wind turbine producer (2014 & 2015) Secured SEK 16 million order for firefighting reels Secured a major contract from TPC Wire & Cable (US) for storage reels (supply power to nuclear sites in the event of a natural disaster) Secured significant business for automatic lubricating screw jacks for marine industry CMD 2014 18 September 2018 CMD 2014

Traditional Energy SKF magnetic bearings installed its 1,000th system in an oil & gas application, which is the largest installed base in the industry Received an order for SKF super grip bolts for turbine couplings for seven power plants in three countries from Doosan Heavy Industries valued at SEK 18 million Integrated condition monitoring and protection system commissioned at a large Asian petrochemical complex and received letter of intent for similar system for new refinery in Middle East A new low torque operator valve concept was introduced with several significant prototype orders received from key manufacturers of subsea valves used in the offshore oil & gas industry CMD 2014 18 September 2018 CMD 2014

Industrial Drives Received a large order of bearings and condition monitoring from a major Chinese fan and blower manufacturer Landed a three-year contract with a major global compressor manufacturer, which increased market share and secured SKF’s role as their major bearing supplier Won an order of 72 slewing bearings for seismic isolation system in ship to shore cranes from a leading Indian crane manufacturer CMD 2014 18 September 2018 CMD 2014

Growth drivers - Asset life cycle and service - China 4 Growth drivers - Asset life cycle and service - China

Customer testimonial Seakeeper CMD 2014

Customers create and capture value Rule 1: Customers pay for what they value Rule 2: Value is a moving target, what they value today may not be valued tomorrow Rule 3: Value must be tangible and measurable Our responsibility is to ensure that SKF provides sustainable customer value now and in the future! Customers derive as much, if not more value from HOW they interact with SKF, and this results in a more sustainable basis for competitive advantage. CMD 2014 CMD 2014

Sustainable profitable growth Optimizing the asset life cycle with SKF solutions Specification Design and develop Close cooperation with regulatory bodies, institutes and agencies, enables support in defining and meeting standards and requirements Engineering services to enable new design and minimize risk of machinery failures and warranty costs Manufacture and test A one-stop source for proven, world-class products, delivered and available worldwide Maintain and repair A range of maintenance engineering and consulting services to boost asset uptime Install and commission Optimized operational performance through best practice installation services Operate and monitor Safer and more profitable operations with increased availability through class approved solutions for condition-based maintenance CMD 2014

Asset life cycle management Example: Pinion stand concept Pinion stands used for rotary drums with major focus on rolling mills & kilns. Today’s situation: Gearbox OEMs are responsible for delivering major part of the driveline (including the pinion stand) The pinion stand selection and delivery is seen as a necessity outside many of the gearbox OEMs core competence Tomorrow: SKF is a full pinion stand supplier with additional upgrade services Non-locating bearing CARB Condition monitoring for pinion bearings Lubrication system Locating bearing SRB SNL housing Sealing CMD 2014

Asset life cycle management Example: Fan upgrade services in Nordic region Increased performance and reliability for critical industrial fans and blowers. Reference cases: Renova Göteborg (Refuse disposal unit) Reduced maintenance cost with SEK 125 thousand/year Reduced downtime and increased lifetime for bearings and oil US paper mill ROI 483% in 16 months. Verified by SKF Documented Solution Program (DSP) Sales approach Important for Focused Industries and DDs Common critical applications in all kind of industries. Very big potential. Renova Göteborg CMD 2014 18 September 2018 CMD 2014

New Industrial Market SKF BeyondZero market launches High speed permanent magnet motor solutions 10 to 40% lower energy use Improved service life and reliability Oil-free environment with no contamination Up to 30% lower noise levels SEK 4 billion (Industrial Market forecast 2014) 35 Solutions 30% of new offers Extended life plain bearings Greased-for-life product Up to 90% grease reduction Increased uptime Reduced total cost of ownership Eliminate grease leakage to environment Telescopic pillar for infant care Lower noise level Reduced energy use by 80% Higher load carrying capacity Higher stability Greater comfort, smoother operation SKF BeyondZero solutions and launches 2012–2013 Spherical roller bearings + CARB toroidal roller bearings SKF Energy Efficient (E2) deep groove ball bearings LubriLean for cutting process Food line Y-bearings Cylinder lubrication unit Titanium bearings for aerospace High endurance slewing bearings SKF solar linear actuator SKF Solar Hub CTBU low friction seal Active magnetic systems Sour gas compressor bearings Dry lubrications for conveyor belts SKF Nautilus SKF ConRo SKF Flowline Servo actuator SKF Agri-HUB CMD 2014

Customer testimonial Envision Energy

China overview Strong development in passenger rail and wind segments Stable demand in key segments – e.g. industrial electric motor, fluid power and machine tools Increased local production acceptance Value selling works in a tough environment Increasing manufacturing CMD 2014

China footprint Beijing Dalian Changzhou Changshu Pinghu Shanghai Railway & Off-highway Beijing Nankou SKF Renewable Energy SKF (Dalian) Large Size Bearing Factory Harbin Lubrication Reelcraft (Changzhou) Lincoln Lubrication Equipment (Changshu) Shenyang Urumqi Beijing Wafangdian Baotou Dalian Tianjin Taiyuan Jinan Qingdao Xi’an Nanjing Zhenzhou Changzhou Wuhu Chengdu Changshu Wuhan Pinghu Shanghai Ningbo Changsha Precision Industrial Drives Xiamen SKF Actuation System (Pinghu) Guangzhou SKF (Dalian) Medium Size Bearing Factory Kunming Taipei Pinghu ABBA Hongkong Shenzhen CMD 2014 2018年9月18日星期二 CMD 2014

China strategic direction Accelerate China development Asset life cycle growth Accelerating market-based offerings Improved competitiveness Enhance local service expertise and market coverage Utilize SKF Solution Factory infrastructure Strengthen “local for local” product offerings Develop segment-specific platform offerings Localize sourcing and production of key components Enhance engineering capabilities - product and application engineering CMD 2014

5 Manufacturing - Cost reduction programs - Footprint - Application specific offers

Manufacturing processes & Lean manufacturing Manufacturing processes & benchmarking Manufacturing supply optimization Manufacturing footprint Integrated cost reduction Technology review Review core KPIs Benchmark Balanced to demand Better service Cost efficiency Flexibility Value added Lean Design review Purchasing Application specific performance CMD 2014

Manufacturing footprint Example: Spherical roller bearings Balancing the global manufacturing footprint based on growth and demand is an ongoing exercise This covers all major product lines – bearings, lubrication and mechatronics CMD 2014

Manufacturing supply optimization program Page 31 Page 31 Manufacturing supply optimization program Objectives 2016 Improved service < 5% availability failures Sustainable competitiveness Improve agility & flexibility Build sustainable capability Standardize best-practices Reduce inventory Reduce manufacturing cost CMD 2014 18 September, 2018 18 September, 2018 CMD 2014

Application specific performance market New optimised designs that enable cost efficient solutions and deliver the right performance. Penetrate the “mid-market” with top quality products, best adapted to customers’ application specific performance needs Electrical motor High performance in noise & vibration (internal geometry and grease) Pulleys in elevators Adapted sealing and lifetime Attachment in agriculture Improved sealing and adapted grease Medium deep groove ball bearing ISO-dimension Screws in air compressor Optimized design Cylindrical roller bearing ISO-dimension