skf nine -month results 2014

SKF Nine-month results 2014Tom Johnstone, President and CEO

15 October 2014

© SKF Group 15 October 2014

Alrik Danielson, new President and CEO from 1 January 2015

B.Sc in Business Administration and International Economics from the University of Gothenburg

1987-2005 Previous positions within SKF:• Financial controller in Gothenburg• President, Industrial Division in Spain and Portugal• President, SKF do Brazil• President, Industrial Division and several other managerial positions.

2005-2014 Höganäs AB, President and CEO

Slide 2


Examples of new business

• Doosan Heavy Industries and Construction, SKF Supergrip BoltsSouth Korea SKF Nautilus bearing

• A leading Chinese locomotive manufacturer Traction motor bearings

• HSD SpA, Italy Super precision bearings and engineering support

• A major Australian customer Maintenance contractin the agriculture industry

• Medical device manufacturer in California, Slewing ring bearingsUSA

Slide 3


Examples of new business

• Tesla Motors Bearing for the gearbox, e-motor and wheels

• Volvo Cars Wheel hub bearing units

• Scania Wheel bearing units and high pressure valve stem seals

Slide 4


Customer awards

Slide 5

• Supplier Performance Award – Snecma, Safran Group, France

• Best Supplier Award – Weg Electric Motor Manufacturing Co., Ltd, China

• Best Supplier Award – Shanghai Hanbell Precise Machinery Co. Ltd., China

• Excellent Engineering Development Award – Shanghai Automobile Gear Works (SAGW), China

• Fiat Qualitas Award – Fiat, Argentina

• Certificate of Appreciation for quality and delivery performance – Honda, India


Highlights

• New Kaydon factory at the SKF Campus in Cajamar, Brazil.

• New Global Technical Center in the greater Chicago area, US.

• For the 15th year in a row, one of the world’s most sustainable companies by the Dow Jones Sustainability World Index (DJSI).

• For the 14th consecutive year, a constituent of the FTSE4Good Index Series.

Slide 6


Examples of new products and solutions

SKF Machine Tool Observer MTx

SKF Static Motor Analyzer Baker AWA-IV

Compact tapered roller bearing unit for heavy freight

Tapered roller bearing unit for passenger railway applications

SKF Multilog On-line System IMx-M

SKF Multilog Online System IMx-B

SKF Mudblock cassette seals, MUD 11

PuraBreeze 100

http://mediafinder.skf.net/MediaFinder/


SKF Group – Q3 2014

Slide 8

Financial performance (SEKm) 2014 2013

Net sales 17,787 15,623Operating profit 2,073 1,923Operating margin, % 11.7 12.3Operating margin excl. one-time items, % 11.8 12.9Profit before tax 1,827 1,717Basic earnings per share, SEK 3.01 2.47Cash flow after investments before financing excl. EU payment 1,476 1,135Cash flow after investments before financing 1,476 1,135

Organic sales growth in local currency:

SKF Group 3.3% Europe 0%

Strategic Industries 9.1% North America 3%Regional Sales and Service 0.8% Asia 8%

Automotive -0.5% Latin America 0%Middle East and Africa 7%

Key pointsSales volumes up by 1.9% y-o-y.Manufacturing was relatively unchanged compared to last year.


SKF Group – Nine month 2014

Slide 9

Financial performance (SEKm) 2014 2013

Net sales 52,476 47,167Operating profit 6,193 5,240Operating margin, % 11.8 11.1Operating margin excl. one-time items, % 11.8 12.2Profit before tax 5,375 4,581Basic earnings per share, SEK 8.27 6.57Cash flow after investments before financing excl. EU payment 2,640 1,390Cash flow after investments before financing -185 1,390

Organic sales growth in local currency:

SKF Group 4.6% Europe 2%

Strategic Industries 8.7% North America 3%Regional Sales and Service 1.7% Asia 11%

Automotive 2.8% Latin America 1%Middle East and Africa 14%

Key pointsSales volumes up by 3.8% y-o-y.Manufacturing was slightly higher compared to last year.


Organic sales growth in local currency

Slide 10

-10

-8

-6

-4

-2

0

2

4

6

8

% changey-o-y

2012 2013 2014


Organic sales growth in local currency

Slide 11

2012 2013 YTD 2014-4

-2

0

2

4

6

% y-o-y

Structure in 2012: 0.4%Structure in 2013: 2.5%Structure in 2014: 4.7%

-2.5%

-0.7%

4.5%


Sales development by geographyOrganic growth in local currency Q3 2014 vs Q3 2013

Slide 12

Europe0%

Asia/Pacific8%

Middle East& Africa

7%

LatinAmerica

0%

NorthAmerica

3%


Sales development by geographyOrganic growth in local currency YTD 2014 vs YTD 2013

Slide 13

Europe2%

Asia/Pacific11%

Middle East& Africa

14%

LatinAmerica

1%

NorthAmerica

3%


Components in net sales

Slide 14

2012 2013 2014

Percent y-o-y Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3

Volume -0.8 -2.8 -5.0 -5.9 -8.7 -1.6 2.2 7.1 6.2 3.6 1.9

Structure -0.1 0.0 0.8 1.0 1.5 2.6 1.1 4.8 4.7 3.8 5.4

Price/mix 1.9 2.0 0.5 0.7 0.7 -0.6 -0.2 -0.2 -0.4 1.0 1.3

Sales in local currency

1.0 -0.8 -3.7 -4.2 -6.5 0.4 3.1 11.7 10.5 8.4 8.6

Currency 0.4 3.6 -2.7 -3.6 -4.0 -5.0 -2.2 -2.1 -0.1 1.1 5.3

Net sales 1.4 2.8 -6.4 -7.8 -10.5 -4.6 0.9 9.6 10.4 9.5 13.9


Operating profit as reported

Slide 15

-2,000

-1,500

-1,000

-500

0

500

1,000

1,500

2,000

2,500SEKm

2012 2013 2014


Operating profit excluding one-time items

Slide 16

0

500

1000

1500

2000

2500SEKm

2012 2013 2014


Operating margin

Slide 17

2012 2013 YTD 20140

2

4

6

8

10

12

14

16

%

5.8

11.3

12.0* 11.9*

One-time items

* Excluding one-time items

11.8

© SKF Group 15 October 2014Slide 18

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3-3

0

3

6

9

12

15

18

Regional Salesand Service

Specialty Business

Automotive

%

2012 2013 2014

Operating margin per business area as reported

Strategic Industries

© SKF Group 15 October 2014Slide 19

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3-3

0

3

6

9

12

15

18

Regional Salesand Service

Specialty Business

Automotive

%

2012 2013 2014

Operating margin per business area excl. one-time items

Strategic Industries


SKF’s programme to improve efficiency and reduce cost

Slide 20

Q4/12 Q1/13 Q2/13 Q3/13 Q4/13 2013 Q1/14 Q2/14 Q3/14 Total

Cost taken 200 250 190 0 50 490 0 100 20 810

People affected 530 410 320 0 130 860 0 170 30 1,590

Q1/13 Q2/13 Q3/13 Q4/13 2013 Q1/14 Q2/14 Q3/14 2014

Restructuring 15 35 75 75 200 70 50 10 130

S&A 50 50 50 50 200 0 0 0 0

Purchasing 100 100 100 100 400 60 100 100 260

Total 165 185 225 225 800 130 150 110 390

Restructuring, SEKm:

Realized gross savings from total programme, SEKm:

Full year gross saving 150 100 80 0 40 220 0 100 5 475

Giving future gross savings, SEKm:

vs 2012 vs 2013

Note: Run rate Q3 2014 SEK 1,340 million vs 2012.


Operating profit bridge, Q3 2014

Slide 21

0

500

1000

1500

2000

2500

3000

+301,923+165 2,073

+112+110 +65 +100 -432

SEKm

Q3 2013 Q3 2014Volumes excl.

Specialty

Business

Specialty

Business

Savings One-time items

Currencies Other* Price/mix

* R&D, S&A, IT, inflation etc.


Operating profit bridge, nine month 2014

Slide 22

0

1000

2000

3000

4000

5000

6000

7000

8000

+4305,240

+225 6,193+352+390

+505 -120 -829

SEKm

Q1-Q3 2013

Q1-Q3 2014

Volumes excl.

Specialty

Business

Specialty

Business

Savings One-time items

Currencies Other* Price/mix

* R&D, S&A, IT, inflation etc.


Net working capital as % of annual sales

Slide 23

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q325

26

27

28

29

30

31

32

33

34

35

%

2012 2013 2014

Target: 27%


Return on capital employed

Slide 24

2012 2013 419120

5

10

15

20

%

8.57.5

16.2

17.1*15.1*

One-time items * Excluding one-time items

ROCE: Operating profit plus interest income, as a percentage of twelve months rolling average of total assets less the average of non-interest bearing liabilities.

13.9*


-7,000

-6,000

-5,000

-4,000

-3,000

-2,000

-1,000

0

1,000

2,000

Cash flow, after investments before financing

Slide 25

SEKm

2012 2013 2014

Excl. acq. and div.: 1) Q3 2012 SEK 1,707 million2) Q1 2013 SEK -69 million3) Q3 2013 SEK 871 million4) Q4 2013 SEK 1,170 million

Excl. EU payment 5) Q2 2014 SEK 1,423 million

4) 5)1)

3)

2)


Net debt

Slide 26

-35,000

-30,000

-25,000

-20,000

-15,000

-10,000

-5,000

0SEKm

2012 2013 2014

AB SKF, dividend paid (SEKm):2012 Q2 2,5042013 Q2 2,5302014 Q2 2,530

Cash out from majoracquisitions (SEKm):

2012 Q3 8292013 Q1 8232013 Q4 7,900

Net debt: Loans and net provisions for post-employment benefits less short-term financial assets excluding derivatives.

EU payment (SEKm):

2014 Q2 2,825


Debt structure, maturity years

Slide 27

2015 2016 2017 2018 2019 2020 20210

100

200

300

400

500

600

700

800

900

EURm

• Available credit facilities:EUR 500 million 2019SEK 3,000 million 2016

EUR 150 million 2017

• No financial covenants nor material adverse change clause

200

100 100 110

500 500

850


October 2014: SKF demand outlook Q4 2014

Slide 28

Demand compared to the fourth quarter 2013The demand for SKF’s products and services are expected to be relatively unchanged for the Group and for Europe, slightly higher for Asia and North America and slightly lower for Latin America. It is expected to be slightly higher for Strategic Industries, relatively unchanged for Regional Sales and Service and slightly lower for Automotive.

Demand compared to the third quarter 2014The demand for SKF’s products and services are expected to be relatively unchanged for the Group and for Europe, slightly higher for Asia and North America and slightly lower for Latin America. It is expected to be relatively unchanged for Strategic Industries, slightly higher for Regional Sales and Service and slightly lower for Automotive.

ManufacturingManufacturing is expected to be slightly lower year over year and compared to the third quarter.


SKF demand outlook Q4 2014, main regions

Share of net sales 2013

Europe 42%

Asia Pacific 24%

North America 24%

Latin America 7%

Total

Q4 2014 vs Q4 2013

+/-

+

+

-

+/-

Slide 29

Sequential trend for Q4 2014


SKF demand outlook Q4 2014, main business areas


StrategicIndustries

29%

Regional Sales and Service

39%

Automotive 27%

Total

Q4 2014 vs Q4 2013

+

+/-

-

+/-

Slide 30

Sequential trend for Q4 2014


SKF sequential volume trend Q4 2014, Industries

Slide 31

29% Industrial distribution

6% Aerospace

13% Industrial, heavy, special and off-highway

11% Industrial, general

5% Energy

4% Railway

2% Two-wheelers and Electrical

14% Cars and light vehicles

11% Vehicle service market

5% Trucks



Guidance for the fourth quarter 2014*

Slide 32

• Tax level: < 30%

• Financial net: around SEK -220 million

• Currency impact on operating profit vs 2013Q4: SEK +230 million

Full year: SEK +110 million

• Additions to PPE: around SEK 1.7 billion for 2014

* Guidance is approximate and based on current assumptions and exchange rates.


SKF’s priorities

Slide 33

Sustainable profitable growth• Expand the platform concept• Exploit the asset life cycle approach• Develop new products and grow SKF BeyondZero portfolio• Extend and grow second brands• Acquisitions

Investments & Innovation • New and existing facilities• Research and development• IT systems and mobility

Cost reduction• Business Excellence• Consolidation of manufacturing• Optimization and productivity improvements• Reduction in purchasing costs

Capital efficiency• Fixed capital• Net working capital


Cautionary statement

Slide 34

This presentation contains forward-looking statements that are based on the current expectations of the management of SKF.

Although management believes that the expectations reflected in such forward-looking statements are reasonable, no assurance can be given that such expectations will prove to have been correct. Accordingly, results could differ materially from those implied in the forward-looking statements as a result of, among other factors, changes in economic, market and competitive conditions, changes in the regulatory environment and other government actions, fluctuations in exchange rates and other factors mentioned in SKF's latest annual report (available on www.skf.com) under the Administration Report; “Important factors influencing the financial results", "Financial risks" and "Sensitivity analysis”.

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