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TRANSCRIPT
The SKF Group
SKF Investor Relations
February
2011
1SKF -
A truly global company
Established: 1907
Sales 2010: SEK 61,029 million
Employees: 44,742
Production sites: around 130 in 32 countries
SKF presence: in over 130 countries
Distributors/dealers: 15,000 locations
Global certificates:
ISO 14001OHSAS 18001 certification
2
Aerospace
Railway
Off-highway
Trucks
Two-wheeler and Electrical
General industry
Heavy industry
Special industrial equipment
Vehicle Service Market
Industrial distribution
Cars and light trucks
Commercial transport
Industrial business
Net sales by customer segment 2010
Energy
14%
5%
4%
3%
3%
13%
7%5%5%
12%
25%
4%
3
63
53
79
1
24
10
5
10
6
0
27
38
18
7
11
41
26
43
North America
Latin America
Western
Europe
Eastern Europe
Middle East and Africa
Asia/Pacific
Net sales
Average number of employees
Tangible asset
% of group total
SKF 2010
(18)
(8)(13)
(26)(13)
(14)
(2002) (1998)
(25)
(14)
(19)
(10) (12) (9)
Sweden
4
To equip the worldwith SKF knowledge
SKF Group Vision
5Investing
in new factories
Ahmedabad, India
Tver, Russia
Haridwar, India
Dalian, China
6SKF Solution Factory
Segments & Application Knowledge Platforms
& Technology
Competence
Capabilities
Sealing
Solutions Mechanical
Services Lubrication
Solutions
Training
Center
Bearing Service Workshop Condition
Monitoring
Services Remote
Monitoring
Center
MaPro/CoMo
Product
Repair A & MC
SKFSolution Factory
7
OpenedPlanned
Tianjin
TaiwanShanghai
Pune
Istanbul
JohannesburgBrasil
“IXION”
Colombia
Moscow
HoustonMonterreyMexico
Edmonton
Nordic (Gothenburg)
UK
Germany
Italy
France
17 SKF Solution Factories 2010
8
New pitch bearingdesign with improvedcorrosion protection
DRTRB-unit “Nautilus”
with segmented cagefor minimized friction
New CRB-design withextra-high carrying capacityfor wind-gearboxes.
XL Hybrid bearingswith ceramic ballsfor superior insulation
SKF WindCon
3.0/WebconIntranet supervisedcondition monitoring
Automatic centralizedlubrication kits for reduced maintenance cost
SKF wind energy industry
9What is SKF knowledge?
10
Bearingsand units
SKF’s
platforms
11
Seals
SKF’s
platforms
12
Mechatronics
SKF’s
platforms
13SKF’s
platforms
Lubrication systems
14SKF’s
platforms
Services
15Acquisition
2003-2010 Identifying
gaps and opportunities
in all platforms
SealsBearingsand units
LubricationsystemsServices Mechatronics
Products
Technologies
Geographies
Segments
SNFA
(2006)
S2M
(2007)
QPM
(2008)
Economos
(2006)
Macrotech
(2006)
Macrotech
(2009)
Baker
(2007)
PMCI
(2007)
PB&A
(2006)
Monitek
(2006)
Safematic
(2006)
Vogel
(2004)
ALS
(2007)
Sommers
(2005)
ABBA
(2007)
Jaeger
(2005)
Peer
(2008)
GLO
(2008)
TCM (2003)
Scandrive
(2003)
Cirval
(2008)
Lincoln Industrial
(2010)
16
~20% Raw material (example: bars, tubes and rings)
~50% Components (example: forged and turned rings)
~30% Other (shop supplies and traded products etc.)
Cost split, % of total expenses (2010: SEK 52,438 m)
Employees
~35%
Other
~27%
Material
~34%
~4%
Depreciation & amortization
The SKF Group
Tom Johnstone, President and CEO
1 February 2011
18Key points, Q4 report
• Strong performance Operating profit:
SEK 2,202 m (1,004). Operating margin:
14.3% (7.2)Profit before tax: SEK 2,048 m (765)Cash flow:
SEK -5,966 m (1,445), Cash flow excl. acquisition of Lincoln Industrial SEK 798 m
• Strong organic sales development in local currency:SKF Group:
+17.2%All divisions and regions showed very good growth
•
Completed acquisition of Lincoln Industrial
Outlook for Q1 for SKF Group• Demand
Significantly higher compared to Q1 2010Slightly higher sequentially compared to Q4 2010, adjusted for normal seasonality
• Manufacturing levelSignificantly higher year over yearSlightly higher compared to Q4 2010, adjusted for normal seasonality
19
•
A leading supplier of lubrication systems and tools
•
Headquarter in St. Louis, Missouri, USA
•
Sales of around USD 400 m in 2010
•
About 2,000 employees
•
Total purchase price net:
around SEK 6.8 bn
•
Financing: around
SEK 3.2 bn
cash
(net) and SEK 3.6 bn
debt
Acquisition of Lincoln Industrial, Q4 2010
20New facilities
opened
in 2010
3factories
9 Solution Factories
-
in total 17
Haridwar, India Ahmedabad, IndiaTver, Russia
1Global Technical
Centre in Shanghai
21Examples
of new product
launches
in 2010
SKF Commutation Sensor-Bearing Unit
Four-row tapered roller bearing
SKF MetroCon
–
CBM for elevators and escalators
Low friction X-Tracker
SKF Cam Follower Unit
SKF SPEEDI-SLEEVE
SKF One Way Clutch
SKF Crane Asset Management
SKF Hydraulic driven lubricator
SKF Engineering Simulation
Services
SKF solutions for special pumps
SKF Overrunning Alternator
Pulley Unit
SKF Drum Support Unit
SKF Low Friction Engine
Seal
High performance seal
2010: 251 first filings
of patent applications
22Six
Sigma
2010 status:•
463 Black Belts
•
2,059 Green Belts
•
1,155 projects
closed
Hard savings2005: SEK 150 m 2006:
SEK 200 m2007:
SEK 302 m2008: SEK 462 m2009:
SEK 430 m2010:
SEK 468 m
4 dimensions:”Standard”
Six
Sigma, Design for Six
Sigma, Lean
Six
Sigma and Six
Sigma for Growth
23Sales volume
-35-30-25-20-15-10-505
101520
% change y-o-y
2008 2009 2010
24Sales in local currencies (excl. structural changes)
-30-25-20-15-10-505
101520
% change y-o-y
2008 2009 2010
25
-20
-15
-10
-5
0
5
10
15
20
2008 2009 2010
Growth in local currency (Organic growth + acquisition/divestments)
% y-o-y
Acquisitions/Divestments
Organic growth
7.1%-19.0%
14.2%
26
Europe
+17%
Asia/Pacific +20%
Latin America +16%
Middle East & Africa +8%
North America +17%
Growth
development
by geography Local
currency
Q4 2010 vs Q4 2009
27
Europe
+7%
Asia/Pacific +31%
Latin America +20%
Middle East & Africa +10%
North America +13%
Growth
development
by geography Local
currency
2010 vs 2009
28Components in net sales
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4Fullyear
4.9 6.2 2.7 -13.0 -26.9 -30.8 -24.9 -14.1 5.3 16.6 19.0 16.3 14.1
1.0 1.3 0.5 2.4 1.4 1.1 1.2 0.4 0.0 0.0 0.0 0.0 0.0
3.8 4.0 6.4 8.5 7.1 5.6 3.7 0.3 -0.3 -0.5 0.3 0.9 0.1
9.7 11.5 9.6 -2.1 -18.4 -24.1 -20.0 -13.4 5.0 16.1 19.3 17.2 14.2
-1.2 -4.1 -0.9 10.3 13.6 12.2 6.6 -1.4 -7.7 -5.2 -3.2 -6.2 -5.6
8.5 7.4 8.7 8.2 -4.8 -11.9 -13.4 -14.8 -2.7 10.9 16.1 11.0 8.6
Percent y-o-y
Volume
Structure
Price / Mix
Sales in local currency
Currency
Net sales
2008 2009 2010
29Operating profit
0200400600800
1 0001 2001 4001 6001 8002 0002 2002 400SEKm
2008 2009
Restructuring
and one-time
items
2010
30Operating margin
%
0
2
4
6
8
10
12
14
16
2008 2009
Restructuring
and one-time
items
2010
31Operating margin
0
2
4
6
8
10
12
14
16
2008 2009 2010
%
12.2
5.7
12.7*
8.0*
Restructuring
and one-time
items
* Excluding
restructuring
and one-time
items
14.2*
13.8
32
-12-10
-8-6-4-202468
1012141618
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
Operating margin per division
IndustrialService
Automotive
%
2008
Excluding one-off items
(eg. restructuring, impairments, capital gains)
2009 2010
33
SEKm 2010 2009
Net sales 15,409 13,887
Operating profit 2,202 1,004
Operating margin, % 14.3 7.2
Operating margin excl. restructuring, % 14.9 10.1
Profit before taxes 2,048 765
Net profit 1,350 505
Basic earnings per share, SEK 2.87 1.05
Cash flow* -5,966 1,445
Cash flow* excl. acquisition of Lincoln Industrial 798
Fourth quarter 2010
*after investments before financing
34
SEKm 2010 2009
Net sales 61,029 56,227
Operating profit 8,452 3,203
Operating margin, % 13.8 5.7
Operating margin excl. restructuring, % 14.2 8.0
Profit before taxes 7,549 2,297
Net profit 5,296 1,705
Basic earnings per share, SEK 11.28 3.61
Cash flow* -2,838 5,752
Cash flow* excl. acquisition of Lincoln Industrial 3,926
Full year 2010
*after investments before financing
35
18
19
20
21
22
23
24
25
Inventories as % of annual sales
% Long-term target level: 18%
2008 2009 2010
X Excluding
acquisition
of Lincoln Industrial
36Cash flow, after investments before financial items
-6 000-5 500-5 000-4 500-4 000-3 500-3 000-2 500-2 000-1 500-1 000
-5000
5001 0001 5002 0002 500SEKm
2008 2009 2010
Cash out fromacquisitions (SEKm):
2008 1,2842009
2412010
6,799
X Excluding
acquisition
of Lincoln Industrial
37Return on capital employed
0
5
10
15
20
25
30
2008 2009 2010
ROCE: Operating profit plus interest income, as a percentage of twelve months average of total assets less the average of non-
interest bearing liabilities.
%
24.0
9.1
24.0
38Net debt (Short-term financial assets minus loans and post-employment benefits)
-18 000
-16 000
-14 000
-12 000
-10 000
-8 000
-6 000
-4 000
-2 000
0
SEKm AB SKF, dividend paid (SEKm):2008 Q2
2,2772009 Q2
1,5942010 Q2
1,594
Redemption (SEKm):2008 Q2
2,277
2008 2009 2010
Cash out fromacquisitions (SEKm):
2008 1,2842009
2412010
6,799
39Debt structure
Maturity years, EURm
55
446
530
100100
•
Credit
facilities:
EUR 500 m 2014, whereof
EUR 400* m utilized
SEK 3,000 m 2017, unutilized
•
No financial
covenants
nor
material adverse
change
clause
130
400*
0
100
200
300
400
500
600
2010 2011 2012 2013 2014 2015 2016
130
400*
40Key focus areas ahead 2010
• Profit and cash flow
•
Adjustment of manufacturing output to new demand levels
• Growing segments and geographies
• Strengthening the platform/segment approach
• Competence development
SKF Care and Six Sigma as guiding lights
41Key focus areas ahead 2010
• Profit and cash flow
•
Adjustment of manufacturing output to new demand levels
• Growing segments and geographies
• Strengthening the platform/segment approach
• Competence development
SKF Care and Six Sigma as guiding lights
42Dividend proposal
AB SKF’s Board proposes the Annual General Meeting
an increase in the dividend of 43%, giving a dividend of SEK 5.00 (3.50) per share
43December 2010: Outlook for the first quarter 2011
Development compared to the first quarter last yearThe demand for SKF products and services is expected to be significantly higher for the Group, the divisions and for the different geographical areas.
Development compared to the fourth quarter 2010 and adjusted for
normal seasonalityThe demand is expected to be slightly higher for the Group and for the different geographical areas. The Industrial Division and the Service Division are expected to be slightly higher and the Automotive Division higher.
Manufacturing levelThe manufacturing level will be significantly higher year on year and slightly higher compared to the fourth quarter, adjusted for normal seasonality.
44Volume
trends, regions (based
on current
assumptions
and adjusted
for seasonality)
Daily volume
trends for: Q4 2010 Q1 2011
Net
sales2010
Europe 46%
North America 18%
Asia
Pacific 27%
Latin America 7%
Total
Outlook Q12011 vs 2010
+++
+++
+++
+++
+++
45Volume
trends, divisions (based
on current
assumptions
and adjusted
for seasonality)
Daily volume
trends for Q1 2011
Net
sales2010
Industrial 32%
Service 36%
Automotive 30%
Total
Outlook Q12011 vs 2010
+++
+++
+++
+++
46
5%
25%
18%
10%
5%
4%
14%
12%
3%
4%
Energy
Industrial distribution
Industrial OEM, General+Special
Industrial OEM, Heavy
+ Off-highway
Aerospace
Railway
Cars
Vehicle
Service Market
Electrical
and two-wheeler
Trucks
Sequential
volume
trend main
segments Q1 2011 (based
on current
assumptions)
Net
sales
2010
47Guidance for the first quarter 2011
•
Tax level: around 30%
•
Financial net for the first quarter: Around SEK -200 m
•
Exchange rates on operating profit versus 2010 Q1: SEK -150 m
Full year: SEK -900 m
•
Additions to PPE: Around SEK 2.3 bn
for 2011
Guidance is approximate and based on current assumptions and exchange rates.
48Long-term financial
targets
Targets
Operating margin level 15%Annual sales growth in local currencies 8%ROCE 27%Inventory to sales 18%
49Main initiatives
going
forward
• Accelerate profitable growth
• Reduce
cost
and eliminate
waste
• Invest for growth
One SKF and SKF Care as guiding lights
50Main actions
going
forward
Accelerate profitable growth
• Continue
to strengthen
the platform/segment approach
• Increase
the development, launch
and commercialisation
of new offerings
(green)
• Value
based
selling
–
using Documented
Solutions Programme
• Strengthen
our
service business
• Acquisitions
to strengthen
platform
offer
• Develop
other
brands of the SKF Group
51Main actions
going
forward
Reduce
cost
and eliminate
waste
•
Build
on Manufacturing
Excellence
into
other areas -
Business Excellence
•
Increased
manufacturing
and sourcing
in Best Cost
Countries
• Reduce
product
cost
through
ICR* activities
* ICR means
Integrated
Cost
Reduction
52Main actions
going
forward
Invest for growth
• Increase
sales
and engineering
resources
• Additional
factories
in growth
markets
• Additional
SKF Solution Factories
•
Increase
spending in R&D and improve
global network
-
accelerate
plans for India
and China
53Key focus areas ahead 2011
• Profit and cash flow-
manage currency and material headwinds
• Manufacturing and suppliers to support growth
• Growing segments and geographies
• Initiatives and actions to support long term targets
• Integration of Lincoln Industrial
• Business Excellence and competence development
One SKF and SKF Care as guiding lights
54Cautionary
statement
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”.
55Welcome
to the IR website
–
www.skf.com
> Investors
Investor Relations function:Head:Marita BjörkTel: +46 31 3371994Mobile: +46 705 181994E-mail: [email protected]
Assistant:Anna AlteTel: +46 31 3371988Mobile: +46 705 271988E-mail: [email protected]
Event coordinator and secretary:Helena KarlssonTel: +46 31 3372142Mobile: +46 705 642142E-mail: [email protected]
56