Henrik Lange Executive Vice President and CFO

Henrik Lange Executive Vice President and CFO

CMD 2013

© SKF Group CMD 2013

Agenda

• Financial development

• Cash flow, working capital

• Financial position

• Second brand strategy

• Acquisitions

Financial development1


Half year 2013

SEKm 2013 2012

Net sales 31,544 34,105

Operating profit 3,317 4,185

Operating margin, % 10.5 12.3

Operating margin excl. one-offs, % 11.9 12.7

Profit before taxes 2,864 3,730

Net profit 1,922 2,570

Basic earnings per share, SEK 4.10 5.44

Cash flow, after investments before financing 255 1,382

© SKF Group

-3

0

3

6

9

12

15

18

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2

Operating margin per business area

Strategic Industries

Regional Sales and Service

Automotive

%

2011 2012 2013

Excluding one-off items(eg. restructuring, impairments, capital gains)

CMD 2013


On sales including Intra-Group sales

H1 2013

On external net sales approx. figures

H1 2013

Automotive business (~28%)

Automotive

Automotive excluding one-off

4.4%

5.0%

5.3%

6.0%

Industrial business (~68%)

Strategic Industries 9.2%

SI excluding one-off 11.2%

Regional Sales and Service 11.5%

RSS excluding one-off 11.7%

Industrial business 13.0%

Industrial business excluding one-off 14.6%

Business segment margins


-4

-2

0

2

4

6

8

10

12

14

16

1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

%

SKF Group – operating margin development

Including one-off costs

Excluding one-off costs


How did we get there?

SKF today – more robust, more diverse

• Divesting and outsourcing component manufacturing, reducing fixed cost and invested capital

• Manufacturing footprint in best cost countries

• Customized solutions, value added products, technology platforms

• Diversifying growth, faster growing segments and geographies

• Acquisitions supporting growth and profitability

Cash flow, working capital 2


Cash flow, after investments before financing

-1 000

-500

0

500

1 000

1 500

2 000

2 500

SEKm

2011 2012 2013

* SEK 1,707 million, excluding acquisitions and divestments.

** SEK -69 million, excluding acquisitions and divestments.

*

**


Property, plant and equipment / Sales

18

20

22

24

26

28

30

02 03 04 05 06 07 08 09 10 11 12

%

-9 percentage points in 10 years


Inventories / Sales

%

18

19

20

21

22

23

02 03 04 05 06 07 08 09 10 11 12

Target 18%

-1 percentage points in 10 years


Net working capital / Sales

%

25

26

27

28

29

30

31

32

33

34

02 03 04 05 06 07 08 09 10 11 12

Flat over 10 years

NWC = Trade A/R + Inventories – Trade A/P


Capital management focus

• Continue PPE & sales ratio going forward

• Step-up activities to:

- reach long term stock target of 18% of sales

- improve A/R / sales ratio

- get effects on A/P from new purchasing activities

Financial position3


Financial position Q2 2013

Net debt, incl. pension liabilities SEK 18,776 million

Key measures

Gearing 54% Target level around 50%

Net debt/Equity 84% “ “ “ 80%

Credit ratings: S&P A-

Moody’s A3


0

100

200

300

400

500

600

2013 2014 2015 2016 2017 2018 2019 2020

EURm

265

100100100

500

110

500

• Available credit facilities:EUR 500 million 2017 SEK 3,000 million 2017

• No financial covenants nor material adverse change clause

Debt structure, maturity years

100


History of strong cash flow generation and a shareholder friendly distribution policy

2003 – H1 2013, accumulated rounded figures

SEKm

EBITDA 85,000 Investments (21%) 18,000

Fin. Net, taxes, wc, others (37%) -32,000 Acquisitions (16%) 14,000

Cash flow from operations (61%) 52,000 Dividends/redemption (35%) 30,000

Extra pension funding (4%) 3,000

Acquisitions4


Investments and innovation – Acquisitions 2003-2013

Products

Technologies

Geographies

Industries

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)

GBC (2012)

SealsBearingsand units

Lubrication systemsServices Mechatronics

BVI (2013)


Acquisitions in the last year

•General Bearing Cooperation (GBC)Acquired in August 2012

Net sales around USD 155 millionEmployees around 1,380Customers OEM and end-user in the truck, trailer, automotive

and industrial transportation marketsHeadquarter North AmericaFactories 3 in ChinaManufacturing ball bearings, tapered roller bearings

and precision roller bearings

•Blohm + Voss Industries (BVI)Acquired in February 2013

Net sales around EUR 100 millionEmployees around 400Headquarter GermanyManufacturing premium quality equipment for critical marine

applications, including shaft components (seals and bearings), stabilizers, and oily water separators


Acquisition criteria

• Strategic fit with clear potential synergies and ability to exploit these in a reasonable timeframe.

• Strong commitment and ownership by acquiring Business Area.

• Profitable high quality companies with strong management and preferably larger deals.

• EPS accretive in the first full year, positive TVA effect in two to three

years, including amortization of intangible assets.


Acquisition strategy for profitable growth

• Acquisitions are seen as one important driver for growth and value creation.

• Integration of Lincoln, General and BVI is going well so SKF is able to make additional larger acquisitions.

• SKF has the financial means and acquisition project resources in place to continue to pursue relevant acquisitions.

• Focus is on SKF platforms and PT products.

Second brand strategy5


Strategy for second brands

• Capture mid-market growth

• Lower cost manufacturing

• Global market approach

• Segment focus

- PEER, Industrial segments

- GBC, Auto, HD segments


Sustainable profitable growth – application specific products and second brands

• Knowledge engineering• Documented value• Cost reduction• Brand

• Application specific products

Second brands• Strong cost focus• Peer/General/Hyatt brands

Low

Middle

High


Business by industry

Truck & Trailer

Cars

OtherAgricultural

Other

TransmissionElectrical

Industrialdistribution

Fluidmachinery

Materialhandling


Key business message

• Continued strong performance

• Strong cash flow and financial position

- implement restructuring program

- working capital focus

• Acquisition opportunities

- in the SKF platforms

- “normal performance” companies

Henrik Lange Executive Vice President and CFO

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