SKF Year-end results 2013 - marketscreener.com fileSKF started deliveries of wheel hub bearing units...

SKF Year-end results 2013 Tom Johnstone, President and CEO

© SKF Group

Key achievements 2013

28 January 2014 Slide 1

Bearing

Acquisitions and divestments: • acquisition of German-based ship components provider Blohm + Voss Industries (BVI) • acquisition of US-based Kaydon Corporation • divestment of the aerospace metallic rods business

New facilities: • lubrication systems laboratory in SKF Global Technical Centre, India • manufacturing unit in Pune in India for producing housings for bearings • gearbox remanufacturing centre in Tianjin, China • SKF opened six new SKF Solution Factories: in Toronto, Canada, in Manesar, India, in Urumqi, China and in Abu Dhabi, United Arab Emirates. There are now 27 SKF Solution Factories worldwide.

© SKF Group Slide 2

Key achievements 2013

• In 2013, SKF provided around SEK 4 billion in verified savings for customers and since 2003 the accumulated figure is over SEK 27 billion.

• SKF Distributor College awarded its 200,000th certificate. The recipient is Yang Chunxiao, an employee of Shandong Jiarui Industry Develop Co, Ltd, one of SKF’s Certified Maintenance Partners in China, who completed a course on ”selling value”.

28 January 2014

SKF was included in the FTSE4Good Index Series for the 13th successive year

SKF was included in the Dow Jones Sustainability Indexes for the 14th successive year

• SKF’s factories in Ahmedabad, India and in Dalian, China was awarded LEED Gold certification.

© SKF Group

Examples of new business in Q4 2013

• SKF is providing bearings, lubrication systems and engineering support for a US-based pump producer for London’s Lee Tunnel Project is building its largest-ever waste water pump, which will contribute to London’s storm water and sewage overflow issues.

• SKF received an order for compact tapered bearing unit from Tikhvin Freight Car Building Plant, affiliated to United Wagon Company LLC. The value of the order is around SEK 120 million.

• SKF was awarded by CSR ZHUZHOU ELECTRIC CO., LTD in China a contract for locomotive bearings for a value of SEK 76 million.

• SKF gained lubrication business worth SEK 38 million from a heavy industry customer in Peru.

Slide 3 28 January 2014

• SKF started deliveries of wheel hub bearing units and MacPherson suspension bearing units to Volvo Car Corporation in their new factory in Chengdu, China for the delivery of the newly launched Volvo S60L car model.

• SKF received an order from Hyundai Motors as a supplier of the recently launched robust MacPherson suspension bearing unit. The value of the order is around SEK 370 million.

© SKF Group

Examples of new business in Q1 – Q3 2013

New business

• with Pratt & Whitney, to supply engine main shaft bearings

• with Nordex for delivery of main shaft bearings and lubrication systems

• for automated lubrication systems installed in the MSC Home Terminal cranes in Belgium’s Port of Antwerp

• with Turbomeca a 10-year contract worth SEK 900 million

• with Fiat for the delivery of wheel hub bearing units, worth SEK 1 billion

• with Great Wall Motors in China for high pressure valve stem seals, hub bearing units and bearing retainers. SKF and Great Wall Motors also signed a strategic partnership for developing sustainable solutions in energy efficient vehicles.

• with Goldwind for SKF Nautilus bearing units, worth SEK 100 million

• with Tangshan Loco and Changchun Railway Co for wheel set bearings for high speed trains

• with Wuhan Iron & Steel Heavy Industry Group Co, Ltd (WISCO Heavy) to establish a remanufacturing centre in Wuhan, China.


© SKF Group 28 January 2014 Slide 5

Examples of new technologies, products and solutions 2013

High pressure valve stem seal with lower friction

SKF Extended Life spherical plain bearing

An energy efficient high speed permanent magnet solution

Sealed SKF single row angular contact ball

bearings

Reinforced all-rubber HSS seals

Super precisions bearings for

wood-working applications

SKF Axial excluder seal

SKF Condition Based Lubrication

SKF extreme temperature bearings

SKF Telescopic pillars series CPMA and CPMB for medical equipment

Robust angular steering column bearing

SKF InsightTM Internally powered sensors and data acquisition electronics sensing directly on the bearing


SKF Group – Q4 2013

Financial performance 2013 2012 Net sales, SEKm 16,430 14,984 Operating profit, SEKm -1,547 1,221 Operating margin, % -9.4 8.1 Operating margin excl. one-time costs,% 11.0 10.2 Profit before tax, SEKm -1,760 969 Cash flow, SEKm -6,732 1,076 Organic sales growth in local currency: SKF Group: 6.9% Strategic Industries: 6.5% Regional Sales and Service: 4.6% Automotive: 10.8% Key points Sales volumes up by 7.1% y-o-y Manufacturing higher compared to last year Inventories 21.5% of sales (20.9% excluding Kaydon)

Europe: 3% North America: 4% Asia: 15% Latin America: 11%

28 January 2014

© SKF Group 29 January 2014 Slide 7

SKF Group – 2013

Financial performance 2013 2012 Net sales, SEKm 63,597 64,575 Operating profit, SEKm 3,693 7,314 Operating margin, % 5.8 11.3 Operating margin excl. one-time costs,% 11.9 12.0 Profit before tax, SEKm 2,821 6,408 Cash flow, SEKm -5,342 3,555 Organic sales growth in local currency: SKF Group: -0.7% Strategic Industries: -4.1% Regional Sales and Service: -2.1% Automotive: 5.3% Key points Sales volumes down by -0.7% y-o-y Manufacturing relatively unchanged compared to last year Inventories 21.5% of sales (20.9% excluding Kaydon)

Europe: -3% North America: -3% Asia: 2% Latin America: 10%

28 January 2014

© SKF Group

Operating profit excluding one-time costs

SEKm Q4 2013 2013

Reported operating loss/profit -1,547 3,693

Reported operating margin -9.4% 5.8% One-time costs:

European Commission provision -3,000 -3,000

Kaydon -260 -260

Other -90 -615

Total one-time costs -3,350 -3,875

Operating profit excl. one-time costs 1,803 7,568

Operating margin excl. one-time costs 11.0% 11.9%


© SKF Group

Adjusted 2013 key figures

% Reported

2013 Excl. EC

provision Excl.

Kaydon

Inventories of annual sales 21.5 - 20.9

Net working capital of sales 31.7 - 30.6

ROCE 7.5 13.4 -

ROE 4.6 17.7 -

Equity/assets ratio 29.8 34.0 -

Gearing 52.9 56.0 -

Net debt/equity 117.3 102.7 -



Organic sales growth in local currency

2013 2011 2012

% change y-o-y

28 January 2014


Europe 3%

Asia/Pacific 15%

Latin America

11% Middle East

& Africa 16%

North America

4%

Growth development by geography Organic growth in local currency Q4 2013 vs Q4 2012

28 January 2014


Europe -3%

Asia/Pacific 2%

Latin America

10% Middle East

& Africa 3%

North America

-3%

Growth development by geography Organic growth in local currency 2013 vs 2012

28 January 2014


Components in net sales

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

Volume 20.1 12.6 6.2 0.0 -0.8 -2.8 -5.0 -5.9 -8.7 -1.6 2.2 7.1

Structure 5.0 4.4 5.1 4.8 -0.1 0.0 0.8 1.0 1.5 2.6 1.1 4.8

Price/mix 1.3 1.6 2.0 2.8 1.9 2.0 0.5 0.7 0.7 -0.6 -0.2 -0.2

Sales in local currency 26.4 18.6 13.3 7.6 1.0 -0.8 -3.7 -4.2 -6.5 0.4 3.1 11.7

Currency -10.8 -12.2 -6.3 -2.1 0.4 3.6 -2.7 -3.6 -4.0 -5.0 -2.2 -2.1

Net sales 15.6 6.4 7.0 5.5 1.4 2.8 -6.4 -7.8 -10.5 -4.6 0.9 9.6

2011 2012 2013

28 January 2014


Growth in local currency, including structure

% y-o-y

Structure in 2011: 4.8% Structure in 2012: 0.4% Structure in 2013: 2.5%

1.8%

16.3%

-2.1%

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Operating profit as reported

SEKm

2011 2012 2013

28 January 2014


Operating profit excluding one-time items

SEKm

2011 2012 2013

28 January 2014


0

2

4

6

8

10

12

14

16

2011 2012 2013

%

One-time items * Excluding one-time items

14.7*

11.9*

5.8

14.5 12.0*

Operating margin

11.4

28 January 2014


Operating margin per business area

Strategic Industries

Regional Sales and Service

Automotive

%

2011 2012 2013

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

28 January 2014


Inventories as % of annual sales

%

2011 2012 2013

28 January 2014

excl. Kaydon


Return on capital employed

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.

%

16.2

7.5

23.6 17.2*

15.1*

23.9*

One-time costs * Excluding one-time costs

28 January 2014

© SKF Group

New ROCE and Net working capital targets


SKF financial targets Previous targets New targets Operating margin level 15% 15%

Annual sales growth in local currencies 8% 8%

ROCE 27% 20% Net working capital of sales - 27% Inventories of sales 18% -

© SKF Group

Key elements of capital efficiency

18

20

22

24

26

28

30

02 03 04 05 06 07 08 09 10 11 12 13 *

-8 percentage points in 11 years

25

26

27

28

29

30

31

32

33

34

35

02 03 04 05 06 07 08 09 10 11 12 13 *

Flat over 11 years

Plant and property as % of sales Net working capital as % of sales

Main actions

• Continue PPE and sales ratio going forward • Step-up activities to: - work with flexibility in our factories to reduce inventory - improve collection of accounts receivables - get effects on A/P from new purchasing activities

* Excluding Kaydon * Excluding Kaydon



Cash flow, after investments before financing

SEKm

2011 2012 2013

Excl. acquisitions and divestments: * Q3 2012 SEK 1,707 million ** Q1 2013 SEK -69 million *** Q3 2013 SEK 871 million **** Q4 2013 SEK 1,170 million

*

**

***

28 January 2014

****


Net debt

SEKm

AB SKF, dividend paid (SEKm): 2011 Q2 2,277 2012 Q2 2,504 2013 Q2 2,530

2011 2012 2013

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

Cash out from acquisitions (SEKm): 2012 Q3 829 2013 Q1 823 2014 Q4 7,900

28 January 2014

© SKF Group

Debt structure, maturity years


EURm

100 100 100

500

110

500

850

• Available credit facilities: SEK 500 million 2017 SEK 3,000 million 2016 SEK 3,000 million 2017

• No financial covenants nor material adverse change clause


SEKm 2013 2012

Net sales 16,430 14,984

Operating loss/profit -1,547 1,221


Operating margin, % -9.4 8.1

Operating margin excl. one-time costs, % 11.0 10.2

Loss/profit before taxes -1,760 969

Net loss/profit -2,043 995

Basic earnings per share, SEK -4.57 2.12

Cash flow, after investments before financing -6,732 1,076

Fourth quarter 2013

28 January 2014


SEKm 2013 2012

Net sales 63,597 64,575

Operating profit 3,693 7,314


Operating margin, % 5.8 11.3

Operating margin excl. one-time costs, % 11.9 12.0

Profit before taxes 2,821 6,408

Net profit 1,044 4,816

Basic earnings per share, SEK 2.00 10.23

Cash flow, after investments before financing -5,342* 3,555*

Full year 2013

* excluding acquisitions and divestments, SEK 3,117 million (4,188). 28 January 2014


January 2014: SKF demand outlook Q1 2014

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

28 January 2014


Share of net sales 2013

Europe 42%

Asia Pacific 24%

North America 24%

Latin America 7%

Total

Q1 2014 vs Q1 2013

+

++

+

-

+

Sequential trend for Q1 2014

SKF demand outlook Q1 2014, regions

28 January 2014


Sequential trend for Q1 2014


Strategic Industries 29%

Regional Sales and Service 39%

Automotive 27%

Total

Q1 2014 vs Q1 2013

+/-

+

++

+

SKF demand outlook Q1 2014, business areas

28 January 2014


29%

14%

11%

11%

12%

5%

5%

3%

5%

5%

Industrial distribution

Cars and light vehicles

Vehicle service market

Industrial, general

Industrial, heavy, special and off-highway

Energy

Aerospace

Two-wheelers and Electrical

Railway

Trucks


SKF sequential volume trend Q1 2014, main segments

28 January 2014


Guidance for the first quarter 2014*

• Tax level: around 30%

• Financial net for the first quarter: Around SEK -250 million

• Currency impact on operating profit versus 2013 Q1: SEK -90 million

Full year: SEK -300 million

• Additions to PPE: Around SEK 1.6 billion for 2014

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

28 January 2014


Dividend proposal

AB SKF’s Board proposes an unchanged dividend of

SEK 5.50 per share to the Annual General Meeting

28 January 2014


SKF’s priorities

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

Capital efficiency • Fixed capital • Net working capital

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

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

28 January 2014


Cost reduction – specific programme 2012-2015

Main activities: • Consolidation of manufacturing - merger between sites - transfer to faster growing markets with more local production • Optimization and productivity improvements - in the manufacturing and demand chain processes - in administration and support functions • Reduction in purchasing cost - mainly through standardization and rationalization of the supplier base. Reduction of annual cost by SEK 3 billion by the end of 2015 - Total cost for the programme around SEK 1.5 billion - 2,500 people impacted,

28 January 2014

© SKF Group

SKF cost reduction programme - restructuring status

SEKm

Q4 2012

Q1 2013

Q2 2013

Q3 2013

Q4 2013

2013

Total

Cost 200 250 190 15 50 505 705

Full year saving 150 100 80 5 40 225 375

People 530 410 320 15 130 875 1,405


Cautionary 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”.

28 January 2014

SKF Year-end results 2013 - marketscreener.com fileSKF started deliveries of wheel hub bearing units...

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