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SKF Year-end results 2012

SKF Year-end results 2012. Tom Johnstone, President and CEO. Summary of the quarter. Weaker sales in the quarter - lower overall demand - inventory destocking in the market Impact on the operating margin due to significantly lower manufacturing Continued reduction on inventories

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SKF Year-end results 2012

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  1. SKF Year-end results 2012 Tom Johnstone, President and CEO

  2. Summary of the quarter Weaker sales in the quarter - lower overall demand - inventory destocking in the market Impact on the operating margin due to significantly lower manufacturing Continued reduction on inventories Strong cash flow Accelerated and expanded activities to reduce costs by SEK 3 billion by the end of 2015 and strengthen growth Acquisition of Blohm + Voss Industries

  3. Programme to improve efficiency, reduce cost and strengthen profitable growth • Main activities: • consolidation of production between sites • transfer of production from West Europe to serve faster growing markets with more local production • optimization and productivity improvements in the manufacturing and demand chain processes • consolidation of and efficiency improvements in administration and support functions • reduction in purchasing cost mainly through standardization and rationalization of the supplier base. • Reducing annual costs by SEK 3 billion by the end of 2015 • Total costs for the programme SEK 1.5 billion for the years 2012 to 2015 • 2,500 people impacted, early retirement and other voluntary and agreed reductions

  4. Acquisitions in the last 12 months • General Bearing Cooperation (GBC) • Acquired in August 2012 • Net sales around USD 155 million • Employees around 1,380 • Customers OEM and end-user in the truck, trailer, automotive and industrial transportation markets • Headquarter North America • Factories 3 in China • Manufacturing ball bearings, tapered roller bearings and precision roller bearings • Blohm + Voss Industries (BVI) • Transaction is subject to relevant regulatory approvals • Net sales around EUR 100 million • Employees around 400 • Headquarter Germany • Manufacturing premium quality equipment for critical marine applications, including shaft components (seals and bearings), stabilizers, and oily water separators

  5. BVI strengthening SKF’s position as a marine specialist • Strategic fit with SKF Marine growth strategy • Complementary product portfolio • Secure the leadership with propulsion system OEMs • Widen the scope of supply for the application life-cycle • Today, SKF sales to the marine industry is around SEK 1.5 billion. Main applications are propulsion systems, including thrusters, pods and gearboxes.

  6. Some examples of new businesses in 2012 • Industrial • new generation Nautilus bearing to Siemens • main shaft solutions to Vestas V112-3.0 MW turbine • axle boxes and wheel set bearing units to Siemens Rail Systems • SKF ConRo Compacts to a major metal industry customer • third strategic partnership agreement with Baosteel Group Corporation • maintenance services to LKAB • integrated maintenance solutions to Fibria • two custom-designed SKF spherical roller bearings, 8.8 tonnes each, for Caesars High Roller observation wheel in Las Vegas • Automotive • SKF Bus Door Actuator to Volvo Buses • rear wheel bearing units and front suspension bearing units to Volvo Car Corporation • wheel bearing units and clutch bearings to Audi • bearing and units to Scania for wheels and transmissions • bonded piston seals to Mazda Motor Corporation

  7. Some highlights from 2012 • SKF celebrated 100 years of business in China • - inaugurated a new bearing and truck hub unit factory in Jinan • - broke ground on a new regional distribution centre in Shanghai • - announced the establishment of a new SKF Campus in Jiading, Shanghai, containing a new factory for automotive and the Global Technical Centre China, SKF Solution Factory and SKF College • New facilities • - Railway test centre in Tver, Russia • - Five new SKF Solution Factory: USA, Romania, Italy, Australia and the Netherlands • Partnership • With Protean Electric for supplying products to Protean’s in-wheel electric motors for electric vehicles and hybrid cars. • Documented delivered value • SKF provided SEK 4.1 billion in verified savings for customers. • SKF Distributor Collegeawarded its 170,000th certificate • Dow Jones Sustainability Indexes and FTSE4Good • - member of DJSI indexes for the 13th successive year - included for the 12th successive year in the FTSE4Good Index Series

  8. New temperature monitoring system for railway SKF Solar Hub A hand-held, 18-volt, lithium-ion grease gun SKF Low Friction Hub Bearing Unit Shaft sealing solutions SKF Machine Condition Indicator SKF Bus Door Actuator Some examples of new products in 2012 • SKF ChainLube oil projection system SKF Compact Wire Steering Bearing SKF Nautilus range extensions SKF Speed Sensor Unit

  9. R&D – main areas and investments in 2012 • Main areas • Environment • Core technologies • New products • Strengthen R&D activities in fast growing regions • Strengthen links with universities and high schools +10% 2.5% of sales First filing patent application +30% 421

  10. Launch of new climate targets • SKF launched the SKF BeyondZero portfolio with products • and solutions, which will both improve energy efficiency and reduce the environmental impact. • SKF revised targets for its climate strategy and also partnered with the WWF in their Climate Savers Programme. Growth target: SEK 2.5 billion to SEK 10 billion by 2016

  11. Key focus areas ahead 2012 • Managing the uncertain and different demand environment • - regions and segments • Profit and cash flow • - inventory management • Initiatives and actions to support long-term financial targets • Continue the integration of Lincoln • Business Excellence and competence development • Implement the new organization for the Industrial market One SKF and SKF Care as guiding lights

  12. Key focus areas ahead 2012 • . • Managing the uncertain and different demand environment • - regions and segments • Profit and cash flow • - inventory management • Initiatives and actions to support long-term financial targets • Continue the integration of Lincoln • Business Excellence and competence development • Implement the new organization for the Industrial market One SKF and SKF Care as guiding lights

  13. SKF Group – 2012 • Financial performance 2012 2011 • Net sales, SEKm 64,575 66,216 • Operating profit, SEKm 7,333 9,612 • Operating margin, % 11.4 14.5 • Profit before tax, SEKm 6,511 8,932 • Cash flow, SEKm 3,555 3,848 • Organic sales growth in local currency: • SKF Group: -2.5% • Industrial market, Strategic Industries: -3.0% • Regional Sales and Service: -1.8% • Automotive: -3.4% • Key points • Sales volumes down by -3.9% y-o-y • Manufacturing significantly lower y-o-y • Inventories down to 19.9% of sales Europe: -4.7% North America: 6.8% Asia: -9.5% Latin America: 11.3%

  14. Organic sales growth in local currency % change y-o-y 2010 2011 2012

  15. Growth development by geographyOrganic growth in local currency Q4 2012 vs Q4 2011 Europe-7% North America 2% Asia/Pacific -11% Latin America 9% Middle East & Africa -9%

  16. Growth development by geographyOrganic growth in local currency 2012 vs 2011 Europe-5% North America 7% Asia/Pacific -10% Latin America 11% Middle East & Africa -2%

  17. Components in net sales 2010 2011 2012 Percent y-o-y

  18. Growth in local currency, including structure % y-o-y 16.3% 14.2% -2.1% Structure in 2011: 4.8% Structure in 2012: 0.4%

  19. Operating profit SEKm 2012 2011 2010 One-time items

  20. Operating margin % 2010 2011 2012 One-time items

  21. Operating margin % 14.7* 14.2* 12.0* 14.5 13.8 11.4 One-time items * Excluding one-time items

  22. Operating margin per business area % Regional Sales and Service Strategic Industries Automotive 2011 2012 2010 Excluding one-off items(eg. restructuring, impairments, capital gains)

  23. Inventories as % of annual sales % 2010 2011 2012

  24. Return on capital employed % 24.0 23.6 16.2 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.

  25. Cash flow, after investments before financing SEKm ** * 2011 2012 2010 * SEK 798 million,excluding SEK 6,799 million for the acquisition of Lincoln. ** SEK 1,707 million,excluding acquisitions and divestments.

  26. Net debt SEKm AB SKF, dividend paid (SEKm): 2010 Q2 1,594 2011 Q2 2,277 2012 Q2 2,504 2011 2012 2010 Net debt: Loans and net provisions for post-employment benefits less short-term financial assets excluding derivatives.

  27. Debt structure on 31 December, maturity years • Available credit facilities: • EUR 500 million 2017 SEK 3,000 million 2017 • No financial covenants nor material adverse change clause EURm 500 500 265* 110 100** 100 100 0 To adjust the debt structure: * Redemption of bonds 2013 - EUR 131 million ** Early repayment of loans 2014 - EUR 30 million

  28. Fourth quarter 2012

  29. Full year 2012

  30. January 2013: SKF demand outlook Q1 2013 • Demand compared to the first quarter 2012 • The demand for SKF’s products and services is expected to be lower for the Group. For Europe it is expected to be significantly lower, for Asia slightly lower and for North America and Latin America relatively unchanged. The demand is expected to be lower for Industrial Market, Strategic Industries and SKF Automotive, for Industrial Market, Regional, Sales and Services it is expected to be slightly lower. • Demand compared to the fourth quarter 2012 • The demand for SKF’s products and services is expected to be relatively unchanged for the Group, for the business areas and for the regions. • Manufacturing • Manufacturing is expected to be lower year over year and higher compared to fourth quarter.

  31. SKF demand outlook Q1 2013, regions(based on current assumptions) * Previously published shares have been restated in February 2013.

  32. SKF demand outlook Q1 2013, business areas(based on current assumptions

  33. SKF sequential volume trend Q1 2013, main segments(based on current assumptions) Share of net sales 2012* * Previously published shares have been restated in February 2013.

  34. Guidance for the first quarter 2013 • Tax level: around 30% • Financial net for the first quarter:Around SEK -200 million • Exchange rates on operating profit versus 2012 Q1: SEK -50 million • Full year: SEK -250 million • Additions to PPE: Around SEK 1.7 billion for 2013 Guidance is approximate and based on current assumptions and exchange rates

  35. Dividend proposal • AB SKF’s Board proposes an unchanged dividend ofSEK 5.50 per share to the Annual General Meeting

  36. New IT systems • Primarily for Sales/customer relationship, Purchasing, Demand chain and Finance • New common IT infrastructure for all five technology platforms • To implement common, best practice processes across the SKF Group globally, enabling business efficiency, speed and growth • Will be implemented over a number of years with initial roll-out in 2014

  37. Key focus areas 2013 • Managing the uncertain and different demand environment • - Profit and cash flow • Initiatives and actions to support long-term financial targets- New factories in Mysore and Bengaluru in India - New warehouse in Shanghai, China - SKF Campus in Shanghai, China, including:‣ New factory for automotive‣ Global Technical Centre China‣ SKF Solution Factory‣ SKF College - Integration of new acquisitions, GBC and BVI - Cost reduction and efficiency programme - New IT systems • Business Excellence and competence development One SKF and SKF Care as guiding lights

  38. 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”.

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