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The SKF Group. SKF Investor Relations February 2011. SKF - 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

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The skf group

The SKF Group

SKF Investor Relations

February 2011


Skf a truly global company

SKF - 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 14001

  • OHSAS 18001 certification


Net sales by customer segment 2010

Net sales by customer segment 2010

Cars and light trucks

Industrial distribution

14%

25%

Aerospace

5%

Railway

Commercial transport

4%

Off-highway

3%

4%

Trucks

12%

3%

Vehicle Service Market

Two-wheeler and Electrical

5%

13%

5%

Special industrial equipment

7%

General industry

Energy

Heavy industry

Industrial business


The skf group

(1998)

(2002)

SKF 2010

Net sales

Average number of employees

Tangible asset

(12)

(9)

(10)

(14)

(13)

(8)

(25)

(14)

(26)

(19)

(13)

(18)

North America

WesternEurope

Eastern Europe

Sweden

Latin America

Middle East and Africa

Asia/Pacific

% of group total


Skf group vision

SKF Group Vision

To equip the world

with SKF knowledge


Investing in new factories

Investing in new factories

Ahmedabad, India

  • Haridwar, India

Tver, Russia

Dalian, China


Skf solution factory

SKF Solution Factory

Platforms & Technology Competence

Segments & Application Knowledge

SKF

Solution Factory

Capabilities

Sealing Solutions

Lubrication Solutions

Mechanical Services

Remote Monitoring Center

Bearing Service Workshop

Condition Monitoring Services

A & MC

MaPro/CoMo Product Repair

Training Center


17 skf solution factories 2010

Nordic

(Gothenburg)

Moscow

Edmonton

UK

France

Germany

Italy

Tianjin

Istanbul

Shanghai

Houston

Taiwan

Monterrey

Mexico

Pune

Colombia

Opened

Brasil “IXION”

Planned

Johannesburg

17 SKF Solution Factories 2010


The skf group

SKF wind energy industry

New CRB-design with

extra-high carrying capacity

for wind-gearboxes.

New pitch bearing

design with improved

corrosion protection

SKF WindCon 3.0/Webcon

Intranet supervised

condition monitoring

DRTRB-unit “Nautilus” with segmented cage

for minimized friction

Automatic centralized

lubrication kits for

reduced maintenance cost

XL Hybrid bearings

with ceramic balls

for superior insulation


What is skf knowledge

What is SKF knowledge?


Skf s platforms

SKF’s platforms

Bearings

and units


Skf s platforms1

SKF’s platforms

Seals


Skf s platforms2

SKF’s platforms

Mechatronics


Skf s platforms3

SKF’s platforms

Lubrication systems


Skf s platforms4

SKF’s platforms

Services


Acquisition 2003 2010 identifying gaps and opportunities in all platforms

Acquisition 2003-2010Identifying gaps and opportunities in all platforms

Seals

Services

Bearings

and units

Lubrication

systems

Mechatronics

Safematic(2006)

ABBA(2007)

Economos(2006)

SNFA(2006)

Macrotech(2006)

Macrotech (2009)

Jaeger(2005)

GLO(2008)

S2M(2007)

Baker(2007)

Vogel(2004)

Lincoln Industrial(2010)

PMCI(2007)

ALS(2007)

QPM(2008)

TCM (2003)

Sommers(2005)

PB&A(2006)

Scandrive(2003)

Monitek(2006)

Cirval(2008)

Peer(2008)


Cost split of total expenses 2010 sek 52 438 m

Cost split, % of total expenses (2010: SEK 52,438 m)

Depreciation & amortization

~4%

~20% Raw material (example: bars, tubes and rings)

~50% Components (example: forged and turned rings)

Material ~34%

Other ~27%

~30% Other (shop supplies and traded products etc.)

Employees

~35%


The skf group1

The SKF Group

Tom Johnstone, President and CEO

1 February 2011


Key points q4 report

Key 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 2010

  • Slightly higher sequentially compared to Q4 2010, adjusted for normal seasonality

  • Manufacturing level

  • Significantly higher year over year

  • Slightly higher compared to Q4 2010, adjusted for normal seasonality


Acquisition of lincoln industrial q4 2010

Acquisition of Lincoln Industrial, Q4 2010

  • 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


New facilities opened in 2010

Tver, Russia

Haridwar, India

Ahmedabad, India

1

Global Technical Centre in Shanghai

New facilities opened in 2010

  • 3

  • factories

9 Solution Factories - in total 17


Examples of new product launches in 2010

Examples of new product launches in 2010

Low friction X-Tracker

Four-row tapered roller bearing

SKF Engineering Simulation Services

SKF Commutation Sensor-Bearing Unit

SKF Overrunning Alternator

Pulley

Unit

SKF Hydraulic

driven lubricator

SKF Crane Asset Management

SKF MetroCon –

CBM for elevators and escalators

SKF Drum Support Unit

SKF Cam Follower

Unit

SKF solutions for special pumps

SKF SPEEDI-SLEEVE

High

performance

seal

SKF Low

Friction

Engine

Seal

SKF One Way Clutch

2010: 251 first filings of patent applications


Six sigma

2010 status:

463 Black Belts

2,059 Green Belts

1,155 projects closed

Six Sigma

Hard savings

2005: SEK 150 m

2006: SEK 200 m

2007: SEK 302 m

2008: SEK 462 m

2009: SEK 430 m

2010: SEK 468 m

4 dimensions:

”Standard” Six Sigma, Design for Six Sigma, Lean Six Sigma and Six Sigma for Growth


The skf group

Sales volume

% change y-o-y

2008

2009

2010


The skf group

Sales in local currencies (excl. structural changes)

% change y-o-y

2010

2009

2008


Growth in local currency organic growth acquisition divestments

Growth in local currency(Organic growth + acquisition/divestments)

% y-o-y

14.2%

7.1%

-19.0%

Organic growth

Acquisitions/Divestments


Growth development by geography local currency q4 2010 vs q4 2009

Growth development by geography Local currency Q4 2010 vs Q4 2009

Europe+17%

North America +17%

Asia/Pacific +20%

Latin America +16%

Middle East & Africa +8%


Growth development by geography local currency 2010 vs 2009

Growth development by geography Local currency 2010 vs 2009

Europe+7%

North America +13%

Asia/Pacific +31%

Latin America +20%

Middle East & Africa +10%


Components in net sales

Components in net sales

2009

2008

2010

Percent y-o-y


Operating profit

Operating profit

SEKm

2010

2009

2008

Restructuring and one-time items


Operating margin

Operating margin

%

2009

2008

2010

Restructuring and one-time items


Operating margin1

Operating margin

%

14.2*

12.7*

13.8

12.2

8.0*

5.7

Restructuring and one-time items

* Excluding restructuring and one-time items


Operating margin per division

Operating margin per division

%

Service

Industrial

Automotive

2010

2009

2008

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


Fourth quarter 2010

Fourth quarter 2010

*after investments before financing


Full year 2010

Full year 2010

*after investments before financing


Inventories as of annual sales

Inventories as % of annual sales

Long-term target level: 18%

%

Excluding acquisition of Lincoln Industrial

X

2008

2009

2010


Cash flow after investments before financial items

Cash flow, after investments before financial items

SEKm

Excluding acquisition of Lincoln Industrial

X

Cash out from

acquisitions (SEKm):

2008 1,284

2009241

20106,799

2008

2010

2009


Return on capital employed

Return on capital employed

%

24.0

24.0

9.1

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


Net debt short term financial assets minus loans and post employment benefits

Net debt(Short-term financial assets minus loans and post-employment benefits)

AB SKF,

dividend paid (SEKm):

2008 Q22,277

2009 Q21,594

2010 Q21,594

Redemption (SEKm):

2008 Q22,277

SEKm

Cash out from

acquisitions (SEKm):

2008 1,284

2009241

20106,799

2010

2009

2008


The skf group

Debt structure

Maturity years, EURm

530

446

400*

400*

100

100

130

55

130

  • Credit facilities:EUR 500 m 2014, whereof EUR 400* m utilizedSEK 3,000 m 2017, unutilized

  • No financial covenants nor material adverse change clause


Key focus areas ahead 2010

Key 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


Key focus areas ahead 20101

Key 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


Dividend proposal

Dividend 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


December 2010 outlook for the first quarter 2011

December 2010:Outlook for the first quarter 2011

Development compared to the first quarter last year

The 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 seasonality

The 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 level

The manufacturing level will be significantly higher year on year and slightly higher compared to the fourth quarter, adjusted for normal seasonality.


Volume trends regions based on current assumptions and adjusted for seasonality

Volume trends, regions(based on current assumptions and adjusted for seasonality)


Volume trends divisions based on current assumptions and adjusted for seasonality

Volume trends, divisions(based on current assumptions and adjusted for seasonality)


Sequential volume trend main segments q1 2011 based on current assumptions

Sequential volume trend main segments Q1 2011(based on current assumptions)

Net sales 2010


Guidance for the first quarter 2011

Guidance 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 2010Q1: 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.


Long term financial targets

Long-term financial targets

  • Targets

  • Operating margin level 15%

  • Annual sales growth in local currencies 8%

  • ROCE 27%

  • Inventory to sales 18%


Main initiatives going forward

Main initiatives going forward

  • Accelerate profitable growth

  • Reduce cost and eliminate waste

  • Invest for growth

One SKF and SKF Care as guiding lights


Main actions going forward

Main 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 – usingDocumented Solutions Programme

  • Strengthen our service business

  • Acquisitions to strengthen platform offer

  • Develop other brands of the SKF Group


Main actions going forward1

Main 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


Main actions going forward2

Main 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


Key focus areas ahead 2011

Key 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


Cautionary statement

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”.


Welcome to the ir website www skf com investors

Welcome to the IR website – www.skf.com > Investors

Investor Relations function:

Head:

Marita Björk

Tel: +46 31 3371994

Mobile: +46 705 181994

E-mail: [email protected]

Assistant:

Anna Alte

Tel: +46 31 3371988

Mobile: +46 705 271988

E-mail: [email protected]

Event coordinator and secretary:

Helena Karlsson

Tel: +46 31 3372142

Mobile: +46 705 642142

E-mail: [email protected]


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