Agenda • Financial development • Cash flow, working capital • Financial position • Second brand strategy • Acquisitions
Operating margin per business area % Regional Sales and Service Strategic Industries Automotive 2012 2013 2011 Excluding one-off items(eg. restructuring, impairments, capital gains) CMD 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, after investments before financing SEKm * ** 2012 2013 2011 * SEK 1,707 million,excluding acquisitions and divestments. ** SEK -69 million, excluding acquisitions and divestments.
Property, plant and equipment / Sales % -9 percentage points in 10 years
Target 18% Inventories / Sales -1 percentage points in 10 years %
Flat over 10 years Net working capital / Sales % 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 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
Debt structure, maturity years EURm 500 500 265 110 100 100 100 100 • Available credit facilities: • EUR 500 million 2017 SEK 3,000 million 2017 • No financial covenants nor material adverse change clause
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
Investments and innovation – Acquisitions 2003-2013 Seals Services Bearings and units Lubrication systems Mechatronics Safematic(2006) ABBA(2007) Economos(2006) SNFA(2006) Baker(2007) Jaeger(2005) Macrotech(2006) Macrotech (2009) GLO(2008) S2M(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) BVI(2013) GBC(2012)
Acquisitions in the last year 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) Acquired in February 2013 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
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.
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 High Middle Low • Knowledge engineering • Documented value • Cost reduction • Brand • Application specific products • Second brands • Strong cost focus • Peer/General/Hyatt brands
Business by industry Industrial distribution Agricultural Truck & Trailer Material handling Other Other Fluid machinery Transmission Electrical Cars
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