SKF Half-year results 2013 Tom Johnstone, President and CEO
Highlights Q2 2013 • New business • 10-year contract worth SEK 900 million with Turbomeca • service contracts worth SEK 200 million in Latin America • contract for wheel hub bearing units (HBU3) to Volvo Car Corporation • Two new SKF Solution Factories • Inaugurated in Madrid, Spain and Katowice, Poland • Divestment, after quarter end • SKF divested its metallic rods business including the operations at the SKF sites in St. Vallier sur Rhône, France and Monroe, Washington, USA. Madrid, Spain Katowice, Poland
Highlights Q2 2013 • Research programme • SKF and INSA Lyon started a research programme to study the behavior of lubricants under extreme conditions for aerospace. • SKF Windfarm Management Conference • SKF’s eighth SKF Windfarm Management Conference was held in Warsaw, Poland. • Asset Management Conference • SKF hosted an Asset Management Conference in Dallas, USA with more than 160 customers. • SKF Distributor College awarded its 180,000th certificate.
New products - examples SKF Steering boot kits for cars and light trucks. SKF Telescopic pillars series CPMA and CPMB for medical equipment.
SKF Restructuring programme – costs and expected savings The savings for the second half year 2013 will be around SEK 150 million, evenly split between the third and the fourth quarter.
SKF Group – Q2 2013 • Financial performance 2013 2012 • Net sales, SEKm 16,392 17,174 • Operating profit, SEKm 1,837 2,049 • Operating margin, % 11.2 11.9 • Operating margin excl. restructuring,% 12.4 12.7 • Profit before tax, SEKm 1,627 1,774 • Cash flow, SEKm 1,147 686 • Organic sales growth in local currency: • SKF Group: -2.2% • Strategic Industries: -7.6% • Regional Sales and Service: -4.8% • Automotive: 7.7% • Key points • Sales volumes down by -1.6% y-o-y • Manufacturing relatively unchanged compared to last year • Inventories 21.6% of sales Europe: -4% North America: -1% Asia: -4% Latin America: 14%
Organic sales growth in local currency % change y-o-y 2011 2012 2013
Growth development by geographyOrganic growth in local currency Q2 2013 vs Q2 2012 Europe-4% North America -1% Asia/Pacific -4% Latin America 14% Middle East & Africa -3%
Growth development by geographyOrganic growth in local currency YTD 2013 vs YTD 2012 Europe-7% North America -6% Asia/Pacific -5% Latin America 11% Middle East & Africa -4%
Components in net sales 2013 2011 2012 Percent y-o-y
Growth in local currency, including structure % y-o-y 16.3% -2.1% -3.1% Structure in 2011: 4.8% Structure in 2012: 0.4% Structure in YTD 2013: 2.0%
Operating profit SEKm 2012 2011 2013 One-time items
Operating margin % 2011 2012 2013 One-time items
Operating margin % 14.7* 12.0* 14.5 11.9* 11.4 10.5 One-time items * Excluding one-time items
Operating margin per business area % Regional Sales and Service Strategic Industries Automotive 2012 2013 2011 Excluding one-off items(eg. restructuring, impairments, capital gains)
Inventories as % of annual sales % 2011 2012 2013
Return on capital employed One-off costs * Excluding one-off costs % 23.9* 23.6 17.2* 15.3* 16.2 13.8 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.
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.
Net debt SEKm AB SKF, dividend paid (SEKm): 2011 Q2 2,277 2012 Q2 2,504 2013 Q2 2,530 Cash out from acquisitions (SEKm): 2012 Q3 829 2013 Q1 823 2012 2013 2011 Net debt: Loans and net provisions for post-employment benefits less short-term financial assets excluding derivatives.
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
Half year 2013 * excluding acquisitions and divestments, SEK 1,078 million (1,401).
July 2013: SKF demand outlook Q3 2013 Demand compared to the third quarter 2012 The demand for SKF’s products and services is expected to be slightly higher for the Group, Asia and North America as well as for all the business areas. It is expected to be relatively unchanged for Europe and higher for Latin America. Demand compared to the second quarter 2013 The demand for SKF’s products and services is expected to be relatively unchanged for the Group, Europe, Asia and North America as well as for all the business areas. It is expected to be slightly higher for Latin America. Manufacturing Manufacturing is expected to be slightly higher year over year and relatively unchanged compared to the second quarter.
SKF sequential volume trend Q3 2013, main segments Share of net sales 2012
Guidance for the third quarter 2013* • Tax level: around 30% • Financial net for the third quarter:Around SEK -200 million • Currency impact on operating profit versus 2012 Q3: SEK -100 million • Full year: SEK -450 million • Additions to PPE: Around SEK 1.7 billion for 2013 * Guidance is approximate and based on current assumptions and exchange rates
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
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,
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 • Investments & Innovation • New and existing facilities • Research and development • Capital efficiency • Fixed cost reduction • Working capital efficiency • Cost reduction • Consolidation of manufacturing • Optimization and productivity improvements • Reduction in purchasing costs
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”.