skf half-year results 2014

SKF Half-year results 2014 Tom Johnstone, President and CEO

15 July 2014

© SKF Group 15 July 2014

Examples of new business

• Envision Energy, China Strategic long-term partnership

• A customer in the automation industry Roller screw electromechanical cylinder

• Dongfang Electric New Energy Equipment Main shaft bearings

• Aurizon, Australia Service contract

• A customer in the oil and gas industry Asset management services

• Bosch Service, Brazil SKF’s vehicle aftermarket product range

Slide 2


Highlights

• Inauguration of SKF Campus and SKF North East Asia Distribution Centre in Shanghai.

• New SKF Solution Factory in Nieuwegein in the Netherlands.

• Events during the quarter: - SKF Wind Farm Management Conference in Berlin

- SKF Life Cycle Management Conference in Buenos Aires - SKF Asset Management Conference in Prague

Slide 3


Customer awards

Slide 4

• Best Technical and Service Award 2013 – Envision Energy, China

• Supplier Excellence Award 2013 – National Oilwell Varco (NOV), USA

• Premium Supplier Award – Joy Global Underground Mining LLC, USA

• Marine Supplier of the year Award 2014 – Rolls-Royce Marine

• Excellent Supplier Award – ABB Marine, China

• Supplier Certification of Appreciation – Nissan, China

• Quality Gold Award 2013 – Yamaha Motor Company

• The Qualitas Award – Fiat/Chrysler, Argentina


New products and solutions

Slide 5

SKF Wireless MicroVibe

SKF Wireless Machine Condition Sensor

SKF @ptitude Connect

SKF Shaft Alignment Tool

Low friction grease for hub bearing units

SKF Gear Bearing Unit

Floating piston

Electric grease transfer pump

SKF Tachometer

Low torque operator valve solution

Turbulo BlueMon emission monitoring system


SKF Group – Q2 2014

Slide 6

Financial performance (SEKm) 2014 2013 Net sales 17,955 16,392 Operating profit 2,096 1,837 Operating margin, % 11.7 11.2 Operating margin excl. one-time items, % 12.3 12.4 Profit before tax 1,761 1,627 Basic earnings per share, SEK 2.54 2.36 Cash flow after investments before financing excl. EU payment 1,423 1,147 Cash flow after investments before financing -1,402 1,147

Organic sales growth in local currency: SKF Group 4.6% Europe 1% Strategic Industries 11.1% North America 3% Regional Sales and Service 2.0% Asia 14% Automotive 1.3% Latin America 2%

Middle East and Africa 14% Key points Sales volumes up by 3.6% y-o-y. Manufacturing was slightly higher compared to last year.


SKF Group – Half year 2014

Slide 7

Financial performance (SEKm) 2014 2013 Net sales 34,689 31,544 Operating profit 4,120 3,317 Operating margin, % 11.9 10.5 Operating margin excl. one-time items, % 11.9 11.9 Profit before tax 3,548 2,864 Basic earnings per share, SEK 5.26 4.10 Cash flow after investments before financing excl. EU payment 1,164 255 Cash flow after investments before financing -1,661 255

Organic sales growth in local currency: SKF Group 5.2% Europe 3% Strategic Industries 9.0% North America 3% Regional Sales and Service 2.2% Asia 13% Automotive 4.5% Latin America 1%

Middle East and Africa 18% Key points Sales volumes up by 5.0% y-o-y. Manufacturing was higher compared to last year.


Organic sales growth in local currency

Slide 8

-10-8-6-4-202468

10

% change y-o-y

2012 2013 2014


Organic sales growth in local currency

Slide 9

-4

-2

0

2

4

6

8

2012 2013 YTD 2014

% y-o-y

Structure in 2012: 0.4% Structure in 2013: 2.5% Structure in 2014: 4.2%

-2.5%

-0.7%

5.2%


Sales development by geography Organic growth in local currency Q2 2014 vs Q2 2013

Slide 10

Europe 1%

Asia/Pacific 14%

Middle East & Africa

14%

Latin America

2%

North America

3%


Sales development by geography Organic growth in local currency YTD 2014 vs YTD 2013

Slide 11

Europe 3%

Asia/Pacific 13%

Middle East & Africa

18%

Latin America

1%

North America

3%


Components in net sales

Slide 12

2012 2013 2014 Percent y-o-y Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2

Volume -0.8 -2.8 -5.0 -5.9 -8.7 -1.6 2.2 7.1 6.2 3.6

Structure -0.1 0.0 0.8 1.0 1.5 2.6 1.1 4.8 4.7 3.8

Price/mix 1.9 2.0 0.5 0.7 0.7 -0.6 -0.2 -0.2 -0.4 1.0

Sales in local currency 1.0 -0.8 -3.7 -4.2 -6.5 0.4 3.1 11.7 10.5 8.4

Currency 0.4 3.6 -2.7 -3.6 -4.0 -5.0 -2.2 -2.1 -0.1 1.1

Net sales 1.4 2.8 -6.4 -7.8 -10.5 -4.6 0.9 9.6 10.4 9.5


Operating profit as reported

Slide 13

-2 000-1 500-1 000

-5000

5001 0001 5002 0002 5003 000

SEKm

2012 2013 2014


Operating profit excluding one-time items

Slide 14

0

500

1000

1500

2000

2500SEKm

2012 2013 2014


Operating margin

Slide 15

0

2

4

6

8

10

12

14

16

2012 2013 YTD 2014

%

5.8

11.3

12.0* 11.9*

One-time items * Excluding one-time items

11.9*

11.9

© SKF Group 15 July 2014 Slide 16

-3

0

3

6

9

12

15

18

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2

Regional Sales and Service

Specialty Business

Automotive

%

2012 2013 2014

Operating margin per business area as reported

Strategic Industries

© SKF Group 15 July 2014 Slide 17

-3

0

3

6

9

12

15

18

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2

Regional Sales and Service

Specialty Business

Automotive

%

2012 2013 2014

Operating margin per business area excl. one-time items

Strategic Industries


SKF’s programme to improve efficiency and reduce cost

Slide 18

Q4/12 Q1/13 Q2/13 Q3/13 Q4/13 2013 Q1/14 Q2/14 Total

Cost taken 200 250 190 0 50 490 0 100 790

People affected 530 410 320 0 130 860 0 170 1,560

Q1/13 Q2/13 Q3/13 Q4/13 2013 Q1/14 Q2/14 2014

Restructuring 15 35 75 75 200 70 50 120

S&A 50 50 50 50 200 0 0 0

Purchasing 100 100 100 100 400 60 100 160

Total 165 185 225 225 800 130 150 280

Restructuring, SEKm:

Realized gross savings from total programme, SEKm:

Full year gross saving 150 100 80 0 40 220 0 100 470

Giving future gross savings, SEKm:

vs 2012 vs 2013

Note: Run rate Q2 2014 SEK 1,340 million vs 2012.


Operating profit bridge, Q2 2014

Slide 19

0

500

1000

1500

2000

2500

3000

+160 1,837 +160 2,096

+134 +150 +70 -120

-295

SEKm

Q2 2013 Q2 2014 Volumes excl.

Specialty Business

Specialty Business

Savings One-time items

Currencies R&D, inflation etc.

Price/mix


Operating profit bridge, half year 2014

Slide 20

0500

100015002000250030003500400045005000

+400 3,317

+60 4,120 +240

+280 +440 -220

-397

SEKm

Q2 2013 Q2 2014 Volumes excl.

Specialty Business

Specialty Business

Savings One-time items

Currencies R&D, inflation etc.

Price/mix


Net working capital as % of annual sales

Slide 21

2526272829303132333435

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2

%

2012 2013 2014

Target: 27%


Return on capital employed

Slide 22

0

5

10

15

20

2012 2013 YTD 2014

%

14.6*

7.5 8.7

16.2

17.1* 15.1*

One-time items * Excluding one-time items

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.


-7 000

-6 000

-5 000

-4 000

-3 000

-2 000

-1 000

0

1 000

2 0001)

2)

3)

Cash flow, after investments before financing

Slide 23

SEKm

2012 2013 2014 Excl. acq. and div.: 1) Q3 2012 SEK 1,707 million 2) Q1 2013 SEK -69 million 3) Q3 2013 SEK 871 million 4) Q4 2013 SEK 1,170 million Excl. EU payment 5) Q2 2014 SEK 1,423 million

4) 5)


Net debt

Slide 24

-35 000

-30 000

-25 000

-20 000

-15 000

-10 000

-5 000

0SEKm

2012 2013 2014

AB SKF, dividend paid (SEKm): 2012 Q2 2,504 2013 Q2 2,530 2014 Q2 2,530

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

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

EU payment (SEKm): 2014 Q2 2,825


Debt structure, maturity years

Slide 25

0

100

200

300

400

500

600

700

800

900

2015 2016 2017 2018 2019 2020 2021

EURm

• Available credit facilities: EUR 500 million 2019 SEK 3,000 million 2016 SEK 3,000 million 2017

• No financial covenants nor material adverse change clause

200

100 100 110

500 500

850


July 2014: SKF demand outlook Q3 2014

Slide 26

Demand compared to the third quarter 2013 The demand for SKF’s products and services is expected to be slightly higher for the Group and North America, higher for Asia, relatively unchanged for Europe and slightly lower for Latin America. It is expected to be higher for Strategic Industries and relatively unchanged for Regional Sales and Service and Automotive. Demand compared to the second quarter 2014 The demand for SKF’s products and services is expected to be relatively unchanged for the Group and Europe. It is expected to be slightly higher for North America and Asia and slightly lower for Latin America. For Strategic Industries it is expected to be slightly higher and for Regional Sales and Service and Automotive it is expected to be relatively unchanged. Manufacturing Manufacturing is expected to be slightly higher year over year and relatively unchanged compared to the second quarter.


SKF demand outlook Q3 2014, main regions

Share of net sales 2013

Europe 42%

Asia Pacific 24%

North America 24%

Latin America 7%

Total

Q3 2014 vs Q3 2013

+/-

++

+

-

+

Slide 27

Sequential trend for Q3 2014


SKF demand outlook Q3 2014, main business areas


Strategic Industries 29%

Regional Sales and Service 39%

Automotive 27%

Total

Q3 2014 vs Q3 2013

++

+/-

+/-

+

Slide 28

Sequential trend for Q3 2014


SKF sequential volume trend Q3 2014, Industries

Slide 29

6% Aerospace

5% Energy

4% Railway

2% Two-wheelers and Electrical

29% Industrial distribution

14% Cars and light vehicles

13% Industrial, heavy, special and off-highway

11% Vehicle service market

11% Industrial, general

5% Trucks



Guidance for the third quarter 2014*

Slide 30

• Tax level: around 30%

• Financial net for the third quarter: Around SEK -230 million

• Currency impact on operating profit versus 2013 Q3: SEK +50 million

Full year: SEK -70 million

• Additions to PPE: Around SEK 1.6 billion for 2014

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


SKF’s priorities

Slide 31

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 • IT systems and mobility

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

Capital efficiency • Fixed capital • Net working capital


Cautionary statement

Slide 32

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”.

skf half-year results 2014

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