SKF Year-end results 2012

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

30 January 2013Slide 2© SKF Group

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


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


Acquisitions in the last 12 months

•General Bearing Cooperation (GBC)Acquired in August 2012

Net sales around USD 155 millionEmployees around 1,380Customers OEM and end-user in the truck, trailer, automotive

and industrial transportation marketsHeadquarter North AmericaFactories 3 in ChinaManufacturing 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 millionEmployees around 400Headquarter GermanyManufacturing premium quality equipment for critical marine

applications, including shaft components (seals and bearings), stabilizers, and oily water separators


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.


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


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 College awarded 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


Some examples of new products in 2012

SKF ChainLube oil projection system

New temperature monitoring system for railway

Shaft sealing solutions

SKF Low Friction Hub Bearing Unit

SKF Bus Door Actuator

A hand-held, 18-volt,

lithium-ion grease gun

SKF SpeedSensor Unit

SKF Solar Hub

SKF Nautilus range extensions

SKF Compact Wire Steering

Bearing

SKF Machine Condition Indicator


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

First filing patent application +30%

+10%2.5% of sales

421


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


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


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


• Implement the new organization for the Industrial market


.


SKF Group – 2012

Financial performance 2012 2011Net sales, SEKm 64,575 66,216Operating profit, SEKm 7,333 9,612Operating margin, % 11.4 14.5Profit before tax, SEKm 6,511 8,932Cash 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-yManufacturing significantly lower y-o-yInventories down to 19.9% of sales

Europe: -4.7%North America:6.8%Asia: -9.5%Latin America:11.3%


Organic sales growth in local currency

-10

-5

0

5

10

15

20

25

20122010 2011

% change y-o-y


Europe-7%

Asia/Pacific -11%

Latin America

9%Middle East & Africa -9%

NorthAmerica

2%

Growth development by geography Organic growth in local currency Q4 2012 vs Q4 2011


Europe-5%

Asia/Pacific -10%

Latin America

11%Middle East & Africa -2%

North America

7%

Growth development by geography Organic growth in local currency 2012 vs 2011


Components in net sales

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4

5.3 16.6 19.0 16.3 20.1 12.6 6.2 0.0 -0.8 -2.8 -5.0 -5.9

0.0 0.0 0.0 0.0 5.0 4.4 5.1 4.8 -0.1 0.0 0.8 1.0

-0.3 -0.5 0.3 0.9 1.3 1.6 2.0 2.8 1.9 2.0 0.5 0.7

5.0 16.1 19.3 17.2 26.4 18.613.

37.6 1.0 -0.8 -3.7 -4.2

-7.7 -5.2 -3.2 -6.2 -10.8-

12.2-6.3 -2.1 0.4 3.6 -2.7 -3.6

-2.7 10.9 16.1 11.0 15.6 6.4 7.0 5.5 1.4 2.8 -6.4 -7.8

Percent y-o-y

Volume

Structure

Price/mix

Sales in local currency

Currency

Net sales

2010 2011 2012


-5

0

5

10

15

20

2010 2011 2012

Growth in local currency, including structure

% y-o-y

Structure in 2011: 4.8%Structure in 2012: 0.4%

14.2%

16.3%

-2.1%


Operating profit

0

300

600

900

1 200

1 500

1 800

2 100

2 400

2 700

SEKm

2010

One-time items

2011 2012


%

0

2

4

6

8

10

12

14

16

2010

One-time items

2011 2012

Operating margin


0

2

4

6

8

10

12

14

16

2010 2011 2012

%

One-time items * Excluding one-time items

14.7*14.2*

13.8 14.5 12.0*

Operating margin

11.4


-3

0

3

6

9

12

15

18

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4

Operating margin per business area

Strategic Industries

Regional Sales and Service

Automotive

%

2010 2011 2012

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


18

19

20

21

22

23

24

25

Inventories as % of annual sales

%

2010 2011 2012


Return on capital employed

0

5

10

15

20

25

30

2010 2011 2012

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.

%

16.2

24.0 23.6


Cash flow, after investments before financing

-6 000

-5 000

-4 000

-3 000

-2 000

-1 000

0

1 000

2 000

SEKm

2010 2011 2012

* SEK 798 million, excluding SEK 6,799 million for the acquisition of Lincoln.

**SEK 1,707 million, excluding acquisitions and divestments.

*

**


Net debt

-20 000

-18 000

-16 000

-14 000

-12 000

-10 000

-8 000

-6 000

-4 000

-2 000

0

SEKm

AB SKF, dividend paid (SEKm):2010 Q2 1,5942011 Q2 2,2772012 Q2 2,504

2010 2011 2012

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


0

100

200

300

400

500

600

2012 2013 2014 2015 2016 2017 2018 2019

EURm

265*

100100100**

500

110

0

500

• Available credit facilities:

EUR 500 million 2017 SEK 3,000 million 2017

• No financial covenants nor material adverse change clause

Debt structure on 31 December, maturity years

To adjust the debt structure: * Redemption of bonds 2013 - EUR 131 million

** Early repayment of loans 2014 - EUR 30 million


SEKm 2012 2011

Net sales 14,984 16,257

Operating profit 1,227 2,006

Operating margin, % 8.2 12.3

Profit before taxes 995 1,823

Net profit 1,011 1,205

Basic earnings per share, SEK 2.16 2.57


1,076 853

Fourth quarter 2012


SEKm 2012 2011

Net sales 64,575 66,216

Operating profit 7,333 9,612

Operating margin, % 11.4 14.5

Profit before taxes 6,511 8,932

Net profit 4,878 6,224

Basic earnings per share, SEK 10.37 13.29


3,555 3,848

Full year 2012


January 2013: SKF demand outlook Q1 2013

Demand compared to the first quarter 2012The 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 2012The demand for SKF’s products and services is expected to be relatively unchanged for the Group, for the business areas and for the regions.

ManufacturingManufacturing is expected to be lower year over year and higher compared to fourth quarter.


Share of net sales2012

Europe 44%

Asia Pacific 24%

North America

20%

Latin America 9%

Total

Q1 2013 vs Q1 2012

---

-

=

=

--

Sequential trend for Q1

2013

SKF demand outlook Q1 2013, regions(based on current assumptions)


Sequential trend for Q1 2013

Share of net sales2012

Strategic Industries

31%

Regional Sales and Service

39%

Automotive 27%

Total

Q1 2013 vs Q1 2012

--

-

--

--

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


6%

5%

28%

13%

13%

11%

10%

5%

4%

5%

Two-wheelers and electrical

Aerospace

Industrial distribution

Industrial, heavy, special and off-highway

Cars and light vehicles

Industrial, general

Vehicle service market

Energy

Railway

Trucks

Share of net sales 2012

SKF sequential volume trend Q1 2013, main segments(based on current assumptions)


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 2012Q1: SEK -50 millionFull year: SEK -250 million

• Additions to PPE: Around SEK 1.7 billion for 2013

Guidance is approximate and based on current assumptionsand exchange rates


Dividend proposal

AB SKF’s Board proposes an unchanged

dividend of

SEK 5.50 per share

to the Annual General Meeting


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


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




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”.


Documents

SKF Year-end results 2012