Tom JohnstonePresident and CEO

SKF Capital Markets Day ● 10 September 2014

© SKF Group

• Business update - Group and Business Areas

• Activities/actions to support strategic priorities and financial targets - growth, operating margin, net working capital, ROCE

• Development in Asia and particularly China

• Specific industry/area focus - renewable energy, marine and lubrication

• Asset life cycle and mobility

• Customer view on SKF

SKF Capital Markets Day 2014 – Main topics

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Agenda

10.00 Group overview Tom Johnstone

Finance Henrik Lange

11.00 Strategic Industries incl. Q&A Rakesh MakhijaBernd StephanRobert Law

12.15 Coffee break

12.35 Regional Sales and Service incl. Q&A Vartan VartanianThomas FröstChristian Gill

13.50 Guest speaker Bruno van den Heuvel, RWE Power AG

14.20 Lunch

16.00 Automotive incl. Q&A Tryggve SthenLuc GrauxUlrich Selig

17.15 Coffee break

17.35 Summary and Q&A Tom JohnstoneHenrik Lange

18.30 Cocktail reception

CMD 2014

© SKF Group

Alrik Danielson, Designated CEO

New President and CEOas of 1 January 2015

Born: 1962

B.Sc in Business Administration and International Economics from the University of Gothenburg

1987-2005 Previous positions within SKF:

• Financial controller in Gothenburg

• President, Industrial Division in Spain and Portugal

• President, SKF do Brazil

• President, Industrial Division

and several other managerial positions.

2005-2014 Höganäs AB, President and CEO

CMD 2014

© SKF Group

Key topics

• Half year performance and outlook for Q3

• SKF Group financial targets and priorities

• Specific focus

- purchasing

- inventory reduction

- UNITE

- Kaydon

CMD 2014

© SKF Group

Key topics

• Half year performance and outlook for Q3

• SKF Group financial targets and priorities

• Specific focus

- purchasing

- inventory reduction

- UNITE

- Kaydon

CMD 2014

© SKF Group

SKF Group – Half year 2014

Financial performance (SEKm) 2014 2013

Net sales 34,689 31,544Operating profit 4,120 3,317Operating margin, % 11.9 10.5Operating margin excl. one-time items, % 11.9 11.9Profit before tax 3,548 2,864Basic earnings per share, SEK 5.26 4.10Cash flow after investments before financing excl. EU payment 1,164 255Cash 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 pointsSales volumes up by 5.0% y-o-y.Manufacturing was higher compared to last year.

CMD 2014

© SKF Group

Sales development by geographyOrganic growth in local currency YTD 2014 vs YTD 2013

Europe

3%

Asia/Pacific13%

Middle East& Africa

18%

LatinAmerica

1%

NorthAmeric

a3%

CMD 2014

© SKF Group

Components in net sales

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

CMD 2014

© SKF Group

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

+/-

++

+

-

+

Sequential trend for Q3 2014

CMD 2014

© SKF Group

SKF demand outlook Q3 2014, main business areas

Share of net sales 2013

StrategicIndustries

29%

Regional Sales and Service

39%

Automotive 27%

Total

Q3 2014 vs Q3 2013

++

+/-

+/-

+

Sequential trend for Q3 2014

CMD 2014

© SKF Group

Key topics

• Half year performance and outlook for Q3

• SKF Group financial targets and priorities

• Specific focus

- purchasing

- inventory reduction

- UNITE

- Kaydon

CMD 2014

© SKF Group

Financial targets

CMD 2014

15%Operatingmargin

-20

-15

-10

-5

0

5

10

15

20

0

5

10

15

08 09 10 11 12 13H11

4

05

1015202530

08 09 10 11 12 13H1

14

8%Changes in sales in local currency

incl. structure

One-time item

20%Return on

capital employed

One-time item for the individual year

© SKF Group

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• IT systems• Mobility

Cost reduction• Business Excellence• Consolidation of manufacturing• Optimization and productivity

improvements• Reduction in purchasing costs

Capital efficiency• Fixed capital• Net working capital

CMD 2014

© SKF Group

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• IT systems• Mobility

Cost reduction• Business Excellence• Consolidation of manufacturing• Optimization and productivity

improvements• Reduction in purchasing costs

Capital efficiency• Fixed capital• Net working capital

CMD 2014

© SKF Group

Key topics

• Half year performance and outlook for Q3

• SKF Group financial targets and priorities

• Specific focus

- purchasing

- inventory reduction

- UNITE

- Kaydon

CMD 2014

© SKF Group

Purchasing in SKF

© SKF Group

SKF Global Spend

Total SKF spend 2013

Total SKF spend is SEK 36 billion – direct and indirect representing ~ 50% respectively

18%

44%

38%

Rings & Subcontracting

Components

8%

12%

13%

21%18%

27%

CAPEX

IT

Logistics

Professional Services

Facility Management

MRO

SEK 17.7 billion

Direct Material

Indirect Material & CAPEX

SEK 15.6 billion

17 034

36 153

0

5 000

10 000

15 000

20 000

25 000

30 000

35 000

40 000

19 119

IndirectMaterial

DirectMaterial

Total

Steel Raw Material & Rolling Elements

CMD 2014

© SKF Group

Vision, strategy & future state

New process framework

New competence framework

New organizational design

Operational set-up

What should purchasing be doing?

Which processes are necessary to execute

the role?

Which competencies are required to execute the

processes?

What organizational design best ensure we match

processes, competencies and roles?

What is the most efficient way of delivering the

processes with minimum cost?

New governance model

Who is responsible for what decision in the

processes?

New job roles

Current state & opportunity assessment

How are we performing today?

What titles and job roles do we need to perform

the processes?

The foundation is in place

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Our global presence

Sourcing centres in• Chicago• Gothenburg• Pune• Shanghai

International purchasing offices in • Japan• Korea• Turkey• Russia• Ukraine• Slovakia• Mexico

CMD 2014

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Responsible sourcing

SKF Care in action – integrated part of purchasing strategy

CMD 2014

© SKF Group

Regional supplier base

Supplier Rationalization

TCO – Q C D I M – Cash

AGILE – ADAPTIVE & ALIGNED

Strategic supplier relationships

Purchasing Strategic Direction

Supply Chain Agility

People development

UNITE

CMD 2014

© SKF Group

2012 Actual 2013 Actual 2014 2015 20160

1,000

2,000

3,000

4,000

5,000

6,000

7,000

Su

pp

lier

Co

nso

lida

tion

DM

Strategic Suppliers

Preferred Suppliers

Transactional Suppliers

Developing Suppliers

INDIRECT & SERVICES

Target 14 -5,000 suppliers

DIRECT MATERIAL

Target 14 -1,000 suppliers

Supplier relationship Management - Consolidation

CMD 2014

© SKF Group

77% 80%

90%

70% 75%

75%

13% 15%

25%

80% 85%

90%75% 80%

90%

85% 85%

90%

10% 10%Sourcing localization 2012 2013

Target 2014

Supplier relationship management – Localization

CMD 2014

© SKF Group

1.5 2 2.5 3 3.5 4 4.5 50

20000

40000

60000

80000

100000

120000

140000

Sheet Metal PartsStarted Q3 2014

CastingsStarted Q2 2014

ElectronicsStarted Q2 2014

FastenersStarted Q1 2014

• Strategic sourcing projects are addressing a purchasing spend of ~ SEK 1,275 million

• Potential annual reduction of TCO (Total Cost of Ownership) of >15%

• Supplier consolidation potential estimated to ~ 250 suppliers

Strategic Sourcing projects – Components

Potential savings

Ease of Implementation

CMD 2014

© SKF Group

Strategic Sourcing projects – Indirect material

30.000

60.000

5.000

40.000

15.000

45.000

25.000

20.000

35.000

10.000

65.000

0

70.000

109876543210

115.000

110.000

105.000

100.000

95.000

90.000

50.000

85.000

80.000

75.000

55.000

Potential savings

Ease of Implementation

Packaging Corrugated

Company cars SwedenM&S Printing project

Lubricants

Packaging Plastics

Strategic sourcing projects 2014 addressing a spend of SEK 1.3 billion

Under implementation

• Packaging / Lubrication / Printing/Car Lease

• Addressable spend SEK 550 million with >230 suppliers

RFx ongoing

• Office Supply /Tool to drawing/ Metal Cutting tools / Abrasives / Gifts and Sales promotion

• Addressable spend SEK 703 million with >900 suppliers

CMD 2014

© SKF Group CMD 2014

Strategic sourcing projects bringing down TCO

TCO down 15 %on total spend for lubricants

no of suppliers from 215 to 16

TCO down 10%

on total spend for plastic & corrugated packaging

no of suppliers from 160 to 30

© SKF Group

Purchasing ramp up and saving plan (vs 2012)

• New GPU org. in operation

• New process framework

• New competence framework, role descriptions and career path model

• Sourcing waves 1 / Speed sourcing started to leverage spend across all BUs

• Integration of BU Purchasing

• Localization of the strategic supplier base

• Separation of strategic tasks from transactional tasks

• Sourcing waves and continued Speed Sourcing activities

• Supplier Innovation Forums with strategic suppliers

• Strategic Partnership Agreements

• Common purchasing processes

• Competence mapping and competence development program

• Supplier consolidation through increased sourcing leverage

High Performance Purchasing organization

• One SKF in Purchasing for full leverage of all spend in SKF

• Category and business driven organization fully leveraging SKF’s purchasing power

• Global job roles and decision matrix (RAPID) clarifying responsibilities and decision making

• GPU supporting the full internal value chain (R&D/PD, After market)

• Focus on Total Cost of Ownership (TCO)

• Strong alignment with the business through a clear target setting process

• Highly competent purchasing professionals

• Reduced supply chain risk and costs through top performing suppliers in Q C D I M

2013 2014 Fcst 2015

SEK 400 m

SEK 800 m

© SKF Group

Inventory reduction activities

© SKF Group

Suppliers Manufacturing Distribution Customers

Business mix and demand variations

Supply structure and flexibility

Forecasting and planning

Product range and

service policies

Inventory

Focus areas to reduce inventory

CMD 2014

© SKF Group

Program cornerstones and objectives

•Improve forecasting and planning process to drive entire demand chain end-to-end

• Reduce lead times from supplier to customer• Reduce manufacturing set up times and increase frequency • Balance regional manufacturing/ supply/ regional demand

Improve forecasting and

end-to-end planning

Optimize product range

and service policies

Increase supply flexibility

•Review/reduce product assortment •Review number of stocking points and stocking policies•Eliminate duplication of inventory across stocking points

CMD 2014

© SKF Group

Program timeplan

2014 2015 2016 2017

Pilots in selected product lines and

regionsRollout to all product lines and regions

Implement improved process (global roll out)

Improve forecasting and

end-to-end planning

Optimize product range

and service policies

Increase supply flexibility

CMD 2014

© SKF Group

UNITE

UNITE

© SKF Group

Background

CMD 2014

• Current systems landscape is fragmented and partly based on old mainframe solutions that need to be replaced

• Strategy to become the Knowledge Engineering Company puts new requirements on our processes and systems support

© SKF Group

What we want to achieve

CMD 2014

Purcha-sing

Manufac-turing

Distri-bution

CustomersSalesSuppliers

Easy for customers to do

business with SKF –

One coherent interface across

all platforms

Leverage SKF full global scale

in sourcing

Improve forecasting and end-to-end planning

Streamline processes to reduce waste

Standardize processes and master data globally

One modern, integrated systems landscape

© SKF Group

UNITE – our approach

CMD 2014

• A business led program

• Dedicated development and roll out organization

• SAP as main software partner

• Scope is sales, supply chain, purchasing and finance processes/systems

• Gradual design and testing of new processes/systems in a series of pilots before fullscale rollout

© SKF Group

UNITE rollout plan

CMD 2014

Germany , France

Italy

Purchasing pilot

Country pilot 2

Finland pilot

Country pilot 3

Design phase

Rollout phase

2013 2014 2015 2016 2017 2018 2019 2020

EMEATemplate

ASIA-PACIFIC

AMERICAS

© SKF Group

Kaydon update

© SKF Group

Kaydon Corporation

CMD 2014

Net sales: around USD 475 million

Employees: around 2,180

Headquarter: USA

Manufacturing: Friction control products (primarily bearings),velocity control products and specialty products, including environmental services.

© SKF Group

Kaydon brands in the SKF Family

CMD 2014

© SKF Group

Kaydon integration - Synergies

CMD 2014

Cost synergies• Finance and legal

• Purchasing

• Logistics

Target – USD 30 million by end 2016

Status – USD 12 million fcst for 2014

Sales synergies:• Renewable energy

• Medical

• Aerospace

• Industrial aftermarket

Target – additional sales of USD 50 million by 2018

Status – new business agreed, new wind order for USD 200 million (50% synergy?)

© SKF Group

Kaydon integration – Financial performance

CMD 2014

• Sales development

- growth is 7% in local currencies

- good growth in both velocity control and friction control

• Operating margin

- Excluding PPA it has improved by approx. 300 basis points

- PPA impact is some 500 basis points

• Outlook Q3

- Continued good growth

- Integration work continues

- increased focus on sales synergies

- continue activities on cost synergies

© SKF Group

SKF’s priorities

CMD 2014