SKF In brief

Aktiebolaget SKF • SE-415 50 Göteborg, Sweden Tel. +46 31-337 10 00 • www.skf.com

SKF in brief 2008®

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Key data 2008 2007

Net sales, SEKm 63,361 58,559

Operating profit, SEKm 7,710 7,539

Profit before taxes, SEKm 6,868 7,138

Basic earnings per share, SEK 10.14 10.09

Diluted earnings per share, SEK 10.13 10.07

Dividend per share, SEK 3.50 5.00

Cash flow after operating investments before financial items, SEKm 65 2,126

Return on capital employed, % 24.2 25.4

Equity/assets ratio, % 36.6 39.6

Additions to tangible assets, SEKm 2,531 1,907

Registered number of employees, 31 December 44,799 42,888

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This is SKF

SKF Group is the leading global supplier of products, solutions and services within rolling bearings, seals, mechatronics, services and lubrication systems. Services include technical support, maintenance services, condition monitoring and training.

The SKF GroupSKF was founded in 1907, and grew at a rapid rate to become a global company. As early as 1920, the company was well estab-lished in Europe, America, Australia, Asia and Africa. Today, SKF is represented in more than 130 countries. The company has more than 100 manufacturing sites and also sales companies supported by about 15,000 distributor locations. SKF also has a widely used e-business marketplace and an effi cient global distribution system.

Three divisions, 40 segmentsSKF does business mainly through three divisions: Industrial Division and Service Division, servicing industrial original equipment manufacturers (OEMs) and aftermarket customers respectively, and Automotive Division, servicing automotive OEMs and after-market customers. SKF operates in around 40 customer segments, whereof examples include automotive, wind energy, railway, machine tool, medical, food & beverage and paper industries.

Net sales

Average number of employees

Property, plant and equipment

North America

17912

Latin America

5 46

Western Europe

51 51

64

5 483 01

19 1922

Eastern Europe Middle East and Africa

Asia / Pacific

Geographic distributions of net sales, average number of employees and property, plant and equipment (per cent)

Research and developmentTechnical development, quality and marketing have been in focus at SKF since the very start. The Group’s efforts in research and development have resulted in numerous innovations, forming bases for new standards, products and solutions in the bearing world. In 2008, the number of fi rst fi lings of patent applications was 179.

Certifi cationThe Group has global IS0 14001 environmental certifi cation and global health and safety management standard OHSAS 18001 certifi cation. Its operations are also certifi ed in accordance with either ISO 9001 or applicable customer segment standards, e.g. ISO/TS 16949 (Automotive), AS9100 Aviation or IRIS (Railway).

SKF CareSKF defi nes sustainability as SKF Care, comprising Business Care, Environmental Care, Employee Care and Community Care. Within each of these four cornerstones, key focus areas and targets are defi ned to drive continuous performance improvement.

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The SKF vision is “To equip the world with SKF knowledge”. To take the knowledge from over 100 years of operation to develop and deliver products, services and solutions which enable customers to develop their business successfully and profitably. SKF knowledge can be defined as the combination of the following three dimensions.

The geographic dimension – global and local presence

SKF is a global company with a local presence which has primarily been in place since the early years of the SKF Group. Wherever cus-tomers are located local expertise, supported by global industrial specialists

and technical experts, combine the required SKF competences to be able to make a specific offer for that customer which meets his local needs. The global experts draw upon knowledge and sucesses from similar industries worldwide.

The customer dimension – industries and segments

SKF’s customers can be found in very many indus-tries and industry segments, currently defined as around 40 specialized segments. Each customer and segment has different technical andcommercial challenges.

Working in so many different industries enables SKF to both develop specific products and services for each industry and also to take knowledge from one industry and apply it in another industry.

SKF – the knowledge engineering company

VisionTo equip the world with SKF knowledge

MissionTo strengthen SKF’s global leadership and sustain profitable growth by being the preferred company: • for our customers,

distributors and suppliers • for our employees • for our shareholders

Vision, mission, drivers and values

Drivers• Profitability• Quality• Innovation• Speed• Sustainability

Values• Empowerment• High ethics• Openness• Teamwork

The competence dimension – technology platforms

SKF’s five technology plat-forms are Bearings and units, Seals, Mechatronics, Services, and Lubrication Systems. SKF’s specialist teams in each platform work closely together with the

segments and sales organization to provide advanced integrated solutions to meet the customers’ needs to develop new products, to improve their production efficiency and to improve their com-petitiveness and profitability.

Using all three dimensions to build customer value is what SKF calls “The power of knowledge engineering”.

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Financial objectives and strategy

Financial targetsSKF’s long-term financial targets were announced in January 2007.

The targets are:• an operating margin level of 12%• annual sales growth in local currencies of 6–8%• a return on capital employed of 24%.

StrategySKF’s business strategy to achieve long-term profitable growth and attain financial targets includes:

• keeping a clear and dedicated customer focus• developing new products, solutions and services with higher

added value which enable customers to improve their efficiency and performance while lowering their total cost

• improving price quality by applying the SKF platform and segment approach to deliver value to customers

• strengthening the product portfolio through greater investment in R&D and through acquisitions

• focusing on rapidly expanding segments and regions• reducing capital employed and fixed costs• attracting, retaining and developing the right people.

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Return on capital employed

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9.9 10

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12.9

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Operating margin Growth development/local currency

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* Excluding income from the previously jointly controlled company Oy Ovako Ab

* Excluding effect from sale of Oy Ovako Ab 2005: 10.4% 2006: 10.1%

Aquisitions/DivestmentsOrganic growth

% Y-o-Y

Shares and shareholders

SKF’s A and B shares have been quoted on the NASDAQ OMX Stockholm since 1914. The total number of shares traded in 2008 was 1,564,934,260. SKF’s ADRs are traded on the OTC market. An A share gives the entitlement to one vote and a B share to one-tenth of a vote.

A shares, unrestricted 47,746,034B shares, unrestricted 407,605,034

Total 455,351,068

The five largest shareholdersas of 31 December 2008 In percent of

voting rightsIn percent of share capital

Foundation Asset Management 28.82 12.04Skandia 4.46 1.21Alecta 4.45 4.31Swedbank Robur Funds 4.34 3.22AFA Sickness Insurance 3.19 3.47

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B share A share OMX Stockholm_PI (normalized after B share)Number of A shares traded, thousands Number of B shares traded, thousands

Price trend of SKF’s shares

2008

Europe excl. Sweden

USA

Rest of the world

Sweden

Geographic ownership

98

Industrial Division 2008 2007


Net sales incl. intra-Group sales, SEKm 33,260 29,157


Operating margin* 11.8% 11.8%

Assets and liabilities, net, SEKm 17,819 13,803

Registered number of employees 18,909 18,547

* Operating margin is calculated on sales incl. intra-Group sales.

Net sales by customer segmentThe SKF divisions

Industrial DivisionNet sales by customer segment

Industrial distribution 23%

Vehicle service market 9%

Special industrial machinery 6%

Heavy industry 8%

General industry 14%

Aerospace 5%Railway 3%

Cars and light trucks 13%

Off-highway 4%Trucks 5%

Two-wheelers and Electrical 3%

Energy 6%

The Industrial Division serves industrial Original Equipment Manufacturer (OEM) customers with product development and production of a wide range of bearings – such as spherical and cylindrical roller bearings, angular contact ball bearings, medium deep groove ball bearings and high precision bearings – as well as lubrication systems, linear motion products, by-wire systems and couplings. The SKF industrial market is divided into around 30 customer segments.

Industrial

Net sales by customer segment

Special industrial machinery 16%Energy 14%General industry 20%

Off-highway 8%

Railway 8%Heavy industrial machinery 10%Aerospace 15%Other 9%

SKF’s business is mainly divided into three divisions, each focusing on specific customer groups worldwide. The divisions are inter-dependent, however, in that they constitute a market within the SKF Group with products, services and know-how on offer to each other to enable any of the divisions to serve its final customers.

1110

Service Division

The Service Division serves the global industrial aftermarket, mainly via a network of around 7,000 distributors, providing products and knowledge-based services to increase customers’ plant asset efficiency. Solutions include consulting, mechanical services, predictive and preventive maintenance, condition monitoring, decision-support systems and performance-based contracts. The division is also responsible for all SKF’s sales in certain smaller markets. SKF Logistics Services supplies logistics services to the SKF Group and external customers.

Service Division 2008 2007








The Automotive Division serves manufacturers of cars, light trucks, heavy trucks, buses, two-wheelers, and the vehicle service market. In addition, it also serves the market for home appliances, power tools and electric motors. SKF develops and manufactures bearings, seals and related products and service solutions. Prod-ucts include wheel hub bearing units, tapered roller bearings, small deep groove ball bearings, seals, automotive specialty products and complete repair kits for the vehicle service market, including a range of driveshafts and constant velocity joints.

Automotive Division 2008 2007



Operating profit, SEKm 627 1,135





Net sales by customer segmentNet sales by customer segment

Automotive Division

Other 15%

Vehicle service market 26%

Cars 41%

Trucks 15%

Two-wheelers 3%


Automotive

Service

Service and service-related products 18%

Bearings 82%


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Sustainability

Business Care • SKF endorses the Global Compact Ten Principles. The SKF Code of

Conduct is applicable to all employees worldwide and comp liance audit is carried out biennially at all units.

• The SKF Code of Conduct for Suppliers and Sub-Contractors as well as the SKF Code of Conduct for Authorized Distributors have been released with the aim to enforce an ethical demand chain.

• In continuing its launch of new bearing families offering energy-effi cient solutions, SKF released the energy-effi cient (E2) spher-ical and cylindrical roller bearings. The SKF E2 bearing family outperforms standard ISO products, providing a minimum 30% energy saving for customers, and is intended for a wide range of applications, such as industrial and wind energy transmissions.

Environmental Care• The SKF Group-wide ISO 14001 Environmental Management

certifi cate comprised 90 sites in 28 countries at the end of 2008.

• As a result of SKF’s drive in reducing energy intensity at manu-facturing operations and the carbon intensity of the energy used, an absolute reduction of Scope 1 and 2 carbon dioxide emissions (according to the GHG Protocol) of 50,000 tonnes was achieved. This is equivalent to a 9.1% reduction compared to the 2007 total, surpassing the Group’s target by some 4 percentage points.

• A new target for solvent reduction was defi ned, to achieve an absolute 50% reduction by 2012, compared to 2007. A total of 10% reduction was achieved in 2008.

• SKF also aims for a minimum 80% recycling rate for grinding swarf by 2012. The current 2008 recycling percentage of grinding swarf Group-wide was at 64%.

Employee Care• 105 out of 206 SKF units worldwide achieved zero recordable

accidents for four quarters or more in 2008 and the accident rate has fallen by 74% since the Zero Accidents target was established in 2000. Apart from that, health and fi tness, HIV/Aids programmes, skills and competence training continued to be a focus area under Employee Care.

• SKF employees provide their feedback on SKF’s performance in relation to company values and key focus areas annually through the global Working Climate Analysis. The analysis also measures the working climate in different departments and individual teams in terms of trust, co-operation, personal development and continuous improvement. Follow-up discussions are sub-sequently conducted by managers with their teams to identify and implement improvement plans.

Community Care• SKF encourages its local management to be actively involved

in communities not only by providing fi nancial means but also commitment through viable voluntary work and sports activities, education, training, and helping under-privileged society. This is demonstrated through for instance SKF’s engagement in the Philippines to provide education for the indigenous residents, as well as supporting and helping local communities through paid voluntary schemes offered to the employees.

Sustainability is one of SKF’s key business drivers together with Profi tability, Quality, Innovation and Speed. SKF’s approach to sus-taining growth while meeting environmental and social challenges is to work determinedly to integrate the long-term sustainable development approach into its business practices, processes as well as product and solution offerings to the market and industry.

Sustainability at SKF centres on the SKF Care approach to business, the environment, employees and the community.

CommunityCare

Employee CareBusiness Care

BeyondZero

Environmental Care

SKF Care

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Management as of 1 January 2009

Board of Directors as of 21 April 2009

Tom Johnstone* President and Chief Executive OfficerTore Bertilsson* Executive Vice President, AB SKF and Chief Financial OfficerHenrik Lange* President, Industrial DivisionVartan Vartanian* President, Service DivisionTryggve Sthen* President, Automotive DivisionAlan Begg Senior Vice President, Group Technology Development and QualityCarina Bergfelt General CounselGiuseppe Donato Senior Vice President and AdvisorEva Hansdotter Senior Vice President, Group Human Resources and SustainabilityPhil Knights Senior Vice President, Global RelationsManfred Neubert President, SKF GmbH Bo-Inge Stensson Senior Vice President, Group Demand Chain and ITIngalill Östman Senior Vice President, Group Communications * member of the Group Executive Committee

Elected by the Annual General MeetingLeif Östling, ChairmanTom Johnstone, President and CEOUlla LitzénWinnie Kin Wah FokHans-Olov OlssonLena Treschow Torell

Peter GrafonerLars WedenbornJoe Loughrey

Employee representativesKennet Carlsson Lennart Larsson Jeanette Stenborg Marie Petersson

The following topics related to the SKF Annual Report 2008 including Sustainability Report are to be found at www.skf.com, choose Investors and Reports.

• Articles of Association

• SKF Code of Conduct

• SKF Environmental, Health and Safety Policy

• Environmental performance data

• Zero Accidents – award winners

• Production sites

• Compliance table to GRI G3 Guidelines (GRI Index Table)

• AA1000 AS (2003)

• Carbon dioxide emissions, data

Investor Relations

SKF In brief