SKF Q4 results 2015
Alrik Danielson, President and CEO
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Q4 Summary
Alrik Danielson, CEO
Net sales
Q4 summary
 Net sales and earnings affected by lower
demand
18.2 bn
18.5 bn
Q4
Q1
Q2
Q3
Q4 15
Operating profit*
 Sales SEK 18 215 M, -1.5% yoy
 Organic sales -5.2%
 Operating profit* SEK 1 726 M (2 078)
 Operating margin* 9.5% (11.2)
 Profit before tax SEK 653 M (1 293)
2.1 bn
1.7bn
Q4
Q1
Q2
Q3
9.5%
Operating margin*
* Excluding one-time items
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© SKF Group
Q4 15
Cash flow**
Strong cash flow – balance
sheet in focus
2.0 bn
2.2 bn
Q4
 Cash flow after investments before
financing SEK 1 966 M (2 126)
 Successful reduction of inventories and
trade receivables
 Net debt decreased by more than
SEK 3 bn
 Proposed dividend SEK 5.50 per share
(5.50)
Q1
Q2
Q3
Q4 15
Net debt/equity
140%
120%
100%
100%
80%
60%
40%
20%
0%
Q4
Q1
Q2
Q3
Q4 15
27.1%
** After net investments before financing, excluding acquisitions and divestments and EU payment in 2014
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Net working capital as
% of sales
Sales development by geography
Organic growth in local currency Q4 2015 vs Q4 2014
Europe
+0.3%
North
America
-12.7%
Asia/Pacific
-8.7%
Latin
America
-0.5%
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© SKF Group
Middle East
& Africa
+10.8%
Sales development by Customer
Industry
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Highlights - examples of new business in Q4
2015
 China Oilfield Services Limited, China
Propulsion shaft
components and application
engineering services
 The Åsgard gas field, Norway
Magnetic bearings for the
world’s first sub-sea
compression system
 U.S. Steel, USA
Integrated seals, lubrication
and bearings solution
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Highlights



As an example of activities to enhance our cost competitiveness, SKF’s vehicle
service market distribution and packaging business in the US will be consolidated.
As a consequence, the business in Hebron, Kentucky will be transferred to the
distribution and packaging facility in Crossville, Tennessee.
SKF’s issued a new EUR 500 million bond. The 7-year bond carries a fixed coupon
interest rate of 1.625%, a record low rate for SKF.
New products:
- The new SKF Agri Hub unit enables deeper, heavier and faster operations in
challenging soil conditions.
- SKF introduced a new series of food industry compliant bearings.
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Q4 results – the details
Christian Johansson,
CFO
Sales development
2015
Net sales,
SEK bn
18.2
18.5
Q4
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© SKF Group
Q1
Q2
Q3
Q4 15
Percent y-o-y
Q1
Q2
Q3
Q4
Organic
1.4
-1.5
-4.7
-5.2
Structure
0
-0.2
-0.8
-1.0
Currency
14.9
12.9
8.8
4.7
Net sales
16.3
11.2
3.3
-1.5
Organic sales growth
8
% change
y-o-y
6
4
2
0
-2
-4
-6
-8
-10
2013
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© SKF Group
2014
2015
3
12
2.5
10
2.1
1.8
2
8
1.7
1.5
6
1
4
0.5
2
0
0
2013
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© SKF Group
2014
2015
Thousands
Thousands
Operating profit excluding one-time items
Operating profit
1,800
1,600
1 608
+200
1,400
-220
+230
1,200
-35
1 039
1,000
-334
-410
800
600
400
200
0
Q4 2014
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© SKF Group
One-time
items at 2014
exchange
rates
Organic sales
Currency
impact
Savings from
cost-reduction
programme
Divested/
aquired
companies
* Includes, manufacturing development costs for the UNITE IT project and general inflation.
Other*
Q4 2015
Industrial Market,
Operating margin*
14.7%
Operating performance per
business area
 Net sales SEK 10 803 M
 Organic sales -8.6%
 Operating margin declined to 11.3%
11.3%
Specialty Business,
Operating margin*
14.1%
13.6%
 Net sales SEK 2 512 M
 Organic sales -1.6%
 Operating margin declined to 13.6%
 Net sales SEK 4 804 M
 Organic sales +1.2%
 Operating margin improved to 3.3%
Automotive Market,
Operating margin*
3.3%
1.5%
* Excluding one-time items
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© SKF Group
Cost reduction programme from December 2014
Cost reduction
programme
Q1
2015
Q2
2015
Q3
2015
Q4
2015
2015
Target
Restructuring cost in the
quarter
537
224
121
317
1 199
1 400
Full year savings from
people that will leave SKF
460
173
307
247
1 187
1 200
Number of people that will
leave
575
270
594
650
2 089
1 500
-
80
150
200
430
-
Savings included in the
2015 Operating profit
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SKF Group – Q4 2015
Financial performance (SEKm)
Net sales
Cost of goods sold
Gross profit
Gross margin, %
Selling and administrative expenses
Other operating expenses
Operating profit
One-time items
Operating profit excl. one-time items
Operating margin, %
Operating margin excl. one-time items, %
Financial income and expense, net
Profit before taxes
Taxes
Net profit
Basic earnings per share, SEK
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© SKF Group
2015
2014
18 215
18 499
-14 214
4 001
-14 187
4 312
22.0
-2 874
23.3
-2 655
-88
1 039
-49
1 608
-687
-470
1 726
5.7
2 078
8.7
9.5
-386
653
-225
428
0.82
11.2
-315
1 293
-412
881
1.84
Strong cash flow after investments before financing
Full year improved to SEK 5.7 bn*
SEKm
3,000
12,000
10,000
2,000
8,000
6,000
1,000
4,000
2,000
0
0
-2,000
-1,000
-4,000
2013
2014
2015
* After investments before financing (excluding acquisitions and divestments and EU payment in Q2 2014.)
2013 and 2014 are restated
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© SKF Group
Net working capital as % of annual sales
35
30
Total NWC 27.1%
Target: 27%
25
20
Inventories 19.1%
15
Trade receivables
15.5%
10
Trade payables
7.4%
5
0
Q1
Q2
Q3
2013
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© SKF Group
Q4
Q1
Q2
Q3
2014
Q4
Q1
Q2
Q3
2015
Q4
Net debt decreased SEK 4.6 bn in 2015
Net debt
Net debt/equity
SEK bn
%
0
160%
-5
140%
120%
-10
100%
100%
-15
80%
-20
60%
-25
40%
-30
20%
-35
0%
2013
2014
2015
2013
Net debt: Loans and net provisions for post-employment benefits
less short-term financial assets excluding derivatives.
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© SKF Group
2014
2015
Improved debt structure with extended maturity
EURm
900
800
700
600
500
400
300
200
100
0
2016

© SKF Group
© SKF Group
2017
2018
Available credit facilities:
- EUR 500 million 2019
- SEK 3 000 million 2018
- EUR 150 million 2017

2019
2020
2021
No financial covenants nor material
adverse change clause
2022
SKF issued EUR 500 million bond
SKF issued a new EUR 500 million bond. The senior, unsecured bond matures on 2
December 2022 and carries a fixed coupon interest rate of 1.625%, an historically low
rate for SKF. The proceeds of the issue were used for the refinancing of existing debt
through the buy-back of parts of two outstanding bonds, maturing in 2018 and 2019,
with coupon rates of 3.875% and 1.875%, respectively.
The buy-backs had a one-time negative impact of SEK 276 million on the Group’s
financial net for Q4 2015.
The new bond has been listed on the Official List of the Luxembourg Stock Exchange
and admitted to trading on the Luxembourg Stock Exchange's regulated market.
1.625% 7 year
Record low coupon rate
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Maturity
EUR
500 M
Guidance for 2016*
Q1 2016:
 Financial net: around -250 million
 Limited currency impact on operating profit vs 2015 Q1 based on
exchange rates per December 31.
2016:
 Tax level: below 30% for 2016
 Additions to PPE: around 2 000 million for 2016
* Guidance is approximate and based on current assumptions and exchange rates.
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SKF demand outlook - Definition
The demand outlook for SKFs products and services represents
management's best estimate based on current information about
the future demand from our customers. The demand outlook is
the expected volume development in the markets where our
customers operate.
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© SKF Group
February 2015: SKF demand outlook Q1 2016
Demand compared to the first quarter 2015
The demand for SKF’s products and services is expected to be slightly
lower for the Group. Demand for the Automotive Market and Specialty
Business is expected to be relatively unchanged, while demand for the
Industrial Market is expected to be lower. Demand is expected to be
relatively unchanged in Europe, slightly lower in Asia and Latin America
and significantly lower in North America.
Demand compared to the fourth quarter 2015
The demand for SKF’s products and services is expected to be relatively
unchanged for the Group. Demand for the Automotive Market is expected
to be higher, demand for Specialty Business to be slightly higher and
demand for Industrial Market is expected to be relatively unchanged.
Demand is expected to be higher in Europe, slightly lower in North
America and lower in Latin America and Asia.
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© SKF Group
Financial calendar
Annual Report 2015
March 8
Annual General Meeting
March 31
Report on the first quarter 2016
April 28
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© SKF Group
New financial targets
New financial targets
 Valid from 2016
 Changed targets for:
 Sales growth
 Operating margin
 Return on capital employed, ROCE
 Net working capital
5%
Annual organic sales
growth in local
currencies
12%
reported Operating
margin
16%
25%
80%
Return on capital
employed
Net working capital
as % of sales
Net debt as % of
equity
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SKF Q4 results 2015
Q&A
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”.
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© SKF Group