The SKF Group SKF Investor Relations July 2014 SKF - A truly global company Established: 1907 Sales 2013: SEK 63,597 million Employees 2013: 48,401 Production sites: around 165 in 28 countries SKF presence: in over 130 countries Distributors/dealers: 15,000 locations Global certificates: ISO 14001 OHSAS 18001 certification © SKF Group Slide 1 15 July 2014 Net sales - 2013 Cars and light trucks Industrial distribution Aerospace 6% Railway 4% 3% Off-highway 14% 29% 5% 2% 11% Vehicle aftermarket 5% Energy 11% 10% 9% Industrial, heavy and special Middle East & Africa Trucks Two-wheelers and Electrical Industrial, general * Previously published shares have been restated in February 2013 © SKF Group Slide 2 15 July 2014 Asia/Pacific 3% North America 24% 24% Latin 7% America 3% Eastern 5% Europe 35% Western Europe Sweden SKF 2013 (2002) (1998) % of group total Net sales Average number of employees Tangible asset (48)(44)(53) (47)(46)(53) (10)(12) (9) (13) (14) (8) (25)(14)(19) (26)(13)(18) (5)(14)(12) (6) (5) (4) (5) (12)(15) (4) (4) (3) (3) (9) (3) (3) (9) (3) (3) (2) (0) (2) (2) (0) North America © SKF Group Slide 3 15 July 2014 Latin America Western Europe Sweden Eastern Europe Middle East Asia/Pacific and Africa Operating margin as reported % 16 14 12 10 8 6 4 2 0 2003 © SKF Group Slide 4 15 July 2014 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Return on capital employed % 30 25 20 15 10 5 0 2003 © SKF Group Slide 5 15 July 2014 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Growth in local currencies % 20 15 10 5 0 2003 -5 -10 -15 -20 -25 © SKF Group Slide 6 15 July 2014 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Financial targets 15% 8% 20% Operating margin Changes in sales in local currency Return on capital employed incl. structure 15 One-time items © SKF Group Slide 7 12 11 10 09 Q114 13 12 11 10 13 Q1 14 - 15 - 20 09 0 -5 - 10 08 13 Q1 14 12 11 10 09 08 07 0 07 10 5 5 08 10 07 30 25 20 15 10 5 0 20 15 One-time items for the individual year 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 Capital efficiency • Fixed capital • Net working capital © SKF Group Slide 8 15 July 2014 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 SKF Group Vision To equip the world with SKF knowledge © SKF Group Slide 9 15 July 2014 SKF BeyondZero • SKF launched the BeyondZeroTM 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. SKF’s climate targets: • Increase revenue from SKF BeyondZero portfolio from SEK 2.5 billion to SEK 10 billion by 2016 • Reduce total annual energy use by 5% below the 2006 level by 2016 • Reduce energy use per production output by 5% y-o-y from 2012 to 2016 • Reduce CO2 emissions per tonne-kilometre by 30% 2016 vs 2011 for transports managed by SKF Logistics Services • Major suppliers certified according to ISO 50001 by 2016 © SKF Group Slide 10 15 July 2014 28 SKF Solution Factory – June 2014 Australia Brazil Canada Canada Columbia China China China © SKF Group Slide 11 Perth Cajamar Edmonton Toronto Bogota Shanghai Tianjin Urumqi 15 July 2014 France Germany India India Italy Mexico Netherlands Netherlands Montigny Schweinfurt Pune Manesar Turin Monterrey Ridderkerk Nieuwegein Poland Romania Russia United Arab Emirats South Africa Spain Sweden Katowice Bucharest Moscow Abu Dhabi Witfield Madrid Gothenburg Taiwan Turkey UK USA USA Taichung Istanbul Luton Cleveland Houston SKF Solution Factory Segments & Application Knowledge Platforms & Technology Competence SKF Solution Factory Capabilities Sealing Solutions Bearing Service Workshop MaPro/CoMo Product Repair © SKF Group Slide 12 15 July 2014 Mechanical Services Lubrication Solutions Condition Monitoring Services Remote Monitoring Center A & MC Training Center Slab continuous caster – metal industry Telescopic actuators for mould adjustment SKF ConRo Compact roll line units SKF ConRo Low roll line units SKF ConRo Top roll line units SKF DryLube Bearings and SNL Housings for roll out table SKF sealed selfaligning bearing system (CARB and spherical roller bearings) and centralized lubrication system for roll lines SKF Caster Analyst System for roll lines © SKF Group Slide 13 15 July 2014 Wheel-loader – Construction Central gear Hybrid pinion units Chassis lubrication Centralized lubrication systems Motor hood Electromechanical actuators Wheel end © SKF Group Slide 14 15 July 2014 • Integrated smart wheel bearing units with sensors • SKF Mudblock cassette seals Wind turbine - Energy New CRB-design with extra-high carrying capacity for wind-gearboxes. New pitch bearing design with improved corrosion protection SKF WindCon 3.0/Webcon Intranet supervised condition monitoring DRTRB-unit SKF Nautilus with segmented cage for minimized friction Automatic centralized lubrication kits for reduced maintenance cost XL Hybrid bearings with ceramic balls for superior insulation © SKF Group Slide 15 15 July 2014 SKF’s environmentally positive customer solutions SKF’s solutions which realize significant environmental benefits Designed for environment Applied for environment Stop-start system E2 - 30% less energy compared to a standard bearing A solution that is primarily designed to improve environmental performance by itself © SKF Group Slide 16 15 July 2014 Up to 15% better fuel economy of the car SKF sensor bearing A solution that enables improved environmental performance in a specific application SKF energy efficient (E2) bearings China India Peru Indonesia Conveyors used in mining industry. 130,000 E2 bearing Sangam Group Industria Textil Piura Leuwijaya Textile • • • © SKF Group Slide 17 15 July 2014 60,000 E2 deep groove ball bearing 30,000 E2 bearing potential 325,000 for 3 different customers What is SKF knowledge? © SKF Group Slide 18 15 July 2014 SKF technology platforms Bearings and units © SKF Group Slide 19 15 July 2014 SKF technology platforms Seals © SKF Group Slide 20 15 July 2014 SKF technology platforms Mechatronic © SKF Group Slide 21 15 July 2014 SKF technology platforms Lubrication systems © SKF Group Slide 22 15 July 2014 SKF technology platforms Service © SKF Group Slide 23 15 July 2014 Acquisition 2003-2013 Identifying gaps and opportunities in all platforms Bearings and units Products SNFA (2006) GLO (2008) S2M (2007) Kaydon Services Seals Economos (2006) Macrotech Macrotech (2006) Baker (2007) Slide 24 15 July 2014 ABBA (2007) (2005) (2009) Vogel (2004) Lincoln Industrial (2010) QPM (2008) (2003) PMCI (2007) ALS PB&A (2006) Sommers Monitek © SKF Group (2006) (2013) Scandrive Industries Safematic Mechatronics Jaeger Technologies Geographies Lubrication systems Peer (2008) GBC (2012) BVI (2013) (2006) TCM (2003) (2007) Cirval (2005) (2008) SKF Half-year results 2014 Tom Johnstone, President and CEO 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 © SKF Group Slide 26 15 July 2014 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 © SKF Group Slide 27 15 July 2014 Customer awards • 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 © SKF Group Slide 28 15 July 2014 New products and solutions SKF Gear Bearing Unit Floating piston SKF Tachometer SKF Shaft Alignment Tool Low torque operator valve solution SKF Wireless Machine Condition Sensor © SKF Group Slide 29 15 July 2014 Electric grease transfer pump SKF Wireless MicroVibe Low friction grease for hub bearing units SKF @ptitude Connect Turbulo BlueMon emission monitoring system SKF Group – Q2 2014 Financial performance (SEKm) Net sales Operating profit Operating margin, % Operating margin excl. one-time items, % Profit before tax Basic earnings per share, SEK Cash flow after investments before financing excl. EU payment Cash flow after investments before financing Organic sales growth in local currency: SKF Group 4.6% Strategic Industries 11.1% Regional Sales and Service 2.0% Automotive 1.3% Slide 30 15 July 2014 2013 17,955 2,096 11.7 12.3 1,761 2.54 1,423 -1,402 16,392 1,837 11.2 12.4 1,627 2.36 1,147 1,147 Europe North America Asia Latin America Middle East and Africa Key points Sales volumes up by 3.6% y-o-y. Manufacturing was slightly higher compared to last year. © SKF Group 2014 1% 3% 14% 2% 14% SKF Group – Half year 2014 Financial performance (SEKm) Net sales Operating profit Operating margin, % Operating margin excl. one-time items, % Profit before tax Basic earnings per share, SEK Cash flow after investments before financing excl. EU payment Cash flow after investments before financing Organic sales growth in local currency: SKF Group 5.2% Strategic Industries 9.0% Regional Sales and Service 2.2% Automotive 4.5% Key points Sales volumes up by 5.0% y-o-y. Manufacturing was higher compared to last year. © SKF Group Slide 31 15 July 2014 2014 2013 34,689 4,120 11.9 11.9 3,548 5.26 1,164 -1,661 31,544 3,317 10.5 11.9 2,864 4.10 255 255 Europe North America Asia Latin America Middle East and Africa 3% 3% 13% 1% 18% Organic sales growth in local currency % change y-o-y 2012 © SKF Group Slide 32 15 July 2014 2013 2014 Organic sales growth in local currency % y-o-y 5.2% -0.7% -2.5% © SKF Group Slide 33 15 July 2014 Structure in 2012: 0.4% Structure in 2013: 2.5% Structure in 2014: 4.2% Sales development by geography Organic growth in local currency Q2 2014 vs Q2 2013 Europe 1% North America 3% Asia/Pacific 14% Latin America 2% © SKF Group Slide 34 15 July 2014 Middle East & Africa 14% Sales development by geography Organic growth in local currency YTD 2014 vs YTD 2013 Europe 3% North America 3% Asia/Pacific 13% Latin America 1% © SKF Group Slide 35 15 July 2014 Middle East & Africa 18% Components in net sales 2012 Percent y-o-y 2013 2014 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 © SKF Group Slide 36 15 July 2014 Operating profit as reported SEKm 2012 © SKF Group Slide 37 15 July 2014 2013 2014 Operating profit excluding one-time items SEKm 2012 © SKF Group Slide 38 15 July 2014 2013 2014 Operating margin One-time items * Excluding one-time items % 12.0* 11.9* 11.9 11.3 5.8 © SKF Group Slide 39 15 July 2014 11.9* Operating margin per business area as reported % Specialty Business Strategic Industries Regional Sales and Service Automotive 2012 © SKF Group Slide 40 15 July 2014 2013 2014 Operating margin per business area excl. one-time items % Specialty Business Strategic Industries Regional Sales and Service Automotive 2012 © SKF Group Slide 41 15 July 2014 2013 2014 SKF’s programme to improve efficiency and reduce cost Restructuring, SEKm: 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 1,560 100 80 0 40 220 0 100 470 Giving future gross savings, SEKm: Full year gross saving 150 Realized gross savings from total programme, SEKm: vs 2012 vs 2013 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 Note: Run rate Q2 2014 SEK 1,340 million vs 2012. © SKF Group Slide 42 15 July 2014 Operating profit bridge, Q2 2014 SEKm +150 +160 1,837 +134 +160 Q2 2013 Volumes Price/mix Specialty excl. Business Specialty Business © SKF Group Slide 43 15 July 2014 +70 -120 -295 2,096 Savings One-time Currencies R&D, Q2 2014 inflation etc. items Operating profit bridge, half year 2014 SEKm +440 +280 +400 +60 +240 -220 -397 4,120 3,317 Q2 2013 Volumes Price/mix Specialty excl. Business Specialty Business © SKF Group Slide 44 15 July 2014 Savings One-time Currencies R&D, Q2 2014 inflation etc. items Net working capital as % of annual sales Target: 27% % 2012 © SKF Group Slide 45 15 July 2014 2013 2014 Return on capital employed One-time items * Excluding one-time items % 17.1* 15.1* 14.6* 16.2 7.5 8.7 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. © SKF Group Slide 46 15 July 2014 Cash flow, after investments before financing SEKm 4) 2012 2013 Excl. acq. and div.: © SKF Group Slide 47 15 July 2014 Excl. EU payment 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 5) Q2 2014 SEK 1,423 million 2014 5) Net debt SEKm 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 2012 2013 2014 Net debt: Loans and net provisions for post-employment benefits less short-term financial assets excluding derivatives. © SKF Group Slide 48 15 July 2014 EU payment (SEKm): 2014 Q2 2,825 Debt structure, maturity years 850 500 500 200 100 © SKF Group Slide 49 15 July 2014 100 110 • 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 July 2014: SKF demand outlook Q3 2014 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 Group Slide 50 15 July 2014 SKF demand outlook Q3 2014, main regions Share of net sales 2013 Sequential trend for Q3 2014 Q3 2014 vs Q3 2013 Europe 42% +/- Asia Pacific 24% ++ North America 24% + Latin America 7% + Total © SKF Group Slide 51 15 July 2014 SKF demand outlook Q3 2014, main business areas Share of net sales 2013 Q3 2014 vs Q3 2013 Strategic Industries 29% ++ Regional Sales and Service 39% +/- Automotive 27% +/- Total © SKF Group Sequential trend for Q3 2014 Slide 52 15 July 2014 + SKF sequential volume trend Q3 2014, Industries Share of net sales 2013 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% © SKF Group Slide 53 Trucks 15 July 2014 Guidance for the third quarter 2014* • 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 Group Slide 54 15 July 2014 SKF’s priorities • Investments & Innovation • New and existing facilities • Research and development • IT systems and mobility Capital efficiency • Fixed capital • Net working capital • © SKF Group Slide 55 15 July 2014 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 Cost reduction • Business Excellence • Consolidation of manufacturing Optimization and productivity improvements • Reduction in purchasing costs 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”. © SKF Group Slide 56 15 July 2014 Welcome to the IR website – www.skf.com > Investors Investor Relations function: Head: Marita Björk Tel: +46 31 3371994 Mobile: +46 705 181994 E-mail: marita.bjork@skf.com © SKF Group Slide 57 15 July 2014 Investor Relations: Anna Alte Tel: +46 31 3371988 Mobile: +46 705 271988 E-mail: anna.alte@skf.com Event and road shows coordinator: Helena Karlsson Tel: +46 31 3372142 Mobile: +46 705 642142 E-mail: helena.karlsson@skf.com © SKF Group Slide 58 15 July 2014