SKF Nine-month results 2014 Tom Johnstone, President and CEO 15 October 2014 Alrik Danielson, new President and CEO from 1 January 2015 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 © SKF Group Slide 2 15 October 2014 Examples of new business • Doosan Heavy Industries and Construction, South Korea SKF Supergrip Bolts SKF Nautilus bearing • A leading Chinese locomotive manufacturer Traction motor bearings • HSD SpA, Italy Super precision bearings and engineering support • A major Australian customer Maintenance contract in the agriculture industry • Medical device manufacturer in California, USA © SKF Group Slide 3 15 October 2014 Slewing ring bearings Examples of new business • Tesla Motors Bearing for the gearbox, e-motor and wheels • Volvo Cars Wheel hub bearing units • Scania Wheel bearing units and high pressure valve stem seals © SKF Group Slide 4 15 October 2014 Customer awards • Supplier Performance Award – Snecma, Safran Group, France • Best Supplier Award – Weg Electric Motor Manufacturing Co., Ltd, China • Best Supplier Award – Shanghai Hanbell Precise Machinery Co. Ltd., China • Excellent Engineering Development Award – Shanghai Automobile Gear Works (SAGW), China • Fiat Qualitas Award – Fiat, Argentina • Certificate of Appreciation for quality and delivery performance – Honda, India © SKF Group Slide 5 15 October 2014 Highlights • New Kaydon factory at the SKF Campus in Cajamar, Brazil. • New Global Technical Center in the greater Chicago area, US. • For the 15th year in a row, one of the world’s most sustainable companies by the Dow Jones Sustainability World Index (DJSI). • For the 14th consecutive year, a constituent of the FTSE4Good Index Series. © SKF Group Slide 6 15 October 2014 Examples of new products and solutions SKF Multilog Online System IMx-B Compact tapered roller bearing unit for heavy freight SKF Mudblock cassette seals, MUD 11 SKF Static Motor Analyzer Baker AWA-IV © SKF Group 15 October 2014 Tapered roller bearing unit for passenger railway applications SKF Machine Tool Observer MTx SKF Multilog On-line System IMx-M PuraBreeze 100 SKF Group – Q3 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 3.3% Strategic Industries 9.1% Regional Sales and Service 0.8% Automotive -0.5% Slide 8 15 October 2014 2013 17,787 2,073 11.7 11.8 1,827 3.01 1,476 1,476 15,623 1,923 12.3 12.9 1,717 2.47 1,135 1,135 Europe North America Asia Latin America Middle East and Africa Key points Sales volumes up by 1.9% y-o-y. Manufacturing was relatively unchanged compared to last year. © SKF Group 2014 0% 3% 8% 0% 7% SKF Group – Nine month 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 8.7% Regional Sales and Service 1.7% Automotive 2.8% Slide 9 15 October 2014 2013 52,476 6,193 11.8 11.8 5,375 8.27 2,640 -185 47,167 5,240 11.1 12.2 4,581 6.57 1,390 1,390 Europe North America Asia Latin America Middle East and Africa Key points Sales volumes up by 3.8% y-o-y. Manufacturing was slightly higher compared to last year. © SKF Group 2014 2% 3% 11% 1% 14% Organic sales growth in local currency % change y-o-y 8 6 4 2 0 -2 -4 -6 -8 -10 2012 © SKF Group Slide 10 15 October 2014 2013 2014 Organic sales growth in local currency % y-o-y 6 4.5% 4 2 0 -0.7% -2 -2.5% -4 2012 2013 Structure in 2012: 0.4% Structure in 2013: 2.5% Structure in 2014: 4.7% © SKF Group Slide 11 15 October 2014 YTD 2014 Sales development by geography Organic growth in local currency Q3 2014 vs Q3 2013 Europe 0% North America 3% Asia/Pacific 8% Latin America 0% © SKF Group Slide 12 15 October 2014 Middle East & Africa 7% Sales development by geography Organic growth in local currency YTD 2014 vs YTD 2013 Europe 2% North America 3% Asia/Pacific 11% Latin America 1% © SKF Group Slide 13 15 October 2014 Middle East & Africa 14% Components in net sales 2012 Percent y-o-y 2013 2014 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Volume -0.8 -2.8 -5.0 -5.9 -8.7 -1.6 2.2 7.1 6.2 3.6 1.9 Structure -0.1 0.0 0.8 1.0 1.5 2.6 1.1 4.8 4.7 3.8 5.4 Price/mix 1.9 2.0 0.5 0.7 0.7 -0.6 -0.2 -0.2 -0.4 1.0 1.3 Sales in local currency 1.0 -0.8 -3.7 -4.2 -6.5 0.4 3.1 11.7 10.5 8.4 8.6 Currency 0.4 3.6 -2.7 -3.6 -4.0 -5.0 -2.2 -2.1 -0.1 1.1 5.3 Net sales 1.4 2.8 -6.4 -7.8 -10.5 -4.6 0.9 9.6 10.4 9.5 13.9 © SKF Group Slide 14 15 October 2014 Operating profit as reported SEKm 2,500 2,000 1,500 1,000 500 0 -500 -1,000 -1,500 -2,000 2012 © SKF Group Slide 15 15 October 2014 2013 2014 Operating profit excluding one-time items SEKm 2500 2000 1500 1000 500 0 2012 © SKF Group Slide 16 15 October 2014 2013 2014 Operating margin One-time items * Excluding one-time items % 16 14 12.0* 11.9* 12 11.8 11.3 10 8 6 5.8 4 2 0 2012 © SKF Group Slide 17 15 October 2014 2013 YTD 2014 Operating margin per business area as reported % 18 15 Regional Sales and Service Specialty Business Strategic Industries 12 9 6 3 Automotive 0 -3 Q1 Q2 2012 © SKF Group Slide 18 15 October 2014 Q3 Q4 Q1 2013 Q2 Q3 Q4 Q1 2014 Q2 Q3 Operating margin per business area excl. one-time items % 18 15 Regional Sales and Service 12 Specialty Business Strategic Industries 9 6 3 Automotive 0 -3 Q1 Q2 2012 © SKF Group Slide 19 15 October 2014 Q3 Q4 Q1 2013 Q2 Q3 Q4 Q1 2014 Q2 Q3 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 Q3/14 Total Cost taken 200 250 190 0 50 490 0 100 20 810 People affected 530 410 320 0 130 860 0 170 30 1,590 80 0 40 220 0 100 Giving future gross savings, SEKm: Full year gross saving 150 100 5 475 Realized gross savings from total programme, SEKm: vs 2012 vs 2013 Q1/13 Q2/13 Q3/13 Q4/13 2013 Q1/14 Q2/14 Q3/14 2014 Restructuring 15 35 75 75 200 70 50 10 130 S&A 50 50 50 50 200 0 0 0 0 Purchasing 100 100 100 100 400 60 100 100 260 Total 165 185 225 225 800 130 150 110 390 Note: Run rate Q3 2014 SEK 1,340 million vs 2012. © SKF Group Slide 20 15 October 2014 Operating profit bridge, Q3 2014 SEKm 3000 2500 +165 2000 1,923 +112 +110 +65 +100 -432 2,073 +30 1500 1000 500 0 Q3 2013 © SKF Group Slide 21 15 October 2014 Volumes Price/mix Specialty Savings excl. Business Specialty Business One-time Currencies Other* items Q3 2014 * R&D, S&A, IT, inflation etc. Operating profit bridge, nine month 2014 SEKm 8000 +505 +390 7000 6000 +430 +225 +352 -120 -829 6,193 5,240 5000 4000 3000 2000 1000 0 Q1-Q3 2013 © SKF Group Slide 22 15 October 2014 Volumes Price/mix Specialty Savings One-time Currencies Other* Q1-Q3 excl. 2014 Business items Specialty * R&D, S&A, IT, inflation etc. Business Net working capital as % of annual sales Target: 27% % 35 34 33 32 31 30 29 28 27 26 25 Q1 Q2 2012 © SKF Group Slide 23 15 October 2014 Q3 Q4 Q1 2013 Q2 Q3 Q4 Q1 2014 Q2 Q3 Return on capital employed One-time items * Excluding one-time items % 20 17.1* 15.1* 15 16.2 13.9* 10 7.5 5 8.5 0 2012 2013 30 September 2014 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 24 15 October 2014 Cash flow, after investments before financing SEKm 2,000 1) 5) 4) 1,000 3) 0 2) -1,000 -2,000 -3,000 -4,000 -5,000 -6,000 -7,000 2012 2013 Excl. acq. and div.: © SKF Group Slide 25 15 October 2014 Excl. EU payment 1) 2) 3) 4) 5) Q3 2012 Q1 2013 Q3 2013 Q4 2013 Q2 2014 2014 SEK 1,707 million SEK -69 million SEK 871 million SEK 1,170 million SEK 1,423 million Net debt SEKm 0 AB SKF, dividend paid (SEKm): 2012 Q2 2,504 2013 Q2 2,530 2014 Q2 2,530 -5,000 -10,000 -15,000 Cash out from major acquisitions (SEKm): 2012 Q3 829 2013 Q1 823 2013 Q4 7,900 -20,000 -25,000 -30,000 -35,000 2012 2013 2014 Net debt: Loans and net provisions for post-employment benefits less short-term financial assets excluding derivatives. © SKF Group Slide 26 15 October 2014 EU payment (SEKm): 2014 Q2 2,825 Debt structure, maturity years EURm 850 900 800 700 600 500 500 500 400 300 200 200 100 100 100 110 2015 2016 2017 0 • Available credit facilities: EUR 500 million 2019 SEK 3,000 million 2016 EUR 150 million 2017 © SKF Group Slide 27 15 October 2014 2018 • 2019 2020 2021 No financial covenants nor material adverse change clause October 2014: SKF demand outlook Q4 2014 Demand compared to the fourth quarter 2013 The demand for SKF’s products and services are expected to be relatively unchanged for the Group and for Europe, slightly higher for Asia and North America and slightly lower for Latin America. It is expected to be slightly higher for Strategic Industries, relatively unchanged for Regional Sales and Service and slightly lower for Automotive. Demand compared to the third quarter 2014 The demand for SKF’s products and services are expected to be relatively unchanged for the Group and for Europe, slightly higher for Asia and North America and slightly lower for Latin America. It is expected to be relatively unchanged for Strategic Industries, slightly higher for Regional Sales and Service and slightly lower for Automotive. Manufacturing Manufacturing is expected to be slightly lower year over year and compared to the third quarter. © SKF Group Slide 28 15 October 2014 SKF demand outlook Q4 2014, main regions Share of net sales 2013 Sequential trend for Q4 2014 Q4 2014 vs Q4 2013 Europe 42% +/- Asia Pacific 24% + North America 24% + Latin America 7% +/- Total © SKF Group Slide 29 15 October 2014 SKF demand outlook Q4 2014, main business areas Share of net sales 2013 Q4 2014 vs Q4 2013 Strategic Industries 29% + Regional Sales and Service 39% +/- Automotive 27% - Total © SKF Group Sequential trend for Q4 2014 Slide 30 +/- 15 October 2014 SKF sequential volume trend Q4 2014, Industries Share of net sales 2013 29% 6% Aerospace 13% Industrial, heavy, special and off-highway 11% Industrial, general 5% Energy 4% Railway 2% Two-wheelers and Electrical 14% Cars and light vehicles 11% Vehicle service market 5% © SKF Group Industrial distribution Slide 31 Trucks 15 October 2014 Guidance for the fourth quarter 2014* • Tax level: < 30% • Financial net: around SEK -220 million • Currency impact on operating profit vs 2013 Q4: SEK +230 million Full year: SEK +110 million • Additions to PPE: around SEK 1.7 billion for 2014 * Guidance is approximate and based on current assumptions and exchange rates. © SKF Group Slide 32 15 October 2014 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 33 15 October 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 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 34 15 October 2014