16 October 2008
The SKF Group
Nine-month results 2008
Tom Johnstone, President and CEO
Highlights during the third quarter 2008
SKF
• announced it will be investing around SEK 400 million in its
facilities in Göteborg, Sweden for a further increase of capacity.
Photo: Skoda Electric a.s.
• signed an agreement to acquire GLO s.r.I and its manufacturing
operation in Italy. The acquisition is subject to certain conditions
of closing and requires approvals by relevant authorities.
16 October 2008
• was awarded a long-term contract from Skoda Electric a.s.
SKF will provide traction motor bearing units for the new
Prague 15T low floor tramway generation.
• completed the acquisition of PEER Bearing Company and its
manufacturing operations in China and Thailand.
3
Highlights during the third quarter 2008
SKF
• launched through the network of SKF authorized distributors
the latest SKF Energy Efficient performance class bearings.
• launched new condition based maintenance solutions to
the railway industry to achieve lower life cycle cost.
• launched the Distributor Value Program to support SKF
Authorized Distributors in documenting value to customers.
• launched the first series of a new generation super-precision
bearings.
• was included in the Dow Jones Sustainability Indexes for the
ninth year in succession.
16 October 2008
4
5
Third quarter 2008
2008
2007
15,381
14,155
Operating profit
2,085
1,803
Operating margin
13.6%
12.7%
Profit before taxes
1,859
1,646
Net profit
1,257
1,174
2.67
2.48
-526
1,274
528
1,237
SEKm
Net sales
Basic earnings per share, SEK
Cash flow after operating investments before
financial items
Cash flow after operating investments before
financial items, excluding acquisitions
16 October 2008
6
First nine months 2008
2008
2007
47,054
43,489
Operating profit
6,260
5,708
Operating margin
13.3%
13.1%
Profit before taxes
5,761
5,428
Net profit
3,922
3,662
8.39
7.76
215
1,509
1,331
2,212
SEKm
Net sales
Basic earnings per share, SEK
Cash flow after operating investments before
financial items
Cash flow after operating investments before
financial items, excluding acquisitions
16 October 2008
7
Operating margin
Long-term target level: 12%
%
14
13
12
11
10
9
8
7
6
5
4
3
2
1
0
2006
16 October 2008
2007
2008
8
Operating margin
Long-term target level: 12%
%
14
12.6
12.9
13.3
2007
YTD September
2008
12
10
11.3*
8
6
4
2
0
2006
* excluding income from the jointly
controlled company Oy Ovako Ab
16 October 2008
9
Operating margin per division
%
16
14
Service
Industrial
12
10
8
Automotive
6
4
2
0
Q1
Q2
2006
Q3
Q4
Q1
Q2
Q3
Q4
2007
Excluding one-time items (eg. restructuring,
impairments, capital gains)
16 October 2008
Q1
Q2
2008
Q3
Sales in local currencies (excl. structural changes)
% change y-o-y
16
14
12
10
8
6
4
2
0
2006
16 October 2008
2007
2008
10
Growth development in local currency
Acquisitions/Divestments
Organic growth
Long-term target level: 6-8% per annum
% Y-o-Y
14
12
10
8
6
4
2
0
13.2
10.2
7.5*
2006
2007
* Excluding effect from Ovako: 2006 10.1%
16 October 2008
YTD September
2008
11
12
Net sales development per quarter
2006
2007
2008
Percent y-o-y
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Volume
6.0
2.5
3.3
8.8
7.9
6.9
9.0
6.3
4.9
6.2
2.7
Structure
-4.9
-0.5
1.1
4.6
4.0
4.6
3.7
1.0
1.0
1.3
0.5
Price / Mix
2.9
2.0
2.0
2.3
1.8
2.7
2.0
3.2
3.8
4.0
6.4
Sales in local
currency
4.0
4.0
6.4
15.7
13.7
14.2
14.7
10.5
9.7
11.5
9.6
Currency
8.0
1.0
-2.1
-5.8
-5.6
-2.3
-1.9
-2.0
-1.2
-4.1
-0.9
Net sales
12.0
5.0
4.3
9.9
8.1
11.9
12.8
8.5
8.5
7.4
8.7
16 October 2008
Cash flow, after operating investments before financial items
13
SEKm
1 700
1 500
1 300
1 100
900
700
500
300
100
-100
-300
-500
-700
Cash out from
acquisitions (SEKm):
2006
2,129
2007
1,209
2008 YTD
1,116
Cash in from Ovako
(SEKm):
2006 Q4
1,217
2007 Q2
46
2006
16 October 2008
2007
2008
Net debt
(Short-term financial assets minus loans and post-employment benefits)
14
SEKm
0
AB SKF,
dividend paid (SEKm):
2006 Q2
1,821
2007 Q2
2,049
2008 Q2
2,277
-2 000
-4 000
-6 000
-8 000
Redemption (SEKm):
2007 Q2
4,554
2008 Q2
2,277
-10 000
-12 000
-14 000
2006
16 October 2008
2007
2008
15
Inventories as % of annual sales
Long-term target level: 18%
%
23
22
21
20
19
18
2006
16 October 2008
2007
2008
16
Return on capital employed
Long-term target level: 24%
%
27
26
25
24
23
2006
2007
ROCE: Operating profit plus interest income, as a
percentage of twelve months average of total assets
less the average of non interest bearing liabilities.
16 October 2008
YTD September
2008
October 2008: Outlook for the fourth quarter 2008
The demand for SKF products and services, based on current
assumptions, is expected to be slightly lower in the fourth quarter
both compared to the third quarter this year (seasonally adjusted) and
the fourth quarter last year. In Europe and North America the demand
is expected to be slightly lower, in Latin America higher and in Asia
significantly higher. From a divisional viewpoint, the demand
is expected to be higher in the Industrial Division, slightly higher in the
Service Division and significantly lower in the Automotive Division.
The manufacturing level for the Group in the fourth quarter will be
lower to reflect this new demand situation and to reduce inventory.
16 October 2008
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18
Volume development
(based on current assumptions)
Net sales
2007
Daily volume trend for:
Q3 2008
Q4 2008
Outlook Q4
2008 vs 2007
Europe
56%
-
North America
18%
-
Asia Pacific
18%
+++
Latin America
5%
++
Total
16 October 2008
-
Expected demand by main segment – Q4
(based on current assumptions)
Net sales 2007
15% Cars
5% Trucks
10% VSM
3% Electrical and two-wheeler
22% Industrial OEM, General+Special
23% Industrial distribution
11% Industrial OEM, Heavy+Off-highway
5% Aerospace
3% Railway
3% Energy
16 October 2008
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Guidance for the fourth quarter 2008
• Tax level: 32%
• Financial net for fourth quarter:
SEK -200 million
• Exchange rates on operating profit versus 2007
Q4:
SEK +100 million
Full year: SEK -270 million
• Additions to PPE: around SEK 2.5 billion
Guidance is approximate and based on current assumptions and exchange rates
16 October 2008
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21
AB SKF, long-term debt structure
Amount in million
Maturity
Euro Bond
EUR 250
2010-06
SEK Bond
SEK 1,500
2011-06
Term loan in euro 1)
EUR 150
2013-06
Euro Bond
EUR 500
2013-06
Euro loan 2)
EUR 100
2016-06
1)
SKF can repay at any time before maturity.
2)
SKF can repay from 2010-06
16 October 2008
Key focus areas ahead
22
• Protect profit and cash flow
• Strengthen the platform/segment approach
• Maintain a positive price/mix
• Focus on fast growing segments and geographies
• Drive operational efficiency and Six Sigma
• Manage material costs and supply
• Attract and retain the best people
Use sustainability as a guiding light
16 October 2008
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SKF Corporate Sustainability
Employee Care
Business Care
14
12
10
8
6
4
2
0
2003
2004
2005
2006
Operating margin
2007
BeyondZero
TM
Environment Care
16 October 2008
SKF Care
Community Care
SKF Group Vision
To equip the world
with SKF knowledge
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16 October 2008