skf q3 2010_presentation
TRANSCRIPT
19 October 2010
0
The SKF Group
Tom Johnstone, President and CEO
19 October 2010
19 October 2010
2
Agenda
• Nine-months report and outlook
• New financial targets
• Acquisition of Lincoln Industrial
19 October 2010
3
Agenda
• Nine-months report and outlook
• New financial targets
• Acquisition of Lincoln Industrial
19 October 2010
4Key points, Q3 report
• Strong performance Operating profit: SEK 2,309 m (957). Operating margin: 14.9% (7.2)Profit before tax: SEK 1,950 m (689), including SEK 150 m related to Ovako.Cash flow: SEK 1,936 m (1,359)
• Organic sales development in local currency:SKF Group: +19.3%Industrial Division: +17.9%Service Division: +22.7%Automotive Division: +15.0%
Outlook for Q4
• DemandSignificantly higher compared to Q4 2009Slightly higher sequentially compared to Q3 2010, adjusted for normal seasonality
• Manufacturing levelSignificantly higher year over yearUnchanged compared to Q3 2010, adjusted for normal seasonality
19 October 2010
5Highlights Q3 2010 – investing for the future
• Two new factories announced:-Dalian, China for medium-sized bearingsInvestment: around SEK 400 mIn operation: in 2011Employees: 250 people
-Mysore, India for sealsInvestment: around SEK 160 mIn operation: second half of 2012Employees: 600 people
• Investment of around USD 18 m in a new heat treatment facility in Falconer, USA.
• Two new SKF Solution Factories were inaugurated, one in the UK and one in Turkey.
19 October 2010
6Highlights Q3 2010 – customers and sustainability
• Contract gained with Guohua Energy Investment for 180 SKF WindCon systems for existing turbines, and 58 SKF WindCon systems for a new wind farm in Beijing.
• Over two billion USD documented savings by customers as a result of using SKF solutions. Data collected over a 10-year period with the use of SKF Documented Solutions Program.
• Continued launch of new products.
• SKF's factory in Tver, Russia achieved Gold and SKF’s headofficein the USA Platinum awards to the U.S. Green Building council's LEED standard.
• SKF was included in the 2010 Dow Jones Sustainability Indexes (DJSI) and in the FTSE4Good Index Series.
19 October 2010
7Examples of new product launches
SKF Commutation Sensor-Bearing Unit
Four-row tapered roller bearing
SKF MetroCon –
CBM for elevators and escalators
Low friction X-Tracker
SKF Cam Follower UnitSKF SPEEDI-SLEEVE
SKF One Way Clutch
SKF Crane Asset Management
SKF Idler Sound Monitor kit
SKF Hydraulic driven lubricator
SKF Engineering Simulation
Services
SKF solutions for special pumps
19 October 2010
8Sales volume
-35-30-25-20-15-10-505
101520
% change y-o-y
2008 2009 2010
19 October 2010
9Sales in local currencies (excl. structural changes)
-30-25-20-15-10-505
101520
% change y-o-y
2008 2009 2010
19 October 2010
10Growth in local currency(Organic growth + acquisition/divestments)
% y-o-y
-20
-15
-10
-5
0
5
10
15
2008 2009 YTD September2010
Organic growth
Acquisitions/Divestments
7.1%
-19.0%
13.2%
19 October 2010
11Growth development by geographyLocal currency Q3 2010 vs Q3 2009
Europe+12%
Asia/Pacific +34%
Latin America +19%
Middle East & Africa +11%
North America +24%
19 October 2010
12Growth development by geographyLocal currency YTD September 2010 vs YTD September 2009
Europe+4%
Asia/Pacific +34%
Latin America +22%
Middle East & Africa +11%
North America +11%
19 October 2010
13Components in net sales
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2
5.3 16.6
0.0
-0.5
16.1
-5.2
10.9
0.0
-0.3
5.0
-7.7
-2.7
-14.1
0.4
0.3
-13.4
-1.4
-14.8
-24.9
1.2
3.7
-20.0
6.6
-13.4
-30.8
1.1
5.6
-24.1
12.2
-11.9
-26.9
1.4
7.1
-18.4
13.6
-4.8
-13.0
2.4
8.5
-2.1
10.3
8.2
2.7
0.5
6.4
9.6
-0.9
8.7
6.2
1.3
4.0
11.5
-4.1
7.4
4.9
1.0
3.8
9.7
-1.2
8.5
Q3
19.0
0.0
0.3
19.3
-3.2
16.1
Percent y-o-y
Volume
Structure
Price / Mix
Sales in local currency
Currency
Net sales
2008 2009 2010
19 October 2010
14Operating profit
0200400600800
1 0001 2001 4001 6001 8002 0002 2002 400SEKm
2008 2009 2010
Restructuring and one-time items
19 October 2010
15Operating margin
%
0
2
4
6
8
10
12
14
16
2008 2009 2010
Restructuring and one-time items
19 October 2010
16Operating margin
0
2
4
6
8
10
12
14
16
2008 2009 YTD September2010
%
12.2
5.7
12.7*
8.0*
Restructuring and one-time items
* Excluding restructuring and one-time items
13.9*
13.7
19 October 2010
17Operating margin per division
-12-10
-8-6-4-202468
1012141618
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3
IndustrialService
Automotive
%
2008
Excluding one-off items(eg. restructuring, impairments, capital gains)
2009 2010
19 October 2010
18Third quarter 2010
SEKm 2010 2009
Net sales 15,465 13,324
Operating margin excl. restructuring, % 14.9% 8.7%
Cash flow after investments before financial items
1,936 1,359
Operating margin, % 14.9% 7.2%
Operating profit 2,309 957
Profit before taxes 1,950 689
Net profit 1,425 483
Basic earnings per share, SEK 3.05 1.01
19 October 2010
19First nine months 2010
SEKm 2010 2009
Net sales 45,620 42,340
Operating margin excl. restructuring, % 13.9% 7.3%
Cash flow after investments before financial items
3,128 4,307
Operating margin, % 13.7% 5.2%
Operating profit 6,250 2,199
Profit before taxes 5,501 1,532
Net profit 3,946 1,200
Basic earnings per share, SEK 8.41 2.56
19 October 2010
20Inventories as % of annual sales
18
19
20
21
22
23
24
25% Long-term target level: 18%
2008 2009 2010
19 October 2010
21Cash flow, after investments before financial items
-1 000
-500
0
500
1 000
1 500
2 000
2 500SEKm
Cash out fromacquisitions (SEKm):
2008 1,2842009 241
2008 20102009
19 October 2010
22Return on capital employed
0
5
10
15
20
25
30
2008 2009 YTD September2010
ROCE: Operating profit plus interest income, as a percentage of twelve months average of total assets less the average of non-interest bearing liabilities.
%
24.0
9.1
20.7
19 October 2010
23Net debt(Short-term financial assets minus loans and post-employment benefits)
-18 000
-16 000
-14 000
-12 000
-10 000
-8 000
-6 000
-4 000
-2 000
0
SEKm
AB SKF, dividend paid (SEKm):2008 Q2 2,2772009 Q2 1,5942010 Q2 1,594
Redemption (SEKm):2008 Q2 2,277
2008 2009 2010
19 October 2010
24Debt structure
0
100
200
300
400
500
2010 2011 2012 2013 2014 2015 2016
Maturity years, EURm
55
446
130100100
• Unutilized credit facilities:EUR 500 m 2014
SEK 3,000 m 2017
• No financial covenants nor material adverse change clause
19 October 2010
25September 2010:Outlook for the fourth quarter 2010
Development compared to fourth quarter last yearThe demand for SKF products and services is expected to be significantly higher for the Group, the divisions and for the different geographical areas.
Development compared to the third quarter 2010 and adjusted for normal seasonalityThe demand is expected to be slightly higher for the Group, the divisions and for the different geographical areas.
Manufacturing levelThe manufacturing level will be significantly higher year on year and unchanged compared to the third quarter, adjusted for normal seasonality.
19 October 2010
26Volume trends, regions(based on current assumptions and adjusted for seasonality)
Daily volume trends for: Q3 2010 Q4 2010
Total
6%Latin America
23%Asia Pacific
17%North America
51%Europe
Net sales2009
+++
+++
+++
+++
+++
Outlook Q42010 vs 2009
19 October 2010
27Volume trends, divisions(based on current assumptions and adjusted for seasonality)
Daily volume trends for Q4 2010
Net sales2009
Industrial 34%
Service 35%
Automotive 29%
Total +++
+++
+++
+++
Outlook Q42010 vs 2009
19 October 2010
28Sequential volume trend main segments Q4 2010(based on current assumptions)
14%
5%
22%
16%
12%
11%
7%
7%
3%
3%
Cars
Railway
Industrial distribution
Industrial OEM, General+Special
Vehicle Service Market
Industrial OEM, Heavy + Off-highway
Aerospace
Energy
Electrical and two-wheeler
Trucks
Net sales 2009
19 October 2010
29Guidance for the fourth quarter 2010
• Tax level: around 30%
• Financial net for the fourth quarter:Around SEK -175 m
• Exchange rates on operating profit versus 2009Q4: SEK -50 mFull year: SEK -400 m
• Additions to PPE: Around SEK 1.6 bn for 2010
Guidance is approximate and based on current assumptions and exchange rates.
19 October 2010
30
Agenda
• Nine-months report and outlook
• New financial targets
• Acquisition of Lincoln Industrial
19 October 2010
31
-25
-20
-15
-10
-5
0
5
10
15
2003 2004 2005 2006 2007 2008 2009 ytd2010
Sales growth in local currency%
* Excl. effects from sale of Ovako: 2005: 10.4% 2006: 10.1%
5.2
11.87.3* 7.5*
13.2
7.1
Long-term targets • 12% Operating margin, level• 6-8% Growth per annum (local)• 24% Return on capital employed
-19.0
SKF Group performance
0
2
4
6
8
10
12
14
2003 2004 2005 2006 2007 2008 2009 ytd2010
Operating margin%
9.9 10.812.6
8.0
12.9 12.2
5.7
02468
101214161820222426
2003 2004 2005 2006 2007 2008 2009 ytd2010
14.0
19.021.9 23.0
24.9
Return on capital employed%
24.0
9.1
13.7
20.7*
13.2
* 2010 annualised is 23.9%
19 October 2010
32
-25
-20
-15
-10
-5
0
5
10
15
2003 2004 2005 2006 2007 2008 2009 ytd2010
Sales growth in local currency%
* Excl. effects from sale of Ovako: 2005: 10.4% 2006: 10.1%
5.2
11.87.3* 7.5*
13.2
7.1
-19.00
2
4
6
8
10
12
14
2003 2004 2005 2006 2007 2008 2009 ytd2010
Operating margin%
9.9 10.812.6
8.0
12.9 12.2
5.7
02468
101214161820222426
2003 2004 2005 2006 2007 2008 2009 ytd2010
14.0
19.021.9 23.0
24.9
Return on capital employed%
24.0
9.1
13.7
20.7*
13.2
* 2010 annualised is 23.9%
Targets
ACHIEVED
Long-term targets • 12% Operating margin, level• 6-8% Growth per annum (local)• 24% Return on capital employed
SKF Group performance
19 October 2010
33New financial targets
Old targets New targets
Operating margin level 12% 15%
Annual sales growth in local currencies 6-8% 8%
ROCE 24% 27%
Inventory to sales 18% 18%
19 October 2010
34SKF Group, long-term view
World recovery will continue (with some uncertainties)
Growth will be uneven between regions- Asia +++- L. America, Cent/East Europe, MEA ++- N. America, W. Europe, Japan +
SKF Group focus on platforms/segments and delivering value will result in better growth than industrial production
Asia, Industrial business and the aftermarket will continue to increase as part of the Group
19 October 2010
35SKF’s business strategy for achieving long-term profitable growth and attaining financial targets
• keeping a clear and dedicated customer focus
• developing new products, solutions and services
• improving price quality by applying the SKF platformand segment approach
• strengthening the product portfolio through greaterinvestment 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
19 October 2010
36Main initiatives going forward
• Accelerate profitable growth
• Reduce cost and eliminate waste
• Invest for growth
One SKF and SKF Care as guiding lights
19 October 2010
37Main actions going forward
Accelerate profitable growth
• Continue to strengthen the platform/segment approach
• Increase the development, launch and commercialisation of new offerings (green)
• Value based selling – usingDocumented Solutions Programme
• Strengthen our service business
• Acquisitions to strengthen platform offer
19 October 2010
38Main actions going forward
Reduce cost and eliminate waste
• Build on Manufacturing Excellence into otherareas - Business Excellence
• Increased manufacturing and sourcing inBest Cost Countries
• Reduce product cost through ICR* activities
* ICR means Integrated Cost Reduction
19 October 2010
39Main actions going forward
Invest for growth
• Increase sales and engineering resources
• Additional factories in growth markets
• Additional SKF Solution Factories
• Increase spending in R&D and improve global network- accelerate plans for India and China
19 October 2010
40Main initiatives going forward
• Accelerate profitable growth
• Reduce cost and eliminate waste
• Invest for growth
One SKF and SKF Care as guiding lights
19 October 2010
41SKF Group – operating margin development
-4-202468
1012141618
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
ytd 20
10
19 October 2010
42SKF Group – sales development (in local currencies)
-20-18-16-14-12-10
-8-6-4-202468
1012141618
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
ytd 20
10
19 October 2010
43New SKF long-term financial targets
15% Operating margin level
8% Annual sales growth (local currencies)
27% ROCE
18% Inventory to sales
19 October 2010
44
Agenda
• Nine-months report and outlook
• New financial targets
• Acquisition of Lincoln Industrial
19 October 2010
45SKF Group Vision
To equip the worldwith SKF knowledge
19 October 2010
46What is SKF knowledge?
19 October 2010
47SKF’s platforms
Managing and reducing friction
19 October 2010
48Increasing need for lubrication systems
• Increase performance and productivity
• Improve reliability and component life-Protect in harsh conditions-Reduce catastrophic failures
• Lower maintenance and service costs-Reduce labour spend-Reduce lubrication consumption
• Reduce energy consumption
Dual-line lubrication systemspumps, reservoirs
Oil and air lubrication systems
Progressive lubrication systemsLubricant distributors, metering units
19 October 2010
49Lubrication systems market
• The lubrication systems market comprises two main technologies:
–Oil-based systems
–Grease-based systems
• The total world market incl products and services is estimated to be >20 BSEK
• The main segments for lubrication systems are: -Heavy industrial machinery (e.g metals, mining, pulp & paper)-Special industrial machinery (e.g machine tools, marine)-Energy (e.g wind, oil & gas)-Off highway-Agriculture
19 October 2010
50SKF Lubrication Systems
Acquisitions
Cirval (Argentina) 2008
ALS (Canada) 2007
Safematic (Finland) 2006
Sommers (Sweden) 2005
Vogel (Germany) 2004
Manufacturing and engineering centres
19 October 2010
51Acquisition of Lincoln Industrial
• Lubrication systems is one of SKF’s technology platforms and SKF has improved its offerings in this area in recent years. It is a vital part of SKF’s core competence in the management of friction.
• Lincoln Industrial is highly complementary to SKF Lubrication Systems when it comes to technology as well as geographical sales coverage and manufacturing footprint, particularly in North America and Asia.
• Lincoln Industrial is a highly attractive business, with consistent record of strong financial performance, very good margins and strong cash flow.
• Lincoln Industrial’s consistent financial performance, the outlook and synergies are reflected in the sales price of around USD 1 billion (~10 times EBIT).
19 October 2010
52Lincoln Industrial
Manufacturing and engineering centres
2010: Sales approaching USD 400 mEBIT margin around 24%.
North America
Europe
Asia
Other
Net sales geographical split
19 October 2010
53Lincoln Industrial’s offer portfolioSe
lect
ed A
pplic
atio
ns
Food/Beverage Heavy Construction Wind Energy General Manufacturing AftermarketVehicle Services
Steel/Glass Agriculture Mining Fire/Rescue Vocational Service
Sele
cted
Prod
ucts
Solu
tion
Spec
trum Automated
Systems
ManuallyOperated
Equipment
Increasing Application Complexity
Fast Application
Engineered to move heavy grease under high pressure in extreme environments for every application
19 October 2010
54The acquisition is in line with SKF’s strategy
Acquisitions are an integral part of the profitable growth strategy.
A systematic acquisition process has been established and the
strategic targets are identified
Acquisition criteria:
• Strategic fit with clear potential synergies and ability to exploit these in a reasonable timeframe.
• Strong commitment and ownership by acquiring Division.
• EPS accretive in the first full year, positive TVA effect in twoto three years, including amortization of intangible assets.
19 October 2010
55Summary of the third quarter
• Very strong quarter
• Positive outlook
• New financial targets
• Significant acquisition in lubrication systems area
19 October 2010
56Cautionary 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”.
19 October 2010
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