skf q42010 presentation
DESCRIPTION
TRANSCRIPT
1 February 2011
0
The SKF Group
Tom Johnstone, President and CEO
1 February 2011
1 February 2011
2Key points, Q4 report
• Strong performance Operating profit: SEK 2,202 m (1,004). Operating margin: 14.3% (7.2)Profit before tax: SEK 2,048 m (765)Cash flow: SEK -5,966 m (1,445), Cash flow excl. acquisition of Lincoln Industrial SEK 798 m
• Strong organic sales development in local currency:SKF Group: +17.2%All divisions and regions showed very good growth
• Completed acquisition of Lincoln Industrial
Outlook for Q1 for SKF Group• Demand
Significantly higher compared to Q1 2010Slightly higher sequentially compared to Q4 2010, adjusted for normal seasonality
• Manufacturing levelSignificantly higher year over yearSlightly higher compared to Q4 2010, adjusted for normal seasonality
1 February 2011
3Acquisition of Lincoln Industrial, Q4 2010
• A leading supplier of lubrication systems and tools
• Headquarter in St. Louis, Missouri, USA
• Sales of around USD 400 m in 2010
• About 2,000 employees
• Total purchase price net: around SEK 6.8 bn
• Financing: around SEK 3.2 bn cash (net) and SEK 3.6 bn debt
1 February 2011
4New facilities opened in 2010
Tver, Russia Ahmedabad, IndiaHaridwar, India
3factories
1Global Technical
Centre in Shanghai
9 Solution Factories - in total 17
1 February 2011
5Examples of new product launches in 2010
SKF Commutation Sensor-Bearing Unit
Four-row tapered roller bearing
SKF MetroCon –
CBM for elevators and escalators
Low friction X-Tracker
SKF Cam Follower Unit
SKF SPEEDI-SLEEVE
SKF One Way Clutch
SKF Crane Asset Management
SKF Hydraulic driven lubricator
SKF Engineering Simulation
Services
SKF solutions for special pumps
SKF Overrunning Alternator
Pulley Unit
SKF Drum Support Unit
SKF Low Friction Engine
Seal
High performance seal
2010: 251 first filings of patent applications
1 February 2011
6Six Sigma
2010 status:• 463 Black Belts
• 2,059 Green Belts
• 1,155 projects closed
Hard savings2005: SEK 150 m 2006: SEK 200 m2007: SEK 302 m2008: SEK 462 m2009: SEK 430 m2010: SEK 468 m
4 dimensions:”Standard” Six Sigma, Design for SixSigma, Lean Six Sigma and Six Sigma for Growth
1 February 2011
7Sales volume
-35-30-25-20-15-10-505
101520
% change y-o-y
2008 2009 2010
1 February 2011
8Sales in local currencies (excl. structural changes)
-30-25-20-15-10-505
101520
% change y-o-y
2008 2009 2010
1 February 2011
9Growth in local currency(Organic growth + acquisition/divestments)
-20
-15
-10
-5
0
5
10
15
20
2008 2009 2010
% y-o-y
7.1%-19.0%
14.2%
Organic growth
Acquisitions/Divestments
1 February 2011
10Growth development by geographyLocal currency Q4 2010 vs Q4 2009
Europe+17%
Asia/Pacific +20%
Latin America +16%
Middle East & Africa +8%
North America +17%
1 February 2011
11Growth development by geographyLocal currency 2010 vs 2009
Europe+7%
Asia/Pacific +31%
Latin America +20%
Middle East & Africa +10%
North America +13%
1 February 2011
12Components in net sales
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
19.0 16.3
0.0
0.9
17.2
-6.2
11.0
0.0
0.3
19.3
-3.2
16.1
16.6
0.0
-0.5
16.1
-5.2
10.9
5.3
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
Fullyear
14.1
0.0
0.1
14.2
-5.6
8.6
Percent y-o-y
Volume
Structure
Price / Mix
Sales in local currency
Currency
Net sales
2008 2009 2010
1 February 2011
13Operating profit
0200400600800
1 0001 2001 4001 6001 8002 0002 2002 400SEKm
2008 2009 2010
Restructuring and one-time items
1 February 2011
14Operating margin
%
0
2
4
6
8
10
12
14
16
2008 2009 2010
Restructuring and one-time items
1 February 2011
15Operating margin
0
2
4
6
8
10
12
14
16
2008 2009 2010
%
12.2
5.7
12.7*
8.0*
Restructuring and one-time items
* Excluding restructuring and one-time items
14.2*
13.8
1 February 2011
16Operating margin per division
-12-10
-8-6-4-202468
1012141618
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
IndustrialService
Automotive
%
2008
Excluding one-off items(eg. restructuring, impairments, capital gains)
2009 2010
1 February 2011
17Fourth quarter 2010
SEKm 2010 2009
Net sales 15,409 13,887
Operating margin excl. restructuring, % 14.9 10.1
Cash flow* -5,966 1,445
Cash flow* excl. acquisition of Lincoln Industrial 798
Operating margin, % 14.3 7.2
Operating profit 2,202 1,004
Profit before taxes 2,048 765
Net profit 1,350 505
Basic earnings per share, SEK 2.87 1.05
*after investments before financing
1 February 2011
18Full year 2010
SEKm 2010 2009
Net sales 61,029 56,227
Operating margin excl. restructuring, % 14.2 8.0
Cash flow* -2,838 5,752
Cash flow* excl. acquisition of Lincoln Industrial 3,926
Operating margin, % 13.8 5.7
Operating profit 8,452 3,203
Profit before taxes 7,549 2,297
Net profit 5,296 1,705
Basic earnings per share, SEK 11.28 3.61
*after investments before financing
1 February 2011
19Inventories as % of annual sales
18
19
20
21
22
23
24
25% Long-term target level: 18%
2008 2009 2010
X Excluding acquisitionof Lincoln Industrial
1 February 2011
20Cash flow, after investments before financial items
-6 000-5 500-5 000-4 500-4 000-3 500-3 000-2 500-2 000-1 500-1 000
-5000
5001 0001 5002 0002 500SEKm
Cash out fromacquisitions (SEKm):
2008 1,2842009 2412010 6,799
X Excluding acquisitionof Lincoln Industrial
2008 20102009
1 February 2011
21Return on capital employed
0
5
10
15
20
25
30
2008 2009 2010
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
24.0
1 February 2011
22Net debt(Short-term financial assets minus loans and post-employment benefits)
AB SKF, dividend paid (SEKm):2008 Q2 2,2772009 Q2 1,5942010 Q2 1,594
Redemption (SEKm):2008 Q2 2,277
-18 000
-16 000
-14 000
-12 000
-10 000
-8 000
-6 000
-4 000
-2 000
0
SEKm
Cash out fromacquisitions (SEKm):
2008 1,2842009 2412010 6,7992008 2009 2010
1 February 2011
23Debt structure
Maturity years, EURm
55
446
530
100100
• Credit facilities:EUR 500 m 2014, whereof EUR 400* m utilizedSEK 3,000 m 2017, unutilized
• No financial covenants nor material adverse change clause
130
400*
0
100
200
300
400
500
600
2010 2011 2012 2013 2014 2015 2016
130
400*
1 February 2011
24Key focus areas ahead 2010
• Profit and cash flow
• Adjustment of manufacturing output to new demand levels
• Growing segments and geographies
• Strengthening the platform/segment approach
• Competence development
SKF Care and Six Sigma as guiding lights
1 February 2011
25Key focus areas ahead 2010
• Profit and cash flow
• Adjustment of manufacturing output to new demand levels
• Growing segments and geographies
• Strengthening the platform/segment approach
• Competence development
SKF Care and Six Sigma as guiding lights
1 February 2011
26Dividend proposal
AB SKF’s Board proposes the Annual General Meeting
an increase in the dividend of 43%, giving a dividend of SEK 5.00 (3.50) per share
1 February 2011
27December 2010:Outlook for the first quarter 2011
Development compared to the first 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 fourth quarter 2010 and adjusted fornormal seasonalityThe demand is expected to be slightly higher for the Group and for the different geographical areas. The Industrial Division and the Service Division are expected to be slightly higher and the Automotive Division higher.
Manufacturing levelThe manufacturing level will be significantly higher year on year and slightly higher compared to the fourth quarter, adjusted for normal seasonality.
1 February 2011
28Volume trends, regions(based on current assumptions and adjusted for seasonality)
Daily volume trends for: Q4 2010 Q1 2011
Total
7%Latin America
27%Asia Pacific
18%North America
46%Europe
Net sales2010
+++
+++
+++
+++
+++
Outlook Q12011 vs 2010
1 February 2011
29Volume trends, divisions(based on current assumptions and adjusted for seasonality)
Daily volume trends for Q1 2011
Net sales2010
Industrial 32%
Service 36%
Automotive 30%
Total +++
+++
+++
+++
Outlook Q12011 vs 2010
1 February 2011
30Sequential volume trend main segments Q1 2011(based on current assumptions)
5%
25%
18%
10%
5%
4%
14%
12%
3%
4%
Energy
Industrial distribution
Industrial OEM, General+Special
Industrial OEM, Heavy + Off-highway
Aerospace
Railway
Cars
Vehicle Service Market
Electrical and two-wheeler
Trucks
Net sales 2010
1 February 2011
31Guidance for the first quarter 2011
• Tax level: around 30%
• Financial net for the first quarter:Around SEK -200 m
• Exchange rates on operating profit versus 2010Q1: SEK -150 mFull year: SEK -900 m
• Additions to PPE: Around SEK 2.3 bn for 2011
Guidance is approximate and based on current assumptions and exchange rates.
1 February 2011
32Long-term financial targets
Targets
Operating margin level 15%Annual sales growth in local currencies 8%ROCE 27%Inventory to sales 18%
1 February 2011
33Main initiatives going forward
• Accelerate profitable growth
• Reduce cost and eliminate waste
• Invest for growth
One SKF and SKF Care as guiding lights
1 February 2011
34Main 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
• Develop other brands of the SKF Group
1 February 2011
35Main 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
1 February 2011
36Main 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
1 February 2011
37Key focus areas ahead 2011
• Profit and cash flow- manage currency and material headwinds
• Manufacturing and suppliers to support growth
• Growing segments and geographies
• Initiatives and actions to support long term targets
• Integration of Lincoln Industrial
• Business Excellence and competence development
One SKF and SKF Care as guiding lights
1 February 2011
38Cautionary 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”.
1 February 2011
39