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The SKF Group Half-year results 2009 Tom Johnstone, President and CEO
Key points from Q2 report <ul><li>Record quarterly cash flow </li></ul><ul><li>Q2: SEK 2,425 m H1: SEK 2,948 m </li></ul><ul><li>Dramatic drop in sales volume continued </li></ul><ul><li>Q2: -30.8% H1: -28.9% </li></ul><ul><li>Strong price/mix </li></ul><ul><li>Q2: 5.6% H1: 6.3% </li></ul><ul><li>Cost reduction efforts in focus and giving results </li></ul><ul><li>- new programme announced </li></ul><ul><li>- annualised savings from all programmes, around SEK 800 million </li></ul><ul><li>- in addition, significant short-time working being utilized </li></ul><ul><li>Demand outlook for Q3 </li></ul><ul><li>- significant decline year over year </li></ul><ul><li>- decline levelling off sequentially </li></ul>
Highlights Q2 2009 <ul><li>SKF </li></ul><ul><li>inaugurated a new Solution Factory in Turin, Italy </li></ul><ul><li>signed a contract with Cambridge University Department of Materials Science and Metallurgy to set up the SKF University Technology Centre on Steels on campus in Cambridge </li></ul><ul><li>won an order to supply Guohua Energy Investment Co. Ltd. in China with SKF WindCon online condition monitoring systems and other related services </li></ul><ul><li>signed a long-term contract with Hero Honda in India to supply ball bearings </li></ul><ul><li>acquired the remaining 49% of the shares in Macrotech Polyseal Inc., now called SKF Polyseal Inc. </li></ul><ul><li>in cooperation with the Czech police, confiscated over 30 tons of counterfeit SKF bearings. </li></ul>
Second quarter 2009 * Q2 restructuring SEK 500 m Operating profit excl. restructuring activities SEK 974 m 13.3% 6.9% Operating margin excl. restructuring, % 872 2,425 Cash flow after investments before financial items 16,077 14,167 Net sales 13.3% 3.4% Operating margin 2008 2009 SEKm 2.95 0.69 Basic earnings per share, SEK 1,369 323 Net profit 1,978 312 Profit before taxes 2,135 474* Operating profit
Half year 2009 * H1 restructuring SEK 675 m Operating profit excl. restructuring activities SEK 1,917 m 13.2% 6.6% Operating margin excl. restructuring, % 741 2,948 Cash flow after investments before financial items 31,673 29,016 Net sales 13.2% 4.3% Operating margin 2008 2009 SEKm 5.72 1.55 Basic earnings per share, SEK 2,665 717 Net profit 3,902 843 Profit before taxes 4,175 1,242* Operating profit
Growth in local currency (Organic growth + Acquisition/Divestments) % y-o-y Acquisitions/Divestments Organic growth 13.2% Long-term target level: 6-8% per annum 7.1% -21.3%
Sales in local currencies (excl. structural changes) % change y-o-y 2007 2008 2009
Operating margin per division Industrial Service Automotive % 2007 2008 Excluding one-off items (eg. restructuring, impairments, capital gains) 2009
Activities to adapt to lower demand <ul><li>Restructuring/impairment programmes People Costs charged to operating profit </li></ul><ul><li>announced: Q4 2008 2,500 SEK 340 m </li></ul><ul><li> Q1 2009 500 SEK 175 m </li></ul><ul><li>Q2 2009 900 SEK 500 m </li></ul><ul><li>3,900 SEK 1,015 m </li></ul><ul><li>At the end of June 2009, around 3,800 people have left the Group since H2 2008, of which around 2,000 people under the programmes. </li></ul><ul><li>Total savings from these activities SEK 800 m. </li></ul><ul><li>In addition, around 18,000 people in short-time working. </li></ul>
Inventories as % of annual sales % 2007 Long-term target level: 18% 2008 2009
Return on capital employed ROCE: Operating profit plus interest income, as a percentage of twelve months average of total assets less the average of non-interest bearing liabilities. % Long-term target level: 24% 24.9 24.0 13.4
Net debt (Short-term financial assets minus loans and post-employment benefits) SEKm AB SKF, dividend paid (SEKm) : 2007 Q2 2,049 2008 Q2 2,277 2009 Q2 1,594 Redemption (SEKm) : 2007 Q2 4,554 2008 Q2 2,277 2007 2008 2009
AB SKF, debt structure Amount in million Maturity Euro Bond EUR 132* 2010-06 SEK Bond SEK 1,500 2011-06 Term loan in euro EUR 150 2013-06 Euro Bond EUR 500 2013-12 Euro loans EUR 130 2014-03 Euro loan EUR 100 2016-06 * Was EUR 250 million, reduced by EUR 118 million in Q2.
Cash flow, after investments before financial items 2007 SEKm Cash out from acquisitions* (SEKm) : 2007 1,209 2008 1,284 2009 223 2008 2009 * including non-controlling interests.
July 2009: Outlook for the third quarter 2009 Compared to last year the demand for SKF products and services is expected to be significantly lower in the third quarter compared to the third quarter last year for the Group in total, for all the Divisions and for all regions. Compared to the second quarter and adjusted for seasonality, demand is expected to be relatively unchanged for the SKF Group in total. It is expected to be lower in Europe, relatively unchanged in North America and slightly higher in Asia and Latin America. It is expected to be slightly higher for the Automotive Division, relatively unchanged for the Service Division and slightly lower for the Industrial Division. The manufacturing level will be significantly lower year on year and relatively unchanged compared to the second quarter.
Volume trends (based on current assumptions) Daily volume trends for: Q2 2009 Q3 2009 Total 5% Latin America 19% Asia Pacific 17% North America 56% Europe Net sales 2008 --- --- --- --- --- Outlook Q3 2009 vs 2008
Sequential volume trend main segments Q3 2009 (based on current assumptions) Net sales 2008 Industrial OEM, Heavy+Off-highway Energy Aerospace 12% 6% 5% Industrial OEM, General+Special 20% Cars Vehicle Service Market Railway Electrical and two-wheeler Industrial distribution Trucks 13% 9% 3% 3% 23% 5%
Guidance for the third quarter 2009 <ul><li>Tax level: around 30% </li></ul><ul><li>Financial net for the third quarter: Around SEK -200 million </li></ul><ul><li>Exchange rates on operating profit versus 2008 Q3: SEK 260 million </li></ul><ul><li>Full year: SEK 900 million </li></ul><ul><li>Additions to PPE: Slightly below SEK 2 billion for 2009 </li></ul>Guidance is approximate and based on current assumptions and exchange rates
Key focus areas ahead 2009 <ul><li>Profit and cash flow </li></ul><ul><li>- maintain positive price/mix </li></ul><ul><li>- drive operational efficiency and cost reduction </li></ul><ul><li>- reduce working capital and investments </li></ul><ul><li>Adjustment of manufacturing output to new demand levels </li></ul><ul><li>- restructuring </li></ul><ul><li>- short-time working </li></ul><ul><li>Growing segments and geographies </li></ul><ul><li>Strengthening the platform/segment approach </li></ul><ul><li>Competence development </li></ul>SKF Care and Six Sigma as guiding lights
SKF Care Employee Care Community Care Environmental Care Business Care BeyondZero TM SKF Care Operating margin
SKF Group Vision To equip the world with SKF knowledge
Cautionary statement <ul><li>This presentation contains forward-looking statements that are based on the current expectations of the management of SKF. </li></ul><ul><li>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; "Most important factors influencing the financial results", "Financial risks" and "Sensitivity analysis”. </li></ul>