Skf q3 2010_presentation

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Skf q3 2010_presentation

  1. 1. 0 19 October 2010
  2. 2. The SKF Group Tom Johnstone, President and CEO 19 October 2010
  3. 3. 2 Agenda • Nine-months report and outlook • New financial targets • Acquisition of Lincoln Industrial 19 October 2010
  4. 4. 3 Agenda • Nine-months report and outlook • New financial targets • Acquisition of Lincoln Industrial 19 October 2010
  5. 5. Key points, Q3 report 4 • 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 • Demand Significantly higher compared to Q4 2009 Slightly higher sequentially compared to Q3 2010, adjusted for normal seasonality • Manufacturing level Significantly higher year over year Unchanged compared to Q3 2010, adjusted for normal seasonality 19 October 2010
  6. 6. Highlights Q3 2010 – investing for the future 5 • Two new factories announced: -Dalian, China for medium-sized bearings Investment: around SEK 400 m In operation: in 2011 Employees: 250 people -Mysore, India for seals Investment: around SEK 160 m In operation: second half of 2012 Employees: 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
  7. 7. Highlights Q3 2010 – customers and sustainability 6 • 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 headoffice in 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
  8. 8. Examples of new product launches 7 Four-row tapered Low friction X-Tracker SKF Engineering roller bearing Simulation Services SKF Commutation Sensor-Bearing Unit SKF MetroCon – SKF Crane Asset SKF One Way SKF Hydraulic Management Clutch driven lubricator CBM for elevators and escalators SKF Idler Sound SKF Cam Follower Monitor kit SKF solutions for SKF SPEEDI-SLEEVE Unit special pumps 19 October 2010
  9. 9. Sales volume 8 % change y-o-y 20 15 10 5 0 -5 -10 -15 -20 -25 -30 -35 2008 2009 2010 19 October 2010
  10. 10. Sales in local currencies (excl. structural changes) 9 % change y-o-y 20 15 10 5 0 -5 -10 -15 -20 -25 -30 2008 2009 2010 19 October 2010
  11. 11. Growth in local currency 10 (Organic growth + acquisition/divestments) % y-o-y 13.2% 15 10 7.1% 5 -19.0% 0 -5 -10 -15 -20 2008 2009 YTD September 2010 Organic growth Acquisitions/Divestments 19 October 2010
  12. 12. Growth development by geography 11 Local currency Q3 2010 vs Q3 2009 Europe +12% North America +24% Asia/Pacific +34% Latin America +19% Middle East & Africa +11% 19 October 2010
  13. 13. Growth development by geography 12 Local currency YTD September 2010 vs YTD September 2009 Europe +4% North America +11% Asia/Pacific +34% Latin America +22% Middle East & Africa +11% 19 October 2010
  14. 14. Components in net sales 13 2008 2009 2010 Percent y-o-y Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Volume 4.9 6.2 2.7 -13.0 -26.9 -30.8 -24.9 -14.1 5.3 16.6 19.0 Structure 1.0 1.3 0.5 2.4 1.4 1.1 1.2 0.4 0.0 0.0 0.0 Price / Mix 3.8 4.0 6.4 8.5 7.1 5.6 3.7 0.3 -0.3 -0.5 0.3 Sales in local 9.7 11.5 9.6 -2.1 -18.4 -24.1 -20.0 -13.4 5.0 16.1 19.3 currency Currency -1.2 -4.1 -0.9 10.3 13.6 12.2 6.6 -1.4 -7.7 -5.2 -3.2 Net sales 8.5 7.4 8.7 8.2 -4.8 -11.9 -13.4 -14.8 -2.7 10.9 16.1 19 October 2010
  15. 15. Operating profit 14 SEKm 2 400 2 200 2 000 1 800 1 600 1 400 1 200 1 000 800 600 400 200 0 2008 2009 2010 Restructuring and one-time items 19 October 2010
  16. 16. Operating margin 15 % 16 14 12 10 8 6 4 2 0 2008 2009 2010 Restructuring and one-time items 19 October 2010
  17. 17. Operating margin 16 % 16 13.9* 14 12.7* 12 13.7 10 12.2 8.0* 8 6 4 5.7 2 0 2008 2009 YTD September 2010 Restructuring and one-time items * Excluding restructuring and one-time items 19 October 2010
  18. 18. Operating margin per division 17 % 18 16 14 Service 12 Industrial 10 8 Automotive 6 4 2 0 -2 -4 -6 -8 -10 -12 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 2008 2009 2010 Excluding one-off items (eg. restructuring, impairments, capital gains) 19 October 2010
  19. 19. Third quarter 2010 18 SEKm 2010 2009 Net sales 15,465 13,324 Operating profit 2,309 957 Operating margin, % 14.9% 7.2% Operating margin excl. restructuring, % 14.9% 8.7% Profit before taxes 1,950 689 Net profit 1,425 483 Basic earnings per share, SEK 3.05 1.01 Cash flow after investments before 1,936 1,359 financial items 19 October 2010
  20. 20. First nine months 2010 19 SEKm 2010 2009 Net sales 45,620 42,340 Operating profit 6,250 2,199 Operating margin, % 13.7% 5.2% Operating margin excl. restructuring, % 13.9% 7.3% Profit before taxes 5,501 1,532 Net profit 3,946 1,200 Basic earnings per share, SEK 8.41 2.56 Cash flow after investments before 3,128 4,307 financial items 19 October 2010
  21. 21. Inventories as % of annual sales 20 % Long-term target level: 18% 25 24 23 22 21 20 19 18 2008 2009 2010 19 October 2010
  22. 22. Cash flow, after investments before financial items 21 SEKm 2 500 Cash out from 2 000 acquisitions (SEKm): 1 500 2008 1,284 2009 241 1 000 500 0 -500 -1 000 2008 2009 2010 19 October 2010
  23. 23. Return on capital employed 22 % 30 24.0 25 20.7 20 15 9.1 10 5 0 2008 2009 YTD September 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. 19 October 2010
  24. 24. Net debt 23 (Short-term financial assets minus loans and post-employment benefits) SEKm 0 AB SKF, -2 000 dividend paid (SEKm): -4 000 2008 Q2 2,277 -6 000 2009 Q2 1,594 -8 000 2010 Q2 1,594 -10 000 Redemption (SEKm): -12 000 2008 Q2 2,277 -14 000 -16 000 -18 000 2008 2009 2010 19 October 2010
  25. 25. Debt structure 24 Maturity years, EURm 500 400 446 300 200 100 130 100 100 55 0 2010 2011 2012 2013 2014 2015 2016 • Unutilized credit facilities: • No financial covenants nor material EUR 500 m 2014 adverse change clause SEK 3,000 m 2017 19 October 2010
  26. 26. September 2010: 25 Outlook for the fourth quarter 2010 Development compared to fourth quarter last year The 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 seasonality The demand is expected to be slightly higher for the Group, the divisions and for the different geographical areas. Manufacturing level The manufacturing level will be significantly higher year on year and unchanged compared to the third quarter, adjusted for normal seasonality. 19 October 2010
  27. 27. Volume trends, regions 26 (based on current assumptions and adjusted for seasonality) Net sales Daily volume trends for: Outlook Q4 2009 Q3 2010 Q4 2010 2010 vs 2009 Europe 51% +++ North America 17% +++ Asia Pacific 23% +++ Latin America 6% +++ Total +++ 19 October 2010
  28. 28. Volume trends, divisions 27 (based on current assumptions and adjusted for seasonality) Net sales Daily volume trends Outlook Q4 2009 for Q4 2010 2010 vs 2009 Industrial 34% +++ Service 35% +++ Automotive 29% +++ Total +++ 19 October 2010
  29. 29. Sequential volume trend main segments Q4 2010 28 (based on current assumptions) Net sales 2009 14% Cars 5% Railway 22% Industrial distribution 16% Industrial OEM, General+Special 12% Vehicle Service Market 11% Industrial OEM, Heavy + Off-highway 7% Aerospace 7% Energy 3% Electrical and two-wheeler 3% Trucks 19 October 2010
  30. 30. Guidance for the fourth quarter 2010 29 • Tax level: around 30% • Financial net for the fourth quarter: Around SEK -175 m • Exchange rates on operating profit versus 2009 Q4: SEK -50 m Full 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
  31. 31. 30 Agenda • Nine-months report and outlook • New financial targets • Acquisition of Lincoln Industrial 19 October 2010
  32. 32. SKF Group performance 31 Operating margin Sales growth in local currency % % 14 12.6 12.9 12.2 13.7 13.2 15 11.8 13.2 10.8 7.3* 7.5* 7.1 12 9.9 10 5.2 10 8.0 5 8 5.7 0 6 2003 2004 2005 2006 2007 2008 2009 ytd -5 2010 4 -10 2 -15 0 -20 -19.0 2003 2004 2005 2006 2007 2008 2009 ytd 2010 -25 * Excl. effects from sale of Ovako: 2005: 10.4% Return on capital employed 2006: 10.1% % 24.9 24.0 26 24 21.9 23.0 22 19.0 20.7* Long-term targets 20 18 14.0 • 12% Operating margin, level 16 14 • 6-8% Growth per annum (local) 9.1 12 10 • 24% Return on capital employed 8 6 4 2 0 2003 2004 2005 2006 2007 2008 2009 ytd 19 October 2010 * 2010 annualised is 23.9% 2010
  33. 33. SKF Group performance 32 Operating margin Sales growth in local currency % % 14 12.6 12.9 12.2 13.7 13.2 15 11.8 13.2 10.8 7.3* 7.5* 7.1 12 9.9 10 5.2 10 8.0 5 8 5.7 ED 0 6 2003 2004 2005 2006 2007 2008 2009 ytd -5 EV 2010 4 I -10 CH 2 -15 0 A -20 -19.0 2003 2004 2005 2006 2007 2008 2009 ytd ts 2010 -25 * Excl. effects from sale of Ovako: 2005: 10.4% Return on capital employed e 2006: 10.1% rg % 24.9 24.0 Ta 26 24 21.9 23.0 22 19.0 20.7* Long-term targets 20 18 14.0 • 12% Operating margin, level 16 14 • 6-8% Growth per annum (local) 9.1 12 10 • 24% Return on capital employed 8 6 4 2 0 2003 2004 2005 2006 2007 2008 2009 ytd 19 October 2010 * 2010 annualised is 23.9% 2010
  34. 34. New financial targets 33 Old targets New targets Operating margin level 12% 15% Annual sales growth 6-8% 8% in local currencies ROCE 24% 27% Inventory to sales 18% 18% 19 October 2010
  35. 35. SKF Group, long-term view 34 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
  36. 36. SKF’s business strategy for achieving long-term 35 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 platform and segment approach • strengthening the product portfolio through greater investment 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
  37. 37. Main initiatives going forward 36 • Accelerate profitable growth • Reduce cost and eliminate waste • Invest for growth One SKF and SKF Care as guiding lights 19 October 2010
  38. 38. Main actions going forward 37 Accelerate profitable growth • Continue to strengthen the platform/segment approach • Increase the development, launch and commercialisation of new offerings (green) • Value based selling – using Documented Solutions Programme • Strengthen our service business • Acquisitions to strengthen platform offer 19 October 2010
  39. 39. Main actions going forward 38 Reduce cost and eliminate waste • Build on Manufacturing Excellence into other areas - Business Excellence • Increased manufacturing and sourcing in Best Cost Countries • Reduce product cost through ICR* activities * ICR means Integrated Cost Reduction 19 October 2010
  40. 40. Main actions going forward 39 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
  41. 41. Main initiatives going forward 40 • Accelerate profitable growth • Reduce cost and eliminate waste • Invest for growth One SKF and SKF Care as guiding lights 19 October 2010
  42. 42. SKF Group – operating margin development 41 18 16 14 12 10 8 6 4 2 0 -2 -4 10 90 92 94 96 98 00 02 04 06 08 20 19 19 19 19 19 20 20 20 20 20 d 19 October 2010 yt
  43. 43. SKF Group – sales development (in local currencies) 42 18 16 14 12 10 8 6 4 2 0 -2 -4 -6 -8 -10 -12 -14 -16 -18 -20 10 90 92 94 96 98 00 02 04 06 08 20 19 19 19 19 19 20 20 20 20 20 d 19 October 2010 yt
  44. 44. New SKF long-term financial targets 43 15% Operating margin level 8% Annual sales growth (local currencies) 27% ROCE 18% Inventory to sales 19 October 2010
  45. 45. 44 Agenda • Nine-months report and outlook • New financial targets • Acquisition of Lincoln Industrial 19 October 2010
  46. 46. SKF Group Vision 45 To equip the world with SKF knowledge 19 October 2010
  47. 47. What is SKF knowledge? 46 19 October 2010
  48. 48. SKF’s platforms 47 Managing and reducing friction 19 October 2010
  49. 49. Increasing need for lubrication systems 48 • Increase performance and productivity • Improve reliability and component life -Protect in harsh conditions Dual-line lubrication systems pumps, reservoirs -Reduce catastrophic failures • Lower maintenance and service costs -Reduce labour spend -Reduce lubrication consumption • Reduce energy consumption Oil and air lubrication systems Progressive lubrication systems Lubricant distributors, metering units 19 October 2010
  50. 50. Lubrication systems market 49 • 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
  51. 51. SKF Lubrication Systems 50 Acquisitions Cirval (Argentina) 2008 ALS (Canada) 2007 Safematic (Finland) 2006 Sommers (Sweden) 2005 Vogel (Germany) 2004 Manufacturing and engineering centres 19 October 2010
  52. 52. Acquisition of Lincoln Industrial 51 • 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
  53. 53. Lincoln Industrial 52 Net sales geographical split Manufacturing and engineering centres Other Asia North America Europe 2010: Sales approaching USD 400 m EBIT margin around 24%. 19 October 2010
  54. 54. Lincoln Industrial’s offer portfolio 53 Spectrum Solution Increasing Application Complexity Manually Automated Operated Systems Fast Application Equipment Products Selected Selected Applications Food/Beverage Heavy Construction Wind Energy General Manufacturing Aftermarket Vehicle Services Steel/Glass Agriculture Mining Fire/Rescue Vocational Service Engineered to move heavy grease under high pressure in extreme environments for every application 19 October 2010
  55. 55. The acquisition is in line with SKF’s strategy 54 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 two to three years, including amortization of intangible assets. 19 October 2010
  56. 56. Summary of the third quarter 55 • Very strong quarter • Positive outlook • New financial targets • Significant acquisition in lubrication systems area 19 October 2010
  57. 57. Cautionary statement 56 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
  58. 58. 57 19 October 2010

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