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Transcript - SKF.com

SKF Half-year results 2014

Tom Johnstone, President and CEO 15 July 2014

Examples of new business

• • • • • • Envision Energy, China A customer in the automation industry Dongfang Electric New Energy Equipment Aurizon, Australia A customer in the oil and gas industry Bosch Service, Brazil

Strategic long-term partnership Roller screw electromechanical cylinder Main shaft bearings Service contract Asset management services SKF’s vehicle aftermarket product range

Highlights

• Inauguration of SKF Campus and SKF North East Asia Distribution Centre in Shanghai.

• New SKF Solution Factory in Nieuwegein in the Netherlands.

• Events during the quarter: - SKF Wind Farm Management Conference in Berlin - SKF Life Cycle Management Conference in Buenos Aires - SKF Asset Management Conference in Prague © SKF Group Slide 3 15 July 2014

Customer awards

• • • • • • • • Best Technical and Service Award 2013 – Envision Energy, China Supplier Excellence Award 2013 – National Oilwell Varco (NOV), USA Premium Supplier Award – Joy Global Underground Mining LLC, USA Marine Supplier of the year Award 2014 – Rolls-Royce Marine Excellent Supplier Award – ABB Marine, China Supplier Certification of Appreciation – Nissan, China Quality Gold Award 2013 – Yamaha Motor Company The Qualitas Award – Fiat/Chrysler, Argentina © SKF Group Slide 4 15 July 2014

New products and solutions

SKF Gear Bearing Unit Floating piston SKF Tachometer SKF Shaft Alignment Tool Low torque operator valve solution Electric grease transfer pump © SKF Group Slide 5 SKF Wireless Machine Condition Sensor 15 July 2014 Turbulo BlueMon emission monitoring system SKF Wireless MicroVibe Low friction grease for hub bearing units SKF @ptitude Connect

SKF Group – Q2 2014

Financial performance

(SEKm) Net sales Operating profit Operating margin, % Operating margin excl. one-time items, % Profit before tax Basic earnings per share, SEK Cash flow after investments before financing excl. EU payment Cash flow after investments before financing

2014

17,955 2,096 11.7

12.3

1,761 2.54

1,423 -1,402

Organic sales growth in local currency:

SKF Group Strategic Industries Regional Sales and Service Automotive 4.6% 11.1% 2.0% 1.3%

Key points

Sales volumes up by 3.6% y-o-y.

Manufacturing was slightly higher compared to last year.

Europe North America Asia Latin America Middle East and Africa © SKF Group Slide 6 15 July 2014

2013

16,392 1,837 11.2

12.4

1,627 2.36

1,147 1,147 1% 3% 14% 2% 14%

SKF Group – Half year 2014

Financial performance

2014

34,689 4,120 11.9

11.9

3,548 5.26

1,164 -1,661

Organic sales growth in local currency:

SKF Group 5.2% Strategic Industries Regional Sales and Service Automotive 9.0% 2.2% 4.5%

Key points

Sales volumes up by 5.0% y-o-y.

Manufacturing was higher compared to last year.

2013

31,544 3,317 10.5

11.9

2,864 4.10

255 255 3% 3% 13% 1% 18%

Organic sales growth in local currency

% change y-o-y 2012 © SKF Group Slide 8 15 July 2014 2013 2014

Organic sales growth in local currency

% y-o-y 5.2% © SKF Group Slide 9 15 July 2014 -0.7% -2.5% Structure in 2012: 0.4% Structure in 2013: 2.5% Structure in 2014: 4.2%

Sales development by geography

Organic growth in local currency Q2 2014 vs Q2 2013 Europe 1% North America 3% Latin America 2% Middle East & Africa 14% © SKF Group Slide 10 15 July 2014 Asia/Pacific 14%

Sales development by geography

Organic growth in local currency YTD 2014 vs YTD 2013 Europe 3% North America 3% Latin America 1% Middle East & Africa 18% © SKF Group Slide 11 15 July 2014 Asia/Pacific 13%

Components in net sales

Percent y-o-y Volume Structure Price/mix Sales in local currency Currency Net sales 2012

-0.8

-0.1

1.9

-2.8

0.0

2.0

1.0

0.4

1.4

-0.8

3.6

2.8

-5.0

0.8

0.5

-3.7

-2.7

-6.4

2013

-5.9

1.0

0.7

-8.7

1.5

0.7

-1.6

2.6

-0.6

-4.2

-6.5

0.4

2.2

1.1

-0.2

2014

7.1

4.8

-0.2

6.2

4.7

-0.4

Q2 3.6

3.8

1.0

3.1

11.7

10.5

-3.6

-4.0

-7.8

-10.5

-5.0

-4.6

-2.2

0.9

-2.1

9.6

-0.1

10.4

8.4

1.1

9.5

Operating profit as reported

SEKm 2012 © SKF Group Slide 13 15 July 2014 2013 2014

Operating profit excluding one-time items

SEKm 2012 © SKF Group Slide 14 15 July 2014 2013 2014

Operating margin

% 12.0* 11.3

11.9* One-time items * Excluding one-time items 11.9* 11.9

5.8

Operating margin per business area as reported

% Specialty Business Strategic Industries Regional Sales and Service Automotive 2012 © SKF Group Slide 16 15 July 2014 2013 2014

Operating margin per business area excl. one-time items

% Specialty Business Strategic Industries Regional Sales and Service Automotive 2012 © SKF Group Slide 17 15 July 2014 2013 2014

SKF’s programme to improve efficiency and reduce cost

Restructuring, SEKm : Cost taken People affected

Q4/12 Q1/13 Q2/13 Q3/13 Q4/13

200 250 190 0 50 530 410 320 0 130

2013 Q1/14 Q2/14

490 0 100 860 0 170

Total

790 1,560 Giving future gross savings, SEKm : Full year gross saving 150 100 80 0 40 220 0 100 470 Realized gross savings from total programme, SEKm : vs 2012

Q1/13 Q2/13 Q3/13 Q4/13

Restructuring S&A Purchasing Total 15 50 100 165 35 50 100 185 75 50 100 225 75 50 100 225

2013

200 200 400 800

Q1/14

vs 2013

Q2/14

70 0 50 0 60 130 100 150

2014

120 0 160 280 Note: Run rate Q2 2014 SEK 1,340 million vs 2012.

Operating profit bridge, Q2 2014

SEKm 1,837 +160 +160 +134 +150 +70 -120 -295 2,096 Q2 2013 Volumes excl. Specialty Business Price/mix Specialty Business Savings One-time items Currencies R&D, inflation etc. Q2 2014 © SKF Group Slide 19 15 July 2014

Operating profit bridge, half year 2014

SEKm 3,317 +400 +60 +240 +280 +440 -220 -397 4,120 Q2 2013 Volumes excl. Specialty Business Price/mix Specialty Business Savings © SKF Group Slide 20 15 July 2014 One-time items Currencies R&D, inflation etc. Q2 2014

Net working capital as % of annual sales

Return on capital employed

% 17.1* 16.2

15.1* One-time items * Excluding one-time items 14.6* 8.7

7.5

ROCE: Operating profit plus interest income, as a percentage of twelve months rolling average of total assets less the average of non-interest bearing liabilities.

Cash flow, after investments before financing

SEKm 4) 5) 2012 Excl. acq. and div.: Excl. EU payment 2013 1) Q3 2012 2) Q1 2013 3) Q3 2013 4) Q4 2013 5) Q2 2014 SEK 1,707 million SEK -69 million SEK 871 million SEK 1,170 million SEK 1,423 million © SKF Group Slide 23 15 July 2014 2014

Net debt

SEKm 2012 2013 2014 Net debt: Loans and net provisions for post-employment benefits less short-term financial assets excluding derivatives.

© SKF Group Slide 24 15 July 2014 AB SKF, dividend paid (SEKm) : 2012 Q2 2013 Q2 2014 Q2 2,504 2,530 2,530 Cash out from acquisitions (SEKm) : 2012 Q3 2013 Q1 2013 Q4 829 823 7,900 EU payment (SEKm) : 2014 Q2 2,825

Debt structure, maturity years

850 500 500 200 100 100 110 © SKF Group Slide 25 15 July 2014 • Available credit facilities: EUR 500 million 2019 SEK 3,000 million 2016 SEK 3,000 million 2017 • No financial covenants nor material adverse change clause

July 2014: SKF demand outlook Q3 2014

Demand compared to the third quarter 2013 The demand for SKF’s products and services is expected to be slightly higher for the Group and North America, higher for Asia, relatively unchanged for Europe and slightly lower for Latin America. It is expected to be higher for Strategic Industries and relatively unchanged for Regional Sales and Service and Automotive.

Demand compared to the second quarter 2014 The demand for SKF’s products and services is expected to be relatively unchanged for the Group and Europe. It is expected to be slightly higher for North America and Asia and slightly lower for Latin America. For Strategic Industries it is expected to be slightly higher and for Regional Sales and Service and Automotive it is expected to be relatively unchanged.

Manufacturing Manufacturing is expected to be slightly higher year over year and relatively unchanged compared to the second quarter.

SKF demand outlook Q3 2014, main regions

Share of net sales 2013 Europe 42% Asia Pacific Total 24% North America 24% Latin America 7% Sequential trend for Q3 2014 Q3 2014 vs Q3 2013 +/ ++ + + © SKF Group Slide 27 15 July 2014

SKF demand outlook Q3 2014, main business areas

Share of net sales 2013 Strategic Industries Regional Sales and Service 29% 39% Automotive 27% Total Sequential trend for Q3 2014 Q3 2014 vs Q3 2013 ++ +/ +/ + © SKF Group Slide 28 15 July 2014

SKF sequential volume trend Q3 2014, Industries

Share of net sales 2013 6% Aerospace 5% 4% Energy Railway 2% 29% 14% Two-wheelers and Electrical Industrial distribution Cars and light vehicles 13% 11% 11% 5% Industrial, heavy, special and off-highway Vehicle service market Industrial, general Trucks © SKF Group Slide 29 15 July 2014

Guidance for the third quarter 2014*

• Tax level: around 30% • Financial net for the third quarter: Around SEK -230 million • Currency impact on operating profit versus 2013 Q3: SEK +50 million Full year: SEK -70 million • Additions to PPE: Around SEK 1.6 billion for 2014

Guidance is approximate and based on current assumptions and exchange rates.

SKF’s priorities

• • • • •

Sustainable profitable growth

Expand the platform concept Exploit the asset life cycle approach Develop new products and grow SKF BeyondZero portfolio Extend and grow second brands Acquisitions • •

Capital efficiency

Fixed capital Net working capital • • •

Investments & Innovation

Cost reduction

Business Excellence Consolidation of manufacturing Optimization and productivity improvements Reduction in purchasing costs

Cautionary 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”.