Transcript Slide 0

Tom Johnstone
President and CEO
SKF Capital Markets Day ● 10 September 2014
SKF Capital Markets Day 2014 – Main topics
• Business update
- Group and Business Areas
• Activities/actions to support strategic priorities
and financial targets
- growth, operating margin, net working capital, ROCE
• Development in Asia and particularly China
• Specific industry/area focus
- renewable energy, marine and lubrication
• Asset life cycle and mobility
• Customer view on SKF
© SKF Group
Agenda
10.00
Group overview
Tom Johnstone
Finance
Henrik Lange
11.00
Strategic Industries incl. Q&A
Rakesh Makhija
Bernd Stephan
Robert Law
12.15
Coffee break
12.35
Regional Sales and Service incl. Q&A
Vartan Vartanian
Thomas Fröst
Christian Gill
13.50
Guest speaker
Bruno van den Heuvel,
RWE Power AG
14.20
Lunch
16.00
Automotive incl. Q&A
17.15
Coffee break
17.35
Summary and Q&A
18.30
Cocktail reception
© SKF Group
CMD 2014
Tryggve Sthen
Luc Graux
Ulrich Selig
Tom Johnstone
Henrik Lange
Alrik Danielson, Designated CEO
New President and CEO
as of 1 January 2015
Born: 1962
B.Sc in Business Administration and International Economics
from the University of Gothenburg
1987-2005 Previous positions within SKF:
• Financial controller in Gothenburg
• President, Industrial Division in Spain and Portugal
• President, SKF do Brazil
• President, Industrial Division
and several other managerial positions.
2005-2014 Höganäs AB, President and CEO
© SKF Group
CMD 2014
Key topics
• Half year performance and outlook for Q3
• SKF Group financial targets and priorities
• Specific focus
- purchasing
- inventory reduction
- UNITE
- Kaydon
© SKF Group
CMD 2014
Key topics
• Half year performance and outlook for Q3
• SKF Group financial targets and priorities
• Specific focus
- purchasing
- inventory reduction
- UNITE
- Kaydon
© SKF Group
CMD 2014
SKF Group – Half year 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
Organic sales growth in local currency:
SKF Group
5.2%
Strategic Industries
9.0%
Regional Sales and Service
2.2%
Automotive
4.5%
Key points
Sales volumes up by 5.0% y-o-y.
Manufacturing was higher compared to last year.
© SKF Group
CMD 2014
2014
2013
34,689
4,120
11.9
11.9
3,548
5.26
1,164
-1,661
31,544
3,317
10.5
11.9
2,864
4.10
255
255
Europe
North America
Asia
Latin America
Middle East and Africa
3%
3%
13%
1%
18%
Sales development by geography
Organic growth in local currency YTD 2014 vs YTD 2013
Europe
3%
North
America
3%
Asia/Pacific
13%
Latin
America
1%
© SKF Group
CMD 2014
Middle East
& Africa
18%
Components in net sales
2012
Percent y-o-y
2013
2014
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Volume
-0.8
-2.8
-5.0
-5.9
-8.7
-1.6
2.2
7.1
6.2
3.6
Structure
-0.1
0.0
0.8
1.0
1.5
2.6
1.1
4.8
4.7
3.8
Price/mix
1.9
2.0
0.5
0.7
0.7
-0.6
-0.2
-0.2
-0.4
1.0
Sales in local
currency
1.0
-0.8
-3.7
-4.2
-6.5
0.4
3.1
11.7
10.5
8.4
Currency
0.4
3.6
-2.7
-3.6
-4.0
-5.0
-2.2
-2.1
-0.1
1.1
Net sales
1.4
2.8
-6.4
-7.8 -10.5
-4.6
0.9
9.6
10.4
9.5
© SKF Group
CMD 2014
SKF demand outlook Q3 2014, main regions
Share of net sales
2013
Sequential trend
for Q3 2014
Q3 2014
vs Q3 2013
Europe
42%
+/-
Asia Pacific
24%
++
North America
24%
+
Latin America
7%
-
Total
© SKF Group
CMD 2014
+
SKF demand outlook Q3 2014, main business areas
Share of net sales
2013
Q3 2014
vs Q3 2013
Strategic
Industries
29%
++
Regional Sales
and Service
39%
+/-
Automotive
27%
+/-
Total
© SKF Group
Sequential trend
for Q3 2014
CMD 2014
+
Key topics
• Half year performance and outlook for Q3
• SKF Group financial targets and priorities
• Specific focus
- purchasing
- inventory reduction
- UNITE
- Kaydon
© SKF Group
CMD 2014
Financial targets
15%
20%
8%
Operating
margin
Return on capital
employed
Changes in sales
in local currency
incl. structure
15
-20
One-time item
© SKF Group
CMD 2014
One-time item
for the individual year
H1
14
13
13
12
11
H1
14
-15
10
-10
09
11
4
13
H
12
11
10
09
08
08
0
-5
0
12
5
11
10
5
10
15
09
10
08
30
25
20
15
10
5
0
20
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
• New and existing facilities
• Research and development
• IT systems
• Mobility
Cost reduction
• Business Excellence
• Consolidation of manufacturing
• Optimization and productivity improvements
• Reduction in purchasing costs
© SKF Group
CMD 2014
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
• New and existing facilities
• Research and development
• IT systems
• Mobility
Cost reduction
• Business Excellence
• Consolidation of manufacturing
• Optimization and productivity improvements
• Reduction in purchasing costs
© SKF Group
CMD 2014
Key topics
• Half year performance and outlook for Q3
• SKF Group financial targets and priorities
• Specific focus
- purchasing
- inventory reduction
- UNITE
- Kaydon
© SKF Group
CMD 2014
Purchasing in SKF
© SKF Group
SKF Global Spend
Total SKF spend 2013
Direct Material
18%
Total SKF spend is SEK 36 billion – direct and indirect
representing ~ 50% respectively
44%
Rings & Subcontracting
40 000
36 153
38%
35 000
30 000
20 000
Components
SEK 17.7 billion
19 119
25 000
Steel Raw Material &
Rolling Elements
17 034
Indirect Material & CAPEX
15 000
8%
10 000
12%
27%
5 000
Logistics
0
Total
Direct
Material
Indirect
Material
18%
21%
SEK 15.6 billion
CMD 2014
Facility Management
Professional Services
13%
© SKF Group
MRO
IT
CAPEX
The foundation is in place
Current state &
opportunity
assessment
New process
framework
Vision, strategy &
future state
New competence
framework
The new purchasing process framework - 2013
Management
Processes
Strategic Processes
Operational
Processes
The New Purchasing Competence Framework 2013
Transactional
Processes
Manage Vision & strategy,
Operating model &
governance model
Conduct Regular Spend &
opportunity Analysis
Provide sourcing support
incl purchasing analytics
Execute & place purchase
orders
Target Setting &
Performance mgmt
Develop Annual plan for
strategic sourcing projects
Manage performance
reporting & budget
integration
Perform invoice
processing
Manage People &
Competencies
Execute Strategic
Sourcing Projects
Drive purchasing part of
product development
projects
Manage Communication
Manage commercial
relationship with suppliers
Perform & evaluate SQA
audits
Operational reporting
Manage supplier
development program
Master data maintenance
Supplier information
management
Manage Purchasing
Processes & IT
Technology Systems
Manage QCDIM strategy
Manage Stakeholder
interaction
Manage purchasing risk
strategy
Manage spot buys
Demand management
strategy (indirect)
Manage supplier
onboarding & execute
local contract implement.
Manage supply market
analytics incl supplier
innovation scouting
Optimize contracts
Manage Supplier
Relationship Management
Strategy
© SKF Group
Contract administration
Goods receiving
Purchasing Strategy
Purchasing Strategy
Opera ng model (solu on architecture)
Governance Model
Target se ng & performance management
Project Management
Project management
Change management
Category Management
Strategic Sourcing
Supply Market analysis
Spend Analysis
Demand Management/Consump on
Policies
Supplier selec on criteria
Bid strategy
RFx Management
Nego a on strategy planning
Fact Based Nego a on
Contract design
Cost management
Total cost of ownership modeling
Should cost modeling/clean sheet cos ng
Value Analysis/Value Engineering
Working Capital efficiency improvement
Business case design
Category strategy & target se ng
Compliance management
Supplier Rela onship
Management
Supplier development
Supplier joint cost workshops
Supplier performance management
CSR - Corporate Social
Responsibility
Code of conduct
Sustainability
Sustainable sourcing
Risk Management
Currency Risk management
Supplier Financial health
Supply Chain disrup on
Geopoli cal risk
Commodity price development and vola lity
Supply chain visibility
Supplier Quality
ISO 9000/ISO 14000
ISO 14001/ISO 50001
Supplier QA Audit/Supplier Quality
Performance
APQP/PPAP
Six sigma methodology
Purchase-to-pay process
P2P process design
Transac on management
Purchasing IT system support
Purchasing applica ons
© SKF Group
Purchasing report EMT 12w42.2 Security Class: Confidential
How are we
performing today?
What should
purchasing be doing?
New job roles
New organizational
design
Operational set-up
What titles and job roles
do we need to perform
the processes?
What organizational design
best ensure we match
processes, competencies
and roles?
What is the most efficient
way of delivering the
processes with minimum
cost?
© SKF Group
Which processes are
necessary to execute
the role?
Which competencies are
required to execute the
processes?
New governance model
Who is responsible for
what decision in the
processes?
Our global presence
Sourcing centres in
• Chicago
• Gothenburg
• Pune
• Shanghai
International
purchasing offices in
• Japan
• Korea
• Turkey
• Russia
• Ukraine
• Slovakia
• Mexico
© SKF Group
CMD 2014
Responsible sourcing
SKF Care in action – integrated part of purchasing strategy
© SKF Group
CMD 2014
Purchasing Strategic Direction
AGILE – ADAPTIVE & ALIGNED
Regional supplier base
Supplier Rationalization
Strategic supplier relationships
Supply Chain Agility
People development
UNITE
TCO – Q C D I M – Cash
© SKF Group
CMD 2014
Supplier relationship Management - Consolidation
Supplier Consolidation DM
8,000
6,000
4,000
2,000
0
2012 Actual 2013 Actual
2014
DIRECT MATERIAL
2015
2016
Strategic Suppliers
Preferred Suppliers
Target 14 -1,000 suppliers
Developing Suppliers
INDIRECT & SERVICES
Target 14 -5,000 suppliers
© SKF Group
CMD 2014
Transactional Suppliers
Supplier relationship management – Localization
77%  80%
90%
85%  85%
80%  85%
90%
75%  80%
13%  15%
90%
25%
70%  75%
75%
Sourcing localization 2012  2013
Target 2014
© SKF Group
CMD 2014
90%
10%  10%
Strategic Sourcing projects – Components
Potential
savings
140000
120000
• Strategic sourcing projects are
addressing a purchasing spend
of ~ SEK 1,275 million
Sheet Metal Parts
Started Q3 2014
100000
• Potential annual reduction of
TCO (Total Cost of Ownership)
of >15%
80000
60000
Castings
Started Q2 2014
40000
Electronics
Started Q2 2014
20000
Fasteners
Started Q1 2014
• Supplier consolidation potential
estimated to ~ 250 suppliers
0
0
© SKF Group
CMD 2014
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2
3
4
5
Ease of
Implementation
Strategic Sourcing projects – Indirect material
Potential
savings
 Strategic sourcing projects 2014 addressing a spend of SEK 1.3 billion
115.000
110.000
105.000
Under implementation
100.000
• Packaging / Lubrication /
Printing/Car Lease
95.000
90.000
• Addressable spend SEK 550 million
with >230 suppliers
85.000
80.000
75.000
RFx ongoing
• Office Supply /Tool to drawing/ Metal
Cutting tools / Abrasives / Gifts and
Sales promotion
70.000
65.000
• Addressable spend SEK 703 million
with >900 suppliers
60.000
55.000
50.000
45.000
40.000
Lubricants
35.000
30.000
25.000
Packaging Plastics
Packaging Corrugated
20.000
15.000
10.000
M&S Printing project
5.000
Company cars Sweden
0
0
© SKF Group
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CMD 2014
2
3
4
5
6
7
8
9
10
Ease of
Implementation
Strategic sourcing projects bringing down TCO
 TCO down 15 %
on total spend for
lubricants
 no of suppliers from 215 to 16
 TCO down 10%
on total spend for
plastic & corrugated packaging
 no of suppliers from 160 to 30
© SKF Group
CMD 2014
Purchasing ramp up and saving plan (vs 2012)
2013
2014 Fcst
2015
SEK 800 m
SEK 400 m
• New GPU org. in operation
• New process framework
• New competence
framework, role
descriptions and career
path model
• Sourcing waves 1 / Speed
sourcing started to leverage
spend across all BUs
• Integration of BU
Purchasing
• Localization of the strategic
supplier base
© SKF Group
• Separation of strategic tasks
from transactional tasks
• Sourcing waves and
continued Speed Sourcing
activities
High Performance Purchasing
organization
• One SKF in Purchasing for full leverage of all
spend in SKF
• Category and business driven organization
fully leveraging SKF’s purchasing power
• Global job roles and decision matrix (RAPID)
clarifying responsibilities and decision making
• Supplier Innovation Forums
with strategic suppliers
• GPU supporting the full internal value chain
(R&D/PD, After market)
• Strategic Partnership
Agreements
• Focus on Total Cost of Ownership (TCO)
• Common purchasing
processes
• Competence mapping and
competence development
program
• Supplier consolidation through
increased sourcing leverage
• Strong alignment with the business through a
clear target setting process
• Highly competent purchasing professionals
• Reduced supply chain risk and costs through
top performing suppliers in Q C D I M
Inventory reduction activities
© SKF Group
Focus areas to reduce inventory
Suppliers
Manufacturing
Distribution
Customers
Forecasting
and planning
Supply structure and
flexibility
Inventory
Product
range and
service
policies
© SKF Group
CMD 2014
Business mix and
demand variations
Program cornerstones and objectives
Increase supply
flexibility
© SKF Group
• Reduce lead times from supplier to customer
• Reduce manufacturing set up times and increase frequency
• Balance regional manufacturing/ supply/ regional demand
Optimize
product range
and service
policies
• Review/reduce product assortment
• Review number of stocking points and stocking policies
• Eliminate duplication of inventory across stocking points
Improve
forecasting and
end-to-end
planning
• Improve forecasting and planning process to drive entire
demand chain end-to-end
CMD 2014
Program timeplan
2014
2015
2016
2017
Increase supply
flexibility
Optimize
product range
and service
policies
Improve
forecasting and
end-to-end
planning
© SKF Group
CMD 2014
Pilots in selected
product lines and
regions
Rollout to all product lines and regions
Implement improved process (global roll out)
UNITE
UNITE
© SKF Group
Background
• Current systems landscape is fragmented and
partly based on old mainframe solutions that
need to be replaced
• Strategy to become the Knowledge Engineering
Company puts new requirements on our
processes and systems support
© SKF Group
CMD 2014
What we want to achieve
Suppliers
Purchasing
Leverage SKF
full global scale
in sourcing
Manufacturing
Distribution
Sales
Improve forecasting and
end-to-end planning
Streamline processes
to reduce waste
Easy for
customers to do
business with
SKF –
One coherent
interface across
all platforms
Standardize processes and master data globally
One modern, integrated systems landscape
© SKF Group
CMD 2014
Customers
UNITE – our approach
• A business led program
• Dedicated development and roll out organization
• SAP as main software partner
• Scope is sales, supply chain, purchasing
and finance processes/systems
• Gradual design and testing of new processes/systems
in a series of pilots before fullscale rollout
© SKF Group
CMD 2014
UNITE rollout plan
2013
2014
2015
2016
2017
2018
2019
Rollout phase
AMERICAS
Italy
ASIA-PACIFIC
Design phase
Country
pilot 3 Germany
Country
pilot 2
Finland pilot
Purchasing
pilot
© SKF Group
CMD 2014
Template
, France
EMEA
2020
Kaydon update
© SKF Group
Kaydon Corporation
Net sales:
around USD 475 million
Employees:
around 2,180
Headquarter:
USA
Manufacturing: Friction control products (primarily bearings),
velocity control products and specialty products,
including environmental services.
© SKF Group
CMD 2014
Kaydon brands in the SKF Family
© SKF Group
CMD 2014
Kaydon integration - Synergies
Cost synergies
•
Finance and legal
•
Purchasing
•
Logistics
Target – USD 30 million by end 2016
Status – USD 12 million fcst for 2014
Sales synergies:
•
Renewable energy
•
Medical
•
Aerospace
•
Industrial aftermarket
Target – additional sales of USD 50 million by 2018
Status – new business agreed, new wind order for USD 200 million (50% synergy?)
© SKF Group
CMD 2014
Kaydon integration – Financial performance
• Sales development
- growth is 7% in local currencies
- good growth in both velocity control and friction control
• Operating margin
- Excluding PPA it has improved by approx. 300 basis points
- PPA impact is some 500 basis points
• Outlook Q3
- Continued good growth
- Integration work continues
- increased focus on sales synergies
- continue activities on cost synergies
© SKF Group
CMD 2014
SKF’s priorities
© SKF Group
CMD 2014