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31 January 2008
The SKF Group
Year-end results 2007
Tom Johnstone, President and CEO
Strong Q4, strong full-year, positive outlook
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• Strong sales growth
• Operating profit, excl. one-time items, up with around 20%
• Strong cash flow
• Continued good volume growth for the first quarter 2008
• Proposed distribution to shareholders of SEK 4,554 million
31 January 2008
Major events during the fourth quarter 2007
•
Acquisition completed of S2M, magnetic bearings
•
SKF and GE Aviation agreed to establish a company for the manufacture
and refurbish of bearings for GE's engines for large aircraft
•
Announced to build a factory in Russia for tapered bearing units to supply the
Russian railway market
•
Announced to close the manufacturing facility in Glasgow, United States, and
reduce the number of employees at the Fontenay-le-Comte facility in France
•
New business:
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Started a joint project with Knorr-Bremse to develop condition monitoring of
brake control systems
Signed a long-term service contract to supply ArcelorMittal
Gained business on new hybrid pinion unit solution for automotive, provides 30%
friction reduction
31 January 2008
Highlights previous quarters 2007
Main acquisitions:
• ABBA Linear Tech Co., Ltd., Taiwan
• Three service companies in North America
Other highlights:
• announced investments for two new factories in India
• announced significant investments in Sweden
• announced the development of energy-efficient bearings
and a number of other energy-efficient solutions
• distributed SEK 6,603 million to shareholders
• was included in the DJSI World and DJSI STOXX indexes for the
eighth year in succession, and in the FTSE4Good Index for the
seventh year in succession
31 January 2008
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Fourth quarter 2007
SEKm
5
2007
2006
15,070
13,895
Operating profit
1,831
1,858
Operating margin
12.1%
13.4%*
Profit before taxes
1,710
1,846
Net profit
1,105
1,257
2.33
2.67
617
1,561
1,123
2,022
Net sales
Basic earnings per share, SEK
Cash flow after operating investments before
financial items
Cash flow after operating investments before
financial items, excluding acquisitions
* 9.9% excluding Ovako
31 January 2008
Year-end results 2007
SEKm
6
2007
2006
58,559
53,101
Operating profit
7,539
6,707
Operating margin
12.9%
12.6%*
Profit before taxes
7,138
6,387
Net profit
4,767
4,432
Basic earnings per share, SEK
10.09
9.48
2,126
2,158
3,335
4,287
Net sales
Cash flow after operating investments before
financial items
Cash flow after operating investments before
financial items, excluding acquisitions
* 11.3% excluding Ovako
31 January 2008
Operating margin
7
Long-term target: 12% operating margin level
%
14
13
12
11
10
9
8
7
6
5
4
3
2
1
0
2005
31 January 2008
2006
2007
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Operating margin
Long-term target: 12% operating margin level
%
14
12
10
12.6
12.9
10.8
11.3*
10.4*
8
6
4
2
0
2005
2006
* excluding income from the jointly
controlled company Oy Ovako Ab
31 January 2008
2007
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Operating margin per division
%
16
Service
14
12
Industrial
10
8
6
4
2
Automotive
0
Q1
Q2
2005
31 January 2008
Q3
Q4
Q1
Q2
2006
Q3
Q4
Q1
Q2
2007
Q3
Q4
Sales in local currencies (excl. structural changes)
% change y-o-y
16
14
12
10
8
6
4
2
0
2005
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2006
2007
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Growth development in local currency
Acquisitions/Divestments
Organic growth
Long-term target: 6-8% growth
in local currencies, per annum
% Y-o-Y
14
12
10
8
6
4
2
0
31 January 2008
13.2
7.3*
7.5*
2005
2006
* Excluding effect
from Ovako: 2005 10.4%
2006 10.1%
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2007
12
Net sales development per quarter
2005
2006
2007
Percent y-o-y
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Volume
8.3
7.6
5.1
1.3
6.0
2.5
3.3
8.8
7.9
6.9
9.0
6.3
Structure
2.3
0.2
-2.9
-3.7
-4.9
-0.5
1.1
4.6
4.0
4.6
3.7
1.0
Price / Mix
3.6
3.6
2.1
2.6
2.9
2.0
2.0
2.3
1.8
2.7
2.0
3.2
Sales in local
currency
14.2
11.4
4.3
0.2
4.0
4.0
6.4
15.7
13.7
14.2
14.7 10.5
Currency
-3.2
0.2
3.2
9.4
8.0
1.0
-2.1
-5.8
-5.6
-2.3
-1.9
-2.0
Net sales
11.0
11.6
7.5
9.6
12.0
5.0
4.3
9.9
8.1
11.9
12.8
8.5
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Growth development by geography
Local currency 2007 vs 2006
Europe
15%
North
America 7%
Asia 15%
Latin
America 11%
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Industrial Division
SEKm
2007
2006
Net sales
19,266
17,176
Sales incl. intra-Group sales
29,318
26,698
Operating profit
3,430
3,027
Operating margin
11.7%
11.3%
Net sales growth
12.2%
organic growth
structure
currency effects
10.0%
5.0%
-2.8%
Acquisitions
Major investments
• ABBA Linear Tech Co., Ltd.
• S2M
• New factory for large size bearings in India
• Increased investments in Sweden
• New factory for tapered roller bearing in Russia
• In Q4 2006, SEK 210 m in restructuring charges, impairments and write-offs
• In Q4 2007, SEK 30 m in restructuring activities and other one-time items
31 January 2008
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Highlights Industrial Division
• SKF will supply the tapered roller bearing units to the Île de France
suburban trains manufactured by Bombardier Transportation
• A long term supply agreement with Suzlon Energy Ltd
• SKF and Caterpillar forged a strategic partnership
Photo: Bombardier Transportation
• SKF Agri Hub, a relubrication free solution for agricultural implements
• Developed a lubrication system for machine tool spindles
• SKF Conro Low, a relubrication free roll unit for the lower segments in
continuous slab casters
31 January 2008
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Service Division
SEKm
2007
2006
Net sales
19,597
17,984
Sales incl. intra-Group sales
21,393
19,761
Operating profit
2,846
2,362
Operating margin
13.3%
12.0%
Net sales growth
organic growth
structure
currency effects
Acquisitions
• Preventive Maintenance Company Inc. (PMCI)
• Baker Instruments Company
• Automatic Lubrication Systems (ALS)
• In Q4 2006, SEK 20 million in restructuring charges and write-offs
31 January 2008
9.0%
12.0%
0.8%
-3.8%
Highlights Service Division
• A partnership with Aker Kvaerner for condition based maintenance for the
offshore and onshore oil and gas industry
• A two-year IMS contract signed with the world's leading producer of bleached
eucalyptus pulp, Brazilian company Aracruz
• An agreement with Meridium, Inc. granting SKF non-exclusive rights to license
and distribute Meridium Asset Performance Management System software
• Expansion of SKF’s 360° Solution programme
• Expansion of SKF power transmission products into the European market
• Introduction of the SKF Certified Rebuilder programme for electric motors
• SKF Caster Analyst System, load and temperature measurement for slab casters
• New important tools: The @ptitude Monitoring Suite and SKF Client Needs
Analysis for Energy and Sustainability
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Automotive Division
SEKm
2007
2006
Net sales
19,617
17,869
Sales incl. intra-Group sales
23,795
21,807
1,154
946
4.8%
4.3%
Operating profit
Operating margin
Net sales growth
organic growth
structure
currency effects
9.8%
8.3%
3.8%
-2.3%
Acquisitions
Major investments
• the remaining 40%
shareholding in SKF (Shanghai)
Bearing Company Ltd.
• expansion of the seal manufacturing facility
in Judenburg, Austria
• Haridwar, Uttarakhand in India – ball bearings
• In Q4 2006, SEK 170 m in restructuring charges, impairments and write-offs
• In Q4 2007, SEK 270 m in restructuring activities and other one-time items
31 January 2008
Highlights Automotive Division
• business for the steering column bearing with Piaggio in India
• business for wheel hub units for a four-wheeler light vehicle with
Piaggio in India
• business with Hendrickson in the USA for the recently launched SKF
Wheel End Monitor, which helps track possible damage and wear to
trailer wheel bearings
• a wheel bearing solution to be manufactured in Spain for the new
Renault Master platform
• wheel bearings for the new Ford Focus generation in North America,
with the Chinese company Shanghai Automotive Industry Corporation
for a new car platform and for a new Alfa Romeo platform
• additional business in China for two Chery models
• SKF and Haldex have jointly developed an integrated truck hub unit with
a dual disc brake and fixed caliper
31 January 2008
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Six Sigma
• 4 dimensions:
”Standard” Six Sigma, Design for Six Sigma,
Lean Six Sigma and Six Sigma for Growth
• 2007 status:
16 Master Black Belts
378 Black Belts
1,614 Green Belts
704 projects closed, whereof 145 replicated
915 projects ongoing
• Hard savings in 2007: SEK 302 m (up >50% from 2006)
31 January 2008
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Cash flow, after operating investments before financial items
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SEKm
1 700
1 500
1 300
1 100
900
700
500
300
100
-100
-300
-500
-700
Cash out from
acquisitions (SEKm):
2005
419
2006
2,129
2007
1,209
Cash in from Ovako
(SEKm):
2006 Q4
1,217
2007 Q2
46
2005
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2006
2007
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Net debt (Short-term financial assets minus loans)
SEKm
AB SKF,
dividend paid (SEKm):
3,000
2,000
2005 Q2
2006 Q2
2007 Q2
1,000
0
-1,000
2005 Q2,
redemption
2007 Q2,
redemption
-2,000
-3,000
-4,000
-5,000
-6,000
2005
31 January 2008
2006
2007
1,366
1,821
2,049
2,846
4,554
Net debt
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(Short-term financial assets minus loans and post-employment benefits)
SEKm
1000
-1000
-3000
-5000
-7000
-9000
2005
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2006
2007
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Inventories as % of annual sales
Long-term target: 18%
%
23
22
21
20
19
18
2005
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2006
2007
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Return on capital employed
Long-term target: 24%
%
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25
24
23
22
21
20
2005
2006
ROCE: Operating profit plus interest income, as a
percentage of twelve months average of total assets
less the average of non interest bearing liabilities.
31 January 2008
2007
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SKF capital structure
The AB SKF Board proposes the AGM to decide on:
1. a 11.1% increase in the dividend,
SEK 5.00 per share
2. a share split 2:1 combined with an
automatic redemption procedure
of one share for SEK 5.00
3. a mandate to the Board to repurchase
the company's own shares
31 January 2008
Adding up to a total
distribution to
shareholders of
SEK 4,554 million
January 2008: Outlook for the first quarter 2008
(compared to the fourth quarter 2007)
The market demand for SKF's products and services in the
first quarter of 2008 is expected to be higher for the Group.
The demand is expected to be higher in Europe, significantly
higher in Asia and Latin America and relatively unchanged in
North America. The demand is expected to be higher in all
divisions.
The manufacturing level for the first quarter 2008 will be
unchanged compared to the fourth quarter 2007, and higher
than the first quarter 2007.
31 January 2008
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Volume development
Net sales
2007
Daily volume trend for:
Q4 2007
Q1 2008
Outlook Q1
2008 vs 2007
Europe
56%
++
North America
18%
=
Asia Pacific
18%
+++
Latin America
5%
+++
Total
31 January 2008
++
Key focus areas ahead
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• Strengthen the platform/segment approach
• Maintain a positive price/mix
• Focus on fast growing segments and geographies
• Drive operational efficiency and Six Sigma
• Manage material costs and supply
• Attract and retain the best people
Use sustainability as a guiding light
31 January 2008
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SKF Corporate Sustainability
Employee Care
Business Care
14
12
10
8
6
4
2
0
2003
2004
2005
2006
2007 YTD
Q3
Operating margin
BeyondZero
TM
Environment Care
31 January 2008
SKF Care
Community Care
SKF Group Vision
To equip the world
with SKF knowledge
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31 January 2008