Transcript 19 October 2010 The SKF Group Tom Johnstone, President and CEO 19 October 2010

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19 October 2010
The SKF Group
Tom Johnstone, President and CEO
19 October 2010
2
Agenda
• Nine-months report and outlook
• New financial targets
• Acquisition of Lincoln Industrial
19 October 2010
3
Agenda
• Nine-months report and outlook
• New financial targets
• Acquisition of Lincoln Industrial
19 October 2010
Key points, Q3 report
• 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
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Highlights Q3 2010 – investing for the future
• 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.
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Highlights Q3 2010 – customers and sustainability
• 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
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Examples of new product launches
Low friction X-Tracker
Four-row tapered
roller bearing
7
SKF Engineering
Simulation
Services
SKF Commutation
Sensor-Bearing Unit
SKF MetroCon –
SKF Crane Asset
Management
CBM for elevators and
escalators
SKF solutions for
special pumps
19 October 2010
SKF SPEEDI-SLEEVE
SKF One Way
Clutch
SKF Cam
Follower
Unit
SKF Hydraulic
driven lubricator
SKF Idler Sound
Monitor kit
Sales volume
8
% change y-o-y
20
15
10
5
0
-5
-10
-15
-20
-25
-30
-35
2008
19 October 2010
2009
2010
Sales in local currencies (excl. structural changes)
% change y-o-y
20
15
10
5
0
-5
-10
-15
-20
-25
-30
2008
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2009
2010
9
Growth in local currency
10
(Organic growth + acquisition/divestments)
% y-o-y
13.2%
15
10
7.1%
-19.0%
5
0
-5
-10
-15
-20
2008
Organic growth
Acquisitions/Divestments
19 October 2010
2009
YTD September
2010
Growth development by geography
11
Local currency Q3 2010 vs Q3 2009
Europe
+12%
North America
+24%
Asia/Pacific
+34%
Latin America
+19%
19 October 2010
Middle East
& Africa
+11%
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%
19 October 2010
Middle East
& Africa
+11%
Components in net sales
13
2009
2008
2010
Percent y-o-y
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
currency
9.7
11.5
9.6
-2.1
-18.4 -24.1 -20.0 -13.4
5.0
16.1
19.3
Currency
-1.2
-4.1
-0.9
10.3
-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
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Q4
Q1
13.6
Q2
12.2
Q3
6.6
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
Restructuring and one-time items
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2010
Operating margin
15
%
16
14
12
10
8
6
4
2
0
2008
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2009
Restructuring and one-time items
2010
Operating margin
16
%
16
14
12
10
13.9*
12.7*
13.7
12.2
8
8.0*
6
5.7
4
2
0
2008
2009
YTD September
2010
Restructuring and one-time items
*
19 October 2010
Excluding restructuring and one-time items
Operating margin per division
17
%
18
16
14
12
10
8
6
4
2
0
-2
-4
-6
-8
-10
-12
Service
Industrial
Automotive
Q1
Q2
2008
Q3
Q4
Q1
Q2
2009
Excluding one-off items
(eg. restructuring, impairments, capital gains)
19 October 2010
Q3
Q4
Q1
Q2
2010
Q3
Third quarter 2010
18
2010
2009
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
3.05
1.01
1,936
1,359
SEKm
Net sales
Basic earnings per share, SEK
Cash flow after investments before
financial items
19 October 2010
First nine months 2010
19
2010
2009
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
8.41
2.56
3,128
4,307
SEKm
Net sales
Basic earnings per share, SEK
Cash flow after investments before
financial items
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Inventories as % of annual sales
20
Long-term target level: 18%
%
25
24
23
22
21
20
19
18
2008
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2009
2010
Cash flow, after investments before financial items
21
SEKm
2 500
Cash out from
acquisitions (SEKm):
2 000
2008
2009
1 500
1 000
500
0
-500
-1 000
2008
19 October 2010
2009
2010
1,284
241
Return on capital employed
22
%
30
25
24.0
20.7
20
15
9.1
10
5
0
2008
2009
ROCE: Operating profit plus interest income, as a percentage of
twelve months average of total assets less the average of noninterest bearing liabilities.
19 October 2010
YTD September
2010
Net debt
23
(Short-term financial assets minus loans and post-employment benefits)
SEKm
0
AB SKF,
dividend paid (SEKm):
2008 Q2
2,277
2009 Q2
1,594
2010 Q2
1,594
-2 000
-4 000
-6 000
-8 000
-10 000
Redemption (SEKm):
2008 Q2
2,277
-12 000
-14 000
-16 000
-18 000
2008
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2009
2010
Debt structure
24
Maturity years, EURm
500
446
400
300
200
100
130
55
0
2010
2011
2012
• Unutilized credit facilities:
EUR 500 m 2014
SEK 3,000 m 2017
19 October 2010
2013
2014
100
100
2015
2016
• No financial covenants nor material
adverse change clause
September 2010:
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.
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Volume trends, regions
26
(based on current assumptions and adjusted for seasonality)
Net sales
2009
Daily volume trends for:
Q3 2010
Q4 2010
Europe
51%
North America
17%
Asia Pacific
23%
Latin America
6%
Total
19 October 2010
Outlook Q4
2010 vs 2009
+++
+++
+++
+++
+++
Volume trends, divisions
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(based on current assumptions and adjusted for seasonality)
Net sales
2009
Daily volume trends
for Q4 2010
Industrial
34%
Service
35%
Automotive
29%
Total
19 October 2010
Outlook Q4
2010 vs 2009
+++
+++
+++
+++
Sequential volume trend main segments Q4 2010
(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
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Guidance for the fourth quarter 2010
• 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.
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Agenda
• Nine-months report and outlook
• New financial targets
• Acquisition of Lincoln Industrial
19 October 2010
SKF Group performance
Operating margin
%
14
9.9
12
10
10.8
31
%
13.7
12.6 12.9 12.2
5.7
-5
4
-10
2
-15
0
-20
2003 2004 2005 2006 2007 2008 2009
Return on capital employed
%
21.9 23.0
7.1
ytd
2010
20.7*
14.0
9.1
2004
2005
2006
* 2010 annualised is 23.9%
-25
2003 2004
2005
2006 2007
2008
2009
ytd
2010
-19.0
* Excl. effects from sale of Ovako: 2005: 10.4%
2006: 10.1%
24.9 24.0
19.0
2003
7.3* 7.5*
0
6
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5.2
13.2
5
8
26
24
22
20
18
16
14
12
10
8
6
4
2
0
13.2
11.8
15
10
8.0
Sales growth in local currency
2007
2008
2009
ytd
2010
Long-term targets
• 12% Operating margin, level
• 6-8% Growth per annum (local)
• 24% Return on capital employed
SKF Group performance
Operating margin
%
14
9.9
12
10
10.8
32
Sales growth in local currency
%
13.7
12.6 12.9 12.2
10
8.0
5.7
-5
4
-10
2
-15
0
-20
2003 2004 2005 2006 2007 2008 2009
Return on capital employed
%
21.9 23.0
7.1
ytd
2010
20.7*
14.0
9.1
2004
2005
2006
* 2010 annualised is 23.9%
2003 2004 2005 2006 2007 2008 2009
ytd
2010
-19.0
-25 * Excl. effects from sale of Ovako: 2005: 10.4%
2006: 10.1%
24.9 24.0
19.0
2003
7.3* 7.5*
0
6
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5.2
13.2
5
8
26
24
22
20
18
16
14
12
10
8
6
4
2
0
13.2
11.8
15
2007
2008
2009
ytd
2010
Long-term targets
• 12% Operating margin, level
• 6-8% Growth per annum (local)
• 24% Return on capital employed
New financial targets
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Old targets
New targets
Operating margin level
12%
15%
Annual sales growth
in local currencies
6-8%
8%
ROCE
24%
27%
Inventory to sales
18%
18%
19 October 2010
SKF Group, long-term view
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
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SKF’s business strategy for achieving long-term
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
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Main initiatives going forward
• Accelerate profitable growth
• Reduce cost and eliminate waste
• Invest for growth
One SKF and SKF Care as guiding lights
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Main actions going forward
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
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Main actions going forward
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
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Main actions going forward
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
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Main initiatives going forward
• Accelerate profitable growth
• Reduce cost and eliminate waste
• Invest for growth
One SKF and SKF Care as guiding lights
19 October 2010
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SKF Group – operating margin development
20
10
yt
d
20
08
20
06
20
04
20
02
20
00
19
98
19
96
19
94
19
92
19
90
18
16
14
12
10
8
6
4
2
0
-2
-4
19 October 2010
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SKF Group – sales development (in local currencies) 42
20
10
yt
d
20
08
20
06
20
04
20
02
20
00
19
98
19
96
19
94
19
92
19
90
18
16
14
12
10
8
6
4
2
0
-2
-4
-6
-8
-10
-12
-14
-16
-18
-20
19 October 2010
New SKF long-term financial targets
15%
8%
Operating margin level
Annual sales growth (local currencies)
27%
ROCE
18%
Inventory to sales
19 October 2010
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44
Agenda
• Nine-months report and outlook
• New financial targets
• Acquisition of Lincoln Industrial
19 October 2010
SKF Group Vision
To equip the world
with SKF knowledge
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What is SKF knowledge?
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SKF’s platforms
Managing and reducing friction
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Increasing need for lubrication systems
48
• Increase performance and productivity
• Improve reliability and component life
-Protect in harsh conditions
-Reduce catastrophic failures
Dual-line lubrication systems
pumps, reservoirs
• 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
Lubrication systems market
• 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
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SKF Lubrication Systems
50
Acquisitions
Manufacturing and engineering centres
19 October 2010
Cirval (Argentina)
2008
ALS (Canada)
2007
Safematic (Finland)
2006
Sommers (Sweden)
2005
Vogel (Germany)
2004
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
Lincoln Industrial
Net sales geographical split
Other
Asia
North
America
Europe
2010: Sales approaching USD 400 m
EBIT margin around 24%.
19 October 2010
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Manufacturing and engineering centres
Automated
Systems
53
Increasing Application Complexity
Fast Application
Manually
Operated
Equipment
Selected Applications
Selected
Products
Solution
Spectrum
Lincoln Industrial’s offer portfolio
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
The acquisition is in line with SKF’s strategy
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.
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Summary of the third quarter
55
• Very strong quarter
• Positive outlook
• New financial targets
• Significant acquisition in lubrication systems area
19 October 2010
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 forwardlooking 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”.
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57
19 October 2010