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29 January 2009
1
The SKF Group
Year-end results 2008
Tom Johnstone, President and CEO
29 January 2009
3Summary
• Record sales and profit full-year 2008.
• Weakening markets by the end of the year.
• Acquired: Cirval S.A., GLO s.r.I., PEER Bearing company, QPM Aerospace’s metallic rod business.
• Announced two new energy efficient roller bearing types.
• Signed a new contract in China with the world’s largest trailer axle manufacturer, Guangdong Fuwa Engineering Manufacturing Co. Ltd
• Announced investments for the first SKF factory in Russia and for expanding the capacity for manufacturing of large size bearings in China, Sweden and Germany.
• Distributed SEK 4,554 m to shareholders.
• Six Sigma, annualized savings SEK 462 m (up >50% from 2007)
• Included in Dow Jones Sustainability Indexes for the ninth year in succession.
29 January 2009
4
SEKm 2008 2007
Net sales 16,307 15,070
Operating profit 1,450 1,831
Operating margin 8.9% 12.1%
Profit before taxes 1,107 1,710
Net profit 819 1,105
Basic earnings per share, SEK 1.75 2.33
Cash flow after operating investments before financial items -150 617
Cash flow after operating investments before financial items, excluding acquisitions
18 1,123
Fourth quarter 2008
29 January 2009
5
SEKm 2008 2007
Net sales 63,361 58,559
Operating profit 7,710 7,539
Operating margin 12.2% 12.9%
Profit before taxes 6,868 7,138
Net profit 4,741 4,767
Basic earnings per share, SEK 10.14 10.09
Cash flow after operating investments before financial items 65 2,126
Cash flow after operating investments before financial items, excluding acquisitions
1,349 3,335
Full year 2008
29 January 2009
6Growth development by geography
Europe 2008 +5%
NA 2008 +5%
Asia 2008 +15%
LA 2008 +12%
Local currency 2008 vs 2007
29 January 2009
7
02468
101214
2006 2007 2008
Growth in local currency
% Y-o-Y
Acquisitions/DivestmentsOrganic growth
7.5*
13.2
* Excluding effect from Ovako:2006 10.1%
Long-term target level: 6-8% per annum
7.1
29 January 2009
8Sales in local currencies (excl. structural changes)
-6
-4
-2
0
2
4
6
8
10
12% change y-o-y
2006 2007 2008
29 January 2009
9Components in net sales
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
6.0 2.5 3.3 8.8 7.9 6.9 9.0 6.3 4.9 6.2 2.7 -13.0
-4.9 -0.5 1.1 4.6 4.0 4.6 3.7 1.0 1.0 1.3 0.5 2.4
2.9 2.0 2.0 2.3 1.8 2.7 2.0 3.2 3.8 4.0 6.4 8.5
4.0 4.0 6.4 15.7 13.7 14.2 14.7 10.5 9.7 11.5 9.6 -2.1
8.0 1.0 -2.1 -5.8 -5.6 -2.3 -1.9 -2.0 -1.2 -4.1 -0.9 10.3
12.0 5.0 4.3 9.9 8.1 11.9 12.8 8.5 8.5 7.4 8.7 8.2
Percent y-o-y
Volume
Structure
Price / Mix
Sales in local currency Currency
Net sales
2006 2007 2008
29 January 2009
10Operating margin
0
2
4
6
8
10
12
14
2006 2007 2008
%
* excluding income from the jointly controlled company Oy Ovako Ab
12.6 12.9
11.3*
12.2
Long-term target level: 12%
29 January 2009
11Operating margin
%
0123456789
1011121314
2006 2007
Long-term target level: 12%
2008
29 January 2009
12
-12
-7
-2
3
8
13
18
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
Operating margin per division
Industrial
Service
Automotive
%
2006 2007 2008
Excluding one-off items (eg. restructuring, impairments, capital gains)
29 January 2009
13Industrial Division
Acquisitions
• QPM Aerospace’s metallic rod business
SEKm 2008 2007
Net sales 22,748
19,693
Sales incl. intra-Group sales
33,260
29,157
Operating profit 3,929 3,434
Operating margin 11.8% 11.8%
Q4 2008Net sales growth 23.1%15.5%
organic growth 6.8% 10.2% structure 2.3% 3.0%currency effects 14.0% 2.3%
Major investments
• New factory in Ahmedabad, India• New factory in Tver, Russia• Increase the manufacturing capacity in Dalian, China • Investments in large size bearings in Sweden and Germany
• In Q4 2007, SEK 30 m in restructuring activities and other one-time items.
• In Q4 2008, SEK 80 m in restructuring activities and other one-time items.
29 January 2009
14Service Division
Acquisitions
• Cirval S.A.
SEKm 2008 2007
Net sales 21,529
19,339
Sales incl. intra-Group sales
23,670
21,136
Operating profit 3,444 2,860
Operating margin 14.6% 13.5%
Q4 2008Net sales growth 11.3%11.3%
organic growth 2.0% 10.9% structure 0% 0.3%currency effects 9.3% 0.1%
New activities
• Established the first SKF Solution Factory in Shanghai.• Launched the SKF Certified Rebuilder programme for electric motors in Europe and South Africa.• Launched the Distributor Value Program to support SKF authorized distributors in documenting the value they bring to customers.
29 January 2009
15Automotive Division
Acquisitions
• GLO s.r.l• SKF Automotive Bearings
Company Ltd.
SEKm 2008 2007
Net sales 18,727 19,449
Sales incl. intra-Group sales
23,215 23,703
Operating profit 627 1,135
Operating margin 2.7% 4.8%
Major investments
• Opened a new factory in China• Established new technology centre in China and expanded centre in India.
• In Q4 2007, SEK 270 m in restructuring activities and other one-time items.
• In Q4 2008, SEK 250 m in restructuring activities and other one-time items.
Q4 2008Net sales growth -16.3%-3.7%
organic growth -22.9% -3.8% structure 0.2% -0.5%currency effects 6.4% 0.6%
29 January 2009
16Activities to adapt to lower demand
Announced in Q4 2008: • Short-time working: 2,400 employees
Reduction: 2,500 employees (whereof: 1,300 temporary and 1,200 registered)
• Restructuring and impairment costs of SEK 470 m, whereof SEK 340 m in Q4 2008. Full-year benefit SEK 250 m in 2010
Implemented in 2008:• Reduction of temporary workers: 200 during Q3
550 during Q4• Reduction of registered employees: 500 during Q4
.
29 January 2009
17Currency effects on the balance sheet EUR/SEK, Close
05 06 07 08 098.5
9.0
9.5
10.0
10.5
11.0
11.5
USD/SEK, Close
05 06 07 08 095.5
6.0
6.5
7.0
7.5
8.0
8.5
The currency effects on working capital and fixed assets were around 10% for the fourth quarter and 12% for the year.
This has had an impact on ratios.
29 January 2009
18
18
19
20
21
22
23
24
25
Inventories as % of annual sales
%
2006 2007
Long-term target level: 18%
2008
x excl. currency effects
29 January 2009
19Return on capital employed
23
24
25
26
2006 2007 2008
ROCE: Operating profit plus interest income, as a percentage of twelve months average of total assets less the average of non-interest bearing liabilities.
%
Long-term target level: 24%
29 January 2009
20Net debt (Short-term financial assets minus loans and post-employment benefits)
-16,000
-14,000
-12,000
-10,000
-8,000
-6,000
-4,000
-2,000
0
SEKm
AB SKF, dividend paid (SEKm):2006 Q2 1,8212007 Q2 2,0492008 Q2 2,277
Redemption (SEKm):
2007 Q2 4,5542008 Q2 2,277
2006 2007 2008
29 January 2009
21Cash flow, after operating investments before financial items
-700
-500-300
-100
100300500
700900
1,100
1,3001,500
1,700
2006 2007
SEKm
Cash out fromacquisitions (SEKm): 2006 2,1292007 1,2092008 1,284
Cash in from Ovako (SEKm):2006 Q4 1,2172007 Q2 46
2008
29 January 2009
22SKF capital structure
• a dividend of SEK 3.50 per share
• a mandate to the Board to repurchase a maximum of 5% of the company's own shares
The AB SKF Board proposes the AGM to decide on:
29 January 2009
232009 – external environment
• Global, deep and very fast downturn in demand
• Financial markets are not stable yet
• Government incentives still to take effect
• Consumer and business confidence low
• Good demand continues in some areas
Uncertain business environment - difficult to forecast
29 January 2009
24Vehicle production outlook
Light vehiclesQ408
EstimatedQ109
Forecast
Western Europe -28% -27%
North America -24% -42%
Heavy vehiclesQ408
EstimatedQ109
Forecast
Western Europe: -14% -33%
North Americaof which Class 8
8%-2%
-28%-33%
Source: JD Power, December 2008
Source: Global Insight 28 January 2009
29 January 2009
25January 2009: Outlook for the first quarter 2009
The demand for SKF products and services is expected to be significantly lower for the Group in total and for all regions. It is also expected to be significantly lower for the Automotive and Service Divisions and lower for the Industrial Division.
The manufacturing level will be significantly lower to reflect both the new demand situation and to reduce inventory.
29 January 2009
26Volume trends(based on current assumptions)
Daily volume trends for: Q4 2008 Q1 2009
Net sales2008
Europe
56%
North America
17%
Asia Pacific
19%
Latin America
5%
Total
Outlook Q12009 vs
2008
---
---
--
---
---
29 January 2009
27
13% Cars
5% Trucks
20% Industrial OEM,
General+Special
3% Electrical and two-wheeler
9% VSM
23% Industrial distribution
12% Industrial OEM, Heavy+Off-
highway
5% Aerospace
3% Railway
6% Energy
Expected demand by main segment – Q1 2009(based on current assumptions) Net sales 2008
29 January 2009
28Guidance for the first quarter 2009
• Tax level: 31-32%
• Financial net for first quarter:SEK -200 million
• Exchange rates on operating profit versus 2008Q1: SEK 200 million
Full year: SEK 1 billion
• Additions to PPE: Around SEK 2 billion for 2009
Guidance is approximate and based on current assumptions and exchange rates
29 January 2009
29Key focus areas ahead - 2009
• Profit and cash flow- maintain positive price/mix- drive operational efficiency and cost reduction- reduce working capital and investments
• Adjustment of manufacturing output to new demand levels- restructuring- short-time working
• Growing segments and geographies
• Strengthening the platform/segment approach
• Competence development
SKF Care and Six Sigma as guiding lights
29 January 2009
30SKF Care
Employee Care
Community CareEnvironmental Care
Business Care
BeyondZeroT
M
0
2
4
6
8
10
12
14
2003 2004 2005 2006 2007 2008
SKF Care
Operating margin
29 January 2009
31SKF Group Vision
To equip the worldwith SKF
knowledge
29 January 2009
32