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16 October 2008
The SKF Group
Nine-month results 2008
Tom Johnstone, President and CEO
16 October 2008
Highlights during the third quarter 2008
• announced it will be investing around SEK 400 million in its facilities in Göteborg, Sweden for a further increase of capacity.
• signed an agreement to acquire GLO s.r.I and its manufacturing operation in Italy. The acquisition is subject to certain conditions of closing and requires approvals by relevant authorities.
• was awarded a long-term contract from Skoda Electric a.s. SKF will provide traction motor bearing units for the new Prague 15T low floor tramway generation.
• completed the acquisition of PEER Bearing Company and its manufacturing operations in China and Thailand.
SKF
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16 October 2008
• launched through the network of SKF authorized distributors the latest SKF Energy Efficient performance class bearings.
• launched new condition based maintenance solutions to the railway industry to achieve lower life cycle cost.
• launched the Distributor Value Program to support SKF Authorized Distributors in documenting value to customers.
• launched the first series of a new generation super-precision bearings.
• was included in the Dow Jones Sustainability Indexes for the ninth year in succession.
SKF
Highlights during the third quarter 2008
4
16 October 2008
SEKm 2008 2007
Net sales 15,381 14,155
Operating profit 2,085 1,803
Operating margin 13.6% 12.7%
Profit before taxes 1,859 1,646
Net profit 1,257 1,174
Basic earnings per share, SEK 2.67 2.48
Cash flow after operating investments before financial items -526 1,274
Cash flow after operating investments before financial items, excluding acquisitions
528 1,237
Third quarter 2008 5
16 October 2008
SEKm 2008 2007
Net sales 47,054 43,489
Operating profit 6,260 5,708
Operating margin 13.3% 13.1%
Profit before taxes 5,761 5,428
Net profit 3,922 3,662
Basic earnings per share, SEK 8.39 7.76
Cash flow after operating investments before financial items 215 1,509
Cash flow after operating investments before financial items, excluding acquisitions
1,331 2,212
First nine months 2008 6
16 October 2008
Operating margin
%
0123456789
1011121314
2006 2007
Long-term target level: 12%
2008
7
16 October 2008
Operating margin
0
2
4
6
8
10
12
14
2006 2007 YTD September2008
%
* excluding income from the jointly controlled company Oy Ovako Ab
12.6 12.9
11.3*
13.3
Long-term target level: 12%
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16 October 2008
0
2
4
6
8
10
12
14
16
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3
Operating margin per division
IndustrialService
Automotive
%
2006 2007 2008
Excluding one-time items (eg. restructuring, impairments, capital gains)
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16 October 2008
Sales in local currencies (excl. structural changes)
0
2
4
6
8
10
12
14
16% change y-o-y
2006 2007 2008
10
16 October 2008
02468
101214
2006 2007 YTD September2008
Growth development 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
10.2
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Net sales development per quarter
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3
6.0 2.5 3.3 8.8 7.9 6.9 9.0 6.3 4.9 6.2 2.7
-4.9 -0.5 1.1 4.6 4.0 4.6 3.7 1.0 1.0 1.3 0.5
2.9 2.0 2.0 2.3 1.8 2.7 2.0 3.2 3.8 4.0 6.4
4.0 4.0 6.4 15.7 13.7 14.2 14.7 10.5 9.7 11.5 9.6
8.0 1.0 -2.1 -5.8 -5.6 -2.3 -1.9 -2.0 -1.2 -4.1 -0.9
12.0 5.0 4.3 9.9 8.1 11.9 12.8 8.5 8.5 7.4 8.7
Percent y-o-y
Volume
Structure
Price / Mix
Sales in local currency Currency
Net sales
2006 2007 2008
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Cash flow, after operating investments before financial items
-700
-500-300
-100
100
300500
700
9001 100
1 300
1 500
1 700
2006 2007
SEKm
Cash out fromacquisitions (SEKm): 2006 2,1292007 1,2092008 YTD 1,116
Cash in from Ovako (SEKm):2006 Q4 1,2172007 Q2 46
2008
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Net debt (Short-term financial assets minus loans and post-employment benefits)
-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
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18
19
20
21
22
23
Inventories as % of annual sales
%
2006 2007
Long-term target level: 18%
2008
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Return on capital employed
23
24
25
26
27
2006 2007 YTD September2008
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%
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October 2008: Outlook for the fourth quarter 2008
The demand for SKF products and services, based on current assumptions, is expected to be slightly lower in the fourth quarter both compared to the third quarter this year (seasonally adjusted) and the fourth quarter last year. In Europe and North America the demand is expected to be slightly lower, in Latin America higher and in Asia significantly higher. From a divisional viewpoint, the demand is expected to be higher in the Industrial Division, slightly higher in the Service Division and significantly lower in the Automotive Division.
The manufacturing level for the Group in the fourth quarter will be lower to reflect this new demand situation and to reduce inventory.
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16 October 2008
Volume development(based on current assumptions)
Daily volume trend for: Q3 2008 Q4 2008
Net sales2007
Europe 56%
North America
18%
Asia Pacific 18%
Latin America
5%
Total
Outlook Q42008 vs
2007
-
-
+++
++
-
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15% Cars
5% Trucks
10% VSM
3% Electrical and two-wheeler
22% Industrial OEM,
General+Special
23% Industrial distribution
11% Industrial OEM, Heavy+Off-
highway
5% Aerospace
3% Railway
3% Energy
Expected demand by main segment – Q4(based on current assumptions) Net sales 2007
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16 October 2008
Guidance for the fourth quarter 2008
• Tax level: 32%
• Financial net for fourth quarter:SEK -200 million
• Exchange rates on operating profit versus 2007Q4: SEK +100 million
Full year: SEK -270 million
• Additions to PPE: around SEK 2.5 billion
Guidance is approximate and based on current assumptions and exchange rates
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16 October 2008
AB SKF, long-term debt structure
Amount in million Maturity
Euro Bond EUR 250 2010-06
SEK Bond SEK 1,500 2011-06
Term loan in euro 1) EUR 150 2013-06
Euro Bond EUR 500 2013-06
Euro loan 2) EUR 100 2016-06
1) SKF can repay at any time before maturity.
2) SKF can repay from 2010-06
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16 October 2008
Key focus areas ahead
• Protect profit and cash flow
• 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
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Community CareCommunity Care
Business CareBusiness Care
SKF Corporate Sustainability
Environment CareEnvironment Care
BeyondZeroTM
SKF CareSKF Care
Operating margin
Employee CareEmployee Care
0
2
4
6
8
10
12
14
2003 2004 2005 2006 2007
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SKF Group Vision
To equip the worldwith SKF
knowledge
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16 October 2008
