Tom Johnstone, President and CEO
CMD 2013
© SKF Group CMD 2013
Key items
• H1 summary and outlook
• SKF priorities
• Specific focus
- IT investment (UNITE)
- Cost reduction and Purchasing
© SKF Group CMD 2013
Highlights H1 2013
Acquisitions and divestments
• SKF completed the acquisition of German-based ship components provider Blohm + Voss Industries (BVI)
• SKF divested the aerospace metallic rods business
New facilities in India
• a new lubrication systems laboratory in SKF Global Technical Centre
• a new manufacturing unit in Pune for producing housings for bearings
Two new SKF Solution Factories
Inaugurated in Madrid, Spain and Katowice, Poland
Programme to improve efficiency, reduce cost and strengthen profitable growth continues
• one-off costs of around SEK 440 million
• annual savings of around SEK 180 million
Katowice, Poland Madrid, Spain
© SKF Group CMD 2013
Highlights H1 2013
Some examples of new business
• with Pratt & Whitney, to supply engine main shaft bearings
• with Nordex for delivery of mainshaft bearings and lubrication systems
• for automated lubrication systems installed in the MSC Home Terminal cranes in Belgium’s Port of Antwerp
• with a steel and mining company for industrial bearings and units, seals, mechatronics, and services
• with Öhlins Racing AB for SKF’s integrated monotube seal
• with the Chinese customer Great Wall for hub bearing units
• 10-year contract worth SEK 900 million with Turbomeca
• service contracts worth SEK 200 million in Latin America
• contract for wheel hub bearing units (HBU3) to Volvo Car Corporation
Thrust main shaft bearing, one of the bearings for the
ARRANO Engine of TURBOMECA
© SKF Group CMD 2013
Half year 2013
SEKm 2013 2012
Net sales 31,544 34,105
Operating profit 3,317 4,185
Operating margin, % 10.5 12.3
Operating margin excl. one-offs, % 11.9 12.7
Profit before taxes 2,864 3,730
Net profit 1,922 2,570
Basic earnings per share, SEK 4.10 5.44
Cash flow, after investments before financing 255 1,382
© SKF Group CMD 2013
Europe-7%
Asia/Pacific -5%
Latin America
11% Middle East & Africa
-4%
NorthAmerica
-6%
Growth development by geography and by business areaOrganic growth in local currency YTD 2013 vs YTD 2012
SKF Group: -5.1%
Strategic Industries: -9.9%
Regional Sales and Service -6.3%
Automotive 2.0%
© SKF Group CMD 2013
Share of net sales2012
Europe 43%
Asia Pacific 24%
North America 23%
Latin America 7%
Total
Q3 2013 vs Q3 2012
+/-
+
+
++
+
Sequential trend for Q3 2013
SKF demand outlook Q3 2013, regions
© SKF Group CMD 2013
Sequential trend for Q3 2013
Share of net sales2012
Strategic Industries
31%
Regional Sales and Service
39%
Automotive 27%
Total
Q3 2013 vs Q3 2012
+
+
+
+
SKF demand outlook Q3 2013, business areas
© SKF Group CMD 2013
Key items
• H1 summary and outlook
• SKF priorities
• Specific focus
- IT investment (UNITE)
- Cost reduction and Purchasing
© SKF Group CMD 2013
SKF priorities
© SKF Group CMD 2013
Growth and operating margin 2002 - 2012
SEKm
Operating margin 11.4%, excl. one-time costs 12.0%Operating
margin 9.5%
+17%
-4%
+51%
-12%
© SKF Group CMD 2013
Key elements of Sustainable Profitable Growth
Platforms
Asset life cycle + service
SKF BeyondZeroportfolio
2nd brands
Acquisitions
New products
QPM
Macrotech
PEER
GLOCirval
GBCBVI
S2M
ALSABBA
Baker
Lincoln
© SKF Group CMD 2013
Key items
• H1 summary and outlook
• SKF priorities
• Specific focus
- IT investment (UNITE)
- Cost reduction and Purchasing
© SKF Group CMD 2013
UNITE
One SKF
Knowledge Engineering Company
Preferred by customers, employees and partners. Strong in purchasing and operations.
Customers Employees Suppliers
Operations
SKF investment in IT – UNITE programme
© SKF Group CMD 2013
UNITE - One End-to-End Process
4. Sales & Operations Planning
8. Production scheduling
9. Production execution
10. Deliver & customer
Follow-up + Payment
1. Go To Market
2. Manage opportunities
3. Process order &
confirmation
Customer to Cash Forecast-to-Fulfill
Purchase-to-Pay Record-to-Report
© SKF Group CMD 2013
SKF investment in IT – UNITE programme
Multi year programme
• New Demand Chain systems
• New Finance system
First main installations
• Sales unit in Q2 2014
• Sales & Manufacturing unit in Q4 2014
Estimated cost
• SEK ~500 m in 2013 (of which SEK ~300 m capitalised)
• SEK ~900 m in 2014
© SKF Group CMD 2013
Key items
• H1 summary and outlook
• SKF priorities
• Specific focus
- IT investment
- Cost reduction and Purchasing
© SKF Group CMD 2013
SKF Restructuring programme – costs and expected savings
Restructuring activities launched in:
SEKm Q4 2012 Q1 2013 Q2 2013 Total
One-off costs 200 250 190 640
Annual savings when fully implemented 150 100 80 330
•The savings for the second half 2013 from these programmes will be around SEK 150 million, evenly split between the third and the fourth quarter.
© SKF Group CMD 2013
SKF Global Spend
Total SKF spend
Total SKF spend is SEK 36 billion – direct and indirect representing ~ 50% respectively
18%
44%
38%
Rings & Subcontracting
Components
8%
12%
13%
21%18%
27%
CAPEX
IT
Logistics
Professional Services
Facility Management
MRO
SEK 17.7 billion
Direct Material
Indirect Material & CAPEX
SEK 15.6 billion
17 034
36 153
0
5 000
10 000
15 000
20 000
25 000
30 000
35 000
40 000
19 119
Indirect
Material
Direct
Material
Total
Steel Raw Material & Rolling ElementsSteel Raw Material & Rolling Elements
© SKF Group CMD 2013
Natural disasters
Price and currency volatility
Sustainable and Responsible
Sourcing
Geopolitical Risk
Supplier Innovations
Global & Local Supplier
Relationships
Supply Chain Disruptions
Challenges in the global supply chain – many factors
Effective sourcing strategy
Market demand variations and
volatility
© SKF Group CMD 2013
Key initiatives to achieve savings
• Category and business driven purchasing
• Supplier consolidation and localization
• Leverage of all purchasing power across all businesses
• Product, process & system standardization
• Total cost approach and leading purchasing practices applied
• Category and business driven purchasing
• Supplier consolidation and localization
• Leverage of all purchasing power across all businesses
• Product, process & system standardization
• Total cost approach and leading purchasing practices applied
© SKF Group CMD 2013
Target:
• China supplier development to secure capacity and Q C D I M targets
SKF benefits:
• Access to a supplier base in China close to Dalian
• 100% localization
• 2 suppliers fully approved in China
• Worldwide supplier market base fitting with new SKF manufacturing footprint
• Development of a Chinese suppliers base with export capacity
Success Story – localization of cages in China
Contract Status:2012/2013
Savings:-40/50% vs Import in China
© SKF Group CMD 2013
Total Savings:
USD 760,000 – 30% savings
Supplier reduction:
14 3
Activity
Combine purchasing of packaging materials across a number of units
SKF benefits
• Reduction in supply base
• Cost savings
• Standardized packaging from one supplier
Success StoryPackaging – Cross platform leverage
Corrugated & Anti-counterfeit packaging
© SKF Group CMD 2013
Success StoryStandardization of capital equipment
• Equipment for Grinding, Honing, Laser marking and Assembly
• Clear business requirements
• Improved sourcing process
• Standardization of equipment
• Cross business leverage
• Regional Asian supplier base developed with global capabilities
SEK 280 million of total cost savings
• HBU3 channel standardization
© SKF Group CMD 2013
Purchasing ramp up and saving plan
• New Group Purchasing organization in operation
• New process framework
• Sourcing waves 1 / Speed sourcing started to leverage spend across all BUs
• Integration of BU Purchasing
• Localization of the strategic supplier base
• New Group Purchasing organization in operation
• New process framework
• Sourcing waves 1 / Speed sourcing started to leverage spend across all BUs
• Integration of BU Purchasing
• Localization of the strategic supplier base
• Separation of strategic tasks from transactional tasks
• Sourcing waves 2 and continued Speed Sourcing activities
• Supplier Innovation Programmes on stream
• Strategic Partnership Agreements with key suppliers
• Common purchasing processes
• Supplier consolidation
• Separation of strategic tasks from transactional tasks
• Sourcing waves 2 and continued Speed Sourcing activities
• Supplier Innovation Programmes on stream
• Strategic Partnership Agreements with key suppliers
• Common purchasing processes
• Supplier consolidation
• Category and business driven organization fully leveraging SKF’s purchasing power
• Purchasing supporting the full internal value chain
• Focus on Total Cost of Ownership (TCO)
• 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
• Category and business driven organization fully leveraging SKF’s purchasing power
• Purchasing supporting the full internal value chain
• Focus on Total Cost of Ownership (TCO)
• 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
2013 2014 2015 2016
SEK 1,500 mSEK 1,500 m
© SKF Group CMD 2013
SKF priorities
© SKF Group CMD 2013
Key business message
• No change in demand outlook for Q3
• SKF priorities in focus – good progress in H1
• New IT investment (UNITE) and purchasing programmes
going according to plan