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15 July 2009
0
The SKF Group
Half-year results 2009
Tom Johnstone, President and CEO
15 July 2009
2Key points from Q2 report
• Record quarterly cash flowQ2: SEK 2,425 m H1: SEK 2,948 m
• Dramatic drop in sales volume continuedQ2: -30.8% H1: -28.9%
• Strong price/mixQ2: 5.6% H1: 6.3%
• Cost reduction efforts in focus and giving results- new programme announced- annualised savings from all programmes, around SEK 800 million- in addition, significant short-time working being utilized
• Demand outlook for Q3- significant decline year over year- decline levelling off sequentially
15 July 2009
3Highlights Q2 2009
SKF
• inaugurated a new Solution Factory in Turin, Italy
• signed a contract with Cambridge University Department of Materials Science and Metallurgy to set up the SKF University Technology Centre on Steels on campus in Cambridge
• won an order to supply Guohua Energy Investment Co. Ltd. in China with SKF WindCon online condition monitoring systems and other related services
• signed a long-term contract with Hero Honda in India to supply ball bearings
• acquired the remaining 49% of the shares in Macrotech Polyseal Inc., now called SKF Polyseal Inc.
• in cooperation with the Czech police, confiscated over 30 tons of counterfeit SKF bearings.
15 July 2009
4Second quarter 2009
SEKm 2009 2008
Net sales 14,167 16,077
Operating margin excl. restructuring, % 6.9% 13.3%
Cash flow after investments before financial items 2,425 872
Operating margin 3.4% 13.3%
Operating profit 474* 2,135
Profit before taxes 312 1,978
Net profit 323 1,369
Basic earnings per share, SEK 0.69 2.95
* Q2 restructuring SEK 500 mOperating profit excl. restructuring activities SEK 974 m
15 July 2009
5Half year 2009
SEKm 2009 2008
Net sales 29,016 31,673
Operating margin excl. restructuring, % 6.6% 13.2%
Cash flow after investments before financial items 2,948 741
Operating margin 4.3% 13.2%
Operating profit 1,242* 4,175
Profit before taxes 843 3,902
Net profit 717 2,665
Basic earnings per share, SEK 1.55 5.72
* H1 restructuring SEK 675 mOperating profit excl. restructuring activities SEK 1,917 m
15 July 2009
6Growth in local currency(Organic growth + Acquisition/Divestments)
-25
-20
-15
-10
-5
0
5
10
15
2007 2008 YTD June 2009
% y-o-y
13.2%
Organic growth
Long-term target level: 6-8% per annum
7.1%-21.3%
Acquisitions/Divestments
15 July 2009
7Sales in local currencies (excl. structural changes)
-30-25-20
-15-10-50
51015
% change y-o-y
2007 2008 2009
15 July 2009
8Sales volume
-35-30-25
-20-15-10-5
05
10% change y-o-y
2008 20092007
15 July 2009
9Components in net sales
2007 20092008Percent y-o-y Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1
-13.0 -26.9
1.4
7.1
-18.4
13.6
-4.8
2.4
8.5
-2.1
10.3
8.2
2.7
0.5
6.4
9.6
-0.9
8.7
6.2
1.3
4.0
11.5
-4.1
7.4
4.9
1.0
3.8
9.7
-1.2
8.5
6.3
1.0
3.2
10.5
-2.0
8.5
9.0
3.7
2.0
14.7
-1.9
12.8
6.9
4.6
2.7
14.2
-2.3
11.9
7.9
4.0
1.8
13.7
-5.6
8.1
Q2
-30.8
1.1
5.6
-24.1
12.2
-11.9
Volume
Structure
Price / Mix
Sales in local currency
Currency
Net sales
15 July 2009
10Operating margin
0
2
4
6
8
10
12
14
2007 2008 YTD June 2009
%
12.9 12.2
Long-term target level: 12%
4.3
13.3* 12.7*
6.6*
Restructuring and one-time items
* Excluding restructuring and one-time items
15 July 2009
11Operating margin
% Long-term target level: 12%
2008 2009
0
2
4
6
8
10
12
14
16
2007
Restructuring and one-time items
15 July 2009
12Operating margin per division
-15
-10
-5
0
5
10
15
20
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2
Industrial
Service
Automotive
%
2007 2008
Excluding one-off items (eg. restructuring, impairments, capital gains)
2009
15 July 2009
13Activities to adapt to lower demand
• Restructuring/impairment programmesPeople Costs charged to
operating profit
announced: Q4 2008 2,500 SEK 340 mQ1 2009 500 SEK 175 mQ2 2009 900 SEK 500 m
3,900 SEK 1,015 m
At the end of June 2009, around 3,800 people have left the Group since H2 2008, of which around 2,000 people under the programmes.
Total savings from these activities SEK 800 m.
• In addition, around 18,000 people in short-time working.
15 July 2009
14Inventories as % of annual sales
18
19
20
21
22
23
24
25%
2007
Long-term target level: 18%
2008 2009
15 July 2009
15Return on capital employed
0
5
10
15
20
25
30
2007 2008 YTD June 2009
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%
24.9 24.0
13.4
15 July 2009
16Net debt(Short-term financial assets minus loans and post-employment benefits)
-18 000
-16 000
-14 000
-12 000
-10 000
-8 000
-6 000
-4 000
-2 000
0
SEKm
AB SKF, dividend paid (SEKm):2007 Q2 2,0492008 Q2 2,2772009 Q2 1,594
Redemption (SEKm):2007 Q2 4,5542008 Q2 2,277
2007 2008 2009
15 July 2009
17AB SKF, debt structure
Amount in million Maturity
Euro Bond EUR 132* 2010-06
SEK Bond SEK 1,500 2011-06
Term loan in euro EUR 150 2013-06
Euro Bond EUR 500 2013-12
Euro loans EUR 130 2014-03
Euro loan EUR 100 2016-06
* Was EUR 250 million, reduced by EUR 118 million in Q2.
15 July 2009
18Cash flow, after investments before financial items
-1 000
-500
0
500
1 000
1 500
2 000
2 500SEKm
Cash out fromacquisitions* (SEKm):
2007 1,2092008 1,2842009 223
20092007 2008
* including non-controlling interests.
15 July 2009
19July 2009: Outlook for the third quarter 2009
Compared to last year the demand for SKF products and services is expected to be significantly lower in the third quarter compared to the third quarter last year for the Group in total, for all the Divisions and for all regions.
Compared to the second quarter and adjusted for seasonality, demand is expected to be relatively unchanged for the SKF Group in total. It is expected to be lower in Europe, relatively unchanged in North America and slightly higher in Asia and Latin America. It is expected to be slightly higher for the Automotive Division, relatively unchanged for the Service Division and slightly lower for the Industrial Division.
The manufacturing level will be significantly lower year on year and relatively unchanged compared to the second quarter.
15 July 2009
20Volume trends(based on current assumptions)
Daily volume trends for: Q2 2009 Q3 2009
Net sales2008
Europe 56%
North America 17%
Asia Pacific 19%
Latin America 5%
Total
Outlook Q32009 vs 2008
---
---
---
---
---
15 July 2009
21Sequential volume trend main segments Q3 2009(based on current assumptions)
20% Industrial OEM, General+Special
12%
6%
5%
Industrial OEM, Heavy+Off-highway
Energy
Aerospace
23%
5%
Industrial distribution
Trucks
13%
9%
3%
3%
Cars
Vehicle Service Market
Railway
Electrical and two-wheeler
Net sales 2008
15 July 2009
22Guidance for the third quarter 2009
• Tax level: around 30%
• Financial net for the third quarter:Around SEK -200 million
• Exchange rates on operating profit versus 2008Q3: SEK 260 millionFull year: SEK 900 million
• Additions to PPE: Slightly below SEK 2 billion for 2009
Guidance is approximate and based on current assumptions and exchange rates
15 July 2009
23Key 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
15 July 2009
24SKF Care
Employee Care
Community CareEnvironmental Care
Business Care
BeyondZeroTM
0
2
4
6
8
10
12
14
2003 2004 2005 2006 2007 2008
SKF Care
Operating margin
15 July 2009
25SKF Group Vision
To equip the worldwith SKF knowledge
15 July 2009
26Cautionary 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 forward-
looking 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; "Most important
factors influencing the financial results", "Financial risks" and "Sensitivity analysis”.
15 July 2009
27