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The SKF Group

Analysis of SKF Group's financial performance in 2006, including acquisitions, operating margins, net sales growth, restructuring, and strategic planning.

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The SKF Group

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  1. The SKF Group Year-end result, 2006 Tom Johnstone, President and CEO

  2. Fourth quarter 2006 * including acquisitions of MSEK 461 and Ovako Cash proceeds of MSEK 1,217

  3. Year-end result 2006 * including acquisitions of MSEK 2,129 (418) and Ovako Cash proceeds of MSEK 1,217

  4. Operating margin % 2006 2004 2005 2003

  5. Operating margin % 12.6 % 10.8 % 9.9 % 11.3 %* 10.4 %* 8.0 % * excluding income from the jointly controlled company Oy Ovako Ab

  6. Operating margin per division % Service Industrial Automotive 2004 2006 2005

  7. Sales in local currencies (excl. structural changes) % change y-o-y 2004 2005 2003 2006

  8. Growth development / local currency % Y-o-Y 11.8 7.3 7.5 5.2 Acquisitions / Divestments Organic growth

  9. Net sales development per quarter 2005 2004 2006 Percent y-o-y

  10. Growth development/local currency2006 vs 2005 Europe 6.4% North America 3.6% Asia 16.1% Latin America 6.3%

  11. Industrial Division • Acquisitions • SNFA • John Crane's lubrication systems business (SKF Safematic Inc.) Net sales growth 15.8% organic growth 11.9% structure 4.0% currency effects -0.1% • New factories • Dalian, China - large size bearings • Pinghu, China - electromechanical actuators and actuation systems • Restructuring charges, impairments and write-offs • In Q4 2006, MSEK 210

  12. Service Division • Acquisitions • Precision Balancing & Analyzing (PB&A) • Monitek Australia • RC DEI Norge AS • PMCI (in January 2007) Net sales growth 9.7% organic growth 9.6% structure 0.2% currency effects -0.1% • Restructuring charges and write-offs • In Q4 2006, MSEK 20

  13. Automotive Division • Acquisitions • Economos • Macrotech Polyseal Inc. Net sales growth 4.8% organic growth 2.2% structure 1.9% currency effects 0.7% • New factories • Jakarta, Indonesia - small deep groove ball bearings • Shanghai, China - bearing • Busan and Taegu, Korea - bearing and seals • Restructuring charges, impairments and write-offs • In Q4 2006, MSEK 170

  14. Six Sigma 3 Dimensions:”Standard” Six Sigma, Design for Six Sigma, Lean Six Sigma • 2006 status: • 205 Black Belts • 1,135 Green Belts • 400 + projects (total 760 projects) • Savings in 2006: approximately MSEK 200

  15. Cash flow, after investments before financing MSEK Cash out from acquisitions: 2006 MSEK 2,129 2005 MSEK 418 2004 MSEK 644 Cash from Ovako in Q4: 2006 MSEK 1,217 2006 2004 2005

  16. Cash flow, after investments before financing excl. acquisitions and cash effects from Ovako sale MSEK 2006 2004 2005

  17. Net cash (Short-term financial assets - loans) MSEK AB SKF, dividend paid: 2003 Q2, MSEK 911 2004 Q2, MSEK 1,138 2005 Q2, MSEK 1,366 2006 Q2, MSEK 1,821 2004 Q2, Pension: MSEK 3,100 2005 Q2, Redemption, MSEK 2,846 2004 2005 2003 2006

  18. Inventories as % of annual sales % Target, end 2007 - 18% 2006 2004 2005 2003

  19. SKF capital structure • The AB SKF Board proposes the AGM to decide on: • a 12.5% increase in the dividend,SEK 4.50 per share • a share split 2:1 combined with anautomatic redemption procedureof one share for SEK 10 • a mandate to the Board to repurchase up to 5% of the company's share Adding up to a total distribution to shareholders ofSEK 6.6 billion

  20. Financial targets 2003 -2006 Operating margin 10% level Growth in local currencies 6% per annum Return on capital employed 20% Inventories 18% (2007)

  21. Financial targets 2003 -2006 Operating margin 10% level  Growth in local currencies 6% per annum  Return on capital employed 20%  Inventories 18% (2007) on plan

  22. Financial targets 2003 2007 -2006 - long term Operating margin 10% level 12% level Growth in local currencies 6% per annum 6-8% per annum Return on capital employed 20% 24% Inventories 18% (2007) 18% (2007) Gearing < 50% around 50%

  23. Financial targets • Operating margin level 12% • Focus on positive price mix • - new products and solutions • - eliminate loss making business • Operational efficiency, utilisation and flexibility • Increased production in best cost countries • Reduced purchasing cost • Six Sigma

  24. Operating margin - a longer perspective % 1993 - 2003 Excluding income from Ovako

  25. Operating margin - a longer perspective % 1993 - 2003 2004-2006 Excluding income from Ovako

  26. Operating margin - a longer perspective % 1993 - 2003 New target level 2004-2006 Excluding income from Ovako

  27. Financial targets • Growth in local currencies 6-8% * • Platform/segment approach to continue to be strengthened • - organic investments • - acquisitions • - increased R&D spending • - new products/solutions • Focus on fast growing regions and segments • - BRIC economies • - industrial segments * Growth target 2/3rd organic , 1/3rd acquisition

  28. Growth in local currencies – a longer perspective %

  29. Financial targets • ROCE 24% • Continued focus on operating capital reduction in % of sales • - inventory and accounts receivables • - fixed assets • Improved profit

  30. ROCE – a longer perspective % As from 2003, restated according to IFRS except for financial instruments As from 2005, financial instruments accounted for in accordance with IFRS

  31. Financial targets 2003 2007 -2006 - long term Operating margin 10% level 12% level Growth in local currencies 6% per annum 6-8% per annum Return on capital employed 20% 24% Inventories 18% (2007) 18% (2007) Gearing < 50% around 50%

  32. January 2007: Outlook for the first quarter 2007(compared to the fourth quarter 2006) The market demand for SKF's products and services in the first quarter 2007 is expected to be slightly higher. The demand is expected to be higher in Europe and Latin America, significantly higher in Asia and to be unchanged in North America. The demand for the Industrial and Service Division's products and services is expected to be higher and for the Automotive Division is expected to be slightly lower. The manufacturing level for the first quarter of 2007 will be unchanged compared with the fourth quarter 2006 and higher compared with the first quarter 2006.

  33. Volume development

  34. Guidance 2007 • Underlying tax level: around 32-33% • Financial net:Q1 around MSEK 75annual level towards year end around MSEK 450 • Exchange rates:Q1: a negative effect of approximately MSEK 200 Full year:a negative effect of approximately MSEK 550 • Additions to property, plant and equipment: around the same level as in 2006, above depreciation. Guidance based on current assumptions and exchange rates

  35. Cautionary statement This report 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 20-F report on file with the SEC (United States Securities and Exchange Commission) under "Forward-Looking Statements" and "Risk Factors".

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