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The SKF Group

The SKF Group. Year-end results 2007 Tom Johnstone, President and CEO. Strong Q4, strong full-year, positive outlook. Major events during the fourth quarter 2007. Acquisition completed of S2M, magnetic bearings

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The SKF Group

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  1. The SKF Group Year-end results 2007 Tom Johnstone, President and CEO

  2. Strong Q4, strong full-year, positive outlook

  3. Major events during the fourth quarter 2007 • Acquisition completed of S2M, magnetic bearings • SKF and GE Aviation agreed to establish a company for the manufacture and refurbish of bearings for GE's engines for large aircraft • Announced to build a factory in Russia for tapered bearing units to supply the Russian railway market • Announced to close the manufacturing facility in Glasgow, United States, and reduce the number of employees at the Fontenay-le-Comte facility in France • New business: Started a joint project with Knorr-Bremse to develop condition monitoring of brake control systems Signed a long-term service contract to supply ArcelorMittal Gained business on new hybrid pinion unit solution for automotive, provides 30% friction reduction

  4. Highlights previous quarters 2007 • Main acquisitions: • ABBA Linear Tech Co., Ltd., Taiwan • Three service companies in North America • Other highlights: • announced investments for two new factories in India • announced significant investments in Sweden • announced the development of energy-efficient bearings • and a number of other energy-efficient solutions • distributed SEK 6,603 million to shareholders • was included in the DJSI World and DJSI STOXX indexes for the • eighth year in succession, and in the FTSE4Good Index for the • seventh year in succession

  5. Fourth quarter 2007 * 9.9% excluding Ovako

  6. Year-end results 2007 * 11.3% excluding Ovako

  7. Operating margin Long-term target: 12% operating margin level % 2006 2007 2005

  8. Operating margin Long-term target: 12% operating margin level % 12.9 12.6 10.8 11.3* 10.4* * excluding income from the jointly controlled company Oy Ovako Ab

  9. Operating margin per division % Service Industrial Automotive 2007 2006 2005

  10. Sales in local currencies (excl. structural changes) % change y-o-y 2007 2006 2005

  11. Growth development in local currency Acquisitions/Divestments Long-term target: 6-8% growth in local currencies, per annum Organic growth % Y-o-Y 13.2 7.5* 7.3* * Excluding effect from Ovako: 2005 10.4% 2006 10.1%

  12. Net sales development per quarter 2005 2006 2007 Percent y-o-y

  13. Growth development by geography Local currency 2007 vs 2006 Europe 15% North America 7% Asia 15% Latin America 11%

  14. Industrial Division • Acquisitions • ABBA Linear Tech Co., Ltd. • S2M Net sales growth 12.2% organic growth 10.0% structure 5.0% currency effects -2.8% • Major investments • New factory for large size bearings in India • Increased investments in Sweden • New factory for tapered roller bearing in Russia • In Q4 2006, SEK 210 m in restructuring charges, impairments and write-offs • In Q4 2007, SEK 30 m in restructuring activities and other one-time items

  15. Highlights Industrial Division • SKF will supply the tapered roller bearing units to the Île de France suburban trains manufactured by Bombardier Transportation • A long term supply agreement with Suzlon Energy Ltd • SKF and Caterpillar forged a strategic partnership • SKF Agri Hub, a relubrication free solution for agricultural implements • Developed a lubrication system for machine tool spindles • SKF Conro Low, a relubrication free roll unit for the lower segments in continuous slab casters Photo: Bombardier Transportation

  16. Service Division • Acquisitions • Preventive Maintenance Company Inc. (PMCI) • Baker Instruments Company • Automatic Lubrication Systems (ALS) Net sales growth 9.0% organic growth 12.0% structure 0.8% currency effects -3.8% • In Q4 2006, SEK 20 million in restructuring charges and write-offs

  17. Highlights Service Division • A partnership with Aker Kvaerner for condition based maintenance for the offshore and onshore oil and gas industry • A two-year IMS contract signed with the world's leading producer of bleached eucalyptus pulp, Brazilian company Aracruz • An agreement with Meridium, Inc. granting SKF non-exclusive rights to license and distribute Meridium Asset Performance Management System software • Expansion of SKF’s 360° Solution programme • Expansion of SKF power transmission products into the European market • Introduction of the SKF Certified Rebuilder programme for electric motors • SKF Caster Analyst System, load and temperature measurement for slab casters • New important tools: The @ptitude Monitoring Suite and SKF Client Needs Analysis for Energy and Sustainability

  18. Automotive Division • Acquisitions • the remaining 40% shareholding in SKF (Shanghai) Bearing Company Ltd. Net sales growth 9.8% organic growth 8.3% structure 3.8% currency effects -2.3% • Major investments • expansion of the seal manufacturing facility in Judenburg, Austria • Haridwar, Uttarakhand in India – ball bearings • In Q4 2006, SEK 170 m in restructuring charges, impairments and write-offs • In Q4 2007, SEK 270 m in restructuring activities and other one-time items

  19. Highlights Automotive Division • business for the steering column bearing with Piaggio in India • business for wheel hub units for a four-wheeler light vehicle with Piaggio in India • business with Hendrickson in the USA for the recently launched SKF Wheel End Monitor, which helps track possible damage and wear to trailer wheel bearings • a wheel bearing solution to be manufactured in Spain for the new Renault Master platform • wheel bearings for the new Ford Focus generation in North America, with the Chinese company Shanghai Automotive Industry Corporation for a new car platform and for a new Alfa Romeo platform • additional business in China for two Chery models • SKF and Haldex have jointly developed an integrated truck hub unit with a dual disc brake and fixed caliper

  20. Six Sigma • 4 dimensions: • ”Standard” Six Sigma, Design for Six Sigma, • Lean Six Sigma and Six Sigma for Growth • 2007 status: • 16 Master Black Belts • 378 Black Belts • 1,614 Green Belts • 704 projects closed, whereof 145 replicated • 915 projects ongoing • Hard savings in 2007: SEK 302 m (up >50% from 2006)

  21. Cash flow, after operating investments before financial items SEKm Cash out from acquisitions (SEKm): 2005 419 2006 2,129 2007 1,209 Cash in from Ovako (SEKm): 2006 Q4 1,217 2007 Q2 46 2006 2007 2005

  22. Net debt (Short-term financial assets minus loans) SEKm AB SKF, dividend paid (SEKm): 2005 Q2 1,366 2006 Q2 1,821 2007 Q2 2,049 2005 Q2, redemption 2,846 2007 Q2, redemption 4,554 2005 2006 2007

  23. Net debt(Short-term financial assets minus loans and post-employment benefits) SEKm

  24. Inventories as % of annual sales Long-term target: 18% % 2006 2007 2005

  25. Return on capital employed Long-term target: 24% % ROCE: Operating profit plus interest income, as a percentage of twelve months average of total assets less the average of non interest bearing liabilities.

  26. SKF capital structure • a 11.1% increase in the dividend,SEK 5.00 per share • a share split 2:1 combined with anautomatic redemption procedureof one share for SEK 5.00 • a mandate to the Board to repurchase the company's own shares • The AB SKF Board proposes the AGM to decide on: Adding up to a total distribution to shareholders ofSEK 4,554 million

  27. January 2008: Outlook for the first quarter 2008(compared to the fourth quarter 2007) The market demand for SKF's products and services in the first quarter of 2008 is expected to be higher for the Group. The demand is expected to be higher in Europe, significantly higher in Asia and Latin America and relatively unchanged in North America. The demand is expected to be higher in all divisions. The manufacturing level for the first quarter 2008 will be unchanged compared to the fourth quarter 2007, and higher than the first quarter 2007.

  28. Volume development

  29. Key focus areas ahead • 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

  30. SKF Corporate Sustainability Employee Care Business Care Operating margin SKF Care BeyondZeroTM Environment Care Community Care

  31. SKF Group Vision To equip the world with SKF knowledge

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