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SKF Year-end results 2013

SKF Year-end results 2013. Tom Johnstone, President and CEO. Key achievements 2013. Acquisitions and divestments: acquisition of German-based ship components provider Blohm + Voss Industries (BVI) acquisition of US-based Kaydon Corporation

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SKF Year-end results 2013

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  1. SKF Year-end results 2013 Tom Johnstone, President and CEO

  2. Key achievements 2013 • Acquisitions and divestments: • acquisition of German-based ship components provider Blohm + Voss Industries (BVI) • acquisition of US-based Kaydon Corporation • divestment of the aerospace metallic rods business • New facilities: • lubrication systems laboratory in SKF Global Technical Centre, India • manufacturing unit in Pune in India for producing housings for bearings • gearbox remanufacturing centre in Tianjin, China • SKF opened six new SKF Solution Factories: in Toronto, Canada, in Manesar, India, in Urumqi, China and in Abu Dhabi, United Arab Emirates. There are now 27 SKF Solution Factories worldwide. Bearing

  3. Key achievements 2013 • In 2013, SKF provided around SEK 4 billion in verified savings for customers and since 2003 the accumulated figure is over SEK 27 billion. • SKF Distributor College awarded its 200,000th certificate. The recipient is Yang Chunxiao, an employee of Shandong Jiarui Industry Develop Co, Ltd, one of SKF’s Certified Maintenance Partners in China, who completed a course on ”selling value”. • SKF’s factories in Ahmedabad, India and in Dalian, China was awarded LEED Gold certification. SKF was included in the FTSE4Good Index Series for the 13th successive year SKF was included in the Dow Jones Sustainability Indexes for the 14th successive year

  4. Examples of new business in Q4 2013 • SKF started deliveries of wheel hub bearing units and MacPherson suspension bearing units to Volvo Car Corporation in their new factory in Chengdu, China for the delivery of the newly launched Volvo S60L car model. • SKF received an order from Hyundai Motors as a supplier of the recently launched robust MacPherson suspension bearing unit. The value of the order is around SEK 370 million. • SKF is providing bearings, lubrication systems and engineering support for a US-based pump producer for London’s Lee Tunnel Project is building its largest-ever waste water pump, which will contribute to London’s storm water and sewage overflow issues. • SKF received an order for compact tapered bearing unit from Tikhvin Freight Car Building Plant, affiliated to United Wagon Company LLC. The value of the order is around SEK 120 million. • SKF was awarded by CSR ZHUZHOU ELECTRIC CO., LTD in China a contract for locomotive bearings for a value of SEK 76 million. • SKF gained lubrication business worth SEK 38 million from a heavy industry customer in Peru.

  5. Examples of new business in Q1 – Q3 2013 • New business • with Pratt & Whitney, to supply engine main shaft bearings • with Nordex for delivery of main shaft bearings and lubrication systems • for automated lubrication systems installed in the MSC Home Terminal cranes in Belgium’s Port of Antwerp • with Turbomeca a 10-year contract worth SEK 900 million • with Fiat for the delivery of wheel hub bearing units, worth SEK 1 billion • with Great Wall Motors in China for high pressure valve stem seals, hub bearing units and bearing retainers. SKF and Great Wall Motors also signed a strategic partnership for developing sustainable solutions in energy efficient vehicles. • with Goldwind for SKF Nautilus bearing units, worth SEK 100 million • with Tangshan Loco and Changchun Railway Co for wheel set bearings for high speed trains • with Wuhan Iron & Steel Heavy Industry Group Co, Ltd (WISCO Heavy) to establish a remanufacturing centre in Wuhan, China.

  6. Examples of new technologies, products and solutions 2013 Sealed SKF single row angular contact ball bearings Super precisions bearings for wood-working applications SKF Extended Life spherical plain bearing SKF Condition Based Lubrication An energy efficient high speed permanent magnet solution SKF Telescopic pillars series CPMA and CPMB for medical equipment SKF InsightTMInternally powered sensors and data acquisition electronics sensing directly on the bearing Reinforced all-rubber HSS seals Robust angular steering column bearing High pressure valve stem seal with lower friction SKF extreme temperature bearings SKF Axial excluder seal

  7. SKF Group – Q4 2013 • Financial performance 2013 2012 • Net sales, SEKm 16,430 14,984 • Operating profit, SEKm -1,547 1,221 • Operating margin, % -9.4 8.1 • Operating margin excl. one-time costs,% 11.0 10.2 • Profit before tax, SEKm -1,760 969 • Cash flow, SEKm -6,732 1,076 • Organic sales growth in local currency: • SKF Group: 6.9% • Strategic Industries: 6.5% • Regional Sales and Service: 4.6% • Automotive: 10.8% • Key points • Sales volumes up by 7.1% y-o-y • Manufacturing higher compared to last year • Inventories 21.5% of sales (20.9% excluding Kaydon) Europe: 3% North America: 4% Asia: 15% Latin America: 11%

  8. SKF Group – 2013 Financial performance 2013 2012 Net sales, SEKm 63,597 64,575 Operating profit, SEKm 3,693 7,314 Operating margin, % 5.8 11.3 Operating margin excl. one-time costs,% 11.9 12.0 Profit before tax, SEKm 2,821 6,408 Cash flow, SEKm -5,342 3,555 Organic sales growth in local currency: SKF Group: -0.7% Strategic Industries: -4.1% Regional Sales and Service: -2.1% Automotive: 5.3% Key points Sales volumes down by -0.7% y-o-y Manufacturing relatively unchanged compared to last year Inventories 21.5% of sales (20.9% excluding Kaydon) Europe: -3% North America: -3% Asia: 2% Latin America: 10% Slide 7 28 January 2014

  9. Operating profit excluding one-time costs Slide 8 28 January 2014

  10. Adjusted 2013 key figures Slide 9 28 January 2014

  11. Organic sales growth in local currency % change y-o-y 2011 2012 2013

  12. Growth development by geographyOrganic growth in local currency Q4 2013 vs Q4 2012 Europe3% North America 4% Asia/Pacific 15% Latin America 11% Middle East & Africa 16%

  13. Growth development by geographyOrganic growth in local currency 2013 vs 2012 Europe-3% North America -3% Asia/Pacific 2% Latin America 10% Middle East & Africa 3%

  14. Components in net sales 2013 2011 2012

  15. Growth in local currency, including structure % y-o-y 16.3% 1.8% -2.1% Structure in 2011: 4.8% Structure in 2012: 0.4% Structure in 2013: 2.5%

  16. Operating profit as reported SEKm 2012 2011 2013

  17. Operating profit excluding one-time items SEKm 2012 2011 2013

  18. Operating margin % 14.7* 11.9* 12.0* 14.5 11.4 5.8 One-time items * Excluding one-time items

  19. Operating margin per business area % Regional Sales and Service Strategic Industries Automotive 2012 2013 2011 Excluding one-time items(eg. restructuring, impairments, capital gains)

  20. Inventories as % of annual sales % excl. Kaydon 2011 2012 2013

  21. Return on capital employed One-time costs * Excluding one-time costs % 23.9* 23.6 17.2* 15.1* 16.2 7.5 ROCE: Operating profit plus interest income, as a percentage of twelve months rolling average of total assets less the average of non-interest bearing liabilities.

  22. New ROCE and Net working capital targets

  23. Key elements of capital efficiency Flat over 11 years -8 percentage points in 11 years Net working capital as % of sales Plant and property as % of sales * Excluding Kaydon * Excluding Kaydon • Main actions • Continue PPE and sales ratio going forward • Step-up activities to: • - work with flexibility in our factories to reduce inventory • - improve collection of accounts receivables • - get effects on A/P from new purchasing activities

  24. Cash flow, after investments before financing SEKm * **** *** ** 2012 2013 2011 Excl. acquisitions and divestments: * Q3 2012 SEK 1,707 million ** Q1 2013 SEK -69 million *** Q3 2013 SEK 871 million **** Q4 2013 SEK 1,170 million

  25. Net debt SEKm AB SKF, dividend paid (SEKm): 2011 Q2 2,277 2012 Q2 2,504 2013 Q2 2,530 Cash out from acquisitions (SEKm): 2012 Q3 829 2013 Q1 823 2014 Q4 7,900 2012 2013 2011 Net debt: Loans and net provisions for post-employment benefits less short-term financial assets excluding derivatives.

  26. Debt structure, maturity years EURm 850 500 500 110 100 100 100 • Available credit facilities: • EUR 500 million 2017 • SEK 3,000 million 2016 • SEK 3,000 million 2017 • No financial covenants nor material adverse change clause

  27. Fourth quarter 2013

  28. Full year 2013 * excluding acquisitions and divestments, SEK 3,117 million (4,188).

  29. January 2014: SKF demand outlook Q1 2014 Demand compared to the first quarter 2013 The demand for SKF’s products and services is expected to be slightly higher for the Group, Europe and North America. It is expected to be slightly lower in Latin America and higher in Asia Pacific. For Strategic Industries it is expected to be relatively unchanged, for Regional Sales and Service slightly higher and for Automotive higher. Demand compared to the fourth quarter 2013 The demand for SKF’s products and services is expected to be slightly higher for the Group, Europe and North America. It is expected to be relatively unchanged in Asia Pacific and slightly lower in Latin America. For Regional Sales and Service and Automotive it is expected to be slightly higher and for Strategic Industries relatively unchanged. Manufacturing Manufacturing is expected to be higher year over year and slightly higher compared to the fourth quarter.

  30. SKF demand outlook Q1 2014, regions

  31. SKF demand outlook Q1 2014, business areas

  32. SKF sequential volume trend Q1 2014, main segments Share of net sales 2013

  33. Guidance for the first quarter 2014* • Tax level: around 30% • Financial net for the first quarter:Around SEK -250 million • Currency impact on operating profit versus 2013 Q1: SEK -90 million • Full year: SEK -300 million • Additions to PPE: Around SEK 1.6 billion for 2014 *Guidance is approximate and based on current assumptions and exchange rates

  34. Dividend proposal AB SKF’s Board proposes an unchanged dividend ofSEK 5.50 per share to the Annual General Meeting

  35. SKF’s priorities • Sustainable profitable growth • Expand the platform concept • Exploit the asset life cycle approach • Develop new products and grow SKF BeyondZero portfolio • Extend and grow second brands • Acquisitions • Investments & Innovation • New and existing facilities • Research and development • IT systems and mobility • Capital efficiency • Fixed capital • Net working capital • Cost reduction • Business Excellence • Consolidation of manufacturing • Optimization and productivity improvements • Reduction in purchasing costs

  36. Cost reduction – specific programme 2012-2015 • Main activities: • Consolidation of manufacturing - merger between sites - transfer to faster growing markets with more local production • Optimization and productivity improvements - in the manufacturing and demand chain processes - in administration and support functions • Reduction in purchasing cost - mainly through standardization and rationalization of the supplier base. • Reduction of annual cost by SEK 3 billion by the end of 2015 • - Total cost for the programme around SEK 1.5 billion • - 2,500 people impacted,

  37. SKF cost reduction programme - restructuring status

  38. Cautionary 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; “Important factors influencing the financial results", "Financial risks" and "Sensitivity analysis”.

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