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2006-10-17
The SKF Group
Nine-month result, 2006
Tom Johnstone, President and CEO
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2006-10-17
Acquisitions and divestments
Completed:
• Macrotech Polyseal Inc., a leader in fluid power seals.
• SNFA SAS, a leading French manufacturer of bearings for aerospace and machine tool applications. • The lubrication systems business of John Crane Safematic Oy, part of Smiths Group plc.
• Economos, a manufacturer of hydraulic and pneumatic seals.
• Precision Balancing & Analyzing, specialized in repair of machine tool spindles.
• Monitek Australia, a leading Australian predictive maintenance service company.
• RC DEI Norge AS, provides services for condition based maintenance
Still subject to customary due diligence and/or regulatory approvals:
• Rautaruukki Corporation, AB SKF and Wärtsilä Corporation have signed an agreement whereby their jointly held company, Oy Ovako Ab, will sell its operating subsidiaries.
• Divestment of SKF's forging business at the Luchow factory in Germany to Johann Hay GmbH & Co KG.
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MSEK 2006 2005
Net sales 12,544 12,027
Operating profit 1,538 1,464
Operating margin 12.3% 12.2%
Profit before taxes 1,422 1,480
Net profit 966 1,025
Basic earnings per share, SEK 2.06 2.20
Cash flow after investments before
financing -141* 1,495
Third quarter 2006
* MSEK 1,382, before acquisitions.
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MSEK 2006 2005
Net sales 39,206 36,637
Operating profit 4,849 4,059
Operating margin 12.4% 11.1%
Profit before taxes 4,541 3,978
Net profit 3,175 2,745
Basic earnings per share, SEK 6.81 5.88
Cash flow after investments before
financing
604* 1,901*
Nine-month result 2006
* MSEK 2,272 (2,366), before acquisitions.
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Operating margin
%
2003 2004
0
1
2
3
4
5
6
7
8
9
10
11
12
13
2005 2006
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Operating marginexcl. income from jointly controlled company OY Ovako Ab
%
2003 2004
0
1
2
3
4
5
6
7
8
9
10
11
12
13
2005 2006
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0
2
4
6
8
10
12
14
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3
Operating margin per division
Industrial
Service
Automotive
%
2004 2005 2006
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Sales in local currencies (excl. structural changes)
0
2
4
6
8
10
12
14
16
% change y-o-y
2003 2004 2005 2006
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Net sales development per quarter
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3
4.8 8.9 9.6 10.2 8.3 7.6 5.1 1.3 6.0 2.5 3.3
0.1 0.0 2.2 2.0 2.3 0.2 -2.9 -3.7 -4.9 -0.5 1.1
1.1 1.8 2.3 4.2 3.6 3.6 2.1 2.6 2.9 2.0 2.0
6.0 10.7 14.1 16.4 14.2 11.4 4.3 0.2 4.0 4.0 6.4
-4.6 -2.3 -2.9 -3.8 -3.2 0.2 3.2 9.4 8.0 1.0 -2.1
1.4 8.4 11.2 12.6 11.0 11.6 7.5 9.6 12.0 5.0 4.3
Percent y-o-y
2004
Volume
Structure
Price / Mix
Sales in local currency Currency
Net sales
2005 2006
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Growth development / local currency6% annual growth rate (whereof 4% organic)
% Y-o-Y
02468
1012
2003 2004 2005 YTDSeptember
2006Acquisitions / DivestmentsOrganic growth
(Organic 6.3)7.3
5.2
11.8
4.7
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Growth development / local currencyexcluding the effect from the Ovako divestment % Y-o-Y
02468
1012
2003 2004 2005 YTDSeptember
2006
10.4
5.2
11.8
7.3
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Cash flow, after investments before financing
-200
0
200
400
600
800
1 000
1 200
1 400
1 600
MSEK
2004 2005 2006
Cash out from acquisitions: 2006 MSEK 1,668
(mainly SNFA in Q3)2005 MSEK 419
(mainly Jaeger in Q2)2004 MSEK 644
(mainly Vogel in Q3)
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Cash flow, after investments before financing and acquisitions
0
200
400
600
800
1 000
1 200
1 400
1 600
MSEK
2004 2005 2006
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Net cash
-1 500
-500
500
1 500
2 500
3 500
4 500
5 500
MSEK
2003
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
(Short-term financial assets - loans)
2005 2006
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Inventories as % of annual sales
%
2003 2004
18
19
20
21
22
23
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3
2005
Target, end 2007 - 18%
2006
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Financial net
Interest income/expense, net -32 -65 -29
Interest on post-employment benefits -57 -172 -235
Other items*, net -27 -71 190
Financial net -116 -308 -74
* includes e.g. share swaps, capital gains/losses and foreign exchange gains/losses.
MSEKYTD Q3 2006
Full year2005Q3 2006
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October 2006: Outlook for the fourth quarter 2006(compared to the third quarter 2006)
The market demand for SKF's products and services in the fourth quarter of 2006 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 lower 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 fourth quarter of 2006 will be unchanged, while higher in absolute terms due to normal seasonality.
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Volume development
Daily volume trend for: Q3 2006 Q4 2006
Net sales2005
Europe 55%
North America
20%
Asia Pacific 17%
Latin America
5%
Total
Outlook Q42006 vs 2005
+
-
+++
+
+
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SKF Group targets
• 10% Operating margin level
• 6% Growth per annum
• 20% ROCE
• 18% Inventory / sales
2006
2007
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Guidance 2006
• Underlying tax level: around 32-33%
• Financial net, annual level: approximately MSEK 350
• For the fourth quarter, exchange rates are estimated to have a limited negative effect on the operating profit. For the full year, the positive effect is estimated to be approximately MSEK 250. This is based on current assumptions and exchange rates.
• Additions to property, plant and equipment: approximately in line with depreciations
Acquisition - SNFA
• Sales in 2005: 82 million euro
• 720 employees
• Bearings for the aerospace industry, high precision ball bearings for machine tool and other special applications
• Price: 138.5 million euro (cash and debt free)
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Acquisition - Economos
• Sales in 2005: close to 70 million euro
• 805 employees
• Sealing solutions and engineering plastics solutions
• Price: 67 million euro cash and debt free
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Acquisition - Safematic lubrication system business
• Sales in 2005: 25 million euro
• 127 employees
• John Crane Safematic Oy's lubrication systems business is part of Smiths Group plc.
• Price: 22.9 million euro
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Acquisitions
• Monitek Australia
• Yearly sales: 4.3 million Australian dollars
• 29 employees
• A leading predictive maintenance services company.
• Precision Balancing & Analyzing
• Yearly sales: 7 million US dollars
• 40 employees
• Specialized in repair and upgrading of machine tool spindles.
• Price: 62 million SEK in total
New factories in China
Two new factories started to operate during the third quarter:
• In Dalian, North East of China - manufacturing of large size bearings
• In Pinghu, outside Shanghai - electromechanical actuators and actuation systems
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SKF College
In September, SKF inaugurated a new regional training centre in Pinghu, outside Shanghai - the fourth SKF College in the world.
SKF Colleges offers a wide range of training for SKF employees, distributors and customers.
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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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