SKF Capital Markets Day 2018

SKF Capital Markets Day 2018

Christian Johansson, Senior Vice President & CFO

▪ Fast and customer focused

▪ Refocused on the core business (8 divestments in 3 years)

▪ Strengthened financial position

▪ Lowered cost level

=> market share growth, record sales & record high profit

SKF – in business for 111 years, fit and ready for the future!

6.9%Organic growth:

Target: 5%

12.2%Operating margin:

Target: 12%

60%Net debt / equity:

Target: <80%

16.5%Return on capital employed:

Target: 16%

29.0%Net working capital:

Target: 25%

© SKF Group

Performance versus targets 2014 - 2018

4

- 3 - 2

8 8

- 6

- 3

-

3

6

9

2014 2015 2016 2017 2018(Q3)

Organic sales growth

Growth Target

7 800

7 0007 500

8 600

10 200

5,0

8,0

11,0

14,0

5 000

7 000

9 000

11 000

2014 2016 2018

(rolling 12months)

Operating Result

Operating Result Margin Target

127

100

84

71 60

-

30

60

90

120

150

2014 2015 2016 2017 2018

(Q3)

Net debt/equity

Net debt/equity Target

31

27

30 29 29

20

25

30

35

2014 2015 2016 2017 2018

(Q3)

Net working capital/sales

NWC Target

14

11

12

14

17

9

11

13

15

17

2014 2015 2016 2017 2018

(Q3)

ROCE

ROCE Target

5 000

5 700

5 000

4 200

5 800

0%

40%

80%

120%

160%

3 500

4 000

4 500

5 000

5 500

6 000

2014 2016 2018

(rolling 12

months)

Cash flow after investments before financing*

Cash flow Cash Conversion

© SKF Group

While:

Kept fixed costs unchanged

Reduced the number of employees

Reduced debt by more than 11 billion

We have increased our efforts on:

▪ Research and development

▪ IT

▪ Capital expenditures

Accelerating for the future within tight frames

Prioritizations based on a clear and agreed direction

© SKF Group

Prioritizations are seen in the numbers

© SKF Group

Strategic IT initatives @ SKF – an overview

The Connected Shop Floor (Industry 4.0)

E-Commerce

Customer

Relationship

ManagementCustomers Suppliers

SKF CLOUD

ERP(Unite - SAP)

(Com. Systems)

(SMT divest.)

IoT – Digital

Platform

Rotating Equipment Performance

Robotics

Process

Automation

Advanced Analytics & Machine Learning

Supplier

Integration

Supply Chain 4.0

SKF Digital Workplace

R&D footprint – moving testing closer to customer

Nieuwegein, The Netherlands

Shanghai, China

√

July 2017 → July 2019

Gothenburg, Sweden

Airasca, Italy

Schweinfurt, Germany

© SKF Group

New market offers for products and REP

Newly launched product offers New REP initiatives in Asia

© SKF Group

Reduce inventory days

▪ +2 bn inventory value to be reduced

▪ Activities and responsibilities are set

▪ Implementation ongoing

Reduce AR-days

▪ Steady improvement last 2 years

▪ Accountability and incentive schemes

▪ Credit policy and standardized processes

Increase AP-days

▪ Improvement potential in indirect material & services

▪ Some countries still with untapped potential

Target:

16%

Target:

19%

Target:

10%

Gap >2 %

Gap 1 %

Almost on

target

NWC / Sales 25% - improving but target not yet reached

© SKF Group

Inventory reduction activities

End-to-End planning setup

Region for Region in full supply chain

Reduce manufacturing lead-time and increase flexibility

Improved demand plan – to reduce demand related overstock

Manage Customer Agreements

Keep the right products on stock

Reduce the supply network complexity

Demand Management

Integrated Planning

Manufacturing &

Supplier Footprint

Increase Factory

Flexibility

Assortment

Management

© SKF Group

Net debt, SEK bn Net debt/equity, %

Net debt/equity ratio reduced from 144% to 60%

-35

-30

-25

-20

-15

-10

-5

0

Net fin debt Post-empl. benefits

2013 2014 2015 2016

0%

20%

40%

60%

80%

100%

120%

140%

160%

Net debt/equity

Net debt, excl post empl.benefits/equity

60%

2013 2014 2015 2016

25%

2017 2017 20182018

© SKF Group

Debt structure

192

257

200

500

300

100

0

100

200

300

400

500

600

2019 2020 2021 2022 2025 2027

Ratings

▪ Moody’s: Baa1 Stable outlook

▪ Fitch: BBB Stable outlook

New 7-year 300M EUR-bond issued in September

▪ Extending our maturity profile

▪ Issued at record low coupon rate of 1.25%

▪ Proceeds used to buy back outstanding bonds

- maturing in 2019 and 2020 @ 1.875% and

2.375% coupon rates

Debt structure

© SKF Group

Strong balance sheet – capital allocation

Capital allocation

▪ Dividend policy to distribute

50% of net income

▪ Invest in the company

- Capital expenditures

- Research & development

▪ Mergers & Acquisitions

-35

-30

-25

-20

-15

-10

-5

0

Net fin debt Post-empl. benefits 0%

20%

40%

60%

80%

100%

120%

140%

160%

Net debt/equity

Net debt, excl post empl.benefits/equity

Net debt, SEK bn Net debt/equity, %

60%

25%

© SKF Group

Speciality Business Area

>9 bn SEK of sales in 2014

▪ 4 bn divested

▪ 5 bn integrated in SKF

organisation, Industrial

& Automotive

Divestments 2016-2018

Fly-by-wire

Active portfolio management

Outcome

▪ Clear focus in organisation

▪ Sales and cost synergies

from full integration in SKF

▪ 4.2 billion in cash

proceeds after taxKAYDON FILTRATION

© SKF Group

Railway

SKF Motion

Technologies

Light Vehicle

Combustion

Engines

SKF

Fly-by-Wire

Condition

Monitoring

Automation

Machine Tools

China

India

Japan

BearingsRemanufacturing

Services

Light Vehicle

Combustion Engine

Transmissions

Strengthening

Positions

Strengthening

Customer Offer

DivestedPhasing Out

over time

Sealings

Lubrication Systems

PowerTransmission

Electrical Vehicles

Wind Power

Metrology

Erin Engineering

Kaydon Filtration & Purafil

Canfield Technologies

Kaydon Velocity Control

ReelCraft

Strong balance sheet create gunpowder for acquisitions

© SKF Group

Market outlook Q4, yoy:

+ 2-4%

▪ Price management

▪ Manage service levels versus inventory

▪ Long versus short commitments

▪ Production flexibility with cost flex

▪ Strict prioritization of costs, manage fixed costs

Don’t let the cycle take over the full agenda,

keep on executing the strategy

Business cycle management -Great timing & execution in upturn, peak cycle management in focus

2013 2014 2015 2016 2017 2018

Change in Net sales, YoY

© SKF Group

▪ Historically best ever performance

▪ Accelerating for the future within tight frames

▪ Activities to reach 25% NWC to sales under implementation

▪ Strong balance sheet create gunpowder for acquisitions

▪ Peak cycle management in focus

Summary