SKF Nine-month report 2008
Strong sales, operating profit and margin in the third quarter
Tom Johnstone, President and CEO:
“We delivered a very strong third quarter result. However, towards the end of
the quarter, with the dramatic events in the financial markets, we had lower
volumes particularly in our automotive business, while volumes in our industrial
business were strong. For the fourth quarter we expect slightly lower demand
both compared to the third quarter this year and the fourth quarter last year.
As a result of this we have intensified our actions addressing the cost and
capital situation in the Group”.
Q3 YTD
2008 2007 2008 2007
Net sales, SEKm 15,381 14,155 47,054 43,489
Operating profit, SEKm 2,085 1,803 6,260 5,708
Operating margin, % 13.6 12.7 13.3 13.1
Profit before taxes, SEKm 1,859 1,646 5,761 5,428
Net profit, SEKm 1,257 1,174 3,922 3,662
Basic earnings per share, SEK 2.67 2.48 8.39 7.76
Diluted earnings per share, SEK 2.67 2.48 8.38 7.74
The increase of 8.7% in net sales for the quarter, in SEK, was attributable to:
volume 2.7 %, structure 0.5 %, price/mix 6.4 % and currency effects -0.9 %.
For the first nine months, the increase of 8.2% in SEK, was attributable to:
volume 4.5 %, structure 1.1 %, price/mix 4.6 % and currency effects -1.9 %.
Development in the third quarter 2008
(calculated in local currencies excl. structural effects and compared to the
same period last year)
Sales were higher for the Group in total as well as for Europe and North
America, for Asia and Latin America they were significantly higher. For the
Industrial Division and the Service Division sales were significantly higher.
For the Automotive Division sales were relatively unchanged.
The manufacturing level for the third quarter of 2008 was unchanged compared to
the second quarter 2008 and slightly higher compared to the third quarter last
year.
Outlook for the fourth quarter of 2008
The demand for SKF products and services, based on current assumptions, is
expected to be slightly lower in the fourth quarter both compared to the third
quarter this year (seasonally adjusted) and the fourth quarter last year. In
Europe and North America the demand is expected to be slightly lower, in Latin
America higher and in Asia significantly higher. From a divisional viewpoint,
the demand is expected to be higher in the Industrial Division, slightly higher
in the Service Division and significantly lower in the Automotive Division.
The manufacturing level for the Group in the fourth quarter will be lower to
reflect this new demand situation and to reduce inventory.
Financial
The financial net in the third quarter of 2008 was SEK -226 million (-157),
including revaluation of share swaps of SEK -7 million (-13). The financial net
for the first nine months was SEK -499 million (-280), which includes the
revaluation of share swaps amounting to SEK -10 million (45).
Key figures for the first nine months 2008 (first nine months 2007):
- Inventories, % of annual sales, 21.9% (19.3)
- ROCE for the 12-month period, 26.8% (25.9)
- ROE for the 12-month period, 28.6% (25.8)
- Equity/assets ratio, 34.5% (37.8)
- Gearing, 47.7% (41.4)
- Net debt/equity 76.6% (53.4)
- Registered number of employees on 30 September, 45,035 (42,393)
Cash flow, after operating investments and before financial items (i.e.
excluding the effect of financial investments) was SEK -526 million (1,274) for
the third quarter and SEK 215 million (1,509) for the first nine months. The
cash flow includes acquisitions of SEK 1,054 million for the quarter and SEK
1,116 million for the first nine months.
Exchange rates for the third quarter of 2008, including the effects of
translation and transaction flows, had a negative effect on SKF's operating
profit of about SEK 90 million. Based on current assumptions and exchange rates,
it is estimated that the positive effect for the fourth quarter of 2008 will be
around SEK 100 million and for the full year a negative effect of around SEK 270
million.
Raw material and component prices are significantly higher for the Group for the
first nine months of this year due to major increases at the start of the year
and surcharges primarily related to scrap prices. SKF has been able to offset
these higher costs through a combination of actions in sourcing, reducing costs
in the operations and improved pricing. Scrap prices have been reducing recently
affecting the surcharges but are still volatile. It is expected that the raw
material and component prices in the fourth quarter will remain significantly
higher than in the corresponding period last year but that these will also be
offset.
Highlights in the third quarter
SKF
- announced it will be investing around SEK 400 million in its facilities in
Göteborg, Sweden for a further increase of capacity for large size bearings.
The new production line is expected to be ready for production during 2010.
- completed the acquisition of PEER Bearing Company (PEER) and its
manufacturing operations in China and Thailand. The purchase price amounted to
around USD 150 million. PEER's sales in 2007 amounted to around USD 100 million
and the number of employees was about 1,600. PEER will be a wholly owned
subsidiary of SKF Group and continue to operate independently on the market.
The business will be reported outside the divisions. In the third quarter the
acquisition is reported as other non-current asset.
- signed an agreement to acquire GLO s.r.I and its manufacturing operation in
Italy. The acquisition is subject to certain conditions of closing and
requires approvals by relevant authorities.
- was awarded a long-term contract to the value of more than EUR 11 million from
Skoda Electric a.s. SKF will provide traction motor bearing units for the new
Prague 15T low floor tramway generation.
- launched new condition based maintenance solutions to the railway industry to
achieve lower cost over the products' life. These offers provide new
opportunities to improve performance and safety.
- launched the first series of a new generation super-precision bearings. This
new generation of bearings will give SKF's customers access to a broad product
range with superior performance, in particular for demanding machine tool
applications.
- launched through the network of SKF authorized distributors the latest SKF
Energy Efficient performance class bearings.
- launched the Distributor Value Program to support SKF authorized distributors
in documenting the value they bring to customers. This software based tool
accurately calculates existing and expected savings customers achieve utilizing
the various products and services provided by SKF Distributors. SKF is also
using the SKF Documented Solutions Program to document the viability of specific
savings the solutions bring to customers.
- was included in the Dow Jones Sustainability Indexes for the ninth year in
succession.
Industrial Division
The operating profit for the third quarter amounted to SEK 992 million (773),
resulting in an operating margin of 12.4% (11.0) on sales including intra-Group
sales. The operating profit for the first nine months amounted to SEK 2,982
million (2,570), resulting in an operating margin of 12.2% (11.8). Sales
including intra-Group sales for the third quarter were SEK 8,029 million
(7,027), and for the first nine months SEK 24,414 million (21,708).
Net sales for the third quarter amounted to SEK 5,458 million (4,708) and for
the first nine months SEK 16,638 million (14,728). The increase of 15.9% for the
quarter was attributable to: organic growth 14.8%, structure 1.3%, and currency
effects -0.2%. For the first nine months, the increase in net sales, in SEK, of
13.0% was attributable to: organic growth 11.5%, structure 3.2% and currency
effects -1.7%.
Sales in local currencies for the third quarter were significantly higher in all
regions. The main segments showing a good development were energy, mining,
agriculture, fluid power, industrial gearboxes and construction equipment.
Service Division
The operating profit for the third quarter amounted to SEK 849 million (676),
resulting in an operating margin of 14.5% (12.9). The operating profit for the
first nine months amounted to SEK 2,366 million (2,002), resulting in an
operating margin of 13.8% (13.1). Sales including intra-Group sales for the
third quarter were SEK 5,863 million (5,223), and for the first nine months SEK
17,196 million (15,316).
Net sales for the third quarter amounted to SEK 5,315 million (4,792) and for
the first nine months SEK 15,603 million (14,015). The increase of 10.9% for the
quarter was attributable to: organic growth 13.2%, structure -0.4%, and currency
effects -1.9%. For the first nine months, the increase in net sales, in SEK, of
11.3% was attributable to: organic growth 14.2%, structure 0.4% and currency
effects -3.3%.
Sales in local currencies for the third quarter were higher in Europe and North
America and significantly higher in Asia and Latin America.
Automotive Division
The operating profit for the third quarter amounted to SEK 326 million (318),
resulting in an operating margin of 5.7% (5.6). The operating profit for the
first nine months amounted to SEK 1,132 million (1,092), resulting in an
operating margin of 6.2% (6.1). Sales including intra-Group sales for the third
quarter were SEK 5,675 million (5,647), and for the first nine months SEK 18,141
million (17,841).
Net sales for the third quarter amounted to SEK 4,573 million (4,635) and for
the first nine months SEK 14,739 million (14,685). The decrease of 1.3% for the
quarter was attributable to: organic growth -0.9%, structure 0.1%, and currency
effects -0.5%. For the first nine months, the increase in net sales, in SEK, of
0.4% was attributable to: organic growth 1.8%, structure -0.7% and currency
effects -0.7%.
Sales in local currencies for the third quarter were significantly lower to the
car and light truck industry in Europe and North America. Sales to the heavy
truck industry were higher in Europe and North America. Sales to the vehicle
service market were slightly lower in Europe, lower in North America and
slightly higher in Asia. Sales to the electrical industry were lower in Europe
and sales to the two-wheeler industry in Asia were significantly higher.
Previous outlook statement
Outlook for the third quarter of 2008
(compared to the second quarter 2008 and adjusted for seasonality)
The market demand for SKF's products and services in the third quarter of 2008
is expected to be higher for the Group. The demand is expected to be higher in
Europe, slightly lower in North America and significantly higher in both Asia
and Latin America. The demand is expected to be higher in the Industrial
Division and the Service Division and relatively unchanged for the Automotive
Division.
The manufacturing level for the third quarter 2008 will be unchanged compared to
the second quarter 2008, and slightly higher than the third quarter 2007.
Highlights in the previous quarters
SKF
- acquired QPM Aerospace's metallic rod business located in Monroe, USA. QPM
will be the platform for SKF's growth in the aerospace rod sector in North
America.
- was awarded a contract valued of more than EUR 5 million by Siemens
Transportation Systems, for the long-distance Railjet trains used by Austrian
Federal Railways, ÖBB.
- secured a contract with Goldwind Science and Technologies Co. Ltd, China, to
supply the main shaft seals for their new 1.5 MW gearless wind turbine.
- opened a machine tool competence centre, located in Stuttgart, Germany.
- was awarded a five year contract with British Petroleum to provide proactive
reliability maintenance services for all their upstream oil and gas assets in
the UK continental shelf, including on-shore processing facilities.
- signed an agreement to acquire the US based company PEER Bearing Company.
- announced the increase in manufacturing capacity for large and medium size
bearings at the new SKF factory in Dalian, China.
- sold the operating assets of Roller Bearing Industries, Inc., USA.
- distributed an ordinary dividend of SEK 2,277 million together with the
redemption of shares of SEK 2,277 million, a total of SEK 4,554 million, to the
shareholders.
- established a global training programme together with Nestlé with the focus to
reduce unplanned mechanical failures.
- launched the SKF Certified Rebuilder programme for electric motors, in
Europe and Latin America
- appointed by GM to supply 100% of the X-tracker hub bearing unit for
the front and rear axle to the Corvette ZR1.
Risks and uncertainties in the business
SKF Group operates in many different industrial, automotive and geographical
segments that are at different stages of the economic cycle. A general economic
downturn at global level, or in one of the world's leading economies, could
reduce the demand for the Group's products, solutions and services for a period
of time. In addition, terrorism and other hostilities, as well as disturbances
in worldwide financial markets, could have a negative effect on the demand for
the Group's products and services.
The SKF Group is subject to both transaction and translation of currency
exposure. For commercial flows the SKF Group is primarily exposed to the USD and
to US dollar-related currencies. As the major part of the profit is made outside
Sweden, the Group is also exposed to translational risks in all the major
currencies. The Parent company performs services of a common Group character.
The financial position of the parent company is dependent on the financial
position and development of the subsidiaries. A general decline in the demand
for the products and services provided by the Group could mean lower dividend
income for the Parent company, as well as a need for writing down values of the
shares in the subsidiaries. The risk of the financial position of the Parent
company being negatively affected is considered small due to the vast diversity
of markets, geographically and operationally in which the subsidiaries operate.
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 annual report (available on www.skf.com) under the Administration
Report; "Most important factors influencing the financial results", "Financial risks"
and "Sensitivity analysis", and in this quarterly report under "Risks and
uncertainties in the business."
Göteborg, 15 October 2008
Aktiebolaget SKF
(publ.)
Tom Johnstone
President and CEO
Presentation
On SKF's website http://investors.skf.com/ (click on Presentations).
Teleconference
On 16 October at 09.00 (CET), 08.00 (UK):
+46 (0)8 5052 0110 Swedish participants
+44 (0)20 7162 0077 European participants
+1 334 323 6201 US participants
Please note that the use of a loudspeaker when taking part in the teleconference
has a negative influence on the quality of the sound, which affects all
participants.
It is also possible just to listen to the teleconference on
http://investors.skf.com/
AB SKF may be required to disclose the information provided herein according to
the Securities Markets Act and/or the Financial Instruments Trading Act. The
information was submitted for publication at 08.00 am on 16 October 2008.
Enclosures:
Financial statements1. Consolidated income statements
2. Consolidated balance sheets and Consolidated statements of changes in
shareholders' equity
3. Consolidated statements of cash flow
Other financial statements
4. Consolidated financial information - yearly and quarterly comparisons
5. Segment information - yearly and quarterly comparisons
6. Parent company income statements, balance sheets and footnotes.
The consolidated financial statements of the SKF Group are prepared in
accordance with International Financial Reporting Standards as adopted by EU.
Effective from the second quarter 2008, the SKF Group applies equity hedge
accounting for certain investments. The SKF Group applies the same accounting
policies and methods of computation in the interim financial statements as
compared with the Annual Report 2007 including Sustainability Report, except as
described in the first quarter report 2008 and above.
The consolidated nine-month report has been prepared in accordance with IAS34.
The report for the parent company has been prepared in accordance with the
Annual Accounts Act and RFR 2.1. The report has not been reviewed by the
Company's auditors.
The SKF Year-end report 2008 will be published on Thursday, 29 January 2009.
The Annual General Meeting will be held on Tuesday, 21 April 2009 in Göteborg,
Sweden.
Further information can be obtained from:
Ingalill Östman, Group Communication
tel: +46-31-3373260, mobile: +46-706-973260, e-mail: ingalill.ostman@skf.com
Marita Björk, Investor Relations
tel: +46-31-3371994, mobile: +46-705-181994, e-mail: marita.bjork@skf.com
Aktiebolaget SKF, SE-415 50 Göteborg, Sweden, Company reg.no. 556007-3495,
tel: +46-31-3371000, fax: +46-31-3372832, www.skf.com
Aktiebolaget SKF, 415 50 Göteborg, tel: 031 337 1000, fax 031 337 1722,
www.skf.com
SKF Nine-month report 2008
| Source: SKF, AB
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