Tom Johnstone, President and CEO CMD 2013
Key items H1 summary and outlook SKF priorities Specific focus - IT investment (UNITE) - Cost reduction and Purchasing
Highlights H1 2013 Acquisitions and divestments SKF completed the acquisition of German-based ship components provider Blohm + Voss Industries (BVI) SKF divested the aerospace metallic rods business New facilities in India a new lubrication systems laboratory in SKF Global Technical Centre a new manufacturing unit in Pune for producing housings for bearings Two new SKF Solution Factories Inaugurated in Madrid, Spain and Katowice, Poland Katowice, Poland Madrid, Spain Programme to improve efficiency, reduce cost and strengthen profitable growth continues one-off costs of around SEK 440 million annual savings of around SEK 180 million
Highlights H1 2013 Some examples of new business with Pratt & Whitney, to supply engine main shaft bearings with Nordex for delivery of mainshaft bearings and lubrication systems for automated lubrication systems installed in the MSC Home Terminal cranes in Belgium s Port of Antwerp with a steel and mining company for industrial bearings and units, seals, mechatronics, and services with Öhlins Racing AB for SKF s integrated monotube seal with the Chinese customer Great Wall for hub bearing units 10-year contract worth SEK 900 million with Turbomeca service contracts worth SEK 200 million in Latin America contract for wheel hub bearing units (HBU3) to Volvo Car Corporation Thrust main shaft bearing, one of the bearings for the ARRANO Engine of TURBOMECA
Half year 2013 SEKm 2013 2012 Net sales 31,544 34,105 Operating profit 3,317 4,185 Operating margin, % 10.5 12.3 Operating margin excl. one-offs, % 11.9 12.7 Profit before taxes 2,864 3,730 Net profit 1,922 2,570 Basic earnings per share, SEK 4.10 5.44 Cash flow, after investments before financing 255 1,382
Growth development by geography and by business area Organic growth in local currency YTD 2013 vs YTD 2012 Europe -7% North America -6% Asia/Pacific -5% Latin America 11% Middle East & Africa -4% SKF Group: -5.1% Strategic Industries: -9.9% Regional Sales and Service -6.3% Automotive 2.0%
SKF demand outlook Q3 2013, regions Share of net sales 2012 Europe 43% Asia Pacific 24% North America 23% Latin America 7% Total Sequential trend for Q3 2013 Q3 2013 vs Q3 2012 +/- + + ++ +
SKF demand outlook Q3 2013, business areas Share of net sales 2012 Strategic Industries Regional Sales and Service 31% 39% Automotive 27% Total Sequential trend for Q3 2013 Q3 2013 vs Q3 2012 + + + +
Key items H1 summary and outlook SKF priorities Specific focus - IT investment (UNITE) - Cost reduction and Purchasing
SKF priorities
Growth and operating margin 2002-2012 SEKm 70 000 +51% 60 000 50 000 +17% -12% 40 000-4% 30 000 20 000 10 000 Operating margin 9.5% Operating margin 11.4%, excl. one-time costs 12.0% 0 Sales 2002 Acquisitions Divestments Organic growth Currency Sales 2012
Key elements of Sustainable Profitable Growth S2M PEER QPM Cirval Lincoln ABBA GLO ALS Baker BVI GBC Macrotech Acquisitions Platforms 2nd brands Asset life cycle + service New products SKF BeyondZero portfolio
Key items H1 summary and outlook SKF priorities Specific focus - IT investment (UNITE) - Cost reduction and Purchasing
SKF investment in IT UNITE programme Preferred by customers, employees and partners. Strong in purchasing and operations. Customers Employees Suppliers Knowledge Engineering Company Operations One SKF UNITE
UNITE - One End-to-End Process Customer to Cash Purchase-to-Pay Forecast-to-Fulfill Record-to-Report 1. Go To Market 2. Manage opportunities 3. Process order & confirmation 4. Sales & Operations Planning 10. Deliver & customer Follow up + Payment 9. Production execution 8. Production scheduling
SKF investment in IT UNITE programme Multi year programme New Demand Chain systems New Finance system First main installations Sales unit in Q2 2014 Sales & Manufacturing unit in Q4 2014 Estimated cost SEK ~500 m in 2013 (of which SEK ~300 m capitalised) SEK ~900 m in 2014
Key items H1 summary and outlook SKF priorities Specific focus - IT investment - Cost reduction and Purchasing
SKF Restructuring programme costs and expected savings Restructuring activities launched in: SEKm Q4 2012 Q1 2013 Q2 2013 Total One-off costs 200 250 190 640 Annual savings when fully implemented 150 100 80 330 The savings for the second half 2013 from these programmes will be around SEK 150 million, evenly split between the third and the fourth quarter.
SKF Global Spend Total SKF spend Direct Material 40 000 35 000 Total SKF spend is SEK 36 billion direct and indirect representing ~ 50% respectively 36 153 44% 18% 38% Steel Raw Material & Rolling Elements Rings & Subcontracting Components 30 000 25 000 19 119 SEK 17.7 billion 20 000 17 034 Indirect Material & CAPEX 15 000 10 000 5 000 0 Total Direct Material Indirect Material 8% 12% 13% 21% 27% 18% MRO Facility Management Professional Services Logistics IT CAPEX SEK 15.6 billion
Challenges in the global supply chain many factors Natural disasters Geopolitical Risk Supply Chain Disruptions Price and currency volatility Effective sourcing strategy Market demand variations and volatility Global & Local Supplier Relationships Supplier Innovations Sustainable and Responsible Sourcing
Key initiatives to achieve savings Category and business driven purchasing Supplier consolidation and localization Leverage of all purchasing power across all businesses Product, process & system standardization Total cost approach and leading purchasing practices applied
Success Story localization of cages in China Target: China supplier development to secure capacity and Q C D I M targets SKF benefits: Access to a supplier base in China close to Dalian 100% localization 2 suppliers fully approved in China Worldwide supplier market base fitting with new SKF manufacturing footprint Development of a Chinese suppliers base with export capacity Contract Status: 2012/2013 Savings: -40/50% vs Import in China
Success Story Packaging Cross platform leverage Corrugated & Anti-counterfeit packaging Activity Combine purchasing of packaging materials across a number of units SKF benefits Reduction in supply base Cost savings Standardized packaging from one supplier Total Savings: USD 760,000 30% savings Supplier reduction: 14 3
Success Story Standardization of capital equipment Equipment for Grinding, Honing, Laser marking and Assembly HBU3 channel standardization SEK 280 million of total cost savings Clear business requirements Improved sourcing process Standardization of equipment Cross business leverage Regional Asian supplier base developed with global capabilities
Purchasing ramp up and saving plan 2013 2014 2015 2016 SEK 1,500 m New Group Purchasing organization in operation New process framework Sourcing waves 1 / Speed sourcing started to leverage spend across all BUs Integration of BU Purchasing Localization of the strategic supplier base Separation of strategic tasks from transactional tasks Sourcing waves 2 and continued Speed Sourcing activities Supplier Innovation Programmes on stream Strategic Partnership Agreements with key suppliers Common purchasing processes Supplier consolidation Category and business driven organization fully leveraging SKF s purchasing power Purchasing supporting the full internal value chain Focus on Total Cost of Ownership (TCO) Strong alignment with the business through a clear target setting process Highly competent purchasing professionals Reduced supply chain risk and costs through top performing suppliers in Q C D I M
SKF priorities
Key business message No change in demand outlook for Q3 SKF priorities in focus good progress in H1 New IT investment (UNITE) and purchasing programmes going according to plan