Tom Johnstone, President and CEO

Tom Johnstone, President and CEO

CMD 2013

© SKF Group 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

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

Katowice, Poland Madrid, Spain


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


Europe-7%

Asia/Pacific -5%

Latin America

11% Middle East & Africa

-4%

NorthAmerica

-6%

Growth development by geography and by business areaOrganic growth in local currency YTD 2013 vs YTD 2012

SKF Group: -5.1%

Strategic Industries: -9.9%

Regional Sales and Service -6.3%

Automotive 2.0%


Share of net sales2012

Europe 43%

Asia Pacific 24%

North America 23%

Latin America 7%

Total

Q3 2013 vs Q3 2012

+/-

+

+

++

+

Sequential trend for Q3 2013

SKF demand outlook Q3 2013, regions


Sequential trend for Q3 2013

Share of net sales2012

Strategic Industries

31%

Regional Sales and Service

39%

Automotive 27%

Total

Q3 2013 vs Q3 2012

+

+

+

+

SKF demand outlook Q3 2013, business areas


Key items


• SKF priorities

• Specific focus




SKF priorities


Growth and operating margin 2002 - 2012

SEKm

Operating margin 11.4%, excl. one-time costs 12.0%Operating

margin 9.5%

+17%

-4%

+51%

-12%


Key elements of Sustainable Profitable Growth

Platforms

Asset life cycle + service

SKF BeyondZeroportfolio

2nd brands

Acquisitions

New products

QPM

Macrotech

PEER

GLOCirval

GBCBVI

S2M

ALSABBA

Baker

Lincoln


Key items


• SKF priorities

• Specific focus




UNITE

One SKF

Knowledge Engineering Company

Preferred by customers, employees and partners. Strong in purchasing and operations.

Customers Employees Suppliers

Operations

SKF investment in IT – UNITE programme


UNITE - One End-to-End Process

4. Sales & Operations Planning

8. Production scheduling

9. Production execution

10. Deliver & customer

Follow-up + Payment

1. Go To Market

2. Manage opportunities

3. Process order &

confirmation

Customer to Cash Forecast-to-Fulfill

Purchase-to-Pay Record-to-Report


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


• SKF priorities

• Specific focus

- IT investment



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

Total SKF spend is SEK 36 billion – direct and indirect representing ~ 50% respectively

18%

44%

38%

Rings & Subcontracting

Components

8%

12%

13%

21%18%

27%

CAPEX

IT

Logistics

Professional Services

Facility Management

MRO

SEK 17.7 billion

Direct Material

Indirect Material & CAPEX

SEK 15.6 billion

17 034

36 153

0

5 000

10 000

15 000

20 000

25 000

30 000

35 000

40 000

19 119

Indirect

Material

Direct

Material

Total

Steel Raw Material & Rolling ElementsSteel Raw Material & Rolling Elements


Natural disasters

Price and currency volatility

Sustainable and Responsible

Sourcing

Geopolitical Risk

Supplier Innovations

Global & Local Supplier

Relationships

Supply Chain Disruptions

Challenges in the global supply chain – many factors

Effective sourcing strategy

Market demand variations and

volatility


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

• 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


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

Success Story – localization of cages in China

Contract Status:2012/2013

Savings:-40/50% vs Import in China


Total Savings:

USD 760,000 – 30% savings

Supplier reduction:

14 3

Activity

Combine purchasing of packaging materials across a number of units

SKF benefits

• Reduction in supply base

• Cost savings

• Standardized packaging from one supplier

Success StoryPackaging – Cross platform leverage

Corrugated & Anti-counterfeit packaging


Success StoryStandardization of capital equipment

• Equipment for Grinding, Honing, Laser marking and Assembly

• Clear business requirements

• Improved sourcing process

• Standardization of equipment

• Cross business leverage

• Regional Asian supplier base developed with global capabilities

SEK 280 million of total cost savings

• HBU3 channel standardization


Purchasing ramp up and saving plan

• 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

• 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

• 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

• 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

2013 2014 2015 2016

SEK 1,500 mSEK 1,500 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

Documents

Tom Johnstone, President and CEO