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The SKF Group

The SKF Group

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The SKF Group

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  1. The SKF Group Year-end results 2008 Tom Johnstone, President and CEO

  2. Summary • Record sales and profit full-year 2008. • Weakening markets by the end of the year. • Acquired: Cirval S.A., GLO s.r.I., PEER Bearing company, QPM Aerospace’s metallic rod business. • Announced two new energy efficient roller bearing types. • Signed a new contract in China with the world’s largest trailer axle manufacturer, Guangdong Fuwa Engineering Manufacturing Co. Ltd • Announced investments for the first SKF factory in Russia and for expanding the capacity for manufacturing of large size bearings in China, Sweden and Germany. • Distributed SEK 4,554 m to shareholders. • Six Sigma, annualized savings SEK 462 m (up >50% from 2007) • Included in Dow Jones Sustainability Indexes for the ninth year in succession.

  3. Fourth quarter 2008

  4. Full year 2008

  5. Growth development by geography Local currency 2008 vs 2007 Europe 2008 +5% Asia 2008 +15% NA 2008 +5% LA 2008 +12%

  6. Growth in local currency Acquisitions/Divestments Long-term target level: 6-8% per annum Organic growth % Y-o-Y 13.2 7.5* 7.1 * Excluding effect from Ovako: 2006 10.1%

  7. Sales in local currencies (excl. structural changes) % change y-o-y 2008 2006 2007

  8. Components in net sales 2006 2007 2008 Percent y-o-y

  9. Operating margin Long-term target level: 12% % 12.9 12.6 12.2 11.3* * excluding income from the jointly controlled company Oy Ovako Ab

  10. Operating margin Long-term target level: 12% % 2006 2007 2008

  11. Operating margin per division % Service Industrial Automotive 2007 2008 2006 Excluding one-off items (eg. restructuring, impairments, capital gains)

  12. Industrial Division Q4 2008 Net sales growth 23.1% 15.5% organic growth 6.8% 10.2% structure 2.3% 3.0% currency effects 14.0% 2.3% • Acquisitions • QPM Aerospace’s metallic • rod business • Major investments • New factory in Ahmedabad, India • New factory in Tver, Russia • Increase the manufacturing capacity in Dalian, China • Investments in large size bearings in Sweden and Germany • In Q4 2007, SEK 30 m in restructuring activities and other one-time items. • In Q4 2008, SEK 80 m in restructuring activities and other one-time items.

  13. Service Division • Acquisitions • Cirval S.A. Q4 2008 Net sales growth 11.3% 11.3% organic growth 2.0% 10.9% structure 0% 0.3% currency effects 9.3% 0.1% • New activities • Established the first SKF Solution Factory in Shanghai. • Launched the SKF Certified Rebuilder programme for electric motors in Europe and South Africa. • Launched the Distributor Value Program to support SKF authorized distributors in documenting the value they bring to customers.

  14. Automotive Division • Acquisitions • GLO s.r.l • SKF Automotive Bearings Company Ltd. Q4 2008 Net sales growth -16.3% -3.7% organic growth -22.9% -3.8% structure 0.2% -0.5% currency effects 6.4% 0.6% • Major investments • Opened a new factory in China • Established new technology centre in China and expanded centre in India. • In Q4 2007, SEK 270 m in restructuring activities and other one-time items. • In Q4 2008, SEK 250 m in restructuring activities and other one-time items.

  15. Activities to adapt to lower demand • Announced in Q4 2008: • Short-time working: 2,400 employees Reduction: 2,500 employees (whereof: 1,300 temporary and 1,200 registered) • Restructuring and impairment costs of SEK 470 m, whereof • SEK 340 m in Q4 2008. Full-year benefit SEK 250 m in 2010 • Implemented in 2008: • Reduction of temporary workers: 200 during Q3 550 during Q4 • Reduction of registered employees: 500 during Q4 • .

  16. Currency effects on the balance sheet The currency effects on working capital and fixed assets were around 10% for the fourth quarter and 12% for the year. This has had an impact on ratios.

  17. Inventories as % of annual sales Long-term target level: 18% % x excl. currency effects 2006 2007 2008

  18. Return on capital employed Long-term target level: 24% % ROCE: Operating profit plus interest income, as a percentage of twelve months average of total assets less the average of non-interest bearing liabilities.

  19. Net debt(Short-term financial assets minus loans and post-employment benefits) SEKm AB SKF, dividend paid (SEKm): 2006 Q2 1,821 2007 Q2 2,049 2008 Q2 2,277 Redemption (SEKm): 2007 Q2 4,554 2008 Q2 2,277 2006 2007 2008

  20. Cash flow, after operating investments before financial items SEKm Cash out from acquisitions (SEKm): 2006 2,129 2007 1,209 2008 1,284 Cash in from Ovako (SEKm): 2006 Q4 1,217 2007 Q2 46 2006 2007 2008

  21. SKF capital structure • a dividend of SEK 3.50 per share • a mandate to the Board to repurchase a maximum of 5% of the company's own shares • The AB SKF Board proposes the AGM to decide on:

  22. 2009 – external environment • Global, deep and very fast downturn in demand • Financial markets are not stable yet • Government incentives still to take effect • Consumer and business confidence low • Good demand continues in some areas Uncertain business environment - difficult to forecast

  23. Vehicle production outlook Source: Global Insight 28 January 2009 Source: JD Power, December 2008

  24. January 2009: Outlook for the first quarter 2009 The demand for SKF products and services is expected to be significantly lower for the Group in total and for all regions. It is also expected to be significantly lower for the Automotive and Service Divisions and lower for the Industrial Division. The manufacturing level will be significantly lower to reflect both the new demand situation and to reduce inventory.

  25. Volume trends(based on current assumptions)

  26. Expected demand by main segment – Q1 2009(based on current assumptions) Net sales 2008

  27. Guidance for the first quarter 2009 • Tax level: 31-32% • Financial net for first quarter:SEK -200 million • Exchange rates on operating profit versus 2008 Q1: SEK 200 million • Full year: SEK 1 billion • Additions to PPE: Around SEK 2 billion for 2009 Guidance is approximate and based on current assumptions and exchange rates

  28. Key focus areas ahead - 2009 • Profit and cash flow • - maintain positive price/mix • - drive operational efficiency and cost reduction • - reduce working capital and investments • Adjustment of manufacturing output to new demand levels • - restructuring • - short-time working • Growing segments and geographies • Strengthening the platform/segment approach • Competence development SKF Care and Six Sigma as guiding lights

  29. SKF Care Business Care Employee Care Operating margin SKF Care BeyondZeroTM Community Care Environmental Care

  30. SKF Group Vision To equip the world with SKF knowledge