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SKF Q4 results 2015

SKF Q4 results 2015. Alrik Danielson, President and CEO. 1. Q4 Summary Alrik Danielson, CEO. Net sales. 18.2 bn. 18.5 bn. Q4 summary. 9.5% Operating margin*. Operating profit*. 2.1 bn. 1.7bn. Net sales and earnings affected by lower demand Sales SEK 18 215 M, -1.5% yoy

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SKF Q4 results 2015

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  1. SKF Q4 results 2015 Alrik Danielson, President and CEO

  2. 1 Q4 SummaryAlrik Danielson, CEO

  3. Net sales 18.2 bn 18.5 bn Q4 summary • 9.5%Operating margin* Operating profit* 2.1 bn 1.7bn • Net sales and earnings affected by lower demand • Sales SEK 18 215 M, -1.5% yoy • Organic sales -5.2% • Operating profit* SEK 1 726 M (2 078) • Operating margin* 9.5% (11.2) • Profit before tax SEK 653 M (1 293) * Excluding one-time items

  4. Cash flow** 2.0 bn 2.2 bn Strong cash flow – balance sheet in focus • 27.1%Net working capital as % of sales Net debt/equity 100% • Cash flow after investments before financing SEK 1 966 M (2 126) • Successful reduction of inventories and trade receivables • Net debt decreased by more than SEK 3 bn • Proposed dividend SEK 5.50per share (5.50) ** After net investments before financing, excluding acquisitions and divestments and EU payment in 2014

  5. Sales development by geographyOrganic growth in local currency Q4 2015 vs Q4 2014 Europe +0.3% North America -12.7% Asia/Pacific -8.7% Latin America -0.5% Middle East & Africa +10.8%

  6. Sales development by Customer Industry

  7. Highlights - examples of new business in Q4 2015 • China Oilfield Services Limited, China Propulsion shaft components and application engineering services • The Åsgard gas field, Norway Magnetic bearings for the world’s first sub-sea compression system • U.S. Steel, USA Integrated seals, lubrication and bearings solution

  8. Highlights • As an example of activities to enhance our cost competitiveness, SKF’s vehicle service market distribution and packaging business in the US will be consolidated. As a consequence, the business in Hebron, Kentucky will be transferred to the distribution and packaging facility in Crossville, Tennessee. • SKF’s issued a new EUR 500 million bond. The 7-year bond carries a fixed coupon interest rate of 1.625%, a record low rate for SKF. • New products:- The new SKF Agri Hub unit enables deeper, heavier and faster operations in challenging soil conditions. - SKF introduced a new series of food industry compliant bearings.

  9. 2 Q4 results – the detailsChristian Johansson, CFO

  10. Sales development Net sales, SEK bn 18.2 18.5

  11. Organic sales growth % change y-o-y 2013 2014 2015

  12. Operating profit excluding one-time items 2.1 1.8 1.7 2013 2014 2015

  13. Operating profit 1 608 +200 -220 +230 -35 1 039 -334 -410 Q4 2014 One-time items at 2014 exchange rates Organic sales Currency impact Savings from cost-reduction programme Divested/aquired companies Other* Q4 2015 * Includes, manufacturing development costs for the UNITE IT project and general inflation.

  14. Industrial Market, Operating margin* Operating performance per business area 14.7% 11.3% Specialty Business, Operating margin* 14.1% 13.6% • Net sales SEK 10 803 M • Organic sales -8.6% • Operating margin declined to 11.3% • Net sales SEK 2 512 M • Organic sales -1.6% • Operating margin declined to 13.6% • Net sales SEK 4 804 M • Organic sales +1.2% • Operating margin improved to 3.3% Automotive Market,Operating margin* 3.3% 1.5% * Excluding one-time items

  15. Cost reduction programme from December 2014

  16. SKF Group – Q4 2015

  17. Strong cash flow after investments before financing Full year improved to SEK 5.7 bn* SEKm 2013 2014 2015 * After investments before financing (excluding acquisitions and divestments and EU payment in Q2 2014.) 2013 and 2014 are restated

  18. Net working capital as % of annual sales Total NWC 27.1% Target: 27% Inventories 19.1% Trade receivables 15.5% Trade payables 7.4% 2014 2015 2013

  19. Net debt decreased SEK 4.6 bn in 2015 Net debtSEK bn Net debt/equity% 100% 2014 2014 2015 2015 2013 2013 Net debt: Loans and net provisions for post-employment benefits less short-term financial assets excluding derivatives.

  20. Improved debt structure with extended maturity Available credit facilities: - EUR 500 million 2019 - SEK 3 000 million 2018 - EUR 150 million 2017 No financial covenants nor material adverse change clause

  21. SKF issued EUR 500 million bond • 7 yearMaturity • SKF issued a new EUR 500 million bond. The senior, unsecured bond matures on 2 December 2022 and carries a fixed coupon interest rate of 1.625%, an historically low rate for SKF. The proceeds of the issue were used for the refinancing of existing debt through the buy-back of parts of two outstanding bonds, maturing in 2018 and 2019, with coupon rates of 3.875% and 1.875%, respectively. • The buy-backs had a one-time negative impact of SEK 276 million on the Group’s financial net for Q4 2015. • The new bond has been listed on the Official List of the Luxembourg Stock Exchange and admitted to trading on the Luxembourg Stock Exchange's regulated market. 1.625%Record low coupon rate EUR 500 M

  22. Guidance for 2016* Q1 2016: Financial net: around -250 million Limited currency impact on operating profit vs 2015 Q1 based on exchange rates per December 31. 2016: Tax level: below 30% for 2016 Additions to PPE: around 2 000 million for 2016 * Guidance is approximate and based on current assumptions and exchange rates.

  23. SKF demand outlook - Definition The demand outlook for SKFs products and services represents management's best estimate based on current information about the future demand from our customers. The demand outlook is the expected volume development in the markets where our customers operate.

  24. February 2015: SKF demand outlook Q1 2016 Demand compared to the first quarter 2015 The demand for SKF’s products and services is expected to be slightly lower for the Group. Demand for the Automotive Market and Specialty Business is expected to be relatively unchanged, while demand for the Industrial Market is expected to be lower. Demand is expected to be relatively unchanged in Europe, slightly lower in Asia and Latin America and significantly lower in North America. Demand compared to the fourth quarter 2015 The demand for SKF’s products and services is expected to be relatively unchanged for the Group. Demand for the Automotive Market is expected to be higher, demand for Specialty Business to be slightly higher and demand for Industrial Market is expected to be relatively unchanged. Demand is expected to be higher in Europe, slightly lower in North America and lower in Latin America and Asia.

  25. Financial calendar

  26. 3 New financial targets

  27. 5%Annual organic sales growth in local currencies New financial targets • 25%Net working capital as % of sales • 12%reported Operating margin • Valid from 2016 • Changed targets for: Sales growth Operating margin Return on capital employed, ROCE Net working capital 16%Return on capital employed 80%Net debt as % of equity

  28. 4 SKF Q4 results 2015Q & A

  29. Cautionary statement This presentation 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; “Important factors influencing the financial results", "Financial risks" and "Sensitivity analysis”.

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