Skf Ab Class A · OMXSTO:SKF_A
Skf Ab Class A — Investor Day (September 2014)
40 slides from Skf Ab Class A's investor day presentation, Sep 10, 2014
Slide 1: Henrik Lange, Executive Vice President and CFO
Henrik Lange Executive Vice President and CFO SKF Capital Markets Day 10 September 2014
Slide 2: Agenda
Agenda ● Financial development ● Cash flow, working capital ● Financial position ● Acquisitions ● Second brand ● Key business message © SKF Group CMD 2014
Slide 3: Financial development
1 Financial development
Slide 4: SKF Group – Half year 2014
SKF Group – Half year 2014 Financial performance (SEKm) 2014 2013 Net sales 34,689 31,544 Operating profit 4,120 3,317 Operating margin, % 11.9 10.5 Operating margin excl. one-time items, % 11.9 11.9 Profit before tax 3,548 2,864 Basic earnings per share, SEK 5.26 4.10 Cash flow after investments be
Slide 5: Business segment margins
Business segment margins On sales including On external net sales Intra-Group sales approx. figures H1 2014 H1 2014 Automotive business (~27%) Automotive 4.0% 4.7% Automotive excluding one-off 4.8% 5.7% Industrial business (~65%) Strategic Industries 10.4% SI excluding one-off 10.6% Regional Sales a
Slide 6: Long-term financial targets
Long-term financial targets Targets Operating margin level 15% Annual sales growth in local currencies 8% ROCE 20% Definitions: ROCE = Operating profit/loss plus interest income, as a precentage of twelve months rolling average of total assets less the average of non-interest bearing liabiities © SK
Slide 7: Financial targets
Financial targets 15% 8% 20% Operating Changes in sales Return on capital margin in local currency employed incl. structure 15 30 20 25 10 15 20 15 5 10 10 5 5 0 0 0 -5 08 09 10 11 12 13 08 09 10 11 12 13 4 4 08 09 10 11 12 13 11 -10 11 14 H H H1 -15 One-time item -20 One-time item for the individua
Slide 8: SKF Group – operating margin development
SKF Group – operating margin development 16,0% 3% Gap 12,0% 8,0% 4,0% 0,0% -4,0% Operating margin Operating margin excluding one time items © SKF Group CMD 2014
Slide 9: How we will close the 3% operating margin gap
How we will close the 3% operating margin gap % 15 Actions: Restructuring and efficiency • Implement the restructuring and efficiency program 12 • Implement business excellence fully Sales growth • Continue to drive growth in the business • Drive R&D to generate more new products / soultions Product
Slide 10: Cost reduction – specific programme 2012-2015
Cost reduction – specific programme 2012-2015 Main activities: • Consolidation of manufacturing - merger between sites - transfer to faster growing markets with more local production • Optimization and productivity improvements - in the manufacturing and demand chain processes - in administration an
Slide 11: SKF's programme to improve efficiency and reduce cost
SKF’s programme to improve efficiency and reduce cost Restructuring, SEKm: Q4/12 Q1/13 Q2/13 Q3/13 Q4/13 2013 Q1/14 Q2/14 Total Cost taken 200 250 190 0 50 490 0 100 790 People affected 530 410 320 0 130 860 0 170 1,560 Giving future gross savings, SEKm: Full year gross saving 150 100 80 0 40 220 0
Slide 12: Cost split, operating expenses 2013
Cost split, operating expenses 2013: SEK 57 billion Depreciation and amortization 3% Other Material Improvement activities: 26% 36% • Purchasing activities in the restructuring program Employees 35% Improvement activities: • Productivity improvement and manufacturing footprint activities in the rest
Slide 13: S&A and R&D cost development
S&A and R&D cost development % S&A % Sales % R&D % Sales 15 3 Flat +1.5% 14,5 2,5 14 13,5 2 13 1,5 12,5 12 1 © SKF Group CMD 2014
Slide 14: Cash flow, working capital
2 Cash flow, working capital okKF:
Slide 15: Cash flow, after investments before financing excluding acquisitions and divestments
Cash flow, after investments before financing excluding acquisitions and divestments Summary: • Good cash flow generation • Going forward - use cash flow SEKm to deleverage balance sheet 4 500 4 000 3 500 3 000 2 500 2 000 1 500 1 000 500 0 2010 2011 2012 2013 © SKF Group CMD 2014
Slide 16: Free cash flow conversion
Free cash flow conversion Strategy: • Profit improvement • Capex and working capital management 0,9 0,8 0,7 0,6 0,5 0,4 0,3 0,2 0,1 0 2010 2011 2012 2013 Comments: FCF = Net cash flow after investments before financing excluding acquisitions / divestments 2013 adjusted for the SEK 3,000 million prov
Slide 17: Working capital management focus
Working capital management focus Step-up activities to improve our net working capital % sales: • Reduce inventory in % of sales - Increase supply flexibility - Optimize product range and service policies - Improve forecasting and end-to-end planning • Improve A/R % sales ratio - Focus on reducing o
Slide 18: SKF outsourcing of A/R collection
SKF outsourcing of A/R collection • Collection process will be handled by an external party using appropriate system support for effective handling • Covering the following countries: Sweden, Denmark, Norway, Finland, Belgium, Holland, UK, Italy, France, Austria, Switzerland, Germany, Portugal, Spai
Slide 19: Supply chain financing process and set-up
Supply chain financing process and set-up Simplified overview of setup 1 Supplier sends goods and invoice Supplier SCF IT 3 Supplier requests plaform 2 SKF approves early payment invoice 4 Supplier receives 5 SKF pays invoice at payment maturity BANK Benefits and cost: ▪ Supplier benefit: Faster pay
Slide 20: Summary of supply chain financing
Summary of supply chain financing • SKF plans to increase days payable to support working capital • Supply chain finance will create win-win for most suppliers driven by beneficial rates • Supply chain finance is a tool for suppliers in order to receive earlier payment of invoices • Implementation s
Slide 21: Net working capital 2013 and target
Net working capital 2013 and target SEKbn 2013 % of sales Target Net sales external 63.6 Inventories 13.7 21.5% Trade A/R 11.2 17.6% Trade A/P 4.7 7.4% Net working capital 20.2 31.7% 27.0% Improvement to reach target = SEK ~3.0 billion Activities ongoing: • Flexibility, product range & end-to-end pl
Slide 22: Financial position
3 Financial position
Slide 23: Capital structure, H1 2014
Capital structure, H1 2014 Goodwill, intangibles 19,775 Fixed assets 14,341 Equity 21,360 Inventories 14,769 Post-employment benefits 10,754 Other assets 21,132 Loans 23,972 Cash, fin. assets 4,021 Other liabilities 17,952 74,038 74,038 Actual Target Credit rating BBB+,Baa1, stable outlook Equity/as
Slide 24: Balance sheet and leverage
Balance sheet and leverage Balance sheet H1 2014, SEKm Cash, fin assets 4,021 Debt 34,726 Net debt 30,705 Equity 21,360 Strategy • Deleverage back to target level through: - Profit improvements - Balance sheet management © SKF Group CMD 2014
Slide 25: Current debt structure
Current debt structure EURm 800 750 700 600 500 500 500 400 300 200 200 100 100 110 100 100 0 2015 2016 2017 2018 2019 2020 2020 2021 Credit facilities: EUR 500 million 2019 No financial covenants or material SEK 3,000 million 2016 adverse change clause EUR 150 million 2017 © SKF Group CMD 2014
Slide 26: History of strong cash flow generation and a shareholder friendly distribution policy
History of strong cash flow generation and a shareholder friendly distribution policy 2003 - H1 2014, accumulated rounded figures, SEKm ________________________________________________________________________ EBITDA 93,000 Investments (23%) 21,000 Fin. Net, taxes, wc, others (40%) -37,000 Acquisitio
Slide 27: Acquisitions
4 Acquisitions
Slide 28: Acquisition criteria
Acquisition criteria • Strategic fit with clear potential synergies and ability to exploit these in a reasonable timeframe. • Strong commitment and ownership by acquiring business area. • Profitable high quality companies with strong management and preferably larger deals. • EPS accretive in the fir
Slide 29: Acquisition strategy for profitable growth
Acquisition strategy for profitable growth • Acquisitions are seen as one important driver for growth and value creation. • Integration of Kaydon and BVI is going well with synergies in line with plan. • SKF has the financial means and acquisition project resources in place to continue to pursue rel
Slide 30: Acquisition 2003-2013: Identifying gaps and opportunities in all platforms
Acquisition 2003-2013 Identifying gaps and opportunities in all platforms Bearings Lubrication and units Seals Services systems Mechatronics Products SNFA (2006) Economos (2006) Baker (2007) Safematic (2006) ABBA (2007) GLO (2008) Macrotech (2006) Jaeger (2005) Macrotech (2009) S2M (2007) Kaydon (20
Slide 31: Major acquisitions performance
Major acquisitions performance Bearings Lubrication and units Seals Services systems Mechatronics Products SNFA (2006) Economos (2006) Baker (2007) Safematic (2006) ABBA (2007) GLO (2008) Macrotech (2006) Jaeger (2005) Macrotech (2009) S2M (2007) Kaydon (2013) Technologies Vogel (2004) Lincoln Indus
Slide 32: Major acquisitions performance
Major acquisitions performance • The sum of the major acquisitions perform in line with the Group acquisition criteria. • The sum of the major acquisitions represent 14% of Group sales in H1 2014. • The sum of the major acquisitions represent 18% of Group operating profit in H1 2014. • Acquisitions
Slide 33: Second brand in SKF
5 Second brand in SKF
Slide 34: Strategy for second brands
Strategy for second brands • Capture mid-market growth • Lower cost manufacturing • Global market approach • Segment focus - PEER, Industrial segments - GBC, Auto, HD segments © SKF Group CMD 2014
Slide 35: Second brand value proposition in normal application
Second brand value proposition in normal application Engineering Manufacturing design vs cost consistency Performance Differentiate against 1st tier 4,5 • Cost competitive in normal performance application 4,0 • Customization flexibility • Speed and responsiveness 3,5 3,0 Normal Application 2,5 Targ
Slide 36: How SKF has developed PEER since acquisition
How SKF has developed PEER since acquisition • Sustainably achieved great financial results – Achieved 15% sales growth per annum – Solid operating margin and margin development – Strong cash flow generation • A more globalized brand – from 90% to 75% dependency on USA – Increased share of global cu
Slide 37: PEER market successes
PEER market successes • Introduced a range of maintenance free tillage solutions • Expand a new range of elevator pulley solutions • Developped Ag distribution business • Improved taper roller bearing performance to access construction industry • 10 Years awards in Deere – main supplier in Ag Attach
Slide 38: Key business message
6 Key business message
Slide 39: Key business message
Key business message • Continued good performance • Strong cash flow and financial position - implement restructuring program - working capital focus - use cash flow to deleverage balance sheet • Acquisition opportunities - in the SKF platforms - “normal performance” companies © SKF Group CMD 2014
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