Henrik Lange Executive Vice President and CFO

Transcription

1 Henrik Lange Executive Vice President and CFO SKF Capital Markets Day 10 September 2014

2 Agenda Financial development Cash flow, working capital Financial position Acquisitions Second brand Key business message

3 1 Financial development

4 SKF Group Half year 2014 Financial performance (SEKm) Net sales 34,689 31,544 Operating profit 4,120 3,317 Operating margin, % Operating margin excl. one-time items, % Profit before tax 3,548 2,864 Basic earnings per share, SEK Cash flow after investments before financing excl. EU payment 1, Cash flow after investments before financing -1, Organic sales growth in local currency: SKF Group 5.2% Europe 3% Strategic Industries 9.0% North America 3% Regional Sales and Service 2.2% Asia 13% Automotive 4.5% Latin America 1% Middle East and Africa 18% Key points Sales volumes up by 5.0% y-o-y. Manufacturing was higher compared to last year.

5 Business segment margins Automotive business (~27%) Automotive Automotive excluding one-off On sales including Intra-Group sales H % 4.8% On external net sales approx. figures H % 5.7% Industrial business (~65%) Strategic Industries SI excluding one-off Regional Sales and Service RSS excluding one-off Industrial business Industrial business excluding one-off 10.4% 10.6% 11.0% 11.3% 13.4% 13.7%

6 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

7 Financial targets 15% Operating margin 8% Changes in sales in local currency incl. structure 20% Return on capital employed One-time item 13 H114 Amortization: Represent a margin of about 0.5% in 2013 and of about 0.7% in H As from 2016 it is estimated to represent about a 1.0% margin H One-time item for the individual year H114

8 SKF Group operating margin development 16,0% 12,0% 3% Gap 8,0% 4,0% 0,0% -4,0% Operating margin Operating margin excluding one time items

9 How we will close the 3% operating margin gap % Actions: Restructuring and efficiency Implement the restructuring and efficiency program Implement business excellence fully Sales growth Continue to drive growth in the business Drive R&D to generate more new products / soultions Productivity and portfolio Evaluate portfolio Drive productivity in all areas H Restructuring and efficiency program Sales growth Productivity, portfolio Infl., other Target Slide CMD September 2014 SKF Capital Markets Day

10 Cost reduction specific programme 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 and support functions Reduction in purchasing cost - mainly through standardization and rationalization of the supplier base. Reduction of annual cost by SEK 3 billion by the end of 2015 Total cost for the programme around SEK 1.5 billion 2,500 people impacted,

11 SKF s programme to improve efficiency and reduce cost Restructuring, SEKm: Q4/12 Q1/13 Q2/13 Q3/13 Q4/ Q1/14 Q2/14 Total Cost taken People affected ,560 Giving future gross savings, SEKm: Full year gross saving Realized gross savings from total programme, SEKm: vs 2012 vs 2013 Q1/13 Q2/13 Q3/13 Q4/ Q1/14 Q2/ Restructuring S&A Purchasing Total Note: Run rate Q SEK 1,340 million vs 2012.

12 Cost split, operating expenses 2013: SEK 57 billion Depreciation and amortization 3% Other 26% Material 36% Improvement activities: Purchasing activities in the restructuring program Employees 35% Improvement activities: Productivity improvement and manufacturing footprint activities in the restructuring program

13 S&A and R&D cost development 15 S&A % Sales % % 14,5 2, R&D % Sales Flat +1.5% 13, , ,5 1

14 2 Cash flow, working capital

15 Cash flow, after investments before financing excluding acquisitions and divestments SEKm Summary: Good cash flow generation Going forward - use cash flow to deleverage balance sheet

16 Free cash flow conversion 0,9 0,8 0,7 0,6 0,5 0,4 0,3 0,2 0, Strategy: Profit improvement Capex and working capital management Comments: FCF = Net cash flow after investments before financing excluding acquisitions / divestments 2013 adjusted for the SEK 3,000 million provision for the EU fine.

17 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 overdues - Outsource collection in selected countries Get effects on A/P from new purchasing activities - Implement improved payment terms through Group Purchasing - Set-up supply chain financing structure

18 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, Spain, Czech Republic, Hungary, Poland and USA Collection contacts will be done in local languages. All countries within scope are expected to be implemented during Benefits expected in 2015/2016

19 Supply chain financing process and set-up Simplified overview of setup Supplier 1 Supplier sends goods and invoice 3 Supplier requests early payment 4 Supplier receives payment SCF IT plaform 2 SKF approves invoice 5 SKF pays invoice at maturity BANK Benefits and cost: Supplier benefit: Faster payment and lower capital cost SKF benefit: Extended Days Payable Outstanding (DPO) Cost: Bank charges suppliers equivalent to: SKF negotiated interest rate + service & IT fee

20 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 started by selecting a bank and on-boarding of pilot suppliers in Europe planned for Q Focus initially is Europe Global roll-out in scope after implementation in Europe

21 Net working capital 2013 and target SEKbn 2013 % of sales Target Net sales external 63.6 Inventories % Trade A/R % Trade A/P % Net working capital % 27.0% Improvement to reach target = SEK ~3.0 billion Activities ongoing: Flexibility, product range & end-to-end planning inventory Overdue reduction & outsourcing of collection of A/R Payment terms & supply chain financing Total SEK ~3.0 billion By 2017

22 3 Financial position

23 Capital structure, H 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 Credit rating BBB+,Baa1, stable outlook Debt 34,726 Net Debt 30,705 Actual Target Equity/assets ratio 29% ~35% Gearing 62% ~50% Net debt/equity 144% ~80% Financial position, debt structure and liquidity are balanced.

24 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

25 Current debt structure EURm Credit facilities: EUR 500 million 2019 SEK 3,000 million 2016 EUR 150 million 2017 No financial covenants or material adverse change clause

26 History of strong cash flow generation and a shareholder friendly distribution policy H1 2014, accumulated rounded figures, SEKm EBITDA 93,000 Investments (23%) 21,000 Fin. Net, taxes, wc, others (40%) -37,000 Acquisitions (24%) 22,000 Cash flow from operations (60%) 56,000 Dividends/redemption (35%) 33,000 Extra pension funding (3%) 3,000

27 4 Acquisitions

28 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 first full year, positive TVA effect in two to three years, including amortization of intangible assets.

29 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 relevant acquisitions. Focus is on SKF platforms and PT products.

30 Acquisition Identifying gaps and opportunities in all platforms Bearings and units Seals Services Lubrication systems Mechatronics Products SNFA (2006) Economos (2006) Baker (2007) Safematic (2006) ABBA (2007) GLO (2008) S2M (2007) Macrotech (2006) Macrotech (2009) Jaeger (2005) Kaydon (2013) Technologies Vogel (2004) Lincoln Industrial (2010) Geographies QPM (2008) PMCI (2007) ALS (2007) TCM (2003) Scandrive (2003) PB&A (2006) Sommers (2005) Monitek (2006) Cirval (2008) Industries Peer (2008) BVI (2013) GBC (2012)

31 Major acquisitions performance Bearings and units Seals Services Lubrication systems Mechatronics Products SNFA (2006) Economos (2006) Baker (2007) Safematic (2006) ABBA (2007) GLO (2008) S2M (2007) Macrotech (2006) Macrotech (2009) Jaeger (2005) Kaydon (2013) Technologies Vogel (2004) Lincoln Industrial (2010) Geographies QPM (2008) PMCI (2007) ALS (2007) TCM (2003) Scandrive (2003) PB&A (2006) Sommers (2005) Monitek (2006) Cirval (2008) Industries Peer (2008) BVI (2013) GBC (2012)

32 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 H The sum of the major acquisitions represent 18% of Group operating profit in H Acquisitions form a part of the SKF profitable growth strategy.

33 5 Second brand in SKF

34 Strategy for second brands Capture mid-market growth Lower cost manufacturing Global market approach Segment focus - PEER, Industrial segments - GBC, Auto, HD segments

35 Second brand value proposition in normal application Performance 4,5 4,0 3,5 3,0 2,5 2,0 1,5 1,0 0,5 0,0 Samples Production Engineering design vs cost Samples Production Manufacturing consistency Samples Production 1st Brands PEER 3rd Brands Differentiate against 1 st tier Cost competitive in normal performance application Customization flexibility Speed and responsiveness Normal Application Target Differentiate against 2 nd, 3 rd tier Industry leaders supplier Consistency, long term sustainable approach Globally local sales and engineering support

36 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 customers Business strength Continuously maintain and win customer confidence Developed and launched enhanced product offering, especially in Agricultural Strengthened supply base of components and sourced products Organizational strength Accountable leadership, converting funnels into visible and connected value chain Upgraded engineering, turn from contract manufacturer to development partner Certified EHS practices ahead of similar competitors, improved worker conditions

37 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 Attachments

38 6 Key business message

39 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

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