SKF Half-year report 2008
Page 14 of 14 /Record profit and sales, both for the second quarter and first half of 2008. Outlook is for good volume growth for the third quarter of 2008.
· Net sales for the second quarter of 2008 were SEK 16,077 m (14,963), and for the first half year SEK 31,673 m (29,334).
· Operating profit for the second quarter was SEK 2,135 m (2,019), and for the first half year SEK 4,175 m (3,905). The operating margin for the second quarter was 13.3% (13.5), and for the first half year 13.2% (13.3).
· Profit before taxes for the second quarter was SEK 1,978 m (1,957), and for the first half year SEK 3,902 m (3,782).
· Net profit for the second quarter was SEK 1,369 m (1,274), and for the first half year SEK 2,665 m (2,488).
· Basic earnings per share for the second quarter were SEK 2.95 (2.71), and for the first half year SEK 5.72 (5.28). Diluted earnings per share for the second quarter were SEK 2.94 (2.70), and for the first half year SEK 5.71 (5.26).
The increase of 7.4% in net sales for the quarter, in SEK, was attributable to:
volume 6.2%, structure 1.3%, price/mix 4.0% and currency effects -4.1%.
For the first half year, the increase of 8.0%, in SEK, was attributable to:
volume 5.6%, structure 1.2%, price/mix 3.9% and currency effects -2.7%.
Development in the second quarter 2008
(calculated in local currencies excl. structural effects and compared to the same period last year)
Sales were significantly higher for the Group in total and were significantly higher in Europe, Asia and Latin America. Sales in North America were relatively unchanged. For the Industrial Division and the Service Division sales were significantly higher and for the Automotive Division they were higher.
The manufacturing level for the second quarter of 2008 was slightly higher compared to the first quarter 2008 and higher compared to the second quarter last year.
Outlook for the third quarter of 2008
(compared to the second quarter 2008 and adjusted for seasonality)
The market demand for SKF’s products and services in the third quarter of 2008 is expected to be higher for the Group. The demand is expected to be higher in Europe, slightly lower in North America and significantly higher in both Asia and Latin America. The demand is expected to be higher in the Industrial Division and the Service Division and relatively unchanged for the Automotive Division.
The manufacturing level for the third quarter 2008 will be unchanged compared to the second quarter 2008, and slightly higher than the third quarter 2007.
Financial
The financial net in the second quarter of 2008 was SEK -157 million (-62), including revaluation of share swaps of SEK -17 million (16). The financial net for the first half year was SEK –273 million (-123), which includes the revaluation of share swaps amounting to SEK -3 million (58).
Key figures for the first half year 2008 (first half year 2007):
- Inventories, % of annual sales, 20.5% (19.9)
- ROCE for the 12-month period, 26.8% (25.3)
- ROE for the 12-month period, 28.3% (24.1)
- Equity/assets ratio, 32.7% (35.9)
- Gearing, 49.2% (44.1)
- Net debt/equity 79.9% (64.2)
- Registered number of employees on 30 June, 43,158 (41,477)
Cash flow, after operating investments and before financial items (i.e. excluding the effect of financial investments) was SEK 872 million (888) for the second quarter and SEK 741 million (235) for the half year. The cash flow includes acquisitions of SEK 8 million for the quarter and SEK 62 million for the half year.
Exchange rates for the second quarter of 2008, including the effects of translation and transaction flows, had a negative effect on SKF’s operating profit of about SEK 200 million. Based on current assumptions and exchange rates, it is estimated that the negative effect for the third quarter of 2008 will be around SEK 130 million and for the full year around SEK 500 million.
Raw material and component prices increased significantly for the Group at the start of the year and continued to increase during the first half of the year due to surcharges primarily related to the scrap prices. It is expected that the prices in the third quarter will be higher than the average of the second quarter. SKF is actively working to offset these higher costs through sourcing, productivity and price increases and expects to be able to compensate for these during the full year.
Highlights in the second quarter
SKF signed an agreement to acquire the US based company PEER Bearing Company and its manufacturing operations in China and Thailand. The company is selling primarily to North American customers. In 2007 the sales were almost USD 100 million and the number of employees about 1,400. The acquisition is subject to certain conditions to closing and requires approvals by relevant authorities.
SKF announced the increase in manufacturing capacity for large and medium size bearings at the new SKF factory in Dalian, China. This will support the good business growth in China and other parts of Asia, especially in the areas of renewable energy, metalworking, mining, construction and industrial transmission industries.
SKF sold the operating assets of Roller Bearing Industries, Inc., USA, which had annual sales of around SEK 60 million and about 50 employees.
SKF and Nestlé have established a global training programme together, aimed at providing hands-on training and good maintenance practices for Nestlé’s engineering community with the focus to reduce their unplanned mechanical failures.
The SKF Certified Rebuilder programme for electric motors was launched in Europe and Latin America, following its launch in the USA in 2007. In order to be certified, electric motor shops must meet exacting standards and specifications to provide longer and more reliable service life and improved performance for end-users. Four companies were certified during the quarter, one in Europe and three in Latin America.
GM has appointed SKF to supply 100% of the X-tracker hub bearing unit for the front and rear axle to the Corvette ZR1. SKF manufactures the parts in Korea and the vehicle will be launched in July 2008.
An ordinary dividend of SEK 2,277 million together with the redemption of shares of SEK 2,277 million, amounted to a total distribution to shareholders of SEK 4,554 million during the quarter.
SKF arranged new long term financing through a three-year bond loan of SEK 1,500 million, a five-year term-loan of EUR 150 million and an eight-year private placement of EUR 100 million.
Highlights in the previous quarter
SKF
- acquired QPM Aerospace's metallic rod business located in Monroe, USA. QPM will be the platform for SKF's growth in the aerospace rod sector in North America.
- was awarded a contract valued of more than EUR 5 million by Siemens Transportation Systems, for the long-distance Railjet trains used by Austrian Federal Railways, ÖBB.
- secured a contract with Goldwind Science and Technologies Co. Ltd, China, to supply the main shaft seals for their new 1.5 MW gearless wind turbine.
- opened a machine tool competence centre, located in Stuttgart, Germany.
- was awarded a five year contract with British Petroleum to provide proactive reliability maintenance services for all their upstream oil and gas assets in the UK continental shelf, including on-shore processing facilities.
Industrial Division
The operating profit for the second quarter of 2008 amounted to SEK 978 million (919), resulting in an operating margin of 11.8% (12.3) on sales including intra-Group sales.
The operating profit for the first half year of 2008 amounted to SEK 1,990 million (1,797), resulting in an operating margin of 12.1% (12.2). Sales including intra-Group sales for the second quarter were SEK 8,314 million (7,463), and for the first half year SEK 16,385 million (14,681).
Net sales for the second quarter amounted to SEK 5,652 million (5,089) and for the first half year SEK 11,180 million (10,020). The increase of 11.1% for the quarter was attributable to: organic growth 10.3%, structure 4.3%, and currency effects -3.5%. For the first half year, the increase in net sales, in SEK, of 11.6% was attributable to: organic growth 10.2%, structure 3.8% and currency effects -2.4%.
Sales in local currencies for the second quarter were significantly higher in all regions. The main segments showing a good development were energy, mining, agriculture, fluid power, industrial gearboxes and construction equipment.
Service Division
The operating profit for the second quarter amounted to SEK 799 million (693), resulting in an operating margin of 13.7% (13.3). The operating profit for the first half year amounted to SEK 1,517 million (1,326), resulting in an operating margin of 13.4% (13.1). Sales including intra-Group sales for the second quarter were SEK 5,832 million (5,209), and for the first half year SEK 11,333 million (10,093).
Net sales for the second quarter amounted to SEK 5,312 million (4,767) and for the first half year SEK 10,288 million (9,233). The increase of 11.4% for the quarter was attributable to: organic growth 16.6%, structure 0.8%, and currency effects -6.0%. For the first half year, the increase in net sales, in SEK, of 11.4% was attributable to: organic growth 14.7%, structure 0.8% and currency effects -4.1%.
Sales in local currencies for the second quarter were higher in Europe and North America and significantly higher in Asia and Latin America.
Automotive Division
The operating profit for the second quarter amounted to SEK 418 million (426), resulting in an operating margin of 6.7% (6.9). The operating profit for the first half year amounted to SEK 806 million (774), resulting in an operating margin of 6.5% (6.3). Sales including intra-Group sales for the second quarter were SEK 6,253 million (6,153), and for the first half year SEK 12,466 million (12,194).
Net sales for the second quarter amounted to SEK 5,092 million (5,089) and for the first half year SEK 10,166 million (10,050). The increase of 0,1% for the quarter was attributable to: organic growth 4.2%, structure -1.1%, and currency effects -3.0%. For the first half year, the increase in net sales, in SEK, of 1.2% was attributable to: organic growth 3.9%, structure -1.0% and currency effects -1.7%.
Sales in local currencies for the second quarter were higher to the car and light truck industry in Europe. Sales in North America were significantly lower. Sales to the heavy truck industry were significantly higher in Europe and significantly lower in North America. Sales to the vehicle service market were relatively unchanged in Europe, higher in North America and lower in Asia. Sales to the electrical industry were slightly lower in Europe and sales to the two-wheeler industry in Asia were significantly higher.
Parent company
For the first half year of 2008, profit before taxes was SEK 2,463 million (1,357), net sales was 793 (759) and investments were SEK 0.4 million (1). As of 30 June, current financial assets were SEK 3 million (7). As of 1 January, they were SEK 4 million. As of 30 June, the average number of employees was 209 (188).
Risks and uncertainties in the business
The company operates in many different industrial, automotive and geographical segments that are at different stages of the economic cycle. A general economic downturn at global level, or in one of the world’s leading economies, could reduce the demand for the Group’s products, solutions and services for a period of time. In addition, terrorism and other hostilities, as well as disturbances in worldwide financial markets, could have a negative effect on the demand for the Group’s products and services.
The SKF Group is subject to both transaction and translation of currency exposure. For commercial flows the SKF Group is primarily exposed to the USD and to US dollar-related currencies. As the major part of the profit is made outside Sweden, the Group is also exposed to translational risks in all the major currencies. The Parent company performs services of a common Group character. The financial position of the parent company is dependent on the financial position and development of the subsidiaries. A general decline in the demand for the products and services provided by the Group could mean lower dividend income for the Parent company, as well as a need for writing down values of the shares in the subsidiaries. The risk of the financial position of the Parent company being negatively affected is considered small due to the vast diversity of markets, geographically and operationally in which the subsidiaries operate.
Previous outlook statement
First-quarter report 2008:
Outlook for the second quarter of 2008 (compared to the first quarter 2008)
The market demand for SKF’s products and services in the second quarter of 2008 is expected to be higher for the Group. The demand is expected to be higher in Europe, relatively unchanged in North America and significantly higher in both Asia and Latin America. The demand is expected to be higher in the Industrial Division and the Service Division and slightly higher for the Automotive Division.
The manufacturing level for the second quarter 2008 will be slightly higher compared to the first quarter 2008, and higher than the second quarter 2007.
Cautionary statement
This report 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;
"Most important factors influencing the financial results", "Financial risks" and "Sensitivity analysis", and in this quarterly report under "Risks and uncertainties in the business."