SKF - First-quarter report 1999

SKF - First-quarter report 1999 SKF returns to profit After the large loss reported for 1998, SKF has returned to profit in the first quarter this year. Operating margin amounted to 5.1%. However, sales are still declining in SKF's main markets. The bottom of the business cycle has not yet been reached. In Asia, however, SKF sales have started to grow again. * The SKF Group's consolidated profit after financial income and expense for the first quarter of 1999 totalled MSEK 273, compared with MSEK 466 in the corresponding period of 1998. * The Group's operating profit for the first quarter totalled MSEK 476, compared with MSEK 678 for the same period in 1998. * Profit for the first quarter was positively affected by one time earnings of net MSEK 80 related to divestment of capital assets. * Cash flow after investments before financing amounted to MSEK 113 (-571). * The Group's net sales declined by 2% during the first quarter, from MSEK 9 476 in 1998 to MSEK 9 308 in 1999. * The 2% decrease in net sales was attributable to volume -5.5%; price/mix +0.5%; structural changes (operations that were added or divested) +0.5% and currency effect +2.5%. * Net profit for the Group amounted to MSEK 180 (262) and earnings per share after tax amounted to SEK 1.60 (2.30). * The Group has initiated a programme to reduce assets by SEK 6 to 7 billion. All measures now initiated are aimed to increase operating earnings to SEK 3 billion in a couple of years. The SKF Group's financial net for the first quarter was MSEK -203 (-212). Additions to tangible assets totalled MSEK 262 (496). At the end of the quarter, the Group's inventories amounted to 26.5% (27.9) of annual sales. The return on capital employed during the twelve-month period ended March 31 was - 3.6% (12.6). The return on shareholders' equity was -14.6% (12.5). Group solvency was 29.2% (33.7). The average number of employees was 42 704 (42 384) and the registered number of employees was 44 406 (43 519). Bearings Operating profit for rolling bearings for the first quarter of 1999 amounted to MSEK 328 (542) and total sales to MSEK 7 983 (8 101). Profit for the quarter was negatively impacted by volume decline and unsatisfactory capacity utilisation. The Industrial Division's external sales increased by 3% to MSEK 2 126 (2 065). The demand from the Division's main customer segments continued to be weak during the quarter. Sales in Germany were, however, slightly above that of last year. The demand from the heavy industry sector is not showing any signs of recovery. The Automotive Division's external sales increased slightly and amounted to MSEK 2 152 (2 143). The demand from the car/light truck manufacturers in Europe and the USA stayed at good levels and SKF's sales increased. Sales to the truck market in Europe was, however, lower while the North American market remained strong. Demand in the Brazilian market dropped substantially. The Electrical Division's external sales decreased by 7% to MSEK 406 (437). The slowdown of the business cycle as well as the import of cheap bearings from Asia, are impacting the volume development in both Western Europe and North America. The Service Division's external sales decreased by 4% to MSEK 2 748 (2 872). The lower sales level reflects the continued de-stocking in the Western European market. In the USA, the de-stocking which occurred during 1998 is coming to an end. In Asia, sales have started to grow again in several markets. Demand in Latin America, Eastern Europe and Africa and the Middle East was weak. Seals Operating profit for seals for the first quarter of 1999 was MSEK 69 (79) and total sales were MSEK 1 008 (1 014). Sales to the main OEM customers in the USA developed favourably during the quarter, mainly driven by the automotive customers. The industrial aftermarket showed a weaker development. In Western Europe, the start of the year was slow and the sales of bearing seals have suffered from lower demand for bearings. The sales of valve stem seals for car engines are showing a good growth development. Steel As of January 1, 1999, the Steel Division includes the forging operations in Sweden, Germany and Italy. Previously, these operations were included in Bearings. The Division's operating profit for the first three months of 1999 amounted to MSEK 22 (98) and total sales amounted to MSEK 1 125 (1 351). The Division' sales are being negatively affected by the slow down in demand for bearing steel and components. Also other customer segments showed a weakening in the demand and the de-stocking process in the industry is continuing. The lower production levels will result in further reduction of the number of employees. Programmes according to plan The implementation of the comprehensive cost cutting programme as well as of the restructuring programme is running according to plan. During the first quarter of 1999, a further 1 030 employees left the Group. That means that about three quarters out of the 4 000 target that was announced in 1998 have now left. An agreement has been reached to sell the major part of the Textile Machine Component business to a German company. The sales include the ring spinning part in Germany and the whole business in Singapore. The aim is to also exit the remaining part. The decision was taken to cease manufacturing taper roller bearings at the Glasgow, Kentucky, plant in the USA. Sale or closure will be completed by the third quarter 1999. The reduction of the capacity in the Brazilian plant by one third is in the implementation phase. In the Lutsk plant, the Ukraine, a major restructuring programme has been initiated to adapt capacity to the lower demand from the market. The exiting of the forging business in Arvika, Sweden, is progressing according to plan. The Group's 40% holding in a Water Pump Bearing company in Italy was sold. These restructuring measures will lead to a further reduction of the number of employees by some 2 000 during this year. Asset reduction Over the next few years, SKF is also implementing a new programme aimed at reducing assets by SEK 6 to 7 billion. The programme includes a major reduction of inventories, sale of land, buildings and equipment and replacement of in-house production with increased procurement of materials and components. The target is to reduce inventories from 27% of annual sales at the end of last year to 20%. The plan is to achieve an annual reduction of 2 percentage points. The capital reduction programme includes the full or partial sale of SKF's steel operations. New owners or partners for Ovako Steel, which is a leading producer of special steel, will be considered. The measures now in progress are designed to increase SKF's operating earnings to SEK 3 billion annually. This corresponds to an operating margin of 8% and represents the first target level to be achieved in a couple of years. New strategy In order to generate a long term satisfactory earnings growth, the Group is now implementing a new strategy. The main points in the new strategy are: *Focus on SKF's strong areas where SKF has or can reach high profitability. *Alliances or partnerships with other manufacturers or divestment of operations in which adequate profitability cannot be achieved by SKF on its own. *Closer cooperation with customers in selected segments through customised technology, logistics and maintenance solutions. Göteborg, April 22, 1999 Aktiebolaget SKF (publ.) Sune Carlsson President Enclosures: Consolidated financial information Consolidated balance sheets Consolidated statements of cash flow Consolidated financial information - yearly and quarterly comparisons This report has not been audited by the Company's auditors. The report on SKF's earnings for the first six months of 1999 will be published on Thursday, July 15, 1999. For further information please contact: Lars G Malmer, SKF Group Communication, tel +46-31-3371541, e-mail: Lars.G.Malmer@skf.com Aktiebolaget SKF, SE-415 50 Göteborg, Sweden tel +46-31-3371000, fax +46-31-3372832, www.skf.com Enclosure 1 CONSOLIDATED FINANCIAL INFORMATION (MSEK unless otherwise stated) Jan-March 1999 Jan-March 1998 MSEK % MSEK % Net sales 9 308 100.0 9 476 100.0 Cost of goods sold -7 405 -79.6 -7 136 -75.3 Gross profit 1 903 20.4 2 340 24.7 Selling and administrative expenses -1 507 -16.2 -1 669 -17.6 Other operating income/expense - net 80 0.9 8 0.1 Result of associated companies - - - 1 - Operating profit 476 5.1 678 7.2 Financial income and expense - net -203 -2.2 - 212 -2.2 Profit after financial income and 273 2.9 466 5.0 expense Taxes -95 -1.0 - 217 -2.3 Profit after taxes 178 1.9 249 2.7 Minority interest 2 - 13 0.1 Net profit for the period 180 1.9 262 2.8 Earnings per share after tax, SEK 1.60 2.30 Number of shares 113 837 767 113 837 767 Additions to tangible assets 262 496 Number of employees registered 44 406 43 519 Return on capital employed for the 12- -3.6 12.6 month period ended March 31, % Enclosure 2 CONSOLIDATED BALANCE SHEETS (MSEK) March Dec 1998 1999 Intangible assets 2 181 2 239 Tangible assets 14 014 14 568 Investments and long-term financial assets 1 097 1 084 Total capital assets 17 292 17 891 Inventories 9 941 10 183 Short-term assets 9 127 8 588 Short-term financial assets 1 935 2 353 Total short-term assets 21 003 21 124 TOTAL ASSETS 38 295 39 015 Shareholders' equity 10 800 10 932 Provisions for pensions and other postretirement 6 579 7 139 benefits Provisions for taxes 1 455 1 488 Other provisions 3 950 4 095 Total provisions 11 984 12 722 Long-term loans 4 804 4 842 Other long-term liabilities,including minority 457 455 interest Total long-term liabilities 5 261 5 297 Short-term loans 3 171 3 337 Other short-term liabilities 7 079 6 727 Total short-term liabilities 10 250 10 064 TOTAL EQUITY, PROVISIONS AND LIABILITIES 38 295 39 015 Enclosure 3 CONSOLIDATED STATEMENTS OF CASH FLOW (MSEK) Jan-March 1999 Jan-March 1998 Profit after financial income and expense 273 466 Depreciation on tangible assets and 440 405 goodwill amortization Net gain on sales of tangible assets -49 -6 Taxes -54 -77 Changes in working capital -327 -880 Cash flow from operations 283 -92 Investments in tangible assets -262 -496 Sales of tangible assets 92 17 Cash flow after investments before 113 -571 financing Change in loans -117 -276 Change in other long-term assets, -375 149 liabilities and provisions - net Cash effect on short-term financial -379 -698 assets Change in short-term financial assets December 31 2 353 3 931 Cash effect -379 -698 Exchange rate effect -39 17 March 31 1 935 3 250 Change in interest-bearing net liabilities BalanceCashChangExchaBalance effe e in nge ct rate Dec 31, ytdloanseffec March 1998 /asse t 31, ts 1999 Loans, long- and short-term 8 179 -117 -87 7 975 Provisions for pensions 7 139 -346 -214 6 579 Financial assets,long-term -884 -10 -6 -900 short-term -2 353 379 39 -1 935 Interest-bearing net liabilities 12 081 379 -473 -268 11 719 Enclosure 4 CONSOLIDATED FINANCIAL INFORMATION - QUARTERLY COMPARISONS (MSEK unless otherwise stated) Full Full year year 1997 1/98 2/98 3/98 4/98 1998 1/99 GROUP Net sales 36 922 9 476 9 695 9 075 9 442 37 688 9 308 Operating profit/loss 2 949 678 630 -706 -1 601 -999 476 Profit/loss after 2 106 466 351 -1 064 -1 816 -2 063 273 financial income and expense Earnings/loss per 13.70 2.30 2.00 -8.05 -10.65 -14.40 1.60 share after tax, SEK Additions to tangible 2 664 496 495 574 583 2 148 262 assets BUSINESS AREAS Total sales Bearings* 31 807 8 101 8 255 7 773 8 121 32 250 7 983 Seals 3 779 1 014 1 069 1 009 1 037 4 129 1 008 Steel* 4 747 1 351 1 287 1 053 1 079 4 770 1 125 Operating profit/loss Bearings* 2 281 542 477 -590 -1 491 -1 062 328 Seals 377 79 73 -31 -56 65 69 Steel* 338 98 81 -57 -140 -18 22 Invested capital Bearings* 21 858 22 739 23 217 23 372 23 079 23 079 22 401 Seals 2 456 2 566 2 611 2 633 2 775 2 775 2 841 Steel* 3 083 3 262 3 285 3 243 3 169 3 169 3 191 KEY FIGURES Net worth per share, 111 112 110 103 96 96 95 SEK Solvency, % 33.5 33.7 32.9 31.2 29.0 29.0 29.2 Return on capital 13.0 12.6 11.7 6.5 -2.8 -2.8 -3.6 employed for the 12- month period ended March 31, % * Previously published amounts have been restated to conform to the current Group structure. ------------------------------------------------------------ Please visit http://www.bit.se for further information The following files are available for download: http://www.bit.se/bitonline/1999/04/22/19990422BIT00340/bit0001.doc Full Report http://www.bit.se/bitonline/1999/04/22/19990422BIT00340/bit0002.pdf Full Report