SKF - Nine-month report 1998

Press release AB SKF's Board today decided to implement a further program of measures to improve profitability. In addition to the program approved earlier, the cost of which was charged against thirdquarter earnings, the Board has decided to make another provision of approximately MSEK 2 000, which will be charged against earnings in the fourthquarter. This latter program is intended to eliminate the losses in a number of units that have been unprofitable for a long period. This category includes for instance the production of automotive bearings in America and the production of textile-machinery components, a business area from which SKF intends to withdraw. The future operations of a number of units are being examined. The Board notes that with the current weakening market conditions it is vital that the cost savings programs be accelerated. This will allow the focus to be placed on the Group's profitable operations, thereby enabling satisfactory profitability to be achieved more rapidly. Report on operations for the nine months ended September 30, 1998 The SKF Group reports for the first nine months of 1998, after a provision of MSEK 1 216 for the Group's profit-improvement program, a loss after financial income and expense of MSEK -247, compared with income of MSEK 1 526 in the corresponding period of 1997. Before the provision, income after financial income and expense in the third quarter of 1998 amounted to MSEK 151 (423). Group operating income during the first nine months of 1998 amounted to MSEK 602 (2 240). Before the provision, operating income in the third quarter was MSEK 399 (683). The MSEK 1 216 provision for the Group's profit-improvement program consisted of approximately MSEK 716 for cost of goods sold, MSEK 297 for selling and administrative expenses, MSEK 93 for other operating income/expense - net and MSEK 110 for financial expenses. Nearly MSEK 200 of the total amount related to the write-down of assets, of which the write-down of the shares in Wafangdian Bearing Company in China constitutes the largest item. The earlier profit-improvement program includes a reduction of 4 000 in Group personnel, which is to be implemented within two years. At the end of September, one third of the 4 000 cuts had been made, primarily during the third quarter. In addition, approximately 900 employees have been served with termination of employment notice during the past month. Net sales during the period January-September 1998 amounted to MSEK 2 8 246 (27 584), an increase of slightly more than two percent compared with the corresponding period last year. Net sales during the third quarter amounted to MSEK 9 075 (8 837). The increase in net sales was attributable to: volume, +6 percent; price/mix (volume shifts between different customer segments with different price levels), -2.5 percent; and structural changes (operations that were added or divested), -1.0 percent. Demand in the global bearing market is currently flattening out. The financial net for the nine-month period was MSEK -849 (-714) and MSEK -358 (-260) for the third quarter. Investment in tangible capital assets totaled MSEK 1 565 (2 013). Inventory, as a percentage of net sales for the year, amounted to 28.1 percent (26.9) at the end of September. The Group's solvency was 31.2 percent (33.1). At the end of the period, the Group had 46 409 registered employees (42 680). The increase was attributable to acquired units. The return on capital employed and shareholders' equity during the most recent 12-month period amounted to 6.5 percent (13.2) and 0.3 percent (13.8), respectively. Loss/earnings per share, after tax, amounted to SEK -3.75 (9.55). Bearings Operating income attributable to rolling bearings in the first nine months of 1998 amounted to MSEK 441 (1 798). Net sales during the same period totaled MSEK 24 275 (23 908). Third-quarter operating loss amounted to MSEK -588 (554) and net sales to MSEK 7 818 (7 707). Operating loss includes restructuring costs totaling MSEK 976. The Group's cost-rationalization measures were unable to offset the deterioration in price levels during the period, compared with 1997. This was compounded by the negative effect on third-quarter manufacturing costs of short-time work and the temporary shut-downs implemented at most of the Group's plants to adapt production to demand and reduce inventories. Such measures will continue during the fourth quarter in order to achieve the necessary inventory reductions. Group sales in Asia, Africa and the Middle East, Central and Eastern Europe and Latin America continued to weaken during the third quarter. The positive volume trend in Western Europe and North America is now flattening out. Sales to automotive customers are continuing to grow, while demand from other industrial customers, as well as the industrial after-market is declining. Competition in the market remained tough during the period. The strongly increasing exports of rolling bearings to Europe and the United States from Japan, which is a result of the weak demand in this and other Asian markets, continued to place pressure on the bearing industry. Heavy industry in Western Europe and the US, an important customer segment for the SKF Group, continued to be adversely affected by the weak trend in Asia. The light industry segment developed more favorably. SKF's sales to the passenger car industry in Western Europe and the US developed favorably during the third quarter, while demand in the trucks sector flattened out at a high level. Demand from vehicle manufactures in other markets remained weak. To strengthen SKF's position in the industrial after-market, an extensive program was initiated during the third quarter, designed to broaden the Group's range on the service side, thereby enabling key customers to be offered integrated product and service packages thus reducing their overall costs. Seals Operating income for seals during the first nine months of 1998 amounted to MSEK 121 (289). Net sales during the same period totaled MSEK 3 092 (2 836). Operating loss in the third quarter amounted to MSEK -31 (87) and net sales to MSEK 1 009 (908). Operating loss includes restructuring costs totaling MSEK 85. The North American market, which accounts for most of the Division's sales, remained weak. Sales to automotive customers in Western Europe continued to strengthen. Sales to the Western European after-market via the Group's central warehouse in Belgium and the European bearing distributors are now beginning to grow. During the period, the closure of the Division's factory in Gastonia, in the United States, with around 330 employees, was announced. The products formerly manufactured by this plant are currently being divided among the Division's other plants. Special steels Operating income attributable to special steels during the first nine months of 1998 amounted to MSEK 26 (164). Net sales during the same period totaled MSEK 2 475 (2 492). Third-quarter operating loss amounted to MSEK -75 (47) and net sales to MSEK 696 (717). Operating loss includes restructuring costs totaling MSEK 45. A decline in demand for the Steel Division's products was already noted during the second quarter. The trend during the third quarter showed that the consumption of special steel by end-customers had flattened out and significant inventory reduction measures had been initiated in the distribution segment. This led to a continued deterioration in order bookings. During September, the division was adversely affected by a 12-day production loss resulting from a breakdown at the Hofors plant. Both metallurgical and rolling operations stood idle. The estimated cost of the breakdown was about MSEK 20. The new hot-rolling mill for tubes in Hofors, an investment of approximately MSEK 500, was inaugurated in August. The investment is intended to reduce tube production costs and improve bearing production economy. Göteborg, October 21, 1998 Aktiebolaget SKF (publ.) Sune Carlsson Managing Director 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 SKF Group earnings for the full year of 1998 will be published on Thursday, January 28, 1999. Further information can be obtained from: Lars G Malmer, SKF Group Communication, tel +46-705-371541 e-mail: Lars.G.Malmer@skf.com Åke Svanberg, SKF Group Communication, tel +46-705-371099 e-mail: Ake.Svanberg@skf.com Aktiebolaget SKF, SE-415 50 Göteborg, Sweden phone: +46-31-3371000, fax: +46-31-3372832, telex: 2350, http://www.skf.com CONSOLIDATED FINANCIAL INFORMATION (MSEK) Jan-Sep 1998 Jan-Sep 1997 MSEK % MSEK % Net sales 28 246 100,0 27 584 100,0 Cost of goods sold -22 274 78,9 -20 762 75,3 Gross income 5 972 21,1 6 822 24,7 Selling and administrative -5 262 18,6 -5 348 19,4 expenses Other operating -100 0,4 766 2,8 income/expense - net Result of associated -8 - - - companies Operating income 602 2,1 2 240 8,1 Financial income and expense - net -849 3,0 -714 2,6 Loss/Income after financial income and expense -247 -0,9 1 526 5,5 Taxes -223 0,8 -450 1,6 Loss/Income after taxes -470 -1,7 1 076 3,9 Minority interest 42 0,1 10 - Net loss/income -428 -1,5 1 086 3,9 Loss/Earnings per share -3,75 9,55 after tax, SEK Number of shares 113 837 113 837 767 767 Additions to tangible 1 565 2 013 capital assets Number of employees 46 409 42 680 registered Return on capital employed for the 12-month period ended Sep 6,5 13,2 30, % CONSOLIDATED BALANCE SHEETS (MSEK) Sep 1998 Dec 1997 Intangible capital 1 415 1 291 assets Tangible capital assets 14 419 13 631 Financial capital assets 1 106 1 185 Total capital 16 940 16 107 assets Inventories 10 558 9 924 Short-term 8 962 8 478 assets Short-term financial 2 254 3 931 assets Total short-term assets 21 774 22 333 TOTAL ASSETS 38 714 38 440 Shareholders' equity 11 746 12 588 Provisions for pensions and other postretirement 6 505 6 171 benefits Provisions for 1 505 1 642 taxes Other provisions 3 900 2 981 Total provisions 11 910 10 794 Long-term loans 5 211 6 538 Other long-term liabilities, including 703 359 minority interest Total long-term 5 914 6 897 liabilities Short-term loans 2 627 1 853 Other short-term 6 517 6 308 liabilities Total short-term 9 144 8 161 liabilities SHAREHOLDERS' EQUITY AND TOTAL LIABILITIES 38 714 38 440 CONSOLIDATED STATEMENTS OF CASH FLOW* (MSEK) Jan-Sep Jan-Sep 1998 1997 Operating income 602 2 240 Depreciation on tangible capital assets and goodwill 1 224 1 167 amortization Net loss/gain(-) on sales of businesses and tangible capital 23 -742 assets Changes in working 152 -93 capital Cash flow from 2 001 2 572 operations Investment in companies and additions to tangible capital -1 922 -2 245 assets Sales of businesses and tangible 34 1 031 capital assets Cash flow after 113 1 358 investments Financial income and -849 -714 expense - net Taxes -579 -431 Change in other long-term assets, liabilities and provisions 785 -269 - net Issue of new shares in - 189 AB SKF Cash dividends, AB SKF -598 -593 shareholders Translation adjustments 20 -23 Cash flow before -1 108 -483 financing Change in loans -569 1 285 Change in short-term -1 677 802 financial assets * The consolidated statements of cash flow have been adjusted for acquired and sold companies and businesses. CONSOLIDATED FINANCIAL INFORMATION - QUARTERLY COMPARISONS (MSEK unless otherwise stated) Full Full year year 1995 1996 1/97 2/97 3/97 4/97 GROUP Net sales 36 700 33 589 8 864 9 883 8 837 9 338 Operating 4 000 2 874 695 862 683 709 loss/income Loss/Income after financial income and 3 389 2 412 501 602 423 580 expense Loss/Earnings per share after tax, 18,10 14,90 2,60 3,30 3,65 4,15 SEK Additions to tangible capital 2 296 2 710 570 845 598 651 assets BUSINESS AREAS Total sales Bearings 31 003 29 204 7 694 8 507 7 707 8 083 Seals 3 456 3 125 921 1 007 908 943 Special 4 168 3 271 839 936 717 899 steels Operating loss/income Bearings 3 198 2 482 568 676 554 496 Seals 307 242 87 115 87 88 Special 439 153 37 80 47 78 steels Invested capital* Bearings 19 562 20 82723 41123 572 22 312 22 525 Seals 2 199 2 082 2 309 2 376 2 336 2 456 Special 2 202 2 108 2 222 2 346 2 307 2 416 steels KEY FIGURES Net worth per 89 99 106 104 106 111 share, SEK Solvency, % 31,2 34,3 33,5 32,7 33,1 33,5 Return on capital employed for the 12- month period ended Sep 30, 19,0 14,7 13,3 13,1 13,2 13,0 % * Invested capital is defined as the sum of Goodwill, Inventories, Trade Accounts Receivable and Tangible Capital Assets less Trade Accounts Payable and Customer Advances at the end of the period. CONSOLIDATED FINANCIAL INFORMATION - QUARTERLY COMPARISONS (MSEK unless otherwise stated) Full year 1997 1/98 2/98 3/98 GROUP Net sales 36 922 9 476 9 695 9 075 Operating 2 949 678 630 -706 loss/incom e Loss/Incom e after financial income and 2 106 466 351 -1 064 expense Loss/Earni ngs per share after tax, 13,70 2,30 2,00 -8,05 SEK Additions to tangible capital 2 664 496 495 574 assets BUSINESS AREAS Total sales Bearings 31 991 8 153 8 304 7 818 Seals 3 779 1 014 1 069 1 009 Special 3 391 916 863 696 steels Operating loss/incom e Bearings 2 294 548 481 -588 Seals 377 79 73 -31 Special 242 51 50 -75 steels Invested capital* Bearings 22 525 23 428 23 881 24 067 Seals 2 456 2 566 2 611 2 633 Special 2 416 2 573 2 621 2 548 steels KEY FIGURES Net worth 111 112 110 103 per share, SEK Solvency, 33,5 33,7 32,9 31,2 % Return on capital employed for the 12-month period ended Sep 13,0 12,6 11,7 6,5 30, % * Invested capital is defined as the sum of Goodwill, Inventories, Trade Accounts Receivable and Tangible Capital Assets less Trade Accounts Payable and Customer Advances at the end of the period.