SKF - Report on operations for the nine months ended September 30, 1999

SKF's profit continues to improve Report on operations for the nine months ended September 30, 1999 SKF's profit continues to improve. The operating margin for the first nine months of 1999 amounted to 6.1%, and to 7.9% during the third quarter. Excluding capital gain: 5.3% and 6.3%, respectively. The improvement is due to cost reductions, the elimination of losses, higher efficiency and somewhat better price/mix development. The Group maintains the view that market demand will pick up towards the end of 1999. Positive signs are now seen in Western Europe and demand in Asia continues to grow. The North American market, except for the automotive sector, still looks bleak, however. Production levels in the factories are now being increased to prepare for higher demand next year. * The SKF Group reports a profit after financial income and expense of MSEK 1 076 for the first nine months of 1999, compared with MSEK -247 for the corresponding period in 1998. The profit for the third quarter of 1999 was MSEK 458 (-1 064). * Profit for the third quarter of 1999 was positively affected by one-time earnings of MSEK 133, which relate to the sale of real estate. The third quarter of 1998 was affected by restructuring provisions of MSEK 1 216. * Operating profit for the period January-September, 1999 amounted to MSEK 1 669 (602). Operating profit for the third quarter was MSEK 666 (-706) and the operating margin was 7.9% (-7.8). * Cash flow after investments before financing amounted to MSEK 1 802 (- 1 201). Cash flow for the third quarter was MSEK 957 (-504). * Net sales during the first nine months of 1999 amounted to MSEK 27 393 (28 246), a decrease of 3% compared with the corresponding period last year. Net sales for the third quarter amounted to MSEK 8 473 (9 075). * The decrease in net sales was attributable to: volume -6.5%; price/mix +0.5% and currency effect +3.0%. * Net profit amounted to MSEK 695 (-428) and earnings per share after tax amounted to SEK 6.10 (-3.75). The Group's financial net for the first nine months of 1999 was MSEK -593 (- 849). Additions to tangible assets totalled MSEK 877 (1 565). At the end of September, the Group's inventories amounted to 23.7% (28.1) of annual sales. Group solvency was 31.7% (31.2). The average number of employees was 41 362 (45 516) and the registered number of employees was 40 864 (46 409). The comprehensive cost-cutting and restructuring programmes launched in 1998 have now been completed and 6 700 employees have left the Group. To strengthen its position in the marketplace, SKF is now hiring 100 sales and application engineers to support its increased sales efforts. NEW PRODUCTS A new generation of spherical roller bearings, The Explorer series, was launched during the quarter. The Explorer bearings set a new world standard by providing up to a three times longer life than the existing spherical roller bearings. These new bearings, which will help boost SKF's competitiveness, are now being manufactured in Sweden, England, Malaysia and the United States. A compact automotive hub and halfshaft assembly, Compact HHM, has also been launched. This new system, which has been developed together with GKN, is the result of several years of technical collaboration between SKF and GKN. It will offer car manufacturers considerable weight savings as well as greater flexibility in suspension and steering design. A virtual marketplace named "endorsia.com" is now being introduced. This is an e-business network that will connect industrial purchasers and suppliers via the Internet. It is SKF's intention that this marketplace should also be open to other manufacturers of high-quality branded products and services. The new marketplace will contribute to reducing costs in the supply chain and is also expected to attract new customers to SKF. BEARINGS Operating profit for rolling bearings for the first nine months of 1999 amounted to MSEK 1 323 (429) and total sales to MSEK 23 282 (24 129). Third- quarter operating profit amounted to MSEK 510 (-590) on sales of MSEK 7 264 (7 773). The Industrial Division's external sales were MSEK 6 028 (6 187). Sales during the third quarter were MSEK 1 824 (2 035). Sales continued to be weak during the third quarter in both Western Europe and North America. Volume continued to decline. The Automotive Division's external sales were MSEK 6 396 (6 392). Sales for the third quarter totalled MSEK 1 976 (1 959). Sales to the car/light truck manufacturers in both Europe and North America continued to be good and also increased during the third quarter. Sales to truck manufacturers in Europe started to rise again after a short period of slowdown. In North America sales to truck manufacturers are flattening out. The Electrical Division's external sales were MSEK 1 123 (1 228). Sales for the third quarter amounted to MSEK 323 (375). The negative sales trend from the first half of 1999 now seems to be bottoming out, mainly as a result of better sales in the West European market. North America and Asia are still weak. The improvement in Western Europe stems from the demand from electrical customers. The two-wheeler market is still weak. The Service Division's external sales were MSEK 8 346 (8 677). The sales for the third quarter reached MSEK 2 720 (2 889). The negative volume development, as a consequence of destocking in the distribution channels, has now come to a halt in Western Europe. Demand is still weakening, however, in North America, and continues to be weak in Latin America, Africa and the Middle East as well as Central and Eastern Europe. In Asia, sales have continued to grow since the beginning of 1999. SEALS Operating profit for seals for the first nine months of 1999 was MSEK 89 (121). The total sales were MSEK 3 283 (3 092). The loss for the third quarter was MSEK 7 (-31) on sales of MSEK 1 046 (1 009). The Division is carrying out a major restructuring of its US operations to restore profitability levels. The closure of the Gastonia factory and transfer of its production to other manufacturing units is part of this restructuring process. The process continues to have a negative impact on costs and delivery performance which affects Division profitability. A new organisation is now being implemented. Operations will be divided into four business areas with full responsibility for manufacturing, marketing, sales, etc. The result of these changes will be seen gradually over the coming quarters. STEEL Operating profit for the Steel Division for the first nine months of 1999 reached MSEK 26 (122) and sales were MSEK 3 033 (3 691). The profit for the third quarter was MSEK 1 (-57) on sales of MSEK 839 (1 053). Business activity is normally low during the third quarter. The order intake indicates, however, that the destocking in the marketplace is coming to an end. The increased production levels at SKF's bearing factories will also have a positive effect on volumes for the Division. Göteborg, October 19, 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 full year of 1999 will be published on Wednesday, January 26, 2000. For further information please contact: Lars G Malmer, SKF Group Communication, tel +46-705-371541, e-mail: lars.g.malmer@skf.com Marita Björk, SKF Group Communication, tel +46-705-181994, e-mail: marita.bjork@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-Sep 1999 Jan-Sep 1998 MSEK % MSEK % Net sales 27 393 100.0 28 246 100.0 Cost of goods sold -21 379 -78.0 -22 274 -78.9 Gross profit 6 014 22.0 5 972 21.1 Selling and -4 529 -16.5 -5 262 -18.6 administrative expenses Other operating 184 0.6 -100 -0.4 income/expense - net Result of associated companies - - -8 - Operating profit 1 669 6.1 602 2.1 Financial -593 -2.2 -849 -3.0 income and expense - net Profit/loss after financial income and expense 1 076 3.9 -247 -0.9 Taxes -380 -1.4 -223 -0.8 Profit/loss after taxes 696 2.5 -470 -1.7 Minority interest -1 - 42 0.2 Net profit/loss for the period 695 2.5 -428 -1.5 Earnings/loss 6.10 -3.75 per share after tax, SEK Number of shares 113 837 767 113 837 767 Additions to tangible assets 877 1 565 Number of employees registered 40 864 46 409 Return on 1.2 6.5 capital employed for the 12-month period ended Sep 30, % Enclosure 2 CONSOLIDATED BALANCE SHEETS (MSEK) Sep 1999 Dec 1998 Intangible assets 2 023 2 239 Tangible assets 13 259 14 568 Investments and long-term financial assets 1 028 1 084 Total capital assets 16 310 17 891 Inventories 8 741 10 183 Short-term assets 8 296 8 588 Short-term financial assets 2 247 2 353 Total short-term assets 19 284 21 124 TOTAL ASSETS 35 594 39 015 Shareholders' equity 10 924 10 932 Provisions for pensions and other postretirement benefits 6 444 7 139 Provisions for taxes 1 545 1 488 Other provisions 3 234 4 095 Total provisions 11 223 12 722 Long-term loans 4 964 4 842 Other long-term liabilities, including minority interest 457 455 Total long-term liabilities 5 421 5 297 Short-term loans 1 615 3 337 Other short-term liabilities 6 411 6 727 Total short-term liabilities 8 026 10 064 TOTAL EQUITY, PROVISIONS AND LIABILITIES 35 594 39 015 Enclosure 3 CONSOLIDATED STATEMENTS OF CASH FLOW (MSEK) Jan-Sep 1999 Jan-Sep 1998 Profit/loss after financial income and 1 076 -247 expense Depreciation on tangible assets and 1 298 1 224 goodwill amortization Net gain(-)/loss on sales of tangible -189 23 assets and businesses Taxes -247 -579 Changes in working capital 247 266 Cash flow from operations 2 185 687 Investments in tangible assets and -879 -1 922 businesses Sales of tangible assets and businesses 496 34 Cash flow after investments before 1 802 -1 201 financing Change in loans -1 309 -631 Change in other long-term assets, -320 704 liabilities and provisions - net Cash dividends, AB SKF shareholders -228 -598 Cash effect on short-term financial assets -55 -1 726 Change in short-term financial assets December 31 2 353 3 931 Cash effect -55 -1 726 Exchange rate effect -51 49 September 30 2 247 2 254 Change in net interest-bearing liabilities Opening ExchangeChange in Closing balance rate loans/assets balance effect Loans, long- and short-term 8 179 -291 -1 309 6 579 Provisions for pensions 7 139 -315 -380 6 444 Financial assets,long-term -884 6 48 -830 short-term -2 353 51 55 -2 247 Net interest-bearing 12 081 -549 -1 586 9 946 liabilities 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 2/99 3/99 GROUP Net 36 922 9 476 9 695 9 075 9 442 37 688 9 308 9 612 8 473 sales Operatin 2 949 678 630 -706 -1 -999 476 527 666 g 601 profit/ loss Profit/ loss after financia l income 2 106 466 351 -1 -1 -2 063 273 345 458 and 064 816 expense Earnings / loss per share after 13.70 2.30 2.00 -8.05 - -14.40 1.60 1.70 2.80 tax, SEK 10.65 Addition s to tangible assets 2 664 496 495 574 583 2 148 262 320 295 BUSINESS AREAS Total sales Bearings 31 807 8 101 8 255 7 773 8 121 32 250 7 983 8 035 7 264 * Seals 3 779 1 014 1 069 1 009 1 037 4 129 1 008 1 229 1 046 Steel* 4 747 1 351 1 287 1 053 1 079 4 770 1 125 1 069 839 Operatin g profit/ loss Bearings 2 281 542 477 -590 -1 -1 062 328 485 510 * 491 Seals 377 79 73 -31 -56 65 69 27 -7 Steel* 338 98 81 -57 -140 -18 22 3 1 Invested capital Bearings 21 858 22 739 23 217 23 23 23 079 22 401 22 319 20 396 * 372 079 Seals 2 456 2 566 2 611 2 633 2 775 2 775 2 841 2 932 2 840 Steel* 3 083 3 262 3 285 3 243 3 169 3 169 3 191 3 027 2 874 KEY FIGURES Net 111 112 110 103 96 96 95 95 96 worth per share, SEK Solvency 33.5 33.7 32.9 31.2 29.0 29.0 29.2 29.0 31.7 , % Return on capital employed for the 12-month period ended 13.0 12.6 11.7 6.5 -2.8 -2.8 -3.6 -4.1 1.2 Sep 30, % * 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/1999/10/19/19991019BIT00110/bit0001.doc The full report http://www.bit.se/bitonline/1999/10/19/19991019BIT00110/bit0002.pdf The full report