SKF Half-year report 2023: Strong sales, profit, and cash flow

Gothenburg, 19 July 2023

Rickard Gustafson, President and CEO:

“I’m pleased to report that our strategic transformation continues at a high pace, clearly reflected by a strong set of numbers in the second quarter. In the quarter, we saw record high net sales, adjusted operating profit, and cash flow.

Strong results in the second quarter

Net sales were SEK 27.1 billion (23.7), which is a record high quarterly number. The organic sales growth came in at 8%, representing the ninth consecutive quarter with an organic growth rate above 5%.

We saw strong demand in Europe and Asia with an organic growth of around 10%. Demand was particularly strong in several of our targeted high-growth segments, for example aerospace, electrical vehicles, and railway. In our railway business, we have secured orders from three large OEMs covering the wide range of our portfolio on various train platforms.

We delivered a record strong result with an adjusted operating profit of SEK 3.6 billion (2.5). The adjusted operating margin was 13.3% (10.5%), which is another step towards our target of 14%. The main drivers behind the profitability uplift are the relentless pricing and portfolio management activities conducted in all business areas.

For our Industrial business, the adjusted operating profit came in significantly stronger than last year at SEK 3,047 million (2,372) corresponding to an adjusted operating margin of 15.9% (13.9). The Automotive adjusted operating profit was SEK 568 million (101), which represents an adjusted operating margin of 7.1% (1.5%), demonstrating our progress towards the 8% annual target in 2025 from the ongoing portfolio re-positioning.

Cash flow from operations was SEK 3.7 billion (1.3). This record strong performance was, besides the operating profit, driven by active work across all business areas to further improve net working capital performance with special focus on inventory reduction.

Progressing our strategic transformation

Naturally, rapid execution of our strategy is crucial, and we are making good progress across key operational levers, such as innovation, efficiency, and portfolio management.

Ceramic bearings is one of several interesting technology and innovation areas where we see a strong demand from customers in many industries, such as aircraft engines, electrical vehicles, cleantech, hydrogen and green energy. To strengthen our offering and to meet a rapidly growing demand, we are further investing in our supply chain. One example being the recently announced joint venture with Sinoma Nitride that we signed to secure long-term access to high quality ceramic rolling elements.

We are relentlessly working on improving the productivity and efficiency in our operations and way of working. As part of our strive towards lean, clean, and digital manufacturing, we intend to consolidate our spherical roller bearing manufacturing in Europe, by proposing to move the current production from Luton, UK, to our factory in Poznan, Poland.

We are also continuing our portfolio management efforts to further strengthen our business and market position. An example from our Industrial business is the recently announced divestment of our coolant pumps operations Spandau Pumpen. In our Automotive business, we have now completed the previously communicated decision to exit SEK 1.2 billion of unprofitable customer contracts. In half of these we have concluded to step out of the business, while the other half of the contracts have been renegotiated on favorable terms.

In addition, we have also made some significant progress in our sustainability journey. One example is the Virtual Power Purchase Agreement (VPPA) that we signed to secure and accelerate access to renewable energy in our operations. In the agreement we will purchase guarantees of origin for a period of 15 years from an upcoming solar plant in Spain. This commitment is, on a yearly basis, equivalent to the electricity used by one third of our European operation in 2022. Another example is our decision to phase out fossil gas use in our own operations, backed by a SEK 3 billion investment frame over 6 years, to meet our energy and decarbonization goals by 2030.

The rapid progress in our strategic transformation and our strong results in the second quarter would not have been possible without the efforts from our employees and partners throughout the organization. I would like to take this opportunity to thank them all for their hard work and contribution during the first half of 2023. Together, we re imagine rotation for a better tomorrow!

Outlook

Going into the second half of the year, we expect the normal third quarter seasonality pattern in our results. We also expect continued volatility and geopolitical uncertainty impacting the markets in which we operate. Looking into the third quarter of 2023, we expect mid single-digit organic sales growth. For the full year, we maintain our outlook of high single-digit organic sales growth, compared to 2022.”

¹⁾ Price, mix and volume

¹⁾ Price, mix and volume

Outlook and Guidance

Demand for Q3 2023 compared to Q3 2022

Looking into the third quarter of 2023, we expect mid single-digit organic sales growth.

Guidance for Q3 2023

Currency impact on the operating profit is expected to be around SEK 150 million negative compared with the third quarter 2022, based on exchange rates per 30 June 2023.

Guidance 2023

• For the full year, we expect high single-digit organic sales growth, compared to 2022.
• Tax level excluding effects related to divested businesses: around 27%.
• Additions to property, plant and equipment: around SEK 5.5 billion.

A webcast will be held on 19 July 2023 at 08:15 (CEST):
Sweden +46 10 884 80 16
UK / International +44 20 3936 2999
Passcode: 466190

https://investors.skf.com/en

Aktiebolaget SKF
      (publ)

The half year report presented in this press release contains financial and inside information that AB SKF is obliged to make public pursuant to the EU Market Abuse Regulation and the Securities Markets Act. The information was submitted for publication through the agency of the contact person set out below on 19 July 2023 at 07.00 CET.

For further information, please contact:
PRESS: Carl Bjernstam, Head of Media Relations
tel: 46 31-337 2517; mobile: 46 722-201 893; e-mail: carl.bjernstam@skf.com

INVESTOR RELATIONS: Patrik Stenberg, Head of Investor Relations
tel: 46 31-337 2104; mobile: 46 705-472 104; patrik.stenberg@skf.com

SKF is a world-leading provider of innovative solutions that help industries become more competitive and sustainable. By making products lighter, more efficient, longer lasting, and repairable, we help our customers improve their rotating equipment performance and reduce their environmental impact. Our offering around the rotating shaft includes bearings, seals, lubrication management, condition monitoring, and services. Founded in 1907, SKF is represented in approximately 130 countries and has around 17,000 distributor locations worldwide. Annual sales in 2022 were SEK 96,933 million and the number of employees was 42,641. www.skf.com

® SKF is a registered trademark of the SKF Group.

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