SKF Half-year report 2021: Record operating profit

Rickard Gustafson, President and CEO:
“The second quarter saw a record in adjusted operating profit of SEK 3,118 million (1,565 million) and an adjusted operating margin of 15.0% (9.4%).

The result was especially strong, given continued headwinds in the form of negative currency impact and rising input costs. Through mitigating actions we have been able to compensate for approximately 50% of this cost increase. We’ve done well to serve our customers under these circumstances, and we’re doing our outmost to capture additional growth opportunities.

Organic sales development in the quarter was just above 33%, with net sales of SEK 20,735 million (SEK 16,599 million). Sales were significantly higher on all main geographical markets with organic growth of 91% in Latin America, 40% in EMEA, 27% in North America and 19% in APAC.

The Industrial business delivered a record set of results, with an adjusted operating margin of 18.0% (14.0%). The Automotive business delivered an adjusted operating margin of 7.6% (-7.6%).

Cash flow generation in the quarter was SEK 509 million (negative 838 million), an improvement compared to last year as well as the last quarter.

We continue to invest in and consolidate our manufacturing footprint. Since 2019 we have permanently closed six sites and are currently in the process of closing an additional 11. Regretfully, some of these initiatives have a negative impact on some employees which we try to mitigate to the extent possible. Nevertheless, they are necessary to align our presence and capabilities with customer demand and, thereby enabling growth opportunities.

Investments in our factories are expected to reach SEK 3.8 billion for the year, 200 million higher than our previous guidance. These investments make us more flexible and efficient as well as being an important foundation for winning more business from customers in fast-growing segments and regions.

These investments and consolidation efforts have, on an annual basis, realized SEK 1.1 billion of the 5 billion in savings we expect to generate by 2025.

We are moving towards a more sustainable future and we already have an ambitious net zero CO2 emissions target from our own operations by 2030. By also committing to the Science Based Targets Initiative, we’re now taking steps to further increase our ambition and transparency levels throughout our supply chain. This will also ensure that our efforts are fully aligned with the ambitions of the Paris Agreement.

The record high operating result for the quarter is a proof point on SKF’s ability to drive efficiency and effectiveness in a volatile and demanding market environment. Together with opportunities to further capitalize on our strong market position and industrializing new offerings and business models, we have a solid platform to fuel future growth.

I’m thrilled and eager to embark on the exciting journey that lies ahead of us!

Looking ahead, demand is expected to remain strong but there is also uncertainty related to both Covid and to the supply situation. For the third quarter we expect an organic growth of about 10 percent compared to Q3 2020.”

Key figures, SEKm    Q2 2021    Q2 2020    Half year 2021    Half year 2020    

Net sales    20,735    16,599    40,600    36,684    

Adjusted operating profit    3,118    1,565    5,907    4,137    

Adjusted operating margin, %    15.0    9.4    14.5    11.3    

Operating profit    2,878    669    5,577    2,937    

Operating margin, %    13.9    4.0    13.7    8.0    

Adjusted profit before taxes    3,040    1,476    5,626    3,635    

Profit before taxes    2,801    580    5,296    2,436    

Net cash flow after investments before financing    509    -838    -193    1,902    

Basic earnings per share    4.59    0.75    8.50    3.50    

Adjusted earnings per share    5.11    2.72    9.23    6.13    

Net sales change y-o-y, %, Q2

   Organic    Structure    Currency    Total    

SKF Group    33.2    -    -8.3    24.9    

Industrial    21.7    -    -7.9    13.8    

Automotive    75.9    -    -9.8    66.1    

Net sales change y-o-y, %, Half year

   Organic    Structure    Currency    Total    

SKF Group    19.6    -    -8.9    10.7    

Industrial    13.1    -    -8.6    4.5    

Automotive    39.2    -    -10.2    29.0    

Organic sales change in local currencies, per region y-o-y, %, Q2

   EMEA    North America    Latin America    Asia    

SKF Group    39.8    27.2    91.0    19.1    

Industrial    +++    +++    +++    +++    

Automotive    +++    +++    +++    +++    

Organic sales change in local currencies, per region y-o-y, %, Half year

   EMEA    North America    Latin America    Asia    

SKF Group    18.0    11.8    42.9    22.4    

Industrial    +++    +++    +++    +++    

Automotive    +++    +++    +++    +++    

Outlook and guidance

Demand for Q3 2021 compared to Q3 2020
Demand is expected to continue to grow and we expect an organic growth of about 10% for the third quarter compared to Q3 2020

Guidance Q3 2021
Currency impact on the operating profit is expected to be around SEK -150 million compared with Q3 2020, based on exchange rates per 30 June 2021.

Guidance 2021

Tax level excluding effects related to divested businesses: around 28%.

Additions to property, plant and equipment: around SEK 3,800 million. Previous guidance was around SEK 3,600 million