SKF Year-end report 2022: Strong organic sales and cash flow development
Net sales: SEK 25,361 million (20,986) Organic growth: 9.7% (3.8%) Adjusted operating profit/margin: SEK 2,542 million, 10.0% (2,260, 10.8%)
Full year 2022
Net sales: SEK 96,933 million (81,732) Organic growth: 8.1% (12.6%) Adjusted operating profit/margin: SEK 10,204 million, 10.5% (10,839, 13.3%)
Rickard Gustafson, President and CEO:
“Review of 2022
2022 was a year in which we accelerated our strategic development in earnest. We’ve capitalized on opportunities in our target growth areas delivering double-digit growth in several strategically important segments. At the same time, we are taking a more active approach to portfolio management, working across customer industries and product lines to improve our operational performance. As announced in December, we have also commenced a strategic review of our Aerospace business.
We have accelerated investments in our regional engineering and manufacturing capabilities across Asia and the Americas, with total investments for the year of SEK 5 billion. This is an important step in creating a more competitive and sustainable foundation from which to support our customers, as well as increasing our attractiveness as an employer.
Throughout the year, we have been operating against a back-drop of challenging external circumstances, including the war in Ukraine and exceptional cost inflation levels, which accelerated throughout the year, peaking during Q3. We have worked hard to compensate for this continually moving target, with the gap closing towards the end of the year.
I’m very grateful for the commitment, customer focus and care for one another that SKF colleagues have demonstrated throughout a very volatile and difficult 2022. I’m convinced that our newly embedded operating model and organizational structure will bring us even closer to our customers and further enhance our speed to market.
Review of the fourth quarter
The fourth quarter saw strong demand across the board, with double-digit sales growth in EMEA and India & Southeast Asia. Net sales were SEK 25,361 million, representing an organic sales growth of approximately 10%, bringing our total organic growth for the year to over 8% - at the top-end of our previous guidance. Our business in China saw a general negative impact from the fast spread of Covid-19 during the month of December.
The adjusted operating profit of SEK 2,542 million improved sequentially and compared to last year, bringing our adjusted operating margin to 10%. We continued to implement broad-based price increases, compensating for the SEK 1.8 billion of cost inflation during the quarter. The positive currency impact on our results was lower than guided (about SEK 150 million, compared to the previously guided SEK 400 million), driven by fluctuations in the US Dollar and Euro rates versus the Swedish Krona.
Our focus on improving cash efficiency is also showing results, with a very strong net cash flow from operations of over SEK 3.3 billion (1.2 billion last year), driven mainly by improved working capital management.
The Industrial business saw solid demand in most segments and regions, with especially high demand in EMEA and India & Southeast Asia. Organic growth was 9% and the adjusted operating margin was 12%. Our historically European-centric manufacturing footprint within Industrial makes us exposed to cost inflation levels in the region, but our positive trend of price/mix compensation continues. Our railway, marine and aerospace business grew by some 20% respectively.
Our future technology initiatives are showing strong momentum. The magnetic bearings business had a strong finish to the year, reaching a record order intake of SEK 1 billion in 2022, driven by new energy applications. Within RecondOil, our partnerships with Quaker Houghton and Castrol are developing well, with the first regenerated oils being reused at several recurring customer locations.
The Automotive business saw double-digit growth in all regions except China & Northeast Asia, delivering an organic growth of 12% and a solid adjusted operating margin of over 5%. We continue to shift our portfolio to focus on customer segments where we can capitalize on the value of our offers: electric vehicles, commercial vehicles and aftermarket. Demand for our high-performance bearings used in EV applications continues to be strong, growing by 46% in the quarter.
We expect to see continued volatility and geopolitical uncertainty impacting the markets in which we operate. Nevertheless, looking into the first quarter of 2023, we expect mid single-digit organic sales growth. For the full year, we expect mid single-digit organic sales growth, compared to 2022.
In recognition of the Group’s solid financial position, the Board has decided to propose to the Annual General Meeting a dividend of SEK 7.00 per share.”
Outlook and guidance
Demand for Q1 2023 compared to Q1 2022
Looking into the first quarter of 2023, we expect mid single-digit organic sales growth.
Guidance Q1 2023
Currency impact on the operating profit is expected to be around SEK 300 million positive compared with the first quarter 2022, based on exchange rates per 31 December 2022.
For the full year, we expect mid single-digit organic sales growth, compared to 2022.
Tax level excluding effects related to divested businesses: around 28%.
Additions to property, plant and equipment: around SEK 5 billion.
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