SKF Year-end report 2020

Alrik Danielson, President and CEO:
“I would like to thank everyone in SKF for contributing to making 2020 the year in which we delivered on our strategy in earnest, a fact which is reflected in yet another very strong set of results, not least during the fourth quarter. This achievement is so much more impressive given the exceptional external circumstances faced during the last 12 months.

We delivered a very strong underlying operating profit of SEK 2,582 million (2,181 last year), representing an adjusted operating margin of 13.2% (10.3%), despite flat demand and a negative currency impact of SEK 645 million.

Organic sales development in the quarter was –0.1%, with net sales of SEK 19.6 billion (SEK 21.2 billion last year). Sales were significantly higher in Latin America, higher in Asia, and lower in both North America and Europe. 

The Industrial business delivered an adjusted operating margin of 14.5% (13.3%), despite an organic sales drop of 4.4%.

The Automotive business delivered a very strong adjusted operating margin of 10.1% (2.3%), driven by continued ability to control costs as well as an organic sales increase of 11.1%. 

Since coming back to SKF in 2015, I have highlighted our ability to generate strong cash flow as one of our key strengths and the fourth quarter was no exception. 

Cash flow during the quarter was SEK 1,901 million (SEK 701 million), driven mainly by a strong operating income and reduction of working capital. We continue to invest in the business, with a total of SEK 3.3 billion invested in our factories (up from SEK 1.9 billion in 2016) and pay down our debt, positioning the business well for the future.

Capitalizing on new ways of working, ensuring we create and maintain simplified organizational structures and always keep the customer’s needs at heart has enabled us to continually reduce our headcount during the year, with a further head-count reduction in the quarter of 200. 

Investments in and consolidation of our factories continued during the quarter, including the announcement of a consolidation of our slewing bearing manufacturing and supporting functions in France.  

SKF has over 110 years of history of innovation around the rotating shaft. The pace of innovation has never been faster, especially when it comes to artificial intelligence and the ability to analyze and act based on the vast amounts of data generated by machines. This competence – which we are leading the development of – in combination with our existing offers around the rotating shaft, puts us in a very strong position to help customers get better performance from their machines and at the same time reduce waste and environmental impact. This is the true differentiator of SKF’s offer.

Our solid performance during the year is reflected in the Board’s proposal of a SEK 6.50 dividend (SEK 3.00).”

Key figures, SEKm    Q4
2020    Q4
2019    2020    2019    

Net sales    19,572    21,208    74,852    86,013    

Adjusted operating profit    2,582    2,181    9,194    10,136    

Adjusted operating margin, %    13.2    10.3    12.3    11.8    

Operating profit    2,210    1,910    7,069    9,395    

Operating margin, %    11.3    9.0    9.4    10.9    

Adjusted profit before taxes    2,515    1,992    8,424    9,210    

Profit before taxes    2,144    1,722    6,300    8,469    

Net cash flow after investments before financing    1,901    701    5,259    4,953    

Adjusted earnings per share    4.17    2.86    14.11    13.8    

Basic earnings per share    3.36    2.27    9.44    12.2    

Net sales change y-o-y, %, Q4

   Organic    Structure    Currency    Total    

SKF Group    -0.1    0.0    -7.6    -7.7    

Industrial    -4.4    0.0    -6.9    -11.3    

Automotive    11.1    0.0    -9.3    1.8    

Net sales change y-o-y, %, 2020

   Organic    Structure    Currency    Total    

SKF Group    -10.0    0.0    -3.0    -13.0    

Industrial    -8.8    0.0    -2.8    -11.6    

Automotive    -12.8    0.0    -3.7    -16.5    

Organic sales change in local currencies, per region
y-o-y, %, Q4

   Europe    North America    Latin
America    Asia    Middle East &
Africa
     

SKF Group    -6.5    -4.3    12.3    7.7    3.8    

Industrial    ---    ---    +++    +    ++    

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

Organic sales change in local currencies, per region y-o-y, %, 2020

   Europe    North America    Latin
America    Asia    Middle
East & Africa    

SKF Group    -15.0    -14.8    -4.9    -1.1    -1.6    

Industrial    ---    ---    +/-    +/-    -    

Automotive    ---    ---    ---    -    +++    

   
Outlook and guidance

Demand for Q1 2021 compared to Q1 2020
The industries and regions in which SKF operates are still impacted by the effects related to the spread of COVID-19. We expect to see mid-single digit organic sales growth in the first quarter of 2021 compared to the first quarter of 2020.

Guidance Q1 2021
Currency impact on the operating profit is expected to be around SEK -600 million compared with Q1 2020, based on exchange rates per 31 December 2020.

Guidance 2021

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

Additions to property, plant and equipment: around 3,600 SEK million.