SKF CEO Sees Continued Impact From Adverse Raw Material Situation in Q4, 2008

SKF CEO Sees Continued Impact From Adverse Raw Material Situation in Q4, 2008 SKF AB chief executive Tom Johnstone said he expects the adverse raw material situation to continue to affect the company in the fourth quarter and early in 2008. He made the statement during a conference call in connection with the company's third-quarter results. 'Raw material shortages are a general market situation which affects us as well, particularly in the Industrial division. We expect the same in the fourth quarter and the start of next year as well,' Johnstone said. 'Industrial's margins would have been close to what it was last year (instead of falling one percentage point) if we had a better raw material situation in terms of supply shortages,' he added, saying Industrial is facing the 'deep' challenges of adverse currency effects, higher raw material costs and raw material shortages. He said the adverse raw material impact is coming primarily from steel and large rings. 'We have been forced to go out of our normal supplier base and buy more on the spot market,' Johnstone said. Commenting on the impact from the weaker dollar, Johnstone said SKF hedges 70 pct of its dollar flow, indicating about 55 pct of all transactional flows are hedged.'We don't see a change in the competitive situation due to the weaker dollar,' Johnstone said. He said all divisions have a positive price/mix contribution to sales and the company is 'taking steps' to recover some of its higher raw material costs by way of price rises. 'We expect a good price/mix contribution to sales in the fourth quarter. In the third quarter, volumes were high but we don't expect the same in the fourth quarter,' Johnstone said, adding he expects 'under' 1 percent structural growth in the final quarter of the year. He said he expects capital investments in 2007 to be above depreciation. 'We are bringing onboard capacity to meet market demand and support Industrial's growth,' Johnstone said. He said the Automotive division is growing slightly faster than the market in China, indicating the company is gaining market share, but will face a tougher year-on-year comparison in the fourth quarter. 'It has had four good quarters in a row,' Johnstone said.