SKF First-quarter report 2004

For the first quarter of 2004 SKF reports a 6.0% increase in sales, measured in local currencies, compared to the same period in 2003. The operating margin was 8.5%. The price/mix increased by 1.1%. Cash flow continued to be strong. ¡¤ The SKF Group reports a profit before taxes for the first quarter 2004 of MSEK 819 (802). ¡¤ Net profit for the first quarter 2004 was MSEK 648 (562). ¡¤ Earnings per share for the first quarter 2004 were SEK 5.69 (4.94). ¡¤ Net sales for the first quarter 2004 were MSEK 10 689 (10 541). The operating profit for the first quarter 2004 was MSEK 907 (944), which includes 50 MSEK for implementation costs of the previously announced restructuring programme. The operating margin for the first quarter 2004 was 8.5% (9.0). Cash flow, after investments before financing, for the first quarter 2004 was MSEK 501 (47). The increase in net sales for the first quarter 2004, compared to the first quarter 2003, was attributable to: structure 0.1%, volume 4.8%, price/mix 1.1% and currency effect -4.6%. Sales development Net sales for the SKF Group, calculated in local currencies, were up 6.0% in the first quarter compared to the same quarter last year. Sales in Europe were slightly up, sales in North America were higher and significantly higher in Asia and Latin America. Outlook The market demand for the Group's products and services is expected to continue to strengthen during the second quarter 2004, compared to the first quarter this year. In Europe demand is expected to be slightly higher and in North America higher. Demand is expected to continue to increase significantly both in Asia and in Latin America. Manufacturing will be maintained in the second quarter to meet the higher demand and to ensure a good service level. Financials The Group¡¯s financial net for the first quarter 2004 was MSEK -88 (-142). The lower level was due mainly to higher interest income and foreign exchange gains. The tax rate was exceptionally low due to a favourable outcome in a tax case. Additions to tangible assets for the first quarter 2004 were MSEK 281 (304). At the end of March 2004, the Group¡¯s inventories were 21.3% (22.2) of annual sales. The return on capital employed for the 12-month period ended March 31, 2004 was 14.0% (17.4). Return on equity was 14.0% (16.0). In March 31, 2004, SKF's equity to assets ratio was 43.6% (41.2). The gearing was 36.3% (40.1). The registered number of employees at the end of March was 38 615 (39 645). Compared to the first quarter 2003, exchange rates for the first quarter 2004, including the effects of translation and transaction flows, had a negative effect on SKF¡¯s operating profit of approximately MSEK 120. For the second quarter 2004 the estimated negative effect is MSEK 100 and for the full year 2004, based on current assumptions and exchange rates, it is MSEK 400. The restructuring programme announced last year is running according to plan. The number of employees was reduced by 140, as a result of the programme. Divisions Comments on net sales per geographical region are based on local currencies and compared to the corresponding period for 2003. Operating margin is on sales including intra-Group sales. Industrial Division The operating profit for the first quarter 2004 amounted to MSEK 379 (366), resulting in an operating margin of 9.6% (9.5). Net sales for the first quarter 2004 amounted to MSEK 2 550 (2 521). Sales incl. intra-Group sales for the first quarter were MSEK 3 948 (3 833). Sales in Europe were unchanged in the first quarter while sales in the North America and in Asia were significantly higher. During the quarter SKF gained several important orders from the steel, the wind and the machinery industries in the USA and Europe. Automotive Division The operating profit for the first quarter 2004 was MSEK 160 (177), resulting in an operating margin of 4.1% (4.6). Net sales for the first quarter 2004 amounted to MSEK 3 454 (3 470). Sales incl. intra-Group sales for the first quarter were MSEK 3 858 (3 849). In the first quarter sales to the car and light truck industry in Europe and in North America were unchanged. Sales to the heavy truck industry in Europe were higher and significantly higher to the heavy truck industry in North America. Sales to the vehicle service market were significantly higher. SKF won business during the quarter through identifying customers' key application criteria and then delivering design enhancements. SKF¡¯s knowledge base, supplemented by proprietary computer models, enables application engineers to optimize designs while reducing costs of components, materials and processing. An example of this is the Dodge Durango in the USA. Deliveries started during the quarter of the X-Tracker™ asymmetrical ball hub bearing unit to this vehicle. They replace a competitor¡¯s taper roller bearing solution at a lower cost to the customer. In the year 2000 SKF achieved the nomination as Getrag's worldwide strategic supplier. Getrag is a German manufacturer of transmissions and drivetrains. Sales to this customer have since been growing and during the first quarter a new important order for taper bearings was gained. Electrical Division The operating profit for the first quarter 2004 amounted to MSEK 64 (80), resulting in an operating margin of 3.9% (4.8). Net sales for the first quarter 2004 amounted to MSEK 491 (496). Sales incl. intra-Group sales for the first quarter were MSEK 1 661 (1 684). Sales in Europe were unchanged, even if there was some sign of improvement in the household appliance segment. Sales in Asia, predominantly in the two-wheeler market, were significantly higher. Sales of seals are developing positively towards more sophisticated products. Service Division The operating profit for the first quarter 2004 amounted to MSEK 336 (293), resulting in an operating margin of 9.3% (8.4). Net sales for the first quarter 2004 amounted to MSEK 3 233 (3 075), an increase of 5.1%. Sales incl. intra-Group sales for the first quarter were MSEK 3 611 (3 471). Sales in Western Europe were unchanged while sales in Central and Eastern Europe were significantly higher. Sales in North America were higher and significantly higher in Asia and Latin America. During the quarter, the division continued to build on its ¡±More with SKF¡± Distributor programme to help distributors improve business operations, increase productivity, and deliver enhanced customer value. SKF Reliability Systems sales continue to grow with a special focus on the paper industry, the hydro-carbon processing industries and the power generation industry. The climate for investment in condition monitoring systems is improving. Aero and Steel Division The operating profit for the first quarter 2004 amounted to MSEK 30 (47), resulting in an operating margin of 1.8% (2.8). Net sales for the first quarter 2004 amounted to MSEK 951 (971). Sales incl. intra-Group sales for the first quarter were MSEK 1 648 (1 681). Sales to the aerospace industry were lower both in Europe and North America. The helicopter business continued to develop well with new orders especially from the European helicopter manufacturers. Aeroengine Bearings UK continued to make progress and increased its volumes of bearing-related engine components outsourced from Rolls Royce. Ovako Steel reported net sales of MSEK 491 (442). Sales incl. intra-Group sales were MSEK 889 (829). The operating profit was MSEK 7 (8). Raw material prices continued to increase during the quarter. Steel scrap prices reached all-time-high levels. Ovako's customers are paying surcharges for the increased scrap and alloy prices. Ovako Steel secured new orders from external customers in the bearing and automotive segments. Sale of shares During the quarter SKF sold its 40% holding in Momentum, a Swedish industrial distributor, for MSEK 90, resulting in a capital gain of MSEK 20. Revolving credit facility SKF signed a five-year and 300 million euro revolving credit facility with a syndicate of eleven banks. This credit facility replaced existing credit facilities with the benefit of both a longer maturity and reduced cost.