SKF Business Report FY2006

Business Highlights

Financial overview

in million Kronor FY2006 FY2005 Rate of change Remarks
Net Sales 53,101 49,285 7.7% Net sales amounted to SEK 53,101 million. The 7.7% increase in net sales compared to 2005 was attributable to structure by 0.1%, to exchange rate effects by 0.2%, to price and mix by 2.1%, and to volume by 5.3%.
Operating profit 6,707 5,327 25.9% The operating profit in 2006 amounted to SEK 6,707 million resulting in an operating margin of 12.6%. This included income from the jointly controlled entity, Oy Ovako Ab, of SEK 725 million. During December, a number of restructuring and cost improvement activities were announced and initiated whereby a cost of approximately SEK 400 million was charged to the income statement. This included SEK 264 million related to impairments and write-offs and the remainder to restructuring charges. Exchange rates for 2006 had a positive effect on operating profit of approximately SEK 250 million.
Net Sales 18,255 17,423 4.6% - Net sales in 2006 amounted to SEK 18,255 million. The operating profit was SEK 999 million, with an operating margin of 4.6% (2.7% in 2005). The operating profit in the fourth quarter was affected by restructuring charges, impairments and write-offs of SEK 170 million.
- Sales to the car and light truck industry in Europe were slightly lower. Sales in North America were significantly lower. Sales to the heavy truck industry in Europe and North America were higher. Sales to the vehicle service market were significantly higher.
Operating profit 999 560 78.4%

Car segment
In 2006, the Company acquired significant new business from GM, on new crossover vehicles, where the Company supplies hub bearing units for both front and rear axles, McPherson strut bearing units for the suspension and bearings for steering and transmissions.

Asia is a key region of growth for the Company, the Company was nominated for new hub unit business for both leading western car manufacturers in China and Chinese customers.

The Company also enjoyed strong growth in South America and acquired new business with Fiat in Brazil.

Truck segment

The Company significantly increased its business in high-value truck hub units by acquiring new business from the DaimlerChrysler Actros and the Iveco Eurocargo, as well as launching a new assembled truck-matched unit for the American trailer manufacturer Hendrickson.

And the Company continues to leverage its platformas to obtain higher total content in each truck. The Company significantly increased its business comprising wheel seals to Freightliner LLC and axle bearings and seals to Consolidated Metco Inc. in the USA.
The Company also considerably increased its gearbox bearing business with Scania AB, where the Company is the main bearings supplier, providing bearings for both rear and front wheels, central gears, propeller shafts and engine applications, such as turbo compound and cooling fan support.

In India, growth was strong during the year and new business was acquired with leading truck manufacturers, such as Tata Motors and Ashok-Leyland.


The Automotive Division develops and produces sealing solutions for the automotive and industrial markets, as well as seals that are integrated into bearings.
In 2006, the Company further strengthened its position as a global player in the seals business. The most notable developments were the completion of two acquisitions which together have significantly increased the Company's presence in the industrial seals market.
-51% of Macrotech Polyseal Inc., USA. a leader in fluid power seals for the industrial customers in the USA market;
- Economos Austria GmbH, an Austrian industrial seals company manufacturing hydraulic and pneumatic seals for the oil and gas, food and beverage, pulp and paper, mining and steel industries;
The two acquisitions together added revenue in industrial seals of around SEK850 million on an annual basis.

In China, the Company acquired the remaining 40% minority of Shanghai Bearing Co., Ltd., manufacturing deep groove ball bearings for the Chinese domestic market. The Company's 60% investment was made in 2001.

Car segment
In order to reduce costs and remain competitive within the North American automotive OEM market, the Company decided to close its bearing factory in Aiken, South Carolina, and its seals factory in Springfield, South Dakota. The two factories were closed in 2006 and the full transfer will be completed by mid-2007. Bearing production was transferred mainly to the Company's bearing factory in Puebla, Mexico, but also to the Company's factories in Korea and China, while seals manufacturing was transferred to the seals factories in Elgin, Illinois, USA, and Guadalajara, Mexico.

Truck segment
The transfer of production from Aiken, USA to Mexico was completed in 2006 and the Company also started to move channels producing small taper roller bearings in Germany to existing factories in Brazil and India. The Company has increased its component sourcing from Asia and Eastern Europe and there is an ongoing transfer of sheet metal production from Germany to Ukraine and India. The Company's factory in Ukraine is being used increasingly as a cost-competitive source of components for Western-European factories and as a manufacturing base for bearings.


R&D Expenditure

 (mil. Swedish kronor) 2006 2005 2004 2003 2002
R&D Expenditure 875 837 784 750 767
Patents (No. of first filings) 176 176 189 151 158

Product Development

Car segment
New asymmetrical hub bearing solution
In 2006, the Company expanded its X-Tracker product line with a taper-taper version to complete its family of X-Tracker hub units, This new version complements the Company's ball unit and hybrid ball-roller unit, making the Company the only supplier to offer three different asymmetrical hub bearing solutions for the light vehicle market.
The Company received the prestigious American Premier Automotive Suppliers' Contribution to Excellence Award (PACE) in the product category for the X-Tracker ball unit, used on vehicles such as the Dodge Dakota and Cadillac STS-V

Solutions that reduce friction and help save energy
The Company has renewed its product line for the transmission area with new components for the gearbox synchronization area, as well as a hybrid pinion unit system, with an integrated taper roller bearing and angular contact ball bearing, that reduces friction in the bearing arrangement by 30% compared with existing solutions.

Truck segment

Visco fan drive bearing unit for engine cooling fans
- Now in series production for DAF Trucks

Investment Activities

For the Car segment, in 2006, the Company continued to strengthen its position in Asian market and started production for seven new car programmes, compared with four programmes in 2005.
To support the growing demand in Asia, a new bearing factory was established in China and a new factory for bearings and seals in Korea. They will be up and running in the first half of 2007.

South America
For the Car segment, the Company expanded its operations and increased its production capacity in response to the growing demand in South America.