SKF Business Report FY2007

Business Highlights

Financial overview

in million Kronor FY2007 FY2006 Rate of change Factors
Net Sales 58,559 53,101 10.3% -
Operating profit 7,539 6,707 12.4%


Net Sales 19,617 17,869 9.8%

- The increase in net sales was attributable to organic growth 8.3%, structure 3.8%, currency effects -2.3%.
- Structure is attributable to the acquisitions in 2006 of Economos Austria GmbH and Macrotech Polyseal Inc.and the currency effects come mainly from North and Latin America.
- Sales to the car and light truck industry in Europe and North America were higher.
- Sales to the heavy truck industry in Europe were significantly higher and significantly lower in North America.
- Sales to the vehicle service market were significantly higher in Europe, slightly higher in North America and significantly higher in Asia.

Operating profit 1,154 946 22.0%

New business during FY2007:

Car segment
- Wheel bearing solutions in China for two major car manufacturers. The first was with the Chinese company Shanghai Automotive Industry Cooperation for a new platform, the second was additional business for two new Chery models.
- Wheel bearing solutions in Europe and North America, with Renault, for the new Renault Master platform, Fiat for a new Alfa Romeo platform and Ford for the new Ford Focus generation in North America.
- Wheel hub units for a four-wheeler light vehicle with Piaggio in India

Truck segment
- The Company and Haldex jointly developed an integrated truck hub unit for the truck industry, with a dual disc brake and fixed calliper. The solution is designed for one million maintenance-free kilometres and has a number of advantages like lower temperatures, lower brake forces, longer maintenance intervals and less mounting space. The first customer is GIGANT, the German trailer axle company.
- The recently launched SKF Wheel End Monitor for a trailer axle manufacturer, Hendrickson in the US, which helps cut back on unplanned stops and reduce preventive maintenance and unnecessary trailer bearing replacements.
- New business was gained with leading truck manufacturers, such as Tata Motors and Mahindra.

- In June 2007, the Company has acquired the remaining 40% shareholding in SKF (Shanghai) Bearing Company Ltd., to become a fully owned SKF production subsidiary in China. SKF (Shanghai) Bearings Company Ltd., was originally set up in 2002 as a joint venture with the Shanghai Electric Group Corporation to produce high quality small deep groove ball bearings primarily for the Chinese domestic market. The factory is fully operational and currently employs more than 200 people.

Car segment
In order to remain competitive in the North American market the Company announced the closure of the manufacturing facility at Glasgow, USA, and the transfer of production to a factory at Puebla, Mexico, in December 2007.

Truck segment
The transfer of production of small tapered roller bearings from Germany to existing factories in Brazil and India continued in 2007. The Company is also continuing to make progress in increasing component sourcing from Asia and Eastern Europe.

- In March 2007, the Company has signed an agreement to sell its forging business at the Luchow plant in Germany to Hay Speed Umformtechnik GmbH. The sales price is EUR 33 millions and the Company will make a profit on the sale of some EUR 4 million. SKF's forging business in Luchow has 222 employees and the sales for 2006 amounted to EUR 74 million. The sales of the forging business is fully in line with the Group's manufacturing strategy to divest none-core component manufacturing. This business was part of the Automotive Division.


R&D Expenditure

 (mil. Swedish kronor) 2007 2006 2005 2004 2003
R&D Expenditure 900 875 837 784 750
Patents (No. of first filings) 186 176 176 189 151

Product Development
Car segment
Energy-Efficient Bearings:
SKF launched a new range of energy-efficient bearings. These provide at least 30% less friction in the bearing without compromising the service life. They reduce the cost of ownership through energy savings and benefit to the environment. An energy-efficient electric motor, due to be launched by a customer in 2008 shows a saving of 50% in reduced frictional loss in the bearing.

Hybrid Pinion Unit:
The Hybrid Pinion Unit consists of a tapered roller bearing and angular contact ball bearing, which improves system stiffness, reduces power loss and enhances bearing service life due to optimized raceway profiles and more reliable lubrication conditions. This new solution provides 30% friction reduction compared to existing solutions. The first customer for its hybrid pinion unit is a major transmission supplier.

Truck segment
Universal Joint:
The Company has developed a universal joint for heavy duty trucks, which requires no maintenance during a driving distance of up to one million kilometers. By taking measures to heighten air tightness in the rotating and sliding portions of the joint, deterioration in lubrication performance has been thoroughly contained. An interval between checkups has been extended ten times longer than the level in the case of conventional universal joints using existing type bearings.

Technological Alliance
- Started ajoint project with Knorr-Bremse to develop condition monitoring of brake control systems.

Investment Activities

Overseas Investment
- The Company, through its subsidiary SKF India Ltd., has decided to build a new manufacturing site in Haridwar, Uttarakhand, for the manufacturing of ball bearings. The investment amounts to approximately SEK 250 million. The new factory will have a covered area of some 11,000 sq. meters and will increase the Company's manufacturing capacity of ball bearings in India with more than one third. The factory is expected to be operational in March 2008 and will employ some 300 persons.
- The Company expanded the seal manufacturing facility in Judenburg, Austria.