AB SKF Business Report FY2010

Business Highlights

Financial Overview

(in million Kronor)

	FY2010	FY2009	Rate of change(%)	Factors
Overall
Net Sales	61,029	56,227	8.5	-
Operating profit	8,452	3,203	163.9	-
Automotive
Net Sales	18,231	16,051	13.6	1)
Operating profit	1,859	(785)	-	2)

Factors

1)
-2 new business units were formed in 2010. The SKF Powertrain and Electrical business unit was set up to focus on new powertrain technologies, addressing both conventional internal combustion technology, as well as electrification and hybrids. The second new business unit, SKF Two-Wheeler, based in Asia, addresses the rapidly expanding two-wheeler market.

-Demand started to recover in some segments in the third quarter of 2009 and early in 2010, with customers beginning to invest again and catching up with requirements that had been postponed. The Company saw demand grow significantly in 2010, and net sales amounted to SEK 18,231 million (16,051), a rise of 13.6%. The in-crease in net sales was attributable to organic growth of 20.2%, and currency effects of -6.6%.

2)

-Sales, including intra-Group sales, totalled SEK 21,989 million (19,103). The operating profit was SEK 1,859 million (-785), with an operating margin of 8.5% (-4.1). The operating profit and operating margin progressed strongly to record levels as the result of major actions taken to reduce costs within the division, increase manufacturing in best-cost countries and improve the mix of product and segment sales.

Contracts
-Signed a three-year contract worth around SEK 34 million (approx. 3.54 million euros) with Valeo to supply rotor positioning magnetic bearings for the i-StARS, Valeo's stop-start system. Deliveries will start during the third quarter of 2010. i-StARS will initially equip the new diesel engine family, e-HDi, for the Citroen and Peugeot brands. This is the second business awarded to SKF by Valeo for this kind of application. SKF already supplies this solution to StARS. (From a press release on July 1, 2010)

Acquisitions

-Agreed to acquire lubrication systems provider Lincoln Industrial for 1 billion USD from Harbour Group of USA. Lincoln Industrial Corporation, headquartered in Missouri, USA, has manufacturing facilities in the USA, Asia and Europe. In 2010, the company is expected to generate sales approaching 400 million USD. (From a press release on October 19, 2010)

Divestitures

-In line with our strategy to divest activities that are not part of our core business, we have sold two of our forging and turning operations. The operation in Tudela, Spain, was sold to Korea Parts & Fasteners Española S.L. and our operation in Villar Perosa, Italy, to Neumayer Tekfor Holding GmbH.

-The Company will sell its bearing cage production facility in Gothenburg, Sweden to Nakanishi Metal Works Co., Ltd. (NKC). NKC is a supplier of bearing retainers based in Japan. The factory in Gothenburg supplies bearing cages for SKF's bearing production facilities in Gothenburg; Luton, UK; Hanover, Pennsylvania, U.S.; Nilai, Malaysia; and Schweinfurt, Germany. (From a press release on February 3, 2011)

R&D

R&D Expenditure

(in million Kronor)

	FY2010	FY2009	FY2008
Overall	1,184	1,217	1,175
Patents (No. of first filings)	251	218	179

Product Development

-The Company developed the X-Tracker, a low-friction wheel hub unit bearing. By optimizing internal geometry and grease quantity, coupled with a low-drag seal, SKF attained a 25% reduction in rolling resistance compared with the company's existing products. (From a press release on September 6, 2010)