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5. AB SKF Business Report FY ended Dec. 2018

AB SKF Business Report FY ended Dec. 2018

Factors
1) Net Sales
-The Company’s net sales in the fiscal year ended December 31, 2018 totaled SEK 85,713 million, an increase of 10.0% over the previous year. The Company’s organic sales increased by 7.1% from the previous year, while currency translation effects further increased sales by 3.5%. Structural changes caused a decrease in sales of 0.6%. The Company’s organic growth was primarily driven by increased sales volumes across all of the Company’s operating regions except for Latin America, which had decreased sales volumes.

2) Operating Profit
-The Company’s operating profit was SEK 11,049 million in the fiscal year ended December 31, 2018, an increase of 28.6% over the previous year. Profit increased due to the Company’s divestment of its linear and actuation technology business, increased sales and production volumes, and improved sales price and customer mix. These gains were offset by general inflation, increases in material costs, divested businesses, impairments and restructuring costs.

3) Automotive Segment Sales
-Sales in the Company’s Automotive business area increased by 4.4% in the fiscal year ended December 31, 2018 to SEK 25,120 million. The Company had significant growth in the roller bearing market, which contributed to the increase in sales.

The BeyondZero portfolio

-The Company’s BeyondZero strategy is designed to reduce the Company’s environmental impact through two areas of focus. First, the Company aims to reduce the negative environmental impact from its operations and the operations of its suppliers. Second, the Company aims to offer its customers technologies, products and services with improved environmental performance characteristics, as seen in its BeyondZero product portfolio.

-The BeyondZero portfolio includes the following automotive products:

• Sealed Energy Efficient (E2) deep groove ball bearings
• Tyre pressure monitoring systems for trucks, trailers and buses
• Motor encoder sensor-bearing units
• Rotor positioning bearing
• Rotor positioning sensor-bearing units
• Low friction engine seal
• Low weight hub bearing units
• eDrive ball bearings
• Low friction hub bearing units
• High pressure valve stem seal
• Low friction driveline solutions
• Low friction X-Trackers
• Hub bearing unit seal
• Turbocharger ball bearing units
• Energy Efficient (E2) tapered roller bearings for trucks
• Bus door actuators
• Solutions to fully electric vehicles
• Low friction grease

Restructuring

-The Company announced that it has completed the previously announced divestment of its linear and actuation technology business to Triton. The total consideration of the divestment is SEK 2.75 billion on a cash- and debt-free basis. The closing of the divestment will have a positive effect on the Company’s operating result for Q4 2018 of SEK 1.2 billion. (From a press release on December 3, 2018)

-The Company has signed an agreement to divest its linear and actuation technology business to Triton. The total consideration of the deal is SEK 2.75 billion, on a cash- and debt free basis which is expected to close at the end of 2018. The divestment is part of the Company’s efforts to focus on its core business and value propositions around the rotating shaft. In total, these divestments have now raised approximately SEK 6.7 billion. In 2017, the Company’s linear and actuation technology business had approximately 1,200 employees and sales of SEK 2 billion. (From a press release on July 31, 2018)

Recent Developments

-The Company has entered into a settlement agreement with Daimler AG for their dispute before the regional court Nuremberg-Fuerth in Germany regarding damage claims resulting from the European Commission’s decision on the violation of European competition rules with respect to automotive bearings. The parties agreed to treat details of the settlement as confidential. This settlement is not an admission of liability for damages, but is made in order to enable the Company and Daimler to continue their long-standing commercial relationship. The settlement will have an insignificant impact on the financial position of the Group. (From a press release on November 30, 2018)

Awards

-The Company was named a 2018 Automotive News PACE Award winner at an awards ceremony on April 9 in Detroit. The Company was recognized for its Scotseal X-Treme wheel end seal. Scotseal X-Treme is the latest addition to the Company well established line of wheel-end seals for drive, steer and trailer axles. It offers the vehicle service market and OE truck and trailer manufacturers outstanding reliability and long life in harsh operating conditions. (From a press release on April 18, 2018)

R&D Facilities

-The Company has a total of 15 technical centers, with global technical centers in China and India.

R&D Activities

-The Company announced that it will present at the CTI Symposium in Berlin from December 3 through December 6. In addition, the Company’s experts will discuss challenges and solutions relating to bearing design, lubrication, simulation and testing for electric and hybrid electric vehicles, especially high speed electric motors. The Company will also feature in a presentation at the symposium entitled “Ultra-compact high speed electric axle with torque vectoring using next generation technology.” (From a press release on December 3, 2018)

Patents

-During 2018, the Company registered for 202 first filings of patent applications.

Investments Outside Sweden

<France, Germany>
-The Company will invest SEK 150 million in manufacturing automation. It will invest in an automated production line, with flexible machining technology, for rollers used in large-size bearings in Schweinfurt, Germany and an automated deep groove ball bearing assembly line in St Cyr, France. Both investments will contribute to increased competitiveness, flexibility and quality and are expected to be completed during the first half of 2020. Focus will also be placed on the Group’s value propositions around the rotating shaft and activities under implementation to reduce net working capital. (From a press release on November 29, 2018)

<China>
-The Company will invest approximately SEK 200 million in improving its competitiveness and customer service levels for tapered roller bearings (TRB) in China. The investment is being made in a new manufacturing facility in Changshan, to which the Company’s existing small-size TRB manufacturing operations in China will be transferred. As a result, three existing sites in Ningbo, Shanghai and Changshan will be closed. The new manufacturing facility in Changshan is expected to be fully operational during the first quarter of 2019. (From a press release on November 22, 2018)