SKF Half-year report 2022: Solid growth and increasing price realization helping to mitigate high cost inflation

Rhea-AI Summary

SKF reported a strong second quarter with organic revenue growth exceeding 5%, driven by demand in high-growth segments like railway, automation, and agriculture. Net sales rose to SEK 23,655 million, though adjusted operating profit fell to SEK 2,473 million, reflecting rising costs due to external pressures, including the war in Ukraine. The company plans to maintain cost control and implement price increases. Looking ahead, SKF anticipates high single-digit growth in Q3 and a full-year organic growth of approximately 4-8%.

Positive

• Organic revenue growth of over 5% in Q2.
• Net sales increased to SEK 23,655 million from SEK 20,735 million year-on-year.
• Targeted high-growth segments such as railway and agriculture have shown double-digit growth.
• Improved cash flow from operations at SEK 1,293 million.

Negative

• Adjusted operating profit decreased to SEK 2,473 million from SEK 3,118 million.
• Adjusted operating margin fell to 10.5% from 15.0%, driven by increased costs.
• Material, utility, and logistics costs rose by approximately SEK 600 million in Q2.

GOTHENBURG, Sweden, July 20, 2022 /PRNewswire/ -- 

Rickard Gustafson, President and CEO:

"Review of the second quarter

In the second quarter we saw organic revenue growth above 5%, driven by a general strong demand in most regions, especially within targeted high-growth segments, a somewhat higher automotive sales than anticipated and continued price realization.

Growth in Industrial was 6%, with Automotive delivering growth of 3%. Sales to targeted high-growth segments including railway, automation, agriculture, food and beverage continue to develop at a fast pace, with double-digit organic growth.

Net sales were SEK 23,655 million (20,735), on relatively flat sales volumes.

Our adjusted operating profit fell to SEK 2,473 million (3,118), with an adjusted operating margin of 10.5% (15.0%). The Industrial margin was 13.8% (17.4%) and the Automotive margin was 1.7% (9.1%).

The margin development in the quarter was largely a consequence of exceptionally challenging circumstances in April and May. In these two months, the war in Ukraine and the Chinese lockdown impacted our earnings negatively. As a result of these circumstances, material, utilities and logistics costs increased by approximately SEK 600 million compared to Q1. Market conditions in June were more normalized. This, in combination with further price increase realization, resulted in more stable earnings towards the end of the quarter.

Going forward, we maintain our emphasis on controlling costs and increasing prices, delivering continued stronger price realization quarter by quarter.

Cash flow from operations improved sequentially and was SEK 1,293 million (1,372).

Delivering on our strategy

We continue to focus on creating a more customer centric, profitable, faster growing and leaner SKF. In addition to investing in our targeted growth areas and increasing the pace of automation of our factories, we are also making progress in pruning our portfolio. As an example, within Automotive, we have already decided to exit margin-dilutive business with total sales of over SEK 1,200 million, with further pruning to take place as long-term contracts come up for renewal.

The second quarter saw the launch of the RecondOil Box, making our technology available to a wider market. We have already recorded sales of 400 units, with a fast-growing orderbook, especially within heavy industries and energy.

When it comes to factory consolidation, we have announced a further two site closures during the first half of the year. We also completed our previously announced controlled exit from Russia.

To further strengthen and complement our existing industrial seals offer, we have signed an agreement to acquire Tenute, an Italian seals manufacturer.

As we move to the next phase of executing on our strategy, two changes to Group Management have been announced this morning. Patrick Tong (President, Industrial Sales China and Northeast Asia) and Kent Viitanen (President, Industrial Sales EMEA), both of whom have played significant roles in SKF's development in recent years, will be leaving SKF during the third quarter. On behalf of everyone in SKF, I wish them well in the future.

Outlook

Looking into the third quarter of 2022, we expect a high single-digit organic sales growth, with an expected recovery in Automotive demand compared to the same quarter last year.

We expect that the high level of volatility in the markets continues with the ongoing war in Europe, high inflation, a risk for Covid-19 related restrictions across many geographies, supply chain bottlenecks and a volatile demand. For the full year 2022, we maintain our outlook of an organic sales growth of about 4-8%."

Key figures, SEKm unless otherwise stated	Q2 2022	Q2 2021	Half year 2022	Half year 2021
Net sales	23,655	20,735	46,597	40,600
Adjusted operating profit	2,473	3,118	5,531	5,907
Adjusted operating margin, %	10.5	15.0	11.9	14.5
Operating profit	1,581	2,878	4,534	5,577
Operating margin, %	6.7	13.9	9.7	13.7
Adjusted profit before taxes	1,990	3,040	4,979	5,626
Profit before taxes	1,097	2,801	3,982	5,296
Net cash flow from operating activities	1,293	1,372	1,022	1,503
Basic earnings per share	1.08	4.59	5.44	8.50
Adjusted earnings per share	2.90	5.11	7.49	9.23

 

Net sales, change y-o-y, %, Q2	Organic1)	Structure	Currency	Total
SKF Group	5.4	-1.9	10.6	14.1
Industrial	6.4	-1.9	10.5	15.0
Automotive	2.7	-1.9	11.1	11.9
1) Price, mix and volume

 

Net sales, change y-o-y, %, Half year	Organic1)	Structure	Currency	Total
SKF Group	6.1	-1.2	9.8	14.7
Industrial	8.7	-1.3	9.9	17.3
Automotive	0.0	-1.0	9.7	8.7
1) Price, mix and volume

 

Organic sales in local currencies, change y-o-y, %, Q2	Europe, Middle East & Africa	The Americas	China & North- East Asia	India & South-  East Asia
SKF Group	5.6	8.7	-8.3	34.7
Industrial	+++	++	--	+++
Automotive	-	++	---	+++

 

Organic sales in local currencies, change y-o-y, %, Half year	Europe, Middle East & Africa	The Americas	China & North- East Asia	India & South- East Asia
SKF Group	8.9	8.1	-8.4	24.7
Industrial	+++	+++	-	+++
Automotive	+/-	++	---	+++

 

Outlook and guidance

Demand for Q3 2022 compared to Q3 2021

Looking into the third quarter of 2022, we expect a high single-digit organic sales growth, with an expected recovery in Automotive demand compared to the same quarter last year.

We expect that the high level of volatility in the markets continues with the ongoing war in Europe, high inflation, a risk for Covid-19 related restrictions across many geographies, supply chain bottlenecks and a volatile demand.

Guidance for Q3 2022

Currency impact on the operating profit is expected to be around SEK 350 million positive compared with the third quarter 2021, based on exchange rates per 30 June 2022.

Guidance 2022          

• For the full year 2022, we expect an organic sales growth of about 4-8%.
• Tax level excluding effects related to divested businesses: around 28%.
• Additions to property, plant and equipment: around SEK 5 billion.

A teleconference will be held on 20 July 2022 at 09:00 (CEST):

Sweden +46 10 884 80 16
UK / International +44 203 936 2999
Passcode: 371618

https://investors.skf.com/en

Aktiebolaget SKF
      (publ)

The financial information in this press release is information which AB SKF is required to disclose under the EU Market Abuse Regulation (EU) No 596/2014 The information was provided by the above contact persons for publication on 20 July 2022 at 08.00 CEST.

For further information, please contact: PRESS: Theo Kjellberg, Director, Press Relations
tel: 46 31 337 6576, mobile: 46 725-776576, e-mail: theo.kjellberg@skf.com

INVESTOR RELATIONS: Patrik Stenberg, Head of Investor Relations
Patrik Stenberg, 46 31-337 2104; 46 705-472 104; patrik.stenberg@skf.com

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The following files are available for download:

https://mb.cision.com/Main/637/3603337/1606025.pdf	Q2_Eng_final
https://news.cision.com/skf/i/skf-massa---086-png-highpreview-1278-2,c3071620	SKF Massa - 086 png highpreview 1278 2
https://news.cision.com/skf/i/rickard-gustafson,c3071621	Rickard Gustafson
https://news.cision.com/skf/i/skf-recondoil-box-20220401-dsc1255-45b6bf05c461ba-jpeg-fullresolution-1,c3071622	SKF RecondOil Box 20220401 DSC1255-45b6bf05c461ba jpeg fullresolution 1

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SOURCE SKF

FAQ

What were SKF's net sales for Q2 2022?

SKF's net sales for Q2 2022 were SEK 23,655 million.

How did SKF's adjusted operating profit change in Q2 2022?

SKF's adjusted operating profit fell to SEK 2,473 million in Q2 2022 from SEK 3,118 million in Q2 2021.

What is SKF's outlook for organic sales growth in 2022?

SKF maintains an outlook of approximately 4-8% organic sales growth for the full year 2022.

What were the main factors impacting SKF's profitability in Q2 2022?

Profitability was impacted by rising material, utility, and logistics costs, totaling approximately SEK 600 million.

What segments drove SKF's revenue growth in Q2 2022?

High-growth segments such as railway, automation, and agriculture contributed to the revenue growth.