SKF Nine-month report 2021: Industrial maintains its strong momentum; Automotive hit by customer supply constraints

Rhea-AI Summary

SKF reported solid demand in Q3 2021, achieving net sales of SEK 20,146 million, up from SEK 18,596 million year-over-year, driven primarily by a 13% organic growth in its Industrial segment. However, the Automotive sector faced challenges with a -5% decline in sales due to reduced production from key customers. The group's adjusted operating profit was SEK 2,672 million, maintaining a 13.3% margin. SKF anticipates continued supply chain issues and plans to close six manufacturing sites by year-end. The company targets a net zero greenhouse gas supply chain by 2050.

Positive

• Net sales increased to SEK 20,146 million, a rise from SEK 18,596 million year-over-year.
• Organic growth of 8%, with Industrial business up 13%.
• Adjusted operating profit reached SEK 2,672 million, up from SEK 2,475 million.

Negative

• Automotive business faced a decline of 5% in sales due to reduced production from key customers.
• Adjusted operating margin in Automotive fell to 4% from 7%.
• Cash flow decreased to SEK 1,470 million from SEK 2,266 million, primarily due to increased inventories.

GÖTEBORG, Sweden, Oct. 26, 2021 /PRNewswire/ -- Rickard Gustafson, President and CEO:

"The third quarter saw continued solid demand. Our Industrial business, which represents approximately 75% of sales, main­tained its strong momentum, despite challenges from logistics constraints and cost inflation. Our Automotive business was significantly impacted by reduced production amongst key cus­tomers, especially in September. Throughout the whole business, we have worked hard and diligently to mitigate the negative impact of these external circumstances.

Organic growth in the quarter was 8%, with Industrial grow­ing by a strong 13% and Automotive down by -5%. Net sales were SEK 20,146 million (18,596). We saw growth in all regions, with some levelling off in Asia.

The adjusted operating profit was SEK 2,672 million (2,475) and the adjusted operating margin was 13.3% (13.3%).

Our Industrial business delivered a strong result, further increasing its adjusted operating margin to 17% (16%), despite very challenging conditions during the quarter, including cost inflation and logistics availability. We are seeing particularly strong growth in industrial drives, industrial distribution and off-highway applications. On a regional basis, Europe, North America and Latin America saw the strongest growth levels.

Our Automotive business was impacted by reduced produc­tion at key customers, often with short notice, resulting in lower sales, reduced productivity and a build-up of inventories. Demand in the automotive aftermarket stayed strong, however, due to the volatile demand from car manufacturers, the adjusted operating margin came in at 4% (7%). Whilst underlying demand for cars was strong, we are meeting continued uncertainty with actions to protect our margins, including reviewing commercial terms and manufacturing capacity.

On a Group level, we continue to consolidate our manufactur­ing footprint, with a further six sites to be closed by the end of the year, taking the total since 2019 to 12.

Cash flow generation in the quarter was SEK 1,470 million (2,266), mainly driven by increased inventories due to logistics bottlenecks, customer shut­downs and higher investments.

The Group already has ambitious CO2 reduction targets for its own operations, including a net zero objective for 2030. We're now taking the next step, with an ambition to also have a net zero greenhouse gas supply chain by 2050. Steel is the main source of emissions in our supply chain, and we are working with suppliers and partners, such as SteelZero, Responsible Steel and Luleå University, to speed up the development of fossil-free bearing steel.

Taking a more long-term view, I am convinced of our ability to continue to build on our strong brand and technological leadership. Our focus right now is articulating a roadmap for securing the growth that will help us achieve our financial and operational targets. Therefore, we have commenced a strategic review initia­tive, which will help us identify how to maximize the full potential of our current business as well as prioritize future technology and footprint investments. The review will be completed by the turn of the year and presented in conjunction with our full year results in early 2022.

Looking into the fourth quarter, we expect to see continued challenging conditions from cost inflation and constrained logistics. In terms of sales, we expect a continued solid demand across our Industrial business. Demand development in our Automotive business will remain uncertain, with supply constraints and production delays resulting in very different market conditions than those experienced in the fourth quarter last year. Given the uncertainties in the market, we expect organic sales for the fourth quarter to be in-line with the previous year."

Key figures, SEKm	Q3 2021	Q3 2020	Jan-Sep 2021	Jan-Sep 2020
Net sales	20,146	18,596	60,746	55,280
Adjusted operating profit	2,672	2,475	8,578	6,612
Adjusted operating margin, %	13.3	13.3	14.1	12.0
Operating profit	2,588	1,922	8,165	4,859
Operating margin, %	12.8	10.3	13.4	8.8
Adjusted profit before taxes	2,524	2,273	8,150	5,909
Profit before taxes	2,440	1,720	7,736	4,156
Net cash flow after investments before financing	1,470	2,266	1,277	3,358
Basic earnings per share	3.86	2.59	12.36	6.09
Adjusted earnings per share	4.04	3.80	13.27	9.94

Net sales change y-o-y, %, Q3	Organic	Structure	Currency	Total
SKF Group	7.7	–	0.6	8.3
Industrial	13.3	–	0.3	13.6
Automotive	-5.2	–	1.3	-3.9

Net sales change y-o-y, %, Jan-Sep 2021	Organic	Structure	Currency	Total
SKF Group	15.6	–	-5.8	9.8
Industrial	13.1	–	-5.7	7.4
Automotive	22.4	–	-5.8	16.6

Organic sales change in local currencies, per region y-o-y, %, Q3	EMEA	North America	Latin America	Asia
SKF Group	11.9	7.2	12.7	1.6
Industrial	+++	+++	+++	++
Automotive	-	---	+/-	--

Organic sales change in local currencies, per region y-o-y, %, Jan-Sep 2021	EMEA	North America	Latin America	Asia
SKF Group	16.0	10.4	32.6	14.8
Industrial	+++	+++	+++	+++
Automotive	+++	+++	+++	+++

Outlook and guidance

Demand for Q4 2021 compared to Q4 2020

Looking ahead, uncertainty remains and in terms of sales, we expect to see continued supply chain challenges among our customers. We expect organic sales for the fourth quarter to be relatively unchanged compared to the fourth quarter 2020.

Guidance Q4 2021

Currency impact on the operating profit is expected to be around SEK 50 million compared with Q4 2020, based on exchange rates per 30 September 2021.

Guidance 2021

• Tax level excluding effects related to divested businesses: around 26%. Previous guidance was around 28%.
• Additions to property, plant and equipment: around SEK 3,800 million.

A teleconference will be held on 26 October 2021 at 09:00 (CEST):

Sweden +46 10 884 80 16

UK / International +44 203 936 2999

Passcode: 101419

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 26 October 2021 at 08.00 CEST.

For further information, please contact:

PRESS: Carl Bjernstam, Corporate Communication
tel: 46 31-337 2517; mobile: 46 722-201 893; e-mail: carl.bjernstam@skf.com 

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

This information was brought to you by Cision http://news.cision.com

https://news.cision.com/skf/r/skf-nine-month-report-2021--industrial-maintains-its-strong-momentum--automotive-hit-by-customer-sup,c3439941

The following files are available for download:

https://mb.cision.com/Main/637/3439941/1486026.pdf	Q3_2021_Eng
https://news.cision.com/skf/i/skf-hq,c2972080	SKF HQ
https://news.cision.com/skf/i/rickard-gustafson,c2972081	Rickard Gustafson

View original content:https://www.prnewswire.com/news-releases/skf-nine-month-report-2021-industrial-maintains-its-strong-momentum-automotive-hit-by-customer-supply-constraints-301408318.html

SOURCE SKF

FAQ

What were SKF's net sales for Q3 2021?

SKF's net sales for Q3 2021 were SEK 20,146 million.

How did the Automotive segment perform in Q3 2021?

The Automotive segment experienced a decline of 5% in sales in Q3 2021.

What is the organic growth rate for SKF in Q3 2021?

SKF reported an organic growth rate of 8% in Q3 2021.

What are SKF's plans for its manufacturing footprint?

SKF plans to close six manufacturing sites by the end of 2021, totaling twelve closures since 2019.

What are SKF's greenhouse gas reduction targets?

SKF aims for a net zero greenhouse gas supply chain by 2050.