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

 

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.”

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.

SKF

Contact:
Patrik Stenberg, Head of Investor Relations

tel: 46 31-337 2104;
mobile: 46 705-472 104;
patrik.stenberg@skf.com

 


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