SKF First-quarter report 2024: A more resilient and competitive SKF
Gothenburg, 26 April 2024
Rickard Gustafson, President and CEO:
“Our first quarter performance marked another step towards a more resilient and competitive SKF. In soft market conditions, we delivered a strong adjusted operating margin of 13.4%, somewhat ahead of Q1 2023. The margin improvement clearly demonstrates our improved resilience in a situation where organic growth shifted from +10% in Q1 last year to -7% this year.
The improved performance is explained by our active and ongoing focus on business cycle management, in combination with a continued execution of our ongoing strategic initiatives, such as supply chain and footprint optimization, portfolio management, and enhanced sustainability leadership. All in all, we are well-positioned to capture profitable growth opportunities once demand bounces back again.
Strong margin despite sales decline in Q1
Net sales in the first quarter were SEK 24,699 million in a more challenging economic environment. As expected, we saw a soft customer demand in the quarter with large variations across our different industries. We continued to perform well within our targeted high-growth segments. For example, aerospace, railway, and electric vehicles maintained strong growth rates, fueled by innovative solutions developed in close collaboration with our customers.
Organic growth in India and Southeast Asia (ISEA) was 1% driven by a strong performance in heavy industries and light vehicles. In Europe, Middle East and Africa (EMEA) the organic sales decline was -5%, with negative growth in most industries, while aerospace and railway contributed positively.
Organic growth in China and Northeast Asia (CNEA) was -11% in the quarter, which is mainly explained by the slowdown in wind sales. We don’t expect a short-term recovery in wind and, consequently, we are increasing our focus on other industries, such as heavy industries. Excluding wind, growth in CNEA was relatively flat and we saw a positive development in railway and marine with double-digit growth rates. In the Americas, the sales decline was -10%, driven by the continued negative trend with OEM customers destocking, but also due to our efforts in phasing out lower profit businesses. We are now striving to broaden our customer base in certain industrial verticals and thereby increasing our resilience towards shifting economic cycles. This is a top priority for our new leadership in the region that was announced early in the quarter.
In total, the adjusted operating profit was SEK 3,303 million (3,478 million), corresponding to an adjusted operating margin of 13.4% (13.1%). A strong performance given the decline in net sales. A key contributor has been our ongoing strategic transformation initiatives, including investments in regionalization and in building competitive value chains to ensure that we quickly can ramp up production once demand bounces back. In parallel, we have continued to execute tactical activities to manage the business cycle, where decentralized accountability for pricing, portfolio pruning, and cost management have been vital.
Due to all these activities, our Industrial business continued to perform well in the first quarter and maintained an adjusted operating margin above 16%, while the margin for our Automotive business improved to above 6%.
Cash flow from operations was fairly normal for a first quarter and was SEK 1.8 billion. We continue our active work across all business areas to further improve the net working capital performance with a special focus on inventory reduction.
Continued execution of ongoing strategic initiatives
We continue to diligently work on implementing and executing our strategy, increasing our efficiency, and reducing fixed costs. Key focus areas in 2024 are further optimization of our supply chain and footprint, managing and restructuring our portfolio, and gearing up for intelligent and clean growth. A common theme across these priorities is innovation, where we, together with our customers, develop products and solutions that create significant value. This enables us to defend or increase our market share in many important industrial segments, and thereby re-enforce our position as a leader in the industry.
As a global leader within railway, representing 5% of our total sales and outgrowing the market in recent years, we constantly drive innovation in close cooperation and partnership with our customers, both OEMs and operators, to develop solutions for enhanced fleet efficiency and reliability. As an example, we recently developed new high speed ceramic deep groove ball bearings for railway drives.
To gear up for intelligent and clean growth, investments in decarbonization, high speed rotation and low-friction products and services are key. We have developed a bearing tailored for the robotics industry, with a reduced manufacturing CO2 footprint of 70%, enabling an additional 20% CO2 reduction in the end customer application. This is a great example of how SKF, together with our customers, are laying a foundation for a more sustainable future. I am also encouraged that we have received the Platinum Medal for the fourth year running in the sustainability rating from EcoVadis and the top Climate Change rating available from CDP.
Our strong financial performance due to our ability to mitigate the impact from the economic slowdown, and in parallel effectively execute our strategic transformation, would not have been possible without our dedicated employees. I would like to take this opportunity to express my sincere appreciation to all colleagues and partners across the SKF footprint.
Outlook
We expect to see continued market volatility and geopolitical uncertainty and the business is prepared to tackle different scenarios. Looking into the second quarter of 2024, we expect a mid single-digit organic sales decline. For the full year, we expect a low single-digit organic sales decline, compared to 2023.”
| Key figures, SEKm unless otherwise stated | Q1 2024 | Q1 2023 |
| Net sales | 24,699 | 26,549 |
| Adjusted operating profit | 3,303 | 3,478 |
| Adjusted operating margin, % | 13.4 | 13.1 |
| Operating profit | 2,993 | 3,379 |
| Operating margin, % | 12.1 | 12.7 |
| Adjusted profit before taxes | 3,032 | 3,041 |
| Profit before taxes | 2,722 | 2,942 |
| Net cash flow from operating activities | 1,781 | 2,747 |
| Basic earnings per share | 4.15 | 4.55 |
| Adjusted earnings per share | 4.83 | 4.77 |
| Net sales, change y-o-y, %, Q1 | Organic1) | Structure | Currency | Total |
| SKF Group | –7.0 | 0.1 | 0.0 | –6.9 |
| Industrial | –7.3 | 0.1 | –0.2 | –7.4 |
| Automotive | –6.2 | 0.0 | 0.4 | –5.8 |
1)Price, mix and volume
| Organic sales in local currencies, change y-o-y, %, Q1 | Europe, Middle East & Africa | The Americas | China & Northeast Asia | India & Southeast Asia |
| SKF Group | –4.9 | –9.9 | –11.2 | 1.2 |
| Industrial | -- | --- | --- | +/- |
| Automotive | -- | --- | +/- | ++ |
Outlook and Guidance
Demand for Q2 2024 compared to the Q2 2023
Looking into the second quarter of 2024, we expect a mid single-digit organic sales decline.
Guidance for Q2 2024
Currency impact on the operating profit is expected to be around SEK 200 million negative compared with the second quarter 2023, based on exchange rates per 31 March 2024.
Guidance 2024
- For the full year, we expect a low single-digit organic sales decline, compared to 2023.
- Tax level excluding effects related to divested businesses: around 26%.
- Additions to property, plant and equipment: around SEK 5.5 billion.
A webcast will be held on 26 April 2024 at 08:00 (CEST):
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Aktiebolaget SKF
(publ)
The financial information in this press release contains inside information that AB SKF is obliged to make public pursuant to the EU Market Abuse Regulation. The information was submitted for publication through the agency of the contact person set out below on 26 April 2024 at 07.00 CEST.