SKF Year-end report 2023: Strategy execution yielding strong performance

GÖTEBORG, Sweden, Jan. 31, 2024 /PRNewswire/ --

Q4 2023

Net sales: SEK 24,438 million (25,361) Organic growth: -1.9% (9.7%) Adjusted operating profit/margin: SEK 2,929 million, 12.0% (2,542, 10.0%)

Full year 2023

Net sales: SEK 103,881 million (96,933) Organic growth: 3.7% (8.1%) Adjusted operating profit/margin: SEK 12,977 million, 12.5% (10,204, 10.5%)

Rickard Gustafson, President and CEO:

"We have diligently executed on our strategy throughout 2023 to further strengthen us as a company. This strategic transformation has made us more resilient and competitive also in the weaker demand environment that we faced in the second half of 2023. This is also reflected in our results for the full year 2023 where we, for the first time ever, delivered net sales over SEK 100 billion. This brings our organic growth to around 4%. The adjusted operating margin for 2023 came in at 12.5%, a significant improvement compared to 2022. Cash flow from operations was SEK 13.8 billion, which is one of our strongest performances ever.

Strong fourth quarter results despite lower demand

Net sales in the fourth quarter was SEK 24,438 million, representing an organic sales decline of -2% (+10%). In the quarter, we saw lower customer demand in all of our regions due to the economic slowdown, partially offset by effective price & mix management. Within our targeted high-growth segments we performed well in railway, industrial distribution and aerospace, fueled by our ability to develop innovative solutions together with our customers. To give just a few examples, in the fourth quarter we introduced new robust bearings for railway gearboxes and precision bearings for lithium battery production.

In the fourth quarter, the adjusted operating profit was SEK 2,929 million (2,542 million). The adjusted operating margin of 12% was significantly higher than in the fourth quarter last year (10%) despite a high single digit volume drop. Pricing, cost and continued portfolio management activities contributed positively to our profitability. Our decentralized operating model has further enhanced our ability to drive productivity and efficiency in our operations. As an example, we successfully completed the previously announced SEK 2 billion annual run-rate savings program including a reduction of more than 1,000 staff positions. Our increased transformation pace is also reflected in items affecting comparability, which is high in the quarter, driven by rapid progress in key strategic initiatives, e.g. Busan factory closure, Schweinfurt transformation and staff reductions.

Our Industrial business continued to perform well in the quarter and delivered a strong adjusted operating margin above 15% (12%) despite lower demand. Our efforts to prune the portfolio partly explains the lower growth, but it has also helped to improve our profitability as we continue to focus on higher margin businesses. The adjusted operating margin for our Automotive business in the fourth quarter came in at 4% (5%), with Q4 typically being a lower margin quarter. We feel confident that our underlying Automotive business performance is on a positive trajectory as we shift the portfolio towards electrification and lower friction solutions.

The continued activities to improve our net working capital, mainly through reducing our inventories, has brought NWC below 28% of sales in the fourth quarter, contributing to the very strong cash flow from operations of SEK 3.9 billion (3.4 billion) in the quarter.

Rapid execution of our strategy in 2023

Last year, our performance was tested both in a strong demand economy in the first half, as well as in an economic slowdown in the second half. We can conclude that our strategy has helped us to navigate in both types of environments and made us more resilient and competitive.

Thanks to our investments in innovation and technology development, we have a strong product and services pipeline with several new products being launched in 2023, bringing significant customer value and thereby fueling profitable growth. This has enabled us to defend or increase our market share in many important industrial segments. The strong progress and double-digit growth in several of our targeted high-growth segments was maintained throughout 2023, with e.g. railway and aerospace businesses growing around 20%.

Regionalization and optimization of our manufacturing footprint are important parts of our strategy to be closer to our customers and thus shorten delivery times and reducing need for transportation. In 2023 we took some major steps in all our regions, for example the inauguration of our factory in Monterrey, Mexico, the announced closings of the factories in Luton, UK, and Busan, Korea, as well as the progress in the restructuring of our operations in Schweinfurt, Germany. We have also continued to actively work with portfolio management, both on a strategical and a tactical level, with the finalized strategic review of our Aerospace business as an example of the former.

By providing solutions to our customers to minimize friction and energy waste in their operations, we continue to contribute to the needed sustainability transformation. For our own operations, we decided last year to allocate a total of SEK 3 billion over a 6-years period to meet our energy and decarbonization goal by 2030. Our leading and ambitious sustainability efforts are also recognized by EcoVadis in their latest sustainability rating, where we received a Platinum Medal and retained our position in the top 1% of all companies assessed.

All these, and other, achievements would not have been possible without the great work and dedication from our employees throughout the year. I'm very grateful for their commitment and how they support each other, our customers, and our business.

Outlook

In 2024, we will focus on successfully implementing our ongoing strategic initiatives. This includes, for example, continued activities related to optimizing our supply chain and footprint, managing and restructuring our portfolio, and strengthening our leadership position within sustainability and low-friction products and services.

In 2024, we expect to see continued market volatility and geopolitical uncertainty and the business is prepared to tackle different scenarios. Looking into the first 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.

In recognition of the Group's solid financial position, the Board has decided to propose to the Annual General Meeting a dividend of SEK 7.50 per share."

¹⁾ Price, mix and volume

¹⁾ Price, mix and volume

Outlook and guidance

Demand for Q1 2024 compared to Q1 2023
Looking into the first quarter of 2024, we expect a mid-single-digit organic sales decline.

Guidance for Q1 2024
Currency impact on the operating profit is expected to be around SEK 400 million negative compared with the first quarter 2023, based on exchange rates per 31 December 2023.

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 31 January 2024 at 08:00 (CET):
Sweden +46 10 884 80 16
UK / International +44 20 3936 2999
Passcode: 027223

https://investors.skf.com/en

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 31 January 2024 at 07.00 CET.

For further information, please contact:

PRESS: Carl Bjernstam, Head of Media Relations
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 

The following files are available for download: