SKF reports strong operating result despite fall in demand for first half 2020
July 21, 2020
Sweden’s SKF has released its report for the first half of 2020, in which it states that it has seen strong operating results, despite a sharp fall in demand. The company is the world’s largest producer of ball bearings, and other products include Powder Metallurgy parts such as sintered bronze bushings.
SKF saw its net sales fall organically by 25% to SEK 16.6 billion in the first half of 2020. Sales in both Europe and North America were said to have decreased by about 30%, while sales in Asia were 10% lower compared to the previous year. Sales were said to have continued to be impacted by both government-imposed restrictions and lower underlying demand.
Despite this significant drop in demand, the company reported an adjusted operating margin for the second quarter 2020 of 9.4% (Q2 2019: 12.7%), with an adjusted operating profit of SEK 1.6 billion. Items affecting comparability, including restructuring costs and customer settlements, were reported at SEK 896 million.
SKF’s Industrial business reportedly delivered an adjusted margin of 14% (Q2 2019: 15.7%), despite a 17% drop in organic sales. Its Automotive business, which continued to be impacted by customer closures and lower underlying demand, delivered an adjusted margin of -8.4%, largely driven by a 45% drop in organic sales.
The company stated that it has continued plans to reduce costs and adjust the size of the business, with the ambition of being more flexible and better able to support its customers. Investments in modernisation and automation of its factories, as well as increasing its regional manufacturing capacity, continued, and during Q2 2020 SKF announced a further SEK 400 million investment in its Xinchang ball bearing factory in China.
During the first six months of the year, the company reduced its staff by letting go of 1,350 permanent employees and 750 temporary/agency employees. This contributed to its reported restructuring costs of SEK 657 million. As these efforts continue, the company expects to see a continued elevated level of restructuring costs during the second half of 2020.
Cash flow during Q2 2020 was SEK -838 million as a result of the lower operating result and increased working capital, which in turn was driven by increased sales during the month of June 2020.
Alrik Danielson, SKF’s president and CEO, stated, “We have delivered another very strong operating result, despite sales falling by 25% during the second quarter. This performance allowed us to continue to build a stronger SKF, maintaining high levels of investments in our factories and new customer offerings whilst at the same time capitalising on new ways of working. In June, we also announced that our manufacturing operations will be carbon neutral by 2030.”
“The new reality [due to COVID-19] brings a lot of challenges for our customers but it also makes the value of our connected monitoring and lubrication offers even more relevant,” he noted. “With our ability to offer remote analysis and AI-based maintenance, we continue to help customers’ machines rotate, without the need for on-site support.”
“The uncertainty continues but we are taking action to make sure that we emerge as a stronger company. We continue to invest in innovation and automation, and we feel confident that we will be able to respond to different demand scenarios, continuing to support our customers and protecting our cash flow and financial strength,” he concluded.