Wednesday November 4, 09:21 PM

INTERVIEW - SKF CEO: environment uncertain, pricing tough

By Sumeet Chatterjee

BANGALORE (Reuters) - Sweden's SKF, the world's biggest bearings maker, sees an uncertain business environment despite stabilisation in demand in some sectors and markets, its chief executive said on Wednesday.

The company expects the revenue contribution from Asia to rise to more than 20 percent in this year from 19 percent last year on growing demand from countries such as China and India, Tom Johnstone said.

SKF, seen as a bellwether for the manufacturing sector, makes bearings used in products ranging from dishwashers to passenger jets. The company posted a smaller-than-expected fall in quarterly earnings last month due to cost cuts.

"It is still a very uncertain business environment for us," Johnstone told Reuters in an interview, after inaugurating the company's testing centre in technology hub Bangalore.

"We see a stabilisation and we see a slight improvement (in demand) sequentially, but it is not certain."

SKF and other manufacturers saw a sharp drop in sales in a matter of weeks last year as the global financial crisis cut off access to credit and sent economies into a deep recession.

Signs have emerged in recent months that the plunge may have bottomed, with buying resuming now that inventories built up during the boom years have been depleted.

Johnstone said SKF was seeing sequential improvement in sales volumes in Asia and Latin America, while Europe and North America, the regions that account for most of its sales, were stable.

"We see improvement in some sectors, but it is not a sustained recovery yet," he said.

Auto-related sales make up roughly a third of SKF's business, and Johnstone said the firm was seeing benefits from incentive schemes for the car sector that were introduced to break the free-fall in auto markets in the wake of financial crisis.

But the outlook was uncertain for the auto sector, he said, as governments have begun to phase out the inventives in a move that could dent auto sales.

PRICE A CHALLENGE

The chief executive said the pricing environment was tough, and said it would be a challenge to maintain a positive price mix in the December quarter.

"We have customers putting lot of pressure to reduce prices," Johnstone said. "We have had 43 quarters in a row with positive price mix, but fourth quarter is going to be a very tough challenge for us to keep a positive price mix."

SKF, which has cut more than 4,000 jobs this year due to the sharp fall in demand, will announce additional restructuring measures during the current quarter, Johnstone said, although he declined to elaborate as the steps were still being finalised.

The company didn't expect any benefit from a weaker Swedish crown in its fourth quarter earnings, he said, reiterating his October forecast of sales volume decline by "mid teens" in October-December from a year earlier.

Shares in SKF were up 1.8 percent at 114.50 crown by 1114 GMT, outperforming a 1.3 percent rise in the Stockholm market's main index.

(Editing by John Mair)

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