Scania Value Q4 201 - shareholder magazine

A MAGAZINE FOR SCANIA’S SHAREHOLDERSQUARTER 1 2014

FIGURES IN FOCUS:

XXXXxxxxx xxx xx

xxxx xxxx xxxxx xxx xxxx xxxxx xx.

Report. Higher deliveries and service volume had positive effect > PAGE 2

FIGURE IN FOCUS:

15.5%Market share in Europe heavy trucks, Q1 2014

Finance. Ageing truck fleets in Europe increase replacement needs > PAGES 6–7

Interview. Bengt Thorsson: Europe will rebound > PAGE 3

Services are growingServices are growingCapturing a larger share of the service market > PAGES 4–5 Capturing a larger share of the service market > PAGES 4–5

0

4

8

12

16

20% Operating margin

-14 Q1

-12 Q1

-12 Q2

-12 Q3

-12 Q4

-13 Q1

-13 Q2

-13 Q3

-13 Q4

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2 SCANIA VALUE • Q1/2014 www.scania.com

2012 i korthet:LEVERANSERNA minskade med 21 procent till 46 879 fordon.

RÖRELSERESULTATETminskade med 36 procent till MSEK 6 135

KASSAFLÖDETuppgick till MSEK 2 176

0

5,000

10,000

15,000

20,000

25,000

0

500

1,000

1,500

2,000

2,500

3,000

0

4

8

12

16

20

2014

Q1

2012

Q1

2012

Q2

2012

Q3

2012

Q4

2013

Q1

2013

Q2

2013

Q3

2012

Q1

2012

Q2

2012

Q3

2012

Q4

2013

Q1

2014

Q1

2013

Q2

2013

Q3

Trucks 63%

Other 3%Used vehicles 6%

Services 21%

Engines 1%

Buses and coaches 6%

%SEK m. SEK m.

2013

Q4

2013

Q4

Operating income, SEK m.Operating margin, percent

FIRST 3 MONTHS IN FIGURES

Order bookings and deliveries by region, Q1 (number of vehicles)

Net sales by product segment Net sales Operating income and margin

Key fi gures

Q1 IN BRIEF:DELIVERIES rose by 11 percent to 18,844 vehicles

OPERATING MARGINwas 10.7% (10.0)

EARNINGS PER SHARE increased by 11 percent to SEK 1.95 (1.75)

(SEK m. unless otherwise noted) 2014, 3 mo 2013, 3 mo Change in %

Net sales, Scania Group 21,126 19,341 9

Operating income, Vehicles and Services 1,991 1,778 12

Operating income, Financial Services 266 155 72

Operating income 2,257 1,933 17

Income before taxes 2,109 1,918 10

Net income for the period 1,557 1,398 11

Operating margin, % 10.7 10.0

Return on equity, % 17.6 17.9

Return on capital employed, Vehicles and Services, % 21.1 20.0

Earnings per share, SEK 1.95 1.75 11

Cash fl ow, Vehicles and Services 730 -88 -

Number of employees, 31 March 41,002 38,690

Order bookings (units, trucks and buses) 21,027 20,787 1

Deliveries (units, trucks and buses) 18,844 16,938 11

EUROPE

Order bookings

8,892 +7%Deliveries

8,070 +22%

EURASIA

Order bookings

2,905 +52%Deliveries

1,475 +13%

LATIN AMERICA

Order bookings

4,644 -31%Deliveries

4,818 -23%

ASIA

Order bookings


3,326 +76%

AFRICA AND OCEANIA

Order bookings


1,155 +27%

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www.scania.com • SCANIA VALUE 3Q1/2014www.scania.com

“Europe will rebound”The European market has started a little better than expected. There were concerns before 2014 about how demand would be affected by last year’s pre-buys of Euro 5 trucks, but the pre-buy effect was shorter than feared. “We are now seeing a gradual return to more ‘normal’ levels of demand,” says Bengt Thorsson, Executive Regional Director, European Region at Scania.

intervieW text: per-ola knutas photo: dan boman

During the second and third quarters of last year, many European hauliers took their final chance to order trucks before the transition to the new Euro 6 emission standard, which went into effect at year-end. This contributed to a 38 percent surge in European deliveries during the fourth quarter of 2013 compared to the same quarter of 2012.

“After this pre-buy effect, we expected a period of lower demand, which we have also noticed – although it has not been as lengthy as initially feared,” says Thorsson.How do you view the European market outlook in 2014 and 2015 considering the transition from Euro 5 to Euro 6?

“We have a strong position, since we offered Euro 6 vehicles before our competitors.”

Bengt Thorsson, Executive Regional Director, European Region, Scania

“The ‘blip in the trend’ caused by pre-buys in 2013 may now have passed. The European market has performed better than we expected, due to a more stable economic situation with improved GDP growth and a pent-up replacement need. Our conclusion is that we are now already see-ing a gradual return to more ‘normal’ levels of demand, which bodes well for the rest of 2014.”How does the trend look in the various markets?

“Northern and central Europe generally look stronger than southern Europe. In Germany, with its strong exports, freight volume has been relatively unaffected in recent years, unlike many other markets in Europe. Great Britain –

which is usually early in the economic cycle and where we have some major deliveries in pro-gress – has recovered well. A structural trans-formation is also under way, driving growth for transport companies in central Europe. The trend is that hauliers in Denmark and the Benelux countries are relocating operations to Poland, Romania and Slovakia. The downward trend in southern Europe has levelled out. A recovery is under way, but from very low levels.”How has the industry received Scania’s Euro 6 vehicles?

“We have a strong position, since we offered Euro 6 vehicles earlier than most of our com-petitors, so we have a large reserve of goodwill to build on. Today we have a broader Euro 6 range than our competitors – with robust, tried and tested, cost-efficient trucks. We also recently received the Green Truck 2014 award from the respected German transport trade magazines VerkehrsRundschau and Trucker for one of our Euro 6 models, a great acknowledgement that we offer the truck with the lowest environmental impact in the heavy tractor class.” People in the industry say there is a replacement need due to the ageing vehi-cle population – what is your view?

“During the peak years 2006–2008, we deliv-ered very high truck volume. These vehicles are now late in their service life, which means there is an underlying replacement need. The aver-age age increased from 4.1 to 5.3 years between 2001 and 2013, which means that quite a lot of vehicles will be gradually replaced in the next few years.

“The trend we have seen is that many hauliers are letting their vehicles operate for longer than normal in long-haulage – normally they used to shift trucks from long-haulage to regional traffic a few years into their life cycle. Mean-while, this means service needs are increasing. Scania has shown a stable and positive trend there in recent years.”

“Northern and central Europe look stronger than southern Europe,” says Bengt Thorsson, Executive Regional Director, European Region at Scania.

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foCus: sERVICEs

Due to several driving forces, Scania believes that its service sales will grow. Scania is offering new services and is taking a broader approach to the service market, enabling customers to boost vehicle uptime and reduce costs – especially for fuel.

Services on the riseScania’s ambition is to increase its market share in service sales and offer new types of services, for example maintenance and repairs of bodywork and trailers. This trend is driven by customer demand for better total economy. Vehicle uptime – how many hours per year a vehicle is on the road – is an impor-tant parameter for the customer’s earnings capacity. On the cost side, fuel consumption is crucial.

“We see what a difference we can make for a customer’s total operating economy by offer-ing tailored service packages,” says Christian Levin, Executive Vice President and Head of Commercial Operations. “An optimised vehicle is the foundation, but it should then be supplemented by driver training and tailored maintenance programmes in order to maxim-ise fuel efficiency and uptime.”

One example is Ecolution by Scania, where both vehicles and services are tailored to the customer’s business. During 2013, the number of Ecolution by Scania contracts increased to almost 3,000.

Outsourcing maintenance to ScaniaAnother factor driving demand is that hauliers want to outsource maintenance and repairs to a qualified workshop while stream-lining their own operations. There are more and more examples of customers that let Scania handle all maintenance and repairs at their premises so they can focus completely on providing logistics services to their cus-

tomers. Also reinforcing this trend is that vehicles contain more complex technology, such as more advanced exhaust gas aftertreat-ment systems.

Another opportunity for increased ser-vice sales is the fact that Scania vehicles are increasingly connected via communica-tors that provide vehicle data to offices and workshops.

“This makes it possible to adapt servicing intervals and preventive maintenance to the particular vehicle. For our customers this means more efficient maintenance planning and less risk of unplanned downtime,” says Levin.

Service with overall responsibilityWhen it comes to uptime, one challenge for transport companies is that the chassis is sup-plied by the truck manufacturer while the bodywork – for example a trailer, dumper body or freezer – is supplied by another man-ufacturer. This means that maintenance and repairs often occur in two stages, at the Scania workshop and also at a bodybuilder’s.

Scania is working on broadening its service range to include maintenance and repairs of different types of bodywork and superstruc-tures and has also started the Scania Body-building Centre (BBC). The aim of the centre in Södertälje, Sweden is to facilitate and improve bodybuilding efficiency and to pro-vide the best possible support in the industry to bodybuilders.

The advantage is that Scania can assume

greater responsibility for the entire deliv-ery and thereby facilitate servicing of both vehicle and bodywork in the same place – at a Scania workshop.

“This leads to less downtime, makes it easier for our customer to plan servicing and offers protection since there is access to parts and Scania assumes the entire warranty com-mitment,” says Peter Almqvist, Head of the Scania BBC.

One company that has worked successfully with Scania’s concept of supplying fully-built vehicles such as distribution and construc-tion trucks, refuse trucks and long-haulage trucks is Atteviks Lastvagnar, headquartered in Jönköping, Sweden. The company is one

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text: per-ola knutas photos: scania, patrik svedberg

of Scania’s largest dealerships in Sweden and generates sales of about SEK 300 million annually.

“The possibility of getting a fully-built truck represents a great benefit for our

customers,” says Örjan Kollander, CEO of Atteviks Lastvagnar. “Customers buy their vehicle when the need arises, for instance if they have received a new haulage contract. We are down to a lead time of twelve weeks

from order to delivery of a fully-built truck, compared to 15–16 weeks a few years ago.”

Atteviks and Scania assume overall responsibility for warranty work and ser-vicing of these fully-built vehicles. This also enables Scania to capture a larger share of the service market – sales that previously ended up at competing workshops.

Scania’s ambition is to boost service sales to 25–30 percent of total Group revenue by 2020. Historically, they have accounted for around 20–25 percent.

“This will not happen overnight, but we have a number of new initiatives and we have been an industry leader in this field for a long time,” concludes Levin.

Scania dealership Atteviks Lastvagnar is delivering more and more fully-built trucks, enabling it to take responsibility for warranty work and servicing of the entire rig, including bodywork, accord-ing to CEO Örjan Kollander (above).Left: Tailored main-tenance programmes and driver training are among services of growing impor-tance to Scania.

“We see what a difference we can make for a customer’s total operating economy by offering

tailored service packages.” Christian Levin, Head of Commercial Operations, Scania

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finanCE: aGEinG TRUCK POPULaTiOnS

Ageing fleets to drive demandin Europe

A frequent market view is that a replace-ment need will drive European demand for trucks in the next few years.

A number of variables are impor-tant when analysing the age of the truck population and what it means for future sales. Vehicle utilisation is increasing over time; trucks are oper-ating for more kilometres each year. Meanwhile, quality is continually improving.

It is also important to remember that assessments of future transport needs also drive demand for trucks. Several recently published macro analyses, for example from Nordic banks like Nor-dea and SEB, indicate that market con-ditions in Europe will improve in the

Europe’s truck population has aged steadily. Delivery levels have been relatively low in recent years and there is a replacement need. But the European market is divided. Countries in southern Europe have been more severely affected by the economic downturn and new investments have remained at a low level.

There is no exact figure on how old the trucks on Europe’s roads really are, but an estimate can be made based on the previous ten years’ ex-factory deliveries (of trucks and buses) to Scania’s various markets. This shows a clear trend, with the average age increasing from just over four years in the early 2000s to more than five years in Europe today.

“This estimate excludes the fact that, aside from new truck de-liveries there is some scrapping, importing and exporting of used vehicles in our markets,” says Jonas Sjöberg, Senior Advisor, Parts and Service at Scania.

“ Average age has increased from four to five years”

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TEXT: GÖRAN LIND PHOTO: DAN BOMAN

The trucks operating on European roads are becoming older and older, which means that there is a replacement need.

Average age of Scania vehicles in Europe

Estimated average age of trucks and buses in Europe (total of the previous ten years’ ex-factory deliveries of trucks and buses to Scania’s various markets).

next few years and investments may then accelerate. The forecasting insti-tution IHS Global Insight estimates that the heavy truck market in western Europe will climb to 215,000 units in 2015, up 23 percent on 2013.

“We see no big backlog of orders in the current market but if trans-port volume increases, there will be a need for new investments,” says Flemming Ole Nielsen, Head of Investor Relations at the Danish-based global transport and logis-tics company DSV, adding that the present age of DSV’s trucks varies between three and six years and in some cases up to eight, depending on use.

Varies in different marketsAverage vehicle age also varies quite a lot between markets. Countries like Spain and Italy show higher average ages than Germany and the Nor-dic countries. This is probably not only due to differences in economic conditions.

“Trucks are also subject to varying degrees of wear and tear depending on their use. Long-haulage trucks have a shorter service life than con-struction vehicles. There is a large proportion of the latter category in southern Europe and this is an indus-try where activity has been low in recent years,” says Carl Holmquist, Automotive Analyst at Rementum Research.

Meanwhile, heavy truck registra-tions in Italy and Spain have been relatively low in recent years.

Impact of emission standardsAnother key factor affecting average age and new investments is EU emis-sion standards. First, they affect the timing of investments. Some of the truck deliveries in the fi nal quarter of 2013 were purchases of Euro 5 vehicles before the Euro 6 standard took effect on 1 January 2014. Second, logistics companies often have internal tar-gets for how much of their truck fl eet should meet different standards.

“Our goal is that at least 60 percent of all trucks we use, both our own and others, should be Euro 5-compli-ant or better by 2014,” says Nielsen at DSV.

Age (years)

Years

5,5

5

4,5

4

3,5

32001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

EN06_finans.indd 7 2014-04-11 15:04:33

UPCOMING EVENTS11 June 2014Annual General Meeting

18 July 2014Interim Report, Jan–June 2014

22 October 2014Interim Report, Jan–Sept 2014

Would you like to subscribe?For a free subscription, visit www.scania.com/scaniavalue

IN BRIEF editor: per-ola knutas photos: scania

Scania Value is published by Scaniaand targeted to Scania shareholders.

PublisherPer Hillström, [email protected]@scania.comProject [email protected] Art Director [email protected] Publishing Groupwww.appelberg.comPrinting: Trosa TryckeriCover photo: Göran Wink

ContactScania Investor Relations SE-151 87 Södertälje, SwedenTel: +46 8 553 81 000E-mail: [email protected]

On 21 February 2014, Volkswagen AG presented a public offer to Scania’s shareholders. Volks-wagen is offering SEK 200 per share. Among other things, the offer is conditional on Volkswa-gen gaining control of at least 90 percent of the shares in Scania. At present, VW controls 62.6 percent of the total number of shares in Scania.

An independent committee consisting of independent Board members Åsa Thunman, Peter Wallenberg Jr, Peter Abele, Johan Järvklo and Håkan Thurfjell was appointed on 23

February 2014 to evaluate and issue an opinion on the offer. The Committee has completed a comprehensive evaluation and its recommen-dation can be summarised as follows:

Based on the long-term prospects of Scania, its growth outlook, technological excellence and the synergy potential, the Committee believes the Offer does not ref lect the long-term fundamental value of Scania and a fair share of the expected synergy potential and recommends Scania’s shareholders not to tender their shares.

“Scania is a world leader in its industry and the Committee has strong faith in the compa-ny’s business plan. In our opinion, the current offer does not reflect the long-term value of the company and a fair share of the synergies”, says Åsa Thunman, Chairman of the Independent Committee.

The Committee is unanimous in its positive view of Scania’s position, growth opportunities and strong, long-term value growth. However, Committee member Peter Abele considers the offer adequate or even profitable to investors with a short-term investment horizon.

Documents related to Volkswagen’s offer and the Committee’s recommendation are available on www.scania.com/ir

The Independent Committee appointed to provide its opinion about Volkswagen’s offer to Scania’s shareholders is unanimous in its positive view of Scania’s position, growth opportunities and strong, long-term value growth. The Committee recommends that share-holders should retain their shares in Scania.

Independent Committee on VW’s offer

Scania offers the truck with the lowest environ-mental impact in the heavy tractor class. The respected German transport trade magazines VerkehrsRundschau and Trucker have given the Scania G 410 their Green Truck 2014 award.

With fuel consumption averaging a record-low 23.29 litres of diesel per 100 km, the Scania G 410 received 6,702 points, taking first place by a wide margin in the rankings on which the magazines’ prestigious award is based.

The evaluation is primarily based on the environmental impact of fuel consumption and of the exhaust emissions a vehicle produces, measured by extensive consumption tests that the two magazines perform on a demanding road segment.

“We are delighted with the Green Truck award, especially since this is the second time a Scania truck with a Euro 6 engine has received the prize,” says Christian Hottgenroth, Scania’s sales director for Germany and Austria.

During 2013, more than 700 innovation disclo-sures were submitted to Scania’s Patent Depart-ment, an increase of 40 percent on the 2012 figure.

A continuing trend is that the majority of these disclosures are generated in the develop-ment of electronics and control systems. Within Scania’s Research and Development organisa-tion, the departments for powertrain control

Scania G 410, the ‘Green Truck 2014’, has a fuel consumption averaging a record-low 23.29 litres of diesel per 100 km.

German environmentalaward

Scania sets patent recordsystems and hybrid technology development submitted the most ideas – five inventions per 10 employees.

“We have become spoiled with record levels year after year,” says Stina Sjögren Paulsson, Head of Scania’s Patent Department. “With all the inventions in our pipeline, I wouldn’t be sur-prised if we reach an even higher figure in 2014.”

Here are some of the Scania employees who were recognised for contributing to particularly valuable patents.

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Scania Value Q4 201 - shareholder magazine

Investor Relations

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