Scania Value Q4 2013 - shareholder magazine

A MAGAZINE FOR SCANIA’S SHAREHOLDERSQUARTER 4 2013

FIGURES IN FOCUS:

XXXXxxxxx xxx xx

xxxx xxxx xxxxx xxx xxxx xxxxx xx.

Report. The stronger krona narrowed the margin > PAGE 2

FIGURE IN FOCUS:

7.75Earnings per share (SEK)

for the full year 2013.

0

4

8

12

16

20% Operating margin

-13 Q4

-11 Q4

-12 Q1

-12 Q2

-12 Q3

-12 Q4

-13 Q1

-13 Q2

-13 Q3

Finance. Analysts expectthe market to speed up in 2015. > PAGE 5

Interview. Martin Lundstedt:Scania is prepared for growth.> PAGES 3–4

Xxxxx xxxx xxxxxxxx xx x xxxxxx xxxxx. > SID 4–5

Global opportunities Comprehensive solutions increasingly vital in logistics > PAGES 6–7

2 SCANIA VALUE • Q4/2013 www.scania.com

0

5,000

10,000

15,000

20,000

25,000

0

500

1,000

1,500

2,000

2,500

3000

0

4

8

12

16

20

2013

Q4

2011

Q4

2012

Q1

2012

Q2

2012

Q3

2012

Q4

2013

Q1

2013

Q2

2011

Q4

2012

Q1

2012

Q2

2012

Q3

2012

Q4

2013

Q4

2013

Q1

2013

Q2

Trucks 64%

Other 3%Used vehicles 5%

Services 19%

Engines 1%

Buses and coaches 7%

%SEK m. SEK m.

2013

Q3

2013

Q3

Operating income, SEK m.Operating margin, percent

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

röreLseresuLtatet minskade med 36 procent till MSEK 6 135

KassaFLöDet uppgick till MSEK 2 176

2013 in brief:DeLiveries rose by 19 percent to 80,464 vehicles

Operating margin amounted to 9.7 percent (10.4)

prOpOseD DiveDenD is SEK 4.00 (4.75) per share

(SEK m. unless otherwise noted) 2013 2012 Change in %

Net sales, Scania Group 86,847 79,603 9

Operating income, Vehicles and Services 7,736 7,694 1

Operating income, Financial Services 719 606 19

Operating income 8,455 8,300 2

Income before taxes 8,408 8,281 2

Net income for the period 6,194 6,640 -7

Operating margin, % 9.7 10.4

Return on equity, % 17.5 19.2

Return on capital employed, Vehicles and Services, % 21.7 22.8

Earnings per share, SEK 7.75 8.31 -7

Cash flow, Vehicles and Services 3,231 3,025 7

Number of employees, 31 December 40,953 38,597

Order bookings (units, trucks and buses) 80,935 71,945 12

Deliveries (units, trucks and buses) 80,464 67,401 19

2013 in figures

Order bookings and deliveries by region, 2013 (number of vehicles)

net sales by product segment, 2013net sales Operating income and margin

Key figures

eurOpe

Order bookings

36,431 +23%Deliveries

33,625 +16%

eurASiA

Order bookings

6,932 -1%Deliveries

7,110 +2%

LATin AMeriCA

Order bookings


26,534 +46%

ASiA

Order bookings


8,788 -6%

AfriCA AnD OCeAniA

Order bookings


4,407 +14%

www.scania.com Q4/2013 • SCANIA VALUE 3

How would you summarise 2013?“We were able to strengthen our position and

increase market shares in Europe and Latin America. We also strengthened our product portfolio by launching Scania Streamline and second-generation Euro 6 engines, which are very important in the European market dur-ing 2014. We are pleased that service revenue rose by six percent and that Financial Services reported a year of record earnings.

“But 2013 was also a year of challenges. Our flexibility was severely tested. In Europe, order bookings speeded up during the second and

third quarters, driven by the many customers who wanted to invest in Euro 5 trucks before the transition to Euro 6; we had to produce these before year-end. Despite higher volume we could not increase profitability, largely

because the stronger Swedish krona adversely affected earnings, but also because our costs are at a high level.”Scania has an ambitious growth plan with potential to sell 120,000 trucks in 2020 – how will you achieve this?

“Our growth strategy focuses on five areas: boosting service revenue per vehicle, growing with the market and increasing our market share as well as entering new markets and new segments. We have invested in order to strengthen our product and service portfolio, enlarge production capacity and also expand our sales and service network in emerging markets.”What are the most important external forces driving increased demand?

“Economic growth is the fundamental driv-ing force for all markets. In Europe, we have an

“Prepared for growth”Scania is prepared for future growth. The strategy includes moving into new markets and segments while boosting service revenue per vehi-cle. “We have a strong history of profitable growth and feel sure that our strategy will give us a stable foundation for this in the future,” says Scania President and CEO Martin Lundstedt.

INTERVIEW text: per-ola knutas photos: dan boman

“In emerging markets there is great potential for the more efficient, sophis-ticated transport solutions that Scania provides.”


ageing vehicle population due to low delivery levels in recent years. There is a replacement need here, which will drive demand. At some point, Europe will return to previous levels. Historically, every peak has been higher than the previous one.”What are the driving forces in emerging markets?

“The structural transformation now under way in these markets will benefit Scania. Factories in China maintain the same high level as here, but the transport system is 10-20 years behind. It makes no economic sense for global manufacturers with operations in China to have to wait for deliveries, with production stoppages as a result, because of inefficient

transport. This opens up great potential for the more efficient, sophisticated transport solu-tions that Scania provides.

“Global urbanisation is another driving force. In emerging markets, many major cities that are threatened by severe traffic conges-tion must focus on easier access and on the environment. Here we can deliver buses that can run on alternative fuels and offer complete Bus Rapid Transit (BRT) systems that improve accessibility, as in Bogotá and Johannesburg. In those cities, BRT systems operate like an above-ground metro, with dedicated lanes and ticket-handling outside the buses.

“The need for sustainable transport systems that help improve environmental problems is obvious

in many emerging markets, for example in China.” Why are sustainable transport systems so vital to Scania’s long-term profitability?

“Our business model, based on maximising revenue and minimising costs for our custom-ers, coincides with government efforts to re-duce carbon dioxide emissions. Our customers’ customers – the buyers of transport services – are facing increasingly tough demands from end consumers, who want to know how products are transported and how large carbon dioxide emissions are. So sustainability is not a matter of earmarking funds to meet various environmental standards, but is instead vital to our future competitiveness.”How will you boost service revenue from its historical 20–25 to 25–30 percent of the total?

“Scania has major potential to increase revenue per vehicle. Two ways are to strengthen our posi-tion in demanding segments such as mining and forestry, as well as in bus systems, and to work with concepts like Ecolution by Scania – our portfolio of vehicles and services focusing on the environment and fuel efficiency. We will also boost revenue per vehicle by working to ensure that more owners of second-hand vehicles also come to Scania for servicing.

“We must also increase our market shares in the services we offer today. Merely growing with the Scania vehicle population on the roads is not enough. We must also be prepared to offer new services, with one area being superstructure ap-plications such as cranes and cement mixers. This requires fresh approaches in our organisation and will not happen by itself, but I am convinced we have progressed further than our competitors on this point.”How does the relationship with Volkswagen help generate value for Scania and its share-holders?

“We have had Volkswagen as a long-term industrial owner since 2000, and during that period Scania has developed nicely. We have had and still have strong support for our strat-egy, which involves continued investments in our business. The Volkswagen Group has some of the biggest research and development re-sources in the world, and in many areas we can take advantage of expertise and knowledge.”

“The need for sustainable transport sys-tems that help improve environmental problems is obvious in many emerging markets.”

During 2014 the European heavy truck market may remain at about the same level as in 2013, a relatively weak year, or slightly better. Although there are uncer-tainties, the market trend may continue to strengthen in 2015, according to market analysts that Scania Value has spoken with.

text: mats falck photos: dan boman, handelsbankenFinance: Market outlook

Macroeconomic indicators point towards a slow economic stabilisation in Europe. Other factors also signal brighter market prospects.

“The full-year 2014 outlook in Europe is rather subdued, but the direction should be positive,” says Erik Golrang, an analyst at investment bank ABG Sundal Collier. “Early in the year, a vacuum may arise due to the shift from Euro 5 to Euro 6 – an ordinary correction in demand right after a period of pre-buying before a new emission standard takes effect. But the cargo volume and activity we are seeing indicate that there should soon be a positive trend, which may continue into 2015.”

Today the European heavy truck market is at a low level; in 2013 around 220,000 vehi-cles were sold, compared to a normal 260,000. This represents scrapping level. In other words, sales of new vehicles equal the number being

scrapped, according to analyst Hampus Engel-lau at Handelsbanken Capital Markets:

“We are seeing a very outdated vehicle struc-ture in Europe, with the average age of haulier-owned trucks at seven years. Because of this age problem, hauliers will have to start replacing their trucks, which they will begin to do as the economy improves.”

Given the low initial sales level, combined with a more stable economy and a thawing cred-it market, there is potential for a stronger market as early as 2014, according to the analysts.

Early 2014 hard to assessOther factors point in a different direction, how-ever. For example, many haulage company own-ers in Europe took the opportunity to invest in Euro 5 trucks before the new Euro 6 rules took effect at year-end 2013. This means the truck mar-ket early in 2014 may be somewhat hard to assess.

“But we believe that macroeconomic improvements and better credit availability will carry more weight than the Euro 6 effect, so we are optimistic despite the obvious risk factors. Growth should end up between 0 and 10 per cent in 2014,” Engellau says.

The market in North America has a structure similar to that of Europe but is about one year ahead in terms of higher cargo volume. Positive

www.scania.com • SCANIA VALUE 5Q4/2013

signals there, with better economic momen-tum and improved profitability for hauliers, will strengthen the market.

“We foresee almost double-digit growth in North America during 2014,” Engellau says.

The Brazilian market can probably expect a downturn, since subsidised interest rates for truck investments will be raised slightly from their previously low levels. The outlook in Asia is brighter, Golrang believes.

“There is an increased focus on more efficient transport solutions, especially in China and South-east Asia, as well as in the Middle East,” he says.

OECD: Faster growth in 2015

In its latest economic report, the OECD estimates that euro zone GDP will grow by 1.0 percent during 2014 and by 1.6 percent in 2015. Economic activity will thus recover during 2014-2015, but the pace of recovery is ex-pected to be subdued because of debt reduction, weak balance sheets and tight credit market conditions.

but a stronger 2015A weak start to 2014,

Hampus Engellau, analyst at Handelsbanken Capital Markets

“Hauliers will begin replacing their trucks as the economy improves.”


FOCUS: GLOBAL LOGISTICS TRENDS

Economies of scale and flexibility are key factors behind global logistics developments, but there are others. Fuel costs, environmental legislation and corporate social responsi-bility are also matters of growing importance, posing challenges to logistics companies while opening opportunities for vehicle manufacturers to broaden their offerings.

Strong driving forces in global logistics

In the chain from order to delivery, road transport services are becoming more and more important. China and Africa are driving this trend.

“The logistics industry has grown rapidly for many years as manufacturers have globalised their operations and outsourced their own logistics. Another industry trend is mergers and buy-outs,” says Susanne Hertz, a professor at Sweden’s Jönköping International Business School special-ising in logistics and supply chain management.

Sending goods from door to door all over the world requires a flexible network that includes all modes of transport: air, rail, road and sea. This is precisely what global logistics compa-

nies can offer. Their large transport volume cre-ates economies of scale that keep costs down.

Freight volume is increasingThe quantity of goods being transported has kept pace with the growth of international trade. This also applies to the use of central warehous-es en route from manufacturer to end customer. Greater standardisation, for example uniform containers, has reduced costs. The importance of shipping costs varies between sectors. Such

costs are very significant when transporting for-est products, ore and other high-volume cargos with low added value.

Professor Hertz believes that in the future, road transport will become even more impor-tant, among other things because of the increasing freight volume in emerging mar-kets such as China and Africa.

“Compared to the alternatives, trucks have the advantage of being able to create a network much faster,” she says.

www.scania.com • SCANIA VALUE 7Q4/2013

text: åke r malm, per-ola knutas illustration: robin boyden photos: marco ricci, patrik svedberg

Morocco: Greater focus on life cycle costsOne example of a market with an increased focus on vehicle life cycle cost is Morocco. Improved transport infrastructure means that fuel economy is among factors that have gained in importance.

The expansion of Morocco’s

highway network has led Scania to

rapidly open more workshops around

the country.

“Today Scania is the second largest European premium brand in Morocco,” says Monssif Abied, Managing Director of Scania Maroc.

Long-haulage trucks are the biggest sell-ers, along with mining and construction vehicles.

Abied explains that Moroccan truck oper-ators have now begun to focus on the cost of a vehicle’s entire life cycle. This means that fuel economy, uptime and resale value are assuming greater importance:

“Today the market is changing fast, with greater focus on overall cost than pur-chase price – a natural consequence of improvements in Morocco’s infrastruc-ture,” he says. “Along with calls for higher productivity in logistics systems, there are also greater demands for vehicle quality and uptime, since every hour that a vehi-

cle stands still means lost revenue for its owner.”

Over the past decade, road transport con-ditions have improved and this trend looks set to continue, with a number of ambitious highway projects under way, Abied explains. This means that Scania Maroc must expand its service network at a corresponding pace.

“We will open a number of new service workshops in the next few years,” says Abied, adding that being close to customers is impor-tant to ensure continued growth, as is a well-developed range of services.

“We were the first to offer service contracts and driver training, and our training centre for service technicians is working very well, which means that the staffing question is already solved when we open a workshop,” Abied says.

She also points out that it is far more expen-sive to build railways than paved roads. As the global logistics industry grows, there will be an increasing need to transfer goods between different modes of transport, so intermodal terminals and “dry ports” are becoming more common. These serve as nodes for reloading between maritime and road or rail transport. They can be located inland, where property and warehousing costs are lower.

Life cycle cost increasingly vitalFuel costs, environmental legislation and cor-porate social responsibility (CSR) are of grow-ing importance to the global logistics industry. They pose challenges to transport companies, since firms whose vehicles have low fuel con-sumption and environmental impact – and that offer sensible working conditions for drivers – enjoy an advantage. Staying competitive in the transport business requires keeping up in terms of technological development, fuel consump-tion, pay, working conditions and maintenance costs. This opens opportunities for vehicle man-ufacturers to broaden their offerings to include service contracts, driver training, financing, leasing and more.

Over the past decade, transport compa-

nies have increasingly shifted their focus from looking only at a vehicle’s purchase price to weighing in its total life cycle cost. This trend is becoming stronger.

“Large transport companies in particular have become more professional in their pro-curements,” says Carl Holmquist of the vehicle-oriented analytics firm Rementum Research. “Purchase price has diminished in importance. Today companies have a life cycle perspective, weighing in such factors as fuel efficiency, reli-ability, service costs and driver salaries.”

The driving forces behind this trend are increasingly professional and demanding buyers of transport services, rising fuel costs and the large resources required for transport companies to handle the servicing of modern, technologically advanced vehicles. It is often more advantageous for them to agree on a comprehensive package with their suppli-ers that may include servicing, financing and training in how to drive vehicles efficiently and gently.

“So far this trend has been strongest in west-ern Europe and North America, but as the logistics sector evolves in emerging markets, we will definitely see the same trend there as well,” Holmquist says.

“The logistics indus-try has grown rap-idly for many years.”

Susanne Hertz, professor, International Business School, Jönköping

UPCOMING EVENTS25 April 2014Interim report, Jan–Mar 2014

7 May 2014Annual General Meeting 2014

18 July 2014Interim report, Jan–Jun 2014

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

IN BRIEF editor: per-ola knutas photos: dan boman, lucas holm, 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: Getty Images

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

Euro 6 bus orders in Germany and Australia Scania has received an order to provide 156 articulated buses for Berlin’s public transport provider, Berliner Verkehrsbetriebe (BVG).

“This order is strategically important for estab-lishing Scania in the German bus market,” says Fredrik Dahlborg, Sales Director, Europe and Eurasia, Buses & Coaches at Scania.

Deliveries will occur between 2014 and 2017 and include 156 Scania Citywide buses equipped with Euro 6 engines and automated gearboxes, as well as close cooperation on service and maintenance. Predictable maintenance costs and good fuel economy were decisive in winning the BVG order.

The government of the Australian Capital Ter-ritory (ACT) in Canberra has selected Scania to supply a new fleet of 77 Euro 6 buses. The Can-berra bus fleet operator “has decided to take the lead in the introduction of Euro 6 emission tech-nology,” says Trevor O’Brien, National Bus Man-ager, Scania Australia. “The Australian Federal Government is yet to announce a date for intro-duction of Euro 6 emission standards, underlin-ing the progressive action of the ACT operator.”

Record order for Euro 6 trucksBritish transport companies Eddie Stobart and A.W. Jenkinson Forest Products have together ordered 1,500 Scania Euro 6 trucks in the largest single truck order to date in the United Kingdom. The order, which will be filled over two years, fol-lows a new joint-procurement agreement between Scania and the two companies. Under previous agreements signed in 2010 and 2012, Scania has delivered 2,000 vehicles.

William Stobart, Chief Operating Officer at Sto-bart Group, says, “Our decision to continue taking Scania vehicles is based on their proven record within the Eddie Stobart and A.W. Jenkinson fleets.

“We saw no reason but to continue this relation-ship as we enter into Euro 6 production, with the new deal giving us a lot of flexibility going forward.”

World’s largest driver competition beginsThis year’s Scania Driver Competitions have every opportunity to be the best ever. More than 85,000 drivers from all over the world are expect-ed to participate.

During most of 2014, national and regional competitions will be under way in some 40 coun-tries, making the Scania Driver Competitions the world’s largest event of its kind.

The key message of the Scania Driver Com-petitions is that the driver is the most impor-

tant resource for improved operating economy, environmental impact and road safety. As Scania focuses on sustainable transport solutions, the role of the driver is increasingly vital in meeting the challenges the transport industry faces today.

“Another goal of the competitions is to attract more people to a profession that has become substantially more demanding and multi-facet-ted,” says Mikael Person, project manager of the Scania Driver Competitions.

Road haulage company Eddie Stobart is one of the UK’s strongest brands, with a fleet of 2,500 trucks. Wil-liam Stobart, COO at Stobert Group (left), and Scania President and CEO Martin Lundstedt clinch the deal.

The agreement will involve the supply of vehi-cles with a variety of specifications, designed for a wide range of transport applications, including

G- and R-series trucks. Servicing and mainte-nance will be handled by Scania’s service net-work in the UK.

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