<a href="/v5/viewer/files/Default_s.aspx?gKey=c564dg6b&gInitPage=1">Scania Value - nr 1 - 2010 - EN 1 A MAGAZINE FOR S</a> CANIA’S SHAREHOLDERS QUARTER 4 2009 20 % Operating margin 16 12 8 4 Modularisation A model for success. > PAGES 6–7 Scania’s chief modularisation “gurus”: Staffan Sjöström and Anders Lundström. 0 -07 Q4 -08 Q1 -08 Q2 -08 Q3 -08 Q4 -09 Q1 -09 Q2 Report. Operating margin continued to rise in Q4. > PAGE 2 -09 Q3 -09 Q4 Interview. Leif Östling, President and CEO, on 2009 and the future. > PAGES 3–4 Stock market. Analysts on Scania’s 2010 earnings. > PAGE 5 FIGURES IN FOCUS: 5,512 Cash flow, Vehicles and Services, 2009 (SEK m.)
<a href="/v5/viewer/files/Default_s.aspx?gKey=c564dg6b&gInitPage=2">Scania Value - nr 1 - 2010 - EN Sida 2 2009 IN FIG</a> URES Order bookings and deliveries by region, 2009 (number of vehicles) CeNtRAL AND eASteRN euROpe Order bookings weSteRN euROpe Order bookings 14,253 -34% Deliveries 18,520 -49% LAtIN AMeRICA Order bookings 12,752 +17% Deliveries 10,987 -14% Net sales SEK m. 25,000 20,000 Services 25% 15,000 10,000 Engines 1% 5,000 0 Buses and coaches 14% 4 0 1,000 0 Trucks 52% OtHeR MARKetS Order bookings 3,200 -19% Deliveries 3,745 +13% Net sales by product segment, 2009 Used vehicles 7% % 20 Operating income, SEK m. Operating margin, percent 16 12 8 4,000 3,000 2,000 ASIA Order bookings 5,926 -12% Deliveries 6,719 -20% Operating income and margin SEK m. 5,000 2,671 -66% Deliveries 3,472 -73% Key figures (SEK m unless otherwise noted) Net sales, Scania Group Operating income, Vehicles and Services Operating income, Financial Services Operating income Income before tax Net income for the period Operating margin, percent Return on equity, percent Return on capital employed, Vehicles and Services, percent Earnings per share, SEK Cash flow, Vehicles and Services Number of employees, 31 December Order bookings (units, trucks and buses) Deliveries (units, trucks and buses) 2009 62,074 2,648 -175 2,473 1,602 1,129 4.0 5.1 9.4 1.41 5,512 32,330 38,802 43,443 2008 88,977 12,098 414 12,512 11,978 8,890 14.1 38.3 43.1 11.11 1,774 34,777 51,034 73,793 Change in % -30 -78 - -80 -87 -87 - - - - - - -24 -41 2009 IN BRIeF: OPERAtINGmARGIN decreased to 4.0% during 2009, and to 7.8% in the fourth quarter. DElIvERIES fell by 41% to 43,443 vehicles during 2009. thE bOARD OF DIRECtORS proposes a dividend of SEK 1.00 per share. 2 SCANIA VALUE • XXX www.scania.com 2007 Q4 2008 Q1 2008 Q2 2008 Q3 2008 Q4 2009 Q1 2009 Q2 2009 Q3 2009 Q4 2007 Q4 2008 Q1 2008 Q2 2008 Q3 2008 Q4 2009 Q1 2009 Q2 2009 Q3 2009 Q4
<a href="/v5/viewer/files/Default_s.aspx?gKey=c564dg6b&gInitPage=3">Scania Value - nr 1 - 2010 - EN Sida 3 text: göran</a> lind photo: scania Leif Östling, Scania’s president and CeO, was surprised by the power of the economic downturn, but at the same time he notes that the organisation reacted quickly by switching to lower volume. No quick turnaround, Östling believes Bottoming out, but a long way to the top − that is how Leif Östling’s market assessment can be summarised. the coming year may be tough, but Scania has managed the downturn well, becoming a more efficient organisation. Two thousand nine will go down in history. Unfortunately, perhaps one should add, since the year’s foremost economic attribute was the dramatic deceleration in the world economy following the autumn 2008 financial crash. “It is the biggest market subsidence I have seen during my years at Scania, with a 50 percent drop in volume and a 60-70 percent decline in production during the first half of 2009,” says Leif Östling, President and CEO of Scania. He admits that he was surprised by the power of the downturn, despite having experienced a number of economic downturns and both oil and dotcom crises during his nearly 40 years at the company. “This time the cyclical downturn for invest- ment goods that comes at 7-8 year intervals coincided with a financial market collapse, which made the downturn extra powerful.” So when he summarises the year from Scania’s www.scania.com standpoint, it is with a message he has repeated both externally and within the organisation in recent months: focus on the three C’s − customers, costs and cash flow. “It was a year dominated by cutbacks. We reduced inventories, cut production and introduced the four-day week. It was also a matter of helping ensure that our suppliers will survive,” Östling says. The bus and coach market was not as hard hit by the downturn as the truck market, however. Overall bus and coach deliveries declined by 9 percent. He believes that Scania has managed the crisis well. The organisation reacted quickly by switching to lower volume, a transition made easier by very strong employee support for this action. In times of crisis, Scania also benefits from its modular product system (see pages 6-7). “The modular system is very effective when it comes to the number of components in our product range. It’s far easier to cut back production if you have 25,000 components than if you have 70,000.” Östling points out that despite the market situation, Scania has succeeded in showing positive cash flow and earnings figures in an industry where many firms have had difficulty avoiding losses. Two key factors behind these positive earnings are the company’s cost savings and the fact that revenue from service operations is more stable than vehicle sales. But Scania’s 2009 pre-tax profit of SEK 1.6 billion. is a long way from its record SEK 12 billion earnings in 2007 and 2008. Östling urges caution when it comes to the pace of recovery; those hoping that the upturn will be as fast as the downturn risk being disappointed. “Now all the stimulus programmes have to be paid back. Many governments face a difficult fiscal situation. US national debt will soon approach 100 percent of GDP, and the federal government is now imposing a tax on the financial sector. Factoring in higher unemployment, QX/200X • SCANIA VALUE 3
<a href="/v5/viewer/files/Default_s.aspx?gKey=c564dg6b&gInitPage=4">Scania Value - nr 1 - 2010 - EN Sida 4 which reduc</a> es tax revenue, it’s hard to believe demand will increase significantly in the short term,” Östling says, adding that it may take time before markets begin approaching their precrisis levels. “We are talking about a 10 percent GDP decline in many markets. If GDP then rises a couple of percent annually, it is easy to understand that the recovery will take a number of years. Then there are other factors that may affect the new truck market favourably, such as replacement demand and ever-higher fuel efficiency and emission reduction requirements.” The picture is far from uniform, however. Östling describes western Europe as a market that has hit bottom, but where there are not yet any conspicuous signals of a clear turnaround. “Nor do I foresee any positive signs in Russia and the rest of eastern Europe in a short-term perspective; their financial problems are far too big for that.” The big exception is South America in general, and Brazil in particular. After a decline in Brazil during the first half of 2009, Scania enjoyed a strong second half there, and Östling believes that demand will remain good. “Countries with large resources of minerals and agricultural products are being driven by growth in China and are performing best. This applies to countries like Brazil, but also to parts of Asia.” In the long term, Östling’s market assessment is the same as before the crisis. Global transport needs will continue to increase and there is no reason to believe road transport will decline from its current share of about 70 percent. “This also means we are sticking to our plan to produce 150,000 vehicles per year with an unchanged workforce. It is impossible to say exactly when we can achieve this, but it will be in the second half of the 2010 decade.” “Customer first” is one of Scania’s core values. “periods of crisis often make companies stronger. Scania has definitely become a more efficient organisation in the long term, due to our recent focus on costs and cash flow,” Östling concludes. Despite a tough 2009, the company has added a new truck series, a new coach model and a new generation of engines to its product portfolio. And in a way, the crisis has made it easier for Scania to achieve its ambitious production target. During the painful period of austerity Scania has undergone, every stone in the organisation has been turned. “Periods of crisis often make companies stronger. Scania has definitely become a more efficient organisation in the long term, due to our recent focus on costs and cash flow. We have also carried out large-scale training programmes at production units, which have laid the groundwork for good productivity growth,” Östling concludes. 4 SCANIA VALUE • QX/200X www.scania.com
<a href="/v5/viewer/files/Default_s.aspx?gKey=c564dg6b&gInitPage=5">Scania Value - nr 1 - 2010 - EN Sida 5 FINANCE tex</a> t: petra lodén photo: sanna skerdén Analysts expect gradual recovery A small recovery during 2010, but better momentum only starting in 2011 − that is how analysts forecast Scania’s profits in the next couple of years. Scania is followed by about 20 financial analysts. Among other things, they issue profit forecasts and recommendations as to whether the company’s shares are worth buying or not. Last year’s dramatic economic downturn lowered Scania’s pre-tax profit from a record-high SEK 12 billion in 2008 to SEK 1.6 billion in 2009. The question today is how analysts view the economic recovery. When and by how much will Scania’s profit rebound during the next couple of years? All the analysts believe that 2010 will be some- what better for Scania than 2009. But they have divergent opinions as to how much better it will be. The most pessimistic believe pre-tax profit will only reach SEK 2.7 billion, while the highest forecast is a profit of more than SEK 6.6 billion. The average forecast is more than SEK 4.2 billion. pent-up demand “I believe we will see a gradual recovery during 2010 and 2011. There is pent-up demand for both trucks and buses after the total halt in capital spending that hit in late 2008. We believe that in 2011 ordinary economic growth will take over, which means a successive recovery,” says Johan Trocmé of Nordea, who is among the more optimistic analysts. “This is because we have a more positive view of howmargins can recover at Scania, compared to its competitors. Scania has been quite successful in its efforts to cut back production and return to normal inventory levels. In addition, Scania has a large and well-developed after-market business compared to its competitors, which is an advantage since that market has not been as hard hit as new truck sales,” Trocmé says. The main uncertainty in Nordea’s assessment www.scania.com three billion more next year Average: 7,108 Highest: 8,225 Highest: 6,601 Lowest: 5,462 Average: 4,284 Lowest: 2,731 Analysts’ forecasts of Scania pre-tax profit (SeK m.) 2010 2011 is at the macroeconomic level. “It is a matter of whether the major economies, in Scania’s case Europe, will be capable of recovering on their own when the current large-scale government stimulus measures are phased out,” he adds. Yann Benhamou of Exane BNPParibas be- lieves that 2010 will indeed be better than 2009, but that there are many questions about how soon the market will recover. “We have to remain cautious about 2010. I foresee growth for both trucks and buses, but the improvement will occur gradually. There are still a number of obstacles to overcome – cutbacks in truck fleets, a greater influx of used trucks, the fact that the trucks on the roads are relatively new and that there is uncertainty about howquickly the economy will recover.” Looking at 2011, the most optimistic analyst predicts a pre-tax profit of SEK 8.2 billion and “we have a more positive view of how margins can recover at Scania, compared to its competitors,” says Johan trocmé, analyst at Nordea. the least optimistic a profit of over SEK 5.4 billion, while the average forecast is a bit belowSEK 7.1 billion. In other words an improvement, but still belowScania’s peak years 2007 and 2008. “Things will be completely different in 2011 than in 2010. We foresee a much faster recovery, especially in eastern Europe,” says Benhamou. He also feels that Scania is well equipped to benefit from increased demand once the economy gets moving. “Scania is one of the smallest truck manufac- turers, but at the same time is the most efficient and is highly flexible”, Benhamou says. “In Scania’s case, one risk is that the four-day week will end before the economy gets better, which would mean too large a cost base compared to revenue. But overall, I am more optimistic about Scania than the average profit forecast shows.” XXX • SCANIA VALUE 5
<a href="/v5/viewer/files/Default_s.aspx?gKey=c564dg6b&gInitPage=6">Scania Value - nr 1 - 2010 - EN Sida 6 FOCUS: MODU</a> LAR SYSTEM Success through Scania’s unique modular product range is one of its most important success factors. the modular concept has evolved over a 60-year period as the company has moved into more markets and new segments. Scania has been developing its modular product range since the 1930s. Simply put, modularisation means that every customer is offered a tailormade vehicle at the right time. Since each product is made entirely on the basis of the customer’s business and real-world situation, it provides the best possible performance and quality. This, in turn, enables the owner of the vehicle to enjoy good profitability, low maintenance costs and high resale value. Meanwhile the modular product system lowers Scania’s costs, since by using a limited number of components the company can give each customer an optimised product. This business model is one important reason why Scania has been profitable every year for six decades and often describes its relationship with customers as a “win-win” situation. When Scania discusses modularisation, it is not primarily as a model for lowering production costs. Instead the company views modularisation as an essential means of being able to meet the demands of both customers and legislation as quickly as possible, explains Anders Lundström, Senior Advisor at Scania − while keeping the number of parts or components in its products from growing uncontrollably over time. “Our business model must not be confused with standardisation. The objective is to tailor solutions for each one of our customers. Modularisation begins and ends with the customer. Every vehicle we deliver is specified − put together − with an eye to a unique customer’s driving pattern, industry, legal environment, tocal topography and climate.” Scania’s component series, such as those for the modular system emerges 1930s 1940s The “Royal” unitary engine is unveiled − the first Scania engine to use standardised components. In-house gearbox production. Collaboration with Leyland leads to a new engine featuring directinjection technology. 6 SCANIA VALUE • XXX Cabs Standardised interfaces: Regardless of cab variant, the parts fit together, allowing maximum flexibility. modularisation engines Many engine components are common to the entire engine range, regardless of the number of cylinders. A few components in the front make it possible to compose three cab families with different heights. Doors and side walls in a few variants cover the entire cab range. 1950s Scania’s engines are modularised. Strength Testing Laboratory is built up. Systematic analysis of design for different applications. 1960s Scania buys a cab factory in Oskarshamn. Development of modularised cab range. In-house frame workshop. www.scania.com
<a href="/v5/viewer/files/Default_s.aspx?gKey=c564dg6b&gInitPage=7">Scania Value - nr 1 - 2010 - EN Sida 7 text: anne </a> hammarskjöld illustration: johan hallnäs Modular product system halves development costs Scania’s modular product system lowers costs throughout the company. This is mainly because it keeps down the number of components (yielding economies of scale), but also because the modular product system enables the company to develop new components without having to change other components at the same time. Assuming that the system can reduce the number of components by 50 percent, it lowers Scania’s costs for research and development by 30 to 50 percent, production by about 10 percent and sales and service by about 30 percent. powertrains or mechanical transmissions, have standardised connection points or “interfaces”. Meanwhile the number of performance steps for each component series is developed to meet the customer’s needs. In this way, Scania ensures a continuous sequence of improvements, but in small steps that are relatively easy to introduce, explains Staffan Sjöström, Engineering Director/ Head of Vehicle Definition. “The development of new performance steps is driven by customer needs and legislation. For instance, today we are seeing different emission laws in different parts of the world, and this is driving engine development − which for us means supplementing our existing range with additional performance steps. For example, we have added more and more engine performance steps and today we have steps from Euro 3 to Euro 6 emission requirements. This flexibility gives us competitive advantages compared to standardised solutions.” Modularisation limits the number of parts, which is cost-effective both for Scania and for customers. Same interfaces By keeping the same interfaces over a very long period, performance steps can be improved – and components replaced – without affecting surrounding parts. Adding a performance step may take a year, while it takes four or five years to develop a completely new solution, or platform. The number of variants and parts is continuously evaluated to ensure that Scania’s set of building blocks will remain cost-effective. Scania’s modular product system means that improvements can be implemented in a continuous flow, without major annual model changes or the like. Aside from reducing development and production costs, this flow also results in high, uniform quality at all levels from pur- chasing to delivery and to the sales and service organisation. Modularisation provides greater transparency, which in turn yields lower costs, maintains proficiency and means higher flexibility and higher quality. The advantages of Scania’s modularisation are highly apparent in tough times. Despite a sharp drop in demand during 2009, the company showed positive earnings, partly due to the advantages provided by the modular product system. The system also creates synergies between bus and truck operations, since about 85 percent of the components in a tourist coach chassis are shared with a truck chassis. Scania has its strongest customer bases in northern Europe and in Latin America and is represented in more than 100 countries. Its gigantic test facilities outside Södertälje, Sweden bubble with energy. The company’s ambition is to strengthen its position in rapidly developing markets. Meanwhile Scania is working very actively to supply trucks for a growing number of economic sectors. One example is mining. Scania has added performance steps in order to offer trucks as alternatives to dumpers, Sjöström explains. “We have a good product range that works all over the world for heavy-duty applications. At the same time, we are always open to improvements. For example in mining, where we want to become even better in terms of payload capacity and are continuing our efforts to further lower the costs of our customers’ transport tasks.” Modularisation is a viable product strategy for new markets. By continuing to refine its modular product system, Scania can break into new markets and segments in a cost-effective way, thereby laying the groundwork for profitable growth. 1970s Cabs and chassis are modularised. 1980s The 2-series (GPRT), Scania’s first fully modular product range, is launched. The 3-series is introduced. www.scania.com 1990s The Streamline cab is launched.The 4-series is introduced. 2000–2010 Fully modularised 5-, 6- and 8-cylinder engine range. Global specification system. Broadened modular cab range (P-, G- and R-series). Modular engine platform with common-rail fuel injection. XXX • SCANIA VALUE 7
<a href="/v5/viewer/files/Default_s.aspx?gKey=c564dg6b&gInitPage=8">Scania Value - nr 1 - 2010 - EN Sida 8 IN BRIEF th</a> umbs up for new R-series in media In September 2009, Scania launched its new R-series in European markets. The response from both Swedish and foreign trade media has been overwhelming, both with regard to ergonomics and technology. Scania is lauded for having the courage to launch a new truck model amid one of the worst recessions in decades. Both the Opticruise gearchanging system and the new Driver Support system are praised: “And suddenly everything is different from other au- tomated gearchanging systems in the market. Even a 60-tonne rig can be steered with millimetre precision,” writes Germany’s Lastauto Omnibus. Scania Driver Support is viewed as further evidence of Scania’s deep commitment to training drivers and honing their skills. “The Scania R is the compa- ny’s latest model and already a success. Driving the new Scania R is child’s play,” writes Sweden’s Teknikens Värld. In December, the new Anders Nielsen has joined the executive Board Dark Diamond is a specially detailed tractor unit. Dark Diamond − the start of a tradition Among genuine enthusiasts, adding special styling and features to their Scania V8 truck is the rule rather than the exception. As a tribute to these and other interested customers, Scania has launched the Dark Diamond, a specially detailed tractor unit limited to a production run of 100 vehicles. The Dark Diamond is based on a tractor unit in the new R-series, fitted with a Scania V8 engine. It was developed in collaboration with Svempas, a renowned Swedish truck customising firm. The vehicles are painted in metallic Carbon Blue, complemented by detailing in chrome and highgloss Piano Black, and are decorated with Scania V8 and Griffin symbols. Each vehicle is numbered and signed by Sven-Erik “Svempa” Bergendahl. The Dark Diamond is the first model in a planned series of specially equipped vehicles from Scania’s own workshops. 8 SCANIA VALUE • XXX Effective on 1 January 2010, Anders Nielsen was appointed Executive Vice President, Head of Production and Logistics and joined Scania’s Executive Board. Nielsen was born in 1962 and earned an engineering degree and an MSc in Industrial Economics. He joined Scania in 1987 and has held various management positions, most recently Senior Vice President, Chassis and Cab Production. Between 2002 and 2006 he was Vice President, Production and Development at Scania Latin America. R-series also received the prestigious “International Truck of the Year 2010” award, given to the truck model that has made the strongest contribution to road transport efficiency. The jury, which consists of leading commercial vehicle trade journalists from 22 European countries, issued a statement citing the aerodynamic design of the R-series, operational economics and the unique IT-based Scania Driver Support system. Anders Nielsen joined Scania in 1987. upcoming financial events 2010 28 April Interim Report, Jan-March 6 may Annual General Meeting 23 July Interim Report, Jan-June 25 October Interim Report, Jan-Sept Scania Value is published by Scania and distributed to Scania shareholders. publisher Per Hillström, ir@scania.com editor-in-chief conny.hetting@scania.com project Manager goran.lind@appelberg.com Art Director magdalena.taubert@appelberg.com production Appelberg Publishing www.appelberg.com printing: Trosa Tryckeri Cover photo: Scania Address Scania Investor Relations SE-151 87 Södertälje, Sweden Tel: +46-8-553 81 000 www.scania.com
