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<a href="/v5/viewer/files/Default_s.aspx?gKey=tqcxr73s&gInitPage=1">Scania Annual Report 2008 Page 1 ANNUAL REPORT 200</a> 8 PRIDE QUALITY DRIVERAPPEAL PRODUCTIVITY SUSTAINABLE DEVELOPMENT ANNUAL REPORT 2008 PRIDE QUALITY DRIVERAPPEAL PRODUCTIVITY SUSTAINABLE DEVELOPMENT <a href="/v5/viewer/files/Default_s.aspx?gKey=tqcxr73s&gInitPage=2">Scania Annual Report 2008 Sida 2 VISION Scania’s v</a> ision is to be the leading company in its industry by creating lasting value for its customers, employees, shareholders and the societies in which it operates. MISSION Scania’s mission is to supply its customers with high-quality heavy vehicles and services related to the transport of goods and passengers by road. By focusing on customer needs, high-quality products and services, as well as respect for the individual, Scania shall create value-added for the customer and grow with sustained profitability, while contributing to a sustainable society. Scania’s operations specialise in developing and manufacturing vehicles, which shall lead the market in terms of performance and life cycle cost, as well as quality and environmental characteristics. Scania’s sales and service organisation shall supply customers with vehicles and services that provide maximum operating time at minimum cost, while preserving environmental characteristics, over the service life of their vehicles. The English-language version of Scania’s Annual Report is a translation of the Swedish-language original, the binding version that shall prevail in case of discrepancies. Translation: Victor Kayfetz, Scan Edit. The Financial Reports encompass pages 64–130 and were prepared in compliance with International Financial Reporting Standards. The Report of the Directors encompasses pages 4–52, 59–66 and 129–130. The Report of the Directors and accompanying Financial Reports also fulfil the requirements of the Swedish Annual Accounts Act and have been audited by Scania’s auditors. Scania’s Swedish corporate identity number: Scania AB (publ) 556184-8564. Unless otherwise stated, all comparisons in this Annual Report refer to the same period of the preceding year. VISION Scania’s vision is to be the leading company in its industry by creating lasting value for its customers, employees, shareholders and the societies in which it operates. MISSION Scania’s mission is to supply its customers with high-quality heavy vehicles and services related to the transport of goods and passengers by road. By focusing on customer needs, high-quality products and services, as well as respect for the individual, Scania shall create value-added for the customer and grow with sustained profitability, while contributing to a sustainable society. Scania’s operations specialise in developing and manufacturing vehicles, which shall lead the market in terms of performance and life cycle cost, as well as quality and environmental characteristics. Scania’s sales and service organisation shall supply customers with vehicles and services that provide maximum operating time at minimum cost, while preserving environmental characteristics, over the service life of their vehicles. The English-language version of Scania’s Annual Report is a translation of the Swedish-language original, the binding version that shall prevail in case of discrepancies. Translation: Victor Kayfetz, Scan Edit. The Financial Reports encompass pages 64–130 and were prepared in compliance with International Financial Reporting Standards. The Report of the Directors encompasses pages 4–52, 59–66 and 129–130. The Report of the Directors and accompanying Financial Reports also fulfil the requirements of the Swedish Annual Accounts Act and have been audited by Scania’s auditors. Scania’s Swedish corporate identity number: Scania AB (publ) 556184-8564. Unless otherwise stated, all comparisons in this Annual Report refer to the same period of the preceding year. <a href="/v5/viewer/files/Default_s.aspx?gKey=tqcxr73s&gInitPage=3">Scania Annual Report 2008 Annual Report 2008 TOC 1</a> TRUCKS VEHICLES AND SERVICES Scania develops, manufactures and sells trucks with a gross weight of more than 16 tonnes (Class 8), intended for longdistance, construction and distribution haulage as well as public services. During 2008, Scania delivered 66,516 new trucks to customers at a value of SEK 55,566 million. CONTENTS OPERATIONS Statement of the President and CEO Scania in brief Core values and strategy Market trends Trucks BUSES AND COACHES Scania concentrates on buses and coaches with high passenger capacity for use as tourist coaches and in intercity and urban traffic. Bus and coach operations focus on delivering fully-built vehicles based on Scania components to customers. Scania achieves this through its own bodybuilding operations and through collaboration with selected manufacturers of bus and coach bodies. During 2008, Scania delivered 7,277 buses and coaches. ENGINES Industrial and marine engines from Scania Engines are used in electric generator sets (gensets), construction and agricultural machinery as well as in ships and pleasure boats. Most deliveries are industrial engines. During 2008, Scania delivered 6,671 engines. FINANCIAL REPORTS Group financial review SERVICES Scania’s growing range of service-related products supports transport and logistics companies in their business operations. These service-related products encompass everything from parts, maintenance agreements and roundthe-clock workshop services on various continents to driver training and IT support for vehicle performance data and transport planning. Consolidated income statement Consolidated balance sheet Consolidated statement of recognised income and expense Consolidated cash flow statement Notes to the consolidated financial statements Parent Company financial statements, Scania AB Notes to the Parent Company financial statements Proposed guidelines for salary and other remuneration FINANCIAL SERVICES FINANCIAL SERVICES Financial services are an important part of Scania’s business. Financing is often one element of cost-effective comprehensive solutions for customers, who can choose between loan financing, various forms of leases and insurance solutions. Proposed distribution of earnings Audit report Quar terly data Key financial ratios and figures Definitions Multi-year statistical review Annual General Meeting and financial information Buses and coaches Engines Services Financial services Research and development Sustainable working methods Production Sustainability report The environment Road safety Employees Scania share data Ar ticles of Association Risks and risk management Corporate Governance Report Board of Directors Executive Board and Corporate Units 2 4 8 10 10 16 18 20 24 26 28 30 32 36 42 44 46 48 49 53 60 62 64 67 68 70 71 72 125 127 129 130 131 132 134 135 136 138 1 TRUCKS VEHICLES AND SERVICES Scania develops, manufactures and sells trucks with a gross weight of more than 16 tonnes (Class 8), intended for longdistance, construction and distribution haulage as well as public services. During 2008, Scania delivered 66,516 new trucks to customers at a value of SEK 55,566 million. CONTENTS OPERATIONS Statement of the President and CEO Scania in brief Core values and strategy Market trends Trucks BUSES AND COACHES Scania concentrates on buses and coaches with high passenger capacity for use as tourist coaches and in intercity and urban traffic. Bus and coach operations focus on delivering fully-built vehicles based on Scania components to customers. Scania achieves this through its own bodybuilding operations and through collaboration with selected manufacturers of bus and coach bodies. During 2008, Scania delivered 7,277 buses and coaches. ENGINES Industrial and marine engines from Scania Engines are used in electric generator sets (gensets), construction and agricultural machinery as well as in ships and pleasure boats. Most deliveries are industrial engines. During 2008, Scania delivered 6,671 engines. FINANCIAL REPORTS Group financial review SERVICES Scania’s growing range of service-related products supports transport and logistics companies in their business operations. These service-related products encompass everything from parts, maintenance agreements and roundthe-clock workshop services on various continents to driver training and IT support for vehicle performance data and transport planning. Consolidated income statement Consolidated balance sheet Consolidated statement of recognised income and expense Consolidated cash flow statement Notes to the consolidated financial statements Parent Company financial statements, Scania AB Notes to the Parent Company financial statements Proposed guidelines for salary and other remuneration FINANCIAL SERVICES FINANCIAL SERVICES Financial services are an important part of Scania’s business. Financing is often one element of cost-effective comprehensive solutions for customers, who can choose between loan financing, various forms of leases and insurance solutions. Proposed distribution of earnings Audit report Quar terly data Key financial ratios and figures Definitions Multi-year statistical review Annual General Meeting and financial information Buses and coaches Engines Services Financial services Research and development Sustainable working methods Production Sustainability report The environment Road safety Employees Scania share data Ar ticles of Association Risks and risk management Corporate Governance Report Board of Directors Executive Board and Corporate Units 2 4 8 10 10 16 18 20 24 26 28 30 32 36 42 44 46 48 49 53 60 62 64 67 68 70 71 72 125 127 129 130 131 132 134 135 136 138 <a href="/v5/viewer/files/Default_s.aspx?gKey=tqcxr73s&gInitPage=4">Scania Annual Report 2008 Statement of the Preside</a> nt and CEO 2 STATEMENT OF THE PRESIDENT AND CEO Scania is stable in hard times After several years of strong global demand, turbulence in the financial system is impacting the real economy. This includes lower demand for investments in goods and passenger transport. Our ongoing efforts to boost efficiency, restructure and improve flexibility, along with our highly developed service business, will enable Scania to handle the downturn well and be even better equipped for the next upturn. In 2008 Scania showed the strongest earnings in its history with net income of SEK 8,890 m. and return on capital employed of 43.1 percent. Meanwhile order bookings fell by 46 percent, with an accelerating decline late in the year, which led Scania to cut back its production rate sharply. Since March 2008, Volkswagen AG has been the majority owner of Scania. Volkswagen has been Scania’s main shareholder since 2000 and has backed our strategy throughout that period. Greater efficiency and flexibility During 2008 Scania carried out extensive changes that strengthen its efficiency and flexibility. In January, Scania successfully introduced a single global product range for trucks, having previously produced different truck series in Europe and Latin America. This change gives us greater flexibility, which is especially positive in a situation where markets outside Europe and Latin America are of growing importance. They can now be supplied from either one. Meanwhile we completed the concentration of European axle and gearbox production in Södertälje, Sweden. Since the end of 2008, our Falun and Sibbhult plants are closed. Customer focus at all levels Improving the productivity of the customer’s transport business is our top priority at Scania. This implies that we consistently – throughout the organisation – eliminate activities and work processes that do not benefit the customer. Our employees show impressive dedication to this way of working. By continuously re-assessing and improving their work, while focusing on the customer and on quality, they help ensure that Scania can offer its customers better and better products and services with greater efficiency. The Scania Production System (SPS) has created a learning organisation that carries out continuous improvements in the production network. Scania’s target is to improve efficiency by 6 to 8 percent annually. This applies, not least, to energy efficiency – both in production and in our own transport of input goods. Using the same principles as in SPS, we have devel- oped the Scania Retail System (SRS), which we are now introducing in our sales and service organisation. We will thus improve the efficiency of our service network and services, while continuing to expand to meet the increasing needs of customers. Scania will thus help its customers gain maximum benefit from their vehicle investment. Energy-efficient engines Every year, Scania invests about 4 percent of its sales in research and development. The most important development task is to gradually improve the energy efficiency of vehicles. This improves the operating economy of our customers a nd m akes o ur v ehicles e nvironmentally b etter. During 2008 we were the first truck manufacturer to introduce engines that meet the European Union’s Euro 5 environmental standards without exhaust aftertreatment. 2 STATEMENT OF THE PRESIDENT AND CEO Scania is stable in hard times After several years of strong global demand, turbulence in the financial system is impacting the real economy. This includes lower demand for investments in goods and passenger transport. Our ongoing efforts to boost efficiency, restructure and improve flexibility, along with our highly developed service business, will enable Scania to handle the downturn well and be even better equipped for the next upturn. In 2008 Scania showed the strongest earnings in its history with net income of SEK 8,890 m. and return on capital employed of 43.1 percent. Meanwhile order bookings fell by 46 percent, with an accelerating decline late in the year, which led Scania to cut back its production rate sharply. Since March 2008, Volkswagen AG has been the majority owner of Scania. Volkswagen has been Scania’s main shareholder since 2000 and has backed our strategy throughout that period. Greater efficiency and flexibility During 2008 Scania carried out extensive changes that strengthen its efficiency and flexibility. In January, Scania successfully introduced a single global product range for trucks, having previously produced different truck series in Europe and Latin America. This change gives us greater flexibility, which is especially positive in a situation where markets outside Europe and Latin America are of growing importance. They can now be supplied from either one. Meanwhile we completed the concentration of European axle and gearbox production in Södertälje, Sweden. Since the end of 2008, our Falun and Sibbhult plants are closed. Customer focus at all levels Improving the productivity of the customer’s transport business is our top priority at Scania. This implies that we consistently – throughout the organisation – eliminate activities and work processes that do not benefit the customer. Our employees show impressive dedication to this way of working. By continuously re-assessing and improving their work, while focusing on the customer and on quality, they help ensure that Scania can offer its customers better and better products and services with greater efficiency. The Scania Production System (SPS) has created a learning organisation that carries out continuous improvements in the production network. Scania’s target is to improve efficiency by 6 to 8 percent annually. This applies, not least, to energy efficiency – both in production and in our own transport of input goods. Using the same principles as in SPS, we have devel- oped the Scania Retail System (SRS), which we are now introducing in our sales and service organisation. We will thus improve the efficiency of our service network and services, while continuing to expand to meet the increasing needs of customers. Scania will thus help its customers gain maximum benefit from their vehicle investment. Energy-efficient engines Every year, Scania invests about 4 percent of its sales in research and development. The most important development task is to gradually improve the energy efficiency of vehicles. This improves the operating economy of our customers a nd m akes o ur v ehicles e nvironmentally b etter. During 2008 we were the first truck manufacturer to introduce engines that meet the European Union’s Euro 5 environmental standards without exhaust aftertreatment. <a href="/v5/viewer/files/Default_s.aspx?gKey=tqcxr73s&gInitPage=5">Scania Annual Report 2008 Sida 5 3 “Scania is a st</a> rong company, whose technology, efficiency and flexibility give it the best potential to deal with the difficult market situation we face.” Euro 5 applies to vehicles sold from October 2009 onward. The next set of emission rules, Euro 6, will enter into force at the end of 2013. Scania has already developed technologies to meet its standards. Halving carbon dioxide emissions by 2020 The EU has set a target of 20 percent lower greenhouse gas emissions by 2020. One important element of this is obviously reducing road transport emissions. At Scania, we believe it is possible to halve carbon dioxide emissions generated by transporting a tonne of cargo in a Scania vehicle by 2020, compared to 2000, by means of continued engine efficiency improvements, greater driver training, reduced air and rolling resistance and by working towards better cargo capacity per vehicle by using longer rigs. Biofuels and hybrid technology will also play a major role. All our modern engines can run on renewable fuels. Scania’s ethanol hybrid bus will also be tested under regular traffic conditions in Stockholm, Sweden. The driver – a key individual Truck and bus drivers play a very important role in ensuring that transport services are as efficient as possible. The difference between the fuel consumption of a highly skilled and a less skilled driver may be as large as 20 percent. Costs of wear and tear as well as repairs are also greatly affected. Boosting driver proficiency is thus the fastest way to both improve operating economy and reduce environmental impact. Scania is attaching greater importance to marketing its driver training services. It is heartening that customers are responding with greater demand. Meanwhile such training raises the status and attractiveness of the driving profession, which is important to the transport industry considering the number of drivers approaching retirement age. Outlook The financial crisis and worsening economic conditions have affected Scania. In response to the rapid downturn in demand, which has led to increased inventories and poorer cash flow, we have greatly lowered our production rate. During 2009 we will focus further on cash flow and, among other things, postpone investments in machinery and development projects. If weak demand persists, it will continue to have an adverse impact on the company, but by virtue of its technology, efficiency and flexibility, Scania has the best potential to deal with the difficult market situation we face. In the short term, there is great uncertainty about demand, but the long-term picture is clear. There will be good prospects for economic growth and an increasing need for transport services. We are thus still planning, by around the middle of the next decade, to boost our production capacity to about 150,000 vehicles annually within the existing structure and with unchanged staffing in our production network. Unfortunately many employees with fixed term tempo- rary contracts have had to leave their jobs due to lower demand. My hope is that they will regard Scania as an attractive employer the day we begin re-hiring. I would like to express my deep gratitude to our employees for their strong contributions during 2008. And I know that all of us at Scania will further intensify our efforts during 2009. Leif Östling President and CEO <a href="/v5/viewer/files/Default_s.aspx?gKey=tqcxr73s&gInitPage=6">Scania Annual Report 2008 Scania in brief 4 Scania</a> in figures SCANIA IN BRIEF Scania’s net sales rose by 5 percent to SEK 88,977 m. (84,486) during 2008. Scania’s operating income rose by 3 percent to SEK 12,512 m. (12,164). Operating margin amounted to 14.1 (14.4) percent. Net income for the year increased by 4 percent and totalled SEK 8,890 m. (8,554), equivalent to a net margin of 10.0 (10.1) percent. Earnings per share amounted to SEK 11.11 (10.69). KEY FIGURES Deliveries, units Trucks Buses and coaches Engines Net sales, Vehicles and Services, SEK m. Operating income, SEK m. Vehicles and Services Financial Services Total Operating margin, percent Income before taxes, SEK m. Net income for the year, SEK m. Earnings per share, SEK Cash flow, Vehicles and Services, SEK m. Return, percent on equity on capital employed, Vehicles and Services Net debt/equity ratio, Vehicles and Services Equity/assets ratio, percent Net capital expenditures, excl acquisitions, Vehicles and Services, SEK m. Research and development expenditures, SEK m. Number of employees, 31 December 2008 66,516 7,277 6,671 88,977 12,098 414 12,512 14.1 11,978 8,890 11.11 1,774 38.3 43.1 0.49 19.9 5,447 3,955 34,777 2007 68,654 7,224 7,228 84,486 11,632 532 12,164 14.4 11,906 8,554 10.69 8,229 35.0 42.1 – 0.09 27.1 4,277 3,214 35,096 2006 59,344 5,937 6,546 70,738 8,260 493 8,753 12.4 8,583 5,939 7.42 6,942 24.1 30.4 – 0.19 29.7 3,810 2,842 32,820 Brazil Great Britain Germany France Russia Norway Sweden The Netherlands Italy Spain Fordonslev per region Vehicles delivered by region, 2008 Asia 11% Other 5% Latin America 17% Central and eastern Europe 18% Western Europe 49% Net sales in Scania’s ten largest markets Vehicles and Services, SEKm. 2008 9,321 7,639 5,602 4,923 4,471 4,403 4,353 4,349 3,805 2,946 2007 6,965 8,683 4,913 4,842 4,560 3,908 4,679 3,791 3,401 4,050 Change in % 34 –12 14 2 –2 13 –7 15 12 –27 nettoomsättning per prod.område Net sales by product area, 2008 Other 4% Used vehicles 5% Service-related products 18% Buses 9% Engines 1% Trucks 63% 4 Scania in figures SCANIA IN BRIEF Scania’s net sales rose by 5 percent to SEK 88,977 m. (84,486) during 2008. Scania’s operating income rose by 3 percent to SEK 12,512 m. (12,164). Operating margin amounted to 14.1 (14.4) percent. Net income for the year increased by 4 percent and totalled SEK 8,890 m. (8,554), equivalent to a net margin of 10.0 (10.1) percent. Earnings per share amounted to SEK 11.11 (10.69). KEY FIGURES Deliveries, units Trucks Buses and coaches Engines Net sales, Vehicles and Services, SEK m. Operating income, SEK m. Vehicles and Services Financial Services Total Operating margin, percent Income before taxes, SEK m. Net income for the year, SEK m. Earnings per share, SEK Cash flow, Vehicles and Services, SEK m. Return, percent on equity on capital employed, Vehicles and Services Net debt/equity ratio, Vehicles and Services Equity/assets ratio, percent Net capital expenditures, excl acquisitions, Vehicles and Services, SEK m. Research and development expenditures, SEK m. Number of employees, 31 December 2008 66,516 7,277 6,671 88,977 12,098 414 12,512 14.1 11,978 8,890 11.11 1,774 38.3 43.1 0.49 19.9 5,447 3,955 34,777 2007 68,654 7,224 7,228 84,486 11,632 532 12,164 14.4 11,906 8,554 10.69 8,229 35.0 42.1 – 0.09 27.1 4,277 3,214 35,096 2006 59,344 5,937 6,546 70,738 8,260 493 8,753 12.4 8,583 5,939 7.42 6,942 24.1 30.4 – 0.19 29.7 3,810 2,842 32,820 Brazil Great Britain Germany France Russia Norway Sweden The Netherlands Italy Spain Fordonslev per region Vehicles delivered by region, 2008 Asia 11% Other 5% Latin America 17% Central and eastern Europe 18% Western Europe 49% Net sales in Scania’s ten largest markets Vehicles and Services, SEKm. 2008 9,321 7,639 5,602 4,923 4,471 4,403 4,353 4,349 3,805 2,946 2007 6,965 8,683 4,913 4,842 4,560 3,908 4,679 3,791 3,401 4,050 Change in % 34 –12 14 2 –2 13 –7 15 12 –27 nettoomsättning per prod.område Net sales by product area, 2008 Other 4% Used vehicles 5% Service-related products 18% Buses 9% Engines 1% Trucks 63% <a href="/v5/viewer/files/Default_s.aspx?gKey=tqcxr73s&gInitPage=7">Scania Annual Report 2008 Sida 7 5 Vehicles and Se</a> rvices sid 5A = Fordon och Tjänster Avkastning på sysselsatt kapital % 10 20 30 40 50 0 99 00 01 02 03 04 05 06 07 08 Return on capital employed (ROCE) ■ Return on capital employed Scania’s operating income has increased continuously since 2001 as a result of higher business volume and higher margins. Meanwhile capital employed in Vehicles and Services has been largely unchanged. The most important explanations for this successful performance are that the increase in vehicle deliveries has occurred by means of a productivity increase in existing plants and that service operations have expanded in cooperation with independent entrepreneurs and through streamlining of the Scaniaowned sales and service network. Return on capital employed has thus increased from 9.1 percent in 2001 to 43.1 percent in 2008. sid 5A = Fordon och Tjänster Kassaflöde Cash flow SEK m. 2,000 4,000 6,000 8,000 0 99 00 01 02 03 04 05 06 07 08 ■ Cash flow Historically, Scania has had strong growth in cash flow, mainly due to its successfull trend of earnings. In addition, since 2005 Scania has worked systematically to reduce its need for working capital and has also succeeded in shortening its operating cash conversion cycle from 85 days in 2005 to 60 days in 2008. Due to the economic slowdown during the second half of 2008, working capital rose, mainly in the form of higher inventories. Scania is working intensively to reduce inventories and thereby decrease the Group’s short-term financing requirement. During 2008, net investments totalled SEK 5,447 m. and exceeded depreciation and amortisation, which amounted to SEK 3,235 m. This was in line with the increased investments in capacity which were made during this past year. sid 5A = Fordon och Tjänster Nettoskuldsättningsgrad % 20 40 60 –20 0 Net debt/equity ratio 99 00 01 02 03 04 05 06 07 08 ■ Net debt/equity ratio At the end of 2008, Scania had a net debt/equity ratio of 49 percent. The optimal level of the net debt/equity ratio varies over time, due among other things to changes in credit market conditions. When Scania has been highly profitable and there has been a good supply of liquidity in the credit market, it has been advantageous to finance operations to a certain degree through borrowing. In this way, Scania has aimed at maximising the value of the company and thereby maximising its value to shareholders. As a consequence, in 2007 and 2008 Scania distributed surplus capital to the shareholders totalling SEK 20 billion in the form of regular dividends and share redemption programmes. During 2008, the increase in the net debt/equity ratio was also attributable to the higher working capital during the second half. <a href="/v5/viewer/files/Default_s.aspx?gKey=tqcxr73s&gInitPage=8">Scania Annual Report 2008 Sida 8 6 SCANIA IN BRIEF</a> The world of Scania Scania operates in about 100 countries and has approximately 35,000 employees. Of these, nearly 3,000 work with research and development in close cooperation with production units, mainly in Sweden. Scania’s corporate purchasing department is supplemented by local procurement offi ces in Poland, the Czech Republic, the United States, China and Russia. Production takes place in Europe and Latin America. Luleå Södertälje 9,305 employees 655 employees Oskarshamn 1,895 employees 1,231 employees Zwolle Angers 530 employees St. Petersburg 205 employees Słupsk 841 employees Tucumán 693 employees São Paulo 3,437 employees ■ RESEARCH AND DEVELOPMENT A total of 2,922 employees work with research and development. These operations are concentrated in Södertälje, Sweden. ■ SALES AND SERVICE Altogether, Scania is represented in about 100 countries through more than 1,000 local sales facilities and over 1,500 service points. <a href="/v5/viewer/files/Default_s.aspx?gKey=tqcxr73s&gInitPage=9">Scania Annual Report 2008 Sida 9 7 Scania’s global</a> production system and product range Scania’s global production system and product range allow great fl exibility in balancing production optimally and cost-effectively. Scania’s production is based on a modular system, which means that most vehicle and engine components can be included in many different combinations. This, in turn, implies that with a limited number of components, it is possible to achieve large variation in vehicles. Meanwhile the modular system provides economies of scale in development, production and service. Short cabs Day cabs Low P Short cabs Day cabs Low Short cabs Day cabs G P P G TRUCKS ASSEMBLY Södertälje, Sweden Angers, France Zwolle, the Netherlands São Paulo, Brazil Södertälje*, Sweden São Paulo, Brazil R AXLES G R R Oskarshamn, Sweden São Paulo, Brazil Sleeper cabs Normal Highline Topline Sleeper cabs Normal Highline Topline CABS Sleeper cabs Low Normal Highline Topline BUSES AND COACHES CHASSIS ASSEMBLY Södertälje, Sweden São Paulo, Brazil BODYBUILDING Słupsk, Poland St. Petersburg, Russia During 2008 Scania also began to manufacture and sell a single global truck range, the P-, G- and R-series, which is now made both in Europe and Latin America. This provides high fl exibility and cost-effective production. FRAMES Luleå, Sweden GEARBOXES Södertälje, Sweden* Tucumán, Argentina São Paulo, Brazil ENGINES * Operations in Falun and Sibbhult, Sweden were moved to Södertälje in 2008. Södertälje, Sweden São Paulo, Brazil SCANIA ENGINES Södertälje, Sweden São Paulo, Brazil <a href="/v5/viewer/files/Default_s.aspx?gKey=tqcxr73s&gInitPage=10">Scania Annual Report 2008 Core values and strategy</a> 8 CORE VALUES AND STRATEGY Scania’s core values Scania’s core values – customer first, respect for the individual and quality – form the basis of Scania’s culture, leadership and business success. Scania’s strategy Scania’s strategy can be summarised in two words: profitable growth. Scania is the leading company in its industry both in terms of profitability and brand. This position is achieved by means of integrated efforts throughout the value chain and strategic focus. Scania’s identity is shaped by its customers and products – vehicles, services and financing – and by the people in the company, their values and working methods. Three core values – “customer first”, “respect for the individual” and “quality” – tie the company together and form the basis of Scania’s culture, leadership and business success. Customer first Through knowledge of customers’ business operations, Scania focuses on creating added value for its customers. The customer is at the centre of the entire value chain: from research and development via production and procurement, to sales, financing and delivery of services. Respect for the individual Respect for the individual is built by recognising and utilising all employees’ knowledge, experience and ambition to continuously develop and improve their working methods. New ideas and inspiration are born out of day-to-day operations, where Scania’s employees develop their skills. This helps us ensure higher quality, efficiency and greater job satisfaction. Quality The customers’ satisfaction and profitability require delivery of high quality products and services from Scania. Through knowledge of customers’ needs, Scania continuously improves the quality of its products and services. Deviations are used as a valuable source of information for further improvements, and are handled in wellestablished processes Heavy transport vehicles Vehicles in the heavy segment are often driven long distances and have a high degree of utilisation. Transport operations in this segment are dependent on appropriately specified and reliable vehicles as well as comprehensive services in order to be profitable. Scania also provides engines for purposes other than heavy road transport. Modular product system From Scania’s modular product system, customers can select optimised vehicles. The more closely vehicles and services can be adapted to a transport task, the better the customer’s operating economy. The modular system provides great flexibility towards the customers with almost unlimited specification possibilities using a carefully balanced number of main components with standardised interfaces. Keeping down the number of components is important for Scania’s cross-functional product development and global production. The modular system allows considerably longer production runs than what is possible in a conventional product system. It also simplifies parts management, contributes to higher service availability and makes it easier to train service technicians. Integrated business – vehicles, services and financing Understanding customer needs and the ability to offer combined solutions of vehicles, services and financing with outstanding value for each customer are vital for Scania’s success. Scania’s customers often use their vehicles round-the-clock and require rapid access to maintenance and repairs at all hours from Scania’s service network. Comprehensive packages of vehicles, services and customer financing are becoming more and more important. Selective growth Scania focuses on markets and segments where sustainable profitable growth can be achieved. A growing base of profitable customers and additional business with existing customers are more important than aggressive growth – Scania grows with successful customers. Entering a new market or segment implies a long-term commitment to customers and the society in that market. 8 CORE VALUES AND STRATEGY Scania’s core values Scania’s core values – customer first, respect for the individual and quality – form the basis of Scania’s culture, leadership and business success. Scania’s strategy Scania’s strategy can be summarised in two words: profitable growth. Scania is the leading company in its industry both in terms of profitability and brand. This position is achieved by means of integrated efforts throughout the value chain and strategic focus. Scania’s identity is shaped by its customers and products – vehicles, services and financing – and by the people in the company, their values and working methods. Three core values – “customer first”, “respect for the individual” and “quality” – tie the company together and form the basis of Scania’s culture, leadership and business success. Customer first Through knowledge of customers’ business operations, Scania focuses on creating added value for its customers. The customer is at the centre of the entire value chain: from research and development via production and procurement, to sales, financing and delivery of services. Respect for the individual Respect for the individual is built by recognising and utilising all employees’ knowledge, experience and ambition to continuously develop and improve their working methods. New ideas and inspiration are born out of day-to-day operations, where Scania’s employees develop their skills. This helps us ensure higher quality, efficiency and greater job satisfaction. Quality The customers’ satisfaction and profitability require delivery of high quality products and services from Scania. Through knowledge of customers’ needs, Scania continuously improves the quality of its products and services. Deviations are used as a valuable source of information for further improvements, and are handled in wellestablished processes Heavy transport vehicles Vehicles in the heavy segment are often driven long distances and have a high degree of utilisation. Transport operations in this segment are dependent on appropriately specified and reliable vehicles as well as comprehensive services in order to be profitable. Scania also provides engines for purposes other than heavy road transport. Modular product system From Scania’s modular product system, customers can select optimised vehicles. The more closely vehicles and services can be adapted to a transport task, the better the customer’s operating economy. The modular system provides great flexibility towards the customers with almost unlimited specification possibilities using a carefully balanced number of main components with standardised interfaces. Keeping down the number of components is important for Scania’s cross-functional product development and global production. The modular system allows considerably longer production runs than what is possible in a conventional product system. It also simplifies parts management, contributes to higher service availability and makes it easier to train service technicians. Integrated business – vehicles, services and financing Understanding customer needs and the ability to offer combined solutions of vehicles, services and financing with outstanding value for each customer are vital for Scania’s success. Scania’s customers often use their vehicles round-the-clock and require rapid access to maintenance and repairs at all hours from Scania’s service network. Comprehensive packages of vehicles, services and customer financing are becoming more and more important. Selective growth Scania focuses on markets and segments where sustainable profitable growth can be achieved. A growing base of profitable customers and additional business with existing customers are more important than aggressive growth – Scania grows with successful customers. Entering a new market or segment implies a long-term commitment to customers and the society in that market. <a href="/v5/viewer/files/Default_s.aspx?gKey=tqcxr73s&gInitPage=11">Scania Annual Report 2008 Sida 11 9 </a> <a href="/v5/viewer/files/Default_s.aspx?gKey=tqcxr73s&gInitPage=12">Scania Annual Report 2008 Market trends 10 MARKET </a> TRENDS 10 MARKET TRENDS <a href="/v5/viewer/files/Default_s.aspx?gKey=tqcxr73s&gInitPage=13">Scania Annual Report 2008 Trucks 11 TRUCKS Rapid d</a> ownturn in demand As global financial turbulence worsened starting in the summer of 2008, the real economy was also affected. This caused a very rapid downturn in demand for trucks in markets where Scania operates. The downturn was preceded by a period of very high order bookings, which began late in 2006. After the market had deteriorated during 2008, most manufacturers took steps to reduce production during the final months of the year. Demand declined significantly faster, however, resulting in a situation of high inventory levels in the entire industry. Customers could therefore hold off on their investment decision until they needed to place a vehicle in service. Consequently, delivery figures provided a better picture of underlying demand late in the year than did order bookings for new trucks. Scania delivered a total of 66,516 trucks to customers, compared to 68,654 during the preceding year, a decrease of 3 percent. Order bookings fell by 49 percent to 43,843 units. Common product range in all markets During 2008 Scania’s broadened truck range − the P-, G- and R-series − was introduced in all markets, which means that Scania has a common global product range. This changeover eased Scania’s adjustment to lower demand, since the company was able to shift production of vehicles for export from Latin America to Europe. This decreased the workload at production units in Latin America, where demand remained at a good level during much of 2008, while utilising spare capacity in Europe. Sharp fluctuations in fuel prices During the spring and summer, fuel prices rose to new peak levels. Meanwhile political leaders − especially in the European Union − established guidelines for reduced carbon dioxide emissions. Although fuel prices fell later in the year, customer demand for fuel efficiency and evertighter environmental regulations will pose a challenge for truck producers. For Scania, this is a business opportunity, since the company offers fuel-efficient engines that can operate on all available renewable fuels. Today Scania already has the technical concept required to meet the standards of the next set of emission regulations that will apply in the EU. These regulations, labelled Euro 6, will be introduced at the end of 2013. Focus on advanced segments Scania’s promise to customers is about providing the highest availability, combined with low operating costs. In all markets, Scania focuses on those customers who demand vehicles with high productivity throughout their life cycle. In emerging economies, too, an increasing proportion of the market prioritises long service life, good fuel economy, efficient service and high resale value. In the long term, this will mean increasing opportunities for Scania to expand its customer and volume base. Trucks, net sales Lastbilar nettoomsättning SEK m. 10,000 20,000 30,000 40,000 50,000 60,000 0 06 07 08 In 2008, net sales increased by 6 percent. 52,599 43,021 55,566 Rank Country 1 (1) Brazil 2 (2) Great Britain 3 (3) Russia 4 (5) France 5 (4) Germany 6 (7) Italy 2008 7,965 5,808 4,627 4,307 4,100 3,077 7 (8) The Netherlands 2,955 8 (10) Sweden 9 (9) Poland 10 (6) Spain 2,547 2,362 2,320 2007 6,451 5,315 5,161 4,367 4,584 3,028 2,885 2,387 2,837 3,904 Scania’s ten largest truck markets, vehicles delivered Change in % 23.5 9.3 –10.3 –1.4 –10.6 1.6 2.4 6.7 –16.7 –40.6 The ten largest markets accounted for 60 percent of Scania’s total truck deliveries. Scania delivered a total of 66,516 trucks during 2008. Scania truck deliveries by region, 2008 Lev lastbilar per region Other 4% Asia 10% Latin America 16% Central and eastern Europe 19% Western Europe 51% 11 TRUCKS Rapid downturn in demand As global financial turbulence worsened starting in the summer of 2008, the real economy was also affected. This caused a very rapid downturn in demand for trucks in markets where Scania operates. The downturn was preceded by a period of very high order bookings, which began late in 2006. After the market had deteriorated during 2008, most manufacturers took steps to reduce production during the final months of the year. Demand declined significantly faster, however, resulting in a situation of high inventory levels in the entire industry. Customers could therefore hold off on their investment decision until they needed to place a vehicle in service. Consequently, delivery figures provided a better picture of underlying demand late in the year than did order bookings for new trucks. Scania delivered a total of 66,516 trucks to customers, compared to 68,654 during the preceding year, a decrease of 3 percent. Order bookings fell by 49 percent to 43,843 units. Common product range in all markets During 2008 Scania’s broadened truck range − the P-, G- and R-series − was introduced in all markets, which means that Scania has a common global product range. This changeover eased Scania’s adjustment to lower demand, since the company was able to shift production of vehicles for export from Latin America to Europe. This decreased the workload at production units in Latin America, where demand remained at a good level during much of 2008, while utilising spare capacity in Europe. Sharp fluctuations in fuel prices During the spring and summer, fuel prices rose to new peak levels. Meanwhile political leaders − especially in the European Union − established guidelines for reduced carbon dioxide emissions. Although fuel prices fell later in the year, customer demand for fuel efficiency and evertighter environmental regulations will pose a challenge for truck producers. For Scania, this is a business opportunity, since the company offers fuel-efficient engines that can operate on all available renewable fuels. Today Scania already has the technical concept required to meet the standards of the next set of emission regulations that will apply in the EU. These regulations, labelled Euro 6, will be introduced at the end of 2013. Focus on advanced segments Scania’s promise to customers is about providing the highest availability, combined with low operating costs. In all markets, Scania focuses on those customers who demand vehicles with high productivity throughout their life cycle. In emerging economies, too, an increasing proportion of the market prioritises long service life, good fuel economy, efficient service and high resale value. In the long term, this will mean increasing opportunities for Scania to expand its customer and volume base. Trucks, net sales Lastbilar nettoomsättning SEK m. 10,000 20,000 30,000 40,000 50,000 60,000 0 06 07 08 In 2008, net sales increased by 6 percent. 52,599 43,021 55,566 Rank Country 1 (1) Brazil 2 (2) Great Britain 3 (3) Russia 4 (5) France 5 (4) Germany 6 (7) Italy 2008 7,965 5,808 4,627 4,307 4,100 3,077 7 (8) The Netherlands 2,955 8 (10) Sweden 9 (9) Poland 10 (6) Spain 2,547 2,362 2,320 2007 6,451 5,315 5,161 4,367 4,584 3,028 2,885 2,387 2,837 3,904 Scania’s ten largest truck markets, vehicles delivered Change in % 23.5 9.3 –10.3 –1.4 –10.6 1.6 2.4 6.7 –16.7 –40.6 The ten largest markets accounted for 60 percent of Scania’s total truck deliveries. Scania delivered a total of 66,516 trucks during 2008. Scania truck deliveries by region, 2008 Lev lastbilar per region Other 4% Asia 10% Latin America 16% Central and eastern Europe 19% Western Europe 51% <a href="/v5/viewer/files/Default_s.aspx?gKey=tqcxr73s&gInitPage=14">Scania Annual Report 2008 Sida 14 12 MARKET TRENDS</a> EUROPE Deceleration in Europe Poor liquidity in the banking sector and the economic downturn changed the market picture very quickly during 2008. The European market, which showed exceptionally strong expansion during 2007 and early 2008, thus experienced a sharp deceleration. Western Europe was the first of Scania’s markets to feel the economic deterioration. The same trend soon occurred in central and eastern Europe, where the Russian market also worsened significantly during the second half of 2008. Difficult for customers to obtain financing Financial turbulence, which deepened during the third quarter, led to difficulties for buyers in financing new vehicles. Greater uncertainty about future economic trends also contributed to postponements of planned orders. In western Europe, deliveries of Scania trucks declined 4 percent year-on-year, including downturns in Spain, Germany and Ireland. Order bookings in the region fell by 59 percent. Weaker market in central and eastern Europe After a relatively strong start to the year, an accelerating downturn in demand occurred in central and eastern Europe. Overall deliveries in the region declined by 15 percent. Order bookings were down by 57 percent. Of the various markets, deliveries fell especially in the Baltic countries and Russia. Demand in Russia dropped sharply late in the year. The Russian economy was hard hit by global credit turmoil. Foreign capital was withdrawn, which had negative consequences for investments. The total market for heavy trucks in 24 of the European Union member countries (all EU countries except for Bulgaria, Greece and Malta) plus Norway and Switzerland decreased by 3 percent to about 313,000 vehicles. Scania truck registrations totalled about 40,400, which meant a market share of 12.9 (13.6) percent. lastbilsmarknad, västra Europa 300,000 Units 50,000 100,000 150,000 200,000 250,000 0 84 87 90 93 96 99 02 05 08 During the past ten years, the truck market in western Europe has grown by more than 12 percent. The truck market in western Europe Lastbilsmarknaden i de nya EU-länderna Units 10,000 20,000 30,000 40,000 50,000 60,000 70,000 0 89 91 93 95 97 99 01 03 05 08 Growth has increased sharply in the new EU countries during the past several years but came to a halt in 2008. The truck market in the new EU countries <a href="/v5/viewer/files/Default_s.aspx?gKey=tqcxr73s&gInitPage=15">Scania Annual Report 2008 Page 15 13 Market shares</a> Marknadsutveckling, lastbilar över 16 ton i västra Europa % Trucks above 16 tonnes, 24 EU countries plus Norway and Switzerland 25 Mercedes 20 Volvo 15 DAF 10 Iveco 5 2002 0 2003 2004 2005 2006 2007 2008 Scania’s competitors in Europe are Mercedes, Volvo, DAF, MAN and Iveco. Renault Scania MAN 13 Market shares Marknadsutveckling, lastbilar över 16 ton i västra Europa % Trucks above 16 tonnes, 24 EU countries plus Norway and Switzerland 25 Mercedes 20 Volvo 15 DAF 10 Iveco 5 2002 0 2003 2004 2005 2006 2007 2008 Scania’s competitors in Europe are Mercedes, Volvo, DAF, MAN and Iveco. Renault Scania MAN <a href="/v5/viewer/files/Default_s.aspx?gKey=tqcxr73s&gInitPage=16">Scania Annual Report 2008 Sida 16 14 MARKET TRENDS</a> LATIN AMERICA Downturn late in the year In Latin America, Scania truck deliveries rose by 10 percent in a market that was strong during the first nine months, but markets deteriorated towards the end of the year. utveckling latinamerika Number of trucks 20,000 40,000 60,000 80,000 100,000 0 04 05 06 07 08 Since 2004 the truck market in Latin America has shown growth, but demand declined late in 2008. The truck market in Latin America Demand in Latin America, which was strong during the first part of 2008, was driven by good growth in the mining and agricultural sectors. Later in the year, however, there was a dramatic downturn in commodity prices in the wake of widespread liquidity shortages and the American economic downturn. Together with a general slowdown in economic activity, this caused a decline in demand late in the year. In 2008 as a whole, order bookings declined by 17 percent to 9,026 trucks. In Brazil, Scania’s transition to production of the P-, G- and R-series early in the year proceeded as planned. With the transition to a common global product range, Scania increased its efficiency and flexibility in both production and distribution, since it is now possible to completely re-allocate manufacturing between Europe and Latin America to achieve optimal capacity utilisation. During the third quarter Scania received its largest-ever order in Brazil, for 260 trucks including driver training and on-board computers for transport planning. The order is an example of global convergence of market demands. This applies to demands on technology as well as repairs and maintenance and various other types of services. Scania’s market share in Brazil amounted to 20 per- cent. Mercedes was the market leader with a 24 percent share. <a href="/v5/viewer/files/Default_s.aspx?gKey=tqcxr73s&gInitPage=17">Scania Annual Report 2008 Sida 17 15 Scania is wor</a> king to gradually increase its presence in emerging markets. ASIA, MIDDLE EAST AND AFRICA Good demand inmanymarkets Deteriorating world economic conditions affected the truck market in Asia, the Middle East and Africa towards the end of the year, but to a lesser degree than in North America and Europe. Infrastructure investments in many countries were one major reason why there was good demand for heavy trucks during 2008. Deliveries of Scania trucks to Asia and other markets were stable at 9,102 units. Demand was good in various countries of the Middle East and in South East Asia, but declined especially in Turkey and South Korea. Scania noted an increase in truck deliveries to several markets in Africa, while a downturn occurred in Australia. Total order bookings in markets outside Europe and Latin America rose during the first nine months and then fell during the fourth quarter. During 2008, order bookings reached 7,660 trucks, compared to 9,476 the preceding year. The introduction of the P-, G- and R-series in all markets improved Scania’s competitiveness. Scania is working to gradually increase its presence in emerging markets. Although the current liquidity shortages will have short-term repercussions on investments in many of these markets, there is still long-term potential for greater demand for transport services. Among other things, Scania will open a delivery centre in Dubai for bodyworking and equipping of complete vehicles. In a number of countries, Scania has been success- ful in the mining sector offering offer high vehicle uptime, low fuel and parts consumption, maintenance and repair agreements as well as financing. In niches with this type of sophisticated needs, Scania has an opportunity to capture sizeable market share in such countries as India and Indonesia. A Scania P 380 four-axle tipper truck being used in an open-cast mine outside of Kothagudem in the Godavari Valley, India. <a href="/v5/viewer/files/Default_s.aspx?gKey=tqcxr73s&gInitPage=18">Scania Annual Report 2008 Buses and coaches 16 MAR</a> KET TRENDS BUSES AND COACHES Stable bus and coachmarket The overall demand for Scania’s buses and coaches was stable during 2008. Demand deteriorated in Europe and Latin America, while it increased in Asia and in other markets. Order bookings for buses and coaches fell by 12 percent to 7,191 (8,154) units. In Europe, demand was down by 21 percent compared to 2007. In western Europe, there was a general downturn in order bookings, especially in Spain and Ireland. In central and eastern Europe, demand increased in Romania and Russia, while it fell in Poland. In Latin America, order bookings fell by 27 percent. Demand weakened in Brazil and Venezuela. In Asia and in other markets, order bookings rose by 12 percent. Demand was higher in a number of markets but lower in Taiwan and South Africa. Asia offers opportunities for Scania to increase its bus and coach sales. The demand for public transport is increasing as the world’s cities grow. Scania’s new order in Singapore for 400 city buses is an example of the growing interest in buses that meet stricter environmental rules. Another trend is that customers are increasingly demanding complete buses and coaches. Scania is thus working to intensify its cooperation with selected manufacturers of bus and coach bodies, for example in China. Scania also has its own production of bus bodies at its city bus plant in Poland. During 2008, Scania’s bus and coach deliveries to- talled 7,227 (7,224) units. In Europe, the increase occurred mainly in the Nordic markets and in Italy. Lower deliveries were noted in Estonia and Russia. The downturn in Latin America was related to Brazil and Venezuela. In Asia, deliveries increased mainly due to Singapore. Scania buses help Singapore update its public transport SBS Transit, Singapore’s leading public transport company, ordered 400 city buses from Scania in 2008. With engines featuring exhaust gas recirculation (EGR) technology, these buses will meet both 2009 European emission standards (Euro 5) and the stricter enhanced environmentally friendly vehicle (EEV) standard. The order is a follow-up to SBS Transit’s 500-bus order during 2007 and is part of that company’s ongoing replacement of its fleet with vehicles featuring better environmental performance. The most important criteria for the procurement were passenger comfort, quality, environmental performance and operating economy. Another contributing factor was Scania’s ability to live up to the demand for a long-term partner that can adapt its products and services to the needs of SBS Transit. The delivery includes Scania’s systems for logging and monitoring of vehicle performance data, training of the company’s drivers in safe, fuel-efficient driving and support in building up systems for monitoring the performance and operating costs of the buses. 16 MARKET TRENDS BUSES AND COACHES Stable bus and coachmarket The overall demand for Scania’s buses and coaches was stable during 2008. Demand deteriorated in Europe and Latin America, while it increased in Asia and in other markets. Order bookings for buses and coaches fell by 12 percent to 7,191 (8,154) units. In Europe, demand was down by 21 percent compared to 2007. In western Europe, there was a general downturn in order bookings, especially in Spain and Ireland. In central and eastern Europe, demand increased in Romania and Russia, while it fell in Poland. In Latin America, order bookings fell by 27 percent. Demand weakened in Brazil and Venezuela. In Asia and in other markets, order bookings rose by 12 percent. Demand was higher in a number of markets but lower in Taiwan and South Africa. Asia offers opportunities for Scania to increase its bus and coach sales. The demand for public transport is increasing as the world’s cities grow. Scania’s new order in Singapore for 400 city buses is an example of the growing interest in buses that meet stricter environmental rules. Another trend is that customers are increasingly demanding complete buses and coaches. Scania is thus working to intensify its cooperation with selected manufacturers of bus and coach bodies, for example in China. Scania also has its own production of bus bodies at its city bus plant in Poland. During 2008, Scania’s bus and coach deliveries to- talled 7,227 (7,224) units. In Europe, the increase occurred mainly in the Nordic markets and in Italy. Lower deliveries were noted in Estonia and Russia. The downturn in Latin America was related to Brazil and Venezuela. In Asia, deliveries increased mainly due to Singapore. Scania buses help Singapore update its public transport SBS Transit, Singapore’s leading public transport company, ordered 400 city buses from Scania in 2008. With engines featuring exhaust gas recirculation (EGR) technology, these buses will meet both 2009 European emission standards (Euro 5) and the stricter enhanced environmentally friendly vehicle (EEV) standard. The order is a follow-up to SBS Transit’s 500-bus order during 2007 and is part of that company’s ongoing replacement of its fleet with vehicles featuring better environmental performance. The most important criteria for the procurement were passenger comfort, quality, environmental performance and operating economy. Another contributing factor was Scania’s ability to live up to the demand for a long-term partner that can adapt its products and services to the needs of SBS Transit. The delivery includes Scania’s systems for logging and monitoring of vehicle performance data, training of the company’s drivers in safe, fuel-efficient driving and support in building up systems for monitoring the performance and operating costs of the buses. <a href="/v5/viewer/files/Default_s.aspx?gKey=tqcxr73s&gInitPage=19">Scania Annual Report 2008 Sida 19 17 Scania offers</a> a complete range of buses, coaches and chassis for public transport operators and tourist coach companies. They are renowned for very good operating economy. Each component is engineered to maximise the performance of the vehicle and set world-class standards for fuel economy, driveability, road handling, reliability and uptime. Each model is customised to ensure that owners get the best solution possible in terms of passenger capacity, number of seats, comfort level and other key criteria. Buses and coaches, net sales Bussar nettoomsättning SEK m. 2,000 4,000 6,000 8,000 10,000 0 6,766 7,429 8,186 Scania’s ten largest bus and coach markets, vehicles delivered Rank Country 1 (1) 2 (2) Brazil Iran 3 (3) Great Britain 4 (5) Mexico 06 07 08 Net sales increased by 10 percent during 2008. 5 (22) Singapore 6 (4) 7 (9) 8 (7) 9 (8) 10 (6) Spain Italy South Africa Peru Australia 2008 815 727 572 477 433 417 339 331 276 264 2007 1,017 878 508 426 89 475 245 315 311 338 Change in % –19.9 –17.2 12.6 12.0 386.5 –12.2 38.4 5.1 –11.3 –21.9 The ten largest markets accounted for 64 percent of Scania’s total bus and coach deliveries. Scania delivered a total of 7,277 buses and coaches during 2008. Other 13% Asia 24% Latin America 27% Western Europe 30% Central and eastern Europe 6% Scania bus and coach dellev buss per regioniveries by region, 2008 17 Scania offers a complete range of buses, coaches and chassis for public transport operators and tourist coach companies. They are renowned for very good operating economy. Each component is engineered to maximise the performance of the vehicle and set world-class standards for fuel economy, driveability, road handling, reliability and uptime. Each model is customised to ensure that owners get the best solution possible in terms of passenger capacity, number of seats, comfort level and other key criteria. Buses and coaches, net sales Bussar nettoomsättning SEK m. 2,000 4,000 6,000 8,000 10,000 0 6,766 7,429 8,186 Scania’s ten largest bus and coach markets, vehicles delivered Rank Country 1 (1) 2 (2) Brazil Iran 3 (3) Great Britain 4 (5) Mexico 06 07 08 Net sales increased by 10 percent during 2008. 5 (22) Singapore 6 (4) 7 (9) 8 (7) 9 (8) 10 (6) Spain Italy South Africa Peru Australia 2008 815 727 572 477 433 417 339 331 276 264 2007 1,017 878 508 426 89 475 245 315 311 338 Change in % –19.9 –17.2 12.6 12.0 386.5 –12.2 38.4 5.1 –11.3 –21.9 The ten largest markets accounted for 64 percent of Scania’s total bus and coach deliveries. Scania delivered a total of 7,277 buses and coaches during 2008. Other 13% Asia 24% Latin America 27% Western Europe 30% Central and eastern Europe 6% Scania bus and coach dellev buss per regioniveries by region, 2008 <a href="/v5/viewer/files/Default_s.aspx?gKey=tqcxr73s&gInitPage=20">Scania Annual Report 2008 Engines 18 MARKET TRENDS</a> The glass-bottom flagship boat at the John Pennekamp Coral Reef State Park in Key Largo, Florida, USA is powered by twin 16-litre Scania V8 engines. During the sugar cane harvest in Brazil, threshing must take place around the clock. The Scania engine in this thresher ensures the necessary reliability. The Southern African Large Telescope is the largest single optical telescope in the southern hemisphere. It relies on a 16-litre V8 engine from Scania for dependable power. 18 MARKET TRENDS The glass-bottom flagship boat at the John Pennekamp Coral Reef State Park in Key Largo, Florida, USA is powered by twin 16-litre Scania V8 engines. During the sugar cane harvest in Brazil, threshing must take place around the clock. The Scania engine in this thresher ensures the necessary reliability. The Southern African Large Telescope is the largest single optical telescope in the southern hemisphere. It relies on a 16-litre V8 engine from Scania for dependable power. <a href="/v5/viewer/files/Default_s.aspx?gKey=tqcxr73s&gInitPage=21">Scania Annual Report 2008 Sida 21 19 SCANIA ENGINE</a> S A new generation of engines in the market During 2008, shortages of electricity in many parts of the world increased the demand for gensets. Scania’s new generation of engines is providing greater market potential in the run-up to a major tightening of emission standards in 2011. Scania Engines focuses on diesel engines in the 9- to 16-litre displacement segment. Most deliveries are industrial engines for generating electricity (gensets). They may also be used for power production using alternative fuels. The market for industrial engines is generally char- acterised by low mobility among customers. The stricter environmental standards − EU Stage IIIB and US Tier 4i − that will go into effect starting in 2011 represent a chance for Scania to successfully market fuel-efficient engines that lower the customer’s cost, deliver outstanding performance and reduce environment impact. This will give Scania an opportunity to increase its market share. There is growing interest in ethanol engines in the Bra- zilian agricultural sector. Scania itends to satisfy this new need. Scania Engines is the only part of the Scania Group that sells in the US, an important market. Scania Engines, net sales Motorer nettoomsättning SEK m. 1,000 1,200 200 400 600 800 0 06 07 08 Net sales declined by 3 percent during 2008. 1,024 1,1851,151 When it comes to marine engines for pleasure boats, Scania has a strategic alliance with the Japanese company Yanmar. Scania’s larger engines complement Yanmar’s lighter ones. Via Yanmar, Scania gains access to a welldeveloped pleasure boat sales and service network. Order bookings for engines decreased by 3 percent to 6,338 units during 2008. In Europe, order bookings fell due to lower demand in Germany and Spain. Demand for marine engines was stable in 2008, but demand for genset engines increased sharply due to prevailing electricity shortages, especially in Brazil and South Africa. In Great Britain, Singapore and Malaysia as well, production of gensets containing Scania engines increased. Scania delivered 6,671 (7,228) industrial and marine engines during 2008, a downturn of 8 percent. Net sales declined by 3 percent to SEK 1,151 m. (1,185). bildtext om motor Scania’s ten largest engine markets, engines delivered Rank Country 1 (1) Brazil 2 (5) Great Britain 3 (9) South Africa 4 (7) Sweden 5 (3) Germany 6 (6) The Netherlands 7 (4) Spain 8 (8) Norway 9 (12) Finland 10 (10) Argentina 2008 2,546 803 502 388 346 304 268 250 224 176 2007 2,271 550 230 343 709 363 669 319 176 223 Scania engine deliveries by region, 2008 Motormarknad Change in % 12.1 46.0 118.3 13.1 –51.2 –16.3 –59.9 –21.6 27.3 –21.1 38 percent of Scania’s engine deliveries occur in Brazil. Scania delivered a total of 6,671 engines during 2008. Latin America 41% Central and eastern Europe 2% Other 9% Asia 4% Western Europe 44% Demand for genset engines (here a mobile unit) increased sharply in Brazil and South Africa due to electricity shortages. <a href="/v5/viewer/files/Default_s.aspx?gKey=tqcxr73s&gInitPage=22">Scania Annual Report 2008 Services 20 SERVICES Sta</a> ble growth in demand for services With more Scania vehicles on the roads and with a greater need for one-stop shopping, the demand for services is increasing. Providing services is of growing importance to Scania and is becoming an increasingly vital advantage during economic cycles. Service business is also less sensitive to competition than vehicle sales and is a stabilising factor for the Group’s profitability. Since the 1990s, Scania has enhanced its business by integrating the sales and service network while broadening its range of services. Closer proximity to the transport work of customers ensures high uptime for the more than 500,000 Scania vehicles that are in operation. More than 40 percent of all Scania employees work in sales and service companies, compared to 10 percent in the early 1990s. During 2008, Scania service revenue rose by 8 percent to SEK 16,393 m. (15,139). The largest markets in terms of service sales are Great Britain, the Benelux countries, Sweden, Norway and Germany. Scania’s service network consists of more than 1,500 workshops, including more than 1,000 in Europe. Scania will meet higher demand by boosting the efficiency and capacity of its workshops, as well as by increasing its presence in such fast-growing markets as Russia. The population of Scania vehicles on the roads is expected to total one million by around 2015. A growing interest among customers in utilising authorised workshops with trained vehicle service technicians is also contributing to the rising volume of service business. Close to customers through its own network Since the mid-1990s, Scania has invested heavily in its service network in order to increase its own proximity to customer vehicles. Scania is the manufacturer that owns the largest percentage of its service network and that is “dedicated all the way” to its customers − from delivering the best custom-tailored vehicle to providing the best service and support for day-to-day transport work. This service network, combined with Scania Assist- ance roadside repair service, enables Scania to offer vehicle servicing and repairs 24 hours a day and 365 days a year throughout Europe, as well as in a number of other markets. Through Scania Assistance, customers can maintain continuous contact in their own languages via 17 assist 20 SERVICES Stable growth in demand for services With more Scania vehicles on the roads and with a greater need for one-stop shopping, the demand for services is increasing. Providing services is of growing importance to Scania and is becoming an increasingly vital advantage during economic cycles. Service business is also less sensitive to competition than vehicle sales and is a stabilising factor for the Group’s profitability. Since the 1990s, Scania has enhanced its business by integrating the sales and service network while broadening its range of services. Closer proximity to the transport work of customers ensures high uptime for the more than 500,000 Scania vehicles that are in operation. More than 40 percent of all Scania employees work in sales and service companies, compared to 10 percent in the early 1990s. During 2008, Scania service revenue rose by 8 percent to SEK 16,393 m. (15,139). The largest markets in terms of service sales are Great Britain, the Benelux countries, Sweden, Norway and Germany. Scania’s service network consists of more than 1,500 workshops, including more than 1,000 in Europe. Scania will meet higher demand by boosting the efficiency and capacity of its workshops, as well as by increasing its presence in such fast-growing markets as Russia. The population of Scania vehicles on the roads is expected to total one million by around 2015. A growing interest among customers in utilising authorised workshops with trained vehicle service technicians is also contributing to the rising volume of service business. Close to customers through its own network Since the mid-1990s, Scania has invested heavily in its service network in order to increase its own proximity to customer vehicles. Scania is the manufacturer that owns the largest percentage of its service network and that is “dedicated all the way” to its customers − from delivering the best custom-tailored vehicle to providing the best service and support for day-to-day transport work. This service network, combined with Scania Assist- ance roadside repair service, enables Scania to offer vehicle servicing and repairs 24 hours a day and 365 days a year throughout Europe, as well as in a number of other markets. Through Scania Assistance, customers can maintain continuous contact in their own languages via 17 assist <a href="/v5/viewer/files/Default_s.aspx?gKey=tqcxr73s&gInitPage=23">Scania Annual Report 2008 Sida 23 21 ance centres </a> in some 50 countries. In case of breakdown, customers can summon help to start or repair a vehicle on the road, contact a workshop and have the vehicle towed. Broadened range of services By offering fixed-price service contracts, Scania can intensify its customer contact. A known total cost from the day a vehicle goes into operation makes it easier for customers to set the prices for their own transport assignments. Regular and professional service from Scania provides customers with continuous advice for avoiding stoppages. A service contract also enables customers to make uniform and regular payments, which makes liquidity planning easier. Scania has a broad service offering that encompasses repairs and maintenance, assistance in case of breakdowns, tyre service, fleet management, driver training and financing. Scania customers may choose a single service or a service contract specially tailored to include the particular services they need. Scania now also offers its customers repairs, maintenance and parts for trailers and bodywork. Having a single supplier of services can be substantially more efficient for the customer. One important element of vehicle uptime and proxim- ity to customers is Scania’s parts management, which meets the highest standards of efficiency and speed in the market. Scania’s distribution structure enables it to deliver parts throughout Europe within 12 hours. To ensure that customers everywhere receive the same high degree of service, Scania certifies the quality of its service network through the Scania Dealer Operating Standard (DOS). This standard is based on a number of customer pledges that must be met in order for a service facility to be certified by Scania. >> Försäljning rullande 10 år Services, net sales Service o tjänster nettoomsättning SEK m. 5,000 10,000 15,000 20,000 0 13,595 15,139 16,393 100,000 200,000 300,000 400,000 500,000 600,000 06 07 08 0 97 Net sales increased by 8 percent during 2008. 98 99 00 01 02 03 04 05 06 07 08 The population of Scania vehicles on the roads is expected to total one million by around 2015. Truck population on the roads Number of trucks Scania has a broad service offering that encompasses repairs and maintenance, assistance in case of breakdowns, tyre service, fleet management, driver training and financing. 21 ance centres in some 50 countries. In case of breakdown, customers can summon help to start or repair a vehicle on the road, contact a workshop and have the vehicle towed. Broadened range of services By offering fixed-price service contracts, Scania can intensify its customer contact. A known total cost from the day a vehicle goes into operation makes it easier for customers to set the prices for their own transport assignments. Regular and professional service from Scania provides customers with continuous advice for avoiding stoppages. A service contract also enables customers to make uniform and regular payments, which makes liquidity planning easier. Scania has a broad service offering that encompasses repairs and maintenance, assistance in case of breakdowns, tyre service, fleet management, driver training and financing. Scania customers may choose a single service or a service contract specially tailored to include the particular services they need. Scania now also offers its customers repairs, maintenance and parts for trailers and bodywork. Having a single supplier of services can be substantially more efficient for the customer. One important element of vehicle uptime and proxim- ity to customers is Scania’s parts management, which meets the highest standards of efficiency and speed in the market. Scania’s distribution structure enables it to deliver parts throughout Europe within 12 hours. To ensure that customers everywhere receive the same high degree of service, Scania certifies the quality of its service network through the Scania Dealer Operating Standard (DOS). This standard is based on a number of customer pledges that must be met in order for a service facility to be certified by Scania. >> Försäljning rullande 10 år Services, net sales Service o tjänster nettoomsättning SEK m. 5,000 10,000 15,000 20,000 0 13,595 15,139 16,393 100,000 200,000 300,000 400,000 500,000 600,000 06 07 08 0 97 Net sales increased by 8 percent during 2008. 98 99 00 01 02 03 04 05 06 07 08 The population of Scania vehicles on the roads is expected to total one million by around 2015. Truck population on the roads Number of trucks Scania has a broad service offering that encompasses repairs and maintenance, assistance in case of breakdowns, tyre service, fleet management, driver training and financing. <a href="/v5/viewer/files/Default_s.aspx?gKey=tqcxr73s&gInitPage=24">Scania Annual Report 2008 Sida 24 22 SERVICES >> D</a> river training and IT support for efficient transport Scania provides driver training in over 40 countries. During 2008, more than 9,600 (9,500) truck and bus drivers received such training. Well-trained drivers mean improved fuel economy, lower repair and maintenance costs, better road safety and reduced environmental impact. Scania’s customers are usually links in complex logistics chains. Drivers and hauliers thus increase require good information technology (IT) support. Scania Fleet Management is one example of a tool that enables a transport operator to utilise its fleet more efficiently and give its own customers better service. The system also helps transport companies keep track of when it is time for maintenance and which drivers may need training to learn how to handle vehicles more efficiently. Hauliers can monitor their costs in a more efficient way. Better customer contact – effective support Scania has organised its distributor and dealership business in such a way as to accord greater importance to direct customer contact and service. This contact is where customer benefit is generated − or can be diminished. Within this organisation, since 2006 Scania has gradu- ally been introducing a new way of working – the Scania Retail System (SRS). All employees participate in the task of continuous improvement in working methods and in eliminating waste, with the aim of boosting customer satisfaction. Employees continuously refine existing methods to meet customer needs, thereby shortening lead times and raising service quality. Tasks that customers are not prepared to pay for are identified and removed, resulting in greater customer benefit and a gradual improvement in efficiency. The rest of the sales and service organisation can rely on back-up from the distributor, as well as from the regional and corporate level. By concentrating its back-up functions, Scania avoids duplication and waste. There is currently a project to physically standardise and modularise Scania service workshops, in order to further improve their efficiency and strengthen the Scania brand. Well-trained drivers mean better fuel economy, lower repair and maintenance costs, better road safety and reduced environmental impact. <a href="/v5/viewer/files/Default_s.aspx?gKey=tqcxr73s&gInitPage=25">Scania Annual Report 2008 Sida 25 23 Scania’s work</a> shop in São José dos Pinhais, Brazil can service up to 100 trucks and buses at the same time. <a href="/v5/viewer/files/Default_s.aspx?gKey=tqcxr73s&gInitPage=26">Scania Annual Report 2008 Financial services 24 FI</a> NANCIAL SERVICES Good balance limits risk Scania’s financing and insurance solutions are an important element of Scania’s total offering that enables customers to focus on their own business. Through a well-diversified portfolio and a cautious refinancing policy, Scania limits its risks in these operations. Financial services strengthen Scania’s business − supplying customers with high-quality vehicles and services for advanced transport of goods and passengers by road. Scania has wholly owned finance companies for customer financing that cover 40 markets. In markets where Scania does not have its own finance company, financing is offered through export financing solutions or through collaboration with local banks. Customers are offered financing solutions tailored to fit their needs. They can choose between loan financing and various forms of leases. Financial services may also include insurance and various types of service contracts. The largest markets for financial services are the Nordic region, Germany, the Benelux countries, Great Britain and France. Operations have grown rapidly in eastern and central Europe as well as in other markets outside western Europe, thereby achieving a better geographic balance. In emerging markets, Scania’s solutions are extra important, since local financial markets are not so developed. Late in 2008, Scania submitted an application to the Brazilian central bank for permission to start a finance company. Most borrowing occurs internally via Scania’s treasury unit, and there is dedicated financing that covers the estimated demand for financing during the coming year, including borrowing that ensures the refinancing of the existing portfolio. Market downturn and lower earnings Despite a rapid deterioration in the market during the second half of 2008, the value of Scania’s financing portfolio rose by 23 percent to SEK 47.2 (38.3) billion at year-end. Scania had a penetration rate of 36 (35) percent during 2008 in markets where the company has its own financing operations. In local currencies, the portfolio increased by 14 percent, equivalent to SEK 5.5 billion. Despite a cost increase in its borrowing, Scania noted a higher margin on new business transactions. The operating income of the Financial Services busi- ness area fell to SEK 414 m. (532), equivalent to 1.0 (1.5) percent of the average portfolio during the year. The year’s total bad debt expenses, including provisions to the reserve for bad debts, increased to SEK 227 m. (90), which was equivalent to 0.53 (0.26) percent of the average portfolio. Of this, actual credit losses totalled SEK 183 m. (46). Customers providing transport services for the automotive and construction industries have been hit especially hard by the downturn in transport demand. A sizeable proportion of bad debt expenses are attributable to the German market, partly because many German banks have withdrawn operating loans to certain transport companies. Also affected are many markets in eastern and central Europe as well as Spain. In a number of markets including Spain, Scania has relatively minor exposure to the construction sector, limiting its bad debt expenses. High-quality portfolio Scania minimises its risks by having a well-balanced portfolio. Aside from broad geographic dispersion, Scania apportions risks among different types of customers, in terms of size, economic sector and vehicle applications. At year-end, the portfolio was divided among 23,120 customers. Most were medium-sized hauliers. Credit exposure exceeded SEK 15 m. per customer for about 400 customers. The largest commitments, above SEK 50 m. per customer, encompass some 70 customers, many of them companies outside the transport sector such as retail chains. This category also includes various bus operators. Scania has no exposure to large rental companies. In case of very large individual credit exposures, Scania uses syndication with other financial institutions to reduce the individual credit risk. Scania’s knowledge of the transport industry and its proximity to customers facilitates the assessment of customer creditworthiness and the value of the collateral in the form of the vehicle being financed. The credit assessment takes into account not only the customer’s financial position but also the customer’s market situation and earning capacity. The number of repossessed vehicles more than dou- bled during 2008 to 2,146. Owing to the deterioration in the vehicle market during the latter part of the year, Scania strengthened its organisation for handling repossessions. In most markets, Scania can control the process, in close 24 FINANCIAL SERVICES Good balance limits risk Scania’s financing and insurance solutions are an important element of Scania’s total offering that enables customers to focus on their own business. Through a well-diversified portfolio and a cautious refinancing policy, Scania limits its risks in these operations. Financial services strengthen Scania’s business − supplying customers with high-quality vehicles and services for advanced transport of goods and passengers by road. Scania has wholly owned finance companies for customer financing that cover 40 markets. In markets where Scania does not have its own finance company, financing is offered through export financing solutions or through collaboration with local banks. Customers are offered financing solutions tailored to fit their needs. They can choose between loan financing and various forms of leases. Financial services may also include insurance and various types of service contracts. The largest markets for financial services are the Nordic region, Germany, the Benelux countries, Great Britain and France. Operations have grown rapidly in eastern and central Europe as well as in other markets outside western Europe, thereby achieving a better geographic balance. In emerging markets, Scania’s solutions are extra important, since local financial markets are not so developed. Late in 2008, Scania submitted an application to the Brazilian central bank for permission to start a finance company. Most borrowing occurs internally via Scania’s treasury unit, and there is dedicated financing that covers the estimated demand for financing during the coming year, including borrowing that ensures the refinancing of the existing portfolio. Market downturn and lower earnings Despite a rapid deterioration in the market during the second half of 2008, the value of Scania’s financing portfolio rose by 23 percent to SEK 47.2 (38.3) billion at year-end. Scania had a penetration rate of 36 (35) percent during 2008 in markets where the company has its own financing operations. In local currencies, the portfolio increased by 14 percent, equivalent to SEK 5.5 billion. Despite a cost increase in its borrowing, Scania noted a higher margin on new business transactions. The operating income of the Financial Services busi- ness area fell to SEK 414 m. (532), equivalent to 1.0 (1.5) percent of the average portfolio during the year. The year’s total bad debt expenses, including provisions to the reserve for bad debts, increased to SEK 227 m. (90), which was equivalent to 0.53 (0.26) percent of the average portfolio. Of this, actual credit losses totalled SEK 183 m. (46). Customers providing transport services for the automotive and construction industries have been hit especially hard by the downturn in transport demand. A sizeable proportion of bad debt expenses are attributable to the German market, partly because many German banks have withdrawn operating loans to certain transport companies. Also affected are many markets in eastern and central Europe as well as Spain. In a number of markets including Spain, Scania has relatively minor exposure to the construction sector, limiting its bad debt expenses. High-quality portfolio Scania minimises its risks by having a well-balanced portfolio. Aside from broad geographic dispersion, Scania apportions risks among different types of customers, in terms of size, economic sector and vehicle applications. At year-end, the portfolio was divided among 23,120 customers. Most were medium-sized hauliers. Credit exposure exceeded SEK 15 m. per customer for about 400 customers. The largest commitments, above SEK 50 m. per customer, encompass some 70 customers, many of them companies outside the transport sector such as retail chains. This category also includes various bus operators. Scania has no exposure to large rental companies. In case of very large individual credit exposures, Scania uses syndication with other financial institutions to reduce the individual credit risk. Scania’s knowledge of the transport industry and its proximity to customers facilitates the assessment of customer creditworthiness and the value of the collateral in the form of the vehicle being financed. The credit assessment takes into account not only the customer’s financial position but also the customer’s market situation and earning capacity. The number of repossessed vehicles more than dou- bled during 2008 to 2,146. Owing to the deterioration in the vehicle market during the latter part of the year, Scania strengthened its organisation for handling repossessions. In most markets, Scania can control the process, in close <a href="/v5/viewer/files/Default_s.aspx?gKey=tqcxr73s&gInitPage=27">Scania Annual Report 2008 Sida 27 25 cooperation w</a> ith its local distribution network. In these markets the average time until repossessed vehicles were back in the market was about 90 days during 2008. By year-end this time had increased, Broadened insurance offering Scania offers vehicle-related insurance in more and more of the markets where it provides financing. To meet its customers’ need for comprehensive protection, Scania has broadened its offering by adding “gap” insurance. The local finance companies develop their own specific offerings so that Scania insurance is tailored to customer needs. For further information, see especially Notes 2 and 3 on pages 80–84 and Note 6 on page 86. Diversified financing portfolio, December 2008 Customer category Exposure <SEK 15 m. Exposure SEK 15–50 m. Exposure >SEK 50 m. Total Number of customers 22,722 325 73 23,120 More than 300 customers have a credit exposure between SEK 15–50 m. and about 70 customers have a credit exposure exceeding SEK 50 m. RörelseresultatOperating income SEK m. 100 200 300 400 500 600 0 01 02 03 04 05 06 07 Operating income declined to SEK 414 m. during 2008. 08 Western Europe Other SEK m. 10,000 20,000 30,000 40,000 50,000 0 01 02 03 04 05 06 07 The customer financing portfolio increased by SEK 8.9 billion during 2008. 08 Western Europe Other portföljstorlek Portfolio size Units 2,000 4,000 6,000 8,000 10,000 12,000 14,000 16,000 18,000 20,000 0 01 02 03 04 05 06 07 08 Scania financed 17,853 trucks during 2008. The company delivered a total of 66,516 trucks. Western Europe Other Finansierade lastbilar Trucks financed % of total portfolio value 98.3% 1.4% 0.3% 100% <a href="/v5/viewer/files/Default_s.aspx?gKey=tqcxr73s&gInitPage=28">Scania Annual Report 2008 Research and development</a> 26 RESEARCH AND DEVELOPMENT Customer benefit and sustainable transport Scania is in the forefront of efforts to achieve sustainable transport. It offers customers a broad selection of fuel-efficient vehicles that meet the most advanced environmental standards. The guiding principle of Scania’s research and development is to provide vehicles with characteristics that enable customers to boost their productivity and profitability. Scania invests about 4 percent of its annual sales volume in research and development. This level enables Scania to be a leader in strategically important fields, for example fuel injection and emission control systems, and to maintain its competitiveness. Scania develops and manufactures all strategically and competitively important components in-house or in strategic alliances with other leading market players. Research and development resources are concen- trated in Södertälje, Sweden. This work encompasses the entire product development chain – from analysis of customer needs, macroeconomic factors and the competition via basic research programmes, pre-production engineering, customer clinics and long-term testing, to quality monitoring and environmental considerations. It also includes development of production methods. Modular systemand strategic alliances Scania’s modular product system facilitates the task of ongoing product improvements. Parts and components are interchangeable and can thus be developed and put into production continuously, without new model launches. This is ideal from a technical standpoint and ensures quality and cost-effectiveness through the value chain. The modular system also increases customer benefit because the limited number of components allows better access to service, parts and proficiency in the service network. For a number of years, Scania has been pursuing development projects in collaboration with other companies, among others the American engine manufacturer Cummins to develop the Scania XPI fuel injection system and with the Japanese truck manufacturer Hino. Development alliances, combined with the modular product system, provide economies of scale in Scania’s research and development. This strategy is an important element of Scania’s vision of achieving a production capacity of 150,000 vehicles per year around 2015. Cutting-edgetechnologyinpowertraindevelopment Engines are the key to Scania’s leading position. For many years, the most important priority has been to build engines that are so reliable that they give the owner 16-litre V8 engine undergoing tests at the Scania Technical Centre. 26 RESEARCH AND DEVELOPMENT Customer benefit and sustainable transport Scania is in the forefront of efforts to achieve sustainable transport. It offers customers a broad selection of fuel-efficient vehicles that meet the most advanced environmental standards. The guiding principle of Scania’s research and development is to provide vehicles with characteristics that enable customers to boost their productivity and profitability. Scania invests about 4 percent of its annual sales volume in research and development. This level enables Scania to be a leader in strategically important fields, for example fuel injection and emission control systems, and to maintain its competitiveness. Scania develops and manufactures all strategically and competitively important components in-house or in strategic alliances with other leading market players. Research and development resources are concen- trated in Södertälje, Sweden. This work encompasses the entire product development chain – from analysis of customer needs, macroeconomic factors and the competition via basic research programmes, pre-production engineering, customer clinics and long-term testing, to quality monitoring and environmental considerations. It also includes development of production methods. Modular systemand strategic alliances Scania’s modular product system facilitates the task of ongoing product improvements. Parts and components are interchangeable and can thus be developed and put into production continuously, without new model launches. This is ideal from a technical standpoint and ensures quality and cost-effectiveness through the value chain. The modular system also increases customer benefit because the limited number of components allows better access to service, parts and proficiency in the service network. For a number of years, Scania has been pursuing development projects in collaboration with other companies, among others the American engine manufacturer Cummins to develop the Scania XPI fuel injection system and with the Japanese truck manufacturer Hino. Development alliances, combined with the modular product system, provide economies of scale in Scania’s research and development. This strategy is an important element of Scania’s vision of achieving a production capacity of 150,000 vehicles per year around 2015. Cutting-edgetechnologyinpowertraindevelopment Engines are the key to Scania’s leading position. For many years, the most important priority has been to build engines that are so reliable that they give the owner 16-litre V8 engine undergoing tests at the Scania Technical Centre. <a href="/v5/viewer/files/Default_s.aspx?gKey=tqcxr73s&gInitPage=29">Scania Annual Report 2008 Sida 29 27 SCANIA HYBRID</a> BUS TO UNDERGO TRIALS Scania is developing hybrid technology based on technical solutions that are sufficiently robust for day-to-day use under tough conditions. The aim is to ensure that hybrid technology will be profitable for the customer without subsidies. Scania’s hybrid bus has undergone extensive test- ing. During 2009, trials of Scania ethanol hybrid buses are starting under normal traffic conditions in Stockholm, the Swedish capital. Thanks to better fuel economy, emissions are at least 25 percent lower, and using ethanol to fuel these buses reduces net carbon dioxide emissions by up to 90 percent. maximum vehicle uptime. Environmental characteristics also enjoy top priority. High fuel efficiency is essential for lowering traffic emissions and is a distinguishing feature of Scania vehicles. Good fuel economy is also crucial for the profitability of transport companies. Scania also carries out in-house development of electronic control systems for engines, automated gearchanging and other purposes. The company is constantly refining engine-gearbox integration to provide even better performance. For example, this enables the user to drive with fewer gearchanges and at lower engine revs, consuming less fuel, with reduced wear and improved operating economy. Low repair and maintenance costs are another impor- tant economic factor for the customer. Scania’s development work on new components and products weighs in these aspects at an early stage. Early application of newemission standards In October 2009, Euro 5 emission standards go into effect, but since 2008 Scania customers have had access to engines that meet its environmental standards. Scania was the first truck manufacturer to succeed in meeting Euro 5 standards without exhaust gas aftertreatment. The new engine platform was launched during 2007. From the beginning it was optimised for exhaust gas recirculation (EGR) and also for the Scania XPI extra high pressure fuel injection system. EGR reduces emissions during actual combustion. This is convenient for customers, since their vehicles do not need aftertreatment equipment or additive tanks. For customers who prefer selective catalytic reduction (SCR), Scania also offers vehicles featuring this technology. Through its know-how in both technologies, Scania has already developed the concept to meet the standards of the next stage, Euro 6, which will become mandatory on 31 December 2013. Both EGR and SCR will be used in order to further reduce emissions. Scania vehicles operate on renewable fuels Scania engines can operate on the renewable fuels that are available today. Ethanol-fuelled Scania buses have been used since the 1980s and have been sold to a number of cities on different continents. During the spring of 2008, Scania also unveiled the first ethanol truck for urban transport. The third generation of ethanol-fuelled Scania engines feature highly efficient combustion. Using the environmentally best ethanol achieves a net reduction in carbon dioxide emissions of up to 90 percent. Scania vehicles fuelled by biodiesel reduce net carbon dioxide emissions by between 60 and 70 percent. It is also possible to use biogas that is extracted from solid waste and from wastewater sludge. This can virtually eliminate net carbon dioxide emissions. Newsteps in electronics development For Scania it is strategically important to have the highest expertise in electronics development. This is especially valuable in development of the powertrain − engines and gearboxes. But other vehicle systems also increasingly interact electronically through a vehicle’s CAN-bus system. This trend increases opportunities to adapt the functions and characteristics of a vehicle to the specific needs of the user, also including the smooth integration of equivalent systems for superstructures and bodywork to ensure that the vehicle works optimally as a whole. Other areas of electronics development are increas- ingly exact trouble-shooting systems for faster workshop service as well as systems and components to improve the safety and security of the driver and for accurate operating analysis and monitoring of the performance of individual vehicles and drivers. <a href="/v5/viewer/files/Default_s.aspx?gKey=tqcxr73s&gInitPage=30">Scania Annual Report 2008 Sustainable working meth</a> ods 28 SUSTAINABLE WORKING METHODS Values permeate products and workingmethods Scania’s core values – customer first, respect for the individual and quality – permeate the operations of the company. They determine what characteristics are built into its products and how they are manufactured. All operations must be based on what will benefit the customer. Meanwhile Group employees are dedicated to continuously improving their working methods in order to ensure that Scania always stands for the highest quality and efficiency. That Scania feeling in every product Customers expect Scania to be among the leaders in technical performance. Scania also works to build in other values that customers have learned to appreciate during more than a century of vehicle development work. Scania’s customers must feel proud of their choice of vehicle – that they have chosen something beyond the ordinary. And the customer’s customers − the buyers of transport services – must notice that the transport company they contract knows its business and uses the best conceivable equipment. Ergonomics Behind the wheel, a driver perceives the Scania experience via several senses and channels. All systems and functions are designed to give drivers the best possible support in their work. Many important controls are gathered on and around the steering wheel, enabling the driver to manoeuvre most of them without letting go of the steering wheel. The experience The feel conveyed through the steering wheel, pedals and controls is as important as their placement. The movements of the steering wheel should be reflected directly in the vehicle’s position on the road. Via the steering wheel and suspension, the driver feels exactly what the vehicle’s front wheels are being subjected to in the form of road irregularities and tracks. Steering and suspension are designed to convey a maximum of road feel. Great attention is devoted to the climate and sound level in the cab, in order to support the driver’s work. Scania wants the driver to experience certain noises in order to do a good job. Subdued engine noise and certain sounds from the suspension and wheels convey how hard the vehicle is being pushed. Support systems Numerous support systems make the driver’s job easier. Scania Opticruise handles gearchanging and optimises fuel economy without requiring any intervention by the driver. The Scania Retarder takes care of downhill speed control in a safe manner, while avoiding wear on the wheel brakes and maximising engine braking. Scania Ecocruise facilitates fuel-efficient driving by employing several patented solutions. The system enables a vehicle to pass the top of a hill as economically as possible without unnecessary acceleration, and it takes advantage of the speed after a downhill slope to save fuel. The cruise control can be supplemented with adaptive cruise control, which automatically maintains the gap to the vehicle in front. Scania’s lane departure warning system is designed to react only to abnormal driver behaviour and thus not be perceived by the driver as intrusive. Prestige Scania’s styling reflects tradition while providing an active, powerful impression and fostering confidence among drivers, transport companies and other road users. 28 SUSTAINABLE WORKING METHODS Values permeate products and workingmethods Scania’s core values – customer first, respect for the individual and quality – permeate the operations of the company. They determine what characteristics are built into its products and how they are manufactured. All operations must be based on what will benefit the customer. Meanwhile Group employees are dedicated to continuously improving their working methods in order to ensure that Scania always stands for the highest quality and efficiency. That Scania feeling in every product Customers expect Scania to be among the leaders in technical performance. Scania also works to build in other values that customers have learned to appreciate during more than a century of vehicle development work. Scania’s customers must feel proud of their choice of vehicle – that they have chosen something beyond the ordinary. And the customer’s customers − the buyers of transport services – must notice that the transport company they contract knows its business and uses the best conceivable equipment. Ergonomics Behind the wheel, a driver perceives the Scania experience via several senses and channels. All systems and functions are designed to give drivers the best possible support in their work. Many important controls are gathered on and around the steering wheel, enabling the driver to manoeuvre most of them without letting go of the steering wheel. The experience The feel conveyed through the steering wheel, pedals and controls is as important as their placement. The movements of the steering wheel should be reflected directly in the vehicle’s position on the road. Via the steering wheel and suspension, the driver feels exactly what the vehicle’s front wheels are being subjected to in the form of road irregularities and tracks. Steering and suspension are designed to convey a maximum of road feel. Great attention is devoted to the climate and sound level in the cab, in order to support the driver’s work. Scania wants the driver to experience certain noises in order to do a good job. Subdued engine noise and certain sounds from the suspension and wheels convey how hard the vehicle is being pushed. Support systems Numerous support systems make the driver’s job easier. Scania Opticruise handles gearchanging and optimises fuel economy without requiring any intervention by the driver. The Scania Retarder takes care of downhill speed control in a safe manner, while avoiding wear on the wheel brakes and maximising engine braking. Scania Ecocruise facilitates fuel-efficient driving by employing several patented solutions. The system enables a vehicle to pass the top of a hill as economically as possible without unnecessary acceleration, and it takes advantage of the speed after a downhill slope to save fuel. The cruise control can be supplemented with adaptive cruise control, which automatically maintains the gap to the vehicle in front. Scania’s lane departure warning system is designed to react only to abnormal driver behaviour and thus not be perceived by the driver as intrusive. Prestige Scania’s styling reflects tradition while providing an active, powerful impression and fostering confidence among drivers, transport companies and other road users. <a href="/v5/viewer/files/Default_s.aspx?gKey=tqcxr73s&gInitPage=31">Scania Annual Report 2008 Sida 31 29 The Scania Pr</a> oduction System (SPS) is a powerful instrument for increasing productivity. Continuous improvements The Scania Production System (SPS) is a management philosophy whose purpose is to make Scania’s production more efficient and to eliminate waste in all respects. SPS encourages employees to find deviations. A deviation is a disturbance that prevents production from running optimally. Spreading best practice By identifying deviations, it is also possible to do something about them, by testing and evaluating new solutions. Once a new solution has been introduced at one production unit, it is methodically spread to the other plants in the global production structure. Everyone participates in improvements Employee dedication is crucial in improving efficiency. Setting aside time to work with continuous improvements is one element of normal operations for everyone in the production network. It means that large portions of Scania’s improvement work has shifted from engineers to fitters. Cross-functionalworkingmethod Another mechanism for improving efficiency is through cross-functional (interdepartmental) working groups that include representatives from research and development, production and purchasing. This enables Scania to shorten lead times and assure quality at an earlier stage. The concentration of European production of strategic components in Södertälje, Sweden during the past several years has been a prerequisite for putting such an integrated working method into place. Continuous increases in productivity SPS is a powerful instrument for increasing productivity. With limited investments, the same number of employees at production units can build more vehicles. One example is Scania’s cab production unit in Oskarshamn, Sweden. From 2004 to 2007, productivity there increased by 50 percent, from 20 to 30 cabs per employee annually. 29 The Scania Production System (SPS) is a powerful instrument for increasing productivity. Continuous improvements The Scania Production System (SPS) is a management philosophy whose purpose is to make Scania’s production more efficient and to eliminate waste in all respects. SPS encourages employees to find deviations. A deviation is a disturbance that prevents production from running optimally. Spreading best practice By identifying deviations, it is also possible to do something about them, by testing and evaluating new solutions. Once a new solution has been introduced at one production unit, it is methodically spread to the other plants in the global production structure. Everyone participates in improvements Employee dedication is crucial in improving efficiency. Setting aside time to work with continuous improvements is one element of normal operations for everyone in the production network. It means that large portions of Scania’s improvement work has shifted from engineers to fitters. Cross-functionalworkingmethod Another mechanism for improving efficiency is through cross-functional (interdepartmental) working groups that include representatives from research and development, production and purchasing. This enables Scania to shorten lead times and assure quality at an earlier stage. The concentration of European production of strategic components in Södertälje, Sweden during the past several years has been a prerequisite for putting such an integrated working method into place. Continuous increases in productivity SPS is a powerful instrument for increasing productivity. With limited investments, the same number of employees at production units can build more vehicles. One example is Scania’s cab production unit in Oskarshamn, Sweden. From 2004 to 2007, productivity there increased by 50 percent, from 20 to 30 cabs per employee annually. <a href="/v5/viewer/files/Default_s.aspx?gKey=tqcxr73s&gInitPage=32">Scania Annual Report 2008 Production 30 PRODUCTION</a> Flexibility during ups and downs Scania’s global production network and product range allow great flexibility in balancing production in an optimal, cost-effective way. The Scania Production System (SPS) engages all employees in the task of achieving continuous improvements and eliminating waste − which is expected to improve productivity by 6 to 8 percent annually. Scania’s production network is globally integrated, with a common production system for all units. With the same working methods as well as quality and environmental standards, production can be allocated between Europe and Latin America in order to achieve optimal capacity utilisation. Annual technical production capacity increased to 90,000 vehicles by the end of 2008, compared to 80,000 at the beginning of the year. The restructuring of European axle and gearbox production has now been completed. Together with the earlier restructuring of European parts management, this will lead to annual savings of SEK 300 m., with full effect from 2009. Increasingly flexible production Scania’s vision is to increase annual production capacity to 150,000 vehicles by around 2015, within the existing production structure. To achieve this and be able to respond to fluctuations in demand, Scania is building an increasingly flexible cost structure. Purchased materials and components account for an increasing share of production costs – about 70 percent today. Of the 30 percent value-added, about one fifth is also directly connected to production volume – which allows great flexibility as a consequence of fixed term temporary employment contracts, flexible working hour systems and transport. A continued annual productivity improvement of 6 to 8 percent also provides the basis for Scania’s growth strategy. In the long term, Scania will continue to subject portions of its production to competition, thereby laying the groundwork for expanded outsourcing of non-strategic production. Production cutbacks The rapid market downturn during the autumn of 2008 made it necessary to adjust production volume to lower demand, in order to avoid continued build-up of inventories. Scania managed to utilise the flexibility of its production network in order to implement cutbacks quickly and with minimal disruptions. Since Scania has a global production structure, Number of vehicles produced per employee Vehicle Number of vehicles produced per employee 10 8 6 46,400 4 31,800 3 2 12,000 0 90 95 00 07 08 Scania’s productivity has increased by an average of 6 to 8 percent annually. During 2008, however, the rate of increase slowed. 3.5 13,100 20,000 11,600 11,800 11,800 0 55,600 4.8 40,000 Elimination of inefficient sub-operations One central element of Scania’s efficiency-raising work is to avoid operations that involve costs without adding any value. Improvements occur by means of small, gradual modifications, instead of through radical changes in processes. One mechanism for improving efficiency is through cross-functional (interdepartmental) working groups 78,300 6.6 80,400 6.8 60,000 Personnel 100,000 80,000 with the same product range in both Europe and Latin America, it was able to re-allocate production in a costeffective way. Production of vehicles for export from Latin America was moved to Europe. This eased the workload at production units in Latin America, where demand remained at a relatively good level, while utilising spare capacity in Europe. In addition, Scania did not renew the contracts of about 2,000 fixed term temporary employees and the halt in production during the Christmas and New Year period was extended to about one month. These measures allowed Scania to safeguard its core competency in the production network and avoid issuing dismissal notices to permanent employees during 2008. 30 PRODUCTION Flexibility during ups and downs Scania’s global production network and product range allow great flexibility in balancing production in an optimal, cost-effective way. The Scania Production System (SPS) engages all employees in the task of achieving continuous improvements and eliminating waste − which is expected to improve productivity by 6 to 8 percent annually. Scania’s production network is globally integrated, with a common production system for all units. With the same working methods as well as quality and environmental standards, production can be allocated between Europe and Latin America in order to achieve optimal capacity utilisation. Annual technical production capacity increased to 90,000 vehicles by the end of 2008, compared to 80,000 at the beginning of the year. The restructuring of European axle and gearbox production has now been completed. Together with the earlier restructuring of European parts management, this will lead to annual savings of SEK 300 m., with full effect from 2009. Increasingly flexible production Scania’s vision is to increase annual production capacity to 150,000 vehicles by around 2015, within the existing production structure. To achieve this and be able to respond to fluctuations in demand, Scania is building an increasingly flexible cost structure. Purchased materials and components account for an increasing share of production costs – about 70 percent today. Of the 30 percent value-added, about one fifth is also directly connected to production volume – which allows great flexibility as a consequence of fixed term temporary employment contracts, flexible working hour systems and transport. A continued annual productivity improvement of 6 to 8 percent also provides the basis for Scania’s growth strategy. In the long term, Scania will continue to subject portions of its production to competition, thereby laying the groundwork for expanded outsourcing of non-strategic production. Production cutbacks The rapid market downturn during the autumn of 2008 made it necessary to adjust production volume to lower demand, in order to avoid continued build-up of inventories. Scania managed to utilise the flexibility of its production network in order to implement cutbacks quickly and with minimal disruptions. Since Scania has a global production structure, Number of vehicles produced per employee Vehicle Number of vehicles produced per employee 10 8 6 46,400 4 31,800 3 2 12,000 0 90 95 00 07 08 Scania’s productivity has increased by an average of 6 to 8 percent annually. During 2008, however, the rate of increase slowed. 3.5 13,100 20,000 11,600 11,800 11,800 0 55,600 4.8 40,000 Elimination of inefficient sub-operations One central element of Scania’s efficiency-raising work is to avoid operations that involve costs without adding any value. Improvements occur by means of small, gradual modifications, instead of through radical changes in processes. One mechanism for improving efficiency is through cross-functional (interdepartmental) working groups 78,300 6.6 80,400 6.8 60,000 Personnel 100,000 80,000 with the same product range in both Europe and Latin America, it was able to re-allocate production in a costeffective way. Production of vehicles for export from Latin America was moved to Europe. This eased the workload at production units in Latin America, where demand remained at a relatively good level, while utilising spare capacity in Europe. In addition, Scania did not renew the contracts of about 2,000 fixed term temporary employees and the halt in production during the Christmas and New Year period was extended to about one month. These measures allowed Scania to safeguard its core competency in the production network and avoid issuing dismissal notices to permanent employees during 2008. <a href="/v5/viewer/files/Default_s.aspx?gKey=tqcxr73s&gInitPage=33">Scania Annual Report 2008 Sida 33 31 that include </a> representatives from research, development, production and purchasing. This enables Scania to shorten lead times and perform quality assurance at an earlier stage. The concentration of European production of strategic components in Södertälje, Sweden during the past several years has been a prerequisite for putting such an integrated working method into place. Scania’s pioneering modular system also plays a key role in improving production efficiency. Using the modular system, components may be included in many different vehicle combinations. Customers get a vehicle that is optimised for their own transport operations at a lower production cost for Scania. Scania opens facility in Dubai During 2008 Scania built a facility for bodywork and equipping of complete vehicles in Dubai, following a groundbreaking ceremony attended by Sweden’s Crown Princess Victoria. This delivery centre will produce complete vehicles, adapted to the requirements and operating conditions that apply in the Gulf region. A regional centre for sales and service training also opened in Dubai. Delivery centres, which are also found in Russia, Malaysia, Taiwan, Thailand and South Africa, supplement the existing production structure and will be built at additional locations in the coming years in order to shorten lead times and allow greater proximity to customers. <a href="/v5/viewer/files/Default_s.aspx?gKey=tqcxr73s&gInitPage=34">Scania Annual Report 2008 Sustainability report 32</a> SUSTAINABILITY REPORT Sustainable development – part of Scania’s business Scania’s sustainable development work is an important factor behind its position as a leading company in its industry. Scania is a step ahead in offering reliable, energy-efficient products that boost the efficiency of its customers and contribute to a better environment. The Sustainability Report on pages 32–45 presents Scania’s sustainability efforts. For a report in line with the Global Reporting Initiative (GRI) index, see Scania’s website www.scania.com. Scania’s sustainability work is very wide-ranging – from environmental standards at production units and innovations in sustainable transport to investments in employee health and proficiency. It also includes a high standard of ethical behaviour in relations to employees, customers, business partners and society at large. The basis for this work is Scania’s core values and adherence to the OECD Guidelines for Multinational Enterprises. These guidelines include an undertaking to respect human rights, never offer or receive bribes and refrain from anti-competitive activities. Good ethics are a prerequisite for building and retaining trust and respect – and thereby also for creating a profitable and sound long-term business. Scania’s values are also reflected in the standards it imposes on suppliers. The Group’s procurement policy requires that suppliers meet high quality standards, have a certified environmental management system in place and live up to the UN Universal Declaration of Human Rights with regard to employee health, safety, compensation and working conditions. Scania pursues a close dialogue with its suppliers to monitor compliance with these requirements. This includes evaluating the work of these suppliers, but also providing training and advice. High-priority areas The ability to haul goods from one place to another is a prerequisite for improved well-being in large parts of the world. The global transport system must deal with the challenge of meeting a growing demand for transport services while fulfilling the stricter environmental standards that public authorities are imposing, both in industrialised and emerging countries. Global efforts to deal with the climate change issue are also entering a new phase, since a new international agreement on emission reduction is expected during 2009. Scania is deeply committed to meeting these chal- lenges and also sees major business opportunities in playing a leading role in these developments. Scania works actively to deal with the side effects of transport, by reducing resource waste at all levels both in the development and manufacture of products and in 32 SUSTAINABILITY REPORT Sustainable development – part of Scania’s business Scania’s sustainable development work is an important factor behind its position as a leading company in its industry. Scania is a step ahead in offering reliable, energy-efficient products that boost the efficiency of its customers and contribute to a better environment. The Sustainability Report on pages 32–45 presents Scania’s sustainability efforts. For a report in line with the Global Reporting Initiative (GRI) index, see Scania’s website www.scania.com. Scania’s sustainability work is very wide-ranging – from environmental standards at production units and innovations in sustainable transport to investments in employee health and proficiency. It also includes a high standard of ethical behaviour in relations to employees, customers, business partners and society at large. The basis for this work is Scania’s core values and adherence to the OECD Guidelines for Multinational Enterprises. These guidelines include an undertaking to respect human rights, never offer or receive bribes and refrain from anti-competitive activities. Good ethics are a prerequisite for building and retaining trust and respect – and thereby also for creating a profitable and sound long-term business. Scania’s values are also reflected in the standards it imposes on suppliers. The Group’s procurement policy requires that suppliers meet high quality standards, have a certified environmental management system in place and live up to the UN Universal Declaration of Human Rights with regard to employee health, safety, compensation and working conditions. Scania pursues a close dialogue with its suppliers to monitor compliance with these requirements. This includes evaluating the work of these suppliers, but also providing training and advice. High-priority areas The ability to haul goods from one place to another is a prerequisite for improved well-being in large parts of the world. The global transport system must deal with the challenge of meeting a growing demand for transport services while fulfilling the stricter environmental standards that public authorities are imposing, both in industrialised and emerging countries. Global efforts to deal with the climate change issue are also entering a new phase, since a new international agreement on emission reduction is expected during 2009. Scania is deeply committed to meeting these chal- lenges and also sees major business opportunities in playing a leading role in these developments. Scania works actively to deal with the side effects of transport, by reducing resource waste at all levels both in the development and manufacture of products and in <a href="/v5/viewer/files/Default_s.aspx?gKey=tqcxr73s&gInitPage=35">Scania Annual Report 2008 Page 35 33 Rotra, an inn</a> ovative logistics and transport firm, was the first Netherlands-based haulier to start operating 25.25-metre rigs. their use. Improving energy efficiency and reducing carbon dioxide emissions are a constant focus of interest in both customer relations and in production and development work. Scania assigns especially high priority to five areas: ■ The customer’s business Scania works systematically to support the efforts of transport companies to reduce their environmental impact. By means of high vehicle quality, gradual lengthening of servicing intervals and an ambition to be the best service organisation in its industry, resource utilisation in customers’ transport work is reduced. Scania also provides driver training, which focuses among other things on road safety and fuel-efficient driving. This task includes improving driver working environment and health. ■ Product development Scania prioritises innovations that help its customers to be energy-efficient and drive safely. This includes continuous improvements in engines and gearboxes, lower air and rolling resistance, development of engines for renewable fuels and hybrid technology and working towards regulations that allow longer vehicles which carry more cargo. Scania’s ambition is that it should always be able to offer customers products that are at least one level better than the existing legal requirements. ■ Production Scania implements continuous improvements in order to limit the environmental impact of its production activities. Efficient resource utilisation and preventive work are key elements of this. Energy efficiency is a high priority, along with a successive increase in the share of total energy consumption derived from renewable sources. ■ Safe, efficient goods shipments Efficient transport logistics that supports Scania’s production activities is essential to the company’s competitiveness. Scania works systematically by means of continuous improvements, with the vision of being the leader in its industry when it comes to efficient goods shipments with little environmental impact. ■ Employees Highly proficient, dedicated and healthy employees are a prerequisite for Scania’s success. Scania works on a broad basis with human resource development throughout the organisation, by means of dedicated, active leadership. On the basis of its global health and safety policy, Scania also lays the groundwork for good health and a safe working environment. >> 33 Rotra, an innovative logistics and transport firm, was the first Netherlands-based haulier to start operating 25.25-metre rigs. their use. Improving energy efficiency and reducing carbon dioxide emissions are a constant focus of interest in both customer relations and in production and development work. Scania assigns especially high priority to five areas: ■ The customer’s business Scania works systematically to support the efforts of transport companies to reduce their environmental impact. By means of high vehicle quality, gradual lengthening of servicing intervals and an ambition to be the best service organisation in its industry, resource utilisation in customers’ transport work is reduced. Scania also provides driver training, which focuses among other things on road safety and fuel-efficient driving. This task includes improving driver working environment and health. ■ Product development Scania prioritises innovations that help its customers to be energy-efficient and drive safely. This includes continuous improvements in engines and gearboxes, lower air and rolling resistance, development of engines for renewable fuels and hybrid technology and working towards regulations that allow longer vehicles which carry more cargo. Scania’s ambition is that it should always be able to offer customers products that are at least one level better than the existing legal requirements. ■ Production Scania implements continuous improvements in order to limit the environmental impact of its production activities. Efficient resource utilisation and preventive work are key elements of this. Energy efficiency is a high priority, along with a successive increase in the share of total energy consumption derived from renewable sources. ■ Safe, efficient goods shipments Efficient transport logistics that supports Scania’s production activities is essential to the company’s competitiveness. Scania works systematically by means of continuous improvements, with the vision of being the leader in its industry when it comes to efficient goods shipments with little environmental impact. ■ Employees Highly proficient, dedicated and healthy employees are a prerequisite for Scania’s success. Scania works on a broad basis with human resource development throughout the organisation, by means of dedicated, active leadership. On the basis of its global health and safety policy, Scania also lays the groundwork for good health and a safe working environment. >> <a href="/v5/viewer/files/Default_s.aspx?gKey=tqcxr73s&gInitPage=36">Scania Annual Report 2008 Sida 36 34 SUSTAINABILIT</a> Y REPORT >> Effectivemanagement and monitoring Sustainability work is integrated into Scania’s corporate governance framework and is described in the internal governing documents “How Scania is Managed” and “Strategic Update” (see the Corporate Governance Report, page 53). By working with continuous improvements, Scania focuses on methods rather than on results. Results come as a consequence of doing the right things right. The commitment to following the OECD Guidelines applies to the entire Group, as do the Environmental Policy and Human Resource Policy, which are established by the Executive Board. The Scania Executive Board sets overall goals and strategies, and operational decisions are made in the line organisation. Every manager is responsible for ensuring that Scania lives up to its obligations. There is also a procedure for employees to report deviations from the regulations in force at the company. To ensure continuous monitoring and reporting of environmental performance in the production network, Scania has established an internal reporting system that encompasses all production units as well as research laboratories. Indicators and key figures are reported quarterly at management meetings in the line organisation and annually to the Executive Board. The annual summary is examined by Scania’s auditors. Key environmental indicators are presented on page 41. Important role in society Transport is vital to modern society, and Scania plays an important part in providing it. Dialogue and cooperation with customers, political leaders, public authorities and other social institutions are thus a strategic element of operations. During 2008, Scania pursued a number of dialogues on sustainability with customers, researchers and other stakeholders. One purpose of this dialogue is to provide Scania with a solid basis for its business decisions. Another is to contribute opinions on how legislation should best be formulated to achieve a competitive transport industry – which is essential to a well-functioning and sustainable transport system. In accordance with Scania’s rules, the company does not provide support to political organisations or parties. The use of trucks, buses and engines is a highly regu- lated industry. Scania would like to promote a harmonised rule system, in which the industry is given sufficient time to adapt its products and production methods to the emission standards in force. Scania also supports legisla- tion that encourages investments and innovations and promotes fair competition. Having access to highly qualified and dedicated em- ployees is vital to Scania’s competitiveness. This is why Scania has well-developed collaboration with universities and institutes of technology and with organisations that promote an early interest in technology among children and young people. Collaboration with and support to the research pursued at universities and institutes of technology are another strategically important area for Scania. THE OECD GUIDELINES IN BRIEF Generally: Respect human rights. Information: Disclose relevant information to all stakeholders. Employees: Respect the union rights of employees and help eliminate child labour. Environment: Strive for continuous improvement. Corruption: Never offer bribes or anything else that might be perceived as bribes. Interest to customer: Disclose product information to customers and establish improvement procedures. Science and technology: Work towards transferring knowledge to host countries. Competition: Refrain from anti-competitive agreements among competitors. Taxes: Pay on time. <a href="/v5/viewer/files/Default_s.aspx?gKey=tqcxr73s&gInitPage=37">Scania Annual Report 2008 Sida 37 35 </a> <a href="/v5/viewer/files/Default_s.aspx?gKey=tqcxr73s&gInitPage=38">Scania Annual Report 2008 The environment 36 SUSTA</a> INABILITY REPORT Maintaining a life cycle perspective Scania’s goal is to develop technology that is as resource-efficient and clean as possible. This minimises the environmental impact of its products both during manufacturing and use − which is good for both business and the environment. Scania’s environmental work takes place with a holistic perspective and is part of the company’s day-to-day work. Scania works continuously with research and development concerning the environmental impact of its products and production network. The objective is to reduce the environmental impact of its products in all phases throughout their period of use and make end-of-life treatment of these products easier. Most of the environmental impact of Scania products occurs during the service lives of vehicles and engines. For noise as well as a number of exhaust emissions, such as nitrogen oxides and particulates, there are legally mandated standards and threshold limits in most of Scania’s markets. Being a step ahead is a success factor Scania works with continuous improvements in the environmental characteristics of its products. In its product development work, the company establishes strategic targets that must be met. The ambition is to always be able to offer customers products that are at least one level better than the existing legal standards. Staying ahead of environmental legislation is an important competitive factor. Scania’s customers often view their vehicle invest- ments in a long-term perspective as well. Environmental characteristics are becoming an ever-higher priority. In a number of countries, environmentally low-impact vehicles benefit from tax- and toll-based incentives. For example, in Germany they receive discounts on road charges. Many transport companies also choose to devote extra effort to improving environmental characteristics as part of their public image, or to meet specific requirements from their customers. Environmentally suitable, fuelefficient driving is another important element of the driver training that Scania offers and can reduce fuel consumption by up to 10 percent. Part of Scania’s day-to-daywork Environmental work is integrated in Scania’s production system. Each production unit has overall environmental objectives that provide the basis for detailed targets at the local level. Environmental work at production units is evaluated yearly by the Scania Blue Rating Environment system, which is also used to improve this work and disseminate best practice. Scania’s production units, as well as its research and development units and corporate units, are certified according to ISO 14001 international environmental management standards. At units in the Scania sales and service organisation, environmental work is part of the Dealer Operating Standard (DOS), which is followed up in regular audits. Scania requires its suppliers to be certified as meeting ISO/TS 16949 quality management standards and ISO 14001. EXHAUST EMISSIONS PER VEHICLE CONTINUING TO DECREASE For nearly two decades, reduced exhaust emissions have been a prominent environmental objective in engine development. Emissions from heavy vehicles have fallen sharply since the early 1990s. The adoption of Euro 4 environmental standards in the EU represented a 55 percent reduction in nitrogen oxide emissions and a 95 percent reduction in particulate emissions, compared to 1990 levels. The Euro 5 emission standard, which becomes mandatory in October 2009, will lower nitrogen oxide emissions by 75 percent and particulates by 95 percent compared to 1990. Enhanced Environmentally Friendly Vehicle (EEV) standards are even tougher, for example with regard to hydrocarbons and particulates. Lower particulate or nitrogen oxide emissions normally result in higher fuel consumption. Thanks to successful product development, Scania has been able to sharply lower the emission levels from trucks and buses while providing better fuel economy than 15 years ago. For example, despite sharply reduced emissions, Scania’s new Euro 5 engines have fuel economy as good as that of its Euro 4 and Euro 3 engines. 36 SUSTAINABILITY REPORT Maintaining a life cycle perspective Scania’s goal is to develop technology that is as resource-efficient and clean as possible. This minimises the environmental impact of its products both during manufacturing and use − which is good for both business and the environment. Scania’s environmental work takes place with a holistic perspective and is part of the company’s day-to-day work. Scania works continuously with research and development concerning the environmental impact of its products and production network. The objective is to reduce the environmental impact of its products in all phases throughout their period of use and make end-of-life treatment of these products easier. Most of the environmental impact of Scania products occurs during the service lives of vehicles and engines. For noise as well as a number of exhaust emissions, such as nitrogen oxides and particulates, there are legally mandated standards and threshold limits in most of Scania’s markets. Being a step ahead is a success factor Scania works with continuous improvements in the environmental characteristics of its products. In its product development work, the company establishes strategic targets that must be met. The ambition is to always be able to offer customers products that are at least one level better than the existing legal standards. Staying ahead of environmental legislation is an important competitive factor. Scania’s customers often view their vehicle invest- ments in a long-term perspective as well. Environmental characteristics are becoming an ever-higher priority. In a number of countries, environmentally low-impact vehicles benefit from tax- and toll-based incentives. For example, in Germany they receive discounts on road charges. Many transport companies also choose to devote extra effort to improving environmental characteristics as part of their public image, or to meet specific requirements from their customers. Environmentally suitable, fuelefficient driving is another important element of the driver training that Scania offers and can reduce fuel consumption by up to 10 percent. Part of Scania’s day-to-daywork Environmental work is integrated in Scania’s production system. Each production unit has overall environmental objectives that provide the basis for detailed targets at the local level. Environmental work at production units is evaluated yearly by the Scania Blue Rating Environment system, which is also used to improve this work and disseminate best practice. Scania’s production units, as well as its research and development units and corporate units, are certified according to ISO 14001 international environmental management standards. At units in the Scania sales and service organisation, environmental work is part of the Dealer Operating Standard (DOS), which is followed up in regular audits. Scania requires its suppliers to be certified as meeting ISO/TS 16949 quality management standards and ISO 14001. EXHAUST EMISSIONS PER VEHICLE CONTINUING TO DECREASE For nearly two decades, reduced exhaust emissions have been a prominent environmental objective in engine development. Emissions from heavy vehicles have fallen sharply since the early 1990s. The adoption of Euro 4 environmental standards in the EU represented a 55 percent reduction in nitrogen oxide emissions and a 95 percent reduction in particulate emissions, compared to 1990 levels. The Euro 5 emission standard, which becomes mandatory in October 2009, will lower nitrogen oxide emissions by 75 percent and particulates by 95 percent compared to 1990. Enhanced Environmentally Friendly Vehicle (EEV) standards are even tougher, for example with regard to hydrocarbons and particulates. Lower particulate or nitrogen oxide emissions normally result in higher fuel consumption. Thanks to successful product development, Scania has been able to sharply lower the emission levels from trucks and buses while providing better fuel economy than 15 years ago. For example, despite sharply reduced emissions, Scania’s new Euro 5 engines have fuel economy as good as that of its Euro 4 and Euro 3 engines. <a href="/v5/viewer/files/Default_s.aspx?gKey=tqcxr73s&gInitPage=39">Scania Annual Report 2008 Sida 39 37 Research and </a> development End-of-life treatment Scania works to reduce the environmental impact of its products throughout their life cycle Production Service Operation SCANIA’S ENVIRONMENTAL POLICY Scania continuously improves the environmental performance of its products, processes and services. Business demands and other requirements form the basis for improvements, where fulfi lment of legislation is fundamental. Scania’s environmental work is proactive, based on a life cycle perspective and the principle of precaution. 37 Research and development End-of-life treatment Scania works to reduce the environmental impact of its products throughout their life cycle Production Service Operation SCANIA’S ENVIRONMENTAL POLICY Scania continuously improves the environmental performance of its products, processes and services. Business demands and other requirements form the basis for improvements, where fulfi lment of legislation is fundamental. Scania’s environmental work is proactive, based on a life cycle perspective and the principle of precaution. <a href="/v5/viewer/files/Default_s.aspx?gKey=tqcxr73s&gInitPage=40">Scania Annual Report 2008 Sida 40 38 SUSTAINABILIT</a> Y REPORT Environmental responsibility Environmental work is based on Scania’s Environmental Policy and is integrated with the day-to-day task of continuous improvements. Like other industrial companies, Scania has an impact on the environment, since it uses natural resources in the production process and because emissions are generated in its production network and when its products are distributed and used. Scania is constantly working to reduce undesirable environmental impact by working preventively and aiming at resource-efficient, clean technology. Knowledge The key to successful improvement work is the right expertise and a thorough awareness of international trends. This is why Scania invests in training and motivating its employees as well as its sub-contractors so that they can perform their tasks in a responsible way. During 2008 a new environmental training course was developed, and employees in the purchasing organisation underwent special training in sustainability and social responsibility. Use of raw materials and chemical products Transforming raw materials and components into final products is a fundamental element of Scania’s operations. More efficient resource utilisation is thus one of Scania’s most important environmental objectives. Aside from components, metallic raw materials are Scania’s most important input goods. Most are recycled materials. During 2008, Scania’s use of raw materials totalled 202,080 tonnes, equivalent to a cost of SEK 2,540 m. The raw material cost per vehicle produced was thus SEK 32,000. A truck includes numerous chemical substances, and most of these materials are incorporated into the finished product that Scania delivers to the customer. To live up to the environmental policy’s requirement to follow the principle of precaution, Scania is continuously working to find alternatives that reduce environmental impacts, but also to bring down total consumption. During 2008 the use of chemical products amounted to 6,850 m3 , equivalent to a cost of SEK 249 m. The cost of chemical products per vehicle produced was thus SEK 3,100. Energy andwater consumption Scania strives for efficient utilisation of energy and a transition to renewable energy sources. To achieve this, it implements continuous improvements in the processes where energy is used, among other things through systematic work with local energy analyses and action plans. During 2008, energy use amounted to 660 GWh, equivalent to 8.3 MWh per vehicle produced. This means that over the past decade, energy use per vehicle produced has declined by 35 percent. Scania is taking steps to reduce water consumption. At its São Paulo (Brazil) production unit, located in an area with water use restrictions, Scania has begun implementing measures to use rainwater and reduce water use. Lower emissions and discharges Scania endeavours to reduce its atmospheric emissions and discharges into waterways and the soil. This occurs through conscious choices when purchasing chemical Användning av kemikalier Chemical use FACTS ABOUT REACH Registration, Evaluation and Authorisation of Chemicals (REACH) is the EU’s new regulation on chemicals. For Scania, REACH means improved information about the environmental and health risks of the chemical products used in production and maintenance. Under its rules, Scania has introduced clear communication to suppliers of chemical products so that they will take into account Scania’s application areas in their safety assessments. More information is available at www.scania.com. Oil/lubricants Process oils/emulsions Degreasing agents Waterbased paints Solvent-based paints Powder paint Rust-proofing agents Solvents Foundry chemicals Other chemicals m3 >> 0 200 400 600 800 1,000 Consumption of chemicals totalled about 6,850 m3 . 1,200 <a href="/v5/viewer/files/Default_s.aspx?gKey=tqcxr73s&gInitPage=41">Scania Annual Report 2008 Sida 41 39 </a> <a href="/v5/viewer/files/Default_s.aspx?gKey=tqcxr73s&gInitPage=42">Scania Annual Report 2008 Sida 42 40 SUSTAINABILIT</a> Y REPORT >> products and production technology, in order to avoid resource-intensive and costly clean-up measures. One example of this is that Scania always endeavours to use closed processes. Atmospheric emissions of carbon dioxide, volatile organic compounds and nitrogen oxides occur at Scania’s production units. Carbon dioxide emissions at production units are mainly attributable to the use of electricity and fossil fuels for processes, heating supply and testing. Of total carbon dioxide emissions during 2008, 20 percent can be attributed to fossil fuels (excluding fuel for engine testing), 24 percent to purchased electricity and district heating and 56 percent to goods shipments. The use of fossil fuels decreased by 8 percent during 2008. This is because the Oskarshamn production unit in Sweden switched to district heating and because the production of axle and gearbox components in Sweden moved from Falun and Sibbhult to Södertälje. During the past decade, carbon dioxide emissions per vehicle produced fell by 32 percent. Emissions of volatile organic compounds (VOCs) occur in conjunction with painting and rust-proofing. Scania has introduced a new concept for chassis painting, in which components are painted before assembly with waterbased and powder paints − with low VOC content. This has made a crucial contribution to reducing emissions. During the past decade, VOC emissions per vehicle produced declined by 54 percent. Nitrogen oxide emissions are mainly due to engine testing. Improvements in diesel engines and better fuel have contributed to a substantial reduction in emissions of nitrogen oxides as well as particulates. Shorter testing periods have also helped reduce emissions. More efficient goods shipments Scania endeavours to reduce environmental impact and improve road safety in its goods shipments. During 2008 a special action plan for more efficient goods shipments was adopted. The plan includes stricter environmental and safety requirements for transport suppliers. One example of this is that Scania is tightening its requirements on suppliers to train their drivers in safe, fuel-efficient driving; another is that they must be able to show the results of their improvement efforts. One objective of this strategy is to help reduce car- bon dioxide emissions. To monitor this work, Scania’s transport-related carbon dioxide emissions are now being measured at the global level. During 2008 they totalled 108,500 tonnes, or 1.3 tonnes per vehicle produced, and included all shipments of raw materials and components to production units as well as delivery to the distribution network of completed vehicles and engines. Wastemanagement Scania’s objective is to reduce the quantity of waste and increase waste recycling. To some extent, this recycling takes place within Scania’s own production network. During 2008, excluding foundry sand, a total of 82,400 tonnes of residual products and wastes were recycled, equivalent to 1 tonne per vehicle produced. Most of this, about 85 percent, was utilised for material and energy recycling. The task of reducing the quantity of waste sent to landfills enjoys priority. In recent years, however, such waste has gradually increased due to higher production. The quantity of waste sent to landfills accounts for only 4.5 percent of waste produced. Waste classified as hazardous is sent for external treatment and totalled 1,000 tonnes, equivalent to 12 percent of waste produced. Accident preventionwork Scania works systematically to identify and prevent environmental risks. All facilities have undergone orientation studies and risk assessments of buildings, soil and groundwater pollution. As needed, supplementary investigations and required actions have been undertaken. This work takes place in close cooperation with local or regional authorities. In São Paulo (Brazil), Zwolle and Meppel (the Netherlands), soil clean-up measures have now been completed and inspection work are under way. The production units in Falun and Sibbhult (Sweden) were phased out during 2008. The soil investigations that were performed show moderate risk, which means that there is no need for clean-ups at these properties. During 2008, no accidents occurred that caused significant environmental impact or led to major clean-up expenses. Operating permits The operations of Scania’s production units around the world have permits that comply with national legislation. In addition to legal requirements and the conditions included in the permits, there may also be local operating requirements and rules. New permits for expanded production were issued for Södertälje and Zwolle. In São Paulo, the permit is valid two years at a time, and a new permit was issued during 2008. The authorities are currently examining Scania’s application for a new permit related to expanded operations in Angers (France). During 2008 there were no violations of the conditions in force. Scania’s Oskarshamn production unit stopped us- ing oil-fired space heating during 2008 and is no longer required to participate in the EU trading system for carbon dioxide emission allowances. The Södertälje production unit, with a large furnace unit for back-up power, is now the only operation included in the trading system. <a href="/v5/viewer/files/Default_s.aspx?gKey=tqcxr73s&gInitPage=43">Scania Annual Report 2008 Page 43 41 Environmental</a> performance in the production network 2008 Number of vehicles produced Net sales, SEK m. Scania products Raw material consumption Per vehicle, kg Total, tonnes Total, SEK m. Chemical consumption Per vehicle, m3 Total, m3 Total, SEK m. Energy use Per vehicle, MWh Total, GWh Total, SEK m. Carbon dioxide emissions Fossil fuels, 1,000 tonnes Purchased heat and electricity, 1,000 tonnes Goods shipments, 1,000 tonnes Per vehicle, tonnes of which plant-related Total, tonnes Water use Per vehicle, m3 Total, 1,000 m3 Total, SEK m. Solvent emissions Per vehicle, kg Total, tonnes Recycling of residual products and waste Per vehicle, kg Total, tonnes Revenue, SEK m. Sent to landfills and other off-site disposal Per vehicles, kg Total, tonnes Total, SEK m. 170 14,000 25 1 Goods shipments are not included in 2006 and 2007. Emissions from goods shipments were calculated as specified by the Network for Transport and the Environment. An in-depth account of measures and results as well as a summary of environmental performance by production unit are available at www.scania.com. The website has not been reviewed by the company’s auditors. PRODUCER RESPONSIBILITY FOR BATTERIES As a producer of heavy vehicles, Scania is included in the new system of producer responsibility for batteries. This means that the company must ensure that the batteries delivered with vehicles and by the Scania service network in the EU are collected and recycled. Scania’s sales volume must be reported to the regulatory authority in each member country, and the batteries must be correctly labelled. 180 14,000 25 170 12,000 20 Deponering av restprodukter Total Waste sent to landfills kg per vehicle 200 150 100 50 0 tonnes 8,000 6,000 4,000 2,000 04 05 06 07 08 0 Waste sent to landfills totalled about 14,000 tonnes (excluding foundry sand), equivalent to 170 kg per vehicle. Utsläpp av lösningsmedel Solvent emissions kg per vehicle 10 12 14 0 2 4 6 8 04 05 06 07 08 Solvent emissions from painting and rust-proofing decreased to 4.3 kg per vehicle. Total 100 200 300 400 500 600 0 tonnes 900 69,000 112 1,000 77,000 106 1,000 64,000 71 0 04 05 06 07 08 0 Despite higher production volume, energy use decreased to 8.3 MWh per vehicle produced. 79,874 88,977 2,500 202,080 2,540 0.086 6,850 249 8.3 660 346 38 47 108 2.4 1.06 193,500 8.3 659 8 4.3 341 88,2001 9 671 8 4.8 377 84,2001 11 705 7 5.4 360 5 200 2007 78,331 84,486 2,900 228,000 2,510 0.085 6,600 212 9 677 313 42 46 2006 66,737 70,738 3,100 207,000 2,310 0.084 5,600 163 10 652 279 41 43 Energy use Användning av energi MWh per vehicle 20 15 10 Total GWh 800 600 400 10 15 20 25 0 5 m3 per vehicle Water use Användning av vatten Total m3 200,000 400,000 600,000 800,000 1,000,000 04 05 06 07 08 0 After a few years of increased water consumption, the trend reversed. Carbon dioxide emissions amounted to 1.1 tonnes per vehicle, or a total of 85,000 tonnes. The emission factor for electricity comes from International Energy Data Sources. Electricity District heating Fossil fuels Total Per vehicle 2008 422 81 158 660 kWh 8,300 12,800 1.06 Carbon dioxide emissions related to energy use Energy use, GWh 1998 373 78 189 640 2008 41 6 38 85 tonnes 1.56 * Since 2006, Scania has used a new emission factor for emissions from electricity generation. Carbon dioxide emissions, ktonnes* 1998 23 6 49 78 41 Environmental performance in the production network 2008 Number of vehicles produced Net sales, SEK m. Scania products Raw material consumption Per vehicle, kg Total, tonnes Total, SEK m. Chemical consumption Per vehicle, m3 Total, m3 Total, SEK m. Energy use Per vehicle, MWh Total, GWh Total, SEK m. Carbon dioxide emissions Fossil fuels, 1,000 tonnes Purchased heat and electricity, 1,000 tonnes Goods shipments, 1,000 tonnes Per vehicle, tonnes of which plant-related Total, tonnes Water use Per vehicle, m3 Total, 1,000 m3 Total, SEK m. Solvent emissions Per vehicle, kg Total, tonnes Recycling of residual products and waste Per vehicle, kg Total, tonnes Revenue, SEK m. Sent to landfills and other off-site disposal Per vehicles, kg Total, tonnes Total, SEK m. 170 14,000 25 1 Goods shipments are not included in 2006 and 2007. Emissions from goods shipments were calculated as specified by the Network for Transport and the Environment. An in-depth account of measures and results as well as a summary of environmental performance by production unit are available at www.scania.com. The website has not been reviewed by the company’s auditors. PRODUCER RESPONSIBILITY FOR BATTERIES As a producer of heavy vehicles, Scania is included in the new system of producer responsibility for batteries. This means that the company must ensure that the batteries delivered with vehicles and by the Scania service network in the EU are collected and recycled. Scania’s sales volume must be reported to the regulatory authority in each member country, and the batteries must be correctly labelled. 180 14,000 25 170 12,000 20 Deponering av restprodukter Total Waste sent to landfills kg per vehicle 200 150 100 50 0 tonnes 8,000 6,000 4,000 2,000 04 05 06 07 08 0 Waste sent to landfills totalled about 14,000 tonnes (excluding foundry sand), equivalent to 170 kg per vehicle. Utsläpp av lösningsmedel Solvent emissions kg per vehicle 10 12 14 0 2 4 6 8 04 05 06 07 08 Solvent emissions from painting and rust-proofing decreased to 4.3 kg per vehicle. Total 100 200 300 400 500 600 0 tonnes 900 69,000 112 1,000 77,000 106 1,000 64,000 71 0 04 05 06 07 08 0 Despite higher production volume, energy use decreased to 8.3 MWh per vehicle produced. 79,874 88,977 2,500 202,080 2,540 0.086 6,850 249 8.3 660 346 38 47 108 2.4 1.06 193,500 8.3 659 8 4.3 341 88,2001 9 671 8 4.8 377 84,2001 11 705 7 5.4 360 5 200 2007 78,331 84,486 2,900 228,000 2,510 0.085 6,600 212 9 677 313 42 46 2006 66,737 70,738 3,100 207,000 2,310 0.084 5,600 163 10 652 279 41 43 Energy use Användning av energi MWh per vehicle 20 15 10 Total GWh 800 600 400 10 15 20 25 0 5 m3 per vehicle Water use Användning av vatten Total m3 200,000 400,000 600,000 800,000 1,000,000 04 05 06 07 08 0 After a few years of increased water consumption, the trend reversed. Carbon dioxide emissions amounted to 1.1 tonnes per vehicle, or a total of 85,000 tonnes. The emission factor for electricity comes from International Energy Data Sources. Electricity District heating Fossil fuels Total Per vehicle 2008 422 81 158 660 kWh 8,300 12,800 1.06 Carbon dioxide emissions related to energy use Energy use, GWh 1998 373 78 189 640 2008 41 6 38 85 tonnes 1.56 * Since 2006, Scania has used a new emission factor for emissions from electricity generation. Carbon dioxide emissions, ktonnes* 1998 23 6 49 78 <a href="/v5/viewer/files/Default_s.aspx?gKey=tqcxr73s&gInitPage=44">Scania Annual Report 2008 Road safety 42 SUSTAINAB</a> ILITY REPORT Improved road safety for sustainable transport Scania works in various ways to improve road safety. Better road safety is all about interaction between infrastructure, vehicles and road users. Scania is continuously developing new products and services that help the driver make the right decisions behind the wheel. Worldwide, about 1.2 million people die in road accidents each year and 50 million more are injured. This makes road accidents the ninth most common cause of death in the world and one of our biggest health problems. Given the trend to date, traffic fatalities are expected to be the third largest cause of death in the world by 2020. Creating an efficient, sustainable transport system that ensures the safety of road users is a major challenge. At the turn of the 21st century, the European Union established the goal of halving the number of deaths on EU roads by 2010. One step along the way is that road safety issues are being viewed as increasingly important at both the national and international level. The World Health Organisation (WHO) was assigned the task of coordinating the road safety work of the United Nations. Since 2005, Scania has participated in this work as a partner of WHO. Road safety is, above all, a matter of human behaviour and attitudes. The driver is the most important actor in improving road safety. This is why Scania works continuously to develop new products and services that will help the driver make the right decisions behind the wheel. The driver – a key individual The driver is of crucial importance to operating economy, road safety and environmental impact. Trained drivers not only operate their vehicles more safely but also more fuel-efficiently, which has a favourable effect both on operating economy and the environment. For many years, Scania has provided driver training. Well-trained drivers are the key to a safer traffic environment, better fuel economy, reduced vehicle wear-and-tear and higher profitability for transport companies. Scania’s global platform for training truck and bus drivers consists of theoretical and practical exercises. The training programme is aimed at experienced professional drivers and is based on the EU driver training directive, which began to apply to bus drivers in September 2008 and will also apply to truck drivers from one year later. The directive requires drivers to undergo 35 hours of mandatory training within a five-year period. Scania offers driver training in over 40 coun- tries, and during 2008 it trained more than 9,600 drivers around the world. During the past ten years, Scania has helped more than 50,000 drivers undergo the programme. Scania Driver Competitions With the endorsement of the European Commission, in 2003 and 2005 Scania organised the world’s largest driver competition. Since 2007 Scania’s driver competitions have become a global arrangement, featuring contestants from some 40 countries in Europe, Latin America, Asia and Africa. 42 SUSTAINABILITY REPORT Improved road safety for sustainable transport Scania works in various ways to improve road safety. Better road safety is all about interaction between infrastructure, vehicles and road users. Scania is continuously developing new products and services that help the driver make the right decisions behind the wheel. Worldwide, about 1.2 million people die in road accidents each year and 50 million more are injured. This makes road accidents the ninth most common cause of death in the world and one of our biggest health problems. Given the trend to date, traffic fatalities are expected to be the third largest cause of death in the world by 2020. Creating an efficient, sustainable transport system that ensures the safety of road users is a major challenge. At the turn of the 21st century, the European Union established the goal of halving the number of deaths on EU roads by 2010. One step along the way is that road safety issues are being viewed as increasingly important at both the national and international level. The World Health Organisation (WHO) was assigned the task of coordinating the road safety work of the United Nations. Since 2005, Scania has participated in this work as a partner of WHO. Road safety is, above all, a matter of human behaviour and attitudes. The driver is the most important actor in improving road safety. This is why Scania works continuously to develop new products and services that will help the driver make the right decisions behind the wheel. The driver – a key individual The driver is of crucial importance to operating economy, road safety and environmental impact. Trained drivers not only operate their vehicles more safely but also more fuel-efficiently, which has a favourable effect both on operating economy and the environment. For many years, Scania has provided driver training. Well-trained drivers are the key to a safer traffic environment, better fuel economy, reduced vehicle wear-and-tear and higher profitability for transport companies. Scania’s global platform for training truck and bus drivers consists of theoretical and practical exercises. The training programme is aimed at experienced professional drivers and is based on the EU driver training directive, which began to apply to bus drivers in September 2008 and will also apply to truck drivers from one year later. The directive requires drivers to undergo 35 hours of mandatory training within a five-year period. Scania offers driver training in over 40 coun- tries, and during 2008 it trained more than 9,600 drivers around the world. During the past ten years, Scania has helped more than 50,000 drivers undergo the programme. Scania Driver Competitions With the endorsement of the European Commission, in 2003 and 2005 Scania organised the world’s largest driver competition. Since 2007 Scania’s driver competitions have become a global arrangement, featuring contestants from some 40 countries in Europe, Latin America, Asia and Africa. <a href="/v5/viewer/files/Default_s.aspx?gKey=tqcxr73s&gInitPage=45">Scania Annual Report 2008 Sida 45 43 For many year</a> s, Scania has worked with driver training. Truck and bus driver training is targeted to experienced professional drivers. Even experienced drivers can reduce their fuel consumption by up to 10 percent. 43 For many years, Scania has worked with driver training. Truck and bus driver training is targeted to experienced professional drivers. Even experienced drivers can reduce their fuel consumption by up to 10 percent. <a href="/v5/viewer/files/Default_s.aspx?gKey=tqcxr73s&gInitPage=46">Scania Annual Report 2008 Employees 44 SUSTAINABIL</a> ITY REPORT Focus on human resource development and good health Scania’s success is based on highly capable, dedicated and healthy employees in a good working environment. Dedicated employees The key to Scania’s success is dedicated employees. Everyone at Scania knows that continuous improvements, always with customer benefit in mind and quality at all levels, will generate strong long-term growth. An employee who undergoes continuous professional development, feels a sense of participation and feels well contributes to higher efficiency and quality. Clear core values and common principles for operational management and leadership tie together the whole organisation. By taking advantage of the unique knowledge, wishes and talents of each employee, the company is continually refining its working methods. New ideas and improvements are generated in day-to-day work. Operational and human resource development go hand in hand, ensuring higher quality, efficiency and job satisfaction. At Scania, all employees are responsible for their op- erations and improving them, as well as their own professional development. The company applies five common leadership principles: Educational level 1. Coordinate but work independently – take responsibility 2. Work with details and understand the context 3. Act now – think long-term 4. Build know-how through continuous learning 5. Stimulate commitment through involvement Åldersfördelning Age distribution Utbildningsnivå Post-secondary education 28% Compulsary school 17% Secondary school 56% 20–24 25–29 30–34 35–39 40–44 45–49 50–54 55–59 60– –19 Scania’s employees have a high level of education. The age distribution among Scania’s employees is well-balanced, and their median age is 39.12 years. 11% 8% 7% 6% 2% 7% 13% 15% 16% 15% SCANIA’S HUMAN RESOURCE POLICY Scania shall be a highly regarded employer with competent and dedicated employees who work in a creative and healthy environment where diversity and an ethical approach are cherished. Everyday human resource development Human resource development is a high-priority area. Its premise is that learning and personal development occur mainly in day-to-day work. Every employee has an individual development plan. Scania offers its employees more than 300 different courses and training programmes in such fields as leadership, technology and communication. A large proportion of these programmes are taught by internal lecturers and teachers, in keeping with Scania’s ”learning organisation” concept. To meet the need for highly capable service techni- cians, Scania also provides training in its service network at more than 50 service schools with about 100 full-time instructors. All of Scania’s 12,500 service technicians update their skills every year. The employees of tomorrow Scania regards the educational system in the communities around it as one of its most important partners. One natural element is to encourage more women to apply for technically oriented studies. Scania works actively to generate an interest in science and technology among children and young people. Scania collaborates closely with technical upper secondary schools and university-level institutes of technology, which are important to its future recruitment of talented employees. Scania’s strategic recruitment efforts also include its trainee programme, which runs for 14 months and welcomes graduate engineers, business administration graduates and information technology specialists. 44 SUSTAINABILITY REPORT Focus on human resource development and good health Scania’s success is based on highly capable, dedicated and healthy employees in a good working environment. Dedicated employees The key to Scania’s success is dedicated employees. Everyone at Scania knows that continuous improvements, always with customer benefit in mind and quality at all levels, will generate strong long-term growth. An employee who undergoes continuous professional development, feels a sense of participation and feels well contributes to higher efficiency and quality. Clear core values and common principles for operational management and leadership tie together the whole organisation. By taking advantage of the unique knowledge, wishes and talents of each employee, the company is continually refining its working methods. New ideas and improvements are generated in day-to-day work. Operational and human resource development go hand in hand, ensuring higher quality, efficiency and job satisfaction. At Scania, all employees are responsible for their op- erations and improving them, as well as their own professional development. The company applies five common leadership principles: Educational level 1. Coordinate but work independently – take responsibility 2. Work with details and understand the context 3. Act now – think long-term 4. Build know-how through continuous learning 5. Stimulate commitment through involvement Åldersfördelning Age distribution Utbildningsnivå Post-secondary education 28% Compulsary school 17% Secondary school 56% 20–24 25–29 30–34 35–39 40–44 45–49 50–54 55–59 60– –19 Scania’s employees have a high level of education. The age distribution among Scania’s employees is well-balanced, and their median age is 39.12 years. 11% 8% 7% 6% 2% 7% 13% 15% 16% 15% SCANIA’S HUMAN RESOURCE POLICY Scania shall be a highly regarded employer with competent and dedicated employees who work in a creative and healthy environment where diversity and an ethical approach are cherished. Everyday human resource development Human resource development is a high-priority area. Its premise is that learning and personal development occur mainly in day-to-day work. Every employee has an individual development plan. Scania offers its employees more than 300 different courses and training programmes in such fields as leadership, technology and communication. A large proportion of these programmes are taught by internal lecturers and teachers, in keeping with Scania’s ”learning organisation” concept. To meet the need for highly capable service techni- cians, Scania also provides training in its service network at more than 50 service schools with about 100 full-time instructors. All of Scania’s 12,500 service technicians update their skills every year. The employees of tomorrow Scania regards the educational system in the communities around it as one of its most important partners. One natural element is to encourage more women to apply for technically oriented studies. Scania works actively to generate an interest in science and technology among children and young people. Scania collaborates closely with technical upper secondary schools and university-level institutes of technology, which are important to its future recruitment of talented employees. Scania’s strategic recruitment efforts also include its trainee programme, which runs for 14 months and welcomes graduate engineers, business administration graduates and information technology specialists. <a href="/v5/viewer/files/Default_s.aspx?gKey=tqcxr73s&gInitPage=47">Scania Annual Report 2008 Sida 47 45 THE GLOBAL HE</a> ALTH PRINCIPLE ■ Promote and improve health ■ Counteract risks of ill health ■ Cure and rehabilitate Scania has a global health principle, in which it works proactively and systematically to lay the groundwork for good health and a safe working environment. This is done by means of regular meetings with health and safety engineers, company physicians, nurses, ergonomists and health instructors. Together they develop the standards and methods that support the global health principle. Higher healthy attendance Group-wide methods for improving health and well-being are a natural element of work, in keeping with Scania’s core values. Based on its global health policy, Scania lays the groundwork for good health and a safe working environment throughout the organisation. The centrepiece of this policy is the global health principle. Scania works proactively by focusing on promoting and improving health, using active leadership and “employeeship”. Scania’s work with continuous improvements creates the prerequisites for systematic health promotion efforts. At Scania’s production units, health promotion work has continually helped improve “healthy attendance” − the average percentage of employees at work. In the company’s Swedish operations, where absences due to illness are down by half in the past decade, healthy attendance today is more than 96 percent. This successful health pro- Medarberare – frisknärvaro globalt 100 Industrial operations % 25 50 75 0 07 08 08 Global healthy attendance among employees in Scania’s industrial operations increased by 0.4 percentage points. In sales and service operations, this fi gure was reported for the fi rst time. 95.7 96.1 Global healthy attendance Sales 96.2 motion work has also been expanded to Scania’s growing sales and service network, and common global methods for working environment programmes have begun to be introduced. These methods are being disseminated and developed via the global health network, whose aim is to standardise methods, exchange experience and disseminate best practice. Coordination and responsibility for the network rest with the corporate health unit in Södertälje, Sweden, which also provides medical back-up. Scania’s global health promotion work is evaluated by means of various key fi gures: healthy attendance, accidents and employee turnover. One standardised method for verifying and improving the application of the health principle and related methods is Scania Blue Rating Health and Working Environment. Healthy attendance1Medarbetare utveckling frisknärvaro sverige in Swedish operations % 100 88 89 90 91 92 93 94 95 96 97 98 99 94.1 94.5 94.8 94.8 95.1 95.4 95.9 96.3 Medarberare – arbetsolyckor globaltWork-related injuries 30 Number of injuries per million hours worked 22.6 20 10 22.1 0 01 02 03 04 05 06 07 08 1 Healthy attendance is 100 percent of planned working hours minus coded absences due to illness. 07 08 Work-related injuries resulting in absences, per million hours worked (global industrial). The number of work-related injuries declined despite a production increase lasting during most of 2008. <a href="/v5/viewer/files/Default_s.aspx?gKey=tqcxr73s&gInitPage=48">Scania Annual Report 2008 Scania share data 46 SCA</a> NIA SHARE DATA Broad stockmarket downturn During 2008 the stock market was dominated by great uncertainty and worries about a significant economic downturn. The financial turbulence that began in the United States during 2007 spread to large parts of the world. Investment goods were among the industries that noted a sharp downturn in share prices. The NASDAQ OMX Nordic Exchange Stockholm fell by a total of 39 percent. Scania Series B shares lost 46 percent. The stock market downturn began in mid-2007 and continued in 2008. In September, the American investment bank Lehman Brothers went bankrupt, which had repercussions in financial markets worldwide. Everworsening credit problems had an adverse impact on the stock market, since various investors including hedge funds were forced to sell large shareholdings because they found it increasingly difficult to continue financing these holdings. The outlook for truck manufacturers deteriorated during the year as order bookings fell sharply. This downturn accelerated in the second half as a result of worsening liquidity shortages and great uncertain about future business conditions, making Scania’s customers reluctant to take delivery of trucks they had already ordered. They also held off on ordering additional trucks. Scania shares thus showed a negative trend. Including the dividend, the B share provided a total return of –41 percent. This can be compared to the dividendadjusted SIXRX index, which provided a return equivalent to –39 percent. In the past five years, Scania’s B share has provided an annual total return averaging 26 percent. This can be compared to the SIXRX index, with a return equivalent to 9 percent. Share trading Scania B trading volume averaged 2,545,600 shares per day in 2008. It was thus lower than in 2007. The turnover rate was 169 (189) percent, compared to 132 (131) percent for the Exchange as a whole. The split and redemption In May each Scania share, both the A and B share, was divided into two shares – one ordinary share and one redemption share − with the latter being redeemed at a value of SEK 7.50 per share. This redemption programme meant that SEK 6 billion was repaid to the shareholders and together with the regular dividend, the shareholders received a total of SEK 10 billion during 2008. Information on the split, redemption and tax issues for shareholders is available on www.scania.com, under Investor Relations, ”information about 2008 share split and redemption”. Dividend and dividend policy The proposed regular dividend of SEK 2.50 per share is equivalent to 22.5 percent of 2008 net income. In the past five years, an average of 50.7 percent of net income has been distributed to the shareholders. The company’s capital needs are continuously evaluated and adapted to the investments required to safeguard growth. In Scania’s view, this creates higher long-term shareholder value than a fixed dividend policy. Major ownership changes On 22 July 2008, Volkswagen bought 134,711,900 Series A shares in Scania, or 30.62 percent of voting power, from Investor and the Wallenberg foundations in accordance with an agreement signed in March 2008. Volkswagen’s ownership stake thus increased to 68.60 (37.98) percent of voting power and 37.73 (20.89) percent of share capital. 46 SCANIA SHARE DATA Broad stockmarket downturn During 2008 the stock market was dominated by great uncertainty and worries about a significant economic downturn. The financial turbulence that began in the United States during 2007 spread to large parts of the world. Investment goods were among the industries that noted a sharp downturn in share prices. The NASDAQ OMX Nordic Exchange Stockholm fell by a total of 39 percent. Scania Series B shares lost 46 percent. The stock market downturn began in mid-2007 and continued in 2008. In September, the American investment bank Lehman Brothers went bankrupt, which had repercussions in financial markets worldwide. Everworsening credit problems had an adverse impact on the stock market, since various investors including hedge funds were forced to sell large shareholdings because they found it increasingly difficult to continue financing these holdings. The outlook for truck manufacturers deteriorated during the year as order bookings fell sharply. This downturn accelerated in the second half as a result of worsening liquidity shortages and great uncertain about future business conditions, making Scania’s customers reluctant to take delivery of trucks they had already ordered. They also held off on ordering additional trucks. Scania shares thus showed a negative trend. Including the dividend, the B share provided a total return of –41 percent. This can be compared to the dividendadjusted SIXRX index, which provided a return equivalent to –39 percent. In the past five years, Scania’s B share has provided an annual total return averaging 26 percent. This can be compared to the SIXRX index, with a return equivalent to 9 percent. Share trading Scania B trading volume averaged 2,545,600 shares per day in 2008. It was thus lower than in 2007. The turnover rate was 169 (189) percent, compared to 132 (131) percent for the Exchange as a whole. The split and redemption In May each Scania share, both the A and B share, was divided into two shares – one ordinary share and one redemption share − with the latter being redeemed at a value of SEK 7.50 per share. This redemption programme meant that SEK 6 billion was repaid to the shareholders and together with the regular dividend, the shareholders received a total of SEK 10 billion during 2008. Information on the split, redemption and tax issues for shareholders is available on www.scania.com, under Investor Relations, ”information about 2008 share split and redemption”. Dividend and dividend policy The proposed regular dividend of SEK 2.50 per share is equivalent to 22.5 percent of 2008 net income. In the past five years, an average of 50.7 percent of net income has been distributed to the shareholders. The company’s capital needs are continuously evaluated and adapted to the investments required to safeguard growth. In Scania’s view, this creates higher long-term shareholder value than a fixed dividend policy. Major ownership changes On 22 July 2008, Volkswagen bought 134,711,900 Series A shares in Scania, or 30.62 percent of voting power, from Investor and the Wallenberg foundations in accordance with an agreement signed in March 2008. Volkswagen’s ownership stake thus increased to 68.60 (37.98) percent of voting power and 37.73 (20.89) percent of share capital. <a href="/v5/viewer/files/Default_s.aspx?gKey=tqcxr73s&gInitPage=49">Scania Annual Report 2008 Sida 49 47 The transacti</a> on was carried out after approval from the appropriate competition authorities. In addition, additional shares of Scania, held in trust by a credit institution, with voting rights amounting to 0.87 percent and an equity interest of 3.63 percent are attributable to Volkswagen. Volkswagen thus owns shares in Scania equivalent to about 41,36 percent of share capital and about 69,47 percent of voting power. In January 2009, Porsche Automobil Holding SE announced that the company had increased its holding in Volkswagen AG to 50.8 percent, which means that Porsche indirectly controls Scania. In compliance with Swedish legislation, Porsche then presented a mandatory offer for Scania of SEK 68.52 in cash for each A share and SEK 67.10 in cash for each B share. Scania’s Board of Directors recommended that shareholders do not accept the offer. About Scania shares Scania has been quoted on the NASDAQ OMX Nordic Exchange Stockholm since 1 April 1996. Its share capital is divided into 400 million Series A shares and 400 million Series B shares, where each Series A share represents one vote and each Series B share represents one tenth of a vote. Otherwise there are no differences between these types of shares. The nominal value per share is SEK 2.50. Further information on Scania shares is available on www.scania.com under Investor Relations. 180 SEK 120 140 160 100 60 80 OMX Stockholm Pl 1,000´s of shares traded 40 04 05 06 07 08 © NASDAQ OMX 50,000 150,000 250,000 350,000 B-share Share price performance Shareholder structure (capital), 31 January 2009 aktiestruktur (röster) Other foreign shareholders 13% Swedish private individuals 5% 4,000,000 Swedish institutions 27% JP Morgan Chase 5% MAN AG 13% 1 In addition, shares of Scania held in trust by a credit institution, with voting rights amounting to 0.87 percent and an equity interest of 3.63, percent are attributable to Volkswagen. 2,000,000 Volkswagen AG1 38% Average daiB-aktierly trading, B shares Number 6,000,000 0 04 05 06 07 08 The ten largest shareholders, 31 January 2009 Owner Volkswagen AG1) MAN AG Clearstream Banking JP Morgan Chase Swedbank Robur (mutual funds) AMF Pensionsförsäkring AB Alecta Pensionsförsäkring Skandia Liv Second AP Fund Oslo Pensjonforsikring Total Capital % 37.73 13.35 4.30 4.72 3.60 2.25 2.69 1.21 1.02 0.15 71.02 Votes % 68.60 17.22 1.03 0.98 0.65 0.54 0.49 0.29 0.29 0.28 90.37 Performance-based bonus foundation Via foundations, employees own Scania shares that on 31 January 2009 amounted to the equivalent of 0.89 percent of share capital. The foundation may own shares equivalent to a maximum of 10 percent of the share capital in Scania. 1) In addition, additional shares of Scania, held in trust by a credit institution, with voting rights amounting to 0.87 percent and an equity interest of 3.63 percent are attributable to Volkswagen. SEK (unless otherwise stated) Year-end market price, B share Highest market price, B share Lowest market price, B share Change in market price, %, B share Total return, %, B share Market capitalisation, SEK m. Earnings Price/earnings ratio, B share Dividend* Redemption Dividend yield, %** Dividend payout ratio, % Equity Cash flow, Vehicles and Services Number of shareholders*** Per share data 2008 77.75 162.43 50.25 – 46.4 – 40.8 11.11 7 2.5 – 3.2 22.5 27.4 2.22 130,020 2007 145.01 188.80 98.44 35.1 45.5 61,900 128,800 10.69 14 5.00 7.50 3.4 46.8 31.0 10.62 124,413 * For 2008: Proposed by the Board of Directors. ** Dividend divided by the market price of a B share at year-end. *** On 31 January 2009. 2006 107.37 112.50 64.06 67.3 74.7 2005 64.18 71.54 57.14 9.3 15.6 97,150 57,300 7.42 14 3.75 8.75 3.5 50.5 32.7 8.68 3.75 – 5.8 64.3 29.7 5.09 107,487 109,400 5.83 11 2004 58.71 62.50 45.54 29.6 32.9 52,600 5.40 11 3.75 – 6.4 69.5 26.8 3.42 46,400 <a href="/v5/viewer/files/Default_s.aspx?gKey=tqcxr73s&gInitPage=50">Scania Annual Report 2008 Articles of Association </a> 48 ARTICLES OF ASSOCIATION Articles of Association Adopted at the Annual General Meeting on 5 May 2008. § 1 The registered name of the company is Scania Aktiebolag. The company is a public company (publ). § 2 The aim of the company’s operations is to carry on, directly or through subsidiaries or associated companies, development, manufacturing and trading in motor vehicles and industrial and marine engines; to own and manage real and movable property; to carry on financing business (although not activities that require a permit according to the Banking and Finance Business Act); as well as other operations compatible with the above. § 3 The company’s registered office shall be in the Municipality of Södertälje. § 4 The company’s share capital shall be a minimum of one billion six hundred million kronor (SEK 1,600,000,000) and a maximum of six billion four hundred million kronor (SEK 6,400,000,000). § 5 The total number of shares in the company shall be a minimum of six hundred and forty million (640,000,000) and a maximum of two billion five hundred and sixty million (2,560,000,000). The shares may be issued in two series, Series A and Series B. A maximum of 2,560,000,000 Series A shares and a maximum of 2,560,000,000 Series B shares may be issued, subject to the limitation that the total number of Series A and Series B shares may not exceed 2,560,000,000 shares. In a vote at a General Meeting of shareholders, each Series A share carries one vote and each Series B share carries one tenth of a vote. If the company decides to issue new shares of both Series A and Series B and the shares are not to be paid by consideration in kind, existing holders of Series A shares and Series B shares shall have the preferential right to subscribe for new shares of the same class in proportion to the number of existing shares of each class held by such existing shareholder (“primary preferential right”). Shares not subscribed for by shareholders with a primary preferential right shall be offered to all shareholders for subscription (“subsidiary preferential right”). If the total number of shares to be offered is not sufficient to cover the subscriptions made through the exercise of subsidiary preferential rights, such shares shall be distributed among the subscribers in relation to the number of existing shares they already hold and, where this is not possible, through the drawing of lots. If the company decides to issue new shares of only Series A or Series B, for which consideration in kind is not paid, all shareholders, regardless of whether such shareholders currently hold shares of Series A or Series B, shall have the preferential right to subscribe for new shares in proportion to the number of shares held by them prior to such issuance. The above shall not in any way limit the ability of the company to make decisions regarding cash issues or issues where consideration is paid by offsetting against a debt, which diverge from the shareholders’ preferential rights. In the case of an increase in equity through a bonus issue, new shares of each class shall be issued in proportion to the number of shares of the same type already existing. Existing shares of a particular class will thereby carry the right to new shares of the same type. The aforesaid shall not in any way limit the ability of the company to, through a bonus issue, following the necessary changes in the Articles of Association, issue shares of a new type. What has been stipulated above regarding shareholders’ preferential rights to new shares shall apply correspondingly to the new issue of warrants and convertible debentures. § 6 In addition to those Board members who are appointed according to law by a party other than the Annual General Meeting, the Board of Directors shall comprise a minimum of three and a maximum of ten members with a maximum of two deputies. These members and deputies shall be elected at each Annual General Meeting for the period up to the end of the next Annual General Meeting. § 7 The company signatory (or signatories) are the person(s) appointed for this purpose by the Board of Directors. § 8 Two Auditors and two Deputy Auditors or a registered auditing company shall be appointed at the Annual General Meeting, for the period up to the end of the Annual General Meeting held during the fourth financial year after the election of Auditors, to carry out the company’s audit. If the same Auditor or auditing company is to be reappointed after the term has come to an end, the General Meeting may decide that the appointment shall be valid up to the close of the Annual General Meeting held during the third financial year after the election of the Auditor. § 9 The Company’s financial year shall be the calendar year. § 10 The Annual General Meeting shall be held in the Municipality of Södertälje or the Municipality of Stockholm. The meeting shall be opened by the Chairman of the Board or the person appointed to do so by the Board. § 11 The Annual General Meeting shall be held once a year, by June at the latest. The following matters shall be dealt with at the Annual General Meeting: 1. Election of a chairman for the meeting. 2. Approval of the voting list. 3. Approval of the agenda. 4. Election of two persons to verify the minutes. 5. Consideration of whether the meeting has been duly convened. 6. Presentation of the annual accounts and Auditors’ Report, and the consolidated annual accounts and Auditors’ Report. 7. Resolutions concerning a. adoption of the income statement and balance sheet and the consolidated income statement and balance sheet, b. distribution of the profit or loss according to the adopted balance sheet, c. discharge of the members of the Board and the President from liability for the financial year. 8. Determination of the number of Board members and deputy Board members. 9. Determination of remuneration for the Board and Auditors. 10. Election of Board members and deputy Board members. 11. Election of Auditors and Deputy Auditors when applicable. 12. Other matters to be dealt with at the Annual General Meeting pursuant to the Swedish Companies Act or the Articles of Association. § 12 At a General Meeting, each shareholder entitled to vote may vote for the full number of votes held or represented by him. § 13 Notice convening the Annual General Meeting, or an Extraordinary General Meeting where a change in the Articles of Association is on the agenda, shall be issued no earlier than six weeks and no later than four weeks prior to the Meeting. Notice convening other Extraordinary General Meetings shall be issued no earlier than six weeks and no later than two weeks prior to the Meeting. Notice convening a General Meeting shall be in the form of an announcement in the Swedish official gazette Post- och Inrikes Tidningar and in the Swedish national-circulation newspapers Dagens Nyheter and Svenska Dagbladet. Shareholders who wish to attend a General Meeting must be included in a print-out of the shareholder list reflecting conditions five weekdays prior to the General Meeting, and must also register with the company no later than 16.00 CET on the date stated in the notice convening the Meeting. Such a day may not be a Sunday, another public holiday, Saturday, Midsummer’s Eve, Christmas Eve or New Year’s Eve and may not be earlier than five weekdays prior to the Meeting. Shareholders may bring one or two assist- ants to a General Meeting, although only if the shareholder has given prior notice thereof to the company as stipulated in the preceding section. § 14 The company’s shares shall be registered in a central securities depository register according to the Financial Instruments Accounting Act (1998:1479). 48 ARTICLES OF ASSOCIATION Articles of Association Adopted at the Annual General Meeting on 5 May 2008. § 1 The registered name of the company is Scania Aktiebolag. The company is a public company (publ). § 2 The aim of the company’s operations is to carry on, directly or through subsidiaries or associated companies, development, manufacturing and trading in motor vehicles and industrial and marine engines; to own and manage real and movable property; to carry on financing business (although not activities that require a permit according to the Banking and Finance Business Act); as well as other operations compatible with the above. § 3 The company’s registered office shall be in the Municipality of Södertälje. § 4 The company’s share capital shall be a minimum of one billion six hundred million kronor (SEK 1,600,000,000) and a maximum of six billion four hundred million kronor (SEK 6,400,000,000). § 5 The total number of shares in the company shall be a minimum of six hundred and forty million (640,000,000) and a maximum of two billion five hundred and sixty million (2,560,000,000). The shares may be issued in two series, Series A and Series B. A maximum of 2,560,000,000 Series A shares and a maximum of 2,560,000,000 Series B shares may be issued, subject to the limitation that the total number of Series A and Series B shares may not exceed 2,560,000,000 shares. In a vote at a General Meeting of shareholders, each Series A share carries one vote and each Series B share carries one tenth of a vote. If the company decides to issue new shares of both Series A and Series B and the shares are not to be paid by consideration in kind, existing holders of Series A shares and Series B shares shall have the preferential right to subscribe for new shares of the same class in proportion to the number of existing shares of each class held by such existing shareholder (“primary preferential right”). Shares not subscribed for by shareholders with a primary preferential right shall be offered to all shareholders for subscription (“subsidiary preferential right”). If the total number of shares to be offered is not sufficient to cover the subscriptions made through the exercise of subsidiary preferential rights, such shares shall be distributed among the subscribers in relation to the number of existing shares they already hold and, where this is not possible, through the drawing of lots. If the company decides to issue new shares of only Series A or Series B, for which consideration in kind is not paid, all shareholders, regardless of whether such shareholders currently hold shares of Series A or Series B, shall have the preferential right to subscribe for new shares in proportion to the number of shares held by them prior to such issuance. The above shall not in any way limit the ability of the company to make decisions regarding cash issues or issues where consideration is paid by offsetting against a debt, which diverge from the shareholders’ preferential rights. In the case of an increase in equity through a bonus issue, new shares of each class shall be issued in proportion to the number of shares of the same type already existing. Existing shares of a particular class will thereby carry the right to new shares of the same type. The aforesaid shall not in any way limit the ability of the company to, through a bonus issue, following the necessary changes in the Articles of Association, issue shares of a new type. What has been stipulated above regarding shareholders’ preferential rights to new shares shall apply correspondingly to the new issue of warrants and convertible debentures. § 6 In addition to those Board members who are appointed according to law by a party other than the Annual General Meeting, the Board of Directors shall comprise a minimum of three and a maximum of ten members with a maximum of two deputies. These members and deputies shall be elected at each Annual General Meeting for the period up to the end of the next Annual General Meeting. § 7 The company signatory (or signatories) are the person(s) appointed for this purpose by the Board of Directors. § 8 Two Auditors and two Deputy Auditors or a registered auditing company shall be appointed at the Annual General Meeting, for the period up to the end of the Annual General Meeting held during the fourth financial year after the election of Auditors, to carry out the company’s audit. If the same Auditor or auditing company is to be reappointed after the term has come to an end, the General Meeting may decide that the appointment shall be valid up to the close of the Annual General Meeting held during the third financial year after the election of the Auditor. § 9 The Company’s financial year shall be the calendar year. § 10 The Annual General Meeting shall be held in the Municipality of Södertälje or the Municipality of Stockholm. The meeting shall be opened by the Chairman of the Board or the person appointed to do so by the Board. § 11 The Annual General Meeting shall be held once a year, by June at the latest. The following matters shall be dealt with at the Annual General Meeting: 1. Election of a chairman for the meeting. 2. Approval of the voting list. 3. Approval of the agenda. 4. Election of two persons to verify the minutes. 5. Consideration of whether the meeting has been duly convened. 6. Presentation of the annual accounts and Auditors’ Report, and the consolidated annual accounts and Auditors’ Report. 7. Resolutions concerning a. adoption of the income statement and balance sheet and the consolidated income statement and balance sheet, b. distribution of the profit or loss according to the adopted balance sheet, c. discharge of the members of the Board and the President from liability for the financial year. 8. Determination of the number of Board members and deputy Board members. 9. Determination of remuneration for the Board and Auditors. 10. Election of Board members and deputy Board members. 11. Election of Auditors and Deputy Auditors when applicable. 12. Other matters to be dealt with at the Annual General Meeting pursuant to the Swedish Companies Act or the Articles of Association. § 12 At a General Meeting, each shareholder entitled to vote may vote for the full number of votes held or represented by him. § 13 Notice convening the Annual General Meeting, or an Extraordinary General Meeting where a change in the Articles of Association is on the agenda, shall be issued no earlier than six weeks and no later than four weeks prior to the Meeting. Notice convening other Extraordinary General Meetings shall be issued no earlier than six weeks and no later than two weeks prior to the Meeting. Notice convening a General Meeting shall be in the form of an announcement in the Swedish official gazette Post- och Inrikes Tidningar and in the Swedish national-circulation newspapers Dagens Nyheter and Svenska Dagbladet. Shareholders who wish to attend a General Meeting must be included in a print-out of the shareholder list reflecting conditions five weekdays prior to the General Meeting, and must also register with the company no later than 16.00 CET on the date stated in the notice convening the Meeting. Such a day may not be a Sunday, another public holiday, Saturday, Midsummer’s Eve, Christmas Eve or New Year’s Eve and may not be earlier than five weekdays prior to the Meeting. Shareholders may bring one or two assist- ants to a General Meeting, although only if the shareholder has given prior notice thereof to the company as stipulated in the preceding section. § 14 The company’s shares shall be registered in a central securities depository register according to the Financial Instruments Accounting Act (1998:1479). <a href="/v5/viewer/files/Default_s.aspx?gKey=tqcxr73s&gInitPage=51">Scania Annual Report 2008 Risks and risk managemen</a> t RISKS AND RISK mANAGEmENT Risks and riskmanagement at Scania Risks are a natural element of business operations and entrepreneurship. Part of the dayto-day work of Scania is to manage risks, to prevent risks from harming the company and to limit the damage that may arise. Scania is one of the leading companies in the heavy vehicle industry. This leads to high expectations from all stakeholders, especially customers, about Scania as a company and its products. It is important to monitor and minimise events and behaviour that might adversely affect the company’s brand and reputation. Scania’s strong corporate culture is based on established values, principles and methods and is the foundation of the company’s risk management work. Scania’s Board of Directors is responsible to the shareholders for the company’s risk management. The company continuously reports on riskrelated matters to the Board and the Audit Committee of the Board. STRATEGIC RISKS Corporate governance- and policy-related risks The Executive Board carries the main responsibility for managing corporate governance- and policy-related risks. All units of the company work according to a management system that meets Scania’s requirements, guidelines and policies and is well documented. Rapid dissemination of appropriate information is safeguarded via the company’s management structures and processes. Management systems are continuously being improved, among other things by means of regular reviews, both internal and performed by third parties. For a more detailed description of Scania’s management structure, see the section entitled “The management of the company” in the Corporate Governance Report on page 56. Business development risks Risks associated with business development and longterm planning are managed primarily through Scania’s cross-functional (interdepartmental) meeting structure for decision making of a strategic and tactical nature, as well as Scania’s established yearly process for strategic planning. Such planning is discussed and questioned throughout the company, based on external and internal deliberations. All units and levels of the company are involved in the strategic process. Both the cross- functional meeting structure and the strategic process are long-established and are evolving continuously. Risks of overlooking threats and opportunities, of sub-optimising operations in the company and of making the wrong decisions are thereby minimised, while the risk of uncertainty and lack of clarity concerning the company’s strategy and business development is managed in a systematic way. Research and development projects are revised continuously on the basis of each project’s technological and commercial relevance. OPERATIONAL RISKS Market risks The demand for heavy trucks, buses and engines is affected by economic cycles and is thus subject to fluctuations. With regard to truck sales, in historical terms it is also possible to discern a cyclical pattern with sales peaks about every ten years. Truck sales also undergo more temporary variations around their long-term growth trend and the ten-year cycle just described. During the past decade, for example, exports of used trucks from western Europe to central and eastern Europe have led to high demand for new replacement vehicles in western Europe. Countries and regions may suffer economic or political problems that adversely affect the demand for heavy vehicles. Fluctuations in world financial markets have a large or small impact on real economic cycles and thus on the demand for Scania’s products. Markets may temporarily stall, and local currencies may depreciate. A welldiversified market structure limits the effect of a downturn in any given market. In individual markets, substantial changes may occur in the business environment, such as the introduction or raising of customs duties and taxes as well as changes in vehicle specifications. Impositions of sanctions against certain countries may make it impossible to market Scania’s products. In addition, shortcomings in national legal systems may substantially impair Scania’s ability to carry out operations and sales. Scania monitors all its markets continuously in order to spot warning signals early and be able to take action and implement changes in its marketing strategy. Risks associatedwith independent distributors Independent distributors may suffer problems that have an adverse effect on Scania’s operations. This may include shortcomings in management and investment 49 >> RISKS AND RISK mANAGEmENT Risks and riskmanagement at Scania Risks are a natural element of business operations and entrepreneurship. Part of the dayto-day work of Scania is to manage risks, to prevent risks from harming the company and to limit the damage that may arise. Scania is one of the leading companies in the heavy vehicle industry. This leads to high expectations from all stakeholders, especially customers, about Scania as a company and its products. It is important to monitor and minimise events and behaviour that might adversely affect the company’s brand and reputation. Scania’s strong corporate culture is based on established values, principles and methods and is the foundation of the company’s risk management work. Scania’s Board of Directors is responsible to the shareholders for the company’s risk management. The company continuously reports on riskrelated matters to the Board and the Audit Committee of the Board. STRATEGIC RISKS Corporate governance- and policy-related risks The Executive Board carries the main responsibility for managing corporate governance- and policy-related risks. All units of the company work according to a management system that meets Scania’s requirements, guidelines and policies and is well documented. Rapid dissemination of appropriate information is safeguarded via the company’s management structures and processes. Management systems are continuously being improved, among other things by means of regular reviews, both internal and performed by third parties. For a more detailed description of Scania’s management structure, see the section entitled “The management of the company” in the Corporate Governance Report on page 56. Business development risks Risks associated with business development and longterm planning are managed primarily through Scania’s cross-functional (interdepartmental) meeting structure for decision making of a strategic and tactical nature, as well as Scania’s established yearly process for strategic planning. Such planning is discussed and questioned throughout the company, based on external and internal deliberations. All units and levels of the company are involved in the strategic process. Both the cross- functional meeting structure and the strategic process are long-established and are evolving continuously. Risks of overlooking threats and opportunities, of sub-optimising operations in the company and of making the wrong decisions are thereby minimised, while the risk of uncertainty and lack of clarity concerning the company’s strategy and business development is managed in a systematic way. Research and development projects are revised continuously on the basis of each project’s technological and commercial relevance. OPERATIONAL RISKS Market risks The demand for heavy trucks, buses and engines is affected by economic cycles and is thus subject to fluctuations. With regard to truck sales, in historical terms it is also possible to discern a cyclical pattern with sales peaks about every ten years. Truck sales also undergo more temporary variations around their long-term growth trend and the ten-year cycle just described. During the past decade, for example, exports of used trucks from western Europe to central and eastern Europe have led to high demand for new replacement vehicles in western Europe. Countries and regions may suffer economic or political problems that adversely affect the demand for heavy vehicles. Fluctuations in world financial markets have a large or small impact on real economic cycles and thus on the demand for Scania’s products. Markets may temporarily stall, and local currencies may depreciate. A welldiversified market structure limits the effect of a downturn in any given market. In individual markets, substantial changes may occur in the business environment, such as the introduction or raising of customs duties and taxes as well as changes in vehicle specifications. Impositions of sanctions against certain countries may make it impossible to market Scania’s products. In addition, shortcomings in national legal systems may substantially impair Scania’s ability to carry out operations and sales. Scania monitors all its markets continuously in order to spot warning signals early and be able to take action and implement changes in its marketing strategy. Risks associatedwith independent distributors Independent distributors may suffer problems that have an adverse effect on Scania’s operations. This may include shortcomings in management and investment 49 >> <a href="/v5/viewer/files/Default_s.aspx?gKey=tqcxr73s&gInitPage=52">Scania Annual Report 2008 Sida 52 50 RISKS AND RIS</a> K mANAGEmENT >> capacity or problems related to generational shifts in family businesses. Scania may consequently experience a volume downturn before the dealer, or a new dealer, has fully restored operations. If the problems are not merely transitory, Scania may replace dealers or take over the business. Scania continuously maintains close contact with its dealers in order to spot warning signs at an early stage and be able to take action. There is no single independent distributor of substantial size. Scania’s high degree of forward integration limits the risks associated with independent distributors. Production risks Scania has an integrated component manufacturing network with two geographic bases, Sweden and Brazil/ Argentina. This concentration entails some risk, which is nevertheless offset by the fact that the company’s uniform global production system enables it to source components from either area. According to the Scania Contingency Planning Principles, Scania’s ability to maintain delivery assurance to its customers must not be adversely affected. Scania has a shared risk management model, the Business Interruption Study, with corporate-level responsibility for coordination and support to line management. This model is continuously being refined and also takes into account the effects of suppliers on Scania’s delivery precision. Risk identification and contingency planning are part of every manager’s responsibilities and include contingency planning adapted to each operating unit. Training and drills occur with all employees and service providers at Scania’s facilities. Follow-up occurs by means of monitoring systems, reporting and response procedures. Scania’s Blue Rating Fire Safety system is a standardi- sed method for carrying out risk inspections, with a focus on physical risks and for being able to present Scania’s risks in the reinsurance market. Yearly risk inspections are conducted at all production units and numerous Scaniaowned distributors/workshops. Scania’s Blue Rating Health and Work Environment system is a method Scania uses to evaluate and develop health and working environment, so that Scania can gradually improve the working environment in its operations. Inspections have been conducted at all major production units. See also the Sustainability Report, pages 32–45. Information risks For Scania, it is crucial that its operations can share and process information in a flexible and reliable way, both within the company and in collaboration with customers, suppliers and other business partners. The main risks to information management are that: ■ Interruptions occur in critical information systems, regardless of cause ■ Strategic and other sensitive information is revealed to unauthorised persons ■ Strategic and other sensitive information is intentionally or unintentionally changed or corrupted Scania has a corporate unit for global IS/IT management and coordination, which is responsible for implementation and follow-up of Scania’s information security policy. As part of their normal responsibilities, managers monitor the risks and security level in their respective area of responsibility and ensure that all employees are aware of their responsibilities in this respect. Follow-up occurs by means of both internal monitoring and monitoring performed by third parties. Supplier risks Before signing new contracts, Scania verifies the ability of suppliers to meet Scania’s quality, financial, logistic, environmental and ethical requirements. In order to minimise the impact of production interruptions or financial problems among suppliers, Scania normally works with more than one supplier for each item. Scania continuously safeguards the quality and deli- very precision of purchased items. It carries out day-today monitoring, then prioritises and classifies deviations. In case of repeated deviations, an escalation model is used in order to create greater focus and quickly restore a normal situation. Through Scania’s Business Interruption Study risk management model, the risks that may adversely affect the continuity of Scania’s production are identified and managed. The Scania Blue Rating Fire Safety system has been used in order to conduct risk inspections of selected suppliers. Fluctuations in the world’s financial markets also risk affecting Scania’s suppliers to a greater or lesser degree. The financial status of suppliers is monitored continuously. <a href="/v5/viewer/files/Default_s.aspx?gKey=tqcxr73s&gInitPage=53">Scania Annual Report 2008 Sida 53 51 Environmental</a> risks At Scania there are procedures for regularly and systematically identifying and assessing environmental risks. Strategic environmental risk management is integrated with other business development risk management (see page 49). Operational environmental risk management is also coordinated with other risk management and is mainly intended to prevent accidents, operational abnormalities and soil pollution. Orientation studies and risk assessments of soil and groundwater contamination have been completed at all production units. Based on these inventories, risk areas have been identified and the necessary actions have been taken or initiated. Scania’s Blue Rating Environment system is a method for evaluating and developing environmental work so that Scania can, in an effective way, gradually improve its ability to avoid environmental risks. See also the Sustainability Report, pages 32–45. Human resource and talent recruitment For its future success, Scania is dependent on its ability to attract and retain competent, motivated employees. Human resource and talent development occur with the help of a coordinated methodology. In this way, Scania achieves quality assurance and continuous improvement in its human resource activities. Trends are continuously monitored, for example by using key figures for healthy attendance, employee turnover, age structure, and professional job satisfaction and development dialogues. Targeted action is taken as needed. Close collaboration with various universities and institutes of technology makes it easier for Scania to recruit key technological expertise. Research and development risks Research and product development occur in close contact with the production network and the sales and service organisation to effectively safeguard high quality. Emission legislation Scania must meet regulatory requirements in order to sell its products. These requirements may range from minor modifications to demands for an overall reduction in the environmental impact of vehicle use, especially emissions. Whereas product modifications are often relatively simple and intended for local markets, the technical standards in emission legislation are very complicated and common to whole regions. Scania’s ability to meet future emission requirements is of great importance to its future. Today there are two technologies for limiting exhaust emissions: selective catalytic reduction (SCR) and exhaust gas recirculation (EGR). Since both technologies are undergoing continuous refinements, their future limitations are difficult to predict. Scania has decided to develop both technologies in order to reduce risks and have the greatest possible flexibility. Another advantage of this choice is that the two technologies can be combined and thereby contribute to even lower environmental impact. Product launch risks Political decisions aimed at influencing the vehicle market in a given direction − for example, for environmental reasons − by such means as tax cuts and levies as well as regional environmental zoning rules may lead to rapid changes in demand. This may require acceleration of product introductions and increases in research and development resources at an earlier stage. Scania manages this by integrating its business intelligence work into all its development and introduction projects. Throughout the development period, work occurs on a cross-functional basis to ensure that the results of business intelligence gathered by all units are taken into account and that Scania establishes the right priorities in its development portfolio. The product launch process includes carrying out risk analyses on a number of occasions in order to manage this type of risk. Product liability It is Scania’s objective to develop products that are reliable and safe to the user, the general public and the environment. However, if a product should show signs of technical shortcomings that might be harmful to people or property, that is dealt with by the Scania Product Liability Council. This body decides what technical solutions should be used in order to solve the problem and what marketing measures are needed. The Product Liability Council also conducts a review of the processes in question to ensure that the problem does not recur. Risks in the sales and service network Repair and maintenance contracts comprise one important element of business at dealerships and help to generate good capacity utilisation at workshops and higher parts sales per vehicle. These contracts are often connected to predetermined prices. Thus both price and handling risks arise. One advanced form of business ob- >> <a href="/v5/viewer/files/Default_s.aspx?gKey=tqcxr73s&gInitPage=54">Scania Annual Report 2008 Sida 54 52 RISKS AND RIS</a> K mANAGEmENT >> ligation is an uptime guarantee for a vehicle, in which the customer pays for the distance or time it is used. Scania works actively to improve its dealers’ expertise and ability to understand their customers’ business as well as to assess the risks of these obligations. As a result of repurchase guarantees and trade-ins, the sales and service network handles a large volume of used trucks and buses. Prices and sales figures may vary substantially over economic cycles. However, due to Scania’s high degree of integration into its dealership network, the company has extensive knowledge about the price situation and price variations. Dealers assume a credit risk in relation to their custo- mers, mainly for workshop services performed and parts sold. However, the customer base is widely dispersed and each invoice is limited. Each individual credit is thus of limited size. Insurable risks Scania works continuously with the identification, analysis and administration of insurable risks, both at Group and local level. A corporate unit is responsible for the Group’s global insurance portfolio. Customary Group insurance policies to protect the Group’s goods shipments, assets and obligations are arranged in accordance with Scania’s Corporate Governance Manual and Finance Policy. Local insurance policies are obtained in accordance with the laws and standards of the country in question. When needed, Scania receives assistance from outside insurance consultancy companies in identifying and managing risks. Insurance is obtained only from professional insurance companies, whose financial strength is continuously monitored. Risk inspections, mainly focusing on physical risks, are performed yearly in most cases at all production units and at numerous Scania-owned distributors/workshops according to the standardised Scania Blue Rating Fire Safety system. This work maintains a high claim prevention level and a low incidence of claims. LEGAL RISKS Contracts and rights Scania’s operations include a considerable amount of intangible licensing agreements, patents and other intellectual property. Scania also concludes numerous commercial and financial contracts, which is normal for a company of Scania’s scale and type. Scania’s operations are not dependent on any single commercial or financial contract, patent, licensing agreement or similar right. Legal actions Scania is affected by numerous legal proceedings as a consequence of the company’s operating activities. This includes alleged breaches of contract, non-delivery of goods or services, product liability, patent infringement or infringements related to other intellectual property or other allegations. However, neither Scania nor any of its subsidiaries is affected by any legal action or arbitration proceeding or has been informed of any claim that is deemed capable of materially affecting Scania’s financial position. Administration of contracts, essential rights, legal risks and risk reporting Administration of contracts, essential rights and legal risks occurs in the normal course of operations in accordance with the instructions described in Scania’s Corporate Governance Report (see pages 53-58). Scania has also introduced a Legal Risk Reporting system, according to which risks are defined and reported. At least once a year, a report on such risks is submitted to the Audit Committee of the Board. Tax risk Scania and its subsidiaries are the object of a large number of tax cases, as a consequence of the company’s operating activities. These cases are essentially related to the fields of value-added tax, internal pricing and deduction of foreign tax. For more information, see also Note 8 on page 87. None of these cases is deemed capable of resulting in any claim that would substantially affect Scania’s financial position. Tax risks above a certain level are reported regularly to management. Once a year, a report is submitted to the Audit Committee of the Board. FINANCIAL RISKS Beyond business risks, Scania is exposed to various financial risks. Those that are of the greatest importance are currency, interest rate, refinancing and credit risks. Financial risks are managed in accordance with the Financial Policy adopted by Scania’s Board of Directors. See also the “Financial review” on page 64 and Note 30 on page 112. <a href="/v5/viewer/files/Default_s.aspx?gKey=tqcxr73s&gInitPage=55">Scania Annual Report 2008 Corporate Governance Rep</a> ort CORPORATE GOVERNANCE REPORT Corporate governance at Scania Corporate governance at Scania is based on Swedish legislation, especially the Swedish Companies Act, the rule book for issuers at the NASDAQ OMX Nordic Exchange Stockholm (“Stockholm Stock Exchange”) and the Swedish Code of Corporate Governance (“the Code”). Scania’s ambition is that its corporate governance shall maintain a high international standard through the clarity and simplicity of its management systems and governing documents. This Corporate Governance Report has not been subjected to review by Scania’s auditors. Internal governing documents The most important governing documents at Scania are: ■ Scania’s Articles of Association (reproduced on page 48) ■ The Rules of Procedure of the Board of Directors, including the Board’s instruction to the President and CEO and guidelines for essential reporting processes at Scania ■ The Rules of Procedure of the Audit Committee ■ How Scania is Managed ■ Strategic Update ■ Corporate Governance Manual ■ Scania Financial Manual ■ Communication Policy Application and deviations This Corporate Governance Report has been prepared in compliance with the Swedish Code of Corporate Governance. Companies that apply the Code may deviate from individual rules but, in such cases, must issue explanations reporting the reasons for each deviation. Scania complies with the Code in 2008 without exceptions. The Annual GeneralMeeting The right of shareholders to make decisions on Scania’s affairs is exercised at the Annual General Meeting (AGM). All shareholders in Scania are entitled to have an item dealt with at the AGM. At the AGM, each Series A share represents one vote and each Series B share one tenth of a vote. Scania’s share capital is divided into 400 million A shares and 400 million B shares. According to the Swedish Companies Act, within six months of the expiry of each financial year, Swedish limited liability companies shall hold a general meeting of shareholders, where the Board of Directors shall present the Annual Report and the Auditors’ Report. This shareholder meeting is called the Annual General Meeting. At Scania, the AGM is normally held during April or May. Notice convening the AGM shall be issued no earlier than six and no later than four weeks before the Meeting. Notice convening an Extraordinary General Meeting (EGM) shall be issued no earlier than six and no later than two weeks before the Meeting. Notice convening an AGM and an EGM is published on Scania’s website, in the Swedish national newspapers Dagens Nyheter and Svenska Dagbladet as well as in the official gazette Postoch Inrikes Tidningar (www.bolagsverket.se). In order to have an item dealt with at the AGM, a shareholder must submit it in writing to the Board early enough that the item can be included in the notice convening the Meeting. In addition, at the AGM, shareholders have the opportunity to ask questions about the company and its results for the year in question. Normally all members of the Board, the corporate management and the auditors are present in order to answer such questions. In order to participate in decisions, a shareholder is required to attend the AGM, in person or represented by proxy. The shareholder is also required to be recorded in the shareholder list by a certain date before the AGM and to notify the company according to certain procedures. In accordance with the Swedish Companies Act and Scania’s Articles of Association, the composition of the Board is decided by election. Decisions at the AGM are usually made by simple majority. In some cases, however, the Swedish Companies Act or the Articles of Association stipulates either a certain level of attendance in order to reach a quorum or a qualified majority of votes. A shareholder may utilise all votes that correspond to the shareholder’s shareholding and that are duly represented at the AGM. The minutes of the AGM are published on Scania’s website. Information about rules and practices at the annual general meetings of companies listed on the Stockholm Stock Exchange and about other aspects of Swedish corporate governance is available on the Scania website, www.scania.com. This information is found under Corporate Governance, labelled “Special Features of Swedish Corporate Governance”. >> 53 CORPORATE GOVERNANCE REPORT Corporate governance at Scania Corporate governance at Scania is based on Swedish legislation, especially the Swedish Companies Act, the rule book for issuers at the NASDAQ OMX Nordic Exchange Stockholm (“Stockholm Stock Exchange”) and the Swedish Code of Corporate Governance (“the Code”). Scania’s ambition is that its corporate governance shall maintain a high international standard through the clarity and simplicity of its management systems and governing documents. This Corporate Governance Report has not been subjected to review by Scania’s auditors. Internal governing documents The most important governing documents at Scania are: ■ Scania’s Articles of Association (reproduced on page 48) ■ The Rules of Procedure of the Board of Directors, including the Board’s instruction to the President and CEO and guidelines for essential reporting processes at Scania ■ The Rules of Procedure of the Audit Committee ■ How Scania is Managed ■ Strategic Update ■ Corporate Governance Manual ■ Scania Financial Manual ■ Communication Policy Application and deviations This Corporate Governance Report has been prepared in compliance with the Swedish Code of Corporate Governance. Companies that apply the Code may deviate from individual rules but, in such cases, must issue explanations reporting the reasons for each deviation. Scania complies with the Code in 2008 without exceptions. The Annual GeneralMeeting The right of shareholders to make decisions on Scania’s affairs is exercised at the Annual General Meeting (AGM). All shareholders in Scania are entitled to have an item dealt with at the AGM. At the AGM, each Series A share represents one vote and each Series B share one tenth of a vote. Scania’s share capital is divided into 400 million A shares and 400 million B shares. According to the Swedish Companies Act, within six months of the expiry of each financial year, Swedish limited liability companies shall hold a general meeting of shareholders, where the Board of Directors shall present the Annual Report and the Auditors’ Report. This shareholder meeting is called the Annual General Meeting. At Scania, the AGM is normally held during April or May. Notice convening the AGM shall be issued no earlier than six and no later than four weeks before the Meeting. Notice convening an Extraordinary General Meeting (EGM) shall be issued no earlier than six and no later than two weeks before the Meeting. Notice convening an AGM and an EGM is published on Scania’s website, in the Swedish national newspapers Dagens Nyheter and Svenska Dagbladet as well as in the official gazette Postoch Inrikes Tidningar (www.bolagsverket.se). In order to have an item dealt with at the AGM, a shareholder must submit it in writing to the Board early enough that the item can be included in the notice convening the Meeting. In addition, at the AGM, shareholders have the opportunity to ask questions about the company and its results for the year in question. Normally all members of the Board, the corporate management and the auditors are present in order to answer such questions. In order to participate in decisions, a shareholder is required to attend the AGM, in person or represented by proxy. The shareholder is also required to be recorded in the shareholder list by a certain date before the AGM and to notify the company according to certain procedures. In accordance with the Swedish Companies Act and Scania’s Articles of Association, the composition of the Board is decided by election. Decisions at the AGM are usually made by simple majority. In some cases, however, the Swedish Companies Act or the Articles of Association stipulates either a certain level of attendance in order to reach a quorum or a qualified majority of votes. A shareholder may utilise all votes that correspond to the shareholder’s shareholding and that are duly represented at the AGM. The minutes of the AGM are published on Scania’s website. Information about rules and practices at the annual general meetings of companies listed on the Stockholm Stock Exchange and about other aspects of Swedish corporate governance is available on the Scania website, www.scania.com. This information is found under Corporate Governance, labelled “Special Features of Swedish Corporate Governance”. >> 53 <a href="/v5/viewer/files/Default_s.aspx?gKey=tqcxr73s&gInitPage=56">Scania Annual Report 2008 Sida 56 54 CORPORATE GOV</a> ERNANCE REPORT >> The Nomination Committee The main task of the Nomination Committee is to propose candidates to the AGM for election to the Board of Directors and as Chairman of the Board and, as required − in consultation with the Board’s Audit Committee − to propose candidates for election as auditors. Beyond this, the Nomination Committee works out proposals concerning the chairman at the AGM, remuneration to the Board and its committees and remuneration to the auditors. It also assesses the independence of Board members in relation to the company and its major shareholders. In 2008 the AGM decided that the members of the Nomination Committee shall be appointed by the three largest shareholders in voting power that are identifiable no later than six months before the AGM. In preparation for the AGM in 2009, the following persons have served on the company’s Nomination Committee: Gudrun Letzel, representing Volkswagen AG, Chairman Michael Fontaine, representing MAN AG Mats Lagerqvist, representing the Swedbank Robur mutual funds The members of the Nomination Committee receive no compensation from the company. THE BOARD OF DIRECTORS Scania’s Board of Directors is elected every year by the shareholders at the AGM. The Board is the link between the shareholders and the company’s management. It is of great importance in the task of developing Scania’s strategy and business operations. According to the Articles of Association, the Board shall consist of a minimum of three and a maximum of ten members plus a maximum of two deputy members, besides those Board members who are appointed according to Swedish law by any other than the AGM. The members are elected each year at the AGM for the period up to the end of the next AGM. On 5 May 2008, Scania’s AGM elected ten Board members and no deputy members. They are: Helmut Aurenz Staffan Bohman Peggy Bruzelius Börje Ekholm Gunnar Larsson Francisco J. Garcia Sanz Hans Dieter Pötsch Peter Wallenberg Jr MartinWinterkorn Leif Östling The Nomination Committee’s assessment of elected Board members’ independence according to the Swedish Code of Corporate Governance and the rules of the Stockholm Stock Exchange Audit Board member Helmut Aurenz Staffan Bohman, Vice Chairman Peggy Bruzelius Börje Ekholm Gunnar Larsson Francisco J. Garcia Sanz Hans Dieter Pötsch Peter Wallenberg Jr Martin Winterkorn, Chairman Leif Östling X X X X committee Remuneration committee Independent in relation to the company and its management YES X X YES YES YES YES YES YES YES YES NO Independent in relation to the company’s major shareholders YES YES YES YES YES NO NO YES NO YES <a href="/v5/viewer/files/Default_s.aspx?gKey=tqcxr73s&gInitPage=57">Scania Annual Report 2008 Sida 57 55 The AGM elect</a> ed Martin Winterkorn as Chairman and Staffan Bohman as Vice Chairman. In addition, the trade unions at Scania have appointed two Board members and two deputy members for them. They are: Johan Järvklo Håkan Thurfjell Mikael Johansson, deputy member Stefan U. Klingberg, deputy member The work of the Board The statutory Board meeting, which is held directly after the AGM, approves Rules of Procedure and a standing agenda for the Board meetings and, as required, rules of procedure for its committees. According to its Rules of Procedure, the Board shall hold at least six regular meetings each year. Beyond this, the Board meets when there are special needs. The meetings held in January/February, April/May, July/August and October/November are devoted, among other things, to financial reporting from the company. The meeting held in October/November deals with long-term plans and in December with the financial forecast for the following year. At all its regular meetings, the Board deals with matters of a current nature and capital expenditure issues. During 2008, the Board held a total of eight meetings. The committees report their work to the Board on a continuous basis. The Board also regularly discusses various aspects of the company’s operations, for example management recruitment, financing, product development and market issues. This occurs at in-depth briefings where affected managers from the company participate. Board members’ attendance at Board meetings can be seen in the adjacent table. The instruction of the Board to Scania’s President and CEO specifies his duties and powers. This instruction includes guidelines on capital expenditures, financing, financial reporting and external communications. According to the Swedish Companies Act, the President may be elected as a member of the Board, which is currently the case. The company’s President and CEO, Leif Östling, is the only member of the Board who also belongs to Scania’s operative management. Remuneration to the Board Compensation to the members of the Board is determined by the AGM and is paid to those members who are not Board meetings, 2008 Board member Helmut Aurenz 1 Staffan Bohman Peggy Bruzelius Börje Ekholm Gunnar Larsson 1 Hans Dieter Pötsch Francisco J. Garcia Sanz Peter Wallenberg Jr Martin Winterkorn Leif Östling Johan Järvklo Håkan Thurfjell 2 Mikael Johansson 2 Stefan U. Klingberg Attendance out of 8 meetings in all 4 7 7 8 5 8 7 8 6 8 8 4 4 8 1 Newly elected at the AGM in 2008. 2 Appointed by Scania’s trade unions before the AGM in 2008. Since the AGM there have been five Board meetings. employees of Scania. The remuneration decided by the AGM is reported in Note 28 of the Annual Report, Compensation to executive officers. Evaluation of thework of the Board A written evaluation is performed annually, in which all Board members are given the opportunity to present their opinions about the Board, including the Chairman, and its work. The President and CEO is evaluated on a continuous basis by the Board. Once a year, the Board also carries out an evaluation of the President and CEO in which he does not participate. The committees of the Board The Board currently has two committees: the Audit Committee and the Remuneration Committee. The Board appoints the members of the committees from among its own members. >> <a href="/v5/viewer/files/Default_s.aspx?gKey=tqcxr73s&gInitPage=58">Scania Annual Report 2008 Sida 58 56 CORPORATE GOV</a> ERNANCE REPORT >> The Audit Committee The Audit Committee consists of Staffan Bohman (Chairman), Hans Dieter Pötsch and Gunnar Larsson, who replaced Vito H. Baumgartner at the Board meeting after the AGM in 2008. During 2008 the Audit Committee met a total of six times. All members participated in all meetings through attendance after becoming members of the Audit Committee. The Audit Committee discusses and monitors issues related to administrative processes, risk control and the controller organisation. Its brief also includes discussing and evaluating the company’s application of important accounting issues and principles and the company’s financial reporting, as well as evaluating the auditors and approving the use of external auditors for non-auditingrelated services.When auditors are to be elected, the Audit Committee presents a proposal. The results of the evaluation of auditors and, in case of the election of auditors, the proposal of the Audit Committee are presented to the Board as a whole. As appropriate, the Board in turn informs the Nomination Committee. The Nomination Committee proposes candidates to the AGM for election as auditors and proposes the compensation to be paid to the auditors. The Audit Committee shall also receive and discuss complaints concerning accounting, internal controls or auditing in the company. The company’s auditors normally participate in the meetings of the Audit Committee, provided that the auditors are not being evaluated or discussed. The Remuneration Committee The Remuneration Committee consists of Martin Winterkorn (Chairman), Peggy Bruzelius and Francisco J. Garcia Sanz, who replaced Börje Ekholm at the Board meeting after the AGM in 2008. During 2008, the Remuneration Committee met twice. All members participated in all meetings through attendance, except Francisco J. Garcia Sanz, who participated in one meeting. The Remuneration Committee discusses issues con- cerning compensation principles and incentive programmes, as well as preparing proposals for such issues that must be approved by the AGM. In compliance with the principles that the AGM has approved for the Board, the Remuneration Committee also prepares decisions concerning conditions of employment for the company’s President and CEO and, as appropriate, its Executive Vice Presidents. Auditors In Swedish limited liability companies, independent auditors are elected by the shareholders at the AGM, normally for a period of four years. The auditors then report to the shareholders at the company’s AGM. To ensure that the requirements concerning informa- tion and controls that are incumbent on the Board are being met, the auditors report on a continuous basis to the Audit Committee on all substantive accounting issues, any errors and suspected irregularities. The auditors are also invited, as needed, to participate in and report to the meetings of the Board. At least once per year, the auditors report to the Audit Committee without the President and CEO or any other member of the company’s operative management being present at the meeting. The auditors have no assignments for companies that affect their independence as auditors for Scania. Scania paid its auditors the fees (including compensa- tion for costs) that are stated in the Annual Report, Note 29, Fees and other remuneration to auditors, for both audit-related and non-audit-related assignments. Themanagement of the company Under the Board of Directors, the President and CEO has overall responsibility for the Scania Group. At the side of the President and CEO is the Executive Board, which jointly decides − in compliance with guidelines approved by the Board and the instruction on the division of labour between the President and CEO and the Board − on issues in its area of competency that are of a long-term, strategic nature, such as the development of the company, research and development, environmental work, marketing, pricing policy, capital expenditures and financing. The Executive Board also prepares such issues that shall be decided by the Board of Directors. The corporate units are responsible for carrying out the established strategies. Each corporate unit reports to one of the members of the Executive Board. The strategy meetings of the Executive Board take place four to six times per year. These strategies are summarised from a global perspective and updated, taking into account market developments. The implementation of strategies is an initial agenda item at subsequent meetings between the Executive Board and the heads of corporate units. The heads of corporate units are responsible to the Executive Board for ensuring that the appropriate actions are taken in their respective fields of responsibility based <a href="/v5/viewer/files/Default_s.aspx?gKey=tqcxr73s&gInitPage=59">Scania Annual Report 2008 Sida 59 57 on the strate</a> gies that have been decided. The heads of corporate units also have a general responsibility for issues that affect the entire company, and they assist the President and CEO and the Executive Board in their work. The Executive Board and the heads of corporate units meet four to six times per year to provide updates and information on current activities and projects, as well as to discuss the implementation of strategic decisions. These meetings also deal with issues that may later be presented for decision at the meetings of the Executive Board. The members of the Executive Board and most of the heads of corporate units who are not prevented by other obligations also gather at a brief meeting once each normal work week. The decision-making structure and management of Scania are described in greater detail in the internal governing document “How Scania is Managed”. All managers in the company are responsible for working and communicating in compliance with the company’s strategies. The strategic direction of the Scania Group is described in the annually updated “Strategic Update”. This internal governing document serves as the foundation for business and operating plans. The companies in the Scania Group also work in compliance with the principles established in Scania’s “Corporate Governance Manual”. The main responsibility for the operations of subsidiaries, ensuring that the established profitability targets are achieved and that all of Scania’s internal rules and principles are followed, rests with the Board of Directors of each respective subsidiary. The principles and rules presented in the governing document “Scania Financial Manual” also apply to the Scania Group as a whole. Financial, commercial, legal and tax risks are reported regularly to the Audit Committee. Management compensation Compensation issues for the President and CEO and, as appropriate, Group Vice Presidents, are decided by the Board after preparation by its Remuneration Committee. The principles for compensation to executive officers are decided by the AGM, based on a proposal by the Board. The proposal is prepared by the Remuneration Committee. Share-related incentive programmes are decided by the AGM. Compensation to executive officers, including the President and CEO and the Executive Board, is stated in the Annual Report, Note 28, ”Compensation to executive officers”. Note 28 of the Annual Report for 2008 also states the compensation to the heads of corporate units. Internal control of financial reporting at Scania The description below has been prepared in compliance with the Swedish Code of Corporate Governance and according to the instruction issued by the Swedish Corporate Governing Board in July 2008. The cornerstones of Scania’s internal control system consist of the control environment, risk assessment, control activities, information and communication as well as monitoring. Control environment Internal control at Scania is based on the decisions on organisational structure, powers and guidelines made by the Board of Directors. The Board’s decisions have been transformed into functioning management and control systems by the Executive Board. Organisational structure, decision-making procedures, powers and responsibilities are documented and communicated in governing documents, such as internal policies, manuals and codes. Also included in the basis for internal control are Group-wide accounting and reporting instructions, instructions regarding powers and authorisation rights as well as manuals. The Group reporting system for integrated financial and operational information is another central element of the control environment and internal control. Integrated reporting of financial and operational information ensures that external financial reporting is firmly based on business operations. In addition to information on final outcome figures, the reporting system also includes quarterly moving forecast information. The Finance and Business Control unit is responsible for continuous updating of accounting and reporting instructions, with due regard for external and internal requirements. Risk assessment and control activities Risk management and risk assessment are an integral element of the business management and decision-making processes. Risk areas identified in financial reporting are handled and scrutinised via Scania’s controller organisation. The controller organisation, like financial responsibility, follows the company’s organisational and responsibility structure. Controllers who closely scrutinise business >> <a href="/v5/viewer/files/Default_s.aspx?gKey=tqcxr73s&gInitPage=60">Scania Annual Report 2008 Sida 60 58 CORPORATE GOV</a> ERNANCE REPORT >> operations are found at all levels of the organisation. Clear reporting to higher levels takes place regularly, ensuring a solid understanding of how a unit’s business operations are reflected in the figures. In its task of compiling, verifying and analysing financial information, the corporatelevel controller organisation has access to the figures and business-related comments of all operational units. Information and communication In order to inform, instruct and coordinate financial reporting, Scania has formal information and communications channels to employees concerned regarding policies, guidelines and reporting manuals. These formal information and communications channels are supplemented by frequent dialogue between Finance and Business Control and the individuals in charge of financial reporting at operational units. The Group holds internal seminars and conferences regularly, with a focus on quality assurance in financial reporting and governance models. Monitoring Scania monitors compliance with the above-described governing documents and the effectiveness of the control structure. Monitoring and evaluation are performed by the company’s corporate controller departments in industrial operations, all sales and service companies and finance companies. During the 2008 financial year, in its control and investigative activities the company prioritised areas and processes with large flows and values as well as selected operational risks. Monitoring compliance with the Scania Corporate Governance Manual and Scania Financial Manual remained high priority areas, along with units undergoing changes. In preparation for every meeting, the Audit Commit- tee of the Board of Directors receives an internal control report for review. This report is prepared by Group Internal Audit, whose task is to monitor and review internal control of the company’s financial reporting. The independence of the unit is ensured by its reporting to the Audit Committee. Functionally, the unit reports to the Chief Financial Officer of Scania. The Board receives monthly financial reports, except for January and July. This financial information increases in terms of content in the run-up to each interim report, which is always preceded by a Board meeting where the Board approves the report. Through the organisational structure and the work methods described above, the company deems the internal control system concerning financial reporting well suited to the company’s operations. Scania’s Corporate Governance Report is available at www.scania.com under Corporate Governance and is updated regularly. <a href="/v5/viewer/files/Default_s.aspx?gKey=tqcxr73s&gInitPage=61">Scania Annual Report 2008 Sida 61 Board of Directo</a> rs, Executive Board and Corporate Units AUDITORS: Ernst & Young AB, Lars Träff <a href="/v5/viewer/files/Default_s.aspx?gKey=tqcxr73s&gInitPage=62">Scania Annual Report 2008 Board of Directors 60 BO</a> ARD OF DIRECTORS Board of Directors MARTINWINTERKORN Born 1947. Chairman of the Board since 2007. Chairman, Remuneration Committee. Other directorships: Chairman of the Board of Management, Volkswagen AG. Chairman or Board member of a number of subsidiaries of the Volkswagen Group. Board member of FC Bayern München AG, Infineon Technologies AG, Salzgitter AG and TÜV SÜD AG. Relevant work experience: Chairman of the Board of Management, Volkswagen AG; member, Board of Management, Volkswagen AG; responsible for Group Research and Development, Volkswagen AG; Chairman of the Board of Management of the Volkswagen Brand. Education: Prof. Dr. rer. nat. Shares in Scania: 0. LEIF ÖSTLING Born 1945. Member since 1994. President and CEO of Scania. Other directorships: Chairman of AB SKF, Vice Chairman of ISS A/S. Board member, Confederation of Swedish Enterprise and Association of Swedish Engineering Industries. Relevant work experience: Various management positions at Scania since 1972, President and CEO of Scania since 1994. Education: MBA and MSc. Shares in Scania: 540,000 plus 160,000 via related companies. HELMUT AURENz Born 1937. Member since 2008. Other directorships: Member of various boards and advisory boards, among them the advisory assemblies for Baden-Württembergische Bank, Landeskreditbank Baden-Württemberg, Landesbank Baden-Württemberg and Germany’s MMC Marsh & McLennan. Member of the World Economic Forum in Geneva. Independent Board member of Audi AG and Automobili Lamborghini Holding Spa. Relevant work experience: Started in 1958 a now-sizeable garden and fertiliser products business in the ASB Group in Ludwigsburg, Germany. Education: Apprenticeship in Horticulture, entrepreneur. Shares in Scania: 0. PEGGY BRUzELIUS Born 1949. Member since 1998. Member, Remuneration Committee. Other directorships: Chairman of Lancelot Asset Management AB. Deputy Chairman of Electrolux AB. Board member of Industry and Commerce Stock Exchange Committee, Stockholm School of Economics, Axel Johnson AB, Axfood AB, Syngenta AG, Husqvarna AB and Akzo Nobel N.V.; Chairman, Swedish National Agency for Higher Education. Relevant work experience: Various management positions at ABB. Education: MBA. Shares in Scania: 8,000. HANS DIETER PÖTSCH Born 1951. Member since 2007. Member, Audit Committee. Other directorships: Member of the Board of Management, Volkswagen AG; responsible for Finance and Controlling, Volkswagen AG. Chairman or Board member of several companies in the Volkswagen Group. Board member of Allianz Versicherungs-AG. Chairman of Bizerba GmbH und Co KG. Relevant work experience: Various positions at BMW, General Manager for Finance and Administration at Trumpf GmbH & Co; Chairman of the Board of Management, DÜRR AG. Various management positions at Volkswagen AG. Education: MSc. Shares in Scania: 0. GUNNAR LARSSON Born 1942. Member since 2008. Member, Audit Committee. Other directorships: Member of the Royal Swedish Academy of Engineering Sciences (IVA) since 1997. Relevant work experience: Held executive management positions for product development departments from 1981 to 1996 at Saab-Scania AB, Volvo Car Corporation, Audi AG and Volkswagen AG. Running an international consultancy for clients in the vehicle industry since 1996. Education: MSc. Shares in Scania: 0. 60 BOARD OF DIRECTORS Board of Directors MARTINWINTERKORN Born 1947. Chairman of the Board since 2007. Chairman, Remuneration Committee. Other directorships: Chairman of the Board of Management, Volkswagen AG. Chairman or Board member of a number of subsidiaries of the Volkswagen Group. Board member of FC Bayern München AG, Infineon Technologies AG, Salzgitter AG and TÜV SÜD AG. Relevant work experience: Chairman of the Board of Management, Volkswagen AG; member, Board of Management, Volkswagen AG; responsible for Group Research and Development, Volkswagen AG; Chairman of the Board of Management of the Volkswagen Brand. Education: Prof. Dr. rer. nat. Shares in Scania: 0. LEIF ÖSTLING Born 1945. Member since 1994. President and CEO of Scania. Other directorships: Chairman of AB SKF, Vice Chairman of ISS A/S. Board member, Confederation of Swedish Enterprise and Association of Swedish Engineering Industries. Relevant work experience: Various management positions at Scania since 1972, President and CEO of Scania since 1994. Education: MBA and MSc. Shares in Scania: 540,000 plus 160,000 via related companies. HELMUT AURENz Born 1937. Member since 2008. Other directorships: Member of various boards and advisory boards, among them the advisory assemblies for Baden-Württembergische Bank, Landeskreditbank Baden-Württemberg, Landesbank Baden-Württemberg and Germany’s MMC Marsh & McLennan. Member of the World Economic Forum in Geneva. Independent Board member of Audi AG and Automobili Lamborghini Holding Spa. Relevant work experience: Started in 1958 a now-sizeable garden and fertiliser products business in the ASB Group in Ludwigsburg, Germany. Education: Apprenticeship in Horticulture, entrepreneur. Shares in Scania: 0. PEGGY BRUzELIUS Born 1949. Member since 1998. Member, Remuneration Committee. Other directorships: Chairman of Lancelot Asset Management AB. Deputy Chairman of Electrolux AB. Board member of Industry and Commerce Stock Exchange Committee, Stockholm School of Economics, Axel Johnson AB, Axfood AB, Syngenta AG, Husqvarna AB and Akzo Nobel N.V.; Chairman, Swedish National Agency for Higher Education. Relevant work experience: Various management positions at ABB. Education: MBA. Shares in Scania: 8,000. HANS DIETER PÖTSCH Born 1951. Member since 2007. Member, Audit Committee. Other directorships: Member of the Board of Management, Volkswagen AG; responsible for Finance and Controlling, Volkswagen AG. Chairman or Board member of several companies in the Volkswagen Group. Board member of Allianz Versicherungs-AG. Chairman of Bizerba GmbH und Co KG. Relevant work experience: Various positions at BMW, General Manager for Finance and Administration at Trumpf GmbH & Co; Chairman of the Board of Management, DÜRR AG. Various management positions at Volkswagen AG. Education: MSc. Shares in Scania: 0. GUNNAR LARSSON Born 1942. Member since 2008. Member, Audit Committee. Other directorships: Member of the Royal Swedish Academy of Engineering Sciences (IVA) since 1997. Relevant work experience: Held executive management positions for product development departments from 1981 to 1996 at Saab-Scania AB, Volvo Car Corporation, Audi AG and Volkswagen AG. Running an international consultancy for clients in the vehicle industry since 1996. Education: MSc. Shares in Scania: 0. <a href="/v5/viewer/files/Default_s.aspx?gKey=tqcxr73s&gInitPage=63">Scania Annual Report 2008 Sida 63 61 PETERWALLENBE</a> RG JR Born 1959. Member since 2005. Other directorships: Chairman of Foundation Asset Management Sweden AB, the Grand Group AB and the Marcus and Amalia Wallenberg Foundation. Vice Chairman of the Royal Swedish Automobile Club, the Knut and Alice Wallenberg Foundation and the Stockholm Chamber of Commerce. Board member of Investor AB, SEB Kort AB, General Motors Norden AB, Stockholmsmässan AB, Stockholm Chamber of Commerce and SimBin Studios AB. Relevant work experience: Various positions at Grand Hôtel. Education: MBA. Shares in Scania: 6,000. FRANCISCO J. GARCIA SANz Born 1957. Member since 2007. Other directorships: Member of the Board of Management, Volkswagen AG. Globally responsible for Supply at Volkswagen AG. Board member of several companies in the Volkswagen Group. Relevant work experience: Various positions at Adam Opel AG, various management positions at GM and Volkswagen AG. Education: MSc. Shares in Scania: 0. BÖRJE EKHOLM Born 1963. Member since 2007. Other directorships: Board member of Chalmersinvest AB, Husqvarna, Investor AB, KTH Holding AB, Royal Institute of Technology and Telefonaktiebolaget LM Ericsson. Relevant work experience: McKinsey & Company; President of Novare Kapital, 1995-1997; various positions at Investor AB, 1992-1995, returned to Investor AB in 1997, President and CEO since 2005. Education: MSc and MBA. Shares in Scania: 2,000. STAFFAN BOHMAN Born 1949. Member since 2005. Vice Chairman since 2008. Chairman, Audit Committee. Other directorships: Board member of Atlas Copco AB, Boliden AB, Trelleborg AB, OSM AB, InterIKEA Holding SA and Ratos AB. Vice Chairman of EDB Business partner ASA. Relevant work experience: Former CEO of DeLaval AB, Gränges AB and Sapa AB. Education: MBA. Shares in Scania: 30,000. STEFAN U. KLINGBERG Born 1969. Deputy member since 2006. Representative of the Federation of Salaried Employees in Industry and Services at Scania (PTK). Relevant work experience: Various positions at Scania since 1995, current position Head of Services Portfolio and Contracts, Sales & Services Management. Shares in Scania: 0. HåKAN THURFJELL Born 1951. Member since 2008. Representative of the Federation of Salaried Employees in Industry and Services (PTK) at Scania. Relevant work experience: Various managerial positions at Scania. Shares in Scania: 0. JOHAN JäRVKLO Born 1973. Member since 2008. Previously deputy member since 2006. Representative of the Swedish Metal Workers’ Union at Scania. Relevant work experience: Various positions at Scania. Shares in Scania: 0. MIKAEL JOHANSSON Born 1963. Deputy member since 2008. Representative of the Swedish Metal Workers’ Union at Scania. Relevant work experience: Various positions at Scania. Shares in Scania: 0. <a href="/v5/viewer/files/Default_s.aspx?gKey=tqcxr73s&gInitPage=64">Scania Annual Report 2008 Executive Board and Corp</a> orate Units 62 EXECUTIVE BOARD AND CORPORATE UNITS Executive Board 1 2 3 4 5 6 1.MARTIN LUNDSTEDT Born 1967, MSc. Joined Scania in 1992. Executive Vice President, Head of Franchise and Factory Sales. Shares in Scania: 7,298. 2. URBAN ERDTMAN Born 1945, MBA. Joined Scania in 1989, employed until 2001. Rejoined Scania in 2005. Executive Vice President, Head of Sales and Services Management. Shares in Scania: 12,853. 3. LEIF ÖSTLING Born 1945, MBA and MSc. Joined Scania in 1972. President and CEO. Shares in Scania: 540,000 plus 160,000 via related companies. 4. PER HALLBERG Born 1952, MSc. Joined Scania in 1977. Executive Vice President, Head of Production and Procurement. Shares in Scania: 13,767. 5. HASSE JOHANSSON Born 1949, MSc. Joined Scania in 2001. Executive Vice President, Head of Research and Development. Shares in Scania: 15,976. 6. JAN YTTERBERG Born 1961, BSc. Joined Scania in 1987. Executive Vice President, Chief Financial Officer (CFO). Shares in Scania: 10,512. 62 EXECUTIVE BOARD AND CORPORATE UNITS Executive Board 1 2 3 4 5 6 1.MARTIN LUNDSTEDT Born 1967, MSc. Joined Scania in 1992. Executive Vice President, Head of Franchise and Factory Sales. Shares in Scania: 7,298. 2. URBAN ERDTMAN Born 1945, MBA. Joined Scania in 1989, employed until 2001. Rejoined Scania in 2005. Executive Vice President, Head of Sales and Services Management. Shares in Scania: 12,853. 3. LEIF ÖSTLING Born 1945, MBA and MSc. Joined Scania in 1972. President and CEO. Shares in Scania: 540,000 plus 160,000 via related companies. 4. PER HALLBERG Born 1952, MSc. Joined Scania in 1977. Executive Vice President, Head of Production and Procurement. Shares in Scania: 13,767. 5. HASSE JOHANSSON Born 1949, MSc. Joined Scania in 2001. Executive Vice President, Head of Research and Development. Shares in Scania: 15,976. 6. JAN YTTERBERG Born 1961, BSc. Joined Scania in 1987. Executive Vice President, Chief Financial Officer (CFO). Shares in Scania: 10,512. <a href="/v5/viewer/files/Default_s.aspx?gKey=tqcxr73s&gInitPage=65">Scania Annual Report 2008 Sida 65 63 Corporate Uni</a> ts ANDERS GRUNDSTRÖMER Born 1958. Joined Scania in 1977. Executive Regional Director, Region Western and Southern Europe (WSE). Shares in Scania: 100. ANDERS GUSTAFSSON Born 1961. Joined Scania in 1991, employed until 2001. Rejoined Scania in 2006. Senior Vice President, Sales and Services Management, Service Operations. Shares in Scania: 4,737. MAGNUS HAHN Born 1955. Joined Scania in 1985. Senior Vice President, Human Resources Support. Shares in Scania: 5,390. HENRIK HENRIKSSON Born 1970. Joined Scania in 1997. Senior Vice President, Franchise and Factory Sales, Trucks. Shares in Scania: 2,052. JONAS HOFSTEDT Born 1959. Joined Scania in 1984. Senior Vice President, Powertrain Development. Shares in Scania: 3,778 plus 48 via related parties. PETER HäRNWALL Born 1955. Joined Scania in 1983. Senior Vice President, Sales and Services Management, Business Support. Shares in Scania: 6,896. CLAES JACOBSSON Born 1958. Joined Scania in 1999. Senior Vice President, Financial Services. Shares in Scania: 6,001. MIKAEL JANSSON Born 1959. Joined Scania in 1984. Senior Vice President, Franchise and Factory Sales, Parts. Shares in Scania: 2,253 plus 64 via related parties. MELKER JERNBERG Born 1968. Joined Scania in 2002. Senior Vice President, Franchise and Factory Sales, Buses and Coaches. Shares in Scania: 2,540. THOMAS KARLSSON Born 1953. Joined Scania in 1988. Senior Vice President, Powertrain Production. Shares in Scania: 6,839. RAIMO LEHTIÖ Born 1957. Joined Scania in 2002. Executive Regional Director, Region Eastern Europe and Northern Asia (ENA) since March 2009. Shares in Scania: 0. ERIK LJUNGBERG Born 1971. Joined Scania in 1997, employed until 2006. Rejoined Scania in 2008. Senior Vice President, Corporate Relations. Shares in Scania: 0. HANS NARFSTRÖM Born 1951. Joined Scania in 1977. Senior Vice President, Corporate IT. Shares in Scania: 6,796 plus 40 via related parties. ANDERS NIELSEN Born 1962. Joined Scania in 1987. Senior Vice President, Chassis and Cab Production. Shares in Scania: 4,736. LARS OREHALL Born 1947. Joined Scania in 1974. Senior Vice President, Truck, Cab and Bus Chassis Development. Shares in Scania: 17,305. JOHAN P SCHLYTER Born 1961. Joined Scania in 1986. Executive Regional Director, Region Latin America, Southern Africa, Southeast Asia and Oceania (AAA). Shares in Scania: 0. TOMMY SJÖÖ Born 1946. Joined Scania in 1995. Senior Vice President, Vehicle Sales Support Shares in Scania: 2,054. ROBERT SOBOCKI Born 1952. Joined Scania in 1978, employed until 1997. Rejoined Scania in 2002. Senior Vice President, Franchise and Factory Sales, Scania Engines. Shares in Scania: 8,100. LARS STENqVIST Born 1967. Joined Scania in 1992. Senior Vice President, Vehicle Definition. Shares in Scania: 2,686. MIKAEL SUNDSTRÖM Born 1957. Joined Scania in 2004. Senior Vice President, Corporate Legal Affairs and Risk Management. Shares in Scania: 7,486. PER-OLOV SVEDLUND Born 1955. Joined Scania in 1976. Senior Vice President, Global Purchasing. Shares in Scania: 8,770. BENGT THORSSON Born 1964. Joined Scania in 1989. Executive Regional Director, Region Central and Northern Europe (CNE). Shares in Scania: 1,000. <a href="/v5/viewer/files/Default_s.aspx?gKey=tqcxr73s&gInitPage=66">Scania Annual Report 2008 Group financial review 6</a> 4 Group financial review Group financial review NET SALES The net sales of the Scania Group, in the Vehicles and Services segment, rose by 5 percent to SEK 88,977 m. (84,486). currency rate effects had a positive impact on sales of approximately 1 percent. new vehicle sales revenue rose by 6 percent. Sales were positively influenced by price increases. The demand for Scania’s services remained high during 2008. Service revenue rose by 8 percent in Swedish kronor to SEK 16,393 m. (15,139), primarily due to higher prices. currency rate effects had a limited impact. Interest and leasing income in the Financial Services segment rose by 17 percent due to higher financing volume. NUMBER OF VEHICLES During 2008 Scania delivered 66,516 (68,654) trucks, a decrease of 3 percent. Bus chassis deliveries totalled 7,277 (7,224) units. Vehicles delivered Vehicles and Services Trucks Buses Total new vehicles Used vehicles Financial Services Net sales by product, SEK m. Trucks Buses Engines Service-related products Used vehicles Miscellaneous Delivery sales value adjustment for lease income 1 Total Vehicles and Services Financial Services Elimination Scania Group total 2008 55,566 8,186 1,151 16,393 4,370 3,812 89,478 –501 88,977 4,772 –1,825 91,924 2007 52,599 7,429 1,185 15,139 5,270 3,840 85,462 – 976 84,486 4,070 – 1,686 86,870 1 Refers to the difference between sales value based on delivery value and sales recognised as revenue. This difference arises when Scania finances a sale with an operating lease or has an obligation to repurchase a product at a guaranteed residual value. Number financed (new during the year) Trucks Buses Total new vehicles Used vehicles new financing, SEK m. Portfolio, SEK m. 17,853 464 18,317 4,190 23,849 47,220 18,593 343 18,936 4,530 21,122 38,314 EARNINGS Scania’s operating income rose by 3 percent to SEK 12,512 m. (12,164) during 2008. Operating margin amounted to 14.1 (14.4) percent. Operating income in Vehicles and Services increased by 4 percent to SEK 12,098 m. (11,632) during 2008. The improvement was attributable to higher prices for new vehicles and for services. Reduced vehicle deliveries, lower profitability for used vehicles and to some extent higher raw material costs had a negative impact on earnings. Scania’s research and development expenditures amounted to SEK 3,955 m. (3,214). after adjusting for SEK 202 m. (289) in capitalised expenditures and SEK 475 m. (418) in amortisation of capitalised expenditures, recognised expenses increased to SEK 4,228 m. (3,343). compared to 2007, currency spot rate effects amounted to about SEK –45 m. currency hedging income amounted to SEK –210 m. During 2007, the impact of currency hedgings on earnings was SEK –130 m. The total currency rate effect was thus SEK –125 m. Operating income in Financial Services amounted to SEK 414 m. (532). This was equivalent to 1.0 (1.5) percent of the average portfolio during the year. The positive effects of portfolio growth were offset somewhat by a lower interest rate margin due to the more competitive situation in recent years. Operating income increased because of continued expansion, primarily in fast-growing markets. Bad debt expenses were also higher. The number of delayed payments rose generally during the year. Higher bad debt expenses were attributable to several markets, especially Germany. at the end of December, the size of the customer finance portfolio amounted to about SEK 47.2 billion, repre senting an increase of SEK 8.9 billion since the end of 2007. in local currencies, the portfolio increased by 14 percent, equivalent to SEK 5.5 billion. S c a n i a 20 0 8 2008 66,516 7,277 73,793 10,738 2007 68,654 7,224 75,878 15,016 64 Group financial review Group financial review NET SALES The net sales of the Scania Group, in the Vehicles and Services segment, rose by 5 percent to SEK 88,977 m. (84,486). currency rate effects had a positive impact on sales of approximately 1 percent. new vehicle sales revenue rose by 6 percent. Sales were positively influenced by price increases. The demand for Scania’s services remained high during 2008. Service revenue rose by 8 percent in Swedish kronor to SEK 16,393 m. (15,139), primarily due to higher prices. currency rate effects had a limited impact. Interest and leasing income in the Financial Services segment rose by 17 percent due to higher financing volume. NUMBER OF VEHICLES During 2008 Scania delivered 66,516 (68,654) trucks, a decrease of 3 percent. Bus chassis deliveries totalled 7,277 (7,224) units. Vehicles delivered Vehicles and Services Trucks Buses Total new vehicles Used vehicles Financial Services Net sales by product, SEK m. Trucks Buses Engines Service-related products Used vehicles Miscellaneous Delivery sales value adjustment for lease income 1 Total Vehicles and Services Financial Services Elimination Scania Group total 2008 55,566 8,186 1,151 16,393 4,370 3,812 89,478 –501 88,977 4,772 –1,825 91,924 2007 52,599 7,429 1,185 15,139 5,270 3,840 85,462 – 976 84,486 4,070 – 1,686 86,870 1 Refers to the difference between sales value based on delivery value and sales recognised as revenue. This difference arises when Scania finances a sale with an operating lease or has an obligation to repurchase a product at a guaranteed residual value. Number financed (new during the year) Trucks Buses Total new vehicles Used vehicles new financing, SEK m. Portfolio, SEK m. 17,853 464 18,317 4,190 23,849 47,220 18,593 343 18,936 4,530 21,122 38,314 EARNINGS Scania’s operating income rose by 3 percent to SEK 12,512 m. (12,164) during 2008. Operating margin amounted to 14.1 (14.4) percent. Operating income in Vehicles and Services increased by 4 percent to SEK 12,098 m. (11,632) during 2008. The improvement was attributable to higher prices for new vehicles and for services. Reduced vehicle deliveries, lower profitability for used vehicles and to some extent higher raw material costs had a negative impact on earnings. Scania’s research and development expenditures amounted to SEK 3,955 m. (3,214). after adjusting for SEK 202 m. (289) in capitalised expenditures and SEK 475 m. (418) in amortisation of capitalised expenditures, recognised expenses increased to SEK 4,228 m. (3,343). compared to 2007, currency spot rate effects amounted to about SEK –45 m. currency hedging income amounted to SEK –210 m. During 2007, the impact of currency hedgings on earnings was SEK –130 m. The total currency rate effect was thus SEK –125 m. Operating income in Financial Services amounted to SEK 414 m. (532). This was equivalent to 1.0 (1.5) percent of the average portfolio during the year. The positive effects of portfolio growth were offset somewhat by a lower interest rate margin due to the more competitive situation in recent years. Operating income increased because of continued expansion, primarily in fast-growing markets. Bad debt expenses were also higher. The number of delayed payments rose generally during the year. Higher bad debt expenses were attributable to several markets, especially Germany. at the end of December, the size of the customer finance portfolio amounted to about SEK 47.2 billion, repre senting an increase of SEK 8.9 billion since the end of 2007. in local currencies, the portfolio increased by 14 percent, equivalent to SEK 5.5 billion. S c a n i a 20 0 8 2008 66,516 7,277 73,793 10,738 2007 68,654 7,224 75,878 15,016 <a href="/v5/viewer/files/Default_s.aspx?gKey=tqcxr73s&gInitPage=67">Scania Annual Report 2008 Sida 67 65 Operating inc</a> ome per segment, SEK m. Vehicles and Services Operating income Operating margin, percent Financial Services Operating income Operating margin, percent 1 Operating income, Scania Group Operating margin, percent income before tax Taxes Net income Earnings per share, SEK Return on equity, percent 2008 12,098 13.6 414 1,0 12,512 14.1 11,978 -3,088 8,890 11.11 38.3 1 The operating margin of Financial Services is calculated by taking operating income as a percentage of the average portfolio. Scania’s net financial items totalled SEK –534 m. (–258). net interest items amounted to SEK –375 m. (–214). Other financial income and expenses amounted to SEK –159 m. (–44). This included SEK –144 m. (–38) related to valuation effects attributable to financial instruments where hedge accounting was not applied. Income before taxes amounted to SEK 11,978 m. (11,906). The Scania Group’s tax expenses for 2008 were equivalent to 25.8 (28.2) percent of income before taxes. in December 2008, the Swedish government decided to lower the corporate tax rate in Sweden from 28 percent to 26.3 percent. This reduced the Group’s deferred tax liability by SEK 144 m. during the year. net income for the year increased by 4 percent and amounted to SEK 8,890 m. (8,554), corresponding to a net margin of 10.0 (10.1) percent. Earnings per share amounted to SEK 11.11 (10.69). CASH FLOW Cash flow in Vehicles and Services amounted to SEK 1,774 m. (8,229). Tied-up working capital increased by SEK 4,501 m. (–986), mainly due to higher inventories attributable to a high production volume and a hesitation among customers to accept delivery of previously ordered trucks, as well as a higher degree of cancellations. net investments amounted to SEK 5,386 m. (4,545), including SEK 202 m. (289) in capitalisation of development expenditures. During 2008 net investments were affected by divested businesses totalling SEK 61 m. (in 2007 by acquisitions of businesses totalling SEK –268 m.). net debt position at the end of 2008 totalled SEK 8,364 m., compared to a net cash position of SEK 1,902 m. at the end of 2007. Cash flow in Financial Services amounted to SEK –5,121 m. (–5,169). net investments in customer finance contracts totaled SEK 5,822 m. (5,698). 2007 11,632 13.8 532 1.5 12,164 14.4 11,906 – 3,352 8,554 10.69 35.0 NET DEBT Net debt, SEK m. cash, cash equivalents and short-term investments current borrowings non-current borrowings net market value of derivatives for hedging of borrowings Total of which, attributable to Vehicles and Services of which, attributable to Financial Services 2008 –4,669 27,942 25,704 1,135 50,112 8,364 41,748 2007 –4,134 15,492 19,866 310 31,534 –1,902 33,436 as a result of the year’s cash flow in Vehicles and Services, SEK 1,774 m., after subtracting dividends and redemptions as well as the influence of currency rate effects, the net debt position declined by SEK 10,266 m. to SEK 8,364 m. FINANCIAL POSITION Financial ratios related to the balance sheet Equity/assets (E/a) ratio, percent E/a ratio, Vehicles and Services, percent E/a ratio, Financial Services, percent Equity per share, SEK Return on capital employed, Vehicles and Services, percent net debt/equity ratio, Vehicles and Services 2008 19.9 26.9 9.6 27.4 43.1 0.49 2007 27.1 38.6 10.1 31.0 42.1 –0.09 During 2008, the equity of the Scania Group decreased by SEK 2,874 m. and totalled SEK 21,938 m. (24,812) at year-end. net income added SEK 8,890 m. (8,554), while the dividend to shareholders decreased equity by SEK 4,000 m. (3,000). During 2008, Scania carried out a 2 to 1 share split with mandatory redemption of the new share at a price of SEK 7.50 per share, which decreased equity by SEK 6,000 m. (7,000). Equity increased by SEK 771 m. (642) because of exchange rate differences that arose when translating net assets outside Sweden, which was offset by the effect of hedging net assets in operations outside Sweden, a net amount of SEK –186 m. (–) after taxes. in addition, equity decreased by a net amount of SEK 2,346 m. (518) after taxes because of cash flow hedgings and actuarial losses on pension liabilities. Dividends to minority interests and changes in the holdings of minority interests lowered total equity by SEK 2 m. and SEK 1 m., respectively. The regular dividend for the 2008 financial year proposed by the Board of Directors is SEK 2.50 (5.00) per share. S c a n i a 20 0 8 <a href="/v5/viewer/files/Default_s.aspx?gKey=tqcxr73s&gInitPage=68">Scania Annual Report 2008 Sida 68 66 Group financi</a> al review NUMBER OF EMPLOYEES The number of employees in the Scania Group at year-end 2008 was 34,777, compared to 35,096 at the end of 2007. in Vehicles and Services, the number of employees at the end of December was 34,265 (34,616). in Financial Services, the number of employees at year-end 2008 was 512 (480). FINANCIAL RISKS Borrowing and refinancing risk Scania’s borrowings consist of two committed credit facilities in the international borrowing market, bonds issued under capital market programmes plus certain other borrowings. at year-end 2008, borrowings amounted to SEK 53.2 (35.2) billion. in addition to utilised borrowing, Scania had unutilised committed credit facilities equivalent to SEK 26.9 (14.2) billion. Interest rate risk Scania’s policy concerning interest rate risks is that the interest rate refixing period on its net debt should normally be 6 months, but divergences may be allowed within the 0–24 month range. One exception is Scania’s customer finance, in which the interest rate refixing period on borrowings is matched with the interest rate refixing period on assets. To manage interest rate risks in the Scania Group, derivative instruments are used. Currency risk currency transaction exposure during 2008 totalled about SEK 32 (31) billion. The largest currency flows were in euros, British pounds and Russian roubles. Based on 2008 revenue and expenses in foreign currencies, a one percentage point change in the Swedish krona against other currencies would affect operating income by about SEK 316 m. (313) on an annual basis. Scania’s policy is to hedge currency flows during a period of time equivalent to the projected orderbook until the date of payment. However, the hedging period is allowed to vary between 0 and 12 months. The Board of Directors approves maturities of more than 12 months. at the end of 2008, Scania’s net assets in foreign currencies amounted to SEK 14,650 m. (11,400). net assets outside Sweden of Scania’s subsidiaries are not hedged under normal circumstances. To the extent a foreign subsidiary has significant monetary assets in local currency, however, they may be hedged. at the end of 2008, Scania had hedged EUR 211 m in foreign net assets. at the close of 2007 and 2006, no foreign net assets were hedged. Credit risk The management of credit risks in Vehicles and Services is regulated by a credit policy. in Vehicles and Services, credit exposure consists mainly of receivables from independent dealers as well as end customers. Provisions for credit losses amounted to SEK 711 m. (619), equivalent to 7.7 (6.7) percent of total receivables. The year’s bad debt expenses amounted to SEK 102 m. (92). S c a n i a 20 0 8 To maintain a controlled level of credit risk in Financial Services, the process of issuing credit is supported by a credit policy as well as credit instructions. in Financial Services, the year’s expenses for actual and potential credit losses totalled SEK 227 m. (90), equivalent to 0.53 (0.26) percent of the average port folio. The year’s actual credit losses amounted to SEK 183 m. (46). at year-end, the total reserve for bad debt expenses in Financial Services amounted to SEK 635 m. (567), equivalent to 1.3 (1.5) percent of the portfolio at the close of 2007. The year-end credit portfolio amounted to SEK 47,220 m. (38,314), allocated among about 23,100 customers, of which 98.3 percent were small customers with lower credit exposure per customer than SEK 15 m. The management of the credit risks that arise in Scania’s treasury operations, among other things in investment of cash and cash equivalents and derivatives trading, is regulated in Scania’s Financial Policy document. Transactions occur only within established limits and with selected creditworthy counterparties. OTHER CONTRACTUAL RISKS Residual value exposure Some of Scania’s sales occur with repurchase obligations or guaranteed residual value. The value of all obligations outstanding at year-end was SEK 6,819 m. (6,257). Obligations outstanding increased somewhat, mainly due to a weaker krona and somewhat higher pricing of new and used vehicles, which results in higher residual values. During 2008, the volume of new contracts was about 5,000 (4,800). Service contracts a large proportion of Scania’s sales of parts and workshop hours occurs through repair and service contracts. Selling a service contract involves a commitment by Scania to provide servicing to customers during the contractual period in exchange for a predetermined fee. The cost of the contract is allocated over the contractual period according to estimated consumption of service, and actual divergences from this are recognised in the accounts during the period. From a portfolio perspective, Scania continually estimates possible future divergences from the expected cost curve. negative divergences from this result in a provision, which affects earnings for the period. The number of contracts rose during 2008 by 7,900 and totalled 81,700 at year-end. Most of these are in the European market. THE PARENT COMPANY The Parent company, Scania aB, is a public company whose assets consist of the shares in Scania cV aB. Otherwise the Parent company runs no operations. Scania cV aB is a public company and parent company of the Scania cV Group, which includes all production, sales and service and finance companies in the Scania Group. <a href="/v5/viewer/files/Default_s.aspx?gKey=tqcxr73s&gInitPage=69">Scania Annual Report 2008 Consolidated income stat</a> ement consolidated income statement consolidated income statement January – December, SEK m. Vehicles and Services net sales cost of goods sold Gross income Research and development expenses1 Selling expenses administrative expenses Share of income in associated companies and joint ventures Operating income, Vehicles and Services Financial Services interest and lease income interest and depreciation expenses interest surplus Other income Other expenses Gross income Selling and administrative expenses Bad debt expenses Operating income, Financial Services Operating income interest income interest expenses Other financial income Other financial expenses Total financial items Income before taxes Taxes Net income attributable to: Scania shareholders Minority interest Depreciation/amortisation included in operating income Earnings per share, SEK2 10 9 5 note 4 5 5, 11 5 5 13 6 4,772 –3,663 1,109 357 –307 1,159 –518 –227 414 12,512 458 –833 135 7 8 –294 –534 11,978 –3,088 8,890 4,070 –3,057 1,013 283 –204 1,092 –470 –90 532 12,164 479 –693 74 –118 –258 11,906 –3,352 8,554 3,527 – 2,608 919 232 – 179 972 – 416 – 63 493 8,753 632 – 863 142 – 81 – 170 8,583 – 2,644 5,939 2008 88,977 –64,516 24,461 –4,228 –7,002 –1,142 9 12,098 2007 84,486 –61,810 22,676 –3,343 –6,438 –1,259 –4 11,632 2006 70,738 – 52,255 18,483 – 3,023 – 6,016 – 1,189 5 8,260 67 8,890 0 –3,257 11.11 8,554 0 –3,121 10.69 5,939 0 – 3,023 7.42 1 Total research and development expenditures during the year amounted to SEK 3,955 m. (3,214 and 2,842, respectively). 2 There are no dilution effects. S c a n i a 20 0 8 consolidated income statement consolidated income statement January – December, SEK m. Vehicles and Services net sales cost of goods sold Gross income Research and development expenses1 Selling expenses administrative expenses Share of income in associated companies and joint ventures Operating income, Vehicles and Services Financial Services interest and lease income interest and depreciation expenses interest surplus Other income Other expenses Gross income Selling and administrative expenses Bad debt expenses Operating income, Financial Services Operating income interest income interest expenses Other financial income Other financial expenses Total financial items Income before taxes Taxes Net income attributable to: Scania shareholders Minority interest Depreciation/amortisation included in operating income Earnings per share, SEK2 10 9 5 note 4 5 5, 11 5 5 13 6 4,772 –3,663 1,109 357 –307 1,159 –518 –227 414 12,512 458 –833 135 7 8 –294 –534 11,978 –3,088 8,890 4,070 –3,057 1,013 283 –204 1,092 –470 –90 532 12,164 479 –693 74 –118 –258 11,906 –3,352 8,554 3,527 – 2,608 919 232 – 179 972 – 416 – 63 493 8,753 632 – 863 142 – 81 – 170 8,583 – 2,644 5,939 2008 88,977 –64,516 24,461 –4,228 –7,002 –1,142 9 12,098 2007 84,486 –61,810 22,676 –3,343 –6,438 –1,259 –4 11,632 2006 70,738 – 52,255 18,483 – 3,023 – 6,016 – 1,189 5 8,260 67 8,890 0 –3,257 11.11 8,554 0 –3,121 10.69 5,939 0 – 3,023 7.42 1 Total research and development expenditures during the year amounted to SEK 3,955 m. (3,214 and 2,842, respectively). 2 There are no dilution effects. S c a n i a 20 0 8 <a href="/v5/viewer/files/Default_s.aspx?gKey=tqcxr73s&gInitPage=70">Scania Annual Report 2008 Consolidated balance she</a> et 68 consolidated balance sheet consolidated balance sheet 31 December, SEK m. ASSETS Non-current assets intangible non-current assets Tangible non-current assets Lease assets Holdings in associated companies and joint ventures etc. Long-term interest-bearing receivables Other long-term receivables 1 Deferred tax assets Tax receivables Total non-current assets Current assets inventories current receivables Tax receivables interest-bearing receivables non-interest-bearing trade receivables Other current receivables 1 Total current receivables Short-term investments cash and cash equivalents Short-term investments comprising cash and cash equivalents cash and bank balances Total cash and cash equivalents Total current assets Total assets 1 including fair value of derivatives for hedging of borrowings: Other non-current receivables, derivatives with positive value Other current receivables, derivatives with positive value Other non-current liabilities, derivatives with negative value Other current liabilities, derivatives with negative value net amount 30 30 15, 30 30 30 14 note 2008 2007 2006 11 12 12 13 30 15, 17, 30 8 2,331 21,172 11,660 495 24,877 1,093 668 56 62,352 15,550 668 13,879 7,498 5,419 27,464 88 3,474 1,107 4,581 47,683 110,035 2,511 18,525 10,708 264 20,590 707 528 0 53,833 11,242 252 10,565 7,540 3,888 22,245 679 933 2,522 3,455 37,621 91,454 2,464 17,130 9,666 173 16,599 1,023 649 34 47,738 10,100 370 8,600 7,379 3,046 19,395 911 8,808 1,126 9,934 40,340 88,078 517 483 1,355 780 –1,135 120 177 211 396 –310 99 365 213 125 126 S c a n i a 20 0 8 68 consolidated balance sheet consolidated balance sheet 31 December, SEK m. ASSETS Non-current assets intangible non-current assets Tangible non-current assets Lease assets Holdings in associated companies and joint ventures etc. Long-term interest-bearing receivables Other long-term receivables 1 Deferred tax assets Tax receivables Total non-current assets Current assets inventories current receivables Tax receivables interest-bearing receivables non-interest-bearing trade receivables Other current receivables 1 Total current receivables Short-term investments cash and cash equivalents Short-term investments comprising cash and cash equivalents cash and bank balances Total cash and cash equivalents Total current assets Total assets 1 including fair value of derivatives for hedging of borrowings: Other non-current receivables, derivatives with positive value Other current receivables, derivatives with positive value Other non-current liabilities, derivatives with negative value Other current liabilities, derivatives with negative value net amount 30 30 15, 30 30 30 14 note 2008 2007 2006 11 12 12 13 30 15, 17, 30 8 2,331 21,172 11,660 495 24,877 1,093 668 56 62,352 15,550 668 13,879 7,498 5,419 27,464 88 3,474 1,107 4,581 47,683 110,035 2,511 18,525 10,708 264 20,590 707 528 0 53,833 11,242 252 10,565 7,540 3,888 22,245 679 933 2,522 3,455 37,621 91,454 2,464 17,130 9,666 173 16,599 1,023 649 34 47,738 10,100 370 8,600 7,379 3,046 19,395 911 8,808 1,126 9,934 40,340 88,078 517 483 1,355 780 –1,135 120 177 211 396 –310 99 365 213 125 126 S c a n i a 20 0 8 <a href="/v5/viewer/files/Default_s.aspx?gKey=tqcxr73s&gInitPage=71">Scania Annual Report 2008 Sida 71 69 31 December, </a> SEK m. EQUITY AND LIABILITIES Equity Share capital contributed capital Reserves Retained earnings Equity attributable to Scania shareholders Minority interest Total equity Non-current liabilities non-current interest-bearing liabilities Provisions for pensions Other non-current provisions accrued expenses and deferred income Deferred tax liabilities Other tax liabilities Other non-current liabilities 1 Total non-current liabilities Current liabilities current interest-bearing liabilities current provisions accrued expenses and deferred income advance payments from customers Trade payables Tax liabilities Other current liabilities 1 Total current liabilities Total equity and liabilities net debt, excluding provisions for pensions, SEK m. 1 net debt/equity ratio Equity/assets ratio, % Equity per share, SEK capital employed, SEK m. 30 18 19 30 30 16 30 17 18 19 8 2,000 1,120 –604 19,421 21,937 1 21,938 25,704 4,621 1,661 2,806 1,069 278 1,359 37,498 27,942 1,315 7,293 732 6,783 561 5,973 50,599 110,035 50,112 2.28 19.9 27.4 81,340 2,000 1,120 697 20,991 24,808 4 24,812 19,866 4,005 1,053 3,088 1,809 68 216 30,105 15,492 2,024 6,986 735 7,068 931 3,301 36,537 91,454 31,534 1.27 27.1 31.0 64,485 2,000 1,120 330 22,679 26,129 5 26,134 17,918 3,605 1,473 1,861 2,278 170 536 27,841 16,350 1,125 7,283 449 6,011 946 1,939 34,103 88,078 23,297 0.89 29.7 32.7 63,881 note 2008 2007 2006 S c a n i a 20 0 8 <a href="/v5/viewer/files/Default_s.aspx?gKey=tqcxr73s&gInitPage=72">Scania Annual Report 2008 Consolidated statement o</a> f recognised income and expense 70 consolidated statement of recoGnised income and expense consolidated statement of recognised income and expense as well as changes in equity Note 16 shows a complete reconciliation of all changes in equity. January – December, SEK m. Exchange difference on translation Hedging of net assets in operations outside Sweden, net after taxes Hedge reserve Fair value changes on cash flow hedging recognised directly in equity cash flow reserve transferred to sales revenue in income statement actuarial gains/losses etc. related to pension liabilities recognised directly in equity Taxes attributable to items recognised directly in equity Total income and expenses recognised directly in equity net income for the year Total income and expenses for the year Of which, attributable to: Scania AB shareholders Minority interest 2008 771 –186 –2,762 209 –625 832 –1,761 8,890 7,129 2007 642 – – 521 137 – 316 182 124 8,554 8,678 2006 – 661 – 340 – 103 – 68 – 46 – 538 5,939 5,401 7,129 0 8,679 – 1 5,402 – 1 2008 Equity, 1 January Total recognised income and expenses for the year Redemption Dividend to Scania aB shareholders Dividend to minority interest change in minority share Equity, 31 December Of which, attributable to: Scania AB shareholders Minority interest 24,812 7,129 –6,000 –4,000 –2 –1 21,938 2007 26,134 8,678 – 7,000 – 3,000 – – 24,812 2006 23,736 5,401 – – 3,000 – – 3 26,134 21,937 1 24,808 4 26,129 5 S c a n i a 20 0 8 70 consolidated statement of recoGnised income and expense consolidated statement of recognised income and expense as well as changes in equity Note 16 shows a complete reconciliation of all changes in equity. January – December, SEK m. Exchange difference on translation Hedging of net assets in operations outside Sweden, net after taxes Hedge reserve Fair value changes on cash flow hedging recognised directly in equity cash flow reserve transferred to sales revenue in income statement actuarial gains/losses etc. related to pension liabilities recognised directly in equity Taxes attributable to items recognised directly in equity Total income and expenses recognised directly in equity net income for the year Total income and expenses for the year Of which, attributable to: Scania AB shareholders Minority interest 2008 771 –186 –2,762 209 –625 832 –1,761 8,890 7,129 2007 642 – – 521 137 – 316 182 124 8,554 8,678 2006 – 661 – 340 – 103 – 68 – 46 – 538 5,939 5,401 7,129 0 8,679 – 1 5,402 – 1 2008 Equity, 1 January Total recognised income and expenses for the year Redemption Dividend to Scania aB shareholders Dividend to minority interest change in minority share Equity, 31 December Of which, attributable to: Scania AB shareholders Minority interest 24,812 7,129 –6,000 –4,000 –2 –1 21,938 2007 26,134 8,678 – 7,000 – 3,000 – – 24,812 2006 23,736 5,401 – – 3,000 – – 3 26,134 21,937 1 24,808 4 26,129 5 S c a n i a 20 0 8 <a href="/v5/viewer/files/Default_s.aspx?gKey=tqcxr73s&gInitPage=73">Scania Annual Report 2008 Consolidated cash flow s</a> tatement consolidated cash flow statement consolidated cash flow statement January – December, SEK m. Operating activities income before tax items not affecting cash flow Taxes paid Cash flow from operating activities before change in working capital Change in working capital inventories Receivables Provisions for pensions Trade payables Other liabilities and provisions Total change in working capital Cash flow from operating activities Investing activities net investments through acquisitions/divestments of businesses net investments in non-current assets, Vehicles and Services net investments in credit portfolio etc., Financial Services Cash flow from investing activities Cash flow before financing activities Financing activities change in net debt from financing activities Dividend to shareholders Redemption Cash flow from financing activities Cash flow for the year Cash and cash equivalents, 1 January Exchange rate differences in cash and cash equivalents Cash and cash equivalents, 31 December Cash flow statement, Vehicles and Services 2008 cash flow from operating activities before change in working capital change in working capital etc. Cash flow from operating activities Cash flow from investing activities Cash flow before financing activities cash flow per share, Vehicles and Services excluding acquisitions/divestments See also note 3, “Segment reporting”, for further information on cash flow by business segment. 11,661 –4,501 7,160 –5,386 1,774 2.14 2007 11,788 986 12,774 –4,545 8,229 10.62 2006 8,873 1,879 10,752 – 3,810 6,942 8.68 24 f 24 e 24 c 24 d 24 d note 24 a 24 b 2008 11,978 4,187 –3,803 12,362 –3,802 77 4 –375 –405 –4,501 7,861 61 –5,447 –5,822 –11,208 –3,347 14,652 –4,000 –6,000 4,652 1,305 3,455 –179 4,581 2007 11,906 3,643 – 3,232 12,317 – 772 –170 31 765 1,132 986 13,303 –268 – 4,277 – 5,698 – 10,243 3,060 303 – 3,000 – 7,000 –9,697 – 6,637 9,934 158 3,455 2006 8,583 3,236 – 2,552 9,267 – 627 8 96 1,276 1,126 1,879 11,146 – – 3,810 – 3,514 – 7,324 3,822 7,591 – 3,000 – 4,591 8,413 1,599 – 78 9,934 71 S c a n i a 20 0 8 consolidated cash flow statement consolidated cash flow statement January – December, SEK m. Operating activities income before tax items not affecting cash flow Taxes paid Cash flow from operating activities before change in working capital Change in working capital inventories Receivables Provisions for pensions Trade payables Other liabilities and provisions Total change in working capital Cash flow from operating activities Investing activities net investments through acquisitions/divestments of businesses net investments in non-current assets, Vehicles and Services net investments in credit portfolio etc., Financial Services Cash flow from investing activities Cash flow before financing activities Financing activities change in net debt from financing activities Dividend to shareholders Redemption Cash flow from financing activities Cash flow for the year Cash and cash equivalents, 1 January Exchange rate differences in cash and cash equivalents Cash and cash equivalents, 31 December Cash flow statement, Vehicles and Services 2008 cash flow from operating activities before change in working capital change in working capital etc. Cash flow from operating activities Cash flow from investing activities Cash flow before financing activities cash flow per share, Vehicles and Services excluding acquisitions/divestments See also note 3, “Segment reporting”, for further information on cash flow by business segment. 11,661 –4,501 7,160 –5,386 1,774 2.14 2007 11,788 986 12,774 –4,545 8,229 10.62 2006 8,873 1,879 10,752 – 3,810 6,942 8.68 24 f 24 e 24 c 24 d 24 d note 24 a 24 b 2008 11,978 4,187 –3,803 12,362 –3,802 77 4 –375 –405 –4,501 7,861 61 –5,447 –5,822 –11,208 –3,347 14,652 –4,000 –6,000 4,652 1,305 3,455 –179 4,581 2007 11,906 3,643 – 3,232 12,317 – 772 –170 31 765 1,132 986 13,303 –268 – 4,277 – 5,698 – 10,243 3,060 303 – 3,000 – 7,000 –9,697 – 6,637 9,934 158 3,455 2006 8,583 3,236 – 2,552 9,267 – 627 8 96 1,276 1,126 1,879 11,146 – – 3,810 – 3,514 – 7,324 3,822 7,591 – 3,000 – 4,591 8,413 1,599 – 78 9,934 71 S c a n i a 20 0 8 <a href="/v5/viewer/files/Default_s.aspx?gKey=tqcxr73s&gInitPage=74">Scania Annual Report 2008 Notes to the consolidate</a> d financial statements 72 notes to the consolidated financial statements notes to the consolidated financial statements amounts in tables are reported in millions of swedish kronor (seK m.) unless otherwise stated. note 1 accounting principles note 2 Key judgements and estimates note 3 Segment reporting note 4 net sales note 5 Operating expenses note 6 Financial Services note 7 Financial income and expenses note 8 Taxes note 9 Earnings per share note 10 Depreciation/amortisation note 11 intangible non-current assets note 12 Tangible non-current assets note 13 Holdings in associated companies and joint ventures etc. note 14 inventories note 15 Other receivables note 16 Equity note 17 Provisions for pensions and similar commitments note 18 Other provisions note 19 accrued expenses and deferred income note 20 assets pledged and contingent liabilities note 21 Lease obligations note 22 Government grants and EU grants note 23 changes in net debt note 24 consolidated cash flow statement note 25 Business acquired/divested note 26 Wages, salaries and other remuneration and number of employees note 27 Related party transactions note 28 compensation to executive officers note 29 Fees and other remuneration to auditors note 30 Financial risk management note 31 Financial instruments note 32 List of subsidiaries Page 72 80 82 84 85 86 87 87 89 89 90 92 95 96 96 96 99 103 104 104 104 105 105 106 107 107 110 110 112 112 119 122 NOTE 1 Accounting principles The Scania Group encompasses the Parent company, Scania aktiebolag (publ), Swedish corporate identity number 556184-8564, and its subsidiaries and associated companies. The Parent company has its registered office in Södertälje, Sweden. The consolidated accounts of the Scania Group have been prepared in compliance with the international Financial Reporting Standards (iFRSs) issued by the international accounting Standards Board (iaSB) as well as the interpretations by the international Financial Reporting interpretations committee (iFRic) as adopted by the European Union. in addition, the Swedish Financial Reporting Board’s Recommendation RFR 1.1, “Supplementary Rules for consolidated Financial Statements”, has been applied. The Parent company applies the same accounting principles as the Group, except in the cases specified below in the section entitled “Parent company accounting principles”. The functional currency of the Parent company is Swedish kronor (SEK), and the financial reports are presented in Swedish kronor. assets and liabilities are recognised at historical costs, aside from certain financial assets and liabilities which are carried at fair value. Financial assets and liabilities that are carried at fair value are derivative instruments and loans within the framework of hedge accounting, which are carried at fair value with regard to the risk being hedged. Preparing the financial reports in compliance with iFRSs requires that Management make judgements and estimates as well as make assumptions that affect the application of accounting principles and amounts recognised in the financial reports. The actual outcome may diverge from these estimates and judgements. Judgements made by Management that have a substantial impact on the financial reports, and estimates which have been made that may lead to significant adjustments, are described in more detail in note 2, “Key judgements and estimates”. Estimates and assumptions are reviewed regularly. The principles stated below have been applied consistently for all periods, unless otherwise indicated below. CHANGES IN ACCOUNTING PRINCIPLES accounting principles and calculation methods are unchanged from those applied in the annual Report for 2007. new iFRS standards during 2008 have had no impact on Scania’s accounting. Scania has not utilised the opportunity to reclassify financial instruments in accordance with amendments to iaS 39 that entered into force on 1 July 2008. APPLICATION OF ACCOUNTING PRINCIPLES Consolidated financial statements The consolidated financial statements encompass Scania aB and all subsidiaries. “Subsidiaries” refers to companies in which Scania directly or indirectly owns more than 50 percent of the voting rights of the shares or otherwise has a controlling influence. Subsidiaries are reported according to the purchase method of ac- counting. This means that identifiable assets and liabilities in the acquired company are accounted for at fair values. The acquisition analysis estab- S c a n i a 20 0 8 72 notes to the consolidated financial statements notes to the consolidated financial statements amounts in tables are reported in millions of swedish kronor (seK m.) unless otherwise stated. note 1 accounting principles note 2 Key judgements and estimates note 3 Segment reporting note 4 net sales note 5 Operating expenses note 6 Financial Services note 7 Financial income and expenses note 8 Taxes note 9 Earnings per share note 10 Depreciation/amortisation note 11 intangible non-current assets note 12 Tangible non-current assets note 13 Holdings in associated companies and joint ventures etc. note 14 inventories note 15 Other receivables note 16 Equity note 17 Provisions for pensions and similar commitments note 18 Other provisions note 19 accrued expenses and deferred income note 20 assets pledged and contingent liabilities note 21 Lease obligations note 22 Government grants and EU grants note 23 changes in net debt note 24 consolidated cash flow statement note 25 Business acquired/divested note 26 Wages, salaries and other remuneration and number of employees note 27 Related party transactions note 28 compensation to executive officers note 29 Fees and other remuneration to auditors note 30 Financial risk management note 31 Financial instruments note 32 List of subsidiaries Page 72 80 82 84 85 86 87 87 89 89 90 92 95 96 96 96 99 103 104 104 104 105 105 106 107 107 110 110 112 112 119 122 NOTE 1 Accounting principles The Scania Group encompasses the Parent company, Scania aktiebolag (publ), Swedish corporate identity number 556184-8564, and its subsidiaries and associated companies. The Parent company has its registered office in Södertälje, Sweden. The consolidated accounts of the Scania Group have been prepared in compliance with the international Financial Reporting Standards (iFRSs) issued by the international accounting Standards Board (iaSB) as well as the interpretations by the international Financial Reporting interpretations committee (iFRic) as adopted by the European Union. in addition, the Swedish Financial Reporting Board’s Recommendation RFR 1.1, “Supplementary Rules for consolidated Financial Statements”, has been applied. The Parent company applies the same accounting principles as the Group, except in the cases specified below in the section entitled “Parent company accounting principles”. The functional currency of the Parent company is Swedish kronor (SEK), and the financial reports are presented in Swedish kronor. assets and liabilities are recognised at historical costs, aside from certain financial assets and liabilities which are carried at fair value. Financial assets and liabilities that are carried at fair value are derivative instruments and loans within the framework of hedge accounting, which are carried at fair value with regard to the risk being hedged. Preparing the financial reports in compliance with iFRSs requires that Management make judgements and estimates as well as make assumptions that affect the application of accounting principles and amounts recognised in the financial reports. The actual outcome may diverge from these estimates and judgements. Judgements made by Management that have a substantial impact on the financial reports, and estimates which have been made that may lead to significant adjustments, are described in more detail in note 2, “Key judgements and estimates”. Estimates and assumptions are reviewed regularly. The principles stated below have been applied consistently for all periods, unless otherwise indicated below. CHANGES IN ACCOUNTING PRINCIPLES accounting principles and calculation methods are unchanged from those applied in the annual Report for 2007. new iFRS standards during 2008 have had no impact on Scania’s accounting. Scania has not utilised the opportunity to reclassify financial instruments in accordance with amendments to iaS 39 that entered into force on 1 July 2008. APPLICATION OF ACCOUNTING PRINCIPLES Consolidated financial statements The consolidated financial statements encompass Scania aB and all subsidiaries. “Subsidiaries” refers to companies in which Scania directly or indirectly owns more than 50 percent of the voting rights of the shares or otherwise has a controlling influence. Subsidiaries are reported according to the purchase method of ac- counting. This means that identifiable assets and liabilities in the acquired company are accounted for at fair values. The acquisition analysis estab- S c a n i a 20 0 8 <a href="/v5/viewer/files/Default_s.aspx?gKey=tqcxr73s&gInitPage=75">Scania Annual Report 2008 Sida 75 73 lishes the co</a> st of the shares or business, as well as the fair value on the acquisition date of the company’s identifiable assets, debts assumed and contingent liabilities. The cost of shares in subsidiaries or of the business, respectively, consists of the fair values on the transfer date of assets, liabilities that have arisen or are assumed and equity instruments issued as payment in exchange for the acquired net assets as well as transaction costs directly attributable to the acquisition. in case of acquisition of a business in which the acquisition cost exceeds the fair value of the company’s identified assets, liabilities assumed and contingent liabilities, the difference is reported as goodwill. When the difference is negative, this is recognised directly in the income statement. Only earnings arising after the date of acquisition are included in the equity of the Group. Divested companies are included in the consolidated financial statements until and including the date when controlling influence ceases. intra-Group receivables and liabilities, revenue or expenses and unre- alised gains or losses that arise from intra-Group transactions between Group companies are eliminated in their entirety during the preparation of the consolidated financial statements. Unrealised gains that arise from transactions with associated companies and joint ventures are eliminated to the extent that corresponds to the Group’s percentage of ownership in the company. Minority interests in equity are reported separately from share capital owned by the Parent company’s shareholders. a separate disclosure of the minority interest in the year’s earnings is provided. Associated companies and joint ventures The term “associated companies” refers to companies in which Scania, directly or indirectly, has a significant influence. “Joint ventures” refers to companies in which Scania, through contractual cooperation with one or more parties, has a joint controlling influence on operational and financial management. Holdings in associated companies and joint ventures are recognised using the equity method. This means that in the consolidated financial statements, holdings in associated companies are carried at the Group’s share of the equity of the associated company after adjusting for the Group’s share of surplus and deficit values, respectively. The Group’s share of net earnings after taxes is recognised in the income statement as “Share of income in associated companies and joint ventures”. Foreign currencies – translation Transactions in foreign currencies are translated to the functional currency at the exchange rate on the transaction date. Functional currency is the currency in the primary economic environment where the company carries out its operations. Monetary receivables and liabilities in foreign currencies are translated at the exchange rate on the balance sheet date, and exchange rate differences that arise are recognised in the income statement. non-monetary items are recognised at historic cost using the exchange rate on the transaction date. When preparing the consolidated financial statements, the income statements and balance sheets of foreign subsidiaries are translated to the Group’s reporting currency, Swedish kronor. all items in the income statements of foreign subsidiaries are translated using the average ex- change rates during the year. all balance sheet items are translated using the exchange rates on the balance sheet date (closing day rate). The changes in the equity of the Group that arise due to different exchange rates on the closing day compared to the exchange rate on the preceding closing day are recognised directly in equity. all subsidiaries use the local currency as their functional currency, aside from some markets in eastern Europe for which the euro is the functional currency. Hyperinflationary economies – adjustment of financial reports inflation adjustment of financial reports occurs for operations with a functional currency that is the currency of a hyperinflationary country. at present, none of the Group’s subsidiaries has a functional currency that is regarded as a as hyperinflationary currency. Segment reporting The operations of the Scania Group are managed and reported primarily by line of business and secondarily by geographic market. Scania’s primary segments are Vehicles and Services plus Financial Services. These two segments have distinct products and differentiated risk situations. The tied-up capital and accompanying financing structure in Financial Services differ substantially from their equivalents at Vehicles and Services. internal reporting at Scania is designed in accordance with this division into segments. Only overall analyses are conducted at the geographic level. Financial expenses and taxes are reported at the segment level in order to better reflect the Financial Services line of business. For reasons of comparability, equivalent information for Vehicles and Services has been included in the note on segment reporting. The Vehicles and Services line of business encompasses trucks, buses and engines, including the services associated with these products. all products are built using common basic components, with coordinated development and production. Products and services are also organised under common areas of responsibility. The Financial Services line of business encompasses financial solu- tions for Scania customers, such as loan financing, lease contracts and insurance solutions, all of which can be combined with service contracts. Financial Services operates in all of Scania’s geographic markets, in Europe primarily via wholly owned finance companies, in other geographic markets primarily via collaboration with external creditors. The assets of this line of business encompass the assets that are directly used in its operations. correspondingly, its liabilities and provisions refer to those that are directly attributable to its operations. BALANCE SHEET – CLASSIFICATIONS Scania’s operating cycle, that is, the time that elapses from the purchase of materials until payment for goods delivered is received, is less than twelve months. This means that operations-related items are classified as current assets and current liabilities, respectively, if these are expected to be realised/settled within twelve months, counting from the balance sheet date. cash and cash equivalents are classified as current assets unless they are restricted. Other assets and liabilities are classified as non-current. For classification of financial instruments, see the section on financial assets and liabilities under “Valuation principles”, page 74. S c a n i a 20 0 8 <a href="/v5/viewer/files/Default_s.aspx?gKey=tqcxr73s&gInitPage=76">Scania Annual Report 2008 Sida 76 74 notes to the </a> consolidated financial statements NOTE 1 Accounting principles, continued Classification of financial and operating leases (Scania as lessor) Lease contracts with customers are carried as financial leases in cases where substantially all risks and rewards associated with ownership of the asset have been transferred to the lessee. at the beginning of the leasing period, sales revenue and a financial receivable equivalent to the present value of future minimum lease payments are recognised. The difference between the sales revenue and the cost of the leased asset is recognised as income. Lease payments received are recognised as payment of the financial receivable and as financial revenue. Other lease contracts are classified as operating leases and are car- ried as lease assets among tangible non-current assets. Revenue from operating leases is recognised on a straight-line basis over the leasing period. Depreciation of the asset occurs on a straight-line basis to the estimated residual value of the asset at the end of the leasing period. if a transaction includes a repurchase obligation or a residual value guarantee, the transaction is carried as an operating lease, provided that important risks remain with Scania. Lease obligations (Scania as lessee) in case of a financial lease, when the risks and rewards associated with ownership have been transferred to Scania, the leased asset is carried as a tangible non-current asset and the future commitment as a liability. The asset is initially carried at the present value of minimum lease payments at the beginning of the leasing period. The leased asset is depreciated according to a schedule and the lease payments are recognised as interest and principal payments on the liability. Operating leases are not carried as assets, since the risks and rewards associated with ownership of the asset have not been transferred to Scania. Lease payments are expensed continuously on a straight-line basis over the lease term. BALANCE SHEET – VALUATION PRINCIPLES Tangible non-current assets including lease assets Tangible fixed assets are carried at cost minus accumulated depreciation and any impairment losses. a non-current asset is divided up into components, each with a different useful life (depreciation period), and these are reported as separate assets. Machinery and equipment as well as lease assets have useful lives of 3–12 years. The average useful life of buildings is 40 years, based on 50–100 years for frames, 20–40 years for frame supplements and inner walls, 20–40 years for installations, 20–30 years for exterior surface layers and 10–15 years for interior surface layers. Land is not depreciated. Depreciation occurs mainly on a straight-line basis over the estimated useful life of an asset, and in those cases where a residual value exists, the asset is depreciated down to this value. Useful life and depreciation methods are examined regularly and adjusted in case of changed circumstances. all borrowing costs are charged to earnings in the period to which they are attributable. S c a n i a 20 0 8 Intangible non-current assets Scania’s intangible assets consist of goodwill, capitalised expenditures for development of new products and software. intangible non-current assets are accounted for at cost less any accumulated amortisation and impairment losses. Goodwill Goodwill arises when the cost of shares in a subsidiary exceeds the fair value of that company’s acquired identifiable assets and liabilities according to the acquisition analysis. Recognised goodwill has arisen from acquisitions of distribution and dealer networks, which have resulted in increased profitability upon their integration into the Scania Group. Goodwill has an indefinite useful life and impairment testing is done at least yearly. Capitalised product development expenditures Scania’s research and development activities are divided into a research phase and a development phase. Expenditures during the research phase are charged to earnings as they arise. Expenditures during the development phase are capitalised, beginning on the date when the expenditures are likely to lead to future economic benefits. This implies that it is technically possible to complete the intangible asset, the company has the intention and the potential to complete it and use or sell it, there are adequate resources to carry out development and sale, and remaining expenditures can be reliably estimated. impairment testing occurs annually for development projects that have not yet gone into service, according to the principles stated below. The amortisation of capitalised development expenditures begins when the asset is placed in service and occurs on a straight-line basis during its estimated useful life. For capitalised product development expenditures, the average useful life is currently estimated at five years. Capitalised software development expenditures capitalised software development expenditures include expenditures directly attributable to completion of the software. They are amortised on a straight-line basis during the useful life of the software, which is estimated at between three and five years. Impairment testing of non-current assets The carrying amounts of Scania’s intangible and tangible assets as well as its shareholdings are tested on every closing day to assess whether there is indication of impairment. This includes intangible assets with an indeterminable useful life, which refer in their entirety to goodwill. The carrying amounts for goodwill and intangible assets that have not yet gone into service are tested at the end of every year regardless of whether there is an indication of impairment loss or not. if there is any indication that a non-current asset has an impairment loss, the recoverable amount of the asset is estimated. The recoverable amount of the asset is its fair value minus costs to sell or value in use, whichever is higher. Value in use is an estimate of future cash flows that is discounted by an interest rate that takes into account risk for that specific asset. if it is not possible to attribute essentially independent cash flows <a href="/v5/viewer/files/Default_s.aspx?gKey=tqcxr73s&gInitPage=77">Scania Annual Report 2008 Sida 77 75 to an individ</a> ual asset, during impairment testing assets shall be grouped at the lowest level where it is possible to identify essentially independent cash flows, a “cash-generating unit”. in impairment testing, the carrying amount in the balance sheet is compared to the estimated recoverable amount. in cases where the estimated recoverable amount of an asset or cash-generating unit is less than the carrying value, it is written down to the recoverable amount and an impairment loss is recognised in the income statement. Inventories inventories are carried at the lower of cost and net realisable value according to the first in, first out (FiFO) principle. an allocable portion of indirect expenses is included in the value of the inventories, estimated on the basis of normal capacity utilisation. Financial assets and liabilities Financial instruments are any from of contract that gives rise to a financial asset in one company and a financial liability or equity instrument in another company. This encompasses cash and cash equivalents, interestbearing receivables, trade receivables, trade payables, borrowings and derivative instruments. cash and cash equivalents consist of cash and bank balances as well as short-term liquid investments with a maturity amounting to a maximum of 90 days, which are subject to an insignificant risk of fluctuations in value. “Short-term investments” consist of investments with a longer maturity than 90 days. Recognition of financial assets and liabilities Financial assets and liabilities are recognised in the balance sheet when the company becomes a party to their contractual terms and conditions. Receivables are recognised in the balance sheet when Scania has a contractual right to receive payment. Liabilities are recognised when the counterparty has performed and there is a contractual obligation to pay. a financial asset or a portion of a financial asset is derecognised from the balance sheet when the rights in the contract have been realised, expire or the company loses control over them. a financial liability or a portion of a financial liability is derecognised from the balance sheet when the obligation in the contract has been fulfilled or annulled or has expired. Scania applies settlement date accounting for everything except as- sets held for trading, where recognition occurs on the transaction date. Derivatives with positive values (unrealised gains) are recognised as “Other current receivables” or “Other non-current receivables”, while derivatives with negative values (unrealised losses) are recognised as “Other current liabilities” or “Other non-current liabilities”. Classification of financial instruments all financial assets and liabilities are classified in the following categories: a) Financial assets and financial liabilities carried at fair value via the income statement consist of two sub-categories: i) Financial assets and financial liabilities held for trading, which includes all of Scania’s derivatives aside from those derivatives that are used as hedging instruments when hedge accounting is applied. The main purpose of Scania’s derivative trading is to hedge the Group’s currency and interest rate risks. ii) Financial assets and financial liabilities that were determined from the beginning to belong to this category. Scania has no financial instruments classified in this sub-category. b) Held-to-maturity investments This category includes financial assets with predetermined or determinable payments and predetermined maturity that Scania has the intention and ability to hold until maturity. c) Loan receivables and trade receivables These assets have predetermined or determinable payments. Scania’s cash and cash equivalents, trade receivables and loan receivables belong to this category. d) Financial assets available for sale This category consists of financial assets that have not been classified in any other category, such as shares and participations in both listed and unlisted companies. Scania has no financial instruments classified in this category. e) Other financial liabilities includes financial liabilities not held for trading. Scania’s trade payables as well as borrowings belong to this category. Recognition and carrying amounts Financial assets and liabilities are initially recognised at their cost, which is equivalent to their fair value at that time. Financial assets and liabilities in foreign currencies are translated to Swedish kronor, taking into account the closing day exchange rate. Below are the main accounting principles that Scania applies to financial assets and financial liabilities. The exceptions from these principles that are applied concern financial instruments included in hedging relationships. a more thorough description is provided for exceptions to the principles in the “Hedge accounting” section. a) Financial assets and liabilities carried at fair value via the income statement are continuously carried at fair value. changes in the value of derivatives that hedge forecasted future payment flows (sales) are recognised in the income statement. changes in the value of derivatives that are used to convert borrowings to a desired currency or to a desired interest rate refixing structure are recognised in net financial items. b) Held-to-maturity investments are carried in the balance sheet at accrued cost. interest income is recognised in net financial items. c) Loan receivables and trade receivables are carried in the balance sheet at accrued cost minus potential bad debt losses. Provisions for probable bad debt losses/doubtful receivables are made following an individual assessment of each customer, based on the customer’s payment capacity, expected future risk and the value of collateral received. d) Financial assets available for sale are carried continuously at fair value, with changes in value recognised in equity. On the date that the assets are derecognised from the balance sheet, any previously recognised accumulated gain or loss in equity is transferred to the income statement. Scania has no financial instruments classified in this category. S c a n i a 20 0 8 <a href="/v5/viewer/files/Default_s.aspx?gKey=tqcxr73s&gInitPage=78">Scania Annual Report 2008 Sida 78 76 notes to the </a> consolidated financial statements NOTE 1 Accounting principles, continued e) Other financial liabilities are initially recognised at market value, which is equivalent to the amount received on that date less any trans action costs, and later at accrued cost. Premiums or discounts upon issuance of securities are accrued over the life of the loan by using the effective interest method and are recognised in net financial items. any gains that arise in conjunction with the divestment of financial instruments or redemption of loan liabilities are recognised in the income statement. Hedge accounting Scania is exposed to various financial risks in its operations. in order to hedge currency rate risks, interest rate risks and raw material price risks, derivatives are used. Scania’s external financing occurs mainly via different borrowing programmes. To convert this borrowing to the desired interest rate refixing structure, interest rate derivatives are used. To the extent that hedging of borrowings with variable interest rates is used, derivatives are recognised according to cash flow hedging rules. in those cases where hedging of borrowings with fixed interest rates is used, derivatives are recognised according to fair value hedging rules. To a lesser extent, electricity derivatives are used in order to hedge costs of electricity consumption and currency derivatives in order to hedge net assets in subsidiaries outside Sweden. Due to the very strict requirements in order to apply hedge account- ing, Scania has chosen not to apply hedge accounting to all hedging transactions. in cases where hedge accounting is not applied, because of the separate treatment of derivatives, which are carried at market value, and liabilities, which are carried at accrued cost, accounting volatility arises in net financial items. Financially speaking, Scania considers itself hedged and its risk management adheres to the Financial Policy approved by the Board of Directors. Cash flow hedging Hedging instruments, primarily currency futures that were acquired for the purpose of hedging expected future commercial payment flows in foreign currencies (hedged items) against currency rate risks are recognised according to cash flow hedging rules. This implies that all derivatives are accounted for in the balance sheet at fair value, and changes in the value of futures contracts are recognised in a hedge reserve in equity. amounts that have been recognised in the hedge reserve in equity are recognised in the income statement at the same time as the external sale is recognised as revenue, that is, when delivery to an external customer occurs. Hedging instruments, primarily interest rate swaps that were acquired for the purpose of hedging future interest flows, are recognised according to cash flow hedging rules. This means that borrowings with variable interest rate are converted to fixed interest rate. The derivative is recognised in the balance sheet at fair value, and changes in value are recognised in the hedge reserve in equity. The interest portions of the derivative are recognised continuously in the income statement and thus affect net financial items in the same period as interest payments on the borrowings. any gain or loss attributable to an inefficient portion is immediately recognised in the income statement. S c a n i a 20 0 8 Fair value hedging Hedging instruments, primarily interest rate derivatives that eliminate the risk that changes in the market interest rate will affect the value of the liabilities (hedged item), are recognised according to fair value hedging rules. in these hedging relationships, the hedging instrument i.e. the derivative, is carried at fair value and the hedged item, i.e. the borrowing, is carried at fair value with regard to the risk that has been hedged. This means that the change in value of the derivative instrument and that of the hedged item match in net financial items. Net asset hedging currency rate risk related to net assets in subsidiaries outside Sweden that have a functional currency different from the Group’s presentation currency is hedged to the extent that the subsidiary is overcapitalised or has sizeable monetary assets that will not be utilised in its operations. Hedging occurs by using derivatives as hedging instruments or through hedging of monetary items that are recognised as a portion of the net investment. Translation differences on financial instruments used as hedging instruments are recognised including tax effects against the currency translation reserve in equity, provided that the hedge is efficient. This effect thus matches the translation differences that arise in equity when translating the accounts of the subsidiary outside Sweden into the Group’s presentation currency. Provisions Provisions are reported if an obligation, legal or informal, exists as a consequence of events that occur. it must also be deemed likely that an outflow of resources will be required to settle the obligation and that the amount can be reliably estimated. Provisions for warranties for vehicles sold during the year are based on warranty conditions and the estimated quality situation. Provisions on service contracts are related to expected future expenses that exceed contractual future revenue. Provisions for residual value obligations arise as a consequence either of an operating lease (Scania as lessor) or a delivery with a repurchase obligation. The provision must cover the current assessment that expected future market value will be below the price agreed in the lease contract or repurchase contract. in this case, a provision for the difference between these amounts is to be reported, to the extent that this difference is not less than an as yet unrecognised deferred gain. assessment of future residual value risk occurs continuously over the contract period. For provisions related to pensions, see the description under “Employee benefits” below and in note 17 “Provisions for pensions and similar commitments”. For provisions related to deferred tax liabilities, see below under “Taxes”. Taxes The Group’s total tax consists of current tax and deferred tax. Deferred tax is recognised in case of a difference between the carrying amount of assets and liabilities and their fiscal value (“temporary difference”). Deferred tax assets minus deferred tax liabilities are recognised only to the extent that it is likely that they can be utilised. The tax effect attributable to items recognised directly in equity, such as changes in actuarial gains/ losses, is recognised together with the underlying item directly in equity. <a href="/v5/viewer/files/Default_s.aspx?gKey=tqcxr73s&gInitPage=79">Scania Annual Report 2008 Sida 79 77 Employee bene</a> fits Within the Scania Group, there are a number of both defined contribution and defined benefit pension and similar plans, some of which have assets that are managed by special foundations, funds or the equivalent. The plans include retirement pensions, survivor pensions, health care and severance pay. These are financed mainly by provisions to accounts and partially via premium payments. Plans in which Scania only pays fixed contributions and has no obliga- tion to pay additional contributions if the assets of the plan are insufficient to pay all compensation to the employee are classified as defined contribution plans. The Group’s expenditures for defined contribution plans are recognised as an expense during the period when the employees render the services in question. Defined benefit plans are all plans that are not classified as defined contribution. These are calculated according to the “projected unit credit method”, for the purpose of fixing the present value of the obligations for each plan. calculations are performed every year and are based on actuarial assumptions that are set on the closing day. The obligations are carried at the present value of expected disbursements, taking into account inflation, expected future pay increases and using a discount rate equivalent to the interest rate on top-rated corporate or government bonds with a remaining maturity corresponding to the obligations in question. The interest rate on top-rated corporate bonds is used in those countries where there is a functioning market for such bonds. in other countries, the interest rate on government bonds is used instead. For plans that are funded, the fair value of the plan assets is subtracted from the estimated present value of the obligation. changes in pension obligations and managed assets, respectively, due to changes in actuarial assumptions or adjustments in actuarial parameters based on outcomes are recognised directly in equity (“actuarial gains and losses”) and do not give rise to any effects on earnings. in the case of some multi-employer defined benefit plans, sufficient information cannot be obtained to calculate Scania’s share of the plans. For this reason, these plans are reported as defined contribution. For Scania, this applies to the Dutch Pensioenfonds Metaal en Techniek, which is administered via Mn Services, and Bedrijfstakpensioenfonds Metaloelektro, which is administered via PVF achmea, as well as the portion of the Swedish iTP occupational pension plan that is administered via the retirement insurance company alecta. Most of the Swedish plan for salaried employees (the collectively agreed iTP plan) is financed by provisions to accounts, however, which is safeguarded via credit insurance from the mutual insurance company Försäkringsbolaget Pensionsgaranti (FPG) and administered by a common institution operated on behalf of the Swedish business sector, Pensionsregistreringsinstitutet (PRi). See also note 17 “Provisions for pensions and similar commitments”. Scania never values net assets at more than the present value of available economic benefits in the form of repayments from the plan or in the form of reductions in future fees to the plan. This value is determined as present value taking into account the discount rate in effect. INCOME STATEMENT — CLASSIFICATIONS Research and development expenses This item consists of the research and development expenses that arise during the research phase and the portion of the development phase that does not fulfil the requirements for capitalisation, plus amortisation and any impairment loss during the period of previously capitalised development expenditures. See note 11, “intangible noncurrent assets”. Selling expenses Selling expenses are defined as operating expenses in sales and service companies plus costs of corporate-level commercial resources. in the Financial Services segment, selling and administrative expenses are reported as a combined item, since a division lacks relevance. Administrative expenses administrative expenses are defined as costs of corporate management as well as staff units and corporate service departments. Financial income and expenses “Financial income” refers to income from financial investments, pension assets and derivatives. “Other financial income” includes other positive earnings from fluctuation in the valuation of non-hedge accounted derivatives (see the section on financial instruments) and exchange rate gains. “Financial expenses” refers to expenses connected to loans, pension liability and derivatives. “Other financial expenses” include current bank fees, losses arising from valuation of non-hedge-accounted derivatives and exchange rate losses. INCOME STATEMENT — VALUATION PRINCIPLES Revenue recognition Revenue from the sale of goods is recognised when substantially all risks and rewards are transferred to the buyer. Where appropriate, discounts provided are subtracted from sales revenue. Net sales – Vehicles and Services Sales in case of delivery of new trucks, buses and engines as well as used vehicles in which Scania has no residual value obligation, the entire revenue is recognised at the time of delivery to the customer. Leases • Operating lease – in case of delivery of vehicles that Scania finances with an operating lease, revenue is allocated on a straight-line basis over the lease period. • Residual value obligation – in case of delivery of vehicles on which Scania has a repurchase obligation at a guaranteed residual value, revenue is allocated on a straight-line basis until the repurchase date, as with an operating lease, provided that substantial risks remain with Scania. • Short-term rental – in case of short-term rental of vehicles, revenue is allocated on a straight-line basis over the contract period. Leasing and rentals mainly involve new trucks and buses. in such cases, the asset is recognised in the balance sheet as a lease asset. S c a n i a 20 0 8 <a href="/v5/viewer/files/Default_s.aspx?gKey=tqcxr73s&gInitPage=80">Scania Annual Report 2008 Sida 80 78 notes to the </a> consolidated financial statements NOTE 1 Accounting principles, continued Service-related products income for service and repairs is recognised as income when the service is performed. For service and repair contracts, income is allocated over the life of the contracts, based on how expenses are allocated over time. Financial Services in case of financial and operating leases, with Scania as the lessor, the recognition of interest income and lease income, respectively, is allocated over the lease period. Other income is recognised on a continuous basis. MISCELLANEOUS Related party transactions Related party transactions occur on market terms. “Related parties” refer to the companies in which Scania can exercise a controlling or significant influence in terms of the operating and financial decisions that are made. The circle of related parties also includes those companies and physical persons that are able to exercise a controlling or significant influence over the financial and operating decisions of the Scania Group. Related party transactions also include defined benefit and defined contribution pension plans. Government grants including EU grants Government grants received that are attributable to operating expenses reduce these expenses. Government grants related to investments reduce the gross cost of non-current assets. Contingent liabilities a contingent liability is a possible obligation that arises from past events and whose existence will be confirmed only by the occurrence or nonoccurrence of one or more uncertain future events. a contingent liability can also be a present obligation that is not recognised as a liability or provision because it is not probable that an outflow of resources will be required, or because the amount of the obligation cannot be measured with sufficient reliability. Earnings per share Earnings per share are calculated as net income for the period attributable to Parent company shareholders, divided by the weighted average number of shares outstanding per report period. Incentive programmes and share-based payment The outcome of the incentive programme for executive officers is recognised as a salary expense in the year the payment is related to. Part of the programme is payable in such a way that the employee him/herself acquires shares in Scania aB at market price (see note 28 “compensation to executive officers”). as a result, the rules according to iFRS 2, “Share-based payments”, are not applicable. CHANGES IN ACCOUNTING PRINCIPLES DURING THE NEXT YEAR new standards, amended standards and interpretations that enter into force on 1 January 2009 have not been applied in advance. The following new and amended standards will be applied from 1 January 2009. IFRS 8, “Operating Segments” This standard sets out requirements for disclosure of information about the Group’s operating segments and replaces the requirement to define primary and secondary segments based on lines of business and geographic areas. The standard will be applied starting with the financial year 2009. The introduction of iFRS 8 does not affect its segment reporting. Revised IAS 23, “Borrowing Costs” The revision requires capitalisation of borrowing costs when these are attributable to assets that necessarily take a substantial period of time to get ready for their intended use or sale. The revision will be applied starting with the financial year 2009 and is not expected to have any substantial effect on Scania’s financial reports. Revised IAS 1, “Presentation of Financial Statements” The revision contains a new financial reporting structure and requires a company to provide a statement of comprehensive income that includes all changes in assets and liabilities that are not due to transactions with its owners. The revision will be applied starting with the financial year 2009 and will only affects the presentation of the Scania Group’s financial reports. The following new and amended standards will be applied to the financial year 2010. Revised IFRS 3, “Business Combinations” The standard deals with reporting of business combinations (acquisitions of businesses) and includes a number of changes. The main changes concern the definition of a business combination, two alternative methods for reporting goodwill and the requirement that transaction costs be recognised as expenses when they arise. The standard will be applied prospectively to acquisitions implemented after it enters into forces. The revised standard will affect financial reports related to acquisitions implemented during the financial year 2010, but is not deemed likely to have any substantial effect on Scania’s financial reports. S c a n i a 20 0 8 <a href="/v5/viewer/files/Default_s.aspx?gKey=tqcxr73s&gInitPage=81">Scania Annual Report 2008 Sida 81 79 PARENT COMPAN</a> Y Parent Company accounting principles The Parent company has prepared its annual Report in compliance with Sweden’s annual accounts act and Recommendation RFR 2.1, “accounting for Legal Entities” of the Swedish Financial Reporting Board. RFR 2.1 implies that the Parent company in the annual Report of a legal entity shall apply all international Financial Reporting Standards and interpretations approved by the EU as far as this is possible within the framework of the annual accounts act, and taking into account the connection between reporting and taxation. The recommendation states what exceptions from iFRS and additions shall be made. The Parent company does not apply iaS 39, “Financial instruments”, but instead applies a cost-based method in accordance with the annual accounts act. The scope of financial instruments in the accounts of the Parent company is extremely limited. The reader is thus referred to the Group’s disclosures related to iFRS 7, “Financial instruments – Disclosures”. Subsidiaries Holdings in subsidiaries are recognised in the Parent company financial statements according to the cost method of accounting. Testing of the value of subsidiaries occurs when there is an indication of a decline in value. Dividends received from subsidiaries are recognised as income to the extent they are attributable to profits earned after the acquisition. Dividends that exceed profits earned are recognised as a repayment of the investment and reduce the carrying amount. Anticipated dividends anticipated dividends from subsidiaries are recognised in cases where the Parent company has the exclusive right to decide on the size of the dividend and the Parent company has made a decision on the size of the dividend before having published its financial reports. Taxes The Parent company financial statements recognise untaxed reserves including deferred tax liability. The consolidated financial statements, however, reclassify untaxed reserves to deferred tax liability and equity. Group contributions The Parent company’s recognition of Group contributions received and provided is accounted for on the basis of their economic significance. in case a Group contribution is provided or received for tax reasons, the Group contribution including its current tax effect is recognised directly in retained earnings. Group contributions received that are comparable to dividends are recognised as revenue in the income statement. S c a n i a 20 0 8 <a href="/v5/viewer/files/Default_s.aspx?gKey=tqcxr73s&gInitPage=82">Scania Annual Report 2008 Sida 82 80 notes to the </a> consolidated financial statements NOTE 2 Key judgements and estimates The key judgements and estimates for accounting purposes that are discussed in this section are those that Group Management and the Board of Directors deem the most important for an understanding of Scania’s financial reports, taking into account the degree of significant influence and uncertainty. These judgements are based on historical experience and the various assumptions that Management and the Board deem reasonable under the prevailing circumstances. The conclusions drawn in this way provide the basis for decisions regarding recognised values of assets and liabilities, in those cases where these cannot easily be established through information from other sources. actual outcomes may diverge from these judgements if other assumptions are made or other conditions emerge. note 1 presents the accounting principles the company has chosen to apply. important estimates and judgements for accounting purposes are attributable to the following areas. Revenue recognition Scania delivers about 10 percent of its vehicles with residual value obligations or repurchase obligations. These are recognised as operating lease contracts, with the consequence that recognition of revenue and earnings is allocated over the life of the obligation. if there are major changes in the market for used vehicles, this affects Scania’s successive income recognition and, where appropriate, valuation of used vehicle inventories. in case the profit from vehicles sold with residual value guarantees or repurchase obligations is insufficient to cover a possible downturn in market value, there is a provision in the required amount. at the end of 2008, obligations related to residual value or repurchase amounted to about SEK 6,800 m. Credit risks in its Financial Services operations, Scania has an exposure in the form of contractual payments. at the end of 2008, these amounted to SEK 47,200 m. in all essential respects, Scania has collateral in the form of the right to repossess the underlying vehicle. in case the market value of the collateral does not cover the exposure to the customer, Scania has a risk of loss. On 31 December 2008, the reserve for doubtful receivables in Financial Services operations amounted to SEK 635 m. See also “credit risk exposure” under note 30, “Financial instruments and financial risk management”. Intangible assets intangible assets at Scania are essentially attributable to capitalised product development expenditures and “acquisition goodwill”. all goodwill items at Scania stem from acquisitions of previously independent importers/dealerships. all goodwill items are subject to an annual impairment test, which is mainly based on recoverable amounts, including important assumptions on the sales trend, margin and discount rate before tax. See also below. in the long term, the increase in sales of Scania’s products is deemed to be closely correlated with economic growth (GDP) in each respective market, which has been estimated at between 2 and 5 percent. The revenue/cost ratio, or margin, for both vehicles and service is kept constant over time compared to the latest known level. When discounting to present value, Scania uses its average cost of equity (currently 11 percent before taxes). These assumptions do not diverge from information from external information sources or from earlier experience. To the extent the above parameters change negatively, an impairment loss may arise. On 31 December 2008, Scania’s goodwill after the necessary impairment losses of SEK 13 m. amounted to SEK 1,307 m. The impairment tests that were carried out showed that there are ample margins before additional impairment losses will arise. Scania’s development costs are capitalised in the phase of product development where decisions are made on future production and market introduction. in this case there is future predicted revenue and a corresponding production cost. in case future volume or the price and cost trend diverges negatively from the preliminary calculation, an impairment loss may arise. Scania’s capitalised development costs amounted to SEK 872 m. on 31 December 2008. Pension obligations in the actuarial methods that are used to establish Scania’s pension liabi lities, a number of assumptions are highly important. The most critical ones are related to the discount rate on the obligations and expected return on managed assets. Other vital assumptions are the estimated pace of wage and salary increases and estimated life expectancy. a higher discount rate decreases the recognised pension liability. in calculating the Swedish pension liability, the discount rate was lowered by 0.5 percentage points to 4.0 percent during 2008, while in 2007 it was raised by 0.5 percentage points. Such a change in the above-mentioned actuarial parameters is recognised directly in equity, net after taxes. Product obligations Scania’s product obligations are mainly related to vehicle warranties in the form of a one-year “factory warranty” plus extended warranties and, in some cases, special quality campaigns. For each vehicle sold, Scania makes a warranty provision. For extended warranties and campaigns, a provision is made at the time of the decision. Provisions are dependent on the estimated quality situation and the degree of utilisation in the case of campaigns. an essential change in the quality situation may require an adjustment in earlier provisions. Scania’s product obligations can be seen in note 18 “Other provisions” and amounted to SEK 1,316 m. on 31 December 2008. Legal and tax risks On 31 December 2008, provisions for legal and tax risks amounted to SEK 813 m. See note 18, “Other provisions”. S c a n i a 20 0 8 <a href="/v5/viewer/files/Default_s.aspx?gKey=tqcxr73s&gInitPage=83">Scania Annual Report 2008 Sida 83 81 Legal risks D</a> emands and claims aimed at the Group, including demands and claims that lead to legal proceedings, may be related to infringements of intellectual property rights, faults and deficiencies in products that have been delivered, including product liability, or other legal liability for the companies in the Group. The Group is party to legal proceedings and related claims that are normal in its operations. in addition, there are demands and claims normal to the Group’s operations that do not lead to legal proceedings. in the best judgement of Scania’s management, such demands and claims will not have any material impact on the financial position of the Group, beyond the reserves that have been set aside. Tax risks The Group is party to tax proceedings. Scania’s management has made the assessment, based on individual examination, that the final outcome of these proceedings will not have any material impact on the financial position of the Group, beyond the recognised reserves. Significant judgements are made in order to determine both current and deferred tax liabilities/assets. as for deferred tax assets, Scania must assess the likelihood that deferred tax assets will be utilised to offset future taxable profits. The actual result may diverge from these judgements, among other things due to future changes in business climate, altered tax rules or the outcome of still uncompleted examinations of filed tax returns by authorities or tax courts. Scania recognised deferred net tax liabilities totalling SEK 401 m. at the end of 2008. in addition, at the end of 2008 the Group had deferred tax receivables related to unutilised tax loss carry-forwards of about SEK 139 m. that were not carried in the financial statements after assessment of the potential for utilising the tax loss carry-forwards. This judgement may affect income both negatively and positively. S c a n i a 20 0 8 <a href="/v5/viewer/files/Default_s.aspx?gKey=tqcxr73s&gInitPage=84">Scania Annual Report 2008 Sida 84 82 notes to the </a> consolidated financial statements NOTE 3 Segment reporting The Vehicles and Services line of business encompasses the following products: trucks, buses and engines, including the services associated with these products. all products are based on shared basic components. Products and services are, moreover, organised into shared areas of responsibility at both the industrial and sales levels. The Financial Services line of business provides financial solutions to Scania customers, such as loan financing, lease contracts and insurance solutions. Scania’s internal pricing is determined according to market principles, at “arm’s length distance”. PRIMARY SEGMENTS (LINES OF BUSINESS) Vehicles and Services Income statement Revenue from external customers 1 Expenses income from holdings in associated companies Operating income Financial income and expenses 2 Income before tax Taxes 2 2008 2007 2006 88,977 84,486 70,738 –76,888 – 72,850 – 62,483 9 – 4 5 12,098 11,632 8,260 –534 – 258 – 170 11,564 11,374 8,090 Net income for the year 8,587 Depreciation/ amortisation included in operating income 3 –2,977 – 3,241 – 2,499 8,133 5,591 –3,235 – 3,121 – 3,023 Financial Services 2008 4,772 –4,358 – 414 – 414 –111 303 –22 2007 2006 4,070 3,527 –3,538 – 3,034 – – 532 493 – – 532 493 –111 – 145 421 348 –17 – 14 Eliminations and other 2008 –1,825 1,825 – – – – – – – Scania Group 2007 2006 –1,686 – 1,643 1,686 1,643 – – – – – – – – – – – – – – 2008 2007 2006 91,924 86,870 72,622 –79,421 –74,702 – 63,874 9 –4 5 12,512 12,164 8,753 –534 –258 – 170 11,978 11,906 8,583 –3,088 8,890 –3,257 –3,352 – 2,644 8,554 5,939 –3,138 – 3,037 Cash flow statement by segment cash flow from operating activities change in working capital etc. Cash flow from operating activities Cash flow from investing activities Cash flow before financing activities Vehicles and Services 2008 11,661 –4,501 7,160 –5,386 1,774 Financial Services 2007 2006 11,788 8,873 986 1,879 12,774 10,752 –4,545 – 3,810 8,229 6,942 2008 701 – 701 –5,822 –5,121 2007 2006 529 – 529 394 – 394 –5,698 – 3,514 –5,169 – 3,120 Scania Group 2008 12,362 –4,501 7,861 2007 2006 12,317 9,267 986 1,879 13,303 11,146 –11,208 –10,243 – 7,324 3,060 3,822 –3,347 S c a n i a 20 0 8 <a href="/v5/viewer/files/Default_s.aspx?gKey=tqcxr73s&gInitPage=85">Scania Annual Report 2008 Sida 85 83 Balance sheet</a> 31 December Assets intangible non-current assets Tangible non-current assets Lease assets 6 Shares and participations in associated companies interest-bearing receivables, non-current 5 Other receivables, non-current inventories interest-bearing receivables, current 5 Other receivables, current 4 Short-term investments, cash and cash equivalents Total assets Equity and liabilities Equity interest-bearing liabilities 7 Provisions for pensions Other non-current provisions Other liabilities, non-current current provisions Other liabilities, current 4 Total equity and liabilities Gross investment for the period in – intangible non-current assets – Tangible non-current assets – Lease assets 213 4,900 1,584 458 224 3,795 3,523 2,054 1,712 8 24 4,370 7 24 8 16 3,642 3,474 – – – – – – – – – 221 4,924 5,954 465 232 3,819 3,539 5,696 5,186 2,308 4,558 495 283 1,766 286 2,498 2,452 21,132 18,487 17,104 4,269 3,775 264 410 173 241 1,211 1,485 15,550 11,242 10,100 450 496 13,119 11,149 10,737 4,345 3,890 10,672 63,842 53,870 57,235 17,204 20,776 22,971 1,678 6,463 3,985 3,590 11,574 4,601 1,658 4,805 1,313 2,248 3,174 3,372 2,554 2,024 1,123 22,687 19,787 17,360 63,842 53,870 57,235 23 40 9,033 – 13 38 – 12 26 8,019 7,379 – 24,594 20,180 16,358 51 – 24 – 221 – 13,593 10,115 8,104 1,403 324 1,295 244 590 173 49,061 39,928 32,863 4,734 20 3 707 2 1,523 4,036 3,163 42,072 33,680 27,805 20 15 614 – – 577 13 2 1,578 1,288 49,061 39,928 32,863 – – –1,931 – – – – – –937 – –2,868 – – – – – – –2,868 –2,868 – – – – – – – – – –1,580 – 1,488 – – – – – –764 – 532 – – –2,344 – 2,020 – – – – – – – – – – – – –2,344 – 2,020 –2,344 – 2,020 2,331 2,511 2,464 21,172 18,525 17,130 11,660 10,708 9,666 495 264 173 24,877 20,590 16,599 1,817 1,235 1,706 15,550 11,242 10,100 13,879 10,565 8,600 13,585 11,680 10,795 4,669 4,134 10,845 110,035 91,454 88,078 21,938 24,812 26,134 53,646 35,358 34,268 4,005 3,605 4,621 1,661 5,512 1,315 2,862 3,751 3,372 2,567 2,024 1,125 21,342 19,021 16,628 110,035 91,454 88,078 Vehicles and Services 2008 Financial Services 2007 2006 2008 2007 2006 Eliminations and other 2008 Scania Group 2007 2006 2008 2007 2006 1 Elimination refers mainly to income on operating leases. 2 Financial income and expenses as well as taxes are reported at segment level to better reflect the Financial Services line of business, whose operations are based on net financing expense after taxes. For reasons of comparability, the corresponding information is also shown for the Vehicles and Services line of business. 3 Value decrease in operating leases is not included. 4 Elimination refers to internal receivables and liabilities between the two segments. 5 interest-bearing receivables in the Financial Services segment mainly consist of hire purchase receivables and financial lease receivables. 6 Elimination refers to deferred profit on lease assets. 7 Refers to interest liabilities that are not allocated between non-current and current by segment. S c a n i a 20 0 8 <a href="/v5/viewer/files/Default_s.aspx?gKey=tqcxr73s&gInitPage=86">Scania Annual Report 2008 Sida 86 84 notes to the </a> consolidated financial statements NOT 3 Rapportering per segment, forts. NOTE 3 Segment reporting, continued SECONDARY SEGMENTS (GEOGRAPHIC AREAS) 2008 Vehicles and Services net sales, January–December 1 assets, 31 December 2, 3 Gross investments 2 Financial Services Revenue, January–December 1 assets, 31 December 2 Gross investments 2 3,313 31,902 18 2,935 26,268 18 2,933 23,498 12 1 Revenue from external customers is allocated by location of customers. 2 assets and gross investments, respectively (excluding lease assets), by geographic location. 3 Starting in 2007, assets in each region are reported on a net basis after eliminating intra-Group receivables. GEOGRAPHIC AREAS Scania is geographically divided into five parts: western Europe, central and eastern Europe, asia, america and other markets. The list below shows what countries are included in each of these areas. Sales of Scania’s products occur in all five geographic areas. Financial Services is found mainly in the European markets and to a lesser extent in the others. Most of Scania’s research and development occurs in Sweden. Manufacturing of buses, trucks and engines occurs in a number of locations in Sweden as well as in argentina, Brazil, France, the netherlands, Poland and Russia. COMPOSITION OF GEOGRAPHIC SEGMENTS Western Europe: austria, Belgium, Denmark, Finland, France, Germany, Great Britain, iceland, ireland, italy, Malta, the netherlands, norway, Portugal, Spain, Sweden, Switzerland. Central and eastern Europe: Belarus, Bosnia-Herzegovina, Bulgaria, croatia, cyprus, the czech Republic, Estonia, Greece, Hungary, Kazakhstan, Latvia, Lithuania, Macedonia, Poland, Romania, Russia, Serbia, Slovakia, Slovenia, Ukraine, Uzbekistan. Asia: Bahrain, china, Hong Kong, india, indonesia, iran, iraq, israel, Japan, Jordan, Kuwait, Lebanon, Macao, Malaysia, Oman, Qatar, Saudi arabia, Singapore, South Korea, Sri Lanka, Syria, Taiwan, Thailand, Turkey, the United arab Emirates, Vietnam. America: argentina, Bolivia, Brazil, chile, colombia, costa Rica, cuba, the Dominican Republic, Ecuador, Guatemala, Guyana, Honduras, Mexico, nicaragua, Panama, Paraguay, Peru, Surinam, Uruguay, the United States, Venezuela, the Virgin islands. Other markets: algeria, angola, australia, Botswana, chad, Egypt, Eritrea, Ethiopia, Ghana, Kenya, Liberia, Malawi, Mauritius, Morocco, Mozambique, namibia, new Zealand, niger, nigeria, Reunion, Rwanda, the Seychelles, South africa, Sudan, Tanzania, Tunisia, Uganda, Zambia, Zimbabwe. NOTE 4 Net sales Vehicles and Services Trucks Buses Engines Service-related products Used vehicles Other products Total delivery value adjustment for lease income 1 net sales 2008 55,566 8,186 1,151 16,393 4,370 3,812 89,478 –501 88,977 2007 52,599 7,429 1,185 15,139 5,270 3,840 85,462 84,486 2006 43,021 6,766 1,024 13,595 5,189 3,032 72,627 –976 – 1,889 70,738 1 Refers to the difference between sales value based on deliveries and revenue recognised as income. This difference arises when a lease or delivery, combined with a residual value guarantee or a repurchase obligation, is recognised as an operating lease, provided that significant risks remain. Refers mainly to trucks, SEK –367 m. (–1,090 and –1,666, respectively) and buses SEK –51 m. (+182 and –83, respectively). The adjustment from delivery value to net sales in operating leases occurs in two steps. First the entire delivery value of vehicles delivered during the period is subtracted from sales. Then the portion of delivery value attributable to the period in question for vehicles delivered during this and earlier periods is added to sales. 902 10,795 9 618 8,592 9 397 6,106 9 168 2,404 3 186 2,149 2 184 2,271 2 Western Europe 2007 51,319 45,410 4,120 49,452 37,416 3,464 2006 45,475 44,359 3,074 Central and eastern Europe 2007 2008 13,781 5,838 450 14,146 4,359 328 Asia 2006 8,293 3,404 169 2008 6,665 1,926 90 2007 5,699 1,482 35 2006 4,603 1,150 25 S c a n i a 20 0 8 <a href="/v5/viewer/files/Default_s.aspx?gKey=tqcxr73s&gInitPage=87">Scania Annual Report 2008 Sida 87 85 America 2008 </a> 12,822 8,860 427 2007 10,573 9,082 397 2006 8,420 7,331 367 2008 4,390 1,808 26 Other markets 2007 4,616 1,531 29 2006 3,947 2,112 112 2008 – – – Eliminations 2007 – – – Total 2006 0 – 1,121 0 2008 88,977 63,842 5,113 2007 84,486 53,870 4,253 2006 70,738 57,235 3,747 12 226 1 16 172 1 1 140 0 377 3,734 1 315 2,747 1 12 848 1 – – – – – – 0 0 0 4,772 49,061 32 4,070 39,928 31 3,527 32,863 24 NOTE 5 Operating expenses Vehicles and Services Cost of goods sold cost of goods Staff Depreciation/amortisation Other Total Research and development expenses Staff Depreciation/amortisation Other Total Selling expenses Staff Depreciation/amortisation Other Total Administrative expenses Staff Depreciation/amortisation Other Total 1,616 687 1,925 4,228 3,377 257 3,368 7,002 816 16 310 1,142 1,372 613 1,358 3,343 2,846 257 3,335 6,438 623 18 618 1,259 1,259 529 1,235 3,023 2,638 266 3,112 6,016 531 18 640 1,189 2008 41,719 9,408 2,275 11,114 64,516 2007 40,343 9,283 2,233 9,951 61,810 2006 34,187 8,182 2,210 7,676 52,255 Financial Services Selling and administrative expenses Staff Depreciation/amortisation Other Total 319 22 177 518 280 17 173 470 258 14 144 416 cost of goods includes new trucks, buses and engines, but also used vehicles, bodywork and cars. The cost of goods is also dependent on the degree of integration in different markets. capitalised product development expenditures have reduced the expense categories “Staff” and “Other”. 2008 2007 2006 S c a n i a 20 0 8 <a href="/v5/viewer/files/Default_s.aspx?gKey=tqcxr73s&gInitPage=88">Scania Annual Report 2008 Sida 88 86 notes to the </a> consolidated financial statements NOTE 6 Financial Services interest income Lease income Depreciation interest expenses net interest income Other income and expenses Gross income Selling and administrative expenses Bad debt expenses1 Operating income 2008 2,455 2,317 –1,825 –1,838 1,109 50 1,159 –518 –227 414 2007 1,934 2,136 –1,686 –1,371 1,013 79 1,092 –470 –90 532 2006 1,513 2,014 – 1,620 – 988 919 53 972 – 416 – 63 493 1 These expenses were equivalent to 0.53 (0.26 and 0.20, respectively) percent of the average credit portfolio. Net investments in financial leases Receivables related to future minimum lease payments Less: Reserve for bad debts imputed interest Net investment 4 –539 –3,086 29,918 –531 –2,344 23,811 –461 – 1,777 18,896 4 included in the consolidated financial statements under “current-” and “non-current interestbearing receivables”. 2008 33,543 2007 26,686 2006 21,134 Lease assets (operating leases) 1 January new contracts Depreciation Terminated contracts change in value adjustments Exchange rate differences Carrying amount, 31 December2 2008 8,019 4,370 –1,825 –2,109 –45 623 9,033 2007 7,379 3,642 –1,686 –1,543 29 198 8,019 2006 7,269 3,474 – 1,620 – 1,537 45 – 252 7,379 2 The carrying amount in the consolidated balance sheet also includes elimination of deferred profit recognition and internal gains. See note 3. Future minimum lease payments5 2009 2010 2011 2012 2013 2014 and thereafter Total Operating leases 2,036 1,579 1,153 627 288 117 5,800 Financial leases 13,152 8,790 6,323 3,575 1,359 344 33,543 5 Minimum lease payments refer to the future flows of incoming payments to the contract portfolio, including interest. For operating leases, the residual value is not included since this is not a minimum lease payment for these contracts. Financial receivables (hire purchase contracts and financial leases) 1 January new receivables Loan principal payments/ terminated contracts change in value adjustments Exchange rate differences carrying amount, 31 December Total receivables and lease assets 3 2008 30,295 20,523 –15,320 –4 2,693 38,187 47,220 2007 24,462 16,091 2006 22,365 14,659 –11,737 – 11,708 –101 770 – 18 – 836 30,295 38,314 3 The number of contracts in the portfolio on 31 December totalled about 94,000 (87,000 and 75,000, respectively). 24,462 31,841 S c a n i a 20 0 8 <a href="/v5/viewer/files/Default_s.aspx?gKey=tqcxr73s&gInitPage=89">Scania Annual Report 2008 Sida 89 87 NOTE 7 Financ</a> ial income and expenses 2008 Financial income (interest income) Bank balances and financial investments Derivatives 1 Expected return on pension assets Other Total financial income Financial expenses (interest expenses) Borrowings Pension liability Derivatives 1 Total financial expenses Other financial income 2 Other financial expenses 2 Net financial items –469 –238 –126 –833 135 –294 –534 –349 –206 –138 –693 74 –118 –258 – 539 – 188 – 136 – 863 142 – 81 – 170 1 Refers to interest on derivatives that are used to match interest on borrowings and lending as well as the interest component in derivatives that are used to convert borrowing currencies to lending currencies. 2 Refers primarily to SEK –144 m. (–38 and 80, respectively) in market value effects of financial instruments as well as exchange rate differences and bank-related costs. 372 16 70 0 458 333 83 63 0 479 342 239 51 0 632 Deferred tax is attributable to the following: Deferred tax related to temporary differences Deferred tax due to changes in tax rates and tax rules 2 Deferred tax income due to tax value of loss carry-forwards capitalised during the year Deferred tax expense due to utilisation of previously capitalised tax value of tax loss carry-forwards Other changes in deferred tax liabilities/assets Total 2008 359 144 67 –308 –169 93 2007 285 –67 204 –39 –325 58 2006 277 6 28 – 59 – 249 3 2 The effect of changes in tax rates during 2008 mainly refers to Sweden. (During 2007, the tax rate changed in the following countries, among others: Germany, Spain and the czech Republic.) NOTE 8 Taxes 2007 2006 Tax expense/income for the year current tax 1 Deferred tax Total 1 Of which, taxes paid: 2008 –3,181 93 –3,088 –3,803 2007 –3,410 58 –3,352 –3,232 2006 – 2,647 3 – 2,644 – 2,552 S c a n i a 20 0 8 <a href="/v5/viewer/files/Default_s.aspx?gKey=tqcxr73s&gInitPage=90">Scania Annual Report 2008 Sida 90 88 notes to the </a> consolidated financial statements NOTE 8 Taxes, continued 2008 Reconciliation of effective tax income before tax Tax calculated using Swedish tax rate Tax effect and percentage influence: Difference between Swedish and foreign tax rates Tax-exempt income non-deductible expenses Utilisation of tax value of loss carry-forwards not previously recognised Valuation of tax value of loss carry-forwards not previously recognised adjustment for taxes pertaining to previous years changed tax rates Other Effective tax Amount % 11,978 –3,354 28 2007 amount 11,906 –3,334 2006 % amount 8,583 28 – 2,403 % 28 –339 491 –168 128 28 –26 132 20 –3,088 3 –4 1 –1 0 0 –1 0 26 –166 233 –102 179 24 –90 –69 –27 –3,352 1 –2 1 –2 0 1 1 0 28 – 183 176 – 167 20 3 3 4 – 97 – 2,644 2 –2 2 0 0 0 0 1 31 Deferred tax assets and liabilities are attributable to the following: Deferred tax assets Provisions Provisions for pensions non-current assets inventories Unutilised tax loss carry-forwards 3 Derivatives Other Offset within tax jurisdictions Total deferred tax assets Deferred tax liabilities Property, plant and equipment Tax allocation reserve 4 Derivatives Other Offset within tax jurisdictions Total deferred tax liabilities Net deferred tax liabilities 2008 563 507 775 987 190 759 718 –3,831 668 2007 639 430 871 550 399 53 611 –3,025 528 2006 526 391 573 496 129 – 663 – 2,129 649 3,238 1,521 – 141 –3,831 1,069 401 3,333 1,468 – 33 –3,025 1,809 1,281 3,170 1,146 53 38 – 2,129 2,278 1,629 3 Unutilised tax loss carry-forwards in 2008 stemmed mainly from Latin america, Germany, Russia and Spain. Of the deferred tax assets attributable to unutilised tax loss carry-forwards, SEK 141 m. may be utilised without time constraints. 4 in Sweden, tax laws permit provisions to an untaxed reserve called a tax allocation reserve. Deductions for provisions to this reserve are allowed up to a maximum of 25 percent of taxable profits. Each provision to this reserve may be freely withdrawn and face taxation, and must be withdrawn no later than the sixth year after the provision was made. S c a n i a 20 0 8 <a href="/v5/viewer/files/Default_s.aspx?gKey=tqcxr73s&gInitPage=91">Scania Annual Report 2008 Sida 91 89 NOTE 8 Taxes,</a> continued Reconciliation of net deferred tax liabilities carrying value on 1 January Deferred taxes recognised in the year’s income Exchange rate differences Reclassifications Tax assets/tax liabilities in acquired businesses Recognised in equity, changes attributable to: actuarial gains and losses on pensions currency translation reserve hedge reserve Net deferred tax liabilities, 31 December –165 –36 –667 401 –74 – –108 1,281 –21 – 67 1,629 Recognised tax assets related to subsidiaries that reported a loss during 2008 were valued on the basis of an assessment that future earnings capacity in each respective company made a valuation possible. in the Scania Group, deferred tax assets related to unutilised tax loss carryforwards of SEK 139 m. (143 and 225, respectively) were not assigned a value after assessment of the potential for utilising the tax loss carry-forwards. Vehicles and Services Intangible non-current assets Development expenses Selling expenses Total Expiration structure of deferred tax assets related to tax loss carry-forwards not recognised 2009 2010 2011 2012 2013 2014 and thereafter no expiration date Total Tangible non-current assets costs of goods sold 1 2008 5 0 0 17 4 60 53 139 Research and development expenses Selling expenses administrative expenses Total Total depreciation/amortisation, Vehicles and Services 2008 –481 –29 –510 2007 –421 –38 –459 2006 – 361 – 38 – 399 NOTE 10 Depreciation/amortisation 2008 1,281 –93 81 – – 2007 1,629 –58 10 – –118 2006 1,575 – 3 – 9 20 – NOTE 9 Earnings per share Earnings per share net income for the year attributable to Scania shareholders, SEK m. Weighted average, millions of shares outstanding during the year Earnings per share before/ after dilution, SEK 2008 8,890 800 11.11 There are no financial instruments that can lead to dilution. Earnings per share in 2006 have been recalculated to take into account the share split implemented during 2007. 2007 8,554 800 10.69 2006 5,939 800 7.42 –2,275 –206 –228 –16 –2,725 –3,235 –2,233 –192 –219 –18 –2,662 –3,121 – 2,210 – 168 – 228 – 18 – 2,624 – 3,023 1 Of which, a value decrease of SEK –278 m. (–256 and –230, respectively) related to short-term leasing in Vehicles and Services. in addition, there was a value decrease of SEK –748 m. (–929 and –582, respectively) in operating leases as well as a value decrease of capitalised repurchasing obligations, which was charged to the cost of goods sold. Financial Services Operating leases (payments of principal) Other non-current assets Total depreciation/amortisation, Financial Services 2008 –1,825 –22 –1,847 2007 –1,686 –17 –1,703 2006 – 1,620 – 14 – 1,634 S c a n i a 20 0 8 <a href="/v5/viewer/files/Default_s.aspx?gKey=tqcxr73s&gInitPage=92">Scania Annual Report 2008 Sida 92 90 notes to the </a> consolidated financial statements NOTE 11 Intangible non-current assets 2008 Accumulated cost 1 January additions 2 Divestments and disposals Reclassifications Exchange rate differences Total Accumulated amortisation 1 January amortisation for the year – Vehicles and Services – Financial Services Divestments and disposals Reclassifications Exchange rate differences Total Accumulated impairment losses 1 January impairment loss for the year Total Carrying amount, 31 December – of which capitalised expenditures for projects that have been placed in service – of which capitalised expenditures for projects under development 2007 accumulated cost 1 January additions Divestments and disposals Reclassifications Exchange rate differences Total accumulated amortisation 1 January amortisation for the year – Vehicles and Services – Financial Services Divestments and disposals Exchange rate differences Total accumulated impairment losses 1 January impairment loss for the year Total Carrying amount, 31 December S c a n i a 20 0 8 Goodwill 1,041 131 – – 49 1,221 – – – – – – – – – 1,221 Goodwill 1,221 –22 – – 121 1,320 – – – – – – – – 13 13 1,307 Development 2,288 202 –1 – – 2,489 1,143 474 – – – – – – – 0 872 682 190 Development 2,001 293 –6 – – 2,288 726 418 – –1 – 1,143 – – – 1,145 Other intangibles 1 363 41 –2 7 10 419 212 41 7 – 11 271 3 – 3 145 Total 3,405 465 –8 7 59 3,928 938 459 7 –1 11 1,414 3 – 3 2,511 Other intangibles 1 419 41 –5 20 4 479 271 36 9 –5 2 1 314 3 10 13 152 Total 3,928 221 –6 20 125 4,288 1,414 510 9 –5 2 1 1,931 3 23 26 2,331 <a href="/v5/viewer/files/Default_s.aspx?gKey=tqcxr73s&gInitPage=93">Scania Annual Report 2008 Sida 93 91 2006 accumula</a> ted cost 1 January additions Divestments and disposals Reclassifications Exchange rate differences Total accumulated amortisation 1 January amortisation for the year – Vehicles and Services – Financial Services Divestments and disposals Exchange rate differences Total accumulated impairment losses 1 January impairment loss for the year Total Carrying amount, 31 December Goodwill 1,095 – – – – 54 1,041 Development 1,825 186 – 10 – – 2,001 Other intangibles 1 331 46 – 9 8 – 13 363 Total 3,251 232 – 19 8 – 67 3,405 – – – – – – 369 361 – – 4 – 726 184 38 5 – 7 – 8 212 553 399 5 – 11 – 8 938 – – – 1,041 – – – 1,275 Scania tests the value of goodwill and other intangible assets at least yearly. impairment testing is carried out for cashgenerating units, which usually correspond to a reporting unit. Goodwill has been allocated among a number of cashgenerating units, and the amount allocated to each unit is not significant compared to the Group’s total carrying amount for goodwill. Goodwill that has been allocated to cash-generating units coincides with the total carrying value of goodwill. Estimates of recoverable amounts are based on the same assumptions for all cash-generating units. The assumptions used are disclosed in note 2, “Key judgements and estimates”. intangible assets are essentially attributable to capitalised product development expenditures and “acquisition goodwill”. all goodwill items are attributable to acquisitions of previously independent importers/dealers that comprise separate cash-generating units. 1 Refers mainly to software, which is purchased externally in its entirety. 2 Goodwill additions refer to the purchase price, adjusted in 2008, for the acquisition in Portugal in 2007. – 3 3 148 – 3 3 2,464 S c a n i a 20 0 8 <a href="/v5/viewer/files/Default_s.aspx?gKey=tqcxr73s&gInitPage=94">Scania Annual Report 2008 Sida 94 92 notes to the </a> consolidated financial statements NOTE 12 Tangible non-current assets 2008 Accumulated cost 1 January acquisitions/divestments of subsidiaries additions Divestments and disposals Reclassifications Exchange rate differences Total Accumulated depreciation 1 January acquisitions/divestments of subsidiaries Depreciation for the year – Vehicles and Services – Financial Services Divestments and disposals Reclassifications Exchange rate differences Total Accumulated impairment losses2 1 January change in value for the year Exchange rate differences Total Carrying amount, 31 December − of which “Machinery” − of which “Equipment” − of which “Buildings” − of which “Land” − of which Financial Services Buildings and land 14,402 5 356 –201 713 836 16,111 Machinery and equipment 24,330 –7 951 –1,411 2,396 –70 26,189 Construction in progress and advance payments 2,545 – 3,617 –3 –2,994 27 3,192 Lease assets1 15,992 – 5,954 –5,534 –330 1,200 17,282 Total 57,269 –2 10,878 –7,149 –215 1,993 62,774 5,471 5 396 – –52 132 260 6,212 17,281 –7 2,050 13 –1,157 51 –123 18,108 – – – – – – – – 5,249 – 1,027 1,825 –2,476 -330 234 5,529 28,001 –2 3,473 1,838 –3,685 –147 371 29,849 – – – – 9,899 – – – – 8,081 6,886 1,195 7,359 2,540 40 1 including assets for short-term rentals, operating leases as well as assets capitalised due to repurchase obligations. 2 impairment losses on lease assets refer to value adjustment for realised and potential credit losses. 9,033 9,073 – – – – 3,192 35 45 13 93 11,660 35 45 13 93 32,832 S c a n i a 20 0 8 <a href="/v5/viewer/files/Default_s.aspx?gKey=tqcxr73s&gInitPage=95">Scania Annual Report 2008 Sida 95 93 2007 accumula</a> ted cost 1 January acquisitions/divestments of subsidiaries additions Divestments and disposals Reclassifications Exchange rate differences Total accumulated depreciation 1 January acquisitions/divestments of subsidiaries Depreciation for the year – Vehicles and Services – Financial Services Divestments and disposals Reclassifications Exchange rate differences Total accumulated impairment losses2 1 January change in value for the year Total Carrying amount, 31 December − of which “Machinery” − of which “Equipment” − of which “Buildings” − of which “Land” − of which Financial Services Buildings and land 13,054 74 305 –203 762 410 14,402 Machinery and equipment 23,398 64 827 –2,277 1,687 631 24,330 construction in progress and advance payments 2,323 – 2,687 –40 –2,469 44 2,545 Lease assets 1 14,288 – 5,696 –4,721 293 436 15,992 Total 53,063 138 9,515 –7,241 273 1,521 57,269 5,068 12 328 – –73 –2 138 5,471 16,577 41 2,078 10 –1,902 –1 478 17,281 – – – – – – – – 4,558 – 1,185 1,686 –2,276 –8 104 5,249 26,203 53 3,591 1,696 –4,251 –11 720 28,001 – – – 8,931 – – – 7,049 5,976 1,074 6,736 2,195 34 1 including assets for short-term rentals, operating leases as well as assets capitalised due to repurchase obligations. 2 impairment losses on lease assets refer to value adjustment for realised and potential credit losses. 8,019 8,053 – – – 2,545 64 –29 35 10,708 64 –29 35 29,233 S c a n i a 20 0 8 <a href="/v5/viewer/files/Default_s.aspx?gKey=tqcxr73s&gInitPage=96">Scania Annual Report 2008 Sida 96 94 notes to the </a> consolidated financial statements NOTE 12 Tangible non-current assets, continued 2006 accumulated cost 1 January additions Divestments and disposals Reclassifications Exchange rate differences Total accumulated depreciation 1 January Depreciation for the year – Vehicles and Services – Financial Services Divestments and disposals Reclassifications Exchange rate differences Total accumulated impairment losses 2 1 January change in value for the year Total Carrying amount, 31 December − of which “Machinery” − of which “Equipment” − of which “Buildings” − of which “Land” − of which Financial Services Buildings and land 13,040 215 – 338 491 – 354 13,054 Machinery and equipment 22,782 860 – 1,090 1,324 – 478 23,398 construction in progress and advance payments 1,520 2,464 – – 1,629 – 32 2,323 Lease assets 1 14,838 5,186 – 5,074 – 30 – 632 14,288 Total 52,180 8,725 – 6,502 156 – 1,496 53,063 4,702 436 – – 173 216 – 113 5,068 15,925 1,958 9 – 964 – 1 – 350 16,577 – – – – – – – 4,844 812 1,620 – 2,435 – 88 – 195 4,558 25,471 3,206 1,629 – 3,572 127 – 658 26,203 – – – 7,986 – – – 6,821 5,963 858 5,914 2,072 26 1 including assets for short-term rentals, operating leases as well as assets capitalised due to repurchase obligations. 2 impairment losses on lease assets refer to value adjustment for realised and potential credit losses. 7,379 7,405 – – – 2,323 111 – 47 64 9,666 111 – 47 64 26,796 2008 Buildings in Sweden Tax assessment value Equivalent carrying amount Land in Sweden Tax assessment value Equivalent carrying amount 1,416 2,361 605 456 2007 1,292 2,279 520 456 2006 920 2,136 346 448 S c a n i a 20 0 8 <a href="/v5/viewer/files/Default_s.aspx?gKey=tqcxr73s&gInitPage=97">Scania Annual Report 2008 Sida 97 95 NOTE 13 Holdi</a> ngs in associated companies, joint ventures etc. 2008 Carrying amount, 1 January acquisitions, capital contributions, divestments and impairment losses during the year 1 Exchange rate differences Share in income for the year Dividends Carrying amount, 31 December contingent liabilities 242 161 73 9 –12 473 – 1 SEK 161 m. refers to a capital contribution to cummins-Scania XPi. Scania has a joint venture agreement with cummins inc. related to development projects. 2007 148 106 –3 –4 –5 242 – 2006 71 83 – 5 5 – 6 148 – Sales revenue income before taxes Taxes Net income for the year 481 13 –4 9 663 –6 2 –4 736 7 – 2 5 Share of assets, liabilities, revenue and income non-current assets current assets non-current liabilities current liabilities Scania’s share of net assets 2008 342 300 9 160 473 2007 172 145 13 62 242 2006 104 120 11 65 148 Associated company or joint venture/ corporate ID number/country of registration cummins-Scania HPi L.L.c; 043650113, USa BitsData aB, 556112-2613, Sweden ScaMadrid S.a., ES a80433519, Spain ScaValencia S.a., ES a46332995, Spain Holdings in associated companies cummins-Scania XPi Manufacturing L.L.c; 20-3394999, USa Other Holdings in joint ventures Holdings in associated companies and joint ventures Other shares and participations Total Ownership % 30 33 49 26 Carrying amount in Parent Company financial statements 0 2 2 14 Value of Scania’s share in consolidated financial statements 2008 16 6 27 25 74 50 – 371 2 395 4 399 473 22 495 2007 18 5 25 20 68 169 5 174 242 22 264 2006 23 4 21 14 62 83 3 86 148 25 173 S c a n i a 20 0 8 <a href="/v5/viewer/files/Default_s.aspx?gKey=tqcxr73s&gInitPage=98">Scania Annual Report 2008 Sida 98 96 notes to the </a> consolidated financial statements NOTE 14 Inventories 2008 Raw materials, components and supplies Work in progress Finished goods 1 Total 1 Of which, used vehicles change in value adjustment 828 1,714 13,008 15,550 1,763 –370 2007 885 1,736 8,621 11,242 853 18 2006 960 1,392 7,748 10,100 861 31 Prepaid expenses and accrued income Derivatives with positive market value Value-added tax Other receivables Total other non-current receivables Prepaid expenses and accrued income Derivatives with positive market value Value-added tax Other receivables Total other current receivables Total other receivables NOTE 16 Equity The equity of the Scania Group has changed as follows: 2008 Equity, 1 January Exchange differences on translation Hedging of net assets in operations outside Sweden Hedge reserve change in value related to cash flow hedge recognised directly in equity cash flow reserve transferred to sales revenue in income statement actuarial gains/losses etc. related to pensions recognised directly in equity Tax attributable to items recognised directly in equity Total changes in assets recognised directly in equity excluding transactions with the company’s owners net income for the year Total changes in assets excluding transactions with the company’s owners change in minority share Redemption Dividend to Scania aB shareholders Dividend to minority interest Equity, 31 December S c a n i a 20 0 8 –1,886 585 667 –1,886 36 585 –2,762 209 –625 165 –460 8,890 8,430 –6,000 –4,000 2,000 1,120 –2,075 1,471 19,421 –2,762 209 –625 868 –1,761 8,890 7,129 –6,000 –4,000 21,937 –2 1 0 –2,762 209 –625 868 –1,761 8,890 0 –1 7,129 –1 –6,000 –4,000 –2 21,938 Share capital 2,000 Contributed capital 1,120 Hedge reserve –189 Currency translation reserve Retained earnings 886 20,991 771 –222 Total, Scania share holders 24,808 771 –222 Minority interest Total equity 4 24,812 771 –222 NOTE 15 Other receivables 2008 25 517 3 548 1,093 1,920 483 1,305 1,711 5,419 6,512 2007 30 120 – 557 707 1,429 177 1,178 1,104 3,888 4,595 2006 266 99 63 595 1,023 767 365 1,100 814 3,046 4,069 <a href="/v5/viewer/files/Default_s.aspx?gKey=tqcxr73s&gInitPage=99">Scania Annual Report 2008 Sida 99 97 NOTE 16 Equit</a> y, continued 2007 Equity, 1 January Exchange differences on translation Hedge reserve change in value related to cash flow hedge recognised directly in equity cash flow reserve transferred to sales revenue in income statement actuarial gains/losses etc. related to pensions recognised directly in equity Tax attributable to items recognised directly in equity Total changes in assets recognised directly in equity excluding transactions with the company’s owners net income for the year Total changes in assets excluding transactions with the company’s owners Dividend to shareholders Redemption Equity, 31 December 2,000 1,120 – 189 – – – 276 643 – – 108 – 276 643 – 521 137 – 316 74 – 242 8,554 8,312 – 3,000 – 7,000 886 20,991 Share capital 2,000 contributed capital 1,120 Hedge reserve 87 currency translation reserve Retained earnings 243 22,679 643 Total, Scania share holders 26,129 643 – 521 137 – 316 182 125 8,554 8,679 – 3,000 – 7,000 24,808 – 1 – 1 Minority interest Total equity 5 – 1 26,134 642 – 521 137 – 316 182 124 8,554 8,678 4 – 3,000 – 7,000 24,812 2006 Equity, 1 January Exchange differences on translation Hedge reserve change in value related to cash flow hedge recognised directly in equity cash flow reserve transferred to sales revenue in income statement actuarial gains/losses etc. related to pensions recognised directly in equity Tax attributable to items recognised directly in equity Total changes in assets recognised directly in equity excluding transactions with the company’s owners net income for the year Total changes in assets excluding transactions with the company’s owners Reduction due to liquidation of ainax change in minority share related to ainax Dividend to shareholders Equity, 31 December – – 263 – 170 – 660 – – – 67 170 – 660 340 – 103 – 68 21 – 47 5,939 5,892 263 – 3,000 2,000 1,120 87 243 22,679 Share capital 2,263 contributed capital 1,120 Hedge reserve – 83 currency translation reserve – 660 Retained earnings 903 19,524 Total, Scania shareholders 23,727 – 660 340 – 103 – 68 – 46 – 537 5,939 5,402 0 – – 3,000 26,129 – 1 – 1 – 3 5 Minority interest Total equity 9 – 1 23,736 – 661 340 – 103 – 68 – 46 – 538 5,939 5,401 0 – 3 – 3,000 26,134 S c a n i a 20 0 8 <a href="/v5/viewer/files/Default_s.aspx?gKey=tqcxr73s&gInitPage=100">Scania Annual Report 2008 Sida 100 98 notes to the</a> consolidated financial statements NOTE 16 Equity, continued The share capital of Scania aB consists of 400,000,000 Series a shares outstanding with voting rights of one vote per share and 400,000,000 Series B shares outstanding with voting rights of 1/10 vote per share. a and B shares carry the same right to a portion of the company’s assets and profit. The nominal value of both a and B shares is SEK 2.50 per share. all shares are fully paid and no shares are reserved for transfer of ownership. no shares are held by the company itself or its subsidiaries. Contributed equity consists of a statutory reserve contributed by the owners of Scania aB when it became a limited company in 1995. The hedge reserve consists of the change in market value of commercial cash flow hedging instruments in cases where hedge accounting is applied according to iaS 39, “Financial instruments: Recognition and Measurement”. Currency translation reserve arises when translating net assets outside Sweden according to the current method of accounting. The positive exchange rate difference of SEK 771 m. during 2008 arose as a consequence of the weakening of the Swedish krona against currencies important to Scania. The exchange rate differences were mainly attributable to the weakening of the krona against the euro, partly offset by the krona’s appreciation against the Brazilian real and the British pound. Retained earnings consist not only of accrued profits but also of the change in pension liability attributable to changes in actuarial gains and losses etc. recognised directly in equity. Regarding changes in actuarial assumptions, see also note 17, “Provisions for pensions and similar commitments”. The Parent company’s regular dividend for 2008 was SEK 4,000 m., equivalent to SEK 5.00 per share. in addition, during 2008 Scania carried out a 2 to 1 share split with mandatory redemption of the second share at a price of SEK 7.50 per share, which was equivalent to SEK 6,000 m. The proposed regular dividend for 2009 is SEK 2,000 m., equivalent to SEK 2.50 per share. Minority interest consists of the equity that belongs to external minority owners of certain subsidiaries in the Scania Group. Reduction in share capital. The acquisition of ainax in February 2005 was paid for by a new issue of 26,296,508 a shares, which is equivalent to 96.3 percent of the number of shares outstanding in ainax. The new share issue affected the equity of the Scania Group in a net amount of zero, but since SEK 263 m. was accounted for as equity, “Retained earnings” was affected in the amount of SEK –263 m. according to a resolution approved by the annual General Meeting and implemented through a decision by the Swedish companies Registration Office, during 2006 share capital was reduced in the amount of SEK 262,965,080 through the withdrawal of 26,296,508 a shares in Scania owned by Scania. This restored share capital to what it was before the offer for ainax was completed. ainax aB was liquidated during 2006. The equity of the Scania Group consists of the sum of equity attributable to Scania’s shareholders and equity attributable to minority interest. at year-end 2008, the Group’s equity totalled SEK 21,938 m. (24,812). according to the Group’s Financial Policy, the Group’s financial position shall meet the requirements of the business objectives it has established. at present, this is deemed to presuppose a financial position equivalent to the requirements for obtaining at least an a- credit rating from the most important rating institutions. in order to maintain the necessary capital structure, the Group may adjust the amount of its dividend to shareholders, distribute capital to the shareholders or sell assets and thereby reduce debt. Financial Services includes eight companies that are subject to oversight by national financial inspection authorities. in some countries, Scania must comply with local capital adequacy requirements. During 2008, these units met their capital adequacy requirements. The Group’s Financial Policy contains targets for key ratios related to the Group’s financial position. These coincide with the ratios used by credit rating institutions. Scania’s credit rating according to Standard and Poor’s at the end of 2008 was for: • long-term borrowing: A• outlook: Stable • short-term borrowing: A-2 • short-term borrowing, Sweden: K-1. During the year, the rating outlook remained Stable. Reconciliation of change in number of shares outstanding number of a shares outstanding, 1 January Reduction in share capital related to shares owned by ainax Share split 2 to 1 (5 to 1) with mandatory redemption of the second (fifth) share Number of A shares outstanding, 31 December number of B shares outstanding, 1 January Share split 2 to 1 (5 to 1) with mandatory redemption of the second (fifth) share number of B shares outstanding, 31 December S c a n i a 20 0 8 0 400,000,000 400,000,000 0 400,000,000 300,000,000 400,000,000 100,000,000 300,000,000 400,000,000 2008 400,000,000 2007 100,000,000 2006 126,296,508 – 26,296,508 100,000,000 100,000,000 100,000,000 <a href="/v5/viewer/files/Default_s.aspx?gKey=tqcxr73s&gInitPage=101">Scania Annual Report 2008 Sida 101 99 NOTE 17 Prov</a> isions for pensions and similar commitments The Group’s employees, former employees and their survivors may be included in both defined-contribution and defined-benefit plans related to post-employment compensation. The defined-benefit plans include retirement pensions, survivor pensions, health care and severance pay. The commitment that is recognised in the balance sheet stems from the defined-benefit plans. The largest plans are found in Sweden, Great Britain and Brazil. The plans are safeguarded via re-insured provisions in the balance sheet, foundations and funds. calculations are performed according to the “projected unit credit method”, using the assumptions presented in the table below, also taking into account any revocability. in the case of some of the Group’s defined-benefit multi-employer plans, sufficient information cannot be obtained to calculate Scania’s share in these plans. They have thus been accounted for as definedcontribution. in Scania’s case, this applies to the Dutch fund Pensioenfonds Metaal en Techniek, which is administered via Mn Services, and Bedrijfstakpensioenfonds Metalektro, which is administered via PVF achmea, as well as the portion of the Swedish iTP occupational pension plan that is administered via the retirement insurance company alecta.Most of the Swedish plan for salaried employees (the collectively agreed iTP plan), however, is accounted for by provisions in the balance sheet, safeguarded by credit insurance from the mutual insurance company Försäkringsbolaget Pensionsgaranti (FPG), and are administered by a Swedish multiemployer institution, the Pension Registration institute (PRi). Premiums to alecta amounted to SEK 33 m. (64 and 76, respectively). a surplus or deficit at alecta may mean a refund to the Group or lower or higher future premiums. at year-end 2008, alecta’s surplus, in the form of a collective consolidation level, amounted to 112 (152 and 144, respectively) percent. The collective consolidation level consists of the market value of alecta’s assets as a percentage of its insurance obligations calculated according to alecta’s actuarial assumptions. in the Dutch plans, both companies and employees contribute to the plan. The companies’ premiums to Mn Services amounted to SEK 25 m. (24 and 24, respectively) and to PVF achmea SEK 56 m. (48 and 51, respectively). The consolidation level amounted to 86 (148 and 135, respectively) percent for Mn Services. PVF achmea has not disclosed its consolidation level for 2008 but refers to an a+ rating from Standard & Poor’s (133 percent in 2007 and 129 percent in 2006, respectively). Scania’s forecasted disbursement of pensions to defined-benefit plans, both funded and unfunded, is SEK 200 m. for 2009 (198 for 2008 and 151 for 2007, respectively). Expenses related to pension obligations Expenses for pensions and other defined-benefit obligations recognised in the income statement current service expenses interest expenses Expected return on plan assets Past service expenses net gains (+) and losses (–) due to curtailments and settlements curtailment in the valuation of net assets Total expense for defined-benefit obligations recognised in the income statement 2008 –170 –205 65 –29 2 –4 –341 For defined-contribution plans, Scania makes continuous payments to public authorities and independent organisations, which thus take over obligations towards employees. The Group’s expenses for defined-contribution plans amounted to SEK 437 m. (479 and 542, respectively) during 2008. Pension expenses and other defined-benefit payments are found in the income statement under the headings “cost of goods sold”, SEK 17 (17 and 41, respectively), “Selling expenses”, SEK 67 m. (58 and 62, respectively) and “administrative expenses”, SEK 126 m. (71 and 64, respectively). The interest portion of pension expenses, along with the return on plan assets, is found under “Financial expenses and income”. 2007 2006 –131 – 129 –173 – 157 58 – 46 – 2 –10 – 14 – 10 –254 – 264 Expenses related to health care benefits 2008 –6 –28 – – – – –34 2007 2006 –4 – 3 –29 – – – – –33 – 26 – – – – – 29 Expenses related to other obligations 2008 –3 –6 5 – – – –4 2007 2006 –3 –4 5 – – – –2 – – – 11 – 11 – 5 5 – S c a n i a 20 0 8 <a href="/v5/viewer/files/Default_s.aspx?gKey=tqcxr73s&gInitPage=102">Scania Annual Report 2008 Sida 102 100 notes to th</a> e consolidated financial statements NOT 17 Provisions for pensions and similar commitments, continued Expenses for pensions and other defined-benefit obligations recognised in equity Experience-based adjustments in pension liability Experience-based adjustments in plan assets Effects of changes in actuarial assumptions net actuarial gains (+) and losses (–) for the year Special payroll tax related to actuarial gains and losses curtailment in valuation of net assets Total expense/revenue for defined-benefit obligations recognised in equity Expenses related to pension obligations 2008 –292 –146 –229 – 667 –134 121 –680 2007 2006 –228 –13 –31 –272 –58 14 –316 – 56 22 – 19 – 53 – – 16 – 69 The accumulated amount of actuarial losses in equity was SEK 1,850 m. (1,223 and 907, respectively) before taxes. Expenses related to health care benefits 2008 48 – – 48 – – 48 2007 2006 1 – – 1 – – 1 – – – – – – – Expenses related to other obligations 2008 10 –3 – 7 – – 7 2007 2006 4 –5 – –1 – – –1 1 – – 1 – – 1 Recognised as provision for pensions in the balance sheet Present value of defined-benefit obligations, wholly or partly funded Present value of defined-benefit obligations, unfunded Present value of defined-benefit obligations Fair value of plan assets net assets not fully valued due to curtailment rule Recognised in the balance sheet Of which, pension liability recognised under the heading “Provisions for pensions” Of which, pension asset recognised under the heading “Other long-term receivables” Pension obligations 2008 1,526 4,084 5,610 –1,363 53 4,300 4,352 –52 2007 2006 1,450 1,216 3,311 3,004 4,761 4,220 –1,277 – 1,100 142 144 3,626 3,264 3,665 3,301 –39 – 37 Obligations related to health care 2008 – 248 248 0 – 248 248 – 2007 2006 – 316 316 0 – 316 316 – – 261 261 0 – 261 261 – Other obligations 2008 33 37 70 –49 – 21 21 – 2007 2006 46 32 78 –54 – 24 24 – 41 50 91 – 48 – 43 43 – Assumptions applied in actuarial calculation Discount rate (%) Expected return on plan assets (%) Expected wage and salary increase (%) change in health care costs (%) Employee turnover (%) Expected remaining years of service Expected increase in pension (inflation) (%) Sweden (pension) 2008 4.0 – 3.0 – 5.0 21.9 2.0 2007 2006 4.5 – 4.0 – 3.0 – 5.0 2.0 3.0 – 5.0 21.5 21.7 2.0 Great Britain (pension) 2007 2006 6.0 6.8 2008 6.1 5.4 0.0 – 0.0 7.0 2.7 Expected return in each country and category of plan assets is calculated taking into account historic return and management’s estimate of future developments. These figures in the above tables have then been combined into a total expected return for Brazil, Great Britain and “Other countries” in the Scania Group, taking into account that no changes in investment strategies are planned. The 0.0 – 0.0 8.0 3.3 5.1 6.0 0.0 – 0.0 9.0 3.0 Brazil (health care) 2008 11.0 10.8 – 7.1 – 16.8 – 2007 2006 9.2 10.3 11.4 10.3 – 7.1 – – – 8.6 Other countries (pension etc.) 2007 2008 2.3 – 6.7 3.7 – 6.7 – 2006 2.9 – 5.3 2.3 – 5.0 3.7 – 6.0 3.7 – 5.0 1.5 – 4.5 2.0 – 13.0 1.5 – 4.4 – – – 2.0 – 12.0 2.0 – 13.0 1.0 – 6.4 15.1 18.2 1.0 – 22.1 4.5 – 22.9 8.3 – 33.0 – 0.8 – 2.3 0.8 – 2.3 0.8 – 3.0 categories of plan assets in question in the Scania Group are “Shares and participations”, “Other interest-bearing securities”, “Properties” and “Bank deposits” etc. Starting in 2005, the plan in Great Britain has been closed to new beneficiaries and additional vesting. as a result, liability is not affected by future salary increases and any employee turnover. S c a n i a 20 0 8 <a href="/v5/viewer/files/Default_s.aspx?gKey=tqcxr73s&gInitPage=103">Scania Annual Report 2008 Sida 103 101 Present val</a> ue of defined-benefit commitments changed during the year as follows: Present value of defined-benefit obligations, 1 January Present value of reclassified obligations, 1 January 1 current service expenses interest expenses Payments made by pension plan participants net actuarial gains and losses for the year Exchange rate differences Disbursements of pension payments Past service expenses Gains and losses due to net settlements for the year Present value of defined-benefit obligations, 31 December Liabilities related to pension obligations 2008 4,761 –11 170 205 1 519 110 –172 29 –2 5,610 2007 2006 4,220 4,085 118 131 173 1 259 19 74 – 68 –154 – 127 – – –6 14 4,761 4,220 1 2007: a reclassification of a defined-contribution plan to a defined-benefit plan in the netherlands. 2006: a reclassification of a defined-benefit plan to a defined-contribution plan in Switzerland. Liabilities related to health care benefits – 44 129 157 – 2008 316 –1 6 28 – –48 –37 –16 – – 248 2007 2006 261 – 4 29 – –1 39 –16 – – 316 26 – – – 15 – 11 – – 261 258 – 3 Liabilities related to other obligations 2008 78 –3 3 6 – –10 1 –5 – – 70 2007 2006 91 –19 3 4 – –3 6 –4 – – 78 11 5 – – 1 – 5 – 9 – – 91 90 – Fair value of plan assets changed as follows during the year: Fair value of plan assets, 1 January Fair value of plan assets related to reclassified obligations 2 Expected return on plan assets net actuarial gains and losses for the year Exchange rate differences Payments to pension plan Payments made by pension plan participants Disbursements of pension payments Gains and losses due to net settlements for the year Fair value of plan assets, 31 December Plan assets related to pension obligations 2008 1,277 – 65 –148 124 77 11 –43 – 1,363 2 007 2006 1,100 1,048 112 58 –13 11 46 8 –41 –4 2 2007: a reclassification of a defined-contribution plan to a defined-benefit plan in the netherlands. 46 21 – 58 57 8 – 22 – 1,277 1,100 Plan assets related to health care benefits – 2008 – – – – – – 16 –16 – 0 2007 2006 – – – – – – – – – 11 – 11 – – 0 – – – – – – Plan assets related to other obligations 2008 54 – 5 –3 –6 – – –1 – 49 2007 2006 48 – 5 –4 7 – – –2 – 54 – 3 – – – 1 – 48 47 – 5 – Plan assets consist mainly of shares and interest-bearing securities with the following fair value on closing day: Miscellaneous shares and participations Miscellaneous interest-bearing securities Properties leased to Scania companies investment properties Bank deposits etc. Total 2008 SEK m. 397 587 83 90 255 1,412 2007 SEK m. 475 628 66 71 91 1,331 2006 SEK m. 424 512 67 69 76 1,148 2008 % 28.1 41.5 5.9 6.4 18.1 100.0 2007 % 35.7 47.2 5.0 5.3 6.8 100.0 2006 % 37.0 44.6 5.8 6.0 6.6 100.0 S c a n i a 20 0 8 <a href="/v5/viewer/files/Default_s.aspx?gKey=tqcxr73s&gInitPage=104">Scania Annual Report 2008 Sida 104 102 notes to th</a> e consolidated financial statements NOTE 17 Provisions for pensions and similar commitments, continued Plan assets related to pension obligations Actual return actual return on plan assets 2008 –81 2007 2006 45 68 Plan assets related to health care benefits 2008 – 2007 2006 – – Plan assets related to other obligations 2008 2 2007 2006 1 5 1% decrease Sensitivity analysis concerning 1% change in health care expenses on: Sum of cost for employment in current year and interest expense Sum of present value of the definedbenefit obligation 2008 –4 0 2007 – 8 – 56 1% increase 2008 4 61 2007 1 25 Multi-year summary recognised in balance sheet Present value of defined-benefit obligations Fair value of plan assets Deficit net assets not valued in full due to curtailment rule Recognised in balance sheet 2008 5,928 –1,412 4,516 53 4,569 2007 5,155 –1,331 3,824 142 3,966 2006 4,572 – 1,148 3,424 144 3,568 2005 4,433 – 1,095 3,338 81 3,419 2004 2,915 –416 2,499 – 2,499 Multi-year summary of expenses in equity Experience-based adjustments in pension liability Experience-based adjustments in plan assets Effects of changes in actuarial assumptions net actuarial gains (+) and losses (–) for the year Special payroll tax related to actuarial gains and losses curtailment in value of net assets Total expense/income for defined-benefit payments recognised in equity 2008 –234 –149 –229 –612 –134 121 –625 2007 –223 –18 –31 –272 –58 14 –316 2006 – 55 22 – 19 – 52 – – 16 – 68 2005 – 39 54 – 773 – 758 – – 12 – 770 2004 – – –72 –72 – – –72 S c a n i a 20 0 8 <a href="/v5/viewer/files/Default_s.aspx?gKey=tqcxr73s&gInitPage=105">Scania Annual Report 2008 Sida 105 103 NOTE 18 Oth</a> er provisions During the year, the Scania Group’s provisions changed as follows: 2008 1 January Provisions during the year Provisions used during the year Provisions reversed during the year Exchange rate differences 31 December of which, current provisions of which, non-current provisions 2007 1 January Provisions during the year Provisions used during the year Provisions reversed during the year Exchange rate differences 31 December of which, current provisions of which, non-current provisions 2006 1 January Provisions during the year Provisions used during the year Provisions reversed during the year Exchange rate differences 31 December of which, current provisions of which, non-current provisions 1 “Other provisions” include provisions for potential losses on service agreements. Uncertainty about the expected outflow dates is greatest for legal and tax disputes. Otherwise outflow is expected to occur within one to two years. Provisions are recognised without discounting and at nominal amounts, as the time factor is not deemed to have a major influence on the size of the amounts, since the future outflow is relatively close in time. For a description of the nature of the obligations, see also note 1, “accounting principles”, and note 2, “Key judgements and estimates”. 1,028 1,339 – 1,056 – 230 – 24 1,057 45 14 – 18 – 2 – 1 38 397 141 – 16 – 36 – 29 457 802 449 – 152 – 46 – 7 1,046 2,272 1,943 – 1,242 – 314 – 61 2,598 1,315 1,661 1,057 1,490 –1,276 –63 25 1,233 1,171 62 38 13 –15 –3 1 34 – 34 457 338 –46 –21 59 787 462 325 1,046 370 –322 –88 17 1,023 391 632 2,598 2,211 –1,659 –175 102 3,077 2,024 1,053 Product obligations 1,233 1,629 –1,443 –104 1 1,316 1,068 248 Restructuring 34 5 –23 –11 1 6 5 1 Legal and tax risks 787 152 –20 –89 –17 813 13 800 Other provisions 1 1,023 375 –400 –191 34 841 229 612 Total 3,077 2,161 –1,886 –395 19 2,976 1,315 1,661 S c a n i a 20 0 8 <a href="/v5/viewer/files/Default_s.aspx?gKey=tqcxr73s&gInitPage=106">Scania Annual Report 2008 Sida 106 104 notes to th</a> e consolidated financial statements NOTE 19 Accrued expenses and deferred income accrued employee-related expenses Deferred income related to service and repair contracts Deferred income related to repurchase obligations accrued financial expenses Other customary accrued expenses and deferred income Total − of which, current − of which, non-current Of the above total, the following was attributable to Financial Services operations 2008 2,586 1,962 3,540 104 1,907 10,099 7,293 2,806 338 2007 2,597 1,945 3,549 102 1,881 10,074 6,986 3,088 331 2006 2,268 1,801 2,993 133 1,949 9,144 7,283 1,861 Contingent liabilities 289 Of the above deferred income related to vehicles sold with repurchase obligations, SEK 734 m. is expected to be recognised as revenue within 12 months. SEK 145 m. is expected to be recognised as revenue after more than 5 years. contingent liability related to FPG credit insurance Loan guarantees Discounted bills and contracts Other guarantees Total 2008 43 24 0 115 182 2007 39 30 0 135 204 in addition to the above contingent liabilities, the Group has issued vehicle repurchase guarantees worth SEK 45 m. (131 and 188, respectively) to customers’ creditors. 2006 37 31 1 131 200 NOTE 20 Assets pledged and contingent liabilities Assets pledged Real estate mortgages Other Total 1 1 Of which, assets pledged for: non-current borrowings current borrowings Liabilities of others 2008 28 1 29 2007 26 0 26 2006 27 4 31 26 2 1 25 1 0 25 4 2 NOTE 21 Lease obligations as a leasee, the Scania Group has entered into financial and operating leases. Future payment obligations on non-cancellable operating leases: 2008 Operating leases Within one year Between one year and five years Later than five years Total 1 Future minimum lease payments 292 607 426 1,325 1 Refers to operating leases where the obligation exceeds one year. Of which, related to premises 167 433 425 1,025 2007 Future minimum lease payments 229 537 471 1,237 Of which, related to premises 134 389 469 992 2006 Future minimum lease payments 204 377 507 1,088 Of which, related to premises 111 310 506 927 Allocation of lease expenses Operating leases Fixed payments Flexible payments Payments related to sub-leased items Total 2 2008 296 4 –8 292 2007 251 3 –5 249 2006 203 16 – 4 215 2 Expenses for leases on premises were charged to income in the amount of SEK 160 m. (131 and 113, respectively). S c a n i a 20 0 8 <a href="/v5/viewer/files/Default_s.aspx?gKey=tqcxr73s&gInitPage=107">Scania Annual Report 2008 Sida 107 105 NOTE 21 Lea</a> se obligations, continued Future payment obligations on non-cancellable financial leases: 2008 Future minimum lease Financial leases Within one year Between one year and five years Later than five years Total 3 payments Interest 28 1 105 7 140 14 1 16 3 Refers to financial leases where the obligation exceeds one year. Allocation of lease expenses Financial leases Fixed payments Flexible payments Payments related to sub-leased items Total 2008 64 – –14 50 Financial lease assets in balance sheet: Carrying amount Vehicles for leasing Buildings Machinery Other Total 2008 100 34 3 12 149 2007 44 – –13 31 2006 57 – – 20 37 NOTE 23 Change in net debt The relationship between the cash flow statement and the change in net debt in the balance sheet can be seen below. Scania Group total Total cash flow before financing activities Exchange rate effects in interestbearing liabilities Businesses acquired 2007 27 34 6 10 77 2006 74 34 18 6 132 Exchange rate effects in short-term investments Exchange rate effects in cash and cash equivalents Effect of carrying borrowings at fair value change in derivatives affecting net debt Dividend to shareholders Redemption Change in net debt according to the balance sheet NOTE 22 Government grants and EU grants During 2008, the Scania Group received government grants and EU grants amounting to SEK 62 m. (57 and 41, respectively) attributable to operating expenses of SEK 138 m. (158 and 135, respectively). it also received government grants of SEK 11 m. (6 and 31, respectively) attributable to investments with a gross cost of SEK 436 m. (346 and 218, respectively). in addition, Scania has arranged a loan of SEK 3,000 m. with the European investment Bank (EiB) which will be used for research and development during the years 2008 to 2010. Vehicles and Services Total cash flow before financing activities Exchange rate effects in interestbearing liabilities Businesses acquired Exchange rate effects in short-term investments Exchange rate effects in cash and cash equivalents Effect of carrying borrowings at fair value change in derivatives affecting net debt Transfers between segments Dividend to shareholders Redemption Change in net debt according to the balance sheet 2008 –3,347 –4,525 – –14 –179 314 –825 –4,002 –6,000 –18,578 2007 3,061 –1,498 –152 232 158 398 –436 2006 3,822 1,405 – –55 –78 364 –279 –3,000 –3,000 –7,000 – –8,237 2,179 Present value of future lease payments 27 91 6 124 Future minimum lease payments interest 21 1 53 11 85 6 4 11 2007 Present value of future lease payments 20 47 7 74 Future minimum lease payments interest 53 1 69 0 122 5 0 6 2006 Present value of future lease payments 52 64 0 116 1,774 –1,254 – –14 –204 314 –825 –55 –4,002 –6,000 –10,266 8,229 –491 –152 232 150 398 –436 –363 6,942 553 – –55 –61 364 –279 140 –3,000 –3,000 –7,000 – –2,433 4,604 S c a n i a 20 0 8 <a href="/v5/viewer/files/Default_s.aspx?gKey=tqcxr73s&gInitPage=108">Scania Annual Report 2008 Sida 108 106 notes to th</a> e consolidated financial statements NOTE 24 Cash flow statement in those cases where no allocation by segment is specified, the cash flow statement below refers to Vehicles and Services. 2008 a. Interest and dividends received/paid Dividends received from associated companies interest received interest paid b.1. Vehicles and Services: Items not affecting cash flow Depreciation/amortisation Bad debts associated companies Deferred profit recognition, lease assets Other Total b.2. Financial Services: Items not affecting cash flow Depreciation/amortisation Bad debts Other Total c. Net investment through acquisitions/divestments of businesses 1 Divestments of businesses acquisitions of businesses Total 1 See note 25, “Businesses acquired/divested”. 46 15 61 – –268 –268 – – – 22 227 78 327 17 90 –31 76 14 63 5 82 f. Cash and cash equivalents cash and bank balances Short-term investments comprising cash and cash equivalents Total 1,107 3,474 4,581 2,522 933 3,455 1,126 8,808 9,934 3,235 98 3 310 214 3,860 3,121 92 9 222 123 3,567 3,023 126 1 104 – 100 3,154 12 373 –383 5 718 –711 6 550 – 564 d.2. Financial Services; Acquisitions of non-current assets new financing Payments of principal and completed contracts Total 2 Of which, SEK 202 m. (293 and 186, respectively) in capitalised research and development expenditures. e. Change in net debt through financing activities net change in current borrowings Repayment of non-current borrowings increase in non-current borrowings Total 9,378 –5,924 11,198 14,652 –1,755 –7,369 9,427 303 8,827 – 6,554 5,318 7,591 –9,906 4,084 –5,822 –9,032 3,334 –5,698 – 6,713 3,199 – 3,514 2007 2006 d.1. Vehicles and Services: Acquisitions of non-current assets investments in non-current assets 2 Divestments of non-current assets Total –6,293 846 –5,447 –5,058 781 –4,277 – 4,618 808 – 3,810 2008 2007 2006 S c a n i a 20 0 8 <a href="/v5/viewer/files/Default_s.aspx?gKey=tqcxr73s&gInitPage=109">Scania Annual Report 2008 Sida 109 107 NOTE 25 Bus</a> inesses acquired/divested 2008 Acquired/divested assets and liabilities Tangible and intangible non-current assets inventories Receivables cash and cash equivalents Borrowings Other liabilities and provisions net identifiable assets and liabilities Goodwill in consolidation Purchase price cash and cash equivalents in companies acquired/divested impact on consolidated cash and cash equivalents number of employees Businesses acquired 2007 Carrying amounts upon acquisition 2 8 – – –1 –2 7 –22 –15 – 15 – carrying amounts upon acquisition no acquisitions 81 109 264 1 –152 –165 138 131 269 1 –268 318 During 2008 Scania acquired a business in Hong Kong. a final settlement for the acquisition in Portugal was reached in 2008, leading to a repayment of SEK 22 m., which reduced the goodwill in the consolidated accounts. During 2007 Scania acquired businesses in Portugal, austria and Poland. During 2006 Scania made no acquisitions. The carrying amount in acquired businesses has been deemed to be in accordance with fair value. acquired businesses have the following accumulated effect on the 2008 accounts: “net sales” minus intra-Group sales, SEK +21 m.; “Gross income”, SEK +5 m.; “Expenses”, SEK –9 m.; “Operating income, SEK –4 m.; and “income before taxes”, SEK –4 m. The effect on the Scania Group’s earnings of the fact that the acquisitions did not occur at the beginning of the financial year is marginal. NOTE 26 Wages, salaries and other remuneration and number of employees Wages, salaries and other remuneration, pension expenses and other mandatory payroll fees Operations in Sweden Boards of Directors, Presidents and Executive (or Group) Vice Presidents of which bonuses Other employees Operations outside Sweden Boards of Directors, Presidents and Executive Vice Presidents of which bonuses Other employees Subtotal 1 Pension expenses and other mandatory payroll fees of which pension expenses 2 Total 1 including non-monetary remuneration. 2 Of the pension expense in the Group, SEK 49 m. (38 and 28, respectively) was for Boards of Directors and executive officers in the Scania Group. at year-end, the total pension obligation was SEK 124 m. (120 and 108, respectively) for this category. S c a n i a 20 0 8 2008 138 62 4,897 228 55 6,133 11,396 4,140 1,183 15,536 2007 160 94 4,608 193 69 5,583 10,544 3,580 910 14,124 2006 133 70 4,035 171 24 5,181 9,520 3,348 830 12,868 – – – – – – – – – – – – 2006 2008 Businesses divested 2007 Carrying amounts upon divestment no divestment no divestment –2 –29 – – – 5 –26 – –46 – 46 73 – – – – – – – – – – – – During 2008 Scania divested a business in Finland. During 2007 and 2006, no divestments occurred. no fair value adjustment was required. Divested businesses have the following accumulated effect on the 2008 accounts: “net sales” minus intra-Group sales, SEK +108 m.; “Gross income”, SEK +5 m.; “Expenses”, SEK –4 m.; “Operating income, SEK +1 m.; and “income before taxes”, SEK +1 m. – – – – – – – – – – – – 2006 <a href="/v5/viewer/files/Default_s.aspx?gKey=tqcxr73s&gInitPage=110">Scania Annual Report 2008 Sida 110 108 notes to th</a> e consolidated financial statements NOTE 26 Wages, salaries and other remuneration and number of employees, continued Wages, salaries and other remuneration, pension expenses and other mandatory payroll fees by country Operations in Sweden Operations outside Sweden Brazil The netherlands Great Britain norway France Germany Denmark Finland austria argentina Russia Switzerland australia South africa Poland 37 countries with < 100 SEK m. 4 Total operations outside Sweden Total 2008 Wages, salaries and other remuneration 3 Mandatory payroll fees (of which pensions) 5,035 2,624 1,048 983 631 489 389 371 247 237 192 184 141 140 135 130 108 936 320 256 141 92 253 73 19 56 6 54 22 27 9 14 18 156 6,361 1,516 (747) (5) (88) (75) (30) (77) (9) (15) (42) (1) (1) (13) (9) (9) (8) (17) (37) (436) 11,396 4,140 (1,183) 2007 Wages, salaries and other remuneration 3 Mandatory payroll fees (of which pensions) 4,768 2,203 (521) 907 767 614 401 348 345 237 251 183 115 119 128 125 102 150 655 304 (32) 180 (81) 120 (50) 85 (8) 222 (66) 64 (6) 19 (16) 67 (50) 11 33 (0) – 18 (12) 23 8 8 (5) (8) (8) 13 (12) 119 (22) 5,776 1,377 (389) 10,544 3,580 (910) 3 including non-monetary remuneration. 4 in 2007 and 2006, 34 and 37 countries, respectively, had less than SEK 100 m. in wages, salaries and other remuneration. 2006 Wages, salaries and other remuneration 3 Mandatory payroll fees (of which pensions) 4,168 2,108 (452) 845 760 647 357 325 318 221 231 180 117 104 143 106 80 108 516 243 (29) 175 (82) 106 (40) 72 (21) 200 (62) 68 (9) 17 (15) 52 (36) 8 35 (3) – 19 (12) 24 9 13 (6) (9) (7) 17 (17) 89 (12) 5,352 1,240 (378) 9,520 3,348 (830) Gender distribution Board members in subsidiaries and the Parent company – Of whom, men – Of whom, women Presidents/Managing Directors of subsidiaries and the Parent company, plus the Group’s Executive Board – Of whom, men – Of whom, women 2008 408 398 10 2007 465 436 29 2006 483 468 15 Number of employees, 31 December Vehicles and Services Production and corporate units 5 Research and development5 Sales and service companies Sub-total 108 107 1 116 114 2 111 109 2 Financial Services Total – Of whom, employed on temporary contracts 2008 16,264 2,922 15,079 34,265 512 34,777 2,533 2007 17,291 2,528 14,797 34,616 480 35,096 4,244 2006 16,517 2,174 13,682 32,373 447 32,820 3,405 5 Due to an organisational shift during 2008, the number of employees in the previous year has been adjusted accordinly. S c a n i a 20 0 8 <a href="/v5/viewer/files/Default_s.aspx?gKey=tqcxr73s&gInitPage=111">Scania Annual Report 2008 Sida 111 109 Average num</a> ber of employees (excluding employees on temporary contracts) Operations in Sweden Operations outside Sweden Brazil The netherlands Great Britain Poland France Germany norway Belgium Russia Finland argentina Denmark South africa austria czech Republic Switzerland australia South Korea Portugal Slovakia Taiwan italy Spain Hungary chile Malaysia Latvia Ukraine Thailand Estonia Mexico Marocko Lithuania 18 countries with <100 employees 6 Total outside Sweden Total average number of employees 2008 Total 13,199 3,295 2,119 1,520 1,378 1,120 1,026 876 760 733 586 582 573 493 422 406 343 338 274 237 210 207 202 193 170 159 148 135 134 126 125 120 114 102 841 20,067 33,266 6 in 2007, 20 countries (in 2006, 28) had fewer than 100 employees. 10,535 2,905 1,978 1,305 1,256 960 905 823 605 580 524 557 514 407 374 359 311 296 235 206 172 181 166 150 139 124 121 126 108 91 116 107 103 84 669 17,557 28,092 Men Women 2,664 390 141 215 122 160 121 53 155 153 62 25 59 86 48 47 32 42 39 31 38 26 36 43 31 35 27 9 26 35 9 13 11 18 172 2,510 5,174 Total 12,881 3,235 2,061 1,629 1,112 1,102 975 905 961 699 654 854 578 439 432 354 347 307 232 242 195 181 206 168 179 153 138 126 92 122 113 112 113 93 887 19,811 32,692 2007 10,458 2,887 1,929 1,409 1,016 938 852 838 757 565 585 787 543 365 380 312 308 270 207 214 161 158 165 130 148 126 112 118 72 88 108 95 103 76 716 17,390 27,848 Men Women 2,423 348 132 220 96 164 123 67 204 134 69 67 35 74 52 42 39 37 25 28 34 23 41 38 31 27 26 8 20 34 5 17 10 17 171 2,421 4,844 Total 12,577 3,160 2,076 1,614 1,022 1,065 940 795 809 666 659 872 556 429 421 303 337 276 249 – 164 151 196 167 172 154 121 119 93 133 103 102 103 82 684 18,618 31,195 2006 10,363 2,812 1,935 1,393 947 900 814 733 647 550 583 806 492 357 370 265 301 239 221 – 130 131 160 127 143 125 100 112 75 97 96 86 96 66 553 16,321 26,684 Men Women 2,214 348 141 221 75 165 126 62 162 116 76 66 64 72 51 38 36 37 28 – 34 20 36 40 29 29 21 7 18 36 7 16 7 16 131 2,297 4,511 S c a n i a 20 0 8 <a href="/v5/viewer/files/Default_s.aspx?gKey=tqcxr73s&gInitPage=112">Scania Annual Report 2008 Sida 112 110 notes to th</a> e consolidated financial statements NOTE 27 Related party transactions Sales to Associated companies and joint ventures ScaValencia S.a. ScaMadrid S.a. cummins-Scania HPi L.L.c cummins-Scania XPi Manufacturing L.L.c BitsData i Södertälje aB Others 2008 221 157 – – – 10 2007 2006 273 234 146 157 – – – 10 11 – 1 14 Purchases from 2008 138 32 242 33 12 5 Disclosures of relationships with related parties that include a controlling influence is provided in the list of subsidiaries. See also the presentation of Scania’s Board of Directors and Executive Board as well as note 28, “compensation to executive officers”. Disclosures of dividends from, and capital contributions to, associated companies and joint ventures are provided in note 13, “Holdings in associated companies and joint ventures etc”. Disclosures of pension plans are NOTE 28 Compensation to executive officers REMUNERATION TO THE BOARD according to the decision of the annual General Meeting (aGM), remuneration during 2008 to the external members of the Board of Directors elected by the annual Meeting amounted to SEK 4,718,750 (4,312,500), with SEK 1,250,000 (1,250,000) to be paid to the chairman of the Board, SEK 625,000 (625,000) to the Vice chairman of the Board and SEK 406,250 (406,250) to each of the other Board members elected by the aGM who are not employees of the company. in addition, the Board received an amount of SEK 300,000 (300,000) for work in the audit committee − SEK 150,000 (150,000) to the chairman and SEK 75,000 (75,000) each to the two other members − and an amount of SEK 150,000 (150,000) for work in the Remuneration committee, consisting of SEK 50,000 (50,000) to each member. Only Board members who are elected by the aGM and are not employed by the company received compensation. Beyond the customary remuneration to the Board, no compensation from Scania was paid to the members of the Board who are not employees of the company. PRINCIPLES FOR COMPENSATION TO EXECUTIVE OFFICERS The principles for compensation to Scania executive officers are adopted by the aGM. The purpose is to offer a market-related compensation package that will enable the company to recruit and retain executive officers. compensation to executive officers consists of the following parts: 1. Fixed salary 2. Variable earnings-dependent salary 3. Pension The fixed salary of executive officers shall be competitive in relation to position, individual qualifications and performance. The fixed salary is reviewed annually. The size of the variable salary is dependent on Scania’s earnings. The pension comprises a premium-based pension system that applies in addition to the public pension and the iTP occupational pension. FIXED SALARY FOR THE PRESIDENT AND CEO The fixed salary of the President and cEO amounts to SEK 7,500,000 per year. S c a n i a 20 0 8 VARIABLE SALARY Variable salary is dependent on Scania’s earnings and consists of a two-part incentive programme, Part 1 and Part 2, previously called the Short Term incentive (STi) and Long Term incentive (LTi) programme. The principles for variable salary to, among others executive officers, including the President and cEO, were approved by the 2008 aGM and constitute a programme with the same parameters that were in force during 2007. The programme covers a maximum of 150 executive officers. The outcome is calculated on the basis of operating return defined as Scania Group net income after subtracting the cost of equity, residual net income (Rni), and is established by the Board’s Remuneration committee. Part 1 is related to actual ability to generate a return during the year in question, all provided that Rni according to the preceding paragraph is positive, and is determined as a cash amount (maximum 45 to 150 percent of fixed salary depending on position). Part 2 is related to Scania’s ability to increase Rni as defined above from one year to another, and the outcome is also determined as a cash amount (maximum 35 to 80 percent of annual fixed salary depending on position). The outcome of both these components will be disbursed during 2009. as indicated above, both components are designed in such a way that they contain an upper limit for the compensation that is payable according to the programme. The outcome of the flexible salary programme for the period 1997–2008 for the members of the Executive Board, among them the President and cEO, has varied from 0 to 150 percent for Part 1 and from 0 to 75 percent for Part 2. The outcome for the period 1997−2008 has, on average, amounted to 84 percent of annual fixed salary with regard to Part 1 and 27 percent of annual fixed salary with regard to Part 2. The 2008 outcome for the President and cEO was 96 percent for Part 1 and 19 percent for Part 2. Of the total outcome of Part 1 and Part 2 for 2008, 50 percent shall be paid in cash as salary and 50 percent shall be determined as a cash amount that, after subtracting the applicable tax, is used by the employee for the purchase of Series B shares in Scania aB through a third party designated by the company, on a day determined by the company. Payment of the portion of the combined outcome of Part 1 and Part 2 that shall be used for purchase of Scania B with one third of the cash amount over a three year 2007 2006 109 47 55 28 308 265 5 – 4 – 7 3 Receivables from 2008 6 28 – 16 – 1 2007 2006 13 14 – 38 37 – – 5 2 – – 1 Liabilities to 2008 2 2 25 5 2 – 2007 2006 2 1 2 1 42 1 1 – 47 – – – provided in note 17, “Provisions for pensions and similar commitments” and note 26, “Wages, salaries and number of employees”. The Scania Group’s transactions with its main owner, Volkswagen, and the latter’s parent company, Porsche, are reported in the above table under “Others”. Purchases of company cars have not been taken into account. These company cars are purchased at market value. <a href="/v5/viewer/files/Default_s.aspx?gKey=tqcxr73s&gInitPage=113">Scania Annual Report 2008 Sida 113 111 NOTE 28 Com</a> pensation to executive officers, continued period where these shares will be held in one year from the respective date of purchase. These payments will be made on the condition that the participant is employed in the Scania Group at the close of the calendar year or that employment has ended through agreed retirement. However, the return on the shares is at the participants’ disposal. as an alternative, participants shall be entitled to choose purchase of shares for a pension according to a pension obligation, secured through endowment insurance. PENSION SYSTEM FOR EXECUTIVE OFFICERS The President and cEO, Executive Board and Heads of corporate Units are covered by a defined contribution pension system in addition to the public pension and the iTP occupational pension. according to this defined contribution system, benefits accrue by means of annual payment of premiums by the company. added to this is the value of annual individual employee co-payments, amounting to 5 percent of fixed salary. The annual company-paid premium for members of the Executive Board, excluding the President and cEO, varies between 17–32 percent of fixed salary. The premium for Heads of corporate Units varies between 10–30 percent of fixed salary. OTHER CONDITIONS FOR THE PRESIDENT AND CEO in addition to the fixed salary, the incentive programme in force for the Executive Board shall apply to the President and cEO. The annual company-paid pension premium for the President and cEO according to his pension agree- ment amounts to 35 percent of his fixed salary for as long as the President and cEO remains an employee of the company. The premium for 2008 amounted to SEK 2,625,000. The agreement also prescribes that an extra annual pension provision of SEK 4,410,000 will be made each year according to applicable employment contract. if the President and cEO resigns of his own volition, he is entitled to his salary for a six-month notice period. The applicable outcome of the incentive programme shall be proportional to the length of his period of employment during the year in question. in case of termination by the company before the end of 31 March 2012, the President and cEO shall be entitled to his fixed salary in an unchanged amount per year, plus annual compensation equivalent to the average of three years’ variable salary according to applicable employment contract. TERMINATION CONDITIONS FOR THE EXECUTIVE BOARD if the company terminates their employment, the other members of the Executive Board are entitled to severance pay equivalent to a maximum of two years’ salary, in addition to their salary during the six-month notice period. if they obtain new employment within 18 months, counting from their termination date, the severance pay ceases. in case of a substantial change in the ownership structure of Scania, two members of the Executive Board are entitled to resign of their own volition with severance pay amounting to two years’ salary. Total 2008, SEK thousand chairman of the Board President and cEO Executive Board (5 persons) Heads of corporate Units (21 persons) Fixed salary 7,500 16,300 31,295 1 Board fee, plus fee for Remuneration committee work. Total 2007, SEK thousand chairman of the Board President and cEO Executive Board (5 persons) Heads of corporate Units (18 persons) Fixed salary 7,500 13,750 29,704 1 Board fee, plus fee for Remuneration committee work. Pension expenses, defined-contribution system: annual premiums according to a defined contribution pension system and iTPK (defined contribution portion of the iTP occupational pension). Pension expenses, defined-benefit system (ITP): risk insurance premiums and the increase of retirement pension liability according to the iTP occupational pension plan. Other remuneration: taxable portion of car allowance, newspaper subscriptions and other perquisites. amounts excluding employer payroll fees. Retirement age: the retirement age according to agreements is 60 for the Executive Board excluding the President and cEO and 62 for other heads of corporate Units. The retirement age for the iTP occupational pension is 65. S c a n i a 20 0 8 Board remuneration 1,300 1 11,250 19,995 30,748 5,625 10,125 19,217 Other Outcome of Part 1 Outcome of Part 2 remuneration salary and remuneration 1,300 38 24,413 787 44,657 1,857 81,526 7,075 3,629 4,241 674 1,537 5,882 7,749 5,166 10,123 5,352 6,106 26,778 Pension expenses, defined contribution system Pension expenses, defined benefit system Board remuneration 1,300 1 7,210 14,444 20,994 1,404 2,812 7,300 13 1,171 2,598 Other Outcome of Part 1 Outcome of Part 2 remuneration salary and remuneration 1,300 16,127 34,727 62,187 7,076 4,225 6,055 898 1,684 8,606 7,974 5,909 14,661 6,178 7,537 35,413 Pension expenses, defined contribution system Pension expenses, defined benefit system Total pension expenses Pension obligations Total pension expenses Pension obligations <a href="/v5/viewer/files/Default_s.aspx?gKey=tqcxr73s&gInitPage=114">Scania Annual Report 2008 Sida 114 112 notes to th</a> e consolidated financial statements NOTE 29 Fees and other remuneration to auditors Fees for auditing and other assignments recognised as expenses during the year, in those cases where the same auditing company has the auditing assignment in that particular company. “auditing assignments” refers to examination of the annual accounts as well as the administration of the Board of Directors and the President and cEO. Everything else is “Other SEK m. Auditing firm Ernst & Young KPMG Other auditors Total 2008 Auditing assignments 48 – 2 50 Other assignments 3 – 1 4 assignments”. Scania’s annual General Meeting on 3 May 2007 elected the authorised public accountancy firm of Ernst & Young as global auditors of Scania. Starting with the 2007 accounts, Ernst & Young has thus been responsible for the auditing of all Scania companies in the world, with only a few exceptions. 2007 auditing assignments 37 – 1 38 Other assignments 3 – – 3 2006 auditing assignments 9 21 14 44 Other assignments 1 2 7 10 NOTE 30 Financial risk management Hedging of currency flows 31 December 20081 Q1, 20096 Q2, 2009 Q3, 2009 Q4, 2009 7 Q1, 2010 Q2, 2010 Total closing day rate, 31 Dec 2008 Unrealised gain/loss (SEK m.) recognised in hedge reserve, 31 Dec 20084, 5 Hedging of currency flows 31 December 2007 Totalt Hedging of currency flows 31 December 2006 Total 36 5.46 15 6.16 1 The table above show maturity dates regarding cash flow for hedging instruments. consolidated income is affected when external sales occur, which is at least one month after the maturity date of the hedging instrument. The income statement will thus be affected at least one month after the maturity dates in the above table. 212 1.24 390 9.25 40 13.78 16,100 0.0076 2 Volume is expressed in millions of local currency units. 3 average forward price and lowest redemption price for currency options. 4 Fair value recognised in the fair value reserve in equity for cash flow hedgings where hedge accounting is applied. 101 5.74 83 5.72 1,234 1.25 1,475 9.31 100 13.43 16,435 0.0070 AUD/SEK Volume2 Rate 3 –5 5.27 CHF/SEK Volume2 Rate 3 14 6.22 21 5.99 14 6.10 14 6.64 DKK/SEK Volume2 Rate 3 176 1.29 128 1.27 174 1.28 131 1.37 Volume2 EUR/SEK GBP/SEK Rate 3 Volume2 –5 5.27 5.36 2 63 6.21 7.35 –106 609 1.30 1,531 1.47 –142 391 9.54 300 9.42 236 9.78 289 10.03 195 10.33 120 10.58 9.83 10.94 –2,323 KRW/SEK Rate 3 Volume2 Rate 3 26 11.81 19,342 0.0060 15 12.73 10 12.89 51 12.29 19,342 0.0060 11.25 0.0061 73 3 S c a n i a 20 0 8 <a href="/v5/viewer/files/Default_s.aspx?gKey=tqcxr73s&gInitPage=115">Scania Annual Report 2008 Sida 115 113 NOTE 30 Fin</a> ancial risk management, continued FINANCIAL RISk MANAGEMENT IN THE SCANIA GROUP in addition to business risks, Scania is exposed to various financial risks in its operations. The financial risks that are of the greatest importance are currency, interest rate, credit and refinancing risk, which are regulated by a Financial Policy adopted by Scania’s Board of Directors. credit risk related to customer commitments is managed, within established limits, on a decentralised basis by means of local credit assess ments. Decisions on major credit commitments are made in corporate credit committees. Other risks are managed primarily at corporate level by Scania’s treasury unit. Scania’s Financial Policy states that the return on financial exposure shall be maximised, provided that the exposure is within the limits in the policy. On a daily basis, the corporate treasury unit measures the risks of outstanding positions, which are managed within established limits in compliance with the Financial Policy. CURRENCY RISk currency risk is the risk that changes in currency exchange rates will adversely affect cash flow. changes in exchange rates also affect Scania’s income statement and balance sheet as follows: – an individual company may have monetary assets and liabilities in a currency other than its functional currency, which are translated to the functional currency using the exchange rate on the balance sheet date. When settling monetary assets and liabilities, an exchange rate NOK/SEK Volume2 Rate 3 216 1.16 NZD/SEK Volume2 Rate 3 5 4.53 RUB/SEK Volume2 Rate 3 200 0.26 500 0.26 SGD/SEK Volume2 Rate 3 10 4.78 10 4.81 10 4.85 3 4.87 difference arises between the exchange rate on the balance sheet date and on the payment date. all changes in exchange rates attributable to translation or settlement of monetary items, including currency related derivative instruments, are recognised in the income statement. (Transaction effect). – Revenue, expenses, assets and liabilities in a functional currency other than the Group’s presentation currency (SEK) are translated at the average exchange rate during the year and the exchange rate on the balance sheet date, respectively. The effect that arises because the exchange rate on the balance sheet date is changed from the beginning of the year and the average exchange rate of the year deviates from the balance sheet rate is recognised in the translation reserve in equity. (Translation effect.) During 2008, 95 (94 and 93, respectively) percent of Scania’s sales occurred in countries outside Sweden. Since a large proportion of production occurs in Sweden, at costs denominated in Swedish kronor, this means that Scania has large net inflows of foreign currencies. During 2008, total net revenue in foreign currencies amounted to about SEK 31,600 m. (31,300 and 24,800, respectively). The largest currencies in this flow were EUR, GBP and RUB. The table on the next page shows currency exposure in Scania’s operating income in the most commonly occurring currencies. USD/SEK Volume2 Rate 3 12 7.54 15 7.76 5 8.13 ZAR/SEK Volume2 Rate 3 62 0.79 216 1.16 1.10 34 5 4.53 4.51 1 700 0.26 0.26 –75 33 4.82 5.38 –21 32 7.74 7.75 –3 62 0.79 0.82 –1 1,124 1,17 13,631 0.26 39 4.42 86 6.43 124 0.95 388 1.14 5 Of which SEK –784 m. refers to realised hedging instruments that are recognised in the income statement during the first quarter of 2009. 6 The table excludes RUB 2,854 m. for which hedge accounting was not applied due to inefficiency. The average exchange rate for these hedges amounted to SEK 0.27 per RUB. 7 The table excludes cHF 7 m. for which hedge accounting was not applied due to inefficiency. The average exchange rate for these hedges amounted to SEK 6.64 per cHF. S c a n i a 20 0 8 119 0.97 <a href="/v5/viewer/files/Default_s.aspx?gKey=tqcxr73s&gInitPage=116">Scania Annual Report 2008 Sida 116 114 notes to th</a> e consolidated financial statements NOTE 30 Financial risk management, continued Currency exposure in operating income, Vehicles and Services Euro (EUR)1 British pound (GBP) Russian rouble, (RUB) 1 US dollar (USD) norwegian krone (nOK) Danish krone (DKK) Brazilian real (BRL) australian dollar (aUD) Swiss franc (cHF) Polish zloty (PLn) Korean won (KRW) South african rand (ZaR) argentine peso (aRS) Other currencies Total currency exposure in operating income Currency exposure in operating income, Financial Services Euro (EUR) Other currencies Total currency exposure in operating income 2008 11,200 4,000 3,800 3,500 2,000 1,800 1,000 900 900 600 500 400 –1,200 1,800 31,200 2008 200 200 400 2007 2006 16,200 12,000 3,600 3,700 0 0 2,700 3,100 1,800 1,600 1,500 1,300 –1,400 – 2,500 1,000 500 1,000 800 500 800 600 300 800 600 –800 –700 3,400 2,700 30,800 24,300 2007 2006 400 100 300 200 500 500 1 During 2008, Scania switched from invoicing its customers in Russia in euros to invoicing them in roubles. Based on revenue and expenses in foreign currencies during 2008, a one percentage point change in the Swedish krona against other currencies, excluding currency hedges, has an impact on operating income of about SEK 316 m. (313 and 248, respectively) on an annual basis. in Vehicles and Services, compared to 2007, currency spot rate effects totalled about SEK –45 m. currency hedging income in 2008 amounted to SEK –210 m. During 2007, currency hedging had an impact of SEK –130 m. on income. compared to 2007, the total negative currency rate effect was thus SEK –125 m. Scania’s policy is to hedge its currency flows during a period of time equivalent to the projected orderbook until the date of payment. However, the hedging period is allowed to vary between 0 and 12 months. Maturity over 12 months is decided by the Board of Directors. in dealing with currency risk, Scania uses forecasted future cash flows. Hedging of currency risks mainly occurs by selling currencies on forward contracts, but also by means of currency options. The value of contracts not recognised in earnings can be seen in the previous spread. changes in value on effective hedges are recognised in equity. See note 1, “accounting principles”. To ensure efficiency and risk control, borrowings in Scania’s subsidiaries largely occur through the corporate treasury unit, mainly in EUR and SEK, and are then transferred to the subsidiaries in the form of internal loans in the local currencies of the subsidiaries. By means of derivative contracts, corporate-level borrowings are converted to lending currencies. in Financial Services, assets should be financed by liabilities in the same currency. Scania’s borrowings in various currencies excluding and including currency derivatives can be seen in the table “Borrowings” in the section on interest rate risk. at the end of 2008, Scania’s net assets in foreign currencies amounted to SEK 14,650 m. (11,400 and 9,750, respectively). The net foreign assets of subsidiaries are normally not hedged. To the extent subsidiaries have significant net monetary assets in local currencies, however, they may be hedged. at year-end 2008 Scania has hedged EUR 211 m. in foreign net assets. at the close of 2007 and 2006, no foreign net assets were hedged. Net assets, Vehicles and Services Euro (EUR)1 Brazilian real (BRL) Russian rouble (RUB) 1 British pound (GBP) argentine peso (aRS) South african rand (ZaR) Mexican peso (MXn) Peruvian sol (PEn) norwegian krone (nOK) Swiss franc (cHF) Danish krone (DKK) Polish zloty (PLn) US dollar (USD) Other currencies Total net assets in foreign currencies, Vehicles and Services Net assets, Financial Services Euro, (EUR) Other currencies Total net assets in foreign currencies, Financial Services Total net assets in foreign currencies, Scania Group 2008 4,250 1,500 800 600 550 350 300 300 250 250 250 200 –250 1,000 10,350 2008 3 000 1 300 4 300 14,650 2007 2,250 1,600 0 250 500 300 150 150 200 200 150 500 – 150 1,000 7,100 2007 3,000 1,300 4,300 11,400 2006 2,200 1,700 0 100 500 200 250 50 250 200 100 350 – 50 650 6,500 2006 2,150 1,100 3,250 9,750 1 During 2008, the functional currency in a number of Scania’s Russian companies was changed from euros to roubles. S c a n i a 20 0 8 <a href="/v5/viewer/files/Default_s.aspx?gKey=tqcxr73s&gInitPage=117">Scania Annual Report 2008 Sida 117 115 Effect of e</a> xchange rate differences on net income net income for the year was affected by carried exchange rate differences (excluding flow-related forward contracts) as shown in the following table: Operating income Financial income and expenses Taxes Effect on net income for the year 2008 261 –8 –10 243 2007 –159 12 –4 –151 2006 –242 5 0 –237 For information about accumulated exchange rate differences that are recognised directly in equity, see note 16, “Equity”. Interest rate risk in Financial Services Scania’s policy regarding interest rate risks in the Financial Services segment is that lending and borrowing should match in terms of interest rates and maturity periods. interest rate refixing related to the credit portfolio and borrowing in Financial Services had the following structure as of 31 December 2008: Interest rate refixing in Financial Services, 31 December 2008 INTEREST RATE RISk interest rate risk is the risk that changes in market interest rates will adversely affect cash flow or the fair value of financial assets and liabilities. For Scania’s assets and liabilities that carry variable interest rates, a change in market interest rates has a direct effect on cash flow, while for fixed-interest assets and liabilities, the fair value of the portfolio is instead affected. To manage interest rate risks, Scania primarily uses interest rate derivatives in the form of interest rate swap agreements. at year-end 2008, Scania’s interest-bearing assets mainly consisted of assets in Financial Services and of short-term investments and cash and cash equivalents. interest-bearing liabilities consisted mainly of loans, to a great extent intended to fund lending in Financial Services operations and to a lesser extent to fund working capital in Vehicles and Services. Interest rate risk in Vehicles and Services Borrowings in Vehicles and Services are mainly used for funding of working capital. To match the turnover rate of working capital, a short interest rate refixing period is used in the borrowing portfolio. Scania’s policy concerning interest rate risks in the Vehicles and Services segment is that the interest rate refixing period on its net debt should normally be 6 months, but that divergences are allowed in the range between 0 and 24 months. net debt in Vehicles and Services was SEK –8,364 m. (1,902 and 4,335, respectively) at year-end 2008. The borrowing portfolio amounted to SEK 11,574 m. (1,678 and 6,463, respectively) and the aver age interest rate refixing period for this portfolio was less than 6 (6 and 6, respectively) months. Shortterm investments and cash and cash equivalents amounted to SEK 4,345 m. (3,890 and 10,672, respectively) and the average interest rate refixing period on these assets was less than 1 (1 and 1, respectively) month. The net debt also includes derivatives that hedge borrowings with a net value of SEK –1,135 m. (–310 and 126, respectively). Given the same loan liabilities, short-term investments, cash and cash equivalents and interest rate refixing periods as at year-end 2008, a change in market interest rates of 100 basis points (1 percentage point) would change the interest expenses in Vehicles and Services by about SEK 85 m. (10 and 35, respectively) and interest income by about SEK 45 m. (35 and 95, respectively) on an annual basis. 2009 2010 2011 2012 2013 2014 and later Total interest rate refixing in Financial Services, 31 December 2007 2008 2009 2010 2011 2012 2013 and later Total interest rate refixing in Financial Services, 31 December 2006 2007 2008 2009 2010 2011 2012 and later Total 1 including operating leases. 2 Other funding consists mostly of equity. Interest-bearing portfolio 1 25,082 9,172 6,931 3,993 1,613 429 47,220 Interest-bearing liabilities (including interest rate derivatives) 2 23,690 8,609 5,747 2,801 1,016 209 42,072 interest-bearing portfolio 1 20,845 7,213 5,479 3,239 1,246 292 38,314 interest-bearing liabilities (including interest rate derivatives) 2 19,435 6,007 4,486 2,822 809 121 33,680 interest-bearing portfolio 1 17,920 5,806 4,339 2,480 1,062 234 31,841 interest-bearing liabilities (including interest rate derivatives) 2 16,946 5,063 3,333 1,987 438 38 27,805 S c a n i a 20 0 8 <a href="/v5/viewer/files/Default_s.aspx?gKey=tqcxr73s&gInitPage=118">Scania Annual Report 2008 Sida 118 116 notes to th</a> e consolidated financial statements NOTE 30 Financial risk management, continued Scania’s total borrowing portfolio amounted to SEK 53,225 m. (35,201 and 33,798, respectively) at year-end 2008. Borrowings Borrowings, 31 December 2008 EUR GBP BRL DKK PLn RUB ZaR nOK USD cHF KRW aUD cZK cLP THB SEK Other currencies Total 1 including currency swap agreements 36,376 3,096 2,065 1,520 1,423 1,335 1,321 1,220 781 688 673 394 388 313 255 198 1,179 53,225 Borrowings excluding currency swap agreements 25,522 2 1,786 28 364 49 991 0 309 11 0 0 768 287 74 22,379 655 53,225 1 Total borrowings excluded SEK 421 m. related to accrued interest and fair value adjustments on bonds for which hedge accounting was previously applied. CREDIT RISk credit risk is the risk that the counterparty in a transaction will not fulfil its contractual obligations and that any collateral will not cover the company’s claim. an overwhelming share of the credit risk for Scania is related to receivables from customers. Scania sales are distributed among a large number of end customers with a large geographic dispersion, which limits the concentration of credit risk. Credit risk, Vehicles and Services in the Vehicles and Services segment, carried receivables from customers totalled SEK 8,470 m. (8,670 and 8,422, respectively), most of which con sisted of receivables from independent dealerships and end customers. The total estimated fair value of collateral was SEK 1,676 m. Most of the collateral consisted of repossession rights and bank guarantees. During the year, collateral valued at SEK 23 m. was repossessed. Timing analysis of portfolio assets past due but not recognised as impairment losses < 30 days 30–90 days 91–180 days > 180 days Total S c a n i a 20 0 8 Past-due payments 2008 1,271 682 156 138 2,247 Past-due payments 2007 1,278 456 146 226 2,106 Past-due payments 2006 1,089 381 84 293 1,847 Provisions for bad debts amounted to SEK 711 m. (619 and 626, respectively), equivalent to 7.7 (6.7 and 6.9, respectively) percent of total receivables. The year’s bad debt expense amounted to SEK 102 m. (92 and 125, respectively). Provisions for bad debts changed as follows: Provisions for bad debts Provisions, 1 January Provisions for potential losses Withdrawals due to actual credit losses currency rate effects Other Provisions, 31 December 2008 619 71 –55 54 21 711 2007 626 34 – 82 – 13 54 619 2006 642 91 –74 –57 24 626 Credit risk, Financial Services The credit portfolio including operating leases in the Financial Services segment can be seen in the table below: Credit portfolio Exposure of which, operating leases credit risk reserve of which, operating leases carrying amount of which, operating leases 2008 47,855 9,126 635 93 47,220 9,033 2007 38,881 8,054 567 35 38,314 8,019 2006 32,362 7,434 521 55 31,841 7,379 To maintain a controlled level of credit risk in the segment, the process of issuing credit is supported by a credit policy as well as credit instructions. credit risks are managed by active credit assessment as well as administration of customers who do not follow the agreed payment plan. collateral in Financial Services operations mainly exists in the form of the products being financed. The portfolio mainly consists of financing of trucks, buses and trailers for small and medium-sized companies. a description of credit risk exposure can be seen in the table below: Concentration of credit risk On 31 December 2008 Exposure < SEK 15 m. Exposure SEK 15–50 m. Exposure > SEK 50 m. Total Number of customers 22,722 325 73 23,120 Percentage of total number of customers 98.3 1.4 0.3 100.0 Percentage of portfolio value 66.0 18.1 15.9 100.0 The credit risk concentration in 2008 was equivalent to that of 2007 and 2006. The table shows that most customers are in the segment with exposure < SEK 15 m. This segment included 98.3 (98.5 and 98.8, respectively) percent of the total number of customers, equivalent to 66.0 <a href="/v5/viewer/files/Default_s.aspx?gKey=tqcxr73s&gInitPage=119">Scania Annual Report 2008 Sida 119 117 Timing anal</a> ysis of portfolio assets 2008 Past due but not recognised as impairment losses < 30 days 30–90 days Past due and recognised as impairment losses 91–180 days > 180 days completed contracts Total 152 129 99 802 1,598 1,046 731 11,800 1,426 899 573 11,123 1 Exposure is defined as maximum potential loss, without regard to the value of any collateral. 53 71 65 392 537 441 443 7,816 493 403 282 7,575 50 74 62 346 395 376 408 5,593 343 269 262 5,229 Past-due payments 202 220 Total exposure1 5,217 3,208 Estimated fair value of collateral 5,040 3,185 Past-due payments 102 101 2007 Total exposure 1 4,079 2,316 Estimated fair value of collateral 4,145 2,252 Past-due payments 89 71 2006 Total exposure 1 2,930 1,484 Estimated fair value of collateral 2,985 1,370 (67.9 and 69.1, respectively) percent of the portfolio. The segment with exposure of SEK 15-50 m. included 1.4 (1.2 and 1.0, respectively) percent of the total number of customers, equivalent to 18.1 (17.7 and 16.8, respectively) percent of the portfolio. The segment with exposure > SEK 50 m. included 0.3 (0.3 and 0.2, respectively) percent of the total number of customers, equivalent to 15.9 (14.4 and 14.1, respectively) percent of the portfolio. Obligations with past-due receivables ordinarily lead to relatively quick repossession of the item being financed, unless the customer’s payment problems can be deemed to be of a short-term, temporary nature. Under normal circumstances there is a smoothly functioning second-hand market for the objects being financed and the objects can then be sold relatively quickly. Due to the turmoil in the financial market during the second half of 2008, the second-hand market did not function as previously. as a result, the terms of financing contracts were renegotiated to a greater extent. at the end of 2008, the carrying amount of financial assets whose terms were renegotiated and that would otherwise be recognised as past due for payment or as impairment losses, totalled SEK 2,977 m. in prior years, only an extremely limited proportion of contracts were renegotiated. Renegotiation will only occur in cases when, in the judgement of Financial Services, the customer’s liquidity problems are of a temporary nature and when renegotiation can take place without greatly worsening its risk position. contracts are regarded as bad debts when payment is more than 90 days past due or when there in information that causes Scania to terminate the contracts early. During 2008, 2,146 (895 and 958, respectively) financed vehicles were repossessed. at year-end, the number of repossessed but not yet sold vehicles amounted to 720 (239 and 208, respectively), with a total carrying amount of SEK 310 m. (129 and 111, respectively). Repossessed vehicles are sold off by means of a new financing contract with another customer, direct sale to an end customer or sale via Scania’s dealership network. Provisions for bad debts from customers amounted to SEK 635 m. (567 and 521, respectively), equivalent to 1.3 (1.5 and 1.6, respectively) percent of the total Financial Services portfolio. Provisions for bad debts changed as follows: Provisions for bad debts Provisions, 1 January Provisions for potential losses Withdrawals due to actual credit losses currency rate effects Other Provisions, 31 December 2008 567 237 –176 9 –2 635 2007 521 100 –60 7 –1 567 2006 532 58 –55 –14 0 521 The year’s expenses for actual and potential credit losses amounted to SEK 227 m. (90 and 63, respectively). Other credit risks at Scania The administration of the financial credit risks that arise primarily in corporate treasury operations, among other things when investing liquidity and in derivatives trading, is regulated in Scania’s Financial Policy. Transactions occur only within established limits and with selected, credit worthy counterparties. “creditworthy counterparty” means that the counterparty has received an approved credit rating (at least a or the equivalent) from the credit institutes Standard and Poor’s and/ or Moody’s. To reduce credit risk, the volume of exposure allowed per counterparty is limited, depending on the counter party’s credit rating. To further limit credit risk, Scania has entered into inter national Swaps and Derivatives association (iSDa) netting contracts with most of its counterparties. Derivative transactions occurring in nordpool are regarded as being risk-free, since it is owned by the Swedish and norwegian governments. S c a n i a 20 0 8 <a href="/v5/viewer/files/Default_s.aspx?gKey=tqcxr73s&gInitPage=120">Scania Annual Report 2008 Sida 120 118 notes to th</a> e consolidated financial statements NOTE 30 Financial risk management, continued The corporate treasury unit is responsible for ensuring compliance with the rules of Scania’s Financial Policy. Overall counterparty exposure related to derivatives trading, calculated as a net receivable per counterparty, amounted to SEK –3,721 m. (–573 and 249, respectively) at the end of 2008. Estimated gross exposure to counterparty risks related to derivatives trading totalled SEK 1,687 m. (405 and 597, respectively). Estimated gross exposure to cash and cash equivalents and short-term investments amounted to SEK 4,669 m. (4,134 and 10,845, respectively). Short-term investments are deposited with various banks. These banks normally have at least an a rating with Standard and Poor’s and/or the equivalent with Moody’s. Scania had short-term investments worth SEK 3,562 m. (1,612 and 9,719, respectively), of which SEK 3,474 m. (933 and 8,808, respectively) consists of investments with a maturity of less than 90 days and SEK 88 m. (679 and 911, respectively) consisted of investments with a maturity of 91-365 days. in addition to short-term investments, Scania had bank balances worth SEK 1,107 m. (2,522 and 1,126, respectively). REFINANCING RISk Refinancing risk is the risk of not being able to meet the need for future funding. Scania applies a conservative policy concerning refinancing risk. For Vehicles and Services, there shall be a liquidity reserve consisting of available cash and cash equivalents as well as unutilised credit facilities which exceeds the funding needs for the next two years. For Financial Services, there shall be dedicated funding that covers the estimated demand for funding during the next year. There shall also always be borrowings that safeguard the refinancing of the existing portfolio. at the end of 2008, Scania’s liquidity reserve, consisting of unutilised credit facilities, cash and cash equivalents and short-term investments, amounted to SEK 31,540 m. (18,344 and 20,800 respectively). Scania’s credit facilities include customary change control clauses, which means that the counterparty could demand early payment in case of significant changes in ownership involving a change in control of the company. During 2008, changes of ownership did not result in any changes in Scania’s credit facilities. at year-end, Scania had borrowings, in some cases with related ceilings, as follows (in SEK m.): Borrowings, 2008 Medium Term note Programme European Medium Term note Programme Other bonds credit facility (EUR) commercial paper, Sweden commercial paper, Belgium Bank loans Total 1 Total borrowings 1,753 22,514 6,371 – 9,611 1,849 11,127 53,225 2 Ceiling 13,000 38,274 – 26,871 10,000 4,374 – 92,519 Borrowings, 2007 Medium Term note Programme European Medium Term note Programme Other bonds credit facility (EUR) commercial paper, Sweden commercial paper, Belgium Bank loans Total 1 Borrowings, 2006 Medium Term note Programme European Medium Term note Programme Other bonds credit facility (EUR) commercial paper, Sweden commercial paper, Belgium Bank loans Total 1 Total borrowings 1,831 18,911 2,257 – 3,587 379 8,236 35,201 2 ceiling 13,000 23,684 – 14,210 6,000 3,789 – 60,683 Total borrowings 3,260 18,272 590 3,620 1,000 – 7,056 33,798 2 1 Of the total ceiling, SEK 26,871 m. (14,210 and 13,575, respectively) consisted of guaranteed revolving credit facilities. 2 Total borrowings excluded SEK 421 m. (158 and 470, respectively) related to accrued interest and fair value adjustments on bonds where hedge accounting was previously applied. controlling Scania’s refinancing risk includes safeguarding access to credit facilities and ensuring that the maturity structure of borrowings is diversified. at year-end, Scania’s total borrowings had the following maturity structure (in SEK m.): Maturity structure of Scania’s borrowings 2007 2008 2009 2010 2011 2012 and later 2013 and later 2014 and later Total 2008 – 27,439 1 9,216 8,874 3,883 348 3,465 2007 – 15,137 1 7,725 3,195 6,603 2,525 16 – 53,225 2 2006 – 15 7681 8 750 1 501 1 726 5 672 381 – – 35,201 2 33 798 2 1 Borrowings with a maturity date within one year excluded accrued interest worth SEK 503 m. (354 and 581, respectively). 2 Total borrowings excluded SEK 421 m. (158 and 470, respectively) related to accrued interest and fair value adjustments on bonds for which hedge accounting was previously applied. ceiling 13,000 22,625 – 13,575 6,000 3,620 – 58,820 S c a n i a 20 0 8 <a href="/v5/viewer/files/Default_s.aspx?gKey=tqcxr73s&gInitPage=121">Scania Annual Report 2008 Sida 121 119 NOTE 31 Fin</a> ancial instruments Financial assets in the Scania Group mainly consist of financial leases and hire purchase receivables that have arisen in the Financial Services segment due to financing of customers’ vehicle purchases. Other financial assets of significance are trade receivables from independent dealerships and end customers in the Vehicles and Services segment plus short-term investments and cash and cash equivalents. Scania’s financial liabilities consist largely of loans, mainly taken out to fund Financial Services’ lending and leasing to customers and, to a lesser extent, to fund capital employed in Vehicles and Services. Financial assets and liabilities give rise to various kinds of risks, which are largely managed by means of various derivative instruments. Scania uses derivative instruments, mainly for the purpose of: – Transforming corporate-level borrowings in a limited number of currencies to the currencies in which the financed assets are denominated. – Transforming the interest rate refixing period for borrowings in Financial Services as well as achieving the desired interest rate refixing period for other borrowings. – converting expected future commercial payments in foreign currencies to SEK. – To a lesser extent, converting projected surplus liquidity in foreign currencies to SEK. – To safeguard the price level of future electricity consumption. FAIR VALUE OF FINANCIAL INSTRUMENTS The carrying amounts of interest-bearing assets and liabilities in the balance sheet may diverge from their fair value, among other things as a consequence of changes in market interest rates. To establish the fair value of financial assets and liabilities, official market quotations have been used for those assets and liabilities that are traded in an active market. in those cases where market quotations do not exist, fair value has been established by discounting future payment flows at current market interest rates and then converting to SEK at the current exchange rate. Fair value of financial instruments such as trade receivables, trade payables and other non-interest-bearing financial assets and liabilities that are recognised at accrued cost minus any impairment losses, is regarded as coinciding with the carrying amount. Scania has no instruments classified in the category of financial assets and liabilities that were determined from the beginning as belonging to the category “carried at fair value through the income statement (iFRS term: “through profit and loss”). impairment losses on assets occur only when there is reason to believe that the counterparty will not fulfil its contractual obligations, not as a consequence of changes in market interest rates. Scania Group, 2008, SEK m. non-current interest-bearing receivables current interest-bearing receivables non-interest-bearing trade receivables cash and cash equivalents Other non-current receivables 1 Other current receivables 2 Total assets non-current interest-bearing liabilities current interest-bearing liabilities Trade payables Other non-current liabilities 3 Other current liabilities 4 Total liabilities 1,182 758 1,940 – 1 Financial instruments included in the balance sheet under “Other non-current assets”, SEK 1,093 m. 2 Financial instruments included in the balance sheet under “Other current receivables”, SEK 5,419 m. 3 Financial instruments included in the balance sheet under “Other non-current liabilities”, SEK 1,359 m. 4 Financial instruments included in the balance sheet under “Other current liabilities”, SEK 5,973 m. – 60,429 – Financial assets and financial liabilities carried at fair value via the income statement (“through profit and loss”) Loan Held-tomaturity investments receivables and trade receivables 517 493 1,010 – 24,877 13,879 7,498 4,669 550 51,473 – 25,704 27,942 6,783 173 3,295 3,468 23 23 654 654 Other financial liabilities net investment hedges cash flow hedges Total carrying amount 24,877 13,879 7,498 4,669 1,067 1,170 53,160 25,704 27,942 6,783 1,355 4,053 65,837 Total fair value 24,672 13,765 7,498 4,669 1,067 1,170 52,841 25,086 27,706 6,783 1,355 4,053 64,983 S c a n i a 20 0 8 <a href="/v5/viewer/files/Default_s.aspx?gKey=tqcxr73s&gInitPage=122">Scania Annual Report 2008 Sida 122 120 notes to th</a> e consolidated financial statements NOTE 31 Financial instruments, continued Scania Group, 2007, SEK m. non-current interest-bearing receivables current interest-bearing receivables non-interest-bearing trade receivables cash and cash equivalents Other non-current receivables 1 Other current receivables 2 Total assets non-current interest-bearing liabilities current interest-bearing liabilities Trade payables Other non-current liabilities 3 Other current liabilities 4 Total liabilities 211 282 493 – 1 Financial instruments included in the balance sheet under “Other non-current assets”, SEK 707 m. 2 Financial instruments included in the balance sheet under “Other current receivables”, SEK 3,888 m. 3 Financial instruments included in the balance sheet under “Other non-current liabilities”, SEK 216 m. 4 Financial instruments included in the balance sheet under “Other current liabilities”, SEK 3,301 m. – 42,426 Financial assets and financial liabilities carried at fair value via the income statement (“through profit and loss”) Loan Held-tomaturity investments receivables and trade receivables 120 182 302 20,590 10,565 7,540 4,134 574 – 43,403 – 19,866 15,492 7,068 369 369 116 116 107 107 – Other financial liabilities cash flow hedges Fair value hedges Total carrying amount 20,590 10,565 7,540 4,134 694 289 43,812 19,866 15,492 7,068 211 767 43,404 Total fair value 20,250 10,959 7,540 4,134 694 280 43,857 19,942 16,347 7,068 211 767 44,335 Scania Group, 2006, SEK m. non-current interest-bearing receivables current interest-bearing receivables non-interest-bearing trade receivables cash and cash equivalents Other non-current receivables 1 Other current receivables 2 Total assets non-current interest-bearing liabilities current interest-bearing liabilities Trade payables Other non-current liabilities 3 Other current liabilities 4 Total liabilities 169 122 291 Financial assets and financial liabilities carried at fair value via the income statement (“through profit and loss”) Loan Held-tomaturity investments receivables and trade receivables 16,599 8,600 7,379 475 90 56 621 32 10,338 559 32 43,475 – 17,918 16,350 6,011 – 1 Financial instruments included in the balance sheet under “Other non-current assets”, SEK 1,023 m. 2 Financial instruments included in the balance sheet under “Other current receivables”, SEK 3,046 m. 3 Financial instruments included in the balance sheet under “Other non-current liabilities”, SEK 536 m. 4 Financial instruments included in the balance sheet under “Other current liabilities”, SEK 1,939 m. – 40,279 10 10 44 4 48 131 131 24 296 320 Other financial liabilities cash flow hedges Fair value hedges Total carrying amount 16,599 8,600 7,379 10,845 673 483 44,579 17,918 16,350 6,011 213 136 40,628 Total fair value 15,931 8,581 7,379 10,840 673 483 43,887 18,359 16,122 6,011 213 136 40,841 S c a n i a 20 0 8 <a href="/v5/viewer/files/Default_s.aspx?gKey=tqcxr73s&gInitPage=123">Scania Annual Report 2008 Sida 123 121 HEDGE ACCOU</a> NTING Scania applies hedge accounting according to iaS 39 as follows: – cash flow hedge accounting is applied to currency derivatives used for hedging future payments in foreign currencies. For information about the amount recognised in equity as well as the amount removed from equity and recognised in the income statement in 2008, see note 16, “Equity”. – During 2008 Scania ended fair value hedge accounting on bond loans. The difference between fair value and accrued cost on bond loans is allocated in the income statement over the remaining maturity of the loan. at the end of 2008, Scania has no fair value hedge accounting on bond loans. – instead of fair value hedge accounting, during 2008 Scania began to apply cash flow hedge accounting on interest rate derivatives to transform variable interest rates on loans to fixed rates. This reduces the volatility that previously occurred in the income statement when hedge accounting was not applied. The table below shows the results of the loans and interest rate swap agreements that were recognised at fair value: Fair value hedge accounting Financial liabilities (hedged item) interest rate-related derivatives (hedging instruments) Total (inefficiency) Net income 2008 – – 0 net income 2007 104 – 111 – 7 net income 2006 420 – 426 – 6 The table below shows the nominal amounts and the fixed rates on interest rate swaps that are included in cash flow hedges. Interest rate swaps in cash flow hedges Maturity 2009 Maturity after 2009 ”Nominal amount” 2008 1,837 3,834 Fixed interest rate % 2008 3.93 4.42 – cash flow hedge accounting is applied to electricity derivatives used for forecasted electricity consumption in Sweden. Scania’s expected purchases of electric power in 2009 amount to 380 GWh. During the period 2009–2012, the Group has hedged 842 GWh at an average price of EUR 47,07/MWh. – at year-end 2008, the effect on income of inefficient cash flow hedges amounted to SEK 16 m. (0 and 0, respectively). – Scania applies hedge accounting to currency futures and loans that are used for hedging net investments outside Sweden. at the end of 2008, Scania had hedged EUR 211 m. in net investments outside Sweden. The year’s income on these hedges totalled SEK –222 m. before taxes. Since Scania is applying hedge accounting, this amount was recognised directly in equity. at the end of 2007 and 2006, Scania had no hedged net investments abroad. interest income on financial assets interest expenses on financial liabilities Total For more detailed information on accounting of hedging instruments and hedged items, see note 1, “accounting principles”. NET GAINS/LOSSES ON FINANCIAL INSTRUMENTS RECOGNISED IN THE INCOME STATEMENT The table below shows the following items that are recognised in the income statement: – Gains and losses related to currency rate differences, including gains and losses attributable to cash flow hedge accounting. − Gains and losses related to financial instruments for which fair value hedge accounting is applied. Net gains/losses Financial assets and liabilities held for trading, carried at fair value Loan and trade receivables 1 Other financial liabilities Total 1 also includes operating leases. Gains and losses due to currency rate differences related to derivatives, loan receivables and borrowings mainly arise in Scania’s treasury unit. an overwhelming proportion of loan receivables that give rise to currency rate differences comprise the treasury unit’s receivables from Group companies. INTEREST INCOME AND EXPENSES ON FINANCIAL INSTRUMENTS The table below shows interest income and interest expenses for all of Scania’s financial assets and financial liabilities: 2008 2,893 1, 2 –2,527 2, 3 366 2007 2,405 1, 2 – 2,038 2, 3 367 2006 2,535 1, 2 –1,752 2, 3 783 1 SEK 103 m. (179 and 257, respectively) consists of interest income generated from financial investments carried at fair value. 2 also includes operating leases as well as other interest income and interest expenses related to Financial Services that were recognised in the operating income. 3 SEK 201 m. (288 and 201, respectively) consists of interest expenses generated from financial liabilities carried at fair value. The reason why income diverges from recognised interest income in net financial items is largely that Financial Services is included in the table and that interest income and interest expenses attributable to pensions are excluded. 2008 –1,092 2,690 –1,810 –212 2007 – 279 1,201 –1,160 –238 2006 438 – 1,595 1,181 24 S c a n i a 20 0 8 <a href="/v5/viewer/files/Default_s.aspx?gKey=tqcxr73s&gInitPage=124">Scania Annual Report 2008 Sida 124 122 notes to th</a> e consolidated financial statements NOTE 32 Subsidiaries Company Vehicles and Services Scania cV aB Dynamate aB Dynamate intraLog aB Fastighets aB Katalysatorn Fastighetsaktiebolaget Flygmotorn Fastighetsaktiebolaget Hjulnavet Fastighetsaktiebolaget Vindbron Ferruform aB Hedenlunda Fastighet aB Scania Omni aB Scania Delivery center aB Scania iT aB Scania Overseas aB Scania Parts Logistics aB Scania Real Estate aB Scania Real Estate Services aB Scania Sverige aB Scania Trade Development aB Scania Treasury aB Stockholms industriassistans aB Svenska Mektek aB Transportlaboratorium aB Vabis Försäkrings aB aconcagua Vehiculos com. S.a. automotores del atlantico S.a. automotores Pesados S.a. Motorcam S.a. Scania argentina S.a. Scania Plan S.a. Scania australia Pty Ltd Scania Österreich GmbH Scania Belgium nV-S.a. Scania Bus Belgium nV-S.a. Scania Treasury Belgium nV Scania Bosnia Hertzegovina d.o.o. Scania Botswana (Pty) Ltd codema coml import LTDa Scania administradora de consórcios Ltda Scania Latin america Ltda Suvesa Super Veics Pesados LTDa Griffin automotive Limited Scania Bulgaria EOOD Scania chile S.a. Scania (Hong Kong) Ltd Scania Sales (china) co Ltd Scania Hrvatska d.o.o. Scania czech Republic s.r.o. Scania Biler a/S Scania Danmark a/S Scania Eesti aS Oy autokuvio ab Oy Maakunnan auto ab Oy Scan-auto ab S c a n i a 20 0 8 Corporate ID no. 556084-0976 556070-4818 556718-5409 556070-4826 556528-9112 556084-1198 556040-0938 556528-9120 556147-5871 556060-5809 556593-2976 556084-1206 556593-2984 556528-9104 556084-1180 556593-3024 556051-4621 556013-2002 556528-9351 556662-3459 556616-7747 556528-9294 516401-7856 30-70737179-6 30-70709795-3 30-55137605-9 33-70791031-9 30-51742430-3 30-61086492-5 000537333 aT 43324602 BE402.607.507 BE460.870.259 BE200012217359 1-23174 cO.2000/6045 60849197/001-60 96.479.258/0001-91 635 010 727 112 88301668/0001-10 656978 BG121796861 96.538.460-K 1205987 110105717867816 1 351 923 cZ61251186 DK21498033 DK 17045210 10 238 872 1505472-2 1568951-7 Fi0202014-4 Registered office Södertälje Södertälje Södertälje Södertälje Malmö Stockholm Gothenburg Luleå Flen Södertälje Södertälje Södertälje Södertälje Södertälje Katrineholm Södertälje Södertälje Södertälje Södertälje Stockholm Södertälje Södertälje Södertälje Mendoza Mar del Plata Tucuman Buenos aires Buenos aires Buenos aires Melbourne Brunn am Gebirge Diegem Diegem neder-Over-Heembeej Sarajevo Gaborone Guarulhos cotia Road Town Sofia Santiago Hong Kong Beijing Zagreb Prague Kolding Herlev Tallinn Hämeenlinna Seinäjoki Helsinki Country Sweden Sweden Sweden Sweden Sweden Sweden Sweden Sweden Sweden Sweden Sweden Sweden Sweden Sweden Sweden Sweden Sweden Sweden Sweden Sweden Sweden Sweden Sweden argentina argentina argentina argentina argentina argentina australia austria Belgium Belgium Belgium Bosnia-Hercegovina Botswana Brazil Brazil Saõ Bernardo do campo Brazil canoas Brazil British Virgin islands Bulgaria chile china china croatia czech Republic Denmark Denmark Estonia Finland Finland Finland % Ownership 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 99.38 100 100 96.66 100 100 100 100 100 100 99.9 99.99 99.99 100 99.99 100 100 100 100 100 100 100 100 100 100 100 100 100 <a href="/v5/viewer/files/Default_s.aspx?gKey=tqcxr73s&gInitPage=125">Scania Annual Report 2008 Sida 125 123 Company Sca</a> nia France S.a.S. Scania iT angers S.a.S. Scania Locations S.a.S Scania Production angers S.a.S. Scania Deutschland GmbH Scania Danmark GmbH Scania Vertrieb und Service GmbH Scania Great Britain Ltd Scania Hungaria KFT italscania SPa Scania central asia LLP Sia Scania Latvia UaB Scania Lietuva Scania Luxembourg S.a. Scania Malaysia SDn BHD Scania comercial, S.a de c.V. Scania Servicios S.a. de c.V Scania de Mexico S.a. de cV Scania Maroc S.a. Truck namibia (Pty) Ltd Beers n.V. Scania Beers B.V. Scania Beers Rayon ii B.V. Scania Group Treasury B.V. Scania infomate Zwolle Scania insurance nederland B.V. Scania networks B.V. Scania Productie Meppel B.V. Scania Production Zwolle B.V. Scania Treasury netherland B.V. norsk Lastebilutleie aS norsk Scania aS Scania del Peru S.a. Scania Polska S.a. Scania Production Słupsk S.a. Scania Portugal Sa Scania Romania SRL OOO Scania Russia Scania Peter OOO OOO Petroscan OOO Scania Service Scania Srbia d.o.o. Scania Singapore Pte Ltd Scania Slovakia s.r.o. Scania East adriatic Region d.o.o. Scania Slovenija d.o.o. Scania South africa Pty Ltd Scania Korea Ltd Scania Hispania S.a. Proarga, S.L. Scagalicia, S.L. GB&M Garage et carrosserie Sa Scania Schweiz aG Thommen nutzfahrzeuge aG Corporate ID no. FR38307166934 FR17412 282 626 FR67402496442 FR24378 442 982 DE148787117 DE1 529 518 862 DE812180098 831017 10415577 iT 01632920227 84931-1910-TOO LV000311840 2 387 302 LU165291-18 518606-D ScO-031124-MF5 SSE-031124-c26 SME-930629-JT3 6100472 3864704-015 nL003779439B01 27136821 27146580 27269640 8073.08.432.B01 27005076 nL802638429B01 nL800564364B06 nL800564364B04 27269639 875346822 879 263 662 101-36300 521-10-14-579 839-000-53-10 PT502929995 J40/10908/1999 5 032 073 106 78:111158:25 7816097078 5032052145 SR100014375 200309593R 0035826649/801 1 605 810 1 124 773 95/0 1275/07 136-81-15441 ESa59596734 ESB36682003 ESB36625044 cH-660-0046966-0 cH218687 cH-280.3.001.323-2 Registered office angers angers angers angers Koblenz Flensburg Koblenz Milton Keynes Biatorbagy Trento almaty Riga Vilnius Münsbach Kuala Lumpur Queretaro Queretaro Queretaro casablanca Windhoek The Hague The Hague The Hague The Hague Zwolle The Hague The Hague Meppel Zwolle The Hague Drammen Oslo Lima Warsaw Słupsk Santa iria da azóia Bucharest Moscow St Petersburg St Petersburg Golitsino Belgrade Singapore Bratislava Ljubliana Ljubliana Sandton Seoul Madrid Pontevedra Pontevedra Geneva Kloten Rümlingen Country France France France France Germany Germany Germany Great Britain Hungary italy Kazakhstan Latvia Lithuania Luxembourg Malaysia Mexico Mexico Mexico Morocco namibia netherlands netherlands netherlands netherlands netherlands netherlands netherlands netherlands netherlands netherlands norway norway Peru Poland Poland Portugal Romania Russia Russia Russia Russia Serbia Singapore Slovakia Slovenia Slovenia South africa South Korea Spain Spain Spain Switzerland Switzerland Switzerland % Ownership 100 100 100 100 100 100 100 100 100 100 100 100 100 99.9 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 S c a n i a 20 0 8 <a href="/v5/viewer/files/Default_s.aspx?gKey=tqcxr73s&gInitPage=126">Scania Annual Report 2008 Sida 126 124 notes to th</a> e consolidated financial statements NOTE 32 Subsidiaries, continued Company Scania Tanzania Ltd Scan Siam Service co. Ltd Scania Siam co Ltd Scania Thailand co Ltd Donbas-Scan-Service LLc Scania Ukraine LLc Lauken S.a. Scanexpo S.a. Scania USa inc Scania de Venezuela S.a. Financial Services Scania Finans aB Scania credit aB Scania Finance Pty Ltd Scania Leasing Ges.m.b.H Scania Finance Belgium n.V. S.a. Scania Finance Bulgaria EOOD Scania Finance chile S.a. Scania credit Hrvatska d.o.o. Scania Finance czech Republic spol s.r.o. Scania Finance France S.a.S. Scania Finance Deutschland GmbH Scania Finance Great Britain Ltd Scania Lízing KFT Scania Finance Magyarország zrt. Scania Finance italy S.p.a Scania Finance Luxembourg S.a. Scania Finance nederland B.V. Scania Finance Polska Sp.z.o.o. Scanrent S.a. Scania credit Romania SRL LLc Scania Bus Leasing OOO Scania Leasing Scania Finance Slovak Republic Scania Finance Southern africa (Pty) Ltd Scania Finance Korea Ltd Scania Finance Hispania EFc S.a. Scania Finance Switzerland Ltd Scania Tüketici Finansmani a.S. Scania credit Ukraine Ltd Corporate ID no. 39320 3030522108 865/2543 9802/2534 345167305920 30 107 866 21.150044.0016 21.173422.0012 06-1288161 J-30532829-3 556049-2570 556062-7373 52006002428 aTU 57921547 BE 413 545 048 BG 175108126 76.574.810-0 80 516 047 cZ 25657496 350 890 661 DE811292425 581 016 364 13-09-107823 HU14111440 1204290223 20 012 217 359 27004973 521 15 79 028 PT502631910 17 996 167 7705207520 7705392920 SK2022522557 2000/025215/07 6 138 127 196 ESa82853987 cH-020.3.029.627-6 7570328278 33 052 443 Registered office Dar Es Salaam Bangkok Bangkok Bangkok Makeevka Kiev Montevideo Montevideo San antonio, Texas Valencia Södertälje Södertälje Melbourne Brunn am Gebrige neder-Over Heembeek Sofia Santiago Rakitje Prague angers Koblenz Milton Keynes Biatorbagy Biatorbagy Trento Luxembourg The Hague Warsaw Lisbon ciorogarla Moscow Moscow Bratislava Johannesburg Seoul Madrid Kloten istanbul Kiev Dormant companies and holding companies with operations of negligible importance are not included. Country Tanzania Thailand Thailand Thailand Ukraine Ukraine Uruguay Uruguay USa Venezuela Sweden Sweden australia austria Belgium Bulgaria chile croatia czech Republic France Germany Great Britain Hungary Hungary italy Luxembourg netherlands Poland Portugal Romania Russia Russia Slovakia South africa South Korea Spain Switzerland Turkey Ukraine % Ownership 100 73.98 99.9 99.99 99 99 100 100 100 100 100 100 100 100 99.9 100 100 100 100 100 100 100 100 99 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 S c a n i a 20 0 8 <a href="/v5/viewer/files/Default_s.aspx?gKey=tqcxr73s&gInitPage=127">Scania Annual Report 2008 Parent Company financial</a> statements, Scania AB Parent comPany financial statements, scania aB Parent company financial statements, scania aB Income statement January – December, SEK m. administrative expenses Operating income Financial income and expenses income after financial items Withdrawal from tax allocation reserve income before taxes Taxes Net income 2 1 Statement of changes in equity note 2008 0 0 2,944 2,944 – 2,944 –47 2,897 2007 2006 –41 –41 0 0 7,695 10,110 7,654 10,110 326 634 7,980 10,744 –154 – 224 7,826 10,520 Restricted equity 2008 Equity, 1 January Redemption Dividends Group contributions Tax attributable to Group contributions net income Equity, 31 December 2008 Balance sheet 31 December, SEK m. Assets Financial non-current assets Shares in subsidiaries Current assets Due from subsidiaries Total assets Shareholders’ equity and liabilities Equity Untaxed reserves Current liabilities Tax liabilities Total shareholders’ equity and liabilities Assets pledged Contingent liabilities 7 2007 3 4 8,401 4,611 13,012 8,401 8,401 11,844 14,722 20,245 23,123 Equity, 1 January Redemption Dividends Group contributions Tax attributable to Group contributions 5 6 12,198 814 19,423 21,972 814 1,140 net income Equity, 31 December 2007 – 13,012 – 44,669 8 11 20,245 23,123 – – 27,112 25,311 2006 Equity, 1 January Reduction in share capital Dividends Group contributions Tax attributable to Group contributions net income Equity, 31 December 2006 2,000 1,120 2,000 1,120 2,000 1,120 Share capital 2,000 Statutory reserve 1,120 Unrestricted shareholders’ equity 16,303 –6,000 –4,000 –169 47 2,897 9,078 Total 19,423 –6,000 –4,000 –169 47 2,897 12,198 125 note 2008 2007 2006 Restricted equity Share capital 2,000 Statutory reserve 1,120 Unrestricted shareholders’ equity Total 18,852 21,972 – 7,000 – 7,000 – 3,000 – 3,000 – 520 – 520 145 16,303 145 7,826 7,826 19,423 Restricted equity Share capital 2,263 – 263 Statutory reserve 1,120 Unrestricted shareholders’ equity 263 Total 11,614 14,997 0 – 3,000 – 3,000 – 757 – 757 212 212 10,520 10,520 18,852 21,972 S c a n i a 20 0 8 Parent comPany financial statements, scania aB Parent company financial statements, scania aB Income statement January – December, SEK m. administrative expenses Operating income Financial income and expenses income after financial items Withdrawal from tax allocation reserve income before taxes Taxes Net income 2 1 Statement of changes in equity note 2008 0 0 2,944 2,944 – 2,944 –47 2,897 2007 2006 –41 –41 0 0 7,695 10,110 7,654 10,110 326 634 7,980 10,744 –154 – 224 7,826 10,520 Restricted equity 2008 Equity, 1 January Redemption Dividends Group contributions Tax attributable to Group contributions net income Equity, 31 December 2008 Balance sheet 31 December, SEK m. Assets Financial non-current assets Shares in subsidiaries Current assets Due from subsidiaries Total assets Shareholders’ equity and liabilities Equity Untaxed reserves Current liabilities Tax liabilities Total shareholders’ equity and liabilities Assets pledged Contingent liabilities 7 2007 3 4 8,401 4,611 13,012 8,401 8,401 11,844 14,722 20,245 23,123 Equity, 1 January Redemption Dividends Group contributions Tax attributable to Group contributions 5 6 12,198 814 19,423 21,972 814 1,140 net income Equity, 31 December 2007 – 13,012 – 44,669 8 11 20,245 23,123 – – 27,112 25,311 2006 Equity, 1 January Reduction in share capital Dividends Group contributions Tax attributable to Group contributions net income Equity, 31 December 2006 2,000 1,120 2,000 1,120 2,000 1,120 Share capital 2,000 Statutory reserve 1,120 Unrestricted shareholders’ equity 16,303 –6,000 –4,000 –169 47 2,897 9,078 Total 19,423 –6,000 –4,000 –169 47 2,897 12,198 125 note 2008 2007 2006 Restricted equity Share capital 2,000 Statutory reserve 1,120 Unrestricted shareholders’ equity Total 18,852 21,972 – 7,000 – 7,000 – 3,000 – 3,000 – 520 – 520 145 16,303 145 7,826 7,826 19,423 Restricted equity Share capital 2,263 – 263 Statutory reserve 1,120 Unrestricted shareholders’ equity 263 Total 11,614 14,997 0 – 3,000 – 3,000 – 757 – 757 212 212 10,520 10,520 18,852 21,972 S c a n i a 20 0 8 <a href="/v5/viewer/files/Default_s.aspx?gKey=tqcxr73s&gInitPage=128">Scania Annual Report 2008 Sida 128 126 Parent comP</a> any financial statements, scania aB Parent company financial statements, scania aB, continued Cash flow statement January – December, SEK m. Operating activities income after financial items items not affecting cash flow Taxes paid Cash flow from operating activities before change in working capital Cash flow from change in working capital Due from/liabilities to subsidiaries Total change in working capital Cash flow from operating activities Investing activities Liquidation of subsidiaries Cash flow from investing activities Total cash flow before financing activities Financing activities Dividend to shareholders Redemption of shares Cash flow from financing activities Cash flow for the year Cash and cash equivalents, 1 January Cash and cash equivalents, 31 December note 2008 2,944 8 –2,800 –8 136 9,864 9,864 10,000 – – 10,000 –4,000 –6,000 –10,000 – – – 2007 7,654 –7,500 –11 143 9,857 9,857 10,000 – – 10,000 –3,000 –7,000 –10,000 – – – 2006 10,110 – 9,987 – 21 102 2,828 2,828 2,930 70 70 3,000 – 3,000 – – 3,000 – – – S c a n i a 20 0 8 <a href="/v5/viewer/files/Default_s.aspx?gKey=tqcxr73s&gInitPage=129">Scania Annual Report 2008 Notes to the Parent Comp</a> any financial statements notes to the Parent comPany financial statements 127 notes to the Parent company financial statements amounts in the tables are reported in millions of Swedish kronor (SEK m.), unless otherwise stated. a presentation of the Parent company’s accounting principles is found in note 1 to the consolidated financial statements. Taking into account that the operations of the Parent company consists exclusively of share ownership in Group companies, aside from the notes below, the Scania Group’s Report of the Directors and notes otherwise apply where appropriate. NOTE 1 Financial income and expenses interest income from subsidiaries Dividend from Scania cV aB Other Total 2008 144 2,800 0 2,944 2007 195 7,500 0 7,695 2006 123 10,000 – 13 10,110 NOTE 2 Taxes Tax expense for the year current tax Total 2008 –47 –47 2008 Reconciliation of effective tax income before tax Tax calculated using Swedish tax rate Tax effect and percentage influence: Tax-exempt dividends non-deductive expenses Tax on standard income related to tax allocation reserves Effective tax Amount % 2,944 –824 784 0 –7 –47 2007 –154 –154 2006 –224 –224 2007 amount % 7,980 28 27 0 0 1 –2,234 2,100 –12 –8 –154 28 26 0 0 2 2006 amount % 10,744 –3 008 2,800 –4 –12 –224 28 26 0 0 2 NOTE 3 Shares in subsidiaries Subsidiary/Corporate ID number/ registered office Scania cV aB, 556084-0976, Södertälje Total Ownership, % 100.0 Thousands of shares 1,000 Scania cV aB is a public company and parent company of the Scania cV Group, which includes all production, sales and service and finance companies in the Scania aB Group. The company is a subsidiary of Scania aB, whose shares are listed on the nasdaq OMX nordic Exchange Stockholm. S c a n i a 20 0 8 2008 8,401 8,401 Carrying amount 2007 8,401 8,401 2006 8,401 8,401 notes to the Parent comPany financial statements 127 notes to the Parent company financial statements amounts in the tables are reported in millions of Swedish kronor (SEK m.), unless otherwise stated. a presentation of the Parent company’s accounting principles is found in note 1 to the consolidated financial statements. Taking into account that the operations of the Parent company consists exclusively of share ownership in Group companies, aside from the notes below, the Scania Group’s Report of the Directors and notes otherwise apply where appropriate. NOTE 1 Financial income and expenses interest income from subsidiaries Dividend from Scania cV aB Other Total 2008 144 2,800 0 2,944 2007 195 7,500 0 7,695 2006 123 10,000 – 13 10,110 NOTE 2 Taxes Tax expense for the year current tax Total 2008 –47 –47 2008 Reconciliation of effective tax income before tax Tax calculated using Swedish tax rate Tax effect and percentage influence: Tax-exempt dividends non-deductive expenses Tax on standard income related to tax allocation reserves Effective tax Amount % 2,944 –824 784 0 –7 –47 2007 –154 –154 2006 –224 –224 2007 amount % 7,980 28 27 0 0 1 –2,234 2,100 –12 –8 –154 28 26 0 0 2 2006 amount % 10,744 –3 008 2,800 –4 –12 –224 28 26 0 0 2 NOTE 3 Shares in subsidiaries Subsidiary/Corporate ID number/ registered office Scania cV aB, 556084-0976, Södertälje Total Ownership, % 100.0 Thousands of shares 1,000 Scania cV aB is a public company and parent company of the Scania cV Group, which includes all production, sales and service and finance companies in the Scania aB Group. The company is a subsidiary of Scania aB, whose shares are listed on the nasdaq OMX nordic Exchange Stockholm. S c a n i a 20 0 8 2008 8,401 8,401 Carrying amount 2007 8,401 8,401 2006 8,401 8,401 <a href="/v5/viewer/files/Default_s.aspx?gKey=tqcxr73s&gInitPage=130">Scania Annual Report 2008 Proposed guidelines for </a> salary and other remuneration 128 notes to the Parent comPany financial statements notes to the Parent company financial statements, continued NOTE 4 Due from subsidiaries 2008 current interest-bearing receivable from Scania cV aB current non-interest-bearing receivable from Scania cV aB1 Total 1,811 2,800 4,611 2007 4,344 7,500 11,844 1 Refers to anticipated dividend. The receivable is in SEK, so there is no currency risk. 2006 4,722 10,000 14,722 contingent liabilities related to FPG credit insurance, mainly on behalf of subsidiaries Loan guarantees on behalf of borrowings in Scania cV aB Other loan guarantees on behalf of subsidiaries Total NOTE 5 Equity For changes in equity, see the equity report, page 125. Under Swedish law, equity shall be allocated between non- distributable (restricted) and distributable (unrestricted) funds. Restricted equity consists of share capital plus non-distributable funds. Scania aB has 400,000,000 Series a shares outstanding with voting rights of one vote per share and 400,000,000 Series B shares outstanding with voting rights of 1/10 vote per share. a and B shares carry the same right to a portion of the company’s assets and profit. The nominal value of both a and B shares is SEK 2.50 per share. all shares are fully paid and no shares are reserved for transfer of ownership. no shares are held by the company itself or its subsidiaries. NOTE 9 Salaries and remuneration to executive officers and auditors NOTE 6 Untaxed reserves Tax allocation reserve 2002 assessment 2005 assessment Total 2008 – 814 814 2007 – 814 814 2006 326 814 1 140 SEK 214 m. (228 and 319, respectively) of “Untaxed reserves” consists of a deferred tax liability, which is part of the Scania Group’s deferred tax liabilities. Since 22 July 2008, Scania aB has been a subsidiary of Volkswagen aG, corporate iD number HRB 100484 and with its registered office in Wolfsburg, Germany. Transactions with related parties consist of dividends paid to Volkswagen aG and redemptions of shares. The President and cEO of Scania aB and the other executive officers hold identical positions in Scania cV aB. Wages, salaries and other remuneration are paid by Scania cV aB. The reader is therefore referred to the notes to the consolidate financial statements: notes 26, “Wages, salaries and other remuneration and number of employees”, 27, “Related party transactions”, 28, “compensation to executive officers”, and 29, “Fees and other remuneration to auditors”. compensation of SEK 10 thousand (69 and 0 respectively) was paid to auditors with respect to the Parent company. NOTE 7 Contigent liabilities 2008 2,353 42,314 2 44,669 NOTE 8 Cash flow statement items not affecting cash flow are mainly attributable to anticipated dividends. interest received was SEK 144 m. (195 and 123, respectively). 2007 2,143 24,967 2 27,112 2006 2,187 23,122 2 25,311 NOTE 10 Transactions with related parties S c a n i a 20 0 8 128 notes to the Parent comPany financial statements notes to the Parent company financial statements, continued NOTE 4 Due from subsidiaries 2008 current interest-bearing receivable from Scania cV aB current non-interest-bearing receivable from Scania cV aB1 Total 1,811 2,800 4,611 2007 4,344 7,500 11,844 1 Refers to anticipated dividend. The receivable is in SEK, so there is no currency risk. 2006 4,722 10,000 14,722 contingent liabilities related to FPG credit insurance, mainly on behalf of subsidiaries Loan guarantees on behalf of borrowings in Scania cV aB Other loan guarantees on behalf of subsidiaries Total NOTE 5 Equity For changes in equity, see the equity report, page 125. Under Swedish law, equity shall be allocated between non- distributable (restricted) and distributable (unrestricted) funds. Restricted equity consists of share capital plus non-distributable funds. Scania aB has 400,000,000 Series a shares outstanding with voting rights of one vote per share and 400,000,000 Series B shares outstanding with voting rights of 1/10 vote per share. a and B shares carry the same right to a portion of the company’s assets and profit. The nominal value of both a and B shares is SEK 2.50 per share. all shares are fully paid and no shares are reserved for transfer of ownership. no shares are held by the company itself or its subsidiaries. NOTE 9 Salaries and remuneration to executive officers and auditors NOTE 6 Untaxed reserves Tax allocation reserve 2002 assessment 2005 assessment Total 2008 – 814 814 2007 – 814 814 2006 326 814 1 140 SEK 214 m. (228 and 319, respectively) of “Untaxed reserves” consists of a deferred tax liability, which is part of the Scania Group’s deferred tax liabilities. Since 22 July 2008, Scania aB has been a subsidiary of Volkswagen aG, corporate iD number HRB 100484 and with its registered office in Wolfsburg, Germany. Transactions with related parties consist of dividends paid to Volkswagen aG and redemptions of shares. The President and cEO of Scania aB and the other executive officers hold identical positions in Scania cV aB. Wages, salaries and other remuneration are paid by Scania cV aB. The reader is therefore referred to the notes to the consolidate financial statements: notes 26, “Wages, salaries and other remuneration and number of employees”, 27, “Related party transactions”, 28, “compensation to executive officers”, and 29, “Fees and other remuneration to auditors”. compensation of SEK 10 thousand (69 and 0 respectively) was paid to auditors with respect to the Parent company. NOTE 7 Contigent liabilities 2008 2,353 42,314 2 44,669 NOTE 8 Cash flow statement items not affecting cash flow are mainly attributable to anticipated dividends. interest received was SEK 144 m. (195 and 123, respectively). 2007 2,143 24,967 2 27,112 2006 2,187 23,122 2 25,311 NOTE 10 Transactions with related parties S c a n i a 20 0 8 <a href="/v5/viewer/files/Default_s.aspx?gKey=tqcxr73s&gInitPage=131">Scania Annual Report 2008 Sida 131 ProPosed guidel</a> ines for salary and other remuneration Proposed guidelines for salary and other remuneration of the President and ceo as well as other executive officers The Board of Directors proposes that the aGM approve the following: BaCkground The proposed principles have mainly been used since 1998. The motive for their introduction was to be able to offer employees a market-related remuneration package that will enable the company to recruit and retain executive officers. The proposal of the Board of Directors to the annual General Meeting stated below is, in all essential respects, consistent with the principles for the remuneration that executive officers have received in prior years and is based on existing employment agreements between Scania and each respective executive officer. Remuneration to executive officers in 2008 can be seen in note 28. Preparation of remuneration issues is handled as follows. With regard to the President and cEO, the Remuneration committee of the Board of Directors proposes a fixed salary, criteria for variable remuneration and other employment conditions, which are then adopted by the Board of Directors. For other Executive Board members, the President and cEO proposes the equivalent employment conditions, which are then adopted by the Remuneration committee of the Board of Directors and reported to the Board − all in compliance with the remuneration principles approved by the annual General Meeting (aGM). Share-related incentive programmes for executive officers are decided by the aGM. ProPoSal Scania shall endeavour to offer competitive overall remuneration that will enable the company to recruit and retain executive officers. Remuneration to executive officers shall consist of fixed salary, variable remuneration in the form of the Scania incentive Programme, pension and other remuneration. Total remuneration shall take into account the individual’s perform- ance, areas of responsibility and experience. The fixed salary for the President and cEO as well as for the members of the Executive Board can be re-assessed on a yearly basis. Variable salary shall be dependent on Scania’s earnings and consist of an incentive programme that is divided into two parts. The outcome shall be calculated on the basis of operating return, defined as Scania Group net income after subtracting the cost of equity, residual net income (Rni) and be adopted by the Board’s Remuneration committee. Part 1 of the incentive programme shall be related to the actual ability to generate a return during the year in question, all provided that Rni is positive, and shall be determined as a cash amount that may vary between 0 – 150 percent of fixed salary. Part 2 of the incentive programme shall be related to Scania’s ability to increase Rni from one year to another, and the outcome shall be determined as a cash amount that may vary between 0 – 80 percent of fixed salary. The Board’s proposal for the incentive programme will be stated in its entirety in a complete proposal to the aGM. The President and cEO as well as the members of the Executive Board may be covered by a defined contribution pension system in addition to the public pension and the iTP occupational pension. in addition to the above mentioned pension principle, the President and cEO can, after decision by the Board, be covered by an extra annual pension provision. The retirement age of the President and cEO as well as other executive officers shall be no lower than age 60. Other remuneration and benefits shall be competitive and help facili- tate the executive officer’s ability to fulfil his or her duties. if the President and cEO resigns of his own volition, he is entitled to his salary for a six-month period. The applicable outcome of variable remuneration shall be proportional to the length of his period of employment during the year in question. in case of termination by the company, the President and cEO shall be entitled to his fixed salary in an unchanged amount per year during the time of his employment contract, plus annual compensation equivalent to the average of variable remuneration for the previous three years. if the company terminates their employment, the other members of the Executive Board are entitled to severance pay equal to a maximum of two years’ salary, in addition to their salary during the six-month notice period. if they obtain new employment within 18 months, counting from their termination date, the severance pay ceases. in case of a substantial change in the ownership structure of Scania, two members of the Executive Board are entitled to resign of their own volition with severance pay amounting to two years’ salary. Otherwise there shall be no notice period longer than six months. if it finds that there are special reasons in an individual case, the Board of Directors shall be able to diverge from these guidelines. 129 S c a n i a 20 0 8 <a href="/v5/viewer/files/Default_s.aspx?gKey=tqcxr73s&gInitPage=132">Scania Annual Report 2008 Proposed distribution of</a> earnings 130 ProPosed distriBution of earnings Proposed distribution of earnings The Board of Directors 1 amounts in SEK m. Retained earnings net income for the year Total Shall be distributed as follows: To the shareholders, a dividend of SEK 2.50 per share To be carried forward Total proposes that the following earnings at the disposal of the annual General Meeting: 6,181 2,897 9,078 2,000 7,078 9,078 1 One of the employee representatives on Scania’s Board of Directors, Johan Järvklo, registered his dissent from the Board’s proposed distribution of earnings on grounds that he believes that the funds may instead be needed in the company in order to avoid possible lay-off notices if the ongoing crisis becomes worse. The undersigned certify that the consolidated accounts and the annual accounts have been prepared in accordance with international Financial Reporting Standards (iFRSs), as adopted for use in the European Union, and generally accepted accounting principles respectively, and give a true and fair view of the financial positions and results of the Group and the Parent company, and that the Report of the Directors for the Group and the Parent company gives a true and fair review of the development of the operations, financial positions and results of the Group and the Parent company and describes substantial risks and uncertainties faced by the companies in the Group. The annual accounts and the consolidated financial statements were approved for issuance by the Board of Directors on 11 February 2009. The consolidated income statement and balance sheet and the Parent company income statement and balance sheet will be subject to adoption by the annual General Meeting on 7 May 2009. Södertälje, 11 February 2009 after implementing the proposed distribution of earnings, the equity of the Parent company, Scania aB, is as follows: amounts in SEK m. Share capital Statutory reserve Retained earnings Total 2,000 1,120 7,078 10,198 Martin Winterkorn Chairman of the Board Staffan Bohman Vice Chairman Helmut aurenz Board member Peggy Bruzelius Board member Börje Ekholm Board member Francisco J. Garcia Sanz Board member Gunnar Larsson Board member Hans Dieter Pötsch Board member Peter Wallenberg Jr Board member Johan Järvklo Board member Employee representative Håkan Thurfjell Board member Employee representative Leif Östling Board member President and CEO Our auditors’ report was submitted on 18 February 2009 Ernst & Young aB Lars Träff Authorised Public Accountant S c a n i a 20 0 8 130 ProPosed distriBution of earnings Proposed distribution of earnings The Board of Directors 1 amounts in SEK m. Retained earnings net income for the year Total Shall be distributed as follows: To the shareholders, a dividend of SEK 2.50 per share To be carried forward Total proposes that the following earnings at the disposal of the annual General Meeting: 6,181 2,897 9,078 2,000 7,078 9,078 1 One of the employee representatives on Scania’s Board of Directors, Johan Järvklo, registered his dissent from the Board’s proposed distribution of earnings on grounds that he believes that the funds may instead be needed in the company in order to avoid possible lay-off notices if the ongoing crisis becomes worse. The undersigned certify that the consolidated accounts and the annual accounts have been prepared in accordance with international Financial Reporting Standards (iFRSs), as adopted for use in the European Union, and generally accepted accounting principles respectively, and give a true and fair view of the financial positions and results of the Group and the Parent company, and that the Report of the Directors for the Group and the Parent company gives a true and fair review of the development of the operations, financial positions and results of the Group and the Parent company and describes substantial risks and uncertainties faced by the companies in the Group. The annual accounts and the consolidated financial statements were approved for issuance by the Board of Directors on 11 February 2009. The consolidated income statement and balance sheet and the Parent company income statement and balance sheet will be subject to adoption by the annual General Meeting on 7 May 2009. Södertälje, 11 February 2009 after implementing the proposed distribution of earnings, the equity of the Parent company, Scania aB, is as follows: amounts in SEK m. Share capital Statutory reserve Retained earnings Total 2,000 1,120 7,078 10,198 Martin Winterkorn Chairman of the Board Staffan Bohman Vice Chairman Helmut aurenz Board member Peggy Bruzelius Board member Börje Ekholm Board member Francisco J. Garcia Sanz Board member Gunnar Larsson Board member Hans Dieter Pötsch Board member Peter Wallenberg Jr Board member Johan Järvklo Board member Employee representative Håkan Thurfjell Board member Employee representative Leif Östling Board member President and CEO Our auditors’ report was submitted on 18 February 2009 Ernst & Young aB Lars Träff Authorised Public Accountant S c a n i a 20 0 8 <a href="/v5/viewer/files/Default_s.aspx?gKey=tqcxr73s&gInitPage=133">Scania Annual Report 2008 Audit report audit rePor</a> t audit report To the annual General Meeting of shareholders of Scania aB (publ) corporate identity number 556184-8564 We have audited the annual accounts, the consolidated accounts, the accounting records and the administration of the Board of Directors and the President of Scania aB (publ) for the year 2008. The annual accounts and the consolidated accounts are presented in the printed version of this document on pages 4 – 52, 59 – 130. The Board of Directors and the President are responsible for these accounts and the administration of the company as well as for the application of the annual accounts act when preparing the annual accounts and the application of international Financial Reporting Standards (iFRSs) as adopted by the EU and the annual accounts act when preparing the consolidated accounts. Our responsibility is to express an opinion on the annual accounts, the consolidated accounts and the administration based on our audit. We conducted our audit in accordance with generally accepted audit- ing standards in Sweden. Those standards require that we plan and perform the audit to obtain high but not absolute assurance that the annual accounts and consolidated accounts are free of material misstatement. an audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the accounts. an audit also includes assessing the accounting principles used and their application by the Board of Directors and the President and significant estimates made by the Board of Directors and the President when preparing the annual accounts and the consolidated accounts as well as evaluating the overall presentation of information in the annual accounts and the consolidated accounts. as a basis for our opinion concerning discharge from liability, we examined significant decisions, actions t
