<a href="/v5/viewer/files/Default_s.aspx?gKey=vdcn5pvh&gInitPage=1">Scania Value - nr2 - 2009 - ENG 1 A MAGAZINE FOR </a> SCANIA'S SHAREHOLDERS QUARTER 1 2009 5,000 SEK m. Operating income 4,000 3,000 2,000 Shelter from the storm 1,000 2007 Q2 Financial Services a stable partner during the recession > PAGE 4–5 2007 Q4 2008 Q1 2008 Q2 2008 Q3 2008 Q4 Report. Operating income fell to SEK 506 m. > PAGE 2 2009 Q1 Interview. Per Hallberg, Executive Vice President, on why Scania invests in human resource development. > PAGE 3 Finance. Weakened Swedish krona affects Scania’s performance. > PAGE 6 FIGURES IN FOCUS: Cash fl ow (SEK m.) fi rst quarter 2009. 874
<a href="/v5/viewer/files/Default_s.aspx?gKey=vdcn5pvh&gInitPage=2">Scania Value - nr2 - 2009 - ENG Sida 2 FIRST QUAR</a> TER IN FIGURES Order bookings and deliveries by region, Q1 (number of vehicles) CENTRAL AND EASTERN EUROPE Order bookings WESTERN EUROPE Order bookings 2,418 -74% Deliveries 5,604 -43% LATIN AMERICA Order bookings 1,891 -46% Deliveries 2,411 -13% Net sales SEK m. 25,000 Other 3.3% Used vehicles 4.7% 20,000 16 15,000 Services 19.7% 10,000 Engines 1.3% 5,000 Buses and coaches 10.1% 0 Rolling 12 months Key fi gures (SEK m unless otherwise noted) Net sales Scania Group Operating income, Vehicles and Services Operating income, Financial Services Operating income Net income before taxes Net income for the period Operating margin, percent Net margin, percent Return on equity, percent Return on capital employed, Vehicles and Services, percent Earnings per share, SEK Cash fl ow, Vehicles and Services Number of employees, 31 march Order bookings (Units, trucks and bus chassis) Deliveries (Units, trucks and bus chassis) 2009, Q1 15,859 462 44 506 164 179 3.2 1.1 28.8 31.7 0.22 874 33,631 6,061 11,304 2008, Q1 21,991 3,452 152 3,604 3,516 2,513 16.4 11.4 36.5 43.6 3.14 1,686 35,565 20,226 19,066 Change in % -28 -87 -71 -86 -95 -93 - - - - - - - -70 -41 Q1 IN BRIEF: NET SALES decreased by 28 percent to SEK 15,859 m. OPERATING INCOME fell by 86 percent to SEK 506 m. DELIVERIES fell by 41 percent to 11,304 vehicles and order bookings by 70 percent to 6,061 vehicles. 0 0 4 1,000 Trucks 60.8% 12 8 OTHER MARKETS Order bookings 740 -45% Deliveries 842 +43% Net sales by product segment, Q1 % 20 Operating income, SEK m. Operating margin, percent 4,000 3,000 2,000 ASIA Order bookings 771 -67% Deliveries 1 522 -27% Operating income and margin SEK m. 5,000 241 -94% Deliveries 925 -76% 2 SCANIA VALUE • Q1/2009 www.scania.com 2007 Q1 2007 Q2 2007 Q3 2007 Q4 2008 Q1 2008 Q2 2008 Q3 2008 Q4 2009 Q1 2007 Q1 2007 Q2 2007 Q3 2007 Q4 2008 Q1 2008 Q2 2008 Q3 2008 Q4 2009 Q1
<a href="/v5/viewer/files/Default_s.aspx?gKey=vdcn5pvh&gInitPage=3">Scania Value - nr2 - 2009 - ENG Sida 3 INTERVIEW </a> text: göran lind photo: dan boman ”Our training investments should be seen as part of Scania’s long- Scania provides training during downturn “As part of its response to the recession, Scania is investing in human resource development. This investment will create a foundation for continued profitable growth when the market rebounds,” says Per Hallberg, Executive Vice President and Head of Production and Procurement at Scania. Because of weak demand for trucks, Scania does not need to utilise its entire production capacity. So instead of building vehicles full-time, during part of their work shift production employees are receiving training that is aimed at boosting their future productivity. “In this way we improve our position and can achieve higher capacity by having a more efficient organisation, once demand increases again,” Per Hallberg explains. Scania’s earlier experience of cyclical down- turns indicates that when demand rebounds, this happens quickly. The organisation thus needs to be prepared for rapid transitions. Since the mid1990s, Scania has worked systematically with continuous improvements as part of its Scania Production System (SPS), resulting in efficiency increases of some 6-8 percent annually. Given www.scania.com the company’s current investment in training, Hallberg sees an opportunity to take a large step forward in this process: “Among other things, we are developing meth- ods for shortening downtime in our assembly and processing lines. But it is also a matter of preparing the organisation for a future where workshop jobs will include more production engineering-related tasks than today.” All managers can be teachers Since early February, some 6,000 production employees in Sweden have alternated between work and training. The training programme also includes about 2,000 employees in the Netherlands and France. The training programme was mobilised in just two months and started up in February. “Most of it takes place around the regular work- place, where theory is alternated with practical improvements. SPS is based on a culture in which every manager serves as a teacher. Without that method, we could not have implemented our training programme,” Hallberg emphasises. Due to the sharp drop in demand for vehicles and continuous market uncertainty, Scania did not renew the contracts of the about 2,000 fixed term temporary employees in its global production network. Scania has also taken advantage of term strategy. We have more time for human resource development today, when production is running at a slow pace,” says Per Hallberg, Executive Vice President. the “time bank” system, which allows the company to reduce the total working week when the pace of production declines. The strategy of providing training during a recession is based on Scania’s belief that truck and bus production is a growth industry where well-trained employees are a key competitive factor. “Today we are in a sharp downturn. But look- ing further ahead the global need for transport services and equipment will grow, and I am convinced that the demand for new trucks will bounce back,” Hallberg says. Scania’s vision of manufacturing 150,000 vehicles per year by around the middle of the next decade has not changed. This will occur within the existing production structure, which among other things implies that Scania must continuously raise its productivity and degree of machine utilisation. A large proportion of the improvement task is performed by production employees, and investing in human resource development is one important element of this. “Our training investments should be seen as part of Scania’s long-term strategy. We have more time for human resource development today, when production is running at a slow pace,” Hallberg concludes. Q1/2009 • SCANIA VALUE 3
<a href="/v5/viewer/files/Default_s.aspx?gKey=vdcn5pvh&gInitPage=4">Scania Value - nr2 - 2009 - ENG Sida 4 FOCUS: Fin</a> anCial SERViCES Financial Services: Selling peace ofmind “Tough times don’t just mean higher credit losses for Scania Financial Services. Our operations have a counter-cyclical element too, since lending margins increase. Our knowledge of the transport industry also provides us with business opportunities in a recession,” says Claes Jacobsson, head of Financial Services. “We can tie together a package in a way that banks cannot. Peace of mind is a vital element of what we offer, in an industry where many companies operate with very narrow margins.” When Claes Jacobsson, head of Scania Financial Services, explains his company’s competitive advantage, a holistic view of the customer’s economic situation is a key component. “We are not the cheapest, but our combina- tion of financing, insurance and service provides the most cost-effective solution − by increasing the time a truck is on the road. One example is that with our insurance coverage, hauliers have access to Scania Assistance and thus need not wait for claims adjustment,” Jacobsson says. “One indication that this concept works is that many customers come back: 70 percent of our sales are to repeat customers.” Financial Services sells two forms of financing solutions: loans or leases. Leasing is most Financial Services Sells financing and insurance solutions for trucks and buses At the end of 2008, the customer finance portfolio was more than SEK 47 billion and the number of customers exceeded 23,000. Operations have grown sharply since the 1990s. In 1998 the portfolio was about SEK 12 billion. In 2008, operating income was SEK 414 m. Financial Services operates in 40 countries, with western Europe as its dominant market. 4 SCANIA VALUE • Q1/2009 common among major logistics companies, while small-scale hauliers usually own the truck and use loan financing. The insurance element includes both truck insurance and a part that is connected to the financing agreement. “If a truck owner dies, it is not good for the family to have a truck loan. That is why we provide payment protection insurance, which means that the loan is written off in case of death or disability. It is also possible to insure against losses that may arise, for example if the residual value of a truck is less than the remaining loan.” Financial Services has expanded rapidly over the past decade. In 1998 its loan portfolio was about SEK 12 billion; by last year it had grown to SEK 47 billion. Today the company finances one out of four trucks that Scania sells and about 35 percent of the vehicles in markets where the company has its own financing operations. “But there is no exclusivity. Dealers are com- pletely free to choose other financing,” Jacobsson says. He also emphasises that Financial Services is a separate business unit within Scania, with its own earnings targets. Among other things, this means that credit decisions are made without influence from Scania’s sales and service companies. “We are measured as a separate company, not as sales support. That is very important to understand.” Increasing market Today the company’s big markets are in western Europe, but it has also grown especially fast in central and eastern Europe. Financial Services is now also moving into Scania’s biggest market, Brazil, where deliveries last year totalled nearly 8,000 trucks. “In Brazil we have applied to the central bank for an operating permit. There is naturally major potential in the Brazilian market.” The financial crisis and subsequent recession have left their mark on Financial Services. Hauliers have been affected by a sharp decline in the transport market while banks have become much more restrictive, for example when it comes to overdraft facilities. During 2008 bad debt expenses at Financial Services, including provisions to the bad debt reserve, rose to SEK 227 m., compared to SEK 90 m. the year before. And the situation has not improved so far in 2009. “Things are toughest in the construction industry and for car haulage companies, which simply have no cars to haul. Looking at indi- www.scania.com
<a href="/v5/viewer/files/Default_s.aspx?gKey=vdcn5pvh&gInitPage=5">Scania Value - nr2 - 2009 - ENG Sida 5 text: göra</a> n lind photo: carl-erik andersson We know the industry better than the banks and are better at assessing what earning power a customer has and what situation our customer’s customers are in,” Jacobsson says. vidual markets, Spain, Slovakia, Hungary and the Czech Republic are among the hardest hit. In the Nordic and Benelux countries, France and Great Britain, the situation is better,” Jacobsson says. These problems mean that Financial Services is getting back more trucks when customers are unable to pay. During 2008 it had to repossess 2,146 vehicles − twice as many as in 2007. “Meanwhile second-hand prices have fallen and it takes longer to sell off a truck,” Jacobsson says. Financial Services spreads its risks among more than 23,000 customers, most of them medium-sized hauliers. Only some 70 customers have loans totalling above SEK 50 m. “We have also been cautious about granting loans to certain markets, such as the construction industry in Spain, which went from massive overheating to a deep downturn in a short time.” www.scania.com “We know the industry better than the banks and are better at assessing what earning power a customer has and what situation our customer’s customers are in,” Jacobsson says. The recession also has some positive effects. Claes Jacobsson points out that the price of risk was too low during the economic boom of recent years, since so much risk capital was available. Today’s pricing is sounder, he believes. This means better margins for Financial Services. Banks are also largely staying away from the transport sector today, opening up market opportunities for Financial Services. “Given the problems that exist, especially in auto manufacturing, it is easy to generalise about the whole transport sector. We know the industry better than the banks and are better at assessing what earning power a customer has and what situation our customer’s customers are in,” Jacobsson says. Q1/2009 • SCANIA VALUE 5
<a href="/v5/viewer/files/Default_s.aspx?gKey=vdcn5pvh&gInitPage=6">Scania Value - nr2 - 2009 - ENG Sida 6 finance Sc</a> aniamanages currency risks Scania has chosen to hedge a large proportion of its net foreign currency inflows in 2009. This means that in the short term, the weakening of the Swedish krona (SEK) has no positive effect on earnings. Any strengthening of the krona will also have no adverse impact on earnings. Currency hedges are used because the Group’s financial policy is based on minimising currency risks. The financial risks to which Scania is exposed are regulated in a financial policy document approved by the company’s Board of Directors. The main focus is on currency, interest rate, refinancing and credit risks. “The corporate Treasury unit handles the Group’s risk management. When it comes to major issues, these are dealt with in special committees, but we at Treasury take care of day-today outstanding positions for the entire Group,” says Jan Bergman, Group Treasurer at Scania. Because more than 90 percent of Scania’s sales occur outside Sweden, while production is largely located in Sweden, there are major net inflows of foreign currencies. To reduce the risks associated with this, Scania hedges the forecasted volumes of currencies that are important to the Group. Scania’s biggest market is Europe, accounting 6 SCANIA VALUE • Q1/2009 for about 70 percent of Scania’s vehicle deliveries during 2008. The euro was the currency with the largest impact on Scania’s earnings, accounting for about one third of total foreign currency exposure. The British pound occupied second place, followed by the Russian rouble. The Russian market shrank dramatically during the second half of 2008, however, a trend that has continued in the early months of this year. The weak krona represents an advantage for Scania compared to competitors in countries in the euro zone, for example, since it means lower relative costs. A weaker krona also has a fundamentally positive effect on Scania’s earnings. Scania estimates that a one percent change in the value of the Swedish krona against other currencies, excluding currency hedges, has an impact of more than SEK 300 m. per year on operating income, based on 2008 revenue and expenses in foreign currencies. However, earnings are also affected by the currency hedges that Scania uses to reduce currency risk. “Our present position means that a large part of the inflows we expect during the year are hedged. A weakening of the Swedish krona has no positive effect on earnings. Any strengthening of the krona will also have no adverse impact,” Bergman explains. Because of unexpectedly sharp currency fluctu- ations, there may be differences between the effect of a currency rate change and the effect of hedgings, while the two effects normally neutralise each other over time. During the first quarter, currency rate changes added SEK 735 m. to Scania’s earnings. Earnings from currency hedges contributed an additional SEK -900 m. Scania’s strategy is to hedge its currency flows during a time horizon equivalent to the projected orderbook until payment. This normally means a hedging period of between three and four months, but Scania’s currency policy allows the hedging period to vary between zero days and one year. Maturities of over one year require Board approval. At the moment, Scania thus has www.scania.com
<a href="/v5/viewer/files/Default_s.aspx?gKey=vdcn5pvh&gInitPage=7">Scania Value - nr2 - 2009 - ENG Sida 7 TEXT: PETR</a> A LODÉN PHOTO: DAN BOMAN Turbulent times squeezing the Swedish krona Right now the price of a Swedish krona is very low. The main reasons are that the krona is a small currency and that the Swedish economy is dependent on exports. In times of global uncertainty, those who buy and sell foreign currencies prefer to a greater extent to use major currencies such as the euro and US dollar. The demand for kronor decreases, and thus the price of the krona falls. “In the long term, exchange rates are driven by factors in the real economy such as relative growth prospects and terms of trade. In a shorter perspective, the trend of interest rate spreads and fi nancial fl ows connected to the stock market and other factors play a part,” says Anders Eklöf, senior analyst at Nordea, a leading bank in the Nordic countries. “The reason for the sharp drop in the krona is The euro is the currency with the largest impact on Scania’s earnings, accounting for about one-third of total foreign currency exposure. (Above is the European Parliament in Strasbourg.) The foreign exchange market The foreign exchange market − the buying and selling of various currencies − totals several trillion dollars in transactions every day. By far the largest share of these transactions is due to pure trading or speculation in order to earn money or avoid the risk of losing money. Only about fi ve percent of total volume consists of companies or governments buying or selling a product or service in another country and having to convert their earnings into their own currency. that we are a small, open, export-oriented economy that has been greatly affected by a dramatic synchronised global deceleration. Turmoil in fi nancial markets − especially the stock market decline − combined with the exposure of Swedish banks to lending in the Baltic countries, also contributed to the weakening of the krona. In turbulent times, investors fl ee small, peripheral currencies like the krona,” Eklöf explains. The United States, where the fi nancial crisis began, has recently experienced a strengthening of its currency. Although the country suffers from a gigantic government budget defi cit, unemployment is rising and the economy is shaky, the US is still the world’s largest economy and the dollar is the world’s largest currency. Now that other countries have increasingly been drawn into the crisis, people prefer to do business in dollars, or possibly euros − the second largest currency. The Swedish krona has depreciated more than a relatively long hedging period. Currency hedging occurs by selling currencies on forward contracts and currency options. Currency hedges are described in Scania’s Annual Report. many other currencies, including those of neighbouring countries. This is because Sweden is so dependent on exports and has a relatively large volume of foreign exchange trading, compared to the size of the country. The Danish krone, for example, is pegged to the euro. www.scania.com For global companies that have a lot of produc- tion and thus costs in Sweden and in Swedish kronor but large sales in other countries where the currency has strengthened, the weak krona is of course an advantage. But in the long term, a weak currency is never good. It creates instability and makes forecasting diffi cult. Everyone actually wants to have stable conditions. Nordea believes the krona will strengthen against the euro The euro (EUR) and the British pound (GBP) are among the currencies to which Scania has the largest exposure. Nordea foresees the following future trends in these currencies: “We foresee Anders Eklöf “The reason for the sharp drop in the krona is that we are a small, open, export-oriented economy.” that the krona will strengthen as the stimulus measures that have been implemented − in the form of interest rate cuts and more expansive fi scal policy − begin to take hold and as stock markets slowly but surely begin to stabilise. This may occur during the second half of 2009, and we believe that six months from now the EUR/SEK exchange rate may fall to 10.50 or even somewhat lower,” Eklöf says. The British pound has strengthened in recent weeks, but Nordea does not expect any further appreciation. “A strengthening of the pound is being held back because the British credit market is still functioning relatively poorly, and the willingness of British banks to provide loans is low. The residential property market will remain weak, and the Bank of England is pursuing a very loose monetary policy aimed at increasing the money supply, for example by means of large-scale purchases of government bonds. Our forecast for the GBP/SEK exchange rate looking ahead three months is 11.50,” says Tomas Niemelä, macroeconomic strategist at Nordea. Q1/2009 • SCANIA VALUE 7 ISTOCKPHOTO
<a href="/v5/viewer/files/Default_s.aspx?gKey=vdcn5pvh&gInitPage=8">Scania Value - nr2 - 2009 - ENG Sida 8 NOTES Norw</a> ay Post chooses Scania asmain supplier Scania and Norway Post (Posten Norge AS) have signed a framework agreement under which Scania will supply all trucks with a gross weight exceeding 15 tonnes in a procurement covering three years, with the possibility of a one-year renewal. The agreement also includes repair and maintenance contracts. Deliveries will total about 200 trucks per year. The deal is one of Scania’s largest single deliveries of trucks in the Nordic countries. For Norsk Scania AS, Scania’s Norwegian distributor, 200 vehicles are equivalent to more than 10 percent of the company’s annual truck sales. “The agreement with Norway Post is a prestigious contract for Scania’s sales and service organisation in Norway and other Nordic countries. We will be supplying all their heavy trucks, which confirms Scania’s advantage in terms of transport economy - vehicles with high quality and environmental performance, as well as a comprehensive Nordic network of service workshops that live up to Norway Post’s high uptime standards for their vehicles,” says Erik Hansen, Managing Director of Norsk Scania AS. Scania has operated in the Norwegian market for more than 60 years. Norsk Scania AS has about 850 employees, 40 facilities of its own and an additional 15 or so partly owned and independent service and contract workshops. During 2008 Scania continued to strengthen its leading position in the Norwegian heavy truck market. A total of more than 1,700 Scania truck registrations took place, which is equivalent to a market share of more than 37 percent. The legend turns 40 During 2009, Scania celebrates the 40th anniversary of the V8. When it was introduced in 1969, it gave competitors a knock-out punch. The power and torque of the V8 engine have been the most significant characte- ristics and will continue to be with future developments. Fuel efficiency is also key. So is the remarkable sound of a running Scania V8. The Scania V8 is more than an engine – it has become a lifestyle. Scania’s Board proposes a dividend of SEK 2.50 The Board of Directors proposes a dividend of SEK 2.50 per share and Tuesday, May 12, 2009, as record date for the dividend. Provided the proposed dividend is approved by the AGM, Euroclear Sweden AB is expected to disburse dividends on Friday, May 15, 2009. Martin Winterkorn, Chairman of the Board of Scania. UPCOMING FINANCIAL EVENTS 2009 23 July 2009 Interim report, Jan – June 26 October 2009 Interim report, Jan – September 3 February 2010 Year-end report, Jan –December Scania Value is published by Scania and distributed to Scania shareholders. Publisher and Editor-in-chief Per Hillström ir@scania.com Project Manager goran.lind@appelberg.com Art Director magdalena.taubert@appelberg.com Production Appelberg Publishing www.appelberg.com Printing: Trosa Tryckeri Cover photo: Tobias Regell Address Scania Investor Relations SE-151 87 Södertälje Tel: +46 8 553 81 000 photo: scania
