'Growth will return'
In the short term, Scania’s market outlook is rather weak. In the long term, the growth of the logistics sector will continue. These were among the main themes of President and CEO Martin Lundstedt’s address at Scania’s Capital Markets Day on 26 September.
“The weak market situation in Europe looks set to persist. We also foresee a slowdown in other markets. Looking further ahead, the demand for transport solutions will continue since it is closely connected to global economic growth, international trade and urbanisation,” Lundstedt said.
The market is “muddling through”
Although Europe’s share of Scania sales has decreased, the continent remains a core market with more than 40 percent of vehicle sales. The euro zone crisis and the uncertainty it generates among customers will thus affect Scania’s volume. Another major market, Brazil, has been adversely affected this year by the country’s transition to Euro 5 emission standards and lower economic activity. In the first and second quarters of 2012, Scania's truck and bus deliveries were thus around a total of 15,000 (nearly 20,000 during the corresponding periods of 2011), and the third quarter of this year looks likely to end up at a similar level.
“Right now the market is ‘muddling through’. But since the turn of the millennium, the total market has increased by an average of 3-5 percent a year and we believe this trend will continue. In addition, a shift is under way to markets with higher underlying growth. Europe will also reach a point where the trucks operating on the roads must be replaced,” said Jan Ytterberg, Chief Financial Officer of Scania.
Good opportunities in new markets
Lundstedt pointed out that the new markets that Scania has entered over the past ten years account for 10 percent of the company’s sales today. He also sees great potential in various emerging markets: China and other Asian markets have an enormous need to improve the efficiency of their logistics systems. In South America, there are major growth opportunities in countries like Chile and Peru. Russia east of the Urals must modernise its truck population. The Middle East and North Africa have good long-term growth prospects.
“Despite the rather weak market outlook, with Europe expected to be at low levels during the next few years, Scania is raising its investments in the production network in order to achieve a long-term goal, which must be regarded as a sign of strength. One risk, of course, is if the market trend weakens even further. Meanwhile Scania seems to have investment needs, since its capital spending has been relatively low in recent years,” says Magnus Fröblom, senior portfolio manager at Riksbankens Jubileumsfond.
Total capital spending in order to boost technical capacity to 120,000 vehicles annually will be around SEK 1.5 billion over the coming 2-3 year period.
A focus on services
But Scania’s path to 150,000 vehicles and 15,000 engines per year by the next cyclical peak will also increasingly be a matter of delivering comprehensive solutions to customers, which will mean higher sales of various services.
“We foresee an increased need among our customers for services during the entire life cycle of vehicles, enabling them to be utilised in an optimal way for increased profitability and reduced environmental impact. Solutions such as Ecolution by Scania represent a great opportunity to strengthen our sales of service-related products,” Lundstedt said.