Ladies and gentlemen, shareholders, AGM participants,

A warm welcome to our Annual General Meeting here in Södertälje.

Scania completed another successful year in its 112-year history. Our customers had a tough year, in a climate of lower economic growth – both in western Europe and in the United States. This naturally affected demand for heavy trucks.

In Latin America, an important Scania market, conditions were very troublesome. Despite lower volume, Scania showed better earnings than the year before. Operat-ing income was more than SEK 3.8 billion – excluding the divestment of car opera-tions. Scania was once again best in its class.

We continued to invest heavily in development and production, as well as in our sales and service network. After the divestment of Svenska Volkswagen and Din Bil, we are now focusing entirely on heavy trucks, buses and engines. 

Our alliance with Japan’s leading truck company, Hino, is continuing. We have just delivered the first Scania truck to a Japanese customer. We are also discussing new projects. But I want to emphasise that this alliance should be viewed in the long term.

We now also co-operate with the Japanese engine manufacturer Yanmar, which is the world’s largest maker of engines for pleasure boats and has the best global sales and service network.

We are continuing to develop our vehicle and service business throughout the value chain, all the way to the customer.

In the mature markets of western Europe – with their high labour costs – the Scania-owned organisation has most of the direct customer contacts. In other markets, we have a substantially lower share and the independent network accounts for cus-tomer contacts.

Today we actually have more employees in our own sales and service organisation than we have in our manufacturing network. Our strategy is to give customers the prerequisites for high revenues at the lowest possible operating cost. This is the base for us to achieve good margins as suppliers of both vehicles and service.

In recent years, we have also built up competitive Customer Finance operations. Financial services are an important element of Scania’s complete product range. In Europe, we have Scania-owned finance companies in all important markets.

What, then, happened during 2002?

Strong product development is our investment for the future. At our exhibition, out-side this AGM venue, we show examples of this. Among other things, you can view a large cab – the Scania eXc – and a quarter scale model called the Scania STAX. Both have attracted extensive international attention. 

The eXc cab is a concept study, in which we have applied ideas from customer on how they would like to design their workplace for long-haul applications, for example trans-continental road trips between Europe and Asia, in the footsteps of Marco Polo. This cab was so well-received that we are now going to manufacture a number of them.

The Scania STAX model shows how the truck of tomorrow featuring a crumple zone might look. This may save many lives.

Now a few words about our production.

In recent years we have gradually restructured our European production network. Component manufacture, which requires heavy investments, has been concentrated at one site per component.

Scania’s component manufacturing in Europe has been concentrated in Sweden. We believe in Sweden as a manufacturing country. Engine manufacturing is now gathered in Södertälje, axles in Falun, gearboxes in Sibbhult, cabs in Oskarshamn. This means that about a thousand skilled industrial jobs have moved to Sweden.

Assembly, in which the logistics cost is high, should be located as close to the cus-tomer as possible. This is why the expansion of our assembly operations has oc-curred in Zwolle, the Netherlands and in Angers, France.

In Europe, we continued the restructuring of our bus and coach operations. We are now beginning to see the effects of this work. Order bookings are sharply improving, along with earnings. Buses should achieve the same margin as trucks.

For a number of years, we have been developing our own production concept, which is based on Scania’s core values: putting the customer first, respect for the individual and quality in products and services.

In the Scania Production System – SPS – the focus is on people, not machines or computers. We have made good progress in implementing this system, and we are seeing great dedication from our employees. We also see in our statistics that ab-senteeism due to illness has declined sharply. In addition, the number of accidents has fallen substantially. And employee turnover remains low. Quality and productivity have also improved. We can speak of a win-win situation for all of us. 
 
Since we work in the same way and with the same quality standards throughout our organisation, we have now been able to fully integrate our production network in Latin America with the one in Europe.

Given our growing orderbooks during 2002, we increased deliveries of vehicles and components from Latin America to other markets in Asia, Africa and Europe. In this way, we were able to take much better advantage of our global production capacity.

A Scania is always a Scania, wherever in the world it is produced.

Ladies and gentlemen,

During 2002, demand turned out better than we thought at the beginning of the year.

Our strategy of expanding our presence in powerful engine segments – 450 horse-power and up – contributed in a highly positive way to our trend of earnings.

In western Europe, demand fell by 10 percent, while it rose in other markets except in Latin America. A rapidly growing flow of used vehicles to eastern Europe slowed the decline in western European demand. For every new Scania truck that is sold in central and eastern Europe, five to six used Scanias from the West also go into op-eration there. This means that our service business is growing rapidly in central and eastern Europe.   

The markets of the Far East also performed well. Demand for our type of vehicles is limited, since the logistics system and road network are not yet as developed as in Europe. For this reason, many potential customers in the Far East cannot make money on an investment in a Scania truck.

In the Middle East and Africa, demand was at a stable level but was low compared to Europe.

Now a few words about developments in Latin America.

The Argentine economy and the political system collapsed early in 2002. Demand fell dramatically. This coming Sunday, by the way, Argentina will elect a new presi-dent. It will take time before we see the contours of a new economic policy. In all likelihood, the market will remain weak.

In Brazil, there was great uncertainty due to developments in Argentina, but also owing to the presidential election that was held last October. The country’s economic growth was slower than for many years. The new administration of President Lula da Silva, who I met some weeks ago, is off to a surprisingly good start, the harvest seems likely to turn out well, and the demand for heavy trucks has improved.

It is heartening that despite falling volume, Scania improved its earnings in Latin America.
 
Streamlining of production, adjustment of price levels and increased exports of vehi-cles and components from Latin America contributed to this improvement in earn-ings. Today we are seeing that our break-even level has been halved. But we have had to pay for this with lower market share.

Now a few words about the first quarter of 2003.

Sales volume rose. Earnings in the first three months rose sharply. Operating in-come amounted to SEK 1.3 billion, and operating margin was in two digits, almost 11 percent. Order bookings during the first quarter were somewhat better than a year earlier.

During the war in Iraq, we noticed a slowdown in order bookings from markets in Europe. In Latin America, demand is stabilising.

Due to global macroeconomic developments, the risk for subdued demand for trucks and buses is increasing.

Ladies and gentlemen,

I am often asked what Scania’s strategy actually is. The easiest way of formulating it is this:

To earn enough money, in smooth harmony with our customers, to provide custom-ers, employees, shareholders and other stakeholders with long-term profitable growth.

Scania has chosen to focus on heavy trucks and buses with a modular product con-cept – a toolbox – which enables the customer to select exactly the vehicle he wants. To Scania, this means few components, which makes our product develop-ment more efficient and yields considerable economies of scale in both production and parts management.

We manufacture most of our own main components, thereby gaining good control of our quality and service business. Meanwhile we are open at all times to strategic alliances and component co-operation of various kinds. These co-operative ventures need not involve ownership, but they must be beneficial to both our customers and ourselves. 

Scania’s identity is based on the people working in our global organisation, on the technology and quality that they build into our products and on our relationships with customers.

We also play an active role in environmental work. As one example, during 2002 we completed a major investment in a new paintshop in Oskarshamn, Sweden. This substantially reduced our environmental footprint.

At the same time, we are working methodically to decrease the fuel consumption and the environmental impact of our engines.

For a number of years, we have also focused on road safety. Every two years, we have organised road safety seminars in Brussels, where we have discussed road safety together with EU politicians, commissioners, industry representatives and the academic community. Among other things, we presented the idea of a front crumple zone on trucks – like the model truck you saw at the entrance. This would save nearly 1,000 lives per year on European roads.

As part of our efforts to improve road safety, this year we are organising the Young European Truck Driver safety competition, in partnership with the European Com-mission and others. Young drivers from 20 European countries are competing in road safety, thereby generating international publicity for road safety issues. At the same time, we are focusing on the importance of drivers in ensuring road safety and we are raising the status of their profession.

Ladies and gentlemen,

Relationships are the foundation of the prestige enjoyed by the Scania brand among customers: a prestige that we at Scania do everything we can to live up to. We can only do this with the help of dedicated employees with a warm Scania heart, who develop our products, service and financing in the best interest of our customers.

A number of surveys show that Scania is the world’s strongest brand name in heavy trucks. The Scania brand name has emerged organically. Naturally it reflects a strong corporate culture. But a strong brand name is also a guarantee of quality – a guarantee that says that we are always striving to meet the standards our customers demand.

There is a strong feeling of solidarity within the organisation and a tradition of doing the absolute best for our customers.

I would like to express my sincere gratitude to all our employees for their very fine contributions during this past year. Given the good atmosphere and fighting spirit that exist throughout the organisation, I am convinced that Scania faces a bright fu-ture.

In closing, I would also like to take this opportunity, personally and on behalf of our employees, to thank Dr Ferdinand Piëch not only for his years as Chairman and a member of the Board of Scania, but also for the way in which he contributed to the development of Scania when Brussels halted Volvo’s acquisition of our company in March 2000 and an ownership vacuum then arose.

Ladies and gentlemen, shareholders – thank you for your attention.