There are probably two questions that the participants at this Annual General Meeting would like answered:

“Can Scania exceed its 1998 earnings?”

“Can Scania – which in international terms is a medium-sized company – continue to grow at least as fast as previously?”

Scania had a good year in 1998, despite economic turbulence in the formerSoviet UnionandLatin Americaand continued weakness inEast Asia.

During 1998, we completed the transition to Scania’s 4-series trucks and buses. This means we have now paid the changeover costs for the 4-series.

The number of vehicles we sold reached a record level of nearly 50,000 trucks and buses. This was six percent more than in 1997. In monetary terms, sales rose by 14 percent to a full SEK 45 billion and operating income rose by 18 percent to SEK 3.6 billion.

The improvement came from European operations, with earnings that climbed by a total of SEK 1.6 billion. Meanwhile Latin American operations yielded negative earnings. The operating margin for Scania products was 8.4 percent. If we include Volkswagen operations, the operating margin was 7.9 percent.

The operating margin for European operations was more than 11 percent. This is explained by higher volume, a more profitable product mix, lower material costs and higher productivity.Europeis Scania’s “domestic market” and most important region. It accounted for 78 percent of our business in 1998.

It was therefore gratifying that in keen competition, we managed to sell nearly 33,000 trucks in western Europe, or fully 22 percent more than in 1997. Scania consolidated its market share inEuropecompared to our two closest competitors, which lost a little of their market shares. Scania’s market share was 15.2 percent. This meant that Scania became the second largest heavy truck make inEurope.

During the second half of 1998, sales in central and easternEuropewere adversely affected by growing economic uncertainty. The region is nevertheless an important growth market for Scania. In light of this, during 1998 we established importing companies inUkraine,Lithuania,Croatia,BulgariaandBelarus. In addition, we opened new dealerships in a number of countries.

InEurope, the production phase-in of our new generation of buses was completed by mid-1998. This meant that during the first half of 1998, we had a capacity shortage in our production system. Consequently, we could not keep up with demand. Today production capacity is in place, and the new bus range has been very well received in the market.

During 1998, we had a tough year inLatin America. We switched production to the 4-series during the first half of 1998, and during that period we could not deliver a sufficient number of vehicles. During the second half, the Brazilian economy ran into major problems, which caused demand to fall. We were forced to carry out staff reductions during late 1998 in order to adapt the organisation to the changed market situation.

Altogether, we had changeover and staff reduction costs of about SEK 500 m., while our sales fell by 12 percent. This meant negative earnings of SEK 662 m. inLatin America.

InAsia, which accounted for 2 percent of 1998 business, sales were halved compared to 1997. However, we can see, that the situation there stabilised towards the end of 1998. We have an intact distribution network, which will enable us to meet demand when the market bounces back.

InAfricaandAsia, sales rose by a full 51 percent but from low levels since volume is small.

The service market is becoming an increasingly important element of our business. In this field, we increased our sales inEuropeby 17 percent to SEK 5 billion. Overall, our sales of service products rose by 11 percent to SEK 6 billion. By service products, we mean maintenance, repairs and parts.

During 1998, we continued to expand our sales and service organisation. InGermany, we opened eight new facilities. InFranceandItaly, too, we opened new facilities.

One very important support for the marketing and sale of our products is customer finance operations. In markets where we have our own finance companies, we financed more than one third of new truck sales. This business is expanding rapidly. In 1997, the customer finance portfolio accounted for 8.5 billion of our balance sheet total. By the end of 1998, it had climbed above SEK 13 billion.

Now a few words about the first quarter of this year. During the first quarter of 1999, the number of trucks anb buses sold rose by 11 percent. Meanwhile in monetary terms, our sales rose by 13 percent. Our operating income doubled.

This is proof of our strength and demonstrates what the investments of recent years mean for Scania’s continued earnings growth. Given our earnings level in the first quarter and the current volume of market demand, we should be able to stick to our assessment from early this year that operating income will improve by SEK 1.5 billion in 1999. There is uncertainty about developments inLatin America, however.

Traditionally, Scania has been viewed only as a vehicle supplier. The emergence of large transport companies with new logistics systems is leading to strongly increased demands for vehicle fleet availability. To a growing extent, large transport companies are outsourcing their vehicle maintenance and repairs. For this reason, a sizeable service market has developed over the past seven to eight years. It also includes customer financing.

This means that Scania’s overall business has expanded to include service products and financing as well. In value terms, these three business segments consist of SEK 34 billion in vehicle sales, SEK 6 billion in service sales and a customer financed volume of SEK 13 billion.

Scania’s vehicle business has grown by about 4 percent annually, its service business by 12-16 percent and its customer finance portfolio by between 30 and 40 percent a year. These businesses form a value chain that stretches from vehicle development work to manufacturing, distribution and customer services.

This gives transport companies efficient products and services. Meanwhile, it enhances Scania’s value-added in the production, distribution and service stages, creating a win-win system for all those involved.

We are operating in a growing world market. Generally speaking, the heavy truck market is growing at the pace of gross domestic product.

In western Europe andNorth America– assuming the growth rate of the past ten years – the heavy truck market is growing by about 25 percent per decade. As we have stated, Scania is growing twice that fast.

In growth economies such as central and eastern Europe andLatin America, the heavy truck market is growing considerably faster. In the space of one decade, we will see it double. This is because that the development of infrastructure and logistics systems in these countries makes the distribution of goods in heavy vehicles very profitable. This implies a substantial growth potential in the various regions where Scania has a presence.

InEuropeas a whole, we expect total demand over the next ten years to increase by nearly 125,000 heavy trucks per year, inLatin Americaby 25,000 and in theFar Eastby about 30,000.

Scania already has a well-developed distribution and service network in most markets. We will therefore share in this growth. This means very good potential for organic growth. We also know that Scania has a very strong brand name. The surveys that we conduct confirm this, time after time. Scania has the strongest brand name inEurope, better than both Mercedes-Benz and Volvo.

We are investing very aggressively inEurope. Our goal is to increase our market share from today’s 15+ percent market share to 20 percent around the year 2005. If we are to achieve this goal, we must capture greater market share mainly inGermany,FranceandItaly. These countries represent more than 50 percent of the western European market.

Today we are making a large-scale effort to achieve major sales increases in these three key countries, where he have been gaining market share from national manufacturers since 1975.

We are working according to the same model as inGreat Britain, where we have doubled our market share since the early 1990s.

During 1998, we continued to expand our sales and service organisation. InGermany, we opened eight new facilities. We also opened new facilities inFranceandItaly.

InItaly, we have now acquired our distributor, ItalScandia. We will greatly improve our opportunities to increase our market share as a result of the investments we will now be making in the Italian organisation.

In central and easternEurope, heavy truck sales are 50 units per million inhabitants each year. We should compare this with 500 trucks per million in western Europe. Here we see substantial growth potential.

InLatin America, we have a steady market share of about 35 percent for heavy trucks. We will grow along with the market there.

In other markets, especially inAsia, we have made it our goal to achieve approximately a 10 percent market share.

City and interurban bus traffic is rapidly being deregulated in western Europe. Meanwhile, buses are the only realistic choice for personal transport in Latin America and other developing countries. We are therefore very confident that our bus operations have good growth potential and will continue to be a profitable element of Scania’s business.

Let us look at Scania’s important service business. In recent years, we have vigorously restructured our marketing organisation. This has been necessary in order to take advantage of the business opportunities provided by the ongoing changes in the transport industry.

We are primarily making three types of marketing investments:

We are concentrating our dealer to fewer but larger units

We are locating them near important transport junctions

We are also investing heavily in human resource development in our sales and service organisation, so that they can provide first-class service.

As indicated, Europe is changing as a result of deregulation. The number of small and medium-sized national haulers is diminishing, while the number of large pan-European ones is increasing. This means that Scania must also have smoothly functioning sales and service network throughout Europe.

Large pan-European transport companies are increasingly outsourcing maintenance, repairs and other services, thereby giving the entire Scania organisation fine business opportunities. Service-related sales are growing by an average of 13 percent annually, compared to 4-5 percent for vehicle sales.

At Scania we have a project that we call Dealer Operating Standards. Its purpose is to achieve a high, uniform level throughout our service organisation. International transport companies must receive the same high level of service no matter where they are.

If we compare this situation to the way things looked ten years ago, at that time Scania worked exclusively in the new truck market, which was worth about SEK 160 billion per year in Europe. Since transport companies are now outsourcing maintenance and service, today the market has grown to SEK 320 billion. Within ten years, we expect this market to double once again to SEK 640 billion. Financing services will also be an important element of business.

As a truck manufacturer, we are often compared to companies in the car industry, which launches new models at more frequent intervals, a practice that devours huge development expenses. As a result, many people also think that very large sums also go into developing and manufacturing new truck models.

On this point, I would like to emphasise that the heavy truck industry is a completely different industry, where companies develop new model ranges about once every fifteen years. Scania’s research and development expenses in 1998 amounted to about SEK 1 billion and have been at largely the same level over the past five years. In other words, the amounts are not large compared to the car industry. Instead, it is a matter of continuously ongoing development work.

Scania’s investments in production units have fallen since the change of product generations to the 4-series. Today these investments are at the same level as in the early 1990s, or about SEK 1.2 billion annually. We expect them to remain around this level over the next few years.

In the global vehicle industry, Scania is a relatively small company, but its operations are strongly concentrated. By focusing on heavy vehicles, over the years we have managed to build up a very clever modular system. This yields substantial economies of scale in development and production work, as well as in distribution.

It is all a matter of being able to offer customers a rich array of variations, while using as few components as possible. In the 1950s, we offered fewer than 100 variants, and we did that while using about 8,000 components. Today with 13,000 components, we can manufacture as many variants as the number of trucks we produce.

What kind of economies of scale does this give us, then?

A few examples: Last year, Scania made 46,500 cabs, compared to 50,000 at Mercedes and 58,000 at Iveco. That means good economies of scale in our cab manufacturing.

When we compare large diesel engines, with the modular engine range that we are in the process of introducing, Scania occupies second place after Cummins. So here too, we are in a very good position. This means a high level in “economies of scale” for the company.

Aside from keeping our development expenses at a steady level, we have greatly improved our productivity. Today we make nearly four trucks per employee each year, compared to only two in 1989. With our new vehicle range and the investments we have made in our production system, we know that we can further improve our productivity.

In order to become even better, we must continue to train our already skilful employees. We invest heavily in training programmes. In addition, we have a system of flexible working hours that enables us, at short notice, to adapt to fluctuations in demand. In other words, we can quickly increase our capacity when the market so demands.

In the environmental field, 1998 was an intensive and exciting year. Today we have environmentally certified all of our operations in Europe and Latin America according to the ISO 14001 standard. Meanwhile we have already fulfilled many of our environmental targets for 1999 by a wide margin. Last winter, we were also the first vehicle manufacturer to introduce engines that fulfil environmental standards that will go into force in the year 2000. Environmental issues are highly important, both to us and to our customers.

Today, Scania has an entirely new product generation of trucks, buses and engines and a global production system. We are investing aggressively in European markets as well as in the growth markets of Latin America and Asia.

We in Group Management are convinced that Scania will continue to achieve good earnings compared to our competitors.

Scania is extremely focused. This means we are very big in the heavy truck segment, bigger than many people realise. Translated to the car industry, we are roughly equivalent in size to Volkswagen or Toyota.

Summarising all our growth potential and the market position that Scania enjoys, and adding our resources and our highly skilled employees, Scania has the best chance of continuing to strengthen its position in the heavy vehicle industry.

We sell vehicles, service-related products and financing to our customers. We can look forward to strong expansion in all three of these businesses. Scania earns money in these businesses. It is doing so to an extent that makes the Board of Directors and Group Management highly confident in the company’s future.

Scania is experiencing strong growth in all its fields of operations. As shareholders, you will share in this growth. That is why I am convinced that Scania will continue to be one of the leading companies in its industry:

A Scania that we can be proud of.

Thank you