Ladies and gentlemen, honoured shareholders,

A warm welcome to our Annual General Meeting, which marks the beginning of a new chapter in Scania’s long history.

Scania has appeared frequently in the press and media, given the turbulence we have had on the ownership front. While awaiting the European Union ruling on Volvo’s public offer for Scania, we decided to maintain a low profile so as not to disrupt the Scania organisation. When Volkswagen became our new main owner – after the EU’s decision not to approve Volvo’s offer – we quickly gained the ownership stability we need in order to further develop the company.

Scania will now continue as an independent stock exchange-listed company with a new ownership structure. After a long period of uncertainty, we now stand on firmer ground in planning for the future.

It is obviously too early to comment on what damage, if any, we have suffered from the 14 month long period between Volvo’s first purchase of Scania shares and the EU’s ruling in March. The organisation has quite clearly lost momentum and some of its focus during this period. However, thanks to stress-tolerant employees and a strong corporate culture, I believe that the loss of momentum has been limited.

I understand that there are many questions about Scania’s future you are now asking.

- How well equipped is Scania to meet the challenges of the future, after everything that has happened?

- How well prepared are we to meet the ongoing structural transformation of our industry?

Let us begin with our 1999 income. It rose significantly, by 40 percent – clearly higher than market expectations, though at about the level of our own January 1999 forecast, when we estimated that an earnings improvement in the range of SEK 1.5 billion was possible. Operating income climbed from SEK 3.5 billion to SEK 5 billion and net income rose by nearly SEK 1 billion. This meant an operating margin of 11.5 percent for Scania operations. This made us the most profitable company in our industry. Financially speaking, we easily outclassed our main competitors.

Western Europe, our “domestic market”, accounted for nearly 80 percent of our business. During 1999, order bookings for trucks in the region rose by 9 percent, and the number of trucks sold increased by 10 percent. The total market was a record-breaking 236,000 heavy truck registrations, but despite this strong market, we could not raise our prices. Our western European market share remained at 15 percent.

In the Nordic countries, our market share rose to more than 35 percent, while demand largely stood still. Our biggest increase was in Sweden, where we became the market leader.

In eastern and central Europe, sales remained weak, mainly due to the decline in transit traffic between Russia and western Europe. We have nevertheless continued to strengthen our organisation in eastern and central Europe, since we regard it as an important growth market. We are gradually expanding our service and distribution network throughout the region.

In Latin America, the economy was shaky during 1999, mainly as a result of currency instability in Brazil. Unit sales of trucks fell by 18 percent and order bookings by 24 percent. The market thus declined dramatically. But how does the situation look today? Let me present an update from two of our employees in Latin America:

Jorma Halonen, Scania Latin America: “This time, the economic crisis in Brazil has been more lengthy than before. It has taken 24 months, but I believe that GDP will grow by 3-4 percent this year, which means that the truck market will increase by 10 percent.”

Hans-Christer Holgersson, Scania Argentina: “I am very optimistic about the future of Argentina, but we have had some problems this year. There is a recession in this country and it will probably continue next year, but I have no doubts when it comes to the long-term potential of Argentina. This applies both to buses and trucks, and perhaps above all to repair and maintenance agreements.”

We therefore look forward to developments in Latin America with confidence.

In Asia, truck sales remained at a low level, but with a slight increase of 5 percent. In Africa and Australia, sales declined somewhat.

As for buses and coaches, Scania’s unit sales climbed by 9 percent in Europe. Our market share rose by nearly 1 percentage point. In the Nordic countries, market share rose from above 24 percent to nearly 29 percent. Over the past decade, western European city and intercity bus services have been deregulated. This has resulted in fewer but considerably larger bus operators.

In Latin America, bus demand was weak. However, we increased our market share. During 1999 an order for 340 intercity buses came from South Africa. It was our largest-ever bus deal in southern Africa. We will deliver these bus chassis from Latin America. In many developing countries, buses are in practice the only alternative for personal transport. We are therefore optimistic about the future of our bus and coach operations.

During the past decade, we have invested intensively in broadening Scania’s range of services. In 1999 we continued to expand our network of distributors through acquisitions in Italy, Norway and Finland.

Last year, sales of services and parts rose by more than 8 percent to nearly SEK 7 billion. The number of vehicles sold with service and maintenance contracts is growing steadily, especially in mature European markets. Up to half of new truck deals in certain markets today include package solutions for service and maintenance and/or financing.

Customer financing, an important element of our total offering to customers, is one of Scania’s fastest growing businesses. At the end of 1998, the lending portfolio was worth SEK 12.3 billion. During 1999, the figure rose to SEK 15.3 billion.

Let us take a quick look at the first quarter of 2000. In Swedish kronor terms, our total sales rose by 8 percent, compared to the same quarter of 1999. The western European market remained strong, and order bookings for heavy trucks climbed by 24 percent. Sales of service and parts rose by a full 19 percent.

Bus and coach operations had a difficult period as a consequence of Volvo’s public offer for Scania, especially when press reports revealed what concessions were being discussed with the European Commission. This affected order bookings, and its impact will continue during the year.

Operating income for the Scania Group during the first quarter was SEK 1.1 billion, which meant a margin of nearly 9 percent. Earnings in European operations were largely unchanged, if we exclude adverse currency effects, since the Swedish krona strengthened against the euro. Underlying earnings in Latin America improved by SEK 120 M, but operating income remained negative.

Let us now leave behind our report of past earnings and look ahead. How well is Scania equipped to meet the challenges of the future? Our share of the world market for heavy trucks is about 9 percent. We operate in all markets except the United States, Canada and Japan. All the arrows on the world map are pointing upward and generally speaking, the heavy truck market keeps pace with the overall growth of economies.

Given the economic growth rates we have seen in western Europe and North America over the past ten years, the demand for heavy trucks should average about 25 percent higher towards the end of the coming decade. During the 1990s, Scania’s average sales rose from 30,000 to 50,000 vehicles a year. By merely keeping our market share constant, we should be able to sell as many as 80,000-90,000 vehicles a year towards the end of this decade.

But we have higher ambitions than this. We are investing aggressively in Europe. Our long-term goal is to increase our market share gradually from today’s 15 percent to 20 percent. To achieve this goal, in recent years we have systematically invested in the distribution and service networks in Germany, France and Great Britain – three key countries that together represent 50-60 percent of the western European market.

In central and eastern Europe, some 50 heavy trucks of western European types are sold annually per million inhabitants. We should compare this with around 500 heavy trucks per million inhabitants in western Europe. In other words, there is great room for expansion in our vicinity.

In our main Latin American markets – Brazil and Argentina – today we have more than a 30 percent market share for heavy trucks. Due to our market position, we can essentially expand at the same pace as the markets grow. We are therefore hoping now that these economies will soon be back on track.

In other growth markets, there is also significant potential to exploit. In Asia, we have set a 10 percent market share as our target. In markets that are open to heavy truck imports in this region, today we have a market share of about 8 percent.

Let me say a few words about our investment in Scania’s services.

During the 1990s, our customers in western Europe increasingly began to demand products that combine vehicles with service and repairs, financing and much more. We have turned this into a business, and we foresee a rapidly growing market here. Our commitment is to provide the customer with a guaranteed transport capacity at a fixed price. The goal that we share with the customer is to create more efficient logistics and the optimal vehicle fleet utilisation.

Ten years ago, Scania worked mainly in the new truck market, which is worth about SEK 160 billion per year in Europe. During the past decade, the transport industry has undergone extensive restructuring. Small and medium sized hauliers are become fewer and fewer, and pan-European fleets have become larger and larger. These international hauliers are increasingly outsourcing maintenance, repairs and other services. As a result, in practice the market has doubled to around SEK 320 billion. Within ten years, we expect a further doubling to SEK 640 billion. This expansion will be due to an even larger service content.

In other words, Scania’s business rests on three basic pillars – vehicles, services and financing. Today, vehicles account for the largest percentage of sales and grow by about 5 percent annually. Our sales of services, that is, maintenance, parts and repairs, are growing by around 15 percent per year. Our customer finance portfolio is growing by a full 30-40 percent. Besides, the profit margin on service-related sales is 4-5 times higher than on vehicle sales. Service-related sales thus generate rapid growth in value added.

Scania’s future is very much a matter of optimising the value chain – from development by way of production to sales and service of our vehicles. By being in close contact with the customer the whole time, and by viewing our business as something that extends throughout the life cycle of a vehicle, we can increase our sales and profitability. In this way, we will have a more intensive relationship with the customer. In addition, we will pave the way for new products and services based on modern vehicle electronics, information technology, telecommunications and the Internet. To take advantage of these opportunities, which will be an important element of our future, in March 1999 we started a cutting-edge company called Scania Infotronics – in partnership with Mecel and Ericsson.

And now a few words about what is driving the structural transformation of our industry. Heavy truck and bus manufacture is often compared to the car industry. The development of new car models requires a lot of capital, both for development and for production equipment. In addition, the life cycle of car models is becoming shorter and shorter.

This is not true of the heavy truck industry. We have much longer product life cycles and a more uniform pace of development. In 1999, Scania’s research and development expenses totalled more than SEK 1.2 billion. The annual increase has been about 5 percent, viewed over the latest five-year period.

In our industry, it is a matter of continuously ongoing development work – not of rapid model changes. This is also visible in our capital spending. Since the change of product generations to the 4-series, our investments in production have been at the same level as in the early 1990s, about SEK 1.2 billion annually, which is lower than our depreciation.

The core of Scania’s development philosophy is our modular system. It enables us to offer customers a maximum opportunity to specify vehicles, while using as few modules as possible. This gives each customer a tailor-made vehicle, while giving us substantial economies of scale in our development and production work, as well as in distribution and service.

When we launched our 4-series, some people criticised us for having trimmed away a bit of our lighter segment but expanded the variants upward. Today we are developing a new product generation, one that will provide even better opportunities for specifying vehicles – this time both upward and downward. Here the modular system is very helpful. By adding a few new modules, we can build vehicles for new segments – without the need to increase the number of components significantly.

As for Scania’s engine range, a number of years ago we decided in principle to use only a single combustion chamber to build engines of different sizes. Our 12-litre engine came out in 1995 and the 11-litre variant a few years later. We recently launched a high-performance V8 engine according to the same basic concept. Within a year or so, we will be introducing a five-cylinder version. This means we will have renewed our entire engine range in 5-6 years. Compared to the 3-series engine family, we will be using 60 percent fewer parts. Talk about economies of scale!

Scania’s identity is based on the people who work in the Scania organisation and on the technical qualifications that characterise our products. This provides the basis for the prestige of our brand among customers. It strengthens our ties with customers and drives us at Scania to do everything we can to live up to customer expectations. Only if there is a warm Scania heart beating throughout the organisation can we develop products and services in the best interest of our customers.

The battle for customers and for markets is not just a matter of technology – it has to do with people. A number of surveys have demonstrated that Scania is the world’s strongest brand name in heavy trucks. In other words, Scania is the heavyweight champion, topping the winner’s stand. The Scania brand name has established itself organically and reflects a vibrant corporate culture. It is an asset that must constantly be cultivated and further enhanced – one that requires deliberate strategies in order not to lose its value and drawing power. This is where a quality- and environmentally oriented philosophy at all levels plays a fundamental role.

A brand name is an implicit guarantee, one that says that we meet – and in many cases surpass – the standards our customer demand.

Everything that we are working on today will strengthen Scania and Scania’s identity. The key to our future will lie in how we work together with our customers and business partners. The fact that we can now continue as a listed company, with Volkswagen as a substantial shareholder, will contribute to our continuity and strengthen our global competitiveness. This will pave the way for growth that, not least, should benefit you – our shareholders.

Thank you.