Honoured AGM participants,

Ladies and gentlemen, shareholders and AGM participants,

A warm welcome to our Annual General Meeting. It is nice to see so many people with ties to Scania here at the Scania Rink.

Since the last AGM, Scania has completed another successful year in its now 110-year history. During 2000, we produced our millionth vehicle, which we have donated for the International Red Cross to use in its relief efforts in the Balkans. Of the million vehicles that we have produced over the years, nearly 500,000 are still operating on roads all over the world. This is an impressive figure.

As you know, last year’s AGM had a great deal of drama behind it. The European Union had recently turned down Volvo’s proposed acquisition of Scania, after which Volkswagen had become a new main owner of Scania. Brussels’ rejection of the Volvo-Scania deal came unexpectedly for many observers in Sweden. The decision resulted in a new merger in the truck industry, a Volvo-Renault deal, which is now beginning to take shape. This marks a further consolidation in an industry that included 25 independent manufacturers in western Europe 25 years ago. Their number has now shrunk to five.

In this situation, it is a source of security for Scania’s management that the Volkswagen Group has assumed the role of long-term industrial owner. It is also a source of security for the people throughout the organisation – ranging from sales and service to the production system, suppliers and development units. Above all, it is a source of security for our customers who have invested in Scania vehicles. Our customers need service for their vehicles, and one day when it is time to replace them, these customers will know that they can turn to the same Scania organisation.

Will the consolidation of our industry continue? Only time will tell.
Is continued consolidation needed, in order to ensure customers a rich array of competing products and services? Probably not.

To be successful in the heavy truck industry, you need more than long production runs. Instead, you need the right product plus the right service backup, all aimed at giving the professional truck or bus operator high revenues and low costs during the service life of their vehicle. This, in turn, will generate high revenues and good margins for the supplier of the vehicle. Scania’s basic philosophy is thus to develop and manufacture trucks, buses and industrial and marine engines while building a first-class service organisation around these products, thereby ensuring a good earnings capacity to both the customer and Scania.

During our preliminary discussions with Volvo on how the proposed merger should be organised, much of Scania’s normal development work was placed on hold. Instead, we focused our resources on studying the potential for developing shared components such as engines, gearboxes and chassis platforms. Right after the EU in Brussels announced its rejection of the merger, we spent the second quarter of last year retrieving ideas from the "deep freeze" and formulating our new strategy for the next few years. In the autumn of 2000, we resumed our development work at full speed, based on decisions and guidelines from Scania’s Board of Directors. Although we got moving again quickly, we undoubtedly suffered a loss of momentum.

In Scania’s production system, development work slowed down as well. Here, too, we formulated a development strategy during the second quarter of last year. It involves a continued concentration of the manufacture of each major component at one site in Europe and one site in Latin America.

Since the mid-1990s we have had a close exchange with Toyota, when it comes to production philosophy. Toyota has by far the most efficient production system in the automotive industry. First we have tried to understand how the company builds its cars, which are mass-produced in the millions, and how we can apply this know-how to a truck that is tailor-made for a specific customer.

Today we feel sure about how such a production system can work in our operations. We now have a massive programme underway to create our own Scania system, both in the company’s production plants and among our suppliers. Over the years, as we have begun to introduce the system in practice, it has started to become clear what huge gains in efficiency this Toyota philosophy can bring. It is really a matter of a radically different way of thinking that focuses on people, not machines or computers.

We have now achieved such flexibility and proficiency in managing our production system that we were able to maintain a constant delivery time of three to four months throughout the amazing market upturn in western Europe. The heavy truck market grew from 170,000 units in 1998 to 245,000 units in 2000. Instead of starting to build a long orderbook during 2000, as other manufacturers did, we managed to sell more completed trucks, gaining market share as a result. We achieved a record market share in 2000: 15.6 percent of the western European market. But as early as October last year, we foresaw that 2001 would be a leaner year, since we were delivering our orderbook quickly. On the other hand, in the strongly cyclical industry that we work in, we have the advantage of being able to act early, even in a shrinking market. I will return to this later.

Scania’s planned merger with Volvo was also very hard on our sales and service organisation. Who would survive after the merger? The local Scania dealer, or the Volvo dealer? With each organisation positioning itself very strongly, the result was an unprecedented battle for every single customer. This battle also benefited those customers that had relied on Scania and Volvo as major suppliers for many years.

The competition was quick to take advantage of this situation. Downward pressure on prices was more intensive than it had ever been before, not only for Scania but for the entire industry.

This is the first time in my nearly 30 years in our industry that it has not been possible to raise prices during a boom period. In real terms, prices actually went down, since we "equipped" our trucks with an ever more advanced average level of specification, without being able to charge for all the extra equipment – all to the advantage of our customers and our market share.

So when Brussels finally rejected the Volvo proposal, the entire Scania organisation felt a great sense of relief. But it has required time and energy to return our organisation to its traditional emphasis on businesslike behaviour. We are now well on the way. Today we give higher priority to profitable customer relationships than to high-volume customers.

Last autumn, we decided to present an offer for the remaining shares in Beers. Beers has been our distributor in the Netherlands for more than 50 years. It is one of the most highly capable sales and service organisations existing in the heavy truck world. We will now be introducing Beers’ well-tested customer service concepts to other portions of our European organisation. That task is now beginning.

Let us now look at last year’s earnings. We showed a 10 percent operating margin for Scania products, bringing the Group’s operating income to just over SEK 5 billion. We were once again one of the most profitable companies in our industry. I am both proud and impressed by what all employees of the Scania organisation achieved.

Europe accounted for nearly 80 percent of our sales. In the Nordic countries, our market share rose to more than 36 percent. Our biggest increase was in Sweden, where we were once again the market leader.

In eastern and central Europe, sales rose sharply, recovering from a deep market slump. But volume remains small. We are continuing to expand our organisation in this region of 350 million consumers, which has great future potential.

In Latin America, the economy began to improve last year. We increased our unit sales of trucks by 8 percent. Together with an extensive programme to improve the efficiency of our operations, this enabled us to reach break-even for the year as a whole. Unfortunately, this trend was interrupted during 2001.

In Asia, truck sales rose by 130 percent. The volume in these markets is still relatively limited, but there is major potential. We strengthened our presence, among other things by taking over the distribution of Scania products and services in Thailand and Malaysia.

As for buses and coaches, we had a tough year in Europe. During the European winter and early spring, a season when many customers normally order most of their buses, the uncertainty surrounding the Volvo offer for Scania was at its peak. Customers were hesitant and placed few orders with us. As a result, we were unable to keep our bus production system running at full capacity during the first half of 2000. We sold 15 percent fewer buses in Europe. Our market share fell by more than 2 percentage points, from 8 percent to 6 percent in western Europe.

To make our sales work more efficient, we established two new units, Scania Bus Europe and Scania Bus Nordic. Among other things, we broke into the Italian market with our fully built OmniCity buses.

In Latin America, bus demand rose dramatically. We boosted our bus volume by more than 50 percent. We increased our market share mainly in intercity and tourist coach services, where we have about 40 percent of the market. In these segments, the advantages of rugged design and engines with low fuel consumption are fully evident.

Our bus and coach operations have a promising future. To achieve good profitability in this portion of our business, we must take maximum advantage of the synergies that exist between buses and trucks. We have initiated a thorough review in this area, with the aim of achieving the same operating margin for buses as we have for trucks.

Scania’s sales of service and parts rose last year by more than 17 percent to just over SEK 8 billion. The number of vehicles sold with maintenance and repair contracts is growing steadily in most European markets. Up to half of new truck sales in certain markets include leasing and service contracts.

Customer financing is Scania’s fastest growing business. At the end of 2000, our lending portfolio was worth more than SEK 18 billion.

And how has this year started out? The Scania Group’s operating income for the first quarter of 2001 was SEK 952 m. For Scania products, operating income was SEK 943 m., a decrease of 11 percent.

Truck sales decreased by 17 percent in western Europe, while sales of service-related products increased by 18 percent. Volume growth continued in customer finance operations.

The slowdown in western European demand that I predicted earlier has intensified even further. In the past month, Gross Domestic Product forecasts for western Europe have been revised downward substantially. Uncertainty has increased concerning growth during the second half of this year. Transport volume is directly related to economic developments. This means that the transport industry has entered a calmer phase.

The rapid growth of recent years in the heavy truck market ended during the second half of 2000. During these years of growth, Scania was able to maintain constant delivery times, around three months, thanks to the flexibility we have built into our production system. As a result, we felt the decrease in order bookings quickly, and the pace of deliveries has fallen. In some markets our market share is lower, and it fell to 14.5 percent in western Europe as a whole.

In central and eastern Europe, order bookings rose by more than 30 percent, as they also did in Asia.

In October last year, we decided to begin adjusting the staffing in our European production system in response to a clearly lower demand level. By year-end, the number of production employees will decrease by 1,200. We are mainly doing this by not renewing time-limited employment contracts. We have also begun a review of other employee categories, in order to adjust staffing there as well. These measures will have a gradual effect.

Earnings in Latin America during the first quarter are a disappointment. The need to continue streamlining our Latin American operations is clear. A number of external factors also affected earnings. The Brazilian currency lost more than 10 percent of its value during the first quarter. As a result, the price level in Brazil is clearly too low, measured in US dollars. We are now raising our prices.

The new 16-litre V8 engine is now in full production and the feedback from our customers is very positive. During January this year, we introduced a 470 horsepower turbocompound version of our six-cylinder 12-litre engine. With these engines, we have greatly strengthened our competitiveness in our upper segment, the most prestigious and profitable.

Passenger car operations at Svenska Volkswagen showed clearly lower operating income. The main reason was sharply lower car sales in Sweden.

Ladies and gentlemen,

I am often asked what Scania’s strategy actually is. This is a completely justifiable question, but one that is not always so easy to answer. In the simplest terms, our strategy can be formulated as follows: to earn enough money, in good harmony with our customers, to guarantee our shareholders, employees and other stakeholders long-term profitable growth.

To do this, Scania has chosen to focus exclusively on developing heavy vehicles and to work out a modular product concept that gives the customer the exact specification he wants and gives Scania relatively few components. This makes our product development work easier and leads to major economies of scale. We manufacture most components ourselves and thereby gain very good control of our service-related business, which has become – and will continue to be – a very essential element of our earnings.

Scania has a "tool box" – our modular system – that limits us to markets where it can be used in an efficient way. This means that we can operate successfully in western as well as central and eastern Europe, a market with a total of more than 700 million consumers. Africa and Asia are also markets where we compete successfully, but where our opportunities are limited to certain segments – the technically most demanding transport tasks, for example dumpers and heavy tractor units. Japan, for example, is a market of 70,000 trucks with gross weights over 15 tonnes, but where Scania’s segment is around 5,000 units. And the picture is similar in most Asian markets. European heavy trucks have approximately a 25 percent market share in Asia, and Scania has about one third of this. We are easily the largest European make.

In order to break into simpler segments of the truck market, we would need to develop a new tool box. But the volume potential is missing. Interestingly enough, however, our segment is growing steadily at the expense of simpler trucks.

Latin America has progressed further than Asia when it comes to road transport services. The main driving force has been the European tradition that is found there. Road regulations resemble European ones. In recent years, logistics systems and infrastructure have undergone radical changes and are now close to the level we have in western Europe. This has also driven the market for high-quality trucks. In the segment with gross weights of 40-tonnes or higher, Scania has a steady 40 percent or so of the market. A market that we share with Volvo and Mercedes.

In the United States and Canada, Scania has virtually no market presence. This is due to the heavy truck concept that has developed in these countries over a long period of time. This North American concept is completely different from the one we know in other parts of the world. It is a consequence of the industrial structure, road traffic regulations and logistics systems found there. A truck manufacturer buys such components as engines, gearboxes and axles from others, providing only the actual chassis assembly.

The distribution and service structure in the US and Canada is also completely different from the one we know in Europe. Scania’s way of building trucks does not suit these markets. Our vertically integrated concept, in which we take responsibility for both sales and service, is not accepted. Furthermore, these North American truck markets have paper-thin margins. In our opinion, there are many other parts of the world we should prioritise before trying to tackle the US and Canada. We are also completely certain that this is best for our shareholders.

In the bus and coach field, the same market coverage arguments as for trucks generally apply, but there is one major difference: the customer structure for city and intercity buses is very consolidated. We must offer these customers total solutions in the form of leasing programmes, including service, for periods of up to 8 years.

Our industrial and marine engine operations are derived from the engines we use in our trucks. Obviously they have to be adapted for their specific customer applications.

Ladies and gentlemen,

Let me return to Scania’s three businesses: vehicles, services and financing.

Today, vehicles account for the largest percentage of Scania sales and grow by about 5 percent annually. Our sales of services are growing by about 15 percent a year. And our customer finance portfolio is growing by a full 30-40 percent. Besides, the profit margin on service-related products is substantially higher than on vehicles.

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, customer finance and service of our vehicles while they are being used by our customers.

By being in close contact with our 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 create a more intensive relationship with the customer. In addition, we will pave the way for new products and services based on vehicle electronics, information technology, telecommunications and the Internet. To take advantage of these opportunities, which will be an important element of our future, today Scania’s development efforts in mobile Internet services take place in our own subsidiary, Infotronics, located in Kista, Sweden.

Scania’s identity is based on the people who work in the Scania organisation, and on the technical qualifications and qualitative merits that characterise our products. This provides the basis for the prestige of the Scania brand among customers. It strengthens our ties with customers and drives us at Scania to do everything possible to live up to – and preferably surpass – 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’s 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 not to lose its value and drawing power. This is where a quality- and environmentally oriented philosophy at all levels plays an important role.

A strong brand name is an implicit guarantee of quality, one that says that we meet the standards that our customers demand.

In conclusion, ladies and gentlemen,

Despite great uncertainty about its ownership structure over these past two years, Scania has performed well. There is a strong sense of solidarity within the organisation and a focus on doing the absolute best job we can for our customers. I would like to take this opportunity to express my sincere gratitude to all our employees for their very fine contributions during this past year. Given the solid support that exists today throughout our organisation for the programs we now have in place, and our more stable ownership situation, I am convinced that Scania is facing a bright future.

Ladies and gentlemen, thank you kindly for your attention.