Enormous potential for Scania

More than a hundred journalists, analysts and investors attended Scania’s Capital Markets Day in Södertälje on 6 December. Presentations during the day showed that Scania is competitive on a stand-alone basis. Consolidation is an opportunity, not a necessity.

Scania’s Board of Directors has rejected MAN’s offer, since it substantially undervalues the company.

As an independent company, Scania can continue developing to its full potential, maximising value for all shareholders.
 
Scania is performing very strongly. Order bookings rose by 31 per cent during October and November compared to the same months of 2005.

President and CEO Leif Östling emphasised that global economic developments are benefiting Scania. Demand is being driven ever more strongly by integration between eastern and western Europe, which is boosting growth, and by economic expansion in Russia and Asia. East-west trade is sharply increasing.
 
“This growth means more consumption and increasing investments, which means greater transport needs. Today there is a shortage of transport capacity in Europe,” Mr Östling said.
 
Scania is well positioned in such emerging markets as Russia, the Middle East and North East Asia. The company is also moving into the Indian market.
 
Scania’s management repeated their expectations of a volume of about 65,000 vehicles and an operating income substantially higher than SEK 8 billion in 2006. Cash flow is strong and as an independent company, Scania has the ability to distribute SEK 85 per share. The Board of Directors will review the scale and timing of proposals to the Annual General Meeting for such distributions as soon as the situation surrounding the MAN offer has clarified.

The company’s positive future prospects are strengthened by the trend among hauliers towards outsourcing maintenance and repairs of their vehicles. The market for heavy vehicle service totals at least SEK 900 billion per year in the countries where Scania operates.

Scania owns large portions of its service network and is continuously developing its service offering, based on customer needs. One-stop shopping is an important element of the company’s strategy to boost growth.

Meanwhile Scania is improving the structure of its international sales and service organisation and is taking advantage of synergies.

Scania’s management estimates that over the next three years, revenue will grow by about 10 per cent annually. The operating margin will increase to between 12 and 15 per cent and Scania will consolidate its position as the most profitable company in its industry. In the next few years, research and development investments are expected to total below 4 per cent of sales.

“We have all research and development gathered in one place and in direct proximity to production. This makes effective cross-functional collaboration possible, resulting in higher quality and lower costs. Products also reach the market faster,” said Hasse Johansson, Head of Research and Development.

Scania takes advantage of economies of scale through modularisation. Its strategic alliances with Cummins and Hino allow sharing of expertise and resources.

To provide a picture of Scania’s unique competitive advantages in product development, part of the Capital Markets Day was held at the Scania Technical Centre.

Engines included in Scania’s new engine platform were shown to outside visitors for the first time. Scania’s new engines will begin to be introduced during 2007. They will meet the EU’s coming Euro 5 emission standard with the same fuel consumption as today’s Euro 4 engines.  
No aftertreatment of exhaust gases is needed, which is an advantage for customers. Scania is meeting the Euro 5 standard by employing exhaust gas recirculation (EGR) technology and the Scania XPI high-pressure injection system. The new engine platform will also meet the Euro 6 emission standard well before it goes into effect.

In the Scania production network, productivity is continuing to increase thanks to volume growth, restructuring and the continuous improvement efforts of employees. The rate of production will increase further starting in the first quarter of 2007.
 
The visiting analysts and journalists had the opportunity to view the Engine Assembly plant, where a new assembly line went into service this autumn. The new line is part of the current strengthening of Scania’s production capacity.

By 2010 Scania will have a capacity of 100,000 vehicles per year: 70,000 in Europe and 30,000 in Latin America. It will achieve this higher volume with investments of around SEK 2 billion.
 
Looking ahead, further investments will enable Scania to boost capacity to 130,000 vehicles.

Text: Marcus Ollfors
Photo: Carl-Erik Andersson