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Scania Interim Report January-June 2006

Scania’s revenue rose by 16 percent to SEK 35,224 m. in the first half of 2006. Operating income increased by 19 percent to SEK 4,147 m., resulting in an operating margin of 11.8 percent.

Summary

  • Given current order books and production rates, Scania’s deliveries
    will be substantially higher during 2006 than during 2005.
  • Net income improved 22 percent despite a lag in production which
    adversely affected second-quarter earnings by about SEK 250 m. in the
    form of lower invoicing and additional production-related expenses.
  • Within the next few years, the potential for cost savings in the
    sales and service organisation will amount to at least SEK 500 m.
    annually.
  • Scania is reviewing its capital structure and will present a proposal
    to the AGM 2007.

SCANIA, FIRST HALF OF 2006 – COMMENTS BY THE PRESIDENT AND CEO

Scania’s revenue rose by 16 percent to SEK 35,224 m. in the first half of 2006. Operating income increased by 19 percent to SEK 4,147 m., resulting in an operating margin of 11.8 percent. Net income strengthened by 22 percent to SEK 2,834 m., which resulted in earnings per share of SEK 14.17 (11.58). Cash flow during the report period was strong, amounting to SEK 3,258 m., due among other things to increased focus on working capital. Vehicle order bookings rose by 14 percent, while deliveries increased by 10 percent.

Strong economic growth in nearly all markets where Scania has a presence is contributing to good demand for transport equipment. Given current order books and production rates, Scania’s deliveries will be substantially higher during 2006 than during 2005.

Affecting order bookings from markets in the European Union is that some customers have brought forward their investment s in vehicles due to the introduction of digital tachographs in May and the Euro 4 environmental regulation that enters into force in October. Demand for Euro 3 – equipped trucks was especially strong. These vehicles will be delivered well into the fourth quarter. Due to the good demand, Scania’s production of Euro 3 trucks is almost fully booked. This resulted in lower order bookings from EU markets late in the second quarter. Order bookings have now shifted to Euro 4 and Euro 5 trucks.

The markets in central and eastern Europe including Russia remain strong, with sharply increased order bookings for Scania: up 98 percent. Substantially increased transport needs in Europe generate good demand for both new and used trucks, with a shortage of used trucks in some markets. This points towards favourable long – term market development.

Demand for Scania trucks strengthened in most markets outside Europe. In Latin America, demand was higher than during the corresponding period of last year. In Africa, continued strong demand was noted, while in Asia it was somewhat weaker towards the end of the report period. Demand decelerated in Turkey due to financial instability in that country.

Demand for buses and coaches was considerably lower than during the first half of last year. Late in the report period, demand strengthened in Latin America. In June, Scania launched a new bus and coach range, in which all models are equipped with Euro 4 engines, from city buses to exclusive tourist coaches. Scania is also the only supplier of ethanol – powered buses, which have awakened great interest in a number of major European cities. The long – term target is annual sales of 10,000 buses and coaches.

Service – related sales including parts showed good volume growth, with very strong sales early in the year. Scania is continuing to expand its service business and take advantage of synergies in the organisation. Within the next few years, the potential for cost savings in the sales and service organisation amounts to at least SEK 500 m. annually.

In Customer Finance, volume rose late in the report period after a stable beginning of the year.

Scania has now caught up with the lag in the production of 1,200 vehicles that occurred in conjunction with the announcement that the European production of axles and gearboxes will be concentrated in Södertälje and parts management in Belgium. This concentration is expected to lead to savings of about SEK 300 m. per year starting in 2008. Due to the disruptions in production, some 1,000 vehicles th at would have been invoiced in the second quarter will instead be invoiced during the third quarter. This adversely affected earnings in the second quarter by about SEK 250 m. in the form of lower invoicing and additional production – related expenses.

Scania’s focus on more efficient use of capital is now yielding results, especially in the form of a reduction in working capital. Based on good earnings, a strong balance sheet and continued good cash flow, Scania is now reviewing its capital structure. A proposal on future capital structure will be presented towards the end of the year for approval by the Annual General Meeting in 2007.

For more information please see attached pdf.

Contact persons

Cecilia Edström, Corporate Relations
tel. +46 8 5538 3557
mobile tel. +46 70 588 3557

Stina Thorman, Investor Relations
tel. +46 8 5538 3716
mobile tel. +46 70 518 3716