“Scania’s operating income in the first ha lf of 2005 rose by 16 percent to about SEK 3,500 m. The operating margin rose to 11.5 percent. Net income increased by 16 percent to SEK 2,316 m., which resulted in earnings per share of SEK 11.58 (10.00). Despite uncertain economic development in western Europe, our main market, order bookings for vehicles were largely unchanged. Service revenue and Customer Finance showed continued positive development”, says Leif Östling, President and CEO.
SCANIA, FIRST HALF OF 2005 – COMMENTS BY THE PRESIDENT AND CEO
Scania’s operating income in the first half of 2005 rose by 16 percent to about SEK 3,500 m. The operating margin rose to 11.5 percent. Net income increased by 16 percent to SEK 2,316 m., which resulted in earnings per share of SEK 11.58 (10.00). Despite uncertain economic development in western Europe, our main market, order bookings for vehicles were largely unchanged. Service revenue and Customer Finance showed continued positive development.
In western Europe, order bookings for heavy trucks were largely unchanged, while deliveries rose 9 percent. Demand remained strong in the Nordic countries, while the continental European markets as a whole were weaker. Scania increased its market share somewhat in western Europe, to 13.5 (13.1) percent. The markets in central and eastern Europe showed signs of stabilisation after a weak start.
There was strong demand for trucks with Euro 4 engines, that is, engines that meet the emission standards that will apply to vehicles in the EU from 1 October 2006. To date, Scania has delivered more than 2,000 trucks with Euro 4 engines. But due to future emission standards and the economic incentives associated with them, customers face difficult investment decisions. This, together with high oil prices as well as the weak performance of the continental European economies, leads to uncertainty about the demand for heavy trucks in western Europe.
However, given Europe’s ageing truck fleet, there is a continued large replacement need. It therefore remains our assessment that within a few years the market for heavy trucks in western Europe will surpass the previous peak achieved in 2000, when 244,000 heavy trucks were registered. A large flow of used vehicles to central and eastern Europe will also contribute to high demand.
In Latin America, interest rate hikes by the Brazilian central bank has created uncertainty about the country’s economic development. Strong order bookings in Brazil turned to a substantial downturn towards the end of the period. This was partly offset by demand in Argentina and Chile.
In Asia, South Korea noted subdued demand while Indonesia and Taiwan showed good development.
For buses and coaches, both order bookings and deliveries increased during the first half. The Nordic market was strong, and in Finland, Scania signed its first contract for buses with Euro 4 engines. Demand in Great Britain continued to develop well, while it slowed in Latin America in the latter part of the period.
Increased material prices and production costs had a successively stronger impact on earnings during the first half. Steel prices have culminated, and we expect lower steel prices will have an impact on Scania’s material costs in the first half of 2006. Scania is continuing the task of adjusting the number of employees at its European production units after last year’s extra staffing in connection with the launch of the new truck series. Temporary employment contracts that expire during the second half of 2005 will not be renewed. Since year-end 2004 some employees have left Scania’s European production units and by the end of 2005, more will have left. In Latin America, however, some new recruitment has been made.
Scania has acquired a Belgian dealership, the Universal Auto group, with revenue of about EUR 40 m. in 2004. This means that Scania owns about 80 percent of the sales and service network in Belgium. Scania is rewarding safety and fuel-efficient driving through the Young European Truck Driver competition. Interest in participating has doubled since last time the competition was held, and this year 13,000 European drivers are competing. The final takes place in Sweden this September. Similar initiatives are under way in Latin America, Asia and South Africa.
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Cecilia Edström, Corporate Relations
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Stina Thorman, Investor Relations
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Eric Österberg, Corporate Communications
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