Scania Year-end Report January-December 2003

Scania Year-end Report January-December 2003

“Market developments during the year were in line with my expectations, and Scania’s earnings remained strong. The economic situation in western Europe is expected to improve somewhat during 2004, but for the time being, we are planning for largely unchanged volume. However, we expect the result to be impacted by higher amortisation of research and development costs, and reduced benefits from currency hedging,” says Leif Östling, President and CEO.

SCANIA, FULL YEAR 2003 − COMMENTS BY THE PRESIDENT AND CEO

“Market developments during the year were in line with my expectations, and Scania’s earnings remained strong. For the full year 2003, the comparable operating income of the Scania Group rose by more than 30 percent to SEK 5,125 m. (3,856). The operating margin improved to 10 percent. Deliveries of trucks and buses rose by 14 percent, while total order bookings were largely unchanged. Sales of buses and coaches were the highest ever,” notes Leif Östling, President and CEO.

“Several important markets showed weak economic growth and considerable uncertainty during 2003. However, the total market in registrations was largely unchanged compared to 2002, and about 13 percent lower than in the record year 2000. In recent years, exports of 4-6 year old trucks to central and eastern Europe have risen. These exports are expected to rise further, as the large volume of trucks sold in western Europe during the late 1990s begins to be replaced. The flow of used trucks, together with low interest rates, has contributed significantly to the fact that demand for new trucks has not fallen as sharply as during earlier economic slumps in western Europe. The greater flow of used vehicles from traditional markets in western Europe to new markets in eastern Europe means that Europe as a whole is becoming an increasingly integrated market.

“In central and eastern Europe, economic growth in most countries was strong during 2003. The demand for both new and used heavy vehicles of western European standard rose sharply. Scania’s order bookings and deliveries of new vehicles increased. Economic growt is expected to remain strong in most of these countries during the next few years. In addition, the manufacturing sector is moving production at an ever faster pace from western Europe to central and eastern Europe, generating a rising demand for fast, flexible transport services. With a growing number of central European countries as members of the European Union, this trend will accelerate.

“In markets outside Europe, both order bookings and vehicle deliveries rose. Turkey evolved into an important market, and many countries in the Middle East showed strong volume growth. In east Asia, Scania’s growth continued in South Korea and Taiwan. During the year, we reinforced our presence in the Chinese market and we see that developments in China are important to economic growth in the region. In the Japanese market, Scania was the first non- Japanese make to receive type approval from the authorities for certain models, which means that we, together with Hino, can intensify our efforts in Japan. In Australia, Scania’s sales were at a high level.

“The economic situation stabilised in South America’s most important markets, Brazil and Argentina. The total market, as well as Scania’s order bookings and deliveries, rose. In our judgement, the economies in the region will show further positive growth during 2004. Scania is continuing to assign higher priority to profitability than to volume, while competitors with considerably simpler products have gained market share in the lighter portion of the heavy vehicle segment.

“Sales of bus chassis were the highest ever during 2003. In central and eastern Europe, Scania’s order bookings more than doubled. A gratifying trend, considering the restructuring of bus and coach operations that Scania has implemented in recent years. During 2003, Scania was awarded the ‘Coach of the Year 2004’ prize together with its long-time business partner Irizar in Spain. Excellent handling and fuel consumption were the basis for this honour. Scania Omni, producer of fully built buses for city and intercity service with the Nordic region as its largest market, achieved success in Great Britain and France with a broadened product range.

“Deliveries of industrial and marine engines remained at the same level. Cooperation with Japanese-based Yanmar is developing well, and series deliveries will begin during 2004. SCANIA YEAR-END REPORT – JANUARY − DECEMBER 2003 3

“Service sales remained good. In prior years, acquisitions of sales and service facilities have affected the pace of growth. Today Scania, under its own auspices, has a service network that provides full coverage of western Europe. Future growth in service operations will depend mainly on the trend of vehicle population and its degree of utilisation.

“Customer Finance developed positively. Margins increased somewhat and profitability remained good. Portfolio growth was stable and credit losses shrank.

“The restructuring of our production system continued during the year. The plant in Zwolle, the Netherlands, has been technologically upgraded for higher assembly volume. The restructuring of Scania’s European bus and coach operations is continuing and labour- intensive bus bodybuilding is being moved from Sweden to Poland. We are reviewing the operations of the subsidiary Ferruform in Luleå, Sweden, which manufactures axle housings and truck frames, to boost efficiency. Deliveries from Latin American production units to markets in Europe, Asia and Africa increased significantly during the year. Scania initiated an alliance with German-based MAN Nutzfahrzeuge for joint development and supply of certain types of axles and gearboxes.

“Our work to promote increased road safety continued during the year. In partnership with the European Commission and others, we organised the Young European Truck Driver safety competition in 20 European countries. In Brussels and elsewhere, we also organised safety seminars which attracted great interest.

“Market developments during the year were in line with my expectations, and Scania’s earnings remained strong. The economic situation in western Europe is expected to improve somewhat during 2004, but for the time being, we are planning for largely unchanged volume. However, we expect the result to be impacted by higher amortisation of research and development costs, and reduced benefits from currency hedging,” concludes Leif Östling, President and CEO.

Contact persons

Johan Haeggman
Corporate Relations
tel. +46-8 5538 0053,
mobile tel. +46-70 383 5200

Joanna Daugaard
Investor Relations
tel. +46-8 5538 3716,
mobile tel. +46-70 518 3716

Torbjörn Boije
Corporate Control
tel. +46-8 5538 2228,
mobile tel. +46-70 591 5016