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Scania Year-end Report January-December 2006

Summary

  • Scania reports record volume, earnings and cash flow in 2006
  • Costs of about SEK 350 m. related to concentration of production and MAN’s offer for Scania, of which about SEK 250 m. in the fourth quarter, were charged to operating income
  • Order bookings showed accelerating growth during the fourth quarter, +44 percent
  • From the end of the first quarter of 2007, the production rate will be raised to an annual rate of 80,000 vehicles, up 25 percent compared to the first quarter of 2006
  • Scania expects demand for heavy trucks to remain strong in Europe throughout 2007

2006 IN BRIEF Full year Change Q4 Units 2006 2005 in % 2006 2005 Trucks and bus chassis – Order bookings 74,898 62,588 20 25,417 17,597 – Deliveries 65,281 58,383 12 18,498 17,134
Net sales and earnings SEK m. (unless otherwise stated) EUR m.*
Net sales, Scania Group 7,816 70,738 63,328 12 19,007 18,286
Operating income, Vehicles and Service 913 8,260 6,330 30 2,470 2,025 Operating income, Customer Finance 54 493 529 -7 119 132 Operating income 967 8,753 6,859 28 2,589 2,157
Income before taxes 948 8,583 6,765 27 2,578 2,170 · Net income 656 5,939 4,665 27 1,824 1,524 Operating margin, percent 12.4 10.8 13.6 11.8 Return on equity, percent 24.1 20.8 Return on capital employed, Vehicles and Service, percent 30.4 27.9 · Earnings per share, SEK 29.70 23.33 27 9.12 7.62 Cash flow, Vehicles and Service 767 6,942 3,865 1,612 1,733 Number of employees, 31 December 32,820 30,765
Number of shares: 200 million

* Translated to euros solely for the convenience of the reader at a balance sheet exchange rate of SEK 9.05 = EUR 1.00.

This report has not been subjected to review by the company’s auditors. Unless otherwise stated, all comparisons refer to the corresponding period of the previous year.

 

SCANIA, FULL YEAR 2006 – COMMENTS BY THE PRESIDENT AND CEO

Scania set new records in 2006, with vigorous growth in volume, earnings and cash flow. Operating income increased by 28 percent to SEK 8,753 m., resulting in an operating margin of 12.4 percent. Operating income included restructuring costs of about SEK 150 m. in conjunction with the ongoing concentration of production as well as costs of about SEK 200 m. related to MAN’s offer for Scania.

Order bookings increased by 20 percent. In the fourth quarter, growth accelerated with an increase of
44 percent. Order bookings in January remain at the same high level as in the fourth quarter. During 2006, deliveries rose by 12 percent to 65,281 vehicles. Increased transport needs and a shortage of transport capacity are leading to higher demand for vehicles and services in nearly all markets where Scania operates. Scania is well positioned for future growth. In the coming years, we expect sales to increase by about 10 percent annually, with a sustained operating margin of 12-15 percent.

In Scania’s largest market, Europe, order bookings for heavy trucks were strong during the first half of 2006 in the run-up to the environmental regulations that entered into force in the European Union during the autumn. However, the pre-buy effect was less than expected. The increase in order bookings accelerated during the fourth quarter, partly driven by customer preferences for EGR technology.
We expect demand for heavy trucks to remain strong in Europe throughout 2007.

Sizeable investments in infrastructure in the new EU member countries and strong growth in the Russian economy are contributing to rising transport demand. Investment levels are expected to remain high for several years ahead and will generate a high demand for transport capacity.

Most other markets also showed a strong trend during 2006. Demand for heavy trucks improved in
Latin America and Asia, while Africa was stable.

Currently incoming orders will be delivered to customers during the third quarter of 2007. Body builders also have long lead times. In order to meet the strong demand, Scania’s production will be raised in March/April to an annual rate of 80,000 vehicles. This is equivalent to a 25 percent increase in the production rate compared to the first quarter of 2006 and means that we will be running at very high capacity utilisation. We are now intensively studying how to remove bottlenecks in production and are investing in further capacity increases to gradually reach 100,000 vehicles. This will be done with limited investments, totalling about SEK 2,000 m. over a period of three years.

The concentration of our axle and gearbox production is proceeding as planned, and to date some 400 replacement jobs have been secured outside Scania. Efforts are under way in Scania’s sales and service operations to increase capacity and take advantage of economies of scale in this area. Together these efforts will yield efficiency gains of more than SEK 800 m. per year from 2009.

During 2007 Scania will introduce new Euro 5 engines with unchanged fuel consumption. In these engines, Scania uses exhaust gas recirculation (EGR) without any aftertreatment. With further modifications, these engines will meet the next European environmental standard, Euro 6. Scania is maintaining its world-leading position in the development of heavy diesel engines, and the strategic alliance with Cummins plays an important role in this achievement.

Our collaboration with Hino is deepening, and Scania will begin to distribute Hino’s medium-duty trucks in South Korea during the first half of 2007, as one step towards future expansion in Asia. Scania’s cooperation with Larsen & Toubro in India is progressing well.

On 18 September 2006, MAN AG presented a hostile bid for Scania. On 23 January 2007 MAN announced that the bid will be withdrawn. The decision was welcomed by Scania and its largest shareholders Volkswagen and Investor. Proposals regarding the regular dividend and capital restructuring will be presented after the next regular Board meeting on 8 February.