Scania interim report - january- march 2001

SCANIA INTERIM REPORT - JANUARY- MARCH 2001 "Operating income for Scania products was SEK 943 m., a decrease of 10 percent. The slowdown in western European demand that I predicted earlier has intensified. Scania has initiated a cost adjustment in its European operations and the efficiency-raising programme in Latin America is continuing," says Leif Östling, President and CEO. FIRST QUARTER IN BRIEF Q1 Q1 Q1 Units 2001 2001 2000 % USD m.* Trucks and buses - Order bookings 12,577 14,214 -12 - Deliveries 11,727 13,006 -10 Sales and earnings1 SEK m. unless otherwise stated Sales 1,194 12,405 12,050 3 Operating income 92 952 1,105 -14 Operating margin, Scania Group, percent 7.7 9.2 Operating margin, Scania products, percent 8.5 10.1 Income after financial 79 819 955 -14 items Net income 55 573 661 -13 Return on equity, percent 20.2 23.4 Return on capital employed, 18.6 20.1 percent Earning per share, SEK 0.28 2.87 3.31 Cash flows before 55 571 481 acquisitions Number of shares: 200 million Unless otherwise stated, all comparisons in brackets refer to the same period of last year. This report is also available at www.scania.com *Translated solely for the convenience of the reader at a closing exchange rate of SEK 10.3875= USD 1.00. 1Beginning with the first quarter of 2001, the Scania Group is applying the new recommendation RR 11 of the Swedish Financial Accounting Standards Council on revenue recognition. See page 6. SCANIA, FIRST QUARTER OF 2001 - COMMENTS BY THE PRESIDENT AND CEO "The Scania Group's operating income for the first quarter of 2001 was SEK 952 m. Operating income for Scania products - excluding passenger car operations - was SEK 943 m., a decrease of 10 percent compared to the same period of 2000. Currency rate effects, inclusive of hedging activities, had a positive effect of around SEK 150 m. in European operations. Truck deliveries decreased by 17 percent in western Europe, while sales of service-related products increased by 18 percent. Volume growth continued in customer finance operations. Passenger car operations, mainly in the form of Volkswagen products, showed weak operating income of SEK 9 m., or SEK 47 m. worse than the corresponding quarter of last year," Mr Östling notes. "The slowdown in western European demand that I predicted earlier has recently intensified even more. In the past month, macroeconomic forecasts for western Europe have been revised downward substantially, and uncertainty has increased significantly concerning growth during the second half of this year. Transport volume is directly related to economic developments. This means that, generally speaking, activity in the transport industry has entered a calmer phase. "The rapid growth of recent years in the western European heavy truck market ended during the second half of 2000. Throughout this expansive period, Scania was able to maintain constant delivery times, around three months, thanks to the flexibility we have built into our production system. As a result, the decrease in order bookings affected us quickly, since the orderbook has been short. The pace of deliveries has therefore fallen. In various markets this has led to a decrease in our market share. Scania's market share fell to 14.5 percent in western Europe. Several of our competitors have had longer orderbooks, which are now being delivered. Smaller haulage firms, traditionally Scania's largest customer category, are quickly affected by a transport market slowdown and then postpone their capital spending. In contrast, larger transport companies see opportunities to make purchases on favourable terms in a depressed new-truck market. We have abstained from some of these transactions, since we felt that the price levels could not be justified. "In central and eastern Europe, order bookings rose by 32 percent and in Asia by 31 percent. "As early as October last year, we made a decision to begin adjusting the staffing in our European production organisation to a clearly lower demand level. By year-end 2001, the number of production employees will be about 1,200 lower. We are accomplishing this mainly by not renewing time-limited employment contracts. We have also begun a review of the number of employees in other staff categories, in order to adjust staffing levels there as well. These measures will yield a gradual effect during the year. "During January, the shareholders of Beers accepted the offer that Scania had made for the remaining 50 percent of the shares in Beers NV, which has been our distributor in the Netherlands for more than 50 years. Now that Beers is wholly owned by Scania, we will begin a restructuring of our Continental European sales and service organisation in order to make it more efficient and provide even better service to our customers. "The trend of earnings in Latin America during the first quarter is a disappointment. The need to continue streamlining of operations is clear, above all by further nationalising a portion of component purchases. A number of external factors have also affected the trend of earnings. The political crisis in Argentina has had economic repercussions in Brazil as well, where the currency depreciated by more than 10 percent during the first quarter. As a result, the price level in Brazil, measured in US dollars, is clearly too low. We are therefore now gradually adjusting our prices upward. Early this year, Scania acquired portions of the Battistella Group, its largest distributor chain in Brazil. "Order bookings in bus and coach operations were largely unchanged. A cost adjustment programme is also underway in bus and coach operations. It covers both products and production systems, and the aim is to achieve the same operating margin for buses as for trucks. "Industrial and marine engine operations developed favourably. "The 16-litre V8 engine introduced last year is now in full production and the feedback from our customers is very positive. During January we introduced a 470 horsepower turbocompound version of our six-cylinder 12- litre engine. We will gradually be able to produce it in larger quantities during the year. With these engines, we have greatly strengthened our competitiveness in our upper segment, the most prestigious and profitable. Passenger car operations showed a clear decline in operating income. The main reason for this was sharply lower car sales in Sweden. The market is expected to decrease by 10 to 15 percent compared to last year. "It was not possible to fully offset the effects of shrinking demand for heavy trucks in western Europe with volume increases in other markets, higher local-currency revenue per vehicle sold and a weaker Swedish krona. Scania has initiated a cost adjustment in its European operations and the efficiency-raising programme in Latin America is continuing. However, we expect lower earnings this year compared to last year." Mr Östling concludes. ------------------------------------------------------------ This information was brought to you by BIT http://www.bit.se The following files are available for download: http://www.bit.se/bitonline/2001/04/26/20010426BIT00410/bit0002.doc The full report http://www.bit.se/bitonline/2001/04/26/20010426BIT00410/bit0002.pdf The full report