Scania interim report January - March 2002

SCANIA INTERIM REPORT - JANUARY - MARCH 2002 [REMOVED GRAPHICS] "In western Europe the slowdown in demand flattened out, at least temporarily. Cost adjustments in European operations and action programmes in Latin America are continuing," says Leif Östling, President and CEO. FIRST QUARTER IN BRIEF Change First quarter in % Units USD 2002 2001 m.* Trucks and buses - Order bookings 12,735 12,569 1 - Deliveries 10,040 11,727 -14 Sales and earnings1 SEK m. unless otherwise stated Sales 1,208 12,487 12,405 1 Operating income 74 770 952 -19 Income after financial 54 564 819 -31 items Net income 37 383 573 -33 Operating margin, Scania Group, percent 6.2 7.7 Operating margin, Scania products2, percent 6.6 8.5 Return on equity, percent 5.4 20.2 Return on capital employed, excluding customer finance 7.9 18.6 operations, percent Earnings per share, SEK 0.19 1.92 2.87 Cash flow excluding 13 130 571 customer finance operations and acquisitions Number of employees, 31 28,619 28,770 March 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 10.3375 = USD 1.00. 1 Excluding capital gains on the divestment of Svenska Volkswagen AB and Din Bil AB. See page 5 for more information. 2 Trucks, buses, engines and service-related products. SCANIA, FIRST QUARTER OF 2002 - COMMENTS BY THE PRESIDENT AND CEO "The operating income of the Scania Group during the first quarter of 2002 was SEK 770 m. Operating income for Scania products totalled SEK 724 m. Truck deliveries declined by 13 percent in western Europe, while sales of service-related products in European operations rose by 9 percent. Earnings in customer finance operations continued to increase," Leif Östling notes. "Macroeconomic forecasts for western Europe have recently become more favourable, although a number of potential threats remain. The slowdown in demand for heavy trucks in western Europe recently appears to have flattened out, at a higher level than I had anticipated. It is still too early to predict whether this is a lasting trend. "Order bookings rose during the first quarter, and the pace of production will increase in European operations. Scania's market share rose during the quarter to 14.9 percent in western Europe. "Productivity improvements in the European production system are continuing, following the departure of about 1,200 persons from the company since the market turned downward late in 2000. Cab production is being concentrated at Oskarshamn, Sweden as the new topcoat paintshop and investments for higher production volume are placed in service. The co-ordination between buses and trucks will also lead to productivity improvements. These ventures will decrease the workforce by about another 600 persons. The measures will have a gradual effect during the latter part of the year. "Order bookings in bus operations increased. The co-ordination between trucks and buses in European operations is continuing as planned. "Volume declined in Latin America. In practice, the Argentinean market disappeared as a consequence of economic and political chaos. At the same time, our volume declined in Brazil mainly as a consequence of the price hikes we are implementing in order to bring truck prices to a world market level. The improvement in prices, along with the lowering of the cost level, has begun to have an effect. At the same time, exports of components from Latin America to the European production system will increase. "We sold our 50 percent holding in the Swedish importer operations of Svenska Volkswagen and the dealership chain Dil Bil to Volkswagen AG of Germany. On behalf of Scania's Board of Directors, ABN-Amro Bank reviewed both transactions and issued financial fairness opinions. The main reason behind these divestments is the increasingly rapid divergence in operations, with trucks as investment products and cars as consumer goods. As soon as the relevant authorities have approved these divestments, the item 'Car operations' will disappear from Scania Group financial statements. The overall capital gain on the divestments is estimated at around SEK 550 m. "The co-operation agreement we have now entered with the Japanese truck manufacturer Hino will give us the opportunity to get a foot into the Japanese market in a cost-effective way. In the long term, there is good development potential in the agreement, since Hino and Scania complement each other both in terms of product range and geographic presence. "In western Europe the slowdown in demand flattened out, at least temporarily. Cost adjustments in European operations and action programmes in Latin America are continuing," Mr Östling concludes. SCANIA INTERIM REPORT - JANUARY - MARCH 2002 THE MARKET In western Europe, the slowdown in demand flattened out during the first quarter. Measured as registrations, the total market for heavy trucks was about 52,400 (64,400) units. Scania's market share rose to 14.9 (14.5) percent. Order bookings rose by 5 percent to 8,254 (7,882) units. In central and eastern Europe, economic growth continued, which led to an increase in order bookings in these markets. In Latin America, order bookings declined by 60 percent compared to the same period of last year. In Argentina the decline was due to the political and economic crisis in the country. In Brazil it was mainly due to the sharp price hike Scania carried out at the turn of the year. Scania's market share in Brazil declined to 17.6 (29.1) percent. Order bookings for buses and coaches rose by 35 percent to 1,375 (1,015) units. In Europe, order bookings rose by 70 percent, while they declined by 5 percent in Latin America. Scania's sales of industrial and marine engines fell during the first quarter to 643 (760) units. SALES During the first quarter, the Scania Group's deliveries of trucks totalled 9,132 (10,893) units, which was a decline of 16 percent. Bus and coach deliveries totalled 908 (834) units, an increase of 9 percent. The Scania Group's sales rose by 1 percent to SEK 12,487 m. (12,405). Group sales were positively influenced by net currency rate effects of about SEK 500 m., including hedging. Sales of service-related products rose by 9 percent to SEK 2,681 m. (2,465). EARNINGS The Scania Group's operating income amounted to SEK 770 m. (952), equivalent to a margin of 6.2 (7.7) percent. The operating margin for Scania products amounted to 6.6 (8.5) percent. Capitalisation of research and development expenses positively affected the EBIT-margin with approximately 0.8 percentage points compared to last year. Operating income for European operations3 amounted to SEK 1,247 m. (1,520), excluding research and development expenses as well as corporate costs. Compared to last year, earnings were favourably influenced by: · Positive net currency rate effects, including hedging, of about SEK 350 m. · Somewhat higher average revenue per truck. Earnings were adversely influenced by: · Lower volume, including lower capacity utilisation. Production changeover expenses of about SEK 100 m. Operating income in Latin American operations amounted to SEK -58 m. (- 36). In practice, the market in Argentina disappeared due to economic and political chaos. In Brazil, volume fell mainly as a consequence of price hikes that Scania carried out in order to achieve a reasonable world market price. The price hikes carried out in Brazil, cost savings in both Brazil and Argentina plus an improved currency rate situation could not fully offset lower volume. Research and development expenses for the Group amounted to SEK 392 m. (485). Aside from the year's expense of SEK 392 m., SEK 105 m. was capitalised in compliance with Recommendation RR 15 of the Swedish Financial Accounting Standards Council. Earnings in customer finance operations rose to SEK 81 m. (70). The growth in the customer finance portfolio ceased due to lower vehicle sales in the first quarter, and the portfolio amounted to SEK 24,447 m. (22,761). European operations are the portion of Scania's operations that, in principle, supply 3all markets except Latin American ones with the company's products, services and financing. Operating income in car operations4 rose to SEK 46 m. (9) due to higher volume as well as somewhat improved margins. Scania and Volkswagen AG of Germany reached an agreement to the effect that Volkswagen will acquire Scania's fifty percent holding in Svenska Volkswagen AB plus the Swedish car distributor Din Bil AB. The purchase prices are SEK 870 m. and SEK 450 m., respectively, and are expected to result in capital gains of about SEK 250 m. and about SEK 300 m., respectively. These gains will be reported as soon as the relevant competition authority has granted its approval, minus the earnings reported during the first quarter. Net financial items totalled SEK -206 m. (-133). The reason for the lower net financial items is that last year's net financial items included an exchange gain on loans in local currencies in Latin America. The Scania Group's tax expenses were equivalent to 31.9 (30.1) percent of income after financial items. The increase was explained by changes in the geographic distribution of earnings. CASH FLOW Scania's cash flow, excluding customer finance operations and acquisitions, amounted to SEK 130 m. (571). Cash from operating activities amounted to SEK 960 m. Tied-up working capital rose by SEK 341 m., mainly due to an increase in inventories, which was partially offset by increased operating liabilities. Net investments excluding acquisitions/divestments of businesses totalled SEK -489 m. (-419), including capitalisation of SEK 105 m. of Scania Group's research and development expenses. Net investments through acquisitions/divestments of businesses amounted to SEK -129 m. (- 859). MISCELLANEOUS Number of employees The total number of employees at the close of the first quarter was 28,619, compared to 28,342 at year-end 2001. The net effect of acquisitions/divestments resulted in an increase of 271 persons. Changes in accounting principles Beginning with the first quarter of 2002, Scania is applying recommendation RR 15 of the Swedish Financial Accounting Standards Council, related to intangible assets. This means that a certain portion of Scania's Group-wide research and development expenditures will be recognised as assets and amortised over its estimated useful life. Södertälje, 22 April 2002 LEIF ÖSTLING President and CEO This Interim report has not been subjected to special review by the company's auditors. 4 Car operations include half the importer operations of the Svenska Volkswagen Group in Sweden; the wholly owned Swedish car dealership network Din Bil; and car dealership networks in Finland and Switzerland. Financial information from Scania Scania's Interim Report for January-June 2002 will be published on 19 July 2002. This report contains forward-looking statements that reflect management's current views with respect to certain future events and potential financial performance. Such forward-looking statements involve risks and uncertainties that could significantly alter potential results. These statements are based on certain assumptions, including assumptions related to general economic and financial conditions in the company's markets and the level of demand for the company's products. This report does not imply that the company has undertaken to revise these forward-looking statements, beyond what is required under the company's registration contract with Stockholmsbörsen (formerly the OM Stockholm Stock Exchange) if and when circumstances arise that will lead to changes compared to the date when these statements were provided. For further information, please contact: Magnus Hahn, Business Communications tel. +46-8 5538 3510, mobile tel. +46-70 551 7903 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 ------------------------------------------------------------ This information was brought to you by Waymaker http://www.waymaker.net The following files are available for download: http://www.waymaker.net/bitonline/2002/04/22/20020422BIT00680/wkr0001.doc The full report http://www.waymaker.net/bitonline/2002/04/22/20020422BIT00680/wkr0002.pdf The full report