Scania Value Q2 2013

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  • 1. FIGURES IN FOCUS: XXXXxxxxx xxx xx xxxx xxxx xxxxx xxx xxxx xxxxx xx. Finance. Effects of a weak economy and strong krona. > PAGES 6–7 Report. Stronger SEK pulled down margins. > PAGE 2 FIGURE IN FOCUS: 22%First half 2013 order bookings +22% compared to H1 2012. Interview. Harald Ludanek on Scania’s R&D work. > PAGE 3 0 4 8 12 16 20 % Operating margin -13 Q2 -11 Q2 -11 Q3 -11 Q4 -12 Q1 -12 Q2 -12 Q3 -12 Q4 -13 Q1 Xxxxx xxxx xxxxxxxx xx x xxxxxx xxxxx. > SID 4–5 Turkeyon the rise Booming economy boosts demand for transport services > PAGES 4–5 A MAGAZINE FOR SCANIA’S SHAREHOLDERS quarter 2 2013
  • 2. europe Order bookings 10,306 +26% Deliveries 8,047 +15% EURASIA Order bookings 2,074 -14% Deliveries 1,973 +14% LATIN AMERICA Order bookings 6,436 +38% Deliveries 7,325 +126% ASIA Order bookings 2,453 -27% Deliveries 2,581 -9% AFRICA AND OCEANIA Order bookings 1,295 +31% Deliveries 1,116 +16% H1 in brief: Deliveries rose by 19 percent to 37,980 vehicles net sales rose by 7 percent to SEK 42,139 m earnings per share decreased by 15 percent to SEK 3.47 first 6 months in figures Order bookings and deliveries by region, Q2 (number of vehicles) (SEK m. unless otherwise noted) 2013, 6 mo 2012, 6 mo Change in % Net sales, Scania Group 42,139 39,338 7 Operating income, Vehicles and Services 3,669 3,944 -7 Operating income, Financial Services 302 313 -4 Operating income 3,971 4,257 -7 Income before taxes 3,914 4,275 -8 Net income for the period 2,771 3,249 -15 Operating margin, % 9.4 10.8 Return on equity, % 18.0 23.1 Return on capital employed, Vehicles and Services, % 21.3 29.2 Earnings per share, SEK 3.47 4.06 -15 Cash flow, Vehicles and Services 744 1,769 -58 Number of employees, 30 June 40,116 37,802 Order bookings (units, trucks and buses) 43,351 35,395 22 Deliveries (units, trucks and buses) 37,980 32,032 19 2 SCANIA VALUE • Q2/2013 www.scania.com Net sales by product segment* Net sales Operating income and margin Key figures 0 5,000 10,000 15,000 20,000 25,000 0 500 1,000 1,500 2,000 2,500 3,000 3,500 0 4 8 12 16 20 2013 Q 2 2011 Q 22011 Q 32011 Q 42012 Q 12012 Q 22012 Q 32012Q 4 2011 Q 22011 Q 32011 Q 42012 Q 12012 Q 2 2013 Q 2 2012 Q 32012 Q 4 Trucks 64% Other 3% Used vehicles 5% Services 20% Engines 1% Buses and coaches 7% %SEK m. SEK m. 2013 Q 1 2013 Q 1 Operating income, SEK m. Operating margin, percent *Refers to first half of 2013
  • 3. Several paths towards lower emissions text: conny hetting, per-ola knutas photo: kjell olausson One of Scania’s challenges is to reduce carbon dioxide emissions from heavy haulage. Harald Lu- danek, Scania’s Head of R&D, points out that there are a number of possibilities. What is your background? “I spent 20years in research and development at theVolkswagen Group,where I became Head of Coordination ofVolkswagen’s global research centres. Forthe last fiveyears Iwas Head ofVehi- cle Development atVolkswagenAG. Myteam in the prototypeworkshop focused on projects such as theTouareg, Jetta and Beetle in Mexico; the Passat in the US and the sixth generation of the Golf.Aspecial projectwas the 1-litercarVW-XL1, which features a special lightweight construction and bodyusing carbon-fibre material.” In your first ten months at Scania, what has been your focus? “Throughout my career I have strived to look, listen and understand before I start to change and improve. One of the first things I did upon moving herewas to drive a Scania truck from Wolfsburg, Germany, to Södertälje, Sweden, to experience driving and living in a truck. In meetings and test drives with my new colleagues, I’ve learned about the truck busi- ness and I’ve also been able to give some advice about improvements. When I tried out as a truck test driver, I learned a lot, so I have a great respect for durability testing work.” How can the transport sector decrease its carbon dioxide emissions? “There is no single innovation for lower- ing carbon dioxide emissions, so Scania will continue to develop the different technologies we already have, such as biofuels, hybrid pow- ertrains and electrically powered vehicles that use electrical transmission through an overhead cable orvia induction through the roadway. “Other promising areas for more efficient transport services include development of increasingly computer-based vehicles; the connection between vehicle, driver, office and workshop; and the improvement of waste-heat recovery in the powertrain. “Since our customers arewilling to pay more for engines with better fuel efficiency and hence lower carbon dioxide emissions, this is entirely in linewith Scania’s business model.” Scania ranks among the world’s 100 most innovative companies. How will you main- tain and develop an innovation culture with- in the company? “To retain an innovation-friendlywork- ing atmosphere, it’s important to build on our strong values and qualities. Wewill continue to analyse problems and find solutions in an open way, while maintaining the high competence level among engineers and technicians at our Technical Centre in Södertälje. We also need to cooperate and share knowledge in order to remain successful, so wewill continue to col- laboratewith universities, research institutions, suppliers and customers. I also see great possi- bilities arising from Scania’s access to Volkswa- gen’s global development network.” INTERVIEW Harald Ludanek has been Scania’s Head of Research and Development since 2012. He has a positive view of the areas Scania is concentrating on in order to reduce carbon dioxide emissions. • SCANIA VALUE 3Q2/2013www.scania.com “We will continue to analyse problems and find solutions in an open way.” Harald Ludanek, Head of Research and Development
  • 4. 4 SCANIA VALUE • Q2/2013 www.scania.com In the legendary city of Istanbul with its 13.6 million inhabitants, cranes and skyscrapers are now reflected in thewaters of the Bospho- rus, next to 1,000-year-old minarets. Located where Europe meets Asia, Turkey serves as a springboard towards the Middle East, North Africa and Central Asia. From the Maslak busi- ness district in the European part of Istanbul, a growing number of domestic and international companies have a panoramic view of 1.5 billion customers in Europe, the Middle East and Asia. TheTurkish economy has displayed steady growth in recent years averaging 7 percent annually, and the country’s GDP level more than tripled during the period 2002-2011. There are ambitious plans for the future in a country that is increasingly called Europe’s China. “Robust economic growth is expected to con- tinue in Turkey, as both domestic demand and exports to Europe gain momentum. Ayoung and growing population, combined with eco- New attractive segments in expanding Turkey One of the world’s fastest grow- ing economies, Turkey aims to become Europe’s largest economy by 2050. Scania’s ambition is to broaden its operations in this market by strengthening relation- ships with domestic hauliers and by entering new segments. nomic growth and improvement in living stand- ards, makeTurkey an attractive countrywith great long-term potential,” says Annika Lind- blad, macroeconomic analyst at Nordea bank. Turkey is already an important market for Scania: during the record year 2011, it was Sca- nia’s seventh largest market with 2,900 sold vehicles (compared to 800 in 2009 and 1,700 in 2012). “Our ambition is to become the leading importer,” explains OscarJaern, country man- ager for Scania in Turkey. Help from local partners The total market for trucks in the heavy haul- age segment is about 30,000 annually and is comparable in size to France and Great Britain. The combined transport and logistics sector in Turkey tripled in value between 2002 and 2008, when it was estimated to beworth USD 59 bil- lion with a service market of a further USD 22 billion. The forecast for 2015 is USD 120 billion. Scania is currently receiving strong assistance from its distributor Doğuş Otomotiv, which operates 21 service points across Turkey and is a part of one of the country’s largest conglomer- ates: Doğuş Group. Doğuş is the leading premi- um player in thevehicle industry offering pas- senger cars from VW, Audi, Porsche and Škoda, among other companies, in its portfolio. “Doğuş is a qualified and experienced part- ner, which we entered into partnership with as early as 1994,” says Jaern, who is working on a number of quality improvements that will strengthen Scania’s market position. From having mainly acted as a supplier to international companies with a presence in Turkey, for some time Doğuş and Scania have aimed at strengthening relationships with domestic hauliers and new market segments. “This is an exciting challenge,” says Jaern. “Of course international customers often have clear specifications based on their operations. But domestic hauliers have highlyvaried needs and concentrate on solutions in which various types of cargo can be shared. One day the payload may be fruit and vegetables and the next day building materials.” Since establishing a presence in the country in 1945, Scania has sold 20,000 trucks inTurkey, ofwhich a large proportion are still on the road. Scania’s existing service networkmaintains high standards that are superiorto normal standards Focus: Turkey “Our ambition is to become the leading importer.” Oscar Jaern, country manager for Scania in Turkey
  • 5. • SCANIA VALUE 5Q2/2013 text: mattias andersson photos: alp esin, kjell olausson, istockphoto From left to right: Drivers Mustafa Saylar, Metin İşcan and Şener Çağlayan from Çalışkan Lojistik. They transport building chemicals and raw materials in Turkey, Georgia, France, Albania and Kosovo. Strong partner Doğuş Otomotiv represents Scania in Turkey and is the country’s leading distributor of imported cars and trucks, with a large network for sales, service and financing solutions. This automotive business is part of Doğuş Group, founded in 1951 and today one of Turkey’s largest companies with over 30,000 employees. The Group also has operations in bank- ing and finance, media, construction, energy and tourism. Population: 75 million GDP per capita (2011): USD 11,840 (pur- chasing power parity, PPP: USD 15,910) Main export markets: Germany, France, the UK, Italy, Iraq Import countries: Russia, Germany, China, the US, Italy, France Transport services: Road transport services are the dominant means of transport, accounting for 95 percent of passenger services and 90 percent of goods haulage. Market for heavy trucks: About 30,000 vehicles/year. Sources: IMF, TurkStat and the Investment Support and Promotion Agency of Turkey. Turkey and the truck market One of Scania’s custom- ers in Turkey is Çalışkan Taşımacılık Otomotiv ve Sanayi Ticaret A.Ş., which has operated in the transport business since 1998. Today the company has 70 trucks, all from Scania, and provides both international and domestic haulage of building chemicals as well as logistics solu- tions. The company’s goal is to become the largest player in Turkey in its industry. “I appreciate the fact that Scania helps us to keep down the company’s costs through fuel savings, among other things,” says Muzaffer Uğurlu, the haulage com- pany’s owner. Aims to become the largest in the industry in the region, offering good prospects forfurther growth.The next item on the agenda forJaern and his colleagues is to concentrate on the parts mar- ket,where Scania has a comparativelylowmarket sharetoday. Anotherimportant piecein thejigsaw puzzle is Scania’s own finance company– Scania Tüketici Finansmanı (STF). Strong performance in sight “Theview ofTurkey from a European hori- zon can sometimes be a little prejudiced, but for instance some parts of the banking sector today are more modern and stable than in many other European countries,”Jaern says, mentioning the simplicity and transparency of credit reports as an example. He spends a lot of his working time in Tur- key and is very optimistic about the future: “Ifwe continue to focus on having satisfied customers I expect averystrong performance.” Muzaffer Uğurlu www.scania.com
  • 6. 6 SCANIA VALUE • Q2/2013 www.scania.com The importance of the krona rate for Swed- ish export industry is not a new phenomenon. Ever since the krona was floated in 1992, hav- ing been previously tied to other currencies, we have seen very large fluctuations in exchange rates. Normally, weak economic conditions have meant a flight to the dollar and euro while the Swedish krona weakened. However, dur- ing the current downturn, centred around the euro crisis, this long-standing connection has not applied; now the krona has remained strong while the economy has weakened. For Scania, this means that the company must handleweaker demand in Europe, increased production costs in Sweden and lower revenue from international sales when converted into kronor. “Scania has coped somewhat worse than its competitors since a large share of its produc- tion takes place in Sweden, but the effect of the FINANCE: CURRENCY RATE EFFECTS stronger krona could have been even greater,” says Kenneth Toll Johansson, analyst at Carne- gie, an investment bank. The company has been very successful in steering its purchasing costs towards euros in order to match sales. For the past couple ofyears, Scania has cho- sen not to hedge coming fluctuations via futures contracts and derivatives. After the 2009 finan- cial crisis, the company devoted a lot of energy to ensuring stable and short lead-times from order to delivery in order to boost flexibility. Shorter exposure between order and delivery also reduced the need to hedge currency flows. Scania’s ambition is to have a holistic view of all orders, so that component purchases are steered to the right production unit as far as possible in order to match sales. Open currency exposure This means that Scania now has totally open currency exposures, of which the largest are in Brazilian reais, US dollars, Russian roubles, British pounds and Norwegian kroner. Thevery weak market in southern Europe in recent years has meant that the effect of the euro rate has become less significant. During the first half of 2013, the negative currency rate effect on Scania’s operating incomewas approximately SEK 1 billion. Krona and economic cycle a challenge for Scania “As we know, currency rate changes in rela- tion to the Swedish krona have an impact in both directions,” says Toll Johansson. “Of coursewhen the krona was weak in 2010, Scania reported very good profits. Working activelywith hedging via futures contracts and derivatives only delays the effect of currency fluctuations.” Hampus Engellau, analyst at Handelsbanken, says that Scania’s greatest problem historically when it comes to currency exposure has been related to the Brazilian market and fluctuations in the real. Although Scania has large domestic production in Brazil, due to high deliveries in that country a large part of negative currency rate effects in the first half of 2013 are attribut- able to a weaker real. Alternative suppliers “Another problem is rigidity in supplier prices, where many only change their price lists twice a year, regardless of the market trend,” says Engellau. Unlike many other truck manufac- turers, which often just have one component supplier, Scania always has at least two. This means that the company can be more proactive about buying from the right suppliers from an exchange rate perspective. Both analysts agree that the trend towards a stronger krona that is adversely impacting Sca- nia’s earnings will persist in the near term – as long as the debt crisis in Europe and the slow recovery in the US economy continues. “Thebig challengeforScania aheadwill beto balancetwo economies: Europe,wheredemand isweak,versus Brazil,wherethemarket is over- heated. It’s a matterof managing thestrong order bookings in Brazil and producing a sufficient numberof trucks,whilekeeping costs in checkand being ableto generateprofits,”says Engellau. Export companies in Sweden are being challenged by an unusual combination of a weak economy, particularly in Europe, and a strengthening Swedish krona. But the negative effect on Scania could have been even greater, say analysts. “The company has been very successful in steering its purchasing costs towards euros to match sales.” Kenneth Toll Johansson, analyst at Carnegie.
  • 7. Frederik Ljungdahl “Matching of individual currencies, active choices of invoicing currency and no hedging. This is a summary of how Scania’s currency strategy looks today, says Frederik Ljungdahl, Head of Scania Group Treasury. The basic philosophy for managing the effects of the Swedish krona exchange rate on Sca- nia’s earnings is to match sales flows with production costs in each indi- vidual currency. Both Scania’s truck sales and purchasing of production materials occur on a continuous basis. By reducing the net flow in each individual currency, the currency rate effect on the final margin will decrease. “Scania’s sales of products to its own sub- sidiaries are made in the subsidiaries’ own currency. This means that the currency risk arising in the sales chain is centralised to Group Treasury, while subsidiaries don’t need to manage currency risk but can concentrate on their core business. Centralised currency risk “Combined with centralised purchasing of components for production units, this means that Group Treasury can easily monitor Scania’s net exposure in a given currency. By actively working with net exposure, purchas- ing can be carried out centrally in another currency whenever possible in order reduce the net exposure in a given currency,” says Ljungdahl. “By analysing Scania’s currency mix, a new invoicing currency can be introduced where possible, so that the overall basket of cur- rencies will be more stable in relation to the krona trend,” he continues. “Historically, the Swedish krona has dis- played stronger movements against certain currencies, while weakening against others. We can reduce this impact by actively choosing what currency Scania will invoice in, in those markets where such an option is offered,” Ljungdahl concludes. • SCANIA VALUE 7Q2/2013 text: susanna hjertonsson photos: istockphoto, kjell olausson Scania chooses invoicing currency 150 149 130 120 110 100 0+ 0 Q32008 Q12009 Q32009 Q12010 Q32010 Q12011 Q32011 Q12012 Q32012 Q42008 Q22009 Q42009 Q22010 Q42010 Q22011 Q42011 Q22012 Q42012 Q12013 Source: The Riksbank Swedish krona trend The TCW index stands for Total Competitive- ness Weights and is calculated by the Interna- tional Monetary Fund, IMF. The TCW index is a weighted average of several different currencies that measures the value of the Swedish cur- rency against a basket of other currencies. A currency’s weight is based on Sweden’s volume of trade with the country in relation to the other countries. The index shows that the Swedish krona has strengthened significantly in relation to the TCW since 2009. But if you take a long- term view, the Swedish krona is not exception- ally strong. A low index value means that the krona’s value has strengthened – the basket of currencies has become cheaper to buy with Swedish kronor. TCW index Based on 2012 revenue and expenses in foreign currencies, a one percentage point change in the value of the Swed- ish krona against other currencies, excluding currency hedges, would have an impact on Scania’s operating income of about SEK 281 m. on an annual basis. Scania’s currency risk www.scania.com
  • 8. ADAC Postbus will connect 30 large German cities using new Scania coaches. UPCOMING EVENTS 19 September 2013 Capital Markets Day 23 October 2013 Interim Report January-September 2013 29 January 2014 Year-end Report 2013 IN BRIEF editor: cecilia vinell photos: scania, fredrik persson, peggy bergman Coaches for new German bus routes Experts in lower carbon dioxide emissions Anders Gustavsson, Managing Director of Scania’s Transport Laboratory. Along with 19 otherlarge Swedish companies, Scania participated in a roundtable discussion to drawup concrete measures forsustainable global development.The discussion was organised by Sida, the Swedish International Development CooperationAgency.The purpose of the roundta- blewas to pinpoint areas in which Swedish busi- ness can collaborate to develop effective solutions forsustainable development and build partner- ships between business and the public sector. “At Scania, we are convinced that a strong sus- The Swedish government has set a goal of creat- ing a sustainable and resource-efficient energy system without net greenhouse gas emissions by 2050. This is far more ambitious than the EU target for the transport sector. Scania is represented in several expert groups that will contribute to the government inquiry. “We’re focusing on energy efficient transport services: howwe can utilise energy betterin the existing structure, here and now.We’re not con- cerned with types of energy but ratherhowwe can transport goods and people in the most effi- cient manner,”says Anders Gustavsson, Manag- ing Directorof Scania’sTransport Laboratory. Sustainable development discussion ADAC Postbus is starting intercity coach ser- vices in Germany and has selected Scania as its supplier of coaches and service-related prod- ucts. The new bus companywill be jointly oper- ated by Deutsche Post and the large German automobile organisation ADAC. By spring 2014, ADAC Postbus will connect 30 of the largest German cities using 63 Scania coaches. The new intercity coach servicewill be gradually expanded to cover the entire country. “Scania’s unique modular system enables us to deliver several attractivevehicle specifica- tions and gives us the flexibility to meet cus- tomer demands,” says Frank Koschatzky, Sales Director, Scania Deutschland Österreich. tainabilityfocus will help create growth forcom- panies in existing markets as well as newones, and we believe that partnerships are crucial in this,” says Martin Lundstedt, Scania’s President and CEO. “One example of howwe integrate sustain- abilityinto ourbusiness model is Ecolution by Scania, a service concept that optimises fuel effi- ciencyand minimises carbon dioxide emissions forourcustomers.Anotherexample is Bus Rapid Transit, (BRT) a solution forsustainable mobility in urbanised areas.” Scania’s President and CEO Martin Lundstedt at the Sida roundtable discussion. Scania Value is published by Scania and targeted to Scania shareholders. Publisher Per Hillström, ir@scania.com Editor-in-Chief anneli.volden@scania.com Project Manager per-ola.knutas@appelberg.com Art Director karin.soderlind@appelberg.com Production Appelberg Publishing Group www.appelberg.com Printing: Trosa Tryckeri Cover photo: Göran Wink Contact Scania Investor Relations SE-151 87 Södertälje, Sweden Tel: +46 8 553 81 000 E-mail: ir@scania.com Would you like to subscribe? For a free subscription, visit www.scania.com/scaniavalue