Strong growth outlook Leif Östling, President and CEO 1
Disclaimer 2 This presentation 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 presentation 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 the Stockholm Stock Exchange, if and when circumstances arise that will lead to changes compared to the date when these statements were issued.
Agenda 3 Market environment Scania s position Future outlook
Western European market 4 Strong economic growth driving demand Impact of integrated Europe Increased freight due to higher consumption of Western European goods in CEE Shortage of transport capacity Vehicle volume units 400,000 300,000 1995-2005 CAGR (1) of 3.8% 200,000 100,000-73 -76-79 -82-85 -88-91 -94-97 -00-03 -05 Note: (1) Compounded annual growth rate
Central and Eastern European market 5 Rapid economic growth Investments in infrastructure Western consumption patterns Increased freight due to relocation of production Local competition has disappeared 40,000 30,000 20,000 10,000-88 Vehicle volume units 1996-2005 CAGR (1) of 18% -89-90 -91-92 -93-94 -95-96 -97-98 -99-00 -01-02 -03-04 -05 Note: (1) Compounded annual growth rate
Russian and Ukrainian markets 6 Rapid economic growth Investments in infrastructure Western consumption patterns Growing global demand for base elements Local competition disappearing 7,000 6,000 5,000 4,000 3,000 2,000 1,000 Vehicle volume units 2001-2005 CAGR (1) of 29% -92-93 -94-95 -96-97 -98-99 -00-01 -02-03 -04-05 Note: (1) Compounded annual growth rate
High potential in emerging markets Penetration of global truck brands 7 Russia ~ 7% India ~ 2% China ~ 2% Source: The Russian Automotive Industry, heavy commercial vehicles
World market potential next decade Heavy trucks 8 North America 300,000 290,000 Latin America 75,000 80,000 Africa 20,000 17,000 Europe 385,000 285,000 North East Asia 400,000 280,000 Middle East and India 200,000 160,000 South East Asia 30,000 20,000 Next decade 2005 actual Australia 10,000 10,000
World market potential next decade Heavy buses and coaches 9 North America 8,000 6,500 Latin America 27,000 28,000 Africa 4,000 3,500 Europe 33,000 30,000 Middle East and India 80,000 40,000 North East Asia 60,000 50,000 South East Asia 4,000 3,000 Next decade 2005 actual Australia 1,000 900
Scania positioned for growth 10 Significant volume upside Well positioned in key growth markets Improving position in distribution and construction No North American exposure Strong and captive sales & service network Customer finance well placed for further expansion Further capacity within existing production structure
Capacity to support growth 11 Scania vehicle production capacity 150,000 130,000 100,000 65,000 70,000 75,000 90,000 100,000 50,000 0 2005 2006 2007 2008 2009/10 "Stretched" Base capacity of 100,000 units with limited additional capex Stretched capacity of 130,000 units with some additional capex Productivity improvements of 6-8% (1) per annum set to continue Scania will benefit from volume upside and continued productivity improvements with limited additional capex Note: (1) Based on average year-on-year 1995 2006 (YTD)
12 Track record of productivity improvement 10.0 6.0 5.0 4.0 Vehicles per employee Vehicle volume Personnel Production and Procurement, direct and indirect 3.6 4.9 55,600 6.1 65,000 Forecast 100,000 10.0 Target 3.0 2.0 2.5 31,800 46,400 1.0 12,700 12,800 11,300 10,600 10,000 0 1990 1995 2000 2006
Flexible production cost structure 13 Valueadded 30% Sourced material and components 70% More flexible cost structure over the past 10 years Further improvements in progress Significant operational leverage
Improved production structure Ongoing projects 14 Falun Södertälje Sibbhult Opglabbeek Over SEK 300 m. in annual cost savings: starting 2007, full effect from 2009 Rationalisation From 3 plants to 1 From 2 logistics centres to 1 Less overhead Outsourcing From 1,800 to 1,000 employees within axles and gearboxes
R&D and technology 15 Scania well prepared for future legislation: Technology already in place for Euro 6 Cross functional working methods Joint development with Cummins and Hino: Leveraged know-how of two companies Knowledge and best practice Cost sharing Ahead of competition
Sales & service opportunities 16 Scania s network Significant revenue potential Substantial increase in rolling fleet (800,000 by 2010) Broader service offering More efficient parts sales Over SEK 500 m. in annual cost savings in captive network: IS/IT systems Purchasing Centralised back office Shared marketing Starting in 2006, full effect in 2009 Good potential in captive service network Captive dealers Non-captive dealers
Best in class EBIT margin vs peers 17 Percent 14 12 10 8 6 4 2 0 Volvo Paccar Scania MAN DC -2 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 Q2
Long term financial performance 18 1970s 1980s 1990s 2000-2006 Yearly sales growth (%) 19,7 10,4 10,0 7,6 Yearly EBIT growth (%) 23,2 7,5 6,7 10,0 EBIT (%) 13,7 15,5 10,6 9,7 Yearly inflation (%) 9,3 7,6 2,3 1,5 Adjusted EBIT (%) (1) 4,4 7,9 8,3 8,2 Yearly growth of earnings per share (%) -1,3 (2) 10,6 Yearly growth in R&D (%) 10,1 9,2 R&D average (%) 4,0 4,0 Note: (1) Adjusted for inflation (2) 1996 to 2000
Future outlook 19 2002-2005 Outlook 2007-2009 Revenue, % growth per annum (1) 10.2 ~ 10 EBIT margin, % of revenues 10.6 12-15 Capex (incl. R&D (2) ), % of revenues 9.0 8-9 R&D (2), % of revenues 4.1 < 4 EPS, % growth per annum (1) 17.0 > 17 Note: (1) Compounded annual growth rate over the period (2) Total R&D expenditures (capitalised and expensed)
MAN s offer substantially undervalues Scania 20 The earnings outlook for Scania standalone is significantly above current market consensus MAN s announced synergies materially underestimate the true synergy potential of a combination The Board of Scania has rejected MAN s offers
21 To Scania, consolidation is an opportunity, not a necessity
Integration opportunities 22 Economies of scale Sourcing One management. Cooperation on non-differentiating parts. Purchasing power. R&D Cooperation on non-differentiating parts. Appx. 30% common projects. Sales & Services Common administration and back office. Cooperation on parts distribution. Strengthened service network with broader offer. Customer Finance One management. Common administration and systems. Administration and IS/IT Common head office, systems and joint projects.
Integration opportunities 23 Economies of skills R&D Sharing of know-how, i.e. XPI. Production Transfer of best practice. Productivity 6.0 vehicles a year/employee 30% productivity gap. Customer Finance Systems and practice. Improved market-share and risk differentiation. Sales & Services Integrated service offer, parts logistics, road side assistance, Improved customer offer rental vehicles, Improved customer offer vehicle range.
Integration risks 24 Loss of market-share Failure to safeguard brand differentiation Short term increased funding costs Failure to integrate cultures Internal focus on costs instead of focus on customer value
Market shares truck registrations Volvo-Renault in France Percent 60 50 Volvo + Renault 40 Renault 30 20 Volvo 10 0 25 1973 1975 1977 1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005
Market shares truck registrations Volvo-Renault in Spain Percent 45 40 35 Volvo + Renault 30 25 20 Renault 15 10 Volvo 5 0 26 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005
Market shares truck registrations MAN-ERF in UK Percent 25 20 ERF + MAN 15 10 ERF 5 MAN 0 27 1973 1974 1975 1976 1977 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005
Market shares truck registrations DAF/Leyland in UK Percent 40 35 30 25 20 15 DAF + Leyland 10 5 0 28 1973 1975 1977 1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005
Market shares truck registrations MAN-Steyr in AT Percent 60 50 MAN + Steyer 40 30 MAN 20 10 Steyer 0 29 1973 1974 1975 1976 1977 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005
Market shares truck registrations Iveco-Pegaso in Spain Percent 60 50 40 30 20 Iveco-Pegaso 10 Iveco Pegaso 0 30 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006
Conclusions 31 Scania has a positive standalone outlook There is an industrial rationale for consolidation Maximising value requires constructive environment Scania is focused on shareholder value creation To Scania, consolidation is an opportunity, not a necessity
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