Scania reported record sales last year of SEK 92bn (US$11.2bn), up 6% year-on-year, with earnings up 3% at SEK 8.721bn. The strong overall results were buoyed by an upturn in the European market, which more than compensated for continued weakness and uncertainty in Latin America.
Strong truck orders in Europe
Speaking to analysts following the publication of the Q4 and full year results, Scania President and Chief Executive Martin Lundstedt commented: “In Q4 we had a very strong improvement in Europe, partly explained by the pre-buy Euro-5.” While Scania’s truck deliveries in Europe fell 5% in Q4 to 10,915 units, order bookings jumped 84% to 10,851. “Europe for the time being feels stable and the order intake in the beginning January is in line with what we saw at the end of Q4,” he observed.
Chief Financial Officer Jan Ytterberg touched on the regional differences in market revival across Europe, noting: “There are different starting points. Markets in southern Europe are coming from very low levels, but there is still an improvement in countries like Spain.” In terms of market share, Ytterberg noted that in Central Europe Scania has “really seen our effort pay off… We have strengthened our position in Germany to a record +11%. We have also seen improvements in France, also above 11%. We are strengthening our position in Poland, which is very important, because the Polish market is growing more quick than other markets given the outsourcing from countries such as the Netherlands.” As for Northern Europe, he concedes that competition there has been tough, but that Scania still managed to increase market share.
Looking forward, Ytterberg believes all the factors are in place for Scania to dominate Europe, adding: “The question should be, how can we not have 100% market share?”
Challenges in Latin America
Latin America, on the other hand, saw a weakening trend during the course of the year due to lower economic activity in Brazil and Argentina, as well as uncertainty regarding the extension of subsidy programmes in Brazil, which left hauliers hesitant to make new investments. Overall Scania’s Q4 truck deliveries in the region fell 34% to 4,037 units, with bookings down 27% year-on-year to 3,070 units. While the Brazilian authorities have now announced a new subsidy programme, this version is less favourable compared to what was offered in 2014. In Argentina, subsidised financing has been extended for the first half of 2015.
“The main explanation is the economic activity in Latin America and mainly Brazil, but also the fact that we now have clarification of the PSI-BNDES conditions that are considerably less attractive to customers given much higher demand on financing from other sources and also increased interest rates,” Lundstedt told analysts.
He admitted that the region represented “a very tough situation for us, with Latin America, i.e. Brazil and Argentina, softening and there we have high-specified vehicles and high-priced vehicles and they are substituting that with other markets with lower margin.” Lundstedt described Scania’s view for the regional Q1 performance this year as “cautious”.
Buses slowed by Russian decline
Lundstedt described bus side of the business as “stable” as order bookings slipped to 7,192 units in Q4 2014 from 7,257 the year before, and deliveries dipped to 1,942 units from 1,991 units. Russia saw a big hit, “mainly explained by large order in 2013 for the Sochi Olympics.” Undeterred by political instability and currency fluctuations, Scania is working to expand its foothold in Russia and has been forging closer ties with long-time partner and Russian CV giant GAZ. At last year’s IAA Commercial Vehicle Show in Hannover, the two OEMs confirmed plans to extend their collaboration in the area of bus production and sales in Russia and export markets.
Scania’s recent struggles in Russia were “compensated by some improvements in Europe from a low-level, but that has improved now during the last two years, and high order bookings in Asia and Africa,” explained Lundstedt
Much attention at the moment is centring on the launch of electrification in the segment. “We will be early with hybrid solutions and stop-and-go applications,” he said. “During 2014, we launched Scania Citywide, featuring Scania’s own hybrid technology and that is a very important step going forward.”
Overall, Scania’s full year results for 2014 remained on par with most analyst predictions. “The results were in line with our expectations,” S&P analyst Per Karlsson told Automotive World. “Our assumptions for the full year 2014 included a low to mid-single digit percentage increase in revenues, indicating our view that the operating environment differs across regions. For example, there are declining market conditions in South America. As expected, the financial profile remains strong.”
Scania’s challenges this year will be faced without the contribution of Ytterberg. In January, Scania announced that he would be stepping down, though a specific departure date was not indicated. No explanation was provided, with Lundstedt issuing the following statement: “Jan Ytterberg has largely contributed to the positive development of Scania for many years under challenging conditions. I can only regret that he has now decided to leave the company. The colleagues at Scania and myself wish him all the best with his future challenges.”
S&P’s Karlsson observed that while “the CFO has been with the company a long time, I don’t expect any direct changes for the company.”
What will herald changes for the company moving forward is a closer relationship with MAN on gearbox technology, which promises a stronger product offering and significant synergies in the long term. This year’s global commercial vehicle market will also be impacted by the fall in oil prices. Ytterberg believes that “the lower energy prices will make the profitability in the sector a little bit better” by reducing fuel costs for buyers. “It is important for them also to have the muscles to replace to the vehicles,” he added.