VW’s Scania Says Fleet Replacements Sustain Europe Sales

Scania AB (SCVB), the Swedish truckmaker controlled by Volkswagen AG (VOW), said European demand isn’t showing “seasonal weakness” this quarter as vehicle replacements and orders in advance of stricter emissions rules sustain sales.

Scania is sticking to a worldwide target of delivering 120,000 trucks a year in 2020, and will safeguard profitability during the expansion, Henrik Henriksson, head of sales and marketing, said today at an investor conference at Scania headquarters in the Stockholm suburb of Soedertaelje.

“The European market will come back,” and Scania will work to increase market share in the region by adding models for industries such as mining and forestry to a lineup focused on long-haul freight vehicles, Henriksson said.

Scania is rolling out new trucks, including the new Streamline long-distance model range, as well as engines that meet tighter emissions standards in a bid bolster sales to counter recessions across Europe. The manufacturer is increasing production rates to ensure short delivery times after second-quarter orders rose 15 percent.

Industrywide registrations in Europe of commercial vehicles heavier than 16 metric tons, excluding buses and coaches, fell 11 percent in the first half of the year, with double-digit declines in all major markets apart from the U.K., the ACEA automotive trade group said on July 26. A recession in the 17-country euro area ended in the three months through June after a record six-quarter contraction.

Emissions Rules

New trucks sold starting in 2014 must meet tighter European Union emissions standards, dubbed Euro 6. During such rules changes, some customers order cheaper vehicles that are still available while the older regulations remain in place. Demand at Scania has been helped in part by the “pre-buying” effect, Chief Executive Officer Martin Lundstedt said at the conference.

Second-quarter orders at Scania rose to 22,564 trucks and buses from 19,586 vehicles a year earlier, while deliveries jumped 33 percent, the company said in July. Net income fell 6 percent to 1.37 billion kronor ($217 million), hurt by a strengthening Swedish currency and lower truck prices. Operating profit increased 5 percent to 2.04 billion kronor, while earnings as a proportion of sales narrowed to 8.9 percent of sales from 10.1 percent a year earlier.

Margin Target

The operating margin will return to previous highs of 14 percent and more, “but I don’t know when: It depends on the global economy,” Chief Financial Officer Jan Ytterberg said at the conference. Investment spending that holds back profitability has been necessary to prepare for volume expansion, Ytterberg said. “It is time to be a little more aggressive” and lay the foundation for future growth, he said.

Scania rose as much as 3.4 percent and was trading up 2.9 percent at 143.4 kronor as of 1 p.m. in Stockholm, reaching the highest since July 18, based on closing prices. The stock has gained 6.8 percent this year, valuing the truckmaker at 112.2 billion kronor.

Volkswagen, Europe’s biggest automaker, is forging a truck alliance between its Munich-based MAN SE (MAN) division and Scania to reap cost savings and take on global market leader Daimler AG. A domination and profit-transfer agreement giving VW full control of MAN took effect in July. VW promoted former Scania CEO Leif Oestling last year to run group truck operations and lead the efforts for joint projects.

Shareholders’ Stance

Scania said on Aug. 29 that an arms-length policy on cooperation with VW and MAN remains in place after a Swedish shareholders group called for an independent audit of the companies’ transactions.

The Swedish Shareholders’ Association, which represents individuals with small stakes in the country’s traded companies, called in August for an independent monitor to evaluate cooperation between the companies to ensure minority investors’ interests aren’t overlooked.

The group is seeking the support of investors controlling 10 percent of Scania stock to call a shareholders’ meeting to appoint the outside overseer.

Any work with VW and MAN, which may include projects on axles, gearboxes, hybrid technology and purchases, will need approval of Scania’s management board, Lundstedt reiterated today.

“Cooperation is developing in line with our internal plans,” Lundstedt said. “Projects like that are complex and they take time.”

VW owns 46 percent of Scania’s equity and 71 percent of the votes, while MAN holds 13 percent of the stock and 17 percent of the votes. VW’s stake in MAN exceeds 75 percent.

To contact the reporter on this story: Christoph Rauwald in Soedertaelje via crauwald@bloomberg.net

To contact the editor responsible for this story: Chad Thomas at cthomas16@bloomberg.net

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