Scania reports record earnings and cash flow for the third quarter
· Deliveries will total about 65,000 vehicles during 2006
· Operating income 2006 will substantially exceed SEK 8,000 m.
· The production rate will be further increased from the first quarter of 2007
· Board of Directors rejects MAN’s offer
· Board of Directors will come back with proposal on capital structure
Scania’s revenue rose by 15 percent to SEK 51,731 m. in the first nine months of 2006. Operating income increased by 31 percent to SEK 6,164 m., resulting in an operating margin of 11.9 percent. Net income strengthened by 31
percent to SEK 4,115 m., equivalent to earnings per share of SEK 20.58 (15.71). The cash flow for Vehicles and Service amounted to SEK 5,330 m. (2,132). Vehicle order bookings rose by 10 percent, while deliveries increased by 13 percent. Service and Customer Finance operations showed a continued good trend.
In the third quarter, Scania reported record earnings and cash flow. Earnings were favourably affected by substantially higher volume and increased capacity utilisation. The cash flow is an effect of strong earnings development and
continued focus on working capital. The lag in deliveries of about 1,000 vehicles that existed at the end of the second quarter has now been delivered.
Order bookings for trucks rose by 12 percent during the first nine months of 2006. In western Europe, order bookings were 2 percent higher. Demand in central and eastern Europe increased by 76 percent. Most countries in the region noted a continued increase in order bookings, with an especially strong upturn in Russia and Poland.

Order bookings for trucks rose by 12 percent during the first nine months of 2006. In western Europe, order bookings were 2 percent higher. Demand in central and eastern Europe increased by 76 percent. Most countries in the region noted a continued increase in order bookings, with an especially strong upturn in Russia and Poland.
Order bookings from markets in the European Union were affected less than previously anticipated by pre-buy effects in the run-up to the Euro 4 environment regulation that entered into force on 1 October. Order bookings in the EU, which have shifted to Euro 4 and Euro 5 trucks, are thus better than expected. There is a shortage of transport capacity in Europe, and the supply of used vehicles is limited.
In Latin America, order bookings increased by 16 percent. An upturn in Brazil and Peru was partly offset by a downturn in Argentina. In other markets, demand rose by 9 percent; Asia strengthened while order bookings in Africa
were unchanged.
After weak demand early in the year, demand for buses and coaches improved following the launch of the new bus and coach range. Virtually all regions showed a positive trend at the end of the period.
Scania’s concentration of European axle and gearbox production in Södertälje and of parts management in Belgium is expected to lead to savings of more than SEK 300 m. per year starting in 2007 and with full effect from 2009 onward.
Scania will continue to develop its sales and service business in the new structure. The service offering will be expanded and introduced in new markets. Within the next few years, the potential for savings in the sales and service organisation amounts to more than SEK 500 m. annually.
Customer Finance is continuing to perform well. Scania maintains its market penetration of more than one third of new vehicle sales in markets with captive customer finance operations, despite increased competition from banks and finance companies. The credit portfolio is growing, with well-balanced risk and with low provisions for bad debts. At the end of September, the portfolio amounted to about SEK 30,700 m., which was more than SEK 2,000 m. more than on the same date last year. During 2006, new operations have been established in Turkey and in Chile. A new rental concept is about to be introduced in the European market, starting in the Benelux countries.
Scania’s strategic alliances with Cummins and Hino are performing well. Through its partnership with Cummins, Scania has secured the technology required to meet the Euro 6 environmental regulation. In South Korea, Scania will during 2007 begin to distribute Hino’s medium-duty trucks. In India, Scania has established a partnership with Larsen & Toubro, the leading supplier of construction equipment in India. Larsen & Toubro will distribute Scania’s multiwheeler construction trucks to its customers in the construction and mining segments.
Strong economic growth is contributing to higher demand for transport equipment. Scania’s deliveries will total about 65,000 vehicles during 2006 and operating income will substantially exceed SEK 8,000 m. Based on current order bookings and sizeable order backlog, Scania has decided to further increase its rate of production starting in the first
quarter of 2007. Due to expectations of higher future growth in transport demand, within the next several years Scania intends to expand production capacity to 100,000 vehicles, which it can achieve with limited capital spending.
On 18 September, MAN AG presented a public offer for Scania, which was unanimously rejected by the Board of Directors. On 4 October Volkswagen announced its acquisition of 15 percent of the shares in MAN. Because of this,
a conflict of interest has occurred, which means that the representatives of Volkswagen on Scania’s Board cannot participate in any decisions regarding MAN. In parallel to proposing friendly talks between the two companies, MAN
has aggressively acquired high-voting A-shares in Scania. Scania’s Board of Directors subsequently reiterated its rejection of MAN’s hostile bid as it substantially underestimates the value of Scania and the potential synergies
between the two companies. The Board continues to review the capital structure and will within short come back with its proposal of adjusted capital structure.