Currency Effects Impact Scania's Margins Despite Global Growth
Swedish commercial vehicle (CV) manufacturer Scania has announced a drop in the first three months of 2013 earnings despite increases in deliveries and order booking volumes. BMI believes that t he stronger Swedish krona and price pressure on trucks pulled down earnings in this period. Higher truck volume and higher capacity utilisation in Latin A merica had some positive effect, however. We expect these dynamics to continue to broadly play out over the remainder of the year.
Order Bookings Growth On Pent Up Demand
In Q113, total order bookings (for both trucks and engines) increased 31% year-on-year (y-o-y), to 20,787 units. Much of this growth has come from Europe, where CV sales have declined sharply over recent years, creating pent-up demand in the market. BMI has previously stated that we expect the regional segment to continue to decline over the year, although such declines will moderate from 2M12 levels ( see our online service, March 28, 'Commercial Vehicle Sales Decline Set To Continue'). The strong order bookings growth supports this view. Scania is well-placed to benefit from an uptick in the European CV market as a number of its vehicles are compliant with the new Euro 6 emission standards. This should continue to drive growth in Europe for the company over the year, despite the relatively poor regional outlook.
Scania's total order bookings in Latin America remained at a high level in Q113 on the back of strong growth in Brazil and Argentina. In Brazil, BMI expects to see strong CV sales growth in 2013 on the back of a boost in construction activity and an increase in gross fixed capital formation as the country prepares for the 2014 FIFA World Cup, a general election, and the final year of the government's growth acceleration programme (PAC II) ( see 'Bullish BMI View Playing Out', April 17).
The company also saw strong growth in Russia and in the Middle East and Asia markets, which we expect to continue over the year.
|Currency Strength Impacting Scania's Margins|
|US Dollar-Swedish Krona Exchange Rate, January 2012 To Present|
In Q113, total deliveries increased 4% y-o-y, to 16,938 vehicles. Net sales fell by 4% to SEK19,341mn (US$2,932mn), due to the strong currency (see graph). Scania estimates that currency rate effects had a negative impact of 7% on sales.
Truck deliveries to Europe declined in Q113, but this was offset by substantial increases in Latin America and Asia markets. Bus and coach sales increased sharply in Russia and Asia, and Scania also reported growth in this segment in Latin America, Africa, and Oceania markets. Engine sales increased in most markets globally. We broadly expect these trends to continue over the remainder of the year.
Price pressures in the increasingly competitive European market (and others to a lesser extent) impacted Scania's profit margins.
In a bid to improve efficiency, Scania has taken measures to adjust regional output to changing market dynamics. The daily production rate at the European facilities was reduced in Q113. Scania believes that, as of February 2013, the daily output rate in the region was around 15% lower than at year-end 2012. Capacity utilisation at the Latin American production plants increased in early 2013, and will remain high throughout H113.
Further, Scania is investing in expanding global production capacity over the next few years, increasing annual capacity from 100,000 vehicles to 120,000 vehicles.