Capital Equipment News January 2019

perspective, what sort of growth do you see during the year? RL: As a brand we didn't expect any growth in 2018, but our volumes and market share remained the same – in the 16-17% region. We were not aiming higher than that because we knew in 2017 already that we were not going to get enough vehicles even if the market was going to experience any form of growth. We were satisfied to maintain the same volumes and market share in 2018. However, our assembly plant has been working at full capacity in 2018 and produced a record amount of trucks for the seven southern African counties that we are responsible for. Notably, Mozambique and Botswana have been doing quite well. Zambia has been performing as expected, while Zimbabwe was a little bit better than expected. As a result, our total assembly volumes were higher in 2018 than ever. During this time, we concentrated on growing other services we offer as a business, rather than just selling trucks. MS: Speaking of other services, the last time we spoke you were busy driving your total solutions approach, and at the time you were rolling out Scania Finance and Scania Insurance. How is the uptake of those services to date? RL: The growth has been there. To give an idea, we are now financing 60% of all our new vehicle sales. Initially we didn’t finance much of the used vehicle deals, but we have recently seen an uptick in that area as well, and we now finance about 40% of our used vehicle sales. Our financing portfolio currently stands at over R5-billion. Meanwhile, our insurance portfolio now stands at about R70-million. We currently insure approximately 10% of what we sell, with the aim to double it in 2019. We have set the ball rolling to be able to achieve this through tying in all the necessary networks including insurers, aftersales, brokers and repairers. Our own brokerage licence now allows us, together with insurers, to build unique Scania products that are not currently available on the market. Apart from Financing and Insurance, we have been developing other Scania services that form part of our total solutions approach. We have seen remarkable growth of our Repair and Maintenance (R&M) contracts. Most of our vehicle sales now include R&M contracts. We have also been pushing our Fleet Management and Driver Services (Driver Training and Driver Coaching).

started to increase. Many of our customers have already done their tests and know what they are buying. We believe that whenever the mining market bounces back, we will be able to further grow our volumes. We expect that by 2020 the mining market will start picking up again. It’s not only in South Africa where we see better prospects for these vehicles, but also in Botswana and Zambia, especially in the Copperbelt. MS: From a volumes perspective, which industries pushed the numbers in 2018? RL: Long haul has been doing very well, particularly side-tipping. To give you an idea, we have started to deliver a big deal of 560 side tipper combinations to one of our customers. The delivery started in December 2018 and the rest will be delivered during the course of this year. However, construction was a bit disappointing in 2018 – volumes went down approximately 30%. But we believe that the situation will improve this year and the sales figures will probably return to the 2017 levels. RL: 2018 was a bit tough but I am of the view that 2019 will stabilise, especially considering that it’s an election year. Despite the uncertainty that comes with an election, it’s normally the case that there is a bit of investment, especially in infrastructure development. However, I am not expecting any huge things to happen this year from that perspective. We expect that volumes will be slightly lower – probably around 5% down compared with 2018. We expect the first half of the year to be a bit slow due to the uncertainty around the elections. Like in 2018, the second half of the year will be important for the truck market. Normally in South Africa the first half of the year constitutes 40% of the total annual market, while the other 60% habitually comes from the second half. We expect the same situation in 2019. I expect that the used vehicle market will be a lot higher than in 2018, especially with more trade-ins expected this year. From a Scania perspective, 2019 will be a milestone year. Firstly, we will be celebrating our V8’s 50 th anniversary. Secondly, we will launching our new series. Sometime this year we will start delivering the New Generation trucks from Scania. It’s normally a 15-20 year cycle before you come into market with a totally new vehicle into the market. It’s an exciting time for us. b MS: From a market perspective, what are your projections for 2019?

These are important services to our customers’ businesses.

MS: Developing your service footprint has also been a key focus area. Tell me more. RL: Yes, growing our service footprint has been one of the major focus areas. It is during low growth times that we find it better to concentrate on building the service network so that when the growth starts, we are ready to cater for it. For example, all our biggest workshops are now open for longer hours per day, from 7:30 am to 10:00 pm. We have also opened a new premises in Port Elizabeth, our own captive service point. We have also engaged several partners who are busy occupying several service spots. We have started in Musina on the border to Zimbabwe where we will inaugurate a service centre in February this year. The service centre is already operational and has seen exponential growth because of its strategic location. There are plenty Scania vehicles in the area waiting to cross the border and that downtime can be utilised to service the vehicles. To better service the growing pool of customers in our export markets, we are also opening new service centres across all the growth hotspots. For example, we opened one in Walvis Bay in 2017, and we have been ramping up in 2018 as the harbour is now fully functional. We also opened one in Mozambique in November last year. We previously had a workshop in Beira only and now we have opened another one in Maputo. In partnership with our customer, Grindrod, we are also opening another service centre in Nacala. The workshop will be located at Grindrod’s premises, but we will also service other customers from there. Tete is also seeing huge growth and will be our next target area to open a service point. We are also partnering for a new service centre in the Copperbelt of Zambia, which will open sometime this year. We are committed to bettering our customer service across our seven-country jurisdiction. We believe in investing in future growth. MS: From a product perspective, is the Scania mining tipper gaining traction in the local market? RL: From the time we introduced our 40 t G460 8x4 mining tipper, which offers a significant 25% more payload than its predecessor, the G410CB8x4EHZ, we were convinced that local customers would consider it for their next investments. Our sales figures for these units have since

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