21 October 2014 Europe Equity Research Capital Goods

Atlas Copco (ATCOa.ST) Rating OUTPERFORM* Price (20 Oct 14, SKr) 197.00 FORECAST INCREASE

Target price (SKr) 230.00¹ Market cap. (SKr m) 232,744.46 Enterprise value (SKr m) 243,706.6 Delivering in challenging markets

*Stock ratings are relative to the coverage universe in each analyst's or each team's respective sector. ■ Reiterate Outperform, TP SEK 230. Post a solid set of Q3 results, we raise ¹Target price is for 12 months. our already ahead-of-consensus estimates slightly and reiterate our Research Analysts Outperform rating. Andre Kukhnin, CFA 44 20 7888 0350 ■ Three pillars of the investment case. 1) Expected margin improvement [email protected] across the group driven by Compressor Technique cost taking out and Simon Toennessen refocusing of the business, as well as by MRET under-absorption recovery 44 20 7883 6893 [email protected] and cost reductions. We forecast an operating margin of 20% for 2015 and Max Yates 20.7% for 2016, and our operating profit estimates are 8% and 10% above 44 20 7883 8501 consensus respectively. 2) Mining aftermarket recovery expected to continue [email protected] in Q4 2014 and further in 2015, driven by customer de-stock ending while Jonathan Hurn, CFA mine production rates continue to edge up, resulting in demand for 44 20 7883 4532 [email protected] equipment rebuilds and upgrades (in the absence of major new equipment Tiantian Li investment programmes). 3) Further balance sheet optionality driven by 44 20 7883 1552 strong cash generation, helped further by a SEK 900m underlying inventory [email protected] reduction in Q3. We forecast Atlas Net Debt / EBITDA of only 0.5x in 2014, Specialist Sales: Andrew Bell leaving room for a further SEK 10bn of acquisitions or cash return. 44 20 7888 0479 [email protected] ■ Valuation remains attractive: On our new estimates and reflecting the blend of A and B share classes, Atlas Copco is trading on 2015 EV/EBIT of 11.5x and P/E of 15.8x, representing a c5% premium to the Mechanical Engineering sector vs a historic 10-15% premium due to its above-average returns and organic growth as well as solid cash conversion track record. ■ Catalysts. CMD in the US on 19 November where we would particularly watch out for details on the strategy for the Vacuum business build out.

Share price performance Financial and valuation metrics

Year 12/13A 12/14E 12/15E 12/16E 213 Revenue (SKr m) 83,888.0 93,769.3 102,215.6 109,001.8 193 EBITDA (SKr m) 19,759.00 20,255.65 22,722.44 25,252.92 173 Adjusted Net Income (SKr m) 12,644.00 13,373.71 15,245.59 16,736.55 153 CS adj. EPS (SKr) 10.41 11.00 12.77 14.02 133 Oct-12 Feb-13 Jun-13 Oct-13 Feb-14 Jun-14 Prev. EPS (SKr) — 11.08 12.59 13.63 Price Price relative ROIC (%) 26.53 23.56 24.79 26.25 P/E (adj., x) 18.92 17.91 15.43 14.05 The price relative chart measures performance against the P/E rel. (%) 108.4 111.8 106.8 107.3 OMX AFFARSVARLDENS GENERAL INDEX which closed at EV/EBITDA 12.2 12.0 10.8 9.5 405.09 on 20/10/14 On 20/10/14 the spot exchange rate was Skr9.16/Eu 1. - Dividend (12/14E, SKr) 5.75 IC (12/14E, SKr m) 56,828.38 Eu .78/US$1 Dividend yield (%) 2.9 EV/IC 4.3

Performance Over 1M 3M 12M Net debt (12/14E, SKr m) 10,962.1 Current WACC 9.00 Absolute (%) -7.2 -6.1 4.5 Net debt/equity (12/14E, %) 23.9 Free float (%) 83.00 BV/share (12/14E, SKr) 37.6 Number of shares (m) 1,215.91

Relative (%) 0.7 1.3 1.3 Source: FTI, Company data, Thomson Reuters, Credit Suisse Securities (EUROPE) LTD. Estimates.

DISCLOSURE APPENDIX AT THE BACK OF THIS REPORT CONTAINS IMPORTANT DISCLOSURES, ANALYST CERTIFICATIONS, AND THE STATUS OF NON-US ANALYSTS. US Disclosure: Credit Suisse does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the Firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision.

CREDIT SUISSE SECURITIES RESEARCH & ANALYTICS BEYOND INFORMATION® Client-Driven Solutions, Insights, and Access

21 October 2014

Atlas Copco ATCOa.ST Price (20 Oct 14): SKr197.00, Rating: OUTPERFORM, Target Price: SKr230.00 Income statement (SKr m) 12/13A 12/14E 12/15E 12/16E Per share data 12/13A 12/14E 12/15E 12/16E Revenue (SKr m) 83,888.0 93,769.3 102,215.6 109,001.8 No. of shares (wtd avg) 1,214 1,216 1,194 1,194 EBITDA 19,759 20,256 22,722 25,253 CS adj. EPS (SKr) 10.41 11.00 12.77 14.02 Depr. & amort. (2,703) (2,639) (2,360) (2,700) Prev. EPS (SKr) — 11.08 12.59 13.63 EBIT (SKr) 17,056 17,616 20,362 22,553 Dividend (SKr) 5.50 5.75 6.00 6.50 Net interest exp. (790) (789) (800) (705) Div yield 2.79 2.92 3.05 3.30 Associates — — — — Dividend payout ratio 52.82 52.26 46.99 46.37 Other adj, — — — — Free cash flow per share 8.75 10.68 9.57 13.26 PBT (SKr) 16,266 16,827 19,562 21,848 (SKr) Income taxes (4,184) (4,039) (4,891) (5,680) Key ratios and 12/13A 12/14E 12/15E 12/16E Profit after tax 12,082 12,789 14,672 16,168 valuation Minorities (10) (15) (25) (30) Growth(%) Preferred dividends — — — — Sales (7.3) 11.8 9.0 6.6 Associates & other 572 600 599 599 EBIT (11.8) 3.3 15.6 10.8 Net profit (SKr) 12,644 13,374 15,246 16,737 Net profit (12.9) 5.8 14.0 9.8 Other NPAT adjustments (509) (814) (599) (599) EPS (11.8) 4.8 16.2 10.3 Reported net income 12,135 12,560 14,647 16,138 Margins (%) EBITDA margin 23.6 21.6 22.2 23.2 Cash flow (SKr) 12/13A 12/14E 12/15E 12/16E EBIT margin 20.3 18.8 19.9 20.7 EBIT 17,056 17,616 20,362 22,553 Pretax margin 19.4 17.9 19.1 20.0 Net interest (523) (789) (800) (705) Net margin 15.1 14.3 14.9 15.4 Cash taxes paid (4,622) (4,039) (4,891) (5,462) Valuation metrics (x) Change in working capital (538) 185 (3,068) (471) EV/sales 2.9 2.6 2.4 2.2 Other cash & non-cash items 1,445 2,425 2,360 2,700 EV/EBITDA 12.2 12.0 10.8 9.5 Cash flow from operations 12,818 15,399 13,964 18,615 EV/EBIT 14.1 13.8 12.1 10.6 CAPEX (2,188) (2,416) (2,542) (2,780) P/E 18.9 17.9 15.4 14.1 Free cashflow adj. — — — — P/B 6.0 5.2 4.8 4.1 Free cash flow to the firm 11,967 14,390 12,955 18,015 Asset turnover 1.0 1.0 1.1 1.0 Acquisitions (1,493) (8,380) — — ROE analysis (%) Divestments (56) — — — ROE stated-return on 32.9 29.4 31.1 30.4 Other investment/(outflows) (735) 302 — — equityROIC 26.5 23.6 24.8 26.2 Cash flow from investments (4,472) (10,494) (2,542) (2,780) Interest burden 0.95 0.96 0.96 0.97 Net share issue/(repurchase) 21 — (5,000) — Tax rate 25.6 24.3 25.0 26.0 Dividends paid (6,669) (6,716) (6,850) (7,241) Financial leverage 0.65 0.43 0.40 0.34 Issuance (retirement) of debt 4,113 (6,000) — — Credit ratios (%) Other (5,491) 4,807 (1,534) (1,636) Net debt/equity 20.0 23.9 26.5 10.4 Cash flow from financing (8,026) (7,909) (13,384) (8,877) Net debt/EBITDA 0.40 0.54 0.57 0.24 activitiesEffect of exchange rates 357 — — — Interest coverage ratio 21.6 22.3 25.5 32.0 Changes in Net Cash/Debt 677 (3,003) (1,962) 6,957 . Net debt at start 8,636 7,959 10,962 12,925 Source: FTI, Company data, Thomson Reuters, Credit Suisse Securities Change in net debt (677) 3,003 1,962 (6,957) (EUROPE) LTD. Estimates. Net debt at end 7,959 10,962 12,925 5,967

Balance sheet (SKr m) 12/13A 12/14E 12/15E 12/16E Assets Cash and cash equivalents 17,633 8,630 6,667 13,625 213 Accounts receivable 21,726 24,661 26,576 28,340 193 Inventory 16,826 18,285 20,443 21,800 173 Other current assets 1,699 1,397 1,397 1,179 Total current assets 57,884 52,973 55,084 64,944 153 Total fixed assets 6,907 15,536 16,419 17,861 133 Intangible assets and goodwill 17,279 17,487 17,695 17,494 Oct-12 Feb-13 Jun-13 Oct-13 Feb-14 Jun-14 Investment securities — — — — Other assets 5,821 6,547 7,171 7,645 Price Price relative Total assets 87,891 92,543 96,368 107,944 Liabilities The price relative chart measures performance against the OMX Accounts payable 17,925 22,505 23,510 26,160 AFFARSVARLDENS GENERAL INDEX which closed at 405.09 on 17/10/14 Short-term debt 5,595 1,959 1,959 1,959 On 17/10/14 the spot exchange rate was Skr9.16/Eu 1. - Eu .78/US$1 Other short term liabilities 1,065 1,065 1,065 1,065 Total current liabilities 24,585 25,529 26,534 29,185 Long-term debt 19,997 17,633 17,633 17,633 Other liabilities 3,515 3,515 3,515 3,515 Total liabilities 48,097 46,677 47,682 50,332 Shareholders' equity 39,647 45,719 48,541 57,467 Minority interest 147 147 147 147 Total equity & liabilities 87,891 92,543 96,369 107,946 Net debt (SKr m) 7,959 10,962 12,925 5,967

Atlas Copco (ATCOa.ST) 2 21 October 2014 Atlas Copco – Key charts

Figure 1: Atlas Copco Mining has generated substantially Figure 2: …while also taking substantially less charges higher margin than its peers on a 'clean' basis… for larger headcount reductions – highlighting its substantially higher quality of earnings 25% 2500 1.40

1.20 20% 2000 1.00 1500 15% 0.80

1000 0.60 10% 0.40 500 0.20 5% 0 0.00 Atlas Copco Metso Sandvik mining 0% mining 2006 2007 2008 2009 2010 2011 2012 2013 2014E 2015E Extraordinary charge 2013-2014 (m SEK, LHS) Metso M&C Atlas Copco M&C Headcount reduction (LHS) Sandvik M&C Outotec Extraordinary charge per headcount reduction (m SEK, RHS) FLSmidth Minerals

Figure 3: Consensus group estimates now increasing… Figure 4: …and we expect a further step up 16 120 25% 20% 15 100 15% 14

Thousands 10% 80 13 5% 60 0% 12 -5% 40 11 -10% -15% 10 20 -20%

9 0 -25%

2007 2003 2004 2005 2006 2008 2009 2010 2011 2012 2013

Oct-13

Jan-11

Dec-11 Nov-12

Sep-14

2014E 2015E 2016E

2013 2014 2015 2016 Revenues Organic Growth % Margin

Figure 5: Atlas' 1-year forward P/E multiple components Figure 6: Atlas has consistently generated above sector relationship suggests some anticipation of upgrades average returns with comparable cash conversion 14 250 31% 80%

12 26% 200 60% 10 21% 8 150 40% 16% 6 100 20% 11% 4 50 2 6% 0%

0 0 20042005200620072008200920102011201220132014 ATCO ROIC (LHS) Sector ROIC (LHS) 1 Yr Forward EPS (LHS) Share Price (RHS) ATCO Cash conversion (RHS) Sector Cash conversion (RHS) Sources for charts: Company data, Thomson Reuters, Inquiry Financial consensus, Credit Suisse estimates

Atlas Copco (ATCOa.ST) 3 21 October 2014 Summary of forecast changes

Figure 7: Atlas Copco: Summary of results and forecast changes in SEK millions, unless otherwise stated CS New CS Old CS New CS Old CS New SEK M 2014E Change 2015E 2015E 2015E Change 2016E 2016E 2016E Change Forecast to f'cast Cons'us Forecast Forecast to f'cast Cons'us Forecast Forecast to f'cast Compressor Technique 41,880 3.4% 44,955 44,360 46,487 4.8% 47,369 47,465 49,741 4.8% Mining & Rock Excavation 25,779 - 27,345 26,681 26,810 0.5% 29,358 28,015 28,151 0.5% Construction Technique 14,784 (1.0%) 15,644 15,674 15,524 (1.0%) 16,458 16,457 16,765 1.9% Industrial Technique 11,368 3.8% 11,923 11,938 13,459 12.7% 12,536 12,535 14,132 12.7% Orders received 93,391 1.8% 99,095 98,232 101,859 3.7% 104,521 104,052 108,368 4.1% Change yoy, % 15% 7% 7% 9% 5% 6% 6% Organic change yoy, % 2% 6% 6% 6% 6%

REVENUE Compressor Technique 42,337 2.1% 44,485 44,606 46,457 4.1% 46,818 47,282 49,709 5.1% Change yoy, % 33.2% 7.3% 7.6% 9.7% 5.2% 6.0% 7.0% Mining & Rock Excavation 25,568 (0.5%) 27,046 26,591 26,601 0.0% 28,622 28,186 28,197 0.0% Change yoy, % -11.9% 4.4% 3.5% 4.0% 5.8% 6.0% 6.0% Construction Technique 15,079 0.7% 15,808 16,416 16,618 1.2% 16,613 17,401 17,782 2.2% Change yoy, % 8.0% 6.4% 9.6% 10.2% 5.1% 6.0% 7.0% Industrial Technique 11,160 3.5% 11,792 11,544 12,914 11.9% 12,385 12,236 13,689 11.9% Change yoy, % 17.5% 9.0% 7.1% 15.7% 5.0% 6.0% 6.0% Group Revenue 93,769 1.3% 98,869 98,781 102,216 3.5% 104,263 104,730 109,002 4.1% Change yoy, % 11.8% 6.8% 6.8% 9.0% 5.5% 6.0% 6.6% Organic change yoy, % -1.6% 5.2% 5.0% 6.0% 6.6%

OPERATING PROFIT Compressor Technique 9,229 3.5% 9,807 10,170 10,592 4.1% 10,452 10,875 11,433 5.1% Operating margin, % 21.8% 22.0% 22.8% 22.8% 22.3% 23.0% 23.0% Mining & Rock Excavation 4,807 1.2% 5,208 5,185 5,187 0.0% 5,804 5,919 5,921 0.0% Operating margin, % 18.8% 19.3% 19.5% 19.5% 20.3% 21.0% 21.0% Construction Technique 1,734 (10.2%) 2,065 2,298 2,077 (9.6%) 2,251 2,610 2,489 (4.6%) Operating margin, % 11.5% 13.1% 14.0% 12.5% 13.5% 15.0% 14.0% Industrial Technique 2,500 2.6% 2,732 2,655 2,944 10.9% 2,892 2,814 3,148 11.9% Operating margin, % 22.4% 23.2% 23.0% 22.8% 23.4% 23.0% 23.0% Corporate group functions (440) (456) (440) (440) (448) (440) (440) Group operating profit 18,430 1.3% 19,448 20,469 20,961 2.4% 21,020 22,378 23,152 3.5% Operating margin, % 19.0% 19.7% 20.1% 19.9% 20.2% 20.8% 20.7% Restructuring charges (214) - - - - Reported EBIT 17,616 0.8% 19,468 19,870 20,362 2.5% 21,068 21,779 22,553 3.6% EBIT margin, % 18.8% 19.7% 20.1% 19.9% 20.2% 20.8% 20.7% Net interest (789) 13.4% (676) (800) 18.4% (646) (705) 9.2% Underlying PBT 17,641 0.8% 19,793 20,161 1.9% 21,733 22,447 3.3% Operating net income 13,588 0.4% 14,217 14,969 15,246 1.8% 15,473 16,208 16,737 3.3%

CS operating EPS, SEK 11.18 0.4% 11.72 12.59 12.77 1.5% 12.76 13.63 14.02 2.9% Change yoy, % 10.1% 11.3% 13.6% 14.2% 8.8% 8.3% 9.8% Source: Company data, Inquiry Financial consensus, Credit Suisse estimates

Atlas Copco (ATCOa.ST) 4 21 October 2014 Q3 2014 results analysis

Figure 8: Atlas Copco: Summary of Q2 2014 results in SEK millions, unless otherwise stated SEK M Q2 13 Q3 13 Q2 14 Q3 14E Q3 14E Q3 14 Act vs. Act. vs Change Actual Actual Actual CS F'cast Cons'us Actual CS F'cast Cons'us Yoy Compressor Technique 8,245 7,782 10,474 10,230 10,643 10,800 5.6% 1.5% 38.8% Mining & Rock Excavation 6,689 6,044 6,461 6,407 6,557 6,399 (0.1%) -2.4% 5.9% Construction Technique 3,878 3,283 3,871 3,534 3,476 3,435 (2.8%) -1.2% 4.6% Industrial Technique 2,457 2,402 2,754 2,737 2,663 2,822 3.1% 6.0% 17.5% Orders received 21,135 19,433 23,450 22,802 23,098 23,395 2.6% 1.3% 20.4% Change yoy, % -9% -9% 11% 17% 19% 20% Organic change yoy, % -5% -6% 1% 3% 2%

REVENUE Compressor Technique 8,037 7,816 10,353 10,341 10,419 10,718 3.6% 2.9% 37.1% Change yoy, % -1.8% -3.2% 28.8% 32.3% 33.3% 37.1% Mining & Rock Excavation 7,857 6,885 6,396 6,450 6,506 6,449 (0.0%) -0.9% (6.3%) Change yoy, % -11.2% -16.8% -18.6% -6.3% -5.5% -6.3% Construction Technique 3,850 3,495 4,068 3,817 3,739 3,692 (3.3%) -1.3% 5.6% Change yoy, % -7.4% -1.7% 5.7% 9.2% 7.0% 5.6% Industrial Technique 2,243 2,383 2,650 2,676 2,677 2,827 5.7% 5.6% 18.6% Change yoy, % -7.3% 4.5% 18.1% 12.3% 12.3% 18.6% Group Revenue 21,843 20,552 23,348 23,163 23,242 23,590 1.8% 1.5% 14.8% Change yoy, % -6.8% -7.0% 6.9% 12.7% 13.1% 14.8% Organic change yoy, % -2.0% -4.0% -3.0% -1.4% -2.0%

OPERATING PROFIT Compressor Technique 1,834 1,826 2,219 2,275 2,286 2,429 6.8% 6.3% 33.0% Operating margin, % 22.8% 23.4% 21.4% 22.0% 21.9% 22.7% Mining & Rock Excavation 1,738 1,434 1,155 1,193 1,191 1,196 0.2% 0.4% (16.6%) Operating margin, % 22.1% 20.8% 18.1% 18.5% 18.3% 18.5% Construction Technique 511 454 545 489 488 422 (13.6%) (13.5%) (7.0%) Operating margin, % 13.3% 13.0% 13.4% 12.8% 13.1% 11.4% Industrial Technique 482 548 595 615 617 636 3.3% 3.1% 16.1% Operating margin, % 21.5% 23.0% 22.5% 23.0% 23.0% 22.5% Corporate group functions (82) (48) (132) (100) (103) (79) 64.6% Group operating profit 4,593 4,324 4,532 4,622 4,479 4,754 2.9% 6.1% 10.0% Operating margin, % 20.5% 20.5% 18.8% 19.3% 19.3% 19.5% Restructuring charges 50 (2) (43) - (459) Reported EBIT 4,533 4,212 4,339 4,472 4,454 4,145 (7.3%) (6.9%) (1.6%) EBIT margin, % 20.8% 20.5% 18.6% 19.3% 19.2% 17.6% Net interest (254) (195) (165) (185) (266) 36.4% Underlying PBT 4,339 4,129 4,367 4,437 4,488 1.1% #DIV/0! 8.7% Operating net income 3,193 3,163 3,397 3,417 3,262 3,487 2.0% 6.9% 10.3%

CS operating EPS, SEK 2.63 2.61 2.79 2.81 2.68 2.87 1.9% 7.0% 9.9% Change yoy, % -14.0% -10.1% 6.2% 7.9% 2.7% 9.9% Source: Company data, Inquiry Financial consensus, Credit Suisse estimates

Atlas Copco (ATCOa.ST) 5 21 October 2014

Q3 2014 Results commentary Atlas reported a very solid set of Q3 results despite market concerns. The margin trends in CT and MRET point in the right direction and remain the key pillar of our investment case. FX tailwind is becoming a theme for the sector and Atlas remains one of the key plays on this. Mining aftermarket small positive trends are reassuring while solid cash generation continues to build up the balance sheet optionality. Management demand outlook is surprisingly positive (we expect this to be driven by vacuum, aftermarket segments of CT and MRET and by gas and process ticking up sequentially).

Summary of results – 3% beat on EBIT backed by cash, organic order growth of 2% ■ Orders came in at SEK 23.40bn, 1.3% above consensus of SEK 23.10bn (CS at SEK 22.80bn). Sales came in at SEK 23.59bn, 1.5% above consensus of SEK 23.24bn (CS at SEK 23.16bn). ■ Operating profit ex one offs (EBITA) came in at SEK 4.75bn, 2.6% CS estimates at SEK 4.62bn. Taking consensus EBIT of 4.48bn, the Q3 result came in 3% ahead. ■ Organic orders growth was 2% (CS at 3%) and organic sales decline was 2% (CS at -1.4%). Clean operating margin was 19.5%, 20bps above consensus of 19.3% (CS same as C'sus). ■ Operating cash flow was solid at SEK 4.36bn, suggesting a conversion ratio of 95%.

Figure 9: Group: Order, Revenue & Operating profit Figure 10: Group: Order Org growth, Sales Org growth & Margin 30000 6000 35% 30% 30% 25% 25000 5000 25% 20% 20000 4000 20% 15% 15000 3000 10% 15% 5% 10% 10000 2000 0% -5% 5% 5000 1000 -10% -15% 0%

0 0

Q3 13 Q3 Q1 11 Q1 11 Q2 11 Q3 11 Q4 12 Q1 12 Q2 12 Q3 12 Q4 13 Q1 13 Q2 13 Q4 14 Q1 14 Q2 14 Q3

Q1 13 Q1 14 Q2 Q1 11 Q1 11 Q2 11 Q3 11 Q4 12 Q1 12 Q2 12 Q3 12 Q4 13 Q2 13 Q3 13 Q4 14 Q1 14 Q3

Order Org Growth (LHS) Revenue Org Growth (LHS) Orders (LHS) Revenue (LHS) Operating Profit (RHS) Operating Margin (RHS)

Source: Company data, Credit Suisse estimates Source: Company data, Credit Suisse estimates Key Points

■ Demand outlook is the main surprise. Management expect demand to 'improve somewhat' in Q4 vs Q3, which is clearly a surprise given the current macro / geo- political conditions and given SKF's 'flat' guidance. ■ FX becoming a theme. 6% tailwind to sales and orders in Q3 (we expected 4%) with SEK 370m contribution to EBIT yoy (we had SEK 170m). We continue to highlight Atlas as one of the main beneficiaries of weakness in the EUR (CT Belgium base) and SEK (MRET Swedish base). ■ MRET profitability bottomed out. MRET delivered a clean operating margin of 18.5%, up vs 18.1% in Q2 and 18.3% in Q1. With equipment demand remaining stable while spares and service demand has been improving yoy and sequentially, we see this level of profitability as trough.

Atlas Copco (ATCOa.ST) 6 21 October 2014

■ CT margin improvement on the right path. Margin came in at 22.1%, although still down yoy, improving sequentially as anticipated (for 2015, our estimate is 22.8% vs consensus at 22%) ■ Cash solid at SEK 3.9bn.

Q3 2014 Conference call takeaways Atlas management hosted a confident conference call on Q3 results that came in 3% ahead of consensus backed by solid cashflow. We view the current stock reduction as a buying opportunity because 1) management's outlook for a small improvement in demand in Q4 is credible and is not reliant on an improvement in macro, 2) the margin improvement path is solid with cost reduction in CT and MRET as well as reduction of under-absorption in MRET and 3) we see optionality for further acquisitions or cash return continuing to build through strong cash generation. Key incremental takeaways:

■ Guidance for small growth is driven by good development in the industrial side, service growing robustly (+7-8% lfl in Q3) and mining performing more robustly; ■ Pricing in Mining for equipment and services remains solid and appears to have improved slightly; ■ Mining reduced inventories by SEK 900m sequentially in Q3 ex-FX and this has been a result of under-production and hence impacted profitability of the business (which nevertheless improved profitability by 40bps vs Q2); ■ CT margin improvement measures are in full swing; ■ Automotive capex – not seen as peaky with still low penetration with a number of brands in Asia. In the developed world, management remain solid on expectations for growth at least over the next 6 months; ■ Construction margin – mix effect was the key issue with large double-axis compressors declining heavily.

Atlas Copco (ATCOa.ST) 7 21 October 2014

Performance vs General Industrial peers Atlas Copco CT & IT divisions substantially outgrew their peers over the last cycle and delivered at least average performance from the bottom of the last downturn (2009).

Figure 11: Atlas Copco CT & IT divisions organic sales Figure 12: Atlas Copco CT & IT divisions organic sales growth performance through-cycle (on 12-month rolling growth performance from bottom of a cycle (on 12-month basis index) vs general industrial peers rolling basis index) vs general industrial peers

180 180 170 160 160 150 140 140 120 130 120 100 110 100 80 90 80

60

Q3 2011 Q3 Q2 2009 Q2 2009 Q3 2009 Q4 2010 Q1 2010 Q2 2010 Q3 2010 Q4 2011 Q1 2011 Q2 2011 Q4 2012 Q1 2012 Q2 2012 Q3 2012 Q4 2013 Q1 2013 Q2 2013 Q3 2013 Q4 2014 Q1 2014 Q2 2014 Q3

Q2 2006 Q2 2010 Q4 Q4 2007 Q4 2008 Q3 2009 Q2 2010 Q1 2011 Q3 2012 Q2 2013 Q1 2013 Q4 2014 Q3 Q1 2007 Q1 Atlas Copco CT Atlas Copco IT Atlas Copco CT Atlas Copco IT SKF Group SKF Group Sandvik Machining Siemens Industry ABB Discrete Automation Sandvik Machining Siemens Industry Schneider Industry Source: Company data, Credit Suisse estimates. Note: Sandvik and Siemens Q3 2014 are based on CS estimates.

Performance vs Mining peers Atlas Copco's MRET division showed the least cyclical performance among its mining peers. It has also outgrown its closest peers (Sandvik and Metso). It has substantially higher margins than its mining peers, while generating less restructuring charges (Figure 2), showing higher quality of earnings.

Figure 13: Organic growth of mining divisions (Nominal Figure 14: Operating margin of mining division growth excluding large acquisition impact was used for Outotec/ Metso/ FLSmidth) 310 25%

260 20%

210 15%

160 10%

110 5%

60 0% 2006 2007 2008 2009 2010 2011 2012 2013 2014E2015E 2006 2007 2008 2009 2010 2011 2012 2013 2014E 2015E Metso M&C Atlas Copco M&C Metso Atlas Copco Sandvik Sandvik M&C Outotec Outotec FLSmidth FLSmidth Minerals

Source: Company data, Credit Suisse estimates Source: Company data, Credit Suisse estimates

Atlas Copco (ATCOa.ST) 8 21 October 2014

Atlas Copco saw the first sign of recovery in Q2 2014 and the recovery continued in Q3. (Note: Metso and Sandvik growth are based on our current estimates).

Figure 15: Quarterly mining division orders organic growth y-o-y 20%

10%

0%

-10%

-20%

-30%

-40% Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 2012 2012 2012 2013 2013 2013 2013 2014 2014 2014 Atlas MRET order organic growth yoy Sandvik Mining order organic growth yoy Metso M&C order organic growth yoy Source: Company data, Credit Suisse estimates

Atlas Copco (ATCOa.ST) 9 21 October 2014 Divisional performance & outlook Compressor Technique Volume growth and margin improvement underway Orders received increased by 39% yoy mainly due to the Edwards acquisition (+27%). Despite declining volumes for large size compressors in Asia, overall volume increased by +3% due to the strong volume for small machine and service. A strong positive currency impact of +8% further added to growth, while the division managed to achieve a positive pricing of +1%. Adjusted operating margin further improved to 22.7% from 21.4% in Q2. There was a one- off item of SEK 60m related to consolidation of manufacturing in the US. The margin was helped by currency, but Edwards (operating profit margin of 19.1%) consolidation was a dilution to the margin.

Figure 16: CT: Order, Revenue & Operating profit Figure 17: CT: Order Org growth, Sales Org growth & Margin 12000 3000 35% 30% 30% 10000 2500 25% 25% 8000 2000 20% 20% 15% 6000 1500 15% 10% 4000 1000 5% 10% 0% 2000 500 5% -5%

0 0 -10% 0%

Q1 14 Q1 Q1 11 Q1 11 Q2 11 Q3 11 Q4 12 Q1 12 Q2 12 Q3 12 Q4 13 Q1 13 Q2 13 Q3 13 Q4 14 Q2 14 Q3

Q3 13 Q3 Q1 11 Q1 11 Q2 11 Q3 11 Q4 12 Q1 12 Q2 12 Q3 12 Q4 13 Q1 13 Q2 13 Q4 14 Q1 14 Q2 14 Q3

Order Org Growth (LHS) Revenue Org Growth (LHS) Orders (LHS) Revenue (LHS) Operating Profit (RHS) Operating Margin (RHS)

Source: Company data, Credit Suisse estimates Source: Company data, Credit Suisse estimates Mining & Rock Excavation Technique Aftermarket demand continued to improve Orders received were up +6%, helped by currency (+3%), volume (+1%), price (+1%) and acquisitions (+3%). The service and spare parts business continued to increase both sequentially and yoy, after turning positive in Q2. Consumables order intake was flat sequentially. For OE, orders were lower sequentially but higher yoy – both North and South America had higher order intake yoy while Asia and ME have seen declines. Pricing in Mining for equipment and services remains solid and appears to have improved slightly. The outlook for mining remains confident. Operating margin was 18.5% after adjusting for SEK -340m one-off items, which is mainly related to a write-down of goodwill from acquisition of the mobile crusher business (Hartl), and several other small businesses in MRET. We note that Hartl was acquired by Atlas Copco in 2010 with revenues of SEK 197m in 2009. It is worth noting that an inventory reduction also negatively impacted the MRET margin which resulted in under absorption. MRET accounted for the majority of the SEK 900m sequential inventory reduction of the group.

Atlas Copco (ATCOa.ST) 10 21 October 2014

Figure 18: MRET: Order, Revenue & Operating profit Figure 19: MRET: Order Org growth, Sales Org growth & Margin 12000 2500 50% 30%

40% 10000 25% 2000 30% 8000 20% 1500 20% 6000 10% 15%

1000 0% 4000 10% -10% 500 2000 5% -20%

0 0 -30% 0%

Q1 13 Q1 14 Q2 Q1 11 Q1 11 Q2 11 Q3 11 Q4 12 Q1 12 Q2 12 Q3 12 Q4 13 Q2 13 Q3 13 Q4 14 Q1 14 Q3

Q3 13 Q3 Q1 11 Q1 11 Q2 11 Q3 11 Q4 12 Q1 12 Q2 12 Q3 12 Q4 13 Q1 13 Q2 13 Q4 14 Q1 14 Q2 14 Q3

Order Org Growth (LHS) Revenue Org Growth (LHS) Orders (LHS) Revenue (LHS) Operating Profit (RHS) Operating Margin (RHS)

Source: Company data, Credit Suisse estimates Source: Company data, Credit Suisse estimates Construction Technique BRIC all in decline while margins affected by product mix Orders at Construction Technique were up by +5% yoy, mainly helped by the +6% currency impact while volumes were down -3%. Similar to Q2, the order intake increased for road construction equipment and for construction and demolition tools, while it decreased for portable compressors and generators. Geographically, North America continued to be strong but Brazil development has turned negative in Q3 from good performance in Q2. China and India continued to be weak. Russia also declined. Specialty rental business continued to be strong in all the markets. Margin at 11.4% was lower both sequentially and yoy, due to negative product mix.

Figure 20: CRT: Order, Revenue & Operating profit Figure 21: CRT: Order Org growth, Sales Org growth & Margin 4500 700 40% 16% 4000 35% 600 14% 30% 3500 12% 500 25% 3000 20% 10% 2500 400 15% 8% 2000 300 10% 6% 1500 200 5% 4% 1000 0% 100 500 -5% 2%

0 0 -10% 0%

Q3 13 Q3 Q1 11 Q1 11 Q2 11 Q3 11 Q4 12 Q1 12 Q2 12 Q3 12 Q4 13 Q1 13 Q2 13 Q4 14 Q1 14 Q2 14 Q3

Q3 13 Q3 Q1 11 Q1 11 Q2 11 Q3 11 Q4 12 Q1 12 Q2 12 Q3 12 Q4 13 Q1 13 Q2 13 Q4 14 Q1 14 Q2 14 Q3

Order Org Growth (LHS) Revenue Org Growth (LHS) Orders (LHS) Revenue (LHS) Operating Profit (RHS) Operating Margin (RHS)

Source: Company data, Credit Suisse estimates Source: Company data, Credit Suisse estimates

Atlas Copco (ATCOa.ST) 11 21 October 2014

Industrial Technique Order growth continued to be strong Orders increased by 17% at IT yoy, helped by both volumes (+6%) and currency (+6%). The company continued to see strong demand in the automotive, aerospace and electronics industry. China and US showed the strongest growth in automotive, while Asia and Europe saw the strongest development in GI. Service continued to improve with 'significant growth' in Europe. Operating margin at 22.5% was supported by increased volume and currency, but diluted by acquisitions. During the quarter, Atlas Copco also completed the acquisition of Henrob, which is a market leader in self-pierce riveting. We find the prospects of this acquisition very attractive.

Figure 22: IT: Order, Revenue & Operating profit Figure 23: IT: Order Org growth, Sales Org growth & Margin 3000 700 40% 30% 35% 600 2500 30% 25% 500 25% 2000 20% 20% 400 15% 1500 15% 300 10% 5% 1000 10% 200 0% -5% 500 100 5% -10%

0 0 -15% 0%

Q4 12 Q4 Q1 11 Q1 11 Q2 11 Q3 11 Q4 12 Q1 12 Q2 12 Q3 13 Q1 13 Q2 13 Q3 13 Q4 14 Q1 14 Q2

Q3 13 Q3 Q1 11 Q1 11 Q2 11 Q3 11 Q4 12 Q1 12 Q2 12 Q3 12 Q4 13 Q1 13 Q2 13 Q4 14 Q1 14 Q2 14 Q3

Order Org Growth (LHS) Revenue Org Growth (LHS) Orders (LHS) Revenue (LHS) Operating Profit (RHS) Operating Margin (RHS)

Source: Company data, Credit Suisse estimates Source: Company data, Credit Suisse estimates

Atlas Copco (ATCOa.ST) 12 21 October 2014 Valuation Multiples

Figure 24: Atlas Copco: Valuation multiples history and forecasts SEK, unless otherwise stated December y/e 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014E 2015E 2016E A shares: Ave/Curr 54.0 84.2 106.0 86.0 80.5 122.7 149.1 158.6 178.8 197.0 197.0 197.0 A shares: High 75.3 100.2 121.5 112.5 107.2 172.7 172.7 179.4 192.2 A shares: Low 40.1 71.7 89.6 48.6 54.5 96.0 115.5 138.3 155.9

B shares: Ave/Curr 46.7 75.7 95.9 75.7 69.5 107.5 133.3 141.1 160.5 175.2 175.2 175.2 B shares: High 64.6 90.5 109.3 100.2 92.3 150.2 154.9 159.0 174.6 B shares: Low 35.4 61.6 80.6 42.2 47.0 83.9 102.0 122.8 138.3

P/E average 13.8 17.0 16.1 11.3 14.4 14.9 14.3 13.8 18.0 17.6 15.4 14.1 P/E high 19.2 20.2 18.5 14.8 19.1 21.0 16.5 15.6 19.3 P/E low 10.2 14.4 13.6 6.4 9.7 11.7 11.1 12.1 15.7

EV/Sales average 1.79 1.87 2.38 1.75 1.75 2.25 2.44 2.24 2.62 2.54 2.31 2.10 EV/Sales high 2.43 2.27 2.68 2.19 2.26 3.12 2.79 2.52 2.90 EV/Sales low 1.38 1.56 2.06 1.14 1.25 1.78 1.93 1.97 2.37 Operating profit margin 16.4% 18.2% 18.9% 19.0% 15.1% 20.1% 21.8% 21.3% 20.3% 19.7% 20.5% 21.2%

EV/EBITDA average 7.4 8.3 10.9 8.1 9.2 9.5 9.8 9.3 11.1 11.6 10.4 9.1 EV/EBITDA high 10.0 10.1 12.3 10.1 11.9 13.2 11.2 10.4 12.3 EV/EBITDA low 5.7 6.9 9.5 5.2 6.6 7.5 7.8 8.1 10.1

EV/EBIT average 10.9 10.3 12.6 9.2 11.6 11.2 11.2 10.5 12.9 12.9 11.2 9.9 EV/EBIT high 14.8 12.5 14.1 11.5 14.9 15.5 12.8 11.8 14.2 EV/EBIT low 8.4 8.6 10.9 6.0 8.3 8.9 8.9 9.2 11.7

FCF yield average 7.3% 2.9% 4.2% 5.6% 13.3% 6.4% 3.4% 5.9% 4.5% 4.9% 4.2% 6.0% FCF yield high 9.8% 3.4% 5.0% 9.9% 19.7% 8.2% 4.4% 6.7% 5.1% FCF yield low 5.2% 2.5% 3.7% 4.3% 10.0% 4.6% 2.9% 5.2% 4.1%

Dividend yield average 3.9% 2.8% 2.8% 3.5% 3.7% 3.3% 3.4% 3.5% 3.1% 2.9% 3.0% 3.3%

EV/IC average 2.1 4.9 4.6 3.2 3.3 4.6 4.6 4.6 4.6 4.2 3.8 3.6 P/BV average 2.6 3.2 8.9 4.4 3.8 5.1 6.3 5.5 5.5 5.2 4.8 4.1

ROIC 14.0% 34.6% 26.0% 26.0% 21.8% 30.1% 31.0% 32.9% 26.8% 23.9% 24.9% 26.2% ROE 19.2% 19.1% 55.3% 39.2% 26.7% 34.4% 44.2% 39.8% 30.4% 29.7% 31.4% 29.1% NB. P/E multiples are calculated based on A share price only while EV multiples are calculated using blend of A and B shares; EV-based multiples in this figure may not match the databoxes, which use a simple EV calculation (market capitalisation + current net debt) Source: Company data, Credit Suisse estimates In Figure 25, we show our EV calculation for Atlas Copco. We use an average share price for a given year for historical EV and the current share price for forecasts.

Figure 25: Atlas Copco: Enterprise value calculation SEK in millions, unless otherwise stated EV calculation 2006 2007 2008 2009 2010 2011 2012 2013 2014E 2015E 2016E Share price A, SEK 84.2 106.0 86.0 80.5 122.7 149.1 158.6 178.8 197.0 197.0 197.0 Share price B, SEK 75.7 95.9 75.7 69.5 107.5 133.3 141.1 160.5 160.5 160.5 160.5 % of A shares 69% 68% 68% 68% 68% 68% 68% 68% 68% 68% 68% A: Number of shares 1,256 1,222 1,220 1,216 1,217 1,217 1,216 1,214 1,216 1,194 1,194 Market capitalisation 105,746 129,560 104,918 97,961 149,376 181,512 185,967 209,952 225,219 221,192 221,192 Net debt / (cash) (12,995) 19,196 23,027 11,802 5,850 14,719 8,636 7,959 10,962 12,925 5,967 Pension Deficit 1,647 1,728 1,922 1,768 1,578 1,504 2,149 1,414 1,414 1,414 1,414 Minority interest 92 116 141 162 180 63 54 147 147 147 147 CS Enterprise value 94,490 150,600 130,008 111,693 156,984 197,798 196,806 219,472 237,743 235,677 228,720 Source: Company data, Credit Suisse estimates

Atlas Copco (ATCOa.ST) 13 21 October 2014

DCF We use a Discounted Cash Flow (DCF) valuation as our primary tool for determining Atlas Copco’s fair value. We use a three-stage DCF with the following method:

■ Stage 1—Years 1 to 3. We use our explicit model forecasts for free cash flow for the first three years. ■ Stage 2—Years 4 to 10. We use broader assumptions for the next seven years (Figure 26). ■ Stage 3—Terminal value. We base our terminal value on year-ten cash flow, a terminal growth rate of 2% and an invested capital growth rate of 2%. Figure 26: Atlas Copco: Key DCF assumptions Growth (years 4 to 10) 8.0% EBIT margin (years 4+) 21.0% NOPAT margin 15.8% Invested capital 56,417 Invested capital growth (years 4+) 2.0% Terminal growth rate 2.0% 10-year average FCF yield 13.1% WACC 9.0% Source: Credit Suisse estimates Our base-case DCF valuation for Atlas Copco is SEK 230 per share. We find this valuation is quite sensitive to: (1) our WACC; (2) the long-term (year-four onwards) operating profit margin; and (3) mid-term (years four to ten) growth rate assumptions. We therefore believe a useful application of this model is to show the DCF value sensitivity to these parameters. In Figure 27, we show our DCF valuation sensitivity to the operating profit (EBIT) and mid- term growth rate assumptions.

Figure 27: Atlas Copco: DCF sensitivity EBIT margin and mid-term growth rate assumptions SEK, unless otherwise stated EBIT margin NOPAT margin Growth rate 5.0% 5.5% 6.0% 6.5% 7.0% 7.5% 8.0% 8.5% 9.0% 9.5% 10.0% 10.5% 11.0% 19.5% 14.6% 189 193 196 200 204 208 212 216 220 225 229 233 238 20.0% 15.0% 194 197 201 205 209 214 218 222 226 231 235 240 244 20.5% 15.4% 198 202 206 210 215 219 223 228 232 237 241 246 251 21.0% 15.8% 203 207 211 216 220 225 230 234 238 243 248 253 258 21.5% 16.1% 208 212 216 221 225 230 235 239 244 249 254 259 264 22.0% 16.5% 212 217 221 226 231 235 240 245 250 255 260 265 271 22.5% 16.9% 217 222 226 231 236 241 246 251 256 261 267 272 277 Source: Credit Suisse estimates In Figure 28, we show our DCF valuation sensitivity to WACC and mid-term growth rate assumptions.

Figure 28: Atlas Copco: DCF sensitivity to WACC and mid-term growth rate SEK, unless otherwise stated Growth rate WACC 5.0% 5.5% 6.0% 6.5% 7.0% 7.5% 8.0% 8.5% 9.0% 9.5% 10.0% 10.5% 11.0% 8.00% 242 247 253 258 264 270 275 281 287 293 300 306 312 8.50% 221 226 230 235 240 245 250 255 261 266 272 277 283 9.00% 203 207 211 216 220 225 230 234 238 243 248 253 258 9.50% 187 191 195 199 203 207 211 215 219 223 227 231 236 10.00% 174 177 181 184 187 191 195 198 202 206 209 213 217 Source: Credit Suisse estimates

Atlas Copco (ATCOa.ST) 14 21 October 2014 Financials

Figure 29: Atlas Copco: Group and divisional quarterly sales and operating profit summary and forecasts in millions, unless otherwise stated 2011 2012 Q1 2013 Q2 2013 Q3 2013 Q4 2013 2013 Q1 2014 Q2 2014 Q3 2014 Q4 2014E 2014E 2015E 2016E

ORDERS Compressor Technique (CT) 34,664 33,480 8,004 8,245 7,782 7,734 31,765 9,940 10,474 10,800 10,666 41,880 46,487 49,741 Organic Growth % 22% 0% -4.0% 1.0% -4.0% 2.0% -1% -3.0% 0.0% 4.0% 4.0% 2% 8% 7% Change yoy, % 16% -3% -8.2% -3.4% -7.1% -1.6% -5% 24.2% 27.0% 38.8% 37.9% 32% 12% 7% MRET 31,751 33,482 7,197 6,689 6,044 6,162 26,092 6,400 6,461 6,399 6,519 25,779 26,810 28,151 Organic Growth % 26% 4% -22.0% -16.0% -17.0% -17.0% -18% -8.0% -1.0% 2.0% 1.8% -1% 2% 5% Change yoy, % 20% 5% -26.1% -20.7% -20.5% -20.1% -22% -11.1% -3.4% 5.9% 5.8% -1% 4% 5% Industrial Technique (IT) 8,462 9,435 2,187 2,457 2,402 2,548 9,594 2,593 2,754 2,822 3,199 11,368 13,459 14,132 Organic Growth % 30% 2% -8.0% 4.0% 9.0% 10.0% 3% 13.0% 7.0% 7.0% 10.2% 5% 6% 5% Change yoy, % 26% 11% -12.4% -0.3% 8.3% 13.0% 2% 18.6% 12.1% 17.5% 25.6% 15% 16% 5% Construction Technique (IT) 12,786 14,607 3,704 3,878 3,283 3,395 14,260 3,827 3,871 3,435 3,651 14,784 15,524 16,765 Organic Growth % 2% 1% -4.0% 2.0% 3.0% 1.0% 0% 4.0% 0.0% 4.0% 5.0% 3% 5% 8% Change yoy, % 2% 14% -7.2% -2.3% -0.1% 1.2% -2% 3.3% -0.2% 4.6% 7.6% 3% 5% 8% Group adjustments -668 -434 (84) (134) (78) (125) -421 (107) (110) (61) (143) -421 -421 -421 Group Order Intake 86,995 90,570 21,008 21,135 19,433 19,714 81,290 22,653 23,450 23,395 23,893 93,391 101,859 108,368 Organic Growth % 22% 2% -11.0% -5.0% -6.0% -4.0% -7% -2.0% 1.0% 2.0% 4.3% 2% 6% 6% Change yoy, % 16% 4% -15.4% -9.1% -9.1% -6.6% -10% 7.8% 11.0% 20.4% 21.2% 15% 9% 6% REVENUE Compressor Technique (CT) 31,760 32,725 7,383 8,037 7,816 8,546 31,782 9,409 10,353 10,718 11,857 42,337 46,457 49,709 Change yoy, % 6.7% 3.0% -6.0% -1.8% -3.2% -0.7% -2.9% 27.4% 28.8% 37.1% 38.7% 33.2% 9.7% 7.0% MRET 29,356 34,054 7,562 7,857 6,885 6,709 29,013 6,251 6,396 6,449 6,472 25,568 26,601 28,197 Change yoy, % 30.4% 16.0% -10.3% -11.2% -16.8% -21.0% -14.8% -17.3% -18.6% -6.3% -3.5% -11.9% 4.0% 6.0% Industrial Technique (IT) 7,821 9,566 2,183 2,243 2,383 2,692 9,501 2,505 2,650 2,827 3,178 11,160 12,914 13,689 Change yoy, % 20.8% 22.3% -11.7% -7.3% 4.5% 12.4% -0.7% 14.8% 18.1% 18.6% 18.1% 17.5% 15.7% 6.0% Construction Technique (IT) 12,918 14,658 3,173 3,850 3,495 3,449 13,967 3,354 4,068 3,692 3,965 15,079 16,618 17,782 Change yoy, % 12.5% 13.5% -11.7% -7.4% -1.7% 2.9% -4.7% 5.7% 5.7% 5.6% 15.0% 8.0% 10.2% 7.0% Common Group Functions (652) (470) (74) (144) (27) (130) (375) (96) (119) (96) (64) (375) (375) (375) Group revenue 81,203 90,533 20,227 21,843 20,552 21,266 83,888 21,423 23,348 23,590 25,408 93,769 102,216 109,002 Change yoy, % 16.2% 11.5% -9.1% -6.8% -7.0% -6.5% -7.3% 5.9% 6.9% 14.8% 19.5% 11.8% 9.0% 6.6% OPERATING PROFIT Compressor Technique (CT) 7,592 7,474 1,671 1,834 1,826 1,948 7,279 1,915 2,219 2,429 2,666 9,229 10,592 11,433 Margin, % 23.9% 22.8% 22.6% 22.8% 23.4% 22.8% 22.9% 20.4% 21.4% 22.7% 22.5% 21.8% 22.8% 23.0% MRET 7,196 8,335 1,771 1,738 1,384 1,190 6,083 1,071 1,155 856 1,650 4,732 5,187 5,921 Margin, % 24.5% 24.5% 23.4% 22.1% 20.1% 17.7% 21.0% 17.1% 18.1% 13.3% 25.5% 18.5% 19.5% 21.0% Construction Technique (IT) 1,565 1,890 384 511 454 384 1,733 406 545 422 361 1,734 2,077 2,489 Margin, % 12.1% 12.9% 12.1% 13.3% 13.0% 11.1% 12.4% 12.1% 13.4% 11.4% 9.1% 11.5% 12.5% 14.0% Industrial Technique (IT) 1,767 2,158 487 482 548 621 2,138 543 595 636 726 2,500 2,944 3,148 Margin, % 22.6% 22.6% 22.3% 21.5% 23.0% 23.1% 22.5% 21.7% 22.5% 22.5% 22.8% 22.4% 22.8% 23.0% Common Group Functions (455) (576) (157) (32) 0 12 (247) (175) (175) (138) (91) (579) (439) (439) Group clean EBIT 17,641 19,394 4,198 4,483 4,214 4,098 16,873 3,872 4,382 4,604 4,972 17,830 20,361 22,552 Margin, % 21.7% 21.4% 20.8% 20.5% 20.5% 19.3% 20.1% 18.1% 18.8% 19.5% 19.6% 19.0% 19.9% 20.7% Group clean EBITA 17,975 19,811 4,308 4,593 4,324 4,208 17,312 4,022 4,532 4,754 5,122 18,430 20,961 23,152 Margin, % 22.1% 21.9% 21.3% 21.0% 21.0% 19.8% 20.6% 18.8% 19.4% 20.2% 20.2% 19.7% 20.5% 21.2% Source: Company data, Credit Suisse estimates

Atlas Copco (ATCOa.ST) 15 21 October 2014

Figure 30: Atlas Copco: P&L history and forecasts in SEK m, unless otherwise stated PROFIT & LOSS 2006 2007 2008 2009 2010 2011 2012 2013 2014E 2015E 2016E Revenue 50,512 63,355 74,177 63,762 69,875 81,203 90,533 83,888 93,769 102,216 109,002 Growth, % 19.7% 25.4% 17.1% -14.0% 9.6% 16.2% 11.5% -7.3% 11.8% 9.0% 6.6% COGS (31,516) (39,896) (47,786) (42,631) (43,468) (50,051) (55,771) (51,766) (58,137) (62,352) (65,401) Gross Profit 18,996 23,459 26,391 21,131 26,407 31,152 34,762 32,122 35,632 39,864 43,601 Gross margin, % 37.6% 37.0% 35.6% 33.1% 37.8% 38.4% 38.4% 38.3% 38.0% 39.0% 40.0% SG&A (8,530) (10,067) (11,328) (10,651) (11,087) (11,959) (13,619) (13,139) (15,322) (16,667) (18,024) R & D expenses (1,111) (1,286) (1,473) (1,410) (1,517) (1,805) (2,034) (2,117) (2,907) (3,066) (3,270) Other operating income/exp (169) (43) 202 20 99 166 156 183 205 223 238 Shares in Earnings of Associates 17 3 14 0 13 6 1 7 8 9 9 Reported EBIT 9,203 12,066 13,806 9,090 13,915 17,560 19,216 16,467 17,616 20,362 22,553 Reported EBIT margin, % 18.2% 19.0% 18.6% 14.3% 19.9% 21.6% 21.2% 19.6% 18.8% 19.9% 20.7% Exceptionals / one-offs 0 70 (258) (569) (100) (105) (65) 7 (214) 0 0 Underlying EBIT 9,203 12,016 13,812 9,095 13,915 17,641 19,266 17,056 17,830 20,361 22,552 Margin, % 18.2% 19.0% 18.6% 14.3% 19.9% 21.7% 21.3% 20.3% 19.0% 19.9% 20.7% Amort. of acquired intangibles 127 204 241 283 315 334 417 439 600 600 600 Underlying EBITA 9,330 12,220 14,053 9,378 14,230 17,975 19,683 17,495 18,430 20,961 23,152 Margin, % 18.5% 19.3% 18.9% 14.7% 20.4% 22.1% 21.7% 20.9% 19.7% 20.5% 21.2% Depreciation & Amortisation 2,142 1,800 2,080 2,470 2,498 2,522 2,664 2,703 2,639 2,360 2,700 EBITDA 11,345 13,816 15,892 11,565 16,413 20,163 21,930 19,759 20,470 22,721 25,252 EBITDA margin, % 22.5% 21.8% 21.4% 18.1% 23.5% 24.8% 24.2% 23.6% 21.8% 22.2% 23.2% Net interest income / (expense) (508) (1,532) (694) (819) (420) (284) (704) (790) (789) (800) (705) Rate, % nm -8.0% -3.0% -6.9% -7.2% -1.9% -8.2% -9.9% -7.2% -6.2% -11.8% Profit Before Tax 8,695 10,534 13,112 8,271 13,495 17,276 18,512 15,677 16,827 19,562 21,848 Underlying PBT 8,822 10,688 13,359 8,559 13,810 17,691 18,979 16,705 17,641 20,161 22,447 Tax (2,435) (3,118) (3,106) (1,995) (3,551) (4,288) (4,629) (4,184) (4,039) (4,891) (5,680) Effective rate, % 28.0% 29.6% 23.7% 24.1% 26.3% 24.8% 25.0% 26.7% 24.0% 25.0% 26.0% Reported profit after tax 6,260 7,416 10,006 6,276 9,944 12,988 13,883 11,493 12,789 14,672 16,168 Minority interest (24) (30) (33) (32) (23) (25) (13) (10) (15) (25) (30) Profit from discontinued ops 15,349 7,439 10,157 6,244 9,921 12,963 13,870 11,483 0 0 0 Reported Net Income 15,349 7,439 10,157 6,244 9,921 12,963 13,870 11,819 12,774 14,647 16,138 Operating Net Income 6,363 7,540 10,220 6,532 10,236 13,378 14,337 12,511 13,467 14,933 16,399 Net income margin, % 12.6% 11.9% 13.8% 10.2% 14.6% 16.5% 15.8% 14.9% 14.5% 14.9% 15.3%

CS operating EPS 5.1 6.2 8.4 5.4 8.4 11.0 11.9 10.2 11.2 12.8 14.0 EPS growth, % 31.7% 21.8% 35.8% -35.9% 56.6% 30.7% 8.3% -14.7% 10.1% 14.2% 9.8% DPS, SEK 2.4 3.0 3.0 3.0 4.0 5.0 5.5 5.5 5.8 6.0 6.5 DPS growth, % 12.0% 26.1% 0.0% 0.0% 33.3% 25.0% 10.0% 0.0% 4.5% 4.3% 8.3% Dividend Cover (X) 2.1 2.1 2.8 1.8 2.1 2.2 2.2 1.8 1.9 2.1 2.2 Ordinary shares in issue 1,254 1,221 1,219 1,216 1,216 1,214 1,214 1,213 1,215 1,186 1,186 Source: Company data, Credit Suisse estimates

Atlas Copco (ATCOa.ST) 16 21 October 2014

Figure 31: Atlas Copco: Balance sheet and Cash flow history and forecasts in SEK m, unless otherwise stated BALANCE SHEET 2006 2007 2008 2009 2010 2011 2012 2013 2014E 2015E 2016E PPE and Intangibles 10,055 18,465 21,551 20,746 21,009 24,007 24,755 26,606 36,169 37,884 39,599 Other fixed assets 3,161 4,245 7,977 6,556 4,123 3,983 3,481 3,401 3,401 3,401 3,401 Fixed assets 13,216 22,710 29,528 27,302 25,132 27,990 28,236 30,007 39,570 41,285 43,000

Inventories 8,487 12,725 17,106 11,377 12,939 17,579 17,653 16,826 18,285 20,443 21,800 Trade and other receivables 12,401 16,627 21,603 15,433 17,474 21,996 21,155 21,726 24,661 26,576 28,340 Trade and other payables (11,804) (15,303) (19,033) (13,936) (17,125) (20,696) (19,412) (17,925) (22,505) (23,510) (26,160) Working capital 9,084 14,049 19,676 12,874 13,288 18,879 19,396 20,627 20,442 23,510 23,980 Working capital days 66 81 97 74 69 85 78 90 80 84 80 WC as % of sales 18.0% 22.2% 26.5% 20.2% 19.0% 23.2% 21.4% 24.6% 21.8% 23.0% 22.0%

Cash 20,135 3,473 5,455 12,165 14,264 5,716 12,416 17,633 8,630 6,667 13,625 Short-term debt (5,977) (2,743) (1,485) (2,959) (499) (3,422) (902) (5,595) (1,959) (1,959) (1,959) Long-term debt (1,163) (19,926) (26,997) (21,008) (19,615) (17,013) (20,150) (19,997) (17,633) (17,633) (17,633) (Net debt) / cash 12,995 (19,196) (23,027) (11,802) (5,850) (14,719) (8,636) (7,959) (10,962) (12,925) (5,967)

Pension deficit (1,647) (1,728) (1,922) (1,768) (1,578) (1,504) (2,149) (1,414) (1,414) (1,414) (1,414) Other assets 1,016 1,124 1,702 1,597 1,813 1,828 1,334 1,699 1,397 1,397 1,179 Other liabilities (1,956) (2,319) (2,189) (2,532) (3,484) (3,635) (3,996) (3,166) (3,166) (3,166) (3,166) Net assets 32,708 14,640 23,768 25,671 29,321 28,839 34,185 39,794 45,866 48,687 57,612

CASH FLOW 2006 2007 2008 2009 2010 2011 2012 2013 2014E 2015E 2016E Operating profit 9,203 12,016 13,812 9,095 13,915 17,560 19,394 16,873 17,672 19,944 22,096 Depreciation & amortisation 2,142 1,800 2,080 2,470 2,498 2,522 2,664 2,703 2,641 2,361 2,694 Net interest (12) (379) 44 (1,575) (960) (1,275) (592) (523) (789) (800) (705) Tax paid (3,763) (3,346) (3,975) (1,759) (2,813) (3,307) (5,053) (4,622) (4,001) (4,786) (5,348) Other (378) (116) (339) (695) 260 (176) (644) (1,258) (214) 0 0 Gross cash flow 11,570 9,975 11,622 7,536 12,900 15,324 15,769 13,173 15,309 16,719 18,736 Working capital change (2,353) (2,326) (2,991) 6,715 (1,730) (6,115) (1,366) (538) 354 (2,775) (461) Operating cash flow 9,217 7,649 7,892 14,039 10,825 8,421 13,654 11,614 14,268 12,441 16,673 Operating cash / Op. profit 0.7 0.6 0.6 1.5 0.8 0.5 0.7 0.7 0.8 0.6 0.8 Net Capex (6,112) (2,174) (2,290) (1,526) (1,322) (2,283) (2,518) (2,188) (2,404) (2,512) (2,737) Free cash flow 3,105 5,475 5,602 12,513 9,503 6,138 11,136 9,426 11,864 9,929 13,936 FCF / Net income 0.5 0.7 0.5 1.9 0.9 0.5 0.8 0.8 0.9 0.7 0.8 Acquisitions (1,333) (6,139) (370) (171) (1,691) (2,206) (1,195) (1,549) (8,380) 0 0 Disposals 22,969 (463) 92 0 0 0 0 0 0 0 0 Sales / (Purchase) of investments (987) (916) (1,086) 696 195 154 (474) (735) 302 0 0 Borrowings raised / (repaid) (1,045) 12,401 1,414 (3,152) (1,474) 181 1,702 4,113 (6,000) 0 0 Shares issue / (purchase) (3,776) (24,441) (453) 0 384 (8,063) 164 21 0 (5,000) 0 Dividends paid (2,676) (2,903) (3,667) (3,652) (3,650) (4,853) (6,070) (6,669) (6,716) (6,850) (7,241) Net cash flow 16,257 (16,986) 1,532 6,234 3,267 (8,649) 6,718 4,607 (8,930) (1,921) 6,694 Source: Company data, Credit Suisse estimates

Atlas Copco (ATCOa.ST) 17 21 October 2014

Figure 32: Atlas Copco: Summary of balance sheet and returns analysis in SEK millions, unless otherwise stated ANALYSIS 2006 2007 2008 2009 2010 2011 2012 2013 2014E 2015E 2016E NOPAT 6,626 8,459 10,540 6,901 10,253 13,262 14,544 12,464 13,551 15,271 16,689 Invested Capital 19,139 32,514 41,227 33,620 34,297 42,886 44,151 47,233 56,610 61,393 63,580 ROIC 34.6% 26.0% 25.6% 20.5% 29.9% 30.9% 32.9% 26.4% 23.9% 24.9% 26.2% ROIC (average) 24.1% 32.8% 28.6% 18.4% 30.2% 34.4% 33.4% 27.3% 26.1% 25.9% 26.7% 6,363 7,540 10,220 6,532 10,236 13,378 14,465 12,328 13,588 15,246 16,737 Operating Net Income 32,708 14,640 23,768 25,671 29,321 28,839 34,185 39,794 45,866 48,688 57,614 Equity 19.5% 51.5% 43.0% 25.4% 34.9% 46.4% 42.3% 31.0% 29.6% 31.3% 29.0% ROE 21.7% 31.8% 53.2% 26.4% 37.2% 46.0% 45.9% 33.3% 31.7% 32.2% 31.5% ROE (average) 11,345 13,816 15,892 11,565 16,413 20,163 22,058 19,576 20,470 22,721 25,252 7,140 22,669 28,482 23,967 20,114 20,435 21,052 25,592 19,592 19,592 19,592 EBITDA -12,995 19,196 23,027 11,802 5,850 14,719 8,636 7,959 10,962 12,925 5,967 Total debt 0.6 1.6 1.8 2.1 1.2 1.0 1.0 1.3 1.0 0.9 0.8 Net debt nm 1.4 1.4 1.0 0.4 0.73 0.4 0.4 0.5 0.6 0.2 Total debt / EBITDA 6,626 8,459 10,540 6,901 10,253 13,262 14,544 12,464 13,551 15,271 16,689 Net debt / EBITDA 19,139 32,514 41,227 33,620 34,297 42,886 44,151 47,233 56,610 61,393 63,580 Source: Company data, Credit Suisse estimates

Share price performance In Figure 33, we show Atlas’ ten-year share price performance relative to the local market.

Figure 33: Atlas Copco: Share price performance absolute and relative to local market ATLAS COPCO 'A' 20/10/14 220

200

180

160

140

120

100

80

60

40

20 2005 2006 2007 2008 2009 2010 2011 2012 2013 PRICE PRICE REL. TO OMX AFFARSVARLDENS GENERAL - PRICE INDEX HIGH 212.20 19/9/14,LOW 37.42 15/10/04,LAST 195.10 17/10/14 Source: Thomson Reuters Datastream Source: Thomson Reuters

Atlas Copco (ATCOa.ST) 18

Atlas Copco(ATCOa.ST) Figure 34: Atlas Copco: Company Summary ATLAS COPCO (ATCOa.ST) - ANDRE KUKHNIN, CFA +44 20 7883 0350/ [email protected] Shareholding Structure Operating Profit split Sales Mix Geographic Mix End Market Mix Free Float: 83% Compressor Industrial Top 5 shareholders Others Technique Technique Middle East/ Investor AB 16.8%, Swedbank 5.0%, 7% 45% 11% Asia/Australia Africa Service Alecta 3.4%, AMF 2.8%, SEB 1.1% 28% 12% 5% Manufacturing 28% Compressor Ownership by country Process

Construction Technique Sweden 53%, USA 21%,UK 15% and Technique 40% Industry Other 11% Industrial 15% 10% Technique North America 12% 20%

Management Chairman Sune Carlsson Construction CEO Ronnie Leten Technique Construction 7% Mining Rock South CFO Hans Ola Meyer Excavation Mining Rock Europe 23% America Mining Technique Excavation 31% IR Mattias Olsson 10% 26% 36% Technique 34% Division Products Orders by Customer Category Main Competitors Revenue Split by Geo Key Drivers/ Themes Product Example

Oil-free and oil-injected stationary air Compressor Technique compressors, portable air compressors, oil Ingersoll-Rand, Kaeser, Hitachi, Gardner- FY 2013 Sales SEK 33.84 Bn Construction 8%, Manufacturing 38%, Europe 33%, Asia/Australia 31%, North Investments in Machinery, and gas boosters, gas and process Denver, Cameron, Sullair, Parker Hannifin, 0.8% YoY organic growth Mining 8%, Service 11%, Process Industry America 20%, Middle East/Africa 9%, South Industrial production and Energy compressors, turbo expanders, generators, air Siemens, MAN Turbo, Busch, FY 2013 EBIT SEK 7.82 Bn 25% and Others 10% America 7% cost treatment equipment, and air management Oerlikon/Leybold and Pfeiffer Vacuum 23.1% margin. systems.

Mining Rock Excavation Technique FY 2013 Sales SEK 29.01 Bn Equipment for drilling and rock excavation. Mining Capex on equipment and Asia/Australia 28%, North America 20%, -10.4% YoY organic growth Surface and underground mining, Sandvik,Furukawa, Boart Longyear, Joy Ore Production (aftermarket), Mining 67% and Construction 33% Europe 21%, Middle East/Africa 17%, South FY 2013 EBIT SEK 6.20 Bn infrastructure, civil works, well drilling and Global and Caterpillar Infrastructure investments, Non- America 14% 21.4% margin geotechnical applications. building construction activity

Construction Technique Infrastructure and public FY 2013 Sales SEK 12.26 Bn Construction and demolition tools, portable Construction 58%, Manufacturing 13%, Doosan Infracore, Kaeser, Sullair, Volvo, Europe 34%, Asia/Australia 23%, North investments , Investments in -0.5% YoY organic growth compressors, pumps and generators, lighting Mining 9%, Service 5%, Process Industry Caterpillar, Wirtgen,Sandvik,Furukawa, America 17%, South America 13%, Middle portable energy equipment, FY 2013 EBIT SEK 1.21 Bn towers, and compaction and paving equipment 2% and Others 13% Wacker Neuson, Sany and XCMG East/ Africa 13% Demolition and recycling 9.9% margin

Industrial Technique Investments in industrial tools and FY 2013 Sales SEK 9.50 Bn Manufacturing 86%, Process Industry 2%, Apex Tool Group, Ingersoll-Rand, Stanley Europe 46%, North America 26%, Industrial power tools, assembly systems, systems, Industrial production, -0.3% YoY organic growth Construction Industry 2%, Service 2% and Black &Decker, Uryu, Bosch, Nordson and Asia/Australia 21%, South America 6%, and aftermarket products and services. Change in manufacturing methods FY 2013 EBIT SEK 2.14 Bn Others 8%. Graco Africa/Middle East 1%. and higher requirements 22.5% margin

21 October21 2014

Source: Company data, Credit Suisse estimates

19

21 October 2014

Companies Mentioned (Price as of 20-Oct-2014) Atlas Copco (ATCOa.ST, Skr197.0, OUTPERFORM, TP Skr230.0) Metso (MEO1V.HE, €26.75) SKF (SKFb.ST, Skr141.7) Sandvik (SAND.ST, Skr76.95) Siemens (SIEGn.DE, €83.08)

Disclosure Appendix

Important Global Disclosures Andre Kukhnin, CFA, Max Yates, Tiantian Li, Simon Toennessen and Jonathan Hurn, CFA each certify, with respect to the companies or securities that the individual analyzes, that (1) the views expressed in this report accurately reflect his or her personal views about all of the subject companies and securities and (2) no part of his or her compensation was, is or will be directly or indirectly related to the specific recommendations or views expressed in this report.

3-Year Price and Rating History for Atlas Copco (ATCOa.ST)

ATCOa.ST Closing Price Target Price Date (Skr) (Skr) Rating 10-Nov-11 135.70 130.00 N 08-Dec-11 141.30 140.00 01-Feb-12 167.40 155.00 11-Sep-12 154.60 180.00 O 06-Nov-12 166.90 200.00 03-Jul-13 158.40 190.00 11-Sep-13 190.50 200.00 30-Oct-13 181.30 210.00 17-Jul-14 210.20 230.00 * Asterisk signifies initiation or assumption of coverage. NEUTRAL OUTPERFORM

3-Year Price and Rating History for Metso (MEO1V.HE)

MEO1V.HE Closing Price Target Price Date (€) (€) Rating 24-Oct-11 20.91 22.00 O 28-Oct-11 23.58 26.71 08-Dec-11 22.22 27.50 27-Jul-12 23.62 29.85 06-Nov-12 21.68 27.50 20-Feb-13 26.51 29.85 03-Jul-13 20.54 24.35 02-Dec-13 23.44 27.50 27-Feb-14 23.40 27.00 10-Apr-14 28.96 28.00 N OUTPERFORM NEUTRAL 01-Aug-14 29.99 33.00 * Asterisk signifies initiation or assumption of coverage.

Atlas Copco (ATCOa.ST) 20 21 October 2014

3-Year Price and Rating History for SKF (SKFb.ST)

SKFb.ST Closing Price Target Price Date (Skr) (Skr) Rating 21-Oct-11 136.30 127.00 U 08-Dec-11 136.10 130.00 20-Apr-12 168.70 150.00 19-Jul-12 132.90 130.00 31-Jan-13 157.80 140.00 17-Jul-13 172.20 155.00 06-Nov-13 174.60 150.00 28-Jan-14 177.60 155.00 15-Apr-14 161.50 145.00 15-Oct-14 140.60 130.00 UNDERPERFORM

* Asterisk signifies initiation or assumption of coverage.

3-Year Price and Rating History for Sandvik (SAND.ST)

SAND.ST Closing Price Target Price Date (Skr) (Skr) Rating 28-Oct-11 93.65 95.00 O 08-Dec-11 81.60 90.00 N 11-Sep-12 93.30 80.00 U 30-Jan-13 103.60 95.00 24-Apr-13 92.00 80.00 03-Jul-13 78.85 75.00 08-Oct-14 75.90 72.00 * Asterisk signifies initiation or assumption of coverage.

OUTPERFORM NEUTRAL UNDERPERFORM

3-Year Price and Rating History for Siemens (SIEGn.DE)

SIEGn.DE Closing Price Target Price Date (€) (€) Rating 16-Jan-12 73.73 76.55 O 09-Feb-12 73.18 R 16-Feb-12 71.81 76.55 O 22-Mar-12 75.51 87.21 10-Sep-12 75.29 85.27 * 12-Nov-12 76.82 87.21 24-Jan-13 78.74 92.06 08-Jul-13 78.15 95.00 25-Oct-13 93.85 105.00 28-Jan-14 98.94 112.00 OUTPERFORM REST RICT ED 28-Apr-14 93.59 R 09-Jun-14 99.56 112.00 O 14-Aug-14 91.63 115.00 * Asterisk signifies initiation or assumption of coverage. The analyst(s) responsible for preparing this research report received Compensation that is based upon various factors including Credit Suisse's total revenues, a portion of which are generated by Credit Suisse's investment banking activities As of December 10, 2012 Analysts’ stock rating are defined as follows: Outperform (O) : The stock’s total return is expected to outperform the relevant benchmark*over the next 12 months. Neutral (N) : The stock’s total return is expected to be in line with the relevant benchmark* over the next 12 months. Underperform (U) : The stock’s total return is expected to underperform the relevant benchmark* over the next 12 months.

Atlas Copco (ATCOa.ST) 21 21 October 2014

*Relevant benchmark by region: As of 10th December 2012, Japanese ratings are based on a stock’s total return relative to the analyst's coverage universe which consists of all companies covered by the analyst within the relevant sector, with Outperforms representing the most attractive, Ne utrals the less attractive, and Underperforms the least attractive investment opportunities. As of 2nd October 2012, U.S. and Canadian as well as European ratings are based on a stock’s total return relative to the analyst's coverage universe which consists of all companies covered by the analyst within the relevant sector, with Outperforms representing the most attractive, Neutrals the less attractive, and Underperforms the least attractive investment opportunities. For Latin American and non -Japan Asia stocks, ratings are based on a stock’s total return relative to the average total return of the relevant country or regional benchmar k; prior to 2nd October 2012 U.S. and Canadian ratings were based on (1) a stock’s absolute total return potential to its current share price and (2) the relative attractiv eness of a stock’s total return potential within an analyst’s coverage universe. For Australian and New Zealand stocks, 12-month rolling yield is incorporated in the absolute total return calculation and a 15% and a 7.5% threshold replace the 10-15% level in the Outperform and Underperform stock rating definitions, respectively. The 15% and 7.5% thresholds replace the +10- 15% and -10-15% levels in the Neutral stock rating definition, respectively. Prior to 10th December 2012, Japanese ratings were based on a stock’s total return relative to the average total return of the relevant country or regional benchmark. Restricted (R) : In certain circumstances, Credit Suisse policy and/or applicable law and regulations preclude certain types of communications, including an investment recommendation, during the course of Credit Suisse's engagement in an investment banking transaction and in certain other circumstances.

Volatility Indicator [V] : A stock is defined as volatile if the stock price has moved up or down by 20% or more in a month in at least 8 of the past 24 months or the analyst expects significant volatility going forward.

Analysts’ sector weightings are distinct from analysts’ stock ratings and are based on the analyst’s expectations for the fundamentals and/or valuation of the sector* relative to the group’s historic fundamentals and/or valuation: Overweight : The analyst’s expectation for the sector’s fundamentals and/or valuation is favorable over the next 12 months. Market Weight : The analyst’s expectation for the sector’s fundamentals and/or valuation is neutral over the next 12 months. Underweight : The analyst’s expectation for the sector’s fundamentals and/or valuation is cautious over the next 12 months. *An analyst’s coverage sector consists of all companies covered by the analyst within the relevant sector. An analyst may cov er multiple sectors.

Credit Suisse's distribution of stock ratings (and banking clients) is:

Global Ratings Distribution Rating Versus universe (%) Of which banking clients (%) Outperform/Buy* 45% (54% banking clients) Neutral/Hold* 39% (50% banking clients) Underperform/Sell* 13% (43% banking clients) Restricted 3% *For purposes of the NYSE and NASD ratings distribution disclosure requirements, our stock ratings of Outperform, Neutral, an d Underperform most closely correspond to Buy, Hold, and Sell, respectively; however, the meanings are not the same, as our stock ratings are determined on a relative basis. (Please refer to definitions above.) An investor's decision to buy or sell a security should be based on investment objectives, current holdin gs, and other individual factors.

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Price Target: (12 months) for Atlas Copco (ATCOa.ST) Method: Our TP is based on a DCF discounting a mid-cycle margin of 21%, medium term growth of 8% and a WACC of 9%. Our TP is supported by the company P/E and EV/EBIT multiples relative to it peers group and it own history. Risk: Volume softening in general industrial end-markets . Further weakness in mining equipment expenditure. Adverse pricing behaviour from Atlas Copco key competitors. Threat of emerging markets competition.

Please refer to the firm's disclosure website at https://rave.credit-suisse.com/disclosures for the definitions of abbreviations typically used in the target price method and risk sections.

See the Companies Mentioned section for full company names The subject company (MEO1V.HE) currently is, or was during the 12-month period preceding the date of distribution of this report, a client of Credit Suisse. Credit Suisse provided investment banking services to the subject company (MEO1V.HE) within the past 12 months. Credit Suisse has received investment banking related compensation from the subject company (MEO1V.HE) within the past 12 months

Atlas Copco (ATCOa.ST) 22 21 October 2014

Credit Suisse expects to receive or intends to seek investment banking related compensation from the subject company (MEO1V.HE) within the next 3 months. As of the end of the preceding month, Credit Suisse beneficially own 1% or more of a class of common equity securities of (MEO1V.HE, SIEGn.DE). Important Regional Disclosures Singapore recipients should contact Credit Suisse AG, Singapore Branch for any matters arising from this research report. The analyst(s) involved in the preparation of this report have not visited the material operations of the subject company (ATCOa.ST, SAND.ST, MEO1V.HE, SIEGn.DE, SKFb.ST) within the past 12 months Restrictions on certain Canadian securities are indicated by the following abbreviations: NVS--Non-Voting shares; RVS--Restricted Voting Shares; SVS--Subordinate Voting Shares. Individuals receiving this report from a Canadian investment dealer that is not affiliated with Credit Suisse should be advised that this report may not contain regulatory disclosures the non-affiliated Canadian investment dealer would be required to make if this were its own report. For Credit Suisse Securities (Canada), Inc.'s policies and procedures regarding the dissemination of equity research, please visit http://www.csfb.com/legal_terms/canada_research_policy.shtml. The following disclosed European company/ies have estimates that comply with IFRS: (ATCOa.ST, SAND.ST, MEO1V.HE, SIEGn.DE, SKFb.ST). Credit Suisse has acted as lead manager or syndicate member in a public offering of securities for the subject company (SIEGn.DE) within the past 3 years. As of the date of this report, Credit Suisse acts as a market maker or liquidity provider in the equities securities that are the subject of this report. Principal is not guaranteed in the case of equities because equity prices are variable. Commission is the commission rate or the amount agreed with a customer when setting up an account or at any time after that. To the extent this is a report authored in whole or in part by a non-U.S. analyst and is made available in the U.S., the following are important disclosures regarding any non-U.S. analyst contributors: The non-U.S. research analysts listed below (if any) are not registered/qualified as research analysts with FINRA. The non-U.S. research analysts listed below may not be associated persons of CSSU and therefore may not be subject to the NASD Rule 2711 and NYSE Rule 472 restrictions on communications with a subject company, public appearances and trading securities held by a research analyst account. Credit Suisse Securities (Europe) Limited ...... Andre Kukhnin, CFA ; Max Yates ; Tiantian Li ; Simon Toennessen ; Jonathan Hurn, CFA

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Atlas Copco (ATCOa.ST) 23 21 October 2014

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