ATLAS COPCO ANNUAL REPORT 2014 Atlas Copco achieved record revenues, record cash flow and a healthy profit in a mixed business climate. CONTENTS ABOUT THE ANNUAL REPORT Atlas Copco believes in delivering innovative products, reliable services and profitable growth while being a responsible corporate citizen. This annual report reflects Atlas Copco’s goal of creating sustainable, profitable development and it integrates financial, sustainability and governance information in order to describe Atlas Copco in a comprehensive and cohesive manner. The report is divided into two sections for simple navigation. ”THIS IS ATLAS COPCO” contains the relevant information about Atlas Copco’s vision, mission, strategy, structure and governance, how we do business as well as our long-term performance. ”THE YEAR IN REVIEW” describes Atlas Copco’s annual performance and achievements. Atlas Copco Group Inside front cover Business partners 48 Performance summary 2014 2 Society 49 President and CEO 3 Environment 52 THIS IS ATLAS COPCO 6 The Atlas Copco share 54 Vision, mission and strategy 6 Corporate governance 56 Goals for sustainable, profitable development 7 Financial statements (Group) 66 People, processes, structure and governance 9 Notes (Group) 71 This is how we do business 10 Financial statements (Parent) 108 Creating value for all stakeholders 12 Notes (Parent) 110 THE YEAR IN REVIEW 14 Signatures of the Board of Directors 122 Administration report 14 Audit report 123 Market review and demand development 14 Financial definitions 124 Important events 15 Sustainability notes (Group) 125 Financial summary and analysis 15 Auditor’s Limited Assurance Report on Atlas Copco AB’s Sustainability Report 132 Parent Company 19 Five years in summary 133 Compressor Technique 20 Industrial Technique 24 Mining and Rock Excavation Technique 28 Construction Technique 32 The audited annual accounts and consolidated accounts can be Risks, risk management and opportunities 36 found on pages 14–47 and 56–122. The corporate governance report examined by the auditors can be found on pages 56–65. Innovation 40 Sustainability information that has been reviewed by the auditors Employees 44 can be found on pages 10–13, 40–53 and 125–131. Note: The amounts are presented in MSEK unless otherwise CONTACTS: indicated and numbers in parentheses represent compara- Investor Relations: tive figures for the preceding year. Mattias Olsson, Vice President Investor Relations [email protected] Forward-looking statements: Some statements in this report are forward-looking, and the actual outcomes could be Media: materially different. In addition to the factors explicitly dis- Ola Kinnander, Media Relations Manager cussed, other factors could have a material effect on the [email protected] actual outcomes. Such factors include, but are not limited to, general business conditions, fluctuations in exchange Sustainability: rates and interest rates, political developments, the impact Mala Chakraborti, Vice President Corporate Responsibility of competing products and their pricing, product develop- [email protected] ment, commercialization and technological difficulties, interruptions in supply, and major customer credit losses. Atlas Copco AB and its subsidiaries are sometimes referred to as the Atlas Copco Group, the Group, or Atlas Copco. Atlas Copco AB is also sometimes referred to as Atlas Copco. Any mention of the Board of Directors or the Board Production: Atlas Copco AB, Griller Grafisk Form AB, Text Helene AB. refers to the Board of Directors of Atlas Copco AB. Copyright 2015, Atlas Copco AB, Stockholm, Sweden. Print: Ineko. 9853 8303 01 (3 500) COMPRESSOR WELCOME TO THE TECHNIQUE ATLAS COPCO GROUP Revenues 2014: MSEK 42 165 Atlas Copco is a world-leading provider of sustainable productivity The Compressor Technique business area provides solutions. The Group serves customers with innovative compressors, industrial compressors, vacuum solutions, gas and process compressors and expanders, air and gas vacuum solutions and air treatment systems, construction and treatment equipment and air management systems. mining equipment, power tools and assembly systems. Atlas Copco The business area has a global service network and develops products and service focused on productivity, energy innovates for sustainable productivity in the efficiency, safety and ergonomics. The company was founded in manufacturing, oil and gas, and process industries. 1873, is based in Stockholm, Sweden, and has a global reach Principal product development and manufacturing units are located in Belgium, the United States, spanning more than 180 countries. In 2014, Atlas Copco had China, South Korea, Germany, Italy and the United revenues of BSEK 94 (BEUR 10.3) and more than 44 000 employees. Kingdom. Orders received, MSEK Revenues, MSEK ATLAS COPCOOperating GROUP margin, % MSEK % ORDERS RECEIVED, MSEK % 100 000 25 REVENUES AND 45 000 25 OPERATING MARGIN 80 000 20 36 000 20 60 000 15 Orders received, MSEK 27 000 15 Revenues, MSEK 40 000 10 Operating margin, % 18 000 10 20 000 5 9 000 5 MSEK % 100 000 25 0 0 0 0 2010 2011 2012 2013 2014 2012 2013 2014 80 000 20 60 000 15 Asia/Australia, 28% North REVENUES BY Asia/ North 40 000 10 America, 22% REGION Australia, 34% America, 23% Africa/ Africa/ Middle East, 10% 20 000 5 Middle East, 6% South South Europe, 31% America, 9% 0 0 Europe, 32% America, 5% 2010 2011 2012 2013 2014 Service, 43% Equipment, 57% SHARE OF Service, 37% Equipment, 63% REVENUES Other, 8% Manufacturing, 33% ORDERS RECEIVED BY Other, 10%Manufacturing, 46% Service, 5% CUSTOMER CATEGORY Service, 8% Construction, Construction, 7% 20% Process Mining, 20% industry, 14% Mining, 2% Process industry, 27% SHARE OF REVENUES BY BUSINESS AREA THE YEAR The orders received for small and medium­ IN REVIEW sized compressors increased and the service Construction business continued to grow in 2014. The Technique, 16% Compressor demand for large compressors, however, Technique, 45% was soft and orders decreased. Edwards, a technology and market leader in sophisticated Mining and Rock Excavation Industrial vacuum products and abatement solutions, Technique, 27% Technique, 12% was acquired and the business area continued to invest in market presence, innovation and competence development. INDUSTRIAL MINING AND ROCK CONSTRUCTION TECHNIQUE EXCAVATION TECHNIQUE TECHNIQUE Revenues 2014: Revenues 2014: Revenues 2014: MSEK 11 450 MSEK 25 718 MSEK 14 739 The Industrial Technique business area provides The Mining and Rock Excavation Technique busi­ The Construction Technique business area provides industrial power tools and systems, industrial ness area provides equipment for drilling and rock construction and demolition tools, portable compres­ assembly solutions, quality assurance products, excavation, a complete range of related consum­ sors, pumps and generators, lighting towers, and software and service through a global network. The ables and service through a global network. The compaction and paving equipment. The business area business area innovates for sustainable productivity business area innovates for sustainable productivity offers specialty rental and provides service through for customers in the automotive and general indus­ in surface and underground mining, infrastructure, a global network. Construction Technique innovates tries, maintenance and vehicle service. Principal civil works, well drilling and geotechnical applica­ for sustainable productivity in infrastructure, civil product development and manufacturing units are tions. Principal product development and manu­ works, oil and gas, energy, drilling and road construc­ located in Sweden, Germany, the United States, facturing units are located in Sweden, the United tion projects. Principal product development and United Kingdom, France and Japan. States, Canada, China and India. manufacturing units are located in Belgium, Germany, Sweden, the United States, China, India and Brazil. MSEK % MSEK % MSEK % 15 000 25 35 000 25 15 000 25 12 000 20 28 000 20 12 000 20 9 000 15 21 000 15 9 000 15 6000 10 14 000 10 6 000 10 3 000 5 7 000 5 3 000 5 0 0 0 0 0 0 2012 2013 2014 2012 2013 2014 2012 2013 2014 Asia/ North Asia/ North Asia/ North Australia, 22% America, 27% Australia, 24% America, 22% Australia, 21% America, 20% Africa/ Africa/ Africa/ Middle East, 1% Middle East, 18% Middle East, 14% South South South Europe, 46% America, 4% Europe, 21% America, 15% Europe, 34% America, 11% Service, 26% Equipment, 74% Service Equipment, 33% Service, 15% Equipment, 69% (consumables) 24% Service (rental), 16% Service, 43% Other, 7% Manufacturing, 85% Mining, 66% Process Others, 14% Manufacturing, 14% industry, 1% Service, 3% Process Service, 8% industry, 8% Construction, 33% Construction, 3% Process industry, 2% Construction, 48% Mining, 8% The business area achieved healthy order The demand for mining and rock excavation The order intake of construction equipment growth in all major regions and for most types equipment remained at a low level and the order was largely unchanged. It improved in North of industrial tools and assembly systems. The volumes were somewhat lower than in 2013. The America while it developed negatively in South growth was supported by the motor vehicle service business was stable, while consumable America. Specialty rental as well as the service and general industries’ investments and by orders were lower. The business area identified business developed well and the business area strong development of the service business.