Atlas Copco 2007 – a very good year Annual Report Sustainability Report Corporate Governance Report 07 Revenues and Contents operating margin Earnings per share MSEK % SEK 80 000 40 8 Annual Report 70 000 35 7 Group Overview 2 60 000 30 6 President and CEO 4 50 000 25 5 Atlas Copco in Brief 8 40 000 20 4 30 000 15 3 Atlas Copco Group Administration Report 20 000 10 2 Board of Directors’ Report 12 10 000 5 1 Compressor Technique 24 0 0 0 031) 041) 05 06 07 031) 041) 05 06 07 Construction and Mining Technique 28 Revenues, MSEK Industrial Technique 32 Operating margin, % 1) Including discontinued operations Financial Statements Atlas Copco Group Consolidated Income Statement 36 Consolidated Balance Sheet 37 Consolidated Statement of Changes in Equity 38 Consolidated Statement of Cash Flows 39 Notes to the Atlas Copco Group Financial Statements 40 Financial Statements Parent Company Financial Statements of the Parent Company 77 Notes to the Parent Company Financial Statements 79 Atlas Copco 2007 Appropriation of Profit 91 Audit Report 92 Financial definitions 93 Note: The amounts are presented in MSEK unless otherwise Sustainability Report indicated and numbers in parentheses represent comparative figures for the preceding year. Important Events During the Year 94 Society and the Environment 98 Forward-looking statements: Some statements in this report are forward-looking, and the actual outcomes could be materi- Customers 104 ally different. In addition to the factors explicitly discussed, other Employees 107 factors could have a material effect on the actual outcomes. Such factors include, but are not limited to, general business Business Partners 110 conditions, fluctuations in exchange rates and interest rates, Shareholders 111 political developments, the impact of competing products and their pricing, product development, commercialization and Sustainability Performance Summary 112 technological difficulties, interruptions in supply, and major Definitions 113 customer credit losses. Atlas Copco AB and its subsidiaries are sometimes referred to Corporate Governance Report as the Atlas Copco Group, the Group, or Atlas Copco. Atlas Shareholders 114 Copco AB is also sometimes referred to as Atlas Copco. Any mention of the Board of Directors or the Directors refers to the Nomination Process 115 Board of Directors of Atlas Copco AB. Board of Directors 118 Auditors 119 Group Structure and Management 120 Information for the Capital Market 125 Internal Control over Financial Reporting 125 The Annual Report, the Sustainability Report and the Corporate Governance Report are The Atlas Copco Share 128 published in one document. Five Years in Summary 132 The annual magazine Achieve presents how Quarterly Data 133 Atlas Copco works to reach the vision First in Mind—First in Choice ®. Legal Entities 134 Financial Information 136 Addresses 137 • Improved demand, increased market presence and penetration, and successful introductions of new products. • Strong order growth in all regions continued. • Revenues MSEK 63 355 (50 512), up 16% in volume. • Operating profit MSEK 12 066 (9 203), corresponding to a record operating margin of 19.0% (18.2). • Total capital distribution of MSEK 27 315 to shareholders. • Strategic acquisition of road construction equipment business. • Proposed dividend for 2007: SEK 3.00 (2.38) per share. Atlas Copco 2007 2007 in figures MSEK 2007 2006 Change, % Orders received 69 059 55 239 +25 Revenues 63 355 50 512 +25 Operating profit 12 066 9 203 +31 – as a percentage of revenues 19.0 18.2 Profit before tax 10 534 8 695 +21 – as a percentage of revenues 16.6 17.2 Profit from continuing operations 7 416 6 260 +18 Basic earnings per share, continuing operations, SEK 6.05 4.98 +21 Diluted earnings per share, continuing operations, SEK 6.04 4.96 +22 Profit from discontinued operations, net of tax 53 9 113 Profit for the year1) 7 469 15 373 Basic earnings per share, SEK1) 3) 6.09 12.24 Diluted earnings per share, SEK1) 3) 6.09 12.22 Dividend per share, SEK3) 3.002) 2.38 +26 Mandatory redemption per share, SEK3) 20 Equity per share, SEK1) 3) 12 27 Operating cash flow 4 589 3 065 Return on capital employed 29 36 Return on equity, %1) 34.7 54.8 Average number of employees 29 522 24 378 1) Including discontinued operations. 2) Proposed by the Board of Directors. 3) Recalculated for share split. Atlas Copco 2007 1 GroUP OVerVieW Atlas Copco Group Atlas Copco is a world leading provider of industrial pro- with customers and business partners, and with 135 years of ductivity solutions. The products and services range from experience, Atlas Copco innovates for superior productivity. compressed air and gas equipment, generators, construction Headquartered in Stockholm, Sweden, the Group’s global and mining equipment, industrial tools and assembly sys- reach spans more than 160 markets. In 2007, Atlas Copco had tems, to related aftermarket and rental. In close cooperation revenues of BSEK 63 (BEUR 6.7) and 33 000 employees. The Business Revenues and operating margin Compressor Technique The Compressor Technique business area MSEK % develops, manufactures, markets, distrib- 35 000 28 utes, and services oil-free and oil-injected 30 000 24 stationary air compressors, portable air com- pressors, gas and process compressors, 25 000 20 turbo expanders, generators, air treatment equipment, and air management systems. 20 000 16 The business area has in-house resources 15 000 12 for basic development in its core technolo- gies, and offers specialty rental services. 10 000 8 Development, manufacturing, and assembly are concentrated in Belgium, with other units 5 000 4 situated in Brazil, China, Czech Republic, 0 0 France, Germany, India, Italy, New Zealand, 03 04 05 06 07 Switzerland, and the United States. Revenues, MSEK Operating margin, % Construction and Mining Technique The Construction and Mining Technique busi- MSEK % ness area develops, manufactures, markets 30 000 24 and services rock drilling tools, underground rock drilling rigs for tunneling and mining 25 000 20 applications, surface drilling rigs, loading equipment, exploration drilling equipment, 20 000 16 construction tools and road construction equipment. 15 000 12 The business area has its principal prod- uct development and manufacturing units in 10 000 8 Sweden, Germany, and the United States, with other units in Australia, Austria, Brazil, 5 000 4 Bulgaria, Canada, Chile, China, Finland, 0 0 India, Japan, and South Africa. 03 04 05 06 07 Revenues, MSEK Operating margin, % Industrial Technique The Industrial Technique business area devel- MSEK % ops, manufactures, and markets industrial 8 000 24 power tools, assembly systems, and after- 7 000 21 market products and services. It serves the needs of industrial manufacturing, such as 6 000 18 the automotive and aerospace industries, 5 000 15 general industrial manufacturing, and main- tenance and vehicle service. 4 000 12 The business area has its product devel- 3 000 9 opment and manufacturing units in Sweden, China, France, Germany, Great Britain, Hun- 2 000 6 gary, Italy, Japan, and the United States. The 1 000 3 business area has also assembly system application centers in several markets. 0 0 031) 041) 05 06 07 Revenues, MSEK Operating margin, % 1) Excluding the divested professional electric tools business. 2 Atlas Copco 2007 Revenues by business area Revenues by customer category Revenues by geographic area North America, 20% Industrial Technique, 11% Compressor Technique, 50% Other, 9% Construction, 24% Asia/ Australia, 21% South America, Service, 6% 7% Mining, 20% Construction and Africa/ Mining Technique, 39% Process industry, 13%Manufacturing, 28% Middle East, 10% Europe, 42% Compressor Technique, 50% Other, 11% Asia/ North America, Construction, 14% Australia, 25% 15% Service, 9% Africa/ Mining, 5% Middle East, 8% South America, Process industry, 25% Manufacturing, 36% Europe, 46% 6% Construction and Other, 6% Mining Technique, 39% Asia/ North America, Australia, 19% 24% Service, 2% Construction, 43% Africa/ Mining, 46% Middle East, 14% South America, Process industry, 1% Manufacturing, 2% Europe, 33% 10% Industrial Technique, 11% Other, 14% Construction, 1% Asia/ North America, Service, 1% Australia, 13% 25% Africa/ Middle East, 2% South America, Europe, 56% 4% Process industry, 2% Manufacturing, 82% Atlas Copco 2007 3 president and ceo Breaking new records in 2007 We are pleased to report to our shareholders and employees that 2007 was Atlas Copco’s fourth consecutive record year. We face the future with a solid structure and way of doing business with an aim to continue delivering sustainable growth and creating even more value. Summary of 2007 There is an enormous potential in these markets and their The demand for our products and services was strong in all geo- importance will most likely increase. In 2007, well over 40% of graphical regions, with 25% growth or more in orders on all con- orders received came from emerging markets, and five of our 10 tinents. All customer segments were very active and the mining largest markets are developing countries. We are also affected in- industry showed exceptional strength. directly through growing sales to customers that also are benefit- Investments to strengthen our sales and service organiza- ing from the economic boom in Asia and elsewhere. Our truly tions paid off with improvements in our already strong market global distribution of sales and service means we stand strong in positions, both in emerging markets as well as in Europe and the years to come. North America. Our strong cash flow and new capital structure, following the We also carried out and decided on substantial investments divestment of the North American equipment rental business, to increase our production capacity and restructure our manu- allowed us to not only invest and make acquisitions, but also facturing operations to increase productivity and quality, and to provide our shareholders with an extraordinary cash distribu- be closer to our customers in the fastest-growing markets.