Atlas Copco 2008 – tough ending to a record year Annual Report Sustainability Report Corporate Governance Report 08 WorldReginfo - d0ea247e-c6b1-4865-845d-219d31474890 Contents Revenues and operating margin Earnings per share MSEK % SEK 80 000 40 16 Annual Report 70 000 35 14 Group Overview 2 60 000 30 12 President and CEO 4 50 000 25 10 Atlas Copco in Brief 8 40 000 20 8 30 000 15 6 Atlas Copco Group Administration Report 20 000 10 4 Board of Directors’ Report on 2008 Operations 12 10 000 5 2 Compressor Technique 24 0 0 0 041) 05 06 07 08 041) 051) 061) 071) 081) 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 Consolidated Financial Statements 40 Financial Statements Parent Company Financial Statements of the Parent Company 79 Notes to the Parent Company Financial Statements 81 Atlas Copco 2008 Appropriation of Profit 95 Audit Report 96 Financial Definitions 97 Sustainability Report Note: The amounts are presented in MSEK unless otherwise Corporate Responsibility 99 indicated and numbers in parentheses represent comparative figures for the preceding year. Society and the Environment 102 Customers 107 Forward-looking statements: Some statements in this report are forward-looking, and the actual outcomes could be materi- Employees 109 ally different. In addition to the factors explicitly discussed, other Business Partners 112 factors could have a material effect on the actual outcomes. Such factors include, but are not limited to, general business Shareholders 114 conditions, fluctuations in exchange rates and interest rates, Performance Summary 2008 115 political developments, the impact of competing products and their pricing, product development, commercialization and Sustainability and Reporting Definitions 116 technological difficulties, interruptions in supply, and major customer credit losses. Corporate Governance Report Atlas Copco AB and its subsidiaries are sometimes referred to Shareholders 117 as the Atlas Copco Group, the Group, or Atlas Copco. Atlas Nomination Process 117 Copco AB is also sometimes referred to as Atlas Copco. Any mention of the Board of Directors or the Directors refers to the Board of Directors 117 Board of Directors of Atlas Copco AB. Auditor 121 Group Structure and Management 122 Information for the Capital Market 126 Internal Control over Financial Reporting 127 The Annual Report, the Sustainability Report and the Corporate Governance Report are published in one document. The Atlas Copco Share 130 Five Years in Summary 134 Quarterly Data 135 Financial Information 136 Addresses 137 WorldReginfo - d0ea247e-c6b1-4865-845d-219d31474890 • Strong order growth in most areas during the first nine months was partly offset by a weak fourth quarter. • Continued good growth in the aftermarket business. • Revenues MSEK 74 177 (63 355), up 9% in volume. • Operating profit up 14% to MSEK 13 806 (12 066), corresponding to an operating margin of 18.6% (19.0). • Profit for the year was MSEK 10 190 (7 469). • Proposed dividend for 2008: SEK 3.00 (3.00) per share. • Measures taken to adapt capacity and costs to the new demand situation. Atlas Copco 2008 2008 in figures MSEK 2008 2007 Change, % Orders received 73 572 69 059 +7 Revenues 74 177 63 355 +17 Operating profit 13 806 12 066 +14 – as a percentage of revenues 18.6 19.0 Profit before tax 13 112 10 534 +24 – as a percentage of revenues 1 7. 7 16.6 Profit from continuing operations 10 006 7 416 +35 Basic earnings per share, continuing operations, SEK 8.18 6.05 +35 Diluted earnings per share, continuing operations, SEK 8.18 6.04 +35 Profit from discontinued operations, net of tax 184 53 Profit for the year1) 10 190 7 469 Basic earnings per share, SEK1) 8.33 6.09 Diluted earnings per share, SEK1) 8.33 6.09 Dividend per share, SEK 3.002) 3.00 Mandatory redemption per share, SEK 20 Equity per share, SEK1) 20 12 Operating cash flow 4 751 4 589 Return on capital employed, % 34 29 Return on equity, %1) 57.7 34.7 Average number of employees 34 119 29 522 1) Including discontinued operations. 2) Proposed by the Board of Directors. Atlas Copco 2008 1 WorldReginfo - d0ea247e-c6b1-4865-845d-219d31474890 GroUP OVERVIEW Atlas Copco Group Atlas Copco is a world leading provider of industrial pro- with customers and business partners, and with 136 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 2008, Atlas Copco had tems, to related aftermarket and rental. In close cooperation revenues of BSEK 74 (BEUR 7.7) and 34 000 employees. The business Revenues and operating margin Compressor Technique The Compressor Technique business area MSEK % develops, manufactures, markets, distrib- 40 000 24 utes, and services oil-free and oil-injected 35 000 21 stationary air compressors, portable air compressors, oil and gas boosters, gas 30 000 18 and process compressors, turbo expanders, 25 000 15 generators, air treatment equipment, and air management systems. 20 000 12 The business area has in-house resources 15 000 9 for basic development in its core technolo- gies, and offers specialty rental services. 10 000 6 Development, manufacturing, and assembly 5 000 3 are concentrated in Belgium, with other units 0 0 situated in Brazil, China, Czech Republic, 04 05 06 07 08 France, Germany, India, Italy, New Zealand, Revenues, MSEK Switzerland, and the United States. Operating margin, % Construction and Mining Technique The Construction and Mining Technique busi- MSEK % ness area develops, manufactures, markets 35 000 21 and services rock drilling tools, underground 30 000 18 rock drilling rigs for tunneling and mining applications, surface drilling rigs, loading 25 000 15 equipment, exploration drilling equipment, construction tools and road construction 20 000 12 equipment. 15 000 9 The business area has its principal prod- uct development and manufacturing units in 10 000 6 Sweden, Germany, and the United States, with other units in Australia, Austria, Brazil, 5 000 3 Bulgaria, Canada, Chile, China, Finland, 0 0 India, Japan, and South Africa. 04 05 06 07 08 Revenues, MSEK Operating margin, % Industrial Technique The Industrial Technique business area devel- MSEK % ops, manufactures, and markets high-quality 8 000 24 industrial power tools, assembly systems, 7 000 21 and aftermarket products and services. It serves the needs of industrial manufacturing, 6 000 18 such as the automotive and aerospace 5 000 15 industries, general industrial manufacturing, and maintenance 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, Hungary, Italy, 2 000 6 Japan, and the United States. The business 1 000 3 area also has assembly system application centers in several markets. 0 0 041) 05 06 07 08 Revenues, MSEK Operating margin, % 1) Excluding the divested professional electric tools business. Atlas Copco 2008 2 WorldReginfo - d0ea247e-c6b1-4865-845d-219d31474890 Revenues by business area Revenues by customer category Revenues by geographic area North America, 19% Industrial Technique, 10% Compressor Technique, 48% Other, 8% Construction, 22% Asia/ Australia, 23% South America, Service, 6% 8% Mining, 26% Construction and Africa/ Mining Technique, 42% Process industry, 13% Manufacturing, 25% Middle East, 11% Europe, 39% Share of Group revenues Revenues by customer category Revenues by geographic area Compressor Technique, 48% Other, 9% Asia/ North America, Construction, 14% Australia, 25% 15% Service, 9% Africa/ Mining, 6% Middle East, 9% South America, Process industry, 26% Manufacturing, 36% Europe, 44% 7% Share of Group revenues Revenues by customer category Revenues by geographic area Construction and Mining Technique, 42% Other, 5% Asia/ North America, Australia, 20% 22% Service, 2% Construction, 37% Africa/ Mining, 56% Middle East, 16% South America, Europe, 32% 10% Share of Group revenues Revenues by customer category Revenues by geographic area Industrial Technique, 10% Other, 11% Construction, 1% Asia/ North America, Service, 2% Australia, 15% 22% Africa/ Middle East, 2% South America, Process industry, 2% Manufacturing, 84% Europe, 56% 5% Atlas Copco 2008 3 WorldReginfo - d0ea247e-c6b1-4865-845d-219d31474890 PRESIDENT AND CEO Records and Resilience The past year brought a turning point after a long period of unprecedented growth for Atlas Copco. Nine months of very strong overall demand and record-breaking achievements were followed by an unusually rapid weakening of the business climate, putting the resilience of our operations to the test. Summary of 2008 sive factor in helping us emerge stronger from the current crisis. In all, 2008 was Atlas Copco’s sixth year of growth, giving a total There will be a constant need for many years to come to build 26 consecutive quarters of organic growth. Orders received dur- out the industrial infrastructure of these nations, and all of our ing 2008 increased 7% to MSEK 73 572, the highest ever achieved business areas will deliver products needed in this development. by the Group. Operating profit also reached a record level. In 2008, nearly half of Atlas Copco’s sales were derived from Already early during the year, when demand was strong from emerging markets. most customer segments and geographical regions, contingency We are also pleased with our achievements in developing the plans were being made by our business areas and divisions to aftermarket business, i.e. sales of consumables, spare parts and cope with a potential downturn. service. This highly profitable market recorded good growth Today, we know how quickly and severely the financial crisis throughout the year, generating about 35% of Group revenues.