Annual and Sustainability Report 2019 United in Performance. Inspired by Innovation. Performance unites us, innovation inspires us and commitment drives us to keep moving forward. Count on Epiroc to deliver the solutions you need to succeed today and the technology to lead tomorrow. Cover: Autonomous drill rigs provide improved safety and increased productivity. 2 4 The year CEO in brief Comments 12 26 Our strengths and goals Sustainability About this report Content The audited annual accounts and consolidated accounts can be found on pages 38–51 and The year in brief 2 62–121. The corporate governance report exam- ined by the auditors can be found on pages 52–61. CEO comments 4 Epiroc reports its sustainability work for 2019 This is Epiroc 6 according to the Global Reporting Initiative (GRI) Our strengths and goals 12 Standards version 2016, “Core” option. The sustain- We are a leading productivity ability report has been prepared in accordance partner in attractive niches 14 with disclosure requirements set out in the Swed- ish Annual Accounts Act, chapter 6, paragraph 11. We have a high proportion of recurring business 18 The sustainability information that has been We drive the future in intelligent reviewed by the auditors can be found on pages mining and infrastructure 20 24–37 and 126–133. The assurance report issued by We have a strong and proven the auditors can be found on page 133 and a detailed operating model 22 GRI Index can be found at www.epirocgroup.com. We create value for our stakeholders 24 Forward-looking statements Some statements in this report are forward- Sustainability 26 looking, and the actual outcomes could be mate- Our approach to sustainability and rially different. In addition to the factors explicitly corporate responsibility discussed, other factors could have a material Administration report 38 effect on the actual outcomes. Such factors include, but are not limited to, general business Five-year summary 51 conditions, fluctuations in exchange rates and interest rates, political developments, the impact Corporate governance report 52 of competing products and their pricing, product Risk management 60 development, commercialization and technolog- ical difficulties, interruptions in supply, and major Financial information 67 customer credit losses. Signatures 121 Epiroc AB is a public company. Epiroc AB and its subsidiaries are sometimes referred to as the Financial definitions 122 Epiroc Group, the Group, or Epiroc. Epiroc AB is Auditor’s report 123 also sometimes referred to as Epiroc. Any mention Epiroc was part of the of the Board of Directors or the Board refers to the Sustainability notes 126 Atlas Copco Group, Board of Directors of Epiroc AB. founded in 1873, until The Epiroc share 134 June 18, 2018, when Epiroc was distributed to the shareholders of Atlas Copco and listed Sustainability Report Annual Report on Nasdaq Stockholm. reviewed by the auditors THE YEAR IN BRIEF 2019 in brief Epiroc’s revenues, profit and cash flow increased, supported by strong growth of our aftermarket and efficiency initiatives. We continued to deliver innovative solutions in the areas of automation, digitalization and electrification, to help our customers become more productive, safe and cost efficient. Orders received Strong development of orders Lost time injury frequency rate and revenues received for aftermarket services. decreased 21% Weaker for equipment MSEK Revenues increased 7% to CO2 emissions from transport MSEK 40 849, an organic decreased 20% growth of 1% Three acquisitions were Operating profit was MSEK 8 136 completed during the year and operating margin was 19.9% Improved operating cash flow New CEO appointed Orders received, MSEK Revenues, MSEK Key figures MSEK 2019 2018 Change Orders received 39 492 39 400 0% Operating profit Revenues 40 849 38 285 7% and margin Operating profit 8 136 7 385 10% Operating margin, % 19.9 19.3 MSEK % Profit before tax 7 843 7 201 9% Profit margin, % 19.2 18.8 Net profit 5 884 5 437 8% Operating cash flow 6 688 3 884 72% Basic earnings per share, SEK 4.89 4.50 9% Dividend per share, SEK 2.40 2.10 14% Return on capital employed, % 27.6 32.0 Net debt/EBITDA ratio 0.05 0.14 Lost time injury frequency rate, LTIFR 2.7 3.4 -21% Sick leave, % 2.1 2.2 -5% MWh energy from operations/ Cost of sales, MSEK 6.8 7.6 -11% Operating profit, MSEK Operating margin, % Transport CO2, tonnes/Cost of sales, MSEK 4.5 5.6 -20% Adjusted operating margin, % Lost time injury frequency Energy consumption and sick leave and CO2 emissions Return on capital employed LTIFR %% MWh Tonnes MSEK % Lost time injury frequency MWh energy from opera- Average capital employed, rate, LTIFR tions/Cost of sales, MSEK MSEK Sick leave, % Transport CO 2, tonnes/ Return on capital employed, % Cost of sales, MSEK Note: Financial statements prior to 2018 are combined. See note 1 in the Annual and Sustainability Report 2018. 2 Epiroc Annual and Sustainability Report 2019 THE YEAR IN BRIEF Highlights Safer mining in Chile Helena Hedblom new CEO 6th Sense One of the largest ever full service The Board of Epiroc AB has 6th Sense optimizes custom- contracts was won from Codelco appointed Helena Hedblom as ers’ processes by connecting for service of mining equip- the new President and CEO of machines, systems and people ment used at the Andina mine in Epiroc AB, effective March 1, using automation, information Chile. The contract value totals 2020. She replaces Per Lindberg, management and system integra- MUSD 68 over seven years. Epiroc who will leave the company after tion. With 6th Sense, our custom- will contribute to Codelco opera- having successfully established ers can achieve production gains tions making them as productive, Epiroc as a listed company. and lower operating costs. efficient and safe as possible, Epiroc Annual and Sustainability Report 2019 3 CEO COMMENTS Innovation and efficiency in focus Helena Hedblom is the President and CEO of Epiroc AB, as from March 1, 2020. She replaces Per Lindberg, who leaves the company after having successfully established Epiroc as a listed company. “We are a young and dynamic company with energy and passion” Per Lindberg President and CEO In 2019, Epiroc’s revenues, profit and cash flow increased, supported by strong growth in our aftermarket and efficiency initiatives. Our customers showed great interest in our innovative productivity solutions, in a market where demand for equipment softened. We continue to focus on innovations, such as automation, digitalization and electrifica- tion. With our passionate employees and through commitment and collaboration, we help our customers become more productive, safe and cost efficient, which enables us to create long-term value and further strengthen Epiroc for the future. On June 18, 2019, we celebrated one year as an independent, significant benefits customers reap compared with using listed company. We are a young and dynamic company with traditional diesel machines: better health and safety, higher energy and passion. Still, we have significant expertise and productivity and lower total costs. Diesel has been the fuel experience in what we do. We strive to be a true productivity of choice for mining equipment, but this is now starting to partner to our customers and continuously strengthen their change. Underground operations stand to gain the most operations. We were pleased to see many successful exam- from going electric as diesel fuel traditionally implies heavy ples of this throughout 2019. investments in ventilation to air out fumes. Epiroc is proud to spearhead the drive towards a more sustainable under- 6th Sense solutions for productivity ground mining environment. Automation, digitalization and information management are increasingly used by mining companies to strengthen opera- Sustainability now and onwards tions and become more safe and sustainable. Epiroc is at the Focusing on safety, work conditions, energy efficiency and forefront of this development and in 2019, we launched 6th other sustainability aspects is not only ethically right, it is a Sense, our package of digital solutions. 6th Sense is our way key part of our operating model. The rate of work-related to optimize customers’ processes by connecting machines, accidents fell by 21%. Our machines in operation can have a systems and people. Examples range from installing a fully negative impact on the environment and we continuously autonomous SmartROC D65 surface drill rig for Newmont innovate to make them more sustainable. The battery-elec- Goldcorp in Canada to supporting the digitalization of Puco- tric machines are one example, but several other Epiroc ini- bre’s mining operations in Chile. The solutions increase safety, tiatives are also contributing to a more sustainable future. We boost productivity, reduce the environmental impact and are reducing the share of products delivered by air freight improve work conditions. and as a result CO2 emissions from transport fell significantly. In our operations we lowered energy consumption by 6% and Battery-electric machines for increased the proportion of renewable energy by 3 percent- zero-emission operations age points. We have set targets on how we use resources We launched our new generation battery-electric mining responsibly and efficiently, and our sustainability key perfor- equipment in late 2018, and in 2019, orders came in from mance indicators make sure that we follow progress closely. customers in several countries. No wonder, considering the Our Code of Conduct is our most important tool to uphold 4 Epiroc Annual and Sustainability Report 2019 CEO COMMENTS high standards. In 2019, we launched a new and more It is our goal to have an industry-best operating margin that user-friendly whistleblower tool called Speak Up. We are a is resilient over the business cycle. In 2019, our operating signatory to the UN Global Compact and fully support the margin improved over 2018 and landed at 19.9%.