ATLAS COPCO Annual report 2016 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 mission of creating sustainable, profitable growth and it integrates financial, sustainability and governance information in order to describe Atlas Copco in a comprehensive and cohesive manner. CONTENTS Atlas Copco Group Inside front cover NEW BUSINESS AREA President and CEO 2 ANNOUNCED THIS IS ATLAS COPCO 6 Vacuum Technique This section contains Atlas Copco’s vision, mission, business area, strategy, structure and governance, how we do operational from business and create value. January 1, 2017. THE YEAR IN REVIEW Administration report See page 25 This section describes Atlas Copco’s annual Detail from front page: performance and achievements. 14 An Edwards nEXT turbomolecular Compressor Technique 20 vacuum pump is being checked after leak test prior to fitting to the Industrial Technique 26 final test station. Mining and Rock Excavation Technique 30 Construction Technique 34 RECORD PROFIT, ORDERS Risks, risk management and opportunities 38 AND STRONG CASH FLOW See page 16–18 Innovation 42 Employees 46 Society 49 The Atlas Copco share 54 Corporate governance 56 NOTICE The amounts are presented in MSEK unless otherwise indicated OUR FINANCIAL RESULTS and numbers in parentheses represent comparative figures for the Financial statements (Group) 66 preceding year. The figures presented in this report refer to continuing operations unless otherwise stated. Notes (Group) 71 FORWARD-LOOKING STATEMENTS Financial statements (Parent) 110 Some statements in this report are forward-looking, and the actual out- Notes (Parent) 112 comes could be materially different. In addition to the factors explicitly discussed, other factors could have a material effect on the actual Signatures of the Board of Directors 124 outcomes. Such factors include, but are not limited to, general business conditions, fluctuations in exchange rates and interest rates, political Audit report 125 developments, the impact of competing products and their pricing, Financial definitions 128 product development, commercialization and technological difficulties, interruptions in supply, and major customer credit losses. Sustainability notes (Group) 129 Atlas Copco AB and its subsidiaries are sometimes referred to as the Auditor’s Limited Assurance Report on Atlas Copco Group, the Group, or Atlas Copco. Atlas Copco AB is also Atlas Copco AB’s Sustainability Report 136 sometimes referred to as Atlas Copco. Any mention of the Board of Directors or the Board refers to the Board of Directors of Atlas Copco AB. Five years in summary 137 MARKED WITH BLUE CONTACTS The audited annual accounts and consolidated accounts can be Investor Relations found on pages 14–48 and 56–124. The corporate governance Daniel Althoff, Investor Relations Manager report examined by the auditors can be found on pages 56–65. [email protected] Media MARKED WITH GREEN Ola Kinnander, Media Relations Manager Sustainability information that has been reviewed by the [email protected] auditors can be found on pages 10–13, 42–53 and 129–135. Sustainability Sofia Svingby, Vice President Corporate Responsibility [email protected] Production: Atlas Copco AB, Griller Grafisk Form AB, Text Helene AB Copyright 2017, Atlas Copco AB, Stockholm, Sweden Print: Hylte Tryck. Prepress: Bildrepro 9853 8376 01 (3 500) A decentralized group with four business areas in 2016, and five in 2017 In the third quarter 2016, the Atlas Copco Group announced a fifth business area. The new business area Vacuum Technique, was operational from January 1, 2017. The vacuum business was part of the Compressor Technique business area in 2016. Below, the Group presents the four business areas that were operational in 2016 and with restated figures for Compressor Technique and Vacuum Technique, the five business areas that are operational in 2017. COMPRESSOR TECHNIQUE COMPRESSOR TECHNIQUE VACUUM TECHNIQUE Operational through 2016 Operational from January 1, 2017 Operational from January 1, 2017 READ MORE ON PAGE 20 (Restated figures) READ MORE ON PAGE 25 READ MORE ON PAGE 24 Revenues 2016: Revenues 2016: Revenues 2016: MSEK 49 991 MSEK 36 356 MSEK 13 635 The Compressor Technique business area The Compressor Technique business area The Vacuum Technique business area provides provides industrial compressors, vacuum provides compressed air solutions; industrial vacuum products, exhaust management systems, solutions, gas and process compressors and compressors, gas and process compressors valves and related products mainly under the expanders, air and gas treatment equipment and expanders, air and gas treatment equipment Edwards, Leybold and Atlas Copco brands. and air management systems. The business and air management systems. The business The main markets served are semiconductor and area has a global service network and innovates area has a global service network and innovates scientific as well as a wide range of industrial for sustainable productivity in the manufacturing, for sustainable productivity in the manufacturing, segments including chemical process industries, oil and gas, and process industries. Principal oil and gas, and process industries. Principal food packaging and paper handling. The business product development and manufacturing units product development and manufacturing units area has a global service network and innovates for are located in Belgium, the United States, China, are located in Belgium, the United States, sustainable productivity in order to further improve South Korea, Germany, Italy and the United China, India, Germany and Italy. its customers’ performance. Principal product Kingdom. development and manufacturing units are located in the United Kingdom, Czech Republic, Germany, South Korea, China and Japan. ORDERS RECEIVED, REVENUES ORDERS RECEIVED, REVENUES ORDERS RECEIVED, REVENUES AND OPERATING MARGIN AND OPERATING MARGIN AND OPERATING MARGIN MSEK % MSEK % MSEK % 50 000 25 50 000 25 15 000 25 40 000 20 40 000 20 12 000 20 30 000 15 30 000 15 9 000 15 20 000 10 20 000 10 6 000 10 10 000 5 10 000 5 3 000 5 0 0 0 0 0 0 2013 2014 2015 2016 2013 2014 2015 2016 2014 2015 2016 REVENUES BY REGION REVENUES BY REGION REVENUES BY REGION Asia/ North Asia/ North Asia/ North Australia, 38% America, 22% Australia, 30% America, 22% Australia, 58% America, 22% Africa/ Africa/ South Middle East, 7% Middle East, 8% America, 1% Africa/ South South Middle East, 5% Europe, 14% Europe, 29% America, 4% Europe, 35% America, 5% SHARE OF REVENUES SHARE OF REVENUES SHARE OF REVENUES Service, 37%Equipment, 63% Service, 43% Equipment, 57% Service, 22% Equipment, 78% ORDERS RECEIVED BY ORDERS RECEIVED BY ORDERS RECEIVED BY CUSTOMER CATEGORY CUSTOMER CATEGORY CUSTOMER CATEGORY Other, 9% Manufacturing, 47% Other, 12%Manufacturing, 37% Other, 1% Manufacturing, 77% Service, 8% Service, 10% Construction, Construction, 9% 11% Process Mining, 2% Process industry, 25% Mining, 3% Process industry, 27% industry, 22% A decentralized group with four business areas in 2016, and five in 2017 In the third quarter 2016, the Atlas Copco Group announced a fifth business area. The new business area Vacuum Technique, was operational from Orders received, MSEK January 1, 2017. The vacuum business was part of the Compressor Technique business area in 2016. Below, the Group presents the four business areas that Revenues, MSEK were operational in 2016 and with restated figures for Compressor Technique and Vacuum Technique, the five business areas that are operational in 2017. Operating margin, % INDUSTRIAL MINING AND ROCK CONSTRUCTION MSEK % TECHNIQUE EXCAVATION TECHNIQUE TECHNIQUE 125 000 25 READ MORE ON PAGE 26 READ MORE ON PAGE 30 READ MORE ON PAGE 34 100 000 20 75 000 15 50 000 10 Revenues 2016: Revenues 2016: Revenues 2016: 5 MSEK 15 017 MSEK 25 043 MSEK 11 794 25 000 0 0 2012 2013 2014 2015 2016 The Industrial Technique business area provides The Mining and Rock Excavation Technique busi- The Construction Technique business area pro- industrial power tools and systems, industrial ness area provides equipment for drilling and rock vides construction and demolition tools, portable assembly solutions, quality assurance products, excavation, a complete range of related consum- compressors, pumps and generators, and lighting software and service through a global network. ables and service through a global network. The towers. The business area offers specialty rental The business area innovates for sustainable business area innovates for sustainable productivity and provides service through a global network. productivity for customers in the automotive in surface and underground mining, infrastructure, Construction Technique innovates for sustainable and general industries, maintenance and vehicle civil works, well drilling and geotechnical applica- productivity in infrastructure, civil works, oil service. Principal product development and tions. Principal product development and manu- and gas, energy and drilling. Principal product manufacturing units are located in Sweden, facturing units are located in Sweden, the United development and manu facturing units are located Germany, the United States, United Kingdom, States, Canada, China and India. in Belgium, Spain, Sweden, the United States, France and Japan. China, and India. ORDERS RECEIVED, REVENUES ORDERS RECEIVED, REVENUES ORDERS RECEIVED, REVENUES AND OPERATING MARGIN