Atlas Copco Second quarter report 2005 (unaudited)

Record sales and profits · Very strong performances by all business areas · Orders received up 24%, up 11% in volume. · Revenues reached MSEK 13 062 (10 680), up 10% in volume. · Operating profit increased 45% and the margin reached 17.5% (14.8). · Profit after financial items increased 42% to MSEK 2 128 (1 502). · Net profit was MSEK 1 461 (1 112) and earnings per share SEK 2.32 (1.76). · The expected capital gain from the divestment of the professional electric tools business is not included. Final closing balance will be decided in arbitration. · Operating cash flow totaled MSEK 955 (774). Net cash flow, including share redemption, amounted to MSEK -4 366. The consolidated accounts are prepared in accordance with International Financial Reporting Standards (IFRS). Financial information for 2004 is restated and excludes discontinued operations (the professional electric tools business), unless otherwise stated. April – June January – June MSEK 2005 2004 % 2005 2004 % Orders 13 838 11 201 +24 25 828 21 478 +20 received Revenues 13 062 10 680 +22 24 230 20 275 +20 Operating 2 292 1 584 +45 4 029 2 905 +39 profit – as a 17.5 14.8 16.6 14.3 percentage of revenues Profit after 2 128 1 502 +42 3 793 2 733 +39 financial items – as a 16.3 14.1 15.7 13.5 percentage of revenues Net profit 1 461 1 046 +40 2 628 1 921 +37 from continuing operations Net profit - 66 - 113 from discontinued operations Net profit 1 461 1 112 +31 2 628 2 034 +29 Earnings per 2.32 1.761) +32 4.17 3.22 1) +30 share, SEK 2) Equity 34 33 capital per share, SEK 2) Return on 251) capital employed, % 1) Including discontinued operations. 2) Earnings per share and equity capital per share are adjusted for share split. Near-term demand outlook The demand for Atlas Copco’s products and services is expected to remain at a high level. Demand from manufacturing and process industries is expected to stay favorable. Activity in the construction industry is expected to continue to increase somewhat. Demand from the mining industry is expected to remain strong. Atlas Copco Group Summary of half-year results Orders received by the Atlas Copco Group in the first six months of 2005 increased 20%, to MSEK 25 828 (21 478). Volume for comparable units increased 9%, price increases added 3% and structural changes 10%, while the negative currency translation effect was 2%. Revenues increased 20%, to MSEK 24 230 (20 275), corresponding to 11% volume growth. The Group’s operating profit increased 39% to MSEK 4 029 (2 905), corresponding to a margin of 16.6% (14.3). The negative impact of changes in exchange rates compared with the previous year was approximately MSEK 100 for the first half year. Profit after financial items amounted to MSEK 3 793 (2 733), up 39% and corresponding to a margin of 15.7% (13.5). Net profit totaled MSEK 2 628 (2 034), or SEK 4.17 (3.22) per share. Previous year’s net profit includes discontinued opera­tions and the profit per share is adjusted for the share split in May 2005. Operating cash flow before acquisitions, divestments and dividends equaled MSEK 1 972 (1 636). Review of second quarter Market development Demand for the Group’s products and services in North America developed favorably. Increased demand from the manufacturing and process industries was noted for production related equipment and aftermarket products, as well as for investment goods. The non-residential construction segment continued to improve, which benefited the demand for rental equipment and services. The other construction segments – residential building and public infrastructure – showed a continued strong growth. The demand from the mining industry continued at the high level seen in recent periods. In South America, the demand development remained very positive across the continent. All major customer segments, the manufacturing, process and mining, as well as the construction industries, developed well. The demand in Europe was favorable but the growth was slower than in the other regions. Mining and construction equipment had a good development in Eastern Europe and in the Nordic countries. The demand for equipment and related aftermarket to the manufacturing and process industries improved in most markets. Germany and Italy, however, continued to be relatively weak. Overall demand from the construction sector improved further in the region. TheAfrica/Middle Eastregion developed positively. Mining and construction equipment as well as industrial tools were in good demand. The demand in Asia improved. Substantial growth was recorded in Japan, India and South East Asia, while sales in China stabilized. The development in Australiacontinued to be positive with healthy demand from most customer segments. Orders and revenues April - June Orders Received Revenues MSEK 2004 reported 12 599 12 079 Discontinued operations -1 398 -1 399 2004 11 201 10 680 Structural change, % +10 +9 Currency, % 0 0 Price, % +3 +3 Volume, % +11 +10 Total, % +24 +22 2005 13 838 13 062 Geographic distribution of orders received June June %, last 12 months 2005 2004 North America 37 36 South America 5 4 Europe 35 37 Africa/Middle East 6 6 Asia/Australia 17 17 100 100 Earnings and profitability Operating profit increased 45% to MSEK 2 292 (1 584) corresponding to an operating margin of 17.5% (14.8). The improvement was spread over all business areas and resulted primarily from higher revenue volumes and price increases. This more than offset the effects of higher material costs and increased marketing and sales activi­ties. The changes in exchange rates, compared to the previous year, had a net positive effect of about MSEK 50. Net financial items were MSEK -164 (-82). The net interest cost increased, primarily as a result of negative fair market valuations of debt related derivative instruments. The increased short-term USD interest rates compared to previous year also affected the interest net somewhat negatively. Exchange differences on financial instruments were MSEK -16 (+7). Profit after financial items improved 42%, to MSEK 2 128 (1 502), to a margin of 16.3% (14.1). Net profit totaled MSEK 1 456 (1 112) or SEK 2.32 (1.76) per share. Previous year’s net profit includes discontinued opera­tions and the profit per share is adjusted for the share split in May 2005. The expected one-time gain from the divestment of the professional electric tools business, MSEK 200 in originally estimated capital gain and MSEK 200 in currency hedging gain, is not included. The final closing balance of the business is in dispute and will be decided in arbitration as per the terms and conditions in the purchase agreement, which is a process that can take several quarters to finalize. The final result will be accounted for as net profit from discontinued operations. The return on capital employed during the 12 months to June 30, 2005 was 25%, and the return on shareholders’ equity was 23%. Both figures include discontinued operations. Previous year’s 12 month figures are not meaningful compari­sons as restatement to IFRS is only made from January 1, 2004. The Group currently uses a weighted average cost of capital (WACC) of 8% (pre-tax equivalent approximately 12%), as an investment and overall performance benchmark. Cash flow and investments Cash flow from operations before changes in working capital reached MSEK 2 487 (1 894), corresponding to 19% (18) of Group revenues. Working capital decreased by MSEK 47 (increased by 26). An increase in receivables and inventory, in line with the strong sales growth, was more than offset by an increase in supplier credits. Total cash flow from operations reached MSEK 2 534 (1 868). Cash flow from net investments, excluding acquisitions and divestments of businesses, was MSEK -1 579 (-1 094). Operating cash flow equalled MSEK 955 (774). Net indebtedness The Group’s net indebtedness, defined as the difference between interest-bearing liabilities and liquid assets, amounted to MSEK 8 912 (11 365), of which MSEK 2 281 (2 263) was attributable to employee benefits. The debt/equity ratio, defined as net indebtedness divided by shareholders’ equity, was 41% (54). Asbestos cases in the United States As of June 30, 2005, Atlas Copco had 206 asbestos cases filed with a total of 19 076 individual claimants. It is important to note that none of these cases identifies a specific Atlas Copco product. In each case there are several defendants, on average 113 companies per case. The Group dedicates substantial time and professional resources to monitor and follow each of these cases. Based on a continuous assessment of the actual exposure, the Group has not recorded any provisions related to these pending cases. People On June 30, 2005, the number of employees was 26 173 (26 334). For comparable units, the number of employees increased by 1 251 from June 30, 2004. Distribution of shares Share capital equaled MSEK 786 (1 048) at the end of the period, distributed as follows. Class of share Shares outstanding A shares 419 697 048 B shares 209 109 504 Total A and B shares 628 806 552 Share redemption The resolution of the Annual General Meeting to do a share split and to redeem 209 602 184 redemption shares was executed in the second quarter. Atlas Copco AB’s A and B redemption shares were redeemed in June and approximately BSEK 4.2 was distributed to the shareholders. See also www.atlascopco.com/redemption Simultaneously, 209 602 184 series C-shares were issued to and subscribed by Svenska Handelsbanken AB, with the sole purpose to enable a prompt payment to the shareholders. These C-shares will be redeemed as soon as Atlas Copco AB has received the court’s approval for the corresponding reduction of the restricted capital. As a consequence, the cash received from the C-share issue does not fulfil the requirement for equity in the consolidated accounts, and is booked as a short-term liability. Compressor Technique The Compressor Technique business area consists of five divisions in the following product areas: industrial compressors, portable compressors, generators, gas and process compressors, as well as specialty rental. April–June Change January–June Change MSEK 2005 2004 % 2005 2004 % Orders 5 434 4 776 +14 10 328 9 391 +10 received Revenues 5 207 4 549 +14 9 630 8 665 +11 Operating 962 808 +19 1 775 1 555 +14 profit - as a 18.5 17.8 18.4 17.9 percentage of revenues Return on 66 capital employed, % · Continued strong demand resulted in record order intake. · Positive sales development in all regions, particularly strong in the Americas. · Record profits, corresponding to an operating margin of 18.5%. Orders and revenues April – June Orders Received Revenues MSEK 2004 4 776 4 549 Structural change, % +1 +1 Currency, % +1 +1 Price, % +2 +1 Volume, % +10 +11 Total, % +14 +14 2005 5 434 5 207 Geographic distribution of orders received June June %, last 12 months 2005 2004 North America 13 12 South America 5 4 Europe 51 50 Africa/Middle East 7 7 Asia/Australia 24 27 100 100 The demand remained very favorable in most regions and customer segments. Order volume grew 10% compared to an already healthy second quarter 2004. Orders for stationary industrial compressors, as well as the related aftermarket business, continued to grow steadily in most regions. Small and medium-sized oil-injected machines, serving a wide variety of standard industrial applications, had good volume growth. Within the oil-free compressor range, the best develop­ment was achieved for the turbo-compressors, which normally serve applications for compres­sion of large volumes of air. Geographically, a strong growth was again recorded in almost all countries in North and South America. In Western Europe, the growth was modest, and the development in Eastern Europe leveled off from the previous very strong trend. Most countries in Asia recorded favorable development, both for machines and the aftermarket. Very strong growth was achieved in India and Japan, while sales in China almost equaled the high level of the second quarter 2004. In Australia and Africa/Middle East, sales of industrial compressors and the aftermarket were higher compared to the previous year. Orders for gas and process compressors increased significantly thanks to large orders. The most notable orders were received for an application on board ships that will carry liquid natural gas from gas fields in the Middle East. Demand for portable compressors increased further in the quarter and a very strong volume growth was recorded in North and South America, as well as in the Middle East. In Europe, large size portable compressors were in high demand. The specialty rental business, primarily rental of portable air and power, experienced another strong quarter, with significant growth both organically and from the acquired companies Guimerá in Spain and Kolfor in Great Britain. Lubenecké továrny Svoboda a.s. in the Czech Republic, referred to as Lutos, was acquired in June. Lutos has annual sales of MSEK 41, and 87 employees and manufactures and markets a range of air compressors for low pressures, so called blowers Operating profit increased 19% to MSEK 962 (808), corresponding to an operating margin of 18.5% (17.8). The operating margin benefited from the increases in revenue volume and prices, but was negatively affected by higher material and marketing costs. The changes in exchange rates had a small unfavorable effect on the margin. Return on capital employed (last 12 months) was 66%. Construction and Mining Technique The Construction and Mining Technique business area consists of seven divisions in the following product areas: drilling rigs, rock drilling tools, exploration equipment, construction tools, and loading equipment. April–June Change January–June Change MSEK 2005 2004 % 2005 2004 % Orders 4 166 2 547 +64 7 705 4 722 +63 received Revenues 3 771 2 359 +60 6 983 4 383 +59 Operating 485 245 +98 832 438 +90 profit - as a 12.9 10.4 11.9 10.0 percentage of revenues Return on 24 capital employed, % · Continued strong demand in mining and improvement in construction. · Strong volume growth, both for comparable units and in acquired companies. · Record profit, both in absolute and in margin. Orders and revenues April – June Orders Received Revenues MSEK 2004 2 547 2 359 Structural change, % +42 +37 Currency, % +1 +2 Price, % +4 +3 Volume, % +17 +18 Total, % +64 +60 2005 4 166 3 771 Geographic distribution of orders received June June %, last 12 months 2005 2004 North America 26 16 South America 10 9 Europe 32 41 Africa/Middle East 12 14 Asia/Australia 20 20 100 100 The strong demand from the mining industry continued. Investments in open pit and underground mines contributed to a very strong order development for new equipment, both for comparable and acquired units. Orders for rotary drilling rigs for open pit mining and related applications were particularly strong. Order volumes for underground drilling and loading equipment increased strongly, while sales of exploration equipment weakened somewhat. The aftermarket business, including consumables, continued to grow at a steady rate. For comparable units, the best sales development was noted in North America and Eastern Europe. The demand from the construction industry improved and volumes increased in all regions and in most product areas. The order intake for crawler rigs for surface applications, such as quarries and infrastructure projects, continued to develop positively. The favorable trend for light construction equipment, primarily breakers and drills, continued, while the demand for underground drilling rigs for infrastructure projects was unchanged. The overall development was strong in North America, Asia, the Nordic countries and the Middle East. The companies acquired in the middle of 2004 have improved the geographical balance of sales and the integration of the businesses is progressing according to plan. To improve flow and expand capacity, an investment of MSEK 40 in an extension of the assembly plant for loaders and mine trucks will be made in Örebro, Sweden. Product development activity continued to yield results. Atlas Copco’s first four boom drilling rig, the world’s most productive, was commissioned at a tunneling project in Finland. Operating profit increased to MSEK 485 (245), corresponding to a margin of 12.9% (10.4). The profit improvement was primarily a result of higher revenue volumes. The sharp increase in the USD rate gave a favorable currency effect on the operating margin compared to the previous year, while price increases compensated for increased component costs. Costs for integration of the acquisitions had a slight negative impact on the profit, but less than in the previous year (-15). Return on capital employed (last 12 months) was 24%. Rental Service The Rental Service business area consists of one division in the equipment rental industry in North America, providing services to construction and industrial markets. April–June Change January–June Change MSEK 2005 2004 % 2005 2004 % Revenues 2 812 2 669 +5 5 182 5 013 +3 Operating 621 414 +50 1 009 642 +57 profit - as a 22.1 15.5 19.5 12.8 percentage of revenues Return on 13 capital employed , % · 14% rise in rental revenue in USD. Continued strong pricing. · All-time high operating profit margin. · Fleet efficiency and higher profits drove return on operating capital to 23%. Revenues April - June Total Rental Revenues Revenues MSEK 2004 2 669 1 946 Structural change, % -4 0 Currency, % -2 -2 Price, % +6 +9 Volume, % +5 +5 Total, % +5 +12 2005 2 812 2 177 Geographic distribution of revenues The Rental Service business area has all of its revenues in North America. Spending in the most important segment for the business area – non- residential construction – grew by an estimated 5-6%, with good growth seen in the manufacturing, communication and commercial categories. Total construction activity in the United States continued to grow at a healthy pace, supported by double-digit growth in the residential construction market. Industrial activity, measured by capacity utilization, remained flat at 79%. Rental revenues, accounting for 77% of total revenues, increased 14% in USD, consisting of an increase in rental rates of 9% and an increase in volume of 5%. Same store rental revenue increased 17% and the total number of stores was 466 (481 at the end of June 2004). Sales of used equipment, representing 16% of total revenues, increased 18% in USD. Sales of merchandise, spare parts and new equipment, accounting for 7% of total revenues, decreased 42% in USD, mainly due to the divestment of the non-core IAT distributor business in November 2004. In total, revenues increased 5%, to MSEK 2 812 (2 669), affected also by a negative currency translation effect of 2%. Operating profit increased 50% to MSEK 621 (414), corresponding to a margin of 22.1% (15.5), the highest ever for any quarter. The very strong profit development was again the combined result of improvements in many areas; a continued positive development of rental rates, increased rental volume and the effects of ongoing capital and cost- efficiency measures. Operating costs were slightly down, in spite of the volume increase and generally higher activity level. Profit margin before non-cash items such as depreciation and amortization (EBITDA) improved to 40% (31). Return on total capital employed (past 12 months) was 13%, i.e. above the Group’s weighted average cost of capital. Return on operating capital (excluding goodwill) improved further to 23% as a result of the profit increase and higher capital turnover. Rental fleet utilization was 69% (66) in the quarter, and the last 12 month average increased to 68% (65). Net investments in the fleet increased, reflecting the volume growth for equipment rental, increased sales of used equipment, and the already high fleet utilization level. At the end of the quarter, total rental fleet at original cost was 2% higher than previous year while fleet-on-rent increased 6%. The quality of the rental fleet improved further as the average fleet age was reduced to 2.8 years (3.4). The operating cash flow was very strong, benefiting from much higher operating profits and favorable payment conditions from key equipment suppliers. Industrial Technique The Industrial Technique business area consists of two divisions in the following product areas: industrial power tools, and assembly systems. April–June Change January–June Change MSEK 2005 2004 % 2005 2004 % Orders 1 591 1 334 +19 2 984 2 581 +16 received Revenues 1 464 1 251 +17 2 804 2 434 +15 Operating 280 215 +30 542 428 +27 profit - as a 19.1 17.2 19.3 17.6 percentage of revenues Return on 63 capital employed, % Discontinued operations are excluded in previous year’s figures. · Strong order volume growth in most regions. · Important new orders in Japan. · Operating margin improved significantly. Orders and revenues April – June Orders Received Revenues MSEK 2004 reported 2 732 2 650 Discontinued operations -1 398 -1 399 2004 1 334 1 251 Structural change, % +8 +8 Currency, % 0 0 Price, % +1 +1 Volume, % +10 +8 Total, % +19 +17 2005 1 591 1 464 Geographic distribution of orders received June June %, last 12 months 2005 2004 North America 29 29 South America 3 2 Europe 53 55 Africa/Middle East 4 4 Asia/Australia 11 10 100 100 The demand for industrial tools and their aftermarket remained robust from all major customer segments: the motor vehicle industry, the automotive aftermarket and the general industry. Order intake increased 19% with double digit volume growth and an 8% contribution from acquired businesses. The aftermarket business developed very favorably and grew more rapidly than the equipment sales. The development in North and South America was solid in all areas and another quarter of strong growth was recorded. In Europe, order intake increased moderately. Order intake in the rest of the world grew strongly, most notably in Japan, where important new orders for sophisticated fastening tools for car assembly plants were received. A number of new industrial tools and aftermarket products were launched. The tools introduced ranged from general duty industrial tools to innovative electric tools for quality assured tightening. Operating profit increased to MSEK 280 (215), corresponding to a margin of 19.1% (17.2). The margin improved, primarily as a result of strong revenue volume, a positive currency effect and a favorable sales mix. These positive effects more than offset costs related to investments in market organization. Return on capital employed (last 12 months) was 63%. The divestment of the professional electric tools business to Techtronic Industries Co. Ltd. was closed on January 3, 2005. The business area has an agreement with Techtronic Industries to continue as a distributor of professional electric tools in some markets. This represents approximately 2% of the business area’s sales and is included in structural changes in the table above. Discontinued operations The orders received and revenues for the divested electric tools business in Q2 2004 were MSEK 1 398 and MSEK 1 399 respectively. Operating profit was MSEK 123. Previous near-term demand outlook (Published April 27, 2005) The demand for Atlas Copco’s products and services is expected to remain at current high level. Demand from manufacturing and process industries is expected to stay favorable in most markets. Activity in the construction industry is expected to continue to increase somewhat in North America and in most developing countries. Demand from the mining industry is expected to remain strong. Accounting principles As of January 1, 2005, the consolidated accounts of the Atlas Copco Group are prepared in accordance with IFRS. The interim report is prepared in accordance with IAS 34 Interim Financial Reporting and the Swedish Financial Accounting Standards Council's recommendation RR 31 Consolidated interim reporting. Atlas Copco has restated historical financial information as from January 1, 2004 in order to provide comparative information for the corresponding periods in the 2005 interim and annual reports. Financial information for periods prior to January 1, 2004 will not be restated. The effect of the restatements of earnings and the balance sheet for each quarter and full year 2004 was presented in the appendix of the first quarter report 2005. Stockholm, July 18, 2005 Atlas Copco AB (publ) Gunnar Brock President and Chief Executive Officer Income statement 3 months ended 6 months ended 12 months ended MSEK June 30 June 30 June 30 June 30 June 30 Dec. 31 2005 2004 2005 2004 2005 2004 Revenues 13 062 10 680 24 230 20 275 47 147 43 192 Cost of goods -8 584 -7 138 -15 943 -13 617 -30 836 -28 510 sold Gross profit 4 478 3 542 8 287 6 658 16 311 14 682 Marketing -1 347 -1 102 -2 557 -2 142 -4 900 -4 485 expenses Administration -785 -619 -1 503 -1 256 -2 810 -2 563 expenses Research and -247 -235 -462 -411 -900 -849 development costs Other income 193 -2 264 56 74 -134 and expense from operations Operating 2 292 1 584 4 029 2 905 7 775 6 651 profit - as a 17.5 14.8 16.6 14.3 16.5 15.4 percentage of revenues Financial -164 -82 -236 -172 -333 -269 income and expenses Profit after 2 128 1 502 3 793 2 733 7442 6 382 financial items - as a 16.3 14.1 15.7 13.5 15.8 14.8 percentage of revenues Taxes -667 -456 -1 165 -812 -2 305 -1 952 Net profit 1 461 1 046 2 628 1 921 5 137 4 430 from continuing operations Net profit - 66 - 113 128 241 from discontinued operations Net profit 1 461 1 112 2 628 2 034 5 265 4 671 - attributable 1 456 1 109 2 619 2 027 5 249 4 657 to equity holders of the parent - attributable 5 3 9 7 16 14 to minority interest Earnings per 2.32 1.76 4.17 3.22 8.35 7.41 share, SEK - whereof - 0.11 - 0.18 0.20 0.38 discontinued operations Average number 628.8 628.8 628.8 628.8 628.8 628.8 of shares, millions Key ratios, including discontinued operations Equity 34 33 36 capital per share, period end, SEK Return on 25 22 capital employed before tax, 12 month values, % Return on 23 22 equity after tax, 12 month values, % Debt/equity 41 54 34 ratio, period end, % Rate of 42 42 47 equity, period end, % Number of 26 173 26 334 25 015 employees, period end Earnings per share and other per share figures have been adjusted for share split 3:1. No adjustment has been made for the redemption of shares in accordance with the recommendation from The Swedish Society of Financial Analysts. To adjust historical figures also for the redemption of shares, use factor 0.939. Summary of effects of the adoption of IFRS Apr – Jun 2004 Jan - Jun 2004 Jan - Dec 2004 Operating profit, 1 611 2 923 6 700 Sw. GAAP IFRS adjustments: Cost for share- -13 -20 -17 based payments Amortization 108 216 432 intangible assets, incl. goodwill Depreciation -2 -3 -8 property, plant and equipment Decreased leasing 6 12 26 costs, net after depreciation Other standards -3 -6 -21 Discontinued -123 -217 -461 operations Operating profit, 1 584 2 905 6 651 IFRS Financial income -93 -194 -320 and expenses, Sw. GAAP IFRS adjustments: Interest expense -7 -13 -26 - leasing Interest income - 3 5 18 other standards Discontinued 15 30 59 operations, fin. inc. and exp. Profit after 1 502 2 733 6 382 financial items, IFRS Taxes, Sw. GAAP -501 -889 -2 112 Minority -3 -7 -14 interests, Sw. GAAP IFRS adjustments: Deferred tax 3 3 -1 Discontinued 42 74 161 operations, taxes Minority 3 7 14 interests Net profit from 1 046 1 921 4 430 continuing operations Net profit from 66 113 241 discontinued operations Net profit, IFRS 1 112 2 034 4 671 Balance sheet MSEK June 30, 2005 Dec. 31, 2004 June. 30, 2004 Property, plant and equipment Rental 11 973 9 154 10 155 equipment Other property, 4 179 3 742 3 722 plant and equipment Intangible assets 10 174 8 559 9 099 Financial assets 543 489 388 Deferred tax 1 350 1 336 1 643 assets Fixed assets 28 219 23 280 25 007 Inventories 7 050 5 647 5 764 Trade and other 12 647 10 687 10 656 receivables Short-term 398 327 363 investments Cash and cash 3 174 2 386 2 045 equivalents Assets classified 0 5 841 6 108 as held for sale Current assets 23 269 24 888 24 936 Total assets 51 488 48 168 49 943 Shareholders’ 21 450 22 536 21 022 equity Minority interest 89 65 65 Total equity 21 539 22 601 21 087 Interest-bearing 7 623 6 926 7 574 loans and borrowings Employee benefits 2 281 2 155 2 263 Deferred tax 3 447 2 907 3 009 liability Other liabilities 626 274 346 and provisions Long-term 13 977 12 262 13 192 liabilities Interest-bearing 2 580 702 3 145 loans and borrowings Trade and other 12 855 9 657 9 113 payables Provisions 537 734 794 Liabilities 0 2 212 2 612 classified as held for sale Current 15 972 13 305 15 664 liabilities Total 51 488 48 168 49 943 shareholders’ equity and liabilities Interest-bearing 12 484 10 573 13 773 liabilities and provisions Non-interest- 17 465 14 994 15 083 bearing liabilities and provisions Changes in equity Jan.–Jun. Jan.– Dec. Jan.–Jun. MSEK 2005 2004 2004 Opening balance, 22 601 1) 21 015 21 015 Sw. GAAP Change in 370 -694 -694 accounting principles Opening balance, 22 971 20 321 20 321 IFRS Dividend to -1 886 -1 572 -1 572 equity holders of the parent Share redemption -4 192 - - Unclaimed shares - 2 - from bonus issue 1989 Share-based 2 4 2 payments, equity settled Equity hedges -24 23 -24 Cash flow hedges -171 - - Translation 2 196 -846 321 differences, equity Dividend to -2 -3 -3 minority Change of 4 6 6 minority through acquisitions Translation 13 -5 2 differences, minority Net profit for 2 628 4 671 2 034 the period Closing balance 21 539 22 601 21 087 Equity attributable to equity holders 21 450 22 536 21 022 of the parent minority 89 65 65 interest 1) IFRS, December 31 2004 Cash flow statement, including discontinued operation April – June January – June MSEK 2005 2004 2005 2004 Operations 2 292 1 707 4 029 3 122 Operating profit 798 760 1 516 1 475 Depreciation and amortization* -195 -99 -279 -292 Capital gain/ loss and other non- cash items 2 895 2 368 5 266 4 305 Operating cash surplus 142 -97 70 -202 Net financial income/ expense -70 23 -5 -37 Cash flow from other items -480 -400 -851 -734 Taxes paid Change in 47 -26 -75 -107 working capital Cash flow 2 534 1 868 4 405 3 225 from operations Investments Investments -1 794 -1 311 -2 973 -1 978 in rental equipment Investments -199 -204 -356 -357 in property and machinery Sale of 577 440 1 112 834 rental equipment Sale of 46 56 77 86 property and machinery Investments -96 -63 -171 -128 in intangible fixed assets Sale of - - - 1 intangible assets Acquisition -48 -1 721 -292 -1 731 of subsidiaries Disposal of -51 - 4 092 - subsidiaries Other -113 -12 -122 -47 investments, net Cash flow -1 678 -2 815 1 367 -3 320 from investments Financing Dividends -1 886 -1 573 -1 888 -1 575 paid Share -4 192 - -4 192 - redemption Change in 856 40 477 -137 interest- bearing liabilities Cash flow -5 222 - 1 533 -5 603 -1 712 from financing Net cash flow -4 366 -2 480 169 -1 807 Cash and cash 7 316 4 568 2 618 3 845 equivalents, beginning of period Exchange-rate 224 -27 387 23 difference Cash and cash 3 174 2 061 3 174 2 061 equivalents, end of period * Depreciation and amortization 531 475 999 933 Rental equipment 197 239 384 462 Property and machinery 70 46 133 80 Intangible assets Cash flow from remaining and discontinued operations Apr – Jun Apr – Jun 2004 2005 Remaining Discontinued MSEK operations operations Total Cash flow from operations 2 534 1 728 140 1 868 -1 678 -2 731 -84 -2 815 investments financing -5 222 -1 480 -53 -1 533 Net cash -4 366 -2 483 3 -2 480 flow Cash and 7 316 4 555 13 4 568 cash equivalents, beginning of period Exchange- 224 -27 - -27 rate difference Cash and 3 174 2 045 16 2 061 cash equivalents, end of period Revenues by Business Area 2004 2005 MSEK (by 1 2 3 4 1 2 quarter) Compressor 4 116 4 549 4 525 4 597 4 423 5 207 Technique Construction 2 024 2 359 2 827 3 244 3 212 3 771 and Mining Technique Rental 2 344 2 669 2 836 2 553 2 370 2 812 Service Industrial 1 183 1 251 1 248 1 364 1 340 1 464 Technique Eliminations -72 -148 -111 -166 -177 -192 Atlas Copco 11 168 13 062 Group 9 595 10 680 11 325 11 592 Operating profit by Business Area 2004 2005 MSEK (by 1 2 3 4 1 2 quarter) Compressor 747 808 884 883 813 962 Technique - as a 18.1 17.8 19.5 19.2 18.4 18.5 percentage of revenues Construction 193 245 314 363 347 485 and Mining Technique - as a 9.5 10.4 11.1 11.2 10.8 12.9 percentage of revenues Rental 228 414 600 490 388 621 Service - as a 9.7 15.5 21.2 19.2 16.4 22.1 percentage of revenues Industrial 213 215 244 271 262 280 Technique - as a 18.0 17.2 19.6 19.9 19.6 19.1 percentage of revenues Common Group -63 -93 -77 -216 -74 -26 Functions Eliminations 3 -5 -3 -7 1 -30 Operating 1 321 1 584 1 962 1 784 1 737 2 292 profit - as a 13.8 14.8 17.3 15.4 15.6 17.5 percentage of revenues Financial -90 -82 -111 14 -72 -164 income and expenses Profit after 1 231 1 502 1 851 1 798 1 665 2 128 financial items - as a 12.8 14.1 16.3 15.5 14.9 16.3 percentage of revenues Acquisitions and divestments 2004-2005 Date Acquisitions Sales* Number of Divestments Business MSEK employees* area 2005 June Contex Compressor 23 16 Technique 2005 June Lutos Compressor 41 87 1 Technique 2005 March BIAB Compressor 15 8 21 Tryckluft Technique 2005 March GSE tech- Industrial 170 67 3 motive Technique 2005 Jan. Lifton Construction 55 141 17 & Mining 2005 Jan. Scanrotor Industrial 71 33 10 Technique 2005 Jan. Professional Industrial 5 462 3 000 3 electric Technique tools 2004 Nov. IAT Rental 375 90 1 Service 2004 Sept. Kolfor Plant Compressor 49 36 30 Technique 2004 Sept. Rotex Construction 73 16 20 & Mining 2004 Sept. Baker Hughes Construction 300 176 14 Mining Tools & Mining 2004 Aug. QQPMC Industrial 50 80 23 (joint Technique venture) 2004 June Ingersoll- Construction 2 200 950 30 Rand & Mining Drilling Solutions 2004 June Guimerá Compressor 147 132 22 Technique * Annual revenues and number of employees at time of acquisition/ divestment. Due to the relatively small size of the acquisitions in Q1-Q2 2005, full disclosure as per IFRS 3 is not given in this interim report. The annual report for 2005 will, however, include all stipulated disclosures. Financial targets The overall objective for the Atlas Copco Group is to grow and to achieve a return on capital employed that will always exceed the Group’s average cost of capital. The current targets are: · to have an annual revenue growth of 8%; · to reach an operating margin of 15%; and · to challenge and continuously improve the efficiency of operating capital in terms of fixed assets, stocks, receivables, and rental fleet utilization. This will have the result that shareholder value is created and continuously increased. Forward-looking statements Some statements in this report are forward-looking, and the actual outcomes could be materially different. In addition to the factors explicitly discussed, other factors could have a material effect on the actual outcomes. Such factors include, but are not limited to, general business conditions, fluctuations in exchange rates and interest rates, political developments, the impact of competing products and their pricing, product development, commercialization and technological difficulties, interruptions in supply, and major customer credit losses. Atlas Copco AB 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 mentioning of the Board of Directors or the Directors refers to the Board of Directors of Atlas Copco AB. For further information Atlas Copco AB SE-105 23 Stockholm, Sweden Phone: +46 8 743 8000, Fax: +46 8 644 9045 Internet: www.atlascopco.com Corp. id. no: 556014-2720 Analysts Mattias Olsson, Investor Relations Manager, Phone: +46 8 743 8291, Mobile: +46 70 518 8291 ir@se.atlascopco.com Media Annika Berglund, Senior Vice President Group Communications, Phone: +46 8 743 8070, Mobile: +46 70 322 8070 Conference call A conference call to comment on the results will be held at 3:00 PM CET / 9:00 AM EST, on July 18, 2005. The dial-in number is +44 (0)20 7365 1854. To help ensure that the conference call begins in a timely manner, please dial in 5-10 minutes prior to the scheduled start time. The conference call will be broadcasted live via the Internet. Please see the Investor Relations section of our website for link, presentation material, and further details: www.atlascopco.com/ir A recording of the conference call will be available for 2 days on +44 (0)20 7784 1024 with access code 3889445#. Interim report at September 30, 2005 The third quarter report will be published on October 21, 2005