Improved Result Despite Weaker Fourth Quarter

ATLAS COPCO Year-end Report on 1998 Operations (unaudited) Improved result despite weaker fourth quarter January-December Change 1998 1997 % Revenues 33,74 30,032 12 0 Operating profit 4,345 3,813 14 - as a percentage of 12.9 12.7 revenues Profit after financial 3,637 3,520 3 items - as a percentage of 10.8 11.7 revenues Earnings per share, 12.44 12.03 3 SEK The Atlas Copco Group increased revenues for 1998 to SEK 33,740 m. (30,032), up 12 percent. Orders received increased 7 percent, to SEK 32,979 m. (30,685). For comparable units, revenues were up 3 percent, while orders received fell 2 percent. The Atlas Copco Group's profit after financial items increased to SEK 3,637 m. (3,520). The profit margin was 10.8 percent (11.7). The Board of Directors proposes that a dividend of SEK 4.50 (4.25) per share be paid for the 1998 fiscal year. Near-term outlook Overall demand for Atlas Copco products in the first part of 1999 is expected to be lower than in 1998 because of anticipated lower investments and decreased production levels in some customer segments. Demand for equipment rental is foreseen to continue expanding. The outlook for Europe is somewhat weaker following the economic slowdown that began towards year-end 1998. Demand in the United States is expected to remain at its present level, mainly owing to continued strong growth in the equipment rental industry. Latin American economies are foreseen to decline sharply as a result of financial instability and low metal prices. In Asian markets, demand is expected to remain low. As a consequence of the anticipated drop in volume and related adjustments in the cost structure, earnings for the first part of the year are expected to decrease relatively more than revenues. Sales development The economic and financial situation in Asia/Australia caused reduced sales in the region by about SEK 1,250 m. The negative trend persisted in the fourth quarter. In the second half of 1998, turbulence in international financial markets affected sales negatively, primarily in South America and Russia. The positive sales trend in European markets, particularly in Germany and Spain, continued in 1998, with the exception of Great Britain. Sales in the U.S. remained at a steady level. Geographic distribution of orders received (%) January-December 1998 1997 Europe 40 40 North America 37 32 South America 6 6 Africa/Middle East 6 6 Asia/Australia 11 16 Earnings in 1998 Operating profit rose SEK 532 m., or 14 percent, to SEK 4,345 m. (3,813). Accordingly, the operating margin improved to 12.9 percent (12.7). Earnings from the rental service operations of Prime Service, after amortization of related goodwill (Prime included for six months in 1997), accounted for more than half of the rise in operating profit. The rest of the rise in profit was owing to the net effect of higher sales volume and certain negative price trends. Net financial items amounted to SEK -708 m. (-293), of which net interest items accounted for SEK -680 m. (-306). Interest expense expanded mainly because of higher average borrowings in 1998, owing to the acquisition of Prime and other equipment rental businesses. Net interest from currency hedging on foreign net assets was negative, at SEK -6 m., compared to a positive SEK 140 m. in the preceding year. Net capital gains from the sales of shares were SEK 4 m. (32). Profit after financial items increased 3 percent, to SEK 3,637 m. (3,520), the net effect of stronger operating profit and higher interest costs. The profit margin was 10.8 percent (11.7). Net profit for the year totaled SEK 2,283 m. (2,208), or SEK 12.44 per share (12.03), representing a gain of 3 percent. The return on capital employed was 17.2 percent (21.1), and return on shareholders' equity 16.1 percent (17.6). Fourth quarter The Atlas Copco Group's revenues for the fourth quarter of 1998 increased to SEK 8,845 m., from SEK 8,455 m. in 1997, up 5 percent. Changes in exchange rates explained 3 percentage points of the increase, while volume and acquisitions accounted for 1 percentage point each. Operating profit increased to SEK 1,124 m. (1,115), corresponding to a margin of 12.7 percent (13.2). Changes in exchange rates had a small negative effect on operating profit in the quarter. Profit after financial items were SEK 946 m. (955). The profit margin was 10.7 percent (11.3). Net profit for the fourth quarter totaled SEK 584 m. (616), corresponding to SEK 3.18 per share (3.36). Orders received amounted to SEK 8,062 m. (8,075); a 3 percent less volume was offset by a positive currency translation effect. Goodwill The acquisition of Prime Service at July 1, 1997, resulted in goodwill of approximately SEK 6,800 m. Atlas Copco is amortizing this goodwill over a period of 40 years, as is goodwill for Milwaukee Electric Tool (SEK 3,100 m.). For purposes of comparison, the impact on earnings resulting from amortizing goodwill over periods of 20 and 40 years is shown below. ------------------------------------------------------------ Please visit http://www.bit.se for further information The following files are available for download: http://www.bit.se/bitonline/1999/02/12/19990212BIT00470/bit0001.doc Hela rapporten http://www.bit.se/bitonline/1999/02/12/19990212BIT00470/bit0002.pdf Hela rapporten