Interim Report on the three months ended March 31, 2000 (unaudited)

Interim Report on the three months ended March 31, 2000 (unaudited) Revenues up in all regions January-March Change 2000 1999 % Revenues 10,517 7,751 +36 Operating profit 1,328 725 +83 - as a percentage of revenues 12.6 9.4 Profit after financial items 943 557 +69 - as a percentage of revenues 9.0 7.2 Earnings per share*, SEK 2.80 1.87 +50 * Adjusted for the effects of the equity rights issue in October 1999 The Atlas Copco Group's revenues for the first three months of the year increased 36 percent, to SEK 10,517 m. (7,751), corresponding to a volume increase of 11 percent, for comparable units. The net effect from acquisitions and divestments was an increase of approximately 23 percent. Foreign exchange fluctuations had a positive translation effect of 3 percentage points. Orders received increased 36 percent, to SEK 11,088 m. (8,156), corresponding to a volume increase of 13 percent. The Atlas Copco Group's operating profit increased to SEK 1,328 m. (725), corresponding to an increase of 83 percent and a profit margin of 12.6 percent (9.4). The profit after financial items increased 69 percent, to SEK 943 m. (557), a margin of 9.0 percent (7.2). Near-term outlook Current favorable demand in the North American region is expected to continue. New investments in the mining and process industries are foreseen to improve, balancing uncertainty in some of the construction segments. The outlook for the equipment rental industry continue to be positive. Growth in European demand is expected to accelerate and new investments are foreseen to account for a bigger part of the growth than so far. The already high level of demand from the automotive industry is expected to continue. The positive trend in the Asian region is foreseen to continue at a strong pace, and South America, Africa, and the Middle East economies are gaining new momentum, partly thanks to higher commodity prices. In summary, the overall demand for Atlas Copco's products and services is expected to improve further in the near term. Financial targets The overall objective for the Atlas Copco Group is to achieve a return on capital employed that will always exceed the Group's total cost of capital. The targets over the next business cycle are to have an annual revenue growth of 8 percent, to have an average operating margin of 15 percent, and to continuously challenge the operating capital efficiency in terms of stock, receivables, and hire fleet utilization. Overall, this will ensure that shareholder value is created and continuously increased. The strategy to reach the objectives would follow the proven development process for all operational units in the Group of stability first, then profitability, and finally growth. Market development Overall the demand in North America remained on a strong healthy level, and in the industrial sector an increase was noted for larger investments. The mining industry in the region developed favorably during the quarter. In the construction field, non-residential building stayed on a good demand level, with limited impact from bad weather conditions. In Europe, the indications of an improved level of demand shown at the end of last year were confirmed in the first quarter. The Southern and Alpine region remained strong. Great Britain has recovered after a long period of stagnation, and also Germany shows increased demand for some construction- related products and for larger compressors. However, the Nordic countries continued to develop unfavorably. The upturn in Asia continued during the first quarter and in China, South Korea and the South East Asian markets demand for Atlas Copco's products and services grew at a high pace. A highlight of the first quarter has been the recovery in South America, which accelerated during the quarter. Brazil, Chile and Peru all contributed to the positive development in demand. Also Africa and the Middle East, showed a good development, with a particularly strong growth in South Africa. First quarter orders and revenues Orders received were SEK 11,088 m. (8,156), up 36 percent compared to the first quarter previous year. Volume growth was 13 percent after excluding a positive currency effect of 3 percentage points and a net effect from acquisitions and divestments of 21 percent. The strong volume gain reflects an overall positive trend of demand for the Group's products and services, and partly the relatively weak first quarter of 1999. All major geographic regions recorded volume gains and they were particularly accentuated in Asia and Latin America. Revenues increased 36 percent, to SEK 10,517 m. (7,751), corresponding to a volume gain of 11 percent. Geographic distribution of orders received (%) January-March 2000 1999 Europe 32 42 North America 50 39 South America 4 4 Africa/Middle East 4 5 Asia/Australia 10 10 First quarter earnings Operating profit increased SEK 603 m. to SEK 1,328 m. (725), or 83 percent compared to the same period in 1999. The operating margin increased to 12.6 percent (9.4). All four business areas showed a healthy improvement over previous year, primarily as a result of higher revenues, effects of rationalization measures and the contribution from the recently acquired Rental Service Corporation. The combined effect of acquired and divested businesses explained about 40 percent of the profit increase. Net currency effects between the first quarters 1999 and 2000 were insignificant as negative translation effects to SEK offset positive transaction effects. Net financial items amounted to SEK -385 m. (-168), of which net interest items accounted for SEK -378 m. (-165) and financial foreign exchange differences for SEK -7 m. (-3). Profit after financial items increased 69 percent, to SEK 943 m. (557). The profit margin was 9.0 percent (7.2). Net profit for the period totaled SEK 586 m. (358), or SEK 2.80 per share (1.87). The return on capital employed during the 12 months to March 31, 2000 was 15 percent (16), and return on shareholders' equity 14 percent (14). The Group's Weighted Average Cost of Capital (WACC) is currently 8.0 percent (7.4), corresponding to a pretax Cost of Capital of approximately 12 percent. First quarter cash flow and net indebtedness The operating cash surplus after tax for the period reached SEK 1,296 m. (748), corresponding to 12 percent (10) of Group revenues. Working capital decreased SEK 20 m. (350 ) during the period, with a positive effect on cash flow from operations, which increased to SEK 1,316 m. (1,098). Net investment in tangible fixed assets was SEK 229 m. (340). Net investments in rental equipment were low in the quarter due to the seasonal planning of these investments. Net cash flow equaled SEK 953 m. (632). Summary cash-flow analysis (SEK m.) January-March 2000 1999 Operating cash surplus 1,296 748 after tax of which depreciation 870 474 added back Change in working capital 20 350 Cash flow from operations 1,316 1,098 Investments in tangible -775 -526 fixed assets Sale of tangible fixed 546 186 assets Company -134 -126 acquisitions/divestments Cash flow from -363 -466 investments Net cash flow 953 632 Change in interest- -1,379 -1,016 bearing liabilities Cash flow after financing -426 -384 Liquid funds at beginning 1286 2118 of year Translation difference -3 -56 Liquid funds at end of 857 1,678 period The Group's net indebtedness (defined as the difference between interest- bearing liabilities and liquid assets) amounted to SEK 18,782 m. (9,767), of which SEK 1,395 m. (1,351) was attributable to pension provisions. The debt/equity ratio (defined as net indebtedness divided by shareholders' equity) was 86 percent (62). Liquid assets at the end of the period totaled SEK 857 m. (1,678). Including minority interests, the Atlas Copco Group's shareholders' equity totaled SEK 21,714 m. (15,730), or SEK 104 per share (86). The equity/assets ratio was 40 percent (42). Investments Investments in property and machinery totaled SEK 196 m. (207). Investments in rental equipment reached SEK 579 m. (319). During the period, total depreciation on these two asset groups was SEK 714 m. (373), while amortization of intangible assets equaled SEK 156 m. (101). Distribution of shares Share capital amounted to SEK 1,048 m. at the end of the period, distributed as follows. Class of share Shares outstanding A shares 139,899,016 B shares 69,703,168 Total 209,602,184 To strengthen the Group's capital base and enhance financial flexibility following the acquisition of Rental Service Corporation, an Extraordinary General Meeting held on September 6, 1999, approved the issue of new shares with preferential rights to existing shareholders. 26.1 million new shares were issued at a subscription price of SEK 160 per share at a ratio of 1:7. In October 1999, the issue provided the Company with net proceeds of approximately SEK 4.1 billion. Personnel On March 31, 2000, the number of employees was 26,053 (23,028). For comparable units, the number of employees decreased by 443 compared to March 1999. Structural changes affecting the reporting period In January-March 2000, Rental Service Corporation (the RSC division) completed 9 acquisitions of rental companies in the United States, adding 14 locations, with some SEK 80 m. in annual revenues. In August-December 1999, RSC completed 6 acquisitions of rental companies in the United States, adding a total of 9 locations, with some SEK 40 m. in annual revenues. On October 29, 1999, Tool Technics NV, Belgium, was acquired. Tool Technics, with 32 employees, specializes in the service of power tools and equipment for the industrial sector. Tool Technics is now part of the Industrial Tools and Equipment division. On August 31, 1999, Atlas Copco divested its motion control business, Atlas Copco Controls, which was part of the Industrial Tools and Equipment division. Atlas Copco Controls had 235 employees and revenues of approximately SEK 470 m. in 1998. On July 29, Atlas Copco acquired Rental Service Corporation (RSC), a company publicly traded on the New York Stock Exchange. For the most recent 12-month period, at the time of the acquisition, RSC reported revenues of approximately SEK 5,520 m. and an operating margin of 17 percent. Total consideration included approximately SEK 5,990 m. cash paid for all shares in the company and SEK 7,790 m. of assumed debt. The acquisition is expected to have a positive impact on earnings for the first full year. Synergies are expected to yield approximately SEK 160 m. in the first full calendar year, increasing as the business grows. At the acquisition date, RSC had 3,600 employees, operated more than 270 equipment rental locations in 29 states, and served a base of more than 200,000 customers. RSC is a division in the Rental Service business area. On July 1, 1999, ABIRD Holding BV, the Netherlands, was acquired by Atlas Copco. ABIRD is a specialty rentals company. The company has 25 employees and had annual sales of about SEK 40 m. in 1998. ABIRD is part of the Atlas Copco Portable Air division. Business Areas Compressor Technique The Compressor Technique business area consists of five divisions in the following product areas: industrial compressors, portable compressors, generators, and gas and process compressors. Orders received during the period increased 18 percent to SEK 3,741 m. (3,171) corresponding to 19 percent in volume when adjusted for a 1 percent negative currency impact. Most product areas recorded very strong order intake compared to the relatively weak first quarter previous year, but also compared to the fourth quarter of 1999. Strong orders for large industrial compressors, mainly oil-free, confirmed an improvement in the investment related demand. Sales of small and medium-sized compressors, with value-added features like compact design and the energy-saving Variable Speed Drive (VSD), continued to grow. Also portable compressors and generators, mainly serving the construction sector, had a strong quarter. Sales in Europe improved during the period, with continued robust growth in the south and east and a return to growth in markets like Germany and the UK. After a slow period in the US, the first quarter produced a good order level also from customers outside the equipment rental sector. In the period, sales in South America, as well as in all Asian markets, continued to improve from the depressed levels experienced a year ago. Revenues increased 13 percent, 14 percent in volume, to SEK 3,345 m. (2,971). Operating profit improved sharply by 49 percent, to SEK 580 m. (390), resulting in an operating margin of 17.3 percent (13.1). The effects of higher volumes and consequently a better capacity utilization in the factories were the main reason for the profit increase. A higher portion of after market sales compared to last year also contributed to the better result. Construction and Mining Technique The Construction and Mining Technique business area consists of five divisions in the following product areas: drilling rigs, rock drilling tools, construction tools, and loading equipment. Orders received during the period were SEK 1,775 m. (1,445), up 23 percent overall and 18 percent in volume, compared to a weak first quarter in the preceding year. There was a positive currency effect of 4 percent. A highlight of the quarter is the mining industry, which has started to invest again in all regions such as Latin America, Russia, and South Africa, resulting in good demand levels for underground drill rigs and rock drilling tools. Orders from the construction industry continued to increase, thanks primarily to sales of recently introduced surface drilling rigs, which have been well received by the market. The construction activity levels in Europe were mixed, with some important infrastructure projects in the alpine and southern regions, but weak in other countries. Following the strong recovery in Asia, signs of increased demand from the construction industry are now generally visible. Revenues totaled SEK 1,650 m. (1,353), up 22 percent in all of which 18 percent in volume. Operating profit increased to SEK 142 m. (84), up 69 percent from previous year. This corresponds to a margin of 8.6 percent (6.2). The substantially higher sales volume explained most of the increase in profit compared to the same quarter in 1999. Industrial Technique The Industrial Technique business area consists of four divisions in the following product areas: industrial power tools, professional electric tools and assembly systems. Orders received in the first quarter increased 5 percent, to SEK 2,740 m. (2,610). Volumes were up 8 percent, while the net effect of currencies and the divestment of Atlas Copco Controls was - 3 percent. Order intake for industrial power tool from the motor vehicle industry remained on a high level, and was particularly strong in North America. The weaker demand for standard products from general industry continue to have a negative effect on some of the tool brands. Demand for professional electric tools in North America remained on a high level and in Europe the order intake is improving, after a long period of decline. This increase is noticeable for the Atlas Copco brand as well as for AEG. Revenues increased 7 percent, to SEK 2,619 m. (2,448), compared to the first quarter in 1999. The corresponding volume gain was 9 percent. Operating profit increased by 22 percent to SEK 263 m. (216), equal to a profit margin of 10.0 percent (8.8). The better profit margin was mostly due to higher sales volumes and efficiency improvements, while currencies had a negative effect compared to the same quarter in 1999. Rental Service The Rental Service business area consists of two divisions in the equipment rental industry in the United States, providing services to construction and industrial markets. Revenues during the period rose 179 percent, to SEK 3,023 m. (1,082), corresponding to a volume growth of 11 percent after excluding acquisition, currency translation and price effects. On average rental rates were about 3-4 percent lower, than in the first quarter of 1999. Rental revenues accounted for 70 percent of total revenues and recorded a volume growth of 14-15 percent. Sales of equipment, parts and merchandise represented 19 percent of revenues while sale of used equipment accounted for 11 percent. Non-residential building, the biggest customer segment, continued on a high activity-level in the period. Revenues from the industrial sector were strong, but with some signs of a weakening by the end of the period. The rental operations in Mexico and Canada are now giving good contribution to the overall growth. Operating profit, which includes all related goodwill amortization, was SEK 390 m. (83), corresponding to an operating margin of 12.9 percent (7.7). Due to seasonality the first quarter is normally the weakest of the year. The improvement in margin over 1999 was due to better fleet utilization in Prime and the contribution of the RSC acquisition. During the first quarter the two companies reduced the number of employees by about 175 people. Stockholm, April 27, 2000 Giulio Mazzalupi President and Chief Executive Officer The interim report on the Atlas Copco Group's operations for the second quarter of 2000 will be published on August 8, 2000. For further information, please contact HYPERLINK Atlas Copco AB, Stockholm, Sweden Media Analysts Annika Berglund, Mattias Olsson, Hans Ola Meyer, Group Communications Investor Relations CFO Phone: + 46 8 322 8070 Phone: + 46 8 743 8291 Phone: +46 8 743 8292 Mobile: + 46 70 322 8070 Mobile: + 46 70 518 8291 Mobile: +46 70 588 82 92 annika.berglund@atlascop mattias.olsson@atlascopco.com hans.ola.meyer@at co.com lascopco.com Overhead presentations from Atlas Copco For your convenience, an overhead presentation of Atlas Copco's first quarter result will be published on Atlas Copco's Internet site. Please go to www.atlascopco.com > Investor Relations > Presentations > Investor Presentations. More information is available at www.atlascopco.com Atlas Copco Group Income Statement 3 months ended 12 months ended March March March Dec. March SEK m. 31 31 1999 1999 2000 1999 2000 Revenues 7,751 10,517 33,383 36,234 39,000 Operating expenses -7,026 -9,189 -29,356 -31,764 -33,927 Operating profit 725 1,328 4,027 4,470 5,073 Financial income and -168 -385 -714 -1,058 -1,275 expenses Profit after 557 943 3,313 3,412 3,798 financial items as a percentage of 7.2 9.0 9.9 9.4 9.7 revenues Taxes -196 -347 -1,205 -1,137 -1,288 Minority interest -3 -10 -28 -28 -35 Net profit 358 586 2,080 2,247 2,475 Earnings per share, 1.87 2.80 10.89 11.50 12.43 SEK Return on capital employed before tax, 15.8 14.1 14.6 % Return on equity after tax, % 14.2 13.6 13.9 Debt/equity ratio, % 62.1 91.7 86.5 Rate of equity, % 42.3 39.3 40.4 Number of employees at end of period 23,028 26,134 26,053 Balance Sheet SEK m. March 31, Dec. 31, March 31, 1999 1999 2000 Intangible fixed assets 11,492 18,851 19,060 Other fixed assets 10,803 18,702 18,688 Inventories 5,527 5,348 5,592 Receivables 7,670 9,463 9,502 Cash, bank, and short-term 1,678 1,286 857 investments Total assets 37,170 53, 650 53,699 Equity 15,529 20,885 21,512 Minority interest 201 192 202 Interest-bearing liabilities 11,445 20,611 19,639 and provisions Non-interest-bearing liabilities and provisions 9,995 11,962 12,346 Total liabilities and equity 37,170 53,650 53,699 Revenues by Business Area SEK m. (January-March) 1998 1999 2000 Compressor Technique 3,384 2,971 3,345 Construction and Mining 1,479 1,353 1,650 Technique Industrial Technique 2,445 2,448 2,619 Rental Service 878 1,082 3,023 Eliminations -78 -103 -120 Atlas Copco Group 8,108 7,751 10,517 1999 2000 SEK m. (by 1 2 3 4 1 quarter) Compressor 2,971 3,422 3,288 3,521 3,345 Technique Construction and Mining Technique 1,353 1,477 1,323 1,572 1,650 Industrial 2,448 2,645 2,522 2,730 2,619 Technique Rental Service 1,082 1,202 2,335 2,815 3,023 Eliminations -103 -127 -111 -131 -120 Atlas Copco Group 7,751 8,619 9,357 10,507 10,517 Earnings by Business Area SEK m. (January-March) 1998 1999 2000 Compressor Technique 607 390 580 Construction and Mining 104 84 142 Technique Industrial Technique 260 216 263 Rental Service 97 83 390 Corporate items -25 -48 -47 Operating profit 1,043 725 1,328 Financial income and -162 -168 -385 expenses Profit after financial 881 557 943 items 1999 2000 SEK m. (by 1 2 3 4 1 quarter) Compressor 390 572 579 612 580 Technique Construction and Mining Technique 84 104 88 121 142 Industrial 216 257 288 271 263 Technique Rental Service 83 146 359 422 390 Corporate items -48 -17 -31 -26 -47 Operating profit 725 1,06 1,28 1,40 1,32 2 3 0 8 Financial income and expenses -168 -194 -318 -378 -385 Profit after 557 868 965 1,02 943 financial items 2 ------------------------------------------------------------ Please visit http://www.bit.se for further information The following files are available for download: http://www.bit.se/bitonline/2000/04/27/20000427BIT00930/bit0001.doc The full report http://www.bit.se/bitonline/2000/04/27/20000427BIT00930/bit0002.pdf The full report