Atlas Copco - Annual Report 1999

CHAIRMAN OF THE BOARD
Dear Shareholders
The year began with a weak first quarter, but that was followed by three quarters
of steadily improving business conditions. Despite the solid recovery, Atlas Copco’s
earnings were somewhat lower than in 1998. The Group did fortify its position in the
equipment rental market in North America in 1999, through company acquisitions.
Demand in North America remained buoyant through fiscal
1999, showing no signs of fatigue. Europe has yet to show stronger
demand for the Group’s products to the extent expected. In addition,
the previous low capacity utilization, which delayed capital
investment, meant that the benefits of increased output were limited.
In the latter part of 1999, business conditions in Asia began to
recover, and that had a positive impact on the Group’s sales in the
region. Nevertheless, the region has a long way to go before reaching
the level of demand regularly attained before the region suffered
its economic crisis in 1997.
In July, Atlas Copco completed its second major strategic
corporate acquisition in the United States when it purchased the
equipment rental company Rental Service Corporation (RSC).
This acquisition underscored the importance of growth in “use
of products” while significantly broadening Atlas Copco’s coverage
of the North American market. The equipment rental segment
in the United States has grown faster than the industries
that it serves – and, on average, it has better profit margins.
Since Atlas Copco developed the strategy in 1997, determining
to pursue additional growth in equipment rental and aftermarket
service, the structure of the Group has changed considerably.
Today, North America accounts for close to half of the
Atlas Copco Group’s total revenues, while Europe accounts for
less than 40 percent. Besides the shift in the geographic balance,
the content of operations has shifted towards aftermarket revenues.
These represent the majority of demand nowadays, while
equipment sales represent about 45 percent. Because of this and
recent changes in the capital structure, Atlas Copco is reviewing
the financial targets presently used.
In conjunction with the acquisition of RSC, Atlas Copco
issued new shares with preferential rights for existing shareholders.
Shareholders showed confidence in the Group, and
2 ATLAS COPCO 1999
the issue garnered
about SEK 4.1 billion
in new funds.
The issue ensures
that Atlas Copco
has the latitude
required to act
quickly and it
promises well for
ongoing growth.
Atlas Copco’s earnings for 1999 were slightly lower than in
1998. The share price underperformed the general index in 1999,
while the total yield, including dividends and the change in share
price, has averaged about 24.9 percent during the past five years.
The Board of Directors proposes an increased dividend of
SEK 4.75 per share.
On behalf of the Board, allow me to convey our deepest
thanks to Group management and to all employees for the
efforts they made in the last year of the 20th century. Many
actions have been taken to enhance efficiency throughout the
Group. They are one of the reasons that the Group stands so
well prepared to make the most of business conditions in 2000,
a year that promises growth for the Atlas Copco Group.
Anders Scharp
Chairman