Atlas Copco - Annual Report 1999

ATLAS COPCO AND THE
BUSINESS ENVIRONMENT
Primary Drivers of Atlas Copco Group Revenues
Industry
Construction
Mining
Atlas Copco’s key strategies
Growth to secure long-term profitability is one of the key strategies
for the Atlas Copco Group. This growth – whether organic or
through acquisitions – shall be achieved in three main directions.
First, the Group must achieve growth in the existing business by
bringing out new products developed from core technologies and
by finding new applications in new markets or niches. Second, it
must strengthen the presence in Asian markets. Third, the Group
shall expand revenue related to “use of products”, such as service
and maintenance, spare parts and accessories, consumables, and
equipment rental, which will ensure further deep participation in
our customers’ business activities.
Development of the Group is safeguarded by continuous improvement
in existing operations and by innovation. Continuous
improvement in manufacturing, products, marketing, organization,
and business flows are aimed to provide customers with
better service and to safeguard short-term profit. Atlas Copco
also believes in breakthrough innovation as a means to staying
ahead of the competition and maximizing performance in the
long run. The Group strongly supports specific projects to foster
innovation in technology, concepts, and methods.
The Atlas Copco Group hosts a number of brands and its
multi-brand strategy plays a significant role. To better satisfy
specific customer needs, products and services are differentiated
and marketed under various brands through different distribution
channels. Each brand has a clear role and is justified when
it adds to overall revenues and profit for each specific business.
Goals
Through its planning process, Atlas Copco companies use
trends, targets, and goals to manage their businesses. Annual
budgets have been abolished to give way to more forward-looking,
continuous, and comprehensive managerial tools.
The financial target is to achieve a margin of profit after financial
items of at least 10 percent over a business cycle. For the past
five years, the Group’s profit margin has averaged 11.1 percent.
In 1999, the profit margin was 9.4 percent (10.8).
To secure long-term profitability, growth must be a top priority
for the Atlas Copco Group. The growth target is an annual
rate of sales growth averaging 8 percent over a business cycle.
This growth shall be accomplished with a balance of organic
and acquisition growth. In the past five years, compound annual
42 ATLAS COPCO 1999
Capital Consumables and
goods 45% aftermarket 55%
Industrial machinery
investment
Investment in
infrastructure
Mining machinery
investment
Industrial
production
Construction
activity
Metal and ore
production
growth has averaged 11.6 percent, mainly
owing to acquisitions.
Among qualitative targets and goals,
Atlas Copco expects all products and services
to boost customers’ productivity and
competitiveness. All divisions should be
leaders in the area of environmental protection,
which will strengthen their businesses.
In the marketplace, Atlas Copco
focuses on being first in mind – first in
choice of our customers. Surveys are continuously
performed to assess the success
of Atlas Copco companies in this regard.
Strong market presence
Atlas Copco manufactures and assembles
products in 14 countries. Manufacturing is
chiefly concentrated to Belgium, the U.S.,
Sweden, Germany, France, and India.
The Atlas Copco Group has a strong market presence and
strives to maintain close and long-term relationships with its
customers. Products are marketed through the Group’s own
sales operations in some 70 countries and through distributors
in another 80 countries. The goals of strengthening ties with
customers and emphasizing service and after-market revenues
were vital factors in the Group’s acquisitions of Prime Service
and Rental Service Corporation.
The European market accounts for 37 percent of Group
sales, the North American market 45 percent. Atlas Copco is
dedicated to expanding the relative share of emerging markets,
especially Asian markets. The recent expansion of Compressor
Technique’s manufacturing capacity in Wuxi, China, examplifies
the Group’s commitment and belief in the region. However,
the electric tool manufacturing has been transferred to Germany
from China.
Increased importance of
consumables, rentals, and services
Following the recent major acquisitions of Rental Service
Corporation (1999), Prime Service (1997), and Milwaukee
Sales Growth
%
21
18
15
12
9
6
3
0
95 96 97 98 99
Average 95–99
Long-term target
Growth from previous year
Profit Margin
%
21
18
15
12
9
6
3
0
95 96 97 98 99
Average 95–99
Long-term target
Profit margin