Atlas Copco - Annual Report 1999

THE BOARD OF DIRECTORS’ REPORT
ATLAS COPCO GROUP
Structural changes
At 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 automotive industry. It is
part of the Industrial Tools and Equipment division.
At 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.
At 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 before 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. in 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
Market review
Orders Received
1999 1998 Change %
Compressor Technique
Construction and
12,965 13,161 –1
Mining Technique 6,062 6,117 –1
Industrial Technique 10,553 10,015 +5
Rental Service 7,426 3,990 +86
Eliminations –472 –304
Atlas Copco Group 36,534 32,979 +11
Order backlog, December 31 3,904 3,854 +1
Order volume increased marginally by 1 percent for comparable
units. In total, orders increased by 11 percent, mainly due to the
acquisition of RSC in the U.S.
Structure
The geographical structure of the Atlas Copco Group has
changed during the past couple of years, and North America is
now its largest market, accounting for about half of the revenues
on a pro forma basis. Europe is the second largest region, with
more than one third of Group revenues, followed by Asia/Australia,
Africa/Middle East, and South America.
Revenues from consumables and the after-market have grown
and now represent 55 percent of revenues. This means that the
Group is less dependent on investment in capital goods than it used
to be. The change is a result of the Atlas Copco’s “use-of-products”
growth strategy, aiming to increase the proportion of sales related
to service, rental, accessories, and consumables. The strategy is
implemented in all business areas and was manifested through
the recent acquisitions of Prime Service and RSC in the U.S.
Geographical regions
In North America, U.S. demand remained at a high level
4 ATLAS COPCO 1999
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.
In August–December 1999, Rental Service Corporation (RSC)
completed six acquisitions of rental companies in the United
States, adding a total of nine locations, with some SEK 40 m. in
annual revenues.
At 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. ABIRD is part of the Atlas Copco Portable
Air division.
At January 1, 1999, Rand-Air Ltd., South Africa, was acquired
by Atlas Copco. Rand-Air is a compressor rental company.
The company has about 200 employees and annual sales
of roughly SEK 90 m. It is part of the Portable Air division.
At January 1, 1999, the Rental Service business area was created
with Prime Service as the first division. Prime Service constituted
a separate division in the Compressor Technique business
area throughout 1998. All figures have been restated accordingly.
throughout the year chiefly
because of the equipment
rental industry, which is growing
at a faster rate than the
economy as a whole. The RSC
acquisition implies that Atlas
Copco now serves even more
medium-sized and small customers.
Recent trends show
that some industrial sectors
have been negatively affected
by the high interest rate, while
the rise in the oil price has
begun to have a positive influence
on certain sectors.
In Europe, overall demand
was flat, albeit with big variations
in the region. Germany
remained at the same level as in
1998, and Great Britain con-
Revenues and
Orders Received
SEK m.
40,000
32,000
24,000
16,000
8,000
tinued to decline. The positive trend in the south continued,
notably in France and Spain, while the north was weak. Demand
for production-related equipment improved somewhat,
while investments in new machinery have not yet materialized
as capacity utilization was low when output started increasing.
Demand from contractors remained flat, with a few signs of
increased activity in infrastructure projects characterizing the
last part of the year.
The Asian crisis reached its bottom, and demand started to
recover during the latter part of the year. The pick-up in the
economy included important markets like South Korea, India,
and Taiwan. However, the level of activity is still far from its
peak before the crisis in 1997. The Group’s long-term ambition
to have the same presence in this region as it has in Europe and
North America remains. Production was consolidated, and the
0
95
96
97
Revenues
Orders received
98
99