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February 13, 1997
The Atlas Copco Group´s invoiced sales for 1996 increased by 3 percent to SEK 25,121 m., compared with SEK 24,454 m. in 1995. Markets outside Sweden accounted for 96 percent of invoicing. Orders received amounted to SEK 25,159 m. (24,843). For comparable units, invoiced sales decreased by 4 percent and orders received by 6 percent. The strengthening of the Swedish krona had a negative translation effect of 7 percent.
The Atlas Copco Group´s profit after financial income and expense rose by 8 percent to SEK 3,070 m. (2,840). The profit margin was 12.2 percent (11.6). Profit included a gain of SEK 342 m., related to the sale of VOAC Hydraulics and restructuring costs of SEK 225 m. in the Industrial Technique business area. Excluding these nonrecurring items, the profit margin was 11.8 percent.
The Board of Directors proposes that a dividend of SEK 3.75 (3.00) per share be paid for the 1996 fiscal year.
Demand in the near future is expected to remain largely unchanged.
Earnings for 1997 are expected to increase somewhat as a result of ongoing efficiency improvements. Structural changes On January 1, 1996, Atlas Copco acquired the portable compressors and pneumatic breakers operations of the German company IRMER+ELZE. The company, with 81 employees, has annual sales of approximately SEK 100 m. IRMER+ELZE is part of Portable Air division in the Compressor Technique business area.
Effective February 29, 1996, AVC Intressenter AB, a company in which Atlas Copco and Volvo Aero each holds a 50 percent interest, sold VOAC Hydraulics to the American company Parker Hannifin. VOAC Hydraulics was formed in 1992 through the merger of Volvo Hydraulik and the Atlas Copco subsidiary, Monsun-Tison.
The head office and operations of Chicago Pneumatic, a division within the Industrial Technique business area, will relocate from Utica, New York, to Rock Hill, South Carolina in the early part of 1997. The relocation will affect some 430 employees.
The Rock Drilling Equipment division within the Construction and Mining Technique business area will transfer its product development and marketing operations from Stockholm to Örebro, where the manufacturing plants for surface and underground rock drilling equipment are located. 170 employees are affected. The transfer is expected to be finalized by year-end 1997.
Effective December 31, 1996, the production of rock drilling tools at the Uniroc plant in Sao Paulo, Brazil, was relocated to existing units in Sweden and South Africa. Approximately 80 employees are affected.
On December 17, 1996, Atlas Copco acquired the Swiss company Elesta Automation AG, which has annual sales of about SEK 20 m. The acquisition is a step in Atlas Copco´s strategy to further strengthen its position in intelligent motion control systems for advanced industrial machines. Elesta is a part of Atlas Copco Industrial Tools and Equipment division in the Industrial Technique business area. Unchanged level of demand
Increased demand was noted in North and South America, South East Asia, Australia and eastern Europe, while sales developed negatively in most of the main European countries, such as Germany, France and Great Britain.
Sales of large compressors, surface drill rigs, loaders and assembly systems improved. Demand for power tools improved slightly during the second half of the year, while sales of light construction equipment, such as portable compressors and breakers, declined. Fourth quarter
The Atlas Copco Group´s invoiced sales during the fourth quarter 1996 amounted to SEK 6,804 m., compared with SEK 6,683 m. during the corresponding quarter in 1995. Operating profit after
depreciation amounted to SEK 808 m. (752) and profit after financial items to SEK 838 m. (786). The profit margin was 12.3 percent (11.8). Net profit for the fourth quarter amounted to SEK 518 m. (484), corresponding to SEK 2.82 per share (2.64).
Orders received amounted to SEK 6,110 m., compared with SEK 6,114 m. for the corresponding quarter in 1995. For comparable units, orders received were unchanged and invoiced sales increased by 2 percent. However, the strengthening of the Swedish krona had a negative effect of 2 percent during the quarter. Earnings
Operating profit after depreciation increased by 10 percent to SEK 2,931 m. (2,665), corresponding to 11.7 percent (10.9) of invoiced sales. Earnings were charged with restructuring costs of SEK 225 m., mainly related to the relocation of Chicago Pneumatic´s operations in Utica, New York, and to rationalization measures at the Atlas Copco Electric Tools division in Germany. Operating profit also includes a gain of SEK 342 m. from the sale of VOAC Hydraulics. Both these nonre-curring items related to the Industrial Technique business area. Adjusted for these nonrecurring items, the operating margin was 11.2 percent. Currency exchange-rate changes, particularly the strengthening of the Swedish krona, had a negative effect on operating profit in an amount of approximately SEK 200 m.
Net financial items amounted to SEK 139 m. (86), of which net interest items accounted for SEK 127 m. (129) and financial exchange-rate differences for SEK -2 m. (-45). The impact of higher net interest-bearing debt during 1996, compared with preceding year, was offset by an increase in the net from the currency hedging of foreign net assets. Following the sale of VOAC Hydraulics, the remaining associated companies are of insufficient size to justify being reported separately.
Profit after financial income and expense increased by 8 percent to SEK 3,070 m. (2,840), corresponding to 12.2 percent (11.6) of invoiced sales. Excluding nonrecurring items, the profit margin was 11.8 percent. Tax charges for the year were SEK 1,107 m. (990).
Net profit for the year totaled SEK 1,938 m. (1,823). Earnings per share were SEK 10.56 (9.93), up 6 percent. Adjusted for nonrecurring items, net profit was SEK 1,854 m. and earnings per share were SEK 10.10.
The return on capital employed was 21 percent (22) and on shareholders´ equity was 18 percent (19). Goodwill
In connection with the acquisition of the American company, Milwaukee Electric Tool Corporation, as of August 1, 1995, a goodwill item in the amount of SEK 3,107 m. arose, representing the difference between the purchase price paid and the value of the net assets. This goodwill is amortized over a period of 40 years, since this provides the most accurate picture of the strategic acquisition´s impact on the Atlas Copco Group´s earnings and financial position over at least 40 years.
In taking this position, Atlas Copco deviated from that part of the recommendations of the Swedish Financial Accounting Standards Council, which prescribed amortization of goodwill over a maximum of 20 years. This deviation does not conflict with the applicable legislation, nor does it represent a breach of the registration contract with the Stockholm Stock Exchange.
During 1995, the Swedish Financial Accounting Standards Council implemented a general review of its recommendation and published a new version, which became effective on January 1, 1997.
However, with regard to the maximum amortization period for goodwill, the Council has elected to delay its recommendation pending the position adopted by the International Accounting Standards Committee (IASC). Atlas Copco intends to follow the final recommendation of the Council.
For purposes of comparison, the impact on earnings resulting from the application of goodwill
amortization over periods of 20 and 40 years is shown below:
The equity/assets ratio is 51.6 percent. Based on a 20-year amortization period, the comparable figure is 51.4 percent. Net indebtedness and cash flow
The Group´s net indebtedness, meaning the difference between interest-bearing liabilities and liquid assets, amounted to SEK 1,899 m. (3,166) , of which SEK 1,924 m. (1,910) related to pension
provisions. The debt/equity ratio, meaning net indebtedness in relation to shareholders´ equity, decreased to 16 percent (30).
Net cash flow, after dividends and taxes, during the year amounted to SEK 1,322 m. (-3,143). Liquid assets at year-end 1996 totaled SEK 2,485 m. (1,886).
Including minority interests, the Atlas Copco Group´s shareholders´ equity totaled SEK 12,005 m. (10,599), corresponding to SEK 65 per share (58). The equity/assets ratio was 52 percent (48). Investments Investments in machinery and buildings totaled SEK 822 m. (711). Distribution of shares
Share capital at the end of 1996 amounted to SEK 918 m., distributed among the following classes of shares:
On December 31, 1996, the number of employees was 20,841 (21,081). Based on comparable units, the number of employees decreased by 680 during the year. Business areas
The strengthening of the Swedish krona had a negative translation effect of 6-8 percent on the orders
received and invoiced sales of the business areas. Compressor Technique The Compressor Technique business area consists of five divisions in the following product areas: Industrial compressors, Portable compressors and Gas and process compressors.
Orders received during the year amounted to SEK 11,012 m. (11,687). Sales of portable compressors declined, particularly in main markets in Europe. Small and medium-sized industrial compressors showed a similar pattern during the first part of the year, but reversed to a positive trend in the last quarter. Orders received for large compressors increased, especially in Asia and North and South America. During the fourth quarter, substantial sales increases were noted in South East Asia and South Africa.
Invoiced sales amounted to SEK 11,072 m. (11,177).
Operating profit after depreciation increased to SEK 1,807 m. (1,700). The operating margin improved, as a result of higher productivity, to 16.3 percent (15.2). Currency exchange-rate changes had a positive effect on the margin. Construction and Mining Technique
The Construction and Mining Technique business area consists of six divisions in the following product areas: Drill rigs, Rock drilling tools, Construction tools and Loading equipment.
Orders received during the year amounted to SEK 5,867 m. (6,144). Demand from the mining industry remained favorable during the year, while sales to the construction sector continued to decrease. Sales of rock drilling equipment and loaders increased in the U.S., Australia and South East Asia. Demand in Europe was weak, with the exception of countries in southern Europe. Orders received during the fourth quarter were lower than in the corresponding period of the preceding year, especially in France, Germany and Japan.
Invoiced sales amounted to SEK 5,921 m. (6,194).
Operating profit after depreciation amounted to SEK 396 m. (394), corresponding to an operating margin of 6.7 percent (6.4) . Currency exchange-rate changes had a significantly negative effect on the margin. Industrial Technique
The Industrial Technique business area consists of five divisions in the Power tools, Assembly
systems and Motion control product areas.
Orders received during the year increased by 18 percent to SEK 8,280 m. (7,012). The increase is attributable to the acquisition of Milwaukee Electric Tool. For comparable units, volume was slightly lower than for 1995.
With the exception of southern Europe, demand for power tools remained at a low level in Europe during the year. Increases in the sales of industrial tools were noted in Brazil, among other countries.
Milwaukee´s sales of electric tools in the North American market remained favorable. Orders received for electric and pneumatic power tools in the two largest markets, the U.S. and Germany, increased gradually during the second half of the year.
Invoiced sales increased by 15 percent to SEK 8,128 m. (7,083).
Operating profit after depreciation totaled SEK 836 m. (674). Earnings included a gain of SEK 342 m. from the sale of VOAC and restructuring costs of SEK 225 m., relating to the relocation of Chicago Pneumatic´s operations in the U.S., personnel reductions within the Atlas Copco Electric Tools division in Germany and the relocation of the Desoutter division to more appropriate facilities close to the company´s premises in north London. Excluding nonrecurring items, the operating margin decreased to 8.8 percent (9.5), as a result of lower volumes. Currency exchange-rate changes had a negative effect on the margin. Parent Company Profit after financial income and expense for Atlas Copco AB amounted to SEK 692 m. (567). Net profit for the year, after appropriations and taxes, was SEK 1,062 m. (847). Dividend The Board of Directors proposes that a dividend of SEK 3.75 (3.00) per share be paid for the 1996 fiscal year. This corresponds to a total of SEK 688 m. (551). New President and Chief Executive Officer
Giulio Mazzalupi has been appointed President and Chief Executive Officer of the Atlas Copco Group, succeeding Michael Treschow who has been named President and Chief Executive Officer of Electrolux. The change will take place in connection with the Annual General Meeting on April 22, 1997. Outlook
Demand in the near future is expected to remain largely unchanged.
Earnings for 1997 are expected to increase somewhat as a result of ongoing efficiency improvements. Annual General Meeting
Atlas Copco´s Annual General Meeting will be held on Tuesday, April 22, 1997, at 5 p.m. in
Berwaldhallen, Strandvägen 69, Stockholm. The Annual Report will be distributed to shareholders two weeks prior to the Meeting.
Stockholm, February 13, 1997Michael Treschow
President and Chief Executive Officer
The interim report on the Atlas Copco Group´s operations during the first quarter of 1997 will be published on April 28, 1997. For further information, please contact:
Carl-Johan Wachtmeister, Senior Vice President, Corporate Communications,
phone +46 8 743 8070, or +46 70 543 8070
Hans Ola Meyer, Senior Vice President, Group Treasurer, phone +46 8 743 8292