Atlas Copco : Annual report incl. sustainability report and corporate governance report 2021

Atlas Copco Annual report 2021

INTRODUCTION	1	Summary of 2021
	2	A decentralized group with four business areas
	3	President and CEO
THIS IS	5	This is Atlas Copco - Home of Industrial ideas
ATLAS COPCO	6	Our targets
	8	This is how we do business
	12	Creating lasting value for all stakeholders

Atlas Copco is the home of industrial ideas. We develop smart, sustainable and highly efficient solutions that empower our customers to grow and drive society forward. We do it with people, profit and planet in mind, and with the highest business integrity.

Our innovative products, solutions, and services are demanded by every type of industry. They enable everything from industrial automation to reliable medical air solutions.

INTRODUCTION

THE YEAR IN REVIEW

14	The year in review (Administration report)
22	Business area: Compressor Technique
25	Business area: Vacuum Technique
28	Business area: Industrial Technique
31	Business area: Power Technique
34	Sustainable approach to delivering value
35	Raising our climate ambition

This annual report reflects Atlas Copco's mission of creating sustainable, profitable growth. It integrates financial, sustainability, and governance information to describe the Group in a comprehensive and cohesive manner.

COPCO ATLAS IS THIS

36	Products and service
39	People
41	Safety and well-being
42	Ethics
44	Environment
47	Risks, risk management and opportunities
52	The Atlas Copco share

GRI Standards and external review

Atlas Copco reports on its sustainability work for 2021 according to GRI Standards, Global Reporting Initiative's reporting guidelines, level Core, which in combination with EU taxonomy - classification of sustainable activities on page 132 also constitutes Atlas Copco's statutory sustainability report. Ernst & Young has expressed an opinion that a statutory sustainability report has been prepared according to the Swedish Annual Accounts Act, and has performed a limited review of the sustainability report according to GRI Standards, core option, see page 143. More information can be found at:

Forward-looking statements

Some statements in this report are forward-looking, and the actual outcomes could be materially different. In addition to the factors explicitly discussed, others could have a material effect on the actual outcomes. Such factors include, but are not limited to, general business conditions, fluctuations in exchange rates and interest rates, political developments, the impact and pricing of competing prod- ucts, product development, commercialization and technological difficulties, supply-chain interruptions, and major customer credit losses.

REVIEW IN YEAR THE

GOVERNANCE	54	Corporate governance
FINANCIALS	64	Financial statements (Group)
	69	Notes (Group)
	110	Financial statements (Parent)
	112	Notes (Parent)
OTHER	123	Signatures of the Board of Directors
INFORMATION
124	Audit report
	127	Financial definitions
	128	Sustainability notes (Group)
	136	GRI index

www.atlascopcogroup.com

Notice

The amounts are presented in MSEK unless otherwise ­indicated and numbers in parentheses represent comparative figures for the preceding year. The figures presented in this report refer to continuing operations unless otherwise stated.

Atlas Copco AB is a public company. Atlas Copco AB and its subsidiaries are sometimes referred to as the Atlas Copco Group, the Group, the company, or Atlas Copco. Atlas Copco AB is also sometimes referred to as Atlas Copco or the company. Any mentioning of the Board of Directors or the Board refers to the Board of Directors of Atlas Copco AB.

OTHER FINANCIALS

Auditor's Limited Assurance Report on

1. Atlas Copco AB's sustainability report
2. Three years in summary
3. Contacts

The audited annual accounts and consolidated accounts can be found on pages 14-41,47-51 and 64-123, excluding the quarterly data on page 82. The corporate governance report examined by the auditors can be found on pages 54-63.

Sustainability information that has been reviewed by the auditors can be found on pages 5-13,34-46 and 128-142.

INFORMATION

SuMMARY of 2021

Atlas Copco 2021

Record orders, revenues and operating profit

INTRODUCTION				Key financial data
			MSEK	2021		2020	2019	2018
• Summary of 2021	Revenues:		Operating
	Revenues	110 912		99 787	103 756	95 363
business areas
A decentralized group with four				Orders received	129 545		100 554	106 104	97 132
MSEK 110 912		margin: 21.2%
President and CEO		EBITDA	29 025		24 335	26 597	24 510
	(11%)		(19.2)	EBITA*	25 015		20 474	22 900	22 101
				- in % of revenues	26.2		24.4	25.6	25.7
				- in % of revenues	22.6		20.5	22.1	23.2
				Operating profit	23 559		19 146	21 897	21 187
				- in % of revenues	21.2		19.2	21.1	22.2
	Return on	Operating cash flow:	Adjusted operating profit	24 246		19 998	22 677	21 135
	Profit before tax	23 410		18 825	21 572	20 844
				- in % of revenues	21.9		20.0	21.9	22.2
	capital employed:		MSEK 19 378
		- in % of revenues	21.1		18.9	20.8	21.9
	27% (23)		(18 910)
		Profit for the year	18 134		14 783	16 543	16 336
		Basic earnings per share, SEK	14.89		12.16	13.60	13.45
				Diluted earnings per share, SEK	14.85		12.14	13.59	13.43
				* Operating profit excluding amortization of intangibles related to acquisitions.
	Orders received, revenues and operating margin	Operating cash flow and return on capital employed	Dividend/earnings per share, average 1)
					including discontinued operations

MSEK				%	MSEK				%	%
140 000				35	20 000				40
						60
120 000				30	15 000				30	50		Goal
100 000				25				40
80 000				20
			10 000				20	30
60 000				15
								20
40 000				10	5 000				10
20 000				5				10
0	2019	2020	2021	0	0	2019	2020	2021	0	0	5 years	3 years
2018		2018		10 years

Orders received, MSEK		Operating cash flow, MSEK	Dividend policy history	1) Dividend for the fiscal
Revenues, MSEK		-2003	30-40% of earnings	year 2021 is based on the
Operating margin, %		Return on capital employed, %	2003-2011	40-50% of earnings	proposal from the Board
		2011-	about 50% of earnings	of Directors.

Atlas Copco 2021 1

INFORMATION OTHER FINANCIALS REVIEW IN YEAR THE COPCO ATLAS IS THIS INTRODUCTION

A decentralizeD group wiTH four business areas

A decentralized group with four business areas

INTRODUCTION

Summary of 2021

• A decentralized group with four business areas

President and CEO

The Atlas Copco Group is a world-­leading provider of sustainable productivity solutions, demanded by all types of industries, enabling everything from industrial automation to reliable medical air solutions. The Group offers innovative compressors, air treatment systems, vacuum solutions, industrial power tools and assembly systems, machine vision, and power and flow solutions. Atlas Copco develops products and services focused on productivity, energy efficiency, safety and ergonomics, supported by insights from connected products. The company was founded in 1873, is based in Nacka, Sweden, and has a global reach spanning more than 180 countries. In 2021, Atlas Copco had revenues of BSEK 111 and about 43 000 employees at year end.

Revenues by region, Group

Asia/Oceania,40%			North
Africa/	America, 23%
Middle East, 4%		South
Europe, 29%
America, 4%

Orders received by customer category, Group

Other, 12%	General manu-
Service, 6%	facturing, 20%
Construction,11%	Electronics, 24%
Process industry, 18%	Automotive, 9%

Share of revenues, Group

Service, 35%

Equipment, 65%

ATLAS IS THIS INTRODUCTION

Compressor	Orders received: MSEK 55 012
Technique	Revenues: MSEK 49 657
Page 22	Operating margin: 23.9%

The Compressor Technique business area provides compressed air solutions; industrial compressors, gas and process compressors and expanders, air and gas treatment equipment, air management systems, and service through a global network.

Revenues by region

Orders received by customer category

Share of revenues

Asia/Oceania, 34%

North

Other, 20%

General manu-

Service, 43%

Equipment, 57%

facturing, 27%

America, 21%

Service, 11%

Africa/

Electronics, 3%

Middle East, 6%

South

Construction, 13%

Europe, 34%

Process industry, 25%

Automotive, 1%

America, 5%

YEAR THE COPCO

Vacuum	Orders received: MSEK 39 529
Technique	Revenues: MSEK 29 219
Page 25	Operating margin: 24.2%

The Vacuum Technique business area provides vacuum products, exhaust management systems, valves and related products, and service through a global network.

Revenues by region

Orders received by customer category

Share of revenues

Asia/Oceania, 65%

North

Other, 2%

General manu-

Service, 24%

Equipment, 76%

facturing, 10%

America, 21%

Africa/

Europe, 13%

Process

Electronics, 70%

Middle East, 1%

industry, 18%

REVIEW IN

Industrial	Orders received: MSEK 20 545
Technique	Revenues: MSEK 19 421
Page 28	Operating margin: 20.5%

The Industrial Technique business area provides industrial power tools, assembly and machine vision solutions, quality assurance products, software, and service through a global network.

Revenues by region

Orders received by customer category

Share of revenues

Asia/Oceania, 29%

North

Other, 10%

General manu-

Service, 27%

Equipment, 73%

facturing, 18%

America, 31%

Service, 6%

Africa/

Electronics, 4%

Middle East, 1%

Construction, 5%

South

Europe, 36%

America, 3%

Process industry, 6%

Automotive, 51%

OTHER FINANCIALS

Power	Orders received: MSEK 15 155
Technique	Revenues: MSEK 13 234
Page 31	Operating margin: 16.0%

The Power Technique business area provides air, power and flow solutions through products such as mobile compressors, pumps, light towers and generators, along with a number of complementary products. It also offers specialty rental and provides service through a global network.

Revenues by region

Orders received by customer category

Share of revenues

Asia/Oceania, 21%

North

Other, 16%

General manu-

Service, 11%

Equipment, 57%

America, 27%

Service, 7%

facturing, 21%

Africa/

Service (Specialty

Middle East, 8%

South

Process

Rental), 32%

Europe, 36%

Construction, 42%

America, 8%

industry, 14%

INFORMATION

Atlas Copco 2021 2

INTRODUCTION

Summary of 2021

A decentralized group with four business areas

PrESIDENT and CEO

The transformation into a better tomorrow is driven by technology

Atlas Copco delivered a record result in 2021, with new record levels for both orders received and revenues. Our increased investments in R&D over the past couple of years also resulted in several new product launches. Through our sustainable innovations we support our customers' efforts to lower their energy consumption as well as strengthen their productivity and offering.

INTRODUCTION

• President and CEO

Mats Rahmström, CEO and President of the Atlas Copco Group, what were the main achievements during 2021?

I am very pleased to see that our long-term efforts and strong focus, as well as our strive to be agile and always find better ways, have paid off. We have continued to increase our R&D-investments in areas where we believe we can make a difference, as well as our presence in segments and markets where we see potential for sustainable profitable growth. These are fundamental parts of our strategy and how we improve our customers' technologies and processes and drive development forward, which is what Atlas Copco is all about. We also significantly raised our climate ambitions by setting science-­based targets for reducing our greenhouse gas emissions in line with the goals of the Paris Agreement.

Why has Atlas Copco set science-based targets?

The science is clear, we need to act to limit the effects of climate change and companies as well as individuals and governments need to do their part. We have set goals to reduce the emissions from our own operations in line with keeping the global temperature rise below 1.5 degrees, and to reduce emissions from the value chain in line with well below a 2-degree temperature rise. I'm also happy with the process behind setting the targets, where each business area has developed its own plans for how to achieve this.

The main benefit of these targets is that they inspire new ways of thinking, new initiatives and the actions needed for positive change. The absolute majority of our emissions comes from the use of our products and this is where we can make the most impact. We will continue to focus on increasing the energy efficiency of products and support our customers in reaching their sustainability ambi- tions, while reducing the emissions from our own operations.

PAGE 35

How do you comment on the financial results for the year?

We saw a very high demand from our customers in 2021 and our orders received reached a new record level. Despite constrains in the supply chain we also delivered record revenues. Our operating profit also reached record levels. Our strong financial position enables us to continue investing in our competitiveness.

What trends and change-drivers do you consider most important for the Group going forward?

The climate challenge is an important change-driver. We see clear business opportunities in being part of driving the transformation into a low-carbon society, by enabling new technologies and continuing to develop products used in the manufacturing of solar panels, wind turbines, electrical vehicles and sustainably produced hydrogen, to name a few examples.

For us digitalization is very much part of everything we do. It is a very important change-driver for our customers and how we interact with them, as well as for how we run our factories. Digital solutions enable reskilling and upskilling on a massive scale. As an exam- ple, we have recently completed several virtual product launches and use augmented reality to provide technical insights to both our field technicians and customers.

In service, connectivity is a game changer. Previously, we relied on information from our customers, but we now fully control the health status and performance of our machines. All business areas combined have hundreds of thousands of connected machines in the field, and the amount of data they generate is impressive and grow- ing. It enables us to offer performance-based service solutions. We also avoid over or under servicing, and instead we move into prescriptive service. As a bonus, the data is fed back to our development engineers. We want to be the best at analyzing and acting on all this data, and data analytics is already a core competency.

We will continue to focus on increasing the energy efficiency of products and supporting our customers to reach their sustainability ambitions, while reducing the emissions from our own operations.

INFORMATION OTHER FINANCIALS REVIEW IN YEAR THE COPCO ATLAS IS THIS

Atlas Copco 2021 3