Committed to sustainable productivity The Atlas Copco Group, 2011

Committed to sustainable productivity

The Atlas Copco Group, 2011

Content

The Atlas Copco Group

Industrial Air

Purchasing strategy within Atlas Copco

Atlas Copco Group Presentation 2011

Purchasing Industrial Air Division

2011

Atlas Copco in a snapshot

An industrial group with world-leading positions in compressors, expanders and air treatment systems, construction and mining equipment, power tools and assembly systems.

Provider of solutions for sustainable productivity through innovative products and services in four business areas.

Worldwide presence, customer diversification, and strong and stable aftermarket business.

Headquartered in Sweden, the Group’s global reach spans more than 170 markets.

In 2010 Atlas Copco had 33 000 employees and annual revenues of approximately BSEK 70 (BEUR 7.3).


A leading industrial provider


Construction24%

Manufacturing25%

Mining

6%6%

Others

Sales per customer category

11%

28%

Services

Process industry

Innovative solutions


Services

Products

Knowledge

Products


Industrial tools Construction equipment

Compressors Mining and rock excavation

Aftermarket and rental

Knowledge


Competence centers

Product design

Applications

Long-term relationships through service


A strong brand portfolio


Customers in 178 countries


NorthAmerica18%

Europe

32%

Africa/MiddleEast

11%

28%

11%

Asia/Australia

SouthAmerica

Revenues per geographic area

Supporting a wide variety of industries


CompressorTechnique43%

Industrial Technique

9%

ConstructionTechnique

32%

Revenues per business area

Mining and Rock ExcavationTechnique

16%

Four business areasCompressor

TechniqueIndustrial Technique

Mining and Rock Excavation

Technique

Construction Technique

Industrial compressors Gas and process compressors Air and gas treatment Service

Industrial tools Assembly systems Service

Rock drilling equipment - underground and surface Loaders and trucks Mobile crushing Exploration drilling and ground engineering Rock drilling tools Service

Light construction equipment Road development equipment Portable compressors and generators Service

2010 figures pro-forma • Revenues BSEK 30.0• Operating margin

~25%

2010 figures reported• Revenues BSEK 6.5

• Operating margin 19.5%


~22%


~10%

April 20, 2011

12

IndustrialTechnique

Atlas Copco Tools and Assembly SystemsMotor Vehicle Industry

Atlas Copco Toolsand Assembly Systems General Industry

Chicago Pneumatic Tools

Tooltec

Efficient organization


Executive Group Management and corporate functions

Oil-free Air

Industrial Air

Specialty Rental

Gas and Process

Compressor Technique Service

Airtec

CompressorTechnique

Mining and Rock Excavation Technique

Underground RockExcavation

Surface DrillingEquipment

Drilling Solutions

Secoroc

Geotechnical Drillingand Exploration

Mining and Rock Excavation TechniqueService

Rocktec

Customer centers and service providers

President and CEO

Board of Directors


Construction Tools

Road Construction Equipment

Portable Energy

ConstructionTechnique Service

Shared services across businesses


Financing Engineering support

Administration


2010 results

2006 2007 2008 2009 2010 0

10 000

20 000

30 000

40 000

50 000

60 000

70 000

80 000

0

5

10

15

20

25

30

35

40

Revenues, MSEK Operating margin, %

MSEK %

First in Mind—First in Choice ®

Atlas Copco has a clear vision

Core values


Strategic directions


Growth:Organic and through

acquisitions

Innovations and continuous

improvements

Aftermarket –parts and service

Driving innovation


Minetruck

Energy recovery unit forrotary screw compressors

Controller for electricnutrunner and screwdriver

Dynapacasphalt paver

Competence development


Community engagement


EducationWater for All Disaster relief

Products, servicesand solutions

First in Mind—First in Choice® for customers and prospects for all brands.

Increase customer loyalty.

Increase customer energy efficiency by20% by 2020.

Offer safe and reliable products and services.

Operations

First in Mind—First in Choice® employer for today’s and future employees.

Competence development to achieve good results and yearly coaching/ appraisals to all employees.

Increase diversity in both gender and nationality. Encourage internal mobility.

Safe and healthy working environment for all employees. Zero work-related accidents. Sick leave below 2.5%.

No corruption or bribes. Work with business partners committedto high ethical, environmental andsocial standards.

Develop new products and services with a life-cycle perspective.

Construct Atlas Copco buildings according to sustainable building standards.

Decrease CO2 emissions from operations by 20%in relation to cost of sales by 2020.

Decrease CO2 emissions from transport of goods by 20% in relation to cost of sales by 2020.

Keep water consumption at current level.

Reuse or recycle waste.

FinancialsAnnual revenuegrowth of 8% over a business cycle.

Sustained high return on capital employed.

All acquired businesses to contribute toeconomic value added.

Annual dividend distribution about 50%of earnings per share.

Goals for sustainable, profitable development


Compressor Technique

World leader in the compressed air business



Construction

Process

Services


40%

8% 8%

11%

5%

28%

Manufacturing

Mining

Others

Industrial compressors



Gas and process compressors and expanders



Quality Air Solutions™



Specialty rental



Create customer loyalty through service




Innovative industrial tools and assembly systems



Construction

2%

Manufacturing

82%

Process 2%

Services


2%12%

Other

Industrial power tools



Assembly systems



Vehicle service power tools




Strong focus on productivity



Construction36%

Services 1%

Mining 60%


3%Others

Underground rock drilling, loaders and mine trucks



Surface drilling equipment



Blasthole, water well, oil and gas



Rock drilling tools



Exploration and ground engineering



Increasing productivity through service




Construction tools



Road construction equipment



Portable compressors and generators



Global, local service



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Industrial Air Division

IndustrialTechnique




Tooltec


Executive Group Management and corporate functions

Oil-free Air

Industrial Air

Specialty Rental

Gas and Process


Airtec

CompressorTechnique




Drilling Solutions

Secoroc



Rocktec


President and CEO

Board of Directors


Construction Tools


Portable Energy


50

Product Overview of Industrial Air DivisionOil-Injected screw compressors

5-90 kWOil-Free tooth compressors

Oil-Free Water-injected screw compressors

Oil-Free Piston

Oil-Injected piston

Membrane dryers

Dessicant dryers

Refrigerant dryers

Filters

Air Treatment Ancillaries

51

Focus On Value Products

Variable Speed Drive Technology

The Environment WINS

The Customer WINS

Atlas Copco WINS

Energy Savings

up to 35 %

52

5353

Industries - Where do we compete to win?

Chemical Food & BeverageInstrument air

Automotive MarineTransport Mobile snow guns Manufacturing

Petrol stations Paper

Electronics Pharmaceuticals Textile Oil & Gas

And much more…


55

Purchasing within ATLAS COPCO

IndustrialTechnique




Tooltec


Oil-free Air

Industrial Air

Specialty Rental

Gas and Process


Airtec

CompressorTechnique




Drilling Solutions

Secoroc



Rocktec



Construction Tools


Portable Energy


Group level :Purchasing Coordination meeting

(quarterly)

Division level : Purchase council

(monthly)

Purchasing organization Industrial Air Division

57

In every factory we have a local purchasing team :

• Local purchasing responsibility for local projects and manufacturing

• Development of a local suppliers base that meets the Atlas Copco requirements

• Reports monthly to the division for :• Cost reduction programs• Commodity strategies• Organization changes• Development of common

suppliers

Purchasing team Antwerp factory 4 commodity teams

– Mechanical team

– Electrical team

– Team Electronics & Instrumentation

– Team Cooling and Air Treatment

Quality assurance :– 4 SQA engineers integrated in the teams

– 2 quality auditors (inspection area production)

Project leader logistics : supplier development projects

Project leader purchasing : interaction with product development teams

Global sourcing team

58

Purchasing within Atlas Copco

Why do we need Sourcing – Purchasing ?

Purchasing Mission – Vision – Strategy

Purchasing Strategy – Application

Sourcing process versus Design process

59

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Why SOURCING? What do they do?

More than 70% of the cost of our machines is sourced– We need suppliers , so we better take care of them

– How to become a Customer of Choice ?

– What can they do to improve our development, efficiency and profit ?

If we want to cut the total cost , we need to understand our supplier– Know their costs, work together to reduce their costs

Technology is also driven by competence of suppliers

Sustainable contracts

Managing supply to managing relationships

61

The mission of the Purchasing Function is to enable and to contribute to the group business targets through improvement of our product development process

and

through the development and improvement of our supply chain in order to continuously and consistently lower the total cost.

Purchasing Strategy - Mission

Purchasing Strategy – Mission (2) To define, develop and manage co-operation with our

suppliers

To safeguard and continuously improve product and process quality

To optimise the supply chain processes

To search for product and process innovation

To realise continuous total cost reduction “CC7” we have to reduce our product cost price with 7%

over a cycle of 2 years


63

To establish and manage a profitable, stable and preferably

long-term co-operation with suppliers, based on:

a professional relationship in an ethical and respectful business environment

common commitment to achieve measurable and quantifiable targets based on the Purchasing Strategy– Example : Quality : 250 PPM maximum rejection level

actions by suppliers and continuous interaction with suppliers that will contribute to the business development of the Group in order to remain First in Mind, First in Choice with it’s customers

continuous innovation in products and processes that will allow the Group to remain the Leader in Innovation of it’s market.

Purchasing Strategy - Vision

64

Purchasing Strategy : the four pillar model

Technical Competence /Product and ProcessDevelopment

Quality

Logistics

Total Cost

Financial Stability Company Profile

Build a best supplier base, help the suppliers to improve, co-develop them into our new product and search for efficiency with our operations.

The Four Pillars around a stable foundation enabling us to reach our targets are:

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Purchasing Strategy

Quality

Logistics

Total Cost

Financial Stability /Company Profile

Innovation and Innovation culture– Product and technological know-how– Access to technology of tomorrow

Co-development– Early supplier involvement will shorten

development time and reduce cost Organization :

– R & D organization and facilities– Development Process– Project handling procedures

Production and process know-how


Purchasing role in the product development process

feasibility : marketing

master specification : marketing

functional prototype : engineering

production prototype: engineering

pilot batch : manufacturing

introduction & follow up: marketing

Feasibility: Orientation preconcept. Pre-development

Project masterspecification

Functional prototype

Productionprototype

Pilot batch Manufacturing preparation andengineering Market

introduction and feedback

1 2 3 4 56Project

leadership changes during project

Purchasing

68

Cost

Low

High

Degree in which specifications are firm

Feasibilityproduct conceptfunctional prototype

Detailed designproduction prototype

Productpreparationpilot batch

Time

Costs related toengineering changes

Degree of freedom for decisions

Product development Product development

SeriesProduction

Project follow-up

Divisional level : monthly Product Committee

Purchase dept. : monthly project meeting :– Product redesign projects

– Purchase projects

70


Purchasing Strategy

Quality Total Cost


Reliability of delivery performance– Reliability– Lead-time– Minimize inventory

Production process :– organization / lay-out / capacity / flexibility /

elasticity

Supply Chain (inbound-outbound) :– Agility, just-in-time, kanban

Process improvement projects and investments

Very short throughput times in administration, production and logistics

Quantifiable targets

Logistics

Logistics

Very short delivery times : 2-5 working days (order handeling + transport leadtime)

On-line communication : internet platform “Be2Net” for exchange of : Purchase orders and order confirmations Expediting and de-expediting messages Forecast Holiday periods All circular communications to suppliers Procedures, purchasing terms & conditions Etc.

Consignment stock

Dynamic forecast ing : 6 months ; monthly update


Logistics Monthly logistical meeting : purchasing + production

Delivery performance

Analysis 10 worst suppliers + action plan

Status Logistical excellence program


Delivery Performance (excl. Internal suppliers)

73


Purchasing Strategy

Logistics

Total Cost


Quality culture

Process quality

Product quality

Design & Development quality

Organization, systems and procedures (ISO / QS)ISO9001; 14001; 18000; OHSAS

Zero-defect supply

Quantifiable targets per commodity

Quality

QUALITY of

Business

ACTIVITIES

throughout the entire

COLLABORATION

Quality

Monthly quality meeting : purchasing + production + engineering

PPM evolution

Analysis 10 worst suppliers + action plan

Status Quality Improvement Programs


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LogisticsTechnical Competence /Product and ProcessDevelopment

Purchasing Strategy

Quality


Continuous cost reduction for material and components

Total cost of ownership– Product cost & cost evolution

– Process cost: logistic / transport / stock

– Commercial: payment terms / exchange risks

– Warranty costs

– Spare parts

Value analysis : open book cost calculations Global sourcing : China, India, Eastern Europe Target costing Cost transparency to identify cost driving

factors and to optimize cost structures Quantifiable targets

Total Cost

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4 supplier co-operation Models Co-development Supplier is developing for/together with project team

– Co-development, co-design in product development projects, ,common technological development, common process development, Collaborative, target costing with cost transparency, highly integrated logistic process, quality and logistic targets, long-term co-operation agreements

– Emphasis on innovation – support on product development– Example : supplier of electric motors

Technical: supplier is delivering according to drawing/specification– Delivery of (technical) parts based on AC design or specification, Early supplier involvement in function of

production/logistic/quality process, Integrated logistic process, quality and logistic targets, cost management based on cost-break down model, co-operation agreements : multi-year

– Empasis on product quality and logistic performance– Example : castings, canopy

Standard Parts Supplier is delivering catalogue (standard) parts– Delivery of standard or catalogue products with additional logistic services if feasible, (Highly) integrated logistic

process with the purpose of reducing the cost of the supply chain, Quality and logistic targets, Cost management through efficient logistics

– Empasis on minumum process and supply chain cost– Example : hardware (bolts, nuts), standard electrical components

(Logistic) Service Provider: Supplier is delivering sub-assemblies, logistic services or transport

– Delivery of sub-assemblies (not based on own product), logistic services, transport: integrated logistic process, Quality and logistic targets, Cost management through efficient process & logistics, Co-operation agreements : multi-year

– Example : Katoennatie (cross docking for incoming goods)

Committed tosustainable productivity.


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Committed to sustainable productivity The Atlas Copco Group, 2011