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Atlas Copco Ab Business Information, Profile, and History

company diesel tools sales

SE-105 23 Stockholm
Sweden

Company Perspectives:

The long-term goal of the Atlas Copco Group is to become the world's leading company within its specialist areas of business. The Group's business concept is to provide a broad range of products and services, which meet the needs of customers in the areas of: air and gas compression, as well as air treatment; industrial manufacturing and the automotive after-market; rock excavation, light construction and demolition; installation, repair and service.

History of Atlas Copco Ab

Atlas Copco AB is one of the world's leading producers of compressors, mining and construction equipment, power tools, assembly systems, and motion control products. The company is also active in the rental equipment and service sector. Atlas Copco has gone through several transformations since its founding in 1873 as AB Atlas. It was initially a specialized manufacturer of railway equipment but switched at the beginning of the 20th century to diesel engines and pneumatic products. The production of diesel engines was abandoned after World War II, allowing the company to concentrate on the pneumatic equipment sector and erect an extensive international sales network that has made Atlas Copco into one of Sweden's biggest multinational concerns. Closely connected to the Wallenberg banking dynasty, Atlas Copco had to call on its financial support to weather several severe crises during its existence prior to World War II. In the postwar period, the profitability of Atlas Copco has improved greatly, despite a few temporary setbacks.

19th-Century Beginnings

AB Atlas was established in 1873 to supply equipment for the Swedish railways, with two factories located in Stockholm and Södertälje. Atlas was the brainchild of Eduard Fränckel, the chief engineer for Swedish State Railways (SJ), who became the company's first managing director. A second key figure behind Atlas was D.O. Francke, a Gothenburg industrialist and financier who headed the banking enterprise Göteborgs Handelskompani. The biggest shareholder in Atlas was André Oscar Wallenberg, the founder of Sweden's first commercial bank, Stockholms Enskilda Bank. Wallenberg had involved the bank in financing a number of railway construction projects and his interest in Atlas was a natural extension of this activity.

Atlas was soon the largest manufacturing company in Sweden in terms of production capacity. The large size of Atlas's planned operations reflected the optimistic outlook for the country's economy. The industrial revolution was gaining momentum in Sweden in the early 1870s and engineering firms were enjoying their first sustained period of profits. Atlas was entering a crowded field when it came to transportation equipment. Although it was profitable until 1877, Atlas then plunged into a deficit due to falling orders from Swedish state and private railways as the country entered a recession in the late 1870s.

Atlas's losses mounted during the 1880s as economic growth remained weak. Göteborgs Handelskompani, which was suffering financial reverses, gradually reduced its stake in Atlas, while Stockholms Enskilda Bank kept the company afloat through loans and consequently increased its control. A solution to Atlas's financial problems was difficult since the company was saddled with large and costly production facilities and faced fierce competition in the market for railway equipment and other heavy industrial goods at a time of economic slowdown. The company's situation revealed that "the initial investment in Atlas had not only been made at the wrong time but also in the wrong industry," corporate historian Professor Torsten Gårdlund concluded.

Burdened with excess production capacity, Atlas had to find other business besides making railway carriages. It produced steel and wrought-iron parts for bridges and other structures and made an unsuccessful diversification into marine steam engines and boilers by buying a shipyard in Gävle in a drastic attempt to develop more profitable product lines. When these efforts produced poor results, the Södertälje and Gävle facilities were closed and activity was concentrated in Stockholm. In 1887 the Wallenbergs ousted company president Fränckel, who had been criticized for lax management, and replaced him with Oscar Lamm, a mining engineer.

With Atlas continuing to suffer losses and Stockholms Enskilda Bank having a significant part of its assets tied up in the company, Knut Wallenberg, who had become head of the bank on his father's death in 1886, decided at the end of 1890 to allow Atlas to be liquidated. The shareholders lost their investment, and the bank suffered heavy losses as its creditor. A new company named Nya AB Atlas (New Atlas Company) took over its assets, with Stockholms Enskilda Bank subscribing for the major part of the share capital. Under the firm control of the Wallenbergs, Nya AB Atlas became the cornerstone for the family's industrial empire, which now embraces most of Sweden's multinational corporations.

After the financial reorganization, the company developed a new specialty, heating ducts for buildings. It also began production of steam engines, steam locomotives, and machine tools. With the dawn of the 20th century it gradually phased out most of these products, including its original business of railway equipment, as it continued to change its product mix. It focused instead on two promising areas, oil-driven engines and air machinery and compressors. Production of compressed air equipment began in 1901, and, by the start of World War I, pneumatic products had become the company's dominant business area. Gunnar Jacobsson, who oversaw the development of this division, became the president of Nya Atlas in 1909, succeeding Lamm.

New Products and Corporate Structures in a New Century

In an attempt to improve the production and sales of oil-driven engines, its other main product area, Nya Atlas merged in 1917 with AB Diesels Motorer, which had been founded by the Wallenbergs in 1898 to acquire the Swedish patent rights for the engine developed by the German engineer Rudolf Diesel. Atlas had cooperated with Diesels Motorer from the beginning in developing the engine for commercial use, while acquiring a minority stake in the engine concern. Diesels Motorer first developed a stationary engine for power generation, followed later by a marine engine. After several difficult years during which large investments were needed to perfect the engine, Diesel Motorer reported its first profit in 1906 and found growing export markets in both the United States and Russia as sales of the marine engine climbed.

The creation of the new company, Atlas Diesel, came at a time when demand for its products was strong due to World War I, producing good prices and profits, as neutral Sweden supplied both sides of the conflict. The merger also meant that Stockholms Enskilda Bank, which owned two-thirds of Nya Atlas and half of Diesels Motorer, could gain a profit from its long-term investment in the two concerns while retaining 40 percent of the share capital in the new company, which was now valued at two-and-a-half times the worth of the combined figures of its component companies. Nya Atlas President Jacobsson was appointed head of the new company.

Atlas Diesel began life with a healthy order book. The company's exports were dominated by diesel engines, which accounted for four-fifths of total foreign sales. These consisted mainly of marine engines supplied to the Allied nations to power their naval vessels. The end of the war brought with it a weakening in the business cycle. Deflationary policies were adopted in major export markets and deliveries to Russia were disrupted by revolution and civil war. By 1920, profits were practically nonexistent; during the next four years the company ran up heavy losses as the diesel engine business in particular suffered setbacks.

Debts mounted and Stockholms Enskilda Bank had to provide further credit. The company embarked on a cost-cutting program, selling its headquarters in Stockholm and reducing its workforce from a peak of 1,450 in 1917 to 240 in 1923. With the company regarded as overcapitalized, the share capital was drastically reduced from SKr 220 million to SKr 10 million in 1923 and SKr 5 million in 1925. To reduce the debt burden, most of the old Atlas facilities were then sold and the production of compressors and pneumatic products was moved to the southern Stockholm suburb of Sickla, where Diesel had its factories.

The completion of the financial reorganization and concentration of production at Atlas Diesel occurred as Sweden was emerging from the economic crisis of the early 1920s. Sales improved for both pneumatic products and engines, but interest payments and depreciation charges kept profits low. Moreover, Atlas Diesel was concentrating its resources on the diesel engine business, although sales of pneumatic tools were providing almost all of the profits. Management, dominated by engineers, favored investment in diesel engines because it was the company's most technologically advanced product group and therefore enjoyed great prestige. The company thus was in a poor financial position to withstand the effects of the 1930s Great Depression, which hit it with devastating effect. Atlas Diesel once again plunged into a deficit, and there were discussions about shutting down the company. Instead, Stockholms Enskilda Bank, the principal owner, decided to recapitalize the company.

The company's operations were modernized and rationalized under the strict supervision of the Wallenbergs, with emphasis placed on expanding the profitable pneumatic side of the business. Profitability recovered during the second half of the 1930s due to an improvement in the business cycle resulting from rearmament programs across Europe. Sales of pneumatic tools tripled between 1935 and 1939, while engine sales doubled. Dividends were paid to shareholders in 1935, for the first time since 1919.

In 1940 Gunnar Jacobsson, who had been president for more than 30 years, stepped down and was replaced by Walter Wehtje, a close friend of Marcus Wallenberg, Jr., the board chairman. Wehtje continued shifting the focus of the company from diesel engines, which had grown so technologically complex that their sales could not even cover their manufacturing costs, to the compressed air division, which had become the company's sales leader at the beginning of the 1930s and accounted for two-thirds of sales by the end of the decade. Nevertheless, the engine business was expanded during World War II as Atlas Diesel supplied motors for torpedo boats, and hydraulic gears used in other military equipment for the Swedish armed forces.

Postwar Developments

In the early postwar years, Wehtje decided that the company's manufacturing of diesel engines could not continue, and in 1948 the diesel engine division was sold to Nydqvist & Holm. Simultaneously, Wehtje decided to expand the air compressor division, sales for which had already doubled during World War II, by setting up a network of sales subsidiaries and agents around the world. This network was to be complemented by an expansion of production capacity in Sweden and the acquisition of manufacturing plants abroad. By this time, the company's compressed air tools had reached a high technical standard after years of research. It had pioneered a new technique of rock drilling, called the Swedish method, by combining a lightweight rock drill with a tungsten carbide bit. This product, developed in cooperation with Sandvik, would soon help Atlas Diesel penetrate international markets.

Manufacturing capacity was increased by purchasing several troubled factories in Sweden to ease the production bottleneck at the Sickla facility. Atlas Diesel also acquired its biggest manufacturing site abroad in 1956 when it bought the Belgian compressor company Arpic, in Antwerp.

Although it had disposed of the diesel engine business, the company retained the name Atlas Diesel until 1955 when it was changed to Atlas Copco AB. Copco stood for Compagnie Pneumatique Commerciale, the name of a Belgian subsidiary that had been adopted in its abbreviated form by a number of Atlas affiliates in other countries.

By the mid-1950s, Wehtje's strategy of international expansion was paying off with exports accounting for 65 percent of total sales. In 1957 Wehtje retired at the age of 60, having seen sales increase from SKr 20 million to SKr 315 million, the number of subsidiaries triple to 24, and the workforce expand from 1,500 to 6,000. His successor was Kurt-Allan Belfrage, a former diplomat and deputy managing director.

During the 1960s, the company's annual sales more than tripled from SKr 380 million to SKr 1.28 billion. As market demand grew, plants were acquired in Denmark, Italy, India, Brazil, Spain, and Mexico in addition to the existing facilities overseas in the United Kingdom, Finland, and Belgium. Popular products included portable compressors and new pneumatic hand tools in addition to rock drilling equipment. More than 80 percent of Altas Copco's sales were outside Scandinavia. Profits fluctuated during the 1960s due to increased costs, such as sharply rising wages, research and development investment, and marketing activity.

Atlas Copco underwent a reorganization in 1968 in an effort to promote decentralized management, with the company split into three basic groups: Atlas Copco MCT (mining and construction equipment), Atlas Copco Tools (industrial technology), and Atlas Copco Airpower (compressors). When Belfrage retired in 1970, the company's workforce had grown to 13,000 with a presence in 34 countries.

Erik Johnsson, the deputy manager for sales, was appointed the new president. He was replaced in 1975 by Tom Wachtmeister, who had held several senior positions in the company, including director of corporate planning. Strong global demand resulted in more than quadrupling sales during the 1970s. Atlas Copco reported a turnover of SKr 5.3 billion by the end of the decade.

Rationalized Operations in the 1980s

Atlas Copco was put to the test in the early 1980s when a worldwide recession left the company reeling with a sharp fall in profits in 1982 and 1983. Wachtmeister oversaw a stringent rationalization program that included shutting down one-quarter of the company's 46 factories and shedding one-fifth of the 20,000-strong workforce. He also decided to shift the product emphasis away from mining equipment, which had generated 65 percent of the turnover in the late 1970s but had suffered a sizable drop in sales during the recession.

Atlas Copco experienced a recovery in profits in 1984 and 1985 due to renewed demand in Western Europe as well as the devaluation of the Swedish krona in 1982, an important development for a company that generated 92 percent of its sales outside Sweden. Atlas Copco suffered another setback in profits in 1986 due to unexpected foreign exchange losses.

The company's results improved sharply in the late 1980s. Between 1987 and 1989, earnings climbed by 109 percent to SKr 1.53 billion. The upswing in the company's fortunes could be traced to its strategy of concentrating on its core product areas, unlike its more diversified rivals. The strategy reflected Wachtmeister's belief that Atlas Copco should dominate every market segment in which it was active. It also stemmed from the policy within the Wallenberg sphere that companies belonging to it should not compete with each other. This policy prevented Atlas Copco from expanding into the related area of robotics, which was the preserve of another Wallenberg concern, ASEA AB (later known as ABB AB, the Swedish half of ABB Asea Brown Boveri Ltd. and a major player in the worldwide power generation and electrical power transmission and distribution industries.)

Starting in 1987, Atlas Copco began acquiring other companies to build up its market position, particularly concentrating on widening the product line in the Atlas Copco Tools division, which was headed by Michael Treschow. Treschow adopted a strategy of acquiring top brands and by the early 1990s had transformed the Tools division into the multibrand Industrial division. The major acquisitions that shaped the Industrial division through 1991 were: U.S.-based Chicago Pneumatic Tool Co., which was acquired in 1987 and instantly made Atlas Copco the world's largest maker of compressed air tools and assembly systems; SA Ets Georges Renault&mdashquired in 1988--a French maker of industrial tools, primarily grinding/sanding machines and small assembly systems; and U.K.-based Desoutter Brothers plc, a manufacturer of a broad range of industrial tools and assembly units. In acquisitions outside of the industrial tools sector, Atlas in 1988 took over Secoroc, a manufacturer of rock-drill bits. This purchase led to a price war with the Swedish concern Sandvik, which formerly cooperated with Atlas Copco in marketing drill bits.

Recession and Acquisitions in the 1990s

In 1991 Treschow took over as chief executive from Wachtmeister. The new leader immediately had to contend with the deep recession of the early 1990s. He reacted with a massive restructuring, cutting the workforce by 30 percent, with the number of employees bottoming out at 18,104 in 1994. Treschow also gave each Atlas Copco division manager complete worldwide responsibility for his division, with profit and loss statements and balance sheets compiled for each so that each manager's performance could be measured. Through these steps, Atlas Copco remained in the black throughout the recession, despite a revenue decline of 25 percent from 1990 to 1993.

During and in the immediate years after the recession, Atlas Copco continued to aggressively pursue acquisitions. The Industrial division gained additional breadth through the acquisition of two makers of electric tools: AEG Elektrowerkzeuge of Germany and Milwaukee Electric Tool. The latter, a $550 million deal, was the largest purchase in Atlas Copco history and brought to the company a privately held group that claimed more than 20 percent of the U.S. electric tool market for industrial and professional use. Atlas Copco also created a number of joint ventures in the emerging nation of China from 1993 through 1997, encompassing construction machinery, compressors, and electric power tools.

In early 1997 Treschow left Atlas Copco to become chief executive at AB Electrolux, after that company had lost its chief executive to AB Volvo. Replacing Treschow was the head of Atlas Copco's Compressor division, Giulio Mazzalupi, a native of Italy. Mazzalupi wasted no time making his mark on the company, engineering another record acquisition, that of Prime Service, Inc., which was bought for $900 million in mid-1997. Acquiring Prime Service, the number two U.S. industrial equipment rental company, extended Atlas Copco into equipment rental, a rapidly growing sector in the United States, where increasing numbers of companies were renting equipment rather than purchasing it. Moving into rental provided Atlas Copco with a different method of reaching its same customers. Among Prime Service's rental products were air compressors, forklift trucks, mechanical loaders, light construction equipment, and power tools. Following the acquisition and through the end of 1998, Prime Service acquired eight equipment rental companies in the United States and Mexico with aggregate annual revenues of SKr 900 million ($114 million). Initially part of the Compressor division, Prime Service became the core of the newly formed Rental Service division, which constituted a fourth business area for Atlas Copco.

Through the acquisitions of Chicago Pneumatic, Milwaukee Electric Tool, Prime Service, and other U.S. companies, Atlas Copco had significantly expanded its North American activities. In the early 1990s only about 15 percent of company revenues had been generated in North America, but that figure had increased to 37 percent by 1998, nearly equaling that of Europe (which stood at 40 percent). Thanks in large measure to the strongly performing Prime Service, Atlas Copco's revenues reached SKr 33.74 billion ($4.28 billion), a 12 percent increase over the previous year, and operating profits hit SKr 4.35 billion ($552 million), an increase of 14 percent. With the company's continuing focus on growth through acquisition, these figures were likely to continue their upward trajectory.

Principal Subsidiaries: Atlas Copco Rock Drills AB; Atlas Copco Craelius AB; Uniroc AB; Atlas Copco Berema AB; Atlas Copco Tools AB; Robbins Europe AB; Atlas Copco Controls AB; Atlas Copco Construction and Mining Export AB; Atlas Copco MCT Sverige AB; Atlas Copco Iran AB; Atlas Copco Compressor AB; Atlas Copco Ges.m.b.H. (Austria); Atlas Copco Brasil Ltda. (Brazil); Atlas Copco Tools spol s.r.o. (Czech Republic); Atlas Copco Chilena S.A.C. (Chile); Atlas Copco (Cyprus) Ltd.; Atlas Copco Kompressorteknik A/S (Denmark); Atlas Copco (India) Ltd. (40%); Atlas Copco KK (Japan); Atlas Copco Kenya Ltd.; Atlas Copco (Malaysia), Sdn. Bhd. (70%); Atlas Copco Maroc SA. (Morocco; 96%); Atlas Copco (Philippines) Inc.; Soc. Atlas Copco de Portugal Lda.; Atlas Copco (South-East Asia) Pte. Ltd. (Singapore); Atlas Copco (Schweiz) AG (Switzerland); Atlas Copco Venezuela S.A.; Oy Atlas Copco Ab (Finland); Atlas Copco France Holding S.A.; Atlas Copco Holding GmbH (Germany); Atlas Copco UK Holdings Ltd.; Atlas Copco Beheer b.v. (Netherlands); Atlas Copco S.A.E. (Spain); Atlas Copco Internationaal b.v. (Netherlands); Atlas Copco North America Inc. (U.S.); Atlas Copco Construction & Mining Technique AB; Industria Försäkrings AB; Atlas Copco Reinsurance S.A. (Luxembourg); Atlas Copco Fondaktiebolag.

Principal Divisions: Airtec; Portable Air; Industrial Air; Oil-Free Air; Atlas Copco Applied Compressor and Expander Technique; Atlas Copco Rock Drilling Equipment; Atlas Copco Craelius; Uniroc; Atlas Copco Construction Tools; Atlas Copco Wagner; Milwaukee Electric Tool; Atlas Copco Electric Tools; Atlas Copco Industrial Tools and Equipment; Alliance Tools; Prime Service.

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