Interim Results - Part 1
ABB Ltd
29 July 2003
ABB reports solid progress in Q2
• Double-digit EBIT growth
• Cost reduction program yields savings of US$ 160 million
• Net income burdened by discontinued operations, capital losses from
divestments
• Core divisions' operating cash flow at US$ 381 million
ABB Q2 2003 key figures (US$ millions)
April-June 2003 April-June 20021 % change
nominal
Orders Group 4,929 4,667 +6%
Power Technologies 1,923 1,809 +6%
Automation Technologies 2,473 2,322 +7%
Revenues Group 5,061 4,534 +12%
Power Technologies 1,939 1,786 +9%
Automation Technologies 2,463 2,171 +13%
EBIT* Group 171 150 +14%
Power Technologies 146 130 +12%
Automation Technologies 198 162 +22%
Non-core activities -33 12
EBIT margin Group 3.4% 3.3%
Power Technologies 7.5% 7.3%
Automation Technologies 8.0% 7.5%
Income/(loss) from discontinued operations -87 -3
Net income/(loss) -55 38
* Earnings before interest and taxes, see Summary Financial Information for more
information
1 Restated to reflect the move of businesses to discontinued operations, a
restatement filed by the Swedish Export Credit Corp., and the impact of the
equity conversion option (bifurcation) on the convertible bond issued in May
2002. See Summary Financial Information for more information
Zurich, Switzerland, July 29, 2003 - A strong performance by ABB's core Power
and Automation Technologies divisions lifted the company's second-quarter
earnings before interest and taxes by 14 percent (11 percent in local
currencies). Operating cash flow from the core divisions improved and the
company again lowered costs while increasing margins. Losses in discontinued
operations and capital losses from divestments contributed to a net loss of US$
55 million.
'We're clearly moving in the right direction,' said Jurgen Dormann, ABB chairman
and CEO. 'We achieved solid earnings, margins and cash flow performance in our
core divisions and a steady reduction in our cost base. There is hard work
ahead, but our company is now in much better shape than it was a year ago.'
Continued growth in Asia and in the service business partly offset lower capital
spending in a number of customer industries and weak demand in the Americas. 'We
held revenues steady despite difficult market conditions in the quarter and we
expect higher orders and revenues in the second half,' Dormann said. 'We
therefore confirm our targets.'
The company cleared another hurdle toward settling its asbestos liabilities with
a positive U.S. court ruling on July 10 at the bankruptcy court level, and
continued its program of divestments aimed at reducing total debt by the end of
the year to about US$ 6.5 billion.
Summary of group results
Order development varied widely depending on region and industrial sector.
Orders were mainly lower in the Americas, flat in western Europe and higher in
eastern Europe, Asia, the Middle East and Africa, in line with demand patterns
seen at the beginning of the year. Service orders continued to grow, while
capital expenditure by customers remained cautious in many sectors. Investment
in large power infrastructure projects have been delayed to the second half of
the year.
The translation of local currency transactions into U.S. dollars for reporting
purposes positively impacted reported orders and revenues by about 10 percent as
the the U.S. dollar weakened against the euro and the Swiss franc during the
second quarter..
For the second quarter of 2003, ABB reported a 6-percent increase in orders to
US$ 4,929 million (down 6 percent in local currencies), compared to US$ 4,667
million in the same period last year. Core division orders grew 6 percent to US$
4,396 million (down 5 percent in local currencies). Base orders (orders below
US$ 15 million) amounted to US$ 4,572 million, or 93 percent of total orders,
the same percentage as a year earlier. Orders for Non-core activities and
discontinued operations (the Oil, Gas and Petrochemicals division) were lower,
both in U.S. dollars and local currencies, compared to the same quarter in 2002.
The combined order backlog for the core divisions rose to US$ 10,052 million
from US$ 9,872 million at the end of the first quarter. The order backlog for
the group at the end of the second quarter was US$ 10,785 million, flat compared
to the first quarter (US$ 10,684 million on March 31, 2003).
Total revenues in the second quarter were 12 percent higher at US$ 5,061 million
(down 2 percent in local currencies). Core division revenues rose 11 percent to
US$ 4,402 million from US$ 3,957 in the same quarter a year ago (down 1 percent
in local currencies). Revenues were slightly higher in Non-core activities.
Group EBIT was US$ 171 million, up 14 percent from the second quarter of 2002
(up 11 percent in local currencies), while core division EBIT amounted to US$
344 million compared to US$ 292 million in the same quarter last year. Group
earnings were affected by a US$ 46-million loss in Building Systems (part of
Non-core activities). Group EBIT included restructuring costs of US$ 82 million
in the quarter, compared to US$ 51 million in the same quarter a year ago, and a
US$ 87-million loss on the divestment of ABB's 35-percent stake in the Swedish
Export Credit Corporation (SEK). The company reported a gain of US$ 28 million
on the divestment of two holdings in its Equity Ventures portfolio. The EBIT
margin was 3.4 percent, up from 3.3 percent in the same quarter last year.
Excluding net capital losses of US$ 69 million in the quarter, the EBIT margin
amounted to 4.7 percent.
Finance net (the difference between interest and dividend income and interest
and other finance expense) was negative US$ 92 million compared to negative US$
74 million in the second quarter of 2002.
Discontinued operations reported a loss of US$ 87 million compared to a loss of
US$ 3 million in the second quarter of 2002, including a loss of US$ 43 million
in the Oil, Gas and Petrochemicals division compared to income of US$ 30 million
in the same period last year. Also included in the discontinued operations
result is a US$ 30-million non-cash loss reflecting a mark-to-market adjustment
of the value of some 30 million ABB Ltd shares committed to cover part of the
company's asbestos liabilities.
The ABB Group's second quarter net loss amounted to US$ 55 million, compared to
net income of US$ 38 million for the same period in 2002.
Cost reduction
ABB realized savings of about US$ 160 million in the second quarter (US$ 230
million in the first half of the year) from its business improvement program,
called Step change. Introduced in late 2002, the goals of the program are to
increase competitiveness of ABB's core businesses, reduce overhead costs and
streamline operations by approximately $900 million (revised from US$ 800
million) on an annual basis by 2005. The Step change program is expected to be
completed by mid-2004.
Major cost-saving projects implemented so far include improved supply management
in Sweden, streamlined IT activities in the U.S., Germany and Switzerland, and
closures of production facilities in various countries. As a result of the Step
change program, the company reduced some 3,800 jobs in the first half of the
year.
As part of the initiative to streamline operations, ABB and IBM yesterday
announced a ten-year agreement to outsource to IBM close to 90 percent of ABB's
information systems infrastructure operations, including the transfer to IBM of
780 employees, in a deal valued at US$ 1.1 billion. ABB expects the outsourcing
agreement to result in annual savings of at least US$ 50 million.
As of June 30, 2003, ABB employed 133,200 people, compared to 139,100 at the end
of 2002.
Cash flow
The combined cash flow from operations in the two core divisions in the quarter
amounted to US$ 381 million. This was more than offset by asbestos-related cash
payments of US$ 51 million by U.S. subsidiary Combustion Engineering, US$ 88
million used by discontinued operations (Oil, Gas and Petrochemicals division),
US$ 27 million used in Non-core activities, and other movements of some US$ 240
million. As a result, net cash from operating activities in the quarter amounted
to negative US$ 25 million.
Divestments
ABB continued its program of divesting non-core businesses and other assets. The
company received cash proceeds of US$ 149 million for the 35-percent stake in
SEK (reporting a loss on sale in other income (expense), net, of US$ 87 million)
and about US$ 90 million for two projects in the Equity Ventures portfolio - a
power plant project and a power transmission project, both in Australia - on
which ABB recorded a gain on sale in other income (expense), net, of US$ 28
million. The company also sold its shares in the China National Petrochemical
Corporation (Sinopec) for US$ 82 million (reporting a loss on sale of US$ 40
million in interest and other finance expense). As a result of these
transactions, and minor losses on the sale of other businesses, income for the
second quarter was affected by losses of US$ 110 million.
Since the end of the second quarter, ABB has announced an agreement to sell its
Nordic Building Systems business (primarily Sweden, Norway, Denmark and Finland)
to YIT of Finland for US$ 233 million. ABB also intends to sell the Building
Systems business in Switzerland this year and in Germany in 2004. Talks are
continuing with potential buyers of the Oil, Gas and Petrochemicals division,
which ABB intends to sell in 2003.
Balance sheet and debt
Cash and marketable securities at the end of June amounted to US$ 4,113 million
compared to US$ 3,781 million at the end of the previous quarter. Total debt
(short-term and long-term borrowings) amounted to US$ 8,304 million, compared to
US$ 8,155 million three months earlier, in line with ABB's financial planning.
Included in total debt are aggregate borrowings of approximately US$ 1.5 billion
under the revolving credit facility negotiated in December 2002.
Stockholders' equity increased to US$ 1,277 million from US$ 1,078 million at
the end of March 2003. The net loss for the quarter was more than offset by
positive foreign exchange translation effects and unrealized gains on
available-for-sale securities.
Asbestos
On July 10, a U.S. bankruptcy court recommended for confirmation a pre-packaged
Chapter 11 protection plan filed earlier in the year by a U.S. subsidiary of
ABB, Combustion Engineering, marking further progress towards a settlement of
the asbestos issue. Following the court's recommendation, an appeals period
began before a U.S. district court. The district court has scheduled a hearing
for July 31. ABB remains confident that the district court will confirm the
plan.
Group outlook
The outlook remains unchanged. From 2002 through 2005, ABB expects compound
average annual revenue growth of about 4 percent in local currencies. For 2003,
ABB aims to achieve an EBIT margin of 4 percent in U.S. dollars. For 2005, the
Group's target EBIT margin is 8 percent in U.S. dollars. Revenue and margin
targets exclude major acquisitions and divestments.
By year-end 2003, ABB intends to reduce total debt to about US$ 6.5 billion, and
gearing (total debt divided by total debt plus stockholders' equity) to about 70
percent. For 2005, ABB intends to reduce total debt to about US$ 4 billion, and
gearing to approximately 50 percent.
Divisional performance Q2 2003
Power Technologies division
US$ in millions April-June April-June* Change
(except where indicated) 2003 2002
Orders 1,923 1,809 +6%
Revenues 1,939 1,786 +9%
EBIT 146 130 +12%
EBIT margin 7.5% 7.3%
Restructuring costs (included in above EBIT figure) -18 -5
* Restated
Double-digit growth in Asia and higher orders in Europe were offset by weakness
in the U.S. market, where excess power capacity and low energy prices reduced
utility investments. Orders were higher in Medium-Voltage Products and Utility
Automation Systems. Due to reduced investments by customers in the U.S., orders
were lower in High-Voltage Products and Power Transformers, and flat in
Distribution Transformers. ABB expects to finalize some larger orders in the
High-Voltage Products and Power Systems business areas in the second half of the
year. Second-quarter orders were up 6 percent (down 3 percent in local
currencies).
Significant orders in the quarter included more than US$ 100 million for
flexible AC (alternating current) transmission technology in Saudi Arabia, the
U.S. and Australia (booked by the High-Voltage Products and Power Systems
business areas). The division won power distribution equipment orders for two
metro systems in China and reported the first order for 500-kilovolt
high-voltage gas-insulated switchgear in Russia.
Revenue growth in Asia and Europe, plus a solid order backlog, combined to
offset the weak U.S. market. High-Voltage Products, Utility Automation Systems
and Distribution Transformers reported lower revenues from the weaker U.S.
market. Revenues grew in Medium-Voltage Products and Power Transformers, and
were flat in Power Systems. Revenues rose 9 percent in the quarter (down 2
percent in local currencies). The strong order backlog is expected to support
revenue growth in the second half of the year.
EBIT grew 12 percent in the second quarter, despite significantly higher
restructuring costs. The EBIT margin, excluding restructuring, increased from
7.6 percent to 8.5 percent. The division continued to reap benefits from product
and site rationalization and improved margins in most product and systems
businesses.
Automation Technologies division
US$ in millions April-June April-June* Change
(except where indicated) 2003 2002
Orders 2,473 2,322 +7%
Revenues 2,463 2,171 +13%
EBIT 198 162 +22%
EBIT margin 8.0% 7.5%
Restructuring costs (included in above EBIT figure) -26 -17
* Restated
Double-digit order growth in Asia and Europe was slightly offset by weakness in
the Americas. The introduction of several new automation products early in the
year supported higher orders in most product categories. Growth in product
orders was accompanied by a reduced dependence on large system contracts.
Orders for low-voltage drives, sometimes seen as a leading indicator of
industrial recovery, increased strongly in the quarter. Higher oil prices lifted
investments for oil and gas production systems while demand in chemicals and
petrochemicals remained weak. Orders slipped in the metal and minerals area and
remained flat in the marine sector as customers postponed some investments.
Despite lower demand from the automotive sector in the Americas, orders for
robotics solutions increased. Overall, orders for the division grew 7 percent in
the quarter compared to the same quarter last year (down 7 percent in local
currencies).
Key orders in the quarter included a US$ 34-million contract extension with
Statoil of Norway, providing service and maintenance to all of its
installations.
Both the product and service businesses achieved double-digit revenue growth,
and revenues were higher in Asia and Europe. Revenues were down in Paper,
Minerals, Marine and Turbocharging, higher in Robotics, Automotive and
Manufacturing, as well as Petroleum, Chemical and Consumer Industries, and flat
in the remaining business areas. Overall divisional revenues were 13 percent
higher compared to the second quarter of 2002 (flat in local currencies).
EBIT improved by 22 percent, despite higher restructuring costs, reflecting
productivity improvements. Excluding restructuring, the EBIT margin increased to
9.1 percent. The division continued to focus on improving the gross profit
margin on orders and reducing the overall cost base. Continued good growth in
the service business, combined with strict project management, contributed to
higher second-quarter EBIT margins.
Non-core activities
US$ in millions April-June April-June**
2003 2002
EBIT -33 12
Insurance 44 -17
Equity Ventures 44 17
Remaining Structured Finance -51 76
Building Systems -46 -22
New Ventures -15 -15
Other non-core activities* -9 -27
Restructuring costs (included in above EBIT figure) -38 -5
* Comprises mainly former Group Processes division
** Restated
Non-core activities recorded an EBIT loss for the second quarter of US$ 33
million compared to a profit of US$ 12 million in the same period last year.
The Insurance business benefited from higher premium income and a stronger
performance in the investment portfolio to lift both revenues and earnings. This
more than offset losses ceded in the run-off of the Scandinavian Reinsurance
unit.
Equity Ventures, consisting mainly of equity-accounted investments, improved
earnings mainly as the result of a US$ 28-million gain from the sale of
investments in a power plant project and a power transmission network, both in
Australia.
The loss in the remaining Structured Finance activities includes a loss of US$
87 million on the sale of the company's 35-percent stake in SEK, and reflects
lower operational earnings in the second quarter of this year compared to the
same quarter in 2002. Including earnings in the first half of the year, the net
impact from SEK on EBIT in 2003 is negative US$ 60 million.
In Building Systems, revenues in the quarter were flat in a difficult market,
especially in Europe. Operational losses in Germany and Sweden, plus further
restructuring costs in Germany, led to a loss for the quarter of US$ 46 million.
New Ventures continued its restructuring activities, and losses remained at the
same level as the second quarter of 2002.
Corporate
US$ in millions April-June April-June
2003 2002
EBIT -140 -154
Headquarters/Stewardship -98 -65
Research and development -23 -28
Other* -19 -61
Restructuring costs (included in above EBIT figure) 0 -24
* includes consolidation, real estate and Treasury Services.
Total corporate costs decreased to US$ 140 million. Headquarters and stewardship
costs, which reflect the operating costs of the global head office and parts of
local holding companies in some 60 countries, increased in the quarter. Research
and development costs were lower, reflecting benefits from restructuring
undertaken in 2002. Other costs were sharply lower, mainly the result of cost
reductions in treasury services related to the ending of proprietary trading in
June 2002.
Other income and expenses (included in EBIT)
US$ in millions April-June April-June
2003 2002
-97 46
Restructuring charges -82 -51
Capital gains/(losses) -69 12
Write-downs of assets -3 -31
Income from equity accounted companies, licenses and other 57 116
Discontinued operations (not included in EBIT)
US$ in millions April-June April-June
2003 2002
Net income (loss) -87 -3
Oil, Gas and Petrochemicals -43 30
Asbestos -36 n.a.
Other -8 -33
See page 2 for a discussion of the results from discontinued operations.
Oil, Gas and Petrochemicals
US$ in millions Apr-June Apr-June Change
(except where indicated) 2003 2002
Orders 845 1,493 -43%
Revenues 1,056 1,004 +5%
Net income -43 30
Orders for the Oil, Gas and Petrochemicals division decreased 43 percent in the
quarter (down 51 percent in local currencies), mainly the result of the strong
second quarter in 2002 when ABB won a US$ 980-million order in Russia. Revenues
were 5 percent higher (up 2 percent in local currencies) as sales were recorded
on large downstream projects. Sales were lower in the upstream business,
reflecting the strategic move away from lump-sum engineering, procurement and
construction (EPC) contracts. Income decreased due to higher project costs
caused by delays in two large contracts in Europe and Latin America, and
increased interest expense.
ABB Q2 and first-half 2003 key figures (US$ millions)
Apr.-June 2003 Apr.-June 20021 % change
Nominal Local
Orders Group 4,929 4,667 6% -6%
Power Technologies 1,923 1,809 6% -3%
Automation Technologies 2,473 2,322 7% -7%
Non-core activities 911 1,023
Corporate -378 -487
Revenues Group 5,061 4,534 12% -2%
Power Technologies 1,939 1,786 9% -2%
Automation Technologies 2,463 2,171 13% 0%
Non-core activities 1,050 1,017
Corporate -391 -440
EBIT* Group 171 150 14%
Power Technologies 146 130 12%
Automation Technologies 198 162 22%
Non-core activities -33 12
Corporate -140 -154
EBIT margin Group 3.4% 3.3%
Power Technologies 7.5% 7.3%
Automation Technologies 8.0% 7.5%
Non-core activities -3.1% 1.2%
Corporate n.a. n.a.
Net income/loss -55 38
Jan.-June 2003 Jan.-June 20021 % change
Nominal Local
Orders Group 10,010 9,362 7% -5%
Power Technologies 3,974 3,740 6% -3%
Automation Technologies 4,967 4,486 11% -4%
Non-core activities 1,938 1,965
Corporate -869 -829
Revenues Group 9,556 8,485 13% -1%
Power Technologies 3,723 3,313 12% 3%
Automation Technologies 4,693 4,032 16% 1%
Non-core activities 1,992 1,890
Corporate -852 -750
EBIT* Group 263 422 -38%
Power Technologies 274 240 14%
Automation Technologies 360 270 33%
Non-core activities -97 51
Corporate -274 -139
EBIT margin Group 2.8% 5.0%
Power Technologies 7.4% 7.2%
Automation Technologies 7.7% 6.7%
Non-core activities -4.9% 2.7%
Corporate n.a. n.a.
Net income/loss -100 193
* Earnings before interest and taxes, see Summary Financial Information for more
information
1 Restated to reflect the move of businesses to discontinued operations, a
restatement filed by the Swedish Export Credit Corp., and the impact of the
equity conversion option (bifurcation) on the convertible bond issued in May
2002.
More information
The 2003 Q2 results press release and presentation slides are available from
July 29, 2003 on the ABB News Center at www.abb.com/news and on the Investor
Relations homepage at www.abb.com/investorrelations.
ABB will host a telephone conference for journalists today starting at 1000
Central European Time (CET). Callers should dial +41 91 610 56 00 (from Europe
excluding Sweden), +46 8 5069 2105 (from Sweden), or +1 866 291 4166 (from the
U.S.). Lines will be open 15 minutes before the start of the conference.
The audio playback of the conference call will start one hour after the end of
the call and be available for 72 hours : Playback numbers: +41 91 612 4330
(Europe) or +1 412 858 1440 (U.S.). The code is 086, which needs to be confirmed
by pressing the # key.
A conference call for analysts and investors is scheduled to begin at 1500 CET.
Callers should dial +41 91 610 56 00 (Europe), +1 866 291 4166 (from the U.S.).
Callers are requested to phone in ten minutes before the start of the conference
call.
The audio playback of the conference call will start one hour after the end of
the call and be available for 72 hours. Playback numbers: +41 91 612 4330
(Europe) or +1 412 858 1440 (U.S.). The code is 744 followed by the # key.
Further reporting dates in 2003 are October 28 (Q3).
ABB (www.abb.com) is a leader in power and automation technologies that enable
utility and industry customers to improve performance while lowering
environmental impact. The ABB Group of companies operates in around 100
countries and employs about 133,000 people.
This press release includes forward-looking information and statements that are
subject to risks and uncertainties that could cause actual results to differ.
These statements are based on current expectations, estimates and projections
about global economic conditions, the economic conditions of the regions and
industries that are major markets for ABB Ltd and ABB Ltd's lines of business.
These expectations, estimates and projections are generally identifiable by
statements containing words such as 'expects,' 'believes,' 'estimates' or
similar expressions. Important factors that could cause actual results to differ
materially from those expectations include, among others, economic and market
conditions in the geographic areas and industries that are major markets for
ABB's businesses, market acceptance of new products and services, changes in
governmental regulations, interest rates, fluctuations in currency exchange
rates and such other factors as may be discussed from time to time in ABB's
filings with the U.S. Securities and Exchange Commission. Although ABB Ltd
believes that its expectations reflected in any such forward-looking statement
are based upon reasonable assumptions, it can give no assurance that those
expectations will be achieved.
For more information please contact:
Media Relations, Zurich: Investor Relations
Thomas Schmidt, Wolfram Eberhardt Switzerland: Tel. + 41 43 317 3804
Tel: +41 43 317 6492, +41 43 317 6512 Sweden: Tel. + 46 21 325 719
Fax: +41 43 317 7958 USA: Tel: +1 203 750 7743
media.relations@ch.abb.com investor.relations@ch.abb.com
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