Q1 net income up by 163 percent

  • Continued strong demand for reliable power and industrial efficiency
  • Record EBIT and EBIT margin (13.2%) on volume growth and operational improvements
  • Cash from operations above $300 million
  • ABB Lummus Global moved to discontinued operations
Zurich, Switzerland, April 26, 2007 - ABB's first-quarter net income rose 163 percent to $537 million from $204 million in the same period of 2006, driven primarily by continued strong market demand and further operational improvements.

Earnings before interest and taxes (EBIT) increased 67 percent from a year earlier, to $822 million. The EBIT margin, or EBIT as a percentage of revenues, increased to a record 13.2 percent from 9.6 percent.

Orders rose 26 percent (20 percent in local currencies), spurred by demand for reliable electricity supplies in both mature and emerging markets, as well as global industrial demand for technologies to improve energy efficiency and productivity. Revenues rose 21 percent (15 percent in local currencies) to $6.2 billion on both high product sales in the quarter and progress on executing the strong order backlog. Not included in the revenue comparison is $237 million in the first quarter of 2007 from the ABB Lummus Global business that was reclassified to discontinued operations (Q1 2006: $208 million).

"Our operational improvements and global reach are paying off," said Fred Kindle, ABB President and Chief Executive Officer. "We are positioned to capture the strong worldwide demand for technologies to deliver reliable power, increase productivity and save energy. All five divisions and every region, particularly Europe, contributed to our strong start to the year."

2007 Q1 key figures
Q1 07
Q1 061
Change
$ millions unless otherwise indicated
US$
Local
Orders
8,639
6,859
26%
20%
Order backlog (end March)
18,515
13,088
41%
34%
Revenues
6,215
5,139
21%
15%
EBIT
822
492
67%
as % of revenues
13.2%
9.6%
Net income
537
204
163%
as % of revenues
8.6%
4.0%
Basic net income per share ($)
0.25
0.10
Cash flow from operating activities
303
39
1Adjusted to reflect the reclassification of activities to discontinued operations


Summary of Q1 2007 results

Orders received and revenues
The strong order growth in the first quarter was led by continued demand for improved power infrastructure across all regions. Orders in the Power Products and Power Systems divisions grew 41 and 38 percent, respectively (local currencies: 35 and 30 percent) during the quarter compared to the same period in 2006. Demand was strong for transformers and substations. Industrial markets also remained robust in the first quarter, driven mainly by the metals and marine sectors. This resulted in a 24-percent increase in orders (local currencies: 16 percent) in the Automation Products division, especially for energy-saving motors and drives. Order growth was modest (flat in local currencies) in Process Automation due to the timing of large order awards, primarily in the oil and gas sector. Orders in the Robotics division also increased, led by demand from general industry.

Regionally, orders in Europe rose 31 percent (20 percent in local currencies), reflecting both power infrastructure investments and overall economic strength. Order growth was strongest in Germany, Spain, Italy and Russia. Strong markets in North and South America, especially in the power sector, resulted in a 25-percent increase in orders from the Americas (24 percent in local currencies), led by the U.S. and Brazil. Orders in Asia grew 22 percent (18 percent in local currencies) and continued to benefit from rapid economic development in China and India. High oil prices supported demand in the Middle East and Africa where orders increased 16 percent (14 percent in local currencies).

The volume of large orders (more than $15 million) rose 36 percent (32 percent in local currencies) in the first quarter and base orders (less than $15 million) were up 25 percent (18 percent in local currencies). Large orders represented 13 percent of total orders in the first quarter of 2007, slightly higher than the first quarter of 2006 but below the exceptionally high levels seen in the fourth quarter of 2006. The order backlog at the end of March was $5.4 billion higher (41 percent in U.S. dollars and 34 percent in local currencies) than at the end of the first quarter of 2006 and $2.6 billion higher (up 16 percent in both U.S. dollars and local currencies) than at the end of 2006.

The 21-percent increase in revenues (15 percent in local currencies) is primarily the result of strong product sales in the quarter as well as the execution of orders from the backlog.

Earnings before interest and taxes
All divisions increased their EBIT and EBIT margins in the first quarter of 2007, mainly through higher volumes and capacity utilization, as well as improved selection and execution of large projects. Other operational improvements, including more efficient supply management and increasing production and engineering capacity in lower cost countries, were further factors in the EBIT and EBIT margin improvement. EBIT in the quarter also benefited from a lower level of restructuring and other charges, such as those related to the transformer consolidation program, compared to the same quarter in 2006.

Discontinued operations
A small profit was recorded in the first quarter of 2007 in discontinued operations. This includes income from the ABB Lummus Global oil, gas and petrochemicals business, which was reclassified into discontinued operations from Non-core activities. The reclassification reflects ABB’s expectation to sell the business. (Please refer to Appendix I for more detail on ABB Lummus Global’s first-quarter results.) The sale of ABB’s Building Systems business in Germany, announced in February of this year, was completed on April 12, 2007. Discontinued operations in the first quarter of 2006 included an approximately $90-million negative impact from the mark-to-market accounting treatment of ABB shares held for the Combustion Engineering asbestos settlement.

Cash flow
Cash flow from operations improved significantly in the first quarter, mainly reflecting earnings growth. Net working capital as a share of revenues increased to 12.2 percent in the first quarter from 11.3 percent in the same quarter a year ago, mainly the result of higher inventories to execute orders received in recent quarters that have not yet flowed through to revenues, as well as higher receivables.

Balance sheet
Cash and marketable securities increased, primarily the result of higher cash-effective earnings. Following the conversion during the first quarter of 79 percent of the company’s 1-billion Swiss franc convertible bonds maturing in 2010, total debt decreased by approximately $650 million and equity increased by a similar amount. As the result of the bond conversion and the strong net income in the quarter, ABB’s gearing1 at the end of March 2007 decreased to 26 percent from 34 percent at the end of 2006. Net cash2 amounted to $2.3 billion at the end of March 2007 compared to $1.5 billion at the end of the previous quarter.

1 The gearing ratio is calculated as total debt divided by the sum of total debt and equity, including minority interest
2 Net cash is calculated as the sum of cash and equivalents and marketable securities and short-term investments, less total debt.

Credit rating increase
On April 23, 2007, Standard & Poor’s raised ABB’s long-term corporate credit rating from BBB+ to A-, with a stable outlook. It was the third increase by Standard & Poor’s on ABB’s credit rating since the beginning of 2006.

Divisional performance Q1 2007
Power Products division
Q1 07
Q1 061
Change
$ millions unless otherwise indicated
US$
Local
Orders
3,257
2,310
41%
35%
Order backlog (end March)
6,188
4,202
47%
40%
Revenues
2,060
1,463
41%
35%
EBIT
317
173
83%
as % of revenues
15.4%
11.8%
Cash flow from operating activities
87
61
1Adjusted to reflect the reclassification of activities to discontinued operations

Order growth remained very strong in the first quarter. Both base and large orders increased and orders were up in all businesses and regions. Transformer orders grew strongest, driven by demand in the U.S., Brazil, Germany and Spain. Large orders from eastern Europe and the Middle East for switchgear used in high-voltage substations also contributed to the order growth.

Revenues grew significantly in all businesses on increased productivity, a higher initial order backlog and price increases in some product areas to compensate for higher raw material costs. There were no expenses in the first quarter of 2007 related to the transformer consolidation program announced in 2005 (first quarter 2006: $17 million).

EBIT and EBIT margin rose, mainly reflecting the improved cost efficiency of higher factory loadings, operational improvements and lower transformer consolidation costs.

Power Systems division
Q1 07
Q1 06
Change
$ millions unless otherwise indicated
US$
Local
Orders
1,797
1,306
38%
30%
Order backlog (end March)
6,357
4,417
44%
35%
Revenues
1,154
1,012
14%
8%
EBIT
80
48
67%
as % of revenues
6.9%
4.7%
Cash flow from operating activities
17
4

Both base and large orders increased significantly in the first quarter compared to the same quarter a year earlier. The substations and network management businesses led the growth as electrical utilities continued to invest in infrastructure upgrades. Orders were up strongly in Europe, the Americas and in Asia, especially India. Orders also grew at a high single-digit pace in the Middle East and Africa.

Revenue growth in the quarter reflected primarily the timing of project execution from the order backlog. EBIT and EBIT margin increased on higher revenues combined with improved project selection and execution and increased capacity utilization.

Automation Products division
Q1 07
Q1 06
Change
$ millions unless otherwise indicated
US$
Local
Orders
2,411
1,944
24%
16%
Order backlog (end March)
3,006
1,862
61%
51%
Revenues
1,898
1,530
24%
16%
EBIT
309
221
40%
as % of revenues
16.3%
14.4%
Cash flow from operating activities
97
131

Industrial markets continued to develop favorably in the first quarter, leading to a further increase in demand. Orders were higher in all businesses and regions. Among the larger orders booked in the quarter were traction converters and motors for rail customers, medium-voltage drives for a metals customer and high-power rectifiers for a smelter project in India.

Higher revenues followed the good order development during the quarter as well as benefiting from the strong order backlog. Revenue growth and continued high capacity utilization led to a further increase in EBIT and EBIT margin.

Process Automation division
Q1 07
Q1 06
Change
$ millions unless otherwise indicated
US$
Local
Orders
1,741
1,659
5%
(1%)
Order backlog (end March)
4,348
3,118
39%
31%
Revenues
1,383
1,235
12%
6%
EBIT
139
118
18%
as % of revenues
10.1%
9.6%
Cash flow from operating activities
83
4

A decrease in large orders in the first quarter compared to the same quarter in 2006 was offset by a 13-percent increase in base orders (7 percent in local currencies). Orders increased in the metals sector - especially in the steel industry - and in marine. Demand from these two sectors was mainly driven by Asia. Orders from the oil and gas sector were lower, primarily reflecting the timing of project awards.

Revenue growth in the first quarter principally reflected progress made on the execution of systems orders and higher product sales during the quarter. Higher revenues and continued solid project execution contributed to the higher EBIT and EBIT margin.

Robotics division
Q1 07
Q1 06
Change
$ millions unless otherwise indicated
US$
Local
Orders
378
326
16%
9%
Order backlog (end March)
516
496
4%
(2%)
Revenues
305
333
(8%)
(13%)
EBIT
15
1
--
as % of revenues
4.9%
0.3%
Cash flow from operating activities
43
(67)

Orders rose in the quarter as higher demand from general industry, such as packaging, consumer electronics and food processing, more than offset continued weakness in the automotive sector.

Revenues declined in the first quarter as a result of the weak order backlog. However, both EBIT and EBIT margin improved. This was a reflection of costs incurred in the first quarter of last year to improve the division’s operational performance, the non-recurrence of costs related to a project, and the first positive results from the operational improvement initiatives. Increased revenues from general industry also contributed to the higher EBIT and EBIT margin.

Non-core activities
Following the reclassification of ABB Lummus Global to discontinued operations, Non-core activities now principally comprises ABB’s Equity Ventures investment portfolio and the Group’s corporate real estate activities. In the first quarter of 2007, Non-core activities generated EBIT of $35 million.

In February 2007, ABB announced the sale of its Equity Ventures investments in the Jorf Lasfar (Morocco) and Neyveli (India) power plants. That transaction is expected to close during the second quarter of 2007.

Outlook
The business environment for ABB during the remainder of 2007 is expected to remain in line with the positive market situation seen in 2006 and the first quarter of this year. Demand for power transmission and distribution infrastructure is expected to continue on a high level in all regions. Equipment replacement and improved network efficiency and reliability are forecast to be the drivers of higher demand in Europe and North America.

Automation-related industrial investments are expected to continue in most sectors. Overall, automation-related demand growth is expected to be strongest in Asia and the Americas in 2007, with more modest growth in Europe.

In addition, ABB is well-positioned to benefit from increasing investments to mitigate climate change with energy-efficient products and systems.

Order growth is expected to continue on a high level but to moderate somewhat over the remainder of 2007, compared to the extraordinarily high order growth rates experienced in 2006.

More information
The 2007 Q1 results press release and presentation slides are available from April 26, 2007, 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 press conference today starting at 10:00 a.m. Central European Time (CET). U.K. callers should dial +44 20 7107 0611. From Sweden, +46 8 5069 2105, and from the rest of Europe, +41 91 610 56 00. Lines will be open 15 minutes before the start of the conference. Audio playback of the call will start one hour after the call ends and will be available for 72 hours: Playback numbers: +44 20 7108 6233 (U.K.), +41 91 612 4330 (rest of Europe) or +1 (1) 866 416 2558 (U.S./Canada). The code is 295, followed by the # key.

A conference call for analysts and investors is scheduled to begin today at 3:00 p.m. CET (9:00 a.m. EDT). Callers should dial +1 412 858 4600 (from the U.S./Canada) or +41 91 610 56 00 (Europe and the rest of the world). Callers are requested to phone in 15 minutes before the start of the call. The audio playback of the call will start one hour after the end of the call and be available for two weeks. Playback numbers: +1 866 416 2558 (U.S./Canada) or +41 91 612 4330 (Europe and the rest of the world). The code is 683, followed by the # key.

Investor calendar 2007
ABB Ltd Annual General Meeting
May 3, 2007
Q2 2007 results
July 26, 2007
Q3 2007 results
Oct. 25, 2007

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 109,000 people.

Zurich, April 26, 2007
Fred Kindle, CEO

Important notice about forward-looking information
This press release includes forward-looking information and statements including the section entitled "Outlook," as well as other statements concerning the outlook for our business. These statements are based on current expectations, estimates and projections about the factors that may affect our future performance, including global economic conditions, the economic conditions of the regions and industries that are major markets for ABB Ltd. These expectations, estimates and projections are generally identifiable by statements containing words such as "expects," "believes," "estimates," "targets," "plans" or similar expressions. However, there are many risks and uncertainties, many of which are beyond our control, that could cause our actual results to differ materially from the forward-looking information and statements made in this press release and which could affect our ability to achieve any or all of our stated targets. The important factors that could cause such differences include, among others, the amount of revenues we are able to generate from backlog and orders received, raw materials prices, market acceptance of new products and services, changes in governmental regulations and costs associated with compliance activities, interest rates, fluctuations in currency exchange rates and such other factors as may be discussed from time to time in ABB Ltd’s filings with the U.S. Securities and Exchange Commission, including its Annual Reports on Form 20-F. 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.


Download/view complete press release including appendices in PDF format. Appendices are not included in this web page.

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