- Full-year orders increased 27%, revenues grew 25%, order backlog up 44%
- 2007 EBIT rose 57% to $4.0 billion, EBIT margin at 13.8% vs 11.0% in 2006
- Net income up to $3.8 billion, partly on tax effect and divestment gain
- Board of Directors proposes to double the dividend to Sfr. 0.48 per share and approves a Sfr. 2.2 billion share buyback program
- Michel Demaré appointed interim CEO
Zurich, Switzerland, February 14, 2008 - ABB's net income increased to a record $3.8 billion in 2007 from $1.4 billion a year earlier as markets remained strong and further operational improvements were made. In addition, a gain on the sale of ABB Lummus Global and a tax benefit together contributed approximately $1 billion to the 2007 net income.
Full-year earnings before interest and taxes (EBIT) grew 57 percent to $4.0 billion on a 25-percent increase in revenues (local currencies: 18 percent) to $29.2 billion. Orders were 27 percent higher (local currencies: 19 percent), leading to an order backlog of $22.7 billion at the end of 2007, an increase of 44 percent (local currencies: 32 percent) versus the end of 2006.
Orders, revenues and EBIT grew in all divisions and regions as global demand remained strong for technology to increase power grid reliability, industrial productivity and energy efficiency.
Strong demand, strategic measures and operational improvements, such as more sourcing from emerging economies, helped lift the EBIT margin to 13.8 percent from 11.0 percent in 2006. Cash flow from operating activities increased 58 percent to $3 billion, reflecting both higher EBIT and improvements in working capital management.
"2007 was a great year for ABB," said Michel Demaré, ABB's interim Chief Executive Officer and its Chief Financial Officer. "Demand remained strong around the globe for the products and services at the heart of our business - to increase energy efficiency, deliver power more reliably, and improve industrial productivity. We also profited again from our improved operational performance and expansion in emerging markets. This puts us in a strong position heading into 2008.
"The good performance in 2007 is also reflected in our proposal to double the dividend and the decision to launch a share buyback program," Demaré said. "These measures increase returns to shareholders, improve our capital efficiency and, at the same time, ABB retains full flexibility to follow our growth ambitions, both organic and external."
2007 Q4 and full-year key figures
 | Q4 07 | Q4 061 | Change |
| US$ millions unless otherwise indicated | | | US$ | Local |
| Orders | 8,868 | 7,129 | 24% | 14% |
| Order backlog (end Dec.) | 22,715 | 15,829 | 44% | 32% |
| Revenues | 8,713 | 6,886 | 27% | 16% |
| EBIT | 1,145 | 763 | 50% | |
| as % of revenues | 13.1 | 11.1 | | |
| Net income | 1,753 | 422 | 315% | |
| Basic earnings per share ($) | 0.76 | 0.19 | | |
| Dividend per share (CHF) | | | | |
| Cash flow from operations | 1,469 | 1,040 | 41% | |
| Free cash flow3 | | | | |
| as % of net income3 | | | | |
| Return on capital employed3 | | | | |
| 2007 | 20061 | Change |
| US$ millions unless otherwise indicated | | | US$ | Local |
| Orders | 34,348 | 27,048 | 27% | 19% |
| Order backlog (end Dec.) | | | | |
| Revenues | 29,183 | 23,281 | 25% | 18% |
| EBIT | 4,023 | 2,557 | 57% | |
| as % of revenues | 13.8 | 11.0 | | |
| Net income | 3,757 | 1,390 | 170% | |
| Basic earnings per share ($) | 1.66 | 0.65 | | |
| Dividend per share (CHF) | 0.482 | 0.24 | 100% | |
| Cash flow from operations | 3,054 | 1,939 | 58% | |
| Free cash flow3 | 2,429 | 1,598 | 52% | |
| as % of net income3 | 65% | 115% | | |
| Return on capital employed3 | 35% | 21% | | |
1 Adjusted to reflect the reclassification of activities to Discontinued operations;
2 Proposed by the Board of Directors;
3 Reported annually only
In the fourth quarter ending Dec. 31, 2007, orders rose 24 percent (local currencies: 14 percent) while revenues were 27 percent higher (local currencies: 16 percent) compared to the fourth quarter of 2006. Fourth-quarter EBIT increased 50 percent to $1.1 billion, producing an EBIT margin of 13.1 percent versus 11.1 percent in the same quarter a year earlier.
Net income in the fourth quarter of 2007 amounted to $1.8 billion compared to $422 million in the same quarter in 2006. The reported net income includes a $530-million gain on the sale of ABB Lummus Global and a $475-million tax benefit from the recognition of deferred tax assets. Excluding those impacts, 2007 fourth-quarter net income amounted to $748 million, an increase of 77 percent compared to the same quarter in 2006. For the full year 2007, net income excluding the tax impact and ABB Lummus gain amounted to $2.8 billion, an increase of 98 percent compared to 2006
1. Full-year earnings per share in 2007, excluding the tax impact and the ABB Lummus gain, were $1.22 (versus $1.66 as reported), an increase of 88 percent (155 percent as reported).
1Please refer to Reconciliation of non-GAAP financial measures regarding fiscal year 2007 in Appendix IV to this release.
The ABB Board of Directors will propose a dividend of Sfr. 0.48 per share to the annual general meeting on May 8, 2008, double the dividend of Sfr. 0.24 per share paid out last year. The dividend will be in the form of a nominal value reduction. In addition, the company has decided to launch a share buyback program up to a maximum value of Sfr. 2.2 billion, equivalent at current exchange rates to approximately $2 billion. The share buyback is designed to allow shareholders to benefit from ABB's improved profitability and strong cash generation, while maintaining sufficient financial flexibility for the company's growth ambitions.
Summary of Q4 and full-year 2007 results
Orders received and revenues
ABB's markets remained robust in 2007, leading to strong double-digit order growth in all divisions for the full year. In OECD countries, utility customers continued to replace ageing equipment and build regional interconnections to use power more efficiently. Grid upgrades were also needed to handle new load requirements and integrate alternative sources of electricity, such as wind power. The build-up of new power infrastructure to support economic growth continued at high levels in the emerging markets. Sustained high raw material and energy costs fuelled further capacity expansions in many process industries in 2007 and, at the same time, drove investments to improve productivity and efficiency.
These trends were also reflected in ABB's fourth-quarter 2007 order development. The Process Automation division recorded a $660-million increase in large orders (more than $15 million), led by the metals and minerals, oil and gas and marine sectors, resulting in a 70-percent increase (local currencies: 54 percent) in total orders compared to the same quarter in 2006. Automation Products orders increased 21 percent (local currencies: 10 percent) in the quarter on industrial demand for equipment to improve energy efficiency and productivity.
Strong demand for power equipment, especially transformers, supported a 37-percent rise in Power Products orders (local currencies: 26 percent) in the quarter. Orders were 4 percent lower in the Power Systems division (local currencies: 12 percent lower) compared to the very high level in the fourth quarter of 2006. Orders were flat in the Robotics division (lower in local currencies) because of lower demand in the North American automotive sector.
Large orders increased 27 percent in the fourth quarter and represented 19 percent of total orders received, the same as the fourth quarter in 2006. Base orders (less than $15 million) were up 24 percent (local currencies: 14 percent).
Revenues increased across all divisions for the full year and fourth quarter. Revenues were supported by the strong order backlog, increased volume resulting from high demand, and a favorable business environment in which increased raw material costs could be offset by higher prices.
The order backlog at the end of December 2007 stood at $22.7 billion, 44 percent higher than at the end of 2006 (local currencies: 32 percent).
Earnings before interest and taxes
The higher EBIT and EBIT margin in both the fourth quarter and full year were achieved through higher revenues and factory loadings, better execution of large projects and lower-cost sourcing. As a result, the gross margin
2 increased to 30.7 percent for the full year compared to 29.0 percent in 2006. EBIT and EBIT margin also benefited from a decrease in selling, general and administrative (SG&A) expenses as a percentage of revenues to 17.0 percent versus 18.6 percent the year before as the result of measures to improve business processes and further reduce corporate costs.
2Gross margin is calculated as revenues less cost of sales, divided by revenues
Finance expense, taxes and discontinued operations
Below the EBIT line, a strong cash position and lower debt as a result of the conversion of ABB's Sfr. 1-billion convertible bonds reduced net finance expense for the full year to $13 million from $160 million in 2006. For the fourth quarter, the strong cash position on the balance sheet produced a positive finance net of $28 million compared to an expense of $24 million in the same quarter in 2006.
The fourth-quarter tax rate benefited from the recognition of deferred tax assets in certain countries, especially the U.S., leading to an unusually low full-year tax rate of 15 percent versus 29 percent in 2006. Excluding this tax benefit, the full-year tax rate was 27 percent.
Income of $554 million was reported in discontinued operations in the quarter, reflecting primarily the gain on the sale of ABB Lummus Global that was announced in November. The Lummus gain was also positively affected by the recognition of deferred tax assets. For the full year, discontinued operations reported income, net of tax, of $586 million.
Cash flow
Cash flow from operations in the fourth quarter improved by more than $400 million compared to the same quarter in 2006, in line with the EBIT growth. Working capital decreased during the quarter, reflecting the successful implementation of capital efficiency measures and the seasonal year-end fulfillment of delivery commitments. Included in fourth-quarter cash from operations is an outflow of $204 million paid as part of ABB's asbestos agreement in connection with the sale of ABB Lummus Global. Full-year cash flow from operations also included previously-announced payments to asbestos trusts of $382 million, compared to $75 million in 2006.
Free cash flow for the full year increased by 52 percent compared to 2006. Free cash flow as a share of net income, excluding the recognition of deferred tax assets and the gain on the sale of ABB Lummus Global, was 88 percent in 2007 compared to 115 percent in 2006
3. Including these items, free cash flow as a share of net income was 65 percent. Also contributing to the difference in free cash flow between 2006 and 2007 was a 41-percent increase in cash flows for capital expenditure in 2007, to $756 million, used mainly to increase capacity.
3Please refer to Reconciliation of non-GAAP financial measures regarding fiscal year 2007 in Appendix IV to this release.
Net cash proceeds of approximately $800 million from the sale of ABB Lummus Global are accounted for in cash from investing activities.
Balance sheet
Net cash was $5.4 billion at the end of 2007, compared to net cash of $3.3 billion at the end of the third quarter and $1.4 billion at the end of 2006. The fourth-quarter increase reflects mainly the growth in cash from operating activities and proceeds from the ABB Lummus Global transaction. The full-year increase also reflects the lower debt resulting from the conversion of the company's 1-billion Swiss franc convertible bond.
Gearing decreased to 19 percent at the end of December 2007, versus 34 percent a year earlier, primarily the result of higher earnings during the year, combined with the lower debt and higher equity following the 1-billion Swiss franc bond conversion.
ABB's pension funding further improved in 2007, mainly the result of higher discount rates. At the end of 2007, ABB's pension position was overfunded in the amount of $22 million compared to an underfunding of $115 million at the end of 2006.
Both Standard & Poor's and Moody's increased their credit ratings for ABB since the beginning of 2007. Standard & Poor's increased the rating to A- from BBB+, while Moody's lifted its rating to A3 from Baa1, citing the company's improving margins and reduced debt.
Dividend and share buyback program
For 2007, ABB's Board of Directors proposes to double the dividend to Sfr. 0.48 per share compared to Sfr. 0.24 per share in 2006. The proposal is subject to approval by shareholders at the company's annual general meeting on May 8, 2008, in Zurich, Switzerland. If approved, the dividend would take the form of a reduction in the nominal (par) value of the shares from Sfr. 2.50 to Sfr. 2.02 and the ex-dividend and payout date is expected to be at the end of July, 2008.
In addition, the company has decided to launch a share buyback program up to a maximum value of Sfr. 2.2 billion, equivalent at current exchange rates to approximately $2 billion. ABB intends to complete it prior to the annual general meeting of shareholders in 2010 and to propose the cancellation of the shares at that meeting. The share buyback is designed to allow shareholders to benefit from ABB's improved profitability and strong cash generation, while maintaining sufficient financial flexibility for the company's growth ambitions.
Divestitures
ABB continued to divest non-core activities in 2007. In February, the company announced the sale of its equity