ABB cites difficult markets – revises outlook, initiates cost reduction program

· Revenues flat, up 7 percent in local currencies · EBIT down 21 percent, 4 percent up excluding one-time capital gains · Transformation on track · Aggressive cost reduction program

Zurich, Switzerland, July 24, 2001 – ABB today said revenues were flat, but up 7 percent in local currencies for the first half of 2001. Earnings before interest and taxes were down 21 percent, but up 4 percent excluding one-time capital gains, reflecting underlying improvements in operational performance. The company said it would cut 12,000 jobs – eight percent of its workforce – over the next 18 months to counter difficult market conditions.
US$ in millions, except per share data1H 20011H 2000ChangeChange in local currencies
Orders12,64813,647- 7 %- 1 %
Revenues11,09911,068+/- 0 %+ 7 %
Earnings before interest and taxes (EBIT)626791- 21 %- 15 %
Income from continuing operations329544- 40 %
Income from discontinued operations and

accounting changes

(63)548
Net Income2661,092- 76 %
Basic and diluted earnings per share (US$) from:

- Income from continuing operations

- Net income

0.29

0.23

0.46

0.93

EBITDA1,0101,168- 14 %- 7 %

ABB said its transformation to a customer-centric organization is proceeding on schedule, with the basic structure in place in most markets.

“Our results reflect uncertainty in the investment climate as the U.S. slow-down spreads into Europe and Asia, yet our underlying operational performance is improving if you look at earnings excluding one-time capital gains,” said ABB president and CEO Jörgen Centerman. “Our goal to grow the
business remains unchanged. We are taking action now to improve our competitiveness, as we expect challenging conditions over the next 12 months.”

Centerman said ABB’s cost reduction plan requires a cut of 12,000 jobs in the next 18 months. About one third of the job reductions are estimated to come through natural attrition. The program is expected to cost US$ 500 million over the 18 month period, and the annual cost reduction – once the plan is fully implemented – is estimated at about the same level.

Financial results for the first half 2001

Orders decreased 7 percent to US$ 12,648 million or 1 percent expressed in local currencies. Base orders, defined as below US$ 15 million, remained flat in nominal terms but were up 6 percent in local currencies when compared with the first half of last year. Large orders (above US$ 15 million) declined 36 percent in nominal terms or 31 percent in local currencies over the same period.

The order backlog increased since yearend 2000 by 4 percent in nominal terms and 10 percent in local currencies to US$ 15,373 million.

Revenues were flat at US$ 11,099 million and up 7 percent in local currencies, with oil, gas and petrochemicals reporting 26 percent growth, in nominal terms.

Earnings before interest and taxes fell 21 percent to US$ 626 million compared to the first half of 2000, and 15 percent when expressed in local currencies. This includes other income from equity accounted companies and license income of US$ 107 million, restructuring charges of US$ 20 million, and a small capital loss. EBIT was up 4 percent in nominal terms and 11 percent in local currencies, excluding one-time capital gains. Capital gains were US$ 184 million in the first half of last year versus a capital loss of US$ 6 million this year.

Income from continuing operations was down 40 percent to US$ 329 million, primarily due to substantially lower capital gains, but also due to higher interest expense associated with repurchased shares as well as the write-off of US$ 39 million of deferred costs associated with the company’s decision late in the second quarter to cancel its plans to offer shares in the U.S.

Net income was 76 percent lower. The main reason was a one-time gain of US$ 548 million recorded last year from the sale of the former Power Generation segment. In addition, there was a charge of US$ 63 million booked in the first quarter which was required upon adoption of the new accounting standard FAS 133.

ABB’s net cash provided by operating activities was US$ 79 million for the first half, up from US$ 60 million for the same period last year. For the second quarter alone, net cash provided by operating activities was US$ 296 million versus US$ 37 million last year.

Stockholders’ equity declined to US$ 3,213 million at June 30, 2001, mainly due to the purchase of treasury shares.

As of June 30, 2001, ABB employed 163,838 people compared to 160,818 at yearend 2000. Excluding acquired and divested companies, the number of people increased by 0.3 percent. The main reason employee numbers increased was due to the larger number of personnel needed for project execution in Oil, Gas and Petrochemicals. This increase was partly compensated for by decrease in other segments.

Outlook1

The outlook has changed2.

For 2001, revenues are expected to increase in comparison to 2000. EBIT is expected to be well above last year’s level, excluding capital gains for both years. Income from continuing operations is expected to be below last year, due to the high level of one-time capital gains in 2000. Net cash provided by operating activities is expected to increase.

The target to grow revenues on average by 6 percent annually through 2005 (excluding major acquisitions and divestments) remains unchanged. The target for EBIT margin has been changed to reach 9-10 percent by 2005.

1Assumes no major currency effects.
2ABB’s outlook as stated during the first-quarter results on April 24, also assuming no major currency effects was: The outlook for the full year 2001 remains unchanged: Revenues are expected to increase in comparison to 2000, and EBIT, income from continuing operations and cash flow from operating activities are expected to be well above last year’s levels, assuming current mixed business conditions continue.
For the first six months of 2001, EBIT growth is expected to lag revenue growth due to the high level of one-time items in the first half of 2000. The second half of 2001 is expected to see higher comparative earnings growth. Mid-term targets remain unchanged.

Highlights of the second quarter 2001:

· ABB acquired 99.1 percent of Entrelec for about US$ 360 million, including assumed debt. The French company is a leading supplier of industrial
automation and control equipment, operating in 17 countries and employing about 2,000 people.
· ABB won contracts worth about US$ 300 million to design and build two high-voltage power transmission systems with a combined length of nearly
1,300 kilometers to help satisfy the steadily increasing demand for energy in Brazil.
· ABB won a US$ 70 million contract to upgrade a key oil pipeline in Algeria.
· ABB and The Dow Chemical Company signed a 10-year, global strategic agreement to infuse Dow’s plants with a new generation of ABB Industrial IT
technologies to link operations and enhance productivity.
· Norsk Hydro, the Norwegian energy resource group, awarded ABB a two-year, US$ 110-million order and extended a framework agreement for five years
to continue maintaining and modifying oil and gas installations in the North Sea.

Industrial IT established in ABB’s customer base

ABB won a string of key Industrial IT orders. The company says Industrial IT, which links products, services, solutions and real-time asset control and business information under a common architecture for fast and easy deployment, helps customers increase competitiveness in the networked world. ABB says deliveries of components, systems and software mark an important step toward leveraging the full potential of ABB’s Industrial IT concept. ABB also won a US$ 17-million contract to automate one of the world’s largest paper machines with Industrial IT solutions for Papierfabrik Palm in Germany. The agreement follows similar contracts with Visy Industries of Australia.

Transformation on schedule

The transformation of ABB into a customer-centric group is progressing on schedule. The basic structure is now in place in most markets.

The transformation outlined in January is based on the creation of six new customer divisions – four serving utilities, process industries, manufacturing and consumer industries, the oil, gas and petrochemicals sectors – and two product divisions serving both ABB and external channel partners for power and automation technology products. ABB’s Financial Services division remains unchanged. The realignment is being supported by common group processes and infrastructure throughout ABB in key areas such as quality control, supply chain management, eBusiness development and information systems.

To support its customer-centric approach, ABB has appointed numerous key personnel to account management positions and increased their training to better present all of ABB’s offerings to customers. These efforts will continue and grow further as the new structure and way of working penetrates the group.

As outlined earlier, ABB will report according to its new structure starting with the third-quarter results this year. In mid-September, ABB will publish restated historical figures according to its new business divisions and hold analysts’ meeting to discuss these figures and divisional strategies.

Segment reviews

The ABB Group’s reporting currency is the U.S. dollar, which continued to strengthen against most of ABB’s local currencies. The impact of the strengthened dollar continued to unfavorably impact results during the second quarter. All figures reflect the first six months’ activity and, except for EBIT margins,comments refer to local currency figures.

Automation
US$ in millions, except where indicated20012000NominalLocal
Orders3,9214,334- 10%- 4%
Revenues3,5643,609- 1%+ 5%
EBIT233253- 8%- 2%
EBIT Margin6.5%7.0%
Demand continued to show a mixed picture across automation markets and businesses, with generally weak markets in the U.S. and Asia for the second quarter of 2001. Overall, orders were down 4 percent as double digit growth in business areas Petroleum and Chemicals as well as Drives and Power Electronics was offset by sharp downturns in Flexible Automation (due to the weak demand in automotive markets) as well as Pulp, Paper and Metals.

Revenues were up 5 percent, reflecting mixed conditions as continued strength in certain sectors – Petroleum and Chemicals, Marine and Turbochargers, and Drives and Power Electronics – were counterbalanced by sharp declines in Pulp, Paper and Metals. Other business areas reported flat or slightly higher revenue growth.

EBIT was slightly down, and EBIT margin fell to 6.5 percent from 7 percent last year. Excluding one-time capital gains, EBIT was up 17 percent.

Power Transmission
US$ in millions, except where indicated20012000NominalLocal
Orders1,9862,088- 5%+ 2%
Revenues1,5501,591- 3%+ 4%
EBIT109143- 24%- 20%
EBIT Margin7.0%9.0%
Demand in Asia and the Americas remained high during the first half of the year – despite the slowdown of the U.S. economy – while Europe, the Middle East and Africa were relatively flat. Large Brazilian orders fuelled double-digit growth in High-Voltage Products and Substations and Power Transformers’ intake remained at last year’s high level. Overall, orders increased by 2 percent as customers deferred large Power System orders.

Total revenues were up 4 percent. High-Voltage Products and Substations recorded an increase, while declines were reported in other business areas. In Power Transformers and Power Systems, the declines were due to delivery delays, the latter as a result of delays in permitting and regulatory approvals.

EBIT decreased 20 percent due to overcapacity and project delays in Power Systems and Power Transformers, which was only partly offset by double-digit improvement in High Voltage Products and Substations. EBIT margin consequently reduced to 7 percent from last year’s 9 percent.

Power Distribution
US$ in millions, except where indicated20012000NominalLocal
Orders1,4101,717- 18%- 13%
Revenues1,2571,402- 10%- 6%
EBIT6796- 30%- 31%
EBIT Margin5.3%6.8%
The Distribution segment experienced worsening demand conditions in the first half, with good developments in South America, China and India, flat markets in Europe, the Middle East, and Africa, and substantial slowdowns in North America. Orders fell 13 percent when compared with last year’s high intake levels in most business areas, and Distribution Transformers was particularly affected by the slowdown in the U.S.

Revenues declined by 6 percent due to difficulties in the Distribution Solutions, particularly in the airport businesses. Other business areas reported flat sales.

EBIT dropped 31 percent as as a result of earnings shortfalls in Distribution Solutions and Distribution Transformers, which were due to increased base commodity costs. Earnings in Medium Voltage Equipment improved. Overall, EBIT margin declined from 6.8 percent to 5.3 percent for the period.

Building Technologies
US$ in millions, except where indicated20012000NominalLocal
Orders3,1263,350- 7%+ 1%
Revenues2,8882,868+1%+ 9%
EBIT180202- 11%- 5%
EBIT Margin6.2%7.0%
Markets continued to slow in the second quarter as the U.S. downturn spread to Europe, although demand in certain countries – notably China and parts of Middle East and Africa – stayed strong. Orders increased slightly by 1 percent.

Revenues were up 9 percent in local currencies. All business areas contributed to the increase.

EBIT fell 5 percent and the EBIT margin decreased to 6.2 percent from 7 percent. Excluding one-time capital gains, EBIT increased by 15 percent. Higher earnings from Low Voltage Products and Systems were offset by deterioration in Building Systems, which suffered from worsening business conditions in some markets, while other business area earnings remained stable on a like-for-like basis.

Oil, Gas and Petrochemicals
US$ in millions, except where indicated20012000NominalLocal
Orders1,9851,991+/- 0%+ 2%
Revenues1,5271,212+ 26%+ 32%
EBIT8865+ 35%+ 41%
EBIT Margin5.8%5.4%
Oil prices remained firm during the second quarter, although still at a lower average price than in the first half of last year. Upstream business had continued good demand, although downstream business is starting to show signs of an economic slowdown.
Orders increased slightly in spite of the very high order intake during the first half of last year. Upstream recorded double-digit order growth, offsetting lower Downstream orders. Tendering activity is high which is expected to generate good order intake in the second half.

Revenues were up 32 percent on execution of orders booked last year. Most of the growth was generated in the upstream market.

EBIT growth of 41 percent outstripped revenue growth, contributing to an improvement in EBIT margin to 5.8 percent. Despite signs of slowdown in Downstream, margins on underlying business remained stable.

Financial Services
US$ in millions, except where indicated20012000NominalLocal
Revenues1,019984+ 4%+ 9%
EBIT203188+ 8%+ 17%

Currency and capital markets continued to be volatile and showed no clear trend in the second quarter, with equity markets generally lower than last year. Increased uncertainty about GDP growth and interest rate levels has led to generally higher borrowing spreads, even for highly rated corporate borrowers. Financial Services has not been negatively affected by these developments.

Revenues were up 9 percent, while EBIT growth reached 17 percent over the period. All business areas except Insurance reported increased earnings, reflecting profitable portfolio growth and successful trading performance. Insurance did not reach last year’s profit levels as a result of lower earnings on its investment portfolio, following the downturn in capital markets.
Reporting dates

The company will host a conference call to discuss its first half results today at 16:00 Central European Time (CET). Teleconference callers should dial +41 91 610 4111 in Europe and +1 (412) 858 4600 in the U.S. The remaining quarterly reporting date in 2001 for ABB Ltd is scheduled for October 24. (END)
    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.



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