Q1 revenues steady despite economic challenges

  • Large order growth offset by strong decline in base orders – order backlog up $1.2 billion vs the end of Q4 2008
  • Local-currency revenues up on backlog execution, base business decreases
  • EBIT at $862 million, cost take-out target increased to $2 billion by 2010
  • Net income at $652 million
Zurich, Switzerland, April 23, 2009 – ABB’s first-quarter 2009 revenues rose 3 percent in local currencies as execution of the solid order backlog offset lower sales of standard products and declining base business compared to the same quarter in 2008.

Orders decreased by 3 percent (16 percent in U.S. dollar terms) to $9.2 billion compared to the very high levels a year earlier as large orders (more than $15 million) in the power and oil and gas sectors could not compensate for lower base orders (less than $15 million) across all divisions. The order decline also reflects lower prices resulting from decreased raw material costs.

Revenues amounted to $7.2 billion (up 3 percent in local currencies, down 9 percent in U.S. dollars). The sale of standard products and base orders that convert into revenues within the same quarter declined significantly compared to the same quarter in 2008.

EBIT was $862 million with an EBIT margin of 12.0 percent. Excluding the mark-to-market treatment of hedging transactions in the respective quarters and certain other items, the EBIT margin deteriorated by approximately 3 percentage points versus the same quarter a year ago. The main driver of the deterioration was lower capacity utilization compared to the very high levels of a year ago, as well as a change in product mix and some price erosion in the short-cycle businesses.

Net income was $652 million, while cash from operations was negative $104 million, declining in line with EBIT.

"Demand in the power, oil and gas sectors was relatively resilient in the quarter, which allowed us to maintain orders close to the near-record level of a year ago," said Joe Hogan, ABB's CEO. "Revenues benefited from our order backlog but earnings declined, partly on lower capacity utilization versus the very high levels of a year ago as well as some non-operational items such as asset write-offs and the mark-to-market of hedging transactions.

"We saw good momentum with our cost-out program in the first quarter and we’re expanding the program to $2 billion with continued focus on optimized sourcing, global footprint, G&A and operational excellence,” Hogan added. “We are determined to stay ahead of the market on cost while remaining alert for opportunities to grow the business.”

2009 Q1 key figures
Q1 09
Q1 08
Change
$ millions unless
otherwise indicated
US$
Local
Orders
9,150
10,943
-16%
-3%
Order backlog (end March)
25,017
26,820
-7%
10%
Revenues
7,209
7,956
-9%
3%
EBIT
862
1,353
-36%
as % of revenues
12.0%
17.0%
Net income
652
1,003
-35%
Basic net income per share ($)
0.29
0.44
-34%
Cash flow from operating activities
(104)
464

Summary of Q1 2009 results

Orders received and revenues1
1 Excluding the impact of acquisitions, orders in Q1 2009 declined 3 percent in local currencies (down 17 percent in U.S. dollars) compared to Q1 in 2008; revenues grew 2 percent in local currencies (U.S. dollars: down 11 percent).

Orders received were modestly lower in local currencies compared to the near-record levels of the first quarter in 2008, despite the significant deterioration in most markets over the past 12 months.

Demand from utilities for new and upgraded power infrastructure remained steady in most markets. ABB won two large power transmission orders in the first quarter of 2009 – a subsea high-voltage link in western Europe and a substation award in the Middle East – with a combined value of almost $1 billion. However, the limited availability of financing for large power projects, especially in the private sector, and the uncertainty over raw material prices and other project costs continued to delay the award of new projects.

Demand for ABB’s industrial products and systems deteriorated in the quarter as global industrial production continued to contract and demand in the construction industry decreased further. The oil and gas business remained relatively resilient and ABB won a $490-million order in the sector in Algeria during the quarter. However, base orders for the Group decreased by 18 percent (28 percent in U.S. dollars) and were down in all divisions. Lower prices, primarily the result of the declining cost of raw materials, also contributed to the order decrease.

Regionally, orders doubled in local currencies in the Middle East and Africa as large orders increased. In Europe, higher orders in Power Systems were more than offset by decreases in the other divisions. Orders decreased in the Americas, mainly the result of lower orders in the U.S. In Asia, orders also decreased in a mixed environment, with a broad decline in the systems businesses partly offset by order growth for Power Products in China and for Automation Products in India.

Service orders increased by 14 percent in local currencies (U.S. dollars: down 1 percent) compared to the prior-year period.

The volume of large orders rose 82 percent (47 percent in U.S. dollars) in the first quarter to $2.5 billion. Large orders accounted for 27 percent of total orders received in the quarter compared to 16 percent in the first quarter of 2008.

The order backlog at the end of March amounted to $25 billion, a local-currency increase of 10 percent (7 percent lower in U.S. dollar terms) compared to the end of the first quarter in 2008 and a 9-percent local-currency increase compared to the end of the fourth quarter of 2008 (up 5 percent in U.S. dollars).

Total revenues in local currencies continued to grow as execution of the order backlog more than offset lower sales of products and base business during the quarter. In divisions with longer business cycles and order backlogs, revenues were higher (Power Products and Process Automation) or flat (Power Systems), while revenues decreased in Automation Products and Robotics, which have shorter backlogs. Revenues were also affected by delays in project execution and postponements by customers in taking delivery of some products. These trends reflect the difficult financing environment that still prevails in most markets. Service revenues were 6 percent higher in the quarter in local currencies (U.S. dollars: down 10 percent) compared to the first quarter of 2008.

Earnings before interest and taxes
EBIT and EBIT margins in the first quarter of 2009 were substantially lower across most divisions. The decline resulted from a number of factors, including lower capacity utilization compared to the very high levels in the first quarter of 2008 as well as a lower share of revenues from higher-margin products and base business, reflecting the significant weakening of industrial markets.

EBIT was also reduced by the write-off of approximately $35 million of assets, mainly from operations in Russia, and to some extent by a weaker pricing environment in some short-cycle businesses.

EBIT was further impacted by the mark-to-market treatment of hedging transactions which did not qualify for hedge accounting, which had a negative impact equivalent to approximately 0.5 percentage point of EBIT margin in the first quarter of 2009 compared to a positive impact of approximately 1 percentage point in the same quarter a year earlier.

Net income
Net income for the quarter developed in line with EBIT. The effective tax rate in the quarter was 26 percent, compared to 25 percent in the same quarter of 2008 resulting mainly from a favorable tax ruling in the prior year.

Balance sheet and cash flow
Net cash at the end of the first quarter was $4.8 billion compared to $5.4 billion at the end of the previous quarter. Approximately half of the change is attributable to currency translation effects. In addition, cash from operating activities decreased, reflecting both lower earnings and a seasonal weakness in net working capital, which was impacted primarily by the timing of large project payments and a build up of inventories. Net working capital as a share of revenues was 13.7 percent in the first quarter, up from 12.3 percent in the same quarter a year earlier.

Compliance
As previously announced, ABB has disclosed to the U.S. Department of Justice and the U.S. Securities and Exchange Commission various suspect payments. In addition, ABB has continued to cooperate with various anti-trust authorities, including the European Commission, regarding certain allegedly anti-competitive practices in the power transformer business. With regard to one of the anti-trust matters, ABB received in December 2008 from the European Commission a Statement of Objections, which is a preliminary assessment of alleged anti-competitive practices.

ABB’s cables business is also under investigation for alleged anti-competitive practices.
With respect to these matters, there could be adverse outcomes beyond our provisions.

Cost reductions
ABB announced in December 2008 a cost take-out plan to adjust the company’s cost base to rapidly changing market conditions and protect its profitability. The program aims to sustainably reduce ABB’s costs – comprising both cost of sales as well as general and administrative expenses – from 2008 levels by a total of $1.3 billion by the end of 2010. As a result of the ongoing deterioration of ABB’s markets, the cost take-out goal has been expanded to $2 billion. The additional savings will remain focused on the acceleration of ongoing initiatives, such as low-cost sourcing, internal process improvements and further measures to adjust ABB’s global manufacturing and engineering footprint to shifts in customer demand.

The total cost of the program is expected to increase from approximately $600 million – of which approximately $100 million was already recorded in 2008 – towards $1 billion. Costs associated with the program in the first quarter of 2009 were not material.

Outlook
Visibility in ABB’s markets for the remainder of 2009 remains limited. Significant uncertainty remains surrounding the key demand drivers for the company’s products and systems. The business environment in March improved but it is too early to say whether this represents a bottom to the market downturn. In addition, the year-on-year comparison of results in the second quarter of 2009 will be particularly challenging because of the very high levels of growth and earnings reported in the prior-year period.

The need for power transmission infrastructure in all regions – both equipment replacement and new transmission projects – has not changed in recent quarters. However, the cost and scarcity of project funding have delayed many power investment decisions, and ABB is unable to precisely forecast when the various government stimulus programs will have an impact or when the availability of funding will improve.

Demand in ABB’s industrial end markets depends to a large extent on GDP growth and capital spending, together with commodity prices. Our customers’ need to steadily improve efficiency and productivity to meet increasing competition also drives orders, along with demand in construction and in general industry.

Therefore, management’s priority for 2009 will be to ensure that the company has the flexibility to respond quickly to changing market conditions, taking advantage of its global footprint, strong balance sheet and leading technologies to improve its cost competitiveness while simultaneously tapping further opportunities for profitable growth.

ABB also confirms its previously published targets for the period 2007 to 2011, with the exception of the Robotics business which requires further restructuring before re-assessing whether the targets fixed in 2007 can be achieved.

Divisional performance Q1 2009
Power Products division
Q1 09
Q1 08
Change
$ millions unless otherwise indicated
US$
Local
Orders
2,960
4,011
-26%
-15%
Order backlog (end March)
8,178
8,670
-6%
10%
Revenues
2,468
2,622
-6%
6%
EBIT
442
534
-17%
as % of revenues
17.9%
20.4%
Cash flow from operating activities
97
194

Underlying demand for power infrastructure remained steady in the quarter but orders were lower than last year’s very high levels, partly due to reduced demand in industrial and construction-related sectors. Lower prices in some product lines, reflecting the decrease in raw material costs, also contributed to the order decline.

Demand in emerging markets held up better than in mature economies. Orders in local currencies grew at a double-digit pace in the Middle East and Africa and were flat in Asia. Orders were down in the Americas by 22 percent in local currencies. In Europe, higher orders in Germany were more than offset by decreases in all other major markets.

Local-currency revenues were higher in the quarter as execution of the strong order backlog continued. The revenue improvement was led by a double-digit increase in transformers. Service revenues increased faster than total revenues. The rate of revenue growth also reflects slower execution of some large projects and customer delays in accepting product delivery.

EBIT and EBIT margin were lower than the same period a year earlier, primarily due to a write-down of assets amounting to approximately $35 million, mainly in Russia.

Cash flow from operations was impacted by an increase in net working capital related to more challenging market conditions.

Power Systems division
Q1 09
Q1 08
Change
$ millions unless otherwise indicated
US$
Local
Orders
2,279
2,048
11%
36%
Order backlog (end March)
8,332
8,930
-7%
12%
Revenues
1,417
1,673
-15%
0%
EBIT
83
175
-53%
as % of revenues
5.9%
10.5%
Cash flow from operating activities
(150)
74

Large orders more than doubled during the first quarter, led by a high-voltage subsea link between Ireland and the U.K. and a major substation project in Kuwait that together contributed almost $1 billion to the order intake. This more than offset a decrease in base orders resulting primarily from lower demand from the industrial sector.

Orders were up in all regions except Asia. In Europe, order growth was driven by the Ireland-U.K. project and double-digit growth in Germany. Stable orders in the U.S. plus increases in Canada and Mexico led to an order improvement in the Americas. Orders were lower in China and India, leading to a decrease in Asia.

Revenues were steady in local currencies compared to the high level reported in the same quarter in 2008 as execution of large projects in the order backlog helped offset the lower level of base orders received in recent quarters.

The lower EBIT and EBIT margin mainly reflect a less favorable project mix compared to the same quarter in 2008. In addition, EBIT was affected by higher selling costs required to meet the increased tendering activity as well as a negative impact from the mark-to-market treatment of hedging transactions.

The development of cash flow from operations reflects the timing of large project payments during the quarter.

Automation Products division
Q1 09
Q1 08
Change
$ millions unless otherwise indicated
US$
Local
Orders
2,213
3,070
-28%
-19%
Order backlog (end March)
3,839
4,360
-12%
2%
Revenues
2,042
2,403
-15%
-3%
EBIT
310
457
-32%
as % of revenues
15.2%
19.0%
Cash flow from operating activities
2
194

Industrial and construction markets weakened significantly compared to the same quarter in 2008 as the severe economic slowdown reduced demand for most products. Both base and large orders were down in the quarter. Demand improved in some emerging markets and local-currency orders were up in Asia and in the Middle East and Africa. These increases were more than offset by a decline in orders in the Americas and Europe. Compared to the fourth quarter of 2008, total orders were higher.

Revenues declined less than orders, mainly the result of the solid order backlogs in longer-cycle businesses, such as power electronics and low-voltage systems. Decreased revenues and lower factory loadings compared to the very high levels of the prior year period were the main factors leading to the decline in EBIT and EBIT margin in the quarter.
Cash flow from operations was lower than last year’s quarter mainly due to the reduced EBIT.

Process Automation division
Q1 09
Q1 08
Change
$ millions unless otherwise indicated
US$
Local
Orders
2,425
2,555
-5%
10%
Order backlog (end March)
6,645
7,135
-7%
11%
Revenues
1,765
1,749
1%
17%
EBIT
149
225
-34%
as % of revenues
8.4%
12.9%
Cash flow from operating activities
55
139

Orders received in local currencies increased in the first quarter, largely the result of a $490-million oil and gas project award in Algeria. Demand in most other end markets was significantly weaker than the same quarter in 2008, especially in pulp and paper, marine and metals. The reduced demand reflects the sharp decline in commodity prices and the rapid deterioration of global industrial production over the past nine months.

Regionally, orders were sharply higher in the Middle East and Africa on the large project in Algeria. Orders were down approximately 10 percent in local currencies in the Americas and Europe, while orders in Asia decreased by almost 50 percent compared to the very high levels in the region a year ago.

The revenue increase in the quarter mainly reflected execution of the strong order backlog, especially in the metals and minerals businesses. EBIT and EBIT margin declined, however, largely due to a reduction in the share of total revenues from higher-margin service activities in the quarter. The mark-to-market treatment of hedging transactions had a negative impact on EBIT margin in the first quarter of 2009 compared to a positive impact in the same quarter in 2008.

Cash flow from operations developed in line with EBIT.

Robotics division
Q1 09
Q1 08
Change
$ millions unless otherwise indicated
US$
Local
Orders
206
456
-55%
-49%
Order backlog (end March)
438
662
-34%
-25%
Revenues
294
387
-24%
-15%
EBIT
(21)
25
n/a%
as % of revenues
-7.1%
6.5%
Cash flow from operating activities
(45)
10

Demand remained very weak in the Robotics business. Both automotive and general industry customers significantly reduced expenditures on manufacturing automation solutions. Orders were significantly lower in all regions compared to the first quarter of 2008.

Revenues decreased on the combination of both a lower opening order backlog and reduced base business. Earnings were negative due to the significantly lower volumes and resulting sharp decrease in capacity utilization. Service revenues and margins also declined in the quarter as customers postponed some operating expenses. The $70-million restructuring begun in the fourth quarter last year is on target and a positive impact on earnings is expected by the end of the fourth quarter of 2009.

Cash flow was negative, reflecting some project delays and the very weak financing environment within the automotive industry.

More information
The 2009 Q1 results press release is available from April 23, 2009, on the ABB News Center at www.abb.com/news and on the Investor Relations homepage at www.abb.com/investorrelations, where a presentation for investors will also be published.

ABB will host a media conference call 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 18027, 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 19281, followed by the # key.

Investor calendar 2009
ABB Ltd Annual General MeetingMay 5, 2009
Q2 2009 resultsJuly 23, 2009
Q3 2009 resultsOct. 29, 2009


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 120,000 people.

Zurich, April 23, 2009
Joe Hogan, CEO

Important notice about forward-looking information
This press release includes forward-looking information and statements including the sections entitled “Cost reductions,” “Outlook, and “Compliance,” 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, business risks related to the financial crisis and economic slowdown, costs associated with compliance activities, 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 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.


You can download/view the PDF format of this press release and the financial statements (only available in English). These are also available in the attachment section in the right margin. Appendices are not included in this web page.





    •   Cancel
      • Twitter
      • Facebook
      • LinkedIn
      • Weibo
      • Print
      • Email
    •   Cancel

    Contact us

    Page information:
    • Media Relations
      ABB Corporate Communications, Zurich
      Thomas Schmidt, Wolfram Eberhardt
      Tel: +41 43 317 6568
      Fax: +41 43 317 7958
      ABB Ltd
      Affolternstrasse 44
      CH-8050 Zurich, Switzerland
    • Investor Relations
      Switzerland: Tel. +41 43 317 7111
      Sweden: Tel. +46 21 325 000
      USA: Tel. +1 203 750 7743
    seitp222 ecd4dc7b1a358260c125757f004f920d