ABB Group Results - First Six Months 1999

Continued Earnings Growth

· Net income up 32 percent including power generation gain
· Revenues up 10 percent, operating margin increases

Zurich, Switzerland, July 21, 1999 - ABB, the international engineering and technology group, said today its net income for the first six months of 1999 amounted to $ 839 million, 32 percent higher than the same period last year. The company attributed the improvement to increased revenues, stronger operating margins and gains from forming the power generation joint venture.

*) In local currencies, orders, revenues and earnings are approximately 2 percent higher.

Operating earnings after depreciation reached $ 1,301 million, 39 percent higher compared to the same period last year (1998: $ 939 million). All business segments showed higher or stable earnings. The transfer of most of ABB’s power generation businesses to the new joint venture ABB ALSTOM POWER resulted in a net capital gain of $ 124 million after taxes ($ 200 million in operating earnings) and after provisions for restructuring and exposures. Additionally, a minor gain from this transaction is expected to be booked in the fourth quarter.

"Our results are encouraging, especially considering that industrial demand in many markets is growing only slowly," said ABB President and CEO, Göran Lindahl. "Our second-quarter net income is up 37 percent compared to the first quarter, excluding the gain from the formation of our new power generation joint venture. I expect our profitability will continue to improve as we build up higher margin knowledge- and service-based businesses in all of our segments. We expect 1999 revenues as well as operating earnings, excluding capital gains from the power generation joint venture, to increase compared to the year before," Lindahl said.

The transfer of ABB’s power generation businesses into the new joint venture ABB ALSTOM POWER N.V. is reflected in this report and in the pro forma 1998 figures. Businesses related to nuclear activities, distributed power, renewable energy (excluding hydropower) and the PowerformerTM remain with ABB. Earnings from the transferred power generation business (see Notes 1 and 9) reached half of last year’s level, reflecting mainly the oversupply in the steam power industry and costs associated with the reduction of some 800 employees in the transferred businesses since the beginning of the year. The gas turbine business, particularly in North America, continued to develop positively.

Orders received for the first half-year reached $ 13,119 million, about the same as last year (1998: $ 13,178 million11) (Note: Unless stated otherwise, all references to 1998 figures refer to the first six months. As described in the Notes to the Financial Statements, pro forma 1998 figures are adjusted for the power generation businesses related to ABB ALSTOM POWER and the sale of ABB’s share in Adtranz (see Note 1). 1999 figures include Elsag Bailey Process Automation acquired in January 1999. Power Transmission orders reached last year’s level, supported by an order for a high-voltage direct current (HVDC) power link in China and increased service business volume. Power Distribution increased its orders received by 23 percent, including an airport electrification order in Germany. Automation orders increased, but varied by customer industry with good demand in the petrochemical and consumer goods sectors. The integration of Alfa Laval Automation resulted in better than expected synergies and volume improvements. The business segment Oil, Gas and Petrochemicals has not yet benefited from the recent increase in oil prices and orders received were some 40 percent lower compared to the exceptionally high level of the previous year. This segment’s 1999 orders received are not expected to reach last year’s level. Products and Contracting increased orders received by 2 percent. Its service business volume increased while the demand for low-voltage products in Europe was flat.

The order backlog at the end of June reached $ 15,841 million, up 6 percent with improved margins compared to the previous year (December 31, 1998: $ 14,934 million). Base orders were 4 percent higher compared to the first half last year (Base orders for the second quarter 1999 compared to second quarter 1998 were up 7 percent.). After transferring the power generation business, large orders now represent about one-fifth of the total orders received. As a result of lower order intake in Oil, Gas and Petrochemicals, large orders did not reach last year’s level.

In ABB’s main markets, European industrial demand continued to grow slowly, with Germany showing reduced industrial production. Signs from the European economies do not yet indicate sustained improvement. ABB orders received in Europe increased slightly. North America was still affected by low commodity prices in the automotive, pulp and paper, steel, chemical and petrochemical sectors, whereas deregulation continued to have a positive influence on the power transmission and distribution industries. Industrial production in Latin America has only partly recovered following the recent financial turbulence. As a result, orders received in the Americas did not meet the high level of the previous year. In Asia, the business climate improved somewhat and several countries continued to show increased industrial production. Orders in the region rose by 31 percent. Markets in the Middle East and Africa developed positively, particularly in the oil producing countries, and orders were up 3 percent.

Revenues in the first six months increased by 10 percent to $ 11,778 million (1998: $ 10,697 million) with increases in all industrial business segments.

Operating margin excluding the gain related to ABB ALSTOM POWER was 9.3 percent (1998: 8.8 percent) as a result of the successful cost base reduction initiated in 1997. Power Transmission reached its highest operating margin ever with 10.5 percent. Both Power Distribution as well as Products and Contracting showed an operating margin increase to almost 7 percent. With the lower added value in the invoicing related to large projects of previous years, Oil, Gas and Petrochemicals showed a lower operating margin. During the second quarter, all measures relating to the integration of Elsag Bailey Automation were initiated, leading to a lower operating margin of 6.6 percent in this segment. The integration is proceeding slightly ahead of schedule and the positive effects will be realized from the year 2000 onwards to reach $ 200 million in annual synergies by the year 2002.

The net interest expense amounted to $ -161 million (1998: $ -131 million) as a consequence of the acquisition of Elsag Bailey. Income before taxes for the first six months amounted to $ 1,205 million (1998: $ 926 million), an increase of 30 percent. Excluding the gain related to ABB ALSTOM POWER, return on capital employed reached 18.1 percent.

Net income for the first six months increased by 32 percent to $ 839 million (1998: $ 638 million). Excluding the extraordinary gains resulting from the formation of the ABB ALSTOM POWER joint venture, net income increased by 12 percent.

ABB’s net cash position (defined as cash and cash equivalents minus short-, medium-, and long-term loans) at the end of the first half of 1999 was $ -625 million (as reported March 31, 1999: $ -1,621 million). These figures include the effects of ABB’s transfer of most of its power generation businesses to ABB ALSTOM POWER, the acquisition of Elsag Bailey Process Automation and cash compensation from DaimlerChrysler for the 50-percent-stake in Adtranz. Operating cash flow reached $ 291 million (1998: $ 162 million) reflecting a positive development of net working capital compared to the same period last year.

ABB’s shift into businesses with higher knowledge and service content continued with major transactions during the first half year. The acquisition of Elsag Bailey Process Automation was completed after receiving all of the necessary approvals. ABB divested its stake in Adtranz and last year’s figures have been adjusted for this transaction. In addition, ABB has acquired a Brazilian service company with 3,000 people specialized on full-service contracts.

As of June 30, 1999, ABB employed 174,601 people compared to 199,232 as reported at yearend 1998. Elsag Bailey Process Automation added 11,000 employees and 37,000 employees have joined ABB ALSTOM POWER from ABB. Adjusted for acquisitions and divestitures, the number of employees decreased by 2 percent.

After the successful introduction of the new ABB Ltd single-class share, trading began on the Swiss Exchange and the exchanges in Stockholm, London and Frankfurt at the end of June. ABB Ltd issued 300,002,358 registered shares with a nominal value of CHF 10 and with one vote each. The former parent companies are now included in the consolidated financial statements of the ABB Group.

ABB's dependence on industrial demand means that it is typically late in the business cycle. Accordingly, the general market environment for ABB's products and systems is not expected to improve until next year. Full year 1999 revenues and operating earnings are expected to increase compared to 1998, excluding the capital gain from the formation of the power generation joint venture with ALSTOM (50 percent of the ABB ALSTOM POWER’s income before taxes will in the future be included in ABB’s results below operating earnings after depreciation. Consequently, the outlook for the full year is based on operating earnings).

Further indications of the ABB’s longer-term goals and those of its business segments will be given with the full year results of 1999.

Full text of the press release:

9931_e.pdf English

9931_d.pdf German

9931_se.pdf Swedish

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    • John Fox
      ABB Corporate Communications, Zurich
      Tel: +41 1 317 7371
      Fax: +41 1 317 79 58
    • Manfred Ebling
      ABB Investor Relations, Zurich
      Tel: +41 1 317 73 13
      Fax: +41 1 311 98 17
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