ABB Earnings Growth Continues in First Nine Months

· Operating earnings at $ 1,747 million, up 33 percent
· Revenues up 9 percent
· Orders up 3 percent, 6 percent in local currencies

Zurich, Switzerland, October 19, 1999 - ABB, the globalized technology and engineering group, today reported double-digit earnings growth for the first nine months, with operating earnings after depreciation up 33 percent from the year before to $ 1,747 million (1998: $ 1,312 million). Orders received showed significant growth in the third quarter compared to the year before, led by Automation, Power Distribution and Oil, Gas and Petrochemicals.


US$ in millions unless otherwise stated Jan. – Sep.
1999
Jan. – Sep.
1998
Percentage change *)
Orders Received18,93618,411+ 3%
Revenues17,77916,304+ 9%
Operating Earnings after Depreciation1,7471,312+ 33%
Net Income1,108849+ 31%
Net Income per Share (US$)3.692.83+ 31%
*) In local currencies, orders, revenues and earnings are approximately 3 percent higher.

“Third quarter orders are up 11 percent compared to the third quarter last year in a mixed market,” said ABB President and CEO, Göran Lindahl. “As the market strengthens, and as we build our positions in higher growth businesses like automation, we are in a good position to see results improve further.” For the remainder of 1999, Mr. Lindahl reconfirmed ABB’s earlier outlook that 1999 revenues, as well as operating earnings excluding capital gains from the transfer of the power generation businesses, are expected to increase compared to 1998.

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 $ 162 million after taxes ($ 262 million in operating earnings) for the first nine months, including an additional gain taken in the third quarter. ABB’s 50-percent share in the ordinary income before taxes of ABB ALSTOM POWER is break even.

Orders received increased by 3 percent to $ 18,936 million (1998: $ 18,411 million 1)). Expressed in local currencies, order growth was 6 percent compared to the same period in the previous year. The Power Transmission segment booked several large orders. However, overall orders received in this segment were slightly down. Power Distribution orders increased sharply supported by demand in deregulated markets. Automation orders were up substantially as a result of higher demand in the automotive, petrochemical and consumer goods sectors and as a consequence of the acquisition of Elsag Bailey Process Automation. Oil, Gas and Petrochemicals regained momentum by posting its strongest quarter over the past year. Significant orders were won in several regions. The gap to last year’s order level has been significantly reduced. However, this segment’s full-year orders are still not expected to reach the record 1998 level. Orders received for Products and Contracting were 2 percent higher.

In major markets, several lead indicators are showing positive signs and ABB’s overall European orders were up 2 percent. Expressed in local currencies, these orders increased 5 percent. Demand was mixed in the Americas. Deregulation continued to be a prime driver, while low commodity prices in various sectors hampered demand. Although orders for the Americas were slightly lower, a strong third quarter helped to further close the gap to 1998 that was reported after six months. Asian demand rebounded compared to the previous year as orders increased 36 percent. Orders in the Middle East and Africa almost equaled the high level of last year.

The order backlog increased to $ 15,847 million at the end of September, up 6 percent compared to the previous yearend (December 31, 1998: $ 14,934 million). Base orders for the first nine months, representing some 80 percent of ABB Group’s total orders, increased 3 percent (6 percent in local currencies) over the same period last year.

Revenue growth for the Group continued its momentum with an increase of 9 percent to $ 17,779 million (1998: $ 16,304 million). All regions and industrial segments contributed higher revenues.

Operating earnings for the Group increased 33 percent to $ 1,747 million (1998: $ 1,312 million ). Almost all segments reported increased earnings. Power Transmission, Power Distribution and Products and Contracting all increased their operating earnings by double digits following an improvement in margins and a successful adjustment of the cost base during the previous quarters. In spite of the costs of integrating the Elsag Bailey acquisition, Automation’s earnings reached almost the same level as last year. Since the acquisition, the integration has resulted in a gross reduction of approximately 2,100 jobs, mostly in overhead and administration, as well as enhanced productivity measures. Earnings for Oil, Gas and Petrochemicals stabilized on last year’s level and Financial Services’ earnings reached the same high level as last year.

On June 30, 1999, ABB ALSTOM POWER was formed as a joint venture by ABB and ALSTOM. This created the world’s leading power generation service and equipment supplier, with pro-forma revenues in 1998 of some $ 11 billion. At its inception, the parents asked for a thorough review of the business, in order to realign the accounting principles and to reach joint risk assessment methods in the interests of protecting the future success of the newly created company. This was completed during the third quarter of 1999, the joint company‘s first quarter of operation. As part of the review, ABB ALSTOM POWER took one-time costs and provisions for project risks, quality and cost overruns in its income statement. Accordingly, ABB fully charged 50 percent of this amount to its income statement. However, ABB’s earnings and net cash position are not negatively affected by these costs. ABB ALSTOM POWER’s ordinary result during the first quarter of operation was break-even.

Including the restructuring provision, which was set up in the opening balance sheet, the company is well-positioned to reach its longer-term goal of 7-8 percent earnings margin before tax. During the year 2000, ABB ALSTOM POWER expects to reach a pre-tax margin in the range of 3-4 percent. The company continues to expect synergies of euro 500-600 million from year four after its formation onwards.

ABB’s net interest expense amounted to $ 225 million (1998: $ 210 million). Income before taxes increased by 29 percent to $ 1,583 million (1998: $ 1,224 million). Return on capital employed reached 18.3 percent (1998: 17.2 percent).

Net income for the first nine months reached $ 1,108 million, an increase of 31 percent compared to the previous year (1998: $ 849 million). Excluding the gain related to the formation of ABB ALSTOM POWER, net income increased by 11 percent.

ABB’s net cash position (cash and cash equivalents minus short-, medium-, and long-term loans) at September 30 was minus $ 499 million (June 30, 1999: minus $ 625 million). The Group’s focus on working capital management led to a substantially improved net operating cash flow of $ 493 million (1998: $ 227 million). As a consequence, the corresponding cash earnings per share (CEPS) increased significantly.

The number of employees at September 30, 1999, was 169,189 people compared to 199,232 as reported at December 31, 1998. Adjusted for acquisitions and divestitures, the number of permanent employees decreased by 3 percent. Personnel expenses as a percent of revenue continued to decrease and contributed to a further improvement in margins.

ABB's extensive Y2k preparation program, in close cooperation with its customers, is near completion. ABB will support its customers at the millennium shift by offering a worldwide call-center service that connects them, if needed, to the appropriate product or system specialist level. This service will be based on advanced computer tools, ABB’s worldwide corporate network and Internet technology. The review of ABB’s internal systems is on schedule to be completed by the end of October. ABB has worked closely with critical suppliers to verify their readiness for Y2k.

ABB reiterates its full-year forecast that general demand for ABB’s products and systems will improve as of mid-2000. Full-year 1999 revenues, as well as operating earnings excluding the capital gain from the formation of ABB ALSTOM POWER, are expected to increase compared to 1998.




1) Note: Unless stated otherwise, all references to 1998 figures refer to the first nine 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.



Full text of the press release:

English

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German


9938_d.doc9938_d.pdf


Swedish


9938_s.doc9938_s.pdf

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    • John Fox
      ABB Corporate Communications, Zurich
      Tel: + 41 1 317 7371
      Fax: + 41 1 317 7958
    • Manfred Ebling
      ABB Investor Relations, Zurich
      Tel: + 41 1 317 7266
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