ABB Group results - First nine months 1998

Net income continues to increase, full year earnings outlook unchanged

· Net income up 10 percent

· Orders received basically flat
· Revenues stable, up 3 percent in local currencies
· Continued growth of earnings per share
Zurich, Switzerland, October 21, 1998 - ABB, the international engineering and technology group, said today net income for the first nine months of 1998 rose 10 percent to US$ 849 million, with revenues mainly unchanged from the same period last year at US$ 22.3 billion. Orders received in the period amounted to US$ 25.7 billion, a decrease of 5 percent over the corresponding period of the preceding year. Orders were stable in Europe, up by a third in the Americas, down by half in Asia and significantly higher in Middle East and Africa.
Operating earnings were 2 percent higher at US$ 1,439 million. Restructuring is proceeding better than planned with about 75 percent of the reductions completed.
Net income per share for ABB AB increased by 14 percent to SKr 3.59 and by 10 percent to SFr 68.30 for ABB AG.
Despite the economic and financial uncertainty in many countries, ABB maintains its earnings outlook for the year. Excluding the impact of the 1997 restructuring charge, ABB expects 1998 net income to exceed the 1997 level.

Market Conditions and Sales
Industrial production in OECD countries, in which ABB performs about 75 percent of its total business, continues to grow, although at a slower pace than the strong growth rates a year ago. Macroeconomic issues such as financial market volatility and increased uncertainty are influencing most economies, but different impacts on industrial activity can be observed in individual countries and regions.
The growth in most European countries is helping to compensate for a shortfall in demand in certain emerging markets. The strong growth experienced by Northern European economies in recent years is slowing but remains robust. The UK shows industrial activity so far in line with the last few years. Growth continues in Germany, although at a slower pace than at the beginning of the year. Industrial production in Spain and Italy is slowing and reduced growth is expected for the remainder of the year. On the other hand, industrial activity in Switzerland and France is at a high level and expected to remain above the European average. Overall, industrial production in Europe is lower than a year ago, but still high compared to historical levels.
Current economic activity in North America is slowing compared to the strong economy of recent years. Several industrial sectors in that region are currently flat or slightly decreasing. In Latin America, high interest rates are delaying the financial closing of projects in an environment of reduced economic activity. The Indian economy is slowing, also due to reduced exports as a result of its strong currency compared to others in the region. Growth remains at a relatively good level in China. Both India and China are still among the strongest growing economies in the world. Southeast Asia is gradually stabilizing at a low level with reduced consumption and investments. Japan’s consumer confidence remains at a low level and, combined with a scarcity of capital, is reducing economic growth. Considering the turbulence in other parts of Asia, the industrial production in Australia and New Zealand remains solid. Also, economies in the Middle East and Africa continue to grow at a high rate.

Group Review
ABB Group’s orders received of US$ 25,699 million for the first nine months of 1998 were 5 percent lower than the same period last year (1997: US$ 27,064 million1)). ABB’s reported figures were negatively affected by exchange rates because the ABB Group reports in U.S dollars and the dollar increased against those currencies (mostly European) in which ABB transacts a large portion of its business. When expressed in local currencies, orders received decreased by 1 percent.
1) 1997 orders received figure adjusted for the indefinite delay of the Bakun hydro-power project in Malaysia. Unless otherwise stated, reference to "1997" in this report means the first nine months of 1997.)
The order backlog increased by 5 percent at September 30, 1998 to US$ 35.0 billion (1997: US$ 33.2 billion). Expressed in local currencies, the order backlog increased by 4 percent. As a result of selective tendering and a lower cost structure, the profitability in the order backlog is higher compared to the backlog in the previous year.
Revenues of US$ 22,312 million for the first nine months of 1998 decreased by 1 percent compared to 1997 (US$ 22,459 million). Expressed in local currencies, revenues increased by 3 percent.
On a comparable basis, taking into account the net effect of changes in scope from divestitures and acquisitions and expressed in local currency, the order volume increased by 1 percent and revenues by 7 percent compared to 1997.
ABB orders and revenues for the first nine months 1998 in Europe were at about last year’s level. Orders received in the Americas increased by a third with revenues during the reporting period slightly above last year’s level. Orders received in Asia during the first nine months of 1998 are at half of last year’s level with revenues 15 percent lower. In the Middle East and Africa orders received increased by more than 10 percent and revenues by 25 percent.
Operating earnings after depreciation for the ABB Group increased by 2 percent to US$1,439 million (19972): US$ 1,417 million). Expressed in local currencies, operating earnings increased by 4 percent. Due to continued selective tendering, successful restructuring measures and internal process improvements, the operating margin increased to 6.5 percent during the first nine months of 1998 (19972): 6.3 percent).
2) 1997 adjusted for inclusion of taxes other than on income, such as on capital and property, in Other expenses. See footnote to Income Statement.
Income before taxes increased by 3 percent to US$ 1,224 million in the first nine months of 1998 (19972): US$ 1,187 million). Expressed in local currencies, income before taxes increased by 5 percent. Net income of US$ 849 million in the first nine months of 1998 represents an increase of 10 percent over the same period last year (1997: US$ 774 million). Expressed in local currencies, net income increased by 11 percent.
ABB’s net cash position at the end of September is higher than at the corresponding time last year. Working capital reduction programs and increased advance payments from customers decreased the Group’s net working capital. The net cash position for the full year is expected to be higher compared to year-end 1997, not including possible effects of the recently announced acquisition of Elsag Bailey.

Focus on Growth
Since July 1998, several steps have been taken to achieve the Group’s long-term growth objectives and to focus on core activities. The acquisition of Alfa Laval automation, Sweden, one of Europe’s five largest suppliers of process control systems and automation equipment, has been finalized. ABB also signed a long-term cooperation agreement with Russian energy company RAO Gazprom. The agreement covers the manufacture of systems and equipment and the joint development of projects in the areas of natural gas exploration, recovery, and oil and gas processing, transport and storage, such as the US$ 170-million order to build compressor stations for the Yamal gas pipeline from Russia to Germany. In addition, the agreement covers activities in environmental control and the construction and operation of gas-fired power plants. During the reporting period, ABB also agreed to sell its Investment Management business and divested other non-core activities.
In addition, after the end of the reporting period, ABB entered into agreements to acquire one of the
world’s leading process automation groups, Elsag Bailey Process Automation N.V., with headquarters in the Netherlands. This transaction expands ABB’s activities into new growth markets and strengthens ABB’s key technologies. Finmeccanica, the Italian state-owned industrial group, agreed to sell ABB its approximately 53 percent share of the outstanding equity of Elsag Bailey. ABB made a public tender offer in cash for all of Elsag Bailey’s outstanding equity.
ABB announced changes in its Group management structure aimed at boosting business growth areas, creating new synergies and ensuring greater responsiveness in local and globalized markets where deregulation and privatization are opening up new opportunities. The changes became effective on September 1, 1998. They involve a realignment of the company’s segment structure and the creation of a flatter organization with reduced costs by dismantling ABB’s previous regional structure. Sales organizations remain unaffected. The large Industrial and Building Systems segment was divided into three new segments - Automation; Oil, Gas and Petrochemicals; and Products and Contracting. The Power Transmission and Distribution segment became two separate segments - Power Transmission and Power Distribution. The Power Generation and Financial Services segments remained essentially unchanged. The new organizational structure will increase transparency as well as opportunities for internal and external benchmarking. It also better matches ABB’s customer base.
The restructuring program announced one year ago is proceeding better than planned. The total scope of the program comprised the closure of 12 factories, one in the U.S. and the remaining in Europe, in particular Germany and Spain. In addition, it included the downsizing of several more units, resulting in an overall reduction of 16,500 employees - including Adtranz - mainly in North America and Europe. More than 75 percent of the planned reductions have been completed already and the related costs have been taken, with substantial downsizing in Germany, Italy, Sweden and the U.S. At the end of 1998 essentially all of the costs and almost the entire downsizing will be completed. The early and fast implementation of the restructuring continues to enhance the Group’s competitiveness.
At the end of September 1998, ABB employed 213,906 people compared to 213,057 people at the end of December 1997. On a comparable basis, the total number of employees decreased by 3 percent, a reduction related mainly to the restructuring program.

Outlook
As a result of ongoing economic uncertainty, overall global demand is forecast to remain soft in the near future. ABB expects to benefit with its well-established local presence around the world from higher demand in various industries and world markets. Appropriate cost cutting, continued selective tendering and successful working capital reduction programs are expected to continue contributing positively to the Group results.
Excluding the impact of the 1997 restructuring charge, ABB expects 1998 net income to exceed the 1997 level.
After divesting non-core activities and swift implementation of restructuring initiatives, the Group with its new organization and segment structure is focusing on above-average growth markets. By adding knowledge-based industries and migrating towards higher value added businesses with increased technology content, ABB expects enhanced cash generation and more profitable growth.

The financial results of ABB’s parent companies ABB AB and ABB AG are included at the end of this report.


Comments on Business Segments

Power Generation
Global demand in the power generation market is expected to decrease compared to last year, especially in the steam generated power market (e.g., coal-fired plants), as a result of delays in financial closing. Privatization and deregulation in U.S. power markets boosted demand by increasing investments in service and retrofit as well as for new equipment. Overall, orders received for the first nine months of 1998 in the Power Generation business segment were lower than the same period last year. Major orders in the most recent quarter included a turnkey contract for one of the largest merchant power plants in the U.S., the 1,000-megawatt gas-fired combined-cycle power plant in Midlothian, Texas, and a 490-megawatt gas-fired combined-cycle power plant in Greece. Revenues and operating earnings were clearly above last year’s level.

Power Transmission and Distribution
Ongoing liberalization and deregulation in the energy sector of various countries is also leading to increased investments in system solutions and turnkey applications in the power transmission sector, especially in the Americas, the Middle East and Africa. ABB was awarded a turnkey contract to build a new power grid linking the electricity supply networks of Guernsey and Jersey Islands to the European Grid via France. Deregulated electricity markets also led to increased demand for system solutions in the power distribution sector. In North America strong demand for distribution products continued, mainly driven by housing starts and non-residential construction activities. In general, good demand supported the distribution business in Europe and in the Middle East and Africa. Orders received and revenues were below last year’s level while operating earnings were above last year’s level.

Industrial and Building Systems
Capital expenditures for automation systems and products followed general industrial trends with continued growth in marine applications, increased investments in utilities and the petroleum, chemical, food, and pharmaceutical industries. The automotive and pulp and paper industries reduced capital expenditures further as a result of prevailing economic uncertainties. Demand rose in Europe, the Middle East and Africa but slipped in the Americas and Asia. The oil, gas and petrochemicals business sector performed well, in spite of lower oil prices. Investments in and demand for ABB’s refinery and exploration technologies remained well above last year’s level. The markets for industrial products and contracting showed reduced, but still solid growth in most European countries and in the Middle East and Africa. In the Americas, demand was slightly lower and also fell in Asia in line with the economic situation in the region. Demand for certain standard products is growing at a lower rate than last year. Orders received in the business segment Industrial and Building Systems were above last year with revenues and operating earnings somewhat below last year.

Financial Services
The Financial Services business segment benefited from good trading opportunities in the foreign exchange and interest rate markets and its active portfolio management of independent power project investments. The segment reported operating earnings above last year’s level.

Adtranz
Investments in rolling stock, in particular in Western Europe and the U.S., remain at a high level. Orders received at Adtranz, the 50-50 rail joint venture with Daimler-Benz, increased substantially compared to last year with somewhat higher revenues. Operating earnings were negative with ABB’s consolidated 50-percent share amounting to negative US$ 69 million. Adtranz is adjusting overcapacity in its production facilities and continues with the successful market introduction of its modular systems. ABB and Daimler-Benz, the co-owners of Adtranz, announced in October that they agreed with Mr. Kaare Vagner, the President and Chief Executive Officer of Adtranz, that he will leave his position. Mr. Rolf Eckrodt, deputy CEO, will be acting President and CEO until the Supervisory Board will decide on a new President and CEO.


ABB Group

Consolidated Income Statement

US$ in millions


1) As previously reported, as of year-end 1997, the line “Taxes” in the ABB Group income statement contains only income taxes, while other taxes on items such as capital and property, are included in Other expenses. This change, following International Accounting Standards (IAS), reduces both Operating Earnings after Depreciation and Income before Taxes, but has no effect on Net Income. Previous year’s figures have been restated accordingly. The comparison is:






New: Old:
1-9/1997 as restated 19981-9/1997 as reported 1997
Operating Earnings after Depreciation 1,417 $ million 1,482 $ million
Income before Taxes 1,187 $ million 1,252 $ million
Net Income 774 $ million 774 $ million
Note: The exchange rates used in the above income statement are average rates for the periods shown. The average exchange rates for the Swiss Franc, Swedish Krona, German Mark and the European Currency Unit are stated below:



For the first nine months of 1998, changes in average exchange rates had a negative translation effect on reported results. The appreciation of the U.S. dollar against many major currencies during the first nine months of 1998, compared to the first nine months of 1997, reduced ABB’s orders received, revenues and result figures by 4 to 1 percent.

_______________________________________________________________

Orders Received and Operating Earnings per Business Segment


Note: Divestitures in the fourth quarter of 1997 corresponded to activities with annual orders of about US$ 1,200 million.


ABB Group Revenues per Region



Note: ABB Group revenues per region represent total third-party revenues in each region, excluding exports, which are accounted for in the revenue figures of the imported region.

_______________________________________________________________


Parent Companies Financial Results
ABB AB (Sweden) and ABB AG (Switzerland) are the two sole owners in equal parts of ABB Asea Brown Boveri Ltd, Zurich (Switzerland), which is the holding company of the ABB Group with approximately 1,000 companies around the world. The two parent companies each provide a transparent vehicle for investing in ABB as virtually all of their income and stockholders’ equity comes from their respective 50-percent shares of the ABB Group income and equity. For a full report on the development of the ABB Group, please refer to the first part of this report.
ABB Companies throughout the world report their financial results in local currencies, which are then translated to U.S. dollars to establish the ABB Group’s consolidated accounts. In order to compute the income of the two parent companies, ABB AB (Sweden) and ABB AG (Switzerland), their 50-percent shares of ABB Group income are translated from U.S. dollars to Swedish Krona (SKr) and Swiss Francs (SFr), respectively.


Parent Companies Financial Results
ABB AB (Sweden) and associated company

ABB AB and associated company
ABB AB’s share of ABB Group earnings before taxes and after minority interests for the first nine months of 1998 was US$ 606 million, an increase of 3 percent (1997: US$ 587million). The average rate of the U.S. dollar has strengthened slightly against the Swedish Krona which had a positive effect when translating ABB AB’s share in ABB Group earnings into Swedish Krona. After translation, ABB AB’s share of ABB Group earnings before taxes and after minority interests for the first nine months of 1998 increased to SKr 4,808 million (1997: SKr 4,484 million). ABB AB’s income before taxes, including associated company, amounted to SKr 4,802 million for the first nine months of 1998, an increase of 7 percent (1997: SKr 4,482 million). Net income for the first nine months of 1998 amounted to SKr 3,365 million, an increase of 14 percent (1997: SKr 2,955 million).
ABB AB’s net income per share for the first nine months of 1998 amounted to SKr 3.59 (1997: SKr 3.15).

ABB AB, parent company
Net income for the first nine months of 1998 amounted to SKr 5 million (1997: SKr 5 million). The dividend for the fiscal year 1997 was anticipated in the 1997 accounts and thus only the difference (SKr 11 million) between dividend actually received and dividend anticipated is included in the first nine months of 1998.

Auditors’ examination
This report has not been subject to examination by the Company’s auditors.

________________
The full year report for 1998 of ABB AB and ABB Group will be published on February 4, 1999. The Annual General Meeting of ABB AB will take place on March 18, 1999 in Västerås, Sweden.


ABB AB Income Statements

Swedish Krona in millions

1) ABB AB’s share in the ABB Group results recognized according to the equity method.
2) As previously reported, as of year-end 1997, the line “Taxes” in the ABB Group income statement contains only income taxes, while other taxes on items such as capital and property, are included in Other expenses. This change, following International Accounting Standards (IAS), reduces Income before Taxes but has no effect on Net Income. Previous year’s figures have been restated accordingly.



Parent Companies Financial Results
ABB AG (Switzerland) and associated company


ABB AG and associated company
ABB AG’s share of ABB Group income before taxes and after minority interests for the first nine months of 1998 was US$ 606 million, an increase of 3 percent (1997: US$ 587 million). The average rate of the U.S. dollar has strengthened slightly against the Swiss Franc which had a positive effect when translating ABB AG’s share in ABB Group earnings into Swiss Franc. After translation, ABB AG’s share of ABB Group earnings before taxes and after minority interests for the first nine months of 1998 increased to SFr 890 million (1997: SFr 851 million). ABB AG’s income before taxes, including associated company, amounted to SFr 900 million for the first nine months of 1998, an increase of 3 percent (1997: SFr 871 million). Net income for the first nine months of 1998 amounted to SFr 632 million, an increase of 10 percent (1997: SFr 577 million).
ABB AG’s net income per bearer share for the first nine months of 1998 amounted to SFr 68.30 (1997: SFr 62.35).

ABB AG, parent company
Net income for the first nine months of 1998 amounted to SFr 358 million (1997: SFr 341 million) including SFr 350 million (1997: SFr 325 million) dividend received from ABB Asea Brown Boveri Ltd.

Auditors’ examination
This report has not been subject to examination by the Company’s auditors.

____________________
The full year report for 1998 of ABB AG and ABB Group will be published on February 4, 1999. The Annual General Meeting of ABB AG will take place on March 18, 1999 in Wettingen, Switzerland.



ABB AG Income Statements


Swiss Francs in millions


1) ABB AG’s share in the ABB Group results recognized according to the equity method.
2) As previously reported, as of year-end 1997, the line "Taxes" in the ABB Group income statement contains only income taxes, while other taxes on items such as capital and property, are included in Other expenses. This change, following International Accounting Standards (IAS), reduces Income before Taxes but has no effect on Net Income. Previous year’s figures have been restated accordingly. (END)

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

    Contact us

    • Mr. John Fox
      Corporate Communications
      Tel: +41 1 317 7371
      Fax: +41 1 317 7958
    • Mr. Manfred Ebling
      ABB Investor Relations,
      Zurich
      Tel. +41 1 317 7313
      Fax +41 1 311 9817
    seitp222 c1256c290031524bc125673100252fd5