ABB reports improved earnings in 2000, unveils strategy to drive growth

  • Earnings before interest and taxes (EBIT) up 23 percent under U.S. GAAP
  • Revenues decline 6 percent
  • Orders up 3 percent
  • Customer-centric organization, Industrial IT, and new ventures to drive growth

Zurich, Switzerland, February 13, 2001 – ABB said today that earnings rose 23 percent in 2000 despite a dip in revenues and set out a strategy for sustainable growth over five years, based on its new customer-centric organization, continuing expansion in key areas and the broadening of its Industrial IT offerings across the entire customer base.

“Our continuous shift towards higher-margin businesses and continued cost reductions helped us improve earnings,” said ABB’s President and CEO Jörgen Centerman. “But that is not good enough. Revenue development is still well below our potential. We are now aggressively targeting new ways to deliver more value to our customers, and are confident that we will generate better top-line and bottom-line performance.”

Note: Key figures according to International Accounting Standards (IAS) shown in Appendix.
1) In local currencies, orders increased 12%, revenues increased 2% and EBIT increased 38%.
2) Dividend per share as proposed.

Highlights 2000
Reporting for the first time under U.S. Generally Accepted Accounting Principles (U.S. GAAP), ABB showed an increase by 23 percent to US$ 1,385 million in EBIT for the full year 2000, compared to the year before.

Sluggish demand in some key markets in 2000 resulted in a 6-percent drop in revenues to US$ 22,967 million. In local currencies, revenues increased by 2 percent. Income from continuing operations was up 37 percent. Net income was 6 percent higher at US$ 1,443 million (for IAS information, see Appendix).

Other highlights for the year 2000:

  • EBIT and operating margins rose in all segments except Power Transmission
  • Orders in local currencies were up in all segments and all regions, except Asia
  • ABB entered the alternative energy market with new technologies, such as wind power
  • ABB completed the divestiture of its nuclear power activities and its share in ABB ALSTOM POWER

Cash Flow and other key data
ABB’s net cash provided by operating activities amounted to US$ 1,022 million, down 35 percent from last year (1999: US$ 1,575 million). Net cash used in investing activities was US$ 1,713 million (1999: US$ 2,036 million). The difference was covered by net cash from discontinued operations of US$ 949 million (1999: US$ 723 million), representing net proceeds from the sale of the remaining 50-percent shareholding in ABB ALSTOM POWER and the nuclear power business in 2000.

Return on equity was 30.6 percent in 2000 (1999: 34.1 percent).

As of December 31, 2000, ABB employed 160,818 people compared to 161,430 at yearend 1999.

Dividend proposal
The Board of Directors will propose at the Annual General Meeting a dividend of CHF 3.00 (1999: CHF 3.00). The Board will also propose to buy back six million ABB Ltd shares, corresponding to approximately CHF 1 billion, for cancellation.

U.S. Listing
As earlier communicated, the company intends to list its shares on the New York Stock Exchange during the second quarter of 2001.

Outlook 1
For the full-year 2001, revenues are expected to increase. EBIT, net income from continuing operations and cash flow from operating activities are expected to be well above last year’s level.

1 Assumes no major currency effects.

ABB is targeting a minimum average revenue growth of 6 percent per year through 2005 (excluding major acquisitions and divestments). EBIT margin is targeted to increase an average 15 percent per year, reaching 12 percent by 2005. The company also aims to reduce its cost of capital.

Growth strategy
ABB’s strategy for top-line and bottom-line growth builds on:

  • The new customer-centric organization
  • The broadening of ABB’s Industrial IT offering
  • Expansion in new growth areas

The transformation of ABB along customer lines aims to boost growth by helping customers become more successful in a business environment of accelerating globalization, deregulation, consolidation and technology advances.

ABB builds on leading positions across its products and services offerings to manufacturing and consumer industries, process industries and utilities in more than 100 countries, and intimate knowledge of its customers’ business drivers, success factors and processes, Centerman said.

“Our number one growth opportunity lies in our existing customer base,” Centerman said. “Today some 30 percent of ABB’s annual sales come from our 200 top customers alone. So far, they have mostly been sold only one line of ABB’s products. With our new structure, they will have easy access to our entire range. And even small increases in sales to these customers would mean substantial growth in volumes, margins and cash flow.”

ABB said the organizational transformation into a customer-centric structure would be self-financed at the divisional level, and not incur any restructuring charges. The new organization will be implemented in most markets by mid-year 2001.

ABB has created nine Group divisions – seven customer divisions, and two divisions to drive performance improvements. The Group Transformation division will simplify organizational structures driven by shared objectives globally as well as in each local market. The Group Processes division will create and implement common processes and will also be responsible for the optimal use of infrastructure.

Four customer divisions – Utilities, Process Industries, Manufacturing and Consumer Industries, and Oil, Gas and Petrochemicals – will provide end users with faster and easier access to the full range of ABB’s products, services and solutions. Two customer divisions – Power Technology Products and Automation Technology Products – are responsible for all generic products in ABB, and serve external channel partners, such as wholesalers, distributors, original equipment manufacturers (OEMs) and system integrators. The Financial Services division serves both internal and external customers with a full range of financing solutions.

Instead of multiple ABB product units serving the same customer, often working with different terms and conditions, customers will be served by dedicated units representing ABB’s total offering of products, systems, services and solutions.

“The cultural change to a fully customer-centric organization is considerable,” Centerman said. “In the new Group Transformation division we have senior managers with broad global experience, knowledge of local markets, customer needs and the challenges of organizational change. They will ensure that we retain our market focus during the transformation.”

Industrial IT
ABB is embarking on a Group-wide program to further exploit information technology and the Internet. The company is creating one single architecture for its entire range of technologies and services, called Industrial IT.

ABB is making all its own products Industrial IT-enabled, to ensure that the entire range of its offering can be easily combined to suit customers’ requirements.

With last year’s acquisition of U.S. software company SKYVA International, ABB has the technology to create dedicated online communities linking manufacturers’, suppliers’ and customers’ business processes. “This is called collaborative commerce. It will radically change the way companies operate and thereby create opportunities to improve productivity and efficiency that we can as yet barely imagine,” Centerman said.

Overall, the Internet allows the targeted mass customization of information, products, services and real-time collaboration to suit individual customers’ needs.

New growth areas
A new business area, New Ventures Ltd, has been established to identify and invest in promising new technologies, business innovations and in new partnerships. New Ventures will speed up commercialization of ABB's product and business development, through three units - ABB Industrial IT Venture Capital Fund, ABB Incubation, and ABB Operational Ventures.

In alternative energy solutions, ABB is working with a broad range of products, including renewable technologies such as wind power, microturbines and microgrids for distributed clean electricity generation.

ABB is targeting additional growth in manufacturing and consumer industries, telecom, logistic automation and the deregulated utility markets.

Managing for value
With the weighted average cost of capital (WACC) established for individual ABB businesses in each key market, the company has created an economic yardstick for measuring the potential value of a business strategy, as well as for allocating resources and assessing performance.

Going forward, ABB will integrate free cash flow calculations into all of its business planning, from Group goals for value creation to each individual business. Overall goals for value creation are translated into value driver targets, prioritized and broken down into specific actions linked to increasing value.

ABB has also reoriented its reporting systems to emphasize dynamic, forward-looking performance measures. Constantly reviewing business performance against leading indicators of value creation helps managers prioritize their daily actions.

Rewarding performance
Recognizing that employees who contribute to increased shareholder value should share in it, ABB’s Management Incentive Program rewards performance with stock options. A key benchmark is cash flow generation on a global performance basis. In 2001, ABB will extend the principle of rewarding exceptional performance to a broad base of employees with the planned Employee Share Ownership Program.

Commitment to sustainability
ABB reached a number of environmental and sustainability targets in 2000. The company also issued a comprehensive social policy, formally recognizing the importance of social performance management in its corporate strategy.

Segment overview
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, noted in earlier quarters, continued to unfavorably impact results throughout 2000.

+ 4%
- 4%
- 2%
- 9%
+ 31%
+ 19%
EBIT Margin

Customers focused on increasing productivity and profitability by making their business processes more efficient. Advances in information technology and software development continued to be key drivers of customer demand.

Regionally, demand was strongest in Asia, Latin America and the Middle East and somewhat lower in the U.S. Order intake in Europe was flat. Business areas Automation Power Products and Marine and Turbochargers showed significant order growth.

Revenues were lower due to several small divestments and a low opening order backlog in the systems business.

The increase in EBIT reflects cost reductions and efficiency improvements over the past 12 to 18 months.

Power Transmission
+ 9%
+ 1%
- 4%
- 11%
- 10%
- 15%
EBIT Margin

Privatization and deregulation of electricity markets in the Americas stimulated demand for grid interconnection projects and associated services needed to upgrade existing power transmission systems. Demand for complete systems and applications packages also continued to rise. Orders recovered strongly during the fourth quarter, led by increased demand for new installations in developing countries, particularly the Middle East.
A lower order intake from Latin America in 1999 resulted in reduced revenues, particularly in Power Systems and High Voltage Products and Substations. This reduction was only partially offset by increased sales in the Service and Support and Power Transformers businesses.
Reduced revenues and costs associated with capacity reductions pushed EBIT and the EBIT margin lower.

Power Distribution
+ 20%
+ 12%
+ 5%
- 2%
+ 5%
+ 1%
EBIT Margin

Increased customer demand in privatized and deregulated electricity markets for efficient power distribution systems, together with new electrification in developing countries, continued to drive order growth. Demand grew substantially in the Americas, but was up only slightly in Europe, where deregulation and privatization in some countries are less advanced.
Revenues and EBIT were flat as higher volumes helped to offset price pressures. Increased production efficiency, reduced product duplication and increased standardization allowed our Medium Voltage Equipment business to sell larger volumes without increasing costs. These benefits were somewhat offset by increased development costs for new technologies.

Oil, Gas and Petrochemicals
+ 40%
+ 29%
- 2%
- 9%
+ 8%
+ 2%
EBIT Margin

Demand in both the upstream and downstream markets increased in 2000. Oil prices recovered and customers renewed investment in both the resource recovery and the petrochemicals and refining markets. Orders growth was driven by larger orders with high pass-through, and thereby lower margins.

Revenues, although down for the year, actually recovered during the fourth quarter as earlier order bookings were realized as sales.
Both EBIT and the EBIT margin increased, reflecting a small capital gain.

Building Technologies
+ 4%
- 6%
+ 4%
- 7%
+ 28%
+ 16%
EBIT Margin

With 80 percent of its business in Europe, the translation effect was strongest in this segment. Demand in Europe was moderate in most sectors, but particularly strong in the telecommunications and Internet infrastructure market. The North American economy remained robust, resulting in high demand for low voltage products and industrial fans. Generally improved economic conditions in Asia, the Middle East, Africa and South America fuelled increased demand for our product offerings.
Revenues reflect the discontinuation of the general contracting business and the divestiture of non-core service workshops. Low Voltage Products and Systems showed good growth, principally as a result of improved market conditions in Europe.
Significant increases in the product business, as the result of higher volumes and improved efficiency, pushed the segment’s EBIT and EBIT margin significantly higher.

Financial Services
+ 23%
+ 17%
+ 12%
+ 4%

As the designated center of financial expertise within the Group, Financial Services actively manages the company’s interest rate and foreign exchange exposures. During the year, short-term interest rates continued to increase while long-term bond yields declined. Most currencies depreciated strongly against the U.S. dollar, with the trend only reversing toward the end of the year.

In 2000, Financial Services revenues increased in almost all business areas. Earnings rose as a result of higher net interest income from the growing lease and loan portfolio, ABB’s acquisition of a 35 percent stake in Swedish Export Credit (SEK), and higher earnings from investments in special-purpose infrastructure companies. Insurance earnings decreased as a consequence of reduced investment income and underwriting results. Earnings in Treasury Centers were higher due to a strong trading performance.

ABB Group Annual Report
The Annual Report will be distributed to shareholders and available at our head office in Oerlikon, Zurich as of February 27, 2001.

Annual General Meeting and other important dates
The Annual General Meeting of ABB Ltd will be held on Tuesday March 20, 2001 in Zurich with a live transmission to Västerås, Sweden. The 2001 quarterly reporting dates for ABB Ltd are scheduled for April 24, July 24 and October 24.

ABB’s annual press conference will be held today at 10:30 Central European time and broadcast live over the Internet ( Journalists are welcome to use the email facility to ask questions.

The company will hold its annual meeting for investors and analysts today at 15:00 Central European time. Teleconference callers should dial +41 91 610 4111 in Europe and (412) 858 4600 in the U.S.

For questions on technical accounting issues, a telephone meeting will be held from 07:00 to 07:30 Central European time using the same telephone numbers as those above.

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, and fluctuation in currency exchange rates. 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.

(U.S. dollar amounts in millions unless otherwise indicated)

1) Consists mainly of gains from dispositions of discontinued operations (Power Generation business in 2000 and 1999, Adtranz in 1999), offset by operating losses.

Orders received and revenues have been reflected in the regions based on the location of the customer

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    • Thomas Scmidt
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