ABB reports higher Q1 revenues, earnings

- Revenues up 2 percent (8 percent in local currencies) despite mixed business conditions - Earnings up 6 percent (13 percent in local currencies), EBIT margin up - Group transformation on target

Zurich, Switzerland, April 24, 2001 – ABB said today that revenues and earnings rose in the first quarter of 2001, despite mixed current business conditions and a further strengthening of the U.S. dollar. ABB also achieved key growth strategy milestones, building up its customer-centric organization and strengthening its Industrial IT capability.

US$ in millions, except per share data

1Q 2001
1Q 2000
Change 1
Orders
6,786
7,141
- 5 %
Revenues
5,380
5,259
2 %
Earnings before interest and taxes (EBIT)
334
315
6 %
Income from continuing operations
201
206
- 2 %
Net income
138
55
151 %
Basic and diluted earnings per share (US$) from

- Income from continuing operations
- Net income

0.68

0.47

0.70

0.19

EBITDA
524
514
1) In local currencies, orders are unchanged, revenues rose 8%, EBIT was up 13%, and income from
continuing operations rose 5%


Orders decreased 5 percent to US$ 6,786 million, and were unchanged in local currencies, as the Power Distribution and Oil, Gas and Petrochemicals segments could not repeat their very strong order performance of the first quarter of 2000. Compared to the fourth quarter of 2000, total Group orders were up 14 percent in U.S. dollars.

Revenues grew by 2 percent to US$ 5,380 million. When expressed in local currencies, revenues increased by 8 percent. Higher revenues in Oil, Gas and Petrochemicals more than offset decreases in Power Distribution and Power Transmission.

Earnings before interest and taxes (EBIT) rose 6 percent to US$ 334 million compared to the first quarter of 2000, and 13 percent when expressed in local currencies. This includes other income from equity accounted companies and licenses, a capital gain of US$ 2 million and a restructuring charge of US$ 6 million. EBIT margin increased from 6 percent to 6.2 percent over the period, driven in large part by continued synergy gains from the integration of Elsag Bailey.

“I’m encouraged that we continue to improve our performance, especially as demand has been mixed and we are implementing a major transformation of the company,” said ABB president and CEO Jörgen Centerman.

Income from continuing operations was down 2 percent – up 5 percent in local currencies – as interest expense increased due to somewhat higher debt levels throughout the last year.

Net income more than doubled to US$ 138 million. However, most of this improvement came from the reduced impact of discontinued operations.

ABB’s net cash provided by operating activities reversed from a positive US$ 23 million last year (first time ever that operating cash flow was positive in the first quarter) to a negative US$ 217 million. This was primarily due to higher working capital, driven by an increased level of large order execution compared to last year, and more active trading by Financial Services, with a net increase in marketable securities.

As of March 31, 2001, ABB employed 161,374 people compared to 160,818 at yearend 2000.

Outlook (Assumes no major currency effects)
The outlook for the full year 2001 remains unchanged: Revenues are expected to increase in comparison to 2000, and EBIT, income from continuing operations and cash flow from operating activities are expected to be well above last year’s levels, assuming current mixed business conditions continue.

For the first six months of 2001, EBIT growth is expected to lag revenue growth due to the high level of one-time items in the first half of 2000. The second half of 2001 is expected to see higher comparative earnings growth.

Mid-term targets remain unchanged.


Highlights of the first quarter 2001
· ABB launched a bid to acquire Entrelec of France, a leading supplier of industrial automation and control equipment, and bought Eutech Engineering Solutions Ltd., a British consulting group specializing in the chemicals, petrochemicals and pharmaceutical industries.

· ABB won orders with a total value well above US$ 400 million for subsea oil production systems, and orders worth almost US$ 100 million to improve the power network in London, England.

· A new generator, Powerformer Light, was launched for use in gas and steam turbine power plants. It can be connected directly to the high-voltage grid, thus eliminating the need for any step-up transformer. The product was developed in parallel with the world’s first ultra-high-voltage motor, MotorformerTM, also connectable directly to the grid.

· ABB’s Industrial IT solutions portfolio recently received the Editor’s Choice Award from Control Engineering magazine, identifying it as one of the most innovative products of 2000. Industrial IT-enabled products aim to significantly boost customer productivity by integrating information from all of a company’s processes into a single real-time information management system.

· On April 6, ABB listed American Depositary Shares on the New York Stock Exchange. The move aims to broaden the company’s shareholder base in the United States.

· In late March, ABB launched a program to buy back six million shares for cancellation, corresponding to about two percent of the company’s total share capital. The buy-back plan is designed to create more value for shareholders.

· Shareholders at ABB’s Annual General Meeting in Zurich and Västerås in March approved a 4-to-1 share split aimed at improving the liquidity of the share. The split is planned to take effect on May 7, 2001.

Accounting change: FAS 133
Recently, the Financial Accounting Standards Board (FASB) (FASB is the key body governing US GAAP standards and accounting) changed the accounting rules for all companies reporting under US GAAP regarding derivative instruments and hedging activities (FAS 133), which ABB was required to adopt effective January 1, 2001. As communicated earlier, ABB had to record a one-time, non-cash charge. The income statement was negatively affected by US$ 63 million, recorded below income from continuing operations, and equity was reduced by US$ 41 million under the heading “other comprehensive income.”

Transformation update
The transformation of ABB into a customer-centric organization, which began in mid-January 2001, is proceeding according to plan and the new organizational structure is expected to be in place in most markets by mid-year 2001. The realignment began in 19 countries where ABB’s presence is strongest, representing about 80 percent of global revenues.

ABB said it will begin to report its financial results according to its new organizational structure by the third quarter of this year. The company also plans to report quarterly on the progress of its transformation. Measurements are being defined which will track important parameters like customer penetration, key customer accounts and certification of Industrial IT products.

The transformation is based on the creation of six new customer-based divisions serving utilities, process industries, manufacturing and consumer industries, the oil, gas and petrochemicals sectors, and external channel partners for power as well as for automation technology products. The previous Financial Services segment remains unchanged. A Group Processes division provides and supports the implementation of efficient best-practice business tools and processes across all divisions, while the Transformation team drives the change process, allowing front-line people to focus on serving the needs of customers rather than managing the transformation.


Industrial IT expansion continues
The company won a number of orders for Industrial IT-based systems in the first quarter. For example, Visy Industries of Australia ordered Industrial IT systems – including manufacturing execution and supply chain management solutions – for its five pulp and paper mills in Australia and two mills in the United States.

ABB also expanded its product capabilities and geographic scope to support growth in its Industrial IT offerings. The acquisition of Eutech brings ABB expert knowledge of the chemical, petrochemical and pharmaceutical industries. The planned acquisition of Entrelec would add considerable industry expertise, advanced technology and improved coverage in key European and American markets. Together, they allow ABB to deliver a wider range of Industrial IT offerings to more customers.

Regional market review

Demand for ABB’s products and services in the first quarter of 2001 varied widely by country and business compared to last year. For the European markets as a whole, orders were 3 percent higher in nominal terms (+10 percent in local currencies) and revenues were up 1 percent (+8 percent). In the Americas, demand was mixed, with order intake down 7 percent nominally (-4 percent) while revenues rose 5 percent (+7 percent). In Asia, orders grew by 6 percent (+14 percent), reflecting stronger economies in certain countries, while revenues were down 7 percent (unchanged). Orders from the Middle East and Africa were 38 percent lower (-32 percent) compared to an unusually high volume of large order bookings in the Oil, Gas and Petrochemicals segment last year. As these flowed through to revenues this year, ABB saw a first-quarter 14-percent revenue increase in the region.


Segment review
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 during the first quarter. All figures reflect first quarter activity.


Automation

US$ in millions, except where indicated
2001
2000
Nominal
Local
Orders
2,148
2,134
+ 1%
+ 7%
Revenues
1,765
1,742
+ 1%
+ 7%
EBIT
113
95
+ 19%
+ 25%
EBIT Margin
6.4%
5.5%
Demand in process automation markets was flat, offset by growth in substation automation. In the automotive market, conditions remained difficult. Against this backdrop, total orders increased only slightly in nominal terms, although some business areas showed double-digit growth offsetting downturns in others.

Total revenues were similarly flat, although again on mixed markets. Strong revenue growth was recorded in Drives and Flexible Automation, while other businesses were flat or negative.

EBIT improved by 19 percent. Productivity gains from the successful integration of Elsag Bailey contributed to significant earnings growth in Instrumentation and Control systems, along with Pulp, Paper, Metals, Minerals and Utilities. Earnings growth was also supported by Drives and Electrical Machines.


Power Transmission

US$ in millions, except where indicated
2001
2000
Nominal
Local
Orders
1,132
1,013
+ 12%
+ 18%
Revenues
699
751
- 7%
- 1%
EBIT
60
55
+ 9%
+ 13%
EBIT Margin
8.6%
7.3%
Driven by concerns about the adequacy of energy supply, demand continued to strengthen in North America, with Europe and Asia Pacific activity also up. As a result, first quarter orders grew strongly by 12 percent.

Revenues were down from last year, reflecting both a lower order intake in the second half of 2000, as well as the comparison with high revenues in the first quarter of last year. EBIT improved, leading to a margin of 8.6 percent for the quarter.

Power Distribution

US$ in millions, except where indicated
2001
2000
Nominal
Local
Orders
703
922
- 24%
- 20%
Revenues
605
650
- 7%
- 2%
EBIT
30
35
- 14%
- 16%
EBIT Margin
5.0%
5.4%
Regional demand presented a mixed picture in the first quarter, with increased investment from Latin America, continued activity in Europe, and a slowdown in North America. Orders across all business areas were 24 percent down in comparison to the first quarter of 2000.

First quarter revenues were also down, as volume increases in Distribution Transformers and Medium-Voltage Equipment did not make up for the drop in Power Distribution Solutions. Similarly, earnings were below last year’s level due to higher base commodity prices and lower volume.

Building Technologies

US$ in millions, except where indicated
2001
2000
Nominal
Local
Orders
1,734
1,824
- 5%
+ 3%
Revenues
1,413
1,390
+ 2%
+ 9%
EBIT
90
95
- 5%
+ 1%
EBIT Margin
6.4%
6.8%
Market demand showed signs of slowing on fears of a downturn in the business cycle. Orders were down in nominal terms, although as always this segment’s largely European business was especially affected by the strength of the U.S. dollar. All business areas reported modest order increases except for Building Systems, which had a particularly large order booked in first quarter 2000.

Revenues increased slightly in nominal terms, with all business areas except Service (which divested its U.S. workshops in 2000) contributing to growth. Earnings were down in nominal terms, but improved when expressed in local currencies. All businesses showed earnings growth except Service and Air Handling Equipment.


Oil, Gas and Petrochemicals

US$ in millions, except where indicated
2001
2000
Nominal
Local
Orders
961
1,117
- 14%
- 12%
Revenues
754
529
+ 43%
+ 49%
EBIT
41
30
+ 37%
+ 43%
EBIT Margin
5.4%
5.7%
Oil prices remained firm during the first quarter, although the average price was lower than the 2000 average. There was good activity in the upstream business, with a large number of deep water prospects under development, and particularly strong demand from West Africa, the Gulf of Mexico, and Brazil. Downstream markets were also active, but more cautious given uncertainty about global economic trends and their potential impact on downstream industry financial performance.

Orders declined in comparison with the high order intake in the first quarter of 2000. Upstream orders increased significantly on strong demand, but were offset by the downstream business. In contrast, revenues were substantially up across both the downstream and upstream businesses, reflecting the higher order backlog at the end of last year.

Earnings also increased significantly on strong revenue growth, while EBIT margin was slightly down. This was largely due to lower margins on large downstream engineering, procurement and contracting (EPC) projects, which typically contain non-ABB products.


Financial Services

US$ in millions, except where indicated
2001
2000
Nominal
Local
Revenues
479
453
+ 6%
+ 10%
EBIT
84
84
0%
+ 7%

Interest rates and currency markets were volatile and credit spreads widened in the first quarter of 2001, reflecting widespread concern about borrower credit quality. These market developments presented opportunities for ABB’s Financial Services, which were reflected in higher revenues and earnings. In particular, Structured Finance and Equity Ventures reported strong earnings growth on their loan, leasing and investment portfolios.

Reporting dates
The remaining quarterly reporting dates in 2001 for ABB Ltd are scheduled for July 24 and October 24.

The company will host a conference call for analysts and investors to discuss its first quarter results today at 16:00 Central European time. Teleconference callers should dial +41 91 610 4111 in Europe and (412) 858 4600 in the U.S. This facility is also available to the media on a “listen only” basis.

    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, fluctuations in currency exchange rates and such other factors as may be discussed from time to time in ABB's filings with the U.S. Securities and Exchange Commission. 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.

(End)

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