ABB reports improved operating performance

Accelerates cost reduction program Revenues increased 9 percent in local currencies Excluding one-time capital gains, EBIT up 15 percent in local currencies Operational cash flow up 36 percent

Zurich, Switzerland, October 24, 2001 – ABB said today revenues rose 9 percent and earnings before interest and taxes (EBIT) – excluding one-time capital gains – increased 15 percent in local currencies for the first nine months of 2001, reflecting continued strong operational performance. Seeing a decline in orders, ABB also said it will accelerate its cost-cutting program.

“I’m satisfied with our operating results this quarter,” said Jörgen Centerman, president and CEO. “Given the weaker market conditions, it is a sign of our strength and stability to have improved our underlying operating performance, even after providing US$ 50 million for our reinsurance exposure following the terrorist attacks in the U.S.”
Centerman said ABB will accelerate its plans to cut 12,000 jobs. “We need to become leaner as fast as possible given the economic climate,” Centerman said. “By taking more of the planned restructuring costs earlier we will reduce earnings now, but we build competitiveness and gain productivity improvements that pay back over time.”

US$ in millions, except per share dataJan-Sept 2001Jan-Sept 2000ChangeChange in local currencies
Orders17,86319,493- 8%- 3%
Revenues16,87716,217+ 4%+ 9%
Earnings before interest and taxes (EBIT), excluding one-time capital gains763698+ 9%+ 15%
EBIT7661,038- 26%- 21%
Income from continuing operations352676- 48%
Income from discontinued operations and accounting changes(63)548
Net income2891,224- 76%
Earnings per share (US$)
Income from continuing operations: Basic
Diluted
Net income Basic
Diluted
0.31
0.31
0.25
0.25
0.57
0.57
1.04
1.03
EBITDA1,3491,613- 16%- 11%

About one third of the job reductions is expected to come through natural attrition. The program is estimated to cost US$ 500 million in total. More costs will now be taken in 2001. Once the plan is fully implemented, costs will be reduced by about US$ 500 million per year.
ABB also reported higher net cash from operating activities, up 36 percent when compared with the first nine months of 2000. “While our liquidity is sufficient, we have launched a special program to improve operating cash flow by the end of the year,” Centerman said. “This is a clear step toward reducing our debt levels in this economic environment.”

Financial highlights for the first nine months of 2001

Income statement and cash flow
Orders decreased 8 percent to US$ 17,863 million or 3 percent expressed in local currencies. Base orders, defined as orders below US$ 15 million, now represent 86 percent of total orders. Despite the ongoing transformation and more difficult economic conditions, base orders remained flat in nominal terms but increased 5 percent in local currencies when compared with the first nine months of last year. Large orders (above US$ 15 million) declined 39 percent in nominal terms or 33 percent in local currencies over the same period, mainly due to fewer large orders booked in the Oil, Gas and Petrochemicals division.
Revenues increased to US$ 16,877 million, up 4 percent in nominal terms and 9 percent in local currencies.
The order backlog increased since yearend 2000 by 3 percent in nominal terms and 8 percent in local currencies to US$ 15,302 million. Reflecting the drop in third quarter orders, the order backlog declined slightly since June 30.
Excluding one-time capital gains, EBIT increased 9 percent to US$ 763 million compared to the first nine months of 2000, and 15 percent when expressed in local currencies. This includes license income together with income from equity accounted companies of US$ 136 million and restructuring charges of US$ 33 million. Capital gains were US$ 340 million in the first nine months of last year versus US$ 3 million this year. Including these one-time capital gains, EBIT decreased 26 percent to US$ 766 million.
The change in net income from 2000 is mainly due to last year’s one-time gain of US$ 548 million from the sale of the former power generation business while this year there was a one-time charge of US$ 63 million which was required upon adoption of the new accounting standard FAS 133 under US GAAP from the beginning of 2001. After lower one-time capital gains in EBIT, interest expense associated with higher debt levels and an increased effective tax charge, net income for the first nine months decreased by 76 percent to US$ 289 million.
ABB’s net cash provided by operating activities was US$ 345 million for the first three quarters, up 36 percent from US$ 253 million for the same period last year. For the third quarter alone, net cash provided by operating activities was US$ 266 million, up from US$ 193 million last year.

Balance Sheet and liquidity
Cash and marketable securities totaled US$ 5,385 million at September 30. Since the end of last year, net debt increased by US$ 4,514 million, mainly due to dividend payments, acquisitions (Eutech and Entrelec), significant investment in profitable Financial Services assets, and the purchase of Treasury shares.
Net debt (cash and marketable securities less short, medium and long-term debt) was US$ 6,271 million at September 30. In the third quarter, net debt increased by US$ 973 million. About 60 percent of the increase in net debt came from unrealized non-cash changes. The majority was translation of foreign currency debt into U.S. dollars, which is hedged. The rest of the net debt increase came from borrowings to finance capital expenditure, further investments in Financial Services asset portfolios, and a mandatory final conversion of existing options into Treasury shares.
The company aims to reduce net debt substantially by December 31, 2001. Part of the plan is a rigorous cash flow generation initiative in all operating units, aimed at ensuring and accelerating the traditionally high cash flow generation in the fourth quarter. Positive signs were already seen in the third quarter, during which net working capital was reduced by almost US$ 100 million. The reduction of net debt through internal cash flow generation and asset sales is a key objective for the company.
Stockholders’ equity was US$ 2,912 million at September 30. Since the end of last year, equity declined as a result of dividends paid, the introduction of FAS 133, significant unrealized adverse currency movements versus the U.S. dollar, and the purchase of Treasury shares. The company has no plans for further share buybacks.

Employees
As of September 30, 2001, ABB employed 162,532 people compared to 160,818 at yearend 2000. Since June 30, excluding acquisitions and divestments, the number of people decreased by over 2,000 as the cost reduction program began to take effect.

Asbestos update
Cash settlements in connection with asbestos litigation in the U.S. are expected to run 9 percent above the payout in 2000 on an annualized basis prior to insurance reimbursements. On an annualized basis, the number of new claims has increased by approximately 34 percent in comparison with 2000. Claims filed for the full year 2000 totaled 39,000. It is not yet possible to determine whether the increase in claims is a consequence of an accelerated filing of future claims or if it represents a long-term trend.

Outlook1
For 2001, revenues are expected to increase in comparison to 2000.
Seeing a decline in orders, ABB is accelerating its cost reduction program which will lead to higher restructuring charges being taken in 2001. ABB also expects base orders to be lower in the fourth quarter. As a result, EBIT is now expected to be below last year, excluding capital gains for both years. Previously, EBIT excluding capital gains was expected to be well above last year’s level.
Income from continuing operations is expected to be below last year, due to the high level of one-time capital gains in 2000. Net cash provided by operating activities is expected to increase.
The target to grow revenues on average by 6 percent annually through 2005 (excluding major acquisitions and divestments) remains unchanged. EBIT margin is expected to reach 9-10 percent by 2005.

1Assumes no major currency effects.


Highlights of the third quarter 2001
· Dow Jones Sustainability Index (DJSI) ranked ABB number one in corporate sustainability, topping its market sector for the first time and the electric components and equipment industry group for the third year in a row
· ABB won a US$ 44 million contract with Commonwealth Edison to upgrade the Chicago power grid
· The group released its restated historical figures for the new customer-centric organization, further increasing transparency for stakeholders
· ABB won US$ 95 million in orders from Norway’s Bergesen to build and operate offshore oil production units
· ABB won a US$ 93 million contract to build a gas compressor in Algeria
· ABB purchased a minority stake in Swedish software maker Industrial & Financial Systems AB (IFS)
· Shortly after the quarter end, ABB announced a US$ 360 million order to build a high-voltage direct current (HVDC) power transmission system linking hydropower plants in central China to the Guangdong province

Industrial IT progress report
ABB made a strong first step in bringing its products and services in line with a common information architecture. As of September 30, approximately 800 products were ready for level 0 certification (common information architecture).
SKYVA International, a majority owned subsidiary of ABB, signed a global agreement with International Business Machines (IBM). IBM will incorporate portions of SKYVA’s application development products as part of its WebSphere eBusiness infrastructure software.
In recent weeks, ABB released several important platforms to support the rollout of Industrial IT to all its business divisions. The Aspect Integrator Platform (AIP) 1.0, Operate IT 1.2, and Control IT 2.2 all support the ongoing Industrial IT business by extending functionality and offering additional connections to older systems. They also serve as a basis for broader development efforts.
ABB also received advance notice that a patent has been granted for the Aspect Directory – one of the core concepts behind the Industrial IT software architecture – which provides the intelligence to connect and manage the information flows between all objects and aspects of Industrial IT products.
Process Industries launched the Operate IT and Control IT product suites, which include software for information exchange across business enterprises. Similar research is being carried out to further support ABB’s 10-year strategic agreement with The Dow Chemical Company.
ABB’s corporate research centers have shifted resources, both financial and physical, toward Industrial IT. In addition, they have further developed two new Industrial IT centers in Asia. The centers, first announced earlier this year, will soon be open in India and Singapore.

Transformation update
ABB’s new organization is in place in almost all markets. The organizational structure underpinning the transformation as announced at the beginning of January 2001 is complete.
The transformation is based on the creation of four divisions serving utilities, process industries, manufacturing and consumer industries, the oil, gas and petrochemicals sectors – and two divisions going to market through ABB’s four industry divisions as well as external channel partners with power technology and automation technology products. ABB’s Financial Services division remains unchanged. The realignment is supported by common group processes and infrastructure throughout ABB in key areas such as front-end, project execution, supply chain management, eBusiness and information systems.
One of the main elements of the customer-centric organization is the build-up of a key account management structure for ABB’s strategic and major accounts. As of September 30, 168 key account managers had been appointed. First indications of the impact of the customer centric organization is promising, as orders from ABB’s largest 100 customers have increased by 4 percent since yearend.

Division reviews
The ABB Group’s reporting currency is the U.S. dollar, which strengthened against most of ABB’s local currencies since last year. The strengthened dollar continued to unfavorably impact results during the third quarter. All figures reflect the first nine months’ activity and, except for EBIT margins, comments refer to local currency figures.
EBIT excluding capital gains is shown below only if the aggregate of such gains is material (in any case, if capital gains represent more than 10 percent of divisional EBIT).

Utilities
US$ in millions, except where indicatedJan-Sept 2001Jan-Sept 2000ChangeChange
in local currencies
Orders4,8164,710+ 2%+ 7%
Revenues3,9743,898+ 2%+ 6%
EBIT*122196- 38%- 37%
EBIT Margin3.1%5.0%* Excluding capital gains, EBIT for the first nine months of 2000 was US$ 150 million and the EBIT margin was 3.8 percent.


The ABB Utilities division serves electric, gas and water industries – whether state-owned or private, global or local, operating in liberalized or regulated markets – through a portfolio of capabilities, from products to services and systems. The Utilities division has approximately 16,000 employees.
Demand in Asia continues to be high for utilities, while the Americas, Europe, the Middle East and Africa is stable. Utility markets have not noticeably weakened in the aftermath of September 11. Orders increased 7 percent on growth in both large and base orders. All business areas reported moderate single-digit order increases, except Utility Automation which was flat.
Revenues were up 6 percent. All business areas reported moderate or strong double-digit growth, except Utility Services which recorded higher revenues last year for the ComEd project in Chicago.
Excluding one-time capital gains, EBIT fell 18 percent as a result of delayed project awards and execution timing in large power system projects. As a result, EBIT margin decreased from 3.8 to 3.1 percent.

Process Industries
US$ in millions, except where indicatedJan-Sept 2001Jan-Sept 2000ChangeChange
in local currencies
Orders2,6322,818- 7%- 2%
Revenues2,3912,422- 1%+ 3%
EBIT9475+25%+31%
EBIT Margin3.9%3.1%
The ABB Process Industries division serves the chemical, pharmaceutical, petroleum, gas, marine, metals, minerals, mining, cement, pulp, paper and printing industries with a variety of power, automation and unique process industry technology products. The division has strong domain expertise and uses its automation, power, supply chain and service portfolio to create Industrial IT solutions focused on these customers. The division has approximately 16,000 employees.
The economic downturn in the Americas and more recently in Europe is significantly impacting metal, pulp and paper, and mining industries. There has been less impact on chemical, pharmaceutical and marine industries.
Overall, orders were down 2 percent. Double-digit decreases in metal and paper sectors were partially offset by increased orders from the chemical and pharmaceutical industries. Marine orders were down in comparison with a high order intake last year, but are still at good levels.
Revenues increased 3 percent on execution of the order backlog from last year.
EBIT grew 31 percent as a result of increased contract profitability and early cost savings actions. EBIT margin increased from 3.1 to 3.9 percent.

Manufacturing and Consumer Industries
US$ in millions, except where indicatedJan-Sept 2001Jan-Sept 2000ChangeChange
in local currencies
Orders3,4354,283- 20%- 15%
Revenues3,4643,665- 5%+/-0%
EBIT*88137- 36%- 34%
EBIT Margin2.5%3.7%* Excluding capital gains, EBIT for the first nine months of 2000 was US$ 116 million and the EBIT margin was 3.2 percent.


The Manufacturing and Consumer Industries division sells products, solutions and services to improve customer productivity and competitiveness in areas like automotive industries, telecom, product manufacturing, electronics, airports, parcel and cargo distribution, public and commercial buildings. It also provides air handling solutions for industrial and environmental processes. The division employs approximately 31,000 people.
The manufacturing and consumer industries have been most negatively affected by the economic slowdown in the Americas. Demand has been volatile and investment spending has been deferred, particularly in the automotive industry. European construction markets have weakened and in telecom, the rollout of UMTS networks remains on hold.
Poor demand resulted in a 15 percent drop in orders. Revenues were flat, with growth in Building Systems offsetting the decline in Automotive.
Excluding capital gains, EBIT fell 22 percent as a result of low volume in the Airport and Automotive businesses, as well as in some parts of Building Systems. EBIT margin decreased from 3.2 to 2.5 percent.

Oil, Gas and Petrochemicals
US$ in millions, except where indicatedJan-Sept 2001Jan-Sept 2000ChangeChange
in local currencies
Orders2,6023,197- 19%- 17%
Revenues2,4501,829+34%+38%
EBIT119101+18%+21%
EBIT Margin4.9%5.5%
The Oil, Gas and Petrochemicals division focuses on systems, technologies, products and services for oil and gas exploration and development, gas processing, refineries and petrochemical plants for the hydrocarbon industry worldwide. The division employs approximately 13,000 people.
Oil prices have continued to slip downwards and are now at the lower end of the OPEC band. The Upstream business still shows a high activity level even after the terrorist attack in the U.S. Lower gas prices in U.S. markets have reduced interest in gas exploration and production projects in the Gulf of Mexico. In Downstream, demand has fallen off in 2001, especially in the petrochemicals industry. Upgrading of refineries and gas processing plants is continuing and demand for clean fuels is expected to grow, but some awards are being deferred into 2002.
Orders dropped 17 percent, compared with a particularly high intake in 2000. High tendering activity in Upstream is currently fuelling its order growth, with several large projects booked that have partly offset the decline in Downstream.
Revenues increased 38 percent, generated by the large order backlog at the beginning of the year. Umoe, the oil and gas service company acquired last year, also made a positive contribution.
EBIT grew 21 percent on higher volumes. EBIT margin was lower at 4.9 percent due to some delays and cost overruns.

Power Technology Products
US$ in millions, except where indicatedJan-Sept 2001Jan-Sept 2000ChangeChange
in local currencies
Orders3,2723,059+ 7%+13%
Revenues2,8772,626+10%+15%
EBIT190170+12%+17%
EBIT Margin6.6%6.5%
The Power Technology Products division produces transformers, switchgear, breakers, capacitors, cables as well as other products and technologies for high- and medium-voltage applications. The products are used in industrial, commercial and utility applications and sold through ABB end-user divisions as well as through external channel partners – original equipment manufacturers (OEMs), system integrators, and distributors. The division has approximately 28,000 employees.
Strong demand continued in the Americas – particularly for transmission products – and parts of Asia. European markets are mixed, while the Middle East and Africa are showing signs of improvement.
Orders increased 13 percent, led by Power Transformers and High Voltage Products, which reported double-digit growth while Distribution Transformers and Medium Voltage Products recorded single-digit increases.
Revenues were up 15 percent, led by double-digit growth in High Voltage Products, while all other business areas showed single-digit growth.
Fuelled by higher revenues and productivity improvements, EBIT grew 17 percent. EBIT margin improved from 6.5 to 6.6 percent.

Automation Technology Products
US$ in millions, except where indicatedJan-Sept 2001Jan-Sept 2000ChangeChange
in local currencies
Orders3,9594,184- 5%+/-0%
Revenues3,9253,796+ 3%+ 9%
EBIT330337- 2%+ 3%
EBIT Margin8.4%8.9%
The Automation Technology Products division provides products, systems, software and services for the automation and optimization of discrete, process and batch manufacturing operations plus related business aspects. Key technologies include measurement control, instrumentation, process analysis, drives and motors, power electronics, robots, and low-voltage products; all geared toward one common Industrial IT architecture for real-time automation and information solutions across the business enterprise. These technologies are sold both through third-party channels (OEM's, system integrators, distributors) and through the ABB end-user divisions. It has approximately 41,000 employees.
Slowdown in European and Asian markets (with the exception of China) followed the earlier economic downturn in the U.S., and the terrorist attack is clouding the outlook. The construction market has significantly weakened in Germany, reducing demand for Low Voltage Products, Drives and Electrical Machines.
Orders were stable despite generally difficult trading conditions, as moderate growth in parts of Drives and Low Voltage Products offset flat or lower intake in other business areas.
Revenues grew 9 percent as growth was particularly strong in Drives and Power Electronics, Electrical Machines, and Low Voltage Products which all recorded double-digit increases. Moderate growth was reported in Controls. Instrumentation & Metering as well as Robotics recorded lower revenues, particularly Robotics as a result of the continued downturn in the automotive industry.
EBIT increased 3 percent on stronger earnings in all business areas except Instrumentation & Metering and Robotics. EBIT margin was down from 8.9 to 8.4 percent.

Financial Services
US$ in millions, except where indicatedJan-Sept 2001Jan-Sept 2000ChangeChange
in local currencies
Revenues1,4281,318+ 8%+14%
EBIT233250- 7%+ 3%

The ABB Financial Services division supports its customers with innovative financial solutions in structured finance, leasing, project development and equity participations, financial consulting, insurance and treasury services. The division employs approximately 1,200 people.
Revenues rose 14 percent on strong trading operations in Treasury Centers and the recent expansion of the leasing portfolio by Structured Finance. Under US GAAP, most of Equity Ventures income from equity-accounted investments does not appear in revenues but is instead recognized in EBIT.
EBIT increased 3 percent, even after providing US$ 50 million for estimated reinsurance claims following the terrorist attack in the U.S. All business areas reported double-digit earnings growth except Insurance.
Total assets rose 39 percent to US$ 17,713 million since yearend 2000. The main reason was increased lending to ABB companies and expansion in financing receivables. Receivables, net and financing receivables mainly include loans and leases to non-ABB customers in the Structured Finance business, and almost all are secured by real property and equipment. The loan and lease portfolio is balanced, with governments, municipalities and banks accounting for about half of all credit exposures. Historical loan loss experience has been less than 0.1 percent per year.

Reporting dates
The company will host a conference call to discuss its nine month results today at 15.00 Central European Time (CET). Teleconference callers should dial +41 91 610 4111 in Europe and +1 412 858 4600 for all other callers. Presentation material for the conference call is available on ABB’s Web site: www.abb.com/investorrelations.
Quarterly reporting dates in 2002 are scheduled for February 13, April 24, July 24 and October 24. The Annual General meeting of ABB Ltd will be held on Tuesday, March 12, 2002.
ABB (www.abb.com) is a global leader in power and automation technologies that enable utility and industry customers to improve performance while lowering their environmental impact. ABB has 160,000 employees in more than 100 countries.
    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.

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