ABB’s Q2 orders up – recovery continues

Four divisions increase earnings over Q1

  • Q2 order intake 10 percent and revenues 8 percent above Q1 in local currencies
  • First-half EBIT US$ 368 million after US$ 185 million in restructuring costs, asset write-downs and charges
  • Net income US$ 101 million, compared to US$ 266 million in first half 2001
  • Financial restructuring and cost reduction program progressing as planned
  • Full-year targets confirmed: EBIT margin of 4 to 5 percent and flat revenues

First-half orders were US$ 11.9 billion, down 6 percent from US$ 12.6 billion in the first half of 2001. Three divisions increased first-half orders: Power Technology Products (8 percent), Automation Technology Products (3 percent) and Oil, Gas and Petrochemicals (6 percent).

“The early-cycle orders recovery we saw in the first quarter has continued in the second quarter, and four divisions increased their earnings,” said Jörgen Centerman, ABB president and CEO. “The positive order and revenues trend, and the expected benefits from restructuring, make us confident that we will reach our 2002 revenue and margin targets, while we continue to take measures to improve the company’s fundamentals. We expect a stronger second half.”

Orders from large customers grew by 16 percent in the first half, in line with ABB’s focus on its core utility and industry customer base.

In local currencies, divisional EBIT in the second quarter increased 42 percent in Industries, 41 percent in Automation Technology Products, 35 percent in Power Technology Products and 6 percent in Utilities. In Oil, Gas and Petrochemicals, EBIT declined 33 percent due to project margin write-downs.

First-half EBIT was US$ 368 million after US$ 185 million in restructuring costs, asset write-downs and charges. Costs related to the restructuring program were US$ 106 million. Asset write-downs and charges in New Ventures were US$ 9 million, and US$ 21 million in Building Systems. In Oil, Gas and Petrochemicals, US$ 49 million were taken in project margin write-downs. The half-year EBIT margin was 3.4 percent.

First-half net income was US$ 101 million (H1 2001: US$ 266 million), with a loss of US$ 13 million in the second quarter due to the charges taken. Net cash from operations amounted to US$ 20 million in the first half 2002 (H1 2001: US$ 79 million).

The restructuring program announced last July is progressing as planned. In the first half, US$ 106 million in costs were taken for the program, putting total restructuring costs to date at US$ 337 million. Excluding acquisitions and divestments, a total of 10,900 jobs have been reduced since July 2001, with 1,600 jobs cut in the second quarter, partially through natural attrition.

As of June 30, ABB employed 149,924 people compared to 156,865 at year-end 2001.

Net debt increased from US$ 4.1 billion to US$ 5.2 billion in the first half, but ABB reiterated its commitment to reducing net debt by at least US$ 1.5 billion in 2002. The net debt reduction will be achieved through improved cash earnings, asset sales and continuing portfolio management. ABB sold its Swedish real estate property portfolio in Q2 for US$ 300 million. The announced divestment of the Structured Finance business is expected to take place in the third quarter.

In regard to asbestos claims pending against Combustion Engineering, a U.S. subsidiary, ABB said that about 20,300 claims were settled in the first half of 2002, more than 40 percent without payment. Combustion Engineering is continuing its efforts to settle valid claims and dispute claims that appear baseless. At half-year, 102,700 claims were pending, compared to 93,500 at year-end 2001. Around 29,500 new claims were filed in the first half of 2002, compared to 29,300 in the second half of 2001. Settlement costs prior to insurance reimbursement were US$ 107 million (US$ 69 million in the second half of 2001).

US$ in millions, except per share dataJan – June 2002Jan–June 2001ChangeChange in LC (local currencies)Change LC
Q2 vs. Q1
Orders
11,867
12,648
-6%
-6%
10%
Revenues
10,930
11,099
-2%
-1%
8%
Earnings before interest and taxes (EBIT)
368
626
-41%
-41%
-48%
Income from continuing operations
101
329
-69%
Income (loss) from extraordinary items and accounting changes
0
-63
Net income
101
266
-62%
Earnings per share (US$)
Income from continuing operations, basic and diluted:
Net income, basic and diluted:
0.09
0.09
0.29
0.23
EBITDA
659
1,010
-35%
Net cash provided by operating activities
20
79

Organizational and management changes

Gorm Gundersen, head of the Oil, Gas and Petrochemicals division and a member of the ABB Group executive committee, is leaving the company. The manager of the Upstream business area, Erik Fougner, assumes Gundersen’s duties on an interim basis, in addition to his business area manager role.


Key figures in detail

Orders in the first half decreased by 6 percent in both local currencies and nominal terms compared to the first half of 2001.

Base orders (orders below US$ 15 million), representing 82 percent of first-half orders, declined by 11 percent in both local and nominal currencies compared to the same period last year. First-half large orders increased 25 percent in both local and nominal currencies, mainly due to large projects awarded to the Oil, Gas and Petrochemicals division in the second quarter.

First-half Group revenues were flat in local and nominal currencies, at US$ 10,930 million.

The order backlog increased by 14 percent to US$ 15,338 million, or 6 percent in local currencies since year-end, reflecting increased order intake in the second quarter.

EBIT margin in the first half of 2002 was 3.4 percent (5.6 percent in the first half of 2001). Lower margins were recorded in Utilities due to a weaker market environment and cost overruns, and in Automation Technology Products, reflecting restructuring costs and lower margins in Q1, 2002. Project margin write-downs and execution of low-margin projects led to a significant margin drop in Oil, Gas and Petrochemicals.

Corporate/Other amounted to US$ -367 million compared with US$ -202 million last year, mainly the result of asset write-downs in participations by New Ventures, asset write-downs and restructuring charges in the Building Systems business area, and development costs in Group Processes that are now expensed rather than capitalized.

Other income in the first half was US$ -3 million (H1 2001: US$ 81 million) comprising:
  • Restructuring charges of US$ -106 million (H1 2001: US$ -20 million)
  • Capital gains of US$ 69 million (H1 2001: US$ -4 million)
  • Write-down of assets US$ -40 million (H1 2001: US$ -2 million)
  • Income from equity accounted companies, licenses and other of US$ 74 million (H1 2001: US$ 107 million)

Net financial expenses were US$ 155 million in the first half of 2002 compared to US$ 129 million in the same period last year, reflecting lower interest and dividend income.

Net income was US$ 101 million in the first half, compared to US$ 266 million in the same period last year.

Cash flow, balance sheet and liquidity

In the first half, net cash from operating activities was US$ 20 million compared to US$ 79 million last year. Cash from the sale of marketable securities was US$ 462 million, while there was a US$ 952 million outflow for other assets and liabilities.

The latter is mainly a result of large project execution, as customer advances were consumed and sales in excess of invoicing (value-added work performed but not yet billed) built up during the period. Increased non-trade receivables also contributed to the movement in other assets and liabilities.

As a result of continued working capital discipline, trade receivables, inventories and trade payables contributed US$ 89 million to the operational cash flow.

Cash and marketable securities totaled US$ 4,608 million at June 30, 2002. Net debt (defined as short-, medium- and long-term debt less cash and marketable securities) increased to US$ 5,235 million from US$ 4,077 million at the end of 2001. About 40 percent of the increase came from unrealized non-cash currency movements, which were offset by balance sheet positions not included in the net debt definition. The balance came from debt assumed in connection with the acquisition of a financing receivables portfolio, and to finance operational investments.

Long-term debt as a percentage of total debt was 60 percent compared to 51 percent at year-end, in line with ABB’s 2002 target of two-thirds long-term and one-third short-term debt.

In May, ABB issued a US$ 968 million convertible bond and a straight bond consisting of 500 million euro and 200 million pound sterling.


Outlook 1

The outlook remains unchanged. For 2002, revenues are expected to be flat in comparison with 2001. EBIT margin for the full year 2002 is expected to be in the range of 4 to 5 percent. EBIT and net cash from operations are expected to be stronger in the second half of 2002 than in the first half.

ABB’s target is to grow revenues on average by 6 percent annually in the period 2001-2005. EBIT margin is expected to reach 9 to 10 percent by 2005.

1Assumes no major currency effects and excludes major acquisitions and divestments.


Technology

Industrial IT is ABB’s patented concept for linking products and services together with the information needed to run, service, and maintain them. Open standard software allows production line operators or energy systems managers to effectively access the information needed to make operational decisions.

The number of ABB products certified to its Industrial IT standards passed the 10,000 mark in the second quarter of 2002. ABB is on track to certify all relevant products and product lines – a total of 40,000 – by the end of 2002.

ABB opened a research and development center in Singapore to concentrate on software development and Industrial IT. ABB opened a similar center in India earlier this year, as part of its strategy to make its research and development capability even more global. A further technology center is scheduled to open in China in 2003.


Sustainability

ABB launched its annual Sustainability Report in June, using for the first time the internationally approved “triple-bottom-line” approach to present its economic, environmental and social achievements.

Among the successes detailed in the report: the environmental management standard ISO 14001 has been implemented in 98 percent of ABB’s 550 manufacturing and service sites worldwide. Environmental Product Declarations, detailing the eco-efficiency of ABB products and services, are helping customers benchmark their environmental performance against competition.

ABB said it is well ahead of its target, set in 1999, to reduce greenhouse gas emissions from its own activities by a rate of one percent per year over five years.


Division reviews

The divisions Power Technology Products and Automation Technology Products serve their customers through external channel partners and ABB’s end-user divisions. As part of ABB’s customer-centric strategy, more customers are being served directly by channel partners such as wholesalers, systems integrators and distributors. Orders, revenues and earnings associated with these customers are accordingly no longer reflected in the end-user divisions.

As a result, in the end-user divisions, orders and revenues from these “pull-through” products are decreasing correspondingly. Unless otherwise stated, there is no material impact on the EBIT of the end-user divisions. Overall, there is no impact on the Group’s consolidated results, since the pull-through effects are offset by reduced internal eliminations (currently presented in the line item Corporate/Other). There is no impact on the product divisions, since for them it remains a sale to the same customer whether products are sold via external channel partners or internal end-user divisions.

All figures reflect the first six months’ activity and, except for EBIT margins, comments refer to local currency figures.

EBIT excluding capital gains is shown only if the aggregate of such gains for the division is material (in any case, if capital gains represent more than 10 percent of divisional EBIT).


Utilities


US$ in millions, except where indicatedJan - June 2002Jan - June 2001ChangeChange
in local currencies
Change LC
Q2 vs Q1
Orders
2,729
3,062
- 11%
- 10%
-15%
Revenues
2,330
2,551
- 9%
- 8%
+14%
EBIT
66
86
- 23%
- 22%
+6%
EBIT margin
2.8%
3.4%

Europe and Asia remained flat, except for good growth in China. The business climate in the Middle East and Africa continued to be positive. In the U.S., substantially reduced investments in new power generation plants led to lower demand for plant control systems, but investments remained strong for upgrading existing transmission capacity and grid interconnections.

Highlights of the quarter included large transmission orders in the U.S. and Mexico. The strategy to grow business with water utilities was reinforced by a key order for the Changi Water Reclamation plant, part of the deep tunnel sewage system in Singapore, a major infrastructure project designed to meet the island state’s needs through the 21st century. ABB will supply the instrumentation, control and electrical distribution system for the plant.

First-half orders and revenues decreased, mainly because Power Technology Products is serving more customers via channel partners. Excluding products sold on behalf of Power Technology Products division, orders were 5 percent lower but revenues were up 5 percent.

EBIT was 22 percent lower (9 percent lower, excluding the pull-through effect), reflecting lower revenues, restructuring and cost overruns in legacy projects. The EBIT margin for the underlying operational performance (excluding restructuring, capital gains and non-recurring amortization) decreased from 3.7 percent to 3 percent.

For the second quarter, good order growth was recorded for Utility Automation and Utility Partner, offset by Power Systems. The increase in revenues led to EBIT growth of 6 percent in the quarter.



Industries


US$ in millions, except where indicatedJan - June 2002Jan- June 2001ChangeChange
in local currencies
Change LC
Q2 vs. Q1
Orders
2,403
2,771
-13%
-13%
-2%
Revenues
2,044
2,438
-16%
-16%
+12%
EBIT
85
100
-15%
-16%
+42%
EBIT margin
4.2%
4.1%

In April, ABB merged its Process Industries and Manufacturing and Consumer Industries divisions to form the Industries division, consisting of the following business areas: Automotive Industries; Manufacturing, Electronics and Consumer Industries; Marine and Turbocharging; Paper, Printing, Metals and Minerals; and Petroleum, Chemicals and Life Sciences.

Growth in Asia, the Middle East and Africa was strong, driven largely by spending in petroleum and mining. There were few signs of an overall economic upturn in Europe and the Americas. Demand for manufactured goods remained weak worldwide.

Highlights of the quarter included signing long-term Industrial IT partnership agreements with liquid packaging supplier Tetra Pak, marine supplier Kongsberg Simrad and pharmaceutical group Aventis.

Half-year orders decreased 13 percent as more customers were served by channel partners. Excluding ABB product sales now handled via channel partners orders decreased by 4 percent. Revenues excluding pull-through effects decreased by 6 percent.

EBIT decreased 16 percent mainly due to a drop in revenues in Paper, Printing, Metals and Minerals and Automotive Industries. EBIT margin increased slightly to 4.2 percent. Under the restructuring program, the workforce (excluding acquisitions and divestitures) was reduced by 11 percent, compared to the same period 2001.

The EBIT margin for the underlying operational performance (excluding restructuring, capital gains and non-recurring amortization) decreased from 4.9 percent to 4.5 percent.

Overall, demand in the second quarter increased in Paper, Printing, Metals and Minerals, and Petroleum, Chemical and Life Sciences. Productivity improvements supported EBIT growth of 42 percent in the second quarter.



Oil, Gas and Petrochemicals


US$ in millions, except where indicatedJan - June 2002Jan - June 2001ChangeChange
in local currencies
Change LC Q2 vs. Q1
Orders
2,120
1,990
+7%
+6%
+134%
Revenues
1,976
1,548
+ 28%
+ 26%
0
EBIT
76
88
- 14%
- 15%
-33%
EBIT margin
3.8%
5.7%

Investment levels for onshore and offshore oil and gas projects remained stable. In the markets for refineries and petrochemicals, low levels of activity continued into the second quarter of 2002.

The performance in the first half was affected by project margin write-downs in two legacy fixed-price contracts. ABB has set up tools and measures to reduce the risk profile in the project portfolio, including more selective criteria in the bidding process. ABB is also focusing on projects with higher engineering content, with a higher proportion of reimbursable rather than fixed-price contracts.

An example of this is the US$ 987 million Sakhalin I contract with Exxon Mobil to build an oil and gas processing plant in the Russian Far East, received in the second quarter.

Orders increased 6 percent, exceeding last year’s high order intake.

First half revenues increased 26 percent overall, mainly as a result of Upstream’s high order backlog. Downstream revenues also increased, but more modestly given its lower backlog.

EBIT decreased 15 percent compared to first half 2001, and EBIT margin decreased to 3.8 percent. The lower EBIT margin in the first half mainly reflects execution of low-margin fixed-price contracts and project margin write-downs of US$ 49 million. The EBIT margin for the underlying operational performance (excluding restructuring, capital gains and non-recurring amortization) decreased from 6.7 percent to 3.8 percent.


Power Technology Products


US$ in millions, except where indicatedJan - June 2002Jan - June 2001ChangeChange
in local currencies
Change LC Q2 vs. Q1
Orders
2,284
2,134
+7%
+8%
-2%
Revenues
2,148
1,814
+18%
+19%
+13%
EBIT
157
132
+19%
+19%
+35%
EBIT margin
7.3%
7.3%

Asian markets, in particular China, continued to show strong demand. Europe remained mixed while investments for Power Technology Products in North America decreased. Latin America, the Middle East and Africa continued to show good momentum.

One of the quarter’s highlights was the delivery of the first Industrial IT-enabled power transformers equipped with a new type of electrical control system, which optimizes the efficiency of transformers and the grid through key control, monitoring and diagnostic functions.

Orders increased by 8 percent compared to the same period in 2001, mainly due to strong growth in the Asian markets, particular in China. Order growth was fueled by Power Transformers, while Medium- and High-Voltage Technology showed modest growth. Distribution Transformers was flat due to a market decline in the U.S.

Revenues were up 19 percent for the first half of 2002. The substantial top line growth was achieved despite a 10 percent reduction (excluding acquisitions and divestitures) in the division's workforce since June 2001, indicating good progress on productivity programs.

Despite significantly higher restructuring charges, EBIT increased by 19 percent and the EBIT margin remained at 7.3 percent. The EBIT for the underlying operational performance (excluding restructuring, capital gains and non-recurring amortization) increased by 31 percent, with an EBIT margin improvement from 7.9 percent to 8.8 percent.

Order intake in the second quarter reflected the continued high activity level in base business. The increase in EBIT over Q1 of 35 percent was due to ongoing productivity improvements.


Automation Technology Products


US$ in millions, except where indicatedJan - June 2002Jan - June 2001ChangeChange
in local currencies
Change LC Q2 vs Q1
Orders
2,771
2,687
+3%
+ 3%
+5%
Revenues
2,640
2,572
+3%
+3%
+11%
EBIT
198
219
- 10%
- 9%
+41%
EBIT margin
7.5%
8.5%

Europe was mixed with some markets showing increased activity. U.S. markets remained slow, while Asia, particularly China, continued to grow. Demand for most automation products increased during the second quarter.

Highlights of the quarter included large converter orders for Drives and Power Electronics for Stadler Rail in Switzerland and for an aluminum smelter for Dubai. An innovation breakthrough was the introduction and market launch of a new wireless sensor and fieldbus plug.

Orders were up 3 percent in the first half-year, mainly reflecting higher demand in Robotics and a slight increase in Low-Voltage Products. Order intake for Drives and Power Electronics was flat while all other business areas showed a lower order intake.

Revenues grew 3 percent driven by higher volume in the Robotics business area.

The EBIT margin for the underlying operational performance (excluding restructuring, capital gains and non-recurring amortization) for the first half decreased from 9.6 percent to 8.5 percent, mainly reflecting adverse business conditions in Q1.

For the second quarter, orders increased by 5 percent – largely driven by strong growth in Drives and Power Electronics, Low-Voltage Products and Robotics. The second quarter increase of EBIT by 41 percent is mainly the result of higher revenues and productivity improvements from the cost reduction program.


Financial Services


US$ in millions, except where indicatedJan - June 2002Jan - June 2001ChangeChange
in local currencies
Change LC Q2 vs. Q1
Revenues
764
1,019
- 25%
- 25%
+24%
EBIT
153
203
- 25%
- 25%
-19%

During the second quarter, interest rates remained low while the dollar weakened further against major currencies. High-quality insurance companies continued to benefit from higher insurance premiums while investment results were impacted by adverse development in capital markets.

As expected, revenues for Financial Services decreased by 25 percent primarily due to the run-off in Scandinavian Re. Treasury Centers ceased proprietary trading in June and will now focus primarily on treasury services for companies within the ABB Group.

EBIT decreased by 25 percent in line with the decrease in revenues. Restructuring charges of US$ 19 million were booked in the second quarter in connection with the refocus of Treasury Centers. Structured Finance reported higher earnings while other business areas showed lower results.


Corporate/Other


US$ in millions, except where indicatedJan - June 2002Jan - June 2001
EBIT- 367- 202
Other Activities- 84+ 24
Group Processes- 51- 2
Corporate R & D- 40- 39
Real estate+14+ 30
Elimination of AFS interest income - 85- 59
Other Corporate -176-156
Capital Gains+ 69+13
Restructuring- 14- 13

Other activities, which mainly comprises New Ventures, Air Handling and Building Systems, reported increased costs at US$ 84 million in the first half of 2002. This was a result of a combined US$ 30 million in asset write-downs in New Ventures and Building Systems, as well as the impact of adverse market conditions on operations for both businesses.

Group Processes also reported increased costs at US$ 51 million, due to higher amortization from development costs capitalized in previous years coupled with the ongoing expense of current costs. In addition, the costs for common group processes and infrastructure – IT, shared services, e-business, etc. – are now reported at the Group rather than at the divisional level.

Capital gains were US$ 69 million for the first half, mainly reflecting the capital gain from the sale of the Air Handling business area in the first quarter.


Reporting dates


The remaining quarterly reporting date in 2002 for ABB Ltd is scheduled for October 24. Reporting dates in 2003 are February 12 (annual results), April 29 (Q1), July 29 (Q2), and October 28 (Q3). The annual general meeting will be held on Friday, May 16 with an information meeting for shareholders in Sweden on Monday, May 19.

The company will host a conference call for analysts and investors to discuss its half-year results today at 16:30 Central European Time. Teleconference callers should dial +41 91 610 4111 in Europe and +1 412 858 4600 in the U.S. and Canada. The facility is also available to the media on a “listen only” basis.

The 2002 half-year results press release and presentation slides will be available from the morning of Wednesday, July 24, on the ABB Investor Relations homepage at www.abb.com/investorrelations.

The audio playback of the conference call will be available for 72 hours after the call commencing 2 hours after the conference call on +41 91 612 4330 (Europe) and +1 412 858 1440 in the U.S. and Canada. The PIN number is 650#.

ABB (www.abb.com) is a global leader in power and automation technologies that enable utility and industry customers to improve performance while lowering environmental impacts. The ABB Group of companies operates in more than 100 countries and employs about 150,000 people.

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.

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

    Contact us

    Page information:
    • Media Relations
      ABB Corporate Communications, Zurich
      Thomas Schmidt
      Tel: +41 43 317 6492
      Tel: +41 43 317 7958
    • Investor Relations
      Switzerland: Tel. +41 43 317 38 04
      Sweden: Tel. +46 21 325719
      USA: Tel. +1 203 750 7743
    seitp222 c1256c290031524bc1256bff0052241a