First Half 1996 Business Segment Review

ABB Group Results First Half 1996 Business Segment Review

Power Generation

Orders received for the first half of 1996 increased 22 percent compared to the same period in 1995. Some projects originally delayed in 1995 because of financing were awarded in the current year. Three large technology based orders were received in the first half. ABB will supply two GT26 high efficiency gas turbines for a 720 Megawatt combined cycle plant in the U.K. and construct a 360 megawatt turnkey plant in New Zealand which will also utilize the GT26 turbine. In addition, ABB's advanced pressurized fluidized bed combustion technology (PFBC) was selected by a German utility for a combined heat and power plant. Large awards were also received for coal-fired boilers from Indonesia and a turnkey power plantin Colombia. Service orders continued to improve in the first six months of 1996 from an already high level in the prior year.

Responding to the demands of Asia's growing power markets, ABB continues to invest in India and Indonesia to build up its low cost local manufacturing base and to develop its service related volumes. In June a boiler factory was opened in Surabaya, Indonesia. Later this year a new turbine factory in India will begin production, and engineering resources in Asia have been increased. ABB now has the ability to supply 30 to 40 percent of its power generation added value for Asia within that region.

Early in 1996 the segment made structural changes to simplify its organization and increase speed and productivity. These structural improvements are now being implemented in high cost countries like Germany, Switzerland, and the U.S. and will lead to major cost reduction opportunities for the plant, product, and service businesses.

The first half of 1996 continued to reflect the competitive market environment for new power generation equipment. The move to local low-cost manufacturing, plant modularization with shorter construction times, global sourcing initiatives, and higher service volumes enabled ABB to mitigate the negative result of this environment. Longer term the cost reducing efforts and more service volume will have an increasingly positive impact on earnings.

Operating earnings for Power Generation in the first six months of 1996 were below the level reported for the comparable period last year, reflecting competitive pricing and lower imputed interest income on customer advances. For the full year 1996 operating earnings are expected to be below 1995.

Power Transmission and Distribution

Orders received in the first six months of 1996 increased 4 percent compared to the same period in 1995. Later in the business cycle than most ABB businesses, T&D is now starting to experience good order growth in North and South America and Europe which enabled most of its business areas to increase orders received in the first half of 1996. Large orders received last year from Asia and the Middle East make comparisons difficult in these regions.

Not included in the six months orders received was the Bakun hydroelectric project in Malaysia. This largest contract ever for ABB will be reflected in the orders received once all project terms, including financing, are finalized.

Operating earnings for the segment increased substantially in the first half of 1996 compared to the same period of 1995. Most business areas showed good improvement.

Industrial and Building Systems

The positive demand for investment goods that benefited Industrial and Building Systems over the last two years has started to flatten. While markets in Asia continue to grow substantially and demand in the United States has been better than expected, there has been a slowdown in most European economies. Orders received increased only slightly compared to the strong first half of 1995 reflecting market conditions. Actions to improve the segment's cost and market position continue to receive a high priority. In the last eighteen months over forty startups, acquisitions, and joint ventures have been initiated by this segment, mainly in Asia and Eastern Europe. Volumes from these fast growing emerging markets are increasing substantially and earnings here are continuously improving.

Growth in industrial products and systems was led by the Flexible Automation, Instrumentation, and Service business areas, while the Contracting and Installation Material business areas were affected by the downturn in the German construction market. Orders for large oil, gas, and petrochemical projects in the first half of 1996 were below the comparable period of 1995.

Continued productivity gains and cost reduction programs have enabled Industrial and Building Systems to improve operating earnings substantially in the first six months of 1996 over the same period last year.

Adtranz (1996)/ABB Transportation (1995)

This segment reflects ABB's 50-percent ownership of the transportation joint venture established on January 1, 1996 together with Daimler-Benz. The share of the new venture represents a smaller business than the former 100-percent owned Transportation segment.

Orders received for the first half of 1996 reflect awards of regional trains for Deutsche Bahn, low floor trams for the city of Berlin, locomotives for the Italian State Railways, and intercity trains for the Swiss State Railways. They are lower in comparison to the strong first half of 1995 when 100 percent owned ABB Transportation booked several large projects.

Operating earnings for the first six months of 1996, while positive and in line with expectations, were below that of the comparable period in the prior year. The positive benefits of restructuring and elimination of duplicate costs will mostly come in 1997 and 1998.

Financial Services

Earnings of Financial Services for the first half of 1996 were US$ 143 million an improvement of 21 percent compared to the same period last year (first half 1995: US$ 119 million). The Treasury Centers business area showed higher earnings, with the Swedish unit leading the improvement. Higher earnings were also reported by the Insurance business area, reflecting both increased investment income and an improved underwriting result.

In the first six months of 1996 the stockbrokerage activities within Financial Services were sold to a Nordic based bank. In addition, the Energy Ventures business area was transferred from Power Generation to Financial Services and a new business area Structured Finance was created. These two business areas will further strengthen ABB's activities in project equity investment and project financing and will work in close cooperation to shorten the financial closing process for many power plant projects.

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    Contact us

    • Mr. John Fox
      ABB Corporate Communications, Zurich
      Tel. +41 1 317 7371
      Fax. +41 1 317 7958
    • Ms. Ann-Sophie Joensson
      ABB Investor Relations, Zürich
      Tel. +41 1 317 7338
      Fax. +41 1 311 9817
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