ABB Asea Brown Boveri Group Results - First Half 1996

ABB continues double-digit profit improvement
  • Net income increased 22 percent
  • Income before taxes increased 17 percent -- eleven consecutive quarters of double-digit profit rise

Zurich, Switzerland, August 8, 1996 - ABB, the international electrical engineering group, announced today its results for the first half of 1996. Demand slowed down in Western Europe but showed continued good growth in emerging markets and Central and Eastern Europe. Order intake was flat at about US$ 18 billion, but on a comparable basis, excluding Transportation in 1995 and 50 percent of Adtranz in 1996, orders were up 7 percent. Revenues increased 4 percent (9 percent excluding Transportation/Adtranz).

ABB Group profits improved at all levels -- net income 22 percent (US$ 556 million), income before taxes 17 percent (US$ 940 million), and operating earnings 4 percent (US$ 1,435 million). The continued profit improvement is based on productivity gains, increasing low cost manufacturing in emerging markets, and other cost cutting programs.

The 1996 full year forecast remains -- On a comparable basis, net income is expected to increase over 1995.

Group Review

Market Conditions and Sales

The strong global business demand for industrial standard products and investment goods that existed throughout 1995 has started to slow. While still positive, lower growth in ABB base orders confirms that a slowdown is taking place in the industrialized markets of the world, especially in Western Europe. In Germany, reduced domestic demand, that started in the second half of 1995, extended into this year. Central and Eastern Europe, however, continue to benefit from good domestic demand.opment in North America remained positive in the first six months and growth is expected to continue into the second half. ABB's industrial businesses have been a major beneficiary of this improved demand. This region, however, is still being affected by the uncertainties associated with the anticipated deregulation of the power industry which has led to order delays of power equipment.

In the emerging markets of the Asia Pacific region, local economies continued to grow as did ABB's presence. Led by India, China, and South Korea most ABB companies in this region improved their orders received over the prior year. Orders received for the ABB Group in the first six months of 1996 were US$ 18,005 million, about the same as in the corresponding period last year (first six months 1995: US$ 17,970 million).

ABB's 1996 income statement reflects its 50-percent ownership of the transportation joint venture established last year with Daimler-Benz. The 50 percent share of the new venture represents a smaller business than the former 100-percent owned Transportation segment and thus affects prior year comparisons. On a comparable basis (excluding the Transportation activities in both years), orders received increased 7 percent.

This improvement in orders received was led by several large power generation project awards which included contracts for advanced gas turbines in the United Kingdom and New Zealand, coal-fired boilers for Indonesia, and a clean-coal power plant in Germany. The large Bakun hydroelectric project awarded to ABB Power Transmission and Distribution in the second quarter is not reflected in the six months 1996 orders received. It will be included once all project terms, including financing, are finalized. Orders received in the Industrial and Building Systems segment benefited from increased demand for standard products and investment goods.

The order backlog at the end of June, 1996 increased 3 percent from year end 1995 to US$ 34.6 billion (December 31, 1995: US$ 33.5 billion). Revenues for the first six months totaled US$ 15,993 million, an increase of 4 percent compared to the same period last year (US$ 15,330 million). Excluding the Transportation activities in both years, revenues increased 9 percent, with all segments reporting increases.


Operating earnings after depreciation for the ABB Group increased by 4 percent to US$ 1,435 million (first six months 1995: US$ 1,386 million). Productivity gains, establishment of low cost manufacturing bases in emerging markets, prior years restructuring, and other cost cutting programs enabled ABB to improve operating earnings and hold the operating margin at 9.0 percent. This improvement was achieved despite competitive pricing for new power equipment, higher material costs, and lower contribution from its 50 percent owned Transportation activities.

Reduced imputed interest income on customer advances negatively affected Group operating earnings after depreciation, but had no impact on pretax or net income. On a segmental basis, improved operating earnings were reported by the Industrial and Building Systems, Power Transmission and Distribution, and Financial Services. Earnings in the Power Generation and Transportation segments were below the level reported in the comparable period last year.

Regionally, earnings in Sweden, Finland, and Norway benefited from improved cost effectiveness and export related demand. Positive earnings development also took place in Switzerland, Italy, and Central and Eastern Europe. The domestic economic environment in Germany remained difficult and resulted in lower earnings in this country. In the Americas, U.S. profitability was affected by a downturn in the domestic power market, offset by improvement in its industry segment. Results in Latin America were at about the same level as last year. Earnings in the emerging markets in Asia Pacific and India were above last year and in the Middle East there was improved profitability across the region.

Income before taxes in the first six months increased 17 percent to US$ 940 million (first six months of 1995: US$ 804 million).

Net income of US$ 556 million in the first six months of 1996 represents an increase of 22 percent over the same period last year (first six months 1995: US$ 454 million). The tax rate for the first six months of 1996 was 40 percent, compared to a 42 percent rate for the prior year.

Investments, Divestitures and Capital Expenditure

Acquisitions amounted to US$ 146 million in the first half of 1996 compared to US$ 82 million in the same period last year. ABB expanded its growing presence in the oil, gas, and petrochemical market with the purchase of a Norwegian company specializing in floating and subsea production systems and a U.K. based manufacturer of subsea controls. Also acquired was a leading supplier of electrical installations in South Africa and majority joint ventures were established in China to manufacture motors and district heating systems.

Divestitures totaled US$ 100 million in the first six months of 1996 compared to US$ 68 million in the prior year. The largest transaction was the sale of ABB's forty percent interest in the Maritime Group to a Norwegian engineering firm. Also completed in the first half of 1996 was the sale of a Swedish company specializing in the manufacture of custom integrated circuits. In addition several minor real estate holdings primarily in Switzerland, Germany, and Italy were sold.

Capital expenditure for tangible fixed assets totaled US$ 496 million (first six months 1995: US$ 450 million). A large portion of the incremental spending was directed to increasing ABB's local manufacturing presence in Indonesia, India, China and other emerging markets.

ABB's net cash position at the end of June 1996 was lower when compared to the same period last year due to higher relative working capital levels in new ventures in some emerging markets and somewhat lower levels of advances.

Personnel and Organization

The number of ABB employees at the end of the first half of 1996 was 217,200 compared to 209,600 at the end of 1995. On a comparable scope -- excluding the impact of new ventures, and acquisitions/divestitures -- the total number of permanent employees was about unchanged from year end. Within that unchanged total there was growth in the number of employees in emerging countries and selected downsizing in some industrialized countries.


The economic slowdown in Western Europe that began last year continues. Demand from emerging markets continues to expand and ABB's cost reduction programs will continue to influence results favorably.

As stated previously, on a comparable basis net income for the full year of 1996 is expected to increase over 1995.

For the first time, financial results of ABB's parent companies (ABB AB and ABB AG) have been attached to the ABB Group release. They may be found at the end of the ABB Group release.

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    Contact us

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