ABB Asea Brown Boveri Group Results 1996

ABB meets 1996 profit target
  • Net Income up 16 percent (excluding the $250 million extraordinary gain in 1995)
  • Orders and Revenues stable

Zurich, Switzerland, February 27, 1997 - ABB, the international electrical engineering company, today announced its results for 1996. They showed good growth in the emerging markets, although demand has slowed in Western Europe due to the economic environment. Orders received were stable on a high level: $36.3 billion, compared to $36.2 billion.

ABB's 1996 income statement reflects its 50-percent ownership of Adtranz, the transportation joint venture established last year with Daimler-Benz. The 50-percent share of Adtranz represents a smaller business than the former 100-percent owned ABB Transportation segment and thus affects prior year comparisons. When the transportation activities are excluded in both years, orders increased by 5 percent and revenues by 6 percent.

On a comparable basis, excluding the $250-million extraordinary gain in 1995, ABB Group profits improved at all levels, including a 16-percent improvement in net income. This improvement was due to productivity gains, increasing low-cost manufacturing in emerging markets, and other cost-cutting programs.
The results in detail

Orders Received and Revenues

Orders received for the ABB Group remained at about the same level as last year at $36,349 million (1995: $36,224 million). ABB's 1996 income statement reflects its 50-percent ownership of Adtranz, the transportation joint venture established last year with Daimler-Benz. On a comparable basis, with the exclusion of the transportation activities in both years, orders received increased 5 percent. The 50-percent share of Adtranz represents a smaller business than the former 100-percent owned ABB Transportation segment and thus affects prior year comparisons.

Specified parts of the large Bakun, Malaysia, hydroelectric project were included in orders received and contributed to the increase in Transmission and Distribution. Order intake also increased for Industrial and Building Systems, but were somewhat lower in the Power Generation segment.

In addition to Bakun, other large projects awarded to ABB in 1996 included a $500-million contract to build one of India's first private-sector oil refineries and several combined-cycle power plants worth a total of more than $700 million in Turkey, the U.K., and Indonesia. Other large contracts included a turnkey power-desalination plant in Bahrain, advanced gas turbines to New Zealand and the U.K., coal-fired boilers to Indonesia, turnkey projects in Latin America, and a clean-coal power plant in Germany.

Orders for standard products continued to grow throughout the year but at a slower pace than in 1995, reflecting the slowdown in European markets. Demand for these standard products in Western Europe is not expected to increase before early 1998.

The order backlog at the end of 1996 was $33.4 billion compared to $33.5 billion at the end of 1995. Expressed in local currencies, the order backlog increased 5 percent. Revenues increased by 2 percent to $34,574 million (1995: $33,738 million). Excluding the transportation activities in both years, revenues increased 6 percent, with the Industrial and Building Systems and Power Transmission and Distribution segments reporting the biggest increases.

Earnings

On a comparable basis, excluding the $250-million gain from the transfer of the ABB Transportation business to the ABB Daimler-Benz joint venture in 1995, operating earnings after depreciation of $3,026 million were about the same as the prior year. Productivity gains, the build-up of low-cost manufacturing bases in emerging markets, prior years' restructuring, and other cost-cutting programs enabled ABB to hold operating earnings despite a more competitive environment in power generation, and a lower contribution from its 50-percent-owned transportation activities.

Imputed interest income on customer advances, which declined to $807 million (1995: $987 million), also reduced operating earnings but that has no effect on pretax or net income.

Net unusual items were a positive $36 million. Unusual income, mostly capital gains from divestitures and real estate sales, amounted to $207 million, primarily on the sale of non-core operations in Sweden and Norway, the EU Commission-required divestiture of certain transportation activities, and the company's exit from stockbrokerage activities. Unusual costs of $171 million consisted primarily of restructuring expenses spread over several ABB companies and costs for discontinued operations.

Higher volumes, increased productivity, and cost reductions enabled the Industrial and Building Systems segment to improve operating profits 15 percent in a weaker market environment. Power Transmission and Distribution reported a double-digit improvement in earnings as a result of increased revenues in most product lines and cost management programs. Financial Services reported another year of record earnings. Profits in Power Generation and Transportation were well below the level reported in 1995.

The largest regional contributors to Group profits in 1996 were Sweden, Germany, Norway, Switzerland, Finland, and the United States. On a comparable basis, Sweden generated increased earnings, despite a stronger currency, through customer focus activities and cost reduction programs. Earnings also rose in Finland, Norway, and Poland, and were somewhat higher in Germany. Results in Switzerland were lower than last year reflecting the competitive market for new power generation equipment and a slowing domestic economy. Profits continued to improve in India and the emerging markets of Asia Pacific and a substantial growth in earnings was reported across the Middle East and Africa.

Regional operating margin, based on domestic and export revenues within a region, developed as follows in 1996: Europe 9.5 percent (1995: 9.9 percent), Asia Pacific and India 7.4 percent (1995: 7.4 percent), Middle East and Africa 9.6 percent (1995: 3.3 percent). Operating margin declined in the Americas region to 6.1 percent (1995: 7.9 percent), reflecting significantly lower imputed interest income on customer advances and project-related costs in Brazil. This was offset in part by improvement in the U.S. industry segment.

On a comparable basis, excluding the $250-million transportation gain in 1995, income before taxes for 1996 increased 8 percent over last year. As reported, income before taxes declined 5 percent to $ 2,007 million (1995: $2,110 million).

Total taxes for the ABB Group amounted to $ 765 million (1995: $749 million), corresponding to an overall tax rate of 38 percent.

On a comparable basis, net income for 1996 increased 16 percent to $ 1,233 million (1995: $1,315 million as reported -- $1,065 million excluding the transportation gain ).

Investments, Divestitures and Capital Expenditure

Acquisitions amounted to $333 million in 1996 (1995: $315 million) with many of them directed toward enhancing ABB's ability to deliver total system solutions. Divestitures in the year totaled $286 million (1995: $1,140).

Capital expenditure for tangible fixed assets of $1,168 million remained at about the same level as last year. The Group spent $ 2,638 million on research and development in 1996, close to eight percent of revenues.

The costs for discontinued operations and restructuring in 1996 were $ 156 million (1995: $222 million). These costs are included on the Consolidated Income Statement under "Unusual items."

Financial Position

The Group's net cash position (defined as cash and marketable securities minus short-, medium-, and long-term loans) at the end of 1996 was $1,204 million, down $793 million from yearend 1995. Reduced net cash is due to a significant increase in working capital and a higher dividend payout.

A portion of the increase in working capital is due to ABB's expansion into Asia, and to some extent into Central and Eastern Europe. As these emerging markets comprise a larger proportion of the Group, their still-underdeveloped logistical systems have led to higher relative inventories for ABB. Lower advances and down payments from a more competitive power industry also increased ABB's working capital needs as it required ABB to fund a greater proportion of working capital itself. In 1996 programs were initiated throughout the Group to reduce inventories. Effective implementation of these initiatives remains a top priority for 1997.

Personnel

At the end of 1996, ABB employed 214,894 people compared to 209,637 at yearend 1995. The increase came in part from acquisitions to enhance ABB's total systems capabilities in key markets such as oil, gas, and petrochemicals, and from targeted growth in Asia, Latin America, and other emerging markets, where employment rose by more than 7,000. There were also net increases in Central and Eastern Europe. Selective downsizing continued in many industrialized nations, with major reductions taking place in Germany, the U.S., and Switzerland.

Relative personnel costs were again reduced during the year. This reduction remained a major contributor to ABB profitability and reflects ABB's growing value-added in low-cost countries, increased productivity across the Group, and continued outsourcing of non-core products.

Outlook for 1997 and beyond

Good growth in the demand for industrial goods is expected in the emerging markets, with moderate gains projected for North America. In many Western European markets demand for standard products and capital goods is entering its second year of slowdown. As many ABB investment goods are late in the cycle, improved demand is not foreseen in Western Europe before early 1998.

The global market for new power plants is projected to expand in the emerging markets, but will continue to remain at a low level in industrialized nations. While the power market will remain competitive, prices for new plants are not expected to worsen, but will stabilize at the current low level.

Within this competitive environment, 1997 orders and earnings for the Power Generation segment are expected to reach at least the 1996 level. For Power Transmission and Distribution orders and earnings are expected to increase as a result of continued expansion in emerging markets and further productivity increases.

The continued slowdown in most industrial markets will flatten 1997 volumes in the Industrial and Building Systems segment and earnings are expected to remain at about the same level as 1996.

For Adtranz in 1997 the order intake, as well as operating earnings are expected to develop positively as the effects of restructuring begin to be realized.

Financial Services earnings for 1997 are expected to be below the record performance in 1996.

Net income for 1997 is expected to reach at least the same level as 1996.

ABB's strategy for profitable growth in both developing and industrialized countries remains in place. Our targets for the turn of the century are to achieve at least six percent average growth over the next business cycle, reduce relative working capital, and to substantially increase net income.

Dividends

ABB's dividend policy is to pay out between 30 and 50 percent of consolidated net income for the year. In February 1997 the ABB Board of Directors proposed a dividend for 1996 of SFr. 650 million to its two parent companies, ABB AB and ABB AG (1995: SFr. 520 million). Translated into dollars at the time of the dividend decision, it corresponds to 36 percent of Group net income for 1996.

Proposed Changes in the ABB Board

Messrs Helmut O. Maucher and Stephan Schmidheiny have announced their intention to resign from the ABB Board of Directors at the next Annual General Meeting on April 3, 1997. Mr. Maucher has reached the statutory age limit and Mr. Schmidheiny, after serving for 16 years on the BBC and ABB Boards, has decided not to stand for re-election. The Board thanks them for their outstanding contributions to the company.

The Board will propose to the shareholders on April 3, 1997 to newly elect to the ABB Board Mr. Gerhard Cromme, CEO of Fried. Krupp AG Hoechst-Krupp in Essen, Germany and Mr. Edwin Somm, retiring CEO of ABB Switzerland. Each will also be proposed for election to the Board of ABB AG, the Group's Swiss Parent Company.

Further, the following persons are proposed to be re-elected to the ABB Board:

Percy N. Barnevik, Chairman of ABB Asea Brown Boveri Ltd
Claes Dahlbäck, President and CEO of Investor AB
Robert A. Jeker, Chairman of Messe Basel and von Moos
Yotaro Kobayashi, Chairman and CEO of Fuji Xerox Co., Ltd.
Bernd H. Müller-Berghoff, Chairman of Fuchs Petrolub AG Oel + Chemie
Donald H. Rumsfeld, Chairman of Gilead Sciences, Inc.. Former US Secretary of Defense
Peter D. Sutherland, Chairman and Managing Director of Goldman Sachs International, U.K., former GATT Chairman and Commissioner in the EU
Björn Svedberg, President and CEO of Skandinaviska Enskilda Banken
Lodewijk C. van Wachem, Chairman of the Supervisory Board of the Royal Dutch Petroleum Company
  • 1996 Consolidated Income Statement
  • 1996 Consolidated Balance Sheet
  • 1996 Business Segment Figures

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    Contact us

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