ABB Group Results - First Half 1997

ABB earnings maintain steady improvement, orders rise strongly
  • Orders received up 14 percent - up 21 percent in local currencies
  • Operating earnings increased in all segments
  • Net income up 2 percent, despite negative exchange rate effects - double-digit increase in local currencies

Zürich, Switzerland, August 7, 1997 - ABB, the international electrical engineering group, announced today its results for the first half of 1997. As expected, demand remained low in Western Europe but showed continued good growth in emerging markets and Central and Eastern Europe. The strength of the dollar in comparison to the same period last year caused negative effects when converting local currency performance figures into dollars - the Group’s reporting currency. Nevertheless, order intake surged strongly to US$ 20.0 billion, up 14 percent (up 21 percent in local currencies). Revenues were slightly down at US$ 15.2 billion.

ABB Group operating earnings increased by 3 percent to US$ 1,086 million (up 11 percent in local currencies), with all segments improving. Net income increased to US$ 567 million - up 2 percent (up 12 percent in local currencies). This steady earnings improvement reflects better margins, productivity gains, establishment of low cost manufacturing bases in emerging markets, ongoing restructuring and other cost cutting programs.

The strength of the dollar had positive effects when translating the parent companies shares in ABB’s income into Swedish Krona and Swiss Francs respectively. Net income per share for ABB AB increased by 12 percent to SKr 2.26 and by 22 percent to SFr 45.40 for ABB AG.

The 1997 full-year forecast remains -- net income is expected to reach at least the same level as in 1996.

Group Review

Market Conditions and Sales
General economic conditions in Western Europe showed no substantial improvement during the first half of 1997. Although exports from many West European countries increased during the period, domestic markets remained at a low level. Demand for investment goods and infrastructure projects remained low in most of Western Europe, reflecting the second year of an expected two-year downturn in ABB’s business cycle. Central and East European markets, however, continued to benefit from good domestic demand.

Economic development in North America remained positive during the first six months of 1997, but demand within ABB’s industrial businesses experienced a slowdown during the period. The North American region was still affected by uncertainties associated with the ongoing deregulation of the power industry. However, the market for service and retrofit business continued to improve during the first half of 1997.

In the emerging markets of Asia, Middle East and Africa, demand for infrastructure and industrial goods and services continued to grow.

As stated in ABB’s report for the first quarter 1997, orders received, revenues, and operating earnings no longer include imputed interest income on customer advances. While this does reduce reported operating earnings for the Group, it has no effect on pretax or net income. Results for 1996 have been restated to reflect this change.

Orders received for the ABB Group in the first six months of 1997 were US$ 20,049 million, 14 percent higher than the corresponding period in 1996 (US$ 17,634 million). ABB’s 1997 first-half year improvement has been dampened by exchange rate effects, since the ABB Group reports in U.S. dollars and the dollar appreciated against those currencies (mostly European) in which ABB transacts a large portion of its business. Expressed in local currencies, orders received increased by 21 percent. This improvement was driven primarily by strong growth in large projects and increased demand from emerging markets as well as ABB’s enhanced focus on sales and marketing. Orders for standard products and industrial goods were down somewhat from last year, reflecting the weak demand in many West European markets. However, expressed in local currencies orders for these products showed a slight increase.

The Power Generation segment reported strong growth in orders received in the first six months of 1997. Large orders were received for power plants in the Czech Republic, Greece and Taiwan. ABB also received, for example, two large power generation retrofit contracts from Sweden and China. The Power Transmission and Distribution segment reported a substantial increase in orders received. This strong improvement was driven primarily by growth in large projects, including major high-voltage substation orders in Malaysia, Saudi Arabia and Thailand. Orders received in the Industrial and Building Systems segment showed a slight improvement compared to last year, and included a large order to modernize a Russian petrochemical refinery. Orders improved for transportation activities due to large contracts from the United Kingdom and Norway.

The order backlog at the end of June, 1997, was US$ 35.3 billion, an increase of 4 percent compared to the corresponding period last year (end of June, 1996: US$ 33.9 billion). Expressed in local currencies, the order backlog increased by 13 percent.

Revenues for the first six months of 1997 totaled US$ 15,198 million (first six months 1996: US$ 15,608 million). Expressed in local currencies, revenues increased by 4 percent.


Earnings
Despite the economic slowdown in Western Europe, and negative exchange rate effects due to the stronger U.S. dollar versus the European currencies, operating earnings after depreciation increased by 3 percent to US$ 1,086 million (first six months 1996: US$ 1,050 million). Expressed in local currencies, the increase was 11 percent. This steady earnings improvement reflects higher margins, productivity improvements, establishment of low cost manufacturing bases in emerging markets, ongoing restructuring, and other cost cutting programs. The operating margin increased to 7.1 percent in the first six months of 1997 (first six months 1996: 6.7 percent).

All segments, including transportation activities, reported improved or somewhat higher operating earnings compared to the same period last year.

On a regional basis the strongest growth in operating earnings was reported by the United Kingdom and Poland. Lower results were mainly reported by Sweden, Switzerland, Italy and Germany. In the Americas, the U.S. benefited from improved performance in its Power Generation segment and profitability continued to increase. Results in Latin America were substantially higher than last year. Although major business development costs incurred in connection with new ventures, the Asia Pacific region reported unchanged earnings. Middle East and Africa showed strong profit improvements.

Income before taxes in the first six months of 1997 was US$ 943 million, about the same as last year (first six months of 1996: US$ 940 million). Expressed in local currencies, the improvement was 8 percent.

Net income of US$ 567 million in the first six months of 1997 represents an increase of 2 percent over the same period last year (US$ 556 million). Expressed in local currencies, the increase was 12 percent. The tax rate for the first six months of 1997 was 39 percent.


Investments, Divestitures and Capital Expenditure
Acquisitions amounted to US$ 158 million in the first half of 1997 compared to US$ 146 million in the same period last year. ABB purchased an electrical installation company in Switzerland to further strengthen its local position in this market. During the reporting period agreements were reached to acquire a majority interest in a Polish power grid construction and repair company and to establish a majority owned joint venture for advanced switchgear and distribution transformers in Vietnam. In China, ABB inaugurated a joint venture to produce low-voltage distribution equipment.

In line with ABB’s strategy of divesting non-core activities, the company sold its worldwide refrigeration business as well as its wholesaling operations in Austria. Overall, a total value of US$ 217 million of industrial operations and some real estate holdings were sold during the first half of 1997 (first six months 1996: US$ 100 million).

Capital expenditure for tangible fixed assets totaled US$ 390 million (first six months 1996: US$ 496 million). Large investments continued to be made in modern production systems to raise productivity, improve efficiency, and reduce costs in several industrialized countries, such as Germany, Sweden and Switzerland. In addition, a significant portion of the spending was directed at increasing ABB’s local manufacturing presence in Asia and other emerging markets.

ABB’s net cash position at June 30, 1997 was about the same as at the corresponding date last year. Efforts to reduce working capital will continue, and the net cash position is expected to improve in 1997 compared to the level reported at year-end 1996.

Personnel and Organization
The number of ABB employees at the end of June 1997 was 216,124 compared to 214,894 at the end of December 1996. On a comparable basis -- excluding the impact of new ventures, and acquisitions/divestitures -- the total number of permanent employees was about unchanged from year end. Growth in the number of employees in emerging market countries and selected downsizing in some industrialized countries continued.

Outlook
As expected, the second year of economic slowdown in Western Europe, which is traditionally worse than the first year, continues to affect demand for many of the Group’s industrial and investment goods. Combined with the fact that demand for ABB’s products and services trail late on average in the cycle, an upturn in ABB’s West European markets is expected only during 1998. However, strong growth in emerging markets and favorable effects of cost reduction programs are expected to have a positive impact on Group results.

ABB’s previously stated forecast stands: Net income for the full year of 1997 is expected to reach at least the same level as 1996.

The financial results of ABB’s parent companies (ABB AB and ABB AG) appear at the end of this ABB Group release.

Business Segment Review

Power Generation
Orders received for the first half of 1997 increased by 14 percent compared to the same period in 1996 (expressed in local currencies, orders improved by 23 percent). Contributing to this strong growth in orders was a contract to build a 330-megawatt coal- and gas-fired combined heat and power plant for an independent power producer (IPP) in the Czech Republic. A consortium led by ABB received a turnkey contract to build a 330-megawatt lignite-fired power plant in northern Greece. In Taiwan ABB won an order to expand a power plant with a gas-fired 320-megawatt combined-cycle power plant. The service and retrofit business continued to expand during the first half of 1997 with volumes well above last year. Large service orders included a contract in Sweden to modernize reactor control systems and turbines at the Oskarhamn 1 nuclear power plant. In addition, ABB was selected to retrofit 400 megawatts of power generation equipment at one of Beijing’s coal-fired cogeneration plants. In Korea, a follow-up agreement was signed with Korea Electric Power Corporation to support Korea’s nuclear power program over the next 10 years with ABB’s advanced pressurized water reactor systems technology, and the assignment to develop Korea’s next generation reactor. Most business areas showed improved orders received compared to last year.
In May, ABB announced the introduction of a new compact 43-megawatt advanced industrial gas turbine. This high-performance GTX100 gas turbine will serve an important sector of the industrial power generation market and completes ABB’s turbine product line.

Operating earnings for the Power Generation segment increased in the first six months of 1997 compared to the same period of 1996. Major investments to improve future competitiveness, such as a simplified organization, based on a single source concept to increase speed and productivity, restructuring of non-competitive companies, and further expansion of its global production network into Asia and Central and Eastern Europe started to have a positive effect on segment profitability during the first half of 1997. In the longer term, these efforts in combination with improved supply management, and higher service and retrofit volumes will have an increasingly positive impact on both volumes and earnings.

Power Transmission and Distribution
Orders received in the first six months of 1997 increased by 29 percent compared to the same period in 1996 (in local currencies, an improvement of 35 percent). This strong improvement was primarily driven by growth in large projects, including orders for substations in Malaysia, Saudi Arabia and Thailand as well as for power lines in Australia and Bangladesh. In the U.S., the State of California awarded ABB a contract for an energy scheduling system, marking a break-through in the largest and most deregulated power market in North America. On a regional basis, good order growth was reported by the rapidly growing Asian markets and from Middle East and Africa. Also North America reported a higher order intake, while the order volumes in Western Europe were negatively affected by the ongoing deregulation and privatization of the electric power utilities. Strongest order growth was achieved by Power Systems, Power Transformers, Cables, Network Control and Protection, and High Voltage Switchgear business areas.

The segment continued its expansion into emerging markets by forming a second joint venture in Vietnam to produce advanced switchgear and distribution transformers and by purchasing the majority interest in a Polish power grid construction and repair company. A major technology event was announced in March when ABB successfully connected the world’s first operational high-temperature superconducting distribution transformer to the power supply network of the city of Geneva, Switzerland. Another technology highlight was the introduction of “HVDC Light”. With this new concept, high-voltage direct current (HVDC) transmission can now be applied at low voltage levels at very low power ratings, thereby creating a growing market for small scale DC transmission.

Operating earnings for the segment were somewhat higher in the first six months of 1997 compared to the strong first half of 1996.

Industrial and Building Systems
Demand for investment goods for industrial processes was weak in the first half of 1997. Also, the market for technical installations in buildings remained low, while positive development in the oil, gas and petrochemical as well as the automotive industries continued. Demand in the emerging markets remained high. The North American market experienced a slowdown for industrial systems, while the demand for product sales and services remained strong.

Despite the low demand in many industrial markets, orders received showed a slight improvement compared to last year (expressed in local currencies, orders improved by 6 percent). Good growth in orders received was achieved by Oil, Gas and Petrochemical and Service business areas, whereas Automation and Drives and Contracting were affected by the slowdown in the West European economy. Demand for ABB standard products was flat during the first six months of 1997.

In Norway, ABB was selected to develop and supply a complete subsea oil separation and injection plant for the Troll C oil field. The installation will use newly developed ABB subsea technology, to separate oil and water in a plant located on the sea bed and then reinject clean water. This technological breakthrough will substantially reduce production costs for oil field developments, particularly for deepwater locations.

In China, ABB inaugurated a joint venture to produce low-voltage distribution equipment for the fast-growing Chinese market. A newly formed joint venture company with operations in Sweden and Canada, which supplies automation equipment for automotive body assembly shops and press lines, started its operation during the first half of 1997. ABB acquired two electrical installation companies in the Czech Republic and in Switzerland. The divestiture of the worldwide refrigeration business was completed in the second quarter of 1997, and thereby reduced the segments order intake during the period.
Operating earnings were somewhat higher in the first six months of 1997 compared to the strong first half of last year. Actions to further improve the segment’s cost structure, such as productivity improvement and supply management, continue to be of high priority. Other key initiatives for the segment during 1997 include strengthening sales efforts for order growth and accelerating penetration of emerging markets.

Adtranz
Orders received for the first half of 1997 increased 6 percent compared to the same period in 1996 (expressed in local currencies, the improvement was 10 percent). Large orders included two contracts in the United Kingdom to manufacture and maintain 44 Electrostar multiple unit trains for Prism Rail’s LTS Rail Ltd and 30 Electrostar trains for Connex Rail Ltd, 16 tilting high-speed trains for the Norwegian state railway, and 21 electric locomotives for fast passenger and freight transport in Russia.

Operating earnings in the first half of 1997 were positive but are not yet on a satisfactory level. The benefits targeted by merging the railway activities of ABB and Daimler-Benz into the Adtranz Group will become apparent from 1998. Internal restructuring, plant specialization, and global sourcing programs are expected to have an increasingly positive impact on company earnings.

Financial Services
Earnings for Financial Services in the first half of 1997 were US$ 161 million, an improvement of 13 percent over the same period last year (US$ 143 million). The Insurance business area improved earnings strongly following higher investment income as well as improved underwriting results. The improvement in investment income is primarily attributable to the strong performance of the stock markets. The Leasing & Financing business area also reported higher earnings reflecting increased fee income from syndicated cross-border lease transactions. The Energy Ventures business area increased earnings substantially after successful divestment of several IPP participations. The new business area Structured Finance also reported good earnings after financial closing of two power plant projects. Lower earnings were reported by the Treasury Centers business area as a result of lower volatility in foreign exchange and interest rates.

ABB Asea Brown Boveri Group

Consolidated Income Statement

(US$ in millions)
1-6/97
1-6/96
1996

Revenues (1)
15,198
15,608
33,767

Material expenses
-6,733
-7,348
-15,309
Personnel expenses
-4,863
-5,143
-10,254
Other expenses
-2,409
-2,567
-5,232
Changes in work in progress and finished goods
369
1,003
255
Depreciation of fixed assets
-492
-513
-1,044
Unusual items (2)
16
10
36

Operating Earnings after Depreciation (1)
1,086
1,050
2,219

Earnings from equity accounted companies
0
4
6
Dividend income
6
8
15
Interest income
164
186
362
Interest expense
-315
-307
-618
Exchange differences
2
-1
23

Income before Taxes
943
940
2,007

Taxes
-367
-378
-765

Net Income before Minority Interest
576
562
1,242

Minority Interest
-9
-6
-9

Net Income
567
556
1,233

(1) For external reporting, ABB no longer includes in orders received and revenues imputed interest income on advances received from customers on construction contracts. Prior to 1997 ABB calculated the interest earned on these advances and added it to revenues when sales were recorded on the project. The same amount was then subtracted under the “Interest on advances” line in the consolidated income statement. This change reduces the operating earnings after depreciation, but has no effect on income before taxes or net income of the Group.

(2) Includes all items related to:
  • Capital gains/losses on sales of participations, land and buildings
  • Discontinued operations/restructuring

Note: The exchange rates used in the above income statement are average for the periods shown. The average exchange rates for the Swiss Franc, Swedish Krona, Deutschmark and the European Currency Unit are stated below:


1-6/971-6/961996
US$ 1.00 = SFr.:1.431.211.23
US$ 1.00 = SKr.:7.496.756.71
US$ 1.00 = DM.:1.671.491.50
US$ 1.00 = ECU:0.860.800.80

ABB Group Revenues per Region*


(US$ in millions)
1-6/97
% of total
1-6/96
% of total

Europe
8,398
55
8,804
56
The Americas
3,019
20
2,929
19
Asia/Australasia
2,699
18
2,859
18
Middle East and Africa
1,082
7
1,016
7

Total
15,198
100
15,608
100

*)Total third-party revenues in each region, excluding exports, which are accounted for in the revenue figures of the importing region. All figures are excluding interest on customer advances.


Orders Received and Revenues per Business Segment*


(US$ in millions)
Orders Received
Revenues
1-6/97
1-6/96
1-6/97
1-6/96

Power Generation
5,643
4,959
3,742
4,456
Power Transmission and Distribution
5,608
4,331
4,062
4,114
Industrial and Building Systems
8,638
8,568
7,246
7,365
Financial Services
344
223
344
223
Various Activities/Corporate
1,661
1,745
1,556
1,588
Adtranz
1,064
1,006
793
809

Total
22,958
20,832
17,743
18,555
Intra-Group transactions
-2,909
-3,198
-2,545
-2,947

Net Total
20,049
17,634
15,198
15,608


*) All figures are excluding interest on customer advances.
Parent Companies’ Financial Results
ABB AB (Sweden) and ABB AG (Switzerland)

ABB AB (Sweden) and ABB AG (Switzerland) are the two sole owners in equal parts of ABB Asea Brown Boveri Ltd., Zurich (Switzerland), which is the holding company of the ABB Group with approximately 1,000 companies around the world. The two parent companies each provide a transparent vehicle for investing in ABB as virtually all of their income and stockholder equity comes from their respective 50-percent shares of the ABB Group income and equity. For a full report on the development of the ABB Group, refer to the first part of this release.

ABB companies throughout the world report their income and financial position in local currencies, which are then translated to U.S. dollars to establish the ABB Group’s consolidated accounts. In order to compute the income of the two parent companies, ABB AB (Sweden) and ABB AG (Switzerland), their 50-percent shares of ABB Group income are translated from U.S. dollars to Swedish Krona (SKr) and Swiss Francs (SFr) respectively.
ABB AB (Sweden)
ABB AB’s share of ABB Group income before taxes and after minority interests for the first six months of 1997 was US$ 464 million, the same amount as for the corresponding period in 1996. The US$ has firmed from 1996 to 1997 against the SKr which had a positive effect when translating ABB AB’s share in ABB income. After translation, ABB AB’s share in ABB Group income before taxes and after minority interests increased by 11 percent from SKr 3,132 million to SKr 3,479 million. ABB AB’s income before taxes, including its 50-percent share of ABB Group income before taxes, amounted to SKr 3,477 million (SKr 3,139 million) for the first six months of 1997, an increase of 11 percent. After taxes of SKr 1,356 million (SKr 1,255 million), net income amounted to SKr 2,121 million (SKr 1,884 million), an increase of 12 percent.

ABB AB’s net income per share for the first six months of 1997 amounted to SKr 2.26 (SKr 2.01), an increase of 12 percent.

ABB AB, parent company
Income before taxes amounted to SKr 5 million (first six months 1996: SKr 15 million). The dividend for the fiscal year 1996 was anticipated in the 1996 accounts and thus only the difference (SKr 7 million) between dividend actually received and dividend anticipated is included in the first six months of 1997.

Auditors’ examination
The report has not been subject to special examination by the Company’s auditors.

ABB AB Income Statements
(Swedish Krona in millions)

ABB AB (1)
ABB AB, parent company
1-6/97
1-6/96
1-6/97
1-6/96
Share in ABB Group income before taxes and after minority interests
3,479
3,132
Dividend income (2)
7
8
Administrative costs
-7
-14
-7
-14
Interest income
5
22
5
22
Interest expense
0
-1
0
-1
Income before taxes
3,477
3,139
5
15
Taxes
-1,356
-1,255
--
--
Net income
2,121
1,884
5
15


1) ABB AB’s share in the ABB Group results recognized according to the equity method.

2) Income before taxes includes SFr 325 million (SFr 260 million) dividend received from ABB Asea Brown Boveri Ltd, which corresponds to SKr 1,652 million (SKr 1,498 million), of which SKr 1,645 million (SKr 1,490 million) was anticipated in the financial statement of 1996 (1995).


ABB Group Revenues are basically in line with “Net Turnover” as defined in the Swedish Annual Accounts Act. “Operating Income” as defined in the Swedish Annual Accounts Act amounts for the ABB Group to US$ 15,567 million for 1-6/97, US$ 16,611 million for 1-6/96, and US$ 34,022 million for 1996.

ABB AB Balance Sheets
(Swedish Krona in millions)

ABB AB (1)
ABB AB, parent company
Assets (2)
30.06.97
30.06.96
30.06.97
30.06.96
Other fixed assets
2
4
2
4
Shareholding in ABB Asea Brown Boveri Ltd.
21,420
17,492
8,985
8,985
Other current assets
4
3
4
3
Cash and marketable securities
184
176
184
176
Total Assets
21,610
17,675
9,175
9,168
Liabilities and stockholders’s equity
Stockholders’ equity
21,605
17,666
9,170
9,159
Short-, medium- and long-term loans
4
7
4
7
Other liabilities
1
2
1
2
Total liabilities and stockholders’ equity
21,610
17,675
9,175
9,168

1) ABB AB’s participation in the ABB Group recognized according to the equity method.
2) Changed format due to the 1997 Swedish Annual Report Act
ABB AG (Switzerland)
ABB AG’s share of ABB Group income before taxes and after minority interests for the first six months of 1997 was US$ 464 million, the same amount as for the corresponding period in 1996. The US$ has firmed from 1996 to 1997 against the SFr which had a positive effect when translating ABB AG’s share in ABB income. After translation, ABB AG’s share in ABB Group income before taxes and after minority interests increased by 18 percent from SFr 561 million to SFr 664 million. ABB AG’s income before taxes, including its 50-percent share of ABB Group income before taxes, amounted to SFr 681 million (SFr 567 million) for the first six months of 1997, an increase of 20 percent. After taxes of SFr 261 million (SFr 227 million), net income amounted to SFr 420 million (SFr 340 million) for the period, an increase of 24 percent.

ABB AG’s net income per bearer share for the first six months of 1997 amounted to SFr 45.40 (SFr 37.30), an increase of 22 percent.

ABB AG, parent company
Income before taxes amounted to SFr 342 million (SFr 266 million) including SFr 325 million (SFr 260 million) dividend received from ABB Asea Brown Boveri Ltd.

Reduction of share capital through lowering the par value
The proposed capital reduction via lowering of the nominal share value was approved at the annual general meeting on April 3, 1997. This led to a repayment of SFr 50 per bearer share and SFr 10 per registered share. A total of SFr 463 million was paid back to the shareholders on July 10, 1997.

Auditors’ examination
The report has not been subject to special examination by the Company’s auditors.

ABB AG Income Statements
(Swiss Francs in millions)


ABB AG (1)
ABB AG, parent company
1-6/97
1-6/96
1-6/97
1-6/96
Share in ABB Group income before taxes and after minority interests
664
561
Dividend income
325
260
Other operating income
3
2
3
2
Administrative costs
-3
-7
-3
-7
Interest income
20
17
20
17
Interest expense
-3
-6
-3
-6
Income before taxes
681
567
342
266
Taxes
-261
-227
-3
-2
Net income
420
340
339
264

1) ABB AG’s share in the ABB Group results recognized according to the equity method.


ABB AG Balance Sheets

(Swiss Francs in millions)


ABB AG (1)
ABB AG, parent company
Assets
30.06.97
30.06.96
30.06.97
30.06.96
Cash and marketable securities
907
866
907
866
Other current assets
18
19
18
19
Shareholding in ABB Asea Brown Boveri Ltd
4,040
3,283
2,354
2,354
Other fixed assets
163
162
163
162
Total Assets
5,128
4,330
3,442
3,401
Liabilities and stockholders’ equity
Short-, medium- and long-term loans
298
448
298
448
Other liabilities
23
20
23
20
Stockholders’ equity
4,807
3,862
3,121
2,933
Total liabilities and stockholders’ equity
5,128
4,330
3,442
3,401

1) ABB AG’s participation in the ABB Group recognized according to the equity method.
(END)

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    Contact us

    • Mr. John Fox
      ABB Corporate Communications, Zürich
      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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