ABB reports strong Q1 results

2006-04-27

  • Favorable markets fuel continued organic growth in orders and revenues
  • EBIT up 30 percent to $509 million, EBIT margin at 9.4 percent
  • Net income at $204 million despite $89-million impact of asbestos shares
  • Cash flow from operations improved $249 million
Zurich, Switzerland, April 27, 2006 – ABB today reported a 30-percent increase in earnings before interest and taxes (EBIT) and strong top-line growth for the first three months of 2006 compared to the same period in 2005.

Net income increased slightly to $204 million from $199 million in the same quarter in 2005, despite an $89-million expense in Discontinued operations to account for the change in value of ABB shares to cover asbestos liabilities.

"We've made a great start into 2006," said Fred Kindle, ABB President and CEO. "We delivered strong profitable growth in the first quarter thanks to our leading positions in fast-growing markets and our sharp focus on improving operational performance. The accounting treatment of the asbestos shares dampened otherwise solid growth in net income."

2006 Q1 key figures
Q1 06
Q1 051
Change
$ millions unless otherwise indicated
US$
Local
Orders
7,090
6,166
15%
21%
Revenues
5,420
5,060
7%
13%
EBIT
509
391
30%
EBIT margin (%)
9.4%
7.7%
Net income
204
199
Net margin (%)
3.8%
3.9%
Basic and diluted net income per share ($)
0.10
0.10
Cash flow from /(used in) operating activities
39
(210)
1 Adjusted to reflect the reclassification of activities to Discontinued operations

Orders in the first quarter grew by 15 percent (local currencies: 21 percent) compared to the same quarter last year and revenues were 7 percent higher (local currencies: 13 percent). Orders and revenues were higher in all regions and all divisions, except Robotics and Non-core activities.

Order growth was strongest in the Middle East and Asia regions, fueled primarily by increasing demand for additional power and industrial infrastructure linked to economic growth and high oil prices. In Europe and the Americas, orders to refurbish power grids and improve the performance of existing industrial production were the main drivers of growth.

Compared to the first quarter of 2005, EBIT grew 30 percent to $509 million and the EBIT margin reached 9.4 percent on the combination of higher revenues, increased factory loadings, further operational efficiencies, cost reduction measures and improved project selection and execution.

Cash flow from operating activities was $39 million, an improvement of $249 million versus the first quarter of 2005, primarily reflecting higher cash flows in the Power Products division and Non-core activities compared to the same quarter in 2005.

The balance sheet continued to strengthen during the quarter. Gearing declined further to 50 percent from 52 percent at the end of the previous quarter while net debt decreased by $81 million to $427 million despite an increase in working capital related to the execution of large project orders won in recent quarters.

Base orders (less than $15 million) grew 15 percent (local currencies: 21 percent) and large orders increased 18 percent (local currencies: 25 percent) compared to the same quarter in 2005. ABB's order backlog amounted to $13,948 million, up 8 percent (local currencies: 13 percent) compared to the same quarter in 2005.

Group EBIT also benefited from a reduction in Corporate costs to $81 million from $105 million in the year-earlier period. Non-core activities' EBIT increased 24 percent in the quarter to $31 million.

Finance net1 decreased slightly compared to the first quarter of 2005, in part due to reduced securitization costs. The tax rate in the quarter was 32 percent compared to 34 percent in the same quarter in 2005.

1 Finance net is the difference between interest and dividend income and interest and other finance expense.


Divisional performance Q1 2006

Power Products division

2006 Q1 key figures
Q1 06
Q1 05
Change
$ millions unless otherwise indicated
US$
Local
Orders
2,335
1,804
29%
34%
Revenues
1,488
1,379
8%
12%
EBIT
171
125
37%
EBIT margin (%)
11.5%
9.1%
Cash flow from/(used in) operating activities
61
(48)

Orders improved in the first quarter in all businesses on strong market demand for ABB's technology. Higher base orders more than made up for lower large orders in the quarter. Higher orders in the Americas, especially the U.S., were the result of further customer investments in the power grid. Continued expansion of the power network in the Middle East, linked to high oil prices, led to higher orders in the region. Orders in Europe improved at a double-digit pace in both U.S. dollar and local currency terms, mainly the result of product replacement in western Europe. Orders in Asia increased strongly, led by China.

Revenues were up in all businesses compared to the same quarter in 2005. EBIT grew 37 percent compared to the first quarter of last year as the result of higher revenues, increased factory loadings and operational improvements, including supply management initiatives. Included in EBIT is $17 million in charges, primarily in Italy, related to the consolidation of the transformers business, announced in June 2005. The division's EBIT margin reached 11.5 percent, up from 9.1 percent in the prior-year period. The higher EBIT together with an increase in customer advances in the quarter were the main contributors to the increase in cash flow from operating activities.

Power Systems division

2006 Q1 key figures
Q1 06
Q1 05
Change
$ millions unless otherwise indicated
US$
Local
Orders
1,306
974
34%
41%
Revenues
1,012
886
14%
20%
EBIT
48
39
23%
EBIT margin (%)
4.7%
4.4%
Cash flow from/(used in) operating activities
4
(14)

Orders increased in the first quarter of 2006 across all regions, with base orders up and large orders more than doubling. Orders from the Middle East increased strongly as high oil prices fueled greater investments to expand local power networks. Growth was driven in Europe and North America primarily by the replacement of aging power infrastructure and improvements to grid reliability. Orders were higher in China, India and several other Asian countries, as customers invested primarily in new power infrastructure to support economic growth. Orders grew strongest in the Grid Systems business, primarily the result of a large order from the Middle East. The Substations business also developed positively, led by large orders from the Middle East, the U.K. and the U.S.

Revenues increased compared to the same quarter in 2005, reflecting the execution of major projects in the order backlog. EBIT and EBIT margin increased on the combination of higher revenues, greater capacity utilization and improved project execution.

Automation Products division

2006 Q1 key figures
Q1 06
Q1 05
Change
$ millions unless otherwise indicated
US$
Local
Orders
1,944
1,605
21%
29%
Revenues
1,530
1,396
10%
17%
EBIT
221
187
18%
EBIT margin (%)
14.4%
13.4%
Cash flow from operating activities
131
106

Markets continued to develop favorably in the first quarter of 2006, especially in the oil and gas, transportation, utility and marine sectors, leading to a sharp increase in demand from end-customers, as well as original equipment manufacturers and system integrators who serve these markets. Capital expenditures in wind power also increased in the quarter, resulting in higher orders for generators, motors and low-voltage products. Orders grew in all regions, with the strongest growth in Asia, led by China. Orders also rose strongly in the Americas, especially the U.S., where orders were up in all product areas. Orders in both eastern and western Europe grew at double-digit rates in both U.S. dollar and local currency terms, despite limited growth in demand for installation products from the western European building sector.

Revenues increased compared to the same quarter in 2005, mainly as a result of favorable markets. Price increases, primarily reflecting higher raw materials costs, also contributed to the revenue growth. Higher revenues and increased capacity utilization were the primary drivers of an 18-percent increase in EBIT and a higher EBIT margin versus the first quarter of 2005.

Process Automation division
2006 Q1 key figures
Q1 06
Q1 05
Change
$ millions unless otherwise indicated
US$
Local
Orders
1,659
1,599
4%
10%
Revenues
1,235
1,157
7%
13%
EBIT
118
93
27%
EBIT margin (%)
9.6%
8.0%
Cash flow from operating activities
4
17

An increase in base orders in the first quarter of 2006 more than offset lower large orders compared to the same quarter a year earlier. High oil prices continued to support growth in the oil and gas sector. In addition, orders in marine and turbocharging activities grew as a result of increased construction of liquefied natural gas vessels, as well as growth in the cruise vessel sector. Orders were up in the minerals sector, reflecting higher minerals prices as well as greater demand in Asia and the Middle East regions for raw materials needed for infrastructure expansion. Orders increased from a low level in the pulp and paper sector, while chemicals and pharmaceuticals orders decreased. Regionally, growth was led by the Middle East and Asia regions. Orders were lower in Europe in U.S. dollars and flat in local currencies, and lower in the Americas, where growth in the U.S. was offset mainly by lower orders in Mexico, where a large project order was booked in the first quarter of 2005.

Higher revenues in the quarter reflect increased product sales, revenues from large projects in the marine and minerals businesses and growth in service revenues. Higher revenues, improved project cost management and productivity improvements all contributed to a 27-percent increase in EBIT compared to the same quarter a year earlier. Increased utilization of engineering resources in emerging markets also contributed to the higher EBIT and EBIT margin in the first quarter.

Robotics division
2006 Q1 key figures
Q1 06
Q1 05
Change
$ millions unless otherwise indicated
US$
Local
Orders
326
406
(20%)
(15%)
Revenues
333
350
(5%)
1%
EBIT
1
27
(96%)
EBIT margin (%)
0.3%
7.7%
Cash flow used in operating activities
(67)
(50)

Higher orders from general industry, including the packaging, consumer electronics and food sectors, were more than offset in the first quarter of 2006 by the slowdown in demand from the automotive markets, especially in North America, resulting in lower orders compared to the same quarter in 2005. Regionally, orders were flat in Europe (higher in local currencies) and lower in all other regions. In Asia, strong order growth in China was offset by lower orders in several other countries.

Revenues were lower (flat in local currencies) compared to the same quarter in 2005, mainly reflecting the reduced revenue stream from a multi-year order won in the U.S. in 2004. Measures to improve the division's operational performance, such as higher research and development expense, consolidation costs and additional reserves for loss orders in the systems business resulted in a sharp decrease in EBIT and EBIT margin. The company expects these measures to continue to impact the division's performance for the full year as the company accelerates its program for streamlining the business. Cash flow from operating activities decreased, reflecting the timing of customer payments on large projects.

Non-core activities
Non-core activities in the first quarter of 2006 generated EBIT of $31 million, 24 percent higher than the same quarter in 2005, mainly the result of higher EBIT from the ABB Lummus Global oil, gas and petrochemicals business and a reduced loss from Building Systems.

Corporate
Headquarters and stewardship costs decreased by $24 million compared to the first quarter of 2005 as cost reductions, mainly in the area of discretionary spending, continued at both the local and Zurich head offices.

Asbestos
ABB's Plan of Reorganization for Combustion Engineering (CE), an ABB subsidiary in the U.S., was confirmed by the U.S. District Court for Delaware on March 1, 2006. The confirmation order and the Plan of Reorganization, which stipulates the establishment of an independent trust to address present and future asbestos claims, became final on March 31, 2006.

On April 20, 2006, ABB transferred assets – including approximately 30 million ABB shares, insurance receivables, and promissory notes – into the Asbestos Personal Injury Trust. The Plan was made effective on April 21, 2006. Further details on the expected impact on ABB's consolidated financial statements due to the Plan having been made effective are presented in Appendix I on page 8 of this press release.

On April 21, 2006, ABB also filed a separate asbestos-related pre-packaged Plan of Reorganization for another U.S. subsidiary, ABB Lummus Global Inc., with a U.S. Bankruptcy Court. In September 2005, claimants against Lummus voted 96 percent in favor of the plan.

Outlook for the remainder of 2006
ABB expects the business environment for the rest of 2006 to remain positive. Demand for power transmission and distribution infrastructure is expected to continue growing in Asia and the Middle East. Equipment replacement and improved network efficiency and reliability are forecast to be the key drivers of higher demand in Europe and North America.

The company expects automation-related industrial investments to continue in most sectors, notably metals and minerals, marine and oil and gas. Overall, automation-related demand growth is expected to be strongest in Asia and the Americas over the rest of the year, with more modest growth in Europe.

While ABB's overall market environment is currently very favorable, business risks include the impact of rapidly increasing oil prices on the global economy and the potential for further instability in the Middle East.

More information
The 2006 Q1 results press release and presentation slides are available from April 27, 2006 on the ABB News Center at www.abb.com/news and on the Investor Relations homepage at www.abb.com/investorrelations.

ABB will host a media call today starting at 9:00 a.m. Central European Time (CET). U.K. callers should dial +44 20 7107 0611; from Sweden, +46 8 5069 2105; from the U.S. and Canada +1 (1) 866 291 4166; and from the rest of Europe, +41 91 610 56 00. Lines will be open 15 minutes before the start of the conference. Audio playback of the call will start one hour after the call ends and will be available for 72 hours: Playback numbers: +44 20 7108 6233 (U.K.), +41 91 612 4330 (rest of Europe) or +1 866 416 2558 (U.S./Canada). The code is 254, followed by the # key.

A conference call for analysts and investors is scheduled to begin today at 12:00 p.m. CET (6:00 a.m. EDT). Callers should dial +1 412 858 4600 (from the U.S./Canada) or +41 91 610 56 00 (Europe and the rest of the world). Callers are requested to phone in 10 minutes before the start of the call. The audio playback of the call will start one hour after the end of the call and be available for 96 hours. Playback numbers: +1 866 416 2558 (U.S./Canada) or +41 91 612 4330 (Europe and the rest of the world). The code is 138, followed by the # key.

Investor calendar 2006
ABB Ltd Annual General Meeting
May 4, 2006
Q2 2006 results
July 27, 2006
Q3 2006 results
October 26, 2006

ABB (www.abb.com) is a leader in power and automation technologies that enable utility and industry customers to improve performance while lowering environmental impact. The ABB Group of companies operates in around 100 countries and employs about 105,000 people.

Zurich, April 27, 2006
Fred Kindle, CEO

Important notice about forward-looking information
This press release includes forward-looking information and statements including the section entitled "Outlook for the remainder of 2006," as well as other statements concerning the outlook, and revenue and margin targets for our businesses. These statements are based on current expectations, estimates and projections about the factors that may affect our future performance, including global economic conditions, the economic conditions of the regions and industries that are major markets for ABB Ltd. These expectations, estimates and projections are generally identifiable by statements containing words such as "expects," "believes," "estimates," "targets," "plans" or similar expressions. However, there are many risks and uncertainties, many of which are beyond our control, that could cause our actual results to differ materially from the forward-looking information and statements made in this press release and which could affect our ability to achieve any or all of our stated targets. The important factors that could cause such differences include, among others, the amount of revenues we are able to generate from backlog and orders received, raw materials prices, market acceptance of new products and services, changes in governmental regulations and costs associated with compliance activities, 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, including its Annual Reports on Form 20-F. 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.

Download/view complete press release including appendices in PDF format. Appendices are not included on this web page.

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