ABB Group Results - First Nine Months 1997

US$ 850 million restructuring charge to secure future competitiveness

  • Orders up 13 percent - up 22 percent in local currencies
  • Net income down 4 percent - up 4 percent in local currencies
  • ABB sets pace early to accelerate local Asian expansion, and further boost Western productivity
Zürich, Switzerland, October 21, 1997 - ABB, the international electrical engineering group, announced today its results for the first nine months 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 U.S. dollar compared to the same period last year caused negative effects when converting local results into dollars, the Group's reporting currency.

Order intake increased to US$ 28.1 billion, up 13 percent (up 22 percent in local currencies). Revenues were slightly down at US$ 22.5 billion. ABB Group net income decreased by 4 percent to US$ 774 million. However, expressed in local currencies net income increased by 4 percent. The percentage net income margin remained unchanged.

The company said earnings were negatively affected by the lower contribution from the Adtranz rail joint venture and lower than expected revenues in the power generation segment.

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 9 percent to SKr 3.15 and by 13 percent to SFr 62.35 for ABB AG.

In the fourth quarter the company will take a restructuring charge of US$ 850 million in order to enhance ABB's competitiveness and support its Asian expansion.

Restructuring and Asian Expansion

Mr. Göran Lindahl, ABB President and CEO, announced an initiative to accelerate ABB's local expansion in Asia and to further improve the productivity of its Western operations.

ABB has a strong local presence in Asia already, with orders of more than US$ 8 billion in 1996, 33,000 employees and 100 local operations in a broad range of businesses. However, the present currency weakness in the region and resulting economic problems have reduced customer spendings and put increased price pressure on products imported from higher-cost countries in Europe and North America. At the same time, local manufacturing and exports from ABB's local production facilities in several Asian countries with depreciated currencies are becoming more competitive, ABB said.

Mr. Lindahl said that the current slowdown in Southeast Asia "is of a short- to medium-term nature. We remain confident that, given the region's need for infrastructure investments, our Asian business will enjoy strong long-term and profitable growth, though in a more competitive environment. But there will be short-term impacts on our 1997 results, such as the indefinite delay of the Bakun hydroelectric project in Malaysia, which is expected to cause costs of some US$ 100 million to be booked in the fourth quarter of 1997."

In view of the present situation and in order to prepare for the recovery, Mr. Lindahl said, ABB intends to speed up local expansion in Asia and improve productivity and competitiveness of operations in higher-cost Western countries. To accomplish this, the company said it will take a charge of US$ 850 million in the fourth quarter of 1997. This initiative will have an average pay-back period of about two years.

"We will take immediate action to increase our productivity in some of our operations in Western Europe and the U.S. to ensure that we remain competitive in the future," Mr. Lindahl said. "Some of these actions will be difficult in the short term but the issue is not going to go away on its own. We will shift more resources to the emerging markets, while maintaining our core competence centers in Europe and North America. This initiative is expected to lead to the closure and downsizing of some of our facilities in higher-cost countries resulting in the reduction of about 10,000 jobs. But by acting early, we reduce the threat of significantly larger employment effects in our Western operations over the longer term." ABB said the countries mainly affected by the initiative will be Germany, Italy, Spain, Sweden, Switzerland and the U.S.

Group Review

Orders received for the ABB Group in the first nine months of 1997 were US$ 28,145 million, 13 percent higher than the corresponding period last year (first nine months 1996: US$ 24,918 million). ABB's reported figures were negatively affected 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 22 percent. This increase was led by strong growth in the Power Generation and Power Transmission and Distribution segments, and increased demand from emerging markets. In recent months we have also seen an increase of base orders in the Industrial and Building Systems segment.

The order backlog at the end of September, 1997 was US$ 35.3 billion, an increase of 6 percent compared to the end of the third quarter 1996 (US$ 33.2 billion). Expressed in local currencies, the order backlog increased by 18 percent.

Revenues for the first nine months of 1997 totaled US$ 22,459 million, a decrease of 5 percent compared to the 1996 period (US$ 23,529 million). However, expressed in local currencies, revenues increased by 4 percent.

Operating earnings after depreciation for the ABB Group decreased by 4 percent to US$ 1,482 million (first nine months 1996: US$ 1,547 million). Expressed in local currencies, operating earnings increased by 4 percent. Earnings were negatively affected by the lower contribution from Adtranz and lower than expected revenues in the power generation segment. The operating margin remained at the same level as in the same period last year.

Income before taxes in the first nine months of 1997 decreased by 8 percent to US$ 1,252 million (first nine months 1996: US$ 1,365 million). Expressed in local currencies, income before taxes was unchanged compared to last year. Net income of US$ 774 million in the first nine months of 1997 represents a decrease of 4 percent over the same period last year (first nine months 1996: US$ 809 million). However, expressed in local currencies net income increased by 4 percent.

ABB's net cash position at the end of September was about the same compared to the corresponding time 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.

In line with ABB's policy to focus on its core business, an agreement was signed to divest its Nordic electrical wholesale business with activities primarily in Sweden, Finland and Norway. ABB employs around 1,400 people in its electrical wholesale business with revenues of approximately US$ 650 million. The European Commission in Brussels has approved the transaction as of October 8th.

Outlook

The economic situation in Western Europe shows signs of improvement and base orders have started to pick up. Demand for many of the Group's industrial and investment goods, which trails later in the cycle, is expected to improve during 1998.

The North American business environment continues to develop positively, especially in the service and retrofit sector, while demand for large projects continues to grow in Latin America.

The recent events in Asia will impact short-term demand, but given the region's need for infrastructure investments, the longer-term outlook for the region remains positive.

Excluding the impact of the restructuring charge, but considering:

  • the expected restructuring costs in Adtranz
  • the impacts of the short-term situation in Asia, including expected costs related to the indefinite delay of the Bakun project

net income for the full year is expected to be somewhat lower than last year.

The ABB Board of Directors will propose to the next Annual General Meeting of shareholders to base the 1997 dividend on the year's net income, exclusive of the effects of the charge.

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

Comments on the Business Segments

Power Generation orders received for the first nine months of 1997 were substantially above the comparable period of 1996. Large orders received in the third quarter included a turnkey contract to build a 1,500-megawatt combined-cycle power plant in the United Kingdom. In China, ABB was selected to supply eight 700-megawatt hydro-generators for the 'Three Gorges' hydroelectric power station. A service contract was signed in Poland to refurbish part of a large brown coal power plant that will be equipped to secure the lowest possible emissions. The service and retrofit business continued to expand with double-digit growth. Revenue and operating earnings for the segment for the first nine months of 1997 were below the level reported for the comparable period last year. The lower operating earnings reflect reduced invoiced sales and continued restructuring efforts to improve longer term competitiveness.

Power Transmission and Distribution reported a good increase in orders received with a major order for a 600-megawatt high-voltage direct current (HVDC) power link between Sweden and Poland. Revenues were slightly lower than last year. Operating earnings for the segment in the first nine months of 1997 were about the same as in the comparable period in 1996. To further strengthen the segment's position in Central and Eastern Europe, ABB acquired one of Poland's leading manufacturers of switchgear and high-voltage equipment.

Industrial and Building Systems orders received for the first nine months of 1997 were slightly below the level reported for the corresponding period last year, reflecting low demand in many industrial markets. Expressed in local currencies orders received improved. The Automation and Drives and Contracting business areas reported lower orders received, while the Oil, Gas and Petrochemical business area showed good growth. Demand for ABB standard products started to show signs of improvement. Large orders for the segment included a contract to build a new ethylene production plant as part of a major expansion of a petrochemical complex in Saudi Arabia. Operating earnings for the segment in the first nine months of 1997 were kept at the same level as last year, despite slightly lower revenues. In Poland, ABB announced the formation of two joint ventures to build a new service organization in the country. This step is in line with ABB's concept to expand its service, repair and modernization activities.

Financial Services earnings were about the same as last year. The Insurance, Leasing and Financing, Energy Ventures and Structured Finance business areas reported higher earnings, while the Treasury Centers business area reported lower earnings compared to last year.

Orders received in Adtranz for the first nine months of 1997 were higher than the level reported for the corresponding period last year. Slower than expected results from cost-cutting activities led to a loss, compared to a profit last year. Adtranz will further step-up its restructuring measures in response to increasing price pressure, intense competition and overcapacity in its European operations in particular. This will result in additional restructuring provisions, which means that Adtranz will show a significant loss in 1997. Both shareholders - ABB and Daimler-Benz - support these actions, which will safeguard and improve Adtranz competitiveness.


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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, Zurich
      Tel. +41 1 317 7338
      Fax. +41 1 311 9817
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