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ABB reports solid performance in mixed environment

Net income from continuing operations 16 percent higher
  • Cash flow up 27 percent; net income per share 13 percent higher
  • Group orders up 13 percent; oil and gas up 49 percent, both in local currencies
  • Operating margins up in all segments; Automation earnings jump 33 percent
  • ABB to launch all employee share/option program

Zurich, Switzerland, October 25, 2000 – ABB, the global technology company, today reported higher orders, earnings and margins in the first nine months of 2000. ABB President and CEO Göran Lindahl said continuing expansion in software, Industrial IT, eBusiness and telecommunications infrastructure “ensures we can offer our whole range of customers more intelligent products, systems, and solutions and solidifies our portfolio of businesses and technologies geared to the digital economy.”

US$ in millions unless otherwise stated
Jan. – Sep.
2000
Jan. – Sep.
1999 1)
Change in nominal
Change in local currencies
Orders Received
19,392
18,360
+ 6%
+ 13%
Revenues
15,983
17,423
- 8%
- 1%
Operating Earnings after Depreciation 2)
1,414
1,287
+ 10%
+ 17%
Net Income from continuing operations
848
734
+ 16%
+ 23%
Net Income
1,250
1,108
+ 13%
+ 20%
Net Income per Share (US$)
4.17
3.69
+ 13%

1) Restated to reflect the effect of the discontinued operations within ABB’s former Power Generation segment. A comparison to the figures reported in 1999 can be found in the Appendix.
2) Consistent with the half year report, earnings and capital gains related to discontinued operations are reported on a separate line in the income statement and consequently are not included in operating earnings.

Lindahl said ABB continued to implement its strategy of expanding its high-tech offerings to meet the rapidly evolving needs of its customers, which for ABB means moving deeper into higher growth and higher margin activities based increasingly on knowledge.

“ABB is now among the leading enablers of the digital economy supporting our customers as they take on today’s fast-changing eBusiness and IT-based markets,” he said. “We have years of experience designing, financing and executing infrastructure projects and recently strengthened our business portfolio with key software and other information technologies. This is a unique combination of capabilities and experience.”

Highlights of the period include:
  • Increased orders for all segments in local currencies
  • Sharply higher operating earnings in Automation and Power Distribution
  • Orders in the Americas grew more than 25 percent


Orders for the ABB Group increased by 13 percent in local currencies or 6 percent as reported to US$ 19,392 million (1999: US$ 18,360 million11) Note: Unless stated otherwise, all references to 1999 figures refer to the first nine months.). In local currencies, all segments reported higher orders. The order backlog – a strong indicator of future revenues – reached US$ 15,262 million at the end of September (year-end 1999: US$ 13,245 million), an increase of US$ 2,017 million, or 15 percent (26 percent in local currencies).

The need for increased efficiency and productivity gains as competition increases in globalizing and deregulating markets is driving demand growth in ABB’s industrial and utility markets. Rapid advances in information technologies – both software and hardware – are accelerating this trend. Stronger oil prices are fueling demand in the oil, gas and petrochemicals markets. Demand for complete solutions is creating new demand for innovative financial services linked to the supply of ABB’s industrial products and systems.

Demand in European markets varied by country and business and was 7 percent higher in local currencies compared to the same period last year. North American demand continued to grow and South America showed a significant increase in orders. Orders in the Americas were up more than 25 percent. Orders from the Middle East and Africa increased sharply. Demand continued to grow in Asia in all business segments, except for Power Transmission, where orders were lower than last year when the segment won several large orders from China.

ABB was awarded several large orders during the third quarter this year, including a US$ 260-million offshore gas project in Abu Dhabi, a US$ 150-million telecommunications network infrastructure project in Australia, a US$ 120-million contract to provide a power link between Connecticut and Long Island, New York and a US$ 574-million order for a gas processing plant in Algeria.

Revenues were flat for the period when expressed in local currencies, or down 8 percent as reported at US$ 15,983 million (1999: US$ 17,423 million). As previously forecast, revenues were lower in the Oil, Gas and Petrochemicals segment, as a result of lower 1999 orders. However, orders in the segment are up more than 40 percent this year, which will benefit revenue development in 2001. Revenues for Power Transmission decreased, reflecting the divestiture last year of the standard cable business and the expected initial delays in the European market due to deregulation.

Industrial IT moves forward
During the third quarter, ABB took several steps to expand its unique Industrial IT offering. Industrial IT is the umbrella architecture for all of ABB’s automation solutions. It offers a “plug and produce” software and hardware capability that allows tailored solutions to link production and transactional processes for both manufacturing and service-sector customers. Industrial IT gives companies a complete, easy-to-use and real-time overview of every activity in the enterprise. Among the most important steps taken in the third quarter:
  • a majority joint venture with SKYVA International, a U.S.-based software company in collaborative commerce integrating the business processes of suppliers, manufacturers and customers
  • the purchase of Base 10, software technologies company to integrate manufacturing and business systems in the pharmaceutical industry
  • the acquisition of Cellier Engineering Group – expending our competence in the chemical, oil and paper industries

ABB Automation also rolled out a global launch of four new Industrial IT product families during the third quarter. They bring browser-enabled, object-based functionality to process control, system design, operator interface, and information management systems. They are designed to be fully compatible with customers’ current software platforms to make the most out of their existing assets. The company is establishing the Web platform needed to support Industrial IT with a number of new industry-specific Web sites serving sectors such as pulp and paper, pharmaceuticals, water and textiles.

As a result of these initiatives, ABB can now offer more Industrial IT solutions to a broader range of customers.

Strategic alliances and acquisitions
ABB formed separate agreements with Nokia and Ericsson to build new-generation mobile tele-communications networks, furthering its strategy to become a major player in IT infrastructure. ABB is providing project management and installations, including lighting, security, temperature control, and emergency power – as well as systems to ensure a reliable power supply.

The acquisition of Umoe, the Norwegian oil and gas service company, was completed during the quarter. ABB also announced its participation as a strategic investor in the IPO of the Chinese petroleum and petrochemicals company Sinopec.

Through a majority joint venture, ABB acquired a polypropylene technology that extends its petro-chemicals business into a new high growth area. The joint venture with Equistar Chemicals of the U.S. purchased the Novolen polypropylene technology – including catalyst, process and product technologies – from Targor GmbH, a subsidiary of Germany’s BASF AG. It will also acquire the rights to market and license Targor’s metallocene polypropylene technology, used in the production of a new generation of high performance plastics.

The company also acquired Energy Interactive Inc., a leading provider of information software and services to the U.S. energy market. ABB said the acquisition strengthens its eBusiness, service and support capability in the dynamic U.S. retail power market.

ABB joined a consortium to operate and maintain a high-voltage power transmission network – including some 5,500 kilometers of transmission lines – in the State of South Australia. The move creates significant synergy opportunities in service and maintenance.

In September, a joint venture was formed by ABB, Deutsche Telekom and Utfors to apply for a license in Sweden to build and operate a nationwide third-generation mobile UMTS and GSM network. ABB brings a wealth of experience in the financing and execution of large infrastructure projects.

New technologies
ABB launched several key technologies in the third quarter. In Oil, Gas and Petrochemicals, for example, a subsea electrical distribution system was introduced. The system includes transmission, distribution and control of electric power on the seabed, in waters as deep as 2,000 meters. In Brunei, ABB successfully installed its first optical fiber sensor in an oil well to monitor pressure and temperature in real-time via the Internet.

In addition to the significant Industrial IT launches discussed earlier, ABB Automation launched a new generation of high-precision robot control, and a new high-speed gantry robot system for parcel handling aimed at the growing parcel management business. ABB is the first company to certify an environmental product declaration under the ISO 14025 standard for an electrical motor. The declaration outlines the environmental impact of the product over its entire lifecycle, from design through to disposal or recycling.

In line with its strategy to monitor, diagnose and control power grid components through the Internet, ABB launched the world's first Smart Integrated Distribution Unit for secondary power substations. This technology is the first step to developing Web-based grid monitoring and control systems that will

eliminate the time and costs of maintenance staff physically visiting grid facilities. ABB has also installed its SVC Light power quality technology in a number of steel mills to reduce heavy flickering in both the mill and surrounding parts of the power grid. SVC Light is also used in links between small-scale power plants and larger electricity grids.

In Building Technologies, ABB launched a new software tool to measure and analyze the overall effectiveness of production lines and manufacturing equipment. This allows customers to quickly de-bottleneck productivity problems, and allows service people to offer performance-based service contracts. ABB also developed an intelligent condition monitoring solution which automatically analyzes and classifies mechanical and electrical problems in rotating machines. The tool, which is also Web-enabled, increases the speed of diagnosis and reporting, and reduces the need for high-level experts onsite.

The company is also opening three research and development centers in Asia. ABB plans to have some 600 researchers and developers working in China, Singapore and India by the year 2002, focusing mainly on power transmission and distribution, automation, service and software technologies.

Employee share ownership program
Consistent with Value Based Management, ABB is constantly exploring possibilities to promote value creation within the company. As an important step to further enhance value for the stakeholders, ABB plans to implement an employee stock ownership plan, which should create long-term, broad-based share ownership throughout the Group. All employees will be offered the opportunity to invest up to 10 percent of their salary into ABB shares and the company will match each share with a number of options at no cost to the employee, except potential taxes. Details of the program will be announced at the annual press conference in February, 2001.

U.S. listing
Due to the weak and volatile equity markets, particularly with respect to technology stocks, ABB has taken the decision to postpone its stock market listing in the United States to 2001. More precise information as to the timing will be given at the annual press conference in February 2001. The announced conversion of ABB’s accounting systems to follow U.S. generally accepted accounting principles (US GAAP) is progressing on time, and the company intends to issue its financial statements the first time for the full year 2000 in line with these standards.

Segment and regional review
The ABB Group’s reporting currency is the U.S. dollar, which continued to strengthen against most of ABB’s local currencies. The impact of the strengthened dollar, noted in earlier quarters, continued to weigh on results in the first nine months of 2000. The discussion in this segment and regional review is based on local currencies, which provide a more accurate picture of the company’s underlying performance.

Power Transmission orders continued to rebound with support from large interconnection projects in Latin America and a favorable business climate in North America. The service and support business continues to be in high demand. Revenues were down, reflecting last year’s divestiture of the standard cable business and slow order intake. The operating margin improved from 9.8 percent to 11.2 percent.

Deregulation continued to fuel higher orders and revenues for the Power Distribution segment. Demand for distribution solutions increased significantly, with substantial growth in Western Europe.

Reflecting an increase in all businesses, earnings increased 34 percent. Productivity improvements helped drive the operating margin to 7.7 percent, up from 6.3 percent.

The Automation segment showed a 9 percent increase in orders received, with high growth in Asia, Latin America and the Middle East. Automation Power Products showed the highest growth rates. Flexible Automation and Marine & Turbochargers also showed good growth. Revenues were flat, and
continuing synergies from the successful integration of Elsag Bailey, combined with a substantially reduced cost base, increased earnings by 40 percent. The operating margin increased to 8.2 percent from 5.7 percent.

The business climate in the Oil, Gas and Petrochemicals markets remained favorable during the third quarter. Oil, Gas and Petrochemicals’ orders increased 49 percent as demand from the downstream petrochemicals market continued to surge alongside growth in the offshore systems and modification and maintenance business. The substantial order bookings will gradually flow through to revenues, starting in the fourth quarter 2000 and continuing throughout 2001. The operating margin improved to 6.0 percent from 5.2 percent.

Orders received for Building Technologies were 7 percent higher with particularly strong growth in Asia and the Middle East and Africa. The segment is experiencing an increase in orders to support the build-up of both telecommunication and Internet networks. Revenues were 4 percent higher, despite the discontinuation of the general contracting business and the divestiture of the non-core service work-shops. Earnings for Building Technologies increased by 15 percent, with significant increases in the product business. The segment’s operating margin reached 7.7 percent compared to 6.8 for the previous year.

Financial Services’ revenues increased by 14 percent. Financing for several projects in India, Poland and China closed and the leasing volume increased strongly. Earnings were slightly higher than last year’s level.

Cash Flow and other key data
ABB’s cash flow from operations showed a substantial increase of 27 percent, well above the earnings increase. Net income from continuing operations increased by 16 percent to US$ 848 million compared to the same period last year (1999: US$ 734 million). Return on equity reached 29.9 percent (1999: 25.7 percent). Return on capital employed was 15.5 percent (1999: 15.2 percent).

As of September 30, 2000, ABB employed 162,181 people compared to 164,154 at yearend 1999.

Outlook
For the full-year 2000, the rate of order growth will be in line with the first nine months. In local currencies, revenues will be above last year’s level. Operating earnings are expected to increase from last year and net income from continuing operations will continue to be well above 1999's performance. Cash flow is expected to exceed the level of last year. The company reconfirms its longer-term targets of 6-7 percent average annual growth in revenues during 2000-2003 and an operating margin of 12 percent by 2003.

This press release includes forward-looking information and statements that are subject to risks and uncertainties that could cause actual results to differ. These statements are based on current expectations, estimates and projections about global economic conditions, the economic conditions of the regions and industries that are major markets for ABB Ltd and ABB Ltd’s lines of business. These expectations, estimates and projections are generally identifiable by statements containing words such as “expects”, “believes”, “estimates” or similar expressions. Important factors that could cause actual results to differ materially from those expectations include, among others, economic and market conditions in the geographic areas and industries that are major markets for ABB’s businesses, market acceptance of new products and services, changes in governmental regulations, interest rates, and fluctuation in currency exchange rates. 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.

For more information, please open linked documents.

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