ABB LTD
Divisional performance Q1 2005
Power Technologies
(unaudited)
$ in millions (except where indicated) Q1 2005 Q1 20041 Change
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Orders 2,698 2,349 15%
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Revenues 2,148 1,831 17%
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EBIT 163 146 12%
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EBIT margin 7.6% 8.0%
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1 Adjusted to reflect the move of activities to Discontinued operations in 2004.
As of January 1, 2005, the Power Technologies division comprises two business
areas. The Power Technology Products business area incorporates ABB's
manufacturing network for power technologies, such as switchgear, breakers,
transformers and cables. The Power Technology Systems business area offers
systems for power transmission and distribution grids, and for power plants.
Orders received in the Power Technologies division rose 15 percent to
$2,698 million in the first quarter of 2005 (local currencies: up 10 percent).
Orders increased in the Power Technology Products business area in both U.S.
dollars and local currencies, as demand from power utilities continued to
improve in all regions. The strongest growth was in the Middle East and Africa,
and Asia. The biggest increase in Asia was in India, where orders more than
doubled compared to the year-earlier period. The increase in India more than
offset a decrease in China. Orders increased in the Americas - both North and
South - led by the U.S. Orders were higher in Europe in both U.S. dollars and
local currencies as demand continued to improve in most customer segments.
Orders received in the Power Technology Systems business area were flat in U.S.
dollars and lower in local currencies compared to the first quarter of 2004, as
higher large system orders offset lower base orders. Orders grew strongly in the
Middle East and Africa in the first quarter, but were lower in most other
regions. Orders in Asia were lower as a decrease in China more than offset
strong growth in India that included about $80 million in orders for large
transformers. In the Americas, orders were down, as a small increase (flat in
local currencies) in system orders in South America could not make up for a
decrease in North America. Orders in Europe were down as the result of lower
large orders in eastern Europe.
The order backlog at the end of the first quarter of 2005 amounted to
$7,066 million, an increase of 4 percent (local currencies: 7 percent) compared
to the end of the previous quarter.
Revenues in the quarter were $2,148 million, 17 percent higher than the
year-earlier period (local currencies: up 12 percent). The increase reflects
continued growth in product sales and revenues from a number of large orders won
in 2004. Revenues grew at a double-digit pace in the products business in both
U.S. dollars and local currencies. Revenues were also higher in both U.S.
dollars and local currencies in the systems business.
Regionally, revenue growth was strongest in Asia (driven by China) and the
Middle East and Africa. Revenues were unchanged in North America as increased
product sales, especially in the medium-voltage area, were offset by lower
system revenues. In South America, revenues grew at a double-digit pace in both
U.S. dollars and local currencies from a low base. Revenues were higher in
Europe in U.S. dollars but flat in local currencies.
First-quarter earnings before interest and taxes (EBIT) increased by 12 percent
to $163 million compared to the year-earlier period, reflecting both the strong
revenue improvement and lower restructuring costs. EBIT was higher in Power
Technology Systems and flat in Power Technology Products, as lower EBIT in the
transformers business offset improvements in the medium-voltage and high-voltage
businesses. Despite ongoing price increases, hedging activities and low-cost
sourcing initiatives, the continuing increases in raw material costs, especially
for oil and electrical steel, reduced EBIT in the transformer business by
approximately $15 million in the quarter compared to the first quarter in 2004.
The EBIT margin in the quarter was 7.6 percent compared to 8.0 percent in the
first quarter of 2004. The negative impact of higher raw material costs, along
with some other operational challenges, more than offset the reduction in
restructuring costs in the division compared to the year-earlier period and the
improved EBIT margin in the systems business that resulted from improved
capacity utilization and lower costs.
Cash used by operations for the division amounted to $73 million, compared to
cash used of $57 million in the same quarter in 2004. Higher working capital
requirements resulting from growing revenues were the main contributors to the
reduction in cash flow.
Automation Technologies
(unaudited)
$ in millions (except where indicated) Q1 2005 Q1 20041 Change
----------------------- --------- ----------- ---------
Orders 3,524 2,995 18%
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Revenues 2,817 2,498 13%
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EBIT 307 216 42%
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EBIT margin 10.9% 8.6%
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1 Adjusted to reflect the move of activities to Discontinued operations in 2004.
The Automation Technologies division reported an 18-percent increase in orders
in the first quarter of 2005 to $3,524 million compared to the same quarter last
year (local currencies: up 11 percent). Orders were higher in all business areas
in both U.S. dollars and local currencies. Base orders grew and large orders
increased substantially.
The strongest order growth was seen in the Process Automation and Manufacturing
Automation business areas, mainly reflecting continued overall strong demand
from the oil, gas and petrochemicals, metals and mining, and chemicals sectors,
as well as orders resulting from the frame agreement signed in 2004 to supply
robotics products and systems to DaimlerChrysler in the U.S. The Manufacturing
Automation business area also saw a double-digit increase in orders during the
quarter from non-automotive customers, such as packaging and electronics
manufacturing companies. Demand in the Automation Products business area
continued to improve, with order growth from industrial customers more than
offsetting lower orders in the building and construction sector.
Customer spending in pulp and paper has reached a bottom and ABB's order intake
has stabilized at relatively low levels, while orders from the marine-related
turbocharging market remained strong, driven by new shipbuilding.
Regionally, order growth was strongest in the Americas - both North and South
America - and the Middle East and Africa in the first quarter. Order growth in
Asia was more modest than in the same period in 2004, when orders in both India
and China increased by more than 50 percent. In the first quarter of this year,
orders in India grew strongly in the Automation Products and Process Automation
business areas, with particular growth in the chemicals sector. In China, orders
in Process Automation were lower than the high levels in the same period a year
before, mainly in the minerals sector. This more than offset higher Automation
Products orders in China. Orders in Europe were higher in U.S. dollars and local
currencies, with moderate growth in western Europe and strong growth in eastern
Europe.
The order backlog at the end of the first quarter amounted to $4,924 million, an
increase of 15 percent (local currencies: 19 percent) compared to the end of the
previous quarter.
Revenues rose 13 percent (local currencies: 7 percent) to $2,817 million
compared to the first quarter of 2004. Revenues were higher in all business
areas in both U.S. dollars and local currencies, with the strongest growth in
Automation Products. The Manufacturing Automation business area benefited from
strong product sales during the quarter, in both the U.S. and Europe, and
revenues from a number of large orders taken in late 2004.
Regionally, the strongest revenue growth was seen in Asia, with both China and
India showing improvements in the quarter across all business areas in both U.S.
dollars and local currencies. Revenues were also up strongly in the Americas,
led by North America. In Europe, revenues were higher in U.S. dollars and flat
in local currencies. Revenue growth was strong in eastern Europe but lower in
western Europe in local currencies.
Earnings before interest and taxes (EBIT) grew 42 percent to $307 million
compared to the same quarter in 2004. All business areas reported higher EBIT
reflecting higher revenues, ongoing productivity improvements, and lower
restructuring costs. As a result, the EBIT margin increased to 10.9 percent from
8.6 percent in the first quarter of last year. It was the tenth consecutive
quarter of higher EBIT and revenues for Automation Technologies.
Cash flow from operations for the division amounted to $67 million, down from
$97 million in the first quarter of 2004, primarily the result of higher working
capital needs across all business areas resulting from strong revenue growth.
Non-core activities
(unaudited)
EBIT ($ in millions) Q1 2005 Q1 20041
------------------------ ------------- --------------
Oil, gas and petrochemicals 9 1
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Building Systems (19) (17)
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Equity Ventures 23 22
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Other non-core activities2 (4) (6)
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Total 9 0
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1 Adjusted to reflect the reclassification of the oil, gas and petrochemicals
business to continuing operations, and of other activities to Discontinued
operations in 2004. 2 Comprises mainly remaining Structured Finance and New
Ventures activities.
EBIT from Non-core activities amounted to $9 million in the first quarter,
compared to a zero result in the first quarter of 2004. EBIT in the oil, gas and
petrochemicals business rose in the first quarter compared to the low levels
seen in the same quarter a year ago, reflecting a strong increase in revenues,
operational improvements undertaken in the business over the past two years and
the change in strategy to lower-risk reimbursable contracts rather than large
scope fixed-price contracts.
The loss in Building Systems in the first quarter of 2005 is the result of weak
market conditions and further restructuring costs in Germany, as well as costs
related to winding down the business in other countries.
Corporate
(unaudited)
EBIT ($ in millions) Q1 2005 Q1 20041
------------------------ ------------- --------------
Headquarters/stewardship (79) (99)
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Research and development (23) (21)
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Other2 14 5
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Total (88) (115)
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1 Adjusted to reflect the reclassification of the oil, gas and petrochemicals
business to continuing operations, and of other activities to Discontinued
operations in 2004. 2 Includes consolidation effects, real estate and treasury
services.
Lower corporate costs in the first quarter of 2005 reflect the ongoing efforts
to cut headquarters spending as well as capital gains of $17 million realized on
the sale of real estate, reported in the line 'Other,' above. In addition, the
program to prepare ABB for the Sarbanes-Oxley Act will have an increased impact
on Corporate costs in the coming quarters.
Discontinued operations (not included in EBIT)
(unaudited)
$ in millions Q1 2005 Q1 20041
----------------------- --------------- ------------
Asbestos (19) (27)
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Power lines (3) (9)
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Other2 6 (52)
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Net loss (16) (88)
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1 Adjusted to reflect the reclassification of the oil, gas and petrochemicals
business to continuing operations, and of other activities to Discontinued
operations in 2004. 2 Comprises the divested reinsurance, upstream oil and gas,
metering and wind energy businesses.
The net loss from Discontinued operations amounted to $16 million in the first
quarter compared to $88 million in the same quarter last year. The asbestos
result is primarily due to an $18-million expense on the mark-to-market
treatment of the approximately 30 million ABB shares reserved to cover part of
the company's asbestos liabilities, compared to an expense of $24 million
reported in the first quarter of 2004. Also contributing to the improvement were
the non-recurrence of the $30-million loss in the reinsurance business and lower
expenses associated with the upstream oil and gas business, both of which were
divested during 2004.
Appendix
ABB key figures Q1 2005
$ in millions Q1 2005 Q1 20041 % change
----------------------- -------- -------- ------------
US$ Local
------- -------
-------- ---------------- -------- -------
Orders Group 6,261 5,777 8% 3%
-------- ---------------- -------- -------- ------- -------
Power Technologies 2,698 2,349 15% 10%
---------------- -------- -------- ------- -------
Automation Technologies 3,524 2,995 18% 11%
---------------- -------- -------- ------- -------
Non-core activities 267 619 (57%) (60%)
---------------- -------- -------- ------- -------
Corporate (228) (186) -- --
---------------- -------- -------- ------- -------
--------
Revenues Group 5,088 4,528 12% 6%
-------- ---------------- -------- -------- ------- -------
Power Technologies 2,148 1,831 17% 12%
---------------- -------- -------- ------- -------
Automation Technologies 2,817 2,498 13% 7%
---------------- -------- -------- ------- -------
Non-core activities 337 387 (13%) (21%)
---------------- -------- -------- ------- -------
Corporate (214) (188) -- --
---------------- -------- -------- ------- -------
--------
EBIT2 Group 391 247 58%
-------- ---------------- -------- -------- ------- -------
Power Technologies 163 146 12%
---------------- -------- -------- -------
Automation Technologies 307 216 42%
---------------- -------- -------- -------
Non-core activities 9 0 --
---------------- -------- -------- -------
Corporate (88) (115) --
---------------- -------- -------- -------
--------
EBIT margin Group 7.7% 5.5%
-------- ---------------- -------- --------
Power Technologies 7.6% 8.0%
---------------- -------- -------- -------
Automation Technologies 10.9% 8.6%
---------------- -------- -------- -------
Non-core activities -- --
---------------- -------- -------- -------
Corporate -- --
---------------- -------- --------
-----------------------
Net income 199 1
----------------------- -------- -------- ------- -------
1 Adjusted to reflect the reclassification of the oil, gas and petrochemicals
business to continuing operations, and of other activities to Discontinued
operations in 2004. 2 Earnings before interest and taxes. See Summary Financial
Information for more information.