ABB Returns to Profit in 2004

18.02.2005

  • Double-digit order and revenue growth in 2004 in core divisions
  • EBIT more than tripled to over $1 billion; strong cash flow
  • Net income $201 million for the year
  • Summary of ABB’s financial results

    ABB reported earnings before interest and taxes (EBIT) of $1,084 million for the full year 2004 on solid growth in core division orders and revenues. Net income was $201 million, up $980 million compared to 2003.

    EBIT in the fourth quarter more than doubled to $264 million, fuelled to a large extent by double-digit revenue growth in the core divisions, Power Technologies and Automation Technologies. Cash flow from operating activities increased 32 percent to $880 million in the quarter, reaching $962 million for the full year.

    The fourth-quarter EBIT was burdened, however, by a number of non-recurring charges totaling approximately $65 million in the core divisions and $30 million in Non-core activities. In addition, about $60 million of non-cash charges related to exiting businesses in Discontinued operations negatively affected net income in the quarter.

    “We met many of our objectives in a key turnaround year,” said Fred Kindle, ABB President and CEO. “We again took out costs and lifted productivity. Coupled with a recovery in most markets, we substantially increased EBIT and reported a rebound in net income of almost $1 billion.

    “We faced some challenges in the year, including a delay in resolving the asbestos issue,” Kindle said. “We are focused on finding timely solutions to these issues, and took steps in the fourth quarter to establish a more stable base for 2005.”

    To reflect the reclassification of the remaining oil, gas and petrochemicals business (OGP) to continuing operations, ABB is adjusting its 2005 group EBIT margin target to 7.7 percent from 8 percent. The remaining growth and profitability targets are unchanged.

    Summary of full year 2004 results

    Orders received for the group amounted to $21,689 million, an increase of 3 percent in local currencies (10 percent in U.S. dollars) in the full year 2004. Higher core division orders – up 15 percent for the Power Technologies division (U.S. dollars: 22 percent) and 9 percent for Automation Technologies (U.S. dollars: 17 percent) – were largely offset by a drop in orders from Non-core activities, reflecting the divestment of most of the Building Systems business in 2003 and lower orders from OGP.

    Local-currency orders grew at a double-digit rate in six of ABB’s eight core division business areas for the full year, and were higher in all eight business areas compared to 2003. Base orders grew in both divisions and large orders were higher in Power Technologies. Core division orders were higher in all regions except the Middle East and Africa. Local-currency core division orders were up 38 percent in Asia, led by a 68-percent increase in China. In North America, core division orders increased about 20 percent in local currencies. Orders in local currencies in Europe for the core divisions were 4 percent higher.

    Revenues for the group were $20,721 million, down 5 percent in local currencies for the full year 2004 compared to 2003 (U.S. dollars: unchanged). An 8-percent revenue increase in the core divisions (U.S. dollars: 15 percent) was partly offset by lower revenues in Non-core activities, particularly OGP.

    Core division revenues were slightly higher in western Europe and strongly higher in eastern Europe for the full year. In Asia, core division revenues grew 21 percent in local currencies. Both divisions saw the strongest Asian revenue growth in India, followed by China. Local currency revenues were slightly down in North America for the full year compared to 2003.

    ABB’s EBIT for the full year 2004 more than tripled to $1,084 million compared to 2003, led by a 39-percent increase in Automation Technologies and a $421-million reduction in the EBIT loss from Non-core activities, reflecting the improvement in EBIT from OGP. EBIT in Power Technologies rose slightly, while Corporate costs remained basically unchanged from 2003 at about $500 million in 2004.

    As a result, the group EBIT margin for the full year 2004 increased to 5.2 percent compared to 1.7 percent in 2003. The EBIT margin for Power Technologies decreased to 7.0 percent in 2004 from 7.8 percent in 2003, while the Automations Technologies EBIT margin increased to 9.3 percent from 7.7 percent the year before.

    Finance net was further reduced to negative $223 million for the full year 2004 compared to negative $417 million the year before. Interest and dividend income increased on higher average balances of cash and marketable securities compared to 2003, and higher average interest rates. Interest expense decreased due to the benefit of lower average debt levels in the period. Finance net for the full year also benefited from the non-recurrence of losses in 2003 on the sale and write-down of marketable securities.

    The net loss in Discontinued operations amounted to $247 million in 2004, compared to a net loss of $408 million in 2003. The improvement was mainly the result of the non-recurrence of the capital loss related to the sale of the reinsurance business and a reduction of $114 million in costs to cover the asbestos liabilities of several ABB subsidiaries. These more than offset higher losses in 2004 from the power lines business that was reclassified from Power Technologies into discontinued operations.

    Net income for the full year reached $201 million compared to a net loss of $779 million in 2003.

    Cash flow from operating activities

    Cash flow from operating activities amounted to $962 million for the full year 2004, an improvement of more than $1 billion compared to 2003, mainly the result of a reduction in 2004 of asbestos-related cash payments of approximately $340 million, and a $350-million reduction in cash used by the OGP business compared to the year before.

    Cash flow from investing activities for the full year decreased to $354 million from $754 million in 2003. Higher cash proceeds from the sale of businesses in 2004, such as the reinsurance business and upstream oil and gas business, were more than offset by lower net cash proceeds from the sale of marketable securities compared to 2003, when the sale of shares in the China National Petrochemical Corporation (Sinopec) generated cash proceeds of $82 million.

    Cash used by financing activities in 2004 amounted to $2,805 million, mainly the result of the repayment of maturing bonds and the repurchase of more than Euro 700 million in public bonds completed in the third quarter of 2004. In addition to these factors, cash flow from financing activities in 2004 decreased by more than $4 billion compared to 2003, reflecting primarily the $2.5 billion raised in 2003 from the issue of new ABB shares.

    Research and development

    R&D and order-related investment in the core divisions amounted to $905 million in 2004, up 10 percent compared to $826 million in 2003. Expressed as a percentage of core division revenues, total R&D and order-related development in the core divisions was 4.6 percent in 2004 compared to 4.8 percent in 2003.

    Divestments

    Significant divestments in 2004 included the sale of ABB’s upstream oil and gas business, for an initial purchase price of $925 million (net cash of approximately $800 million). Also divested in 2004 were the reinsurance business, which yielded gross cash proceeds of $415 million (net cash of approximately $280 million), and the Swiss Building Systems business for approximately $40 million in gross proceeds. (For more information on divestments in 2004, please see Notes 2 and 3 to the Summary Financial Information attached to this press release).

    Management changes

    Effective January 1, 2005, Fred Kindle assumed the role of ABB President and CEO, succeeding Jürgen Dormann, who remains as the chairman of ABB Ltd. Kindle, 45 and a citizen of both Switzerland and Liechtenstein, was previously the CEO of Sulzer AG, a Swiss-based technology concern.

    Michel Demaré, 48, joined ABB in January as chief financial officer and member of the group executive committee. Demaré, a Belgian citizen, came to ABB after an international finance career with The Dow Chemical Company and most recently with Baxter International, a U.S. health care group.

    For more details on results Q4 2004 and financial tables please visit ABB’s website.

    Source: ABB Group

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