Ladies and gentlemen.
Welcome to this presentation of ABB’s second quarter results 2003.
Before Peter and I take questions, let us take you through some key facts.
The ABB Group showed double digit EBIT growth over the second quarter last year and improved cash flow compared to the last quarter.
We are clearly moving in the right direction.
We achieved solid earnings, margins and cash flow performance in our core divisions and a steady reduction in our cost base.
There is hard work ahead, but our company is in better shape now than it was a year ago.
In fact, Q2 2003 was the third consecutive quarter when the core divisions’ operating profits and EBIT margins rose in dollar terms compared to the corresponding quarters the year before.
Several factors have contributed to these improvements.
Our Step change cost reduction program has started to produce results with some 160 million dollars in savings in the second quarter making it some 230 million dollars in savings so far.
Peter will give you more details in a few minutes.
Several divestments have been announced or completed reflecting our strategy of focusing on the two core divisions.
The sale of our activities in Oil, Gas and Petrochemicals remains on track for 2003.
Operational cash flow improved significantly with the core divisions contributing some 380 million dollars in cash.
We are also making good progress on asbestos which is important for the timing of the divestment of our Oil, Gas and Petrochemicals activities.
As we have said before, we expect to put the asbestos issue behind us in 2003.
We held revenues steady in local currencies despite difficult market conditions in the quarter and saw a 12 percent revenue increase in dollar terms.
We expect higher orders and revenues in the second half of 2003.
Therefore, we confirm our targets.
It is too early to say that ABB’s problems are over. We need to pass further important milestones such as putting the asbestos issue behind us once and for all completing our divestments and securing our long-term financial strength.
We also need to further improve profitability. But we are well underway.
With that I would like to hand over to Peter Voser.
***
Thank you Jürgen.
Currency fluctuations have this year had a significant impact on all international companies financials.
The weakness of the dollar against the Euro and the Swiss Franc has had a positive translation effect of about 10 percent on our reported orders and revenues in the second quarter.
Now let me continue where Jürgen left off and describe what is going on in ABB’s core divisions.
For Power Technologies, the last quarter was reassuring but good growth in Asia and Europe could not fully compensate for weaker demand in the U.S.
Compared to Q2 2002, orders were up six percent and revenues up nine percent in dollar terms.
We expect the intake of large orders to be stronger in the second half.
Earnings were up 12 percent to 146 million dollars and the EBIT margin increased from 7.3 percent in Q2 2002 to 7.5 percent in Q2 2003.
Operating cash flow was about 230 million dollars in the second quarter resulting in a strong positive cash contribution in the first half year of around 100 million dollars.
For Automation Technologies double-digit order growth in Asia - especially China and India -- and in Europe was offset by weakness in the Americas.
In dollar terms the order intake for Automation Technologies was up seven percent compared to Q2 2002.
Revenues were up 13 percent compared to Q2 last year.
Both the product and service businesses of the division grew by double digits.
EBIT improved by 22 percent to 198 million dollars, reflecting the impact of the cost reduction program.
The EBIT margin went up from 7.5 percent in Q2 2002to 8 percent in Q2 2003.
As a result of higher earnings and more focused working capital actions, operating cash flow amounted to approximately 150 million dollars in the second quarter of 2003 resulting in a positive cash contribution in the first six months of more than 80 million dollars.
For the entire ABB group, EBIT was 171 million dollars - up 14 percent compared to Q2 2002.
The finance net was negative 92 million dollars, mainly due to a 40 million dollar loss on the sale of shares in Sinopec and a mark-to-market unrealized loss of 12 million dollars related to the equity conversion option on the convertible bond issued in April 2002.
This compares to a 26 million gain in the bifurcation in Q2 2002.
In the second quarter 2003, the Group showed a net loss of 55 million dollars due to pre-tax losses of 110 million dollars from various divestments and losses in discontinued operations of 87 million dollars.
The group’s total debt was 8.3 billion dollars - an increase of about 150 million on the previous quarter but in line with our financial planning.
However, cash and marketable securities increased by 332 million dollars compared to the first quarter in 2003 to 4.113 billion dollars.
As Jürgen said earlier, ABB is showing solid progress - also in our program to divest non-strategic businesses.
We are reducing costs and at the same time improving profitability in the core divisions.
In the second quarter, cash proceeds from divestments amounted to more than 340 million dollars.
This included the sale of our 35 percent stake in Swedish Export Credit Corporation to the Swedish state, the shareholding in Sinopec, and two Equity Ventures participations in Australia.
The Step Change cost reduction program, introduced in late 2002, aims to bring down ABB’s cost base by about 900 million dollars a year from mid-2004.
The cost reduction program is ahead of plan. I will provide details a little later.
Turning to asbestos: we are well on the way to solving the issue.
On July 10 a U.S. Bankruptcy Court approved the pre-packed bankruptcy plan for Combustion Engineering and recommended its approval by a U.S. District court.
This was a truly significant milestone, and the District Court will hold its hearing on Thursday.
We are confident of a positive outcome of the judicial process.
The total value of the agreed settlement, which has been endorsed in a vote by more than 95 percent of the asbestos claimants, is approximately 1.2 billion dollars.
The difference in operating profits generated by the core divisions and the group’s EBIT, is explained by losses in non-core activities which generated a negative EBIT of 33 million dollars, and by 140 million dollars in corporate costs.
The non-core activities consist of ABB’s insurance and Equity Venture activities, as well as of Structured Finance, Building Systems and others.
Insurance and Equity ventures provided positive EBIT contributions.
However, these were more than offset by capital losses from the sale of our share in Swedish Export Credit (SEK) and higher losses in Building Systems.
The downsizing of ABB’s corporate administration continued.
Yet the accounts show increased costs for Headquarter/Stewardship.
This was mainly due to the non-recurrence of a number of one-time gains in 2002.
Negative results from the Oil, Gas and Petrochemicals division and other divested operations, as well as mark-to-market effects of revaluating shares contributed as part of the asbestos settlement, lowered net income by 87 million dollars.
Looking at cash flow generation - the core divisions showed strength.
Operating cash flow from the core divisions including restructuring amounted to 381 million dollars, compared to 94 million in the same period last year.
Payments for asbestos settlement of 51 million dollars, Oil, Gas and Petrochemicals, as well as other balance sheet movements, amounted to a cash outflow of approximately 400 million dollars.
As a result, net cash used in operating activities for the group was negative 25 million dollars.
As I said, our cost reduction program is proceeding better than we had expected.
So far this year, we have achieved cost savings of around 160 million dollars the second quarter or 230 million dollars in the first half and cut 3,800 jobs since the beginning of this year.
For the full year 2003 we expect savings of more than 500 million dollars putting us on track to lower the cost base by 900 million dollars from mid-2004.
Our agenda for the rest of the year has not changed.
ABB is making solid progress in the areas we are focusing on.
We will continue to strengthen our core divisions.
We will continue to reduce costs across the group with a special focus on corporate activities.
We will divest non-strategic assets and businesses and estimate gross proceeds from these sales of more than 2 billion dollars, and further reduce our gross debt at year end.
And finally, we feel confident that our efforts to settle the asbestos issue will soon come to end.
Our targets remain unchanged.
Thank you!
r.