Good morning, ladies and gentlemen.
Thank you for joining our media conference call for ABB's second quarter 2007 results. With me today is Michel Demaré, our chief financial officer. I will start by presenting the Group results, say a few words about the divisions, and then afterwards you will have a chance to ask questions.
I am pleased to say we have continued our excellent start to the year with a very good second quarter marked by continued strong growth and outstanding operating margins. Orders in the second quarter were 8.7 billion dollars, an increase of 20 percent in local currencies compared with Q2 in 2006. Orders continue to grow at a healthy pace in all of our key regions.
China and India maintained their long-term growth trend. The Middle East increased orders by almost 50 percent, bouncing back strongly after a relatively weak Q1. Orders from Europe were up 13 percent in local currencies, led by very good growth in all divisions in Central and Eastern Europe. The U.S., meanwhile, turned in another strong quarter, with orders up 27 percent in local currencies. The need to replace aging transformers was a key growth driver in the U.S.
The continuing high order intake during the second quarter means our order backlog grew again during the period and stood at more than 20 billion dollars at the end of June 2007. That is a six billion dollar increase from the same period one year ago, and two billion dollars higher than at the end of the first quarter of this year. Revenues during the quarter grew by 21 percent in local currencies to 7.1 billion dollars.
ABB continues to benefit from strong global investments in energy efficiency as well as power and industrial infrastructure. Electrical utilities in the OECD countries continued to invest in grid upgrades and interconnections to improve the efficiency and reliability of their power networks. In the emerging markets, the expansion of power infrastructure to support economic growth also continued in the second quarter. Soaring oil and commodity prices drove investments by our industrial automation customers to expand capacity and make existing assets more productive.
In such a strong market environment, our ongoing efforts to improve business execution have produced excellent results. But our ambition remains to keep improving profitability and to take maximum advantage of the good market environment we are in. During the quarter, we finalized the disposal of the two Equity Ventures investments we announced in February and with the pending sale of our Lummus oil, gas and petrochemicals business, we have almost completed the disposal of our non-core assets.
We were also extremely happy to announce the appointment of Ravi Uppal, head of our business in India and the Southern Asia region to the Executive Committee, effective July 1st. Ravi will be responsible for all ABB regions and countries in the role of head of Global Markets, and will oversee the Group Account Management function.
You will also have seen that we recently made some additional disclosure to the U.S. Department of Justice and the U.S. Securities and Exchange Commission regarding suspect payments in a number of countries. As is usual in this kind of situation, I am unable to give you details as long there is an investigation going on. I can say, however, that this disclosure was the result of our internal audit and compliance program. I will come back to this issue shortly.
Year-on-year earnings before interest and taxes in the second quarter rose sharply, breaking through the 1-billion dollar level from 645 million dollars one year ago. Our EBIT margin is at 14.4 percent from 11.4 percent one year ago, the highest ABB has ever achieved. And our net income in the quarter doubled to 729 million dollars. We are very proud of these results and once again extremely pleased that every region and especially every division contributed to ABB's continued strong growth.
I’d like to now look at the division results a bit more closely:
Power Products increased orders by 11 percent and revenues by 30 percent in local currencies to 2.8 billion and 2.5 billion dollars respectively. Increases were in all businesses and regions during the quarter. Order growth reflects investments to upgrade aging power infrastructure in North America and Europe, and new infrastructure projects in Asia and the Middle East to support rapid economic growth. Revenues increased in all businesses, and the strong EBIT margin mainly reflects factories running at near capacity, improved productivity and effective supply management to mitigate high raw material costs.
Power Systems had a sharp increase in orders during the quarter to 2.2 billion dollars, a 50 percent increase compared to a year earlier. This was primarily the result of a doubling of large orders in the period such as the subsea grid interconnection between the U.K. and Netherlands, and a large substation order in the Middle East while base orders also remained strong. Revenues grew across all businesses and reached 20 percent in local currencies, based on solid execution of the strong order backlog. EBIT rose significantly and the margin increased to 8.4 percent from 6.0 percent one year ago.
The Automation Products division increased orders by 8 percent and revenues by 21 percent, still in local currencies, reflecting favorable markets for standard products but engineered products and system orders were flat compared to previous quarters. Orders rose to 2.2 billion dollars and revenues to 2.1 billion, with growth strongest in China, South America, Eastern Europe and the Middle East. Revenue grew as a result of higher volumes and price increases covering higher raw material costs. The revenue growth and good capacity utilization led to a 43 percent increase in EBIT and pushed EBIT margin to 17.4 percent.
In Process Automation, demand for automation continued to show strength in all sectors. High commodity prices drove investments to expand capacity in the metals and minerals business, as well as greater investment in energy efficient technology due to high oil prices. Orders increased in all regions except Europe, where a number of large marine orders won in the second quarter of 2006 were not repeated this year. Revenues in the quarter grew significantly, up 16 percent to 1.6 billion dollars, reflecting the execution of the high level of orders taken in recent quarters. EBIT and EBIT margin were 167 million dollars and 10.5 percent respectively pushed by higher revenues, continuing operational improvements and tighter execution of large projects.
Finally for the divisions, Robotics recorded a 40 percent increase in orders. Although this is compared to a relatively weak 2006 baseline, it is still encouraging. Orders rose to 392 million dollars from 268 million a year earlier, reflecting the success of efforts to increase orders from industries such as packaging, consumer electronics and food, as well as the automotive industry. EBIT and EBIT margin improved reflecting the continued focus on cost efficiency and improved project execution.
Turning back to the Group, let me quickly summarize:
Our second-quarter results were excellent. Our global markets remain robust, and our lead positions, strong technology and global scope put us in a great position to take advantage of continued growth.
Combined with our ongoing focus on business execution, our profitability continues to improve.
However, managing this high level of growth has its challenges. Finding the right people, keeping our quality high, delivering on time and balancing capacity needs with market requirements are among our operational priorities for the remainder of the year. Additionally, we’ll continue to examine strategic acquisition opportunities and complete the disposal of our Non-core assets. Finally, the successful development of our strategic medium-term roadmap and targets is on track. The Board of Directors has signed off on our plan and we are now preparing for our Strategy Day on September 5th.
As for our recent disclosure to the DoJ and the SEC as I have said to you before, compliance and business ethics have been and remain a top management priority in ABB. We have rigorous processes in place to train our people and create a business culture that will bring these activities to light so that we can eliminate them from our company. It was our own internal processes that brought these particular activities to light. We will continue our proactive policies externally to cooperate with authorities and internally to promote excellence in business ethics and to eliminate unacceptable behaviors We must, and will, continue our efforts to bring these activities to an end and keep ABB a company that we can all be proud of.
With that, ladies and gentlemen, I’ll open up now for questions.