Today we’re able to report steady progress underlining ABB’s successful turnaround. I would say the turnaround is now over.
Why do I say this? Let’s look at the results.The second quarter 2004 was the seventh consecutive quarter of higher earnings for our core businesses.
Today, we’re able to report steady progress underlining ABB’s successful turnaround. I would say the turnaround is now over.
Why do I say this? Let’s look at the results. The second quarter 2004 was the seventh consecutive quarter of higher earnings for our core businesses.
Order growth remains solid, our order book is big with solid gross margins, and we continue to see improved demand in most markets.
Orders in Power Technologies and in Automation Technologies increased by 29.5 percent in dollar terms, core business revenues increased 15 percent, and EBIT (earnings before interest and taxes) was 24 percent higher in dollar terms than in the second quarter of 2003.
Group EBIT more than doubled, from 140 million dollars to 288 million dollars. Cash flow from operations was lower in the quarter mainly due to costs related to the sale of the upstream business in Oil, Gas and Petrochemicals.
Our cost-lowering program Step Change has been completed - and ahead of schedule. Once again, we have delivered on our promises and achieved our target to lower our cost base by more than 900 million dollars a year.
Debt reduction is on track and our gearing is at 65 percent, down from 67 percent at the end of Q1.
We saw a net income of 86 million dollars for the second quarter compared to a net loss of 55 million in the same period a year ago.
In July we closed the sale of our upstream oil, gas and petrochemicals business.This was one of the last steps needed to fully focus ABB on our core power and automation technologies.
Today, non-core businesses make up just 2 percent of revenues compared to 22 percent in 2001.
On asbestos, the U.S. Third Circuit Court of Appeals heard the case as planned on June 3. We remain confident that the plan will be approved.
Our key priorities for the second half include operational excellence, such as ongoing productivity improvements beyond Step Change and stabilizing quarterly cash flows.
In most of our markets, demand is improvingas the orders figures show. Second-quarter orders from Asia more than doubled compared to the same period last year due to investment in power infrastructures as well as in industrial sectors.
We had double-digit growth in the Americas, led by the United States. And in Europe, orders grew for both core divisions, too.
The results underline our successful turnaround.
Most of the businesses in our core divisions continue to outperform the market. With a solid track record of achievement, we remain on course to achieve our 2005 targets.
We are committed in our pursuit of sustainable profitable growth. To achieve this, we will deepen our culture change, towards closer alignment around the ABB business principles, combining empowerment with clear accountability, and a stronger market focus.
Building on enhanced operational excellence, the greater strength of a more focused company, our leading technology and market positions, and the economic upturn in key markets, we expect 2004 to be a year of improved performance and profitability.
Against this background let me also confirm that our targets for 2005 are unchanged.
As you know, Peter Voser is joining Shell in early October. So before I hand over to Peter for a full review of the Q2 results I just want to say that the search for a new CFO is progressing well and we are in the process of evaluating a shortlist of candidates.
Fred Kindle - my successor as CEO - who officially starts with ABB on September 1 and takes over as CEO January 1, 2005 is playing a key role in the search process.
Peter Voser
Looking at the results in detail - let me start with Power Technologies. Orders in Power Technologies grew 42 percent in the second quarter.
PT orders more than doubled in China and India and the division had double-digit growth in Europe.
We saw the slow beginnings of a recovery in North American power markets and an upturn in Latin America.
In the Middle East and Africa, orders remain at a high level.
Revenues in PT were up 18 percent with all business areas except for Power Systems achieving double-digit growth.
EBIT was up eight percent, from 155 million dollars to 168 million dollars on unchanged restructuring charges.
The EBIT margin was down to 7.4 percent as higher margins in the products business could not make up for weaker margins in parts of the systems business. We do not expect this impact to continue in the second half.
Cash flow was 11 million dollars, down from 243 million dollars in the same period last year.The difference mainly reflects an increase in working capital through a combination of lower customer advances due to a low level of large orders in the first five months of the year and higher receivables .
In Automation Technologies: orders grew 20 percent on double-digit growth in all regions except for the Middle East and Africa which was lower than a year ago.
In Asia, China and India were particularly strong in pulp and paper, minerals and marine. In North America, orders improved for third consecutive quarter. We see signs of recovery in Western Europe and the trend is stable in Eastern Europe and Latin America.
AT revenues were up 12 percent, EBIT increased by 36 percent from 191 million dollars a year ago to 260 million dollars.
The EBIT margin in AT was up from 7.9 percent to 9.6 percent driven by productivity improvements and higher-margin products.
AT’s cash flow generation was 225 million dollars, up sharply from 143 million dollars in the second quarter last year.
For the core divisions, EBIT went from 346 million dollars in Q2 2003 to 428 million dollars in the second quarter this year.
This led to a Group EBIT margin of 5.9 percent in Q2 2004. This is a marked improvement from a year ago when we had 2.9 percent.
Today, we also announced a tender offer to repurchase the 300 million Euro bonds due 2005 and the 475 million Euro bonds due 2006. The tender period ends on the 20th of August. This aims to reduce our debt and further strengthen our financial base including achieving an investment grade rating.
You can see this as a sign of confidence and that we will deliver on our plan to cut gross debt to 4 billion dollars by 2005.
In discontinued operations, we had a loss of 41 million dollars, down from 71 million dollars in Q2 last year.
The main factors are the cost of the compliance review in upstream which offset a small net income in downstream. Oil, gas and petrochemicals orders and revenues were lower due mainly to a more selective bid process in the downstream area and a revenue peak in Q2 last year
On Step change - our productivity improvement program - achieved net savings of about 250 million dollars in the final quarter of the program. Overall, since we launched Step change in the fourth quarter of 2002 we have realized annualized cost savings of 917 million dollars and reduced some 9,000 jobs.
The restructuring costs of 351 million dollars are significantly lower than the 500 million dollars we anticipated at the outset.
Debt was reduced from 7.9 billion dollars at the end of 2003 to 6.1 billion dollars at the end of June.
In summary, in the second quarter of 2004, we further improved our results. Our markets show a continued upturn in demand and our financial fundamentals are stable.
In our view - and it is the numbers that tell this story - the turnaround phase is now complete.
We have set ABB on a course to sustainable profitable growth as a global technology leader that helps utilities provide reliable electricity and industries become more productive.