ZURICH, Switzerland, Oct. 24, 2001 – ABB said today revenues rose 9 percent and earnings before interest and taxes (EBIT) – excluding one-time capital gains – increased 15 percent in local currencies for the first nine months of 2001, reflecting continued strong operational performance.
Seeing a decline in orders, ABB also said it will accelerate its cost-cutting program.
“I’m satisfied with our operating results this quarter,” said Jorgen Centerman, president and CEO. “Given the weaker market conditions, it is a sign of our strength and stability to have improved our underlying operating performance, even after providing US$ 50 million for our reinsurance exposure following the terrorist attacks in the U.S.”
Centerman said ABB will accelerate its plans to cut 12,000 jobs. “We need to become leaner as fast as possible given the economic climate,” Centerman said. “By taking more of the planned restructuring costs earlier we will reduce earnings now, but we build competitiveness and gain productivity improvements that pay back over time.”
About one third of the job reductions is expected to come through natural attrition. The program is estimated to cost US$ 500 million in total. More costs will now be taken in 2001. Once the plan is fully implemented, costs will be reduced by about US$ 500 million per year.
ABB also reported higher net cash from operating activities, up 36 percent when compared with the first nine months of 2000. “While our liquidity is sufficient, we have launched a special program to improve operating cash flow by the end of the year,” Centerman said. “This is a clear step toward reducing our debt levels in this economic environment.”
Income statement and cash flow
Orders decreased 8 percent to US$ 17,863 million or 3 percent expressed in local currencies. Base orders, defined as orders below US$ 15 million, now represent 86 percent of total orders. Despite the ongoing transformation and more difficult economic conditions, base orders remained flat in nominal terms but increased 5 percent in local currencies when compared with the first nine months of last year. Large orders (above US$ 15 million) declined 39 percent in nominal terms or 33 percent in local currencies over the same period, mainly due to fewer large orders booked in the Oil, Gas and Petrochemicals division.
Revenues increased to US$ 16,877 million, up 4 percent in nominal terms and 9 percent in local currencies.
The order backlog increased since yearend 2000 by 3 percent in nominal terms and 8 percent in local currencies to US$ 15,302 million. Reflecting the drop in third quarter orders, the order backlog declined slightly since June 30.
Excluding one-time capital gains, EBIT increased 9 percent to US$ 763 million compared to the first nine months of 2000, and 15 percent when expressed in local currencies. This includes license income together with income from equity accounted companies of US$ 136 million and restructuring charges of US$ 33 million. Capital gains were US$ 340 million in the first nine months of last year versus US$ 3 million this year. Including these one-time capital gains, EBIT decreased 26 percent to US$ 766 million.
The change in net income from 2000 is mainly due to last year’s one-time gain of US$ 548 million from the sale of the former power generation business while this year there was a one-time charge of US$ 63 million which was required upon adoption of the new accounting standard FAS 133 under US GAAP from the beginning of 2001. After lower one-time capital gains in EBIT, interest expense associated with higher debt levels and an increased effective tax charge, net income for the first nine months decreased by 76 percent to US$ 289 million.
ABB’s net cash provided by operating activities was US$ 345 million for the first three quarters, up 36 percent from US$ 253 million for the same period last year. For the third quarter alone, net cash provided by operating activities was US$ 266 million, up from US$ 193 million last year.