ZURICH - Thursday, October 27th 2016 [ME NewsWire]
Operational EBITA margin1 increased to 12.6%
White Collar Productivity on track towards $1.3 bn savings; expected total costs reduced by $100 mn
Net Income $568 million; basic earnings per share up 2%
Base orders -6%2; total orders -13%; reflect Q3 uncertainty
Revenues steady
Cash flow from operating activities $1,081 million, more consistent quarterly cash generation
Timo Ihamuotila to succeed Eric Elzvik as Chief Financial Officer effective April 1, 2017
ABB launched Stage 3 of its Next Level Strategy – committed to unlocking value
(BUSINESS
WIRE)-- “We delivered the eighth consecutive quarter of margin
accretion through our continued focus on execution,” said CEO Ulrich
Spiesshofer. “In the third quarter, we experienced significant macro
uncertainties around Brexit and the US elections as reflected in the low
order pattern. Orders in Power Grids were additionally dampened by the
hesitation of customers prior to the Capital Markets Day. However, the
Power Grids transformation is on track as clearly demonstrated by the
170 basis points margin accretion,” he said. “With our enhanced cash
culture, we have delivered more than 30 percent higher cash flow so far
this year with a much steadier cash generation profile.”
“We
continue to run the company with discipline, realizing growth
opportunities where possible whilst driving earnings and cash growth. We
are committed to unlocking value for all shareholders as a more
focused, agile company building on our industry-leading digital
offering.”
Key figures
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CHANGE
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CHANGE
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($ in millions, unless otherwise indicated) |
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Q3 2016
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Q3 2015
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US$
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Compar-
able1 |
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9M 2016
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9M 2015
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US$
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Compar-
able1 |
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Orders |
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7,533
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8,767
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-14%
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-13%
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25,102
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28,167
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-11%
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-8%
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Revenues |
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8,255
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8,519
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-3%
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0%
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24,835
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26,239
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-5%
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-1%
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Operational EBITA1 |
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1,046
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1,081
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-3%
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-2%3
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3,095
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3,088
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0%
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+3%3
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as % of operational revenues1 |
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12.6%
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12.5%
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+0.1pts
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12.4%
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11.8%
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+0.6pts
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Net income |
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568
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577
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-2%
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1,474
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1,729
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-15%
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Basic EPS ($) |
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0.27
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0.26
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+2%
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0.68
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0.77
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-12%4
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Operational EPS1 ($) |
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0.32
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0.32
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-1%4
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0%4
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0.95
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0.90
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+5%4
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+7%4
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Cash flow from operating activities |
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1,081
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1,173
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-8%
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2,415
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1,824
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+32%
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Short-term outlook
Macroeconomic
and geopolitical developments are signaling a mixed picture with
continued uncertainty. Some macroeconomic signs in the US remain
positive and growth in China is expected to continue, although at a
slower pace than in 2015. The market remains impacted by modest growth
and increased uncertainties, e.g., Brexit in Europe and geopolitical
tensions in various parts of the world. Oil prices and foreign exchange
translation effects are expected to continue to influence the company’s
results.
Q3 2016 Group results
Orders
Total
orders declined 13 percent (14 percent in US dollars) compared with the
third quarter of 2015, reflecting timing of large order awards and
lower short cycle volumes. Base orders (below $15 million) decreased 6
percent (7 percent in US dollars), while large orders ($15 million and
above) were lower in all divisions and represented 11 percent of total
orders compared with 17 percent a year earlier. Orders for services and
software were 3 percent lower (5 percent in US dollars) and represented
17 percent of total orders compared with 16 percent a year ago.
Market overview
Demand patterns in ABB’s three regions:
Demand in Europe was subdued primarily due to moderate overall growth,
uncertainties in the UK following Brexit and political events in Turkey.
Total orders declined 18 percent (20 percent in US dollars) while base
orders were stable (2 percent lower in US dollars). Base order demand
was positive in Germany, Italy, Sweden and Switzerland, and weak in the
UK and Norway.
The Americas was weaker due to considerable
investment delays triggered by the US election and lagging industrial
demand. Total orders declined 16 percent (17 percent in US dollars) on
weaker large orders; base orders were 8 percent lower (9 percent in US
dollars) on weak demand in the US, Canada and Brazil.
Demand
in Asia, the Middle East and Africa (AMEA) was mixed. India continued to
grow and China continued its investment activities in power
transmission and robotics. Total orders for the region were down 5
percent (7 percent in US dollars) as strong order development in India
could not offset declines in China and the UAE. Base orders declined 9
percent (10 percent in US dollars).
Demand patterns in ABB’s three major customer sectors:
Utilities continued their investment activities to integrate renewable energy and foster grid reliability and efficiency.
In industry: investments in discrete and hybrid industries such as
automotive, food and beverage and machinery remained positive while
demand from the process industries, specifically mining and oil and gas
remain subdued.
Transport and infrastructure demand has been
mixed. Demand for specialty vessels solutions remained strong as well as
solutions involving energy efficiency for rail transport. Construction
has been mixed.
The book-to-bill1 ratio in the third
quarter decreased to 0.91x from 1.03x in the same quarter a year
earlier. For the first nine months, book-to-bill1 is 1.01x. The order
backlog at the end of September 2016 amounted to $24,554 million, a
decrease of 2 percent (3 percent in US dollars) compared with the end of
the third quarter in 2015.
Revenues
Revenues
were flat (3 percent lower in US dollars) in the third quarter.
Revenues were steady in the Electrification Products and Discrete
Automation and Motion divisions and increased slightly in Power Grids,
which offset a decline in Process Automation. Total services and
software revenues increased 5 percent (4 percent in US dollars) and
represented 18 percent of total revenues compared with 17 percent a year
ago.
Operational EBITA
Operational
EBITA decreased 2 percent in local currencies (3 percent in US dollars)
to $1,046 million and included the impact of negative mix. Operational
EBITA margin improved 10 basis points to 12.6 percent compared with the
same quarter a year ago, reflecting margin accretion in Electrification
Products, Process Automation and Power Grids as well as ongoing
productivity and cost savings measures, such as the white collar
productivity program.
Operational EPS and net income
Operational
EPS was steady at $0.32 in constant currency compared with the same
period a year earlier. The reduction in the weighted-average number of
shares outstanding compensated for a slightly lower operational EBITA,
higher interest expense and higher tax rate. Net income decreased 2
percent to $568 million and basic earnings per share was $0.27 compared
with $0.26 for the same quarter of 2015, an increase of 2 percent.
Cash flow from operating activities
Cash
flow from operating activities was $1,081 million, $92 million lower
compared with the third quarter of 2015, mainly due to lower net income.
In the first nine months of 2016, cash flow from operating activities
increased 32 percent compared with the same period a year ago, primarily
due to stronger working capital management and timing of income tax
payments.
Shareholder returns
On
September 30, 2016, ABB announced the completion of the share buyback
program that was introduced in September 2014. During the buyback
program, ABB repurchased a total of 171.3 million registered shares
(equivalent to 7.4 percent of its issued share capital at the launch of
the buyback program) for a total amount of approximately $3.5 billion.
At
its Capital Markets Day on October 4, 2016, ABB announced its plans for
a new share buyback program of up to $3 billion from 2017 through 2019.
This reflects the company’s confidence and the continued strength of
ABB’s cash generation and financial position.
Divestitures
In
line with its strategy to continuously optimize the portfolio, ABB
announced in September the planned sale of its global high-voltage
cables systems business to NKT Cables. The transaction is expected to
close in the first quarter of 2017 subject to regulatory clearances. ABB
and NKT also signed an agreement for a long-term strategic partnership
that will serve future projects globally.
Management changes
Today,
ABB announced the appointment of Timo Ihamuotila as Chief Financial
Officer and member of the Executive Committee, effective April 1, 2017.
Ihamuotila succeeds current CFO Eric Elzvik in an orderly transition
process, who will pursue career opportunities outside of ABB after a
thorough handover in the second quarter of 2017. Ihamuotila joins ABB
from Nokia, “a global leader in the technologies that connect people and
things,” where he has been the Chief Financial Officer for the last
seven years. Ihamuotila is a proven CFO with deep experience in
communications, software and services industries, active portfolio
management and operational performance improvement. He brings a deep
understanding of corporate transformation and digital business models.
“Timo
is a seasoned CFO with an impressive global track record,” said CEO
Ulrich Spiesshofer. “He has extensive and deep experience in all aspects
of finance as well as in transforming businesses in times of industrial
digitalization. With his wide expertise, ranging from financial to
commercial to general management, he is the ideal person to lead our
finance organization and partner to drive ABB’s ongoing transformation
as a leader in the digital industry. I am delighted to welcome Timo to
our Executive Committee in these exciting times, as we focus on
unlocking maximum value for all shareholders,” Spiesshofer said. “At the
same time I would like to warmly thank Eric Elzvik already now for his
long, outstanding commitment and many valuable contributions to ABB over
more than three decades. During Eric’s CFO tenure, a new cash culture
together with a significant improvement of our Net Working Capital, a
fundamental productivity improvement of the finance function and many
portfolio actions were successfully established and delivered. We wish
Eric all the best for the next step of his professional career which he
will pursue after the orderly handover process is completed in Q2 2017.”
Q3 divisional performance
($ in millions,
unless otherwise indicated)
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Orders |
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Change
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Revenues |
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Change
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Operational EBITA % |
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Change
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US$
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Compara-
ble1 |
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US$
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Compara-
ble1 |
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Electrification Products |
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2,223
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-6%
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-4%
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2,308
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-2%
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0%
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17.8%
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+0.4pts
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Discrete Automation & Motion |
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2,123
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-5%
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-4%
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2,203
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-1%
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0%
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14.1%
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-0.7pts
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Process Automation |
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1,193
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-22%
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-21%
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1,523
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-8%
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-7%
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12.2%
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+1.5pts
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Power Grids |
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2,391
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-22%
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-21%
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2,636
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-6%
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+1%
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9.5%
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+1.7pts
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Corporate & other (incl. inter-division elimination) |
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-397
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-415
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ABB Group |
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7,533
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-14%
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-13%
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8,255
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-3%
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0%
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12.6%
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+0.1pts
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Electrification Products
Total
orders were down as positive order development in Europe could not
offset a decline in the Americas and AMEA. In particular, markets
including China, Saudi Arabia, Brazil and Turkey were challenging, while
Italy, Switzerland and India were stronger. Revenues were steady, and
operational EBITA margin improved 40 basis points to 17.8 percent, due
to additional cost savings, capacity adjustments and supply chain
management.
Discrete Automation and Motion
Continued
strong demand patterns in robotics and in food and beverage could not
offset the capex declines in process industries such as oil and gas,
which negatively impacted order development. Revenues were steady,
reflecting strong order execution. Operational EBITA margin declined 70
basis points compared with the same quarter a year ago primarily due to
unfavorable mix and lower capacity utilization. Continued capacity
adjustments and productivity improvements are underway.
Process Automation
Total
orders were 21 percent lower (22 percent in US dollars) as reduced
capital expenditure and cautious discretionary spending in process
industries continued to impact large as well as base orders (13 percent
lower, 13 percent in US dollars). Revenues declined 7 percent (8 percent
in US dollars) as steady demand for specialty vessels could not
compensate for declines in such segments as mining and oil and gas.
Operational EBITA margin increased 150 basis points to 12.2 percent due
to successful project execution and implemented cost reduction and
productivity measures.
Power Grids
Total
orders were lower compared with the same quarter a year ago primarily
due to the timing of large order awards. Lower base orders reflected
sluggishness in some markets such as the US, Saudi Arabia and Brazil
while Europe remained supportive. Revenues were slightly higher due to
steady execution of a healthy order backlog. Operational EBITA margin
increased by 170 basis points to 9.5 percent. This solid performance was
driven by sustained project execution, improved productivity and
continued cost savings.
Next Level strategy – Stage 3
On
October 4, 2016, ABB launched Stage 3 of its Next Level strategy to
unlock value for customers and shareholders. The core elements of this
include: shaping ABB’s divisions into four market-leading,
entrepreneurial units; realizing ABB’s full digital potential;
accelerating momentum in operational excellence; and strengthening ABB’s
brand.
Driving growth in four market-leading entrepreneurial divisions
ABB
is shaping and focusing its divisional structure into four
market-leading divisions: Electrification Products, Robotics and Motion,
Industrial Automation and Power Grids, effective January 1, 2017. The
divisions will be empowered as entrepreneurial units within ABB,
reflected in an enhancement of ABB’s performance and compensation model
focusing on individual accountability and responsibility. They will
benefit from sales collaboration orchestrated by regions and countries
as well as from the group-wide digital offering, ABB’s leading G&A
structure and costs, common supply chain management, and corporate
research centers.
ABB announced two important
partnerships in line with transforming the Power Grids offering. The
agreements with Fluor and Aibel are examples in which ABB will bring its
leading technology in power transmission and distribution. Fluor and
Aibel provide execution of turnkey Engineering, Procurement and
Construction (EPC) responsibilities for substations and offshore wind
connections, respectively.
A quantum leap in digital with ABB AbilityTM
ABB
is a hidden digital champion today. It is ideally positioned to win in
the digital space with new and existing end-to-end digital solutions.
The newly launched ABB Ability offering combines ABB’s portfolio of
digital solutions and services across all customer segments, cementing
the group’s leading position in the Fourth Industrial Revolution and
supporting the competitiveness of ABB’s four entrepreneurial divisions.
The
company has announced a far-reaching strategic partnership with
Microsoft, the world’s largest software company, to develop
next-generation digital solutions on an integrated open cloud platform.
Customers will benefit from the unique combination of ABB’s deep domain
knowledge and extensive portfolio of industrial solutions and
Microsoft’s Azure intelligent cloud as well as B2B engineering
competence. Together, the partners will drive digital transformation in
customer segments across ABB’s businesses in utilities, industry and
transport and infrastructure.
Accelerating momentum in operational excellence
ABB continues to build on its existing momentum and is further accelerating its operational excellence.
The
company’s White-Collar Productivity savings program has outperformed
expectations since its launch last year. As a result, ABB has increased
the program’s cost reduction target by 30 percent to $1.3 billion. ABB
will achieve these additional savings within the initially announced
timeframe and for $100 million lower of total combined restructuring
program and implementation costs. ABB is continuing its regular
cost-savings programs, leveraging operational excellence and world-class
supply chain management to achieve savings equivalent to 3-5 percent of
cost of sales each year.
ABB reaffirms the target of
its Net Working Capital program to free up approximately $2 billion by
the end of 2017. The program is well on track and focuses on improving
inventory management by optimizing the entire value chain, from product
design to manufacturing, and by optimizing other net working capital
measures.
Strengthening the global ABB brand
ABB
will adopt a single corporate brand, consolidating all its brands
around the world under one umbrella. ABB’s portfolio of companies will
be unified, showcasing the full breadth and depth of the company’s
global offering under one master brand. This transition is expected to
take up to two years.
ABB reaffirmed its Group 2015-2020 financial targets.
Outlook
Macroeconomic
and geopolitical developments are signaling a mixed picture with
continued uncertainty. Some macroeconomic signs in the US remain
positive and growth in China is expected to continue, although at a
slower pace than in 2015. The market remains impacted by modest growth
and increased uncertainties relating to Brexit in Europe and
geopolitical tensions in various parts of the world. Oil prices and
foreign exchange translation effects are expected to continue to
influence the company’s results.
The attractive
long-term demand outlook in ABB’s three major customer sectors —
utilities, industry and transport & infrastructure — is driven by
the Energy and Fourth Industrial Revolutions.
ABB is
well-positioned to tap into these opportunities for long-term profitable
growth with its strong market presence, broad geographic and business
scope, technology leadership and financial strength.
More information
The
Q3 2016 results press release and presentation slides are available on
the ABB News Center at www.abb.com/news and on the Investor Relations
homepage at www.abb.com/investorrelations.
ABB will
host a press conference today starting at 9:00 a.m. Central European
Time (CET) (8:00 a.m. BST, 3:00 a.m. EDT). The event will be accessible
by conference call. Callers from the UK should dial +44 203 059 58 62.
From Sweden, the number to dial is +46 85 051 00 31, and from the rest
of Europe, +41 58 310 50 00. Callers from the US and Canada should dial
+1 866 291 41 66 (toll-free) or +1 631 570 56 13 (long-distance charges
apply). Lines will be open 10 to 15 minutes before the start of the
conference. A podcast of the media conference will be available for one
week afterwards. The podcast will be accessible at:
http://new.abb.com/media/events
A conference call for
analysts and investors is scheduled to begin today at 2:00 p.m. CET
(1:00 p.m. BST, 8:00 a.m. EDT). Callers from the UK should dial +44 203
059 58 62. From Sweden, the number to dial is +46 85 051 00 31, and from
the rest of Europe, +41 58 310 50 00. Callers from the US and Canada
should dial +1 866 291 41 66 (toll free) or +1 631 570 56 13
(long-distance charges apply). Callers are requested to phone in 10
minutes before the start of the call. The call will also be accessible
on the ABB website and a recorded session will be available as a podcast
one hour after the end of the conference call and can be downloaded
from our website www.abb.com.
ABB (ABBN: SIX Swiss Ex)
is a pioneering technology leader in electrification products, robotics
and motion, industrial automation and power grids, serving customers in
utilities, industry and transport & infrastructure globally.
Continuing more than a 125-year history of innovation, ABB today is
writing the future of industrial digitalization and driving the Energy
and Fourth Industrial Revolutions. ABB operates in more than 100
countries with about 135,000 employees. www.abb.com
Investor calendar 2016/2017
|
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|
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|
|
Fourth-quarter and full-year 2016 results |
|
|
February 8, 2017 |
|
Annual General Meeting (Zurich) |
|
|
April 13, 2017 |
|
First quarter 2017 results |
|
|
April 20, 2017 |
|
Second quarter 2017 results |
|
|
July 20, 2017 |
|
Third quarter 2017 results |
|
|
October 26, 2017 |
Important notice about forward-looking information
This
press release includes forward-looking information and statements as
well as other statements concerning the outlook for our business,
including those in the sections of this release titled “Short-term
outlook”, “Outlook”, “Shareholder Returns”, “Divestitures”, “Management
Changes” and “Next Level strategy - Stage 3”. These statements are based
on current expectations, estimates and projections about the factors
that may affect our future performance, including global economic
conditions, the economic conditions of the regions and industries that
are major markets for ABB Ltd. These expectations, estimates and
projections are generally identifiable by statements containing words
such as “expects,” “believes,” “estimates,” “targets,” “plans,” “is
likely”, “intends” or similar expressions. However, there are many risks
and uncertainties, many of which are beyond our control, that could
cause our actual results to differ materially from the forward-looking
information and statements made in this press release and which could
affect our ability to achieve any or all of our stated targets. The
important factors that could cause such differences include, among
others, business risks associated with the volatile global economic
environment and political conditions, costs associated with compliance
activities, market acceptance of new products and services, changes in
governmental regulations and currency exchange rates and such other
factors as may be discussed from time to time in ABB Ltd’s filings with
the U.S. Securities and Exchange Commission, including its Annual
Reports on Form 20-F. Although ABB Ltd believes that its expectations
reflected in any such forward-looking statement are based upon
reasonable assumptions, it can give no assurance that those expectations
will be achieved.
Zurich, October 27, 2016
Ulrich Spiesshofer, CEO
1
For a reconciliation of non-GAAP measures, see “Supplemental
Reconciliations and Definitions” in the attached Q3 2016 Financial
Information
2 Growth rates for orders, revenues and
order backlog are on a comparable basis (local currency adjusted for
acquisitions and divestitures), previously referred to as
‘like-for-like’. US$ growth rates are presented in Key Figures table
3 Constant currency (not adjusted for portfolio changes)
4
EPS growth rates are computed using unrounded amounts. Comparable
operational earnings per share is in constant currency (2014 exchange
rates and not adjusted for changes in the business portfolio
Contacts
ABB
Media Relations
Saswato Das / Markus Gamper / Antonio Ligi / Domenico Truncellito / Sandra Wiesner
Tel: +41 43 317 65 68
media.relations@ch.abb.com
or
Investor Relations
Tel. +41 43 317 71 11
investor.relations@ch.abb.com
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