ABB net income down by 13 pct (Switzerland)

ABB today reported record full-year revenues and higher operational EBITDA, net income and free cash flow despite a challenging market environment. The Board of Directors has proposed to increase the dividend for 2013 to CHF 0.70 per share.

“These solid results, delivered in a mixed business climate and despite the setback in Power Systems, show the strength of ABB and our global team,” said ABB Chief Executive Officer Ulrich Spiesshofer.

“Our expanded product and geographic scope enabled us to increase profitability in automation, while we continued to generate market-leading returns in Power Products. We are confident Power Systems will deliver higher, more consistent returns once certain legacy projects have been executed and actions to improve risk and project management are complete.

“We again demonstrated good execution on costs savings and strong cash performance, allowing us to return a higher dividend to shareholders for the 5th consecutive year,” he said.

Early-cycle demand continued to trend positively in the second half of 2013 but was offset by delayed large project awards, leading to a lower order backlog at the end of the year. Orders also declined due to the effects of increased order selectivity in the Power Systems division.

“We confirm our margin and cash conversion targets, which are important health indicators for an industrial business,” Spiesshofer said. “Our current revenue CAGR expectation over the planning cycle reflects the slower than originally expected global economic recovery and the PS realignment. We aim to deliver attractive mid-teen CROI and continue to drive EPS growth over the current planning cycle of 2011-2015. We will share with the market our strategic ambitions and long-term financial targets in September.

“For 2014 we have a clear action plan with a focus on organic growth, further cost savings, higher cash flow generation and more consistent returns in Power Systems,” he said. “Our strong financial position gives us full flexibility to accomplish these goals, even in uncertain times. We are taking a systematic and robust approach to increasing shareholder value based on profitable growth, business-led collaboration and relentless execution.”

Earnings overview

ABB said: “Operational EBITDA in the fourth quarter of 2013 amounted to $1.4 billion, 3 percent above the year-earlier period, despite previously-announced charges of approximately $260 million related to project delays and operational issues in the Power Systems division. Operational EBITDA was higher in all divisions compared to the fourth quarter of 2012, including in the Power Systems division, which also reported charges to improve operational performance in the same quarter a year earlier. The operational EBITDA margin increased in the Power Products, Low Voltage Products and Process Automation divisions and was lower in Discrete Automation and Motion, reflecting the dilutive impact of the Power-One acquisition completed in the third quarter of 2013.

“Cost savings of approximately $350 million in the quarter and further productivity improvements more than compensated pricing pressures. Full-year cost savings amounted to approximately $1.2 billion.”

Net income

The Company added: “Net income for the quarter decreased 13 percent to $525 million and included approximately $350 million of depreciation and amortization, of which $104 million of amortization was related to acquisitions.

“Restructuring-related charges amounted to approximately $160 million, including the additional $50 million in the Power Systems division announced previously. Acquisition-related expenses and certain non-operational items were approximately $90 million, related mainly to changes in legal provisions, charges associated with the acquisition of Power-One, and losses on the sale of some non-core businesses.

“Net financial expenses increased to $72 million from $37 million in the same quarter in 2012, reflecting benefits recorded in 2012 upon resolution of certain tax contingencies that were not repeated in 2013. The provision for taxes amounted to $178 million in the fourth quarter and $1.1 billion for the full year, leading to a full-year tax rate of approximately 28 percent. A loss of $22 million in discontinued operations was related to charges associated with previously disposed businesses.

“Basic earnings per share amounted to $0.23 in the fourth quarter and were $1.21 for the full year.”

Outlook

“The long-term demand outlook for our businesses remains clearly positive. The need for efficient and reliable electricity transmission and distribution will continue to increase, driven by factors such as: accelerating urbanization in emerging markets; actions to address global warming; the rapidly increasing power needs from digitization; and the refurbishment of aging power grids. At the same time, demand for industrial automation solutions will grow as customers strive to improve productivity, efficiency, product quality, and safety. ABB is well positioned to tap these opportunities for long-term profitable growth with its strong market presence, broad geographic and business scope, technology leadership and financial strength.

“In the short term, there are some positive early-cycle macroeconomic signs, such as strengthening growth in the US and the more encouraging growth in many parts of Europe. However, there are also some uncertainties related to the impacts of quantitative easing and the speed and strength of economic development in the emerging markets, especially China.

“In this market environment, ABB’s management team aims to systematically drive profitable organic growth through increased market penetration, generating more revenues from our pipeline of new product innovations, and expanding into new attractive market segments. In addition, management intends to accelerate business-led collaboration, such as further developing the service business, driving the successful integration of acquired businesses and increasing ABB’s productivity by focusing internal support activities on the needs of customers. A third priority is relentless execution, especially in the areas of cost savings, cash flow generation and returning the Power Systems division to higher and more consistent returns, ” ABB said in a press release.

Press Release, February 13, 2014

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