ZURICH -Wednesday 22 July 2020 [ AETOS Wire ]
Strong COVID-19 headwinds; Power Grids divestment completed
• Orders $6.1 billion, -18%; comparable -14%1
• Revenues $6.2 billion, -14%; comparable -10%
• Income from operations $571 million; margin 9.3%
• Operational EBITA1 $651 million; margin1 10.6%
• Net income $319 million, +398%2
• Basic EPS $0.15, +398%3; operational EPS1 $0.22, -35%
• Cash flow from operating activities $680 million; resilient cash delivery expected for the full year
• Power Grids divestment completed July 1
• Net cash proceeds to be returned to shareholders, as planned
ZURICH--(BUSINESS
WIRE/AETOSWire)-- “As expected, the second quarter has been heavily
impacted by COVID-19. At the same time, we were very focused on cost
mitigation efforts which provided some resilience. Operational margins
for the Group turned out better than we had anticipated, with Motion
doing particularly well,” said Björn Rosengren, CEO of ABB. “A lot of
uncertainty remains and we still see some challenging quarters ahead. At
the same time, our way forward is clear. We will continue to roll out
our new operating model, review our business portfolio and start our
share buyback program.”
KEY FIGURES
|
CHANGE
|
CHANGE
| ||||||
($ millions, unless otherwise indicated)
|
Q2 2020
|
Q2 2019
|
US$
|
Comparable
|
H1 2020
|
H1 2019
|
US$
|
Comparable
|
Orders
|
6,054
|
7,401
|
-18%
|
-14%
|
13,400
|
15,014
|
-11%
|
-7%
|
Revenues
|
6,154
|
7,171
|
-14%
|
-10%
|
12,370
|
14,018
|
-12%
|
-8%
|
Income from operations
|
571
|
123
|
+364%
|
944
|
713
|
+32%
| ||
Operational EBITA1
|
651
|
825
|
-21%
|
-20%4
|
1,287
|
1,591
|
-19%
|
-18%4
|
as % of operational revenues
|
10.6
|
11.5
|
-0.9 pts
|
10.4
|
11.4
|
-1.0 pts
| ||
Income from continuing operations, net of tax
|
395
|
(54)
|
n.a.
|
721
|
361
|
+100%
| ||
Net income attributable to ABB
|
319
|
64
|
+398%
|
695
|
599
|
+16%
| ||
Basic EPS ($)
|
0.15
|
0.03
|
+398%3
|
0.33
|
0.28
|
+16%3
| ||
Operational EPS ($)1
|
0.22
|
0.34
|
-35%3
|
-33%3
|
0.52
|
0.64
|
-19%3
|
-18%3
|
Cash flow from operating activities5
|
680
|
0
|
n.a.
|
103
|
(256)
|
n.a.
| ||
On
December 17, 2018, ABB announced an agreed sale of its Power Grids
business. Consequently, the results of the Power Grids business are
presented as discontinued operations.
Q2 2020 Group results
Summary
Trading
conditions during the second quarter were challenging, influenced by
the escalating COVID-19 pandemic. Alongside the sharp drop in
short-cycle demand that lowered product volumes, system installation and
service activities faced extensive mobility restrictions. Reflecting
this, orders and revenues for the second quarter period were severely
dampened across the Group when compared to the prior year period.
Motion’s result fared better, aided by a strong rebound in China and
strong backlog execution. Despite intensified cost mitigation,
operational margins contracted in Electrification, Industrial Automation
and Robotics & Discrete Automation compared to the prior year
period, while Motion improved its margin year-on-year.
Orders
Orders
were 18 percent lower (14 percent comparable) in the quarter compared
to the prior year period. Foreign exchange translation effects had a net
negative impact of 2 percent and portfolio changes a net negative
impact of 2 percent. The order backlog was 1 percent lower (up 5 percent
comparable) at the end of the quarter.
Regional overview
–
Orders from Europe were 18 percent lower (14 percent comparable). Most
countries had materially lower orders, driven mainly by lockdowns.
Orders were 4 percent lower in Germany (2 percent comparable), 4 percent
lower in the UK (up 1 percent comparable) and 3 percent lower in
Switzerland (4 percent comparable). Orders fell materially in Italy,
which was 13 percent lower (9 percent comparable), and in Finland,
Norway, Spain and the Netherlands declined even more steeply. Orders
from Sweden advanced 9 percent (11 percent comparable).
–
Orders from the Americas were 26 percent lower (23 percent comparable),
with nearly all countries reporting lower order levels. In the US,
orders declined by 25 percent (23 percent comparable).
–
In Asia, Middle East and Africa (AMEA), orders were 11 percent lower (5
percent comparable), with a notable drop in India of 40 percent (33
percent comparable). In China, demand improved sequentially; orders were
3 percent lower (up 3 percent comparable) on a year-on-year basis in
the second quarter.
End-market overview
–
In discrete industries, orders were disrupted in most end-markets, with
orders from automotive and automotive sector-related industries as well
as machine builders severely impacted. 3C activities were challenged,
although they trended more favorably toward quarter end.
–
Process industry activities fell sharply in the quarter. Service
activities were severely constrained by lockdowns, as well as customers
reducing operational expenditure. In addition, multiple capital
expenditure projects have been deferred as customers adapt to a softer
demand outlook.
–
In transport & infrastructure, investments in rail, e-mobility,
water & wastewater and data centers continued. As well, orders
were resilient in electrical distribution utilities. However, marine and
renewables activities declined steeply.
– Buildings were challenged, with construction activity constrained by lockdowns.
Revenues
Revenues
were 14 percent lower (10 percent comparable) year-on-year. Foreign
exchange translation effects had a net negative impact of 2 percent and
portfolio changes a net negative impact of 2 percent. The book-to-bill
ratio for the quarter was 0.98x1, compared to 1.03x in the prior year
period.
Income from operations and operational EBITA
Income
from operations of $571 million increased 364 percent. Compared to the
prior year, the result benefited mainly from the absence of the charge
booked in 2019 in relation to the sale of the solar inverters business.
The year-on-year increase was also aided by a net $86 million gain
related to timing differences on commodities and foreign exchange, and
lower expenses related to restructuring and integration efforts.
Operational
EBITA1 of $651 million was 21 percent lower (20 percent in local
currencies). The operational EBITA margin1 of 10.6 percent was 90 basis
points lower year-on-year. Margins were higher in Motion while all other
businesses reported lower margins compared to the prior year period,
mainly reflecting lower volumes, despite intensified cost mitigation
efforts. Corporate & Other costs, including $19 million stranded
costs, improved when compared to the prior year period.
Net income and basic earnings per share
Net
income from continuing operations was $395 million, significantly
higher mainly due to the aforementioned absence of the solar inverters
charge. The Group’s effective tax rate was 24.8 percent. Discontinued
operations reported $49 million in losses, reflecting a material
non-operational pension charge as well as subdued operational
performance mainly due to COVID-19 disruption.
Group
net income attributable to ABB was $319 million and basic EPS $0.15,
398 percent higher for both on a year-on-year basis. Operational EPS of
$0.221 was 35 percent3 lower compared to the prior year period.
Cash flow from operating activities
Cash
flow from operating activities was $680 million, versus $0 million in
the second quarter of 2019. Despite the reduction in business
activities, cash flow from operating activities from continuing
operations improved materially, while the amount from discontinued
operations was $32 million.
Cash
flow from operating activities from continuing operations was supported
mainly by timing differences on employee incentive payments, which were
distributed in the first quarter this year as opposed to the second
quarter last year. As well, cash flow benefited from timing of tax
payments and favorable net working capital movement. Net working capital
as a percent of revenues ended the quarter at 12.6 percent.
Q2 2020 business area results
All commentary by business area relates to second quarter results on a year-on-year basis.
Electrification (EL)
KEY FIGURES
|
CHANGE
|
CHANGE
| ||||||
($ millions, unless otherwise indicated)
|
Q2 2020
|
Q2 2019
|
US$
|
Comparable
|
H1 2020
|
H1 2019
|
US$
|
Comparable
|
Orders
|
2,737
|
3,339
|
-18%
|
-12%
|
5,858
|
6,702
|
-13%
|
-7%
|
Order backlog
|
4,465
|
4,553
|
-2%
|
+6%
|
4,465
|
4,553
|
-2%
|
+6%
|
Revenues
|
2,764
|
3,272
|
-16%
|
-10%
|
5,537
|
6,329
|
-13%
|
-9%
|
Operational EBITA1
|
348
|
440
|
-21%
|
666
|
817
|
-18%
| ||
as % of operational revenues
|
12.6%
|
13.5%
|
-0.9 pts
|
12.0%
|
12.9%
|
-0.9 pts
| ||
– Orders
were impacted by a fall in short-cycle demand including in the
buildings market, and a material decline in the oil and gas and
renewables markets. Select markets including electric distribution
utilities, rail, e-mobility and data centers offered relative
resilience. All regions declined, with demand from the Americas
materially impacted by COVID-19.
– Revenues declined due to weak short-cycle business as well as constrained project activities, mainly in Distribution Solutions.
– Margin
contraction was essentially driven by lower volumes. This was partly
mitigated by supportive cost savings initiatives and resilient pricing,
as well as the ongoing turnaround of GEIS and Installation Products,
both of which remain firmly on track.
Industrial Automation (IA)
KEY FIGURES
|
CHANGE
|
CHANGE
| ||||||
($ millions, unless otherwise indicated)
|
Q2 2020
|
Q2 2019
|
US$
|
Comparable
|
H1 2020
|
H1 2019
|
US$
|
Comparable
|
Orders
|
1,305
|
1,622
|
-20%
|
-17%
|
3,062
|
3,288
|
-7%
|
-4%
|
Order backlog
|
5,210
|
5,240
|
-1%
|
+3%
|
5,210
|
5,240
|
-1%
|
+3%
|
Revenues
|
1,382
|
1,580
|
-13%
|
-9%
|
2,844
|
3,098
|
-8%
|
-5%
|
Operational EBITA1
|
115
|
190
|
-39%
|
259
|
395
|
-34%
| ||
as % of operational revenues
|
8.4%
|
12.1%
|
-3.7 pts
|
9.1%
|
12.8%
|
-3.7 pts
| ||
– Orders
reflect a sharp downturn across energy and process industries as well
as a fall-off in marine, even while the business area benefited from
select large order wins. Orders were lower in all regions, with a severe
drop in the Americas.
– Revenues were impacted by a substantial drop in book-and-bill activities, particularly mobility constrained services.
– Aside from lower volumes, margins were held back by under-absorption and negative mix, mainly from lower service activities.
Motion (MO)
KEY FIGURES
|
CHANGE
|
CHANGE
| ||||||
($ millions, unless otherwise indicated)
|
Q2 2020
|
Q2 2019
|
US$
|
Comparable
|
H1 2020
|
H1 2019
|
US$
|
Comparable
|
Orders
|
1,586
|
1,762
|
-10%
|
-7%
|
3,487
|
3,562
|
-2%
|
0%
|
Order backlog
|
3,384
|
3,050
|
+11%
|
+13%
|
3,384
|
3,050
|
+11%
|
+13%
|
Revenues
|
1,583
|
1,641
|
-4%
|
-1%
|
3,093
|
3,246
|
-5%
|
-3%
|
Operational EBITA1
|
279
|
275
|
+1%
|
509
|
538
|
-5%
| ||
as % of operational revenues
|
17.7%
|
16.7%
|
+1.0 pts
|
16.5%
|
16.6%
|
-0.1 pts
| ||
–
A
broad-based short-cycle downturn weighed on orders, even while orders
remained healthy in the rail and chemicals sectors. Orders across the
Americas fell steeply, substantially mitigated by a strong rebound in
China.
– Resilient revenue development mainly reflects strong backlog execution.
– Margin expansion was driven by strong cost actions and favorable mix.
Robotics & Discrete Automation (RA)
KEY FIGURES
|
CHANGE
|
CHANGE
| ||||||
($ millions, unless otherwise indicated)
|
Q2 2020
|
Q2 2019
|
US$
|
Comparable
|
H1 2020
|
H1 2019
|
US$
|
Comparable
|
Orders
|
638
|
883
|
-28%
|
-25%
|
1,449
|
1,850
|
-22%
|
-19%
|
Order backlog
|
1,478
|
1,586
|
-7%
|
-4%
|
1,478
|
1,586
|
-7%
|
-4%
|
Revenues
|
629
|
845
|
-26%
|
-23%
|
1,300
|
1,696
|
-23%
|
-21%
|
Operational EBITA1
|
43
|
105
|
-59%
|
102
|
200
|
-49%
| ||
as % of operational revenues
|
6.8%
|
12.3%
|
-5.5 pts
|
7.8%
|
11.8%
|
-4.0 pts
| ||
– Against
a tough comparison base for large orders, RA’s order result moved
sharply lower, as expected. Activity levels declined materially across
key end-markets, including automotive, general industry and machine
builders. Orders fell sharply in Europe and the Americas, while demand
from the AMEA region remained weak.
– Revenues were severely impacted by lower systems business and service activities, as well as lower product volumes.
– Margin contraction reflects steep volume decline, which outweighed supportive cost actions.
Corporate and Other
KEY FIGURES
|
CHANGE
|
CHANGE
| ||||
($ millions, unless otherwise indicated)
|
Q2 2020
|
Q2 2019
|
US$
|
H1 2020
|
H1 2019
|
US$
|
Orders
|
(212)
|
(205)
|
(7)
|
(456)
|
(388)
|
(68)
|
Revenues
|
(204)
|
(167)
|
(37)
|
(404)
|
(351)
|
(53)
|
Income from operations
|
(153)
|
(285)
|
+132
|
(326)
|
(515)
|
+189
|
Operational EBITA1
|
(134)
|
(185)
|
+51
|
(249)
|
(359)
|
+110
|
– Corporate
and Other operational EBITA improved to -$134 million. Compared to a
year ago this reflects lower stranded and lower ongoing corporate costs.
– In
the second quarter of 2020, stranded costs of $19 million were
recognized, impacting operational EBITA margin by 30 basis points.
Corporate and Other orders and revenues primarily represent intersegment eliminations.
Capital structure optimization
ABB
divested 80.1 percent of its Power Grids business to Hitachi on July 1,
2020, as planned, delivering on an important milestone in the company’s
transformation agenda as announced in December 2018.
ABB
is committed to returning to shareholders net cash proceeds from the
Power Grids divestment of $7.6-7.8 billion. ABB will initially launch a
share buyback program of 10 percent6 of the company’s share capital to
begin imminently. This represents about 180 million shares in addition
to those already held in treasury.
Also,
as part of the overall capital structure optimization program, ABB has
now repaid fully the €2 billion short-term revolving credit facility put
in place to strengthen liquidity in the face of COVID-19. The Group
plans to implement further deleveraging actions, including a review of
certain defined benefit pension structures, as well as repayment of a €1
billion bond that matures in October 2020. ABB aims to maintain its
single A credit rating.
“ABB’s
capital structure optimization during the coming years will focus on
shareholder returns, by executing on its share buyback program, as
planned, as well as by improving the company’s risk profile and finance
costs through an efficient deleveraging strategy. In these challenging
times, ABB has a resilient financial framework and strong balance
sheet,” said Timo Ihamuotila, CFO of ABB.
Transformation progress
ABB’s
CEO presented his First Perspectives to investors on June 10, 2020,
outlining ABB’s way forward on creating value for shareholders,
customers and employees. Following a new ABB Way of working, the Group
intends to accelerate its transition to a fully decentralized operating
model. This comprises four business areas – Electrification, Industrial
Automation, Motion and Robotics & Discrete Automation – with 18
divisions, governed by a lean corporate. Going forward, the 18 divisions
will have full accountability for their P&L and operational
balance sheet. ABB’s management team will prioritize improvement of the
Group’s financial performance, with a clear profitability focus for
underperforming divisions, as well as active portfolio management. A
new, division level, scorecard system using standardized KPIs to measure
performance and drive continuous improvement will be introduced in the
third quarter of 2020. ABB is on track for faster delivery of ~$500
million per annum net savings initiated through the ABB-OS
simplification program.
ABB
plans to host a Capital Markets Day in November 2020 that will provide
more detail on the portfolio’s evolution and business area and
divisional strategies, while also setting out ABB’s 2030 sustainability
targets.
Short-term outlook
The
global economy is expected to contract in 2020 after a rapid
deterioration in outlook driven by the COVID-19 pandemic. Despite
unprecedented stimuli by governments and central banks around the world
and a recovery in economic activity in China in the second quarter,
macro-indicators continue to point to a deep global recession with
uncertainty around the pace of recovery. Many countries continue to face
ongoing or new restrictions, with anticipated long-term economic
consequences.
The
impact of COVID-19 continues to weigh on the short-term outlook across
many end-markets, and particularly in oil and gas, conventional power
generation, automotive, marine and buildings. Some end markets such as
electrical distribution, transport, data centers and food and beverage
continue to show relative resilience.
Potential
easing of COVID-19 impacts remain subject to considerable
uncertainties. Against this background, ABB expects some improvement in
year-on-year order decline already in the third quarter. Revenues are
expected to remain strongly impacted on a year-on-year basis, at best
recovering somewhat in the fourth quarter.
As
ABB continues to adapt its operations and cost base to safeguard
profitability, it expects its operational margin to steady on a
sequential basis. The company anticipates resilient cash delivery for
the full year.
More information
The
Q2 2020 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. A conference call and webcast
for analysts and investors is scheduled to begin today at 10:00 a.m.
CEST (9:00 a.m. BST). To pre-register for the conference call or to join
the webcast, please refer to the ABB website:
www.abb.com/investorrelations. The recorded session will be available
after the event on ABB’s website.
ABB
(ABBN: SIX Swiss Ex) is a leading global technology company that
energizes the transformation of society and industry to achieve a more
productive, sustainable future. By connecting software to its
electrification, robotics, automation and motion portfolio, ABB pushes
the boundaries of technology to drive performance to new levels. With a
history of excellence stretching back more than 130 years, ABB’s success
is driven by about 110,000 talented employees in over 100 countries.
INVESTOR CALENDAR
Q3 2020 results October 23, 2020
Capital Markets Day November 2020
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 “Capital
structure optimization”, “Transformation progress” and “Short-term
outlook”. 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.
These expectations, estimates and projections are generally
identifiable by statements containing words such as “anticipates”,
“expects,” “believes,” “estimates,” “plans”, “targets” 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, July 22, 2020
Björn Rosengren, CEO
__________
1 For
a reconciliation of non-GAAP measures, see “supplemental
reconciliations and definitions” in the attached Q2 2020 Financial
Information.
2 The
result benefited mainly from the absence of the charge booked in 2019
in relation to the sale of the solar inverters business.
3 EPS
growth rates are computed using unrounded amounts. Comparable
operational earnings per share is in constant currency (2019 exchange
rates not adjusted for changes in the business portfolio).
4 Constant currency (not adjusted for portfolio changes).
5 Amount represents total for both continuing and discontinued operations.
6 Maximum 10 percent of the company’s issued share capital, including treasury shares.
View source version on businesswire.com: https://www.businesswire.com/news/home/20200721005994/en/
Contacts
ABB Ltd
Affolternstrasse 44
8050 Zurich
Switzerland
Media Relations
Phone: +41 43 317 71 11
E-mail: media.relations@ch.abb.com
or
Investor Relations
Phone: +41 43 317 71 11
E-mail: investor.relations@ch.abb.com
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