ABB Asea Brown Boveri Group Results 1995

Zurich, Switzerland/Warsaw, Poland, February 28, 1996 - Strong demand for industrial products combined with ongoing cost reductions and productivity improvements helped ABB achieve record results in 1995, the international electrical engineering group announced at a press conference today in Warsaw, Poland.

Despite continued price pressure in many of its businesses, ABB was able to boost operating earnings after depreciation by 25 percent to US$3,275 on revenues of US$33,738 million, up 14 percent over the year before. Income before taxes rose 46 percent to US$2,110 million while net income was up 73 percent to US$1,315 million. Profits rose in all segments. Continued expansion in Asia and a substantial result improvement in the U.S.A. also contributed to the results. ABB proposed a 1995 dividend of US$441 million, up 40 percent from 1994.

As reported earlier, ABB entered into a strategic joint venture with Daimler-Benz AG of Germany to merge their respective rail transportation business. ABB expects the company to contribute long-term to Group profit and be an important customer for many Group companies. The merger resulted in a net gain to ABB of US$250 million in 1995.

The two parent company Boards, ASEA and BBC Brown Boveri, and the ABB Board decided on changes to ABB's governance structure. Details of these changes are being released separately today.

The results in detail

Orders Received and Revenues

Orders received for the ABB Group increased by 14 percent to US$36,224 million (1994: US$31,794 million). Expressed in local currencies, orders received were 7 percent higher than last year. The improvement in orders reflects the shift from large power generation projects towards standard and industrial products and capital goods which experienced 20 percent growth over the prior year. Among the largest orders booked in 1995 was US$470 million for a gasification power plant in Italy, high-efficiency gas turbines to South Korea, coal-fired boilers to Indonesia, a combined-cycle plant to Colombia, and an oil-fired plant to Jordan. Saudi Arabia awarded ABB a contract to build two power transmission substations and Qatar selected ABB to expand and upgrade its T&D network. Railway authorities in Sweden and Norway ordered metro cars, high-speed trains, and train sets. Oil, gas, and petrochemical projects and plants were announced for the United States and Norway. The order backlog at the end of 1995 increased to US
$33.5 billion compared to US$31.5 billion at year end 1994.

Revenues increased by 14 percent to US$33,738 million (1994: US$29,718 million). Expressed in local currencies revenues were 6 percent higher than last year.

Earnings

Operating earnings after depreciation increased by 25 percent to US$3,275 million (1994: US$2,619 million). Expressed in local currencies, operating earnings were 18 percent higher than last year. Operating earnings margin for 1995 reached 9.7 percent compared to 8.8 percent in 1994. This profit and margin improvement was achieved despite a very competitive pricing environment for new power plants, higher average world market prices for raw materials, and higher research and development costs. Productivity gains, establishment of low-cost manufacturing bases in developing markets, global sourcing, and prior restructuring efforts enabled ABB to grow in this competitive global environment. Unusual items showed a positive net of US$246 million. Unusual income, primarily capital gains from divestitures and real estate sales, reached US$442 million. The largest gain, US$250 million, came from the transfer of the ABB Transportation business to the ABB Daimler-Benz joint venture. Net unusual costs of US$196 million
consisted primarily of costs for discontinued operations and restructuring expenses spread out over many ABB companies.

Industrial and Building Systems reported a 35 percent improvement in earnings reflecting higher sales volumes for standard products in most markets and regions, productivity improvements, and the impact of continuous cost-cutting. Earnings from Financial Services increased 43 percent and achieved a record level of US$260 million in 1995. Transportation again increased profits, by 48 percent as rationalization and restructuring started in prior years are now having an increasing impact. Despite a very competitive environment, Power Generation was able to improve earnings 4 percent in 1995 due to its cost reduction efforts, the build up of capacity in Eastern Europe and Asia, and success in the service and retrofit market. Power Transmission and Distribution reported profits that were somewhat above last year's level.

On a comparable basis the largest contributors to operating earnings were Sweden, Germany, the United States, Switzerland, Norway, Finland, and Italy.

Earnings in Sweden, Finland, and Norway increased, helped by exports, stronger domestic industrial demand, and positive effects from customer focus programs and efficiency improvements. Central and Eastern Europe contributed positively to Group results, es pecially Poland and the Czech Republic. Earnings from North America increased substantially in 1995, reflecting improved industrial markets and gains in operational efficiency in industry and power generation. Profits from emerging countries in Asia increased, despite start up costs in several markets.

German results were down from the prior year, reflecting a slowing economy and a strong D-Mark. Middle East and Sub-Sahara Africa regions also showed some result decline.

Regional operating margins, based upon domestic and export revenues within a region, developed as follows in 1995: Europe 9.9 percent (1994: 9.3 percent), Americas 7.9 percent (1994: 5.8 percent), and Asia/Pacific and India 7.4 percent (1994: 7.2 percent).

Income before taxes increased by 46 percent to US$2,110 (1994: US$1,447 million). Expressed in local currencies income before taxes was 38 percent higher than last year. Total taxes for the ABB Group amounted to US$749 million (1994: US$652 million), corresponding to an overall tax rate of 36 percent.

Net income for 1995 was US$1,315 million (1994: US$760 million). Return on capital employed increased to 22.6 percent (1994: 17.6 percent) and return on equity increased to 28.4 percent (1994: 20.2 percent).

Investments, Divestitures and Capital Expenditure

Acquisitions amounted to US$315 million in 1995. Divestitures totaled US$1,140 in 1995 and included the transfer of ABB's transportation business to 50 percent owned ABB Daimler-Benz Transportation GmbH at year end. Capital expenditure for tangible fixed asse ts rose to US$1,171 million, compared to US$935 million in 1994. Group expenditure for research and development increased about US$300 million to US$2,627 million but in relative terms continued to represent about eight percent of revenues.

In 1995, costs primarily for discontinued operations and restructuring of US$196 million (1994: US$199 million) are included in the Consolidated Income Statement under Unusual Items. In addition, activities associated with the restructuring provision recorded in 1993 have been completed. The benefit of these streamlining and cost reduction actions is reflected in the improved results of the Group. Annual restructuring costs for ABB in the future are expected to be between one-half and one percent of revenues.

Financial Position

At the end of 1995, the Group's net cash position (defined as cash and marketable securities minus short-, medium-, and long-term loans) was about US$2 billion, an improvement of about US$300 million. The key reason for the improvement this year was the creation of the 50/50 owned transportation joint venture with Daimler-Benz which led to a net cash improvement of some US$775 million. At the same time the global volume growth and the build up of local presence in emerging markets led to increased working capital. Over the last five years, ABB's net cash position has improved by over US$4 billion.

Personnel

At the end of 1995 ABB had 209,637 employees, compared to 207,557 in 1994. Employment increased in Asia by 7,000 and also increased in other emerging markets. In Central and Eastern Europe there were net increases. Employment went down somewhat in the Western industrialized countries. Major reduction of employees, about 4,000, took place in 1995 in Germany, the United Kingdom, Portugal, Venezuela, and Switzerland. On a comparable scope -- excluding the impact of new ventures and acquisitions/divestitures -- the number of employees was about unchanged reflecting increased productivity during the recent economic upturn.

Personnel costs as a percentage of adjusted revenues, continued to decline, falling below 30 percent of revenues for the first time in the history of ABB. Just a few years ago it was 34 percent of adjusted revenues. Personnel cost reduction has been one of the main contributors to ABB's improvement in operating margin.

Outlook for 1996 and beyond

The market for new power plants is forecast to expand in the developing countries, but is expected to remain low in the industrialized nations. Demand growth for standard products and capital goods in OECD countries has started to slow and some construction related markets are experiencing lower growth. As ABB is late in the cycle, demand for industrial investment goods will continue to grow in 1996, but at a slower rate.

Earnings for the Power Generation segment in 1996 are forecast to be at or above the 1995 level. In Power Transmission and Distribution good growth will continue in the emerging markets and orders and earnings are expected to increase in 1996.

The outlook for 1996 in the Industrial and Building Systems segment remains positive. Expansion in emerging markets will continue in a focused and profitable way and increased order backlog and continued productivity gains are expected to contribute to higher earnings.

With the transportation merger, additional opportunities to reduce costs and improve margins will come from eliminating overlaps in manufacturing and development. The positive benefit of these actions will come primarily in 1997 and 1998. The long-term out look for this joint venture with Daimler-Benz is very good, for both growth and profit potential.

Financial Services earnings for 1996 are expected to be somewhat below the record performance of 1995.

On a comparable basis, a continued increase in net income for the Group is expected in 1996.

Based on ABB's strategy for profitable growth in both developing and industrialized countries we have set new objectives for the turn of the century. We aim to achieve some 6 percent average growth over the next full business cycle, reduce relative working capital and continue to raise result margins substantially.

Dividends

On February 27,1996 the ABB Annual General Meeting declared a dividend for 1995 of SFr.520 million to its two parent companies, ASEA AB and BBC Brown Boveri Ltd (1994: SFr. 370 million). Translated into dollars at the time of the dividend decision, it represented an increase of 40 percent over the 1994 dividend. This corresponds to 33.5 percent of Group net income for 1995.

• 1995 Consolidated Income Statement
• 1995 Consolidated Balance Sheet
• 1995 Business segment Figures