Electrical Products Group Conference Peter Voser CFO
May 6, 2003
Safe-harbor statement This presentation includes forward-looking information and statements that are subject to risks and uncertainties that could cause actual results to differ. These statements are based on current expectations, estimates and projections about global economic conditions, the economic conditions of the regions and industries that are major markets for ABB Ltd and ABB Ltd’s lines of business. These expectations, estimates and projections are generally identifiable by statements containing words such as “expects,” “believes,” “estimates” or similar expressions. Important factors that could cause actual results to differ materially from those expectations include, among others, economic and market conditions in the geographic areas and industries that are major markets for ABB’s businesses, market acceptance of new products and services, changes in governmental regulations, interest rates, and fluctuation in currency exchange rates. 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.
Headquarters: Zurich, Switzerland
About 135,000 employees in more than 100 countries
Orders in 2002: US$ 18.1 billion
Revenues in 2002: US$ 18.3 billion
Listed on stock exchanges in London/Zurich, Stockholm, Frankfurt and New York
A leading power and automation technology company with strong market positions in its core businesses
Two core divisions: Automation Technologies, Power Technologies
Oil, Gas and Petrochemicals, Building Systems, to be divested in 2003
ABB Automation Technologies An integrated automation business, focused on core activities Former Automation BAs Control and Force Measurement Drives and Power Electronics
New Automation Technologies division
Business Areas with market position
Drives and Motors
Control & Enterprise Products
Low-Voltage & Instruments
Paper, Minerals, Marine, Turbo.
Former Industries BAs
Robotics, Automotive & Mfg.
Petroleum, Chemical, Consumer
Instrumentation and Metering Low-Voltage Products Robotics
Manufacturing, Electronics and Consumer Marine and Turbocharging Paper, Printing, Metals and Minerals Petroleum, Chemical, Life Sciences
150 manufacturing, ? 56,200 employees software and application centers
Automation Technologies: Strategic priorities Adapting to the needs of a cautious business enivronment ?
Optimizing our business ?
Cost structure (A global Step Change in the way we work)
Portfolio (Rationalize overlapping products and processes)
Productivity (Focused factories and engineering centers)
Leveraging our strong base ?
Penetration through account and channel management
Performance-based selling for double-digit service growth
Differentiating our offer ?
Innovation to maintain our leading edge
Industrial IT for added value and cross selling
Services: Driving profitable growth 2002 service revenue
2005 service revenue
Double-digit service revenue and EBIT growth for each of the last two years
Our strategy pays off in customer confidence Products: ?
ABB power electronics won every major rectifier/converter contract in 2002 Kestrel (Dubai) – US$ 19 million Hillside (S.Africa) – US$ 7 million
Aloutte (Canada) – US$ 8 million Tomago (Australia) – US$ 4 million
International Paper, New Zealand. US$ 50 million, 5-year contract for asset management services
Bobingen Industrial Park, Germany. US$ 135 million, 5-year contract for asset management services
BP, Azerbaijan. US$ 34 million control and data management for the world’s longest oil pipeline
DaimlerChrysler, U.S. US$ 15 million for power-train automation
High Voltage Products
Medium Voltage Power Distribution Products Transformers Transformers
Utility Automation Systems
ABB is the worldâ€™s no. 1 in power technologies
Global presence with about 40,000 employees in more than 70 countries
2003 strategic priorities ?
Continue to focus on cost reductions
Speed in processes
Focused Factories plus Focused Engineering
Continued site and product rationalization
Speed in systems ?
Continued push on product and system configurators to increase speed
Build on strong base and expansion ?
Take advantage of #1 market position
Capitalize on complete portfolio of products, systems, services
Boost channel partner business by more than 10%
Grow service business by more than 10%
Continue strong growth in India and China
Fully implement Focused Factory concept
Transformation of a confederation of local volume units to highly efficient Focused Factories
Focus on specific product ranges to achieve cost savings through economies of scale
Compete on speed and efficiency:
Short total cycle time
Advanced manufacturing technology
Demand flow systems from push to pull
Lean overhead structure
Deploy Industrial IT as next step of Focused Factories Focused Factory concept started in distribution transformers and is being deployed in all Business Areas
Speed in design
PowerIT MV Air Insulated Switchgear, UniGear for IEC mass market applications (up to 24kV)
Platform development ? Functionality implementation ? Phase in of global platform ? Product substitution
Q4 2001 2002
Example: Product portfolio rationalization in MV switchgear
For this product line an EBIT improvement of 18% was achieved in 2002
Speed in manufacturing systems
Example: Increase automation in Focused Factories e.g. MV breaker factory, Dalmine, Italy
Fully-automated Assembling and test line with automatic material handling
Improvements in the last two years: ? Inventory: from 18.7% to 8.2% ? Throughput time: from 1 week to 1 day ? Test hours: from 2.5 h to 35 minutes ? Cost of poor quality (COPQ): from 3.2% to 0.9% ? On time delivery: from 68% to 96%
For this product line an EBIT improvement of 20% was achieved in 2002 12
Building on strong base
Expand market position
Tap leading market position and large installed base to grow in high margin service business ?
Service business being implemented at the core of every business area
Accelerated targeting of key channel partners like OEMs* and EPCs*
Extend lead in high-growth regions, high-end technologies ?
Further double-digit growth in Asia 2003
Capitalize on HVDC* market opportunities
* OEM: Original Equipment Manufacturer EPC: Engineering, Procurement, Construction HVDC: High-voltage Direct Current
Core divisions Q1 2002 and Q1 2003 Power Technologies and Automation Technologies divisions (MUS$) Revenues 4'014 3'388
EBIT margins 290
Power Technologies - first quarter highlights ?
Orders up 6% ?
Double digit growth in Medium-Voltage Products business area
Largest export order from ABB India
Order intake improvements in Asia, Middle East, Eastern Europe
Revenues up 17%
EBIT up from US$ 110 to US$ 128 million
EBIT margin remained at 7.2%
Automation Technologies - first quarter highlights ?
Orders up 15% ?
Orders increased in Petroleum, Chemical and Consumer business areas
Two major service orders Italy and Germany, total value US$ 217 million
Order growth from Europe and Asia (China and India)
Revenues up 20%
EBIT up from US$ 108 to US$ 162 million
EBIT margin up from 5.8% to 7.3%
First quarter 2002
First quarter 2003
Group â€“ first quarter key figures First quarter 2003
First quarter 2002
EBIT Net interest expense
Net cash from operations Gross debt
* At December 31, 2002 18
Group - first quarter highlights ?
Divestments ? ?
Cost reduction program realized ? ?
Step Change program realized net cost savings of app. US$ 70 million (restructuring costs US$ 33 million) Step Change job reductions of ~1,700 (overall ~ 4,000 jobs fewer)
Progress on asbestos settlement ? ?
Aircraft leasing portfolio ABB Export Bankâ€™s car leasing assets sold
Well above 75 percent of claimants in favor Pre-packaged Chapter 11 filed
Confirmation court hearing started on April 24, continued on May 1-2 and will continue on May 11-13
ABB remains confident that the plan will be approved
Medium-term financing goals 2003 ?
Reduce total debt from US$ 8.2 billion at March 2003 to about US$ 6.5 billion, gearing [total debt/(total debt + equity)] to approximately 70 percent ?
Proceeds from divestment of Oil, Gas and Petrochemicals division, Building Systems and other businesses will significantly reduce debt by year-end 2003
Reduce total debt to approximately US$ 4 billion, gearing to approximately 50 percent ?
Debt reduction to come primarily through increased operational cash-effective earnings
Further strengthen core divisions
Continue to cut costs and losses in non-core and corporate activities
Execute planned divestments in 2003 to reduce debt with expected gross proceeds in excess of US$ 2 billion
Reduce volatility in core divisionsâ€™ quarterly cash flow
Solve the asbestos issue
ABB 2003 - 2005 Outlook
Revenues (local currencies)
EBIT margin (nominal currency)
Excluding major acquisitions/divestments 2005 EBIT margin target on estimated revenues of approximately US$ 17.5 billion
*Annual average growth rate 2002 - 2005 22