ZURICH--(BUSINESS WIRE)--“The COVID-19 pandemic impacted our first quarter results, lowering revenues and operating margins in all our businesses, although order growth held up well. We are doing our utmost to ensure the health and safety of our employees while maintaining business continuity, serving our customers and continuing to invest in R&D for the long-term,” said Björn Rosengren, CEO of ABB.

“In the second quarter, we expect ABB’s operations to be significantly challenged by a sharp drop in demand due to lockdowns in many parts of the world. Nevertheless, we will accelerate our efforts to manage our costs and safeguard liquidity, while moving ahead with decentralizing the group and our target to complete the divestment of Power Grids at the end of the second quarter.”

Summary

Against the backdrop of COVID-19, orders for the first quarter remained robust, with Motion and Industrial Automation both benefiting from strong large orders. However, revenues declined in all businesses, reflecting a drop in product demand due to the pandemic, at first in China, and then across other parts of the world, with mobility restrictions also constraining system installation and services activities. These developments, in turn, weighed on operating margins in all businesses, reflecting that certain costs remain essential for business continuity.

Orders

Orders were 4 percent lower (up 1 percent comparable) in the quarter compared to the prior year period. Foreign exchange translation effects had a net negative impact of 3 percent and portfolio changes a net negative impact of 2 percent. The order backlog was 1 percent lower (up 8 percent comparable) at the end of the quarter.

Regional overview

• Orders from Europe were 1 percent higher (5 percent comparable), supported by large orders. At the country level, performance was mixed. Sweden, Norway, the Netherlands and the UK were strong, but in Germany, Switzerland, Italy and Spain, where COVID-19 impacted earlier, orders declined when compared to the prior year period. In Germany, orders were 7 percent lower (4 percent comparable).
• Orders from the Americas were steady (up 2 percent comparable), reflecting the later onset of COVID-19 in the region. Orders from the United States were 2 percent higher (up 2 percent comparable).
• In Asia, Middle East and Africa (AMEA), orders were 12 percent lower (7 percent comparable). Orders from India, South Korea, Thailand and Indonesia advanced well while orders from Australia, Singapore and Japan fell back. In China, where the impacts of COVID-19 materialized first, orders declined 21 percent (16 percent comparable).

End-market overview

• In discrete industries, orders were disrupted in most end-markets, while orders from automotive and automotive-sector related industries were materially lower.
• In process industries, ABB saw solid demand from customers in the mining and pulp & paper segments. Unconventional oil & gas and conventional power generation remained challenged.
• In transport & infrastructure, investments were robust, with strong growth in ports, rail and water & wastewater, as well as good order growth in distribution utilities.
• Buildings market activity eased as construction companies faced increased constraints to activities from quarantine efforts.

Revenues

Revenues were 9 percent lower (7 percent comparable) year-on-year. Foreign exchange translation effects had a net negative impact of 1 percent and portfolio changes a net negative impact of 1 percent. The book-to-bill ratio for the quarter was 1.18x1, compared to 1.11x in the prior year period.

Income from operations and operational EBITA

Income from operations of $373 million declined 37 percent. The result includes a combined $263 million of non-operational items, including $65 million acquisition-related amortization, a net $80 million loss related to timing differences on commodities and foreign exchange, restructuring charges for the ABB-OS simplification program, as well as transaction and separation costs related to the carve-out of Power Grids and the Solar inverters business.

Operational EBITA1 of $636 million was 17 percent lower (16 percent in local currencies). The operational EBITA margin1 of 10.2 percent was 100 basis points lower year-on-year. All businesses reported lower margins compared to the prior year period, partly offset by improved Corporate and Other, mainly due to lower non-core and stranded costs. Stranded costs of $21 million were reflected in Corporate and Other.

Net income and basic earnings per share

Net income from continuing operations was $326 million, 21 percent lower year-on-year. Net income from discontinued operations of $54 million was lower, with the business impacted by the transfer of stranded costs, ongoing restructuring costs and net losses related to timing differences on commodities and foreign exchange.

Group net income attributable to ABB was $376 million and basic EPS $0.18, both 30 percent2 lower year-on-year. The group’s effective tax rate was 19.5 percent and includes the positive effects from resolving certain estimated tax contingencies. Operational EPS of $0.301 was 2 percent2 lower compared to the prior year period.

Cash flow from operating activities

Cash flow from operating activities declined to -$577 million, compared to -$256 million in the first quarter of 2019, including $22 million lower cash flow from operating activities from discontinued operations relative to a year ago.

Cash flow from continuing operating activities was impacted versus the prior year period 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 as by lower income from operations and less favorable timing of tax payments. This was partly offset by improvements in working capital management, including better harmonization of payment terms for trade payables. Net working capital as a percent of revenues was 12.3 percent at quarter end.

Q1 2020 Business results

Electrification (EL)

Industrial Automation (IA)

Motion (MO)

Robotics & Discrete Automation (RA)

Corporate and Other

COVID-19 response

ABB’s primary focus is on securing the health and safety of our employees while maintaining business continuity. ABB is constantly monitoring the evolving situation and taking all necessary precautions, in line with local government and WHO guidelines. With the COVID-19 pandemic ongoing, ABB is working constantly with customers and partners to maintain the supply of goods and services. As part of this response, ABB is maximizing use of remote service tools and ABB Ability™ digital solutions, including free remote services. The majority of ABB’s production facilities remain fully or partly operational at this time, with some disruption being experienced at production and service sites in specific countries. Where possible the company is adjusting resources to meet the anticipated slow-down in demand and eliminating non-essential costs.

The Board of Directors and the Executive Committee of ABB are voluntarily taking a 10 percent reduction in board compensation and salary for the duration of the crisis. In addition, ABB will contribute CHF 1 million to the International Committee of the Red Cross (ICRC) COVID-19 effort.

The company and its employees are helping communities, for example by using ABB’s resources to deliver protective equipment to hospitals and frontline workers in some of the most badly affected countries, such as China and Italy, as well as through equipment donations and fundraising efforts.

Transformation progress

In preparation for its divestment, Power Grids is fully operational on a stand-alone basis. ABB has eliminated the majority of the ~$290 million annual stranded costs that resulted when Power Grids was deconsolidated. ABB aims to resolve any remaining dis-synergies from the carve-out through the ABB-OS simplification program. The divestment is targeted for completion at the end of the second quarter, as planned, and ABB remains committed to a share buyback program using net cash proceeds from the transaction. ABB is planning to execute this in an efficient and responsible way, taking account of the prevailing circumstances.

Decentralization and the refinement of ABB’s operating model through ABB-OS is continuing, enabling the businesses to act quickly to respond to the circumstances around COVID-19 while working towards delivering the cost savings for the Group as planned.

During the quarter, the Electrification business completed the divestment of the solar inverters activities to FIMER SpA on February 29, 2020. On March 17, 2020, ABB Electrification completed the acquisition of a majority stake in Chargedot Shanghai New Energy Technology Co., Ltd. The purchase expands ABB’s relationship with leading electric vehicle manufacturers in China and broadens its offering with hardware and software developed specifically for local requirements. Further, ABB Electrification acquired Cylon Controls Ltd, on March 3, 2020, enhancing its Smart Buildings portfolio in the commercial buildings segment.

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 initial signs of recovering economic activity in China, macro-indicators point to a global recession of uncertain duration, as many countries, including the United States, continue to face restrictions with anticipated long-term economic consequences.

The impact of COVID-19, as well as the fall in oil prices, has significantly impacted the short-term outlook in specific end markets such as oil and gas, conventional power generation, automotive and marine. Some end markets such as distribution utilities, data centers, logistics and rail continue to show relative resilience.

ABB is not currently providing guidance for full year 2020. ABB expects its results to be significantly impacted in the second quarter. Orders and revenues are expected to show material sequential decline in all businesses, with Robotics & Discrete Automation expected to decline by more than 30 percent year-on-year. While the company is taking prompt action to adapt its operations and cost base to safeguard profitability, it also expects the loss of volume to further dampen margins. Despite short-term disruptions, ABB is confident in the underlying resilience of its businesses and operating model. The company has a strong balance sheet and is confident that its liquidity needs will be well covered.

More information

The Q1 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 technology leader that is driving the digital transformation of industries. With a history of innovation spanning more than 130 years, ABB has four, customer-focused, globally leading businesses: Electrification, Industrial Automation, Motion, and Robotics & Discrete Automation, supported by the ABB Ability™ digital platform. ABB’s Power Grids business will be divested to Hitachi in 2020. ABB operates in more than 100 countries with about 144,000 employees.

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 “COVID-19 response”, “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, April 28, 2020

Björn Rosengren, CEO

Contacts

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