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ABBQ2, Results

ABB:Q2 2020 Results

22.07.2020 - 08:01:24

ABB:Q2 2020 Results. Strong COVID-19 headwinds; Power Grids divestment completed

Business Wire India
  • 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
  • $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 
 

“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

 

@ businesswireindia.com