ABB has had a rugged financial period, but its latest financial results indicate a righting of the ship. I’m not a financial analyst; I didn’t sleep at a Holiday Inn Express; but, I’m interested in corporate strategies and performance especially among industrial technology suppliers.

What follows is mostly from the company press release. However read CEO Ulrich Spiesshofer’s remarks. There are two significant comments. One–recovery in the Power Systems business. ABB moved some talented individuals from the process automation business over to Power Systems. It wasn’t an overnight success, but the team has made an impact. Two–“productivity improvements”, which is usually a euphemism for fewer people doing more work.

Anyway, I noticed a little bounce in ABB’s stock price in the last week. Looks promising.

Full-year 2015 Summary:

  • Next Level strategy delivering positive results
  • Orders and revenues stable, order backlog up 5%
  • Operational EBITA margin up 60 bps to 11.8%
  • Operational earnings per share +5% (constant currency)
  • Cash return on invested capital up 70 bps to 13.4%; free cash flow +16%
  • Power Systems ‘step change delivers strong financial turnaround in 2015
  • 7th consecutive dividend increase to CHF 0.74 per share proposed
  • 4 new Board members proposed for election at the next annual general meeting

Q4 Summary:

  • Orders (-2%) reflect challenging market conditions; base orders -6%
  • Operational EBITA margin up 60 bps to 11.7%
  • Power Systems reached target margin corridor; strategic portfolio review of Power Grids on track
  • Accelerated productivity and cost out measures in white collar, supply chain and operational excellence
  • Net income of $204mn including a total $496mn restructuring and related expenses
  • Cash flow from operating activities +18%


Full-year and Q4 financials impacted by currency translation due to strong appreciation of US dollar

“We took decisive actions to improve our customer focus and realized profitable growth in target segments to mitigate the impact of significant market headwinds. At the same time, we simplified the organization, drove productivity improvement and accelerated our cost reductions,” said CEO Ulrich Spiesshofer. “As a result, we increased margin and free cash flow. The successful turnaround in Power Systems demonstrates our execution capabilities and our focus on sustainable value creation. With our strong financial position and a leaner, more market oriented organization we are well placed to manage through the global uncertainties which we will continue to face in 2016.”

Short-term outlook

Macroeconomic and geopolitical developments are signaling a mixed picture with continued uncertainty. Some macroeconomic signs in the US remain positive and growth in China is expected to continue, although at a slower pace than in 2015. The market remains impacted by modest growth in Europe and geopolitical tensions in various parts of the world. Oil prices and foreign exchange translation effects are expected to continue to influence the company’s results.

Full-year 2015 Group Results

“We are shifting our center of gravity, fully in line with our Next Level strategy by driving organic growth in targeted segments, strengthening competitiveness and lowering risk,” said CEO Ulrich Spiesshofer. “We drove technology leadership with the launch of YuMi, the first truly collaborative robot. We strengthened our technology leadership position in the area of the Internet of Things, Services and People, for instance with our innovative Octopus offering for optimized vessel operations. Furthermore, our focus on high growth markets such as food and beverage and Africa is paying off.”

Orders were steady for the year (down 12 percent in US dollars). Large orders (above $15 million) grew 10 percent (down 5 percent in US dollars) and offset a base order decline of 3 percent (14 percent in US dollars). The order backlog at the end of December 2015 amounted to $24.1 billion, an increase of 5 percent (down 3 percent in US dollars) compared with the end of 2014. The book-to-bill ratio remained steady at 1.03x.

Revenues were steady (down 11percent in US dollars) compared with 2014 as revenue growth in Power Systems and Power Products offset the decline in Discrete Automation and Motion and Process Automation. Service revenues grew 6 percent (down 8 in US dollars) and grew 1 percentage point as a percent of total group revenues (adjusted for divestitures; 0.5 percent prior to adjustment).

ABB continued to execute its Next Level strategy in 2015 which resulted in a 60 basis points improvement of the operational EBITA margin to 11.8 percent and free cash flow generation improving 16 percent in constant currency (6 percent in US dollars) to $3 billion. The main drivers for the group’s enhanced profitability were the successful turnaround of Power Systems and continued cost savings and productivity measures.

“The strong execution of our strategy is showing results,” said Ulrich Spiesshofer. “In 2015 we continued to focus on growth opportunities in a disciplined way while mitigating the impact of market headwinds through capacity adjustments, productivity measures and cost reductions. Transforming ABB, we have made good progress towards enhancing our performance culture by implementing our new performance management and compensation model for more than 70,000 people in 2015. The divisional realignment has been completed and the strategic portfolio review of the Power Grids division is to be completed in 2016 as previously announced.”

Net income for the year amounted to $1.9 billion and was impacted by $626 million of restructuring and related expenses for capacity adjustments and white collar productivity measures. Successful measures to improve net working capital contributed to higher cash flow from operating activities (constant currency) and free cash flow conversion and supported an increased cash return on invested capital2 (CROI) of 13.4 percent. Basic earnings per share in the period was $0.87 and operational earnings per share2 on a constant currency basis was $1.35, an increase of 5 percent.

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