ABB LTD "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 Q2 Q2 H1 H1 indicated) 2020 2019 US$ Comparable 2020 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 EBITA(1) 651 825 -21% -20%(4) 1,287 1,591 -19% -18%(4) as % of operational -1.0 revenues 10.6 11.5 -0.9 pts 10.4 11.4 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 activities(5) 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 0.98x(1) , 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 EBITA(1) of $651 million was 21 percent lower (20 percent in local currencies). The operational EBITA margin(1) 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 $0.22(1) was 35 percent(3) 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 Q2 Q2 H1 H1
indicated) 2020 2019 US$ Comparable 2020 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
EBITA(1) 348 440 -21% 666 817 -18%
as % of
operational -0.9 -0.9
revenues 12.6% 13.5% pts 12.0% 12.9% 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.
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07-22-20 0059ET
