Contact: Hassan Zaheer, Power Technology Research, Germany
hassan.zaheer@powertechresearch.com
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Press Release Date: 30th July 2020

  • The company took cost cutting initiatives as early as January 2019, where it reduced the headcount at its corporate offices, and managed to reduce $500 million in that year.
  • It sold its power grid unit to Hitachi for $11 billion, and resolved to remove its country structures across electrification, industrial automation, robotics and discrete automation.
  • A sharp reduction in energy and marine demand is reflected on ABB’s income statement. While orders were lower than earlier in all regions, USA was the most severely hit.
  • The company expects some divisions to report rise in revenue- including e-mobility and rail, Food and Beverage, and semiconductors.
  • According to the analysts at PTR, given ABB’s large geographical presence, wide business scope, and their digital offering – ABB Ability – it is expected that the company will make profits in the long term.

Munich, Germany – July 30th, 2020

According to ABB’s Chief Executive Bjorn Rosengren address at the release of the company quarter 2 results, ABB has been strongly impacted by Covid’19. The company had warned that the effects of the pandemic will be reflected in Q2 earnings. It had expected losses of over 30% in some units, such as the robotics and discrete automation unit. The company took cost cutting initiatives as early as January 2019, where it reduced the headcount at its corporate offices, and managed to reduce $500 million in that year. It also sold its power grid unit to Hitachi for $11 billion, and resolved to remove its country structures across electrification, industrial automation, robotics and discrete automation. ABB will initially hold a 20% stake in Hitachi ABB power grids. The divestment is aimed at simplifying the capital structure at ABB. In addition, ABB’s share price has been falling for the past 3 years and is down by 23% this year. It has further reported a drop in operational earnings per share of 35%, and basic EPS was calculated at $0.15. This rise is primarily due to the charge on solar inverters, which was added to the previous year’s statement.

For Q2, the net income is reported at $319 million, which is a 398% increase on a year on year basis. This increment could primarily be owed to the charge on solar inverters, which again was added to the previous year’s statement (at $455 million). Nevertheless, a sharp reduction in energy and marine demand is reflected on ABB’s income statement. While orders were lower than earlier in all regions, USA was the most severely hit. Other than orders, margins were also lower due to lower service activities. A look at ABB’s quarterly net income for the last three years shows a falling trend line:

However, In the long term, ABB is focusing to reduce its administrative costs in line with the fall in revenue, in order to maintain its profitability in these difficult times. In Europe overall, orders were down by 14%, but this figure varied widely from country to country. One of ABB’s largest markets, Italy, registered a 9% decrease in orders. The United States showed sharp decline in industrial automation, robotics and discrete automation, and motion

The company expects some divisions to report a rise in revenue- including E-mobility and Rail, Food and Beverage, and Semiconductors. In addition to this, ABB is committed to rewarding its shareholders through substantial dividends. In April 2020, the company paid out $1758 million to shareholders. In July 2020, it launched a share repurchase program, in which it will repurchase shares for $180 million. These strategies are meant to boost shareholders’ wealth and send out a message about ABB’s financial stability.

ABB has been focusing on its Next Level strategy – execution, growth, and business led collaboration. In addition to this, strategic collaborations with companies such as Hewlett and Packard, Ericsson, Tetra Pak and Stadler may prove to be beneficial.

Furthermore, ABB has exercised good measures related to capital structure to counter the effects of Covid’19. Measures such as reduced discretionary expenses and a delay in non-essential capital expenditure signals that the company will maintain a healthy profit margin in the future. According to the CEO of ABB, Bjorn Rosengren: “There are still some challenges ahead, and ABB expects revenues to recover slightly in Q4 of 2020.”

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