SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------
FORM 6-K
REPORT OF FOREIGN PRIVATE ISSUER
Pursuant to Rule 13a-16 or 15d-16 of the
Securities Exchange Act of 1934
For the month of: November 2002
ABB Ltd
--------------------------------------------------
(Exact name of registrant as specified in charter)
N/A
-----------------------------------------------
(Translation of registrant's name into English)
Switzerland
------------------------------
(Jurisdiction of organization)
P.O. Box 8131, Affolternstrasse 44, CH-8050, Zurich, Switzerland
----------------------------------------------------------------
(Address of principal executive offices)
Registrant's telephone number, international: + 011-41-1-317-7111
-------------------
Indicate by check mark whether the registrant files or will file annual reports
under cover of Form 20-F or Form 40-F.
Form 20-F X Form 40-F
--- ---
Indicate by check mark whether the registrant by furnishing the information
contained in this Form is also thereby furnishing the information to the
Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.
Yes No X
--- ---
If "Yes" is marked, indicate below the file number assigned to the registrant in
connection with Rule 12g3-2(b): 82-
--------
This Form 6-K consists of the following:
1. Three slide presentations of ABB Ltd (the "Company") in connection with the
Company's Analyst Day on November 8, 2002.
Focus, speed and delivery
Finance
Peter Voser
CFO
November 8, 2002
ABB
Safe Harbor Statement
This presentation includes forward-looking information and statements that are
subject to risks and uncertainties that could cause actual results to differ.
These statements are based on current expectations, estimates and projections
about global economic conditions, the economic conditions of the regions and
industries that are major markets for ABB Ltd. and ABB Ltd's lines of business.
These expectations, estimates and projections are generally identifiable by
statements containing words such as "expects", "believes", "estimates" or
similar expressions. Important factors that could cause actual results to differ
materially from those expectations include, among others, economic and market
conditions in the geographic areas and industries that are major markets for
abb's businesses, market acceptance of new products and services, changes in
governmental regulations, interest rates, and fluctuation in currency exchange
rates. 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.
2
Presentation outline
o Priorities
----------
o Optimizing the business
o Liquidity and debt reduction
o Conclusion
3
Financial priorities
o Increase sustainable cash flow
o Ensure sufficient financial flexibility to meet requirements and
contingencies
o Reduce leverage
o Strengthen equity base though increased earnings
o Restore credit rating
o Increase market capitalization
o Position businesses for industry consolidation
4
Presentation outline
o Priorities
o Optimizing the business
-----------------------
o Liquidity and debt reduction
o Conclusion
5
Optimizing the Business
Cost reduction program
Cost reduction program 2001 - 2002
o Initiated July 2001, target job reduction of 12,000
o Estimated to take 18 months
o Estimated to cost MUS$ 500, yield MUS$ 500 in annual cost savings
Results
o Target job reduction achieved, operational productivity improved - but some
benefits delayed into 2003
o Taken about MUS$ 350 in restructuring charges since program started
o Final projects speeded up, estimated additional restructuring costs of
about MUS$ 100 in Q4 2002
o All projects under rigorous follow-up
6
Finance function
Achievements 2002
o Simplified, unified Finance function
o Combined all finance functions under CFO (AFS, M & A)
o Most of Structured Finance sold, balance being divested
o Proprietary trading stopped, treasury integrated into Finance
o Equity Ventures development stopped, being divested
o Scandinavian Re portfolio in run-off, Sirius retained
Results
o Net debt reduced by Finance divestment proceeds (>BUS$ 2.4)
o Ongoing costs down
o Financial risk reduced
o Increased transparency, control and forecasting ability
7
EBIT margin target: core businesses*
------------------- ------------------- ----------------- ------------------ ----------------- ---------------- ----------
6.3% 6.1% 2.4% 1.9% 1.0% -1.8% 8.0%
------------------- ------------------- ----------------- ------------------ ----------------- ---------------- ----------
1.8%(1) 4.5%(1)
------------------- ------------------- ----------------- ------------------ ----------------- ---------------- ----------
Base EBIT margin Base EBIT margin Optimizing Building Expansion Cumulative Risk 2005E
2001** 2002E** the on strong base
business
------------------- ------------------- ----------------- ------------------ ----------------- ---------------- ----------
(1) EBIT as calculated for core businesses
* Core businesses include Power Technologies, Automation Technologies,
Insurance and Corporate
** Base EBIT=EBIT adjusted for restructuring, capital gains, goodwill
amortization and one-time charges
8
Optimizing the business
Step Change program
o Step Change cost reduction program 2003 - 2004
o Estimated to take 18 months
o Target cost reduction: 4 percent of revenues
o Estimated cost: 1.8 percent of revenues in 2003, 1.2 percent in 2004
Objectives
o Strengthen competitiveness and improve profitability
o Focus on projects with short paybacks
o Main targets:
o simplify management structure
o reduce central infrastructure
o consolidate operations
9
Targets
From 2002 through 2005, annual revenue growth of about 4 percent
2002 EBIT margin target: 1.5 percent
o Additional restructuring charges of app. MUS$ 100 in Q4
o Closing costs in non-core activities
2003 EBIT margin target: 4 percent
o After restructuring charges of app. 1.8 percent of revenues
o Core business margin will be above Group
2005 EBIT margin target: 8 percent
o On estimated revenues of app. BUS$ 17.5
o All targets exclude divestments
10
Actions to reduce Corporate/Other
o Clear accountability for non-core businesses
o Restructure Headquarters
o Minimize Stewardship costs
o Dissolve Group Processes division
11
EBIT 9 months 2002 (pro forma)
---------------------------------------- ----------------- -------------------- -----------------
(MUS$) 9 mos 2002 9 mos 2001 FY 2001
---------------------------------------- ----------------- -------------------- -----------------
Automation Technologies (1) 414 456 523
---------------------------------------- ----------------- -------------------- -----------------
Power Technologies 315 314 382
---------------------------------------- ----------------- -------------------- -----------------
Oil, Gas & Petrochemicals 109 119 79
---------------------------------------- ----------------- -------------------- -----------------
Financial Services 177 204 (78)
---------------------------------------- ----------------- -------------------- -----------------
---------------------------------------- ----------------- -------------------- -----------------
Operational businesses 1,015 1,093 906
---------------------------------------- ----------------- -------------------- -----------------
Corporate/Other (610) (366) (675)
---------------------------------------- ----------------- -------------------- -----------------
---------------------------------------- ----------------- -------------------- -----------------
Group EBIT 405 727 231
---------------------------------------- ----------------- -------------------- -----------------
EBIT margin 2.5% 4.4% 1.0%
---------------------------------------- ----------------- -------------------- -----------------
"One-time" charges (2) (224) (166) (1,143)
---------------------------------------- ----------------- -------------------- -----------------
Base EBIT margin 3.9% 5.5% 6.0%
---------------------------------------- ----------------- -------------------- -----------------
o Automation restated to eliminate semi-conductors, now in Other Activities
within Corporate/Other
o Includes restructuring, capital gains, reversal of goodwill amortization,
write-downs, higher project execution costs and one-time accounting changes
12
EBIT: Non-core Activities
---------------------------------------- -------------------------------- -------------------------------
(MUS$) 9 mos 2002 FY 2001
---------------------------------------- -------------------------------- -------------------------------
Group Processes (70) (55)
---------------------------------------- -------------------------------- -------------------------------
New Ventures (69) (165)
---------------------------------------- -------------------------------- -------------------------------
Remaining MC Industries (1) (105) 2
---------------------------------------- -------------------------------- -------------------------------
Semi-conductors (12) (11)
---------------------------------------- -------------------------------- -------------------------------
Total (256) (229)
---------------------------------------- -------------------------------- -------------------------------
Clear accountability
~ 100 MUS$ loss in 2003, zero by 2005
o Includes Building Systems, Logistics, Air Handling
13
EBIT: Corporate
---------------------------------------- -------------------------------- -------------------------------
(MUS$) 9 mos 2002 FY 2001
---------------------------------------- -------------------------------- -------------------------------
Headquarters/Stewardship (1) (98) (173)
---------------------------------------- -------------------------------- -------------------------------
Research & development (69) (103)
---------------------------------------- -------------------------------- -------------------------------
Consolidation effect (187) (170)
---------------------------------------- -------------------------------- -------------------------------
Total (354) (446)
---------------------------------------- -------------------------------- -------------------------------
Reduce HQ/Stewardship costs to ~ 130 MUS$ p.a. by 05
Streamline R & D, steer by divisions, ~ 90 MUS$ p.a.
o Includes one-time benefits from former CEO pension repayment in 2002
14
Presentation outline
o Priorities
o Optimizing the business
o Liquidity and debt reduction
----------------------------
o Conclusion
15
Financial plan and delivery
March 2002: financial plan announced
o Reduce reliance on short-term volatile capital markets
o Lengthen maturity profile of debt (from 1/3 to 2/3 long-term debt)
o Reduce net debt by at least 1.5 BUS$ by year end 2002
Delivery
o March : 3 BUS$ committed credit facility sign
o April : credit facility successfully renegotiated following rating action
o May : 968 MUS$ convertible and 750 MUS$ straight bonds placed
o July : 300 MUS$ real estate sales announced (Sweden)
o August: 60 MUS$ real estate sales (Norway)
o September : 2.3 BUS$ sale of Structured Finance announced, 244 MUS$
Metering sale announced (150 - 200 MUS$ of net debt reduction)
o November: Sale of Structured Finance approved by EU
16
Net debt development
(BUS$)
---------- ----- ---------------------------------------------- ----- -------------------------------------------------
2001 2002 Net debt reduction in Q4 2002 through
---------- ----- ---------------------------------------------- ----- -------------------------------------------------
o BUS$ 2.3 from Structured Finance
disposal
---------- ----- -------- ------- -------- --------- ---------- ----- -------------------------------------------------
4.1 4.5 5.2 5.5 3.0* below 2.6 o BUS$ 0.2 from Metering disposal
---------- ----- -------- ------- -------- --------- ---------- ----- -------------------------------------------------
o Additional debt reduction from
operational cashflow
---------- ----- -------- ------- -------- --------- ---------- ----- -------------------------------------------------
Dec Mar Jun Sept Dec o Additional financing requirement BUS$
target 0.2 for pensions
---------- ----- -------- ------- -------- --------- ---------- ----- -------------------------------------------------
* Pro-forma figure corresponds to net debt adjusted for expected net debt
reduction from the sale of Structured Finance and Metering, at September
30, 2002.
17
Pensions
o Considerable discussion surrounding pension treatment under US GAAP
o At end 2001, ABB's pension benefit position was
o BUS$ 1.8 underfunding, about half on balance sheet
o Cash liability if all obligations crystallized: US$ 1.1 billion
o Review pension assumptions annually, in process for 2002
o Expected position at yearend 2002
o Less than MUS$ 500 increase in underfunded liabilities
o Minimal impact on equity
o MUS$ 200 cash contribution
o Global review of pension schemes underway to harmonize conditions, reduce
costs
18
Maturity profile of debt at September 30, 2002
(BUS$)
------------------ -----------------------------------------------------------------------------------
Short-term debt Maturing long-
3.7 BUS$ term public debt
5.4 BUS$
------------------ ------------ ----------- ----------- ---------- ----------- ----------- -----------
3.7 0.3 1.3 1.0 0.5 1.0 0.6 0.7
------------------ ------------ ----------- ----------- ---------- ----------- ----------- -----------
Q3/2002- Q4/2003 2004 2005 2006 2007 2008 2009
Q3/2003
------------------ ------------ ----------- ----------- ---------- ----------- ----------- -----------
19
Maturity profile Q4 2002 - Q4 2003*
(MUS$)
--------------------- ------------- ------------------ ----------------- --------------- ---------------
Total 1,360 1,094 530 110 340
--------------------- ------------- ------------------ ----------------- --------------- ---------------
--------------------- ------------- ------------------ ----------------- --------------- ---------------
Bank facility 1,000
--------------------- ------------- ------------------ ----------------- --------------- ---------------
Other maturing debt 360 1,094 530 110 340
--------------------- ------------- ------------------ ----------------- --------------- ---------------
Q4/2002 Q1/2003 Q2/2003 Q3/2003 Q4/2003
--------------------- ------------- ------------------ ----------------- --------------- ---------------
* Unaudited, other ST debt of MUS$ 610 not included
20
Financing strategy
o Negotiating new bank facility
o Cover working capital requirements for 2003
o Bridge divestments of OGP, Building Systems, Equity Ventures and
remaining Structured Finance businesses
o Maintain existing securitization program and existing uncommitted bank
facilities
o Restore credit rating and access to capital markets
21
Medium-term goals
2003
o Reduce total debt to app. BUS$ 6.5, gearing (total debt/total
capitalization) to app. 70 percent
o Proceeds from divestment of OGP, Building Systems and other businesses
will significantly reduce debt by yearend 2003
2005
o Reduce total debt to app. BUS$ 4, gearing to app. 50 percent
o Debt reduction to come primarily through increased operational
cash-effective earnings
22
Presentation outline
o Priorities
o Optimizing the business
o Liquidity and debt reduction
o Conclusion
----------
23
Conclusion
o 2003 will be challenging
o market improvement not expected until late in year
o Successful implementation of Step Change program a priority
o Delivery of financing strategy a must, as in 2002
o Divestment program will increase focus on remaining core business, reduce
debt
o Further reduction of balance sheet volatility will provide more
transparency
24
Dinesh Paliwal Leverage and focus
Head of Automation
Technologies Division November 8, 2002
Safe Harbor Statement
This presentation includes forward-looking information and statements that are
subject to risks and uncertainties that could cause actual results to differ.
These statements are based on current expectations, estimates and projections
about global economic conditions, the economic conditions of the regions and
industries that are major markets for ABB Ltd and ABB Ltd's lines of business.
These expectations, estimates and projections are generally identifiable by
statements containing words such as "expects", "believes", "estimates" or
similar expressions. Important factors that could cause actual results to differ
materially from those expectations include, among others, economic and market
conditions in the geographic areas and industries that are major markets for
ABB's businesses, market acceptance of new products and services, changes in
governmental regulations, interest rates, and fluctuation in currency exchange
rates. 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.
2
Outline
o Business & organizational overview
o Strategy
o Targets
o Operational priorities
o Conclusions
3
Products, industries and services
--------------------- --------------------- ------------------ --------------------- ------------------ -------------------
Control Drives, Low Voltage Robots, Paper, Petroleum,
Platform Motors & Products & Automotive & Metals & Chemical &
Products Turbochargers Instruments Manufacturing Marine Consumer
--------------------- --------------------- ------------------ --------------------- ------------------ -------------------
[Photographs] [Photographs] [Photographs] [Photographs] [Photographs (Photographs]
--------------------- --------------------- ------------------ --------------------- ------------------ -------------------
4
Product market position
---------------------------------------------------------- -----------------------------------------------
Process Automation Systems Electrical Machines
-------------------------------- --------------- --------- ----------------------------- -----------------
ABB 25.0% ABB 10.0%
-------------------------------- --------------- --------- ----------------------------- -----------------
Honeywell 17.9% Siemens 7.0%
-------------------------------- --------------- --------- ----------------------------- -----------------
Invensys 14.3% TECO 5.0%
-------------------------------- --------------- --------- ----------------------------- -----------------
Siemens 10.1% Emerson 4.0%
-------------------------------- --------------- --------- ----------------------------- -----------------
Emerson 9.3% GE 4.0%
-------------------------------- --------------- --------- ----------------------------- -----------------
-------------------------------- --------------- --------- ----------------------------- -----------------
Robotics Low Voltage Products
-------------------------------- --------------- --------- ----------------------------- -----------------
ABB 23.0% Schneider 14.1%
-------------------------------- --------------- --------- ----------------------------- -----------------
Fanuc 23.0% Legrand 12.0%
-------------------------------- --------------- --------- ----------------------------- -----------------
Kuka 19.0% Siemens 8.9%
-------------------------------- --------------- --------- ----------------------------- -----------------
Yaskawa 17.0% ABB 8.6%
-------------------------------- --------------- --------- ----------------------------- -----------------
Kawasaki 5.0% GE 6.4%
-------------------------------- --------------- --------- ----------------------------- -----------------
-------------------------------- --------------- --------- ----------------------------- -----------------
High-Power AC Drives
-------------------------------- --------------- --------- ----------------------------- -----------------
ABB 19.7%
-------------------------------- --------------- --------- ----------------------------- -----------------
Alstom 9%
-------------------------------- --------------- --------- ----------------------------- -----------------
Siemens 8.7%
-------------------------------- --------------- --------- ----------------------------- -----------------
ASI Robicon 6.8%
-------------------------------- --------------- --------- ----------------------------- -----------------
Rockwell 6.5%
-------------------------------- --------------- --------- ----------------------------- -----------------
Source: ARC Advisory Group, ABB, (2001 revenues)
5
Industry market position
------------------------------------- ----------------- -----------------------------------
Power Industry Pulp & Paper
------------------- ----------------- ----------------- ----------------- -----------------
ABB 24.7% ABB 39.0%
------------------- ----------------- ----------------- ----------------- -----------------
Siemens 24.3% Honeywell 25.9%
------------------- ----------------- ----------------- ----------------- -----------------
Invensys 14.8% Metso 13.9%
------------------- ----------------- ----------------- ----------------- -----------------
Emerson 12.1% Invensys 7.2%
------------------- ----------------- ----------------- ----------------- -----------------
Alstom 9.8% Yokogawa 4.5%
------------------- ----------------- ----------------- ----------------- -----------------
Honeywell 3.5% Siemens 2.8%
------------------- ----------------- ----------------- ----------------- -----------------
Yokogawa 3.0% Alstom 2.4%
------------------- ----------------- ----------------- ----------------- -----------------
Metso 1.8% Emerson 1.8%
------------------- ----------------- ----------------- ----------------- -----------------
------------------------------------- ----------------- -----------------------------------
Metals & Mining Oil & Gas
------------------------------------- ----------------- -----------------------------------
ABB 35.2% ABB 36.5%
------------------- ----------------- ----------------- ----------------- -----------------
Honeywell 13.4% Honeywell 16.7%
------------------- ----------------- ----------------- ----------------- -----------------
Yokogawa 12.3% Invensys 13.7%
------------------- ----------------- ----------------- ----------------- -----------------
Alstom 10.9% Emerson 12.0%
------------------- ----------------- ----------------- ----------------- -----------------
Invensys 8.9% Yokogawa 7.5%
------------------- ----------------- ----------------- ----------------- -----------------
Toshiba 4.6% Siemens 5.5%
------------------- ----------------- ----------------- ----------------- -----------------
Emerson 4.4% Alstom 4.1%
------------------- ----------------- ----------------- ----------------- -----------------
Yamatake 2.9% Hitachi 1.5%
------------------- ----------------- ----------------- ----------------- -----------------
Source: ARC Advisory Group (2001 revenues)
6
Simplicity: reduced BAs from 11 to 6
Actual 2001* Old AT Old IN New AT
Old Automation and Industries Revenues 5,246 5,060 10,306
Elimination -568 -635 -1,203
Control & Force Measurement Metering, etc. -489 -489
Drives and Power Electronics Net 4,189 4,425 8,614
Electrical Machines
Instrumentation and Metering 6
Low-Voltage Products ------> BAs New Automation Technologies
Robotics
Automotive Industries Low-Voltage Prods & Instruments (25%)
Manufacturing, Electronics & Consumer Drives, Turbochargers & Motors (19%)
Marine & Turbocharging Robotics, Automotive & Mfg (17%)
Paper, Printing, Metals & Minerals Paper, Metals, Minerals & Marine
Petroleum, Chemical & Life Sciences Petroleum, Chemical, Consumer
Control Platform Products
* MUS$
7
Business overview (revenues)*
-------------------------------- ------------------ ------------- --------------------- ---------------------
Industries Revenues Regions Revenues
-------------------------------- ------------------ ------------- --------------------- ---------------------
Power Industry 10% Mid East & Africa 3%
-------------------------------- ------------------ ------------- --------------------- ---------------------
Transportation 11% Asia 13%
-------------------------------- ------------------ ------------- --------------------- ---------------------
Building Industry 15% Americas 21%
-------------------------------- ------------------ ------------- --------------------- ---------------------
Discrete Manufacturing 23% Europe 63%
-------------------------------- ------------------ ------------- --------------------- ---------------------
Process industries 41%
-------------------------------- ------------------ ------------- --------------------- ---------------------
-------------------------------- ------------------ ------------- --------------------- ---------------------
Channels Revenues Offerings Revenues
-------------------------------- ------------------ ------------- --------------------- ---------------------
ABB Direct 61% Services 17%
-------------------------------- ------------------ ------------- --------------------- ---------------------
Channel Partners 39% Systems 19%
-------------------------------- ------------------ ------------- --------------------- ---------------------
Products 64%
-------------------------------- ------------------ ------------- --------------------- ---------------------
* Based on revenues 9 months 2002
8
9 months 2002 results*
---------------------------- ----------------------------------------- -------------------- -----------------
(MUS$) Change in local currencies 9M/02 9M/01
---------------------------- ----------------------------------------- -------------------- -----------------
Orders +4% 6,735 6,443
---------------------------- ----------------------------------------- -------------------- -----------------
Revenues +/-0% 6,314 6,244
---------------------------- ----------------------------------------- -------------------- -----------------
EBIT -11% 414 456
---------------------------- ----------------------------------------- -------------------- -----------------
Base EBIT -15% 460 532
---------------------------- ----------------------------------------- -------------------- -----------------
Base EBIT margin 7.3% 8.5%
---------------------------- ----------------------------------------- -------------------- -----------------
o Orders: increased, with order growth led by Asia.
o Revenues: flat.
o Base EBIT: decreased overall largely due to price pressure.
o EBIT increased in systems & services due to productivity gains
Comments refer to local currency figures
* Pro-forma figures
** Definition of Base EBIT see Appendix
9
9 months 2002 achievements
o Productivity
o Focused factories: closed three factories
o Headcount: reduced by 11%
o Cost control: global risk review database
o Portfolio
o Selling metering business
o Sold non-core marine business
o Sold Flakt drying business
o Absorbed oil & gas transport business
o Penetration
o High growth in China (21%) & India (25%)
o Large orders across industries and geographies:
o 70 MUS$ to Statoil (petroleum)
o 68 MUS$ to Dubal (aluminum)
o 45 MUS$ to GlobalSantaFe (offshore drilling)
o 35 MUS$ to Tower Automotive (automotive)
o 35 MUS$ to Bombardier (transportation)
-------------------------------------------------------------------------------------------------------------
Employees
-------------------------------------------------------------------------------------------------------------
67,607 65,599 63,226 62,474 61,399 59,740
------------------- ----------------- ----------------- ----------------- ----------------- -----------------
Q2 2001 Q3 2001 Q4 2001 Q1 2002 Q2 2002 Q3 2002
------------------- ----------------- ----------------- ----------------- ----------------- -----------------
-------------------------------------------------------------------------------------------------------------------------------
Orders in MUS$
-------------------------------------------------------------------------------------------------------------------------------
2,728 2,022 1,966 1,909 2,409 2,368 2,303
------------------- ----------------- ----------------- ----------------- ----------------- ----------------- -----------------
Q1 2001 Q2 2001 Q3 2001 Q4 2001 Q1 2002 Q2 2002 Q3 2002
------------------- ----------------- ----------------- ----------------- ----------------- ----------------- -----------------
10
Markets
Underlying market growth 2002-2005 for the division: 2-3%
[Graph showing market size (in BUS$), cumulative average growth rate (2002-2005)
and ABB's market position for the Automation Technology Division's markets]
11
Strategy
o Grow products through global presence and channels
o Grow services through huge installed base
o Grow solutions through blended process/discrete expertise
[Photographs]
12
Grow products through presence and channels
o Leverage presence in high-growth markets
o Leverage size and R&D muscle to grow share and be first with new
products
o Leverage internal cost efficiency through Industrial IT
[Photographs]
13
Grow services through huge installed base
o Leverage ABB's $100 billion+ installed automation base
o Leverage deep industry knowledge
o Leverage ABB's substantial electrical installed base
Product and System Services Asset Management Services Knowledge
| | |
\ / \ / \ /
Customer Support Full Service Competencies
| | |
\ / \ / \ /
Process and Application Consulting Industrial IT Solutions
| | |
\ / \ / \ /
Logistics and Repair Turnaround Common Global Processes
| |
\ / \ /
Education and Training Total Equipment Management
|
\ /
Assessment Strategy for Service
|
\ /
Value-Based Service Solutions
|
\ /
Customer
14
Grow solutions through process/discrete solutions
o Leverage the need for both process and discrete solutions among
respective installed bases
o Leverage reduced risk & cost-efficiency of Industrial IT integration
to differentiate and add ABB solutions
Process -----> <----- Discrete
Solutions solutions
------------------- -------------- ------------ -------------- ------------ ------------- ------------- --------------
Asset Management Design Optimize Procure Fulfill Operations
------------------- -------------- ------------ -------------- ------------ ------------- ------------- --------------
Measure Actuate Produce Support Maintain
------------------- -------------- ------------ -------------- ------------ ------------- ------------- --------------
15
Revenues growth target
----------------------- --------------------- -------------------- --------------------- --------------------
1.1% -3.0% 2.3% 1.0% 3.3%
----------------------- --------------------- -------------------- --------------------- --------------------
Pro-forma Pro-forma Market Growth Growth** from share CAGR
growth growth 2002-2005 gains 2002-2005 E
2001* 2002E*
----------------------- --------------------- -------------------- --------------------- --------------------
* in local currencies; definition of pro-forma revenues, see appendix
** share gains through building on strong base and expansion (e.g. service,
new markets)
16
EBIT margin target
22% EBIT improvement year over year
----------------- -------------------- ------------------ ---------------- --------------- ----------------- -----------
8.1% 8.1%
----------------- -------------------- ------------------ ---------------- --------------- ----------------- -----------
2.0(1) 1.6(1) 2.8 2.3 1.5 -2.4 10.7
----------------- -------------------- ------------------ ---------------- --------------- ----------------- -----------
6.1(2) 6.5(2)
----------------- -------------------- ------------------ ---------------- --------------- ----------------- -----------
----------------- -------------------- ------------------ ---------------- --------------- ----------------- -----------
Base EBIT Base EBIT Optimizing Building Expansion Cumulative 2005E
margin margin the on strong Risk
2001* 2002E* business base
----------------- -------------------- ------------------ ---------------- --------------- ----------------- -----------
(1) Adjustments for one-time items and non-recurring amortization, see appendix
(2) Pro-forma EBIT, definition see appendix
* Base EBIT = Pro-forma EBIT including adjustments, see appendix
17
Optimizing the business
(Inset graph notes "Optimizing the business" column from Slide 17)
o Completed focused factory implementation = avg. 1% EBIT impact/year
per factory
o Cost reduction 4% of revenue in people and productivity over 18 months
o Continuous product simplification program = avg. 0.5% EBIT impact/year
70%+ of AT products certified to Industrial IT standards 2002 YTD
[Graph showing levels of completed and planned certification for Products and
Services]
18
Optimizing the business: online parts processing
(Inset graph notes "Optimizing the business" column from Slide 17)
o Focusing on distributors & parts customers
o 80%+ spare parts orders processed electronically
o 40 US$ internal process cost improvement for each online order
[Photographs]
19
Building on strong base
(Inset graph notes "Optimizing the business" column from Slide 17)
o Channels: channel focus unlocks resources and EBIT
o Outsourced product sales of small accounts
o Sales and administration cost reduction target 1.5% EBIT impact/year
o Account management: higher share of spend
o Account and relationship focus breeds portfolio growth
o Strategic alliances and frame agreements up 30% in first nine months
2002
o Industrial IT: gaining as manufacturing standard
o Common platform promotes cross-selling
o Clear competitive differentiator - more product alliances!
20
Building on strong base: channel management
(Inset graph notes "Building on strong base" column from Slide 17)
Hagemeyer
o Global customer with >100 MUS$ annual sales
o Grew from LV products to motors, drives, switchgear, transformers
o 400+ small ABB direct customers transferred to Hagemeyer
o ABB/Hagemeyer business growth exceeds ABB average:
o ABB/Hagemeyer Motors: 16.8%
o ABB/Hagemeyer Spain: 13.7%
o ABB/Hagemeyer Netherlands: 7.3%
21
Building on strong base: account management
(Inset graph notes "Building on strong base" column from Slide 17)
------------ --------- ---------- --------- --------- ---------- --------- --------- ---------- -------------
1 1 5 6 5 9 12 44 56 75
------------ --------- ---------- --------- --------- ---------- --------- --------- ---------- -------------
1992 1993 1995 1996 1997 1998 1999 2000 2001 2002YTD
------------ --------- ---------- --------- --------- ---------- --------- --------- ---------- -------------
o Standard terms through product frame agreements
o Expand ABB scope to agreement
o Higher volume, lower SG&A
22
Customers buy broader scope due to Industrial IT
(Inset graph notes "Building on strong base" column from Slide 17)
Tower Automotive
Tower Automotive, Belgium
o 35 MUS$ order
o Greenfield plant for body parts for Volvo
o Robotics solution & drives integrated through Industrial IT
23
Third parties expand the Industrial IT portfolio
(Inset graph notes "Building on strong base" column from Slide 17)
---------------------------------------- ---------------------------------- ---------------------------------
Industrial IT Bosch Rexroth AG
enabled Pneumatic Products
---------------------------------------- ---------------------------------- ---------------------------------
Hewlett-Packard Industrial IT
Workstations enabled
---------------------------------------- ---------------------------------- ---------------------------------
Third-party Industrial IT Industrial IT IFS AB
certification enabled Business Software
---------------------------------------- ---------------------------------- ---------------------------------
Tetra Pak Industrial IT
Plant Automation enabled
Software
---------------------------------------- ---------------------------------- ---------------------------------
24
Expansion: services
(Inset graph notes "Expansion" column from Slide 17)
o Leverage 100 BUS$ installed base
o Cross sell product/system service and outsourced maintenance
o "On the ground" now as customers move from capex to Return on Assets
o Merging service organizations to target 13% cost reduction
o Increase service revenue from 17% to 25% of total division
o Target EBIT margin: >15% by 2005
25
Expansion: service centers
--------------------------------------- ------------------------------------
West Saint-Laurent, Quebec, Canada Vienna, Austria
Service Service
--------------------------------------- ------------------------------------
Wickliffe, Ohio, USA Osasco, Brazil
Service Service
--------------------------------------- ------------------------------------
Mexico City, Mexico Shanghai, China
Service Service
--------------------------------------- ------------------------------------
Bogota, Colombia Taipei, Taiwan
Service Service
--------------------------------------- ------------------------------------
Camcari, Brazil Zaventen, Belgium
Service Service
--------------------------------------- ------------------------------------
Rotterdam, Netherlands Auburn Hills, Michigan, USA
Service Service
--------------------------------------- ------------------------------------
Buenos Aires, Argentina Toronto, Ontario, Canada
Service Service
--------------------------------------- ------------------------------------
Oslo, Norway St. Ouen L'Aumone, France
Service Service
--------------------------------------- ------------------------------------
Vasteras, Sweden Friedberg, Germany
Service Service
--------------------------------------- ------------------------------------
Tallinn, Estonia Milton Keynes, UK
Service Service
--------------------------------------- ------------------------------------
Riga, Latvia Turino, Italy
Service Service
--------------------------------------- ------------------------------------
Mannheim, Germany Daresbury, UK
Service Service
--------------------------------------- ------------------------------------
Poland Helsinki, Finland
Service Service
--------------------------------------- ------------------------------------
Massy, France South Africa
Service Service
--------------------------------------- ------------------------------------
Barcelona, Spain Melbourne, Australia
Service Service
--------------------------------------- ------------------------------------
Birr, Switzerland Sesto San Giovanni, Italy
Service Service
--------------------------------------- ------------------------------------
Fredericia, Denmark Vilnius, Lithuania
Service Service
--------------------------------------- ------------------------------------
Perafita, Portugal Seoul, Korea
Service Service
--------------------------------------- ------------------------------------
Beijing, China Tokyo,Japan
Service Service
--------------------------------------- ------------------------------------
(Inset graph notes "Building on strong base" column from Slide 17)
Drive best practices via Service
Methodology Centers
26
Managing cash flow
Net Working Capital
Net Working Capital
o Focus on advanced payments (~7% of revenues)
o Target 10% DSO reduction (65)
o Targeting 2% percentage point net reduction in inventory --> 17% of
revenues
Investments
o Sustaining and expansion investments 2.7% of revenues
o 4% R&D investment
------------------------------------------------------------------------------------------------------------------------
Net Working Capital
% of revenue
------------------------------------------------------------------------------------------------------------------------
11.7 11.8 11.0 8.7 9.8 11.4 11.4 5.9 9.0 9.0 8.8 7.0 5
----------- -------- -------- -------- -------- -------- --------- -------- -------- -------- -------- -------- --------
Q100 Q200 Q300 Q400 Q101 Q201 Q301 Q401 Q102 Q202 Q302 Q402 2005
----------- -------- -------- -------- -------- -------- --------- -------- -------- -------- -------- -------- --------
27
Revenues growth and EBIT margin targets
o Target revenue CAGR: 3.3% through 2005
o Target EBIT margin: 10.7% by 2005
-------------------------------------------- -------------------- --------------------- ---------------------
2002 2003 2005
-------------------------------------------- -------------------- --------------------- ---------------------
Revenues growth in local currencies -3.0% 3.0% 3.3%*
-------------------------------------------- -------------------- --------------------- ---------------------
EBIT margin 6.5% 7.1% 10.7%
-------------------------------------------- -------------------- --------------------- ---------------------
* CAGR 2002-2005
28
What's different this time?
o New culture of consequence management is now in place
o Group Processes division has been eliminated
o Non-core businesses are being divested
o Country Managers empowered for local execution
o External benchmarks to validate our cost reduction targets/metrics and
rigorous follow-up routines
29
Cost reduction 4% of revenue
o Merger of two operating divisions will eliminate
o 5 Business Areas
o Redundant functions in more than 25 countries
o Redundant project and administration resources
o Aggressive channel management; taking out cost of sales
o Corporate and country holding structures are being trimmed
o No R&D investment outside core businesses!
30
Conclusions
o Leveraging the strong base:
o Combine the strengths of former:
o Automation division (product channels)
o Industries division (services)
o Capitalize on huge installed base for product and service growth
o R&D muscle and market presence
o Radical cost reduction
31
ABB
32
Appendix
33
Drives, Motors and Turbochargers
Business Activities
o Low and Medium Voltage AC Drives
o DC Drives
o Power Electronics Systems
o Diesel and Gas Engine Turbochargers
o Electrical Motors and Generators
o Services
Industries Served
o Drives: Building automation, marine, power, transportation, and
manufacturing industries
o Power electronics: Aluminium and magnesium smelters, excitation
systems for power plants
o Turbochargers: Marine, power and transportation
o Motors and generators: OEM customers, distributors, and end users
Market Drivers
o Investments to inrease production effeciency, reduce energy costs, and
improve environmental performance
Main Geographic Markets
o Europe, North America and Asia
34
Low Voltage Products and Instruments
Business Activities
o Breakers, Control Products, Switches and Fusegear
o Line Protection Devices, Enclosures and Cable Systems
o Switchgear and Motor Control Centers
o Process Measurement and Actuation Devices
o Process Analytical Products and Systems
o Services
Industries Served
o LV Products: Distributors and wholesalers, OEM`s and panel builders,
systems integrators and end users
o Instrumentation and Analytical: Process manufacturing industries
Market Drivers
o LV Products: Investments in buildings and industries to increase
energy efficiency and level of automation
o Instrumentation: Process quality, consistency and efficiency
Main Geographic Markets
o Worldwide
35
Control Platform Products
Business Activities
o Industrial IT platform product
o Control products and systems
o Software solutions for optimizing and integrating of plant operations
o Logistics, Data Historian and Manufacturing
o Execution Systems
o Plant and Professional Services
Industries Served
o Full range of process industries, including pulp and paper, metals and
minerals, chemicals, petroleum, life sciences, etc.
o Public and private power generation, transmission and distribution
Market Drivers
o Investments to improve production efficiency, quality, safety,
environmental and regulatory compliance.
o Investments to improve time to market and manufacturing agility
Main Geographic Markets
o Worldwide
36
Robotics, Automotive and Manufacturing
Business Activities
o Development, production and sale of industrial robots and related
equipment to the automotive industry and other manufacturing
industries
o Manufacturing cells and solutions
o Application-specific software and services
Industries Served
o Automotive, foundry, packaging and palletizing, material handling and
machine tending, painting and coating
Market Drivers
o Higher productivity, improved production efficiency and manufacturing
flexiblity
Main Geographic Markets
o Europe, Asia/Pacific, Americas
37
Petroleum, Chemicals and Consumer
Business Activities
o Application-specific products, systems, software and solutions
Industries Served
o Oil and gas production, processing, refining, and transportation
o Primary and secondary pharmaceutical manufacturing and packaging;
quality control and regulatory validation/compliance
o Food and beverage, home care, agricultural milling, personal care
products
Market Drivers
o Investments to increase production efficiency, quality and consistency
and to comply with regulatory agencies.
Main Geographic Markets
o Europe, North America and Asia
38
Paper, Metals, Minerals and Marine
Business Activities
o Pulp and paper automation, production and quality control; machine
health monitoring; chemical delivery
o Measurement and automation solutions for ferrous and non-ferrous
metals production and processing
o Automation of cement manufacture and mining processes
o Propulsion, power, dynamic positioning, and integrated automation of
cargo and cruise vessels and offshore installations
Industries Served
o Pulp and paper manufacturers
o Ferrous and non-ferrous metals producers
o Cement, mining and mineral processing
o Cruise, ferry and oil and gas vessels
Market Drivers
o Investments to improve production efficiency and quality, reduce
energy usage, maximize safety and environmental compliance
Main Geographic Markets
o Worldwide
39
Automation Technologies division - Pro-forma orders
---------------------------------------------------------------------- ------------------ ---------------- ---------------
MUS$ 9/2002 2001 9/2001
---------------------------------------------------------------------- ------------------ ---------------- ---------------
Reported orders
---------------------------------------------------------------------- ------------------ ---------------- ---------------
Former Automation Technology Products div. 3,768 5,170 3,633
---------------------------------------------------------------------- ------------------ ---------------- ---------------
Former Industries division 3,448 4,865 3,794
---------------------------------------------------------------------- ------------------ ---------------- ---------------
Elimination of inter-company transactions -448 -1,169 -948
---------------------------------------------------------------------- ------------------ ---------------- ---------------
Transfer of non-core business to corporate* -33 -47 -36
---------------------------------------------------------------------- ------------------ ---------------- ---------------
Disposals** -454
---------------------------------------------------------------------- ------------------ ---------------- ---------------
---------------------------------------------------------------------- ------------------ ---------------- ---------------
Pro-forma orders
---------------------------------------------------------------------- ------------------ ---------------- ---------------
New Automation Technologies division 6,735 8,365 6,443
---------------------------------------------------------------------- ------------------ ---------------- ---------------
* Semiconductor business
** Metering business
40
Automation Technologies division - Pro-forma revenues
---------------------------------------------------------------------- ----------- ----------- ------------
MUS$ 9/2002 2001 9/2001
---------------------------------------------------------------------- ----------- ----------- ------------
Reported revenues
---------------------------------------------------------------------- ----------- ----------- ------------
Former Automation Technology Products div. 3,672 5,246 3,590
---------------------------------------------------------------------- ----------- ----------- ------------
Former Industries division 3,093 5,060 3,632
---------------------------------------------------------------------- ----------- ----------- ------------
Elimination of inter-company transactions -420 -1,203 -949
---------------------------------------------------------------------- ----------- ----------- ------------
Transfer of non-core business to corporate* -31 -42 -29
---------------------------------------------------------------------- ----------- ----------- ------------
Disposals** -447
---------------------------------------------------------------------- ----------- ----------- ------------
---------------------------------------------------------------------- ----------- ----------- ------------
Pro-forma revenues
---------------------------------------------------------------------- ----------- ----------- ------------
New Automation Technologies division 6,314 8,614 6,244
---------------------------------------------------------------------- ----------- ----------- ------------
* Semiconductor business
** Metering business
41
Automation Technologies division - Pro-forma EBIT
---------------------------------------------------------------------- ------------------- ------------------ ------------
MUS$ 9/2002 2001 9/2001
---------------------------------------------------------------------- ------------------- ------------------ ------------
Reported EBIT
---------------------------------------------------------------------- ------------------- ------------------ ------------
Former Automation Technology Products div. 274 380 315
---------------------------------------------------------------------- ------------------- ------------------ ------------
Former Industries division 128 154 132
---------------------------------------------------------------------- ------------------- ------------------ ------------
Transfer of non-core business to corporate* 12 11 9
---------------------------------------------------------------------- ------------------- ------------------ ------------
Disposals** -22
---------------------------------------------------------------------- ------------------- ------------------ ------------
---------------------------------------------------------------------- ------------------- ------------------ ------------
Pro-forma EBIT
---------------------------------------------------------------------- ------------------- ------------------ ------------
New Automation Technologies division 414 523 456
---------------------------------------------------------------------- ------------------- ------------------ ------------
* Semiconductor business
** Metering business
42
Automation Technologies division - Base EBIT
---------------------------------------------------------------------- ------------------- ------------------ ------------
MUS$ 9/2002 2001 9/2001
---------------------------------------------------------------------- ------------------- ------------------ ------------
Pro-forma EBIT 414 523 456
---------------------------------------------------------------------- ------------------- ------------------ ------------
Adjusted for one-time items:
---------------------------------------------------------------------- ------------------- ------------------ ------------
Restructuring costs 45 81 6
---------------------------------------------------------------------- ------------------- ------------------ ------------
One time costs 2
---------------------------------------------------------------------- ------------------- ------------------ ------------
Capital gains 1 -8 -3
---------------------------------------------------------------------- ------------------- ------------------ ------------
Adjusted for non-recurring amortization 99 73
---------------------------------------------------------------------- ------------------- ------------------ ------------
---------------------------------------------------------------------- ------------------- ------------------ ------------
Base EBIT
---------------------------------------------------------------------- ------------------- ------------------ ------------
New Automation Technologies division 460 697 532
---------------------------------------------------------------------- ------------------- ------------------ ------------
43
Business overview (revenues)*
------------------------------------------------------- -----------------------------------------------------
Business Areas Revenues
------------------------------------------------------- -----------------------------------------------------
Control & Enterprise Solutions 7%
------------------------------------------------------- -----------------------------------------------------
Petroleum, Chemical & Consumer 13%
------------------------------------------------------- -----------------------------------------------------
Robotics, Automotive & 17%
Manufacturing
------------------------------------------------------- -----------------------------------------------------
Paper, Metals, Minerals & Marine 17%
------------------------------------------------------- -----------------------------------------------------
Drives, Motors & Turbochargers 19%
------------------------------------------------------- -----------------------------------------------------
Low Voltage Products & Instruments 25%
------------------------------------------------------- -----------------------------------------------------
9/2002
------------------------------------------------------- -----------------------------------------------------
* Based on revenues 9 months 2002
44
EBIT Reconciliation 9 months 01 vs 9 months 02
---------------- ------------- ---------------- -------------- --------------- ---------------- -------------
456 208 39 15 70 150 414
---------------- ------------- ---------------- -------------- --------------- ---------------- -------------
9 months 01 Price Restructuring Legacy Non-recurring Restructuring 9 months 02
Erosion, charges Projects amortization savings
/ inflation
---------------- ------------- ---------------- -------------- --------------- ---------------- -------------
45
ABB Power Technologies Speed -
division Our key to success
Peter Smits
Safe Harbor Statement
This presentation includes forward-looking information and statements that are
subject to risks and uncertainties that could cause actual results to differ.
These statements are based on current expectations, estimates and projections
about global economic conditions, the economic conditions of the regions and
industries that are major markets for ABB Ltd. and ABB Ltd's lines of business.
These expectations, estimates and projections are generally identifiable by
statements containing words such as "expects", "believes", "estimates" or
similar expressions. Important factors that could cause actual results to differ
materially from those expectations include, among others, economic and market
conditions in the geographic areas and industries that are major markets for
abb's businesses, market acceptance of new products and services, changes in
governmental regulations, interest rates, and fluctuation in currency exchange
rates. 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.
2
Outline
o Business overview
o Strategy
o Targets
o Operational priorities
o Conclusions
3
Scope of Power Technologies
----------------------------------------------------------------------------------------------------------------
[Photographs]
----------------------------------------------------------------------------------------------------------------
High Voltage Medium Voltage Power Distribution Utility Power Systems
Products Products Transformers Transformers Automation
Systems
-------------------- --------------------- ---------------- ----------------- ------------------ ---------------
o ABB is the world's no. 1 in power technologies
o Global presence with about 42,000 employees in more than 70 countries
4
Business overview
-------------------------- ------ ---------------------------------------------------------------------------
Revenues split
by Business Area
-------------------------- ------ ---------------------------------------------------------------------------
12% Distribution Transformers (PTDT)
o Products and services for power distribution and special
applications up to 72,5 kV
-------------------------- ------ ---------------------------------------------------------------------------
14% Medium Voltage Products (PTMV)
o Products, modular solutions and service for power distribution
from 1 to 50 kV
-------------------------- ------ ---------------------------------------------------------------------------
15% Power Transformers (PTPT)
o Power transformers, service and associated products from 72,5 to
1150 kV
-------------------------- ------ ---------------------------------------------------------------------------
17% Utility Automation Systems (PTUA)
o Power plant controls, network management, substation automation,
water automation
-------------------------- ------ ---------------------------------------------------------------------------
18% High Voltage Products (PTHV)
o Products, modular solutions and service for power transmission
from 50 to 800 kV
-------------------------- ------ ---------------------------------------------------------------------------
24% Power Systems (PTPS)
o Transmission and distribution systems (AC & DC), substations,
system retrofit, wind power
-------------------------- ------ ---------------------------------------------------------------------------
9/2002
-------------------------- ------ ---------------------------------------------------------------------------
5
Business overview
------------------ -------------------- - ----------- -------------------- -- -------------- --------------------
Revenues split Revenues split Revenues split by
by customer type by regions offerings
------------------ -------------------- - ----------- -------------------- -- -------------- --------------------
VAR 4% 4% LAM 10% 9% Services 12% 12%
------------------ ------- ------------ - ----------- ------- ------------ -- -------------- ------- ------------
OEM 7% 8% MEA 12% 12% Systems 34% 31%
------------------ ------- ------------ - ----------- ------- ------------ -- -------------- ------- ------------
EPC 9% 10% Asia 17% 19% Products 54% 57%
------------------ ------- ------------ - ----------- ------- ------------ -- -------------- ------- ------------
Industries 7% 8% NAM 25% 26%
------------------ ------- ------------ - ----------- ------- ------------ -- -------------- ------- ------------
Utilities 73% 70% Europe 36% 34%
------------------ ------- ------------ - ----------- ------- ------------ -- -------------- ------- ------------
2001 09/2002 2001 09/2002 2001 09/2002
------------------ ------- ------------ - ----------- ------- ------------ -- -------------- ------- ------------
--------------------------------------- - -------------------------------- -- -------------- ------- ------------
EPC: Engineering, procurement, NAM: North America
construction LAM: Latin America
OEM: Original equipment manufacturer
VAR: Value added reseller
--------------------------------------- - -------------------------------- -- -------------- ------- ------------
6
Markets - ABB position and market size
Underlying market growth 2002-2005 for the division: approx. 3%
[Graph showing market size (in BUS$) and cumulative average growth rate
(2002-2005) for the Power Technology Division's markets]
7
9 months 2002 results*
---------------------------------------------- -------------------------- ------------------ ----------------
(MUS$) Change in 9M/02 9M/01
local currencies
---------------------------------------------- -------------------------- ------------------ ----------------
Orders -9% 5,406 5,975
---------------------------------------------- -------------------------- ------------------ ----------------
Revenues +2% 5,241 5,162
---------------------------------------------- -------------------------- ------------------ ----------------
EBIT +1% 315 314
---------------------------------------------- -------------------------- ------------------ ----------------
Base EBIT** +6% 357 339
---------------------------------------------- -------------------------- ------------------ ----------------
Base EBIT margin 6.8% 6.6%
---------------------------------------------- -------------------------- ------------------ ----------------
o Orders lower due to booking of 350 MUS$ order from China in Q3/01
o Revenue growth due to successful transmission product business
o Base EBIT increased due to productivity gains and further operational
improvements
Comments refer to local currency figures
* Pro-forma figures
** Definition of Base EBIT see Appendix
8
9 months 2002 achievements
MUSD
---------------- ------------------- ------------- ------------ ------------ ----------
314 +16 -36 +58 -37 315
---------------- ------------------- ------------- ------------ ------------ ----------
EBIT 0109 Operational Restruct. Restruct. Legacy EBIT
improvements costs payback costs 0209
/Productivity
increase
---------------- ------------------- ------------- ------------ ------------ ----------
9
Headcount reductions and productivity
------------------------------------------------------------------------------- -- ------------------------------------
Total employees
------------------------------------------------------------------------------- -- ------------------------------------
9 months achievements:
------------- ---------- ---------- ---------- ---------- ---------- ---------- -- ------------------------------------
47,191 46,188 44,698 44,425 43,499 42,404 42,307 o 8% productivity improvement
based on value added
------------- ---------- ---------- ---------- ---------- ---------- ---------- -- ------------------------------------
o Employee reduction: -12%
achieved within 15/18 months
------------- ---------- ---------- ---------- ---------- ---------- ---------- -- ------------------------------------
0106A 0109A 0112A 0203A 0206A 0209A 0212F
------------- ---------- ---------- ---------- ---------- ---------- ---------- -- ------------------------------------
Restructuring scenario 2003-2004
o Anticipated restructuring: approx. 1% of revenues p.a.
o Average payback: 18 months
o Target: 7-8% productivity improvement p.a.
10
Strategy
Taking advantage of our leadership
o Change the rules of the game
o Fundamentally alter the business cycle by reducing total cycle times
o Web-enabling of the entire value chain
o Example: online product configurators, including electronic ordering,
supplier integration
o Customer benefits:
o Short quotation and decision-making
o Fast execution through productized systems and modules
o Short delivery times with ABB brand quality
Reduce total cycle times from months to weeks and from weeks to days
11
Strategy
Fully implement Focused Factory concept
o Transformation of a confederation of local volume units to highly efficient
Focused Factories
o Focus on specific product ranges to achieve cost savings through economies
of scale
o Compete on speed and efficiency:
o Short total cycle time
o Advanced manufacturing technology
o Factory automation
o Demand flow systems from push to pull
o Lean overhead structure
o Deploy Industrial IT as next step of Focused Factories
Focused factory concept started in distribution transformers and is being
deployed in all Business Areas
12
Strategy
Focused Factory plus Focused Engineering
-------------------------------------- ------- ------------------------------------ -------------------------------
Focused Now also:
Factory. Focused Engineering.
-------------------------------------- ------- ------------------------------------ -------------------------------
High Voltage Products Utility Automation
-------------------------------------- ------- ------------------------------------ -------------------------------
Medium Voltage Products HVDC Systems
-------------------------------------- ------- ------------------------------------ -------------------------------
Power Transformers HVAC Systems
-------------------------------------- ------- ------------------------------------ -------------------------------
Distribution Transformers High complexity
Transmission Substations Medium complexity
Low complexity
-------------------------------------- ------- ------------------------------------ -------------------------------
13
Strategy
More competitiveness through Focused Engineering
------------------ ----- ------------------------------------------------------------------------------------
high o High-end systems, e.g. HVDC technology
complexity o Individual "Engineer to Order" solutions
o More sophisticated engineering tools
o Improved project management
o Risk management monitoring
------------------ ----- ------------------------------------------------------------------------------------
medium o Shift from Engineer to Order to Assembly to Order (from ETO to ATO)
complexity o Modularization
o Fast project execution
o Frequently used solution elements
------------------ ----- ------------------------------------------------------------------------------------
low o Further development of productized systems
complexity o Configuration instead of engineering
o Customers can configure their solution online
o Frequently used similar solutions
------------------ ----- ------------------------------------------------------------------------------------
Deployment of Focused Engineering centers will result in cost saving of approx.
20 MUSD annually and a growth from share gains of 200 MUSD
14
Revenues growth target
----------------------- -------------------- --------------------- --------------------- --------------------
10.6%* 2.2% 3% 2.3% 5.3%
----------------------- -------------------- --------------------- --------------------- --------------------
Pro-forma Pro-forma Market Growth*** CAGR
growth growth growth from 2002-2005 E
2001** 2002E** 2002-2005 share gains
----------------------- -------------------- --------------------- --------------------- --------------------
* substantially above average growth rate due to invoicing of strong backlog
** in local currencies; definition of pro-forma revenues, see appendix
*** share gains through building on strong base and expansion (e.g. service,
new markets)
15
EBIT margin target
----------------- -------------- --------------- ------------- -------------- ----------------- ---------------
6.2% 6.9%
----------------- -------------- --------------- ------------- -------------- ----------------- ---------------
1.0(1) 0.9%(1) 0.5%(1) 0.35%(1) 0.15%(1) 1.0%(1) 10%
----------------- -------------- --------------- ------------- -------------- ----------------- ---------------
5.2%(2) 6.0%(2) 2.0% 1.4% 0.6%
----------------- -------------- --------------- ------------- -------------- ----------------- ---------------
Base EBIT Base EBIT Optimizing Building Expansion Accumulated 2005E
margin margin the on strong Risk
2001* 2002E* business base
----------------- -------------- --------------- ------------- -------------- ----------------- ---------------
(1) Adjustments for one-time items and non-recurring amortization, see appendix
(2) Pro-forma EBIT, definition see appendix
* Base EBIT = Pro-forma EBIT including adjustments, see appendix
16
Optimizing the Business
(Inset graph notes "Optimizing the business" column from Slide 16)
Major initiatives:
o Speed in:
o Processes
o Design
o Manufacturing systems
o R&D improvements through:
o Selective, market-driven approach to leverage 2,5% of revenues for R&D
investments
o 1% of revenues less cost through integrated R&D approach
o Accelerated development of productized systems and reduce time to
market
17
Optimizing the business
Speed in processes
o Action: Product and site rationalization
---------------------------------------------------------------- --- ----------------------------------------
Product lines
-30%
---------------------------------------------------------------- --- ----------------------------------------
Product overlaps are being
aggressively eliminated
--------- -------- -------- -------- -------- -------- --------- --- ----------------------------------------
PT 64 57 48 44 44 44
--------- -------- -------- -------- -------- -------- --------- --- ----------------------------------------
MV 150 110 75 76 70 70 o Achievement:
-30% in 2 years
--------- -------- -------- -------- -------- -------- --------- --- ----------------------------------------
HV 88 80 73 68 65 65
--------- -------- -------- -------- -------- -------- --------- --- ----------------------------------------
DT 96 98 88 84 79 79 o covering the same portfolio
but with greater functionality
--------- -------- -------- -------- -------- -------- --------- --- ----------------------------------------
2000 2001 2002 2003 2004 2005
--------- -------- -------- -------- -------- -------- --------- --- ----------------------------------------
---------------------------------------------------------------- --- ----------------------------------------
Production lines
-17%
---------------------------------------------------------------- --- ----------------------------------------
In parallel, production lines
will be focused
--------- -------- -------- -------- -------- -------- --------- --- ----------------------------------------
PT 42 40 39 37 37 37
--------- -------- -------- -------- -------- -------- --------- --- ----------------------------------------
MV 57 45 36 35 30 30 o Achievement:
-17% in 2 years
--------- -------- -------- -------- -------- -------- --------- --- ----------------------------------------
HV 42 42 40 36 32 32
--------- -------- -------- -------- -------- -------- --------- --- ----------------------------------------
DT 35 34 32 31 28 28 o according to the focused
factory concept
--------- -------- -------- -------- -------- -------- --------- --- ----------------------------------------
2000 2001 2002 2003 2004 2005
--------- -------- -------- -------- -------- -------- --------- --- ----------------------------------------
18
Optimizing the business
Speed in design
o Example: Product portfolio rationalization in MV switchgear
o Power IT MV Air Insulated Switchgear, UniGear
o for IEC mass market applications (up to 24kV)
o Platform development
o Functionality implementation
o Phase in of global platform
o Product substitution
----------------------- --------------------- -------------------- ---------------------
Products Parts Production lines
----------------------- --------------------- -------------------- ---------------------
Q4
----------------------- --------------------- -------------------- ---------------------
2001 18 80,000 47
----------------------- --------------------- -------------------- ---------------------
2002 10 45,000 22
----------------------- --------------------- -------------------- ---------------------
2003 1 5,000 12
----------------------- --------------------- -------------------- ---------------------
2004 1 5,000 12
----------------------- --------------------- -------------------- ---------------------
2005 1 5,000 9
----------------------- --------------------- -------------------- ---------------------
For this product line an EBIT improvement
of 18% was achieved within one year
19
Optimizing the business
Speed in manufacturing systems
o Example: Increase automation in Focused Factories -e.g. MV breaker factory,
Dalmine, Italy
Fully-automated
Assembling and test
[Photograph] line with automatic [Photograph]
material handling
Mechanical test [Photograph]
Improvements in the last two years:
o Inventory: from 18.7% to 8.2%
o Throughput time: from 1 week to 1 day
o Test hours: from 2.5 h to 35 minutes
o Cost of poor quality (COPQ): from 3.2% to 0.9%
o On time delivery: from 68% to 96%
For this product line an EBIT improvement
of 20% was achieved within one year
20
Building on Strong Base
(Inset graph notes "Building on strong base" column from Slide 16)
Major initiatives:
o Build on strong, uncontested market leadership
o Speed across the value chain
o Product configurators and supplier integration
o Speed in delivery
o Project execution
21
Building on strong base
Build on strong market leadership
----------------------------- ----------------------- -------------------------------------------------------
Business Area Market share ABB market position
----------------------------- ----------------------- -------------------------------------------------------
High voltage 18% No.1 Larger than No. 2 (Siemens) and No. 3 (Alstom)
products together
----------------------------- ----------------------- -------------------------------------------------------
Medium voltage 14% No.1 No. 2 (Schneider) follows with 9%
products
----------------------------- ----------------------- -------------------------------------------------------
Power 23% No.1 Double the size of No. 2 (Alstom)
Transformers
----------------------------- ----------------------- -------------------------------------------------------
Distribution 14% No.1 Larger than No. 2 (Howard) and No. 3 (Schneider)
Transformers together
----------------------------- ----------------------- -------------------------------------------------------
Utility Automation 18% No.1 No. 2 (Siemens) follows with 13%, No. 3 (Alstom)
Systems with 7%
----------------------------- ----------------------- -------------------------------------------------------
Power 17% No.1 Larger than No. 2 (Alstom) and No. 3 (Siemens)
Systems together
----------------------------- ----------------------- -------------------------------------------------------
Goulden Reports 2001, NEMA 2001, ZVEI 2000, COTREL 2001, Evans Research 2001,
Gartner Group 2001
22
Building on strong base
Speed in delivery
o Example: Pursue opportunities as solution provider
Case: Brazilian ANEEL concession project
o ABB will achieve a 20% reduction of construction time: 18 months instead of
22
o Complete supply of 1300 km, 500 kV transmission system including
transmission lines, substations and Flexible AC Transmission System (FACTS)
o Order value 300 MUS$
o Positioned for additional concession projects
ANEEL: Federal National Electric Energy Agency
23
Expansion
(Inset graph notes "Expansion" column from Slide 16)
Major initiatives:
o Further boost channel partner business:
o OEM volume target 2005: 690 MUS$ (= +45%)
o EPC volume target 2005: 850 MUS$ (= +74%)
o Expand market position
o In high-end solutions
o In regions like India and China
o 0209 growth vs. 0109:
India: +30%
China: +42%
24
Expand
Expand market position
o Example: Expand leadership in HVDC Light(TM)technology
o HVDC Light(TM) opens new market for offshore transmission and sets
benchmark for underground transmission
o Upgrade packages for existing HVDC installations
"TransEnergie's recent success with both the undersea Cross Sound Cable project
and the underground Murraylink, have proven the commercial viability of the HVDC
light technology."
Michael Farr, Murraylink Project Director for TransEnergie
Market opportunities for MUS$ 800 over 3 - 5 years
25
Expand
Expand market position
o Example: Expand in large regional markets, e.g. India
Power Grid
Corporation of India
Ltd.
o Success example:
o Project Vizag II High Voltage Direct Current
(HVDC) East-South Interconnector III system
o Value: ~50MUSD
o System: Turnkey HVDC back-to-back system
o Products:
o Converter transformers, HV capacitors, 400 kV CBs, instrument
transformers, civil works, erection & commissioning
o Customer value:
o Increased capacity for high-voltage power exchange by 500 MW
In total ABB won 6 out of 7 worldwide HVDC projects in 2002 (total volume MUSD
230)
26
Managing Cash Flow
o Cash flow program is in line with targets:
o Targets for return on net operating assets from 18% in 01/12 to 21% in
02/12
o Receivables management: Reduction of DSO (Days of Sales Outstanding)
via improved billings, payment terms and claim management:
o From 95 days (2000) and 75 days (2001) to 65 days (2002)
o Improved contractual conditions with customers and suppliers
o Investments
o Focused Factory and Focused Engineering strategy reduces capital costs
and investment needs
o Expansion and sustaining investments more effectively used and
monitored:
o F2002 vs. A2001: from 3% to 2% of revenues
27
Conclusions
o Focused Factories for products plus Focused Engineering for systems
----
o Capitalize on strong position in growth regions
o Unique position to offer the complete portfolio of products, systems and
services
o Sustainable financial improvements:
o >5% Compound Annual Growth Rate until 2005
o >20% EBIT growth annually until 2005
o 100 MUS$ EBIT improvements annually until 2005; EBIT target of 10% by
2005
28
Revenues growth and EBIT margin targets
---------------------------- -------------------------- -------------------------- --------------------------
2002 2003 2005
---------------------------- -------------------------- -------------------------- --------------------------
Revenues growth in local 2.2% 5.3% 5.3%*
currencies
---------------------------- -------------------------- -------------------------- --------------------------
EBIT margin 6.0% 7.0% 10.0%
---------------------------- -------------------------- -------------------------- --------------------------
* CAGR 2002-2005
29
ABB
A global leader in power and automation technologies
that enable utility and industry customers to improve
their performance while lowering environmental impact
30
Appendix
31
Power Technologies division -
Pro-forma orders
---------------------------------------------------------- ---------------- ----------------- ---------------
MUS$ 9/2002 9/2001 2001
---------------------------------------------------------- ---------------- ----------------- ---------------
Reported orders
---------------------------------------------------------- ---------------- ----------------- ---------------
Former Power Technology Products division 3,323 3,272 4,221
---------------------------------------------------------- ---------------- ----------------- ---------------
Former Utilities division 3,653 4,816 6,436
---------------------------------------------------------- ---------------- ----------------- ---------------
Elimination of inter-company transactions -1,570 -2,113 -2,732
---------------------------------------------------------- ---------------- ----------------- ---------------
Pro-forma orders
---------------------------------------------------------- ---------------- ----------------- ---------------
New Power Technologies division 5,406 5,975 7,925
---------------------------------------------------------- ---------------- ----------------- ---------------
32
Power Technologies division -
Pro-forma revenues
------------------------------------------------------- ------------------- ----------------- ---------------
MUS$ 9/2002 9/2001 2001
------------------------------------------------------- ------------------- ----------------- ---------------
Reported revenues
------------------------------------------------------- ------------------- ----------------- ---------------
Former Power Technology Products division 3,220 2,876 4,042
------------------------------------------------------- ------------------- ----------------- ---------------
Former Utilities division 3,543 3,974 5,649
------------------------------------------------------- ------------------- ----------------- ---------------
Elimination of inter-company transactions -1,522 -1,688 -2,338
------------------------------------------------------- ------------------- ----------------- ---------------
Disposals -3
------------------------------------------------------- ------------------- ----------------- ---------------
Pro-forma revenues
------------------------------------------------------- ------------------- ----------------- ---------------
New Power Technologies division 5,241 5,162 7,350
------------------------------------------------------- ------------------- ----------------- ---------------
33
Power Technologies division -
Pro-forma EBIT
------------------------------------------------------------ ---------------- ----------------- -------------
MUS$ 9/2002 9/2001 2001
------------------------------------------------------------ ---------------- ----------------- -------------
Reported EBIT
------------------------------------------------------------ ---------------- ----------------- -------------
Former Power Technology Products division 241 192 234
------------------------------------------------------------ ---------------- ----------------- -------------
Former Utilities division 74 122 148
------------------------------------------------------------ ---------------- ----------------- -------------
Pro-forma EBIT
------------------------------------------------------------ ---------------- ----------------- -------------
New Power Technologies division 315 314 382
------------------------------------------------------------ ---------------- ----------------- -------------
34
Power Technologies division -
Base EBIT
--------------------------------------------------- ------------------- ------------------- -----------------
MUS$ 9/2002 9/2001 2001
--------------------------------------------------- ------------------- ------------------- -----------------
Pro-forma EBIT 315 314 382
--------------------------------------------------- ------------------- ------------------- -----------------
Adjusted for one-time items:
--------------------------------------------------- ------------------- ------------------- -----------------
Restructuring costs 44 8 77
--------------------------------------------------- ------------------- ------------------- -----------------
Capital gains -2 -4 -30
--------------------------------------------------- ------------------- ------------------- -----------------
Adjusted for non-recurring amortization 21 29
--------------------------------------------------- ------------------- ------------------- -----------------
Base EBIT
--------------------------------------------------- ------------------- ------------------- -----------------
New Power Technologies division 357 339 458
--------------------------------------------------- ------------------- ------------------- -----------------
35
BA Utility Automation Systems (PTUA)
Description of business activities:
o Automation and control systems for power plants
o Network management systems for electric utilities
o Automation and control systems for water plants and networks
o Downstream automation solutions for gas utilities
Market overview and market drivers:
o Total demand for IT in power & electrical networks represents approx. 7
BUSD*. Water & Gas IT networks represent a 1.4 BUSD demand
o IT investments are driven by:
deregulation, liberalization, growing demand, aging installments,
environmental concerns
Main geographic markets:
o worldwide
*(Energy markets only considers wholesales & central markets)
Key competitors:
o Siemens
o Alstom
o Invensys
o Emerson
36
BA Power Systems (PTPS)
Description of business activities
o AIS & GIS turnkey transmission and distribution systems and substations
o HVDC point-to-point transmission and back-to-back interconnections
o FACTS (Flexible AC Transmission Systems) such as Series and Static VAR
Compensation
o Turnkey overhead transmission line projects
o Extensions and system retrofit
Market overview and market drivers
o Demand for solutions responding to functional requirements and shorter
delivery time is increasing particularly in developed Countries and with
private customers
o Low environmental impact solutions show growing trend globally
o Increasing demand for grid inter-connections and de bottle-necking
solutions in developing countries and where regional grids are not
connected (e.g. in the US)
o Even though new investments in transmission are needed in US, slow down
continues due to regulatory issues
o Political and economic uncertainty in South America is delaying investment
37
BA Power Systems (PTPS)
Main geographic markets
o worldwide
Key competitors
o Siemens
o Alstom
o VA-Tech/Schneider
o Japanese OEM's
o Local contractors
38
BA High Voltage Products (PTHV)
Description of business activities:
o Design, manufacturing, delivery and service of HV products;
o Air and Gas-Insulated Switchgear and Generator Circuit Breakers
o Instrument Transformers, Disconnectors, Surge Arresters and Capacitors
o MV/HV/EHV Cable and Cable systems
o Latice towers for transmission lines
Market overview and market drivers:
o Overall market size, 4.800 MUSD (excl cable and power lines)
o Overall market size, 7.400 MUSD (incl cable and power lines)
o Overall market growth of 3-4%
o Market drivers;
o Economical development (need for supporting infrastructure)
o Energy consumption
o Deregulation of the utility market
o Aging infrastructure in developed countries
Main geographic markets:
o worldwide
39
BA High Voltage Products (PTHV)
Key competitors:
o Siemens
o Alstom
o VA-Tech
o Japan AE Power Systems (former Meiden, Hitachi and Fuji Electric)
o TM T&D (former Mitsubishi and Hitachi)
o Pirelli (Cables)
o Nexans (Cables)
40
BA Medium Voltage Products (PTMV)
Description of business activities:
o Switching equipment for utilities and industrial customers both directly
and through distributors and original equipment manufacturers. Product
segments include:
o Switchgear for primary and secondary distribution
o Apparatus (including breakers, reclosers, fuses etc.) for indoor and
outdoor applications
o Modular systems and compact substations
Market overview and market drivers:
o Slow growth in mature markets in WE and NAM
o Asia and China key to growth
o Demographics distribution will drive growth in MEA
o Effects of deregulation will cause future market opportunities
Main geographic markets:
o Western Europe, North America, China
Key competitors:
o Siemens
o Alstom
o Schneider
41
BA Power Transfomers (PTPT)
Description of business activities:
o Design, produce and deliver Transformers
o Power Transformers
o Industrial Transformers
o Traction Transformers
o Transformer Components (e.g. Bushings, Tap Changers)
o Repair & Service Solutions
Market overview and market drivers:
o World wide annual market growth of 2-3% till 2005 assumed
o Replacement of ageing installed power transformer base in North America and
Europe to be one major market driver
o Increased need for Asset Management anticipated
o Global competition to increase (less local preference and standards)
Main geographic markets:
o North America, China, Europe, SE Asia and Australia
Key competitors:
o Alstom
o Siemens
o VATech
o Japanese
42
BA Distribution Transfomers (PTDT)
Description of business activities:
o Distribution Transformers ranging up to 72,5 kV, including
o single and three phase
o dry- and liquid-type
o special application transformers
o IEC and ANSI standards
Market overview and market drivers:
o Differentiation through "Delivery" - speed and/or service level
o Quality is assumed
o Commoditization and market overcapacity
o Locally and regionally focused competitors
o Market drivers are housing starts and Industry investments
o Market follows power transmission investments
o Market also driven by electrification of rural areas
Main geographic markets:
o NAM, Europe and Asia.
43
BA Distribution Transfomers (PTDT)
Key competitors:
o Coopers (USA)
o Howard (USA)
o Schneider (France)
o Alstom (France)
o Siemens (Germany)
o SGB (Germany)
44
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
ABB LTD
Date: November 21, 2002 By: /s/ BEAT HESS
-----------------------------------
Name: Beat Hess
Title: Group Senior Officer
By: /s/ HANS ENHORNING
-----------------------------------
Name: Hans Enhorning
Title: Group Vice President