Economic performance

Financial performance Sound financial performance provides the necessary platform to consolidate our sustainability performance and to bring ABB’s social performance up to the high levels achieved in the environmental field.

ABB's economic performance in 2001

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Indicators with established Group targets	Targets	Actual
Annual revenue growth (local currencies)	6%	8%
Profitability (EBIT as a proportion of revenues)	4-5% (9-10% by 2005)	1.2%
Net debt reduction in Q4 2001 ($ millions)	500	2,000
Annual cost savings ($ millions)	500 (by end 2002)	300* (at end 2001)

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* based on workforce reduction of 7,200, out of planned total reduction of 12,000.

Overview
ABB is on track in terms of its operations and financing, after a demanding year in 2001. We are in a solid financial position and will meet our business objectives.

Earlier this year we obtained a $ 3 billion credit facility commitment from leading banks, which assures greater flexibility and ends concerns about our liquidity. We also launched convertible and straight bond issues strengthening our position.

The company began the largest transformation in its history in 2001. We have realigned all business activities around customer groups and simplified our organization in all markets.

We sharply reduced the number of operating companies; and to further reduce costs, we implemented a program to increase efficiency and productivity, with the aim of cutting our workforce by 12,000 by end-2002. We are on track to achieve our targets.

For 2002, revenues are expected to be flat in comparison to 2001. EBIT margin for the full year 2002 is expected to be in the range of 4–5 percent. EBIT and net cash from operations are expected to be stronger in the second half of 2002 than in the first half.

In 2001, we continued our program to apply value-based management throughout our organization. As a decentralized company, it is very important for ABB to be able to understand and compare the efficiency of capital utilization and value creation across all our operating units.

Value-based management gives us this information. It allows us to optimize value drivers, and increase our cash.

These programs were already showing fruit by the end of the year. In the last quarter of 2001 we reduced net debt by $ 2 billion; and by year-end we had reduced employee numbers by 7,200. Productivity, in terms of revenue per employee, increased slightly in 2001.

Our order intake was stable, and revenues increased by three percent over the year (measured in local currencies, the increase was eight percent). Our cash flow from operations more than doubled. However, the year ended with a net loss. Much of the loss was attributable to charges for restructuring costs, one-off costs related to projects and the insurance business, and provisions to cover expected claims related to the use of asbestos at one of our subsidiaries.

These claims stem from the use of asbestos as insulation material inside welded boilers. Combustion Engineering, a U.S. subsidiary, used asbestos until the mid-1970s. At the end of 2001, we took a charge of $ 470 million, increasing our provisions to $ 940 million to cover the expected claims against Combustion Engineering. There were 94,000 claims pending at the end of the year. Combustion Engineering has intensified its efforts to settle valid claims and dispute those that appear invalid.

Revenues and profit

Consolidated financial overview

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All figures in $ millions unless otherwise stated	1999	2000	2001
Total revenues	24,356	22,967	23,726
Gross profit (net sales less cost of sales)	5,899	5,745	5,018
Gross margin (%)	24.2	25.0	21.1
Earnings before interest and taxes (EBIT)	1,122	1,385	279
Net income (loss)	1,360	1,443	(691)
Dividends (CHF millions)	900	900	0
Dividends per share (CHF)	0.75	0.75	0
Return on average net operating assets (%)	n.a.	10.0	2.0

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Consolidated revenues by region

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All figures in $ millions unless otherwise stated	1999	2000	2001
Europe	13,893	12,570	12,780
The Americas	5,675	5,702	5,944
Asia	2,763	2,770	2,686
Middle East and Africa	2,025	1,925	2,316

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Assets

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All figures in $ millions unless otherwise stated	1999	2000	2001
Total assets	30,578	30,962	32,344
Of which goodwill and other intangible assets, net	2,904	3,155	3,299
Market-to-book (%)	854.3	611.1	525.6

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Investments

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All figures in $ millions unless otherwise stated	1999	2000	2001
Research and development expenditure	865	703	654
Order-related development expenditure	1,212	985	916
Capital expenditures, excluding purchased intangible assets	666	485	645
Capital expenditures for acquisitions	1,780	896	597
Net debt/equity ratio	0.13	0.34	2.02
Debt servicing capacity (ratio of EBIT to net interest payments)	11.22	17.53	1.19

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ABB does not account for investments in human capital (such as employee training and community education).

Labor productivity

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$ thousands	1999	2000	2001
Revenue per employee	150.9	142.8	151.3

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Taxes

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$ millions	1999	2000	2001
Tax expense from continuing operations	343	377	105

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Number of employees

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	1999	2000	2001
Number of employees	161,430	160,818	156,865

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