Power Systems

The financial results of our Power Systems division were as follows:

 

 

 

 

% Change(1)

($ in millions)

2015

2014

2013

2015

2014

(1)

Certain percentages are stated as n.a. as the computed change would not be meaningful.

Orders

6,800

6,871

5,949

(1)%

15%

Order backlog at December 31,

8,218

8,246

9,435

(13)%

Revenues

6,342

7,020

8,375

(10)%

(16)%

Income (loss) from operations

110

(360)

171

n.a.

n.a.

Operational EBITA

274

(96)

326

n.a.

n.a.

Orders

In 2015, orders decreased 1 percent (increased 13 percent in local currencies) compared with 2014. The growth in local currencies reflected a higher level of large orders. Large orders in Grid Systems included an HVDC order awarded to connect the Norwegian and German power grids and a $450 million HVDC order for an interconnection between Norway and the United Kingdom, while our Power Generation business won a power plant automation order in South Africa worth more than $160 million. In local currencies, base orders were lower, mainly due to the challenging macro-economic conditions. The markets remain competitive with continued pricing pressure.

In 2014, orders increased 15 percent (20 percent in local currencies) compared with 2013, mainly due to a higher level of large orders in the Grid Systems business following the $800 million award in the United Kingdom for a HVDC subsea power connection in northern Scotland and a $400 million HVDC project in Canada to provide the first electricity link between the island of Newfoundland and the North American power grid. In addition, large orders in 2014 included a $110 million substation order in Saudi Arabia which will support grid interconnection and boost electricity transmission capacity. Initiatives to drive base order growth, combined with early signs of stabilization in the utility sector, contributed to modest growth in base orders. The overall market remains highly competitive, especially in certain higher-growth regions such as the Middle East. The Power Systems division continues to be selective, focusing on higher-margin projects and those with higher pull-through of other ABB products.

The geographic distribution of orders for our Power Systems division was as follows:

(in %)

2015

2014

2013

Europe

47

42

36

The Americas

19

25

25

Asia, Middle East and Africa

34

33

39

Total

100

100

100

In the Power Systems division, the change in the geographic share of orders reflects changes in the geographical location of large orders. In 2015, Europe benefited from a higher level of large orders, reflecting large orders for HVDC interconnections. The share of orders from Asia, Middle East and Africa increased to 34 percent, supported by large orders. Orders in the Americas were significantly lower, partly due to the significant large HVDC order received in Canada in 2014 as described above.

In 2014, the share of orders from Europe increased due to the award of the HVDC project in the United Kingdom. The share of orders in the Americas remained stable with growth in both large and base orders. Orders from Asia, Middle East and Africa decreased, mainly due to the timing of large order awards, resulting in a reduction of order share relative to the other regions.

Order backlog

Order backlog at December 31, 2015, was flat (increased 8 percent in local currencies) compared with December 31, 2014. The increase in order backlog reflects the impact of the high levels of large orders, which typically have execution times stretching over several years.

Order backlog at December 31, 2014, decreased 13 percent (4 percent in local currencies) compared with December 31, 2013. Although order backlog was supported by the large orders received in 2014, order backlog decreased in 2014 as the division continued to run off the remaining orders in businesses affected by the repositioning of the Power Systems division announced in 2012 and the businesses affected by the exiting of the solar EPC business announced in 2014.

Revenues

Revenues in 2015 decreased 10 percent (increased 2 percent in local currencies) compared to 2014; the increase in local currencies was mainly driven by steady execution of the order backlog. Revenues increased in the Grid Systems business, supported by the execution of offshore wind projects, and were also higher in the Network Management business. This more than offset a lower level of revenues in the Substations and Power Generation businesses. Revenues were also impacted by our exit from the solar EPC business in 2014.

Revenues in 2014 decreased 16 percent (13 percent in local currencies) compared to 2013, mainly due to the effects of a weaker order intake in 2013 and the resulting lower opening order backlog at the beginning of 2014. Revenues decreased in all businesses compared to 2013. In addition, revenues in 2014 were negatively impacted by execution delays in certain projects.

The geographic distribution of revenues for our Power Systems division was as follows:

(in %)

2015

2014

2013

Europe

40

38

36

The Americas

24

24

23

Asia, Middle East and Africa

36

38

41

Total

100

100

100

The regional distribution of revenues reflects the geographical end-user markets of the projects executed during the year, and consequently varies over time. In 2015, revenues increased in Europe following the execution of large projects within the Grid Systems business. The share of revenues from the Americas was steady, while revenues in Asia, Middle East and Africa were relatively lower.

In 2014, revenues decreased in all regions compared to 2013. The largest revenue decrease was recorded in Asia, Middle East and Africa, the division’s largest region in terms of revenues in 2014, and partly related to lower revenues in Iraq and Saudi Arabia compared to 2013, following a lower opening order backlog.

Income (loss) from operations

In 2015, income from operations increased to $110 million from a loss of $360 million in 2014, mainly due to benefits from the ongoing measures taken in the ‘step change’ program and continued cost reduction initiatives. Restructuring-related expenses in 2015 of $96 million were higher than in 2014 and included charges for the new company-wide White Collar Productivity program and ongoing costs for the previously-announced initiatives to align the cost structure of certain operations to reflect changing market conditions. Continued cost savings, primarily related to supply chain management and operational excellence, helped mitigate higher research and development spending as well as the negative effects from price pressures. Acquisition-related amortization also decreased in 2015 compared to 2014. In addition, changes in the amount of FX/commodity timing differences in income from operations increased the division’s income from operations by $125 million compared to 2014.

In 2014, the Power Systems division recorded a loss from operations of $360 million compared to an income from operations of $171 million in 2013, due primarily to lower revenues and project-related charges, mainly for offshore wind projects and solar EPC contracts. Income (loss) from operations also included a $115 million negative impact related to FX/commodity timing differences compared with a $40 million positive impact in 2013. Restructuring-related expenses in 2014 of $63 million were lower than the $101 million in 2013, and included charges to adjust the size and cost structure of certain operations in response to lower order backlog and an increased focus on white collar productivity. Cost savings from supply chain management and operational excellence activities helped mitigate higher research and development spending, and the impact of low margin projects executed from the order backlog.

Operational EBITA

The reconciliation of income (loss) from operations to Operational EBITA for the Power Systems division was as follows:

($ in millions)

2015

2014

2013

(1)

Amounts also include the incremental implementation costs in relation to the White Collar Productivity program.

Income (loss) from operations

110

(360)

171

Acquisition-related amortization

43

74

90

Restructuring and restructuring-related expenses(1)

96

63

101

Gains and losses on sale of businesses, acquisition-related expenses and certain non-operational items

35

12

4

FX/commodity timing differences in income from operations

(10)

115

(40)

Operational EBITA

274

(96)

326

In 2015, Operational EBITA increased by $370 million. This was primarily driven by the reasons described under “Income (loss) from operations”, excluding the explanations related to the reconciling items in the table above.

In 2014, Operational EBITA decreased compared to 2013, primarily due to the reasons described under “Income (loss) from operations”, excluding the explanations related to the reconciling items in the table above.