Process Automation

The financial results of our Process Automation division were as follows:

 

 

 

 

% Change

($ in millions)

2015

2014

2013

2015

2014

Orders

6,464

8,577

8,000

(25)%

7%

Order backlog at December 31,

5,203

5,661

5,772

(8)%

(2)%

Revenues

6,374

7,948

8,497

(20)%

(6)%

Income from operations

593

1,003

990

(41)%

1%

Operational EBITA

755

958

1,022

(21)%

(6)%

Orders

Orders in 2015 declined 25 percent (14 percent in local currencies), mainly due to the impacts of a reduction in capital and operating expenditures in the oil and gas sector resulting from continued low oil prices. The marine sector, also negatively impacted by low oil prices, had lower demand, especially from the offshore drilling vessels segment. The mining sector remained at a low level as customers in this segment either continued to delay or postpone investments due to low commodity prices. Orders were also 3 percent lower due to the impact of the divestment of the Full Service business at the end of 2014.

Orders in 2014 increased 7 percent (10 percent in local currencies), mainly due to high demand from the marine sector, especially for LNG vessels. Orders in the oil and gas businesses also increased while orders in the mining businesses remained at low levels as most mining customers delayed or postponed capital investments. Orders in the metals businesses also remained at low levels due to overcapacity issues affecting our customers. Other customers such as steel companies are focusing their spending on operating expenses and not on capital investment due to profitability pressures affecting their industry. The paper industry in North America, South America and parts of Asia, however, has improved and has started to increase its level of capital investment.

The geographic distribution of orders for our Process Automation division was as follows:

(in %)

2015

2014

2013

Europe

38

33

37

The Americas

23

22

23

Asia, Middle East and Africa

39

45

40

Total

100

100

100

In 2015, orders declined in all regions. The share of orders from Asia, Middle East and Africa declined due to large orders received from the marine sector in 2014 described below. In addition, the region was impacted by weak domestic demand in China. Orders in the Americas declined but by a lower percentage than the division as a whole. Declines included the impacts of lower mining investments in South America, as well as slowing demand in the United States from the upstream oil and gas sector. As most major industrial economies in Europe were either steady or contracting only slightly, the geographic share of orders from Europe increased.

In 2014, the share of orders from Asia, Middle East and Africa increased primarily due to the impacts of large orders received in South Korea from the LNG marine sector and strong order growth in China as well as the impact of the award of a gas treatment plant contract in Tunisia. The share of orders from the Americas remained steady. Growth in Brazil was offset by the effects of lower mining investments in Chile while North America grew slightly. Orders decreased in Europe which resulted in a reduction in the share of orders from Europe compared to 2013. Marine orders in Finland were offset by lower order intake in Germany and Southern Europe.

Order backlog

Order backlog at December 31, 2015, was 8 percent lower (2 percent higher in local currencies) than at December 31, 2014. Order backlog in most businesses was lower due to the impacts of lower orders during the year. The increase in order backlog in local currencies was due to the receipt of higher large orders near the end of 2015.

Order backlog at December 31, 2014, was 2 percent lower compared to December 31, 2013. In local currencies, order backlog was 9 percent higher, reflecting the higher order intake during the year, especially large orders.

Revenues

In 2015, revenues decreased 20 percent (9 percent in local currencies). Revenues in the Oil and Gas business declined, reflecting the lower opening order backlog as well as reduced opportunities from slower customer order tendering, especially in the service business. The Marine and Ports business also recorded lower revenues, reflecting lower activity in the offshore oil and gas industry and large project delays. The Process Industries business, which includes mining and metals, also declined. Revenues in the Measurement and Analytics business declined, largely due to lower demand in the upstream oil and gas segment. In local currencies, Turbocharging was flat while the Control Technologies business had higher revenues. Revenues were 4 percent lower due to the impacts of the divestment of the Full Service business at the end of 2014.

In 2014, revenues were down 6 percent (4 percent in local currencies), reflecting the impacts of lower order intake in the previous year. Revenue decreases were more significant in the systems businesses, especially in mining systems, due to the weak opening order backlog while revenues in the oil and gas businesses increased. Product revenues were flat. Revenues in the Measurement Products business grew slightly but were offset by a decline in revenues in the Control Technologies business. Product revenues in the Turbocharging business increased slightly compared to the low levels last year. Revenues were also impacted by the exit in 2013 from a large service contract.

The geographic distribution of revenues for our Process Automation division was as follows:

(in %)

2015

2014

2013

Europe

33

35

36

The Americas

24

23

24

Asia, Middle East and Africa

43

42

40

Total

100

100

100

In 2015, the regional revenue distribution remained steady. The share of revenues from Europe declined, reflecting lower oil and gas and marine activities in Norway and the divestment of the Full Service business in 2014, which mainly impacted Europe. The larger proportional revenue decrease in Europe resulted in a redistribution of the share to both Asia, Middle East and Africa and the Americas.

The regional distribution of revenues in 2014 did not change significantly compared to 2013. Revenue share declines were realized in Europe and the Americas, while Asia, Middle East and Africa increased. In Europe, revenues declined as a result of an exit in 2013 from a large service contract in Finland and lower revenues in Sweden. In the Americas, lower opening order backlog in the mining business led to lower revenues in Chile and Peru, which more than offset growth in the United States. The revenue share from Asia, Middle East and Africa increased mainly from Algeria and the United Arab Emirates.

Income from operations

In 2015, income from operations declined 41 percent compared to 2014. Income from operations in 2014 included the gain on the disposal of the Full Service business. In addition, income from operations was impacted by the revenue decreases described above. The income from operations in 2015 also included higher restructuring charges due to the implementation of the company-wide White Collar Productivity program. Changes in foreign currencies, including the impacts from FX/commodity timing differences summarized in the table below, negatively impacted income from operations by 7 percent.

In 2014, income from operations increased compared to 2013, mainly due to the gain on sale of the Full Service business partially offset by the impact of lower revenues. Changes in foreign currencies, including the impacts from FX/commodity timing differences summarized in the table below, negatively impacted income from operations by 5 percent.

Operational EBITA

The reconciliation of income from operations to Operational EBITA for the Process Automation 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 from operations

593

1,003

990

Acquisition-related amortization

12

17

13

Restructuring and restructuring-related expenses(1)

112

43

31

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

11

(113)

(6)

FX/commodity timing differences in income from operations

27

8

(6)

Operational EBITA

755

958

1,022

In 2015, Operational EBITA decreased 21 percent (13 percent excluding the impacts from changes in foreign currencies) compared to 2014, primarily due to the reasons described under “Income from operations”, excluding the explanations related to the reconciling items in the table above.

In 2014, Operational EBITA decreased 6 percent (4 percent excluding the impacts from changes in foreign currencies) compared to 2013, primarily due to the reasons described under “Income from operations”, excluding the explanations related to the reconciling items in the table above.