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Asea Brown Boveri (ABB): Past tense, Future promising - Views on News from Equitymaster
 
 
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  • Feb 24, 2000

    Asea Brown Boveri (ABB): Past tense, Future promising

    ABB worldwide is a $25 bn company with a presence in 140 countries and employees of around 170,000.

    (Rs m) 1999 1998 Change
    Sales 7,758.0 8,692.4 -10.7%
    Other Income 175.5 241.7 -27.4%
    Expenditure 7,182.3 8,169.2 -12.1%
    Interest 61.2 97.5 -37.2%
    Depreciation 158.0 175.1 -9.7%
    Profit before Tax 532.0 492.3 8.0%
    Tax 160.0 115.0 39.1%
    Profit after Tax/(Loss) 372.0 377.3 -1.4%
    Net profit margin (%) 4.8% 4.3%  

    After the divestment of the power generation business to the new entity ABB Alstom Power, the new ABB comprises power transmission and distribution (contributing 45% to the turnover) and industrial automation (45%) with the balance coming from building technologies (which comprise emission control systems, subcontracting etc.)

    Coming to the results, the company’s results for the current year includes sales of Rs 222.2 million and a loss before taxation of Rs 65.8 million for the period January 1999 to March 1999 pertaining to the power generation business.

    If one were to exclude the power generation business the net profit of the company was down 22% in 1999 at Rs 438 million as against Rs 559 million in 1998. The pre-tax profits have gone down from Rs 674 m to Rs 598 m. The reason for the decline in the pre-tax profit was that apart from lower contribution of revenues to the extent of Rs 46 million, the extra depreciation of Rs 24 million, the additional expenses for Voluntary Retirement Scheme of Rs 74 million also hit the bottomline. However, the company also gained due to lower operating expenses of employees to the extent of Rs 68 million.

    As far as the future, the order book at the end of 1999 was up 17% from a level of Rs 6330 million in 1998 to 7410 million in 1999. If one were to include the order book of the power generation business it would go up marginally to Rs 7689 million in 1999 (from Rs 7295 million in 1998).

    The specific focus for topline growth will be in the service areas exports and new products in transmission and distribution. Normally the ratio of expenditure on power transmission vis-à-vis power generation stands at 1:1. In India it stands at 28%. The company expects massive investment in the transmission and distribution sector in the year’s to come.

    The only issue for the company is the accounts receivables which are around 50% of its balance sheet size (Rs 7.4 bn). This, the management feels causes a cash flow problem, On a net basis there are no borrowings otherwise.

     

     

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