ABB - a financial analysis

Uppsala University
Business Studies D
International Financial Management
22.02.2002

ABB
A financial analysis
WHO FEEDS THE GIANT?

by

Stephan Wolter

Content

Introduction  2

ABB – Business Operations  2
Overview.2
Facts and Figures  2

Corporate Governance  3
Owners and Share-structure  3
Governance system  4
Further Implications  4

Financial Goals  5
Targets  5
Figures and Financial ratios  6

Capital Structure  8

Dividend Policy  9

Self-Sustainable Goal System  11

Final Comments  12

References  14
Information sources  14
Theory  14
Internet  14

Introduction

The last decades has meant a distinctive shift in the world of business. ABB Group has followed the ongoing trend of globalisation. It has become a truly Multinational Enterprise (MNE); showing in its structure and way of managing operations that it has adopted to the new conditions of global markets and competition.

"ABB is in the business of creating value – for our customers, shareholders, employees and the communities in which we operate."¹

Could such a mission be pursued successfully? Does the international diversification of the company help to achieve its goals? All value creation is essentially financial. This term paper is dedicated to analysis the financials of the ABB Group. My purpose is to see whether the financial position matches the expressed value creating goals. I chose the time period from 1998-2001 for my analysis. Unfortunately the Annual Report 2001 was published merely days before the dead line of this term paper. But nevertheless I tried to include the latest figures in my analysis.

ABB – Business Operations

Overview
The ABB Group is a provider of products and systems incorporating advanced technologies and innovative applications, specializing in automation and process technologies for industrial and commercial customers. It consists of five industrial businesses and one financial service segment. With its headquarter in Switzerland, it is located in more than 100 countries and employs about 160000 people. ABB Ltd is the group holding company of ABB AG (Switzerland) and ABB AB (Sweden). It constitutes the parent company of the ABB Group.

Facts and Figures
Figure 1 and 2 show the distribution of revenues. These give us an idea about the diversification among the world and different industries. Geographically, the main market is Europe. The sectors of Automation and Building Technologies constitute ABB´s biggest division. Segments such like Power Transition, Power Distribution and Automation keep on leading in their businesses. ABB tries to be extremely customer oriented. The whole organisational structure is directed to costumer needs².

Figure 1. Revenues distributed amongst the markets
(Annual Report (2000), p.3)

Figure 2. Revenues per segment
(Annual Report (2000), p.3)

[in Downloaddatei enthalten]

Corporate Governance

Owners and Share-structure
ABB had in the year of 2000 130.000 shareholders. If we add on the number of owners who control ABB shares through nominees, the total number of shareholders will be approximately 210.000. Altogether they held 300.002.358 registered shares with a nominal value of 2,5 CHF each. In the year 2001 ABB performed a stock split in terms 4:1, which raises the number of outstanding shares up to 1.200.009.432.

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1 ABB Annual Report (2000), p.22

2 Fundamental changes announced in 2001, see ABB Annual Report (2000), p. 4