Power Products

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

 

 

 

 

% Change

($ in millions)

2014

2013

2012

2014

2013

Orders

10,764

10,459

11,040

3%

(5)%

Order backlog at Dec. 31,

7,791

7,946

8,493

(2)%

(6)%

Revenues

10,333

11,032

10,717

(6)%

3%

Income from operations

1,204

1,331

1,328

(10)%

Operational EBITDA

1,519

1,637

1,585

(7)%

3%

Orders

In 2014, orders increased 3 percent (5 percent in local currencies), supported by the industry sector and continued selective investments in large transmission projects.

In 2013, orders decreased 5 percent (5 percent in local currencies), as a result of a challenging market environment and restrained investment by power utilities. Although demand in the industrial and distribution sectors continued to offer opportunities, order intake was affected by lower demand in the power transmission sector.

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

(in %)

2014

2013

2012

Europe

28

31

33

The Americas

29

28

27

Asia

29

29

29

Middle East and Africa

14

12

11

Total

100

100

100

In 2014, the share of orders from the Americas increased, mainly driven by the transmission sector. The continued development of power infrastructure investments led to a higher share of orders in MEA. Asia maintained its share of total orders with India showing growth and China remaining stable. Europe’s share of orders declined, reflecting the difficult market conditions throughout the year.

In 2013, the higher share of orders from MEA reflected continued development of power infrastructure in the region. The share of the Americas was steady, mainly driven by distribution upgrades. Asia maintained its share of total orders with China showing growth while Australia declined, as demand from industrial customers was lower, especially the mining sector. Europe’s share of orders declined, reflecting the current market uncertainty.

Order backlog

In 2014, order backlog decreased 2 percent (increased 6 percent in local currencies) compared to 2013. In local currencies, the order backlog increased in all businesses resulting from higher orders during the year.

In 2013, order backlog decreased 6 percent (5 percent in local currencies) compared to 2012. This resulted from lower order intake (described above) and the higher revenues executed from the 2012 backlog.

Revenues

In 2014, revenues in the Power Products division decreased 6 percent (4 percent in local currencies), mainly reflecting the impact of the lower opening order backlog. Service revenues continued to grow and represented a higher share of the total division revenues compared to 2013.

In 2013, revenues increased 3 percent (3 percent in local currencies), mainly reflecting the execution of the 2012 order backlog. This included the execution of orders with longer lead times, as well as higher revenues from industries typically having a shorter lead time, such as the distribution and industry sectors. Service revenues continued to grow but represented the same share of total division revenues as in 2012.

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

(in %)

2014

2013

2012

Europe

32

32

32

The Americas

26

27

27

Asia

31

30

32

Middle East and Africa

11

11

9

Total

100

100

100

In 2014, the shares of revenues from both Europe and MEA remained unchanged, reflecting the current economic environment. The share of revenues from the Americas was lower as revenues in certain key markets decreased slightly compared to 2013. The increase in the share of revenues from Asia was primarily driven by revenue increases in India.

In 2013, the shares of revenues from both the Americas and Europe remained unchanged, reflecting the current economic environment. The share of revenues from Asia fell as revenues in certain key markets decreased slightly compared to 2012. The increase in the share of revenues from MEA was primarily driven by revenue increases in Saudi Arabia.

Income from operations

In 2014, income from operations was lower compared to 2013 primarily reflecting lower revenues, higher charges relating to FX/commodity timing differences and higher selling expenses resulting from investments made in the sales function.

In 2013, income from operations was at the same level as 2012, as benefits from higher revenues were mostly offset by higher non-operational charges and higher depreciation and amortization. Operating margins were maintained as price pressure from lower margin orders in the backlog was largely offset by cost savings. In 2013, the gains from FX/commodity timing differences were lower than in 2012. Restructuring-related expenses were at the same level as 2012.

Operational EBITDA

The reconciliation of income from operations to Operational EBITDA for the Power Products division was as follows:

($ in millions)

2014

2013

2012

Income from operations

1,204

1,331

1,328

Depreciation and amortization

217

223

209

Restructuring and restructuring-related expenses

51

66

65

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

16

19

1

FX/commodity timing differences in income from operations

31

(2)

(18)

Operational EBITDA

1,519

1,637

1,585

In 2014, Operational EBITDA decreased 7 percent 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.

In 2013, Operational EBITDA increased 3 percent compared to 2012, primarily due to the reasons described under “Income from operations”, excluding the explanations related to the reconciling items in the table above.

Fiscal year 2015 outlook

Utility investments continue to be restrained based on the overall macroeconomic environment. The power transmission sector is still seeing selective project investments, driven by new infrastructure demand in emerging markets and the need for grid upgrades, improved power reliability and environmental concerns in the mature markets. Power distribution demand is expected to be stable. Investments by industrial customers vary across geographies and sectors and remain largely focused on sectors such as heavy industries. The overall market remains competitive.