Process Automation

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

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($ in millions, except Operational EBITDA margin %)

 

 

 

% Change

2012

2011

2010

2012

2011

(1)

Operational EBITDA margin % is calculated as Operational EBITDA divided by Operational revenues.

Orders

8,704

8,726

7,383

18

Order backlog at Dec. 31,

6,416

5,771

5,530

11

4

Revenues

8,156

8,300

7,432

(2)

12

Operational EBITDA

1,003

1,028

925

(2)

11

Operational EBITDA margin %(1)

12.3

12.4

12.5

n.a

n.a.

EBIT

912

963

759

(5)

27

Reconciliation to Financial Statements

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($ in millions)

2012

2011

2010

(1)

For further details of FX/commodity derivative timing differences, see “Note 23 Operating segment and geographic data.

Operational revenues

8,134

8,318

7,427

FX/commodity timing differences on revenues(1)

22

(18)

5

Revenues (as per Financial Statements)

8,156

8,300

7,432

Operational EBITDA

1,003

1,028

925

FX/commodity timing differences on EBIT(1)

21

26

(46)

Restructuring-related costs

(28)

(8)

(44)

Acquisition-related expenses and certain non-operational items

(2)

Depreciation and amortization

(82)

(83)

(76)

EBIT (as per Financial Statements)

912

963

759

Orders

Despite economic uncertainty across many parts of the world, orders in 2012 reached the same level as 2011 (increased 4 percent in local currencies) driven by key markets in marine, mining, and oil and gas. The Pulp and Paper, and Metals businesses were weaker however, especially in Europe, China and India. Certain short-cycle product businesses, such as Measurement Products, also recorded lower volumes in the second half of the year.

Orders in 2011 grew 18 percent, led by Oil and Gas, Marine, Metals, and Pulp and Paper businesses. Large orders were strong, mainly in the Marine, and Oil and Gas businesses, where major automation and offshore projects were recorded, while base orders also grew. Product orders were also strong, led by our Measurement Products business. Life-cycle services grew strongly, driven by several small- and medium-sized upgrade projects.

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

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(in %)

2012

2011

2010

Europe

37

39

39

The Americas

25

23

22

Asia

27

30

29

Middle East and Africa

11

8

10

Total

100

100

100

From a regional demand perspective, growth in 2012 was driven by MEA and the Americas, while Europe retained its high share of total orders. Growth in MEA was driven by several oil and gas investments across the region, as well as harbor cranes investments in the United Arab Emirates and a mining investment in Mozambique. In the Americas, South America recorded the strongest growth, driven by several mining investments in Chile and Peru, as well as a large marine order in Brazil. North America also continued to be strong, largely driven by mining investments in Canada. Growth in Europe was overall low, as growth in Central Europe, driven by the marine and cranes sector, was offset by declines in Northern Europe. Asia recorded lower orders as the historically high activity level in the South Korean marine sector in 2011 was not repeated, while China grew moderately.

In 2011, from a regional demand perspective, Asia and the Americas recorded strong growth. In Asia the growth was led by large projects in South Korea in the shipbuilding sector, and investments in the metals industry in China. In the Americas several large projects in oil and gas, minerals, and pulp and paper sectors were recorded in South America, while growth in the U.S. was driven by our products and services business. Orders in Europe were also at a high level, driven by oil and gas investment in an offshore gas platform for Statoil in Norway. In MEA, orders were lower as fewer large projects were recorded.

Order backlog

Order backlog at December 31, 2012, was 11 percent higher (8 percent in local currencies) than 2011. Order backlog growth was largely driven by our Marine, Mining, and Oil, Gas and Petrochemical businesses.

Order backlog at December 31, 2011, increased 4 percent (8 percent in local currencies) compared to 2010. Order backlog growth was primarily driven by our Marine, and Pulp and Paper businesses.

Revenues

In 2012, revenues were down 2 percent (up 2 percent in local currencies) compared to 2011. We continued to execute from a strong order backlog. Revenue growth was led by the systems business, where our Marine, and Pulp and Paper businesses recorded strong growth, while Metals and Minerals businesses were lower. Our Oil and Gas business was flat. Product businesses grew moderately, where growth in our Measurement Products business was offset by a decline in our Turbo Products business. Life-cycle services continued to be strong and recorded a moderate growth, while our Full Service business was down, as we continued to refocus our portfolio towards higher value-added activities.

In 2011, revenues increased, driven by our products and services businesses. Life-cycle services recorded strong growth. Systems revenues were also higher, driven by our Oil and Gas, Pulp and Paper, and Metals and Minerals businesses, while revenues in our Marine business were lower as a result of lower backlog to execute.

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

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(in %)

2012

2011

2010

Europe

37

39

39

The Americas

23

22

19

Asia

30

27

27

Middle East and Africa

10

12

15

Total

100

100

100

In 2012, revenue growth was led by Asia and the Americas. In Asia, strong growth was recorded in South Korea, driven by the Marine business, as well as growth in Singapore and Australia. China and India however declined. In the Americas, revenue growth was driven by the mining sector in Chile, as well as the oil and gas sector in Canada. Europe’s share of revenues decreased, although still at high levels, as growth in the Oil and Gas, and Marine businesses in Northern Europe was offset by lower growth in Central Europe.

In 2011, revenues increased across all regions, with the exception of MEA. Revenue growth was strongest in the Americas driven by the U.S., Canada and Brazil. Europe remained at a high level, while in Asia high growth in several economies was partly offset by lower revenues in South Korea, due to the lower opening order backlog to execute. MEA declined as revenues in Congo and Algeria were lower than in the prior year.

Operational EBITDA

In 2012, Operational EBITDA and operational EBITDA margin declined slightly. The biggest driver of the decline was lower profitability in the Turbocharging business which was impacted by difficult market conditions. In the systems business, the margin was on the same level as in 2011, while in the services business, life-cycle services continued to be strong and improved their margin.

In 2011, Operational EBITDA was higher compared to 2010, as a result of higher revenues, while Operational EBITDA margin remained flat. The margin was stronger in products, led by Measurement Products, and life-cycle services, while it was slightly lower in our systems business.

EBIT

In 2012, EBIT and EBIT margin declined compared to the previous year. The biggest driver for the decline was lower profitability in the Turbocharging business which was impacted by tough market conditions, as well as additional restructuring expenses to further align our business structure to prevailing market conditions. Most of the restructuring expenses were recorded in the Turbocharging and Full Service businesses, as well as Metals, and Pulp and Paper businesses.

In 2011, EBIT and EBIT margin improved significantly, partly due to operational improvements in our products business, particularly Measurement Products, as well as a favorable currency impact compared to the previous year. Restructuring expenses were also lower.

Fiscal year 2013 outlook

We expect 2013 to be a challenging year. Activity is still quite strong in the key Oil and Gas, Mining and Marine businesses, however some investment decisions and tender awards are being delayed by customers. The Pulp and Paper, and Metals businesses continue to be weak, especially in Europe, China and India. Some of our short-cycle product businesses are experiencing lower volumes in recent quarters which can potentially indicate further weakening in market demand.