Brown Boveri

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Brown Boveri

Annual Report 1986

BBC Brown, Boveri

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Company, Ltd.; Baden, Switzerland

BBC Brown, Boveri & Company, Ltd.

P. O. Box 58

CH-5401 Baden, Switzerland Telephone (056) 751111 Telex 828 29111 bb ch

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Key figures

986

Parant company shares

1 In addition, 450 000 non-voting stock certificates are earmarked to cover the conversion rights of the 4% SFr. bond issue 1983-94 and have yet to be issued.

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Chairman's letter

For the Brown Boveri Group, 1986 was a year of transition to the new organizational structure. During the first quarterthe parent company's interest in BBC Mannheim was increased to 75%, and the German subsidiary's shareholders approved the management agreement with BBC Baden. These m aves provided for the effective integration of the largest BBC company inta the Group structure. In the course of the year our executive team developed the Group's new di- visional structures and strategies. Desig- nated general managers of the new divisions began their work in September. The last phase of the transition process wasn't easy: current business had to be conducted in the former units while the new structure was being established. This meant a great deal of additional work for managers and employees. We greatly appreciate these added efforts and t hank all of ou r people for a job weil done. Since January 1, 1987, the Group has been operating under the new organization. Therefore this Annual Report shows the new, current Group structure - even though business was conducted under the old structure du ring the past year.

Today's Brown Boveri Group has Business, Regional and Functional Divisions, stand- ing shoulder to shoulder, each with clearly defined missions and responsibilities. As in the past, Group financial resulls represent the consolidaled resulls of the individual regional companies, who bear responsibility for their contributions to Group results. The Regional Divisions are responsibis for seeing that markets are warked intensively, personnel and material resources are opti- mized, and performance is evaluated right where the business takes place. But the campanies can produce better resulls only

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if strategic priorities are set clearly in the different business sectors; product Iines are pruned where necessary; intra-Group ca- operation is im proved; and duplication of et- fort is eliminated. That's the mission of the Business Divisions. The basis for their et- forts are the groupwide strategies evolved by the Business Divisions themselves. The Executive Gommitlee and Regional and Business Divisions are supporled by the Functional Divisions, which are responsible throughout the Group for the competent and efficient hand lin g of their i ndividual staff functions.

The general economic conditions face d by the Group in 1986 were anything but ideal, especially with regard to exchange rate de- velopments. Currency shifts lett deep scars on both new business and consolidated sales.

The fact t hat Group protitabi/ity failed to improve in 1986 came as no surprise. T rue, the

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parent company improved its net profit by • five million francs, and same other Group campanies-notably in ltaly and Brazil- reported better results. But the resulls of the campanies in the USA and France were a drain on Group profit, and losses were also turned in by BBC Canada and an Australian subsidiary engaged in railway electrification. Higher depreciation on plant and equipment contributed to the decline of Group earnings; cash flow was up slightly on the prior year figure.

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Considering the restructuring costs in- curred in 1986 and provisions set aside for further restructuring moves, and considering the double workload carried by our managers, we're not dissatisfied with last year's record. Still, the net profit generated by the parent company is not sufficient to compensate our shareholders adequately, and the Board of Directors has no choice but to recommend that the Annual Meeting forgo declaration of a dividend again this y ear.

In last year's letter we Iisted a series of measures designed to pull the Group out of its unsatisfactory profit position:

- implementation of an effective Group organizational structu re;

- enhancement of return of investment, especially by eliminating unprofitable business;

- reduction of excessive dependence on power generation;

- promotion of high-g rowth business areas.

These overriding aims remain unchanged.

They were supplemented in 1986 with the goal of markedly improving productivity throughout the Group.

We've already made same progress, and other jobs have been tackled. Our French subsidiary undertock a thorough restructuring that will be completed in 1987. In the power plant field and other divisions, points of concentration have been established and activities combined accordi ng ly. An im- pact on the workforce is inevitable, and will take effect in the parent company startin~ in the spring of 1987. lmprovement of efficiency and productivity consurned a large part of development and investment expenditure.

The figures shown in this year's Report for our business segments clearly underscare o ur unmitigated dependence on power generation. As in the past, power generation and distribution account for h alf of all Group business. In 1986 the uncertainty produced by the Chernobyl catastrophe had a nega- tive effect on the power supply field as a whole, including the non-nuclear sector.

Brown Boveri business apportunities were hurt by the resulting drop in capital.investment.

The Annual Meeting on J une 2,1987 marks the end of my interim chairmanship of the Executive Committee. Dr. Thomas P. Gasser will take over the chair on t hat day. An active Board of Diractors Committee with Dr.

Bernd H. MOller-Berghaft as full-time Vice Chairman (upon his election to the Board) willsupport the Executive Committee in its lang-range strategic responsibilities for the Brown Boveri Group.

Managers and employees throughout the Group have borne up weil under this trying year of organizational transition even though so me drastic steps had to be taken.

On behalf of the Board of Directors, l want to thank one and all for working so hard for Brown Boveri's future.

Fritz Leutwiler

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Brown Boveri Group

Management organization

BOARD OF DIRECTORS Parent company BBC Brown Bovefl

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Regional Services

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W. Hoss/i

Corporate Planning Secretary to the

EXECUTIVE A Kel/ersberger (M. Thomann from 1.4.87)

Executive Committee ' G.Thalmann

COMMITTEE ⁱ

E. Derobert (from 1.2.87) P. Baur (from 1.3.87) R. Thomas (P. Felix from 1.4.87)

LWalz

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REGIONAL FUNCTIONAL

BUS/NESS 0/V/S/ONS

DIVISIONS

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^DIVISIONS

Electronics standard Products

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Switzerland Mf:tnagement Resources

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^WRoos ^l ^{R Feller}^(fr^<Jm^{1 5 87)}

Fac1ory Automatton ^'^l

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l LV Apparatus BBC-Secheron SA f earparate

A Ocskay H Fratiander J Frotdevaux ) and Pubhc Retattons

Measurement and Superchargtng Mtcafll Ltd

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H Haussmann

C ontroi E Jenny R Schntdng Markettng

J PWNotley SPedersen

lnformatton Technology German y

Power Supp/y

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^Fmance

F Eggtmann

BBC Mannhetm L.Menz

Electromc Components

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G Syrbe Power Plants

German substdtanes Contro l E Somm

H Gassert J-PDung

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Power TransmfSSton ^~

lndustry ^{H Hodle} Legal Affatrs and Taxes

/ta/y _j_; G Buttkofer

Transformers

Mmtngand R Grohe TIBB, Mtlan

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Corporate Research

Metallurgtcallndustnes MV Equtpment G Bertola

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A.P Spetser

A.Selbach N. Helltnga SACE, Bergama Technology

Process lndustnes Power Systerns Control R Morom KRagaller

A Menth H A. Dantels SAE,Mtlan

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011; Gasand Power Ltnes A Colombo

Manne lndustnes A Colombo

OG Ho:ter Rest of Europe

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E!ecincal Dnves NEBB,Oslo

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G.Schuster T rar;sportation

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FH Enger

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Brown Boven Kent, GB H'gh Ene•gy Battenes

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Installation ⁱ F D. Althott J PW.Notley

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Transportatron Systems ^OeBB~Vtenna

lnstallat!ons E Kocher A Mosbeck

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WHaberle BBCDenmark

J.Stllesen ^l

O!st•.ct Heattng Syster:1s Defence Technology

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J S!ilesen H.Bächtold BBCFrance

Cabie and W1re Ale1cher

E G Wdhe:rr

North America

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Brown Boven USA

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KEAgthe

Latin America BBC Braz1l A.R.A. Muller SBE S.A., Braztl G.Brivio

Other campanies in Europe,

North and Lattn Amenca, Asia, Australia,

As of January 1, 1987 and Africa

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Board of Directors, Management, Au ditors

BOARD OF DIRECTORS

Term ex p i res

* Dr. Fritz Leutwiler, Zumikon

Ch airman

1989

* Dr. Louis von Planta, Basle

Vice Chairman

1987

Dr. Ulrich Albers, Zurich

1988

Prof. Aurelio Cerletti,

Bottmingen

1987

* Dr. Walter Diehl, Zurich

1987

Dr. Paul Eisenring, Erlenbach

1987

Dr. Franz Galliker, Oberwil

1990

* Dr. Robert Holzach, Zumikon

1988

Robert A. Jeker, Bottmingen

1987

Prof. Hans Letsch, Aarau

1988

Prof. Rolf Sammet,

Neuenhain (FRG)

1989

• Dr. Stephan Schmidheiny, Hurden

1989

Dr. Gaston E. Thorn, Luxembourg

1987

Prof. Hugo Uyterhoeven,

Weston, Mass. (USA)

1988

Philippe de Weck, Matran

1988

• Member of the Board of Directors Committee

PARENT COMPANY VICE PRESIDENTS

Robert Baumgartner, Hansruedi Bill, Dr. Gottfriad Butikofer, Dr. Jean-Pierre Durig, Dr. Fritz Eggimann, Heinz Hauss- mann, Nicolaas B. Hellinga, Dr. Beat Hess, Hermann Hödle, Walter Hossli, Dr. Ernst Jenny, Armin Kellersberger, Dr. Anton Menth, Dr. Leo A. Menz, Sparre J. Pedersen, Prof. Klaus Ragaller, Hans Reber, Willi Roas, Max Schälchlin, Dr. Hansruedi Schiltknecht, Edwin Somm, Prof. Ambras P. Speiser, Gaston Thal- mann, Renaud L.Thomas, Dr. Ekkehard Wildhaber

AUDITORS

Swiss Auditing and Fiduciary Company, Zurich

EXECUTIVE COMMITTEE AND PARENT COMPANY MANAGEMENT

Dr. Fritz Leutwiler Chairman;

Management Resources, Corporale and Public Relations

Erwin Bielinski Vice Chairman;

Power Supply;

North America

Dr. Thomas P. Gasser Chairman Designate;

Switzerland

Dr. Herbert Gassert

Chairman of the Management Board of Brown, Boveri & Cie. Aktiengesellschaft, Mannheim;

Transportatian

Dr. Eberhard von Koerber standard Products;

Far East, Australia, southern Africa;

Marketing, Corporate Planning

Dr. Bernd H. Muller-Berghaft Vice Chairman Designale of the Board of Directors;

Finance, Control, Legal Affairs and laxes

Dr. Bertold Romaeker Electronics;

Great Britain;

Corporate Research, Technology

Dr. Werner Thommen Installation;

Scandinavia, Middle East, northern and central Africa

Dr. Leonardo E. Vannotti Power Supply;

ltaly

Dr. Gert U. Walther lndustry;

France, Austria, Spain, Latin America

MANAGEMENT COMMITTEE, SWISS REGION

Willi Roas General Manager Prof. Klaus Ragaller Dr. Hansruedi Schiltknecht Bruno Stadler

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Brown Boveri Group 1986 business year

Consolidated orders receiVC.d (m mtlhons of SFr)

r----1 domestic l . _ _ j markels

r---1 export L____j markels

12431

~==~~~~9 +184%

10501 10243

-120% +25%

129:'7 +44%

Cc~.sd.datec :;,c:j~~S ·:cP".'ed C!" ~or<;e: area

(~n ce ·OArt;

11032 -15.0%

10% 20% 30% 40%

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3.0 1.1

Consolldat~d sr:les (tn mtlltons :Jf SFr.)

13876 13828 +237% -0.4%

11214 r---1 domestic 1 0 658

L___J markels 9701 +99%

r---1 export . -2 0%

L____j markels

, ...

ORDERS RECEIVED

Nearly halt of the order vol u me decfine of 15 percent is attributable to conversion of for- eign currencies inta Swiss francs during consolidation. As in the prior year, order vol- u me from our main oil-exporting customer countries showed a drop. Because of the debt problems of Latin America and Africå, the order volume from those regions was halved.

As a result, Europe's share of the Group's new order vol u me ros e sharply from 61 to 66 percent, even though orders from European countries fell off by 8 percent-partlyas a result of currency translation. New orders received in the US market were up by 35 percent over 1985.

Half of the new order decline to SFr. 11 billion arose from translation into Swiss francs.

The order decfine was most severe among the export-oriented Group campanies in the hard-currency countries of Switzerland and Federal Republic of Germany, as weil as in the SAE companies, which build transmission Iines primarily in the southern hemi- sphere. Taken together, !hese campanies account for about 75 percent of the decline.

Except for Electronics, all of our business segments reported declining orders.

SALES

Exchange rate swings also had a consider- able effect on sales in the consolidatian process: if rates had remained unchanged, consolidaled sales would have increased

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by about 6 percent As in 1985, billings for a nuclear power plant boosted the annual sales figure: 1986 sales include billings for the MOiheim-Kärlich nuclear plant in Ger- many.

As a result, Group sales in Germany were up by 13 percent over 1985. On the whole, the rest of Europe also reportedan i nerease in Group sales. In Switzerland, a decfine of 20 percent was experienced. Because Eu- ropean sales rase by 8 percent, the s hare of European customers in Group sales reached the record leve l of 71 percent Sales of the other regions declin ed in bot h abso- lute and percentaga terms. Because of this concentration on the European home mar-

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kets, Brown Boveri's consolidated sales show a relative ly low export s hare of 33 percent. The 7 percent decline of Group sales excluding nuclear power plants stemmed exclusively from changes in currency exchange rates.

Billings for a major project kept sales on an even keel at SFr. 13.8 billion.

Power plant business still accounted for a very high percentaga of sales. Of the other business segments, only Electronics and standard Products reported sales growth.

NET EARNINGS

Group net earnings declined by 11.9 percent to SFr. 96 million. Most of the decline was eaused by losses s uffered by an Australian subsidiary working on construction of overhead Iines for railway electrification and a sharp downturn on the part of Brown Boveri Canada. The losses of the subsidiaries in the USA and France declined somewhat,

Higher depreciation on fixed assets helped push back Group earnings to SFr. 96 million. Cash flow was un- changed at SFr. 633 million.

but still represent a serious drain on Group earnings.lmprovement was report ed by the paren t company and a nu m ber ofsubsidiar- ies, including BBC Brazil, SACE (ltaly), and TIBB (ltaly).

Cash flow increased by 0.5 percent Depre- ciation on plant and equipment showed an increase.

ORDER BACKLOG

The backlog shrinkage of 23 percent is traceable mainly to the billing of the Mul- heim-Kärlich nuclear power plant in Ger- many. Exchange rate shifts also contributed to the decline.

The size of the order backlog is not neces- sarily a reliable indicator of future factory

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Consolideted sales by mr.r::et area (In peraent)

C?t~ol,oatec ca&h fiow {·~ m!lhons of SFr)

65U 630 +401% -31%

464 390 +190%

+99%

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^nia ^~ ^1';111$.

633 +0.5%

. ...

Consolidated ord&r backlog (In millions of SFr}

~-

171~

+164% ₁₆₁₂₇ 16009

+15% 15228 85% -90%

- ^-49% ^82%

78% 82% 12351

-23.4%

78~

-

22~ ~

16~

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"t5'i ^16~~ 22%

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10% 20% 30% 40%

Swiss Group campanies

Other Group campanies

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Numter of employ~ by ~1on

(111 percent)

Nvmber of employeea (8.vef&Qe for year)

100100 97800 97500

94100 ₉₀₆₀₀ +105% -23% -0.3%

-107% -37"-i.

~~: ^IQ!U ^~ ^!Oiib 1111

loading. Orders for entire installations fre- quently contain a !arge percentaga of pur- chasad goods that have no effect on the Group backlag. In addition, the backlog includes some orders !hat have been !arge- ly manufactured but not yet invoiced.

About 22 percent of the total backlog is accounted for by Group campanies in Switzer- land.

FINANCES

As a result of the offer submitted to minority shareholders of BBC Mannheim for their holdings, the parent company's stake was increased from 65 to 75 percent at the beginning of the year. The 100 million marks required for this purchase was taken from

paren! company cash. No particular problems arose in the financing of day-to-day business.

Three subsidiaries, Tecnomasio Italiano Brown Boveri S.p.A., Milan, Oesterreichi- sche Brown Boveri-Werke AG, Vienna, and Brown Boveri Kent (Holdings) plc, Lutan (England), increased the i r equity bases with the participation of local minority shareholders. This gave the campanies new equity tunding of Lit 31 billion, OeS 48 million, and f: 9 million, respectively. Of these amounts, Lit 14.9 billion, OeS 8.6 million, and f 4.1 million were invested by the minority shareholders. In the case of Tecno- masio, our interest fell to about 75 percent as a result. This is in Iine with a recommen- dation by the Ilalian seeurities supervisory authority.

In the parent company, s hare capita! rose by SFr. 13 million with the exercising of conver-

sion rights.

PERSONNEL

Person n el and social policy is conducled by the Regional Divisions and national campanies in the Brown Boveri Group.

The slight drop in the Group's workforce in 1986 represents the net effect of two offset-

ting trends: in some campanies layoffs re- sulted from efficiency improvement measures, while other campanies were hiring.

The regional breakdown of the workforce showed almost no change. As in previous years, about 77 percent of all employees warked in Group campanies in Europe.

Measures were adopted du ring the year to improve the Group's prod!JC!ivity. These re- dimensioning and restrueluring moves will reduce the size of the workforce further in 1987.

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CAPITAL EXPENDITURE

lnvestment in plant and equipment rose sharply in 1986. Swiss and German Group campanies were particularly active in this respect.

Capita l expend itu re on productivity improvement had top priority in 1986. For instance, electronic equipment was installed in development and productian to provide

capital expenditure was devoted largely to boasting productivity.

full computer integration, with computer- aided design, productian planning, and pro- ductio n control. Annual growth of computer-aided workplaces is above 30 percent lnvestment continued in the Group's inter- na! communications network. At present, more than 4000 terminals and personal computers are lin ked to it.

Other major capital expenditures included automated warehouses and flexible manufacturing systems.

RESEARCH AND DEVELOPMENT Brown Boveri, a technology-oriented group, invests about on e-h alf billion francs annual- ly in new development and improvement of prod ucts, engineering and manufacturing methods, and basic research. About the same amount of money is spent every year on respanding to special customer requirements. The total outlay for research and development in 1986 was 1095 million francs, or about 8 percent of Group sales. Nearly 8000 engineers, technicians, scientists, and laboratory assistants warked on research and development assignments.

An important objective of our development programs is the rapid conversion of re- search results inta marketable products. To achieve this, our scientific people move right along with promising projects as they are shifted from the laboratorles to the de- partments doing business in the market- place. There they receive the opportunity to assume responsibility for seeing that the projects are brought to fruition. Again in 1986, personnel transfers of this type made an im portant contributlon to efficient exploi-

~ expendtture In planta and equ1pment by lilgiOfl (ll'l pet'CEIIlt)

Capotal expendilJre (1n m~iloM of SFrl .. -··--~--~.--~·-

)

452 442

-131% +157%

364 ³⁸² -195% +49%

~ :tJ(!..l. tOM UJ_(t~

560 +26.7%

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tation of our research results. As in other years, our highly varied research program and intense coliabaration with the universi- ties enabled Brown Boveri to reap a new crop of exceptionally weil qualified scientists and engineers.

New areas of concentration in research and development emerged in 1986. Develop- ment work was airned primarily at finding new ways to improve efficiency in design and manufacturing.' A growing percentage of development expenditure is flowing inta the Group's growth fields, such as electronic components, automation and control, mobile data acquisition, process engineering, and productian systems.

The main thrust of lang-range research in 1986 lay in the areas of etectronics and in- formation systems. Our research depart- ment, for example, developed the basis for new types of electronic instrument transformers for electric current and voltag e suit- ed to the needs of modern automation and

10% 20% 30% 40 %

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Group campanies in Switzerland and Germa- ny stepped up capita! expenditure aimed at improving productivity.

A high ly mechanized test setup is shown here puttinga miniature breaker through ils ther- mal and electrical paces every two see- onds.

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In information systems, development work is concentraled on new process control prod- uels and on computer- aided plant engineering and faotory automation.

Graphic simulation (photo) helps in the design and optimizing of productian systems.

Power semiconductors (photo) are key components in modern power electronics. Brown Bo- vari has come up with an entirely new type of field-elfeet thyristor. lt will help strengthen our position in many power electronics applications - especially in drives and transportation.

Resoaich an1 ck.velopment expeod1tura (in rrull SFr)

~

1095

1006 998 1037 _+5.6%

984 +54%

+97% -08% -14%

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centroi technology. These transformers are used in switchgear installations for measuring the flow of electrical energy. The data signal is pre-processad in the immediate vi- cinity of the high-voltage equipment, digital- ized, and then transmittad via optical fibers to the data processing installation. This new technology provides a high level of operating reliability. Tests in a 380 000 V network confirm that client expectations are met.

In information systems, the work is Concen- trated on developing new process centroi products and computer-aided tools for plant design and factory automation. A great deal of emphasis is being placed on computer-aided tools for developing contro! and automation software. These enable engineers without any particular training in information systems to design automation programs. The "heart" of such a tool with graphic on-screen programmingwas completed and transferred to the respective division for application.

Eight percent of sales was spent for research and devel- opment.

The utilization of equipment for generating and distributing electrical energy can be improved substantially through load centroi and distribution system automation. This

necessitates the transmission of measured data and switching commands in both di- rections between power consumers and centroi centers within a supply area. At- tempts to transmit such data over the electrical system itself were often unsuccessful because of poor transmission reliability.

Now our research people have succeeded in im proving the reliability of t hese connec- tions, even over wires t hat are in very poor condition, u sing a special signal format, the spread spectrum technique employed primarily for military applications.

Development efforts concen- traled on production

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niques and on electronic components, automation and control, mobile data acquisi- tion, and transportation.

Power semiconductors are the key components of modern power electronics. They centroi the flow of energy from the network to all types of consumers. At present, these semiconductors are being improved at the same breakneck pace as microelectronics, and our research groups are right at the torefront Last year Brown Boveri came up with a new type of field-etfeet thyristor that will help strengthen our leading position in many power alectronies applications - especially in the areas of drives and transportation.

In 1986, a center for product/on technology was set up. lts statt of highly qualified spe- cialists are working on im proving producliv- ity in Brown Boveri's manufacturing plants.

They support our plants by assisting in the development of productian strategies, pro- moting the implementation of computer- aided production, handling projects forflex- ible automation, and in the adoption of new productian technology. In doing so, they also make use of ou r own products - such as the automated work allocation and re- porting system -and utilize these as refer- ence installations for outside customers.

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Business segments

POWER SUPPLY

This business segment includes the Power Generation Division, which supplies turn- key plants and components for power generation. In addition it includes the Power Transmission, Transformers, MV Equip- ment, Power Systems Control, and Power Lines Divisions, which offer solutions for all requirements connected with the transmission and distribution of electrical energy.

The segment accounted for 59.8 percent of Group sales, excluding intarcompany transactions. This figure breaks down inta 38.5 percent contributed by power plant business (up on the average in recent years because of billings for a nuclear power plant), and a 21.3 percent contribution by power distribution business. The segment accounted for 50.2 percent of new Group orders, with 24.7 percent contributed by power generation and 25.5 percent by power

distribution.

The Power Generation Division again faced extremely adverse conditions on the world market last year. In the industrialized countries, increased power re q uirements were normal ly met by exploiting existing re- serve capacities. The developing countries

clearly need new power plants, b ut are con- tronled with serious financing problems.

The resulting worldwide overcapacity among power plant builders continues to depress prices. Brown Boveri succeeded in maintaining its good position in this extremely competitive market, and even showed improvement in same cases.

Ou r combined-cycle plants, which uti lize the energy of the fuel at maximum etficiency with a combination of gas turbine, steam generator, andsteam turbine, enjoyedbrisk demand with five orders. If the residua! heat of these plants can be used additionally for industrial processas or district heating, overall fuel etficiency figures on the order of 85 percent are achieved. This represents very thrifty and ecolog i ca l ly beneficial energy supply indeed. The Placerita (USA) combined-cycle plant, to be equipped with cata- lytic converters, will be - from an environmental point of view - among the world's best fossil-fuel power plants. A combustion chamber we recently developed makes it possible to cut down toxic exhaust gases right at the source, namely when the oil or gas is burned. These new orders have strengthened ou r position as markel leader in thefield of combined-cycle plants and the eegeneration of alectricity and heat.

ConSl:llidated ordel'S recetvad by busmess segrpent (tn percent)

, . 10% 20% 30% 40%

Consolidated sales ty buetneoc ~;eg:nent (trr~rcent)

. . . . 10% 20% 30% 40%

D

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The most powerful gas turbine in the world (photo), with 140 megawatts, was shipped al the end of1986. A similar turbina is being in- s\alled In a combined- cycle power plan\ in the Netherlands, which will set an efficiency record for power generation on ly.

Nearly 20 power generation units, steam turbina sels and gas turbine units with an ag- gregate rating of about 3700 megawatts starled producing in 11 different countries. This photo shows a 150 megawatt steam turbine set for a power plant in Bangla- desh.

The maintenance, increase of output, and service Iife prolongation of existing power plants has become an im portant element of this business. Thanks to Brown Boveri's technical competence and experience, we are increasingly being called upon to refur- bish and retrofit turbines, generators, and other components s upplied by competitors.

Our combined-cycle power plants were in strong de- mand. They couple gas tur- bine, steam generator, and steam turbine to maximize fuel efficiency.

In American nuclear power plants, for instance, BBC installed new rotors in steam turbinas of other manufacturers and the turbinas are again performing at full power. Si- milarly, a number of orders were obtained and executed for the rewinding of competitors' generators. A world premie re is the order received in the USA for installing a turbine-generator set in a power plant being converted from nuclear power to coal firing.

Brown Boveri's experience makes it a leading manufacturer in convarting equipment based on very dissimilar technology.

Power plant automation and contra! is a system of microprocessors and computer programs for the automated contro l and supervision of power plants. Brown Boveri expanded its strong markel position. In this field, we received orders from the Federal Republic of Germany, lndia, Saudi Arabia, and Turkey forthe automation and control of coal-fired power and district heating plants and for controlling the flue gas purification and desulfurization systems for such plants.

A !arge number of plants were commissioned du ring the year. Same 20 power sta- tion u nits, steam turbine-generator setsand gas turbina units with an aggregale capacity of about 3700 MW began producing in eleven countries.

The Power Transmission Divisionsupplies power campanies all over the world with products and systems for the transmission of alternating and direct current at voltages between 60 000 V and 800 000 V. Brown Bo- ve r i enjoys a solid position in this market, a position it has strengthened despile increasingly adverse conditions.

This markel demands very high performance in terms of reliabifity and availability.

New low-maintenance SF₆ generator circuit-breakers for medium interruption capacities we re sold in over ten countries. For south Africa's power grid we supplied the world's first gas-insulaled switchgear for 800 000 V with an integrated microprocessor control system. In the same ultra-high voltaga range, breakers designed to with- stand temperatures as low as -50 °C were delivered to Canada. For the lower high- voltaga range, which constitutes the bulk of world market vol u me, we have obtained en- couraging resulls with the new self-extin- guishing breakers.

High-voltage direct-current (HVDC) transmission is being used increasinglyfor carry- ing electrical energy over Iong distances and for connecting grids with different fre- quencies. This technology cuts down energy losses and helps achieve a high level of system stability. Brown Boveri has been successful in the HVDC business right from the beginning, more recently with an order received from the USA for transmitting 1100 MW over a distance of 1400 kilometers from Oregon to Los Angeles.

The high-voltage DC trans- mission technique cuts ener- gy losses and improves net- work stability.

Power companies also conslitute the main markel of the Transformers Division. Be- cause the transformer business is generally regional in nature, our productian plants in Europe and N ort h and south America cover local needs. Worldwide demand has stag- natad at a low leve!, and prices are clearly unsatisfactory. Brown Boveri is one of the world's largest producers.

Specialties such as the exceptionally campact and rugged east-resin transformers and special transformers for HVDC systems are promising alternatives to the conven- Iianal product Iine. Du ring the year, the !arg- est east-resin transformer ever built - rated 12MW-was commissioned, and we will be supplying the special transformers for the HVDC transmission system between Ore- gon and Los Angeles.

The MV Equipment Division supplies switchgear and components for 1000 V to

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60 000 V. Gompetition was unusually heavy during the year as a result of low network ex- pansion act iv ity in ou r main markets of Ger- many, ltaly, and Scandinavia, as weil as in the Middle and Far East. By step pi ng up ou r efforts, we succeeded in holding ou r markel shares. A positive factor was the development of a new generation of circuit-breakers using new insulation technology. These supplement the Brown Boveri Iine in the lower power range and permit space-sav- ing applications. Major orders were received from power campanies in Switzer- land, ltaly, and the Netherlands. Large de- liveries we re made to customers for mini ng and naval applications.

The Power Systems Control Division sells equipment to power campanies for all requirements invalving computer-aided centroi and monitoring of power systems.

The development of supervi- sory network control systems is airned at reliable monitor- ing and control of power sup- ply grids.

Such control systems were supplied to China, Canada, Denmark, and Finland during the year. What is probably the largest control system of this type in Europe went on stream commercially in Sweden. Wark- ing with four control centers, the system su- pervises and contro Is the entire power g rid in southwest Sweden.

Ongoing development of these contro l systems is concentrating on the reliable supervision and control of power distribution net- works. This is especially im portant in the industrial countries, because the failure to ex- pand generating capacity makes optimal use of available energy a high priority.

The main activity of the Power Lines Divi- sion is the construction of high-voltaga and overhead contact systems. lts main markels are located primarily in those countries of Africa, south America, lndia, and Austral- asia that still have a substantial electrification requ i re ment. Financing bottleneeks and regional economic problems currently represent serious obstacles to capital expenditure for electrification in these countries and are forcing us to make some restructuring moves.

Major orders were received in 1986 from China for a 500 000 V transmission Iine that will traverse the Pearl River with 250 meter high towers, and from lndia for a transmission Iine for high-voltage direct current. A transmission Iine erossing the Alps between France and ltaly at the record altituds of 3000 meters was completed and placed with the client.

TRANSPORTATlON

This business segment embraces the High·

Energy Batteries Division and the Trans- portatlon Systems Division. Last year it ac- counted for 4.5 percent of Group sales (ex- el ud i ng intercompany transactions) and 6.1 percent of new order volume.

The automotive industry's interest in high energy batteries continued to increase.

This battery, which is based on the sodium- sulfur cell, stores about four t i mes as much energy per unit weight as a conventional battery. lmportant knowledge was gained during the year for practical operation of electric cars using test vehicles. Manulac- luring processas are being developed for the automatic mass productian of high energy batteries.

The automotive industry is showing growing interest in the

high~energy

battery.

The Transportatian Systems Division develops and manufactures all types of electrical systems for locomotives and passenger railcars. In ltaly and Norway, Brown Bo- veri also fabricates the mechanical parts of the rolling stock.

The reluctance of the German Federal Rail- road and Swiss Federal Railways to place orders for locomotives at the beginning of the 1980s still had an adverse effect on sales in 1986. But investment in public Iransportatian systems has picked up in the meantime, and new order volume continued to improve in 1986 as a result. We won orders for the locomotives and comfort systems for 24 trains for the urban rapid transit n etwork i n Zu r ich and for locom o t i ves of t h e

The Ilalian Navy equipped four earvettes with BBC-SACE low- voltage circuit-breakers specially designed for shipboard duty.

Constructlon of a 400 000 volt overhead transmission Iine between Mosul and Kirkuk (lraq).

Brown Boveri contributed to the 345 km/h speed record set by German Federal Rail- road's lntercity Experi- mental train with the propulsion system and construction of the high-speed overhead transmission Iine.

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Brown Boveri delivered the electrlcal systems for mass transit rolling stock in Portland OR, USA (photo), and Valen- cia, Spain.

Our low-voltage product IIne siretches from ordinary swltches and miniature breakers all the way to household centroi systems. For instance, the Busch Ti- mac X-10 (photo) gives homeowners pushbut- ton control of lighting and air conditioning, ei- ther fully automatically or with a timer: electric tights, blinds, awnings, heating system, circulat- lng pumps, fans, etc.

The control signals are Iransmitted through the ordinary house wiring.

ltalian State Railways. One of the year's outstanding urban transit orders was received from Hamburger Hochbahn AG for 30 four-part subway trains equipped with BBC power alectronies systems. Other noteworthy orders covered environmental equipment for dining cars in Switzerland and campact air conditioning systems for Egyptian Railways.

Orders for Hamburg's subway system and Zurich's rapid transit network document market acceptance of Brown Boveri's 3-phase propulsion technology.

Sales volume in 1986 was bolstared by the delivery of 17 electric locomotives for the ltalian State Railways, electrical systems for mass transit propulsion units, comfort systems for passenger railcars, and power supply equipment for DC-operated railways.

The German company produced the electrical equipment for 31 urban railcars for various German cities. The Swiss company de- live red the electrical equipment for additional streetcars of the Zurich transit authority, for light rail transit cars in Portland, Ore- gon (USA), and Valencia (Spain), for a proto- typa London Underground train and for a large number of trolleybuses.

' The orders for the Hamburg subway and the Zurich rapid transit system are signs of increasing market acceptance of the Brown Boveri 3-phase propulsion system. Loco- motives are currently being fabricated and commissioned for various private railroads in Switzerland in which the 3-phase propulsion system has been advanced by com- bining it with new, gate-turn-off (GTO) power thyristors and microprocessor technology.

BBC's role as technical pioneer in this field is also underscared by our participation in various high-speed rail programs: Brown Boveri had a hand in the speed record of 345 km/h set by German Federal Railroad's Intarcity Experimental Train with the BBC 3- phase propulsion system and construction of the high-speed overhead Iine. Swiss Fed- eral Railways awarded us a study and development contract for the new "Lok 2000"

locomotive generation, and ltalian state Railways has entrusted us with construction of the propulsion system for a high- speed prototyps train.

STANDARD PRODUCTS

The Standard Products business segment comprises the LV Apparatus Division and the Supercharging Division, both of which manufacture standardized products in volume. lt accounted for 7.7 percent of Group sales and 9.3 percent of new order volume last year.

The LV Apparatus Division produces various types of equipment for the electrical and alectronie systems of residential, commercial, and industrial buildings. The product Iine reaches from straightforward switches, outlets, lighting fixtures, and m ini- ature breakers to explosion-proof switchgear, prataction and control systems, bur- glar alarms, and "intelligent" illumination and heating control systems for all types of buildings. Other im portant products include emergency lighting systems and power supply equipment for data proesssing and information systems.

The fortunas of this division depend largely on the generallevel of building activity. Be- cause new housing starts continued to decline in Germany in 1986, the market for installation material re mained sluggish. Rela- tively b risk construction activity in other Eu- ropean countries, however, generatad a welcome increase in business, particularly for industrial and commercial buildings. The demand for explosion-proof equipment fell off as a result of declining capita! expenditure in the oil industry. Demand for power supply equipment for computers was im- paired by turbulence in the PC market.

Newly developed miniature breakers and earth-leakage protection equipment have advanced the cause of accident prevention.

A new, ultramodern proximity switch was introduced, mainly for use in aircraft. Manu- facturing operations were expanded in various markets during the year with new li- cense agreements and productian facilities.

Traditionally, turbochargers for large diesel engines are the most important products of the Supercharg/ng Division. BBC has held a leading position in this field for decades.

As a whole, the turbocharger business was satisfactory in 1986. On one hand, ship- building- one of the majormarkets for large turbochargers -is in the throes of a persist- ent slump all over the world. On the other hand, we succeeded in increasing deliv- eries of turbochargers for stationary diesel engines, and growing acceptance of mod-

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ern high-efficiency turbochargers helped keep business on an even keel.

Our customers, the propulsion engine manufacturers, live in an extreme ly competitive market. They expect turbochargers to besupplied with very short lead t i mes, even though design variations abound. For this reason, flexible manufacturing systems have been introduced in our Baden (Swit- zerland) productian facilities and computer- assisted productian is being implemented successive ly.

From both the technical and manufacturing standpoints, COMPREX® is ready for mass production.

Development of the COMPREX pressure- charging system for diesel-powered passenger cars has been completed success- fully. Technical and manufacturing problems have been eliminated, and the automotive industry is showing great interest in COMPREX. A modern plant has been equipped with the logistics and quality as- surance features required for mass production.

ELECTRONICS

This business segment includes the Facto- ry Automation, Measurement and Control, Information Technology and E/ectronic Components Divisions. In 1986 it account- ed for 7.5 percent of Group sales and 9.7 percent of new order volume. These per- cantages represent the segment's sales to outside customers, but exclude the steadily growing flow of supplies to alectronies users with in the Group in the field s of indus- try, power supply, and transportation.

Overall productian of the Electronics segment is about double the amount of business done externally.

The Factory Automation Division sel Is to a rapidly expanding market. Portal robots for the leading and u n leading of rnachine too l s enjoyed very Iiveiy demand. lndustry is also showinga great deal of interest in supervisory and control systems for automating stock administration and assembly organi-

zation. Systems for object identification were installed in automotive painting Iines.

A small, very agile robot was developed, especially for applications in the food in dustry.

Portal robots are enjoying brisk demand.

Business in membrans systems is also developing satisfactorily. These filter installations are used for purification of intractable wastewater and for recovery of valuable substances. In the Federal Republic of Ger- many, we equipped a large-scale installation for purification of wastewater from gas- olin e separators with our membrane equipment.

The Control and Instrumentation Division, which supplies measuring and control in- struments to a wide range of industries, im- provad its overall market position against a background of continued culbacks in investment by the oil and petrochemical industries and fierce international competi- tion.

Several new products we re launched in the market: a range of multimeters with a novel liquid crystal display; microprocessor- based recorders and controllers; sub-sea choke valves; a cost-effective vortex flow- meter; an easy-to-use domestic water meter; and a system-oriented dot matrix printer incorporating a microprocessor-controlled stepping motor.

1986 business contirmed the competitive- ness of our technology in computer-based telemetry and process contro l systems. Or- ders included turnkey contracts covering telarnetry equipment for a water distribution sch e me and a d istributed contro l system for a lube oil plant in the Middle East. Similar systems were installed and commissioned in China and Singapbre.

In general, business prospeels appear pro- m is i ng for the Information Technology Divi- sion in the industrialized countries. Activity has tended to level off in same of the important countries in the Near East and South America. Products and systems in bot h the centroi and prataction areas are still enjoying strong demand. Major orders were received from the USA and China. Brown Bo- veri continued to maintain its position as market leader in communication via power Iines and in radio transmitter equipment.

For turbocharger production, flexible manufacturing systems were introduced and progress was made toward computer-integrated production. The photo shows a campressar impeller being seanned automatically for computer-aided camparisen of ils profile geometry with design dimensions.

The newly developed work allocation and feedback system per- mils communication between the individual worker on the shop flo or and the main productian computer. The resull is a flexible productian process with no waiting time or interim storage. Shown here is a shop-floar terminal of the productian control system.

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A number of new meas- u ring and contro l in- struments were market- ed. This one measures analog and digital signals simultaneously. For the first time, a digital storage oscilloscope, a logic analyzer, and a graphics printer are combined in a single campact instrument.

In ils own electronics center, Brown Boveri develops highly integrated, customized chips for ils own use and for customers. The photo shows a chips layout made to order for a customer.

The markel for rectifiers and hence for power semiconductors has shown very strong growth. Clean room specifications for producing the power semi- conductars (photo) become more demanding all the time.

During 1986, seven shortwave and three mediumwave transmitters went inta operation in eight countries, and 16 new transmitters we re ordered. In aerial construction, we handed over three 300-meter-high televi- sion masts to German customers and obtained an order for longwave directional an- tennas from the German Broadcasting Au- thority.

In signal transmission via supply systems and large radio transmitters, Brown Boveri held its leading mar- ket shares.

A series of new products were launched in the market. For instance, a new mini control system permits automatic control, regu- lation, and process supervision with ordinary commercial PC's, thus opening up an entirely new m arket. In the protection sector, microprocessor-based digital relays - especially a newly developed multifunc- tional motor protection relay- are generating a great deal of interest

In the high-frequency field, tubes were developed with exceptionally high amplifica- tion for

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lasers and for plasma processas. National research institutes in Ger- many and the USA were equipped with such high-frequency components for research on nuclear fusion. In medical engineering, we use high-energy X-ray and alec- tron radiation for the gentie treatment of cancer. Numerous hospitals and leading cancer research centers in Switzerland and elsewhere decidedin favor of Brown Boveri radiation therapy installations in 1986.

In communications, development work was completed on a mobile transmission set for the new Swiss mobile radio telephone system NATEL-C and on a highly miniaturized, digital encryption attachment for military walkie-talkie sets. Intensive development work continued on a range of optical fiber transmitting devices.

In a specialized facility, we design the cir- cuitry and layouts of high ly integrated, customized chips for our automation systems, measuring equipment, and supervisory control systems for power network. In addition, we also supply outside customers with microelectronic circuits employing thin-film hybrid technology.

During the past year, we trained more than 1400 customer engineers.

The Electronic Components Division develops and manufactures components for electronic power conversion, including components to customer specifications.

These include power semiconductors, fre- quently in hybrid circuits, and components for battery-powered electric vehicles.

The markel for alectronie components, especially for current convarters and there- fors also for power semiconductors, showed strong growth in 1986. We substantially increased sales, especially in Western Eu- rope, the USA, and southeast Asia. Mass productian of high-quality 5500 V power supply thyristors for HVDC transmission systems was expanded, and modules with a number of integrated silicone chips were put inta production. These modules permit the controlied feeding of 3-phase current, thus opening the way to elegant solutions for many of ou r customers' drive problems.

A new cooperation agreement was reached with Japaness campanies covering the worldwide sale and mutual exchange of know-how in the area of high-power semiconductors.

INSTALLATION

This business segment comprises the In- stallations, District Heat/ng Systems, and Cable and Wire Divisions. In 1986 it accounted for 8.6 percent of Group sales and 10.5 percent of new order volume.

The Installations Division handles the supply of complete electrical systems for bulld- ings and civil engineering projects, including power distribution, lighting, air condi- Iianing control, building automation, and security systems. lt also produces and sells low-voltage switchgear equipment for all application areas.

Currently, our main markels are central Eu- rope and Scandinavia. Demand increased on ly moderately in 1986, but ou r strong po- sitions in these markets were maintained with the aid of above-average growth in building control systems.

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Low-voltage installations also enjoyed moderately expanded volume and improved international markel penetration.

Noteworthy orders received in 1986 included contraels covering all electrical equipment for a hydroelectric generating plant in Switzerland, for a foundry in Egypt, and for office complexes and productian plants in Germany and Austria. We also planned and delivered the information systems and communications equipment for one of the largest shopping centers in the Arabian region. New productian plants for switchgear were built during the year.

Traditionally, the main markels for the Dis- trict Heating Systems Division are the northern countries, especially those in Seandinavia and northwest Europe. Den- mark, Sweden, and Finland are routinely including piped heat under their national energy plans. As a result, demand in those countries, as weil as in Federal Germany, is exceptionally steady. In the other export markets, the plunging oil price led to project delays. Farther inta the future, the growing public ciamor for environmental protection will clearly favor district heating systems.

Growing demands for envi- ronmental protection will clearly favor district heating systems.

Our position as world markel leader remained intact. lmportant orders received during the year included the last seetian of a piped heat network in Denmark that will ulti- mately supply about 170 000 inhabitants, as weil as h alf of the district heating pipeline to be built between Mannheim and Heidel- berg.

The Cable and Wire Division develops and fabricates overhead Iine cable and cable installations for power transmission, mag- net wire for the windings of electrical ma- chines, overhead Iines for transportation, and special steel profiles for machinery manufacture.

Business remained good in the German home market, but exports of nearly all prod- uels showed a decline. The trend toward higher-value products continued in the heavy current cable Iine, with same help from an order for over 90 kilometers of 132 000 V cable with plastic insulation.

INDUSTRY

This business segment comprises four divisions selling complete plants and processes, namely Mining and MetallurgicaJ lndustries, Process lndustries, Oil, Gas and Marine lndustries, and Electrical Drives. lt contributed 8.8 percent of Group sales and 10.2 percent of new order vol u me in 1986.

The Mining and Metallurgica/lndustries Di- vision designs and suppiles electrical and control systems for installations ranging from mining to rolling milis, as weil as electric furnaces and equipment for the heating and melting of metals. lt also builds complete motor vehicle test stands.

Modernization and automation investment dominated in 1986. Customers were in- terested in improving final product quality, raising productivity and flexibility, and mini- mizing environmental pollution. The division maintained its overall markel position despile a low level of new plant construction. Business volume was expanded in the areas of equipment drives, plant automation, and automatic control of the induction melting process. The first large DC are fur- nace was commissioned.

The growing submarkel for the automation of existing plant is confirming the impor- tance of our digital, decentralized BBC- PROCONTROL ®system for automatic process contro l and supervision. Duri ng the year we received orders for the electrical systems for a galvanizing Ii n e and an ultramodern cold rolling m iii. BBC-PROCONTROL is used in both installations for fast-acting contror functions.

The 3-phase technology developed by Brown Boveri for locomotive propulsion is nowfinding increasing application in rolling milis. For instance, it has been adapted for driving one of the largest wire rolling milis in the world in a Brazitlan steel plant.

The Process lndustries Division concen- trates on the project planning, engineering, and supply of electrical and control equipment for industrial processes other than those invalving metal productian and processing. lt also builds rectifier installations with very high ratings.

In the printing field, sales of Brown Boveri automation systems were again satisfactory. However, our business in the cement industry and other bas i c i ndustries s uffered

Brown Boveri supplies complete electrical systems for buildingsand underground structures with energy distribution, lighting, air conditioning central, building automation, and security systems. This photo shows the building centroi room for the Ger- man Cancer Research Center, Heidelberg.

Cross-seetian of a recently developed 110 000 V cable with in·

sulalian of crosslinked polyethylene.

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Brown Boveri

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Brown Boveri

Annual Report 1986

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Contents

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Key figures

Chairman's letter

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Brown Boveri Group

Management organization

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Board of Directors, Management, Au ditors

BOARD OF DIRECTORS

1989

1987

1988

1987

1987

1987

1990

1988

1987

1988

1989

1989

1987

1988

1988

Brown Boveri Group 1986 business year

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Half of the new order decline to SFr. 11 billion arose from translation into Swiss francs.

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Billings for a major project kept sales on an even keel at SFr. 13.8 billion.

Higher depreciation on fixed assets helped push back Group earnings to SFr. 96 million. Cash flow was un- changed at SFr. 633 million.

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capital expenditure was devoted largely to boasting productivity.

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