ABB cuts 1,300 jobs worldwide

ABB blamed overcapacity in the transformer business for the 1,300 job cuts. ABB

The Swiss-Swedish technology concern, ABB, says it is to axe 1,300 jobs in its global transformer business. No jobs will be lost in Switzerland.

The cuts which are expected to lead to lower net profit in the second quarter, form part of a $240 million (SFr307 million) consolidation programme.

The company said costs stemming from an asbestos litigation settlement were also likely to have a significant impact on business results.

ABB said on Thursday it was “consolidating its global transformer business in response to overcapacity, increasing raw material costs and a regional shift in demand”.

The programme was expected to run until the end of 2008 and would cost around $120 million this year, with more costs booked in the second quarter, the company said in a statement.

The transformer business made a turnover of $2.5 billion last year – more than a quarter of the turnover of the energy technology division.

Overcapacity

“The focus is on increasing productivity and operational efficiencies,” said ABB, which claims to be the world’s leading producer of transformers used in substations, power plants and electrical locomotives.

The consolidation would result in the closure of “a small number” of plants in high-cost countries and cut around 1,300 jobs – ten per cent of the total global workforce in the transformer division.

Talks were taking place with employee representatives to ensure the programme was carried out in a “socially responsible” manner, the statement added.

“Overcapacity has been the biggest problem in the transformer industry in recent years, mainly the result of deregulation in the power sector,” said ABB chief executive Fred Kindle.

“The situation has been made worse, however, by the unprecedented increase in raw material prices we’ve seen since 2004.”

Revised outlook

Due to the additional charges associated with the consolidation programme and the higher raw materials costs, ABB said it had revised its margin target on 2005 earnings before interest and tax (Ebit) for its power technologies unit from 6.8 per cent to 7.3 per cent.

ABB said the consolidation plan would reduce group net income in the second quarter of this year. It said profit would also be hit by the accounting treatment of shares reserved for an asbestos trust, and non-asbestos related litigation charges.

Last Friday, ABB handed in a plan to settle outstanding asbestos-related health claims from employees in the United States. The settlement forced ABB to reissue its annual accounts for last year to show a loss of $35 million, instead of the previously stated profit.

In early trading on Thursday, ABB shares lost more than nine per cent of their value, before recovering slightly later in the day.

swissinfo with agencies

Key facts

In 2003, ABB had 116,500 employees around the world.
By 2004, that number had fallen to 102,500, 14,000 fewer.
Between now and 2008 ABB intends to cut 1,300 jobs in its transformer business, or 10% of the workforce in the division.