ABB launches probe as results beat forecasts

Have there been shady dealings at ABB? Keystone

The ABB engineering group says it may have violated a United States bribery law after discovering suspect payments made by some employees abroad.

The group, which has its headquarters in Zurich, said on Thursday it had launched an inquiry and had notified the US authorities. At the same time, ABB announced first-half figures that clearly surpassed market expectations.

“The news on the disclosure of suspect payments… is worth monitoring, but we do not view it as a major issue at this stage,” commented Credit Suisse analyst Julian Mitchell.

ABB said in a note in its results statement the payments may be in violation of the US Foreign Corrupt Practices Act or other applicable laws.

“If ABB is found to have violated any of these laws, the company could be liable for penalties and other costs and the violations could otherwise negatively impact its business,” it said.

Several cases?

ABB said it was investigating several cases of suspect payments but it was unclear whether they were linked. It added it had not made any provisions and was not sure how much money could be involved.

The news came after shares in Swiss logistics firm Panalpina of Basel fell by as much as nine per cent on Wednesday after it started an inquiry in response to a US request for documents in a bribery probe.

The US Foreign Corrupt Practices Act includes anti-bribery measures that forbid corrupt payments to influence decisions that could help a company to obtain or retain business.

ABB reported that its first-half net profit had risen to $1.266 billion (SFr1.54 billion) from $571 million in the comparable period last year.

Second-quarter profit almost doubled to $729 million as it sold transformers, switchgear and substations to customers in China and the Middle East.

Strong growth

“Our second quarter was marked by continued strong growth with outstanding operating margins,” company CEO Fred Kindle said in a statement.

“As a market and technology leader, ABB continues to benefit from increased global investments in energy efficiency as well as power and industrial infrastructure,” he added.

China alone plans to spend about $33 billion this year on extending its electricity grid to help power new plants and reduce outages.

Orders at ABB in the second quarter rose 26 per cent to $8.666 billion as growing demand for power in emerging markets and a drive from customers to update their energy transmission systems bolstered the group.

The ABB statement said the business environment for ABB during the rest of 2007 was expected to remain in line with the positive market situation in 2006 and the first half of this year.

Order growth is seen continuing on a high level but is expected to moderate in the course of 2007, said ABB. The market anticipates the group will raise its medium-term earnings goals in September as business booms.

The group has a target of turnover growth above five per cent and an operating margin above ten per cent for 2005 to 2009.

swissinfo with agencies

Key facts

First-half figures:
Turnover – $13.358 billion (compared with $10.78 billion in the first half last year)
Earnings before interest and taxes (Ebit) – $1.852 billion ($1.137 billion)
Net income – $1.266 billion ($571 million)
Employees: Around 111,000 at the end of June, 2007

ABB in recent times

The group has been recovering over the past few years from a number of events that almost forced it to collapse after huge losses in 2001.

In January 2007, ABB blew the whistle on a cartel of 11 electric power makers, which included itself, but it was let off by the European Commission for handing over information about the cartel.

The company settled asbestos claims against it from the US in April 2006 after ten years of legal wrangling. The settlement cost the group almost $1.5 billion.

In July 2004, ABB paid SFr20 million to US authorities after pleading guilty to bribing African and Asian government officials.

The company announced in November 2002 that it was cutting around 10,000 jobs as part of a drastic restructuring and cost savings programme.

In February 2002, the company reported a 2001 loss of $691 million. On the same day, ABB said it was reassessing pension benefits paid to former Swedish CEOs Percy Barnevik (SFr148 million) and Göran Lindahl (SFr85 million). The sums were later reduced.