ABB sinks to new low

ABB is struggling to cope with massive debt Keystone

The embattled engineering group, ABB, has issued a bleak outlook for 2003, saying it will rely on asset sales and more job cuts to stay afloat.

Announcing a $787 million (SFr1.1 billion) loss for 2002, chairman and CEO Jürgen Dormann said he did not expect any improvements in the short term.

Faced with lacklustre global economic conditions and a looming debt crunch of at least $2.6 billion, ABB aims to raise around $2 billion from asset sales.

The company also plans to shed 10,000-12,000 jobs. Since October it has already cut 7,400 posts.

Dormann predicted the restructuring would generate cost savings of $800 million over the next 18 months, which he described as a make-or-break period for ABB.

“If we cannot get it right in the next 12 to 18 months, ABB has no grounds for existence,” he warned.

But speculation remains rife that ABB could be broken up if Dormann fails to turn the company around.

Grim reading

Analysts had been expecting more bad news from the struggling Swiss-Swedish concern, but the results far exceeded their worst fears of a $550 million loss.

ABB lost a record $691 million in 2001, prompting it to cut 12,000 jobs and sell off assets. It narrowly averted a cash crisis in March last year.

“It has been a difficult year, but we put the worst behind us,” said Dormann.

“Our core businesses are performing well. I’m confident we can deliver on our growth targets and return to profitability in 2003.”

Debt burden

As part of its efforts to slash its massive debt mountain, the engineering firm plans to save $1.3 billion in the coming months through job cuts and restructuring.

ABB said it expected core operating profit to be up by more than 20 per cent in 2003 – from $336 million in 2002 – partly due to the effects of the restructuring plan.

The expected sale of its Oil, Gas and Petrochemicals division later this year should generate another $1.4 billion, according to estimates.

ABB also won a $1.5 billion credit line from a consortium of 20 banks last December to help keep it afloat during the restructuring.

However, analysts fear the Zurich-based company may need a fresh injection of capital in the near future.

Delphine Brault of Dutch bank ING said that the company might have difficulty meeting debt repayments in 2004 and that a capital increase might be necessary.

Mountain to climb

Peter Voser, the company’s finance director, announced in November plans to shrink the company’s debt pile from $9 billion at the end of September to $6.5 billion in 2003, and $4 billion in 2005.

Voser said that when he arrived at ABB, the group’s debt burden resembled Mount Everest. “It’s reduced to something more like the Matterhorn,” he said. “It can and will be climbed.”

However, doubts have been raised as to whether this is possible since ABB is running out of assets to sell.

Last year it sold its structured finance division to General Electric Commercial Finance for $2.3 billion, as well as its energy metering activities to Ruhrgas of Germany.

The sell-offs, along with planned redundancies, will see its workforce reduced by a third, from 146,000 to 100,000.

Asbestos suit

The firm is still moving towards a settlement of US asbestos liabilities from its Combustion Engineering subsidiary. Last week, it was able to gain some respite against crippling litigation by placing the unit under Chapter 11 bankruptcy protection.

In the fourth quarter ABB set aside a further $420 million to cover claims, accounting for more than half of last year’s loss.

“This [litigation] has generated a loss for the group which no one is happy about,” said Voser. “But it marks an end to the earnings drain.”

ABB’s decision to focus on its core divisions, power technology and automation, means that financial specialists will be taking a closer look at the two units’ performance.

Both have world-leading market positions and a line-up of products and services viewed in a positive light by analysts.

However, the two units cater to industrial clients who have been hamstrung by low consumer spending and the sluggish economy.

The two divisions, which have sales of around $16 billion, have been set profit margin targets of ten per cent by 2005.

Bad publicity

ABB also fell victim last year to a series of negative headlines documenting boardroom shenanigans.

Dormann, already the firm’s chairman, took over as CEO in September amid talk of a clash with Jörgen Centerman, who had held the job since January 2001.

In February, the company revealed that two former chief executives, Percy Barnevik and Göran Lindahl, had received pension and other retirement benefits of SFr233 million.

In March, the company’s board reached a deal with the two, both of whom agreed to pay back a combined total of SFr137 million from their pension settlements.

swissinfo with agencies

ABB 2002 results

ABB is battling to turn around its fortunes after recording huge losses for the past two years.

The engineering group has embarked on a major restructuring programme, selling units and shedding thousands of jobs.

The Swiss-Swedish firm is also saddled with expensive asbestos-related litigation for which it has set aside a total of $1.2 billion.

ABB managed to raise $1.5 billion in fresh capital from a consortium of banks last December, but analysts question whether recent actions will be enough to keep the firm afloat.

ABB 2002 figures

ABB was formed in 1988 by the merger of Sweden’s Asea and Brown Boveri of Switzerland.
The company has announced plans to reduce its workforce from 146,000 to 100,000.
ABB said it cut net debt to $2.6 billion last year.
There will be no dividend payment for 2002.