Energy boom lifts ABB forecast

ABB wants to cash in on the energy boom Keystone

Engineering group ABB has raised mid-term revenue (8-11%) and margins (11-16%) growth forecasts as it looks to exploit the world’s increasing thirst for energy.

The four-year targets supersede 2005-9 goals of five per cent sales and ten per cent margin increases. A priority for the group will be improving business ethics, chief executive Fred Kindle told swissinfo.

The Swiss-Swedish company specialises in electrical equipment such as transformers and motors for power plants, and the oil, gas, mining and alternative energy sectors. Favourable economic conditions have substantially boosted demand for energy, particularly in China.

ABB plans to create 20,000 new jobs and hinted at new acquisitions, with the company expecting its own growth to double that of the market.

Kindle said the firm’s ambitions to pull off a major acquisition could be helped by recent stock market volatility dampening the activity of private equity firms.

“The fact of the matter is that we have lost out to private equity competition in previous auctions (takeover attempts). They might not be so active in future which favours trade buyers [such as ABB],” he told a conference in Zurich on Wednesday.

Last month ABB finally sold its troublesome Lummus Global oil and gas business after a long-running asbestos saga involving the division that cost the company millions of dollars.

However, the company also reported several suspect payments to the US authorities in relation to the divestment. The company blew the whistle earlier this year on a price-fixing cartel in which it was involved.

Ethical questions remain

The firm is launching new initiatives to promote ethical business practices and Kindle is confident they will make their mark.

“We have been in the news every so often by reporting a suspect payment or an infringement of business ethics rules and we have to get rid of that,” Kindle told swissinfo.

“The systems and processes are there; now we have to work hard so that our 111,000 employees are working up to these standards and are not bypassing them.”

Kindle added that some of the ethical infringements are a hangover from previous times when rules in Europe were more lax.

“You have to take three steps back and look at the moral and legal environment then. It was not so long ago that cartels in Switzerland were perfectly allowed,” he said.

Remarkable turnaround

“In the 1990s in many European countries payments to non-government officials were not necessarily bad and were sometimes even tax deductible.

“The legal and moral standards have changed here just recently. It has all changed in the last ten years and some companies have struggled to reflect these changes quickly enough.”

ABB has completed a remarkable turnaround in recent years after being on the brink of bankruptcy in 2001 following a disastrous programme of unfettered expansion.

The company reported a turnover of $13.358 billion in the first half of 2007 compared with $10.78 billion in the comparable period last year. Earnings before interest and taxes (Ebit) rose to $1.852 billion ($1.137 billion in 2006).

swissinfo, Matthew Allen

Key facts

ABB set upwardly revised annual group targets for 2007-11 on Wednesday that supersede those set for 2005-9.
Revenue growth: 8-11% (5% 2005-9).
Earnings before interest and taxes (Ebit): 11-16% (from 10%).
Earnings per share growth: 15-20%
Return on capital employed: above 30% by 2011

In brief

ABB 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 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.

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

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 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.