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ABB announces $55 million second-quarter loss

ABB headquarters in Zurich-Oerlikon Keystone

The Swiss-Swedish engineering group, ABB, continues to struggle after recording a $55 million (SFr73.9 million) second-quarter net loss.

This content was published on July 29, 2003 - 08:11

ABB’s sales rose 12 per cent to $5.06 billion. However, debt increased from $8.1 billion three months ago to $8.3 billion.

Jürgen Dormann, ABB's chairman and chief executive, blamed the loss on costs linked to his strategy of selling off assets in an effort to settle debt.

He said a strong performance by the group’s core Power and Automation Technologies divisions had lifted the company's second-quarter earnings before interest and taxes (EBIT) by 14 percent.

"We're clearly moving in the right direction," said Dormann.

"We achieved solid earnings, margins and cash flow performance in our core divisions and a steady reduction in our cost base. There is hard work ahead, but our company is now in much better shape than it was a year ago."

Despite the loss, Dormann reiterated his four per cent target for sales growth between 2002 and 2005.

Most analysts were bracing for a fifth consecutive quarterly loss, as the company continues to grapple with sluggish sales and an ongoing asbestos lawsuit.

But the figure was worse than analysts' forecasts of a second-quarter loss of up to $45 million.

Dormann acknowledged that ABB could improve its profitability: "It's too early to say ABB's problems are over."

Debt, sell-offs and asbestos

Still reeling from an almost $800 million loss in 2002, the engineering group has been slashing its workforce and selling off non-core businesses.

A key item for sale is ABB’s oil, gas and petrochemicals (OGP) division, estimated to be worth more than $1 billion. At least three buyers are interested in the company.

On Tuesday, the Financial Times said Candover, a European buy-out firm, had offered to buy the unit for "slightly more than $1 billion".

"Candover directors are understood to have reached an agreement with ABB to hold more detailed exclusive talks after preliminary price discussions during the weekend," the paper said.

However, an ongoing asbestos case in the United States against an ABB subsidiary, Combustion Engineering, continues to overshadow the sale.

ABB is working to win court approval for a $1.3 billion settlement that would insulate OGP’s new owners from any further legal claims.

Dormann on Tuesday said he was confident that the asbestos case would be resolved.

"We expect to put the asbestos issue behind us in 2003," he said.

The sale is a key element in Dormann’s push to halve the company’s massive debt load to $4 billion by 2005.

At least $2.2 billion is due this year and another $1.3 billion in 2004.

Unrealistic

Some analysts believe the firm will have little choice but to ask investors for more cash to cover the payments.

Many believe Dormann’s goal of breaking even in 2003 remains unrealistic, given the global economic downturn.

"Dormann's goals are ambitious, especially in this environment,'' Pascal Seidner, from the Zürcher Kantonalbank told Bloomberg.

Shares in the Zurich-listed firm have risen 8.1 per cent this year, after falling by more than half last year.

During Monday trade, shares in ABB rose by more than 4 per cent to SFr4.43, amid expectations of positive second-quarter figures.

ABB’s troubles in recent years followed a decade of dramatic growth, during which the firm came to be seen as one of Europe’s best managed corporate giants.

By the time Dormann finishes job cuts started in mid-2001, the company will have fewer than 100,000 workers – less than when it was formed 15 years ago through the merger of Sweden’s Asea and Switzerland’s Brown Boveri in 1988.

IBM deal

The latest results came just hours after ABB announced a billion-dollar outsourcing deal with IBM, expected to save the company $500 million over the next decade.

IBM will take over all of ABB’s computer operations in 14 countries, including the handling of servers, networks, PCs and help desks.

Around 1,200 ABB staff will transfer to IBM as part of the deal.

swissinfo, Jacob Greber in Zurich

Key facts

ABB's second-quarter net loss was $55 million (SFr 73.9 million).
Sales rose 12 per cent to $5 billion.
Earnings before interest and taxes rose 14 per cent to $171 million on 12 months ago.
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 less than 100,000.

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