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Poor results put ABB CEO Centerman under spotlight

Jorgen Centerman, CEO of ABB, faces a tough challenge Keystone Archive

The dwindling fortunes of the ABB group, are putting one man firmly in the public gaze - the company's CEO Jörgen Centerman.

Centerman, who has been CEO and president since January last year, has been in the unenviable position of restructuring an industrial giant that has a workforce of 160,000 spread all over the globe.

ABB’s losses were much larger than expected by the markets and the company has decided that no dividend will be paid out this year.

Problems over the past few years have sent all the wrong messages to the outside world, in particular to investors, who have not been convinced by company performance.

Exposure to asbestos

The share price has fallen by 60 per cent over the past year, against a background of mounting costs from exposure to asbestos and concerns over the group’s weak balance sheet.

Centerman, who has been at ABB since 1976 and was head of the group’s Automation division before taking over at the helm, reported a net profit of $1.44 (SFr2.44 billion) for the year 2000, up six per cent over the previous year.

However, there was clearly disappointment looking behind the figures. “Revenue development is clearly below our potential,” he told shareholders in the annual report.

He said ABB would aim to achieve a minimum average growth rate of six per cent until 2005, with earnings before interest and taxes (EBIT) targeted to increase 15 per cent per year.

12,000 job cuts

By July last year, Centerman saw the need for rapid action, with net profit down by 76 per cent during the first six months compared with the same period in 2000.

He announced 12,000 job cuts in response to lower profits and falling orders, in a bid to improve ABB competitiveness.

In October, Centerman said the cost-cutting programme would be accelerated because of a decline in orders.

First profit warning

He also issued a first profit warning for 2001 results due to a slowing economic growth, adding that ABB wanted to cut its debt by up to $1 billion before the end of the year, from $6.27 billion at the end of the third quarter.

A month later, it was announced that Percy Barnevik, who had steered ABB from the 1988 merger of Sweden’s Asea and Switzerland’s Brown Boveri, was to step down.

However, there was more negative news to come. At the end of last month, ABB announced it would take a charge of $470 million against its 2001 earnings to increase its provisions for asbestos claims in the US.

Net loss expected

“After our detailed annual review of the asbestos issue, we have decided to increase our provisions with an additional charge of $470 million against 2001 earnings, and we expect a net loss for the ABB Group in 2001,” explained Centerman in a statement.

The claims concern liabilities pending against Combustion Engineering, a US subsidiary. ABB said the number of new claims filed against Combustion Engineering rose to 55,000 in 2001 from 39,000 in 2000.

Economic researchers at Merrill Lynch estimated that the total asbestos-related claims was around $2 billion or SFr3 per share.

Company viability

This would imply the need for further substantial provisioning in future years but does not threaten the viability of the company, they commented.

While some analysts say the current ABB share price is a reason to take a gamble on an upcoming economic recovery and the quality of new top management, others say the share is still overvalued.

Most analysts seem to share the view that Centerman still has much to do to persuade investors that ABB – once considered one of Europe’s best run companies – has not lost its way.

by Robert Brookes

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