Net profit leaps at revitalised ABB

The company is doubling its payout to shareholders for 2006 Keystone

The ABB engineering group has reported a surge in its net profit to $1.39 billion (SFr1.72 billion) for 2006, an 89 per cent increase over the previous year.

This content was published on February 15, 2007 minutes

Chief executive Fred Kindle also indicated that the Zurich-based company would be looking to spend part of its substantial cash reserves to make future acquisitions.

ABB said there had been strong demand for technologies aimed at improving power grid reliability, industrial productivity and energy efficiency. Analysts had expected the net profit to be slightly higher at $1.43 billion.

"We have the right technology and market positions to take advantage of the growing global demand for reliable power and higher industrial efficiency," commented ABB chief executive Fred Kindle in a statement on Thursday.

Orders jumped 22 per cent to $28.4 billion (SFr35.13 billion) while earnings before interest and taxes (Ebit) rose to $2.59 billion.

The order backlog stood at $16.95 billion at the end of 2006, up $5 billion or 42 per cent compared with the previous year.

The company said its business environment was not expected to change significantly from the positive market situation seen last year.

The firm's shares rose by 71 per cent last year in signs that the group's restructuring efforts were bearing fruit and concerns about exposure to asbestos claims mainly in the United States were settled.

Acquisition plan

Earlier this month, ABB announced it would sell its stakes in two power projects in Morocco and India for $490 million, raising speculation that the company may seek to expand its core businesses.

The company continues to seek a buyer for its Lummus Global business, which could generate up to $600 million, and predicted the imminent sale of its Building Systems arm.

The proceeds, together with the proposed issue of up to 200 million new shares, could be used to fund takeovers.

"We want, and we are able, to execute acquisitions but we are not desperate for them. There are opportunities to add one or two other pieces to create even more value." Kindle told swissinfo.

"We have quite a sizeable liquidity at the moment and a capital structure that allows us to incur more debt. We can spend a few billions if we wanted to, but we have to find the right target that adds value."

Kindle added that ABB has learned the painful lessons of the past when a series of bad takeovers nearly brought the company to its knees.

"The fact that we have had problems with acquisitions in the past makes us more diligent. The real hard part of the job starts after making the deal, turning the lead in the business plan into real gold in the bottom line. ABB did not excel at this part in the past," he said.

swissinfo, Matthew Allen in Zurich

Key facts

2006 figures:

Orders: $28,4 billion (+22% compared with 2005)
Order backlog at end of December: $16.95 billion (+42%)
Ebit: $2.59 billion ($2.59 billion)
Net income: $1.39 billion (+89%)
Proposed dividend: SFr0.24 (+100%)

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ABB profile

The group specialises in heavy industrial electrical switches, transformers, generators, circuit breakers, cables and related software and communications systems.

Such products are typically used by power plants, oil and gas companies.

ABB operates in about 100 countries and employs around 108,000 people.

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