ABB loss overshadowed by row over pensions benefits

    14 Feb 2002 – Yesterday was always going to be a difficult one for Jàƒ¶rgen Centerman, president and ceo of Swiss-based global power and automation technology company ABB, as he presented the group’s results for 2001 – a deficit of $691m – the first loss in the company’s history. Whether he expected to face a barrage of questions from the press about an unrelated, but interestingly-timed release by his chairman Jàƒ¼rgen Dorman, concerning investigations into pension payments made to two former ceo’s totalling CHF233m ($136m), is unknown. What was clear was his discomfort in declining to answer any of the questions posed on the subject.

    Centerman did his best to present an upbeat picture for a very difficult trading year for the group, which is undergoing a root and branch restructuring. “2001 will go down as the year when ABB turned the page,” was his message. He said he was proud of the organization’s efforts in keeping up with the competition despite the re-focusing of the business and the loss of 7200 jobs during the year.

    The board of ABB chose the day of the annual results statement to go public on a row between it and high-profile former chief executive Percy Barnevik along with his chosen successor Goran Lindahl. Barnevik resigned from the board last November and Lindahl left a year ago. ABB said it was reassessing the pension and other benefits paid, adding that restitution of amounts paid in excess of obligations will be sought. The board said that Barnevik received some CHF148m after his resignation as ceo in 1996, while Lindahl’s pension and other benefits amounted to CHF85m.

    An internal review into the payments has revealed that “the approval procedures (for these benefits) were unsatisfactory.” It insisted that all other directors’ remuneration packages complied with prevailing international practices.

    The loss of $691m attributed due to a number of provisions, most notably a $470m charge for asbestos-related liabilities arising from its US Combustion Engineering subsidiary. There were also re-structuring charges amounting to $231m for the 112 programmes underway, losses from insurance operations of $138m and a provision of $295m relating to the move away from discounting for claims within the Scan Re insurance division.

    The asbestos provisions had been made public two weeks ago but the overall size of the provisions and poorer earnings figures from most divisions amounted to worse news than had been expected and will do little to woo investors.

    The restructuring of ABB into a customer-oriented organization is set to continue into 2002 with the prospect of a further 4800 job losses. ABB said that it expects revenues to be flat compared to 2001 but that Ebit (earnings before interest and tax) margins to grow to four to five per cent. An average ebit of six per cent for the period 2001-2005 remains the target.

    The hefty provisions for asbestos still leaves the group with a major uncertainty on its books. Centerman said, “Combustion Engineering has intensified efforts to settle valid claims and dispute claims were appropriate”. He accepted that further provisions might be needed. There remains 94 000 outstanding claims in the US and the number of new claims grew last year from 39 000 to 55 000.

    The ABB board will recommend that no dividend is paid and plans to hold back on the cancellation of treasury shares.

    ABB insisted that it would remain a leader in the development of high tech industrial applications for example in the HVDC field. The group spent $654m on R & D last year and is bringing all new technology designs in line with its Industrial IT standard.

    ABB’s view is that there is no immediate sign of an economic upturn in its markets. Centerman said that ABB’s earnings forecast for 2002 assumed flat revenues. He was optimistic that opportunities existed for the company when the economy recovers and said that low inventories meant that demand will immediately pick-up at that point.

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