ABB loses $45 million in 1Q03; selling two divisions; divesting or laying off 35,000 employees
Zurich, Switzerland—ABB Ltd. reported April 30 that its net income dropped $45 million in 1Q03, and that it's planning to divest or layoff about 35,000 employees, as well as trying to sell its Oil, Gas and Petrochemicals and its Building Systems divisions for about $2 billion combined to reduce its more than $8.1-billion debt.
Zurich, Switzerland— ABB Ltd.
To reduce its debt, ABB is trying to sell its Oil, Gas and Petrochemicals division and its Building Systems division for approximately $2 billion combined. In fact, Downer EDI Ltd. (Sydney, Australia) reportedly agreed April 30 to pay $5 million for those portions of ABB's building systems businesses in Hong Kong and Australia, including existing contracts and about 400 employees. Downer EDI is an engineering services firm. ABB sold most of its Structured Finance business to GE Commercial Finance on Sept. 4, 2002, for about $2.3 billion in cash, including equity and debt.
ABB's total debt amounted to $8.156 billion in 1Q02, compared to $7.952 billion in three months earlier in 4Q02. This gross debt included a drawdown of $747 million on the company's $1.5-billion revolving credit facility negotiated in December 2002.
In another restructuring move, ABB will seek to decrease its employees to about 100,000 by the middle of 2004, according to Ronald Kurtz, ABB's U.S. media relations director. This means it will have to divest or layoff about 35,000 people from its present level of 135,000. Many of these staffers wouldn't necessarily lose their jobs, but would simply become employees of
Core divisions improve
On a positive note, ABB adds that its core divisions, Power Technologies and Automation Tech-nologies, reported an 11% increase in orders and an 18% increase in revenues to more than $4 billion in 1Q03. This improvement was due to the two divisions' $9.9-billion order backlog and their combined earnings before interest and taxes of 33% to $290 million. However, when calcu-lated using its local currencies, ABB's orders were flat and revenues were up only 5% during the quarter.
Though its total revenue of almost $4.595 billion for 1Q03 was 14% more than its $3.951 billion in 1Q02, ABB's earnings before interest and taxes (EBIT) dropped by 66% to $92 million in 1Q03 from $272 million in 1Q02. This was because 2002's earnings included one-time positive items, such as $54-million capital gain from the divestment of its Air Handling business. This earnings decline also occurred because 1Q03's EBIT was drained by a $30-million accounting loss from ABB's sale for $90 million of its aircraft leasing portfolio and write-downs and lower earnings in non-core divisions, such as Building Systems, remaining parts of Structured Finance and Insurance.
ABB's financing expenses were $130 million in 1Q03, compared to $58 million in 1Q02, reflect-ing higher financing costs, a $23 million "mark-to-market unrealized loss and related amortiza-tion on the equity conversion option on the convertible bond (bifurcation)," and an approximate $30-million write-down in marketable securities.
In addition, ABB's discontinued operations reported a net loss of $10 million in 1Q03, compared to income of $22 million in 1Q02. This loss reflects negative results in the Oil, Gas and Petrochemicals division, which reported EBIT of $35 million in 1Q03, compared to $53 million in 1Q02.
Meanwhile, net cash used by ABB's operating activities was $928 million in 1Q03, which included a $226-million payment by ABB's Combustion Engineering (CE) subsidiary to an asbestos trust; $254 million for discontinued operations in Oil, Gas and Petrochemicals; $162 million in non-core activities; and $57 million in restructuring costs. The combined cash flow from operations in the two core divisions in the quarter amounted to negative $192 million, which is in line with the seasonal increase in working capital during the first few months of the year.
ABB announced in February 2003 that CE had filed for a pre-packaged Chapter 11 in U.S. bankruptcy courts. Voting on the pre-packaged plan ended on Feb. 19, and CE has confirmed that it has received more than 75% of claimant votes in favor of the plan, representing more than two-thirds of the total value of claims as required for approval by eligible claimants. The court hearing to review and confirm the plan started on April 24 and continues on May 1 and 2. ABB reports that it remains confident the plan will be approved.
Despite its present difficulties, ABB reports that its outlook remains unchanged. From 2002 through 2005, ABB expects compound average annual revenue growth of about 4%. The company is aiming to achieve a 4% increase in EBIT in 2003, and then reach 8% in 2005.
ABB adds that it expects to reduce its total debt to 6.5 billion by Dec. 31, 2003, and the amount it owes to $4 billion by 2005.
Control Engineering Daily News Desk
Jim Montague, news editor