ZURICH, Switzerland, July 24, 2001 — Swiss-Swedish conglomerate ABB today said it would have to cut 12,000 jobs - eight percent of its workforce - over the next 18 months to counter difficult market conditions.
According to its quarterly report, ABB's net income fell 76 percent in the first half of the year with flat revenues.
In reaction to the report, the company's share price dropped 11.4
percent to 20.9 Swiss francs ($12) in early trading in Zurich, the Associated Press said.
Earnings before interest and taxes were down 21 percent, but up 4 percent excluding one-time capital gains, reflecting underlying improvements in operational performance.
ABB said its transformation to a customer-centric organization is proceeding on schedule, with the basic structure in place in most markets.
"Our results reflect uncertainty in the investment climate as the U.S. slow-down spreads into Europe and Asia, yet our underlying operational performance is improving if you look at earnings excluding one-time capital gains," said ABB president and CEO Jorgen Centerman. "Our goal to grow the business remains unchanged. We are taking action now to improve our competitiveness, as we expect challenging conditions over the next 12 months."
Centerman said ABB's cost reduction plan requires a cut of 12,000 jobs in the next 18 months. About one third of the job reductions are estimated to come through natural attrition. The program is expected to cost US$ 500 million over the 18 month period, and the annual cost reduction - once the plan is fully implemented - is estimated at about the same level.
Financial results for the first half 2001
Orders decreased 7 percent to US$ 12,648 million or 1 percent expressed in local currencies. Base orders, defined as below US$ 15 million, remained flat in nominal terms but were up 6 percent in local currencies when compared with the first half of last year. Large orders (above US$ 15 million) declined 36 percent in nominal terms or 31 percent in local currencies over the same period.
The order backlog increased since yearend 2000 by 4 percent in nominal terms and 10 percent in local currencies to US$ 15,373 million.
Revenues were flat at US$ 11,099 million and up 7 percent in local currencies, with oil, gas and petrochemicals reporting 26 percent growth, in nominal terms.
Earnings before interest and taxes fell 21 percent to US$ 626 million compared to the first half of 2000, and 15 percent when expressed in local currencies. This includes other income from equity accounted companies and license income of US$ 107 million, restructuring charges of US$ 20 million, and a small capital loss. EBIT was up 4 percent in nominal terms and 11 percent in local currencies, excluding one-time capital gains. Capital gains were US$ 184 million in the first half of last year versus a capital loss of US$ 6 million this year.
Income from continuing operations was down 40 percent to US$ 329 million, primarily due to substantially lower capital gains, but also due to higher interest expense associated with repurchased shares as well as the write-off of US$ 39 million of deferred costs associated with the company's decision late in the second quarter to cancel its plans to offer shares in the U.S.
Net income was 76 percent lower. The main reason was a one-time gain of US$ 548 million recorded last year from the sale of the former Power Generation segment. In addition, there was a charge of US$ 63 million booked in the first quarter which was required upon adoption of the new accounting standard FAS 133.
ABB's net cash provided by operating activities was US$ 79 million for the first half, up from US$ 60 million for the same period last year. For the second quarter alone, net cash provided by operating activities was US$ 296 million versus US$ 37 million last year.
Stockholders' equity declined to US$ 3,213 million at June 30, 2001, mainly due to the purchase of treasury shares.
As of June 30, 2001, ABB employed 163,838 people compared to 160,818 at yearend 2000. Excluding acquired and divested companies, the number of people increased by 0.3 percent. The main reason employee numbers increased was due to the larger number of personnel needed for project execution in Oil, Gas and Petrochemicals. This increase was partly compensated for by decrease in other segments.
