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ABB axes 12,000 and Yurko quits Invensys as recession bites
Published:  01 August, 2001

The downturn in the world`s industrial markets is continuing to take its toll. In simultaneous announcements on 24 July, ABB said its was going to axe 12,000 jobs - 8% of its workforce - over the coming 18 months, while Invensys chief executive Allen Yurko revealed that he would be stepping down in October. Elsewhere, Rockwell Automation reported an 80% drop in third-quarter profits, while Honeywell revealed that its second-quarter profits had plummeted by 90%. And Siemens reported a third-quarter loss and predicted a drop in full-year profits.

ABB`s cutbacks come as the company announced that earnings before interest and tax (EBIT) had fallen by 21% in the first half of the year. Revenues were "flat", but 7% up in local currencies, while net income fell by 76% from $1,092m in the first half of 2000 to $266m this year.

"Our results reflect uncertainty in the investment climate as the US slow-down spreads into Europe and Asia," says chief executive Jörgen Centerman, "yet our underlying operational performance is improving if you look at earnings excluding one-time capital gains".

About a third of the jobs will be lost through natural attrition. The cutback programme is expected to cost around $500m over 18 months, with the annual savings running at the same level once the plan is implemented. ABB has not said where the cutbacks will fall but the almost 8,000 personnel employed by ABB in the UK are unlikely to escape unscathed.

"We are taking action now to improve our competitiveness, as we expect challenging conditions over the next 12 months," says Centerman. "Our goal to grow the business remains unchanged."

In ABB`s key automation business, orders fell by 4% in the first half to $3.9bn, but revenues were up 5% at $3.56bn. Double-digit growth in some sectors, including drives and power electronics, was offset by sharp downturns in flexible automation (attributed to weak demand in the automotive sector) as well as in the pulp, paper and metals markets. Against this trend, ABB has recently won a $17m contract to automate one of the world`s largest paper machines for Papierfabrik Palm in Germany.

Centerman reported that ABB`s transformation to a "customer-centric" group is going to plan, with the basis for the new structure now in place in most markets.

Centerman is scaling down his longer-term predictions for ABB`s performance. He had been hoping to hit an EBIT margin of 12% by 2005, but he has now reduced the target to 9-10%. However, the goal of lifting revenues by an average of 6% a year until 2005 remains unchanged.

At Invensys, the number of jobs to be axed this year has risen from 3,500 to 6,000, with more than 3,200 jobs already eliminated in the first three months of the financial year. The company now expects its first-half operating profit to be 30% down on the £400m figure it was forecasting as recently as May. Chief executive Allen Yurko admits that the downturn in the US economy had been worse that he had expected and describes it as "the most serious recession in the US for the past 30 years".

Yurko will step down as chief executive at the end of September after eight years - first at Siebe, and then at Invensys - to be replaced by Rick Haythornwaite, formerly chief executive of Blue Circle Industries.

"As the longest-serving chief executive in the automation and controls sector, I felt the time was right to hand over to someone able to bring a fresh approach to our markets, build support for his strategy with the financial community, and lead Invensys as it comes out of the current economic downturn," Yurko said.

Rockwell`s chief executive Don Davis echoes Yurko`s views, claiming that the US manufacturing sector is experiencing its most significant decline in several decades. The problems are now spreading to Europe, but South America and the Asia-Pacific region are still performing well, he says. Rockwell`s third-quarter income was $34m, compared to $170m a year ago. Earnings from continuing operations amounted to $18m, compared to $92m in 2000.

Honeywell, trying to re-establish itself after the collapse of its takeover by General Electric, has reported second-quarter profits that are 90% lower then last year`s. The cost of the nine-month battle to win approval for the GE deal is put at $42m.

Former Honeywell boss Larry Bossidy has come out of retirement to replace Michael Bonsignore as chief executive. He is expected to try to improve the company`s performance before looking for another buyer. In the six months to the end of June, profits fell in all four of Honeywell`s divisions, with the automation and controls business dropping by a fifth to $374m.

On this side of the Atlantic, Siemens reported a third-quarter loss of €489m (excluding special items and results from the chip-maker Infineon). The results were badly affected by a sharp fall in demand in the information and communications business. Overall, Siemens` sales for the quarter (excluding Infineon) climbed 23% to €20.3bn, while orders rose 23% to €23.2bn.

The automation and drives division increased its earnings before interest and tax slightly, from €220m in the third quarter of 2000 to €225m this year. Sales were 10% higher, but new orders were flat, particularly in the US, but also in Europe.

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