* Power Systems is ABB's least profitable division
* Plans to pull out of low-margin contracts
* Raises power systems' margin target to 9-12 pct vs 7-11
(Adds details, background, shares)
By Caroline Copley
ZURICH, Dec 14 Swiss engineering group ABB
is dropping low-margin projects at its power systems
business in an attempt to make the division more profitable,
resulting in a fourth-quarter charge of $350 million.
Tough price competition in Asia and delays in connecting
offshore wind farms to power grids have hit margins at ABB and
German rival Siemens' power businesses.
ABB flagged a review of its power systems unit, its least
profitable division which makes subsea cable systems and power
links to connect renewable energy to the grid, in October.
In November, Siemens announced a 6 billion euro savings
drive over the next two years, more than half of which will come
from its energy business.
ABB Chief Executive Joe Hogan said on Friday that the power
systems unit's poor performance was disappointing.
As a result, ABB is pulling out of low-margin engineering,
procurement and construction operations in more than 10
countries including the Czech Republic, Lithuania and Nigeria.
It plans to shift its focus to higher-margin software and
"Power systems has not generated consistent returns. This is
not acceptable," Hogan said.
As part of the overhaul, ABB has raised the division's
margin target on earnings before interest, tax, depreciation and
amortisation (EBITDA) to 9-12 percent and expects the business
to reach the new target by the fourth quarter of next year.
The unit's third-quarter operating profit margin of 5.9
percent fell short of the group's mid-term target range of 7 to
11 percent. By comparison, ABB's most profitable division -
which makes circuit breakers and enclosed switches - had a
margin of 19.5 percent.
"We welcome the measures, that should raise ABB's
profitability and make the portfolio less risky," ZKB analysts
Shares in ABB were flat at 18.77 francs by 1123 GMT compared
with a slightly firmer European industrial goods and services
The company said the overhaul will reduce earnings before
interest and tax by roughly $350 million in the fourth quarter,
of which $100 million is related to restructuring expenses. It
expects the costs to yield results in two and a half years.
ABB has been cautious in its outlook in recent months due to
the euro zone crisis and slackness in other major economies,
which translated into a fall of third-quarter orders.
Quarterly profit dipped 4 percent to $759 million, while
orders slid 5 percent to $9.3 billion.
Fourth-quarter results are scheduled for Feb. 14.
(Additional reporting by Katharina Bart; Editing by Erica