ZURICH (Reuters) - ABB will reshape its engineering, procurement and construction (EPC) business - including its biggest but least profitable power grids division - by spinning off and winding down some operations, triggering fourth-quarter charges totalling $225 million.
Chief Executive Ulrich Spiesshofer called the move ABB’s final step in a year of transition that would lead into a 2018 when it would benefit from a strengthening economy.
“We will always run the business in a way that we are responsibly managing capacity in line with market development,” he told reporters on a call, but noted economic conditions were likely to be brighter next year than in 2017.
Last month, ABB said it would revamp its global power grids operations as it responds to the division’s sluggish profitability and falling orders.
The move came as ABB sought to justify its decision last year to reject calls from Cevian Capital, its second-largest shareholder, to spin off power grids, which has suffered a 9 percent drop in orders in 2017.
In the Power Grids division, which also makes electrical substations, ABB will form a joint venture with SNC-Lavalin for electrical substation EPC projects, the Swiss technology group said on Wednesday.
Canadian-based SNC-Lavalin will have the controlling interest in the venture, it said.
In the Industrial Automation division, ABB’s oil & gas EPC business will be transferred into a previously announced joint venture controlled by Saudi-based Arkad Engineering and Construction Ltd in a deal now expected to close this month.
In the Robotics and Motion division, ABB is winding down its turnkey full train retrofit business.
“The fourth quarter 2017 results of Power Grids and Robotics and Motion are each expected to be impacted by approximately $75 million on operational EBITA. The transfer of the turnkey oil & gas EPC business into the JV with Arkad is expected to result in a non-operational pre-tax charge to net income of approximately $75 million,” the company said.
Spiesshofer said he did not expect negative impact on jobs.
ABB is trying to shift its focus to higher-margin services.
Its four divisions cover electrification products, robotics, industrial automation and power grids. Power grids accounted for around 30 percent of 2016 sales, electrification products 28 percent, robotics 23 percent and industrial automation 19 percent.
ABB shares fell 0.4 percent in early trading, while the Stoxx European industry sector index was little changed.
“We believe that the indicated completion of the (EPC) business model change will be supportive for sales growth rates as well as profitability,” Baader Helvea analyst Guenter Hollfelder, who rates the stock “hold”, said in a note.
ABB will report these businesses as a non-core operating unit which will manage its backlog of existing business. The new unit will report to finance chief Timo Ihamuotila from the start of next year.
Reporting by Michael Shields; Editing by Biju Dwarakanath and Keith Weir