ABB is consolidating its global transformer business in response to overcapacity, increasing raw material costs and a regional shift in demand.
The consolidation program, aimed at increasing productivity and operational efficiencies, is expected to run until the end of 2008 and cost approximately $240 million. Approximately $120 million will be recorded as a charge to earnings from continuing operations in 2005, most in the second quarter of 2005.
The consolidation will close a small number of plants in high-cost countries and cut about 1,300 jobs in the transformer business, or roughly ten percent of the total global workforce of 13,500 people.
ABB’s transformer business had revenues of approximately $2.5 billion in 2004, representing 26 percent of total Power Technologies division revenues. ABB expects to increase the EBIT margin (earnings before interest and taxes) in the transformers business from less than four percent in 2004 to more than eight percent by 2009.
“Overcapacity has been the biggest problem in the transformer industry in recent years, mainly the result of deregulation in the power sector,” said Fred Kindle, ABB President and CEO. “The situation has been made worse, however, by the unprecedented increase in raw material prices we’ve seen since 2004. As a result, we must take further steps now to improve the profitability of this important business and to strengthen our leading market position.”