ABB Launches Payments Probe, Results Shine
International engineering group ABB said on Thursday it may have violated the U.S. Foreign Corrupt Practices Act bribery law after discovering suspect payments made by some employees abroad and had notified the U.S. authorities.
But the Swiss-based group announced the investigation along with forecast-beating second-quarter results and pre-market share price information indicated the shares were set to open some 2.8% higher.
"The news on the disclosure of suspect payments ... is worth monitoring, but we do not view it as a major issue at this stage," Credit Suisse analysts said in a note.
The company doubled its net income in the quarter to $729 million, beating market forecasts, as the group benefited from strong demand across all units in an all regions.
It said operating profit rose to $1 billion on sales up 27% at $7.143 billion, giving the group a margin on earnings before interest and tax (EBIT) level of 14.4%, up from 11.4% in the same period a year-ago.
ABB, which is profiting from a boom in orders for equipment in the oil and gas industry, said the probe concerned payments made in Asia, South America, Europe and in particular, Italy, which were discovered during an internal audit.
The company said in a note in its results statement the payments may be in violation of the Foreign Corrupt Practices Act or other applicable laws.
"If ABB is found to have violated any of these laws, the company could be liable for penalties and other costs and the violations could otherwise negatively impact its business," it said.
ABB said it was investigating several cases of suspect payments and it was unclear whether they were linked. The group said it had not made any provisions and it was not sure how much money could be involved.
The news comes after shares in Swiss logistics firm Panalpina plummeted as much as 9 percent on Wednesday after it started an inquiry because U.S. authorities requested documents in a bribery probe.
ABB's German rival Siemens is still battling corruption allegations on several fronts as German prosecutors and the U.S. Department of Justice investigate whether former Siemens managers organised bribes of hundreds of millions of euros to win telecoms contracts.
The U.S. Foreign Corrupt Practices Act includes anti-bribery measures that forbid corrupt payments to influence decisions that could help a company to obtain or retain business.
Meanwhile orders at ABB in the second quarter rose 26% to $8.666 billion, as growing demand for power in emerging markets and a drive from customers in industrialised countries to revamp their energy transmission systems has bolstered the group.
"The business environment for ABB during the rest of 2007 is expected to remain in line with the positive market situation seen in 2006 and the first-half of this year," the group said in a statement.
Order growth is seen continuing on a high level but is expected to moderate in the course of 2007, said ABB, which is expected to raise its medium-term earnings goals in September as business booms.
The company has a target of revenue growth above 5 percent and an operating margin above 10 percent for 2005 to 2009.
The average forecast in a Reuters poll of 18 analysts was for net income to rise to $585 million. Sales sales were seen at $6.8 billion and orders were expected to rise to $8.4 billion. (Additional reporting by Oliver Hirt in Zurich)