ABB ABB Ltd

By Brian Blackstone 

ZURICH-- ABB Ltd. said lax controls played a part in the fraud and embezzlement at its South Korean unit, costing the Swiss company an estimated $73 million in lost pretax profit--or some $30 million less than first signaled.

ABB "failed to provide adequate management oversight and review of the local treasury activities," the Swiss power-equipment and automated-technology company said Monday

"Management has concluded that these deficiencies in the operation of ABB's internal controls constituted a material weakness," the company said in its annual report.

ABB said the fraud would knock last year's pretax profit $73 million lower, down from the company's previous estimate of a $100 million financial hit, on expected payouts from its insurance policies.

Last month, ABB said it had uncovered a "sophisticated criminal scheme" orchestrated by the treasurer of its South Korean unit, who went missing.

The company suspects that the treasurer forged documents and colluded with third parties to steal from it, before disappearing on Feb. 7.

The treasurer was identified last month by a person familiar with the matter as Oh Myung-se. Mr. Oh couldn't be reached for comment.

ABB uncovered the theft on Feb. 9 and subsequently delayed publication of its latest annual report. The investigation, which involves both internal and external parties, "is progressing well," ABB said.

"ABB failed to safeguard physical access to the signature seals of the subsidiary in South Korea and prevent the company from being bound to unauthorized financial contracts, resulting in undetected financial obligations," the company said Monday.

"We have started implementing disciplinary consequences and will continue to do so as appropriate," the company said. An ABB spokesman said the company has suspended parts of the finance organization in South Korea.

A police officer at the Cheonan Seobuk Police Station declined to comment. ABB Korea's plants are in Cheonan, which is south of Seoul.

The alleged theft marked a setback for ABB after it had announced a string of large orders in its power-grid unit, including a $640 million project to deliver an electricity-transmission link in India. ABB had come under pressure from some investors last year to sell the unit.

Reflecting its confidence in that segment of its business, ABB on Monday upgraded its earnings target margin for power grids by 2 percentage points to between 10% and 14%, effective 2018.

In its 2016 report released Monday, ABB pegged the funds misappropriated by the South Korean unit's treasurer at $103 million in cash.

Also Monday, ABB said its orders fell about $3 billion last year to $33.4 billion. Net income was largely unchanged at $1.9 billion.

The company's share price fell 0.1% in late European trading on Monday.

In-Soo Nam in Seoul contributed to this article.

Write to Brian Blackstone at brian.blackstone@wsj.com

(END) Dow Jones Newswires

March 13, 2017 13:18 ET (17:18 GMT)

ABB (NYSE:ABB)
Historical Stock Chart
From Mar 2024 to Apr 2024

ABB (NYSE:ABB)
Historical Stock Chart
From Apr 2023 to Apr 2024