ABB: Our Way Forward
June 16, 2020
ABB will be hosting an investor webcast at 14:00 CEST today, June 10, at which CEO, Björn Rosengren, will be giving his initial impressions on the Group’s strategy since he joined the company at the beginning of the year, as well as details on his immediate priorities.
Highlights will include:
- – ABB-OS evolves into new operating model ABB Way
- – Clear focus on decentralized business model and 18 fully accountable divisions
- – Prioritization of stability and profitability before growth
- – Active portfolio management to play key role
- – Combination of COVID-19 and oil price drop will lead to challenges over the coming quarters
- – Group mid-term financial targets remain in place
- – Divestment of Power Grids on track to be completed end Q2, 2020
- – ABB on track to deliver $500 million ABB-OS cost savings
“After my first 100 days as CEO, I can truly say: ABB has a good foundation to build on. Our technology and products are well aligned to key market trends and customer needs such as the electrification of transport, automated manufacturing, digital solutions and increased sustainable productivity,” said Björn Rosengren. “We will now leverage this strong position to create superior value for our customers, employees and shareholders. We will do this by evolving our decentralized business model, strengthening our performance management culture, putting stability and profitability before growth, and driving active portfolio management.”
The company’s mid-term financial targets of a 3-6 percent comparable revenue growth per year, an operational EBITA margin of 13-16 percent, ~100 percent cash conversion rate, 15-20 percent ROCE and EPS growing at a faster rate than revenue growth, remain in place. An update on the strategy, including long-term 2030 sustainability targets, will be provided later this year at the Group’s Capital Market Day in November 2020.
Currently, ABB is still facing challenging quarters ahead due to the COVID-19 global pandemic and a drop in the oil price. This has led to a decline in demand, for example, in the automotive and power generation end markets, while travel restrictions and supply chain constraints also have an impact on business. Nevertheless, the Chinese market continues to recover, while the transport, food & beverage and data center sectors remain relatively resilient.
“The health and safety of all our stakeholders remains the key priority in these difficult times, while we are also intensifying our efforts to mitigate the crisis by increasing our number of virtual customer visits, adjusting production capacity to demand and managing cash tightly,” said Rosengren.
At today’s event, CFO Timo Ihamuotila will comment on ABB’s capital allocation priorities, which remain unchanged. The sale of the Power Grids business to Hitachi is expected to be completed at the end of the second quarter of 2020 and ABB remains committed to a share buyback program using net cash proceeds from the transaction. ABB is planning to execute this in an efficient and responsible way, taking account of the prevailing circumstances. Cash will also be returned to shareholders in the form of rising sustainable dividends per share and ABB aims to retain a “single A” credit rating.
Creating superior value through new operating model ABB Way
A key element of ABB’s strategy to create superior value is the ongoing decentralization of the business model. ABB has successfully discontinued its longstanding matrix organization over the last 18 months, with more responsibility shifted to the four business areas of Electrification, Industrial Automation, Motion and Robotics & Discrete Automation.
Going forward, a new operating model called ABB Way will provide a governance framework of processes and policies, connecting the business areas and divisions to the corporate center and uniting the Group under the ABB brand. ABB Way is evolving from the current ABB-OS, which is on track to deliver the targeted $500 million cost savings, with the full run-rate benefit during 2021.
After having been successfully launched in 2016, the ABB Ability™ digital platform will also be managed by the business areas and no longer in the corporate center. This will enable them to create software solutions more efficiently and quickly. ABB Ability™ has more than 160 digital solutions, boasting top-tier software partnerships with Microsoft, Hewlett Packard Enterprises and Ericsson, for example.
In a further step of moving operating activities even closer to the customer, ABB will empower 18 divisions comprised within the four business areas. More details on the divisions, as well as updated strategies for the business areas, will be provided at the Capital Markets Day in November 2020. ABB will continue to report its financial results based on the four business areas.
“We will strengthen our performance management through a new scorecard system based on a very transparent and standardized set of KPIs. Here, I expect our management to focus on having a stable structure and profitability before embarking on growth,” said Rosengren. “The benchmark is for each of the divisions to be number one or two in its respective market segment.”
As part of this new divisional focus, ABB will also further strengthen its ongoing portfolio review process to ascertain whether ultimately ABB is the best owner in terms of strategic attractiveness, value creation potential and structural fit.
“Portfolio management will play an even more important role going forward and we will not shy away from fixing, exiting or growing divisions,” said Rosengren. “At the same time, no major acquisitions are planned by ABB in the mid-term.”
As part of the ABB Way, corporate functions will focus on financial, strategic and governance activities in the future and have a reduced headcount of less than 1,000 employees worldwide. At the beginning of 2019, roughly 18,000 employees were still in corporate functions, the majority of whom were then gradually transferred into the business areas.
