ABB: Our path forward

ABB will host an investor webcast today (June 10) at 14:00 CEST, where CEO Björn Rosengren will present his initial impressions of the group's strategy since joining the company at the beginning of the year, as well as details about his current priorities.

Highlights will include:

- ABB-OS evolves into a new operating model, ABB Way

– Clear focus on a fragmented business model and 18 fully accountable departments

– Prioritize stability and profitability before growth

– Active portfolio management plays a key role

– The combination of COVID-19 and falling oil prices will lead to challenges in the coming quarters

– The Group's medium-term financial targets remain unchanged

– The grid divestiture is expected to be completed by the end of the second quarter of 2020

– ABB expects $500 million in cost savings for ABB-OS

"After my first 100 days as CEO, I can honestly say: ABB has a good foundation. Our technologies and products are fully aligned with key market trends and customer needs, such as the electrification of transportation, automated manufacturing, digital solutions and the improvement of sustainable productivity," says Björn Rosengren. "We will now leverage this strong position to create exceptional value for our customers, employees and shareholders. We will achieve this by evolving our decentralized business model, strengthening our performance management culture, prioritizing stability and profitability over growth, and driving active portfolio management. ”

The company's medium-term financial targets are 3-6% annual comparable revenue growth, operating EBITA margin of 13-16%, cash conversion of approximately 100%, ROCE of 15-20%, and EPS growth faster than revenue growth, staying in place. An update to the strategy, including long-term sustainability targets for 2030, will be available later this year at the Group's Capital Markets Day in November 2020.

Currently, ABB is still facing a challenging quarter due to the COVID-19 global pandemic and falling oil prices. This has led to a decline in demand, such as in the automotive and power generation end markets, while travel restrictions and supply chain constraints have also had an impact on the business. Despite this, the Chinese market continues to recover, while the transportation, food and beverage, and data center sectors remain relatively resilient.

"The health and safety of all our stakeholders remains a top priority during these difficult times, while we are also stepping up our efforts to mitigate the crisis by increasing the number of virtual customer visits, adapting production capacity to demand, and strictly managing cash," 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 grid business to Hitachi is expected to close by the end of the second quarter of 2020, and ABB remains committed to using the net cash proceeds from the transaction for a share repurchase program. Considering the current situation, ABB plans to do so in an efficient and responsible manner. The cash will also be returned to shareholders in the form of a sustainable dividend per share, with ABB aiming to maintain a "single A" credit rating.

Creating superior value through a new operating model, the ABB Way

A key element of ABB's strategy to create superior value is the continued fragmentation of its business model. Over the past 18 months, ABB has successfully terminated its long-standing matrix organization and shifted more responsibility to four business areas: Electrification, Industrial Automation, Motion Control, and Robotics & Discrete Automation.

Going forward, a new operating model called ABB Way will provide a governance framework for processes and policies, connect business areas and divisions with corporate hubs, and unify the group under the ABB brand. ABB Way is evolving from the current ABB-OS, which is expected to deliver target cost savings of $500 million and full uptime benefits in 2021.

Following its successful launch in 2016, the ABB Ability™ digital platform will also be managed by the business area and will no longer be managed in the Enterprise Center. This will allow them to create software solutions more efficiently and quickly. ABB Ability™ has more than 160 digital solutions, such as top-tier software partnerships with Microsoft, Hewlett Packard Enterprises and Ericsson.

To further bring operations closer to customers, ABB will empower 18 divisions within four business areas. The Capital Markets Day in November 2020 will provide more details on the relevant departments as well as updated strategies for the business areas. ABB will continue to report its financial performance based on four business areas.

"We will strengthen our performance management with a new scorecard system based on a very transparent and standardized set of KPIs. Here, I want our management to focus on having a stable structure and profitability before starting to grow," Rosengren said. "The benchmark is that each division ranks first or second in its respective segment."

As part of this new divisional focus, ABB will also further enhance its ongoing portfolio review process to determine whether ABB is ultimately the best owner in terms of strategic attractiveness, value creation potential and structural fit.

"Portfolio management will play an even more important role in the future, and we will not shy away from fixing, exiting or expanding the division," Rosengren said. "At the same time, ABB does not have any major acquisition plans in the medium term."

As part of ABB's approach, corporate functions will focus on financial, strategic and governance activities in the future and will lay off fewer than 1,000 employees globally. At the beginning of 2019, approximately 18,000 employees were still in the company's functions, with most of them gradually moving into the business area.

ABB: Our path forward

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