ABB announces growth plans and financial targets

ABB plans to shift its ‘centre of gravity’ towards higher growth segments while enhancing competitiveness and lowering risk, particularly in its Power Systems division. 

“Our Next Level strategy will focus on actions centred on accelerating ABB’s organic growth momentum, margin accretion, as well as enhanced capital efficiency to deliver greater shareholder value,” said ABB CEO Ulrich Spiesshofer while announcing the Next Level strategy and financial targets.

The company aims to build on three focus areas of profitable growth, relentless execution and business-led collaboration. It will continue to build on its power and automation portfolio, which will be managed in its business units under the leadership of the five divisions. As of January 2015, the regional structure will be streamlined to three regions responsible for customer collaboration, shared services and related countries.

The market for power and automation in the utilities, industry, transport and infrastructure sectors exceeds $600 billion a year and is expected to grow faster than GDP from 2015 to 2020, adding roughly $150 billion of incremental market opportunities, according to ABB. Key drivers are the big shift in the electricity value chain and industrial productivity improvements, as well as rapid urbanisation and the need for energy efficiency in public transport. The company plans to grow ahead of the market by driving its PIE (penetration, innovation and expansion) initiatives on penetration of existing, and expansion into, additional high-growth market segments. Continued strong investments into research and development of at least $1.5 billion annually will create innovations for customer value, addressing the big shift in the electricity value chain and the opportunities of the fourth industrial revolution.

ABB expects about three quarters of its future incremental revenues to come from industry, as well as transport and infrastructure, with a significant emphasis on its strong service offering, supporting the strategic shift in the centre of gravity of ABB’s regions and end markets. Over the strategic period, the company will shift its centre of gravity towards strengthened competitiveness, higher organic growth momentum and lower risk. 

High-growth segments and PIE

Examples for high-growth opportunities include: in utilities, the strong emergence of microgrids and the transformation towards a digital grid; in process industries such as oil and gas and mining, the design of facilities of the future; and in transport and infrastructure, the rapid growth of data-centre electrification and public transport.

ABB will build on its success in increasing customer satisfaction to realise the benefits of these opportunities. Together with a strong focus on organic growth, the company will contribute to the shift in its centre of gravity with targeted risk mitigation of the identified business and portfolio risk profile. It will achieve this by changing business models, improving planning and execution in operations and strengthening the existing alignment between performance and compensation. This will result in lower volatility, as well as higher predictability and profitability.

The company aims to complement its organic growth by incremental acquisitions in line with the new strategy. In addition, targeted partnerships with complementary partners that offer a good cultural fit for increased customer value will play a larger role in driving growth in the future. The first joint breakthroughs in this area include the cooperation with the leading Chinese technology group BYD on energy storage and electric mobility, as well as with Philips on building automation.

Revenues

The company expects to grow operational earnings per share (EPS) 10-15% CAGR and deliver attractive cash returns on investment (CROI) in the mid-teens over the period 2015-2020. It targets to grow revenues on a like-for-like basis, averaging 4-7% a year faster than forecast GDP and market growth. ABB plans to steadily increase over the same time-period its profitability, now measured in operational EBITA within a bandwidth of 11-16%, while targeting an average conversion of the annual free cash flow above 90%. The new financial targets take effect on 1 January 2015.