ABB Repositions Power Systems Division to Drive Higher Returns
Refocus on higher value, lower risk businesses
Higher operational EBITDA margin target in PS reflects new profitability ambitions
Associated costs of approximately $350 million to be taken in Q4 2012
ABB Group 2015 targets remain unchanged
On December 14, 2012, ABB said
that following its strategic review of the Power Systems (PS) division it is
repositioning the business to secure higher and more consistent profitability.
The review, which was communicated following ABB's Q3 results, was triggered by
performance that has been volatile and below management expectations, despite
significant investments made during the past three years. These investments have
included product development, capacity expansions and acquisitions in software
businesses to enhance our product portfolio.
The division is shifting its focus to higher-margin products, systems, services
and software activities. It is closing low value-added EPC (engineering,
procurement and construction) operations in more than 10 countries where project
returns do not reflect the execution risks involved. To implement this new
strategic focus, the division has made key leadership and organizational
changes. It will continue to provide customers with a comprehensive system
offering in projects that have a higher ABB content and the appropriate risk
return profile.
“We’ve made substantial investments recently to increase Power Systems’
potential for value creation,” said Joe Hogan, ABB’s CEO. “However, Power
Systems has not generated consistent returns. This is not acceptable; therefore
we are recalibrating the growth, profitability and cash return ambitions for
this division.”
As a result, ABB has raised the PS division’s 2011-2015 operational EBITDA
margin target corridor to 9-12 percent from the current level of 7-11 percent,
with the division expected to reach the lower end of the new corridor by the
fourth quarter of 2013. At the same time, the organic revenue CAGR target has
been lowered to 7-11 percent from 10-14 percent to reflect reduced low
value-added EPC activities and increased project selectivity. ABB confirms all
other 2015 targets.
These actions are expected to reduce EBIT reported by Power Systems and ABB in
the fourth quarter.