The Zurich giant is “exploring all options” to part with three units. Medium-term financial targets have been adjusted very slightly.
The Zurich electrical engineering giant ABB, undergoing major changes, is continuing its reorganization at a rapid pace. No less than three divisions are in the hot seat and could soon be sold or listed. Medium-term financial targets have been adjusted very slightly.
“The Covid-19 pandemic still weighs on the short-term outlook, but long-term trends in markets like electrification, automation, digitization and energy efficiency remain intact,” said the managing director Björn Rosengren, who took over ABB in March.
#FIG Capital Markets Day 2020 is starting at 11:30 am CET today.
– ABB (@ABBgroupnews) November 19, 2020
ABB, which is holding its investor day this Thursday, is targeting annual sales growth of 3-5% in the medium term, against a range of 3% to 6% so far. The new growth range includes one third of non-organic growth.
Management still expects by 2023 an operating margin (Ebita) of 13-16% and a return on equity (Roce) of 15-20%. The management also still plans to return between 7.6 and 7.8 billion dollars to its shareholders, from the sale of the Power Grids unit to Japanese Hitachi for 9.1 billion. Growth in earnings per share must be greater than that of revenues.
The company is “exploring all options” to part with three units: turbochargers, Turbocharging ($ 800 million in sales in 2019), engines and conveyor equipment, Mechanical Power Transmission ( 575 million) as well as converters and inverters, Power Conversion (375 million). However, the group does not want to put itself “under pressure” to decide the future of these activities, underlined the new boss. These represent around $ 1.75 billion in cumulative revenue or 6% of the group’s total revenue.
These three units could also be listed on the stock exchange, said Björn Rosengren. “Our goal is to find the best solution in terms of value creation for ABB and these divisions,” said the boss, adding that these units generated margins above the group average.
These reorganizations have enabled the group to reach the goal of net savings of $ 500 million one year in advance. And by 2023, ABB expects to reach the top of the Ebita margin range.
Small acquisitions not excluded
At the same time, ABB plans to make five or more acquisitions per year of small to medium-sized companies, added CFO Timo Ihamuotila. “No big surprise for this investor day, but some encouraging developments,” said the specialists of the Cantonal Bank of Zurich (ZKB) in a comment. The achievement of savings targets one year in advance was also welcomed.
While for some people ABB’s approach to financial objectives is “cautious”, it remains “pragmatic” for Berenberg analysts. Coming back to the planned disposals, the specialists underlined the importance in terms of margins of the three divisions under review. “Their sale would push margins down, but would inevitably generate higher liquidity,” they said, adding to expect further sales.
Investors did not seem won over by this news. The ABB stock closed with a fall of 3.04% to 24.54 francs, in an SMI index down 0.69%. Profit-taking is possible, however, with registered shares having risen 7.4% since the start of the year.