ABB presented its Next Level strategy and financial targets for the 2015-2020 period aimed at accelerating sustainable value creation. The strategy is building on ABB’s three focus areas of profitable growth, relentless execution and business-led collaboration. In the next period, the company will drive profitable growth by shifting its center of gravity toward high-growth end markets, enhancing competitiveness and lowering risk in business models.
The company expects to grow operational earnings per share (EPS) 10-15 percent 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 on average 4-7 percent per year, faster than forecasted 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 percent while targeting an average conversion of the annual free cash flow above 90 percent. The new financial targets take effect on Jan. 1, 2015.
“Our Next Level strategy will focus on actions centered on accelerating ABB’s organic growth momentum, margin accretion as well as enhanced capital efficiency to deliver greater shareholder value,” ABB CEO Ulrich Spiesshofer said. “We are shifting our center of gravity towards higher growth segments while enhancing competitiveness and lowering risk particularly in our Power Systems division. We are increasing the customer focus of our organization by streamlining it for greater agility and speed. We will drive change with focused 1,000 day programs to ensure a successful implementation.”
ABB will continue to build on its leading power and automation portfolio, which will be managed in its business units under the leadership of the five divisions. As of January 2015, its regional structure will be streamlined to three regions responsible for customer collaboration, shared services and the related countries. “These moves will improve customer focus as well as productivity, result in clear responsibility and accountability and drive market oriented collaboration,” said Spiesshofer.
In line with its Next Level strategy, the company is aligning its Executive Committee (EC) structure. Peter Terwiesch, currently head of ABB in Central Europe and Germany, has been appointed EC member responsible for the Process Automation division. The three newly created regions will be led by experienced EC members – Frank Duggan (Asia, Middle East and Africa), Greg Scheu (Americas) and Veli-Matti Reinikkala (Europe). All changes are effective Jan. 1, 2015.
David Constable, the CEO of Sasol, has been nominated to the Board of Directors for election at the 2015 Annual General Meeting. He brings a wealth of experience to the Board in EPC businesses and process industries as well as strong links to Africa, an important growth region for ABB.
“Our share buyback program announced today allows shareholders to directly benefit from the continued solid cash generation of our businesses as well as our recent pruning of non-core businesses, and is a strong sign of our commitment to continuously delivering attractive shareholder returns,“ Spiesshofer said. “In addition, it is a strong vote of confidence in the future growth potential of ABB.”
Shareholders will participate in ABB’s strong cash generation through a share buyback program of up to $4 billion expected to commence on Sept. 16, 2014. The company intends to allocate approximately three-quarters of the buyback program to a reduction of share capital and the remainder to support its employee share programs globally with a total of more than 22,000 participants.
Next Level strategy
ABB’s Next Level strategy is based on the company’s three strategic focus areas of profitable growth, relentless execution and business-led collaboration.
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