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ABB Expects Sustained Growth

Buoyed by fast growth in emerging economies, ABB expects strong revenue growth and increased profitability under its new mid-term strategy for 2007 to 2011.

ABB, the Zurich-based power and automation technology supplier, recently revealed its strategy and outlook for 2007 to 2011. The company said it expects demand for new and upgraded power infrastructure to continue in all regions, and further industrial investments in improved productivity and energy efficiency. The company plans to maintain its current core portfolio of businesses and aims to build on its technology and strong market positions—especially in the fast-growing emerging economies—to increase revenues organically at almost twice the rate of market growth and three times the rate of global gross domestic product (GDP) growth during the period. 

Assuming demand remains favorable, ABB expects profitability (measured as earnings before interest and taxes as a percentage of revenues) to increase by as much as five percentage points during the five-year period, compared to 2006. The improvement will be driven by economies of scale, such as strong factory loading, and further operational improvements. As a result, the company forecasts earnings per share to grow by a compound average of 15 percent to 20 percent per year over the planning period and its return on capital employed, after tax, to exceed 30 percent by 2011. 

Handsome opportunity 

“ABB’s market and technology leadership in highly attractive businesses provides an opportunity to achieve sustainable organic growth and increased profitability,” said Fred Kindle, ABB president and chief executive officer. 

“We will continue our focus on business execution and operational excellence,” Kindle said. “Initiatives to optimize our global footprint will continue to bring both cost and growth benefits. At the same time, we will look for value-creating external growth opportunities. We expect our shareholders as well as our other constituencies to directly benefit from this strategy.”  

“The top of our margin corridor reflects our ambition, assuming our end-markets remain favorable, while the bottom is what we believe we can deliver in a more challenging market environment,” said Michel Demaré, ABB chief financial officer. “Our aim with the new earnings per share (EPS) growth goal is to bring our targets even more in line with the most widely used valuation measures in the investment community.” 

The company said its existing portfolio of power and automation businesses, and its leading presence in high-growth emerging markets, puts it in a strong position to benefit from expected continuing growth in power utility and industrial automation investments over the next five years. These favorable trends will be further enhanced by the accelerating drive for energy efficiency and efforts to combat climate change.

Twice as fast 

From 2007 to 2011, global GDP is expected to grow by an average of about 3 percent a year, while ABB forecasts that its markets will grow at approximately 6 percent a year. The Asian market is expected to grow by more than 50 percent by 2011, with Europe up 24 percent, the Americas 25 percent, and the Middle East and Africa 40 percent higher. 

ABB continues to assess potential acquisitions that fill technology or regional gaps, create strategic and financial value and can be successfully integrated. Taking possible acquisition financing into account, ABB aims for a maximum balance sheet gearing (total debt divided by total debt plus equity, including minority interest) of 40 percent. The company’s growth and profitability targets exclude the effect of major acquisitions. 

ABB also published revenue growth and EBIT (earnings before interest and taxes) margin targets for each of its five divisions. The growth targets range from 6 percent in Robotics to 11 percent in Power Systems. The upper end of the divisional EBIT margin corridors range from 10 percent in Robotics and Power Systems to 19 percent in Automation Products. 

Promising markets 

Investments in technology, and research and development (R&D) will continue to be a pillar of ABB’s strategy. In addition, the company has identified a number of large industrial customer segments, such as rail transportation, wind energy and water, where it has a wide offering of relevant products and services but where it has not yet tapped the full business potential. Revenue from these end markets is expected to grow faster than the group average in the next several years. 

ABB will continue to drive its global footprint initiative aimed at aligning the geographic scope of its engineering, manufacturing and supply to rapidly changing market conditions. The company said it had increased sourcing from emerging economies to more than 30 percent of total sourcing by the end of the first half of 2007 compared to less than 18 percent in 2005, and that low-cost sourcing can increase further. 

Included in ABB’s 2011 strategy are further initiatives to achieve leadership in business ethics, people development and occupational health and safety.


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