ABB accelerates transformation Stage 2 of Next Level Strategy
Intends to drive $1 billion in white-collar cost savings, free up $2 billion in cash
September 09, 2015. By Moulin
ABB has announced that it has launched the second stage of its Next Level strategy with a divisional realignment aimed at driving organic growth by delivering more customer value in a better, more focused way from its combined power & automation offering. The company intends to drive $1 billion in white-collar cost savings, free up $2 billion in cash and become more active in value-creating acquisitions.
"We are now accelerating to Stage 2 of our Next Level strategy," said CEO Ulrich Spiesshofer. "The actions we are announcing today will deliver additional value in a more focused way to customers through our unique power & automation offering. At the same time, we will become leaner, faster and more agile. This will drive the shift of our center of gravity towards higher growth, greater competitiveness and lower risk. With these actions, we address the rapidly changing market conditions and face the increased uncertainty in the world.
"We returned ABB to top-line and operational EPS growth1 in Stage 1 of the Next Level strategy," Spiesshofer said. "We turned around Power Systems, simplified the organization and built a framework to drive a new performance culture. With that foundation, we are ready for Stage 2."
Effective January 1, 2016, ABB will operate in a streamlined set-up of four divisions. The new Power Grids division will focus on the changing needs of utility customers with ABB's complete power & automation offering for transmission and distribution delivered from a single source—"power & automation for the grid. ABB's leading offering to industry and transport & infrastructure—"power & automation for the site"—will be provided by three divisions. The new Electrification Products division will combine ABB's leading low- and medium-voltage businesses. The Discrete Automation and Motion and Process Automation divisions will be further aligned, addressing customer needs and operational efficiency. As a result, ABB's new divisional structure will be streamlined from 5 divisions to 4.
"Our new Power Grids division will be number one globally in supplying power & automation solutions for power grid customers, serving transmission and distribution utilities in the future as a single business," Spiesshofer said. "We have initiated a strategic portfolio review of the Power Grids division to determine the best way to enhance its long-term success and create value for our customers and shareholders.
"The new Electrification Products division will provide our customers with one of the broadest low-voltage and medium-voltage offerings, driving value from our growing network of channel partners around the world," he said.
ABB will accelerate the implementation of its previously-announced 1,000-day programs to drive white-collar productivity and working capital management. The company expects to deliver approximately $1 billion in structural cost savings by the end of 2017, in addition to the ongoing program aimed at reducing costs by the equivalent of 3-5 percent of cost of sales every year. Improved working capital management is expected to free up at least $2 billion in cash by the end of 2017 for investment in high-return capital expenditure, research and development, disciplined acquisitions and shareholder returns.
The company is continuing its current two-year, $4-billion share buyback program.
Peter Voser, chairman of ABB's Board of Directors, said "the Board is pleased with ABB's progress addressing operational performance, business complexity and the performance culture within the Next Level strategy. In Stage 2, we are focused on strategically transforming the business, delivering strong financial results and unlocking the value for shareholders."
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