Shaping a leader focused in digital industries

 

Fundamental actions to focus, simplify and lead in digital industries for enhanced customer value and shareholder returns.

At a glance

At a glance

Focus of portfolio on digital industries through divestment of Power Grids
  • Divestment of Power Grids to Hitachi expands existing partnership and strengthens Power Grids as a global infrastructure leader with enhanced access to markets and financing
  • Enterprise Value of $11 billion for 100% of Power Grids, equivalent to an EV/op. EBITA multiple of 11.2x*
  • Crystallizing value from the transformation of Power Grids including doubling operational EBITA margin since 2014*
  • ABB initially to retain 19.9 percent in the equity of carved-out Power Grids to ensure transition; pre-defined exit option on 19.9 percent equity at fair market value with floor price at 90 percent of agreed Enterprise Value, exercisable by ABB three years after closing
  • Closing expected by first half of 2020*
  • ABB intends to return 100% of the estimated net cash proceeds of $7.6-7.8 billion* from the 80.1% sale to shareholders in an expeditious and efficient manner through share buyback or similar mechanism

 

Simplification of business model and structure
  • Discontinuation of legacy matrix structure
  • Businesses will run all customer-facing activities as well as business functions and territories, fostering ABB’s entrepreneurial business culture
  • Businesses to be strengthened by transfer of experienced country management resources
  • Existing country and regional structures including regional Executive Committee roles to be discontinued after closing of the transaction
  • Corporate activities to be focused on Group strategy, portfolio and performance management, capital allocation, core technologies and ABB Ability™ platform
Shape four leading businesses aligned with customer patterns
  • All businesses global #1 or #2 in attractive growth markets:
    • Electrification led by Tarak Mehta
    • Industrial Automation led by Peter Terwiesch
    • Robotics & Discrete Automation, a unique combination of B&R and Robotics, led by Sami Atiya
    • Motion, combining ABB's market-leading offering in motors and drives, led by Morten Wierod, appointed to Executive Committee as of April 1, 2019
  • ABB Ability™ tailored digital solutions will drive customer value in each business whilst capturing synergies through common platform
  • Actions position ABB with a leadership role in digital solutions, and evolving technologies such as artificial intelligence
Financial impact of new ABB
  • $500 million annual run-rate cost reductions across the group
  • Approx. $500 million non-operational restructuring charges

 

New financial framework post-closing defined

  • New group target framework
  • Capital allocation priorities unchanged
  • Dividend policy of rising sustainable dividend per share
  • ABB intends to maintain the level of dividend per share post close
  • ABB intends to maintain its long-term “single A” credit rating
  • Business targets and further financials to be disclosed with strategy update

 

Strategy update on February 28, 2019, in combination with the Q4 and Full Year 2018 results to provide further details on ABB’s new strategy, businesses and financials

Message from the CEO

Message from the CEO

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“ABB has been driving industrial change for more than a century as a global pioneering technology leader. As a result of our Next Level strategy, all of our businesses are today number 1 or 2 in their respective markets. To support our customers in a world of unprecedented technological change and digitalization, we must focus, simplify and shape our business for leadership. Today’s actions will create a new ABB, a leader focused in digital industries.”

“Power Grids will strengthen Hitachi as global leader in energy infrastructure and Hitachi will strengthen Power Grids' position as a global leader in power grids. With this transaction, we are realizing the value we have built through the transformation of Power Grids over the last four years. Our shareholders will directly benefit through the return of the proceeds of the divestment. Building on our existing partnership announced in 2014, the initial joint venture will provide continuity for customers and our global team.”

“To compete in today’s fast-changing world, we fully empower our businesses, through the discontinuation of the legacy matrix structure ensuring zero-distance to customers and increasing our agility in decision-making. Our four newly shaped businesses, each a global leader, will be well aligned to the way our customers operate and focus stronger on emerging technologies such as artificial intelligence. The continued simplification of our business model and structure will be a catalyst for growth and efficiency in our businesses. Our businesses will be further supported through the transfer of experienced resources from today’s country organizations.”

“All of this will only be possible due to the commitment of our global team who has made ABB what it is today. Our innovation power together with our inclusive culture will continue to be a differentiating strength of our company. We will live enhanced customer focus, provide attractive opportunities for our employees and deliver value for shareholders.”
 

Ulrich Spiesshofer
CEO, ABB

The world is changing

The world is changing

ABB has always written the future of industries! Today, the world is changing at unprecedented speed, influencing the future of how we power, produce, work, live and move.

ABB how we power
power

>$4 tn of renewable investments

ABB how we produce
produce

+300% industrial IoT devices installed

ABB how we work
work

+300% robot sales

ABB how we live
live

+1 bn people in cities

ABB World is changing, how we move
move

~30% CAGR for EV sales

Fundamental actions

Fundamental actions

To support our customers in a world of unprecedented technological change and digitalization, we must focus, simplify and shape our business for leadership.

Focus portfolio on digital industries through divestment of Power Grids
Simplify business model and structure
Lead in digital industries
Focus portfolio on digital industries through divestment of Power Grids

ABB announced that Hitachi will acquire ABB’s Power Grids business, an expansion of its existing partnership with Hitachi. The agreed price represents a transaction Enterprise Value of $11 billion for 100 percent of Power Grids, the equivalent to an EV/op. EBITA multiple of 11.2x*, before share of corporate cost. ABB will initially realize a levered consideration of ~$9.1 billion from the sale of 80.1 percent of Power Grids, including pre-sale net leverage (intercompany loan net of cash transferred), before one-time transaction and separation related costs as well as cash tax impacts.

In the fast-changing world of energy infrastructure, with a shifting customer landscape and the need for financing and increased government influence, ABB believes Hitachi is the best owner for Power Grids. As a stable and long-term committed owner, with whom ABB has developed a strong business partnership since 2014, Hitachi will further strengthen the business, providing it with access to new and growing markets as well as financing. Hitachi will accelerate Power Grids to the next stage of its development, building on the solid foundation achieved under ABB’s previous ownership.

ABB Hitachi partnership
Simplify business model and structure

Effective April 1, 2019, ABB will simplify its organizational structure through discontinuation of the legacy matrix structure, thereby empowering its four leading businesses to serve customers even better, while further sharpening responsibilities and increasing efficiency.

ABB's new organization will provide each business with full operational ownership of products, functions, R&D and territories. The businesses will be the single interface to customers, maximizing proximity and speed.

ABB structure before 2014
ABB structure today
ABB structure in the future
Lead in digital industries

ABB will shape four customer-focused, entrepreneurial businesses – Electrification, Industrial Automation, Robotics & Discrete Automation and Motion. Each business will be either the global #1 or #2 player in attractive markets with strong secular drivers. ABB’s established domain know-how, world-class engineering and technology expertise, will position the four businesses well to deliver innovative products and solutions for enhanced customer value. ABB’s addressable market is growing by 3.5-4 percent per annum, adding $140 billion in size to reach $550 billion by 2025.

Based on ABB’s common digital platform ABB Ability™, the businesses will provide tailored digital solutions, driving enhanced customer value. Building on emerging technologies including artificial intelligence and its strong software offering, ABB Ability™ will meet the increasing demand from ABB’s customers for digital solutions in the rapidly changing industrial world.

Quote from the Chairman

Quote from the Chairman

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Peter Voser
Chairman of ABB

"Today's announcement marks the beginning of a new chapter in ABB's history. Building on our technology and global talented employee base we will further strengthen our focus in digital industries, delivering competitive returns for shareholders, including our committed dividend policy. Over the past five years the deliberate execution of ABB's strategy laid the foundation for our businesses to compete in the fast changing digital industries and deliver profitable growth."

"We were very clear in the past that the actions required for the turnaround of Power Grids could be best achieved within ABB. Following completion of this step, we undertook a review of the Power Grids business and decided to secure the best home for the future development of the business through the combination with Hitachi. The new ABB will be positioned to write the future as a customer focused technology leader in digital industries."

The new ABB

The new ABB

The new ABB

Questions & Answers

Questions & Answers

Why is ABB changing and why now?
  • ABB has been driving industrial change for more than a century as a global pioneering technology leader.
  • To support our customers in a world of unprecedented technological change and digitalization, we must focus, simplify and shape our business for leadership.
What will ABB look like after these changes?
  • We are divesting Power Grids to Hitachi, expanding our existing partnership. ABB will initially retain a 19.9 percent equity stake in the joint venture, allowing a seamless transition.
  • ABB will simplify its organizational structure through discontinuation of the legacy matrix structure, thereby empowering its four leading businesses to serve customers even better, while further sharpening responsibilities and increasing efficiency.
  • We will shape four customer-focused, entrepreneurial businesses Electrification, Industrial Automation, Robotics & Discrete Automation and Motion. Each business will be either the global #1 or #2 player in attractive growth markets.
What are the specific benefits of this new structure?
  • We are shaping a leader focused in digital industries, enhancing customer value and shareholder returns.
  • ABB’s new organization will provide each business with full operational ownership of products, functions, R&D and territories. The businesses will be the single interface to customers, maximizing proximity and speed.
  • ABB will demonstrate improved commercial quality of business, enhanced exposure to faster growing markets, with a greater emphasis on high value-add solutions, less large order volatility and more recurrent revenues through digital solutions, software and services.
What is the rationale behind the partnership with Hitachi?
  • In the fast-changing world of energy infrastructure, with a shifting customer landscape and the need for financing and increased government influence, ABB believes Hitachi is the best owner for Power Grids.
  • As a stable and long-term committed owner, with whom ABB has developed a strong business partnership since 2014, Hitachi will further strengthen the business, providing it with access to new and growing markets as well as financing. Hitachi will accelerate Power Grids to the next stage of its development, building on the solid foundation achieved under ABB’s previous ownership.
  • With this transaction, we are realizing the value we have built through the transformation of Power Grids over the last four years.
When will the actions be implemented?
  • The simplification of the organizational structure and the shaping of the four new customer-focused, entrepreneurial businesses will become effective April 1, 2019.
  • The completion of the Power Grids divestment is expected by first half of 2020, subject to regulatory approvals and fulfillment of closing conditions.
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