January 23, 2018 / 10:45 AM / a month ago

ABB is leaving the repair shop after transitional year - CEO

ZURICH (Reuters) - Swiss engineering group ABB (ABBN.S) aims to take advantage of improving market conditions and its own transformation into a simpler company this year after navigating a “transitional” 2017, Chief Executive Ulrich Spiesshofer told Reuters.

The company, which makes products ranging from industrial robots to power grids, has fought off an activist investor who wanted to break it up as well as a sustained downturn in markets like mining and oil and gas.

It has responded by cutting costs, simplifying its structure, and ditching fringe businesses. Profitability declined slightly in the first nine months of 2017 while sales rose 2 percent, and its stock reached a nine-year high.

“The last couple of years ABB was in the repair shop and now we are coming out. With political stability and digitalisation we have positive conditions and a better platform to participate in the upturn,” Spiesshofer said in an interview at the company’s Zurich headquarters.

QUESTION: How do you see 2018 after describing 2017 as a transitional year for ABB.

ULRICH SPIESSHOFER: We’ve carried out a fundamental transformation of ABB. We are looking into 2018 where the overall economic growth and the technological readiness are great starting conditions. If you add to that political certainty, it has the potential to become a good year.

The massive contraction we have experienced in previous years in key markets like oil and gas and mining has plateaued and the signals are pointing towards a better future.

2018 will be another record year of investments on renewables, where additional markets are starting to invest very strongly. On the industrial side industrial automation digitalisation is becoming more and more a reality.

Q: After a sustained period of falling large orders, do you expect a pick up this year?

A: 2018 is the year where the political environment should become hopefully more stable, and governments and infrastructure investments are coming in and we should have the first discussions on the process industry again on larger projects.

They may not lead fully to large orders in 2018, but may lead to large orders in 2019 and 2020; overall the base orders momentum is improving.

Q: The United States is ABB’s biggest market. What kind of effect do you expect from the tax reform there and will it lead to more investment in industry?

A: The industry dynamics are looking quite positive. First of all the U.S. economy itself is growing. The reshoring of value-added production will also help.

So U.S. industry will have more jobs but the jobs will have higher automation and robotics support than ever before. I think the tax reform has a positive kicker around the sentiment.

    Q: In terms of operational profit margin, the group is on the lower end of the company’s 11-16 percent target range, and lags rivals like Emerson (EMR.N) and Schneider (SCHN.PA). How are you going to improve margins?

     A: We are not yet fully there, but if you look at the last couple of years, we were investing massively in the transformation which is one-off costs.

        Now going forward when the growth kicks in and the markets develop our investment should pay off.

    In Power Grids, we have clearly said that for the full year 2018 we will enter the 10 to 14 percent margin corridor. That is unchanged. And in the following years our ambition is to further improve the margins.

    Q: General Electric (GE.N) has indicated it looking closely at breaking itself up, while some ABB investors like Cevian have said the company is too large and complex to manage as a conglomerate. Is ABB too diverse and big to make the most of market opportunities?

    A: ABB is really leading in terms of portfolio simplification. We are not a conglomerate, we are a business focused on two things: bringing electricity to industrial and other customers while automating industry. This is a pretty simple portfolio to describe and to manage.

    A representative of Cevian is on the board and he has publicly said he supports our strategy.

    Q: Do you still think you can get to the 35 Swiss francs per share price that Cevian said could be achieved by a break-up of ABB?

    A: If you look at 2017 our share price has evolved well, rising more than 20 percent. I‘m not giving a timeframe on when we can get to 35 Swiss francs. But if everything comes together the ambition is not unrealistic.

    Editing by Michael Shields

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