Greater Focus on Business Execution and Value Creation
ABB, the leading power and automation technology group, today announced its new targets for the period from 2005 to 2009. The company also outlined a strategy that emphasizes improved business execution and a broader approach...
...to value creation, including focus on growth, operating margin, use of capital and cash generation.
"ABB today is in a strong position and we can look forward to sustainable and profitable growth," said Fred Kindle, ABB's President and CEO. "The targets and actions we are announcing today are designed to build on our strength and secure our competitive success over the next five years and beyond."
The new group targets reflect the company's continuing focus on revenue growth and operational profitability as measured by earnings before interest and taxes (EBIT). In addition, the targets include net margin, return on capital employed and cash flow generation.
To support the execution of the strategy, the organization will be adjusted as of January 1, 2006. One layer of management will be removed, with the two core divisions replaced by their respective five business areas. A new function will be introduced at the executive committee level to integrate the regional organization more strongly.
"This is an evolution of our strategy, not a revolution," Kindle said. "We remain focused on our core power and automation businesses. The strategy involves a balanced approach to value creation by widening our focus beyond growth to higher margins, greater return on capital, and cash generation. Above all, the emphasis will be on better execution to deliver results more consistently and reliably."
"Our new targets for net income and cash flow are intended to put more emphasis on our bottom line and our ability to convert profit into cash," said Michel Demaré, Chief Financial Officer. "The group target for return on capital employed will provide a more complete picture of how we use capital resources in the company and become a dynamic management tool to enhance value creation." ROCE will also be used at the divisional level to establish target rates of return for new investments, taking into account each business' EBIT expectation, risk profile, volatility and capital intensity.
New organizational structure
The current two core divisions, Power Technologies and Automation Technologies, will be eliminated, and their respective business areas will become the new divisions as of January 1, 2006: Power Products (formerly the Power Technology Products business area), Power Systems (formerly the Power Technology Systems business area), Automation Products (as at present), Process Automation (as at present), and Robotics (formerly the Manufacturing Automation business area). A new function at the group level, Global Markets and Technology, will help to drive execution of the strategy across national and regional borders.
As of January 1, 2006, the Power Products, Power Systems and Automation Products divisions will be headquartered in Zurich, Switzerland. The Process Automation division will be based in Norwalk, Connecticut in the U.S., while the Robotics division will be based in Shanghai, China.
As a result of the change in divisional structure, the membership of ABB's Executive Committee will change. As of January 1, 2006, the Executive Committee will comprise Fred Kindle (President and CEO), Dinesh Paliwal (President, Global Markets and Technology), Michel Demaré (CFO), Gary Steel (head of Human Resources), as well as new members Bernhard Jucker (head of Power Products), Samir Brikho (head of Power Systems), Tom Sjoekvist (head of Automation Products), Veli-Matti Reinikkala (head of Process Automation), and Anders Jonsson (head of Robotics).
Jucker is currently ABB's country manager and head of the Automation Technologies division in Germany. Brikho is the head of the ABB Lummus Global downstream oil, gas and petrochemicals business and will retain this role in addition to his new responsibilities. Sjoekvist is the head of the Automation Products business area and Reinikkala is head of the Process Automation business area. Jonsson is currently head of the Automation Technologies division in China and is the operational excellence manager for the division worldwide. Brikho and Jonsson will take on the leadership of their respective businesses starting October 1, 2005.
In his new role as President of Global Markets and Technology, Paliwal - currently head of the Automation Technologies division - will focus on tapping the growth and profitability opportunities in key regions and trading areas. His responsibilities will include ensuring ABB expertise and resources are applied across national borders and that existing local support resources are used as efficiently as possible. Paliwal will continue to be country manager in the U.S. and regional manager in North America.
Peter Smits, currently head of the Power Technologies division, will assume the role as country manager in Germany and regional manager of Central Europe.
Impact on financial reporting
The company will report its financial results according to the new divisional structure starting in the first quarter of 2006 (historical divisional data for full years 2003 and 2004 are provided in Appendix I of this press release). Also starting with its 2005 annual financial statements, additional disclosures will be made on the group's balance sheet to allow the calculation of return on capital employed.
ABB is a leader in power and automation technologies that enable utility and industry customers to improve performance while lowering environmental impact. The ABB Group of companies operates in around 100 countries and employs about 103,000 people.
Source: ABB Group