ABB Strategy 2005-2009
Power and productivity
for a better world
© ABB Group - 1 7-Sep-05
September 2005
© ABB Group - 2
7-Sep-05
Safe harbor statement
This presentation includes forward-looking information and statements including
statements concerning the outlook, and revenue and margin targets for our businesses.
These statements are based on current expectations, estimates and projections about
the factors that may affect our future performance, including global economic
conditions, the economic conditions of the regions and industries that are major markets
for ABB Ltd and ABB Ltd’s lines of business. These expectations, estimates and
projections are generally identifiable by statements containing words such as “expects,”
“believes,” “estimates,” “targets,” “plans” or similar expressions. However, there are
many risks and uncertainties, many of which are beyond our control, that could cause
our actual results to differ materially from the forward-looking information and
statements made in this press release. The important factors that could cause such
differences include, among others, ABB’s ability to dispose of certain of our non-core
businesses on terms and conditions acceptable to it, the terms and conditions on which
asbestos claims can be resolved, trends in raw materials prices, market acceptance of
new products and services, changes in governmental regulations and costs associated
with compliance activities, interest rates, fluctuations in currency exchange rates and
such other factors as may be discussed from time to time in ABB’s filings with the U.S.
Securities and Exchange Commission, including its Annual Reports on Form 20-F.
Although ABB Ltd believes that its expectations reflected in any such forward-looking
statement are based upon reasonable assumptions, it can give no assurance that those
expectations will be achieved.
© ABB Group - 3
7-Sep-05
Agenda
„
Introduction
„
ABB strategy 2005-2009
„
Strategic priorities in historical context
„
ABB mission and vision
„
Divisional strategies
„
Regional opportunities
„
Acquisition priorities
„
Organization and management
„
Financial targets
„
Summary
Summer 2005 – Market perceptions
Positive developments
ƒ Core business evolving
© ABB Group - 4
7-Sep-05
ƒ
ƒ
favorably
Asbestos resolution in progress
First positive net income since
2000 expected
Issues
ƒ History of being overly
ƒ
ƒ
optimistic
Recent changes in market
guidance
Impact of special charges on
earnings
1. Resolve business issues
Reduce volatility
2. Adjust communication policy
Increase transparency
3. Deliver on promises
Improve reliability
© ABB Group - 5
7-Sep-05
Agenda
„
Introduction
„
ABB strategy 2005-2009
„
Strategic priorities in historical context
„
ABB mission and vision
„
Divisional strategies
„
Regional opportunities
„
Acquisition priorities
„
Organization and management
„
Financial targets
„
Summary
Putting the future into historical context
*
10%
Revenues in $ million
8%
6%
20,000
4%
10,000
2%
0
0%
© ABB Group - 6
7-Sep-05
1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004
Source: 1988-1993 and 1998-1999 as per respective annual reports; 1994-1997 as per 1997 annual report; 2000 to 2004 as per
the 2004 Form 20-F filing with the U.S. Securities and Exchange Commission.
* 1999 EBIT includes major gains from divestitures
EBIT margin (% revenues)
30,000
Putting the future into historical context
Stage 1: Post-merger acquisition drive
Massive expansion through acquisitions (e.g., Combustion Engineering,
Westinghouse T&D)
„ Extreme decentralization (5’000 profit centers, “matrix”)
„ EBIT margin stagnant below 5%
„
*
10%
Revenues in $ million
8%
6%
20,000
4%
10,000
2%
0
0%
© ABB Group - 7
7-Sep-05
1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004
1
Post-merger
acquisition drive
Source: 1988-1993 and 1998-1999 as per respective annual reports; 1994-1997 as per 1997 annual report; 2000 to 2004 as per
the 2004 Form 20-F filing with the U.S. Securities and Exchange Commission.
* 1999 EBIT includes major gains from divestitures
EBIT margin (% revenues)
30,000
Putting the future into historical context
Stage 2: New Economy-related portfolio transactions
Large scale JVs and divestitures (e.g., ADtranz, ABB Alstom Power)
„ ABB follows New Economy theme
„ EBIT very volatile, includes significant divestiture gains, underlying performance
10%
deteriorates
„
*
Revenues in $ million
8%
6%
20,000
4%
10,000
2%
0
0%
© ABB Group - 8
7-Sep-05
1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004
2
New Economy-related
portfolio transactions
Source: 1988-1993 and 1998-1999 as per respective annual reports; 1994-1997 as per 1997 annual report; 2000 to 2004 as per
the 2004 Form 20-F filing with the U.S. Securities and Exchange Commission.
* 1999 EBIT includes major gains from divestitures
EBIT margin (% revenues)
30,000
Putting the future into historical context
Stage 3: Crisis years and turn-around
„ Volume,
EBIT and cash flow plummet at same time
„ Asbestos and share buy-back further aggravate the situation
„ Turn-around initiated and swiftly executed (balance sheet, portfolio, cost
structure and corporate governance)
*
10%
Revenues in $ million
8%
6%
20,000
4%
10,000
2%
0
0%
© ABB Group - 9
7-Sep-05
1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004
3
Crisis Years /
Turnaround
Source: 1988-1993 and 1998-1999 as per respective annual reports; 1994-1997 as per 1997 annual report; 2000 to 2004 as per
the 2004 Form 20-F filing with the U.S. Securities and Exchange Commission.
* 1999 EBIT includes major gains from divestitures
EBIT margin (% revenues)
30,000
Lessons learned – Strategy 2009
Lessons learned
„
„
„
„
„
ABB strategy and organization
can’t be modeled on the ’90s
Operating profitability at core of
ABB’s portfolio and business
strategy
Growth momentum important,
but margin comes first
Solid foundation built in last
three years
Performance going in the right
direction
Strategy 2009
„
Build on ABB’s power and automation core
„
Drive culture of operational excellence and
execution
„
Maintain growth momentum with solid
margins
„
Further strengthen worldwide market
presence and global culture – “At home
everywhere”
„
Continued technology innovation for utility
and industry customers
Grid reliability and availability of power
„ Industrial productivity
„ Energy savings and environmental benefits
© ABB Group - 10
7-Sep-05
„
Evolution – not revolution
Shifting focus in value creation
Value
Creation
Growth
Operating
Margin
© ABB Group - 11
7-Sep-05
Focus 1990s:
Capital
Efficiency
Credibility/
Consistency
Focus 2005-2009:
„
Superior growth through acquisitions
„
Drive operating margin, consistent EPS growth
„
Operating profit propped up by nonoperational items
„
Maintain organic growth momentum
„
Improve capital efficiency via operating
measures
„
Very high debt leverage to drive ROE
„
Extreme decentralization as corporate „ Disciplined acquisitions approach
architecture
„ Focus corporate architecture on execution
© ABB Group - 12
7-Sep-05
Agenda
„
Introduction
„
ABB strategy 2005-2009
„
Strategic priorities in historical context
„
ABB mission and vision
„
Divisional strategies
„
Regional opportunities
„
Acquisition priorities
„
Organization and management
„
Financial targets
„
Summary
ABB: A focused engineering company
Interlinked businesses
Process
Automation
Similar success factors
Cost leadership
Power
Systems
„
Exploiting economies of scale
„
Taking advantage of low-cost
opportunities
Technology
Automation
Products
Power
Products
„
Innovation deeply ingrained in ABB DNA
„
$900 mill. per year in R&D*
Customer positioning
Mfg.
Automation
„
Global reach, at home everywhere
(geographically and culturally)
„
Service and solutions offering to
complement products
„
Group Account Management
© ABB Group - 13
7-Sep-05
Customer-sharing and pull-through
Technology- and cost-sharing
* Combined 2004 R&D and order-related development investments in the AT and PT divisions
ABB’s Mission
As one of the world’s leading engineering
companies, we help our customers to use electrical
power effectively and to increase industrial
productivity in a sustainable way.
© ABB Group - 14
7-Sep-05
Power and productivity for a better world
ABB Vision
© ABB Group - 15
7-Sep-05
ABB delivers attractive profitable growth by providing leading power and
automation technologies to customers throughout the world. We help them
improve their performance and productivity, save energy and lower
environmental impact.
ABB’s technology competence, broad application know-how and global
presence offer customers easy access to leading electrical engineering and
industry automation solutions. Innovation and quality are key characteristics
of our service and product offering. We build on long-lasting, value-creating
partnerships with customers and suppliers.
As one of the world’s most global and dynamic companies, ABB is unique in
its multicultural environment and attitude. We are committed to attracting
and retaining dedicated and skilled people and offering employees an
attractive working environment and excellent development opportunities.
By 2009, ABB will be recognized as the top global engineering
company in terms of market impact, growth and profitability, value
creation, sustainability and ethical behavior.
© ABB Group - 16
7-Sep-05
Agenda
„
Introduction
„
ABB strategy 2005-2009
„
Strategic priorities in historical context
„
ABB mission and vision
„
Divisional strategies
„
Regional opportunities
„
Acquisition priorities
„
Organization and management
„
Financial targets
„
Summary
ABB’s business portfolio
ABB
Sales: $20.7 bn
Employees: 103’000
Power Technology
Products
Power Technology
Systems
Automation
Products
Process
Automation
Manufacturing
Automation
Sales*: $6.0 bn
Employees: 27,500
Sales*: $3.7 bn
Employees: 13,000
Sales*: $5.4 bn
Employees: 28,500
Sales*: $4.7 bn
Employees: 20,500
Sales*: $1.4 bn
Employees: 6,000
„ High- and
medium-voltage
switchgear,
breakers,
transformers, etc.
„ Mainly for utilities
and industrial
plants
„ HVDC and HVDC
light, FACTS,
power plant and
network
automation,
substations, etc.
„ Mostly for utilities
and industrial
plants
„ Low-voltage
products and
systems, drives,
motors, power
electronics, etc.
„ Mainly a product
business ”shipping
one million
products a day”
„ Wide variety of
© ABB Group - 17
7-Sep-05
customers
* 2004 numbers include internal sales to other divisions
„ Automation
solutions for the
process industries
(DCS, SCADA,
controllers)
„ Oil & gas,
chemicals,
pharmaceuticals,
pulp & paper,
metals, minerals,
marine, etc.
„ Robots, robotic
systems and
services
„ Mainly for the
automotive
industry, but also
for other
segments
ABB’s business portfolio
New names
effective Jan 1, 2006
ABB
Sales: $20.7 bn
Employees: 103’000
PowerTechnology
Products
Power
Products
PowerTechnology
Systems
Power
Systems
Automation
Products
Process
Automation
Robotics
Manufacturing
Automation
Sales*: $6.0 bn
Employees: 27,500
Sales*: $3.7 bn
Employees: 13,000
Sales*: $5.4 bn
Employees: 28,500
Sales*: $4.7 bn
Employees: 20,500
Sales*: $1.4 bn
Employees: 6,000
„ High- and
medium-voltage
switchgear,
breakers,
transformers, etc.
„ Mainly for utilities
and industrial
plants
„ HVDC and HVDC
light, FACTS,
power plant and
network
automation,
substations, etc.
„ Mostly for utilities
and industrial
plants
„ Low-voltage
products and
systems, drives,
motors, power
electronics, etc.
„ Mainly a product
business ”shipping
one million
products a day”
„ Wide variety of
© ABB Group - 18
7-Sep-05
customers
* 2004 numbers include internal sales to other divisions
„ Automation
solutions for the
process industries
(DCS, SCADA,
controllers)
„ Oil & gas,
chemicals,
pharmaceuticals,
pulp & paper,
metals, minerals,
marine, etc.
„ Robots, robotic
systems and
services
„ Mainly for the
automotive
industry, but also
for other
segments
Power Products overview
„
„
„
Market position 2004
Key products: High- and mediumvoltage products, power and distribution
transformers, product service
1
2
3
High-voltage
products
ABB
Siemens
Areva
Medium-voltage
products
ABB
Schneider
Siemens
Transformers
ABB
Siemens
Areva
Business line
Key applications: Switching, protecting,
transforming, measuring, and
automating in power transmission &
distribution, industrial electrification,
power generation systems
Source: ABB, Goulden Reports, ABS, Bear Stearns
2004: $6.0 bn revenues, 8.3% EBIT
margin, 27,500 employees
Re-sellers
6%
ABB
systems
15%
OEM
11%
EPC
11%
World market: $29 bn
Avg. market growth (03-06): 3-4%
Industry
9%
© ABB Group - 19
7-Sep-05
Channels to market*
* Expressed as percentage of total 2004 Power Products revenues
Utilities
48%
Power Products position
Business characteristics
„
“Make-to-order” business, mass-customization to
individual customer requirements
Market outlook/drivers
Further enlargement, reinforcement of grids in
emerging markets
„ Service and replacement demand in N. America,
Europe
„
© ABB Group - 20
7-Sep-05
ABB’s competitive advantages
„
Economies of scale: Double the size of #2, global
production base, short total cycle times
„
Technology leadership: Complete well-tuned portfolio,
high innovation rate
„
Leading market coverage: Global reach, #1 position in
key markets, competitive SG&A cost
„
Top-of-mind brand: Uncontested leadership, high brand
premium
Power Products strategy
Main strategic actions
„
„
„
„
„
Fix transformer business
Continue cost migration
Streamline product portfolio (for
mass customization)
Update high-voltage product
platform
Strengthen indirect channels to
market
Summary
„
© ABB Group - 21
7-Sep-05
„
Targets
Revenue growth
„
„
2004: $6.0 bn.
CAGR 2005-09: >6%
EBIT margin
>11%
8.3%
2004
2009
Build on No. 1 position to increase share and margins in growth
markets
Focus on margin improvement and organic growth in transformers,
accelerated growth (organic and acquisitions) in high- and mediumvoltage
Power Systems overview
„
„
„
Key products: Grid systems (HVDC,
HVDC Light®, FACTS, etc.), network
management systems, electrical and
control systems for power plants,
substation automation products,
systems and complete turnkey
substations, services
Key applications: Transmitting and
distributing power, management and
control of electrical networks and
power plants, optimizing power
generation and flow
2004: $3.7 bn revenues, 3.2% EBIT
margin, 13,000 employees
Market position 2004
1
2
3
Grid systems
ABB
Siemens
Areva
Substations
ABB
Siemens
Areva
Network
management
ABB
Siemens
Areva
Power generation
ABB
Siemens
Areva
Business line
Source: ABB, Goulden, ABS, ARC, Bear Stearns
Industrial
10%
EPC
11%
© ABB Group - 22
7-Sep-05
World market: $23 bn
Avg. market growth 03-06: ~4%
Utilities
79%
Channels to market*
* Expressed as percentage of total 2004 Power Systems revenues
Power Systems position
Business characteristics
„
System integration and service business that builds on
proprietary ABB technology, adds value to ABB products,
provides total solutions to clients
Market outlook/drivers
GDP growth in emerging markets
„ Increasing demand in North America, Europe and Middle
East
„
Competitive advantages
Technology leadership: High-end technologies in emerging
fields (e.g., HVDC Light®, FACTS, power plant optimization),
superior methodologies in mature areas (e.g., modularized
substations, refurbishment solutions)
„ Superior market coverage: Global reach and high credibility
through unmatched solution capabilities, project
management record. Customers choose only top suppliers
for large, sophisticated solutions
„ Economies of scope: Integration capabilities from engineered
packages to full turn-key systems and services
© ABB Group - 23
7-Sep-05
„
Power Systems strategy
Main strategic actions
„
„
„
„
Focus on higher margin projects,
strengthen project execution
Leverage installed base for service
Further process and system
standardization
Push new applications and
products
Summary
„
© ABB Group - 24
7-Sep-05
„
Targets
Revenue growth
„
„
2004: $3.7 bn
CAGR 2005-09: >5%
EBIT margin
>6%
3.2%
2004
2009
Use strong position to focus on higher margin opportunities
Focus on margin improvement and organic growth
Automation Products overview
„
„
„
Key products: Low-voltage products
and systems, drives, power
electronics, motors, machines,
instrumentation, product service
Market position1 2004
Key applications: Power distribution,
protection and control, energy
conversion, data acquisition and
processing, actuation
2004: $5.4 bn revenues, 12.4% EBIT
margin, 28,500 employees
1
2
3
Drives and power
electronics
ABB
Siemens
Mitsubishi
Low-voltage
systems2
ABB
Siemens
Schneider
Motors and
machines
ABB
Siemens
Baldor
Industrial lowvoltage products
Schneider
Siemens
ABB
Installation
material2
Schneider
Legrand
ABB
Rosemount
Yokogawa
ABB
Business line
Instrumentation
1
ABB estimates
2
IEC standard
ABB
Systems
8%
© ABB Group - 25
7-Sep-05
Resellers
20%
World market: ca. $60 bn
Avg. market growth (03-06): 3-4 %
OEM
40%
Channels to market*
* Expressed as percentage of total 2004 Automation Products revenues
Endusers
20%
EPC
12%
Automation Products position
Business characteristics
„
Mainly standardized products business shipping over
1 million items a day
Market outlook/drivers
Industrial growth, electricity consumption, degree of
automation, construction investments
„ General GDP development
„
Competitive advantages
Technology leadership: Continuous pipeline of advanced
demand-driven technology is key to maintaining functionality
and cost leadership
„ Price/value: Economies of scale, smart design and global
sourcing lead to attractive offering
„ Global reach: Market penetration and above-average growth
secured by global scope, large direct sales force, and premium
channel partners
„ Excellence: ABB automation products recognized for quality
and reliability based on operational excellence in production,
fast distribution and short response times
© ABB Group - 26
7-Sep-05
„
Automation Products strategy
Main strategic actions
„
„
„
„
Exploit opportunities in regional
growth, e.g., China and India, and
application areas, e.g., rail, water,
power generation (incl. wind)
Continue with cost migration and
operational excellence
Keep technology leadership, push
“smart” design of standardized
products (functionality and cost)
Tap service opportunities
Targets
Revenue growth
„
„
2004: $5.4 bn
CAGR 2005-09: >5%
EBIT margin
12.4%
2004
Summary
„
© ABB Group - 27
7-Sep-05
„
Drive growth and sustain high profitability
Focus on accelerated growth (organic and acquisitions)
>14%
2009
Process Automation overview
„
„
„
Key products: Integrated process
control and information management
systems (SCADA, DCS), industryspecific applications, component
controls, instrumentation, services
Key applications: Control, automation
and optimization for pulp & paper,
minerals, metals, chemicals, pharma,
oil & gas, marine
Market Position 2004
Business line
Pulp & paper
Marine
Oil & gas
Turbocharging
Minerals
Metals
Chemicals
1
2
3
ABB
ABB
ABB
ABB
ABB
Honeywell
METSO
Alstom
Siemens
Honeywell
Emerson
MAN
MET
Rockwell
Siemens
Siemens
ABB
ABB
ABB
Via
Honeywell
Pharmaceuticals
Invensys
Yokogawa
Honeywell
Source: ABB, ARC Advisory Group 2001, 2002; Clarkson Research, Diesel and Gas
Turbine & Motorship magazine
2004: $4.7 bn revenues, 6.0% EBIT
margin, 20,500 employees
Others
31%
Oil &
gas
23%
© ABB Group - 28
7-Sep-05
Metals &
minerals
17%
Marine
9%
World market: $21 bn (PAS & DCS)
Avg. market growth (03-06): 3-4 %
Chemical
pharma
9%
End markets*
* Expressed as percentage of total 2004 Process Automation revenues
Pulp &
paper
11%
Process Automation position
Business characteristics
„
Based on leading hardware and software technology
combined with industry and application know-how
Market outlook/drivers
„
Systems demand growth primarily in Asia, Middle East,
eastern Europe
„
Services to drive growth in North America, western Europe
© ABB Group - 29
7-Sep-05
Competitive advantages
„
Technology leadership: System 800xA control platform offers
state-of-the-art functionality, allows integration of existing
control systems into an up-to-date architecture, reduces
development costs for product variants
„
Economies of scope: Broad industrial and geographic
presence, industry expertise for tailor-made solutions in many
sectors
„
Captive service business: Largest installed base at more than
$20 bn, more than 250 long-term service contracts
Process Automation strategy
Main strategic actions
„
„
„
„
„
„
Further Improve risk management and project
execution in systems business
Fully exploit state-of-the-art 800xA technology
platform
Tap installed base to increase service revenues
Expand full-service contracts, esp. in Americas
Utilize low-cost engineering and global sourcing
in systems business
Widen product offering in control and analytical
products
Targets
Revenue growth
„
„
2004: $4.7 bn
CAGR 2005-09: >5%
EBIT margin
>9%
6.0%
2004
2009
Division to be based in Norwalk, CT, USA
Summary
© ABB Group - 30
7-Sep-05
„
„
Reap benefits from System 800xA, lift margins with technology and
installed base advantages
Focus on selective profitable growth (primarily organic with opportunistic
acquisitions)
Robotics overview
„
„
„
Key products: Robots (4-6 axis),
robotic systems, service
Key applications: Material handling,
picking, packing, palletizing, welding,
painting, gluing, sealing, and
assembling in various industries
2004: $1.4 bn revenues, 5.9% EBIT
margin, 6,000 employees
World market: $10 bn
Avg. market growth (03-06): 5-6 %
Food
beverage
5%
Other
14%
© ABB Group - 31
7-Sep-05
1
2
3
Foundry
ABB
Fanuc
Kuka
Painting
ABB
Yaskawa
Fanuc
Plastics
Fanuc
ABB
Kuka
Yaskawa
ABB
Fanuc
Fanuc
ABB
Kuka
Business line
(Products)
Metal fabrication
Packaging
Auto
parts
36%
Auto
OEMs
23%
End markets*
* Expressed as percentage of total 2004 Robotics revenues
ABB
Body-in-white
Kuka/Fanuc
Business line
(Systems)
1
2
ABB
Kuka,
Fanuc,
Comau
Durr
ABB
Fanuc
Powertrain
assembly
Krause
ABB
Comau
Body-in-white
Comau
Kuka
ABB
Process
automation
Plastic
9%
Foundry
13%
Market position 2004
Paint process
automation
Source: ABB, McKinsey, IFR, Company Reports
3
Robotics position
Business characteristics
„
Product and system integration business with attractive
service revenues from installed base of robots
Market outlook/drivers
„
Ca. 80% of revenues automotive-related (no. of new models)
„
Increased use of robots for more flexible production and
improved process quality
© ABB Group - 32
7-Sep-05
Competitive advantages
„
Leading market position: Market consolidation supports
ABB’s leading position – world’s largest installed base of
industrial robots (125,000 units)
„
Technology leadership: Best-in-class robot controller
products, leading paint robots
„
Service: Largest service network for robotics in the world
„
Economies of scope: Integration capabilities from engineered
packages to full turn-key systems, and services – limited
vertical integration enhances flexibility and ROCE
Robotics strategy
Main strategic actions
„
„
„
„
Simplify product portfolio and
implement product re-design to cost
Accelerate cost migration
Take advantage of global
opportunities and trends, e.g., in
China
Expand further into non-automotive
sectors
Division to be based in Shanghai, China
Targets
Revenue growth
„
„
2004: $1.4 bn
CAGR 2005-09: >4%
EBIT margin
>9%
5.9%
2004
2009
Summary
„
© ABB Group - 33
7-Sep-05
„
Lift margins through operational excellence and cost focus
Focus on selective growth (primarily organic with opportunistic
acquisitions)
Non-core portfolio
ABB Lummus Global
Successful turnaround
„ Strong positions in growth markets, e.g., China, Russia,
Middle East, eastern Europe
„ Premium international and local customer base
„
„
2004 revenues of $1.1 bn, EBIT loss of $4 mill.
Building Systems
„
Germany business near break-even after significant
restructuring
„
2004 revenues of $508 mill., EBIT loss of $70 mill.
Equity Ventures
Investments mainly in power infrastructure projects
„ Provides steady earnings stream
„ 2004 revenues of $7 mill., EBIT of $69 mill.
© ABB Group - 34
7-Sep-05
„
ing
o
g
na
o
d
si s
a ge
n
a
a
b
M
ern
conc
or
f
e
r
a
Prep titure
dives
olio
f
t
r
o
ic p
t
s
i
n
rtu
o
p
-up
p
n
O
a
e
l
c
© ABB Group - 35
7-Sep-05
Agenda
„
Introduction
„
ABB strategy 2005-2009
„
Strategic priorities in historical context
„
ABB mission and vision
„
Divisional strategies
„
Regional opportunities
„
Acquisition priorities
„
Organization and management
„
Financial targets
„
Summary
ABB regional opportunities
Pole position 2005
„
ABB present in ~100 countries
„
„
„
„
Technologies and project delivery
Strong brand and customer loyalty
„
© ABB Group - 36
7-Sep-05
Strong installed base and
manufacturing footprint
Proven track record in all regions
„
„
Optimize functional and operating
cost across regions
„
Improve global sourcing
„
Capture growth opportunities for
full-portfolio ABB offering
„
Drive account management,
simplify customer interfaces
„
Tap local service opportunities,
supported by global products
At home with customers anywhere
Long history in all major markets
„
Further opportunities
Premium products at premium prices
Optimizing global reach with regional synergy
Northern
Europe
Sweden
Region
Regional hub
Southern
Europe
North
America
North
Asia
Central
Europe
China
Germany
Italy
USA
Middle East
and Africa
South
Asia
India
UAE
South
America
© ABB Group - 37
7-Sep-05
Brazil
Eight regions with “borderless” ABB teams
Europe
Demand drivers
„
52%* of world
sales
Gradual but encouraging economic
recovery
„
EU expansion and energy trading
„
Established countries under pressure for productivity
and efficiency gains
„
Power constraints leading slowly to new investments
„
Strong GDP growth in Central and Eastern Europe
countries
ABB’s position
„
Huge installed base = service opportunity
„
Strong manufacturing base, gaining efficiency
Planned increase in interconnections
(as % installed generation capacity)
20
16
12
8
4
0
1950
1960
1970
1980
1990
2000
EU 2010 target for cross-border
interconnection is 20% of grid capacity
(today’s avg only 7%)
„ Renewable energy build-up demands
additional grid capacity
„
Excellent brand and customer recognition
„ Skilled resources and relationships across Northern, Central and Southern Europe
© ABB Group - 38
7-Sep-05
„
Build on our historical strengths and huge installed base
* Based on 2004 revenues
2010
Source: EU Directorate General for Energy & Transport, 2000
North America
Demand drivers
„
14%* of world
sales
Largest world market, with
largest ABB opportunity
New US Energy Bill will
accelerate delayed power sector
investments
„ Manufacturers under pressure to compete
with new productivity and energy efficiency
„
Manufacturing
Offices
ABB North America footprint
© ABB Group - 39
7-Sep-05
ABB’s position
„
Largest installed base of automation
products and systems
„
Two-thirds of the region’s electric power
delivered with help from ABB technologies
„
ABB has reversed top and bottom line
decline and grown 4x GDP
Aiming to match Europe in market penetration
* Based on 2004 revenues
South America
Demand drivers
„
~ $2 trillion GDP and 500 million people
„
Financial and economic stability returning,
GDP growth above 5% in key countries
„
Need for grid expansion and interconnection
to make better use of hydro resources
„
Increasing pressure to improve international
competitiveness via higher industrial
productivity and efficiency
3%* of world
sales
© ABB Group - 40
7-Sep-05
ABB’s position
„
Long history, strong presence in the region
„
Important element in global sourcing
initiatives
„
More than 5,000 employees with more than
10 key manufacturing plants
Build on strong local brand to support infrastructure growth
* Based on 2004 revenues
Middle East and Africa
Demand drivers
„
Oil & gas investments driving high demand for
power and automation
„
Higher value-added chemical products
„
High-end residential areas with advanced
building automation and power systems
„
New Gulf Grid, connecting Kuwait, Saudi Arabia,
Bahrain, UAE, Oman in tender phase
„
Countries moving to balance GDP beyond oil
10%* of world
sales
© ABB Group - 41
7-Sep-05
ABB’s position
„
ABB has proven project reputation and local
resources who understand the local cultures
„
Well-established working relationships with
major global energy and EPC players
Market nearly as large as China . . . and growing
* Based on 2004 revenues
India and South Asia
8%* of world
sales
Demand drivers
„
„
India GDP growth 7%, industrial growth 7-7.5%
„
Steel production doubling to 75 million tpy
„
Aluminum capacity expansion to 400,000 tpy
„
Construction/housing expected to grow ~20%
„
Strong demand in pharmaceuticals, textiles,
automotive to support rapid lifestyle growth
FARIDABAD
DELHI
VADODARA
100,000 MW greater power capacity by 2012
MUMBAI
„
$200 bn investment for national power grid
„
Electrification of 25 million new households next 5 years
BANGALORE
ABB’s position
© ABB Group - 42
7-Sep-05
KOLKATA
NASHIK
CHENNAI
„
More than 40 manufacturing plants in South Asia
„
More than 30% year-over-year growth during last 4 years in India
„
Recent local expansion in low-voltage products, transformers, high-voltage machines,
frequency converters, control product components, engineering footprint
ABB India footprint
Strong ABB footprint in place to support new growth
* Based on 2004 revenues
China and North Asia
Demand drivers
„
9 -10% GDP growth expected to continue
„
10%+ annual growth in power consumption,
China planning world’s 1st “super grid”
„
Rapid growth in transportation and building
infrastructure
„
Low industrial, environmental, and energy
efficiency
ABB’s position
© ABB Group - 43
7-Sep-05
„
ABB has grown >30% year-over-year in
China since 2000
„ 144 new power plants (2x capacity) by 2020
„ Olympic Games 2008, World Expo 2010
„
More than 30 manufacturing plants, 8,000+
skilled employees in China
„
Respected track record for implementation with local and global
customers
13%* of world
sales
Continuing immediate and long-term opportunities
* Based on 2004 revenues
Catalyst: Group Account Management
ABB’s position
„
30 global accounts with executive sponsors
„
Strategic selection of customers for crossABB portfolio opportunities
© ABB Group - 44
7-Sep-05
Program benefits
„
Early identification of project opportunities, trends and market drivers
„
Raises visibility of cross-business opportunities, higher value-added offering
„
Key customer stake in ABB technology development, lifecycle support and
industry-specific solutions
Group account order growth in first 6 months of 2005 up 15%
compared to year-earlier period, versus 8% for Group
Catalyst: Worldclass ABB technology
ABB’s position
„
Almost $1 bn in research, product- and orderrelated development annually
„
More than 6,000 researchers and developers
across 9 global R&D centers
Research partnerships with leading universities
More than 18,000 active patents worldwide
„
„
© ABB Group - 45
7-Sep-05
Leading differentiators
„
Wide area power management
Preventing future blackouts
„
High-Voltage Direct Current
Flexible and reliable power transmission
and interconnections
„
System 800xA
Unified platform for process automation
„
Automation products portfolio
Best-in-class building blocks
A global technology leader in power and automation
ABB is well positioned for profitable growth
„
Market growth opportunities go beyond GDP
„
High structural need for energy and industry infrastructure
„
© ABB Group - 46
7-Sep-05
„
New power, industrial plants and efficiency in emerging countries
Strong upgrade and service opportunities in OECD markets
„
Group Account Management for strategic global customers
„
Respected technology offering, supported by customer needs
„
Strong ABB footprint and balance across all key regions
„
Regional business approach proven in North America
© ABB Group - 47
7-Sep-05
Agenda
„
Introduction
„
ABB strategy 2005-2009
„
Strategic priorities in historical context
„
ABB mission and vision
„
Divisional strategies
„
Regional opportunities
„
Acquisition priorities
„
Organization and management
„
Financial targets
„
Summary
Growth and margin ambitions
>6%
Margin improvement ambitions
*
Power
Products
(Transformers)
Power
Systems
Process
Robotics Automation
Power
Products
(HV, MV)
Automation
Products
0%
© ABB Group - 48
7-Sep-05
Focus
Organic growth only,
possibly some further
focusing
* versus 2004 performance
Selective Growth
Accelerated Growth
Primarily organic growth, Organic growth and
acquisitions
with opportunistic
acquisitions
A disciplined approach to acquisitions
Strategy
„
Target must fit portfolio and business strategy
„
Opportunistic targets only after thorough examination
Operations
„
Sufficient internal capacity to integrate target (operations, culture)
„
Business plan, including synergies, to be “pressure tested”
„
Better to pay high for well-run company than low for turnaround
candidate
© ABB Group - 49
7-Sep-05
Financials
„
Return on total investment must meet target rate of return, NPV criteria
„
ROCE target returns must be achieved by Year 3
„
Accretion/dilution relevant but not decisive
Acquisition guidelines 2005 - 2009
Re-establish
investment grade
rating
Assumptions
„
Assumptions
Net income > $1 bn
Focus on execution
and margin
improvement
2005
2006
2007
2008
„
Steady-state operations
with sound profit, cash flow
„
Healthy balance sheet
2009
© ABB Group - 50
7-Sep-05
Acquisitions
< $100 mn:
likely
$100-300 mn:
possible
$300-700 mn:
only if “very
convincing”
>$700 mn:
unlikely
Any size considered
within ABB’s strategic
criteria and financing
capability
Possible portfolio
expansion into new,
but related areas
© ABB Group - 51
7-Sep-05
Agenda
„
Introduction
„
ABB strategy 2005-2009
„
Strategic priorities in historical context
„
ABB mission and vision
„
Divisional strategies
„
Regional opportunities
„
Acquisition priorities
„
Organization and management
„
Financial targets
„
Summary
ABB’s current organization
CEO
Corporate Center
CFO
HR
Power
Technologies
Division
© ABB Group - 52
7-Sep-05
Power
Technology
Products
Power
Technology
Systems
Automation
Technologies
Division
Automation
Products
Process
Automation
Manufacturing
Automation
Organization 2006: Driving execution
„
„
© ABB Group - 53
7-Sep-05
„
Simplify organization by removing one layer
„
Current divisions serve mainly as “span breakers”
„
Current Business Areas are true business lines
„
Action: Dissolve PT and AT divisions, former business areas as the
new divisions
Better integrate geographic units into execution framework
„
New head of Global Markets and Technology (GMT) to manage
geographic units through regional sub-structure
„
GMT to act as “extended arm of CEO”
Use opportunities to further cut cost
„
Divisional staff integrated and partly reduced
„
Geographic structure to consolidate support functions
„
Potential for further cost savings and efficiency gains
ABB’s current organization
CEO
Corporate Center
CFO
HR
Power
Technologies
Division
© ABB Group - 54
7-Sep-05
Power
Technology
Products
Power
Technology
Systems
Automation
Technologies
Division
Automation
Products
Process
Automation
Manufacturing
Automation
ABB’s organizational structure 2006
CEO
Corporate Center
CFO
HR
Global
Markets &
Technology
© ABB Group - 55
7-Sep-05
Geographic P&L
Power
Products
Power
Systems
Five divisions, each with P&L
Automation
Products
Process
Automation
Robotics
ABB Executive Committee 2006
CEO
Corporate Center
CFO
CFO
Global Markets
& Technology
© ABB Group - 56
7-Sep-05
Geographic P&L
Power
Products
Power
Systems
Automation
Products
Five divisions, each with P&L
HR
Automation
Technologies
Division
Process
Automation
Fred Kindle (46, CH/FL)
President and Chief Executive Officer
Dinesh Paliwal (47, IN/US)
President, Global Markets & Technology
Michel Demaré (49, BE)
Chief Financial Officer
Gary Steel (52, UK)
Head of Human Resources
Bernhard Jucker (51, CH)
Head of Power Products division
Samir Brikho (47, LE/SE)
Head of Power Systems division*
Tom Sjoekvist (57, SE)
Head of Automation Products division
Veli-Matti Reinikkala (48, FI)
Head of Process Automation division
Anders Jonsson (55, SE)
Head of Robotics division
* Retains his current responsibilities as head of ABB Lummus Global
Robotics
© ABB Group - 57
7-Sep-05
Agenda
„
Introduction
„
ABB strategy 2005-2009
„
Strategic priorities in historical context
„
ABB mission and vision
„
Divisional strategies
„
Regional opportunities
„
Acquisition priorities
„
Organization and management
„
Financial targets
„
Summary
Rationale behind the 2002-05 targets
Strategy: ABB turnaround
„
Simplify organization
„
Re-focus on core activities
„
Regain financial flexibility
2002-05 targets:
„
Simple
„
Focused on key
indicators
© ABB Group - 58
7-Sep-05
„
Aimed at exposing
ABB’s underlying
potential
Revenue
growth
Gross debt
EBIT margins
Rationale behind the 2005-09 targets
Strategy: Drive execution, strengthen financial foundation
„
Continued focus on growing our core activities
„
Consistent growth of bottom line
„
Additional emphasis on balance sheet and cash flow generation
2005-09 targets:
„
„
Broaden management
focus beyond growth and
EBIT
Confidence in execution
with upside potential
Revenue
growth
EBIT margin
Capital
efficiency
(ROCE)
Cash flow
generation
© ABB Group - 59
7-Sep-05
Net margin
„
Plan used to identify potential debt capacity for future strategic moves
Growth target 2005-2009
Revenue
growth
Revenue growth (CAGR)
exceed 5%
EBIT margin
Underlying assumptions
„
„
„
Ca 3.5% p.a. in N. America
Ca. 2% p.a. in W. Europe
High single-digit in China, India and E.
Europe
Inflation remains at low levels
Constant exchange rates
© ABB Group - 60
7-Sep-05
Excluding major acquisitions and
divestitures
Cash flow
generation
Net margin
Macroeconomic environment
GDP growth
Capital
efficiency
(ROCE)
ABB-specific
„
„
„
„
„
Growth in product businesses linked
to global GDP growth
Growth in systems businesses linked
to current backlog, geographical
assumptions, selectivity in tenders
Growth in power divisions positively
linked to non-GDP growth factors
(e.g., regional power link-ups)
Focus on organic growth, no large
acquisitions or capital expenditures
Non-core activities restricted to valueadding businesses only
Group EBIT and net margin targets 2009
Revenue
growth
EBIT margin to exceed 10%
„
Remains a key measure of operating
performance
„
Provides continuity with the turnaround phase
„
Aims at average annual increase of
1 percentage point (2004 EBIT margin = 5.2%)
EBIT margin
Capital
efficiency
(ROCE)
Cash flow
generation
Net margin
© ABB Group - 61
7-Sep-05
Net margin to exceed 5%
„
Progressively focus stakeholders on bottomline results
„
Convertible debt outstanding makes
earnings per share (EPS) measurement
difficult
Revenue
growth
EBIT margin
Capital
efficiency
(ROCE)
Net margin
Cash flow
generation
Cash flow target 2009
Revenue
growth
Free cash flow / Net income
at 100%
EBIT margin
© ABB Group - 62
7-Sep-05
„
1
Focus on cash generation and speed
of conversion
Capital
efficiency
(ROCE)
Cash flow
generation
Net margin
„
Link to bottom-line profitability
„
Careful management of working capital during growth phases
„
Free cash flow (FCF)1 = cash available for dividends, debt repayment and
M&A transactions
FCF = Net cash provided by operating activities (CFO), adjusted for changes in financing receivables and net
investments in property, plant and equipment
Return on capital employed (ROCE) target 2009
Revenue
growth
ROCE in the mid-teens
Rationale
„
„
„
„
„
„
© ABB Group - 63
7-Sep-05
„
ABB has returned to profitable growth but
is still not creating enough value (ABB’s
2004 ROCE = 8.7%)
EBIT margin
Capital
efficiency
(ROCE)
Cash flow
generation
Net margin
EBIT margin insufficient measure of value
creation, especially in systems business
ROCE indicates overall effectiveness of resource use
Composite indicator of margin and asset turnover
Forces accountability for each item on the balance sheet
After-tax to allow comparison with weighted average cost of capital (WACC)
Each division with a target rate of return on new investments (based on
capital intensity, risk, volatility)
Divisional target rates of return on new investments
„
© ABB Group - 64
7-Sep-05
„
The ROCE approach is intended to increase value creation through better
focus on the balance sheet
„
Reduce low return assets (Non-core, real estate, etc.)
„
Drive incremental value creation on new investments in core businesses
Target rates of return on new investments help achieve this objective
„
Combine EBIT expectation, capital intensity and risk into one return target
„
Better reflect true economic return for project businesses
„
Allow differentiated return expectations on new investments
„
Power Products, Automation Products
(higher margins, stable, low risk,
high intensity)
10-12%
„
Power Systems, Process Automation
(lower margins, volatile, higher risk,
low intensity)
15-20%
„
Robotics
(mix of both)
12-15%
ROCE calculation and balance sheet disclosure
ROCE
(after tax)
EBIT (less tax)1
=
Fixed assets + Net working capital
Assets
Cash and marketable securities
Net Receivables
Inventory
Pre-paid expenses and other
Other current assets*
Financing assets
Liabilities and equity
Net
working
capital
Short-term borrowings
Provisions
Accrued expenses/Deferred
income*
Advances from customers*
PP&E, net
Goodwill
Other intangible assets, net
Pre-paid employee benefits
Investments *
© ABB Group - 65
7-Sep-05
Other non-current assets *
Fixed
assets
* New disclosure
1 EBIT (less tax) = EBIT x (1 – tax rate)
Accounts payable trade
Other accounts payable
Long-term debt
Pension and other benefits
Deferred taxes
Stockholders’ equity and
minority interests
© ABB Group - 66
7-Sep-05
Other financial considerations
„
Investment grade status
„
Balance sheet structure
„
Tax rate
„
Corporate costs
„
Non-core result
„
Capital expenditure
„
Dividend policy
© ABB Group - 67
7-Sep-05
Reporting implications
„
Five divisions will be segments according to US GAAP
„
Reporting in line with new structure to start January 1, 2006
„
Balance sheet disclosure more detailed to allow Group ROCE
calculation
„
2005 quarterly details to be provided with full-year 2005 results
„
Consolidation of intra-division revenues at Group level will
increase with number of divisions (will exceed $3 bn)
Overview of Group targets 2009
Criteria
Revenue growth1
EBIT margin
Net margin
ROCE2
© ABB Group - 68
7-Sep-05
Free cash flow (FCF)
1
2
Target
> 5%
> 10%
> 5%
Mid-teens
100%
Compound average growth rate (CAGR) 2005-2009 at constant exchange rates and excluding major acquisitions and divestitures
Return on capital employed (after tax)
Overview of division 2009 targets
Revenue
growth
© ABB Group - 69
7-Sep-05
Power Products
Power Systems
Automation Products
Process Automation
Robotics
1
> 6%
> 5%
> 5%
> 5%
> 4%
1
EBIT margin
2009
EBIT
margin
2004
> 11%
> 6%
> 14%
> 9%
> 9%
8.3%
3.2%
12.4%
6.0%
5.9%
Compound average growth rate (CAGR) 2005-2009 at constant exchange rates and excluding major acquisitions and divestitures
Guidance 2005 remains as communicated on June 30
PT EBIT* margin
6.8 – 7.3%
AT EBIT margin
10.7%
Non-core operating profit
Corporate costs
© ABB Group - 70
7-Sep-05
Group EBIT margin
* Earnings before interest and taxes
zero
$450 mill. or less
6.6 – 7.1%
© ABB Group - 71
7-Sep-05
Agenda
„
Introduction
„
ABB strategy 2005-2009
„
Strategic priorities in historical context
„
ABB mission and vision
„
Divisional strategies
„
Regional opportunities
„
Acquisition priorities
„
Organization and management
„
Financial targets
„
Summary
Key points I
„
© ABB Group - 72
7-Sep-05
„
Strategy evolution
„
More balanced approach to value creation (mainly organic growth,
higher margins through better execution, improved capital efficiency)
„
Future strategy represents evolution, not revolution
ABB is a focused engineering company with attractive prospects
„
Clear mission/vision: “Power and productivity for a better world”
„
Interlinked, mutually-benefiting businesses
„
Each business with attractive opportunities for profitable growth and the
necessary position to exploit them
„
Clear divisional strategies, ambitious but realistic
„
Geographic opportunities abound, ABB set to capture them
„
Disciplined approach to acquisitions
Key points II
„
„
More focused ABB organization to execute strategy
„
Simplified by eliminating one layer
„
Tighter integration of country management (GMT)
„
Strong, experienced, diverse team in Executive Committee
Financial and group targets 2009: Ambitious and realistic
Criteria
Revenue growth1
EBIT margin
Net margin
© ABB Group - 73
7-Sep-05
ROCE2
Free cash flow (FCF)
1
Target
> 5%
> 10%
> 5%
Mid-teens
100%
Compound average growth rate (CAGR) 2005-2009 at constant exchange rates and excluding major acquisitions and
divestitures
2 Return on capital employed (after tax)
© ABB Group - 74
7-Sep-05
Power and productivity for
a better world
Target definitions
Revenue growth CAGR
Compound annual growth rate for the 5 years from
2005 to 2009, excl. major acquisitions and
divestitures and assuming constant exchange rates
EBIT margin
Earnings before interest and taxes as a percentage
of revenues
Net margin
Cash flow
Net income as a percentage of revenues
Return on capital
employed
EBIT (less tax), divided by the sum of fixed assets
plus net working capital*
Free cash flow (cash flow from operating activities
adjusted for changes in financing receivables and
net investments in property, plant and equipment)
as a percentage of net income
© ABB Group - 76
7-Sep-05
EBIT (less tax) = EBIT x (1 – tax rate)
Tax rate = Provision for taxes / Income from continuing operations
before taxes and minority interest
* Additional disclosures will be made on the group’s balance sheet to allow the calculation of return on capital
employed, starting with the full-year 2005 financial statements.