Positioned for sustainable growth
Transition delivers streamlined and strengthened portfolio and operations
ABB is delivering its Next Level strategy to unlock value and deliver attractive shareholder returns. 2017 was a transition year, in which ABB streamlined and strengthened its portfolio and operations. ABB continued to shift its center of gravity to a simplified, strengthened, digital and market-leading portfolio. It completed and announced a number of key acquisitions, divested certain businesses and took the actions necessary to implement business model changes. ABB strengthened its operations through the completion of its 1,000-day programs. It continued to focus on operational excellence, delivering supply chain and operational cost savings. A number of key executive committee appointments were made in 2017 while continuing to focus on leadership development and bringing all of ABB under one unified brand. With these transformational actions complete, we believe ABB is positioned for profitable growth.
As part of the drive towards profitable growth, ABB made significant progress in 2017 to streamline and strengthen its portfolio. Base order growth momentum continued each quarter and was higher in all divisions and regions for the full year.
With the launch of ABB Ability™ in March 2017, ABB is making a quantum leap in digital. With more than 210 ABB Ability™ solutions available today, ABB is leveraging its large installed base of connected systems and devices. ABB Ability™ is a solution-led approach based on ABB’s strong portfolio and domain expertise. It has a secure, open-architecture system, ranging from edge to cloud. ABB Ability™ is central to ABB’s strategy to drive growth through expansion of high value-added solutions and services.
Through active portfolio management, ABB has become more streamlined and strengthened. We believe these actions continue to shift ABB’s center of gravity towards strengthened competitiveness, higher growth market segments and lower risk.
ABB strengthened its position as a global leader in industrial automation by completing the acquisition of Bernecker + Rainer Industrie-Elektronik GmbH (B&R) in July 2017. B&R was the largest independent provider of product- and software-based open-architecture solutions for machine and factory automation worldwide. With this acquisition, ABB closed its historic gap in machine and factory automation and created a comprehensive automation portfolio for customers globally.
In September 2017, ABB announced an agreement to acquire General Electric Company’s (General Electric or GE) Industrial Solutions business (GE IS), General Electric’s global electrification solutions business. GE IS operates in more than 100 countries and has an established installed base with strong roots in North America. We believe this purchase strengthens ABB’s position as a global leader in electrification and expands its access to the large North American market. The transaction is expected to close in the first half of 2018.
ABB continued to shape its portfolio with the divestment of its high-voltage cables and cables accessories businesses to NKT Cables, completed in March 2017.
During the fourth quarter, actions were taken across three divisions to complete the business model change for EPC. In the Power Grids division, consistent with ABB’s shift in focus away from non-core EPC activities, ABB signed an agreement to form a joint venture with SNC-Lavalin for electrical substation EPC projects; SNC-Lavalin is expected to have a majority interest. In the Industrial Automation division, ABB completed the formation of an oil & gas EPC joint venture with Arkad Engineering and Construction Ltd., a fully integrated EPC contractor for the energy sector based in Saudi Arabia. In the Robotics and Motion division, ABB announced its exit from the turnkey full train retrofit business, once its current contractual commitments are met. The remaining EPC business activities will be reported within a new non-core operating unit, within Corporate and Other, effective January 1, 2018.
In 2017, ABB continued to drive the streamlining and strengthening of its operations. During the year, additional investments were made to support and advance ABB’s digital expertise and sales force capability. For example, investment was made in Power Grids, under the division’s “Power Up” initiative, that is intended to expedite its transformation and value creation. ABB focused its efforts on high-growth segments, such as electric vehicle charging, robotics and food and beverage.
At the end of 2017, ABB concluded its strategic 1,000-day programs. By the end of 2017, the White Collar Productivity program produced an annual run-rate of approximately $1.4 billion of gross savings. In addition, as part of the Net Working Capital program, improvements freed up approximately $1.5 billion of cash since the end of 2014, of which approximately $600 million was generated during 2017.
ABB has taken the steps necessary to complete its transition to a simpler, leaner and more customer-focused business, while at the same time, linking executive compensation firmly to performance and delivery of strategy.
A focus on leadership development remains key to ensuring ABB’s leadership is fully empowered to meet the ABB’s growth agenda along with the alignment of all activities under the unified and strengthened ABB brand.
Next Level strategy – stage 3
In October 2016, ABB launched stage 3 of its Next Level strategy to unlock additional value for shareholders and customers. Building on the focus areas of profitable growth, relentless execution and business-led collaboration, stage 3 consists of four actions:
Driving growth in four market-leading entrepreneurial divisions
We are driving growth in four market-leading entrepreneurial divisions: Electrification Products, Robotics and Motion, Industrial Automation and Power Grids. The new division structure was effective January 1, 2017.
A quantum leap in digital with ABB Ability™
The ABB Ability™ offering combines our portfolio of digital solutions and services across all customer segments, supporting our position as a leader in the Fourth Industrial Revolution and Energy Revolution, supporting the competitiveness of our four entrepreneurial divisions. With ABB Ability™, we estimate an annual market opportunity of up to $20 billion.
Accelerating momentum in operational excellence
The White Collar Productivity program was completed at the end of 2017. The program achieved an annual run-rate of approximately $1.4 billion in gross savings. We also are continuing our regular cost-savings programs aimed at saving the equivalent of 3–5 percent of cost of sales each year.
We continued to deliver on our Net Working Capital program. Working capital management has improved across all divisions and regions since the program was launched in 2014.
Strengthening ABB’s brand
We are adopting a single corporate brand, consolidating all our brands around the world under one umbrella. Our portfolio of companies is being unified, showcasing the full breadth and depth of our global offering under one master brand. The unified brand plays a key part in realizing the value potential of our digital offering, as we expect it will increase brand loyalty, price premiums and purchase probability.