Ever since Ulrich Spiesshofer took the reins at ABB, he has led a transformation of the business model. First were a number of divestitures and management changes. Then some realignment and strategic acquisitions—notably B+R Automation enhancing its factory automation portfolio. Now at year’s end comes news of further divestiture and realignment.
The company took actions across three divisions to shift the center of gravity towards strengthened competitiveness, higher growth segments and lower risk in line with Next Level strategy.
- Power Grids: joint venture agreement for electrical substations infrastructure project business with SNC-Lavalin signed, closing expected 2018
- Industrial Automation: oil & gas EPC activities to be moved into joint venture together with Arkad; closing of transaction now expected by December 31, 2017
- Robotics and Motion: turnkey full train retrofit business to be wound down
- Fourth quarter 2017 results expected to be impacted by approximately $150 million of operational EBITA and additionally $75 million of non-operational pre-tax charges on net income
- Management and ongoing project continuity assured in all cases
Business model realignment details
ABB announced actions across three divisions to complete the business model change for engineering, procurement and construction (EPC) as it ends its transition year 2017. These decisions are fully in line with ABB’s strategy to shift the center of gravity towards strengthened competitiveness, higher growth segments and lower risk.
In the Power Grids division, ABB has signed an agreement to form a joint venture with SNC-Lavalin for electrical substation EPC projects; SNC-Lavalin will have majority and controlling interest. The new entity will leverage ABB’s power technology leadership and SNC-Lavalin project expertise to capture opportunities for profitable growth. These actions complement the ongoing ”Power Up” program; as part of this program, ABB started to shift its focus towards solutions and service-based customer offerings.
In the Industrial Automation division, ABB has previously announced the oil & gas EPC joint venture with Arkad Engineering and Construction Ltd., a fully integrated EPC contractor for the energy sector based in Saudi Arabia; the closing of the transaction is now expected by December 31, 2017.
ABB’s current oil & gas EPC business will be transferred into the new JV company, in which, Arkad will have majority and controlling interest. The new JV company, Arkad-ABB S.p.A., will provide the full range of integrated EPC services for oil & gas plants. It will build on more than 50 years of experience in oil & gas EPC and the successful delivery of more than 300 projects globally.
In the Robotics and Motion division, ABB has decided to wind down its turnkey full train retrofit business, beyond meeting current contractual commitments. Robotics and Motion will continue its strong role as innovation partner for the rail industry.
Comments and Results
“We are taking decisive actions to complete our EPC business model change as we end our transition year. These actions are in line with our strategy to shift our center of gravity towards strengthened competitiveness, higher growth segments and lower risk,” said ABB CFO Timo Ihamuotila “We will book the related charges in Q4 2017 and report the divisions starting in 2018 excluding these legacy businesses.”
The fourth quarter 2017 results of Power Grids and Robotics and Motion are each expected to be impacted by approximately $75 million on operational EBITA. The transfer of the turnkey oil & gas EPC business into the JV with Arkad is expected to result in a non-operational pre-tax charge to net income of approximately $75 million.
ABB will report these businesses as a non-core operating unit within Corporate & Other. This unit is expected to retain and execute parts of the existing legacy backlog until the transition out of these businesses is complete. The new unit will report to ABB’s CFO Timo Ihamuotila effective January 1, 2018. Group and divisional proforma data for 2016 and 2017 year-to-date excluding the transferred activities will be made available December 21, 2017 on our website.