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Transcript of ABB
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ABB Strategy 2005-2009Power and productivity for a better world
September 2005
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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.
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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
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Putting the future into historical context
0
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1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004
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* 1999 profit contains major gains from divestitures
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.
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Putting the future into historical context
Post-mergeracquisition drive
1
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%
* 1999 profit contains major gains from divestitures
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.
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0
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Putting the future into historical context
New Economy-related portfolio transactions
2
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
deteriorates
* 1999 profit contains major gains from divestitures
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.
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Putting the future into historical context
Crisis Years /Turnaround
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)
3
* 1999 profit contains major gains from divestitures
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.
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Lessons learned – Strategy 2009
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
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
Evolution – not revolution
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Shifting focus in value creation
ValueCreation
Operating Margin
Capital Efficiency
Credibility/Consistency
Growth
ValueCreation
Operating Margin
Capital Efficiency
Growth
Focus 1990s: Superior growth through acquisitions Operating profit propped up by non-
operational items Very high debt leverage to drive ROE Extreme decentralization as corporate
architecture
Focus 2005-2009: Drive operating margin, consistent EPS growth Maintain organic growth momentum Improve capital efficiency via operating
measures Disciplined acquisitions approach Focus corporate architecture on execution
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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
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ABB: A focused engineering company
Customer-sharing and pull-through
Technology- and cost-sharing
PowerProducts
PowerSystems
ProcessAutomation
Mfg.Automation
AutomationProducts
Interlinked businesses
Cost leadership Exploiting economies of scale Taking advantage of low-cost
opportunities
Technology Innovation deeply ingrained in ABB
DNA $900 mill. per year in R&D*
Customer positioning Global reach, at home everywhere
(geographically and culturally) Service and solutions offering to
complement products Group Account Management
Similar success factors
* Combined 2004 R&D and order-related development investments in the AT and PT divisions
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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.
Power and productivity for a better world
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ABB Vision
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.
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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
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ABB’s business portfolio
* 2004 numbers include internal sales to other divisions
ABBSales: $20.7 bn
Employees: 103’000
Automation Products
Sales*: $5.4 bnEmployees: 28,500
ManufacturingAutomationSales*: $1.4 bn
Employees: 6,000
Process AutomationSales*: $4.7 bn
Employees: 20,500
Power TechnologyProducts
Sales*: $6.0 bnEmployees: 27,500
Power TechnologySystems
Sales*: $3.7 bnEmployees: 13,000
Low-voltage products and systems, drives, motors, power electronics, etc.
Mainly a product business ”shipping one million products a day”
Wide variety of customers
Robots, robotic systems and services
Mainly for the automotive industry, but also for other segments
Automation solutions for the process industries (DCS, SCADA, controllers)
Oil & gas, chemicals, pharmaceuticals, pulp & paper, metals, minerals, marine, etc.
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
Power Systems
Sales*: $3.7 bnEmployees: 13,000
Robotics
Sales*: $1.4 bnEmployees: 6,000
Power Products
Sales*: $6.0 bnEmployees: 27,500
New nameseffective Jan 1, 2006
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Power Products overview
Key products: High- and medium-voltage products, power and distribution transformers, product service
Key applications: Switching, protecting, transforming, measuring, and automating in power transmission & distribution, industrial electrification, power generation systems
2004: $6.0 bn revenues, 8.3% EBIT margin, 27,500 employees
Market outlook/drivers Further enlargement, reinforcement of grids in
emerging markets Service and replacement demand in North
America, Europe
Market position 2004
Source: ABB, Goulden Reports, ABS, Bear Stearns
Business line 1 2 3High-voltage products ABB Siemens Areva
Medium-voltage products ABB Schneider Siemens
Transformers ABB Siemens Areva
World market: $29 bnAvg. market growth (03-06): 3-4%
OEM11%
Utilities48%
Industry9%
EPC11%
Re-sellers6%
ABB systems
15%
Channels to market*
* Expressed as percentage of total 2004 Power Products revenues
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Power Products strategy and targets
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
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 medium-voltage
Summary
TargetsRevenue growth
2004: $6.0 bn. CAGR 2005-09: >6%
8.3%>11%
2004 2009
EBIT margin
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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 outlook/drivers GDP growth in emerging markets Increasing demand in North America, Europe and
Middle East
Market position 2004Business line 1 2 3
Grid systems ABB Siemens Areva
Substations ABB Siemens Areva
Network management ABB Siemens Areva
Power generation ABB Siemens Areva
Utilities79%
EPC11%
Indus-trial10%
Channels to market*
Source: ABB, Goulden, ABS, ARC, Bear Stearns
World market: $23 bnAvg. market growth 03-06: ~4%
* Expressed as percentage of total 2004 Power Systems revenues
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Power Systems strategy and targets
Use strong position to focus on higher margin opportunities Focus on margin improvement and organic growth
Summary
Focus on higher margin projects, strengthen project execution
Leverage installed base for service Further process and system
standardization Push new applications and products
Main strategic actions
3.2%
>6%
2004 2009
Revenue growth
2004: $3.7 bn CAGR 2005-09: >5%
Targets
EBIT margin
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Automation Products overview
Key products: Low-voltage products and systems, drives, power electronics, motors, machines, instrumentation, product service
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
Market outlook/drivers Industrial growth, electricity consumption, degree of
automation, construction investments General GDP development
Business line 1 2 3Drives and power electronics ABB Siemens Mitsubishi
Low-voltage systems2 ABB Siemens Schneider
Motors and machines ABB Siemens Baldor
Industrial low-voltage products Schneider Siemens ABB
Installation material2 Schneider Legrand ABB
Instrumentation Rosemount Yokogawa ABB
Market position1 2004
1 ABB estimates 2 IEC standard
World market: ca. $60 bnAvg. market growth (03-06): 3-4 %
EPC12%
OEM40%
End-users20%
Re-sellers20%
ABB Systems
8%
Channels to market*
* Expressed as percentage of total 2004 Automation Products revenues
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Automation Products strategy and targets
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
Main strategic actions
Drive growth and sustain high profitability Focus on accelerated growth (organic and acquisitions)
Summary
Revenue growth
2004: $5.4 bn CAGR 2005-09: >5%
12.4%>14%
2004 2009
EBIT margin
Targets
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Process Automation overview
Key products: Integrated process control and information management systems (SCADA, DCS), industry-specific applications, component controls, instrumentation, services
Key applications: Control, automation, and optimization for pulp & paper, minerals, metals, chemicals, pharma, oil & gas, marine
2004: $4.7 bn revenues, 6.0% EBIT margin, 20,500 employees
Market outlook/drivers Systems demand growth primarily in Asia,
Middle East, eastern Europe Services to drive growth in North America,
Western Europe
Market Position 2004
Source: ABB, ARC Advisory Group 2001, 2002; Clarkson Research, Diesel and Gas Turbine & Motorship magazine
Business line 1 2 3Pulp & paper ABB Honeywell METSO
Marine ABB Alstom Siemens
Oil & gas ABB Honeywell Emerson
Pharmaceuticals Invensys ABB Honeywell
Turbocharging ABB MAN MET
Minerals ABB Rockwell Siemens
Metals Siemens ABB Via
Chemicals Honeywell ABB Yokogawa
End markets*
Pulp & paper11%
Oil & gas23%
Metals &minerals
17%Marine
9%
Chemicalpharma
9%
Others31%
World market: $21 bn (PAS & DCS)Avg. market growth (03-06): 3-4 %
* Expressed as percentage of total 2004 Process Automation revenues
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Process Automation strategy and targets
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, specifically in
Americas Utilize low-cost engineering and global sourcing
in systems business Widen product offering in control and analytical
products
Main strategic actions
6.0%
>9%
2004 2009
Reap benefits from System 800xA, lift margins with technology and installed base advantages
Focus on selective profitable growth (primarily organic with opportunistic acquisitions)
Summary
EBIT margin
Revenue growth
2004: $4.7 bn CAGR 2005-09: >5%
Targets
Division to be based in Norwalk, Ct, USA
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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
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
Market position 2004
Business line(Products)
1 2 3
Foundry ABB Fanuc Kuka
Painting ABB Yaskawa Fanuc
Plastics Fanuc ABB Kuka
Metal fabrication Yaskawa ABB Fanuc
Packaging Fanuc ABB Kuka
Body-in-white Kuka/Fanuc ABB
Source: ABB, McKinsey, IFR, Company Reports
World market: $10 bnAvg. market growth (03-06): 5-6 %
Auto parts36%
Plastic9%
Foundry13%
Auto OEMs23%
Foodbeverage
5%
Other14%
End markets*
Business line(Systems)
1 2 3
Process automation ABB
Kuka, Fanuc, Comau
Paint process automation Durr ABB Fanuc
Powertrain assembly Krause ABB Comau
Body-in-white Comau Kuka ABB
* Expressed as percentage of total 2004 Robotics revenues
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Robotics strategy and targets
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
Main strategic actions
5.9%>9%
2004 2009
Lift margins through operational excellence and cost focus Focus on selective growth (primarily organic with
opportunistic acquisitions)
Summary
Revenue growth
2004: $1.4 bn CAGR 2005-09: >4%
EBIT margin
Targets
Division to be based in Shanghai
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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 German 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. Opportunistic portfolio
clean-up
Managed on a
going concern
basis
Prepare for
divestiture
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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
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ABB regional opportunities
ABB present in ~100 countries At home with customers anywhere
Long history in all major markets Strong installed base and
manufacturing footprint
Proven track record in all regions Technologies and project delivery
Strong brand and customer loyalty Premium products at premium prices
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
Pole position 2005 Further opportunities
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Optimizing global reach with regional synergy
USA
India
Regions
Germany
China
Italy
Brazil
Regional hub
Sweden
UAE
NorthAsia
SouthAsiaMiddle East
and Africa
Southern Europe
North America
South America
Central Europe
Northern Europe
Eight regions with “borderless” ABB teams
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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
Europe
0
4
8
12
16
20
1950 1960 1970 1980 1990 2000 2010
Planned increase in interconnections (as % installed generation capacity)
Source: EU Directorate General for Energy & Transport, 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
Demand drivers
Huge installed base = service opportunity Strong manufacturing base, gaining efficiency Excellent brand and customer recognition
ABB’s position
Build on our historical strengths and huge installed base
52%* of world sales
Gradual but encouraging economic recovery
EU expansion and energy trading
Skilled resources and relationships across Northern, Central and Southern Europe
* Based on 2004 revenues
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Manufacturers under pressure to compete with new productivity and energy efficiency
North America
Demand drivers
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
ABB North America footprint
Manufacturing
Offices
14%* of world sales
* Based on 2004 revenues
Largest world market, withlargest ABB opportunity
New US Energy Bill will accelerate delayed power sector investments
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~ $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
South America
Demand drivers
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
3%* of world sales
* Based on 2004 revenues
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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
Middle East and Africa
Demand drivers
ABB has proven project reputation and local resources who understand the local cultures
Well-established working relationships with major global energy and EPC players
ABB’s position
Market nearly as large as China . . . and growing
* Based on 2004 revenues
10%* of world sales
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India and South Asia
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
100,000 MW greater power capacity by 2012 $200 bn investment for national power grid
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
Demand drivers
ABB’s position
DELHI
BANGALORE
CHENNAI
MUMBAI
VADODARA
KOLKATANASHIK
FARIDABAD
ABB India footprint
Electrification of 25 million new households next 5 years
Strong ABB footprint in place to support new growth
* Based on 2004 revenues
8%* of world sales
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China and North Asia
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 has grown >30% year-over-year in China since 2000
More than 30 manufacturing plants, 8,000+ employees in China
Demand drivers
ABB’s position
Continuing immediate and long-term opportunities
* Based on 2004 revenues
13%* of world sales
Respected track record for implementation with local and global customers
144 new power plants (2x capacity) by 2020 Olympic Games 2008, World Expo 2010
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Catalyst: Group Account Management
ABB’s position 30 global accounts with executive sponsors
Strategic selection of customers for cross-ABB portfolio opportunities
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
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Catalyst: World-class ABB technology
Leading differentiators
Wide area power management Preventing future blackouts
High-Voltage Direct Current Flexible and reliable power transmissionand 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’s position Almost $1 bn in research, product- and order-
related 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
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Market growth opportunities go beyond GDP
High structural need for energy and industry infrastructure 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 is well positioned for profitable growth
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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
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PowerProducts(Transformers)
Growth and margin ambitions
Focus Selective Growth Accelerated Growth
Mar
gin
impr
ovem
ent a
mbi
tions
0%
>6%
PowerSystems
* versus 2004 performance
*
Organic growth only, possibly some further focusing
Primarily organic growth, with opportunistic acquisitions
Organic growth and acquisitions
RoboticsPower
Products(HV, MV)
ProcessAutomation
AutomationProducts
Disciplined acquisition approach(strategy / operations / financial)
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Acquisition guidelines 2005 - 2009
2005 2006 2007 2008 2009
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
Net income > $1 bn Steady-state operations with sound profit, cash flow
Healthy balance sheet
Possible portfolio expansion into new,
but related areas
AssumptionsRe-establish investment grade
rating
Focus on execution and margin
improvement
Assumptions
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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
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ABB’s current organization
CEO
Automation Products
Manufacturing Automation
Process Automation
Power Technology
Products
Power Technology
Systems
Power Technologies
Division
Automation Technologies
Division
Corporate Center
CFOHR
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Organization 2006: Driving execution
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
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ABB’s current organization
CEO
Automation Products
Manufacturing Automation
Process Automation
Power Technology
Products
Power Technology
Systems
Power Technologies
Division
Automation Technologies
Division
Corporate Center
CFOHR
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ABB’s organizational structure 2006
CEOCorporate Center
CFOHR
Automation Products RoboticsProcess
AutomationPower
ProductsPower
Systems
Global Markets &
Technology
Five divisions, each with P&LGeographic P&L
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ABB Executive Committee 2006
CEOCorporate CenterCFO
CFO HR
Automation Products RoboticsProcess
AutomationPower Products
PowerSystems
Global Markets& Technology
Five divisions, each with P&LGeographic P&L
Fred Kindle (46, CH/FL)
Dinesh Paliwal (47, IN/US)
Michel Demaré (49, BE)
Gary Steel (52, UK)
Bernhard Jucker (51, CH)
Samir Brikho (47, LE/SE)
Tom Sjoekvist (57, SE)
Veli-Matti Reinikkala (48, FI)
Anders Jonsson (55, SE)
President and Chief Executive Officer
President, Global Markets & Technology
Chief Financial Officer
Head of Human Resources
Head of Power Products division
Head of Power Systems division
Head of Automation Products division
Head of Process Automation division
Head of Robotics division
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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
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Rationale behind the 2002-05 targets
Strategy: ABB turnaround
Simplify organization
Re-focus on core activities
Regain financial flexibility
Revenue growth
EBIT margins
Gross debt
2002-05 targets:
Simple
Focused on key indicators
Aimed at exposing ABB’s underlying potential
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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
Rationale behind the 2005-09 targets
Revenuegrowth
EBIT margin
Net margin
Capitalefficiency(ROCE)
Cash flowgeneration
2005-09 targets: Broaden management
focus beyond growth and EBIT
Confidence in execution with upside potential
Plan used to identify potential debt capacity for future strategic moves
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2009 Targets
Revenue Growth and EBIT margin remain key targets
New targets : Net Margin to progressively focus stakeholders on bottom line
profitability, not just EBIT
Cash Flow Generation, to focus on the Company’s ability to convert Net Income into Free Cash Flow
Return on Capital Employed (ROCE after-tax) to optimize efficient use of ABB’s balance sheet and enhance value creation
Other financial considerations Investment Grade status
Balance Sheet structure
Dividend policy
Tax Rate
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Divisional target rates of return on new investment
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 investment 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 10-12% (higher margins, stable, high intensity)
Power Systems, Process Automation 15-20% (lower margins, volatile, higher risk, low intensity)
Robotics 12-15% (mix of both)
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Overview of Group targets 2009
Criteria Target
Revenue growth1 >5%
EBIT margin >10%
Net margin >5%
ROCE2 Mid-teens
Free cash flow (FCF) 100% of Net Income
1 Compound average growth rate (CAGR) 2005-2009 at constant exchange rates and excluding major acquisitions and divestitures2 Return on capital employed (after tax)
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Overview of division 2009 targets
Revenue
growth1EBIT margin
2009
EBIT margin2004
Power Products > 6% > 11% 8.3%
Power Systems > 5% > 6% 3.2%
Automation Products > 5% > 14% 12.4%
Process Automation > 5% > 9% 6.0%
Robotics > 4% > 9% 5.9%
1 Compound average growth rate (CAGR) 2005-2009 at constant exchange rates and excluding major acquisitions and divestitures
Five divisions will be segments according to US GAAP
Reporting in line with new structure to start January 1, 2006
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Targets remain as communicated on June 30
PT EBIT* margin 6.8 – 7.3%
AT EBIT margin 10.7%
Non-core operating profit zero
Corporate costs $450 mill. or less
Group EBIT margin 6.6 – 7.1%
* Earnings before interest and taxes
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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
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Key points I
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
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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 Target
Revenue growth1 >5%
EBIT margin >10%
Net margin >5%
ROCE2 Mid-teens
Free cash flow (FCF) 100% of Net Income
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Power and productivity for a better world