September 9, 2015 / 6:55 AM / 5 years ago

UPDATE 4-ABB cuts revenue forecast, reviews power projects unit

* ABB cuts annual revenue growth target to 3-6 pct

* ABB aims to cut $1 bln from annual costs

* Combining power systems and power products into single division

* All options open to sell low-margin assets in new division (Added CEO quotes from London Capital Markets Day)

By John Miller and Angus Berwick

ZURICH/LONDON, Sept 9 (Reuters) - ABB cut its revenue growth target on Wednesday and announced a “strategic review” of its low-margin power projects business in what could be a step towards a sale of assets by the Swiss engineering group.

Faced with lower energy prices and a slowdown in China, ABB also said it was implementing a $1 billion savings programme, meaning costs of $600 million in the final quarter of the year.

ABB, which makes everything from factory robots to power transformers, is now targeting average annual growth in revenue of just 3 percent to 6 percent until 2020, trimming a prior goal of 4 percent to 7 percent.

ABB is also combining its low-margin Power Systems business, which in 2014 booked hundreds of millions in losses on projects including North Sea wind farms, with its Power Products business that sells transformers.

A strategic review of this new division, called Power Grids, was under way, said ABB Chief Executive Ulrich Spiesshofer.

The new Power Grids division has 39,000 employees and $12.6 billion in sales, but an operating profit margin of just 4.7 percent, less than a third of ABB’s most profitable divisions.

The review will determine how to move forward, “in terms of adding or departing from parts of the portfolio, and what’s the best ownership structure,” Speisshofer told Reuters at ABB’s Capital Markets Day in London.

Were ABB to shed Power Grids, it would be its most-significant disposal since 2000 when it sold its 50 percent share of a power generation business, with 50,000 employees and nearly 10 billion euros in revenue, to Alstom.

ABB is seeking to narrow a profitability gap to what Spiesshofer calls “best in class peers” — rivals like General Electric which on Tuesday won approval from regulators to buy France-based Alstom’s power business.


ABB also said it would accelerate restructuring, aiming to save $1 billion annually by the end of 2017. The steps are expected to cost $1.2 billion in total.

“This will cost us some money and it might cost some jobs,” said Spiesshofer, who has been in the role for two years.

ABB faces increased pressure to boost performance from a new activist investor, Sweden’s Cevian, which has accumulated a stake of more than 5 percent.

But its efforts have been complicated by the slowdown in China, ABB’s second-biggest market.

“Short term it’s a really difficult environment,” Spiesshofer told Reuters on China. “With the distribution channel at the moment people are uncertain about the economic future and therefore they are very careful with the stocking level, they are trying to de-stock.”

The precipitous fall in oil prices has also dented the company’s sales to customers in the upstream oil and gas sector.

“We see a massive contraction of discretionary spending of our oil and gas customers,” he added.

Cevian, which has also bought stakes in German steelmaker ThyssenKrupp AG and Swedish truck maker Volvo, generally invests in companies in which it sees the potential to double the value of its investment within three to seven years. Since June, when Cevian announced its stake, the shares have lost about 11 percent of their value.

Spiesshofer said on Wednesday that Cevian was in “listening mode,” indicating the investor has not so far actively demanded dramatic changes.

The shares rose 1 percent to 18.72 francs by 1240 GMT. ($1 = 0.9817 Swiss francs) (Reporting by John Miller; Editing by Edwina Gibbs and Keith Weir)

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