Björn Rosengren has a track record of turning big industrial companies around. He is a giant in financial and organizational management. Now it’s ABB’s turn. (ABBN: SIX).
ABB is a world leader in industrial robotics and automation, electrification, and electric motors. It is the largest seller of industrial robots in China. It is industry 4.0.
But its growth and share price does not reflect this. That’s why Rosengren has been brought in. Is it time to jump on board ABB?
“How can a company with such good technology and such good products, be underperforming for so long?”
ABB is based in Zurich, Switzerland. It’s Swedish predecessor, ASEA, was formed in 1882, and its Swiss predecessor, BBC Brown Boveri, was formed in 1891.
It has been in the Global Fortune 500 for the last 24 years. It has operations in over 100 countries and has more than 140,000 workers.
Rosenberg was born in Sweden and had a master’s degree in technology from the University of Gothenburg.
Björn Rosengren became CEO of ABB in March 2020. Before this, he had been CEO of Swedish mining equipment giant Sandvik (2015-2020). And CEO of Finnish energy source manufacturer Wartsila (2011-2015).
At Sandvik, Rosengren decentralized the company, reduced costs, and grew revenues. He also invested in innovation.
Under his watch, Sandvik’s shares increased by over 70 percent.
In February 2019, ABB announced its process of decentralization.
ABB’s corporate structure was heavily centralized, with over 18,000 people at the Head Office in 2018. Every major and often minor decision had to go through Zurich.
ABB’s second major shareholder activist investor Cevian Capital had already pushed ABB to sell off its electricity grid assets. And it was pushing for more change.
ABB lacked flexibility, and costs abounded. The board decided to decentralize the company into four main divisions and agreed that a leadership change was needed.
After two months as CEO, he decided to restructure the company from four divisions into 18 business units. He identified the highest operational level and decided to empower them.
“The business units know best how to work, and now the responsibility will be passed down to them.”
Rosenberg expects each unit to take an entrepreneurial approach. They are responsible for their P&L and R&D.
Rosenberg and Head Office will take on a smaller but critical role. They will hold the business units to account and jettison business units that do not fit or perform.
Rosenberg is targeting 1,000 staff at head office. A lot of them already left or moved out to the business units. The cost savings has already reached $800m.
In November, Björn Rosengren announced that three business units would be sold for $1.75bn. The market expected more, but Rosenberg is not reckless. He wants to unlock growth, not destabilize the company or lose morale.
“It won’t be a revolution, it will be an evolution.”
Rosenberg’s other great strength is with numbers.
He is targeting 13 percent to 16 percent EBITDA by 2023. It was 11.1 percent in 2019 and has dropped to 10.7 percent in 2020 because of the coronavirus’s economic impact.
“I will not be happy until we reach 15 percent.”
Decentralization and pruning off underperforming business units will help with EBITDA. But Rosenberg hasn’t stopped there. He has also been casting his slide rule over general operations.
He has cut off 200 loss-making projects with a depreciation of $700m. He has also closed down 45 production locations and cut 10,000 workers.
Despite taking over at the start of the pandemic, ABB’s share price has managed to recover and grow. It is up 41 percent from March.
It took a dip on November 19, with investors disappointed in the announcement that ABB is only selling off three business units at this time.
Recent trading has seen a shooting star give way to some dojis (see chart below). From here, the stock is likely to turn up or down. There is market indecision.
Revenue has managed to end 2020 slightly higher (see chart below). And now, growth in China is leading the way for ABB and the world.