Any business associated with the word ‘heavy’ seems to have become the corporate version of a social outcast. ABB’s decision to shift its focus from heavy engineering to lighter technologies and services echoes ICI’s exodus from heavy or bulk chemicals for lighter, speciality businesses.
But, after widespread publicity of ICI’s traumatised rebirth, ABB is committed to a more gradual reshaping.
Its businesses are split into seven categories: power generation; power transmission; petrochemicals, oil and gas; financial services; automation; and products and contracting. Automation, recently expanded with the $2.1bn (£1.29bn) acquisition of Elsag Bailey, is a target growth area. ‘Elsag Bailey symbolises where we are heading,’ says ABB president and chief executive officer Goran Lindahl.
In financial services, ABB has also made acquisitions, including Energy Capital Partners of the US.
But at the heavy end of the ABB business spectrum, disposals are the order of the day ABB’s 50% share in train builder Adtranz has been sold to Daimler-Chrylser for £289.5m.
Lindahl also says some aspects of power generation, transmission and distribution fell into his ‘heavy’ engineering definition.
ABB’s shift in emphasis is also reflected in the breakdown of its 199,232 staff. This figure, down from 213,057 a year before, hides a rise in the number of people employed in service and maintenance areas.
The exception appears to be oil, gas and petrochemicals. Much of ABB’s R&D in these areas is in deepsea applications, and with the oil price expected to stay low (it stands at around $10 a barrel), deepsea fields may be mothballed. But Lindahl says: ‘The niches that we operate in have a breakeven level of $8 a barrel. So our customers are still making money.’
There are even rumours that ABB is interested in Kvaerner’s oil and gas business, a form of heavy engineering that remains profitable. A move to merge ABB’s two parent companies has been proposed, which could make acquisitions easier. When complete, the simplified share structure would allow ABB to offer its shares as part of a bid for another company. The company also has around $1.5bn in cash.
The effect of moving away from heavy industry on orders is less clear. Automation orders fell 4% last year because of downturns in chemicals, steel, pulp and paper and the automotive industry. For chemicals at least, 1999 is expected to be a slow year.
On organic growth alone, ABB has set itself an annual target of 6%, averaged over the business cycle.
Lindahl says orders and revenues will increase this year despite a difficult economic environment.