Zurich - ABB chief executive Ulrich Spiesshofer has unexpectedly announced a $4 billion (R43bn) share buyback after the stock underperformed rivals including Siemens over the past year.
Cash from recent disposals and existing cash would fund ABB’s biggest buyback programme since 2008, he told investors in London yesterday.
The stock of the largest power-grid manufacturer gained as much as 2.9 percent in Swiss trading, paring this year’s decline to 6.8 percent.
Spiesshofer, who replaced Joe Hogan a year ago, has spent his first year pruning smaller businesses from the portfolio of the Zurich-based company. While the buyback helped the share price, Spiesshofer might struggle to boost sales, Kepler Cheuvreux analyst Hans-Joachim Heimbuerger said.
“With around half of group sales coming from emerging markets and two-thirds from power, metals and mining, and oil and gas end-markets, we see continued growth challenges, at least in the short term,” the analyst said.
ABB also set new long-term targets yesterday, saying it planned to increase operational earnings a share by 10 percent to 15 percent on a compound annual basis from 2015 to 2020. It targeted boosting like-for-like sales by 4 percent to 7 percent annually.
The company said it would steadily increase profitability, now measured in operational earnings before interest, tax, and amortisation, within a range of 11 percent to 16 percent every year.
ABB’s stock was up 2.4 percent at noon in Zurich, valuing it at Sf51 billion (R587bn). Since Spiesshofer took over, ABB’s shares have risen 3.2 percent, compared with a 13 percent rise at Siemens over the period.
Disposals of businesses making tubular steel structures for electricity transmission and industrial heaters and ventilators raised about $1bn in the past year. About three quarters of ABB’s share buyback programme, which would start on Tuesday, would be used to reduce its share capital. The rest would support employee share plans, the company said.
“Buying our own stock, giving $4bn back to shareholders, is a signal of confidence that we will create even more cash in future,” Spiesshofer said on the sidelines of ABB’s capital markets day event in London.
The company’s power systems unit has been grappling with delays to complex renewable energy projects that have weighed on earnings.
Spiesshofer has pledged to return the division, which manages big-ticket projects such as linking offshore wind farms to the grid, to profitability and has hired consultants Alix Partners.
“It’s very important you have confident long-term investors who believe in your company. Given the power systems challenges that we had, there were some people questioning,” he said yesterday.
ABB also cut the number of operational regions from eight to three. The company nominated David Constable, chief executive of Sasol, to the board to help ABB expand in Africa.
Spiesshofer’s revamp comes at a time when ABB is facing increased competition in a number of markets from chief rivals Siemens and General Electric. – Bloomberg