After the downsizing, the new CEO Morten Wierod is focusing on takeovers

 

Morten Wierod has been leading ABB, the largest Swiss industrial group, since the beginning of August. The Norwegian has a lot of what you need as a CEO. But he has to give up one thing that everyone would actually like to have: he has no excuses when things go badly. Firstly, Wierod, who was born in 1972, has been at ABB for over 25 years and therefore knows every corner of the company. There is no grace period for him to get used to the job.

Second, ABB is in the right place to benefit from one of the industry’s biggest growth trends in recent decades: the electrification and decarbonization of the economy. Fossil fuels are being replaced by electricity and existing electricity systems are being modernized and made more efficient, because electricity is expensive. Wierod calls it “electrification of everything”. Conversely, this means: If ABB doesn’t go through the roof now, when will it?

The megatrend of electrification outshines everything

For example, ABB is well positioned for the boom in the construction of power-hungry data centers. Data centers are becoming more and more powerful, and artificial intelligence calculations consume ten times as much energy as normal servers and storage. Since 2019, ABB has recorded an average of 24 percent more orders per year for data center equipment – from switchgear to control systems to batteries.

 

Electrification, which, along with automation, is the core of the group, has already made Morten Wierod’s first appearance in front of financial analysts sweeter. The division achieved record sales and operating margins in the third quarter, ABB reported on Thursday.

This helped to overcome the weakness in the areas of robotics and production automation – because when it is not about power equipment, but about equipping production plants with new machines, the business situation is much more difficult.

This flaw in Wierod’s inaugural certificate has to do with the caution of many corporate customers due to the uncertain economy, especially in Europe. And that the warehouses for such equipment are still well filled and therefore no new orders are placed with ABB.

Precisely because production automation is having such a difficult time, the group now expects slightly less sales growth in the current year. Overall, ABB’s sales from January to September remained roughly constant at $24.3 billion compared to the same period last year. Almost half comes from electrification.

More is more is the new motto

But Wierod’s job is to think long-term. To do this, he does not have to set any new goals for the Swiss-Swedish group: First of all, the goals of Wierod’s predecessor Björn Rosengren have to be met. Because while ABB is now doing well in terms of profitability, which is also reflected in the share price, there is still potential in terms of growth.

Rosengren’s goal was for the group to increase sales on a comparable basis by 5 to 7 percent annually over an economic cycle and to generate a further 1 to 2 percent through acquisitions. The takeover target was not achieved. Instead, Rosengren was busy streamlining, restructuring and making the sluggish and directionless ABB more efficient.

Under the previous predecessor, Ulrich Spiesshofer, the high-voltage business had already been sold to the Japanese competitor Hitachi, as a result of which ABB lost a lot of mass. Rosengren separated from other units, such as the turbocharger manufacturer Accelleron. It has high margins, but with its focus on combustion engines it did not fit the profile of electrification and automation.

Swedish industry veteran Rosengren resigned shortly before reaching retirement age. Wierod, who most recently led the important electrification for two years, sticks to many of Rosengren’s achievements – including the decentralized organization in which the business areas enjoy great freedom. But Wierod also says: “From my point of view, ABB can get even better.” Mergers and acquisitions would have to be fully integrated into the performance culture.

Is ABB gaining weight again under Wierod as quickly as it lost under Rosengren’s fitness regimen? Probably not, because the new CEO primarily has small and medium-sized acquisitions in mind. The ABB business units should look for acquisition targets themselves – targets that either offer technological added value or open up a new region. India, for example, is considered to be a promising market for takeovers. In a few years, the subcontinent could be ABB’s third largest market after the USA and China, as Wierod expects.

In the current year, ABB is expected to achieve sales growth of more than 1 percent through acquisitions. Since January, acquisitions worth around $330 million have been made – many times more than in previous years.

For example, the group bought a building electronics company in China from Siemens that develops smart home systems and home controls. The Chinese market is simply so large that it is considered essential even in the current economic downturn.

Some homework remained

Despite all the focus on takeover targets, Wierod also has internal construction sites to work on: E-mobility, the business with charging stations for electric vehicles, is still in the process of being renovated. The confusing product portfolio caused problems; Since the beginning of the year alone, an operating loss of $201 million has accumulated.

According to Wierod, there is still more to do in manufacturing automation to get back on track. A savings program is underway at the division’s headquarters in Eggelsberg, Austria. But apart from that, the Norwegian has taken over a well-renovated house – and the difficult task of growing without sacrificing taste.