* Investors call for more focused ABB
* Power Grids is ABB's least profitable business
* Division accounted for 30 pct of group sales in 2017
(Adds comments on CEO, share price.)
By John Revill and Oliver Hirt
ZURICH, April 17 (Reuters) - ABB faces renewed
shareholder demands to break up its sprawling business empire
and to start by ditching its struggling power grids division.
The power and automation company reports first-quarter
figures on Thursday, with investors braced for another tepid
performance from power grids -- its largest but least profitable
division, which it decided to keep in 2016.
Concerned by weak share performance since then, investors
say ABB should simplify operations ranging from industrial plugs
and fittings to electric motors for ships and factories.
"ABB is too big, it is too complicated and the company would
gain significantly by achieving more focus," said David Samra,
portfolio manager at Artisan Partners, ABB's fifth-largest
shareholder with a 1.6 percent stake.
"So far we have seen no evidence of an underlying
improvement in power grids, nor in the company as a whole," he
Artisan, which describes itself as a long-term
value-oriented investor, said that ABB should follow rivals
Siemens and Honeywell International in
Siemens floated its medical equipment business as
part of its drive to attract investors for businesses outside
its core industrial engineering and automation operations. It
also separated its wind power operations.
Honeywell, which makes everything from jet engines to
thermostats, will also divest divisions.
In contrast, ABB insisted in 2016 on keeping the power grids
business -- which makes transformers, substations and
semiconductors to transmit electricity -- despite pressure from
Cevian Capital, its second-largest shareholder, to spin it off.
Power Grids generated sales of $10.4 billion in 2017,
accounting for 30 percent of ABB's $34.3 billion in sales.
Cevian argued that ABB was too complex and projected that
separation would produce two companies with a combined share
price of 35 Swiss francs.
Chief Executive Ulrich Spiesshofer said in October 2016 that
ABB could reach a 35 franc share price while remaining intact.
ABB stock has lost 15 percent this year to trade at about 22
The CEO, who took charge in September 2013, has supervised a
more than three-year reorganisation that has yet to pay off,
with the company hit by a collapse in demand from the oil and
Spiesshofer has quit some businesses to improve the power
grids division's performance, selling high-voltage cables and
exiting the engineering, procurement and construction business
"ABB has evolved significantly as we have strengthened and
streamlined the business and we are making good progress against
our strategic goals," a company spokesman said. "Management and
board are fully aligned."
One top-20 investor, who asked not to be named, said that
Spiesshofer is under tremendous pressure, adding: "I am quite
disappointed, in a very strong economy the company is treading
water, if it does not perform now, when will it ever?"
However, ABB's biggest shareholder Investor AB supports the
"We believe the key focus for ABB is to execute on the
transformation of Power Grids, continue to invest for the future
and strengthen customer focus and cost efficiency," the Swedish
Fidelity, which has ABB as a top-10 holding in its Swiss
fund, questioned the structure, adding that 2018 could bring
limited growth and struggling profitability.
"From the outside, there are some areas, like power grids,
that don't really fit for many reasons -- end markets, growth
drivers or margin profile," fund manager Andrea Fornoni told
"I don't think this is something that necessarily needs to
be done over the next six months, but over time a stronger view
should be taken on this."
Thursday's results are unlikely to provide much respite,
with Power Grids' revenues and profitability slipping, a Reuters
Christer Gardell, managing partner at Cevian, has said he
was disappointed with ABB's performance since the 2016 decision.
"The decision the board made a year and a half ago regarding
the structure of ABB seems to have been wrong," he told Swedish
newspaper Dagens Industri this month.
ABB shares have risen 1 percent since the decision, against
a 17 percent gain for the Stoxx European industrial sector index
"We want to see proof that the synergies and the advantage
they argue are there in keeping the structure intact are
materialised in higher growth and profitability than for
competitors," said John Hernander, portfolio manager at ABB
(Additional reporting by Johannes Hellstrom in Stockholm and
Simon Jessop in London
Editing by Keith Weir and David Goodman)
© 2018 Thomson Reuters. All rights reserved. Reuters content is the intellectual property of Thomson Reuters or its third party content providers. Any copying, republication or redistribution of Reuters content, including by framing or similar means, is expressly prohibited without the prior written consent of Thomson Reuters. Thomson Reuters shall not be liable for any errors or delays in content, or for any actions taken in reliance thereon. "Reuters" and the Reuters Logo are trademarks of Thomson Reuters and its affiliated companies.