ZURICH (Reuters) – The power grids business Hitachi <6501.T> bought from ABB <ABBN.S> for $11 billion is likely to hit the upper end of its 2025 targets despite the effects of a coronavirus downturn over the next two years, Chief Executive Claudio Facchin said.
Hitachi ABB Power Grids, whose products connect power stations to homes and factories, expects a recovery as countries launch stimulus packages and the electricity industry switches to greener technologies.
The company which competes with Siemens <SIEGn.DE>, General Electric <GE.N> and Hyundai <267260.KS>, is due to give an update on its financial targets in October.
“We see the pandemic as having a temporary effect and we’re optimistic about the future,” Facchin told Reuters.
“COVID-19 has a negative impact on us in 2020 and 2021 … but by 2023 and 2024 we should not see any more effect. We expect an actual positive swing when the recovery and stimulus packages kick in,” he said.
Although global electricity demand is set to fall 6% this year, demand for wind and solar is rising 5%, the International Energy Agency estimates.
“The pandemic has accelerated the conversion from fossil fuels to renewable sources of energy like wind and solar,” said Facchin, 55, who also led the business when ABB was its owner.
“We are helping customers master the additional complexity of variable renewable energy sources and combining information technology and operational technology to improve efficiency.”
Projects at Zurich-based Hitachi ABB Power Grids, whose annual orders of $10 billion are equivalent to 10% of Hitachi’s revenue, include connecting the world’s largest offshore wind farm in the North Sea to Britain’s power grid.
In China it is delivering some of the world’s longest powerlines, including a 1,700-km link to transmit hydro-generated electricity from Sichuan province to Jiangxi province.
Facchin said he was confident the business could beat the 2-3% growth annual growth rate for the $100 billion global power grid market.
The company, which employs 36,000, will tap Hitachi’s expertise in IT and digital technology to enable predictive maintenance of power grids, for example.
It will use Hitachi’s financing arm will to help clients fund projects, and increase its service business, Facchin said.
The Italian executive was confident he could raise profitability, which investors saw as a problem when ABB owned it.
It is targeting operational EBITA margins of 8 to 12%, up from 6.5% expected in the year to March 2021.
“We are going to be at the upper end of this corridor by 2025,” Facchin said.
(Reporting by John Revill; editing by David Evans)