ABB Ltd

Greetings to you all and welcome to this conference call and webcast for ABB's fourth quarter and full year 2020 results. The press release and financial information documents were published this morning at 7 a.m. and can be found on our website along with the presentation we will go through here today. Following the presentation, we will open up for a Q&A session. With me today to present here are ABB CEO Björn Rosengren and CFO Timo Iamotila. Before we begin, I would like to draw your attention to the information regarding safe harbour notices on our use of non-gap measures on slide two of the ABB presentation. This conference call will include forward-looking statements. These statements are based on the company's current expectations and certain assumptions and are therefore subject to certain risks and uncertainties. With that said, I will now hand over to Björn and Timo for the presentation. Please go ahead.

Thank you, Ansi, and welcome to everyone on the call. I have now been with ABB for almost exactly one year, and looking back, it has been a very eventful and exciting year. Let us go through some of the highlights on slide number three. It was a year when we transitioned ABB towards improved performance. We implemented the decentralized operating model, we call ABB way, making the division the highest operating level. They now have the cost ownership, they drive R&D for profitable growth, and they evolve their business portfolios. We launched our 2030 sustainability strategy and updated our financial network in November. And we delivered on the simplification program as achieved targeted net saving run rate of 500 million one year ahead of plan. I'm very confident that the actions taken in 2020 will leverage performance going forward. 2020 was also a year of the pandemic with dominated the market development. I am thankful for the speed and dedication of the ABB team on how mitigation actions were implemented. The agile response to COVID-19 challenges enabled our organization to prioritize health and safety while keeping operations running and undertaking strong cost mitigation efforts. After a year like 2020, I'm proud to see the progress we have made in our employee engagement survey. It shows that our employees have more clarity of their roles and responsibilities, as well as of our overall purpose of the company. We really saw the culture change gain momentum in 2020. Tim will talk you through the full year numbers a little bit later on. Turning to slide four, we shift focus to the fourth quarter. We saw a continued sequential improvement in customer activity from the low level noted during summer. In total, orders and revenues remained broadly stable year over year. The positive impact from mid single digit growth in the short cycle business was offset by subdued demand for services and headwinds in selected end markets such as oil and gas. We secured some larger system order wins for our world-leading ACIPOD propulsion technology. The machine automation division also closed out the period with an all-time high level of future design wins. This creates a good base to build from after the management change in machine automation division is completed. Revenues were stable, but we still managed to improve the operational EBITDA margin by 140 basic points, and the increase was led by stellar performance in electrification and motion. Synergies from GIS came in ahead of targets, $120 million run rate, and the integration is now approximately two-thirds completed. Further down the income statement, we had some adverse impact on the basic EPS. This related to pension and debt action taken during the quarter to strengthen our long-term financial position. But also to power grids, book gain adjustments reflecting ordinary closing related balance sheet adjustments. Operational EPS for continued operations improved by 20% to $0.26. Turning to slide five, showing ABB's regional order trends in comparable year-on-year terms. Asia, Middle East, and Africa grew strongly, while both Europe and America remained impacted by the COVID-19 pandemic. In Europe, orders were 12% lower year-on-year, and the business areas were challenged. In Germany, expansion in motion and electrification stands out, with total orders in each of these business areas up in double-digit terms. In America, orders were 6% lower, led by a decline of 12% in the U.S., Alongside demand impact from the COVID restrictions, orders intake was also impacted by downturn in oil and gas activities. A significant recovery was noted in Asia, Middle East and Africa. Orders rose 23%, with strong support from China improving by 21% in the quarter. We highlight excellent growth in RA in China with orders up close to 90% year-on-year. And with that, I hand over to Timo to cover the results in more detail. Please.

Thank you, Bjorn, and good morning, everyone. On slide six, I will begin with a review of what in our view was a solid end to a challenging year. On stable revenues, we increased operational EBITDA by 12% on constant currency and 16% in US dollar terms. Margins improved by 140 basis points. I'm pleased to see our prompt actions yielding results in margins in the fourth quarter. While other costs were down, R&D expenses in the fourth quarter in our four businesses increased by 3% year on year. Looking at below the line items, all divisions carefully reviewed their operations and this shows in restructuring related expenses at 220 million compared to 99 million the prior year period. Charge is mainly related to the future delivery of ABB OS savings, synergies from GIS's integration, and planned performance improvements in industrial automation. The planned actions undertaken to strengthen ABB's financial flexibility and de-risk the balance sheet also weighted on results, as did the adjustment to the PowerGrid's bookend. In total, basic EPS amounted to a negative 4 cents Operational EPS in continuing operations which adjusts for non-operational items and excludes impacts from the divestment of power grids was 26 cents up 20% year-on-year. Cash flow from operating activities in continuing operations was 1.2 billion after outflows totaling about 200 million from the Kusilä settlement and pension plan transfers. I will come back to the full year cash flow dynamics in a bit. Turning to the fourth quarter results for our business areas, I will begin with electrification on slide seven. Electrification orders were 2% lower, benefiting from strong demand in data centers and e-mobility and solid growth in renewables, rail and food and beverage. Oil and gas was challenged. Buildings improved sequentially, with residential activity outpacing non-residential. Revenues increased by 5%, supported by strong backlog execution and short cycle business. Electrification's operational EBIT-R margin improved 250 basis points to 15.6% in its target range for the second quarter in a row. The excellent result was driven by better volumes, supportive pricing and rigorous cost management, although the current low level of, for example, travel expenses is not expected to be sustainable in the long term. In addition, both GIS integration and the turnaround of installation products progressed well. During the quarter, we noted rising raw material prices. While it did not impact the Q4 result, it will be a headwind to manage during 2021. Looking ahead into the first quarter, we expect a low to mid single digit growth in revenues to support close to similar year-on-year improvement rate in operational margins as seen in the fourth quarter. Next on slide eight, we look at industrial automation or process automation as we call it from the beginning of this year. Orders increased by 9%, a strong result driven by large orders in the marine business, mainly for LNG specialty vessels. IA saw select activity in process industries such as mining and water and wastewater. Energy industries, particularly oil and conventional power generation, were challenged. The order backlog at quarter end was 5.8 billion, an increase of 650 million from the end of the third quarter. Revenues declined 11%, reflecting subdued levels of book and bill activities, with service being particularly weak in end markets such as cruise. The operational EBITDA margin of 6.8% was 530 basis points lower year on year. This includes the combined impact of 270 basis points from the settlement of the KUSILE project with ESCOM in South Africa and charges related to legacy power generation projects in India. Aside these items, profitability was hampered by lower volumes and unfavorable mix predominantly related to lower services activity. In response to the current low profitability level, IA has initiated structural actions to improve long-term performance. Looking into the first quarter, order growth is expected to decline significantly on the back of a higher comparable from the first quarter in 2020. Revenue is foreseen to decrease at a similar rate as noted in the fourth quarter, and the margin should remain largely stable on a sequential basis, excluding the impact from the project charges. On slide nine, we turn to motion, which again noted a solid delivery. Orders declined 5%, mainly reflecting a tough large-order comparison. Demand from rail and water and wastewater was healthy. Some end markets, particularly oil and gas, remained challenged. Revenues were flat, with development reflecting solid growth in short-cycle business and strong execution of the backlog. The operational EBITDA margin of 16.8% expanded 140 basis points year-on-year, benefiting from good cost mitigation, stable volumes, and supportive mix, even if rising price costs were a headwind. Looking at the quarter ahead, we recognize the record high comparable to be reflected in the expected negative order growth for Q1 2021. However, revenue growth should improve compared to Q4, while anticipated business mix is expected to lead to a slightly smaller margin improvement when compared to Q4. On slide 10, we turn to robotics and discrete automation. Orders were 5% lower. However, the result includes reversals of about 50 million, mainly in the order book for machine automation. These reversals adversely affected the business area's comparable growth rate by about 7%. Adjusting for this accounting impact, orders from machine automation were up clearly double-digit. In robotics, strong activity in 3C, improved activity in general industry, and select investments in EV manufacturing supported the order result. Demand from China was stellar. As Björn highlighted earlier, RA's orders were close to 90% higher year-on-year in China. The order development also reflects the more selective approach now being applied towards robotic systems business in the automotive industry, part of the division strategy to improve margins by shifting its mix toward higher value at smart systems and application sales. Revenues declined 3%, supported by positive developments in machine automation and good backlog execution. This was, however, more than offset by weaker development in robotics, particularly due to weak automotive segment and service business. The operational EBITDA margin declined to 7.3%, impacted by lower volumes, but also by unfavorable mix, primarily related to deliveries from the robotics order backlog to the automotive segment. Looking into the first quarter, we currently foresee orders to be slightly up on a sequential basis, while the growth rate should be adversely impacted by a more challenging comparable period. Revenue growth should return to positive territory, supporting a slight margin improvement year on year. Let's now turn to slide 11 and look a bit closer at the makeup of our operational EBITDA margins during the recent years. We can see that the amount of extraordinary items is steadily decreasing, both when we look at Q4 as well as full-year comparisons. We have eliminated the stranded cost after the closing of the Power Grids transaction. In non-core business, the exposure continues to decrease significantly, with clearly less than 10 projects still under execution. We are looking to exit the remainder of the non-core business as soon as practicable. However, as said at our capital markets day, we still have two main exposures and our exit from these exposures is partly reliant on legal proceedings, which could stretch beyond 2021. Regarding Kusile, we are not expecting further operational charges after the settlement done in Q4 with ESCOM in South Africa. That said, the settlement does not cover regulatory proceedings outside South Africa, which are currently not estimable. Moving to slide 12 and the cash flow from operating activities in continuing operations, which remained stable at 1.9 billion in 2020. This is in line with our guidance of resilient cash performance for the year. The 2020 result includes lower income from businesses in the wake of the pandemic and a favorable development of trade networking capital. It also includes a total of approximately 1 billion outflows incurred from ABB's transformation efforts. On a year-on-year basis, when excluding these impacts in both periods, cash flow from operating activities in continuing operations was significantly higher. Looking to 2021, we expect to deliver a meaningful uplift in cash flow from operating activities. On slide 13, let's look at the benefits from our capital structure optimization program now largely concluded. As discussed earlier, we are using the proceeds from the divestment of power grids on our ongoing buyback program. We purchased 109 million shares in the second half of 2020, just over 5% of our share capital. In addition, we continue to build an action start bid during the third quarter to deliver ABV in an efficient way and in a value maximizing way. In terms of debt and credit, in the fourth quarter, we opted to an early retirement of approximately 1.2 billion of bonds, which had high coupons. At the start of this year, we also were able to benefit from favorable market conditions by issuing a 0% long-duration bond of 800 million euros. Also in the fourth quarter, we transferred certain pension plan obligations to third-party insurers. In total, pension deals completed during the second half of the year cover an estimated 2.5 billion of pension obligations that were underfunded by an estimated 770 million. The deals have been enabled by about 360 million of cash contributions, as well as the transfer of approximately 1.8 billion of existing pension plan assets. As a consequence, we recorded non-operational pension charges of about 380 million and 140 million in our income statement in the third and fourth quarters respectively. These transactions are an efficient way to deleverage, significantly reducing the underfunding of our pension liabilities and making future negative cash flow and PLN impacts less likely. in summary we have significantly improved our financial flexibility using proceeds from the divestment of the power grids in a responsible and efficient way placing abb in a stronger financial position for 2021 and beyond to conclude let's move to slide 14 where we summarize the full year results You can see in the chart that although the short cycle business recovered in the latter part of the year, we remained in negative comparable growth of 6% for the year. Revenues declined by 5% on a comparable basis, but we managed to keep operational EBITDA margin stable at 11.1% with increased R&D investment in our business areas. Cashflow from operating activities was 1.7 billion for the year, including outflows of close to 1 billion related to special items stemming from our transformation and capital optimization programs. Operational EPS declined by 21% to 98 cents. However, excluding the difference in operational EPS from power grids, continuing operations EPS was 7% lower. The board signals its strong belief in future performance with a proposed stable dividend of 0.80 Swiss francs per share. And with that, let me pass you back to Björn for his closing remarks.

Yes, thank you, Timo. Let's take a look at our short-term end-market outlook on slide 15. We stick to our base case profile of protracted recovery. As indicated in the chart, on one hand, we expect some of our end markets, particularly in the short cycle part of the business, to continue to recover. On the other hand, we expect negative development to continue in some of our longer cycle business, like oil and gas and conventional power generation. For the first quarter, we also note that we face a challenging comparable of orders. This may put pressure on the growth rate in the first quarter, before we expect to return to positive order development in Q2. We foresee a fairly stable sequential market development in Q1, with a moderate year-on-year revenue growth. But I expect us to meaningfully improve margins. Forward visibility is limited. And I would say that market uncertainty increased through the fourth quarter due to the pandemic. At this stage, we foresee revenue growth for the year broadly in line with our target range. And I expect us to make steady progress in margins and earnings per share, as well as posting a solid cash delivery. Our base case scenario for gradual recovery of demand remains unchanged. We foresee an estimated growth in our addressable markets of about 5% until 2023, and we should grow at least in line with our markets in this period. This is not to be compared with the through-the-cycle growth targets of 3% to 5%. To conclude on slide 16, let us look at some key priorities for 2021, a year when I expect us to make steady progress in profitability. We have now laid the foundation for improved performance by implementing the decentralized operating model and improved performance management. We have seen the culture change in ABB gain momentum in 2020, We now need to firmly cement the culture of accountability, transparency and speed. We are already making good progress. Starting with operational performance, I clearly expect us to show good progress towards our 2023 margin targets. Our base case is not a significant market recovery in 2021. and we will continue to execute on efficiency measures. We have additional activities in the pipeline with anticipated restructuring charges of about 200 million US dollars in 2021, mainly in process automation to improve performance and electrification to drive the final mile of the GIS integration. Of course, there are challenges to manage, for example, rising raw material costs. Increased focus on value-based pricing is one way to offset these increased costs. Still, we acknowledge that we are in the midst of a pandemic and our number one priority remains the health and safety of our people. Active portfolio management is high on our agenda. and we have already moved into execution mode on the three divisions to be exited. That said, value creation is the most important for us and we will not go into fire sales. In other words, it may take some time to complete some of the deals. We also expect all of our divisional managers to build a pipeline of potential M&A targets. but also to continuously review the business portfolio with their divisions for potential consolidation. Finally, looking at capital allocation. You heard Timo talking about the stronger financial position, and we expect meaningfully uplifting cash generation in 2021. We will continue to invest in R&D to maintain a leading technology position to drive long-term profitability growth. We expect to spend about 750 million in capex. We continue to execute on the share buyback program, and the board has proposed a dividend share of 0.80 Swiss franc, in line with our policy to pay a rising sustainable annual dividend per share over time. We are looking forward to an exciting 2021. Thank you, Bjorn.

And now we will open up for questions. And I can see that there are many waiting and wanting to put questions to Bjorn and Timo. So we kindly ask you to limit yourself to two questions.

We will now begin the question and answer session. Anyone who wishes to ask a question or make a comment may press star and one on the touch-down telephone. You will hear a tone to confirm that you have entered a queue. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use only handsets while asking a question. Anyone who has a question may press star and one at this time.

Before we move into the Q&A session, I just would like to say that I understand that the operator had some technical issues while sending the pre-recording, and just reach out to us in IR to fill out any blanks, and also the recording will be available on its full on our website, so you can also go and listen in there later on. But now we move into the first question, and that will come from Martin Wilkie at Citi. Please go ahead.

Thank you. Good morning. It's Martin from Citi. The first question was just to clarify on your growth outlook for the year. I mean, you commented firstly that the market should grow a gig of 5.1% through 2023, but you commented, I think we shouldn't compare that to your 3% to 5% growth target. So I just wanted to clarify first exactly what you mean by that. And then secondly, just on the growth for the year, you've commented it should be in line with your midterm target. So is that in line with the three to five or in line with this 5.1% market growth? Thank you.

Thank you, Martin. I think I'll take that one. Yeah, I mean, what you've seen during the year is that we're slowly getting recovery. And during the quarter, we saw actually flat orders and flat revenues. Moving into next year, of course, we'll see a kickback in the markets, which we're looking forward to. And what we're saying in that guidance here is that the market short-term might be a little bit higher than, you know, over a business cycle, which we said in our long-term analysis. targets. And what we are saying here that even though we have a strong focus on financial performance getting the EBITDA to the right level 2023, we are definitely going to grow in line with the markets and maybe even exceed if we are things moving. But that's our objective on the growth part. So what I think you referred also on the second question was a little bit this these three to five targets, what we're saying a little bit here is that in the end markets where we are and what we expect to do, including M&A, we should be around three to five, but that's over a business cycle. So that means both in ups and downs. And we said actually during the capital market day that we expect the markets to grow, of course, no one knows yet, but to be 5% during until 2023 because of the dip. And then we said, of course, we will meet that. So that's a little bit what we say. I hope that explains it, Mario.

Yes, it does. Yeah, no, that's very helpful. And if I could just have one other follow-up on that.

Sure.

The point is automotive is in the gray part of the bar, negative 5 to 15. I would say a few other companies, both in robotics and automation over the past few weeks, have been a bit more constructive on automotive. So I just wondered why you thought that was going to be still quite negative for the next three to six months.

Yeah. It's correct that we've seen automotive kicking back in many parts. On the other hand, there is a lot of expectation when you look at the fully coming back to these 90 million parts, it's not 2021 as we have seen it. It will take a little bit longer. On the other hand, there is a transformation also towards more electrical vehicles, which will do that. So from our perspective and what we, you know, the one who's looking into the future of the automotive industry, that, yeah, the This transformation towards e-vehicles might keep people back a little bit from making that full investment. So we are saying that we believe that that would have some kind of impact. If you're looking at how the automotive industry impacts us, it's mostly in the robotic business. And, you know, that's been a very challenging year. for the robotics. On the other hand, that has come back somewhat. On the other hand, we are focusing more on other segments than those turnkey solutions where there is low ABB content within. So we see good opportunities in many other industries, and that's really where the big focus is today. Logistics, general industry, electronics, and Just give you, you know, an indication on that part. You know, in China, on the robots and discrete automation, we saw a 90% increase during the quarter. So there are a lot of opportunities in other segments for us. Can I just make a quick comment?

Martin, just a quick comment for everybody's benefit. I presume you are referring to the slide where it says three to six month view. Just to clarify that we are talking about here three to six month view where we still have quite a bit of COVID impact expected in Europe and US. So this is not like a full year thing.

Yeah, so if you look at the full year, it might be a little bit more optimistic.

That's great. Thank you very much.

Thank you. And we move on to the next question, and that will be from Shane McKenna at Barclays. Please go ahead, Shane.

Good morning, Bjorn, Timo, and Anne-Sophie. Just wondered if you could elaborate a bit more on the restructuring actions taken in IA, or I should say process automation, and how much of the total group restructuring you've guided for 21 of 200 million is going to be specific to this division? And then I see you've made some comments on the timeline for the sale slash spin of Turbo. As this business moves out, where do you see the white spaces in IA to plug the margin gap from its exit? And then I'll squeeze one final one in. How long should we expect this drag from lower margin system solution orders in robotics and discrete automation to continue into 2021? Thanks.

Thank you very much. Let me start to elaborate a little bit on my favorite subject, the process automation or early call industrial automation. I mean, to understand, you know, where we are on that business, you need really to dig into the details, and that's quite enjoyable from my side. In those numbers, you know, there is first, if you look at the underlying performance of these businesses, it's about 10% margin. So what you're seeing in the numbers, that includes the Kusili settlement and then another project in India, an old one which has been cleaned out recently. So that is some part. But when you look at the PEA, there are a number of, let's say, divisions that are being challenged, mainly on the service business. And this is, you know, from my perspective, very unusual. You know, when the cruising industry is standing still and no ships, and we're talking about hundreds of cruising ships, which is full with our solutions in, is not operating, then, of course, you do much less service. Also, in some power plant markets, you know, where we have turbo compressors, In tourist areas, which have been standing still, this is very unusual. So the service business is quite dramatically down compared to actually the product and solution sales. And that is giving a very negative mix. You know, these installations are not going to disappear. They are out there. And as soon as things are opening up from COVID and restrictions are getting down, this business will kick back. So we feel very optimistic about that. More challenging side, I think, from the industrial automation, it is in some of those segments, oil and gas, as well as conventional power generation. And there we're taking big actions to, you know, to restructure ourselves so we will be in line with the demands that are expecting, you know, take a little bit longer to kick back on that. So there is a lot of actions that have been done and is being done during this period, and we will expect a good coming back in margin during 2021. We feel quite comfortable about that, especially when the service is taking back. On the robotic side, yeah, we've been, I mean, the margin there is embarrassing low if you look at where a robot should be, and we have been very clear to that. That's the 15% market, you know, when we come to 2021. That's the levels where they need to be. So, yes, we have in our orders on hand, yes, During this quarter, some deliveries of what we call these turnkey solutions with low ABB content, which have low margin, which is affected. This will be some of that in Q1, and then you will gradually see improving margin because, you know, we have pretty good control over our margins of the big orders that we have received during these periods. So in Q2, Q3, and Q4, you see the gradual improvement of that part, and you should see also a good kickback in margin for this business during 21. I hope that explains it. I think, Timo, you wanted to add on a little bit there.

Maybe I'll just drop in a couple of numbers here. So on the restructuring where we say 200 million for the year, so you can look at this in a way that a bit less than 100 is in IA related and a bit less than 100 is in GIS EL type of related and rest is sort of corporate and other business areas ballpark. And then I think what Björn meant was that the market is 15% 2023 when we said we will be well within the margin range at our capital markets for the robotics business. So just throw that one thing in there as well.

Thank you. I appreciate that correction, Timo. Thanks a lot.

Thank you, Shane. And now we open up for the next question, which will come from Guillermo at UBS. Your line should be open now, Guillermo.

Thank you. Good morning, Nancy, Bjorn, Timo. I wanted to ask a question on robotics and disinformation, maybe adding short cycle exposures at ABB. And I guess, obviously, very divergent trends now in China, Europe, and America. And I wanted to focus on China. First, how was China doing through the quarter? What kind of shape of growth you saw on basically month-to-month basis? And what would you think the environment is at Q1 stage for the visibility you do have at the moment? And in Europe, obviously, Germany also on, I would say, sequential flat, or if I take your comments in the right way. But how did it evolve through the quarter? And what would you think about the sequential development, I guess, in Q1? Thank you.

Thank you, Gemma. Yeah, let's start with the robotics in China. It's, as I mentioned before, that it was quite actually robotic part was actually 95% improvement compared to last year. So it's quite a dramatic, you know, we have a strong robot position in that market. And of course, a lot of good orders also from the electronics industry, which has helped us great there. So I think the whole, I think the whole year has, or let's say the last half year has been gradually improving on the Chinese market. And you saw also our robotic side now was actually, if you put back, or robots and discrete automation, if you put back the 50 million adjustments in orders, it's actually flat compared to the year before. or 2% improvement, actually, from previous years. So finally, we are moving into the right direction. Europe is trailing a little bit, I would say, and Germany is an important market there, and it's quite heavy lockdown at the moment, so we feel that there are effects from that. On the U.S. market, on robotics, we are not that strong. We have quite a weak market share and a lot to be done there, so we are not really benefiting from that. from big kickback there in the automotive industry in the North American market. But, you know, I think the important thing from robotics for the year, we've done a great job during the year to put that business in relation to the demand in the market. We spend more on R&D than we've done ever before. And we are actually launching a whole new range of collaborative robots during the first quarter now in February is what we are quite excited about. So I think robots, my belief is that robots will be a good contributor going forward.

Thank you. And if I may follow up on robotics again, on the China new plant, could I have basically a pulse check on how is that developed and the ramp up of it?

Thank you. Yeah, just on the factory there, I mean, the factory construction is going on, and from the beginning, we had an objective to have it ready in 2021, but I think it's rather be 2022 that it will be finished, and it will be the largest and most modern robotic factory in the world. So that's going to be a good support to the Chinese market, which is really doing well at the moment for us. Thank you so much. Tack så mycket. Thank you. Tack, tack.

Thank you. And the next question will come from Mattias Holmberg at DNB. The line should be open, Mattias.

Thank you, and thanks for the time. I'm sorry to get back to this, but I still don't fully understand the 2021 guidance when you say you expect the comparable revenue growth to be in line with the target, which I then interpret as 3% to 5%. You also say that you expect the market to grow above 5% by 2023. So is this that you expect to grow less than the market in 2021 or is it that you anticipate the market growth to be back in mode and so less than 5% in 2021 and above 5% market growth in 22 and 23?

I've been trying to make myself clear, but let's give Timo a chance. He's a little bit clearer than I am.

Yeah, thanks, Mattias. As we are saying, the visibility to the short-term part of the market is not exactly stellar at the moment. We can all understand that. And in our case, especially as Björn said, it depends quite a bit also on how the service business is coming back. So we are saying that at the moment, because we are saying this three to five range, we expect the growth to be at this point in time for 2021 slightly lower than the five percent for the three-year period. i.e. a little bit lower growth now in the beginning and then picking up later. Of course, as Björn also said, if we see a better market this year, we are expecting to grow with the market or better, so it could be better as well, and that's why we say also broadly in line. So, you know, I don't think these are in contradiction, but that's our expectation now going into the year with this visibility.

Thank you. That's clear. And one more. Beyond the support you expect from volume recovery, can you elaborate a bit on the most important items that you believe will drive the margin expansion year-over-year in 2021?

Yeah, I can do a little bit on that. I mean, this is, of course, the big focus and the whole setup and the foundation that we have been building during this year. And I think that's gone really smooth, actually. We have the new setup, the decentralized with the businesses with full accountability. We introduced the scorecard system, which is a performance management. There are thousands of activities out in the different businesses that is actually driving continuous improvements in the businesses. We take, as you see, a lot of restructuring costs also during this quarter and this year. And then, of course, our operations is getting a better fit going forward. So it is everything from pruning portfolio to closing factories, which we are doing in many parts of the world, as well as improving pricing and other activities. So we are driving them, and we think that the targets that we have set up, we are, of course, fully committed to them. And I think it's important from our perspective that you will be clearly seeing an improvement in the right direction starting 2021. So coming from a challenging year, we're looking forward to an exciting 2021 for ABB. Thank you so much.

Thank you. And then we follow up with a question from Morgan Stanley. Please, Ben, are you on the line?

Yes, I am. Good morning, everyone, and I hope everybody is safe and well. So apologies for laboring the point on robotics, but I wanted to understand exactly how the team are thinking about it in terms of direction. If I look at the information that was given at the capital markets event in February, If I simplify it, the overall market, addressable market for robotics was quoted at just under 20 billion, of which roughly 20%, 3 billion or so, was basically EV. And the ICE portion going down. Am I correct in assuming that what you guys think is that the addressable market overall for auto robots would come down. EV grows, but ICE comes down more. So that's the first part of the question. The second part is, if that's around half of what you do in the division, is your assumption that you can kind of offset that with electronics and general industry? Is that the right way of thinking about it?

Wow, Ben, that's pretty detailed. When we look at the automotive industry, we're saying that the EV part of that business is increasing gradually. It's going to be doing – there we have, of course, a very strong position in most of these installations that are coming. So I think that will support us towards the – to the automotive industry. What we have done, which I tried to be clear, is that we take a little bit more cautious look on the automotive when it comes to these turnkey solutions where we have very few. So that's holding it down. So we, of course, see good opportunities in other segments, which is actually moving quite dramatically, and we believe that that will compensate for the lower sales within automotive industry. So, yes, we are quite optimistic on that. But it's a combination here of that, you know, the margin on that low automotive side will be compensated with a higher margin business from other segments. That's the importance. And that's how we're going to get back to the margin corridor also for the robotics. I don't know if I was clear enough there, but I'd be happy to give you a little bit more from Sami there. We can connect you a little bit there into the details on the automotive side.

No, thank you. I understand directionally how you guys are thinking. And one follow-up for Timo. Timo, I wanted to make sure I properly understood exactly what you guys are communicating on the cash flow. In the press release, the point that's made in the cash flow section is that X, the sort of one-off effects this year, your continuing cash flow, as I understand it, would have been 550 million higher. So just doing sort of back of the envelope basic math, if I take the 1.875 of continuing cash flow and add back the 550 on a pro forma basis, Am I correct to assume that our sort of starting point for cash flow this year is about 2.425? Is that the right understanding?

Thanks, Ben, for the question. No, I actually think you are a little bit too conservative there because we are also saying that our restructuring, which is, of course, in kind of like both of those comparable numbers, 19 and 20, goes down further 200. So if you turn that to cash flow, you would add 200 into the cash, and then we're also expecting, as we discussed earlier, some growth and also profit improvement, which would also drop down, so it should be better than that.

Understood. Okay, but just pro forma for last year, our starting point is 2.6, or thereabouts, X and E organic improvement, basically. And then we have 750 of capex, approximately, to give us our free cash flow. Is that a fair way to think about it?

Yeah, I would say 2.6, 2.7.

I can see my model now. Thank you very much. All right.

Thanks, Ben. And now we see Daniela Costa from Goldman Sachs. Are you on the line, Daniela?

I'm on the line. Good morning. Thank you for taking the question. I'll ask three quick things. First, I mean, we've been hearing a lot about, like, shortages of semis and other components and high transportation costs and a a lot of inflation. Can you elaborate, like, within your margin view for 2021, kind of how is the balance between this inflation on raw material and input costs and pricing? Can you hear me?

Daniela, please, I didn't really get your first part of the question. I understand some of the raw material you said, but you started the question with what?

I think it's a semiconductor component.

Oh, I, yeah.

Okay. Yeah, I mean, looking forward, we mentioned in a couple of places in the press release that there are raw material sources. increases that there will be some headwind going into 2021. We've been quite well hedged at the moment, and this will gradually work itself in. We, of course, our business is taking mitigated actions, not least when it comes to value-based pricing, which is being quite active at the moment, of course, and a lot of other restructuring activities. efforts that are being taken. So from the margin perspective, I think you should look at following. Where are we today? Yeah, I mean, if you add back to Celia and some of that non-core things on the part, our basis is about 12% running rate margin for the business. Then 2023, where I have promised, the other one I promised within a corridor, but I promised 15%. So you can see that gradually, you know, we should see moving, you know, equally in the direction towards the target of 2015. So you should clearly see that we are moving the right way when we are moving out of the next year. I don't know if I can be more clear in my guidance without telling you a number.

Okay. Sure. And then just a question on the recovery we're starting to see on electrification. I was wondering if you could comment on distributor inventories, whether there's been any restocking or vice versa.

No. I mean, electrification is a great story coming back. And China is one of the strong driving, you know, very, very strong driving force for the electrification business. So that have developed a little bit better, both when it comes to the growth number, as well as the margin number, which is quicker, which is quicker coming there. So yeah, I think they are on a good way towards the margin corridor, which they have committed to. We feel comfortable about that business.

Okay. Thank you. And one final question, kind of going back to the CMD in terms of the three businesses there are in their investment, I think you've mentioned one could, could potentially be a spin, but given that it's taking slightly longer to maybe sell them, why not just spin them all?

Yeah, but now I don't think we're taking longer time. I think we were pretty clear on that part. These three businesses are really high value business, well performing in the market. But the only thing we said that we are not going to have any fire sales here or any COVID discounts on these businesses. So we're going to make sure that we get full paid for them. And the first one, which has been extremely resilient in the downturn and still performing fantastically during the whole COVID, is the Dodge business. That's why we say that that is probably the first one that we, and we have actually started the process, and we should be doing that during the first half year, somewhere there. There is, of course, separation work that needs to be done and takes a little bit of time and time. And we need, of course, our support from the advisors also to move it. But there is a big interest for this business, and we start. The second one will probably be turbocharging, which is also a very strong business, even though they have some effect from the service business, which is 75% of that business, a lot in the cruising industry where they have a lot of turbo on the engines, on the vessel engines. That's been hampered a little bit, so we want to see that business coming back a little bit so that business will be fully valued. Then we don't really know if that is going to be a spin-off or if we do sales of that one. That's a later decision that we will take.

Understood. Thank you very much.

Good. Thank you.

Thank you, Daniela. And we'll finish off with a question from Andreas Willy at JP Morgan, please.

Good morning, everybody. Thanks for your time. I have two questions, please. The first one on machine automation, B&R. Maybe you could talk a little bit more about what's going on there. We've had the management change at the end of the year. We had the Goodwill write-down, which we already discussed in Q3. You had this order reversion now in Q4. What's not gone right there that you want to put right now with new management? And the second question is on price cost, particularly in electrification, but probably also in the motion side. You mentioned the raw materials. Are we going from kind of a net positive you had in the second half of 2020, where prices were resilient and raw materials were down to more of a neutral, or do you expect actually to see a temporary negative price cost in the first half of 2021?

Okay, let me start with the BNR, which is a great business where we've also seen a fantastic recovery during the last quarter when it comes to orders. That looks quite exciting. Yeah, we took some goodwill right off during that period, but maybe you remember this has been part of the transformation of ABB we're doing. All the goodwill was earlier centrally in the group, and we still have a lot of goodwill left here for EOSA businesses that we are not really selling. And now when we move the goodwill out into the businesses because we want the businesses to carry the goodwill from their acquisition, we think that makes good sense. And then there was some goodwill which was not really related to the B&R business. It's actually to another acquisition with earlier. And then we got the opportunity to of course offset that and write that off. So that's no negative to the management of the BNR people. So they are totally free from that. On the order reverse side, yes, it's correct. We are changing a manager and hopefully next week we'll come out with a press release who will be the new head of that business. But the orders on hand, these are orders that were in the order book since long before, and that is actually being reversed. It's not even orders that we received last year, but even further back. Now we are taking that out of the book because that will not be delivered, and that was $50 million. So that is hitting them. So I wouldn't blame the management for any of these two. Maybe on the order side, that could have maybe been cleaned up. But I think it's fair for the new guy who comes in to run around this also that the orders on hand are fresh and sound. That's part of it. But, yeah, we think the B&R business, you know, from my perspective, when we talk about this business, this is a business we should be, you know, we're growing that business, but it should also be more profitable than we are today. And I think we need also to have a management to have the same ambition on this, and I think we will have that now. We'll take it to the level where it deserves to be. But otherwise, I think we're in a good position. And as I said in the report, we actually had a lot of wins, you know, when it comes to new OEM customers during the quarter. So finally, we're getting some tailwind on this business also now. It was a little bit challenging in the beginning of the year when the COVID was hitting. But we're pretty optimistic for the year to come. Does that explain it, Andreas? Is that good enough?

Yes, thank you. And on the price-cost?

Yeah, on the electrification, yeah, it's correct. Last year we reported that the price increases had a good impact, of course, in the improvements over the years. We've seen many of the mineral prices going up during the year, which is fantastic for the mining business. You know, for being an old mining guy, it feels always good. But, yes, for us, we have a lot of copper in our products, both in electrification and in motion. Yeah, it will have a negative effect. We're already seeing that, but we are well hedged for this year, that last year, and in the beginning of this year. Then you will see it gradually come into the year. So they have been more aggressive start of the year to make sure that our pricing is in line to cover this. There is a risk, of course, that this will have not as a positive thing on the price there might be some negative effects on the results from pricing compared to pricing input from materials side there for the year. But that is, of course, going to be compensated by the integration of GIS and all the efforts that are being done by closing factories and getting the portfolio pruned and so on. where we should continue to see good profit improvement of that business in line with as we move forward.

Thank you very much.

Thank you.

Thank you. And with that, we close this session. Thank you for your attention. And if you have any additional follow-ups, please reach out to us in investor relations. All that remains is wish you another good quarter until we see you next time.

Thanks a lot, all of you. Thank you.

Ladies and gentlemen, the conference is now over. Thank you for choosing Coruscant, and thank you for participating in the conference. You may now disconnect your lines. Goodbye.