ABB Ltd

Greetings to you all and welcome to the presentation of ABB's first quarter results. I'm Ann-Sofie Nord, Head of Investor Relations, and in a moment I'll be joined by our CEO Björn Rosengren and CFO Timo Iyamottila. They will take you through the presentation and then we open up for a Q&A session. Before we begin, I would like to draw your attention to the information regarding safe harbour notices and our use of non-gap measures on slide two of the 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 pass you on to Björn and Timo to take you through the results.

Thank you, Ansi, and a warm welcome from me as well. Of course, you already knew the headline numbers before today as we sent out the trading update a couple weeks ago. We felt it was the right thing to do, both as the market and our performance turned out even better than we expected. It is good to see demand coming back in the market and to see continuous recovery from the lowest point last summer. Of course, the stronger demand supported results, but is also good to see that our internal efforts to increase efficiency are paying off. We are reporting a very high margin of 13.8%. I also want to highlight the stellar cash flow of 520 million, very strong for the first quarter, which normally is a soft quarter for cash. This was supported by, of course, the strong earnings, but also by good management of the networking capital. I'm pleased about the progress, and to me it's a strong signal that we are focusing on the right things and we are on the right track. Before we look closer into the development of Q1, I have two things on this slide which I especially want to highlight. First, I'm proud of the launch of the new Cobot family in RA. I think the timing is good as we are now see a very strong development in almost all robot segments besides automotive, where we intentionally are slowing down activities in low margin system business. Through this launch, we can offer the broadest COBAT portfolio in the market with both higher payloads and speeds. And importantly, They are very easy to install and program. Even I can do it, which is a good indicator how easy it is. Customers just take it out of the box, do an easy programming without having engaging any external programmers and then start working. It is a quick way to increase automation in, for example, material handling, assembly and packaging. I want to show you a short video on the Gopha and Swift. So enjoy. Thank you. I hope you got a good feeling of the offering. Through this launch, we aim to unlock customer groups which currently are low level of automation. The second thing I want to mention is the topic of active portfolio management. We have separated our EV charging business into its own division called e-mobility. This is an exciting and fast growing business and we want to make sure we put it in the best position to accelerate growth and development. Today we have a market leading position and we want to make sure that we stay ahead. To create the value platform for accelerated growth, we are looking into the option of a possible public listing of the business. We are evaluating pros and cons, and we'll update you as soon as possible on the way forward. I will come back and describe the mobility business later in this presentation. Now let's look a bit closer at the business development in Q1. As you can see on our order chart on the right hand side of the slide, we have had a good sequential momentum since the lowest point during last summer. Demand was driven by a strong development in the short cycle business, which improved by about 15% from last year. And it was driven by most customer segments, for example, residential buildings and discrete automation. In the process-related industries, underlying demand in segments like water and wastewater and chemicals was very positive, but that was offset by the soft demand in oil and gas, although there were some initial signs of stabilization. The aftermarket in the marine business continued to be weak, highly affected by the low activity, especially in the cruising industry. The bars in the chart shows that Q1 tends to be a strong quarter for orders. And in total, our orders were largely stable, plus 1% year-over-year, with the base orders up 3%. We believe some demand was extra fueled by customers building inventory to secure components availability. That said, it's difficult to assess exactly to what extent. Revenues were up 7% from Q1 last year when we started to feel the impact of COVID-19. Now let's take a quick look at the different regions here on slide number five. If we compare sequentially from Q4, we see a positive underlying business momentum in all the three major regions. Compared with last year, it is clear that China is the main growth engine. with orders up 24%. However, this was offset on a regional level, and Asia and Middle East was up 2%. America was stable, with U.S. actually declining 2%, as last year had no real COVID impact and more large orders in process automation. Base orders were up 4% in the U.S. Europe was up 3%, with a mixed picture from different countries. But our largest market, Germany, increased slightly. Our margin was very strong in Q1. Although revenues increased, our SG&A expenses declined by 4%. This is good, but of course, the continued restrictions on travel, et cetera, also supported the result. But importantly, our gross margin improved by 220 basic points. Three of our four business areas improved, and the support was mainly from increased volumes, but also from structural improvements, including portfolio management and some plant closures. Those of you who know me are familiar with my passion for technology and R&D. Our R&D spend increased 6% year over year, and it is important we stay focused in this area to remain a technology leader. And with that, I hand over to Timo, our head of number crunching, to go through the results in more detail. So please, Timo.

Thanks, Björn. Nice crunching this time, so I'm glad to take you through the details. And let's start with electrification, where comparable orders and revenues were up 9 and 11% respectively year on year. Clearly, the underlying markets improved, and we saw it in virtually all segments except for in oil and gas, which remained overall muted. That said, demand was also to some extent fueled by customer building stock in the face of tightening supply situations. Now it's difficult to call out the exact impact here, and let's see how this pans out, but there was an element of stockpiling in Q1. The higher volumes drove better cost absorption. Add to that the positive impact of electrification having taken prompt actions on pricing in order to offset the oncoming headwinds from higher raw material costs, while still enjoying the benefits of lower input costs this quarter. The situation should change as from Q2 when raw materials bought at higher rates come out of inventories. In total electrification, operational EBITDA margin increased by 480 basis points year on year to 16.2%. Looking ahead at the second quarter, we anticipate growth rates to reflect the easy comparable from last year. and be in the mid-teens range for both orders and revenues. We expect a slight sequential increase in margin in line with seasonal pattern. Let's then turn to slide 8 and business area Motion, which delivered yet another quarter of solid performance. In absolute terms, Motion delivered one of the highest order quarters in recent history. There was admittedly some support from FX, as on a comparable basis, orders declined 4%. Revenues were up 6%, with development reflecting strong book and bill and solid customer activity in most sectors, except for oil and gas. The operational EBITDA margin of 17.1% was up by 180 basis points. And the main drivers were the contribution from additional volume, as well as a supportive divisional mix and low discretionary spending. Also in motion, the higher raw material cost will have to be offset as from the second quarter onwards when older hedges start to phase out. We are also carefully watching the tightening of the supply in areas of semiconductors and also electric steel. This could particularly impact our drives products division. For the second quarter, we anticipate comparable order and revenue growth in the mid single digit range and overall continued solid operational execution with some risk on the semiconductor availability to the business mix. In process automation, orders declined 11% year on year due to fewer large orders received this year and weak demand in the oil and gas and also parts of the marine segment. On a more positive note, business activity increased in pulp and paper, chemicals and water and wastewater. On a sequential basis, the underlying customer activity remained largely stable. The order backlog at quarter end was 5.9 billion, up about 100 million from the end of Q4. Revenues declined 9% on comparable basis. the negative volume development was offset by the positive impact from earlier implemented cost measures, stronger operational execution, and positive impact from foreign exchange rates. In total, profit improved by 8% and margin by 130 basis points. In Q2, we expect significant growth in orders, and we expect revenue growth to turn to positives. margin should remain broadly stable on a sequential basis. On slide 10, we turn to robotics and discrete automation, where we saw a steep increase in business activity in both robotics and machine automation in most customer segments outside of automotive. The bleak automotive development in orders relates both to the underlying market as well as to our active choice to deselect system-related orders in order to improve long-term quality of revenues. Revenues rose by an exceptional 19% year on year, supported by strong execution on deliveries from the order backlog, as well as a generally strong development in the short cycle business. The operational EBITDA margin of 12.4% was up 360 basis points year on year, with particularly good performance in the machine and factory automation division. The rise was primarily driven by better cost absorption due to higher volumes, positive mix from higher share of service revenues, and previously implemented cost measures. RA is the area where we see the largest near-term risk for delayed customer deliveries due to semiconductor constraints in the market. We expect protracted delivery times in some areas of RA already in Q2. Overall, looking into Q2, we expect double digit growth rates for comparable orders and revenues with higher growth rates in orders. We expect slightly lower margin versus Q1. We look next at our group revenues and operational EBITDA bridge on slide 11. As you see in this table, the strongest contribution to the year-on-year progression comes from the organic development. The volume leverage was good, and we also benefited from our earlier cost actions and somewhat abnormally low discretionary spending. Cash flow from operating activities of $523 million up over $900 million from last year is very strong for a first quarter. As you can see in the chart, Q1 tends to be seasonally low for cash. Please note that we compare here continuing operations only, and thus the cash flow numbers here differ from what we reported when power grids were still part of ABB. This very strong and good cash result reflects higher income from all business areas, less working capital buildup, and favorable timing of tax payments. This is a good start for what we expect will be a year when we see meaningful improvement in our cash delivery. Then to finish off, I just quickly want to discuss the outlook statement. For the full year 2021, we expect comparable revenue growth of about 5% or higher. The short cycle is already supportive. And like we have already said before, we anticipate the process-related industries to start to recover during the second half of this year, including the service business in the marine segment. Our operational EBITDA margin should improve at a steady pace towards our 2023 margin target as described in our release today. In Q2, growth rates for comparable orders and revenues will benefit from lower base due to the COVID-19 impact in 2020. We anticipate comparable growth to be at least 10% year on year with higher growth rate for orders than for revenues. The operational EBITDA margin for the group is expected to be approximately 14% for the second quarter. Our estimates can be affected by development of the COVID situation as well as by component availability. And with that, let me hand you back over to Björn.