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.

Thank you, Timo. I would just like to close this presentation by coming back to the e-mobility division. In this division, we offer EV charging hardware, but also look to grow in the digital services for EV charging operators. This could be services like analytics and real-time fleet management for scheduling, billing, registrations, etc. It generated about 220 million US dollars in revenues last year. We have grown this business at about 50% CAGR since 2016, and we achieved a number one position. This business fits right with the secular EV trend, and we expect to see continued strong growth. To secure our global leading position, we have invested to broaden the geographical scope by acquiring the majority stake in ChargeDot early last year. They are the leading Chinese e-mobility solution provider. Like I mentioned, we have now separated into its own division. We have also initiated the process by separating it into its own legal structure and to explore the option of a separate listing. We do this to create a high value growth platform where we can accelerate our organic and non-organic expansion. At this stage, I will not put a timeline on things, but I promise we will let you know as soon as possible about any new decision on how we extract the full value out of this business. And with this, I will ask Ansi to open the Q&A session. Please, Ansi.

Thank you, Björn and Timo. So we will now open up for Q&A. And should you want to ask questions, please register by pressing star 14. And to secure the sound quality, please remember to mute the webcast as your line is open for questions. I can already now see that we have a long queue for questions. So I kindly ask you to limit yourself to two questions and we'll do our best to get through as many of you as possible. And with that, we open up for questions. Just let me remind you again that to register for a question, please press star 14. And just to make sure you keep your line, please do so again, even if you've already done so. And we open up with a question from Martin Wilkie at Citi. Please open the line. Martin, your line is open.

Thank you, Maureen. It's Martin from Citi. So a question on the process automation mark. I mean, you pointed, obviously, in other areas, short cycle, very strong. But just to get a sense of the momentum in process in terms of when you're speaking to customers, do you sense we're close to an inflection? We get that sort of mark a little bit from some other companies. And linked to that, you still talk about service being down mid-single digit, I think. Just to give some sort of sense as to how big a drag that is on your gross margin, and also are we approaching a point where that can begin to improve as well? Thank you.

Thank you, Martin. Yeah, I think, you know, when it comes to process automation, we have a number of divisions, and I think it varies a lot between the different divisions. It's quite clear that the short cycle business, which of course includes the service, has been more affected in this business area than anything else. And we said, yes, on the orders, we were on about 7% down on service. But if you look actually on the revenues, it was down 12 or 13%. So we're seeing better orders, but still on the revenues is lower. And that is the highest margin. This varies, of course, between different segments. We've seen recovery in some of the segments. For instance, turbocharging has come back in a very strong way. We've seen good in the mining part of the business. While in the oil and gas, it's still holding back a little bit. Marine is, as you know, affected. We have good orders on hand from last year, so we have an exceptionally good order book. But these deliveries will come during the coming quarters from that perspective. And on the service side, we know that the cruising industry is of greatest importance for our acid parts as electrical propulsion side. And that business is still, I mean, it's standing still. We know that they have good order levels actually in the cruising business for the second half of the year. So hopefully, when the vaccine is being spread out more, we'll see this industry to come back. But we shouldn't see that really into our margins and revenues before the second half of the year. So it's pretty clear, as you can see, it's a process automation that has the biggest headwind at the moment. But there are some light in the tunnel in numerous of these segments. And we think by the third and fourth quarter, we should be back in levels before the pandemic.

And in terms of the shape of that when it comes back, I mean, Does a lot of this kit need servicing before it goes back to utilization? Do you almost see an elastic band big snapback in service? Or is some of the service revenue simply missed and it'll be caught up the next time the kit is due for service? Just to get some sort of sense as to really how quickly that service could come back, even though it is coming during the second half.

I don't think we'll see a kickback like a rubber band from that perspective. I think it's more that when the acid parts will start working, when the engines, the large engines, the vital engines in the power plants, as well as in the cruising ships will start moving, then you need service that's ongoing. So I think last year, let's say, service part from these businesses actually lost, and we should look forward to as the equipment is operating more in that direction. Thank you. Thank you very much. Thank you.

Thanks, Martin. And we'll shoot straight off with another question. Can we please open up the line for Guillermo at UBS? Guillermo's line is open.

Good morning, Bjorn and Timo and Anansi. Thank you for taking my question. I have actually two questions, if I may. One related to the operating profit bridge, you put there volume and price. I wonder if you could give us some info about the mix between volume and price in that bridge, and also how do you see that evolving as we move into Q2? And then second, with regards to source cycle businesses, whether you see at the moment any impact from the stoppages of production that we're seeing from some automotive and actually truck OEMs, as we speak.

Thank you. I'll let Timo start up with a little bit on the bridge there.

Yeah, thanks, Guillermo. On the bridge, when you look at it, the way we calculate this volume impact is that we take last year's gross margin times volume and then price. So if you look at that, we come to something like maybe 140, 135 on volume and then also having a positive net price meaning that our price still after all discounts and stuff like that was driving positive margin. So that's how we look at the bridge.

Yeah, thank you. And on the short cycle business, I think we've seen, as we also report here, very strong growth within this area. It's clear that there are challenges in the logistics side. Semiconductor is something that we talk about, but there's also for the other components here. So we are doing our utmost to try to get, I mean, the competition is tough there. You have the automotive industry who is actually a bigger offtaker of some of these components. On the other hand, I think the way we structured in our divisions, we have 21 management team working hard to make sure that we get components, produce products and deliver. So actually in our projection for Q2, we actually include all these hazards when it comes to component shortage. I hope that answers some of that question, but it is a challenging time. That's pretty clear.

Thank you. Maybe a follow-up on Timo's answer regarding the mix maybe into Q2. How is that relationship changing, if I may?

Well, if we look at Q2, as we say, we expect more than 10% growth. So clearly we would expect a positive growth. impact from volume and of course we are doing our utmost best on the pricing side to counter the component prices so let's see how it plays out but we will have as we said if you look at a little bit the puts and takes sort of we will have a tailwind from more volume both a little bit sequentially and of course in particularly year on year, but then we will have a bit more headwind on the cost side from commodity. And then, as Björn said, we need to see how this whole supply situation plays out.

Thank you. Thanks, Guillermo. And just let me remind you again, if you want to register to ask a question, please press star 14. And we continue now with Joe Giordano from Cowen & Co. Please go ahead and open the line.

Hey, good morning. Good morning, everyone. Thanks for taking my question. I was under the impression that some of the chips that you use in some of your products are different generations than what maybe some competitors use and maybe some of the most in demand from some of the auto industry. Can you kind of talk about that dynamic and maybe this is hitting you at a different timing and maybe how to set up for that?

You know, I think it varies a little bit between our divisions and our businesses. I think where we see the biggest impact is actually in the robot business. And I think when it comes to semiconductors, they are quite similar to the one that are being used in the automotive industry. We also see some effects in the motion business on the drive side. But there we have the possibility to do some changes in our design industry. with the small technology changes which actually help us a little bit to overcome some of these challenges. So it varies a little bit. But these are the two business areas that are mostly affected from the semiconductor business.

Thanks, Joe. We can't really hear you now. If you have any follow-up questions, please reach out to us in IR after. So with that, I think we'll just continue with the second question or another question, and that comes from Simon Tonneson. Would you please open Simon's line?

Good morning. Can you hear me?

Yes, we can. Good morning.

Good morning, everyone. I've got two questions. On price cost, I think you mentioned last time that electrification was positive last year, but you were a bit more skeptical on this year, I think, at the full year results. Could you just talk a bit more about whether you think you're able to offset the roadmap increase with price actions this year, particularly for electrification, but also on a group level? And secondly, on free cash flow, you mentioned, obviously, that you seem happy with the Q1 I think, Timo, you guided for around 2.6, 2.7 billion minus capex at the last set of results. Given how you're seeing Q1 now, do you need to change your view there on full-year free cash flow guidance? Thank you.

Yeah, thank you, Simon. Maybe I'll go with this. I think it makes sense. Yeah, so first of all, on the electrification, so we had a positive net price during Q1, actually, On Guillermo's question, majority of that price impact came from electrification. Now, as I said, it will get tougher during the year, so we really have to see how it goes. But we are in a good start. And, of course, all these actions on pricing and also what we would expect to come through on the input cost from commodities and others are included in our guidance statement, as was said earlier. But I don't think I can give much more color on this. I think we have a really good and solid model here. on how we drive pricing and it really goes SKU by SKU. So it's very, very analytically based and, you know, so far so good on the start. But we'll see how it goes. And then on the cash flow dropping to free cash. So compared to what you said, I think we should see a bit better equation. And the way to look at this is that we should basically see our operating result increased drop to cash. And then, of course, depending on the growth dynamics, we can't really say what happens with networking capital, but we had such a good performance in Q1 that I would be surprised if we would lose all that during the year. And then using our CapEx guidance of 750 and then tax rate of 26, just assuming that that tax is sort of cash at the same time, you come to a bit higher free cash flow number than what you mentioned.

Thanks, Timo.

And do we, there was another question on electrification or? I think we covered both. Oh, we covered that one. Sorry, I fell asleep. So we'll move on to the next question that comes from Daniela Costa. Would you please open Daniela's line?

Hi, good morning, everyone. Thanks for taking my question. I wanted to ask two questions on the portfolio. The first one, just regarding sort of What prompted you? What was the motivation to do the announcement on the e-mobility now? I guess you've done three announcements on portfolio in November at the CMD. So wondering sort of what changed or if this is part of the broader process of other things you're still revisiting and kind of you will make these type of announcements going forward. And then maybe I ask the second one once you've answered this one.

Thank you, Daniela. I think it's a very motivated question because When we look at the e-mobility and e-recharging, this is actually core of our electrification business, and we definitely want to be in this business and benefit both growth and profitability from the future of this business. The reason why we've taken this step is that the business is a little bit different from some of the other electrification businesses. It's much faster growing. We mentioned it has... CAGR of over 50% since 2016. And this first quarter, we had actually 120% growth in this business due to some great orders that we received. The important now, I think we do expect that this market is going to accelerate with all the measures that are taken by the politicians in the direction towards more electric vehicles. And we have a market-leading position, and we want to secure this position also going forward. So we are actually creating what we call a growth platform. So we are not planning to lose control over this business, but we expect this to be a significantly higher value than APB by itself and gives us a good platform both to grow organic, but also through acquisitions. Here we are really focusing on the software part. And we all know that the multiples in this business are high and we will use this platform to make sure that we have this leading position going forward. So it's the ABB brand and the control of ABB will definitely remain. Perfect.

Thank you. That's very clear. My second question relates to the other three divestments, which you've said you are on track. Just thinking about the allocation of the proceeds later on. Shall we look at this more like they're like power grids, you give back the cash to shareholders, or do you need to keep some of that for potential future M&A purposes or other organic investments? If you can shed any light there, that would be super helpful. Thank you.

Sure, Daniela. And I think, you know, our capital structure is quite good at the moment, and we are well prepared for doing acquisitions. Of course, we want to use the proceeds to grow the businesses we are. And we are moving into more growth mode in more of our divisions, where we will actually be focusing on both organic but very much on acquisition from small to medium size here. So that's our primary target to use the exceeds for that. If we wouldn't find the right targets or if we would have too much cash, we have no intention to become a bank. Then, of course, we have to look at different ways to transfer that money to our shareholders. In the end, our objective is to create shareholder value going forward.

If I can add to that, no change to our capital allocation principles before what we have said earlier. So exactly in line with what Björn said.

Yeah.

Thank you.

Thank you.

Thanks, Daniela. And then we move to a question from Ben Uglow. Would we please open Ben's line?

Morning, everyone. I hope that everybody is well. Question really for Bjorn. Given how significant some of the kind of comp effects are between year and year, et cetera, can you give us a sense for how business was trending in China during the quarter? So if we look sequentially January through April, how did kind of demand move and were there any particular end markets? that either strengthened or softened?

You know, I think we've seen strong China growth ever since second quarter and moving forward. And that has become stronger and stronger. And this quarter we saw 23 percent growth. Give you a little bit of flavor on this one. I mean, electrification grew with 50 percent. I mean, that's that's a huge number. In last quarter, we saw the robotics actually growing 95%. So, you know, from that perspective, there are certain areas which are peaking up a little bit during the different quarters. But, I mean, 23% is a very, very strong market, especially when you say it on the process automation, which was actually negative. So for some of the other businesses, good growth. Even Motion had a very strong quarter from China. Is that sustainable, you know, going forward? That's very difficult to say. But I mean, normally, when you look at ABB business, we should grow in line with the GDP development in the country. And now I think things are coming back a little bit from the COVID. And of course, we do not expect these kind of growth rates if we go further forward.

Thank you. And a couple of follow-ups. I mean, just in terms of obviously I understand the year-over-year growth, the 90% and the 24%. What I'm kind of just trying to get a sense of is the actual kind of level of activity as we go kind of month by month, i.e., you know, was March a kind of acceleration over what we saw in Jan, Feb? How does April look versus March? So basically that sequential change. kind of trend was really what I was trying to ask. The second question may be for Timo. On working capital, could you just – you've had a $700 million sort of benefit from working capital in the quarter, i.e. it's a $700 million less outflow. Well, in response to Simon's question, are you basically thinking we can kind of hold on to that over the remainder of the year? Is that the kind of informal guidance?

Maybe I start up then with the China questions. I think we've seen good growth during the quarter. But as we mentioned in the report, very strong ending on the March side. And I think we've seen continuous good growth also in China. in the beginning of the Q2 from that perspective. But I mean, if you, I mean, we've been communicating strong market for, you know, more than six months at the moment now. And I think it can go up a little bit a month and a little bit down another month. But overall, I think it's quite a strong movement and it had definitely not weakened during March. So more transparent than that would be difficult to say.

Maybe adding to that, we had more trading days in March as well, which drove the short cycle. So in a way, March was very strong.

I think it's a good point, Timo, that when it comes to electrification, where we had this 50% growth, it's, of course, more trading days during March. And that is quite a lot.

Yeah, so thanks a lot, Ben, for that clarification. I didn't even think about it. I should have gone through the networking capital components for Q1. So if you look at the so-called operating networking capital, receivables, payables, inventory, there we made about 250 million of progress. And this is really more what I was referring to. And then we have about, you know, 400, 450 coming from tax and other items like that. Also some prepayments, for example, related to the solar exit, which happened Q1 last year. So there was a bit of a prepayment change there. We also had a little bit of power grids related tax outflow Q1 last year. So I was really referring to this operating networking capital bucket, which improved about 250.

Understood. Thank you both.

Thank you for re-asking the question.

Thanks, Ben. And then we'll take a question from Jonathan Mountsey. Can we open Jonathan's line, please?

Good morning. Thanks for letting me ask a question. Just thinking about the growth outlook maybe on a multi-year view now. Obviously, since the last time you reported, we've heard a lot about stimulus. And actually, we all just came off the Schneider call where they were talking about maybe their growth outlook may now on a multi-year view appear to be near the top end of how they think they can grow. Do you sort of see the same opportunity to grow near the top end of the range that you've put out there at the C&D? And if so, is that going to cost something in terms of investment in growth? Are we going to have to see CapEx, organic investment, R&D, et cetera, all rise to capture the opportunity that's likely to be there over the next decade or so?

Thank you, Jonathan. Let me talk a little bit about growth. Yeah, I mean. You see in our projections for the second quarter, but that comes, of course, also that the comparison is, of course, much softer. You know, we were down on orders about 10 percent during Q2 compared to 2019. So we are saying that we will grow faster. That means that we are back in pre-COVID numbers and maybe even exceeded that. Then as we move during the year's The comparison will, of course, be tougher because we've seen gradual improvements during Q3 and Q4. So from that, I don't think we will be expecting to see that kind of growth numbers when we come closer to the end of the year. But I say, you know, we were, you know, when it comes to the growth numbers and we were maybe criticized a little bit when it comes to growth projections during last quarter. But I must say it is very difficult to foresee really what is going to happen. And, you know, we don't want to promise too much. We say that, you know, things that we believe that we can deliver on. Of course, stabilizing after COVID, it might be easier when we move into Q3 to Q4 than it is to see the future at the moment. But it's pretty clear that the comparison numbers are quite low for next quarter. Thank you.

Thanks, Jonathan. And we please open up the line for Alex Virgo. Alex, are you on the line?

Thanks very much. Good morning, everybody. Thanks for taking the question. I wondered if you could dig a little bit into the dynamics around robotics and discrete automation. and how you see the, I guess, the outlook in terms of water intake there in particular. But also, we now sort of crossed a line in terms of putting the lower margin backlog behind us, and now we're looking at a more stable base north of 10% margins, or I guess north of 12% now.

Thank you. Thank you, Alex. Let me talk a little bit about robotics. I think, I mean, we are very pleased to see the recovery, both when it comes to this discrete automation being our business as well as the robotics. When you look at the numbers, maybe you're not so impressed when you see minus two. But if we actually lift out the automotive business, we intentionally actually are taking down, you know, that kind of system business. Robotics is actually growing 20%. And we are growing even a little bit faster than that on the discrete automation. So all segments within robotics besides automotive is super strong at the moment. And that's, of course, driving good gross margin, driving our strategies to focusing on these more quality of revenues, these more profitable segments where we really think also the future for robotics is. So from that side. Yeah, we are convinced that robotics is well positioned in the world. We believe that robotic business will grow going forward, sustainable growth from that perspective. I mean, margin kicked back a little bit extra, but we had good invoicing during this period. We have projected somewhat lower margin in Q2 from the part, but You know, in the long run, as we said, towards 2023, this is definitely a north of 15 percent business and that we stand for. It's a high tech business. It's well positioned and we should see good growth number from that part. But I mean, I think from all of us in ABB, we are very, really happy to see robotics both coming back in the market as well as on the margin, you know, where they belong.

That's very helpful, Bjorn. Thank you very much. Thanks.

Thanks, Alex. And we go to Andreas Willi and take the next question from him, please. Will you please open the line for Andreas?

Yeah. Good morning, Bjorn, Timo, Nancy. I have a follow-up question on robotics and one on the restock. On robotics, maybe you could help us a little bit in terms of what's the remaining level of auto system business that is left. So when we forecast the growth of the division and when you expect that exit or reduction to be completed, whether the growth moves more in line with the underlying trends. And secondly, on the restock, as you said, it's hard to quantify. Schneider this morning said it probably is around 1.5% to 2% contribution to their 13.5% organic growth. Is that a number that would make sense to you in terms of magnitude as well for ABB?

I mean, if you talk about the growth numbers, of course, we could have pushed up growth even more during this quarter. But I think it's very important when it comes to electrification, which is the area where you see probably the most of this stocking, is that many distributors try to place big orders and to get good deliveries to secure future deliveries from that part. We are, of course, working actively with all these partners around the world not to end up the products on the shelves and that they go directly to the customers. So there is a hard work from the business area and from the divisions there to make sure that the orders that come in actually will be delivered out there. But it's clear. I mean, we share Schneider's viewpoint that there are a number of percentages in that point, which is probably related to... It's a little bit difficult to determine exactly, even though we try to go into every order and figure this out. But I think the number that Snarjus gives gives a pretty good picture.

And there was the robotics backlog question.

Yeah, okay, on the robotics part, I think what's good is that we've seen good orders lately, you know, with better margins. And I mean, for us, it's very important that the quality of the orders coming in and with a good gross margin. And that's what we've been seeing from other segments and the automotive. If you look at the automotive, I think that was down 65 percent compared to last year on these system sales. So we are slowly transferring this over. We are, of course, delivering out what we have promised and we run that but that will sequentially during this year become a small, minor part of the revenues within the robotic business. So I think the strategy that they have put up with a strong focus towards some of these new growing segments, where we also think the value for the customers are seen on a good level where we can get good paid.

Thank you very much. So it basically means by the end of this year, this transition is largely completed.

I think that's probably to be expected. Yes.

Thank you.

Thanks, Andreas. And now we take the next question and open up the line for Shane McKenna from Barclays. Can you hear us, Shane?

Good morning, Bjorn, Timo and Ansi. Can you hear me?

We can.

Yes, we do. Perfect. Bjorn, on the call you mentioned a recovery for Turbo. Are you able to give us an update on the trading margin performance for not just that, but for the disposal businesses, especially given marine exposure within Turbo? Are you expecting this to return to pre-crisis levels before year-end as that service activity starts to recover in H2? And in terms of timeline, are you still thinking the Dodge business leaves the group first, followed by, obviously, Turbo? towards the end of the year. And then just as a follow-up, can you give us a bit more background around the decision to change management within measurement and analytics? What's needed here to get the margins in that activity up in line with the divisional target? Do you need to make acquisitions to sort of grow that business more? So, yeah, if you could give us a bit of an update there, that would be great.

Okay, starting up with the Turbo. So, I mean, as you know, they've been suffering a lot from the low activity on the service part during last year. I think it's really great to see that during the first quarter this year, they are really back to pre-COVID times, which means also that the service revenues come up to really good levels and the performance of the business is more or less back where it was before COVID. before COVID. So that's very encouraging. The same with Dodge. I think Dodge business has been the most agile business here within the group. They have barely been infected negatively at all by the COVID side and they continue to develop in an extremely good way. So good credit to the whole management teams from both of these businesses. On power conversion, I think we mentioned that we are a little bit more hurt by the COVID. On the other hand, we saw good orders, really strong orders coming in during Q1 in this business, which will help us to get back in margins that that business should be. But that business, we probably will not start the diversity this year, but maybe next year. Yeah, when it comes to the exit, I think Dodge is clearly the one first. I think the process is going full speed. And I think maybe... in the beginning of the second half, we should be able to sign on that side, somewhere around there. And turbo, I think, I mean, you know that we are looking into the possibility for a spin-off here, and that would probably be by the first quarter or second quarter next year. So around there we are, but we should know more in what direction when we come closer to the end of the year. It's quite a big job to separate these kind of businesses that have been well integrated into a group like ABB. So we have full respect for that work, which is similar to what we saw with the power grids. On the measurement analytics, yes. I mean, we are transparent now in our in our way, set up with the divisions that are fully accountable for their performance and improvement. We have put up really tough targets for 2023 for all the businesses. We got a full commitment from all of them, and the business need to deliver in line with those promises. If we don't, yes, of course, we need to make changes, and I think here we hadn't seen enough progress, which meant that we needed to put some new fresh blood and new management into here, which have started. And I think so far, of course, the market's come back and we're seeing good progress already. So we will hopefully see that changing during the year. Understood. Thanks a lot.

Thanks, Jane. And we open up for questions from Andre from Credit Suisse.

Good morning. Thanks so much for taking my questions. May I just venture into your full year 21 margin guidance, please? If I can dare to do that. So we've got 13.8% in Q1, and you're guiding for 14 for second half. And then the language is kind of steady improvement, but towards the upper half, which begins at 14.5. Is there any way to kind of calibrate it? It sounds like we should be on the right side of 14. Or am I going off tangent here?

You know, I think we set up our guidance for 2023 that we should be, you know, in the margin corridor. You know, my viewpoint on that, we should be over 15%. That is quite clear for the businesses. I think we are a little bit ahead of schedule. That is pretty clear with a strong start. And we do expect to have a reasonable good year for this year, as you can imagine. But I don't think there is any reason at this moment to do any change when it comes to the guidance. Our objective is still to get, you know, all our businesses, you know, into the corridor and start going over from profit improvement to growth focus during this period. So it's one quarter out of three years. So let's take one quarter by time, you know. But I think it's good targets we have set for 2023. And if we reach that, I think we see a super strong ABB for future.

Got it. Thank you. And could I ask, in terms of other jewels like e-mobility that could qualify for that sort of move that you're planning there, is there kind of anything else in ABB portfolio that you could highlight? Not necessarily kind of having a decision process being put in place, but theoretical potential Maybe thinking about the warehouse automation business that kind of springs to mind within robotics and discrete.

You know, my viewpoint on this, I see ABB as a goody bag, you know, with a lot of goodies inside. And these are the divisions. And I think there's a lot of potential in many of our divisions. We are, of course, you know, with a set up of ABB and our purpose, we believe that ABB is a very strong brand, a very strong platform for all our businesses to further develop and to create shareholder value from that. If we would think that any of the businesses would have a better life outside, then we would, of course, consider that. At the moment, I think we have quite a lot on our plate. So, you know, three exits and now also looking into the immobility. So I think we take one thing at a time and make sure that we do this in a good way so our shareholders can benefit from that.

Got it. Thank you, Björn.

Thank you.

Thanks, André. And we're running out of time, but I think if we keep it fairly short, we can squeeze in one more question from Gail at Deutsche Bank.

Oh, thanks very much. Thanks, Nancy. And good morning, everybody. Actually, I have two quick questions. The first one is about the e-mobility business. Could you elaborate on the competitive pressures of facing the business today and what you see in terms of upside to margins. That's question number one. And the second question I have is about ABB's long-term growth dynamics. Because Q1 was undoubtedly a pretty strong quarter, but, I mean, one of your peers this morning delivered an even stronger performance and then now guide for an organic growth between 8% and 11% for the full year. against your expectations of, you know, let's say only more than 5%. So my question is, what do you think ABB needs to do to accelerate its growth potential and catch up with some of its peers?

Yeah, if we start with the e-mobility part of the business, I mean, this is a very hot market at the moment. We know that every country in the world is going to go towards electric vehicles. To be able to be successful here, you need these chargers. You need high-speed chargers. You need chargers home. You need chargers everywhere. I think ABB has, during a long period, built up a market-leading position, and we see good growth here. But, yes, it's clear we are not the only one in the market. There are many players who want to be part of this, and we have to secure that we grow faster than our competitors. And that's why we have decided to take this step. We believe organic growth is super important, and that's what we've been growing mostly so far. Now we also want to accelerate that growth into acquisitions. So we think this is a great platform, and we will do everything we can to have a strong focus on growth. What is quite unique with this business, maybe, you know, be careful when I say it, but I think... When it comes to also financial performance on the bottom line, I think we are quite unique in this industry, actually doing quite well on this side. So important is to secure that we have strong gross margin and invest in SG&A and technology moving forward. But gross margin is very important to secure that going forward. If I leave the immobility going to growth, yeah, I mean, all of us, you want us to say that we're going to grow so fast. We believe that our businesses are well positioned. We believe that we are, you know, leaders within the industries where we operate. We have the ambitions to grow in line with the markets or even faster than that. We have tried to give a little bit of a guidance when it comes to growth over a business cycle. And that we said the three to five percent, which we think is realistic numbers. If you look at our businesses where we are into and the history going backwards. It's easy to get a little bit excited in times when things are popping back from really low lows in the market. But I think we will do everything we can to grow the businesses we have. But we are not going to grow unprofitable businesses, you know, before we get them on track. So first fixing, we say stability. then profitability and then growth. That's the best way to create shareholder value. And as more businesses that comes into the margin range that we have set as a target, we change the strategy in this division towards more growth. So I don't think we should be able to grow any lower than our competitors in the segments where we operate. So we have the same ambitions and I think we can prove that. Okay.

Thank you very much, Bjorn.

Thank you.

Thanks, Gail. And with that, we close this session. Thank you very much for tuning in, and we'll see you in about a quarter's time. Thank you. Thank you. Bye-bye. Bye.

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