ABB Ltd

Greetings to all and welcome to the presentation of ABB's Q4 results. I am Ansa Fino, Head of Investor Relations and next to me here I have our CEO Björn Rosengren and our CFO Timo Ullamotilla and like always they will take you through the presentation after which we open up for Q&As. But before we begin, I would just like to draw your attention to the information regarding the safe harbour notices and their use of non-GAAP measures on slide two of the ABB presentation. This conference call will include forward-looking statements, and these statements are based on the company's current expectations and certain assumptions, and are therefore subject to certain risks and uncertainties. And with that, I will hand you over to Björn and Timo for you guys to talk through the slides. Christian?

Thank you, Anssi, and a warm welcome from me as well. Before we go into details of Q4, let's take a look at the full year. And it was a good year for us when we made progress in virtually all aspects. Financially, we increased the operational EBITDA by 37%, excluding FX. And we improved the margins by 320 basic points to 14.2%, which puts us on a level we haven't seen in recent history. This improvement was supported by higher volumes, strong pricing execution and operation efficiency. We saw strong demand across most customer segments and regions. After a strong first half of the year, we experienced during the second half increased headwinds from raw materials, supply chain disruptions, and cost inflation. But our business has managed to successfully offset these negative impacts, and we delivered a strong year and a clear path towards our 2023 targets. I'm even more happy about the cash flow. which increased by 78% to $3.3 billion, strengthening our balance sheet to a net cash position. This is an excellent achievement. Besides good financial performance, we continue to execute our portfolio re-environment in line with our purpose. For example, we sold the mechanical power transmission business for $2.9 billion. or more than 22 times EBITDA. This may be the highest price ever paid on mechanical business. This year, we also kicked off the systematic development of our 2030 Sustainability Agenda. With an updated governance and leveraging our performance management process, we are already driving progress across all strategic pillars. The improving financial performance enabled us to propose a dividend of 0.82 Swiss franc. This is up two cents from last year. Our balance sheet is strong, and this dividend proposal still allows for financial headrooms to grow through acquisitions. We will also continue with our share buybacks, also in excess of the PG capital return program. Now let's shift focus from the full year and look at the Q4 on slide four. In Q4, we saw high level of customer activity in virtually all segments. Demand increased for our product businesses as well as our project and service. Orders increased by 21%. And this despite that we booked a lower level of large orders compared to last year. As you see in the chart, their absolute level of 8.3 billion is the highest quarter since Q4 2019. Comparable revenues increased by 8%, a bit stronger than we initially expected as we managed to deliver some projects late in the quarter. That said, we could have delivered more if it had not been for the supply chain disruptions. This includes component shortages as well as strained logistic and tightening labor markets. In total, book-to-bill was 109%, resulting in an order backlog as high as $16.6 billion, up by 21% year-over-year. Now let's take a quick look at the different regions on slide 5. Excluding the impact from large orders, we saw a strong double-digit growth in all three regions. In Americas, the important US market increased by 46%, supported by all business areas. In Europe, most of the top 10 markets improved by strong double-digit growth rates. Growth in Italy was impacted by the high comparables from last year. when a large order in process automation was booked. At the AMEA regions declined overall by 2%. This drop is again related to large orders received last year. Generally speaking, we saw positive development in several important countries, including an order growth of 14% in China. Let's turn to slide six. and our earnings outcome. We achieved a 20% increase in operational EBITDA, and we improved the margins by 160 basic points to 13.1, the strongest Q4 margin reported since at least 2017. Excluding the higher special charges last year, the margin improved by 80 basic points. This was driven by good step up in PA and RA. Electrification maintained its gross margin, but the operational EBITDA margin declined on mainly higher sales costs. The margin decline in motion was mainly due to the divestment of the high margin business dodge. And with that, I hand over to Timo to take us through the numbers in more detail. So, Timo.

Thank you, Björn. And greetings to everyone also from my side. And as usual, let's start by taking a closer look at electrification, which continued to see strong demand across virtually all customer segments. Momentum was particularly strong in e-mobility business, where orders were up over 150%. but also areas like food and beverage, buildings and renewables were clearly strong. In total, comparable orders increased by 20% to $3.6 billion, which actually is one of the highest levels on record for electrification. Looking at the different geographies, we saw strong double-digit growth in both Americas and Europe, while Amea declined slightly, including a mid single digit decline in China on relatively high comparable from last year. Comparable revenues improved by 4%, and this was mainly on the back of a strong pricing execution. Volumes, on the other hand, continued to be hampered by supply chain disruptions, including some component shortages and also a tighter labor market. Consequently, electrification enters 2022 with a record high order backlog of $5.5 billion to execute. That said, we foresee the supply chain challenges to persist at least in the near term. Taking a step back and looking through the COVID turbulence of 2020, comparable orders and revenues are now up 16% and 8% respectively. compared with Q4 2019. A strong performance by EL in this period and clearly above its historic growth trajectory. In the quarter, electrification faced significantly higher raw material costs compared with last year, when favorable hedges were still in play. We were able to offset the higher input costs with strong pricing execution, but cost inflation due to the tight supply chain and higher sales costs resulted in an overall decline of 80 basis points in the operational EBITDA margin. Looking ahead into the first quarter, we expect a higher comparable revenue growth and margin to remain broadly similar compared with Q4. Let's move on to motion on slide eight. First of all, I just want to remind you about us closing the divestment of Mechanical Power Transmission Division, or DOGE as we call it, on November 1st. This of course means that charge and numbers for motion include only one month of contribution from DOGE, which we sold for $2.9 billion in cash. The non-operational gain of $2.2 billion is included in income from operations. The comparable order growth, which adjusts for structural impacts like the divestment, increased by 29% and reflected strong demand across the customer segments and regions. Orders grew double digit in both the short and long cycle product businesses and service was up by 11%. As a headline number, the 70 basis points decline in operational EBITDA margin is surprising, even that comparable revenues were up 9%. The majority of the margin decline, meaning about 50 basis points, was actually due to the divestment of Dodge, which had an above BA average profitability. The additional slight margin pressure was due to both divisional mix as well as increased raw material and trade costs, which offset the positive impacts from higher revenues and efficiency measures. For the first quarter, we expect similar comparable revenue growth and the margin to remain broadly stable or slightly increase compared with Q4. Turning to slide nine and process automation, where demand continued to recover across the process related industries, including oil and gas and crews, while the power generation segment remained stable. It's worth pointing out that the flat headline order growth was impacted by a high comparable from last year. Excluding large orders, meaning orders of more than $15 million in size, there was a significant double-digit improvement. Revenues increased by 19% year on year, with support from all divisions reflecting successful execution of the order backlog and a double-digit growth rate in services. Component shortages have been manageable so far for PA, but may intensify a bit near-term, whereby adding uncertainty to timing of converting orders to revenues. It was excellent to see the margin recovery in process automation as the operational EBITDA margin improved from 6.8 to 13.7%, with approximately 270 basis points of this improvement coming from the absence of last year's project charges. The profitability improvement was driven by higher volumes and benefits from earlier taken cost measures, however slightly offset by mixed due to a higher share of systems business. All PA divisions are making good progress and had over 11% operational EBITDA margins during the quarter. As part of the process to exit the turbocharging business, Daniel Bischofsberger has been appointed as new divisional president as of 1st of March. We aim to make the final decision on the way forward towards the end of the first quarter, although a spin-off at the moment looks like the most likely option. In Q1, we expect comparable revenue growth to be lower than what we saw in Q4. This will most likely also weigh on the sequential margin development. On slide 10, we turn to robotics and discrete automation, which had another quarter with high order intake, resulting in a year-on-year growth of 59%. Strength was broad-based across customer segments with continued stellar growth in general industry, which should support profitability going forward as the backlog is executed. For the full year of 2021, order intake in the general industry segment has been almost as high as the combined orders of the auto OEMs and auto tier one segments. Another good example of how we are expanding in new attractive robotics areas is our strategic partnership with the startup Seven Sense that we entered into in Q4. This will enhance our new autonomous mobile robotics offering with artificial intelligence and 3D vision mapping technology, a very exciting field going forward. Despite the strong order intake, revenues remained broadly stable year on year as component shortages slowed the pace of customer deliveries in both divisions. The supply constraints in RA are primarily relating to semiconductor shortages, And you can clearly see the impact on our ability to convert orders into revenues when looking at the left and the middle on this slide. Orders have outpaced revenues over the last three quarters, resulting in a record high order backlog of $1.9 billion at the end of the year. We remain confident about the quality of our order backlog, and revenue growth will improve once the supply chain imbalance is eased. RA's operational EBITDA margin increased by 80 basis points year-on-year to 8.1%, despite the lack of revenue growth. While the business area faced adverse impacts from increased freight and input costs, this was more than offset by the positive impacts from improved efficiency as well as favorable mix due to a lower share of automotive system sales compared with last year. Looking into Q1, we expect comparable revenue decline to be similar to what we saw in Q4, but we anticipate a slight sequential margin improvement. Moving on to slide 11, showing the group revenues and operational EBIT average, As you can see, the comparable earnings improvement benefited from our positive organic development, as well as the absence of last year's charge related to the Kusile project. The operational improvement was driven by the positive impact from higher volumes, positive price development and increased efficiencies, which more than offset the adverse effects from cost inflation. the reduction of losses incurred in non-core business held margin by 30 basis points, while acquisitions and divestments were slightly diluting on a group level, mainly due to the negative impact from the dodge divestment. Let's look at the cash flow on slide 12. I know Björn highlighted it earlier, but I want to also mention that I am really, really pleased about the overall cash delivery for the year as we achieved cash flow from operating activities of $3.3 billion, which is up 78% from the prior year. Volatility between quarters declined, a result of high focus on networking capital management, and it was great to see that even with 8% revenue growth, free cash flow conversion to net income was 108%. Looking at Q4 in isolation, cash flow from operating activities amounted to $1 billion, supported by improved operational performance, but with a bit less contribution from the reduction in trade working capital compared to last year. In Q4, cash flow also reflects approximately $300 million of cash paid for income taxes related to the Doge transaction, while we had approximately a $200 million impact due to the Kusile settlement and pension plan transfers in the same quarter last year. Again, overall a good year for cash flow from operating activities in continuing operations, and I expect a continued good performance broadly at a similar level also in 2022. Let's finish off by taking a look at our return on capital employed, where we also showed strong progress in 2021. As you see on slide 13, ROSI improved to 14.9%, just shy of our target of 15 to 20%. The improvement was driven by both the higher operational EBITDA in combination with lower adjusted group effective tax rate. In fact, if you already now would exclude the negative impact on our capital employed related to our 19.9% ownership in Hitachi Energy, we would already be comfortably in our target range. The Hitachi impact is only transitory in nature and will reverse after a sale of this investment. clearly improved return on capital employed is a good indicator that we are really improving ABB's long-term performance. And with that, let me hand back to Björn for some finishing slides.