ABB Ltd

Greetings to you all and welcome to the presentation of ABB's first quarter results. Most of you know me by now. I'm Ann-Sofie Nord, Head of Investor Relations. And next to me here, I have our CEO, Björn Rosengren, and our CFO, Timo Hyamottila. Like always, they will take you through the presentation after which we open up for Q&As. But before we begin, I would like to draw your attention to the information regarding safe harbour notices and our 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 to take you through our results.

Thank you, Ansi, and a warm welcome from me as well. I want to start off with a few highlights from the quarter. First, it was really good to see the customers remain very active. Our orders reached 9.4 billion, the highest quarterly level in recent years. These strong orders and the top line somewhat hampered by component shortages resulted in a book to bill of 1.35. And it was actually our fifth consecutive quarter with a positive book to bill. The margin of 14.3% was good. Admittedly, it was supported by low corporate cost. But looking at operations, we had three business areas which performed well. Then we had underperformance in robot and discrete automation. But I expect this to improve from here on. That is, of course, assuming external challenges do not escalate. These are uncertain times with many moving factors. Inflation is at levels that we have not seen in many years. The terrible war in Ukraine is weighing on all of our minds. We have global imbalances in the supply chain and now also the comprehensive COVID lockdowns in China. These are challenges our businesses must deal with on a daily basis. On the whole, we have managed well so far. Then I want to mention that we have formed a new division in electrification. We have separated the service business to its own division to improve transparency and accountability to drive both growth and profitability. This was initiated by Tarak and Morten will now follow through as he looks over the business area leadership as from this month. On that topic, I am pleased to see that both Tarak and Morten have come off to a running start in their new roles. And I look forward to them both driving performance to the next level. Lastly, I'm pleased about the new buyback program. This was launched on the 1st of April and covers up to $3 billion. This means that we go beyond the promise to return at least 1.2 billion of the power grid's proceeds. Now let's look at the orders and revenues in more details on slide four. As mentioned, orders intake reached a record high level. It was driven by strong development across most of our customer segments and all regions. And we saw a strong double digit growth in the short cycle. The process industry related business as well as in service. we saw no real difference in the underlying market pattern toward the end of the quarter, compared with in the beginning. It was strong throughout the whole period. Revenues improved at a good pace of 7%, driven by positive volume growth as well as good pricing execution. All business areas reported positive comparable revenue growth of between 9 to 11%, except for robotic and discrete automation, which is where the supply shortages of semiconductors was the most noticeable. Timmy will talk more about that later in the business area comments. Now let's take a quick look at the different regions on slide five. Again, we saw strong double-digit growth in all three regions. In the Americas, the important US market increased by 46%, supported by all business areas. In Europe, most of the top 10 markets showed strong growth rates. That said, on the slide you see that Germany improved by only 4%. This includes a de-booking in process automation. Outside of that, the underlying orders were very strong. The AMEA region improved overall by 24%. It was good to see continued strength in China, which improved by 26%, supported by all business areas. Let's turn to slide 6 and the earnings outcome. Our gross margin was 32.7% in the quarter, which is a slight decline of 20 basic points from last year. This is primarily due to the divestment of the high-margin Dodge business, but also due to a drop in robotics and discrete automation. Cost inflation was a broad challenge in the quarter, with the biggest headwind in raw materials. But we managed to successfully offset this through price management and impact from high volumes. In total, we saw a slight improvement of 10 to 20 basic points to the margin when adjusting for the lower than expected corporate costs and divestment of DOGE. Overall, Q1 was a solid start of the year. And with that, I hand over to Timo to take us through the numbers in more detail.

Thank you, Björn. And greetings to everyone also from my side. You heard Björn talking about a generally strong demand across the board. And as we go through the different business areas, this will be clearly evident. But let's start by looking at electrification. Here we saw a very strong demand driving orders to clearly above $4 billion with a comparable growth rate of 29%. With strength spread across all customer segments, we actually saw double digit order growth in all of the divisions, including the newly formed service unit. Orders in both Europe and America improved at a steep double-digit rate, and it was good to see that growth rates also turned back into positive territory in China at plus 9%. Revenues in electrification were beat back and loaded during the quarter, and the comparable growth of 10% was yet again supported by a strong pricing execution. Volumes also contributed, but were somewhat impacted by supply chain disruptions. And this mostly relates to the largest division distribution solutions due to its large system sales. I hope to see a progressive easing of the component constraints. Overall, it was yet another quarter with a B2B ratio above 1, and the backlog increased to a record high of $6.5 billion. I'm sure you remember that in Q1 last year, electrification took prompt actions on pricing in order to set off the oncoming headwind from higher raw material prices, while still enjoying the benefits of low input costs due to hedges. Versus this tough comparable from last year, the operational EBITDA margin declined 80 basis points to 15.4%, mainly due to subdued performance in distribution solutions business. while the team has continued to do a great job on tightly managing their price lists. Looking ahead into the second quarter, we expect similar growth rate as in Q1 and somewhat of a sequential margin improvement. Let's then move on to Motion, which also had a very high order level. This is particularly impressive when you consider the relatively low contribution from large orders and the fact that this was the first full quarter without the Dodge business. The stellar comparable order growth of 32% was supported by high customer activity in all segments across all regions. Like in previous quarters, it is probably fair to assume some positive impact from customers pre-ordering in the current inflationary environment. That said, we have not seen order cancellations. Neither did we see any slowdown in the strong customer activity towards the end of the quarter, nor in the early days of April. Comparable revenues improved by 9%, supported by both volumes and strong pricing execution. The semiconductor shortages started to ease somewhat sequentially, not least due to the implemented product redesigns and the validation of alternative suppliers. Job really well done by the motions team. The margin in motion, a highlight of the quarter, increased by 30 basis points from last year to 17.4%. This means that on higher volumes and strong pricing activities, we more than offset the missing 90 basis points, which the Dodge business contributed to the same period last year, as well as cost inflation from raw materials and freight. For the second quarter, we expect comparable revenues to grow at least at a similar rate as in Q1 and margin to remain broadly stable with Q1. We now turn to slide 9 and process automation, where we continue to see strong demand across most of the customer segments, particularly in marine as well as mining and metals. As a result, base orders continue to grow at a double-digit rate, while the total order growth reached 6%, weighted upon by the debooking of approximately $190 million. Higher than expected deliveries towards the end of the quarter resulted in comparable revenue growth of 11% for process automation. Overall, the impact of semiconductor shortages was still somewhat less than anticipated, but we continue to expect these headwinds to increase as the year progresses. And PA team continues, of course, to work hard to mitigate this risk. The operational EBITDA margin of PEA was 13%, up 200 basis points from last year. The result benefited from the positive volume development and the result of efficiency measures implemented earlier. I'm really pleased to see the progress of the business area underlined by the fact that all five divisions are in double digit margin territory. Peter and the team will give more color on how they are driving towards higher structured performance at their capital markets day in May. In Q2 for PA, we expect a mid to high single digit growth rate for comparable revenues and a similar operational EBITDA margin as in Q1. On slide 10, we turn to robotics and discrete automation, the business area that is still hardest hit by the shortages in semiconductors. The demand environment continues to be very strong for RA, and orders were up 60% on a comparable basis, driven by high customer activity in both divisions. In robotics, both the auto segment, particularly driven by EV investment in China, as well as the non-auto segments continue to be strong. At the same time, revenue generation continues to be adversely impacted by delayed customer deliveries caused by the semiconductor shortages. On a sequential basis, the supply situation deteriorated somewhat. This in combination with the high orders resulted in another increase in the order backlog to $2.5 billion. Although the supply chain should remain strained, we expect the first quarter to be the low point for robotics and discrete automation, assuming we do not see further deterioration of the China lockdown situation. Overall, the decline in volumes triggered underabsorption of fixed cost in RA, adding to that the impacts from inflation of input costs and freight, the positive contribution from cost and price measures were more than offset, and in total, the operational EBITDA margin declined by 570 basis points to 6.7%. Looking into Q2, we anticipate some effects on RA's operations from the COVID-related lockdowns in the Shanghai area. We expect the comparable revenue growth to remain negative, but the operational EBITDA margin to sequentially improve. And then moving on to slide 11, showing the group revenues and operational EBIT average. The year-on-year improvement mainly reflects the low corporate costs in the quarter, earlier mentioned by Björn. That said, when looking at the operations, I'm pleased to see that we successfully managed to offset cost inflation through the impact from higher volumes, strong outcome in pricing and earlier implemented cost actions. The reduction of losses incurred in non-core businesses helped margins by about 30 basis points, while acquisitions and divestments were 30 basis points diluting on a group level, mainly due to the negative impact from the Dodge divestment. On slide 12, we move to the usual cash picture. And while cash flow tends to be seasonally softer in the first quarter, the negative $564 million from operating activities was a bit weaker than we had anticipated. We had a higher than expected build-up of inventories to support significant increase in order backlog. We see both our inventories as well as receivables being of good quality. Q1 cash flow also reflects a higher payout of employee incentives due to the strong financial performance in 2021, where delta to the COVID year 2020 is particularly large, as well as approximately $170 million of cash paid for income taxes related to the e-mobility and turbocharging separations. I'm sure you remember from our capital markets day that we still have expected impacts from two large legacy projects in non-core. And during the second quarter, we expect to complete the full exit of one of our two main exposures left in our non-core business. This is likely to trigger a non-operational charge of approximately $200 million in restructuring related expenses, primarily relating to contract settlements. Hence, there would also be a corresponding cash flow impact when paid. This is still not absolutely certain, but I wanted to call it out so that if it happens, it doesn't come as a surprise. As Björn also said, we are still confident that we will achieve solid cash flow for the full year. And before I hand over to Björn, let me just update you on our active portfolio management actions. Regarding our planned listing of e-mobility, we continue to aim for completion during the second quarter, assuming constructive market conditions, i.e. no change in the timeline. On the other hand, we have decided that we will not rush to make the final decision between a spin-off or a sale of turbocharging or Acceleron, as it is now called. We still lean towards spin-off and listing on the Swiss Exchange, but now we are looking to make the final decision before the end of Q2, as also Björn mentioned at the AGM. So overall, despite the uncertain market environment, ABB is moving to the right direction. We are growing in the right businesses, in line with our stability, profitability and growth strategy, and continued improvement in our backlog gross margin is testament to ABB also improving long-term quality of revenues. And on that note, I would like the hand back to you, Björn.