ABB Ltd

and nice to connect again as I bid you welcome to this presentation of ABB's second quarter results. I'm Ann-Sofie Nord, Head of Investor Relations, and I'm here with our CEO, Björn Rosengren, and our CFO, Timo Hujamotila, who will walk you through the presentation before we open up for the Q&A session. But before we begin, I should mention the information regarding safe harbour notices and our use of non-GAAP measures on slide two of the presentation. Also, this call will include forward-looking statements which are based on the company's current expectations and certain assumptions and are therefore subject to risks and uncertainties. And with that said, I will hand over to Björn and Timo to take you through our results.

Thank you, Ansi, and a warm welcome from me as well. And let's start off by looking at a few highlights from the quarter. It was really good to see that the demand remains on high level, despite the challenges from high inflation, COVID-related lockdowns in China, and strained supply chain. Our orders reached 8.8 billion, the second highest level in recent years. And we saw a steady profile of demand throughout the quarter. The pattern in Q2 was similar to what we have seen recently, namely strong orders paired with revenues hampered by component shortages. This time, we also had an added challenge from the lockdowns in China. In total, book to build was 1.21, and it was the sixth consecutive quarter when we built the order backlog. Then I want to highlight the margin of 15.5% in line with our group targets for 2023. I'm very pleased about this. And it was backed by a good operation performance in three out of four business areas. Where we need to improve is in robotic and discrete automation. Just like in Q1, this is the business area significantly impacted by semiconductor shortages. preventing outcome deliveries. And it is primarily related to the robotic business. And I was pleased to see momentum improved in the machine automation. They ended the quarter on a strong note. I would also mention that we had additional support from the corporate cost. These include 60 basic points from some specific positive items. I will come back to that later. In total, I'm pleased we could improve from an already high level last year. Cash flow came in higher than in the first quarter, and we expect a good momentum in the second half of the year. Timo will talk more about that in a moment. Next, I want to mention that the consequences of the devastating war in Ukraine. we have taken the decision to exit the Russian market. Russia is a limited exposure to us and represents just over 1% of revenues last year. But still, we have started the process to wind down the remaining activities there. These actions trigger a charge of 57 million in income from operations, of which 23 million will impact cash flow in Q3. Lately, we have already earlier announced that we will postpone the IPO of the e-mobility until markets are more constructive. When it comes to acceleron, we have decided to do the spin-off. with the planned Swiss listing in early October. Timme will talk about the details, but I want to say that I'm pleased we are moving ahead with this. In my view, it allows for shareholders to realize the full value of Acceleron while allowing ABB to focus on core areas of electrification and automation. Now let's look more closely at orders and revenues on slide four. FX had an adverse impact, 7% on our reported orders and revenues. But let's focus on comparable growth. It shows demand and what happened in the market. All business areas increased orders at a double-digit growth rate. And in total, we were up 20%, with a positive development in all major customer segments. We increased comparable revenues by 6%. with the decline only in robotic and discrete automation. While the general supply chain eased slightly compared to Q1, our revenues were still somewhat hampered. Robot and discrete automation is clearly the business area suffering the most from the shortages of semiconductors. But the large distribution solution division in electrification was also impacted. From what we know now, we expect supply of semiconductors to improve from here on. This quarter, the teams were also challenged by the lockdowns in Shanghai. We saw it have an immediate effect from the slowdown of local logistics and lockdowns were enforced in April. Then we saw a graduate recovery as restrictions eased during the quarter. We estimate that the China lockdowns had about 2% negative impact on our reported comparable revenue growth of 6%. In total, we increased our order backlog to the record level of 19.5 billion. Now let's take a quick look at the different regions, which all improved at the double digit order rate. In the Americas, the important U.S. market increased by 32%. In Europe, most of our major markets showed strong growth rates. With the EMEA region, it was good to see China improve by 10% despite the lockdowns. Let's turn to slide six and our earnings outcome. Our gross margin was 31.6%. in the quarter, which is a decline of 210 basic points from last year. I think it is important to highlight that the main drivers from decline was mainly market-to-market losses on commodity derivatives, while the underlying operational impact was limited to 50 basic points and mainly related to the low volumes in the robotics and discrete automation. We increased the operation EBITDA by 2%. However, excluding the negative FX, it was actually up by 9%. It was good to see how the teams more than offset the cost inflation in commodities, freight, and labor through the strong pricing execution. Additionally, results were also supported by a slight increase in volumes and efficiency measures. You know that we aim for the margin of at least 15% in 2023. With Q2 margins of 15.5%, we took another step towards that target. But like I mentioned earlier, we had about 60 basic points of support from what I would refer to as special items. That would be real estate sales and impact related to the exit of the Large Legency Project. Excluding these and divestment of the Dodge business, we saw a slight increase from last year. A good outcome in my view, given the challenges from the inflation, lockdowns in China and top of the already strained supply chain. Headwinds from the lockdown and semiconductor shortage should ease going forward. I expect good momentum during the second half of the year. And with that, I would like to hand over to Timo. Thank you, Björn.

And greetings to everyone also from my side. As usual, let's start by taking a closer look at electrification, where overall customer activity was strong across the segments, which resulted in comparable orders being up by 16%. The only area which showed some soft trends was residential buildings in China, in line with what we also saw in Q1. The demand pattern in electrification overall was strong also at the end of the quarter, so a fairly steady trend. Regarding different geographies and countries, China declined by 5%, seemingly related to some temporary weakness during the initial COVID-related lockdowns. Looking elsewhere, we saw the steepest growth in the Americas at plus 30%, and orders in Europe continued to grow at a healthy 10% rate. Just like in the previous quarter, strong pricing was the main driver for comparable revenue growth, which was up by 10%. Volumes continue to be hampered by supply chain disruptions, mainly in distribution solutions whose systems rely on high volume and high variety of components. Add to that that our solutions feed into larger projects and you realize that the value chain can become quite complex. The low volumes in this largest division resulted in underabsorption of fixed costs, which more than offset earnings improvements in other divisions. The operational EBITDA margin was 16.9%, down 50 basis points from last year, which benefited from favorable commodity hedges. This is a good achievement considering inflation and strained value chain. Looking ahead into the third quarter, we expect a clearly stronger growth rate for comparable revenues than the 10% we had in the second quarter and somewhat of a sequentially higher operational EBITDA margin. Let's move on to motion on slide 8, where orders again came in at above $2 billion despite the headwind from the stronger US dollar. Adjusting for this, Dodge divestment, comparable orders increased by 26%, reflecting a double digit growth rate in base orders, as well as good contribution from large orders. Strong demand was noted in all customer segments and across all major regions. In revenues, Motion improved by more muted 3% on a comparable basis. While the team continued to do an excellent job on pricing, volumes were hampered by the lockdowns in China, which slowed down local logistics and access to components. As a consequence, the order backlog continued to increase to a record high of $4.6 billion. Compared with last year, the operational EBITDA margin declined by 130 basis points to 16.4%. Roughly half of the decline stems from the divestment of the Dutch business. The rest was primarily driven by underabsorption of fixed costs due to the decline in volumes, while the strong pricing execution approximately offset the negative impact from higher input costs. Looking ahead into the third quarter, we expect a solid double-digit growth in comparable revenues and somewhat of a sequentially higher operational EBITDA margin. Turning to slide nine and process automation, where demand was strong across customer segments and regions. As a result, comparable orders grew 25% with double-digit growth rate in all divisions, admittedly from a fairly easy comparable. Particular strength was noted in metals and mining, where customers are looking to invest in capacity outside Russia, but also in the marine market. Revenues increased by 7% with support from all divisions. The business area was able to mitigate the majority of the component shortages during the quarter. Some of these are still expected to continue as the year progresses. Looking at the margin in process automation, which is clearly the highlight of this quarter, operational EBIT increased by 17% compared to last year, resulting in a margin of 14.3%, the highest level in four years. This improvement of 180 basis points was driven by good project execution as well as efficiency measures. It is great to see that the work towards sustainable performance improvement in PA is paying off, as Peter and colleagues showed at the recent Capital Markets Day. For the third quarter, we expect a similar comparable revenue growth sequentially and operational EBITDA margin at approximately last year's level. On slide 10, we turn to robotics and discrete automation, and you recognize the pattern of high orders intake and revenue significantly hampered by low delivery volumes. Comparable orders increased by 23%, with both divisions noting strong momentum with stable demand trends throughout the quarter. Customer activity increased in all segments with the highest order growth in automotive, where we continue to see strong development in e-vehicle investments in China. As expected, the shutdown of the robotics factory in Shanghai in April and the consequential gradual ramp-up of production during May had a significant impact on customer deliveries in the second quarter. Additionally, semiconductor shortages continue to adversely impact revenues, while selectively easing in some areas, such as in machine automation. Overall, ARA's comparable revenue growth continued to be negative at minus 5%, resulting in a further increase of the order backlog to $2.7 billion. RA's operational EBITDA margin decreased by 330 basis points year-on-year to 8.2%, mainly driven by robotics as the missing volumes from the lockdown in China and cost inflation more than offset cost measures and positive impact from price. For the third quarter, we expect comparable revenue growth to leave the negative territory and move into a robust positive year-on-year improvement. On the back of stronger revenue momentum, we expect a strong sequential upgrade of the operational EBITDA margin. Then moving to slide 11, showing the group revenues and operational EBITDA bridge. As you can see, the comparable earnings improvement benefited from our strong pricing execution volumes, as well as operational efficiencies, which combined more than offset the adverse effects from cost inflation. The exit of our full-train retrofit business incurred in non-core and helped operating margins by 20 basis points. Acquisitions and divestments, i.e. mainly Dodge, as well as the impact from changing FX, were slightly diluting on the group level. Now let's move to look at the cash flow on slide 12. Cash flow from our operating activities of 385 million was clearly higher than in Q1, and I expect strong cash performance in the second half of the year. Compared with last year, the operational performance was more or less on a similar level. However, the continued buildup of trade working capital, mainly related to inventories, weighed on the cash flow for the quarter. This buildup is of course aimed at supporting our strong order growth. Björn mentioned earlier today that we had exited a legacy project, and I am sure you remember that I flagged this to you when we last met here, i.e. that we were looking to close the largest position of the total of up to 300 million exposure we have in our non-core legacy projects. We were able to close this as expected in the second quarter, which resulted in a charge of approximately $200 million recorded below the line in income from operations. This hit the Q2 cash flow from operations by 25 million, with about 140 million impacting primarily Q3. I'm very pleased that we were able to do this. We have now ramped down the majority of our non-core business. A project started already in Q4 2017. We still have about $100 million of exposure left, as we have discussed earlier, but as this is more of a legal dispute, timing here is very difficult to estimate. And still, to complete the cash picture for the full year 2022, we continue to expect a solid cash performance. Before I hand over to Björn, let me just briefly update you on our portfolio actions. Björn briefly mentioned e-mobility earlier, so let's focus on our decision to spin off Acceleron, our turbocharging business. As announced only yesterday, we plan a listing on the six Swiss exchange on 3rd of October. This means that the division will still be part of process automation for the full third quarter. The spin-off is subject to approval by ABB's EGM, planned for 7th September, and invitation should go out shortly. Provided that the spin-off is approved at the EGM and the conditions precedent for it are met, ABB will distribute to its shareholders on a pro-rata basis, as a dividend in kind, one accelerant share for 20 ABB shares held. It is our strong belief that this spin-off will benefit both companies. Acceleron will be able to concentrate exclusively on reaching its full potential in the large engine industry, while we as ABB Group continue to simplify our portfolio and focus on our purpose of enabling a more sustainable and resource efficient future with our technology leadership in electrification and automation. We have scheduled a capital markets day for 31st of August, focusing on Acceleron, in order for you to meet the management team and learn more about this exciting company and the related transaction. And with that, I would like to hand it back over to Björn.