ABB Ltd

Greetings to you all and nice to connect again as I welcome you to the presentation of our fourth quarter results. I'm Ann-Sofie Nord, Head of Investor Relations here at ABB. And next to me here, I have our CEO Björn Rosengren and our CFO Timo Hujamotila. And as always, they will take you through the presentation before we open up for a Q&A session. But before we begin, I want to 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. But with that said, I will hand over to Björn and Timo for their quarterly comments.

Thank you, Anssi, and a warm welcome from me as well. I would like to start with a quick look back at the full year of 2022. And it's safe to say it was another eventful year. We have executed on our business promises, despite being challenged by several external factors. And before we move on with the presentation, I want to give a big credit to all the ABB colleagues who pushed through and delivered what I would call a record year for ABB. This is a strong achievement considering that they had to manage the implications from the war in Ukraine, energy crisis, lockdown in China and a strained supply chain. And on top of that, we were also hit by significant negative FX impact. Despite all of this, the team delivered orders, revenues and operational EBITDA and margins at the highest level in recent history. We achieved an operational EBITDA margin of 15.3%, meaning we delivered on our margin targets one year ahead of plan. Looking beyond the key items impacting comparability, EPS performance was good. And we improved the ROSI to 16.5%, which means we brought it within our target range. Based on the improved performance and in addition to distributing the turbocharging division to shareholders in October, we propose a steady increase of a dividend to 0.84 Swiss franc. We also plan to continue with the share buyback during 2023. I allow myself to include the signing of the power conversion divestment in this 2022 summary. And in doing so, we have delivered on our promises from 2020 to streamline our business portfolio by exiting three divisions. From here on we will continue to review our businesses on a product group level within our current divisions. One example is the decision to exit the emergency lighting operations within smart buildings in the business area electrification. Related to portfolio changes, I also want to mention the private placement founding we finalized just after the end of the year. We have raised about 525 million Swiss francs for approximately 20% ownership in our e-mobility business. These are new investors who share our long-term belief in the growth story of e-mobility. This is good news, but I want to make it clear that we remain committed to our plan to separately list the business when market conditions are constructive. All in all, in my view, our 2022 delivery shows that we have taken a big step in setting a performance culture based on divisional ownership of operations. We are making good progress in making ABB best-in-class company. Now let's look at the Q4 in details. To frame the big picture, one can say that most customer segments were stable or improved slightly. Remember that we are now talking about order improving from an already high level. it was only two segments which stood out, and that was weakness in residential building, and it mainly impacted the smart building division electrification. For us, Germany is a key market which dropped compared to last year. China was also weak, as we have mentioned in earlier quarters, but also the US residential building market softened, although it's not such a big driver for us. The other area I want to mention is machine automation in robotic and discrete automation. While the long-term market outlook remains solid, orders in the fourth quarter were hampered by customers normalizing order pattern after a period of pre-buying. Out of all our businesses, the machine automation business was one of the most impacted by the strange supply chain and component shortage. Now that supply chain constraints have eased, delivery lead times are shortening. This means that the customers start to trust our ability to deliver again and therefore returning to a more normal order pattern. I'm not worried about the long-term market potential, but near-term, this pre-buying hangover may wait on a near-term order growth in machine automation. In total for ABB, comparable order intake was up 2% and remained stable or improved in 3 out of 4 business areas. I mentioned earlier that the supply chain had eased. This supported our comparable revenues growth of 60% as we could execute our order backlog. All business areas improved comparable revenues by at least 6% from last year. It was very good to see an improved flow in our customer deliveries. That said, it was yet another quarter with order growth, so our order backlog remains at a very high level of close to $20 billion. This represents an increase of 29% compared with last year. and it will support our revenues in 2023 as we convert the backlog into deliveries. Now let's take a quick look at the different regions. The Americas was the growth engine of the quarter. Compare all the increase by 50% and the important US market was strong contributing at plus 13%. The positive trend was strong in three out of four business areas. Both Europe and AMEA declined at a single digit rate. In Europe, the decline was mainly related to the German market and softening in the residential building. In AMEA, China orders declined in three business areas with only motion in positive growth. We saw a decline in the Chinese business activity towards the end of the quarter. This was in tandem with the intensifying COVID situation. Let's see how this develops the near term. But of course, this adds some uncertainties. Let's turn to slide six and our earnings outcomes. In the chart, you see the strong improvement in earnings and margins. We improved operational EBITDA by 16%. And if we exclude the negative FX, earnings were actually up 28%. The operational EBITDA margin was up by 170 basic points to 14.8%. This improvement from last year includes an adverse margin impact of about 30 basic points from portfolio changes, primarily related to the spin-off of Acceleron. This was the first quarter when they were not part of the family. It's good to see how the strong revenue growth feeds into the sharp improvement of the gross margin. Higher volumes, improved cost absorption in production, and pricing was up about 7%. In total, we improved the gross margin to 34%, up from 31.7% last year. If there is one area where I had hoped for a little bit more, it was cash flow. The 720 million in cash from operating activities includes about 350 million from Kusile settlement. And taking that into account, it's an okay quarter. But still, I would have liked to see us work down the net working capital a little bit faster. We are turning inventories into receivable, so it's a timing question before it becomes cash. With that said, I expect a good cash delivery in the coming quarters. With that, I hand over to Timo.

Thank you, Björn, and greetings to everyone also from my side. Starting with electrification, which had another quarter with positive order development. Order intake amounted to $3.6 billion on a comparable growth of 6% from last year. Looking at the total picture, demand continued to be overall robust. and particularly so in the Americas, driven by the large US market, where comparable orders grew by 25%. Some weakness was noted in Europe, where Germany, which is an important market for us, continued to see decline in residential buildings, weighing on our smart buildings division. In China, orders declined by 6%. Here we saw somewhat of a slowdown in business activity towards the end of the year, linked to the intensifying COVID-related situation. Revenues grew by 16% on a comparable basis. This completes a strong year when comparable revenues have grown at a double digit rate in each quarter. The order backlog remains at an all-time high level of $6.9 billion and should continue to support revenue generation in 2023. Electrification's operational EBITDA margin came in at 15.7%, improving by 90 basis points year-on-year on strong volume and price. While this was the highest Q4 margin in recent years, it did come in slightly below our expectations. This is mainly due to some lower volumes in the more asset-intense and high-margin products business smart buildings on the back of softwares in the residential building segment. Overall, this was again a strong year for the electrification business area with full year margin of 16.5%. Excluding the e-mobility business, which will be reported as part of corporate and other from Q1 23, the operational EBITDA margin for EL would have been approximately 17.2%. I will come back to this in a few minutes. Now looking ahead into the first quarter of 2023, we currently expect a low double digit growth in comparable revenues and some improvement in operational EBITDA margin on like for like basis. Let's then move to slide eight and the motion business area, which showed continued strong delivery. After a period of exceptional growth, motions orders came in flat year on year on a comparable basis. The overall intake was hampered by fewer project orders and a high comparable, particularly in Europe, where a large traction orders was booked Q4 21. The underlying base business continued to improve at a mid single digit rate with a healthy development in the US drives business and continued growth in China. For the full year of 2022, comparable orders in motion grew by a very strong 20%. Revenues came in at above $1.8 billion, making it one of the highest revenue quarters, at least since I've been with the company. Comparable revenue growth was strong at 20%, supported by all divisions. Similarly to the third quarter, this was driven more or less 50-50 by volume and price. The strong top line was reflected in Motion's operational EBITDA margin of 17.4%, representing a 130 basis point improvement from last year. Higher volumes supported an improved fixed cost absorption, and price increases more than offset the adverse impact from higher input costs. This rounds off another strong year for Motion, where the operational EBITDA margin improved by 20 basis points to 17.3%. This means the team managed to more than offset the approximately 60 basis points dilution from the divested Dodge business, a really very good achievement. Looking ahead into Q1, we anticipate a strong growth and incomparable revenues, and we expect operational EBITDA margin to be similar or slightly higher compared with last year's level, depending on the mix during the quarter. Then turning to slide nine and process automation, where customer activity in the more late cyclical end markets continued to be robust. Momentum was particularly strong in marine, ports, refining and renewables. On the other hand, there were some signs of hesitation noted in the metals industry on back of elevated energy prices. Overall, PA's total comparable orders grew by 11% and the book-to-bill ratio was clearly above one, driven by the Americas and Europe, while orders in Amea and China in particular declined. Comparable revenues grew by 6% from a already very high level last year, with a good flow of customer deliveries in virtually all divisions. With orders still strong, the order backlog increased slightly and stood at $6.2 billion at the end of the year. This should support revenues going forward and is particularly encouraging as the business area has successfully improved the gross margin and quality in new orders taken. As the headline number, the operational EBITDA margin declined by 50 basis points. This, however, includes a negative impact of about 160 basis points due to the accelerant spin-off, which had an above BA average profitability. The underlying improvement in profitability was due to both higher volumes and continued benefits from improved quality in the order backlog and higher gross margin. Looking at the expectations for the first quarter, we expect single digit growth in comparable revenues and a sequential decline in operational EBITDA margin. The sequential decline is driven by normal seasonal pattern, but also by marine and ports division, where the missing Russia Arctic LNG business will have some dampening impact to margins during 2023. On slide 10, we turn to robotics and discrete automation. This business area was adversely impacted by customers normalizing order patterns primarily in machine automation, as Björn discussed. This follows a period of pre-ordering due to long delivery lead times caused mainly by the shortages in semiconductors. Overall, comparable orders declined by 19%, driven by the machine automation division. That was up against a very high comparable, while robotics saw a stable development. Taking a step back and looking at the order development for the full year, one can see that 2022 was another strong demand year for RA, with comparable orders growing 15% on top of the 29% growth in 21. Looking at the chart in the middle, it is very promising to see revenues continuing to rebound as the easing of shortages of electrical components supported execution of volumes from the order backlog. Comparable revenues improved by 23% in the quarter, with solid contribution from both divisions. This translated into a strong operating leverage, doubling the profit to about $125 million. Additionally, the operational EBITDA margin was supported by better pricing execution as well as positive divisional mix and improved almost by 6 percentage points to 14%. For the first quarter in 2023, we expect even higher comparable revenue growth than in Q4 and the Q1 margin to be around the Q4 level, naturally depending on the COVID situation in China. Moving on to slide 11, showing the group operational EBIT-R bridge. As you can see, the comparable earnings improvement benefited from our strong price execution and the continued recovery in volumes, which again more than offset the adverse effects from cost inflation. Non-core movements in FX as well as portfolio changes, i.e. mainly the turbocharging spin-off and for the last time also the impact of the Dodge divestment where slightly diluting on a group level. Now let's look at the cash flow on slide 12, which is one area that did not quite meet our expectations. Cash flow from operating activities in continuing operations was $720 million in Q4, approximately 300 million lower year on year. While we saw some cash release from inventories during the quarter, the impact from overall networking capital was less compared with last year as trade receivables increased sequentially. As mentioned in October, the settlement for the Kusile project resulted in a cash outflow during the quarter. Timing wise, it was a bit more front-end loaded than expected and with approximately $315 million impacting Q4. It means that we now have only roughly 10 million impacting coming quarters. On a more positive note, the cash flow statement also reflects a net positive inflow from investing activities of approximately $1.4 billion from the closing of the PG divestment. Looking into 2023, cash generation will be an important focus area for us as we work down networking capital. We should also have less adverse impact from items impacting comparability. So all in all, I expect a good cash generation in 2023, already starting in Q1. Now taking a look at the development of our return on capital employed or ROSI, you can see in the chart that we moved into our 15 to 20% target range for the first time in many years. The strong ROSI improvement to 16.5% is driven by better operational performance. It is also worth highlighting that the capital employed calculation still includes the negative impact from the 19.9% ownership in Hitachi Energy in 2022. This impact will reverse from 2023 onwards, moving us even more comfortably into the target range. And overall, of course, the improved ROSI is a good indicator that we are really improving ABB's long-term performance. Let's finish off by quickly taking a look at yesterday's announcement. ABB e-mobility has signed an agreement to raise an additional 325 million Swiss francs in the second and final part of pre-IPO private placement. This comes on top of the 200 million Swiss francs announced in November 2022. The e-mobility business will use the proceeds to continue the execution of its growth strategy, comprising both organic and M&A investments in hardware and software. Following the second round, ABB has a shareholding in ABB e-mobility of approximately 80%, and we remain committed to our strategy to separately list the business subject to constructive market conditions. To reflect the new governance structure and the size of the business, e-mobility has been moved out of the electrification business area as of beginning of January and will be externally reported as part of corporate and other as from Q1. You can see pro forma figures for EL excluding e-mobility and the new corporate and other on the right side of this slide. we will also publish historical re-reported numbers prior to our Q1 results on the investor relations section of our homepage. At the same time, we're happy that the non-core business has become so insignificant that we will no longer report it as a separate line. And with that, I hand it over back to Björn to round off this presentation.

Thank you, Timo. As we sat down to summarize the year, we came to reflect on what an exceptional period we have been through in the past three years. First, the COVID slump in 2020, followed by a very strong year in orders despite all the major external events. the tight supply chain has been a trigger and as I mentioned earlier we are seeing customers normalizing order patterns as the supply constraints ease. This may hamper our orders growth in the first half of 2023 as the comparables are very high. The chart also shows that the revenues has lagged orders. We have an order backlog of 19.9 billion. We plan for about 75% of these to be delivered during 2023, supporting our revenues. And to continue on the topic of what we expect from 2023, let's finish off with slide 16. Looking ahead, nobody really knows what is coming, and we have stopped speculating too much. Instead, we have prepared for different scenarios. And based on what we see now, we do not expect a major setback in the market. Our revenues will be supported by execution of the record high order backlog, and we expect our comparable revenue growth to be above 5%. We are committed to deliver an operational EBITDA margin of at least 15%, even if we see a slight softer market. Cash flow is in focus. By working down the net working capital in combination with lower negative one-offs, we expect to see a robust cash flow for the next year. On top of the dividend of 0.84 Swiss franc, we are planning to continue with our share buyback program. Rounding off with a quick look at the first quarter. We expect a double-digit growth in comparable revenues and some year-over-year improvements in the operational EBITDA margin. meaning from the 14.3% we reported last year, including the high margin business acceleron, which we now have exited. It should be a good start to what we expect to be another year of solid performance for ABB.

That's a good ending to finish off the presentation with Björn before we now open up for the Q&A. And I just want to say for those of you who have dialed in using the phone, you should press star 14 to register in order to ask a question. And just as a reminder, to secure the sound quality, please remember to mute the webcast as your line is open for questions. For those of you who want to put your questions through using the online tool in the webcast, please type your question in the field at the bottom of the right corner of the screen and I will put it through from here on your behalf. And for the phone lines, I kindly ask you to limit yourself to one question only. I know there's a lot of you who want to ask question and we want to be able to let through as many of you as possible. And with that, we open up for questions. And I think we should start with a question from the conference call. Do we have someone on the line there, please? If not, we'll kick off with a question from the online tool while we're waiting for the telephones to come live. We have a question here from Kulwinder Raipal and he wants to know a little bit about the outlook comments. He says for Q1, is the comparable growth more low double digit or somewhere around mid to high teens? We start with that one and then he has a follow up.

Yeah, I can take that one. Yeah, I don't think we will go into that if it's going to be high or low. We believe there's going to be a double-digit growth, which is, of course, good supported by the order book. And that is the first quarter. And then you have also seen that we do expect for the full year to be about 5% also when it comes to revenues.

Yes, and now we go to the conference call. I think your line should be open. Lars Bruuson from Barclays. Are you there?

I am. Good morning. Thank you, Anssi. Good morning, Björn and Timo. Firstly, briefly, Timo, on electrification margins, I wonder whether you can give us a bit more colour on the profit bridge there in electrification. Thank you for providing some performer numbers for e-mobility. I gather in the quarters about an 80 basis point dilution Help us a little bit, if you can, with the adverse mix towards more systems and also the impact from underabsorption in the resi business. And secondly, if I just can briefly, on the pricing outlook for 2023, you're pricing up 7% of the group level currently, higher in motion, I'm assuming around 10%. I wonder, Bjorn, when we look a bit deeper into 2023, I'm trying to understand the price stickiness there as input costs start to ease, particularly in motion. where you have some formulaic pricing clauses in large motors. Can you talk a bit about the risk perhaps to pricing as we get into the back end of this year, just from a mechanical reset to lower roadmap prices? Thank you.

So why don't you take the first one, Timo, and it's electrification there.

Yeah, on the EL margin, yeah, as we said, we came in slightly lower than we expected. I mean, the main drivers there are, as we said, there was a bit less demand on the resi construction and that's a high margin business in smart buildings for us. Then we also had, as is totally normal, more business from distribution solutions, which is lower margin business than the EL average. And then third, and this was actually almost 40 basis point delta on EL margin coming simply from the fact that e-mobility was bigger Q4 this year than last year. So those are really the main drivers.

And on pricing, Björn, do you want to take that?

Yeah. I mean, yes, 7% is what we report for the quarter. We know the inflation rate during last year, which was quite brutal, both when it comes to logistic cost, but also for commodities during the period. Now, in line with the interest rate going up and we see more and more normalized demand, I think we're seeing somewhat less inflation. And I do believe that is also going to reflect our pricing. So we have a pretty good picture of what are the costs here. increases in our operations and we will make sure that we compensate that also going forward but also of course getting full value for a good price for the value that we are delivering to the to the customers so we believe that there will be somewhat lower inflation during next year yeah maybe just to chip in we expect about two percent pricing carryover from 22 to 23 something like that yeah

And with that, we take another... Thanks, Lars. And although that was more than one question, I would like to add. We'll take a next question from James Moore, please, at Redburn.

Yeah, good morning, everyone. Thanks for taking the question. I've got one question on performance management system, if I could, Bjorn. I mean, you've got, I think, about 20 divisions at the moment. Could you say, have a mix of what is in a growth mandate versus a profitability mandate changed in terms of the numbers? And could you talk about those divisions still with a profitability mandate and say something about their potential, if possible?

Yeah, I think it's a very good question. And, you know, this is very close to my heart. It's to implementing this performance culture, which I think ABB really have shown that it had managed during the last two years. We're seeing an improvement. So it's correct that we're seeing more and more divisions moving into the growth mandate. And I think I've been mentioning close to 70% which have that mandate today. We still have a number of divisions who have a little bit of a challenge in some of them, you know, moving in profitability. But we also have two divisions actually way more on the stabilization phase. And one of them is large motors and generators. where it's been a tough market for them. They are working hard to improve their performance. And the other one is DES. And I think Timo talked a little bit about that. We had quite good deliveries, big deliveries on DES distribution solution in electrification. As you probably know, we have now a new division president for that division. We have also split that business and moved some of the low-voltage switchgear into smart power, and DES will be concentrating more on the medium voltage, where we have a strong position in the market. So I think the right measures are going to be implemented during the year and we should see a gradual improvement of these two businesses. Then of course in every division there are a lot of activities for both growing as well as improving profitability and that's part of the performance culture and continuous improvement which is so important for ABB and also giving us the comfort in saying that we will be delivering over 15% also next year.

Thank you very much.

Thanks, James. And I'll continue actually with a sort of related question here from the online tool. It comes from Joe Giugiano and it's reflected to the decision to exit the lighting business in electrification. What drove this decision? Is it going to be a sale or an organic exit?

Yeah, let me take this one on here. First, I would like to say now that we are extremely happy that we have now delivered on our promise, which we put up 2020, to exit three businesses to align our portfolio with our purpose. I think that's good. I think it's very clear today. We don't look upon ABB as a conglomerate anymore. We are purpose driven company. So I think that is good. So now we can concentrate on growing. That means acquisitions and organic growth and to make sure to strengthen the group. On the division level, there is continuous pruning of businesses. That means some business can be fixed, some can be driven better performance, and you, with a good transparency, also see what you make in the different product lines. In some businesses, they have product lines that maybe don't fit in very well, or you could be a small fish in a big pot. And we say that the best way here is to find a home for that, where that business can develop better than in our country. And I think Electrification and the team there have identified this emergency lighting as one of the businesses that we believe that should be exited and find a new home for that. And I think we will start the process now. And we haven't decided yet where it's going to end up. But we will start the process identifying opportunities and look for the best home for that business. And we will continue to challenge all our divisions and their product lines that we have market-leading, fresh, well-performing businesses also within the divisions.

Very good. And then we'll take the next question from the telephone lines. And Ben Uglow, your line should be open.

Morning, everyone. I hope that all are well. It's really a question for Timo. around the cash, the underlying cash situation. So I guess if we step back, you had a couple of years, including last year, where you have done $3.3 billion of cash from operations. Pardon me, in 2021, we did $3.3. And we've done that level in the past. Where we are today is about $2 billion less at about $1.3. I guess that $2 billion swing is almost exclusively Coming from working capital, I guess the question to you is how long – two questions. One is how quickly can we get that working capital from $2 billion down to a few hundred million, i.e., are we going to see the vast majority of this reverse in 2023? And then the second sort of related question, because it obviously depends on a few other things, is how realistic is it to think that we're going to be coming back to $3 billion or thereabouts of cash from operations within the foreseeable future? So are we going to get back to the cash levels that we were at in 2018 and in 2021?

OK, thanks, Ben, for the question. I was kind of thinking that you might go to that direction, but let's first start with the 2 billion gap. So about 1.4 billion of that is actually coming from trade networking capital. There, I would just say we have good quality inventory, we have good quality receivables, and actually the inventory now already started to reduce, which is a good sign. So it's moving more to receivables. And then we did not release that much money from payables because the payables are going down, as we are sort of seeing. this release and business coming from inventory. Then if you look at next year, so I would maybe answer this in a way that if you look at what we have said on our guidance and we can use sort of round numbers here, so say approximately 30 billion of revenue and you put into that this 5% growth and then you take 15% margin. So this is just rough math and then you move to EBIT, so you take out the cash items, which is about 330 million in our guidance. And then if we would have networking capital efficiency improving, say by a point, so we would come back to about 10%, of revenue and you take 25% tax rate and all that, you will actually drop into numbers which would indicate some 3 billion of free cash flow. So that's kind of like you see from there how we think about it for 2023.

Understood. That's very helpful. I'll leave it at that for the in the interest of time. Thank you.

Thank you. And we'll take the next question again from the telephone line. Gail, your line should be open, please.

Thanks. Good morning, everyone. Can I ask about the decline in orders in the machine automation division? I mean, you mentioned a significant drop there on the year-on-year basis. I guess the book-to-bill is also clearly below one now. But, I mean, we've just heard about Rockwell Automation, you know, highlighting that both their orders and backlog continue to increase sequentially with continued strong automation demand. So could you perhaps elaborate on your specific market positioning in machine automation? Have you been perhaps too focused on margins, not enough on growth? I mean, what's going on there? Because it seems that you're perhaps losing a bit of market share. Thanks very much.

Thank you for the question. I think I take that one. First, I would like to say, when you look at robotics and machine automation for the full year, we had a growth of 15% and the year before, 29%. So that gives you a little bit of the growth. If you look at the fourth quarter, And first I can say that the comparison with last year, we had 60% growth in Q4 the year before. And that was actually when we start seeing the problems with the semiconductors. So there was a brutal comparison with that part. We look at the end markets. We see a very strong demand pattern. We feel very comfortable with both the machine automation and you can of course see also, you can't see it, but the growth in revenues and the order book that we have for that business. You know, we have an increase in order book during last year with 49%. which is of course huge that need to be delivered out. And if you look at our machine automation business, mainly our customers, because we have a very strong niche there is on the machine automation, it's OEM customers. And they were quite nervous when we had difficulties with semiconductors because you know that part. So they actually pushed orders earlier. And now when we actually delivering and we don't have any issues on the supply chain with the semiconductor support, they are feeling much more relieved and they can go into a normal order pattern. So that is what we are seeing. We are very optimistic about the machine automation market in the coming years from that. Also from the robotics, where you can actually say that we had actually flat orders during the quarter. So we think this is more mechanical change than that actually from the demand from the market. And we're sure we can prove that going forward.

Thank you. And I actually will... Very clear. Thanks, Gail.

Thank you very much for this. Can I just come back to the point you made on order growth in H1 being challenged by high combs, normalization and so on? I mean, I think I get that. Maybe... I'd be interested to know if you actually anticipate group orders to be up or down sequentially.

We haven't guided on the orders on that side. But of course, you know, the first quarter during last year was quite dramatic because of the supply chain issue. So it went up very much. So it's a little bit more challenging on that side. So I think from our perspective, we're guiding on the revenues where we say we're going to get a double digit growth and we're very comfortable with that. Would you want to add in something there, Timo?

Yeah, maybe just if you look at the first half. So the comparable order growth from last year is about 24%. So that's, of course, very, very high, as Björn was saying. But if we look at the full year, we expect actually at the moment when we sit here that the book to bill would continue to be about one. So in that sense, we expect to see healthy market for 2023. We just have a super high comparables on the orders.

Yeah.

Thank you very much.

Thank you. And I'll just connect to the RA question you had earlier. There is a question here from Sean McLaughlin who wants to know, have you seen any cancellations of orders in the backlog in robotics as part of the normalizing trend?

No, it's a very solid order book for robotics and both robotic and discrete automation to actually say. So it's a huge order book and we have to deliver on that during the year but no cancellations what we have seen so far.

Okay, then we take the next question from the conference call and Alex from Bank of America Merrill Lynch should be on the line.

Yeah, I am indeed. Thanks very much, Nancy. Morning, Bjorn. Morning, Timo. I wondered if you could dig a little bit into the resi construction comments that you were making there with respect to Germany and China, I guess. China may be a little bit more obvious, given the broader backdrop in China property. But if you could give us a little bit more colour around the overall market across your global resi construction business, I'd be very grateful.

Yeah, I can start and then Timo can cover in. I mean, we've been reporting a weaker residential construction industry for a couple of quarters, and I think that actually has remained. We see it in Europe mainly hitting... in Germany where we have a really strong position and that is actually reflected in the numbers. But we also see it in U.S. and in China at that stage. So that is actually the segments that we don't see positive at the moment. That is the only one which has been softening off.

Would you like to add something? I can just maybe chip in a couple of numbers here. So when we look at residential construction out of the electrification business overall, it's maybe some 15%, but Germany is actually about double that because we have the strong position, as Björn said, we have the Busch-Jäger business, which is very strong. So in that sense, Germany is having a bigger impact for us. And we all know that the German situation, given the gas prices which are now luckily coming down on the market has caused some pullback on demand on the consumer side which is understandable so I think this is really the situation and now let's look at how it moves forward because we are seeing I think electricity prices have been coming down maybe faster than expected. So let's see what that does. And then, of course, we could have some pent up demand in China as well on different parts when we start to come out of COVID. So I think it's very difficult to read at the moment, but maybe I would say it looks maybe slightly more positive than a couple of months back.

Yeah. Okay. And you're not seeing any kind of mitigating factors from energy efficiency arguments or changing equipment for the benefit of energy efficiency?

No, I can say, I mean, it is of course correct that demand globally towards energy efficiency, and we see a lot of the investment that have been driving the demand for us is related to energy efficiency. And we do expect that will continue. I mean, the IRA Act in North America is going to be extremely important for us with green investments, which is actually our core in our business. So yes, we expect also Europe to come up with some counteractions now in a week from now. So I think that probably going to help to drive some demand in our core segments. So I think it's looking pretty good.

Okay, great. Thanks very much.

Thanks, Alex. We continue with a question from Andy at JP Morgan. Are you there, Andy?

Hi, good morning, everyone. Hi, Andy. Hi, hi, everyone. Thanks for taking my question. I just wanted to kind of, I guess, build down a little bit on China. It's kind of been mentioned a couple of times in terms of some challenges towards the end of the period, which I don't think is a surprise. And I guess some expectation that probably continues in the early Q1. But I noticed as well beyond some of the comments being reported on Bloomberg is sort of an optimistic view on China. So is it as simple as, the underlying activity we would expect to improve, but in the very near term it's still going to be challenging to either see that in the numbers or deliver it in terms of volumes, or can we be a bit more positive maybe a little bit earlier in the year? Just trying to get a sense of of what you're hearing on the ground when you speak to the customers.

Yeah, Andy, I can give you a little bit more meat on the bone here when it comes to China. It's correct that December was a weak month in China compared to the two earlier ones, and very much related to COVID. You know, we were running factories at 50% capacity due to people ill being home from COVID. And that was really the situation during the end of December. Then in January, this has gradually improved. And before our employees went on New Year for Chinese New Year, we were actually up in 100 percent, meaning that this illness from COVID had actually gone through very, very fast and people were coming back. So I think it's maybe a little too early to draw too much conclusion for China. Normally, historically, we know that the weeks or the month after Chinese New Year will set the pace for the year. Personally, I think there could be an upside on China because, you know, it's been locked down for now three years. People be spending very little, little traveling, little consumption at the moment. And I think there is a chance that China will experience somewhat we've seen in the rest of the world when opening up. But let's wait until end of Q1 to draw any to be conclusions.

That's very good.

Thank you very much.

Thanks. And we take the next question from Andre, please, from Credit Suisse. Andre, are you with us on the line?

Yes, I am. Thank you very much for taking my question. I have a much broader one. I just wanted to ask whether, given the performance of this year, but also looking at the whole revenue growth performance from 2019 was in the guidance of 2023, and given the macro trends and all the push for energy efficiency, electrification, whether you are changing your thinking on the three to five percent growth, like for a growth outlook that you gave just over a year ago, given that it looks like you've printed about five and going to do another five in 2023?

Yeah, I probably expected that question to come as we have delivering on one year early on the performance also on the operationally without. I put it this way that, of course, it's been a very unusual time now with COVID and the opening up of COVID, which has put volumes. I think we did an overview one year ago on the Capital Market Day, as you remember. We actually lifted our guidance organically three to five, but also including a small acquisition, you know, four to seven there. We think at this stage it's maybe a little premature to do any kind of adjustment in that part. But, you know, we're having the capital market day in November, end of November this year. And we will definitely review our targets after this year also to say, I mean, we reached the 15 percent and we, of course, need to continue. So we will look into that. And that will be... be reviewed during the second half of this year and some kind of message we should have by the capital market day, I think. But not at this day. We don't speculate too much.

Thank you. May I just follow up on electrification specifically, if you could give us some idea how much of the whole portfolio and give us any individual pieces, of course, we welcome very much that, is geared towards the push for high energy efficiency and electrification of buildings and mobility.

Yeah, it's a question I don't know if Timur can answer, but let's put it this way. I think the two driving forces now in the green transition that is taking place, one is the electrification, electrifying the world. You have electrifying America, you have electrifying Europe. That is, of course, one of the big driving forces. Then you have also the energy efficiency side. That means that many operations all around the world are investing in more efficiency in the operation. And I think that is both reflecting electrification but also motion. So these two divisions are really the big drivers in efficiency movement there. So I don't think I have a number exactly to replicate that, but I would say our portfolio overall is supporting both electrification and efficiency movement. You want to add something, Timo?

Yeah, again, I don't have a number to this exactly, but if you look at the division, so clearly in smart buildings, we have things like sockets and that kind of stuff. So, OK, you can then say, is that you know, energy efficiency or not. But then when you look at majority of the stuff, even I would say in installation products, we also have stuff which goes to medium voltage and is actually in energy efficiency. And then if you look at DSSP, e-mobility and majority of the service. So I think that's also there. So let's say over 50%, I would say clearly.

Yeah, and if you look at the EV charging, where the millions of millions of stations is being put up there, both for heavy vehicles as well for commercial vehicles or private vehicles. And all of these, of course, need the power supply. So it's driving everything from medium voltage to installation to support these stations all around. So yes, there is a push in these kind of investments, which this industry is driving.

Okay, thank you.

Thank you very much for your time.

Thanks, André. And while we're on the topic of electrification, we have a question here from Niklas Nilsson who wants to know more about the private placements that has been announced.

Yeah, I think we're very happy to announce that we have a couple more and we're actually four more investors that share our view of the growth opportunities in the mobility side. As you know, we postponed the IPO due to in constructive markets at the moment. At the same time, we think the strategy is correct, which means that we have separated the businesses, and as you can see in our press release, we are now also separated out of electrification, which will have a positive impact on electrification, and we'll put it under corporate. We will also make it transparent for you to see how this business is developing. We have a new board and now we have 525 million of fresh cash into that business to support both inorganic as well as organic growth. And it's now, of course, important that this business continues to be a leader in the market when it comes to that part. so we think there are good companies that have come in and then we say that getting this private placement puts us of course a little bit more relaxed when it comes to the ipo we don't need to make it this year we will do it when the markets are constructive enough and but but the strategy doesn't change you want to add something yeah if i just throw in in couple of numbers so i think this sort of proof out proves our thesis that this is a different kind of business and that's why it sort of deserves

this kind of separate capitalization. And if we look at now, this is like just ballpark, ballpark, four to five EV to revenue. If you look at 22 numbers, so it's clearly different numbers than ABB. And that's the whole thing what we are looking at here. So we're looking for fast growth for this business and also it being able to, as Björn said, grow both organically and inorganically, having the means to do so.

I know we're sort of coming up to the hour here, but we'll see if we can squeeze in at least another question from Guillermo on the conference call lines, please. Are you there, Guillermo?

Yes, I'm here. Good morning, Bjorn. Good morning, Timo. Good morning, Anson. Thank you for answering my question. Just wanted to ask about pricing. And I guess from what I heard and understood, obviously there's a 2% tail that is flowing into 2023. But I was wondering... with demand levels where they are, whether you're seeing or experiencing any direction on pricing as we stand, or is it basically now flat on a sequential basis as you see it? Are you just trying to gauge whether there's any positive on pricing in any of the segments, units, divisions, or actually any negatives that you may want to highlight as we stand?

Thank you. Let me start here, maybe then Timo can add in a little bit first. First, I think it's very important to know that our viewpoint of pricing is what we work with, what we call value-based pricing. And we implemented this already in 2020, long before we saw inflation numbers in commodities or in logistic cost and so on. And the important thing is, of course, to to analyze what kind of value are we creating to our customers and that we're getting paid for it. This is our value based pricing module. Then the world turned a little bit crazy, as we all know, the years and we saw commodity prices going up and we saw, you know, the logistics and an inflation society was coming in. The good stuff was there that we had our in every division and pricing strategy department, which meant that we had good control over the cost in our operations. And our objective became, of course, to offset these costs, which I think they proved to do very well. Now, when we see the inflation slowly is going down and we do expect less of price increases compared to what you saw during last year. But that's of course up to these pricing strategies to define what we need to do. It is of course important to make sure that pricing is an important strategic part of our performance management systems. That is the basis. And we will, of course, make sure that we offset cost increases, but also to get the right value price for the value that we can create for our customer. So that's the basis for it. Yeah, please.

Yeah, I am actually not going to chip in any numbers, but I will use this as a bridge to just say that what Björn mentioned here on the tools to really understand how we drive value-based pricing is something what we are building with this ABB way transformation as well, so that we really get cohesive information per customer, per SKU and so forth. I mean, we're good at that, but we can be even better. And that is what we are doing when we are wiring the company in line with ABB way. And I just want to say that as this is now, high number about 180 million as we said ABB weight transformation it will start to go down already 2024 and we might have a bit of a tail 2025 and then it's done so you shouldn't look at it like something which is there forever.

And with that, we thank you. Thanks, Guillermo. With that, we're up to the hour. I realize we haven't got through the list of callers. Please reach out to us in our investor relations and we'll help you the best we can. And before we finish, I just want to sort of a bit of a commercial. break here when we have I mean Björn mentioned the capital markets day that we're planning for this year 30th of November we're going to host it in in Italy at one of our electrification sites and I hope you will save the date and join us for the day in Italy and with that we say thank you for joining us today and we'll see you in a quarter's time yeah thank you thank you