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.