ABB Ltd

Greetings to you all and nice to connect again as I welcome you to the presentation of our first quarter results. I'm Ann-Sofie Nord, Head of Investor Relations and next to me here is our CEO Björn Rosengren and our CFO Timo Hujamotila. They will take you through the presentation as per normal before we open up for the Q&A session. But before we begin, I should mention the information regarding safe harbour notices on our use of non-GAAP measures on slide two of the presentation. Also, I should mention that 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 hand over to you, Björn and Timo, for your quarterly comments before we do the Q&A.

Thank you, Ansi, and a warm welcome from me as well. The first quarter was strong for us. Almost everything went our way and we improved most of our KPIs. From a demand perspective, it was another good quarter. And despite the very high comparables, we grew comparable orders intake by 9%. Orders of 9.5 billion is record high quarterly level for the current setup of ABB. Just like in the previous quarter, the supply chain was smooth and we could convert orders backlog into revenues. Despite the strong comparable revenue growth of 22%, we had a B2B of 1.2, meaning we had another quarter building order backlog. It was good to see the teams leveraging the higher revenues into earnings. We achieved an operational EBITDA margin of 16.3%, which is the highest ever for the first quarter. I'm also pleased about the pickup in cash flow. Cash from operating activities was 282 million, up by as much as 855 million from last year. This was supported by higher earnings and lower build up of net working capital. That said, we still have a job to do in bringing down our working capital. The ratio to revenues is too high and this will continue to be a focus area for us. So with that said, we expect a good cash year. This supports our balance sheet. In early April, we launched a new buyback program of up to $1 billion. Today, we have also announced our plans to delist from the New York Stock Exchange and to deregister with the SEC. There is no change in our commitments to the US market, but you know that the market access has increased through multiple digital platforms. We simply do not believe it is necessary for us to be listed on as many as three different markets. This delisting will be another step towards further simplification and efficiency at ABB. Timo will talk more about that later on. Now let's turn to page 4 for some more market comments. To tell a short story, the only segment which declined was residential constructions. However, it remained stable from Q4. This high customer activity resulted in order growth for three out of four business areas. Momentum was particularly strong in process automation. The BA saw broad and strong customer activity across the segments, as well as good timing of some project orders. I want to spend some time on robotics and discrete automation, as it was the only business area where orders dropped from last year. The order decline of 20% year-over-year looks bad, but it is worth noticing that RA's orders intake increased sequentially from Q4, and the order level of 1 billion is actually one of the highest levels ever for the BA, and the book-to-bill ratio was 1.1. Now let's turn to slide five and look at the market pattern from a geographical perspective. Comparable orders increased in all three regions. Asia, Middle East and Africa posted the highest growth of 11%. This is strong given that the largest market, China, declined by 3%, which is good given the very high comparable in last year and pretty much in line with our expectations. But I want to mention a very strong progress in India. In Europe, comparable orders improved by 10%. This, however, included the impact of the order de-booking last year. That aside, we saw a mid-single digit improvement in Europe. Comparable orders in the Americas were up by 5%. This was driven by strong growth in most countries. although U.S., the largest market, dropped by 3% from the last year's very high comparable. Now let's turn to slide 6 and our earnings outcome. In the charge, you see the strong improvement in both earnings and margins. We improved the operational EBITDA by 28%, and if we exclude the negative FX, the earnings were up by as much as 33%. the operational EBITDA margin improved by 200 basic points to 16.3%. This includes a negative margin impact of about 20 basic points from portfolio changes, primarily related to the spin-off of Acceleron. It's good to see how the strong revenue growth feeds into sharp improvements in the gross margin. Higher volumes improved cost absorptions in production and pricing was up about 6%. In total, we improved the gross margin by 190 basic points to 34.6%. In total, this was one of ABB's strongest earnings and margin quarters ever. I would say we are on a good path. With that, I hand over to Timo.

Thank you, Björn. And greetings to everyone also from my side. Before we will move to the business areas, I want to remind you all that this was the first quarter when we report the e-mobility business as a sub-segment of corporate and other and not in business area electrification. As noted on this slide, corporate and other amounted to total costs of $111 million, out of which 83 million relates to what I would refer to as real corporate and other, 28 million relates to the e-mobility business. This is somewhat lower than what you have seen recently in this fast growing business in which we are now dealing with a bit of a growing pains. We are investing somewhat more to renew our offering in order to capture the full potential of this exciting and fast growing market. Let's then move to electrification on slide seven. As just mentioned, this was the first quarter when we report electrification numbers exclusive of e-mobility division. We have restated the charge you see on this slide accordingly and data is available on the investor relations website. You see in the left-hand chart that despite facing a very high base from the first quarter last year, electrification managed to grow comparable orders by 5%, with total orders reaching $4.1 billion. Demand improved in most customer segments except for residential construction, where we saw a decline in all three regions. Very much a similar pattern to what we saw in the fourth quarter. This impacted primarily smart buildings and to some extent also installation products. Otherwise, the overall demand was strong. On the back of some banking turmoil, we have during the quarter received quite a few questions on the commercial construction. Let's see what happens going forward. But for what we have seen so far, the demand in this segment has remained solid. Comparable revenues grew strongly by 16% from last year, and the chart in the middle here also shows a nice positive sequential trend in absolute revenues with the quarter coming in at $3.6 billion, the highest level in many years. Volume continues to be supported by the solid market demand and order backlog execution, and we had another quarter with strong pricing. You can also see that the book-to-bill ratio was clearly above one, resulting in another increase in the order backlog, which now sits at $7 billion and should continue to support revenue generation through 2023. I'm very pleased with the electrification's operational EBITDA margin at 19%, up by 310 basis points year on year on the back of good operating leverage, lower than expected input costs and strong pricing. The margin improvement was driven by all divisions except smart buildings, which was somewhat hampered by adverse mix due to the earlier mentioned weakness in residential construction. Looking ahead into the second quarter, we currently expect a double digit revenue growth and somewhat improved sequential operational EBITDA margin. Let's move to slide eight and the motion business area, which again showed a strong delivery. On a comparable order growth of 8%, total orders reached $2.3 billion, which is the highest level in several years. When looking into the details, one can see that there was a positive development in our drives business, the traction systems offering as well as service, all of which benefit from the global energy efficiency megatrends. and for all of which we have a strategic growth mandate. On the other hand, we saw some declines in low-voltage motors with weakness in the HVAC segment due to software construction demand. Regionally, orders increased in both Amea as well as Europe. As declined in their largest markets, China and Germany were offset by strength in other countries. America's remained stable versus a tough comparable. Motion increased comparable revenues by as much as 29%. And you can see in the chart in the middle that it is partly driven by an easy comparable from last year when customer deliveries were still impacted by supply chain constraints. Nevertheless, it is good to see that strong order backlog execution and continued support from earlier implemented price increases have resulted in the highest revenue level since the formation of the motion business area in 2019. On another positive note, the operational EBITDA margin reached so far uncharted territory, coming in at 18.9%, which is up by 150 basis points from last year. This was driven by an efficient execution of the higher volumes and a strong price execution, which more than offset the negative impacts from higher input costs. Additionally, the margin was somewhat supported by a positive divisional mix due to the strong growth in the drives business. Looking ahead into the second quarter, we anticipate comparable revenues to grow at somewhat lower pace than what we saw in Q1 and operational EBITDA margin at a fairly similar sequential level. Then turning to slide 9 and process automation, where we saw very strong customer activity. Orders came in at a very high level of $2.1 billion on a comparable increase of 55%. Customer activity was high across the customer segments and supported a broad-based strength across divisions and regions. There was also a good support from timing of some larger projects and admittedly some support to the growth rate also from the debugging of approximately $190 million last year's comparable period. Particular strength was noted in the energy industries division. This was driven by the oil and gas segment, including LNG. High activity was however also noted in new energy sources such as hydrogen. This is coming still from a low base though. I noted as I went through the numbers that PEA's current order backlog of $6.9 billion is well above PEA's total revenues in 2022. Comparable revenues grew by 15%, a bit faster than expected, and with a good mix. Looking at profitability, the operational EBITDA margin of 14.2% improved by 120 basis points year on year. This is particularly impressive as last year's margin included approximately 140 basis points contribution from the high margin Acceleron business that we spun off in October 22. meaning that the underlying margin improvement was a high 260 basis points, driven by higher volumes, better project execution and continued benefits from improved quality in the order backlog with higher gross margin. Operational EBITDA margin increased in all divisions except for a slight decline in marine and ports, which was hampered due to the lower share of Arctic marine propulsion business. On the other hand, it is very nice to see stronger than expected performance improvement in measurement and analytics. Looking at our expectations for the second quarter, we foresee double digit comparable revenue growth and a slightly lower sequential operational EBITDA margin, depending on the revenue mix. On slide 10, we turn to robotics and discrete automation, where comparable orders, as Björn discussed, declined 20% year on year. As you see in the left side order chart, the highest bar in the middle is the comparable from the last year, which benefited from pre-buys in a period of a strained supply chain. So order intake of $1 billion in this quarter is actually a historically good level. and even up significantly from Q4. Both divisions and all three regions declined at a double-digit rate. We continued to build backlog in RA with book-to-bill at 1.1. From a customer segment perspective, there was a favorable development in the auto segment. This was, however, more than offset by the adverse development elsewhere, including some inventory adjustment noted, particularly in China. With no real supply chain constraints, revenues continued to rebound and increased by 35% on a comparable basis. Both divisions also benefited from the solid pricing actions taken last year. Operational EBITDA was $140 million, with the margin coming in at 14.9%. This was an improvement of 820 basis points from the low point last year when component shortages prevented deliveries. Main contributors to the margin increase were the strong operating leverage on higher production output, as well as better pricing execution. It would have been really nice to hit that 15% mark already this quarter, but we feel confident that the R8 team is on a good path to get there in the near future. For the second quarter in 2023, we expect a somewhat sequentially lower growth rate for comparable revenues and the operational EBITDA margin to be similar to Q1. Moving on to slide 11, showing the group operational EBIT-R bridge. The profile is very similar to the last couple of quarters with the earnings improvement driven by strong operational performance. The impacts from our strong price execution and leverage on 22% comparable revenue growth more than offsetting the adverse effects from cost inflation. All in all, a 28% improvement in operational EBITDA with 200 basis points increase in margin. Job really well done by the whole ABB team. Now let's move to cash flow on slide 12, which, as Björn mentioned, was strong for the first quarter. Cash flow from operating activities was $282 million, up by $855 million from last year. And it was good to see that all business areas contributed on higher earnings. Networking capital increased sequentially, mainly driven by higher receivables triggered by the strong revenue growth, as well as higher inventories on back of continued strong order intake. While the networking capital buildup was lower than last year, we will continue to focus on this area as we want to bring down the ratio to revenues from the current level of 13.9%. Q1 set us off to a good start to what we expect to be a solid cash tier, clearly up from 2022. Then on slide 13, I want to shed some more color on our Plan D listing in the US, which Björn also mentioned earlier. You know, we are listed on three exchanges, and there are several reasons as to why we take this step to reduce the number of listings. First, investors' capital market access has increased through trading on multiple platforms, providing new possibilities to investors. Secondly, the delisting and deregistration in the US would be yet another step towards further simplification and efficiency at ABB. And last but not least, in my view, we have a strong balance sheet and a good capital markets access, which I believe will support our capital allocation priorities going forward. On this basis, it feels excessive to entertain three listings. From a timeline perspective, we plan to file the required Form 25 with the SEC on or around May 12th, 2023. In connection with the delisting, we intend to establish a Level 1 ADR program, which will allow investors to continue to hold and trade ADRs on the US over-the-counter market on ABB shares. Eventually, we intend to apply for deregistration with the SEC and for termination of our equity reporting obligations under the U.S. Securities Exchange Act. But this can only be done once we satisfy the U.S. average debt trade detailing volume condition. It goes without saying that we will remain committed to an open and frequent dialogue with U.S. investors and maintain the highest standards of corporate governance, including a transparent financial reporting. I also want to highlight that we will remain fully focused on serving our customers in the important US market, IBM's top country by revenues. The United States is critical to our success as a market, As you can see on the right hand side of this slide, we are currently accelerating our growth strategy in the United States by investing approximately $170 million into our operations to ensure that we support our customers in the best way forward, a more energy efficient future. And with that, let me hand back to Björn to finalize the presentation.