ABB Ltd

Greetings to you all, and nice to connect again as I welcome you to the presentation of ABB's second quarter results. For those of you who don't know me, I'm Ann-Sofie Nord, Head of Investor Relations, and next to me here is our CEO, Björn Rosengren, and our CFO, Timo Hiamotila. They will take you through the presentation before we open up for the questions later on. But before we begin, I should mention the information regarding the 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 now with that said, I hand you over to Björn to kick off the presentation.

Thank you, Anssi, and a warm welcome from me as well. In my view, the second quarter is a strong delivery from us, and I'm pleased with the outcome. I especially want to mention the comparable order growth of 2%. This is an improvement from the already high level last year, and I'm pleased that we achieved yet another quarter with a positive book-to-bill. I will talk about the drivers in the coming slides. The supply chain was smooth and we executed order backlog and reached 17% growth in comparable revenues. And all business areas increased at a double digit rate. We reached a new record level for both absolute operational EBITDA of 1.4 billion and a margin of 17.5%. And all business years reported a margin above 15%. A strong achievement in my view. I am pleased for the teams reaching the strong result, supported by focusing on the right markets and customers and successfully working through the ABB operating model. We also improved cash flow from last year to 760 million. Timo will talk more in details, but just to put some healthy pressure on you, Timo, I expect to see cash conversion improve in the second half of the year. This will support our cash generation to a good level for 2023. Portfolio optimization continued in the quarter. We closed one deal in the motor business in motion and announced one small software technology deal, adding smart home energy efficiency technology to electrification. Just after the end of the second quarter, we closed the divestment of the power conversion division in electrification. This makes the completion of the three divisional exits we first mentioned in 2020. Finally, I want to mention a new innovation by Process Automation. You know that I'm a fan of the marine propulsion business, and this new Dynafin technology will improve propulsion efficiency by 25% and reduce fuel consumption on ships. Dynafin is targeting small to medium-sized vessels, and it will complement our existing market-leading ACIPOD offering. Now I want to show you a short video clip on it. I am proud about the technology know-how we have in ABB, and this new groundbreaking concept is one good example. Now, let's turn to page 4 for some more market comments. In the second quarter, we saw the strongest order momentum in the systems and project-related off-ray. This is often linked to the medium voltage segment. It supports growth in divisions like distribution solutions, system drives and large motors and generators. The healthy momentum in medium voltage more than offset some of the softening in the short cycle business. Taking a helicopter view on the different segments. I would say that demand increased or remained stable everywhere except for in buildings. Residential construction declined in all regions. And while commercial construction was solid in the US, we noted some softness in China and Germany. Comparable orders increased in three out of four business areas. Only robotics and discrete automation declined as customers normalized order pattern. There was also additional sequential impact from customers in China adjusting inventories. In total, I'm pleased that we have achieved a positive book-to-bill ratio of 1.06 and the order backlog is now 21.9 billion. Now, let's turn to slide 5 and look at the market pattern from a geographical perspective. On this slide, you see that Americas and Europe contributed to comparable order growth. In Americas, all three key markets improved. Europe increased slightly despite decline in two largest markets like Germany and Italy. Asia, Middle East and Africa declined slightly as the broad weakness in China more than offset the strong growth in, for example, India. Now let's turn to slide six and our earnings outcome. This is my favorite slide this quarter. It shows that we improved our operational EBITDA by 25%. It also shows the all-time high margin of 17.5%. And importantly, this was driven by the increase of gross margin to above 35%. Gross margin was up in all four business areas, backed by operational leverage or higher volumes and positive pricing. In total, the pricing impact for the group was a strong 5%. Out of this, about 3% was carried over from last year. Before we move on, Let's look at the corporate and other outcome of minus 143 million. This is the result of corporate cost at the normal level of about 75 million, but a low outcome for e-mobility. We recognize that this is lower than we expected coming into the year. In the quarter, there was inventory-related provision triggered by a shift back to a more focused product strategy and some additional technology investments to secure a continued leading market position. I expect the new management to have improved the operation performance toward the end of the year. On the positive note, it was good to see that orders were up 73%. With that, I hand over to Timo.

Thank you, Björn. And greetings to everyone also from my side. Let's then move to electrification on slide seven. Electrification was again facing a tough comparison period, but still improved its comparable orders by 3%, with total orders reaching $3.9 billion. This was driven by positive momentum in our systems-related medium voltage offering. Demand remained firm in most customer segments, and we saw some sizable wins in both data centers and the oil and gas sectors. Just like in the previous quarter, residential construction remained weak across the regions, impacting primarily smart buildings and to some extent installation products. Commercial construction remained stable in the US market with institutional commercial buildings such as healthcare showing resilience. We did, however, start to see some weakness in China and Germany. Now, looking at the chart in the middle, comparable revenues grew strongly by 11%, with volume and price contributing more or less equally to the quarterly revenue growth. The recent, consistently positive trend continued, and revenues now surpassed $3.7 billion, the highest level in many years. We saw double-digit revenue growth in all divisions except for in smart buildings and installation products, where the higher exposure to residential construction slowed growth. You can also see that the book-to-bill ratio was again above 1, resulting in further increase to the order backlog, which sits now above $7 billion and should continue to support revenue generation through 2023. It's great to see electrification's operational EBITDA margin reaching a record high of 21.1%, up by 350 basis points year on year, driven by a strong gross margin improvement on the back of operational leverage on higher volumes, as well as strong pricing. I want to mention the strong performance improvement in distribution solutions, where a strong execution of the order backlog as well as the structural profitability efforts now come through in the numbers. All in all, we are super happy that EL is now having a best-in-class performance. A really good basis to focus on further growing this profitable business. Looking ahead into the third quarter, we currently expect a somewhat lower growth rate in comparable revenues than what we reported in Q2, and the operational EBITDA margin to be broadly similar to Q2. Let's move to slide eight and the motion business area, which again had an excellent execution. Comparable orders grew by 3% from last year's high level, driven mainly by strong momentum in the systems related offering, with total orders again passing the 2 billion threshold. When looking into the details, one can see that the strongest customer activity was surrounding our medium voltage offering. This triggered a strong order growth in the system drives and large motors and generators divisions, as well as in the tightly linked service business. I'm pleased to see the order backlog gross margin in all these divisions is holding strong or improving, which shows we are not only continuing to grow orders, but doing so in areas where we are driving value to our customers with our offering. This is good news to compensate for some of the softness in the more short cycle business. Regionally, orders increased in all three regions on a comparable basis, as declines in the US and China were offset by strength in other countries. Revenues were up sharply by 22%, and you can see in the chart in the middle how the strong backlog execution and strong price management now resulted in absolute revenues landing just shy of 2 billion. On another positive note, this was the first quarter that the motion business area passed the 20% mark with an operational EBITDA margin of 20.4, up by 400 basis points from last year. This was driven by an efficient execution of the higher volumes and previously implemented price increases, 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, as well as margin improvement in the large motors and generators division that benefited from ongoing self-help measures. Looking ahead into the third quarter, we anticipate a low double digit growth rate in comparable revenues and somewhat of a sequential softening of the operational EBITDA. Then to slide nine and process automation, where customer activity was high across the segments. The project pipeline in the market remains robust, although the timing of some large orders hampered growth rates in the quarter. Orders came in at $1.7 billion and were up 6% on a comparable basis. Segments to highlight would be the oil and gas segments, where we continue to see good investments in the US, but also ports, refining, petrochemicals and the energy-related low-carbon segments. Comparable revenues grew by 19% with contribution from all divisions and double-digit growth in all three regions. We're really happy about process automation achieving an operational EBITDA margin of 15.4%, representing an improvement of 110 basis points year on year. This is even more notable as last year's margin included some 190 basis points contribution from the now exited Acceleron business. This improvement was driven by most divisions on the back of better project execution and continued benefits from delivering higher volumes from the backlog with improved gross margin. I particularly want to mention measurement and analytics, where the operational turnaround has resulted in the division now delivering a margin well above the business area average. Job really well done to the team. Looking at our expectations for the third quarter, we foresee the growth rate for comparable revenue growth to be similar to what was reported in Q2 and a somewhat lower sequential operational EBITDA margin, depending on the revenue mix. On slide 10, we turn to robotics and discrete automation. Let me start with the margin, as it is really nice to see that RA has crossed the 15% margin threshold again. Operational EBITDA was $141 million and resulted in a margin of 15.3%. This represents an improvement of 710 basis points from the low level last year. which was hit by missing volumes from the China lockdowns and tight supply chain. We now saw the operational effects from higher production output and strong price management. Let's then take a look at the orders and revenues. As expected, the order growth declined at a double digit rate in both divisions as they continued to be hampered by customers normalizing order patterns on the back of shortening delivery lead times. Additionally, some inventory adjustments among customers, particularly in China and mainly related to the robotics division, added further sequential pressure on orders, which resulted in a 22% comparable decline year on year. These inventory adjustments in China are expected to persist also into the third quarter. From a customer segment perspective, the automotive segment remained stable at the high level. However, that was more than offset by declines in other segments, particularly in the machine automation and electronic segments. Revenue execution rebounded and was up 27% on a comparable basis, driven by both volume and price. For the third quarter in 2023, we expect a low single digit growth rate for comparable revenues and a slight sequential softening of the operational EBITDA margin. Moving on to slide 11, showing the group operational EBITDA 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 17% comparable revenue growth more than offsetting the adverse effects from cost inflation. All in all, 25% improvement in operational EBIT R with 200 basis points increase in margin. As Björn said, the ABB way operating model is starting to work and the teams have done a really great job executing their strategic mandates. So big thanks to the ABB teams on achieving this record margin. Now let's move on to cash flow on slide 12. Cash flow from operating activities was $760 million, up $378 million from last year, supported by higher earnings and a lower networking capital build-up compared with last year. I acknowledge that the cash conversion could have been a bit better, and we are working to improve it during the second half of the year, so the healthy challenge is accepted. Networking capital increased sequentially, mainly driven by higher receivables, triggered by the strong revenue growth, as well as slightly higher inventories, as we continue to build order backlog. I can assure you that this is a key topic in our business reviews and I'm confident that we will deliver a strong cash performance this year. And with that, I would hand over to Björn to round off this presentation.