ABB Ltd

Greetings to you all, and nice to connect again as I welcome you to this presentation where we will talk through ABB's results for the third quarter. For those of you who don't know me, I'm Ann-Sofie Nord, Head of Investor Relations, and next to me here, I have our CEO, Björn Rosengren, and our CFO, Timo Hjelmutila. They will take you through the presentation, and then we open up for questions. But before we begin, I should mention the information regarding safe harbour notices and our use of non-GAAP measures on slide two of the presentation. Also, this call will include forward-looking statements which are based on the company's current expectations and certain assumptions and are therefore subject to risks and uncertainties. But with that said, we move to the presentation and I hand over to you, Björn, to kick it off.

Thank you, Ansi, and a warm welcome from me as well. The third quarter was strong for us. As I go through the P&L, we improved on virtually every line, on absolute number as well as margins. And I'm especially pleased about the strong cash flow. This was key focus area going into this quarter. And we improved conversion and generated a record high cash flow of $1.4 billion. A good outcome. From a market perspective, it was good to see another quarter where we increased comparable orders. If we look under the surface, it was a mixed bag of drivers. Like in the previous quarter, business was good for project and system offerings. And this more than offset the weakness we saw in parts of the short cycle business. Overall, we improved comparable orders by 2%, and we delivered on our expectation of reaching a positive book-to-bill. I'm pleased about the margin being above 17% again. In my view, this is a strong operational performance, and I think it shows that we are a more efficient and well-tuned unit. During the quarter, we recognized for our sustainability standards. Sustainability is embedded in everything we do. It drives demand for our products, it impacts how we produce, it impacts how we act. So, I was pleased to see this being recognized by the MSCI, who upgraded ABB to the highest ESG rating at AAA. This puts us in the top 10% of the peers universe. A good achievement by the team. Now let's tune to page four for some more detailed comments on the market development during the third quarter. I mentioned earlier that there was a mixed bag of demand drivers. I briefly mentioned that we see continued positive demand linked to the medium voltage business. This reflects high activity in the traditional process industry segments like oil and gas and chemicals, but also in growing low carbon segments like LNG and hydrogen, as well as the marine segment. On the softer side, there was weakness in part of the short cycle business. The construction segment continues to be weak. Demand in residential construction dropped in all regions. But in commercial building, it was more split picture. US continues to be robust, China weak and Europe holding steady. Orders were significantly down in discrete automation. Customers continue to normalize order patterns after pre-ordering in the period of supply chain constraints. This means our machine automation divisions will continue to deliver from its order backlog, which stretched as far as into the second half of next year. In the robotic business, the automotive segment was positive, supported by EV investment. However, general industry and consumer related segments declined due to significant drop in China. This includes a softening underlying market, but also channel partners adjusting their inventory levels. We expect China to be a challenging robotic market also the next couple of quarters. Revenues were strong at close to 8 billion, and all business areas contributed to a comparable growth of 11%. On a positive book-to-bill, the order backlog remains strong at about 21 billion. This supports our revenues going into 2024. Now let's turn to slide five and look at the market patterns from a geographical perspective. On this side, you see the positive development in the Americas and AMEA. Americas was the growth engine, and comparable orders were up by 13%, with continued good development in the United States. Total AMEA grew by 4%, as a slight decline in China was more than offset by strengths in, for example, India. During this quarter, we have received lots of questions on the China market. Our orders in China declined by 3%, but actually three out of four business areas reported stable or positive comparable growth. It may be a timing impact and it's early days, but it seems like there was a sequential stabilization towards the latter part of the quarter. outside the robotic and construction business. Europe declined by 13%, impacted by the high comparables and the weakness in discrete automation. Now let's turn to slide six and our earnings outcome. The chart shows our strong improvement in both earnings and margin. Operational EBITDA was up by 13%. Our strong operational result more than offset the impact from divesting the acceleron and the power conversion divisions. We improved the margin by 80 basic points to 17.4%. This includes a combined negative impact of about 60 basic points from the spin-off of Excelleron and the settlement of an insurance claim which supported last year's result. It is good to see how the strong revenues growth feeds into a sharp improvement of the gross margin. Higher volumes improved cost observation in production. And pricing was up by about 4%. In total, we improved the gross margin by 120 basic points to 34.7%. 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 from my side as well. So let's start with electrification on slide seven. Electrification saw another quarter of strong demand surrounding our medium voltage offerings. From growth perspective, the strength in these areas more than offset the softness in some of our short cycle businesses. This sums up to a comparable order growth of 1% and B2B above 1%. Particular strength was noted in the data center segment, with high customer activity linked to the increased data processing needs of AI. Other positive segments were oil and gas, including orders related to low carbon LNG, as well as green energy, solar and immobility segment in rail. On the downside, we saw continued weak demand in the construction segment, also impacted by customers adjusting inventories. Looking specifically at residential construction, we saw weak demand across the regions, impacting primarily smart buildings and to some extent also installation products divisions. For commercial construction, the US showed good momentum. Europe hovered largely flat from last year, and China was the weak area. Now, looking at the chart in the middle, comparable revenues grew by 6%. This was driven mainly by strong price contribution as distribution solutions and smart power executed on their order backlogs, as well as positive development in the tightly linked service business. It's great to see electrification deliver another 20-plus margin quarter. Operational EBITDA margin was 20.8%. This reflects a strong improvement of 210 basis points from last year, with the main drivers being strong pricing as well as support from higher volumes. Margin improved in most divisions, and it's really nice to see distribution solutions performing so well on the back of its focused profitability efforts. All in all, another strong quarter for electrification. Looking ahead into the fourth quarter, we currently expect a growth rate in comparable revenues to be similar to what we saw in Q3 and the operational EBITDA margin to be sequentially lower in line with historical pattern. Let's move to slide eight and the motion business area, which also had an excellent execution. Comparable orders declined by 7% from last year's high level. That said, if you look beyond the impact from large orders, order intake remained broadly stable. Similar to what we saw in EL, also Motion noted the pattern of strength in the long cycle versus weakness in parts of its short cycle offering. From a segment view, this meant that customer activity was high in the process-related areas of chemicals, oil and gas, pulp and paper and mining. Declines were noted in the electronics segment as well as HVAC linked to soft construction markets. Revenues were up by 11%, marking a fifth consecutive quarter with double digit growth in the business area. Total revenues reached $1.9 billion and were supported by increases in both volumes and price. The team has done a good job at executing on their order backlog and delivered revenue growth in all three regions. It was good to see motions operational EBITDA margin reaching a high 19.8%, up 200 basis points from last year. This was driven by an efficient execution of higher volumes, but also by previously implemented price increases, which more than offset the negative impacts from labor inflation and higher input costs. The strongest profitability improvements came from the motors divisions with the large motors and generators division as the clear outperformer. Looking ahead into the fourth quarter, we anticipate absolute revenues to be broadly similar to the Q3 level and the historical pattern of a sequentially lower margin to repeat. Then turning to slide nine and process automation, where the underlying customer activity was robust across most segments. Orders came in at $1.9 billion and were up as much as 38% on a comparable basis. This includes the added support from a large order of about 285 million. For this one, I think it's worth mentioning that the revenues will be generated across a multi-year period as we gradually fulfill the agreement. Segments to highlight on a positive note was oil and gas, where we saw good activity in the US. Marine demand was also strong, but we also saw good momentum in the low carbon related areas such as LNG, hydrogen and carbon capture. Comparable revenues were up by 23% with strong double digit increases in all divisions. Growth was supported mainly by volumes, but also by a positive price development. It was another good margin quarter for process automation, achieving an operational EBITDA margin of 14.6%. I say this even though the margin declined 70 basis points from last year. And I want to remind you that last year, PA had about 190 basis points support from the now exited Acceleron business. So they are clearly improving the underlying margin nicely year on year. Most divisions contributed to the underlying improvement on the back of better project execution and continued benefits from delivering higher volumes from the backlog with improved gross margin. The Marine and Ports Division remains impacted by adverse mix due to lower Arctic marine propulsion business. Looking at our expectations for the fourth quarter, we foresee a mid single digit growth rate for comparable revenues and the operational EBITDA margin to be slightly up from the Q3 level. On slide 10, we turn to robotics and discrete automation. On the back of declines in both divisions, orders in RA dropped by 27% on comparable basis. However, to understand the market dynamics, we need to look at the robotics and machine builder segments separately. The robotics division posted a mid single digit decline in orders. This was primarily driven by a sequential weakening of the China market. On top of that, further pressure to demand stemmed from inventory reductions among channel partners. These pressures in China are expected to continue for the next couple of quarters, putting pressure on the book and bill business. Outside of China, robotics demand was more resilient. Europe declined somewhat, but nothing like what we saw in China, and there was growth in both the US and other AMEA markets. In total, the positive momentum we saw in automotive triggered by EV investments was more than offset by general softness in other segments. Now turning to the machine builder segment. The team is working hard to reduce the order backlog that extends into second half of next year. As a result, we were able to communicate to customers that delivery lead times are gradually coming down, which triggered further normalization of order patterns. Similar to the robotic segments, this normalization is expected to continue for the next couple of quarters. Now moving to revenues, RA achieved a 9% comparable revenue growth. Execution of the high order backlog triggered strong growth in Europe and the Americas, which was further helped by earlier implemented price increases. Growth in the other AMEA markets did not offset the book and build weakness in China. We saw double digit revenue growth in machine automation, helped by good backlog execution. Turning to the margin, robotics and discrete automation delivered a solid 190 basis points improvement from last year, reaching 14.7%. Benefits from strong price management and improved operational efficiencies, more than offsetting labor inflation and slightly higher R&D investments. For the fourth quarter, we expect a slight negative growth in comparable revenues on the back of continued weakness in the Chinese book and bill robotics business, which most likely also will put some sequential pressure on 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 with the price impact at about 4% and leverage on higher volumes more than offset the adverse effects from cost inflation. All in all, a 13% improvement in operational EBITDA with an 80 basis points reported margin increase. This does not take into account the adverse impact of 30 basis points from the divested accelerant business, as well as 30 basis points from the insurance claim, which both benefited last year's margin. And now let's move to cash flow on slide 12. Some of you may recall Björn challenging me on this topic when we met here in Q2. I dare to say that the ABB teams rose to the occasion. Cash was stellar in the quarter with cash flow from operating activities reaching $1.4 billion, a record high quarterly level. The increase from last year was $560 million, supported by all business areas and driven by higher earnings and a reduction of networking capital. It was good to see that the teams were able to slightly work down the inventory balance during the quarter compared to the buildup we had last year. The positive impact from inventories was partially offset by higher trade receivables and contract assets and liabilities, which is linked to the higher revenue growth. Continued reduction in net working capital should support a strong cash flow also in the fourth quarter. And I expect us to achieve an annual free cash flow of about $3 billion for the full year. And with that, let me hand over to Björn to round off this presentation.