ABB Ltd

Greetings to you all, as I welcome you to this presentation where we will talk through ABB's results for the first quarter. I'm Ann-Sofie Nord, Head of Investor Relations, and next to me here is our CEO, Björn Rosengren, and CFO, Timo Jamotila. They will take you through the presentation before we open up for questions. But before we begin, I should mention the information regarding safe harbour notices on our use of non-gap measures on slide two of the presentation. This call includes forward-looking statements based on the company's current expectations and assumptions, which are subject to risks and uncertainties. And with that said, kick off the presentation and I hand over to you, Björn.

Thank you, Ansi, and a warm welcome from me as well. Let's summarize the quarter on page three. The year got off to a good start with orders at $9 billion. This is one of the strongest quarters for ABB. Both electrification and motion were at new record heights. Orders in process automation declined, but remember that the comparables was on an all-time high level of $2.1 billion. And importantly, the underlying markets remain consistent with recent quarters. In robotics and discrete automation, you recognize the pattern of sharp order decline. In machine automation, you can still see the pre-bias effects, and the robotic market declined from last year. But we saw encouraging sequential signs. I will talk more about this on the next slide. To summarize, we see a continued high level of customer activity in their project and systems areas. And it is encouraging to see the positive order development in electrification's short cycle business. I feel even more confident about 2024 than I did coming into the year. It was good to see the record-level operational EBITDA margin of 17.9%. This was supported by electrification and process automation, which both delivered new highs. This is a good sign that there is still upside potential in ABB. Also, cash flow was strong at $550 million, a great start to what should be another strong year for cash. We expect free cash flow to be at least similar to last year. Timo will talk more about that later on. We published our sustainability report, which included the proof point of our core customer value proposition. We helped our customer to avoid 74 megatons of greenhouse gas emissions from the products we sold in 2023. At the current total of 139 megatons, we are on a good path towards our ambition of 600 megatons avoided emissions by 2030. In short, we had a good start to the year, even stronger than expected for orders and margins. We also announced my decision to retire as CEO. In August, I will have been with ABB for close to five years. The transition towards the ABB way operating model went even faster than expected. And today, ABB is in a good shape. I think this is a good time for me to hand over to Morten. He has been with ABB for 25 years. He knows the company and his customers well. And importantly, he has a proven leadership track record and a strong belief in the ABB way operating model. I feel confident that ABB will be in good hands. Now let's talk about the market development on page four. Comparable orders declined by 4%. down from last year's record high comparable. And as I mentioned earlier, orders actually came in a bit stronger than expected. I did not foresee both electrification and motion to improve to all-time highs. A very strong achievement. In the project and system business, we continued to see high activity, but now also see encouraging sign in the short cycle areas, which only declined by low single digits. And in electrification, it even contributed strongly to order growth. We called out early that Q4 would be the low point for the absolute orders in RA. And we now saw a good sequential order increase. In machine automation, we still see pre-buy effects. and the order backlog supports deliveries until late summer. This is when we will get a better belief for where the real market is. The robotics market was down in all regions from last year, but the sequential pattern was encouraging. We see continued strong momentum in segments like utilities and data centers, but also in marine ports. Even the building segment supported orders driven by the U.S. commercial segment in electrification. Comparable revenues increased by 2%, equally supported by price and volumes. We had support from the strong order backlog, which continued to grow to 222 billion. And this makes us feel confident for the year. Book to build was positive at 1.14. Now let's turn to slide five and look at the geographical developments. The U.S. remains the most robust market, but the American region declined slightly due to timing of large orders. EMEA remains stable, and we see very strong development, for example, in India. China declined year over year, with soft activity in several segments. But the message internally is that we see a stable sequential pattern in China, and with a slight positive undertone for the future. Europe dropped by 9%, with the biggest decline recorded in areas of robotics and discrete automation. Now let's turn to slide six and our earnings outcome. In the chart you see the strong improvement in both earnings and margin. Operational EBITDA was up 11% and the margin increased by 160 basic points to 17.9%, a new record level. We had positive impact from price, operational leverage, on volumes and continuous efficiency measures. This more than offset higher spend in, for example, R&D. In the quarter, we also had about 20 basic points support from corporate costs being slightly lower than expected due to some timing impacts. it was good to see the gross margin increase by 270 basic points to 37.3%. All in all, it was a good achievement by the teams.

With that, I hand over to Timo. Thank you, Björn. And greetings to everyone from my side as well. Let's now flip to slide seven and electrification. I have to say that it was really good to see them deliver new record level orders. The market environment in the project and system businesses remained good. And this was now coupled with a mid single digit growth in short cycle orders. This combo resulted in the strong comparable order growth of 8% year on year. We saw stability or improvements across most segments with outstanding growth in the areas of data centers and utilities. As Björn mentioned, the building segment improved after several quarters of decline. This was driven by a good demand in commercial buildings in the United States, which offset the general weakness in the building segment in China. Europe continues to show signs of stabilization at a lower level. Turning now to revenues, the electrification team again executed well and delivered 6% comparable growth. Price was slightly positive, but the key driver was higher volumes supported by backlog deliveries, and this time with the added support from the book and bill business. Operational impacts from higher volume and pricing, coupled with continuous improvement measures, offset some of the cost inflation and resulted in a new record high margin of 22.4%. All in all, a very strong quarter for electrification, adding to our confidence for the year. Looking ahead into the second quarter, we currently expect the growth rate in the comparable revenues to be higher than what we saw in Q1 and the operational EBITDA margin to be slightly up sequentially. Let's move to slide eight and the motion business area. They also delivered a new record level for orders at $2.3 billion, up one percentage point on comparable basis. This was supported by the project and systems businesses. And the traction division was the engine for order growth, including the 150 million ticket in Australia. But we also saw encouraging signs for the short cycle business through the quarter. Apart the good momentum in rail, there were favorable moves also in oil and gas and power generation, including investments in grid stabilization equipment. Some slowness from last year's high level was noted in areas like pulp and paper, chemicals and HVAC. Looking at revenues, we recorded a comparable decline of 6% as contribution from backlog in our traction and large motor businesses was impacted by some delivery timing changes and did not fully compensate the weaker short cycle business. The price impact was slightly positive, while volumes declined overall. Motion's operational EBITDA margin came in at 18.5%, decreasing by 40 basis points, hampered by operating leverage on lower volumes. That said, the team did a good job in offsetting some higher expenses related to salaries, R&D and SG&A with price increases. Looking ahead into the second quarter, we anticipate a low comparable growth in comparable revenues year-on-year and operational EBITDA margin to be slightly up sequentially. Then turning to slide nine and process automation. And looking at the chart on the left, we can see orders down 20% on a comparable basis. Note though, that this is down from last year's record level of over $2 billion. The decrease is mainly due to the combination of last year's quarter being supported by a very high share of large orders, and this year we instead had some timing pushouts. In my view, the order level of 1.7 billion is a good indication that the underlying market remains buoyant and that PEA continues to focus on quality of revenues. This is the right strategy for PEA, particularly when looking at the project pipeline, which continues to be strong. But total orders declined, down in the large process-related segments of oil and gas, pulp and paper, and mining. However, a positive development was recorded in ports, as well as in the less sizable low-carbon-related areas, such as nuclear, carbon capture, and hydrogen. Comparable revenues were up by 12%, which was even better than we anticipated, with all divisions contributing to growth. Deliveries from the order backlog were the key drivers, but we also had some positive pricing coming through. I took a quick look at history and this was actually the 14th straight quarter that process automation has had a positive book-to-bill job really well done. At 15.6%, also process automation delivered a new record high margin up by 140 basis points from last year. All divisions contributed on the back of better project execution and delivering from the backlog with improved gross margin. It's really nice to see that all divisions are now in the so-called teens range. Looking at our expectations for the second quarter, we foresee at least a mid-single-digit growth rate for comparable revenues and the operational EBITDA margin to be ballpark similar to the first quarter. On slide 10, we then turn to robotics and discrete automation. As mentioned earlier, we delivered on our prediction of sequentially higher orders. But from last year's very high level, comparable orders declined sharply by 30%. In robotics, demand declined across the board, but the sequential pattern was encouraging, including China. Inventory levels in the channels did seemingly normalize as expected towards the end of the quarter. In machine automation, the order backlog remains high and should support deliveries into the latter part of the summer. Meanwhile, customers hold on placing orders awaiting deliveries from Piribais. Moving to revenues, which decreased by 7% on a comparable basis. This is the combined outcome of machine automation recording a strong positive development as they execute on the backlog and the adverse impacts from the short cycle business still under pressure in robotics. Leverage on the lower volumes put pressure on the margin year on year to 13.2%, which more than offset positive mix and stringent cost efforts. For the second quarter, we expect a mid-single negative growth in comparable revenues with some sequential pressure on the operational EBITDA margin, mainly from MIX. Moving on to slide 11, showing the operational EBITDA bridge. The profile is very similar to recent quarters, with earnings improvement driven by strong operational performance. We benefit from the positive price execution at about 1% and leverage on higher volumes. Unlike recent quarters, it is good to see a positive impact from efficiency measures in operations, which more than offset cost inflation linked to labor, SG&A and R&D. All in all, an 11% improvement in operational EBITDA with a 160 basis points margin increase. A great outcome. Now let's move to cash flow on slide 12. The 551 million of free cash flow was, in my view, an excellent cash generation for a first quarter. Best Q1 at least during my seven years at the company. All business areas had a positive operating cash flow and three out of four BAs improved from last year. The increase was mainly driven by better operational performance as well as less buildup of networking capital, mainly related to strong collection of receivables and less inventory buildup versus the prior year. This resulted in an increase in free cash flow of $389 million, despite higher capex investments. This puts us on a good path to deliver another year of strong cash, at least similar to last year's 3.7 billion. And with that, I will hand over to Björn to round off this presentation.