ABB Ltd

Greetings, and welcome to this presentation of ABB's first quarter results. Next to me here, I have our CEO, Moten Virud, and our CFO, Timo Jamutila. And I'm Ann-Sofie Nord, Head of Investor Relations. As per usual, Moten and Timo will talk through the results, and after that, we focus on today's announcement of portfolio change. So today the presentation will be a little bit longer than we normally have before we open up for the Q&A. And with that said, I ask you, Martin, to kick off the presentation.

Thanks, Anssi. And a warm welcome also from my side. I would say that we had a strong start to the year. The team did a good job at staying focused in what has been a quarter with intense news flow. I would guess that we all have had tariffs on our radar screens. But if I was to pick up a few highlights from the quarter, those would be. First of all, market activity was high and it was good to see that demand was strong throughout the quarter with a good finish in March. In total, we increased comparable orders by 5% from last year. Secondly, we beat our own expectation for operational EBITDA margin in all business areas. On top of this, our margin got an extra boost from a one-timer which contributed 170 basis points to the margin of 20.2%. The third point I want to mention is the free cash flow of 652 million. This is good for a first quarter, which usually is a softer period for our cash generation. And it puts us now in a good position to improve our annual free cash flow from the 3.9 billion we generated last year. We also made good progress towards our sustainability targets. My final point is that we continue to be active with the business portfolio. In early March, the team in Smart Building closed the acquisition of the Siemens wiring accessory business in China. This adds to our already strong product portfolio. And importantly, it gives us additional market reach through our distribution network across 230 cities. The deal adds about $150 million in sales, and it is margin accretive. Today, we also announced our plan to spin off the robotics division as a separately listed company. In our view, this change will support value creation for both companies. And, as Ansi mentioned already, we will cover this separately later on. As part of the annual reporting suite, we published our sustainability statement. And we made good progress in 2024. We are already close to fulfilling our 2030 targets for 80% reduction of CO2 emissions. At the end of 2024, we were down 78% from the 2019 base level. But it's not only about us. I'm proud to say that with our technology, we helped our customers avoid 66 megatons of emissions with our products sold in 2024. Over the last three years, we have accumulated nearly 205 megatons of avoided customer emissions. I also want to mention safety as this is something we cover in all our internal reviews. Keeping our people safe is an important KPI that we follow carefully. Zero incidents is always the target and it's good to see that we continue to track on a low score and we achieved 0.15 for 2024. So let's take a look at the market developments. And the short version is that orders were stable or up in most of our customer segments. Like I mentioned, comparable orders were up by 5%. This was driven by mid single digit growth in our short cycle orders, which improved in all business areas. We also had 11% growth in the service business, but we had a slightly lower contribution from large orders. Some of the stronger areas were utilities, marine, ports, commercial buildings, and most of the process-related areas, although chemicals and pulp and paper are generally more muted segments. Our robotics business had increased orders from the automotive segment, and our paint technology is the best on the market, and we had customers choosing to remain with us as they expanded their international footprint. One can say we travel with the customer. Data center is usually a focused topic, and there has been quite some news flow in Q1. The general sentiment remains very strong. We see some customers even accelerating their investments, even if some slower activity from one of the hyperscalers is noted in this quarter. Rail remains a strong area. One example from our traction business is the collaboration with Stadler in the US. We will supply converters and pro series batteries for train sets in Illinois and California as the US moves towards greener rail transport. But even if the market is strong, orders in rail dropped from a high large order comparable. Switching to the revenue chart, the 7.9 billion and 3% comparable growth was a bit below our original expectation. We did not convert the backlog or recent short cycle orders as quickly as expected. Volumes were the larger driver to growth with some added contribution from positive pricing. Turning to look at the different geographies, we were actually up in all three regions. The Americas with good support from the US was again the main growth engine and increased by 11%. Asia, Middle East, Africa improved by 4% and China turned to positive order growth of the 10 quarters in decline. All business areas contributed to the China growth of 13%. And Europe was up 1% with a mixed picture between the countries. Looking at our large markets, Germany declined while for example Italy improved. Uncertainty triggered by the tariff new slope has put focus on footprint and operational setup between regions. I've said to our teams to continue to focus on what we can control and take action to defend our market position and profitability. We have been successful in this area before. Our legacy of a local for local footprint serves us well. In the United States, we cover as much as 75 to 80% of our sales with local production. And we invest to increase this number. In Europe and China, we have already reached an even higher local value chain. So I feel we are in a relatively good situation when it comes to local for local. In addition, we'd also benefit from an exemption such as the USMCA. Turning to earnings, the chart shows that we continue the upward trend for both absolute operational EBITDA and margin. I said that I wanted us to become a plus 40% gross margin company. And that is what we delivered in Q1 when gross margin improved by 280 basis points to 41.7. Admittedly, there was about 110 basis points of improvement coming from FX and commodity timing differences. But we have shown we can reach the 40% level. And now we have to work towards consistency. The team did a good job also on operational EBIT-A. Margin improved in three out of our four business areas. Only robotics and discrete automation declined from last year. But importantly, they showed a positive sequential development and the machine automation division improved to a break-even level. On top of the improved business performance, we had support from a property sale we completed here in Zurich, which added about $140 million. This was booked in corporate and other and supported the margin by about 170 basis point to the total of 20.2%. Even without this one-timer, it has a good start to the year. And it sets us up to deliver on our guidance to improve margin from last year, assuming no significant changes in the global economy.

And now, I hand it over to you, Timo. Thank you, Morten, and welcome to you all from my side as well. Let's now talk through the different business areas, starting with electrification. And the EL team keeps delivering new records. In Q1, they achieved a new all-time high orders of $4.4 billion. This is up 2% on a comparable basis from the previous high, a testament to strong underlying markets. Customer activity was stable to positive in most customer segments. This includes our two largest segments of utilities and buildings. Demand in buildings continues to be driven by the commercial market outside of China. And the residential market was overall stable, although the China market is still weak. Moten talked about the data center segment earlier and the slower activity we saw from one of the hyperscalers. I want to emphasize that outside of this specific event, we still see a very strong data center market. If we exclude this one hyperscaler, orders in data centers increased at mid-teen space. The base is now quite sizable as we had data center orders of about 2.5 billion last year. So generally it is still a very strong general environment in this tech segment. Turning now to revenues, electrification delivered 6% comparable growth with contribution from virtually all divisions. Volumes were driven by conversion of the order backlog related to medium voltage and power protection, and also the short cycle business improved by mid single digit. The profit chart on the right side shows the steady improvement trend electrification has achieved. At this quarter was no exception. Operational EBIT A was up by 7% to $886 million with a margin of 23.2%. The gains from higher volumes and operational efficiencies more than offset higher expenses mainly related to SG&A. All in all, a very strong quarter for electrification, adding to our confidence for the year. Now looking into the second quarter, we currently expect low double-digit growth in comparable revenues and the operational EBITDA margin to improve slightly from last year. Now turning to Motion, which delivered another quarter with order intake above $2 billion. That said, lower large order bookings, mainly in traction division, triggered a decline from last year's record high level. The strongest growth was noted in the service division, while the short cycle improved slightly versus the prior year. We saw favorable order development in HVAC for commercial buildings, as well as in the power generation. The softer areas included the process related segments of oil and gas, chemicals and food and beverage. Rail also declined, but this was linked to the larger order comparable I just mentioned. Shifting now to revenues, which was supported by both higher volumes and a positive price impact. The long cycle divisions improved as they executed on their high order backlogs, even if this was slightly below our original expectation. This improvement was partly offset by a decline in the service division, while the short cycle areas were broadly stable. In total, this sums up to an increase of 3% in comparable revenues to just over $1.8 billion. The positive price development coupled with continued operational improvements contributed to a strong margin improvement of 110 basis points to 19.6%. And most divisions improved their profitability year on year. For the second quarter, we anticipate comparable revenue growth in the mid single digit range and the operational EBITDA margin to remain broadly stable year on year. In process automation, we saw a continued healthy market environment and orders came in at the high level of $2 billion, increasing 23% year on year. The PA team delivered yet another quarter with a positive book-to-bill, at this time 1.24, and the backlog is now $8.1 billion. The marine and port segment continues to be a growth driver. In this segment, we are mainly exposed to passenger vessels, like cruise, and specialized vessels, which could, for example, include icebreakers or coast guard. Port automation also continued to see strong underlying demand. As for the other segments, we saw a stable to positive order development in most of the energy and process related industries. The business climate, however, remains more muted in chemical, pulp and paper and mining. Revenues got off to a good start and increased by 5% on a comparable basis. The team executed on their steadily increasing order backlog with added support from pricing. The team has done a really good job on quality of revenues as the order backlog gross margin has been increasing. As they now execute on this backlog, we see this supporting profitability in the business area. The contribution from the backlog more than offset the impact from lower volumes in the product division. All in all, it resulted to a new record operational EBITDA margin of 15.8%, improving 20 basis points year on year. Looking at our expectation for the second quarter, we foresee comparable revenues to improve in the mid single digit range and the operational EBITDA margin to be stable or slightly up year on year. If we flip now to robotics and discrete automation, it was good to see that this time both divisions contributed to the strong order growth of 17%. The robotics division saw positive order developments in the automotive and consumer electronics sectors. Both of these important segments remain generally challenging, but we were able to grow orders as customers stick with our leading technology as they expand their geographical exposure. Other positive segments included food and beverage, the fashion industry, as well as industrial machinery. In machine automation, orders increased sharply from last year's low level. Inventory levels at our customers are normalizing, but we will have some inventory adjustments spilling over into the second quarter. But we still expect orders to continue to slightly improve sequentially. Moving now to revenues. the robotics division reported a mid-single digit growth rate driven by higher volumes from the book and bill business. This was however clearly offset by significantly lower volumes in machine automation. In total, this resulted in comparable revenues being down 11% year on year. Although the profitability was down sharply year on year due to the lower production volumes in machine automation, the sequential improvement was better than anticipated. The previously announced cost savings measures in machine automation helped improve the margin, and this business is now back at break-even level. The robotics division increased margin from last year, supported by higher volumes and efficiency measures. it remains well into the double digit territory. Combined, this resulted in an operational EBITDA margin of 9.9%, down 330 basis points year on year, but up 200 basis points sequentially. For RA in the second quarter, we expect a slight sequential increase in absolute revenues and operational EBITDA. Now let's move on to the cash flow. All business areas had a positive operating cash flow. It was supported by strong earnings, which offset the typical buildup of networking capital in the first quarter. The 652 million of free cash flow was, in my view, very good for a first quarter. The year-on-year increase of 101 million dollars was mainly driven by the real estate sale. The improved operational performance was mostly offset by higher payments related to taxes and interest. Networking capital remained broadly stable. I think the first quarter puts us on a good path to improve our annual free cash flow from last year's 3.9 billion. The last time we met, we mentioned some reporting changes, including return on capital employed. We now report Group ROSI on quarterly basis, and it remains a focus area for us. The chart here shows that the strong trend continued in the first quarter. Rochi reached 23% and improved 250 basis points from last year. The increase was driven by three out of four business areas as a result of higher earnings, the positive one-timer and focused networking capital management. And with that, I hand it back to you, Morten. Thanks, Timo.