ABB Ltd

Greetings and welcome to this presentation of ABB's third quarter results. Next to me here is our CEO, Moten Virud, and our CFO, Timo Jammotila. I'm Ansa Finod, head of the investor relations team. Moten and Timo will talk through the results and then we will, as usual, open up for Q&A. And with that said, I hand over to you, Moten, to kick off the presentation.

Thanks, Ansi. And welcome also from my side. Summarizing the trading climate in the third quarter, I would say that this was very similar to what we saw in the second quarter. When I talk to our business leaders and when I meet with our customers, there are no material differences in what they say and do. So despite continued news flow and uncertainty related to US tariffs, our customers continue to invest behind electrical power and automation. There are, of course, differences between segments. Some are very strong and some still challenging, and I will come back to these details. But overall, we see good demand for our offering. The high order level with 9% growth is one key highlight in the quarter. Another strong point for me is the free cash flow of $1.6 billion. In total, I'm pleased with the quarter. We keep moving ABB in a positive direction. We improved on virtually all lines of the income statement. Strong revenue growth, improved earnings, margin and EPS. I want to give credit to the team for a job really well done. I also want to mention the robotics announcement. Last week, we informed about our decision to sell the robotics division to SoftBank Group. This is a change from our original plan to spin the business as a separately listed company. But first, let's focus on the quarter and then come back to robotics at the end. So let's look at what drove our orders to increase by a comparable 9%, reaching $9.1 billion. This time, all four business areas improved comparable orders in the range of 4 to 17%. We had a stable to positive development in most of the customer segments. And we were up in our service, short and long cycle businesses. I mentioned that there are differences between the customer segments. Data centres continues to stand out on the strong side and orders increased at a double digit pace. The utilities market remains strong and land transport infrastructure continues to benefit from upgrades of electrical equipment. The building segment was positive, helped by the commercial market. In the energy-related area, there was a positive development in the oil and gas segment. The demand in renewables declined, but we see increased activity in our nuclear business. Similar to previous quarters, the process industry area was slow, and within discrete automation, it is still challenging in the machine builders segment. That said, we saw sharp order growth in the quarter, but this is more linked to the low comparable when customers were holding back orders after earlier pre-buys. Robotics orders were broadly stable. If you look at the right-hand chart, you see that revenues hit an all-time high of 9.1 billion, up 9% like for like. This was supported by all business areas, with improvements in both the short and long cycle businesses, as well as in service. In total, revenues were high, but orders even higher. So with book to bill at 1.01, we add to the already record high order backlog, which amounts to 25.1 billion. If we instead look at the order intake from a geographical perspective, the Americas was again the main growth engine and increased by 19% like for like. Looking specifically at the US market, orders were up 27%. This high number includes some large bookings, but the improvement was a strong 9% also for base orders. Europe was up by 9% and there was a mixed picture between countries. If we look at Germany, our largest market in Europe, it declined by 4% due to the impact of large bookings from last year. However, base orders in Germany were virtually stable to somewhat positive in all business areas. EMEA declined by 1%, hampered by weakness in China. The general market in India remains strong, although order growth in this quarter was impacted by large bookings last year. Bait sources were up 9% also in India. Backed by higher revenues, we improved operational EBITDA by 12%. And I'm pleased that we start to build a pattern of gross margin above the 40% mark. we have become more efficient in our execution. And as we get higher volumes and some positive pricing, we more than offset the increased spend for R&D and SG&A. You have heard me talk about our local-for-local footprint. And as we have mentioned before, our setup has left tariff-related impacts limited to the tens of millions. All in all, we improved operational EBITDA margin by 20 basis points to 19.2%, which was even a bit better than what we originally expected. It was good to see that our improved business results more than offset the higher corporate and other costs. The corporate line was higher than what we guided for, and this is due to FX hedges on intra-company transaction. Looking at the underlying corporate cost, it was as expected. e-mobility reported a loss of 26 million, which is a step in the right direction. And we expect them to sequentially improve going into Q4. All in all, we improved our net results and EPS was up by 29% to 66 cents. I'm pleased with the third quarter. And now I hand over to you, Timo.

Thanks, Morten. And since we are on the topic of earnings and you also touched on the sale of robotics, I will just quickly mention the upcoming impacts to our reporting. From Q4 25 onwards, we will report the robotics business in discontinued operations. This change triggers some stranded costs until the deal closes. The net effect, however, is close to margin neutral, but let's still go through some specifics. My first point is that in the last 12 months, robotics had orders and revenues of about 2.2 and 2.4 billion respectively. They had operational EBITDA of about 300 million reported in the ABB structure. This will shift to discontinued operations. Secondly, there will be an impact of stranded costs reported in corporate and other until closing of the deal. If we calculate this based on the last 12 months, it represents a negative impact on ABB operational EBITDA margin of about 40 basis points. However, the offset comes from moving robotics to discontinued operations, which will have a positive impact on group margin of similar magnitude. As you know, the robotics business runs at the margin level below group average. To help out, this time you find the guidance framework based on both old and new reporting structure. And we will put restated numbers on the IR website in early December. And with that, let's take a look at what happened in the different business areas, starting with electrification, where we continue to see a strong market environment as customers invest in electrical power. Orders were up 10% on a comparable basis, reaching $4.5 billion. It's encouraging that the strong order growth was supported by a stable to positive development across all customer segments. Datacenter stands out on the positive side and was up by double digit. Utilities is another strong market, although in this quarter orders were broadly stable, with last year's high comparable. Buildings is the largest segment for electrification, and here we see the positive order development driven by commercial buildings in the US and Europe. China, however, remains weak. Looking at the residential piece, it was broadly stable in the US and Europe with continued weakness in China. Other positive areas are infrastructure related to land transport, as well as the oil and gas segment. Geographically, the US continues to be the fastest growing market, increasing 23%. But it was also good to see 15% growth in Europe with a good momentum across most of our large markets. This more than offset the decline in the Amea region where China dropped 12%. Then turning to revenues, which improved in virtually all divisions and amounted to $4.5 billion, up by 13% like for like. I want to highlight the book to bill of 101, which was achieved on record high revenues. A good delivery by the team and a proof point of a strong market environment. The strong revenue growth was primarily driven by higher volumes as we convert the backlog related to medium voltage and power protection and by improved activity in the short cycle business. We also benefited from a slightly positive price impact. earnings again exceeded the 1 billion mark reaching $1.1 billion and was up by 17%. This was mainly driven by operational leverage on higher volumes, which more than offset the growth-related higher spend on R&D and SG&A. Looking into the fourth quarter, we currently expect comparable revenues to grow at a mid single digit rate. And for the operational EBITDA margin, we anticipate it to sequentially soften, which is in line with the normal seasonal pattern. Now let's turn to Motion, where the strong order intake was driven by good momentum in both the short cycle and project and systems businesses. In total, orders reached $2.2 billion, which is up 17% on a like-for-like basis. From a segment perspective, rail has been and continues to be a strong market for motion. Another good area is HVAC for commercial buildings and data centers. Oil and gas, power generation, water and wastewater, as well as food and beverage are all segments in the positive. The softer areas included the process-related segments of chemicals, pulp and paper, and metals. Shifting now to revenues, Motion delivered just under $2.1 billion. Higher volumes and pricing both supported the comparable increase of 3%. This year-on-year growth was slightly below our expectations as the deliveries in the project and systems related businesses were somewhat lower than anticipated. On the other hand, it was encouraging to see the good momentum in the short cycle business. Total earnings improved by 4% from last year's high level, reaching $421 million. The margin, however, slipped by 60 basis points to 20.1%, in line with our guidance going into the quarter. For the fourth quarter, we anticipate comparable revenue growth in the low to mid single digit range and the operational EBITDA margin to sequentially soften, which is in line again with the normal seasonal pattern. Also in process automation, the market profile remains similar to what we have seen recently. PEA now has a positive book to bill for 20 consecutive quarters and backlog sits at $9.4 billion. Quite impressive. Orders amounted to $1.9 billion, up by 4% like for like. We saw good order momentum in the energy-related segments of oil and gas and conventional power generation. and there was also an increased activity among nuclear customers. However, demand was lower for renewables. The market for marine and port automation and electrification remains strong, even if order intake remains stable in this quarter. On the softer side, we still have the process industry related areas of chemical, pulp and paper and mining. Revenues of 1.8 billion was seen a bit better than we expected, increasing 7% on a comparable basis. Execution of the high backlog was the key driver, with additional support from price mix development. The impact from higher revenues supported the earnings growth of 10% and the higher spend mainly linked to R&D was offset. All in all, operational EBITDA margin improved by 30 basis points to 15.5%. As from the fourth quarter, process automation will include the machine automation division. I would assume that most of you have not yet rebuilt your models to match our new reporting structure, so we will help with guidance both for old and new PA setup. For PA as is, we expect comparable revenues to improve in the mid single digit range and the operational EBITDA margin to sequentially soften, which is again in line with the seasonal pattern. For PA including machine automation, we still foresee comparable growth in the mid single digit range, but given that machine automation is running at more or less a break-even level, we expect operational EBIT R margin in the new setup should be somewhere between 13 and 14%. As I mentioned, we will present restated numbers by early December. And now, for the last time, let's turn to robotics and discrete automation as we, going forward, will report based on three business areas. Overall, the quarter developed largely as expected. There was a slight sequential order increase reflecting a year-on-year improvement of 13%, up from last year's low comparable. Orders in the robotics division remained broadly stable as weakness in the automotive and general industry segments was offset by a positive development in areas like consumer electronics and logistics. Orders in the machine automation division increased sharply from a low comparable. However, the absolute order level is still low as the market remains challenging. After seven consecutive quarters of revenue decline, it was nice to see both divisions returning to positive growth. Combined, revenues improved by 5% and reached $807 million. This was driven by higher volumes, supported mainly by backlog execution, but also slight positive pricing. Operational EBITDA margin of 9.2% was up 90 basis points year on year and 10 basis points sequentially. As in recent quarters, the robotics division's margin remained in the double-digit territory and actually improved slightly from last year. And as mentioned earlier, the machine automation division is at the break-even level as the volumes in production have not yet recovered enough to cover the cost of underabsorption. Now let's move on to cash flow, which as Morten mentioned, was definitely one of the highlights in the quarter. All business areas reported an increase in free cash flow. This was driven by improved operational performance as well as a larger release of trade networking capital compared with the last year. We improved free cash flow by 32% to $1.6 billion despite the higher cash tax expense and higher cap expense. As you can see on the chart, we are at the year-to-date free cash flow of over $3 billion. And in my view, we are well on our way to deliver on our ambition to improve our annual free cash flow from the 3.9 billion we generated last year. It is great to see that our focus on trade networking capital as a cash KPI for our businesses and ABB way finance system transformation are likely starting to have an impact on our cash performance. And with that, let me hand it back to you, Morten.

Thanks, Timo. And now let's talk about the change in the way forward for our robotics division. The reason for the change is that in parallel to us working towards the earlier announced spin-off, we received an inbound bid from SoftBank based on an enterprise value of close to $5.4 billion. When such bids come in, it's our fiduciary duty to review. and we have evaluated this carefully and concluded that it reflects the long-term strength of robotics. Looking at the two different companies, it is our firm belief that the robotics business will benefit from combining its leading technology and industry expertise with SoftBank's state-of-the-art capabilities in AI, robotics and next-generation computing. We think this will create a very strong platform for the future and expect the deal to close in the second half of 2026. Now let's finish with the guidance, which is based on the new reporting structure. Turning to comparable revenue growth, we expect it to be in the mid single-digit range. Those of you who know us are well aware that the Q4 margin tends to be sequentially down. This pattern should repeat, and we expect the margin in the fourth quarter to sequentially soften by about 150 basis points, in line with the historical average. We leave our 2025 revenue guidance unchanged, but have updated the full-year margin guidance. We now expect operational EBITDA margin to be broadly at the higher end of our long-term target range of 16-19%. And as a final reminder, the pattern here is that in the fourth quarter we normally have a negative B2B. And there is one more item to mention before we move to the Q&A. We announced an upcoming change of CFO this morning. In his close to nine years with the company, Timo has played a key role in transformation to a more focused and better performing ABV. And he has ensured that our finance function can best serve our businesses in a decentralized organization. Soon, he will move to focus on his non-operational commitments, but not yet. Timo, you will be around for another quarter, be part of the capital market day and deliver the fourth quarter results in January. Timo will also be available to support a smooth transition to his successor, Christian Nilsson. Christian has been with ABB for nine years as CFO of the electrification business area. And I'm very pleased to see that we have a strong internal candidate to succeed Timo. So now Ansi, let's open up for questions.

Yes, let's do so. And just as a quick reminder for those of you who have dialed in on the phone, press star 14 to register to ask a question. And please remember to mute the webcast as your line is opened and limit it to one question, please. That way we will allow for as many of you as possible to be heard in this Q&A session. But you can also put questions through the online tool in the webcast and I will voice them over from here. And with that said, we'll open up the line for the first caller and that's Martin from Citi. Martin, your line should be open.

Yeah, good morning. Thank you. It's Martin from Citi. So the question I had was on electrification and data centers. You talk about double-digit growth there. Last time we talked about lead time shortening, just to see where we are in that. Are they now normalized? And how is capacity keeping up with that growth in demand? And related to that, on pricing, obviously there was some increased pricing in that area over the last couple of years, just to understand where are we sort of plastering at a high level or how are you seeing pricing with inside that data center vertical thank you

Thanks, Martin. When you look at the data center business, as we said, it's about up more than double-digit growth in this quarter. The lead times is, I would say, on a similar level that what we have lost, because even if we have a higher demand, we also put more capacity online. And here I'm specifically talking about North America, where we see the biggest growth in this field, but also where we has the biggest capacity expansion. Pricing remain overall, as we said, for this quarter around 1%. But there, of course, there are quite big differences between regions, as you would expect. U.S. has a much higher price increase than China as to kind of ends of that scale. But pricing in the data center market has been stable when we look between the quarters this year. So that's a bit how it works. Just maybe also to mention, even a data center is a very important part. Verification is about now 15% of the revenue. On the other hand, I also have to mention that it is 7% of the whole company of ABB. So just to show a bit of that balance, which means that the rest of the business, the non-data center business, like in electrification, is also closest to double digit. So I think the overall market for electrification is running very well, and then it's even better in the data center market. That's just a bit of an extra caveat to it also.

Okay.

Thank you very much.

Thanks, Martin. And we move to Max from Morgan Stanley. Are you with us, Max?

Yes. Morning, Ansi. Morning, Morten. I guess I just wanted to touch on your M&A strategy. Obviously, you'll have, as you said, $5.4 billion coming in next year. So maybe just to sort of walk us through a few points. I mean, how do you think about you know, the share buyback in that context. Is there room to do more? And I guess we saw some headlines relating to sort of ABB looking at Le Grand. That seemed like, you know, a bigger deal than some of us would have expected if that was the case. So, you know, would you look to do something that involved raising equity or is there a kind of limit to where you would re-leverage the group to? And maybe just sort of if you can also walk us through, you know, which divisions or regions or how should we think about kind of priorities for M&A. Would it be instrumentation in process? Would it be data centers is the key to broaden the offering there? Just a way to help us think about what you would look at out there in the market.

Thank you. Thanks, Max. And maybe it's a bit of all of the above when I talk about what's of interest. I mean, application and automation are both, I mean, it's strong markets. And as we want to grow, and really take those growth opportunities that are ahead of us, we will do more M&A. So that's kind of the starting point. We haven't made kind of that it has to be that country or it has to be this segment. We have identified a multiple of segments. I mean, data center being one, but also the utility business, the overall need for automation. These are just three examples and we have more where we believe that we can build on the strength of ABB in electrification, automation and in motion. three areas now as kind of the new ABB post robotics all have opportunities to grow on the M&A side. So that is one of the key priorities going forward when it comes to the how to use the the incoming funds on the robotics that will go in line with those capital principles, more organic investment, both in technology and capacity, more focus on M&A as we had the last year. So that is where we now have that firepower to do it. And then we will also use our kind of well-established capital allocation principles around also increasing dividends and share buyback. So we will find the right balance here over time. But I'm sure Timo, if you would have any other comments to it as well.

Well, maybe just to add that, of course, like any M&A transaction needs to be evaluated on its value creation merits, be it sort of small one or a bigger one. And in that sense, I don't think we would as such rule anything out. But of course, the bigger a transaction would be, the more you have to be absolutely sure that the pricing is right and whatever synergies would be there, then really cover the money equation. So that's how we look at the deals in general and that's how we have done it, I think, all the time during the last years.

Yes. OK, thank you both. Thanks, Max. And I'll just link to that with the questions that came in here through the online tool. And that relates to one of the question is, would you rule out software like your predecessor? I guess it means the big software platform deals. And what is maximum leverage acceptable? Maybe you can... Think about that for a while, Timo.

You start with the software. I don't see large software deals as a target for ADB. We're looking at software as an enabler for our hardware to give a better customer experience and support the need of our customers. But we are not kind of fixated that it has to be software as a standalone software. It's really about, as Timo said already, it's the value creation for ABB and how we support our customers with offering better solutions. That's what's driving the value creation. So it's not like it has to be software or it has to be in a single geography. So we're taking a pragmatic view and with value creation for the company and the center. And I think the

Yeah, I mean, we don't have a leveraged target as such, but of course, we kind of like where we are at the moment on the rating, of course, for a really, really, really good proposition, maybe we could go down a bit. But if you look at kind of like staying at this rating level, I think we could still be like 1.5 to 2 net debt to EBITDA. So there is ample room in the balance sheet if we then would have something which is really, really value-creating for the company and our shareholders.

Okay, we take the next question from Will at Kepler.

Hi, good morning. Can you hear me?

Yes, we can.

Perfect, thank you very much. My question, if one question would relate to the upside potential for operating profitability across the divisions within the group. And so specifically, where is there now scope to outperform with a focus on electrification at record levels? What is the plan to improve the profitability in the EV charger business? And how long do you envisage it will take to return machine automation towards its medium-term target potential. Thank you.

Thanks, Will. And just to clarify, do you mean our four different business areas in this question? So do you mean divisions?

I think for the group as a whole, you're now at a very high, great level of profitability and return on capital employed. And the question I'm asked often is where is the potential upside? So where is the self-help improvement within the divisions? And, you know, how is the plan to improve those? And then when you're at peak performance, is there more upside?

Yep. No, thanks, Will. I'll take that. I mean, you're right that today more than 70% of ABB's division are in growth mode. So we are in a much kind of better place than earlier. about where we stand. But that means also we have quite a few divisions who have a profitability mandate and even one as we had on stability mandate, as you mentioned, machine automation. So those are clearly opportunities that can go up. But if you take it one step further down in the organization which is the the business line that's the level below our divisions there is we have the same now mapping on strategic mandate and you will find a similar setup there with a profitability mandate or a growth mandate and that means so that's kind of how we drive the company forward now looking at at each of these smaller at about 80 business lines in ABB and And that's how they run it when it comes to the focus and how they put their strategy, how we do target setting and how we also do incentive plans accordingly. So that's a few of the upsides. And I've said that many times, we are not firing on full speed as ABB. There are individual opportunities in all the business areas, in all the divisions of ABB. And again, you mentioned electrification. I think the best example there, as we have also showed earlier, we've done really well in North America and the United States, moving up the margins of electrification, but it's still not on the, let's say, average electrification level. And that's a future upside. I know Gian Piero and his team is working hard to continue that improvement journey that we have in the United States. For most of our peers in the industry, it's the best, kind of the highest profitability market. For ABB, it's not. And that is one another significant opportunity as we see when we go forward.

Yeah maybe just to if I comment quickly on the on the e-mobility as that was also a part of the question so kind of like 24 I think we had about 270 million drag from e-mobility we said it will about half going into 25 that will happen and let's hope that we kind of like wouldn't have much of that drag left next year so that's clearly going to be another positive impact and then in MA machine automation which was also part of your question clearly we expect to improve and there actually has been some changes on some of the divisions I don't know Morten if you want to

I can do that. We are, of course, as you say, moving, looking at each of the division and some also, I think that's important also, we look at when we're moving between different mandates, there might also be different capabilities that are needed. And then, so we also seen just in the last quarter and the last few months, we have a four new division presidents in our businesses. All internal recruitments, we have strong pipeline of talents coming through. But that also, so like in the machine automation, we also have a new division president on board that will take that business forward. Unfortunately, it has taken longer time to come up to the, let's say, meet the expectations that we have. We made a change and therefore it will still take some time, but we are confident that this is a business that will come back to former levels. But we need to give some patience on the results. But as you see, we are kind of driving the actions and the activities forward at high speed. And therefore, we are also confident that the result and the outcome will be what we expect. But it still will take some time.

Yes.

Thanks, Will.

And then we open up the line for Ben at Oxcap. Ben, can you hear us?

Oh, morning, everyone. Hope all are well and thank you for taking the question. It's really a sort of follow up to Martin's question about pricing within electrification up 1%. Morten, I think you gave us the sort of regional color, i.e. that there are some big differences between the different regions. But could you give us a sense of what's going on in the pricing kind of within the division? So if we think about, you know, I don't know whether we want to call it medium voltage, low voltage, or distribution solutions installation products, are they all moving in a similar way, or are there sort of big differences within those separate divisions?

Thanks, Ben. Good question. Yes, there are differences between regions and countries. There are also differences within the offering. As you say, there is a different pricing when you're talking about kind of the very high demand, talking about like in in medium voltage or in the switchgear business that goes into data center of course it's a different pricing environment that for instance in the residential markets where you see significant lower growth so but that is the and then you have the whole tariff impact as well and some of these businesses that comes in that would give as I say, US will have a higher pricing situation to mitigate some of those tariffs impact that we have seen. And that's kind of the for me, the good news. We have been able also in the third quarter to mitigate all of those impact with our local for local strategy, but also with pricing and continuous improvement, been able to bridge some of that impact that we have seen of tariffs in the in the third quarter.

Yeah, maybe if I chip in one more thing on the pricing. So the pricing, this 1% price positive is, of course, it's a global number. And we have, like most other people, I'm sure, a little bit of deflationary environment in China. And our pricing also in China is down a bit. So it means that then by definition to come to one, it needs to be up a bit more somewhere else.

And is it fair to say, listening to the answer, that we're not seeing a huge, you know, there hasn't been a step change in what's going on between the different businesses. It's kind of the same as it was before. There hasn't been a sea change in medium voltage or anything like that, right?

No, no significant change, no. Yeah. Yeah, Morten confirmed, no significant change.

Understood. Thank you.

Thanks, Ben. And then we open up the line for Andre at UBS. Can you hear us? Are you with us?

Oh, hey, can you hear me?

Yes.

Oh, great. Thank you for taking the question. I wanted to ask a broader one on data centers. And now in the context of you having had a close look at Legrand, I just wondered if you could share your views on maybe advantages or disadvantages of being in gray space versus white space versus cooling. in terms of having a broader end-to-end offering versus being kind of a select supplier and discrete pieces of the value chain. Yeah, I'd just love to hear how you think about this.

You know, in the data center space, of course, you are if the if data centers are being built, you need both the gray and the white space. You need incoming power and you need to have and racks and all the equipment and cooling inside. So there is not really when you look at the growth that follows hand in hand inside the data center space. When we're looking at the market, especially with a hyperscaler, we don't see any big difference if you are a one-stop shop. Because normally how the hyperscalers work is they divide this into different packages. And it's not like you have, you get a switch gear and therefore you also get the wide space delivery. So that's not how the market works. So therefore we don't see any large benefits of being this one stop shop. So we are, we would rather partner on projects and make sure that we are relevant. You need to be best in class in the different packages that are being awarded. And that's what kind of always the challenge in this business to be that technology partner. And therefore, I'm also happy to see on Monday, we made the announcement on the NVIDIA technology collaboration agreement that we signed. that we are also helping NVIDIA with the new 800-volt DC chips and the new racks they're building on the new AI data centers. You also need a complete new technology or an architecture of those data centers. And that's where we as ABB will also be a partner and design those new 800-volt DC chips. data centers so we're able and not because having only the racks doesn't help you need to have that whole infrastructure around it so that is one of the key topics for us when we're talking about increased investment in r d and technology that is one example where we want to be here the first mover and making sure that this is an opportunity for us to gain even more traction in the data center segment

That's really helpful. Thank you. And actually, that deals perfectly with my second question, if I may. On the 800-volt DC, how do you view the value of your content per megawatt evolves as you move to that type of infrastructure? And is that kind of more medium voltage, less low voltage, or more of both, less of both?

It will not really change the mix between medium and low voltage. It is more the... And to be honest here, when we're looking at this is really also far ahead. These are our chips and components that are not available yet in the market. So this you will see as a stepwise approach over several years of this new design coming in. And therefore it's important. And we don't know exactly even how it's going to be. That's why you need this kind of collaboration agreement. We know how the data centers will look like in 27 and also in 29. But when we talk about post 2030, I think there are new opportunities that we are looking into and of course therefore what we are interested to see how can we take an even larger scope today is about we the electrification part of it is around seven percent of the total investment in a data center and with this we believe it may go even higher and that's uh but i cannot give you a new number today but there is so important to be part and be that technology partner when we design the future of this large ai data center the gigawatt sites

Okay. Great.

Thank you very much.

Thanks, Andre. And then we go to James at Redburn. Please.

Good morning, everyone, and thank you. I wondered if I could ask about the sustainability of growth in EL with respect to grid and general capacity in EL. On growth, grid flat, but I said the underlying market is still pretty good. A lot of people think that global... medium voltage grid growth could be high single digit for the balance of the decade. But we have a lot of moving parts. And in the US, an ITC, BTC sunset, 25 to 2030. Do you foresee like a good two, three year pre-buy in the world of grid because renewable and grid is connected? And do you see or do you see some risks from that? And what gives you conviction on the duration of growth? And tied to that is on capacity. Could you just help us with what your global and U.S. capacity growth has been in the last year, three years and what you expect it to be in the next two to three years? And has utilization broadly stayed the same through this growth period?

Well, thanks. Thanks, James. First of all, the trend of electrification is growing fast. That's why I also see from 2010 to 19, it was pretty flat, like 1% per year when talking about the electrification increase. Since 2020, you've seen that this really picks up. And now we're talking about first three to four, even up to the 5% to 6% of electrification consumption that is increasing. This puts much bigger pressure and stress on the power grid. That's why utilities need to invest and they need to pre-invest so they can deal with that new demand that is coming online now in the next year. Not just from data center, but also from industries that is putting more of their operation in replacing fossil fuels, or let's say outdated technologies with electrical solutions that is why the the increase is coming so we are in this super cycle and it's not like a three to four years this is we're talking about a couple of of decades or or from 10 to 20 years investment that is needed We used the examples earlier of the underground cabling. Here that is a 20-year program in California and on the east coast of the US because just the capacity to do that is not there. So that goes a bit into the investment, what you're asking. We have invested in electrification about 300 million dollars. in new capacity in North America in the last years, but that only this year we have announced investment in ABB of more than $250 million only in the United States and an additional hundred up in Canada. So this is the expansion that we do in our facilities to meet and it's a twofold it is to increase to meet the increased demand in the market and of course also as part of our local for local strategy to that we can support customers locally with that new capacity so this is kind of how this is hanging together the utilization rate in the factories today is running most of them at pretty full speed as with the current capacity but what we do is with this additional investment we're not just putting more square feet you know or more bigger factory floor we're also putting in more investing more in robotics and automation new machinery because we see that the robot density especially in north america is so much lower than our asian or european plants so we have a big opportunity for more productivity as i mentioned earlier also in the united states and our especially our electrification facilities there so that's a bit on kind of how we are are looking at today If that answers your question, James.

Fabulous comment. Thank you, Bolton.

Thanks, James. And then we open up the line for Ben at Bank of America Merrill Lynch.

Yeah. Morning, guys. Thank you for taking my question. I had a couple on electrification. So first of all, the guidance and color you gave for Q4, it seems quite slow down. versus what you've seen over the past couple of courses and the comps don't seem materially more challenging. So is there something specific that's weighing on Q4 that you'll only do mid-single digit? And then in terms of data centers, obviously it continues to grow double digit, just kind of more intangible. What have you seen in terms of customer discussions over the past few months? We've seen obviously a lot of very large announcements, just interested if there's been any uptake in interest or just generally what are you seeing in the conversations with customers?

Thank you. Yeah, maybe I'll start and then I'll give the data center question to Morten. So kind of like on the guidance going into Q4, I mean, we have in particular in electrification, if I remember these numbers correctly, we have like 11% growth last year on revenue. So that is a pretty high comp going into the quarter and if we look at the other business areas which now in the new structure when we report three business areas I think motion had six and maybe PA had four something like that and overall the group is five but these three combined is a little bit higher so we have a little bit higher comp and let's see how it goes now during the quarter so we have a strong backlog and of course depends on on the book and bill business as well. So if that goes really well, maybe there could be a bit of upside on the number, but we'll see when we come out from the quarter.

data center question yes there are I think you read the same news as I do that more or less every day you will see new announcements or new capacity being announced new projects and that's also why you saw this strong order growth in Q3 and we're expecting also we have a very solid pipeline when it comes to data center also for the future so But what Timo talked about was very much kind of the revenue forecast. But on the outlook, we see the same as what you will read with these announcements in the paper. High customer activity, high interest of getting more capacity, more AI computing online. And we're one of the key partners to make that happen.

Okay. Thanks, Ben. And then we open up the line for Delphine at Oddo. Delphine?

Yes. Hello. Can you hear me?

Now we can.

Okay. Thanks. Good morning, all. Thanks for taking my question. Maybe one clarification before. Do you confirm that your book-to-be data center was above 1? Yes. Okay. And then, can you provide some colors on your base order trend that did well this quarter? What are the segments and regions that have driven this growth? And how do you see the growth in Q4 for these base orders?

Yeah, first of all we don't guide on orders for the fourth quarter but what I can say is a bit kind of give color to what we saw in the third quarter. The base orders had a positive development in all four business areas and also in all four kind of over major geographies. So we had some very large orders as you saw also in the presentation like take the United States where we have 27% overall growth but also the base or what we define there as base order growth is 9%. That gives you a bit of color and that's kind of why you've seen some markets where it has when we take out some of these large order effect we see a strong underlying market both for electrification and automation really across the board so and that's as I said earlier a couple of times it's just the speed of electrification of the world that is continuing and it will continue for many many years to come so that's what I always say it's good markets to be in.

Yeah, maybe just throw in a couple more countries where we had this situation. So in India, we had a negative overall order growth, but I think base orders was actually up quite nicely, 9%. So it seems to be coming back on the underlying business. And then also in Germany, I think we had minus four, but the base orders was plus four. So that's another market where actually when we look at all of our business areas on the base order basis, they all actually were performing quite well. Yeah.

Okay. Thank you. Thanks. And then we open the line for George at Barclays. George?

Hi, morning everyone. Can you hear me okay?

We can.

Excellent. Thank you. Thanks for taking the questions. Good morning. Another great orders quarter for electrification, obviously. Books are built now. 1.04 times, I think, on a trading 12-month basis. It sounds like you guys are growing in confidence on market demand. So just wondered, a little bit of follow-up to the questions, how you can help frame that visibility that you have and maybe where you expect that book to be able to evolve on a 12-month forward basis. And then just another quick follow-up, just to add to that. On China electrification, I guess that was the only sort of weak area. Data into market there appears to also be quite strong. So just wondered, what other colour you can give us on what was driving that deterioration. Thank you.

You're right that the China data center market is growing very well and we also grow very well in that segment and market. What we do see is that the especially residential building market in China is still soft and we also forecast that that will remain soft for quite a while as the overcapacity kind of historical build out of residential capacity is still there. So even though we had a bit of a or a bit weaker Q3, I think we should all in China, I think you should also remember that for the year to date number in order intake in China is plus 4%. So we are growing in China this year and that is also and a lot of that comes from its two sector really it's the data center as you mentioned and is also the integration of renewable energy into the grid those are two fast-growing markets in China but then I guess the as I say the residential when it comes to order and we don't give any guidance here on this call on the go on the order we come out more with that after Q4 when we're looking into the longer cycle of the 2026. This will be part of our January call and come back to that. And the long-term trend, of course, we will also cover in our upcoming Capital Market Day that comes now in November.

Okay. Thanks, George.

Okay, thank you.

And then we move to Jonathan at BNP.

Hello, thanks for fitting me in, everyone. Just maybe thinking about Chinese competition, the China market in general, it feels to me that competition's obviously been rising in China for some years. It looks like that market, I mean, see, it's down again for you. It's pretty tough, volume and environment, and probably pricing as well. Are you starting to see the Chinese looking elsewhere for their growth? I'm specifically thinking about Europe. Is Chinese competition in Europe beginning to rise? And if not, are you expecting it to do so? Would there be a timeline for that maybe? And what are the barriers that you have to kind of protect yourself from that? I'm just thinking, you know, you mentioned that probably large software is not of interest to you. But I think obviously a number of your peers have gone down that route. And I've always thought part of the strategy is to embed digital into the hardware, attempting to sort of, you know, no one's going to buy Chinese product with digital technology embedded in it. You kind of lack that. If the Chinese are coming to Europe, do you think you can send your market positions?

Oh, yeah. Let me first correct you there. I mean, a big part of what we do is software or embedded software or firmware. More than 55% of our R&D engineers are software engineers. So when I say making larger software deals is to make standalone software, which is not related to the offering we have today. So software and hardware of ABB is a very strong combination, and that's what customers appreciate and what they like. And so that is just to clarify on that point. When we talk about China, we see there of increased competition, especially in the field of robotics. I think we covered that quite many times also before. That has been one of the five areas where the Chinese government was part of the five-year plan, where they wanted local champions and we have seen that happening over the last five years. When you're looking at the electrification, automation, there are also of course local competition, but we have not seen the same. There are some significant differences also when we're looking at the type of business we do. Take over electrification business, you need a very large offering to be a relevant player in that field. And that is something that has been built up over, I would say, even tens of years. And with hundreds of millions of dollars in R&D investment year after year after year, building that very wide portfolio. So that is a bit of the, it's not that simple to enter this market without a very large upfront technology investment and being able to come into the market. We're also serving the market through distribution, which is a channel that of course we don't always kind of, let's say, appreciate to carry too many brands because that drive their inventory and their capital efficiency. So this is there are a few parameters here, but it's not that easy. And then it comes to the whole regional differences when we're talking about a bit long trade, but also the self-sufficiency of regions and especially in the field of firmware and software. with coming from outside I think they're being local the same as it's important to be local in the Chinese market with our R&D capabilities in China and with local software and local support setup it is also important to be local in Europe and it's important to be local in America so this is is kind of how we're building up our structure at ABB. And it's not that easy to come in and copy or compete with it. So therefore, that's kind of where we will continue our investment, especially around the technology and the local local technology is local support but also local service and being able always to help customers know we don't need to fly in from far away we are kind of around the corner or next to our customers that's where we provide service at the spot and this is where what customer really appreciate from ABB is one of the key arguments for our success so It should always be, and I don't want to come across as arrogant on this point, but it is one that is appreciated by our customers and therefore we need to continue and we will continue to invest in this field because we believe that will keep and we can build on that strong local position.

Yeah, if I can just throw in still a couple of numbers in China, so Again, as Morten said, year to date, 4% growth in China, and also this quarter, Motion actually grew. We have localized quite a few, especially on the drive product, so a very competitive position there also locally, and also robotics grew actually in Q3 now, where we also said that we have introduced local product. So I think exactly this local for local strategy also works for us inside China. And of course, those data center deals can be there more lumpy, which can be kind of like showing in the electrification number Q3.

Okay. Thanks, John. And we're coming up to the hour. So we're going to say thank you very much for joining us today. And we'll see you. Well, some of you will see November in the US at the Capital Markets Day. If not, we'll see you in January. We will report Q4 results.