ABB Ltd

Greetings and welcome to this presentation of ABB's full year and fourth quarter results. As usual, we have our CEO, Morten Wirod, here. And now also for the last time in this forum, our CFO, Timo Hyamotla. I'm Ansa Fynod, Head of Investor Relations. And as per tradition, Morten and Timo will talk through the results, after which we open up for Q&A. So now I'll leave it up to you, Morten, to kick off the presentation with some comments on 25 as a whole.

Thanks, Ansi. Yeah, 2025 was our best year yet. We delivered an all-time high financial performance and we also continue to be recognized with good sustainability ratings. I want to thank and give credit to the team who worked hard to achieve this. Through the year, we saw demand for electrification and automation solutions continue its overall strong trend. From a top-line perspective, I would say that we have performed well in a strong market. Add to that our internal focus on continuous improvements. And putting it all together, we reached new record levels in orders and across most P&L metrics, including an operational EBITDA margin of 19%. The margin of 18.2% on income from operations or EBIT was only 80 basis points lower, in line with our ambition to keep the gap at about 100 basis points. The strong order intake resulted in a book-to-bill of 1.11. This leaves us with a record backlog of 25.3 billion to support future revenues. Another highlight is the strong free cash flow of 4.6 billion, as well as the outstanding return on capital employed of 25.3%. We ended the year with a strong balance sheet with net debt to EBITDA of 0.3. The teams are active on their M&A pipelines, but admittedly, valuations have been demanding in some cases and we have chosen to step away. I want to make good deals that create long-term value for our shareholders. So while we want to be active on the portfolio and we have financial headroom, we will continue to keep a firm grip on the calculator when screening deals. So, balance sheets allow for M&A, dividend as well as buybacks. We steadily reward shareholders with an annual increase in dividend. And for 2025, we propose a dividend per share of 0.94 Swiss franc. If approved, this would be an annual raise of 4 rappen, which is higher than the 2-3 in past years. We will also run a new and larger annual buyback program of up to $2 billion. This is an increase from the 2025 program of up to $1.5 billion, under which we spent about $1.3 billion. So a good utilization in my view and the equivalent of about 1% of market cap, which adds to the yield of about 1.6% from the proposed dividend. Let's now turn to the fourth quarter, where one highlight was the very strong increase of 32% in comparable orders. With growth this strong, it is reassuring that it wasn't a one-dimensional driver. Instead, we were up in most segments and had double-digit growth across all business areas, led by electrification and automation at the standout levels of 33% and 41%. We continue to improve our operational performance. And to make a long story short, we expanded on most lines in the P&L, generated high cash flow and capital returns. This is the strongest fourth quarter we have delivered so far. But in the long run, we wouldn't be anything without our leading technology, the foundations for helping our customers. Our medium-voltage power technology is at the forefront of the industry. It puts us in the front row for future data center architecture. Building on this, the electrification team has extended its partnerships with Applied Digital, and we introduce new power designs for large-scale AI-ready data centers. Another future potential demand driver is our cutting-edge direct current and solid-state electronics technology. We were the first in the market introducing a solid-state circuit breaker, the Satya Infinitus. And in the DC field, we ran a collaboration with NVIDIA and Hyperscalers, supporting their 800V DC architecture. This is focused on power solutions needed to create high-efficiency, scalable power delivery for future AI workloads. But why DC technology? Well, it comes with the customer benefits of higher power density and lower conversion losses. It also requires less raw materials, for example copper, as the cable can be thinner and fewer compared with alternate current. In our minds, the electrical distribution in future data centers will have much more DC technology combined with traditional AC technology. Let's call it beyond 2028, 2030. And in my view, we are very well positioned to lead this evolution. The transition from AC to DC could be that about 40 to 50% of the installed data centers capacity in 2030 is in DC electrical distribution. I earlier talked about M&A, and the Motion team has now closed the acquisition of Gamesa Electric's power electronic business. This fills a gap in our product portfolio. We add power conversion products such as certain wind converters, targeting industrial battery energy storage system, as well as utility scale solar inverters. I keep saying that the best is still to come for ABB. And to back it up, we have updated our long-term financial targets. So far, we have a good track record for delivering on our commitments. I expect this to continue also for these new targets, which I see as both ambitious and realistic. Starting with comparable growth, the 5-7% range is unchanged. This is a long-term through-cycle target, with a corridor as an average of what we will deliver over the next 8-10 years. This means that we can be above or below in individual years, but over the time the average corridor is what you should expect from us. On top of this, we look to add an average 1-2% of acquired growth. Turning to the raised margin target, we now aim to run operational EBITDA margin in the range of 18-22%. So, from the 2025 level, which is the best ABB has delivered so far, we see further upside of 300 basis points. The new higher margin range also means that worst case, should we face a softer cycle, we will protect margin to only 100 basis points below the record 2025 level. Ambitious in my view. We have also set external target ranges for each business area. The high end of these ranges varies, but all represent best-in-class performances and fit within the ABV group. Backed by our growth and higher margins ambitions, we increased the ROSI target to about 20%. And we aim to stay at this high level even as we pursue higher M&A activity. To support growth, we have slightly turned the free cash flow conversion target to above 95%. And finally, we continue to expect average EPS growth to be at least high single digit. Setting new targets is one thing, but delivery is what matters. I see both internal and external building blocks that position us well to accelerate operational performance. First, we aim to drive additional accountability and speed in the business, as we embed the ABB Way operating model deeper into the organization in our across 70 business lines. Secondly, we can do better in what I refer to as the beauty of mix. What we have done is to deploy a more rigorous and transparent internal KPI framework. This framework more clearly defines expected performance by mandate. It also links remuneration closer to mandates. Another important point is that we will continue to stay laser focused on our annual 5% gross profit productivity target. And I already mentioned more M&A. I want this to become part of our culture, ingrained in everyday business. We're not quite there yet. But lastly, we play in strong secular markets. Cycles come and go, but I'm convinced about the long-term electrification and automation trends. Electricity demand is forecast to double by 2050, and we are positioned at the core of this energy expansion. ABB, we're set to capitalize on this. Now let's turn back to the fourth quarter, and I don't think I'd be overstating it by saying that we had fantastic orders. In the chart on the left, you see the comparable growth of 32% and total orders of 10.3 billion. We see persistently high custom activity across most of the key segments. Yes, there are some soft spots, and I would say that the process industry-related markets remain generally cautious. Orders in pulp and paper were down from last year. Mining was actually okay in the quarter, but in the big picture we don't see yet the big capex coming online. I can also mention residential buildings where particularly China is weak. And the discrete market remains a challenge. So, what was it that helped drive our orders? Some of the segments to mention would be the continued strong utilities market. The same goes for land-based infrastructure and transport, where we see upgrades of electrical infrastructure in for example airports and tunnels. Commercial building is positive, supporting demand for HVAC solutions, and marine as well as rail continues to be very strong segments for us. In total, orders were supported across the project, service and short cycle businesses, and by all three business areas. Order intake from good underlying demand was further fueled by timing of some project orders. Both electrification and automation had several large bookings above the 100 million mark, linked to the data center, marine and ports segments. The data center segment was particularly strong, also when looking beyond the large orders just mentioned. We expect this to persist, and it looks like the market could grow into the teens near term. In the revenue chart, you see the high level of 9.1 billion, up 9% on a comparable basis. This was stronger than we originally expected, and it was particularly electrification that outperformed with a strong finish to the year. Similar to the order profile, revenue growth was supported by a positive development across service, long and short cycle businesses. While revenues were record high, orders were even stronger. On a book-to-bill of 1.14, the backlog was up by 18% to 25.3 billion. I usually don't talk about FX, which is largely a translation impact for us. But this time, it had a meaningful top-line contribution of 4%, mainly linked to the recent swings in dollar-euro rates. In total, revenues were up by 13%. I mentioned that orders progressed across the business areas. The same goes for the different geographies. All three regions were up by more than 20%, led by Americas at 43% like for like. Looking specifically at the US, orders increased by 57%. This high number includes some large booking, but also base orders were very strong and improved by 20%. Europe was up by 25% with a mixed picture between countries. If we look at Germany, our largest market in Europe, it was broadly stable at plus 1%. And as of yet, we don't really see a material impact from stimulus packages. AMEA improved by 23%, supported by the three largest countries in the region. Let's now look at operational EBITDA, which we improved by 19% to 1.6 billion. And we expanded the margin by 100 basis points to 17.6. Operational leverage on higher volumes was the main factor in earnings growth. Add to that a positive price component and efficiency gains through improved operational excellence. We more than offset tariff impacts and higher expenses linked to commodities. We also offset a higher spend on SG&A, which however reduced slightly in relation to revenues. The team did a good job, but we have to remain focused and manage for example rising input costs. We are primarily an assembly business, so our biggest raw material exposure is in the components we buy, predominantly in electrification and motion. We estimate the total exposure to commodities to be about 7% of revenues. And out of this, about two-thirds sits in copper and silver, as well as in e-steel for our motors. We have been successful in managing these swings in the past and continue to balance market position with defending our long-term profitability. Overall, the strong performance in our businesses more than offset the 37 million higher expenses on the corporate and other line. And as a net total, we increased earnings per share by 30% to 70 cents. I'm pleased with our result. And with that, I hand over to you, Timo.

Thanks, Morten. And let's take a look at what happened in the different business areas, starting with electrification. I have to say that the order level of $5.3 billion is a job well done. The market trend for electrification of things is buoyant, and the team performs well in this very strong market. The data center segment stood out, with the timing of some large project orders adding to an already strong trend. These larger bookings at the plus 100 million level totaled about $600 million. Looking ahead, the project pipeline remains good and, as Morten mentioned, we remain confident about the market. In such a strong environment, it is important that we remain honest with our customers, careful not to overpromise on our ability to deliver. This is key in our customer conversations. But electrification is not all about data centers. Orders increased at a low double digit rate, also excluding data centers. I would mention a continued strong customer activity in utilities, as well as for land-based infrastructure. Buildings is the biggest single segment and was overall positive. This is net of support from the commercial business while residential remains challenging. Turning to revenues, the chart in the middle shows the record high level of $4.7 billion. The 12% comparable growth was primarily due to higher volumes with a positive development in all divisions. And we were up in all regions. So while revenues were all-time high, electrification still reached a positive book-to-bill of 1.13, increasing the backlog by 21% to $9.4 billion. Operational EBITDA was up by 23% to $1.1 billion, supported mainly by operational leverage on higher volumes, as well as by efficiency gains. These positives more than offset growth related higher spend on R&D and SG&A, but also inflation linked to tariffs as well as rising input costs from raw materials. The team is taking mitigating actions to offset higher commodity prices. And considering timing between price action and full realization, the sequential margin improvement into the first quarter may be a bit lower than what we have seen in the last few years. But with the expected Q1 comparable revenue growth at a high single to low double digit rate, we should still see operational EBITDA margin increase year on year. Now let's turn to Motion, where comparable orders were up by 13% and total orders reached $2.2 billion, in line with recent quarters. Just like in electrification, there was contribution across the project, service and short cycle businesses. Looking at the different customer segments, I would highlight on the positive side areas like HVAC linked to commercial buildings. I would also mention power generation, which benefits from grid modernization and distributed energy systems. On the more muted side of things, there are process industry segments of pulp and paper and also chemicals, where however orders were up in this specific quarter. In the revenues chart, you see that Motion delivered a new all-time high. The 6% comparable growth was mainly due to higher volumes with some further contribution from price. We also added about 1% from M&A, which includes the closing of the Gamesa Electric deal in early December. On an annual basis, this adds about $170 million to Motion. And all included, revenues reached 2.3 billion, leaving book to bill at slightly negative 0.97. As most of you are familiar with, we have a pattern of a negative book to bill in the fourth quarter. Operational EBITDA improved by 8% to 412 million. The margin, however, was down by 40 basis points to 18.3%. This was mainly down to two factors with broadly similar dilutive impacts. One being that we have some operational inefficiencies in the recently formed high power division. It is taking some time to get the new setup fully oiled and up to speed. The team is on it, but it will most likely take a few quarters to get fully resolved. The second point to mention is the margin dilution from the acquired Gamesa business I just mentioned. In this quarter, with only one month inclusion, it weighed on margin by about 20 basis points. The business is currently making a small loss and we expect it to be dilutive for 2026 as a whole. Our plans allow for a couple of years to bring profitability to double digit as we embed the offering into our broad leading market reach. it should also add cross-divisional benefits with potential for the services business. For the first quarter, we anticipate comparable revenue growth towards the high single digit level and operational EBITDA margin to improve slightly from the fourth quarter. Let's then turn to automation, where this was the first quarter in the new structural setup with machine automation division now part of the business area. Automation also delivered a fantastic order inflow. You see in the chart on the left that the $2.8 billion, up by a comparable 41%, is on par with the similarly high Q2. This has clearly been a strong year for automation orders. And like for electrification in Q4, we had some large bookings at the above the 100 million mark. These were linked to the marine and port segments and contributed to a total of close to $600 million. In addition to strong marine and ports, I would mention oil and gas as a generally solid market, although orders declined in this specific quarter. There was also an increased activity among nuclear customers, albeit a small part of the total. Machine builders remains a challenging area, but due to the low comparable from last year, orders increased sharply. And lastly, mining orders were up in what we otherwise continue to see as a bit of a muted segment. Turning to revenues, comparable growth was stronger than expected at 9%. Execution of the backlog as well as good deliveries in service and short cycle businesses all supported revenues to the record $2.2 billion. Operational EBITDA was up by 27% to 311 million. And key level to the higher profitability was the gross margin increase of 140 basis points. This was due to leverage on higher volumes, some positive pricing and the team delivering productivity enhancements. Add to that a stringent management of SG&A and we arrive at the 150 basis points increase in operational EBITDA margin to 13.9%. Looking at the first quarter, we expect automation's comparable revenues to improve at broadly a mid-single-digit range, and operational EBITDA margin should improve slightly year on year. Now let's move on to cash flow, which was another highlight of the quarter. The strong outcome was result of improved operational cash flow in combination with a larger release of trade networking capital compared with last year. So despite a higher paid tax and capex expenses, we improved free cash flow by 17% to 1.5 billion. A good outcome in my view, given the strong cash performance already in the prior quarters. In total for 2025, we generated free cash flow of $4.6 billion, and I really want to give credit to the team for achieving this. We have now consistently run at a free cash flow margin between 12 to 14% over the last three years. And I'm really pleased about both the level, but also the margin stability. Looking forward into 2026, we expect free cash flow to remain broadly unchanged at the 4.6 billion level. This would be the net outcome from a higher cash flow in the businesses and real estate gain with an offset mainly from the expected cash impact from the closing of the robotics divestment. It looks like this tax impact will be about 400 million with approximately 300 million in 26 and the remainder in 27. And with that, I hand it back to you, Morten. Thanks, Timo.