Q2 2021 Abb Ltd Earnings Call
2.
It's great to see a strong performance both overall and in all our 4 business areas, even though our comparison from last year was the lowest during the pandemic. We now saw demand improved significantly versus last year, but also slightly up sequentially.
On top of the strong underlying markets that was an impact on stock building.
But our teams have done a really good job in handling certain component shortages at the Q2.
And managed to limit impact on our customers' deliveries.
That said, we expect to see continued challenges in supply chain in the coming quarters in part of our businesses.
We deliver this step profit improvement in Q2, which was helped by higher volumes.
Cost base, which is still impacted by the pandemic and price increases coming through and largely offsetting increases in raw material costs.
I'm also pleased that we managed to deliver another quarter of solid cash flow.
So far this year, we have generated $1.2 billion.
This sets up nicely for the delivery in 2021 as we have promised.
As you can see.
On the order charge on this side, we have had positive sequential momentum since the lowest point in summer last year.
In total comparable orders were up by 24% year over year and the key drivers was increased customer activity in most segments of the short cycle business.
We also saw comparable orders in our service business the shocks up as much as 20%.
We have earlier flagged that we expected improvement in the process related businesses. During the second half of this year now we see signals of that with a positive development in several industries.
In the Q2 order numbers there is an element of customer building stocks.
In this environment with strong underlying market combined with component shortages and cost inflation, Many act to secure our ability to deliver.
We are managing incoming customer orders in an effort to avoid too much inventory volatility in their end to end supply chain.
Now, let's take a quick look at the different regions on slide 5.
Growth was strong in all 3 regions.
We already touched upon the pandemic impact last year.
So on low comparable both in Americas, and Europe improved by more than 40 and 20%.
Note that Europe was actually up 30% when looking at the base orders.
You also remember that EMEA, driven by China recover sooner still the region and China noted strong growth of 50% in the quarter supported by strong development in all our beers.
As Eric said on a numerous location quality company like ABB should deliver a margin of over 15%.
I am pleased that we've reached that level into Q2, and thereby has shown that it is possible.
Even though we are not there yet on a yearly basis in.
In the quarter, we benefited from strong market price increases and efficiency measures. While the overall cost basis is still fairly slipped on the back of the pandemic.
Importantly, we increased gross margin by 140 basis points and 3 out of 4 business areas improved, but we know we face some headwinds in the coming quarters cost levels will come up for raw materials freight and travel spend and.
<unk> from component shortage will be challenge.
All in all our performance was strong in Q2, although we are ahead of schedule for reaching our long term targets, we do see sequential challenges in coming quarters, but we are working hard to mitigate this.
And with that I hand over to Tim Martin to take us through the numbers in more details.
Thanks Barry.
Now, let's take a look at the results of our business areas and let's start with electrification, where we saw solid improvements in virtually all customer segments.
It was really only oil and gas, which was the moderate side of this day.
It led to a double digit order growth in all divisions supported by the 3 regions.
And as you can see on the slide the absolute levels are high also in a historical perspective.
Now Bill mentioned certain impact from stockpiling and E Mail is the area, where this was noticeable.
We have consciously tried to safeguard the quality of the order book when taking orders.
In total comparable orders grew 28% and revenues by 17% and the order backlog increased by 9% the.
The higher volumes drove better cost absorption ill also benefited from the earlier implement did price increases all the while raw materials remained partially hedged at a still relatively low level.
As we have highlighted earlier this will gradually change in Q3 and Q4 as raw materials, both at higher rates are used in production.
I'm really really pleased to see a continued strong performance from E Mail as day improved operational EBIT or 70% year on year and increased the margin by 480 basis points to the good level of 17.4%.
Looking ahead at the third quarter, we anticipate growth rates to reflect the easy comparable from last year and reach a double digit pace for both orders and revenues with orders growing more than revenues.
Sequentially, there will be some margin headwinds from commodities and fixed cost.
Let's then turn to slide 8 and business area motion, which delivered yet another quarter of solid performance.
As you can see in the charts on the Q2 levels for both orders and revenues are high in a historical perspective at around $1.9 billion U S dollars.
This was driven by strong short cycled business across all segments.
And it is fair to say that also here, we noted some stockpiling among customers. Although the team has consciously focused on maintaining a good quality in the order backlog.
They were positive indications also in the project business, although it remains to come through in the numbers.
In total comparable orders were up by 16% and revenues increased by 11%.
The operational EBITA margin of 17, 7% is also high if you compare it to history and you can see it in the chart on the right hand side of this slide.
It remained stable year on year as the adverse impact from the geographical mix was offset by the contribution from additional volume.
Just like for electrification the headwind from the raw material costs will increase sequentially in motion when older hedges start to phase out.
We're also carefully watching the tightening of the supply in areas of semiconductors and electrical steel.
Which good particularly impact drive productivity.
We do expect some with longer lead times in our customer deliveries near term.
For the third quarter, we anticipate comparable growth in orders and revenues to be somewhat below what it was reported in Q2.
Next on slide 9 we look at process automation, where growth returned to positive territory for comparable orders and revenues at 11 and 4% respectively.
Admittedly from a low level in Q2 last year when the quarter was heavily impacted by the pandemic.
The positive development was driven by broad based improvement in the product as well as the service businesses.
We have earlier indicated that we expect at the business environment for the process related business to improve in the second half of the year and we now see signs of that realizing.
We also saw initial positive signs for service business in the gross segment, which have been weak during the past quarters as you know.
It looks like customers are gearing up for an uptick in the actual cruising activities, which of course will drive the service business in B E.
Bill I delivered a significant lift of 410 basis points in the operational EBITA margin into the target range.
On higher volumes stronger mix from higher share of service business and the impact from cost measures. This triggered a 67% increase in profit.
In Q3, we expect growth in both orders and revenues to be higher than in Q2, supporting a second half 'twenty 1 recovery.
On slide 10, we turn to robotics and discrete automation and as you see in the order chart. The positive sequential momentum continued into Q2.
Year on year growth for comparable orders was very strong at 41% from the low level last year and it was strong in both the robotics as well as in machine automation divisions and across regions and segments.
Looking at the drivers it is only really amongst automotive segment, which does not contribute to growth.
And as you know from before we are applying a strategic approach in this segment to deselect systems business orders with a low ABB content.
This is an action to improve the quality of revenues to drive profitability long term.
We started this already last year, so the impact on growth in orders should fade out towards the end of the year, while it will roll over a bit into early next year in revenues.
In Q2, the automotive business orders were bit over 20% of total or a business area borders.
In line with the above mentioned strategy execution.
Comparable revenues rose by 22% with contribution from both divisions, improving from last year's low level and a generally strong development in the short cycle business.
The operational EBITA margin of 11.5% was up 470 basis points year on year with substantial improvements in both divisions.
The rise was primarily driven by better cost absorption due to higher volumes positive mix from higher share of service revenues and previously implemented cost measures.
We see some near term risk for delayed customer deliveries due to semiconductor constraint, particularly in machine and factory automation Lee.
Looking to Q3, we expect growth rates for comparable orders and revenues to be lower than for Q2, driven high or even higher comparable and also earlier mentioned supply constraints.
We look next at the group revenues and operational EBITA Bridge on slide 11.
As you see in this table the strongest contribution to the year on year progression comes from the organic development the.
Volume leverage was good and we also benefited from our earlier cost actions and somewhat abnormally low discretionary spending still.
Then to cash now this is my favorite slide in the back.
And I'm really pleased with how we have made cash come through so far this year.
After the strong Q1 cash flow from operating activities in Q2 amounted to $663 million.
Higher earnings is the key driver, but the team has also done a good job at containing the networking capital in this period of strong growth and keeping it broadly broadly stable year on year, while it was up from the previous quarter.
For the first half of the year, our cash flow from continuous operations is up by about $950 million from last year.
This is a very good start for what we expect to be a year when we see meaningful improvement in our cash delivery.
Then to finish off.
I just quickly want to discuss the outlook statement.
We lift our projection for comparable revenue growth in 2021 to just below 10%.
This compares to the previous statement of about 5% or higher.
The short cycle is already supportive and more so when and more so than we initially thought at the beginning of the year.
We also feel we have stronger conviction in the process related recovery, including the service business in the cruise segment.
Our operational EBITA margin in 2021 should improve at a strong pace towards our 2023 margin target.
This is this is a change from the earlier statement of a steady pace and reflect the strong start to the year.
In Q3 growth rates for comparable orders and revenues will benefit from the lower base due to the COVID-19 impact in 'twenty 'twenty.
We anticipate comparable revenue growth of about 10% year on year with again higher growth rate for orders.
On the margin side in Q3, I want to mention some key items to keep in mind.
We anticipate positive support year on year from a good market situation and a good mix from recovering service revenues.
On the other hand.
We have mentioned it earlier in this presentation. We know we will have some sequential pressure from higher input costs.
Component orders saw that she is most likely and also increasing cost for example from travel as the pandemic related restrictions hopefully continue to ease.
Let's see how things pan out, but I at least want if dimension. These factors and with that I would like to hand, it back over to Barry.
Thank you Tim.
And I would just like to share another 2 slides with you.
The first 1 being the Asti deal, which is a good example of how the businesses to drive the M&A again done.
Or a quiet as a leading supplier of autonomous mobile robotics or M ours.
It complements them well and further extends the offering of increased flexibility in production.
As the office portfolio that covers all major applications enabled by versatile software suite.
It has had a close to 30% diner growth since 2015 and is aiming for about 50 million in revenues this year.
I expect to see more of these small and mid size deals going forward, we have a strong balance sheet and we want to use it to grow and add value.
Lastly, I would like to update you on the progress we are making towards the reduction of our carbon emissions in keeping with the goals of the Paris agreement.
You already know that our target is to achieve carbon neutrality in our own operations by 2030 as part of delivering on that we have joined day initiatives by the international non-profit climate group.
They include electrifying, our fleet of more than 10000 vehicles sourcing, 100% of our little electricity from renewables and establishing energy efficiency targets and deploying energy management systems at all of our sites.
Our reduction targets are now confirmed to be aligned with the science based targets initiatives and is in line with the 1.5 degree scenario of the Paris agreement.
These are all measures and steps for us to deliver on our long term sustainability targets.
And with that I ask answer to open up the Q&A session.
Thanks, Bill and team I am, but actually before we move into the Q&A I would guess like even a little bit of a commercial break and take this opportunity to work on new to our capital markets day, which we're hosting after the summer.
On the 20.
29th September Festival, we invite you to Helsinki to meet with the motion team and on this day, you will learn more about their offering and strategy and also the hate their operations on site.
And then secondly on the seventh of December we will host a grips AMD hearing Zurich and on this occasion with a focus on the topic of sustainable transport and of course that is on top of their update on the strategic process political it.
And of course this is.
All COVID-19 permitting and that you will be able to join us both on site and actually.
So now we open for Q&A.
And let me remind you that should you want to ask a question. Please register by pressing star 14 and to secure the sound quality. Please remember to mute the webcast as your line is open for questions.
I can already now see that we have for questions and I'll just kindly ask you to limit yourself to 2 questions and we'll do our best to get through as many as near as possible.
Yeah.
Now we'll go to the first question and I Hope we have Alex.
From Bank of America Merrill Lynch, Alex are you with it.
I am indeed M C.
Thanks, very much good morning to you all beyond the T Mo.
So 2 questions. Please the first 1 I was wondering if you could just go through a little bit more detailed the divisional performance in demand trends in China.
Just to give us a little bit of color around the.
The sequential development.
To that end and also thinking about how we've started Q3.
And then second question.
Wonder if you could just give us some indication of how much you think.
Inventory building or stockpiling has helped to contribute to the gross you've seen an L and M life. Thank you.
Thank you Alex Yeah, I mean first there you know we have 21 division. So it will take me the whole day to go through each of them, but if we look at the 4 businesses. We have we see we have double digit growth I mean in the Chinese market, but of course sticking out as usual here is electrification and motion who has a great development.
And the Chinese market so yeah.
And you should also note that the comparison numbers in China, We had gross actually last year also so it's been the growth engine for the whole last year, but we still have 50%. So this was this was a positive to see that.
Growth continues.
In.
In China.
On the stockpiling I would think it's like Tmall said, it's mainly we see it in the electrification business and we'd say, we'd maybe 1% to 2%.
<unk> from the group that's limited how we look upon that maybe you want to add something that T. Mo no. That's exactly right about $1.5 or so in the group and maybe 3 years or a bit more on electrification. So it's actually down as an impact from Q1, when we said about 5 in electrification.
Great. Thanks very much.
Thanks, Alex and then we'll take the next question and Daniela Costa from Goldman Sachs.
Yes, I'm here good morning, everyone and thanks for taking my question I'll ask 2 has well but on the first 1 I wanted to understand so do you still keep within your margin guidance you mentioned the upper end of the guidance for 2023.
It would be interesting to hear from you given the strong performance so far what would what could be the headwinds that would take you away from from that already being met in 'twenty 'twenty 2 if any.
And then my second question I think last quarter, you kind of alluded to them doing some review within within process automation that you think you were going to present to the board in October but can you give us a little bit more color exactly what are you looking at there.
Given all that you have done already in the portfolio so far.
Those are all my questions. Thank you very much. Thank you Daniela M.
Yeah on the Moor put together.
It's correct that it's great to see 15 percentage as I've said before in a quarter and for me. This is of course show that it is possible to reach over 50% day you know that's my viewpoint.
I gave you be should be above these numbers.
I don't think door.
And that we are there yet so we.
It's the 1 quarter, we have bill quarters to come and that there are a little bit challenging for the next day quarters. When it comes to these.
Material prices as well as the supply so semiconductors and everything and it's like us with us like everybody else. We don't really know what the real effects is going to be so we adjusted a bit cautious on that part.
My name is margins. Yeah. We are ahead of schedule I think you I've said that before.
We still have the you know the margin corridor for 2023, when we feel that we are there we might make adjustments, but I think this is from my perspective.
Step targets in the direction, where I believe ABB should be in the long term, but.
It's a great improvement from all of the businesses.
You know everybody has been contributing well during this quarter. So I'm very pleased with this performing than them on P. A.
It's a little bit different from many of the basis that I have been working with before it's a lot of learning for me to understand you know.
What makes this business takes what is the actual potential for these 4 going forward. So we actually I actually spent quite a lot of time understanding this business and what we need to do to get this business up to the.
And our profit levels, where we are in the group and that's that's a journey.
I think they havent great ambitions in that business to improve like every other business that we have.
So we continue to do that is correct I said that we will have a special review of this in September because the board also wants to understand this business what are the potential for the future.
Nothing else to talk to at this stage, but.
Good to see the 12.5% really coming from the service kicking back again so.
So that's good news for ABB.
I hope that's a.
And the answer that's okay perfect. Thank you. Thank you thanks, Daniela and now we move to Andreas Willi Jpmorgan.
Yeah. Good morning, Thank you John.
Piedmont and people at the time My first question is around the.
Raw material components, they maybe motor at the raw material impact.
Normally gave a little bit more commentary on near term margins with some of the divisions that you have given earlier in your your your speech T Mo.
Particularly outside the electrification, maybe you could clarify a little bit to what you expect the negative impact to be relative to the likely still positive impact from continued sequential revenue growth. So maybe an indication there.
The impact would have been if he would not protected by hedges still in.
In Q2, that's my first question.
Second 1 on the Asti acquisition.
Could you give some indication on the kind of range of revenue multiple you paid for this business.
And this does highlight a much broader.
The planned expansion of targeted expansion into kind of assembly into lots of logistic throw both from kind of the assembly flow because historically.
Yeah. Thanks, Andreas why don't I start with the raw material impact question. So.
We'll go business area by business area, and and talk a little bit about the drivers. So first of all in electrification. When we look at this sequentially. We're also of course coming from a very high level of 17 point for and there. We said that that we are expecting to see the raw materials, particularly if you'll look at copper a little bit also on the steel too.
The negative impact on the other hand, so far the team has done a really good job in pricing, but unlike compensating everything with pricing is getting I would say not more difficult going into Q3 than if you look at motion we have impact there we would also.
Expect of course to see a negative impact, but there I think will also have a bit of a book positive with divisional mix on the other side of the equation and then maybe the bigger question Mark in motion is really again, the semiconductors, because that could really impact the delivery is but so far the teams have managed that really really well and then if you look at.
Be a there is less impact on their own raw materials, and that's why I say, we expect stronger order growth stronger revenue growth in VA going into Q3 and also the services growth was already know better than the overall growth. So we would not expect that much impact from this topic on P E and M.
Our array. It also is maybe a bit less on the raw material price and a bit more on the component side, especially in the in the machining.
The machine and factory automation.
So those are really the dynamics.
Good and if we look at Austria, it's great to see you know we moved the strategy of our M&A process towards the divisions and they've been working hard I think all our divisions to identify potential acquisition object.
This is the first 1.
We are encouraged about this it's a small nice company that is in growth mode. Good technology, and we think we can utilize.
The platform of <unk>.
Robotics global structure to drive good growth and good improvements here, so it's well in line with that strategy.
We didn't disclose the price that's pretty clear, but we all know that everything is expensive today. So of course, we pay day good multiple for this business also on the other hand reasonable.
But it's not crazy I think we we all think that this will add a lot of value to ABB going forward and this is the typical 1 of these growth strategic opportunities.
Opportunities are where we need to and this was a little bit of a black spot in us. We didn't have this technology and I think this will speed up our presence in this way how they will go forward.
This is related to a lot of material transports and logistics also so there are a lot of applications areas, where we can use this and and that's a combination.
Asian, where the robots.
It really helps our customers to become much more flexible in their production facility. So.
And also this distribution centers and so on so it's a good gerdau John So we're very excited about this acquisition.
Hope that question was was what you expected.
Yeah. Thank you very much and some cash and then when they go to ban new glow at Morgan Stanley.
Your line is open.
Can you hear me, we can hear you very well.
Good.
Well that's always in.
Hi, everyone I hope all well a couple of questions. Please.
Bill I'm going to.
Dig a little deeper on on your answer to Alex's question at the beginning.
You currently told us that sequentially demand was getting a bit better.
But I guess I guess, what we will want to know is if we think about the second quarter versus the first quarter number 1 it is China still on an improving trend is it growing and then if we look at the 2 other regions to Q versus 1 true is it fair if I look at your.
Our orders is it fair for us to assume that Americas is getting back to Europe is more stabilized.
Just the kind of ideas around how to queue.
Trended the overall level of demand.
So that was my first question.
Let's start with that then yeah China.
We have read in some of the reports here that we see slowdown, but you know that China actually started to grow already Q2 last year and you remember remember we had a slight gross in the China market, even though the pandemic was very hot at that time, while we saw a big drops in other parts of the world.
China, then has become really the growth engine for us and we've seen huge growth numbers.
What's great to see here, we as you remember we saw growth in Q1 also.
Even though when we look M.
Look at the comparison, you know maybe you remember that day.
The pandemic in China actually hit first quarter. The last month last year, which made that did maybe it looked like we had a little bit more growth from that perspective second quarter, China was up and running again, so the gross a little bit more challenging from that perspective, So we think 15%.
It's a very strong maybe even little bit surprisingly strong and the good thing it's not only some of the businesses and that's really all 4 of our businesses, even though we see electrification and motion day, 1 sticking out there on the China gross gross side. So and then of course the question how is that going forward.
And that's of course difficult to see we can only see a couple of weeks into this these months and we see the trend continues on a strong basis, how that will be the rest of the quarter is difficult to draw any conclusions. So.
On their Q.
Q1, and Q2 normally you know if you look at traditional ABB.
First quarter, we normally have higher.
Higher orders than we have revenues are normally in second quarter, we normally see revenues coming up but some sequentially lower orders. This time actually orders grew slightly.
From Q1 to Q2, which I think shows that we see strong market, but it is clear.
Our U S looks very big on the paper and even Europe looks good. If you look our base orders were up 30%, which I think you said more better indicator of the real demand in the market, but of course, you remember last year These true market.
For a severe impacted from from.
Pandemic wireless channel not so.
Yeah, I mean, it's difficult to say, but even the Q3 was quite severe impacted last year. So we should continue to see strong growth numbers. Both in Q3, and Q4 that sounds better and I'll make a quick quanta to add on that day, Mario just a quick Europe comment because I think if I remember correctly. When you had in your note sequential dying down.
Minus 4 in Europe, but we didn't really have any large orders now in Europe. During Q2, whereas if I remember correctly, we actually had in Q1 that goes back to Berens base order equipment.
Base orders that battery index of the real demand to bill and if I look at Europe. The countries are growing really nicely. So it's really really broad based in Europe moving.
That's a very helpful clarification. Thank you and then.
1 Big picture question, I guess is it sort of relates.
Similarly to choose the question Andreas asked about from past Dnb, the whole kind of ammo space I remember from the capital markets day.
Back in February 2020, I guess it was.
You were beginning to talk a little bit more about let's call. It the warehousing.
And the potential not just old material handling and logistics, but actually the warehouse vertical in particular.
What I want you to know that isn't too different move in terms of customer base getting away from malls.
Industrial customers.
Towards maybe more consumers flash retail how are you thinking big picture about the warehousing space.
This part of the new strategy.
I wouldn't say that this is a new strategy biotech seed care.
Sam and his team have been very clear, we wanted to get away from the system sales from Alka most of that is clear.
I think automotive overall is a low margin business and we've seen that fall, we see much better margins in general industry and electronics, but also in the warehouse.
Had a great success Lee.
Lately with.
Amazon and many other customers also within this area, but its clear yes. We are looking into this as a strategic area, where we are not just looking at the packing also transports of components and so from the past. So yes. It is a very strategic area. It's also a very growth area, where we see good potential for both.
With robotics as well as this March.
Sure Frank.
Thank you very much indeed, I'll pass it on thanks, Thanks, Pat Thanks, Ben.
And then we open up for Martin Wilkie of Citi.
Hey, good morning motion from the first question was just coming back to acquisitions and I realize youre not disclosing the price.
So.
Fees on this morning, but just more generally what we see.
No.
Now this disposal already maybe you get some more of those won't be the approach as it relates to new year.
When do you think that you could be getting.
Several billion dollars coming from over there over the course of the night.
A couple of years or so how are you thinking about the M&A environment.
Coming from the price is being.
First of all fool or whatever it might be.
These new environment still when you can volume higher tech businesses, we linked with return of cash.
Thanks.
Mountain as easy as it.
Good question, Yes, Sir.
Acquisition that we havent disclosed the price there, but I said, but of course it's.
We used the margin is not Super high Mod.
But it is a high multiple for a business like that but we think you know with selling bigger businesses, which we seek it.
Very good time doing that and we are buying smaller technology business, which will easily be integrated into the divisions and drive growth, but also drive technology development. In these places. So I definitely think this is to be expected going forward. All our divisions have been working a year its action.
Part of their variable compensation to have these.
These potential M&A candidates in this business and we say also are also on the software side. So that the the list of potential candidates are growing every day and we are approaching them. We're looking at you know.
What are the synergies what are the growth opportunities and how can the deviation drive this.
I think this is an exciting part of this kind of caused some on a going forward and we have been very clear that day. The money from these divestments. We hopefully can use for these kind of acquisitions. If we don't yeah of course, we aren't going to be a bank, we always had that but.
We have a.
The businesses are getting encouraged by this strategy and we think there are a lot of opportunities here.
You're out on that day.
I think the question is really good 1 and we are of course fully aligned here and we all the time when we talk with our businesses, we look at make versus buy and I think it's important to note that our organic R&D is going up as well and in this environment you often get better return on Oregon.
R&D and then you have to complement that with some stuff to get speed and that's exactly what we are I think doing here with us day, but it's not like you know again I just want to remind that we have a quite structured view on how we look at this and do the comparisons before we went and pulled the trigger.
Okay. Thanks, that's really helpful. And then second question is related to M&A bolt on 1 in the past and you'll see another good performance from electrification of all the Gis benefit no dominant in the margin.
So we should see the incremental benefit of those cost savings from Gis beginning to sort of peak or is there still a lot of opportunity from that.
As well.
I've been very clear that I think this is the Gis acquisition and 1 is the biggest value drivers and ABB at at the moment and day down there.
Great job in.
Both the protein the footprint in place the right there the 1 for the future, but also replacing old technology with the new ABB technology.
The journey is not there yet we still have a boy factories to close and consolidate and there are still a replacement of products, especially on the switch gear for the North American market that where we think there is good potential for improvement also going forward. So we we've there are more and more to.
When it comes to synergies.
Synergies from putting these together on the other hand, we seen a tremendous development from the electrification people and actually even surprised me that the improvement is growing that fast.
Great. That's very helpful. Thank you.
Thank you.
Let's see if we have Shane Mckenna.
From Barclays on the line.
Yeah.
Good morning.
On CMO.
My first question actually is on robotics and discrete automation just wondering if you can give us a feel for what the drag on margins was in Q2 from delivering these legacy turnkey orders.
As well as what you're seeing now in terms of the margin profile of the current order book and how that stacks up versus the sort of 13% to 17% mid term target and then as an add on.
And our margins now tracking within that range given the management changes that we had several quarters ago I go around the globe.
And then I have 1 follow up question.
I'll come back on that 1 I wonder if it take the robotic first let me start and then I'll hand over to the pot.
We said and we are very clear that the our robot business is a 15 plus business and that's our target for 2023 I think we are moving in this direction, we said will be over 10%. During this year, it's gone a little bit faster there and yes, the automotive is becoming a less but in our revenues day.
It's still a certain amount of drag so why don't you give a little bit clarification on that Tmall. Yeah. Thanks, Bill Thanks, Shannon for the question so.
We said earlier that this business is may be sort of M.
More than 100 million. So on annual basis, you could say, maybe 150 number like that so it is meaningful there I'm not going to go to the exact margins, but I think it's important to note that now when you look at our orders.
In robotics and discrete automation business area.
Ultimate David is between 20, and 25% of the orders used to be about 40. So this is a really meaningful strategy change and how we follow this is of course, the gross margin and when we look at the gross margin now in the order backlog or the or a it is clearly trending up.
And you know that will then help us as we have said to get clearly back to the.
2 of the corridor without giving any timing stamp here on that matter and then also in machine and factory automation will be and are the the margin is clearly improving I would say towards the target, which bill and that's given us in general.
Very clear.
In terms of El are you expecting a similar recovery in oil and gas and conventional power generation demand for that division as we go into H, 2 as you're guiding with MTA and I'm just trying to get a feel for how large that segment is the North America E. L. I think from memory at the divisional level at around <unk>.
20%.
Slightly larger in North America is that 1 of the reasons products or the lower gross.
E <unk> in North America relative to peers. So you are checking now oil and gas for electrification not for process automation just to make sure. We get the question right correct correct, because it's been an end market that you've been calling out some time, that's been sort of holding you back yeah. It is not not as probably more M. P. A.
I think that electrification, yeah, well, but there is of course medium voltage stuff in that market as well in electrification, but it's not a significant part, but I would say overall when you look at the U S growth, yes may be proportionately, we have a bit more bigger proportion in in U S in medium voltage versus low.
Voltage, which probably has impacted the growth a little bit, but I would say the oil and gas its not a huge driver for our E. L businesses, clearly clearly a bigger driver in the Proteus automation.
Alright, great.
Thanks, a lot.
Thanks Frank.
And Joe Giordano.
Cowen.
On the line for the next question please.
I'm here can you guys hear me, we can indeed, you're fine Joe.
Hey, good morning.
So a question a few questions on the robotics side, so perhaps the price.
As you know, it's mostly auto Levered currently it's mostly Europe levered.
And do you see this as a kind of a flagship business that you expand and kind of all other acquisitions into just do you have aspirations for this to be.
Brought in from an end market and geographic perspective for that business.
Now, let's talk about robotics, a little bit John our robots being with ABB has started up it was actually 1 of the really pioneers within this area has always been.
A place in ABB, maybe from some people said it a little bit of a odd business within the group I think it's more coming into the automation and taking a broader viewpoint, we think robot business. He said.
1 of our really core businesses when it comes to driving transmit transfer transforming the industry's point and I think its even getting even.
Even more focus now after the pandemic, where people see flexibilities coming higher up on the agenda.
Yeah I mean.
It's not I mean, there's 1 of our businesses, we have 21 businesses in.
And I always said that I think they're the businesses. We are number 1 and number 2 in the areas, where we operate I think robotics is there.
Great business.
I think it has more profit.
Profit potential but growth definitely this is 1 of the strongest growth areas that we have in the group going forward that that's pretty clear.
I haven't jumped yeah. Thanks.
The on the a M. Martin in particular, I think we said in our presentation today that we are right. The way starting this now also in China and.
We have already gotten customer inbounds that it's great that you know this is now ABB because it's of course totally different to go with this kind of offering as ABB to China, then that's a company, which has approximately $50 million revenue. This year. So we think that we can expand the dostie offering quite new.
Isolate through our channel and also the day exposure to automotive, we think that day Marsh as was discussed earlier in this call will actually get us position in a broader market than longer term will help us to us to even better diversify the overall customer.
The impact to better quality of revenue as we have spoken earlier and to add on that I mean, you mentioned geographically I think we've been very clear on that part that we are a market leader in Europe and in China that is part of our market share in North America is not as strong as in other parts of the world and that's 1 of the areas where we.
Our planning to strengthen our presence.
And then in the press release you mentioned.
Robotics and in construction and broadening your severe.
Exposure there can you maybe talk a bit about that.
And maybe last day, 1 of your competitors recently buying a cloud based automation solution I mean, obviously different markets there, but just curious where you think you are on software.
And how you see that progressing whether its in house or through partnerships.
Do you want to tackle that thank you.
Yeah, I mean a robot.
And the strategy that.
Very clear in his stride to move away more from this system.
Our systems within automotive side, which big risk low margin, but also the whole automotive segments is a lower margin than other segments. So we are moving towards generally industry said electronics.
Very much today logistics, which is a very growing but 1 new area is construction, but construction is maybe not building a house out on the field.
Bill today modules that are then being assembled and out in the fields are building. These modules that are more robots being used and it's a new segment for us and I'll talk a little bit about it because I think it's exciting and there are some potential for that then on the software side I think we'd be very clear.
The strategy that we have been soft there we are growing pure software solutions, we have embedded software and are building our domain expertise and a lot of software included in our products that is continues to grow in the park. We are of course also looking for potential the software companies.
That fits well in where the business is why we operate them that we can see synergy.
Apart from that but we think that our offering today is both strong and well positioned.
A lot of software embedded in the products and.
The pure software is also growing growing a lot.
Specially in process automation.
Anything you'd like to add that.
The software guidance.
Coming from Nokia.
No I think you covered it well, but but I think as you said, we are executing a clear strategy and I think we are on a good path on that 1.
Okay.
Jeff do you have to weigh that J I hope you got quiet.
And then we see I M.
Go ahead Peter.
And James Moore from Redburn. Please hold your line is open now.
Good morning, everyone. Thanks, I've got 1 question if I could please say bolt in 2 questions beyond you mentioned base orders from our best indicator of demand and I think we'd all agree and it was a shame when you stop them. So if you could bring them back that would be great. My questions are all around raw material and.
Robotics and factory automation, so it seem I really maybe for you on raw material thanks to the cash.
<unk> decision, but I wonder if you could in any way to size how much bigger.
No school material year over year dollar million impact to be in the third quarter versus that which you saw in the second quarter I understand that that'll be pricing on the other sudden just trying to flavour.
The changes are we talking about a 25 million stock increasing year on year pressure or is it a big 250 million dollar impact and I have no idea already because it's hard to understand your raw material exposure and the second question.
Is the 41% organic order growth in all Ray could you I love the 3 numbers, but it's not flavour the differences between.
Auto Redbox sake, also nonrecourse sake, and factory automation and I guess I'm really asking is factory automation growing faster globally from the nonautomotive side that robotic.
Thanks.
Yeah, why don't I start with the raw material. So thanks for the question James So it's definitely in between 25 and 225, but then jokes aside Q1, I think we kind of like.
Said that the pricing positive impact was about 25 billion and that well compensated data and if you calculate the pricing impact from our bridge now if somewhere around $60 million in and you can all do the math and this is of course compensating now for a bigger impact in raw material.
At least if you look at copper or some stuff has now started to stabilize at least on a very high level still is.
I would say even higher now proportionately done than copper. So it's gonna be I mean, we don't know exactly what how this is going to go out come out, but it's going to be definitely closer to the Q2 number then the qunar Q1 number so that much we can say about it.
And the other question was.
What percentage on the robotics and gross profit growth in factory automation yeah. Okay.
Sure sure from Otsuka robotics, yet give you a little bit of a clarification, if you actually take out the.
Total Altemose day part of the business. It grew about 60%. So that gives you a flavor if you take out just the.
Let's say the automation part of the system part of that business. It grew.
Approximately.
3rd% to 40% or third correct 30 or 40%.
I think I've got it somewhere around that 40%.
Yeah.
And then.
If you include the whole automotive part we are a little bit about 20% I think that's where it is when you see factory automation, we are closer to a 100% correct. So that that has been growing like crazy for 2 quarters at the moment.
That's great color. Thank you so much thanks.
And now we only have a couple of minutes left so Jonathan at Exane, if you promise to be fairly quick pace.
And we will open up your line.
Okay.
I'll try and there's been a few questions about the STI.
The acquisition of I guess, maybe just trying to understand the scope of your ambition in the press release, you talked about a 14 billion market by 2025.
And you've also mentioned during this call you are number 1 number 2 I know.
In robotics, depending on the segment I mean, the $50 million business doesn't address very much of a of a 14 billion market maybe what we're just still trying to understand is what your ambition really is in terms of the verticals you're going to go into how much can you scale. This business given the platform you have in automotive you know 1 of the sales synergy.
I mean really it should become a number 1 number 2 player in AML and it's not your ambition, maybe just sub segments of AML, Yes, really what are you trying to achieve his.
Firstly, the MLR business its a very sad.
Scattered business as so many small players in there. So you probably will see some kind of consolidation also going and.
Going forward, Yeah, it's quite a big market and you can use it in all different region here now every team from logistic to automotive, but all such a general industry. So yeah. I think the ambition is that this is definitely a growth acquisitions, meaning using the technology platform and then are you.
Utilize the hour.
Platform, we have.
All over China, and Europe, but also in North America, and that's where we go in to drive growth in this area. So I think the whole robotics team is quite excited we can deliver difficult to go in on the growth numbers, because we haven't given them out yet, but it's clear.
Big growth that we are expecting from from this business is going to be successful going forward.
Can I throw a software comment in here.
Okay.
This this area will benefit from the new software on the whole Lidar technology, similar technology, which is used in mapping applications. When you do a street not being in that kind of stuff, where I was earlier involve debate and that's why.
No look you're wise this will get more complex and it's going to be tougher and tougher for all these smaller players to survive that would be my sort of got software comment on here, So theres lots of bill.
Opportunities for expanded from technology perspective.
And we could spend quite a lot of time looking at different opportunities here and we think this is definitely the 1 that suits us very well, both technology wise and the potential to grow.
Thank you thanks.
Thank you for that and would that play roundup for today. Thank you very much for taking the time to spend it with us and we'll see you again in about 2 quarters time and wish you a good vacation.
Thank you bye bye.
Okay.