Q1 2022 Abb Ltd Earnings Call
Great. Thanks to you all and welcome to the presentation of Abb's first quarter results. Most of you know me by now I'm also to note our head of Investor Relations and next to me here I have our CEO , Dr. Olaf and get in and our CFO seem Oyama Sheila.
Oh boy they will take you through the presentation after which we'll open up for Q&A.
Before we begin I would like to go where your attention to the information regarding safe Harbor nice to say and I'll use some non-GAAP measures on slide two of the ABB presentation.
This conference call will include forward looking statements and these statements are based on the company's current expectations and assumptions and are therefore subject to certain risks and uncertainties.
And with that I will hand, you over to John and T. Mo to take you through our results.
Thank you Ron.
And a warm welcome from me as well.
I wanted to start off with a few highlights from the quarter.
As far as that was really good to see the customers remain very active our.
Our orders reached nine 4 billion the highest quarterly level.
Cynthia.
These strong orders either top line somewhat hampered by component shortages resulted in a book to be in or one point 35, I think it was actually our pizza consecutive quarter with a positive book to Bill.
The margin of 14, 3% plus good admittedly it was supported by lower corporate costs, but looking at the operations, we had three business areas, which performed well.
Then we had underperformance in robotics and discrete automation.
But I expect this to improve from here on.
That is of course, assuming external challenges.
Goodnight.
These are uncertain times with many moving factors inflation is at levels that we have not seen in many years the.
The terrible war in Ukraine is weighing on all of our minds.
We have a global imbalances in the supply chain.
And now also the whole comprehensive COVID-19 lockdowns in China.
These are challenges our businesses must deal with on a daily basis.
On the whole we have managed well so far.
And I want to mention that we have formed a new division in electrification.
We have separated the survey business to its own division to improve transparency.
And accountability to drive both growth and profitability.
These what's there in new Jersey about direct and Morten will now follow through as he looks over the business area of leadership.
From the month.
On that topic I'm pleased to see that both cardiac and Morten have come off to a running start and then your roles.
And I look forward to that and bought the driving performance to the next level.
Lastly, I'm pleased about the new buyback program, which was launched on the first of April and covers up to $3 billion does mean that we go beyond the promise to return at least $1 2 billion of the power grid proceed.
Now, let's look at the orders and revenues in more detail on slide four.
As mentioned order intake reached a record high level. It was driven by strong development across most of our customers.
And all regions.
And we saw a strong double digit growth in the short cycle.
The process industry related businesses, rather than asking service.
We saw no real difference in the underlying market pattern towards the end of the quarter compared with in the beginning it was strong throughout the whole period.
Revenues improved at a good pace of 7% driven by positive volume growth as well as good pricing execution.
All business areas reported positive comparable revenue growth of between 9% to 11%, except for robotics and discrete automation, which is.
While the supply shortages of female conductors Washington, most notable.
Hey, maybe we can talk more about that later in the business area comments.
Now, let's take a quick look at the different regions on slide five.
Again, we saw strong double digit growth in all three regions in the Americas in the fourth and U S market increased by 46% supported by all business areas.
Europe most of the top 10 market showed strong growth rate that's sad.
On the slide you see that Germany improved by only 4%.
These include de bulking and process automation.
Outside of that the underlying orders were very strong.
Yeah, Amit I region improved the whole by 24%. It was good to see continued strength in China, which improved by 26% supported by all business areas.
Let's turn to slide six and the earnings call that.
Our gross margin was 32, 7% during the quarter, which is a slight decline of 20 basis points from last year.
<unk> is primarily due to the divestment of the high margin Dodge business, but also due to a drop in robotics and discrete automation.
Cost inflation was broad challenge in the quarter with the biggest headwinds in raw materials, but we managed to successfully offset this through.
Through price management, and the impact from high volumes.
In total we saw a slight improvement of 10 to 20 basis points to the margin when adjusting for the low <unk>.
Lower than expected corporate cost and divestment of dogs.
Overall Q1 was solid start of the year and with that I hand over to T. Mo to take us through the numbers in more detail.
Thank you Burton and greetings to everyone also from my side.
You heard we arent talking about a generally strong demand across the board and as we go through the different business areas. This will be clearly evident.
But let's start by looking at the electrification. He had we store so a very strong demand driving orders to clearly about $4 billion with a comparable growth rate of 29%.
With strength spread across all customer segments, we actually show a double digit order growth in all of the divisions, including the newly formed service unit.
Orders in both Europe , and Americas improved at a steep double digit rate and it was good to see that growth rates also student turned back into positive territory in China at plus 9%.
Revenues in electrification, where beef back end loaded during the quarter and the comparable growth of 10% or so yet again supported by a strong pricing execution.
Volumes also contributed but were somewhat impacted by supply chain disruptions.
And this mone, mostly relates to the largest division distribution solutions due to its large suits them to sales.
I hope to see a progressive easing of the confidence born stretched.
Overall, it was yet another quarter with a book to bill ratio above one and the backlog increased to a record high $6 $5 billion.
I'm sure you remember that in Q1 last year electrification took prompt actions on pricing in order to set off of their own home coming headwind from higher raw material prices, while still enjoying the benefits of low input costs due to hedges. This is based off a comparable from last year the.
EBITDA margin declined 80 basis points to 15, 4%, mainly due to subdued performance in distribution solutions business. While the theme has continued to do a great job on tightly managing their price list.
Looking ahead into the second quarter, we expect similar growth rate as in Q1.
And somewhat of a sequence of margin improvement.
Let's then move onto motion, which also had a very high order level.
This is particularly impressive when you consider the relatively low contribution from large orders and the fact that this was the first full quarter without the bilge business.
The stellar comparable order growth of 32% was supported by high customer activity in all segments across all regions.
Like in previous quarters. It is probably fair to assume some positive impact from customers preordering in the current inflationary environment.
That said, we have not seen order cancellations.
Neither did we see any slowdown in the strong customer activity towards the end of the quarter nor in the early days of April .
Comparable revenues improved by 9% supported by both volumes and strong pricing execution. The semiconductor shortages that started to ease somewhat sequentially not least due to the implement cid product redesigns and the validation of alternate suppliers job really well done.
The motions theme.
The margin in motion a highlight of the quarter increased by 30 basis points from last year to 17, 4%.
This means that on higher volumes and strong pricing activities, we more than offset the meeting 90 basis points, which the Deutsche business contributed to the same period last year as well as cost inflation from raw materials and freight.
For the second quarter, we expect comparable revenues to grow at least at the similar rate I think Q1 and margins to remain broadly stable with Q1.
We now turn to slide nine and process automation, where we continued to see strong demand across most of the customer segments, particularly in marine as well as mining and metals.
As a result base orders continued to grow at a double digit rate while the total order growth reached 6% weight deed upon by the de booking of approximately $190 million.
Higher than expected deliveries towards the end of the quarter. It resulted in comparable revenue growth of 11% for process automation.
Overall, the impact of semiconductor saw the Gs was somewhat less than anticipated, but we continue to expect these headwinds to increase as the year progresses.
And be a team continues of course to work hard to mitigate these risks.
The operational EBITA margin of P. A was 13% up 200 basis points from last year.
The results benefited from the positive volume development and the result of efficiency measures implemented earlier.
I'm really pleased to see the progress of the business area underlined by the fact that all five divisions are in double digit margin territory.
Peter and the team will give more color on how they are driving towards higher structured before them and their capital markets day in may.
In Q2 four P. A we expect a mid to high single digit growth rate for comparable revenues and a stimulator operational EBITA margin as in Q1.
On slide 10, we turn to robotics and discrete automation the business area that is still hardest hit by the shortages in semiconductors.
The demand environment continues to be very strong for RA and orders were up 60% on a comparable basis driven by high customer activity in both divisions.
In robotics, both the ortho segment, particularly driven by EV.
<unk> investments in China, as well as the non all those segments continue to be strong.
At the same time revenue generation continues to be adversely impacted by delayed customer deliveries caused by the semiconductor shortages on a sequential basis the supply situation deteriorate somewhat.
These in combination with the high orders resulted in another increase in the order backlog to $2 $5 billion.
Although the supply chain should remain strained we expect the first quarter to be the low point for robotics and discrete automation, assuming we do not see further deterioration of the China Lockdown situations.
Overall, the decline in volumes triggered under absorption of fixed cost in our E, adding to that the impact from inflation or input costs and freight.
Positive contribution from cost and price measurement measures were more than offset and in total the operational EBITA margin declined by 570 basis points to six 7%.
Looking into Q2, we anticipate some effects on our race operation operations from the Covid related Lockdowns in the Shanghai area.
We expect the comparable revenue growth to remain negative, but the operational EBITA margin to sequentially improve.
And then moving on to slide 11, showing the group revenues and operational EBITA bridge the year on year improvement mainly reflects the low corporate costs in the quarter earlier mentioned by beer and that said when looking at the operations I'm pleased to see that we successfully.
I need to offset cost inflation through the impact from higher volumes strong outcome in pricing and earlier implemented cost actions.
The reduction of losses incurred in noncore businesses helped margins by about 30 basis points, while acquisitions and divestments were 30 basis points diluted thing on a group level, mainly due to the negative impact from the divestment.
On slide 12, we move to the use of our cash speak journey and while cash flow tends to be seasonally softer in the first quarter to quarter the negative of $564 million from operating activities was a bit weaker than we had anticipated.
We had a higher than expected buildup of inventories to support the significant increase in order backlog, we see both our inventories as well as receivables being of good quality.
Q1 cash flow also reflects a higher payout of employee incentives due to the strong financial performance in 2021 were dealt to the core mid year 2020 is particularly large as well as approximately $170 million of cash paid for income taxes related deed.
E mobility and turbocharging separations.
I'm sure you remember from our capital markets day that we still have an expected impact from two large legacy projects in noncore.
During the second quarter, we expect to complete the full exit of one of our two main exposures lift in our noncore business.
This is likely to trigger a non operational charge of approximately $200 million in restructuring related expenses, primarily related to contract settlement. Hence there would also be a corresponding cash flow impact when paid.
This is still not absolutely certain but I wanted to call. It out so that if it happens doesn't come as a surprise.
As <unk> also said we are still confident that we will achieve solid cash flow for the full year.
And before I hand over to Darrin, Let me just update you on our active portfolio management actions regarding our planned listing of E. Mobility. We continue to aim for completion during the second quarter, assuming constructive market conditions I E. No change in the timeline.
On the other hand, we have decided that we will not rush to make the final decision between a spinoff or sale of turbocharging or accelerant as it is now called.
We still lean towards spinoff and listing on the Swiss exchange, but now.
We are looking to make the final decision before the end of Q2 is also bjorn mentioned at the AGM.
So overall, despite the uncertain market market environment ABB is moving to the right direction. We are growing in the right businesses in line with our stability profit EBIT profitability and growth strategy and continued improvement in our backlog gross margin is testament to ABB also improving.
Long term quality of revenues and on that note I would like the add back do you think your chemo.
And I will end with some comments on the sustainability on slide 14, before I finish off with the Q2 outlook.
We published our sustainability report in March and I'm pleased with the progress we made towards our long term targets.
The largest potential impact on climate change east through our product that we sell every day.
We estimate that our product so last year supported our customers to reduce their greenhouse gas emissions by 11.5 Mega thoughts after the first year, which is a good start towards the target of at least 100 megawatt tonne reduction by 2030.
It is not on.
On this slide but I also want to mention that we reduced our all in C. O two emissions by 39% compared to the 2019 baseline.
A clear step towards the ambition of a carbon neutrality in 2017.
We also made progress in the gender diversity.
With the share of women in senior management position, increasing by about three percentage points to 16, 3%.
Finally on this slide I just want to mention that going forward, we will have a 20% weight of our ESG metrics in our long term incentive plan.
This is in addition to the metrics we already had incorporated in our short term incentive.
In my view this a signal just how embedded sustainability east in our operation and it's part of everything we do.
And lastly on slide 15, we take a quick look at our expectations for Q2.
We precede the current high level of underlying market activity to remain strong and support our order intake.
For revenues I, just noted that it tends to be seen.
Seasonally stronger in Q2 compared with the Q1 I expect that to be this case also this year.
In this environment, we expect the margin to improve slightly quarter on quarter. This of course assumes that we do not.
See a significant escalation of Lockdowns in China.
And with that I'll, let honestly take over to guide us through that.
We're a Q&A.
Thank you.
And with that said, let's now open up for Q&A and for those of you have dialed in on the phone you press the Star 14 to register to ask a question.
To secure the sound quality I just want to remind you that please mute the webcast as your line is open for questions.
And for those of you who want to put through your questions through using the online tool in the webcast there should be a field in the bottom right corner of the screen, where you can type your question and I will put the questions really from here then.
And I can see that we already have and align those people who wanted to put questions for me. So I kindly ask you to limit yourself to two questions.
And with that said, we kick it off with Alex from Bank of America Merrill Lynch. So you're on the line Alex.
Thanks, <unk> morning beyond T Mo.
Thanks for taking the questions.
I wondered if you could talk in the first instance to the dynamics in China.
Obviously locked down.
To effect.
Everything.
Looks about it specifically for already but I guess, if you could give us a little bit more color.
Around the end markets and the divisions that would be helpful.
Particularly I would like to hear about.
Our exposure in the residential construction market too.
And then in follow up I Wonder if you could just talk a little bit to the steep booking.
Of an order and process what is that.
Well what happened there why and if you could just explain what the difference between that and the cancellation is that would be really helpful. Thank you.
Okay, maybe I'll start with the depot games. So we take that one yes that is another word for word for our company going bankrupt.
But does that way so it's a shipyard.
Bankrupt.
We add to a rebirth in order.
$190 million.
And there's no financial impact actually on.
An hour.
On a profit from that one.
Let's talk about China.
First.
China had a very strong order intake is just sold 26% up during the quarter, which is exaggerated a little bit from the robot. So robotic had a very very strong yet orders in China are a lot coming also from automotive.
E mobility actually in China, where we've taken some really great.
Yes.
If you look at the China from ABB perspective, we have the three.
Production hubs I would say one is.
Shanghai, which is mostly related to the robotic side than we have shy man Wow is more emotion and electrification and then we also had Beijing.
What other husbands nowadays the shutdown in Shanghai, which of course affected our robot factory that we test being closed for three weeks, we expect it to start opening up on Monday, that's the cig notes, but of course, it's in zero vision in China, which means that any kind of COVID-19 breakout.
In your package you would of course immediately shut down.
Factory, so it's a little bit uncertain. Therefore, this is of course taken in consideration when we looked at our outlook for Q2 is that there has been a part of it.
Yeah, when we look at the different businesses.
Yes, it's correct that electrification was the business, which is more or less flat compared to last year, while the other businesses showed a good growth.
I'm sure that is coming from certain from from the residential.
Got it.
We also.
Just to say, we'd seen also orders.
Yeah.
Well also during the second quarter during the first two weeks, but that.
It will come back to to a later Chinese it's a big market for US we have sick as hell.
Some people, it's about 16% of our.
Turnover.
It's quite a big for us.
So far.
It's now getting a little bit better in Shanghai, but of course, if there will be shutdowns in any of the other regions that will have impact during Q2.
I think that's it.
That's about it okay. Good and then we'll take a question from the chat sign here and we have one from sepsis. So that's kind of RBC.
It says and perhaps this is same for U S. T. Mo how can corporate costs were lower than expected and what competition takes the price.
Yeah. That's of course, a good question because we are we gave an $80 million estimate from corporate costs and came in at 32. There were two things that happened a latter part of the quarter, which we simply didn't know that were going to happen.
In Q Q1, and we have always said that this corporate cost line can be lumpy. So first of all we had a real estate game, which we didn't know that it was going to execute it exactly at this point in time and then we also had a.
A provision release in noncore.
One of these areas and that also impacted those two were approximately $40 million Delta and then we had kind of like real cost decrease in corporate costs may be in the area of $5 million to $10 million. So that's the reason why why we didn't see this coming going into the quarter fully.
Great. Thank you and with that we'll take the next question from the conference call.
Do we have Daniela Costa from Goldman Sachs on the line.
Hi, Good morning, Thanks for taking my question I wanted to ask on the on the free cash flow and on the guidance there that you're still going to have a solid.
Number this year, but it sounds like in the first half also because of these exceptional 200 million.
The quite weak so do you still see that has possibly up year on year like like your guidance for the the P&L implies or would we see this year a bit weaker than normal cash conversion overall.
If you could give some comments on that actually following up on that still staying on cash.
On the working capital point do you still have to do further restocking be here or what are you seeing now working capital levels are.
Whether you would like them to be.
My first if I can ask the second one I'll go after.
Okay. Thanks, Daniela So when you go all the way to the free cash flow you are correct to point out that we have a couple of headwinds which were not there 21, and so if we just ask whom all other things equal in a similar drop through we could also see a little bit lower free cash flow than 'twenty, one, but we.
Expect to have strong cash flow delivery and if you would take the what you mentioned a possible $200 million impact Q2.
And correct for the bonus as it should be a very very strong cash here as we see it and then if we look at net working capital we should now start to see.
Move to the other direction and honestly, the saying that simply because we still had a very low comparable order growth Q1, we had 1% and then we grew at 28. That's you saw now for Q2, the comparable is 24% and then we have more than 20% order growth comparables.
For the rest of the year so in that sense. The book to Bill should start to move now again, let's say closer to one which of course would be a more normal type of situation. So that should then lead to us releasing networking capital of course, this again assumes that nothing.
Extra ordinary doesn't happen on the external market like a full lockdown in China, or something which would of course, then impacted our deliveries.
Understood. Thank you and just the second question was merchant and more generally in terms of like what we are seeing regarding energy transition in Europe , and a lot of topics regarding LNG capex picking up and I know you have some exposure there, but can you remind us what they are and how significant.
If we do have a big wave of LNG liquefaction and Regasification capex, how could that flow to us in terms of ABB on growth and if that's material.
Thank you.
Yeah first I think we believe that.
Well of course trying to be less depending on Russian gas receipts to transition to what.
More renewable energy sources in Europe will accelerate so everything that will have a positive effect on us.
On the LNG side, I mean, that's more related to our marine business, we should see as important where there are a number of.
Ships being built today and in Korea, where we have our support.
On them and they're being done and then they are they have been delivered already where those ships will end up in there and does he pet will be Korea, who will be dealing with that so we have on that part limited exposure for for two parts going forward.
So on the Regasification and liquefaction plant sort of online do you wouldn't get the exposure on process automation.
Well I mean, if those things will will need a D C S and automation of some of them most likely Wheeler. So I think overall if you look at this.
Let's call it energy reassuring for lack of a better word it should be.
A positive thing for ABB because of our exposure is more in Europe on for example in oil and gas area and more in the U S.
The shale side. So all of those should be I would say rather a positive yeah, if Europe will be buying from from from U S and but of course that will take a little bit time to build up the right terminals and to be able to start to export but sure it might drive more on the shale gas into North America.
Got it. Thank you. Thank you Danielle Thanks, Daniela and we'll take another question here from from the chat line and it says from Christian at how they still who's asking about the motivation and reasoning behind the leadership exchange in electrification and motion and I.
Yes, that's when you again, yeah, I think that yeah.
Yeah.
I think this was.
A good move I would say, yes, we have two good leaders support product as well as more than I thought I could be sitting in that position for quite some time and as you know me I am a firm believer that you should not be too long in our position.
It's important that when you lift the stones it should not be the dirt that you have put there yourself. So it's important I think it's great to see Morten.
You know putting his thoughts on his hands on the electrification with some pressure. So I think that would go and I think also yeah product with his great knowledge about the acquisitions and also.
Implementing yeah.
Non non.
No more acquisitions into the business of emotion and you know that emotion businesses is actually very much focused on profitable growth, meaning that we do expect that we will see a number of our acquisitions.
Acquisitions within this business going forwards I think yeah.
Todd I can be a good support to that.
I think so far and both of them have a lot of energy and very motivated in their new positions.
Really looking forward to see what will come out of that.
And then we open up the line for Martin at Citi.
If you then thank you good morning, it's Martin.
Yes. Thank you good morning, Martin at Citi.
The first question I had was on the demand by itself when the orders were strong across the board Europe .
Double digit growth and obviously, we're hearing lots of things about potential issues in Germany, Italy or elsewhere.
Given the order strength and you know how are you seeing European customer base developing.
What you saw in the first quarter, but also what you're expecting for the next couple of quarters. Since that's the first question.
I mean, if you look at the orders during the quarter, we saw strong actually in all three regions, even though North America was the strongest bond, which was over 40% in Europe , you see over 20% and that actually includes included a de booking so it's even stronger than that than we saw in 2000.
6% in China and over 20%. So overall the demand isn't for me.
We need to see what is the underlying happening in the market I think it's very interesting to look at the service market, which is a quite a big part of us over 30% of our business and that was up 15%, which from an aftermarket show some very much its strengths and activity in the market. So yes.
It's quite overall as you'll see in our different businesses, we see it are strong in robotics.
Discrete automation, but we also see very very strong electrification. That's you saw more or less a record gross number for electrification and then also strong emotion.
Process automation, if you do vote that'd be the booking it's actually 15% so.
It's not bad.
I mean, it's difficult to say how much of this of course is coming from longer lead times days certain amount of that but.
We looked into this quarter stopped and the demand continues on the same high level. So.
It's difficult to see but.
On long term, it's it's you know.
For for until the end of the area. It may be a little bit too far away to make because of uncertainties in the market, but for the second quarter I think we expect to have a robust orders.
Thank you and it doesn't have a second question just on robotics. So obviously, there's a number of drivers here since a big under absorption, but if he would see sort of the under absorption. I mean are you able to pass through some of the cost inflation in the orders that you are delivering soon so you can kind of look at it.
I think effectively just the capacity utilization drag that will hopefully normalize I think both from Nike.
Yes.
Yeah, I mean first of all.
Liam for robotics is down, 12%, which is quite dramatic to be at to be honest than they had been struggling with the semiconductor supplier.
It's a little bit tough for them because some do they get the commitment from some suppliers and then in the middle of the quarter. They get the deep commitment, which means that they are standing with half build robots, which is of course driving both inventory and wasting four four component. So it becomes inefficiencies in the production.
And then the order book is quite long, which means from order to delivery, which means that when orders would take in many of what's being delivered out today was taken for a for a price which was before.
The inflation started and it can be difficult actually to negotiate a price with customers when you're already committed to sort of deliveries, but they are focusing on this and we do believe that we will have a better access to semiconductors here in the second half of the year and we also expect that the price increases.
We'll go through so significant improvement in performance during the second pad is expected from robotics.
Okay. That's very helpful. Thank you.
Thank you and then we have a question from from the chat soon again and it's done well.
I'm Lucky and he wants to know about pricing if we could please give an idea of the level of price contribution to the revenue growth for the group and anything that might be a similar yeah. Thanks for the question. When you look at our bridge, it's actually fairly easy math. This time, so we have about 300 million.
It's from pricing and about 100 million is from volume roughly and that means that our pricing went up from about 3% impact of about 4% impact. So I think the teams have done good job on that area and we were actually at this time able to more than offset the theory all of the raw material cost with pricing.
And then we of course had some other increase is ROIC and freight and all that but it was a of course, an important contribution on us being up at least 10 20 basis points on comparable margin when you take out the corporate impact and also correct for George as we also said earlier today.
Okay and then we'll take a question from the conference call and it comes from Anthony are severely at J P. Morgan.
Yeah. Good morning, everybody. Thanks for the time My first question, it's a bit of a follow up on the earlier question on Europe . If you look at your exposure to energy intensive industries in Europe chemicals fertilizers. Some of these downstream businesses.
What do you expect to happen between customers, having to invest more in energy efficiency as opposed to different sized but potential risks from them, just not being competitive and still producing at all particularly.
If we get any gas rationing or something like that later in the yet how do you assess this in terms of upsides and downsides, particularly Europe your process business, but also other businesses that sell into these.
Customers who's competitive in that space.
Maybe in pad for quite some time, maybe Europe has higher energy costs.
Yeah. He can relate them a lot too P. A yes, but then there's two parts of P. A P. A 50% of the revenues is actually service.
Spare parts today and.
That is of course, reflecting the activity out in this business. Since then is to take.
Hey, good profitable part of the business and enormous quite agile from a percent down and we see here strong growth today of about 50%. It shows that a lot of the process interest piece are going.
When we look at the process industries the different divisions. It's of course it varies a lot.
In this transition towards newer energy.
[noise] types. We are of course very active and we are supporting many of the company both in becoming more energy efficient, but also in transition from oil and gas to renewables. So we are very active in many of the Sip project not least in the Nordic part.
In the Green the lithium battery manufacturing year, Irene you said, there's a lot of these companies that are really driving the transformation Darren.
He has an active part the other part which is important for US. We are looking at every project and we have said that we are not prepared to take businesses with low margin. So we are looking at the quality of the businesses that we are going in but we have strong customer relation and they really value.
Our offerings and the value that we can help these customers and that has really helped us to drive up the margin in our order book and we are quite excited actually about what is taking place in the P E and you know.
We have in the capital market day.
Very soon in May at four P. M. So if you have a chance to talk to Nokia and then participate that will give you some exciting part of the business and why we believe in this business going forward.
Thank you and the second question is just a clarification around the guidance. Obviously you spoke about potential further impact from China in terms of Covid restrictions, which are.
Not included in that sense.
Is this basically just.
Lockdowns beyond what we have already seen now in April so everything that we have seen in April is it's part of that then when we look at your comments going forward, which imply or an orange and expect some easing on the supply chain from here. Despite the lockdowns that we currently see.
Thank you Andrea Yeah, Yeah of course, we know China's zero vision, which means that a lot of things can happen its difficult to predict.
But this of course includes what we have seen until today and that is the Shanghai area and you know we have three manufacturing hubs, which are importantly, Shanghai is one of them and we are expecting that's how we've been promising and.
An improvement from next week, where we will be opening up the factories to drive and if we don't want to end up in a big outbreak everything.
We believe it's going to open more and more in a couple of weeks, we would go for 100% capacity again.
But.
You know no one knows what's going to happen in China. So we just want to say that if there will be a major.
Locked down in any of the other two big.
Production hubs of course, it will have an impact on the on the quarter, but so far we don't know anything of them. There is nothing today in that.
That is telling me in this direction.
And on the peak.
Early in the year, you mentioned that you would expect all business areas in terms of the profitability.
Profitability to improve this year is that still the case with robotics or is the second half.
Two light in that sentence.
No absolutely.
Robotics.
I've been very clear that robotics, he said 15, plus business and I'm still saying that and if you remember last year. The first quarter. When we saw the volumes are coming up and they're pushing this part we were up already and $12. Five so the trend was very good and then came all the supply chain issues and the volumes are going down and they've been soft.
On this but I definitely believe that the underlying business is to grow at plus 15%.
We believe that we will see an improvement in this quarter and then.
Definitely during the second half.
Thank you very much okay.
Yeah. Thanks, Sanjay S. And then we moved to Ben asked the Morgan Stanley .
Okay. Good morning, everyone and thank you for taking the question.
So apologies for laboring the point, but.
On <unk>, what I was interested to understand is if we went back two years to the to the capital markets day in February 2020.
Yeah Sami in the divisional management outlined a fairly interesting program of measures that we're going to be put in place for the division at the time I think the division was doing a 12% margin in the goals delays 13 to 17.
These measures would cost cost out they were fixing execution issues and then finally pricing.
I was hoping for was a sort of qualitative update of where we are in those three buckets. So if you look at if you look at robotics today, and say where are we in the last two years have we got the cost out how are we fixed all the execution X supply chain effects, where are we versus two years ago.
Yeah, Let me talk little bit about robotics, firstly I teach that we we have a good offering I think be adding a lot of value to our customers and we also believe that the demand for these products is going to be strong going forward why do we have a strong believer that automation will be one of the driving forces going forward.
Also the strategy that moving away from this low margin system business in automotive, we strongly believe and focus on some of the more profitable segments like logistics and.
And the general industry is so and I think that actually reflect in the margin that we have in that order book and I mean the demand.
It's difficult to complain about that I think orders were up 60%. The frustration is of course that you will have customers that are being delayed and deliveries and that is of course, a cumbersome for the division.
When it looks at the cost part of course, when you they had the capital market day, when you met them before this new environment with inflation that we are living in today. So of course that all material.
Has it gone up and besides that you didn't know where they have been buying semiconductors on the black market for prices, which are totally her agents. So yes. The cost have gone up dramatically in these but they have also listed prices a lot, but as I mentioned before the order books are quite long.
Which means that many of the orders that we are delivering out at the moment is of course taken before the set of price increases were implemented and difficult to renegotiate in the market today and you know some of that into customers that are pretty tough from that perspective, so I'm a strong believer in in robotics.
I think this is one of our.
Really growth divisions from going forward and I'm also a strong believer that we will reach our 15% after.
2023, as we have committed to.
So that is.
About Asia, So I think they're doing a lot of good stuff in the division, but it's like a perfect storm you know firsthand may come back into has been shut down in China, and then coffee places everything at the same time and it is of course cumbersome to meet to gate, but.
Yeah, it's a great business and Black Knight.
Secondary market [laughter].
Okay.
No what I'm, saying.
Julian noted for coupons, yes understood.
Just one follow up.
On robotics.
The execution side around switching the systems and all of that stuff.
Lowering the systems made should we say from automotive is that a long way through fuel is a real long way through that process.
I think his system business, yes, we have we are not taking any of those orders. So that is out still of course, automotive and especially electric vehicles is a very growing segment that the momentum during this quarter. We saw good orders from China Big orders on the electric vehicle side, where we actually have a pretty good.
Market shares. So there is a lot of investment being taken place and we are part of that so that of course is still automotive industries in our order book.
Understood.
Thank you and then one one for Tim if I may just just one just to clarify I think it was Daniela this question around around cash.
Are you, saying that the operating cash flow I think she was talking about free cash flow, but if I look at the operating cash flow you are growing at one delivering 1 billion plus per quarter in the second half of last year.
If ex the bonus effect as the 200 million restructuring.
George are we saying that you should be at or above that level going forward is that fair.
Yeah Okay.
Yeah.
You asked a lot of time to why don't you continue to see well yeah. Thanks, Matt. So yes, that's what we are saying of course, the visibility is not exactly super at the moment into that but what is really really important is that our.
Inventory is of good quality and also our receivables are of good quality, our backlog is of good quality actually our receivable.
If you look at it.
Late receivables days went actually down so in that sense. The quality improved. So this is really driven by the backlog and then we had a bit of an extra impact actually this quarter I mentioned it in the.
In the remarks, as well electrification had quite a bit of revenue fairly late in the quarter, which then sort of dropped the cash to the herbicide into Q2. So you know with all we know at the moment you're constellation is correct.
You'd see that kind of operating cash flow understood and final question within the cash flow. There is 390 million of accrued liability is the vast majority of that.
Is that explained by the.
Let's call it the employee incentive accrual yes.
We also mentioned the tax effect, that's not in the that's not an animal skin there no that's actually.
On the upper level of the cash flow the cash flow statement.
And of course, the impact that this now this delphi impact is bigger than ever because first we had quite low performance twenty-twenty because that was the COVID-19 here and I think it's a it's a good practice for the company we didn't change any of our targets even when the Covid game. So that's when we had quite low payout and then we had quite a high payout.
Of course, the Delta became even beat the bigger between cash flows 'twenty one to 'twenty two Q1 Q1.
Understood brilliant thank you very much.
Thanks Ben.
And then we stopped flying four months.
D M D C S.
Thank you.
Sure.
You don't seem to be very concerned about close to place on the supply chain issue say in light of at least from my perspective, what seems to have been a worsening of the situation. Since you reported Q4, so I'm curious to hear when you reiterate the guidance for improved margins.
Margins this year towards the 15% target.
If you could help us are you say more or less or equally confident in this ambition compared to when you set that in conjunction with the Q4 and we'll see if you can share any details on your reasoning here would be very helpful.
Yeah I mean.
I am not concerned about cost increases in inflation that that is not.
Correct statement because of course you know this is.
So situation, we haven't seen in 30 years, and you know I've been in the business for 35 years. So it was a very long time ago, we had to deal with these issues what I feel very confident about what we have seen here doing a Q1 is that the divisions have been very successful in offsetting some of these costs.
<unk> increased cost in price increases so and that of course only possible. If there is a good value in what your deliveries are so from that perspective, I think our divisions have very well working pricing strategy also going forward I mean, you.
It can always be a little bit more nervous in the beginning of any inflation or we really handling this in the right way.
We spent quite a lot of time on that so I I think we are handling this now.
And it goes away is that good for the general economy of course, not we don't want to be in an inflation world why it may be interest rates will go up and that might drive demand.
Our medium to long term. So of course, there are these kind of things that we are nervous but.
My confidence is in abb's ability to offset higher costs.
Can I make a statement on here because I think an important part here is also we had a 7% revenue growth we are expecting to have a I'll call. It good revenue growth during the year as well as we say today and of course, we should then get also dropped through through fixed cost leverage which also happened during Q1, so that's a little bit softer.
Pushing it to the other direction.
Here.
Okay.
Thank you a second question just quickly have you seen any impact or sort of demand increase from onshoring or and if your customers moving production from China to Europe or U S on the back of the.
It's just we've seen in the past couple of months.
I think if just looking at our own operations and of course, we all know Q2 dual sourcing making sure that we also have access to raw material as far as a component from my from the region right actually the factories are operating we had maybe historically a little bit more.
Point is coming from from China in this area and of course that is a little bit of a risk factors. So that is of course.
So.
I think in the same way as we are trying to offset these other companies are also and maybe that's also part of some of that.
The strong orders that we are seeing at the moment.
Thank you so much.
Thanks, Mike.
And I think we'll have time to squeeze in one more question and we'll see if gal from Deutsche Bank is on the line.
Oh, yeah, thanks, very much and see good morning, everybody.
Two questions. Please the first one is actually a follow up on under a severely equation.
In the current context of rising energy costs.
Have you know teach any specific accelerated demand for electrification and growing quotations for energy efficiency solutions. In particular, that's question number. One question number two is about the older dynamics I get that the deep booking and process automation is.
Exceptional but.
Do you see.
The growing risk of order cancellations.
It is trading to the all the divisions and in particular.
Or a given the widening gap between order growth and revenue growth is there I mean, what sort of feedback do you get from clients about the delayed deliveries is there a risk basically that they could shift to all their suppliers with better delivery times.
Let's start with the one with the broking side, the broking side of course coming from a customer which has actually gone bankrupt sorry, it's not cancellation of them.
We spent quite a lot of time.
And our reviews to to go through order books and to make sure that we have in healthy order book and I think from our divisions and from our businesses. They have a strong belief in their order books, but.
That said and that there is probably some effects coming because of longer lead times, which means that they are moving some of the orders at the earliest stage I think that the and I think this is one of our commentary.
So also contractually now in this situation with higher backlog, we are actually where we'd take new orders, we are putting cancellation fees in place in many businesses. So we're clearly manage it in a way that you know the cancellation, we love of course become more difficult I mean, if you look at our order book is up from last year of $4.
1 billion.
Small numbers of taking new orders of course, the new orders have to be better quality and better certainty.
So we're trying to be.
The time to be careful, but and then when you say that maybe they should buy from someone else, but I mean, our situation is not unique.
Thank you everyone today have the same delivery issue. So so it's you can't even find another supplier who is prepared to give you an earlier supplied today so.
Our real good customers are being supported D&O and and that's how it goes the future of course is might be a little bit different but this is the case at the moment.
Yeah on the.
Energy.
This increase yes of course.
Energy prices going up and oil and gas prices that of course drive.
Investments and operations in the in these areas and of course, we are in that process automation also dealing with with these customers, which are of course more optimistic about the future today than maybe a year ago.
So yes, we are gaining in process automation, both from the energy transformation.
Towards renewables.
Energy efficiencies in these are all our customers, but also some of that increased demand in these traditionally.
Energy sources.
Yes, I think yeah.
That is probably the case.
And.
Do you see the same dynamic with in electrification.
Oh, yes.
And that efficiency.
I mean, you saw the electrification growth during the quarter, which on a record.
Good levels.
No in that.
So yes, I'm sure that in these electrification and there is a lot of the set.
Transformation towards energy efficiencies and maybe also transform it to new energy sources, one of the areas, where we see an enormously high growth, which is of course, a very small part of ABB that is D. E mobility, while the orders are double as high as they were last year. So I mean thats huge.
Gross numbers.
And that's the business, we will put on debt on the stock market very soon.
Okay, great. Thank you both.
Thank you thanks Gail.
And thanks to you all for spending time with US today, and we hope you want to spend even more time with it.
As we welcome you to the motion and if P. A C M DS in Helsinki on the 17th and 18th of May.
Hope to see you there and if you're having to say you're still I guess.
We're ready to do so.
Thank you very much thank you.
Okay.
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