Q2 2023 ABB Ltd Earnings Call
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Greetings to you all and nice to connect again as I welcome you to the presentation of ABB second quarter results. For those of you who don't know me, I'm Ansa Sinod, Head of investor relations and next to me here is our CEO Björn Rosengren and our CFO Timo Viamutila.
They will take you through the presentation before we open up for the questions later on.
But before we begin, I should mention the information regarding the safe harbour notices and our use of non-GAAP measures on slide 2 of the presentation.
Also, this call will include forward-looking statements, which are based on the company's current expectations and certain assumptions, and are therefore subject to risks and uncertainties.
And now with that said, I hand you over to Björn to kick off the presentation. Thank you Anzil and a warm welcome from me as well.
In my view, the second quarter is a strong delivery from us, and I'm pleased with the outcome.
especially want to mention
The comparable order growth of 2%.
This is an improvement from the already high level last year.
And I'm pleased that we achieved yet another quarter with a positive book to build.
I will talk about the drivers in the coming slides.
The supply chain was smooth and we executed the order backlog and reached 17% growth in comparable revenues.
and all business areas increased at a double digit rate.
We reached a new record level for both absolute operational EBITDA of 1.4 billion and a margin of 17.5%.
and all business years reported a margin about 15%.
A strong achievement in my view.
I am pleased for the teams reaching the strong result, supported by focusing on the right markets and customers and successfully working through the ABB operating model.
We also improved cash flow from last year to 760 million.
Timo will talk more in detail.
But just to put some healthy pressure on you Timo.
I expect to see cash conversion improve in the second half of the year.
This will support our cash generation to good level for 2023.
portfolio optimization continued in the quarter.
We closed one deal in the motor business in motion and announced one small software technology deal adding smart home energy efficiency technology to electrification.
Just after the end of the second quarter, we closed the divestment of the power conversion division in electrification.
This makes the completion of the three divisional exits we first mentioned in 2020.
Finally, I want to mention a new innovation by process automation.
You know that I'm a fan of the marine propulsion business, and this new Dynafin technology will improve propulsion efficiency by 25% and reduce fuel consumption on ships.
Dyna fan is targeting small to medium sized vessels.
and it will complement our existing market-leading AsiPod offering. Now I want to show you a short video clip on it.
Thanks for watching!
for some more market comments.
In the second quarter, we saw the strongest order momentum in the systems and project-related offering.
This is often linked to the medium voltage segment.
It supports growth in divisions like distribution solutions, system drives and large motors and generators.
The healthy momentum in medium voltage
more than offset some of the softening in the short cycle business.
Taking a helicopter view on the different segments.
I would say that demand increased or remained stable everywhere except for in buildings.
Residential construction declined in all regions.
And while commercial construction was solid in the US, we noted some softness in China and Germany.
Comparable orders increased in three out of four business areas. Only robotics and discrete automation declined as customers normalised order patterns.
There was also additional sequential impact from customers in China adjusting inventories.
In total, I'm pleased that we have achieved a positive book-to-bill ratio of 1.06.
And the order backlog is now 21.9 billion.
Now, let's turn to slide 5 and look at the market pattern from a geographical perspective.
On this slide, you see that America and Europe contributed to comparable order growth. In Americas, all three key markets improved.
Europe increased slightly despite decline in two largest markets like Germany and Italy.
Asia, Middle East, and Africa declined slightly.
as the broad weakness in China more than offset the strong growth in, for example, India.
Now let's turn to slide six and our earnings outcome.
This is my favorite slide this quarter. It shows that we improved our operation E-beta by 25%.
It also shows that all time high margin of 17.5%.
And importantly, this was driven by the increase of gross margin to above 35%.
Cross margin was up in all four business areas backed by operational leverage or higher volumes and positive pricing.
In total, the pricing impact for the group was a strong 5%.
After this, about 3% was carryover from last year.
Before we move on...
Let's look at the corporate and other outcome of minus 143 million.
This is the result of corporate cost at the normal level of about 75 million.
but low outcome for e-mobility.
We recognize that this is a lower than we expected coming into the year.
than we expected coming into the year. In the quarter.
that was inventory-related provision triggered by a shift back to a more focused product strategy and some additional technology investments to secure a continued leading market position.
I expect the new management to have improved the operation performance toward the end of the year.
I expect the new management to have improved the operation performance toward the end of the year. On the positive note...
It was good to see that orders were up 73%.
With that, I hand over to Timo.
Thank you Björn and greetings to everyone also from my side.
Let's then move to electrification on slide 7.
Electrification was again facing a tough comparison period, but still improved its comparable orders by 3%, with total orders reaching $3.9 billion.
This was driven by positive momentum in our systems related medium voltage offering.
Demand remained firm in most customer segments and we saw some sizable wins in both data centers and the oil and gas sectors.
Just like in the previous quarter, residential construction remained weak across the regions, impacting primarily smart buildings and to some extent installation products.
Commercial construction remained stable in the US market with institutional commercial buildings, such as healthcare, showing resilience.
We did, however, start to see some weakness in China and Germany.
Now looking at the chart in the middle, comparable revenues grew strongly by 11%.
with volume and price contributing more or less equally to the quarterly revenue growth.
The recent consistently positive trend continued and revenues now surpassed $3.7 billion, the highest level in many years. We saw double-digit revenue growth in all divisions except for in smart buildings and installation products.
where the higher exposure to residential construction slowed growth.
You can also see that the book-to-bill ratio was again above 1, resulting in further increase to the order backlog which sits now above $7 billion, and should continue to support revenue generation through 2023. It's great to see electrification's operational a bit more in the future.
I want to mention the strong performance improvement in distribution solutions, where a strong execution of the order backlog as well as the structure profitability efforts now come through in the numbers.
All in all, we are super happy that EL is now having a best-in-class performance.
A really good price is to focus on further growing this profitable business.
Looking ahead into the third quarter, we currently expect a somewhat lower growth rate in comparable revenues than what we reported in Q2, and the operational EBITR margin to be broadly similar to Q2.
Let's move to slide 8 and the motion business area, which again had an excellent execution.
Comparable orders grew by 3% from last year's high level, driven mainly by strong momentum in the systems-related offering, with total orders again passing the 2 billion threshold.
When looking into the details, one can see that the strongest customer activity was surrounding our medium voltage offering. This triggered a strong order growth in the system drives and large motors and generators divisions as well as in the tightly linked service business.
I'm pleased to see the order backlog gross margin in all these divisions is holding strong or improving, which shows we are not only continuing to grow orders, but doing so in areas where we are driving value to our customers with our offering.
This is good news to compensate for some of the softness in the more short-cycle business. Regionally, orders increased in all three regions on a comparable basis as declines in the US and China were offset by strength in other countries. Took theÖ
And you can see in the chart in the middle how the strong backlog execution and strong price management now resulted in absolute revenues landing just shy of 2 billion. On another positive note, this was the first quarter that the motion business area passed the 20% mark with an operational EBITR margin of 20.4.
up by 400 basis points from last year.
This was driven by an efficient execution of the higher volumes and previously implemented price increases which more than offset the negative impacts from higher input costs.
Additionally, the margin was somewhat supported by a positive divisional mix due to the strong growth in the drives business as well as margin improvement in the large motors and generators division that benefited from ongoing self-help measures.
Looking ahead into the third quarter, we anticipate a low double-digit growth rate in comparable revenues and somewhat of a sequential softening of the operational EBITR.
Then to slide 9 and process automation, where customer activity was high across the segments. The project pipeline in the market remains robust, although the timing of some large orders hampered growth rates in the quarter.
Orders came in at 1.7 billion dollars and were up 6% on a comparable basis.
Segments to highlight would be the oil and gas segments, where we continue to see good investments in the US, but also ports, refining, petrochemicals and energy-related low carbon segments.
Comparable revenues grew by 19% with contribution from all divisions and double-digit growth in all three regions.
We are really happy about process automation achieving an operational habit R margin of 15.4%, representing an improvement of 110 basis points year on year.
This is even more notable as last year's margin included some 190 basis points contribution from the now exited accelerant business. This improvement was driven by most divisions on the back of better project execution and continued benefits from delivering higher volumes from the backlog with improved gross margin.
I particularly want to mention measurement and analytics, where the operational turnaround has resulted in the division now delivering a margin well above the business area average.
Job really well done to the team.
Looking at our expectations for the third quarter, we foresee the growth rate for comparable revenue growth to be similar to what was reported in Q2, and a somewhat lower sequential operational EBITR margin depending on the revenue mix.
On slide 10, we turn to robotics and discrete automation. Let me start with the margin. It is really nice to see that RA has crossed the 15% margin threshold again. Operational EBIT-R was $141 million and resulted in a margin of 15.3%.
and strong price management.
Let's then take a look at the orders and revenues. As expected, the order growth declined at a double-digit rate in both divisions as they continued to be hampered by customers normalizing order patterns on the back of shortening delivery lead times.
Additionally, some inventory adjustments among customers, particularly in China, and mainly related to the robotics division added further sequential pressure on orders.
which resulted in a 22% comparable decline year on year.
These inventory adjustments in China are expected to persist also into the third quarter.
From a customer segment perspective, the automotive segment remained stable at a high level. However, that was more than offset by declines in other segments, particularly in the machine automation and electronic segments. Revenue execution rebounded and was up 27% on a comparable basis, driven by both volume and price.
For the third quarter in 2023, we expect a low single digit growth rate for comparable revenues and a slight sequential softening of the operational EBITDA margin. Moving on to slide 11, showing the Coop operational EBITDA bridge.
The profile is very similar to the last couple of quarters, with the earnings improvement driven by strong operational performance.
The impacts from our strong price execution and leverage on 17% comparable revenue growth more than offsetting the adverse effects from cost inflation. All in all, 25% improvement in operational EBIT with 200 basis points increase in margin.
As Bjorn said, the ABB way operating model is starting to work and the teams have done a really great job executing their strategic mandates. So, big thanks to the ABB teams on achieving this record margin.
Now let's move on to cash flow on slide 12. Cash flow from operating activities was 760 million dollars, up 378 million from last year, supported by higher earnings and a lower networking capital build-up compared with last year.
I acknowledge that the cash conversion could have been a bit better and we are working to improve it during the second half of the year. So the healthy challenge is accepted.
Networking capital increased sequentially, mainly driven by higher receivables, triggered by the strong revenue growth, as well as slightly higher inventories as we continue to build order backlogs.
I can assure you that this is a key topic in our business reviews and I'm confident that we will deliver a strong cut performance this year. And with that, I would hand over to Bjorn to round off this presentation.
key topic in our business reviews and I'm confident that we will deliver a strong performance this year. And with that I would hand over to Björn to round off this presentation. Thank you Timo.
Let's finish off with slide 13 and some outlook comments. We leave our growth guidance for comparable revenues in 2023 unchanged.
But our margin performance in the second quarter was somewhat stronger than we initially anticipated. Consequently, we feel confident enough to sharpen our margin guidance to above 16%.
For the third quarter, we anticipate a low double-digit growth in comparable revenues and operational EBITDA margin to be slightly up from the 16.6% we reported in Q3 last year.
Now Annecy, let's move to the questions and answers. Yes, let's do so. And for those of you who have dialed in on the phone, you press star 14 to register to ask a question. And just a quick reminder that in order to secure the sound quality, please remember to mute the webcast as your line is open for questions.
If you can also put questions through the online tool in the webcast, this should be visible in the bottom right corner of your screen.
For the phone lines, we really want to let through as many of you as possible. So I kindly ask you to limit it to one question and then get back in line for any additional you may have. And with that, I suggest we open up for the first question from the...
From from the audience and we start with Gail your line should be open. I hope you there Gail
from the audience. And we start with Gail. Your line should be open, I hope. Are you there, Gail?
Maybe, maybe not.
Can you hear me now? Hello? Now we can hear you. Okay, that's great. Sorry about this. Hope you are all doing very well. Thanks for the time. Look, I have a couple of questions, if I may. The first one is, could you help us?
maybe better understand the magnitude of the weakness in the short cycle part of the portfolio. If there is any way you could quantify by how much these short cycle businesses were down in the quarter. So that's question number one. Question number two is about the distribution solutions business.
Could you elaborate a bit more on the turnaround of this segment? I think margins were close to 10% in the second half of last year. Where do you stand now? And do you think the turnaround is essentially completed now? Thanks very much.
Yes, absolutely we'll talk about DES because it's one of the highlights, I would say, of the quarter also of the high fee. But let's start a little bit on the order. And you've seen it's up 2 percent, but it's...
As you can see on the base orders, down 6%. And I think it's quite clear that the driving force in our order book today is related to energy transition, where ABB is doing a good job, a lot of good projects, and we're seeing...
good and large investments within this. And that's what we are benefiting from. And would you like to mention anything else there on the... On the short cycle? Yeah, on the short cycle. Yeah, maybe. For the base orders, yeah. Just a little bit on the sort of divisional mix, because it's not like all the divisions which are not part of this, let's call it medium voltage trend.
which as Björn said is really really strong so on this medium voltage type of divisions, smart, sorry, DS electrification service, system drives, drive service, we are seeing kind of like over a little over 20% order growth so that's kind of like on the other side and very very healthy actually performance overall.
drive products which is a lot of HVAC which goes to construction, but then there are like smart power you would think that that is a short cycle as well that actually is performing well when we look at sort of first half or Q2 so again, it's a little bit more nuanced than just saying you know everything would be sort of down So let me talk a little bit about the DES because I think this is really fun to see
because smart power, all the components are actually ending up into the switchgear. So today DES is very much focusing on the medium voltage switchgear. And of course you see an enormous drive here because of the project.
smart power, all the components are actually ending up into the switch gear. So today, DES is very much focusing on the medium voltage switch gear. And of course, you see in an enormous drive here because of the project. So they act together, we see them.
I think that's pretty much for a complete set. Okay. So what sort of margins are we seeing now for DS?
DS is about 10%, so that is the good. So it's coming. I mean, we can say that...
You know when we look at our medium voltage Portfolio that it's over 15% and I think that that is the good stuff We see good growth in in a good margin business
And there we move on to the next. Thank you. We move on to Daniela. Daniela, your line is open.
Hi, good morning. Thanks for taking my question. I will keep it to one and ask you actually a follow up to the comments you gave on Q2. You gave a lot of detail regarding what you saw in short cycle, but trying to understand a little bit better on the guidance and why you didn't raise the organic sales growth guidance, you've clearly done better now than that.
break it in volume and pricing if there's any explanation there. Thank you. Yeah, no, we expect to continue to see good deliveries. I mean, you see in our order book, it's very healthy. It's 21.9 billion. So we will during the next 12 months, be fully occupied or delivering out from the order book. So yeah, we will see good.
upon the second half overall dynamics as as Björn said we would expect to see revenue growth in Q4 as well and also margin accretion year on year on Q4 and then for Q3 we are as we see the situation now expecting a positive book to build which would lead to a positive book to build for the year naturally because we are.
so far on the year and then one thing which of course impacts revenue is the is the pricing and if you saw that we had strong pricing we would expect that carryover to continue so maybe somewhere 3-4% even could be boulders in the bottom of the year
the year and then one thing which of course impacts revenue is the pricing and if you saw that we had strong pricing we would expect that carryover to continue so maybe somewhere 3-4% even could be for the rest of the year. Thank you very much.
Thanks Daniela. I actually continue on the pricing topic because I had one of those questions coming through here online and the question is how much of your comparable growth was price and volume in Q2.
Yeah, I mean it is 5% in the quarter and three of those is carryover from last year and two of these. So we are quite happy that our businesses are actually keeping up the pricing also during this year. Maybe on the price volume split so it's about.
If you go sort of dollar numbers about 380 million I think is coming from price so that pretty much covers all the cost increase and then on volume we had about 240 million so the drop through is actually really really nice this time in all business areas when we look at the operating leverage.
And I think it's nice to add also that out of that 5% price, three of it was carryover and there was a lot of... Yeah, that's true and two is actually coming from this area. Yeah. And with that, we move on to take the next question. Sebastian from RBC, your line is open I hope.
I have a question regarding businesses that don't perform so well. Maybe one comment on the Azipod engine business and generally large engine business. Do you see any restructuring need or do you at least face some low capacity...
of these so-called LNG ice-breaking vessels, which we, of course, have taken out of our order book.
So, yeah, we have a reasonable order backlog in ACIPODS, but we do expect that as orders are coming now in for cruising ships going forward, but also other special vessels, we do expect that.
This will continue to grow during this year and deliveries in coming years. So we said that we, you know, on the marine side, we accept that it is a little bit softer this year compared to last year. But as you can see, rest of the businesses in process automation is actually covering up.
very well. I think the second part of the question referred to large motors and there must be a bit of a misunderstanding here because there we actually are seeing a very strong order growth and also a lot of good actions on self-help so significantly improved profitability in large motors. I mean large motors is part of this medium voltage trend.
during the end of last year and beginning of this year. And today we see very healthy profitability also in the large motor. So well done by the team.
Very good. Okay. Just as a follow up, any divisions where you see underutilization at this point in time where you think, oh, we might have to do something maybe short time label or anything, maybe the short cycle business or is this all still doing well and fine? You know, I think overall, as you know, we have a very healthy audit book, so I think
adapt their suit in relation to that part. So that goes quite seamless today. We won't run any central kind of thing. So we've seen in some businesses have in certain parts of the...
Well, they've done some adjustments and I think they, I mean, let me take just one example and that is smart building. They have had, you know, for a year, much softer residential building area. And they have adopted their personnel and their...
cost structure to these and they actually deliver a very healthy margin even though there is a softer market so it's impressive. Thank you. Okay now, Sebastian, I will stop you to move on to the next caller which is Alex at Bank of America Moorlage.
to these and they actually deliver a very healthy margin even though there is a softer market so it's impressive. Thank you. Okay, now I will stop you to move on to the next caller which is Alex at Bank of America stage.
I hope so. Good morning everyone. Thanks very much for taking the call. I wondered if I could just dig into your base order comments a little bit just to make sure we understand the trends. I think if I'm right in my memory you're up about 3% in Q1 so it's a pretty material decline Q on Q and I wondered if you might be able to give us a sense of what the trend is.
is it a commercial construction weakness that you called out in Europe or is it RZ getting weaker? Thank you very much.
I didn't quite get the last question. That was about the commercial construction that we now see in China and Europe . Yeah, okay. So thanks, Alex. I guess the first question was in this base order dynamic. So yes, it went down a bit sequentially.
and it is driven by these areas which I mentioned earlier and which Björn spoke about as well about i.e. smart buildings, a little bit on the drive products, a little bit also on the lower voltage motors, while large motors are doing really well on the orders. Now, when we look forward on the base orders, if I just look at the whole second half...
more nuanced. And then on the construction side, so yes, we are seeing a little bit more weakness also on commercial construction. We mentioned China and Germany, while US continues to be actually strong also in that area. And maybe just on these overall numbers that on EL Business.
I think we spoke about that earlier also about 15% maybe a little bit less than that is actually residential construction And then commercial is maybe you know 20 so something like that so just that that you you get the feeler Very difficult to call when this would sort of start to start to turn
But I think we have a lot of other stuff as Björn also discussed where we have a solid growth on orders expected.
lot of other stuff as Bjorn also discussed where we have a solid growth on orders expected. Okay great, thank you.
Thanks Alex. And the next in the line is Andy at JP Morgan. Your line is open.
Hi, good morning, it's Andy from Jiffy Morgan. I wanted to ask around the China de-stocking dynamics that you've discussed. I'm interested by the comment around expected to persist in the Q3 and whether that's expected to persist in the Q3 but improve in the Q4 or whether it's expected to persist in the Q3.
the visibility doesn't really allow you to make a longer term comment. And I guess associated with that is any impact that you are seeing on pricing in that market as a result of the destocking. Thank you. Bruno Marsani, Chief Executive Officer of Accenture Thank you. I think when you come to China, you see that in the quarter it was actually down 9%. But if you actually lift out the robotic part of that business, it's actually flat. So this shows that the other businesses are actually quite healthy at the moment.
I mean, we heard about China. When we were coming into the year, we maybe had expected some of recovery from after the COVID, which has not occurred, which has been pretty clear. On the other hand, China is a big market. You have GDP growth between 5 and 6 percent.
We know that the government is keen to drive the GP to about 6 percent. So we do expect that there will be certain activities to drive, you know, better demand in the market. On the other hand, I think it's important to know that it's not that investments have stopped in Asia.
Because even if they'd be a little bit more careful, probably a lot of companies that are being a little bit careful when it comes to investment, then now we see a good increase in other markets, like India for instance.
That's why we see good healthy growth. We saw it last quarter. We continue. We've seen it the last five years. So it's actually becoming a bigger part of ABB. So we think that other markets will pick up some of that maybe growth that could have come to China. So I think it would be.
Asia will continue to be an important and strong market in our belief. Anything you'd like to add on that, Timo? Well, if we want to sort of go to the China robotics dynamics, which you also mentioned where we mentioned this D-stocking, so yeah, we said that it would continue to Q3, very difficult to call, but a lot of how it would go from there onwards.
I'd just like to say on the robotic business, we think robotic is a very healthy business. I've said it's about 15% and it's a growth of 10%. This is actually what we expect in the coming years, CAGR around 10% per year. So that can be temporary, maybe a little bit slower, but we are...
quite optimistic of this business going forward. Okay, let's do a question here from the online option. And it comes from Jonathan at Exeim BNP Paribas, and it's on the e-mobility topic. He says that, I understand it is accelerating process of product revamp. Why is this needed?
And how long will it take to get the business back on track? And also, will you then return to the plan to list it? I think that first we can talk a little bit about the mobility bit because you can of course see that it's a disappointing part.
in our results. And we have during the quarter a change management. So we have new management in place. They have reworked the strategy a little bit more, a little bit more focused product strategy, which have resulted in that we have taken some provision of.
for these kind of equipment have stopped.
and that have had from short-term perspective some effect. On the other hand, we saw good growth because we had 75% up in order, so it continues, of course, to grow strongly. But we have things that we must...
fix inside the company and I think the new management has made a good plan on that. And I think it will take until the end of the year before we are on track with that business.
We have taken in private placement, so we have $525 million in cash to this business. So we have sufficient cash to grow this business and continue to develop in the near future.
Okay, and then we take a question from James at Redburn. Your line is open, I hope, James. Hi, Juan. Morning. I hope you're all well. Can I clarify the answer to Gail's question, please? On the DS margin, I think you said it's about 10 now, but I wondered what you thought the potential feature is for that.
My real question is on the robotics and automation business. Minus 22 of orders, could you scale how much was robotics versus B&R? And specifically I'm trying to get to pure robotics China.
how much it was down and really why you think we've had this de-stocking. I got the sense that there was a big EV battery capex cycle that might have unwound a bit. Do you think it's that? And I don't really understand because it's a direct business that goes direct to OEMs.
why they would have stock of unprogrammed robots. It's not a distribution business, so maybe just some understanding on how it works. Please, thanks. Yeah, let's start with the robotics a little bit. Yeah, you probably remember last year when we had big challenges on the...
semiconductors and deliveries to robotics. So a lot of orders were placed during this period. And during the year, the supply chain has eased up and we now deliver full out, and you saw also good growth in revenues from the robotics.
believe it's temporary because, you know, China is today 50 percent of the world's market for robotics. So we do believe that that will continue to drive going forward. But for the moment, and we said for this quarter, we saw weaker, of course, and we also believe that it will stay. Because ofRAIDxIL, China is by far the protected city of Wuhan, totaling Comic Con over
week next quarter and then it's a little bit, we'll see how it will be in fourth quarter, if we will see some peak up again, which we actually believe. But the underlying robot market is healthy and we do believe that robotics and our position is quite strong. co-operation.
We are a clear number two in the market and we believe that we have a good chance to deliver good performance there. But there is some de-stocking and that is more related to these installation companies.
They are buying from us. So it is a direct business, but it is done mostly through these installation companies who are making the final, let's say, solution for the end user.
So that's where the talking is taking place. On the DES, I mentioned that the DES is a healthy margin business. We are seeing DES moving towards the 15%. What's going on?
It's good to see and we My worries about this division is it's actually gone I think we have strong management in place and taking the right action and we're seeing very quick improvement booked and supported by good order book with healthy margin
We can look at all our businesses and we have a strong focus on gross profit. We see for the group almost the whole improvement of our IBITDA margin, operation IBITDA margin is driven by improved gross margin.
And the good thing is that all our businesses have a strong order gross margin and also order book gross margin, which also will secure good margins also in their business going forward. So, DES has gone out of this transition side. Of course.
We can do a little bit on profitability. There are certain amount in US where they can become a little bit better. But I think overall, it's becoming quite a healthy division, which is reflecting on the electrification business, as you see, reaching 21% profitability for the quarter, which is, I think,
definitely in line or better than any of our competitors in the market. That's great, thanks. Thanks. Thanks, James. And we move to Will and open up your lines. Yeah, good morning. Thank you for taking the question. It's Will at Kepler. So my question would be, I think earlier today you indicated that divisional performance in 70% of the divisions is in a growth phase. What is the growth phase of the divisional performance in 70% of the divisions?
suggesting five or six below target. Maybe my question would be, you know, identifying where the upside opportunity is from the continued turnaround of the businesses still in repair mode, but more specifically could you talk about the success in measurement and analytics.
and whether that is now above the overall process segment, and also the opportunity and how it continues within large motors and generators. And lastly, you know, drives, can drives continue to expand margin? It must be well above the business area average. Thank you.
Yeah, thank you. I understand the questions are very much related to the businesses which were underperforming.
I think we've seen that this quarter many of these business have improved dramatically and very much is related to healthy audiobook also on the medium voltage part of the business, which is system drives, it is large motors and generators with healthy margin, I think that's really...
that's quite healthy.
That's quite healthy.
You know this quarter that more or less all our divisions were actually delivering a good performance and Yes, I like to underline the measurement and analytics. You know this for a couple years ago was one of our crisis business We got new management in place They put a new structure into that the decentralized one with a very strong focus both on the instrumentation by
that this quarter more or less every division delivered good. Of course there are some that need to focus a little bit, but it's not enough that you do one quarter on this level. It means also you have a sustainable performance.
this level, you know, to be uprated towards growth. But if we run it like we've been doing today, more or less all our division would have been a growth mode. So I think we have a good potential if they continue to deliver up to that.
There are some, of course, divisions that are overdelivering margin also, which you said, maybe some of them that could be difficult to keep on the level where they are. We still believe that these are healthy businesses and will continue to deliver, and they should be focusing on growth. And that's, of course, we want to grow ABB. And this—
best performing companies, we want them to grow faster.
companies, we want them to grow faster.
Yeah, I think it's going to keep up there on a good level, both for the group and for the individual businesses. Thank you. Okay, thanks Will. And then we move to Martin Wilke at Citi.
Thank you. Good morning, it's Martin from CIFI. Just one question from me. You've called out data centres as being positive on orders in electrification, which I think is probably a bit more positive than some of your competitors in that space. And just to understand, you've called out data centres as being positive on orders in electrification, which I think is probably a bit more positive than some of your competitors in that space.
even though there's lots of talk about how artificial intelligence can drive data centers, we're trying, what you saw in the quarter, given that that's also a market that had a very good year last year, and therefore we could have expected some slowing just to understand what you're seeing in data centers. Thank you. Data centers is an important segment for us.
not only in electrification, also in the motion business which is driving. Today we are close to 1.3 billion in size of what we are supplying into the data centers and we are seeing a good double digit growth in this business and we believe that it will continue.
So we actually have a lot of products and solutions and services that we deliver today. You want to add something? Well, maybe just when you mentioned the motion, so there's of course a lot of cooling going on, and for example these new products on this sort of combined motor drive is something which is definitely a data center specific product. So as Bjorn said, this is really...
Are you more exposed to hyperscale or more broadly spread across the different segments?
You know, I think we are both small and hyperscalers, so we are in many of them. But for us, this is healthy business.
So it's not a margin press business for us. We're delivering a good margin to this industry.
And there I'm going to stop you here, Martin. Maybe this time we'll actually squeeze all in if we stay disciplined for the remaining few minutes. Guillermo, you're next in line please.
Good morning everyone, thank you Anstey, thanks Timo, Bjorn. Maybe first question to Timo, I think I heard your comments for industrial automation, for personal automation when it comes to the margin development. You said sequentially the margins will be down, but typically actually Q3 tends to be above Q2.
high margin performance so we have super mix now in PA let's see how it moves forward also you mentioned that there could be more volume leverage you know as you see from our revenue commentary and you look at the previous kind of like comparable revenue maybe it could be even even bit down so maybe bit less volume leverage but of course we expect healthy performance in process automation for q3 but those are the
sort of puts and takes. Thanks. And then maybe to be on, or Timo, regarding the sub-segments of process automation, LNG and electrification was one of the key segments, or two of the key segments driving growth, and I wonder whether you could clarify or give some color on how those verticals are.
progressing in terms of connectivity and demand. Yeah, I think the underlying, the process automation is in a very good spot. And it's driven by a lot of these transitions that I talked about towards sustainability. So a lot of these projects are being done. I mean, we have it in new green technologies like hydrogen.
in batteries, in LNG terminals, electrification, and so on. So there is a lot of activities. And of course, it can be a little bit bumpy between the different quarters. And we, I think, at this, it was only 6 percent this, but we had a huge growth in last quarter. And we believe that it will continue to grow very well because there are so many exciting projects in this area. We are well positioned. So it's actually both energy security side as well as energy security.
Yes, thank you. Hello, can you hear me? Yes, we can. Great, thank you very much for the time. I have a question on the outlook of the economic cycle. Last year, when we were talking a lot about recession, you mentioned that you have some scenarios, good trend or let's say bad or worse or whatever.
Can you give an update there what you are doing if you have upgraded them, what kind of contingent measures you have in the drawers and also if you have some sort of rock bottom levels for the margin that you would expect the division to deliver in case of a downturn.
Thanks for the question. I think it's good. Yeah, it's quite comic in a way. I mean, when we were standing here 12 months ago, we were all saying, now the downturn is going to come and we have done a scenario planning with our division, so they're well prepared. We were a little bit wrong at that time, and it's been quite a healthy year when we see from orders and you of course see our order forecast.
has grown even further compared to before. And also now with good deliveries, I mean, seeing really healthy growth for our businesses. So today we have even a bigger order book than we had a year ago. Of course, when you look forward, there are clouds in the market that is pretty clear. We hear about China, all these things. So yes, our divisions have updated all their contingency plans. This is part of how you run the division today.
So we ask them to look over different kinds of scenarios. So some of the divisions might get some headwind, and some of them will continue to grow fast. So there will be different actions in different divisions. And certain divisions are more resilient than others, and that's what they need to work with. This is actually part of the way they drive the...
their businesses going forward. But, you know, I think the order book gives certain amount of security for deliveries during the next 12 months, but of course, you never know. We always plan for the worst and hope for the best, and we let the businesses do what they can.
So far they have surprised us during the last four quarters and we'll see how the future will be. Okay and we'll finish off with a, I guess, favorite topic for you Timo. We'll end up with a cash on the cash topic.
And Ben from Morgan Stanley is asking about the networking capital development in the quarter and also how you see that pan out for the rest of the year and the implications that might have. I think that was an expected question. Yeah, thanks for the question. So yeah, it's true that we tied a little bit of networking capital, but actually.
continues to go down a bit so it was at top 30 now it's 28 so we are not seeing any sort of surprising dynamics and we expect that this will now start to improve going into the latter part of the year so we spoke about this earlier if we would get to those sort of 11 10 percent levels let's see how it goes to revenue on networking capital
Thank you and that rounds off today's session. Thanks for spending the time with us and we wish you a nice summer break if and when you get there.
Thank you.