Q3 2024 ABB Ltd Earnings Call

Yes.

[music].

Operator: Greetings to you all, and welcome to this presentation of ABB's third quarter results.

Speaker Change: Greetings to all and welcome to this presentation of Abb's third quarter results next to me here for the first time, our new seal Watson vehicles.

Operator: Next to me here is, for the first time, our new CEO, Morten Virgo, and I see you for Timo Ihamuotila.

Speaker Change: And our CFO Emiliano I'm also an old head of Investor Relations.

Operator: I'm answer for an old head of investor relations.

Operator: This time we're going to do things somewhat differently. We'll first do the usual results presentation, but we're slightly short to Q&A.

Speaker Change: This time, we're gonna do things somewhat differently with fast do the usual result presentation, but with a slightly short the Q&A and after that most of them here will talk through his initial perspectives. Following his first couple of months I feel after that well open up for another round of Q&A. So you will get the chance to.

Operator: And after that, Morten here will talk through his initial perspective following his first couple of months as CEO. After that, we'll open up for another round of Q&A, so you will get the chance to put your non-quarter-related questions to both of them. We aim to be finished in about an hour and a half from now, and with that said, let's get this started, and I hand over to you, Morten.

Speaker Change: Non quarter related question to both of them.

Speaker Change: We aim to be finished in about an hour and a half from now and with that said, let's get this started when I hand over to you Morten.

Morten Virgo: Thanks, Unzi.

Morten: Thanks Nancy.

Morten Virgo: And a warm welcome to all, also from my side. Let's start with a summary, and the very short version of the quarter is that we improved on the most headlines in the income statement. Orders increased by 2%; booked the bill was positive, and we repeated the record level margin with very strong cash flow. And I think these results show the benefits of having a broad industrial segment exposure. We had good developments in the three business areas with close links to what I call the electrification of everything. The exception being the immobility business where performance is still weak.

Morten: And a warm welcome to you all also from my side.

Morten: Let's start with a summary on the very short versus another quarter is that'd be improved on the most headlines in the income statement orders increased by 2% book to Bill was positive and we repeated the record level margin with very strong cash flow.

Morten: And I think these results show the benefits of having a broad industrial segment exposure.

We had good developments in the three business areas.

Morten: Close links to the what I call the electrification of everything with the exception being the E mobility business, where performance is still weak.

Morten Virgo: On the automation side, we are challenged by low volumes in robotics and discrete automation, and especially in machine automation customers remain focused on reducing their inventories. In total, our revenues improved 2% in the quarter, but if you look at it without RA and immobility, it was actually up 7% and 6th year to date. I mentioned the operational EBITA margin, which again reached 19%, and it was great to see the strong contribution from electrification. Congratulations to the team for reaching the 24% margin level, and now the step in the right direction. There is also reasons to celebrate in motion, reaching a new all-time high margin, and process automation delivered another solid plus 15% margin quarter.

Morten: On the automation side, we are challenged by low volumes and robotics and discrete automation and especially in machine automation customers remained focused on reducing their inventories.

Morten: In total or revenues improved 2% in the quarter, but if you look at it without our a and E mobility. It was actually up 7% and six year to date.

Morten: I mentioned, the operational EBITA margin, which again reached 19% and it was great to see the strong contribution from electrification.

Speaker Change: Congratulations to the team for reaching the 24% margin levels another step in the right direction.

Speaker Change: There is also a reason to celebrate in motion, reaching a new all time high module and process automation delivered another solid plus 15% margin quarter. This is all good but at the same time profitability and robotics and discrete automation is low while robotics remained in double digit margin territory. It was a very tough quarter for.

Morten Virgo: This is all good, but at the same time, profitability in robotics and discrete automation is low. While robotics remained in double-digit margin territory, it was a very tough quarter for the machine automation division. They are pushing to bring down the break-even level and restore profitability. Timo will talk more about that on the RA slide later on. We also had further losses in the immobility business, which continues to work on its turnaround. Look at it from group level; immobility diluted the margin by about 100 basis points in the quarter. All in all, in my view, a quarter with the positives outweighs the negatives.

Speaker Change: The machine automation division.

Speaker Change: They are pushing to bring down the breakeven level and restore profitability.

Speaker Change: <unk> will talk more about that on the or a slide later on.

Speaker Change: We also had a further losses in the E mobility business, which continues to work on its turnaround.

Speaker Change: Look at it from group level E mobility diluted the margin by about 100 basis points in the quarter.

So all in all in my view a quarter with the positives outweigh the negatives.

Morten Virgo: Cash was good, and you know that we have an ambition of being at least on par with the free cash flow of $3.7 billion with delivered last year. At 2.6 billion year to date, I would say the target is clearly doable.

Speaker Change: Cash was good and you know that'd be about have an ambition of being at least on par with a free cash flow of $3 $7 billion. We delivered last year at $2 6 billion year to date I would say the target is clearly doable.

Morten Virgo: I know that the M&A team in the Measurement and Analytics division in Process Automation has worked very hard this summer. It was great to see that the acquisition of 30's group came through, adding about $55 million of revenue. Industries: The deal makes strategic sense and expands our position in advanced industrial emission measurement and analytic solutions, giving really good opportunities for revenue synergies. We also close the seam deal in the Electrification Service division. Seam is a US-based company which, through its software platform, provides asset management and advisory services, mostly for industrial building markets. It complements our already existing service offering and adds approximately 19 million over revenues.

Speaker Change: I know that the M&A team in the measurement and analytics Division and process automation has worked very hard. This summer. So it was great to see that the acquisition of Heritage group came through.

Speaker Change: Adding about $55 million of revenues.

Speaker Change: The deal make strategic sense and it expands our position in advanced industrial emission measurement and analytics solutions, giving really good opportunities for revenue synergies.

Speaker Change: We also closed the seam deal in the electrification service Division theme.

Speaker Change: <unk> is a U S based company, which through its software platform provide asset management and advisory services, mostly industrial building markets. It it complements our already existing service offering and adds approximately $19 million or revenues.

Morten Virgo: At the last point, I want to welcome Jumpero and Brandon as new Business Area Presidents of Electrification and Motion. Both have long careers with ABB, so I know them well, and I've seen their ability to bring a team together towards common goals. I also know that they are both strategic and result-driven, so I do look forward to see the impact of their leadership. We have strong momentum in our short cycle orders, which increase by the high single digits. Electrification was the main contributor, with a double digit growth, but we also have the slight positive in motion.

Speaker Change: As a last point I want to welcome jump hero and branded as new business area precedence of electrification and motion both have long carriers with ABB.

Speaker Change: I know them, well and have seen their ability to bring a team together towards common goals.

Speaker Change: I also know that they are both strategic and result, driven so I do look forward to see the impact of their leadership.

We have strong momentum in our short cycle orders, which increased by the high single digits.

Speaker Change: Vacation was the main contributor with a double digit growth, but we also had a slight positive emotion.

Morten Virgo: In the project and system businesses, there is still robust activity, although we were up against some challenging comparables, including the large order of $285 million booked in process automation last year. Excluding that booking, over total orders were up by 6 percent, and in my view, reflecting a solid market environment. Looking at the different customer segments, the areas of data centers, utilities, and infrastructures stood out. That's the strongest positive, while the most challenging area was the machine builders linked to discrete automation. Over revenue of $8.2 billion improved by 2 percent. They're even equally by price and volumes.

Speaker Change: In the project and system businesses, there's still robust activity, although we were up against some challenging comparables, including the large order of $285 million booked in process automation last year.

Speaker Change: Excluding that booking our total orders were up by 6% and in my view, reflecting a solid market environment.

Speaker Change: Looking at the different customer segments, the areas of data centers utilities and infrastructure stood out as the strongest positive while the most challenging area was the machine builders linked to discrete automation.

Speaker Change: Our revenue of $8 $2 billion improved by 2% driven equally by price and volumes. This was a bit lower than we anticipated going into the quarter before.

Morten Virgo: This was a bit lower than the anticipated going into the quarter. We find the main deviations in discrete automation, where the backlog is diminishing and customers push new orders further out in time, but also in motion where we have some deliveries being held and some customers change their schedule.

Speaker Change: We find the main deviations in discrete automation, where the backlog is diminishing and customers push new orders further out in time, but.

Speaker Change: But also in motion, where we had some deliveries being held at some customers changed their schedule.

Morten Virgo: From a segment perspective, we again highlight the strong demand in data centers, so I thought we would spend some extra time on it. Looking at the data center market, the map changes fast. Some years ago, a co-location site of 5-10 megawatts would have been considered fairly sizable. Three years ago, 20-50 was big, and now, some co-location can almost be as big as hyperscalers, some 100 or even 1,000 megawatts. Traditionally, we have a strong position with a technically advanced hyperscalers, and we are the strongest in the mission critical power access area, also known as the gray space, which is the infrastructure equipment is located.

Speaker Change: From a segment perspective, we again highlight the strong demand in data centers. So I thought we would spend some extra time on it.

Speaker Change: Looking at the data center market the map changes fast some years ago, our Colocation site of five to 10 megawatts would have been considered fairly sizable.

Speaker Change: Three years ago of 20 to 50 was big and now some collocation can almost be as big as hyperscale or some hundred or even a 1000 megawatts traditionally we have a strong position with a technically advanced hyperscale orders and we are the strongest in the Michigan critical power access area also known as the Gray space.

Speaker Change: This is the infrastructure equipment is located.

Morten Virgo: This includes medium and low voltage switchgear, protection relays, and critical power protection. But we also play in the white space, with, for example, power distribution units. When it comes to transformers and cooling solutions, we work with partners. So what we talked about today is linked to our business area electrification, where the offering is broad and compromises both low and medium voltage equipment. Even we are not the market leader in the low voltage UPS, we see a very strong momentum from an already meaningful level. And momentum is even higher for over medium voltage UPS Hypergarde, which is the first medium voltage UPS product on the market.

Speaker Change: This includes medium and low voltage switchgear protection relays and critical power protection.

Speaker Change: But we also play in the White space with for example power distribution units when it comes to Transformers and cooling solutions, we work with partners.

Speaker Change: So what we talked about today is linked to our business are electrification, where the offering is broad and compromises, both low and medium voltage equipment.

Speaker Change: Even we are not the market leader in the low voltage UBS, we see a very strong momentum from an already meaningful level and momentum is even higher for over medium voltage U P. S. Hyper guard, which is the first medium voltage UBS product on the market.

Speaker Change: No that datacenter loads and power consumption are increasing demands on electricity quality is rising so our medium voltage UBS is well positioned as it covers the entire power system closer to the grid connection point.

Morten Virgo: The momentum closer to the grid connection point. Overall, in data centers, we have seen a strong order keger, or 24% during 2019 to 23, with an even stronger momentum so far this year. Our ability to meet customers' delivery expectations seems to have been a bow market average, and it appears as we have gained some ground. With a higher data processing requirements, we expect the data center market to grow in the double digits in the midterm, and we aim to outgrow the market where we decide to play.

Speaker Change: Overall in data centers, we have seen a strong order CAGR or 24% during 2019 to 23 with an even stronger momentum so far this year.

Speaker Change: Our ability to meet customers delivery expectations seems to have been a bow market average and it appears as we have gained some ground.

Speaker Change: With a higher data processing requirements, we expect the data center market to grow in the double digits in the midterm and we aim to outgrow the market, where we decide to play.

Morten Virgo: Now, let's look at the regional developments. Orders in America declined by 6%, but the numbers is impacting by the timing of large booking. Looking through this, orders actually increased at a double-digit rate, so in general, the U.S. market remains the most robot market for us. Amea was up by 8%, helped by a very strong quarter in Australia, but also good development in India. China declined year or no year, but is only about 2%. So sequentially, China remained broadly stable. Europe was up by 6, with a very strong improvement in Germany; however, from a low level.

Speaker Change: Now, let's look at the regional developments.

Speaker Change: Orders in America declined by 6%, but the numbers impacting by the timing of large booking.

Speaker Change: Looking through this orders actually increased at a double digit rate. So in general the U S market remains the most of the robot market for us.

Speaker Change: EMEA was up by 8% helped by very strong quarter in Australia, but also good development in India, China decline year on year, but its only about 2% so sequentially China remained broadly stable.

Speaker Change: Europe was up by six with a very strong improvement in Germany, However from a low level.

Morten Virgo: In the charts, you see the strong improvement in both earnings and margin. The operational EBDA was up 12% and improved the margin by 160 basis points to 19%. It is encouraging to see that this is driven by a strong growth margin with 38.2%. And we had a positive development in 3 out of 4 business areas.

Speaker Change: In the charts, you'll see the strong improvement in both earnings and margin.

Speaker Change: The operational EBITA was up 12% and we improved the margin by 160 basis points to 19%. It is encouraging to see that this is driven by our strong gross margin, which reached 38, 2% and we had a positive development in three out of four business areas.

Timo Ihamuotila: But I hand over to you to talk more about that.

Speaker Change: But I'll hand over to you to have more to talk more about that thanks, Martin and welcome to you all from my side as well before we move to the business areas I quickly want to mention the corporate and other line, which netted out at minus $108 million, including corporate costs of $48 million.

Timo Ihamuotila: Thanks, Martin, and welcome to you all from my side as well. Before we move to the business areas, I quickly want to mention the corporate and other line, which netted out at minus 108 million, including corporate costs of 48 million. The corporate line was somewhat lower than we originally estimated, which had a positive impact of about 30 basis points to the operational EBDA margin. For Q4, we expect normal corporate costs of about 75 million. Our e-mobility business had losses of 60 million for the quarter. We expect the losses to be even a bit higher for Q4 as we look to finalize the restructuring related to the product portfolio transition.

Speaker Change: Operate line was somewhat lower than we originally estimated which had a positive impact of about 30 basis points to the operational EBITA margin.

Speaker Change: For Q4, we expect normal corporate costs of about $75 million.

Speaker Change: Our E mobility business had losses of 60 million political for the quarter, we expect the losses to be even a bit higher for Q4, as we look to finalize the restructuring related to the product portfolio transition.

Timo Ihamuotila: For 2025, e-mobility will still be a bit of a drag to overall EBB profitability, but is estimated to be clearly a smaller drag than during 2024. I also want to mention income from operations, which improved by 4% from last year. The improvement rate was held back by a one-time adverse impact of about 90 million related to a charge linked to e-mobility moving to reduce to a minority ownership in a U.S. subsidiary. The accounting charge had no impact on cash. At this point in time, we could not realize the tax benefit from this charge, which also meant a higher than expected tax rate in the quarter.

Speaker Change: For 2025 E mobility will still be a bit of a drag to overall ABB profitability, but is estimated to be clearly a smaller drag than during 2024.

Speaker Change: I also want to mention income from operations, which improved by 4% from last year. The improvement rate was held back by a one time adverse impact of about $90 million related to a charge linked to E mobility moving to reduce to a minority ownership in a U S subsidiary.

Speaker Change: The accounting charge had no impact on cash at this point in time, we could not realize the tax benefit from discharge, which also meant a higher than expected tax rate in the quarter.

Timo Ihamuotila: So, this combined weighted on earnings per share, which still reached 51 cents, up 3 cents from last year.

Speaker Change: So these combined weighted on earnings per share, which still reached 51 cents up three cents from last year.

Timo Ihamuotila: So, now let's flip to slide 8 on electrification, which had a very strong quarter, including 10% order growth with improvements across the three regions. We have a leading position in the meeting voltage space, and here we continue to see high activity in the areas of data centers and utilities. This strong project and systems markets also had somewhat of a positive impact on parts of the low voltage product business. In addition to data centers and utilities, infrastructure was strong, and it was encouraging to see the overall building segment improve. On the commercial side, we saw a good moment to promote US and Europe, but China remains muted.

Speaker Change: So now, let's flip to slide eight and electrification, which had a very strong quarter, including 10% order growth with improvements across the three regions.

Speaker Change: We have a leading position in the medium voltage space and here, we continue to see high activity in the areas of data centers and utilities.

Speaker Change: These strong project and shoe stems markets also had somewhat of a positive impact on parts of the low voltage product business. In addition to data centers and utilities infrastructure was strong and it was encouraging to see the overall building segment improve.

Speaker Change: On the commercial side, we saw good momentum in both U S and Europe, but China remains muted the residential side was overall stable at low level with our colleagues in the U S sounding a bit more optimistic Europe was broadly stable and China remains tough.

Timo Ihamuotila: The residential side was overall stable at low level, with our colleagues in the US sounding a bit more optimistic. Europe was broadest table, and China remains tough. Adding it all up, we had a double-digit growth in our short cycle business, which more than offset the impact from the project business declining from last year's high comparable. In total, orders once again staying above the $4 billion mark. Switching now to the chart in the middle, and with revenues of $3.9 billion, it was a record quarter, up 10%. All divisions contributed to growth, which was primarily driven by higher volumes, but also by positive pricing.

Speaker Change: Adding it all up we had a double digit growth in our short cycle business, which more than offset the impact from the project business declining from last year's high comparable in total orders once again staying above the $4 billion Mark.

Speaker Change: Switching now to the chart in the middle and with revenues of $3 9 billion. It was a record quarter up 10%.

Speaker Change: All divisions contributed to growth, which was primarily driven by higher volumes, but also by positive pricing.

Timo Ihamuotila: I think it's worth mentioning that on record high revenues, electrification delivered a positive book-to-bill of 1.03. Ernest and Margin also reached new all-time highs. Operational EBITA was up by 26% with a margin of 24.1%, with volume impacts as the key driver, but also supported by continuous improvement measures, really that well done by the ELT team. Looking ahead in the fourth quarter, we currently expect a mid to high single-digit growth rate in comparable revenues and the operational EBITA margin to decline sequentially.

Speaker Change: I think it's worth mentioning that on record high revenues electrification delivered a positive book to Bill of one point all three.

Speaker Change: Earnings and margin also reached new all time highs operational EBITA was up by 26% with a margin of 24, 1% with volume impact as the key driver, but also supported by continuous improvement measures really that well done by the <unk> team.

Speaker Change: Looking ahead in the fourth quarter. We currently expect a mid to high single digit growth rate in comparable revenues and operational EBITA margin to decline sequentially.

Timo Ihamuotila: Let's move to the motion business area where orders came down slightly to $1.8 billion, decreasing 4% on a comparable basis. This was mainly due to timing impacts of project orders, particularly in the rail business. Despite pressure in the China market, Motion's total short cycle orders remained broadly stable. Looking at the different customer segments, we saw strength in areas of power generation, such as hydro and waste to energy. HVAC was also positive, driven by commercial buildings. And on the downside, we saw slower activity in oil and gas, chemicals, and pop and paper. Shifting now to revenues, which were up by 1% and came in just under $2 billion.

Speaker Change: Let's move to the motion business area, where orders came down slightly to $1.8 billion decreasing 4% on a comparable basis. This was mainly due to timing impacts of project orders, particularly in the rail business. Despite pressure in the China market motions total short cycle.

Speaker Change: Others remained broadly stable.

Speaker Change: Looking at the different customer segments, we saw strength in areas of power generation, such as hydro and waste to energy H back was also positive driven by commercial buildings and on the downside, we saw slower activity in oil and gas chemicals and pulp and paper.

Speaker Change: Shifting now to revenues, which were up by 1% and came in just under $2 billion are you similar to recent quarterly levels.

Timo Ihamuotila: I.e. similar to recent quarterly levels. Pricing had a positive impact, but the pace of converting the backlog to revenues was a bit slower than expected as some customers slightly changed their delivery schedule. on broad stable revenues, the team increased earnings by 4% with a record margin of 20.7%, supported by pricing and stringent cost control. For the fourth quarter, we anticipate a low to mid-single-digit comparable revenue growth year on year, and the operational EBITR margin to soften sequentially.

Speaker Change: <unk> had a positive impact, but the pace of converting the backlog to revenues what the beat was a bit slower than expected as some customers slightly changed delivery schedules.

Speaker Change: On broadly stable revenues the team increased earnings by 4% with a record margin of 20.7% supported by pricing and stringent cost control.

Speaker Change: For the fourth quarter, we anticipate a low to mid single digit comparable revenue growth year on year, and the operational EBITA margin to soften sequentially.

Timo Ihamuotila: Then turning to slide 10 and process automation, which has now had a positive book-to-build ratio for 16 consecutive quarters. This clearly shows the strength of their offering in electrification, automation, and digitalization for heavy industries, as well as robust market development. Orders remained on par with recent quarters at $1.8 billion, but declined by 5% from last year with the large order of 285 million when that was booked. Actually, if we exclude this multi-air contract, orders would have grown by double digits. We see strong momentum in both the traditional and low carbon power generation segments, as well as marine imports.

Speaker Change: Then turning to slide 10, and protest automation, which has now had a positive book to bill ratio for 16 consecutive quarters.

Speaker Change: This clearly shows the strength of their offering in electrification automation and digitalization of our heavy industries as well as robust market development.

Speaker Change: Orders remained on par with recent quarters at $1.8 million, but declined by 5% from last year with a large order of 285 million when that was booked actually if we exclude these multiyear contract orders would have grown by double digits.

Speaker Change: We see strong momentum in both our traditional and low carbon power generation segments, as well as marine imports metals and mining improved while chemicals decreased versus last year.

Timo Ihamuotila: Metals in mining improved, while chemicals decreased versus last year. Now turning to revenues, process automation delivered as planned, with revenues growing 6% on a comparable basis. The growth was supported by 3 out of 4 divisions and was driven by both volume and slight positive price impact, coming from the product business. Strong development in the service business was also helpful. Process automation executed on its order backlog with higher gross margin and delivered yet another strong margin of 15.2% with operational EBITR improving 11%. Looking at our expectations for the fourth quarter, we foresee a flatish growth rate for comparable revenues and the operational EBITR margin to be sequentially down.

Speaker Change: Now turning to revenues protest automation delivered as planned with revenues growing 6% on a comparable basis. The growth was supported by three out of four divisions and was driven by both volume and slight positive price impact coming from the product business.

Speaker Change: Strong development in the service business was also helpful.

Speaker Change: Proteus automation execute did on its order backlog with higher gross margin and delivered yet another strong margin of 15, 2% with operational EBITA improving 11%.

Speaker Change: Looking at our expectations for the fourth quarter, we foresee a flattish growth rate for comparable revenues and operational EBITA margin to be sequentially down.

Timo Ihamuotila: On slide 11, we turn to robotics and discrete automation, where the two divisions currently face very different market environments. In total, the business area orders dropped by 4% from last year's already low level. And starting with robotics, where it was encouraging to see a slight growth in orders, although from a low base. This was mainly driven by larger wins in the US logistic sector. Electronics remained challenging, and we saw a drop in EV-related topics, partially offset by increased activity related to hybrid vehicles from traditional automotive players. Orders rose strongly in both the Americas and Europe, but declined at double-digit rate in Asia and the Middle East and Africa.

Speaker Change: On slide 11, we turn to robotics and discrete automation, where the two divisions currently face very different market environments.

Speaker Change: In total the business area orders dropped by 4% from last years already low level.

Speaker Change: Starting with the robotics, where it was encouraging to see a slight growth in orders, although from a low base.

Speaker Change: This was mainly driven by larger wins in the U S logistics sector electronics remained challenging and we saw a drop in EV related capex, partially offset by increased activity related to hybrid vehicles from traditional automotive players.

Speaker Change: Orders rose strongly in both the Americas, and Europe, but declined at double digit rate in Asia, and Middle East and Africa.

Timo Ihamuotila: Now, looking at machine automation, orders were down sharply due to continued slowdown in discrete automation demand. We saw machine building customers extend the ongoing inventory adjustments. And from what we see now, this is expected to continue into next year before easing off during the second quarter of 2025 at the latest. Our machine automation division is primarily a European business and makes up about one-third of the business area's revenues. In this tough environment, the business area revenues dropped by 20% with the steepest decline in the machine automation division as the decrease in orders directly impacted revenues.

Speaker Change: Now looking at machine automation orders were down sharply due to continued slowdown in discrete automation demand we.

Speaker Change: We saw a machine building customers extend the ongoing inventory adjustments.

Speaker Change: And from what the what we see now this is expected to continue into next year before easing off during the second quarter of the 2025 at the latest.

Speaker Change: Our machine automation Division is primarily a European business and makes up about one third of the business areas revenues in this tough environment. The business area revenues dropped by 20% with the steepest decline in the machine automation division as the decrease in orders directly impacted revenues.

Timo Ihamuotila: In robotics, the decline was limited to a single-digit rate as the growth in book and bill business only partially offset the lower backlog delivery. The operational EBITR margin in the robotics division softened compared to last year, but stayed in double-digit territory, supported by earlier implemented cost savings efforts. Lower production volumes in machine automation led to significant under-absorption of fixed costs. In response, extensive cost saving measures are being activated, including some 25% reduction in headcount, with savings expected to start showing towards the end of the year. For the fourth quarter, for the business area, we expect mid to high single-digit negative growth in comparable revenues, and a slight sequential improvement in the operational EBITR margin.

Speaker Change: In robotics, the decline was limited to a single digit rate as the growth in book and Bill business, only partially offset the lower backlog they've leveraged.

Speaker Change: The operational EBITA margin in the Robotics division softened compared to last year, but stayed in double digit territory supported by earlier implemented cost savings efforts lower production volumes in machine automation led to significant under absorption of fixed costs. In response extensive cost saving measures are being.

Speaker Change: Activated, including some 25% reduction in head count with savings expected to start showing up towards the end of the year for the fourth quarter for the business area. We expect mid to high single digit negative growth in comparable revenues and a slight sequential improvement in the operational EBITA margin.

Timo Ihamuotila: Then moving on to slide 12, showing the group operational EBITR average. The impact from our positive price execution was similar to prior quarters at about 1%, and operational leverage on higher volumes more than offset the adverse efficiency. The impact from a slight increase in spend for R&D and SG&A. All in all, a 12% improvement in operational EBITR, with a 160 basis points margin increase.

Speaker Change: Then moving on to slide 12, showing the group operational EBITA bridge there.

Speaker Change: The impacts from our positive price execution was similar to prior years prior quarters at about 1% and operational leverage on higher volumes more than offset the adverse effects from a slight increase in spend for R&D and SG&A.

Speaker Change: All in all a 12% improvement in operational EBITA with a 160 basis points margin increase and.

Timo Ihamuotila: And finally, from me, let's move on to cash now on slide 13. We had another good quarter for cash, delivering a free cash flow of $1.2 billion, which was broadly in line with last year's level. From cash perspective, the impact from our improved operational performance was offset by a smaller reduction in networking capital, as last year we significantly reduced the buildup cost by supply chain constraints. This quarter's performance, along with the strong first half of the year, puts us in a good position to at least match last year's result. And with that, I would hand back to Morton.

Speaker Change: And finally from me, let's move onto cash now on slide 13.

Speaker Change: We had another good quarter for cash delivering a free cash flow of one point to $1 billion, which was broadly in line with last year's level.

Speaker Change: From cash perspective, the impact from our improved operational performance was offset by a smaller reduction in networking capital at last year, we significantly reduce the buildup caused by supply chain constraints.

Speaker Change: This quarter's performance along with the strong first half of the year puts us in a good position to at least match last year's result, and with that I would hand back to Martin Thanks, Steve Moore.

Morten Virgo: Thanks, Timor. So, let's finish off with the outlook, where we soften the commentary on Julia revenue a bit and not shop expectation for the margins. We know for see comparable revenue growth of below 5%, and this is mainly due to the lower than expected revenues in the third quarter and the weaker-for-longer market situation in discrete automation. For the operational EBITA margin, we know for see it to be slightly above 18%, reflecting the strong performance year to date, and including the pattern of the fourth quarter margin. This year, we expect the sequential margin drop into Q4 to be somewhat steeper than usual, mainly due to corporate cost normalizing and slightly higher losses in immobility.

Martin: So let's finish off with the outlook, whether it be soften their commentary on full year revenue a bit and nudge up expectations for the margins.

Martin: We now foresee comparable revenue growth or below 5% and this is mainly due to the lower than expected revenues in the third quarter and the weaker for longer market situation in discrete automation.

Martin: For the operational EBITA margin, we now foresee it to be slightly above 18%, reflecting the strong performance year to date and including the pattern or the fourth quarter margin.

Martin: This year, we expect the sequential margin drop into Q4 to be somewhat steeper than usual, mainly due to corporate cost normalizing and slightly higher losses in E mobility.

Morten Virgo: This would leave the fourth quarter growth in comparable revenues in the low to mid single digit range, and we expect the pattern of a negative book to build to repeat. All in all, this would make 2024 a record year for ABB, with a positive book to build, supporting future revenue generation.

Martin: This would leave the fourth quarter growth in comparable revenues in the low to mid single digit range and we expect the pattern of a negative book to bill to repeat.

Martin: All in all this would make 'twenty to 'twenty four a record year for ABB.

Martin: With a positive book to Bill supporting future revenue generation, So I won't say, let's open it up for questions, yes that stays out and but first just a quick reminder for that asset.

Operator: So, let's open it up for questions. Yes, let's do so. But first, as a quick reminder, for those of you who have dialed in on the phone, pressed R14 to register to ask a question, and please remember to mute the webcast as your line is open and limit it to one question. That way, we allow for as many as possible to get through, but you can also put questions through the online tool in the webcast, and I will voice them over from here. Thank you.

Speaker Change: On the phone press Star 14 to register to ask a question.

Speaker Change: And please remember to new webcast as your line is open and limit and limit it to one question.

Speaker Change: And that way, we allow for as many as possible to get faith.

Speaker Change: But you can also take questions through the online tool in the webcast and I will always somebody that from here.

Martin Wilkie: And with that, we open up for the first question, and this time we start with the telephone lines, and we should have Martin Wilkie lined up here, I hope. Martin, can you hear us? Yeah, good morning. Thank you, Martin from Citi. My first question, or perhaps only a question if I'm allowed one, is about electrification margins, obviously a new record level. You do point out cost absorption, high volumes. Are you adding capacity electrification? Obviously, we hear about supply constraints, not long retires, and so forth, especially in areas like medium voltage. And if you are adding that capacity with margins, now above 24%.

Speaker Change: And with that we open up for the first question and this time, we start with the telephone lines and we should have Martin Wilkie lined up here I Hope Martin can you hear us.

Speaker Change: Yeah. Good morning. Thank you Martin from Citi. My first question to the question. If I'm allowed one is about an expectation margins, obviously, a new record level you do point out cost absorbed in high volumes.

You're adding capacity electrification, obviously, we're here.

Speaker Change: Bolt supply constraints long lead times, and so forth, especially used medium voltage and if you are adding that capacity with margins above 24%.

Morten Virgo: Are we affected the peak of the benefits in terms of that volume driver within electrification? Thank you. Well, thanks, Martin. To the first question, we have added capacity in the electrification business, especially in North America. And this happened really a few years ago when we did the GIS acquisition. And we added more capacity, both in the US, but also in Mexico. And this gives us a good benefit now when we have some that spare or extra capacity that we can serve the market. We had shorter lead times. And I think also there what we see from statistic, gaining share.

Speaker Change: At the peak of the benefits in terms of that volume driver within electrification. Thank you.

Speaker Change: Oh, Thanks, a marked in the to the first question. We are we have added capacity in the electrification business, especially in North America and this happened really a few years ago. When we did the Gis acquisition and we have added more capacity both in U S. But also in the Mexico and they say it gives.

Speaker Change: As a good benefit now when we have some that spare or extra capacity that we can serve the market have with shorter lead times and I think also there what we see from statistic gaining share. So that is how this comes through and with the but you also kind of are we at the end of the journey of electrification and I I would.

Morten Virgo: So that is how this comes through. But we also kind of are we at the end of the journey of electrification.

Morten Virgo: And I would be a bit worried, handed that over to Jumpiero now if we were peaking. So I don't definitely don't see that because every division in ABB have pockets or opportunities where they can improve. And that's what we have identified also in electrification. So even though the main focus for the electrification business, profitable growth, there is still opportunities to do better in all of their operating divisions. Very good. Thank you very much. Thanks, Martin.

Speaker Change: A bit worried handle that over to jump here or now if we were peaking so I don't definitely don't see that because every division in ABB have pockets or opportunities, where they can improve and that's what we have identified also in electrification. So even though the main focus for the electrification business profitable growth Thursday.

Speaker Change: There are opportunities to do better in all of their operating divisions.

Speaker Change: Very good thank you very much thanks Martin.

Alex: And Andy, we have you next here in line. You with us. Andy Wilson. It's Alex. It's Alex at B.A.V. ANSI. I've got on me today if you were. We'll try Alex, then go ahead. I'll take a policy down there; I'm sure you'll be well. You deal with that later. Thanks very much for taking the question, and good morning to both of you. It's all of you. I'm sorry.

Speaker Change: And Andy we have you Nextera in line.

Speaker Change: That's.

Andy Wilson: Andy Wilson.

Andy Wilson: Thank you.

Speaker Change: Alex at Bofa.

Andy Wilson: Me too.

Alex: We try and go ahead.

Andy Wilson: Yes.

Andy Wilson: [laughter] Oh.

Speaker Change: I'll take it apologies apologies Andy I'm sure you're at your question.

Andy Wilson: I'll, let you deal with that later.

Andy: [laughter], thanks, very much for taking the question.

Andy Wilson: Good morning to basically.

Andy Wilson: So one of you I'm sorry.

Operator: I wondered if you could talk just a little bit about the situation in M.A. I think the development and points of normalization keeps getting pushed to the right. It's quite interesting to see the order and take in Germany up as strong as it is, and your comments on the order and given how dominant you're in that business. So I just wondered if you could help us a little bit with describing the trends on that, how you're seeing really as the exit rate into 2025 would be super, super helpful. Thank you. Thanks, Alex, for the question.

Speaker Change: Wondered if you could talk just a little bit about the situation in Ma.

Andy Wilson: I think we are.

Andy Wilson: Development and pointed normalization keeps getting pushed to the right.

Speaker Change: It's quite interesting to see the order intake in Germany. After a strong year as it is.

Speaker Change: Your comments on the order intake given given how dominant.

Speaker Change: Europe is in that business. So I just wonder if you could help us a little bit.

Speaker Change: With describing the trends on that how you are seeing.

Speaker Change: The exit rate into 2025 would be V shaped pursuit powerful thank you.

Speaker Change: Well thanks, Alex for the question I mean, the whole situation and machine automation very much driving of kind of the post COVID-19 effects where they.

Morten Virgo: I mean the whole situation in machine automation very much driven of kind of the post covid effect where they added a lot of first get for a lot of orders, but then you got a lot of inventory at the machine builders in Germany, but also really across the world. So this is an then the whole industry sector or machine builder facing a similar challenge as we also do at ABB these days. So you're also right saying that the we is lasting longer than what we expected one or two quarters ago. And so therefore we also say now that we don't think that in queue during Q2 next year we'll see a normalization of the situation.

Speaker Change: Added a lot of first kept for a lot of orders, but then you've got a lot of inventory at the machine builders in Germany, but also really across the world. So this is in the whole industry sector or machine builder facing a similar challenge as we also do at ABB. These days so.

Speaker Change: Youre also right, saying that the west is lasting longer than what we expected one or two quarters ago.

Speaker Change: So therefore, we also say now that we all think that in Q. During Q2 next year, we will see a normalization of the situation. So of course, what we need to do here at ABB, it's to adopt over breakeven level at the machine automation business. So that it becomes coming out of this situation, it's a stronger team.

Morten Virgo: So, of course, what we need to do here at ABB is to adopt over break even level at the machine automation business so that it becomes coming out of this situation. It's a stronger team, still very innovative and coming up with great technology for machine builders because this is high precision, high speed machinery where we play. So that the technology and the R&D investments happening that is still as key to keep that well balanced and keep that well in place. But we need to take down the overall cost of operations in those units, and that is already ongoing, and we will have to continue that for also now in the fourth quarter.

Speaker Change: Still very innovative and coming up with great technology for machine builders. Because this is high precision high speed machinery, where we play so that the technology and the R&D investments happening and that is still as key to keep that well balanced and keep that valley in place, but we need to take down the overall cost of operation.

Speaker Change: And those units and that is.

Speaker Change: <unk> already is ongoing and we will have.

Speaker Change: I have to continue that for also now in the fourth quarter.

Timo Ihamuotila: But Timo, maybe I'll have a comment quickly on the Germany topic. So, yes, we had 33% growth in Germany now, this quarter, but last year, Q3, we went down, also 33. So, this is actually sort of stabilizing now at a bit lower level. What was really nice to see in Germany, outside machine automation, was that, for example, in eelsmart buildings, we studied to see a bit of a pickup, which was really, really good. But I would say Germany's stabilizing at a bit lower level is the right way to look at it. That's right, thank you.

Speaker Change: Maybe I'll ever comment quickly.

Speaker Change: Quickly on the Germany topic. So we yes, we had a 33% growth in Germany now this quarter about last year.

Speaker Change: Q3, we went down wholesale 33. So this is actually sort of stabilizing now at a bit lower level, what was really nice to see in Germany outside machine automation, what's that for example in the El Smart buildings, we started to see a bit of a pickup which was really really good but I would say, it's germany stabilizing at the sort of beautiful or lower level ish right.

Speaker Change: I'll have to look at it.

Speaker Change: Okay. That's very helpful. Thank you, thanks, Alex and now Okay keep things.

Operator: Thanks, Alex, and now to keep things on a good tone here.

Speaker Change: On a good tone in hand with that it tries safe Andes.

Andy: We better try, see if Andy is here now. Hi, good morning, everyone. Appreciate it. Thanks for the big leading. I wanted to trust around pricing trends. I guess we sort of told, I think about the revenue growth being a function of kind of, I guess, that even between pricing and volume. And clearly that's coming through from kind of previously, previously priced orders. Only if you could help with a little bit in terms of what you're seeing and what you're thinking. In terms of 2025, with regards to pricing and how confident you are on retaining still positive pricing going into 25.

Speaker Change: Now.

Speaker Change: Yeah.

Speaker Change: Hi, good morning, everyone.

Speaker Change: I appreciate it thanks, thanks for the big lead in.

Speaker Change: I wanted to touch on pricing trends.

Speaker Change: I guess, we sort of told to think about the revenue growth being a function of kind of.

Speaker Change: I guess, so evenly between price and volume and clearly that's coming through from kind of previous seat previously priced orders.

Speaker Change: Wonder if you could help us a little bit in terms of what you're seeing and what youre thinking in terms of 2025 with regards to pricing and kind of how confident you are on retaining still positive pricing going into 25, then and I guess linked to that any sort of comments you could make it across the.

Operator: And I guess, link to any sort of comment you could make across the businesses, with regards to particular areas of strength or weakness, just to try and help us fill in some of those gaps.

Speaker Change: With regards to particular areas of strength or weakness just to try and help us fill in some of those gaps.

Speaker Change: Yeah.

Operator: Yeah, maybe start. Yeah, I can start. So, first of all, when you look at the pricing, we said that we had approximately 1% improvement in profitability coming from pricing. That's in our bridge. We have this sort of pricing and volume. 90 million, if I remember correctly, about 60 of that is price and the rest is volume. But then, if you look at the whole operations bucket, which, if I remember correctly, is about 80 million out of that, we also have a bit in, let's call it better quality project execution, kind of like read pricing in the longer cycle business.

Speaker Change: Yeah, Yeah, maybe you start Oh, yeah, I can I can start so first of all when you look at the pricing. We said that we had approximately 1% improvement in our profitability coming from pricing that's.

Speaker Change: In our bridge, we have they sort of pricing and volume 90 million. If I remember correctly about 60 of that is price and rest is volume, but then if you look at the whole operations bucket, which if I remember correctly, it's about $80 million out of that we also have a beat in let's call it better quality project execute.

Speaker Change: You shouldn't kind of like read pricing in the longer cycle business. So I think we are in a pretty good place moving on from here I mean, I don't think we can give any pricing guidance going into 'twenty 'twenty five but sort of we would expect pricing also to be a bit of a positive driver why don't I.

Operator: So, I think we are in a pretty good place moving on from here. I mean, I don't think we can give any pricing guidance going into 2025, but sort of we would expect pricing also to be a bit of a positive driver. Why don't I just sort of leave it there? Okay. Very helpful. Thank you.

Speaker Change: Just sort of leave it there.

Speaker Change: Okay. That's very helpful. Thank you. Thanks, and then we'll open up the line for Max at Morgan Stanley.

Operator: Thanks.

Max Yates: And then we open up the line for Max at Morgan Stanley. Thank you. Good morning, everyone. I guess just my question would be asking around the order backlog, and I guess what we can learn from the order backlog about the outlook for 25. I guess I don't expect you to sort of guide on 2025. But if we look at the order backlog for delivery in 2025 and we compare it to where we were, say, 12 months ago, what does that look like? And I guess does that point to 2025 being a year where we can be within the sort of five to 7% growth range.

Max: Thank you and good morning, everyone. I guess, just my question would be I'm asking around the order backlog and I guess, what we can learn from the order backlog.

Max: How about the outlook for 25, and I guess I don't expect you to sort of guide on 2025, but if we look at the order backlog for delivery in 2025, and we compare it to where we were say 12 months ago.

Max: What does that look like and I guess does that point to 2025 being a year, where we can be within the sort of 5% to 7% growth range.

Morten Virgo: I guess just what, yeah, what can we learn from the order backlog and timing of that backlog to delivery in 25? Any color on that. I can start. I mean, I think you already said it in your question that you don't expect any 20-25 guidance, and we will not give that. So, but Timo, maybe you can also comment a bit on general in backlog. Let's first talk a little bit how the backlog has moved because I think it is quite important. So, when you look at the backlog growth, we had 4% growth in backlog now, Q3, but we had 12% growth in EL.

Speaker Change: Yeah, well, what can we learn from the order backlog and timing of that backlog for delivery in 25 any color on that helpful.

Speaker Change: I can start I mean, I think you've already said it in your question that you don't expect any 2025 guidance and we will not give that so that's a theme or maybe you can also comment a bit on the OBL.

Speaker Change: General and backlog, Yeah, let's let's first talk a little bit how the backlog has moved because I think that's quite important. So when you look at the backlog growth, we had 4% growth in backlog now Q3, but we had 12% growth in E. L. I think we had 8% growth in motion, we're at 6% growth in P. A.

Morten Virgo: I think we have had 8% growth in motion; we had 6% growth in PA, and 29 negative in RA. So, it really just shows those dynamics what we have been talking earlier about as well. We don't see now, at this point in time, a big sort of delta in the backlog conversion going into 25. I also want to say that this backlog data is not exact science. So, I don't think there is anything there, which we could sort of rely on, or is there anything which would be in this sort of alarming?

Speaker Change: And twenty-nine negative NRA. So it really just shows those dynamics, what we have been talking earlier about us well, we don't see now at this point in time, a big sort of delta in the backlog conversion.

Speaker Change: Going into 25, I also want to say that this backlog data is not exact science. So I don't think there is anything there, which we could sort of rely on nor is there anything which would be sort of alarming.

Max Yates: OK. Thanks, Max.

Speaker Change: Okay.

Speaker Change: Okay. Thank you thanks, Max and then well open up the line for Wayne Mackie and kept the Chavez.

Will Mackie: And then we open up the line for Will Mackey. I'd kept the sugar. Yeah, very good morning for everybody. Thank you. My question relates to your plans to structurally adjust costs. At emobility and across robotics and automation, can you frame for us perhaps what the sort of annualized benefit will be from the measures you're taking as we run into 2025 in terms of absolute cost out. The rates may change, and then we can speculate on demand. Thank you. Well, thanks, Will. We are, as you're saying, all businesses, part of the ABB operating model. All businesses that are facing some headwind in the market or weaker demands will have to address their cost base.

Speaker Change: Yeah, very good morning to everybody. Thank you.

Speaker Change: My question relates to your plans to structurally adjust costs.

Speaker Change: Hum.

Speaker Change: Hmm.

At E mobility and across robotics, and automation can you frame for us, perhaps what the solid annualized benefit will be from the measures you're taking as we run into 'twenty 'twenty five in terms of absolute cost out.

Speaker Change: Fate may change and then we can speculate on demand. Thank you.

Speaker Change: Oh, Thanks, a well we are as you say an old business as part of the ABB operating model all businesses that are facing some.

Speaker Change: The headwind in the market or weaker demand will have to address their cost base is that is how we drive and that's why we said why we use silver productivity measure as one of the mandatory measured for all business leaders that you need to always take care of productivity. So that is what machine automation robotics and also while we're in.

Morten Virgo: It's that is how we drive. And that's why we use our productivity measure as one of the mandatory measures for all business leaders that you need to always take care of productivity. So, that is what machine automation, robotics, and also our eMobility business are in the midst of doing now, because this has been ongoing for some time. But, of course, there are different types of measures that we have to do here based on the challenge they face. Taking our emobility business as one example, there we have invested even more in the technology and upgrading the product portfolio.

Speaker Change: Mobility business are in the midst of doing now because this has been ongoing for some time, so but of course there are different type of measures that we have to do here based on the challenge they face of taking our E mobility business. As one example, it's there we have invested even more in the technology and upgrade.

Speaker Change: Being the product portfolio. So that is really fit for the future market of high a.

Timo Ihamuotila: So, that is really fit for the future market of high power charging, the higher ranges, so you can do the quick charge. So, that is kind of where we are doing really the resetting of that business with a very upgraded and now we're doing pilot installations at customer size. And on the machine automation, it is the same challenge to stay innovative and competitive, but at the same time you need to reduce the break-even level. So, we are able to show the performance what we expect from that business and show and getting back to where, because they are in line with expectation and creating the value we expect them to do.

Speaker Change: High powered charging you know the high higher ranges. When so you can do the quick charge. So that is kind of the way. We are doing really the re setting of that that business with a very upgraded and now we're doing pilot installations at customer sites and then of course, they also need to make that with the new design, but that it also.

Speaker Change: Fit for the future price and cost levels, what customers expect and he's on the machine automation.

Speaker Change: It is the same challenge where or is challenged to stay innovative and competitive but at the same time you'd need to reduce the breakeven level. So we are able to.

Speaker Change: Show that performance, what we expect from that business central and getting back to where because that they are in line with expectation and are creating the value. We expect them to do but the team or maybe you want to give a couple of examples as well yeah. Maybe on this overall cost equation. So we would expect both of these businesses.

Timo Ihamuotila: But Tim, or maybe you want to give a couple of examples as well. Yeah, maybe on this overall cost equation, so we would expect both of these businesses to turn to growth, and that's why the cost takeout has to be such that you can also ramp up later. So, one should not expect here something where we can just take tens and tens of millions of cost out and keep the fixed cost in that new level. But what we are looking at is really to get first the variable cost down as much as possible, and then we are streamlining the fixed cost as well, where it makes sense.

Speaker Change: To turn to growth and that's why the cost take out has to be such that you can also ramp up later, so one should not expect to hear something where we kind of like and just take tens and tens and tens of millions of cost out and keep the fixed cost in that new level, but what we are looking at is really to get.

Speaker Change: First the variable cost down as much as possible and then we are streamlining the fixed cost as well where it makes sense, but that's morten said in both of these businesses, we need to continue to invest in R&D. So that we come even better when the market will come out even better when the market comes back.

Timo Ihamuotila: But as more than said in both of these businesses, we need to continue to invest in R&D so that we come even better when the market. We come out even better when the market comes back. Thank you.

Speaker Change: Thank you.

Daniela Costa: Thanks, well, and then Daniela Costa, Colvin, should you lunch at the open, please? Hi, good morning. Just one one question. In terms of your seasonality comments regarding the margin in Q4 being sort of like a worse than normal seasonality, understand, definitely corporate is one part that contributes to that. But can you elaborate if that applies to any of the divisions, and if so, why? We gave some comments there. On the sequential margin being a bit lower than what you normally would see over the quarters. One being the corporate cost that was favorable in Q3 that will not have the same capability in the fourth quarter.

Speaker Change: Thanks, Wayne and then and Daniela Costa Goldman shouldn't be your line should be open. Please.

Speaker Change: Hi, good.

Just one question in terms of your seasonality comment regarding the margin in Q4 being sort of like a worse than normal seasonality understand definitely corporate is one part that contributes to that but can you elaborate.

Speaker Change: That applies to any of the divisions and if so why.

Speaker Change: Well, we gave some comments there on on the sequential.

Speaker Change: Margins being a bit lower than what you normally would see over the quarters, one being the corporate cost that was favorable.

Speaker Change: Favorable in Q3 that will not have the same favorability in the fourth quarter and then it's also the final step all the I would call the reset of our of our E mobility business. So those are two aspects.

Operator: And then it's also the final step of the, I would call the reset of our immobility business. So those are two aspects that we need to kind of take into consideration when we look at the fourth quarter. Yeah. I'm not at a divisional level. Yeah. Not really in the business area level. Yeah. Understood. Thank you. Okay.

Speaker Change: Aspects that we need to to kind of take into consideration when we look at the fourth quarter.

Speaker Change: Yeah, Yeah, I'm not at a divisional level not I'm not I'm not really in the business area the level yeah.

Speaker Change: Understood. Thank you okay. Thanks, Daniela and then we'll go to Joe at Cowen.

Operator: Thanks, Daniela.

Joel: And then we go to Joel at Cowan. Hi guys. Can you hear me? Yes, we can. Thanks. Okay.

Okay.

Speaker Change: Hi, guys can you hear me, yes, we can thanks.

Speaker Change: Okay.

Morten Virgo: Can you just, can you talk about the competition landscape in R.A. in China? Now we've been hearing about, like, local competitors taking some share with cheaper products and just know how well you're established in that region. Just curious if there's been any changes at the margin to the landscape there from local competitors. Thanks. Yes, it's true. We are our, of course, facing in China also the tough competition. When we're looking at also some of the local players, and a few of them has come up. So therefore, we have to make also this over China for China strategy, even kind of becomes even more important to remain competitive in the Chinese market, but also to come up with designs that is kind of fit for purpose for many of the special application that we face in China.

Speaker Change: Can you just can you talk about.

Joe: The competition landscape in Ora in China now, we've been hearing about like local competitors, taking some share with cheaper product and just I know how low year established in that region. Just curious if there's been any changes at the margin to the to the landscape there from local competitors. Thanks.

Speaker Change: Yes. It is true we are our Oh of course facing are all are in China also the tough competition that when we're looking at also some of the local players and a few of them has come up and so therefore, we have to make also and this over China for China strategy, even though kind of becomes even.

Speaker Change: More important to remain competitive in the Chinese market, but also to come up with designs that is kind of fit for purpose for many of the special application that we faced in China, China is used more in or even on the service role of robotic side and we see examples are Susan Cool example from the the noodle shop.

Morten Virgo: China is used more even on the service row robotic site. We see examples, season cool examples from the, the noodle shop where you come in and you can buy your, your lunch with your special recipe and your whole noodle soup is prepared by robot robots. So this is one example which we don't find in Europe. So kind of the design in design in China and then based on the need but also based, of course, on the price. And cost level that customers expect there. So that is what the robotics team and what we have to do here is to remain a market leader in China.

Speaker Change: Before you come in and you can buy or your lunch with your special recipe in your whole noodle soup is prepared by a robust robots. So this is one example, which is we don't find in Europe, So kind of the design in.

Speaker Change: Design in China, and then based on the need but both are based of course on the price and cost level that customers expect there. So that is what the the robotics team on what and what we have to do here as to remain a market leader in China, that's kind of the over China for China strategy as its best when those cells.

Morten Virgo: That's kind of over China for China strategy as it's best when when those are exactly we have started those program already more almost two years ago. And we start to see impact, but of course, developing a fit for market and a very local portfolio when you're going to new applications takes some time, but that is what we need to and we'll see the benefits of in the quarters and time to come.

Speaker Change: Happily we have started those program already more almost two years ago, and we start to see impact but of course developing a.

Speaker Change: Fit for market and and.

Speaker Change: And as a very local portfolio. When you go into new applications take some time, but that is what we need to and we will see the benefits of <unk> in the quarters and in time to come.

Speaker Change: Okay. Thank you and then we'll take a question from James Moore and went back.

Operator: Thank you.

James Moore: And then we take a question from James Moore at Redburn. Will I should be open? Yeah, sorry. Well, I'm thanks for the time.

Speaker Change: The launch of Melbourne.

Speaker Change: Yeah, I'm, sorry, Brian Thanks for the time.

Morten Virgo: Morten, as the new CEO of ABB, did I ask whether you think anything needs to change in the company? What does success look like to you when you retire in five, ten years' time? And on the portfolio, do you have any thoughts on areas you'd like to move into or areas you'd like to get out of, and would you consider selling a large unit, for example, robotics? Well, we've come back to many of those questions. We have a session after now when we close with the Q3. I will give some of my thoughts about which I think can answer many of those questions.

More.

Speaker Change: And as the new CEO of ADP, but alright.

Speaker Change: Ask whether you think anything needs to change in the company.

Speaker Change: The success look like so you when you retire in 510 Years' time.

Speaker Change: Portfolio do you have any thoughts on areas you'd like to move into all areas you'd like to get out of them would you consider selling a large unit for example, robotics yeah.

Speaker Change: We'll come back to many of those questions. We have a session. After now when we close with the Q3.

Speaker Change: I will give some of my thoughts about which I think can answer many of those questions and then we will have another Q&A after that so James if you can come back without questions. After I've done my bit on my CEO introduction I think that would be helpful. And then we can just focus on the Q3 first.

Morten Virgo: And then we have another Q&A after that.

Morten Virgo: So James, if you could come back with us questions after I've done my bit of my CEO introduction, I think that would be helpful. And then we can just focus on the Q3 first. If that's okay. Apologies. I didn't realize it was a double session.

Speaker Change: That's okay.

Speaker Change: Apologies I didn't realize it was a double traction maybe I could ask about data center.

Operator: Maybe I could ask about data center then. Could you give us a rough split of the roles across UPS, relays, power protection, switch gear, PDUs, anything else? Just trying to get a flavor of what you all mix of revenue is these days. Yes, you see the data center-based name. First of all, as you saw, it's growing very fast. We're up this year even more than what we showed last year when we had our Capital Market Day when we referred to the plus 20%. And so that's important, especially in the electrification business. We're moving from the 12 and up close to the 15% of the order intake of electrification.

Speaker Change: Can you give us a rough split.

Speaker Change: Oh, okay.

Speaker Change: The cross EPS relays power protection Switchgear Pdas anything else just trying to get a flavor of what your mix of revenue is these days.

Speaker Change: So you say the data center business first of all is as you saw it's growing very fast were up.

Speaker Change: And this year, even more than what we showed last year. When we had our capital market day, when we referred to the plus 20% and so that's important especially in the electrification business. We're moving from the date that from the 12 and up to the close to the 15% of the order intake of electrification. So it's there is gain more and more moment.

Morten Virgo: So it's gained more and more momentum. And the offering we're having there and where we have the biggest success is on the gray space, which is the medium voltage switchgear, the low voltage switchgear that provides all the power into the data center. That is the sweet spot for what we do. But it's not the only place. We're also on the white side on the UPS inside, you know, supplying power to the power distribution units, the PDUs, and that again supplies to the rack. So that's another part. And I have to say I'm very pleased to see the performance of also that lower decides of UPS the business of a few hundred million dollars that has doubled.

Speaker Change: So as the offering we're having there and where we have the biggest successes on the gray space, which is the the medium voltage switchgear. The the the low voltage switchgear that provides all the power into the data center that is the sweet spot for what we do but it's not the only place we're also.

Speaker Change: So on the white side on the on the U P. S inside and also supplying power to the power distribution units. The Peter you said that again supplies to the rack. So that's another part and I have to say I'm very very pleased to see the performance also that lower decides of UBS. So basically.

As of a few hundred million dollars that has doubled now and in the last.

Timo Ihamuotila: Now in the last three years, and now we have a plan for the next three years, we are expecting it to double again. And then it becomes a significant part and a real relevant for that data center business. So this is important for both the hyper scalers, but also more the co-locations that they have this really strong shop and support from us, giving critical infrastructure equipment. So good growth, both in, of course, in the United States leading, but not limiting. Somehow, the biggest order we booked this quarter was in India with some of the hyper scalers.

Speaker Change: Three years and for now we have a plan for the next three years, we are expecting it to double again, and then it becomes a significant part and in real relevant for that data center.

Speaker Change: Business. So this is important for the both the Hyperscale is but also more of the co locations that they have this really strong.

Speaker Change: Shopper and support from us so giving critical infrastructure equipment. So good growth both in the of course in the United States, leading but not limiting some of the biggest order we booked this quarter was in India, where the some of the Hyperscale.

Speaker Change: Hyperscale is and we have a big investment in data centers, both in India, but also in China. So even though you've got blotto U S focused is absolutely both a European but also.

Timo Ihamuotila: And we have a big investment in data centers, both in India, but also in China. So even though you get a lot of US focused, it's absolutely both a European, but also an Asian element to it. So it goes across the board. Maybe you want to mention the hyper guard thing as well, the whole medium voltage UPS piece. Thanks, Tim. It's a good point. We see now a shift where some of the hyper scaler looking at to take the low voltage UPS, which is kind of close to the rack. So there you need a lot of space inside on the white space.

Speaker Change: And Asian element to it so it goes across the board maybe you want to mention the Hypercard thing is well the whole medium voltage UBS paid thanks, Steve.

Speaker Change: Good point, we see now is a shift where some of the the Oh. The hyperscale are looking at to take the low voltage <unk> P. S.

Speaker Change: Is kind of close to the rack. So in there you need a lot of of space inside on the on the White space. You can also do this with our what we call our hyper guard, which is a medium voltage UBS and you play a place that close to the you know the troops former the substation side, which gives you that and secure power into the data center. It frees up a lot.

Timo Ihamuotila: You can also do this with our, what we call our Hyper Guard, which is a medium voltage UPS. And you place that close to the, you know, the transformer, the substation side, which gives you then secure power into the data center. It frees up a lot of space on the white space, which is a more expensive area to build. And it is easier to give critical, this critical power equipment when you keep it outside close to the transformer. It is also a cheap way, or a better way to do it. So that is where we see a lot of interest.

Speaker Change: A lot of space on the White space, we said more expensive area to build and it is easier to give a critical these critical power equipment. When you keep it outside closer the transformer. It is also at a cheaper way or a better way to do it. So that is where we see a lot of interest and we are the <unk>.

Timo Ihamuotila: We are in the hyper scaler space. A lot of our customers and partners there looking at this is a different design. We can do it. And we have now a great interest. Let's see how can we do this. And I will come back with, I think I hope to see some nice success stories pretty soon.

Speaker Change: In the.

Speaker Change: The hyper scaler space a lot of.

Speaker Change: Our customers and partners there looking at this as a different design that can do it and we have now a great interest to see how can we do this and we'll come back with a I'll.

Speaker Change: I think I hope seeing some nice success stories, so pretty soon.

Operator: Thank you very much. Thank you.

Thank you very much.

Speaker Change: Thank you.

Morten Virgo: And since you mentioned it, Morten, the CEO, sort of commentary about your first perspective, I think we'll move straight into that now. We'll have Morten talk about his first impressions, and we will open up for another round of Q&A, as mentioned, so James and others, the rest of you will have the chance to put your questions through again. And just as a reminder for that session, you will also need to press staff 14 to get back into the queue. And with that said, we'll switch focus, and we'll do that by just having a short little video clip, and then we'll let Morten do his piece.

Speaker Change: And since you mentioned it in Austin, and Seattle are sort of commentary and that your first perspective, I think well.

Speaker Change: Move straight into that now.

Speaker Change: It will have and Martin talk about his first impressions and we will open up for another round of Q&A asked mentioned say, James and others and the rest of you will have the chance to.

Speaker Change: Put your questions Julian again, and just as a reminder for that session will also need to press star 14 to get back into the queue.

Speaker Change: And with that said well switch focus and we will do that by just having a short video clip and then we'll let our modern into his piece.

Speaker Change: Now.

Speaker Change: Yeah.

Speaker Change: Yeah.

Operator: Morning, Morten. How are you feeling? Good, exactly about the first day. This is a gift I got from the electrification team when I left in 2000, according to the drives business. And what's your team, Morten? That's healthy. And Morten, when you were a child, what did you want to be when you grew up? I wanted to be a farmer. Growth or profitability? Growth and profitability. So now we see it's focused away from the Q3. And I know on the end of the team, get a lot of questions on what will change with me, as CEO, as I clearly didn't become a farmer.

Speaker Change: Morning, Morton, how you're feeling.

Good excited about the first thing.

Speaker Change: Okay.

Speaker Change: Yes.

Speaker Change: Okay.

Speaker Change: This is a gift from the electrification theme when I left in 2014 to the drives business and what you will change more to that.

Speaker Change: Chelsea.

Speaker Change: And also when you are charged what did you want to be when you grew up on.

Speaker Change: It would be a farmer.

Growth of profitability growth and profitability.

Speaker Change: Okay.

Speaker Change: Okay.

Speaker Change: [music].

Speaker Change: Okay.

Speaker Change: Great.

Speaker Change: Got it.

Speaker Change: Momentum.

Speaker Change: So now we shift focus away from the Q3 and I know understand the team get a lot of questions on what will change with me as CEO as I clearly didn't become a farmer.

Morten Virgo: So let's talk about the way forward. If you have followed ABB over the last 45 years, you know that there have been significant changes in our ways of working. Or people have done a great job to take the ABB way operating model, and we have become a better performing company on the back of it. But I wouldn't take on this role if I didn't believe that I can drive change to further improve, and with the team make ABB an even better company. That said, after the transformation period, it is equally important to point out what will not change, as we already are on a very good path.

Speaker Change: So let's talk about the way forward there followed ABB over the last four to five years, you know that there have been significant changes in our ways of working.

Speaker Change: Our people have done a great job to take the ABB way operating model and we have become a better performing company on the back of it.

Speaker Change: But I wouldn't take on this role if I didn't believe that I can drive change to further improve and with the team make ABB, an even better company.

Speaker Change: That said also the transformation period. It is equally important to point out what will not change as we already are in a very good path.

Morten Virgo: First of all, the big picture is really strong. We are at the center of secular trends of electricity becoming the key source of energy. For one, we serve our customers with high quality offerings of low carbon solutions and energy efficiency. And we also help manufacturing companies automate towards resource efficiency. The businesses we have are all a good fit with our purpose, and I want to make it clear that the ABB way is here to stay. But I also strongly believe we can find you in it further, and I will come back to that. Internally, I will keep emphasizing the importance of having a high performance, high integrity culture.

Speaker Change: First of all the Big picture is really strong.

Speaker Change: We are at the center of secular trends of electricity, becoming the key source of energy.

Speaker Change: For one we serve our customers with high quality offerings of low carbon solutions in energy efficiency.

Speaker Change: And we also held manufacturing companies automate towards resource efficiency.

Speaker Change: The businesses, we have are all a good fit with our purpose and I want to make it clear that the ABB way is here to stay.

Speaker Change: But I also strongly believe we can fine tune it further and I will come back to that.

Speaker Change: Internally I will keep emphasizing the importance of us having a high performance high integrity culture.

Morten Virgo: Researcher, customers should be able to trust us to deliver high quality in all aspects of our offering. The same goes for other stakeholders, like yourselves as shareholders or our employees. We will not waver in this. It builds trust and continuity with customers, but it also supports the ability in our earnings profile. So what do I bring to the table as a new CEO to help us be even better? My mandate is obviously somewhat different. Compared to Bjrn's, who since 2020 did a brilliant job in decentralizing ABB, and we have clearly improved profitability. For me, and from my starting point as CEO, it's the only natural that I will have a higher emphasis on generated profitable growth rather than large internal operational changes.

Speaker Change: Customers should be able to trust us to deliver high quality in all aspects of our offering the same goes for other stakeholders like yourselves as shareholders or our employees.

Speaker Change: We will not waver in this it builds trust and continuity with customers, but it also supports stability in our earnings profile.

Speaker Change: So what do I bring to the table as a new CEO to help us be even better.

Speaker Change: My mandate is obviously somewhat different compared with viewers, who since 2020 did a brilliant job in Decentralising ABB and we have clearly improved profitability for me and for my starting point of C. O is the only natural that I will have a higher emphasis on generating profitable growth rather than large.

Speaker Change: Internal operational changes.

Morten Virgo: But I'm sure that we can build further on the ABB way to support both growth and margin. I believe we can do more in this area. I have more than 25 years in this company, so I have a pretty good feel for our customers' needs and how our technology creates value. I know the ins and outs of the internal ABB and how we do business. I can use this background to set a good playing field for our people to collaborate. And those who know me know that I'm passionate about customer first. You also know that I'm a big football fan, and I strongly believe that the best results come from utilizing all parts of the team on and off the field.

Speaker Change: But I'm sure that we can build further on the ABB way to support both growth and margin.

I believe we can do more in this area I have more than 25 years in this company. So I have a pretty good feel for all of our customers need and how our technology creates value.

Speaker Change: I know the ins and outs of the internal ABB and how we do business I can use this background to set a good playing field for our people to collaborate.

Speaker Change: And those who know me know that I'm passionate about customer first.

Speaker Change: You also know that I'm, a big football fan and I strongly believe that the best results come from utilizing all parts of the team both on and off the field.

Morten Virgo: And I have this saying that none of us is as smart as all of us. I think we can make even more out of this going forward. I also strongly believe that we at ABB can do more when it comes to being a force in driving the energy transition. What I mean is that we can use our know-how to influence and collaborate with thought leaders and policymakers so that the outcome of our combined effort is as powerful as it can be. We can take a stronger role in showing the power of technologies that exist now, with the aim to drive investments into low carbon solutions.

Speaker Change: And I have this saying that none of us it's a smart as all of US I think we can make even more out of this going forward.

Speaker Change: I also strongly believe that we at ABB can do more when it comes to being a force in driving the energy transition.

Speaker Change: What I mean is that we can use our know how to influence and collaborate with thought leaders and policymakers. So that the outcome of our combined effort is as powerful as it can be we.

Speaker Change: We can take a stronger role in solving the power of technology. So that exists now with the aim to drive investments into low carbon solution.

Morten Virgo: So far, I think the US has done better than the EU when it comes to facilitating the move of real cash to support these investments. And as a leading player in electrification and automation, we continue to drive the industry to operate leaner and cleaner. I met some of you before, and ANSI has lined me up with an intense list of meetings in the coming week, so I will for sure meet more of you soon. What you will learn is that I like to keep things simple and the essence of business to be put to the customer-first approach.

Speaker Change: So far I think the U S has done better than the EU when it comes to facilitating the move a real cash to support these investments.

Speaker Change: And as a leading player in electrification and automation, we continue to drive the industry to operate leaner and cleaner.

Speaker Change: I met some of you before an ANSI has landed lined me up with an intense list of meetings in the coming week. So I will for sure made more of you soon.

Speaker Change: What you will learn is that they like to keep things simple and the essence of business to be put the customer first approach.

Morten Virgo: We are nothing without the support from our customers and partners, and we need to work closely with them to always improve. To improve, we need to take actions. I know I'm impatient with actions, but I also have full respect that one has to be somewhat more patient when it comes to results. And one important thing that I have learned through my career is that the quickest way to target is to start with why. Is this good and keep things simple. High performance should go hand in hand with high integrity. And to get the machine working at full throttle, we need to use to slice all the strings we have in ADC.

Speaker Change: We are nothing without the support from our customers and partners and we need to work closely with them to always improve to.

Speaker Change: To improve we need to take actions I know I'm impatient with actions, but it also I pull respect that one has to be somewhat more patient when it comes to results.

Speaker Change: And one important thing that I have learned through my career is that the quickest way to target is to start with why is this good and keep things simple high performance should go hand in Hyde with high integrity and to get the machine working at full throttle we need to use the slides all the strengths we have in ABB.

Morten Virgo: ABB. So it's my job to set a playing field where it's easy for our leaders to collaborate when it makes sense for them. Each part of the team needs to carry its weight and contribute to our common success. Sometimes we need to make adjustments to the team and how we play in order to bring home the trophies. I mentioned fine tuning the ABB way and using learning from my time in education. I want to challenge some of our divisions to cut the pie in even smaller pieces and thereby taking another step towards increased accountability, transparency, and speed.

Speaker Change: So it's my job to set that playing field, where it's easy for our leaders to collaborate when it makes sense for them.

Speaker Change: It's part of the team needs to carry its weight and contribute to our common success.

Sometimes we need to make adjustments to the team and how we play in order to bring home the trophies.

Speaker Change: I mentioned fine tuning the ABB way and using learnings from my time in electrification.

Speaker Change: I want to challenge some of our divisions to cut the pie and even smaller pieces and thereby taking another step towards increased accountability transparency and speed, but still keep our eye on the ball when it comes to collaborations towards our customers.

Morten Virgo: But still keep our eye on the ball when it comes to collaboration towards our customers. This is not a one-size-fits-all. Each business is different, and we only change when it makes sense from a business perspective. Most of you are familiar with our strategic mandates in order of stability, profitability, before growth. We are already taking actions to fully apply this model also on business line level. Beaning that while our division may have a growth mandate, the subordinate business line manager can have different mandates. We started this under my time in education, and it was really great to see the commitment and the drive that is created further down in the organization as they got the full responsibility and mandate.

Speaker Change: This is not a one size fits all each business is different and we only change when it makes sense from a business perspective.

Most of you are familiar with our strategic mandates in order to of stability profitability before growth.

Speaker Change: We are already taking actions to fully apply this model also on business line level beans.

Speaker Change: Meaning that while a division may have a growth mandate the subordinate business line manager can have different mandates. We started this under my plumbing electrification and it was really great to see the commitment and the drive that is created further down in the organization as they got the cooler responsibility and mandate but.

Morten Virgo: But even so, all is not done in education. Jean-Pierre has a busy agenda to deliver on, and there is upside in education, even from the current very high levels. One tool in building the ABB Way culture is the ABB Way booklet that we recently launched internally. This is a simple read of our decentralized ways of working, and it's available to all our employees online. Everyone in our organization has access, and as I said, we are taking it deeper to reach higher. Coming in as the CEO, it is my job to create value from this starting point, and as I mentioned, I think we can get more out of the ABB Way module.

Speaker Change: So all is not done electrification.

Speaker Change: Jumping arrow has a busy agenda to deliver them and there is upside in electrification even from the current very high levels. One tool in building. The ABB way culture is the ABB way booklet that we recently launched internally.

Speaker Change: This is a simple read of our decentralized ways of working and it's available to all over employee online.

Speaker Change: Everyone in our organization has access and as I said, we're taking a deeper to reach higher.

Speaker Change: Coming in as the CEO, it's my job to create value from this starting point.

Speaker Change: And as I mentioned and I think we can get more out of the ABB way model.

Morten Virgo: As a group, we have significantly improved our performance, meaning the bar for all businesses is higher. But now we have bigger deltas in performance in our different divisions, which take here some further fine tuning to the governance module so that we get clearer links between the strategic mandates, performance, and rewards. We currently have about 60% of revenues on a growth mandate. This has come down recently due to the change to profitability mandate in both of the divisions in robotics and the sweet automation. We will review this again in early 2025, and then I expect some upgrades to growth.

Speaker Change: As a group we have significantly improved over performance, meaning the bar for all businesses is higher.

Speaker Change: No we have bigger deltas in performance in our different divisions, which trigger some further fine tuning to the governance model. So that we get clearer links between the strategic mandates performance and rewards.

Speaker Change: We currently have about 60% of our revenues on a growth mandate. This has come down recently due to the change to profitability mandate in both of the divisions and robotics and discrete automation. We will review. This again in early 2025, and then I expect some upgrades to growth.

Morten Virgo: Applying the ABB way on all levels goes also for how we will run an active portfolio management. On the back of higher growth and higher margin, we raised our financial targets in November last year. This means that thresholds to be part of the ABB team are higher now, and this will influence our decision making for both incoming and outgoing businesses. And it's my job to challenge our business areas on our current portfolio. Push over leaders to really think about the long-term view of where we want to participate. My job is also to evaluate our playing fields.

Speaker Change: Applying the ABB way on all levels goes also for how we will run an active portfolio management.

Speaker Change: On the back of higher growth and higher margin, we raised our financial targets in November last year. This means that thresholds to be part of the ABB team are higher now and this will influence over decision, making for both incoming and outgoing businesses.

Speaker Change: And it's my job to challenge our business area. Some of our current portfolio push our leaders to really think about the long term view of where we want to participate my job is also to evaluate our playing fields are there adjacent areas, which are close to our core offering and to fit well with the ABB purpose that we can add on.

Morten Virgo: Are there adjacent areas which are closed over core offering and to fit well with the ABB purpose that we can add on? I want us to become slightly more systematic in our approach in this area and make sure we always consider the aspect of long-term risk-reward when we use M&A to drive profitable growth for ABB. To generate growth, it is key that we remain relevant for customers. We want to be the preferred partner for solving a problem, first in mind, or over customers. We have actually increased our R&D spend, but about 40% since 2020, to 1.4 billion in the last 12 months.

I want us to become slightly more systematic in over our approach in this area and make sure. We always consider the aspect of long term risk reward when they use M&A to drive profitable growth for ABB.

Speaker Change: To generate growth. It is key that we remain relevant for customers, we want to be the preferred partner for solving a problem first in mind or our customers.

Speaker Change: We have actually increased our R&D spend but about 40% since 2020 to $1 4 billion in the last 12 months and the ratio for R&D to sales, turning 2022, and actually increase sequentially into 'twenty, three and year to date in 2000 and poor.

Morten Virgo: And the ratio for R&D to sales turned in 2022 and actually increased the quenchedly into 23 and year-to-date in 24. We are about 4.4%, which means we are back at the run rates from 2019 and 20. And I think the 4.5% to 5% level is a good place for us to be. This does not include over venture capital investments, which, in my view, is an extension of our R&D efforts. Our CAPEX spend has been stable at the 700 to 800 million level since 2018. And for this year, we expect a slight step up towards the 850 million.

Speaker Change: We are about four 4%, which means we are back at the run rates from 2019, and 20 and I think the 4.5% to 5% level is a good place for us to be.

Speaker Change: This does not include over venture capital investments, which in my view is an extension of our R&D efforts.

Speaker Change: Our capex spend has been stable at 7% to 800 million level since 2018 and for this year, we expect a slight step up towards the $850 million.

Morten Virgo: I don't foresee it to change significantly from here. When you think about it, it's not that many companies that can spend more than $2 billion on R&D and CAPEX. And I would argue, this has barriers to entry. We are well invested. And to make sure we get full bang for the buck, it's important that these investment decisions sit in the divisions. They are the ones who best know in the customer and what we need to remain a leading player in over chosen segments. This is how we already run it through the ABB way. And about 55% of our R&D employees focus on software and digital solutions.

Speaker Change: I don't foresee it to change significantly from here. When you think about it is not that many companies that can spend more than $2 billion on R&D and Capex and I would argue this hats barriers to entry.

Speaker Change: We are well invested and to make sure we get full bang for the Buck is important that these investments decisions sits in the divisions. They are the ones, who best known the customer and what we need to remain a leading player in our chosen segments. This is how we already run it through the ABB way.

Speaker Change: And about 55% of R&D employees, they focus on software and digital solutions, we create customer value through embedded software. This is a lever for our market leading position in the building block for strong gross margin.

Morten Virgo: We create customer value through embedded software. This is a lever for our market leading position and a building block for strong gross margin. Another area where we have initiated activities is on the ABB brand positioning. I'm very proud about working at ABB. And we help industries become leaner and cleaner. I've seen our technology come to life and make a real difference for customers. We know that our onboarded customers are loyal. But having looked into this, we believe we have a commercial upside from a more focused industrial positioning of our brand. Rest assured that this does not mean our corporate branding spend will increase.

Speaker Change: Another area, where we have initiated activities is on the ABB brand positioning.

Speaker Change: I'm very proud about working at ABB.

Speaker Change: And we help industries become leaner and cleaner.

Speaker Change: I haven't seen our technology come to life and make a real difference for customers.

Speaker Change: We know that our onboard customers are loyal but having looked into this we believe we have a commercial upside from a more focused industrial positioning of our brands.

Speaker Change: Rest assured that this is does not mean, our corporate branding spend will increase we will simply apply a more focused use of the cash spend better not bigger.

Morten Virgo: We will simply apply a more focused use of the cash. Spend better, not bigger. This is clearly a long-term project. But in the coming months, we will start working towards a better positioning of the ABB brand. The brand is closely linked to the ABB purpose, and all our businesses fit with our purpose. Any portfolio changes from here will be triggered by our intent to further optimize performance and create long-term value. I think that our purpose statement describes really well how we create value and what drives our business. It shows that our offering is closely aligned with strong secular trends.

Speaker Change: This is clearly a long term project, but in the coming months, we will start working towards a better positioning of the ABB brand.

Speaker Change: The brand is closely linked to the ABB purpose and all of our businesses fit with our purpose.

Any portfolio changes from here will be triggered by our intent to further optimize performance and create long term value.

Speaker Change: I think that over purpose statement describes really well, how we create value and what drives our business. It shows that over offering is closely aligned with strong secular trends electricity demand is expected to grow 10 times faster than any other energy sources.

Morten Virgo: Electricity demand is expected to grow 10 times faster than any other energy services. So, on a high level, I would say that these 80% of ABB is, in one way or another, linked to the world going electric. So you are really at the core of the energy transition. Another global topic is that working age population is expected to fall by close to 25% by 2035. It is, of course, up to us to make sure we capture these business opportunities, as we really have a strong exposure to secular growth markets. The next couple of slides are busy, but don't worry; we will not go through it in detail.

Speaker Change: So on a high level I would say that at least 80% of ABB is in one way or another linked to the world going electric So we're really at the core of the energy transition.

Speaker Change: Another global topic is that working age population is expected to fall by close to 25% by 2035.

Speaker Change: It is of course up to us to make sure. We capture these business opportunities as we really have a strong exposure to secular growth markets.

Speaker Change: The next couple of slides are busy but don't worry we will not go through it in detail.

Morten Virgo: But I want to include some stats from outside ABB, and there is a lot of pointing to real long-term fundamental drivers to over top line. These estimates you see in these charts can, of course, prove to be off to some extent, but the idea of electricity as a growing source of energy that will happen in my book. The timeline may vary to some degree, but the end game will be an increased use of electricity. That train has already left the station. Looking some years out, there will be more of us living on this planet. More of us living in urban areas with rising expectation when it comes to standard of living.

Speaker Change: But I wanted to include some stats from outside ABB and there is a lot all pointing to real long term fundamental drivers to all of our top line.

Speaker Change: These estimates do you see in these charts kind of of course proved to be off to some extent, but the idea of electricity as a growing source of energy that will happen in my book.

Speaker Change: The timeline may vary to some degree but the end game will be an increased use of electricity that train has already left the station.

Speaker Change: Looking some years out there will be more of us living on this planet more of us living in urban areas with the rising expectation when it comes to standard of living and at the same time, we all on team Earth have jointly agreed to make this planet greener and cleaner.

Morten Virgo: And at the moment, the global agenda is to reduce carbon footprint by moving away from positive fuels in favor of low carbon energy sources. And electricity is a key tool to achieve these ambitions. Getting to the low carbon finishing line will require significant investments by utilities, manufacturing industries, buildings, etc. And at the same time, there are new fast growing applications like data centers. ABB top line will benefit from all these investments. And just to make it more real, there are four market segments that represent 95% of the global greenhouse gas emissions. Those four segments represent 97% of ABB's orders.

Speaker Change: The global agenda is to reduce carbon footprint by moving away from fossil fuels in favor of low carbon energy sources and electricity is a key tool to achieve these ambitions.

Speaker Change: Getting to the low carbon finishing line will require significant investments by utilities manufacturing industries building etcetera and at the same time, they're a new fast growing applications like data centers ABB topline will benefit from all these investments and just to make it more real there.

Speaker Change: Our four market segments that represent 95% of the global greenhouse gas emissions.

Speaker Change: Those four segments represent 97% of Abb's orders.

Morten Virgo: Over technologies really are at the core of accelerating the energy transition. A shrinking labor force is all-news, but it still affects. As from 2030, the curve for working a population is expected to decline in major regions and markets, even in India. And in China, the rate of decline is getting sharper. The only way for producing companies to remain efficient and even able to produce is to invest in automation. So you may think, okay, ABB has offered energy efficiency, electrification, and automation earlier. So why would they be able to deliver higher growth through the cycle now compared with over history?

Speaker Change: Our technologies really are at the core of accelerating the energy transition.

Speaker Change: A shrinking labor force is old news, but it's still a fact.

As from 'twenty 30, the curve for working age population is expected to decline in major regions and markets even in India.

And in China the rate of decline is getting sharper.

Speaker Change: The only way for producing companies to remain efficient and even able to produce is to invest in automation.

Speaker Change: So you might think okay. ABB has offered energy efficiency electrification and automation earlier, so why would they be able to deliver higher growth through the cycle now compared with over history.

Morten Virgo: That's a fair question, but I would say there are two important factors to remember. Over new ways of working, the ABB Way operating model. Often, when we talk about the ABB way, it leads directly to a margin discussion. But I believe it has a positive impact also on our top line. Business decisions are made closer to customers. And decisions are made faster as they have reduced the number of approval letters. With the clear accountability for each division and now increasing accountability by business lines, there is nowhere to hide for our managers. Secondly, the underlying market has changed.

Speaker Change: That's a fair question, but I would say there are two important factors to remember.

Speaker Change: Our new ways of working the ABB way operating model.

Speaker Change: Often when we talk about the ABB way it leads directly to a margin discussion, but I believe it has a positive impact also on our topline.

Speaker Change: And as decisions are made closer to customers and decisions are made foster as we have reduced the number of approval levels.

Speaker Change: With a clear accountability for each division and now increasing accountability by business lines. There is nowhere to hide for our managers.

Speaker Change: Currently the underlying market has changed the energy transition is real and there are multiple drivers there are legislations coming through making the increased investments in low carbon solution a must it's happening it's not a choice.

Morten Virgo: The energy transition is real, and there are multiple drivers. There are legislations coming through making the increased investments in low carbon solution, and must this happening is not a choice. He also sees increased requirements for ESG reporting and puts the spotlight on corporates not to fall behind on green investments. We see focus from stakeholders like yourselves, shareholders, who may influence corporates towards low carbon investments. And I would also like to mention it's an attraction point for new talents. As corporates need to show that we are good citizens, contribute to a sustainable future with high integrity so that young talents want to come on board.

Speaker Change: You also see increased requirements for ESG reporting and puts the spotlight on corporates not to fall behind on Green investments.

Speaker Change: We see focus from stakeholders like yourselves shareholders, who make influenced corporate towards the low carbon investments.

Speaker Change: And I would also like to mention is an attraction point for new talents.

Speaker Change: As corporates need to show that we are good citizens contribute to a sustainable future with high integrity, so that young talents want to come on board.

Morten Virgo: All in all, I feel we are in a good position to deliver on over through the side of the cycle target of 5 to 7% for comparable revenue growth. We have delivered 6% since 2019, and we are in good position to continue to deliver growth at a higher pace compared with a low single digit rate. This company achieved further back in time. I'm really proud of the margin improvement we have achieved. We still have some way to go before we are at the very high end of the target range. But I see a path of us getting there.

Speaker Change: All in all I feel we're in a good position to deliver on our through the cycle target of 5% to 7% for comparable revenue growth.

We have delivered 6% since 2019, and we are in good position to continue to deliver growth at a higher pace compared with a low single digit rate.

Speaker Change: This company achieved further back in time.

Speaker Change: I'm really proud of the margin improvement we have achieved we still have some way to go before we are at the very high end of the target range.

Speaker Change: But I see a part of us getting there and after that we will see what our next step is I don't see the 19% at the end station to the margin journey in ABB.

Morten Virgo: And after that, we will see what our next step. I don't see the 19% as the end station to the margin journey and ABB. But I want to make sure we continue to not stress the organization into short-term achievements. I want to make sure we get it right for the long term. And I get confidence from the 500 basis point improvement in over gross margin. This shows that we have fundamental improvements and not just squeezed elements to a momentarily good profitability. And by the way, I don't see why we couldn't close in on the 40% gross margin.

Speaker Change: But I want to make sure we continue to not stress the organization into short term achievements.

Speaker Change: I want to make sure we get it right for the long term.

Speaker Change: And I get confidence from the 500 basis point improvement in overall gross margin. This shows that we have a fundamental improvements and not just squeeze the lemon so a momentarily good profitability.

Speaker Change: And by the way I don't see why we couldn't close in on the 40% gross margin that is a good quality company in my view.

Morten Virgo: That is a good quality company, in my view. We have talked about how it will be more granular in the way we allocate the strategic mandates. We already have a higher share of our business with a gross mandate compared with when we started to implement the ABB way back in 2020. That said, I don't assume that the end game will be that 100% is tagged to gross. A given mandate is not fixed for life. There may be changes in the market which go beyond the normal cyclical change. There may be acquisitions that trigger change to profitability mandate for a certain period.

Speaker Change: We have talked about how it will be more granular in the way we allocate the strategic mandates.

Speaker Change: They already have a higher share of our business with a growth mandate compared with when we started to implement the ABV way back in 2020.

Speaker Change: Let's say I don't assume that the end game will be that 100% is tagged to growth and given mandate is not fixed for life. There may be changes in the market, which go beyond the normal cyclical change there may be acquisitions that trigger a change the profitability mandate for a certain period. There may also choose to.

Morten Virgo: We may also choose to keep some businesses in profitability because they have a structurally lower profitability level but a strong return of capital. Looking back at recent history, we have not delivered on our acquired gross target of 1 to 2% through the cycle. But I think it's only to be expected when a company goes through a period of such radical change as we recently have. But we are picking up the pace of acquisitions, and small to midsize deals should be the base case for what to expect from us. We like buying small to midsize companies in areas where we operate, as the equation for long-term risk reward is the best here.

Speaker Change: Keep some businesses in profitability because they have a structurally lower profitability level, but a strong return on capital.

Speaker Change: Looking back at our recent history, we have not delivered on our acquired growth target of 1% to 2% through the cycle.

Speaker Change: But I think it's only to be expected when a company goes through a period of such radical change as we recently have.

Speaker Change: But we are picking up the pace of acquisitions and small to mid sized deals should be the base case for what to expect from us we.

Speaker Change: We like buying small to mid sized companies in areas, where we operate as the equation for long term risk reward is the best here.

Morten Virgo: Scholar. Regarding larger assets, it's my job to have a view on it, and where it makes strategic sense to add a new division, expand into adjacent areas. I mentioned that we have picked up momentum, and you see that in the split of how we spent over free cash flow. During the last 12 months, we have announced acquisitions that would use up about 23% of the free cash flow generated in that period, compared with 6% during 2023. This also shows in a more balanced distribution of dollars spent according over capital allocation principles, investing more behind in organic growth.

Speaker Change: Regarding larger assets, it's my job to have a view on it and it makes it where it makes strategic sense to add a new division expand into adjacent areas.

Speaker Change: I mentioned that we have picked up momentum and you'll see that in the split of how we spend our free cash flow.

Speaker Change: During the last 12 months, we have announced acquisitions that would use up about 23% of the free cash flow generated in that period compared with 6% during 2023.

Speaker Change: This also shows in a more balanced distribution of dollars spent according our capital allocation principles investing more behind inorganic growth.

Morten Virgo: Each business has built good target pipelines, and I feel we are getting there, but still have some way to go before we are fully up to speed on our M&A performance culture. We have a policy which states that the dividend per share should steadily increase. This is very important to us as the main way of returning capital to shareholders. We also like buybacks, but ultimately, the utilization level of buyback programs depends on how much we spend on M&A. Buybacks is the residual valve for use or cash. Our PNL has become less volatile, and we have de-risked operations by stepping away from EPC business, which, combined with the earnings improvement, has supported our cash flow generation.

Speaker Change: Each business has built good target pipelines and I feel we're getting there, but still have some way to go before we are fully up to speed on our M&A performance culture.

Speaker Change: We have a policy, which states that the dividend per share should steadily increase this is very important to us as the main way of returning capital to shareholders. We also like buybacks, but ultimately the utilization level of buyback programs depends on how much we spend on M&A buybacks is the rich.

Schedule, a valve for use of cash.

Speaker Change: Our P&L has become less volatile and we have derisked operation by stepping away from EPC business, which combined with the earnings improvement has supported over cash flow generation.

Morten Virgo: Our free cash flow margin has more than doubled to about 11% from the average of 5% in 2019 to 22. Our cash flow profile should continue to be solid. To line with our shareholders' position, we have made our target for acquired growth the net of acquisitions and divestments. You may remember that we have invested three full divisions to align the portfolio to the ABB purpose, and this put pressure on the net growth percentage. As you can see on the slide, the number of acquisitions is increasing. Not all will be close this year, but what we have announced so far would post us within our target range.

Speaker Change: Our free cash flow margin has more than doubled to about 11% from the average of 5% in 2019 to 22.

Speaker Change: Our cash flow profile should continue to be solid to align with our shareholders position. We have made our target for acquired growth the net of acquisitions and divestments.

You may remember that we have divested three pool divisions to align the portfolio through the ABB purpose and this put pressure on the net growth percentage.

Speaker Change: As you can see on the slides the number of acquisitions is increasing.

Speaker Change: Not all will be closed this year, but what we have announced so far would pose to us within our target range. Some years, there will be more and some less.

Morten Virgo: Some years, there will be more and some less. We have achieved great improvement in our return on capital employed. Having moved from 10 to 11% in 2019 and 20 to current level or close to 22%. And we target to remain above 18%. Even we invest more behind inorganic growth. Looking at the ROC on operating assets, we are close to 50%. So it clearly makes sense for us to invest in our business. In my view, we fare well on the ROC KPI, and we want to be a company which delivers a ROC about 18%. Our additional financial targets also remain as we presented them in November 2023.

Speaker Change: We have achieved great improvements in our return on capital employed having moved from 10% to 11% in 'twenty and 19 and 22 current level of close to 22%.

Speaker Change: And we target to remain above 18%, even we invest more behind inorganic growth.

Speaker Change: Looking at the rosy on operating assets, we're close to 50%. So it clearly makes sense for us to invest in our business.

Speaker Change: In my view, we fare well on the road seek API and we want to be a company, which deliver a rosy about 18%.

Speaker Change: Our additional financial targets also remain as we presented them in November 2023.

Morten Virgo: We aim for an EPS growth of at least single-digit growth through the economic cycle. Our annual free cash flow conversion to net income should be about 100%. Equally important are our sustainability targets. How we work with ASG, very much mirrors the ABB Way model. Also, for sustainability, the accountability sits in the divisions embedded in our operations. We have framed our ambitions around the three pillars of enabling a low carbon society, preserving resources, and promoting social progress. About this time last year, we lean forward on the pillar of low carbon society and upgraded our ambitions with a new net zero science based targets.

Speaker Change: We aim for an EPS growth of at least single digit growth through the economic cycles.

Speaker Change: Our annual free cash flow conversion to net income should be about 100%.

Speaker Change: Equally important are our sustainability targets, how we work with ASC very much mirrors. The ABB way model also for sustainability. The accountability sits in the divisions embedded in our operations.

Speaker Change: We have framed our ambitions around the three pillars of enabling a low carbon society preserving resources and promoting social progress above.

Speaker Change: About this time last year, we lean forward on the pillar of low carbon society and upgraded our ambitions with a new net zero science based targets.

Morten Virgo: They were validated and approved by SPTI earlier this year. For 2030, we know target 80% reduction of scope one and two greenhouse gas emissions. And we target at 25% reduction of scope three emissions. Looking at 2050, we target 100% reduction of scope one and two, and a 90% reduction of scope three emissions. Overall, we are on track to deliver on our 2030 targets, and you can follow our progress via our sustainability disclosure dashboard. The biggest positive impact we as ABB can have on the environment is to sell more products and solutions to our customers. We sell energy efficiency and low carbon solutions through our technology leadership in electrification and automation.

They were validated and approved by SPT I earlier this year.

Speaker Change: For 2030, we now target, 80% reduction of scope, one and two greenhouse gas emissions.

And we target at 25% reduction of scope three emissions.

Speaker Change: Looking at 2050, we target, 100% reduction in scope, one and two and a 90% reduction of scope three emissions.

Speaker Change: Overall, we are on track to deliver on our 2030 targets and you can pull of our progress we our sustainability disclosure dashboard.

Speaker Change: The biggest positive impact we have ABB can have on the environment is to sell more products and solutions to our customers, we sell energy efficiency and low carbon solutions through our technology leadership in electrification and automation link.

Morten Virgo: Link to this, our particularly want to mention our ambition to help customers avoid 600 megatons of emissions through the lifetime of our products sold in 22 to 2030. And this is a net number in the meaning that we take the customer savings and deduct the impact from production. So I hope I made it clear that I think we can deliver our growth targets. In due course, I see further upside to profitability by taking the ABB way even deeper in the divisions. And I believe we can deliver a strong return on capital even more with M&A.

Speaker Change: Linked to this I, particularly want to mention over ambition to help customers avoid 600 megatons of emissions through the lifetime of a product sold in 'twenty two to 'twenty therapy.

Speaker Change: And this is a net number in the meaning that we take the customer savings and deduct the impact from production.

Speaker Change: So I hope I have made it clear that I think we can deliver on our growth targets in due course, I see further upside to profitability by taking the ABB way even deeper in the divisions and I believe we can deliver a strong return on capital even more with M&A.

Morten Virgo: We can pay an increased dividend, do M&A, and continue with share buybacks. And our sustainability agenda is an integrated part of the ABB Way and can be a competitive business edge for us. Like I said, I wouldn't take this job if I didn't think I can contribute to an even better ABB.

Speaker Change: He can pay an increased dividend do M&A and continue with share buybacks and our sustainability agenda is an integrated part of the ABB way and can be a competitive business edge for us.

Speaker Change: Like I said I wouldn't take this job if I didn't think I can contribute to that even better ABB and with that I suggest we open it up for questions.

Operator: And with that, I suggest we open it up for questions. And now time for the second session for all Q&A.

Speaker Change: And now and time for the second session for the Q&A.

James Moore: And we'll, I think in all fairness, allow James to come back and put his question, which is started earlier. James, your line should be open. Thanks, Nancy. Yes, let's come back to that. I've heard everything you said more, and that was very comprehensive. Maybe I could change my question for Merle and say, you talk about the fine tuning and moving from the divisions to the subordinated business lines. Could you say how many business lines do you have across the group? And whether the percentage of red, yellow, green is basically the same as the divisions or whether that changes the degree to which you have a growth mandate, maybe I could start there and then something on portfolio if I could tag that on.

Speaker Change: And we're I think in all fairness allow James just wanted to come back and put his question. We just started earlier James your line should be open.

James Moore: Thanks Nancy.

James Moore: I have let's come back to that having heard everything you said most of that was very comprehensive maybe I could change my question, primarily I'd say.

James Moore: You talk about the fine tuning and moving from the divisions.

James Moore: Alternated business line could you say, how many business lines you have across the group and whether the percentage of Red yellow Green is basically the same as the divisions or whether that changes the degree to which you have a growth mandate.

James Moore: Maybe I could start there and then something on portfolio and if I could tack that hum.

Morten Virgo: Well, thanks, James. Good question. We have in ABB 18 plus over immobility. That's what we kind of, when I say 19 operating divisions, that's how, and you know, those sits in the four business areas. And under those divisions, there could be from three and up to five to six business lines. And you have to remember that these divisions to range from like from one and, you know, up to six billion dollars. So they are like pretty large companies. So that's how we divide it. And you know that in every large mid and large company, there are, I would say, they're really the good, the bad, and the ugly.

Speaker Change: Thanks, James Good question, we have in ABB.

18, plus over E mobility, that's what we kind of when I when I say 19 operating divisions, that's how and you know those seats in the four business areas and the <unk>.

Speaker Change: Under those divisions that could be from three and up to five to six business lines that you have to remember that these divisions to range from like from 119 up to $6 billion. So they are like pretty large companies.

So that's how we divided and and you know that in every.

Speaker Change: Large mid to large company there are other I would say the they're really the good the burden on the ugly ever even though in ABB, we have more much more of the good and the beautiful then the ugly. So we are but this is a is how we define it also they are under that gross the gross divisions. They will look at.

Morten Virgo: Even though in ABB, we have much more of the good and the beautiful than the ugly. So we are, but this is how we define it also. They under that growth division, they will look at, maybe if you have five business lines, and I can take smart building and electrification business, just as a practical example. There, you would have three business lines which is in growth, profitable growth mindset. That means they are expected to grow. Their targets are very much on growth, and their incentive plans is also heavy on revenue growth. So that is, but we also have two other business lines which is not in the same situation.

Speaker Change: If you have five business lines, so that can take smart building and electrification business just as a practical example.

Speaker Change: There you would have.

Speaker Change: Three business lines, which is in growth profitable growth mindset that means they are expected to grow their targets are very much on growth and their incentive plans is also.

Speaker Change: Harry on the revenue growth. So that is but we also have two other business lines, which is not in the same situation and of course their targets is more about improving profitability and turning those business lines around that it means higher targets on profitability improvement, but also more incentives sun.

Morten Virgo: And of course, their targets is more about improving profitability and turning those business lines around. And that means higher targets on profitability improvement, but also more incentives and for their management about profitability improvement, not about growth. And of course, when this would also be reflected when we look at capital allocation and M&A, that means if there is a business line where we are struggling or don't have, we feel we have it not under good enough control, we're not going to allocate capital, making a significant investment there. First, you kind of get your house in order, and then you're allowed to grow, and you will get access also of the cash pool of ABB and further invest of it.

Speaker Change: And for their management about profitability improvements not about growth and of course when it. This would also be reflected when we look at capital allocation and M&A that means if there is a it's a business line, where we are struggling or have don't have we feel we have had not under good enough control, we're not going to allocate capital make.

Speaker Change: Significant investment in their first you kind of get your house in order and then you are allowed to grow and you will get axis also of the cash pool of ABB and further invest of it. So that's kind of in the very in short the principle of what we want to drive what we have now done on the business area and division level. We now want to have on the division and the business line level.

Morten Virgo: So that's kind of very in short the principle of what we want to drive. What we have now done on the business area and the vision level, we now want to have on the division and the business line level. Some are doing it already, but I think we can do even more because I know these drives ownership and performance, and it also just have more line of sight so that people can be in charge of their own destiny in the company and build successful careers and improve those bits. Thank you very much. You can squeeze the second one on portfolio.

Speaker Change: Some are doing it already but I think we can do even more because I know these drives ownership and performance.

Speaker Change: And he is also just have more line of sight. So that people can be in charge of their own destiny and the company and build successful careers and improve those businesses.

Speaker Change: Thank you you could squeeze the second one on portfolio.

Morten Virgo: I mean, any thoughts on the current portfolio? You mentioned all the businesses we have; businesses we have are a good fit, but would you consider selling a larger unit like robotics? Basically, is the question, and you mentioned the large acquisitions are your job more than the business areas. Are there any other legs that you could envisage technologically that you'd like to see the company at all, or any range of opportunities that you could see in the future? Thanks. As we say, the smaller and mid-size acquisition sits with the divisions. The bigger portfolio questions sit very much with Timo and myself and the Executive Committee when we're looking at what we would do and change.

Speaker Change: Any thoughts on the current portfolio you mentioned all the business. We have businesses may have very good fit, but what would you consider selling it.

Speaker Change: Larger unit like Robotics basically is the question you mentioned, the large acquisitions or your old job more than the business areas.

Speaker Change: <unk>.

Speaker Change: Are the legs that you could envisage technologically that you'd like to see the company.

Or any a range of opportunities that you could see in the future.

Speaker Change: Oh, Thanks, as we say the this mauler and mid sized acquisition sits with the divisions there bigger portfolio questions fits very much with T Mo and myself and the Executive Committee when we're looking at what we would do a change that has been also the history of the past when the when we did some of the divestments, but for us now.

Morten Virgo: That has been also the history of the past when we did some of the divestance. But for us now, the focus is more about what we add than more than what we sell. So that is the clear focus on acquisitions more than divestment at the moment because all the businesses we have in ABB today is fitting with our ABB purpose of electrification and automation and driving sustainability and resource efficiency. Right now, we mentioned robotics. We are facing some tougher situations in the market, but the long-term trend of automation and robotics is definitely there. Therefore, we are confident it's more about improving the performance of the units both in robotics and in the discrete automation.

Speaker Change: The the.

Speaker Change: Our focus is more about what we add then more more than what we what we sell so that is the it's a clear focus on acquisitions more than divestment at one because all the business that we have in ABB today is fitting with our ABB purpose purpose of electrification and automation and driving sustainability and.

Speaker Change: Resource efficiency. So right now you mentioned robotics, we are facing some tougher.

Tougher situation in the market, but the long term trend of automation and robotics is definitely there. So therefore, we are confident it is more about improving the performance of the units both in their baltics and in the discrete automation that is the main focus so now for for the team and from all of us to make that business.

Morten Virgo: That is the main focus now for the team and for all of us to make that business better and then move on. Okay. Thank you, Jane.

Speaker Change: Better and and then and then move on.

Speaker Change: Okay.

Speaker Change: Thank you Dan.

Andre Kukhnin: And then we open up the line for Andre at UBS. Andre, are you there? Good morning. Yes. Yes, I am. Good morning. Thank you very much for taking my questions. I think we've gone up some of the 10 points, 20%. How do you view that level of profitability in terms of kind of through-cycle sustainability and given the history of this business and this market? No, thanks, Andre. The medium voltage business in ABB has done through a remarkable journey over the last three years, especially the last two years, picking up on these mega trends of especially in the field of data center, but also on the utility space.

Speaker Change: And then we'll open up the line for Andre at UBS.

Andre: Andre you that a good good morning, yes, yes. Good morning. Thank you very much for taking my questions.

Andre: I wanted to maybe touch specifically on the medium voltage piece within electrification, where you talked about.

Speaker Change: Kind of an education margin is not yet at full potential.

Speaker Change: But medium voltage is one piece that I think has enjoyed a substantial improvement in profitability I think we've gone up.

Speaker Change: Some of that 10 points close to 20%.

Speaker Change: How do you view that level of profitability in terms of kind of through cycle sustainability and given the history of this business in this market.

Speaker Change: Thanks, Andre the medium voltage business in ABB has gone through and remarkable journey over the last three years, especially the last two years.

Speaker Change: Picking up on these megatrends of especially in the field of data center, but also on the utility space. So they have taken a look and capture some many of those opportunities and that's where we see both growth, but also a strong improvement in profitability and you have to look at this market and in the medium voltage.

Morten Virgo: So they have taken and captured so many of those opportunities. And that's where we see both growth, but also a strong improvement in profitability. And you have to look at this market in the medium voltage markets. Here, you will see, especially starting now in Europe, you will see a big shift to what we call SF6-free switch gear. This is where all utilities have to change, because this will be not allowed by European utilities to install. And we see that many others, like China, are now following the trend of Europe, and I believe this will be a global topic.

Speaker Change: Mark is there we will see.

Speaker Change: Especially starting now in Europe, you will see a big shift to what we called SF six free switch gear. This is where are all the utilities have to change because this will be.

Speaker Change: Not allowed by European utilities to install and we see that many others like China is no pullover trend of Europe and I believe this will be a global topic. So this is a new investment cycle that will happen in the medium voltage space because the SFC switchgear need to be replaced over time and all the new ones will come without this it.

Timo Ihamuotila: So this is a new investment cycle that will happen in the medium voltage space, because the SF6 switch gear need to be replaced over time, and all the new ones will come without SF6. And we have the new design in place, and being the market leader in that space, I believe that gives us a really good opportunity also for the future in our medium voltage business. So I'm confident there that this is a long-term, interesting market way beyond 2030, because some of the whole electrification and more of the investment and the distribution network all across the world has to happen now, or to be able to decarbonize industries and have that kind of this electrification trend that is happening, that is really benefiting this part of the business.

Speaker Change: And we have the new design in place and being the market leader in that space I believe that gives us a really good opportunity also.

Speaker Change: For the future in over medium voltage business I'm I'm confident there that this is.

Speaker Change: Our long term interesting markets are way beyond 2030, because some of the these whole electrification and more of the investment in the distribution network all across the world has to happen now or to be able to decarbonize industries in and have that that kind of this electrification trend has happened.

Speaker Change: That is happening that is really benefiting at this part of the business. So.

Andre Kukhnin: So I'm very confident about that also for the coming year. Thank you.

Speaker Change: I'm very confident about that also for for the coming years.

Speaker Change: Okay. Thank you and if I may ask another question or we could do on its time well James started eight so we go for two then.

Andre Kukhnin: If I may ask another question, or we can do one at a time? Well, James started it, so we go for two then. Thank you. I just wanted to ask about what you finished with in terms of implementing ABB way further into divisions, into sub-segment. So I guess the simple question, what is the potential there? And whether you can help us at all with the, before we talked about numbers of people at the central function that got moved into business areas, then from business areas, to kind of business units. Is this the way for us to think about of kind of that access on attached headcount?

Ooh.

Speaker Change: Yes.

Speaker Change: Thank you.

Speaker Change: I just wanted to ask about what you finished with in terms of.

Speaker Change: Clemente ABB way further into divisions into sub segments.

Speaker Change: The simple question what is the potential there.

Speaker Change: But can you can help us at all with.

Speaker Change: Before we talked about numbers of.

Speaker Change: People at the central function that got moved into.

Speaker Change: Business areas.

Speaker Change: Then from business areas kind of business units.

Speaker Change: Is this the way for us to think about of kind of that access.

Speaker Change: On the attached head count and if it is could you give us an idea of the numbers there or is it a.

Morten Virgo: And if it is, could you give us an idea of the numbers there, or is it, is it different? It is probably a bit different. This is more about how can we get faster to the targets that we have announced. How do we reach our growth and profitability targets in a very fast way? And because this is how we are making decision-making closer to customers. I think that and driving accountability throughout and even deeper in the organization. For me, that's the benefit of this change, as making us even, as I say, closer to customer making decisions and therefore driving growth in a better way.

Is it different.

Speaker Change: It is probably a bit different this is more about how can we get faster to the the targets that we have announced how do we reach our growth and profitability targets in a very fast way in because this is how we are making decision making closer to customers. So I think that's and drive.

Speaker Change: <unk> accountability throughout an even deeper in the organization for me. That's the benefit of this change are making us even as I say closer to customer, making decisions and therefore driving growth in a better way that is really the main advantage of it.

Timo Ihamuotila: That is really the main advantage of it. But it also puts all the business lines in charge of their own cost. And I use this expression often; it's much easier to spend other people's money. So when it's your money, then you're also holding on to it tighter. So I think that is, again, driving performance in the group over the last years. And that's also how we want to continue and drive that even harder in the next day in the coming years. Can I throw something in there as well? So we are not expecting any kind of corporate-level, big restructuring.

Speaker Change: But it also puts all the business lines in charge of their own cost and I use. This expression often is much easier to spend other people's money. So when it's your money then you're also holding all else onto it tighter. So I think that is again driving performance in the group over the last years and that's also how we want to continue.

Speaker Change: And drive that even harder in the next day and the coming years.

Speaker Change: Throw something in there as well so we're not expecting any kind of corporate level big restructuring those things we have done when we have decentralized, but we expect all the time operational improvement also on cost management and we use very systematically this gross profit productivity.

Timo Ihamuotila: Those things we have done when we have decentralized. But we expect all the time operational improvement also on cost management. And we use very systematically this gross profit productivity measure. IE, we all the time measure how much does each head count bring cross profit and how does that move forward. And that's proven to be a very good measure because it focuses on gross margin, which for a technology company or technology oriented B2B company is a very, very important metric, and it forces you to all the time think how you do stuff better. So optimization on the cost will happen more on that front.

Speaker Change: The measure I E. We all the time measure how much does each head count bring gross profit and how does that move forward and that's proven to be a very good measure because it focuses on gross margin, which for a technology company a technology oriented b to B company is very very important metric and it forces you to all the time thing.

Speaker Change: How you do stuff better so optimization on the cost will happen more on that front and then of course from time to time, we can have situations like we now have in machine automation, where we really have to do a bigger restructuring, but it's done then in that particular division.

Timo Ihamuotila: And then, of course, from time to time, we can have situations like we now have in machine automation where we really have to do a bigger restructuring, but it's done then in that particular division. Okay. Great. Thank you very much. Thanks, Andre.

Speaker Change: Okay, great. Thank you very much. Thanks, Andrzej and then we open up the line for Gale at Deutsche Bank.

Gail: And then we open up the line for Gail at Deutsche Bank. Will I should be open? No, thank you. Good morning, everyone. Can I firstly follow up on the data center topic? I'm referring to the slide four of the first slide show. And it seems there are two main white spots in your portfolio for data centers at DCIM and cooling solutions. And today, Schneider just announced the big acquisition in liquid cooling. So is this an area of interest for you, or are you happy just being a component supplier to cooling players and working with partners?

Speaker Change: They open.

Speaker Change: Oh, Thank you good morning, everyone.

Gale: Can I firstly, a follow up on the data center top page I'm, referring to the slide four of the first slide show and it seems there are two main white spots in your portfolio for data centers D. C. I M M and cooling solutions.

Speaker Change: Today's Schneider, just announced a big acquisition in liquid cooling. So is this an area of interest for you to or are you happy just being a component supplier to cooling.

Speaker Change: Our players and and walking with partners.

Morten Virgo: Yes, we are confident our way of working with partners in the space of cooling is a good way for us because we often see that this is with strong regional players in that space as well. And we partner with those marking leading players, and it compliments over offering, and we're able to get the share that we want. Of course, we can always do better, but I think the way of working with partners has served as well, and that's also where we rather even expand on those partnerships in the time to come, so that's more of our way of working.

Speaker Change: Yes, we are confident our way of working with partners in the space of cooling is a good way for us because we often see that thesis with strong regional players in that space as well and we partnered with OS marking leading players and it complements over offering and we were able to.

Speaker Change: There too to get the the share Ah.

Speaker Change: That we want of course, we can always do better, but I think the the way of working here with partners has served as well and that's also where we rather.

Speaker Change: Even expand on those partnerships are in the time to come so that's more of them over over way of working.

Morten Virgo: Okay, thanks very much. Can I have a second one as well? You can indeed. You open the door. Where are we going now? This time the equation is on the rubber tics and discreet automation business area. Bjrn used to describe this business as potentially a 15% margin business with a 10% cargo in the long run. Today you've talked about a 25% discount reduction in machine automation and maybe higher competitive pressures in rubber tics. Do you still share this optimistic view about margins and growth? I think at this point of time I would not go into the 10 to 15 discussion because the focus for our team now short term is very different.

Speaker Change: Okay. Thanks, very much can I have a second one as well you can indeed.

We opened the door.

Speaker Change: Going out.

Speaker Change:

Speaker Change: This time the.

Speaker Change: The question is on the robotics and discrete automation business area.

Speaker Change: Beyond you used to describe this business as potentially a 15% margin business.

Speaker Change: The 10% CAGR in the long run.

Speaker Change:

Speaker Change: I mean today, you've talked about a 25 percentage counter addiction and mission automation in and maybe higher competitive pressures in robotics. So did you still share this optimistic view about margins and gross.

Speaker Change: I think at this point of time I would not go into the a 10 to 15 discussion because the focus for over team now a short term issue that is very different it's about turning the business around and getting up to a performance that we are satisfied with.

Morten Virgo: It's about turning the business around and getting up to performance that we are satisfied with, and I think we were very clear. We are not there at the moment. Therefore, we have homework at ABB, as many of our industrial peers as well, and that's really the focus right now to get back long term. I believe that the trend of automation and robotics that is absolutely there. So that is not but the focus now for us at ABB is to take care of some of the short term actions and challenges to be faced. Then we will come back into this as a good business for ABB, and we will take it from there.

Speaker Change: Then I think we were very clear we were not there at the moment. Therefore, we have homework at ABB as many of our industrial peers as well and that's really the focus right now to get back long term I believe that trend of automation and robotics that is absolutely. There. So that is not but the focus now for us at <unk>.

Speaker Change: <unk> is to get it to.

To take care of some of this short term actions and challenges we face and then we will it will come back into the assessor as it is a good business for ABB and we will take it from there but.

Morten Virgo: But if you have any further comments anymore, nothing to add. We are looking to make all the business in ABB better, and that's of course what we are doing here as well. There is a lot of innovation on the robotics and discreet automation markets, so we shouldn't sort of automatically say that the market now is the market in the future. Maybe just throw that in there. Good point. Okay.

Speaker Change: If you have any further comments that team or no no nothing to alternatives. We are looking to make all the business vision ABB better and that's of course, what we are doing here as well in and there is a lot of innovation on the robotics and discrete automation market. So we shouldn't sort of automatically say that the market now is the market in the future maybe just throw that in.

Speaker Change: There.

Speaker Change: Good point.

Speaker Change: Okay.

Sean McLoughlin: And then we move to Sean at HSBC. Good morning, and thank you for your time. I wanted to ask, thinking you are thinking on software. I think it's been a debate around ABB and your versus your peers over the years. What's your view on software? Do you believe more in housing of software capabilities? Is there a need or are you really looking for hardware adjacencies into new areas? Yeah, that's the first question. If I may add the second. Yeah, well, let's take the software question first. We do a lot of software at ABB. It's a big portion.

Speaker Change: And then we moved case shown at HSBC.

Speaker Change: Good morning, and thank you for your time.

Speaker Change: Wanted to ask thinking.

Speaker Change #100: You're all thinking on software I think it's been a debate around ABB.

Speaker Change #101: Versus your peers over the years I mean, what's your view on software do you believe more in housing of software capabilities is there is a need or are you really looking for hardware adjacencies into into new areas.

Speaker Change #100: Sure.

Speaker Change #100: Yeah.

Speaker Change #102: So first question if I may add a second.

Speaker Change #103: Yeah, Yeah, yeah, well lets take the software question first.

Speaker Change #104: We do a lot of software at ABB is a big portion you've probably heard that we may have heard earlier that 55% of our R&D engineers are software engineers. So it's it's a vital part of over offering in it.

Morten Virgo: You probably heard that we may have heard earlier that 55% of our R&D engineers are software engineers, so it's a vital part of our offering. But we don't always differentiate between software, firmware, hardware. In the end, the customers are over-customers. They don't ask for to buy software from us. They have asked solutions to their problems. And if that goes into a machinery or into their operations, we solve it with hardware or with software. But normally, it's the combination of the two. That's when the magic happens. So this is the, for me, the main part. How do we solve customer problems with very solid, reliable hardware that never fails?

Speaker Change #104: But we don't always differentiated between software firmware hardware in the end the customer our customers. They don't ask for us to buy software from US. They are all solutions to their problems and two if that goes into our machinery or into their operations, we solve it with hardware or with software, but normally its the combi.

Speaker Change #104: <unk> of the two that's when the magic happens. So this is the for me the main part how do we solve customer problems.

Speaker Change #104: Very solid reliable hardware that never fails, but on top of it you need very good software or firmware that is kind of the the brain of our all of our solution at ADP. So it's the combination of the two that really matters. So if you look at all in our M&A deals both of the pulse, but I think also what you will see them.

Morten Virgo: But on top of it, you need very good software or first. That is kind of the brain of a solution at ABB. So it's the combination of the two that really matters. So if you look at our M&A deals, both of the costs. But I think also what you will see in the future, it will be more of these small, maybe mid-size deals that is adding new capabilities to existing strong ABB offering. That is when we are able to make a real value creation deal out of it. So you will not see us making big moves in the software space.

Speaker Change #104: Future with will be more of these small maybe mid size.

Speaker Change #104: Deals that is adding new capabilities to existing strong ABB offering that is when we are able to make it real value creation deal out of it.

Speaker Change #104: So you will not see us, making big moves in the software space because I don't think it's really fits with us and over over strategy or over a philosophy.

Morten Virgo: Because I don't think it really fits with us and our strategy or over philosophy. And that's the path that we have chosen. And I think it has served us well. And that's also the feedback I get when I talk with customers. And for me, that's kind of the decisive factor for these decisions. Thank you, very clear.

Speaker Change #104: And that's that shows that the path that we have chosen and I think it has served us well and that's also the feedback I get when I talk with customers and for me that's kind of the decisive factor for these decisions.

Speaker Change #105: Thank you very clear.

Morten Virgo: And the second question for you, Morton, just thinking about your footprints. I mean, your first view of the group's footprints. Did you write files now for your growth targets? I mean, M&A aside. I understand that, obviously, they did the need to reduce on the M&A side. But I mean, are we in need to increase capital significantly in other areas over the next two years? Or do you see it organic really as being the key growth? We have already communicated quite large investment, especially North America and but also in India. Those are two areas where you will see allocational capital more to serve in Mexico and the U.S.

Speaker Change #106: Second question would be more than just thinking about your footprint I mean, your first view of the Covid the group's footprints.

Speaker Change #107: You've right sized now for your growth targets I mean M&A aside.

Speaker Change #108: I understand obviously the need to reduce on the.

Speaker Change #109: On the M&A side, I mean are we or are we a need to increase capex significantly in other areas over the next one to two years or do you see it organic really has been a theme that the key growth driver that.

We have already communicated quite large investment, especially in North America, and but also in India. Those are two areas, where you will see allocation of Capex more to service in Mexico, and the U S to support the especially the U S market and the big investments are ongoing there so.

Morten Virgo: To support especially the U.S. market and the big investments ongoing there so that we can support that strong demand. In data centers, one, one. But also in the utility space and the whole industrial buildup based on the U.S. for U.S. initiative or how the industry is developing. But also for India, which has been a growth market for us as ADV moving up the ranks. I know that today, number five, but I think in a few years India will be our third largest markets. Of course, there we also expanding capacities were able to deliver on that very strong growth momentum, more than double digits many years in our own now.

Speaker Change #109: We can support that strong demand in data center is one one but also in the utility space in the whole industrial buildup based on the U S for U S a initiative or <unk>.

How the industry's developing but also for India, which has been a growth market for us at ABB moving up the ranks I know that theyre today number five but I think in a few years, India will be our third largest market. So of course, there will be also expanding capacity. So we're able to deliver on that very strong growth momentum.

Speaker Change #109: More than double digit many years in a row now so that becomes also a very key markets. So those are two areas, so organic or capex allocation that.

Morten Virgo: So that becomes also a very key market. So those are two areas of organic or capex allocation that we will do in an additional course to keeping the wheels turning in all our units around the world, which is you need a constant investment in automation has to drive productivity. That is for me, this one big changes in transformation is a bit of a sign for me of a failure. You should do constant investment into automation, you know, cost out every year. That's how you stay competitive. That's how you can also drive performance in all these business lines and divisions over time.

Speaker Change #109: We will do in a row in additional horse to keeping the wheels, turning and all our units around the world, which is you need a constant investment in automation has to drive productivity that is for me. This.

Speaker Change #109: One big changes.

Speaker Change #109: Changes in transformation is bit of a more of a sign for me of a failure you should do constant investment into automation and cost out every year. That's how you stay competitive that's how you can also drive performance in all these business lines on division over time.

Sure.

Jonathan Mounsey: Okay, and I see time is flying here, so we'll have a final question from, and I assume too, from Jonathan Mounsey to B&B Paribat. Jonathan, are you there? Thank you, Anthony. I'm on screen with me at the under. First of all, maybe I've still not been asked, but be on immobility, struggling. I feel like struggling now more than we'd expected this time last year when the turnaround began. I mean, what does your recovery look like for this business? You know, is it just product launches that are going to get you back? So the right level of profitability?

Speaker Change #110: Okay, and I see time is flying here, so well have.

Speaker Change #111: Final question from and I assume too.

Speaker Change #112: Jonathan Mounsey.

Speaker Change #113: D M D probably about Jonathan are you there.

Jonathan Mounsey: Thank you Anthony.

Jonathan Mounsey: Squeezing me at the end of the.

Jonathan Mounsey: First of all maybe I'm sure not spin off subtly on E mobility.

Struggling I feel like scaling now more than we'd expected. This time last year when the turnaround began I mean, what does the recovery look like for this business is it just product launches are going to get you back.

Jonathan Mounsey: The profitability I C E mobility peers like Allison, having their own issues at play and I remember when you were looking to IPO of the business you talked about at least the management at the time of that business talked about participating in industry consolidation.

Morten Virgo: I see immobility peers like Alton having their own issues of late, and I remember when you were looking to IPO the business you talked about, or each the management at the time of that business talked about participating in an industry consolidation to maintain a strong position as the industry grew. Now, at this point where the industry's under pressure, it might not be the case that you need to also, if you're going to stay in this industry, participate in a consolidation so that the whole industry can recover profitability. And so, may you have to look at the other, and I know it doesn't really fit with the strategy of not buying stuff until the profitability is at the right level, but may that be the only way that you're going to get the profitability at the right level by getting bigger?

Jonathan Mounsey: Maintain our strong position as the industry group now at this point, where the industry is in depression.

Jonathan Mounsey: It might not be the case that you need to also if you're going to stay in this industry participate in the consolidation so that the whole industry.

Jonathan Mounsey: Profitability and so may you have to look at deals I know it doesn't really fit with our strategy is not buying stuff and so the profitability is at the right level, but may not be the only way that youre going to get the profitability the right level.

Jonathan Mounsey: Okay.

Timo Ihamuotila: Yeah, the, I say the focus on operational level for the immobility business is to renew the product portfolio. Get the, let's say, the historical products out of the portfolio and then replacing it with a new design which is really fit for the future. And I think there the team is making good progress. When it comes to our plans or IPO, and I think that will happen, that final decision will be made when we feel that the market is ready, and when the company is ready, and when that happens will make that final decision on the timing of when it will happen, and that would go also with any other discussion, as you mentioned here, on the market.

Jonathan Mounsey: Yeah.

Jonathan Mounsey: The focus on operational level for the E mobility business is to renew the product portfolio get the let's say the historical.

Jonathan Mounsey: Products out of the portfolio and then replacing it with a new design, which is really fit for the future and I think there. The team is making good progress when it comes to over plants, all IPO and I think that will happen I went in and that final decision will be made when we feel that the market is ready and when the companies ready.

Jonathan Mounsey: And when that happens we will make that final decision.

Jonathan Mounsey: One on the timing of when it will happen and that would have goes also with any other discussion as you've mentioned here on all the market I think that is at that point of time, we will come back to.

Timo Ihamuotila: I think that is at that point of time we will come back to. But the team, if you have any further, yeah, maybe comments to add here that, of course, many of these companies, especially in the DC space, have quite the long road maps, and they have also separate software stacks, and the longer the road map and the software stack in the product, the more difficult it is to put these kind of assets together. So those kind of considerations need to be taken into account exactly the same thing as you would say that in the, yeah, why don't you congratulate the DCS, but DCS will sit there for like 20 years, and then you just have to support like two different versions of a similar product.

Speaker Change #115: The T mobile if you have any further yeah, maybe comments or add to hear that.

Speaker Change #116: Of course, many of these companies, especially in the D. C space have quite the long road maps and they have also separate software stacks and the longer the roadmap and their software stack in the product the more difficult. It is to put these kind of assets together, so those kind of considerations need to be taken into.

Speaker Change #116: Don't expect the same thing as you would say that in the yeah. Why don't you consolidate the D. C is about the Dcs will sit there for like 20 years and then you just have to support like you know two different versions of a similar product. So we have to be very careful when we think about this where of course, you know fixing a business Canada use many different tools.

Timo Ihamuotila: So we have to be very careful when we think about this, where of course fixing a business can use many different tools, but I'm just saying that I fully agree with more than that first year, you know, really understand that your own product portfolio is like the most competitive on the market, and then you'll look at the other stuff if you'll look at it. Thank you, let me just let me follow up on the potential acquired growth, one or two percent. It feels to me at a reasonable valuation, kind of maybe where ABB itself trades. That's kind of all the free cash flow will give you after the dividend. You know, you also mentioned that there was potentially some years to do more than that, maybe other years to do less. That kind of implies maybe the willingness to re-leverage a bit. What are your thoughts in terms of the balance sheet? You know, if a series of just good deals happen to come along and maybe the M&A contribution to revenue ended up being 4% plus in a given year, what level of indebtedness would you be willing to accept to buy the right?

Speaker Change #116: But I'm, just saying that that I fully agree with more than that first here you know really understand that your own product portfolio is like the most competitive on the market and then you'll look at the other stuff.

Speaker Change #116: If you look at it.

Speaker Change #116: Okay.

Thank you and maybe just one more follow up.

Speaker Change #117: Only the potential acquired growth, 1% to 2% it feels to me at a reasonable valuation kind of maybe where a P. P itself trades.

Speaker Change #118: That's kind of all the free cash flow will give you. After the dividend you also mentioned that there was potentially some years to do more than that maybe they used to do less of that kind of implies you might be the willingness to re leverage a bit.

Speaker Change #119: What are your thoughts in terms of the balance sheet.

Speaker Change #119: These are just good deals happen to come along that may be the M&A contribution to revenue ended up being 4% close in a given year.

Speaker Change #119: What level of debt would you be willing to buy the right things Yeah. I mean, we're definitely with this sort of cash flow generation rating in all that we are clearly you could say.

Timo Ihamuotila: Thanks. Yeah, I mean, we are definitely with this sort of cash flow generation rating and all that. We are clearly, you could say, under leveraged vis-à-vis, maybe what one could call an optimal. So we can move quite a bit here. I mean, at the moment, we are, I think, you know, about 1.4 net to EBITDA. And of course, we can go way up from that, you know, wherever it could be then between 1 or 2 or something. Like that, very, very, very comfortably. So, in that sense, there is quite a bit of capacity if there are the right deals available.

Under leveraged visa B may be what one could call an opt in model. So we can move quite a bit here I mean at the moment. We are I think you know about.

Speaker Change #119: About 1.4 net debt to EBITDA and of course, we can go way up from that.

Speaker Change #119: Wherever it could be then between one or two or something like that very very very comfortably. So in that sense. There is quite a bit of capacity. If there are the right deals available. So we will not be stopped by by capacity here at released that we of course find the right targets at more than has been saying as well, which really gave the right risk return for the company overall.

Timo Ihamuotila: So we will not be stopped by, by capacity here. It really is that we, of course, find the right targets as more than has been saying as well, which really give the right risk return for the company overall. Thank you very much. Thank you. And with that, we close this session. Thank you very much for joining us today. And we'll see some of you before, and some of you at the next quarter results.

Speaker Change #120: Okay very much.

Speaker Change #121: And with that we'll close the session. Thank you very much for joining us today and well.

Speaker Change #121: Let's say someone here before and some of you at the next quarterly results.

Speaker Change #121: [music].

Speaker Change #121: Yes.

Speaker Change #121: Okay.

Speaker Change #121: Okay.

Speaker Change #121: Yes.

Speaker Change #121: Okay.

Speaker Change #121: Okay.

Okay.

Speaker Change #121: Yes.

Speaker Change #121: Yes.

Speaker Change #121: [music].

Speaker Change #121: Okay.

Speaker Change #121: Okay.

Speaker Change #121: Yes.

Speaker Change #121: Yes.

Okay.

Speaker Change #121: Sure.