ABB: Q4 2022 Results

ABB (SWX:ABBN):

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KEY FIGURES
					CHANGE						CHANGE
($ millions, unless otherwise indicated)	Q4 2022		Q4 2021		US$	Comparable1	FY 2022		FY 2021		US$	Comparable1
Orders	7,620		8,257		-8%	2%	33,988		31,868		7%	16%
Revenues	7,824		7,567		3%	16%	29,446		28,945		2%	12%
Gross Profit	2,658		2,397		11%		9,710		9,467		3%
as % of revenues	34.0%		31.7%		+2.3 pts		33.0%		32.7%		+0.3 pts
Income from operations	1,185		2,975		-60%		3,337		5,718		-42%
Operational EBITA1	1,146		988		16%	28% 3	4,510		4,122		9%	18% 3
as % of operational revenues1	14.8%		13.1%		+1.7 pts		15.3%		14.2%		+1.1 pts
Income from continuing operations, net of tax	1,168		2,703		-57%		2,637		4,730		-44%
Net income attributable to ABB	1,132		2,640		-57%		2,475		4,546		-46%
Basic earnings per share ($)	0.61		1.34		-55%2		1.30		2.27		-43%2
Cash flow from operating activities4	687		1,020		-33%		1,287		3,330		-61%
Cash flow from operating activities in continuing operations	720		1,033		-30%		1,334		3,338		-60%
1 For a reconciliation of non-GAAP measures, see “supplemental reconciliations and definitions” in the attached Q4 2022 Financial Information.
2 EPS growth rates are computed using unrounded amounts. 2021 numbers include the impact related to the divestment of Mechanical Power Transmission.
3 Constant currency (not adjusted for portfolio changes).
4 Amount represents total for both continuing and discontinued operations.

“2022 was another successful year for ABB, including a further streamlining of our business portfolio and achieving our margin target earlier than expected. We have made ABB more resilient. In 2023, regardless of current market uncertainty, we want to show that we can continuously deliver an Operational EBITA margin of at least 15%.”

Björn Rosengren, CEO

CEO summary

In the fourth quarter of 2022, we improved comparable orders and revenues, we increased our Operational EBITA by 16%, raised our Operational EBITA margin by 170 basis points and lifted ROCE to 16.5% for 2022, to within our target range. All in all, this was a good achievement in my view.

Customer activity improved slightly or remained stable in most customer segments, except for declines related to residential construction and discrete manufacturing. The market outlook for discrete manufacturing remains solid, although the fourth quarter was adversely impacted by customers normalizing order patterns following a period of pre-ordering triggered by the long delivery lead times in a strained value chain. This weighed on order intake in Robotics & Discrete Automation, while the other three business areas remained stable or increased comparable orders. Revenues were strong and increased by 3% (16% comparable). The Americas region was the growth engine for orders, while Europe reversed and Asia, Middle East and Africa remained overall largely stable despite a decline in China. The escalating Covid-related situation in China somewhat slowed down local business activity towards the end of the period. Our priority is to keep our people safe.

Our strong price execution combined with increased volumes supported the higher gross margin and drove the improvement of 170 basis points in the Operational EBITA margin to 14.8%, the strongest fourth quarter margin in several years. This resulted in 2022 being a record year for ABB, in recent history, with an Operational EBITA margin of 15.3%. We achieved good price management, executed well on increased volumes with some additional support from unusually low corporate costs. I am pleased how the divisions managed challenges like supply chain constraints, a tight labor market, Covid-related lock downs in China and a high inflationary environment.

Cash flow of $687 million in the quarter is the one area which did not quite meet our expectations as the depletion of net working capital was slower than anticipated. This will be an important focus area for us near term as we deliver against our high order backlog. As earlier announced, the finalization of the Kusile-related issues weighed on cash flow by approximately $315 million, while the closing of the divestment of Power Grids generated a net cash contribution in investing activities of $1.4 billion.

We remain committed to our plans to separately list our E-mobility business, subject to constructive market conditions. Meanwhile, we have closed by the end of January the pre-IPO private placement of approximately CHF525 million for newly issued shares to new minority investors representing approximately 20% ownership of the E-mobility business. The proceeds will be used to capture E-mobility’s growth potential through organic and M&A investments in hardware and software.

Just after the close of the fourth quarter, we progressed with the final part of our announced divisional exits by signing an agreement to divest the Power Conversion division in the Electrification business area. From here on, we will continue to review our business portfolio on a product group level within our current divisions. One example is our decision to initiate the exit of the emergency lighting business within the Smart Buildings division in the Electrification business area during 2023.

By partnering with the Swedish mining and smelting company Boliden to build a strategic co-operation to use low carbon footprint copper in our electromagnetic stirring (EMS) equipment and high-efficiency electric motors, we took another step towards our 2030 target of having a circular approach in at least 80 percent of our products and solutions. The aim is to reduce greenhouse gas (GHG) emissions while driving the transition to a more circular economy.

Looking into 2023, we currently do not anticipate a major set-back in demand, although the high inflationary environment adds uncertainty. Comparable order growth, at least in the first half of the year, should be somewhat hampered by last year’s very high order level coupled with a normalization of customers’ order pattern after a period of pre-ordering in times of a strained value chain. I expect comparable revenue growth to be above 5%, supported by backlog execution. Cash flow should benefit from us working down the net working capital, and we should also have less adverse items impacting comparability. I view 2023 as a good opportunity for ABB to prove that we can continuously deliver an annual Operational EBITA margin of at least 15%.

Considering improving performance, robust cash flow and a solid balance sheet, the Board of Directors proposes an ordinary dividend of CHF0.84 per share. Up from CHF0.82 in the previous year and in line with the long-term ambition of a rising sustainable dividend per share over time, while still prioritizing a solid balance sheet to support our growth ambitions. We plan to continue with share buybacks for full year of 2023.

Björn Rosengren
CEO

Outlook

In the first quarter of 2023, we anticipate double-digit comparable revenue growth to support some improvement in the Operational EBITA margin, year-on-year.

In full-year 2023, despite current market uncertainty, we anticipate comparable revenue growth to be above 5% and we expect to again achieve our long-term target of Operational EBITA margin of at least 15%.

The complete press release including the appendices is available at www.abb.com/news.

ABB (ABBN: SIX Swiss Ex) is a technology leader in electrification and automation, enabling a more sustainable and resource-efficient future. The company’s solutions connect engineering know-how and software to optimize how things are manufactured, moved, powered and operated. Building on more than 130 years of excellence, ABB’s ~105,000 employees are committed to driving innovations that accelerate industrial transformation.

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Contact information

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