Q2 2023 results

“The positive book-to-bill ratio and new record-high Operational EBITA earnings and margin add to our confidence about ABB's 2023 outcome allowing us to sharpen our margin expectations.” Björn Rosengren, CEO

CEO summary To summarize the outcome in the second quarter, I would first highlight the 2% comparable order growth which was up from last year's already high level, and the positive book-to-bill. It was good to see that the customer activity remained robust throughout the period. Secondly, the high revenue growth of 13% (17% comparable) supported by backlog execution. Thirdly, the record-high achievements on both absolute Operational EBITA of $1.4 billion and Operational EBITA margin of 17.5%, up 200 basis points from last year, with all four business areas above 15%. This was supported by a strong price contribution which more than offset labor inflation as well as some limited cost inflation related to commodities, with additional support from operational leverage on increased volumes in production. And lastly, the solid cash flow from operating activities of $760 million. All the while we executed on portfolio optimization and continued to introduce leading new technology to help our customers become more sustainable and resource efficient. In my view, the quarter is an additional indication that we are establishing ABB's operational performance at a higher level.

Order momentum was strongest in the systems- and project-related businesses, driven predominantly by the medium voltage segment and process-related industries. This offset some softening from last year's high order level in the short-cycle business, mainly evident in the residential construction segment and across the board in discrete manufacturing where customers normalize order patterns in the face of shortening delivery lead times. In total, the book-to-bill ratio was 1.06 driven by three out of four business areas, and we further increased order backlog.

It was good to see our cash flow from operating activities improve by $378 million from last year and I expect us to improve cash conversion from here onwards. Over the first six months we have generated just over $1 billion in Cash flow from operating activities, which helps position us well for what I expect to be a good cash delivery this year.

As announced earlier in the quarter, we experienced an IT security incident. I am grateful to our teams for the handling of the challenge and containment of the incident, and as a result we have had no consequential material financial impact in the quarter.

Just after the end of the second quarter, we successfully closed the divestment of the Power Conversion division at around $500 million. As a result, we expect to record a non-operational book gain estimated at approximately $50 million in Income from operations in the third quarter of 2023. With this transaction, we have completed all divisional portfolio divestments announced at the end of 2020. That said, we continuously review the product groups within all divisions to optimize the portfolio.

The small acquisition of Eve Systems is another example of our portfolio actions, this time by the Smart Buildings division in business area Electrification. With around 50 employees, Eve generated approximately $20 million in revenues in 2022. It is a pioneer in the new Matter connectivity standard which enables smart home products to be fully interoperable, irrespective of the manufacturer and user operating system, via Thread wireless technology for consumer-facing products tailored to the retrofit market.

I was pleased to see Process Automation unveil its new revolutionary propulsion concept initially aimed primarily at small- to medium-sized vessels, complementing its current market leading Azipod^® offering for larger vessels. This industry-first electric propulsion concept ABB Dynafin™ mimics the movements of a whale tail for ultimate efficiency and emissions avoidance as it is set to reduce propulsion energy consumption by up to 22% compared to conventional shaftlines. The first commercial prototype is expected to be available in 2025. Björn Rosengren CEO

Outlook In the third quarter of 2023, we anticipate a low double-digit comparable revenue growth and the Operational EBITA margin to be slightly up from the 16.6% reported in the third quarter last year.

In full-year 2023, despite current market uncertainty, we anticipate comparable revenue growth to be at least 10% and we expect Operational EBITA margin to be above 16%.

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. www.abb.com