Market

ABB (ABB) Q3 2021 Earnings Call Transcript | The Motley Fool

ABB (NYSE:ABB)
Q3 2021 Earnings Call
Oct 21, 2021, 4:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Ann-Sofie Nordh

Greetings to all and welcome to the presentation of our Q3 results. I’m Ann-Sofie Nordh. I’m head of investor relations, and next to me I have our CEO, Bjorn Rosengren, and our CFO, Timo Ihamuotila. They will take you through the presentation after which we open up for the normal Q&A session.

But before we begin I would like to draw your attention to the information regarding safe harbor notices and our use of the non-GAAP measures on Slide 2 of the ABB presentation. This conference call will include forward-looking statements, and these statements are based on the company’s current expectations and certain assumptions and are therefore subject to certain risks and uncertainties. And with that said we will kick off today’s session and we will do that with a short video related to the process automation recent launch of the e-mine portfolio, which technology is facilitating the all electric mine, including monitoring and optimizing energy usage. [Commercial break] And with that, I will hand over to Bjorn and Timo to take you through the results.

Bjorn RosengrenChief Financial Officer

Thank you, Ann-Sofie, and a warm welcome from me as well. Today, I got to pick the video. And the e-mining stands close to my heart and the ability that ABB has to support the mining industry to become more sustainable. We really looking forward to development of this new product.

Now, let’s take a look at Q3. It was somewhat a mixed bag. Let me start with the positives. First, the strong order growth.

It spanned across all business areas with growth in the range of 17 to 40%. Secondly, the margin of 15.1%. Yes, we had some support from unusually low corporate costs. But that’s fine with me.

That said, I do not expect these low corporate costs to stick in going into Q4. So we have some work to do before we hit an underlying run rate of the margin target of 15%. But I have promised you to get there in 2023 and we will reach it. I also want to mention the cash flow of 1.1 billion, which is, in my view, was excellent.

Last but not least, we have some exciting product launches. On top of the e-mining portfolio in the video, we launched the world’s fastest EV charger. It is capable to fully charge an electric car in 15 minutes or less. These could be a game changer, but there were also challenges in the quarter.

We would not deliver as much as we wanted to because of the tight supply chain. It stretch beyond component shortages is also logistics. And the tight labor market. We’re at high production levels, meet continued COVID constraints.

These impacted us more than we thought it would. And these challenge will not go away quickly. Let’s turn to Page 4 and look to the different segments. I already mentioned that orders were strong.

They increased by 26%, although from a low level last year. It’s fair to assume that that is certain contribution from customer putting through orders to manage availability. It’s difficult to give an exact number. But we believe it’s less of an impact than we saw during the first half of the year.

The improvement was supported by a positively development in more or less all customer segments. And we saw increased demand in short cycle, as well as process industry-related businesses. Orders in our service business increased by 18%, while service revenues increased only 2%. These means that we should see in positive mix going in to next year.

In the revenue charge, you can clearly see that the revenues were impacted by the challenges to get stuff out of the door due to the strength in the value chain. We saw an increased impact on ability to deliver compared to Q2. Comparable growth was limited to 4% year over year, meaning we are building order backlog. Now, let’s take a quick look at the different regions on Slide No.

5. Growth was strong in all three regions. In America, the important U.S. market increased by 31%.

In Europe, more or less, all the top ten markets improved by strong double-digit growth rates. And EMEA includes a 9% order growth in China, where we saw solid demand in the quarter. On Slide 6, you see the charge with their operation EBITDA and the margin of 15.1%. Overall, we have kept it stringent cost control.

SG&A was 17.5% of revenues, down from 18.1 last year. As the world starts to open up for business travels, we need to make sure that we have a smart approach; use the virtual earnings from the last year, while still making sure we maintain our relationship with our customers. I’m very pleased about the jump in the gross margin. Process automation showed stellar improvements, while Electrification and Motion were impacted by the higher raw material costs, as we have said they would be.

I already earlier mentioned the unusually low corporate costs where we had some positive coming through in the quarter. But I do not expect this to continue into the next quarter. In summary, considering the challenges from the tight supply chain, I’m pleased about overall delivery in the quarter. And with that, I’ll hand over to Timo to talk a little bit more about the numbers.

Timo IhamuotilaChief Financial Officer

Thank you, Bjorn. And greetings to everyone from my side as well. And as usual, we’ll start with Electrification, where we saw continued strong demand driving order growth to 17%. The strength was spread across geographies and was particularly strong in Americas.

It was also good to see the mid single-digit growth in China. From end-market perspective, we saw a positive development in all segments. I particularly mentioned the higher activity in transport, and infrastructure with solid development in both residential and non-residential buildings. And we also saw an improving pipeline with oil and gas segment.

I would say that in these strong orders, it is fair to assume some positive impact from customers free ordering in the way of a general tight supply chain. We have actively worked with quality assurance in the orders we accept, even stopping away from — even stepping away from some where lead time to deliver is too long. The strength value chain hampered revenues for Electrification in the quarter. The constraints extended beyond just semiconductors.

We also saw impacts from a tight labor market, particularly in the U.S. and logistics issues. There were also some customer acceptance delays as they wait for complete deliveries. These challenges triggered a sequential decline in revenues even though we reached an improvement of 4% year on year.

If we add this up, the order backlog further increased to $5.2 billion, which is a record high level. I’m sure you remember that we said during the spring and summer that Electrification we’ll be coming off a favorable raw material hedges. We now see it coming through in the numbers. We are close to offsetting this with price increases.

But then of course, we have a situation with cost increases additionally inflated by the tight supply chain. All included, the margin declined sequentially, while it improved from last year, supported by volumes and stringent cost control, excluding last year’s positive impact of about 100 basis points of non-repeating items. The underlying operational EBITDA margin actually improved by approximately 60 basis points to 15.9%. Looking ahead into the fourth quarter, we expect continued challenges in our ability to deliver.

Also, comparables are getting tougher. We expect a low or no comparable revenue growth year on year. And the normal pattern of sequential decline to operational EBITDA margin. Let’s move onto Motion and you will recognize similar topics as for EL.

As you can see in the left side of the chart. Order intake remained at a very high level and growth was strong across all divisions and segments. And we saw double-digit growth rates in all three regions. In total, orders increased 22% compared with last year.

I should mention here that also Motion continued to focus on maintaining a good quality in the order backlog, meaning, and without putting numbers on that, orders could have been even higher should we have captured all that would have been available to us. Comparable revenues improved by 2%, adversely impacted by the semiconductor shortages and imbalances in the value chain. Like in electrification, the headwinds from raw — higher raw material prices and cost inflation in general have increased. It is therefore encouraging to see Motion achieving a stable operational EBITDA margin at the high level of 17.4%, supported by a favorable mix, price increases, and a small volume impact.

For the fourth quarter, we anticipate around mid single-digit growth for comparable revenues and the normal sequential pattern of softening margins due to the mix in deliveries. We now turn to Slide 9 and Process Automation, where we added further to the order backlog with comparable orders and revenues expanding 40 and 5%, respectively. With order growth benefiting from a low base last year. I’m sure you remember that we have guided for a pickup in business activities in the process-related industries during the second half of this year.

And we see that happening now. We saw good progress in all divisions and a positive development in all segments. I want to mention that we booked a large order of about a $120 million in the energy industry division in Australia. We will supply the overall electrical power systems for sub-sea natural gas compression.

The order is a great example of our technology leadership with our solutions operating under extreme conditions at 1400 meters below sea level. I was pleased to see the operational EBITDA margin coming in at strong 13.7%, the highest margin in three years. Excluding the adverse impact from the charge related to the Crusader Project last year, profitability improved approximately 330 basis points. The result benefited from the positive volume development, improved business mix, efficiency measures, and strong project execution.

In Q4, we expect comparable revenue growth to pick up in the mid-teens range. And Q4 tend to be the strongest margin quarter for PA, so I hope we see somewhat over sequential pickup also this time. On Slide 10, we turn to robotics and discrete automation, which had another quarter with good order intake, up 26% on a comparable basis. The strength was broad-based, led by strong growth in general industry, consumer segments, and service robotics, as well as machine automation.

However, machine automation division has seen significant impact from the semiconductor shortages and higher input costs. This has meant increased lead times to customers while managing the needed price increases. We are working in tight cooperation with our machine automation customers to manage this difficult situation. ROA revenues declined by 3%, impacted by both machine automation and robotics.

The robotics impact is a combination of a positive momentum in the non-automotive robotics segments, which however was offset by a lower deliveries from the outdoor systems business. The lower deliveries are a consequence of our earlier strategic decision to deselect systems business orders with low ABB content to improve quality of revenue and drive profitability long term. This improved mix with robotics is already partly visible in the operational EBITDA margin of RA, which increased by 160 basis points compared to last year despite the lack of comparable growth. The improvement also benefited from a higher share of service business and earlier implemented efficiency measures, which overall more than offset the adverse development in machine automation.

Looking into Q4, we expect deliveries, particularly in machine automation, to still be adversely impacted by component shortages. Hence, we anticipate comparable revenue growth to be broadly in line with Q3. And we expect the operational EBITDA margin to sequentially decline, as it normally does between Q3 and Q4. Moving on to Slide 11 showing the group revenues and operational EBITDA bridge.

As you see, the year-on-year improvement benefited from the absence of last year’s charge related to the Crusader Project. A reduction of losses incurred in non-core businesses, as well as our organic development. The latter was supported by higher volumes, mix, and earlier implemented cost actions, while commodity prices increases after-hedging slightly outpaced price increases for the quarter. Now, on Slide 12, we return to my favorite slide on this deck, or the favorite topic.

In Q3, we continued this year’s strong cash performance with cash flow from operating activities of $1.1 billion, an improvement of about a 720 million from last year. A great achievement, driven by higher earnings, as well as significantly lower transformation and furnished pension impacts compared to last year. As you can see in the chart, our cash generation for the first nine months already exceeds the full-year cash generation in both 2019 and 2020 by approximately $400 million. And I’m confident that we can continue this positive momentum and make this a really good cash flow year also regarding free cash flow.

Then, before I hand over to Bjorn, let me just briefly come back to some of the near-term challenges mentioned today. We do not expect these to go away tomorrow, hence, we need to focus on how we best manage the situation of a continued tight supply chain. We will put emphasis on order scrutiny to make sure we can deliver and secure quality in the order backlog. We will build inventory where appropriate, and we will continue to work on redesigns and validate new suppliers.

Raw material prices should be a near-term headwind and tangible for our product’s businesses. Our teams have done well so far in mitigating through active price management. And we will continue to be active on pricing. The strength value chain drives cost inflation in various areas.

I use here our freight and packaging expenses as an indicative example. We also see labor cost inflation in some regions, and also labor accessibility can be a challenge. We are in a good position in the sense of having production footprint close to sales. But even so, when components are scarce, we may have to shift between sites, which we normally would not do.

We have taken all these impacts into account to our best ability in the numbers discussed today. I also want to say that I think our business management teams are handling this tough situation really well with needed speed and accountability. And the fact that we have virtually no order cancellations indicates that the whole market is very, very tight. And on that note, I would like to hand back to Bjorn.

Bjorn RosengrenChief Financial Officer

Thank you, Timo. OK. Let’s finish off with some thoughts on how we see the ending of the year. We expect the market to remain robust in the fourth quarter.

As you see in the summary of the segments, we expect marked improvements in most areas compared with last year. This said, we have talked a lot about the supply chain situation today. We saw it impacted us in the third quarter, and we do not think this will be a quick fix. So we anticipate comparable revenue growth into Q4 to be broadly similar to what we saw in Q3.

We expect the operational EBITDA margin to decline sequentially from the 15.1% reported today, as it normally does. Like I mentioned, I do not expect the low corporate costs to repeat. And Q4 anyway, tends to be a quarter with the seasonally weaker margin. This means that we slightly adjust our full-year guidance to comparable revenues to be between 6 and 8%, slightly down from the previous indication of just below 10%.

We lead the margin guidance for the full-year impact. Like I said earlier, we are not yet a run rate of 15%, but we are clearly making good progress. We have some more work to do internally. We need to make sure all divisions now take the responsibility that they have been handed, with full ownership of their businesses.

I’m very confident that we will deliver and then move beyond. And with that, I’ll let Ann-Sofie takeover and guide us into the Q&A.

Ann-Sofie Nordh

Great. Thanks, Bjorn. And with that, we will have for the Q&A. [Operator instructions].

I can see that we already have questions coming through. And I just would like to repeat myself from previous quarters, I kindly ask you to limit yourself to two questions, and we’ll do our best to get through as many of you as possible. [Commercial break] We will follow up straight away with James [Inaudible] and it’s the revenue challenges in 3Q and 4Q, perhaps a little bit tougher than some others have suggested. Have you benchmarked your sourcing, and do you see areas where ABB could strengthen the chain with triple or more sourcing and more localization?

Bjorn RosengrenChief Financial Officer

Yes. I think that the strategy of ABB is clear long before I started. And that is to be global but still local. Meaning that we produce our product in the areas actually where we sell their products.

So China production for the Chinese markets in China. U.S. is the same and Europe. So we are quite local today.

Of course, when it comes to semiconductors, this is of course a global issue which is not related to the way we source in ABB. It’s just a shortage. And this is affecting all companies that have digital products as ABB has in this portfolio. We need to cope with that until the supply meets the demand.

And I know that the suppliers are working hard, and we can see improvement in certain suppliers while other one might be — having some — more problems. But I think it’s a correct observation that going forward on the supply, I think we all learned that single sourcing is not the way to go. You need to have multiple sources where you can buy some of them close and some there may be in more cost-efficient countries. So, yes, I think our businesses are learning, but I still think the execution in this tough time is excellent from the businesses and I think here the decentralization has really helped.

Timo you want to add a little bit there.

Timo IhamuotilaChief Financial Officer

Yes. Because this was — Yes. Thanks. Thanks for the question.

Because this was a bit of a comparison question, so I just want to highlight that when you look at our order backlog has gone up from last year 2.1 billion to 16 billion, and we are really not seeing order cancellations. And, of course, if our situation would be like very different from other people’s situations, we think that they would go elsewhere which is not happening. So in that sense we think that the quality of the order book is solid. We could have taken a bit more orders as Bjorn said, and I think this bodes well then moving forward into 2022, 2023.

Ann-Sofie Nordh

Thank you. And we go back to a question from from the telephone line, and we ask you to open the line for Daniela at Goldman Sachs, please.

Daniela CostaGoldman Sachs — Analyst

Perfect. Thank you. So I wanted to ask two things. One — first, I don’t think we’ve talked to today a lot yet about sort of the portfolio plans and the — particularly how you’re progressing on the processes for your recharging and trouble charging.

And also I think you were doing a review of process automation. So my first question would be regarding that. And then the second one, what I think you talked part of what I wanted to ask, but I feel just a final confirmation on. Sounds like you’re lower in guidance on 2021 on organic growth is just purely supply chain driven.

Not really an underlying demand worry. Shall we expect a full compensation off that into 2022, or you think that is still some risk that there some maybe some speculative orders on it or it might not be able to solve the situation on supply chains that timely in 2022 and demand could erode.

Bjorn RosengrenChief Financial Officer

Yes. Let me start with the demand situation and did — and the orders are taking down some of the guidance. It’s it’s a clear supply chain thing. Orders books is stronger than we could imagine and we expect that the strong orders situation will continue.

Then comes of course the question, is the order book — and also some of that for building inventory among our customer. We tried to scrutinize that as much as we can, and we are being very restrictive in booking orders that we believe would end up on the shelf. So put it from that. So, yes, I’m the — the guy to take it down it’s a pure pure production and supply things.

And, of course, having an order book over 16 billion, we will continue to deliver on that order book and or new orders that are coming in, of course, going forward. So we do not believe that there will be any lost business out of that. Timo said that the quality of the order book is great. So that is from that.

Let’s then just take a first on process automation and I know there are some rumors about the review of that business, and it’s of course clear. That’s part of my job of learning more about the different businesses we have, and we have spent quite a lot of time understanding the strategies, looking at the potential going forward. And we are very convinced that process automation is part of our purpose, and we also believe that there is good potential to improve performance in many of these businesses going forward. So that is absolutely not on our agenda when it comes to process automation or any kind of divestment of that.

So it’s part of ABB and we’ll continue at least in the near future to be part of that. And then on the other two businesses and turbo, we — during Q3 we completed the sales of the Dodge and we expect to close it now during Q4. Fantastic year sales. I think good for Dodge and good for ABB and good for ABB shareholders.

So we are very pleased with that. Now we’re working hard to to separate the turbo business and that is going well. And we are, at this moment, coming closer I think maybe in this quarter in the beginning or next we will have this prospect. We’re still going a dual track, as we said from the beginning, mean as we are.

Checking up if we have some industrial or financial buyers who were prepared to pay for for these assets in the right way. But our preferred way, as we said before, is to do a spin-off to the shareholders. But the final decision of that would probably be take place during first quarter. But separation is going and during next year we should see that finalization of that divestment.

On the immobility, what can I say. It’s an enormous market. Our operations are doing well. We see growth well over 100% quarter by quarter by quarter, and we think that this business have a tremendous future.

So what are we doing now. We are separating the business. We are looking for a new chairman, which a process is going on, and we are still waiting for a final decision on how to do it. But we do expect if plans goes as we want to to do this IPO during the first half of the year.

So things are moving well there, and we think this can be an interesting growth vehicle going forward. I think I caught those serve. Was that OK, Daniela?

Daniela CostaGoldman Sachs — Analyst

Yes. That answer. Thank you very much.

Bjorn RosengrenChief Financial Officer

Thanks.

Ann-Sofie Nordh

Thank you. And we will take another question from the online option. And it — we have a question — a couple of questions here actually coming from Guillermo at UBS. And if we start with the book to bill, it’s expanding in lead times as well.

How is the backlog margin quality evolving.

Bjorn RosengrenChief Financial Officer

I’ll give that to Timo.

Timo IhamuotilaChief Financial Officer

Yes. Thanks, Guillermo, for the question. So maybe I’ll start with some facts going into Q4. So when we look at what’s our estimate on how much would be coming from the backlog going into Q4, compared to what would be, in a way, a normal year, we are maybe sort of 8 to 9% higher.

So in that sense, if this supply stuff would start to ease, that will mean that our revenue would have some upside. But at our best of knowledge, we are of course where we are at the moment, but we have a stronger backlog going into Q4 than we would normally have. Then when you look at the backlog margin and this is actually a really great development because we follow, of course, the operational gross margin, we follow the order gross margin, and then the backlog gross margin. And both order gross margin, as well as backlog gross margin have been moving up.

And it’s particularly evident in the robotics business also evident for example in B.A. so also from margin quality perspective, the backlog is moving to the right direction.

Ann-Sofie Nordh

Very good. And we’ll follow up I think with another question for Timo since it’s your favorite topic of cash flow. How sustainable is the strong cash flow going into Q4 and the beginning or 2022?

Timo IhamuotilaChief Financial Officer

Ok. Thanks for the question. So I think after two years of quite a bit of work on changing the cash dynamics of this company, 2019, 2020 where of course somewhat unusual regarding cash, we are now coming to what this company should be able to deliver on cash. And in that sense we are in a situation where if earnings improve, the cash flow, it will improve and we I think still have some work to do in networking capital.

So if you just look at this first nine months — and I’ll I’ll go to the free cash flow directly because I know that’s the sort of the interest out there. So we are at one point 9 billion of free cash flow now for the first nine months. Last year, full year, was about a billion and we would expect to have a good cash quarter Q4 as well, so let’s see where it lands. But but I would hope to see us on this, let’s say, 2.5, something like that as free cash flow for the full year, and if that happens, then of course we are in a very different situation for example on the dividend payout ratio and those kind of situations and we continue to have a strong balance sheet which we’ll continue to invest in line with our capital allocation principles.

Ann-Sofie Nordh

Very good, and we’ll open up the line from Alex of the Bank of America Merrill Lynch. Can you hear us Alex, since that seems to be the topic of the day.

Alex VirgoBank of America Merrill Lynch — Analyst

I can, indeed. [Inaudible] everybody hear us as well. Thanks for taking the questions. Good morning to you all.

And I guess I wanted to just touch a little bit more on China and perhaps less about the supply chain itself and more about power outages and the impact that the power supply situation is having on you. And I wonder whether I could push you, Timo, for a guess or a estimate I should say is maybe a better way of putting it on the actual impact in your revenues in H2 from all of these sorts of things put together. Would it be a sensible 3 to 400 basis points also which is simply just the difference between where we were, expecting things if the full year and the bottom end of your range. I just wanted to push you for a best guess, if I could please.

Bjorn RosengrenChief Financial Officer

Thank you, Alex. I can maybe start to question and maybe then Timo can follow up on that part. I think, year to date, we have not had any effect because of power shortages in China. We have had a lot of call with tests we have in the past, which might have affected some what production levels, at least made it a little bit more complicated.

There might be some suppliers who have had some effect in the southern part of China, but so far, we wouldn’t say that the power shortages have had any effect. Going forward, I think that is a little bit premature to say if it what will or not. China is an important market is down for more than 15%, 16% of our revenues and we have of course a lot of production for that market. So it is important that China continues to develop.

The orders are — they are very strong and continue to be doing demand in the market. And so far, our productions have been able to deliver in line with that.

Timo IhamuotilaChief Financial Officer

Yes. Maybe I’ll just comment a little bit on this as well. So first of all, when you look at the China order growth, and then when you compared it to, for example, U.S. or Germany, the dynamics are approximately as follows.

China is up, as Bjorn said, 8%, 9% sort of about 20 coming from 1920 to 21, and then when you look at Germany and U.S., it’s pretty much down then up 30. So all of these markets are on this two-year period developing pretty much in a similar way. If you take the two-year stretch. And that shows that we really have a strong demand picture in our main markets and it’s actually fairly similar when you take the Corbett impact out.

And then when you look at China on the revenue side, in China we have — I’ll just give you one example of a situation where, for example, in drive products, very strong market in China, we have simply not been able to get all the product out. We have also managed the distribution channel very well and that is one of the reason why the revenue is now down. And when that correct itself we would expect to see a revenue pick up in line with the order or the demand picture.

Ann-Sofie Nordh

Is that answer your question, Alex? I hope so.

Alex VirgoBank of America Merrill Lynch — Analyst

As well as can be expected. Thank you very much.

Ann-Sofie Nordh

Thank you. And we open up the line for Joe at Cowen and Co. Are you there, Joe?

Joe GiordanoCowen and Company — Analyst

I’m here. Can you hear me?

Ann-Sofie Nordh

We can.

Bjorn RosengrenChief Financial Officer

We do sure can.

Joe GiordanoCowen and Company — Analyst

Great. You mentioned customers emotions is not accepting delivery right now. Can you just talk about the dynamics there? Is that part of a larger project where the other pieces aren’t available? Like, how should we how should we think about why that’s happening and how do you think that plays out into full view?

Timo IhamuotilaChief Financial Officer

Was this — this was in relation to the previous answer.

Bjorn RosengrenChief Financial Officer

I think it was motion. Did you say motion or what did you —

Timo IhamuotilaChief Financial Officer

I just said drive products in China have had some component shortage issues on the semiconductor which impacted the China revenue.

Bjorn RosengrenChief Financial Officer

But I see —

Joe GiordanoCowen and Company — Analyst

Yes. I thought I heard earlier this product that you that you guys — your customers weren’t taking, not that you weren’t able to source — that you weren’t able to deliver. Maybe I misheard that. Is that true?

Bjorn RosengrenChief Financial Officer

Yes. You are talking about the customer acceptance topic. Again, this has nothing to do with the quality of the backlog. This is an issue in a couple of places where you would deliver into the project but somebody else is not delivering in time, and then the customer says, well you know maybe I could take that a little bit later.

So again, it’s quite normal behavior in this kind of situation. Doesn’t mean at all that our backlog quality wouldn’t be where it is, but we had some of these impacts as well during the quarter when you look at the revenue.

Timo IhamuotilaChief Financial Officer

And that’s more related to project orders.

Bjorn RosengrenChief Financial Officer

Exactly.

Timo IhamuotilaChief Financial Officer

I think that not so much in components.

Joe GiordanoCowen and Company — Analyst

Right. That’s — OK. That’s kind of what I thought. Is there any — How did your guys think about that that dynamic at work? You kind of similar to 3Q as well, like the projects are still held up by others in some cases.

Timo IhamuotilaChief Financial Officer

Well, we have taken as we said today all these impacts into account to our best ability, so this impact as well. And as I said we are going into Q4 with a higher backlog conversion expected than we did last year. So if this starts to ease, there should be upside on the revenue.

Joe GiordanoCowen and Company — Analyst

That’s fair. OK. Last question. Do you guys plan on — or have you already started integrating the [Inaudible] robotics into your own manufacturing facilities?

Bjorn RosengrenChief Financial Officer

Yes. I can talk a little bit about that. Yes. It was of course completed during the — both the assigning as well as the closing of that acquisition, and it’s being integrated I think for robotics, this is — it’s a perfect fit.

This is a good quality company with respected and good products and they have the ability to utilize the ABB channel globally. And that is what we do. At the moment, we are also setting up production for these products in the Chinese market. So we’ll be able to support that market also.

But as you heard earlier, we have to quite ambitious plans for this business going forward and they’re excited in robotics. And it’s a great fit.

Joe GiordanoCowen and Company — Analyst

I know you use them internally, I assume as well.

Bjorn RosengrenChief Financial Officer

This is normally an APB. So we utilizing both our automation product and robotics and in more or less all our factories. So, yes, these AGVs is part in many of these factors and going forward, they will be also using the — this new ABB [Inaudible] products.

Joe GiordanoCowen and Company — Analyst

All right. Thank you.

Ann-Sofie Nordh

Thank you, Joe. And now let’s see if we have Martin from Citi on the line.

Martin WilkieCiti — Analyst

Oh, yes. Good morning, it’s Martin from —

Ann-Sofie Nordh

Hi, Martin.

Martin WilkieCiti — Analyst

A couple of questions for you. Hi. I hope you can hear me ok. The first question was on the impact of [Inaudible] prices on your demand.

[Inaudible] question, I guess already on how [Inaudible] impacts on the U.S. markets. But in previous cycle when energy prices have had spike, then some of your products have been more in demand because of efficiency and I guess [Inaudible] to that cost of particular, I guess, motion and electrification. Hasn’t been any indication so far particularly in Europe with power price adopts so much that we’ll see a cool board of requests or efficiency related products.

I guess it’s relatively early in this price spike. But just to understand a little bit about that. Thank you.

Bjorn RosengrenChief Financial Officer

Yes. I think it’s difficult to say short term price spikes or long term need for electrifying many parts of the industry and the world. I think we have said from the beginning that we are well positioned when it comes to electrification in the market with our electrification product but also with our motion products. Even in process automation we are helping many of the large customers to electrify.

I think one example was the movie which I of course like very much about e-mining. Many of these industries need to go for being more sustainable and that’s why they’re going in for be electrified. I think this kind of happened every mine in the world, and I think ABB is the right partner to help them to to drive this change. So, yes, we do believe that there will be demand for more electricity long term.

But on the other hand, this is there may be a short term spike and then maybe not so much.

Timo IhamuotilaChief Financial Officer

I was just going to comment on that. We reviewed actually in one of our business reviews. Just a case like this where all the motors and drives would have been changed for this reason, but of course also because it drives better carbon footprint. So it is happening is it only because of the electricity price.

Maybe not. But I would just say that if that continues, it will add to the demand picture as Bjorn described.

Martin WilkieCiti — Analyst

As I mentioned one simple question. You mentioned the change already, but just to come back on the turbo business [Inaudible] in the end market, you give the one area that has cost you about this quarter compared to previous conventional generation. Just to clarify what you’ve seen there and also, would you view on the end market the change the timing of the potential exit in turbo. Just to understand if those two things might be linked or not.

Thank you.

Bjorn RosengrenChief Financial Officer

I think the exit of turbo is decided is just a timing issue and it will be the right and in what direction will we go if we go for for a spin-off or we go to a sale. So from that perspective, yes, turbo is — I mean it’s a resilient company from the beginning. We saw during COVID that they managed to deliver a good margin even if there was somewhat lower than we’re seeing today. Their market has recovered one big market in this business is the cruising industry.

Yes, they are improving services picking up on that part in their power generation. It’s an other part where they sit on many of these gas engines around the world. Demand for electricity is going up, so I am sure that has some effect. So, yes, the quality of the aftermarket which is 75% of that business is developing good.

So, yes, I think it’s a good company I think it will be a good company standing by itself also.

Timo IhamuotilaChief Financial Officer

Yes. And just to mention we have had very strong demand pick up in Durban during during this quarter and it looks actually quite positive. So if you look at the orders revenue and also margin in turbo during Q3, they are all moving to the right direction.

Martin WilkieCiti — Analyst

That’s great. Thank you very much.

Bjorn RosengrenChief Financial Officer

It’s a it’s a great business, but we do not feel that it is part of the ABB purpose.

Ann-Sofie Nordh

Thank you. And we’ll finish off with a question from Andreas at J.P. Morgan. Is your line — your line should be open, Andreas, please.

Andreas WilliJ.P. Morgan — Analyst

Yes. Good morning, everybody. Thank you very much. I’ve got two questions, please.

One on your earlier comment on process automation and the annual business review there. Do you have spent quite some time with that business in the last few months. Maybe you could share a little bit what you see as what needs to happen there, particularly as when we look at measurement and analytics which has been maybe a bit of a problem child in terms of where you see the measures, strategies that gets that business closer to where you want it to be and where peers are. The second question is on sourcing in discrete automation.

Maybe you could elaborate a little bit more on that? You talked about the semiconductor issues. But we haven’t — obviously we’ll see another report, but we haven’t really heard [Inaudible] or Schneider complain as much about their discrete business into the quarter end compared to what you highlighted. Maybe you could help us explain why that could be?

Bjorn RosengrenChief Financial Officer

Yeah. I think that will be difficult to do when we haven’t heard, heard yet. We didn’t talk too much about that before we came out with the report. It is pretty clear that they are the one who is getting least supply of semiconductors.

And of course, they are fighting hard with suppliers to get them and to be able to supply the products. It is tough for them, of course, not being the largest in the market even if they are very strong in the machine automation segment, in the part and they just need to deal with that. And they spend quite a lot of time to sort out the issues and going forward, they will slowly pick this up and we will go forward and we will be able to supply the customers. But yes, it’s a challenging period.

Timo IhamuotilaChief Financial Officer

And again, there are no order cancellations.

Bjorn RosengrenChief Financial Officer

Yes. I mean, they have a very strong — I mean, they work a lot with your OEM customers, of course, as we’re talking about machine builders, so they have a very strong and long relation with them. And so far no cancellation there. So they’re coping it with it together and the machine supply is, of course, also having issues probably not only with us, but maybe with other components and products also, so understanding that.

If you talk a little bit about process automation, I like to talk about this subject. And as you know, from last year and being quite new in the company and I thought that process automation was actually delivering lower deliveries than many of our other business area. So for me it’s of course important to understand the dynamic in this business and also the potential improvement where we can develop this business. So we’ve spent quite a lot of time during the last two quarters with this business.

And I think we feel that these are basically good businesses. We think that is the improvement when it comes to operational performance in some of these businesses. And I think these divisions are working hard and of course, I get very happy when I see a quarter where all the businesses are improving and delivering more than double-digit. And I think the potential here is quite good and we have put up strong targets and they have put up a good challenge to improve these performance as during the coming year.

So I think we have a lot of good stuff coming out from these businesses. On management and analytics. Yes, it’s correct. We talked about it last — we had their management change in this.

We have a good management in place and they are dealing with some of the issues. I think it’s a mixed bag here. You have the instrumentation part and you have the analytics part. It’s like two businesses.

The analytic parts is very much related to climate change. The way to analyze these gases in different kind of business is to cope with a lot of the regulations that are actually enforced in the market. And this business is doing great. A lot of service, a lot of exciting products and solutions.

And I’m sure we’ll talk more about that in during the Capital Market Day. Then on the instrumentation side, this is a little bit more me-too products, where we have a little bit more challenge in getting the full value out of this. On the other hand, I think we have a lot of new innovations, a lot of good stuff in that business. So we’ll see how that will be developed going forward.

But we’ve seen a good improvement compared to last year, both in measurement and analytics, and and they were quite strong during this quarter. So I think there are upside also there going forward. So I think we should take it off the table, P.A., process automation is part of the ABB purpose and it will continue to develop during the coming years.

Andreas WilliJ.P. Morgan — Analyst

Thank you very much to you both.

Bjorn RosengrenChief Financial Officer

Thank you, Andreas.

Ann-Sofie Nordh

Thanks. And with that we round off this session. Thank you very much for joining us today. We apologize for the sound challenges early or — early on in the session, and we will meet again in about two quarters time to talk about that fourth quarter results.

But before that, we hope to see you at our Capital Markets day on the 7th of December either here in Zurich or virtually behind the screens, so to speak. Until then, take care. And thanks for today.

Duration: 51 minutes

Call participants:

Ann-Sofie Nordh

Bjorn RosengrenChief Financial Officer

Timo IhamuotilaChief Financial Officer

Daniela CostaGoldman Sachs — Analyst

Alex VirgoBank of America Merrill Lynch — Analyst

Joe GiordanoCowen and Company — Analyst

Martin WilkieCiti — Analyst

Andreas WilliJ.P. Morgan — Analyst

More ABB analysis

All earnings call transcripts

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.


Most Related Links :
Business News Governmental News Finance News

Source link

Back to top button