Posted on July 25, 2022
Ad hoc Announcement pursuant to Art. 53 Listing Rules of SIX Swiss Exchange
- Orders $8.8 billion, +10%; comparable1 +20%
- Revenues $7.3 billion, -3%; comparable +6%
- Income from operations $587 million; margin 8.1%
- Operational EBITA1 $1,136 million; margin1 15.5%
- Basic EPS $0.20; -47%2
- Cash flow from operating activities $382 million
“I am pleased with our performance and that we have taken yet another step toward our long-term margin target. I am also delighted that we are moving ahead with the spin-off of Accelleron and its planned listing in Switzerland.”
Björn Rosengren, CEO
Overall, I am pleased with how the teams delivered strong order growth as well as a margin in line with our long-term target. This was achieved despite the pressure from a tight supply chain, Covid-enforced lockdowns in China and the inflationary environment. Cash flow came in higher than in the first quarter, and I expect a good momentum in the second half of the year.
We achieved a strong order growth of 10% (20% comparable) and we saw a positive development in all major customer segments. While changes in exchange rates weighed on the total, comparable orders increased at a double-digit rate in all regions. With all business areas in double-digit growth, order intake amounted to $8,807 million and a record-high order backlog of $19.5 billion.
In total, revenues declined by 3% (up 6% comparable), year-on-year. Negative impact from changes in exchange rates and portfolio changes outweighed the positives of strong price execution and increased volumes, with the latter somewhat held back by the strained supply chain. Comparable revenues increased in all business areas except for Robotics & Discrete Automation which together with the Distribution Solutions division in Electrification, are where customer deliveries were materially slowed by component shortages. Overall, the supply chain constraints slightly eased compared with the previous quarter, however we saw temporary pressure on customer deliveries in China where lockdowns slowed down logistics somewhat more than expected. We anticipate further easing of component supply in the coming quarters.
I am pleased that we managed to improve the Operational EBITA margin to 15.5%. Notably, our teams successfully offset inflationary effects such as input costs and freight through strong pricing execution and higher volumes. Process Automation noted a sharp 180 basis point improvement to its margin, year-on-year. I am also pleased with the performance levels in Electrification and Motion, although margins declined from last year’s high levels. Robotics & Discrete Automation is the area with operational underperformance, triggered by customer deliveries materially hampered by lockdowns in China and semiconductor shortages. Additionally, results were supported by lower than anticipated costs in Corporate and Other including a positive margin impact of approximately 60 basis points related to the exit of a legacy project and a real estate sale which came through sooner than expected.
Looking at Income from operations, it included items impacting comparability of approximately $250 million. These include the earlier mentioned charge of $195 million triggered by us exiting the largest legacy project exposure in non-core operations, namely the full-train retrofit business. It also includes the financial impact of our decision to exit the Russian market, triggered by the ongoing war in Ukraine and impact of related international sanctions. We have started the process of winding down the remaining activities in Russia. This triggered a charge of $57 million, of which $23 million will impact cash flow in the third quarter.
The balance sheet is robust, although year-on-year the cash flow from operating activities in continuing operations declined to $385 million, mainly on a higher build-up of net working capital. That said, we have continued to execute on our share buyback program, and just after the close of the second quarter we successfully delivered on our promise to return to shareholders the remaining $1.2 billion – out of the total of $7.8 billion – from the Power Grids proceeds. We will now continue with the execution of our ongoing buyback program of up to $3 billion.
On the back of the volatile financial markets, we decided to postpone the planned IPO of our E-mobility business. We will monitor the market conditions and are fully committed to proceed with a listing on the SIX Swiss Exchange as and when market conditions are constructive. Meanwhile, building on the earlier seed stage investment three years ago, the E-mobility team has agreed to acquire a controlling interest in Numocity, a leading digital platform for EV charging in India. This deal allows E-mobility to leverage on the regional opportunity from increasing demand for charging solutions for two and three-wheelers, cars and light commercial vehicles. After the close of the second quarter, we decided to spin off the Accelleron business (Turbocharging) with a planned listing on SIX Swiss Exchange on October 3, subject to approval by the Extraordinary General Meeting. I am pleased about this as it allows for shareholders to realize the full value of Accelleron while allowing ABB to focus on its core areas of electrification and automation.
In the third quarter of 2022, we anticipate double-digit comparable revenue growth and the Operational EBITA margin to sequentially improve, excluding the 60 basis points positive impact from special items in the second quarter.
In full-year 2022, we expect a steady margin improvement towards the 2023 target of at least 15%, supported by increased efficiency as we fully incorporate the decentralized operating model and performance culture in all our divisions. Furthermore, we expect support from a positive market momentum and our strong order backlog.