Abb Ltd

SIX:ABBN

Earnings Call Transcript 2018-Q4

[Ulrich Spiesshofer, President & CEO]

Today, on the one hand, we are sharing with the world our results for 2018, solid growth of ABB. And second, we're giving an update on our strategy and the roadmap to the future. 2018 was a year of solid growth for ABB. And I'm really happy to report that the company is back on the growth path. All the numbers that I will be talking about are impacted by the move of Power Grids into discontinued operations following the announcement of the transaction with Hitachi on the 17th of December. When we look at the growth momentum, we grew, for the full year, orders by 8% and revenue by 4%, which is a real clear demonstration that our value proposition, our investment in innovation and in people and in products is working. We grew all around the world in all of the regions and we also grew in all of our businesses. The operating result of 10.9% is impacted by the flat impact of GE Industrial Solutions' integration, the noncore legacy charges that we have and the stranded costs that come out of the transaction effects that we have announced. Cash was at about $3 billion. And altogether, the team mobilized, we have a good growth momentum coming. If you take the fourth quarter results, again marked by solid growth, 7% order growth, 5% revenue growth. The operating result of 7.9% was impacted by the same 3 factors that I flagged before by about 400 basis points. Cash in the fourth quarter was really solid at $1.9 billion. If you look at the performance of our 4 businesses, Electrification grew slightly ahead of the market and delivered an operating margin that was impacted by the GEIS dilution effect that we have with the integration of GEIS. The integration is really progressing well. And many new innovations launched in the market and many new segments contributed to the Electrification momentum, whether it's data centers, whether it is e-mobility or whether it is our really leading-edge ABB Ability solutions in Electrification. In Industrial Automation, we really had solid order growth and participated in the recovery of the process industries all around the world. Also our marine business grew in 2018 in a remarkable way.The team was able, despite the dampening effect of the lower opening backlog that we went into 2018, to deliver a steady margin for the full year. In Robotics and Motion, we had a really solid year, really good growth, great customer in direction, a lot of innovation, order growth, revenue growth in a very, very strong way. We definitely took market share with our innovative robotic offering. And we brought the drives and motors business forcefully back to growth. The operating margin increased significantly. So altogether, this was a very strong performance in 2018.When you go around the world at the moment, the world is marked by, on the one hand, solid underlying growth momentum with many industries, and the same time, a lot of uncertainties that we are facing. The 2 largest markets, U.S. and China, they grew very solidly in the fourth quarter. Europe, we saw very clearly the uncertainties impacting the growth pattern, but ABB still grew. We had a little bit of a soft quarter in Germany, which is not a surprise, given the very slow momentum of the economy that we saw also economically in the fourth quarter.Another highlight of the year is definitely the big transformation that we announced in 17th December of 2018. We will shape ABB as the leader for digital industries through 3 decisive actions. Number one, we are focusing the portfolio on digital industries and divesting Power Grids to Hitachi. Number two, we are fundamentally simplifying the business model. We are discontinuing the legacy matrix structure and reset, with a strong customer focus implicit in mind, the entire operations of ABB. And third, we are setting our business portfolio in a way that we will have 4 leading businesses for digital industry: Electrification, Industrial Automation, Motion and Robotics and Discrete Automation. In all 4 of them, we have achieved the ambition that we had when we launched the Next Level strategy some years ago to be #1 or 2 in the world.I'm truly excited about these 3 actions. This will be a simpler, more focused ABB with better growth, better margin, less risk and less volatility. So altogether, a great value proposition to our employees, to our customers and shareholders.We have 2 priorities for 2019: run the company for profitable growth and deliver the transformation actions that we have announced. We need to continue to drive the growth momentum in 2019. Our PIE approach of penetration, innovation and expansion works. We are using Salesforce.com and our investment there to direct the penetration activities to get a higher share of wallet in many markets around the world. We have an exciting innovation pipeline coming in 2019. And I really look forward to wow our customers with the many, many innovations that are coming out of the classic and the new ABB world of innovation, meaning both classic hardware offering but also really exciting new software offering based on ABB Ability that we are driving going forward. On the expansion side, we will continue in segments like food and beverage and in data centers to drive growth. On the operating side, we must make sure that we keep the focus on operations, on quality, operational excellence, on our regular cost-out programs. And the continued integration of our 2 large acquisitions, GE Industrial Solutions and B&R, are definitely in scope. On the implementation side, the actions that we have announced before Christmas, we have a very clear road map already established. The actions are in place. The teams are established. And we need to do 3 things. We need to prepare the move of Power Grids into the partnership and the joint venture with Hitachi. The team is advancing very well. The key processes are really on a good way. Second, we are implementing the new ABB operating system to simplify the company fundamentally. We are on a really good track there. The progress is visible. The teams are really working all around the world and contribute to the momentum. And third, and that's probably long term the most exciting action, is shaping our 4 new businesses, which will be operational 1st of April. We are fully on track to get this and then go out and serve the customers out there with these new -- 4 new businesses. Dassault Systèmes, the global leader in 3D experience, in digital twin, in 3D simulation, and ABB, the leader for digital industries, are announcing a global, far-reaching software partnership. It is fantastic to see how the 2 companies fit together. And what we will have is a unique, leading end-to-end value proposition for our customers. We will be jointly leading in the digital offering for customers in the industrial space to plan, build and operate their assets. We will have an unmatched combination of technological capability and installed base. I would like to remind you, ABB today runs more than 70 million connected devices around the world. Dassault already serves more than 300,000 industrial customers. Jointly, we will have a fantastic offering for customers to tap the opportunities in the world of industrial digitalization, drive innovation, drive business model change and drive competitiveness.I'm excited to share with you that Sylvia Hill, our long-term leader in HR, has been appointed Executive Committee member responsible for HR, Human Resources, for ABB effective 1st of June 2019. Sylvia is a very well-experienced HR professional. She has worked in different functions all around the ABB world. She was on the function on the corporate side, she was in the business.She was the Region Head for the Mediterranean on HR. She was very well accepted. And I look forward to welcome her in the Executive Committee as a new colleague. She follows Jean-Christophe Deslarzes, who has decided to focus on a portfolio on nonexecutive directorships. We thank JC for his fantastic contribution to ABB. He really transformed HR and made many, many positive contributions for us. HR is much more in the center and is a key part of ABB's value proposition today. So thank you, JC, good luck. And to Sylvia, welcome to the team.The announcement that we made today on the dividend clearly demonstrates our confidence in the future of ABB. We are raising the dividend for the 10th consecutive time, which demonstrates that ABB is well set for the future. We are realizing our dividend policy of a steadily raising dividend policy and live up to the promise to our shareholders that the dividend is a key element of our value proposition even in uncertain times.