Abb Ltd

SIX:ABBN

Earnings Call Transcript 2022-Q4

[Ann-Sofie Nordh, executive]

Greetings to you all and nice to connect again as I welcome you to the presentation of our fourth quarter results. I am Ann-Sofie Nordh, Head of Investor Relations here at ABB. And next to me here, I have our CEO, Bjorn Rosengren; and our CFO, Timo Ihamuotila. And as always, they will take you through the presentation before we open up for a Q&A session.

But before we begin, I want to mention the information regarding safe harbor notices and our use of non-GAAP measures on Slide 2 of the presentation. Also, this call will include forward-looking statements, which are based on the company's current expectations and certain assumptions and are therefore subject to risks and uncertainties. But with that said, I will hand over to Bjorn and Timo for their quarterly comments.

[Björn Klas Rosengren, executive]

Thank you, Ann-Sofie, and a warm welcome from me as well. I would like to start with a quick look back at the full year of 2022, and it's safe to say it was another eventful year. We have executed on our business promises despite being challenged by several external factors. And before we move on with the presentation, I want to give a big credit to all the ABB colleagues who pushed through and delivered what I would call a record year for ABB.

This is a strong achievement considering that they had to manage the implications from the war in Ukraine, energy crisis, lockdown in China and a strained supply chain. And on top of that, we were also hit by a significant negative FX impact. Despite all of this, the team delivered orders, revenues and operational EBITA and margins at the highest level in recent history. We achieved an operational EBITA margin of 15.3%, meaning we delivered on our margin targets 1 year ahead of plan.

Looking beyond the key items impacting comparability, EPS performance was good. And we improved the ROCE to 16.5%, which means we brought it within our target range. Based on the improved performance and in addition to distributing the turbocharging division to shareholders in October, we proposed a steady increase of a dividend to CHF 0.84. We also plan to continue with the share buyback during 2023. I allow myself to include the signing of the power conversion divestment in this 2022 summary. And in doing so, we have delivered on our promises from 2020 to streamline our business portfolio by exiting 3 divisions.

From here on, we will continue to review our businesses on a product group level within our current divisions. One example is the decision to exit the emergency lighting operations within smart buildings in the business area, Electrification. Related to portfolio changes, I also want to mention the private placement funding we finalized just after the end of the year. We have raised about CHF 525 million for approximately 20% ownership in our E-mobility business. These are new investors who share our long-term belief in the growth story of E-mobility. This is good news. But I want to make it clear that we remain committed to our plan to separately list the business when market conditions are constructive.

All in all, in my view, our 2022 delivery shows that we have taken a big step in setting a performance culture based on divisional ownership of operations. We are making good progress in making ABB best-in-class company.

Now let's look at the Q4 in details. To frame the big picture, one can say that most customer segments were stable or improved slightly. Remember that we are now talking about order improving from an already high level. It was only 2 segments which stood out, and that was weakness in residential building and it mainly impacted the Smart Building division, Electrification. For us, Germany is a key market, which dropped compared to last year. China was also weak as we have mentioned in earlier quarters, but also the U.S. residential building market softened, although it's not such a big driver for us.

The other area I want to mention is machine automation in robotics and discrete automation. While the long-term market outlook remains solid, orders in the fourth quarter were hampered by customers normalizing order pattern after a period of a prebuy. Out of all our businesses, the machine automation business was one of the most impacted by the strained strange supply chain and component shortage. Now the supply chain constraints have eased, delivery lead times are shortening. This means that the customers start to trust our ability to deliver again and therefore, returning to a more normal order pattern.

I'm not worried about the long-term market potential. But near-term, this prebuying hangover may weigh on the near-term order growth in machine automation. In total for ABB, comparable order intake was up 2% and remained stable or improved in 3 out of 4 business areas. I mentioned earlier that the supply chain had eased. These supported our comparable revenues growth of [ 60% ] as we could execute our order backlog.

All business areas improved comparable revenues by at least 6% from last year. It was very good to see an improved flow in our customer deliveries. That said, it was yet another quarter with order growth, so our order backlog remains at a very high level of close to $20 billion. This represents an increase of 29% compared with last year, and it will support our revenues in 2023 as we convert the backlog into deliveries.

Now let's take a quick look at the different regions. The Americas was the growth engine of the quarter. Comparable order increase by 50% and the important U.S. market was strong, contributing at plus 13%. The positive trend was strong in 3 out of 4 business areas. Both Europe and EMEA declined at a single-digit rate. In Europe, the decline was mainly related to the German market and softening in the residential building. In EMEA, China orders declined in 3 business areas with only motion in positive growth. We saw a decline in the Chinese business activity towards the end of the quarter. This was in tandem with the intensifying COVID situation. Let's see how this develops in the near-term. But of course, this adds some uncertainties.

Let's turn to Slide 6. and our earnings outcomes. In the chart, you see the strong improvement in earnings and margins. We improved operational EBITA by 16%. And if we exclude the negative FX, earnings were actually up 28%. The operational EBITA margin was up by 170 basis points to [ 14.8% ]. This improvement from last year includes an adverse margin impact of about 30 basis points from portfolio changes, primarily related to the spin-off of Accelleron.

This was the first quarter when they were not part of the family. It's good to see how the strong revenue growth feeds into the sharp improvement of the gross margin. Higher volumes, improved cost absorption in production and pricing was up about 7%. In total, we improved the gross margin to 34%, up from 31.7% last year. If there is 1 area where I had hoped for a little bit more, it was cash flow.

The $720 million in cash from operating activities includes about $315 million from Kusile settlement and taking that into account, it's an okay quarter. But still, I would have liked to see us work down the net working capital a little bit faster. We are turning inventories into receivable, so it's a timing question before it becomes cash. With that said, I expect a good cash delivery in the coming quarters.

With that, I hand over to Timo.

[Timo Ihamuotila, executive]

Thank you, Bjorn, and greetings to everyone also from my side. Starting with Electrification, which had another quarter with positive order development. Order intake amounted to $3.6 billion on a comparable growth of 6% from last year. Looking at the total picture, demand continued to be overall robust, and particularly so in the Americas, driven by the large U.S. market where comparable orders grew by 25%.

Some weakness was noted in Europe where Germany, which is an important market for us, continued to see decline in residential buildings, weighing on our Smart Buildings division. In China, orders declined by 6%. Here, we saw somewhat of a slowdown in business activity towards the end of the year linked to the intensifying COVID-related situation. Revenues grew by 16% on a comparable basis. This completes a strong year when comparable revenues have grown at a double-digit rate in each quarter.

The order backlog remains at an all-time high level of $6.9 billion and should continue to support revenue generation in '23. Electrification's operational EBITA margin came in at 15.7%, improving by 90 basis points year-on-year on strong volume and price. While this was the highest Q4 margin in recent years, it did come in slightly below our expectations. This is mainly due to some lower volumes in the more asset-intense and high-margin products business, smart buildings on the back of softness in the residential building segment.

Overall, this was again a strong year for the Electrification business area with full year margin of 16.5%. Excluding the E-mobility business, which will be reported as part of Corporate and Other from Q1 '23, the operational EBITA margin for EL would have been approximately 17.2%. I will come back to this in a few minutes.

Now looking ahead into the first quarter of 2023, we currently expect a low double-digit growth in comparable revenues and some improvement in operational EBITA margin on a like-for-like basis.

Let's then move to Slide 8 and the Motion business area, which showed continued strong delivery. After a period of exceptional growth, motions orders came in flat year-on-year on a comparable basis. The overall intake was hampered by fewer project orders and a high comparable, particularly in Europe, where a large traction orders was booked Q4 '21. The underlying base business continued to improve at a mid-single-digit rate with a healthy development in the U.S. drives business and continued growth in China.

For the full year of 2022, comparable orders in Motion grew by a very strong 20%. Revenues came in at above [ $1.8 ] billion, making it one of the highest revenue quarters at least since I've been with the company. Comparable revenue growth was strong at 20%, supported by all divisions. Similarly to the third quarter, this was driven more or less 50-50 by volume and price. The strong top line was reflected in Motion's operational EBITA margin of 17.4%, representing a 130 basis point improvement from last year.

Higher volumes supported an improved fixed cost absorption and price increases more than offset the adverse impact from higher input costs. This rounds off another strong year for Motion, with operational EBITA margin improved by 20 basis points to 17.3%. This means the team managed to more than offset the approximately 60 basis points dilution from the divested Dodge business, a really very good achievement. Looking ahead into Q1, we anticipate a strong growth in comparable revenues and we expect operational EBITA margin to be similar or slightly higher compared with last year's level depending on the mix during the quarter.

Then turning to Slide 9 and Process Automation, where customer activity in the more late cyclical end markets continue to be robust. Momentum was particularly strong in marine, ports, refining and renewables. On the other hand, there were some signs of hesitation noted in the metals industry on back of elevated energy prices. Overall, PA's total comparable orders grew by 11% and the book-to-bill ratio was clearly above 1, driven by the Americas and Europe, while orders in EMEA and China, in particular, declined.

Comparable revenues grew by 6% from an already very high level last year with a good flow of customer deliveries in virtually all divisions. With orders still strong, the order backlog increased slightly and stood at $6.2 billion at the end of the year. This should support revenues going forward and is particularly encouraging as the business area has successfully improved the gross margin and quality in new orders taken. As the headline number, the operational EBITA margin declined by 50 basis points. This, however, includes a negative impact of about 160 basis points due to the Accelleron spin-off, which had an above BA average profitability. The underlying improvement in profitability was due to both higher volumes and continued benefits from improved quality in the order book backlog and higher gross margin.

Looking at the expectations for the first quarter, we expect single-digit growth in comparable revenues and a sequential decline in operational EBITA margin. The sequential decline is driven by normal seasonal pattern, but also by Marine & Ports division where the missing Russia [ Arctic ] LNG business will have some dampening impact to margins during 2023.

On Slide 10, we turn to Robotics and Discrete Automation. This business area was adversely impacted by customers normalizing order patterns primarily in machine automation, as Bjorn discussed. This follows a period of preordering due to long delivery lead times caused mainly by the shortages in semiconductors. Overall, comparable orders declined by 19%, driven by the Machine Automation division that was up against a very high comparable while robotics saw a stable development.

Taking a step back and looking at the order development for the full year, one can see that 2022 was another strong demand year for RA with comparable orders growing 15% on top of the 29% growth in '21. Looking at the chart in the middle, it is very promising to see revenues continuing to rebound as the easing of shortages of electrical components supported execution of volumes from the order backlog.

Comparable revenues improved by 23% in the quarter with solid contribution from both divisions. This translated into a strong operating leverage doubling the profit to about $125 million. Additionally, the operational EBITA margin was supported by better pricing execution as well as positive divisional mix and improved almost by 6 percentage points to 14%. For the first quarter in '23, we expect even higher comparable revenue growth than in Q4 and the Q1 margin to be around the Q4 level, naturally depending on the COVID situation in China.

Moving on to Slide 11, showing the group operational EBITA bridge. As you can see, the comparable earnings improvement benefited from our strong price execution and the continued recovery in volumes, which again more than offset the adverse effects from cost inflation. Noncore movements in FX as well as portfolio changes, i.e., mainly the turbocharging spin-off and for the last time, also the impact of the Dodge divestment were slightly diluting on a group level.

Now let's look at the cash flow on Slide 12, which is 1 area that did not quite meet our expectations. Cash flow from operating activities and continuing operations was $720 million in Q4, approximately $300 million lower year-on-year. While we saw some cash release from inventories during the quarter, the impact from overall net working capital was less compared with last year as trade receivables increased sequentially.

As mentioned in October, the settlement for the Kusile project resulted in a cash outflow during the quarter. Timing-wise, it was a bit more front-end loaded than expected and with approximately $315 million impacting Q4. It means that we now have only roughly $10 million impact in coming quarters. On a more positive note, the cash flow statement also reflects a net positive inflow from investing activities of approximately $1.4 billion from the closing of the PG divestment.

Looking into 2023, cash generation will be an important focus area for us as we work down net working capital. We should also have less adverse impact from items impacting comparability. So all in all, I expect a good cash generation in '23 already starting in Q1.

Now taking a look at the development of our return on capital employed or ROCE, you can see in the chart that we moved into our 15% to 20% target range for the first time in many years. The strong ROCE improvement to 16.5% is driven by better operational performance. It is also worth highlighting that the capital employed calculation still includes the negative impact from the 19.9% ownership in Hitachi Energy in '22. This impact will reverse from '23 onwards moving us even more comfortably into the target range. And overall, of course, the improved ROCE is a good indicator that we are really improving ABB's long-term performance.

Let's finish off by quickly taking a look at yesterday's announcement. ABB E-mobility has signed an agreement to raise an additional CHF 325 million in second and final part of pre-IPO private placement. This comes on top of the CHF 200 million announced in November '22. The E-mobility business will use the proceeds to continue the execution of its growth strategy, comprising both organic and M&A investments in hardware and software. Following the second round, ABB has a shareholding in ABB E-mobility of approximately 80%, and we remain committed to our strategy to separately list the business subject to constructive market conditions.

To effect the new governance structure and the size of the business, E-mobility has been moved out of the Electrification business area as of beginning of January and will be externally reported as part of corporate and other as from Q1. You can see pro forma figures for EL excluding E-mobility and the new corporate and other on the right side of the slide. We will also publish historical re-reported numbers prior to our Q1 results on the Investor Relations section of our homepage. At the same time, we are happy that the noncore business has become so insignificant that we will no longer report it as a separate line.

And with that, I hand it over back to Bjorn to round off this presentation.

[Björn Klas Rosengren, executive]

Thank you, Timo. As we sat down to summarize the year, we came to reflect on what an exceptional period we have been through in the past 3 years. First, the COVID slump in 2020 followed by a very strong year in orders despite all the major external events. The tight supply chain has been a trigger. And as I mentioned earlier, we are seeing customers normalizing order pattern as the supply constraints ease.

This may hamper our orders growth in the first half of 2023 as the comparables are very high.

The chart also shows that the revenues has lagged orders. We have an order backlog of $19.9 billion. We plan for about 75% of these to be delivered during 2023, supporting our revenues. And to continue on the topic of what we expect from 2023, let's finish off with Slide 16.

Looking ahead, nobody really knows what is coming. And we have stopped speculating too much. Instead, we have prepared for different scenarios. And based on what we see now, we do not expect a major setback in the market. Our revenues will be supported by execution of the record high order backlog, and we expect our comparable revenue growth to be above 5%. We are committed to deliver an operational EBITA margin of at least 15%, even if we see a slight softer market.

Cash flow is in focus. By working down the net working capital in combination with a lower negative one-offs, we expect to see a robust cash flow for the next year. On top of the dividend of CHF 0.84, we are planning to continue with our share buyback program.

Rounding off with a quick look at the first quarter. We expect a double-digit growth in comparable revenues and some year-over-year improvements in the operational EBITA margin, meaning from the 14.3% we reported last year, including the high-margin business, Accelleron, which we now have exited. It should be a good start to what we expect to be another year of solid performance for ABB.

[Ann-Sofie Nordh, executive]

That's a good ending to finish off the presentation with Bjorn before we now open up for the Q&A. [Operator Instructions] And with that, we open up for questions. And I think we should start with a question from the conference call. Do we have someone on the line there, please? If not, we'll kick off with a question from the online tool while we're waiting for the telephones to come live. We have a question here from [ Kulwinder Raipal ], and he wants to know a little bit about the outlook comments.

He says for Q1 is the comparable growth more low double digit or somewhere around mid to high teens. We start with that one and he has a follow-up.

[Björn Klas Rosengren, executive]

I can take that one. Yes, I don't think we'll go into that. It's going to be high or low. We believe there's going to be double-digit growth. And which is, of course, good supported by the order book, and that is the first quarter. And then you have also seen that we do expect for the full year to be above 5% also when it comes to revenues.

[Ann-Sofie Nordh, executive]

Yes. And now we go to the conference call. I think your line should be open, Lars Brorson from Barclays. Are you there?

[Lars Brorson, analyst]

Firstly, briefly, Timo, on Electrification margins. I wonder whether you can give a bit more color on the profit bridge there in Electrification. Thank you for providing some pro forma numbers for E-mobility. I gather in the quarter is about an 80 basis point dilution. Help us a little bit, if you can, with the adverse mix towards more systems and also the impact from underabsorption in the resi business.

And secondly, if I just can briefly on the pricing outlook for 2023, your pricing up 7% at the group level currently higher in motion, I'm assuming around 1%. I wonder Bjorn, when we look at bit [ deeper ] into 2023, I'm trying to understand the price stickiness there as input costs starts to ease, particularly in Motion, where you have some [ Formula E ] pricing clauses in large motors. Can you talk a bit about the risk perhaps surprising as we get into the back end of this year, just from a mechanical reset to lower raw mat prices?

[Björn Klas Rosengren, executive]

Why don't you take the first one, Timo, and it's Electrification there.

[Timo Ihamuotila, executive]

Yes. On the EL margin, yes, as we said, we came in slightly lower than we expected. I mean the main drivers there are, as we said, there was a bit less demand on the [ resi ] construction, and that's a high-margin business in Smart Buildings for us. Then we also had, as is totally normal, more business from Distribution Solutions, which is a lower-margin business than the EL average. And then third, and this was actually almost 40 basis point delta on EL margin coming simply from the fact that E-mobility was bigger Q4 this year than last year. So those are really the main drivers.

[Ann-Sofie Nordh, executive]

And on pricing, Bjorn, do you want to take that?

[Björn Klas Rosengren, executive]

Yes. I mean, yes, 7% is what we report for the quarter. We know the inflation rate during last year, which was quite brutal both when it comes to logistic cost, but also for commodities during the period. Now in line with the interest rate going up and we see more normalized demand, I think we're seeing somewhat less inflation. And I do believe that is also going to reflect our pricing. So we have a pretty good picture of what are the cost increases in our operations, and we will make sure that we compensate that also going forward, but also, of course, getting full value for -- good price for the value that we are delivering to the customers. So we believe that, that will be somewhat lower inflation during next year. Yes.

[Timo Ihamuotila, executive]

Maybe just to chip in, we expect about 2% pricing pre-over from '22 to '23, something like that.

[Björn Klas Rosengren, executive]

Yes.

[Ann-Sofie Nordh, executive]

And we take another -- and although that was more than 1 question, I would like to add, we'll take the next question from James Moore, please, at Redburn.

[James Moore, analyst]

I've got 1 question on your performance management system, if I could, Bjorn. I mean I think about 20 divisions at the moment. Could you say have a mix of what is in a growth mandate versus the profitability mandate changed in terms of the numbers? And could you talk about those divisions still with a profitability mandating, say something about their potential, if possible?

[Björn Klas Rosengren, executive]

Yes, I think it's a very good question. And this is very close to my heart. It's to implementing this performance culture, which I think ABB really has shown that it have managed during the last 2 years. We've seen an improvement. So it's correct that we're seeing more and more divisions moving into the growth mandate. And I think I'll be mentioning close to 70% which have that mandate today.

We still have a number of divisions who have a little bit of a challenging. Some of them are moving in profitability, but we also have 2 divisions actually where it's more on the stabilization phase. And one of them is large motors and generators, where it's been a tough market for them. They are working hard to improve their performance. And the other one is DS. And I think Timo talked little bit about that. We had quite good deliveries, big deliveries on DS, Distribution Solution in Electrification. And as you probably know there, we have now a new division president for that division.

We have also splitted that business and moved some of the low-voltage switch gear into Smart Power and DS will be concentrating more on the medium voltage, where we have a strong position in the market. So I think the right measures are going to be implemented during the year, and we should see a gradual improvement of these 2 businesses.

Then of course, in every division, there are a lot of activities for both growing as well as improving profitability and that's part of the performance culture and continuous improvement, which is so important for ABB and also giving us the comfort in saying that we will be delivering over 15% also next year.

[Ann-Sofie Nordh, executive]

Thanks, James. And I'll continue actually with a sort of related question here from the online tool. It comes from [ Joe or John ]. And it's reflected to the decision to exit the lighting business in Electrification. What drove this decision? Is it going to be a sale or an organic exit?

[Björn Klas Rosengren, executive]

Yes, let me take this 1 on here. First, I would like to say now that we are extremely happy that we have now delivered on our promise which we put up 2020 to exit 3 businesses to align our portfolio with our purpose. I think that's good. I think it's very clear today. We don't look upon ABB as a conglomerate anymore. We are a purpose-driven company, so I think that is good. So now we can concentrate on growing. That means acquisitions and organic growth and to make sure to strengthen the group.

On the division level, there is continuous pruning of businesses that mean some business can be fixed -- some can be driven better performance, and you -- with a good transparency also see what you make in the different product lines. In some businesses, they have product lines that maybe don't fit in very well or you could be a small fish in a big pond. And we say that the best way here is to find a home for that where that business can develop better than win in our -- and I think Electrification and the team there have identified this emergency lighting as one of the businesses that we believe that should be exited and find the new home for that. And I think we will start the process now. And we haven't decided yet if it's going to -- where it's going to end up in -- but we will start the process identifying opportunities and look for the best home for that business. And we will continue to challenge all our divisions and their product lines that we have market-leading, fresh, well-performing businesses also within the divisions.

[Ann-Sofie Nordh, executive]

Very good. And then we'll take the next question from the telephone lines. And Ben Uglow, your line should be open.

[Ben Uglow, analyst]

Everyone. I hope that all well. It's really a question for Timo, around the cash, the underlying cash situation. So I guess if we step back, you had a couple of years, including last year where you have done $3.3 billion of cash from operations I mean 2021, we did 3.3%. And we've done that level in the past. Where we are today is about $1 billion -- $2 billion less at about $1.3 billion. I guess that $2 billion swing is almost exclusively coming from working capital. I guess the question Timo is how long -- 2 questions. One is how quickly can we get that working capital from $2 billion down to a few hundred million, i.e. are we going to see the vast majority of this reverse in 2023?

And then the second sort of related question because it obviously depends on a few other things is how realistic is it to think that we're going to be coming back to $3 billion thereabout sort of cash operations within the foreseeable future. So are we going to get back to the cash levels that we're at in 2018 and in 2021?

[Timo Ihamuotila, executive]

Okay. Thanks, Ben, for the question. I was kind of thinking that you might go to that direction. But let's first start with the $2 billion gap, so about $1.4 billion of that is actually coming from trade net working capital. There, I would just say we have good quality inventory. We have good quality receivables. And actually, the inventory now already started to reduce, which is a good sign. So it's moving more to receivables. And then we did not release that much money from payables because the payables are going down as we are sort of seeing this release and business coming from inventory.

Then if you look at next year, so I would maybe answer this in a way that if you look at what we have said on our guidance and we can use sort of round numbers here, so say, approximately $30 billion of revenue, and you put into that this 5% growth and then you take 15% margin. So this is just a rough math, and then you move to EBIT. So you take out the cash items, which is about $330 million in our guidance. And then if we would have net working capital efficiency improving, say, by 1 point, so we would come back to about 10% of revenue and you take 25% tax rate and all that, you will actually drop into numbers which would indicate some $3 billion of free cash flow. So that's kind of like you see it from there how we think about it for 2023.

[Ann-Sofie Nordh, executive]

And we'll take the next question again from the telephone line. Gael?

[Gael de-Bray, analyst]

Can I ask about the decline in orders in the machine automation division? I mean you mentioned a significant drop there on a year-on-year basis. I guess the book-to-bill is also clearly below 1 now. But I mean, we've just heard about Rockwell Automation, highlighting that both the orders and backlog continued to increase sequentially with continued strong automation demand. So could you perhaps elaborate on your specific market positioning in machine automation. Have you been perhaps too focused on margins, not enough on growth? I mean what's going on there? Because it seems that you're perhaps losing a bit of market share.

[Björn Klas Rosengren, executive]

Thank you for the question. I'll take that one. First, I would like to say, when you look at robotics and machine automation for the full year, we had a growth of 15% and the year before, 29%. So that gives you a little bit of the growth. If you look at the fourth quarter, and then first, I can say that the comparison with last year, we had 60% growth in Q4 the year before. And that was actually when we start seeing the problems with the semiconductors. So there was a brutal comparison with that part.

We look at the end markets. We see a very strong demand pattern. We feel very comfortable with both the machine automation. And you can, of course, see also -- you can see but the growth in revenues and the order book that we have for that business. We have an increase in order book during last year with 49% which is, of course, huge that need to be delivered out. And if you look at our machine automation business, mainly our customers because we have a very strong niche there is on the machine automation. It's OEM customers. And they were quite nervous when we had difficulties with semiconductors because you know that part. So they actually pushed orders earlier.

And now when we're actually delivering and we don't have any issues on the supply chain with the semiconductors apart. They are feeling much more relieved, and they can go into a normal order pattern. So that is what we are seeing. We are very optimistic about the machine automation market in the coming years from that. Also from the robotics, where you can actually say that we had actually flat orders during the quarter. So we think this is more a mechanical change in then that actually from the demand from the market, and we're sure we can prove that going forward.

[Gael de-Bray, analyst]

Just can I just come back to the point you made on order growth in H1 being challenged by high comps, normalization and so on. I mean, I think I get that maybe [indiscernible] if you actually anticipate group orders to be up or down sequentially?

[Björn Klas Rosengren, executive]

On the group, we don't -- we haven't guided on the orders on that side. But of course, you know the first quarter during last year was quite dramatic because of the supply chain issues, so it went up very much. So it's a little bit more challenging on that side. So I think from our perspective, we're guiding on the revenue and we say we're going to get a double-digit growth, and we're very comfortable with that. You want to add in something that, Timo?

[Timo Ihamuotila, executive]

Yes. Maybe just if you look at the first half, so the comparable order growth from last year is about 24%. So that, of course, very, very high, as Bjorn was saying. But if we look at the full year, we expect actually at the moment when we sit here that the book-to-bill would continue to be above 1. So in that sense, we expect to see healthy market for 2023. We just have a super high comparables on the orders.

[Ann-Sofie Nordh, executive]

And I'll just connect to the RA question you had earlier. There is a question here from John McClaine who wants to know, have you seen any cancellations of orders in the backlog in robotics as part of the normalizing trend?

[Björn Klas Rosengren, executive]

No, it's a very solid order book for robotics and both robotic and discrete automation I'd like to say. So it's a huge order book, and we have to deliver on that during the year, but no cancellations, what we have seen so far.

[Ann-Sofie Nordh, executive]

Okay. Then we take the next question from the conference call and Alex from Bank of America Merrill Lynch should be on the line.

[Alexander Virgo, analyst]

I wondered if you could dig a little bit into the resi construction comments that you were making there with respect to Germany and China. I guess, China maybe a little bit more obvious, given the broader backdrop in China property. But if you could give us a bit more color around that the overall market across your global resi construction business?

[Björn Klas Rosengren, executive]

Yes. I can start and then Timo can cover in. I mean, we've been reporting a weaker residential construction industry for a couple of quarters. And I think that actually has remained. We see it in Europe mainly hitting in Germany where we have a really strong position and that is actually reflected in the numbers. But we also see it in U.S. and in China at that stage. So that is actually the segments that we don't see positive at the moment. That is the only one which has been softening off. Would you like to add something?

[Timo Ihamuotila, executive]

I can just maybe chip in a couple of numbers here. So when we look at residential construction out of the Electrification business, overall, it may be some 15%, but Germany is actually about double that because we have the strong position. As Bjorn said, we have the [indiscernible] business, which is very strong. So in that sense, Germany is having a big impact for us. And we all know that the German situation, given the gas prices, which are now luckily coming down -- the market has caused some pullback on demand on the consumer side, which is understandable. So I think this is really the situation. And now let's look at how it moves forward because we are seeing, I think, electric prices have been coming down maybe faster than expected, so what let's see what that does. And then, of course, we could have some pent-up demand in China as well on different parts when we start to come out of COVID. So I think it's very difficult to read at the moment, but maybe I would say it looks maybe slightly more positive than a couple of months back.

[Alexander Virgo, analyst]

Okay. And you're not really seeing any kind of mitigating factors from energy efficiency arguments or changing equipment for the benefit of energy efficiency?

[Björn Klas Rosengren, executive]

No, I can say, I mean, it is, of course, correct. That is the demand globally towards energy efficiency. And we see a lot of the investments that have been driving the demand for us is related to energy efficiency. And we do expect that will continue. I mean the IRA Act in North America is going to be extremely important for us with green investments, which is actually our core in our business. So yes, we expect also Europe to come up with some contractions now in a week from now. So I think that's probably going to help to drive some demand in our core segments. So I think it's looking pretty good.

[Ann-Sofie Nordh, executive]

We continue with a question from Andy at JPMorgan.

[Andrew Wilson, analyst]

I just wanted to kind of, I guess, drill down a little bit on China. It's kind of been mentioned a couple of times in terms of some challenges towards the end of the period, which I don't think is a surprise. And I guess some expectation that probably continues in the early Q1. But I noticed as well beyond some of the comments being reported on Bloomberg is sort of an optimistic view on time. So is it as simple as the underlying activity we would expect to improve. But in the very near-term, it's still going to be challenging to either see that in the numbers or delivered in terms of volumes? Or can we be a bit more positive maybe a little bit earlier in the year? Just trying to get a sense of what you're hearing on the ground when you see for the customers?

[Björn Klas Rosengren, executive]

Yes. And I can give you a little bit more meat on the bone here when it comes to China. It's correct that December was a weak month in China compared to the 2 earlier ones and very much related to COVID. We were running factories at 50% capacity due to people ill being home from COVID. And that was really the situation during the end of December.

Then in January, this has gradually improved and before our employees went on New Year -- for Chinese New Year, we were actually up in 100%, meaning that this illness from COVID had actually gone through very, very fast and people are coming back. So I think it's maybe a little too early to draw too much conclusion for China. Normally, historically, we know that the weeks or the month after Chinese New Year will set the pace for the year. Personally, I think there could be an upside on China because it's been lockdown for now 3 years. People will be spending very little traveling, little consumption at the moment. And I think there is a chance that China will experience some what we've seen in the rest of the world when opening up. But let's wait until end of Q1 to draw any [indiscernible] conclusions.

[Ann-Sofie Nordh, executive]

That's very good. Thanks. And we take the next question from Andre, please, from Credit Suisse.

[Andre Kukhnin, analyst]

I have a much broader one. I just wanted to ask whether, given the performance of this year, but also looking at the whole kind of revenue growth performance from 2019 onwards and the guidance for '23, given the macro trends and all the push for energy efficiency Electrification whether you are changing your thinking on the 3% to 5% growth, like-for-like growth outlook that you gave just over a year ago, given that it looks like you've printed about 500 [indiscernible] going to do another [ 5 in 2023 ].

[Björn Klas Rosengren, executive]

Yes. I probably expected that question to come as we are delivering on 1 year early on the performance also on the operational EBITA. I put it this way that, of course, it's been a very unusual time now with COVID and the opening up with COVID, which has put volumes. I think we did overview 1 year ago on the Capital Market Day, as you remember. We actually lifted our guidance -- I mean, organically 3% to 5%, but also including small acquisitions, 4% to 7% there. We think at this stage, it's maybe a little bit premature to do any kind of adjustment in that part. But we're having the Capital Markets Day in November -- end of November this year, and we will definitely review our targets after this year also to say, I mean, we reached the 15%, then we, of course, need to continue. So we will look into that. And that will be reviewed during the second half of this year and some kind of message we should have by the Capital Market Day, I think, but not at this day. We don't speculate too much.

[Andre Kukhnin, analyst]

May I just follow up on electrification? Specifically, if you could give us some idea how much of the whole portfolio and give us any individual pieces, of course, we welcome very much that is geared towards the push for higher energy efficiency and kind of electrification of buildings and mobility?

[Björn Klas Rosengren, executive]

Yes. It's a question. I don't know if Timo can answer, but let's put it this way that I think the 2 driving forces now in the green transition that is taking place. One is the Electrification, electrifying the world. You have electrifying America, you have electrifying Europe. That is, of course, one of the big driving forces. Then you have also the energy efficiency side. That means that many operations all around the world are investing in more efficiency in the operation. And I think that is both reflecting Electrification, but also Motion. So these 2 divisions are really the big drivers in efficiency movement there. So -- and I don't think I have a number exactly to repeat that. But I would say our portfolio overall is supporting both Electrification and the efficiency movement. You want to add something, Timo?

[Timo Ihamuotila, executive]

Yes. Again, I don't have a number to this exactly, but if you look at the division, so clearly, in Smart Buildings, we have things like sockets and that kind of stuff. So okay, you can then say is that energy efficiency or not or yes. But then when you look at majority of the stuff, even, I would say, in installation products, we also have stuff which goes to medium voltage and is actually in energy efficiency. And then if you look at the DS [indiscernible] E-mobility and majority of the service, so I think that's also there. So let's say, over 50%, I would say, clearly.

[Björn Klas Rosengren, executive]

Yes. And if you look at the EV charging, where the millions and millions of stations is being put up there, both for heavy vehicles as well for commercial vehicles or private vehicles. And all of these, of course, need the power supply. So it's driving everything from medium voltage to installation to support these stations all around. So yes, there is a push in this kind of investment, which this industry is driving.

[Ann-Sofie Nordh, executive]

Okay. Thank you. And while we're on the topic of Electrification, we have a question here from Niklas Nielsen who wants to know more about the private placements that has been announced.

[Björn Klas Rosengren, executive]

Yes, I think we're very happy to announce that we have a couple more, and we are actually 4 more investors that share our view of the growth opportunities in the mobility side. As you know, we postponed the IPO due to the -- in constructive markets at the moment. At the same time, we think the strategy is correct, which means that we have separated the businesses. And as you can see in our press release, we are now also separated out of Electrification, which will have a positive impact on Electrification, and we'll put it under corporate.

We will also make it transparent for you to see how this business is developing. We have a new Board, and now we have [ CHF 525 million ] of fresh cash into that business to support both inorganic as well as organic growth. And it's now, of course, important that this business continues to be a leader in the market when it comes to that part. So we think there are good companies that have come in. And then we say that getting this private placement puts us, of course, a little bit more relaxed when it comes to the IPO. We don't need to make it this year. We will do it when the markets are constructive enough and, but the strategy doesn't change. You want to add something?

[Timo Ihamuotila, executive]

I'll just throw in a couple of numbers. So I think this sort of proves our thesis that this is a different kind of business, and that's why it sort of deserves this kind of separate capitalization. And if we look at now, this is like just ballpark, ballpark, 4 to 5 [indiscernible] to revenue. If you look at '22 numbers, so it's clearly different numbers than ABB. And that's the whole thing what we are looking at here. So we are looking for fast growth for this business, and also it being able to, as Bjorn said, grow both organically and inorganically, having the means to do so.

[Ann-Sofie Nordh, executive]

I know we're sort of coming up to the hour here, but we'll see if we can squeeze in at least another question from Guillermo on the conference call lines, please.

[Guillermo Lojo, analyst]

Just wanted to ask about pricing, and I guess from what I had understood, obviously, there's a 2% sales that is flowing through into 2023. But I was wondering with demand levels where they are, whether you're seeing or experience in any direction on pricing as we stand? Or is it basically now flat on a sequential basis as you see it? I'm just trying to gauge whether there's any positive pricing in any of the segments is unit divisions or actually any negatives that you may want to highlight I understand.

[Björn Klas Rosengren, executive]

Let me start here, maybe then Timo can add in a little bit further. First, I think it's very important to know that our viewpoint of pricing is what we work with what we call value-based pricing. And we implemented this already in 2020 long before we saw inflation numbers in commodities or in logistic costs and so on. And the important thing is, of course, to analyze what kind of value are we creating to our customers and that we're getting paid for it. This is our value-based pricing model. And the world started a little bit crazy, as we all know, the years, and we saw commodity prices going up, and we saw the logistics and an inflation society was coming in.

The good stuff was there that we had our -- in every division and pricing strategy department, which meant that we had good control over the cost in our operations. And our objective became, of course, to offset this cost, which I think they proved to do very well. Now when we see the inflation slowly is going down, and we do expect less of price increases compared to what you saw during last year. But that's, of course, up to these strategic -- pricing strategic to define what we need to do. It is, of course, important to make sure that pricing is an important strategic part of our performance management systems. That is the basis. And we will, of course, make sure that we offset cost increases, but also to get the right price for the value that we can create for our customers. So that's the basis for it.

[Timo Ihamuotila, executive]

Yes. I am actually not going to chip in any numbers, but I will use this as a bridge to just say that this -- what Bjorn mentioned here on the tools to really understand how we drive value-based pricing is something what we are building with this ABB Way transformation as well, so that we really get cohesive information per customer, per SKU and so forth. I mean we're good at that, but we can be even better. And that is what we are doing when we are wiring the company in line with ABB Way.

And I just want to say that as this is now high number, about $180 million, as we said, ABB Way transformation. It will start to go down already 2024, and we might have a bit of a tail '25 and then it's done. So you shouldn't look at it like something which is there forever.

[Ann-Sofie Nordh, executive]

And with that, we're up to the hour. I realize we haven't got through the list of callers. Please reach out to us in our Investor Relations, and we'll help you the best we can. And before we finish, I just want to sort of -- a bit of a commercial break here when we have -- I mean, Bjorn mentioned the Capital Markets Day that we're planning for this year, 30th of November. We're going to host it in Italy at one of our Electrification sites, and I hope you will save the date and join us for a day in Italy. And with that, we say thank you for joining us today, and we'll see you in a quarter's time.

[Björn Klas Rosengren, executive]

Yes. Thank you.

[Timo Ihamuotila, executive]

Thank you.