Abb Ltd (ABB) Q1 2021Earnings Conference Call April 27, 2021 4:00 AM ET

Company Participants

Ann-Sofie Nordh - Head, IR
Björn Rosengren - CEO
Timo Ihamuotila - CFO

Conference Call Participants

Martin Wilkie - Citigroup
Guillermo Peigneux-Lojo - UBS
Joseph Giordano - Cowen and Company
Simon Toennessen - Jefferies
Daniela Costa - Goldman Sachs Group
Benedict Uglow - Morgan Stanley
Jonathan Mounsey - Exane BNP Paribas
Alex Virgo - Bank of America Merrill Lynch
Andreas Willi - JPMorgan Chase & Co.
Shane McKenna - Barclays Bank
Andre Kukhnin - Crédit Suisse
Gael de-Bray - Deutsche Bank

Ann-Sofie Nordh

Greetings to you all, and welcome to the presentation of ABB's first quarter results. I'm Ann-Sofie Nordh, Head of Investor Relations. And in a moment, I'll be joined by our CEO, Björn Rosengren; and CFO, Timo Ihamuotila. They will take you through the presentation, and then we'll open up for a Q&A session.

Before we begin, I would like to draw your attention to the information regarding safe harbor notices and our use of non-GAAP measures on Slide 2 of the presentation. This conference call will include forward-looking statements. These statements are based on the company's current expectations and certain assumptions and are, therefore, subject to certain risks and uncertainties.

With that said, I will now pass you on to Björn and Timo to take you through the results.

Björn Rosengren

Thank you, Ann-Sofie, and a warm welcome from me as well. Of course, you already knew the headline numbers before today as we sent out the trading update a couple of weeks ago. We felt it was the right thing to do, both as the market and our performance turned out even better than we expected.

It is good to see demand coming back in the market and to see continuous recovery from the lowest point last summer. Of course, the stronger demand supported results, but it is also good to see that our internal efforts to increase efficiency are paying off. We are reporting a very high margin of 13.8%.

I also want to highlight the stellar cash flow of $520 million, very strong for the first quarter, which normally is a soft quarter for cash. This was supported by, of course, the strong earnings, but also by good management of the net working capital. I'm pleased about the progress. And to me, it's a strong signal that we are focusing on the right things and we are on the right track.

Before we look closer into the development of Q1, I have 2 things on this slide, which I especially want to highlight. First, I'm proud of the launch of the new cobot family in RA. I think the timing is good as we now see a very strong development to almost all robot segments, besides automotive, where we intentionally are slowing down our activities in low-margin system business.

Through this launch, we can offer the broadest cobot portfolio in the market, with both higher payloads and speed. And importantly, they are very easy to install and program, even I can do it, which is a good indicator how easy it is. Customers just take it out of the box, do an easy programming without having -- engaging any external programmers and then start working. It is a quick way to increase automation in, for example, material handling, assembly and packaging.

I want to show you a short video on the GoFa and SWIFTI. So enjoy.

I hope you got a good feeling of the offering. Through this launch, we aim to unlock customer groups which currently are low level of automation. The second thing I want to mention is the topic of active portfolio management. We have separated our EV charging business into its own division called E-mobility. This is an exciting and fast-growing business. And we want to make sure we put it in the best position to accelerate growth and development.

Today, we have a market-leading position and we want to make sure that we stay ahead. To create the value platform for accelerated growth, we are looking into the option of a possible public listing of the business. We are evaluating pros and cons, and we'll update you as soon as possible on the way forward. I will come back and describe the E-mobility business later in this presentation.

Now let's look a bit closer at the business development in Q1. As you can see on our order chart on the right-hand side of the slide, we have had a good sequential momentum since the lowest point during last summer. Demand was driven by a strong development in the short-cycle business, which improved by about 15% last year. And it was driven by most customer segments, for example, residential buildings and discrete automation.

In the process-related industries, underlying demand in segments like water and wastewater and chemicals was very positive, but that was offset by the soft demand in oil and gas, although there was some initial signs of stabilization. The aftermarket in the marine business continue to be weak, highly affected by the low activity, especially in the cruising industry.

The bars in the chart shows that Q1 tends to be a strong quarter for orders. And in total, our orders were largely stable, plus 1% year-over-year, with the base orders up 3%. We believe some demand was extra fueled by customers building inventory to secure components availability. That said, it's difficult to assess exactly to what extent. Revenues were up 7% from Q1 last year when we started to feel the impact of COVID-19.

Now let's take a quick look at the different regions here on Slide #5. If we compare sequentially from Q4, we see a positive underlying business momentum in all the 3 major regions. Compared with last year, it is clear that China is the main growth engine, with orders up 24%. However, this was offset on a regional level, and Asia and Middle East was up 2%. Americas was stable, with U.S. actually declining 2%, as last year had no real COVID impact and more large orders in Process Automation. Base orders were up 4% in the U.S. Europe was up 3%, with a mixed picture from different countries. But our largest market, Germany, increased slightly.

Our margin was very strong in Q1. Although revenues increased, our SG&A expenses declined by 4%. This is good, but of course the continued restrictions on travel, et cetera, also supported the result. But importantly, our gross margin improved by 220 basis points. Three of our four business areas improved, and the support was mainly from increased volumes, but also from structural improvements, including portfolio management and some plant closures. Those of you who know me are familiar with my passion for technology and R&D. Our R&D spend increased 6% year-over-year, and it is important we stay focused in this area to remain a technology leader.

And with that, I hand over to Timo, our head of number crunching, to go through the results in more detail. So please, Timo.

Timo Ihamuotila

Thanks, Björn. Nice crunching this time, so I'm glad to take you through the details. And let's start with Electrification, where comparable orders and revenues were up 9% and 11%, respectively, year-on-year. Clearly, the underlying markets improved, and we saw it in virtually all segments, except for in oil and gas, which remained overall muted. That said, demand was also, to some extent, fueled by customer building stock in the face of tightening supply situation. Now it's difficult to call out the exact impact here, and let's see how this pans out, but there was an element of stockpiling in Q1.

The higher volumes drove better cost absorption. Add to that the positive impact of Electrification having taken prompt actions on pricing in order to offset the oncoming headwinds from higher raw material costs, while still enjoying the benefits of lower input costs this quarter. The situation should change as from Q2 when raw materials bought at higher rates come out of inventories. In total, Electrification's operational EBITA margin increased by 480 basis points year-on-year to 16.2%.

Looking ahead at the second quarter, we anticipate growth rates to reflect the easy comparable from last year and be in the mid-teens range for both orders and revenues. We expect a slight sequential increase in margin, in line with seasonal pattern.

Let's then turn to Slide 8 in business area, Motion, which delivered yet another quarter of solid performance. In absolute terms, Motion delivered one of the highest order quarters in recent history. There was admittedly some support from FX as on a comparable basis orders declined 4%. Revenues were up 6%, with development reflecting strong book and bill and solid customer activity in most sectors, except for oil and gas.

The operational EBITA margin of 17.1% was up by 180 basis points. And the main drivers were the contribution from additional volume as well as a supportive divisional mix and low discretionary spending. Also in Motion, the higher raw material cost will have to be offset as from the second quarter onwards, when older hedges start to phase out.

We are also carefully watching the tightening of the supply in areas of semiconductors and also electric steel. This could particularly impact our drives products division. For the second quarter, we anticipate comparable order and revenue growth in the mid-single-digit range and overall continued solid operational execution, with some risk on the semiconductor availability to the business mix.

In Process Automation, orders declined 11% year-on-year due to fewer large orders received this year and weak demand in the oil and gas and also parts of the marine segment. On a more positive note, business activity increased in pulp and paper, chemicals and water and wastewater. On a sequential basis, the underlying customer activity remained largely stable. The order backlog at quarter end was $5.9 billion, up about $100 million from the end of Q4.

Revenues declined 9% on a comparable basis. The negative volume development was offset by the positive impact from earlier implemented cost measures, stronger operational execution and positive impact from foreign exchange rates. In total, profit improved by 8% and margin by 130 basis points. In Q2, we expect significant growth in orders and we expect revenue growth to turn to positive. Margin should remain broadly stable on a sequential basis.

On Slide 10, we turn to Robotics & Discrete Automation, where we saw a steep increase in business activity in both robotics and machine automation in most customer segments outside of automotive. The bleak automotive development in orders relates both to the underlying market as well as to our active choice to deselect system-related orders in order to improve long-term quality of revenues.

Revenues rose by an exceptional 19% year-on-year, supported by strong execution on deliveries from the order backlog as well as a generally strong development in the short-cycle business. The operational EBITA margin of 12.4% was up 360 basis points year-on-year, with particularly good performance in the machine and factory automation division. The rise was primarily driven by better cost absorption due to higher volumes, positive mix from higher share of service revenues and previously implemented cost measures.

RA is the area where we see the largest near-term risk for delayed customer deliveries due to semiconductor constraints in the market. We expect protracted delivery times in some areas of RA already in Q2. Overall, looking into Q2, we expect double-digit growth rates for comparable orders and revenues, with higher growth rates in orders. We expect slightly lower margin versus Q1.

We look next at our group revenues and operational EBITA bridge on Slide 11. As you see in this table, the strongest contribution to the year-on-year progression comes from the organic development. The volume leverage was good and we also benefited from our earlier cost actions and somewhat abnormally low discretionary spending.

Cash flow from operating activities of $523 million, up over $900 million from last year, is very strong for a first quarter. As you can see in the chart, Q1 tends to be seasonally low for cash. Please note that we compare here continuing operations only. And thus, the cash flow numbers here differ from what we reported when Power Grids was still part of ABB.

This very strong and good cash result reflects higher income from all business areas, less working capital buildup and favorable timing of tax payments. This is a good start for what we expect will be a year when we see meaningful improvement in our cash delivery.

Then to finish off, I just quickly want to discuss the outlook statement. For the full year 2021, we expect comparable revenue growth of about 5% or higher. The short cycle is already supportive. And like we have already said before, we anticipate the process-related industries to start to recover during the second half of this year, including the service business in the marine segment. Our operational EBITA margin should improve at a steady pace towards our 2023 margin target as described in our release today.

In Q2, growth rates for comparable orders and revenues will benefit from lower base due to the COVID-19 impact in 2020. We anticipate comparable growth to be at least 10% year-on-year with higher growth rate for orders than for revenues. The operational EBITA margin for the group is expected to be approximately 14% for the second quarter. Our estimates can be affected by development of the COVID situation as well as by component availability.

And with that, let me hand you back over to Björn.

Björn Rosengren

Thank you, Timo. I would just like to close this presentation by coming back to the E-mobility division. In this division, we offer EV charging hardware, but also look to grow in the digital services for EV charging operators. This could be services like analytics and real-time fleet management for scheduling, billing, registrations, et cetera.

It generated about $220 million in revenues last year. We have grown this business at about 50% CAGR since 2016, and we achieved a #1 position. This business fits right with a secular EV trend, and we expect to see continued strong growth.

To secure our global leading position, we have invested to broaden the geographical scope by acquiring the majority stake in Chargedot early last year. They are the leading Chinese e-mobility solution provider.

Like I mentioned, we have now separated it into its own division. We have also initiated the process by separating it into its own legal structure and to explore the option of a separate listing. We do this to create a high-value growth platform, where we can accelerate our organic and nonorganic expansion. At this stage, I will not put a time line on things. But I promise we will let you know as soon as possible about any new decision on how we extract the full value out of this business.

And with this, I will ask Ann-Sofie to open the Q&A session. Please, Ann-Sofie.

Ann-Sofie Nordh

Thank you, Björn and Timo. So we will now open up for Q&A. [Operator Instructions]. I can already now see that we have a long queue for questions, so 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.

Question-and-Answer Session

A - Ann-Sofie Nordh

And with that, we open up for questions. [Operator Instructions]. And we open up with a question from Martin Wilkie at Citi.

Martin Wilkie

It's Martin from Citi. So a question on the Process Automation mark. I mean you pointed obviously in other areas, short cycle very strong. But just to get a sense of the momentum in process in terms of when you're speaking to customers, I mean do you sense we're close to inflection, we get that remark a little bit from some other companies?

And linked to that, you still talk about service being down mid-single digit, I think. Just to get some sort of sense as to how big a drag that is on your gross margin. And also, are we approaching a point where that can begin to improve as well?

Björn Rosengren

Thank you, Martin. Yes, I think when it comes to Process Automation, we have a number of divisions. And I think it varies a lot between the different divisions. It's quite clear that the short-cycle business which, of course, includes the service, has been more affected in this business area than anything else. And we said, yes, on the orders, we were around about 7% down on service. But if you look actually on the revenues, it was down 12% or 13%. So we're seeing better orders, but still on the revenues is lower, and that is the highest margin.

This varies, of course, between different segments. We've seen recovery in some of the segments. For instance, in -- Turbocharging has come back in a very strong way. We've seen good in the mining part of the business, while the oil and gas, it's still holding back a little bit. Marine is, as you know, affected. We have good orders on hand from last year, so we have an exceptionally good order book. But these deliveries will come during the coming quarters from that perspective.

And on the service side, yes, we know that the cruising industry is of greatest importance for our Azipod electric propulsion side. And that business is still -- I mean, is standing still. We know that they have good order levels actually in the cruising business for the second half of the year. So hopefully, when the vaccine is being spread out more, we'll see this industry to come back.

But we shouldn't see that really into our margins and revenues before the second half of the year. So it's pretty clear, as you can see, it's Process Automation that has the biggest headwind at the moment. But there are some light in the tunnel in numerous of these segments. And we think, by the third and fourth quarter, we should be back in levels before the pandemic.

Martin Wilkie

And in terms of the shape of that when it comes back, I mean there's a lot of this servicing before it goes back to utilization. I mean do you almost see an elastic band big snapback in service? Or if some of the service revenue simply missed and it will be caught up the next time they get to you for service? Just to get some sort of sense as to really how quickly that service business could come back even though it is coming during the second half.

Björn Rosengren

No, I don't think we'll see a kick back like a rubber band from that perspective. I think it's more that when the asset parts start working, when the engines -- the large engines, the vital engines in the power plants as well as in the cruising ships start moving, then you need service that's ongoing. So I think, last year, let's say, service part from this business is actually lost, and we should look forward to -- as the equipment is operating more in that direction.

Ann-Sofie Nordh

Thanks, Martin, and we'll shoot straight off with another question. Can we please open up the line for Guillermo at UBS?

Guillermo Peigneux-Lojo

I have actually two questions, if I may. One, related to the operating profit bridge. You put their volume and price. I wonder if you could give us some view about the mix between volume and price in that bridge. And also, how do you see that evolving as we move into Q2? And then second, with regards to short-cycle businesses, whether you see at the moment any impact from the stoppages of production that we've seen from some automotive and actually truck OEMs as we speak.

Björn Rosengren

I'll let Timo start up a little bit on the bridge there.

Timo Ihamuotila

Yes. Thanks, Guillermo. On the bridge, when you look at it, the way we calculate this volume impact is that we take last year's gross margin times volume and then price. So if you look at that, we come to something like maybe 140, 135 on volume and then also having a positive net price, meaning that our price still after all discounts and stuff like that was driving positive margin. So that's how we look at the bridge.

Björn Rosengren

Yes. I think, Guillermo, on the short-cycle business, I think we've seen, as we also report here, very strong growth within this area. It's clear that there are challenges in the logistics side. Semiconductor is something that we talk about, but there is also for the other components. So we are doing our utmost to try to get them. I mean the competition is tough there. You have the automotive industry who is actually a bigger offtaker of some of these components.

On the other hand, I think the way we are structured in our divisions, we have 21 management teams working hard to make sure that we get components, produce products and deliver. So actually, in our pre-action for Q2, we actually include all these hazards when it comes to component shortage. I hope that answers some of that question. But it is a challenging time, that's pretty clear.

Guillermo Peigneux-Lojo

And maybe a follow-up on Timo's answer regarding the mix maybe into Q2, how is that relationship changing, if I may?

Timo Ihamuotila

Well, if we look at Q2, as we say, we expect more than 10% growth. So clearly, we would expect a positive impact from volume. And of course, we are doing our utmost best on the pricing side to counter the component prices. So let's see how it plays out. But we will have, as we said, if you look at a little bit the puts and takes sort of, we will have a tailwind from more volume, both a little bit sequentially and, of course, in particularly year-on-year, but then we will have a bit more headwind from -- on the cost side from commodity. And then as Björn said, we need to see how this whole supply situation plays out.

Ann-Sofie Nordh

Thanks, Guillermo. [Operator Instructions]. And we continue now with Joe Giordano from Cowen and Co.

Joseph Giordano

I was under the impression that some of the chips that you use in some of your products are different generation than what maybe some competitors use and maybe some of the most in demand from some of the auto industry. Can you kind of talk about that dynamic and maybe this is hitting you at a different timing and maybe how they're setup for that?

Björn Rosengren

I think it varies a little bit between our divisions and our businesses. I think where we see the biggest impact is actually in the robot business. And I think when it comes to semiconductors, they are quite similar to the one that are being used in the automotive industry. We also see some effects in the Motion business on the drive side. But there, we have the possibility to do some changes in our design with the technology, small technology changes, which actually help us a little bit to overcome some of these challenges. So it varies a little bit. But these are the 2 business areas that are mostly affected from the semiconductor business.

Ann-Sofie Nordh

Thanks, Joe. We can't really hear you now. If you have any follow-up questions, please reach out to us in IR after. So with that, I think we'll just continue with the second question or another question, and that comes from Simon Toennessen.

Simon Toennessen

I've got two questions, please. So on price cost, I think you mentioned last time that Electrification was positive last year, but you were a bit more skeptical on this year, I think, at the full year results. Could you just talk a bit more about whether you think you're able to offset the raw mat increase with price actions this year, particularly for Electrification but also on the group level?

And secondly, on free cash flow. You mentioned, obviously, that you seemed happy with the Q1 cash flow generation. I think, Timo, you guided for around $2.6 billion, $2.7 billion minus CapEx at the last set of results. Given how you're seeing Q1 now, do you need to change your view there on full year free cash flow guidance?

Timo Ihamuotila

Yes. Thank you, Simon. Maybe I'll go with this and -- yes.

Björn Rosengren

I think that makes sense.

Timo Ihamuotila

Yes. So first of all, on the Electrification, so we had positive net price during Q1. Actually, on Guillermo's question, majority of that price impact came from Electrification. Now as I said, it will get tougher during the year, so we really have to see how it goes. But we are in a good start and, of course, all these actions on pricing and also what we would expect to come through on the input cost from commodities and others are included in our guidance statement as what was said earlier. But I don't think I can give much more color on this. I think we have a really good and solid model on how we drive pricing. And it really goes SKU by SKU. So it's very, very analytically based. And so far, so good on the start, but we'll see how it goes.

And then on the cash flow dropping to free cash. So compared to what you said, I think we should see a bit better equation. And the way to look at this is that we should basically see our operating result increase drop to cash. And then, of course, depending on the growth dynamics we can't really say what happens with net working capital, but we had such a good performance in Q1 that I would be surprised if we would lose all that during the year. And then using our CapEx guidance of $750 million and then tax rate of 26%, just assuming that the tax is sort of cash. At the same time, you come to a bit higher free cash flow number than what you mentioned.

Ann-Sofie Nordh

And do we -- there was another question on Electrification? Or...

Timo Ihamuotila

I think we covered both.

Ann-Sofie Nordh

Oh, we covered that one. Sorry I fell asleep. So we'll move on to the next question, that comes from Daniela Costa.

Daniela Costa

I wanted to ask two questions on the portfolio. The first one, just regarding sort of prompted you, what was the motivation to do the announcement on the E-mobility now? I guess you've done three announcements on portfolio in November at the CMD. So wondering sort of what changed? Or if this is part of the broader process of other things you're still revisiting and kind of you will make these type of announcements going forward? And then maybe I'll ask the second one once you've answered this one.

Björn Rosengren

Sure. Thank you, Daniela. I think it's a very motivated question because when we look at the E-mobility and EV charging, this is actually core of our Electrification business, and we definitely want to be in this business and benefit both growth and profitability from the future of this business. The reason why we've taken this step is that the business is a little bit different from some of the other Electrification businesses. It's much faster-growing. We mentioned it has a CAGR of over 50% since 2016. And this first quarter, we had actually 120% growth in this business due to some great orders that we received.

The important now, I think we do expect that this market is going to accelerate with all the measures that are taken by the politicians in the direction towards more electric vehicles. And we have a market-leading position and we want to secure this position also going forward. So we're actually creating what we call a growth platform.

So we are not planning to lose control over this business, but we expect this to be significantly higher value than ABB by itself and gives us a good platform, both to grow organic but also through acquisitions. Here, we are really focusing on the software part. And we all know that the multiples in this business are high, and we will use this platform to make sure that we have this leading position going forward. So it's the ABB brand, and the control of ABB will definitely remain.

Daniela Costa

Very clear. Can you hear me?

Timo Ihamuotila

Yes.

Björn Rosengren

Yes. I hear you again, yes.

Daniela Costa

Yes. Perfect. That's very clear. My second question relates to the other 3 divestments, which you've said you are on track. Just thinking about the allocation of the proceeds later on, shall we look at this more like they're like Power Grids, you give back the cash to shareholders? Or do you need to keep some of that for potential future M&A purposes or other organic investments? If you can shed any light there, that would be super helpful.

Björn Rosengren

Sure, Daniela. And I think our capital structure is quite good at the moment, and we are well prepared for doing acquisitions. Of course, we want to use the proceeds to grow the businesses. We are -- and we are moving into more growth mode in more of our divisions, while we will actually be focusing on both organic but very much on acquisitions from small to medium size here. So that's our primary target, use exceeds for that.

If we wouldn't find the right targets or if we would have too much cash, we have no intention to become a bank. And then we, of course, we have to look at different ways to transfer that money to our shareholders. In the end, our objective is to create shareholder value going forward.

Timo Ihamuotila

If I can add to that. We see no change to our capital allocation principles before, what we have said earlier, so exactly in line with what Björn said.

Björn Rosengren

Yes.

Ann-Sofie Nordh

Thanks, Daniela. And then we'll move to a question from Ben Uglow.

Benedict Uglow

I hope that everybody is well. Question really for Björn. Given how significant some of the kind of comp effects are between year-on-year, et cetera, can you give us a sense to how business was trending in China during the quarter? So if we look sequentially January through April, how did kind of demand move? And were there any particular end markets that either strengthened or softened?

Björn Rosengren

I think we've seen strong China growth ever since second quarter and moving forward, and that has become stronger and stronger. And this quarter, we saw 23% growth. Give you a little bit of flavor on this one. I mean Electrification grew with 50%. I mean that's a huge number. In last quarter, we saw the Robotics actually growing 95%. So from that perspective, there are certain areas which are picking up a little bit during the different quarters. But I mean, 23% is a very, very strong market, especially when you say it on the Process Automation, which was actually negative. So for some of the other businesses, good growth. Even Motion had a very strong quarter from China.

Is that sustainable going forward? That's very difficult to say. But I mean, normally, when you look at the ABB business, we should grow in line with the GDP development in the country. And now I think things are coming back a little bit from the COVID. And of course, we do not expect this kind of growth rates if we go further forward.

Benedict Uglow

And a couple of follow-ups. I mean just in terms of -- obviously, I understand the year-over-year growth, the 90% and the 24%. What I'm kind of just trying to get a sense of is the actual kind of level of activity as we go kind of month by month, i.e., was March a kind of acceleration over what we saw in Jan-Feb? How does April look versus March? So basically, that sequential kind of trend was really what I was trying to ask.

The second question maybe for Timo. On working capital, could you just -- you've had a $700 million sort of benefit from working capital in the quarter, i.e., it's a $700 million less outflow. Well, in response to Simon's question, you're basically thinking we can kind of hold on to that over the remainder of the year. Is that the kind of informal guidance?

Björn Rosengren

Yes. Maybe I start up then with the China question. I think we've seen good growth during the quarter. But as we mentioned in the report, very strong ending on the March side. And I think we've seen continuous good growth also in the beginning of the Q2 from that perspective.

But I mean, if you -- I mean, we've been communicating strong market for more than 6 months at the moment now. And I think it can go up a little bit a month and a little bit down another month. But overall, I think it's quite strong movement, and it had definitely not weakened during March. More transparent than that will be difficult to say.

Timo Ihamuotila

And maybe adding to that, we had more trading days in March, as well, which drove the short cycle. So in a way, March was a very, very good month.

Björn Rosengren

I think it's a good point, Timo, that when it comes to Electrification, where we had this 50% growth, it's of course more trading days in this -- during March. And that is quite a lot.

Timo Ihamuotila

Yes. So thanks a lot, Ben, for that clarification. I didn't even think about it. I should have gone through the net working capital components for Q1. So if you look at the so-called operating net working capital -- receivables, payables, inventory, there, we made about $250 million of progress. And this is really more what I was referring to.

And then we have about $400 million, $450 million coming from tax and other items like that, also some prepayments, for example, related to the solar exit which happened Q1 last year. So there was a bit of a prepayment change there. We also had a little bit of Power Grids-related tax outflow Q1 last year. So I was really referring to this operating net working capital bucket, which improved about $250 million.

Benedict Uglow

Understood. That's very helpful.

Timo Ihamuotila

No, thank you for asking the question.

Ann-Sofie Nordh

Thanks, Ben. And then we'll take a question from Jonathan Mounsey.

Jonathan Mounsey

Just thinking about the growth outlook maybe on a multiyear view now. Obviously, since the last time you reported, we've heard a lot about stimulus. And actually, well, just came off the Schneider call where they were talking about maybe their growth outlook may now, on a multiyear view, appear to be near the top end of how they think they can grow.

Do you sort of see the same opportunity to grow near the top end of the range that you've put out there at the CMD? And if so, is that going to cost something in terms of investment in growth? Are we going to have to see CapEx, organic investment, R&D, et cetera, all rise to capture the opportunity that's likely to be there over the next decade or so?

Björn Rosengren

Thank you, Jonathan. Let me talk a little bit about growth. Yes, I mean, you see in our projections for the second quarter, but that comes, of course, also that the comparison is, of course, much softer. We were down on orders about 10% during Q2 compared to 2019. So we are saying that we will grow faster. That means that we are back in pre-COVID numbers and maybe even exceeded that.

Then as we move during the years, the comparison will, of course, be tougher because we've seen gradual improvements during Q3 and Q4. So from that, I don't think you will -- we will be expecting to see that kind of growth numbers when we come closer to the end of the year.

But I'd say we were -- when it comes to the growth numbers, and we were maybe criticized a little bit when it comes to growth projections during last quarter. But I must say it is very difficult to foresee really what is going to happen and we don't want to promise too much. We say things that we believe that we can deliver on. Of course, stabilizing after COVID, it might be easier when we move into Q3 to Q4 than it is to see the future at the moment. But it's pretty clear the comparison numbers are quite low for next quarter.

Ann-Sofie Nordh

Thanks, Jonathan. Can we please open up the line for Alex Virgo.

Alex Virgo

I wondered if you could dig a little bit into the dynamics around Robotics & Discrete Automation and how you see the -- I guess, the outlook in terms of order intake, though, in particular. But also, have we now sort of crossed a line in terms of putting the lower-margin backlog behind us and now we're looking at a more stable base north of 10% margins or, I guess, north of 12% now?

Björn Rosengren

Thank you, Alex. Let me talk a little bit about the Robotics business. I think -- I mean, we are very pleased to see the recovery both when it comes this Discrete Automation B&R business as well as the Robotics. When you look at the numbers, maybe you're not so impressed when you see minus 2%. But if we actually lift out the automotive business, we intentionally actually are taking down on that kind of system business.

Robotics is actually growing 20%. And we are growing even a little bit faster than that on the Discrete Automation. So all segments within Robotics besides automotive is super strong at the moment. And that's, of course, driving good gross margin, driving -- our strategy is to focusing on these more quality of revenues, these more profitable segments, where we really think also the future for robotics is so from that side.

Yes, we are convinced that Robotics is well positioned in the world. We believe that Robotic business will grow going forward, sustainable growth from that perspective. I mean margin kicked back a little bit extra, but we had good invoicing during this period. We have projected somewhat lower margin in Q2 from the part.

But in the long run, as we said, towards 2023, this is definitely a north of 15% business, and that we stand for. It's a high-tech business. It's well positioned and we should see good growth number from that part. But I mean, I think, from all of us in ABB, we are very really happy to see Robotics both coming back in the market as well as on the margin where they belong.

Ann-Sofie Nordh

Thanks, Alex. And we go to Andreas Willi and take the next question from him, please.

Andreas Willi

Yes, I have a follow-up question on Robotics and one on the restock. On Robotics, maybe you could help us a little bit in terms of what the remaining level of auto system business that is left, so when we forecast the growth of the division and when you expect that exit or reduction to be completed, whether the growth moves more in line with the underlying trends.

And secondly, on the restock, obviously, you said it's hard to quantify. Schneider this morning said it probably is around 1.5% to 2% contribution to their 13.5% organic growth. Is that a number that would make sense to you in terms of magnitude as well for ABB?

Björn Rosengren

Yes. I mean if you talk about the growth numbers, of course, we could have pushed up growth even more during this quarter. But I think it's very important when it comes to Electrification, which is the area where you see probably the most of this stocking, is that many distributors try to place big orders and to get good deleverage to secure future deliveries from that part. We are actually, of course, working actively with all these partners around the world not to end up the products on the shelves and they go directly to the customers.

So there is a hard work from the business area and from the divisions there to make sure that the orders that come in actually will be delivered out there. But it's clear. I mean we share Schneider's viewpoint that there are a number of percentages in that point, which is probably related to -- it's a little bit difficult to determine exactly, even though we try to go into every order and figure this out. But I think the number that Schneider gives, gives a pretty good picture.

Timo Ihamuotila

And there was the Robotics backlog question.

Björn Rosengren

Yes, okay. On the Robotics part, I think what's good is that we've seen good orders lately with better margins. And I mean, for us it's very important that the quality of the orders coming in and with good gross margin. And that's what we've been seeing from other segments than the automotive.

If you look at automotive, I think that was down 65% compared to last year on the system sales. So we are slowly transferring this over. We are, of course, delivering out what we have promised, and we run that, but that will, sequentially during this year, become a small minor part of the revenues within the Robotic business. So I think the strategy that they have put up with a strong focus towards some of these new growing segments where we also think the value for the customers are seen on a good level where we can get paid.

Andreas Willi

So it basically means by the end of this year this transition is largely complete?

Björn Rosengren

I think that's probably to be expected, yes.

Ann-Sofie Nordh

Thanks, Andreas. And now we take the next question and open up the line for Shane McKenna from Barclays. Can you hear us, Shane?

Shane McKenna

Can you hear me?

Ann-Sofie Nordh

We can.

Björn Rosengren

Yes, we do.

Shane McKenna

Perfect. Björn, on the call, you mentioned the recovery for Turbo. Are you able to give us an update on the trading margin performance for not just that, but for the disposal businesses, especially given marine exposure within Turbo? Are you expecting this to return to precrisis levels before year-end as that service activity starts to recover in H2?

And in terms of time line, are you still thinking the Dodge business leaves the group first, followed by obviously Turbo towards the end of the year? And then just as a follow-up, can you give us a bit more background around the decision to change management within measurement and analytics? What's needed here to get the margins in that activity up in line with the divisional target? Do you need to make acquisitions to sort of grow that business more? So yes, if you could give us a bit of an update there, that would be great.

Björn Rosengren

Okay. Starting up with the Turbo. So I mean, as you know, they've been suffering a lot from the low activity on the service part during last year. I think it's really great to see that during the first quarter this year they are really back to pre-COVID times, which means also that the service revenues are -- come up to really good levels and the performance of the business is more or less back where it was before COVID. So that's very encouraging.

The same with Dodge. I think Dodge business has been the most agile business here within the group. They have barely been affected negatively at all by the COVID side, and they continue to develop in an extremely good way. So a good credit to the whole management team from both of these businesses.

On power conversion, I think we mentioned that we are a little bit more hurt by the COVID. On the other hand, we saw good orders, really strong orders coming in during Q1 in this business, which will help us to get back in margins that, that business should be. But that business, we probably will not start to divest this year, but maybe next year.

Yes, when it comes to the exit, I think Dodge is clearly the one first. I think the process is going full speed. And I think maybe in the beginning of the second half, we should be able to sign on that side, somewhere around there. And Turbo, I think -- I mean you know that we are looking into the possibility for a spin-off here. And that would probably be by the first quarter or second quarter next year. So around there we are, but we should know more in what direction when we come closer to the end of the year.

It's quite a big job to separate these kind of businesses that have been well integrated into a group like ABB. So we have full respect for that work, which is similar to what we saw with Power Grids.

Timo Ihamuotila

And what's the management...

Björn Rosengren

On the -- yes, on the measurement and analytics, yes, I mean, we are transparent now in how we set up with the divisions that are fully accountable for that performance and the improvement. We have put up really tough targets for 2023 for all the businesses. We got a full commitment from all of them, and the business need to deliver in line with those promises.

If we don't, yes, of course, we need to make changes. And I think here, we haven't seen enough progress, which meant that we needed to put some new fresh blood and new management into here, which have started. And I think so far, of course, the markets come back and we're seeing good progress already. So we will hopefully see that changing during the year.

Ann-Sofie Nordh

Thanks, Shane. And we open up for questions from Andre from Credit Suisse.

Andre Kukhnin

May I just venture into your full year '21 margin guidance, please, if I can dare to do that? So we've got 13.8% in Q1 and you're guiding for 14% for second half. And the language is kind of steady improvement but towards the upper half, which begins at 14.5%. Is there any way to kind of calibrate it? It sounds like we should be on the right side of 14%? Or am I going off tangent here?

Björn Rosengren

I think we set up our guidance for 2023 that we should be in the margin corridor. My viewpoint of that, we should be over 15%. That is quite clear for the businesses. I think we are a little bit ahead of schedule. That is pretty clear with a strong start, and we do expect to have a reasonable good year for this year, as you can imagine. But I don't think there is any reason at this moment to do any change when it comes to guidance.

Our objective is still to get all our businesses into the corridor and start going over from profit improvement to growth focus during this period. So it's 1 quarter out of three years, so let's take 1 quarter by time. But I think it's good targets we have set for 2023. And if we reach that, I think we see a super strong ABB for future.

Andre Kukhnin

Got it. And could I ask, in terms of other jewels like E-mobility that could qualify for that sort of move that you're planning there, is there kind of anything else in ABB portfolio that you could highlight, not necessarily kind of having a decision process being put in place, but theoretical potential, maybe thinking about the warehouse automation business, that kind of springs to mind within Robotics & Discrete?

Björn Rosengren

My viewpoint on this, I see ABB as a goody bag with a lot of goodies inside and these are the divisions. And I think there's a lot of potential in many of our divisions. We are, of course -- with the setup of ABB and our purpose, we believe that ABB is a very strong brand, a very strong platform for all our businesses to further develop and to create shareholder value from that. If we would think that any of the businesses would have a better life outside, then we would, of course, consider that.

At the moment, I think we have quite a lot on our plate. So 3 exits and now also are looking into the E-mobility. So I think we take one time -- one thing in a time and make sure that we do this in a good way so our shareholders can benefit from that.

Ann-Sofie Nordh

Thanks, Andre. And we're running out of time, but I think if we keep it fairly short, we can squeeze in one more question from Gael at Deutsche Bank.

Gael de-Bray

Actually, I have two quick questions. The first one is about the E-mobility business. Could you elaborate on the competitive pressures facing the business today and what you see in terms of upside to margins? That's question number one.

And the second question I have is about ABB's long-term growth dynamics. Because Q1 was undoubtedly a pretty strong quarter, but I mean, one of your peers this morning delivered an even stronger performance and then now guide for an organic growth between 8% and 11% for the full year against your expectations of, let's say, only more than 5%. So my question is, what do you think ABB needs to do to accelerate its growth potential and catch up with some of its peers?

Björn Rosengren

Yes. If we start with the E-mobility part of the business, yes, I mean this is a very hot market at the moment. We know that every country in the world is going to go towards electric vehicles. To be able to be successful here, you need these chargers. You need high-speed chargers. You need chargers at home. You need chargers everywhere. I think ABB has, during a long period, built up a market-leading position. And we see good growth here.

But yes, it's clear we are not the only one in the market. There are many players who want to be part of this, and we have to secure that we grow faster than our competitors. And that's why we have decided to take this step. We believe organic growth is super important, and that's what we've been growing mostly so far. Now we also want to accelerate that growth into acquisitions. So we think this is a great platform, and we will do everything we can to have a strong focus on growth.

What is quite unique with this business, I maybe be careful when I say it, but I think when it comes to also financial performance on the bottom line, I think we are quite unique in this industry, actually doing quite well on this side. So important is to secure that we have strong gross margin and invest in SG&A and technology moving forward. But gross margin is very important to secure that going forward.

If I leave E-mobility, go into growth. Yes, I mean, all of us you want us to say that we're going to grow so fast. We believe that our businesses are well positioned. We believe that we are leaders within the industries where we operate. We have the ambitions to grow in line with the market or even faster than that. We have tried to give a little bit of a guidance when it comes to growth over a business cycle. And that we said, the 3% to 5%, which we think is realistic number if you look at our businesses where we are into and the history going backwards.

It's easy to get a little bit excited in times when things are popping back from really lows in the market. But I think we will do everything we can to grow the businesses we have. But we are not going to grow unprofitable businesses before we get them on track. So first fixing, we say, stability and profitability and then growth. That's the best way to create shareholder value. And as more businesses comes into their margin range that we have set as a target, we'll change the strategy in this division towards more growth. So I don't think we should be able to grow any lower than the -- our competitors in the segments where we operate. So we have the same ambitions, and I think we can prove that.

Ann-Sofie Nordh

Thanks, Gael. And with that, we close this session. Thank you very much for tuning in, and we'll see you in about a quarter's time.

Björn Rosengren

Thank you. Yes.

Timo Ihamuotila

Thank you.

Björn Rosengren

Bye.

Ann-Sofie Nordh

Thank you. Bye.

Operator

Dear participants, your conference call has come to an end. Thank you for attending. Goodbye.