Q2 2023 results

Comparable order growth from a high base and record-high Operational EBITA margin1

Ad hoc Announcement pursuant to Art. 53 Listing Rules of SIX Swiss Exchange

KEY FIGURES

CHANGE

CHANGE

($ millions, unless otherwise indicated)

Q2 2023

Q2 2022

US$

Comparable1

H1 2023

H1 2022

US$

Comparable1

Orders

8,667

8,807

-2%

2%

18,117

18,180

0%

Revenues

8,163

7,251

13%

17%

16,022

14,216

13%

Gross Profit

2,888

2,290

26%

5,604

as % of revenues

35.4%

31.6%

+3.8 pts

35.0%

Income from operations

1,298

587

121%

2,496

Operational EBITA1

1,425

1,136

25%

26% 3

2,702

2,133

27%

as % of operational revenues1

17.5%

15.5%

+2 pts

16.9%

Income from continuing operations, net of tax

932

406

130%

1,997

Net income attributable to ABB

906

379

139%

1,942

Basic earnings per share ($)

0.49

0.20

145%2

1.04

Cash flow from operating activities4

760

382

99%

1,042

1For a reconciliation of non-GAAP measures, see “supplemental reconciliations and definitions” in the attached Q2 2023 Financial Information.2EPS growth rates are computed using unrounded amounts.3Constant currency (not adjusted for portfolio changes).4Amount represents total for both continuing and discontinued operations.

To summarize the outcome in the second quarter, I would first highlight the 2% comparable order growth which was up from last year's already high level, and the positive book-to-bill. It was good to see that the customer activity remained robust throughout the period. Secondly, the high revenue growth of 13% (17% comparable) supported by backlog execution. Thirdly, the record-high achievements on both absolute Operational EBITA of $1.4 billion and Operational EBITA margin of 17.5%, up 200 basis points from last year, with all four business areas above 15%. This was supported by a strong price contribution which more than offset labor inflation as well as some limited cost inflation related to commodities, with additional support from operational leverage on increased volumes in production. And lastly, the solid cash flow from operating activities of $760 million. All the while we executed on portfolio optimization and continued to introduce leading new technology to help our customers become more sustainable and resource efficient. In my view, the quarter is an additional indication that we are establishing ABB's operational performance at a higher level.

Order momentum was strongest in the systems- and project-related businesses, driven predominantly by the medium voltage segment and process-related industries. This offset some softening from last year's high order level in the short-cycle business, mainly evident in the residential construction segment and across the board in discrete manufacturing where customers normalize order patterns in the face of shortening delivery lead times. In total, the book-to-bill ratio was 1.06 driven by three out of four business areas, and we further increased order backlog.

It was good to see our cash flow from operating activities improve by $378 million from last year and I expect us to improve cash conversion from here onwards. Over the first six months we have generated just over $1 billion in Cash flow from operating activities, which helps position us well for what I expect to be a good cash delivery this year.

As announced earlier in the quarter, we experienced an IT security incident. I am grateful to our teams for the handling of the challenge and containment of the incident, and as a result we have had no consequential material financial impact in the quarter.

Just after the end of the second quarter, we successfully closed the divestment of the Power Conversion division at around $500 million. As a result, we expect to record a non-operational book gain estimated at approximately $50 million in Income from operations in the third quarter of 2023. With this transaction, we have completed all divisional portfolio divestments announced at the end of 2020. That said, we continuously review the product groups within all divisions to optimize the portfolio.

The small acquisition of Eve Systems is another example of our portfolio actions, this time by the Smart Buildings division in business area Electrification. With around 50 employees, Eve generated approximately $20 million in revenues in 2022. It is a pioneer in the new Matter connectivity standard which enables smart home products to be fully interoperable, irrespective of the manufacturer and user operating system, via Thread wireless technology for consumer-facing products tailored to the retrofit market.

I was pleased to see Process Automation unveil its new revolutionary propulsion concept initially aimed primarily at small- to medium-sized vessels, complementing its current market leading Azipod® offering for larger vessels. This industry-first electric propulsion concept ABB Dynafin™ mimics the movements of a whale tail for ultimate efficiency and emissions avoidance as it is set to reduce propulsion energy consumption by up to 22% compared to conventional shaftlines. The first commercial prototype is expected to be available in 2025.

In the third quarter of 2023, we anticipate a low double-digit comparable revenue growth and the Operational EBITA margin to be slightly up from the 16.6% reported in the third quarter last year.

In full-year 2023, despite current market uncertainty, we anticipate comparable revenue growth to be at least 10% and we expect Operational EBITA margin to be above 16%.