CEO profile

In the fourth quarter of 2022, orders and sales increased on a comparable basis, operating EBITDA increased by 16%, operating EBITDA margin improved by 170 basis points, and return on capital improved to 16.5%, meeting the target range. All in all, we have achieved good results.

Customer demand improved or remained stable in most business areas, except for declines in residential construction and discrete manufacturing related areas. The market outlook for discrete manufacturing remained stable, although the fourth quarter was adversely affected by the normalization of customer order patterns, which had previously triggered periodic pre-orders due to extended delivery times during periods of supply chain tightness. This put order pressure on the Robotics and Discrete Automation Division, while the other three divisions saw order volumes remain stable or grow on a comparable basis. Sales revenues were strong, up 3 per cent (up 16 per cent on a comparable basis). The Americas region became the engine of order growth; Europe went into reverse; The Asia, Middle East and Africa region remained generally stable, with a decline in orders from China. The coronavirus outbreak in China has slowed business there to some extent, but our top priority is to ensure the safety of our employees.

Our strong pricing strategy and volume growth supported higher gross margins and drove operating EBITDA margin up 170 basis points to 14.8%, the highest fourth quarter margin in recent years. For the full year 2022, it achieved an operating margin before interest, tax and amortization of 15.3%, setting a new record in recent years. We achieved good price management and sales growth, and significantly reduced business costs. I am pleased to see how well the business units have handled the challenges of supply chain constraints, labor constraints, containment of the pandemic in China, and the high inflation environment.

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Due to a slower-than-expected conversion of net working capital, cash flow of $687 million in the fourth quarter did not fully meet expectations. This will be a focus area of work in the near term as we deliver a large backlog of orders. As previously announced, the final resolution of issues related to the Kusile project had an adverse impact on cash flow of approximately $315 million, while the completion of the divestment of the grid business generated a net cash contribution of $1.4 billion to investment activities.

We remain committed to moving the e-mobility business to a separate listing under favorable market conditions. At the same time, by the end of January, we had completed a pre-IPO private placement of new shares for a total of approximately CHF 525 million for minority investors with a stake of approximately 20%. The funds raised will be used for organic growth in the hardware and software businesses and mergers and acquisitions to further unlock the growth potential of the e-mobility business.

After the fourth quarter, we signed an agreement to divest the Electrical Power Conversion business unit, completing the last divestiture previously announced. From now on, we will continue to evaluate the business portfolio at the product group level of the existing business units. For example, we decided to start the emergency lighting business of exiting the Smart Building business unit of the Electrical Division in 2023.

Through a strategic partnership with Boliden, a Swedish mining and smelting company, we are using copper with a low carbon footprint in our electromagnetic mixing equipment and high-efficiency motors, which is helping us move one step closer to achieving our sustainability goals. We aim to make at least 80% of our products and solutions recyclable by 2030 to reduce greenhouse gas emissions and facilitate the transition to a circular economy.

Looking ahead to 2023, despite heightened uncertainty in the high inflation environment, we do not currently expect a major contraction in market demand. Last year’s fairly high order levels, combined with the normalization of customer order patterns after the end of pre-orders during periods of supply chain tightness, are expected to have some impact on comparable order growth at least in the first half of this year. Sales revenue growth on a comparable basis is expected to exceed 5%, thanks to the execution of reserve orders. Cash flow will benefit from lower net working capital, as well as a reduction in adverse items. 2023 is a great opportunity for ABB to demonstrate that we can consistently achieve our target of an annual operating margin before interest, tax and amortization of no less than 15%.

Based on improved performance, strong cash flow and a solid balance sheet, the Board is proposing a dividend of CHF 0.84 per share, up from CHF 0.82 in the previous year, in line with the long-term objective of a dividend per share that continues to rise over time, while still prioritising a continued stable balance sheet to support our growth plans. ABB plans to continue share buybacks throughout 2023.