Abb Ltd

SIX:ABBN

Earnings Call Transcript

[Ann-Sofie Nordh, executive]

Greetings, and welcome to this presentation of ABB's first quarter results. Next to me here, I have our CEO, Morten Wierod; and our CFO, Timo Ihamuotila; and I'm Ann-Sofie Nordh, Head of Investor Relations. As per usual, Morten and Timo will talk through the results. And after that, we focus on today's announcement of portfolio change.

So today, the presentation will be a little bit longer than we normally have before we open up for the Q&A. And with that said, I ask you, Morten to kick off the presentation.

[Morten Wierod, executive]

Thanks, Ansi, and a warm welcome also from my side. I would say that we had a strong start to the year. The team did a good job at staying focused in what has been a quarter with intense news flow. I will guess that we all have had tariffs on our radar screens. And -- but if I was to pick up a few highlights from the quarter, those would be, and first of all, market activity was high, and it was good to see that demand was strong throughout the quarter with a good finish in March. In total, we increased comparable orders by 5% from last year.

Secondly, we beat our own expectation for operational EBITA margin in all business areas. On top of this, our margin got an extra boost from a one-timer which contributed 170 basis points to the margin of 28.2%. The third point I want to mention is the free cash flow of 652 million. This is good for our first quarter, which usually is a softer period for our cash generation. And it puts us now in a good position to improve our annual free cash flow from the 3.9 billion we generated last year.

We also made good progress towards our sustainability targets. My final point is that we continue to be active with the business portfolio. In early March, the team in Smart Building closed the acquisition of the Siemens Wiring accessory business in China. This adds to over already strong product portfolio. And importantly, it gives us additional market reach through our distribution network across 230 cities. The deal adds about 150 million in sales, and it is margin accretive.

Today, we also announced our plan to spin off the Robotics division as a separately listed company. In our view, this change will support value creation for both companies. And as Ansie any mentioned already, we will cover this separately later on.

As part of the annual reporting suite, we published our sustainability statement, and we made good progress in 2024. We are already close to fulfilling our 2030 targets for 80% reduction of CO2 emissions. At the end of 2024, we were down 78% from the 2019 base level. But it's not only about us. I'm proud to say that with our technology, we helped our customers avoid 66 megatons of emissions with our products sold in 2024. Over the last 3 years, we accumulated nearly 205 megatons of avoided customer emissions. I also want to mention safety as this is something we cover in all our internal reviews. Keeping our people safe is an important KPI that we follow carefully. Zero incidence is always the target. And it's good to see that we continue to track on a low score and we achieved 0.15 for 2024.

So let's take a look at the market developments. And the short version is that orders were stable or up in most of our customer segments. Like I mentioned, comparable orders were up by 5%. This was driven by mid-single-digit growth in our short cycle orders, which improved in all business areas. We also had 11% growth in the service business, but we had a slightly lower contribution from large orders. Some of the stronger areas were utilities, marine, ports, commercial buildings and most of the process-related areas. Although chemicals and pulp and paper are generally more muted segments.

Our robotics business had increased orders from the automotive segment, and our paint technology is the best on the market and we have customers choosing to remain with us as they expanded their international footprint. One can say we travel with the customer.

Data center is usually a focus topic. And there has been quite some news flow in Q1. The general sentiment remains very strong. We see some customers even accelerating their investments even if some slower activity from one of the hyperscalers is noted in this quarter. Rail remains a strong area. One example from our traction business is the collaboration with [indiscernible] in the U.S. We will supply converters and Pro series batteries for train sets in Illinois and California as the U.S. moves towards greener rail transport. But even if the market is strong, orders in rail dropped from a high large order comparable.

Switching to the revenue chart, the 7.9 billion and 3% comparable growth was a bit below our original expectation. We did not convert the backlog or recent short-cycle orders as quickly as expected. Volumes were the larger driver to growth, with some added contribution from positive pricing.

Turning to look at the different geographies. We were actually up in all three regions. The Americas with good support from the U.S. was again the main growth engine and increased by 11%. The Asia, Middle East, Africa improved by 4% and China turned to positive order growth after 10 quarters in decline. All business areas contributed to the China growth of 13%. And Europe was up 1% with a mixed picture between the countries.

Looking at our large markets, Germany declined, while for example, Italy improved. Uncertainty triggered by the tariff news flow has put focus on footprint and operational setup between regions. I've said to our teams to continue to focus on what we can control and take action to defend our market position and profitability. We have been successful in this area before. Our legacy of a local-for-local footprint serves us well. In the United States, we cover as much as 75% to 80% of our sales with local production. And we invest to increase this number. In Europe and China, we have already reached an even higher local value chain. So I feel we are in a relatively good situation when it comes to local for local. In addition, we'll also benefit from exemption such as the U.S. MCA.

Turning to earnings. The chart shows that we continued the upward trend for both absolute operational EBITA and margin. I said that I wanted us to become a plus 40% gross margin company, and that is what we delivered in Q1 when gross margin improved by 280 basis points to 41.7. Admittedly, there was about 110 basis points of improvement coming from FX and commodity timing differences. But we have shown we can reach the 40% level. And now we have to work towards consistency.

The team did a good job also on operational EBITA. Margin improved in 3 out of our 4 business areas. All the Robotics & Discrete Automation declined from last year. But importantly, they showed a positive sequential development and the Machine Automation division improved to a breakeven level. On top of the improved business performance, we had support from a property sale we completed here in Zurich, which added about $140 million. This was booked in Corporate and Other and supported the margin by about 170 basis points to the total of 20.2%. Even without this one-timer, it has a good start to the year, and it sets us up to deliver on our guidance to improve margin from last year, assuming no significant changes in the global economy.

And now I hand it over to you, Timo.

[Timo Ihamuotila, executive]

Thank you, Morten, and welcome to you all from my side as well. Let's now talk through the different business areas, starting with Electrification, and the EL team keeps delivering new records. In Q1, they achieved a new all-time high orders of $4.4 billion. This is up 2% on a comparable basis from the previous high, a testament to strong underlying markets.

Customer activity was stable to positive in most customer segments. This includes our two largest segments of utilities and buildings. Demand in buildings continues to be driven by the commercial market outside of China. And the residential market was overall stable, although the China market is still weak. Morten talked about the data center segment earlier and the slower activity we saw from one of the hyperscalers. I want to emphasize that outside of this specific event, we still see a very strong data center market. If we exclude this one hyperscaler, orders in data centers increased at mid-teen space. The base is now quite sizable as we had data center orders of about 2.5 billion last year. So generally, it is still a very strong general environment in the tech segment.

Turning now to revenues. Electrification delivered 6% comparable growth with contribution from virtually all divisions. Volumes were driven by conversion of the order backlog related to medium voltage and power protection and also the short cycle business improved by mid-single digit. The profit chart on the right side shows the steady improvement trend electrification has achieved. This quarter was no exception. Operational EBITA was up by 7% to $886 million with a margin of 23.2%. The gains from higher volumes and operational efficiencies more than offset higher expenses mainly related to SG&A. All in all, a very strong quarter for Electrification, adding to our confidence for the year.

Now looking into the second quarter, we currently expect low double-digit growth in comparable revenues and the operational EBITA margin to improve slightly from last year.

Now turning to Motion, which delivered another quarter with order intake above $2 billion. That said, lower large order bookings, mainly in Traction division triggered a decline from last year's record high level. The strongest growth was noted in the Service division while the short cycle improved slightly versus the prior year. We saw favorable order development in HVAC for commercial buildings as well as in power generation. The softer areas included the process-related segments of oil and gas, chemicals and food and beverage. Rail also declined, but this was linked to the larger order comparable I just mentioned.

Shifting now to revenues, which was supported by both higher volumes and a positive price impact. The long-cycle divisions improved as they executed on their high order backlogs, even if this was slightly below our original expectation. This improvement was partly offset by a decline in the Service division, while the short-cycle areas were broadly stable. In total, this sums up to an increase of 3% in comparable revenues to just over $1.8 billion. The positive price development, coupled with continued operational improvements contributed to a strong margin improvement of 110 basis points to 19.6%. And most divisions improved their profitability year-on-year.

For the second quarter, we anticipate comparable revenue growth in the mid-single-digit range and the operational EBITA margin to remain broadly stable year-on-year. In Process Automation, we saw a continued healthy market environment and orders came in at the high level of $2 billion, increasing 23% year-on-year. The PA team delivered yet another quarter with a positive book-to-bill at this time, 1.24, and the backlog is now $8.1 billion.

The Marine & Ports segment continues to be a growth driver. In this segment, we are mainly exposed to passenger vessels like crews and specialized vessels which could, for example, include icebreakers or coastguard. Process Automation also continued to see strong underlying demand. As for the other segments, we saw a stable to positive order development in most of the energy and process-related industries. The business climate, however, remains more muted in chemical, pulp and paper and mining.

Revenues got off to a good start and increased by 5% on a comparable basis. The team executed on their steadily increasing order backlog with added support from pricing. The team has done a really good job on quality of revenues as the order backlog gross margin has been increasing. As they now execute on this backlog, we see this supporting profitability in the business area. The contribution from the backlog more than offset the impact from lower volumes in the product division. All in all, it resulted to a new record operational EBITA margin of 15.8%, improving 20 basis points year-on-year.

Looking at our expectation for the second quarter, we foresee comparable revenues to improve in the mid-single-digit range and the operational EBITA margin to be stable or slightly up year-on-year. If we flip now to Robotics & Discrete Automation, it was good to see that this time, both divisions contributed to the strong order growth of 17%. The Robotics division saw positive order developments in the automotive and consumer electronics sectors. Both of these important segments remain generally challenging, but we were able to grow orders as customers stick with our leading technology as they expand their geographical exposure.

Other positive segments included food and beverage, the fashion industry as well as industrial machinery. In Machine Automation, orders increased sharply from last year's low level, inventory levels at our customers are normalizing, but we will have some inventory adjustments spilling over into the second quarter, but we still expect orders to continue to slightly improve sequentially.

Moving now to revenues. The Robotics division reported a mid-single-digit growth rate driven by higher volumes from the book and bill business. This was, however, clearly offset by significantly lower volumes in Machine Automation. In total, this resulted in comparable revenues being down 11% year-on-year. Although the profitability was down sharply year-on-year due to the lower production volumes in machine automation, the sequential improvement was better than anticipated. The previously announced cost savings measures in Machine Automation helped improve the margin, and this business is now back at breakeven level.

The Robotics division increased margin from last year, supported by higher volumes and efficiency measures. It remains well into the double-digit territory. Combined, this resulted in an operational EBITDA margin of 9.9%, down 330 basis points year-on-year, but up 200 basis points sequentially.

For RA, in the second quarter, we expect a slight sequential increase in absolute revenues and operational EBITA. Now let's move on to the cash flow. All business areas had a positive operating cash flow. It was supported by strong earnings, which offset the typical buildup of net working capital in the first quarter. The 652 million of free cash flow was, in my view, very good for a first quarter. The year-on-year increase of $101 million was mainly driven by the real estate sale. The improved operational performance was mostly offset by higher payments related to taxes and interest. Net working capital remained broadly stable.

I think the first quarter puts us on a good path to improve our annual free cash flow from last year's 3.9 billion. The last time we mentioned some reporting changes, including return on capital employed. We now report group ROCE on a quarterly basis, and it remains a focus area for us. The chart here shows that the strong trend continued in the first quarter. ROCE reached 23% and improved 250 basis points from last year. The increase was driven by 3 out of 4 business areas as a result of higher earnings, the positive one-timer and focused net working capital management. And with that, I hand it back to you, Morten.

[Morten Wierod, executive]

Thanks, Timo. And with that, let's talk about today's portfolio announcement, our plan to spin off the Robotics division as a separately listed company. We start these preparations now, and we'll work towards a proposal for the 2026 AGM. If all goes to plan, we will distribute the business to shareholders as a dividend in kind. Meaning shareholders in ABB will receive shares in the robotics company in proportion to their existing holdings. We plan for the robotics company to start trading during the second quarter of 2026. But we have not yet decided where the listing will take place. We are now looking at different alternatives, including Sweden and Switzerland.

So why are we doing this? The prerequisite is, of course, that we think that it will benefit value creation in both companies. Robotics is a strong performer in its industry, and this will become more transparent, and we think it will be rewarded for its strong position and performance as a pure-play robotics company. As you see on the chart to the left, robotics represents 7% of ABB Group revenues and 5% of earnings. And I should also mention that numbers on these slides are pre carve-out estimates. Some balance sheet numbers may change for the stand-alone entity. Robotics performance profile is different versus the three larger business areas we have. And we believe it will benefit from being evaluated on its own merits instead of competing our capital allocation within ABB. Also, while it's a strong contender in its industry, there are limited synergies with other businesses in ABB. It almost already has a stand-alone profile, but without getting the full benefits.

Last year, Robotics generated about 2.3 billion in revenues. And in my view, they have proven themselves under the ABB Way decentralized operating model. They have delivered a double-digit margin in most quarters since 2019, a strong achievement in what has been an unusually volatile market. And they had to shut down the hub in China. Then the component shortages with the significant prebuys, followed by the normalization periods. Now, they have shown order growth in the last 4 quarters. They've also been active on their portfolio. The low-margin system business has been exited. They now have the broadest Mechatronics portfolio after expanding with cobots and MRs, on top of the already most advanced robotic offering with its control and software platform. So ABB Robotics is well positioned to help customers improve productivity and flexibility to solve operational challenges such as labor shortages and the need to operate more sustainable.

I mentioned earlier the double-digit operational EBITA margin. It is good to see that this has been supported by a strong gross margin improvement. Since 2022, the robotics gross margin is up by 600 basis points. Free cash flow margin is at the average of 10% since 2019. And the business is well invested. They have state-of-the-art hubs for manufacturing and R&D in China and U.S. And we recently started the construction for a major upgrade of the European hub in Sweden.

They have spent 5% to 6% of revenues on R&D and launched its unique OmniCore platform last year, and their peaker technology is a good example of their strong AI-based solutions. So all in all, we think a listing of the robotics will support its ability to create customer value, growth and attract talent. We also think it will benefit ABB, which would consist of three business areas, with sales and technology synergies. And why do I say three business areas? We will move the machine automation business to be a division in process automation to build on their software and control synergies, for example, towards hybrid industries. While robotics is only 7% of group revenues, this portfolio change will have a slight positive impact on ABB's performance. The main target is to allow for both companies to optimize its value creation. We start working towards this now, and we'll come back with more details in due course and in good time before the AGM in 2026.

So finally, let's finish off with the outlook. We leave our 2025 outlook unchanged but acknowledge the increased uncertainty for the global business environment. We still expect a positive book-to-bill, and we see comparable revenue growth in the mid-single-digit range, and we expect to further improve the operational EBITA margin from last year. Since we had a positive one-timer in the first quarter, I want to mention that the margin outlook for the year is supported by improvements in our businesses. It's not only driven by one-off gains.

For the second quarter, we foresee comparable growth in the mid-single-digit range and the operational EBITA margin to remain broadly stable with 19% last year. Some of you may say that, that stable margin development is underwhelming. But actually, it means we need to improve our business results in Q2 2025 to offset the positive impact of 30 basis points from a nonrepeat last year. So now, Ansie, let's open up for questions.

[Ann-Sofie Nordh, executive]

Yes. Let's do so. [Operator Instructions] You can also put questions through the online tool in the webcast, and I will then voice them over from here. And with that, we open up for the first question. And we have Max for Morgan Stanley first in line.

[Max Yates, analyst]

So just the first question I'd like to focus on is just the data center business. And look, while I appreciate kind of the business is up in order terms, mid-teens ex this large customer, we obviously know it is a very large customer that we're talking about. So I just wanted to understand, I think you mentioned this customer had paused ordering by 30 to 45 days during the quarter. Have we now seen that go back to normal? And should we now expect the kind of data center orders as a whole will be more in that kind of double-digit order growth range for the rest of the year. So because obviously, while we don't want to kind of talk about one specific customer, it obviously is moving the needle on what's happening to the overall business. So just trying to kind of understand, is that a good approximation of what we should see for the rest of the year? Or do we think that particular customer will continue to be the exception in the industry and be a bit more volatile.

[Morten Wierod, executive]

Thanks, Max. As you said, we had -- with that exception, we had mid-teens growth in the data center segments. And long term, we are confident also with the growth rate in data centers due to the AI trend that we see these days. So what we look at -- and I don't want to speculate, I think they're on the outlook from -- on single or individual customer performance. I think you will see that in the news as well. So I'd rather refer let's say, directly to the source or the current news flow more than that we come out with any firm statements on what are other companies' plans.

[Ann-Sofie Nordh, executive]

Thanks, Max. And then we move to the next question comes from Andre at UBS.

[Andre Kukhnin, analyst]

I'll go with the obvious one on tariffs. I just wanted to ask whether you've taken any pricing action so far to respond towards been announced in the U.S.? And also just quite keen to kind of double-click on the U.S. for U.S. piece, which you very helpfully laid out. But within that U.S. to U.S. have you looked into your suppliers and their sourcing and kind of geographical arrangements? And have you seen any of the evidence of them coming to you with price increases if they happen to source from China or other high tariff countries and how you're responding to that, please?

[Morten Wierod, executive]

No. We have, of course, looked at all of these elements, as you say. First of all, the main part is what we produce, the 75% to 80% we have, as ABB, more or less no import from China coming into those numbers. So that is not an impact for us. The other part is we already -- also a lot of the Mexico and Canada import. A lot of that is with exemption from tariffs based on the U.S. MCA trade agreement. So that helps as well. And then it's the -- what comes from where that will be exposed later on for tariffs. And there, we will take price actions as you mentioned. There has been already taken price actions this year, but that is more of the steel and aluminum tariffs that has been implemented and because that has been, as a general price increase in the market on raw materials. And of course, that is something that goes through on to the other side. So that's how we work with it when we talk about the suppliers and the suppliers of our suppliers. We have an overview on where it comes from. We have been working on that for quite some time to minimize especially the China exposure. I don't have details to give you on -- more I can say. I can confirm that it's worked on, it's understood, and it's mitigated to a vast effect. That is why we can come also out with the guidance that we're doing, that we don't believe -- I don't see this with the current knowledge, I mean as of today or as of now, we don't have -- see any significant impact on our overall performance.

[Timo Ihamuotila, executive]

Yes. Maybe if I can just add super quickly on this one. So we have done, as Morten said, thorough analysis with and without tariffs and the tariffs itself, they don't have a big impact. It really is the economic uncertainty, which we are now dealing with, which we have to then see how it plays out. But as I said, all of this has been taken up in our thinking on the guidance for the year.

[Ann-Sofie Nordh, executive]

And can I -- we have a question coming through online here sort of linked to tariffs, I would assume. Somebody asked, could you please tell us if there was any pull forward in orders in Q1?

[Timo Ihamuotila, executive]

No, we did not see that in the first quarter that people were prebuying. I think that is just due to the uncertainty of what kind of would you buy to be able to mitigate. So no, we have not seen that. .

[Ann-Sofie Nordh, executive]

Very good. Then we go back to the conference call, and we open up the line for Martin at Citi.

[Martin Wilkie, analyst]

It's Martin. Can I ask on the order pipeline? It seems no immediate impact on tariffs and orders so far. But when you are talking to customers about the pipeline for the remainder of the year, are customers worried about the environment and seen the potential for significant pause on decisions for the year ahead and perhaps which industries are more worried around that? And linked to it, you've obviously talked about some capacity expansion in the U.S. Is that primarily demand-driven? Or is it more to give you further hedging against tariffs as well?

[Morten Wierod, executive]

Thanks, Martin. We -- the order pipeline, when we're looking at the -- it's still strong when it comes to the overall and the long-term need for electrification and automation. That is clearly there. You see some of the decision-making, as we mentioned, may take, and you saw that already in the first quarter that it takes a big -- may take a bit longer time to get that final decision. We win and we get the order, but sometimes you take another round, maybe with the Board for major investments. What we see is that the no regret moves. They are being taken. That's the same on oversight and others where there is much bigger uncertainty, they saw where you take another extra round and may discuss. So that's the -- how -- I mean, uncertainty is not good for decision-making. That's clear. That's the -- but we are taking this uncertainty into account when we also make our forecast for the second quarter and year-end. So it's something we believe we have under control. And I'm not kind of worried about it, but it will take a bit more of -- sales work also to get the papers signed. And I think the second point, maybe help me here Ansie?

[Ann-Sofie Nordh, executive]

Capacity increase is demand driven or tariff driven?

[Morten Wierod, executive]

Yes. Thank you. It is driven very much by demand driven because we don't have -- many of these investments is driven by its kind of products that has special U.S. or what we call NIMA, North America standard. And therefore, we need more capacity because the demand has, over time, been bigger, been larger than supply. So we are expanding because we see also a long-term that goes with the two announcements we had in electrification business in Senatobia, Mississippi and Selmer in Tennessee. It's about $120 million. We're expanding those two facilities for low voltage bus bars and for low-voltage circuit breakers, that is used day by utilities, it's used in industry and in data centers. So that goes into that general capacity buildup. And of course, there will not be U.S. tariffs on it when it's produced in U.S., but that's not a primary driver of it.

[Ann-Sofie Nordh, executive]

Very good. Thanks, Morten. We've had a couple of questions come through here online regarding the portfolio change announcement. So basically, the question is, why now?

[Morten Wierod, executive]

We believe the robotics business is now ready to stand on its own two feet. The synergies with the rest of ABB is limited when you look at technology and customers. Their electrification motion and process automation, very much have come -- much more common technology, common go-to-market customer base and even common competitors. So we believe this is a good value-creation opportunity, both for ABB and also for the ABB Robotics division being a separately listed company. So therefore, it will take a bit of time. We said that in q2, so a good year from now is when we can do the listing as there are some internal work on the carve-out and the preparation to be done. So therefore, we need that time. But I believe now it's good timing because the robotics business is among the very best in their class and being measured against peers. You will also see that. And I think then they don't need to fight for capital inside ABB, but have now access also for investor in the market. You have -- it's now an opportunity to get 100 cent on the dollar on robotics investment as was not the case at ABB, where it's about 7% of revenue and 5% of our earnings. So that's where we believe the timing and the team is ready to stand on his own two feet, and it's a long-term good business in automation and robotics.

[Timo Ihamuotila, executive]

Yes. I mean maybe just to add there, of course, it's important also what ABB will look like after the spin happens, and there, we are seeing increased gross margin, maybe 40 basis points increased operating margin, maybe 53 basis points, clearly higher return on capital. I think the growth rates probably will be about similar. If you look at history, we would also have a much higher there. So it really kind of like shows that these are a little bit different kind of companies.

[Ann-Sofie Nordh, executive]

And with that, we have a question coming through from Alex at Bank of America Merrill Lynch.

[Alexander Virgo, analyst]

I wanted to talk about electrification, if I could, please. And I appreciate it's one question with two parts. Question on the acceleration on the growth guide into Q2, low double digits is very strong. I just wondered if you could give us a sense of of what's driving that and the visibility that you obviously got in Q2, but for the full year? And just linked to that, the margin expansion, you mentioned about a month or so ago, the conference, the differential on margins between the North American business and the rest of the world in electrification. I just wondered if we're starting to see that gap starting to close as we see the margins moving up here and whether that's something that can accelerate through the year?

[Morten Wierod, executive]

Yes. So let's start on the Q2 growth outlook. So so we have some of the revenue where we were a bit short in Q1. We saw that some of those deliveries were slipping over to Q2. So that's why we are confident we have a strong order backlog and order book now being on a record high level, even at -- just to mention, like on electrification, it grew by another 11% in Q1. Even if the order growth just for the quarter were 2%, but the order book increased by another up 11%. So that's a good set up in -- and a good outlook when it comes to the second quarter. When you talk about margin expansion, as we say there, especially for the -- we mentioned that in the electrification business is North America, is dilutive to the electrification margin. It still was in Q1. It will still be in Q2, but that gap is getting smaller. And I think that's the focus for the team and has been for several years and how we can close the gap to the rest of the world level. So we have -- you will see, not just in electrification, but we have all four business areas are expecting a margin improvement for the full year. So I'm sure Timo can mention a bit about the one-off that special, but the operational performance is expected to increase in all 4 of our business areas at year-end.

[Timo Ihamuotila, executive]

Do you want me to throw -- maybe a bit of an opening there, yes. So when we look at this, I mean, when you look at our corporate guidance last year, we had a very strong sort of corporate performance. We were about 150 million. Now we are saying 200 million. So that would be a bit of a negative on the full year. But when you combine that with E-mobility, we are going to be some tens of basis points positive on that whole corporate E-mobility combined. And then as Morten said, also, the businesses we are expecting them to improve.

[Ann-Sofie Nordh, executive]

Okay. And then we take the next question from Sean at HSBC.

[Sean McLoughlin, analyst]

Question around process automation. You made a very interesting point on your competitive advantage of being the only supplier with direct access to electrification and motion. The -- how much are you seeing that already as part of the existing strength in process automation orders? Is this something that will be, let's say, something that you push much harder on going forward. And you've also highlighted the marine side of things. Just wondering if there's any regional focus of where you've seen particular order strength there.

[Morten Wierod, executive]

Yes. I think that is very much a play the strength between our process automation, electrification and motion business is very clear in areas, for instance, in LNG, where you do drilling, you do the whole pipeline with compression and you do the terminals. And later on, you even do the LNG ships. So if you look at these four applications, that's a nice ABB combination of automation systems of motors and drives, to get like the right compression -- for compressors. And it's also with electrification because no motor or no drive or any automation system is working without electricity and all the switchgear that is needed. So these, if you look at LNG to be as one, we have some very successful, especially North America project. We are working the 3 business areas or the divisions that is relevant here. They work together as a team, as a common task force. And that's how we go to market and how we support project OEMs and end users on the ground and later on also with service and taking care of that equipment over the lifetime of 25, 30 years plus, which is the expected lifetime. And it's the same if you're talking about our Marine business, a propulsion of the cruise ship, you will see there from a generator room, you will have the electric, the generator, the switchgear, the drives that is driving the speed of the motor and the torque and then the propeller system, known as leading in the cruise industry. So these are just a couple of examples where you see that this electrification, motion and process automation really working together in tandem where often process automation takes the lead versus the end customer. They are the one carrying the ABB flag there, but then with strong support from -- with our brothers and sisters from -- coming from the other divisions. So that's how we work together. And I think that's what I know it's a unique combination, which is highly appreciated by customers. Latest confirmed that was in Houston at the CERAWeek this year, and this is one of the winning arguments why we are performing really well in these segments compared to many of our competitors.

[Timo Ihamuotila, executive]

I think there was this regional comment. I can just confirm that PA orders were very strong, broad-based. So actually, also in China, grew, but also Europe grew and U.S. grew or America. So very broad-based.

[Ann-Sofie Nordh, executive]

Very good. And then we take -- we have a question from Simon at Jefferies here via the online tool. Can you please elaborate a bit on what you saw in the U.S. during the quarter? Did the market hold up and perhaps particularly so in the short-cycle business.

[Morten Wierod, executive]

Yes. No, it did. We had growth in all four business areas in the United States. It was 9% on order intake overall and all business areas contributed to that growth rate. And we had also a strong March. So there was not really a big change throughout the quarter. It was a healthy business generated in all 3 months of. So that was overall a good start to the year in the United States.

[Ann-Sofie Nordh, executive]

Very good. And we'll take the next question from James at Redburn.

[James Moore, analyst]

Timo, you mentioned that economic uncertainty is the biggest risk, and I totally agree, that makes sense. And I got the impression from other comments that your orders at the start of April are kind of largely unchanged, a comment we're hearing from a number of companies. But I guess in reality that tariffs didn't start in the first two weeks of April. This is the first week. And I wouldn't normally ask about live trading, but are you seeing anything in the order running rate and the daily rates of this week that is materially different, particularly in the U.S. that would suggest that we are going to see any economic impact? And tagging to that, where you've got that import, the 20%, 25% import, some of it comes from Europe, where you've got a product coming from Europe to U.S. customers and you're raising price? Are you seeing customers accept that? Or do you think that they will switch to a local producing competitor?

[Timo Ihamuotila, executive]

I can start on the last part of that question. In -- again, giving you an example from the electrification business where the portfolio is so wide, it is very difficult, especially -- very difficult to have a full production in everywhere in the world. And some of the -- there are different standards between U.S., what we call the NEMA standards, in Europe and the rest of the world, where there is IAC. And there is to use some of these IAC products that is produced in Europe by all companies which goes into, for instance, to a machine built in or a project built in the U.S. that is reexported or exported outside the United States. So this is -- accounts for some of those products that is not produced in the United States. And we don't see -- I also don't think -- or I know that anyone -- nobody is really producing those components in the United States. And therefore, it will come as a price change in the market because for most of these cases, there is no local alternative available.

[Morten Wierod, executive]

Yes. And on the trading, I think we can only say there that we have not seen anything kind of like in the trading sort of these months, which would sort of fundamentally change any view, any customer behavior or anything like that, but I think we need to leave it at that.

[Ann-Sofie Nordh, executive]

Thanks, James. Then we open up the line for Daniela at Goldman Sachs.

[Daniela Costa, analyst]

I just wanted to ask regarding low voltage and supply and demand in the market. You're adding capacity. We also see a lot of your peers adding capacity. Just maybe if you could give some color on that, especially like where our lead times, what's the sort of visibility that is there, especially if we go into a slightly softer U.S. macro part of these products are short cycle, but just to give us a picture of how the supply demand is...

[Morten Wierod, executive]

As you said, the increased -- the expansion of our facilities is to meet that extended or the expanded demand that we see in the market. And again, also to limit the number of imports, what comes from outside because that's why we also take some of the components that comes from Europe today is because we don't have enough capacity in United States. So I say there's still long -- much longer lead time than the industry we're used to. So we still have work to do there to get it further down. I don't see any short-term issues in the market. It is the whole -- the trend of electrification even if there is -- the global economy goes a bit slower, nobody is immune, but I see that the electrification and the automation trend that we are facing, especially as I mentioned in infrastructure that is not going to change very quickly because those CapEx plans are made, those are ongoing projects. And we see that, that is desperately needed, especially in the United States in some of the infrastructure investments. So therefore, I don't have any short or midterm worries when it comes to capacity. It's more, as I say, we are still building capacity at this point of time.

[Ann-Sofie Nordh, executive]

Thanks, Daniela. And then we take -- we have a question here from Olof at Danske Bank. He says, what impact do you expect from the stimulus package announced in Germany? And when can you -- when do you expect that to impact if so?

[Timo Ihamuotila, executive]

Yes. I mean, overall, it's good that Germany starts also to investing again. It has been a bit of a a tough situation in Germany for the last 2 years, and we do see some more optimism on the ground also with large customers, but they're still too early. There was no impact in the first quarter, and we will not see that in the second quarter either. It is because from planning permitting into starting building until the electrification and automation is in the ground is more of a -- so from there an impact point of view, we are more into the 2026 onwards. So -- but I think it's kind of -- it's good to see that there is more an environment of investing again, and I think the mood starts to change, and that is maybe the -- I think is the first and important part that customers and our partner starts to look at the opportunities and not kind of looking backwards of everything that went wrong, but more of what -- what can we do in the marketplace and there is a bit more of optimism that will help. And for us, it's about all those investments in either in infrastructure, getting more affordable but more reliable energy supplies of Europe and Germany, especially will support the business of ABB. So I think that we are well positioned to take part in that -- those investments that will come, but a bit -- still a bit early.

[Ann-Sofie Nordh, executive]

Very good. We open up the line for [indiscernible] ABG.

[Unknown Analyst]

Yes. Just -- yes, exciting news on the robotic spin. Just wondered about the thought process behind going for a spin rather than a trade sale. Is there anything to -- I mean, if those discussions came up here, is there anything that would sort of prevent you from -- or would you engage in such discussions if it came up here?

[Morten Wierod, executive]

Yes, I can start, you continue to we have looked at, of course, at different options when we do make such decision. And the options what we are launching now is the separate listing of the robotics company because we believe that is also a good opportunity for the shareholders to participate in that value creation opportunity that we are confident about. So therefore -- that's why we've chosen this role. We are -- but portfolio management is an important part of the whole ABB Way operating model. And we are always looking at different options, and that would also be the same here as we have our obligation to our shareholders to consider any option that may occur. But right now, we are on the path of listing, and that's the work that is ongoing. So that is our clear primary plan at the moment.

[Timo Ihamuotila, executive]

But yes, maybe a little bit also on the thought process. So if you look at some of the previous transactions, what we have done, so I think the key point is that is there a natural industry or consolidator in the business, hopefully, 2 or 3 of them. And then it's sort of easier to go for the trade sale, which was very much the case, for example, in the bearings business. There is an Acceleron that didn't exactly exist. And here, it's not necessarily the case either. So I think that's sort of a little bit just on the thought process.

[Ann-Sofie Nordh, executive]

Thanks, Anders. And while we're on this topic, there's a question here from Ben, just to clarify, will machine automation be a separate division in process automation? Or could there be other changes in process automation?

[Morten Wierod, executive]

No, they will be a separate division there. And I believe they are on clear path of improving their performance. We talked earlier about they had a record performance in Q1 last year. That has declined since when they had kind of use the backlog and customers who are sitting on a large inventory. Now we are gaining back. We said that now in Q2, they will come -- we will be ending that situation of at the customer side. And therefore, we are more back to a more normal order pattern and revenue situation. And therefore, I'm also satisfied to see that we are able -- that plan that was made is followed, and that was good to see now. So -- but that will -- so that will remain in process automation, and I will keep as a separate divisions, but working together on projects, even with the motion business or electrification, where this makes sense. Where they will work with their colleagues and team members in process automation when automation solutions or PLC solutions, for instance, in tunnel projects in energy industry it's done, then they will be a contributor into those projects as one example. So this is how we work across the company where one division takes the lead towards the customer, but then working also with their their colleagues in other divisions. So of course, that will continue also when they are in process automation.

[Ann-Sofie Nordh, executive]

And we keep going on the portfolio spin topic here. Here's one question from Gael. Could you also talk about the competitive environment in the -- or for the Robotics business?

[Morten Wierod, executive]

Yes. I think the -- if you look at the -- how robotics are doing, and again, when I say, I think they will benefit from being measured and compared with their peers in the robotics industry. And there, you will see that they are having a very strong performance, both from a top line, but also by bottom line performance. So being among the top and the very best in their class. And therefore, that's the -- also I see the benefit of having that focused company where -- which we now will have. And then on -- and I think they're also doing a good job when I look at what's happening in China coming up now and launching this year, more of a China for China portfolio with -- for lighter application, which is kind of its -- the robotics market in China is quite different from the rest of the world. And therefore, we have also adopted to that new reality, not just from a competition but also from an application and technology point of view. And there, I think, has done a really good job, also coming up with new products that is fit for purpose -- fit for some of these light applications, but at the same time, also using local components and subassemblies, not using imports from, let's say, the West, but using those local Chinese components at the right cost level versus what they use in China, but also they're having with that performance, that is expected from customers because that's again what drives it. So I think there is how we need to adopt this local-for-local strategy when it's a new application and things with robots being used in China for other things I mentioned, I think on these calls earlier, the soup kitchen Raven soup or noodle soup being one, but many of these kind of a much higher robot density than what we see in Europe and especially in the United States. So therefore, it's also a different portfolio, and I'm happy to see that, that portfolio is coming online. And now with kind of big expansion now in 2025.

[Ann-Sofie Nordh, executive]

Okay. We changed topics for a little while and maybe towards you Timo, could you elaborate on why backlog execution was lower than planned in the first quarter? And does it change your view on the full year outlook?

[Timo Ihamuotila, executive]

Yes, happy to -- I think that really is only a timing issue. So there is nothing dramatic on that a little bit more in motion and a little bit in EL. And then in motion also, we had a little lower service revenue actually than we expected. But looking forward, we actually saw very strong growth in base orders, actually higher than our normal order growth. We don't usually talk about it, but just wanted to mention that because it converts faster. We also had that was 6%. We had 11% growth in service, which also service orders, which also support revenue for the year. And then when we look at the overall backlog, we have maybe 3% to 4% coming from backlog. When you look at the backlog conversion of the 23 billion and 60% expected to convert this year. So we should be overall in a pretty good place regarding our revenue guidance for the year.

[Ann-Sofie Nordh, executive]

Very good. Then we open up the line for Eric at CIC Market Solutions.

[Eric Lemarié, analyst]

Yes. I got a question on the U.S. reassuring. I understand the objective of a Trump administration is to accelerate but to reduce immigration as well. And I suspect you are well placed with your automation business there. And I was wondering what your view on that? Do you currently observe any acceleration on that side? Do you observe any, I don't know, more optimism from your local teams on that particular issue?

[Morten Wierod, executive]

Yes. On the automation...

[Ann-Sofie Nordh, executive]

Reshoring...

[Morten Wierod, executive]

Well, this is -- I have to say, it's been a trend that has been ongoing for quite a few years now because the -- with the risk of tariffs being one, but also I think the importance of being closer to customers is just a trend that has been come more and more important. So we -- we have done it as ABB, but I know we're not the only company in the world that has moved production closer to customers. And I think that was a bit of a learning after the whole COVID shutdown in the beginning of 2021. So I think this is just the trend what we're seeing, and we do say that's what we are helping also our customers when they are building up more of their local manufacturing. I think that's the important -- but I can also use an example that we had even from China, which just shows this where in the electric vehicle space, when some of the leading electric vehicle companies go outside China and set up new manufacturing, that be in Indonesia, that being in Thailand or here in Europe, then we are also following customers abroad. That's why it's important to have this global presence, but then you can also travel with the customers out when they establish new production, so that we -- what we have done in China or what we've done in Europe or in the U.S. when they go out to a new region, then we can bring that technology and the know-how from their original design and also to kind of more of a copy paste outside. So there is where some really good wins also in this quarter in that space, not just in the U.S. but even going out of China becoming more local in Asia or in Europe in the automotive industry as one example. And we don't see it only there but also in other industries. So this importance of being truly global but acting local and having service, having people on the ground that can support it's one of the key elements why our customers choose to work with us on large projects.

[Eric Lemarié, analyst]

Okay. But do you think the Trump administration policy could accelerate that trend in the U.S?

[Morten Wierod, executive]

Yes. I mean there will be more investments in local manufacturing in the United States. That is clear. So I think the flip side here, as Timo mentioned, is kind of the question mark of how will it affect the global economy. But of course, it will drive some more investments in United States in manufacturing, that's clear. But how effect it will have on the global economy is for me more the question mark, but that it will drive some more investments in the United States, that's clear.

[Ann-Sofie Nordh, executive]

Thank you. And the time flies when you're having fun. We're going to have to make that our last question. Thank you very much for joining us today, and have a lovely spring break if you're getting one. I'll see you soon.

[Morten Wierod, executive]

Thank you.