Q2-2021-results: press release - English

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Q2 2021

First six months

Press Release

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

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ZURICH, SWITZERLAND, JULY 22, 2021

Q2 2021 results

Strong performance in a recovery quarter

• Orders $8.0 billion, +32%; comparable1 +24%
• Revenues $7.4 billion, +21%; comparable +14%
• Income from operations $1,094 million; margin 14.7%
• Operational EBITA1 $1,113 million; margin1 15.0%
• Basic EPS $0.37; +150%2
• Cash flow from operating activities and from operating activities continuing operations was $663 million

KEY FIGURES

			CHANGE			CHANGE
($ millions, unless otherwise indicated)	Q2 2021	Q2 2020	US$	Comparable1	H1 2021	H1 2020	US$	Comparable1
Orders	7,989	6,054	32%	24%	15,745	13,400	18%	11%
Revenues	7,449	6,154	21%	14%	14,350	12,370	16%	11%
Gross Profit	2,508	1,987	26%		4,776	3,897	23%
as % of revenues	33.7%	32.3%	+1.4 pts		33.3%	31.5%	+1.8 pts
Income from operations	1,094	571	92%		1,891	944	100%
Operational EBITA1	1,113	651	71%	59% 3	2,072	1,287	61%	50% 3
as % of operational revenues 1	15.0%	10.6%	+4.4 pts		14.4%	10.4%	+4 pts
Income from continuing operations, net of tax	789	395	100%		1,340	721	86%
Net income (loss) attributable to ABB	752	319	136%		1,254	695	80%
Basic earnings per share ($)	0.37	0.15	150%2		0.62	0.33	91%2
Cash flow from operating activities4	663	680	-3%		1,206	103	n.a.
Cash flows from operating activities in
continuing operations	663	648	2%		1,186	252	n.a.

1. For a reconciliation of non-GAAP measures, see "supplemental reconciliations and definitions" in the attached Q2 2021 Financial Information.
2. EPS growth rates are computed using unrounded amounts.
3. Constant currency (not adjusted for portfolio changes).
4. Amount represents total for both continuing and discontinued operations.

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"I am very encouraged that we have delivered a clearly improved performance. The

strong upturn in Operational EBITA margin reflects the recovery in demand in

combination with increased internal efficiency and the strength of ABB's

electrification and automation offerings. We will continue to sharpen our focus on profitability through innovation, sustainability and digitalization, while actively managing our portfolio."

Björn Rosengren, CEO

ABB INTERIM REPORT I Q2 2021

CEO summary

The underlying customer activity in the second quarter increased slightly on a sequential basis. However, orders and revenues increased significantly compared with last year's low levels, when the adverse business impact of the COVID-19 pandemic was at its peak. Double-digit order growth was reported in all business areas driven by a broad-based improvement across most short-cycle customer segments and a positive development in several process-related businesses. Growth was to some extent supported by customers stock-building.

We improved Operational EBITA by 71% and the Operational EBITA margin increased to the high level of 15.0%, up 440 basis points, year-on-year. Results were supported by the recovery in demand in combination with the impact from earlier implemented cost measures, as well as ongoing restricted travel spending. An additional effect was derived from proactive price measures taken to mitigate the expected increase in headwinds from higher commodity prices. I am pleased to see how well the team has handled certain component shortages, whereby managing to limit the impact on customer deliveries. Despite active management of the situation the tight supply of certain components, such as semiconductors, is expected to continue in the coming quarter. The strong earnings converted into cash flow from operating activities in continuing operations of $663 million, improving slightly from last year. I am pleased with how the team managed to keep net working capital broadly stable year-on-year in this strong growth environment. Our strong cash generation in the first half of the year provides a good base to deliver on our guidance of a solid cash flow in 2021.

During the second quarter Robotics & Discrete Automation broadened its automation offering to the construction segment. Robotic automation is not yet widely used in this industry and we see potential to increase efficiency in areas such as fabrication of modular homes, welding and material handling. Additionally, it was good to receive the prestigious Innovation and Entrepreneurship in Robotics &

Outlook

ABB anticipates growth rates in the third quarter

of 2021 to reflect the low level of business activity in Q3 2020. Based on the current market situation, comparable revenues are expected to grow ~10%, with orders growing more than revenues.

In the third quarter, higher demand and service revenues should be supportive to the Operational EBITA margin year-on-year, however some sequential adverse impact is expected from rising raw material costs, component shortages as well as increasing travel spend as pandemic-related restrictions ease.

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Automation (IERA) award for our PixelPaint robotic non- overspray technology for the automotive industry.

We made further progress toward our long-term sustainability target of reducing emissions and achieving carbon neutrality in our own operations by 2030 by joining three initiatives led by the international non-profit Climate Group. They include electrifying our fleet of more than 10,000 vehicles, sourcing 100% renewable electricity, as well as establishing energy efficiency targets and continuing to deploy energy management systems at our sites. Furthermore, our targets have received approval by the Science Based Targets initiative (SBTi) confirming they are in line with the Paris Agreement. ABB also joined the Business Ambition for 1.5°C Campaign, a global coalition of UN agencies, business and industry leaders, led by the UN Global Compact (UNGC).

I am pleased to see that our increased focus on acquired growth resulted in Robotics & Discrete Automation acquiring ASTI, after the close of the second quarter. It is a leading global mobile robotics manufacturer and this transaction will expand our offering to make ABB the only company to offer a holistic automation portfolio for the entire value chain, helping customers replace today's linear production lines with fully flexible networks. Going forward, I expect to see more of these small- to mid-sizedbolt-on deals as the divisions fill up their target pipelines. We have also made good progress with the announced portfolio changes and I expect to announce an agreement for a divestment during the third quarter.

Björn Rosengren

CEO

ABB anticipates comparable revenue growth of just below 10% (update from ~5% or more) for full-year2021, with the process industry related part of the business expected to recover during the second half of the year.

In 2021, ABB expects a strong (update from steady) pace of improvement from 2020 toward the 2023 operational EBITA margin target of the upper half of the 13%-16% range.

ABB INTERIM REPORT I Q2 2021

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Orders and revenues

Demand increased significantly compared with the prior year period, when the adverse business effects of the COVID-19 pandemic were at their peak. In total, orders amounted to $7,989 million, increasing by 32% (24% comparable), including a 28% (20% comparable) step-up in the service business. Revenues amounted to $7,449 million, increasing by 21% (14% comparable). On a sequential basis, the customer demand improved.

Orders grew strongly in the machine builders, consumer electronics and food & beverage segments as well as in general industries overall. Orders in the automotive segment declined, mainly due to the strategic selective order approach aimed at improving long-term profitability.

In transport and infrastructure, there was a very strong order development across the renewables, data centers and e-mobility segments. Also, the buildings segment improved with a positive development for both the residential and non-residential segments. The marine segment recovered, including a slight positive development in the cruise segment with customers initiating service spend in anticipation of upcoming cruising activities.

The process-related business improved slightly overall supported by positive developments in pulp & paper, mining, water & wastewater and chemicals. Demand in the oil & gas segment recovered primarily due to a somewhat positive development in the Americas. Customer activity improved in power generation, albeit from a low level.

On a sequential basis, the general business environment improved slightly in all three regions. Compared with the corresponding period last year, growth was very strong in all three regions reflecting the recovery from last year's low levels due to the impact from the pandemic. In the Americas orders improved by 44% (41% comparable) including growth in the United States of 39% (39% comparable). Europe improved by 33% (23% comparable) with growth in all of the most significant countries. In Asia, Middle East and Africa (AMEA) where business had already started to recover in the second quarter of 2020, orders improved more moderately by 25% (15% comparable), including 26% (15% comparable) in China.

Growth

	Q2	Q2
Change year-on-year	Orders	Revenues
Comparable	24%	14%
FX	8%	7%
Portfolio changes	0%	0%
Total	32%	21%

Orders by region

($ in millions,			CHANGE
unless otherwise
indicated)	Q2 2021	Q2 2020	US$	Comparable
Europe	2,954	2,219	33%	23%
The Americas	2,473	1,720	44%	41%
Asia, Middle East	2,562	2,056	25%	15%
and Africa
Intersegment1	-	59
ABB Group	7,989	6,054	32%	24%

Revenues by region

($ in millions,			CHANGE
unless otherwise
indicated)	Q2 2021	Q2 2020	US$	Comparable
Europe	2,697	2,217	22%	12%
The Americas	2,284	1,872	22%	19%
Asia, Middle East	2,468	2,004	23%	15%
and Africa
Intersegment1	-	61
ABB Group	7,449	6,154	21%	14%

Orders
$ in millions
8,000				32%
7,500				24%
7,000				16%
				8%
6,500				0%
6,000				-8%
5,500	2019	2020	2021	-16%
	Orders		Comparable growth %

Revenues
$ in millions
7,600		16%
7,200		12%
		8%
6,800		4%
6,400		0%
		-4%
6,000		-8%
5,600		-12%
2019	2020	2021
	Revenues	Comparable growth %

1 Intersegment orders/revenues until June 30, 2020, include sales to the Power Grids business which is presented as discontinued operations and thus these sales are not eliminated from total orders/revenues.

ABB INTERIM REPORT I Q2 2021

Earnings

Gross profit

Gross margin increased to 33.7%, up 140 basis points year-on-year, supported by the revenue growth and structural improvements. Gross margins were higher in three out of four business areas. Gross profit improved by 26% and amounted to $2,508 million.

Income from operations

Income from operations amounted to $1,094 million and close to doubled from the year-earlier period driven primarily by stronger Operational EBITA, lower restructuring related expenses and a positive impact from fair value adjustments of equity investments of $96 million. Results include restructuring activities with restructuring and restructuring related expenses of $18 million, primarily related to Process Automation.

Operational EBITA

Operational EBITA of $1,113 million was 71% higher (59% constant currency) year-on-year. The margin improved by 440 basis points to 15.0%. Three out of four business areas improved their margin, with Motion remaining stable at an already high level. Performance was driven by increased revenues in combination with improved gross margin, the impact from earlier implemented cost measures and general stringent cost control, with additional support from the impacts of exchange rate movements. Selling, general and administrative (SG&A) expenses increased by 11% (4% in local currency), driven by higher sales expenses. However, the ratio in relation

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to revenues declined to 17.6%, from 19.2% in the year- earlier period. R&D expenses increased by 18% (9% constant currency). Corporate and Other Operational EBITA improved by $42 million to -$92 million, reflecting primarily the elimination of stranded costs and our new decentralized operating model. The underlying ongoing corporate Operational EBITA was -$85 million, compared to -$107 million last year.

Net finance expenses

The net finance expenses1 amounted to $21 million, reflecting lower interest costs on debt and lower costs on uncertain tax positions compared with last year. Net finance expenses for 2021 are still expected at

$130 million.

Income tax

Income tax expense was $322 million with a tax rate of 29.0% compared with 24.8% in the prior year. The higher rate is primarily due to timing differences between tax recognition and underlying profit. Tax rate for 2021 is still estimated at 26%5.

Net income and earnings per share

Net income attributable to ABB was $752 million and increased by 136% with last year's second quarter being the period most severely impacted by the pandemic. Basic earnings per share was $0.37 and increased by 150%.

Gross profit & Gross margin

$ in millions 3,000

2,500		33%
2,000		31%
1,500		29%
1,000
500		27%
0		25%
2019	2020	2021

Gross profit

Gross margin (%)

Basic EPS

$ per share

2.20
2.10		‡
‡
0.40
0.30
0.20
0.10
-
2019	2020	2021
-0.10

Income from operations & Operational EBITA

$ in millions
1,200		20%
900		15%
600		10%
300		5%
0		0%
2019	2020	2021

Operational EBITA

Income from operations

Operational EBITA margin %

5 Excludes impact of acquisitions or divestments or any significant non-operational items

ABB INTERIM REPORT I Q2 2021

Balance sheet & Cash flow

Net working capital

Net working capital amounted to $3,251 million, remaining broadly stable year-on-year. However, it increased from $2,904 million in the prior quarter, primarily due to receivables from higher business volumes. In total, the reduction of net working capital in Process Automation partially offset the increase in the other three business areas. Net working capital as a percentage of revenues1 was 11.6%.

Capital expenditures

Purchases of property, plant and equipment and intangible assets amounted to $151 million.

Net debt

Net debt1 totaled $2,259 million, a significant reduction compared with last year's level of $7,615 million and a sequential increase from $1,233 million. The sequential increase reflects the impacts of the share buybacks during the quarter as well as the remaining payment of the annual dividend payment. The net debt to EBITDA ratio1 declined to 0.7 from 2.5 reported for the same period last year, while it increased sequentially from 0.4.

($ millions,	Jun. 30	Jun. 30	Dec. 31
unless otherwise indicated)	2021	2020	2020
Short term debt and current	2,117	6,383	1,293
maturities of long-term debt
Long-term debt	4,375	6,237	4,828
Total debt	6,492	12,620	6,121
Cash & equivalents	2,860	2,518	3,278
Cash and equivalents in	-	609	-
discontinued operations
Restricted cash - current	71	-	323
Marketable securities and	1,002	1,878	2,108
short-term investments
Restricted cash - non-current	300	-	300
Cash and marketable securities	4,233	5,005	6,009
Net debt*	2,259	7,615	112
Net debt* to EBITDA ratio	0.7	2.5	0.04
Net debt* to Equity ratio	0.16	0.61	0.01

* net debt excludes net pension liabilities $871 million

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Cash flows

Cash flow from operating activities in continuing operations was $663 million, a slight improvement of $15 million compared with the corresponding period last year. Three out of four business areas contributed to the improvement which was driven by higher earnings and included a sequential build-up of net working capital reflecting the increase in customer deliveries.

Share buyback program

As approved at the Annual General Meeting, 115,000,000 shares repurchased under the initial share buyback program were cancelled. The total number of ABB Ltd's issued shares is 2,053,148,264, compared with 2,168,148,264 before the cancellation. At the end of the period, ABB holding of treasury shares amounted to 47,370,987 which corresponds to 2.3% of the total number of issued shares of which 28,554,689 have been purchased for cancellation in connection with share buyback activities on the second trading line.

The previously announced follow-up share buyback program of up to $4.3 billion was launched in early April. This follow-up program is part of the plan to return $7.8 billion of cash proceeds from the Power Grids divestment to shareholders. Under the initial program a total of 128,620,589 shares were repurchased for an amount of approximately $3.5 billion. In Q2 a total of 14,934,100 shares were repurchased on the second trading line.

Cash flow from operating activities

$ in millions

2,000
1,000
0
-1,000
2019	2020	2021

Net Cash (Net Debt) position

$ in millions

500
-2,500
-5,500
-8,500
2019	2020	2021

Free cash flow conversion to net income¹, R12M

400%
300%
200%
100%
0%
2019	2020	2021