ABB Ltd
Q4 2020 Earnings Call Transcript

Published: 4 Feb 2021

[Ann-Sofie Nordh:]

Greetings to you all and welcome to this conference call and webcast for ABB's Fourth Quarter and Full Year 2020 Results. The press release and financial information documents were published this morning at 7 A.M. and can be found on our website along with the presentation we will go through here today. Following the presentation we will open up for a Q&A session. With me today to present here are ABB's CEO, Björn Rosengren; and CFO, Timo Ihamuotila. Before we begin, I would like to draw your attention to the information regarding Safe Harbor notices on our use of non-GAAP measures on slide two of the ABB 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.

[Björn Rosengren:]

Thank you, Ann-Sofie and welcome to everyone on the call. I have now been with ABB for almost exactly one year. And looking back it has been a very eventful and exciting year. Let us go through some of the highlights on slide number three. It was a year when we transitioned ABB towards improved performance. We implemented a decentralized operating model. We call ABB Way, making the division the highest operating level. They now have the cost ownership. They drive R&D for profitable growth and they evolve their business portfolios. We launched our 2030 sustainability strategy and updated our financial network in November. And we delivered on the simplification program as achieved targeted net savings run rate of $500 million one year ahead of plan. I'm very confident that the actions taken in 2020 will leverage going forward. 2020 was also a year of the pandemic with dominated the market development. I am thankful for the speed and dedication of the ABB team on how mitigation actions were implemented. The agile response to COVID-19 challenges enabled our organization to prioritize health and safety, while keeping operations running and undertaking strong cost mitigation efforts. After a year like 2020, I'm proud to see the progress we have made in our employee engagement survey. It shows that our employees have more clarity of their roles and responsibilities as well as of our overall purpose of the company. We really saw the culture change gain momentum in 2020. Timo will talk you through the full year numbers a little bit later on. Turning to slide four, we shift focus to the fourth quarter. We saw a continued sequential improvement in customer activity from the low level noted during summer. In total, orders and revenues remained broadly stable year-over-year. The positive impact from mid-single-digit growth in the short-cycle business was offset by subdued demand for services and headwinds in selected end markets such as oil and gas. We secured some larger system order wins for our world-leading Azipod propulsion technology. The machine automation division also closed out the period with an all-time high level of future design wins. This creates a good base to build from after the management change in machine automation division is completed. Revenues were stable, but we still managed to the operational EBITA margin by 140 basis points. And the increase was led by stellar performance in electrification and motion. Synergies from GEIS came in ahead of target $120 million run rate and the integration is now approximately two-third completed.

[Timo Ihamuotila:]

Thank you, Björn, and good morning everyone. On slide 6, I will begin with a review of what in our view was a solid end to a challenging year. On stable revenues, we increased operational EBITA by 12% on constant currency and 16% in U.S. dollar terms. Margins improved by 140 basis points. I'm pleased to see our prompt actions yielding results in margins in the fourth quarter. While other costs were down R&D expenses in the fourth quarter – in our four businesses increased by 3% year-on-year. Looking at below the line items, all divisions carefully reviewed their operations and this shows in restructuring-related expenses at $220 million compared to $99 million the prior year period. Charges mainly related to the future delivery of ABB-OS savings, synergies from GEIS' integration, and planned performance improvement Industrial Automation. The planned actions undertaken to strengthen ABB's financial flexibility and de-risk the balance sheet also weighted on results as did the adjustment to the power bridge book. In total, basic EPS amounted to a negative $0.04. Operational EPS in continuing operations, which adjusts for non-operational items and excludes impacts from the divestments of Power Grids was $0.26, up 20% year-on-year.

[Björn Rosengren:]

Yes. Thank you, Timo. Let's take a look at our short-term, end market outlook on, slide 15. We stick to our base case profile of a protractive recovery. As indicated in the chart, on one hand we expect some of our end markets, particularly in the short-cycle part of the business to continue to recover. On the other hand we expect negative development, to continue in some of our longer cycle business, like oil and gas and conventional power generation. For the first quarter, we also note, that we faced a challenging comparable of orders. This may put pressure on the growth rate in the first quarter, before we expect to return to positive order development in Q2. We foresee a fairly stable sequential market development in Q1, with a moderate year-on-year revenue growth. But I expect us to meaningfully improve margins. Forward visibility is limited. And I would say that, market uncertainty increased, through the fourth quarter, due to the pandemic. At this stage, we foresee revenue growth for the year, broadly in line with our target range. And I expect us to make steady progress in margins and earnings per share, as well as posting a, solid cash delivery. Our base case scenario for gradual recovery of demand remains unchanged. We foresee an estimated growth in our addressable markets of about 5% until 2023. And we should grow at least, in line with our markets in this period. This is not to be compared with the, through-the-cycle growth targets of 3% to 5%. To conclude, on slide 16, let us look at some key priorities for 2021, a year when I expect us to make steady progress in profitability. We have now laid the foundation, for improved performance by implementing the decentralized operating model and improved performance management. We have seen the culture change in ABB gain momentum in 2020. We now need to firmly cement the culture of accountability, transparency and speed. We are already making good progress. Starting with operational performance, I clearly expect us to show good progress towards our 2023 margin targets. Our base case is not a significant market recovery in 2021. And we will continue to execute on efficiency measures. We have additional activities in the pipeline with anticipated restructuring charges of about $200 million in 2021, mainly as automation to improve performance, and electrification to drive the final miles of the GEIS integration. Of course, there are challenges to manage. For example rising raw material costs, increased focus on value-based pricing is one way to offset these increased costs. Still we acknowledge that we are in the midst of a pandemic. And our number one priority remains the health and safety of our people. Active portfolio management is high on our agenda and we have already moved into execution mode on the three divisions to be exited. That said, value creation is the most important for us and we will not go into fire sales. In other words, it may take some time to complete some of the deals. We also expect all of our divisional managers to build a pipeline of potential M&A targets. But also to continuously review the business portfolio with their divisions for potential consolidation. Finally, looking at capital allocation, you heard Timo talking about the stronger financial position and we expect meaningfully uplifting in cash generation in 2021. We will continue to invest in R&D to maintain a leading technology position to drive long-term profitability growth. We expect to spend about $750 million in CapEx. We continue to execute on the share buyback program and the Board has proposed a dividend share of CHF 0.80 in line with our policy to pay a rising sustainable annual dividend per share over time. We are looking forward to an exciting 2021.

[Ann-Sofie Nordh:]

Thank you, Björn. And now we will open up for questions and I can see that there are many waiting and wanting to put questions to Björn and Timo. So we kindly ask you to limit yourself to two questions.

[Operator:]

We will now begin the question-and-answer session.

[Ann-Sofie Nordh:]

Before we move into the Q&A session. I just would like to say that I understand that the operator had some technical issues while sending the pre-recording and just reach out to us in IR to fill out any blanks. And also the recording will be available on its full on our website. So you can also go and listen in there later on. But now we move into the first question and that will come from Martin Wilkie at Citi. Please go ahead.

[Martin Wilkie:]

Thank you and good morning. It's Martin from Citi. The first question would be just to clarify on your growth outlook for the year. You commented, firstly that the market should grow a CAGR of 5.1% through 2023 but you commented I think, we shouldn't compare that to your 3% to 5% growth target. So I just wanted to clarify first, exactly what you mean by that. I think secondly just on the growth for the year. You've commented it should be in line with your midterm target. So is that in line with the 3% to 5% or in line with this 5.1% market growth? Thank you.

[Björn Rosengren:]

Thank you, Martin. I think I'll take that one. Yes. I mean what you've seen during the year is that we're slowly getting recovery. And during the quarter we saw actually flat orders and flat revenues. Moving into next year, of course, we will see a kick back in the markets, which we're looking forward to. And what we're seeing in that guidance here that that the market, short-term might be a little bit higher than over a business cycle which we said in our long-term targets. And what we are saying here that even though we have strong focus on financial performance getting the EBITA to the right level 2023, we are definitely going to grow in line with the markets. And maybe even exceed if we are – things moving. But that's our objective so – on the growth part. So what I think you referred also second question was a little bit this three to five targets. What we're saying a little bit here is that in the end markets where we are and what we expect to do, including M&A, we should be around three to five, but that's over business cycle. So that means both in ups and downs. And we said actually during the Capital Market Day, that we expect the markets to grow. Of course, no one knows yet, but to be 5% during – until 2023 because of the dip. And then we said, of course, we will meet that. So that's a little bit what we say. I hope that explains it Martin.

[Martin Wilkie:]

Yes, it does. Yes. That's very helpful. And then on – one follow-up on that.

[Björn Rosengren:]

Sure.

[Martin Wilkie:]

You pointed automotive is in the gray part of the bar, negative 5% to 15%. I would say a few other companies both in robotics and automation over the past few weeks have been a bit more constructive on automotive. So I just wondered why you thought that was going to be still quite negative for the next three to six months?

[Björn Rosengren:]

Yes. It's correct that we've seen automotive kicking back in many parts. On the other hand, there is a lot of expectation. When you look at the -- fully coming back to this $90 million part, it's not 2021 as we have seen it. It will take a little bit longer. On the other hand, there is a transformation also towards more electric vehicles, which will do there. So from our perspective and what we -- the one who's looking into the future of the automotive industry that yes, this transformation towards e-vehicles might keep people back a little bit from making that full investment, so we are saying that we believe that that would have some kind of impact. If you're looking at how the automotive industry impacts us is mostly in the robotic business. And that's been a very challenging year for the robotics. On the other hand that has come back somewhat. On the other hand, we are focusing more on other segments than those turnkey solutions where there is low ABB content within. So, we see good opportunities in many other industry and that's really where the big focus is today. Logistics, general industry, electronics and just give you an indication on that part. In China, on the robot and squeeze automation we saw a 90% increase during the quarter. So, there are a lot of opportunities in other segments for us.

[Martin Wilkie:]

Okay. Thank you very much.

[Björn Rosengren:]

Yes.

[Timo Ihamuotila:]

Can I just comment Martin just a quick comment for everybody's benefit, I presume you are referring to the slide where it says three to six-month view. Just to clarify that we are talking about here three to six-month view where we still have quite a bit of COVID impact expected in Europe and US. So this is not like a full year thing.

[Björn Rosengren:]

Yes. So if you look at the full year it might be a little bit more optimistic.

[Martin Wilkie:]

Great. Thank you very much.

[Ann-Sofie Nordh:]

Thank you. And we move on to the next question and that will be from Shane McKenna at Barclays. Please go ahead, Shane.

[Shane McKenna:]

Good morning Björn, Timo and Ann-Sofie. Just wondered if you could elaborate a bit more on the restructuring actions taken in IA or I should say Process Automation? And how much of the total group restructuring you guided for 2021 of $200 million is going to be specific for this division. And then I see you've made some comments on the timeline for the sales spin of Turbo. As this business moves out, where do you see the white spaces in IA to plug the margin gap from ETEX? And then I'll squeeze one final one in. How long should we expect this drag from lower margin system solution order in Robotics & Discrete Automation to continue into 2021? Thanks.

[Björn Rosengren:]

Thank you very much. Let me start to elaborate a little bit on my favorite subject the process automation or early call industrial automation. I mean, to understand where we are on that business, you need really to dig into the details and that's quite enjoyable from my side. In those numbers, there is -- first, if you look at the underlying performance of these businesses, it's about 10% margin. So what you're seeing in the numbers that includes the Kusile settlement and then another project in India an old one, which has been cleaned out actually. So that is some part. But when you look at the PA, there are a number of, let's say, divisions that are being challenged mainly on the service business. And this is from my perspective very unusual. When the cruising industry is standing still and no shifts and we're talking about hundreds of cruising ships, which is full with our solutions in is not operating then of course you do much less service. Also in some power plant markets where we have turbocompressors in tourist areas, which has been standing still this is very unusual. So the service business is quite dramatically down compared to the -- actually the product and solution sales. And that is giving a very negative mix. These installations are not going to disappear. They are out there. And as soon as things are opening up from COVID and restrictions are getting down. This business will kick back. So we feel very optimistic about that. More challenging side, I think from the Industrial Automation it is some of those segments, oil and gas as well as conventional power generation. And there we're taking big actions to restructure ourselves. So we will be in line with the demand that are expecting. It will take a little bit longer to kick back on that. So, there is a lot of actions that have been done and is being done during this period. We will expect a coming back a good coming back in margin during 2021. We feel quite comfortable about that especially when the service is kicking back. On the robotics side, yes, we've been -- I mean, the margins there is embarrassing low. If you look at where robot should be, and we have been very clear to that that's the 15% market when we come to 2021. That's the levels where they need to be. So, yes, we have in our orders on hand. During this quarter, some deliveries of what we call these turnkey solution with low ABB content, which have low margin, which is affected. This will be some of that in Q1, and then you will gradually see improving margin because we have pretty good control over our margins of the big orders that we have received during these periods. So in Q2, Q3 and Q4 you see the gradual improvement of that part and you should be -- see also a good kick back in margin for this business during 2021. I hope that explains it. I think Timo you wanted to add on a little bit there.

[Timo Ihamuotila:]

Maybe I'll just drop in a couple of numbers here. So -- hi, Shane. On the restructuring where we say $200 million for the year, so you can look at it in a way that -- bit less than 100-ish in IA related and a bit less than 100-ish in GEIS type of related and rest is corporate and other business areas ballpark. And then I think what Björn meant was that the market is 15%, 2023, when we said we will be well within the margin range at our capital markets for the Robotics business. So just throw that one in there as well.

[Björn Rosengren:]

I appreciate that correction, Timo.

[Shane McKenna:]

Thanks a lot.

[Ann-Sofie Nordh:]

Thank you, Shane. And now we open up for the next question, which will come from Guillermo at UBS. Your line should be open now, Guillermo.

[Guillermo Peigneux:]

Thank you. Good morning, Ann-Sofie, Björn, Timo. I wanted to ask a question on Robotics and Automation, maybe adding short-cycle exposures at ABB. And I guess, obviously, they are Virgin trains now in China, Europe and Americas and I wanted to focus on China. First, how was China doing through the quarter? What, kind of, shape of growth you saw on basically month-to-month basis? And what would you think the environment is at Q1 stage for the visibility you do have at the moment? And then in Europe, obviously, Germany also on I would say sequential flat or if I take comments in the right way, but how did it evolve through the quarter? And what would you think about the sequential development I guess in Q1? Thank you.

[Björn Rosengren:]

Thank you, Guillermo. Yeah, let's start with Robotics in China is as I mentioned before there it was quite -- actually Robotic part was actually 95% improvement compared to last year. So it's quite dramatic. We have a strong robot position in that market. And, of course, a lot of good orders from the electronic industry, which has helped us great there. So I think the whole year has -- or let's say the last half year has been gradually improving on the Chinese market. And you saw also our Robotics side now was actually if you put back our Robotics & Discrete Automation, if you put back the $50 million adjustment in orders is actually flat compared to the year before or 2% improvement actually from previous years. So finally we are moving into the right direction. Europe is trailing a little bit I would say. And Germany is an important market there, and it's quite heavy lockdown at the moment. So we feel that there are effects from that. On the U.S. market on Robotics, we are not that strong. We have quite a weak market share and a lot to be done there. So we're not really benefiting from big kick back there in the automotive industry in the North American market. But I think the important thing from Robotics for the year we've done a great job during the year to put that business in relation to the demand in the market. We spent more on R&D than we've done ever before. And we are actually launching a whole new range of collaborative robots during the first quarter now in February where we are quite excited about. So I think robot -- my belief is that robots will be a good contributor going forward.

[Guillermo Peigneux:]

Thank you. And if I may follow-up on Robotics again. On the China you planned -- could I have basically a full stick on how is that developed and the ramp-up a bit? Thank you.

[Björn Rosengren:]

Yeah. Just on the factory there, I mean, the factory construction is going on. And we -- from the beginning we had an objective to have ready in 2021. But I think it's rather be 2022 that it will be finished. And it will be the world's largest, most modern Robotic factory in the world. So that's going to be a good support to the Chinese market, which is really doing well at the moment for us.

[Guillermo Peigneux:]

Thank you so much.

[Björn Rosengren:]

Thank you.

[Ann-Sofie Nordh:]

And the next question will come from Mattias Holmberg at DNB. Your line should be open, Mattias.

[Mattias Holmberg:]

Thank you, and thanks for the time. I'm sorry to get back to this, but I still don't fully understand the 2021 guidance, when you say you expect the comparable revenue growth to be in line with the target, which I then interpret as 3% to 5%. You also say that you expect the market to grow above 5% in 2023. So is this that you expect to grow less than the market in 2021? Or is it that you anticipate growth to be back-end loaded so less than 5% in 2021 and above 5% market growth in 2022 and 2023?

[Björn Rosengren:]

I've been trying to make myself clear, but let's give Timo a chance if he's a little bit clear than I am.

[Timo Ihamuotila:]

All right. Yes. Thanks, Matthias. So as we are saying, the visibility to the short-term part of the market is not exactly stellar at the moment. We can all understand that. And in our case, especially as Björn said, it depends quite a bit also on how the service business is coming back. So we are saying that at the moment because we are saying this 3% to 5% range. We expect the growth to be at this point in time for 2021 slightly lower than the five year -- 5% for the three-year period i.e., a little bit lower growth now in the beginning and then picking up later. Of course, as Björn also said, if we see a better market this year we are expecting to grow with the market or better. So it could be better as well. And that's why we say also broadly in line. So I don't think these are in contradiction, but that's our expectation now going into the year with this visibility.

[Mattias Holmberg:]

That's clear. And one more. Beyond the support you expect from volume recovery, can you elaborate a bit on the most important items that you believe will drive the margin expansion year-over-year in 2021?

[Björn Rosengren:]

Yes. I can do a little bit on that. I mean, this is of course the big focus and the whole setup and the foundation that we have been building during this year. And I think that's gone really smooth actually. We have the new setup that decentralized with the businesses with full accountability. We introduced a scorecard system which is a performance management. There are thousands of activities out in the different businesses that is actually driving continuous improvements in the businesses. We take as you see in a lot of restructuring costs also during this quarter and this year. And then, of course, our operations is getting a better fit going forward. So this is everything from pruning portfolio to closing factories which we are doing in many parts of the world as well as improving pricing and other activities. So we are driving them. And then we think that the targets that we have set up we are of course fully committed to them. And I think it's important from our perspective that you will be clearly seeing an improvement in the right direction starting 2021. So coming from a challenging year we're looking forward to an exciting 2021 for ABB.

[Mattias Holmberg:]

Thank you so much.

[Ann-Sofie Nordh:]

Thank you. And then we follow-up with a question from Ben Uglow at Morgan Stanley. Please, Ben. You on the line?

[Ben Uglow:]

Yes. I am. Good morning, everyone and hope everybody is safe and well. So apologies for laboring the point on robotics, but I wanted to understand exactly how the team are thinking about it in terms of direction. If I look at the information that was given at the Capital Markets event in February. If I simplify it the overall market -- addressable market for robotics was quoted at just under $20 billion of which roughly 20% -- $3 billion or so was basically EV and the ICE portion going down. Am I correct in assuming that what you guys think is that the addressable market overall for auto robots would come down? EV grows, but ICE comes down more. So that's the first part of the question. The second part is if that's around half of what you do in the division is your assumption that you can kind of offset that with electronics in the general industry. Is that the right way of thinking about it?

[Björn Rosengren:]

Well, Ben that's pretty detailed. When we look at the automotive industry, we're saying that the EV part of that business is increasing gradually, it's going to be doing -- there we have, of course, a very strong position in most of these installations that are coming. So I think that will support us towards the -- to the automotive industry. What we have done which I tried to be clear is that we take a little bit more cautious look on the automotive when it comes to this turnkey solution where we have very few. So that's holding it down. So we, of course, see good opportunities in other segments, which is actually moving quite dramatically. And we believe that that will compensate for the lower sales within automotive industry. So yes, we are quite optimistic on that. But it's a combination here that the margin on that low automotive side will be compensated with a higher-margin business from other segments. That's the importance. And that's how we're going to get back to the margin corridor also for the robotics. So I don't know, if I was clear enough there. But I'd be happy to give you a little bit more from Sami there. We can connect you a little bit there into the details on the automotive side.

[Ben Uglow:]

No. Thank you. I understand directionally how you guys are thinking. And one follow-up for Timo. Timo, I wanted to make sure I properly understood exactly what you guys are communicating on the cash flow. In the press release, the point that's made in the cash flow section is that ex -- the sort of one-off effects this year your continuing cash flow as I understand it would have been $550 million higher. So just doing sort of back of the envelope basic math. If I take the $1.875 million of continuing cash flow and add back the $550 million. On a pro forma basis, am I correct to assume that our sort of starting point for cash flow this year is about $2.4 million, $2.5 million? Is that the right understanding?

[Timo Ihamuotila:]

Thanks, Ben for the question. No, I actually think you are a little bit too conservative there.

[Ben Uglow:]

Okay.

[Timo Ihamuotila:]

Because we are also saying that our restructuring, which is of course in kind of like both of those comparable numbers '19 and '20 goes down further $200 million. So if you turn that to cash, you would add $200 million into the cash and then we're also expecting as we discussed earlier some growth and also profit improvement, which would also drop down. So it should be better.

[Ben Uglow:]

Understood. Okay. But just pro forma for last year, our starting point is $2.6 million or thereabout ex any organic improvement basically. And then we have $750 million of CapEx approximately to give us our free cash flow. Is that a fair way to think about it?

[Timo Ihamuotila:]

Yes, I would say $2.6 million, $2.7 million and then CapEx.

[Ben Uglow:]

That’s very helpful. I can see my model now. Thank you very much. All right.

[Ann-Sofie Nordh:]

Thanks, Ben. And now we see Daniela Costa from Goldman Sachs. Are you on the line, Daniela?

[Daniela Costa:]

I’m on the line. Good morning. Thank you for taking the question. I'll ask three quick things. First, I mean, we've been hearing a lot about like shortages of semis and other components in high transportation costs and a lot of inflation. Can you elaborate like within your margin view for 2021? Kind of how is the balance between this inflation on ROCE cost and pricing? Can you help….

[Björn Rosengren:]

Daniela, please, I didn't really get your first part of the question. I understand some of the raw material you said, but you started the question with what?

[Timo Ihamuotila:]

I guess semiconductor component?

[Daniela Costa:]

Yes.

[Björn Rosengren:]

Okay. Yes. I mean looking forward, we mentioned in a couple of places in the press release that there are raw material increases that there will be some headwind going into 2021. We've been quite well hedged at the moment. And this will gradually work itself in. We of course, our business taking mitigated actions not least when it comes to value-based pricing, which is being quite active at the moment. Of course, in a lot of other restructuring -- restructuring efforts that are been taken. So from the margin perspective, I think you should look at following. Where are we today? Yes. I mean if you add back Kusile and some of that non-core things on the part, our basis is about 12% running rate margin for the business. Then 2023, I have promised -- the other one I promised is within a corridor, but I promise 15%. So you can see that gradually, we should see moving equally in the direction towards the target of 2015. So you should clearly see that we are moving the right way when we are moving out of the next year. I don't know if I can be more clear in my guidance without telling you a number.

[Daniela Costa:]

Okay. Sure. And then just a question on the recovery, we're starting to see on electrification. I was wondering if you could comment on distributor inventories whether there has been any restocking or visa versa?

[Björn Rosengren:]

No. I mean, electrification is a great story coming back. And China is one of the strong driving – very, very strong driving force for the electrification business. So that developed a little bit better both when it comes to the growth number as well as the margin number, which is quicker -- which is quickly coming there. So yes, I think they are on a good way towards the margin corridor which they have committed to. We feel comfortable about that business.

[Daniela Costa:]

Okay. And one final question. Going back to the CMD in terms of the three businesses that are under divestment. I think you've mentioned one could have potentially be -- could potentially be a spin. But given the taking slightly longer to maybe sell them why not just spin them off?

[Björn Rosengren:]

Yes. But no, I don't think we're taking longer term. I think we were pretty clear on that. But these three businesses are really high value business, well-performing in the market. But the only thing we said that, we are not going to have any fire sales here or any COVID discount on these businesses. So we're going to make sure that we get full paid for them. And the first one which has been extremely resilient in the downturn that's still performing fantastically during the whole COVID that is the Dodge business that's why we say that that is probably the first one that we -- and we have actually started the process. We should be doing that during the first half year somewhere there. There is of course, separation work that needs to be done and takes a little bit of time and we need of course our support from the advisers also to move it. But there is a big interest for this business and we start. The second one will probably interpret charging, which is also a very strong business even though they have some effect from the service business which is 75% of that business, a lot in the cruising industry where they have a lot of turbo on the engines on the vessel engines. That's been hampered a little bit. So we want to see that business coming back a little bit. So that business will be fully valued. Then we don't really know if that is going to be spin-off or if we do sales of that one. That's a later decision that we will take.

[Daniela Costa:]

Understood. Thank you very much.

[Björn Rosengren:]

Thank you.

[Ann-Sofie Nordh:]

Thank you, Daniela. And we'll finish off with a question from Andreas Willi at JPMorgan. Please.

[Andreas Willi:]

Good morning everybody. Thanks for your time. I have two questions please. The first one on machine automation B&R. Maybe you could talk a little bit more about what's going on there. We've had the management change at the end of the year. We had the goodwill write-down in -- which we already discussed in Q3, yet this order reversion now in Q4 what's not going right there that you want to put right now with new management? And the second question is on price cost, particularly in electrification but probably also on the motion side. You mentioned the raw materials. Are we going from kind of a net positive you had in the second half of 2020 where prices were resilient raw materials were down to more of a neutral? Or do you expect actually to see a temporary negative price cost in the first half of 2021?

[Björn Rosengren:]

Okay. Let me start with the B&R. Which is a great business, where we've also seen a fantastic recovery during the last quarter when it comes to orders. So that looks quite exciting. Yeah. We took some goodwill right off during that period. But maybe you remember this has been part of the transformation of ABB we're doing. All the goodwill was earlier centrally in the group. And we still have a lot of goodwill left here for all the businesses that we are not really selling. And now when we move the goodwill out into the business is because we want the business to carry the goodwill from their acquisition. We think that makes good sense. Then there was some goodwill which was not really related to the B&R business, it's actually to another acquisition we did earlier. And then we have the opportunity to of course offset that and write that off. So that's no negative to the management of the B&R people. So they are totally free from that. On the order reverse side, yes, it's correct. We are changing the manager. And hopefully next week we'll come out with a press release who will be the new head of that business. But the orders on hand these are orders that were in the order book since long before and that is actually being reversed. It's not even order that we received last year, but even further back. Now we are taking that out of the book because that would not be delivered and that was $50 million. So that is hitting them. So I wouldn't blame the management for any of these 2. Maybe on the order side that could have maybe been cleaned up. But I think it's fair for the new guy who comes in to -- when he runs this also that the orders on hand are fresh and sound. That's part of it. But yes, we think the B&R business you know from my perspective when we talk about this business. This is a business we should be -- we're growing that business, but it should also be more profitable than we are today. And I think we need also to have a management to have the same ambition on this, and I think we will have that now we'll take it to the level where it deserves to be. But otherwise, I think we're in a good position. And as I said in the report, we actually had a lot of wins when it comes to new OEM customers during the quarter. So, finally we're getting some tailwind on this business also now. It was a little bit challenging in the beginning of the year when the COVID was hitting. But we're pretty optimistic for the year to come. Does that explain it, Andreas? Is that good enough?

[Andreas Willi:]

Yes. Thank you. And on the price cost?

[Björn Rosengren:]

Yeah, on the electrification, yes, it's correct that last year we reported that the price increases had a good impact of course in the improvement during the year. We've seen many of the mineral prices going up during the year, which is fantastic for the mining business -- for being an old mining guy, it feels always good. But yes, for us, we have a lot of coppers in our products, both in electrification and in motion. It will have a negative effect. We're already seeing that, but we are hedged -- we are well-hedged for this year, last year and in the beginning of this year then you will see it gradually come into the year. So they have been more aggressive start of the year to make sure that our pricing is in line to cover this. There is a risk, of course, that this will have a -- not as a positive thing on the price comparison there. There might be some negative effects on the results from pricing compared to pricing input from materials side there for the year. But that is of course, going to be compensated by the integration of GEIS and all the efforts that are being done by closing factories and getting the product portfolio approved and so on. So, we should continue to see good profit improvement of that business in line with -- as we move forward.

[Andreas Willi:]

Thank you very much.

[Björn Rosengren:]

Thank you.

[Ann-Sofie Nordh:]

Thank you. And with that, we close this session. Thank you for your attention. And if you have any additional follow-up, please reach out to us in Investor Relations. And we, all that remains, just wish you another good quarter until we see you next time.

[Björn Rosengren:]

Thanks a lot all of you.

[Timo Ihamuotila:]

Thank you.

[Operator:]

Ladies and gentlemen, the conference is now over. Thank you for choosing Chorus Call, and thank you for participating in the conference. You may now disconnect your lines. Goodbye.