ABB (SIX Swiss: ABBN) Q3 2026 Earnings Call

0:00 Industries are the beating heart of our world. They move us, supply us, shelter us, power us, connect us. They improve our homes, our cities, our environments. And behind them all is ABB. Electrifying. Automating. Partnering with our customers to keep them not just running consistently, but running more productively and more efficiently. To constantly outperform. At ABB, we call this OutRun.

0:49 And it's how we help industries become leaner and cleaner. ABB. Engineered to OutRun. Industries are the beating heart of our world. They move us, supply us, shelter us, power us, connect us. They improve our homes, our cities, our environments. And behind them all is ABB. Electrifying Automating Partnering with our customers to keep them not just running consistently, but running more productively and more efficiently.

1:41 To constantly outperform. At ABB, we call this OutRun. And it's how we help industries become leaner and cleaner. ABB. Engineered to OutRun.

8:04 Greetings and welcome to this presentation of ABB's third quarter results. You will hear from our CEO, Morten Wyröld, and also from our CFO, Kristian Nilsson. And they will talk through the results as per usual. And after this, we will open up for a Q&A. I'm Ansa Fenod, Head of Investor Relations. And with that, let me hand over to you, Morten, to kick off the presentation.

8:30 Thank you, Ansi. In the third quarter, we continue to see a strong market, with orders once again reaching just above 12 billion. I would say that we perform well in a vibrant market. When it comes to our operational performance, we progress more or less as planned and guided for, a good mid-teens revenue growth. And the 20.8% operational EBITDA margin is the strongest Q3 margin ever for ABB. And the same is actually valid also for the EBIT margin of 19%. We continue to generate a standout return of capital employed, which was at 29.9%. And I expect our business to continue to improve and support ROSI.

9:16 We have said that we will deliver more than 20% return on capital employed also when we start making more sizeable acquisitions. And speaking of acquisitions, following the road torque announcement in July, we today announced further capital allocation toward M&A. We will take a 51% ownership in a joint venture formed with Mitsubishi Electric's low-voltage power distribution business. and we also have a clear mid-term path to full ownership. This deal makes us the low-voltage market leader in Japan and one of the world's largest electrification markets where we have had limited reach until now. We also view this as a door opener for growth across Southeast Asia to markets like Malaysia, Thailand, Vietnam and Indonesia.

10:06 On the product side, they bring circuit breakers, motor starters, contactors and control devices, and beyond that, energy measurement and monitoring equipment. The product portfolios are similar and we can apply a best of both worlds integration principle for platforms and technology. The Mitsubishi business coming into the JV has around 2,800 employees and in fiscal year 2025 it generated around $640 million of revenues with a low double-digit EBITDA margin. In terms of performance improvement, it will be similar to what we successfully did with the GE industrial solution acquisition.

10:51 We will drive profitability by expanding sales through combined channels and we will introduce ABB products and technology to Mitsubishi Electric's customer base. We aim for the JV to be running at an operational EBITDA margin of at least 20% five years after deal completion. The transaction values the new company at an EV of around $890 million. This translates to EV over sales of 1.4 and EV over EBITDA of 11.1 based on 2025 actuals. Performance is initially low in the JV. Hence, multiples paid are at a meaningful discount to ABB, even before we are counting for synergies.

11:36 When we include the expected synergies, the EV over EBITDA multiple reduces into the mid to high single-digit range. We see strong returns on this deal, with internal rate of return well above our cost of capital. And we expect the deal to close during the second half of 2027. Another significant milestone this quarter was the launch of the Infinitus Direct Current Portfolio. This new portfolio enabled us to support AI data center customers across the full spectrum of DC architectures from source to rack. It spans across the wide space localized DC designs to native centralized high density architectures.

12:22 But DC is not new to us. We started our R&D investments into solid-state technology already 15 years ago. But at that time, it was aimed at marine applications. Now, there are multiple examples where direct current solutions drive the industry forward, like in rail, renewable energy, microgrids, and now also in future AI data centers. We decided to invest early in DC, because the technology solves real customer needs. First, it enables higher power levels, it facilitates data center rack densities to shift up to 1 MW, and facilities can scale from 200 MW to 1.5 GW.

13:08 Second, DC is more energy efficient. Fewer AC-DC conversion stages mean lower energy losses. A 500 MW data center shifting to DC architecture can reduce conversion losses by more than 5%. This would save almost 200 GWh annually. That's the electricity consumption of 60,000 European households, or some tens of millions of dollars in cost savings. For a 100 MW facility, a 5% improvement in energy efficiency can free up additional 5-6 MW for token generation. This is worth close to $100 million in potential annual revenue for the operator. Our portfolio is built on the concept of five modular building blocks.

13:59 This allows our customers to select and combine what they need to construct a complete system. This means we can support diverse data center topologies from hybrid transitional architectures to optimized target design. The building blocks span the entire power path from medium voltage grid connectivity or behind the meter generation to DC conversion and distribution to power protection systems and cooling optimization. The modularity is critical because the transition to native DC architecture will be staged rather than immediate. And we talk about four distinct design phases.

14:45 I've said earlier that we view the sidecar as an interim solution. And we rather expect the economics of centralized DC architectures to ultimately drive customer decisions. And with the Infinitus portfolio, we are ready, including our solid-state transformers available to order in the second half of 2027. That said, there will be no universal architecture. The market will evolve across a spectrum, and with the Infinitus portfolio, we can serve every segment. When you compare the localised DC with the centralised design, labelled 2 to 4 on this slide, it is visible how the weight of the electrical power infrastructure shifts from the white space to the grey space.

15:35 We believe that in the target DC architecture, as much as 75% of the spend on electrical power infrastructure can be linked to the grey space. This compared to about 55% in a legacy AC architecture. The gray space already represent the majority of our data center exposure today. And the shift towards centralized high density DC meaningfully expands our addressable scope. And another proof point of our DC capabilities is our partnership with Ferrari Hypersail. We will support Ferrari Hypersail with expertise across marine power, DC technology and advanced electrical systems.

16:22 Our solutions will be installed on their 100-foot oceanic full-foil monohull yacht, powered by renewable energy. The DC architecture will function as a high-performance, self-sufficient microgrid with systems operating at 48V and 800V DC. The vessel is designed to bring together speed, resilience and safety with onboard energy generation and management in one of the most technically demanding environments. Yet another DC happening in September was the report we published in collaboration with BCG. The report makes the case that direct current technology is moving from the periphery to the centre of industrial, commercial and digital infrastructure.

17:09 The future of power distribution is not an either-or choice between AC and DC, but a hybrid system that combines the strengths of both technologies. AC and DC each have important roles to play and together they can help build a more efficient, resilient and future ready electrical system. Now let's turn back to the third quarter results. I already mentioned the order intake of 12 billion. This reflects a comparable increase of 40% from last year. and we're in a good market situation for all three of our business areas. Orders were supported by strengths across our entire portfolio, meaning short cycle products, service, as well as the project and system businesses.

17:59 And we saw orders increasing in the majority of our customer segments. Data Center was the standout, delivering triple digit growth with no signs of demand softening or capex hesitation from our customers. But there are some softer areas, and similar to previous quarters, we see low customer activity linked to process industries and residential buildings. But I let Christian go into segment details when he talks through each business area. In total, book-to-bill reached 1.24, and the order backlog expanded to just about $32 billion, almost equivalent to 2025 full year revenues. There is always a mix of short and long cycle, but naturally it is the project and system business that predominates in the backlog.

18:51 As you know, we have had very good order intake from segments like data centers, marine and rail. These are businesses with long lead times, skewing mix in our backlog further toward longer delivery times. So mix in the backlog is one thing to keep in mind. The other is production capacity. We have an overall good position and you often hear me talk about our strong delivery track record. This is important to us and we are investing incrementally as you have seen in our announcement. CAPEX is tracking at a higher level of around 1 billion. With demand having been so strong in the last 12 to 18 months, some products lines are now approaching high utilization, mostly so in electrification, until ongoing investments gradually becomes fully operational during 2027.

19:45 All three business areas contributed to comparable revenue growth of 14%. Volume expansion was the primary driver, complemented by net pricing realization of just about 2%, a stronger contribution than in Q2. And we saw double digit improvements for both the short and long cycle businesses. Looking at the different geographies, comparable orders were up by double digits in all three regions. The Americas continues to be the strongest growth driver and increased by 70%. This was driven by the US, where orders were up by as much as 82%. This high number includes large bookings, but base orders were very strong and improved by about 50%. Europe was up by 10%, supported by increases in most of the top 10 markets.

20:41 Asia-Middle East Africa improved by 29%, with China up 25%. China orders increased in all three business areas, with strong double-digit growth in both electrification and motion. Now we turn to earnings, which reflect both favorable market conditions and a strong operational execution. We improved operational EBITDA by 24% to $2 billion, up in all three business areas. And as I mentioned in the beginning, a group margin of 20.8%. Operational leverage on higher volumes was the main contributor to our improved result. The solid price execution and the forever ongoing efforts on continuous improvements compensated for inflationary cost impacts and higher spend on R&D and SG&A.

21:36 We reduced expenses in corporate and other and losses were lower in the e-mobility business. All included a job well done by the team and we keep moving in the right direction. That said, while we improved business performance, the earnings per share of 65 cents actually reduced by 2% from last year. There are two main drivers to this. The first being a non-cash unrealized FX hedge linked to the ongoing Rotorq acquisition, which weighed on earnings by about 115 million. And depending on FX movements, we may have some additional volatility in finance net until we close the deal in the first half of 2027. Secondly, we had a lower result in discontinued operations.

22:26 This is, of course, linked to the ongoing separation process in the robotics business. We are working towards our ambition to complete this divestment by the end of the year. And with that, I hand it over to you, Christian.

22:41 Thanks, Morten. So let's take a look at what happened in the different business areas, starting with electrification. Demand remained persistently strong and drove order intake to a new record of close to $7.7 billion. This represents a standout increase of 70% from last year. But it was also up from the already high level of second quarter. So what drives this exceptional demand? The segment trends have not really changed from what we've seen earlier in the year. The data center segment stood out again with a triple digit order growth with no signs of slowing customer activity. That said, it is a tall order to expect triple digit growth in each quarter going forward.

23:26 It may be as simple as impact of timing of order bookings and also the base is getting rather sizable. But electrification is not all about data centers. It was very encouraging to see ordered growth excluding data center reaching the high teens level. And all our large customer segments in electrification grew at a double digit pace. To mention a few, we saw a strong increase in the utility business with investments going into the grid refurbishment and expansion. Orders in the building segments was up due to strong commercial demand. It improved also in China, where we performed well in an otherwise bleak commercial building market.

24:12 We have executed well in areas like high-end hospitality, as well as niche-backed public funding like healthcare and education. Turning now to revenues, which amounted to $5.4 billion. the very strong comparable growth of 21% was above all supported by higher volumes. But the team did a good job on pricing, which contributed with around 3%. This is a stronger contribution compared to Q2, so a good realization trend. And it was encouraging to see that pricing now broadly offset commodity inflation. The strong revenue growth with added contribution from continuous improvement efforts converted to 27% improvements in operational EBITDA to $1.4 billion.

25:04 And the margins was up by 110 basis points to 25.6%. Again, new records for electrification. All included a great performance by the team. Now, looking at the fourth quarter, we expect comparable revenue growth to be in the high teens to low 20% range. And while we expect a repeat of the usual seasonal pattern of sequentially softer margins in Q4, we anticipate a slightly softer drop compared to the historical average of around 150 basis points. Now we turn to motion where order intake of $2.5 billion corresponded to a strong comparable growth of 12%.

25:50 This improvement was driven by the short cycle business with large order declined from last year's high comparable. Similar to previous quarter, we saw strength in the grid related investments. HVAC for commercial buildings and data center cooling as well as food and beverage also contributed to the growth. A more stable trend was noted in oil and gas, and while there may be quarterly differences, I would say that process industry related demand in pulp and paper and chemicals continues to be overall muted. Turning now to the revenue at 2.3 billion, which grew by 9%. The increase was mainly driven by strong demand in the short cycle business, while we also executed on the order backlog.

26:39 Main driver for revenue growth was higher volumes with added contribution from a solid price development. In Motion, we also had about 2% revenue contribution from M&A. As in recent quarters, profitability in Motion was under pressure despite the positive impact from higher volumes. Year on year, the operational EBITDA margin declined by 100 basis points to 19.1%. Our Gamesa Electric acquisition hampered margins by about 40 basis points, still operating at a small loss. Pricing was robust, also in motion, and we were able to offset commodity inflation in absolute terms, although still with some margin dilution. For the fourth quarter, we expect motion to achieve comparable revenue growth similar to the Q3 level.

27:30 And in contrast to the usual pattern, we expect operational EBITDA margin to slightly improve sequentially. The stronger-than-usual quarter-on-quarter development is supported by improved operational performance in the project and system business, where we've had some inefficiencies earlier in the year. Next, we turn to automation, where orders remained stable versus prior year, at $2.1 billion. The order number is sequentially lower, but this is more due to timing of order placement rather than a real change in underlying customer activity. We still see good demand linked to our offering for higher energy efficiency and energy resilience. Demand for marine and ports electrification and automation remains high.

28:17 And we see improving market sentiments linked to discrete automation in the machine building segment. Order growth rates were strong, although still on a fairly low comparable. Demand in the oil and gas segment is generally robust, bearing weakness in the Middle East. Similar to what I mentioned for Motion, we continue to see bleak process industry markets for chemicals and pulp and paper. Orders in mining remain muted in the quarter. But our colleagues are mentioning that they sense some initial improving sentiments in the customer interactions about future mining projects. Early days, so let's see and follow up on this one.

29:02 Nuclear is a small segment for us, but an area where we see high customer activity. Revenues reached 2.1 billion, up 5% on a comparable basis. The improvement was driven across the spectra of backlog execution, product business and service. Despite gross margin pressure from items like unrealized FX and commodity derivatives and some cost inflations, the operational EBITDA margin improved to 14.8%, up 90 basis points from last year. The margin improvement was driven by solid execution of the order backlog with an increased profitability. and also a stringent cost control in SG&A and R&D, which reduced in relation to revenues.

29:51 For automation's fourth quarter, we expect a low to mid single digit comparable revenue growth. And we have the ambition to keep the operational EBITDA margin broadly stable from Q3. This will be a stronger outcome than the usual pattern of a sequential drop in Q4. Looking at cash flow, it was another solid quarter with free cash flows of $1.6 billion, supportive to our strong free cash flow margin trend. The slight year-on-year increase of 2% was driven by higher operational earnings in continuing operations. We also kept disciplined in our trade networking capital management with no material cash impact.

30:38 This was partially offset by somewhat higher capex spend and the lower cash flows in discontinued operations. But all in all, it was a good cash quarter. So far this year, we have generated $3.7 billion in free cash flow. We expect good business-driven performance also in our fourth quarter, and we received the cash contribution of around $300 million linked to the real estate sale we just announced. We are well on track towards improving free cash flows from last year's 4.6 billion. And with that, I hand it back to you, Morten.

31:15 Thanks, Kristian. So let's finish off with the outlook. For the fourth quarter, we expect comparable revenue growth to be broadly similar to the third quarter. When it comes to the operational EBITDA margin, we have a seasonal pattern of a softer Q4. We expect a sequential decline also this year, but slightly less than what we normally see. Note that this guidance does not include the positive one-off link to a real estate sale we just completed. This sale will trigger a gain of about 240 million Swiss francs, booked in the fourth quarter. This results in a slight upgrade for the full-year 2026 guidance. We now call for comparable growth to be in the low teens range, and we expect the reported operational EBITDA margin to improve by at least 270 basis points from 2025, including real estate sales. So, now Ansi, let's open up for questions.

32:14 Yes, we're ready. Let's do it. But first, a quick reminder for those of you who have dialed in on your phones, please press star 14 to register to ask a question. And also remember to mute the webcast when your line is opened. We also as per usual, we kindly ask you to limit yourself to one question at a time. This is so we can allow for as many of you as possible to be heard. But you can also put your questions through the online tool in the webcast and I will then voice them over from here. And with that, let's take the first question and we open up the conference call line for Will at Kepler.

33:00 Are you with us, Will? Yes, very good morning to you. Thank you. My question would relate to the strength of the order of intake in electrification, specifically around data center. We've seen two quarters above 100 percent or above 130 percent in North America. What levels of risk control are you putting in place to ensure the durability of the orders and to ensure there's not elements of preordering or orders that may fall subject to cancellation in the event of a change in the economic conditions?

33:36 Thank you. Thanks.

33:38 Thanks, Will. First of all, when we do the normal risk approach when it comes to customer assessment before we take the order, most of them also come with a significant advance payment or clear cancellation policies. which is part of how we do with every large project at ABB. We have to remember also that these data center designs, even if they are standard products, they are not kind of standard solutions. It is still engineering involved. It means that the order is for a specific site which already have a permit to have a grid connection, who have kind of the funding in place to be built.

34:24 And that's the when we get the order, then it's all about execution. And as we said, lead time can vary from 12 to 24 months. And that's more depending on really on the project when they want the delivery on site. We are normally not the limiting factor when it comes to the to the lead time. So that's kind of how we look at it. We do not see any preordering. and I don't see any kind of build up for something which is anyway build to a site. So it's very difficult to handle this by pre-ordering as well. Thank you very much.

35:03 Thanks, Will. We open up for the next caller, James from Rothschild. Yes, good morning, everybody. Hi, Morten. I wondered if, well, encouraging to hear your comments on data centers and that you see no sign of slowing customer activity. But I wondered if I could ask your thoughts on the wider equity AI ecosystem market debate and concerns that are going on. And specifically, we've got this known path of AI supply ambition with huge amounts of gigawatts and an ambition from hyperscalers to build those. And I could see A PATH TO ORDERS INCREASING AND THE DESIRE TO CONTINUE THOSE STARTS AND COMPLETELY EXISTING AND THE ANNOUNCEMENT NOT YET STARTED BUT ON THE DEMAND SIDE OF THE EQUATION WHERE YOU LOOK AT THE MODEL PLAYERS AND HYPERSCALER PLAYERS, DO YOU LOOK MUCH AND THINK MUCH ABOUT WHAT KIND OF RETURNS AND DEMAND THAT SIDE OF THE EQUATION IS SEEING WHETHER IT'S SUFFICIENT TO SUPPORT THE KINDS OF INDUSTRY CAPEX LEVELS THAT WE'RE HEADING TO?

36:10 Well, of course, we discuss and talk with our customers like the hyperscalers about their both financing models, but also their revenue models of the future and the confidence there. And I think what you mean, you can hear that directly from them as well. The confidence there that these investments that is being made now will have very solid returns. And that's you see also with I often say that the hyperscaler or the data center industry do have deeper pockets than most standard industrial customers when it comes to getting those grid connections. For me, it would be the discussion longer term that we see. If you're running out of grid, who will take that capacity?

36:57 You have a choice between decarbonization of industries or building data centers. That's more of the industrial debate that is happening in many countries. So I think what we are doing there is to help building these data center much more energy efficient and that you can do more with less and at the same time helping more energy and electricity supply to come online. I think that is the part of the equation for the coming years. We will see more much more investment where hyperscalers and the whole data center industry will take a bigger part also bringing equity or capital into the electricity power generation because in the end there will be not enough free capacity to pick up. and therefore you would also need to have more grid expansion.

37:43 We see that especially in the United States with a lot of LNG and other grid expansion activities happening and I think we'll see that also here in Europe in the coming years and that again it's a sweet spot for ABBM where we play so that's kind of how I see it and therefore I'm I'm confident when it comes to the longer-term developments of this market. But both the demand and the supply side needs to be part of that discussion. Thank you.

38:20 Thanks, James. And we open up for Magnus at Nordea. Magnus? Hi, Morten Kristiansen, Magnus here at Nordea. I think we delivered a very solid 85% growth in the backlog in electrification in the quarter and you're guiding for very explicitly revenue growth into the fourth quarter. But looking beyond, what limits your backlog conversion into 2027? Is it more about your own capacity or is it the customer's ability to take deliveries? Or how should we think about the backlog conversion and revenue growth into next year? Thank you.

38:55 Yeah, thanks. I mean, I can start. We come out in January when we do our fourth quarter. We'll come also with a full year 27 guidance. So I leave it at that part till then. But what I can say is kind of how we are dealing with the capacity build out and electrification. And it is It is a mix here of how we bring new capacity online and you've seen with a higher capex spend where a lot of that has been allocated of course to electrification with a factory and manufacturing build-out. You may see quite a few news stories you know where are ribbon cutting and groundbreaking over the last years. And those are investments now coming online. And that's why you see a higher revenue in electrification business.

39:41 And it's a mix here of what is our own capacity but it also has to do with the customer side. It's not just we are very seldom really the bottleneck when it comes to deliveries. You know, like a data center we talked about, when that is being built, it's both the construction work, but also a lot of other equipment like power transformers that goes in here, gas turbines, and those are more longer lead items than what we do as ABB. So we are very seldom kind of the limiting factor there for the build-out of projects. Thank you very much.

40:17 Thank you, Magnus. We have a question here via the online tool regarding CAPEX. It's from Frederick at SEB. He says, given the growing backlog and high utilization rates, could you please update us on expected CAPEX profile for 27 to 29?

40:34 That's for you, Christian. Yeah, the capex plan for this year is around the one billion, as we have communicated in the past. And we don't expect that to grow significantly as we move across the next few years either. So this is really a good level for us. And as a reminder, of course, this has grown quite a bit since some years back, but around the one billion or so is still the target.

40:58 Very good. Then we open up for another question from the call. It's from Andre at EUBS. Andre, please. Yes, hi. Thanks so much for taking my question. I wanted to ask about the margin implications from the capacity ramp-up. So far, I think you've delivered very credible 30-35% operational gearing and electrification with sales obviously ramping 20%. I think for next year, just judging by the speed of your orders growth in the last four quarters at 50%, it may well accelerate. And you've just talked about adding capacity in various ways. Should we think about operational kind of drop-through implications from that, from that additional capacity ramp? Or do you think you can maintain that kind of operational gearing that you've delivered so far this year?

41:56 Yeah, I'll take it. I mean, that gearing is going to be similar as we move forward. So that's a good performance from us so far. And there's nothing changing necessarily in the profile going forward for that. It's very clear. Thank you.

42:10 Very good. Then we have a question from Max at Morgan Stanley. Your line should be open, Max. Thank you. Maybe just to ask one sort of off the topic of data centers. So just in terms of the automation business, obviously step down in sequential orders. You talk about kind of timing of orders in the Middle East. I'm just trying to understand, are those two comments connected? Was it one particular kind of larger order that maybe slipped from the quarter? Is there any kind of underlying weakness? Maybe just unpacking that sequential Thanks, Max. As always in the automation business, there is more volatility in the order intake, especially on the large projects.

42:57 And as you, I'm sure you remember, we have had quite a few of those large projects in previous quarters, also last year. So sometimes the comparable got a bit tough. And I'm sure you remember, we had quite a few of those large projects in previous quarters also last year. So sometimes the comparable got a bit tough. And I'm sure you remember, we had quite a few of those large projects in previous quarters also last year. But if you look at the automation business, when we're looking at for this quarter, we had good activities in the power generation, on the energy side, I would also say on the machine building, on the B&R business. Where it is a bit slower is more kind of on the process, some of the process side, where we see still kind of waiting for... We have more optimistic when it comes to the future in mining. And there we see kind of more conversation, not on the number side, but more on the conversation with customers.

43:45 While when we look at the part of, let's say, traditional process industries, pulp and paper, the metals industry and so on, cement, those are more a kind of a bit of a tougher market. So that's kind of the overall outlook. But if we talk about the electrification trend that benefits the automation side as well that being in when you're looking at capacity you know like in LNG it's going well. So the oil and gas side but also into and to the machine building. Those are elements that is driving. So I think overall we are optimistic also when we're looking at the future intake here. But that's what I say. We also always need to look a bit kind of through some of these large order bookings when you're looking.

44:36 So we look quite a bit on the base orders. What we call it also in ABB when we're looking at the automation side and they're It is growth on the base orders, but again, a bit short on large-order justice quarter.

44:49 And if I can just add...

44:50 Thank you.

44:51 Yeah, I can just add, if I may, that the timing comment was not a direct link to Middle East. You should see them as two separate things, because Middle East has been on the soft side since the beginning of Q1, and that hasn't changed. With that said, we have a next question. We open up the line for Ben at Oxcap. Please, Ben. Good morning, everyone. Thank you for taking the question. It was about the joint venture with Mitsubishi Electric. Very interesting deal. Could you just talk through the kind of strategic rationale? I mean, of that 640 million of sales, How much is Japan versus other markets? And I'm assuming, and tell me if I'm wrong, that this is about gaining access and penetration, mainly in Japan.

45:47 And the kind of related question is, the scope of it is literally just the low-voltage distribution products. But when I look at your businesses, there's a huge amount of complementarity, actually, between the two in energy systems and factory automation. So my question is, is this really just about low voltage distribution or could this be something broader in the medium term?

46:12 Thanks, Ben, for the question. First of all, this is a joint venture that what we talk about now between Mitsubishi Electric and ABB that is limited so far to the low-voltage product of the electrification market. And the main reason why we want to go in here is that Japan is one of the largest electrification markets globally. But it has been so far... They say difficult for us to come as ABB, come into the market. Mitsubishi is a clear market leader in this space. And that is now with this joint venture and we're taking a 51% controlling stake, will make us the local market leader overnight. and it is you can think about it like the GE industrial solution case all over again where we are bringing in a global platform of products like circuit breakers contactor all the industrial devices that is needed in that electrification space and then we're taking the best of the two when we're looking at those two portfolio and we will manufacture that in majority in our Mitsubishi, this new JV operational unit in Japan.

47:23 So that is, as you say, the majority of business out of the 640 is done in Japan, as you say, with a clear market leadership. And we're looking at how we can say when we are taking the best of the two. Based on the GIS acquisition principles, we will also see how we can bring up the performance of the unit from today, a bit of a low double-digit EVDA margin and up to at least 20%. It will take a few years because we know, as we have done it before, it will take a couple of years to get there, but we are very confident that we will get there. and been able to create a lot of value for the company. And we also have a firm exit, a firm deal for when we'll take over 100% control of that new entity.

48:15 And then if we can do more together in other areas, that is more discussions to be held. Now the focus is to do this successfully, and then we will build on that success onwards. Understood. Thank you.

48:34 Thanks, Ben. And then we have another question here from the online channel, from Thomas Jäger, who says free cash flow looks to be really good in 2026 and significantly up from last year, approaching five billion. Do you agree? And can you talk about the drivers?

48:56 Well, I certainly can, and I do agree that year-to-date, the free cash flow at 3.7 billion is really, really strong, good operational performance on that. If we walk from that level into, as the question alluded towards the finalization of Q4, of course, there's different puts and takes. First, Of course, the continuation of our strong operational performance will, of course, generate positive cash flow in Q4. Adding to that is the real estate that we have talked about at $260 million. Also adding to that, and of course, Subtracting of the opposite of that is our continuous investment, as we mentioned before, around CapEx that we support the customers and network capital, probably a little bit of draggles on that as we are supporting our growth into Q4 and then discontinued operations. So if you put it all together, I think the fair path is that we are moving towards a number indeed that is starting with the five billion or so. So, yeah, I would agree that it is. a good performance so far and we have a good path to 5 billion.

50:02 And then we take a question from the conference call. Delphine at Oddo, please.

50:11 Yes, good morning all. Thanks for taking my question. It's another question not on the data center field. Your margin in motion was down 100 basis points or 60 basis points stripping out the Can you detail the main components of this minus 60 business point? And if you believe Q4 will show better trend, notably in terms of price-to-cost equation?

50:38 You want to take that, Christian? Yeah, I mean, indeed, so for motion, as we've had throughout the year, we've called out some different areas of pressure points. Gamesa is indeed still there, and that will remain as we move forward with continuous improvements, a little bit still operating at a small loss. And then it's a little bit of operational issues we've experienced in areas such as high power facilities, that is continuing to be there but kind of keeps improving so we have said throughout the year that the margin of motions should sequentially improve and they have so far and that's I think it's a good good path for the team so yeah I think those are the main main components for for the situation of margins in motion

51:24 Thank you. Thanks, Josephine. And then we have a question here from the online tool from Mattias Holmberg, who says, how is ABB using AI internally and what value are you seeing in cost efficiency, time savings or product and service improvements? Please quantify where you can.

51:48 So how we use AI at AVB? Maybe I give you a bit of an overview of how we are working on it. We have defined as three pillars, which is AI for people, AI for business and functions and AI for technology or for products, systems and solutions. And if you talk about AI for people, it's kind of how we upgrade our whole population of ABB. We have today, our own employees are kind of doing all the AI certification, internal training programs that we have put in place. We have also, our teams have created today, it's almost 10,000 agents that is also working for our team members. So I think here, and of course, all of these are driving the Ltd.

52:34 Ltd. Ltd. Ltd. Transformation and over what we call data system modernization program at ABB and how we link that together. And then thirdly, it's about AI for our customers and in the technology. And there is investments into service agents that can be, you know, owned on customers on premise.

53:38 Ltd Ltd Ltd Ltd internally is very much about how we drive efficiency when it comes to speed and responsiveness and the internal efficiency when it comes to the outside is how you can also use that to drive revenue growth together with and making our customers more competitive and what we have done to put in place also I say both the control or the monitoring of the cost side but also and what's the benefits and I would I cannot give you a number. This has made ABB, you know, like 18 or whatever is the percent, the number is faster. What we do is to measure it in function by function and in the different parts of our business that we are really getting the real return of the investments we're doing. and I think there is but it's it so for us it's more important that we fully that everybody have a chance and have an opportunity to use it and then we have been more focused on this to get the awareness and the usage of AI up in the company more than just strictly controlling the cost of using it and that is probably more of a that's a process we talk about we're probably moving more into now we also need to get when we get more mature you're also

55:09 need to be more critical to what are the applications that you're really using it for. So these are how we use it. Those three main pillars is how we use it inside APP.

55:23 Very good. And then we open up for Ben at Bank of America Merrill Lynch from the conference call. Please, Ben. Yeah, morning. Thank you for the question. I just wanted to come back on the margins on electrification because they are very strong. Could you give us a bit of an update in terms of where you are regionally for margins and in particular on the US, given that's historically where some of the weakness in electrification was? That would be great. Thank you.

55:58 Yeah, I may start. I mean, we have the development then on margin. You already, Christian, answered here as well, kind of the drop-through when we have a significant volume growth do come out also as an improved drop-through margin, and that's what we expect. There are still regional differences where the United States is... somewhat behind, but we are improving step by step as we get more capacity online. We're getting also more mature in our U.S. operation, but we're still not kind of at the level where we'd say that the job is done. We have more work to do. especially in the United States. But we also, I would say in general, we are looking also how can we drive this continuous improvement journey.

56:49 This comes always with an expectation, especially when you're growing. There should always be an opportunity to also to drive efficiency that you can get even more. So that's the it's very hard to improve margins when you're going down. But so it's always easier when you're growing. And I think that is what the team is also showing an excellent performance in this year and also especially with the numbers this quarter. But there is still more work to be done to continuously and even go to an even higher level.

57:24 Maybe I just add on the journey. I think it's definitely a journey and a path. There's more to come. I think we can think about the margins, improvements to go up towards the kind of high teens as we are today. That means that we, of course, have still further opportunities to improve even better in the US for electrification.

57:45 Very good. And linked to, let's see, electrification, from George. Your electrification backlog is up high double digit year on year. How much of this is data centers and can you help us with the facing of these orders converting to revenue.

58:09 I mean, from talking about when they convert, what I can say is that normally lead time here would be 12 to 18, 24 months in the data center space. So that's kind of the normally requested lead time from customers on these projects. That's the orders we booked. We booked this year will should go out in 27 or in 28. That's kind of while in the automation business, it is a longer lead time there. We now we have projects that could go over, you know, even up to 10 years. But in electrification is normally down to a couple of years.

58:50 That's what we we see on the backlog. And maybe add on the backlog generally for ABB at, of course, closing this quarter at the record 32 billion and some change. That will convert into next year at around 40% as we stand right now across ABB. And then, of course, mix is always an impact of that also.

59:13 Very good. Then we open up the call with a question from Alex at Evercore. Alex, please. Thanks, Nancy. Morning, Morten. Christian, I wonder if you could talk a bit about the acceleration in grid utility spend. It feels like that's really actually started to build a lot more momentum as you've gone through the year. I appreciate there's probably a bit of a halo effect from data center demand, but can you give us a bit more color on the utility behavior, what they're sort of planning for, the visibility that you have, and I guess any broader developments or color on the regional split would be really helpful. Thank you.

59:52 Now we see that the on the utility space is going well in all three of our reporting regions. And we see that. And one is of course as you say due to the data center higher demand there that you also need to balance on the supply side. But it's not only related to that is the whole electrification of society that is driving that. Ltd Ltd is a higher demand for electricity and then this is on the supply side and building out a stronger grid and having better grid resilience and reliability is one of the key aspects here. And we see that China has invested for many years in that in this space and continue to do so because they are carbon neutrality that is committed in 2060 means that there needs to be a significant investment into this energy transition as they do. And it's the same in India have a similar commitment with also their good growth in the market.

1:01:14 So if you look at and then we talk about U.S. and we all know about the also there the aging infrastructure. So Often when you think about grids and utility business is about an ageing infrastructure. It's about energy expansion that we need more electricity and then you have the energy transition on top. And these three elements come together means this massive need of investment on the utility side. And that's what we see kind of in region by region that this is clearly not linked with the GDP growth is really about about how you can get more electricity online, and that's what's reflected in the utility number when we're looking at that, well above double-digit growth.

1:02:01 Very good. Thanks very much. Thanks, Alex. And then we take another question from the conference call from Erik at CIC, please. Yes, hi, good morning. Thanks for taking my question. I was wondering, regarding the 800 BDC architectures, do you expect the emergence of new competitors in that space? You know, some new players trying to grab a share of this promising market and maybe new players with, I don't know, maybe new technology?

1:02:34 Yeah, I think always when you make a technology shift, there is always an opportunity to make market changes. And we want to be one of those disruptors in this field because we are very strong today on the grey side of the data centre, not that strong on the white side. And now, and I showed that earlier in the presentation, more of that investment is moving from the white space to the grey space. and with the change with our leading technology here in on the 800 volt DC and that DC architecture, we believe that this is a great opportunity for us to capture more of that growth and more of those opportunities with our leading technology. So That's why you have seen this significant investment from our side in R&D and technology, also some with partnership that we're building up a complete DC portfolio. And I think it's what I hear also from customers and our partners. It is clearly one of the leading or the leading platform and technology platform to build that new DC architecture.

1:03:37 So I think this is a great opportunity for us and we want to be one of the disruptors here that we can take an even larger share in that market than what we have today. Thank you.

1:03:53 Thank you, Erik. And we follow up with a question here from the tool from Andre. He says, can you please comment on your mix of exposure by customer group in the data center segment? And I assume he means like mix of hyperscalers, neocloud, colos, etc.

1:04:11 Well, it is a mix. We don't go out with the full mix, but the majority of what we do is with a clear majority with hyperscalers and co-locators. That's kind of the big majority of the site, but also some on the NeoCloud solutions. But as I say, the vast majority sits with the hyperscalers and the co-locators. That's the majority. Yeah, that's a mix what we have, without going into the number side of it.

1:04:46 And I think we can squeeze in one more question. So we open up the line for Daniela at Goldman Sachs, please. Hi, good morning. Thank you for squeezing me in. Just wanted to ask in terms of like how should we think about balance sheet capacity from here and also like your own management capacity to deal with further M&A and whether there are any divisions in particular where we see a bigger wide space of things that are still possible to do. Yeah.

1:05:18 Let me start with the management capacity, maybe first. I think this is one of the advantages and strengths of our ABB way operating model that the divisions that sits in these in over three business areas are the ones who have also having the integration capacity. And they also take the road torque deal that sits with the automation team doesn't really are not affected, so to say, by the Mitsubishi electric deal that we did now in the electrification space. And even there, it's limited to two operating divisions who will run that program as we did on the GEIS side. So I think that's the strength of the model. That means we have management capacity to continue to do deals. And that's also what we, of course, take this into consideration when we make new ones. But in general, I would say we have that management capacity as part of our ABB way operating model.

1:06:12 And maybe, Christian, you talk more about the... Yeah, we have the management capacity, and indeed we also have the financial capacity. Now it's close Q3, we have a... Net debt over EBITDA around 0.2 so of course quite low and we could feel like we couldn't as I said before easily move up towards the two times staying in our rating area that we are and that would of course free up call it 13 to 14 billion and then we have of course our general continuation of our strong cash flow that we get from operating activities so yeah we definitely have both management capacity and financial capacity.

1:06:51 And on that strong note, I think we close this session. Thank you very much for taking the time to join us today. And if not before, we'll see you in a quarter's time.

1:07:05 Industries are the beating heart of our world. They move us, supply us, shelter us, power us, connect us. They improve our homes, our cities, our environments. And behind them all is ABB. Electrifying Automating Partnering with our customers to keep them not just running consistently, but running more productively and more efficiently. To constantly outperform. At ABB, we call this OutRun.

1:07:53 And it's how we help industries become leaner and cleaner. ABB. Engineered to OutRun. Industries are the beating heart of our world. They move us, supply us, shelter us, power us, connect us. They improve our homes, our cities, our environments. And behind them all is ABB. Electrifying Automating Partnering with our customers to keep them not just running consistently, but running more productively and more efficiently to constantly outperform.

1:08:50 At ABB, we call this OutRun. And it's how we help industries become leaner and cleaner. ABB. Engineered to OutRun. Industries are the beating heart of our world. They move us, supply us, shelter us, power us, connect us. They improve our homes, our cities, our environments. And behind them all is ABB. Electrifying. Automating.

1:09:38 Partnering with our customers to keep them not just running consistently, but running more productively and more efficiently. To constantly outperform. At ABB, we call this OutRun. And it's how we help industries become leaner and cleaner.