ABB Ltd (ABBN) Earnings Call Transcript & Summary

Good morning, everyone, and a warm welcome to our Capital Markets Day here at the Motion site in Helsinki. Some of us met already last night for dinner, and now we're also joined by -- I think it is more than 150 participants through the virtual setup. And I say we are very much appreciating all of you taking the time to spend the next couple of days with us here first with Motion, and then tomorrow we move on to Process Automation at the marine house just about half an hour away from here. I'm Ann-Sofie Nordh. I'm heading up the Investor Relations team. And really again, really appreciate to see you all here. When we leave you today, we'll aim to be finished at about just before 5. You will have met with business area head, Tarak. You will have met with the Motion CFO, Bernd. And not least, you will have met with all the divisional leaders. And for those of you here in Helsinki, we will take you down to the electrical motor manufacturing and also through the assembly of drives and drives products. Safety, as you -- some of you may know, is a big thing here at ABB. So let me just talk you through some of the safety items to remember for the day. There are no drills planned for today. So if you hear an alarm, it's the real deal. Then I ask you to make your way towards the staircases, which you have here on your right-hand side, and ABB people will take you down the stairs, and we'll meet up at the assembly point just outside of the entry. I will also make you aware that you have some QR codes on your desks. There, you can download the app, for those of you who are here in Helsinki, it's also available, of course, for the others. There, you will see all the agendas, and you will find the details if need be. And if you do register, please do so with the email you actually registered -- used to register for the event, then you will get push notices, et cetera. We will give you the opportunity during the day to put questions to the presenters. There will be a session after each presentation. And there -- those of you who prefer to put questions through online, there's a chat tool available on the CMD website. So use that, and I will put -- they will come through here to me, and I will put them through for you. Otherwise, for you in the room, there will always be microphones available. And just before we move on, I should make you aware of the information we have regarding our safe harbor notice and our use of non-GAAP measures. This is available in the beginning of the presentation, and this is valid for all the presentations through the day. And with that, I think we'll just -- ready to kick off, and we'll do so with listening to the Business Area head, Tarak. Please, Tarak.

Thank you. Thank you, Ann-Sofie. So a very good morning to all of you. It's a pleasure for me to welcome you to the Motion team. What a world we live in. Three months ago, we didn't think energy would be so front and center in our minds. Availability of energy, security of energy and, most importantly, the cost of energy is front and center in the minds of most of the population in the world. Our Motion team and ABB have many solutions to help on many dimensions of this particular problem. Starting first and foremost with efficiency. We have great solutions, fantastic ideas, and the Motion team, some of you met yesterday evening, will give you specific examples of how we are helping our customers, overcome the challenges, meet the expectations and also, thanks to the investment in technology, develop the solutions for the future. So when we look at Motion, how do we drive sustainable value for both our employees, our customers and our shareholders? Number one, we have a strong market position in many different and very interesting segments. We have a leadership position not only from a share point of view but also from a performance point of view. The performance is driven by three key factors. Scale. Certainly, size helps us invest, whether it's R&D, whether it's manufacturing, and that certainly helps us drive the profitability. Proximity to the customers. You will hear during the course of the day from the different division presidents how being close to the customer, trying new ideas, developing new solutions has been a tradition for this business and will continue to be a differentiating value for our customers. And specific examples. For one -- in one instance, Chris will talk about how the hydrogen business, which is a lot of hype these days, but he actually has orders. $30 million worth of orders. Please listen to him. He gives you the perspective of how we got them and how that business can be very fast growing and a big driver for his business or overall growth perspective. Then the world is moving away from fossil fuels. We are contributing, and our portfolio is the center point of this transformation, the transition of energy from fossil fuels to electricity. Electricity will grow twice as fast as any other energy source based on the IEA reports. We are in the middle of electricity business. We will give you an example, an illustration of what we do. So we believe the next 5 years, the next 10 years, there will be a bigger growth in our markets with our customers' demands for our products. We see it in the results. We see it in the orders that we face or we get right now. So what is driving the transition in the world? I mean I don't need to tell you that you are familiar with it. It's very clear. It's the shift of -- towards electricity. It's the shift towards a low-carbon future. A couple of things to keep in mind. As the world moves towards electricity as a source of energy, our motors and drives are at the center point of that transition. When you look at these drives, which we love a lot, they are giving, for a particular application, between 20% and 30% savings. So combination of a motor and drive gives substantial savings overall to the customers but also help reduce the carbon emissions. When we look at our portfolio, our estimates are, conservatively, our business will double in the next -- between now and 2040. It might actually accelerate if the world decides they want energy security vis–à–vis renewable energy sources. Then, our business will move even faster. We are in a $50 billion market. 80% of it is industry and transportation. And please keep one thing in mind. 45% of the world's electrical energy goes through motors. And having the #1 position in motors means we're in the driver's seat to see the transition for our customers. We are there when new applications are developed. We're there when a turbine is replaced with a motor and a drive. So having a motor portfolio gives us with the market leadership and opportunity to be in the driver's seat. There are other drivers for this market as well. Think about customers. We did a survey with about 1,200 customers. Good news for us, important information for you, 90% of our customers will invest in energy efficiency, in the next 5 years. Why is that relevant? Energy efficiency is the best way to manage the CO2 reductions in the world. It's immediate, it's permanent, and we with our solutions can help you get there very quickly. It's the combination of regulation and customer intent that we can accelerate with digital solutions. You'll hear from Adrian how our Service business, through sensors, connectivity to the cloud, is able to provide not only energy efficiency but also the capability to improve the customers' processes. So when I joined this business, many of you who I know for many, many years have asked me, can you please simplify what is the Motion business? It is not complicated. It's two things. It's motors and it's drives, motors which we make more than 1 million pieces in the small size per year, to some that you will see during the course of the day maybe 15, 20 in a whole year. The understanding of the customer's application and the mechanical design of the motors do not change. So if you understand the food and beverage location, then clearly the 1-horsepower motor up to the 1-megawatt motor has to perform in the same environment from the customer perspective. That knowledge helps us design and tailor-make solutions for that industry and that segment. And certainly, the scale provides us with a cost advantage. When it comes to the drives, we have a common software platform that spans from the very smallest drives to some of the very biggest. Two platforms practically cover the entire range of our solution. So it's the embedding of the customers' applications in software, it's the scale of our drive business and it's the proximity to the customers is the reason why we have a leading business across the entire range of our drive portfolio. So enough about discussions. Let's take a specific example. So if you're in Germany and you have to make a decision for your particular industrial location, you have two choices. You can buy an IE3 motor and a drive combination, which is quite efficient, or you could spend and invest another $200 buying an IE5 combination. The IE5 combination will cost you EUR 2,000 approximately more. In the first year of operation, we can save you EUR 2,000. We can give you back all of the money that you've invested. On top of that, you can also save 7.5 tonnes of CO2. This motor that you see in front of you is equivalent to 100 hairdryers that are hopefully sitting in your bathrooms in your homes. So it's not a very big motor. But the kind of impact it can have is quite tremendous. When we look at our own portfolio, our business, 19,000 colleagues, about $6.5 billion, $6.4 billion in turnover, 16.5% margins once you take away the divestment we made last year. What you see is an industrial location where the motor, the drive, the sensor connected to the cloud gives our customers and us the opportunity to reduce the cost, increase the reliability but also, in many instances, help the customers improve their processes. So we've talked about the business. Now what has been driving the performance when it comes to motion over the years? It's been focused on specific segments. Whether it is water and wastewater, whether it is transport and infrastructure, whether it is buildings, the specific focus on these segments has resulted in tailor-made solutions for that particular application. And those tailor-made solutions in those particular applications take the heating, ventilation, air-conditioning solution. That is an industry-leading product from us with industry-leading market shares and great profitability. That tailor-made solution is the reason why we grow significantly in that segment. And think about data centers. Data centers is nothing but an HVAC application when it comes to motion. One data center represents maybe an entire city's worth of air conditioning load or cooling load, but it is just in one city block. So space, energy efficiency impact is an important criteria. So what has been the impact of this particular portfolio? 100 million tonnes of CO2 in 2021 saved by the portfolio that our customers have. What does the future look like? You'll hear from our colleagues. From Edgar, you'll hear about how the next level of transportation, the solutions that we can bring that make the cities even greener, make the electrical transport reality, get the buses off of diesel into electric, these kinds of solutions you will hear about and what kind of impact it can have. Food processing. We have a great solution in one of the applications in a paper drying process which we believe has a natural transition into the food industry. District heating/cooling. The biggest cooling plant in the world has our equipment and, of course, as you'd expect in Dubai, cools an entire district. So what makes all of these applications real is our focus on technology, our focus on making sure that our solutions are industry leading. What you see here in front of you is the next generation of a motor and a drive as one package. This is an HVAC solution for heating, ventilation and air conditioning. If you are a customer, you just need the same bolt pattern for your existing motor, but now it has integrated drive. You don't need to select the motor and the drive. We do it for you. It's tailor made for this application. It's called EC Titanium. It is the brainchild of Jesse, and he will give you much more details on the genesis of this particular solution. So our technology is at the cornerstone of our success. When you look at the next application, if you'll remember, I discussed about the ultra-low harmonic heating and ventilation drive, which is the market leader both in penetration but also in performance. That technology has been transferred and applied to a water/wastewater solution. And that enables us to transfer the competence and the capability from one application into the specific needs of another. And water/wastewater needs both ultra-low harmonics but a specific solution for making sure the water hammering that you hear doesn't happen. It provides a mechanical integrity to the solution that you can expect. So many such applications exist. Technology is at the heart of what we do. Please make sure you give your time and ask the questions of our division presidents on what are the technical solutions that give us the competitive advantage, which eventually result in the performance which is industry leading. So how do we run the Motion business? Very simple. We focus on three things. As a team, we focus on the direction of the business. Which segments, which customer segments, which geographies, which applications represent not only the potential of today, but the opportunity of tomorrow? Which are the growth areas where we should invest our R&D? Which are the areas where we want to get a technology capability? We're not good at everything. We don't have all of the possible solutions in this world. So where can we make some acquisitions? So it's a direction. Where the direction comes, what's next? Investment. If you're going to penetrate a particular market, and you'll hear that from Tuomo, where he has a very successful business and he would like to penetrate a particular area, then, of course, we will have to make investments. And what will those investments be based on? R&D. So our #1 investment we make in the business for the future and today is R&D. What proportion of the R&D goes for maintaining current portfolio and what percentage and proportion goes for the future, that is up to the individual divisions to decide. How much do they want to invest? Where do they see the returns? And at the end, great direction, fantastic investment plans. Success only comes when you have the right people executing. So at the very beginning and at the very end, it's about people. Picking the right direction, finding the right profit pools and making sure we have the teams who can execute. It's building the capability, the digital capability of the team when we look into the future that will determine our success. So we got to reach one of these in sequence. So first, let's start with the direction. What you see is all of our divisions which have a profit mandate. A couple of examples to illustrate the point. So each one is in the #1 or #2 position in their respective market segments. Each one has a specific criteria for improving that business, whether it's growth or improving the performance of the business from a profitability point of view. This is the ABB Way in action. Each division has a different priority, a different focus to move and improve its business. This is not a Motion-wide campaign. This is each business working together, deciding, of course, we have to agree because after this comes an investment. And then each of these businesses have an M&A mandate. Please help me by asking them the questions on what's next on M&A because this is a business and a team which hasn't done M&A for quite some time and it's an opportunity for us now to reinvest some of the profitable dollars and value back into the business to grow it even faster. As you can expect with all businesses, we have a couple of businesses where the leadership is focused on improving the performance. And then we have the newest business with Adrian. So Stefan and Heikki will go through what are their action plans to improve the business performance, where do they see the bright spots and where do they see opportunities to improve. We have a Service business which we kept to the last, the pièce de résistance for you, which is led by Adrian, a very exciting business, fantastic possibilities, where we will probably invest the most when it comes to R&D. This is to bring proximity of the customer into business growth for us but also making a specific impact, improving the yield of the customer's process, taking reliability and efficiency to a new level for our customers. So that's what that business is all about. So we talked about the direction of the different divisions. Now let's talk about investments. We look at investments on two axes. The bottom axis is performance. Clearly, profitability, return on investment. And on the Y axis is competitiveness, strategic relevance, market growth, are these businesses in the right areas from a profit pool and from a growth perspective. So it's not that we take the 7 divisions and plot them across these 2 axes, we actually take 30 of them. So 30 product lines within Motion are plotted along this axis. And of course, given the fact that Motion is a profitable and market leader, we have a lot of businesses that are doing extremely well and are in the right area from a strategic perspective. Then there are opportunities for us to improve performance or we don't see the relevance, so, therefore, we took an action like we did with Dodge. Great business, fantastic performance. We did not see the strategic relevance. So we monetized and found a better home for the Dodge business. We also have workshops which Adrian decided, along with the different businesses, that it didn't make sense to have the Service workshop for motors. So we have divested or shut down close to 15 motor workshops. Then of course, each division has homework. For those of you who are trying to decode this chart, the blue represents the drive product lines and the gray represent the motor product lines. Why is it relevant? Because one of the meats of this business is motors are not as attractive and are not as profitable as drives. What I'm here to tell you is there are many motor -- significant motor portfolios which make even more money than our drive portfolio. And every single division has homework. If you have a product line in this part of the matrix here, which is under review, two alternatives: fix it or sell it. You cannot be in this box, the penalty box, as you might call it, in the review box for too long. We want to make sure the divisions are moving their business from this location or this particular position to either, at a very minimum, improve the performance trajectory. And it doesn't look like there's a long-term future for the business. We will exit this part of the portfolio as well. At the end, what we are all about is people. So we talked about direction, investment, and now let's focus on the people. We're successful because we are close to our customers. We're successful because of our partners who are the key enabler for our success, 6,000 of them. We need to make sure when we put the education program, the upgrade program, we also take care of them. They are the multiplying force. They are the ones who are very close to our customers. And people keep asking me, are you digital? Are you moving in the digital direction? 1 out of 4 R&D colleague is in software. We're writing code, we're writing application software to make the water applications specific, to make the food and beverage applications specific, to make the HVAC applications specific. So I have talked enough about the business. Let me introduce Bernd, who is our CFO, to walk you through how we create value through the cycle. So over to you, Bernd.

Thanks, Tarak, and a warm welcome also from my side. So it's a pleasure for me working for this exciting business area with a lot of opportunities as the CFO now since 2019. We have been able to keep and even overachieve the promises given to you. We have gained share by outperforming the markets and have selected the best growth opportunities without sacrificing our profitability. And I'm specifically proud that even with 2 years of COVID, we have been able to add $160 million to the bottom line. And Q1, with a 9% growth in revenues year-over-year and with a record profitability of 17.4%, is a nice continuation of the good development and was a great start into 2022. For comparability reasons, we are showing these figures without the Dodge business that we have divested in Q4 last year. The main reasons why we have been successful in the past was growth in focused segments, cost and investment consciousness based on our division respective mandates and, last but not least, crisis resilience due to our balanced footprint. So I do not want to talk too much about the past. I would like to provide you within the next 13, 14 minutes with how we are planning to continue creating value for Motion over the next years. Continuous focus on high-growth and value-adding segments is our biggest lever to create value. 89% of our customers expect to invest more in energy efficiency over the next years. With this expected increase in energy-efficient motors and drives, having the right product portfolio and solutions at hand and having selected the best growth opportunities, we are convinced that we can continue to outgrow the market by 1.5. And these revenues will, for sure, not come for free and require growth investments. This is why we will continue to invest in R&D and sales initiatives. And to achieve the right quality of revenues, all our seven divisions focus on cost/investment consciousness based on their respective mandates, continuous improvement in productivity, in operations, supply chain management and sales and, last but not least, in active price management. Now let me provide you with some concrete examples how we are planning to grow in Motion. Our Drive Products Division is the global market leader in a $10 billion market with a 15% share, something we are really proud of but nothing to lean back. In most of our targeted segments, we are the #1 by far, and we are trying to make the gap to #2 even bigger. However, we have still areas where we have potential to grow. In our food and beverage segment, for example, we are investing in our offering and want to build further expertise to add the best value to our customers. And in the machinery OEM business, which is a $4 billion market, we are only #7. And here, we plan to be one of the top 3 players midterm. And Tuomo, our drive product head, will give you some more insights on how we plan to do that. So growing our market share in one of our most profitable divisions by more than 100 bps will, for sure, help us create value in this area. Traction business. We have been substantially growing our traction business during the last years. Our traction division provides us with the most energy-efficient propulsion packages, enabling the decarbonization of transport. And investments in battery energy storage solutions are complementing our propulsion and auxiliary portfolio. And having the right traction technology at hand and using this, we have great growth opportunities in the area of heavy electric vehicles like electric mining trucks, other large construction vehicles and e-buses. And growing our share from rail to wheel is a great opportunity, a great growth opportunity, supporting energy efficiency and will also help us to further diversify our portfolio in traction. Service. Service is another very important growth area in Motion. And the key enabler to achieve our ambitious targets is to substantially increase the number of connected motors and drives. And we are continuously working on outcome-based models and other form of subscription models that will drive annual recurring revenues. And the main benefits for our customers in this area are asset health with less downtime, higher productivity, energy efficiency resulting in cost savings and, last but not least, fast and effective support when needed. And growing high value-adding revenues in this area requires a transformation in the way we work with our customers and investment in digitalization of our business. Growing our share in annual recurring revenues from 4% to 15% in our Service division is another important enabler for sustainable value creation and customer intimacy. So this was the first flavor of our growth initiatives. And now let me complement on how we are working on improving our profitability, supporting our growth. To have the right quality of revenues, we are systematically managing our portfolio. We have closed two motor factories in Italy and in the U.S., and we continue scrutinizing further footprint actions to improve our profitability specifically in our profit mandate divisions. Our portfolio management also applies in our growth mandate divisions. And as Tarak mentioned, we have already closed or divested 15 unprofitable motor service workshops around the globe. And even though we are #1 or #2 in all our growth mandate divisions, we are still planning to gain share in new areas. And to foster our growth ambition, we are willing, in some of these areas, also to accept flat or even, in some areas, lower margins. And now productivity and pricing. The initiatives around productivity and pricing have helped us to offset the swings in commodities and inflation over the next -- during the last years, and we are planning to continue this path. Continuous productivity improvement is part of our DNA in Motion. In our major locations like here in Helsinki, and you will see that a bit later, we are working on numerous productivity improvement programs around operational excellence. And with more than 200 black belts in Motion, we are working on around 1,000 of their smaller, medium, larger productivity programs that resulted just last year in $70 million of savings. And once implemented, we copy into other locations around the globe, and this is how we use our global scale. And the same applies also for supply chain management, where our global category managers negotiate the best sourcing conditions for all our seven divisions. And this is how we utilize global scale. So -- and last but not least, pricing. So having the right pricing approach and being able to react fast has probably never ever been that important than in our days. And our product divisions act as market and price leader in many areas that allows us to set the market pricing and manage the commodity exposure. And selling solutions and packages, we can achieve the right value by adding value -- value based for our customers. So R&D, the area very close to my heart. R&D enables our growth ambitions, and this is where we invest. So we are the largest player in motion industry and have, during the last years, increased our spend by 30% to up to $270 million now. And we are planning to invest another 20% midterm. In line with our division respective mandates, we have spent 95% of the additional R&D spend in our growth mandate divisions around the areas around software-enabled motors and drives, battery storage solutions and also common platform developments. And with 1,200 R&D engineers, we have a good mix of supporting our bread and butter business but also investing in digital business. And last but not least, 300 million motors in the field, most of them not yet reaching the requested energy standards are very good reasons for us to invest our R&D in the area of energy efficiency and sustainability. And finally, SG&A. Cost control in SG&A helps us investing more in R&D without sacrificing our profitability. So if we, Motion, plan with a CAGR of, let's assume, 5% of revenues, SG&A can only grow 2.5%. So the simple rule of thumb, SG&A growth in percent should only be half of the revenue growth. So some divisions with growth mandates may spend a bit more, others less. But this is how we try to control our cost in this area. And let me give you another example which I really like because it's a mix of how we can save costs but, on the other hand, also foster growth. And this is regarding our channel partners. We have a large channel partner network in many areas around the globe. And our channel partner network is one of our competitive advantages we have in the market because, first of all, it enables competitive sales cost; and, on the other hand, we have demand generation with a strong local coverage close to our customers; and finally, great support in pre and aftersales. And here is where we plan to intensify our existing collaboration but also want to extend our channel partner network over the globe. So let me conclude and summarize how we, Motion, as a team are committed to value creation in the future. First, growth in focused segments with a healthy contribution is the biggest lever. That growth will not come for free. Hence, we will increase our R&D investments. Productivity in operations, sales and supply chain management, combined with the right pricing approach, will also in the future help us to offset the commodity and inflation swings. And finally, we continue cleaning our portfolio and continue to accelerate our search for acquisitions that support our growth targets. So thanks for your attention and...

Thanks, Bernd. So, ladies and gentlemen, let me conclude with very simple thoughts as a -- from a team perspective. So we're in a market-leading situation as Motion. Fantastic segments, #1 or #2 market position, strong profitability driven by scale, by technology, by R&D investments and proximity to customers. And what's wonderful coming to this business is the future looks quite bright. We have the world moving from fossil fuel to electric -- electricity as part of the transition away from fossil fuels to enable a better world from a CO2 and emissions perspective. What does that mean? That means we have tailwind. We have applications we never thought of, which would be electric. And during the course of the day, you will get a good example and a good representation from our divisions. So we're in the right market segments with the scale and profitability that proves that with a tailwind from a market perspective and a focus from our team to outgrow the market. So that's where our commitment is. We want to outgrow the market with this team. And with that, I thank you very much for the opportunity on Bernd on my behalf. And please, Ann-Sofie, if you can join us, we are ready to take your questions as a team. And since I'm new, I have a lot of help to make sure your tough questions can be answered by my colleagues. So thank you.

Thanks, guys. And we'll let you loose here on the floor first. Please, do we have any questions here coming through? Anyone? Yes, plenty of hands in the air. Please. Yes.

It's Martin Wilkie from Citi. You highlighted M&A opportunities in some of these business areas. But many of these applications are very new if you look at electrification of heavy transport and things like that. So just to give some sort of sense as to where you're looking for these acquisitions. Are these technology start-ups? Just to get some sort of sense as to where you're looking to accelerate.

Yes. Let me kind of direct that question to Chris, who is looking at the hydrogen revolution, or -- it depends on your perspective and what you see as a division head, thinking about from an addition from an M&A perspective.

I think some of the technology that is used to power some of these new applications, things that Edgar is involved with, things that we're involved with, has been around for a little while. Finding people who have some interesting IP for improving the efficiency of, say, a water electrolyzer that could be bolted onto some of our existing product, these are the places that we're looking, I mean, today at expanding our ability to serve some of these markets as they grow. And we know that cost effectiveness and efficiency maybe in the first 3 weeks of the hydrogen market boom is not going to be the biggest thing, but we know that cost and efficiency is going to be a big deal down the road. So how do we do this at a lower cost? Probably not all on us. So we're looking for partners to help us with those types of things. I don't know if that answers your question about hydrogen, but it's [indiscernible]...

That's an example. And reliability and efficiency on an application is not necessarily always something we -- because we have a broad platform. So the ability to understand the customers' challenges and to encode it. Remember, we talked about the control software platform. So we're not necessarily always looking for hardware. We're looking for application knowledge. And in these fast-growing segments, we often find people who have that specific application knowledge that we can then acquire that business and take their knowledge and make it part of our solution. As Chris mentioned on the hydrogen electrolyzers, a small, 0.5% increase in efficiency is worth a lot when you have tens of megawatts of power. So those are bolt-on type of acquisitions that -- and during the course of the day, I mean, each of the division heads, not only Chris and Edgar, each of them have some ideas. But we are in the beginning process. So as we looked at the Motion business, this is something which I'm pushing for, with a little bit of experience I have, which I think I can add some value with my background on M&A, to encourage support and look at these type of bolt-on acquisitions but also portfolio additions which can be in a fast-growing segment. Take [ Adgers ], for example. New technology. More silicon carbide technology might be more appropriate for the vehicle propulsion rather than rail. So what could be acquired in those areas as an example?

Thank you. We have another question here on the sort of right-hand side. If you would, please.

It's Gael de-Bray from Deutsche Bank. Over the past 5 years, we've seen a number of your traditional competitors exiting or downsizing their operations. So I was actually wondering to what extent this phenomenon has actually supported your outperformance and whether it could actually justify that going forward, one cannot expect you to repeat the same outgrowth in the market.

So two questions. I'll try to answer both of them. When competition struggles, we do smile. That's clear. It's about execution. It's about proximity to the customers. So yes, we know, in some cases, the competitors have struggled, and that have led to us gaining market share. Even in the current supply chain environment, we're not immune. But if we execute our supply chains, redesign our product portfolio, in today's market we will gain share. And some of our colleagues have done that. Some of the leadership teams have done that. Redesign and redirect that R&D to new chipsets, not easy to do in a very compressed time schedule. Again, not easy to do, not without risk. But that has led us to, we believe, a slightly better performance from a customer and availability of our product perspective. So that does give us some advantage. We believe that the markets will be the main driver for the growth. These segments we have highlighted will grow more than GDP. As we said, the example of hydrogen, but there are other examples. Whether we look at what Edgar and his team have done, significant growth, double-digit growth in that segment for quite some time. So we believe there are pockets in the overall market which will grow substantially more than GDP, and our game will be to have #1 market position and outgrow in those fast-growing market segments. And we have a little bit of a history on that, but we will put even more emphasis as a way to grow our business. So those are the two levers that we see from a growth perspective. And of course, as you saw, we are trying to be very clear. We have some homework. We have some portfolio that we might not necessarily have next time we meet. So that's where the inorganic comes in, to get the right acquisitions in the right segments and then potentially divest businesses or business lines or products which don't make strategic sense mid to long term. So the combination will allow us to drive growth.

Thank you. [Operator Instructions]. Yes, please. I think we have here still on the -- in the middle of the room. Logistics is a bit of an issue here, but there you go. Thanks.

It's Jonathan Mounsey from BNP Paribas Exane. On the slides, I think you talked about improving the ARR proportion of revenue from 4% to 15%. Just maybe comment on how much of that is going to be M&A driven versus organic. And also, how much you say service engineers doing more service versus asset performance management, new software offerings, new verticals, et cetera. And then as a follow-up, what proportion of the Service opportunity on your installed base do you capture today? And have you benchmarked that? Are you already best in class on that? Are the rivals doing better? Just sort of evidence that you could actually grow that relative to what you do now.

I think the best one to answer that here in our division is Service President, Adrian.

Thanks a lot for the question. I'm certainly excited to talk later on about some of these topics. There are, I think, three questions you posed, and it's kind of how we grow, you say, our inorganic versus organic. A majority is coming from organic growth. It's about changing the customer intimacy. It's about how we interact with the customers. The value creation -- I think that was a bit of the second question. The value creation comes mainly from the fact that we reduce downtime of our customers. And that's about proactiveness in how we approach the customers. A majority of our customers still run to fail. They are wasting a lot of money every day. I'm going to talk about this later today. And this is basically where we have benchmarked ourselves, and we see us -- this is also why it was written. We're #1. If we take an external benchmarking from external companies, we have clearly the highest service attachment rate especially when it comes to the mission-critical type of applications like Chris is going to talk about or Heikki will talk about it. This is where we're really very close to the customers. So I hope that answers a bit of your questions.

And Jonathan, if you'll just turn around and give the microphone to Joe. Thank you.

Joe Giordano from Cowen. Some of the stuff you said makes a lot of sense like we're #1 overall, but we're #7 here, so we can grow there. And I get all that. What about the areas that you are #1 in the specific thing? How do you incentivize the people there to take risks and not just do -- whatever they're doing is already working, obviously. So how do you make them push harder to grow that in a region they're already winning?

I think, honestly speaking, the way we have worked a lot on margin in this business over the course of the last years. Now we need to focus on growth even more. It doesn't mean we're going to abandon the margin. It's about accelerating and taking risks. And exactly as you said, this is something that is in the DNA to get to the #1 position, but you also need to take risks in order to maintain your #1 position and accelerate the performance. So it's really when you come from the customer in. We're not #1 in every application. We're not #1 in every geography. Take drives, for example. We'd love to have a higher market share in the United States. One, it might be very profitable, a good business. We would love to have more business in that area. When you think about our motors, our most efficient -- think, our motors are 40% more efficient than the next class. How do we promote? So a big part of our leadership is also to promote and make people aware. That example I used of the motor, I can assure you many, in fact most, maintenance departments do not know that for a EUR 13,000 investment, they can save 7.5 tonnes. And part of our responsibility, and that's why we've launched the energy efficiency movement, to bring competitors in as an industry, to make people aware that if you're trying to meet your businesses' objectives for CO2 emissions reductions, we have great solutions for you. But if you don't know about them, what are you going to do? And unfortunately in this industry, we do not have those ratings as you have for the cars, as you have for the dryers and the washers, the A through E rating where you can automatically pick the A rating. So we will have to educate the world and our customers on what is possible. And some of these savings are so dramatic it's hard to believe, right? It's hard to believe that you get a payback of less than 2 years. But drives has had that for a long time. But thanks to the increase in the cost of energy, those paybacks from 2 years are now becoming 1.5 years, thanks to the commitments made by the CEOs to reduce CO2. Chris will talk about something we never imagined. So the #1 position is not about technology, it's also about education. It's also about taking risk. It's about developing new solutions. And it's on the risk side that we will need to work as a business more where, in some cases, you are right, we might become complacent with the #1 position. And the way to get around that is to start to take some risks, not ones that affect the performance dramatically, but certainly one that shows to the customers that we want to work with them.

Thanks, Dan. Yes, if you can hand over to Alex there. Thank you.

Alex Virgo, Bank of America. Could you talk a little bit about the moving parts on the margin development over the next 5 years? I guess are we expected to see front loading of the R&D costs, some of the mix shift around the transition to ARR, for example, in service? Just talk a little bit about the trajectory of that margin, please?

Yes. So I think I've tried to highlight the separate elements. So first of all, growth is the most important enabler to have additional contribution. So that's number one. Number two, will invest more in R&D, still true. But then with our SG&A, with our 50% rule, this will give us operating leverage. And through that, we will be able to continue the path with our profitability that you have seen. And when we make an acquisition, we will not make it based on a margin accretion criteria only. When you are at the level of profitability, which our divisions are, rarely would you find something out there that is significantly more profitable and from day one is margin accretive. You might not want to pay that much either, by the way, for that. Given the track record of this team, we will encourage and I will encourage the team to look at also performance improvements kind of acquisitions where you as a division might be at 19% margin. And the acquiring company might be at 10%. But can you get that 10% to 15% in a 2- to 3-year period because that drives a lot of value. It might not drive a lot of margin, but it drives a lot of value. So disconnecting from obsession on margin is a component that will drive our future growth and value creation. So once you are at a certain level of profitability, the next is growth. And that's why we said our divisions have growth mandates. And 5 of them do. So my expectation and our expectation is those divisions are leading the growth through either acquisitions, but most importantly, through organic. Because that's the least risk, the best return is organic investments. And the #1 market position in many segments means we can drive it fast.

Thank you. And Alex, if you would just turn around and give the mic -- oh, sorry, Jim, to Ben. Thanks.

It's Ben from Morgan Stanley. Can you talk a little bit about the penalty box, the sort of bottom-left quadrant. What are the characteristics of the businesses in that penalty box? Is it just 1 theme? Is it scale? Or do you see sort of a common theme? And in terms of rationalizing that portfolio, how long is it going to take? How are you thinking about it in terms of are we going to be looking at another $1 billion of divestments over 12 months? Or how long is this going to take?

I think, as we said, these are under review. So not every one of those product lines have a similarity in terms of what needs to happen. Some might be needs an injection of technology and capability, which we do not have. Some of that could just be a pure footprint. We are not competitive with that portfolio in that geography. So we need to make a move. So these are like 2 examples of what can drive value. And the third component of this one is what is our skill base capability? So we always are lacking in all businesses, talent. So I don't think we have enough talent to capture every single one of those bubbles and say we're going to improve it. So at some point, we'll have to say, okay, given our capacity, capability and time frame, we do not have infinite time, we will make decisions with the division President saying, okay, this one, we invest in, we try to fix it and get it better. This one doesn't look like. And they might say, look, we don't see the kind of returns that we want. So we look at it from an investment and return, people capability and most, importantly, is there a long-term future of that portfolio. So if we might improve it from a performance point of view enough for it to be a divestment candidate. So it's not a simple answer. It's the beginning of the process for us. Maybe in a year from now, we can probably give you a better view on how much acceleration, how are we going to address it. But I fully expect that new product lines will appear because it's a competitive dynamic. What is competitive today might not be in the future. So that's a concept that says, we take a look at our businesses objectively and not at the division level. We look at it one level below. So that's our thinking at this point.

Okay. And we have a question coming through here from Guillermo at UBS and its aimed for you, Tarak. And he says, could you comment on manufacturing capacity? Do you have enough to meet your growth aspirations? And where would you invest in further capacity if needed?

So I would say in today's world, I mean, we're beggars for chips. So there's no question that if we had availability of microprocessors and electronic components, we could grow more. So you'll hear also from many of our colleagues, we have, especially in some of our businesses, a scaling model that is not dependent on CapEx investment. So we are encouraging our businesses to not use CapEx as a means of serving the market, but rather partnerships EMCs or other contract manufacturers to build scale and have the ability to flex if the volumes go up or down in particular geographies. So that will be our main criteria. With the growth ambitions we have, we would love to have the problem that our factories are full and we need to add more capacity. So we are adding in particular hot growth segments. But right now, our capacity constraints are typically outside of our manufacturing footprint typically today.

And there's a quick follow-up here on reshoring, is that a trend you are observing? And we'll make that a final comment before we move to the next.

Thank you. Yes, we do see reshoring. But more importantly, we see the customers and the regulations very much focused on efficiency improvement and CO2 reduction. So even more than reshoring in our business, we see the customers wanting to meet their commitments, the public commitments that their CEOs and their boards have made. We've never seen so much inbound interest in trying new ideas and new technologies to replace gas as a form of energy to bring in electric propulsion into fossil fuel-based propulsion systems. So the world is being driven towards electric mobility, electric powertrains and electricity as a way to transfer energy from 1 point to another, which means good news for all of us.

So thank you very much. We'll have more questions to answer for you. So now we would like to welcome Heikki on the stage who runs our large motors and generator business. So over to you, Heikki.

Thank you, Tarak. I'm glad to be here today with you all. 10%, 10% of the world energy can be saved by using high-efficient motors and generators. This will be a great benefit for our customers and huge impact for society. My name is Heikki Vepsalainen, Division President for Large Motors and Generators. I have worked with ABB almost 3 decades on product system and service businesses. I've seen the value of those. And today, at motion seems the place to be as world goes electric. On my presentation today, I will explain to you what we do, where we go and how we are going to do it and attractive markets we operate. Our energy efficiency and sustainability will be decisive factors while world goes carbon-free. And why our customers do see us as a trusted partner. What is our strategy? And what are the actions, how we increase the profitability? And how we drive customer granularity to our regional structure while moving to Cold Monday. On the right-hand side of the picture, you'll see one of our typical motors. It might look a piece of metal. But actually, it does incredible things for our customers. So let me walk you through one of our recent customer cases. Our large motors and generator being design and manufactured in motor having efficiency more than 98%. It's a great milestone for innovation and for engineering skills. But it's not about the record itself. It's about customer value we create. Its reduced energy bill, total cost of ownership, and most importantly, it reduce CO2 emissions. This 1 motor over 20 years of operating will save roughly 6,000 tons of CO2 emissions. To put this in perspective, that is roughly at least 3,000 continental flights between New York and London. This is one motor. We produce thousands of these kind of motors every year. Imagine what great benefit this would be and is for customers and for societies. This example is from our traditional industries from plastic extrusion. The same principles do apply on hydrogen, carbon capture, and these are keeping world goals towards as carbon-free. As Tarak mentioned on his presentation, by 2040, there's a double amount electric motion around us in the world. So important to remember is, energy efficiency can accelerate transition towards sustainable future. So let's have a look at our business plans. So we operate roughly on a $7 billion market. We are the #1 or #2 on our product lines where we do operate. We do have roughly 10% global market share. It's only possible having 3,000 highly motivated and skilled colleagues around the world driving superior customer experience on a daily basis. Our strategic mandate is to improve profitability as, currently, we are not fully meeting our set expectations. Large motors and generators was formalized in the beginning of the last year. We created the strategy with actions to address, to increase the profitability and subsequently, the growth, which I will elaborate on my presentation today. Well, let's first have a look where our motors are used and how we create the value for our customers. For today's presentation, I have selected a couple of customer segments to illustrate really the importance of our offering, the value we provide. Left-hand side of the slide, you'll see the overview of our portfolio and a couple of segments how the products are used. The industrial motors are really the main part of our offering, the workhorse of an industry, could be used, for example, running a pump, a local water authority, providing reliable water supply is 24/7 but have a relaxing morning hours. During the factory tour today, my colleagues will walk you through more different customer segments and applications where products can be used like running the liquids at a chemical plant. At the synchronous motors, it's a slightly different technology than the industrial motors, typically use a larger power applications and really the driving the efficiency differences at end. So synchronous motors could be found, for example, at the air separation plant, providing lifesaving gases to hospitals like oxygen or converting hydrogen, providing green energy and keeping our customers' billions of dollars investments running on its highest scalability. Special design motors could be found, for example, on ABB's proprietary Azipod propulsion solutions. The ones which are used, for example, all the world's largest cruise lines. Driving the energy efficiency of traditional propulsion solutions, taking the passengers for their relaxing cruise as safely back to the harbors on evenings. And tomorrow, on Process Automation Day, my colleague, Johan will explain more about Marine and Azipod opportunities. And our digital solutions, data connectivity and access will further help our customers to increase their process reliability and availability. And today, my dear friend, Adrian, on his Motion service presentation will explain you how we increase the service attachment rate and how we generate recurring businesses with our digital offering. One common nominator with these few examples is our products are typically running our customers' mission-critical applications. And our customers are looking at energy efficiency. By the way, more than today than ever before, reduce total cost of ownership and as we call it the RAMS, reliability, availability, maintainability and safety as a failure of these native products will typically lead into very costly production downtime. But we have the credence to provide for our customers experience in multiple segments and applications through domain expertise and wide market coverage. That's the reason our customers do look us as their trusted partner, and that's why we're #1 or #2 on our product lines where we do operate. So as we now know where our products are used and a little bit how they look like, so let's have a look on our business mix. So as described, our products are literally used in all of the segments on industries, infrastructure and transportation. And it's always possible having global product platforms in place to be able to serve that large amount of the customers. And that really gives us the scale. So we are able to configure and modify products for different customer requirements. So let me explain you what this means in practice. Like industrial motors, the one you see later today can be configured to run a pump at local water authority. It can be tailored to run a fan on infrastructural tunnel project, the ones you will see on a highway tunnel or it can be modified to run a pulp on paper, what Chris will talk this afternoon. And on a geographical mix, on the centerpiece of the slide, roughly 40% of our sales will come from Europe, roughly 50% come from Asia, including to China and Middle East, Africa and 10% from the Americas. This is the point where a customer repurchase the product from us, but not necessarily illustrate where products are used. Well, anyhow, we want to increase the orders outside of Europe. And therefore, we implemented the regional structure last year in large motors and generators, which I will explain you later. And the channel mix on third-party orders, 2/3 of all are coming from OEMs. It's really important to convert all of those end-user EPC and customer requirements into product features, what we call domain expertise, and that is our strength. So let me explain you how we increase the profitability at large motors and generators. We have areas where we already are happy, and we already do meet and exceed our set expectations on profitability. But we also have areas that myself and the team we are not happy of our performance. So let me walk you through what we have done and what we are doing to increase the profits. So large motors and generators, increasing the profit is driven by 3 elements: increasing the capital efficiency and productivity, being closer to our customers and further getting leverage of our scale. So increasing capital efficiency and productivity. Last 2 years, we have closed 2 factories, and we have merged 2 factories into 1 large operational unit. In 2020, we closed our factory in Italy. we transferred the products to be produced in Finland and put those on our common platforms. Unfortunately, there were some delays to get the benefit because of the bundle mix. But now we complete the productivity gains by end of this year. Last quarter this year, we completed our factory closure in North Carolina in U.S. We discontinued some of the product lines, transferred the products to be produced in China. And now we are going to ramp-up the production in the full scale. And we are going to get the full benefits in the next 18 months. Second part of last year, we merged the Finland and Estonian factories into 1 large operational location, having 2 locations, Finland and Estonia, getting the high labor-intensive work out of the Estonia labor markets. And we aim to get the benefits now to be completed to overlaps on similar works by first part of the next year. And deep in transferring products between the relocations or factories, the balance in the global trade flows, dampen the volatilities, but also mitigate the possible global barriers to come. And we've been actively managing our portfolio. Last year, we exit new build winter generators out of Europe as that was distracting our profitability. When we closed the factory in U.S., we discontinued roughly 50% of our offering. And the remaining half we transferred to India where we saw the future value to be generated. So we can actually conclude that roughly in the last 12 months, we have discontinued $100 million offering as that has been distracting the value. And we have both pricing -- on pricing intelligence, seeing the customer value of the products on regions, product lines, even customer level, are driving the pricing intelligence, pushing the boundaries and journey continues. And being the close to the customer, last year, large motors and generators, we introduced the regional structure. You could kind of say it's a continuity to ABB way as the regions are fully comfortable driving the orders, having comfortability on end-term profitability, they are fully empowered to drive the customer granularity. It's a lean decentralized organizational model. And we already see great benefits of that on increased orders and via more ad side and able to make the decisions closer to our customers, but also have to highlight different regions on different stages. And that goes back to what I stated earlier, we have areas where we do well, and we have areas where we need to further improve. To China, the world's largest single market, we already do need our set expectations on profitability. So it's all about the driving the growth in China and Asia, where the market size is not the limiting factor. In India, we do have roughly 25% market share on India and domestic market. It's a relative tough competitive market, so we can say we have done well having 25% share. Now with the position we have in India through regional structure, we are penetrating the Middle East, Africa and South America. And I need to say how Indian colleagues, they are rock stars to drive in the growth and penetrating the market. And U.S., now closing the factory, we have reshaped, refocused ourselves. And almost today, we have the same amount of orders from North America as [indiscernible] factory. And we all can think how contribute greatly when we get the leverage of our rest of the supply units. So it's all about the driving growth now in North America. And in Europe, we further need to improve continue our cost measures, driving the productivity and balancing that with the growth with the product lines where we already do need set profitability expectations. We continue to leverage our scale. It's always possible having common processes and product platforms in place. So for example, in sales, we use commerce sales configurators. We have a relatively wide offering, but our sales configurators make it easy for our salespeople to understand the entire scope, smooth configuring of the product and reduce cycle time to support our customers. Common engineering platforms enables us to cross use the resources in 3 regions. So for example, we're able to do outbound engineering from India to China or from Finland to India depending on the competence and resources how we need. We continue to strengthen our common product platforms to further increase customer coverage, production flow and better utilization of common suppliers. Those common product platforms, what you see today, like industrial motors, we produce them in Finland, India and China. And this really enables us to utilize the commerce supply base, maximize the component availability with the minimum cost in place. But I also have to say we are not fully happy of the utilization rate of the common suppliers in Europe. And therefore, we have now heavy focus through mass customization to increase utilization rate of the emerging market suppliers, a further tailwind to profits. So in large motors and generators, increasing profitability is done to increase the capital efficiency and productivity, being closer to our customers, and third is getting leverage of our scale. And with that, we're able to maximize the market coverage and to try economy scale through our common product platforms to increase the profits. The plans we have in place, myself and the team, we are confident that profits will increase the level where it needs to be. So let me highlight today's presentation's key points. We operate in attractive markets, which has interest in growth opportunities. Energy efficiency and sustainability will be decisive factors while world goes carbon-free. Our customers do look us as a trusted partner. We have clear strategy and actions in place to increase the profitability, the [indiscernible] factory closures and product transfers into the profits, strong implementation of regional structure continues to drive the customer granularity while moving towards the growth mandate on '24. Thank you for your time today. Thank you to be heavy to you all. And next, I would like to introduce my colleague, friend, Stefan Floeck, to talk about IEC low-voltage smelters. Stefan, please?

Yes. So a warm welcome from my side. Great to be here. So I'm Stefan Floeck, Division President of IEC Low Voltage Motors, and I am here today to tell you 2 things. The first thing is why is our division, why are our products relevant for the company? And the second thing, of course, is how will we deliver on our mandate. I am convinced we are having a leadership in the energy efficiency performance, and that can only happen by having a pioneering technology in place. That's what we have achieved over decades in developing the most efficient products. Why is it relevant? And I want to share a personal experience. I joined ABB 20 years ago, and I was hired as a sales engineer. And I was focused 100% on drive. And in order to secure our pioneering technology, I was asked to join an intensive training. And guess what I was asked to learn in the beginning? It was how to dimension and how to select the motor. So if you do not know how a motor, which is integrated in the mechanical operation of our customers, how this is operating, you cannot perfectly select the drive. So this is the first point why our motors are very relevant to secure our domain expertise. And another a perfect example of this package. Please start the video. [Presentation]

Imagine, we would exchange 80% of these motors with this package, we could save 160 terawatt hours of energy consumption, which is equivalent of the annual power consumption of a country like Poland. This is our mandate in IEC Low Voltage Motors. We have the mandate to improve profitability. We are positioned as #2 globally, but there are some regions where we are already today the market leader. To understand our focus and where we have to improve, I want to explain you shortly our portfolio. Our platforms, our offering is based on 2 platforms. We have a standard platform, and we have a premium platform. The main difference is that the premium platform is only using premium components such as roller bearings. On top of that, we have a versatile segment and application-specific offering based on our platforms, but also having special designs in place, such as the Food and Beverage loader, a motor which is installed in applications where hygiene is key so you have to clean the motor with high water pressure. We have motors which are installed under the earth, our mining motors, which are really operating in harsh environment. Or we have motors which are installed on deck, so that is the sea conditions are really challenging that the motor does not generating corrosion. And we have our high-performance motors which are installed, for instance, in the package for [ supplies ] to have a perfect crane application. The third segment is we are staying ahead of the curve with our premium efficient motors. And the [ SynRM ] motor is one example of IE5 efficiency classes. And we are also offering our IE4 motors. Where do we do this? So you have on the right-hand side, you see the typical IEC market. It's a $10 billion market. On the left-hand side, you see the darker gray areas, the American market where my colleague and friend, Jesse, is having a very dominant market-leading position. We are very balanced. So of course, still a European footprint, but we are growing in areas like China and India. How is our position -- our portfolio position, if we talk about the attractiveness? So we have motors in our portfolio, which are already in the profitability area. So Tarak mentioned, we have motors in our portfolio which are even more profitable than drives. These are our premium motors, our high efficient motors and also our special motors. We have our standard motors, especially in the small and mid-sizes. There's nothing wrong with the portfolio design. We have some issues in some parts of the world. And how do we solve them? I will explain that a bit later. How do we increase our profitability? I will focus on 3 things. The first thing is we have to strengthen our leadership position with our special and our premium motors. We have a premium position. The second thing is we have to develop solutions to drive profitability in the key markets. And the third thing is we have to simplify our standard offering and the operating model accordingly. Let's have a deeper look. Our premium portfolio, here we have certified motors for many applications. How have we achieved that? We have invested over decades in the development of those motors. You have to ensure that you have the certificates in place. Let me tell you one example. So we have a lot of Swiss colleagues here. So there are a lot of tunnels and you see this tunnel ventilation. And these models are operated by motors. This fan has also to ensure the operations where the fire is occurring. So you can engineer that. The theoretical work is one. But you have to ensure and you have to test them. Do you have to burn the motors and the test cells in the field to get these certifications. This is only one example what we have to ensure daily to update our certifications that can be regional certifications, but that can be technical certifications. And here, we are staying ahead. We have investment in machining and in having the lowness to sell in these critical applications. And why are customers buying from us? In the areas of flame-proofs motor, motors for safe areas, Marine motors, they want to avoid the risk. They want to continue to collaborate with a reliable partner. And how do we ensure that? We have 300 R&D and application engineers in our unit. And these colleagues are not sitting in a centralized R&D center. They are sitting in our local units as close as possible to customers. Our quality reputation is on 99.96%. So the reliability is really higher. I talked about risk avoidance. Our customers are convinced if I buy an ABB motor, this application is safe. The other thing is, where do we do that? And I have one example that we are doing it close to customer. My friend and colleague, Katie, talked about India. We have invested in India now over many years. And we have 100% localized portfolio in that country. India is one of the fastest-growing economies in the world. And we have achieved to be the market leader with IEC Low Voltage Motors in India. And we generated over the last 4 years 60% growth and a nice attractive development in profitability and productivity. So if we can do it in India, we can do it also in many other countries. So we can learn from India. Second point, leadership in energy efficiency. This is a growing area. The market is with us, and we are really well positioned with our offering. We were growing in our premium efficient motor segments by 105% year-on-year. We gained market share according to that by 3.1% in the last year. These motors, generating a 15% higher profitability compared to our IE3 motors. And if we talk about SynRM, you saw the video, you saw the example from Tarak this morning. If we compare that offering, this is a technology which we can offer in a really wide range, up to 315 kilowatt. So you maybe are hearing a lot of discussions and the news we have to develop premium-efficient motors. We have this technology available, proven in thousands of applications. We have a package. We are offering the right software and the drive complete together. It's ready. It's unmatched. How have we done that in China? I talked about empowering and localization of our portfolios. We have decided to do similar things in China, not deciding what is working well in Europe is also working well in China. So we have empowered our team and we have launched a new localized product based on our standard offering within 12 months. On top of that and based on the portfolio, the team in China developed a premium IE4 motor based on our standard offering. And we were the first in China who did that. We were the first who offered IE4 standard motors, and we did that in a record time of 8 months. And then on the right-hand side, you see a great example. In China, we do not have specific energy efficiency regulation, which are requiring IE4. But there's a huge demand. Maybe you have heard also how the energy prices in China are rising. This is an application for OEM in China who's selling electrical cars, and we offered IE4 motors. And that as leading for a saving of energy consumption, which cost CNY 320,000 per year. So empowering the local team, knowing the market, having the right products in place was the key for success. Third, simplify our standard offering and operating model. We can learn from India and China. We have to clearly differentiate our position between standard and premium. In Europe, it's too close to each other. We have to clearly differentiate. We have to reduce the complexity of our standard offering, and we have started that. So we consolidated from 6 to 3 product lines, and we reduced 200 option codes. And this is just the beginning. We have to sell these motors. We have to sell it easy. They have to be easy to sell and easy to select. And how do we do that? The business area and the division is investing in the right selection tools and in e-commerce. And that will be the preferred channel to position and sell these motors in the future. You need more? You need the engineered motor for harsh conditions? We have our premium offer. We are securing you are getting the right support from our experts. And by the way, we have a customer experience center with our experts who's answering 1,500 technical questions per week. Maybe then the pricing execution. And I got a lot of questions also yesterday, very important especially in these times. We have been able to implement a current pricing strategy in line with the different channels and markets. And we were fast enough to implement it. In Europe, we have implemented 12 sorry, in Europe, we have implemented 5 price increase rounds over the last 12 months. We have to be consequent and selective with the pricing execution, and pricing excellence is something we have to continue, and we are tracking it every week, by the way. Finally, the global footprint optimization. We are just currently also investing in how to produce motors. So we are installing our automation system, and that is what we have to continue in some parts of our portfolio. And then make our buy strategy is key for reducing the cost and for being flexible. And I'm convinced that we are continuing our profitability path. And we have a proven track record over the last year. We have consistently improved our profitability over the last years. So the direction and the trend is showing in the right direction. So if I can conclude, energy efficiency is a key driver in a $10 billion market. The demand is growing. The demand for electrical motors will double in the next 20 years. We have to ensure and strengthen our pioneering technology leadership. If you ask our customers, they will confirm, you have the best products. There is very often, no doubt. But I started my presentation with a personal experience. Finally, it's up to our people to execute it. And I'm convinced with our new ABB Way empowering our units as close as possible to the customers, having a committed team behind me, I am convinced we are heading towards a profitable growth mandate by 2024. So thank you very much. And I think now we have time for some questions. And I would ask Andrea and Heikki to join me.

Thank you. And we'll turn to the room in one go to see if they will have questions. Yes, we have some questions. Yes, it's coming. Microphone is coming. Thank you.

Will Mackie from Kepler. You're both working with profit mandates. I guess the world is more fun if you're working with a growth mandate. What does it take to get you into that category of growth mandate? And when you look at your profitability as the 2 divisions relative to the rest of the VA -- divisions within the VA? I mean how far are you away from the average profitability for the group, for the VA?

So maybe I can start here. First of all, we don't disclose individual division numbers as a detail. But as I highlighted in my presentation, we have a geographies and product lines where we already meet and exceed expectation. So maybe that gives you an indication like we outperform in China, how we perform in India. And also in Europe, we have product lines where we already are very happy on profitability levels. But Then we have areas where we need to further improve our profitability to be all in all the level where we need to be. And that all needs to be balanced with the growth. So it's not only about the cost. It is the balancing the profits with the product line growth where we already said meet the expectations and profitability.

Stefan, do you want to comment as well? Or...

I would have had the same comments. I think the focus is important. So that's the bubble chart we're also indicating. So we have to focus on our strength and to improve a little bit how we are selling geographically and which kind of tools we are using to simplify the variance, so to reduce the option codes to make it easier for our customers, which is also saving costs, very important.

Thank you. We have some more questions here in the front row, please.

Yes. Sebastian Kuenne, RBC. Two questions relating to technology. Several times you mentioned CO2 savings, money savings with your motors. But I missed a little bit compared to what, is it compared to a motor that has been installed for 20 years? So what's your comparison here? And then another question also technology. I was wondering if you could follow up a little bit with hard facts. You say you are #1. You mentioned your IE5 and then your IE4 motors. But I wonder where Siemens, for example, on that ladder, how many years are they behind? Do they have a similar comparable product? And how much better is yours percentage-wise, energy saving-wise?

Maybe I'll take the first part and then Stefan you take the second part. So everything is relative because efficiency, we talk about percentages. And later on today, it looks in the relative terms, there will be an explanation of recent customer success, one of the larger irrigation jobs in India. 1/10 of the efficiency of a motor, regardless what is the pace, the 1/10 improvement will mean savings over the lifetime of the project. So it's all about relative terms. So we don't need to go back too much in the past, what it was. Today, we are clearly better, but it's all about how we try the pioneering technology, convert those customer requirements, all of that expertise, the product designed to get the maximum performance while meeting the customer requirements. That is actually the key. So it's all about relative terms.

I can add to that. So we saw the example from Tarak, so the saving example from Germany. I think that was compared with the IE3 motor, which is the current standard of energy efficiency in Europe. So if I talk about 80% installed motors, which could save 160 terawatt hours. So this is, of course, compared to the installed base, which is including, also low efficient motors, i.e., 2 motors, for instance.

You should be on.

It's just that your customers will not say I buy your motor because it's so much better than my current installed motor. He will say, I buy your motor because another one doesn't have the same features. So I'm not so much interested in what's the current standards but more where's your competition today.

So we honor fair competition, but of course I can not comment on what is the competition's offering, I cannot comment. So of course, there are similar offerings, but from less competitors in the premium segment. This is maybe an easy answer to that. But it is even more important how we are selling it. So what is the customer communication nowadays. In the past, we easily sold kilowatt and what is the price, the comparison. Nowadays, we have really to explain what are your savings. We have to go in the details with our customers. We have to have a look on the application, and Andrea will explain you later on how we are doing that. So we really have to argue with value and explain to customer, these are your savings and that is not the price per kilowatt. I think that is an importance when we talk about also domain expertise.

It's also on this like you can think this in the car industry, everyone is saying that these electric cars, how fast it accelerates. Everyone can make a fast accelerating car, but can you really drive the economic scale of this one? Is the market interested? And that is actually the key how we really kind of [ grind ] the domain expertise in economically feasible customer applications while driving the energy efficiency on a larger scale. That is the key.

Okay. If we go to Alex, again, please with the question.

I just wondered if you could talk to the relative sizes of premium and standard markets in the EUR 10 billion and then your relative size in those 2 buckets. And perhaps I guess I'll ask a quite aggressive question, I suppose. But if you've been ahead of the game on the premium side, would you describe yourselves as late to the game on the standard side? And how far behind do you think you might be?

First of all, it's difficult to differentiate because we are selling in all segments and with all product lines. The premium side, the main differentiator is really the quality, the reputation we have achieved over years. And what is the difference, the share between premium and standard, maybe it's 50-50. But as mentioned also, the premium motors or the specific application motors are based on these platforms.

And we have another question from Ben, please.

Is the strategy in terms of your premium versus standard, is that different from any of your competitors? So if you think of [indiscernible] or whomever, are they not doing exactly the same thing? So how is what you're doing actually different? That's question #1. Question #2, stepping back, it's really detailed presentation, very, very interesting. But can you just -- can we just simplify it and say if we look at China or we look at India, markets where there is double to triple normal levels of top line growth, that's where you have the easiest path to profitability. And if we look at other countries more mature, it's more challenging. Is it as simple as if we've got the volume, then we get the profit?

I can take this one first, and then Stefan, maybe you can continue. Partially right and not fully right, let's put it this way. Because we need to have the right credence on product line level to have, let's call it, right contribution in place, the need to set expectations for the customer requirements, turning that into the product features. So that goes back that we call it more investing on global product platforms, expanding the customer coverage, increasing the production flow and further utilize our common suppliers. I think it's kind of a combination of multiple elements, not only driven by the volumes itself. Because normally, we can deal with the price, but I think it's better to have a pricing intelligence in place and balance that with the right cost base in place.

And on the strategy, just in terms of what you're doing differently from competitors?

On the -- well, what we do and I think that is also one of our secret sauces for our success. Global product platforms, speaking relatively, let's call it, straightforward over the years. Redundant, driving the execution of global product platforms, common tools and processes while driving to increase in the productivity. I illustrated on my presentation in 2020, we closed the factory in Italy. I mean that was the last factory that we exited. And now everything is on common product platforms. And those products, by the way, we transferred from Italy to Finland, we overly put those on common product platforms and transferred those to be produced in China. Now we get the common supply base back to the Europe. And I think what we've been doing for several decades is starting to pay off. Can it be copied? Yes. But let's wait 10, 20 more years for someone to do it.

And regarding your question on the portfolio and how our competitor is doing. I think we -- I don't want to comment how the competitor is doing. But I think we have a very competitive portfolio. I think that the principal design is very competitive. We have to decide how we are continuing in different countries and how do we operate.

And if we make it really quick, because I know some people are dying for coffee now, we'll have one more question, please. Martin? Do you want to take that one?

It's Martin again from Citi. Just a question on the large, most generative business. You've closed a factory in North America, the NEMA business is down substantially. What was the reason behind that? Is it the market? Was it attractive? Was it your position? And is there an intention to get back into that market because it's a very small part of the pie now for the business.

Yes. We do roughly in America 10% of our overall annual revenue. The reason actually we closed the factory is that we were not -- we saw that we are not able to meet the expectations with the U.S. footprint. We discontinued 50% of our offering. We transferred the product to be produced in India. Surely, we have also redundancy of the footprint in Finland, but also in China. The purpose here is actually to get refocused, reset from the general market to high-end market, actually tried the volumes and productivity from other footprint factories, not only stand-alone in U.S. because, let's be open here, we were a little bit too small in size to maintain the profitability of the stand-alone in U.S. factory in simplified terms.

There you go. Sorry, I know there's some desperate coffee drinkers here now. So we have to break out there. These guys will be available down there for you here in Helsinki. Please make sure you visit the exhibition down there where you will have the opportunity to ask more questions. We'll take a break now, about 20 minutes. We'll see you back here in the room and also you at the virtual setup here at 10 to 11. And enjoy the break. [ Break ]

Right. I will now sort of urge the ones of you who are not back in your seats again, please take a seat and we'll kick off the next session. And we do so by listening to Jesse who's Head of our NEMA Motors Division in the U.S. Please, Jesse.

45%. 45% of the world's electricity is converted into motion into electric motors. Almost half. Even sometimes I forget the difference that it makes. I was boldly reminder of this last month when we were in Rome. So I had a meeting. And what's the first thing when you get out of bed? Two things you need, right? You need coffee and you need a hot shower. So I get up, I turn the shower on, and to my surprise, nothing. No water, no nothing coming out. And I was a little bit behind that morning. So I definitely panicked a little bit. But then at the same time, I thought, wow, there's an electric motor somewhere in the basement of this hotel that must not be working because I don't have any water right now. Thankfully, I was able to call the front desk. They came up there and they got it all fixed and they did it in a quick matter. So that worked out pretty good. But even better, I knew it had to be an ABB motor in the bottom of that basement. And the reason is, when I turned the faucet on, I could hear that pump running right through the pipes. So it was running. It was a water problem that was for the whole deal. So we do forget many times the impact that motors make in our life. Actually, everything you're touching, your computer systems, your phones, the desk. It's all brought to us, somewhere a motor is probably involved in making that happen. So we are -- they're very important to what we do and important to our life. So when I think about for myself, I've been in the industry for 25-plus years. Half of my career has been in the drives industry. So I understand how important motors and drives are together as one and what difference they can make inside of our business. When you get to know me, you'll quickly understand I am extremely customer-focused. Most of my career has been in sales, product management and leading P&L roles. Our customers are the passion for me and in the center of everything that we do, so much inside of my business, we have a mission statement. And it simply says, our mission is to be the best as determined by our customers, marketers, designers and manufacturers of industrial electric motors. You can see behind me 3,500 employees. Every one of our employees know our mission statement. So we know what's important to us. We know if we take care of the customers, we listen to the customers, we provide the products that they're looking for, then take care of our employees, our shareholders will absolutely be also be taken care of. So in every decision we make, that's critical to us. You can see our market. So it's a good sized market we have. We are the leading position in electric motors, not only with the NEMA but across all of our divisions and motors. And we do that across 7 manufacturing plants throughout mainly inside the United States because that's where our market is. Now one thing you'll find is that you may ask, hey, what's there with NEMA and IEC? And why do we have 2 different divisions that's leading this? Well, when you look at the portfolio and the product itself, there's much more than just mechanical differences on the outside. The market that Stefan and I lead into, the inside also is just as important. Our customer demands are different inside and out. So by us having separate divisions being close to the customers, deciding what their needs are, helps us enable and lead the market. Now for my business, we have profitable growth mandate. So we're really looking at 3 key areas of focus. We're identifying the white spots where we can grow, so we can grow our market share. And then we are also looking at M&A opportunity. So there's areas that we want to improve upon. And there's also areas we want to expand within. So those are key focus areas that we look into as we grow inside of our business. So when you look at our portfolio, there was no question that it's the broadest portfolio in the marketplace. That's what it takes to service the NEMA motor market. We do that with 4 key different areas: so general purpose, so our severe duty product lines, definite purpose and specialty. So those feed -- and this is just a sample of what we have to offer inside of our portfolio. We have over a million solutions available today that we can produce at any given time. When you look at our product mix, half of our business is customized solutions. So we provide exactly what the customer needs are. And the other half is standard off-the-shelf stock product that we deliver to the marketplace. So those are key differentiators that separate us to help us not only be in the lead, but continue to stay in the lead. The other key foundational thing for us is that we must be close to our customers. You've heard others talk about that. But now more than ever, as we see things change in the future, our buying patterns from our customers are also changing. We talked about localization earlier and you asked some questions about that. The differences are going to happen in the future where our customers are going to demand more and more closeness so they can get their needs and applications and domain expertise will be critical to the future of that. So when we look at where we operate, we operate mainly where our customers are manufacturing, and that's inside the United States. So you can see our business, 89% of it is inside the U.S. So majority of the market for NEMA Motors is inside of North America. Now we are definitely global and we sell on a global scale. But most of those products are coming back into the U.S. marketplace. So there's a big foundational difference there that it's not that we don't have the market share everywhere, because we do. It's more of an area that's where the market for NEMA Motors is, is mainly in North America. Outside North America is more metric-based and that's where it falls into Stefan and his team. Now we also have a broad portfolio that lead in some other markets like our cooling tower product. So that is a more of a global platform that we can lead and change into the market space. And then you can see there our overall segment mix, we're very balanced in what we do. And when we sell to the marketplace, we go mainly through 2 channels. We have our channel distributors, so distributors themselves, about 42%. And the other part of it is really focused on OEMs. Those are critical to our success and taking our value proposition to our customers so we can continue to lead in the marketplace. When you look at our market-leading position and across the segments that we serve, we service the entire market space, but this is some of the key ones where we are. Now there's opportunity for us also to grow in all of these. So you can see like water, wastewater, we're #2. And we have areas of focus there to be able to grow inside of those segments. But we're also very diverse in all the segments that we lead into. So as markets go up and markets go down, we can weather those storms because of the balance. So where that one industry may be going down, another one is going up and our new products may be feeding those market spaces. So because of our diversity, it helps. And also our balance in the way that we go to market, it supports those changes. So you may ask, where are we going to grow in the future? We really have 3 key areas of focus of growth within our business. First and foremost, continuing our energy efficiency legacy that we have. Now more than ever, there's a big fundamental change and energy efficiency will be key. We've talked about the opportunity where almost half of the overall energy consumed is by electric motors. So I want to talk to you a little bit more about that and what that means. There's some big mega trends happening in the marketplace. So we want to capitalize on that, and we already are, and there's a big shift from person to online. So we have not only new products we've launched for that, but there's also a lot of areas for growth that I want to share with you today. And the last part is embedding sustainability in all that we do. Absolutely critical. Majority of my R&D investments in the future will be sustainable products. That's what we can make a difference in the market. And I personally believe that we have an expectation as leaders in the business to do exactly that for their future generation. So we will have a big focus on that. So if you look at our business, it was started over 100 years ago. And it was started with one ambition: to build a better motor that use less electricity. And that's exactly what we're still doing today. In 1976, we received an award. It was a merit award for leading the way in improving energy efficiencies. This was a moment in time where this business started taking off and growing rapidly when that occurred. We did it again in 1983 when we launched a super e-motor. It was an energy efficiency motor that was 25 years ahead of its time. Once again, we started growing rapidly during that time. In 2001, we launched the energy efficiency label. So the side of every box, you could see the savings that could happen on a motor. And then what happened in the marketplace? A question earlier was around what's different in the efficiencies? Why now? Because we've always had a focus on energy efficiency. But there was a standardization. You heard the IE3. IE3 is pretty much now the standard in the world. And there's not been anything that has truly come out to be a full replacement in that. And that's what we have focused on doing, is creating that. So we are working on revolutionizing the motor industry again. And that is with the EC titanium product that Tarak talked about earlier. We have taken that product and they're now best-in-class energy efficiency available. And we've also combined the best of the best, motors and drives together as one overall package solution. So I want to share with you a video to let you see a little bit about what this product line is really about. [Presentation]

The most sustainable solution is the energy you never use in the first place. That's the opportunity we really have in front of us right now. We can truly make a difference. So when you look at this product, not only is it best-in-class efficiency, it has the drive integrated in. It has the drive from 1 horsepower to 10 horsepower. Until now, it's always been much smaller horsepower. It is doing this efficiency without using rare earth material inside of the product. That is a big differentiator you typically do not see in the marketplace. It is a drop-in replacement. For those 300 million motors that are installed out there, it drops right in. Again, across all of our divisions, we have best-in-class energy efficiency available to our customers. We're giving them a solution. When you look at the total cost of ownership of an electric motor, only 3% of the upfront cost of the motor is the actual total cost. So when you're talking about a 12-month payback by choosing a more efficient product, it's an easy, simple solution and our customers see that. So I'm going to share with you some megatrends that we have going on that is taking this product by storm. I cannot -- it's our fastest-growing product right now. I cannot build enough of them, and it has nothing to do with supply chain issues. It is growing that fast because our customers see the benefit in what this brings to do. So when you look at the megatrends that we have, there's a few things. So shoppers are changing. We're all now buying our stuff online. But 96% of today's shoppers are doing it online, and that's going to continue to change. That's driving big megatrends in warehousing, conveyor systems. We expect it to be delivered instantaneously. The other area is data is at our fingertips. It's on our computers, it's on our phones, and we expect information right now. So data centers are growing by 8x by 2030. So the demand is increasing rapidly. So when you look at these areas here, these are growing and these are with customers that are on sustainability journeys that see the impact this product can make. So I want to share with you one example of where -- that we are making a difference and an opportunity what motors can really do in a use case. So you look at a data center. 2% of the world's energy is consumed by data centers. So not that much, 2%. It's a fair amount. 40% of the energy used in a data center is with cooling. So it's used with electric motors. If you pair motors and drives together, which is a great thing, we have it integrated in, but we also take this product to 20-horsepower where we can leverage Tuomo's business, which he'll talk about, and put a full package solution there together also, 20% to 60% savings you can have with a motor and drive solution. So let's look what that means. So we have created dedicated products by listening to our customers, and we also launched the critical cooling motor. So this is where our common platforms that we have and the things that we do in our business we can leverage. So we've taken the platform of the EC titanium, and we've made a product now dedicated for cooling tires or for data centers called the critical cooling motor. It meets all the requirements that those customers need. So a typical data center is going to have 54 of these motors inside of it. And when you look at the potential savings that will have just by using the latest generation product, $174,000 annually can be saved in just one data center. There are 7 million data centers around the globe. So when you think about the opportunity of savings just in data centers alone, there's about $1.2 trillion of opportunity. It's just one case. That's only 2% of the overall consumption that we have. So when you look at our strategy, it's clear. We can truly make a difference in the climate, and we can make a difference with the products, and our customers are demanding that. 45%. Motors will double by the year 2040. So the growth path is there. And we're going to do that with 3 clear distinct areas: our energy efficiency, capitalizing on the data trends that we have and then embedding sustainability in all that we do. So we're strategically looking for M&A opportunities to fill some of our white spots, and we'll do exactly that. We're also looking at the future technologies. So being a leader in the industry, I expect my team to lead in everything that we do, just like the EC titanium here. This is a game changer in the marketplace, and we're going to continue to develop products based on our customer needs to do exactly that. So I'm going to invite Tuomo up because there's another half of the story on drive products and how -- with the difference that we're making there. So thank you for spending time with us today. And I hope that each and every one of you have nothing but hot showers the rest of the week.

Hello, everyone, and welcome to drive products journey. My name is Tuomo Hoysniemi. I've been 20 years with ABB. I'm originally from Finland, but I worked multiple years in Asia and now the past 5 years in United States, and I'm still located in U.S. Drive products is a market leader. It's a clear market leader with a 15% market share. And we are truly a global business. We have 2,800 people across the major markets, and we've been highly resilient during this challenging COVID times, having very strong revenue also in the past couple of years. Our strategic mandate is a profitable growth. And when it comes to the growth, we are accelerating our growth. We clearly grow faster. And we have the market-leading margins. So our profit is really the industry high level. And this was -- yesterday, we had a lot of discussion. Many of you, I've got multiple questions that how can we have so high margin? And I would like to summarize that with 3 different things. First is the best-in-class supply chain management with unparalleled flexibility and agility. Secondly, the premium product, the premium quality with the lowest cost structure, thanks to our R&D and technology leadership. And thirdly, the optimized pricing through our value-adding channel partner network. And those are the 3 topics that I will cover and repeat today. I'd also like to highlight that today, you have a great opportunity to participate the factory tours, and we also have the visibility to our reliability laboratory, which is a quite unique part. And when we talk about reliability, it's really the proactive way to secure the quality. And I really encourage to focus on that part of the factory tour. But now when we talk about the overall summary, we cover the last -- those different part. But then the question came, what is really drive? I got the question a number of times yesterday, also today that what is motor? What is drive? Here, you can see a few pieces about our drives, different size, different color, integrated. And it's a really high-end computer, it's really high-tech product, but we made it easy to use. It's plug and play. You connect motor and drive, then it works. But then when you go to our customers, what they need from the drive? They get electricity, drive and motor. Motor takes care of regulating the power to the motor and then match the speed and torque. That's the key function. And like Jesse said, motors are there, drives are there. You took elevator this morning, then there is motor, there is also a drive. It's everywhere. And the major advantage, saving energy, improving process accuracy, also productivity, saving resources and cost. A lot of advantage and customer really won't use those. Now we said several times earlier, 45% of the world's electricity is used for electric motors. And we see here, 25% is the typical savings when we use drive. It can be 30%, it can be 40%. But typically, when we have a drive, it's 25%. Take an example. The payback, 2 to 3 years very commonly, if you have the new investment. With a 2-days electricity price, it can be only 1 to 2 year's payback to have a drive. And after that, you save a huge amount of money. So it's really a significant advantage for our customers. Now how we go to the market. The -- if we start from the left side and follow this red color, our value-adding channel network is really a major advantage. And when we talk about our value proposition, it's not only product and offering. It's our product and offering together with expertise close to the customers. And the way how we do that is our highly expert channel partners which are very close to our customers. And this is an advantage that our customers are willing to pay. They want to get the service like only 1 hour away from the branch or 2 hours. And when the experts are close, that's really a significant advantage. On the right side, when we still continue to follow the red color, we see that our biggest market area is Asia, 45%. But it's still only 45%. We are well balanced around all the major regions, at least 25% part of our business. And in the middle, we see that our largest segment is only one quarter, which means that we have very high resilience with our segment strategy and we have a number of different segments, how we go to the market. So combine those all, we have significant advantage of our go-to-market. Then the next one is how we utilize our portfolio offering. We have the most modern platform and the advanced offering in the industry. And what we see that we have a number of different variants, but the core is a global platform, which means that we have the scale and we maximize the global usage, but then we can very quickly customize the local products. You see the products right here. Gray one is the general purpose, it's plug and play for multiple different types of needs. But then we have the blue one with our high-end software development and we made very specific drive for water. And most of the water needs are also plug and play. On top of that, we called all compatible. So the big thing for the customer is also the sites. And now you can pick any of the product, like small micro product, the high-end premium industrial product. When you start up one, it's plug and play for the other one. And this is very unique in the industry that the startup saves so much time that when you know one product, you're very familiar with all the other products and save a lot of time and also have high-quality installations. So combining all that with our digital offering, we have the full scope what the customer needs. Then talking about the segment. We see in our left side our development, 13% to 15% market share. And what we see right side, this was already mentioned earlier by Bernd. We have the strongholds with HVAC, water and process industries. We still see opportunities there. We bring new product, new offering. We continue to grow with our strongholds. But then especially food and beverage and machinery OEM are the areas where we have even more opportunities across the globe. And this is the extension for our strategy. We've been very strong with those 3 strongholds, but now we focus a lot more also different food and beverage part and also the machinery OEMs. And earlier talked about the M&A part. When we talk about the M&A pipeline and our interest is specifically focusing on the areas of food and beverage and machinery OEM where we have the most opportunities. Behind all this is our leadership of R&D and technology. Let's look at this example about the R&D highlights. We have the long history, very strong expertise, but we are working a lot more with the software and digital. Around 60% of the resources are working with the software and then fast customization, fast development for our customers. Now take this example right side. Tarak mentioned already earlier called UlsaloHarmony. Harmonics is a difficult term, but it means kind of pollution in electric network which might cause some overheating and challenges in the network. The typical way in the market is to solve that with this very large cabinet. How we do that is simplify and put it in the one module which is 90% smaller, 80% less weight, 75% less wiring and still performance is better. We have a fourth generation, only a few competitors have similar products and they have a first generation in the market. And this is also the example that we talked about HVAC earlier. We have a very strong -- having the very strong position. But with the newer technologies, we continue to grow. And this is our fastest-growing product series, and we don't talk about 10%, 20% or 30%. It's a lot more than that. And it's really a breakthrough. Combining that with a global platform and then the quick variation and customization close to the customers, even this most complex products, we make plug and play for our customers. So how does the customer see that? Let's take an example. This is Australia. It's a water because now, as Tarak said, we convert the same technology in the water side also. Very difficult site, lot of technical work, weeks and weeks measuring, but a lot of problems. Customer decided to take, based on our -- the discussion, the ULS product, it's plug-and-play, everything works right away. And this is also our philosophy. We want to make complex high-end products, easy to use, plug and play and simplify the customer needs. And customers are willing to pay above that. In this case, on top of that, 20% efficiency improvement. And the good thing is that world is full of this type of opportunities. Tens of thousands of these pumping stations, even hundreds of thousands of this, really full of opportunities. Now combining the offering with the digital, we have a 3-tier digital approach. And the first tier is to make the user's life easy. Instead of massive manuals, there is a QR code on top of all our products. Just read the QR code, you get all the data. Very simple to read, easy format in the digital format. Second level is a Bluetooth connectivity. You can see the drives or at the back here, there is always built-in Bluetooth connectivity. When there are any issues on the site, just having mobile phone, the drive can be connected via the Bluetooth, our back end, get the online connection and support. No any major investment, no any other devices, we'll take care of that. And the third tier is the integrated cellular connectivity. We are the only player in drives industry who has the integrated cell or our connectivity built in the drive. Even we see this great drive here. On top of all the major features of drive, it's also a mobile phone. It's built-in, even you don't see that. And it can be connected. And that is really the enabler when it's a built-in for the recurring revenue and the new revenue streams. But I'll let service colleague Adrian to talk more about those opportunities. So combining all that technology and product offering, we focus more on the OEMs. And the key for OEMs to be close to the customers. And now the other extension of our strategy is so-called OEM hubs. Traditionally, the highest level expertise is at the factory, like here, but we are far from the major customers in many areas. Now we established a concept called OEM hubs, which means that in the sales unit, we have the highest level of application expertise. And when the OEM needs presale support, any support there, we have the highly expert team available. And that means that we can really be agile and flexible for the customer needs and also strengthen the support and, at the same time, accelerate the sales. So far, regardless of the COVID challenges, we've opened 3 these hubs in the Europe and then we are extending several more in this year. And at the end, happy customer is our key. So we want to demonstrate video about one of the new happy customer that we enabled with this OEM hub. So let's have a look 3 minutes with you about [ GEA ], our machinery OEM customer. [Presentation]

Yes, that's really our target: happy customer. And what we work there, the can-do attitude. With this OEM hubs, are closer to the customers and really meet our customer needs with a local language. Also the importance of motors and drives. The key thing is that we put those together and make our customers' life easy. Now summarizing. The overall message is, I've been now 10 months in this role. And with a great drive products team, we really demonstrated that we accelerate the growth. We continue to grow faster and keep the industry high margin and then first 16% market share and then beyond. So global technology leader now close to the customers and then driving growth focused on segments and digitalization together with the service, together with partners, OEMs and our customers. And then combine the message from Jesse and myself, the future of electric motion is now. So together with ABB motors and drives, we make the difference. Thank you. And then I'd like to invite Jesse and Ann back on the stage.

Right. Same procedure. Do we have any questions here in the audience? Yes, please, in the -- on my right here.

It's [ Calvin ] from Credit Suisse. So Actually 2 questions probably for Jesse. So you mentioned your leading product, EC titanium. So what is the price of your product compared to your previous modules or probably this is one of your first modules in the space? And also how do you expect this price to evolve going forward given your lagging positions in the market? That's the first question. And second question is on your M&A. So in terms of your pipeline, do we expect any actions in the coming years? And also going back to your point, given that your product is already leading in the space, so what's your strategic focus in terms of your M&As?

Yes, sure. So the first question there around the profitability of the product lines. We always take into account what the market needs are and understanding the value proposition that we can bring to the market. The great thing about the EC titanium, when you integrate the drive and motor together, there's a lot of opportunity for additional value to the customer. So an example of that might be on a conveyor system. A typical conveyor system has a drive and then it has a motor and they're separated. That drive goes inside of the panel, and the panel has to be wired up and connected and a lot of times are smaller horsepower that fit within the scope of the EC titanium. By being able to now mount the motor and drive together as one solution on the conveyor system, the value and the cost overall is reduced for the customer. And -- but the value goes up, but then our value also as ABB goes up. So there's a lot of advantages we bring. Another example would be many HVAC systems use traditional pulleys. So they have a pulley and a belt system to get the ratios that they need. Again, our drive, who was mounted, go separate from the fanning closure. Combining that together dramatically reduces the cost for the OEM or the final customer and -- but it lifts the value up for them. Again, that lifts the value up to us as ABB and the premium we can get in the marketplace. So those are things that go along with just not only leading in the technology, but we're truly changing the technology and application in the way that they're put together. So that's just a couple of examples there. And then on M&A. We are absolutely focused on that. And when we look at the M&A opportunities, there's a few key areas that we're focused on. One is additional emerging technologies. So what is the future of motors going to be 10, 15, 20 years from now? And where do we need to invest in those areas to be an area there. The other one is some of the things we talked about around white spots. What white spots do we have that we want to grow across our segments and that we may need to invest within? So then the last piece is anything around value chain. So where do we need synergies that we may want to grow, which type of markets or things like that, that could come into play. So we have a balance and we are looking. And absolutely, within the next couple of years, I would say, we -- we're aggressively, without question, looking for M&A.

Right. Thank you. Can we hand the microphone to Joe here, please?

Jesse, good to hear another American voice. So thank you for that. We talked a lot about the -- that EC product, and for someone with no engineering background like combining those 2 things seems fairly obvious. So why was that not obvious? Like why was that product -- why didn't that exist 20 years ago? Was it people who weren't willing to pay the premium that it likely has? Like why is that now a new innovation?

Yes. So a really good question. And when you look? At the technologies itself in the past, drives have really advanced and also motor technology. So motors are hot. And so they generate heat and the outside skin to materials are hot. So to put an electronic device, I don't know if you ever had your cell phone in the sun in your car and it's over -- temperature, right. To put that on top of a motor in the past has not been necessarily right. But components, electrical components have gotten better temperature ranges and then also our motors with our latest designs are getting cooler on the skin temperatures. So now it becomes feasible to start putting that together. And traditional for this system is typically below 1 horsepower. So those have been around for some time, and they're used a lot, but the really low power. But us taking it up to 10 horsepower and getting that scope in that range, that's the big enabler there, and being able to do that.

Okay. And just before we let you lose here again, we have one question coming through for Tuomo. It says Tarak mentioned that market share in the U.S. is not where you would like it, or where he would like it to be, how are you increasing this?

Yes, so we have a special initiatives focusing U.S., investing their resources sales side, but also the local expertise for R&D production. So that's the major part of drives investment, utilizing the segment strategy. The other part is that we work very closely with Jesse and with our partners, the channel partners, to bundle the motors and drive offering. And the major enabler that we will get more share is the joint offering and then the go-to-market together with NEMA Motors. So those are the main activities that we already started in North America.

And we have one in the middle here on the -- thank you.

Will Mackie, Kepler. Thank you for the deep dive into the value drivers for the business. I think in the context of perhaps the last 10 years or so, we've operated or you've operated in an environment that is characterized by low inflation. As we go into the next 2, 3 years, you've got an unprecedented road ahead of you with respect to inflation across your bill of materials in the motors business, not least also on the supply chain side for drives. So can I ask a question with regard to motors, how much do you need to raise pricing to offset the inflation coming through or across the bill of materials for transportation or steel or copper? And with respect to drives, how do you manage the disruptions that you see at the moment across the Chinese supply chain from lockdowns and other measures?

Yes. So I'll start on the overall first question that you had, it really comes to agility. So we had to be very agile and stay very close to what's going on in the market. So if you think about electric motor, it's copper, steel and aluminum, are the core components that drive the cost of that. And there are certain strategies we have internally to balance that out so we can write it up and down and manage the overall business, but it ends up being about seeing that and driving price into the marketplace as you need to quickly before that you see that cost come into the business. And that's something that we've been able to do over the last 12 to 18 months, very well. Stefan talked about the price increases that he's had to have in his business. Same thing with the NEMA Motors business. And when you look at Q1 and where we are positioned in that, our price curve was ahead of our cost curve in the right way.

And then maybe adding the dry part that what I mentioned earlier, the unparalleled agility what we have in the supply chain. We take this our modern products. We started the research work already almost 10 years ago to build the multiple sourcing. And we have active multiple sourcing for all even key components. And if you take an example, this control panel, even the microprocessor, we have 2 active sources. And it's not only the vendor only, it is second tier, third tier, which means that also the silicon wafers, we have alternative sources. And that means that with this unparalleled agility, we see difficulties in one area, we use other areas to support. And even quarter 1, we've been highly resilient against this challenge.

And we'll have a final question. We have Gael here in the front, please.

I think Tarak mentioned earlier that Motion overall has about 1,000 salespeople, 6,000 channel partners and so on. And it still looks relatively low in comparison to the 300 million installed base you have and maybe, in comparison to the fact that some of your customers, now apparently a lot of your customers are not necessarily aware of the decarbonization and energy efficiency benefits, you can provide it to them. So my question basically is, I mean, would it make sense to sort of invest massively in selling expenses looking forward? How do you think about that?

Yes. If I take a global view, I'll let Jesse to give the motor side. But from a price perspective, we are investing quite much for our new channel partners. So it's really the channel partner development and find the right partners and also get more partners who do the market-making and hunting activities. So that is really a major investment already. But it's a very effective way to do that when we find very professional channel partners. On top of that, while we are growing, we are investing heavily also sales. But we still need to have the right balance that we can train them and support them. But compared to the past, we are investing even more, our channel and go-to-market.

Yes. So for the motor side, it's really about from a customer's perspective and what they need to make sure that they're supported. We take -- you heard our mission statement is termed by our customer. So it's very critical that we make sure that we're very responsive in the marketplace, and that's exactly what we do, and we're also proactive out there. So when you look at our mix, the 42% channel partners, we sell to over 10,000 customers that we have really close relationships with that also take our value to the marketplace on our behalf. And then also the model that we utilize inside the United States, where a majority of our business is, we do that through an independent rep model, which gives us significant improvement in our overall reach that we have and they are dedicated to ABB and the way that they lead into the marketplace.

Thank you, guys. I'll let you wonder off while I'll give some practical instructions on the factory tour and which we're going to head into now. For you guys who are with us virtually, there will be a video showing as the rest of us leaves out of here showing how you may bump into the benefits of Motion's offering on a daily basis, knowing or unknowingly. For the rest of us in here, there -- let's start here. We'll have some safety measures just to make you aware. [Break]

Right. Welcome back, and we will now take you through the last 3 divisions. I hope you enjoyed the factory tours and meet with the guys down there and got a good impression of what the people up here on the stage have actually been talking about. I -- with that, I will just -- with no further ado, I'll hand over to Chris, Head of the Systems Drives division. Please, Chris.

So good afternoon. I hope you all enjoyed your factory tours. My name is Chris Poynter. I'm the Head of our System Drives division. I'm a Canadian based in Switzerland. And I've been working with ABB in one form or another in motors, drives and process automation for about 40 years. Today, I'm going to explain a little more about the system drives business. I think it was interesting talking to a number of you over the last day or 2 and trying to explain what we do. I hope in the next 20 minutes, we'll give you a thorough understanding of where we are and what we're doing in the industry. And one of the things we will be talking about is the great opportunity we see with energy transition and decarbonization. System drives is the market leader in high-performance high-powered drives and an independent supplier of power conversion equipment for renewable energy and some other industry applications. We operate in a market of about $6 billion and compete with the likes of the big guys, Siemens, Rockwell, and Schneider globally in a whole range of small to intermediate local and regional competitors in different market segments and geographies. Business is operating revenues in the range of about $1 billion and has a very high service attachment that Adrian takes care of. Our strategic mandate in ABB is to continue our profitable growth. And with that, I'm going to show you a little video that gives you an idea now that you've seen some of our products where you might find them an industry and some of the exciting things our customers do with them. [Presentation]

So the business has its roots in heavy industry. But today, we're doing a lot more than that. We still got about half the business in Process Industries, where you'll find our products running critical manufacturing and material handling process in industries like mining, metals, pulp and paper, cement and a number of others. In infrastructure and utility for us, this is big air and big water, where our large drives and drive motor packages will operate things like desalination plants, large water infrastructure projects, district heating, district cooling, tunnel ventilation and a number of other things. Transportation for us is marine, where you'd find us in propulsion systems for cruise ships, ferries, cargo vessels and icebreakers. We'll have drives on deck equipment, like cranes and winches, and we make a range of modular products, marine-certified modular products that our integration partners use for putting together fully electric battery-powered vessels. Renewable energy, you saw the picture, most of our business in renewables is wind, where we supply converters, power converters to wind turbine manufacturers all over the world. For all of those industries and all of those customers, our brand promise is performance and reliability in mission-critical applications. Give you a little idea of scale and capabilities. When NASA decided to put together the world's most powerful wind tunnel, their transonic test facility in the U.S., they came to us for a drive motor package. It's about 135,000 horsepower, 1 unit, and it's driving what you would say is a fairly large stand. In India, I think in the Motor tour, they discussed the Kaleshwaram lift irrigation project single pumping station with 11 50,000-horsepower motor drive packages moving water up the hill. We control heavy loads with incredible precision. Paired with our ABB as Azipod propulsion system, we'll navigate and position a cruise ship 100,000-tonne cruise ship while it's moving around in the Caribbean islands and docking at those little places. And synchronize the operation of 40 motors on a machine that's making paper at a mile a minute. Customers use our products wherever they are highest altitude, and in the case of this pilot application for a subsea drive, on the ocean floor at 3,000 meters below sea level. The business has performed well in some pretty volatile times over the last couple of years, with order growth, revenue growth and profitability through the period. And we see a pretty good outlook for our core markets going forward. We still see some good recovery in process industries. Infrastructure, we're still looking forward to seeing some of this post-COVID stimulus money hit our books, but we still see a future in big water. Marine for us, we see some kind of midterm recovery in cruise, some increased cargo capacity and a really good opportunity for these small- to medium-sized electric vessels and in wind, we're looking at probably the whole industry, onshore and offshore growing about 8%. But where we play, which is large high-powered offshore, we're looking at about 25% growth, if you believe everything you read. We're not just waiting for the market to go -- to look for our growth opportunities. And I'm going to say Tuomo fell on his sword for me a little earlier. Somebody asked him about market shares in the U.S., and I think that was directed to me. Our market share in the Americas wasn't what it should be. About 3 years ago, we started a program to remedy that. We've built up some new portfolio, invested pretty heavily in sales and we're seeing growth in the Americas, about twice the rate we're doing around the rest of the world. To reach out and connect with some high-growth but pretty fragmented new market opportunities, we've launched an integrated program where we finished developing a full portfolio of air-cooled and liquid-cooled modules, I think you saw the modules when you were out in the factory tour, for integrators in a number of industries to put solutions together for their customers using our equipment. We think this is going to give us an opportunity to reach some of these markets faster, and helps us improve our mix and reduce our risk a little bit as we try and expand into these new market opportunities. And in the next few minutes, I'm going to talk to you about the decarbonization opportunity and how we see this as a real interesting growth opportunity for our business. So you heard from everyone this morning that energy efficiency at scale is probably the key enabler for industry meeting their carbon reduction goals. We look at this maybe a little differently in system drives. We're looking at a decarbonization opportunity that is going to drive some real growth opportunity for us in our products. You can't decarbonize anything without renewable energy, and we're in the wind business. In 15 years in that business, we've delivered over 40 gigawatts of converters to turbine OEMs, which is about 5% of the total installed wind generating capacity in the world. We see that market continuing to be pretty strong on the offshore side. And today, we're delivering some of the biggest power conversion applications in the newest and largest wind turbines in the world. You can't have renewable energy without some need for grid stability. So what here -- what we're talking about here is things like battery energy storage, pump hydro, compressed gas storage where we've got a whole bunch of new energy storage applications that are supporting the grid stability, every one of those applications needs some pretty sophisticated power electronics and software to reconnect that energy to the grid. And then we see 2 interesting opportunities for us emerging from this. One of them is some of the new energy transition opportunity with things like hydrogen, carbon capture utilization and storage and a number of biofuel applications that we're starting to get involved with. These are new markets that didn't exist a couple of years ago. And when we look at the growth opportunities that people are talking about with these new emerging industries, we see some really, really interesting potential for our business. And then the last thing here is decarbonizing industrial process, and I'll talk a little more about that later. For us, this is removing fossil fuel-based applications from our traditional industries and replacing them with electric motor and drive solutions or electric solutions. This for us allows us to keep -- take advantage of the connection we have with the markets today with our end-user customers and our OEMs and really start looking at new ways we can power our business for the future. The hydrogen hype, I think Tarak mentioned that a little bit earlier, is just now starting to turn into business. The growth opportunity that we see here for our products and services is tremendous. And we're involved in all aspects of the hydrogen value chain. In production, we supply power supplies to electrolyze OEMs so that they can make green hydrogen. Our OEMs and integration partners today are repurposing their businesses from oil and gas and some other industries to move into these new high-growth opportunities, and we're right beside them when they start working on these new applications. And then downstream, we've been involved in fuel cell electric generation for some years now. We've got a good business on the marine side and we're starting to reach out and work with some partners on stationary power applications with fuel cells. So if we look at what we see for this market, we think there's 1 billion to 1.5 billion in new accessible market available to us by about 2030. We go back to industry and we started looking at ways to replace fossil fuel-based applications, and one of the big ones is turbine replacement. This is replacing gas turbines and steam turbines with electric motors and drives. These are bigger electric motors and drives. Heikki and I are working pretty hard to continue to work with this. On the greenfield side, I spoke to a couple of you guys in the last few days or last day about LNG, where the investments in LNG seems to be headed towards electric solutions rather than using their own gas and gas turbines to drive their compressors. Our customers are telling us this is a more efficient way to operate their plants. It's also an opportunity for them to enable carbon-free operation if they can find some renewable energy to power their facilities. On the brownfield side, where we see a long-term sustainable revenue stream, we're talking about replacing aging turbines in industry and replacing them again with motor and drive packages. We're still looking at this market and how we might get there. But right now, it seems to be shaping up to that. Our turbine OEM partners today are trying to find ways to replace some of their turbine business with alternatives and go after this aftermarket opportunity that they have access to because they are compressed. So some interesting things to come. When we look at that retrofit business, we're pretty excited. There's thousands and thousands of turbines out there right for replacement. And at about $1 million to $5 million of ABB scope per replacement job, we can see this looking like an interesting business for systems and drives. The customer intimacy that we built up over the years with our sales and service reach is giving us an opportunity to talk to customers about some strange things they're starting to do in their own industries to reduce their carbon footprint. We launched a series of products for industrial process heating in 2020. And we've started working with customers now on large process heating applications, where they're removing fossil fuel-based heating applications and replacing them with electric. Now there's no motors in this, so I apologize to Heikki for not having too much going on for him, but we're providing pure electric solutions for heating instead of gas and oil. In this case, we have a customer in Norway, who took a 9-megawatt oil heating system for a pulp dryer out of this plant and replaced it with an electric system. Now he's got a more efficient operation, and he's claiming he's saving 14,000 tons of carbon a year. So we're not improving his energy efficiency, we're eliminating the use of carbon fuel completely. We see an appetite for this in the industry. And our industrial customers in metals, oil and gas, in pulp and paper are telling us they want to start having these conversations. And we're there with some of our integration partners finding ways to solve these problems for the customers. The last one I want to talk about here is our marine business. There is regulation coming into play in ports all over the world to eliminate carbon emissions in the harbors, which means you stop running diesel workboats, you shut off the diesel generators on the cargo ships and the cruise ships when they dock at the ports, and you find other ways to provide electricity to the dock ships and then you find other ways to operate the work boats in the harbors. In this case, we've used our marine-certified modular electrical package to provide, through an integration partner in Turkey, a fully electric battery-powered harbor tug, 3 of them, that's actually coincidentally going to a small port in Western Canada. This is going to save this customer 5,000 tons of carbon a year compared to using a diesel. And for us, this is opening up some fantastic new opportunity where when we look at how many tugs were in operation around the world, and it looks like 18,000 to 20,000 small to intermediate-sized workboats that we're looking, at $1 million of vessel in ABB scope, we think if we can get some of this conversion started to electric and really drive this, again through a bunch of regional and local integration partners, we're looking at some interesting new emerging business opportunity. So without showing you a lot of our big products, they don't fit on the stage here, most of them, I hope I gave you a little more insight into what we do. We've got a great brand. We've got technology leadership, and we've got some incredible reach globally with our sales and service network that we built up over decades. We think there's a pretty solid market outlook for our core products. And I hope I've given you an indication that we see the energy transition and some of this decarbonization opportunity as a tremendous growth opportunity and an opportunity for us to continue our profitable growth for ABB. So that's it for me. And I'm going to hand it over to my friend, Edgar, who is going to tell you how rails and wheels are going to save the world. So anytime you're ready.

Thanks, Chris. And by the way, we would be pleased to use a lot of your renewable energy to run our vehicles produce. Yes, Edgar Keller, close to 40 years with ABB and more of half of that time around the railway business and supporting the growth of this business. Let me explain a bit what we are doing around trains and other vehicles. We do propulsion systems, and this means we are able to design the whole propulsion chain of all kind of trains from high speed, locomotive, metros. And we also produce most of the components, like traction converter, auxiliary converter, battery chargers, energy storage and traction motors, but we also connect everything together. And I hope you realize that we're also in the EMUs. And you realize the powerful acceleration this morning in the train and then the smooth ride afterwards, that's our part, what we are contributing to the performance of such trains. And it's clear that the customer of our customer, they are selling seats and they are selling tons of freight. So they don't want to have heavy electric stuff and big electric stuff to use all the space on the train. So we always push to minimize to put it together to make it lightweight. And yes, we all -- if we use the train, we want to be punctual at the place to go and back in the evening on time. So reliability is really a key driver. And availability only to give you such a train is 18, 20 hours a day operating. If you compare that with your private car spending most of the time in the garage at home at the parking space close to your office, so that's really a different world, what means availability and daily usage. And yes, all my colleagues has also stressed energy efficiently, I will do the same. That's -- and that's really -- in our case, it's also not only to drive energy efficient, it's also to be able to give as much as possible braking energy back to the network. Or you can be sure if you are -- if the train starts to sail or to brake, your mobile charge will immediately be supplied by braking energy. And the same is with the air conditioning and waste lightning in the train. So we are using directly the braking energy in the same millisecond on the train. Our market is around $4 billion. And we are -- from the numbers, we are #2 globally. Growing in Europe with all these different voltage systems, different frequencies, different signaling, we have, by far, the broadest portfolio. We have the most systems which are crossing the borders, where we have 2 systems or sometimes even 4 different energy systems on a train. So we are convinced from the portfolio, we have more or less everything what you can use on a train. And to give you a bit an impression of a replacement to also see how it looks inside the vehicle and the size of such a converter, we have a short video. Here, our customer is removing the whole converter. In our factory, we are building the new one. A customer is also doing some other optimization, and then he is putting in the new converter and the locomotive goes for test and back in operation. This project is a replacement of converters in 120 locomotives and was running around 4 years. And this is saving 30 gigawatt hours a year, which is similar to consumption of 10,000 households. And also, with the energy price from yesterday, this is this is accumulating to a million savings every year. That's clear. That's really a lot of energy. We are working with -- together with the OEMs in a more strategic partnership because we are close together from the concept phase where we're designing our stuff into the train. Started with Stadler, growing with Stadler, but then working with many hours OEMs and also directly with the operators. And with these operators and they sending the vehicles around the world, we have then reached really a nice installed base around the globe. Clearly, a bit more crowdy in Europe. And what is also very crucial for us is this project are mostly public finance and it's taxpayers money. So there is also -- they are also looking for some employment in the countries. And this is why we also have to fulfill a certain local content. In some regions, it's clearly defined. In ours, it's more a nice wish. But it's also what the customers are looking for is really they want to operate these vehicles for 30 years. So they are looking that there is somebody who has a bit more know-how to maintain that. And this is also why we are local, with local production, with domain know-how, and yes, also to understand the different requirements in the different markets in this more, I would say, complex environment. Yes, why we are strong in that market? We see us really as a technology leader. Somebody has asked this morning, yes. can you prove that? We will do that. And that's, again, energy savings. It's really important. And what is also a strength is really we're working at the beginning with the OEM, but later on with the operator. So that's really a long cycling business. And as already mentioned, we have some dedicated production sites for traction products, but we also can count on the whole Motion ABB network service, all that we can rely on if the trains are going down to other places. And to prove the energy efficiency, we really ask our customer, he should do a measurement with 2 similar trains on the same network with the older 2-level technology and compared with the 3 level, which we have developed and introduced some years ago, and it's really -- that's 20% savings, more than 20% savings on train level. It means less consumption for the whole system. And this is mainly because of the harmonics, which are making losses then in the motor. And with a much lower motor temperature, it's clearly proven, there must be less losses. Yes, about next, we thought about what can we do with our knowledge. And we have realized that in -- heavy mining vehicle is very similar to a locomotive when it comes to the components which are used in. And the locomotive converter, that's -- it's more or less the same power. It's the same robustness and very similar requirements. And yes, let's imagine -- we also have the battery in the meantime. Let's imagine we go uphill on the catenary. We use the payload of more than 200 tonnes to charge the battery if we go downhill and the rest we run on battery. So that would be really a sustainable solution. Yes, some early examples, but this we really see as a heavy growth segment. Because the mining is really there are different numbers in rail. That's a much higher quantities, much higher volumes. And if they would change to electric, that would mean that a really sizable market. And the same is with e-mobility, the electric buses. That's yes, in principle, you cannot see a new tender with diesel buses in the public area in the cities and so on. Everybody is asking for electric today. Then from this side, we are in a mature market, rail market. The market was growing in the last 2 decades. And with the investments which are announced, it will further grow. The steep growth in the e-bus market where all the new tenders will be electric. And including our extended portfolio with the batteries and then the new area in the heavy electric vehicles, we really see a growth potential, a sizable growth potential here. And it's close to our knowledge, which we have today. Another example, electric bus. In addition to the converter and the motor, we have put an energy storage system there. And this is this trolleybus system, where the operators are mainly struggling with the crossings. There is always something happening, difficult to handle. In the meantime, with the battery, they can remove the crossing. They can run on battery and connect on the other side of the crossing. If there is a construction work on the street, they can pass by, by the battery, reconnect later on. So that's a bit renaissance of the trolley systems in the city. Also, if they want to extend a street which has no catenary, they can do it with the battery and then they come back to the catenary, they charge again. And that's one of the only systems so you can do revenues during charging. That's really going the same as moving to people. We ask our customers what he thinks about that. Let's listen to them. [Presentation]

This little project that was really 9 buses, they can save over 200,000 liters of diesel or 540 tons of CO2, because it's -- that's a bus that's also running 18, 20 hours every day. Yes, the future of transport will also be electric. And I would say the rail industry, we can bring more than 100 years of experience to that table to get it electric. And with our global leadership in technology, with the access, the local capabilities, the domain know-how in a market, rail market, in a steady growing rail market and with the opportunities in emerging markets, we see a strong growth in the coming years, to further growth like we have done in the last even 20 years. Thank you. And then I would ask Ann and Chris to come to the stage for question and answers.

Yes. We will have a few minutes for questions to these guys also. So do we have any in the room? Yes, please, we have Andy here in the front in the second row.

It's Andrew Wilson from JPMorgan. I just wanted to ask, Chris, on the U.S. business. You kind of talked about the market share that you gained there from, I guess, what sounds like an underweight position to a much improved position. I just wanted to, I guess, understand how you did that, and if there's anything you can take in to either other regions or onto some of these new market opportunities that you talked about?

Well, part of it was with some of these new opportunities. I mean maybe not the new opportunity, but there's no way of getting to some of the market. Look, we made some fundamental mistakes with portfolio about 15 years ago and we lost some real ground, and we lost some connection with end user markets when we did that. So recapturing that is not easy. We've invested in sales, account management people. We really -- we do know these customers. we're still very involved with the high end. So the really big compression in these kind of things, we'll still part of that market. Getting down to the -- some of the products you saw in the factory today, getting those back into the market, working with integrators and things, this is just -- it's heavy lifting on the sales side. We're about to launch some portfolio in there that's going to get back another piece of that for us right now. But we just -- we dropped the ball there some years ago. And I'm quite optimistic about us finding our way again. And there's some real headroom for us there.

Yes. And we have one question there with Jonathan.

Jon Mounsey from BNP Paribas Exane. You mentioned on the mining using the sort of learnings and technology from the traction business and applying it there. And we already hear a lot of talk from the likes of Epiroc about moving over to fully electric mining vehicles. I mean where are you on that? It sounded like you were just getting started. Or do you actually have some of the OEMs, Epiroc and Sandvik signed up as a supplier to them? And then secondly, isn't much of an aftermarket opportunity. When you showed the rail, you were showing retrofit of existing rolling stock. Is that something that's like -- I would guess it's perhaps not possible when it comes to mining equipment. Is it purely a new a new equipment opportunity?

No, it's for sure a new -- from a new vehicle. But where we have started now with different projects, also you mentioned that Epiroc, is really replacement project. It's still a bit in the early phase, but the first vehicles are already running on batteries, and it's really replacing the diesel engine with the -- they are partly already electrified with -- they have a generator and then a converter and an electric motor behind. And this will -- is replaced by battery and DC-DC converter to run it fully electric without a diesel engine. There we are working on several projects, but also on new projects. And you mentioned the aftermarket, my example with the locomotive, this is a locomotive, I got to mention, that's 20, 25 years old. And then if -- the mechanic is strong of such vehicles. And then typically, with the electronics, it starts to become obsolescence problem with some control components. And then together with solving this problem and have a huge energy savings. Many customers are really thinking about to replace then the converter or even some other parts together to -- and then such a locomotive, it's even better than a new one. That's our aftermarket, I would say. The the new vehicles, they are expected to run 15 years without bigger issues.

Because that was like a mid-life upgrade you were showing there.

Yes, that's a midlife upgrade, yes.

But of course, the OEMs, they sign up the customer to a -- usually a service package, 10 years, day-to-day maintenance. Do you capture any of that, just spares? Or do you actually...

We have more and more service level agreements with either OEMs, if we are back-to-back with them; or if they do not have the service agreement with their customers, then we have also direct service agreements with the operators. And that's really availability. Today, we are really so that -- we have the spare parts on site in an ABB container. And with a digital solution, they can take it out at 1:00 in the night and make the replacement. And then they say in the spec to data, and we are replacing the material if needed. Because we cannot be in every depot, but we are -- we do the training for them and we give them a nice diagnostic tool, and then they can do it by themselves. We only have to make sure that they have the right material on site. Because the train is standing only between 1:00 in the night and 4:00, if there is something to do, then they have to do it in the depot.

Yes. And we have one question on the right-hand side.

Yes, Kevin from Credit Suisse. Just one question on your emerging markets. So you mentioned quite strong outlook in emerging markets for traction. So in terms of your kind of double-digit growth, if I'm understanding correctly, how much is coming from e-mining or e-mobility and how much is it from your traditional rail? Because I think you mentioned that in your presentation slides, product line growth, 25% -- around 25% from E-Mobility, 75% from rail. What does product line growth mean? And in terms of your revenue growth, like how much is it from emerging, how much is it from traditional?

Yes, you have seen from Bernd this morning that we have been growing in the last year by 12%. Yes.

Sorry, Bernd, can you just wait for the -- thank you.

Good. So we have been growing 13% CAGR over the last years in traction in general. And the slide that I was showing was regarding moving the portfolio to 25% of e-mobility midterm. So we are not yet there.

But it will be a part of the growth. Clearly, this 25% will be part of the overall growth. Is that answering your question?

Sorry, can you just...

Can you disclose how much of that 12% is from your emerging markets versus, say, traditional rail? Or is it something that is not disclosed?

No, this -- we should not disclose yet. Sorry.

Okay. Do we have any more questions from the floor here now? Yes, we have one at the front. Thank you.

Just a very brief one, I saw that Siemens is not one of your partners in traction although you have so many different electrical systems on trains. Is there really so much competition or infighting that you have no cooperations with Siemens?

We have a little bit of cooperation, but it's Siemens is an electrical company as we, and so they are sourcing that they have propulsion systems mainly internally. And with competing on the train level, it's a bit they are fighting with the rail competition. So -- but they are not really seen as an independent propulsion supplier on the market. But I should not talk so much about competition.

Okay. Then we have just one question coming through here through the online tool, and it's heading for Chris. And it says, you talked a lot about your hydrogen offering. And it says here, this person wants to know, do you need to increase R&D in order to capture the potential growth in hydrogen?

Yes.

Can you elaborate, please?

I can delve into that. Today -- R&D in 2 ways, there's -- in hydrogen, there's -- I mentioned 3 pieces. The -- let's start at the end of the process, the grid-connected converters for stationary power with hydrogen, so fuel cells, hydrogen fuel cells, stationary power. We have a range of products that we're using in marine for grid-connected converters. I think we need to broaden that portfolio, obviously, to get into some other markets. So there's some work to do on the downstream side, probably not much R&D to do on the distribution and compression. These are businesses that we're already in, pumps, compressors, any size you'd like [indiscernible] deliver product to that market right now and we are -- upstream on the production side, we've done some incredible work trying to map where green hydrogen production is going. Who's going to win the race? How many horses are in the race? What voltage ratings? What power ratings? What level of modularity? These industries are going to start operating at. So all I can say is we're working on some things. I think we talked about some inorganic opportunity. I think there was -- there's always a question about that. We're looking at other companies out there that may have some technology that might be interesting for us. But right now, it's more of trying to understand what direction the market is going and what size the power grid and voltages and things that we need to focus on. But the short answer to the question is that's where some of our R&D money is going these days.

Right. Still no more questions in the room? No? If not, we'll end it there, and we will have a 20-minute-ish coffee break. We'll be back here at 4:00 in the room, but also in for the virtual audience, as we say this in these days of virtual meetings, stay hydrated and stretched. I'll see you back here at 4:00. Thanks. Bye. [Break]

Right. Welcome back. It's time for the last session, and hope you've had some time to reenergize both here in Helsinki and also you, behind the screens at home. It is now mainly one guy who is between you and dinner, and that's Adrian for -- who's running the service business in Motion. And without further ado, I will let you lose. Please, Adrian.

Good afternoon, everyone. This is the last presentation of today. Why should you pay another 20 minutes of attention? And I feel [indiscernible] between you and the dinner, but there is a good reason to pay attention. The industrial service business is in front of a major transformation. I'm convinced about this. You have heard throughout the day about carbon neutrality and energy efficiency. Out there is a huge installed base, which is by far not energy efficient. We have to reduce waste. Circularity, you view it everywhere. Today, to my opinion, it's a buzzword, but it will change rapidly. New regulations coming in, and this new regulation will require new services. The fourth thing is digital. During the last 2 years, in the lockdowns, we got very innovative and customers started to accept sharing data in a new way. It's accelerating digital. And the fourth thing is there is a change in workforce. And this change is also accelerating. The new people coming in, the young guys coming in at our customer site, they don't have the experience of the people which have been maintaining this equipment for years. And they look for a completely different way of working. A change is always a risk, but also an opportunity. In the next 20 minutes, I'm going to tell you how we're going to capture this opportunity and how we're going to grow our annual recurring revenues from about 40 million to 200 million in the next coming years. My name is Adrian Guggisberg. I'm leading the Motion Services division. Let me start to give you a glance on this division. First, I'd like to highlight my market. The market of the Service division, the main market is installed base. And I can tell you, I'm actually cheering up every day when my colleagues are moving more products into the market than anybody else. Being the #1 or 2 in most of our segments means we are growing the service market faster than anybody else out there. This is great news. And actually for me, it comes for free. It's excellent. The second thing I'd like to highlight is the mandate. I have growth mandates. And if, I'm talking to Tarak, he would tell me grow, grow, grow, but I would also like to talk about profitability and profit. Bernd mentioned about the profit we have improved over the last years in Motion as a business area. About 1/3 of this profit improvement comes from Motion Services. How have we done that? Speed. Speed is key. We were very fast in starting to do portfolio management, looking at the things where we do not have any competitive advantage and start thinking about stop doing it or changing it. We exited some of our motor workshops, but also some other things we stopped doing. And with that, we've freed up the capacity to focus on the things where really -- where we create a lot of value and we were growing that part. With that, we immediately increased the profit pool. And the second thing is we started to look at end-to-end processes and started to remove waste. Simplify, simplify, simplify. That's the two things what we have done in order to grow up -- to increase the profit. But let me a little bit explain what we are doing at Motion Services. At Motion, we're actually saying we keep the world turning while saving energy every day. I like this slogan very much. You have seen throughout the day so many applications, everywhere we watch, we find something moving. And if something is moving, most likely, there is an electric motor behind, which is moving it. We keep the world turning. And then I don't think I need to talk further more about energy savings. You have heard so much about this through the day, and the technologies are just great we have in our hands. It's about getting them out there. So that's how -- that's why we exist. And now what do we do? Let me try to explain this a little bit kind of there are 3 value pools or 3 areas where we create value, which are super relevant. And if I take a kind of illustrative picture about the life cycle cost of somebody operating motors and drives, there are 3 parts. The first part is basically you invest into equipment and you want to ensure this equipment keeps the value, and it's always there when you need it. That's the traditional services. That's the purchasing of the equipment. That's the first part. Then we optimize the life cycle. The second part, when we go especially to critical applications, like you have heard from Chris, where we have actually also great service attachment rate from [ Heikki ], it's cost of downtime. And you would be surprised how many customers are out there, which still have a service strategy of round to fail. They are wasting so much money because whenever they run into a failure, the downtime is going to cost them a fortune. Let me pick a rolling mill like the picture little bit indicates. If you have the main drives in a rolling mill, you may invest $1 million to $3 million for this equipment. The downtime of such a rolling mill can be $100,000 per hour, 1 day and the whole investment is gone, in 1 day. It's not a lot of time to react if something goes wrong. So limiting the downtime is a huge value pool for us. And then the third thing -- know the surprise, cost of energy. Cost of energy has been exploding this year. And if you think about the 25% saving of energy, what Tuomo mentioned, what we can do in many applications and you compare it just to the investment into new equipment, this is a no-brainer. And most people which invest in this equipment, they will run it for 15 to 40 years. Now our equipment typically will not last for 40 years, which means we're going to renew it at least once, and that going to disruption-- example with low costs before, but also the same applies for many of the industrial applications. Chris was talking about the NASA wind tunnel. Also this, we have upgraded with new electronics. It's a normal life cycle. It's a business we are doing on a regular basis. How we do that? We have a couple of tailored services. And the one thing what we try to drive is we define a portfolio which is relevant for our customers. Recovery services, as an example. It's all about when something goes wrong, how fast can you be there and how fast we get it back to operation. That's all that counts. That's the value, speed. When you think about data and advisory services as another example, the value of making the right decisions is just tremendous. We are maybe not always the best ones right now in commercializing this, but that's where we are working on. I'm going to tell you more how we do this. Now to be practical, just one example of a customer where we had a journey together, but I'm not going to explain you that story. Let's listen to the customer. [Presentation]

A reliable partner. A reliable partner. That's the key thing I need to capture the value from our customers. That's what they look for. Let me explain you 4 things, which are essential to be successful in my business. The first thing is about the end user focus. The portfolio we have and what we are doing, we're focusing on end users. And as the service division, we're also having the maturity of the direct business with end users. However, we are also doing partner business, and this is where I invest the most to grow the partner service business. Tomorrow, you're going to meet one of our service partners, the PA, round to fail type of service strategy. And our ambition is to convert them into proactive. They're going to save tremendous money even though the services they spend -- the money on services is going to go up. The savings they get from the reduced downtime is so much bigger. It's a no-brainer. And digital is key here. Chris is already putting into his products, large drives as a standard to connectivity and some kind of algorithms in order to give us the right advices. So that's a kind of a success factor to get this information out. And then the fourth thing, again, no surprise, energy efficiency. That's where we go after. Last week at Barcelona IoT World, we just launched the digital energy [ of price ] what is this? We're using the asset health, what we are using is smart sensors to send data. And based on that data, we're going to tell the customers what energy savings they could do if they would upgrade to new technologies. We have been piloting this solution for about 9 months because you need to collect data. One of the pilot sites of the solution is a Swedish pulp company, and there we identified the top 10 energy improvement potentials in the company just based on data without any additional investment for those guys. They are upgrading 6 out of 10 immediately because the payback is so fast. And that's the way we're going to deploy this. So these are 4 things. But me, I'm always convinced when you run a business, you need to know what is your competitive advantage. And that's the next thing I quickly would like to go through. There are 3 things which is our competitive advantage as the Motion Services division. The first thing is intellectual property. You went through the [ CSI lab ]. That's intellectual property, knowing exactly what goes wrong, where it can go wrong. The intellectual property in the PCBI design, nobody else can supply these type of parts to the market. That's intellectual property. The second thing is about know-how. Translating this into the right information, having the field service engineers out there with the right capability and the right information, that's how we have the know-how in front of the customers. Together with the partners, we have the customer access. That's the third thing. Being close to customers, I think you have heard it from some of my colleagues, especially also Tuomo, Jesse, Stefan mentioned that to use partner networks in order to be close to the customers, that's a success factor. Now the world is changing. I mentioned that before, and I mentioned these 4 things, which are here again on the slide. Now if I'm looking just some of them, and if we take the aging workforce, the younger generation, they expect things to be completely different presented to them as in the past. And we believe to be a step ahead, and this is really important. Tuomo invests a lot into the user experience of the drive products. He talked about digitalization. If you had the chance to use your mobile phone on the versions down there, there is a QR code. Some of you guys were together with me on the factory tour, and I quickly demonstrated this. You go to the drive. There is a QR code on it. It opens immediately the app to -- or not the app, actually a web page, and the web page gives you access to the information of the product but also to support. Think what this means. In the past, if somebody needed an information, he was looking from who did I buy this? Where -- who could I call? Where would I go? Until a question would reach us, it takes ages. Now it comes to us directly, and we can dispatch the work to the partner. We are managing the partner network in the future in a completely different way because we have the digital network. That's the future. Now what this means for us in terms of being successful? We have to digitalize all of this. The first thing actually will translate into outcome-based business models. Taking the IP, the understanding of what can be done, we are able to make better decisions than anybody else in order to maximize uptime, for example. The second one is about digital platforms. While knowledge today is in the head of the people providing training. In the future, it will be within digital platforms, which gives you the guidance and the advice on what to do. And the last thing I just explained, the networks, which just with the QR code is one example, how you create a digital network. So for us, digital is key for the success of the future. Now what is the thing we have to do? What we have to do now to get relevant? And the way we have defined relevant is we aim to have 3.5 million connected devices by end of 2025. That means 3.5 million interactions with customers. That means 3.5 million opportunities to help customers to do better. That's what we aim to do. How to get there? Because Bernd showed you, we are around 40,000 right now. If I take best-in-class, just to give you a bit of a perspective of somebody with rotating equipment, monitoring, the best-in-class have around 70,000 today. We are aiming to go to 3.5 million. The way we want to do this is twofold. One is about 1 million connections from brownfield, so from installed base, which is out there. That goes very much through service agreements and kind of service connections. And the big majority comes from pulling or getting connectivity as a standard. This equipment here, what you see from Jesse, here's connectivity integrated already. Bluetooth connectivity is available in this one. You can immediately connect it. The ones which have maybe seen one of our announcements, just lately, we have announced an investment in Cassia. Cassia is a technology leader in Bluetooth technology. Bluetooth is one of our connectivity technologies we are using. We have actually also 1.5 million of drives out there with an integrated Bluetooth connectivity. And now we just at the cellular connectivity, which is even more plug-and-play to be fast to get things connected. And that's basically the way how we differentiate. Differentiation for us is really around plug-and-play. It's kind of B2C experience. If I compare ourselves with competition, most of our competitors they have automation systems, and they manage connectivity through automation systems. You need to be an automation engineer to connect. What we are aiming for is no requirement on you. If you can use your mobile phone, you will be able to connect our devices because you just plug it in. And you just activate it in a intuitive way. That's our aim. That's how we're going to get to 3.5 million. Now having this 3.5 million connected devices, what does it brings? Especially the community here can say, "Adrian, great 3.5 million devices, but what's the fun out of it?" And the fun is basically what I said in the beginning, that's growing the annual recurring revenues. And how do we do that? There are a couple of services or a couple of things, how we commercialize it. Let me start with the first one. Data-as-a-Service. I'll give you an example. ERGO Hestia an insurance company in Poland, they are using our Smart Sensor solutions, digital solution in order to manage the risks. Now this is a very interesting case because the end user is actually using the same solution in order to manage life cycle of the equipment better to reduce downtime. ERGO Hestia is looking it at from an insurance point of view and say, do these guys proactive the risk or they just let the things until it blows up. And the customer itself by doing the right thing, he benefits from a lower insurance rate 3x a win. The second example I'd like to make is platform business, and also Tuomo mentioned, this one, Mobile Connect. Mobile Connect is a platform where we give to partners or OEMs, and now they can provide direct support on some of our equipment. For us the license business, access to the platform, access to the knowledge. The third one -- sorry, I was too late in clicking here, but the third one is service agreements. That's the core of the service business. And service agreements, I would like to go through 3 steps in service agreements because I think there is a different value proposition, and it's good to understand. The first thing, what we do today actually, as a service agreement the value we create is easy access for our customers to the services. What does that mean? I pick up again the example of my rolling mill. If you have a rolling mill and you go to -- I'm not sure if you have ever visited an Ethos plant or an industrial plant, the first thing you're going to get asked is to go through a safety training. The safety training may take you 4 hours and then you can enter the plant. We have no service agreement. Yes, we're going to send a service engineer as quick as possible, maybe not with the right parts and with the right tools because we don't know. And then he goes through the safety training, 4 hours, $400,000 come, only safety training. They will not bypass the safety training. We have a service agreement. We guarantee you that we have service engineers available, which went through the service training. They will enter the site in minutes and they're going to know where to go. Value. The second step is we have customers which rely on us as a service provider. Now what is the difference there? Here, we start to guarantee a performance on our services. We say, you're going to get a reaction time if there's something within 2 hours, for example. You're going to get access to our experts 24/7. We're going to have the parts available within 12 hours at your site whatever fails. That is service performance contracts. Here, we need digital, which makes a difference. If somebody has digital connections, we can actually guarantee very shorter response times, which is service performance. That's a difference. Now having it or not having it, that's value. And then we go to the last step, and that's probably something that you have heard from many also of our competitors, this is going towards outcome-based services. When we add outcome-based services, what basically changes is the risk is moving from the customer to us. We take some risk. We guarantee the availability of the equipment. We guarantee the energy saving of the equipment. There are 2 things which you need to do in order to be successful. You need to have access to the information, means digital is a must and the expertise. We think on some of this equipment, we can do way better decisions than any of our customers because we know much better what can happen with the equipment. Again, I remind you on the [ CSI lab ] you have seen. There are insights we have, which nobody else has. And that gives us a competitive advantage to manage these risks. Here, we are in a very early phase. That's not something which is mature. But I'll give you an example, we are doing a project with Statkraft, which is installing synchronous condensers and the synchronous condensers equipment, you need to stabilize the network because we have a lot of renewable energy. And with those guys, we have a 10-year contract where we guarantee a certain availability. All is digitally connected. So Heikki delivered their large synchronous motors. And then we supervise them with digital solutions, which gives us the insights if we need to act, so we can manage the risk of the availability. That's the future. But these are all steps which will help us to grow the ARR, and there was the question about how much software content is in that. There is everywhere software content. Without digital, this is not going to happen. So it's very much relying on software. Let me summarize, and I know actually, I'm running out of time, but I was worried this is going to happen because there were so many good comments during the day. But let me summarize 3 things. First of all, we are a very successful division. Service business is a successful business. It's natural successful business in the industrial businesses based on 3 things: customer access, being close to the customers; the intellectual property; and the expert know-how. These are the 3 key ingredients which differentiates us. The second thing, things are changing. I'm convinced, the service business in 10 years looks completely different than today, and we are running fast to get there. And we are investing into the right things in digital. And with that, we are able to grow our annual recurring revenue from 4% to 15% in the coming years. With that, I'm at the end of the presentation, thank you for paying attention, even though I took a bit more time than I supposed to take. But I guess Ann-Sofie will need to support me now on the questions.

I see, if you left to last, you're allowed to take the liberty of running over a bit. Then we have a question here from Joe. Straightaway, please.

What percentage of new products that go out the door come with a sensor already on it and the digitally enabled capability? And for stuff that's already in the field, can you just like give this stuff away and like not charge anyone and sacrifice margin just to get stuff installed and then tell them to turn it on and see if they like it and then go from there?

Now when you asked the first question about how much percentage, there are 2 ways to measure it. One is related to the value of what we ship because if Chris ships this with a large drive, it's just one drive in number of units, it's neglectable. In terms of value, it's huge. So in large drives, quite a lot we have connectivity embedded. There is more the question of will the customer allow us to connect? Will he wants to try it? And then we go ahead and do it. So for example, in China, we have connected more or less the majority of medium-voltage drives, which are shipped from the Chinese factory just as a part of the warranty phase. How will benefit this? We manage the warranty phase much better, and we get kind of the user experience there in order then to have recurring revenues afterwards. So the concept of giving it as part of the product, absolutely, we are following this concept, but we are marketing this as part of the product. So Tuomo is going out with kind of smart products and then the idea is really that we worked the first 1 year or 2 years, where we help the customer to learn with a basic package and we have the upsell and we have the extension as a business.

Yes, because there's companies that do just that part, right, don't make it hardware. So maybe I don't know if you guys are just going to customers and saying, here, let us put these things on, even if you don't need them and then let us know if you like it, and then...

We do that. We call it try and buy. Yes. Because the cost is so low to do it, and the value is immediately there.

There, we have another one, please.

Thank you, Adrian for your presentation. So you mentioned you're serving around 3 million units of motors and drives right now. And how much of them are using your IoT solutions or connected? And also, you mentioned you're now hiring 1,200 field service engineers. And how much do you expect that number to grow into -- by 2025, please?

Probably you did not -- I was probably not saying it correctly. We do not hire 1,200 field service engineers. We have 1,200 field service engineers. That's what we have, but we are not hiring them. The 3.5 million, this is what we are aiming to connect by end of 2025. And all of this will be based on our connectivity solutions. So the mix of smart sensors, the mix of IoT, connectivity of the drives.

Yes. So you're not hiring but like you're using 1,200 service technicians. And how much do you expect that number to grow by 2025?

I do not expect any big growth in that because where we invest, as I mentioned earlier, was we invest actually in our partner network. If you look into the future and when we say we're going to use digital solutions, especially the platform solutions, which will enable others to provide services, we get much wide reach. We will never -- as a company, as ABB, we will never build up the reach as we can build up if we start to use our partner network. So no substantial growth in field service engineers.

And then there's one at the front here, please.

Yes. I thought, I would hear a little bit about growth on the installed base, but didn't happen. I'm sure that this is one of your growth drivers. Can you tell me, of the 300 million motors that they are in the field, as you told us. How many of your own motors you're already serving and how many are somehow lost that you may recuperate? That would be question number one. And then question number 2, of this 300 million motors, we learned from other industry, they have made -- presumably a lot of them they don't have the manufacturer anymore. Is there an opportunity for you to grow on sort of capture that often installed base?

Yes. Let me maybe put a couple of things in perspective. First of all, I think the 300 million, this is the industrial motors, which is our estimation, which is out there from any brands. About 40 million of -- 40 million of the motors are ABB brand. Now the maturity when you take a number of units are small power ratings. I can tell you, we don't know where they are. We don't -- this is something -- it goes through channel if it's indirect sales, we don't know. Where we know very well where the installed base is when we talk about a couple of hundred thousand of equipment, which is the large equipment, where we have also the high service attachment rate that there we know pretty well the things are. Now what we aim to do with the motors especially, -- the digital solutions we provide for motors, they are not for ABB motors unique. We go to any motor. Here, we go way more to the customers where we have customer access, and then we propose our solutions independent if they are ABB motors or non-ABB motors. That's the path there. When it comes to the drives by adding standard solutions, digital solutions, by having the QR codes, we're going to expect that we get a way better visibility now over the coming 3 years on where we ship things, where it's going to be installed, which will help us to drive actually the upsell on services. I hope that answers the question.

[indiscernible]

Well, we are shipping -- I mean, we are shipping about 1.5 million drives a year. That's how it grows. And we are shipping about 3.5 million motors. Is that approximately right, per year? That's how it grows.

Okay. There will be -- all right, just because it's you, at the very back.

It's very interesting, this outcome-based services you were mentioning towards the end. I'm just wondering whether that will be the first step in going into Products as a Service for ABB? That's the first question. And the other one is more on a group level. I don't know whether you can answer this question. But the concept of this service push, is that something only limited to Motion? Or do you -- is that spread out throughout the group on automation as well?

Let me try to answer these questions. And maybe, Tarak, you can fill in if I'm not accurate enough. The first thing is, yes, this is throughout kind of Equipment as a Service. But we will focus certainly on key parameters. And the 2 key parameters for us is availability, which our customers looking for, and its energy efficiency savings. But it goes into this direction. Now I think where you're hinting, it's actually not only risk management, it's also capital allocation. Now the scale what we are having right now, this is not a question of capital allocation. This is way too small. If that comes in the next phase of the growth to a topic, this will be a Board decision. That's not my decision. But the way we are heading towards we believe we will partner up with somebody which looks on the capital allocation. That's what we do right now. Then the second question, are we the only one? Not -- no, we are not the only one at least. That's what I see from some of my colleagues from other business areas. They are also testing some of these models. They are looking into this as well. But I think we are all at the same play and the same stage. We are testing it. We have to learn together with customers. And I must say from my perspective, there are 2 things which need to happen. One is technology needs to enable it. And the other thing is our process and customer acceptance need to be there. I think technology is not the problem. It's customer acceptance of the new models and the way we go to market, the way we interact to make them successful. So the learnings we are doing is not so much on the technology right now. It's way more about how can we negotiate the contract, what would be terms, how simple can we keep things. Because in the end of the day, if we do something as a service and things get very complex because of who owns the risk and what then it's [ stats ] because it's too complex. It's too cumbersome. So we need to find simple ways and that is a learning process together with customers. And that's what some of my colleagues are doing in other divisions as well.

Now -- we -- I'm going to ask the rest of the team to come up on the stage just in case there are any more questions from the audience to put through. So please make your way up here. And we will give you the opportunity to focus on final pressure on these guys.

So you can ask the questions to the whole team. You've been here for the whole day. Thank you very much for your attention and engagement. So please feel free. If one of us cannot answer it, then we will find somebody who can, probably not now...

If this team can't answer the question, then we're worried.

Anyway. Please, if you would like any questions that we haven't answered or you would like to ask based on the day, please.

Martin again from Citi. You've obviously been in the role now for less than 2 months. If this presentation, it happens 2 months ago, what has tilted? What has changed? I mean has there been any sort of shifted emphasis in that initial period since you've taken over?

I mean, look, first of all, the fact that this was 6 weeks after I started was itself an interesting experience to be in front of you, representing the business. But thank God, I know a few of these colleagues from the past. I would say the only emphasis is much more on growth. That's what I would say. And that's probably the one part. And also to look at it from a portfolio perspective when it comes to the components, the product lines below the divisions. We're committed to improving the business as a team, but objectively looking at the product lines that are part of everybody's solution. Those are the 2 things I would say. The rest is, of course, the business is what it is and the strength of the business is obvious. But that will become the decision criteria for us, where to invest, what to invest and then to pretty much focus on growth. I mean, at 16.5%, 17% profit margins -- industry-leading margins, our aim is not to blow the top of the margins but really to grow the business faster than in the past. And that has to be the mission from my perspective because that's significantly more value enhancing than another 0.1 or 0.2 or 0.3 of margin. It's really the growth that has to be driven. And the reason growth is important is when we start talking about M&A, we discussed it with many of you, very few targets will be available to any of the division presidents which are margin accretive from day 1. So if you're going to do something on M&A, chances are it will be dilutive through the divisions from day 1. Maybe in a couple of years, they will get -- that would be the requirement to get it up in terms of margins and performance. But overall, as a business, we do want to focus this business on the growth because the market is there, we want to look at M&A, and each of them have articulated the kind of opportunities they see. So when I see that, we said we focused on growth. So that's probably the only small change.

And I have another question just a follow on. I mean in some of your technology you're so obvious for saving energy. And obviously, we're now in an environment where the European Union is supposed to give more details in the coming days about energy efficiency. I mean, do they come to you -- do the regulators and governments come to you to see how can we save energy? What regulation should we put in place? Or how do we sort of match up what governments are trying to do in terms of increasing energy efficiency and what you can deliver?

We do have -- the European Union, for example, when it starts to think about the standards, they do come to manufacturers, not only us, but let's say, the cohort, which is the leaders to say, what do you think? Because at the end, whatever is proposed needs to be executable. So if you propose an IE6 standard, for example, can we deliver? Can the market deliver? If the minimum efficiency standard becomes IE4 motors, is there a capacity in the supply side. Given the current challenges, there's no capacity anywhere, practically speaking. But yes, this is something that we are, as responsible leaders but also as part of the business, they ask us and we give feedback.

Maybe I can just add one more comment. We are actually influencing this very actively in order to promote and explain what's possible. To give you an example, and actually the product Tuomo, you shared, is a low harmonic drive. In the latest update of the EU regulation, the regulations almost have prevented this equipment from being put on the market because they didn't understand the technology. In the last minute, we educated them and explained to say. For sure, we cannot block something like this because that saves so much energy. So we get very active in these topics in order to explain.

So Ben, please.

So 2 questions. I'm a little surprised by the comments, not that you want to drive growth, but I would have thought that Morten as well had a mandate between somewhere between growth and margin. Is there anything that you can bring to the table straight away from electrification in terms of growth. So in terms of the way that you drove the growth in electrification and the trade-off between top line and margin, is there any obvious parallel that comes straight across to Motion? So that was question number one.

Okay. So after 6 weeks, I can't pinpoint exactly what that could be, but we see green shoots, which I need to work with the colleagues to identify whether they need the same kind of investment. So take, for example, the E-mobility business in electrification which we took it from 40 million to now 300 million in 2021, probably on its way, a hypergrowth opportunity. Is hydrogen such opportunity? I don't know. Is rails to wheels is such opportunity? Difficult. So are there such pockets within Motion? At least I personally believe there are such a pocket. But to make the investments, you need to understand the business. For that -- I don't think 6 weeks is not a requisite time to make such investments or support the division colleagues to make such decisions. But where my personal, let's experience, hopefully can come in handy is on the M&A side. So when you say the difference is M&A needs to be part of the growth story. And yes, the team has been growing, no question, and we had the discussion with a coffee. The market is growing more than it has in the past. So the reason for the emphasis on the growth is both organic and inorganic. And the main reason for the growth focus is primarily, we believe the market will grow more. So even if we were growing 1.5x market in the past, the 1.5x market in the future is worth more in dollars, worth more in terms of shareholder returns. And you add to that some inorganic, now you start to drive the business at a slightly different pace. Keep one thing in mind, that's because the market is moving. So this would not be the same comment 5 years ago because we see the shift. And that's what we try to do today as a team is to give you an insight into how we believe, and it's not my -- I mean 6 weeks, I don't believe anything, right? It's basically what they believe and we represented how we see the opportunities and allocating capital. And the structured framework of looking at the product lines. Are they in the strategic growth areas? Are we going to invest in that? That is the framework we will use as a team to make the proper investments both in terms of R&D, in terms of people. So if rails to wheels is a fantastic growth opportunity, we try to take the best people and put them with Edgar to say can we drive that? And can we increase R&D investment to be 20% of today's volume. So those kinds of opportunities exist, but the decisions have to be made by the division leaders. I can provide some guidance with that. But at the end, the call is theirs because the risk is theirs and the results are theirs.

Okay. We have a couple of hands up in the middle here, if we start with Gael, please.

I think for the motors business, you talked about 5 rounds of price increases over 1 year. So I guess it equates to about 20% price increases maybe on a cumulative basis. So my question is, could you also give me some sort of indications regarding the pricing dynamics for each of the different business units? And thinking about this 20% price increase for the motors business, how do I square this up with the price increase we've seen so far in Q1, which was more in the 5% range?

So I mean we have the division presidents here, so they can probably give you that -- their own individual perspectives on the price increase. And it's different depending on whether -- I will only qualify it by one way. It depends on where you are in the cycle in terms of how quickly you can make the price increase. So the longer the cycle, the longer it's going to take us to -- from a price increase perspective to recover both the cost but also to execute the price increase. So maybe Jesse and then Stefan probably would be best to give that perspective in terms of how do they see it from their businesses.

Yes. So when you look at the price, there's no question that we had to take action because of the raw materials, not only inflationary cost overall, but also logistics and other areas drove us to the need to do that to protect our margins and make sure that we protect the shareholders' value at the same time and take care of our customers. So that's absolutely very important. So when you look at the maturity of that, we've been doing that not only just in the last 18 and 24 months. We've been looking holistically at our business at a very granular level, understanding it in detail to see where we needed to implement overall price into the marketplace. And it's very, very mature in my business in how we execute it and how that we deliver it. And that's something that's very important going forward to stay on top of that to ensure that we take care of the business. Stefan?

Not so much to add. So I think we have also learned a lot over the last 12, 15 months with this slight price increase from. So -- and we are also now very regularly tracking what it means. So what is happening. We are in close contact with our suppliers. So it was also a learning curve for us more days. And as Jesse just correctly stated, it's very important to do that together with our customers. We have different customer groups. So how to implement price increase with our channel partners might be something completely different if you talk with OEMs, where we have also contracts in place. So -- but the world is changing and our customers are also aware of it. So key is speed and being aware, and alerted, and in close contact with suppliers and customers.

To kind of summarize the answer to your question, you won't say, well, you didn't quite answer the question. So the group is 4% to 5%. We don't disclose at the Motion level, how much was price, but certainly, Motion helped the group get to 5%. So we are above. And within Motion, certainly, the motor business has been the biggest business where we have had because of the content of material and the commodity percentage of overall volume and revenue, we have been far in excess of those numbers in the motor businesses in general versus the service business versus the drive and versus even the large motors, which that has a more project-oriented, many times it has already a built-in commodity clause in it. So there, we're not necessarily looking. We're just looking for recovery and not necessarily looking to drive it on a price perspective. So that gives you a little bit of the answer.

Right. Conscious of time because we are heading for dinner with the PA team in just a while. I'd hand over to Tarak to close, if you have some...

Sure. So look, thank you very much for spending the time with this team. It's a pleasure for me to be part of this team. As you leave today, I would like you to keep 3 things in mind. We are an exciting business with leadership position because we have scale, because we invest in technology and we are close to customers. The market is moving in our direction vis-à-vis the investments in electrical mobility, investments in carbon reduction mean more electricity, more electricity means more motion and more motion means more drives and motors. So 3 things to keep in mind. Market is moving at a higher growth rates, we have the team and we have the technology and we have the products. So a winning combination. We hope to keep the growth as a proof of this winning team and combination. And I'm certainly glad to join this team on a personal level to really make an impact with this team on efficiency, cost, but more importantly, also to save carbon emissions as it fits very much within the mission and vision of ABB. So thank you very much, ladies and gentlemen. Enjoy the time with our colleagues from Process Automation and make sure you have a few more tough questions for them as well. Thank you. Have a nice day.

You can stay. Let me see -- yes. And just before you go, just some practicalities. As you move out, you will get tickets because you will be catching the train back again. The train -- the station is like, as you know, 2 minutes from here. So as you make your way out, tickets will be handed to you. There will be people showing you how to get there. And then we will meet again in the hotel lobby at quarter past 6. See you there. Thank you.