ABB (ABB) Q4 2020 Earnings Call Transcript

ABB (ABBN.Y 6.26%)
Q4 2020 Earnings Call
Feb 04, 2021, 11:00 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Ann-Sofie Nordh

Greetings to you all, and welcome to this conference call and webcast for ABB's fourth-quarter and full-year 2020 results. The press release and financial information documents were published this morning at 7 a.m. and can be found on our website along with the presentation, we will go through here today. Following the presentation, we will open up for a Q&A session.

With me today to present here are ABB's CEO, Bjorn Rosengren; and CFO, Timo Ihamuotila. Before we begin, I would like to draw your attention to the information regarding safe harbor notices on our use of non-GAAP measures on Slide 2 of the ABB presentation. This conference call will include forward-looking statements. These statements are based on the company's current expectations and certain assumptions and are therefore subject to certain risks and uncertainties.

With that said, I will now hand over to Bjorn and Timo for the presentation. Please go ahead.

Bjorn Rosengren -- Chief Executive Officer

Thank you, Ann-Sofie, and welcome to everyone on the call. I have now been with ABB for almost exactly one year. And looking back, it has been a very eventful and exciting year. Let us go through some of the highlights on Slide No.

3. It was a year when we transitioned ABB toward improved performance. We implemented a decentralized operating model. We call ABB Way, making the division the highest operating level.

They now have the cost ownership. They drive R&D for profitable growth, and they evolve their business portfolios. We launched our 2030 sustainability strategy and updated our financial network in November. And we delivered on the simplification program as achieved targeted net savings run rate of $500 million, one year ahead of plan.

I'm very confident that the actions taken in 2020 will leverage going forward. 2020 was also a year of the pandemic with dominated the market development. I am thankful for the speed and dedication of the ABB team on how mitigation actions were implemented. The agile response to COVID-19 challenges enabled our organization to prioritize health and safety while keeping operations running and undertaking strong cost mitigation efforts.

After a year like 2020, I'm proud to see the progress we have made in our employee engagement survey. It shows that our employees have more clarity of their roles and responsibilities, as well as of our overall purpose of the company. We really saw the culture change gain momentum in 2020. Timo will talk you through the full-year numbers a little bit later on.

Turning to Slide 4. We shift focus to the fourth quarter. We saw a continued sequential improvement in customer activity from the low level noted during summer. In total, orders and revenues remained broadly stable year over year.

The positive impact from mid-single-digit growth in the short-cycle business was offset by subdued demand for services and headwinds in selected end markets such as oil and gas. We secured some larger system order wins for our world-leading Azipod propulsion technology. The machine automation division also closed out the period with an all-time high level of future design wins. This creates a good base to build from after the management change in machine automation division is completed.

Revenues were stable, but we still managed to the operational EBITA margin by 140 basis points. And the increase was led by stellar performance in electrification and motion. Synergies from GEIS came in ahead of target, $120 million run rate, and the integration is now approximately two-thirds completed. Further down the income statement, we had some adverse impact on the basic EPS.

This related to pension and debt action taken during the quarter to strengthen our long-term financial position, but also to Power Grids book gain adjustment, reflecting ordinary closing-related balance sheet adjustments. Operational EPS for continued operations improved by 20% to $0.26. Turning to Slide 5, showing ABB's regional order trends in comparable year-on-year terms. Asia, Middle East and Africa grew strongly, while both Europe and Americas remained impacted by the COVID-19 pandemic.

In Europe, orders were 12% lower year on year, and the business areas were challenged. In Germany, expansion in motion and electrification stands out, with total orders in each of these business areas up in double-digit terms. In the Americas, orders were 6% lower, led by a decline of 12% in U.S. alongside demand impact from the COVID restrictions, orders intake was also impacted by a downturn in oil and gas activities.

A significant recovery was noted in Asia, Middle East and Africa, orders rose 23%, with strong support from China improving by 21% in the quarter. We highlight excellent growth in RA in China with orders up close to 90% year on year. And with that, I hand over to Timo to cover the results in more details. Please.

Timo Ihamuotila -- Chief Financial Officer

Thank you, Bjorn, and good morning, everyone. On Slide 6, I will begin with a review of what, in our view, was a solid end to a challenging year. On stable revenues, we increased operational EBITA by 12% on constant currency and 16% in U.S. dollar terms.

Margins improved by 140 basis points. I'm pleased to see our prompt actions yielding results in margins in the fourth quarter. While other costs were down, R&D expenses in the fourth quarter -- in our four businesses increased by 3% year on year. Looking at below the line items, all divisions carefully reviewed their operations, and this shows in restructuring-related expenses at $220 million, compared to $99 million the prior-year period.

Charges mainly related to the future delivery of ABB-OS savings, synergies from GEIS' integration and planned performance improvement Industrial Automation. The planned actions undertaken to strengthen ABB's financial flexibility and derisk the balance sheet also weighted on results as did the adjustment to the power bridge book. In total, basic EPS amounted to a negative $0.04. Operational EPS in continuing operations, which adjusts for nonoperational items and excludes impacts from the divestments of Power Grids was $0.26, up 20% year on year.

Cash flow from operating activities in continuing operations was $1.2 billion after out close totaling about $200 million from the Kusile settlement and pension plan transfers. I will come back to the full-year cash flow dynamics in a bit. Turning to the fourth-quarter results for our business areas, I will begin with Electrification on Slide 7. Electrification's orders were 2% lower, benefiting from strong demand in data centers and e-mobility and solid growth in renewables, rail and food and beverage.

Oil and gas was challenged. Buildings improved sequentially with residential activity outpacing nonresidential. Revenues increased by 5%, supported by strong backlog execution and short-cycle business. Electrification's operational EBITA margin improved 250 basis points to 15.6%, in its target range for the second quarter in a row.

The excellent result was driven by better volumes, supportive pricing and rigorous cost management. Although the current low level of, for example, travel expenses is not expected to be sustainable in the long term. In addition, both GEIS integration and the turnaround of installation products progressed well. During the quarter, we noted rising raw material prices.

While it did not impact the Q4 result, it will be a headwind to manage during 2021. Looking ahead into the first quarter, we expect a low to mid-single-digit growth in revenues to support close to similar year-on-year improvement rate in operational margins as seen in the fourth quarter. Next, on Slide 8, we look at Industrial Automation or Process Automation, as we call it from the beginning of this year. Orders increased by 9%, a strong result driven by large orders in the Marine business, mainly for LNG specialty vessels.

IA saw select activity in Process Industries such as mining and water and wastewater. Energy industries, particularly oil and conventional power generation, were challenged. The order backlog at quarter end was $5.8 billion, an increase of $650 million from the end of the third quarter. Revenues declined 11%, reflecting subdued levels of book and bill activities with service being particularly weak in end markets such as cruise.

The operational EBITA margin of 6.8% was 530 basis points lower year on year. This includes the combined impact of 270 basis points from the settlement of the Kusile project with Eskom in South Africa and charges related to legacy power generation projects in India. Aside these items, profitably was hampered by lower volume and unfavorable mix, predominantly related to lower services activity. In response to the current low profitability level, IA has initiated structural actions to improve long-term performance.

Looking into the first quarter, order growth is expected to decline significantly on the back of a higher comparable from the first quarter in 2020. Revenue is foreseen to decrease at a similar rate as noted in the fourth quarter, and the margin should remain largely stable on a sequential basis, excluding the impact from the project charges. On Slide 9, we turn to Motion, which again noted a solid delivery. Orders declined 5%, mainly reflecting a tough large order comparison.

Demand from rail and water wastewater was healthy. Some end markets, particularly oil and gas, remained challenged. Revenues were flat, with development reflecting solid growth in short-cycle business and strong execution of the backlog. The operational EBITA margin of 16.8% expanded 140 basis points year on year, benefiting from good cost mitigation, stable volumes and supportive mix, even if rising price costs were a headwind.

Looking at the quarter ahead, we recognize the record high comparable to be reflected in the expected negative order growth for Q1 '21. However, revenue growth should improve compared to Q4, while anticipated business mix is expected to lead to a slightly smaller margin improvement when compared to Q4. On Slide 10, we turn to Robotics & Discrete Automation. Orders were 5% lower.

However, the result includes reversals of about $50 million, mainly in the order book for Machine Automation. These reversals adversely affected the business area's comparable growth rate by about 7%. Adjusting for this accounting impact, orders for Machine Automation were up clearly double digit. In Robotics, strong activity in 3C, improved activity in general industry and select investment in EV manufacturing supported the order result.

Demand from China was stellar. As Bjorn highlighted earlier, RA's orders were close to 90% higher year on year in China. The order development also reflects the more selective approach now being applied toward Robotic Systems business in the automotive industry. Part of the division's strategy to improve margins by shifting its mix toward higher value-add smart systems and application sales.

Revenues declined 3%, supported by positive developments in Machine Automation and good backlog execution. This was, however, more than offset by weaker development in particularly due to weak automotive segment and service business. The operational EBITA margin declined to 7.3%, impacted by lower volumes, but also by unfavorable mix, primarily related to deliveries from the robotics order backlog to the automotive segment. Looking into the first quarter, we currently foresee orders to be slightly up on a sequential basis while the growth rate should be adversely impacted by a more challenging comparable period.

Revenue growth should return to positive territory, supporting a slight margin improvement year on year. Let's now turn to Slide 11 and look a bit closer at the makeup of our operational EBITA margins during the recent years. We can see that the amount of extraordinary items is steadily decreasing both when we look at Q4, as well as full-year comparisons. We have eliminated the stranded cost after the closing of the Power Grids transaction.

In noncore business, the exposure continues to decrease significantly with clearly less than 10 projects still under execution. We are looking to exit the remainder of the noncore business as soon as practicable. However, as said at our capital markets day, we still have two main exposures, and our exit from these exposures is partly reliant on legal proceedings, which could stretch beyond 2021. Regarding Kusile, we are not expecting further operational charges after settlement done in Q4 with Eskom in South Africa.

That said, the settlement does not cover regulatory proceeds outside South Africa, which are currently not estimable. Moving to Slide 12, and the cash flow from operating activities and continuing which remained stable at $1.9 billion in 2020. This is in line with our guidance of resilient cash performance for the year. The 2020 result includes lower income from businesses in the wake of the pandemic and a favorable development of trade net working capital.

It also includes a total of approximately $1 billion outflows incurred from ABB's transformation efforts. On a year-on-year basis, when excluding these impacts in both periods, cash flow from operating activities in continuing operations was significantly higher. Looking to 2021, we expect to deliver a meaningful uplift in cash flow from operating activities. On Slide 13, let's look at the benefits from our capital structure optimization program now largely concluded.

As discussed earlier, we are using the proceeds from the divestment of Power Grids on our ongoing buyback program. We purchased 109 million shares in the second of 2020, just over 5% of our share capital. In addition, we continued to build on actions started during the third quarter to deleverage ABB in an efficient way and in a value-maximizing way. In terms of debt and credit in the fourth quarter, we opted to an early retirement of approximately $1.2 billion of bonds, which had high coupons.

At the start of this year, we also were able to benefit from favorable market conditions by issuing a 0% long duration bond of EUR 800 million. Also, in the fourth quarter, we transferred certain pension plan obligations to third-party insurers. In total, pension deals completed during the second half of the year, cover an estimated $2.5 billion of bad pension obligations that were underfunded by an estimated $770 million. The deals have been enabled by about $360 million of cash contributions, as well as the transfer of approximately $1.8 billion of existing pension plan assets.

As a consequence, we recorded a nonoperational pension charges of about $380 million and $140 million in our income statement in the third and fourth quarters, respectively. These transactions are an efficient way to deleverage, significantly reducing the underfunding of our pension liabilities and making future negative cash flow and P&L impact less likely. In summary, we have significantly improved our financial flexibility, using proceeds from the divestment of the Power Grids in a responsible and efficient way, placing ABB in a stronger financial position for 2021 and beyond. To conclude, let's move to Slide 14, where we summarize the full-year results.

You can see in the chart that although the short-cycle business recovered in the latter part of the year, we remained in negative comparable growth of 6% for the year. Revenue declined by 5% on a comparable basis, but we managed to keep operational EBITA margin stable at 11.1%, with increased R&D investment in our business areas. Cash flow from operating activities was $1.7 billion for the year, including outflows of close to $1 billion related to special items, stemming from our transformation and capital optimization programs. Operational EPS declined by 21% to $0.98.

However, excluding the difference in operational EPS from Power Grids, continuing operations EPS was 7% lower. The broad board signals its strong belief in future performance with a proposed stable dividend of CHF 0.80 per share. And with that, let me pass you back to Bjorn for his closing remarks.

Bjorn Rosengren -- Chief Executive Officer

Yes. Thank you, Timo. Let's take a look at our short-term end market outlook on Slide 15. We stick to our base case profile of a protractive recovery.

As indicated in the chart, on one hand, we expect some of our end markets, particularly in the short-cycle part of the business to continue to recover. On the other hand, we expect negative development to continue in some of our longer cycle business, like oil and gas and conventional power generation. For the first quarter, we also note that we faced a challenging comparable of orders. This may put pressure on the growth rate in the first quarter before we expect to return to positive order development in Q2.

We foresee a fairly stable sequential market development in Q1, with a moderate year-on-year revenue growth, but I expect us to meaningfully improve margins. Forward visibility is limited. And I would say that market uncertainty increased through the fourth quarter due to the pandemic. At this stage, we foresee revenue growth for the year, broadly in line with our target range.

And I expect us to make steady progress in margins and earnings per share, as well as posting a solid cash delivery. Our base case scenario for gradual recovery of demand remains unchanged. We foresee estimated growth in our addressable markets of about 5% until 2023, and we should grow at least in line with our markets in this period. This is not to be compared with the through-the-cycle growth targets of 3% to 5%.

To conclude, on Slide 16, let us look at some key priorities for 2021, a year when I expect us to make steady progress in profitability. We have now laid the foundation for improved performance by implementing the decentralized operating model and improved performance management. We have seen the culture change in ABB gain momentum in 2020. We now need to firmly cement the culture of accountability, transparency and speed.

We are already making good progress. Starting with operational performance. I clearly expect us to show good progress toward our 2023 margin targets. Our base case is not a significant market recovery in 2021.

And we will continue to execute on efficiency measures. We have additional activities in the pipeline with anticipated restructuring charges of about USD 200 million in 2021, mainly as automation to improve performance and electrification to drive the final miles of the GEIS integration. Of course, there are challenges to manage, for example, rising raw material costs, increased focus on value-based pricing is one way to offset these increased costs. Still, we acknowledge that we are in the midst of a pandemic.

And our No. 1 priority remains the health and safety of our people. Active portfolio management is high on our agenda and we have already moved into execution mode on the three divisions to be exited. That said, value creation is the most important for us, and we will not go into fire sales.

In other words, it may take some time to complete some of the deals. We also expect all of our divisional managers to build a pipeline of potential M&A targets. But also to continuously review the business portfolio with their divisions for potential consolidation. Finally, looking at capital allocation, you heard Timo talking about the stronger financial position, and we expect meaningfully uplifting in cash generation in 2021.

We will continue to invest in R&D to maintain a leading technology position to drive long-term profitability growth. We expect to spend about $750 million in capex. We continue to execute on the share buyback program, and the Board has proposed a dividend share of CHF 0.80, in line with our policy to pay a rising sustainable annual dividend per share over time. We are looking forward to an exciting 2021.

Ann-Sofie Nordh

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

Questions & Answers:

Operator

[Operator instructions]

Ann-Sofie Nordh

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

Please go ahead.

Martin Wilkie -- Citi

Thank you, and good morning. It's Martin from Citi. The first question would be just to clarify on your growth outlook for the year. You commented, firstly, that the market should grow a CAGR of 5.1% through 2023, but you commented, I think we shouldn't compare that to your 3% to 5% growth target.

So I just wanted to clarify first, exactly what you mean by that. I think secondly, just on the growth for the year. You've commented it should be in line with your midterm target. So is that in line with the 3% to 5% or in line with this 5.1% market growth? Thank you.

Bjorn Rosengren -- Chief Executive Officer

Thank you, Martin. I think I'll take that one. Yes. I mean, what you've seen during the year is that we're slowly getting recovery.

And during the quarter, we saw actually flat orders and flat revenues. Moving into next year, of course, we will see a kick back in the markets, which we're looking forward to. And what we're seeing in that guidance here that that the market short-term might be a little bit higher than over a business cycle, which we said in our long-term targets. And what we are saying here that even though we have strong focus on financial performance, getting the EBITA to the right level, 2023, we are definitely going to grow in line with the markets.

And maybe even exceed if we are -- things moving. But that's our objective so -- on the growth part. So what I think you referred also second question was a little bit this three to five targets. What we're saying a little bit here is that in the end markets where we are and what we expect to do, including M&A, we should be around three to five, but that's over business cycle.

So that means both in ups and downs. And we said actually during the capital markets day that we expect the markets to grow. Of course, no one knows yet, but to be 5% during -- until 2023 because of the dip. And then, we said, of course, we will meet that.

So that's a little bit what we say. I hope that explains it, Martin.

Martin Wilkie -- Citi

Yes, it does. Yes. That's very helpful. Thanks.

Bjorn Rosengren -- Chief Executive Officer

Sure.

Martin Wilkie -- Citi

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

Bjorn Rosengren -- Chief Executive Officer

Yes. It's correct that we've seen automotive kicking back in many parts. On the other hand, there is a lot of expectation. When you look at the -- fully coming back to this $90 million part, it's not 2021, as we have seen it.

It will take a little bit longer. On the other hand, there is a transformation also toward more electric vehicles, which will do there. So from our perspective and what we -- the one who's looking into the future of the automotive industry that, yes, this transformation toward e-vehicles might keep people back a little bit from making that full investment so we are saying that we believe that that would have some kind of impact. If you're looking at how the automotive industry impacts us is mostly in the robotic business.

And that's been a very challenging year for the robotics. On the other hand, that has come back somewhat. On the other hand, we are focusing more on other segments than those turnkey solutions where there is low ABB content within. So we see good opportunities in many other industry, and that's really where the big focus is today.

Logistics, general industry, electronics and just give you an indication on that part. In China, on the robot and squeeze automation, we saw a 90% increase during the quarter. So there are a lot of opportunities in other segments for us.

Martin Wilkie -- Citi

OK, Thank you very much.

Bjorn Rosengren -- Chief Executive Officer

Yes.

Timo Ihamuotila -- Chief Financial Officer

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

Bjorn Rosengren -- Chief Executive Officer

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

Martin Wilkie -- Citi

Great. Thank you very much.

Ann-Sofie Nordh

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

Shane McKenna -- Barclays -- Analyst

Good morning, Bjorn, Timo and Ann-Sofie. Just wondered if you could elaborate a bit more on the restructuring actions taken in IA or I should say, Process Automation? And how much of the total group restructuring you guided for '21 of $200 million is going to be specific for this division. And then, I see you've made some comments on the timeline for the sales spin of Turbo. As this business moves out, where do you see the white spaces in IA to plug the margin gap from ETEX.

And then, I'll squeeze one final one in. How long should we expect this drag from lower-margin system solution order in Robotics & Discrete Automation to continue into 2021? Thanks.

Bjorn Rosengren -- Chief Executive Officer

Thank you very much. Let me start to elaborate a little bit on my favorite subject, the process automation or early call industrial automation. I mean, to understand where we are on that business, you need really to dig into the details, and that's quite enjoyable from my side. In those numbers, there is -- first, if you look at the underlying performance of these businesses, it's about 10% margin.

So what you're seeing in the numbers, that includes the Kusile settlement and then another project in India, an old one, which has been cleaned out, actually. So that is some part. But when you look at the PA, there are a number of let's say, divisions that are being challenged, mainly on the service business. And this is, from my perspective, very unusual.

The cruising industry is standing still and no shifts, and we're talking about hundreds of cruising ships, which is full with our solutions, in is not operating, then, of course, you do much less service. Also in some power plant markets, where we have turbocompressors in tourist areas, which has been standing still, this is very unusual. So the service business is quite dramatically down compared to the -- actually the product and solution sales. And that is giving a very negative mix.

These installations are not going to disappear. They are out there. And as soon as things are opening up from COVID and restrictions are getting down. This business will kick back.

So we feel very optimistic about that. More challenging side, I think, from the Industrial Automation, it is some of those segments, oil and gas, as well as conventional power generation. And there, we're taking big actions to restructure ourselves. So we will be in line with the demand that are expecting.

It will take a little bit longer to kick back on that. So there is a lot of actions that have been done and is being done during this period. We will expect a coming back, a good coming back in margin during 2021. We feel quite comfortable about that, especially when the service is kicking back.

On the robotics side, yes, we've been -- I mean, the margins there is embarrassing low. If you look at where robot should be. And we have been very clear to that that's the 15% market when we come to 2021. That's the levels where they need to be.

So yes, we have, in our orders on hand. During this quarter, some deliveries of what we call these turnkey solution with low ABB content, which have low margin, which is affected. This will be some of that in Q1 and then you will gradually see improving margin because we have pretty good control over our margins of the big orders that we have received during these periods. So in Q2, Q3 and Q4, you see the gradual improvement of that part and you should be -- see also a good kick back in margin for this business during '21.

I hope that explains it. I think, Timo, you wanted to add on a little bit there.

Timo Ihamuotila -- Chief Financial Officer

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

So just throw that one in there as well.

Bjorn Rosengren -- Chief Executive Officer

I appreciate the correction, Timo.

Shane McKenna -- Barclays -- Analyst

Thanks a lot.

Ann-Sofie Nordh

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

Guillermo Peigneux-Lojo -- UBS -- Analyst

Thank you. Good morning, Ann-Sofie, Bjorn, Timo. I wanted to ask a question on Robotics and Automation, maybe adding short-cycle exposures at ABB. And I guess, obviously, they are Virgin trains now in China, Europe and Americas, and I wanted to focus on China.

First, how was China doing through the quarter? What kind of shape of growth you saw on basically month-to-month basis? And what would you think the environment is at Q1 stage for the visibility you do have at the moment? And then, in Europe, obviously, Germany, also on, I would say, sequential flat or, if I take comments in the right way, but how did it evolve through the quarter? And what would you think about the sequential development, I guess, in Q1? Thank you.

Bjorn Rosengren -- Chief Executive Officer

Thank you, Guillermo. Yeah, let's start with robotics in China is, as I mentioned before there, it was quite -- actually, robotic part was actually 95% improvement compared to last year. So it's quite dramatic. We have a strong robot position in that market.

And of course, a lot of good orders from the electronic industry, which has helped us great there. So I think the whole -- I think the whole year has -- or let's say, the last half year has been gradually improving on the Chinese market. And you saw also our robotics side now was actually, if you put back our Robotics & Discrete Automation, if you put back the $50 million adjustment in orders is actually flat, compared to the year before or 2% improvement actually from previous years. So finally, we are moving into the right direction.

Europe is trailing a little bit, I would say. And Germany is an important market there, and it's quite heavy lockdown at the moment. So we feel that there are effects from that. On the U.S.

market, on robotics, we are not that strong. We have quite a weak market share and a lot to be done there. So we're not really benefiting from big kick back there in the automotive industry in the North American market. But I think the important thing from robotics for the year, we've done a great job during the year to put that business in relation to the demand in the market.

We spent more on R&D than we've done ever before. And we are actually launching a whole new range of collaborative robots during the first quarter now in February, where we are quite excited about. So I think, robot, my belief is that robots will be a good contributor going forward.

Guillermo Peigneux-Lojo -- UBS -- Analyst

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

Bjorn Rosengren -- Chief Executive Officer

Yeah. Just on the factory there, I mean, the factory construction is going on. And we -- from the beginning, we had an objective to have ready in 2021. But I think it's rather be 2022, that it will be finished.

And it will be the world's largest most modern robotic factory in the world. So that's going to be a good support to the Chinese market, which is really doing well at the moment for us.

Guillermo Peigneux-Lojo -- UBS -- Analyst

Thank you so much.

Bjorn Rosengren -- Chief Executive Officer

Thank you.

Ann-Sofie Nordh

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

Mattias Holmberg -- DNB Markets -- Analyst

Thank you, and thanks for the time. I'm sorry to get back to this, but I still don't fully understand the 2021 guidance when you say you expect the comparable revenue growth to be in line with the target, which I then interpret as 3% to 5%. You also say that you expect the market to grow above 5% in 2023. So is this that you expect to grow less than the market in 2021? Or is it that you anticipate growth to be back-end loaded, so less than 5% in 2021 and above 5% market growth in '22 and '23?

Bjorn Rosengren -- Chief Executive Officer

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

Timo Ihamuotila -- Chief Financial Officer

All right. Yes. Thanks, Matthias. So as we are saying, the visibility to the short-term part of the market is not exactly stellar at the moment.

We can all understand that. And in our case, especially, as Bjorn said, it depends quite a bit also on how the service business is coming back. So we are saying that at the moment because we are saying this 3% to 5% range. We expect the growth to be at this point in time for 2021, slightly lower than the five-year -- 5% for the three-year period, i.e., a little bit lower growth now in the beginning and then picking up later.

Of course, as Bjorn also said, if we see a better market this year, we are expecting to grow with the market or better. So it could be better as well. And that's why we say also broadly in line. So I don't think these are in contradiction, but that's our expectation now going into the year with this visibility.

Mattias Holmberg -- DNB Markets -- Analyst

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

Bjorn Rosengren -- Chief Executive Officer

Yes. I can do a little bit on that. I mean, this is, of course, the big focus and the whole setup and the foundation that we have been building during this year. And I think that's gone really smooth actually.

We have the new setup that decentralized with the businesses with full accountability. We introduced a scorecard system, which is a performance management. There are thousands of activities out in the different businesses that is actually driving continuous improvements in the businesses. We take, as you see, in a lot of restructuring costs also during this quarter and this year.

And then, of course, our operations is getting a better fit going forward. So this is everything from pruning portfolio to closing factories, which we are doing in many parts of the world, as well as improving pricing and other activities. So we are driving them. And then, we think that the targets that we have set up, we are, of course, fully committed to them.

And I think it's important, from our perspective, that you will be clearly seeing an improvement in the right direction starting 2021. So coming from a challenging year, we're looking forward to an exciting 2021 for ABB.

Mattias Holmberg -- DNB Markets -- Analyst

Thank you so much.

Ann-Sofie Nordh

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

Ben Uglow -- Morgan Stanley -- Analyst

Yes, I a.m. Good morning, everyone, and hope everybody is safe and well. So apologies for laboring the point on robotics. But I wanted to understand exactly how the team are thinking about it in terms of direction.

If I look at the information that was given at the Capital Markets event in February. If I simplify it, the overall market -- addressable market for robotics was quoted at just under $20 billion, of which roughly 20%, $3 billion or so was basically EV and the ICE portion going down, am I correct in assuming that what you guys think is that the addressable market overall for auto, robots would come down. EV grows, but ICE comes down more. So that's the first part of the question.

The second part is, if that's around half of what you do in the division, is your assumption that you can kind of offset that with electronics in the general industry. Is that the right way of thinking about it?

Bjorn Rosengren -- Chief Executive Officer

Well, Ben, that's pretty detailed. When we look at the automotive industry, we're saying that the EV part of that business is increasing gradually, it's going to be doing -- there, we have, of course, a very strong position in most of these installations that are coming. So I think that will support us toward the -- to the automotive industry. What we have done, which I tried to be clear, is that we take a little bit more cautious look on the automotive when it comes to this turnkey solution, where we have very few.

So that's holding it down. So we, of course, see good opportunities in other segments, which is actually moving quite dramatically. And we believe that that will compensate for the lower sales within automotive industry. So yes, we are quite optimistic on that.

But it's a combination here that the margin on that low automotive side will be compensated with a higher-margin business from other segments. That's the importance. And that's how we're going to get back to the margin corridor also for the robotics. So I don't know if I was clear enough there.

But I'd be happy to give you a little bit more from Sami there. We can connect you a little bit there into the details on the automotive side.

Ben Uglow -- Morgan Stanley -- Analyst

No. Thank you. I understand directionally how you guys are thinking. And one follow-up for Timo.

Timo, I wanted to make sure I properly understood exactly what you guys are communicating on the cash flow. In the press release, the point that's made in the cash flow section is that ex the sort of one-off effects this year, your continuing cash flow as I understand it would have been $550 million higher. So just doing sort of back of the envelope basic math. If I take the $1.875 million of continuing cash flow and add back the $550 million.

On a pro forma basis, am I correct to assume that our sort of starting point for cash flow this year is about $2.4 million, $2.5 million? Is that the right understanding?

Timo Ihamuotila -- Chief Financial Officer

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

Ben Uglow -- Morgan Stanley -- Analyst

OK.

Timo Ihamuotila -- Chief Financial Officer

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

Ben Uglow -- Morgan Stanley -- Analyst

Understood. OK. But just pro forma for last year, our starting point is $2.6 million or thereabout ex any organic improvement basically. And then, we have $750 million of capex approximately to give us our free cash flow.

Is that a fair way to think about it?

Timo Ihamuotila -- Chief Financial Officer

Yes, I would say $2.6 million, $2.7 million. And then, capex.

Ben Uglow -- Morgan Stanley -- Analyst

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

Ann-Sofie Nordh

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

Daniela Costa -- Goldman Sachs -- Analyst

I'm on the line. Good morning. Thank you for taking the question. I'll ask three quick things.

First, I mean, we've been hearing a lot about like shortages of semis and other components in high transportation costs and a lot of inflation. Can you elaborate like within your margin view for 2021? Kind of how is the balance between this inflation on ROCE cost and pricing? Can you help --

Bjorn Rosengren -- Chief Executive Officer

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

Timo Ihamuotila -- Chief Financial Officer

I guess, semiconductor component?

Daniela Costa -- Goldman Sachs -- Analyst

Yes.

Bjorn Rosengren -- Chief Executive Officer

OK. Yes. I mean, looking forward, we mentioned in a couple of places in the press release that there are raw material increases that there will be some headwind going into 2021. We've been quite well hedged at the moment.

And this will gradually work itself in. We, of course, our business taking mitigated actions, not least when it comes to value-based pricing, which is being quite active at the moment. Of course, in a lot of other restructuring -- and restructuring efforts that are being taken. So from the margin perspective, I think you should look at following.

Where are we today? Yes. I mean, if you add back Kusile and some of that core things on the part, our basis is about 12% running rate margin for the business. Then 2023, I have promised, the other one I promised is within a corridor, but I promise 15%. So you can see that gradually, we should see moving equally in the direction toward the target of 2015.

So you should clearly see that we are moving the right way when we are moving out of the next year. I don't know if I can be more clear in my guidance without telling you a number.

Daniela Costa -- Goldman Sachs -- Analyst

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

Bjorn Rosengren -- Chief Executive Officer

No, I mean, electrification is a great story coming back. And China is one of the strong driving -- very, very strong driving force for the electrification business. So that developed a little bit better, both when it comes to the growth number, as well as the margin number, which is quicker. Which is quickly coming there.

So yes, I think they are on a good way toward the margin corridor, which they have committed to. We feel comfortable about that business.

Daniela Costa -- Goldman Sachs -- Analyst

OK. And one final question. Going back to the CMD in terms of the three businesses that are under divestment. I think you've mentioned one could have potentially be -- could potentially be a spin.

But given the taking slightly longer to maybe sell them, why not just spin them off?

Bjorn Rosengren -- Chief Executive Officer

Yes. But no, I don't think we're taking longer term. I think we were pretty clear on that. But these three businesses are really high value business, well-performing in the market.

But the only thing we said that we are not going to have any fire sales here or any COVID discount on these businesses. So we're going to make sure that we get full paid for them. And the first one, which has been extremely resilient in the downturn that's still performing fantastically during the whole COVID that is the Dodge business that's why we say that that is probably the first one that we -- and we have actually started the process. We should be doing that during the first half year, somewhere there.

There is, of course, separation work that needs to be done and takes a little bit of time, and we need, of course, our support from the advisors also to move it. But there is a big interest for this business and we start. The second one will probably interpret charging which is also a very strong business, even though they have some effect from the service business, which is 75% of that business, a lot in the cruising industry, where they have a lot of turbo on the engines, on the vessel engines. That's been hampered a little bit.

So we want to see that business coming back a little bit. So that business will be fully valued. Then we don't really know if that is going to be spin-off or if we do sales of that one. That's a later decision that we will take.

Daniela Costa -- Goldman Sachs -- Analyst

Understood. Thank you very much.

Bjorn Rosengren -- Chief Executive Officer

Thank you.

Ann-Sofie Nordh

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

Andreas Willi -- J.P. Morgan -- Analyst

Good morning, everybody. Thanks for your time. I have two questions, please. The first one on machine automation, B&R.

Maybe you could talk a little bit more about what's going on there. We've had the management change at the end of the year. We had the goodwill writedown in -- which we already discussed in Q3, yet this order reversion now in Q4, what's not on right there that you want to put right now with new management? And the second question is on price cost, particularly in electrification also on the motion side. You mentioned the raw materials.

Are we going from kind of a net positive you had in the second-half enterprises were resilient raw materials were down to more of a neutral? Or do you expect actually to see a temporary negative price cost in the first half of '21?

Bjorn Rosengren -- Chief Executive Officer

OK. Let me start with the B&R. Which is a great business where we've also seen a fantastic recovery during the last quarter when it comes to orders. So that looks quite exciting.

Yes. We took some goodwill right off during that period. But maybe you remember, this has been part of the transformation of ABB we're doing. All the goodwill was earlier centrally in the group.

And we still have a lot of goodwill left here for all the businesses that we are not really selling. And now when we move the goodwill out into the business is because we want the business to carry the goodwill from their acquisition. We think that makes good sense. Then there was some goodwill, which was not really related to the B&R business, it's actually to another acquisition we did earlier.

And then, we have the opportunity to, of course, offset that and write that off. So that's no negative to the management of the B&R people. So they are totally free from that. On the order reverse side, yes it's correct.

We are changing the manager. And hopefully, next week, we'll come out with a press release, who will be the new head of that business. But the orders on hand, these are orders that were in the order book since long before, and that is actually being reversed. It's not even order that we received last year, but even further back.

Now we are taking that out of the book because that would not be delivered, and that was $50 million. So that is hitting them. So I wouldn't blame the management for any of these two. Maybe on the order side, that could have maybe been cleaned up.

But I think it's fair for the new guy who comes in to -- when he runs this also that the orders on hand are fresh and sound. That's part of it. But yes, we think the B&R business, you know from my perspective, when we talk about this business. This is a business we should be -- we're growing that business, but it should also be more profitable than we are today.

And I think we need also to have a management to have the same ambition on this, and I think we will have that now, we'll take it to the level where it deserves to be. But otherwise, I think we're in a good position. And as I said in the report, we actually had a lot of wins when it comes to new OEM customers during the quarter. So the -- finally, we're getting some tailwind on this business also now.

It was a little bit challenging in the beginning of the year when the COVID was hitting. But we're pretty optimistic for the year to come. Does that explain it, Andreas? Is that good enough?

Andreas Willi -- J.P. Morgan -- Analyst

Yes. Thank you. And on the price cost?

Bjorn Rosengren -- Chief Executive Officer

Yeah, on the electrification, yes, it's correct that last year, we reported that the price increases had a good impact, of course, in the improvement during the year. We've seen many of the mineral prices going up during the year, which is fantastic for the mining business -- for being an old mining guy, it feels always good. But yes, for us, we have a lot of coppers in our products, both in electrification and in motion. It will have a negative effect.

We're already seeing that, but we are hedged -- we are well-hedged for this year, that last year and in the beginning of this year, then you will see it gradually come into the year. So they have been more aggressive start of the year to make sure that our pricing is in line to cover this. There is a risk, of course, that this will have a -- not as a positive thing on the price comparison there. There might be some negative effects on the results from pricing compared to pricing input from materials side there for the year.

But that is, of course, going to be compensated by the integration of GEIS and all the efforts that are being done by closing factories and getting the product portfolio approved and so on. So we should continue to see good profit improvement of that business in line with -- as we move forward.

Andreas Willi -- J.P. Morgan -- Analyst

Thank you very much.

Bjorn Rosengren -- Chief Executive Officer

Thank you.

Ann-Sofie Nordh

Thank you. And with that, we close this session. Thank you for your attention. And if you have any additional follow-up, please reach out to us in investor relations.

And -- we all that remains is wish you another good quarter until we see you next time.

Bjorn Rosengren -- Chief Executive Officer

Thanks a lot, all of you.

Timo Ihamuotila -- Chief Financial Officer

Thank you.

Operator

[Operator signoff]

Duration: 61 minutes

Call participants:

Ann-Sofie Nordh

Bjorn Rosengren -- Chief Executive Officer

Timo Ihamuotila -- Chief Financial Officer

Martin Wilkie -- Citi

Shane McKenna -- Barclays -- Analyst

Guillermo Peigneux-Lojo -- UBS -- Analyst

Mattias Holmberg -- DNB Markets -- Analyst

Ben Uglow -- Morgan Stanley -- Analyst

Daniela Costa -- Goldman Sachs -- Analyst

Andreas Willi -- J.P. Morgan -- Analyst

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