Greetings to all, and I want to extend a warm welcome to this ABB Capital Markets Day. We have a bit of an early start or late start, rather, early and late, later than expected. And I just want to say that this was due to traffic incident, but I just want to confirm that this does not involve anyone here, and no ABB people, no guests. It was sort of another incident, which caused a bit of a traffic jam, but we're past that, and we start fresh. Super happy to see so many of you here in Frosinone, in Italy. Super excited. We also have a large audience, virtually, and we're so glad you're joining us because we've been looking forward to this day. So we're actually excited to see you all here.
I know that the local team here in Frosinone are glad to have you here because they have made such a great effort to push around their schedules and allow us to hit their turf for today, and they've done it. I just want to say a big thank you for allowing us to do that. I'm Ann-Sofie Nordh . I'm heading the ABB Investor Relations team. I want to share just a couple of practicalities before we kick off. If any of you who are here in Frosinone should run out of power, and I mean your laptops, not your physical power, there are charging points at the back of this room, also in the area to your left. I should also say that we will be doing a tour later on today.
That will be super exciting to show you that. And with that, I will say that you will hear from all our business leaders today. You will hear from our CEO, you will hear from our Group CFO, and our Head of Sustainability. I think given that we're already pushing on time, we'll let Björn loose as the first presenter. A very warm welcome.
Good morning, also from my side, everybody that are here in Frosinone, but also everyone online. It's a great pleasure to have you here. We met one and a half year ago on the last Capital Markets Day in Zurich, and a lot of water has flown under the bridge. We couldn't think of any better places as electrification demand is greater than ever, than Frosinone, which is the center of production for large low-voltage breakers. With me, I will start with a couple of my colleagues before we will let the businesses on. With me here today, we have Sami, as I think you know, Head of the Robotics and Discrete Automation business, but he is also our coordinator of AI in ABB.
We have, of course, Timo, our CFO, and we have Anso, who's head of the sustainability and coordinating all our sustainability work that is taking place in our different businesses. So let's start with a little recap and look at some of the performance, both financially as well as reduction of greenhouse gases since we introduced the ABB Way in 2020. It's been challenging years, probably the worst that I have experienced during my career. We have gone from crisis to crisis: COVID, supply chain, war, softening of the market, inflation, and of course, geopolitical challenges, which are not actually becoming easier. Despite all of this, I think ABB stands stronger than it has ever done in recent history. And I must say, I'm extremely proud of our businesses that have managed to achieve this result in such a short time. But-...
I can assure you, this is only the beginning. Let me first guide you through the recent years. 2020, actually, middle of the COVID, we launched the ABB Way. I'm sure you remember the Capital Markets Day that we had the summer during this part. It was the direction of decentralization, introducing the operating model, the ABB Way, making our divisions the highest operating level in the company, driven by transparency, accountability, and speed. At the same time, we decided to eliminate all matrix organizations. In this time, we actually reduced our central and country resources from 18,000 down to 800. That's approximately where we are also today. It's building on that the people that are dealing with our customers every day also is taking the operational decisions in the group.
Many of you maybe remember, before I started, I spent time with a lot of investors, but also many of you are analysts, to understand a little bit how you looked upon ABB. One thing that came up in many of these discussions is, "ABB is a conglomerate, and we don't like conglomerates." So we brought that with us, and of course, it becomes very important, what is actually keeping the group together? Why should we keep the group together? Quite a big job was made, actually, to define the purpose of ABB. Actually, what we want to achieve with ABB. I know many of you was also involved in this work, many of our stakeholders, our employees, the board, and everybody.
I think we came to a purpose that we are today very proud of, and it is, as you can see here, and you know it, of course, enable a more sustainable and resource-efficient future through our technology leadership in electrification and automation. I think this defines it very good, and it has actually helped me, and many other in the company, really to understand the journey that we want to create. To be a division in ABB, you need, of course, to qualify to be. So besides being aligned with our purpose, you also need to be number one or number two in the market, and you need to be in a market where you can make money. And we know, of course, when we look around us, there are certain businesses where it's very difficult to make money today.
The conclusion, where we've spent quite a lot of time also to looking out through our portfolio, and we came to conclusion that three out of our businesses did not really align with our purpose. You know, for being a CEO of the company, I realized that the three best-performing divisions are not aligning with your purpose, you can imagine that's a pretty brutal start of your time in ABB. But we then later, of course, realized that it's much better to sell profitable businesses than underperforming businesses. And of course, you know that the first business we sold, Dodge, was actually the highest price ever paid for mechanical business, 22 times EBITDA. I think that's quite an achievement. And the best thing is that that business is today core of its new owner.
The second business, you know, I was the biggest customer when I was in Wärtsilä, for our turbo business, and I love the business. So of course, it was also painful for me to say that we need to exit this business. This is, of course, a great business, making around 25% profit, as always done, and a clear market leader. We didn't really find a good buyer for this one, so the natural was actually to make a spin-off and put it on the stock market. And I hope that some of you kept the shares, because I did, and it's been a great journey since we put it on the, on the market. And it's, of course, good to see Accelleron today in its strong position and a great future.
And the last power conversion was done, which, of course, means that what we are today, we think it's very much aligned with what we like to see ABB and aligned with the purpose, what we want to achieve with the future. But of course, we lost $1.8 billion in revenues, which you saw on the previous building, that we have even exceeded in the growth of the business. But maybe the most important of all is also that the people, the employees in ABB today, are fully committed to the ABB way and the future. And as you can see on the picture, that the engagement service is showing that people are proud today to be part of the ABB group. But, of course, we put this new operating model in place already in 2020.
So what have we done since then? Yeah, when we looked a little bit further into the business areas and the division, we realized that many of these operating entities were like small ABBs, meaning a lot of matrix organization and a lot of complex structures. The last three years, we've been focusing on streamlining the business, moving accountability also down in the divisions and the business area. Just give you one example, in 2019, we were 11,000 central people in electrification. Today, there are 200 people left central. All other resources are today part of the divisions. There are many examples how the division have moved accountability further closer to the customers and to the business lines, which is, of course, one of the reason why the businesses are achieving so good today.
You all know that every division has a mandate, what we call a strategic mandate, and we say that every division need to be stable and profitable before focusing on growth. It's no idea to start growing unprofitable businesses, because that's a good way to destroy value. Fix your business, and then grow. As you can see here on the first, in 2020, approximately 30% of our division were in what we called a growth mandate, while the other division had work to do to improve their profitability to be in line or better than their biggest competitor. This is important.
Today, 70% of the divisions are in a growth mode, and I can assure you, many of the divisions that are still in profitability are very close to go over to growth mode, which are now contributing a lot. There are a lot of success stories here. I'd like to mention one, and I know that I'm not always allowed to be so transparent. Hansi gets a little bit angry on me sometimes there. But when it comes to one of the businesses, the Tools & Hubs, that 2020 made 11% profitability, and underperforming, of course, today is actually the division on the top there. And I can tell you, it's way over 20%. An amazing journey that they have done by focusing on the division and all the capabilities that they have.
You know, last year, Distribution Solution s, Large Motors and Generators, all of these businesses are today, delivering in line with what they should be doing. That's a great achievement. So today, 70% of the divisions are focusing on growth. So the transformation is ready. The majority of the divisions are in growth mode and are continuously working with continuous improvement of the business. So we think it's a good time to accelerate growth. The ABB model. Today, it's a well-established operating model, and I think there are very few, if any, that is questioning that this model is actually the right model for ABB and the future. And you can see here, commitment from the board, as well as the management, but also from our employees. So I said, accelerating growth. Internally, majority of our divisions are today in a growth mandate.
We look at some of those secular trends that are there, are actually supporting both electrification as well as automation. And as you know, I travel a lot in the market, meeting customers all around the world. And I can tell you, if half of their plans will be reality, it will be fantastic for ABB. And now I'm not only talking about these new technologies in the transformation to a more sustainable future, but also the traditional industries that needs to transform to be relevant tomorrow. It is an exciting future. This development, this external market, but also the well-performing businesses we have, makes us very comfortable to lift our financial targets, both when it comes to growth, but also when it comes to profitability. Maybe you heard me in the beginning saying that these four years have been maybe the most challenging time in my career.
I must say that I don't think I have gone through so many crises, you know, in any market during such a short time. Of course, it was the COVID, but there is so much afterwards. We see protectionists in different parts of the world. We see a deglobalization being made. There is geopolitical challenges between East and West, which is not actually becoming easier, and we see the complication of moving both people and their goods between certain regions. So how is ABB equipped to deal with this? For many years ago, ABB took a decision to go for the strategy, local for local. I'm sure you heard me say this before, but this strategy has been actually to become more self-sufficient in our different regions.
As you can see on the picture here, in Europe, we are more or less self-sufficient. 95% of the products and services that we are selling is actually being generated in the region. In China, we are around 85%, and there are some products coming from Europe, but almost nothing from U.S. In U.S., we are around 75%. Some products coming from Europe, but not much from China, as you can understand, with the challenges that we are facing. We are now investing in U.S. We—you have heard that we have an investment plan. We are recently announced $170 million in building more factories in U.S. to be able to make sure that becoming more local in the American market.
There are other investments also, like in Europe, the robot factory and so on, and the previous one we have in China. But this is how we will drive the business also going forward. If we look at some of those trends that are taking place, we see an increasing population in the world. We see urbanization, people moving to the cities, and we're also seeing raised living standards in many of the countries who before was much poorer. But we also see the green transformation that is taking place. And I can hear some that, "Yeah, but now you see in U.S., if we get a new government, maybe some of these are actually are they going to be stopped or not?" I can say one thing: the train has left the station. There is no way back.
It doesn't matter if certain politicians is saying that we are not gonna go for it. The industry, the stakeholders, have decided. All of you sitting in the room, you are expecting that the companies that you are investing is driving the green transformation. Our customers are expecting it, and our employees expect that we are doing that, because they want to work in companies that are contributing to a better world. Carbon cost is going up. Carbon pricing is becoming an important tool, and I am a strong believer that we need to drive the carbon pricing to make it possible for some of the new technologies to be economically viable. This will drive innovation in these new technologies. You can see here that Europe is where taking place, but this need to take place globally. The demography driving our automation business.
We see an aging population. We're seeing the difficulties to find the right competencies, both on a high level, but also in production work. This is driving automation, and I think today in the factory where you see, which is one of the most modern light factories there are in Europe, you will see how much automation means to success of any factory. And we are using a lot of ABB products. If we look at the demand, today, the demand for electricity is 10 times higher than from any other energy source.... 45% of the electricity goes to electric motors, and only 23% of those motors are equipped with drives. And you know that the drives are the necessity to drive efficient motors. This shows the enormous potential there is for the ABB Electrification.
So if we look at some of those secular trends and how they affect the demand of ABB products, you can see here the world is going electric, which you have seen in the numbers from everybody that are dealing with electrification of the world. But we also see energy security, which is today mainly focusing on LNG. There is a lot of investments in the LNG business to be the transformer energy source until the renewables is fully built out. Emission reduction, I said many of the traditional industries are need to change and are investing to become more sustainable and in automation. So you see that all these secular trends are actually driving demand for ABB products. Another area when I started and I talked to you, I realized that medium voltage is something that the cat dragged in.
I think today we have a different viewpoint. The strongest demand we see in the ABB portfolio is actually coming from the medium voltage. And you know our heritage, coming from the high voltage, very strong in medium voltage, and then moving into low voltage. We see today that the whole infrastructure that is being built out in the electrification is driving the demand for medium voltage. And I'm talking everything from, data centers to EV charging, or any industries that need to go to, let's say, green. We're talking about green steel, battery manufacturing, all of these need a lot of power. Our offering, 25% of ABB's offering is related to medium voltage today, and it's growing quick, and the profitability for this business is today over 15%. Let me give you some examples. There are some really exciting...
I know some of the businesses will talk about this also, but I like to mention some of them. The first one is, you know that there's a lot of fires in California, and there's a lot of hurricanes in, on the, on, in Florida. And it's not gonna be less. I think we all understand that. So these states have decided to take the electric infrastructure that is, like, you know, today, overground, to dig it underground. So in the next years, U.S. is going to take 45,000 miles of underground, infrastructure. This means that our offering today in Thomas & Betts, in our Installation Products , we have the strongest program for underground, medium voltage switchgear, and this is really being driven at the moment. The second example is that many process industries today have been driven by gas turbines.
They are today changing to large electric motors connected to the grid to avoid fossil fuels. Amazing, great opportunity, both for decarbonizing the world, as well as drive the demand for ABB product. And the last thing, LNG. There are so many investments in the LNG part, and here we're talking both control system as well as electrification, that we are benefiting from today. AI, artificial intelligence, is moving like a tsunami through the company. ABB, with a lot of technicians and very technology-focused, this is of course like Christmas for any kind of engineer or for anyone in the company. So there are plenty of projects that have started. To coordinate all of these activities, we have Sami, who's our whiz kid when it comes to AI.
And he has taken the responsibility to coordinate all of these activities to make sure that we will move forward. So, Sami, give us a taste.
Thank you very much, and good morning, everyone. It's a pleasure to be here with you, and thanks for the Christmas analogy. It is really true for ABB that this is a great opportunity for us to drive value internally, but also for our customers.
Now, ChatGPT has made AI super prominent at the households to all of us. I would guess, you know, at a show of hands, all of us here would have used the ChatGPT so far. But I can tell you, AI is not something new. It's been around for decades. It's been around in ABB, driven by our research and our product development, and it's not new for me. I did my Ph.D. in AI more than 25 years ago on robotics and artificial intelligence. So today I will give you a quick recap of the view on AI, then how we at ABB look at it, and then we'll show you how we drive value internally and for our customers. Now, the history of AI started actually almost 70 years ago.
1950, there were a bunch of MIT geeks who came together, and about 10 of them, and they had the idea, and they said, "Any kind of human intelligence and learning capability can be replicated by a machine." That was a theory. Interestingly, they were right about the content, they were wrong about the timing. Because afterwards, what you have seen, that the history is always inflated expectations, and then, as the MITers would say, a winter, AI winter then came. The second wave came when a lot of hope came around the expert systems, where, you know, medicine and every rule on this planet can be put in a, in an expert system, and that also materialized not to be feasible because of the computing power, and the logic was not able to cope with it.
But then the actual breakthrough happened much earlier than ChatGPT, which is the neural network. It is as simple as replicating our human brain in a machine, and from there on, it actually kicked off. And the first applications were all around, you know, pattern recognition, seeing objects, and recognizing them. And we in ABB have actually started in 2014 with a dedicated industrial AI research, and since then have been putting AI into our products. Like, for example, in Genix, in Peter's presentation, you will see and see more around the software. But the software contains a lot of AI, pattern recognition, predictive maintenance. We have shown how we can use AI to do quality inspection of welding spots by seeing thousands of weld spots in automotive, and then the system starts learning.
That product is already available today. Then the newest one, which is making an AGV, being able to navigate in this room here without ever seeing this room before. These products are available in ABB already today. So how do we in ABB look at AI, and how do we structure it? When we had a discussion at the beginning of the year, when we saw this tsunami coming, we had a lot of projects in ABB we scanned. I was really impressed by the number of projects we have in the company. So we said, "Let's look at it in a couple of categories." One is analytical AI, as I said, understanding patterns, which is the classical AI, and ChatGPT and other companies have now generated the generative AI, which is basically taking text and generating new, new.
That's in simplest terms. You all have used ChatGPT. So these are two different categories, but I can tell you over time, they will merge, and they will be the underlying neural network is a common thing between them. The other category that we looked at is internal efficiency usage and external. One is for the employee and the process optimization. Multiple ideas we have, and we're working on improving internally, but also driving innovations to the outside world by embedding AI into our products. The last category is, first, it's implemented. Second, it's under development, which means around one or two years it will be in the product. And the last one is planned and ideas. Why is this important? To avoid any hype and thinking that everything that is here in this vision means it will become reality.
To avoid that we overthink, but we have, you will see later, a lot already in the reality today and planned for the products and the future. So we have more than 100 AI projects, and that was the count before summer. That number is going up rapidly. If you structure it by the technology, analytical, the majority still is analytical, more coming into generative. The second is by usage. More of them are in the offering to our customers, and we have internal efficiency projects coming up from the divisions and from the functions. By status, a lot implemented, but more under development and much more planned and ideas. And as you heard from Björn, the power of ABB is innovation comes from the business and closeness to the customer.
Last but not least, it's quite well-distributed amongst the business areas, although the count of the project doesn't say, you know, about the quality of the content, so it's quite fairly well-distributed. We map all the projects we have, and we have a repository that we look at centrally, and you see that on the implemented side, green represents analytical AI and blue, generative AI. You will see that we have more on the green implemented internally, like self-service, customer support. This is the mobile robot that I've talked about, ABB Ability Genix, in Peter's business. But you also see that Genix uses analytical AI today, but there is a plan to add generative AI.
What that means, that you will use natural language, for example, to talk to a machine, to talk to the system, because generative AI's power is it's a large language model, so it's able to, you know, communicate. And then they have a lot of projects in the development that are focusing on AI, generative AI. Examples of customer contact, chatbot, automated self-configuration. AI coding assistant is gonna be huge, so helping developers to improve productivity using generative AI. And then we have a lot of projects in the building for the future that we will put in our products. How do we look at the value we create for our customers? First, generative AI and gen-- AI in general, helps us in insight generation.
It's basically gathering tons of data, unstructured, and giving to you a summary or a prediction, like predictive maintenance, telling you when should the next service technician go to the motor, because most likely in the period of, you know, four to six weeks, we'll have a breakdown. Customer chatbox, allowing customers to, you know, get an aggregate of information from us, that's insight generation. The other one is optimizing operations. We have really super examples of in the energy management that you'll hear from Morten, later in EL, where a system is able to collect the information about where the beings of the people are, optimizing the temperature based on patterns that you can see, and that is really of value for, you know, society and for us as business. The other one is new skills.
New skills are able to allow products and machines to create things that were not, not possible before. One is item picking. Robots in the past used to have to be exactly programmed of, you know, this is an object, in automotive, for example, I grab it exactly where it lies, I know the model, I pick and place it. The new AI systems that we have that running at H&M, for example, or in parcel and e-commerce, where the robot takes parts that has never seen it before, just by learning the patterns of watching and then taking and grabbing. The other ones is the AMR example that I just mentioned, so new skills that are being developed. The last one that I think will be the, the big, you know, step in large language modules with the ChatGPT is human-machine interaction.
We will see more and more that instead of us learning the language of the machine, the machine learns our language. So we talk in a natural language, like typical Siri, but in a much more, you know, easy way that we talk with the robot. Robot give instructions to do something, and I'll show you an example just in a minute. So these will be the areas of application that we think will be the future driven by AI. All the business areas have multiple examples: electrification, the AI-enhanced energy management, process automation, through just the nature of software that they, they produce. It is embedded in what they do for a living. Motion AI based on nominal detection that you will hear from Tarak later. And I'll just give you two examples from the robotics and discrete automation.
First one is a really cool one. If you visit our factory in China, you will see a YuMi, which are our robot, that watches a human being writing a Chinese word, and the word basically says, "Cool." And then just by watching that human do it, the robot looks at it, learns, and then basically does exactly what the robot saw and replicates it. Now, the first instance of that is not so good. The robot then watches and compares it with the original one and says, "It doesn't look as good as that," and then replicates the same, and then improves the quality of it, and it makes it more comparable to the old one. This is by just watching a human work. Now think of examples.
We have about 400,000 welding open positions in the U.S. We have examples where the robot watches a welder do a work and then exactly replicates that work without programming. I mean, think of the productivity and the accessibility of technology with that. The other one is a cool example of this natural language. I'll let you watch.
Place all the blocks from table one to the cart. Move all the blocks from the cart to table two. Place the red block in the middle of table two. ... Rearrange all the blocks on the table. Place the purple block on the red block.
These are all natural language instructions. So this will change the way we interact. Think of when we introduce new technologies, for example, into bakeries, where we have now today also customers who don't have, you know, PhDs sitting and programming robots. This will enable more access and better access to technology in the future. Now, we don't do everything ourselves. We work with external partners. For the internal efficiency part, the employee and the function, it will be more of a hybrid and mainly by, for example, we partner with Microsoft on the Copilot side or the functions. So we will use existing language models and then adapt them and bring them internally, for example, for internal chats.
Then on the external side, this is more of a mainly buy, well, mainly make, where we will develop ourselves, our own AI systems that drive, you know, value for our customers. How do we do that at ABB? We are a firm believer that you need to be close to the customers to innovate, so the innovation is coming from the divisions. When we scan through what is available, it came from the divisions and close to the customers. But we also have our functions like legals, comms, HR, and finance, all are driving for their functions improvements. We have research centers, as I showed you, more than a decade now, they're working on AI. And last but not least, in the central group, what we help with is govern, but we also encourage sharing and learning.
For example, we will have a, you know, a global website where you can go and get information about AI and get educated for all employees. And it is really driving, you know, innovation and efficiency. And at the end of the day, it's all about internal efficiency using AI technologies and external innovation that drive value for our customers, and we are super well-positioned using AI to drive value for, for us and ABB and our customers. With that, I will hand over to Björn. Thank you very much.
Thanks. Thank you, Sami. You make it sound so easy, but I can assure you, this is super exciting for us, and we are really energized by all this innovation that is taking place in this area and hopefully can utilize it. I will end my presentation talking a little bit, you know, stability, profitability, and then growth, as the majority of our divisions today are in growth mode. When we talk about growth, we talk about organic growth. Organic growth is always the most healthy way of growth. But we also mention the inorganic growth, the acquisition part. And I think you all have heard me say that we expect to drive between 5 and 10 acquisitions every year. If you look at a little bit of the history, last year, we made 4 acquisitions.
This year, we have made four acquisitions, and I can assure you that the pipeline of acquisition targets is enormous. We have moved the responsibility for M&A activities down to the divisions and to the business areas, because it's the division who can decide if there is technology or some company that would strengthen the market share in a certain area, and that it would make sense. The business areas are governing the division, making sure that the strategy and the acquisitions fit well in for the future. As you can see, many of these acquisitions are small acquisitions so far, but I think the divisions have up to small to medium size. When I look at ABB today, if you asked me two years ago, "Are you going to make somewhat bigger acquisitions?" I would probably say no.
If you would ask me today, "Would that be on the radar screen?" You know, and I'm talking to medium-size divisional add-ons to the business areas. I would say maybe, because I think ABB is so well running today, that the businesses are stable and profitable and have good processes, then it's much easier to take over companies and integrate and make a success. I think you all know, with acquisitions, it's easy to destroy value, but if it's well strategic aligned with the divisions, I think the chance of creating value is much bigger. Then, we have also the last years been working with minority investments. So what do I mean by that?
The division have the freedom to invest up to $20 million in start-ups where they see new technologies that could benefit their business, or maybe in the future, challenge the technologies that we have today. Last year, the divisions made 13 minority investments in startups. In this year, we have made 6 so far, and they are constantly scanning the market. And as you can imagine, in times where, you know, the venture capital is important, many of these startup companies come to ABB and asks if we can invest in these, companies. It gives us a perfect opportunity to keep control of what is taking place. So we see this as a complement to research.
We're letting the venture capital today finance the research in many different areas, in exciting technologies, with a lot of entrepreneurs that are driven, which would have been impossible to do inside a company like ABB. So coming to the summary of the financial targets, I think you've seen it. We have talked to it. I think that's what it is. But you also know today that it's not enough with financial targets. If you want to be relevant also in the future, you need ambitious sustainability targets. And, Heikki will talk much more about it, but the three pillars that we set up in 2020 are still there, which means enabling a low-carbon society, preserve resources, and drive social progress. These are the three main pillars in our sustainability strategy.
What we have done now is that we have updated our targets that we presented on the last Capital Market Days, and we have aligned it with what is expected today, especially aligning it with the, what we call it? The... What's that one again?
The zero targets of the banks.
Yeah, we have aligned the target, which is expected, both when it comes to Scope 1 and 2, as well as Scope 3. And we have set the Net Zero target for 2050, meaning, and we are going to be carbon neutral in our own operation by 2030. But maybe where we make the biggest difference is actually helping our customers to become more sustainable, and we call that avoided emission. And we have updated that and seen from 2023 and forward, we believe, and our target is to be able to help our customer to avoid 600 megaton CO2.
On the preserve resources, it is a focus on recycling, and you will hear a lot today during in the production and how the different divisions are driving the circulation of our products and, of course, social progress. It is the safety of our employees. It's making sure that we have diversity in our organization, also, that we are good citizen where we are operating. I will come back to that a little bit more with Anso there. So by that, I'd like to thank you for this, and I'm handing over to Timo, who will give us a little bit more insight in our numbers. Thank you.
Thank you.
Thank you. Okay. Thank you, Björn, and good morning also from my side, and welcome. As Björn said, I'll talk a little bit more about the money equation of the company, and then Anso will talk a little bit more of the sustainability equation. But I just want to say that these new sustainability targets, we of course will follow with the similar rigor as we follow our financial targets in line with our high performance, high integrity culture. But let's then talk a little bit about the familiar ABB term, quality of revenues. So we introduced this term 2019, and we have now been enhancing it with ABB Way operating model. So we want to be best partner for our channels. We continue with project selectivity. This was used to be called No EPC. We still are not doing EPC.
I just want to be clear on that one. We want to drive value-based pricing excellence. This is a new one with ABB Way. And finally, we want to have more software and digital in our offering. And these all contribute to our plan to reach our new financial targets. So let's talk a bit about them, sort of one by one. We start with the channel partners. So ABB is a very different company now with this portfolio. About 70% of our business is short cycle and service, and these tend to carry both higher margin as well as less, let's call it, tail end risk. But we want to continue to improve executing these good businesses. And how do we do that? For example, we want to be really the best partner for our distributors. And that can mean, for example, best configuration tools.
So you go to a distributor website, you look at what you are looking for, then it sort of puts you automatically into an ABB website. You can do your configuration there. Then you can also get the externally verified Environmental Product Declaration for all the products you are planning to buy. Then you would go back to the distributor website, and you can finalize your purchase. So really being the best partner, adding value both to end customer and also to our distributor partners. And we also have, and you will see some of this stuff later, both from Anso and later here, we also have EcoSolutions labeling for other products. And that means that on top of the externally verified product Environmental Product Declaration , these products need to be aligned with four of our circularity principles.
So we really want to be in forefront of our sustainability offer, again, together with our channel partners and towards our end customers. On this area, we're also okay to hold a little bit of inventory when it adds value to our customers, so that we really can deliver on time where needed. And very importantly, Björn spoke about it in line with the ABB way, of course, these decisions are happening as close to our customers as possible, being the best partner. Then on this project, selectivity topic. So first of all, this does not mean that we would not like these direct, more direct to end customer businesses. We actually totally like it, but it has to bring, bring real value to our customers.
So we do projects where customers really benefit from, for example, our quality of design, our commissioning of the solution, optimizing operations, and best-in-class aftermarket service, which really drive value for our customers. And Peter will talk more about that in the PA section. But, if that would be not happening in a project, we're totally fine that our project or product divisions would sell directly to whoever would be then executing the project. And this is a really, really big change. And by the way, it's very interesting, even if we talk about project selectivity, we're actually having more projects. They are just better quality. And that is coming through when you look at this chart here on the numbers as well, because our order backlog gross margin is up about 450 basis points since 2019.
And also, when you look at these more project, more longer cycle type of divisions, their revenue gross margin is up about 250 basis points. It's a really big, big, great improvement to see. Then, to pricing excellence. So this was really introduced with ABB Way, and I can assure you, Björn is probably the biggest advocate of value-based pricing in the company every day for all of our businesses, even if, of course, the pricing decisions happen in the divisions and close to business. Now, we now have a so-called pricing office in each of the divisions. Some companies would call this, like, sales operations, which is more sort of a U.S. term for this. But it's very important that you are both analytical, but also willing to test the value-based pricing on the market, because this is not exact science.
It also requires sort of a, let's call it, bit of boldness at times to go and see what the value of the offering is. We have improved really on both of these. If you look at the... What is it from my side? Right-hand side of the slide here. So it's actually great that we started the value-based pricing project before the inflation came. We have, of course, benefited from inflation, but I think we're really in a good spot now when we see when the market sort of goes into a hopefully bit less inflation going forward with our value-based pricing model. But we're not going to stop here. We continue to develop our tools, and we have been very open that we are running these ABB Way transformation programs. One of these programs is something what we call Finance Transformation .
And here, first, I want to be very clear, this is not an ERP overhaul. This is a harmonized data model. And with this, once we are implemented, which is about end of next year, we will... Kind of easy way to look at this is sort of you take all the harmonized finance data, and you lift it from ERPs to the cloud, and then you have a harmonized data model, which you can slice and dice in different ways. So we will be able to get globally product cross margins, customer cross margins, market cross margins. You can compare these, and this will give us another set of tools for pricing excellence going forward. Then absolutely, last but not least, value from software. Two important things here first. So I want to be very specific on this one.
Where ABB has decided to play, its software capabilities are second to none. And second, when you look at this picture here, both our software and digital-based businesses and our more, let's call it traditional businesses, are very good businesses. So I thought we talk bit more, bit more about the different value drivers of the businesses. But you can see here that about 57% of our orders are now software-enabled or digitally-enabled. This is up from about 45%, 2019. We expect this to continue, and of course, as Björn also spoke, big part of or majority of our R&D efforts are software. On products and systems, this is about 60%, and on services, this is about 45%. And the most important thing here is that software adds value, and software adds value when it's scalable.
This we do in three ways, different ways. So in process automation, I'm sure Peter will talk more about this in a bit, we have about $550 million revenue from software and digital services. This is also growing in RA, but majority of our software is embedded software, both platform software as well as application software. So kind of like platform and application sort of sits on top. And if we give a couple of examples, so our drive products business, very, very, very software value-driven business. We can change the voltage, we can change the application, but you have the same software user interface, you have the same connectivity with Bluetooth, so the customer sees the same software, and we get a lot of value on being able to change these use cases by software.
Similar platform software, you will see later today here, we have in EL, in the more modern breakers, in the energy management, which Sammy also mentioned. And then if you look at robotics, there, the platform is the robot, robot controller, and then you build applications on top. And both of these scale, the platform model more with the whole division, and then application software with the application. So you can think of welding, welding application, of course, very difficult from a speaking application, but we still sell welding applications to many customers, and picking applications to many customers, so they scale. But most of our software is monetized as hardware sale. As you know, I'm pretty sure of this audience, probably like, like 95% of you have iPhones, the same model. A lot of value in a product from software.
But quality of revenue is not the only thing that is important. So we, of course, in the end, want to drive best possible cash returns. We want to have good capital efficiency and good productivity. So we'll go through this stuff a little bit here as well. Gross profit productivity and gross margin, capital efficiency, less one-time items going forward, and then good cash delivery. So this will all be part of our money equation, or are, and will continue to be even better part of our money equation. So let's dig, dig, dig a little deeper here as well. So first of all, it's great to see that ABB is now, let's call it, about 35% gross margin company.
This starts to be like a, tech hardware company type of gross margin, and I see no reason why, with our capital allocation and portfolio model, we couldn't move up from here. And, how are we focusing on this then? So first, again, our divisions are fully empowered, both on the pricing, but of course, on the variable cost of their money model as well. So we have no central procurement or other central stuff hassling when they look what is the best way for them to execute. But here, we will also get the benefit from our Finance Transformation on information, because all these gross margin-related variable cost elements will be harmonized in this money model. Harmonized is very different from centralized. I want to be very clear here, otherwise, Björn would give me a really, really hard time.
So with this, you get same information content, and you can compare, for example, productivity of the factories in a different way than you do now from all these line items, which are part of the variable cost. So this will really give us a fully comparable variable cost view when we are implemented. And second, I think, another good example is this gross profit pro-productivity measure as such. So this is something where I would say, like, corporate, definitely not micromanaging, ever, our businesses, but can give a little bit of guidance on where we want to focus. And gross profit productivity is a really good measure because you don't get a free ride with inflation, like you would get in this kind of situation with revenue productivity.
Further, it makes us focus on how much value we really get, for example, from R&D and channel investments, because that really comes through in the gross margin you develop. I think this new KPI, which we introduced this year, and we are going to continue for years to come, will serve the company really well for the long term. Moving a little bit further down in P&L on the money model. First of all, if you look at this, we are not expecting any significant changes in CapEx intensity of the company. On this chart, you see that R&D is about flat to revenue, but of course, the revenue is growing quite fast, so the absolute money going into R&D is growing. Also, you see that SG&A is going down.
So we continue to think in a way which is actually really good for any sort of technology-driven company. If you have $1 to invest, it should go to R&D or sales. And that continues the way of thinking in the ABB system. Now, if you look at this sort of flat R&D, it's good to note that here we have, during this period, discontinued all corporate R&D. So actually, if you look at R&D in the divisions, it is up more than would be visible here in this chart. So we're quite happy with how this is developing, but we can still, and should look at this little bit more deep by division. So there are couple of important charts here. First of all, the one on the, call it lower, where is this?
Lower left shows both the R&D investment as well as the minorities, which Björn spoke about. And here, just echoing what he said in different words, actually, to drive disruptive innovation in big companies is often maybe better done by these minority investments and getting a lot of understanding on what is happening in the market. And when driving more like an incremental innovation on improving your products every day, every day, every day, that's more done by, call it, organic R&D. And we are looking to aim towards 5% on this, but it will take time. And actually, R&D is an interesting thing. I mean, I'm sure my business colleagues could talk more about this, but it doesn't often solve by just throwing more money into it.
You actually have to have the right amount of money and the right amount of intellectual resources for best possible outcome. Little tightness is actually not that bad sometimes for innovation, so it's a balance. Of course, these decisions happen in our divisions, and we do not meddle with them at all from corporate. But another thing, important thing, is that R&D intensities are very different in our divisions. They can come from 1% to close to 12%, and same goes for sales and channel investment. So there's a big delta, what are the value drivers? And it's really, really important to understand the value drivers. So you will see a lot of examples here on the software-driven value on our products and services.
If you look at some of these divisions which have, like, 100% software and digital enabled, like, let's say, Machine Automation and Robotics , of course, it's understandable that the R&D is high. But there are also some where R&D is fairly low, but the channel investment high. Let me just do a bit of a CFO demonstration here. So this here is a Ty-Rap system. If I put my fingers here and go like this, it will tie it so tight that I will never, ever be able to take them apart. Now, what is important here is that this thing adds huge value for our customers, because if you have these things in the right quantity at the right time, then the installer, whose salary is often bigger value driver than anything else when you execute, it's a massive value to our customers.
Not super digital, very, very important. Great business, and this is part, part of the Thomas & Betts offering, which Björn was talking about earlier. So it's really important to see where the value comes from bigger R&D and where the value might come from, actually bigger investment in channel. So that's why I said all our businesses are great businesses, even if not all of them are fully digital. So then on the improved good performance here, so moving now towards EPS. So first of all, a bit of a history here. I mean, it is fair to say that ABB has had more than its fair share of negative surprises, and you can see this kind of like when we compare operating EBITDA versus EBITDA. So PPA, we have, of course, I mean, that's, it is what it is.
It's about $200 million for us as a company. But here we are really moving to a different place. These transformation programs will still cost a bit of money, so that's why sort of this year, next year, we say maybe 130 basis points, and then it should go to or below 100. Now, there's one thing I want to remind this audience about, is that E-mobility business will continue to be a negative impact to our operating EBITDA, also going into 2024, as they are renewing their, their roadmap on this fast-growing market. So it's just worth sort of keeping in mind. In finance, net and tax, we are not expecting any drama. And, of course, we are trying to improve on all the line items, and that gives us confidence on the new EPS growth target of at least high single digit through cycle.
Now, this one is one of my favorite slides on return on capital. So now when the PG, the last piece, is fully out, we are about 19% return on capital, all in, and this is up from about 11% since 2019. Now, our updated target to stay always over 18% also takes into account that, you know, hopefully, we are doing more value-adding acquisitions in the future. We want to still all the time stay above 18. And of course, ultimately, the divisions, when they make acquisitions, they will also carry the goodwill of the new deals, you know, to the extent it exists. But equally important here is this chart in the middle, which is the return on our operating assets, so kind of like return on capital employed without goodwill and PPA. And here we have made really great progress as well.
So our return on operating asset at the moment is over 40%. And if you think about our organic investments, they're really creating great value, and understandably, are number one in our capital allocation principles. Then moving on to cash, because in the end, it all needs to convert to cash. We continue to have our 100% cash conversion target. Now, it's fair to say that this is with the new growth target, a little bit more difficult equation, but we think that it's the right ambition for the company, because as I said, our CapEx intensity is not expected to grow, and we think we can drive further efficiency in net working capital . And this will focus on the right behavior, because ultimately, we will need to turn the profit into cash.
We continue to expect for this year, it is about $3 billion or so free cash flow, hopefully a bit higher than that. And with our expected target framework, we would expect that our free cash flow delivery will continue to go up from here. So to summarize, I think our new long-term targets strike the right balance for ABB. We have great operating model, we are a well-managed company, we have strong market positions in good markets. And we see no reason to change our capital allocation principles. So we, of course, want, want to first and foremost fund organic growth. You saw that that's yielding really, really good returns. We want to pay rising and sustainable dividend per share over time. We want to put actually a bit more money into value-creating acquisitions.
And again, as applicable, if we have money left, we will continue to do share buybacks. And if you take this sort of around $3 billion free cash flow number, we of course have paid already organic investment. Our dividend is, you know, there or thereabouts $1.5 billion, could be a notch more. And if we would be buying this 1%-2% revenue, you can say, let's say that this would cost $1 billion a year, we would still have money for buybacks, and this company is not particularly leveraged. Our net debt to EBITDA is at about 0.5 at the moment, so we have quite a bit of capacity on that front as well to optimize the balance sheet. So we should really be able to operate in all of these capital allocation principles going forward as well.
This really is a strong company with strong culture, with strong money model, with strong balance sheet, that is ABB of today. With that, I would like to hand over to Anso to talk a little bit more about our, as I said, sustainability equation or sustainability ambition. Go ahead, Anso, please.
Thank you, Timo. Hello, everyone. Thanks to Peter, and Sami, and Timo for these exciting ambitions, results. I think you've heard we are in a very good position, and hence I'm also very proud to share with you today, how we are doing, how we are embedding sustainability in all we do, and how it's a real business driver for us. Today actually marks my first anniversary in the company, as Head of Sustainability. I'm very proud of what the team has been achieving in this first year. And today also marks the start of COP 28. And for me, personally, a successful conference of the parties is marked by a spirit of collaboration, and by really inspiring everyone to think positively about the opportunities that decarbonization actually brings to us.
So, let's see what will be the outcome, but today all the eyes are on us here. With this, I would like to draw your attention to the net zero roadmap of the International Energy Agency. Pierre before was showing us the announced pledges of the International Energy Agency. We're looking at this one here because it actually really demonstrates the opportunities we have with our business. We are at the core of this energy transition, and what this shows is that we will require by 2030, Sorry, to triple the renewable energy integration and to double the energy efficiency improvements. So this is already an important part of where our business is playing.
By 2050, actually, we need to electrify 50% of the energy consumption. And again, we will hear more from Morten later. This is where our core of our business is. So the solutions of how we can reach net zero by 2050 are all there. We need to actually scale them. And let's have a look of how ABB is core to this. This is showing you the four energy-relevant sectors. So, when it comes to power, we are, with our solutions, playing a key role to eliminate these 40% of energy-related emissions for the power sector. We do so by energy efficiency, as I said, integration of renewables, including the grid capabilities. We also help with energy loss avoidance and scaling the hydrogen fueled needs. So that's in the power sector.
When it comes to industry and transportation, we have, as we heard, and we will hear more from Tarak later, our high efficient motors. We heard that we have a huge potential with our smart and variable speed drives, which are actually something we can see also with the work on sustainability, where the opportunities are with our customers and how we can drive much more efficiency in this area. And when it comes to infrastructure and buildings, our products are key to keeping these constantly increasing numbers of data centers cool.
We also are using our energy and management building systems in our own operations, for Frosinone is one of our Mission to Zero sites, which actually have, of course, used our own material solutions and systems to drive forward, and we are very happy to, of course, do so with our customers as well. No surprise, we are being covered in various media channels. Our solutions are really thriving and making a difference. We have here a few highlights. We can see the carbon capture, certain carbon capture and storage solution scaling. We see the Samskip hydrogen-fueled ship solutions with our marine propulsion that Peter will be talking a bit more about. And we also are very proud, one of my favorite projects is what happened in Sami's area.
We have been using our, our robots, remote control to help with the reforestation of the Amazon in Peru. Many of these opportunities are actually out there, and this has been recognized also by the European Investment Bank. We recently were able to announce that we have received a EUR 500 million loan, specifically dedicated to sustainability-linked innovation. With this, we will foster more of these ecosystems that are needed to obviously find these smart solutions, to scale them, and make the drive the difference that we all need. Coming to our holistic approach to sustainability. You already heard from Björn that we are keeping these three pillars that we have set out back in 2020. We are focusing on promoting a low, or enabling a low carbon society, preserving resources, and promoting social progress.
The most important change that we have been announcing today is that we are moving from carbon neutrality, which also uses offsets that we have announced, we've been targeting for 2034, to net zero targets approved by the Science Based Targets initiative. We have submitted our targets, and we are expecting validation next year. With this, I will be talking more about the specific targets. We also have been strengthening our preserving resources pillar, and there, I'm very happy to see that we are building, continuing to strive on the circularity. I put you one of the examples from Morten's business area. So this is a medium voltage circuit breaker, which now has been made from 100% recycled ABS. And I'm very proud to say that our different divisions are driving this.
So I really think we will be able to show that driving sustainability under the ABB way is actually delivering a competitive advantage. Because what we see is that the divisions are taking the decisions on what they really need for their business. This is one of the projects that really has been coming up, and we will see many more of these in the company. So this is on the preserving resources side, where we're also expanding now to include water resources, biodiversity, and responsible land use. When it comes to promoting social progress, of course, we are continuing to focus on human rights, very important. We have been expanding our Supplier Code of Conduct , and we are going to launch on Sunday, actually, our renewed Human Rights Policy . We also are very proud of the progress we're making on diversity and inclusion.
We will be looking at our target of senior female leadership, but we also can say across the company, and I got this question yesterday, we are at roughly 24% now of female from a gender perspective. But I'm also very proud, we have Heidi in our team driving diversity and inclusion on all other aspects, not just gender. So to break it down, we really have embedded sustainability in our governance from our board of directors to really having the full accountability with our divisions, and that's where the decisions are happening, and that's where really the momentum is to drive this and to walk the talk. What we also have been doing in this first year, we have been taking a very strict view, very taking some scrutiny on how we look at what we do.
We have decided to really apply whatever is available in terms of credible international frameworks. As Björn already highlighted, we have been submitting our net zero targets to the Science Based Targets initiative, so we consider this as really the gold standard in this area. We also have been using for our avoided emissions calculations, not an own methodology that we came up with or that can be debated. We have been using the guidance that has been published in March this year by the World Business Council for Sustainable Development, and that's where the 600 megatons you have been seeing resulted from. We have been doing our double materiality based on the latest ESRS standard, and as an outcome of this, we also have been refocusing our sustainable development goals that we are supporting.
We are supporting SDG Number 7, Affordable and Clean Energy. We are supporting number 8, Decent Work and Economic Growth. SDG Number 9, Industry, Innovation and Infrastructure, and no surprise, SDG Number 13, Climate Action. And that's what I'm going to talk about next. So in more specifics, these are going to show you more specifics on the Net Zero targets. So we are moving from carbon neutral, which requires offsets, that's what we have been targeting, by 2030, to Net Zero targets in line with the 1.5-degree requirement. And this means by 2030, we are targeting 80% reduction in our Scope 1 and Scope 2, and a 100% reduction by 2050 for Scope 1 and Scope 2.
Of course, we all know Scope 3 is where really the action needs to happen. So there we are, increasing our ambition with a 25% reduction by 2030, and a 90% reduction by 2050. This obviously will require some removal, but we are not focusing on this. We're not focusing any longer on offsets. We are focusing on the action and what we can do upstream, downstream, to really work on the emissions reductions. When it comes to avoided emissions, we have been taking really the guidance, the methodology in place to hand. We have been using a life cycle and a lifetime approach to our avoided emissions.
And that's very important because we really take what we have sold in 2022, for example, and then look at what is the lifetime of this product, what emissions have been created when it was produced, and actually do the avoided emissions calculation versus a comparable product there. So this is very heavily debated area. We had quite some work going into this publishing of the guidance, and ABB has been able to contribute, so we are very confident of this approach, and are very happy to share this ambition with you. Also, when it comes to the other targets that we have been setting for 2030, we are making great progress.
So, very proud to share with you, we have done—we have now made, and you've seen it in Peter's presentation already, a further achievement on our Scope 1 and Scope 2 reductions at 72% to date. So I really see the organization rallying behind this. Divisions are up for the challenge and are really driving this one forward, and I look forward, obviously, seeing the same engagement also on our Scope 3 targets that we have been setting out. When it comes to the avoided emissions, in 2022, actually, we helped with, based on this guidance, to avoid 70 megatons of emissions for our customers, and that's a really important area, as I said before. We are continuing to work on our zero waste to landfill, so there we make good progress as well.
As mentioned before, on circularity, we are in full speed making the assessment of the entire product portfolio. Especially Morten has been thriving with his team to really make sure there is regular reporting of how many LCAs have been produced, which then actually result in the Environmental Product Declaration , that Timo talked about. And our EcoSolutions label is then giving the customer an opportunity via the QR code, that you will see later, to directly get the access to all the information. So we are taking a very thorough approach there, and we'll be reporting on this also in our sustainability report in February.
When it comes to the social progress, we have been increasing the women and senior female, or senior female leaders to 17.8%, so that's the results at the end of 2022. We look forward to also there show you the improvements by February in our sustainability report. Safety, we have been improving, and of course, also our employee engagement continues to be going up, as we have seen in the slide before. So I think all these factors are really showing a very strong momentum. So to conclude, I hope you can see that we are really strengthening and accelerating our sustainability agenda. All we do in the area of sustainability is grounded in our purpose.
We are driving sustainability, and it's really a business driver with ABB having a unique position when it comes to sizing the opportunities of the energy transition moving forward. We are setting new standards, high ambitions, and the targets are making sure that we do so in line with internationally recognized frameworks. So we're not restricting on our own methodology or, making sure that there is no risk of, what we are claiming to be debated. We are on track to deliver, and our sustainability approach and our performance actually has been recognized by external parties. We have been very proud to share with you the triple A rating from MSCI. We also have been announced as a supplier engagement leader by EcoVadis.
We are striving, really making EcoVadis the platform we are using with our suppliers for emissions communications, but also all other sustainability matters. And, as I mentioned before, the loan, obviously, that we received also had gone through quite some scrutiny to make sure we actually have the right, performance in place. So with this, I thank you for your confidence, and I really look forward driving sustainability to the next level at ABB. Thank you.
Thank you for that. And now we will run a little bit of a Q&A session. We have two colleagues of mine, Blair and Lucas, in the room, who will hand you the microphone. So if you just put your hand up. They will come running, and please speak into the microphone so the virtual audience can also hear. For the virtual audience, there is an option to put your questions through online, and I will do voice them here on your behalf. But if we start in the room, we have here on the very first. If you sit on the front row, you get the first question.
Thank you. Good morning, it's Martin from Citi. The question is on your growth target, the 5%-7%. I'm sure we'll find out this afternoon how the business units contribute to that. But when you come up with that number, how much of that is the end market growth and how you see this secular change in end markets? And how much of it is that these business units are now shifting to the growth phase, and it's more about moving into adjacencies, taking market share? So on... How should we think about how you get to that 5%-7%?
Yeah. First, I would say, I'd like to say that these numbers are actually coming from our businesses. So we have done our long-term planning, and the businesses have committed themselves to these growth numbers, and that's what is base. So it's nothing coming from top down. It is actually really embedded into the businesses. I also like to say that all four of the business areas are contributing to the 5%-7%. There are maybe some one division where we see a little bit more growth than the other for the other three business areas. It's pretty clear that it is, of course, a totally different environment if you're going back before 2019, where you saw significantly less growth in the market.
And as I said during my presentation, we traveled a lot, of course, in meeting these customers, so only if half of all of the plans and the projects that are being planned are going to happen, it's going to be an enormous drive for a company like ABB. So I think a very big portion of this is that the market is driving. But I also say that I try to describe that, you know, more than 70% of our divisions are in growth mode, which means that they are now making strategies focusing on growth. So it is a combination of well execution from the businesses, as well as very strong market at the moment. So, I mean, you, you need to be confident to put up numbers than we are doing, and, and I feel very confident, confident that we will achieve these numbers.
Thank you. And if I might, a second question. Just on acquisitions, you've dangled the possibility of a slightly larger acquisition, and obviously, with the capital deployment, you've not announced a buyback this morning. Should we read into something here that there is an expectation that you could broaden the portfolio, or am I reading too much in between the lines?
No, I think, put it this way, that the primary target is to let the divisions to strengthen their market leading position. That is important. But in certain cases, the business areas can feel that if we add on another division that would support ABB and the business area in the positioning toward a special customer segment or certain offering, that would actually complement and so we are not talking about changing ABB. We are very much aligned with the purpose that we have put up, and the electrification and automation they're driving. So it's more saying that being a complete supplier towards certain segments in the technologies where we are working today.
Can I just comment on the buyback?
Yeah.
I mean, we have a buyback running until whatever, next AGM, so the natural time for us to launch a new buyback would be actually when we do our annual results. So you should really shouldn't read anything to that from this.
Thank you.
Thank you. And then we have a question here from Andy.
Hi, it's Andy Wilson from Jefferies. It's actually a question around the sort of 70%, 30% split in terms of the divisions. And just, I guess I'm interested as to what have been the challenges for those 30% which aren't yet in the growth mandate. And I guess, to the degree that you can help us on this, sort of how long do they get to get there, and what do they need to get there, and is that different across the divisions?
Yeah. As you know, that the divisions are the highest operating level. The business areas are governing the divisions. So it means that Sami, Morten, and Tarak and Peter, they are looking at the businesses, and when they feel that this business is now performing in line with the best peers in the market or better, then they say. So we have, of course, you see in the last quarters, more than 70% of divisions has actually been performing extremely well, but it's not enough to deliver one quarter. So you need to be consistent in your performance so that we really feel, so they feel. We don't want to jump up, because when you go up into growth mode, you actually rework your strategy towards growth. So it's a very important part.
But at the moment, actually, the most divisions are doing quite a good job. But even, you know, the really big challenges that Large Motors and Generators who really struggled last year, have done a tremendous job and is today operating over 10%, which I think is super good.
Just as a follow-up, can I ask, have any of the divisions gone backwards, i.e., got to growth and then gone backwards, or has it all been uniformly going towards growth?
... No, yes, we have, you know, one division who has made an acquisition, which was quite sizable, and has affected that the profit gone down, and I think the business area head, actually in this case, Tarak, took a decision that maybe I think they need to integrate this acquisition and make sure that the profitability of the division comes again up to, to—I don't want to go into exactly which one, but that's up to Tarak later if he wants to disclose it. But, but, yeah, that, that can happen, and I think it's necessary, especially after large, large decision, acquisitions.
Thank you.
Okay. I now saw Max was waving here.
Thank you. It's Max from Morgan Stanley. Could I just ask about how we think about reconciling the growth and the margin target together? So, I mean, in a scenario where you do generate the next three years, 5%-7% growth, should we think about your margins just grind up from 17%-19%? I'm just trying to sort of piece together what we would need to see to get to the top end of that margin range.
First, I think one of the biggest misperceptions there are in the market that if you drive margin, you cannot grow. I mean, that is totally wrong, and you can, of course, see that well-performing businesses in any way delivers high margins and good growth. So first, I would say that these things is not counter-driven. Very, very important. You can see that many of the divisions that have been growing, which was maybe already in growth mode before, has actually improved their financial performance dramatically. It's more of getting your process straight and working professionally, then you can both grow and drive your margin. I'm not worried about the margins.
We have had a very strong focus, of course, on margin, and we have told the businesses, "Don't worry about the growth, because we don't want to give too many KPIs because it gets messy in your head. Let's focus on one thing." But I also knew in this case that just because we are getting the performance up and the value that we are delivered to the customers paid for, does not mean that we are losing projects. I think it's more contrary. We've seen, as I think Timo said, we have more projects now running than we have ever had before. So I'm very strong believer is making sure that we get paid for the value that we are deliver, and focus on those projects which deliver value, and then drive growth.
Good.
I think it's a good combination.
Could I just ask a quick follow-up on the software strategy? So you've obviously gone down the route of kind of embedding software rather than kind of buying a software business. How do you make sure you get paid for the software that you're embedding? And do you have examples of where you've invested in software, you've added sort of capabilities, and the margins or the pricing has gone up dramatically?
Yeah, I mean, first I would say that software is extremely important in ABB. If you look at our R&D engineers, we have more than 7,000 people here, and more than 60% of them are pure software engineers today. So of course, we are developing a lot of software. As you saw from Timo's presentation, a lot is embedded also, but you will also hear later on today from the businesses that there is a lot of software that we offer in combination with our products-
Yeah
to drive efficiency and improvement for the customer. What we have decided not to do is to buy a platform company, because we have actually looked at this and said, "What kind of synergies does that drive in our business?" We cannot motivate with the synergies that we believe that we get out of that to pay the multiples that you have to pay for that. It's a pure. It's not saying that if one of these platform companies would have been part of ABB, you know, since long before, it's not a bad business. It's just you have to pay a multiple which you cannot motivate. To be honest, we have not yet seen any disadvantages of not owning a platform company. If that would have been the case, of course, we would of course change the way we look upon it.
We deal with many of these companies that I'm referring to every day, and we are part of that team.
Mm.
But the software in the products are important. It makes them more flexible, and you can add value by just adding software. You will see today on the round what has happened, and there are some excellent examples of how you drive energy management in industries and in buildings by just adding good software to the hardware.
Yeah. No, I think you covered. There is a really good station where you can see some of the additional software value. I don't know. I mean, Sami, of course, is the software whiz kid here, so I don't know if you want to throw in some examples here.
We'll show later.
Yeah, exactly.
We have tons of examples of how actually the software embedded actually creates value, plus that you'll hear from Peter how standalone software, that is a lot, you know, driving value as a standalone as well.
Yeah.
We have, we have both.
And we are buying software companies, but so far they are smaller, and they are very synergistic with the businesses that we are coming. So we are not against buying, and we're also prepared to pay the multiples for these ones, but it's only the big platforms I'm referring to. I think it's very important.
Okay. And we move, we have, Joe?... over there, and then I saw we have on the second row here, mister?
Thanks. So Timo, it's Joe Giordano from TD Cowen. With the capital deployment, I think the framework you kind of laid out was more spending the free cash flow and the $3 billion or so, like, how do you get to that? But your EBITDA base is going to be, like, almost 2x that, and if you're, you know, you're exiting the year at leverage almost zero. So do you have ambitions to have a more efficient capital structure, and how do you kind of accomplish that within the M&A framework of small deals?
Well, as Björn said, I think as a company, we are now ready to also look, let's call it more of a mid-sized type of additions. But of course, these need to add value to the company. The most important thing in M&A is that you're not just buying, of course, you're buying to add value, and that means that there needs to be the right targets there and that you cannot define beforehand. It's impossible. And that's why I think our capital allocations principles are actually very solid. So first, you use capital on value-adding acquisitions. If you don't find enough of that, you do buybacks, and as we have discussed, we are not sort of on an autopilot on the buybacks, but we really look at what is our view, sort of, of an intrinsic value of a company.
We actually think that the buybacks also add value to the overall money model, but we would rather do acquisitions than buybacks, absolutely.
Then just one real quick clarification on one of the slides. You had all the divisions and the green dots and the yellow dots and the red dots, right? There was the one red dot that went from the 10 to 15 to the, to the sub-10. Is that the same division?
No. I think there was, there is one red dot on that part. I can make it very clear. It is actually our EV charging business.
No, that's-
I think, yeah, this is transparent. What?
That was a black dot. It's actually
A red one.
No, that's a black dot in the chart. Sorry, just because everybody, of course, were looking at the chart. So E-mobility is the black dot. It's, it's separated in the chart.
Okay.
Yeah.
Okay, but-
Sorry about that.
The red one, but which web-
Let's deal with large motors in general-
Okay.
Because we didn't up it yet.
Okay. I think, I would like to say that underline, I, I really thought that we had been lifting that to profitability because they're really down there.
Maybe you can do it now on the stage.
I think it's a responsibility.
That's all right.
He has a good chance this afternoon. But I think the important thing here, that business is today delivering over 10%-
Yeah
A nd it has really done a remarkable job in that part. So I don't think it deserves to be a red one, but I let that decision be to Tarak this afternoon. So otherwise, I think the underperforming business we have today is the EV charging business. That's pretty clear, and that is pretty transparent also.
Okay, so we move over here on this side.
Yeah, Sebastian from Royal Bank of Canada. I have two questions. One to you, Sami, one to you, Timo. Sami, I like the presentation on AI, but we had similar situations years ago with Industry 2.0 and so on. So if you go now five years ahead, and we have the same presentation, the same event here, would you then think that AI is incremental business, strong returns, ABB is ahead of the curve? Or is it more that customers then expect AI to be just part of the product and it's baked in, into the price, and it's just kind of commoditized thing, where we don't see too much incremental return, returns?
It's a good question. So I, I believe that AI will be embedded in many of our normal products. I think today, we can--whoever is on top of the curve can create value over the next couple of years. And it's always innovation is a matter of time, it's speed. It's speed against, you know, the rest. We see today, customers are asking for value that is possible, and we can create more. I mean, take the talking to a machine that can make it so easy. Whoever solves that problem quickly, and I think we are in a good shape to do that, will create more value. In five years from now, will that be, you know, normalized? Maybe in some areas, like in many innovations, you know, it becomes standard, then, then it becomes part of, you know, the product.
You cannot differentiate anymore. But, I mean, who knew that ChatGPT is going to happen, is going to make a step change? I assume, and I, I see that there will be other step changes that you can jump on, and then you can create another wave of value. But this one, until it gets absorbed by everybody, you have a chance to add value, it will normalize, and then the next step will, will come. And I feel that at ABB, we are really in a, in a super position, to do that. Without doing big central teams and what have you, all the work is happening on the ground with the customers, and that's, for me, a much more powerful way to do it, than anything else.
Thank you. And then for Timo, I saw a very nice slide, I think maybe the most important to me. That was the gross margin embedded in the backlog.
Mm-hmm.
So we are. It's improved 300 basis points since 2020, which is amazing. And then it stagnated in the last at least 9 months. We are at 28%. Your backlog is about 8 months long.
Mm-hmm. Yeah.
Does that give us an indication of 2024? Do you see this year, 2024, as kind of a stabilization or like a, a consolidation year in terms of margin and then a step up, or are there other drivers for margin next year, like operating leverage or more savings on-
It's a sneaky way to ask about 2024. We are not talking about any 2024 guidance, but of course the backlog gives us-
You put it in your presentation.
Yeah, but the backlog gives us good support on going into 2024. I just have to leave it at that now. Yeah.
That was a perfect short answer. Because we're now gonna move on to have a bit of a break.
We have, do we have time for one more now?
No, actually, you don't. Because I need to you.
You see, this is my life.
So, there will be coffee served out here on your left, and we'll see you back here in about 20 minutes. Welcome back, everyone. I hope you got some energy from that coffee, tea, whatever you had. We're now gonna start listening to the business area presidents. We're starting off with Peter Terwiesch , who is our President of Process Automation. To start off with, and wake you up a little bit after, wake you up after the break, get focused back, we're gonna start off with a video to show what process automation is all about.
Instinct, curiosity, and a pioneering spirit have always taken us further. Where others may see limits, we're pushing ourselves towards them. Moving beyond the constraints of the possible, finding rhythm and flow through collaboration. Empowering our world to grow. We automate, electrify, and digitalize the largest and most complex infrastructures on our planet. Helping to orchestrate industries and society to run safer, smarter, and more sustainably, and conduct the magic behind our everyday life. Making a world of difference with process automation.
So welcome back from the break, and welcome to the world of process automation. A quick recap of who we are. Many of you were at our May last year Capital Markets Day, just on PA. But for those of you who weren't, we're the global number one in distributed control systems, process analytics, and many industry-specific anchor products that really bring us first to mind in the industries that we serve. You got a glimpse of those industries, some of the most complex, most material, and energy-intensive industries in the world are included here. And one of our specialties when we talk about automation and electrification, is also the integration of the two. The integration of electrical automation as well as process automation with each other. That's something that's very close to our heart and something we do particularly well.
We're about 20,000 people around the world. Different from many of the other businesses in ABB, we're actually largely direct to end customers, so we're deep in the end customer domains. We are deep into really understanding firsthand what our customers need. We're with them over the very long life cycles of the investments that our customers are making, supporting them with sales after service and service after sales, through very long-lasting relations. Financially, it says here 22, excluding turbocharging. Quick reminder, and Björn and Timo touched on it already in on October 3rd, last year, we spun out our turbocharging business. It's now called Accelleron, running totally independent, valued at $2.5 billion.
So these numbers and all other numbers in this presentation will be without that business, and it's a real pleasure to see how with the progress we've made in process automation, we've largely plugged that hole, both from a volume and from a margin perspective. Our most profitable division went out, and yet actually, our numbers are nicely back to where they were with this business before. What is also special about us is we're a very asset-light business, so we run our net working capital somewhere around zero, which enables some of the ROCE performance that you will also see here. In terms of who we serve, we saw it in the video.
I touched upon it already, and that's also how we're organized, the energy industries, the process industries, marine and ports, and then across a number of industries, more by technology, the measurement and analytics, is what we provide there. In terms of serving these industries, we have, for many of these industries, what we call anchor products, and they're not actually marine anchors. They're anchor products in the sense of, anchoring ABB as a first in mind. When you look at building that new mine, new marine vessel, new, paper mill, as an example, then we have an offering that is performance critical over, the life cycle of these assets. So you will first of, actually coming to ABB and discuss.
And then we have the building blocks, both inside process automation, like the control system, the measurement, but also from the colleagues in electrification and motion. We're actually, using their strengths, at a significant scale as, as modules, as building blocks to then engineer solutions. And if you look at the pictures on the left, the integrated systems, the different facilities in the industries that we serve look rather different. But at the level of electrical single line diagrams, automation architectures, they are rather similar. We're talking about megawatt-level, electrical and, and motion equipment, serving the respective purposes, so there's quite some commonality that we explore. Our strategy is simple, and it's the same as, when we stood on stage last year as a team presenting it. So it's performance improvement, it's energy transition and sustainability, and it's digitalization.
No more than that, and we continue to execute. And when we were back in 2022, we were basically looking at 2021 actual, so we had a dip, especially in our service business, quite unprecedented, related to COVID. But we've come out of that already in 2021. We've come out of the gap of that 2020 hole stronger, a bit stronger than before, and implementing our strategy. As you see, we've actually continued to gain momentum both on the volume side as well as on the profitability, as well as with that and the capital and cost discipline that we're living on the return on capital employed. Now, I'll walk you quickly through each of the buckets of the strategy, starting with performance improvement. In performance improvement, that's what we showed you in May last year.
We had around 40% of our business in growth. We had a part that really also took attention in terms of stabilizing our stability, profitability, growth model, and we showed you the bubble chart that you see on your left. And now, basically, the red part has disappeared, so we've really progressed very well. In general, these bubbles have moved further to the right, so we have a higher share that is now on the growth side, and we're really excited about the progress we've made in performance. Now, our market and offering leads us to energy transition and sustainability, and this is way beyond the energy industries. As I mentioned, the industries we serve across are basically some of the most energy and material-intense industries in the world.
So all of them, the secular shifts for decarbonization, resource efficiency, but also increasingly with geopolitical events, security of supply, those really matter. Then when you look at what we do, automation, electrical, digital, these are all the ingredients you actually need to tackle these challenges. If we start looking at kind of how the world energy landscape evolves, and we've seen this in previous presentations already today, the International Energy Agency's kind of middle-of-the-road pledges scenario, there's massive amount of investment required on the low-carbon side. There's really a low-carbon sector that requires massive CapEx in the years to come, and that drives demand.
And at the same time, we're not at the oil and gas kind of end just yet, but rather the oil and gas industries and many of the other transforming industries are focusing on how can we produce the same unit of energy with actually less CO2 footprint? So that's a serious discussion with any of the upstream people you would talk to today. They would actually talk about how are they having their CO2 footprint per barrel and how is that coming down? On the whole, and you see this here, this is a gradual change. It will take time.
And if we sum it up, the combination of the big investment required to get the low carbon sectors get to the scale that they need, while actually supporting the transforming sectors in bringing down emissions, and then, you, you can see coal already starting to decline. That combination overall, we really see out of, that a strong positive impact for process automation. I hinted on security of supply, and the renewed attention to that. And you will find that both, if you look at kind of trading routes, trading relationships, there are clearly, trade flows being, redirected, rejigged. Localization plays an increased role in, in many countries that we serve.
And we see that, for instance, in our ports business, where capacity extensions and modernizations and automation is advancing in many parts of the world, strengthening the logistics system. And we see it on the energy security side also with LNG, which is both a transition fuel, but is also increasingly now a fungible commodity. And LNG infrastructure is seeing serious investment. And the combination of the automation, electrical, and digital solutions we're doing there, that's won us a significant scale of business, including this year, you saw the release we did in Rio Grande on LNG. Let's look a little bit more at the transforming sector.
This is like, for instance, the mining industry, metals, pulp and paper, and so on, all very conscious about these material energy-intensive industries reducing their environmental impact. And you can say, "Well, how's mining needed in that, and what's the role?" Think of copper when you think of connecting renewables. Think of, for instance, the steel masts that wind turbines stand on. All these industries are investing significantly in being more sustainable, and our role is really with them to be part of the solution and be part in supporting their transformation through electrification, which is a conduit for bringing in renewables into industries that didn't see that.
If you have the mining truck there operating under the catenary, as an example, typical open pit mine, about half the CO2 footprint would actually be from diesel emissions from the diesel mining trucks. If you replace that by renewable electricity, where that is possible, very often you have a good economic case, given the price of fuels these days, but you also have a very strong environmental case. So that's a great combination. So we're supporting customers in the different industries we serve with electrification, with efficiency, and I'm sure we'll hear that more from Tarak. But with the spectrum that we have in variable speed drives, as an example, and we're a big fan and user of those, the greenest energy is still the energy that you don't consume, and that's clearly a mantra there.
And finally, on emissions, I mean, you, you've seen drones on some of our slides. We, we have really sophisticated analyzer systems that are able on land, in the air, and even from space, to actually pick up methane emissions, which is a pretty potent greenhouse gas on top of locally also being a hazard, and then making sure those get tackled. Let's move on from transforming industries to really the new low carbon sector. We don't have time to cover it all. Last time around, I talked a bit about what we're doing for battery manufacturing to become much greener. This time around, let me touch briefly on green hydrogen. Really nice to see how from a couple of years ago, 4, 5 years ago, we were talking a couple hundred kW kind of more trial places.
Today, the conversation has not only moved to megawatts, but gigawatts, truly. And we're in projects where people are doing engineering and planning for really big scale, and we've also actually won a commercial order in this space already at the gigawatt scale. So it's really not sort of a solid pattern yet, but clearly acceleration is there in this market. And what you see here is actually a power rectifier. We have a lot of experience with rectifiers in serving aluminum smelters, copper smelters, and you need big DC, direct current electricity for green hydrogen to feed the electrolyzer. So that's kind of what we're contributing apart from the automation and then the sensing and analysis around it. Third pillar of our strategy, digitalization.
Then you won't be surprised for a business with automation in its name, that for us, digitally enabled, and automation is kind of the largest part of what we do. No surprise there. But I'd like to touch a little bit here again on two things. First of all, that automation allows us to bring together, the automation of power and the automation of process. So if traditionally you've run, industrial processes with kind of a requirement for very reliable baseload sort of power, then with the intermittency of renewables on the other side, that was very hard to reconcile....
Our ability to combine the two in the same sort of automation environment basically means if you have this intermittency and you understand the process, you can actually keep the compressor running, keep other critical parts running, while actually dropping the process heater, where there's no problem if you lose it for ten minutes, as long as the temperature, as a buffer, works to stabilize the process. We understand that we can take these decisions in milliseconds, and that's really a great way of also adding additional renewables to industries that traditionally were requiring very steady baseload power. Now, talk a bit more about industrial software and digital services. We've organically built a business presence in this space to optimize and improve the performance of our customers above the automation layer, so not always necessarily coupled to the automation we've provided.
It's typically sold separately, and it's nicely growing over the last couple of years of organic investment we've made in this space. So we're standing at around $550 million in terms of orders, and we're really looking at 6 value pillars there. And sustainability actually and resonating with much of what we've talked about today already is an important one there. So you see that also marked very highly on the growth. We have a lot more homework to do in this area, but I think that's opportunity more than anything in terms of this organically built software business. We're not yet at the gross margins where the best software businesses in the world are.
We're not yet at many of the other things nearing perfection, but rather, it's already margin accretive, so we will continue to grow this business. And maybe I give you an example on what sustainability software solutions actually look like. So here's our OPTIMAX process and energy optimization. I've picked an example here from Italy, from the pulp and paper packaging area. And, you know, it, it may sound like not much, so we're saving 4% in natural gas consumption, but that's 13,000 tons of annual CO2 reduction for this customer per year. It's 90% reduction in the energy market on balancing, so they have their own gas-fired cogeneration and being able to forecast better how they can also sell power when the market needs it and kind of help deal with the intermittency of the renewables.
That's a big thing, also financial, for them. So really making a difference financially as well as ecologically here. So overall, process automation today stands stronger than before, and it firmly stands on two legs. It stands on new business, which we've grown, and Timo mentioned it already. We've improved our project selectivity, so you see the increased margin in the new business, but actually doing that with good focus, we've also increased the size of that. And at the same time, we've continued to progress on our service journey, so also there, we've continued to increase the value it has for customers, and we've increased the scale as we've been adding more installed base. So really good to confidently stand on two legs.
Before, right now, we're at roughly 55 new and 45 service, but these things go up and down as kind of the cycles of large projects go. We still have about 1,000 projects in the portfolio that are larger than $1 million at any point in time. We're still able to actually deliver those better in terms of the, the final closing margin than what we booked them for. That on the whole is getting us to a point where we don't have to worry about stability as much, but really, we're spending more and more of our effort on the growth side. The sustainability and security of supply for material and, and energy-intensive industries is, is big. Our digital transformation for our customers continues. Service continues over very long life cycles, so we're intensely involved with our customers there.
With more of a growth mandate also comes more of an appetite in the M&A space, where we can see now that there are areas where going for something organic and developing it ourselves versus taking something from the market if the valuation is right, if the technology is right, or if it adds to our market access. You have examples here that we are certainly scouting, all while staying very disciplined in terms of both the cost as well as the capital that we're deploying. Let me wrap it up here. We strongly improved our performance. We see ourselves well positioned in terms of sustainability as well as security of supply and the digital growth opportunities.
We've shifted our focus really towards more growth, and, that's, of course, a very pleasant thing and, and greatly fitting with the rest of the company also. We continue to have this ambition of remaining outstanding and leading in terms of return on capital employed. So, trust our focus on working capital, on discipline and CapEx and all those things. And last, but absolutely not least, our automation and electrical technologies are having an impact. They are enabling the transformation of industries. They're contributing to tackling the world's energy challenges, to advancing sustainability, and that puts us right at the heart of ABB's purpose. So really a fun journey, and, and thank you. With that, I conclude and hand it over to Sami. Thank you.
Thank you very much, Peter. And, now welcome back, to the world of, robotics and discrete automation. What Björn mentioned at the beginning, that we had some really turbulent times over the last three years, really applies for us. But I must say, I'm very proud of the team, that we have used the time to make our business, much more performant, but also much more resilient and agile going to the future. So I'm going to go through what we did there, but also, to show you how this really exciting world of robotics and automation, the future potential of this business is really great. Let me start with, the last promise I made to you, and I know that many of you attended our capital markets meeting in Frankfurt.
Some of you might remember, actually, this was a day, it was in February 2020, where the day after, we had to go off on a lockdown because there was corona infections in the room. So history has passed, and a lot of things have happened in the, in the meantime, but more importantly is what we have promised. We came from an 11+% operational EBITDA profit, and we said we're gonna improve our profitability through volume, but we said, precisely, it's not only volume, it's price and mix, quality and execution, cost manage, and we will invest in growth, and we delivered. Accumulated in the first three quarters of the year, we are at 15%.
I must say it was not a straight line as we wanted it to be, because we had COVID in between, and we had really some challenging times in there, but we made it, and we made also the improvements that I would like to go through with you. First and foremost is the mix, and as Timo mentioned at the beginning, it applied for us very much so. It's the quality of revenue. So, we improved the quality of revenue by first taking out the, what we call the turnkey business in automotive, where we did not have own content in projects, but where we do full lines and full factories for customers without any ABB content.
We stopped that completely over the years of 2020 and 2021, for one reason, which is the profitability improvement, and the second one is stability of the business. So that was important for us. So we reduced the portion of this- of the system business, as you see, and we increased the portion of the service business, which is really quite important for us. It's customer contacts, but it's also accreted from a profitability perspective. We did really our homework in terms of pricing improvement. We started the project, actually, before the COVID actually hit us. We brought in even external support to really bring the pricing management on a new level, and you can see here how really that improvement really kicked in.
Also, in industries like the general industry and automotive, and also the B&R business, now, I would say, on a really new level of performance and understanding of how you operate a company in the size that we have today. We focused on quality, and that has become a real part of the DNA. We created a project that took 3-4 years to really get where we are, where you see the decline in the defects per million. And that reflects in two things. One is cost of warranty, and the other one is customer satisfaction.
So this really proud that this really worked out as we wanted, and we took the time to work on the cost measures, design to cost, supply chain resilience, as we were hit hard when we had the lockdown of the factory in China. We also really worked on improving our R&D output and efficiency. We actually increased our R&D spend quite significantly, and you see the uptick in robot products that we have here and also in MA. A new platform of software controller, a new platform in the high end of robots, and also many others that I'm going to show a couple of examples. On the operations, our share of COGS, and basically, that's direct material, is about 75%.
That gives us resilience for ups and downs in the orders and revenues. Pricing maturity now is really on a different level, as I mentioned. Now it's really executing and making sure that we understand the micro segmentation. We balance the local decisions and the global, give a lot of authority to the local organization, but in the boundaries of our guidance regarding profitability. And last but not least, we are able to breathe much better because we organize the organization according to market segments, so we can really balance between, you know, auto and non-auto business and the rest of it. So that gives us a new level of resilience and performance. Now, what does it mean in numbers?
The journey over the last 15 years is quite interesting, because I get this question: Is this a growth business or not? Yes, it's absolutely a growth business. The business was about $1 billion, that that was retrofitted. It has machine automation, robotics. The $1 billion is now above tripled in the matter of 15 years. It's a CAGR of 10%. Obviously, with the ups and downs in this specific time of '19 and '20. And what I'm really proud of is that when we acquired Machinery Automation in around 2017, we almost, by now, have doubled the size of the business in terms of revenue and improved the profitability of the business by almost 500 base points.
So B&R today is a new company, professionally run on a different scale, and the journey continues because that's really now a beautiful asset in our ABB portfolio. Now, when we zoom in on the last couple of years, we try to put together what happened. So, you know, 2019 and 2020, we had the dip of the, you know, 8.2%, and we started the journey of the climb. But then we had this period of, you know, lockdown in Shanghai, which really hurt us quite, quite badly. But in the time where the profitability was going down through inability to deliver, the orders has really jumped quite high, and there was an effect of the lead times of both pro- you know, robotics and B&R has went up from 12 months to 52 months.
Which means from a customer perspective, I have to order a year at least ahead to make sure that I get the product the year after. So we saw a big overstocking there while our revenues were still on a lower level because we could not deliver, and that went up over time. And now we see the order level really balancing out. The interesting part is also when you look at end of 2020, we had a backlog of roughly $1.4 billion, and now we have a backlog of $2.36 billion. So we almost have $1 billion more backlog in our books here with, as Timo mentioned, a very much improved gross profit in the backlog that helps us going forward.
So, now we are completed it at 15% and we'll continue to drive performance as we go. Now let's switch to the future. You heard now many times about all the underlying factors that support the need for automation. I can tell you from the individualized computer, digitalization, uncertainty, labor shortage, all of them play into the need for more automation. If I just take the labor shortage and just mention what I said before, 400,000 open welding positions in U.S. If you want to near shore, you want to bring up production, but you don't have workers, and that's not only U.S., it's in China, it's in Germany, it's wherever we look, how can you manage that without automation, without robotization? So all of that plays into more long-term robotics and automation need.
Our customers ask for productivity and quality since I've been in the business, but what is new? Flexibility, because they need to be flexible to their demands, and the big one is simplicity, which is make it easy for me to adapt new automation technologies. And this, to the question we had before about AI, AI will play a huge role in making automation more accessible and hence being able to go to a broader, medium, and small-sized companies, new industries as well. Our market is a growth market. We expect the market in total to grow by 8%. In a mixed bag of AMRs, about 20% growth, these are the AGVs. Remember, we acquired a company, ASTI, two years ago, and it's a wonderful acquisition. We will add software to it that really improves the value.
Auto, about 4%, non-auto, higher on the 11%, and the machinery automation of 4%, but I must say, machinery automation has been driving much more, you know, market share gain than the number that you see here. And again, there's a mixed bag. Short term, we see some, you know, a decline in the general industry, in electronics, and somewhere we are seeing an improvement. Our expectations on the mid is that we will see these markets returning back to growth more towards the second half of 2024. What is our philosophy? We have the most complete mechatronics platform. From AGVs, robots, track systems in B&R, machinery, automation, vision systems, we take that together with our understanding of the domains. We understand logistics, we understand healthcare.
We bring them together with a core of our software and AI platform, and that is really important. 80% of the value and offerings we drive is through the software. The mechatronics themselves are not the devices that the customers ask for. They ask for value, and that is driven by our software and AI. And then we customize into these different industries, like automotive, where we started. That's the, you know, the tradition of robotics. And electronics, we spread into general industry, and then more and more into new areas like logistics, which has become now a bigger part of the business and also an accretive part of the business. And important, that service is a core to our business that we drive. As you heard before, we examine our businesses about, you know, are they in the growth mandate or not?
All the businesses here are in the growth mandate. So we take it from the 8%, and we want to outgrow the market by technology platform, software, new segments and regional growth. I would like to go through these four areas. First, technology. We have expanded our Cobot platform from a 5-kilogram to 10, and then now to 12. Cobots are these robots that you can work with a human. Why are they important? Because with all the growth in the medium size, when customers come and say, "I need to improve this production part, I cannot put a cell around it. So I have to have a system or a robot that works close with a human and is safe to use." Now we have a super expanded platform with that.
Our OmniCore is really market leading in terms of precision. That is the platform for our software. We have a broad AMR portfolio and unique AI capabilities. We invested in a startup in Zurich, and it really will give us a big advantage against all the requirements out there, that these AMRs are able to navigate freely without a line. And customers love this new device that we are bringing out. And then the leading track solutions in B&R, that is really opening up new customers and new dimensions for us. On the software side, we sell robots and AMRs, but we add vision and AI to it, and then application cells. The value we drive is through our software platform. First, on the design side, RobotStudio , many of you have heard about it.
It's basically, you can model everything virtually before touching even a physical device. So you can really tell the customer, "Well, I will need to change, you know, this part of the line." I can virtually show it to you, enter in it with a virtual device, see everything, and the program that is ready there is downloadable into the operations. Then on the operation side, the motion control, path planning of the robot, and then we have specific applications like picking. All of that is software-based. And then we have, after the fact, optimization, devices that can give you the, you know, predictability of the failures and so on and so on. Important is that in most of these, we have already either AI is contained or it's in the planning. I'll show you an example in a minute. Some selected highlights.
Robot Studio is really a very, very cool product that we now made available through the cloud. The example you saw from Anke today in the Amazon, a YuMi in the Amazon working and basically remotely from Sweden, being programmed, that would have not been possible without the connected device. Automation Studio Copilot is from B&R. It's a way that you basically can ask questions similar to ChatGPT, and it re-creates really you know an answer and in the future, new code. And then I'll show you just two really exciting videos about the automatic path planning and the navigation. So first one is... On the left side, you see traditionally how you know a software and the path of a robot is programmed.
It took 90 minutes on average. If you want to move, for example, a chassis, a car, a part of a car, like a door, and then you have to really bring it through these confined spaces, and then the engineer would look at paths and points. You see the points there, how it goes through. This is how it's done automatically. It's done in 2 seconds, the full path plan. It's a cycle time of 1.7, almost half of what it was with the path speed, and the energy consumption is down from 3.6 kJ to 2.3 kJ. Because it's faster, it and it consumes less energy. This is fully automated, and the next step of that, that we will add, you know, AI to it, that will improve it even further.
So that's quite significant value for a customer. And the other example is really a cool solution that we have now for our AMR. This is a device that would go around in the factory and logistics, and you would tell it, "Well, you go a certain path," and now you start putting obstacles in it. In the past, you had to have a line that the robot will follow, but this is done purely optically. So you start putting some of these boxes. The robot would find its way using AI technology that has understood that the boxes are something I can--I need to map, but if there's a person, for example, it understands that it's a person that most likely will move, will move away. So this is really at the forefront of value that you deliver for a customer.
It's first, higher precision, because optical sensors have higher precision, but also the time you install it goes down from five weeks to five days, because it's much easier. You put the system and it just starts running. Another area where we're expanding is the creating solution in the new segments. As I mentioned, automotive electronics has been out there, but we have teams that look at new industries like food and beverage, logistics, appliance. Logistics will be a big portion of our business in the future, and we have teams that look at solutions in that area, which is what we really do differently than our competitors. We understand these industries. Constructions, we were the first to enter, where you have modular houses built, you know, in the factory and then bring out.
It's not only better cost, but it's also more sustainable. And in healthcare, we have wonderful examples with our lab that we have created in Houston, Texas. And then last but not least, it's the regional growth. Now, if you look at the worldwide average of robots per 10,000 workers, it's 141. Per 10,000. Now, the most advanced countries like, you know, Singapore, South Korea, Germany, and Japan, will be about 400-1,000. US is 274. But look at these expanding, you know, industries and countries like India, where a lot of reshoring will happen. 7 as opposed to 140. 7 robots per 10,000. So think about the potential of these of these countries' way to come up to the other levels. Yes, we're doing quite well.
We are gaining, well, market share in these new areas, but in total as well. Number one, we are number one in India, growing, you know, quite rapidly, both actually, robotics and machine automation. And in China, we have been doing very well. So far, the market is, at the moment, more sluggish and down, but it will recover. And there is a market, a place where we call M3, which is the low end of the robotics market. It is not the biggest portion, but that is where Chinese players have been entering in that market. But the price levels there is 3,000-4,000 per robot, and that's not where we play because we don't believe that you can make a lot of money in there.
But the portion that is still out there, which is about out of the $22 billion total China market, $15 billion is still the high end, where we enjoy really good business and good growth in the future. Now, let me close on our role in transforming the industry and helping advancing society, and I'm very proud that we have multiple facets. First, better work. With the robotization, you can take out the dull, dirty, and dangerous works away. The other one, we are leading in energy saving. So the new OmniCore controller that I've shown before has a 20% less energy spending by regenerative braking, 20% lighter robots, and there's a wake-up function similar to your car. It doesn't work unless you really need it. Last one, at least, we refurbish our robots.
We have 1,000-2,000 refurbished robots. Globally, we have 5 centers that do that. 60%-80% of the robots are reused, so we're driving sustainability for us internally, but also for our customers. So last but not least, we transform the industry and serve our customers and shareholders. By improving the nature of work, we drive economic growth that is so important, and we build a more sustainable future. For our shareholders, we've shown that we improved the performance of the business to a new sustainable level. We act in an attractive market of 8% growth, and we have multiple growth drivers that we will tackle, mechanical, platform, software, region, and new markets. With that, I would like to close my remarks and hand over to Tarak. Thank you very much for listening.
Thank you, Sami. So a very good morning to all of you. It's a real pleasure for me to be here in a location that I know very well during my journey in the electrification. It was great to meet a lot of colleagues, where we made lots of investments, and you will see the results of that, described by Morten, but, as somebody who's been part of the business for so long, it's a great pleasure to also welcome you to Frosinone as an ABB member of the team. But thinking about Motion, which is where we started the journey with many of you, and now 25 years in the company, it's been a real pleasure for me to be part of the Motion team the last 18 months.
And let's describe what Motion is, who we are, what we do, what we stand for. So first and foremost, we look at our Motion business from a leadership perspective. We're leaders in motors and drives. Drives which make sure the motors become more efficient, drives that provide 15%-20%, sometimes 40% improvement in efficiency. But leadership is not only about market share and profitability. Leadership is also about the thought process. Do we represent the industry? So when we look at the energy efficiency movement that ABB has been pioneering, along with and including competitors, that demonstrates the thought leadership of our team. When we think about what do we stand for, all 20,000 as part of the overall ABB purpose, it's about productivity in a low-carbon world. It's what our suppliers do.
It's the carbon intensity of our supply chain, combined with the digital tools and capability that we bring with our colleagues, to the value we deliver to our customers. Whether it's better products, more efficiency, better impact, that's what the 20,000 members of the Motion team stand for. Ultimately, we're here for customers, and our colleagues drive value. How do we create value for our customers is really what you've heard during the course of the entire day. It's the domain expertise of our people. We're close to our customers. We understand their processes. We develop solutions, and given the scale of Motion, where we are leaders, we invest more in R&D than any competitor, and because of our proximity of our colleagues to our customers, those solutions are very compelling in terms of the expertise it brings, the productivity, and the benefits.
But more importantly, a lot of the Motion portfolio is about giving peace of mind to our customers, so reliability and quality is a given. So this is who we are, this is what we stand for, and this is how we create value for our customers and our employees. And ultimately, that results also in the shareholder value creation process. So we talked about this 18 months ago. We are in attractive market segments. They only become more attractive. 18 months ago, we were talking about the fact that we see the market shifting to a higher growth level. I don't think we need to have those discussions right now. We see a significant shift. When we are talking about gas turbines that are going electric, last time we were together, we were talking about the first order we got.
Now, as I stand before you, our teams have 18 gas turbine to electric replacement orders. One, eight. The pipeline is $100 million of quotation. So we no longer have to talk about the energy transition, we are in the energy transition in terms of volume. When we're talking about megawatts, we're not talking only about megawatts of cooling in Dubai and Middle East, we're also talking about megawatts of heat pumps that are going into district heating solutions as a way to reduce the CO2 and improve efficiency.
So you combine the macro trends, which are driven very much by urbanization, energy transition, data, and energy efficiency, you combine that with the proactive and rigorous portfolio management that we have initiated now in a structural way through the seven division, that leads us and our teams and our divisions to be the key enabler for a low carbon future. We are the leaders where energy is consumed, and we are driving a change, both in efficiency, use, but also productivity for our customers. All of which means we're really able to drive profitability and growth, as you've seen, and we'll talk about later. So what has happened to our markets? What was $55 billion market in May 2022, is now 59. Market growth.
45% of the world's electricity is converted into motion by electric motors, and do not forget, only 23% of them have a drive. We'll demonstrate to you what kind of impact a drive can have in some of the examples we have for you. So while industry has been 55%, and all CEOs, all leaders, all boards who have made commitments to reducing their Scope 1 and 2, is an opportunity for us to increase the size of our business. All governments that have invested in infrastructure or rail, is an opportunity for our leading portfolio with Edgar to provide more opportunities for our traction business. And power generation, I don't think we need to talk about power generation.
There's a particular element of power generation that we—we love, actually, and I'll take you through that very quickly and shortly. So what was 65 become—as we believe, will become 64. So what has been a 2% growth market, 2%-3%, is now above 4%. And we believe that will sustain for not just a short period of time, but for a significantly longer period of time. And as my colleagues and our colleagues have said, not all growth is equal. Not all segments are growing above GDP. But we have highlighted a few, and let me walk you through some examples of what does it mean.
When you look at water and wastewater, we have a market-leading position and a share, and all the infrastructure investments, whether you're in Europe, whether you are sitting there in the United States, a lot of government infrastructure investments are going into water, wastewater. That means our market-leading position gives us a significantly better opportunity to take advantage and be part of that process and business. Food and beverage, while we're not strong there, you heard Timo last year talk about how we are investing in machinery automation. We're putting in centers, and we see good progress along those centers of excellence, supporting customers, technical capability, product launches. We had a very significant product launch in China, which we are starting to see some volume out of when it comes to food and beverage and machinery automation.
So let's look at some of the more interesting and high-growth segments where we see opportunities. We described them to you last year, but now we are participating in these opportunities. So our most efficient electrical propulsion value chain. So we believe Edgar and his business have the most efficient way to accelerate, decelerate, and move trains. That competence can be transferred to mining trucks, and we have the first examples of what does it mean to use electrical propulsion in mining applications. We're able to transfer the competence, it's not one for one. We have to learn a bit more about the domain, but then we have Peter and his colleagues, who are very much into that business, and we have been participating in the mining business as, as, motion.
So that knowledge and competence can be translated into a very practical solution, what the customers want. We love hydrogen. Absolutely love hydrogen, because it is multiple bites of the same apple for us. So when you think about hydrogen, you think about water. We're there when we pump the water into a big tank. Then we're there to supply electrical power, along with Peter and process automation, to convert it into hydrogen and oxygen. Hydrogen is very light. What do you do with hydrogen? You have to compress it. We are there to help our compressor customers, whether it's Sulzer, whether it's Burckhardt, we work with them on compressor solutions to actually compress the hydrogen. Once you compress the hydrogen, you need to transport it.
Again, pipelines, compressors, we are part of that solution as well, and we have been with our customers and our OEM partners. Then when you get to the consumption side of hydrogen, which is pulp mills, steel mills, other energy-intensive applications, we are there today. So we are for the—that's why you know why we are so excited and really interested in hydrogen, because it's one of those few opportunities that we can be there on every part of the value chain. And we have a leadership position in most of those value chain components. So we believe hydrogen is great business, and it has a fantastic potential. Of course, the cost needs to come down, and we need to be part of the solution to bring the cost of the hydrogen value chain down.
So working with Peter as well as with our partners, we are working on how to reduce that. One of the applications we showed last time was EC Titanium from Jesse. We could not build enough of them in 2022. We cannot build enough of them in 2023. We still have some shortages of components because this product has really taken off. And when you look at this application, actually, the integrated motor drive is actually this white disk. The rest of it is the fan. So for a data center, and each data center is 4,000-5,000 electrical motors, we're converting this into a very tailor-made, data center-specific solution, which drives value for our data center customers and clients. So exciting products coming into the market in 2024.
So let me walk you through a couple of examples of what does an integrated motor drive solution or a coupled motor drive solution mean for society and for the customers. So our division leader, Eric, did a simple audit with his team of 2,000 motors. Three months, one quarter. We found 31% savings, two months worth of emissions from a German coal plant, which we know has become quite popular after the wonderful energy policy. What does this really mean? We found 27 medium voltage motors that did not have a drive on it. So if you put a medium voltage drive on those 27 motors, it's equivalent to 400,000 homes worth of energy savings. 27 medium voltage motors, combine them with 27 medium voltage drives, you get 400,000 homes worth of savings.
For the rest, these are IE1 and IE2 class motors, 25, 30 years old. You replace them with the most modern solution that's out there in the market, 600,000 homes worth of savings. There's a lot of headlines being made on how 1,000,000 homes worth of energy savings, renewable projects are challenged. We can do all of this in less than 1 year. The challenge is: where is it? Where are those 27 medium voltage motors that we can fit the drives with? Our customers did not know until we did the audit. So one of the challenges for efficiency, and this is the single biggest component for Net Zero for the world, is energy efficiency, is to find where the energy is consumed, to evaluate which are the motors and drives that can have the biggest impact. So our service organization is very excited.
We have an entire organization focused on doing audits, helping customers find business cases, and I'll walk you through a couple of business cases that we see on energy savings and ambitions of our customers. The next one is actually in the aqua agricultural, and we have combined with Eisele in Germany and combined their agitator and pump solution with the most efficient motor drive combination in the market. It might not look like a lot of money, but for the customers who apply this, they get a return in less than six months, because the subsidy, combined with the efficiency, means the returns on investments are much faster. So this is a very compelling value proposition, not only from doing the right thing, but also saving a lot of money and getting a great return if you are a customer.
So for the next example, we went to Turkey. We met this customer who's actually in the cement business and wanted to... The CEO wanted to be one of the top leaders in the market and say, "I want to have zero emission trucks. The OEMs don't have it, but can you help me? We have 10 trucks which are up for renewal. I would like you to help us make them carbon neutral, zero emissions." So now we've taken this project on also to learn how to do this on a small scale. Before, and now we're engaged with all the key suppliers and all the key OEMs in the market. So what is the impact? 1 million liters of diesel consumption will no longer be what new cement will have.
They'll reduce their consumption by 1 million liters once the 10 diesel trucks are implemented. And we asked the customer, "What's the return on this investment?" Based on the discussions we've had with them, and they're saying it's an ROI of 3 years.... Why is this relevant? Because we're also speaking with Caterpillar. We're also speaking with Komatsu. We're also speaking with Hitachi Construction Machinery of how what we've learned from these examples can become part of the standard offer, because the operators are asking the OEMs for a diesel-free mining truck. Between what Peter can do from electrification perspective, what we can combine from our electrification portfolio plus our propulsion portfolio, we can provide a very compelling value proposition for our customers, and here is a good example. Let me walk you through into technology next.
What's the impact of data and technology, which we keep talking about digital? So I'd like you to watch this video, because this is real life of one of our customers and in one of our locations. And what we're trying to simulate here is, what can we do with the latest compute software capabilities and drive value for a customer? So just listen for a few seconds, and then we'll talk. This is an application that's thousands of applications like this per day going in, and this is the kind of value that we can deliver. So that's a normal motor with a normal amount of vibration. Not this wonderful, nice, clean, very quiet atmosphere that we're in, but that's a manufacturing environment that you would see this motor operate in.
So what you see there is one of our research engineers, who has developed an algorithm that allows you to reduce vibrations on motors based on actual measurements. So this is active vibration control in execution, which is in a control platform that we are selling, that, Chris Poynter and his teams are selling, very shortly. It's going to be released to the market in a few, few months. So you see, it's active noise cancellation. So what we're doing is actively changing the magnetic field and the flux inside the motor to compensate for the vibration. What does it mean to a customer? Significant value creation, because this motor and that vibration will make sure that the bearing lives last a lot longer.
Maybe the SKFs of the world might not be happy, but it's a fantastic solution for the customer, because you get high reliability, you get better predictability, and you get lower noise in your operations, all of which is, is a very compelling value. So we've given you quite a few examples. So let me walk you through very quickly, what does it mean when you talk about portfolio and, and proactive portfolio management? So last May, when we were here, we put our seven divisions into 40 portfolio lines, 40 to 50 portfolio lines. This is the, the view from May of last year. The dark ones are drives. Obviously, that portfolio is a better performing portfolio. It's very significant, but we also had lots of homework to do for our motors portfolio, and here is how the portfolio looks like now.
Taking into account, this is how we look at the portfolio from a performance, future value creation, and fit, and we also look at it in the same way when it comes to the inorganic. So this is what it looks like a year later. Let me walk you back. This is what it looked like a year and a half ago. This is what it looks like today. So what has happened is, our divisions have moved a lot of their portfolio lines that were not performing to the correct side of the portfolio performance. But what's very interesting, and they contributed $70 million of profit improvement. What's remarkable is actually the growth part of the portfolio. The portfolio lines which were already performing at good levels, they have actually increased their contributions by $360 million in the last 18 months. Significant improvement.
So it's not only about improving what's not working, but also focusing on what is working and driving the growth based on the opportunities you see. Similarly, with those variables that we've used for our inorganic assessment, we have also made. The divisions have made three inorganic moves, clearly on PowerTech, on Siemens, which is the NEMA Motors portfolio, and Spring Point, which is a software company that we just acquired. So what does this all mean in terms of performance, in terms of financials over the last two years? The team has exceeded, and I'm very proud to share with you, the team has exceeded any expectations we had even a year and a half ago. The commitment-wise, the business has grown from $6.3 to almost $7.7, almost 10% growth per year.
Profitability has improved quite nicely, of course, supported by the demand, supported by pricing, and some of the top line obviously was influenced by inflation. But nevertheless, what's very, very interesting is not only has our drives business improved, but our motors business have improved even 400 basis points, the profitability across the board. So great work done by our team. So in looking into the future, we believe 80% of our portfolio lines have a growth mandate now, and that translates when you think about the future, that translates into 6% growth.... We're driven by macro trends, which are energy transition, urbanization, as well as growths in profitable growth segments that we see. So the market leadership of motors and drives, combined with the portfolio management, will create value for our own organization.
You combine that with the capability of our people, which we talked about as the key component of the value driver. We come to what we believe for Motion. This team has delivered and will continue to deliver fantastic value creation for our customers, because we are number one in very attractive market segments, which are driven by trends which have lifted our market from 2%-4%. With a very granular and rigorous focus on portfolio and product management, we believe we will drive even more value, make acquisitions, additions to the portfolio, which enhance the growth, but also the value creation. You combine a great motor business with an even better drives business, where the future is more drives, more value, more efficiency; better creation of solutions for customers mean we will continue to drive strong profitability and value creation.
Thank you very much, ladies and gentlemen, for the opportunity to speak with you. Okay.
We will now open up for some questions for these guys. And again, there's an opportunity to put your questions through online, and also, of course, obviously, same procedure here in the room. I just wanna make one comment before we start. To those of you who are in the room here and are a little bit worried about your potential flights, et cetera, this afternoon, we will catch up the time. We will get you out of here more or less as planned. With that said, questions.
Short or long?
We have Alex here. Please, Lucas, if you hand him the mic.
Thanks very much, Alex Virgo, BofA. Two questions, please. One for Peter and one for Sami. Peter, quite simple, short, quite, well, short question. Simple may not be. Why, why no explicit external targets for your division?
Look, in terms of growth, Alex, I mean, we, we talked about the opportunities in the marketplace, and we are well in line with the group's growth ambitions. You saw, the mix of margin versus profitability. I think between the mixing of the project and service business, we'll be somewhere in the mid-teens, but we'll also need to be able to breeze between new business and service business as markets go up and down. So I, I hope that answers your question.
On the profitability?
Sorry?
On the profitability.
Yeah, mid-teens was the profitability answer.
Okay, thank you. And then, Sami, a question for you on reconciling the medium-term optimism and your sort of 2026 growth ambitions with the near-term demand dynamics and what we can see in terms of the market and the order development. Just wondered if you can give us a little bit of better understanding how that trajectory plays out. Thank you.
As I mentioned, we're seeing now, especially in China, a sluggish market at the moment, but we also have big capacity in the market through this over-ordering cycle. So that will clean out over the next couple of quarters. So as I said before, our expectation is that that will continue until mid of next year. And our expectation, also what we hear from the International Federation of Robotics and other agencies, that you know, the demand then will pick up again. The markets, as I mentioned, will be different. You will have you know, segments that will grow by you know, 4%, but there are others who will grow by you know a higher double-digit.
Take the AMR, AMR business, we are still at the beginning of that, of that cycle, so that is a higher growth. You have countries that will have a higher growth exposure. Take India, Turkey, Mexico. These are, as I showed before, the level of automation is still very low, so that will compensate for other market that we will see more saturation. But, I mean, I don't see a way where, you know, with this lack of labor and the demand for nearshoring and expansion of automation, that this would work without increase of automation.
Here we go. Yes?
Okay. Gael de Bray from Deutsche Bank. So I have two questions, please. Earlier, Björn talked about geopolitical tensions and the importance of local for local. In China specifically, do you see a kind of a structural trend where Chinese customers would actually switch to local suppliers simply because they are afraid of potential restrictions in the future?
Maybe, maybe I can take that. We don't see signs of that right now. What we are doing, though, is we are localizing our entire value chain in China. So you, you heard that before. We are Chinese in terms of our management, in terms of... The only thing that's not necessarily fully Chinese is the component structure of our portfolio. So we are working hard, and our divisions are very much focused to make sure that we are... and we have seen some examples. This is part of the discussions we have regularly with our leadership to make sure that over time, almost everything that we produce, all the components, as well as the ingredients, everything is coming from China. And the product development responsibility for the China business is in China itself.
So we also make sure that the R&D competence, which we are increasing quite a bit now in China, it has always been there, but now we are adding enough resources, or the divisions are adding enough resources to be fully capable in China to develop solutions in China. So our brand is very strong. Our value is very clear to the customer. So at this point, we do not see necessarily initiatives that discourage people from using the best products. That's not happening in China, and best solutions. As long as we stay ahead, we believe we will be in good shape. But then policy is policy. I mean, it can change, and then we have to respond accordingly. So the resilience has to be in the chain and not just assume that things will stay the same.
That's at least on the motion side, we're doing.
Maybe, because we have a large, China exposure, there are two effects. One is there are new Chinese competitors that are coming into the space, acting in a certain, you know, market segment that I would call more the M3 market that I've talked about before, lower-priced products, obviously, you know, catching up. But in terms of the demand side, we don't see that at all. It's actually the opposite. Many Chinese customers want to have high quality, good products. I mean, take robotics. If you want to play as an automotive supplier globally, you have to have the same quality that Europeans and other players have on the market. So we don't see that at the moment.
And, on the... I have a question on the sustainability of the turnaround process of, you know, some of the segments, like large motors in particular. I mean, I wondered to what extent this turnaround was actually driven by a one-time step up on the pricing side. I think for large motors, you've raised prices maybe by 35-40% or so. So what's the risk that it, it's gonna reverse out in the next, in the next few years?
So, yeah, no, let me answer the question that you all asked during the open session with Björn. Why is Large Motors and Generators not in the black, or why is it still red? Because we want to see a sustained improvement in its performance. So it's not only a couple of quarters, at least from our perspective, and we have an agreement with Heikki, who runs the business, that we want to see a trend that's. It's a long cycle business, as you said. So the good news there is, it's not only about price. We see portfolio actions being taken, we see footprint actions being taken, we see a circular shift in the demand beyond price.
So a lot of what I just talked about with the gas to electric turbine replacement, that's the motor that goes in there. So the synchronous component, synchronous motors, when Peter's business goes up, it pulls our product portfolio as well. So we see in that segment, large motors and generators, not only is pricing balanced with where the value and the customer is willing to pay, guess what we found? I mean, he found customers willing to pay more than some customers who were not willing to pay, and that has been one of the reasons why the profitability and improvement of performance. But strict actions on portfolio, very clear focus on technology and applications, and then being there where the market is really moving very quickly and having a leadership position has all contributed.
To your point, I mean, we are keeping an eye and making sure that that business continues to perform. All indications are this significant improvement in that business is not just based on price, based on all the three things, portfolio, footprint, as well as focus on specific segments where we are paid for the value that we deliver. So that's been the ingredients for success. We want to make sure that the pie is fully baked before we change the category. So that's kind of where we are thinking for us as well.
Thank you. It's Nick Green here from Bernstein. A question for Tarak around the Turkish mining truck example you gave. It's quite an interesting example. Can you just elaborate further how you're helping the retrofit of diesel engines? Are you saying that there's involvement in the battery manufacturer there, or are you saying you're just working with the OEMs here on the drivetrain? Can you just elaborate further?
So on, on that one, I mean, look, the mining business and the mining equipment suppliers are known. So we are working with the OEMs, the Caterpillars, the Komatsus, the Hitachi Construction Machinery, to be a key component supplier of propulsion solution. So it means the motor, we have the traction motor business, we have the converter business, and we have battery storage. So we're not the battery manufacturers, but we bring the whole system together in the new Çimentaş package. We're not responsible for the mechanical, but we're we are giving them the electrical solution that drives propulsion as energy recovery. 'Cause one of the big components is energy recovery, and we have learned over the years of trains decelerating and accelerating, how to manage the energy recovery with the battery system, or Edgar and his team have.
And that knowledge is now being transferred, and we are learning our way. It's early days. There's 55,000 mining trucks out there in installed base. The industry will need to tackle the installed base, so we are learning how to do this, and then we are working with the OEMs on what could be their, quote-unquote, "retrofit package." Because our, our goal is not to compete for retrofits of installed base. Our goal is to understand the applications, come up with compelling packages, both for new-
B ut also for retrofit. So we're talking with the OEMs to say, "Okay, here are some ideas." They're coming to us. So a three-level control is the state-of-the-art in efficiency, in terms of the value chain, and that is being recognized. So we are in pilots with almost all of these OEMs to find solutions.
Okay, I saw a hand. Yes, I saw someone. I thought I saw someone waving here on the left.
Hi, Magnus here from Nordea. I have a question for Sami on human machine interaction and natural language instruction. What is the time to market of that application, and can you talk a little bit about how well that might redefine the boundaries of your total addressable market, please?
We have these applications now being tested in laboratories, so many different ones. It's not only the natural language, but many others. We already have solutions for what we call lead through programming, which is you take a robot arm, and then you just grab the robot arm, and then you click on the first position, you move the arm, second position, you click another time. That's already programmed, and that is available already in the market. So you can basically teach a robot by just showing it. The next step will be the natural language programming, and that will take, you know, a couple of years until we really get into the market.
But underlying that, there are multiple layers of simplification that we already have, you know, going out in the market. The other one is this watching and seeing a robot do, and then, you know, emulating that. So there are multiple areas we're working on, making the robots more easy, accessible. I mean, we have robots in bakeries. We have robots in a noodle shop in China, making noodles. We have—I mean, it's fascinating where robots are being used. We have on a cruise ship, a robot, you know, serving sushi. So you see more and more applications where it's, it, that's not where we make most of the money, but it's a cool application. But you see more and more of them where it's easy to use, and we become more accessible, and that's the future.
And then we have a question back there in the... Thank you.
Good morning. Will Mackie from Kepler Cheuvreux. One on RA, please. Just a general question. You know, you painted a picture of market growth, but when we look at your footprint of your business, 60% or two-thirds even, is automotive and machine automation, which you identify as about 4% growth. You're shooting for 10%. I mean, you gave a number of points that would help you on that journey, but is there anything which you can identify that would really stand out as enabling such an outperformance against the market, given your mix?
Yes. First of all, the machinery automation growth was the market growth, which is 4%. We have proven that we can grow roughly about 10% over the last years, so we're gaining market share year-over-year, so that is a really healthy business. So that number, in terms of our own number that I showed before, we almost doubled the size of the business. So that's a 10% in itself, and that is almost a third of the total business. The automotive side is also quite, you know, healthy growth over the last years. It will continue, but not at that pace, because we will, we saw an uptick in the e-vehicle, and that mostly happened in China. We're seeing now a new wave of e-vehicle manufacturing coming actually in Europe and in the US.
That is the next wave that coming. And then we have the general industry, and that is a higher growth part and also quite healthy from a business mix perspective. And in that, you'll have new segments like construction business, logistics. In the U.S., we will have next year, about 25% of the total business will be logistics and e-commerce, for example. We have big projects with a supplier who supplies to Walmart, automating the warehouses, so that business is really growing above average. And last but not least, the AMR business. That's really a high-growth business, and I'm very comfortable that we are in a good position with the product itself and with the investment we made in the startup called Sevensense. We merged these technologies.
We, Ford, for example, we won an order of almost 400 of these AMR robots, and it really is going quite well. We have that in IKEA, and we have that in Nestlé as well. So we are at the AMR level, are really at the beginning, and we can leverage the synergies in the sales side. So the mix is basically ultimately what will make the difference, and B&R, as is mentioned, is continuing the good growth there. Yeah.
Thank you. The second question relates to PA. You highlighted that 45% of the business is still has an objective to raise profitability prior to growth. I mean, what will it take to get you into the growth mode for those businesses, and how long do you expect that to take?
Yeah, I think here, similar to what Björn and what Tarak described, we're actually, as you also see in the numbers, we've progressed a lot, but we want to see some things also be sustained over a couple of quarters before we would change the mandate. So none of these are in the, "Oh, you need to improve an awful lot to ever get there," but rather, "You're getting pretty close. Show me some steady performance over a period of time, and then we'll get there." So actually, the chart that we showed there is rather on the conservative side of where we really are, with a lot of it, we are seeing signs of a sustained kind of green commodity-type super cycle.
You always have to argue the CapEx cycle as such, the GDP, is that going to pull it down? But overall, the macro trends are very strong, and the business development that we've done has also really brought each part of the business forward. I mean, you saw the granular chart. We've really progressed well.
Okay, and I think we had a question here on the—yeah?
Thank you. Pauline from. Just a quick question. For your respective growth strategies, we are curious to know what do you see as the biggest risk to implementation? R&D was mentioned several times, and would be curious to know if, for example, you see talent attraction and retention as, as a risk, that is quite high. Thank you.
Now, maybe I take a stab at the question. Look, the risk is the short term right now. We all see it, and we've talked about it, that it has been soft a bit the last few quarters. So the macroeconomic will have a short-term impact. That's probably the reality that we are dealing with. But the good news is, the longer cycle has now really compensated quite a bit for the short cycle, especially when it comes to motion. In terms of preparing for growth, the investments, we talked about this. We've increased R&D investments. Our divisions have increased R&D investments 23% to make sure the fuel is there for the growth. Some of those initiatives, we talked about significant R&D investments.
So that's a little bit of an assurance that the growth will happen and the insurance policy against resilience. Then the geopolitical resilience, we, we talked about the China-for-China reshoring U.S. So one of the biggest investments we're making is, is increasing our size of operation and localization in the United States. So one of the 178, a big part of that is Motion, with a very big investment in the U.S., in Milwaukee, to bring more competence, capability, local, local value add, and that will also provide us with a bit more stability and, and more resilience. The war for talent is the reality right now. So many of the places...
There, the good news is the brand of ABB and the purpose of ABB, as well as what we do, especially in the motion business, where we are a key contributor to a lower carbon, we start to attract young people, even advanced career people, because they see a value in what we do. So a recent addition to the team came from Shell. So our head of business development and strategy, the reason she joined us is because she saw a purpose that she wanted to be associated with. Fantastic experience, great geographic, geopolitical, environment experience. But we are attracting quite a few people, but it's a challenge. I wouldn't say that people is a given, and that's a risk we run, especially in these high-growth areas.
Talent is in short supply.
It is the same for us, but ultimately, people want to work for an attractive company. And, you know, you saw our results on the employee survey. They're quite good in terms of, you know, being a good employer, but also a high-tech company, and we believe that we continue the path. But also, we are investing. I mean, we've just announced that we're investing in Västerås, in Sweden, a new campus. And, the reason for that is that we had, you know, separate locations for R&D, production and so on, and we will create a super cool campus for employees that join us for R&D and product development and many other places. So being an attractive employer is important to us, the same in China.
I believe, yeah, I mean, the world talent is out there. But I think we are getting our fair share there as being attractive. And also our topics that we drive are software that also are done through engineers. You know, it's so we don't compete head-to-head with some of the Googles. We have a different market of attracting people that love to come to ABB. Yeah.
And if I can add to that, I mean, when where we've had hotspots, especially where, talent, I mean, we talked about already, the 60% software developers of our R&D people as an example. I mean, that, that's in hot demand very often. But what we found is actually the people that we need the most, the people who have the software skills and the domain skills-
Yeah.
They're actually also the ones that we are much stronger at retaining because of the purpose of the company. So we get some rotation in the kind of generic software skills, but the people who really understand our domains, who are a core part of what we know about an industry in conjunction with software, they're actually more likely to stay in there. I think really the purpose, but also the success we create, is reflected in the engagement survey, but is also actually reflected in our retention rates.
Thank you.
Speaking of which, we have one of the lowest turnover rates in the last three years as ABB, among all industry, and we heard that from our partnership with LinkedIn, where they have a whole industry view. So that's again another data point that kind of proves exactly what Peter was talking about.
Thank you.
With that, I think it's time for some refill. We will take a break. We will meet back here in about 30 minutes, which makes it 12:40 P.M.
Thank you.
There will be food served out here to your left. I'll see you soon. Welcome back! I hope you behind the screens have managed to recharge the batteries, and I know for sure, given the queue to the ice cream chart, that energy has been restored in the room. We're now going to listen to the final business area head, Morten, who will talk about electrification. Please, Morten.
Thank you, Anke, and it's great to also from my side welcome everybody to Frosinone. We have... In electrification business area, there are many great fights. But I have to say, this is one of our lighthouse, one that I'm most proud of, because here we have a team that is so passionate about improving every year of doing things better than ever before, and that is also what you will see for those you will go to the tour later on to see how we use technology to drive performance in the factory, but also how we are a leader in sustainability on this site. But I've been back in electrification now and finished more than six quarters, and it has been great to be back.
It is also after my years in Motion, that was also great learning and a great experience. But coming back to Electrification, where I did my first years in ABB, has also been great fun. And the performance also of the team over the years, especially the last years, has been very good. And I get quite a few questions about: Why are you doing so well? And I'm trying to answer that question as well today with 5 explanations, I'll say, 5 steps we have taken, years back from 2019, when the last Capital Markets Days for Electrification were held, also here in Italy, up in Bergamo. The growth has been around 6%, since then, since 2019, and the profitability is what has really improved from 14% till today on, more above 19%.
So let's look at those five reasons, what I've lined up here. Why are we doing better than ever before? The first one I want to talk about is the ABB Way implementation. In the past, we were organized in a different way, and you also already heard Björn mention this. Today, our business area, electrification, is only about on the BA level around only 300 people. Before, a lot of resources, what was cross-divisional, was sitting at the business area level. Today, all those resources and people, and also that means the cost, is sitting in the divisions. Divisions still work together where it makes sense for them. That is business-led collaboration, but it's not a forced collaboration. It's up to the divisions to decide. So it's really this end-to-end divisional setup that is driving speed and decision-making.
That means that the divisions own their strategy, they own their people, they own their costs, and they own their pricing. It brings me over to the second reason, very much around the business portfolio. I think there it's also been institutionalized across the organization now, how we drive portfolio management. We have you saw Tarak had a similar picture from Motion on how we've been able to exit some of the low-margin business, but also to improve many of them up, going into an area where they really bring value to the company. And today, four out of the five divisions in Electrification, including the newly created service division, all are in there in the profitable growth mode. The last division, which is not fully there, is Distribution Solutions .
But this year, showing great progress, and I'm also confident that in the end or during 2024, also Distribution Solutions division will be in a profitable growth strategic mode. So we are... Everybody is going to work on how we really grow the top line while still improving performance. My third part really goes into pricing. That is a big difference also, how we have, again, institutionalized pricing within the divisions. You heard Timo also mentioning this, that how this is how we both use analytics and tools, so it's not by chance. It is by, by using the analytics, the data, all the data points we have, but at the same time, it's also about implementation. And more than 5,000 of our employees working in the sales team has this part also of their incentive plan.
So it's not just good tools, it's also about people implementing value-based pricing. Fourth of this step is around improved, especially around profitability, is how we are able to serve the regions out of the regions. You see, in Europe, we've always been self-sufficient. Today, about 32% of our sales sits in Europe, but its margin is more than 95%. Asia, we have also always been strong. You see today, that's around 31% of our revenue in Electrification sitting in Asia, Middle East, Africa. And they are more than 90% in China for China, and also India is north of 80% when it comes to the local supply. The biggest difference that we have made over the years is the footprint of North America.
Here, today, 37% of the Electrification revenue comes, sits in the North America, and more than 80% is also supplied from the region. That being US, Canada, but of course, also in Mexico, where we have invested significantly to increase capacity and serve now the, the US market even better. And that brings me over to the fifth and the final point here, is the integration of GIS. I think the team of Electrification has done an excellent job integrating the GIS, upgrading the portfolio, and at the same time, gaining market share more than just one plus one. So we have today 11 points higher market share in the US market than we had pre-GIS acquisition. We had earlier, we said, when we had our Capital Markets Day, it was one-third.
I know that some of you asked me last night, say: "Aren't you done already?" Well, we have still some work to do. We are 90% there, but we have still, especially part of the Distribution Solutions when it comes to upgrade of switchgear, where we have integrated the products, but now also need to do a new system design. That is a lot of engineering work. Maybe not so difficult, but it takes a lot of time and effort, and that was the team is now working on to complete that job. But we have done more than the saving. We have realized about $500 million of synergies, so it's $100 million more than in our original plan, and it was done also one year ahead of plan. And the good part of this is today, we are really well positioned.
We have another platform in the North American market on how we can continue to take share in a market which is now boosting into the infrastructure with both the Inflation Reduction Act, but also the Jobs Act, and how the investment all these mega cycle projects that will happen in the U.S. for the coming years, and how electrification will be a vital part of those large projects. And there, I think today, as I say, we are very well positioned and continue to innovate and come up with new solutions for the North American market that will also secure our success for the future. So those are the five reasons, I would say, so kind of how did you get to where we are today at Electrification. But of course, it's not enough to look backwards. More importantly is how do we go forward?
Maybe to start a bit of an input from some of our team members in Electrification and give some of their ideas also on how we are operating today.
The world needs more power and lower emissions. This is the challenge of our time. At ABB Electrification, we're turning problems into progress, enabling the transition to electricity for a decarbonized future. We're always working on the next generation of technologies and solutions, ways to use electricity more efficiently and allow more renewables on the grid.
We are problem solvers who apply the power of digital and data-driven insights to make it easier for our customers to do business and deliver for their customers on time.
Across our portfolio, we have technologies and solutions that are helping our customers build smarter buildings, run their operations better, and meet today's demands more sustainably while keeping us all comfortable. Problem-solving is our passion as we enable the transition to electricity.
Electrification is a path to a better tomorrow.
So as you probably know, we have 10,000 engineers in ABB, and the good thing with engineers and what they say, they love problems. Because the good thing with a problem is that it has a solution. If it, it's no solution to a problem, there is not a problem, it's just the way of working or the conditions. So this is the good thing of engineer and trying to use technology to find better ways, because today we have some large challenges ahead of us. When we're talking about a more sustainable future and how we can decarbonize the world, and that's the question, the answer that comes up always is electrification. That's one of the first steps or the first things that comes on the table when we discuss about how to decarbonize buildings, infrastructure, or industry.
So here, the electrification of everything, that the world goes electric, is already happening, and we see that throughout our lives. But it's not just about the electrifying everything, we also need to make the energy transition. We need to generate power in a more sustainable way than today. That means replacing a lot of the fossil fuel-based power generation with renewables. And at the same time, we need to drive energy efficiency, because waiting for new buildings, waiting for new industries to come up, we will take too long time. So we need to do this transition with energy efficiency on our brownfield, on the existing infrastructure that we have around the world today, and that needs to happen now. So when we're looking at how we need to electrify everything, we already had our Capital Markets Day.
Last time, we talked about sustainable transportation, and also we heard already from Motion how we're looking at how we can use both more sustainable, both transportation if it comes to transport of people, also, but also transport of goods. But it's also about then around charging and the infrastructure needed for that charging. Today, we're looking at the electric charging infrastructure compared to 2030. The last analysis says that we will end up with a 10 times higher charging infrastructure requirements, let's say, 7 years from now. This is 10 terawatt-hours just to charge those car, all our cars, and I hope you got one already. If not, I can highly recommend to drive an electric car. It's better than an ICE. So, if we...
But this needs also a large new requirement of electric switchgear on everything that supply electricity to those chargers. Because that, and for us, that's a great also business opportunity. Then in industry, it's very much what I said around how we drive energy efficiency, and I want to give you also a couple of examples how we can do that in practice, and you will also see it later today out in the factories here. You saw also around buildings, it's where it spent 30% of the world's energy. So addressing the building market is one of the big opportunities and a big, one of the musts for the future to drive, to drive a decarbonized future.
But when we talk about electrifying of everything, but also the consumption, is where we see today one of the huge investments, and where energy density goes up and up, and it's in the field of data centers. This is also a sweet spot for electrification when it come, especially for us, when it comes to reliable and efficient power supplies to those data center. That be the medium voltage or low voltage switchgear that is feeding all the energy and electricity that is being consumed here in those data center. And we have been able to grow our orders since 2019, 24% every year, and today, it, data center is around 12% of the total electrification business.
So this is a market growing very fast, and we're also well positioned, especially on the power supplies, the medium voltage, but also the low voltage switchgear, which is the reliable power, which is needed because these data centers, as we all know, they cannot shut down. But it's... When everything is going electric, as I said, we also need to do the energy transition. And let's start with the power grid, because that is the bloodstream of this whole network. The power grid of the future need to be much stronger than what it is today, and it needs to be much smarter than it is today.... So it's a massive investment that is needed in the power grid for the next years.
International Energy Agency came out with a report a few weeks ago, and they also stated that the investment across the world needs to be 50% higher in that period for up to 2030, compared to what if you look ten years back. So that's a massive challenge for everybody who's in the power business today, in the utility business. But I'm also happy to see, meeting with many of our large clients and customers, like in the United States, their CapEx budget is also up 25%, and even more in some areas, because they know they have to spend to be able to do this transition. This is benefiting our medium voltage business, especially.
So here, again, being the leader in the industry in medium voltage, gives us a real benefit when we're helping utilities building those smarter and more resilient power grids for the coming years. I want to give you an example from United States. You probably would think that utility business is mostly around our Distribution Solutions business. But maybe what you don't know is we also have a utility business, and a very good utility business, also in our installation product or the legacy Thomas & Betts portfolio. There, we're using what we call the Elastimold brand, who is the number one and the leader in the utility business in underground cabling and underground switchgear in the U.S.
It's all the forest fires that the California, and we have on the West Coast, and it's all the hurricanes, unfortunately, that now comes up on the East Coast, in Florida and further up. Before, it was one large hurricane every three years. These year, the last years, we're kind of facing 3 a year. So it's a big shift, and therefore, also it's made law now even, in several of the states, putting underground cabling in place. So in California, they have a law, state law, that they will put 10,000 miles, alone in, in Southern California, of underground cabling. This is a massive opportunity for us as ABB, and also here for, both for Distribution Solutions , but especially there for installation product, helping out with underground switchgear. So when those fire, forest fires happen, we don't have a shutdown.
Or those hurricanes on the East Coast happen, we don't have, we don't have people without power for a couple of weeks, that happens today. So a great opportunity, but also what is needed to, especially in the North American side. We see the same trend also here in Europe. We also need to strengthen the power grid and be able to do this energy transition. And it's also, when we are shutting down many of the, the fossil fuel-based power generation, we need to move over to more renewable energy. That be solar, that be wind, but also they're looking at how nuclear will play a role in the future. What you maybe don't think about is that it's not only about, about getting renewable energy, but it's also how that is generated. And for instance, with PV power, it's all DC.
And then all our consumption points is also DC. The light, the LED lighting, everything you use in your car when you charge it, that is all DC, direct current, and not AC. Today, we're doing a transition or transformation. And here, we, we believe, and we see that trend already, that many of the grids is moving to DC grids. This is an opportunity also that we can create a new and a more efficient power grid by using DC component. But then we also need to show, and we have taken that challenge as ABB, around technology leadership and developing new DC breakers and those component, which will be part of a future DC grid and a DC network.
We have one invention here, which is called SACE Infinitus , which is a DC breakers using power electronics instead of what we traditionally were more of a mechanical product. We're now moving to a pure power, semiconductor-based switching device. The first in place, according to IEC standards, 100 times faster than a traditional breaker, and also up to 70% lower losses. This is a breakthrough innovation we're also very proud of, and we also will—you will have the opportunity to see that later. That's some of the transitions that have to do. Some of it, when I talk about DC, it's not for now, it's we start to see that coming, maybe more of next year and the years ahead. But what we can do already now, and there is no reason to delay, it's energy and driving energy efficiency.
Because a lot of company, you saw already from ABB, from our side, what Anke presented as well, how we are taking steps becoming carbon neutral in our own operation by 2030. And as you know, ABB, we are special, but we are not so special that we are the only one doing it. It's most of our customers and suppliers have now the same commitment. They need to be net zero by 2040 or carbon neutral by 2030, which is more of a common challenge in the industry. So when, here, Amazon and their logistics, they come to us and ask: "Can we have our net zero journey lined up for 2040?
How can you, ABB and Electrification, help us to do that in all our facilities?" For me, this is a great example how we move in with energy efficiency team, and come in and do an, through our service team, we do an energy audit and assessment to understand where energy is used, but also where energy is wasted. And then it's about optimizing those facilities that we are able to save energy. Here, just using more of building automation connected to the system of Amazon, we were able to save about 8-10 percentage points. But we found also much bigger opportunities when you can also upgrade the infrastructure they have by their motors, as you heard Tarak talk about, the high-efficiency motors, but also using drives on those motors.
So using also other companies, partners of ABB, that we can also give all those solutions. That is part of the advisory service that our service team is doing. Because then if you do it in one plant, then is to go to every other plant of Amazon, helping them to upgrade it without any downtime. That is our commitment and our partnership, how we're building this. And this is just one example. I could also mention many other clients who do the same. We take one, get a proof case, and then we scale it up in all their other facilities. And another part where we also shows how we can save energy in buildings, it goes back to the use also of artificial intelligence. Here is about our ABB Ability Building Analyzer.
It makes the suite of energy management, that we're getting all the data in the building. But then we're transferring those data up to the cloud and using, and in partnership with one of our investment in BrainBox AI , a Canadian company that is doing HVAC control, and using not just the data from the building, but they're also taking the weather data for the next days, and all, also with the data from what they know of movement and which rooms are used, and so on. All those data and run it through their algorithms, coming back with better ways of running each building without doing it on the level or reducing comfort.
Because that's one way we found out, we don't want to reduce the temperature in saving energy, we want to have the same comfort of living, but we want to do it in a more efficient way. So I think it's a great example also how we use the new technology, but also working with companies where we have done minority investments, out in the field and been able to give better customer value and better solutions for our customers. So when we add all this together, we are looking at what's the future look like. I think you all agree that the world is going electric. This is happening right now, and it's not done in a year or two. This is a long-term cycle that will happen.
And how we, as ABB Electrification, wants to win in this market is very much around using the technology, the mix, where great hardware and great software meets each other, each other. That's when the magic happens, when those combination comes together. And then we have a very strong partner network around the world, our channel partners and local service partner or channel partners in each market, how they help us to serve customers locally, because that is what is really needed to be successful in our business. And then I've also, we have now come to a place where four out of five, and I've said already that I believe soon five divisions will be in growth mode, which means that the M&A part is now really, it's time for it to happen.
We have here listed six different step-up areas where we are investing and where we have now full-time people in each divisions with dedicated focus on M&A. They have built a pipeline. Today, we have more than 15 active projects, totaling more than $1 billion of revenue. But as you all know, it takes two to tango, so you, and this is not done just overnight to make an acquisition. But it's, I think, so here is where you need to build a strong, solid pipeline, and then to have people who have this as a full-time job, kind of, and create those relationships, and be able to make those deals happen as well. So we have a good, strong pipeline, and I'm confident that we'll also show a much stronger M&A track record when next time we come together in this kind of occasion.
But it's, of course, about growth, as many are there, but I also know that there is kind of, "Don't throw our performance out of the window. What is gonna happen on the bottom line?" And I think the best insurance for a solid future profitability and as, in electrification, is the ABB way operating model. This is giving the ownership to the performance of the divisions, and nobody wants to go backwards. It's always about how do we do better than ever before? I think that's also the DNA of the whole organization: How can we do better? How do we drive continuous improvement? Not always the big revolution, but the evolution of continuous improvement that goes on productivity, on cost, but of course, also how we manage pricing.
And that is, for me, as I say, the insurance of how we stay on at least on the profitability level or better than today. And in addition, we have identified also our North America or US business. We have done a great job there already with the GIS integration, but the more and the better we get in US, the more opportunities we see as well. And there, I'm optimistic, and I'm confident that we have a divisional plan, that we say there is no reason why United States should be dilutive to the electrification business overall. Nobody wants to be above average, below average. So that is our, our, the challenge also for our team to say: How can we get more of that potential out in North America? So we have a strong plan in place, and that's one of the upside....
So when I'm standing here today, we are giving commitment here that we want to also be the, one of the strongest contributor of growth in the ABB Group. As we are half of the company, we also want to be also driving that growth and be on the upper end of that scale, and also to set a floor on profitability of 20%. Because I always believe that electrification is a great place to be, and it should be above 20%, and I'm happy that we have shown that already in a few of the quarters this year, and that is also where we want, as a minimum, to be for the future.
So with that, I also want to invite Massimiliano up on screen, but first, we have a little, we have a little introduction of the unit where we are today, here in Frosinone. You will also see a bit of a short video of what the pipeline before Massimiliano Cifalitti, our site leader here, can also introduce a bit himself, but also the team and this great facility. Thank you, everybody.
So thanks, Morten, and again, good afternoon, and welcome to Frosinone factory. My name is Massimiliano Cifalitti , 24 years in ABB, and I started my journey from this factory. Then I went abroad, living in Germany, in France, and since 2019, I've been back leading this factory and also the ABB Europe. So you can imagine how, for me, it's an honor to really introduce the, this much amazing factory. So this is a center of excellence for low voltage circuit breakers. Here we produce industrial breakers, not the small one, not the residential, the breakers that you have at home. So where the smaller frame that we produce in Frosinone is the small breaker that you can see on the podium there.
The larger size is this monster of technology that you can see on my right, that is able to carry up to 6,300 amps. So it's the... It can supply a small village of 2,000 apartments. So you can imagine that the breakers, why it's so important? Because he has the task to switch, protect, assets, and save our life. And this is the reason why it's so essential, it's so important, and you will find in any electrical distribution system. So here in Frosinone, we produce around 4 million breakers per year on 15 production lines, using more than 60 ABB robots, more than 200 ABB motors. We have around 1,200 employees, and we are growing with a solid, consistent, strong, double-digit growth.
In the last three years, we were up 80% compared so to 2020, and this, I think, is really amazing. We are doing in a super safe environment. It's now more than 2 million working hours without injuries, not even, not even a paper cut. So it's really safer than our house, okay? Sustainability, as mentioned by Henk and by Morten, by all, is super important for us. We are trying to embrace the culture of continuous improvement also on the sustainability. We are doing through the complete value chain, supplier, operation, and customers. In the continuous improvement culture, what is super important is to measure, because what you can measure, you can improve.
This is exactly what we have done on the supplier, for example, where we have asked the bigger supplier to be part of the EcoVadis platform, and this give us transparency where they are and which is the progress on their sustainability journey. On the operation, let me do another example. We are inserting a lot of sensors in the electrical system, in the gas system, in the air compression system, always with the target to understand which are the most energy-intensive loads. In case they are not last, new generation, they are old, they are not efficient, we are replacing with new solution, like new ABB motors, new ABB drives, chillers, lights with LED technology, and thanks to this, we were able really to reduce dramatically the energy used to assemble a breaker.
We have already 85% of our revenues that are covered by ABB EcoSolutions label. This gives also transparency to our partners, to our customers, on how, on the CO₂ footprint of our product, really through this Environmental Product Declaration . And we also give a lot of other information about the circularity of our product, like for example, how to manage the end of the life. In electrification, under Morten responsibility, we have already $1.2 billion of revenues covered by this EcoSolutions label. So it means that our customers can scan the QR code that you see on our product, and they can have all the information, including the one related to the sustainability. So you will see this and much more during the factory visit. I think that now we'll have time for Q&A, right?
That beeping. I thought I was... It's not someone's, yeah, let's not go into that. We shall do Q&A. Yes, plenty of hands in the air. Wonderful. We'll start over here, please, Lucas, with-
Thanks, Alex Virgo, BofA. Thanks, Morten. Question, two questions for you. First one, I guess the question is, given how much you've generated in terms of synergies out of the GIS acquisition, and ahead of plan, and DS is still not quite at the level you want it to be, and the U.S. is dilutive to margins, if I heard you correctly. So what, what is it that is holding it back? Or can you sort of just expand a little bit on that for us, please?
Yep. The main part for Distribution Solutions and US, because this is connected, is now on the switchgear side. You do the first upgrade, is replacing an ABB or a GE product, like a GE breaker, with an ABB breaker. And that is often much smaller, which means that the switchgear, the cabinets that you put these breaker into, are the same size as before, and maybe you even had to add more cost due to more copper and more connections. So what you have to do when you replace that from going from the old to the new breaker or the technology, the next step is to also to make new design of switchgear, making them more compact, making them smaller, lighter, cheaper. And that's the work that is not completed yet, because you have to do this in stages.
You need to first take out the savings, what we've done on the components, and now it's the switchgear, which, as I say, is the solution. So that's the and it just, as I say, it has to happen in a sequence, and it takes some time, and we haven't had enough capacity to do it before. So that's what's ongoing now. It will be finished by the end of next year. That's the plan we have now.
All right. Okay. Thank you. Then second question was on your M&A strategy, and I particularly picked up on the implications around building automation. Building Analyzer, I think is something you're developing, but you haven't really been in building management systems, energy management systems, et cetera, in the past. Just wondering what you can do around that. Thanks.
Mm-hmm. Now, what we're doing and what we have already made one acquisition last year, called ASKI Energy in Austria, that added more of capabilities to smaller commercial buildings, where we are able there to use our energy management, plus, which is more of monitoring and identifying, while ASKI Energy is taking actions. So that's the kind of space what we're looking at. I think that's a good example, also, how we work either with acquisitions on energy management or building automation, when it comes to finding adjacencies to what we are strong at today and what are the adjacency we can identify or add so that we are able to grow the full portfolio faster. So those are more what are we looking at, especially around software companies.
It's more smaller areas, let's say, that can give a good pull-through of what we have a good presence already today. That's kind of the use cases where we see is working well, what we have done now a few times, when we say that now we just need to do more and faster of it. So that's the... The other part, when we talk about building automation, we also make an acquisition, Eve Systems in the Munich-based leader in Matter and Thread technology, which is integrating all your kind of smart devices, that be Sonos or different, you know, Samsung appliances and so on. That, that's another area we're looking at with, of a change or a new open ecosystem that is being established, where Matter and Thread is, like I said, the leading platform.
Here, with Eve Systems, we also see how we can be an early player and an early leader in that space, because that also, as I said, that we believe will be the solution for the future that is coming now, and it's also showing good development.
Thank you. We have here on the front.
Thank you. It's Martin from Citi again. Just the first question is coming back to GIS. It sounds like you've gained a lot of the market share back that was lost by the previous owner. But is that, is that now back to what you think is your entitled market share, or is there, is there more to go in terms of GIS share?
We have, as I said, identified more opportunities. I think we have a solid foundation now, but we can do much more around innovations, and I think the meeting with American customers, they really want those innovations, new ideas. You will see on the factory tour, a couple of those, especially in the field of data centers, where we have been very successful around switchgear solutions for more reliable and more efficient switchgear in data centers. So this is a space, and especially North American market, we are not at the place we were. We are happy with what we've done, but I think we can do much better.
The second question was actually just on data centers. It sounds like you're doing very well in switchgear. Some of the other players have a broader portfolio, including UPS and so forth. I noticed that wasn't on your list in terms of target areas. Just give us some sort of sense as to what you think, you know, you can bring to data centers, and whether it needs to be broadened to get a bigger chunk.
Yeah. We have a UPS data center business as well, but it is smaller than many of our peers. That business is growing this year more than 40%. So here we have a very aggressive organic plan on how we can take that business and double it in three years. So that's kind of the first step of an organic journey. Inorganic moves is, of course, also part of it. But there it is. Let's put it this way: it's a market where you need to be quite selective, as it's not that many people that you can ask up to dance, so to say.
Thank you.
We have a question, a couple of questions on this side also, if we move back to... Yes?
Thank you. Mattias Holmberg at DB. So you mentioned that there it takes two to tango, basically, on the M&A side, and I'm curious, is that the main reason why you haven't been so active on M&A, or is part of it also explained by that it's taken some time to build that pipeline you talked about, after removing the responsibility from the group central functions out into the organization? And then also, if you see any type of trigger that could enable you to materialize more of that pipeline.
Well, I think it's the main reason, I would say, is the building up this ability in the division as we have done, because we moved people also from the corporate team into the business areas and the division to make the deal. So it... And it takes some time to build that pipeline, and that is the work that has been actively ongoing now, I would say both this year, but also we started that already last year. So that is the main reason. I think we're also about, we have had a track record. We don't want in ABB to waste money. So, when you're talking about two to tango, we are not paying what I would say is called silly multiples for a company if you don't, are fully convinced.
If we find it, we are willing also to spend the money, but it has been a... For some deals also, we've said that we, the businesses that we have identified, we have not been able to justify always the multiples. That's also true. So here is a bit of a balance, but I think the main part for me is that we have not been, that it takes time to build the pipeline, and therefore, as I already said, I'm confident that we will see more acquisitions coming now in the next quarters and the next couple of years.
Thank you.
Thank you. And we have just a couple of rows back there, please.
Hi. Sean McLoughlin, HSBC. The, I guess, coming back to your growth targets, I mean, 6% is the growth since 2019. You're talking about 5%-7% through cycle, yet obviously the drivers look very much stronger by the year. I mean, is this guidance, should we take this as quite conservative guidance? And are there any, you know, within that, you know, we look at the strength in data centers and areas where you could see double-digit growth. I mean, are there any end markets and regions you would highlight where you're seeing relatively slower growth?
Right now, I think it's quite clear that the residential or the building market in Germany or China, for that matter, right now, is not booming. And that's not that's an understatement, I think. So that is areas where, as we have identified areas where we see really good growth, but we also have areas which is slower at the moment. So that's why I say this, this balance, and I think that's the... Oh, and we also the 5-7 over the cycle, as you say. So where this is, as Timo said earlier, this is not a 2024 guidance, but it is over the cycle for, for the long-term ambition. Yeah.
If I may, on the... You've highlighted a lot about the medium voltage leadership. I mean, just if you could elaborate a little bit more on your market positioning and your ambitions in your low voltage segments as well.
I think we, The low voltage business, it's a larger but also a much more fragmented market. Often it gets the fragmentation also drops with or kind of get even higher fragmentation as lower down on the current rating. So when we talk about our leadership position where we, where we are really strong in low voltage is what we see here, like our breaker portfolio, one of the areas where we are very proud and very confident in ABB about what we do, and we are really, I think, they're leading the technology in, in on, on this side. When we talk about where we have good opportunities still for growth, we're talking about our smart building portfolio, like in the wiring accessories. This is very often driven by, as you all know, local standards.
That's why when you're traveling the world, your travel pack, you need to have all these different adapters. And that's why also there are so many different local players or local standards that you... So that's an opportunity, as also listed here, where we can gain strength. We are really good in areas like our Busch-Jaeger brand in Germany, with Elektro Praga in Czech Republic, Niessen in Spain, to make a few examples. But here is an area where we can do better, as electrification.
We're keeping you busy on this side, Blair. Yes, thank you.
Hi, it's Max from Morgan Stanley. Could I, could I just ask a question about price cost? It's probably been kind of easier in the last couple of years to pass on raw materials. As now we kind of look into 2024, and it's probably more wage inflation driven than necessarily raw materials, how easy is that to have those conversations with customers? I mean, do you expect it to have another year of price rises, and do they accept that? Or when it's not raw materials, it's a bit more challenging.
It is quite a geography. There is not one answer here because there are areas of our business today where we are still in shortage when it comes to deliveries. Lead times are long, demand is still very high, and others, as I mentioned, the building market in China, which is slower at the moment. So this will also be reflected, of course, when the demand is lower, then also you don't have the same pricing power. What I do expect is we will have a positive price impact also for the coming years in our plan. So that's the... And that doesn't come also only from cost. It's, we talked about earlier, it's about the value-based pricing. It's the pricing analytics.
So it's less of the kind of historical, we're just increasing the price list of 2%-3% kind of every year. It's more about looking at the even down to customer and SKU level, and how do we have a more of a correct pricing, so to say, in the market? That is more the where you can still gain quite a lot of price, and a lot of our, the last year's history have shown that that is possible, but we believe or we know that we still have opportunities on that side. Yes.
Thank you. Yeah, if you just pass the microphone to... Yes, Gail, thank you.
Thank you. Could you talk a little bit about your brand strategy, especially in emerging markets, to perhaps expand a bit more in the mid-market?
Yeah, I think it's, we already have today what we call a multi-product positioning strategy, but that is often using the ABB brand. Then I mentioned some of the, the markets, for instance, in wiring accessory, which this is more common. The Niessen as the leader in wiring accessories in Spain, the Busch-Jaeger of Germany. That kind of positioning is something we also, are looking at where we can do more, for instance, in markets like India, where, more of a mid-segment or a mid-place brand is possible. I don't think it's a strategy ever. I know it's not a strategy we're going to use everywhere, so it's more on a selective basis because you need a certain scale to make that this really works.
But that is, it is strategies we are following in some of the, let's say, the largest emerging markets, but not as a, not globally. If that makes sense.
With that, we're going to close the Q&A section and move into the next sort of phase of this day, which is the visit to the factory. With that said, we say goodbye to the virtual audience. Thank you for spending today with us.