Abb Ltd (ABB) 2002 Q4 法說會逐字稿

Good afternoon this is the conference call operator. Welcome and thank you for joining the ABB Full Year Results 2002 Analyst and Investor Meeting Conference Call. After the presentation, there will be an opportunity to ask questions. The conference will start shortly.

Good morning ladies and gentlemen. Welcome to our presentation on the annual results 2002. This was a very difficult year, but we have put the worst behind us. In 2002, we secured a major new credit facility as all of you know, which has given us operation stability and flexibility until the end of 2004. Peter Voser, our CFO, will come back to this in his analysis of our results and overview of our financial strategy.

We have made good progress in our efforts to put the asbestos issue to rest. In 2002 the disposal of structure finance and metering business was successfully completed and as you know we have talked with several potential buyers to divest the oil, gas, and petrochemicals division which are now reported under discontinued operations and we are on target to sell building systems in 2003.

You have seen the results of the press release so that just gives you a brief overview.

I want to highlight our core division, our technologies and automation technologies. For the year 2002 our core division revenues increased from $15.4b to $15.6b. The core division EBIT went up by 4.3% and the EBIT margin from 5.9% to 6.1%. For the group as a whole, EBIT increased from $179m to $336m. But because of losses of $853m in discontinued operations, including charges related to asbestos, we posted a net loss of $787m.

I also want to point out that we reached our revised EBIT margin target of 1.5% and cut net debt on a comparable basis by $1.5b, also on target.

Ladies and gentlemen, the key message here is that as a group we achieved all our targets but, most importantly, that our core divisions performed well in Q4 of 2002. This posted a higher profitability for the year of 2002. Peter Smits the Danish party will report on the divisions later.

If you look at the revenue, EBIT and EBIT margin development for the core divisions, you will see that ABB has a sound underlying core business. Comparing Q4 2002 with Q4 2001, the core divisions maintained their revenues and significantly increased EBIT and EBIT margin.

Looking at the year it is a familiar picture. Core division revenues were up slightly, EBIT increased by 4.3% and the EBIT margin was up slightly too. Considering the challenges, this is a good performance by our two core activities.

For 2003, the management team confirms that our automation technology is continuing to improve their operating margins to increase productivity. Similar structures to deliver lower cost base.

To further leverage the strengths of the underlying operations in our core businesses, we have set vigorous restructuring measures in motion as we announced last year. As you know, we are committed to taking out $800m in cost out over the next 18 months. On top of the $500m of costs taken out since the middle of 2001, so $500m plus $800m.

Gary Steel who is with us today, our Executive Committee Member in charge of Human Resources leads the new cost savings program. Gary will provide that view in our meetings, a status report on staff change and details on it and the next steps later. He will also look at the plans for this and next year.

You know ABB operates in a highly competitive environment, it's relatively low long-term overall growth potential. But there are always business opportunities to find profitable growth areas and industries.

Automation technology division has a compound annual revenue growth target of over 3% up to 2005. The corresponding figure for power technology is more than 5%.

Increased productivity as well as targeting the customer segments and areas with best potentials for profitable growth that is our route to increase profitability. The performance of our core businesses in difficult circumstances is a testimony to our technology leadership, our skilled and motivated people who have filled the leading market position for our core businesses around the world. The performance also shows that our customers, this is the most important constituency we are serving. Our customers in utilities and industry around the world continue to rely on ABB. It reflects the strength and vitality of the ABB brand.

Ladies and gentlemen, we do not expect any market improvement in the near term so the pattern of change will continue to be high and we will deal with that.

In November, we announced targets of 4% revenue growth and 4% EBIT margin in 2003 and we confirm this outlook for 2003 today. We also announced a target of an average annual revenue growth rate of 4% until 2005 and an EBIT margin of 8%. Again, we confirm this outlook for 2005 today.

Thank you for your attention, I will now hand over to Peter Voser, the CFO of the group.

Thanks Jurgen. Good afternoon ladies and gentlemen. Today I will take you through the financial results of the Group for Q4 and the full year 2002. Let me start my presentation today by saying that this is a fairly complicated set of results to take you through, although I will try to make it as clear as possible.

The fact is that we have had several accounting changes since the Q3 results. So to set the scene, I will summarize them first. As we announced in October, we have combined four of our former divisions into two core divisions. Automation Technologies and Power Technologies. We still reported on the former structure through the end of 2002 and will only report under the new structure from January 1, 2003. The first official results you will see under the new structure will be for Q1 2003 in April. We have already moved rapidly to implement the new structures.

So today we will present our results pro forma in the way you will see them going forward and my colleagues Dinesh and Peter will mainly talk about the new divisions going forward. Our fifth division, Oil, Gas and Petrochemicals has been deconsolidated from the group's operating results and are reported under discontinued operations. This is because, as you know, we intend to sell the division, either as a whole or as business areas this year, 2003. What this means that you do not see OGP included in the group's orders, revenues and EBIT. Instead, OGP reports only net income as part of discontinued operations. In short, instead of a $22b company, you see ABB today as an $18b company.

On the balance sheet, the OGP assets and liabilities are collapsed into one line each and called assets in discontinued operations and liabilities in these area in discontinued operations.

In the group's cash flow statements, however, there is no separate line item for discontinued operations. So OGP cash flows are reported under the normal individual line items. This means OGP is fully included in the group's cash from operations and free cash flow. All this is in line and in accordance with US GAAP.

ABB's final former division, Financial Services, has been broken up. As you know, most of structured finance was sold last year. The remaining structured finance business along with equity ventures and insurance are now reported as non-core activities. That is a bit of a misnomer, because, in fact, we intend as we said before, for no change to retain the insurance business for the foreseeable future. For reporting purposes however, we have segregated it since it is a financial service business and therefore we should not mix it up with our core industrial divisions for better transparency reasons.

The last part of the former financial services divisions to treasury centers, Proprietary Training, are now being integrated into ABB's headquarters’ finance functions are reported under corporate. Let me just add that this unit is no longer engaged in Proprietary Training and is now run as a financing service to the group's industrial businesses. This means that although it has reported a profit in '01 as a profit center, it is now treated as a cost center in '02.

As a last accounting change, we now have treated combustion engineering, ABB's US subsidiary as though it had already filed for the pre-package chapter 11 as of December 31, 2002. This is a consequence of last week's filing. Let me just be very straight here. Free Fall and pre-package have completely different accounting treatments. We have gone for the pre-packaged as we have filed now. This means that the assets, mainly cash, have been excluded from the group's balance sheet and net debt.

Provisions for future contributions to the trust are treated consistent with our previous practice as discontinued operations and cash payments are fully reflected in ABB's cash from operations.

The full year. Once the plan is accepted, Combustion Engineering will be deconsolidated and therefore liquidated in ABB's balance sheet, but that is after the charge. So that is all for the significant accounting changes. You can see that there is quite a bit to take you through here. Let's go through it.

I would like to start with Q4 results, the headline figures. Orders were down 8% overall although core businesses were flat. In fact Automation Technologies was up 11% whilst Power Technologies were down 14% because of fewer large orders in power systems. Product orders on the other hand were up but could not fully compensate. This means that despite what was generally considered a difficult market in Q4 our customers are and remain with us.

Orders for non-core activities were down by 19%. The biggest decline was in insurance, which does report orders under it's own definition because of the run-off in the Scandinavian subsidiary in Bermuda. Orders were also reduced by the sale of air-handling business in early 2002.

Revenues for the group were down 5% but the two core divisions again were flat as forecast. Again, a good performance that was offset by 25% lower revenues in non-core activities, exactly for the same reasons driven by insurance and air-handling.

The core divisions increased EBIT by 38% on productivity gains and lower restructuring charges. This lifted their margin from 3.3% in Q4 last year to 4.5% this year. The group as a whole however, posted zero EBIT for the quarter after losses and costs in non-core activities and corporate. These negative figures were reduced from Q4 '01, but were not enough to turn it into positive results.

Net income was a loss of $838m after discontinued operations which came in at a negative $710m. The result in discontinued operations was driven by asbestos provisions, the divestment loss on the sale of structure finance, and the losses of businesses held for sale including Oil, Gas and Petrochemicals.

Finally, net cash was positive at $361m and I will come back to cash flow later on.

Turning to Q4 highlights. We had some very positive events. First we completed the sale of Structured Finance and Metering on time. Those divestments were cash effective in Q4 and brought in $2.4b which we used to reduce net debt. This included repayment of the final $1b still outstanding on the $3b bank credit facility expiring on December 17th.

We signed a new replacement credit facility in December. This is a secured facility as you know for $1.5b that will give us sufficient liquidity through 2004 whilst we complete our cost reductions and our divestment program. I also want to confirm here that ABB has met all the financial covenants on this facility.

Another highlight was the prospect of achieving final closure to the asbestos issues for combustion engineering and the group as a whole. As you know, combustion engineering filed the pre-package chapter 11 in the U.S. Bankruptcy Court last week. I'm not going to say more here about the process since Dinesh will cover this in his presentation today. Except to say, that the negotiated settlement resulted in an equity provision of $420m. I will come back to the details and the cash impact of that later on.

Whilst it is not a happy story to take such a hit, it represents the end of the earnings strain on this matter for ABB if successfully concluded.

We have continued our portfolio actions. We have written down some $112m in software and goodwill during 2002. Additional provision and asset write-downs in non-core activities totaled about $109m. For discontinued operations, excluding combustion engineering, asbestos, the figure was $183m.

I'll touch briefly on 2002 the full year, since Jurgen has already mentioned some of the key figures. Orders were down 8% for the group overall, in what I think and I guess you share was a very, very difficult year. Nevertheless the core division orders were down only 2%. So the major drop again came in non-core activities, mainly due to sale of Air-handling, Insurance, Logistics and new ventures. This is all following the management's decision to cut back on these activities.

Building Systems orders were down as a result of weak markets in 2002. Revenues were down by 6% for the total group, but core divisions were up slightly lifted by a strong order backlog going into the year. Non-core revenues were down by 18% for exactly the same reasons as orders.

EBIT for the group was up 88% to $336m. This gave us an EBIT margin for the year of 1.8%, ahead of our revised target of 1.5% as communicated in Q4. The EBIT improvement was driven by higher core division earnings up by 4.3%, but mainly by lower costs in non-core activities. In particular, you will remember the 2001 EBIT which was reduced by the portfolio write-downs and the one time charge of $295m in Scandinavian, our reinsurance company, for the change in accounting methods.

The net loss for the year was $787m after discontinued operations which came in at negative $853m most of which was booked as I already said in Q4. Net cash from operations was a positive $126m for 2002. I will come back to that as well.

Turning to the 2002 highlights, I would like to reiterate what we accomplished on the financing side this year. We announced our financing program in March and I am pleased to report that we have achieved all the goals we set.

We almost completely exited the volatile short-term commercial paper market. As you may recall at the time we had commercial papers outstanding of some $3.3b. To do this, we negotiated a $3b facility back in March/April which took us through from a liquidity through December 2002. We aim to lengthen our debt maturity profile from about 50 at the end of last year for long-term debt to 2/3rds, we achieved this by the year end. This was done by issuing also two bonds, which were straight and convertible bonds. We were paying down our short-term debt from divestment proceeds.

As you know, our target was to reduce net debt by at least $1.5b from the year end figure of $4.1b. This is rather complex, I will take you through it later on exactly how it works with all the accounting changes. But on a straight line for line basis, we accomplished exactly that before the Chancellor of OGP to discontinued operations and the asbestos settlement for combustion engineering, net debt was down to $2.6b. I will take you through that.

Another piece of good news comes after we have just about finalized our actuarial calculations for the pension liabilities at the end of 2002. As I communicated back in November, we did contribute some $200m, exactly $198m, in cash to the pension plan as foreseen. Overall, we expect a small decrease in our unfounded pension liabilities at the end of 2002 which as you might recall stood at some $1.8b at the end of 2001, so no increase expected.

Here are the key figures. I won't repeat the headline figures, but I would like to draw your attention to a few points. If you consider our net interest expense for 2002, it looks low in comparison to the previous year which is not what you might expect in a year when our borrowing costs went up. In fact, interest expense was reduced by a gain of $215m, arising from the accounting treatment of the convertible bonds that ABB issued in May 2002. This is an unrealized mark to market gain on the equity conversion option on the convertible, which may fluctuate in the future with market prices.

I'd like to highlight net cash from operations. You've seen that operating cash flow was $126m for the year, which looks very low next to the 2001 figure of almost $2b. The core divisions contributed over $1.1b in operating cash flow for 2002 which was offset by negative operating cash flow for OGP, non-core activities and corporate, including some $206m in cash payments. The point is we have strong underlying operating cash flow from the core divisions that in the future will be considerably less burdened by businesses which we are now selling and asbestos payments.

I would like to walk you through the EBIT composition of the group to highlight the areas where we are taking actions to increase profitability. As you see, the core divisions have increased the profitability, both Q4 and the full year have increased. Also, the costs are lower for non-core activities, corporate costs rose for the full year, and they are still too high. These are the areas that are pulling down our operating earnings. So let's go through them.

Equity ventures and the remaining parts of structured finance businesses performed pretty much in line with our expectations. We are not making any new investments in equity ventures where we aren't earning additional fees. Our intentions are to sell them. The remaining parts of structured finance are being sold in pieces, so we're going to expect EBIT to wind down.

Insurance, as I said before, is a business which we intend to retain for the foreseeable future. It posted a profit of $40m 2002, significantly higher premium income gave rise to that. Although the downturn in financial markets meant that some marketable securities had to be written down in Q4. Again marketable securities are normally taken through shareholders equities, so they are each quarter adjusted, but once you effectively write them down they go through profit and loss. So equity is not affected by that.

Building Systems, as I mentioned before, suffered from weak markets in 2002 along with losses and write-downs from contracts booked in previous years. It reported a loss of $140m for 2002. We are on track to sell most of this business by the year end of 2003.

Other activities reported on the non-core activities reported combined EBIT loss of $239m for the year, up slightly from ’01. In Group Processes where we have now either stopped activities or transferred them into the divisions. You will see by the write-down of previously capitalized software, the burn rate has been reduced as we have taken the necessary write-downs and managerial actions. Air-handling as you know was sold and logistics systems and repair workshops are being wound down. Again here you can see in all these areas management is taking decisive actions.

Semi-conductors which are also in this one will be transferred to Power Technology this year, '03, so it will not go out as a non-core activities as Peter Smits and his team do see semi-conductor as a strategic element in their high voltage business. In short, we are taking action to reduce losses for non-core activities to zero by 2005. This year in '03 we will still have some losses, but we intend to reduce them to about $100m in ‘03.

Let me turn to corporate. The costs totaled $393m for 2002, up slightly from ’01. Headquarters and stewardship costs were $156m for the year which included the refund of $70m in pension payments from our former CEO's. We are attacking costs aggressively in this area, aiming to reduce them to about $130m per year by 2005 part of a stepped change, Gary will talk further on that.

Corporate research and development has already substantially reduced its costs following the successful reorganization of the global research centers earlier this year. We are on track to achieve a run rate of about $90m per year targeted for '05 so you can see we are quite ahead of the game there.

Other costs include the former treasury centers, consolidation and real estate. As I mentioned before the treasury centers have been included for the first time in corporate. This year it was profitable in '01 when it included the proprietary trading but we stopped these activities during the course of 2002, in June as part of the reorganization of the former Financial Services division. This means that for 2002 the full year, treasury centers report a cost instead of profit, which will be reduced as they become more fully integrated into the headquarters.

Now let's go to the big pockets. Here you see the breakdown of discontinued operations, which took the group to a net loss for the year. The headline figure is Combustion Engineering where we provided a further $420m in Q4 of 2002 and for the year. I have a separate slide afterwards so I can take you through step by step.

The next major negative figure is Oil, Gas and Petrochemicals. Let me just remind you here that we are talking about net income on this slide, after interest and taxes, not EBIT. In fact, OGP as said in the press release made $40m profit EBIT for the year, following provisions of $167m. These were mainly for lost contracts signed several years ago in the project business.

In 2002, we started to shift our large project bidding strategy away from fixed price towards lower risk reimbursable contracts. So there should be considerable reduced risk in going forward. But for certain ongoing projects, you can't exclude the possibility that some risks remain. These contracts run for a while and you never know what's coming. I will also say at this stage that we're talking down stream with these contractual problems, we have upstream systems and they are highly profitable businesses. I normally call them the jewels in that portfolio.

As expected the divestments of structured finance last year generated the loss of $135m excluding currency translation adjustments.

Let me take you through the currency translation adjustment, that’s a complicated one. That resulted to $55m for structured finance. This is non-equity related. Normally when you have currency translation effects they go through shareholders equity until such time that you sell the business. When you sell the business you have to push it through profit and loss, getting you a charge in equity but at the same time you get a credit in equity because you have already booked this. This is a FASB rule which you have to do, it has no effect in the shareholder equity, that's just a fact of life. The same by the way happens in metering which is the remainder of the $34m here.

Other businesses generated a loss of $123m in 2002 again excluding currency translation adjustments. This was mainly due to goodwill write-down.

To summarize we had big losses for 2002 from businesses already sold or intending to be sold in the near-term, meaning 2003. The scale of these losses will already be more than halved by the Combustion Engineering settlement which here goes into the numbers is $420m.

Now let's go through Combustion. Since the impact of Combustion is so dramatic I would like to take you through the key accounting items. First of the total $420m in 2002 provisions, roughly $300m is going to be cash effective over time, excluding the contingent liabilities which I will discuss later, but in line with what we published earlier. In particular, the obligation to contribute ABB shares to the trust will be proposed at the AGM to take the form of new shares. Part of the non-cash portion of the provision also took the form of a write-off of ABB's equity in Combustion Engineering. Obviously when you part with a company you have assets and liabilities in that and equity. If you pass it on you have to write-off the equity, $29m non-cash effective.

The pre-packaged Chapter 11 agreement provides for $100m to be contributed on a performance related basis. In short, ABB must achieve a minimum EBIT margin of 8% for '05 and '06 and a margin of 12% for '07 and '08 to pay. If these margins are achieved payments would only commence from 2006 onwards, $25m in each year. This part of the settlement has been booked as a contingent liability at the end of 2002.

As I mentioned before asbestos cash payments were $206m for 2002, which is fully reflected in our operating cash flow. In the future, the annual cash trend will be considerably reduced with the first installments being paid in 2004. We have all seen the settlement in that trend which we have published before now.

Lastly, as I said in my introductory accounting remarks, we are now treating Combustion Engineering as sold; it had already filed for pre-packed Chapter 11 at the end of 2002. This means that we have excluded some $400m of cash which was previously shown as cash in the group accounts and net debt. I will come back to this later. So we have taken that cash out and had to put it into a blocked account under receivables, so it is no longer part of the net debt calculation. We still have most of that cash but it's no longer treated as cash. I will come back to that later.

I would now like to make a few remarks about the group cash flow in 2002. As you see cash from operations was positive for both Q4 and the full year which fits our traditional pattern. Operating cash flow was lower however, than for the comparative year in 2001 which was, I have to add, a record year. This was mainly because of asbestos cash payments, as well as a negative impact on working capital of other assets and liabilities that offset to cash released for receivables, inventories and payables.

The main items in other assets and liabilities were lower costs and advances which are in line with fewer large orders for the quarter and a temporary decrease in the receivable securitization program which we are restructuring and will regain throughout 2003. Together those two items reduced the cash flow by $600m. In terms of free cash flow however, 2002 exceeded 2001 because of our divestment program. In addition we spent considerably less on net planned property and equipment, reflecting the belt tightening firmly in place.

For 2003, we expect similar proceeds from divestments and a strong free cash flow to further reduce net debt.

Let me turn now to stockholders equity. I am sure we'll get some questions on that. Mainly as a consequence of the 2002 net loss, equity has been reduced to $1.1b. I have shown you a reconciliation of the other movements over equity in this slide, which includes a negative foreign currency impact of about $200m with some positive offsets from the valuation of derivatives positions used for hedging.

Last we had a minimum pension liability adjustment of $107m. Nevertheless, as I said before we have met the minimum net worth covenants for our bank facility.

Now this is a complicated slide. Let me take you through. Again accounting changes have affected the calculation of ABB's net debt position but I want to reconcile these for you so that you can see that we actually achieved, on a like for like basis, our target. This is an important tick for me personally.

At the end of 2001 we had a net debt position that is interest bearing, short, medium and long-term debt less cash and marketable securities of about $4.1b which is the top figure. That figure was subsequently restated now, as you see, it is in today's press release to $4.3b which is the full $338m under the right side. Following transfers to discontinued operations mainly Oil, Gas and Petrochemicals. So, similar to combustion engineering to cash which is in oil and gas, is no longer reported under cash. That is in discontinued operations, the cash is still with us.

After cash from operations some minimal investments in net [CP&D] and the net proceeds from our divestment program. Net debt was reduced to a little more than $2b by the end of 2002. We would have been quite happy with that figure but some non-cash transfer to pension and other items pushed it up again by about $355m.

We also had a translation impact of roughly $600m. These are unrealized non-cash effects which nonetheless increased the net debt figure back to $3b. After restatement for the discontinued operations this gives the reported net debt in the press release of $3.3b. Nevertheless on a like for like basis we still have some $380m of cash sitting in Combustion Engineering at the end of the year. That reduced our net debt position to $2.6b as you can see in this slide. We always said the $1.5b was clearly before the asbestos settlement accounting. This was our target for the year.

So two effects here, clearly, we have the asbestos one and we have operations. If you did them on a like for like basis you would have achieved the $2.6b which is $1.5b. It shows up only as $1.1b on the restated side but if you add the asbestos, which is sitting in the receivables now you will get back to $1.5b reduction.

I would just like to add here because the question will come, that we ended the year with $4.7b in cash and marketable securities, about $1.7b was not available as it is tied up in pensions and our insurance business. Of the remaining $3b about half was held in local operations and the rest in treasury centers.

Here is the maturity schedule of our debt. As you can see short-term debt stood at $2.6b and long-term debt was $5.4b at the end of 2002. Long-term debt now represents2/3rds of ABB's $8b in total debt. I have to say that when I first drew up this chart last year the short-term debt looked a bit like the Himalayas to me. I am pleased to say that it has reduced to something more that the Mattehorn, still high but it can and will be climbed.

As you know, we plan for significant additional divestments in '03 that will repay the $2.6b coming due together with cash flow and our other sources of liquidity.

This brings me to our medium-term financing goals. They have not changed since we first announced them in November. We want to reduce total debt, not net debt from $8b to about $6.5b by the end of 2003. I know the questions which will come. I'm still conservative so that's the answer to your question. We are aiming for a gearing ratio, total debt divided by our total debt plus equity of approximately 70%. By the end of '05, we aim to reduce total debt to about $4b, which is half the amount outstanding at the end of 2002. That will bring us to an estimated 50% gearing level.

After '03, debt reduction will need to come primarily through cash effective earnings. This is one of the reasons our cost cutting program is so important. In addition to increasing competitiveness they will help generate cash to put the group on a stronger financial footing. We will hear more about cost cutting from Gary.

Let me summarize by stating our priorities in 2003. We will focus on completing our divestment program. Generating significantly more than $2b from the target disposals including Oil, Gas, Petrochemicals, Building Systems and the remaining part of structured finance and all or some part of equity participations. We aim to reduce the traditional volatility in quarterly cash flow from operations, smoothing the group's liquidity requirement. We will implement cost cutting measures at the headquarter levels roughly equal to those in the divisions, focusing on reducing costs and losses in non-core activities in corporate.

Ladies and gentlemen, I would like to turn it over to Gary.

Good morning ladies and gentlemen. As you will recall in Q4 2002, we embarked on a process fundamentally changing the way we run our business. We gave this process the name of "Step Change." My colleagues here will provide the key points that relate to their divisions later, but now I'd like to provide you with an update and an overview of the "Step Change" process in the ABB group.

The two key components of "Step Change" are cost focus and culture change. We believe that it's only by combining these that we can make longer-term, sustainable improvements to our business performance and we realize and are acting upon the short-term imperative of cost reduction. You will also recall that we had not yet concluded the $500m cost reduction project when we met last with you in November. I can now confirm that this has been successfully completed with annualized cost reductions of $500m that included job reductions of 16,000 in total to the end of 2002.

A significant part of these reductions were realized through natural attrition and the restructuring costs related to the balance were $370m. The next phase has been underway since Q4 2002 to further reduce the cost base of the new ABB by at least $800m. I am pleased to advise that after a rigorous and thorough process of engagement amongst our project team, our BA managers and our country managers that we've identified more than 1,300 specific projects, many of which are already being implemented. I'll come back to these projects in more detail.

We're committed to produce sustainable and permanent cost savings that will instill greater cost focus and thereby increasing our competitiveness. Finally, as we implement these and identify additional projects, we'll maximize the simplification of our internal structures, introducing new ways of working and further develop our customer focus.

As we successfully deliver on what we've so far identified we'll introduce further phases of change that focus on business excellence, performance, accountability and leadership.

Returning to the cost savings project. This chart shows that we have an agreed number of 1,392 specific projects that produce a total of $820m in cost savings. On the left of this chart, you can see the breakdown of the projects by their size. For example, we have four projects that are greater than $10m each and 1,170 that are less than $1m each. Many of this latter category are currently being implemented. On the right of the chart, you can see the breakdown of the type of projects. The key point here is the wide spread of different areas that we're tackling in this phase. Each of these projects is detailed to the local level and individual people have taken personal accountability for their delivery.

I mentioned earlier that in the first phase we reduced more that 16,000 jobs by the end of 2002. This chart shows our progress to date since the announcement of the $800m phase.

Since October last year, a total of 7,400 people have already left ABB both in the core businesses and the non-core businesses. A further 30,000 will move as part of the divestment process. We then expect a further 10,000 - 12,000 jobs to be reduced as a consequence of implementing the projects described earlier. You'll appreciate that this last number is a global number. Of course, we're working on a more detailed breakdown of it by specific locations.

In parallel with this, we're conducting the necessary staff consultation processes, some with trade unions, and after these are completed we will be in a position to provide this detail of these numbers. Finally you can see that our overall target for jobs in ABB is between 97,000 and 99,000 by mid 2004.

The breakdown of the overall cost savings is as shown $280m in Automation Technologies, $260m in Power Technologies and $290m in overheads. We're committed to a fast delivery and, I repeat, we've already starting implementing. We've installed strong and transparent governance. I am chairman of the Steering Committee and that also includes Dinesh Paliwal, Peter Smits, and Peter Voser. Whilst emphasizing that accountability for delivery on what has been promised lies with the local managers in each country. During my recent visits to Sweden, Germany and the USA, I have experienced the commitment and focus to deliver from our people in each of these countries. I have a high level of confidence and expectation that we are doing and will continue to do what we have committed to do.

A key part of what we're doing is the implementation of a detailed tracking tool for each of the specific projects designed for ABB by our consulting partners, these projects are detailed at the local level and are embedded in our global management system. We've introduced a regular global reporting system with regular follow-up procedures. We're firmly committed to delivering what we've promised in this current phase of "Step Change".

As we progress, we'll introduce further phases that continue to focus on costs improvement as well as these other areas, business excellence, performance and leadership, accountability. In this way, we'll continue to build and improve competitiveness whilst re-energizing and re-motivating our staff at all levels in the group. In the end, we know that if we only reduce our costs by $800m and we don't change the fundamentals of how we work, the savings will return with interest. This is not acceptable to any of us. That is why I am very confident that we will deliver what we are promising.

We'll now take some questions.

[Without the benefit of audio]

My name is Stephen from Bank [indecipherable]. I have two questions. The first question is regarding the goals given for 2002. What is 4% growth and 4% operating margins? What are the absolute numbers for 2003 on which we have to make our calculations? The second point is how many new shares will you create with the asbestos matter? Thank you.

$30m, so we take $86m, take the 31st of December stock price and you get to the exact number, $3.2m or whatever it is.

The first question we will answer later if you agree, because we will listen to Dinesh and Peter and they have the exact numbers in their presentations.

Let me start with the second one. The two are not exactly comparable. What we are trying to give you now is what I would call in the local operations what is in the pipeline. Some of that is also what is in countries for example, in China where it is rather difficult to get it out, but these countries are self efficient in terms of cash. That's what I call the $1.5b. That would not be in the natural form immediately available, some of that has restrictions. So, it's mainly used to fill the pipeline.

The other $1.5b which is really floating around our Treasury Center plus some other marketable securities which you could actually monetarize rather quickly if you want to do so. So I think they are the two numbers I will give you.

What's the first question, sorry? The run rate I think on a net interest basis is around 300 for '03. I don't know about the covenants, we have fulfilled it so -- no we haven't and I'm not planning to give you more details on that. The one reason for that is the covenants are, even if I give them to you, you can't calculate them because they are actually, given our reporting requirements we have, they are not straight readable out of the balance sheet or off the profit and loss. You need actually to go through a full calculation and the bankers who are here who have done the credit facility with us, they could sing a song about that one. So in that sense, it doesn't make sense to give you anything. So we will just report if we have actually fulfilled them, yes or no, on a permanent basis.

Bear Stearns. When are you actually going to stop collecting, filing your claims? Is that with the filing or is that with the bankruptcy adjustment decision?

Right now, no claims can be filed. There is what you call a "TRO," a temporary restraining order, in place. That is automatic with the filing as far as Combustion Engineering is concerned, but we have asked the court to extend it to other protected entities and right now that order is in place. As I said, there will be, or may be a confirmation hearing on May 3rd if that order were attacked. If it is not attacked then it will just continue until final confirmation of the plan and then the order becomes final and permanent. So no claims can be filed, actually it would be a violation of law today to file a claim against any of the protected entities.

The second is on the corporate cost. Peter, what is your guidance for 2005 of the $390m corporate costs?

We have given the guidance in November. We stated that, so you have the numbers there, they have not changed.

I think we have somebody waiting to ask a question from our telephone conference. Let's take one question now from our telephone lines. The first question is from Goldman Sachs, London. Please go ahead sir.

Good afternoon gentlemen. First of all, a question on the balance sheet. Could you give us a feeling for what the securitized receivables were at the end of 2002? Also, could you give an idea what you would expect the CAPEX and depreciation to be on the ongoing businesses? You obviously squeezed CAPEX quite a lot last year, but what can we expect going on in '03 and '04?

Thanks for those questions. The level was $400m at the end of the year. For CAPEX guidance, you can say CAPEX equals depreciation, amortization to go forward.

This is Caroline Price from UBS Warburg. The first questions is if you have some kind of indication for what proportion of the OGP order book relates still to the fixed price contract? The second question, again technically on the Combustion Engineering. I understood that when you have the final hearing and if it's favorable then it's completely removed from your balance sheet. But you talked about the cash payments then going on in '06 and so forth. I would have thought that those would all be deconsolidated anyway so can you explain the mechanics of how you would still be showing that in your own cash flow?

The first one on the fixed price, I have to come back on that. I don't have that in my head. How much is still left?

I think roughly a third for the fixed price time span where two-thirds were [inaudible].

Thanks, Erik. That was provided by Erik Fougner who heads up OGP. On the combustion side there are two components here. One is the assets and liabilities of CE which we are transferring into the trust. That part we will deconsolidate and it will disappear. On the top of it, in order to get the [524G], ABB has committed to pay over a few years a certain amount, which we have now provided for. So in future years those cash outs will come through our balance sheets reducing that liability which will remain in our books in that sense. So those cash payments, the ones in '04, '05, '06 up to '09 we have provided for, but those cash outs will go through our balance sheet.

You have got $250m roughly to be paid between '04 and '06 and then you have got in '06 to '09 you have another $100m contingent to be paid in $25m per year, that goes through our books. Now what we still have on our balance sheet on CE are in all the lines, the liabilities, the receivable for the insurance, the only big change we had to make instead of showing a cash position in CE at the moment, that's what I am adjusting in the net debt. We have to show a receivable because we owe the money de facto to the trust once the Trust is set up. You can no longer under US GAAP account for that as cash. Despite the fact that it is somewhere still sitting around. Some of it was already paid now in 2003 into the Trust and some is still in our balance sheet even for today. You will find we have adjusted it in the net debt.

Do we have an additional question?

Hi this is Thomas Rinquest of BMP Paribas. I have a question on the asbestos settlement, it's a specific question. Can you give a break down on distribution between current and future claims and also the sick and non-sick claimants?

No, I cannot give you a break down on sick and non-sick claimants because we have to treat sick and non-sick claimants very often equally. I don't know how familiar you are with these claims packages that we got in the past. But you've got claims packages that include 4000, 5000, 6000 sick claimants and a large portion of these claimants are, as we believe, non-sick people, yet we used to make settlements with these claimants because that's the way the system works. Obviously, there is a distinction between breakdown of [indecipherable] cases and other impaired cases. These matrixes are in the disclosure statement and there you can see exactly what the requirements are. But I couldn't give you now, from the top of my head an exact breakdown on these figures.

My second question is, I've been out traveling for the last two weeks and I haven't read the disclosure. There are some unhappy lawyers who are against these proposals from ABB, why are they so unhappy?

Well, I think it's fair to say you actually mentioned the distinction between non-sick and sick and there are in the Plaintiffs Bar. There are lawyers who specialize on defending cancer cases, mesothilioma cases, for example, and they believe that the proportion that they get is not appropriate as compared to the proportion that non-impaired persons get. Again, we believe that unfortunately you can see how the system works in the United States and we can't do anything about that. We feel that the plan is fair to all current and future claimants. Coming back to your question before, we do not know, of course, how many future claimants there will be down the road. So I couldn't give you a proportion to what eventually future claimants would get and what current claimants get. I think one of the reasons why lawyers may be unhappy out there is their perception of the distribution between what non-sick people get and what their clients get.

I wonder if you see the claimant [indecipherable].

I don't think you can speak of a norm in this case. This is the first big pre-packaged Chapter 11 case. I think we need to go down the road and see a few more cases before you can say what the norm of distribution would be. I guess you could probably say that there is more or less, if I want to respond from the top of my head, more or less an equal distribution between current and future claimants.

Okay, let's take another question from the floor now and then we'll go to our telephone lines because I understand we have quite a queue. To you Michael Hagman, please.

This is Michael Hagman, UBS Warburg. My first question is about the facility. You said we have this facility of $1.5b that will see us through until 2004. As I understood, only $750m of that is extendable into 2004. So, is actually seeing us through until 2004 contingent on the disposals? Or are you quite confident that you actually have the liquidity in place without the disposals? The second question is about the debt targets. You were kind enough to give us gross debt targets. I was wondering if you could qualify them; give us some net debt targets?

The second one is a no. I'm not going down that route again with net debt. So I just keep gross debt. That's easy to measure. It's pretty clear the accounting of that, as well, so I don't want to have another year end like this one where the numbers are all over the place, so I stick to my gross net targets.

From your question, it's quite correct. We have got $1.5b. We have a term out of $750m into 2004. The whole liquidity plan is split around over [indecipherable] divest those businesses which we have said. I will just remind you, back to March. We also have assets there that we will divest and there is absolutely no reason to believe why we will not do the same, like we have done in 2002, in 2003. The liquidity plan is built in divestments and therefore I am confident that we will deliver those reductions index by the end of the year on the cash generation which will allow us actually to go down to $750m.

I was just wondering if there was a contingency plan? There are a couple of uncertainties at the moment that we are facing and it's a bit of a heroic assumption that everything might go to said plan in 2003. What is the contingency, in case you can't make those disposals?

I'm not going to give you the details. I'll just tell as much as if I don't have a contingency plan, I better not go into a meeting with my boss. So you can take that for granted, yes.

Let's take a question now from our telephone callers. The next question is from [inaudible]. Please go ahead sir.

Very good afternoon to you. In Q4 2002, it looks as if the underlying core margins excluding restructuring charges were basically flat compared to last year, although they should have been perhaps 50% higher, if the $500m cost cuts had all been retained. I was wondering if you could please quantify how much price erosion and normal cost inflation played a role in eating into those savings? And, how much price erosion and cost inflation you have factored into your 2003 margin guidance? Thank you.

Okay, Julian thanks for your question. I would propose the following that we come back to that question after the presentations from Peter and Dinesh because they're obviously tackling that point and will show you their interpretation of the margins and how they see the way going forward.

Towards your second question, because that may not be completely addressed in the speech. Yes, we have factored in price erosion, we have factored in our restructuring charges, we have factored also our gains we have from the restructuring exercise for 2003 targets, so that is in. The one thing I would like to correct you, is that we have never said that $500m are already earnings improvements, we have said we have concluded the project to $500m now, but not all the earnings are obviously, or all the savings are in the earnings. Some of it will only become earnings effective in 2003.

Just in case I miss the tail end of the presentation, can I just sneak in a quick final question which relates to Combustion Engineering? I think you did have responsibility to clean up former CE sites in the US that were contaminated with nuclear radiation. How will responsibility for that be treated going forward? And what is the status of those clean up projects? Thanks.

It will stay with ABB that is not part of what we transfer through CE into the Trust. We are working our way through that, like in the past years, its going according to plan in terms of progress, but also in terms of costs, in terms of provisions, so I think business as usual. Nothing to report in terms of increases or decreases there.

Let's take another question from the floor. Are there any other questions? I think we have one just back here.

My two questions. First on write-downs. Mr. Voser, we've seen a few in 2002. You said that in Northern Gas, we cannot exit further in 2003? I was wondering if you could maybe just head up a maximum risk here? And if apart from Northern Gas you think now that, say the books are clean, we are okay for 2003?

Thanks for the question. I can't give you an order of magnitude because if I would actually know what the risk is and what had occurred, I would have to account for it now. So it is difficult. I think I can give you a more qualitative answer on that than I've given out previously. We have worked hard in 2002 actually to strengthen the risk management process in order to identify the risks early on in the tender process.

So [indecipherable] the risks but there is also an ongoing project actually due in the project phases to have a proper risk review in place. So that's very difficult. Let me just add, we are in businesses with risks and we will have our hiccups on these things. I would just assume that, I think that's the agreement I have with my colleagues as well in that sense, that such hiccups will happen. But then we have to just make sure that we gain in some other areas in order to actually offset those risks and charges. But to give you a forecast, that's impossible.

You have heard from Erik that we are actively lowering the fixed price components. We still have contracts which were entered into during 1998/99 and 2000; they have the run rate of 2-4 years. You can have surprises there. We have done a through check at the year end so at least we have taken what we had to take and could take.

Cleaning up the books, I don't like that word because we're always cleaning up our books as a matter of principle. Yes we have quite clearly taken a very hard look and a conservative look at quite a number of businesses, contracts, etc. For that matter in 2002, if you take the whole year we have taken breakdowns and adjustments of $852m. I will never say we have covered everything but I think we have gone a long way.

I have a second question. You mentioned in Q3 last year when you presented in London that the insurance business was approximately capturing $600m of equities of the group. I was wondering if you could give us an update here? My other comment is that there's not much left potentially for the operations. If you could comment on that? Also you just mentioned the cash positions here?

Let me start with the last one. The first one I have to check what was exactly said. The last one, I have already said we have $1.6b or $1.7b actually of pension and of marketable and cash in insurance of which roughly $100m is pension, $1.6b is in insurance, but that obviously also includes [indecipherable] and Serious America and Serious International in Sweden. I have to come back on the second one; I want to check that first. The first one on the equity, I'll come back on that.

Okay, let's take another question from the floor.

Tim Adams from Salomon Smith Barney. On note 1 to the accounts on page 24, you talk about accrued liabilities in relation to termination benefits and lease exit costs in relation to the two reorganization programs. They total about $190m as at December 31st, will those basically flow out in cash through 2003?

That's a good question. I haven't done the detailed calculations on that one. I would say partially yes. They were not all included at the end of the year so some was quite clearly cash effective I guess. But I couldn't give you the details on how much will be cash effective this year off of my head at the moment.

Okay, let's take one more question from the floor and then we'll take another call from our telephone line.

This is Patrice Nermber from CFSB. Two questions. First could you give us a breakdown of the part of utilities and industry which went to [indecipherable] to go to Automation and [indecipherable] that is my first question. And just could you give us a flavor of what is the breakdown of cash flow within the new structure between Automation and Power? Just a growth flavor, thank you?

I take both questions and will not answer them because they are both going to be explained in the two divisions. You will see operating cash flow in each division and also response to the other question. So that's going to be addressed so you will get all the information then.

Okay let's take another question from our telephone callers. The next question is from Quantia Conrad (ph.) from J P Morgan. Please go ahead.

Good afternoon. First question, I just wanted to clarify again on the interest charge. I think if I have understood correctly, but we had some music on the line, you were giving a guidance of a run rate of $300m for 2002. Could you then maybe just be kind enough to explain the high level in Q4 and actually the positive income you have shown in Q3? The next question is how much of restructuring that you have on the balance sheet will become cash effective, maybe a little bit rephrased what Tim was asking. Sorry, I'm going to slip a third one in. Can you explain to us the movement in the net debt from the $2.6b that's on the balance sheet or that's what you say would have been the number to the $3.3b that's on the balance sheet?

I start with your last question. You can look at it in various ways. Let me try to take you through in two ways. If you have the chart, you have the chart I guess, I don't have it in front of me?

I don't know which one you are referring to?

The net debt reconciliation. It was one of the last ones. Maybe fourth last or so.

Okay.

Which starts at the top with 4.077. Okay. Good. Now we can do this in two ways, we can assume that there was no reclassification of OGP for discontinued operations. So OGP just remains the same in both years. Now we will work with the first top left hand column which starts with 4.077. Then we also assume that asbestos settlement which is the number at the bottom, the $380m, that assumes we don't account for Chapter 11 just for the sake of argument. Those $300m would go up to others as non-cash impact and would change to minus $168m to a positive $212m. Which then would mean on an unchanged basis, everything equal, the net debt would then be automatically $2.6b. That would be normal accounting without having changed anything. Starting at $4.1b, selling all the businesses, having the cash from operations movement, no special settlement and OGP still being part of the group in cash.

So that's one way of reconciling it. Now the problems we have reconciling the changes on these costs, that's what you see on the balance sheet, that's the column to the right now, is $4.338b that's what you will see as a net debt at the end of 2001 when you take our numbers now in the balance sheet. Now that then gets down to a closing balance of $3.262b. Now $3.262b is not taking into account two issues. One is that OGP had a closing cash balance of $257m which is no longer shown as cash. So you have to take that away from the $3.262b because we never gave our net debt charges before, assuming that oil and gas has no cash. Then you also have to take away the asbestos settlement, because that has been reclassified from cash to receivables because of the Chapter 11 treatment, but the cash is still here. When you take the two away again you get to $2.6b and then you have actually reconciled that we have reduced net debt of $1.5b like we have said we are going to do. But it unfortunately doesn't show up in the balance sheet.

Now you can do it in a third way. The $4.338b [indecipherable] against the $3.262b gives you a reduction of $1.1b in net debt. Then you add the asbestos settlement to that which is in the non-cash out, that adds another $360m to that and then you get to $1.5b net debt reduction. So you can go at it from what every way. I will always win.

Now the net interest one I have given a guidance of roughly $300m. Can you just ask me the other question about the Q3 and Q4 interest again?

If I look at your performance statement that you have published, the finance net line was negative $160m in Q4 so I guess I'm not really quite sure how we get from that to a quarterly run rate of probably about 80. In Q3, it was actually a positive of $177m and I presume in Q4 you also booked that gain on the convertible or has that booked somewhere else than in the finance line?

No, it is there, but it has been restated. Obviously Q2 and Q3 have been restated. As you will remember when we came out with out profit warning and the asbestos settlement, we had an interesting share price curve and therefore most of the $250m "profit" from this account in market to market sits in Q3 and under accounting rules you have to match the income you show, the market to market, with the costs you have on that convertible. They have to be matched in the same line. So that's why it shows to you in Q3 a rather strange movement.

How do we move from a quarterly finance net of $160m to roughly $75 based on your guidance?

A quarter you mean on a net basis? I will come back to that and give you the details, because otherwise we'll go through here. I need to see the numbers in front of me in order not to give you the wrong indications here. Is that okay?

That's okay. The restructuring charge or provisions that are on the balance sheet, will become cash effective?

They will become cash effective throughout 2003 and predominantly the first six months what we've already booked by now.

But what is the amount that's on the balance sheets?

I don't have that number. I would assume it's most of the amount we have provided for in Q4 but I don't have it at hand. I'll come back on that. Someone go back on this one please.

Let's just take one more question from the floor and then I'm very conscious that of course you're going to want to listen to the presentations from the divisions so we'll move onto that. Will Mackay from Commerzebank.

A couple of questions. First of all, back in November, you suggested that the pension deficit would have expanded about $500m so perhaps could you run through the changes and the assumptions that you're making that have resulted in a net deficit change becoming a slight positive? Secondly, if I can go back to, perhaps an extension of the cash burn on the provision use that people are asking? You had a very good cash inflow in the working capital in Q4, what are your expectations within your plan for the potential outflow or reversal of that situation in [indecipherable] receivables inventories and trade creditors over the first half of '03. If you could sort of globalize that?

Okay. I look strongly to Dinesh and Peter, how they control their cash flow. I think traditionally, as you know, the first half is a little bit our weaker part of the year. I would still assume that the first half is going to be neutral in that sense. As movements in the quarterly cash flow, particularly in Peter's area but more and more so in the IT area they are becoming more standard, more equal and have less fluctuations. Where we have got quite significant fluctuations, normally it’s more on the OGP side where customers advance etc do play a role. The Q4 had a lower intake on customer advances in that sense. Given also the movement away from the lump sum which is typically an advanced business, to a more reimbursable, you get naturally no payments or less payments or advances from your customers. So the forward-looking from our side would be clearly that we will have less volatility in the quarterly cash flows. I'm sure Peter and Dinesh will sign up on that.

Quite clearly, we have also tried not to duplicate, not because we don't want to, but to be a little bit more careful in not duplicating the cash raised from Q4 2001 and treat it as a more normal business process rather than just a photo finish process. That's the first one. The second one was ---?

Can I take from what you've said you don't expect an outflow or reversal in Q1?

In Q1, we would expect an outflow which normally would reverse in Q2. The six months are roughly neutral. Now what was the second?

That's a little bit more difficult. That's true we said $500m. We said $200m we are going to put into the plan. That is correct. There are two major movements here. One is you will remember we always talked in cash, that we have got quite significant amounts of pensions actually reserved in cash because we treated those as not accessible to us. That cash was then not added on the pension in the pension assets. Now having looked at that plan again, that's the Swedish plan, it has become very clear in 2002, because of some plan amendments. That the access for ABB to that cash is not just blocked it is actually not our cash. So what we have done is actually deconsolidated that Swedish pension fund and we treat it as a normal pension fund as not consolidated in the ABB account. With the effect that the pension fund assets therefore will increase by roughly $280m because of that Swedish change in accounting treatment. So that's one that goes down on the $500m.

The second one has to do with the Swiss pension plan. There were certain changes announced in Switzerland on pension plans which do reduce, for example the minimum guaranteed return from 4% to 3.75% and also ABB had an accounting treatment in the past which treated the Swiss pension fund in such a way that future bonus payments were guaranteed. Looking at what the pension plans actually do contemplate, that guarantee for bonuses in the future is actually not a guarantee. That is not there.

So with these two changes we have recalculated our pension fund in Switzerland according to the rules and that will have an effect that through the actuarial calculations, actuarial losses will actually reduce our under funding by $400m.

The two affects, plus the $200m which we have actually funded will approximately reduce the $1.8m slightly. It's not going to be a big one. So you have seen $500m, $400m, $200m, $200m funded.

The other question on the assumptions that the discount rate was reduced on average by 25 basic points. You will remember that we were already rather low and we have done a change in '01 already. On an average basis, we have the planned assets return, we have reduced by 1% which again brings us at the low end of the scale. So these are the changes. Those two changes work against us to be absolutely clear, because it will increase future pension costs and it will quite clearly also reduce future assets.

Now that will all be disclosed in the annual report under note 17 or 18.

With that ladies and gentlemen thank you for your questions. Let's go back to the presentations and you will have an opportunity to ask questions again later on. I'd like to turn the floor over now to Peter Smits.

Good afternoon ladies and gentlemen. I would like to take the opportunity to now present the results of the Power Technology Division.

What I want to tell you straight away is we met our targets as promised and we further improved our margins. Here is an outline of the various topics I'm going to address. Our strategy of speed is a key element in the Power Technology Division and will appear in most items in the presentation. Speed means a total [indecipherable] reduction from months to weeks and from weeks to days. Concentrating production on focused factories around the world also means lower costs, increased profitability and higher cash flow, all that giving us a competitive edge.

You will hear shortly how our successful focus [indecipherable] concept is being extended to focus in [indecipherable]. One of our main strategic moves in 2002 was the refocusing of our business. That is trying to improve our competitive position in a challenging environment. In late October the former Power Technology Product Division merged with the utility division. The new Power Technologies Division comprises six business areas offering a complete portfolio of products, systems and services under one umbrella. That means a clear business focus and simple internal processes.

The market environment in which we operated last year was mixed. Western Europe was relatively flat in contrast to Eastern Europe where the market continues to grow. In Americas, mainly in the US, we saw slightly lower demand. Markets in China, India, the Middle East and North Africa are growing fast. Especially in products, we gained market share due to our very strong market position. There were also fewer large projects; we saw continued demand especially from utilities for power transmission products.

Light and heavy industries were mixed as shown in our performance highlights in Q4 of last year. The action we took under the focused factory strategy has led to a lower cost base and higher productivity. This has strongly contributed to our overall margin improvement with a rise EBIT margins in products from 6.7% to 8.6%.

In Q4, we started to apply the focused factory concept to the systems business. We call this focused engineering. This means matching our engineering capability to our customers needs. We are for example, simplifying the engineering process to a less complex system using online configurations.

On the subject of the major achievement in Q4 I have to mention industrial IT. By the end of 2002 all product lines were industrial IT certified. We also launched ABB's first fully industrial IT driven manufacturing plant. This technology has allowed our distribution from a former factory in Poland, to cut it's cycle time in half.

If you compare the current situation to four years' ago the achievement is even more remarkable. At that time a transformer required 16 weeks for delivery, today it's only two weeks. This is just one example of what we mean with the importance of speed.

What does this mean to our performance data in Q4 2002? Despite flat revenues, we managed to increase EBIT by 14%. You can see that our orders went down by about 14% driven mainly by a reduction in large orders on the utilities side. This is not an unusual pattern in this type of business. Some of them have also been delayed and I expect it to be awarded to the first half of this year, in 2003.

Turning to the full year 2002. We managed to increase revenues by 3.3% driven mainly be double digit growth in our transmission business. This is more than we promised at the analyst day in November 2002 as you will recall. EBIT increased by 9% and we also met our EBIT margin target. After restructuring we achieved a nominal EBIT margin of 6% which is an increase from 5.7% last year.

Our ongoing rationalization and productivity improvement programs contributed also to this EBIT margin. The base EBIT margin went up from 6.8% to 7%. The increased productivity also means increased efficiency.

Last year alone we reduced jobs by 9%. Over a period of 18 months there has been a decrease of 13%. During the last two years our operating cash flow was 55% greater than EBIT. Also in 2002, we met our operating cash flow target of $454m. Last, but not least, our focused factory strategy, one of the pillars of our division, also [indecipherable] in line with our targets.

What have we achieved? Over the last two years we have reduced product lines by nearly one third and production lines by 17%. This successful approach which has ultimately led to a reduction in total cycle time is also now being applied to our systems business.

Let me now show you some financial results from the full consolidated year 2002. In this year orders were 8.4% lower, but the decrease only happened in the systems business. In that business we have deliberately been much more selective in bidding on [fancy] projects in order to improve margins in the order backlog and reduce costs. The successful product business, which grew by 4% couldn't quite compensate for this order decrease.

As of January 2003, the backlog still represents 69% of our expected revenues. In 2002, revenues increased by 3.3% to $7.1b driven by a good order backlog and strong growth in Asia. EBIT increased more than 9% and our base EBIT margin went up to 7% from 6.8%.

Let me now illustrate how we achieved our 9% EBIT growth.

As the waterfall diagram shows, a major part has been achieved from pay back from our restructuring projects. We started our cost reduction program early in 2001 and had a payback of $71m in 2002. The larger restructuring charges carried out in 2001 rather than 2002 led to a favorable EBIT impact of $16m. As you can see we did our homework early, an additional $34m were gained through operational improvements. The [indecipherable] reduction in our factories also contributed to this operation improvement. Like, for example, in Italy where a major voltage breaker can be supplied in one day instead of one week.

However, these achievements were offset by non-recurring costs of $60m. This occurred in our power systems business area and was due to a few non-profitable also strategic large orders which were [indecipherable] in 1999 and 2000. So much for my comments for 2002.

Let me now highlight our strategy priorities in 2003. At the top of 2003 priorities we have the continued focus on cost savings. I will come back to this in a moment. Speed in processes and systems will continue to be a priority because it makes our customers and ABB more competitive. We will go on with our site and product [indecipherable] and deploy focused engineering to further accelerate our processes across the entire [indecipherable] chain. IT systems are the enablers of increased speed.

Our first priority here is to continue to develop and deploy configurators both for power technology products and for power systems. We will of course continue to take advantage of our number 1 leadership position, whether in transmission or distribution in product systems or services. Number 1 in the market is able to offer such a comprehensive and complete portfolio for power technology. ABB is a leading player in the world and we're capitalizing on that unique position. This also includes a deeper relationship with industry customers and so called channel partners like OEM or External System Integrators. In this area we aim for a growth rate which is above average. The same applies to our service business.

From a regional perspective we will continue to grow in India and China, I will come back to those areas later.

What kind of cost savings have we planned? Over the next 18 months we are committed as a group to saving costs equal to 4% of revenues. For the power technology division this means about $260m cost savings by June 2004. This year the cost reduction will be around $150m. Underlying this program is an action plan that has been developed from the bottom up. This means the cost savings are fully agreed with all our countries and all operation units and most of the plans are already under way. The EBIT impact will amount to $100m in 2003, the remaining amount of the $50m will be mainly absorbed by additional restructuring costs.

Optimizing our business also means [speaking] to the way we have been implementing our strategy for more than two years now. As I already mentioned, we are on track with our factory and product consolidation. Our success story with the focused factory program will now be extended to our systems business. Our focused engineering program.

Our strong base is not only in market share but also in R&D and IT. They are necessary for focus engineering. We will use existing configurators for the product business and are developing new configurators for the systems business to ensure we achieve target time reductions in both manufacturing and engineering.

We have already achieved a lot. For example, our collaborate IT [indecipherable] and processing systems allow customers to receive an offer in minutes rather than in days or weeks. This is a dramatic increase in speed. That has now also become relative to our systems customers. Using product configurators our customers can design the product and needs, easily, quickly and to their exact specification. For them, speed means flexible decision making and early investment pay back. For us speed means increased cash flow and strong competitive edge.

From a market perspective we are very much aware of the uncertainties. We have the Iraq crisis and it's potential impact. Nevertheless we see real opportunities for growth in our businesses. We clearly intend to strengthen our position, one example is the higher margin service business. Increasingly our customers want to be able to rely on our expertise for the servicing of their product and systems.

ABB has by far the largest install base in power transmission and distribution. The customer demand for service is growing, due to an ageing infrastructure these assets require maintenance, repair and retrofit creating business and profit for ABB. In order to tap the opportunities we now have dedicated service approach in every business area. In addition, our global presence ensures that we are very close to our customers in nearly every country around the world. With this [indecipherable], we anticipate a double digit growth in our service activity.

Our expansion with Key Channel Partners will also be accelerated resulting in above average growth rates. OEM's and EPC's account for an increasing portion of our business.

ABB is already a clear leader in the high growth countries of China and India which today account for around 50% of our business. We have an excellent position in Asia and we expect this region to contribute further to the growth of our business.

High voltage direct current has also provided further opportunities for expansion. We are confident of success with our target projects. [Indecipherable] the connections our long-term infrastructure projects that are normally strongly influenced by short-term economic developments. This slide speaks for itself. Especially if you take into account that in most business areas we are larger than number 2 and number 3 together.

Depending on the type of business, we have the right strategy position to exploit market opportunities and capitalize on our strengths. This leads to our conviction that we can grow market share by about 5% per year in a market that is growing by 2% to 3%. We will take market share. With our transmission products for example, we will leverage Channel Partners. With distribution equipment we will out perform smaller competitors who cannot keep up with our speed and process improvements and in our systems business we will build our strengths using, for example, HBBC where we won six of the seven projects tendered in the year 2002.

What do we expect for 2003? We see a mixed economic environment in Europe with some good growth in Eastern Europe. The US business climate is likely to stabilize and Latin America will pick up especially in large infrastructure projects. Asia will perform well driven by a strong development in China and India. The Middle East and Africa will also remain positive; so the Iraq crisis will have an impact.

Utilities and industries are expected to be stable depending upon region and market segment. Overall we expect sufficient demands to meet our growth projections.

The target for 2003 and 2005 reflects our growth strategy. This year revenues are expected to increase by 5.3% and the EBIT margin after restructuring is anticipated to be 7%. The component average growth rate from 2002 to 2005 is also expected to reach around 5%. The EBIT margin 10%. In 2002 we have proven that we are able to meet our targets and we are confident that this will also be the case this year in 2003 and in the coming year.

Let me end my presentation by reinforcing our most important strategy element. We will continue to take out costs. Cost reduction projects are now underway in all our businesses and are expected to contribute to our profitability over the next 18 months. We have already achieved significant cost gains and are confident we can deliver on this one. We will build on our well proven strategy for speed through focused factories plus focused engineering. Information Technology will be the enabler, the catalyst that ensures speed. Here we are focusing on configurators for products and systems. Efficient account management and channel management will bring us even closer to our customers.

Our leading market position, our complete portfolio provides value for our customers and we will capitalize on that. In performance data this means that the power technologies division in 2003 will grow EBIT by 20%, generate $100m more EBIT [indecipherable] than in 2002 and have an operating cash flow greater than EBIT.

I would like to thank you for your attention and hand over to my colleague Dinesh Paliwal.

Thank you, Peter. Good afternoon ladies and gentlemen again. In the next 15 to 20 minutes, I'd like to share with you in 2002 how we developed. What are the highlights and what is the outlook for 2003 as we move forward?

We will follow the outline markets, give a very quick overview, financial results for 2002 and 2003, our outlook strategy targets and in the end we will look at the strategic priorities. In summary the conclusion of what we see going forward.

I have shared with many of you recently that last Q4 we integrated 11 of our global businesses from two former divisions, industrial systems division and automation technology product division into six robust and strong market leading businesses in automation technology division. Now besides strengthening the value chain. If you look at the value chain from the customer’s point of view is product services and systems, all in one. Besides strengthening the value chain this consolidation brings about quite a significant cost reduction right from the corporate down into the business unit out into the countries here. Our calculations and our estimates way back December time frame were around 30% which we have now confirmed that one third of the cost at the corporate level, we are able to take out with this consolidation worldwide and in Zurich.

We have also simplified the structure at every level, the point being fixed decisions and professional business managers to manage these market leading six global businesses as you see here with their market position. We have also improved and empowered our people at the global and local level, I believe much better than they have been, so that we can expedite the decision making process. With that we will squeeze now efficiency and performance from every action and you will hear during my presentation what I mean with that, what actions we are talking about.

Looking at some of the automation market as well as regions. Despite the very difficult environment we have been in, our 2002 audit performance for this business was positive in a number of areas. Let's just go through a few of those. Orders in Europe, Middle East, Asia, which account for about 80% of our total volume were all up, and that's very encouraging. Continued weakness in the US manufacturing sector brought a decline in America, as we expected.

From an industrial perspective, the automotive market continued showing the weakness as it was in 2001. Most of the key industries show flat to modest auto growth with some encouraging signs in industries like light sciences, service applications and in some products where we gained market share and improved margins during the declining conditions in the economy out there.

Among our Q4 highlights of achievements, overall auto growth of 11% is very encouraging for all of us in the organization. This is while you consider an extremely weak market condition and the environment and the sentiments we have been through last year during the last twelve months.

This order growth trend also applies across each of our major technology areas whether they are products, whether they are systems, whether they are services. So this was why the spread here. In addition looking at the revenue for Q4 we had 1% which is revenue across the division and revenue increase primarily came from services. We have seen double digit growth two years in a row. Coming to the EBIT side, 67% improvement in our EBIT as our productivity and restructuring programs begin to show effect and that's very encouraging coming back to how we're going forward in 2003.

Our operating cash flow for the quarter exceeded EBIT quite significantly. Without question much of this performance is due to a dramatic consolidation of our business launched last October and early cost reduction program we initiated last year, as well as much more expedited actions in Q4.

Recapping, looking at the full year highlights here if I move forward. 5% order growth across the division once again in all our areas, the products, the systems, the service we saw in most geography's again. The least came from Europe, Middle East, Asia, and Africa. It was influenced significantly by our service business which earlier in the road, it grew 13% or double digit margin in profitability as well as in volume. We exceeded our target and generated $678m operating cash flow during the year. That's well exceeded the target we had and shared with you last time.

Over the past two years, our operating cash flow has been 50% above the EBIT level. I want to share that with you as well. We reduced the global jobs by 8% during 2002, bringing the total reduction for the past 18 months to 14%. That also emphasizes our reactions we started in 2001. Despite these actions we have maintained our market leadership in portfolio technology that is not only attracting new customers but also attracting new partners.

I'll let you review the full year results you have been provided with in the material here, but I would like to mention two points I feel are worth mentioning. We are very pleased and proud of 2002 development in [oil] 5% considering the [indecipherable] market conditions. Also worth mentioning are the margins in the order we have taken have also gone up. This happened once again during the economic and the potential [distraction] ABB and we have been through. We are likewise impressed to see our EBIT and base EBIT margin performance which both remained essentially flat despite increased research and development expense in controlled products in the instrumentation area where we expedited some of the development work.

Looking at 2002 EBIT reconciliation, we elected to accelerate some of our 2003 back change restructuring cost reduction initiatives in Q4. This together with the impact of one-time litigation costs affected our EBIT slightly. On the positive side from our restructuring and the profitable growth in our service more than offset the impact in the other two areas I mentioned.

Here is a look for 2003, how we see the EBIT developments in 2003. After compensating for the market price pressure, which you talked about earlier, the productivity gains which we are seeing starting to stick here, we expect 1% point attributable in EBIT directly coming from the restructuring effort of our activity gained from those.

Our service quota over the past two years for the industrial division has resulted in double digit revenue and double digit profitability growth. That is now being aggressively pushed and followed across new automation technology divisions.

Looking at the priorities for the year ahead, they remain unchanged from those I shared with most of you in November last year. We will continue aggressive improvement in our cross phase to the [indecipherable] initiatives this brings a lot more transferability accountability in these actions that we are going forward with. This, together with rationalization of product portfolio and some of the infrastructure portfolio, which I shall share with you in a second, when we merge some of the facilities for products, and services, that will bring much needed 4% of the 2002 EBIT improvement we are looking for.

We have nearly finished with our focused factory approach in the manufacturing environment which we started some four or five years ago. Now we are applying the knowledge we learned from the experience of this focused factory in our engineering and our product management centers.

We will continue to leverage a strong business base through high efficiency accounts and channel management. We will continue our track record of innovation which has made ABB a market leader, automation technology market leader.

In the productivity area we will build upon a highly successful performance in 2002 in various areas, which includes better use of capital, we have $0.25b reduction in capital which is shown in the graph here.

We will continue our aggressive focus on cash culture, concentrating on advance payments, concentrating on lower inventories and base sales outstanding reduction. We are seeing a very nice trend developing. But that's the culture we need to bring into the organization.

We will continue to carefully manage our portfolio, both in terms of tightening the focus on our core business and in the necessary job reductions which come along with due reductions. Speaking of which, we have taken out nearly 10,000 jobs in the past 18 months. Towards that change we will bring the speed, clear measurement and very clear accountability to each of these activities contributing over $100m to our 2003 EBIT.

We have already taken the steps to reduce division costs at the top by one third. Nearly 30% or more at the corporate division level. All of these costs may be the modest amount in absolute dollar terms, but the ripple down effect at the corporate and the organizational level is much more significant and sends a strong signal that we will and we must work with the leaner cost structure. That's the priority I would like to see across the organization.

We have more than 500 bottom-up cost savings initiatives approved and committed. A very important word, committed by the people, those who have put their ink on that. These equal 4% savings on our 2002 revenue, you saw the numbers earlier. Each of these comes with clear measurement and management accountability at every level, be it local be it global. Building upon the experience of our successful focused factory program, we are now applying to our engineering and project centers that would also cut the number of facilities by two thirds by bringing it down to nearly ten globally. This will also improve the competence of these centers in terms of expertise and bringing the risks down that we do need to do very badly, going forward.

An interesting measurement of this consolidation of focused engineering and project management can be found in our real estate portfolio where we are eliminating nearly 500,000 sq meters of office/factory/warehouse space by the end of 2004. That's a very significant measurement that we see here going forward. Whilst reducing the costs we will absolutely maintain our track record for innovation, there are various examples, but I brought a few, such as the quiet and efficient ABB motors and machines that play a starring role in special effects for leading motion pictures, or our Wall Street Journal Boulevard [indecipherable] 2002 for wireless sensors that communicate by magnetic fields to reduce implant cabling costs, saving over 20% of costs for our customers.

In our new factory which we inaugurated last month in Finland, which allows just in time, customization, a just in time manufacturing for as many variations in products as 10,000 that's called mass customization or mass [indecipherable]. Doing that, we are bringing the manufacturing cycle time from days to hours. That's what keeps you on a competitive edge, that's what keeps you on a [stat] change when it comes to competition or product innovation.

Now, when we look at the product portfolio, as such more than 50% of our products today comes from the age group of two years or younger. That's an important number. This number and every other measurement of innovation I look at in automation technology will grow as we move forward, 2003, 2004, 2005.

About 40% of our products are sold today through channel partners. To deliver our products at the lowest possible cost, we will continue to leverage these high efficiency channels. These channels also bring us predictable revenue stream at low risk. I'd like to see that target continue to go up as we work through. This is where I believe we need to develop competitive advantage going forward. A prime example is found in this area in our wholesale business where our low voltage products, which account for more than $1b in annual orders, we are delivering these through wholesalers at 97% on time efficiency, at lower cost and much lower risk and higher cash generation.

We have more than $100b installed base which is active and that installed base needs ABB automation technology. As mentioned earlier, service for this install base were an important factor in both orders and profitability in 2002 and previous years. As we continue to grow this business at a double digit base, we will see more than 25% of our revenue coming during 2003 from services businesses.

Reflecting this increase in service focus we recently announced a five year $50m service contract order with International Paper, the world’s largest pulp paper company. This is the single largest such contract in the paper industry and considering ABB's presence as an equipment supplier in almost every international paper company worldwide facility, this not only creates a better showcase for us but also provides an opportunity to grow in that area.

To further strengthen our service offering we recently formed an alliance with a company named [Ample] that is the world's largest facility outsourcing service company complementing our current offering of automation, mechanical and electrical services. This relationship brings us a complete performance based package covering both automation technology assets and the plants that house them. That's the alliance we have.

Automotive industry is going through a very thorough line shift. More and more discreet manufacturing parts of the business from the OEM's [indecipherable] is being pushed to the [indecipherable] suppliers. We are leveraging; we are very ugly in this game. We are leveraging the full value chain bringing our entire portfolio capturing not only the tradition car manufacturer OEM's but also their top [indecipherable] suppliers. In this particular example that you see, the new model Megane 2 that Renault are developing, for this our robotics and manufacturing solutions span ten different [indecipherable] suppliers as displayed here.

Putting over $160m work to products and expertise for this solution for this car and by differentiating in this total solution here, we were able to go to the board room and explain how we could bring the portfolio at a lower cost and then how we would be able to push it down onto the [indecipherable] suppliers of their choice. Which in this case happens to be [ten] and allow customers to do exactly for their strategy, which means moving discreet manufacturing onto the [indecipherable] suppliers.

By doing this our automotive and manufacturing business area achieved a remarkable 37% volume growth increase in 2002. Now this is the fastest growing area in automotive industry. Not necessarily the industry as such but [indecipherable] industry is moving quite fast.

I mentioned earlier that we are industrializing every product and we have done that for more 30,000 products in automation technology. That really is information enabling. If you [indecipherable] our balance of products with built-in electronic tools to save millions of pieces of conventional documentation, drawing and declaration, that's a cost for our customers which we are saving. The complex [indecipherable] which now carry these documents also represent a powerful sales and marketing tool. Linking our customers to ABB through the web for spare parts inventory, service offering and complimentary ABB products every time they launch that web page.

Validating the sales and marketing power I am also pleased to share with you a new look, a very significant new alliance among ABB [indecipherable] Intel and Microsoft to develop and market solutions based on the industrial IT architecture. You will see and hear a lot more in the coming days here.

As the joint advertisement shown here suggests, the best [indecipherable] in business have come together behind industrialism bringing proven expertise. If you think about the massive [man power] and recognition and balance of sales resold to the customer base here, that is very powerful going forward.

Growth strategies to me are only relative if they bring profitable business. Despite these market conditions and the potential distraction in massive restructuring efforts, our customers have shown their continued confidence. With major orders spanning every element of our portfolio. We are delighted by this response in 2002 and aim to maintain this remarkable loyalty in 2003 and the years ahead.

As we have stated before, our growth strategy near-term is not based on expectation of market growth. The only few bright spots such as Asia, [life] sciences as an industry, asset management services, we expect flat to downward markets in most areas. This reinforces the importance of our continued effort to rapidly improve our cost base and improve the productivity. As we shared with you in November our target for 2003 remains at 3% growth in revenue and a percent point in present EBIT to 7.1%. Our longer-term target for 2005 remains at 3.3% accumulated revenue growth through 2005 and earnings of 10.7%. We will grow our EBIT more than 20% and generate operating cash flow in excess of EBIT before the structure charges.

In summary, if I capture my strategic points and important elements going forward, we're not counting on market growth to meet our goals. We are putting our efforts towards sustainable cost reduction and productivity gains. It’s extremely important that everybody understands what everybody is pushing for. Responding for the need for greater efficiency we have created, simpler, faster automation business focused on our core automation technology confidence. We are committed to additional cost reduction equal to 4% of our 2002 revenue base. I remind you ladies and gentlemen we met our targets in 2002 and we have put a clear measurable plan in place to meet our targets in 2003 and years ahead.

We have maintained the clear confidence of our customers through some very challenging times and we see strong upward [indecipherable] to deploy additional products and services to both our massive install base of $100m and new customers and partners. Altogether these represent a new ABB automation business which is highly focused on it's strengths and is committed to it's goals.

With that I thank you for your attention and I would like to now ask Mr. Jurgen Dormann to come and do the wrap-up.

Thank you Dinesh. Are there any questions directly related to the two recent presentations you would like to ask? Yes, please let's take the questions that will link it up. Dinesh and Peter, why don't you come up and let's see whether there are more detailed interests in balance sheet number 20/40? Let's take a question please.

We've heard a lot about cutting the number of people in your two divisions. Now the question is how many of the good people have actually been lost? Has your retaining good people been an issue? Or are you suffering from people leaving to the competition? The second thing is Peter has been talking about the hiccups which so far we've seen quite a lot of in Oil, Gas and Petrochemical. How much confidence do you have in the numbers that are coming out of your divisions, particularly if you look at large projects that you are managing?

There's a lot of confidence in those two guys because they have constantly delivered and I'll come back to this. We already have confidence in Erik Fougner who stepped into this role when entering as Chief of Oil and Gas in August. So there is one word we are not going to use any longer which we have used quite often in the past, but I'll put it in brackets (legacy issue). Peter said it earlier, we have done the utmost to cope with it. Can we guarantee or [indecipherable] nothing is [indecipherable] no we can't. Can we quantify it? No, we can't. It will not be hundreds of millions. Could it be twenty, could it be fifty, I don't know. There are more questions linked to this?

The question about the fluctuation of people. I can tell you that basically, we don't have more fluctuation of people as we used to have. I must say that if you look at our business, let's take the power technologies, we are leader in the market, even if you look at the results, we have delivered better results than competition. So, if you compare everything, attractiveness to say that you find greener grass on the other side of the fence is not always confirmed. For sure, we have people, as all over, who have left not necessarily to competitors, but for other companies as well. We employ people from other companies; we attract people.

Last year, for example, we had some cases in European countries where people left, not for competitors, but for other companies and came back after three or four months and told us the grass is not greener on the other side of the fence. So I must say with the strong base we have and the success story, we can prove it's not just something that came yesterday, but we have already in the core business really an improvement. We managed to get people more and more enthusiastic and I can tell you, these results would never have been achieved without having a great motivated team all over the world. There I am very positive and very bullish on that.

Let me add for good reasons. For the first time in the history of ABB we have an executive committee guy being responsible for human resources. Why? In my observations since I joined the group, this function, human capital did not get the attention it should have, and Gary was talking about step change today in a much broader sense than just taking cost up. I think that signals quite obviously the importance we give to recruiting, developing and keeping high talented people.

If I can just add something to that. First off, I personally don't like any concept of cutting people. That's not a good thing to do; they bleed. I think we have to concentrate here that job reductions are a consequence of what we're doing and if we take jobs out then we take the work out. If we take people out, very often the work stays and people come back. So we have to change the way we're doing our work. That's why people will leave our company. But there are no alarming signals of undue attrition across the group at the present time. We have an attrition rate, of course we do. Some of people that will want to leave, a few are people we don't want to leave. But at the same time we are still attracting a lot of, I hope, good people from outside. I only joined two months ago so. I might even be speaking about you too.

I think the other thing is we've just embarked upon a top down management appraisal. We want to develop a standard set of measures of capability in management and leadership across the group. It's being run for us by our strategic partners in human resources and they carry a data base. We'll benchmark externally as well as have points of comparison internally.

The other thing that we're doing in a quiet way is we're tracking the people who have left us in the last twelve to eighteen months, who perhaps we'd rather not have left us and we'll follow up with them, just to see how they are getting on. But it will obviously be with a view to maintaining a relationship with them and hopefully bringing them back at some point.

First of all I echo what Peter said. The kind of performance in the difficult environment we are able to put, it takes some real dedicated and motivated people. Actually I would say our customers have shown us tremendous loyalty and confidence in us. I think that has been a very strong signal and support for our own people. The third element I would like to say, when the front end of any company start to run for cover, then you have trouble. I think on the order front our sales people, they have shown clear motivation, they have been bringing orders of quality, fighting the fight on a daily basis. Then, on top of that, some normal turn over, good people are in every company and some of our competitors have also struggled in the last two or three years, so that turn over, we have gained some good people from some companies. Normal stuff happens. There is nothing in the market which is worth reporting back here.

Let's take a question from the telephone now. There are some people queuing up, that to be fair we ought to take.

You have a question from Mr. Chattery (ph.), Three Z Leverage Capital.

I had a couple of questions on cash flow. If you could talk about Q4 cash flows Peter with regards to, I think market expectations were $500 - $700m in operating cash flow, but maybe I'm mistaken. Maybe you could just talk about whether cash flows for the first six months, which traditionally you would have had a negative cash flow situation for the first six months of the year. Is that trend going to continue?

Yes, we have answered this one already before. A slight negative one in the first quarter compensated by the second in order to get your neutral position.

So, can you explain how you're going to achieve that neutral position when historically you have not operated that way? I don't understand.

We have much less fluctuations now as you can see. You can't see us here, but I would strongly look to the right where Dinesh and Peter are standing who have quite a number of programs in place in order to smooth the cash flow rather than actually have high and low points, so we are heavily working on that. You will always have the photo finish impact in January you can't avoid that unfortunately in totality, but that is much less extreme than in the past years of what we have seen now. I have the confidence that through very restrictive measures to get there. You have to realize that we are less dependent on large projects which normally gives you swings, as customers' wants come in, you work them down and you get another one. So you get these artificial swings between the quarters. We are much less exposed to that. We are not yet there I have to say, but we are on the right tracks.

One final question for Peter and Dinesh. Your goals of 3% revenue growth and 5% revenue growth respectively, quarter to date or year to date, looking at January and February numbers how do you feel about that goal in [indecipherable] of how it's tracking? For Q1?

I wanted to make a comment. When we talk about revenues we have a backlog, I mentioned this in my presentation. Which is 69% of expected revenues and we know that we will have about, more than 60% about two thirds, which will be invoiced already this year. That is the status we had at the 1st January. That gives you an indication about how confident we are about delivering on the revenues.

So in other words you have two thirds visibility for this whole year for '03 is what you're saying?

No. I said at the 1st January we had this backlog. Now we are already in February we have got orders in addition.

Did that answer your question?

No it wasn't clear to me. I wanted to know if you guys are on track Peter Smits and Dinish Paliwal with the numbers that you were giving out for '03.

That is clear and understandable. So we'll go back to the floor here please.

For example, for the FPT target, how much of that is currency, obviously the dollar effect is quite strong? What's the underlying growth assumption especially given that the utility spending is going down, I'm quite surprised as to how optimistic you are? Just longer-term do you still think you are in the right products? A lot of transformers are being commoditized, there is a lot of new competition from local Chinese companies. Do you really think you'll be able to hold these relatively high margins? Or to get to the high margins?

I can't say to that. First of all when you say utility spending is decreasing or is very low, I don't share this view. Especially if you take for example big infrastructure projects, these projects are going on. Just to take for example, you named China earlier, I mean the [Three Waters] project has been in the process for a long time already for the power generation. Now all the products will get the transmission to the eastern province where the electricity is needed, because it doesn't help you to have power generation without transporting facilities to take the energy to the place where you need the electricity.

Just think about the peak that was there a few years ago in the power generation. That confirms already a lot of transmission distribution projects which are needed. I could go into many other examples in interconnections or other fields where we need electricity. Then if you talk about China you should know that with our local manufacturing in Chine we are the leaders in China also. We are the leaders, we have the biggest volume share installed base of manufacturing in China. Be it power transformer, be it in the high voltage breaker and switching and parts.

A question on "step change." Considering the two cost cutting programs. The old one was said to be a bit slow on the expectations of delivery. What has really changed on the new cost cutting program that makes you so confident that targets can be reached with the cost cutting?

Three basic things. First of all, I’m here. Second of all it's focused on two divisions not six. And thirdly we have put a very detailed tracking tool in place. With the strong governance of the four people you see standing here.

Dinesh, did I hear you mention a litigation cost that was a one-off and if so can you say what that was.

Industrial business like ours, you always have one element or other, however small, which is not material as far as I am concerned, but we had one element which we have taken charge of in Q4 2002.

Just a question on, we've heard a lot about debt reduction, what you are going to try an do with cash flow, the divestment process. Just coming back to your capitalization, your equity base again, it's 3% of total balance sheet currently. There was a question that a portion of that that could go to the insurance business and there's also a proportion of that, as I note in your balance sheet that, you separated out the liabilities for discontinued operation, the assets of discontinued operations [indecipherable] of the underlying equity that would go with the sale of those operations. What do you feel you lose as an equity capitalization to keep this business going? Do you need a rights issue? How do you recap on it?

We currently have no plans for [indecipherable]. We have clearly outlined in November that through our divestment strategy which should give us proceeds above book value, therefore an equity improvement, is in the plans. We have the two gentlemen here who will deliver operational performance. As a group we are taking our what I call the "money burners" apart and actually bringing them down, which should actually give us less pressure on the profits. Through those we are convinced we can get our equity coverage up to those levels where we actually have conquered. We have clearly stated that we want 50/50 or one or one what ever you want to call it in 2005 end. You have to allow us to get there, we will get there.

Peter could you just say more on the capitalization side. How much equity would that need to represent?

We have $4b debt and $4b equity.

Can we get the next question fro the telephone?

The next question comes from Edward Croxton, Credit Suisse in London.

Just two questions. Firstly just going back to the asbestos Trust. How much money is currently in the Trust and how much still needs to be put in? I think I missed that earlier. The second question is if on the minorities that you have in the P&L it's obviously quite a large rise from last year to this year, I think 36 - 71. What are those minorities and are they going to continue at the same level going forward?

I guess I'll take both. In minority I think we have obviously specifically in the Far East, Asia, China and India we have got minority interest and these are our growing regions in successful businesses. So that accounts for the increase quite substantially. That's the second one.

The first one, in terms of what is in the Trust and not in the Trust, I will explain it in such a way that we have accounted for on a pre-packed basis now. It really means that all the assets and liabilities are shown as being held to be transferred to the Trust. That includes some cash which is still going over to the Trust, some has flown earlier this year, the bulk is going to flow later in the year. Regarding the contributions which we have agreed to give to the trust in the future, which are the contributions in '04, '05 and '06 up to '09, in accordance to our disclosure statement that will be funded later on by ABB directly into the Trust. For that we have taken the provisions to cash out are going to come.

The $800m that's in assets in the commercial engineering business is still in your balance sheet and that still needs to flow out?

The bulk of it is cash in the receivables which is the change from cash to receivables which I explained earlier.

Speculation over your equity stake in jobs that far in Morocco over the last few days. It's one of the areas of transparency I find difficult to get to. Could you give us an indication of the book value of the investments on the balance sheet with regard to equity ventures and hence some means by which we might be able to gauge the funds you could raise by disposing of equity ventures?

The book value we gave last year, throughout the year I was always giving it, has slightly increased from dividends [indecipherable] stands at roughly $600m now. Just above $600m the whole equity venture package. We have clearly stated that we have stopped the [indecipherable] equity ventures and we are open to receive proposals to either sell participations out of the package we have or even the whole package and [indecipherable] is part of that. By far the biggest part of the $600m.

The next question comes from Mark Cusack , Deutsche Bank.

Good afternoon. Could you give the factors behind the 40% plus decline in the US orders in Q4? Secondly, I think in terms of the recent presentations you just gave you indicated, or it was indicated that there might be a $40m restructuring charge taken within the power business. Could you possibly give us what the remaining $360m projection for the current year, how that's going to be split across the other divisions please?

I am slightly puzzled on your second one because I think Peter and Dinesh have clearly outlined what they are going to take in terms of restructuring charges for 2003. I'll look towards the two if they want to repeat that number, but we have clearly given that.

What was your first question Mark?

Did the audit decline in the US or the Americas in Q4, I think it's about 40% plus, can you just give us some flavor as regards what's going on there?

I don't think we stated a 40% decline in US orders. There is certainly a [indecipherable] effect in that one. [indecipherable] go into that direction. It's not coming from the main businesses, let me check the details and come back to you with what that is, but I would not see that coming out of the two core divisions, I see that more out of our discontinued businesses. I'll come back on that.

I have two questions. One follow-up question for equity and a goodwill question. Given your total debt target of $6.5b and the gearing of 70% I come to an equity of $3b by the year end of 2003 which puts it up by $2b so this for me looks a little bit very ambitious. Can you maybe make some more comment on this? If I look at the goodwill numbers that you restated, your lower [indecipherable] amortizations I think that $41m all year, that you restated and your goodwill amount in the balance sheet is even higher than at the end of 2001. That's a little bit confusing.

Let me take it step by step. With the first one I think I have said all of that I had to say on the [rights] issue [indecipherable] on the targets, we will deliver what we have promised.

The second one is first there is an accounting change because of the new standard which was implemented late last year, late 2001. Where goodwill is no longer amortized, goodwill is actually tested for impairment and therefore you have quite a significant reduction in amortization obviously in 2002. We have written down some goodwill and you will see the number in the slide, its roughly $120m which we have written down $110m - $120m is on one of the slides.

The increase in goodwill. You have got two movements there now. The overall number is lower as you have seen because of the restatement, because obviously in discontinued operations like oil and gas have taken their goodwill with them. We have collapsed that into one line. The increase in goodwill between the end of last year and the end of 2004 on a restated basis, this is mainly driven by the increase of some of our participations around the world, in countries like China and India where we have increased our minority or our majority with a few percentage points and that has led to a minor increase in the goodwill.

We have a question from Mr. Louisi Volini (ph.) of Goldman Sachs.

Good afternoon gentlemen. A question regarding oil and gas. The expressions of interest that you have received so far, could you say if they are mostly for bits and pieces or if you do have bids for the whole business? What type of buyers are we talking about? Are we talking about strategic or financial [indecipherable] mix? Finally, you said you had no plans for [arisition] would that include a mandatory convertible? Thank you.

I think I would say any equity or equity like instruments are included in my statement. Point 1. Point 2, on OGP I think that's yes to everything. Yes we have offers for the whole package, we have offers for individual pieces and we offers from trade buyers and we have offers from financial buyers. I think it's a yes to all of your questions.

Can you just quantify the extent of the reorganization costs across the two core divisions because the sort of GAAP charts that you give, particularly for Dinesh's division. You've got real costs of $129m I think in last year and you're saying that reorganization will be a negative impact on profits this year, I take to mean that reorganization is actually going up quite a lot in '03 relative to '02. Before then presumably dropping in '04. Have I read that bridge chart properly?

Let me understand. You mean the restructuring charge part. It is correct that in 2002 for our automation technology division we had $129m in restructuring in "step change" if you will and going forward in 2003 you go after 4% cost savings based on 2002 revenue base. We have some 500 initiatives. Some of them are in facilities, some of them are in projects, some of them are in product rationalization and what have you and that would cost something around $130m and $140m restructuring.

So there are no major changes between the two years?

No. Remember, we are also starting to get the payback from [indecipherable] 2002 and 2001 where we started. Which I shared with you and also shown in 2003 EBIT build up.

Regarding combustion. It seems now that you have made all the provisions, everything is fine, by April 7th the story should be over. What can go wrong from now to then, because I have the impression, with you forcing Chapter 11 on 17th February there has been a kind of power play between you and the lawyers, so what are the remaining risks?

I'll leave that to Beo, that's more legal risks.

Well as I said earlier today there can be opposition to the plan. There can be arguments that the plan is not fair either to current or future claimants. We are, as I said many times, we are very confident that the plan has been worked out professionally in all respects. We are well supported by counsel. We are confident that the claimants' representatives and the future reps will support the plan. That's really all I can say. The Trust is in place, payments are being made under the Trust, so far we have not encountered any major opposition but we are not there yet. I said it and I repeat it, it is subject to approval by the court at the end of the day.

Thank you Beo. We would like to thank you for your interest and for your patience. We know it was quite a long presentation heading up different topics but I wanted, beyond having Beo again this time in the team to present to you. I was also strongly recommended to have Gary Steel because, stressing as I said earlier, the role we have [indecipherable] to human resources and people issues and our wish to develop and care for people.

The second point linked to Gary's presentation, as I appreciated very much the question that was raised. What makes the difference? That's what it was all about. We wanted to show to you after we had announced in our November chat the idea of what we are going to do, what we have done precisely project by project, function by function to hopefully give you the impression we are delivering. Beo gave you a [bad] orientation in November about asbestos. We have described where we are today. We gave you back orientation on "step change", we came back with Peter with a clear set of responsibility and accountability and our two colleagues running the divisions have also kept what they promised in November.

So the whole presentation today was about confirming the outlook, stating that we have delivered what we promised in November. We are pretty firm that we will be able to deliver also in 2003.

Now in future I guess we will only need three presentations instead of five. Hopefully we will not need Beo in the next detail. That's just underlining how we at the management see this. Those are probabilities. That's not a done deal, but the probability seems to be very much on the high side.

Gary and the team will execute a "step change" so in the next meeting we will focus as normal on the two businesses and on the financial strengths there.

No chairman speaker. I can hide somewhere but you can't. So you have to stand there. Thanks a lot for your interest and thanks also for your patience.

Thank you and goodbye.

Ladies and gentlemen the conference call is now over; you may disconnect your telephones. Thank you for call, goodbye.