Abb Ltd (ABB) 2003 Q1 法說會逐字稿

Ladies and gentlemen, please hold the line. The conference will start in about two or three minutes. Thank you.

Good afternoon. This is the conference call operator. Welcome and thank you for joining the ABB Q1 Results 2003 Analysts and Investors conference call. As a reminder, all participants are in a listen-only mode and the conference is being recorded.

After the presentation, there will be an opportunity to ask questions. We would kindly ask each caller to limit themselves to two questions only. For those journalists who have called in, your participation is in listen-only mode. This call must not be recorded for publication or broadcast. A replay of this call will be available for 72 hours following the conference. Should anyone need assistance during the conference (inaudible) signal an operator by pressing star, and zero on their telephone.

At this time, I would like to turn the conference over to Mr. Peter Voser, Chief Financial Officer, of ABB. Please go ahead, sir.

Thank you. Good afternoon and good morning, ladies and gentlemen. Thank you all for joining me this afternoon on the occasion of ABB's 2003 First Quarter Results. Before I take questions on the first quarter, I will give you an overview.

Let me open by underlying that the first quarter report shows that we remain on course to meet our full target in 2003 despite flat market conditions. The report also shows that we have a lot of work to do in the year ahead.

Our two core divisions in the first quarter sustained the positive trend established in 2002, reflecting strong order backlog and productivity gains. Both Power Technologies and Automation Technologies divisions improved revenues and earnings in the first quarter compared to the same period last year. Their EBIT margin increased from 6.4 percent to 7.2 percent. Both divisions are gaining profitable market shares and steadily improve their cost competitiveness.

For the group as a whole, EBIT tracked (ph) $92 million, which is above our target. The decrease compared to Q1 2002 was due to losses in non-core (ph) and core (ph) productivities (ph). Adding these items together with higher interest expense and provisions for losses in all gas (ph) compared (ph) chemicals, it posted a group net loss of $45 million in the first quarter. I will now take you through the financial results for the first quarter.

My comments here will refer to dollars, but given a strong currency movement within the quarter, you will find the local currencies in the release as well as in the slides, which were posted on the Web.

Let me start with PT, Power Technologies. In the PT division, the order increase was mainly driven by high double-digit demand for Medium Voltage products. We received several significant orders, for instance, a large export order for ABB India. Overall, the order intake was strong in Asia, the Middle East, and Eastern Europe, more (ph) compensating in mixed demand in Western Europe and weak conditions in the Americas.

Revenues were up reflecting our focus (ph) in Power for project execution and strong demand for our technologies. The first quarter EBITDA increased from 110 to $128 million, and the EBIT margin remained at 7.2 percent and above target.

Let me turn to the AT division. Orders in the Automation Technologies division increased and included two large service contract orders in Italy and Germany, with a total value exceeding $200 million. This is in line with our strategy to increase the service content in Automation Technologies and to expand this higher margin business across our large and strong customer base. The order growth came from Europe and Asia, especially China and India to increasing in core (ph) in ABB markets.

Revenues were up while volume increases in the Drives and Motors business as well as in the Robotics, Automotive and Manufacturing business area. In AT, EBIT went up from 188 million to $162 million, again reflecting the positive impact of our productivity drive (ph).

The strong focus on improving gross margin on orders and reducing the cost base, has resulted in higher EBIT margins in all business areas. The AT EBIT margin was 7.3 percent, up from 5.8 percent and also above target.

Let me turn to the group figures. In dollar terms, overall orders were up eight percent. Q1 group revenues were 14 percent from four to $4.5 billion. Group EBIT reached 92 million, which is lower than Q1 last year primarily due to losses in the non-core activities and higher corporate costs. The $72 million higher net income expenses reflect higher financing costs and an unrealized market to market loss of the convertible bond and a write off from marketable securities. The following losses in discontinued operations was posed (ph) to the group a net loss of $45 million.

Net cash from operations was negative from 928 (ph) million and I will get back tot he details later on. Loans (inaudible) increased to $8.2 billion, compared to eight at the year-end.

Turning to some first quarter highlights, we continued or portfolio adjustments in this (inaudible) our aircraft leasing, as well as the car leasing (inaudible) of ABB Export Bank. Talks have continued with potential buyers of the Oil, Gas and Petrochemicals division, and the (inaudible) process for '03 remains on target. We also remain on target to sell most of the Building Systems in '03.

The restructuring measures we set in motion last year are starting to have an impact. In Q1, we realized net costs savings of about 17 million from the Step Change program with a job reduction number of 1,700. Overall, there were about 4,000 jobs fewer in this quarter than at year-end.

Let me turn briefly on the asbestos issue, as you will recall, ABB announced in February of this year that our U.S. subsidiary, Combustion Engineering (CE), had filed for a pre-packaged Chapter 11 in the U.S. bankruptcy court. Well above 75 percent of the claimants voted in favor of the agreed settlement plan. Last week, the confirmation hearing started and will continue on May 1st and second. We are very confident that the plan will be approved.

Now let me just walk you through the EBIT composition of the group. As we normally outline the EBIT for the Power Technologies and the Automation Technologies increased by 33 percent compared to Q1 last year. Non-core activities recorded a loss of $64 million in Q1 '03. The main negative items were a write-down of marketable securities in the insurance business, a loss from the directed aircraft leasing portfolio, and the lower earnings from Swedish Export Credit Corporation where we have a 35 percent stake, and write-offs from lower earnings in Building Systems.

Q1 corporate cost reported last year, because they included some one-time positive items such as capital gains from the (inaudible) of Air Handling and also some pension payment recoveries from former CEO's. (inaudible) reached (ph) 92 million compared to the last year number of 3,272 (ph) and the number of 92 is above budget for the quarter.

Let me turn to cash flow, net cash from operations was negative $928 million in the first quarter. (inaudible) sum was impacted by $736 million in cash outflows related to Combustion Engineering for the asbestos payments tot he trust, discontinued operations, non-core activities and restructuring cash charges.

The combined cash flow from operations in the two core divisions in the quarter amounted to a negative $192 million, in line with the seasonal increase in working capital during and in line with our plan.

On the outlook, our medium-term financing goals remain unchanged from when we announced in November. We aim to reduce total debt from 8.2 billion down to 6.5 billion at year-end. Our near term priorities remain to strengthen our core businesses, the lower our cost base (ph) of our Step Change program, and improve our finances through our planned divestments. We will execute the planned divestments during 2003. We will further stabilize our cash flow and we are confident that we will resolve the asbestos issues once and for all in the way that is fair.

Our 2003 through '05 outlook remains unchanged. We are well on our way to deliver our 2003 EBIT margin target at four percent.

Thank you for your attention. The floor is open for questions.

Excuse me, this is the conference (ph) call operator. We will now begin the question and answer session.

Anyone who wishes to ask a question, may press star, and one on their touch-tone telephone. If you change your mind and wish to remove yourself from the question queue, then you may press star, and two. Anyone who has a question may press star, and one at this time.

The first question is from Ms. Lisa Randolph (ph), Lehman Brothers. Please go ahead, madam.

Good afternoon, Peter. Lisa Randolph (ph) from Lehman Brothers. Just two quick questions firstly. Just on the cash flow, could you just walk us through the main items in the provision line, please - the outflow of 470 million. I can account for some of it. I just want to make sure I've got that correctly.

And then just secondly, the restructuring charges that you took in the first quarter were a little bit less than what I expected. Could you just talk me - talk us through the trend that you expect to see coming through of the quarter on the restructuring charges, please.

Yes, OK. Thanks, Lisa (ph).

First, on the provisions, the biggest item is $226 million related to asbestos. Then we have a restructuring provision net of cash is $40 million (ph). There is a $44 million related to some of the provisions we have taken last year in oil and - mainly in oil and gas, so there's a cash outflow there. And the remaining items of 83 - or 100 million lastly is other provisions.

OK.

The second one on the restructuring, I think first, the general remark here, which is maybe not as well known in the community, is there was an accounting change - standard change, which actually has, you know, in (inaudible) terms most restructuring provisions much closer to the date when the cash out is actually taken place. So that tends, therefore, to delay the (inaudible) of the provisions and the - closer to the cash. It also brings you closer normally to the savings potential you have.

But therefore, it is not a reflection of the speed you actually implement a program, because in many areas, we actually work with let's say, just giving (inaudible) actually paying restructuring charges, et cetera, et cetera.

So I think we have started in a very fast way. I think I see the restructuring charges picking up over the year, so I think it is more backend loaded because of these new restructuring standards we have - accounting standards. At the moment, (inaudible) countries in Europe, when they do come in, then you will see a pick up there.

To give you a (inaudible) at this stage on a quarterly basis is - that would be too speculative. I don't like to do that. But we maintain our view that 1.8 percent of revenue, or roughly 300 million, is going to be provided for in 2003. But also, simultaneously, we also get significant savings coming in as well.

That's great. Thank you.

The next question is from Mr. Alexander Feletti (ph) (inaudible). Please go ahead, sir.

Yes, good morning - good afternoon, Mr. Voser. Can you explain exactly what you did at the equity level with - apparently, you have - you have booked the treasury shares that you have sold against the nominal (ph) capital of shares. So did you reduce the par (ph) value of your share? What happened there?

OK. No, we didn't reduce the par (ph) value. What is happening, and I talk now about I think it's page 10 of the...

(inaudible)

... financial - of the press release, so the second page in the financial statement.

Previously we showed the treasury shares in more or less, in the line we charged at year-end, a negative 1750 (ph). That was the part, which we purchased back, which was $1.612 billion. And also left (ph) capital in the same way. Now when you actually sell these treasury shares again, what you do is you actually reduce the treasury stock by the $1.612 billion that you see from 1750 to 138 (ph), and then you reduce your capital stock because you recognize this loss (ph) value you have which before was recognized in two lines. So you reduce the 2027 (ph) by 1612, and then you add back the cash value you have received for the shares when you - when we sold it, which is 156 million, and then you get to 571.

Just this reflect my calculation (inaudible) just not really understanding what this capital stock paid (ph) in means now, which is much lower than the two billion that you had before.

Yes. We have obviously changed the value of the shares, which we had before at 1612 (ph) and brought it down to 156, and that is reflected there.

Anyway, I have an impression, this 150 million that you get from this win (ph) is not (inaudible) in terms of cash flow, because you have this credit facility. Am I right to understand that if you didn't do this one, the shareholder equity would be below one billion?

You can't phrase it in such a way, because obviously the shareholder's equity benefited from the 156 million. If you leave that out, then naturally, you would've had the 1013 less all the other movement in the quarter. And therefore, it would have been - I didn't calculate. But roughly looking at the numbers, you would be somewhere at 900 and, I don't know, 20, 30 million.

OK. So you were forced to do that by the banks because of the minimum at risk (ph)?

No. That's I - that's - I didn't say. I just followed your calculations. We were not forced by anybody to sell these treasury shares. That was a decision, which we have taken. And that's all that I have to say to this.

OK, thank you.

The next question is from Mr. Oliver Osnachasam (ph). Please go ahead, sir.

Good afternoon. My two questions are the following, first, on the cash flow statement. The cap ex in the quarter is quite low, I was wondering - and I think I remember you said cap ex would equal depreciation approximately. Is that still true for the year or you think you can - you can keep it that sort of that level for the rest of the year? And I was wondering if you could give us some indication of any impact of lower or higher securitization during this year this quarter?

Yes, OK.

I think the cap ex guidance we have given is the depreciation of amortization in the two core divisions equal to cap ex. And we had a slow start, that's correct, but that by no means a change in our philosophy. I've also given some guidance in - back in February, that I would see the amortization depreciation level at the top level, and you may expect slightly less than that. But otherwise, no change in strategy. On the securitization, actually we decreased by roughly $50 million.

OK. And second question, please, you reported a capital loss of $30 million for act (ph) of living (ph), I think. And on a consolidated basis in other income, I see minus nine for capital loss. My two questions are the following, where did you book in the EBIT the loss of 30 million? Is that structure (ph) finance? And where is - where has it been booked a plus 21 million capital gain to offset that to lead to the nine million at the group level?

OK, I could give you the first answer, that is in structured finance.

Right.

I will come back on the second one. That's - I don't have the details in front of me. So I will get back to you on that one.

OK.

The next question is from Mr. James Bettler (ph), BKW (ph). Please go ahead, sir.

I just have two questions here. First of all, just on the outlook for PT. I mean, you're still looking or 5.3 percent local currency growth, with orders down three percent. What kind of visibility do you have to get there?

The other question then is just coming back to those restructuring charges, to get to your level of 300, you have 267 to go, and yet you also want to double the operating margin from the level you saw in Q1 of two percent. Now what's pulling that down partially is also the very high headquarter cost in Q1. Could you sort of tell us what the run rate is going to be?

OK. Can you maybe go mute (ph) of whoever is on - yes, OK. Thank you.

On the PT side, I think you have to take it a little bit apart. The large - let me start with the first quarter. We came in with around a high backlog on both core divisions, but also on PT. That backlog, have you seen, has actually increased or was maintained more or less at the - at the same level.

In PT, you have to take it apart in two ways. The product business has further increased in the - in the first quarter by, I think, it's two percent or so in terms of orders. And really, a reduction was on the large project side where last year we booked Mexico and some other smaller projects in the Americas, which we didn't have this year.

So I think the direction is still the same. The Products (ph) business is going strong. First quarter in local currency, was slightly below the average rate of the second half of last year, which we gave you some guidance of 40 percent. All in all, all the backlog is still high, and we still do expect that some of the large orders will produce and come back in the remaining part of the year. And that's why (inaudible) local currency, he will deliver the five (ph) percent.

Q1 in the overhead side, I think we maintain the long-term view of the 130 for 2005. We are - from a run rate point of view, we are at the high end in the first quarter - actually, slightly too high compared to what we want to have for this year. I would not say that you can just take your (inaudible) it's going to be less - and significantly less. But at this point in time, I cannot give you guidance for 2003 other than the four percent margin we have given on the EBIT basis for the group.

The next question is from Ms. Katherine McCormick (ph), JP Morgan. Please go ahead, madam.

Hi, I had a couple of questions. First, could you repeat your answer to what was the make up of the 470 restructuring on the cash flow statement? I know that it was 226 of asbestos, but my phone cut out and I missed the other components.

Yes. There were restructuring provisions of 40, and we took 44 in terms of some provisions, which we booked a loss (inaudible) last year, and the rest was just other provisions.

OK. And what - when we say "other provisions", is this - what does that mean exactly?

Like (ph) across the world in (inaudible) country, so that's for some a very small (ph) including some provision changes on the insurance side for (inaudible) which in the (inaudible) of all the rest is maybe the biggest one.

OK, that's fine.

And on the other thing I wanted to ask you is I know that the asbestos confirmation hearings are scheduled, the commission and (inaudible) confirmation hearing is scheduled for May 1st and 2nd. And in your 10-K you made reference to the fact that you didn't know how long the appeals process was going to take. So I - so I, I mean, I assume that you're expecting an appeal. And I was wondering if you had any insight on that?

I don't have insight. But we are still waiting for the first and the second.

But from a contact (ph) point of view, the first and the second will pass, and we then will get a ruling. Now the ruling doesn't necessary cover on the second, the judge - the lady judge may take a few days to actually do that. And then the 30 days appeal process will start for a period. And then we will see what's coming then.

Well, I mean, I assume that you're expecting an appeal to the district court because you're not going to have the district court coming and approve at the same time?

No. The district court actually comes after the appeals process is past, that's at least my knowledge.

OK. Now, the other thing I wanted to ask you is that there was 250 some million of cash outflow from discontinued operations, which I assume was mostly all in gas. And, you know, I was going to ask you, is that - was that really reflective of the climb in customer deposits and advances? And do you expect that things sort of cash flow in the following quarters?

None - actually (inaudible) questions. (inaudible) but then you have to leave some room for the others.

OK.

Then, yes, it is actually out of mainly LGP (ph), it is LGP (ph). I think it's really small - one million something else (inaudible) let's say it is LGP (ph). That's the first - first answer.

The second one is, maybe I'll just go back a little of what we're doing, we have changed our strategy in terms of running (ph) (inaudible) and (inaudible) now we are much more doing on a (inaudible) basis, which has the tendency to have much lower advances from customers. And the second one - and then the third one is typically the first quarter, we are actually working off of (inaudible) which we got throughout the second half of last year. And therefore, you typically see a cash out in LGP (ph).

I'm not going to say that we will cover anything. The cash flow will recover, however, the remainder of the year, and to a much more normal number. But for the first half, certainly LGP (ph) will stay negative, not at the same numbers, slightly below. But it will stay negative.

OK. Thank you.

All right.

The next question is from (inaudible). Please go ahead.

Hi, Peter - hi, everyone. Congratulations on a good revenue and good order trend in a very difficult environment. My first question, Peter, is on a cash flow how are you feeling for the rest of the year? I mean, obviously seasonally Q1 is the weakest of the cash flow. But it seems like in the cash flow numbers, there's about 600 to 700 million of one-time type of the numbers, so the ongoing operating cash flow isn't actually minus 200 million. Could you - could you comment on that in terms of what we can expect going forward?

Yes, certainly. Hi (inaudible). I think the 192 of the two core divisions, we will see very more or less neutral for the first six months. So there will be a stronger second quarter. And then obviously getting into the positive territories in the second half of the year.

On the one-time items, I think the only little caveat I put around that is (inaudible) oil and gas building systems (inaudible) activities slightly improving not through absolute positive levels in a way. The one which will be rid (ph) for the next three, six months, is the cash related to asbestos, which is really the cash payments related to the Combustion Engineering Settlement Trust Agreement. So that's the part that the current claimant, which as you may remember in the disclosure statement, may get money, one portion now, one portion a little bit later. And the remainder, they can then bring into the future trust as well. So that will be the results for the rest of the year, but that is more or less consuming the cash which was sitting in Combustion Engineering, which we have reclassified in December out of cash into other line items on the balance sheet.

So just as a pre-warning, that will come, but that's absolutely expected. If you read the disclosure material, you can even see how much that more or less is going to be.

So just to reiterate, we can - we can expect roughly the same cash flow outflow for Q2 excluding couple hundred million of one-time items, but the rest will be the same roughly?

No. I said that on the core additions (ph), we see that turning to zero for (inaudible) therefore, you get the positive cash flow.

OK.

There will be a cash outflow on the asbestos side, and then we will have slightly negative cash flow for oil and gas, and some of the non-core activities.

OK. Got it. Great. That's all. Thank you.

Thanks.

The next question is from Julian Bear (ph) (inaudible) Securities. Please go ahead, sir.

Good afternoon, Peter. Julian Bear (ph) (inaudible) Securities. First, a question on gross debt, which I think grossed about $200 million in Q1, while you drew down about 750 million on your revolver and slightly increased the commercial paper. I think that means or suggests that you were tied about 550 million of other debts. Can you give an indication as to what sources of finances were reduced in Q1, and whether these sources will become available again in the future?

And the second question was on available cash thresholds. When you're considering financing requirements. Do you have a threshold in mind for a minimum cash level? And if so, could you give an indication to what it is? Thanks.

OK. It's correct, we drew down 747 or 750. On the credit facility, we had a slight increase in commercial papers, which by the way have maturity dates in April though we repaid all of them.

We - look, as a policy, what we do (inaudible) we tie (ph) the old - the maturity debts, which normally we'd classify as debts security, so - which are the long-term bonds. We just repay them, otherwise the movements in the rest of the debt are actually immaterial. So that's the way we actually run the company. At the moment, that's the same in the second quarter. We will repay maturing debt, we will repay commercial papers using (inaudible) proceeds and/or other (inaudible) factor the credit facility.

OK. If I could clarify that you, therefore, retired or rather paid back maturing 550 million of bonds in Q1?

That's correct. Yes. The second one is I think you referred (inaudible) I can also refer you to the Annual Report where we talk actually about - for 2004, for example, a kind of a quality check on the financials that we need at least $300 million to run this group. And I think asset treasuries stock - cash stock values a fair number to assume. That does not include some of cash, which we keep in an operating environment in local companies. But that's more or less in line with the Annual Report and the 300 (inaudible).

About how much would be in the (inaudible) companies?

At the end of March, I can give you only that figure. We had - let me just calculate it here. We had roughly $3.8 billion of cash and marketable securities, 1.7 was at the end of March, restricted due to insurance and pension. That brings you down to 2.1. and of that, more or less, half is in local and half is at group level. In both portions, you have some portions, which are restricted, but this is well above the minimum needs we need to run this group.

OK. So 300 million plus, maybe half of that 2.1?

No. I think you're much too high then. And it's difficult to say, Julian (ph). You cannot - because that depends on the quarter, it depends on the country. Is the country restricted in terms of (inaudible) that's the way you look at it. I gave some guidance last year or earlier this year, in total to fill the pipeline, you will look at roughly $800 million for this group, of which roughly a minimum of 300 will be in the treasury area. Now the remaining 500, they can come - provide (ph) the group of local operation resources.

Thanks a lot.

OK.

The next question is from (inaudible) JP Morgan. Please go ahead madam.

Good afternoon. My first question relates to asbestos again, and the payment you have had. So if I understand correctly, this 226 is basically a combustion engineering cash that's being paid into the trust. Is it then fair to assume that the remaining roughly 260 will be paid throughout the rest of the year? Can you give us maybe an idea of how it will be flowing out?

And relating to that, in the annual report, it talks about an assignment of an unpaid balance of principle and interest due of $300 million of ABB Limited to Combustion Engineering. Could you just explain to me how that works?

And then could I just ask or can you give us an indication of what your euro based revenues verses your euro based cost (ph) position is?

OK. Let me go through the three questions. Let me just spend some time on this asbestos issue. And I would refer you also to page 73 and 74 in the Annual Report. I'm not giving you the disclosure material pages, but you will (inaudible).

In principle, we are dividing the whole asbestos issue into two trusts. One is the Personal Injury Claim Trust and the one is the CE Settlement Trust. So the CE Settlement Trust, that's where this whole cash issuing (ph) in the first quarter comes into play (ph).

On the Personal Injury Trust, which is these future claimants, remember the slide we had in the first quarter, which dealt with the 420 million additional provisions with the cash out (inaudible) is to come, that is the part which deals with the Personal Injury Trust.

On the CE Settlement Trust, to give you a kind of a (inaudible) is a difficult matter, and I'll tell you why. Because we have all the - the current claimants are actually put into various categories, or which entitles them to 30 (ph) percent (inaudible) claim. Depending on which category they are, depending when they actually have filed the claim and the then the claim was accepted, that will then trigger an initial payment and the second payment a few months later, and the remaining then goes into the future trust.

So to give you, in all the thousand cases we have, an exact number, I have one that's clear, but that is a changing number by the day. I think the only thing I can say that the cash out for this year will be in the order of magnitude of between 400 and 450 million.

The second question was (inaudible) the underpaid balance of the principle, and interest due, et cetera, et cetera, we had an arrangement in the past whereby Combustion Engineering could cash into the treasury system over ABB as a group, and we have obviously - we are assigning to the CE Settlement Trust. So in other words, we are funding the trust. And the note - and this principal (ph) amount is drilled (ph) down if and when needed.

On the last one, I cannot give you an absolute number in terms of euro cost and euro revenues, which will help you to calculate the potential effect of the weakening - the further weakening of the U.S. dollar, because I think that's behind your question.

We do have, as you know, a high proportion of EE (ph) business, but he EE (ph) business for us is also a very strong export business which normally (inaudible) as well as - than the euros, but it's a mixed bag as well. So I cannot give you any hint at this stage on how to calculate this effect therefore (ph) for you. We have our numbers, but this is rather complicated way in which we calculate it. So I rather prefer not to give it.

Well, then, can you maybe give us an indication based on your analysis, you know, what - if current exchanges rates persist, what the potential impact on margins could be?

I think I have to rephrase it in such a way that I say, we have given our targets on a local currency basis, and we will achieve those local currency basis targets. That's the only way I would - I would phrase this one.

So if exchange rates have moved significantly since you gave us the targets, would you then say that the if current exchange rates persist, the actuals may be different from the - from the nominal currency basis you've given us?

(inaudible) I mean, you will certainly have some differences, but it will not change our guidance.

OK.

So in that sense, we will - we will work on it.

OK.

The next question is from Mr. Patrick Number (ph), (inaudible) Securities. Please go ahead, sir.

Thank you. Good afternoon. Just three questions - first one, why - I heard that you have similar effect on working capital requirement, but could you give us some further details to explain why is that (inaudible) so much of working free cash flow? The second one is a very usual one as far as your market share. Could you give us further details as far as your market share in Europe and in the U.S. is concerning (inaudible).

And do you - did you say that your ratio, long-term debt compared to the total debt, should become - should come back to a range of 70 percent? Did I understand well? Is that unusual (inaudible) rating your ratio as a part of your long-term debt? Thank you very much.

OK. I'll, take the last one first. The target 6633, the two-thirds loan-term. As we are reaching the finance needs until (ph) (inaudible) divestments are in the short-term debt, i.e. the credit facility, yes, it is normal to have a certain decrease first down to maybe 60 percent, lower than 40 short but that will be in balance again towards the end of the year. I hope that answers the questions.

The second one in terms of market share, I think I have to answer this in a more general way than in the very specific EU Ameica way, you have (ph) (inaudible) we are taking profitable market shares in both businesses, PT and also AT. I think in PT across - most of the products across the board in AT, I think there is in certain areas like instrumentation, maybe we are not taking making shares at this stage. Also (inaudible) I think it is rather flat (inaudible) slightly down. Otherwise the market shares are all up in AT as well. And I think - I cannot give you a straight dollar (ph) (inaudible) basis.

The working capital, we called (ph) (inaudible) the one-time effect but we also call (ph) to them the coordination (ph) of being 192 negative in the first quarter, expected to be neutral in six months, which means a positive effect in the second quarter. The seasonality here is the following, that typically you'll get advances, you'll get customers giving you money through the first quarter, which you then typically start to work off in the first quarter. And therefore, using your working capital. There's also normally a certain seasonal effect in certain loan (ph) traits (ph) payable in those businesses, which tend to be lower in the first (ph) quarter than in the fourth (ph) quarter as certain traditional costs are paid in the first (ph) quarter but (ph) accrued in the fourth (ph) quarter.

OK. Thank you very much. May I ask a quick follow up question? Do you think you are (inaudible) this group is now armed to resist (ph) to the very low (inaudible) ratio for (ph) (inaudible). Do you think that if this ratio is going lower, you should have to book some further restructuring? Thank you very much.

No, I would not make the jump from the dollar to the restructuring. I don't - at the moment with my current knowledge, I will not foresee further restructuring because of that.

Thank you very much.

Our next question is from Adrian Proxin (ph), Credit Suisse. Please go ahead sir.

Hi, there. Just two quick questions. One - sort of a carry on, I guess, from the market share question, what's the pricing environment like in the two conditions and - in the two core divsiions? And secondly in terms of asbestos, how much - how many more payments still have to come out of cash and cash equivalence into the Asbestos Trust and how much are - how much are those payments?

OK. The pricing environment, let me start with AT. The pricing environment is tough in many business areas AT. But having said all of that, I'll growth margin on the ordering (inaudible) we had in the first quarter was actually improving. So in that sense, we are offsetting - more than offsetting the price pressures through productivity gains. So I think that's on the AT side.

The PT side, I think the similar way (ph) pressure, but to a lesser extent. And it's certainly offsetting any price erosion also through productivity gain, (inaudible) offsetting done in the first quarter. Also, the order backlog and the gross margin as part of the order backlog is still very sound and improving. I think that's on the market share side.

On asbestos, as you may remember on the first (ph) quarter what we have done, we have reclassified the cash which we had in Combustion Engineering into other balance sheet items, and that's where we are working it down. Therefore, you get a cash flow effect but you don't actually get a cash and marketable security effect.

What about the cash from ABB (inaudible) Combustion Engineering?

Yes, that is all going to be 2004 onward.

OK, so that's - OK, fine. So that's going to come out later on?

Yes.

The next question is from Mr. Michael Hoffman (ph), UBS Warburg. Please go ahead, sir.

I'm sorry, gentlemen, Mr. Hoffman (ph), just disconnected. And we will take now the question of Mr. Bruno Young (ph) from (inaudible) Group. Please go ahead, sir.

Yes, hi. I have two questions. The first question is in your press release, in your group outlook section, you discussed your total debt targets 6.5 billion by the end of 2003 and four billion by the end of 2005. And there's a footnote here that says, "All targets exclude major acquisition and divestments". And I was wondering how you get to the 6.5 billion in '03, and four billion in '05 without including the impact of the divestments including OGP and Building Products.

And the second question relates to asbestos. You mentioned in the call, targets of 400 to 440 million out of cash payments related to asbestos this year. And I just wanted to confrim that that's in the event tha a settlement is reached and the set is set up. So if the plan doesn't go through, those payments will not be made. So I just wanted confirmation on that. Thank you.

OK. I think the first one is a good point. The (inaudible) risk (ph) all the major acquistition divestments related to the EBIT targets and not to the debt targets. So thanks for that, we will correct that next time, because obviously it will not get down to 65 without using the divestment proceeds.

On the second quarter, we paid out so far, if the plan would not be accepted let's sayin the near future. Then obviously, Combustion Engineering would still, as long as they can, serve their obligations which are manifested by claims - current claims, and therefore, would continue to serve those claims with the assets they have. Now how much is it going to be, or how long it will last, that's a different question. But I think that's the way I can answer this one. So in that sense, they would serve their claimants as long as they can.

But that's - but wouldn't you put Combustion engineering into - if it was bankruptcy, it wouldn't be making those payments right? Why wouldn't those payments be (inaudible)?

No, but what I'm trying to tell you is that I did link (ph) it then and say Combustion Engineering's assets will then serve whenever claimants do come into Combustion Engineering. But that will be done under the Chapter 11 scenario, yes.

OK. Thank you.

We'll now have a question from Mr. Hagman (ph) at UBS Warburg. Please go ahead, sir.

Hi, it's Michael Hagman (ph). Two questions, if I may, the first question is respect to PT. If you look at the margin - the base margin in the fourth quarter, it was about 5.6 percent, and it now turns to 7.8 percent in the first quarter, that is despite of fallen revenue by about 250 million. I was just wondering if you could give us a little bit of insight where this margin improvement is coming from. The second question is in respect to the maturity profile. If you could confirm that the year end, you have maturities of about 2.7 billion and by year-end, 2004, 3.9 billion. And if you could give us a little bit of a insight on how you're going to try to square this if you look at the current available cash, even including the dispose (ph) proceeds that you might be expecting, the whole thing is going to be a bit tight. And what the contingency measures that you have been planing, I suspect, over the last couple of weeks.

OK. Let me just check something. Just a second. Yes, I just had to check which slides are on the Web.

I think on the maturity side, you have to have all the slides actually of all the maturities for the next 12 months and for 2004 on the Web. So I'm not going to go through the details there. If you - if that doesn't give you enough information, give us a call.

But how is that going to square with you...

Hang on - hang on, I'm coming to that. So it's just the maturity itself, you can have a look at - look at that.

From a cash flow point of view, liquidity point of view, we have given clear indications on what we expect to get from the divestments. What we get or what we expect to get from - in '03 and in '04 from operating cash flows. And we also expect that quite clearly by reducing our debt levels to more reasonable levels and improving the core performance, and having asbestos hopefully behind us, certain capital markets transaction to replace some of the maturing debts we'll be certainly considering in 2004.

For 2003, I think you - with all the numbers we have given you, you can actually square off the needs (ph) which we have. We have never ruled out that for 2004, some of the maturing debts will be replaced by new debt.

On the first one, I think I have to give you a general answer on the margin improvement. I think out of the six business areas we have, we have got five which improved. You know, the one was around flat or slightly negative in terms of comparison on an EBIT level and the margin level in Power Technologies. And I think in a general way what is happening, it is quite clearly that the focus (inaudible) concept, the productivity gains, the focused engineering concept which ABB has implemented now for quite a while and is now successfully doing also on the old utility side, is starting to pay off. And that actually gives us a sustained (inaudible) seven percent margin at this stage, and further improving later in the year.

Thanks.

The next question is from (inaudible) Goldman Sachs. Please go ahead, sir.

Yes. Hi, Peter. Could you confirm that the change in securitized receivables that accounted for 50 million cash outflow also includes any change in receivables sold? That's the first question.

The second question is, are there financial covenants attached with your bank facility, are they stepping - are they becoming tighter in 2Q and 3Q? And if you applied - and if so, if they do become tighter, if you applied your numbers as of Q1, and used the more restrictive covenant as of 2Q, what would have been the maximum - the maximum capacity under the bank facility?

And finally, if you could tell us what have been the impact of a weaker dollar on your gross debt level. Thank you. The impact over a week ago in the first quarter on your - on your growth debt level from 4Q to 1Q? Thank you.

OK. I will not (ph) say that the covenants become tighter. The covenants, by definition, is always tight because one doesn't like them. As I've said many times, the tough one for us was really Q4. In many aspects, given the uncertainties around asbestos and how we can settle the proposed plan, et cetera, et cetera. But as you know, we passed those covenants. I can also say that the calculations we have from (ph) first quarter, we have passed all the covenants as well. In that sense, we are going forward. We are in line with what we have said in the current facility in terms of liquidity plan, et cetera, et cetera. And you can now link the covenants directly to the amount which we drawn (ph) down. There's actually no direct link in the sense that you - that that stipulates how (inaudible) roll (ph) down. It's as long as you've got the covenants, you can drill down in accordance with the agreement.

In terms of the weaker dollar in Q1 to Q4, I think I would call the impact as not being material on the gross (ph) debt.

Then the - can you just repeat your second question?

Sure. You mentioned that a change in securitized receivables from the fourth quarter basically meant to you - I mean, you reduced that amount by 50 million. So 50 million cash out (inaudible). Could you - could you confirm that that includes not only securtized trade receivables but also sold receivables - so, receivables to banks - to banks on an authorized basis?

I'll have to come back to that, I think. Let me just understand the question.

We may need to refer to the Annual Report on this one. So, it is the (inaudible) out of the two securitization program. So your question is, did we sell anything...

Yes.

... in addition to the banks on this one?

Yes. Because in 2002, you increased the amount of receivables you sold as opposed to outside the two securitization programs. Outside these programs you actually sold more receivables - much more - many more receivables than in 2001. So I wondered if, you know, similar trend in the first quarter (inaudible) the fourth.

I don't have the numbers in front of me, but I think I can confirm that there was not a major trend to sell more. I don't have the precise figure with me.

OK. I'll get back to you on that. Thank you.

OK. Let's go for a last question. I'm just getting the signs (ph) there are no more - hold on a second.

OK. Just take one more question and then we stop.

The last question is from Mr. Shelby Smith (ph), Fresno Bank. Please go ahead, sir.

Hello. It's Hugh (ph) actually from Grovesnor (ph). I just got one, finally (ph), a simple question at the operational down in the non-core activities. If my memory serves me correctly, for the full year last year in Building Systems, 114 million loss, 50 percent of which was restructuring, 50 percent which was in operating loss. Peter, at the time you were telling us that that was in two countries and all the other countries were profitable, and yet in the first quarter we had a 33 million loss. Can you tell us what's going on there, please?

That's a good question.

The 33 million loss, that's correct. I maintain the statement that we have very few countries, and it's actually, in this quarter it's three instead of two, where we have losses. And I'll just tell you what we're doing about it in a moment. The rest has a profitable position, but the construction industry has depressed those earnings as well, and therefore, offsetting the losses on the - on the other side in the problematic businesses.

We are going out of the big project business in Germany, for example. And there we had to undertake some further restructuring in order to cut those potential losses, and we have taken some further restructuring provisions in Germany. The other two countries are Sweden and Italy where we had to take some provisions on projects. And these are the three countries. All the rest is going fine.

OK. And my second question, just in terms of the statement where you talk about the cost reductions where you've saved sort of 70 million US in the first quarter because of Step Change and others. Just looking last year, obviously, you had 201 million of restructuring charges of the original '01 program, that's 79 million from the Step Change. Can you just characterize sort of what the 70 million cost savings, how much of that would be associated with Step Change? I mean, it says in the statement, it's because of all it, but I can't believe that's right.

No. All of it is Step Change because we have a very detailed (inaudible) project by project monitoring system now, measuring the cash, but also measuring the savings. And that is actually recorded through our accounts. So that is only Step Change I can confirm that.

So it's a one for one (inaudible) pretty much?

Yes.

OK, thank you.

Thanks, bye.

OK. Thank you very much for calling in. I guess we will hear each other again in the second quarter. Until then, have a good time. Cheers. Bye.

Ladies and gentlemen, the conference call is now over. You may disconnect your telephones. Thank you for joining. Good bye.