Abb Ltd (ABB) 2003 Q2 法說會逐字稿

Good afternoon. This is the course call conference operator. Welcome and thank you for joining the ABB's 2003 second quarter results conference call hosted by Mr. Peter Voser, Chief Financial Officer of ABB. As a reminder, all participants are in 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 call, they may 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 Mr. Voser.

Thanks. Hello ladies and gentlemen. Thanks for calling in. Sorry for the slight delay as we had a long queue of people coming in, so we had to wait until few minutes. Welcome to this presentation of the second quarter results of ABB. Before as usual I take questions, let me take you through some key facts. The ABB Group showed double-digit EBIT growth over the second quarter last year and improved cash flow compared to the last quarter. We are clearly moving in the right direction. We achieved solid earnings, margins, and cash flow performance in our core divisions and a steady reduction in our cost base. There is still half the work [Inaudible] but our company is in a better shape now than it was a year ago. In fact, Q2 2003 was the third consecutive quarter, when the core divisions are breaking profits and EBIT margins rose in dollar terms compared to the corresponding quarters a year before. Several factors have contributed to these improvements.

Our step change cost reduction program has started to produce results with some $160m in savings in the second quarter making it some $230m in savings so far. Several divestments have been announced or completed reflecting our strategy of focusing on the core divisions. The sale of our activities in Oil, Gas and Petrochemicals remains on track for 2003. Operational cash flow improved significantly with the core divisions contributing some $380m in cash. We are also making good progress on asbestos, which is important for the timing of the divestment of our Oil, Gas and Petrochemicals activities. As we have said before, we expect to put the asbestos issue behind us in '03. We are operating this steady local currency despite difficult market conditions in the quarter, and so a 12% revenue increase in dollar terms. We expect higher orders and revenues in the second half of 2003 compared to last year second half. Therefore, we confirmed our annual targets. It is too early to say that ABB's problems are over. We need to pass further important milestones, such as putting the asbestos issue behind us once and for all, completing our next divestments and securing our long-term financial strengths. We also need to further improve profitability. Perhaps, as you have seen today, we are well underway. Currency fluctuations of this year had a significant impact on all international companies' financials. The weakness of the dollar against the euro and the Swiss franc has had a positive translation effect of about 10% on our reported orders and revenues in the second quarter this year.

Now, let me describe what is going on in ABB's core divisions. Let me start with Power Technologies. For PT, the last quarter was re-assuring, but good growth in Asia and Europe could not fully compensate for weaker demand in the US. Compared to Q202, orders were up 6% and revenues up 9% in dollar terms. We expect intake of large orders to be stronger in the second half. Earnings were up 12% to $146m and the EBIT margin increased from 7.3% last year's quarter to 7.5% in this year's quarter. Operating cash flow was about $230m in the second quarter resulting in a strong positive cash contribution in the first half of the year of around $100m. For Automation Technologies, double-digit order growth in Asia, especially China and India and in Europe was offset by weakness in the Americas. In dollar terms the order intake for Automation Technologies was up 7% compared to Q202. Revenues were up 13% compared to last year's Q2. Most product and service businesses of the division grew by double-digits. EBIT improved by 22% to a $198m reflecting the impact of the cost reduction program. The EBIT margin went up from 7.5% to 8% as a result of higher earnings and more focused working capital actions or breaking cash flow amounted to approximately around $150m (ph) as a result of higher earnings and more focused working capital actions, our breaking cash flow amounted to approximately $150m in the second quarter of 2003 resulting in a positive cash contribution in the first six months of more than $80m. For the entire ABB Group, EBIT was $171m, up 14%. The finance mix was a negative $92m mainly due to a $40m loss from the sale of shares in Sinopec and the market-to-market unrealized loss of $12m related to the equity conversion option on the convertible bond issued in April last year. This bifurcation compares to $26m gain in Q2 2002.

The second quarter this year, the Group showed a net loss of $55m after having accounted for pre-tax losses of around $10m from various divestments and losses in discontinued operation of $87m. Group's total debt was $8.3b, an increase of roughly $150m on the previous quarter, but in line with our plan. Our cash and marketable securities increased by $332m compared to the first quarter in '03 to $4.1b. ABB is showing solid progress in the second quarter also in our program to divest non-strategic businesses. We are reducing costs and at the same time improving profitability in the core divisions. In the second quarter, cash proceeds from divestments amounted to more than $340m. This included the sale of our 35% stake in Swedish Export Credit Corporation to the Swedish state, the shareholding in Sinopec, and two equity ventures participations in Australia. The step change in cost reduction program introduced late last year aims to bring down ABB's cost space by about $900m a year from mid-2004. The cost reduction program is ahead of plan. I will provide details a little later. Let me turn to asbestos. We're well on the way to solving the issue. On July 10, a US bankruptcy court approved to pay back bankruptcy plan for combustion engineering and recommended its approval by a US district court. This was a truly significant milestone and the district court will hold its hearing on Thursday, the 31st. We're confident of a positive outcome of the traditional process. The total value of the agreed settlement, which has been endorsed in a row by more than 95% of the asbestos claddings is approximately $1.2b. This had no change since we first announced it earlier in the year. The difference in operating profits generated by the core divisions and the Group's EBIT is explained by losses in the non-core activities, which generated a negative EBIT of $33m by another $40m in corporate costs.

The non-core activities consist of insurance and equity venture activities as well as the remainder Structured Finance, Building Systems and others. Insurance and equity ventures provided a positive EBIT contribution. However, these were more than offset by capital losses from the sale of our sharing the Swedish Export Credit Corporation or high losses in Building Systems mainly reflecting restructuring charges in Germany. The downsizing of ABB's corporate administration continued, yet the accounts show increased costs for Headquarters and Stewardships. This was mainly due to non-recurrence of a number of one-time gains in 2002. Negative results from the oil and gas and petrochemicals divisions and other divested operations as well as the mark-to-market effect of re-evaluating shares, contributed as part of the asbestos settlement, lowered net income by $87m. Looking at cash flow generation, core divisions showed strengths. Operating cash flow from the core divisions including restructuring amounted to $380m compared to $94m in the same period last year. Payments for asbestos settlements amounted to $51m negative for Oil, Gas and Petrochemicals cash flow as well as all the balance sheet movements amounted to a cash outflow of approximately $400m and as a result net cash used in operating activities for the group were negative $25m in the quarter.

As I said on this debt change program our cost reductions is proceeding greater than we had expected. So far this year, we have achieved cost savings of around $160m for the second quarter or $230m for the first half and cut 3800 jobs since the beginning of the year. For the full-year 2003, we expect savings of more than $500m putting us on track to lower the cost base by $900m from 2004 onwards. Priorities remain the same. We are making solid progress in the area that we are focusing on. We will continue to sanction our core divisions. We will continue to reduce cost across the groups. This is based and focused in the second half on core productivities, low directional strategic assets and businesses that should give an estimated proceeds of more than $2b and we will further reduce our gross debt at the year-end as communicated. And finally, we feel confident that our efforts to settle the asbestos issue will soon come to an end. Having said all of this our targets remained unchanged for 2003, the whole year. Thank you very much for listening. We are now going over to questions and I would like to remind you again just to ask two questions because this will allow actually more people to ask questions at the end of the day. Thank you very much.

Excuse me, this is the course call conference 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 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 Julian Bear (ph) of Winskild Securities (ph) . Please go ahead sir.

Peter, good afternoon. It's -- two questions. Firstly on gearing, I think you previously forecasted gearing will be about 70% by the end of the year which I think implied equity of about $2.8b which has bought $1.5b more than the current level. My questions is, is that target important enough to you that you would supplement the equity base with a new issue if the gains on sale of your announced divestments and operational earnings are insufficient in their own right to reach that target? And the second question is regarding Building Systems. Having that in or out of the 2003 margin calculation and according to my estimates, would impact the full-year margin by about 50 basis points, which is significant in relation to your hopes and target for the year. So the question is whether your hopes and target includes or excludes Building Systems?

Thanks, Julian. On the first one, the actual important target for me is to reach a debt level of 6.5% -- $6.5b sorry. I have always said that it is approximately 70%. I think the absolute gearing target on the 50:50 for 2005 is more important to me to reach by '05 and an absolute gross debt level '04 in '05 but this year we are focusing on $6.5b. I will not comment on any capital markets transactions as enough room is around. What I've said in the past and I just repeat that. We are constantly evaluating our options regarding bonds, right, issues, strength facilities by actual lines and everything and we will take a right decision at the right time but I would like to reiterate that reaching $6.5b for me is a key target. On the Building Systems, I can confirm that, buildings system is part of the 4%. The weighted contracts of the ones we have so far negotiated and I just sold or announced, do actually -- has been negotiating in such a way that certain work and certain cash flow will be remain within ABB. I will give you an example, there are some licensing fees coming back to us, which will not allow us actually to treat it as discontinued operations. So, the only thing we have done so far according to US GAAP is collapse the assets and the liabilities in to assets held for sale in that sense or liabilities held for sale, but the results will remain as part of the group EBIT and therefore it'll also be, for example, accounting for on the EBIT for the capital gains and losses. This is for the ones we have so far negotiated, if we do deviate some from that, we will communicate that to the market.

Okay. Thanks Peter.

Thanks.

The next question is from William Macky (ph) of Commerce Bank. Please go ahead sir.

Yes. Good afternoon. Two questions, firstly, coming back to your comments about orders and revenues being higher in the second half of 2002. Could you just clarify whether that's after the impact of the dollar move against the franc and euro or whether it's on an underlying basis? And then secondly, the HQ and Stewardship costs still look very high. Could you provide us some guidance as to where you expect that to be for the full year? It looks like you've taken some restructuring charges for HQ in Q2, but what it does look like for Q3 and Q4? Thank you.

Thanks. On the first one, I think you mentioned 2002, but I guess you're referring to 2003.

Yes.

Orders and revenues, we see developing positively compared to the first half, but also specifically compared to the second half of last year, which as you may remember are kind of a declining tariff in terms of orders and revenue development. So, that's where we see the positive momentum in the second half and at this stage, I am not speculating on the currency effects. So, we would just remain on our overall targets that we see the growth coming including in local currency terms. On the Headquarters and Stewardship, I think overall the burn rate or the run rate we have there in the second quarter is slightly higher than, let's say, in a normal quarter, but I think you are not far off in that sense by assuming that, the rate is going to be slightly below what we had in the second quarter, but very similar in the rest of the year.

Great. Thank you.

The next question is from Swati Konrad (ph) of JP Morgan. Please go ahead madam.

Yeah. Good afternoon. I have two questions. The first question relates to the $240m cash out flow for other. Can you please explain what that relates to? And the second question pretty much goes around the Oil, Gas, and Petrochemical business. First of all, can you give us the EBIT figure, which you have done in the past? Can you help us understand a little bit whether the loss there is due to -- primarily due to projects you have written off, is this going to be repeated or have we written down all the projects now? And also what's the update on the Indian project where you had said there was a financing decision in the middle of the year?

Okay. Thanks Swati. The 2:4 which we have classified as all those really contains 2:2 ratios. One is the corporate costs, so we have cash cost as well, that's the one. And the second -- and also corporate R&D reserves, because they are not included in the core division as you know. And the third -- the second or the third one depending on how we count, is actually we fund that for $65m pension funds in the second quarter. So, it's a pension funds, corporate R&D, and corporate costs.

Sorry. I wasn't aware that you wouldn't or you didn't consider the core division as tied or -- the corporate line is tied of core. So, is all of corporate in this other line?

All the corporate, which is not considered to be corporate divisional cost, because thereafter all the divisions, all organizations across the world etcetera, etcetera, that is part of the other line, yes.

Okay.

On the OGP one, I think I will deliver or we will put it on our somehow on the EBIT side, on the OGP. I don't have to figure just right, listen me (ph) . Let me just explain the cost, which we have incurred into or provided for in the second quarter. This is just goes into the same line, we are coming to mechanical completion of some of these projects, which we end up during the mid-90s. Some of them have experienced some delays in mechanical completion and from a conservative point of view, I took some provisions and reserves for additional costs in two main areas. One in Europe, and one in South America. These projects do come to very close now to mechanical completion. It can have some further impact on costs, the full cost of that is very difficult. We will have to see in the future when we're concluding these projects how much of the margin is left. Regarding the Indian project, that is a process in India, which is an official process run by the Ministry of Finance, which is called CDR, which is Corporate Debt Restructuring processes. [Inaudible] refinancing, and the restock was referred to this CDR. The CDR has approved the restock of that project subject to some commissions' presidents, which have to be fulfilled by the 1st of October in order to go ahead with the restock. That's where we are. We had good progress, significant progress, but [Inaudible] lending banks have still to work out some of the coalition presidents. These coalition presidents are not related to ABB [Inaudible] more related to SRM banks (ph) So, one hurdle more taken. I am just cautious I want to see the next total take and before we can say that we have a restart.

So, in terms of -- for the first are there more projects that are coming to mechanical completion and where you may decide to look at the provisioning or have you gone through all the projects?

We are going at a normal practice each month through all the projects in a risk analysis and are evaluating the risks which we have from where we are to grow mechanical completion. You are using first your contingencies you have as time is not sufficient then you accrue for it. Not all the projects have been completed. All what I know has been accrued in a, I would say conservative way and can I rule out some thing more in the future, that depends on how the projects are progressing and they can progress in a different way than they are progressing today and then we may have to take further costs. We may also write something back which I haven't experienced so far in my 50 (ph) months.

Thank you.

The next question is from Claus Anderson (ph) of ABG. Please go ahead sir.

It's Claus Anderson. Another question on the power infrastructure projects that have been delayed into the second of -- and you also told about this on the Power Technology. Can you say what are these orders pending? Are these orders that you really have in hand and they are waiting for the financing or are they waiting for the asbestos solution or what's the story of that?

No, they are not related to asbestos, that's a clear no. I think you may remember in one of the calls [Inaudible] that there is a tend to pipeline of more -- significantly more than a $1b of projects from $500m has been assigned during the first six months. Apart from buying (ph) , all the projects were won by us, the customers are rather careful in embarking on the larger projects at this stage that has to do with the overall economic environment. We expect the remainder of these projects to come through. You mentioned financing, certain projects do have certain discussions still on the financing or related to obstacles. You are now financing these projects that they have to write financial backing in certain areas for bigger projects and will have to see when they come through but we have got confidence of PT [Inaudible] including obviously we have got the confidence, got some of these large orders like in the first half will come through. If you look at the large or the development in PT in the second quarter, that was actually rather positive compared to previous quarter, certainly much better than the first quarter. We see a similar development in the second half.

Can I also quickly ask on the outlook statement the 4% margin target that you have for 2003? You have the deal in US dollars this time. Is there any significance to that?

No there is not. The EBIT target is -- it is always for me to report the EBIT target. If you have significant deviations in US dollar terms to local currency, then we will certainly communicate that but at this stage I'm really not keen to discuss potential currency fluctuations in the second half. Let us go through it. We think we clearly will achieve the 4% and even do that if the dollar actually had some adverse developments in the second half. So I will not put too much weight in that. The affect of the dollar is certainly smaller on the EBIT than on the revenues and orders but the currency mix is slightly different. So let us progress a little bit more in the second half and then we'll have a discussion around that.

Thank you.

The next question is from Mark Cusack of Deutsche Bank. Please go ahead sir.

Yes. Good afternoon. On restructuring, Peter, I think if my math is right, you've taken step change charges of something like $160m against the fourth quarter of last year and they seem to have generated first half savings of $230m. I wonder if you can just talk us through how we reconcile those two numbers and related to that how much do you think of that $230m you've retained?

I think I'll start with the last part. Looking at the development of our two core divisions, I would say that we have retained practically all of the savings or most of the savings because if you look at the gross margin gross profit development as well, this is a rather positive one. The $230m quite clearly is the number from first of January to 30th of June. On a net savings point of view 46 (ph) months, I had a figure in mind that actually the net savings were $160m roughly. You are counting the restructuring of the fourth quarter into the numbers most probably but I'm not sure that we have given you the savings we have achieved prior to the end of the year. So I'll have to go back on that number.

Supplementary on asbestos, obviously you feel pretty confident as your appeal is going -- or the district court judgment is going to be favorable. Can you give us some update on the level of appeals you have received and hence the basis for that confidence?

I think from an appeal point of view, we have appeals from two groups and we have more or less also elaborated on that in the [Inaudible] and that is really out of the cancer claim inside and out of the insurance side. I would say there is nothing new under the sun in that sense of what has been appealed towards. We also have filed one appeal from our side. So I think the confidence really comes from the fact that I've seen these appeals and there is in our opinion nothing new which judge Fitzgerald has not already addressed in her recommendation to the district court.

What happens if those appeals go further than district court and you get locked up in the courts for a long time?

I think the very important hurdle is now off to having positive -- in my opinion, the biggest and the most important court which is to the bankruptcy court itself is now the district court. There is a 30 days appeal afterwards. I think we have said that will be no appeals. There will be appeals in such a ruling and such a big case, which we are settling here, and we will take it from there. I think we can all then get into this [Inaudible] and we can even go further than this. There is the Supreme Court left, but I think with each step we are taking the relevance is going to be more on our side.

Okay. Thank you.

The next question is from James Dinkler (ph) of Dresdner. Please go ahead sir.

In terms of your restructuring charges, are you sticking to the $300m for the year and is that still roughly $200m for core and the rest for non-core? That is the first question. And just again, coming back to that corporate charge, the run rate is $400m. You intended to get down to $130m by '05. Could you run us through whether the charges are in there and at what speed we can expect these to come down?

Okay. On the restructuring, I think at this stage we remain less [Inaudible] which is approximately right which is the kind of two-thirds one-third from that point issue. On the second question, we are running quite a high number of corporate headquarters across the world. As you know in that sense, there are a lot to be restructured and that is what we are focusing at the moment because with a small or more dynamic two core divisions group, we certainly will not need as much as quarter functions and the headquarter functions we have in the various countries. So, we are in the process of restructuring the organization in that sense and taking the necessary measures. I think in the first quarter or at the year-end, I already said, corporate will be slightly late in terms of restructuring as you need to be absolutely clear what do you need from a divisional point of view as corporate services and you don't want to flow these things too early out of the boat as they may be needed in these restructurings. So I think you will see quite significant reduced corporate functions in the more than 100 countries we are operating. Here in Zurich, we have actually reduced quite significantly in that sense already. I'm just giving you some examples. The root (ph) process organization for example, we had a huge CIO officer in the past, which we have now reduced as part of my organization to 30 people max. We have seen that we have come here today announcing our $1.1b deal with IBM to outsource this potential savings of $50m per year of costs. So we are taking the necessary steps now to reduce corporate as I've said slightly later than the regions part we are moving very fast now.

The next question is from Michael Hartman of UBS. Please go ahead sir.

Two questions if I may. First question, in respect to automation, particularly on the robot side that is well on the process automation side, you have strong competitors which are based in the yen and in the dollar area and I was just wondering what you are seeing in terms of pricing from these competitors and if you feel that you are holding your own in terms of market share? And the second question, in C&T (ph) , basically it looks as if you have been winning market share as well as the second half of last year, maybe in the first quarter of this year and now also when Siemens is reclaiming some share. And I was just wondering if that is the result of a change in pricing behavior of either US sales or maybe the competition.

Okay. I'll take the first one first. I think I won't entirely agree with your statement that we are not taking profitable market share anymore in PT, let's say in the latter part here of 2003. Our internal intelligence on that one together with some qualitative market intelligence does actually tell us a different story. So I think, in PT, we are still growing in that sense and we are taking profitable market share and at the same time improve internal productivity in a big way. In terms of the robotics, which I guess you are referring to final [Inaudible] from a competition point of view, it is a very difficult market. We are rather selective in terms of our bidding as we want to preserve our gross margins and we had a very significant boost on the EBIT margin in that particular segment. Yes, our orders in revenues as I've said, we are a little bit more restrictive but order backlog for the rest of the year is actually rather strong in terms of volume but also in terms of margins. So all in all, very selective. Not entering into too much price erosion in order to preserve our strong EBIT margin, which could prospect for the second half.

Thanks.

The next question is from Raymond Greaves of Merrill Lynch. Please go ahead sir.

It's Koff (ph) actually. First question relates to the interest expense, can you give us the breakdown of what sort of -- you have already told us about the disposal of this -- of Sinopec and the Australian investments and also the loss on the convertible bond. Were there any mark-to-market or equity write-downs in that number?

I would assume you are talking about second quarter. There were no marketable securities or equity write-downs in the second quarter. As you may remember in the first quarter, we had roughly $30m of write-down there.

Okay. Second question, just again on the restructuring charge, you said you are going to spend $300m in 2003 and if I read the statement correct, that you've spent $82m in the first quarter. Could you just remind us what the restructuring was in the first quarter, please?

$33m.

$33m? So, actually how do you expect the balance in the second half?

That's correct and we always said, we will not be as strong close that as maybe in the deals program, we will be second half loaded.

Right. Just final half of the question. Someone was asking about the FX impact. Can you explain if there has been any impact from the weak dollar on the core margins in the first half of Q2?

On the core divisions -- on the EBIT side, yes, there has been an effect and I've said it is lower than the 10% which I quoted on revenues and orders and I would even say it is significantly lower than those 10%.

On the EBIT margin?

Yes.

Okay.

The next question is from Ian Johnson (ph) of Bear Stearns. Please go ahead sir.

Yes. Good afternoon. I would like to discuss the covenants a little bit and the happening you have in the covenants. If I look at your total debt, for example, Q2 total debt is about $8.3b. I believe that the covenant for June is $8.25b including that full funding balance. How much headroom do you have in the covenants? Is the situation heading to go through the rebound?

There is more than sufficient headroom to go forward. The dangerous thing is what I always said in the first two months before I have to publish the agreement on as part of the 20-F that you will not be able to actually calculate nor the debt, nor the interest, nor the EBITDA number and that's exactly one of the numbers is to gross that. We have actually sufficient headroom.

But, can you give more color on that?

I cannot give you more color because then you would have to actually come in and look at our accounts, the way they have actually agreed to accounts for certain things and how we have actually done or agreed to do the gross tech (ph) numbers what is included, what is excluded, exchange rates are frozen at a certain point. So, I have to say that as a CFO I thought sufficient headroom for the rest of the year, and I think I'll leave you at that.

And maybe a second question. You had some freely available cash, you had some blocked cash and freely available cash. Can you give that amount?

Okay, we have got $4.1b if I'm not mistaken as a total, $1.8b is pensioned and insurance. So that gets you down to $2.3b and I think I just remained with the guidance of what we have done in the past between the treasury system on the unrestricted areas across the world at local levels you have more or less half and the other half is to somewhat restricted in countries or to some agreements, which we have for financing receivables etcetera. So, I think with a half-heart, we are not that far away from reality.

Thank you.

The next question is from James Moore of Goldman Sachs. Please go ahead sir.

Well I think one of my questions has been answered. But just to clarify if you could just say exactly what's in the end of the second quarter, the cash start up in the insurance business was? And secondly, just looking at your margin target it looked better in the past with 4%. You took about - the target excluding divestments, and you mentioned earlier that it's the Nordic Building Systems business is actually completed, you won't leave that excluded. However, some of the other Building Systems businesses are disposed off and the loss making move out to flatter upwards the margin for the Group or will you retain it for the year?

Okay. The first question is purely in insurance it's $1.7b. The $1.8b included some $100m pension as well which I excluded before. On the Building Systems, it is - that's why I said the ones we are negotiating will have concluded and negotiated. They will remain in the EBIT numbers of the group because of the significant involvement in terms of licensing fees or services - Building System services, facility management, the new one is going to do for ABB. And the ones we are negotiating over the few remaining months of this year, I cannot give you a final answer because it depends on the deal which we are doing, but I would say those which we are still having to negotiate, we are in the final process, they are not material in terms of an impact on the EBIT margin if they stay in EBIT or of they will go down into discontinued operations. So, I think that is immaterial.

So, besides have accounts exactly, which businesses are not in your 4% at this stage?

That is at this stage not possible. That's correct, because it depends on the negotiated contract. Everything stays in EBIT. That maybe the safest stay at this stage.

Thanks.

The next question is from Lee Zorondo (ph) of Lehman Brothers. Please go ahead madam.

Good afternoon. Peter, just two quick questions. Firstly, on the odd intake in the former customer facing businesses at the end of last year, which as you alluded do both for the [Inaudible] a little bit, half-two over half-one last year. Utility is obviously more severe downturn. My question is how is that yet translated into revenue that weak order intake or is it still in the order backlog? And then, the second question comes back to the head office costs again. It seems to be that historically you seem to report lower corporate costs in the second half of the year anyway, almost as if you just have to affect the charging back or taking back kind of charges that you won't have in the first half of the year. Is that a reasonable observation? And if it is, how will we be able to see it or go through the second half of the year? What is the reduction in cost coming to the corporate in what is perhaps a seasonal reduction? Thank you.

Okay, thank you. I'll take the second one. I will not see a reduction in that sense in the monthly cost there. I think they're trying to be as up to date, as we can and don't have back charge later in the year. That's the first point. The second one is if you're referring to what I would call today Power Systems, which is the last project business, which used to be in utilities at the end of last year, they only have an order to revenue cycle of two to three years. So, some of it has already reached revenues. I don't have the exact numbers. I will not quote that as being an 80%. The one explanation I can give to you is actually the order backlog in PT for revenue generation in the second half of 2003 is very strong and it is actually higher than the historical averages. So, we are looking at a healthy development for the second half as some of it is coming from the utilities Power System business, but I would not say that's the major driver.

Okay, thank you.

The next question is from Bobbis Devono (ph) of [Inaudible] . Please go ahead sir.

Yes, good afternoon. Just have a question in the disposal program. Could you just confirm what you include in the program? You mentioned total price of EUR2b. That seems to be rather high given the very poor economic performance of these divisions to be sold. So if you could just give us also some update on the timing of the disposals of course, an approximate timing please? Thank you.

Okay, thank you. The real time is when the euro was equal to the dollar, that's no longer the case. So, I had said $2b, not EUR2B. Just to correct that one. I think what is included is the remaining part of structured finance, which is really been a leasing business, the Swedish Export Credit Bank, which has been sold and the Swedish Export Bank. Then the equity ventures is a book value just north of $6000m, it is the OGP business, it is the Building System business, and I think that's it. Yes. These are all the loans, which we are selling and out of all of these we have said we will get more than $2b. So, I have spoke from a timing, we have clearly said OGP is on track for 2003. We've said equity ventures, we will sell, but have not given our confirm, but everything will go in this year. We will certainly sell as you've seen with two Australian project, the same price for structured finance. We have significantly reduced the leases. We've sold SEK and the rest are in progress to be sold in 2003 as well. Building Systems, we have announced already the Nordic piece, which is the bulk of it. You have seen this morning, we announced Belgium and the Netherlands. We have announced Hong Kong, Australia. We have announced Austria and a lot of small countries. So, we are well on our way there. We have said Germany will remain for 2004 and all the rest should go. So, now all of this should get you $2b plus what we said and I have no reason to believe that we're not going to get to the $2b.

Okay, thank you.

The next question is from O'Steve. (ph) Please go ahead sir.

Hi. I have two questions. The first question refers to the disposal program, oil and gas. Oil and gas depends from a large part from the asbestos division. One, can you say from which division depends the disposal or the announcement of the Oil and Gas disposal? Depends each from the district court or depends each of the appealing period? When can you say now it's done, we will do it? And the second question is regarding the restatements of quarterly figures, you restated Q1 and Q2 operating profit figures in 2002. Do we have to expect that Q3 figures for 2002 will also be restated because that's important, so that's a good pace for Q3 as well as throughout the current year? Thank you.

Okay, the second question is a yes because we have to restate following the restatement of the SEK, the Swedish Export Credit Bank, which you may remember that we restated 20-F files and we have therefore also to restate, there are certain other restatements like the bifurcation of the convertible bond, which we account for after having received the late ruling from the SEC in February this year, we restated everything at the year-end and we're now breaking that up into the various quarters. So, yes, you can expect something there, point one. The second one is I am not going to talk too much about the current state of the negotiations. I think I will just say that we are confident that we are on track for 2003 in Oil and Gas. We are negotiating, as always said, with various parties and all these parties have issued their views of the process of asbestos and all of these are like to the conclusion that we are on track for 2003. The rest you have to read or think about on your own, I am not going to go further.

Thank you.

The next question is from Katherine McCormick of JP Morgan. Please go ahead madam.

Hi. It's Katherine McCormick. I was -- I had a couple of clarifications. On your cash flow statement, it looks like you've combined both the provisions and the cash restructuring charges and I was wondering if you could give me a breakdown of what's for the quarter and for the half?

Just for the restructuring.

But it says that the provisions are 640 (ph) was added and said that that now includes -- I mean yeah, and it says that it includes both of restructuring and provisions?

Okay. In that provision line, you've basically three things, which is the restructuring you've got, mainly the insurance provisions which have fluctuations and the biggest one this year is obviously the asbestos settlement, which both $51m in the second quarter if I'm not mistaken was $226m in the first quarter, for $277m out of that 6000 (ph) additional number or even more is related to asbestos, significant piece is oil insurance. First quarter had a significant piece for overall provisions, which are low in only the first quarter compared to the fourth quarter and we've got the restructuring charges, which are adjusted there.

Now, are there -- but can you give me what the cash restructuring was? I know that you took charges of $33m and $82m but can you tell me what you actually spent on restructuring?

In terms of cash movements, just give me a second. I think it was $60m odd in the -- $65m in the second quarter.

And do you know what it was in the first?

Let me just check if I have this number, that's the number which I had memorized in the first quarter, but forgot in the mean time. Just a second.

Okay.

Okay, so you are absolutely correct. That's the number all in my head, it was $74m in Q2 2003, it was $63m in Q2 2002, and we will give you the Q1 figure later on. I can't remember that at this stage. So, we will get back to you on that.

Okay and then, my second question that I had is and I just was wondering how this worked and how it would affect your cash if at all. In your bank agreement, you have targeted amounts for disposals, but there is some sort of funny mechanism where I guess you can set cash aside or something like that to make up the differential, because as I recall and don't know how many it took because I can't remember the number, but I think you had to sell a total of $1.145b or something like that by the end of June, and if you look at your cash flow statement, proceeds to date have been $257m and then, an additional $62m I guess from PP&E, I don't know full of that would count and then I guess you're going to have another $233m from your Nordic business and then, whatever settlers have agreed to pay for the other, but it seems like there would be a shortfall and I was wondering how that covenant exactly worked?

[Inaudible] the number is correct, the 1145, it is a part of the agreement. The proceeds you have quoted, they are in, that's clear but the Nordic business is not yet in because it talks about proceeds received, which is not the case in the Nordic business but this divestment covenant has a wider description than just purely divestment. It includes refinancing, it includes lease sales, which we have, it includes quite a bit of other things, which are included there so that you can actually not conclude out of the cash flow statement or the information in our financial statements if you have fulfilled the covenants, yes or no. What I can confirm is that we have fulfilled the covenants for the first quarter but also for the second quarter but you will not be able according to our published numbers to actually reconcile it because it is too many specials in it, which I think, we all would not qualify as divestment proceeds. They are somewhat different financing proceeds.

When you calculate this covenant, is there a mechanism whereby you can set off some cash that that cash would become restricted in any way? In other words, what I'm getting at is that you've got $1.8b that's really for pension and for insurance and...

The answer is no.

Okay, so the balance of your cash then is either the subsidiary level or is free for debt repayment?

That's correct.

Okay.

Okay, good.

Thank you.

Thank you. We are running out of time here and I think after having spent more than an hour now, it's time to finish. Thank you very much for listening in. If you have further questions, you will know where to find the IR department. Thank you very much and until the next quarter. Bye bye.

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