Abb Ltd (ABB) 2003 Q3 法說會逐字稿

Good afternoon this is the call conference operator. Welcome and thank you for joining the ABB 2003 Third 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 '*' and '0' 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, ladies and gentleman, good afternoon. I assume that you have seen the slides on the web, so as usual my speech will follow those slides. I will indicate when I change from one slide to the other. Welcome to this presentation of ABB third quarter results 2003 and the announcement of our capital strength saving program. You will all have noticed the usual safe harbor statements. For the sake of being absolutely correct let me remind everyone that the statements that we make in this conference call regarding the proposed capital increase are for information purposes only.

They are not intended as and should not be construed as an offer of securities. There is no intention to register any securities in the United States or to conduct a public offering of securities in the United States. So, let me now start my presentation by saying that I am very pleased with the news I can share with you today. Slide of significant improvement. First two highlights from the third quarter. Our results showed that our core divisions have improved their results for the fourth consecutive quarter posting double-digit order and EBIT growth. Revenues and cash flow were higher as well. In challenging markets we have picked up profitable market share in many areas.

The group net loss in this quarter is due to mainly non-cash losses in the businesses that we are divesting a negative impact of the market-to-market treatment of the 2002 convertible bonds and the revaluation of our ABB shares for the asbestos stores. I am also pleased to be able to inform you that we have signed a preliminary agreement to sell the upstream business of the Oil, Gas and Petrochemicals division, they exploit at the right time.

Looking back over the past 12 months we have made steady progress. We have seen significant performance improvements in our core divisions. We have cut costs sharply, we have stabilized operating cash flow in our core divisions, we have sold non-core businesses and we have taken key steps towards resolving the asbestos, next life. The time has come to take another decisive step, and that is why we have announced a broad financial restructuring program designed to strengthen our balance sheet and cover all our finance needs through 2006.

On the back of our continuous performance improvements, and the successful returns of the capital market basic alerts will bound in always ABB is now ready to take the next step and lay the foundation for long-term profitable growths. Next lie three pillars. The capitalization program announced today rests in three pillars.

First, we are seeking to raise approximately $2.5 billion in equity through the issue of new shares. The funds will be used to grow our core businesses and strengthen the balance sheet. Final terms will be communicated at the latest on the 20th of November - the day of our extraordinary general meeting of shareholders.

The second part of the program is a new $1 billion 3-year credit facility with our banks improving our credit arrangements. This facility is only intended as a standby, which means that we do not expect to draw on it. But it will provide us with greater financial flexibility.

Third, we plan to issue new straight bonds to raise an additional 650 million Euro. The timing is subject to market conditions; the bond will help us to further stabilize our debt maturity profile in coming years. The rights issues as well as the credit facility are fully underwritten by our banks. Next lie divestments. Our divestment program is well advanced. So far, we have received around $860 million for completed divestments during 2003.

Still to come are the divestments of the building systems activities in Switzerland and Germany, some Equity Venture holdings and the remainder of Structured Finance. In the preliminary agreement to sell most of the upstream business of the Oil, Gas and Petrochemicals division there is a price range of between 925 and $975 million. The timing of signing of the final sales agreement is subject to the progress of a legal compliance review undertaken by us and the buyers.

We expect that we will sign this sales agreement before the end of this year. Once our entire divestment plan is completed, we will have reached our target of more than $2 billion. Next slide key figures. Let's look closer from the third quarter. Our core division continues to show strong improvements. These orders were up 18% and revenues up 13% compared to the same period last year.

EBIT was up 24% from 238 to $294 million. Cash flow from operations improved significantly in the quarter with the core divisions, contributing some $307 million in cash. For the group all these were up 4% reflecting overall received in the building business due to its elective bidding and the divestment of large part of this activity (inaudible). Group revenues increased 3% in dollar terms in Q3 again reflecting the divestment process. Group EBIT was $262 million up from the loss of $86 million in Q3 last year. This improvement shows that our cost efficiency is also developing as planned.

In Q3 alone cost savings on these step chain program amounted to $190 million. The total for the first nine months of this year accounts to $420 million, and we are well on track to reach our target of annual savings rate of $900 million by mid-2004.

The finance net was a negative $128 million compared to a positive net of $110 million in Q3 2002. This is mainly due to a $43 million non-cash market to market achievement of our 2002 convertible bond in the quarter compared to $182 million a non-cash gain in the corresponding quarter of the previous year a $225 swing.

Net income in the quarter today then was again burdened by activities which will not belong to ABB in the future, resulting in a net loss of $279 million mainly non cash I have to add for the group. Including the pricing was about $720 million from the convertible bond to fetch free loans in August total debts increased by some 160 million to $8.3 billion.

Again go to PT slide. Positive performance of the Power Technology Division continued in the third quarter all these increased by 21% driven by improved market confidence disclosed to cross all business area. All the growths was led by continued double digit growth in Asia, this is specially strong demand from China and the Middle East. Well a number of large project were booked. Already in Europe were also higher where as North America remains weak although there are some early signs of a pick up.

Where we used there are up 8% in dollar terms compared to the same quarter last year. The division continued to benefit from product of side rationalization programs as well as from substantially lower cost resulting from our savings program. The increased cost efficiency and competitiveness is reflected in the division's earnings. It is up 16% to $113 million. Despite higher restructuring charges compared to the same period last year. The EBIT margin increased from 5.6% last year to 6% this year in 2003 in Q3. Operating cash flow was $78 million was higher than in 2002 the need for network upgrades in the US reflected in the recent power outages is in North America is expected to trigger major investment in the medium term and have not yet translated into orders.

Slide automation. Automation technology saw significant improvement in orders in the quarter. Product and services business orders developed strongly. Order growth continued to be strong, particularly in China and India. It was stable in Europe, whereas orders continued to be reaching North America. In dollar terms total orders received were up 16% on a comparable basis.

Revenues were up 18%, reflecting strong performance in product and service activities. EBIT improved even higher by 28% to $118 million. This was achieved through productivity improvement great selectivity in billing and on going growth in the higher margin services business.

This was also visible in the EBIT margins that went up from 6.8% to 7.4% in Q3 2003. Operating cash flow improved to $229 from $197 a year ago. As a result of higher earnings, reduced inventories and reduced third party overview trade receivable.

Slide EBITDA review. Group EBIT includes a $95 million capital gain on the divestment of the building systems in the Nordic countries cost was $69 million. The group EBIT margin was 5.5% excluding capital gains and losses from divestment, the EBIT margin was 4%.

Slide local activity EBIT. The local EBIT was 30 to $47 million compared to a negative of $191million in the corresponding quarter last year. Our insurance business continued to improve in performance. The large swing in the remaining structure to finance corp (ph) of $148 million is mainly due $26 million increase in income due to the application of FIN 46 and the restatements for SEK of the 2002 results by a negative $90 million.

You will remember that SEK was restated earlier this year for the total year. Revenue systems include capital gain of $30 million for the sale of the Nordic business and the new ventures we took, a write down of $23 million related to a wind project in Germany.

Slide EBIT corporate. Total corporate cost decreased to $79 million from $143 million last year. Head cost and expenditured cost were lowered here to $65 million capital gain related to the divestment of the Nordic Building System. Let us moves on to discontinue. In the third quarter 2003 the group show the net loss of $279 million compared to a net loss of $138 million in the same period last year. Due to a loss of $343 million mainly non-cash, I have to add in discontinued operation. The main loss continued to a negative result from the Oil gas compare to chemical division comprising projects write down of $180 million. Projects cost goes well on to $30 million and the write downs of receivable related to a project of $35 million.

The evaluation of ABB share for the asbestos drop with $67 million and the provision of $40 million was booked for the first two asbestos payments. In all the divested businesses we book to $24 million loss for the anticipated loss in the sale of the ABB export plant (ph).

Cash Flow, Looking at the cash flow generation now. The net cash from the group was $120 million, up from negative $226 million in the same quarter last year. The reductions of net operating capital and net cash used in operating activities being the main items that improve. The core divisions are showing growing strength increasing operating cash flow by 46 to $307 million.

This was partly offset by the asbestos related to cash payment of $56 million by our US subsidiary combustion engineering and $200 million used by the Oil and Gas compare to chemical division and $86 million used in non core activities. Corporate and other generated $156 millions cash, no competitive cost structure as I said I step change cost reduction program is proceeding faster than expected we are ahead of schedule to reach our growth

We have implemented several methods of cost saving projects including an idea servicing agreement, this idea in factory consolidation in Germany, Italy and the US as well as the supply chain management improvement in a number of country. So far this year cost saving amount to $420 million and we have cut around 5600 jobs on the step change program. For the full year 2003, we expect savings of around $500 million with totally restructuring cost amounting to sum $300 million max. This put us on track to lower the annual cost base by $900 million by meet to 2004.

Slide asbestos. Turning to asbestos we are well on the way to solving this issues. 31st July is the pick hour to prove a prepackaged chapter 11 protection plan filed earlier this year by our subsidiary combustion engineering. Following the court approval, the peace PA (Ph) begun on fast track basis before the U.S. short circuit court of appeal.

The court received the (inaudible) authorization on the 7th of October and the hearing date has been set for December 16 again on a fast track basis. ABB remains confident that the plan will be approved.

Slide outlook 2003. The total debts target by the end of 2003 is now $7.3 billion compared to our previous target of $6.5 million. The revision of the target reflects the absence of cash proceeds from OGP divestment as well as an addition of approximately $100 million to our consolidated debts due to the application of Fin-46 from the financial accounting standard form. This new target however does not include the bonds that is part of our capital strengthening program. The confirm our 2003 EBIT margin target that the 4% (inaudible) but as well as the margin targets for the two core divisions 7.1 for AT and 7 for PT. Revenue targets 2003 have been adjusted slightly to reflect ongoing market weakness. We remain confident that we will achieve all our prior 2005 targets, that is the next slide, with 4% combined revenue growth for the group in local currencies on the EBIT margin of 8% in US dollars and total 2005 debts of about $ 4 billion is at 50% clearing.

Ladies and Gentlemen we are getting to the end of it, I think we have a very comprehensive story this quarter and with a financially drops in package attached to it and I leave it at that for this time and thank for your attention and the floor is now open for questions.

Excuse me this is the close call conference operator. '*' and '1' on the touch tone telephone, if you wish to remove yourself from the question queue then you may press '*' and '2' any one who has a question may press '*' and '1' at this time. The first question is from Annittu (ph) Andreas Gaulle (ph) from JP Morgan please go ahead sir.

Hello. Yes its Andreas from JP Morgan. I have one question on Lummos (Ph) and one question on the power division. On Lummos could you give us some more information in terms of the earnings outlook, cash flow outlook, what do you expect from this business in the near term and how do you plan to sell it where you think you can achieve a positive value for that business and what time line on that could be, and the second question is on the power division, in the summer when you, when we had the presentation by Mr. Smith also in London, he was confident to get to the 5% revenue is in the protocol year organic it now seems to get even to 3% you would need to get 10% organic sales growth in the last quarter of the year. Just wanted to get a bit more understanding of that level of confidence that that 3% top line can be achieved which basically needs a 10% organic sales growth in Q4.

Yes that's OK I will start with the second one. Pre debate (Ph) is comprehends on a number of orders which were planned to come in the third quarter with more or less a very fast revenue flow, unfortunately some of those did not materialize yet they are still in the pipe line and that has slowed a little bit down, slowed it down in a sense, we still have a very remarkable order growth in the third quarter which obviously will help us considerably all the way in the fourth quarter, so I think that is were he boasts his confidence on that some of what he thought is going to come or slip in to the third quarter that goes in to the fourth and we had a good track record from in the third quarter of all the building. So he is confident that we can achieve the 3% but if you take the 3% against competition I think we would all agree that is already a remarkable growth rate. It is a challenging one, but he has stands behind us and it is a slow(ph) one for the fourth quarter, that is correct. Lummus, I think we have to split Lummus into two parts. Lummus is a cleaning exercise and it is a preparing exercise for the divestment(ph).

The cleaning exercise, we are now down to very few, I think it is three projects by now, which are still coming out of the old phase, which I am trying to solve, but that I can now say I am trying to solve it because as (inaudible) present, I took over the management responsibility for the whole of OGP including Lummus with immediate effect and we are sorting in a very fast way now these legacy issues out.

As you have seen, I have taken it out of court(ph) settlements agreement in the third quarter already (inaudible) I have carefully re-looked at all the negotiations and all the milestones of the refinery projects in India and you can see the handwriting there. So, I think that is the one part, which you are cleaning(ph). I have never made (inaudible) out of it, we are not yet through there. We are trying to settle, we are trying to get the best outcome for ABB and fortunately we will have two or three projects going into the fourth quarter and maybe one even into the first quarter.

The rest of the basis (ph) what is coming in new, we have seen all the development in the third quarter, which was very strong compared to last year. These are reimbursable contracts. They come in with not such a high margin, there may be some of the lump some ones, but they are coming in at let us say reasonable margins and in that sense more secured margins and we are confident on the 2004 revenue stream and margin stream for the EPC as well as technology part of Lummus Global.

I am not going to give you budget numbers in that sense, I do not think you will expect that, but I think I am confident on the new business that we are on the right tract and that is also sellable. On the timing, I have said it clearly I do not see it happen, this year -- this part, we have concentrated on upstream, which we have announced so Lummus will come slightly later, I think the floating production system and the technology which will come earlier than EPC dates. I am not going to give timing on it.

Thank you.

The next question is from Mr. James Tettler(ph); of Breisner(ph), please go ahead sir.

Thank you. Just looking at the size of the rights issues $2.5 billion, how did you come up with that number I mean basically -- in terms of the improved cash flow generation are you factoring in on it, I heard sort of in a press conference you were mentioning acquisition (inaudible) what is really behind this big program?

Thanks James, I could tell you we are not in for big acquisitions and you can quote me on that one and what is behind here is quite clearly I want to restructure and recapitalize ABB in one go and I will take -- and I will do it and want to do it so that everybody knows that for the (inaudible) future we have, a) The right balance sheet structure and b) We have all the -- all the liquidity which we will need to position this company for growth on a sustainable basis and make sure that maturing debts and our debts level you know that is relatively sizable that all these worries and all these concerns are once and for all gone. And given the full quarter track records now of the two core divisions which we are focusing and turning around and building confidence I think we will be able to deliver share holder value in a bigger way by having a properly structured balance sheet which allows us to participate in the market in the right way.

Now participating in the market in the right way doesn't mean big acquisitions but it is positioning of in the right structure and in the right segments.

Thank you, just a question on the cash flow. As you had 300 million cash flow from the operations from the two core divisions in the quarter and there were some big swing factors in terms of working capital other factors and liabilities are more there anything unusual about number and could you may be give us any guidance for cash flow in Q4.

OK I start with the guidance that is easier. As usual we have (inaudible) closure and we will at least be at the EBIT level for the fourth quarter and in that sense I am very perfectly on the cash flow and the development on the two core divisions. Can you just repeat the first question? I missed the line you were asking for.

Yes if you look at the $300 million that you had for the core, I mean there was some big movements in your working capital. Other aspects and liabilities there is a movement there of about 326 million other aspects and liabilities was there anything unusual there just is any timing issues.

No I would not say it is unusual, I think the main contribute (inaudible) prepaid expenses under positive impact from sales to net sales of invoicing. But I would call this pretty much standard working capital management.

Thank You.

The next question is from Lisa Randall of Lehman brothers, please go ahead madam

I'll just come back on to the size of the extra increase first of all. Can you comment whether you expect any major capital of this on divestment going forward and also comment whether taken into consideration for the size of the extra increase is reflection of any customers concerns about the strength of the balance sheet and in the second question just relate to the 142 million of gains included in the EBIT number.

Could you just consent for me how far does the 95 million on the more (inaudible) system was the balance 47 million and if that was included in either automation or power technology event. Thank You.

OK now I start with the last one the to make one apart from the 95 (inaudible) I guess was 28 or so. So there is nothing major in (inaudible). These are balance accounts which are pretty clean nothing special in it.

OK

On the customer side I don't think it is a customer vary in the first instance, besides this one. It is the CFO, who wants to have a balance sheet, which is actually and I have never made a secret out of that which corresponds to technology company, which should have a much better share holder's equity provision in the longer run.

One would actually help and may be reduce management time which explains things to the customers, I'm sure it will. I think it well be obviously a relief as well in that sense that the balance sheet now properly reflects where we want to go and how it is positioned but I think it is mainly for us to have the flexibility to grow into position to have to write results in development, the right long term projects going etc etc. It will help on the custom relationship quite clearly certainly be semi-government loans on customer's base it will be positive, no doubt.

OK.

Just repeat the first one.

The first is just related to whether the size that is increased also increases in expectation for both losses on major divestment.

I think I will turn this question around in such a way that the right issue will recourse to you, there is a possibility to optimize the renovation or the values we will get for the divestments apart from the OGP upstream which we have already announced. In a better way, so we will be in a stronger negotiation position and from a timing point if you, one may sit a little bit more tight around the negotiation table instead of giving in towards describe it in a vary a picturesque way I think that is the benefit we have. Can we divest all of our half an hour table without capital losses I could not answer that question now, I am too long in the business, normally all was after some losses somewhere when your sell business is, so I cannot rule that out.

OK, Thank you.

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

Hi, it is Michael Hoffman of UBS a just one question if I may, even about this going on in it OGP are you de Pro Tech right down, de Pro tech of over run and the right down under receivables, you were saying that you will have to go through some more Pro Tech within our OGP in next of months I guess. Once you finish with that, do you think there is a need that you will have to do different things in other parts of the business? Are you, are there various accounting risks in other parts of the company?

Yes, I will look all the accounting risks, I think I will call them project risks this date or just to add that to you Michael, we have done on to you, remember in 2002, we spend a lot of time to clean up what is now called for, power systems, it used to be called utilities in the past. Do you remember we added at least two or three quarters in a row where we cleaned up some very old projects? So, I think whatever has to be done there I think the message to the divisions is very simple, if you have a loss some where you better make it up for an another basis. So, what I am trying to say, you will always have projects where may be got better or got less good, but I think that is not the swing factor anymore in PT&AT. I think you can ignore that. On the OGP, I was told to say that we are talking about down stream really it is not affecting the upstream business quiet clearly, even if it is in down stream it is not affecting close in production or to a lesser extent there lots of Technology beat EBIT besides where the growth starts at the alarm some contract basis is often of to pay a heavy price for it.

In the other parts of the business apart from AT&PT, I mean if you look at some of the noncore businesses

Yes, I think we have judged, we have seen over the last three quarters, we have cleaned up buildings systems as well road of majors issues together with some restructuring, but the restructuring is also abnormally contract adjustments and mainly in Germany, Sweden, Italy, and UK as you remember, but I will do not so concede (inaudible) as being dealt with what you see as negative result in building systems at this stage on the operational site. This is driven by the week economy, by the week consumption business and it is not a question of right off.

Thanks.

Thanks

The next question from Mr. Peter Reilly of Deutsche Bank, please go-ahead sir.

Good Afternoon. The two questions please. Firstly, can you take us to the proceeds of all Gas and petrochemical a bit more detail and that it took major write downs in the third quarter but also noticed there is a $200 million cash outflow in the OGP in the third quarter. Why the major cash out flow given at the right dimension there should have been known cash and does it mean it tends to process near about $750, $950 and then secondly can you give us some guidance on what you using the price saves on the writes issue on the disposal or which (inaudible) you going to be repairing. I am going to you could recall and council some of the high (inaudible) bonds issued last year.

OK. few comments. I think the cash outflow is not related to up string so I think you conclusion on the 925 and $975 is actually the wrong one. I am not going to go into price detail at this stage, let me first find the final stage the purchase agreement which commercially we have to group in terms I do agree for that which has finished that one before we go into deep this once we have done that we will be as far as from as usual. The cash out flows are coming from the downstream business that I am not saying that disappointment to my (inaudible) as well. As a presence I have said already I will take care of this business now myself.

We have seen in some parts actually we have had some increase in the receivable and that most of it actually coming from OGP and that and so unfortunately we have no cash in sufficient receivable in order to be at the levels of the cash flow which actually our predicted to be a negative but not in being in the sense of 200 million should have been actually much lower.

I can conformed that the Indian project which went away and also the out of course settlement which is 35 if I am not mistake these are both non cash items remains non cash item in that trend. There is really ongoing business that we have the higher receivable balance in (inaudible).

And on the debt side I think you all will understand (inaudible) about completely how it execute how to deal (inaudible) with debt reduction I was very careful in pointing out that we are entirely free in debts at the year-end and hence we are just going to repay $350 million of maturity long term debt in some kind of safety for credit facility which gives you the 1.1 that is really what is going to go. And the right issue and the potential bond after sufficient liquidity to de leverage the company and repay bonus over the next three years. Let me put it this way I do not fore see a big bonds repurchase exercise in the near term and will communicate once we have taken certain decisions.

Thank You.

The next question is from the William Clarkson(ph) of First Boston. Please go ahead sir.

Hi. Just a couple of quick questions on just some cooper line obviously noted $144 million next to the check out the capital gain. There is no restructuring charge of the first three (inaudible) when are we going to stop seeing from the restructuring charge taken henceforth the maximum they are going to have and secondly I guess it could be looking at the restructuring charge that grow obviously restructuring charge of course came in about $69 million all of them as expected we are going to see a larger restructuring charges gains Q4.

Yes. Thanks for the question. I think on the profit side you have seen a certain coming down on the (inaudible) even if you correct actually for the capital gain if I am not mistaken it was $143 last year it was something just above on this year. So we are making some savings on that side you are making savings much more on a kind of a natural building down at this stage taking complexity out at local levels actually without spending too much money in that sense, but, are you repeat what that said earlier that most of the (inaudible) distributive cost --cost in that sense will come actually in the second phase once we have divested most of our --on business.

Once we have actually take full advantage of reducing from 8 divisions to 2 divisions 8 last year to 2 this year and that will only come somewhere during next year these projects and programs are in place some we are working with arriving cost down and I am not worried about head cost caused in Zurich as I said last time we are quite clearly driving the cost down in the many local head causes which we have to go that is absolutely not necessary when you are on the focus to division strategy.

Well I think, can we ask to give me some time on these one to deliver and never fore seen to have the run rate (inaudible) at the two core divisions it was all was going to be a part which is in 2004. Now your second question is about restructuring I think for the time being we maintain a total 3 but I think we can say it, as we will most probably not to that higher (inaudible)

But I have got little bit conservative from this one we treat it as a kind of guidance but only few actually go down some million there I think I would also agreed about these all is kind of guidance which I could accept. I think we may not reach the 300 for the group as total for this year.

Ok. Thank you.

OK.

The next question is from Mr. Tim Adam of city group please go-ahead sir.

Yes -- city group. First of two questions. One is the guidance you are giving on simple total debt 2005 does not it pay it to you know have any change with in the number. I am just wondering you know what so lies behind that.

I will answer this straight away I have given a target (inaudible) assume normal repayment of the debt when the do mature and not taking any other initiatives some measures to bring the earlier down.

Right Ok and the other question I got was on the benches their within the non core activities I mean we would have a another couple of right terms in this report I mean how far yourself looking through you know over the constriction of this new venture space. You know, I mean can you give us any guidance towards anything left in that requires attentions in terms of further items.

OK. Good question. The main energy project we are creating of rings we are selling some we are closing down the early count sales unfortunately these project in Germany is not a really lucky one and in order to actually sell it and that's why we even call this kind of capital loss that we can actually sell it and deal with it we have to write it down in Paris so that is what the $23 million is. There are only two projects left afterwards dynamic year rather demolishing green, otherwise we have to few very limited IT software participations in there not taking numbers. The only significant one left of how to close time the micro turbine bench and how and its distributed energy which is now at the break even stage from the result point of view that was heavy but heavy loss making 12 months ago we turn it around because we have to turn it around you know to sell it

We are in the process of selling it we will be careful there in out and out to destroy value we will hang on to it is necessary with the capital loss will be too big but as the only big one left in that sense and I am sure you will be asking about the book value so I keep it up from the lovely state in that I hit around the 100 billion bugs.

Thank you

The next question is from Mr. Pelery Gibionier (ph) of Goldman Sachs (ph) please go-ahead sir

Yes Peter a couple of question please, on the phase of it you will be less once the copy selling increase is down and the new bank procedure in place you will be less with a couple of pressure with basically no bank lines I guess you are planning to paid down the current, secured facility you will be less with a pump eye unsecured line so I just wonder if that is the plan and what, I mean where you would seemed a discussion with your bank were might have been some place in that you decided to get rid of that in official color look structure

OK. I am not sure if you really want me to comment on that but I will try I mean on the un pleasant way I think your bank will go back to the credit facility which we obviously negotiated last December that was not a very pleasant experience on past then I said I am not going to suit out again. I think you have to chief that yes we all struck to the all credit facility if everything goes as plan as above time today is no longer necessarily predict down and we certainly now turned it out

The banks were extremely supportive to this new credit facility by they are seeing it is actually committed to one it will be the growth rather capital project it will be around 6 years to 1 and it is actually also from a restriction point of view in terms of covenants etc. I will call these kind of align in credit line which gets very much in to the nature of an investment great credit facility

OK and second question on free cash flow from unusual items in no call if you go to the slide from casual of an operating activity corporate and other generate an inflow of $156 million I want if you can comment on this

Yes it is to core produce is that not as the others there is a strange accounting ruling which we have, which is really when you set to the relative contract the cash effect of those you have to show in operating cash flow. We have some positive start this quarters we have some negatives last quarter, I did not mention it because these thing do come and go depending on your edge and edge strategy I can all, so there was a positive leadership(ph) mainly an effect on those I can only tell you over nine months the effect is more like zero which will break even effect

This is over 9 months starting from (inaudible)

No starting from the first of January this year so it is has known effects with some-- the cash, the operating cash flow for 9 months

where was the where was it that you are edging

Well this is a currently an in sight edges

OK, thanks

They are just proved to be absolutely clean they are not shown as far the financial activity if they are actually linked to your operational business and you know that we have long term contracts for long term projects in different currencies, then we are -- let us say operating and those things are hedged(ph) according to a certain hedge(ph) policy which we have and when they become view(ph) and are reviewed they are actually booked to operating cash flow.

Clear.

Thank you

OK.

The next question is Ms. Swantje(ph) Conrad of JP Morgan, please go ahead madam.

Yes. Good afternoon, actually if I can just follow up on the question just asked if I rephrase this correctly, you said you had in excess of $100 million of cash flow because of these derivative settlement and can you give us the Q2 number just so we have a feeling for the swing factor.

It is actually the same number (inaudible)

Positive as well.

No negative.

Negative.

It is more or less a break-even for nine months, but the big movements according to the dollar data the other currencies lost between Q2 and Q3 so that is a zero effect.

On six months. OK.

Yes, more or less they were (inaudible) -- I mean you can hand(ph) me up on this, well I would have check how much is exactly was in the first quarter but it was not material in the first quarter.

OK, but I am sure you I appreciate that, for us the improvement in cash flow is quite important, so I am just trying to understand what has been from operations and what seems to be more financially related. OK.

And I am as worried as you are, Swantje, sorry interrupt, and that is why (inaudible).

OK. The other question relates to the automation guidance for the full year. I am not really quite sure how to read your guidance, I mean I guess on the top line you are implying quite a decline in the fourth quarter in organic revenue developments, but I am more concerned even about the margin developments where your guidance seems to be below the current run rate for the nine months. So, is there huge restructuring charges to come in the fourth quarter or is this a conservative guidance or how do we have to read this.

I think you have to read it as a I mentioned between(ph) the two we are expecting some higher restructuring charges, but there is a chance, that we will come in higher, but we are not changing the targets for at this stage and you know at least my philosophy, we want to achieve what we promised as much as we can and I will be more than pleased to stand up here and have a higher margin at the year end if it is going to be like that.

So, I think, yes they are some -- we are somewhat conservative there, but you have to expect a slightly higher or a higher restructuring charge for (inaudible) fourth quarter.

OK and then the last question, again if I can go back to the OGP disposal I think I am still not clear in terms of on the sale of the upstream business you know what is your effect -- you are expecting a capital gain or capital loss, can you please give us some guidance there and can you help us understand the earnings profile between the two businesses so we can appropriately model the fact that one is gone and one will stay.

OK, I have never said one will stay -- one will stay a little bit long (inaudible) precise there.

OK.

Let me just deal with the second issue first, we have never broken it down in that sense so I am not going to open it up at the moment. It will become very clear once we are getting to the sale, which is towards the end of the year and then I will be certain to giving you more guidance on that one for the future years.

But I think we are developing the (inaudible) business which is the big warning downstream as I said earlier in such a way and I have given guidance there in the past that compared to a lump some and normal project on an engineering basis etc., it may be around the middle (inaudible) margin level as you may remember some quarters ago I said that I think I would just leave it at that for the time being in terms of state of the earnings.

Sorry, capital gain.

In the capital gain, yes I still do expect the capital gain. We will communicate to you once we have signed a purchase agreement how much that is going to be, but I am still positive on a capital gain.

And actually if I have a follow up, there is some cash in the assets to be disposed off, would there be cash in the upstream business and would we have to deduct that from the 925 to 975.

Yes, there is some cash there, it is not the major part of it. That would have to be deducted, that is correct. I (inaudible) my head I do not have to number how much cash is in upstream so I can(ph) (inaudible) that.

Thank You

The next question is from Unidentified from (inaudible) please go ahead sir

I have two questions. Can you give me some indication regarding your cost savings Mr. Centerman has implemented. Mr. Centerman has commended a $500 million cost restructuring program. Can you give me how much of his savings have you seen in the current year. And the second thing can you give me some feeling about the pricing level in the order in taken automation and power technology. Thank you.

We are very pleased to start with your second one. In terms of the pricing development I mean the order books that is in line with our expectations and is a reflection of a healthy development for both the product business as well as the large project business. So from that point of view, I think you are aiming at the price erosion discussion here. We did not buy market share in that sense we actually got an order intake, which was very high in the profitable mode.

The second one that is a very difficult one to answer because that project was started in June 2001, we stopped it and declared it as being done in September last year. Since then we have an extremely detailed tracking mechanism for asset(ph) change. I have given you all the numbers. I do not have the numbers for the $500 million project anymore. Some of it is certainly reflected but I do not have the details.

Thank you.

The next question is from Mr. Alessandro(ph) Colleti of (inaudible) Please go ahead sir.

Yes, good afternoon Mr. Voser. I would like to have your information on this one. Do you expect insurance business to be -- a part(ph) of it to be in 2005.

If you pick the year 2007, I would say no. At 2005 I do not know yet.

What is the reason for you not to go on with this (inaudible).

That depends. If someone comes along and offers me the right price, I will sell it. So through out of that that you can read that my eyes are open but I will have a very opportunistic view and approach on this one.

OK, thank you.

OK

The next question is from Mr. Raymond Reid(ph) from Merrill Lynch. Please go ahead sir.

Hello Peter, a couple of questions for you. Just coming back to the rights(ph) issue again. We have clearly discussed the size of the rights issue. I am a little more interested in the timing of it because clearly with the (inaudible) rising and the relatively imminent disposal of the upstream on Gas business would it not have been more advantages you to wait to do the right issue following the total resolution of the asbestos issue?

I would then link to two things I think we have had two courts ruling on this plan and stating that the plan are actually sufficiently (inaudible) in such a way that will fulfill the purpose and that was confirmed by the future and also by cut employments. So I think that is about is (inaudible) in the sinking year we have demonstrated now for a few closest that we are on the right track with two core division and we are growing we want to have as I said earlier on, we want to be positioned in the right way and the one piece that missing was actually to capitalize the company and structure the balance sheet in such a way that we are well positioned.

We could have gone on for an organic way to do that and also for refinancing some of the debts in the boom market but I think the time of which would have been needed for that at least it might judgment was too long and we think we have built up the confidence of the management team as a company which invested area and I think with the prospect of increased share the value in the medium long term we felt it's the right time to go this step now as the one step as the big step I do agree but it takes out the balance sheet discussion and it fixes it for once and for all.

OK just some to the quick finance question if you don't mind first of all in that interest expanse, you said there finally there was some marked market down convertible can you just let me know how much that was please

That was 43 this quarter loss 185 negative in the comparable quarter last year

OK and the other thing is on your 2005 guidance what your assumption now in terms of corporate cost of 2005?

130 head quarter cost $90 million research and development total 220 that has not changed I can tell you it will not change.

OK thank you very much

OK I think we will take some of the 5,6 questions and then stop although we are few minutes on the time, next one.

The next question is from Mr. Olivie Iznu(ph) of Exon(ph), please go ahead sir.

Good afternoon Olivie from Exon I got three small question Are you in this situation where you could already put a cap on the maximum ride on you can take on the remaining Oil and Gas project you mentioned earlier

No I cannot do that.

Second question, in the insurance business you are already quite close to your four year target in the nine months and could you give us an idea with what the sort of normalized profitability of that business is it a big seasonality or is it better than you anticipated earlier

You are talking about the insurance business.

Yes.

Yes OK I think there are two comments here I think we are fully according to plan and normally on the technical insurance results, well this year obviously what we have is the benefit of the financial income which is higher than in the normal years because the equity market is obviously improving and that gives us some profits there so I think we are slightly above a normal year in that sense, and I don't have a problem to give you a guidance which is in the area of 80 to $90 million over normal year I think we gave $90 for 2005.

OK. Last month on success finance can you remind it the good value of what remains to be sold and whether that actually increase the leads needed that relate to the on operations or not?

And there is a both value lest obviously I do not have to think it with me but there are some reason which belong to office on project which belong to our stable state. We guide some figures last year, I think on the pieces to be soled steadies very little lest in terms to total lease portfolio. I think you are talking and this now an estimate I would not have to check the exact number your are talking around 200 to $300 million of lease skill lads, some of them will be sold over time to some will be hang on just until they mature but that is not that is enough in material in that sense.

The destruction finance business that relate to your own operation you will keep? There is no stops to finance businesses which relate to us, raw mean that the needs that relates to your business.

Yes, that we will repeat, yes we will not get that out but there is no too much relief's actually around and there is no project financing for the large project which we have carried out, more we are carrying out kind of loans drops to stay that where will being kept and the other one which is kept is too mid sales to do some financial advice that which we need for our large customers when they do finance large project. But we will not take that on to our balance sheet that is just an advisory service.

OK, thank you.

OK.

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

Good afternoon, a couple of questions if I may, firstly can you give us an indication of the level of bookings we might expect in the fourth quarter or at least, what do your factoring in when you are sticking with your 4% margin guidance for 2003 and also you are able to offer a bit more guidance some where the other asset and liabilities line should develop for the full year. I believe the fourth quarter is normally seasonally a strong period, Thanks for the working capital and for that particular line and lastly where are we with (inaudible)?

OK, I think we have given the guidance on the (inaudible) for 4% actually excluding capital losses and these impairments for potential stage. So in that sense, we are, I think after nine months, the way we calculated around 67% or something like that, so I do not think actually capital gains for the fourth quarter are relevant because you would exclude them any way. But I can also see any big divestments at this stage which will give a significant capital gains out of the remaining portfolio (inaudible) actually slips into 2004. That is point one, point two is yes you are right this fourth quarter is stronger, it is not going to be as strong as in 2000 and involvement some previous year because we are quite clearly doing a more balanced working capital management, but I think you can expect this stronger than normal performance in that particular line.

OK.

Last one I need.

(inaudible)

Sure, showed feature is a very good example of why we are doing the capital restructuring program (inaudible) very well kept asset it is highly EBIT generating, highly cash generating. We are in the advanced negotiation stage, but we will only fill as it is to get the right price. It is advanced we will let you know once we have made up our mind on that one, but (inaudible) which I will not rule out if I am not getting the right price.

Thank you.

OK, and now the last question.

OK, the last question is from Ms. Kate Kirby of Brisner(ph), please go ahead madam.

Hello Peter, it is just a quick question, can you give us any guidance on the new bank facility -- pricing on the new bank facility.

Sorry, what guidance do you want?

I was just curious, if you could give us any price guidance on.

No. You know we do not do that, you will then -- once everything is behind us when we file the annual report, we normally file the creditors (inaudible) agreement as part of the material contract (inaudible) but let us finish everything, it is all done and let us go through the capital stock when we come back. I gave you the indication, I think the pricing is very well done for the company and our credit rating are at the moment, and it is obviously improving, the better we are on a credit rating basis.

OK, thank you.

OK. Good, thank you very much for calling in. (inaudible) some busy months over the last two months, but I think we are all happy that we have gone this way and I am sure we will talk over the next few weeks, when I am on road shows thank you very much, bye.

Ladies and gentleman, the conference call is now over, you may disconnect your telephones, thank you for joining good bye.