Abb Ltd (ABB) 2003 Q4 法說會逐字稿

Ladies and gentlemen, good afternoon to this year's presentation of ABB Full Year 2003 and of course also Fourth Quarter Results. You all had, I hope so, time to go through the press release this morning. We will have a sequence like last year, with our Chairman, Mr. Dormann, Chairman, CEO kicking off. We then have Peter Voser, with the financials, Gary Steel will tell you a little bit about the achievements that we had in Step change and the cultural change implication that this program has, and we will then give you certainly the opportunity to ask the first round of questions. We will have a little break after that, and then we'll go right into the core activities of ABB, the activities that are mainly responsible, I would say, for the good results that we were able to show today with presentation of Peter Smits for Power Technologies, and Dinesh Paliwal, on Automation Technology, we will then have another round of Q&A, and after we close here, we will all be around for a couple of minutes of course for a more informal gathering outside, where we can have further discussions on what we have heard here. So with that I would like to hand over to Jurgen Dormann. Please.

Thank you very much. I was wondering, why don’t we go directly to those guys who are running the businesses, the next time perhaps we will be ready for that; balance sheet, finance, all other [assets] that will be in line anyhow, so it's really a focus in the business.

Welcome ladies and gentlemen, 2003 end year results; it was a turnaround year. A year of important progress, the core businesses posted significant improvements in a challenging year, despite mixed markets, and ABB Group nearly doubled EBIT in 2003. The core divisions lifted operating cash flow for the full year, generating almost $1.5b in cash. In Q4 we saw a robust orders and revenue gross and the core divisions improved revenues and EBIT for their fifth consecutive quarter. We are continuing to divest non-core activities and are on track to deliver gross proceeds exceeding $2b from our divestments. Finalizing the divestment program and driving operational improvement even further will remain our priority in 2004. In operation excellence, we can already point to solid progress.

In 2003, we were able to sustainably lower our cost base. The Step change program to reduce cost by $900m by midyear 2004 is ahead of schedule. Another key achievement in ’03 was a capital strengthening program. It consisted of 1b Swiss franc convertible bond in August ’03, plus $2.5b from the share rights issue, further bond of $650m euro, and $1b standby credit facility. Our strengthened capital base gives us a platform -- the platform beneath to execute our strategy of profitable growth with more competitive cost management. This ability enables us to position ABB for future success. But as you know, there are no shortcuts to success in business. Despite the robust improvements in our core businesses, we posted a net loss in 2003 as you have seen in the press release. This stands from losses in discontinued operations mainly non-cash write-downs and losses on the sale or closure of businesses undertaken as part of our vigorous efforts to shop into focus on what we do best -- Power and Automation Technologies. While it not only is painful to incur a net loss for the third year running, this has been necessary as part of the efforts to turn ABB into a focused, successful growth company. We are confident that we have taken the necessary prudent measures to sufficient rigor and vigor to improve profitability in 2004. In 2003, we also made good progress in our efforts to put the asbestos issue to a rest -- to rest. Even though there have been delays, our position is unchanged. In our view a solution is within reach. We remain confident that the Chapter 11 plan for Combustion Engineering will be approved. The turnaround success in our core businesses, the successful capital program, the cost management achievements, and our progress in divesting businesses that are no longer core have been possible because of the strengths and vitality of the ABB brand, and our skilled and dedicated people, and the excellent products and know-how that our name represents.

We are safeguarding the technology leadership that underpins our brand. In 2003 ABB invested a total of $930m in R&D and order-related development. That is about 5% of revenues compared to $795m or 4.5% of the revenues in 2002. Our customers' loyalty, the good fighting spirit, in ABB, our leading technology in market position, and signs that an economic upturn is beginning in key markets make us look ahead to 2004 with confidence. Based on current estimates, we expect demand in most markets to continue to grow into '04 especially in the second half of the year. We expect continued robust economic growth in Asia and see the beginnings of a recovery in Europe and the U.S. We believe that this market development combined with continued cost reduction and [fi] expense will lead to an improvement in profitability in 2004 compared to 2003. Therefore today, we also confirm our targets for 2005. A compound average annual revenue growth of 4% in local currencies from 2002 to 2005.And for 2005, an EBIT margin of 8% in U.S. dollars and the total debt of $4b corresponding to gearing of around 50%. So you see we are making steady progress precisely because we are taking no shortcuts, there are no short cuts.

Now for a full review of our Q4 and full year results 2003, I hand over to Peter, our Chief Financial Officer.

Thanks Jurgen. Today, I will focus my remarks primarily on the business development in the fourth quarter. Let me start with a quick overview. We again had a solid operational performance from our core divisions, as Jurgen just mentioned. Our net loss is mainly the result of non-cash losses in discontinued operations. If you look at the core divisions, they reported a strong growth in orders in the fourth quarter up a combined 23% in dollar terms and more than 10% higher in local currencies as well. Revenues were up 13% basically in dollar terms and basically flat in local currencies; that’s in line with our -- better than most of our competitors for a period. Even in the core divisions almost doubled in the quarter the [fifth] quarter in a row of improved earnings as we continue to benefit from Step Change cost improvement program. Cash flow was up by more than the third. The core divisions generated almost $1b in cash from operations in the quarter. As I mentioned, cost reductions continued to pay off. As you know, we launched our Step Change program last year to increase the competitiveness of our core businesses, reduced overhead cost, and streamline operations by approximately 900m on an annual basis by '05. We realized net savings in the quarter from Step Change of about $235m reducing some 1,400 jobs and taking a restructuring cost in order to achieve those [actual] things of $72m.

Now to ahead of target and I will come back on that in a moment. Our divestment program continued. We announced in December a deal to divest our reinsurance for some $425m. I expect that to be closed into first half of this year. We also successfully concluded negotiations to set our upstream oil and gas business at an initial purchase price of $925m. Again, I expect this divestment to be closed in the middle of the year.

Last but not least, we completed our three pillar capital strengthening program in the first quarter which will defrost a solid foundation for future growth and covers our liquidity needs for the foreseeable future.

I'll talk just briefly on the two core divisions, as Peter and Dinesh will take you further into the details of their results in a few minutes. Let me just give you the highlights for PT first; orders were up strongly as we again a saw good growth in Asia and the recovering large orders into first quarter. Revenues developed inline with the order backlog and the EBIT was up sharply with the margin rising to 7.8% in the quarter. Cash flow from operations was more than 20% up at $433m. Automation technologies show exactly a similar positive development with continuous growth in Asia and signs of recovery into North American market. Growth in product and service sales helped lift revenues and EBIT more than doubled to $225m lifting the margin to more than 9% in the quarter. Cash flow was also up sharply 40% to 536m. Looking at the EBIT, the core divisions improved earnings significantly in both the quarter and for the full year. Losses in non-core activities and corporate cost reduced the overall EBIT but still reflects an increase of $186m in Q4 $310m in -- for the whole year of 2003, which is an improvement of 90% for the year. This all leads to a margin for the group of 3.7 for the quarter and 3.5% for the year. Excluding capital gains and losses on the divestment of businesses the group EBIT margin for the quarter was 3.8% and for the year the margin was 3.7%, which is just slightly below our target of 4%.

Looking at losses in non-core activities, Building Systems was still the largest loss maker. Ongoing restructuring charges in Germany and the loss on the sale of the U.K. business led to a loss of $43m in the quarter compared to 35m in the previous year. We closed or divested all the renewable energy activities in our new venture business in the quarter. Compared to a year ago you can see that the scope of activities in non-core has already been considerably reduced; a trend that will obviously continue in '04 as we divest the rest of Building Systems and other activities.

Discontinued operations continued to drag down the group's result. The main factors in the negative results were also for 162m on the announced divestment of the reinsurance business including a loss on the transaction itself of $153m and the negative result from the oil, gas, and petrochemicals business comprising write-downs of 100m and then additional tax charge of more than $120m related to the reassessment of deferred taxes in OGP downstream. Significant steps were taken in the fourth quarter in OGP downstream. Such as change of the CEO and the management reporting to the CEO. Responsibility changes as the group executive level. Reorganizations down to the various hierarchical levels in the Netherlands and in Houston and further cost reduction programs, which we started.

In other divested businesses, the force line there, we booked losses on the sale of a cable factory in Germany and the wind energy venture also in Germany.

To summarize our net results, we showed a loss of $767m as discontinued operations has just shown again more that offset the underlying profitability of the core divisions. The $853m of the losses in discontinued operations for the year more than half was taken actually in the first quarter. In addition to OGP divestments, closure in asbestos contributed to the loss. Our net financing cost amounts to 77m in the quarter, a decrease that represents mainly the non-recurrence of financial losses in Q4 2002.

For the full year, the financed net was effective by higher funding costs associated with the previous credit facility. And repayment of all the remaining commercial papers in 2003 which as you know had low interest rates. This item also contains and that’s the most important one for the swing, the impact of the equity conversion option in the 2002 convertible bond, which had a negative effect of $84m in Q4 in 2003 against a $215m gain in 2002.

Now let me spend some time on the cash flow, and this looks as a busy slide, and it gives you all the necessary information. During 2003, the cash from operating activities was again negatively impacted by the non-core activities, discontinued operations, [gross] asbestos related, funding [jobs] for the asbestos fund. Non-core activities produced a cash outflow of $239m mainly due to the restructuring measures related to the sale of Building Systems and junk changes in the structure in Building Systems, which we went away from large project business, on a fixed price basis to smallish projects not on a fixed price basis. Asbestos related cash contributions to the combustion engineering settlement trust amounted to $388m. The strategy shift to reimbursable contracts in the downstream oil, gas, and petrochemicals business resulted in a working capital adjustment that was the main factor behind 526m cash outflow. I have briefed you on that through out the year, that we have a change in the strategy there.

Here you can see the positive development in the cash generation of our core divisions, which as I mentioned earlier generated almost a billion dollar in cash in the fourth quarter, up 34% from the same quarter in '02, reflecting both the stronger earnings stream and also the improved net working capital management. For the full year, the core divisions increased cash flow by 70%to almost 1.5b. Because of the cash trends I just described on the discontinued non core businesses we reported a negative cash flow for the group of 161m for the full year. However in the fourth quarter it needs to be mentioned that both non-core activities and discontinued operations, i.e., OGP generated a positive cash flow.

I think 2003 was a landmark year for ABB in the capital markets. We carried out two programs in the year, consisting of the Swiss frank convertible bond we issued in August that was 8 times over subscribed, and then followed by the three pillars program in the fourth quarter in which we raised a total of close to $4b through a rights issue, a straight bond and a stand by credit facility that we have not drawn down, and we are not intending to draw down. At the same time we repaid your facility and canceled it in December - secured facility. It's these measures, ladies and gentlemen, restored our balance sheet to the levels I consider appropriate to industrial company like ABB, and we have greatly improved our liquidity strengths.

Furthermore we view the positive reaction of the market as a strong vote of a new confidence in the ABB strategy to focus on two core divisions and get things behind us. As a consequence of the capital strengthening programs carried out in 2003, our balance sheet ratios have improved considerably. With gross debt levels of $7.9b hardly changed compared to a year ago, adjusted for the 650m euro bond issued in December, we met our revised gross debt target of $7.3b as announced in October. Net debt was lowered by nearly half and was used in gearing to 70% our target for the year, and all these numbers to exclude insurance cash by now.

As another result of our two bond issues in '03, we have established a more stable debt maturity profile with repayments scheduled after '05 of between $600-900m a year. This is a level that ABB can service out of the cash generating capabilities of its operating activities. You have heard what the core divisions can do. The quarterly maturities in '04 of $1.3b will be redeemed in the first three quarters with half of the amount being repaid by the end of the first quarter.

We continued our program of divestments into first quarter. We were able to finalize the sales agreement we first announced in late October to divest our upstream oil and gas business with the signing taking place just [often] to new year, so, fortunately slipped two weeks. The divestment has an initial purchase price of $925m as announced with a potential deferred consideration of up to $50m on the 2004 EBITDA. The closing of the deal is subject to customary regulatory approvals and [inaudible] completion of a compliance review being undertaken together with the buyer. That review is proceeding on track and the closing is expected of the transaction by mid-year.

In the fourth quarter, we also unannounced the sale of the reinsurance business for about $425m cash proceeds with an expected closing during the first half of 2004 as well. Having received $1.2b from disposals carried out in 2003 plus the ones we have already signed, you can see that we are very well on track to reach more than $2b in proceeds from the announced divestments at the end of 2002. The largest units remaining to be divested are the downstream oil and gas business, which are linked to the Asbestos Solutions and the Building System activities in Germany and Switzerland. They will all be sold in 2004. Our EBIT improvement in the quarter and for the year is primarily the result of the success of our staff change cost improvement program. We surpassed our targets for both total savings and the cost of the program. In the fourth quarter, as I said, we realized cost savings of $235m on the restructuring cost of $72m. For the year, the savings were $655m with a cost of $234m. Total numbers of job reductions are just above 7,000 and we expect that we realize the full target, as previously announced, $900m by June 2004.

On Asbestos, we waiting a hearing date from the Circuit Court of Appeals and don’t ask us when the date will be, we don’t know. The plan of reorganization submitted by our U.S. subsidiary Combustion Engineering at the beginning of last year has been approved by both the Bankruptcy Court and the District Court and we remain confident that it will be confirmed.

Looking at our EBIT margins development since 2002 including restructuring measures. In 2003 we were able to significantly improve the EBIT margin, both before and after restructuring cost. We are confident that we can continue this performance and that we are well on track to reaching our ’05 targets. Looking ahead, we expect the growth in market demand that we saw in the fourth quarter of '03 to continue into '04. Growth rates in Asia will remain robust and we expect to see a pickup in demand in Europe and North America, especially in the second half of 2004. Peter and Dinesh will go by market, by region in more detail to you. At the same time, improving our cost competitiveness further will remain a priority -- operational excellence is the key word. We will focus on this operational excellence and we will complete the execution of the Step Change program. The further reduction of the impact from our non-core activities will also have a positive effect as most of it has now been sold. Supported by growth in the markets we expect our cost reduction actions to result in a continued improvement in profitability in 2004, so that we can confirm our Group targets EBIT targets for 2005 of 8%. And here are the rest of our targets for ‘05, unchanged and well known to all of you; we expect still a compound average annual revenue growth rate for the Group of 4% in local currency from 2002-2005, which the more important components are PT, 5.3%; and 3.3% for Automation. In addition to the Group EBIT margin of 8%, we expected the divisionally EBIT margin to be 10.7% for AT and 10% for PT. Our total debt target remains $4b and is unchanged. Thank you very much for your attention, and I hand over to Gary for the Step Change and Culture Change.

Thanks Peter. Good afternoon. We believe that sustained culture change is a pre-requisite of delivering superior performance. Ladies and gentlemen, as you are aware in 2003, we initiated a fundamental change in the way ABB runs its business. And one key element was the Step change program aimed at cutting the Group's base costs significantly and sustainably plus at the same time fostering culture change. As Peter has shown, we have cut the costs. $655m of the $900m target in just 12-months and with lower restructuring costs than we budgeted for. In fact, we are delivering ahead of all our Step change promises. My colleagues, Peter and Dinesh, will cover this in detail, the way this program has affected their businesses, so I'm going to spend a few minutes on the overall ABB Step change picture.

Last year I told you that we were well aware that if we only reduce costs without changing behaviors and attitudes the costs would return with interest. I pleased to confirm that the process of culture change is well on their way making the benefits of Step change a sustainable success. Looking at the rate of completion of the more than 1,400 measures that we track with our Step change monitoring tool, we can tell you that today we are roughly two-thirds of the projects have been completed on time or will be completed early, and additional 32% are on schedule for on-time completion, with just 5% of the projects with one or more element behind schedule. These are receiving special attention to bring them back on track. Being labeled behind schedule doesn't necessarily mean that these measures will fail, rather it's a reflection of our aggressive monitoring criteria and did many of these projects may only have one action that is over due.

A year ago some observers both, inside and outside ABB may have been forgiven for thinking that these savings targets were wishful thinking, not anymore. A Step change tracking system gives us confidence that we are ahead of schedule because it's not simply a year-end reporting tool. It also helps us manage the process and enables us to steer the program taking timely actions if necessary. The system also includes detailed actions and identifies individual people and their responsibilities, their deadlines for delivering. And as we can see today, many of our colleagues throughout the world and across all of the businesses have delivered on the personal promises and have completed or will complete individual savings projects. Projects like outsourcing, simplifying our structures and supply change management initiatives. For example, we outsourced our entire Information Systems' infrastructure to IBM, globally, together with some 400 people. This move allow us to concentrate on our core business and enables IBM to focus on this. Streamlining operations and risk and registering duplication an example of which is the focus factory’s concept as delivered by power technologies division simplifying our structures first [inaudible] in automation technologies division and shortly thereafter in power technologies division. This is evident through the reduction in the number of business areas. And in supply chain management some cost savings were derived from our business results delivery program. This is throughout the group we identify our highest spending areas what to reduce costs through negotiation, reduction in the numbers of suppliers, establishing partnership with agreements with strategic suppliers, and reinforcing discipline in using these suppliers across all businesses. Another major reason for our success to date is the involvement of employees at all levels in ABB not just the [PT]. This inclusive approach has not only given us the necessary momentum for lasting success but also initiated a process of cultural change. To achieve this scale of change the Company needs a strong corporate constitution. ABB’s strength ladies and gentlemen comes from our people’s ability to thrive in a regime of managed change. Throughout the year we've introduced initiatives to strongly support and measure these behaviors that together will form the character of this company in the future. Behavior is like being the determined to deliver on or even above our promises, team working and respect for colleagues, taking personal responsibility and promoting collective responsibly, being prepared to have our worked measured and rewarded on very transparent criteria, and finally leadership at all levels. Some of these in more detail, delivering our promises and having our work measured and rewarded transparently has been achieved in a number of ways. Our top 300 managers have had at least 50% of their discretionary pay governed by the group scorecard for 2003. And 4,000 of the next level of managers had at least 25% of their discretionary pay linked to the group's scorecard.

Our leadership program is another method of reinforcing personal accountability, and the overall appraisal process including a balanced scorecard has helped to align personal and corporate goals, and that was introduced last year. On leadership, we have embarked on a series of workshops called, "The ABB Leadership Challenge". We are into train some 1000 ABB people by the end of 2004, and as some of them become trainers on the program, another 5000 people by the end of 2005. The objective of the program, which is used by -- which is delivered using internal ABB resources and expertise, is to achieve scale, speed, and alignment in order to take the cultural change forward. An executive committee stewardship is for my [ENC] colleagues and I take responsibility for ABB operations in certain regions of the world. This ensures we keep on track in a formalized way. Our responsibilities include working with the country managers on external reputation matters and issues including national, governmental, trade and industry, labor relations, and NGO’s. It includes internal assurance processes and accountability in general management areas such as human resources, occupational health and safety, sustainability, business principles, and the ABB brand. It includes acting as thinking partner and coach offering advice guidance and ideas and strategic future developments and not least conducting country management appraisals.

In summary, financially Step Change has delivered three quarters of the targeted 900m just two subs of the way through the program and at less cost than we budgeted. Come June this year, I feel confident that we'll be able to declare victory on the Step Change savings as you would expect, retire the [brand] Step Change, and retain the habit of cost consciousness through ABB.

So ladies and gentlemen, I hope I’ve been able to share a little of what we've been working on with the cultural aspects of Step Change. This relentless drive to reduce costs combined with a determination to promote and reward positive behaviors is we believe a winning combination. In conclusion, please be assured that our culture changes a life and thriving. And as you can see by delivering on our promises, we are making a tangible impact on our financial health and this focus will be maintained and further pursued. Thank you.

Okay, we open up for the first session of questions. So I would like to ask you to leave PT & AT questions for later. So its questions to the three of us and that’s who wants to go first.

We remind [telephone] participants to press "*" and "1" for questions, "*" and then "1".

Okay, Michael just wait until the mike is coming.

Gary, I was just wondering given the way that the currency is going at the moment. Are you planning to step up the step change program or are you pretty happy with what you have achieved at the moment?

Well, we are never happy and as you know the original target was 800m based on the initial start of it in the early part of 2003. We announced a step up for another $100m in -- with our first quarter results of 2003. At the moment, these projects have detailed to a very deep level and we certainly not planning to make any changes to what we’ve got and I think personally and collectively we believe that we need to build this habit of cross consciousness into business as usual and so rather than [playing] with the targets, I’d rather focus the rest of the time in delivering what we’ve promised and building the behaviors into our business as usual. So, no is the simple answer.

Tim Adams from Citigroup and another question on step change actually. How do you sort of relate the 655m of savings this year to the sort of 390 of underlying progress in the core business? I mean obviously some of the step changes presumably being related to non-core activities but I think most of it is related to core, isn’t it?

It’s been primarily focused on the core business, as yet.

So, the balancing item in terms of the 250, difference between the savings you’ve made and the profit improvement we’ve now seen. Can you comment around that?

Okay, I will take the comment as follows - I take this question at the end because the two gentlemen will address it. We take one from the telephone.

We have a question from Swantje Conrad, J.P. Morgan. Please go ahead.

Good afternoon two questions please, the first relates to oil and gas and the write-offs that you've taken. Can you just explain to us once again, you know is this really the last time, was does it mean for the profitability -- future profitability of the downstream business, which you’re retaining? Does this mean that the cash flow could be affected in the current year because of the write-offs? And the second, just wanted to see whether you could give us an updated guidance of the financing charges for the current year, whether you’re retaining with your $300m or whether that may have changed?

Yeah, okay I take [inaudible]. On the first one, I think I communicated back in October that we are roping on three old contracts to sort them out and we have achieved an out of court settlement on one and we have taken the necessary provision on the second one and we are working on the last one. We have taken all the necessary provisions in 2003, I think we’re getting back to business as normal and you know that business as well in the sense that if you enter in to multi-year contracts and few hundred millions per contract, there are all these risks involved. We have streamlines, especially since October the process is even further and we are taking much more reimbursables, very few lump sums in that sense, so I think I can’t say here that the whole process are in such a control that I think we have taken the old ones out and the old contract solved and we are looking at a much more sound order portfolio -- backlog portfolio we have now, but I cannot rule out the prices and you know that as well as I know that, but I think we are not looking at hundreds of millions which we have taken. We have also as I have said restructured the management team, the risk profiles. We have also restructured the risk committees etc., over the last 3-4 months so that this just starts to work pretty well. I will not expect to have an impact on the cash in anyway even if you have reached some old contracts being sorted out because normally they are sorted out on a non-cash basis. We have a cash out in 2003 because we mainly, actually went out of this rather large customers advantage which we enjoyed in the past by going lump sum into lump sum contracts and we had to put to financing into the oil and gas business and you remember some of the discussions during the quarters where we financed the business in a big way. I would say fourth quarter has shown that we were positive. I think throughout '04 you will see a similar picture that we should at least be breakeven. So I do not expect a big swing there.

The second question I think the 300 was the guidance given before the bifurcation issue in 2003. If you add to bifurcation to this 300 you get 385 from the close to year at 410, so pretty much in line there. I would actually go up to some 320-350 guidance as '04 and that’s the guidance I already -- I think gave at the end of October so I haven’t changed that. The question will come are you not to conservative there, I think you know me by now, I rather be conservative and don't have surprises in these kinds of matters.

I think your guidance was for 300 -- that's what I have been asking -- yeah, your guidance was for 300 and if I annualize the fourth quarter, I mean you only get to 280, and that's before the benefits of the capital increase.

Yeah, that's also at the rather lowish level of interest rates and that may not be the same in 2004, so I maintain my, yes, I do agree, rather conservative guidance.

Okay, thank you.

Okay. Can we take one from the floor.

Yeah.

Good afternoon. It is Peter Reilly from Deutsche Bank. Two questions please. Firstly, on cash flow. You had a traditionally very strong fourth quarter, two thirds of the operating cash flow coming in the fourth quarter. You have talked in the past about trying to reduce some of the seasonality. Does this mean we are now going to get very weak cash flow in the first quarter, given the very strong fourth quarter? And then secondly corporate cost, so I was pleasantly surprised by the sequential reduction in corporate cost even given the weakening dollar, are you making faster than expected progress in reducing corporate cost?

Okay, I'll take the second one. I think we are not making faster progress, we are making progress, but I wouldn't over plate that one at this stage. The first one, yes, we have cash flow, which normally is stronger in the second half, there is no doubt. But we have made quite a bit of progress in the two core divisions; actually this moves the cash flow more over to quarters. But I would still see the first half of 2004 not being very long in terms of cash positive, so I would still see a kind of a negative impact in the first quarter, neutralizing in the second quarter and then growing in the third and fourth quarter. So I think that historical pattern, cyclicality etc. will remain with us, but I think we can smooth the swings out overtime. And then can we take one from the phone.

The next question from Mr. James Tettler (ph.) with Breisner (ph.). Please go ahead sir.

Thank you, good morning. Could you give a more of a break down in terms of the corporate [inaudible] headquarters costs, what is in there, what the extraordinary fit was in Q4 and where you see the biggest drop coming through in 2004? The second question is in terms of divisional breakdown will we be getting more numbers you know intra-divisional figures in terms of PT & AT, i.e., numbers might be a --?

Okay, I take the second one first. We already have announced that we will have a AT day at the end of March. We will also have a PT days or two special investor days for AT and PT and we will take you through there, some -- through our businesses in more details. I am not promising too much in terms of detailed numbers but at least you will see what we are doing and how, where the productivity gains etc. are coming from. So that's the number two -- number one, on the corporate costs side, yes we had some non-recurring costs that were related to some special exercises which we have done at corporate headquarter levels. That's the explanation there. I don’t like to go too much into details there. To say the other one is, we are really expecting the corporate costs to come down around the world. I've said that in previous quarters, we have quite a high number of -- rather large scale of people in corporate organizations across the world. And as we have now divested most of our businesses or are finalizing in the first half of '04, we will be able to take those costs even more down and that’s obviously done in conjunction with the two core divisions, because they will have to tell us and they have already done what they need to run their businesses and that’s all what we need at the end of today at corporate. So that’s more or less where the bulk will come from.

There is no way to give any more detail what's in the 91m of Q4.

Detail in what sense, James?

You know, just one of the [big] cost items in that 91.

[inaudible] corporate costs around the world plus Zurich, there is one, two special items, but these are not that big that they will change the whole picture this. So I don’t -- I am not going into the more details on that one. We will throughout 2004 be more transparent on where we take to East Coast out, but they just go into 2004 first.

Okay. Thank you.

Let me take another one from the phone and then I will come back to you again.

Next question from Mr. Julian Bear (ph.) with Inscrita (ph.) Securities. Please go ahead sir.

Good afternoon to you. Julian Bear (ph.) from Inscrita (ph.). I think talking about Tim Adams question, this may have already been revealed. Could you please indicate a run rate -- given the run rate of 655m that change savings in Q4, what the actual savings were in 2003 versus 2002 for automation power and corporate individually? And also could you remind me of the breakdown of the split of the $900m ultimate savings between those two divisions on the corporate? And then as a last question, are you under any pressure at the moment to return to consolidating the Lagua Mess results as an ongoing business, given the extended delay in divesting that activity? Thanks.

Okay. [Julian] I think the first couple of questions, I would like to pass to the end because there will be quite some information coming from Dinesh and Peter on the subject, if you have any further follow-up questions then let us take them at the end together with Tim's question as well. On the second question, what was it?

It’s the Lagua Mess, and whether you might have to reconsolidate that?

That’s correct. Sorry. No, because the accounting standard does say, if you have called an external effect, which was outside the control of management, then you are allowed as long as you keep it on the sale list and you have -- you are actively pursuing the sale, and actively negotiating it you can keep it whereas the external factor was the asbestos delay. So for the next, twelve months, you will see in discontinued, no doubt.

Given that we are going to wait to the end for the questions to be answered on the savings, I think I have from the press conference that you for the Automation sector actual savings was something like $245m on a year-on-year basis, which should give you a margin boost of about 250 basis points year-on-year for automation. I don't think it was quite that much, and I was wondering, what are the most significant sources of margin pressure that you are experiencing at the moment in the divisions?

[Julian], as I have said when I started to you keep your eagerness on the questions for the two divisions a little bit in the backyard for another half an hour, and then you can ask the two gentlemen and they are much better placed than I am here to give you the answer.

Okay.

Yeah we go back to the floor and we stay at.

Yeah James Engelwich (ph.) from UBS. Just a question on detail actually I wondered if you could just give us a bit more explanation on the deferred tax reassessment you know GP just exactly what it is and is it a one off. Just a bit more color on that?

Yeah it’s an adjustment following the write-downs the losses we have done, we have reestablished deferred, -- the tax situation of the Lagua Mess unit across the road and we have taken this write-down. I will consider it as one-off write-down, yes, or reassessment it's not the write-down in that sense it's a reassessment of our tax position and it's a one-off yes.

Yeah wherever you go come to you afterwards okay.

Thank you just couple of quick ones, the first one is can you give us an indication of the cash costs of asbestos going into ’04, it seems to be that it was on [inaudible] motors a bit lower because [inaudible] more or less you know for cash out and we should expect that once we receive the appeals go through?

And there will be smallish amount until the third Circuit actually rules and then you will have to raise coming year.

And the second question related to Building Systems, should we anticipate that you may need further write-downs in the German and Swiss Building System business or have we worked those through now, given the write-downs you took in non-core in Q4?

Okay to be very precise, we didn’t need any write-downs or adjustment in the Swiss Building System because that’s a very tightly run business. In West Germany and we have taken some write-downs to mainly because we went out of the large project business and the construction industry was quite on the pressure over during two or three years, so they have adjusted that. The base business in the Building Systems in Germany was actually profitable in the fourth quarter, which we expect to go forward assuming that the construction market stays more or less where it is or goes up in that sense. So, I think the major items are behind us, yes.

Yeah, now we’ll go to -- then we’ll go to --

I think you are sort of mentioned in it your presentation but on the slide number 9, why are you breaking down the cash flow from operating activities, first? There is a Combustion Engineering number of minus 55, discounted 16, non-core and core 55, and then other 314 negative in Q4, can you --?

Corporate cost and the interest payments?

Yeah, that’s just all corporate costs and interest?

Yeah, and the interest payments, yes.

Alight.

Now Mark Dalton (ph.).

Hi. I have two questions my name is [Dalton] from Bank of Oppenheimer. The first question is can you give me the local or the local growth impact on the Step change program, what was the impact from currencies and what was the local sort or what was it in local terms the first question? And the second question is the order in taking the oil and gas business was down to 44% in Q4; does it mean that oil and gas business the remaining oil and gas business, you want to divest is still loss making in ’04 and ’05?

In ’04 and ‘05, okay. I think on the first one, I will not consider the FACTS change as being material in Step change but frankly speaking I don’t have the number with me, it’s just the way I looked at it a while ago, so I don’t have the number here but it’s not material. The second one is we have deliberately driven down the order intake in the downstream business. We also have to take into account that last year in 2002 we had $1b of [circling] order coming in. So that boosted the previous year quite a bit. Now that has been worked down considerably you see that in the revenues. So the order book, which we are having now is some -- considerably down as you say and that is on the wrong side --wrong. The worst reason is we are driving out to further off lump sum to reimbursable contracts point one, point [B] we have actually increased our appetite in terms of margins before contingencies, so we are going for higher margins, therefore we are more picky on what we take. I would assume that the base business on an EBIT basis in '04 and '05 is profitable. So I would not foresee that we are in a loss situation there -- on an EBIT basis before allocation of interest. Want to [really] and then we go back to the telephone for another one.

Thank you very much. Can I comeback to the corporate costs, please. You were -- have been very kind in the past to provide explicit guidance on '05 corporate costs in HQ, R&D, and other and I think at Q3 you indicated you provide more guidance as to how those should develop through '04 and into '05. Can you elaborate on the sort of rate that we should be looking for '04 and whether you still stick with the '05 targets you've given in the past?

Okay, let me start with the second one, yes we stick to the '05 target, there is an issue around foreign exchange rates because the dollar and the euro have moved in different way and they are going to targets as we've said. I would stick on it for the time being. Yes, I was kind in the past, I will be as kind in the future, but I actually said I will deliver it when we have the first quarter. Let me work to three months into the 2004 before we give you the sliding scale of corporate. But it will be a sliding scale hopefully in '04 already into '05 [interest], but we'll come back to that one on the phone.

Next question from Ms. Lisa Randall (ph.), Lehman Brothers, please go ahead madam.

Thank you, good afternoon. [Lisa Randall] from Lehman Brothers. Three quick questions, please, first of all, can I just ask what is the FX impact on the debt for the full year? Secondly, just regarding the comment you make about the move of the sub-station business from automation into power technology, can you just give us some of the background behind that. I am especially trying to understand whether there is much more portfolio adjustments to come and what impact that might have on the eliminations line? And then thirdly just regarding profitability guidance for next year, obviously we had guidance for '03, we have guidance for '08, will you be able to give us guidance running for the full '04, please?

Okay, I think I will start with the last one; we didn’t give guidance for '08 it was '05 and it was [48%].

I am sorry.

No that’s okay. Trust me. I mean would like to have four more years to get to '08 but that’s okay. We have given guidance for '03 because we felt back in November 2002, we have to give you very shortened guidance that we can deliver by going over our promises, we have given you '05 targets; we have made the progress in '03. So we think with '05 targets that's sufficient. We have got two years to go before we have to be [88%]; you can expect that we are continuously driving the EBIT margin up but we will not give an isolated '04 target. We stick with our '05 targets. The FX effect on to date was 1b. That's not the loss; I think you all know that how that is calculated but the dollar euro effect was 1b. The elimination I think will actually decrease overtime specifically as we are; for example, take substation, the other side which had a big kind of interdivisional trade that will come down and I think on the rationale of the substation I pushed that back to the next station because the two gentlemen can then give us the right reading on that one. Okay, now we go to the floor again. I thought there was someone else, if not then we go here.

Yes sir, Patrick [inaudible] with [inaudible]. I have one question to the restructuring cost, you have now 234m this year, but lower than expected, so what is your -- what is the guidance for the current year?

On Step Change 200. Let me take -- ask one more again on the phone and then we stop and take the rest of them. Is that okay, yeah.

Okay.

One more on the phone. We can't hear anything.

Can you hear me?

Yeah, now it is okay.

Okay. Good afternoon. Three questions please, can you please update us on the signs of detention under funding [insurance]? Second question, regarding securitization, I think you said towards last year that we should expect about two-thirds for '03 as it was compared to '02 which would have meant about 700m, is that the level of securitization you have at year-end? And last question, can you just remind me of the approximate size of the Building System business that remains to be sold in 2004 just a sort of run rate revenue? Thank you.

Okay, on the pension you will see a reduction. We were at 1.8 [sums] in 1b in '03. It will go down by some 200m. We haven’t funded apart from the 60m to the Swedish pension fund in Q2. We haven’t funded anything but it will have a reduction. The securitization I give you the number at the end, I have the numbers here and on the Building System business, I think you are not too far away if you take the fourth quarter actually, which is in the press release as far as I know in terms of revenues and if not then I will deliver that at the end to you.

No, we have that. Thank you.

Okay. So let me close you for the time being and we take a pause. I will let Dinesh go with his speech. Oh, no we have a break, sorry. 15 minutes break, so let's start in 12 minutes, not 15 in quarter two. There are some drinks outside [inaudible].

Good afternoon ladies and gentlemen. I thank you for the opportunity to share the results and the outlook for ABB’s Automation Technologies Division.

We have made significant progress during 2003 but we recognize there is still more work to be done and I will try to provide some highlights on both issues in the next few minutes as we go on. I trust you all are familiar with the Safe Harbor statement and its implications for today's discussions, so I move on from there; here is an outline of my agenda beginning with a brief overview of the Automation Technologies business, our key markets, and market conditions during 2003.

Let's start with that, ABB Automation Technologies offers as you know a broad portfolio of core products, optimizing services, and integrated solutions. We serve the full range of manufacturing and utility industries. In addition, we distribute our products through a variety of independent channels. We have about 150 manufacturing and technical centers worldwide, and some 55,000 people supporting that business. Again, as you know ladies and gentlemen, soft market conditions continued throughout 2003 in Western Europe, with some good strength in the Eastern Europe countries where we grew by a solid 45%. America's region continued quite soft, although we saw signs of some upturn late in the year, but it's still too early to be evaluating. We continued our strong growth in Asia, driven again by our familiar country China and India, where we grew more than 40% in orders. From an end user point perspective, modest growth was evident in consumer products, life sciences, oil and gas areas. And we noticed flat-to-downward trends in most of the markets with some price pressure in minerals and mining and automotive industry.

At the bottom of the slide, I’m giving you a preview of how our activities roll up into this new simplified business structure, which is focused on the key markets for process automation, automation products and manufacturing automation. These are the new business areas from the beginning of 2004. Now I’ll provide a brief look at our performance in Q4 and the full year.

Despite mostly soft markets, we achieved significant top-line growth in fourth quarter even after converting to local currencies. Our orders were up 8% and our revenues were up 3%. On the bottom-line our focus on cost, productivity and gross margins and I repeat gross margin focus continued to pay off. Our EBIT contribution more than doubled as you saw earlier, same period year ago comparison, and our earnings margins obviously increased from 4.5 percentage point to 8.1 percentage point. Driven by these higher earnings, our cash flow capped up from the operations and it increased also by 45%. Our strong quarterly results obviously have come together to produce a full year 2003 in which, ladies and gentlemen, we exceeded each of our key financial targets, posting continued order and revenue growth in an extended period of soft markets we must remind our self.

Top-line growth benefited considerably from our performance in Asia, Eastern Europe, along with services where we continued a string of double-digit growth that now spans over three consecutive years. As with the fourth quarter, our earnings improved significantly, producing a comparable increase in cash flow from operations. Despite the effect of restructuring cost, we made significant improvement in earnings margins performance, both on a quarterly and full-year basis, putting us well on the way to our 2005 goal of 10.7 percentage points in earnings. This performance brings us to a five consecutive quarters of clear improvement in both top-line and bottom-line results. Ladies and gentlemen, I consider this quarter-on-quarter view an important measurement of the sustainability we have worked hard to build into our operating principals, into our culture.

During 2003, we continued to run ahead of targets in cost reduction staff change program implemented throughout the 2003 with nearly 250, to be precise 245 documented millions of savings realized during the year. These improvements results from hundreds of bottom-up initiatives, which have touched every part of our business and these, are all bottom up initiatives. Focus areas include clearly the overhead cost, engineering and manufacturing rationalization, supply chain management, sales processes and effective use of research and development dollars and obviously the personnel cost. While driving down these costs, we have continued to increase productivity, achieving a gain of 10 percentage year-on-year basis. Job reductions in 2003 bring us to a total improvement of 12%. We also continued to optimize the use of financial resources with working capital, trade receivables and inventories all showing clear improvement during 2003. Our strong local resources continued to serve us in leveraging in emerging markets, and I mentioned to you China, India, Eastern Europe and several other places.

In China, our metals industry focus helped us earn several significant contracts for integrated solutions in metals processing, not just in China, outside of China. In India, we strengthened our cement industry resource once again for beyond India' s domestic market. We also opened new large motor factory in 2003 in India. We will move this global sourcing for many of our legacy controlled products to India this year tapping the region's cost efficiencies and high productivity. In Eastern Europe, the addition of resources to our network of wholesalers, distributors and similar channel partners fuelled strong order growth gains in standalone automation product business. We continue to focus aggressively on account and channel management for strategic customers. This focus has produced a strong gain in revenues from group accounts, where dedicated support teams and executive sponsorship drive or will -- did drive the excellence and sales processes. We continue to implement new frame agreements with our customers which spell-out the terms and conditions upfront for multiple purchases over extended time periods.

Let us now take a look at our strategic priorities for the year ahead. We will continue the focus on cost and productivity -- that goes without saying. Improvements during sustainability for the actions in place and driving further gains through a greatly simplified management structure, -- I stress. We will continue to leverage our huge installed base with robust and value-focus services offering, -- that’s what our customers need. We will continue to migrate our 20b installed base of Process Automation Systems business which is one-third of the total installed base in the industry, showing our customers how easy it is to blend, advance, functions from our new industrial IT system with installed components. We will implement a regional value chain to more effectively serve the key customers in Asia and North American market, and of course we will continue to seize market opportunities through innovation. As you may recall, a few weeks ago we announced a dramatic business simplification that will produce significant savings through fewer management layers. Just one year ago, our customers had to deal with 11 different ABB organizations to finalize a strategic relationship.

Now, we are entrusting, the industries broadest range of Automation Technologies to just three empowered global themes. Beginning with the first quarter 2004, we will report our results in the simplified structure of Process Automation, Automation Products and Manufacturing Automation. To strengthen our service offering, we will continue to add new performance based tools such as remote asset optimizer that allows us to constantly monitor equipment installed in customer's plant remotely. Software tools like this help us to become round the clock partner in managing efficiency of customer's equipment and plant, that they will help us to reach our target of increasing service to one-fourth of revenue by 2005. 25% of our revenue will come in 2005 from total division revenue. Just six weeks ago, we launched the latest version of industrial IT platform system called 800 Extended Automation, xA -- to the market. This system reaches well beyond the capability of systems available in the market introducing advanced functions such as batch management, asset optimization, and field device integration which easily plug-in to a common user interface.

The same user interface may also be used to manage installed components of our legacy control systems, giving customers a solid path for implemental migration to new functions. By focusing commonality on the user interface portions of installed systems we will reduce the significant research and development effort of trying to achieving "One-Size-Fits-All", which is not the case. And that would apply across our large installed base out there. This development solves the challenge of multiple platform that we have shared with you in the past, while providing maximum incremental value to our installed users. To better seize the opportunities of our North American and Asian markets, we will evolve to a regional management approach. As an example, in the Americas we have room for significant improvement in our brand presence. We have addressed this by moving key management resources and capabilities to the US. Each business area now has a manager whose responsibilities span the entire North America region, which means from Canada to US to Mexico, and we will measure these individuals on running the region as single business. That’s called simplification.

In Asia we are taking a close look at the value chain and products necessary to most profitably serve this dynamic region. In particular, if you talk about we are evaluating regions multiple tiers of product functionality where premium western specifications sometimes go head-to-head with more basic local products. We will continue to strengthen our technical presence in Asia to serve both domestic and export markets and I shared with you a couple of examples before.

Finally, ladies and gentlemen we will continue to seize opportunities through innovation. For example, just 5% of the world's electrical motors currently take advantage of the efficiency that variable speed drives can provide. This is largely due to the cost and complexity of the older drives available in the market. Our newest drive assumed smaller contain fewer parts and are literally as easy to operate as a mobile phone breaking down most of the barriers. This will further accelerate the clear trend of more and more motors being controlled by energy saving ABB drives.

Now, before I move on from these proud achievements, I must be honest with you that we also recognized some challenges going forward. Now that we have launched a powerful new process automation system, we must pick up the momentum of rolling it to customers. Our competitive edge will certainly draw imitators and we intend to seize the opportunity now. So timing is important. In the robotics area, we have experienced significant price pressure in the past couple of years. We intend to fight back with dramatic cost take out with modularization of solutions so that we have a repetitive reuse and aggressive strategic thinking around these portfolio and products. Finally, we must tackle the issue of cost migration. We have proven our skills in focusing our factories to fewer locations. Now we must concentrate on optimizing the locations globally themselves, which means leveraging both the strong demand and competitive cost of the developing countries.

For 2004, how I see? We see modest but encouraging signs of recovery in Europe and North America. We will continue to leverage our strong presence in tapping the growth in Asia, Middle East, and Africa.

From an industry perspective, we see continued healthy growth in life sciences and demand pickup in chemicals with gradual recovery in most other markets. Here, I confirm -- we confirm that our 2005 targets of 3.3 percentage compound average revenue growth as measured in local currency in 2005. We also conform and stick to our target of 10.7 percentage point earnings margin in 2005.

Ladies and gentlemen, this brings me to a few conclusions to sum it up. We are pleased with our performance in 2003, and this performance also validates our strategy, which we shared with you more than a year ago. Our five consecutive quarters of improvement at both top and bottom line suggest that these actions are sustainable and we have to work at it, continue to do that. We recognize, however, this is no time to become complacent. We must remain diligent in 2004 to follow the sound principles that led to the operational excellence in 2003. This includes clear productivity improvement, continue and a sharp portfolio focus driving growth from our core products services, and install base. We have regional actions in place to increase our momentum in the big opportunity markets. And we'll continue to go after. To sum it up in the last sentence, ladies and gentlemen, we are well aware of challenges inside and outside the market forces. I believe, we as a management team and the employees out in the units understand what it took to get to where we are, and the journey has just begun. With that I thank you very much for your attention.

Ladies and gentlemen, good afternoon. I would like to give you a detailed insight into one of those core businesses from ABB’s Power Technology division. In my presentation I will take you through an analysis of our markets and organization, our financial results, and our strategic priorities and the targets. Upfront, I would like to say that we have delivered on our EBIT margin targets consistently improving them quarter-by-quarter. In the fourth quarter of 2003, we had an EBIT margin of 7.8% compared to 4.6% in the same period of 2002. Over the whole year, EBIT margin reached 7.3%, which exceeded our target of 7%. This is a clear indicator of continued improvement in the division. Continuing improvement, profitable growth, and the expected payback from our restructuring will ensure that we reach our 10% EBIT margin target in 2005.

Turning now to our business and organization; as you know, ABB is a world's leading supplier of products, systems, and services for power technologies. All of our business areas are market leaders and in most cases we have bigger than our two nearest rivals combined. In 2003, we managed to increase market share in a difficult economical environment. Our customer base includes all utilities, as well as, industrial customers. One year ago, I said that we would increase our penetration of these businesses and that we were focusing on increasing our market share with our external general partners. We have achieved these targets.

So, global market environment was mixed last year. Overall utilities were stable but industry varied strongly according to their business and markets. Engineering, procurement, and construction firms were mainly flat, whereas the originally equipment manufacturer, recorded strong growth. Among our business areas, Power Systems has the largest volume. On the product side as you saw on the previous slide, our Power Transformers and Power Distribution business were merged into one business area at the start of January 2004 this year. This will increase efficiency and better meet increasing market demand.

Looking at the market performance in different regions. We generated strong gross rates in Asia, the Middle East, and Africa, as well as, in Eastern Europe. In 2003, we generated about $1b in additional orders in these regions. Our performance there compensate for weak areas like the Americas. The results show the advantage of being a global player, represented locally in almost every country.

I will now turn to our financial results, starting with the fourth quarter of 2003. The division EBIT margin climbed to 7.8% compared to 4.6% in the same period of 2002, this reflects how we have improved productivity, rationalized our production sites, and sharpened our cost focus. Order grew by 25% supported by a strong performance in Asia, the Middle East, and Africa. Revenue growth was 9%, driven mainly by successful product sales in our High and Medium-Voltage product business areas. Revenue grew despite the delay of large orders in our Power Systems business. A significant achievement in quarter four, 2003 is our positive cash flow from operation, which improved by 23% compared to quarter four, 2002.

In the full year, we reached an EBIT margin of 7.3%, which was ahead of target. Note that EBIT rose in absolute terms by 30% and we had consistent quarterly improvements. Revenue grew, was 10% in nominal terms, in local currencies it was flat, the target was 3%. On a comparable scope basis, this is in fact what we achieved, a 3% growth in local currency. In 2003, we generated cash flow from operations of $616m which is an 84% increase over 2002. One of our main contributors was our net working capital which we reduced from 15% to 14% of revenues.

I would like to look at some of the achievement in 2003 which contributed to these results. We improved order performance and as a consequence increased market share. One of the main factors behind our results was the Speed strategy which we pushed ahead once again last year. Speed means reducing total cycle time from months to weeks and from weeks to days. Cycle time does not just mean manufacturing time, cycle time talking -- what we are talking about is in fact when we start with a customer until he gets delivery of his product of system. Our program code focused factory plus focused engineering speeds up business process along the entire budget chain. In 2003, this was key to improving our operational performance. Over the past three years, the program has led to a reduction in product lines by one-third and to a reduction of production lines by 21%. Some other achievements as you know, 2003 was marked by major power blackouts. We have managed to position ourselves as a reliable partner to prevent outages. ABB also won a global energy award for the world’s largest battery in Alaska. This energy storage system is expected to cut a number of blackouts in that region by 65% a year.

Turning now to high growth regions, in 2003, we generated about $1b in additional orders in Central and Eastern Europe, Asia, the Middle East, and Africa. In Eastern Europe, all this went up by one-third, Asia, and in particular China and India are strong ABB markets. Orders went up by 29% last year. Customers in Asia appreciate the quality of ABB products such as medium and high-voltage switch, breakers, and power transformers. In the Middle East and Africa orders went up 54%. The increasing demand for reliable power in the United Arab Emirates, for example, led to further projects with utilities, which rely on our turnkey expertise.

Another example of business success is our sales performance with industry customers and channel partners. Original equipment manufactures, the OEMs and engineering procurement and construction firms, the EPCs, here we registered an additional $400m of business. This was an aggregated increase of 25% over 2002. The systematic approach to cutting our cost base known as our step change program, Gary Steel was referring to, helped to strengthen our operational performance. Over the past 12 months, we've made cost savings amounting to approximately $200m in the division. For example, improvements in supply chain management led to savings of $74m. Site and product rationalization saved some $70m and the contribution of our cost reduction measures for the divisions EBIT in total was $100m.

A closer look at our productivity performance shows that we have made continuous improvement. It is the result of our policy of sharpening the focus of our factories and engineering centers. So, reduction in the number of jobs in the division also had been a contributing factor. In the past year, the number of permanent employees has been reduced by 7%, leading to a 15% reduction over 2 years. So much for my outlook at 2003.

I would like to outline our strategic priorities and targets in the year ahead. First and foremost, we will continue to focus on profitable growth and cost competitiveness. Our strategic priorities for 2004 has three pillars - market penetration, expansion and speed. We will use these market leadership positions to further improve our financial performance and penetration of the market. Our leadership is based on our comprehensive portfolio of products, systems and services and on our strong local presence. We will leverage these strengths to improve our position with our main customers groups, the electrical utilities. At the same time we are intensifying our multi-channel approach to market. ABB has the largest installed base in the industry, which represents further opportunities for our service business. In particular, we are targeting the growing retrofit and replacement market.

The 2003 black outs in North America and Europe have presented us with major opportunities. ABB is well positioned to take advantage of the business opportunities arising from power grids needs to be improved or upgraded. Preventing black outs is ABB's domain. We have high-end technology to ensure reliable power supply. Of course speed will remain central to our strategy. We expect to complete our program of deploying focused factories and focused engineering, and we intend to further streamline the product portfolio by using product platforms. Large customers also present major opportunities for further growth. Increasing market penetration in this context means offering our products, systems and services not just from one business area but an entire portfolio. An example is Bombardier Transportation. In just 2 years we have managed to double our volume of business with them. This was made possible by a dedicated account management team, offering a wide range of ABB products. In 2003, we strengthened our cooperation with Bombardier Transportation. We signed an agreement, which is potentially worth $500m. It is a first such agreement Bombardier Transportation has signed with any of its supplier, demonstrating the company's trust in ABB as a long-term partner. Another example of how we achieved increased market penetration, we concentrated our production of traction transformers at two European factories, significantly increasing competitiveness. In 2001, ABB had only one customer for these specialized products. Two years later, we delivered traction transformers to virtually the entire rail industry. Our market share has grown to more than 70%.

In the Service Business; independent surveys showed there is a huge demand for replacement, retrofit, and repair, both now and in the coming years. So, there is a great potential, especially in [mountain] regions of North America and Western Europe. Sooner rather than later, ore grade components such as large transformers, or complete substations, have to be re-serviced or replaced. In the United States average equipment is 35 years old. It’s a great need an overall. In Europe too, we still rely to some extent on equipment, which was installed in the 50's and 60's. With ABB's installed base which is by far the largest in the industry, we are well positioned to capture more of these market share. For many of us in the industry the power blackout last year were no surprise, after so many years of underinvestment in power transmission and distribution. Many new investments in more reliable power grids us subject to legislation especially in the United States. But we cannot escape the fact that system upgrades will be required to prevent large scale outages in the future. It is estimated that investments in the range of [$12b] will be needed over the next couple of years just to rid or leave major bottlenecks in North America's power network.

In Europe, the situation is similar was mainly cross border, and cross sea bottlenecks which hinders development of a common market. So European Union has just launched the European gross initiative to improve the situation and ease the integration of renewable into separate, by 2010 10b euros are expected to be invested in a series of energy projects. So European Unions plan includes an increase in the number of interconnections between the power grids of member states. The current interconnection capacity is well behind plan again here ABB has a technology and capacity to help close the gap. We expect to benefit because the best technology for interconnections force was in one of ABB domains of expertise, HVDC, high voltage direct current technology. But many people do not know that is ABB pioneered HVDC and that this year is the 50’s year of celebration of this development. Today our global market share is around 60%. ABB is the only company to offers a HVDC live technology. Its value was highlighted on the night after the North American blackout in mid-August last year. When the cross on cable between Connecticut and North Ireland quickly restored power supply for Long Island. Last year, we also won an engineering award for the Marine Inc. project in Australia. This HVDC Light system comprises the longest underground high voltage cable in the world. One of the recent HVDC projects to be commissioned is the 950 kilometer link in China, from the Yangtze river to the booming region of Shanghai. We completed this large project one year earlier than the industry norm, and have put ourselves in a good position for further projects in China.

Another remedy for blackouts is our FACTS technology, Flexible AC Transmission Systems. It boosts existing transmission capacity, result to need to build new lines. We have seen 50% market growth in fact over the past three years. Most of this was achieved in 2003 and we now have a market share of 70%. In the next few years, we expect the market to grow further.

Another technology, Wide Area Monitoring System was recently selected by MIT, in fact it is just 10 days, 2 weeks ago. As what the institute called one of top 10 technologies that will change the world. It was the only power related technology in the top 10. Our scientists developed the new system to enable real time grid control. So technology dramatically reduces the likelihood of blackouts like those experienced in America and Europe. ABB engineers are now studying how this can be used to protect their all important power corridor linking Italy and Switzerland.

Turning to the third pillar of our strategic priorities speed; it has led to a reduction in total cycle times, it is a product business, and it is now embedded in our system business. We call this concept focus factory plus focused engineering. Focused engineering means we specialize our engineering centers according to the complexity of the project to be undertaken. For the large-scale power systems like HVDC projects, we still rely on fully fledged lead centers for one of engineering work. For low complexity projects; however, we are increasing the using modularized systems. This means we are able to automate entire process steps and provide engineering solution over the Internet. Decades of engineering experience is now quickly accessible through our product and systems configurators. Last year, for example, that capability helped us to win a large substation contract in Poland. So customer appreciated our fast response during the bidding phase and our ability to offer multiple options to meet these requirements. We have already achieved a great deal in eliminating product overlaps. Leading up to 2005, we will have eliminated 150 product lines, which amount to 35% of our entire portfolio. The approach and the success of streamlining product platforms can be seen in high-voltage breakers. Just one example of what is happening throughout the division. We have achieved a breakthrough by developing a single breaker chamber for a large number of high voltage applications. One platform has now replaced eight different technologies that used to be required. One focused factors now meets the entire demand for which in the past six production facility used to be needed. Our result demonstrates a benefit of our speed strategy namely shorter cycle time and lower cost.

Looking ahead, what kind of market environment do we expect for 2004? We see a mixed economic environment in Europe with continued high growth in the Eastern Europe. So U.S. business climate is likely to stabilize and is expected to improve in the second half. Latin America will also improve especially in large infrastructure projects. Asia will continue to perform well driven by strong demand in China and India. So Middle East and Africa will also remain very positive. Utilities and industries are expected to slightly increase our level of investment. Our channel partner OEMs and EPCs are expected to increase demand.

Turning to the division's targets; the compound average gross rate from 2002 until 2005 is expected to reach 5.3% to EBIT margin 10%. We are confident of reaching these targets.

To conclude, in 2003 our EBIT margin exceeded our target and cash flow from operations was 84% above last year. In 2004, we will continue to focus on profitable growth while cutting costs and improving competitiveness. Thank you.

Okay before starting with Q&A and the businesses, just some follow-up remarks to the first session. There was on the phone the question on building systems, I think, turnover 400m in Germany, 200m in Switzerland, well that's done on since securitization, cash inflow first quarter was 61m this year. Cash outflow for the whole year was 120m, and level after securitization of the programs is 400 and just above $450m. Step Change, the question on exchange rates, it is correct. It was not material, in dollar terms it would be much higher. We've actually given the more or less the local currency rate in order to make it comparable to the 900 otherwise we would [cheat] likely there. And then I think I'll give first, Dinesh, a word on substation and then, Peter, in order to ask or whatever is to be said on the transfer of substation. Then we go in Q&A.

While in substation answer is very clear, as we -- both of us say that we are constantly looking at portfolio. From our study, we clearly saw the growth in synergy of R&D and the customer was better in Power Technologies, so we decided to move that activity from Automation Technology to Power Technology.

[I need] to add on this -- to add on this is that substantial automation activities are already Power Technology and its product have moved, and it's product where we mainly source from our colleagues in the other division. And given the fact that now the new tendency is to put more intelligence in a product, you must put more and more control capabilities into the power products and the synergy of R&D can be much be enhanced if you also have a [clusters] of product, so that we can really integrate a lot of functionalities in the product and makes that more, more efficient and have more functionalities.

Okay, questions from the floor. Now you were the first last time, [inaudible] clearly and then --

Thank you. William Meki (ph.), Commerce Bank (ph.). Question for Peter, please. Firstly could you tell us how you see the regulatory and political environment in the U.S. evolving as perhaps one of the key drivers for a release of demand in your high voltage products? And also a technical question, is there not a risk that facts will actually perhaps partly replace the requirement to put in new capital, or capital investment in transmission, if you can manage your grids more effectively?

Yeah, the first -- the first question concerning the Energy bill. In fact, in United States that fact it was suppose to be already, [inaudible] be decided and agreed end of last year and then is a Congress where several discussion. So different topics in Energy bill and one of them is energy, electricity and it was not about electricity. It was about petrol activities and other things where there was no consensus achieved. It was decided to postpone it until beginning of this year. When I was Washington in November last year, I just claimed it will happen before Christmas, and what we had around Christmas I couldn’t agree. It was postponed. But I think it will come of course. But as soon as it comes, it gives us a big advantage because it gives an advantage to the investor. He gets security for his investments and that will give him also the possibility of much better calculated payback of the projects he is going after.

Second question about facts. I think that our duty, our goal is to see how can we find solutions, which are unique, which help our customers to be more competitive. And that’s why we have such a big market share because we really have a unique solution, which really helps us a lot to position ourselves as strongly. I don’t see so much the risk of losing other opportunities because as you know, the biggest problem in industrialized countries is that you need 20-30 years sometimes to get approval of a new line. So by being able to boost existing line, we help the customer and we also can really bring all our knowledge and it's a unique knowledge based on Power Electronics. But where we are really as a leader.

If I’d might just add on this along the first question. We said from the points when these outages came that we do not see that to pick up before the second half of ’04 in terms of maybe orders but the revenue pick up will even be later, so I think that cautiousness which we have shown is proving to be right. Michael.

Michael Hoffman of UBS. A couple of questions for Dinesh. First of all the dollar, I was wondering if you could give us an update on pricing pressure, you mentioned it already on the robotic side, that you -- the last time we met you in London, you alluded to the fact that, you know, you are seeing some signs of increased price pressures, is that intensifying now? Second question is about working capital, you have already reduced it quite a lot, what do you expect for working capital trends this year, and maybe next? And I was quite surprised to hear that you were quite optimistic on the CAPEX spending on the automotive side, how come you are so confident, they will actually increase spending rather than cut it?

Okay. Let me take the first one, the pricing pressure. Well pricing pressure was in 2003, and I think pricing pressure is here to stay. It is quite comparative, especially in emerging markets where everybody is playing on a level playing field. And whoever has better technology they win and I think there we have pretty good position in our both the divisions. Now dollar obviously makes it little difficult for those who have bigger footprint in euro denominated countries, which is the case in Automation Technology. We have felt it pretty much in second half of 2003, and we have factored that effect in our 2003 -- 2004 numbers and 2003 the pressure was there, we made up for that by way of finding other productivity areas. So here I bring in the part of the question which was asked earlier that stock change is one area where we had defined [project] and we went after and we delivered on them. So the savings you saw 245 that is before the restructuring charge, so 245basis points do not get added to the bottom-line as such. You only add up after restructuring cost. So the net effect on our EBIT margin actually is about 170 basis points if you see that. So that gain partly step change, partly other productivity gain after offsetting the dollar-euro impact and pricing pressure. Pricing pressures depend, geography-to-geography and product-to-product differently. Any where from 1% to 5%, 6% depending on what you are in. So you have to constantly work in your efficiencies, in your functionality and value selling and services. With services you do not see the similar level of price pressure as you would on a commodity product are sort of standard product area. So we are working on it.

Networking capital you mentioned that we have improved, well that’s one area where we are taking look at one of our key area or actually KPI’s and local operations where we measure people on reduction and net operating working capital or working capital overall. A example being payables, receivables inventories we have worked very hard I would say for last 2 years to some how bring it in the culture on a broader group of people rather than leaving it to the financial people only to look after. The project people are informed about it, sales people are also need to be involved in that. So I think we continue to work how where do we want to take it, I think we are at the level today where industry peers are not so far away, but to get to the level where our peers are, the highest margin companies we need to work towards it. So that’s where we have it on our targets to continue to push it down.

Moving more on working capital?

Yeah there will be more pushing. CAPEX if I miss let you what I said for robotics area that there has been price pressure and that actually has cost us market share loss. We admit, we have a problem there. For last 2-3 years against [inaudible] we have not been as competitive in American market or in some other places as well. And we are aware of it, we have taken some pretty solid actions I must admit in terms of going after the real product cost, reducing the number of product variants, overlaps, if there are any, and looking also at our global sourcing and make by decisions. So, I am hoping that we will regain our position, which we used to enjoy in 3-5 years; it takes time. So, I am not counting on much of a CAPEX gain in automotive industry is there. Okay.

One question on automation and tooling power. On automation, you have a high agent exposure and you've alluded to pressures you are facing on pricing and cost base. Can you give us some measures of where your cost base is, how much is in local countries particularly Asia? How much more you’ve got to do to move the cost base and how long that will take? And then on power, you talked a little bit about focus factories, where are we in that program? Do you know how most of those programs largely complete, is there a lot of more to do? And then following from that you’ve had relatively weak revenues in the last two quarters despite very strong order intake, are you having some declaring problems as a result of your over holding yield production facilities.

For the focus factory, the program we're aware -- we have very well progressed. I would say [inaudible] had been our chief, but still continue. So we'll be another set coming in the coming years, where we really fine tune and continue to specialize clients into a specific range to get the economies of scale and get the advantage of -- even improving our productivity. So the -- that is for the focus factory.

Concerning as revenue of the last quarter, I mean we have -- when you have larger projects, which are supposed to come in at a certain moment you get them in the revenues partially also is the milestone building end of the year and we had delays in that projects and then we couldn't, we couldn't invoice what we should invoice. That’s why it was not a delay in production, not a delay in invoicing, from the point of view of problems in the production it was linked to large projects.

Coming back to your first question on price pressure, its impact on emerging markets. Let me say this we were forced in the case of India many years ago due to legislation and the customs duties, so that we had to have manufacturing to supply to the Indian customers, so that worked for us as a blessing in disguise. So we have pretty much the infrastructure and the factories to serve our Indian customers. We do not import in India, we do take subassemblies on a need basis but so do we take subassemblies from India outside. So we are self sufficient and we work with the sourcing and Indian R&D still taking leverage from our global. China, we have several factories, which I would say majority of the domestic demand is being met by our local factories. As a matter of fact, couple of factories we -- in the last recent years we have set up, our intent was to use them as a global feeder factories, drives, motors. But the wait worked out; by the time factories were up and running, the demand has already gone up. So they are consumed completely with the exception of motors, which we ramped up and we used that as the sole feeder factory, low voltage motors for the whole world. So we are able to manage the price pressure and fight it out by moving into the value chain providing more services I mean Chinese and Indian customers they put lot of the emphasis on technology, brand, and local services that’s what they pay for, responsiveness and that’s where I think we are very strong, we have in China as you might know 17 factories servicing our customers there in total for the group, yeah.

Can we take one from the phone?

The next question is from Mr. Charles Boor (ph.) from Goldman Sachs please go ahead sir.

Good afternoon everybody. Charles [Boorady] Goldman Sachs. Three questions if I may. First of all, you indicate I think that the group processes are moving into the divisions from '04; can you give us an idea of what the run-rate you would expect, what those costs will be, and how quickly maybe that they can be reduced? Secondly, looking at prior technologies you had a very strong first quarter in-date but then orders in fact being more subdued over the last three quarter and in Q3 you talked of delayed orders that didn’t seem to come through in Q4, is there anything happening there in the industry that’s leading to those delays? And finally one for Peter, if I may there seem to be a slight difference on the divisions between the fourth quarter results, the full year results from what we have seen of 9-months, can you reconcile some of the movements, ex-insurance between the different businesses please.

Can you just repeat the last question because you were breaking off.

Sorry, it was relating to the, the results that you declared for the fourth quarter and the full year and reconciling those with the 9 month figures there seemed to be some slight differences there and it seems to be in a bit of restatement also if I look back at the '02 figures, can you reconcile there what's been happening excluding the insurance restatement with '03?

Okay, I take number 1 and 3 and I will leave the others to the two gentlemen here. Group process is we have declared as finished at the end of 2002. We worked it out in 2003, and we are seeing some charges. We have also moved throughout 2003, those few I guess I have to say processes, which we want to continue into the two core divisions, but they have been for most of the time already in 2003, have been executed by the two core divisions, hence the cost are already covered there. So, I would say group processes is going to be an all issue in 2004 in terms of comparing it to the core division results in '03. I think the differences you have seen is actually between 9 months and the full year apart from insurance, each time we do actually a -- sell things which are not going to be continued we are moving it or we have to move it down to discontinued operations, and that's apart from insurance we have the wind business, we have a capable factory, we have another small divestments in the United States Now for each time we have therefore to restate back with all these numbers, and if I'm not mistaken, actually at the end of the press release you have got all the ready to restate per quarter number for 2003, after having restated all the sold or closed business from the fourth quarter. Unfortunately, I don't like this accounting standard, but I have to follow it, that sound seem to, which will be with us for a while as long as we are selling businesses and there is more to come in '04. So I leave it up to Peter and Dinesh, now to talk about orders.

Yes, it is a question about large orders in the fourth quarter. In fact, there is no questions large projects are still needed and I mentioned a lot about blackout of the need of free forcing, say great infrastructure. What happened is that once you are in the end of the year and decisions have not been taken because you have a lot of different bodies to approve, also sometimes you need inter-states approval and so on, even there is a matter of urgency. Once you have come in the end of the year you have Christmas, in the Asian region you also slide into the Chinese New Year and this means automatically once you get into October, November if things do not happen you always have the risk of having some delays, but it's not delays because people don’t believe they need the opposite is -- there is urgently need but the procedure to come to final order or what has taken a little bit more of time.

Okay, thanks, can I just add one more to clarifying the comments that were made earlier, and I think it may seem though from the question. With the break on your divisional presentation you said there was 245m in the savings in Automation Technology and I think 200 in Power Technology. Could you just give us -- speak about what the total group figure was so we can -- so to compare the 655 end of the year figure with actually what you saw in '03?

Yeah I think you just mentioned the number which is 655.

Okay.

Against 234 in [structured] incomes.

Okay so that’s what the number you actually sold, okay that’s fine. Thank you.

Hi it was another -- I was just being at least pertaining to me to my ear this is not the run rate, these are savings. Run rate is particularly is -- more is obviously higher.

Thank you.

Okay. We stop the phone for a moment, one more then I go up there to second UBS man.

Hello, yeah second UBS man. James [inaudible] Just a few questions on Power, again first of all just if you can give you any idea of how much of your forecast revenue growth is dependent on blackout spend even if understand it's coming towards the backend of this year the earliest but if you could give us an idea of what proportion? And secondly do you feel that the energy bill is the only missing piece of the puzzle to trigger these orders in the U.S.? And then last question which is to be one on mix. Do you feel the mix in Q4 was favorable the margin are not favorable?

It is the first -- first question order related to the blackout in fact as blackout has accelerated awareness of leaded infrastructure projects and these projects were leaded anywhere and when we look on the global base it makes about 15% of the volume about -- on revenue volume on a yearly base. But that is what we see was a blackout is that we get an awareness which accelerate -- which accelerate in fact as process. Energy bill alone is not good enough. Of course, once you have [relation], which have defined which return investor will get, the investor must go on with the project. But what is very good there are several projects, which exists. So yes, we know, that would be very useful for getting stability integrate. So studies have been done but the projects have never been activated because the investors do not have security about what if these are returned. And when that fixed that can be accelerated faster. So it is not starting from zero. And then the question about the mix, it is mix of product and systems into the fourth quarter. I would say it was normal average as we have. So, let's not extraordinary effect from one specific kind of business.

Okay.

Just a follow up actually from that last question. I mean this 12b of spend that you talked about.

Yeah.

I mean that's backlog that is necessary to bring the good backup to the sort of conditions it should be in. Really just two questions; in your opinion on the timescale over which that's going to be spent, and what is your share in the U.S. market and therefore how much of that 12b would you expect to get?

The first thing is we have to -- relatively the 12b is a total spending, it's not only for product systems, it includes civil works, [slines], and so even if I give you a figure it is not automatically that you can make an extrapolation because it’s a total spend that you need for getting the investments there. And just, sort of, been logical, when you see that in U.S. for example instead of investing 5b per year under transmission grid they were investing 2b during the last year, so just to catch up the need to make these investments. And then how we see which share we have in United State, it depends also [Jose] an average from that kind of product. I have shown you the example of what is needed to get stabilities, so the grid is mainly HVDC, back-to-back connection effects. In those areas, you have seen some world market share, and that is also in the same order of magnitude in North America. So we have 60-70% market share in that business. That is the situation as it is.

Yeah. It's not only product. It is a system. HVDC is a complete solution.

And we will take another one from the phone.

Next question coming from James Tettler (ph.), Breisner (ph.). Please go ahead sir.

Thank you. I am just referring to slide 14 on the automation presentation, is it possible to get the numbers behind the graph I mean how -- how high sales are now in China, India, and Eastern Europe? In terms of the local manufacturers of that, you know, that commoditized products like motors and transformers, do you get a feeling that they are getting more aggressive in terms of pricing? And then finally a third question on T&D, has the change in ownership of the outcome T&D business made any difference on pricing?

Should, I take the last two ones to start with? The first question was about price pressure and with the example of transformers; I can tell you that this price pressure is continuing. So prices are always under pressure, but what is key is that we managed to consistently increase our productivity faster than the prices are going down; and that even strengthens us even more in the market and you have seen last year we have grown our market share, we’ve grown and we’ve improved our results; and when you compare what is the feedback on the market you don't get the same picture allover in as peer companies. That was about the price pressure, and the second one was a --?

[James] [inaudible].

Has the change in ownership of the outcome T&D business made any difference?

No, we didn’t see any difference, we didn’t see difference yet. It's very new and we cannot comment on that.

James, let me take the question on figures on China, India emerging market you asked; well we do not release the country figures; however, you do have access to India figure because those are published figure and you can get those from the website. In terms of -- that’s the second question you already answered. So, that was the only piece for me right.

You gave it for PT I thought a few slides later, so why do you give it for PT and not for AT?

Yeah, we gave you the percent gain in our orders and revenue, in China, India and Eastern Europe.

PT has given it but for AT we are a little bit more restrictive.

Okay.

There is one more on the phone.

Next question is coming from Swantje Conrad, J.P. Morgan. Please go ahead madam.

I just wanted to comeback to both businesses revenue development in the fourth quarter and I was just curious to understand why you have revised guidance on both businesses. With the third quarter, now Automation was better than guidance, Power Technology was weaker than the revised guidance. So, could you just talk us through what was different from what you had expected?

Well, original guidance for revenue was 3% and after the third quarter result we gave you a cautious revised guidance of 2% revenue. Now that was based on how we saw the dollar-euro development and also the some of the changes in the marketplace and at the same time global sourcing and some other productivity programs which we are working towards I think that helped us and additional point to tell you on Auto side, which does not give us immediate on revenue, we were able to get a large order proportion slightly go up for the fourth quarter or actually for the whole year. But on the revenue side is the services and products which actually made up for the 2-3% which we are happy about.

For the Power Technology, de facto when you look what was the guidance we gave after the fourth -- at the third quarter it is in line on a comparable base, if you take the same base you will that it is in line with what we see. The result has been better. The margin has been better. The older key figures are in line on a comparable basis.

And strong deal on the EBIT side I think if I recall my remarks correctly from October we said the 7.1 and 7 is on the conservative side we would agree to that, but at that stage we were more keen to actually achieve the target and if its more than we take it than to realize that target. So yes there was some conservatism in there.

Thank you

Okay, now we go back to the floor here and one behind we’ll go, yes.

Thank you. I just have a [inaudible]. I would like to comeback to the 8% target for the group in 2005. We are now on 3.7 and what we see is roughly that the cost gains that you at step change go by half to the margin. So there are another $300m to go, which is 150, 0.7% of margin, then we have maybe $150m from corporate costs, another 0.7%, then we have the non-core activities 180, another 1%. So we sum up everything. We are at around 6.2%. Where does the 1.8 missing come from?

Okay, I don’t think you’re missing some [scenario] because we are not taking in to account any productivity gains in '04 and '05 of the two core divisions. I think if you look at that chart which had the numbers on it, what is remarkable about 2003 is actually -- we took 2002 including the restructuring charges and made that our 3.5% before restructuring -- after restructuring charges of 2003. So what we are actually saving there getting through the bottomline, yes some goes out as price erosion but normally we have further productivity increases as Dinesh and Peter both have shown here, so it is not just [inaudible] driven. So I think that gives us the comfort that we go up, then you are right on the non-core which is a percent so you have to have confidence in us that’s true and over the next 24 months the two gentlemen here in the core divisions will deliver more as they have promised, lets assume they get to the 10 and 10.7 then we have at least 2.5% of corporate costs still being reported before we get to 8%. So I think it actually does match. And we have one last rung from the phone and then we close. There is one more here and we close with the floor. [inaudible] please.

We have a question from Mr. Julian Bear (ph.), Inscrita Securities (ph.). Please go ahead sir.

Hi, again. Well back to my question which is if you could provide some updates on what portion of the 900m total Step change savings will come from each of Automation, Power, and corporate when all are said and done? And also, if you could give an indication of what you expect the average savings rate to be for those divisions into 2004 that will be very helpful too? Thanks.

Yeah, we can share that with you. As you know, in that 900 in Automation division we are targeting more than $380m by June 30, and my colleague will share with you.

And in our case here we have as a $370m was 200 plus 170m it comes to $370m in PT.

Peter --

Best result --

[inaudible] corporate.

Yeah, you just had to do one [inaudible] and I don't know. You do the arithmetic for me please.

Okay, so none of the 900 was tied up in the non-core activities?

That's correct; step change did not deal with non-core nor discontinued operations.

Okay that's fair. And as a final question, could you just give an indication as to what you think the average price decline was for the overall automation and power [rental] production services in 2003?

I think you are asking for the impossible, [Julius].

Because, you know, you have different values proposition you can have. You know, what we do very much. We have very high value for the customers, so it is not really comparable if you have special solutions and you have a mix of portfolio of different products. So it is not obvious to give you a figure on that one.

No I'm sure, [inaudible] I was wondering if you had any -- I mean are we talking about 1% or 3% automation on average?

Well, I said this is all over from 1, 2, 3, 4 whatever. But you can only measure the price erosion or whatever you like to call, if you were selling standard product over the catalog or over the internet. Then you can benchmark it. That's not the business actually both of our divisions are in, so we are always selling value propositions, we are selling solutions. If you look at -- if I speak on behalf of automation, we are selling industrial product and services, which make up 80%, 20% are solutions. So none of things you can simply benchmark on a visit-to-visit basis, so we are constantly working towards that. We feel the pressure, but we have to make up for that in productivity. So it's hard to give you one number.

Okay, thanks very much.

I think the only thing we can guarantee [Julian] is whatever we lose, we will make up somewhere else. There was the one -- the last -- the phone -- we close out, there was one more here.

I have a question regarding the goal in the power technology division; you stated that the revenue growth should be 5.3% on an annual growth rate. So if I take '03 [inaudible] still local growth of 3% growth rate implies that in next 3 years '04 and '05 power technology must grow between 6-8%. Can you explain why we should see acceleration -- especially that the last two quarters in 2003 power technology sales were declining; first question? And the second question is in the automation division you were referring that the service portion increased to about 20%. That means in 2002 you had service -- revenues from services of about 1.5b and in 2003 it was about 2b. Can you explain me why the service portion increased so -- because everybody jumping in the service area? And was it due to this sluggish market or was it due to that that you have revalued some services contracts to be revalued as services? Thank you.

I can take the service first, yeah. While service growth depends on two things, the biggest factor for service growth is installed base. So if a player in our peer group does not have as large a service base, they can only offer the big fix service on the products they sell. In our case at the divisional level we have $100b installed base. Process automation alone is 20b, all documented by third party agencies. So for us to go back and get a large chunk of operational expenditure, which generally is 3-4 times what the CAPEX is, is relatively easier than those who do not have the installed base. So that’s answer number one. Answer number two, service business we are pretty unique when it comes to our full service business or performance-based service business. In Europe we are clear leader in that, which means we take long-term 4, 5, 7 years service contract and that business is mature in Europe and that we have been growing outside of Europe and will try to grow that in North American markets. So that has been fuelling our growth and by 2005 we have said to you publicly 25% of revenue, and I feel confident we will get there.

Talking about the question of power technology’s revenue target, which was a compound aggregate growth between 2002 and 2005. I mean you are right, we're going to need to grow the orders to achieve that but that is exactly what I was presenting, I mean we can even say that despite the fact that there were not as many large orders as expected [inaudible] business. And the large orders, there is no question about the fact that as a recent need integrity infrastructure that we are positioned and this project will have to come and increase the orders. Otherwise we don’t have the food for the revenues. That’s true.

I would like to correct one thing. You said actually there was lowish revenue, that’s correct. But we had very strong order intake in fourth quarter in PT, which -- in local currency not just in dollars. So that’s will contribute. Okay follow-up and then we will close.

It's when you take to Greek blackout in U.S., U.S. is only 18% of the sales. If you are counting on the U.S. Greek blackout, so that would mean the tremendous growth outside of the U.S. And the second point is book-to-bill ratio in power technology is below 1 in Q4.

It's not at all the U.S. in fact you know I talked about Europe, or the needs of reinforcement of the grid, and the blackout we have experienced in Europe, be it in Italy, be it in Sweden, be it in other places. The same is true that when you are thinking even in Asia, when I visit this countries government are very concerned to get reinforcement of the grid very fast because they have power shortages in many places, so its not all linked to US. US is one of the examples but I tried to make clear, that is also Europe, Asia, all over this is top of the agenda.

I think I will be as fooled as saying that China will even more gross than the U.S. in that sense.

Yeah.

Okay.

Okay. Good. There are two or three more on the phone. I would invite ones on the phone to call our IR department as we would like to close here to ask the questions, or I am sure I will bump into a few of you, over the next few days either on the roadshow or on the conferences we will give a speech. Thanks a lot for coming. I hope we have answered the questions that you wanted to ask and we have given you a good insight into our two core divisions and the rest of the ABB group. And we would like to invite you to a drink outside, and I guess there also maybe something to eat or something like that. So we will also be around, so if you have got some questions, we will be there to answer, but we will not give you any further targets for 2004, so don’t try that. Thank you very much.