Abb Ltd (ABB) 2004 Q1 法說會逐字稿

Good afternoon. Welcome and thank you for joining the ABB first quarter results 2004 analysts and investors conference call hosted by Mr. Peter Voser, Chief Financial Officer of ABB. [OPERATOR INSTRUCTIONS]. At this time I'd like to turn the conference over to Mr. Peter Voser, Chief Financial Officer of ABB. Mr. Voser please go ahead.

Thank you and good afternoon and good morning to some of you. Here is the presentation of ABB 2004 first quarter results. I do start with slide 3 if you follow with the slides as well. Let me start by highlighting that our core divisions posted a sixth consecutive quarter of improved EBIT. Combined revenues and EBIT margin were also high for the sixth consecutive quarter compared to the previous year. This record of steady improvement shows that we are on track to deliver on our 2005 target.

Next slide, year order highlights for the first quarter. Core division's orders were up 20% in dollar terms, revenues 10% higher and the EBIT 21% up. We also reported an improvement of more than $200 million in cash flow from operating activities, this core division achieving a positive cash flow of 26 million in the quarter, compared to cash drain of $193 million in the same period last year. While the first quarter is traditionally a weak quarter for us when it comes to cash flow, our improved working capital management helped us to further reduce the seasonal swing this year. Our Step Change Program is nearing completion with cost savings of some 240 million in the quarter and a restructuring cost of some $80 million. We pushed forward in our debt reduction program, bringing (inaudible) down to 67% compared to the 70% at the end of 2003.

Slide 5; let's take a closer look at the core division's results in the quarter. Starting with power technologies, orders are up 17% in dollars terms and 8% in local currencies. The main drivers were Asia, once again and a good upswing in base orders even in the large order businesses like power systems. As expected revenues were down in local currency terms, reflecting the low levels of large orders from the first half of last year. The expected improvement in base service in the first quarter to the superb revenue development in the second half of this year and that we have already communicated, we anticipate a number of large orders in the next quarters to derive revenue growth in 2005. Power technologies EBIT is up 2% despite modestly high restructuring charges related to the focussed factory and focussed engineering strategy. As a consequence EBIT margin decreased slightly to 7.5%. Cash flow from operations improved by $48 million, as a result of continued improvement in working capital as a result of continued improvement in working capital management. Let's go to automation technology, the automation technologies division turned in a very strong performance in the first quarter, its orders up double digit in both dollar and local currency terms. Order growth of more than 50% in China and India led to strong quarter for Asia. We saw rebound in project orders in the process automation business area from low levels in the first quarter of last year and orders continue to grow in the automation products business. Consistent weakness in the U.S. and the European automotive sectors kept orders flat in manufacturing automation. Revenues were up 15% in the dollar terms and 3% in local currency terms with the automation products business leading the growth.

EBIT was up by more than third and the EBIT margin rose to 8.5%. Again an improvement in working capital leads to cash flow from operations by $171 million in the close of resulting in a positive cash flow in the quarter.

Slide 7, if you look at EBIT, the core divisions increased $60 million compared to the same quarter last year. Together with lower losses in non-core activity, some reduced corporate cost, the group EBIT's more than double to $233 million resulting in EBIT margin of 5.3%. This compared to 2.2% in the first quarter last year. EBIT Non-core activities, as I said another important contributor to our higher group EBIT were the lower losses in the quarter from Non-core activities, which have burdened our results in recent quarters.

Improvement came from two main factors. The first was the reduced loss in the remaining structured finance compared to the first quarter of last year and we reported a negative impact of about $30 million under this total of the aircraft-leasing portfolio. Remaining Structured Finance now consists a number of financial leases, well most of them are on the course and expire. So, this item will have a little impact on our results in the future. Second factoring the lowest non-core loss was the improved operating results from the buildings systems business Germany, despite ongoing business in the German construction market. As you know, we've taken several steps to turn that business around and the improved result in the first quarter is an encouraging sign for our further improvements during 2004. Our intention remains to sell this business this year.

Slide 9, as I mentioned the Non-core results have distorted the group results for sometime and our direction program has been aimed at reducing this impact. Non-core as a percentage of revenues has now been dramatically clubbed from 21% in 2001 to 12% last year, and now 4% this quarter. This trend is reflected on the earnings side as well. We've successfully reduced the negative impact in our total results that we have seen in the past from non-core activities, which was one of the main goals of the direction program that we began in late'02.

Let's move to cooperate; another burdens on earnings has our corporate costs, we were low at least by 24 million in the quarter, mainly the result of lower personnel-related cost in the US, which you see on the headquarters and stewardship line. Lower costs from the cessation of trading in our Treasury Services activities are reflected in the line other discontinued operations. We saw a big impact from discontinued operations this quarter for two main reasons. The first is the currency translation adjustment on the value of equity in the insurance business; we say we announced last December. The equities dominated in Swedish Kroner and that's a dollar increase in value against the Kroner that incurred these costs. The other reason for the higher lost is the discontinued operations is $27 million market to market adjustment of the value of the 30 million ABB shares helped for asbestos compared to a small gain last year. In oil, gas and petrochemicals the upstream side posted a small operating profit while the downstream business broke even in the first quarter. This improved performance in the downstream business reflects the steps taken last year, such as the change of CEO, responsibility change is that the group executive levels, the reorganization and further cost reduction programs together with a selective fitting strategy.

Let's turn out to the group. If you look below the EBIT lines our finance net cost improved to 76 million from 125 million in the first quarter of 2003. Due to lower financing costs and the absence of a $13 million write down off marketable securities in the first quarter last year. Including in finance net is an expense of $35 million forms the market to market of the equity option embedded in the 968 million convertible bonds that we issued in 2002. This compared to 23 million for the same quarter in 2003. The plan changed to the convertible bonds, we announced about a week ago, where the bonds will be convertible into dollar denominated American Depository Shares instead of Swiss francs denominated ordinary shares really if approved eliminates the volatility in our earnings for this account (inaudible) rates.

Income after tax from continued operation is amounted to $80 million dollars. However, including the loss form discontinued operations, net income for the group came in at $4 million positive.

Let's move to the cash flow. Our cash flow development in the first quarter showed a major improvement. Cash flow from operating activities improved by almost $800 million to a cash-out of a 141 million compared to negative cash of 928 million in the first quarter of last year. As I said earlier, the core divisions improved our combined cash flow from operations to a positive 26 million form a negative 191 million in the first quarter last year, reflecting their higher earnings and the improved net working capital ratios. Cash used by unusual items in Non-core activities improved by more than $500 million to a negative 167 million this year. Cash payments related to the asbestos liabilities of our U.S. subsidiary Combustion Engineering were about 200 million lower at 21 million compared to 236 million in the same period last year. Cash out from oil, gas and petrochemicals improved by 200 million to a negative 57 million from negative 253 a year ago. Our non-core activities generated a positive cash flow 64 million compared to a cash-out of a 176 million in the same quarter last year. It is a swing of 240 million mainly the result of dividend received from our equity ranges portfolio and the much improved operational performance of Building Systems. Doubled the net debt as a result of repaying maturing bonds, buying back some interest paying securities before maturity and the cash out flow from our co-operating activities casual marketable securities decrease by about by about $1.3 billion. As a consequence our net debt position increased slightly in the quarter. I'd like to remind everybody that cash flows each from the insurance sale is not included in the first quarter.

However, gearing which we defined as the total debt divided by total debt plus total it's equity including minorities declined to 67% from 70 % at the end of last year. Our target remains unchanged that you know is 60% by the end of 2005. Let's have a look at the majority -- maturity profile looking at our debt maturity profile we have now 596 million in bonds left maturing in '04. All of them with maturity date before September 30th. These plot bonds pass 200 million maturing in the first quarter of next year are included in the total short-term debt on the balance sheet.

On our space (inaudible) we now have the hearing date 3rd of June, we are going to be before the (inaudible) to court of appeal. No new issues has been raised and we remain comprehend that the reorganization plan will be approved. Next turn to the priorities for 2004. Our priorities for the rest of the year remain unchanged. Coordinations will continue to focus on operational excellence including the finalization of step change. We are looking at closing the upstream in our oil and gas direction by the middle of the year having a final decision on asbestos. We'll continue to tackle those total debt of manage our working capital to reduce the cost and evaluations in cash flow. Our fir quarter results confirm that we are on track to meet our '05 margin targets.

We expect the market to continue to grow led by Asia and also it is an upturn in the key Western, European and North American markets later in the year. Our focus in operational expense will help as fairly improve our cost space and our business processes making us more productive, far more competitive. Therefore we again confirm our margin target for the group of 8% to 2005. In terms of outlook we also confirm the revenue target for the group and for the divisions. Obviously the development of large order intake in (inaudible) technology divisions during the rest of 2004 will be key to achieving those revenue targets. Our unit margin total debt and gearing targets remain unchanged and ladies and gentlemen I'd like to thank you for your attention and open up for questions.

This is (inaudible) conference operator. We will now begin the question and answer session. [OPERATOR INSTRUCTIONS]. First question from James Best Tettler from Breisner. Please go ahead sir.

Thank you. Good afternoon in terms of restructuring obviously the Step Change Program is costing a lot less than planned. What is your guidance now for the full year restructuring? And the second is just on pricing in terms of the audit you are seeing how is that looking in general?

OK thanks James. On the first one yes we can confirm that what we have seen last year is actually that step change each dollar saving is achieved to be late restructuring. We have decided to leave to 200 million in which we have given out the guidance for total restructuring, which will be Step Change plus other restructuring your taxing and above is given us a indication that half a percent or percent revenue. And just to preempt another question I would see the rest of the 200 being more or less equally spread among the three quarters to come.

On that second one in terms of pricing on the order side I am actually happy to report that the margins in the order backlog all the new orders, which we have taken in have actually improved margin picture compared to the past. So it's a positive development.

Thank you.

Next question is from Mr. William Meki from Commerce Bank. Please go ahead sir.

Yes good afternoon. A couple of questions firstly, on the interest, the first quarter interest charge after stripping out the exception of the bifurcation on the U.S. bond. Will it pay it quite low against your guidance of 300 for the year? Even if seeing no change in the capital structure and annualizing that looking well below the 300 you've guided? So what should we expect for the year in terms of an interest charge development? And the second question relates to some of the detail you provided on employment levels across the divisions. If I look at the corporate employee levels at the end last year there were about just under 3000 when you recorded it at the end of this quarter I think it's just under 2000. There seems to reallocation across the other divisions. Restructuring what have you done in terms of re-allocating businesses there, please.

OK thanks Reid, on the first one. Net interest this quarter had the effects on the bifurcation also actually positively impacted by some foreign exchange. These, which either have matured or have not matured and we have recognized some profits and we had some other out of period items. Those do come into the neighborhood of $15 to $20 million. Now you have to add that back to any taken out by bifurcation so you get them back to something, which is some where in the 60 to 70 million review time takes that time (inaudible) let's say to the 280, which is not that far away but I have said we are going to be which is the 300 million mark, which I guess you concluded last time (inaudible) conservative effect in it. So therefore I stick to that but I do recognize it as a conservative estimate. The second one is we have done a change that's correct on the employment side (inaudible) in the past we always had all the costs for certain issues delivered to two divisions like accounting and work, which are in the divisions etc. We have actually reported to costing the divisions, but we've kept the results and itself actually on the corporate side, which is actually in my opinion is not a 100% correct. So we account this growth is starting January 1. We show that actually the result, which are working for the divisions and are paid by the divisions, but they have paid them for a long time. We show them also actually in the two divisions because I think that is a much better representation of how many people they have in the two divisions. But I'd like to repeat there were no cost associated to this change, which the cost from core to core to the division because the costs were all discovered by the division.

OK. Thank you. One other thing on the corporate cost then was at the other corporate cost I think was about 3 million positively much better than I've been anticipating. Can you break that down as to the various contributing element for that?

Yes, two elements in there, which is the treasury cost some other costs and we've some consolidation elimination in that as well. Let's do the following because, I'd have to do a kind of an estimated global number for yourself. We will come back with this I'll give you some indication that on how actually that that was over coming together.

And what about this full year development?

I'll give you a full year development on corporate costs. I'm not going to break it further down into various lines, you have got the R&D already, which is somewhere in 90 million to 100 million area. As you know, as we are aiming for total corporate to be somewhere in the 350 million to 400 million area for 2004. That includes the R&D and all of itself. That's the guidance I can give you and I stick to the guidance as well that the first half will be heavier in terms of cost development than the second half.

Thank you very much. ]

OK.

Next question from Mr. Olivia (inaudible), Exxon (Ph). Please go ahead sir.

Good after noon. I have three questions please. First in terms of -if I calculate the underlined cash flow for corporate in this quarter and compared to last year. Out of the 174 this quarter you can remove 21 for asbestos, which leaves me to about 150 negative and last year was minus 300 of which asbestos was 226, so if I remove that, it seems that the cash flow is higher this year. Can you just explain? Is there any thing as specific in that trend?

I take this one immediately announcing to do with this year's. It has to do with two Q1, 2003 where we had the combined out flow on the securitization program for the group but actually that was played to be an inflow on the corporate side is an out flow in the two divisions and that has actually the stores at last year's number. So if you are correct for that, the two quarters will be pretty much equal.

OK. And it is no longer an impact this year

No.

OK. And second question is on the OTP downstream which you still want to sell, that I was quite surprised by the wording in the notes in the press release because you say that you are likely to change your plan, which too many would sound like, it is possible that you actually withdraw this disposal. Can you commend on that?

I can comment on this in a very clear way. See downs in business is up for sale we are pursing the sale we are negotiating it is depending as I communicated previously on the conclusion of the asbestos side but there has been no changing plan there. In the mean time as I said before, we are using the time to restructure the business putting on a proper footing and I think the first quarter is else where already a gave a sign of time that we are on the right track but no change.

OK. Last question please. In terms of saving if I correct you realized 655 last year-end of last year accumulated and you disclosed 240 in Q1, which leads me to almost 900 so the initial plan is now completed according to that somewhere as you say that you've realized 820 on the whole? Is there a discrepancy a here or should I understand that?

No I think that there is no discrepancy because 820 we have actually communicated this an annualized saving.

All right.

And the numbers you have just quoted the first one would be 5 quarters so you have to deduct Q1 2001, 2003 and just take the annualized savings instead and then that's 820. So we had some savings achieved in Q1 '03 as well so you always talk about annualized savings so we already grossed the 900 but not yet there.

OK. Thank you.

Next question from Andreas (ph). Please go ahead sir.

Good afternoon it's in Andreas from JP Morgan I have two question please. The first one is a follow up on the previous answer that you said you expect total corporate expenses about 350 to 400 million in '04. Continuing you expect the R&D about 95 or so that would imply quite a big reduction in corporate expense in the second half of the year to keep that below 400 million for the total for the full year? Should we expect see a pick up in restructuring charges in Q2 to the time in that reduction and expenses in the second of the year? Or is basically the reduction mainly coming from no long required services and (inaudible) from outside parties?

I would not at this stage forecast any unusual restructuring developments for corporate so I think it makes here the answer of your points. But I think that will not result in an unusual pick up for the restructuring side.

And the total for the year is 350 to 400 for--

Correct.

Corporate expense.

that's correct.

The second question is on your 800 XI automation system. You mentioned in the press release that was part of the increase in order if you could just give us some indication of level of orders you have already received from customers that you have installed the system already at customer sides and it's for who were these basically first users of your new system?

I don't want to go into too much details here regard that little bit too close to completive information flow. Yes we have installed the system that was what did also said at the automation day. The system is working yes obviously orders coming in. During Q1, revenues were at the lower level that's quite clear because the system was launched in December and there is a pick up in Q1 but you can see that pick up going further in to the rest of the year. But I would like to leave it at that but I think you can easily assume for your dropping year about some of our global major you accounts, which are taking full advantage of this one at the early stage

Thank you.

Next question from Mr. Raymond Greasy, Merrill Lynch. Please go ahead Sir.

Hi, just one question actually on the patronology business. I am a little surprised as to how little improvement there was in the underlying margin there. You are saying that the underlying margin Q1 last year was 8.3. It was 8.4 this quarter. There are only 10-basis points in spite a year of step change. Can you just explain why it has been so little improvement please?

You guys also reserve are to mix of the product mix, which was more favorable in 2003 than in 2004. That is one of the key explanation in the smaller improvement this year, than maybe what you have expected on a previous structuring basis. I think that actually major issue we have not had any other different indication or movement or reason other than one I have mentioned.

When you talk about mix, do you mean therefore more sort of project work as opposed to products?

Our projects are even on certain system works is actually which tends to have different margin build up and then pure product sales for itself.

OK, thank you Peter.

Next question coming through Peter Rely, Deutsche Bank. Please go ahead sir.

Hello, good afternoon then. Firstly, you make reference to the fact you are hoping to win some large power orders later in the year. Can you give us some indication of which prompts the world you are hoping for these to come from so we can make gains to ourselves the prospects. And secondly still in the geographical tact, you had very strong order intake in Asia particularly India and China. Are you getting concerned that there is a bubble developing in China and there is maybe a nasty accident somewhere in the near future?

OK. Thanks Peter. Large power project I think we are mainly looking at North America, Eastern Europe, through Scandinavia and China. These are the three biggest ones which are islets, have already been submitted or are just about be submitted and decisions are most probably to come during the next three to six months on these larger projects. Asia or China yes, the development is very hot, very fast that's true. We were always cautious not to build our future plans on a sustained high demand growth from China. So we are careful there but obviously it is at the moment growing very well and very fast, really overheat and burst. I would still maintain my view which I have expressed some I think last quarter or two quarters ago that I think the Chinese are takable actually managing the overheating in such a way that it doesn't burst. So I think I would still believe in that they have learned out of the past from either within China or from other countries. And the second one I would say is that it had (inaudible) where the growth is automation. Yes, there is a lot of manufacturing capacity going in. But we are also planning to have some growth or even more growth that we ought mention on the large project side and that may be a different kind of contribution to GDP growth that may on the automation side. So, I think we have a good balance there, we are watching it carefully, we are not building our plans on an enormous demand growths for many years, we are careful, we see according of period at one stage. But I'm also to say as long as you said we will enjoy it.

And just one follow-up again on the power orders you have been to been in North America. Is it a risk to get too late with the living presidential election?

No, what I'm - demands I'm talking about now are the ones which are actually not linked to the energy bill, because on the energy bill we remain in the same corner by saying, if you need the energy bill, you can come before or after presidential election and that will be the trigger for further project. Once I'm talking about that there is one big one actually, that would come anyway you expect it from - of the energy bill.

Thank you

Next question from Mr. Julian Bear Inscrita Securities. Please go ahead sir.

Hi, good afternoon Voser, these large total order and power that you are talking about what sort of margin that you expect when compared to the sort of margin in the product business or the base order business in March. In power, you got at the moment, I'm also want to go back to the issue timing, could you indicate what percentage of your third quarter sale and the operating came from the timer activity. And my last question is going back to the issue of mix and how that has affected the third quarter. My calculation suggests your savings run rate should be -- give you 400 basis points of margins first growth up it looks as if co margin up from a max 60 basis points, year on year on an underlying basis. That looks like a very large impact on mix alone, any other factors in that purchase price that you want to take into account, and is this mix issue going to disappear.

OK and I think on the first one Julien, I any way--, on the margin side of the large project, we now going to give you, all the competitive information, I think we are happy and confident that these projects will go through in such a way that they will actually not have the negative reflect in the average margin. I'd leave at that, so we are pleased. On the China side, we do not disclose the quarterly results (inaudible), whatever I think I can - in a quite convinced way I actually say that China contributed a lot in the first quarter, that's correct, we're profitable in China, we're slightly above average group profitability in China. And therefore it is an important component. Overall in the group, but we'll actually narrow that down to one quarter, I would not say that it is so much yield that would affect it in a tremendous way.

The next issue, I think it is a big issue and the biggest issue, but I mean that always price pressure as well, and local (inaudible) 60, I think I leave that to you on mathematical scales. On the pricing side I think, I would describe the power technology market in such a way, but you have got some increased pricing pressure on the Medium-voltage side and on the utility automation side, which is the system side, which I mentioned before, Medium-voltage has also in certain areas some pricing effect and that is mainly because of some over supply in certain areas of the work. The other three major BAs, which is transformed as high voltage and power systems I would say it's a competitive pricing environment but there is nothing unusual compared to the same quarter last year and some other quarters. So there is obviously a certain effect but I wouldn't code its nature.

OK on the math do you expect that to clear up as we go to the next few quarters?

Sorry I didn't answer that, yes indeed we do expect that to clear more we go into 2004.

OK thanks Peter.

Next question from Mr. Alexander (inaudible). Please go ahead sir.

Yes good afternoon. I would like to ask you regarding the power technologies. Siemens yesterday produced up 18% organic growth and you come in with 10%. Can you comment what is happening there? Is this a question of large orders that they took away from you or are you leaving market share against them. What is happening there?

Thanks Alexander. No we are not loosing market share it depends as you know when large projects were coming in and when they are coming in you (inaudible). I can give you some comforting indication on our side the base or sort of downfall increased by 16% in the first quarter as well. But that's a match to what you just have in Siemens. I haven't looked at Siemens if that is local currency what they are expecting I am sure you are comparing local currency. So we have similar developments exactly the same but on the large project that I said it depends where you are in and how much you go for certain projects.

OK thank you and I have another question on ODP the struggle of the up seen business. So you state the initial prices went 125 then you take away these losses that you have been booking. Then there is some other seen inside there if you make the work calculation we come down in the range somewhere below 700 million, 600 million. How much will it remains left in your balance sheet?

I don't reveal that I have set over in all quarter and I just keep growing until half the closing balance and then I will tell you exactly what's the net amount because there is pension price deal, the closing balance sheet price are all. Well let's just wait until they are finally closed otherwise there will not be much adjustment the losses do not have an effect anymore because the price has been agreed. And the business grows over as soon as the closing balance is down on that date and not on any retractive state. So well let's close the balance sheet first closely to DOJ and then that one and then we will communicate the number.

So as we score adjustment is it +/- 10% as the price something that you can use for our focus?

You are only trying to nail me on this one let's just say yes there will be an adjustment. But I am not going to give you indications at this stage and it is going to be lower that 925 we know that because of pension etc. So lets just wait another one or two months and then we know it.

OK thank you.

Next question coming from Charles Boorady of Goldman Sachs. Please go ahead sir.

OK good afternoon I have two questions again for me first one on equity ventures, you mentioned that you expected to be stable it is also stable as of the last year but that assume to be quite volatile depending on the timing of dividend. Can you give us an idea of how you would expect that to work during the year particularly as your last half seems to be on a declining profit trends. And there is no comment about disposals on any of those ventures into the slides over statement. Should we assume that they are going to be continuing on through 05 and 06? And secondly assume that's the China question I understand why they want to give us profitability by quarter. Could you give us a feel of what proportion of the orders either this quarter or in the last 12 months that have come from China?

OK on the first one I think equity venture over that to say always depends on dividends and therefore have some fluctuations between the quarters. I said it's stable and if I say stable that means that the previous years that I think my best guidance could be that you are more or less after saying like last year not at this stage at the best guidance I can give. In terms of timing, yes indeed we haven't said anything the disposals because there is no change in our attitude to these (inaudible) projects. We will sell them if we get the right price and this particularly is important for the first project that's a well performing project and from that point if you are only selling it when we get the right price. So there is a chance that this will stay beyond 2004 no doubt could be if the power generation market picks up in a certain way and these projects become more exact for certain investors it may go. So I would say just leaving it for the time being.

China I think the only thing I can do is go as far as the China in general terms is now the third biggest council in terms of orders in the group.

Thank you very much.

Next question coming from Matt Lee (Ph) from Sweet Bank Securities. Please go ahead sir.

Yeah its Matt Lee Sweetbank.com just had a couple of questions there. First I think you indicated that margins in that order in take here was stronger in -- well so all that you have ordered - order at the in best and could you give some flavor in which area you have done perhaps some indication of how much?

I have gone very far by giving you the first informations I stick to that because otherwise they go sort of really too fast so I think that I can only say I am happy and confident to successful development of the order books. So I think that's OK I am not going further.

And then secondly you indicated something about large order development we have an impact on our ability to read this down. Those targets in 2004 and just to get some flavor over how important this order intake are?

Yeah. Its differing we had a very strong order gross in Q4 and Q1 now on the CT side. That was mainly driven strongly certainly in the first quarter by product totals. Now if that continues for the next many quarters and then the large orders would not as be as important as maybe in a normal cycle. So what we are trying to pass on as a message is that we cannot rely on such strong order gross on the product side and at one stage we will need well up (inaudible) orders to come in and we have said we will be meet that in 2004. Just in order to have a well-balanced order in take between base orders and large project orders. And as you know we are normally looking at 85%, 87% base orders and some 12% or 13% of large orders in PT and that's a long term balance, but quite clearly depending on where you are in the economic side so that can vary a little bit overtime. So in order to be on the sales side and get to our right percent some of these large orders are important because I think nobody would at this stage agree that a 16% or 18%, the base orders will continue over the next two three years in PT.

OK and then just two small follow ups to since with. The improved order intake you see in Northern Gas, would have any on the effect is on the final set amount of the summer and secondly if you see on the effected total of the rise in raw material prices?

OK, the first one I mentioned it does have an effect obviously have a gross in the order book of down stream because as we have said we are more-we are more careful of what orders it taking. Its mainly on the reimburse of the basis, that obviously gives a higher quality to the order book, which ultimately should have an impact on the value. We see a general picking up in the down stream market across the world, but it was predominantly in Europe actually where it was picking up and we placed some important orders in Europe. So that's the first one. Second one can you just repeat your question?

I was just wondering about the increase in several raw materials if that have any effect-

You didn't---thanks for your question. So far you didn't have any impact we have the long-term contract we have some edging mechanism for our major raw material in place. So, so far we are really well positioned and it did not have the material impact -- not in the first quarter and we do not proceed in foreseeable future.

OK, thanks.

Next question from Mr. Colin Campbell, SG Securities. Please go ahead sir.

Hello yes just wants to turn to the automation area. You are still talking of the US market basically being flat and that's despite of a stronger economic recovery and the return to its capital investment. What do you think the problem is? Is it the present issue in or that the industries you are serving?

I actually, our analysis is that the investments spending has not picked up that much in the first quarter and may be some anticipated it to pick up. And therefore it is still a rather flattish curve and certainly no comparable to some of the Eastern Europe or Asian growth rates we have. But at times we have seen specifically towards the end of the first quarter again it's a kind of March. That gives us some optimism that actually even in our way the industries where we are in and all our major competitors as well. But the spending is picking up actually.

So their inquiry rates are growing in March?

Yes.

Thank you.

Next question from Mr. Tim Adams from Citigroup. Please go ahead sir.

Please can I go back to the disclose on the numbers of employees by division and really just to know that your employees by division have gone up in the two core divisions in this quarter. And previously I think all on a sort of a down with curve. I mean is this inductive of the fact that you know you've got towards the end of the period, where you can actually set shared employees with you know volume starting to recover. I mean is that very true though you know all that is more projects to do?

OK I think various answers here, I have explained already we moved from the corporate side over without any cost of tax. That's just reporting change

Yeah.

It means either to go up. But on the other side yes we have seen some parts of those divisions, which are mainly working on services that's. We all had some increases in some of the various skills area, which are not big increases you are talking about 50 or 100 you know there, and because of this the picking up of the services volume you will get some more resources in. But that's I would say not material. But that otherwise from a decrease point of view if you actually take out oil and gas, which is I found no mistake still in with the 11,000 or something like that. You will get to tough (inaudible) about 100,000, we are still aiming to get the 97,000, 98,000, we should be let's say the last way of set change and other restructuring in 2004.

And can I just ask you know on the restructuring you have given us guidance, but you know split the balance sort of you know of the 200 million equally costly have a three quarters I mean. Can you sort of give some hint in terms of divisional process from here I mean you know it just feels to me that within the two core businesses you know the numbers have dropped off quite a little in the last couple of quarters. I mean are we getting to the end of the divisional related stuff and we will more drop into the corporate line.

No I wouldn't say yes, there is a drop off, but that's a general drop off. I wouldn't say there would be a huge swing as I said into the previous question into corporate. I think you will see an equal balance there like in the past because most divisions expect more or less the same in terms of savings and costs. So I wouldn't at this stage use my knowledge I wouldn't say there is a big difference there. And certainly lot of change into corporate. Yes indeed we are positively surprised by them, surprises to loan work but positively the positive conformation is clear that the we are catching the savings on the long side fast and this late cost over. As we just want to maintain the flexibility to tackle a few things even more this year is opportunities to arise and that's why we keep the guidance.

Thank you.

OK now we are going for the last one now.

Last question from Mr. Ork Behen (ph) Bank of Oppenheimer. Please go ahead sir.

Hi Peter I have just one question. There is only a financial guidance for 2005 but not for 2004. Can you give us any reason why you haven't given any margin targets or other targets for 2004?

Yeah the reason is very simple. We have surely no in 2003 that we are on the right track to get to 2005. And we felt that 2005 targets we will reach and we will make sufficient progress in 2004 to give you the comfort that we get there. We didn't feel that we need another hard nose target by the year-end this year we should have the flexibility to get to our '05 targets in the way we want to get there. And I can just tell you and that's what you see on the last slide there as well where you see the trends as I've said last year we all regain more or less to keep the restructuring charge, which is behind the year before in our margin and that took if you all the comfortable will get to 8%. Though you will not get a target this year I said this morning to the media it's quite clearly our objective to deliver a black number this year. That's not the guidance that's an objective internally, which we have the year. That's the only more detailed chart we gave for '04 or indication we gave for '04 this year.

Thank you.

Good, that's it, thank you very much for calling in as usual. It was a pleasure and if you have more questions just call your IR contact and I'm sure that they are happy to respond to the question and see you at one stage soon I guess otherwise here on the second quarter. Thank you very much, bye-bye.