Abb Ltd (ABB) 2004 Q4 法說會逐字稿

Good afternoon. This is the Chorus Call conference operator. Welcome to the ABB 2004, fourth quarter full year results analyst and investor conference call hosted by Mr. Fred Kindle, CEO of ABB.

[Operator Instructions]

At this time you will be joined into the conference room with Mr. Fred Kindle of ABB. Thank you.

Michel Demaré: Please follow the instructions that we will receive from safety personnel. Actually there is a door down here and another one over there. So we don't expect that we have to evacuate the room, but I think it's a requirement that I at least make you aware of the slight possibility.

Anyway, as Bjorn said this morning, our Head of Corporate Communication, you don't have to leave the room now. With that I would hand over to Fred.

Thank you, Michel. It was a nice way to catch the attention of people to remind them about the emergency exits and evacuation plan.

Ladies and gentlemen, welcome to the Q4 2004 and full year 2004 presentation on ABB. I appreciate that you all have made that way to the (indiscernible) here to the corporate R&D center. Also welcome to the people who are listening or watching through the webcast. It's very important for us to have good communication with you and communication is not just presentation, which we'll do, but also hopefully try to answer your questions at the end of the presentations.

Today here are besides me, the whole executive committee of ABB. Let me go through all them very quickly and start with Gary Steel, Head of HR, Global; Dinesh Paliwal, Head of Automation Division; Peter Smits, Head of the Power Technology Division; and special pleasure, our newly appointed CFO, Michel Demaré, who has been around for a long time, it's almost a month now. So he's approaching veteran status at ABB. But we decided to leave him in the audience. He will come up to answer questions. And actually quite a few questions he has already answered this morning when it comes to financial topics. Besides those gentlemen, we have few other people because we just thought we wanted to be well equipped in case you have detailed questions.

OK, let me start this presentation about ABB. And I don't want to speak too long about general things, but go right into the midst of it. At least to do not with this chart which is a necessary one but the next one, introduction summary, review of results will be item to cover by me. Then I will try to provide an outlook on 2005, talking about the targets we're seeing after 2005. At the end round it up a little bit more general comments on ABB, and nothing to do with figures and nothing to do with concrete issues, but may be of interest to you as well.

Let's have a look at 2004, the summary. I think the most important message definitely is the positive net income of $201 million U.S. This is a key milestone in the progress of ABB. It's a key milestone in restoring the financial health of this company. We've seen 3 years of tremendous losses before. So I'm happy to say that yes, this is -- 2004 has been the year of ABB seeing back in the black figures. And the thanks not to me but to the whole team who has before, and has orchestrated this turnaround.

Fortunately this 201 million was a result of progress in various areas, as you see on the chart. We had good order and revenue growth; order went up by 10%; revenue growth only by 1%. But let's keep in mind the group figures especially group volume figures are not that indicative, because we have non-core included in that. And since we've divested quite a bit of non-core, the extra trends may not be indicative at all of the divisional trends. And you'll also hear more later on through Peter and Dinesh.

Significantly higher EBIT. It was at $1.84 billion, EBIT margin of 5.2%. Cash flow closed around 1 billion. Those are all very nice numbers compared to the past, but obviously we need to do better and make it more EBIT and cash flow.

Net profit at 201 million. I'm very much aware that the average of the market, the market medium was expecting a higher result. And frankly I would have loved to be able to show to you more something like 300 million net income. But it in the course, I would say, over the last, more or less 5 or 6 weeks that we came to the conclusion that going through a thorough review of the activities in the divisions, and non-core and discontinued that we had to take certain charges. And those charges in essence, drove the net income down in the fourth quarter to 13 million, as you know. And that wasn't enough to bring the total net income closer to the 300 million line. Nevertheless the profit is clearly the positive figure.

And also on the debt side, we made progress. We were able to reduce the debt further, especially the net position has changed quite visibly from minus 2.7 to minus 1.3.

Having said that there is some shadow in the light of course, the negative issues remains. Part of it we have cleaned up. It is clear to us we need to add some corporate costs that has been talked before.

PT margins has been below expectations. We think we'll see better times of PT in 2005. And we are committed to putting the evidence there.

The non-recurring items in 2004, especially the fourth quarter, they were an unacceptably high, but they were necessary. They are a consequence of the fact that ABB went into all sorts of different activities in the years before. And we are now, actually you could say, in the second stage of going through the cleanout, going through the focusing down on the core divisions.

And finally that's probably the most negative situation. The asbestos situation. We are not able to conclude, to come to final conclusion in 2004, unfortunately. That doesn't mean, I will speak about it later, but clearly said, it is our ambition, it's our commitment that we do everything to resolve this mess in a timely fashion and an affordable fashion in this year 2005. I'm going to talk about it in more detail later on.

So the challenges and implications for 2005 acquired clear drive up the operating margins in divisions, reduced corporate costs, make sure that non-core and discontinued don't have the same negative impact on the bottom line as they had before. And that in essence means the second bullet point up there. Strengthen the operational setup of ABB and all sorts of different activities. Give you more examples later on. And finally, find a solution for asbestos.

Looking now at the fourth quarter of the ABB group in the last year, more specifically volume growth and revenue growth was up by 4% and 5% in local currencies; 10% and 11% in U.S. Dollar terms. This may look like a slowdown. We have been spoilt by seeing double-digit figures all year long.

Fact of the matter is that we don't see a slowdown. What we have seen is the fourth quarter is what we will call a temporary lack or gap in large orders. You will hear more about that from Dinesh and Peter.

The facts are that if you look at the base business, base business is defined, all the orders below $50 million, that's still growing, and we're about to reach it. And that is most indicative about the market situation. So coming from that point of view, we are not concerned about the future growth prospects of ABB. We would expect at the fourth quarter reconfirms the very strong trend we have sent throughout 2004.

As a matter of fact we have heard from PT and now the S-link, order received in January. You heard the reconfirmation or the go ahead, so to speak on the NorNed order, which was booked a few years ago. We have heard an AT from the new order we just got for PEMEX in the Gulf of Mexico. So we feel pretty comfortable about the market outlook, the order outlook in the year to come.

Fourth quarter EBIT more than doubled, but it could have been more. Core divisions took charges to take care of certain necessary restructurings or restructuring like activities. As you know, coming from an accounting point of view, charges need to have certain qualities, certain aspects in order to be classified as restructuring charges. Some restructuring like charges, we were not able to take as classic restructurings for accounting reasons. But they have the same quality. They are basically about pushing productivity higher, by taking restructuring like measures, for instance in Western Europe.

One time exit costs in discontinued operations affected net income, I spoke about that. it is primarily power lines, we will see more details later on. But those were necessary things to do. Do we see it in the future as well? Likely so. But hopefully not to the same extent. There is always going to be some restructuring, some divesting of small operations. But the order of magnitude we have seen in 2004 is something, which is not acceptable for the future.

Higher group cash flow from operations. That certainly was positive news. We had 880 million in operating cash flows, some 220 million better than in the quarter of year before. Mainly due to the core operating divisions still providing nice cash for the fourth quarter. It's typical for ABB to have good cash flow pattern in the fourth quarter. But also because there was less cash outflow in non-core and corporate.

The last point here in the fourth quarter is an important to report one. We have to reclassify the OGP downstream business namely Lummus, bring it back from discontinued up to continuing operations. This was not a matter of choice. This was not a management decision. This is simply applying U.S. GAAP rules.

And the same is true for bringing down power lines from operating into discontinued. You will hear from Pete that we have taken very active steps to resolve the power lines dilemma. And that leads from an accounting point of view that is accounted for under discontinued.

And then we came out with an announcement that we are going to do this. This was in order to enable the market to anticipate the accounting change and be prepared for today. So unfortunately, some people felt that this is, ABB trying to confuse methods and maybe disguise things. Actually the opposite is true. We want to be frank, forward, open and tell you what is happening so that you are absolutely -- the transpired, to put together your spread sheets in the correct rate.

Let's move on then into PT. But if I say move on actually I would like to skip that because Peter is going to talk about these figures later on. Maybe my main message on PT simply is strong volume performance in 2004, continuing now into the fourth quarter and also with good prospects beginning of 2005.

Unfortunately we were not able to fully capture the benefit of that into 2004 EBIT for all of the reasons you have heard in the third quarter announcement. Some additional reasons in the fourth quarter announcements where we had for instance the write-down a, what we call, note receivable which we today find that the likelihood that we can still collect it has been reduced, project-related hedging cost and stuff like that.

But I think the positive message is that we see a much better situation in the year to come in 2005, starting with the order intake and the revenues. And also the fact that the operational situation has largely been shaped up to adopt for a better performance.

Also very short on AT only. Here in particular the comment applies, which I said before, we are not to worried about down 2% figure up there. We think this is a temporary situation. And then let's keep in mind, last year in the last quarter 2003, sorry 2003 we booked one of the single largest orders ever in AT. So we had a base effect, which was playing to our disadvantage comparing the 2 quarters.

Otherwise, AT has performed very well in the last year. Again in fourth quarter we took some measures to improve our position. Also for 2005, we took these what I called restructuring like charges, which relate to streamlining the operations in, especially in Western Europe leading to hopefully better earnings in 2005.

So if you allow me, I will make this very short two divisions and then go on to the corporate overview. In essence, when you arrive at this overview on EBIT. I did comment very quickly on the fourth quarter EBIT in Power Technologies and Automation Technologies. Power down because the special charges. Automation still on the higher level close to 9%, but not to the 10% that some people expected. We feel that's absolutely achievable but not this quarter.

If we go further down non-core activities, you see a more detailed schedule later on. I think this is a major improvement with regard to the past. If you do the corporate comparison and particularly if you do the annual comparison, it has significantly less charges in the non-core side. And this was out to the necessary. More detail about that just in a second.

Corporate. If you look at the 150 million in the fourth quarter. It looks like we're actually increasing cost. That's not true. The fact that the dollar exchange rate worsens or played against us alone meant something like above 30 million impact. We're not adding cost. We're actually shaving cost. And the reason why this has gone up is simply exchange related. We do have the target of bringing down to 450 in 2005 and we're committed to that. And you will hear more about that later on.

So the consequence of all of that, the group EBIT in the fourth quarter was 4.4%. We would have loved to see it higher, but that was the situation. 5.2% for the whole year.

Going on to more details. On non-core, you see here a listing of various non-core activities. As I mentioned, Lummus is back now under non-core, no longer in discontinued. So that's basically the first line up on the schedule.

I think an important message is Lummus would have been profitable, above the breakeven line under normal circumstances. But because they were accounted for in discontinued they did not take depreciation charge. Once they come back in continued operations we had to take depreciation charge not only for 2004, but also for the year before where they were classified under discontinued. And that alone was a charge of $13 million. So if you add the back operation Lummus actually is slightly positive as of today.

That's certainly a big achievement if you look at the 2003 annual figure. We had tremendous losses in that operation and the management response for Lummus starting with Gary Steel and especially Samir Brikho has done a wonderful job in cleaning up the situation there.

Building systems. Still loss is 23 million. Not so much due to Germany anymore because Germany in the fourth quarter 2004 has turned positive, which is the largest operation we still have in building systems. Mainly due to other countries, namely the States. But again a significant reduction of the losses we have seen in the past.

Equity ventures. Still positive relating to, especially one holding we have which has always been positive in previous years and still is. And then we have some ancillaries, structured finance, new ventures, all the non-core activities, which consist of various different things which add up to a loss of 22 million for the full year in the fourth quarter and I would say a part of that definitely is non-recurring for 2005.

It's clear that this picture in total must converge towards zero. At some point, non-core must reach an irrelevant level for the quarter performance.

Moving further down the line from EBITDA the net income we have discontinued in between. I spoke about the reclassification of OGP as a necessity of U.S. GAAP. The same is true in power lines. We also took for a Wind Park project in Greece which I would love to visit at some point. I haven't had a chance yet. But unfortunately that visit will be a painful one because, if you look at the schedule, the second last line, it came at a loss of 15 million. We had to write-down substantially, a participation of Wind Park which was established a few years ago when ABB was going in all sorts of different directions.

If you look at the other items here on the list, insurance more or less is no longer an issue. It used to be a big one in the previous year. Asbestos is a mixture of market-to-market shares, which we have in the fund and actual cost. This was positive because the ABB shares went down. I would say that was probably the major reason.

Upstream oil and gas. We had the biggest reason why there's been a loss of 18 million. We are obviously very close to the, very final closing of this process. As you know from the third quarter announcement, we had some discussions going on with the purchasing parties. The discussions are more or less finalized. They're more or less done with. The reason why there is a loss in the more significant portion of that is due to an external correction of pension liabilities. So this is once and forever, and then it will be done.

Power lines. I've talked about. This is a substantial hefty burden in the discontinued schedule here, 47 million alone in the fourth quarter. Total year 75 million. Is it for power lines? More or less yes. That could still be a small, a small million number. Single digit million number in 2005. But for all practical purposes, I think we are more or less on the safe side with regard to power lines.

And that all contributed to the 82 million net loss in the discontinued. And that's by far the most significant reason why the net income wasn't higher. Total year 247. A reasonable improvement to the year before. But still much too high.

Will we have in the future again losses on the discontinued? Yes. Like previous (ph), we still have you know certain participation in ventures. We still have the downstream operation in Lummus. There will be some consequences in the discontinued schedule in the years to come. But never to the same extent as what we have seen today.

Finally, we have the ABB Group key figures. EBIT, Finance net being the net provision of income and expense where if you look at the annual figure, it's pretty close to the guidance we have provided. We do have more detailed explanations if you have questions why the number is 223 or 66.

Loss from discontinued operations. I tried to explain with the schedule before. That's how we arrive at the 13 million or I should say 201 million for the full year.

Again, if you allow me not trying to downplay the fact that 201 million falls short of the expectations. If you look at it, the year before we had close to 780 million and now we are plus 200 million. It's a swing factor rebound of about 1 billion. So even though you may have certain questions, certain complaints even, about the 200 million not being 300 million, I think the team has been at work here. And that does not include me but the other gentlemen, they have done a great job of turning the situation around.

Let's move on to cash flow. If you look at this cash flow picture, blue is the operating activities. Then the light blue is the cash outflow coming due to non-core, corporate and other. And other the gray shade, it is the cash provided by all operating activities.

Three main messages basically. Fourth quarter as typical for ABB is the most important quarter with regard to cash flow. And it was very nice to see that fourth quarter again both divisions provided substantial cash flow. That can be the overall figure improved nicely. If you look at the total 2004 figure, now we're up at 962 million close to billion in operating cash flow, which underlines the potential which ABB has if we get up the performance even further.

And finally, you see that the light blue column from 2003 to 2004 has been reduced significantly. This was a major thing that the cash outflow due to non-core, corporate and others has been reduced. This was affected by many different reasons like downstream and others.

Cash flow is like the blocked stream to enable the company to grow and to come up with the good balance sheet. And if you look at the balance sheet situation, the gross debt, the net debt, the gearing ratio you see a continuous improvement trend, starting from December 2003 going to September 2004. And then you see an increase again in the fourth quarter. This increase is solely due to the currency fluctuations. We have not taken any new borrowings.

But because most of our debt securities are in Swiss Francs in Europe, the fact that the dollar went down played against us. And that's the reason why the gross debt actually went up again. Net debt however was further reduced to 1.3 billion.

The target of the 50% gearing ratio for 2005 remains. We want to achieve that. And we can speak about this more in the Q&A, if you like about debt structure and how we want to do that.

One aspect of that is or provides the fact that the possibility to look at the maturity profile of our debt securities. You see it here on this chart. This year we have something like 400 million of debts, which will be retired or redeemed. That's obviously one step in that direction. 2006 is nothing. And then we have a level of 800 million to 900 million for every year to come, assuming that we don't change the debt structure.

If we don't change the debt structure that's a volume, which we could handle with our operating cash flows. So we have a very different situation from 1 or 2 years ago. It's comparatively comfortable now which doesn't mean that we will be interested in changing this, if we have more degrees of freedom again.

If you recall, we tried to do our first step with the exchange, our offer launched was it late November/early December last year. I think that exchange offer was very well accepted in the market and we would have executed that unless, if not the ruling had come out from the 3rd Circuit Court on December 2nd, which spoiled the day. And because of that we had to pull back and couldn't do it. So that's a little bit of problem we faced here.

The fact that the asbestos situation has opened up this question mark, is impacting us with regard to reshaping the maturity profiles and that kind of bonds we have outstanding.

Which is the almost perfect transition to the next topic, asbestos. Just to repeat what happened. The 3rd Circuit Court came out with a ruling, which was a surprise. It was a bad surprise. But in all honesty, I don't think we have to put too much guilt in ourselves of having being naïve about it or overly optimistic. The fact of the matter is that more than 99% of the plaintiffs were inside the tent. They were agreeing to the deal. They, means not only plaintiffs, it also means their lawyers. And this lawyers group includes some of the most prominent litigation lawyers in the States. They all were surprised.

Now here we are with this surprise. And the surprise in essence means that the court has said it needs to go back to the lower courts to answer some questions about the fairness of the Trust, the CE Trust the double Trust structure, the stop voting rights and so forth. And what we need to do is on the one hand provide clarifications that the fairness was the case and that structure is established by the structure. On the other hand, let's also rethink maybe some of the elements of the deal, of the settlement.

The way we're going to do it is obviously by talking to the parties. And this has started already. We are in discussions with various parties. And I cannot tell you anything more for obvious reasons. One of the consequences of being in discussions now is also that we have changed the wording. This is partly legalistic, partly accounting reasons. We have to change the wording and tell, "Look we are committed to resolving this as rapidly as possible, at affordable cost." But at this point we cannot predict by when and exactly under what terms and conditions.

I know that this raises eyebrows. It raises question marks. But that's the fact. We have started the discussions because this is a new stage now. We simply cannot use the same wording we have used in the third quarter now or in the third quarter in the December 3rd announcement.

For Lummus Global and Basic. The implication is a different one. The court has clearly ruled that it's not included in the settlement. At the moment protection is still effective. It's not lifted yet at the moment. But we have to assume at some point, this may happen.

We have 11,000 claims out there, which we have provided for. Economically the Lummus Basic exposure is never to the same extent as is Combustion Engineering. So we're not that worried about it. Of course we want to get it resolved as well. Because after all, we don't believe in Lummus being a core business for us. In the future we want to sell it. But that we can only do, if we have a resolution.

So, the court delivered a dilemma, the one that we can afford to wait and not to worry. At the same time we want to have clarity and resolution here as well. And we're working on that in the same fashion as we work with the bigger topic out there.

That's already talking a lot about the next year, which means I switch now from 2004 and looking to 2005. What we have tried to do is just to put together the essentials wwith regard to the outlook.

Do we see change in market in 2005? By and large, no. We still see the positive trends in China, in India and other countries to continue. We actually have seen some revival or increase in order intake in North America. Europe is almost as usual; the last wagon in the train to follow that trend that is still comparatively a little slow. But as I just mentioned in PT you've seen some major breakthrough with NorNed and Estlink. All together, I would say a favorable market environment we expect also for 2005.

Raw material prices. My hope is and my belief is that we have seen worst. But we don't see a further increase in the prices for important raw materials namely electric, steel, copper, aluminum, transformer oil. We may have seen the worst already happening and some softening appearing on the scene, but we're not completely relying on that. We want to transfer most of these cost increase to our customers and much of that has happened already. So more needs to happen.

As for currencies, we don't know more than anybody else. You tell us how you feel about currencies. I don't think we are tremendously exposed to currency fluctuations from a competition point of view because we have a global setup. Of course we are not strong with regard to value-added in the dollar region. So if the dollar goes down, it is not to our advantage. You tell me whether the dollar will go down again or whether it goes up. We will see. We will take measures depending on whatever the scenario is.

As a consequence, the targets we have talked about and committed to for 2005, we stick with them. But you see a change in there, the 7.7 and already saw that some news that ABB reduces the target. Now hopefully you're with me and you accept this. This is not a change of target. I mean if we now include Lummus in continued operations we add quite a bit of volume if compared with a little EBIT that just makes the 8% a little tougher.

And that's the thing what we did here is we took out or we collected for the Lummus impact. The 7.7 is after Lummus and the 8.0% is before Lummus. But in essence, it's the same goals. The goals for the 2 divisions remain the same. The goals for corporate costs remain the same. So it's just taking care of the impact of Lummus.

To provide a little bit more flavor to this 8% or 7.7%, let me try to do that with this chart here. The first 4 key levers which decides how well we can achieve 8% potentially overachieve it or have concerns about it. The AT margin performance, the PT, the non-core EBIT and corporate costs.

As for the AT margin target 10.7, we feel, our confidence level is high. The same is true for the non-core EBIT which should be around zero. And as for corporate costs, the 450 we have given ourselves as the target for 2005, we feel also very confident that we can achieve it. Now let's keep in mind it's not going down from 5 or 7 to 450. We have non-trivial additional charges due to Sarbanes-Oxley for instance, in 2005. So actually the starting position is higher than the 500 we have at the moment. So it is an ambition to be able bring it down to 450, nevertheless we feel confident.

PT margin. Slight deviation there, we say it's medium. Has the situation for PT worsened, vis-à-vis our third quarter announcement? No. No it has not. As a matter of fact the order intake has been strong. We have taken measures to clean out quite a few of the problem areas like the power lines and some others. The situation is actually improving (indiscernible) 2005.

So why don't we put down the high there as we do for AT? Simply because there was huge challenges remaining and 10 % for PT is very ambitious targets. Finances, if you take everything together, we are still committed to the 8% / 7.7 %. We don't want to change anything there. That's our target for 2005.

With that I would now leave the subject of concrete figures, 2004 and also 2005 and deviate a little bit. And you'll forgive me this little excursion, if I go into a very general discussion, I won't last long. But I think it's important to understand what is happening in now at ABB.

The main topic is value creation. If you look at the bottom, we clearly believe at ABB that shareholder value is important, but is not the only thing. The company is also here to provide value to all the stakeholders, whether that's environmental value or societal value, you name it.

Nevertheless, if you don't provide for financial value, we don't get anywhere. So if I was to prioritize, I would say financial value creation comes first. You all know from financial field that you can break it down to growth, operating margin and capital efficiency. I would now add stability and reliability. You could theoretically say that somebody in the bank (ph) or whatever.

Fact is that if you look at the stock market performance in the last few years those companies who were able to deliver steady progress, actually fared better than those who always talked about high growth, high growth.

So I think there is some truth in terms of a reliable, stable progression and not having too much volatility.

Now I'll just end with the picture here, 6 months ago. And I don't want to judge the past of ABB. That's not my intent. Somebody else can do that. But I think we need to look a little bit into the past, draw lessons from that in order to shape the future in a better way.

If I look into the past of ABB, specially in the '90s, I would say ABB was very strong on managing growth. ABB was the perfect growth machine. The architecture of ABB was geared towards growth. The decentralization, at some point ABB was organized in 5,000 profit centers and had the famous matrix. People were told to go out there and grow, just like in the Bible, go out and procreate, and they did.

And it became a business school case study because it was a perfect case for a growth machine. That was one hallmark, one big achievement of ABB in the '90s. And we have the benefit today that our market positions are very strong, extremely solid customer reputation. Also in the newly developing countries, if you go to India, to China it's just amazing -- I do travel quite a bit now; it's amazing the reputation we have. That's a huge advantage we have today due to this period.

But later on in the '90s, ABB focused on top of that very much on capital efficiency of mainly focusing in on balance sheet issues. ABB created, as was fashionable, financial services activities playing around with the new curve and so on. You know about the share buyback driving down the equity ratio in order to improve the returns and so forth. A lot of financial engineering had happened.

Now looking into the future, I think what we need to do is, on the one hand maintain our incredible strength on the growth side, keep the cost number proximity in place, maintain this very high reputation and the relationships. Also continue to work on capital efficiency, but not so much on the balance sheet side. I don't think that anybody of you would call us under leveraged at the moment. But more through operating measures. Net working capital focus, applying return on investment, return on capital employed criteria, maybe make investment decisions, things like that.

And then finally operating margin and stability and reliability. That's a key point what we need to do. We have -- if you organize in an extremely decentralized way, where you get the benefit of growth opportunities, but at the trade off of maybe not being efficient or effective enough. People start to reinvent the wheel; everybody is doing their own thing, going in different directions.

That's what we need to do. And the way to go forward is along 3 axis or dimensions, so to speak. Whenever you talk about running an organization, it's about strategy, execution and people. And prioritizing these 3 subjects for ABB, today, I do the following I tell you that strategy at the moment is not the core topic. As well as I mentioned, (indiscernible) myself talking a lot about strategy, but I tell you strategy here at the moment is not so important. Strategy is probably important every 3 to 5 years for a company, and in between hopefully the strategy is right. And you need to execute.

I think the strategy for ABB is right. What the executive committee has done in the last 2 years is focusing down on the 2 core divisions was necessarily the right thing to do. If you look at the growth they have provided in the last 2 years, it is tremendous. So that's a signal that yes, these are the right businesses where we can move forward, where we also have the market potential. So don't expect us to come up with something revolutionary in the short-term with regard to strategy.

What we will do is, probably some time in the second quarter, come up with new figures for the medium term 2009, to provide you more guidance about where we want to go financially, together with some content. Where do we set priorities? In which areas do we want to grow more than in other, maybe also regional growth? It was likely also that new figures relating to return on capital employed, return on invested capital, because I think that's an additional dimension that we need to look at.

Execution and people on the other hand are core focus topics that we need to act. Execution is much less sexy, if you allow me the word, than strategy. It's more about discipline, it's about hard work, it's day to day. But it's something very necessary. It's the art of how to get things done. A lot of things have been moving in the right direction at ABB in the last 2 years. And we need to continue on that.

And finally people. That's probably the most important thing there is. If the right people are in the right positions, you actually could claim that you don't need to worry about the other 2 aspects because they will fall into place over time anyway.

Nothing to have great people at ABB, found enough that quite a few people have been hired from the outside including myself, the new CFO, Gary Steel, actually quite a few. There is no quick fix. Even if you hire people from the outside, we all have to merge together and be common effective team and talk in the same terms. And know what to talk about and understand each other and so forth.

That will take a little time. But we are moving in the right direction.

So the last chart in my presentation is just giving you details of what I've tried to talk about with execution and with people. And I think these are the key priorities for us to move forward.

So before now handing it over to Peter, who is going to talk about PT development, let me just summarize by saying, hopefully you are with us and recognize that, yes 2004 has been a key milestone year, restoring the health of ABB, even though the net income wasn't quite to the level you would have expected or anticipated.

We have some good explanations, why this was not the case. This explanations are not excuses but they are also explanations pointing out that we'll try to do better in 2005. With that, Peter please. Thank you.

Well, ladies and gentlemen, good afternoon. In my presentation, I will take you through an analysis of our markets, our structure, our financial performance. And also, the current priorities in one of both divisions, the Power Technology Division.

Let me start with an overview of some key developments both in the fourth quarter of 2004 and in the full year. In general, 2004 was a year of growth for ABB Power Technologies. In Quarter 4, we saw continuous operation -- we saw continued order growth and also revenue growth especially from the product business.

Besides China, the main drivers for growth in our division were India. And Central and Eastern Europe.

We have also benefited from improved investment in the major markets of North America and Europe. And this has been illustrated, for example by the approval of $270 million HVDC interconnection between Norway and the Netherlands with a length of 5.80 kilometers which is the longest underwater sea cable and the longest underwater cable link in the world.

However, our EBIT margin decreased and I will present you more background on that in a minute.

In Quarter 4, we decided to lease the Power Line business. Most of this business has been reclassified to discontinued operations, following the accounting rules of U.S. GAAP.

In the full year, orders grew by 15% in local currency in both, base orders and large orders, which we define as orders with more than $16 million. The largest of this was a $390 million order for the Three Gorges - Shanghai HVDC link in China.

Revenues grew by 9% thanks to a strong base business. However, non-recurring cost also burdened our EBIT margin for the full year.

During 2004, we increased our global market share from 18% to 20% and we gained additional market share mainly from niche competitors who cannot match our quality and speed of delivery.

Now, let me elaborate on the performance in the fourth quarter of 2004. In Quarter 4, orders and revenues increased, while our EBIT was down 5%. Our EBIT margin was affected by a number of events, most of which we considered to be non-recurring.

For example, we took a write-down of notes receivables, further hedging losses related to delays in the approval of the NorNed interconnection project. And we had to move them from the balance sheet into our income statement. These 2 items account for the majority of the EBIT decrease.

Additional costs were caused by the under-consumption in part of our system business which had a diminishing negative effect towards the end of the year.

Price increases in raw materials like steel, copper, aluminum and oil, which was mentioned earlier also had an impact. Despite activated efforts to increase prices, we see a time lag of 3 to 6 months before we have the positive impact and can have it on the -- be recognized as a positive impact.

In total, these items reduced our EBIT margin by about 2 percentage points.

Let's now look more closely at revenue distribution and development in the regions over the last 3 years.

Driven by Eastern Europe, especially Russia, we expanded our revenue share in Europe during that period. Producing one-quarter of our total revenues, Asia today is second largest region. With major contributions coming from China and India.

Two years ago, Asia accounted for one-fifth of our revenues. In 2004, our revenue growth in China was below the division average of 9%. Mainly, due to the lower project revenue in power systems. However, orders in China doubled in 2004.

The proportion of the revenue share in the Americas decreased mainly due to lower market demand. At the same time, it remained stable in Middle East and Africa.

All in all, the picture that emerges shows we are well balanced across world regions and enjoy a favorable position in emerging markets. It also demonstrates the advantage of being a global player, which is able to balance different market developments to create a strong global growth.

Now let's move to some highlights in diverse business areas and recall the new organization structure of Power Technologies Divisions.

In 2004, we were still organized in 5 business areas, 3 products and 2 units mainly responsible for system business. The business volumes of the various BAs are indicated. You see them on the slide and they range between $1.5 billion in the case of the Utility Automation and $2.5 billion for the transformers. There is a substantial amount of internal trade from the product to the system business and the total consolidation is about U.S. $1 billion.

Back in August 2004, we announced the merger of these 5 BAs into 2 BAs. They will organize their own products and systems. And this is effective January 2005. We did this to further increase profitable growth and operational excellence by ensuring the systems business maximizes added value and the product business improves cost competitiveness.

In particular, we are leveraging our comprehensive portfolio through a common PT front and sales force, while simplifying the management structure. In 2004, we registered revenue growth across 4 business areas expect Power Systems.

The Power Systems BA has been burdened by lower HVDC export revenues auto fuel, up to China. This mainly lowered the result in our systems business.

China revenue performance is particularly strong in the area of products, where demand for turnkey system is stronger in India and the Middle East and Africa region.

Let me now turn to our financial results for the full year. As mentioned already, orders and revenues grew in 2004. We achieved orders of about $9.4 billion and revenues of 8.8 billion. However, we could not consolidate all of this top line into the bottom line. And most of the event that lowers our EBIT margin for the full year, happened in the second half of 2004 and they are mostly in the Quarter 4. Which is why I listed these events already earlier.

Cash flow from operations of $499 million is below 2003 due to lower customer advance payments. Networking capital percentage, as a percentage of revenue improved supported by our continued measures to reduce inventories.

In October last year, we emphasized the impact of Power Lines on our business. And let me give you an update on where we stand now. Power Lines is part with our Systems business which we started to restructure early in 2004.

On top of these challenges, we experienced a fierce price drop and volume decrease leading to the decision Quarter 4 to exit the Power Line business. The first results of our decision to exit this business are already visible and will be further executed market by market.

In Quarter 4, our operations in Nigeria were sold and the ones in Brazil have been closed down. The sale of our Italian operations is due to be completed soon while the divestment in Germany is in progress.

So nature of these activities caused a reclassification of the Power Lines business to discontinued operations. And the positive EBIT impact is valid for 2004 and for the historical period.

For Quarter 4, we report an operational EBIT loss of $6 million while the divestment EBIT loss is $30 million. The remaining business have revenues of $20 million in Quarter 4. And an break-even event, break-even results with about 200 employees.

We expect to complete the business exit in the first half of 2005. So much for my look at 2004. I would like now to outline for you some of our key priorities for the year ahead.

As already mentioned in other presentation, large orders have been delayed over the last 2 years. However, they are now coming through. This is why we find ourselves in a more favorable position as we move into 2005.

Over the last several months, we were able to close a number of deals for large orders. The value in total amounting to nearly $1 billion. In this calculation, I only refer to the orders with a value higher than $50 million.

Among these large projects, we count 3 for HVDC with the contract values ranging from $110 million to $390 million. The number of large orders in 2004 is significantly higher than in 2003. The total order backlog in 2004 increased by 7% in local currencies compared to the previous year.

As a consequence, we are moving from a period of under-absorption in 2004 to a period of high utilization in 2005 and 2006.

The increased loads on our engineering centers and factories is expected to generate more revenues in the Systems business from now on. And of course, the high utilization will also contribute to improved EBIT performance in 2005.

In terms of market expectation in 2005, we see an overall favorable environment for our business. Most in the mature market and also Western Europe and North America, more investment in power transmission is overdue that requires a key regularity framework. In both market our service business is attractive.

Eastern Europe is expected to show a strong growth. In Asia, the Middle East and Africa we will continue to leverage our strong presence and tough growth in these economies.

From a business area perspective, we anticipate a growing demand for all of our products and services in Asia, the Middle East and also in North America and Europe.

Power Technology Systems expect an increase due to a need for interconnections mainly in Asia, in the Middle East and also in Europe.

What does this mean for our targets in 2005? As communicated earlier, the compound under growth rate from 2002 to 2005 is expected to reach 5.3%. As already stated, in Quarter 3 2004, the EBIT margin target of 10% is challenging. But as I have pointed out in my presentation there are positive elements in place that makes this target achievable.

The strong order backlog is illustrated by the successful large order intake during the last 3 quarters, which will lead to higher contribution margin.

In addition, we have continued to lower our cost base. Over the last 3 years, we reduced our personal expense expressed as percentage of revenues by merely 3 percentage points. At the same time, we achieved a higher productivity in our operations. Especially, in Eastern Europe, China and India.

As mentioned before, the 2004 EBIT performance was influenced by a couple of non-recurring items. Further operational improvements are expected from our ongoing measures to increase productivity and further reduce our cost base.

A continued focus on our high margin service business is also expected to improve the result. A further contribution will be delivered by our activities in supply chain management. In the last 2 years, we increased the purchase from low cost countries from 19% to 30%. In 2005, we will accelerate this program and aim at a purchase volume of 40% source in low cost countries.

This puts us on solid ground for accelerated profit margin improvement and favorable top line growth in 2005.

I would like to now ask Dinesh Paliwal, my colleague Dinesh Paliwal to make his presentation. Thank you very much.

Thank you, Peter.

Good afternoon, ladies and gentlemen. I'd also like to thank you for the opportunity to share the results and also share the outlook of ABB Automation Technologies with you this afternoon.

As you have seen, we have made significant progress during 2004. And we had a clear strategy in place to drive continuous improvement in that direction. I will provide some highlights on both subjects during the next few minutes to you.

Here's an outline of my agenda beginning with a brief review of the key performance, key factors for the division. And going forward, I would like to share the Quarter 4 and the full year review. How we developed this performance in the full year, as well as the Quarter 4.

Moving on, for the fourth quarter, we had a strong growth in base orders across the division, which as you heard early on Fred's presentation we had a single large order booked in Q4 of 2003. If you offset that on like to like basis, we had double-digit base order growth or a like to like basis 5% growth in local currency in last quarter 2004.

Then if you look at, by business areas, robotics orders in the U.S. increased sharply for both the quarter and the year as our Motor industry continues to gain momentum. In process automation business, a new release for our powerful system 800xA completed in the fourth quarter. That also continued a year long trends of high marks from both our customers and the media.

The new system was recognized by the Control Engineering Magazine as one of the best product introduction, globally during 2004.

The combination of improved earnings and close management of working capital, produced strong cash flow from operations in fourth quarter. And also, if you look at now for the full year both EBIT contribution and cash flow from operations exceeded $1 billion in each category.

Looking at our 3 businesses, each of our 3 business areas posted base order growth in the fourth quarter. Now in automation products, continuing strong demand in China contributed to growth across all major product categories.

In process automation, the quarter brought particularly strong growth in oil and gas. Some pickup in chemical, which has been the best for many years. And also in pharmaceutical and simultaneously we saw growth in process industry products area as well.

Manufacturing automation area or robotics area enjoyed significant growth in North America and Asia, with Europe continued to be flat in this area.

So together these factors contributed to a 6-percentage point order increase in nominal currency, which will also interpreted earlier 2-percentage reduction in local currency.

The same time we saw 18% increase in fourth quarter in our revenue. More significantly, EBIT's contribution for the quarter was up 29%, reflecting the impact of our continuing programs to reduce cost and improve productivity.

EBIT margins increased to 8.9% for the quarter led by the operations in China, India and North America. Cash flow remained strong, as seasonable high in the fourth quarter at more than $500 million level.

Now as we move into full year. Moving into full year review, I am also pleased to report to you that all 3 businesses showed strong earnings increases. And that strong earning increase was led by process automation business, which increased earnings by 55%.

In this business, we also improved both project selection and project risk profile. Looking at automation product area, we had a strong demand for our premium products where we saw excellence both in actions executed. Those contributed 40% increase in earnings in the automation product area.

In manufacturing automation robotics area, we took significant steps to reduce the complexity of our robotics offering and several other operational excellence initiatives. And those initiatives, contributed to 38% increase in earnings in robotics area.

Automation products continued to earn the respect of new customers in both established and emerging markets. And we continue to ship more than 1 million products everyday. It's quite a logistics challenge, which we manage quite well and be very happy about it.

In process automation business, System 800xA completed its full year in the marketplace producing hundreds of orders from customers who value its capability in terms of blending the complex control, advanced functions for information and asset management for service.

In manufacturing automation robotics, area we concluded 2 very significant orders with Daimler Chrysler during 2004. We were awarded a multiyear frame agreement. That makes ABB the largest supplier of robots to Chrysler assembly and stamping plants in North America. And which we are very pleased about.

In addition we will provide to Daimler Chrysler complete robotic systems for the new Chrysler vehicle body shop. And that represent the largest single orders ever booked by our manufacturing automation of robotics business ever. Which again, we are pleased with that.

These results come together to produce a full year 2004, in which the division improved each of its key financial measurements. Obviously we posted for in these areas a nominal order and revenue growth in double digits.

Top line growth continued to benefit from our performance in Asia. Eastern Europe along with services, where we continued a period of strong growth that now spends 4 straight year in services business.

At the bottom line, EBIT margin improved to 9.3% for the year with both EBIT contribution and cash flow from operations exceeding $1 billion, as I said earlier. While improving our financials, we have also worked to evolve our business mix in line with the strategy we established some time ago. That was October, 2004.

Now if you look at the regional mix, the prospect of regional mix of the business are strong performance in Asia and Middle East Africa, have substantially reduced. Our long bias towards Europe, which this year accounted for less than 50% of total revenue. That's an interesting development because that takes away the geographic simplicity which we have experienced over last many years.

We have also evolved the proportion of our technology mix, consciously reducing our systems business through project selection while sharply increasing stand alone products and services, over the past 2 years. Now that is very much in line with a very deliberate growth priority of products first, second service and then systems business with selected margins and selected risk profiles, which we know how to execute.

While driving down cost through our operational excellence programs, we have also focused very closely on management, managing the working capital. Aggressive reduction in third party over dues, receivables freed up significant resources over the past 2 years.

Improvement to our inventory turnover allowed us to touch 8 days from the cycles during 2004. So overall, net operating working capital has been reduced by 153 million. That represent 1.6 percentage point on revenue based on four quarter rolling bases.

Now let's look at few strategic priorities that have helped shape the performance we have so far in the market place and how do we apply that, as we move ahead.

Without question our focus in operational excellence has produced significant benefits generating over $200 million in cost savings, which became PNL effective during 2004.

While working for continuous improvement in our existing operations, we do recognize that we must aggressively leverage the emerging markets to optimize our global manufacturing and service footprint. Significant actions during 2004 include expansion or launch of more then 20 factories in the emerging markets and 3 new project execution centers in Asia. That would have lasting impact on our long-term profit development.

Some operations in western countries have either been downsized or will be closed, as a consequence. Now I talked you about installed base before, our large installed base, $100 billion in level continues to be a source of our strong opportunity in products and services area.

Talk about service. In our service portfolio it is increasing, focusing, actually it's increasing the focus on performance services area where we can add value to our customers in terms of improving their productivity in their installed asset base, which is the $100 billion installed base I mentioned.

In the process automation area system 800xA provides a powerful tool for customers seeking to migrate their installed base which may go back in time 20/30 years including the platforms from ABB very, several numbers of platforms, ABB platform as well as competitors platform to the new level of functionality and the technology level.

As I have shared with you in the past, we also have 2 important ongoing regional growth initiatives. These include Asia, where are expanding manufacturing footprint, leverage both strong market demands and also competitive cost structure. And second, regional initiative is North America where we are working aggressively to realize full potential of the huge market we have out there. Now these actions helped us achieve more then 20% order growth in Asia as well as 20% order growth in North America during 2004.

For 2005 we expect positive trends in both geographic areas. If I were to highlight these, it would be Easter Europe, Americas and Asia Pacific, Europe being flat, continuing to be flat. Although some moderation from 2004 growth levels in China and India, we believe these markets will continue to be strong performers in our business.

Now looking across our 3 business areas, we see good opportunities for each of them. In automation products area, we will continue to leverage our broad product portfolio and expand the strong network of channel partners through which we serve the customer base worldwide.

In process automation we expect continued strength in marine, minerals, oil and gas and also some pick up in chemical and pharmaceutical. We expect oil and gas, high energy prices to attract bit more capital expenditure as we move forward.

In manufacturing automation, we expect continued movement for automation activities in U.S. and Asia, although the cycle is about to peaking out, so this is the cycle we have to be watching for. In managing to these expectations, I would be clear about two significant challenges. In process automation our peer group remains several percentage points in profitability ahead of us. We are consciously aware of, but we have made significant progress and we know we have several percentage points to gain on our competitors. And so we have a lot of work ahead of us.

We'll continue to address these through operational excellence, the initiatives we have started like careful project selection and rigorous risk management upfront when we pick the projects.

In manufacturing automation we operate in a very difficult market environment. We clearly recognize the hard work ahead to counter the edge our Japanese competitors have in profitability and in market share. And that's not an easy challenge but we have to get our arms around it and deal with it.

With that ladies and gentlemen, we confirm here again, you heard our CEO mention the confirmation and I again, we confirm our target for 2005. 3.3% compound annual revenue growth, as measured in local currency and we also confirm our target of 10.7% EBIT margin for 2005.

In closing, I reinforce a comment from previous meetings I shared with you. I consider this quarter on quarter development we are seeing is an important measurement of the sustainability. I believe we have worked hard to build into the organization as well as in our operating principles. It is very fine to look back and see how some of very specific strategic and operational initiatives we took and how they have contributed to some very specific measurable improvements at both top line and bottom line. While taking pride in the validation in this strategy, we recognize that continuing improvement is not only required, it's absolutely essential.

We are committed to strengthening the principles that have served us across 9 straight quarters. And we will apply these aggressively in driving towards new levels of innovation, operational excellence and profitable growth, as we go forward. With that ladies and gentlemen, thank you for your attention.

Thank you very much, Dinesh. And please, the rest of the Executive Committee, come up to the stage. I would like to open up for question and answers.

[Operator Instructions]

... Then go to the conference call and the webcast and so going back and forth. If you have a question those in the room please wait before you get the microphone so that the others who are following on the webcast and the conference call can hear your question as well. So, first question.

(Indiscernible) I have two questions on cash flow. My first question will be really brief. Comparing to page 12 and page 5 of the press release that you published this morning. Can you explain me the swing factors in cash flow generation, actually on the corporate cost, especially in the loan quality side, why the difference in swinging in cash flow and swinging EBIT, so massive?

Then I have a more general question, I think for Mr. Kindle trying to get how long it might last this second stage of cleaning of ABB without telling what other issues can be there like Windmill in Greece. How many of these small projects could be still around in the wall of ABB?

Maybe I'll start with the second question and then Michel follows up with the cash flow question.

Well, cleaning up is kind an easily used term, but it's not the whole story. There are certain, I would say, regular improvements which need to be done on the operating side, it will happen every year. So many times when I'm asked is that going to be it for restructuring, I say no, we are going to see restructuring every year, regular kind of restructuring but be included in our regular EBIT performance. I think our philosophy is that we have one EBIT. And that EBIT includes regular restructuring. And if you ask my how much that should typically be, I would tell you between 0.5% and 0.7% of sales. But that's what these two gentlemen have to absorb in the EBIT.

And then on top of that, let's call it the special items or whatever. As you clearly know ABB went through a period in, especially in the second half of the '90s when it ventured into all sorts of different activities. We should've said, well then, they're non-core, they're clearly non-core, building systems for instance, logistical systems. We had one right down to take for an airport in Harare in Africa, things like that.

And I called it secondary now because what you've seen before in previous years when we spoke about Lummus for instance, they had tremendous losses or in building systems, tremendous losses, we talk now about smaller losses. We will see the light at the end of the tunnel quite clearly. I don't expect this to continue like it has in the past.

But we do have still a few ventures of participation in our portfolio. One of them, for instance is actually contributing a nice profit. Once we have to settle it for accounting, it may again be a loss. Does that impact our operating performance? No, not at all.

But I would say, for all practical purposes the big sorting out has been achieved. When I look forward, I would say it's much more important to continue to drive the operating performance, get special results and then 95% of the task has been achieved.

Michel Demaré: OK. And as far as your first question is concerned, I'll try to give you some explanation. I'm not sure I understand your reference to page number 12. But obviously, the difference in corporate cash, you will find really all kind of things in corporate cash outflow. You see we have the corporate expenses, but you will see as well taxes outflows, asbestos payment that we have had much less this year as well as all the treasury related cash flows that you can have from hedging activities and all that. So obviously you have quite significant difference from one year to the other. Now I'm not sure that you're asking the question to reconcile page 12, or was it page 5.

Yes. Sorry it was page 15. On page 15, you have EBIT of corporate remaining flat of minus 150 and cash from corporate again from minus 375 ...

Michel Demaré: This is exactly then the explanation because in EBIT in corporate, you will really see the corporate expense, which is mainly what we are all focusing on, the corporate expense as well as a few other expense which are booked under these item, what you have in the cash flow on top of that is everything, every outflow that relates to corporate, being taxes, being asbestos payment or being the cash flow linked with treasury activities. So that is really the difference between the two.

It is all different definitions.

Michel Demaré: Different definitions, yes.

I have 3 questions, if I may. First of all to the target, if I take the 3 margin targets you mentioned or basically they are the old ones, do you think that they're not consistent? I mean the 10.7, the 10% and the 7.7%. Do you believe that they are consistent now.

If you recall, in third quarter we made certain adjustments and we spoke about PT more challenging than before, we spoke about corporate cost going down to 250 in 2005. And the question was what does it mean to the overall group margin target, we said we are committed to that. The reason for that was there was some slack built into the target system before.

The slack we don't have. I would love to have some slack, but we don't have it anymore. But at the same time we feel more reliable, and more confident about the safety of the margin projections we now have in the target systems. Right, so it is, they are consistent more or less.

I think from my point of view, I think you still over rate the target for PT in my opinion. But anyway. So that's the second question to....

That's a different question, how we told on the confidence level. You talk about the consistency of the target set, right?

But if you take the 10.7 for AT, if you take 10% for PT, if you take zero EBIT, non-core. If you take 450 corporate, I think the group margin should come out a little bit higher than 7.7, assuming that you have some internal growth, which is also in line with the target.

Questions is where there is a little bit.

The second question to PT and Peter, really. I mean, you blamed, if I may say so, extraordinary items. I mean if you want to compare like for like in a way you would have to take in the losses, I think it was 47 million of power lines. And if you take that in again, I think the Q4 margin looks not much better if at all, compared to Q3. And again my question is what -- I mean shouldn't you really take down your 2005 margin target?

Well, the losses for the power line business which moved to discontinue operation is, it has been adapted on both sides on 2003 and 2004. They were higher in 2004. We had restructuring cost at the beginning of the year. And, as I explained already when we saw that these restructuring costs were not sufficient, we took it out. This means that for the next year this power line are not there. So from that point of view it doesn't much about the target. This means in reality we have now not the burden of the power line for 2005.

Considering the target we set and tried to explain it in the water all, as we had the challenge which is still there, and we showed it in the last part of the power, the waterfall, how that challenges, which can happen, especially when I think about what the recurring in our opinion as the material cost price increase.

I mean this was exceptionally high. And I mean this was the fact, I mean it went up, and we have 3 to 6 months of time lag before where we can transfer this to the market because we have a valid quotation out. In the meantime, we have improved, we have expanded our hedging and we see also a flattening of this tendency of raw material cost.

Then the other two elements, also the hedging cost. We had to take that's what really at one time an issue and the non recurring in total, 45 million including the receivables, note receivables. So I think at Quarter 4 point it became very clear that it was a one time hit, because that clearly identified it's not something which is recurring. And that's why we also say these are really non recurring items.

During the year, I know that quarter by quarter, I was asked when will this large order come, and I consistently what's mentioning we have an issue of under absorption in the system business. I mean, I tried to explain with the different order of intake which was very massive during the last 8 months. And we got now delayed but we got the orders coming in. With that one under-absorption for 2005 up to even 2006, with these orders which move also for 2006 is not an issue. So we will not have in the system business a problem under under-absorption.

So the issue we had were under-absorption, material cost, the power line and then the extraordinary items in Quarter 4 which has hit us in Quarter 4 more that on the average of the whole year because it all came in Quarter 4. And I just tried to be transparent. I said, these are the one time issue and that's why, looking forward what do we have a strong base to go for 2005, we see the target as achievable. But we also say, reconfirm they are challenging but they are achievable.

(Indiscernible) the 47 million that you mentioned, two-thirds of that is really divestment cost. So it's not a reversal of operational losses. So there you have to as well separate between one-off and operational results.

Let me take one question from the room and then we go over to the conference call before coming back here. So I think we should move it quickly. I think you'll all get a chance to ask your question today.

Hello. (Indiscernible) from Exane BNT. Three questions please. First on corporate cost, you seemed quite convinced about attaining 450 this year . At the same time you could recognize that currency is bringing uncertainty and there is Sarbanes-Oxley cost on top of it.

So can you may be let us know a bit more maybe just what currency rate you're working with, with this guidance. And more practically, what you're doing to take the corporate cost down? First question.

Second question on net working capital, there was some good cash generation in '04 in the 2 large divisions. Despite growth, do you feel you can still do that in '05? Or are we now more in a mode where growth, we consume net working capital. I'll keep it that way.

Maybe for your first question I'd like to say something and pass it on to Gary Steel, who has taken charge for the project (ph) to drive down the cost.

Let me just say we have found careful analysis, we are very confident that we can bring it to 450. You asked a question about currency. Of course if the Dollar was to drop again another 10%/15% that increases the challenge to get to 450. But that's not our going assumption at the moment.

I would say we can still get down to 450 if the Dollar was to drop another few cents, as it has been in other cases for before 3, 4 weeks. I recall it somewhat. But if there was a catastrophic decline in this, I would have a problem again, but then we would have major problems in all the other areas as well.

What are we doing? Gary has taken over the project is leading the project to drive from corporate cost. Do you want to say some things?

Yes since December the 16th to January 16th, myself and Yohanna Kazi (ph) are corporate controller, sitting right here in front. He and I have been working in a series of meeting with all other people who hold the expenditure key on corporate cost. Which as a combination of our headquarters base group function heads and the country managers and chief financial officers, of the big countries are in the group.

Other than that we have identified substantial number of opportunities to bring the corporate cost overall both, through 2005. Then like step change project, we have many, many different areas to look at and we kicked that process off as of last week, in fact 2 weeks ago.

We have an implementation team which comprises Yohanna and myself, Michel Demaré is in the team. The divisional controllers, the CFOs are in the team, because we need to ensure that we align between the businesses and cooperate how we take these cost so.

There are, let's say many, many different projects, I am not going to elaborate on them here. We will do that inside the company and you will see the result 450 at the end of the year.

Well, I can confirm as well that Sarbanes-Oxley obviously will reincorporate cost in 2005. And we intend to do what we have to do in this area. So it is only raising the bar for us to get to the targets that we've fixed but despite that, doing all calculation, looking at what this plan can deliver we are comfortable, we can get it.

Was it networking capital.

Second question was (indiscernible) networking capital.

I can address. You said there is a recent development in both the divisions, on networking capital, net operating working capital and cash flow generation. Our goal is to have cash earnings, which means EBIT and cash should be pretty much in line. That's the goal.

Now to get to that obviously, that section on lot of operational excellence issues in financial areas necessary and we have gone after inventory. And you have probably noticed in your detailed package, the inventory levels are down year over year.

We have also gone after overviews, they are also down, actually all time low. However, we recognize we still have room to improve on that. So a couple of these items and the few other things we look at, the payables, the receivables, the balancing.

There is a limit obviously, as we start to grow now again, then we cannot keep squeezing.

We have to have a certain level which is necessary for us to maintain a nice healthy level to go ahead. So somewhere, I think improvement is possible which we will go after, as in 2005 and beyond.

And I can confirm also for Power Technology and I think it was also in the package shown that how we have net working capital going down. We addressed productivity improvement, so the cash flow development is not supposed to change.

We will continue on similar level but also taking into account, the comment from Dinesh, of course we have also to think about how we go for the gross. But all in all, you have to already 2004 despite the strong growth we delivered a lot of cash growth.

So that is due to this work on the key elemental inventory networking capital or networking company or inventory especially and receivables. And there I think, it's all similar programs.

We can confirm that continue to work and we have not achieved the lowest level we want to achieve with inventory and networking capital.

Thanks you.

I would now ask the operator for let's say, only three questions from the conference call.

The next question from Mr. Charles Bowles, Goldman Sachs. Please go ahead.

Charles Bowles from Goldman Sachs. Yes, 2 questions please. First of all on the Automation orders, we have had some explanation but most of your peers seem to have a much stronger fourth quarter. And therefore could you indicate why we should assume that you have actually been losing any market share.

But second question was on the currency effect of central cost. I think you indicated it was 35 million for the fourth quarter. Could you give us what the figure was for the whole of 2004 please?

Let me start with the second question first. I made a mistake, it was above 30 million for the full year. For the fourth quarter, was 14.

Thank you.

Sorry about that.

Responding to the fourth quarter order development and how does it compare with the peer group. I think our explanation is the same as I said earlier. If we compare on a base order basis, we had double digit growth in base orders. And I think I should remind again, in automation, larger orders constitute only 5%, 6%, 7% at the most. So our bread and butter, Order business is base order, which is what -- 93 - 94 percentage level or 95.

So that grew double digit and we actually improved our order volume in fourth quarter, in local currencies if we do not count for a second, the single largest order we ever booked.

And then comes the timing issue. When we had first fourth quarter, 2003, this larger order, that time, we gain market share, probably several percentage point on the short term basis and there is a timing issue.

Somebody gets one big order then they have a peak thrust. But I think that is not the way we see it when we look at this long term business opportunities. The large orders can get booked in December, or again, get booked in January.

Like I think you heard earlier from our CEO that $80 million order was booked in January from Mexico on Oil and Gas side. So larger order is something we do not really sort of base our business dynamics. We worked towards the base order business of Automation product services and day to day, $3 to $5 million business which makes majority of our business.

On market share gain or loss, I don't believe we are losing market share because we grew 9% in local currency for the whole year. And market did not grow 9%. And actually if you look at the geographies, in North America, we grew 20% and we all know that North America did not grow 20%. So we gained market share in North America.

We are growing market share also in other places and of course depends industry to industry if there are some areas where intentionally we are walking away from the projects, which I have no complaint for. Because we wanted to deliberately reduce risky project in our portfolio so that we avoid coming back to you in coming years that oops, again we have one project to fix.

So that is what we are trying to minimize. Therefore, just to sum it up, no we did not lose market share and we had a decent growth in fourth quarter and it is not a trend of any slow down yet.

May be Dinesh if you allow me, it could also, place out the living more the difference amongst the various competitors, ABB is in process automation which is typically continuous flow production. This is one of our strength there in robotics and we have automation products. So if you make a comparison to our competitors, most of them have a portfolio operating automation technologies as well but may be some kind is not very comparable.

So of them for instance are very strong in more discreet manufacture where ABB is not that strong. So when you talk about PSCs for instance, which is relevant to competitor of ours in the North of Switzerland, or whether in the states, this is an area where ABB is not that active but they are.

So, yes we care for when you draw inferences from overall divisional figures of market share development. You probably have to cut it down to a slice, a little finer than just divisions.

Very good. Thank you.

Welcome. Next question from the operator.

Next question from Mr. Julian Mitchell, Credit Suisse. Please go ahead sir.

Yes, thank you. Just a couple of questions, one on Western Europe, in terms of your order book, it seems as if PT and AT are not same that much momentum yet, on like currency basis, and just when you think that might be able to turn around.

And secondly, on automation technology specifically, you think it seems good demand in robotics in the U.S. but not yet in Europe. Now Fin Nuke (ph) recently have been talking about very strong outlook for Europe in 2005.

I am just wondering, you know is there some difference in the guidance to some reason or what you think the explanation might be because we don't seem to be seeing that strength in Europe yet.

Well, Peter Smits here, I will take the first part and then Dinesh can take over the second part. For the first part, on the Western Europe, my observation is in fact we have see a growth in Western Europe when I think about especially infrastructure projects. Think about large order of phase shifted we got from Belgium.

The biggest single larger order of phase shifted to stabilize the great inversion towards the Netherlands. Think about the order now which after many years has been confirmed to interconnect Norway to Netherlands which is more net product, 580 kilometer Estlink which we can start immediately, which is on the planned list of the European Union, Trans European Energy network.

Another product of the pan project of European Union is Estlink and Estlink just has been awarded last month to interconnect the power grids to Finland. So we see a lot of things moving. You also choose a need of re-enforcing the infrastructure. And from the base business in south of Europe which is also recovery coming up, in the base business.

So of course, compared to China, compared to East Europe, the things in Western Europe is slow but we have to come back to normal growth rate when you compare of course with 50/5 or 100% growth in China, resulted last August, we grew 50%. So when we compare it is slower.

But it recovering and especially infrastructure project is what we observed there.

I think -- this is Dinesh Paliwal, Julian -- just to continue on what Peter said, a lot of that applies that we should -- of course I believe you are not comparing Asia and Europe.

Having said, that in Automation business if you see, we supply or we actually ship everyday one million products, which mean our order volume per product or per order is very, very small. So we are actually fulfilling on an operational expenditure basis, quite a bit of the needs of the European market.

But we don't see and we don't expect actually whole lot of greenfield infrastructure in chemical, pharmaceutical, carbon papers, minerals, metals and you are aware of that. Actually most of our very established European customers where we have tremendous position market share, they are investing in Asia, they are investing in Latin America. And actually we are working with them in Europe. So order might be placed in Europe, but the destination could well be in Asia or Latin America.

So it is how you track the orders. We track the orders based on destination. So that's where most of the momentum is right now going. And then if you look at all the large orders, Bombardier placed a very large order last year, train agreements. So those things do come on and off but not on a routine basis.

Then specifically, answering a Robotics. Well, Robotics, as a nation, I think it is a cyclical business and to best of our knowledge, we see a growth cycle almost speaking out, might be 2005 in it and after that it sort of slows a bit and then comes back again.

It is not a massive slow down but it is a slow down. And it very much depends on the new car models being introduced and they are introduced, when one introduced, one car makers, other also introduce, so they are doing a competitive environment.

So, we have seen that sort of development recently in America when Daimler Chrysler introduced Ford and GM and others, we benefited from that.

We have seen right now the European players who are much more solidly entranced in Asian environment than Americans coming in now. So we are seeing robotics growth in China right now, more significantly while we fulfill the basic needs in Europe.

So I put our assessment for robotics business in Europe flat, as I said earlier, and growth in north America for 2005 and also in Asia.

Thanks.

You are welcome Julian.

Another question from the phone before we come back here to the room.

Next question from Ms. Lisa Orlando (ph) from Lehman Brothers. Please go ahead madam.

Good afternoon gentlemen. Just wanted to come back on to the write-down of the net receivables in Power Technology could I just ask, have you changed your criteria for reviewing all receivables. And is there an scope for any further write downs, of receivables across the group. Please.

Michel Demaré: OK. I will take this one, Lisa. It is Michel Demaré. No we have not, we have in fact apply the strict U.S. govern rule, so we got that again, just kind of issues, happens when you do turn around the portfolio of businesses like we have done in ABB in the last 3 years.

Sometimes you sell assets for cash but you don't always this luxury and sometimes, you can end up with some promissory notes then we need to just evaluate going forward and on a regular basis.

That is what we did about those promissory notes as we mentioned here and we feel that we have now properly reflected in our books the probability of collection that we have on these notes.

If you allow me to say, our stand has not changed, what has changed is the financial quality of the purchasing product has come down. It is the potential for more. No, I mean, we don't see. Right.

thank you. Can I just ask also on Peter on Power Technologies, the profit bridge that you showed, obviously you show the impact of the negative price mix, '04 to '05. You also seem to show, what looks like over a 100 basis points of negative impact on the margin, from what you turn challenges and risk factors.

I just wanted to clarify, you talked about raw material, cost largely stabilizing in '05 versus '04, you have got the revenue growth that you originally were budgeting when you originally set date for 3 year plans for power technologies, and you seem to have taken the large system orders that you were looking for in the original budget as well as more so.

So, I am still trying to understand, outside this power lines now, now gone, what is providing that extra pressure that causes you to be more cautious about your 10% margin please.

Yes. It is an interesting question to answer. I mean, thank you for the question. It think there is a waterfall is just reflecting what you described, but given the fact if you would look back 1 year ago, I mean we couldn't predict such move in raw materials, as we have had.

And that has hit us, we knew that we will be able to go on and reflecting into the market, to the sales price, but it takes some time, and when these prices increase as that had happened as such, it came as an unexpected movement.

What we have done in the 2005, is to say, is something like that happen, even we believe today that it is stabilized. If something like that happens that is challenge to offset this within a few months, even if we have managed in the mean time, to broaden our hedge base but as you know, hedging just moves in the curve but it doesn't protect you totally.

And then we also said, OK that's assume we have somewhere, a project, we don't know today, where we will have may be an issue, in an executional form, which is not a normal ongoing business as we have said, it is something where we see challenge but it is very difficult to identify. If I couldn't identify exactly, I would have made a different bullet point for that.

Lisa, this is CO speaking. From a CO's perspective I would like to very generically answer your question and say good judgment comes from experience and experience comes from bad judgment.

So that's the reason why you wrote down medium level of confidence. You know the challenge which Peter has to bring it up to 10% is not an easy task. The foundation is better now than it was at the end of the third quarter. But clearly, the world is changing always for the better, still needs quite a few, quite a bit of work to get there.

Thanks very much.

Before getting back and hand over to Peter, I have one last question for the CFO that we received over the internet. Do we have any plans to offer to exchange our 2008 and 2009 funds. This is Nick Ashby (ph) from HSBC who asked this question.

But as you know we are trying to come into an exchange transaction early December that I must say, against the will, we had to cancel given the decision of the third circuit (ph) that came up on December 2nd. I think at the time we can say that the transaction was very well accepted in the market, it would have been a great success if we had been able to carry through. On the other side, I think it was very wise to just withdraw because the conditions were very, very different once the decision of the court appeal was known.

So do we plan to go back again. It would be great. On the other side, as long as we deal with uncertainity, it would probably not be wise to consider that so we are still on the sides and feel it a bit as all things evolve and will be ready when the time comes.

And we probably would announce it only when it is a fact.

Exactly. Peter.

Good afternoon it is Peter Reilly from Deutsche Bank. Three questions please. Firstly a question for Mr. Demaré. You have been with the group 4 weeks now. Can you talk about what you find inside ABB. The quality of the accounts, the quality of the reporting side, and specifically struck by the comment by Mr. Kindle that a lot of the charges taken in the fourth quarter, with (indiscernible) in the last 4 to 6 weeks, coincided neatly with your arrival. Does that mean you have had a fresh liquidity account. Does that mean fresh information? (ph) Can you talk us through where it stands today.

Michel Demaré: OK, well you know, I am so thrilled about the result that I (indiscernible) my voice, so please excuse me for that. Obviously it always happens if new persons joins during the closing process, you can obviously put the two issues together and say well, I just did my cleaning work there. I would say that at the end of the day the results of what you see here is differencing. First we are going to a normal closing process where we have to review all these issues and it is pretty clear that we have taken, I would say, almost a surgical view on all the issues that were escalated to us and really applied quickly U.S. GAAP for rules which is you know, is a rules-based method. It is not very open, in fact, less and less open for interpretation. So from that part, I think we have done what was right.

The things that have changed as well in the company over the last month or quarter is first of all the knowledge of you as we have within the company have increased quite a lot. We have hired a bunch of good people from the outside to bring us a little bit more expertise in that field and then as well, I believe that we start seeing now, may be the results of the leadership attitude that Fred Kindle mentioned before, and maybe also the start of the Sarbanes-Oxley process where people feel may be a bit more comfortable to escalate issues, to the top.

So may be there is a better process that (indiscernible) shows and then to really have a strong look at it. So I would say, we have taken the decision, the numbers that you see as results of the issues that we have examined. I would for sure not say that this means a lot of interpretation cause into that. It just sounded the right thing to do given the issues we had. And so overall I feel quite comfortable, you know obviously ABB is a very large company, a very global. You can never say all the risks are covered; we are comfortable everywhere.

But from the issues I have seen, I think they have been otherwise profession to me and that's the answer we have given and we are so obviously been reviewed very carefully with auditors and we feel they quickly represent the things. So overall yes, I am quite pleased with the first months because I release the process which is in place to review to the issues or to address it is very well done and use very little room for interpretation.

You mentioned Sarbanes-Oxley. You were hinting of it. Mr Kindle (indiscernible - background noise) third quarter results of $30 million to $40 million of Sarbanes-Oxley cost. There have been several studies under the states now. The average Sarbanes-Oxley cost is less of $5 billion of the corporation. It is hardly anybody not presenting, and where on earth did you get 30 to 40 million and where it comes from.

Michel Demaré: I don't know where you have your benchmarking information because the benchmarking I have seen actually is more percentage of revenues because you know obviously, may be you are referring to a Midwest company, result of foreign subsidiaries. I can believe they can live with $5 million of Sarbanes-Oxley cost. In our case we are looking about 400 process reporting units we have a huge number of legal entities, we have a huge number of different systems across the world and you know, there is really quite a big investment to be done and then part of the cost is really a cost that you pay if you put the process in place, get the work, allocate the resource.

The rest is also your external auditors that will account (ph) most additional invoices because they have to do the qualification work as well. So I would love to get everything done in $4 million to $5 million, I just think that give the size and the complexity of ABB, this is not going to be achievable and the references that I have from all the companies including the one I worked before being here, seems to confirm that it is in line. But I would as well expect, given again, the complexity of the internal organization of ABB that if you have range of evaluation, we would rather be on the upside.

Now, one point I quickly want to make without taking too much time on Sarbanes-Oxley, you can see that there is a cost. What I would try to do as well is see part of that as an investment.

Obviously we have to change, like Fred explained before, ABB is no more what it used to be 5 years ago. We had a very decentralized company. I don't say we have to centralize everything, but at least we need to standardize the business processes, the controls. And so we will try as much as possible to take this cost internally and invest it in resources that will give us a more robust control process for the future.

Also if you allow me to add to that. When you speak about statistics, what we kind of read in the newspaper that's one piece of paper. The other piece of paper, I rely on much more is by direct talk with the CEOs.

Dinesh and I traveled before Christmas in the States and we recently acquired a few customers and see who was our leading comparable companies. And these kind of discussions, you talk truthfully about what the real cost is of a new regulatory system like Sarbanes-Oxley. Because frankly, when I first heard the figure about what we are supposed to spend for Sarbanes-Oxley, (indiscernible). And is it wrong, is it right, I didn't know. I am not the expert, I had to find my own conclusions, whether this number is agreeable or not.

One thing to do is to check with people, who have gone for the same exercise. Now fortunately in the states, they had to do it already in the midst of the process where Europeans are now doing it. So we are very able to check a few reference points. And these reference points are telling us why our cost is substantial, it is not out of bounds.

It is -- actually I have seen companies, I've seen the size, seen the complexity, have paid much more than we have in the budget, unfortunately. And if we check the earnings of accounting companies, you get to the other side of the client.

Last question please, Dinesh. Could you talk a bit about what is happening in the market for large systems, process automation, because you launched a new system 800XA series. It looks like you're set for several years of good growth with oil and gas having had very weak investment climate for the last 7 or 8 years. And yet it sounds like your order intake is been slightly weak in the large systems. Is it a timing issue? Do you think, you still got most of these, you got your new system accepted in the marketplace? And do you feel confident about the outlook for the next 2 or 3 years?

Actually there are 3 questions, Peter. But let me try to address.

First of all, let clarify, we didn't have weakness in large orders for the year 2004. 2004, fourth quarter, we explained to you because we had one single largest ever order booked in '03. But for the whole year, we ran our large order proportion higher than our average. 6.9%, roughly 7%. Typically we have around 5% to 6% of our entire order intake. So we were on the high side.

Now how do we see the outlook? Well it depends. We haven't seen much investment in oil and gas or chemical. That's where the big investment should come and that's where the system 800XA will play a key role. We do expect some CapEx spending to free up. Right now, there is a billing activity going on. If we just believe on billing activity, it would be naïve for us. We have to see what is real. What really turns into order?

So therefore I said in my outlook at oil and gas looks up for the growth, both in Caspian Sea and Gulf of Mexico, South America, Middle East actually -- Middle East Africa, it looks pretty up for the growth. Same applies to Asia Pacific in gas and some other similar projects of chemical plant.

So, it looks positive. But let us see now, what would it come out with. Chemical has been very depressed for past 5 years as you know that, hardly any investment. Oil and gas, they have been enjoying the great earnings, and great cash flow, haven't really invested. But it is starting to come through, perhaps.

Question up, there John.

Thank you, John (indiscernible), Cheuvreux. Maybe just to start off there on automation. Even excluding manufacturing automation, I am just looking at the 2 other BAs and just may be blending the margins there, although you don't disclose them, you just basically going through similar iterations on our side, there is a 200, if not 400 basis points, of margin gap to be compared that are out there despite your scale which probably in terms of revenue is the largest. So I am just trying to make sense of why this margin gap would be there. And then you were talking about obviously, even exceeding your '05 target going forward, and how you will get there. And I have another one later on.

I did not say anything to exceed the '05 markets, just to clarify. We said 10% and we confirm and we'll work very hard to get there, number one.

Then coming back to your first question, process automation business area, as well as automation product business area. I think automation product area, we can certainly improve and will continue to improve due to the size, the scale effect. But I think we are not so far behind on a like to like basis. I think Fred, made a very good point earlier that when we compare with our peer group, we have to see what is the product mix. And based on the product mix, you see the weighted average of the operating margins.

So we are not satisfied at the level we are. But at the same time, we don't see guilty, we don't find ourselves way, way too much of a gap in automation product. I think we'll improve.

Process automation, we have a long way to go. And I said that several percentage point gap between us and our American counterparts. And there I think the explanation is very much within what has happened the last 7 to 8 years. We acquired multiple companies that brought multiple process control platforms, also brought multiple R&D centers. So when you have half a dozen R&D centers versus your America competitors with 2 R&D centers, I think that's where you start to see the difference.

So, I think we are nailing one by one the issues, R&D, management; efficiency, we are working on it, making progress. We are working also on so many engineering centers worldwide. If you have 30 centers to execute projects versus 10, you have, all of a sudden a scale effect, you have the reusability, you have the risk mitigation, and so many other things, which work towards the bottom line. We are also working towards that.

And third element is cost footprint. We happen to be very strongly embedded in the European and America environment when it comes to process automation. Other competitors have made early entry in Asian environment, not only to leverage right there, but to leverage the cost impact in Western Europe as well as America.

We have started there. I told you we have now 3 operations in generic centers we opened up in Asia. And we are also moving quite a bit of activity, R&D centers now, one of the R&D centers in India, as an example. Something has to go, if you really want to take advantage and that would also come.

So my message for process automation was, we have long way to go, but we have come quite a long way as well. But we know what we have to do, and I think we are making progress. It is all about execution of some of the initiatives, which we have triggered. There is nothing new and fancy about it. We just have to execute those. You said nothing about Robotics, so I don't comment on it.

One follow up. Mr. Kindle, you were talking about your vision on value creation. Obviously we are looking at the situation today, the company on a group basis is still not generating its cost of capital. And you said that one of the most important targets for you would be to drive capital efficiency.

So, can you just maybe share your thoughts on where you returns on invested capital could go in the next 3 to 5 years? Because there have been no targets on these on ABB on these in the past. So would you, maybe help us on that?

I'm not sure whether I agree with you whether capital efficiency is the key leverage point here at ABB. I'm not sure actually. We need to do calculations. It may be different from one BA business areas, which is below division to the next level. I would claim that the most obvious cases for increased value creation are operating margin issues, more than capital efficiency.

If we speak, for instance about areas like Dinesh just talked about, process automation, that's a business area with comparatively little capital invested, but with an operating margin issue.

Same is probably true on the power technology side, where the product businesses that's the high and medium voltage are doing very nicely, actually. Of these the modern power systems, where the power lines belong to, where we have an issue again is less capital intensive.

But, the question is the right one, we have to in the future, not only to look at EBIT margins but also return on capital employed, or whatever term you use for that. That is something we are going to introduce, it is on the agenda. The likelihood is we talk about new set of fields for, let's say 2009, you will be receiving figures not only for growth targets and EBIT margin targets, but also return on capital employed.

We are not sure yet to what detail we will break it down. We are not sure yet. But to give you a little more of substance what we are trying to get a grasp about, Michel, I and the whole team, the question is, what kind of hurdle rates are really appropriate. And that's even in academically an interesting issue.

Because if you look at the product business, it's almost like plain vanilla. You apply CAPM (ph) and all of that. If you look at the systems business, it's more tricky, because the systems business is typically much more volatile. And it is so volatile, that you actually run into operating situations, where you have to, so to speak, feed. Feed the employees up to a certain period until the new jobs come in. It's not like in the States, where engineering contracting companies send the people back home and say, 6 months from now we'll maybe hire you back. That is something we can't do. In Europe, you can't do it and also for know-how reasons you can't do that.

So, from an academic point of view, what is at risk, is not only the capital account deployed in the books. You would actually have to include an opportunity cost, part of the payroll for instance to add on top, the capital in the books.

So, putting all things together, the likelihood is that when we are try and come out with return on capital benchmarks, we will have something which is clearly aligned with what we can read in every text book with regard to product businesses. But I personally would like to see a much higher return on capital employed, as a hurdle rate for systems businesses.

I think we have quite a number of questions lined up on the phone, so please operator.

Next question from Andreas Willy (ph), JP Morgan. Please go ahead, sir.

Good afternoon. Yes, 2 questions please. The first one is on process automation. If you could comment a bit on the competitive environment, Yokogawa is speculated or rumored to be very price aggressive on a green field project in Asia, but now also moving in more aggressively on the installed base projects in Europe and the U.S.

What are you seeing there? Do you think it's getting worse next year or is that basically normalizing now?

And the second question I have is 2 financial details. If you just could give the funded status of the Pension Plan, at the end of the year and the level of securitized receivables?

Let me take your question on process automation especially commenting on Yokogawa's move outside of Asia. Well, Yokogawa has been active in the American market actually for a number of years. So nothing is new and actually getting more aggressive in the American market might not help much, because there is not a whole lot of green field projects coming out there. And in this business, as you know well, written and tier are actually replacing the existing system base is very prohibitively expensive. And that's why people talk. But talk is easy. It's not easy to do. We know it ourselves.

Yokogawa is aggressive in Asia. We deal with them actually, and dealing quite well in Asia because we do leverage our Asian cost structure, in China and in India. And in fact in China ARC's Lotus report puts us Number one in process automation systems business. And Yokogawa is not even Number 2, just for your information.

So they are worthy competitors. But I think they have taken a hit on the profitability. So any further aggressive move in market share gain would only hurt them in the profitability, because they have to come out with a new system technology in a number of years which puts them actually behind ABB, Emerson and even others.

So it will be interesting to see what move they make. But this is dynamic market. If they make aggressive move, I already said that we are not going to entertain that because we will take the business, if it is profitable upfront. If it doesn't have good margins, we don't go for it.

So that's my view on Yokogawa and I hope I answered your question/

Yes thank you.

Michel Demaré: OK, Andreas, Michel Demaré, on your 2 financial questions. To start with the under-funding on the pensions. As you know, we had at the end of last year an under-funding of about $1.7 billion total, which a big majority was due to the German particularities where as you know, companies book reserves which are considered as under-funding for U.S. GAAP purpose.

The good news is that now we have put in place in Germany is a Pension Fund-like scheme that will really allow us to start funding of pension liabilities. And we have started doing that in the fourth quarter by injecting $0.5 billion of marketable securities into these schemes. And that is on top of the usual pension contribution that is usually around 200 million.

So that very positive for development was on the other side, partly offset by the fact that we have been using a lower discount rate to value our obligations. We had some negative currency impact. But overall, we have reduced the level of under-funding of our pension liabilities by $300 million. So we are more now down to the level of 1.4, out of which about 1 billion still will present to the German situation. So I think we have done a tremendous progress on that front. That is for the pension.

In terms of securitization, we were at the end of the year close to $900 million, in terms of securitization levels. 700 came from the global programs, 200 from the local programs. And now I must say that was in line with the strategy that was developed. Obviously it was a very strong fourth quarter in terms of sales and an impact on the securitization level.

Compared to the beginning of the year, that seems to be quite a big increase in securities receivable?

Michel Demaré: Yes, it is an increase of, I think a bit more than 100 million indeed. And I think now, we will review the securitization strategy in '05. As you know that is not the kind of issue where we can go in and out all the time. We have to be pretty stable in our approach. We had put together a lot of local programs that we now wanted to activate. I think now we have to continue looking at those, looking at the regulatory the environment around it, it becomes sometimes now more tricky now to do a securitization. But at the end of the day we have to do, what is right for the company. And so it is economic analysis more than anything else.

In the (indiscernible) I think I remember that you have like 390 million of securitized receivables at the end of last year, or maybe this is not comparable to the 900 you mentioned now?

Michel Demaré: I don't think it is. I'm looking here at all the figures (ph) for '04 that tells me no. But I don't have the history there. I don't think it is compatible now.

OK.

Next question from the phone

Next question from Mr. Ben Heugler (ph), Morgan Stanley. Please go ahead sir.

Hi, good afternoon, it's Ben Heugler from Morgan Stanley. A couple of questions. Just a simple or a straightforward one on the margins. I'm still trying to exactly work out what is recurring, non-recurring et cetera. Could perhaps, Michel, just give me a little bit of an explanation on the $30 million non-recurring costs related to an infrastructure project in Africa. Was there a contract left you would capitalize or are there any potential contracts out there like that?

Similarly just the $22 million of cost incurred to streamline operations in AT, I'm assuming that would simply that would simply (inaudible). But could you confirm that? So that was Question Number 1.

So question number 2, which is perhaps for Fred, is on the asbestos situation. I think on December the 3rd when I asked a question, then I asked a fairly straightforward question, which was in your opinion, (inaudible) issues of the principle. Now you changed the terms (ph) in the press release, I think quite materially. Or certainly the guidance.

Now, I guess my question or my interest is, have you been more accommodating or have you decided to shift your negotiating stance, with the different places in the asbestos case. And does that in your opinion increase the likelihood of ABB having actually to make a cash contribution to the asbestos personal injury trust?

OK. Thanks Ben for your question. Let's have Michel start with the first one.

Michel Demaré: Ok Ben on your question of Airport project, that relates to an airport project in Africa, that was done in 2001. And since then we have had quite some dispute and litigation there. And this payment is basically the settlement of the case. So that one is basically paid off and done. We still have a couple of projects that's been opened and did (ph) back for more logistics system business activities in the past. One is in Thailand, one is in Germany. But I'm not aware that we are carrying any specific risks. So that is the question regarding the Airports.

As far as the 22 million issue in AT, as we described, this really cost of streamlining operations that into you would have seen into structuring expenses. But as you know, again for U.S. GAAP purpose you have all kind of conditions that need to be fulfilled for that. Most important being, that all the parties involved have to be advised. And at this stage, also the decision is taken firm and will be executed within the right time to inform all the parties. And as such we couldn't book it as restructuring expense. It was really a technicality.

OK. As far as the second question relating asbestos, I don't want to shy away from answering your question there. But I do have our ABB General Counsel here, John Scriven, who was on the speakerphone as well, on December 3rd and maybe ask him to step up on the podium and also try to reply to the question.

Thank you.

Ben, I think I answered this question on December the 3rd. I don't think we saw the 3rd Circuit, there with this issues of principle. I think particularly in the issues of the preference claims and the (inaudible) fee. Counts between malignance and non-malignance. We feel these are factual issues, as a matter of fact. Perhaps the Wild 5 (ph) injunction ruling is an issue of principal. Certainly, we feel that the 3rd Circuit has changed the law on that. It's different on the 6th Circuit for sure.

But I don't think that those are the negotiation approach, we are in intensive discussions with all of the plaintiffs' attorneys, both the malignance, if you can call them the non-malignance. Although we should remember that the Clooneys (ph) and Rices (ph) and - and Bans (ph) of the world have a lot of malignant claims as well as Steve (ph) (inaudible). We are applauding to all those folks. And obviously in the light of our disclosure, I'm not going to make any prediction on what the outcome of that would be.

As soon as we know what it is, we'll let you know, I guess.

John, you said on one side of the debate, certainly feels that additional cash is what they want.

But this has always been the case from the first day we met them. That's always had (inaudible). But you also have to remember and that is the only comment I'm going to make is that there is plenty of cash in the Trust. And so there's plenty of cash in stock (ph) claims. So that gives full support too.

Thank you

Thank you Ben. There is another question in the room and after we go back to the phone call for a last question from the phone because some of our executives unfortunately have to catch a plane back to the U.S. So last 2 questions and then we close it in.

(Inaudible) Asset Management. Few questions. First one on divestments. Can you update on your potential divestment plan. And since you spoke about execution, if you intend to review the business portfolio in the two core divisions in the future?

The second question. I would like to have a comment on the current capacity utilization in the 2 core divisions.

Third question is on your target. I think you would be interested if you could reconciliate again, the core division on targets for the margins with the group, in light with the corporate costs. So what means for the corporate costs to achieve new targets in both the core divisions and for the whole group.

And finally on asbestos, I would like to know if its possible legally to settle these few thousands of claims now pending on Lummus, separate out of court? And what is the next deadline for the asbestos (inaudible)?

Let me start with products, for the first one again, because that's mine. Divestment, yes. When we speak about divestitures, clearly what we speak about is non-core primarily and discontinued operations. Our strategy, which has been set for the last 2 years is a very clear one. We have 2 core divisions and that's where we want to be active in the future, that's PT and AT. And everything else is considered to be non-core, which means at some point, it should be handed over to a different owner.

So far the largest chunk is Lummus. The Lummus operation, we have talked about it. We have interested parties. Lummus is becoming an increasingly attractive business everyday fortunately. But we have to resolve the asbestos situation. Before that is not resolved it will effectively hindrance to go through any transaction.

Then we are building system In Germany but also in other places which we want to sell. It's a similar situation, a question of what economic value can you sell it and does it make sense for all shareholders to go for a transaction or not? Because billing systems is becoming more affordable, we are not under pressure. We are not going to do a fire (ph) sales. We take our time to maximize the return.

And thirdly, the we have a few other smaller ventures. Some of them are quite profitable which we are able to sell at some point. Divestiture gain is not necessarily tied to the profit they're making. It's kind of complicated to explain. But nevertheless, this is a question of timing. When do we want to go through that transactions? That's in a nutshell.

And then we talk about the core divisions. Though of course, we do go through portfolio reviews. And you have seen one of the consequences of power lines, for instance. There are smaller things happening also at, AT. They are comparatively small, so small that we actually haven't even talked about it.

But this an ongoing process to review the folio, decide about certain lines of business whether we want to keep them or not. All in all, the 2 core divisions are not in question in any way. Maybe one of the business areas, that's our core for the future.

To understand your question on targets. First I heard you saying new targets. We are not issuing new targets. All we are doing here is a mathematical average. If you take a big figure, we have 2 core businesses that make, let's say $20 billion. We return 8%. Now we are back into continuous operation of $1 billion business which has a margin of profitability, just the new average of 7.7. So we don't have new targets. We have seen them before. And I hope that it is well understood by everybody here.

So now you continue the math, they not different from what they have been communicated in the other quarters, zero profitability in the non-core businesses and the target of 450 for the corporate expense should get us to this overall 8% EBIT target.

So there is really nothing changed there. Does that answer the question? OK.

And we have asbestos.

Yes, there was an asbestos question. John, are you ready?

On the Lummus on basic litigation, we've always said that was largely smaller, it is. The 11,000 claims that will come back, we can't say just when the injunction is ordered. They're in the hands of a couple of law firms. And then there's a bunch in Texas, which are rather strange claims, in the sense that they relate to management at sites.

And so we think they're fairly easy to deal with on usual ongoing basis so as long as Lummus stays in the (inaudible) system. As long as Lummus is on bias (ph), this is a very manageable problem. The (inaudible) is obviously seeing a business with an asset (ph) sustained on it. And so we are committed to finding a solution to that particular problem. And we have some force on that which we obviously can't share at this stage.

As far as the basic litigation is concerned, this really is quite trivial. And, most of those claims done even get across the product ID issue, which is a key thing, in the asbestos litigation marketplace. And the reserves we have for those are really more than adequate. And so I'm quite comfortable that we will deal with the basic claims in a very straightforward way. And look at some way of liquidating them in the course of this year.

For capacity utilization, I mean, that is a very complex question to answer on the division battle. But maybe I will structure it, first starting with the issue we have had in the system business, for example. From the systems business in the power technology, the orders which came in especially all the (inaudible) HVDC was the issue, there we have no more under-absorption. We still have capacity in the engineering part, but under absorption's gone.

But what is maybe important to understand is what's not drastic (ph) engineering. In the system business, for example a cable factory was a big issue, how to get enough volume. And there I can say with NorNed interconnection, we are fully loaded 24X7. We need even to buy some equipment for that line, we have 2 lines in the cable factory. So we will need to have some. And for the cross-link project today and which is for Estlink for example, there we still have capacity, but it gives a good base load.

So from that point of view it has also to do with factories, which are in the back. More HVDC will also give more load for length work here, where we have power (ph) electronics. So it's a cascading system.

That is from that side. So that is a big improvement on that side, which was the major issue.

If I look for the right -- if I go through all the products, I mean, I have 149 factories and you can't compare them all. And it has to do a bit with some regional effect also that you can say in some areas, we could get more capacity, to get more orders to fill the capacities. On the other hand, we have very strong growth, 24X7 in some plants in Asia and we increased capacity.

What that can say with our short cycle time which we have managed, is to have more load balancing. And that means working on same platform is easier to shift capacity. And that is how we work to optimize capacity. So in the product business, we manage very well. And you saw the strong order growth.

System, I just addressed. So that is what I can say in a nutshell. It would take too much time to go through all the details.

I think that pretty much the similar thing applies to automation. You don't have as many factories as manufacturing. But the concept of focused factories is been around for many years. I'd like to pick the one product because we have the (inaudible) who used to run our drives business, whole country actually for ABB in Finland.

Drives business is classic case of successful execution of focused factories. There are 3 factories in the world. One in China, one in United States, one in Finland. And they work on Made in ABB concept. In fact last year in summer, we were shipping some of the drive systems from Chinese factories to United States, because it is a load balancing how we do it.

So in terms of capacity utilization, I think we have a pretty good balance right now. In fact, some of our factories in India or China are now running, 2 to 3 shifts. And same thing applies. But I don't think in general, I don't have any serious problem of underutilization. In fact, at all anything but adding capacity in China, India for lots of new products.

OK. We're running out of time here. So I would like to close here. And over again to Fred for short closing remarks.

Yes. Maybe just 2 remarks. One remark, we know that some of the expectations were not met. We'll try hard to meet them the next time. I hope you recognize that 2004 really was a milestone year to restoring the health of ABB and that this company has great substance. We are here to show you the evidence. Next time when we meet in the - the quarterly report and also in one year when we talk about 2005. So we all look forward to seeing you again. I know we are not here to please you and I know we are not here to receive applause from you, but nevertheless, I guess that guy over there. Four weeks. No, that's you, Michel. Four weeks, four weeks on the job. He hasn't done a bad job, has he? He deserves a small applause. Thank you very much. Have a nice day, okay. Thank you.

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