Abb Ltd (ABB) 2005 Q4 法說會逐字稿

Ladies and gentlemen, welcome to today's presentation of ABB's fourth quarter and full year 2005 results. This event can also be followed on our website at abb.com and there is also a conference call where people can listen in via the phone. Fred Kindle, ABB's president and CEO and Michel Demaré, our CFO, will in the first part go through the presentation and we will follow then as usual with a Q&A session. After the Q&A, when the formal part is over we would like to invite you, who made the journey here to the World Trade Centre in Zurich, for drinks and some little snacks outside where you will also have the opportunity to have further discussions, not only with Fred Kindle and Michel Demaré, but also the whole executive committee that we have here today, I think with the exception of Veli-Matti who has an important customer meeting today.

In the unlikely event of an emergency during the presentation, there are exits at both sides of the room and the front and in the back. I was told that there is no audible alarm that will sound, so some ABB people will start making signs at you, so. We don't think that there is going to be training today, so if somebody starts making signs, please follow the instructions and leave the room in an orderly fashion.

I think with that I will hand over to Fred.

Thank you very much Michel. Ladies and gentlemen thank you for joining us today for this conference presentation, Q&A session on ABB's 2005 and fourth quarter results. We are all very happy that you took the time to come here and join us. Us, that means not just Michele Demaré and me, but actually almost the entire new executive committee of ABB. Let me very quickly go through the roll here; let me start with Dinesh Paliwal who we have seen before. He was responsible for the AT Division and is now the head of global markets and technology. Next one is Michel Demaré who will be up here speaking to you, the CFO; then Gary Steel, our head of human resources; Ulrich Spiesshofer, our new addition to the executive committee in November last year, head of corporate development; Bernhard Jucker, head of the power products division, he was responsible for ABB Germany in past years; Samir Brikho, head of power systems; Tom Sjoekvist, head of the automotive products division and last but not least Anders Jonsson, head of the robotics division. As Michel Gerber said, Veli-Matti Reinkkala, our Finnish member of the executive committee, is not here today because he has an important customer event.

With that, let me start. You have heard about the agenda already, I don't need to repeat that, there is an important Q&A session following the various presentations. Before I start, let me try to capture as usual what has happened the last quarter in one phrase, successfully moved into a phase of profitable growth. We no longer talk about turnaround at ABB as we no longer talk about the past, we talk about the present and the future and the present and future hopefully will be governed by this sort of profitable growth.

As usual, we try to give you the gist of the presentation in one or two charts; the first one here captures a slew of different bullet points.

The first one, and a very important one, is strong organic order and revenue growth in 2005. We'll hear more about that, but I personally feel that this is very important. Organic growth is one of the best pieces of evidence that the Company is strongly positioned in the market, and I think this is the case abut ABB. It's not just about growth, the growth must be profitable growth. There was [in a year] at ABB where growth was everything and profitability was not as important, as was the case for the world at large during the new economy time. Here we talk about profitable growth when you see the EBIT statement in the second bullet, EBIT was more than $1.7 billion and a margin of 7.8% at the end of the day. I think quite an achievement with regard to the situation in the past. That directly leads into the net income of $735 million, and we did add that the $735 million would actually have been more than that; 858 if it hadn't been for the accounting effect of the treatment of the asbestos shares, and we'll speak more about that and Michel Demaré will also talk about it.

Cash flow tops $1 billion despite securitization and pension effects of roughly $600 million, so quite an achievement there. Non-core activities profitable for the year, we were able to turn around the situation. Non-core actually today is a profit contributor to ABB, and we also made very good progress with regard to corporate costs. Let me remind you we had a starting point of above 500 million, 520 as a matter of fact, not including yet the substantial additional costs of Sarbanes-Oxley, and it was written in newspapers 40 to 50 million. If you add that you are well above 550, and we came down from 550 to below 400.

Transformer restructuring well on the way, when we announced it end of June it came as a bad surprise so to speak, but the fact of the matter is that we have to do something, we have started with the programme. It's well on the way and a substantial cost for the programme total of 123 million has been fully absorbed in these figures.

Five year strategic plan launched; most of you probably were present at the time in September when we did that. I think it was a necessary good thing to do to line out what our vision is, where we want to go with this company, and as a consequence of this strategy and division we supported it with the necessary organizational changes, and as a consequence of that today you have a different executive committee sitting in front of you. We in essence have not done a revolution but we have taken out one layer of the organization and brought top management and the business action closer to each other.

Financially, there was also some very good news about the return of capital employed after tax was 13.8% now, clearly above the rated average costs of capital, so we are generating positive value. Net debt was cut substantially; pension liabilities were further reduced; I'll leave that to Michel Demaré to comment; securitization as well. We have tried to use the funds available wisely in the most economic way that was not necessarily just to cut down gross debt, but to look into pension funds, securitization and other things.

The divestments continued. We made progress there, more of that needs to come, and as a consequence of all of that the Board has decided to suggest to the AGM a dividend of 0.12 Swiss francs per share, first time since the year 2000, also reflecting that we feel much more comfortable today about ABB's progress, the operating situation, the financial position we are in and that we can afford to pay a dividend again, and also reflect our feelings to the shareholders by this step.

Progress on asbestos. You will probably have heard about, when was it, a couple of days ago, that first the famous asbestos bill, a fair bill, went through the senate, but then it got stuck on a side issue. Without going too far, this was almost more or less what we expected. There was a lot of political maneuvering going on. We never put our hopes on the Congress bailing us out, never; we always tried to come up with a settlement supported by all the claimants, supported by the courts. Our situation today is that by far the most important asbestos exposure we have, combustion engineering that is, is just one step away from finally being resolved.

Finally being resolved is that after this hearing and judgment in the bankruptcy court, now it's the district court's turn to hopefully re-affirm the plan and then there is a 30 day period where people could theoretically file an appeal. Once that expires, end of March that will be, and nobody has filed an appeal, this will be it. We are all looking forward to that and fortunately it's in the not too distant future, but we have to wait.

As a consequence of all of that, because of the financial situation plus the prospect that asbestos may finally be resolved, the rating agencies have put us on the watch list with a positive implication, and I think it's not going too far to assume that they will follow up on this outlook with real action once we have cleared asbestos.

Let me go now more deeply into the figures. You have here [a summary] of the key figures, you have -- in all likelihood you have already looked at them this morning. I don't want to spend too much time on each and every detail, but leave it up to Michel to comment further and also you for the Q&A. I think most important is the growth element which you don't clearly see that much up there. It's still nice growth, 8% local growth is clearly above the 5% which we have put down as our ambition for the next few years. But the 8% is the Group, it is not the core divisions, in the core divisions we actually see an even better development.

EBIT margin at 7.8%; I think that this was a very strong turnaround in the second half of the year. It fully includes the 123 restructuring costs for the transformers program; it includes costs related to the past like the Stiebel Heating case where we had to pay a fine going back all the way to 1998 and so on, and I think it bodes very well for the prospects of this Company.

Net income then, as a direct consequence we see loss from discontinued operations, March reviews; as a matter of fact the biggest impact there has been the asbestos shares with a charge of 123 million again.

Cash flow for operating activities truly is a very positive result because you have to keep in mind here you are comparing apples with pears. This years cash flow does include a hefty impact, a negative impact from our reduction in securitization, also voluntary contributions to the pension funds.

Net debt down at 500 million roughly, a very comfortable situation to be in now.

If you go beyond the Group and look into the divisions, here the main message clearly is very dynamic development with regard to volume, power technologies up 14% in local currency, automation technologies up 11%. This is for the full year, you will see that in the fourth quarter there actually was even an acceleration of the trends.

Revenues lagging behind which is not really of concern to me because the orders will at some point appear in the revenue line, so book to bill is actually positive and the order backlog situation has been continually improving. EBIT then substantially improved, you see both divisions up by 30% or close to 30% leading to margins of 8.1% in power technologies, and without trying to boast here I think it is far and above what competitors of ours are earning in this business.

Automation technologies are 10.8, slightly above the target we have set for ourselves, and I must say when you see the fourth quarter figures it could have been even higher if we hadn’t taken a few charges for necessary restructurings.

Non-core swung to the positive, mainly as a direct consequence of the very good work done at Lummus under the leadership of [inaudible], so Lummus' turnaround is clearly positive now, it is a profit contributed to the company and we very much appreciate that.

Corporate costs down 393 level, clearly below the 450 which we have put out as a target for this year and we are very happy that this was able, without a lot of bloodshedding, there was some but not too much, but with a lot more cost discipline and cutting back of discretionary spending.

So to put the whole results in the blue column in context with your regional targets we set for ourselves a few years ago. In the column in between you saw the revised targets which we came up beginning of the year or actually middle of the year. It's fair to state that with the exception of power technologies where we did not achieve the 10%, as a matter of fact if you correct for the transformer restructuring its clearly above 9% already, but it did not fulfill that, the rest has been fulfilled.

If you go to gross debts and gearing down here, it's fair to put the checks or the ticks into parentheses, because if you just look at the figures themselves, it doesn’t look like we made the goals there, but Michel will explain too that as a matter of fact we did achieve the goals, but for various reasons we have opted not to present it this way, or opted to go for different actions and measures in our balance sheet than just to reduce gross debt and look for gearing.

So altogether I think a situation where, especially the team at ABB, the people who have been responsible for this business in the last years, can feel very good and very proud about what they have achieved.

From a regional point of view, you see a picture which is most likely not going to surprise you. Quite a dynamic development in Asia, also in the Americas because of the upturn of the economy and also the power sector improving.

But the Middle East booming, no wonder because there is a lot of spending going on at the moment with the oil price. Most of the countries there have gone through a real bonanza and are reinvesting into downstream activities in industrial sector, into real estate and we are directly benefiting from that.

On the more sobering side, Europe unchanged, we are all waiting for Europe to wake up and break through, let's call it the 2% growth barrier, it's more I think a matter of public policy, the politicians who make this happen, but obviously if that was to be the case we would directly benefit.

Consequence of all of that is our total distribution of walling is shifting, no wonder, along with the more, you know, Asia is becoming important, the Middle East has increased, the Americas all at the cost so to speak of our piece of the pie in Europe, but so be it. I mean we are a global player, our ambition is to remain a global player, to be the leading company in our sector, we are diversified around the globe in various technologies and we must take advantage of the market opportunities wherever they are.

Now going back into the fourth quarter. Without trying to read all of that you could say in essence the fourth quarter was an even stronger pronounced 2005 in a positive way. Growth was stronger, profitability was stronger, net income was stronger, the only thing that didn't look stronger was the cash flow but the cash flow pattern has become more regular which I think is positive for the company, and of course we had special effects like securitization and pension funding and so on.

But the fourth quarter was really a very strong quarter and you see that afterwards when you now go into the figures here, the orders received in local currencies again for the Group, 14%; EBIT margin at 8.6% above the 7.8 we have achieved for the whole year; net income at 222, also above the average, so a very good quarter, only cash as I mentioned lagging behind, but if you correct it for the aspect I mentioned before it would be on a similar magnitude as the fourth quarter in the previous year.

Inside the divisions then you see I would say almost a spectacular development. As it concerns power technologies, orders went up by 23% in local currencies. Let me remind you our aim is not to maximize growth at all cost, our aim is to go for profitable growth so we want to make sure that both a strong growth but also good quality growth. It is -- especially on the systems side of the business, it is comparatively easy to go for the extra mile and generate even more growth; it’s a different question whether you get the margin, and at the end of the day the bottom line, if you do that .

Automation technologies, similarly not quite at the same level but again very positive 15% orders received increase, both revenue figures are lagging behind but again this is just a matter of timing, and as a matter of fact it's good that we are not pumping the same volume through the system almost the same time as we get it in there. It's more backlog, there is better backlog to come now.

EBIT went up quite substantially, in power technologies 64% automation technologies, very reliably in some way increased it again by 25% leading then to EBIT margins of 9.4% in power technologies in the fourth quarter, I think a level which really can be classified as excellent for this sector. Automation technologies at 10.7%, and I would say from a pure operating point of view that 10.7% could have been beaten, it could have shown something like 11%, but we wanted to take certain provisions for necessary restructuring because the story needs to continue.

Further down, non-core, I talked about it already, the impact of Lummus and some other effects. And finally corporate costs which has to be looked at from an annual perspective and not just from a quarterly, a significant reduction in that expenditure pattern.

Orders, this is a tricky one. You know, if you look at quarterly orders, quality or distribution, this is very distorted at times. It's much better if you look at it from an annual perspective because if you get one large order in one area, one quarter, you don’t have it the next quarter this can completely the change the picture from one quarter to the next one. But of course in certain ways it is indicative again, this time it is Asia who is leading, whereas for the full year it was actually Middle East with regards to percentage growth. Here Middle East was okay, America was unchanged even though for the full year was actually quite positive, only Europe is perfect in line with the full year development which is more or less stagnation, which is obviously is not a very happy situation for Europe in general, but we are hoping that may change as well.

Again I leave that to you, I don’t need to comment on that one.

Now let me move to something which is always important. It's less short term, and let's keep in mind when we talk about growing organic growth we talk about market positions, we talk about products and service offering, we talk about the competence we bring to the market and one aspect of competence is innovation, and this is something important to keep in mind.

In the core divisions we spent close to US$1 billion for R&D, order related and non-order related. I think this is important; we have some 6000 researchers and developers worldwide, and we must be able to continue to come out with the better product. Just being productive, just working on the cost basis is not enough for us; we need to have a great technology, a great product range, and this has been a hallmark of ABB in the past and we will continue to invest into that. Especially having in mind what will come up three, five, seven years down the road with the new markets, with the new cost structures, new competitors coming up, this is absolutely key. If you were to milk ABB so to speak and just work on cost, not invest into R&D or in new global footprint, I don’t think we would be in a very happy situation ten years down the road. So this is important and fortunately you see a few examples here, I think we continue to do a good job in this respect.

I did talk about asbestos; let me just pick out a few more items. So what is happening is now first of all there is a hearing set for February 28, we have indications that if judge who is responsible for this hearing in the district court doesn’t get anybody saying that they actually want to have a hearing by February 21, he may opt to have what you could call a paper hearing, so it’s a hearing without anybody being heard. Then he will issue the order, hopefully with affirmation, on or after February 28, and then there is this appeal period running for another 30 days which brings us to the end of March, more or less, and if nobody appeals and we have no indication that anybody should or would, then this is it as it concerns combustion engineering. That will be hopefully the end of a long, painful, costly saga for ABB.

As it concerns Lummus, the first statement is Lummus, the asbestos exposure of Lummus is on a different magnitude, much, much smaller than combustion engineering, and obviously we are following different options here. We also have a plan prepared which we can basically push through the court system in a similar fashion as we have for combustion engineering. There we also have the support of the claimant, so in many ways it's quite comparable. But because of the whole issues with the American Congress and so on we have played it very carefully to see exactly what the situation is, but you can expect us to, once the situation is cleared after this March 30 date to also clearly come out and say this is what we are going to do, and this is by when we expect the Lummus situation to be cleared.

Finally, there is two more charts on power technologies and automation technologies, to give you more details on the financial performance of the two divisions, I think already conveyed the main messages, strong rebound of power technologies in the second half of the year, especially in the fourth quarter with an acceleration of growth, but also an increase of EBIT margin leading to an overall actually very, very good situation.

While this was happening we also started to really come to grips with the challenges in the transformer business. May be interesting for you to note that by the end of the year we have been able to completely set off the negative impact of raw material prices, be it by the supply chain measures or be it by price increases, the net effect is even slightly positive now. So while we communicated to you in the first quarter that we had for transformers a rather significant negative impact, this actually got smaller second quarter, it became very small in the third quarter, it turned into the positive situation in the fourth quarter. So if you take the full year perspective, the transformer business now is in a slightly positive position with regard to the beginning of the year.

And the measures, even though they are very costly, we absorbed US$123 million for this restructuring program, there will be a benefit if you were to deduct the 123 million from the operating EBIT from transformers, you would recognize that we are already seeing quite a significant improvement of the EBIT performance.

In automation technologies, I would say this is a brilliant story to talk about because we have seen a continuous flow of improvements every quarter, volume-wise and EBIT margin-wise and this has been continued up until this moment, until the fourth quarter of 2005 with good growth. As I said the EBIT margin 10.7 on a quite attractive level, it does include a few restructuring charges. It is a very solid development that has started I would say as early as 2004 or even slightly before that, and we want to continue on this pattern.

I think with that I'll leave it now and hand it over to Michel Demaré who is going to give you more details on the financial performance, balance sheet and so forth. Thank you.

Michel Demaré: Thank you Fred and good afternoon ladies and gentlemen. On the financial side, what I would like to do really is to give you a progress update on three very important items that I think ABB needs to reach to really get back where it belongs. The first one is really giving you an update on the cost reduction and especially one item that I have often spoken to you about which is really the reduction in number of one-off items we have seen quarter after quarter in the results so far. The second part is the update on how we are doing to refocus the whole company on the core businesses, de-dramatizing the impact of the non-core businesses and of the corporate costs, and finally looking at all that impacts the financial situation of ABB.

Looking first at the results, Fred left it after PT and AT, so I will now continue going down the income statements starting with the non-core results.

As you see for the full year we had targeted to be break-even in the non-core segment; we finally end up with a profit of 34 million for the full year and 24 million for the fourth quarter. And there obviously the first recipe for success here is that we have now confirmed the turnaround of all Lummus oil and gas business that booked for the full year a profit of 49 million. For those of you who have been around ABB since a while, I don’t need to remember to you that a few years ago Lummus was losing 400 million in one year, so this is really a very impressive turnaround helping a lot in the results here. The second one is building systems, it's not yet as spectacular as the turnaround of Lummus, but coming also where we come there with the losses close to 100 million, we are quite encouraged by the result of 2005, a loss of 37 million which includes about $10 million of restructuring expense. We have been really accelerating the closure of certain of the old, I would say bad projects, and as well have been streamlining operations in Germany, and I think in fact if you look at the fourth quarter, if it wasn’t for the negative impact of some litigation issues we would in fact have an operational break-even result there.

The Equity Venture portfolio has contributed a stable EBIT through the year; it also includes in the fourth quarter again on the sale of our Brazilian power project venture that we had there, and that we sold in the last days of December. So overall we end up the year with a profit in non-core which is really an excellent target achieved from that perspective.

If we look at the corporate costs I can say that there as well we can say mission accomplished. We were at 523 million at the end of 2004 and we had communicated that we were aiming at a target of 450 million for 2005, on our way to reach by the end of 2006 a run rate of 350 million. Well you see the result here for 2005 is 393, it’s a reduction of 130 million and we are quite proud of this result which has been really the result of a great teamwork on a global basis, animated by Gary Steel, and I think it shows at the end that once we really put the foot down on the execution we can deliver, we are quite pleased with the result, and well on our way to achieve 350 million by the end of '06.

Another important aspect is really to look now at what is [these efforts] that we are doing in terms of corporate costs and non-core business represent as a total, and I think this slide, [inaudible] may be a little bit loaded but in fact gives you a very good idea of what we are trying to achieve. If you look for instance at the year 2003, you see that the total of corporate and non-core losses was almost $1 billion, so when you look at the green column in 2003 which was the EBIT of the ABB Group, this represented less than 30% of the EBIT generated by the two core divisions AT and PT. Now if you do the same for 2005, I must admit it's still a bit difficult to look at the profit from the non-core segment but there is a profit, and if you see that the reduction by the corporate expense that is also down by that much, at the end of the day for 2005 the EBIT for the whole Group represents more than 80% of the EBIT generated by the automation technology and the power technology divisions. It is exactly the direction we want to go and there is probably even a bit more to do in this perspective.

Going further down the income statement, that is where I was referring to the fact that there as well we still have a few one-offs that are sometimes having too much of an impact on our bottom line. Well below EBIT we first have the finance net. Finance net for 2005 is ending up at 246 million which I agree with all of you is still way too high. You know some of the reasons why we are at this level, we are still dealing with the high priced debt that we have been issuing in the difficult years. I must say as well that during 2005 we have been hit by a few one-off items like late interest related to litigation settlement, one-off costs that we had when we decided to repurchase some of our bonds. So I would say that if you exclude all these one-offs we would have ended up with finance expense below 200 million, still too high, working on and trying to improve it year after year.

Good news as well from the tax perspective, we have reduced during 2005 our tax rate from almost 40% down to 32.2% in 2005, so there again well on the way to reach our target of below 30% by 2009. And at the end of the day we have obviously the minority interest deduction, we still view that as a positive result, they are obviously growing fast but it is also the reflection of the continued success that we are enjoying in this part of the world like China and India, where we have a lot of joint ventures or non-fully owned legal entities.

Going further down another great result is the result in this continued operation, that is where you probably have seen the biggest losses of ABB in the past; we still are showing a loss this year of 143 million but out of that I would say 133 is really something that we cannot avoid, this is mainly the revaluation of the 30 million asbestos shares that we have put aside to deliver to the Trust the day the plan becomes effective, and there is also a few legal fees linked to that.

The rest of the discontinued operation that you see here is really linked with losses on some divestments like the Finnish lease portfolio or some of the power lines activities that we still have, and also some gains actually on divestment like the sale of our [Vas] business in Japan. So the total losses of discontinued for 2005 was 143 million and this is how we finally come with also quite an improvement here coming from 439 million losses last year, to a net income of 735 million.

When we go down to cash flow, I'm not afraid to say that this year the cash flow generation for ABB has really been exceptional. If you look here, the 2005 result, you see that we have generated cash flow from operation of 1 billion and 12 million, but this is in fact not the whole story, because at the same time we have used almost 500 million of cash to reduce our securitization programs, and we have contributed at year-end almost 130 million to pension plans on a discretionary basis, so you really need to add another 600 million to this cash flow to get to the true picture.

And again if I do the same that I did with EBIT and I look at the 2005 cash flow, I can say again that 80% of the cash flow of the Group has been generated -- no, that at 80% of the cash flow generated by the two core divisions has resulted in the end a good cash flow. So there again it’s a great result, in 2004 it was only 50% so great progress from that perspective as well.

So that obviously leads to the next question, is what have we done with the cash? Well first of all we have continued also working on divesting some of our activities; this year it was mainly the Finnish lease portfolio, Termobahia, which is the Brazilian equity venture. We have also monetized a lot of assets and sold some shares that we still have on the balance sheet to really try to get a balance sheet which is totally employed for the core division.

On top of that we have used the cash to repay some debt on the balance sheet. We have had two bonds that matured during the year, $384 million, and in October we also bought back 390 million Swiss francs of bonds also.

At the same time, all security obligations were reduced by 600 million, we had a total discretionary pension funding of about 400, I mentioned 125 before that were done at year end. In the third quarter we also contributed marketable securities to the German pension plan; that is how we come to this total of 400 million. And finally our leading obligations have also been wound down during the year and are basically 300 million lower than they were at the end of 2004.

While doing all this we have, as you remember, signed in July a new $2 billion credit facility that we could really negotiate at investment grade terms, that is giving us all the flexibility that we need now to make the steps that I just described. And as a result of all this, the rating agencies have really changed their stance; they have almost now turned the outlook into positive and basically the message there is that they wait for the final asbestos solution to get us back into the investment grade status.

Looking at some of the ratios, obviously if you look first at the gearing which in ABB we calculate as being the debt divided by debt plus equity, we are now down to 52% which is already a great performance by itself, but as Fred alluded to before, in fact we would have been at 50% if you take into account the revaluation of the asbestos shares. You have to look at this this way, that since we announced the plan for asbestos, the revaluation of the shares has been a total of 293 million of losses that went through our income statement quarter after quarter. The day we will deliver the shares to the Trust we will get a one-time credit to the other comprehensive incomes in our equity and so equity will right away increase by this 293 million. So first it's important for you to know that, second, if you give us this credit for 300 million then all gearing is exactly at 50%.

Another good progression, we are still far away from the average of the industry but we are still quite happy to see that our equity as a percent of total assets has increased during the year from 11% to 16%. It's a good first step; we'd need to continue working at bringing this number up.

In terms of net debt we ended the year at 500 million. Again, if we hadn’t decided to invest some of the money in reducing the securitization or funding of pension plan, we could have had a negative debt by the end of this year and if you look back at the fact that in 2001 we were still at 6 billion on a net debt basis. This is indeed a long journey that is coming to an end here.

Looking more at our off-balance sheet obligations and looking really at the way rating agencies look at the total debt of ABB, well the calculation was in excess of $13 billion in 2001 and we have now brought it down to more or less 6.5 billion by the end of 2005. And you see there the major components, all unfunded pension liabilities have been reduced from 1.5 billion at the end of '04 to 839 million at the end of '05, all securitized receivables have been reduced from 920 to 320, and as I mentioned before all these obligations have been also brought down from 1.8 billion to 1.5 billion. So really good progress on that perspective, and as you can see we have also really tried the whole year to focus on the most costly, the most risky obligations rather than just trying to focus on the debt which was on the balance sheet.

Obviously all this ends up in giving us a much better result in terms of return on capital employed. You will remember what we said during our strategic presentation last September, that if you look back at the last five years, in fact ABB had never really contributed the value for the shareholders because we never achieved a return after tax which was [a goal for] cost of working or average cost of capital. Now with the conjunction of improved EBIT result, improved tax rate and the fact that over the last two years we have managed to limit the growth of our capital employed to only 5%, while in fact our top line was going double digit, has obviously provoked an explosion of our return on capital employed which has risen during 2005 from less than 8% to almost 14%.

As a result of this strong operating performance, and I would say as well with the confidence that in fact the financial recovery is even going a bit faster than what we had anticipated, the Board is now feeling comfortable to recommend to our shareholders to resume a dividend payment seeing that we haven’t done any more since the year 2000, and so we will propose to the Annual General Meeting on May 4, a payment of 12 Swiss cents per share, which if approved will be paid on May 9.

That leads me to my last slide which is what are we going to do now in 2006? Well in fact we will just try to work with the same recipe that we had in 2005 and continue building the strength of the financial foundation of ABB, with maybe even a little bit more emphasis on the balance sheet structure and trying to really work on the capital base of ABB to really promote ourselves back again to the big league in terms of balance sheet and financial strength.

We have to continue working as well at reducing our net finance expense. We want to extend the maturities of our debt portfolio which becomes a little bit too short term to our taste and at the same time to continuing to secure flexible sources of financing and all that obviously on the back of strong expectation that we will recover very soon our investment grade status.

That is all on the financial side, and now I leave it to Fred to finish with a look ahead. Thank you.

As for the look ahead, the interesting thing is that first thing I do know is actually looking back. We presented this chart to you in September; basically trying to pinpoint a few important characteristics of the evolution of ABB from its very formation in 1988 coming up with three different stages.

Let me now comment on those again, but I think most important is, as I said, turnaround crisis, [yes it's] history we have started, or we have entered a new stage which we call profitable growth. And you clearly see that growth has been quite spectacular with regard to 2004; the column has gone up quite visibly in this organic growth, only no acquisitions. And EBIT margin has reached a level of close to 8% if you look back, with only one year in ABB’s history in ’99 where the EBIT margin was higher, and we know today that this EBIT margin was very positively impacted by some divesture gains and whatever.

So it’s fair to state that today the EBIT margin, the opening performance of ABB, has reached the best ever level. The story now is to continue, that we can keep on repeating the same statement for the years to come. That means that we really need to follow up on not just one chart; they used to present it actually as a sequence; we need to follow on this concept that not just one single item is important. It’s not just about capital efficiency and not just about growth, but we have to. in a carefully balanced way, move all of these factors.

And this has been part of the effort last year, and when you look at the results growth was very good, we don’t need to repeat the figures, it was double digits basically local currencies. EBIT margins went up quite nicely despite significant special charges. Return on capital employed, as Michel just pointed out, at 13 point something percent after tax, clearly above the threshold to generate value, and of much less significance to us, return on equities is just [for --]. [Inaudible] mentioned here our equity basis is still comparatively low, so I would not classify this as a primary criterion to assess us with, but nevertheless it’s above 20%.

And you rate us while we have managed to implement more credibility, more consistency, more reliability with regard to communication and guidance and so forth. I know there have been some surprises in 2005, but fact of the matter is business life is to some extent about surprises, sometimes the positive, sometimes the negative. We have every interest to make sure that the business of ABB and that ABB in itself becomes more transparent, more reliable, more consistent. And you will, starting from today, also receive information, not for two divisions but for five divisions, so in a much more fine segregation and level than before which should allow you to assess us much more clearly.

Now going into the future, I don’t want to expand too much on that but the story’s still the same. Strategy, no big fix needed. We have a good portfolio. Portfolio has delivered spectacular growth. We have significant earnings potential in there. Our product market positions are truly leading, in almost all of our activities we are number one or two, or at least number three. We are worldwide diversified. We have great positions in the new strongly growing markets. Then of course, at some point we’re going to make acquisitions again but they’re not of importance at the moment; we don’t have terribly big gaps which we need to fill, but of course further down the road they will become of big importance.

The key topic is still the one in the middle. The blue shaded one is execution. The strategy doesn’t need a big fix. Execution is about making sure we really can capture the market growth; it’s driving the opening margins by reducing costs and you have seen examples in corporate costs for instance; you have heard about the transformer restructuring. It’s about controlling risks; making sure that the projects you take on, or go after, are of high enough quality so that they really deliver the margin. And we have good, efficient project execution and so forth.

It’s also about global footprints, making sure that we take the chances, the opportunities there are to diversify our value added pace, branch out more aggressively with engineering, with sourcing, with manufacturing, into those locations of the world where we simply have the benefit of a lower cost basis. It had to happen. It is happening, and we’ll see more of that in the future.

And finally the execution framework which is actually -- it’s just the supporting basis but it’s of the essence. It’s the way how we deal with each other; how we go into the depth of the business activities; how disciplined we are with regard to making decisions; how transparent we are internally about the issues we have, the problems we have and so forth. And I should mention here that from that point of view the new function Dinesh Paliwal is having, after having delivered a great performance with the [80] division in the last three years, that’s of the essence as well. You need somebody who takes care of the geographic dimension of ABB, so I’m looking forward that he’s taking charge of the regions and of the countries.

Last but not least of course, people. Here we are in a very fortunate situation. It’s kind of amazing to see how ABB who has gone through a deep and severe crisis, how quickly we were able to catch again the top spots from an employer's point of view. Many of the graduates of engineering schools, be they in Switzerland, in Sweden, or other places, rank ABB again number one preferred employer, or if not number one then close up thereto. That is very important to us. We need to be able to attract the best people, and once we have them develop them, because this is a very dynamic company with lots of opportunities worldwide and attractive environments where these people can be developed, and at the end of the day get a bigger piece of the action. Attitudes, values, leadership, corporate culture, that is very important too.

You have heard about the announcement we made with regard to compliance and so on, and I mentioned that this morning as well to the journalists. ABB wants to excel. We want to be an excellent company. What is very important to you is financial results, no doubt about that, but it’s not the only thing. Success is measured in many dimensions. We also want to be an excellent company with regard to business ethics; with regards to the practices we use; the methods, the procedures we apply when we talk to customers, deal with business partners, with suppliers and so forth. [Inevitably] there is some work to be done, but I think we’re on the right way and there will be progress.

Now I think I [went] to these charts, they are self-explanatory. I don’t need to repeat on the base of the substance we just talked about for each of the three topics. Let me go to the longer term prospects here.

We issued a set of 2009 targets in September last year; we have now blue shaded the current performance compared to that. And I guess one of your questions afterwards in the Q&A will be, well, isn’t it the right time to rethink those targets for 2009, because in some areas we’re almost there. And my frank and candid answer is we could, but it is not very prudent. 2009, that’s still a way to go, and I think nobody has a crystal ball about the world economy. Every day I open the newspaper, yet another comment about, is Europe now finally growing or not; is hesitation coming in again and there’s another article about the inverted yield curve in the States which typically forecasts a recession.

There’s still a lot of risks out there even through terrorist, political developments. We have to assume, or at least we did, in our scenario planning that there’s some downturn, we don’t know exactly when, but some downturn in this time period. And therefore I think it is not prudent at this moment to revise the targets but what we can say is our comfort with regard to achieving these targets has clearly increased.

We had a great start in 2005 and the starting position in 2006 is also very good. And that’s actually on the next chart, you see the left hand side our outlook for 2006, we actually have a better starting position than we had last year because our internal backlog is pretty good.

Secondly, we’ve come through a series of improvements so we should be able to reap the benefits. Then the trading environment, if we look at the geographic market, if we look at the industry sectors, we are not seeing any downturn, no. If it comes, it may come but we don’t see it today yet. As a matter of fact almost all our sectors are still operating on quite attractive levels. There is a few laggards like pulp and paper but even those may increase in the short or medium term. The same may be true for Europe, we will see.

So the outlook in total is pretty positive, and hopefully once we announce here the first quarter results which is going to be in April, I think, we really can follow up on this outlook with real results. 2009 already mentioned, we remain -- the targets remain as we have announced them but clearly our feeling about these targets is much more comfortable than it was before.

Finally, let me mention again these were the two divisions. In essence this is, to 95% this is a backward looking presentation because we discussed 2005 results and the fourth quarter results, and therefore it’s been the two divisions which we have put up on the charts. You do receive however the information also for the new five divisions as pro forma information, so not the official information, but that should enable you also to look into trend developments and prepare yourself then for the Q1, when we present the results in the five new divisions.

With that, let me conclude, and go into [organization] matters. This is the new executive committee. I’ll say it again, what you see up here on the chart is a lot of different hair styles, okay? Basically indicating this is a diverse group of people and this is what ABB is all about. ABB is a truly global company, and I must say I was very impressed on my first day at work in September 2004, I walked around in the office building half a kilometer from here; 50 different nationalities in a group of about 250 people. Truly global. And while this probably was a disadvantage some 10, 15 years ago because ABB originates from as [inaudible] from small countries, Switzerland, Sweden, Finland and so on, it was a disadvantage because we didn’t have the political clout for change, or a president coming along on a business trip.

Today I think it is a big asset because when you go to China, when you go to Brazil, when you go to India, ABB is a leading western brand, high quality; high productivity; high innovation, but it doesn’t have, let’s call it a German home or a French home. It is truly global. This makes it very easy for people to assimilate, to integrate into ABB to feel at home at ABB, and I think this is now really bearing fruit. It’s a big advantage we have and you see it also to some extent up here, because if you look at the nationalities you’ll find today up there you’ll find Swedes, you’ll find Finns, you’ll find people who were raised in Lebanon, or in India, Americans, Belgians, Scotsmen, Germans, Swiss, even Lichtensteiners. You’ll find almost everything up there. What you don’t find yet is a female person, and I would love to see that but we don’t force the issue. We have to see how people develop and once the opportunity comes maybe even have one or the other woman in the executive committee. I would appreciate that but we’ll take it as it comes.

I think this date, I don’t want to comment and have to be careful to be honest not to infringe on certain rules, because this is backward looking and I’m not supposed to comment on new structures for 2006, but this is the date which has just been handed out to you and which you will use from here on I guess.

With that I would like to conclude the official presentation. I’m quite sure we have lots of questions. With me up on stage will be Dinesh Paliwal, Michel Demaré and Gary Steel. On purpose we have the other folks remain on their seats down there because they were not responsible for their new areas in the past so they should not be up here to talk about the past because this is not a guidance 2006 event, we don’t want them to talk about margins and top line developments in the first quarter either. I will take the liberty if I think that one of the other guys may have a good answer ready to also call upon them, but it’s basically the four of us who deal with the questions.

[OPERATOR INSTRUCTIONS].

I know that we have participants over the phone or over the internet so people who are asking questions here from the room please wait before you get the microphone to ask your questions, otherwise the people on the web or over the phone will not be able to hear your question. I will as usual start with a couple of questions from the room and then we will switch over to questions from the phone or over the internet. First question please, Thomas.

Gentlemen, I have two questions if I may. First of all, with regards to CapEx. I saw that CapEx declined quite -- and repurchase of [property plant] and they [picked] them quite a lot, 100 million or so, despite the double digit growth, if you present it. Can you give us some idea of what’s behind that number. Have you been under-investing in 2005 or is that the number to surpass [inaudible] in line of strategy, and obviously what sort of number can we expect in the current year?

My second question there, regards to automation technology and there in -- more specifically, more to robotics or manufacture automation. The turnover increased by more than 20% and yet the margin declined, and as you pointed out that was probably because of restructuring charges. Can you give us a flavor how much that was, maybe in total in 80, what the restructure was in total and then maybe more specifically in robotics? Thanks.

OK, I can take the first question on the CapEx. Indeed the CapEx for the year was about 420 million which is obviously much lower than the depreciation. Depreciation was I think about 550 million so indeed we have quite a gap. I think we have had a few of these discussions already in the past of saying well, despite the figures we’ve given in the strategic presentation indication that we should on average have spent more or less the amount of depreciation, it just appears that we are spending less than that and I think we have all the witnesses here. We can say that we’re not restricting them for sure to spend more CapEx. The fact is that in the effort that we’re doing also in moving our global footprint, it turns out that at the end most of the new plants that we’re building are in cheaper parts of the world. It also appears that it is much cheaper to build plants there, and also we usually don’t do it from green sites but just expand existing sites. So overall it really appears that it was an unrestricted result. We’re ending up with 80% of depreciation.

We have not really fixed the target above that for the years to come. We would probably say yes, it will continue being below depreciation, very likely, but we have not fixed any targets. So for the moment we still leave the freedom to go and spend of average up to depreciation, but I don’t think it will happen from one day to the other.

To add to your comments Michel, it is not only the fact that it invests in lower cost locations; typically a plant in India or China comes much cheaper than a plant in Switzerland or Sweden. That is one important factor. The second factor is we are much more strictly scrutinizing the need for investments in established operation centers because it’s a question of competitiveness. If we feel that in the long term a situation may not be as competitive as it needs to be we actually have to be very disciplined in continuing investing in those locations.

Let me take robotics question. First of all, it’s about 15% of the total automation revenue in 2005 terms, and as you know and we have shared during last time we were together, that this business has it’s own [simplicity] and 2004, 5, almost peaking out and then we are in downturn mode here. And we’ll see again, perhaps in three or four years, a little bit an upswing.

And also we shared with you last time that we needed to restructure this business in terms of global footprint and global sourcing, and we have taken some decisive proactive moves in terms of establishing a stronger presence in Asia, in Shanghai, and we announced and we shared with you last time we were together that we already were successful making the first robot in Shanghai, and since then we have moved on. So some consolidation in mature markets like the United States and some European facilities, be it Sweden, France, Norway and Germany, and implementing strategy into the new markets where the growth is, and where we want to be in terms of future competitiveness and what have you.

In terms of part of the question you asked on restructuring charges, we took just over a percent of revenue in restructuring, and going forward, it would be in line with the revision as CFO said earlier 0.5 to 0.7% or maybe slightly higher as needed. But we’re taking advantage of the time when the market is not so buoyant as it was in ’03 and ’04 and even the first half of 2005, restructure the business, work on execution, and also streamline the system’s activity, where traditionally we have had poor performance in terms of margins, and bring it up, like we have done in process automation. So actions are in place, and the new leadership is very much driven from the operational excellence and execution, and as you know, the new leadership of robotics is actually based in Shanghai.

So I think a lot of good things are in action, and hopefully when we meet in six to nine months' time we will be able to give you a bit more update.

Yes, and if I can still comment on that as well, I think some of you were concerned about the fact that there was a lot of work ahead for us in robotics, a lot of restructuring to do. But what we do, we are now doing this hard work, what we said is, yes, it can impact the margin in robotics, but again, robotics being 7% of the total of ABB, if you look at it as a total it is still within the range of 0.5 to 0.7% that we indicated, but that doesn’t mean that we don’t invest what we need to invest to get the business going again.

OK. Next question over there?

[Inaudible] from JP Morgan. Two questions, please. The first one you have 57% of your employees in Europe and only about 47% of your orders in 2005. Obviously you’re moving more employees to, basically, Asia and other places, but orders are growing even faster than that. Isn’t there a need for a more radical rebalancing of your employee base, in order to protect you from currency swings and in terms of potential future downturns?

And the second question, you mention your outlook in North America there are some positives and some negatives. If you just could comment on what is negative in North America?

As for your first question, I mean, yes, your perception is absolutely right. I think we live in a dramatically changing world. My personal opinion is that we see a real powerful emergence of China and India for the years to come. This is not just a short-term temporary thing, but this is a fundamental development that will shape our situation for decades. And we as a global player must take advantage of the opportunities and also face up to the risks. At the end of the day, it is an optimization task where we have to look into the costs of adjusting and the benefits of adjusting and then find the right timing. Yes, I would conclude with you that in the years to come, you will see more changes of ABB, going in that direction you will see a much faster growth in workplaces, in investments, in the new areas than in the old ones. As a matter of fact, some of the old locations will be on the defensive. Let me remind you, this was a little bit more than a year ago that we said we wanted to have 5,000 people more in China in the course of the next three or four years. In the last year we have added about 1,000 jobs in China. So the development is incredibly rapid, what is happening, and the overall figures when you look at them, one has to be careful, because quite a few of the jobs that you still see in Europe, this may also be Europe like Estonia, or the new Europe where we talk about different cost structures as well. But to sum it up, yes, I wouldn’t argue with you, yes, that’s one of our biggest challenges, one of our biggest tasks to come.

As for North America --

Yes, I think as Fred said, there are some positives and there are some negatives. Quickly, just to look at the negatives and then we can talk about positives, negative is as every other company is faced with escalating medical costs. That’s a concern everybody has, and I think American corporations are trying to find a solution, which is something we have to evaluate in the context of Asian competitiveness, and also Eastern European competitiveness, so that’s something we look at.

And then aging infrastructure, and when is the time when investments start to come in. These are the things you look at as an active business community.

On the positive side we look at, we are seeing already some movement in our power transmission distribution grids network. There are at least some plans the utilities are talking about, and we also look upon that next several years and the indications are anywhere from 10 to 15 years would be better years in terms of overall capital expenditure to release. And we are obviously well positioned to benefit from that.

Second positive is GDP is still growing 3, 3.5%. And we don’t know what the future looks like, but at least ’06 looks as second half of ’05 was.

And third is that the great install bases we had in North America are focused on penetrating the market from the service point of view. I think that holds good potential, but we have to do a lot of work to get there.

Maybe to add to that, I mean, when you open the newspaper and read commentaries about the growth in the US potentially coming down to 3% or even below that, there is speculation about when this real estate bubble may burst, and what kind of impact that may have on the consumer spending in the country, you have issues like, Dinesh mentioned healthcare costs, pension costs, which are a real burden to customers of ours like GM, for instance, which is relevant for the robotics business, not for the other businesses as much as for robotics, and similar issues.

Overall, the situation is still quite positive, there’s more pluses than minuses, but we have to be prudent.

Next question, [Alex]?

Could you tell us a bit more about the pricing environment? You mentioned that you’re probably slightly positive at the end of the year with capacity utilization at your plants and a lot of your competitors quite high, I suppose. Now, what are the prospects for additional price hikes?

And secondly, you’ve [inaudible] on to some orders that you’ve become a bit more selective in bidding for business. How much more work would be done in that respect in 2006 and thereafter?

Well, I think to start with the first one and continue with the second one, let Dinesh add a few more words on process automation and selective bidding.

As for the first one, I mean, the pricing power ultimately depends on your position in the industry, and the industry structure. It’s a very different situation if you have two or three relevant competitors than five or six, for instance. The most exposed situation we had, I think, was in transformers, because it is an industry that was characterized by overcapacity. I would say a bit of this overcapacity has disappeared because of consolidation happening in the industry, and at the same time the demand’s growing. And we being the industry leaders and having been exposed quite severe, dramatic increases in raw material prices we see [inaudible] we have to push it through to the customer in some fashion. And we started doing that, and we had, I would say, immediately, much more success in the States than in Europe. Eventually, that momentum took on, and today I think it’s fair to say that we were quite successful. We were able to increase the prices in transformers to the extent that we also, now, going into 2006, we’ll see the benefit of that. Obviously, it all depends whether raw material prices continue to escalate, but at least some of them have become much more stable than six months ago.

Leaving transformers, I would say the situation is more easy for us, especially when I talk about the products businesses, and medium voltage, high voltage, and automation products. But you have kind of a different mechanism, because you don’t have any an individual project engineer to order situation, or otherwise you have a much more clearly defined industry structure, and therefore we never really talked about the severe impact of raw material prices because we more or less were able to offset that. So that’s really become a benefit, it's part of the improvement in 2005, for sure, in some of the other divisions or business areas, and the situation now going forward into 2006 is, I would say, still very positive.

As for your second question, that was about selective bidding or becoming more disciplined. I think that is of the essence for many businesses at ABB, but in particular true and necessary for the systems businesses, where you have the larger projects, where there is a psychological effect of sales people to more easily give in, almost [inaudible] betray themselves, yes, we’ll get the margin somehow, because there’s a $100 million order at stake. And there you need to have people who have the discipline, who really cut through the fog, and analyze quite clearly, is there enough margin in there or not. I can tell you without going too far we would have been able to capture more projects than we did, especially on the power side, if we had been willing to let go of margins. There have been orders going away where there was very little margin left. We said we don’t want this kind of business, let the competition have it.

Dinesh, do you want to comment?

Yes, I think you said it, just to complement on that. I think we have a very strong culture, if not to the 104,000 employees, but where it matters, it's already sticking, in terms of distribute up front. Very prudent, up front, look at it, together with sales and the project team that what we can take, would it be delivered at the margin we’re taking. Which is a very big difference versus salespeople deciding and saying it’s got X% gross margin, it’s a good order to take. That’s a very big culture change which we believe we have implemented. We’re seeing the proofs of that in process automation, where without divulging any further, but, you know, this business was really a struggle for us, and today we have improved the situation, where we are happy where we are today, and we know where to go next with that. So selectivity is twofold; one is up front, second, we need to improve our productivity and cost base. And there we are addressing to improve our further selectivity for the [inaudible] point of view, going in the Eastern Europe as well as in Asia, setting up global engineering centers, so that these centers would take part of the value chain of the large projects, to make us more productive in Western Europe as well as in North America. So selectivity has the two elements to it.

Maybe give Samir Brikho a chance to also quick to speak up, because he’s been the person instrumental for the turnaround of the Lummus operation, which is about large projects, and he is now also responsible for power systems, which is in a similar focus, and he clearly is the guy who is top line and bottom line minded to the extent that he could drive a used car salesman to commit suicide, right?

But speaking about selective bidding and operational excellence, when you work with a project, you cannot imagine how many risks you have with the project. Let’s start with, I call it with the business [sweep]. First I need to know, what is the country you’re working on? What are the clients you’re dealing with? What type of terms and conditions you are going to accept? So you have first to start to do this as the screening process to say, are we going to get this bid, or not?

Second part is estimation. Many times we made a lot of mistakes with information. Did you understand the concept correctly? Did you address the concept correctly, and do you have the right solution? So that can also sometimes be different, between 10 to 20%.

Apart from [inaudible] estimations, then you need to understand the legal part of that. If you go and accept, for instance, exchange rates, currency risks, change of law, like even civil, there could be [inaudible] risk, [inaudible] actually the build [inaudible] in this selective, in order to say, which [shop], we are going to take it, to add risk, which [shop] we target, and which [shop] we do not.

And then you need to have an impeccable process into implementing the job. You need to have the project managers to do the job. You need to have the right schedulers, in order that they can do the job on the right time. You need to get 80,000 items and products to be on the site at the right time, not before, not too early and not too late. And then you need to measure that just on time. When you do that, and you do that analysis, that will give you a very good flavor which jobs you need to go for, and which jobs you should keep your hands off.

Thanks, Samir.

OK, I think before I go to some caller over the phone, we have received an e-mail from Peter [Isler], and his question is with regards to pay-out ratio, what we expect going forward that an appropriate pay-out ratio for ABB should be?

OK, I will take this one. So the dividend that has been proposed this year represents a pay-out ratio of about 26%, which we know is still pretty low for the industry standard. Now, our goal here was not to become the highest yielding stock of the industry, our goal is really to show confidence, to show goodwill towards the shareholders that haven’t seen any money flowing back to them in the last five years, so it’s more kind of a sign than trying to add a more high-yield aspect to our stock.

The policy from [inaudible] after that will not be so much driven by a pay-out ratio but will be more focused on trying to pay out a stable or improving dividend in terms of absolute amount. We feel that this is something that is more manageable and also seems to meet more investor’s expectations, now they expect a stable or improving cash flows over time.

Operator, we will now take questions from the phone.

The first question is from Mr. Julian Mitchell from Credit Suisse. Please go ahead, sir.

Yes, thanks. I just had a question in terms of the revenue growth outlook. You sort of bracketed the ’06 demand outlook together with what you saw in ’05, so are you expecting a similar strong orders and sales environment in terms of growth rates in ’06? And then also in terms of the power systems business, obviously margins there have been quite low the last two years, but they seemed to pick up quite sharply in the second half of ’05. Do you still anticipate a lot of benefits from high capacity utilization in ’06 from large orders and so on going through the P&L there?

Yes. I mean, the first of your comments there, on our expectations, yes, we did say that the trading environment has not changed in any way, it’s still very favorable going into 2006, and hopefully that will hold true all the way through 2006 going into 2007. And yes, we did see quite a positive impact from the higher volume we had on the power systems side. We mentioned actually at the beginning of the year that that is one of the problems, we still lack the capacity absorption on power systems, for instance, our cable factory and other places, and because the orders starting in fourth quarter 2004 became quite good, these projects now have gotten into the system and are using capacity. As one of the effects why the margin in PT and especially [inaudible] PT systems has improved.

Now looking forward, without going too far, I said the trading environment is still very positive. We hope that we continue to capture the volume in a similar fashion as we have in the last six to nine months, and if that’s the case, then the prospect for 2006 is really very good.

Did that answer your question?

Yes, that’s fine. I was just wondering in terms of power systems specifically, do you see a very good pipeline from here in terms of large orders and so on that should help push up the margins even more in that business, or do you feel that, it’s often characterized as a contracting-type business, and therefore almost by definition it seems some people believe that margins there can never move up from where they are today. Or do you think you still have a lot of benefit left from high capacity utilization on your margins?

When you talk about pipeline, you talk about two things. One is the order backlog we have, and I don’t think we disclose that on that level. On PT we did?

No, we disclose it in general, I’m not sure that we have --

But, by and large the order backlog is pretty good, so I’m not worried about that.

Let me look, then, at the tender activity, project activity. It is strong. It is strong, it is strong [inaudible] not worried about that. But one has always to keep in mind, I mean, we talk about large projects, we talk about big investments which go through multiple approval processes with the customers, there’s always the potential for a delay. Let me remind you of the famous Nornet order we got in, what was it, fourth quarter 2004. I think the first time we actually thought we got it was five years earlier, and it went through a political process over and over again. The Estlink project we got in I think the first quarter 2005, we thought we had received it three times, because Estonia joined the European Union and had to go through an additional approval loop. So the market activity as such really is not a valid concern, that’s still going very strong, but when you look at quarterly performances, there you have all the erratic behaviors of getting a large order or not, where there is a shift from one deadline to the next one, it’s going too far to pin down and say, yes, there’s going to be a consecutive increase in order intake every quarter. We don’t know that, but we’ll see. OK?

OK, thanks.

Another question from the phone?

The next question is from Mr. James Stettler, from Dresdner, please go ahead, sir.

Thank you, I’ve got two questions here. First of all, on free cash flow, you did about 902 million, and in addition there’s about 500 million one-off impacts from receivables and 400 from pension. Does that mean underlying it’s about 1.8 billion? And that’s roughly double net income, a) what is driving that? And b) you know, do you think you can maintain such a level?

The second question then is on your outlook for ’07/’08. I mean, first of all you talk about many projects from the US, for example, and Europe only coming through in ’07 plus, US Energy Bill etc. Process automation’s also very, very late cycle. Which areas are you worried about when you talk about a downturn?

This is Michel Demaré, I will take the first question on the cash flow. I agree with you, though, the free cash flow performance this year is absolutely exceptional, so to answer your second part of your question, no we can probably not repeat it every year, I think that would be naïve to believe so.

I believe what you see here is really a conjunction of two things. It’s on the first time, clearly, a very strong discipline on capital spending, good management of net working capital, but let’s face it as well, there’s still a lot of non-cash charges that went through the P&L. I gave an example, for instance, the restructuring of our transformer business; we’ve booked this year 123 million of charges for that restructuring. Actually in terms of cash, we have spent 18 million, because it takes a while before you start paying all the indemnities and all that. And we have other cases like this as well, so it is really this combination of the two that finally end up with a number that is absolutely remarkable, above the target that we have fixed on 2009. I would consider that as a transition year. We still have to continue working hard on that, but again, the prospects of being able to sustain the growth with a capital spending that is lower than the depreciation, plus the fact that we still all feel that we can continue improving on net working capital makes it -- maybe we are able to still maintain this ratio in the pretty high zone.

As for your second question, I mean the examples you gave, they primarily relate to the power technology division, and there I completely agree with you. We feel that a large chunk of power technology activities is actually to some extent delinked to the classical G&P cycles, because there’s a structural need for investments. Be that in the States, because of the old age of the equipment there, and the Energy Bill having been passed; be it because of the interconnection necessities in Europe, or let’s say, the power grid being the backbone for industrial development in India and China, so there we’re pretty positive. The issue that we have is with the volatility, cope with the volatility of the large projects. But all-in-all, we’re pretty positive.

If you asked me where do we feel that a down-turn may happen, I would say, well, there’s a risk that at some point global G&P as such will swing downwards again. And that, obviously, would affect another chunk of our business which clearly is related to classical industrial customers. If you take, for instance, process automation where we make good business with minerals, with chemicals, with pharmaceuticals, with mining. And the same is true also for some of our equipment which goes into steel and aluminum plants. If the global economy swings down, then we have part of our business directly linked to that. So a little bit of both; partly it’s linked to G&P, and partly it’s not. And it’s the first one that obviously we need to be concerned that the good times we have seen on the last two years at some point, hopefully never but at some point, may come to an end and we’ll see a different environment again.

Yes, and I would just add to that to say, first, we say that when we present the plan that we thought the progression would be more front-loaded than at the back, so it is maybe even a bit more front-loaded than we thought. The good news is that meanwhile the cash generation comes in, it allows us to improve our financial situation and our balance sheet, and that makes us even stronger in case the economy slows down after that.

But let me remind you, at the moment, we have no visible sign in our sectors that anything will be turning down. So we’re talking about the longer-term future.

Did we answer the question?

Yes, thank you.

OK, before we come back to the room, I’ll take a third question from the phone.

The next question is from Mr. Charles Burrows, Goldman Sachs. Please go ahead, sir.

Good afternoon, gentlemen, Charles Burrows at Goldman Sachs. A few, just points of clarification, if I may. First of all, in power systems, or I think technology products actually, you mentioned that the US orders had slowed in Q4. You had quite an exceptional Q3. Do you think that was really just a one-off, catch-up after the Energy Bill, or would you expect another surge in the base orders in the US in the first half of 2006?

Secondly, Michel, you very kindly indicated roughly the scale of the one-off charges in finance in 2005. Could you indicate whether you expect any more one-offs as [inaudible] there today in 2006?

I also wonder whether you could give us an idea of what the transformer result was, so we can see the underlying progress in that business?

And finally, in discontinued, other than combustion engineering, should there be any remaining charges in discontinued in 2006?

Okay. As for your first question, Charles, with regard to the US and power systems. Now, unfortunately, I don’t have on the top of my mind what the exact figures were with regard to order intake, but let me characterize what our expectation is from the famous Energy Bill. The Energy Bill was signed by the President, was it August? August 8, and the Energy Bill basically forces the states, the individual states, to follow up on certain requirements, and they have the timeframe of a year, or something like that, and if they don’t do that, if they don’t behave, so to speak, then the Federal Commission will intervene and force them to establish the necessary conditions so that there will be transmissions possible from one state to the next one. So before real action happens related to the Energy Bill, this whole execution of the Energy Bill going through the states must happen first.

Besides this, we have seen that the utilities have already started to invest because they simply cannot wait any more. Their equipment is so old that they have started to invest more, and if you actually look at our total order intake on power technology in the States, there is, I would say, a pretty visible trend, slowly but steadily going up to a higher level. It hasn’t stopped yet, and hopefully will continue. Dinesh?

I think if I add to that, first of all, Fred, you are absolutely right. If after one year states do not come up with it, then [inaudible] regulatory authority, which is the reinforcement arm of [inaudible] will design the project and go ahead.

But then let’s look at a clear example, in the press two weeks ago there was a large project, multi-billion dollar project from AEB, that is a big transmission corridor, but the timing for that is 2014, so it takes a lot of bureaucracy to go through these projects, so that’s very different as you see China and India, China in particular.

So with that said, the first part of your question was, was there a slow-down in the third or fourth quarter, because we did have in 2005 pretty good growth which we’re very happy about in North America and the Americas for that. That’s a timing issue. When you have large projects, we had in the Gulf of Mexico a large project booked in fourth quarter 2004, when you cannot replace a large project in the same quarter next year, then you see a slight dip but it’s not a dip. It’s a periodization. So if we look at the same environment as we saw for the whole year which was a good growth period for us, North America would continue at least in 2006. And on [PND sector] we remain reasonably optimistic that investment will come and there will be sustainable for multi-year, 10 to 15 years. They are already - CapEx level is already at 4.5, nearly $5 billion per year level, versus three or four years of it being 3.5. So that at least will continue, if not more, so that will benefit ABB.

Thank you, Dinesh.

OK, Charles, let me take then the three other questions.

To start with the finance net and the one off for 2006, as I said there were two kinds of one-offs in ’05. One were interest or late interest related to some litigation settlement from a legacy case, so there I’m going to say that I do hope we don’t have more of those to report, because these are not a pleasant surprise to take, so I’m not really planning on those. The second part was a bit self-inflicted, because these are one-off costs that we took when we purchased our own bonds, so obviously we’re not planning that in advance, it will depend on the market situation and whether on an MPV basis it makes sense to do it. We will do it, but that will really depend on the market situation, so, normally, outside of those two events I wouldn’t expect any further one-offs.

On your question on transformer results, as you know we have now brought down our transparency a level more by going down to the level of power products, so we are not really disclosing any margin on transformers, so the only comment I would tell you is that when we announced a restructuring, we said that the transformer margin was about 3%, slightly above, we said that our target was to bring it back towards 8%, and I will just say that we have done good progress on that part.

We said it was below 4, but it's about the same --

Above 3, below 4 is the same.

And the third one is about the discontinued operation. Should we expect anything in 2006. I would still hope that maybe -- well not hope, but let's say if you look at what we still have to sell and in a non-corporate folio, we for instance have the building systems that on one side we are working hard to restructure and make better. You have noticed the results were better in the fourth quarter, but this is clearly a business we want to sell, and the day we sell it we will probably have to take a bit of a book loss, nothing to do with the kind of magnitude that you have seen with ABB in the past, but this is something that could happen and that still would make sense from an economic value perspective. For the rest, I don't really expect any big potential charges coming up.

Thank you.

Did that answer your question, Charles?

Yes, thank you.

Okay, we're now coming back to the room, and the next question is John.

Thank you. John [Avery] with Cheuvreux. I have two questions and both of them have been asked. I just want to get some more details.

The first one is on PT growth going forward. If I'm looking at organic growth in that division last couple of years, there's been significant acceleration in growth. I think it was flat in '03, 8% in '04 and 11% I think in '05. Obviously on the back of the much anticipated US Energy Bill kicking in, European growth coming back with interconnection projects, and obviously China being into high level probably sustained. What can you tell us about them in that acceleration, whether we can really sustain that, and your level of comfort maybe with the range, whether you feel comfortable with 10 to 15 or 5 to 10 for the next couple of years in terms of organic growth there. And then obviously also I think the market share situation would help us all in terms of where you gain market share in '05 in PT as a whole.

And the second question is, coming back to power products. I'm not talking about transformers but maybe talking about high and medium voltage. Making some calculations you can pretty much infer that the profitables in that segment must be somewhere around 15/16% EBIT margin. What can you tell us about that. Is there still further room for improvement or is it just about growing volumes in that business going forward?

Well as for your second question, yes. We did mention the -- more or less the EBIT margin of transformers in 2004, so it's very easy to do a weighted average and figure out that [inaudible] actually have been doing very well. In 2004 already, now you can make a certain assumption about where transformers of us in 2005 actually charged, I'll try to find out more explicitly where they were. Just make your assumption, then you find out that [inaudible] again did very well, as a matter of fact did even better than in 2004. Yes, it is about volume, not doubt about that, and we always -- many times talk about power systems and the projects we have in transmission projects and distribution, all of that. But that's not the whole story. It is -- when we talk of [inaudible] that we have a lot of industrial customers as well, so we're benefiting also here from the [inaudible] in the various industrial sectors we see all over the world.

And so in total you could say absorption is a big impact on the total profitability, but not only, it's also global footprint again. If you were to travel the world and visit our operations, you would see a lot of medium voltage, high voltage, also transformer operations spread out in India, in China, in Brazil, in other places, so bringing the cost down is another one.

And then of course, better execution. You could say the usual things. There is no wizardry in this, it's really about volume, it's about quality, it's about economies of scale, it's about cost migration to lower costs. Really continue. Again, we don’t want to provide guidance, but you can rest assured that in our internal ambitions in our projects for 2006 we are not satisfied with just stagnation.

And your first question was more about the growth outlook. That's a tricky one. We did give you the growth prospects, what we want to achieve in the long term, and we said, I think if I remember correctly, 6% in power products and 5% in power systems. That's not obvious why power systems should be lower than power products. The reason for that is because we on purpose want to be more selective. And as Samir has pointed it out, it's not all the business we're doing, power systems is really [inaudible]. I think there's business in there which we simply should not be doing, business where we compete with local engineering companies, where technology content is questionable and where at the end of the day you have a razor thin margin. Is that a good business for ABB? I doubt it. And that's factored into the plan we have presented in September, but it's not only reflecting the market outlook, it's also reflecting the internal ambition about providing growth and profit, and not just growth.

It's good. We're still number one and we want to be number one, no doubt about that. In many areas we're number one, even with you count number two and number three together. But let's face it, that is not the ultimate goal. As long as we are in the leading position -- I'll come up with a hypothetical figure now -- whether market share is 40% or 43 or 37, I couldn't care that much as long as let's say if we went down from 40 to 37, if that's not a competitive issue or an issue of competitiveness, if that's a voluntary move in order to improve our profitability and our competitive position with the customers still strong, I'd rather have 37 with good profitability than a lot of wall in 43 with no profitability.

I have two questions into specific end markets. First of all oil and gas. What's the outlook for this year? Also in light of your outlook statement where you say you expect if the oil price remains stable, strong investment [inaudible] in refining.

And second in marketing. Pulp and paper. In your automation review you say that orders grew everywhere besides what the paper -- what the outlook for this year.

Outlook for pulp and paper? Pulp and paper has been really been pulling down the entire industry. The consolidation started but they were not aggressive enough to complete timely manner so that industry could have a little breathing room to improve the profitability as you know very well. And there is sometimes we see some development in Asia, there are some new pulp mills, there are new paper mills being announced. Also in Latin America where we don't see much coming up, what will happen in Western Europe as well as in North America. Here we are focusing -- the pulp and paper we have a clear strategy that we need to grow selectively but profitability is the key here, and that is going to come from service.

And we are actually pretty well advanced. We have reasonable percent of our revenue higher than most other industry [inaudible] coming from pulp and paper, and in that area we believe we can do more, to remove the [cyclicity] which we had been going through. But if there is some development which five, six years has been waited, I think it will come. We will also play because we have 40% market share in pulp and paper as you know.

Oil and gas. I think activity in oil and gas seems fairly robust, especially if the price level remains at 60 or even 55, and a lot of new projects which have been in the design phase, I think they will qualify to go commercial, and here comes again, we have said many times, selectivity. But what projects do we want to go for? What geographies? Where we have what competence in terms of what we deliver value.

And refining. Refining is an area where we have selectively stayed back, as we have said before. Unless it's an account where we have done refining project, it's a built on, further expansion where we have a lot of equipment, otherwise we don't aggressively go head to head with key competitor who owns more than 50% market share in refining.

But from the product business, we go after very aggressively, either through EPCs, OEMs or direct, for oil refining activities as well. So overall upbeat for oil and gas going forward in coming years, and pulp and paper as you heard, we sort of wait and see.

Thank you.

Sorry, a very mundane question for you on the cash flow. The changes in operating assets and liabilities. It looks here the trade payables yielded 26 million in cash. But the balance sheet -- according to the balance sheet the trade payables fell by about a billion. So can you just explain why there's that difference? Is it to do with discounts or something like that?

Yes, it's a bit of a mundane question as well as you say, because indeed we're still a bit absorbing the numbers here and analyzing them ourselves. I know that part of it is that there has been a certain reclassification of some elements that were in accounts payable and that went now into an accrual line. I think it was about 300 million. There is also a bit of foreign exchange impact on that, and then I must say as well a bit of deterioration in terms of supplier, payment performance, which we have to really work on to improve.

Could you please provide us with the local currency growth rates per these five divisions? You split detail out on page 47 but you don’t state the currency growth.

No. I think it’s already a bit of a stretch to give you the detail because, again, we are really starting effective January 1. But I think if you look the way we have reported our old division, and you can see the difference in change in dollar rate and local currency, you can more or less apply the same ratio. But this is really as far as we go for looking backwards on the new division setting.

This is a hard time to say no. But sometimes we have to.

I think Alexander you have a question.

Just three questions relating to basically cash flow and your balance sheet.

First of all I would like to make sure, on the capacity utilization side, can you tell us how good it is. If it is really very, very high now or if you can put through another 10/15% more volume in the current capacity.

Secondly, you speak about the equity base. Now we are at 16%. Can you tell us what would be the level where you would say, okay now I’m fine. I mean 230 is almost 50%. I don’t know if you --

Why do you speak about [inaudible]?

Well because Mr. Kindle was there, and if we look at ABB it’s going that direction. If we take the cash flow that is coming. You going to be net cash this year. So, can you give us an indication on the equity base there?

And what will you do with the cash? Beyond, let’s say, 200[6].

Should I take this one too?

Maybe the first one with regard to capacity utilization. Let Dinesh tell a little bit about the situation in AT.

If you look at -- I think you are coming from if we assume the growth rates we have had and if they continue do we have capacity and what’s the level of capacity utilization today? If I understand correctly. And the answer is, most of our factories. We still don’t run three shifts. That’s an option we have. If we need to. So capacity can be added without making a brand new green field or even expansion on the existing site.

The organic growth rate which we have projected for this year or the year coming, we have capacity in our plants. What we are doing though simultaneously, as we see capacity, and especially capacity is coming, growth is coming from emerging markets. So we are also combining our global sourcing and global footprint. So capacity addition, which can be done relatively at lower cost base, in emerging markets we are doing that. We have added actually a dozen factories in last two and a half years in China, India and Eastern Europe for automation products here. And now they’re doubling from one line to another line on the same particular site is not so difficult because we have the employee base. We have the supply base. We have the management. We have the quality and production control or what have you. So that’s not an issue for us. In fact we are taking advantage of growth in the emerging markets to also shift from Western -- America, or Western Europe footprint into the eastern or low cost emerging markets.

If we could also say that there’s always spare capacity available from a machinery point -- from a technical capacity point of view. It’s typically people who are the first limiting factor. So it can, in many ways, we can crank it up to two or three shifts in order to get more capacity. But with the kind of, this not really even manufacture, but with the kind of assembly, work we do at ABB, you don’t have that much investment. It is not mechanical equipment. [I mean] you have big lathes and drilling machines and all of that heavy equipment but it makes economic sense to run three shifts basically throughout the year.

Here the third shift may actually be an expensive one because you have to pay extra premium. So in the medium to long term you want to get away from that again by installing new capacity, probably in China, India, some low cost situation. But no we don’t see a dramatic need for, let’s say, increase in CapEx. We have heard a question before and we are still operating below the depreciation rate. Our budgets are typically higher than what we have at the end of the year. Our CapEx spend of the year is actually typically lower than what we had budgeted for, and it’s not because we have been incredibly CapEx-oriented. I think there is enough cash in this company, if it makes sense we should spend it. But so far we’ve been able to do without.

On your question about equity. As you say we are at 16% today. I think, from a pure ratio point of view, we would probably be happy to see equity at about 25%, would probably be a very acceptable level.

Now we have to look around us as well. And, clearly, if you see most of our competitors nowadays in the industry they have equity ratio of 40 to 50%. They have also a much higher pay out ratios because they have sometimes to [be the form] to find the right way to use the money. So we have to keep that into account as well because not saying we want to really go there but, obviously, if we are out on the M&A front competing, it’s also important to have a good balance sheet behind you to be able to do the move. But I think we’ve continued to follow a strategy to progressively build that up. Obviously the good results helped doing that, that’s what I was referring at before. Once we get there we can get a little bit more appetite to execute the M&A strategy that we explained in September.

I think we really don’t have an issue nowadays about saying where are we going to spend the cash. There is a lot of ideas that your colleagues, investment bankers, also bring up to us to complement what we have either geographically or in terms of business lines. There is enough ideas out there. The great thing is for the moment we have almost a double-digit growth on an organic base so there’s still a lot of potential for us to continue building there.

Okay. We intend to continue until 4 o’clock with our q & a. So, in the interests of time, I ask we switch back to callers and other questions over the phone.

The next question is from Mr. William Mackie, MainFirst Bank. Please go ahead sir.

A very good afternoon. Three quick questions please.

First of all, I hear what you’re saying about the historic on the new divisional basis but could you give us a sense of the operating margins or profitability in power products and power systems within the fourth quarter, given the very pleasing step-up in operating profit that you’ve shown within power technologies in that period?

Secondly, could you quantify the level of Sarbanes-Oxley costs within the corporate line and what you would expect for 2006?

And, lastly, what’s your view going into 2006 with regard to additional special, or one-off, contributions for the pension funds and what level of securitization you might aim to run at through ’06? Thank you.

Okay. Well. I can quickly take the first question because there the answer is no.

It’s really, we are trying here to really do a favor to transparency and say fine let’s at least give you certain ideas. To be honest we had a few issues with auditors about it because it’s very important for US GAAP perspectives to respect this segment reporting. We have been managing the company on the old structure until the end of the year so it is as far as we can go in terms of transparency. As of next quarter, you will get a much better picture of what is going on as far as that is concerned.

In terms of the SOX costs. Well, in 2005 the Sarbanes-Oxley costs have been in line with what we had indicated. So about $40 million. What is it going to be in 2006? In fact, we are not really going to disclose it specifically any more. We are still going to continue to spend quite some money on it but now it becomes a little bit more of a mix of on one side a compliance aspect that you need to do to get there but, at the same time, building the new internal control processes to make sure that we also complying for the long term. So we don’t really want to continue distinguish it. The fact is that when we tell you we want to be a twin on the 50 million runway corporate costs at the end of ’06 that does include whatever we can spend on Sarbanes-Oxley or on internal controls during this year. So that is the answer to the second question.

The third one was about pensions.

We're obviously monitoring the situation on pensions quite a lot. As you know it has also become also a very hot issue from a regulatory topic, especially in the US and in the UK. So it is quite important that we really evaluate our exposure there and that we do the right thing. Because, if at the end of the day, there is an obligation to fund it over a certain term, It may have some attraction to do it faster rather than later and so we are continuing to monitor the situation. It’s too early, at this stage, to say that we are going to do it or how much we are going to do it.

Right. Thank you.

[inaudible] to answer your question with the breakdown for the new divisions.

We are working to providing you with the data for the four quarters 200[4] the market before we come out with the Q1 release. So you could expect that, if the all the data is audited and everything that, come April we will release this quarterly information so that the market participants can also up-date their model and be prepared for Q1 disclosure then. We have a next caller?

The next question is from Mr. Peter Reilly, Deutsche Bank. Please go ahead sir.

Hello. It’s Peter Reilly. Two questions please.

Can you give us a bit more information on what’s happening inside oil gas and petrochemicals? It seems to be doing a fairly stable, or 50 million a year EBIT now, if you look at the quarterly trend through 2005. So where is that business going? Is it still being run very much on a steady state basis or are you looking to grow it now?

And, secondly, you’ve obviously had a big increase in your minority charge because of the success of your joint ventures in China. Can you give us some indication of how we should go about modeling that going forward?

Who wants to take the question?

The first question is, you ask about oil and gas, specifically Lummus, right, not the oil and gas sector but our oil and gas activity called Lummus?

Yes.

Then we have Samir Brikho who will try to shed some light on that.

Okay. It’s very clear. Actually, if you divide the oil and gas business into two parts, one is upstream and one is downstream, you can see today that there is some investment down around 80 to 100 billion in 2005 in the upstream business. And it was some $60 billion in the downstream business. Some remarkable numbers. They are very high. That’s very clear because of the oil prices so that’s encouraged everybody actually, both in the upstream and the downstream to do a lot of work.

Now what does that mean for Lummus? Definitely in Lummus activities we have the technology part and we have the EPC part and the technology has been a very good year for us, and we going to continue like that, and that’s reflected in the results of the 2005. And on the EPC side we have been very selective. We will continue to be selective and will see how it works.

So a good trading environment and you continue with the strategy as followed in --

Good market. Good strategy. Good portfolio and we continue. Execution.

Thank you.

As far as the minority shareholdings is concerned Peter, indeed, they increased by almost 30% this year. And this minority interest mainly come from our joint ventures in China on one side and from our subsidiary in India which we own 52%. And obviously from both markets here we are seeing a tremendous growth in the 20% in China. About 30% in India.

Just for a point of information actually, the market cap of our India subsidiary nowadays is almost $2.5 billion. We are trading at more or less 50 times earnings. So we are all very jealous of that here in Zurich.

And so clearly we do expect, as long as China and India is showing it's [this way] we do expect that the minority interest will continue developing probably a little bit faster than the rest of our businesses.

But, again, from a return on capital perspective, it is still an okay solution because we have also only half of the investments or the percentage of our investment in all these situations also.

I once made a joke to our local head of ABB India, Ravi Uppal, and said once his market cap is higher than corporate market cap, we are going to move the headquarters there. So, maybe I didn’t go too far. Did we answer your question Peter?

Yes. I was just, coming back to Lummus for a minute. You have in the past just tried to stabilize it, and obviously you’ve had the debate about whether you keep it, whether you sell it. It does sound like you’re now trying to grow it. So presumably you’re in no hurry at all to do anything structural with it?

As for Lummus let me try to be as precise as possible here. First of all it is not core business which indicates that we keep the range of options open. Having said that, there are people at Lummus under leadership of some have done a great job in turning this business around. There is a profit contributed today.

Secondly, Lummus deals with large and important customers who happen to be customers of ours as well for PT and AT. They deal with large projects which can take years to be completed. The last thing we want is to talk about divesting Lummus and divesting Lummus and because of this talk about divesting the customer is not feeling confident any more.

If at some point we exercise the option to exit their business, we want to have something of value to sell to somebody else. That means we run it with a going concern perspective, even to the extent that we would pump in money, if necessary, if there was a gap in technology or something which we needed to correct, we would invest money in order for Lummus to be a growing and profitable operation. But that doesn’t mean that it is back into core and this is going to be one additional pillar of ABB’s future. That’s not the case today.

Thank you.

You're welcome.

Okay. I think we’re going to take one last question. I see who I give the privilege to. People here in the room. As I have two questions I would have to make a choice. So therefore I give it to a caller on the phone so I don’t have to.

Okay then. The last question is from Mr. Colin Gibson, HSBC. Thank you.

Yes. Thanks very much. I don’t want to ask a negative question as the last question of the day necessarily, but I had a question regarding robotics again. Perhaps only potential bad news story in what sounds like a very good 2006.

First of all I wanted to make sure I understood Dinesh's comments earlier on regarding the size of any likely future re-structuring charge. That it would be within guidance you have given before in terms of percentage of Group revenues as a re-structuring charge.

Secondly, just so that I understand the full risk, if you like, on robotics. Clearly you have a business which not only is furthest away of any of the divisions from its margin target but is also heading into a downturn which none of the others are. Would you see an operating loss as a likely or a meaningful risk at any time in the next two years in that business?

Let me take the first part first. You mentioned actually you wanted to understand a little better the restructuring and going forward in 2006. As I said, last year we took about 1, 1.5 percentage points of the sales in restructuring to do certain things proactively, to re-structure the business in terms of global footprint and global sourcing. And that obviously had impact on the fourth quarter EBIT.

Now 2006, we believe we still have to continue the restructuring and that, as we said earlier, 50 to 70 basis points on the Group level. If it is a little more than that we will do it. Because rather than waiting for fixing this business we will do it whatever is necessary so that we are well established when the market comes back or actually to grow the service business which is where we are putting a lot of focus.

Secondly, we are putting a lot of focus on general industry, which is generally faster growing and higher margin business. When I say general industry, that is non-automotive industry, where robotic applications are starting to grow and there is a lot more potential.

And so those are the two areas where we plan to go. The service as well as general industry while we re-structure and get ourselves lean and mean in automotive business.

Let me add a few words here. I remember a telephone call I once had in one of the quarterly announcements. I think it was last year in summer or the first quarter. And somebody asked me, can you exclude an operating loss? And I made a mistake of not saying yes. With the consequence that the person who asked me on this and others who were listening, said, well even an operating loss is possible. And some real devastating assessments came out. This is possible, that is possible, and people feeling very nervous about the situation. You have a reason to feel very nervous about the situation here in robotics? No.

We don’t want to make this a guidance exercise here. If you ask the question about the situation going into an operating loss. We talk about an EBIT which was disclosed of, how much? But in absolute numbers it was how much? 91. So, just keep that in mind.

We had, in transformers, we took a hit of 120 million but transformers is a business with 60 plants. And we haven’t took a hit of 120 million in this year. I mean robotics doesn’t even have 60 plants. I don’t know how many plants, 5. Okay. 5 plants. So really the sky would have to fall down to really see a possibility of something like that to happen. Or a major screw up with a customer. Or something completely unforeseen and unbudgeted. Okay. I don’t want to go any further but I am trying to indicate that is not reasonable.

And just to remind you as well, when we presented the strategy back in September we actually pointed out that business as being maybe the only one that was a little bit hockey stick. Waiting for two difficult years to go and say we are going to take that time to do our homework so that we are ready for the next upturn. So for us there’s absolutely no way or panic. It is happening exactly like we expected. And I would say we are on path for the restructuring that we were planning to do.

That’s a great answer. Thank you.

Okay. Are we all set? Well then, that was the last question. Did we answer your question?

Yes. Certainly.

Okay. Thank you very much. Then let me close this event today.

Thank you all very much for having joined us this afternoon. Having shown the interest in ABB.

Hopefully you will conclude the same as we have that we really have started a new year of profitable growth and we are looking forward to proving that to you, hopefully. The next time we meet each other or talk to each other, at the first quarter announcement in April. Thank you very much and have a nice day.

Ladies and gentlemen. The conference call is now over. You may disconnect your telephone. Thank you for calling. Goodbye.