Abb Ltd (ABB) 2008 Q3 法說會逐字稿

Good afternoon. This is the Chorus Call conference operator. Welcome to the ABB 2008 third quarter results Analyst and Investors conference call, hosted by ABB's new CEO, Mr. Joe Hogan.

As a reminder, all participants are in a listen-only mode, and the conference is being recorded. (Operator instructions)

At this time I would like to turn the conference over to Mr. Joe Hogan of ABB. Please go ahead, sir.

Good afternoon, or good morning. I just want to thank you for joining our conference call for the third quarter 2008 results. Michel Demare, our Chief Financial Officer, is here with me today, too. As usual, my comments in this call refer to the presentation which you can download from our website at www.abb.com.

So, if you refer to Chart 2, you'll see our safe harbor text regarding forward-looking statements that may be made today.

This Chart 3 gives you an overview of our Q3 performance. Our solid revenue, earnings and cash flow growth in the third quarter demonstrate an ability to successfully execute across all of our businesses.

Demand remained positive in most markets, and we continue to benefit from long-term trends, to expand and upgrade power infrastructure, improve industrial productivity, and lower environmental impact.

We reported double digit revenue and EBIT growth in four out of our five divisions, led by Power Products and Automation Products, with the U.S. and Asia leading the growth. We increased EBIT despite a $100 million negative impact from hedge accounting, or the equivalent of 1.1%. On that basis, our true operating margin was 15.8%. And we converted more earnings to the bottom line, and generated in excess of $1 billion in cash from operations. As a result, our balance sheet remains rock-solid.

We closed our acquisition of Kuhlman Electric, a U.S. transformer manufacturer, ahead of schedule, and the integration is on target.

Chart 4 gives you an overview of key figures in the quarter. Orders were basically flat in the quarter. We reported revenues of $8.7 billion, up 22%, versus Q3 of last year, 16% higher in local currencies. EBIT amounted to $1.3 billion, an increase of 25%. Net income increased 26%, to $921 million. That translates into an EPS of $0.41 a share.

Before I get into orders a bit more, let me touch on some of the highlights of our divisional performance in the quarter.

For Power Products, on Chart 5, the story is the continued very strong market demand, and the excellent execution of the order backlog to generate 20% local currency revenue growth, and almost $0.5 billion in cash flow. Their earnings were negatively impacted by the valuation of foreign exchange and commodity hedging activities in the quarter, which reduced our margin by about 1.5 percentage points.

Chart 6 is an update on the Kuhlman acquisition. We closed the deal in the third quarter, and the integration is on track. Demand for the Kuhlman product portfolio is strong, and we booked approximately $30 million in orders and revenues from Kuhlman in our Q3 results.

Let's look at Power Systems in Chart 7. Orders are down by a third, despite good growth in Asia and the Americas. This is the fourth consecutive quarter where Power Systems had either single digit or negative order growth. The other point to note for Power Systems is the EBIT margin, which, as in Power Products, is hit by hedge accounting -- about a 1 percentage point negative impact. Adjusted for that impact, the margin is closer to the levels we said we expected to see in the second half of this year.

It was another good performance for Automation Products in Q3, as shown in Chart 8. Orders were strongly higher in every region except Europe. Europe is AP's largest exposure to the construction industry, which remained weak. Their 12 percentage point local currency revenue growth reflects the successful execution of the order backlog. More than $500 million in cash from operations during the quarter is another very positive result from the business.

Chart 9 shows you Process Automation. It was a mixed bag on orders, with marine, turbocharging, and after-sales service growing, but largely offset by lower large orders in oil, gas and metals.

Revenues grew at a record pace in the quarter, up 20% in local currencies, thanks to good execution of the backlog, as well as higher product and services sales. The margin continued to increase, reflecting the ongoing improvements in project execution.

Finally, we have Robotics on Chart 10. We achieved modest growth in orders, despite very weak automotive markets around the world. That reflects our successful efforts to diversify our customer base into general industry applications. Also, Asian orders again grew strongly, as we continued to build our presence in that dynamic market. That helped to offset weaker markets in Europe and North America. Revenue and EBIT developed on target, as new products and operational improvements paid off.

It is clear that everyone is wondering about the impact of the recent events on the global financial market overall, and the third quarter was the first quarter out of the last 11 where we failed to post a double digit increase in orders. Orders were up 7% in dollar terms, but 1% in local currencies. We saw some further weakening in our short cycle businesses in Q3 related mainly to construction.

In the U.S., for example, we saw further declines in orders for some construction-related distribution transformers. Orders for Automation Products used in building ventilation and heating systems in the U.S. also decreased slightly. Now, both Power Products and Automation Products could make up for those decreases, with higher orders than most other businesses in the U.S. market.

In Europe, orders for wiring accessories in the construction industry were significantly lower in the U.K. and Ireland, and lower in Germany, Switzerland, and also Austria. Again, however, we were able to make up for that decrease with stronger orders for drives and other energy saving products. And as you can see on the Chart, total orders for the Products divisions grew at double digit pace.

Orders in our Systems business were down overall due to lower volume of large order closes. Part of this decrease can be attributed to a challenging comparison with a strong quarter last year. However, as I said earlier, this is the fourth consecutive quarter where Power Systems had either single digit or negative order growth. We still have the largest tender backlog in the history of this business, but with the current economic crisis, we think that many customers will have to confirm their financing requirements before moving forward with these large projects.

Chart 12 shows you the geographic split for orders received in the third quarter. Again, excellent growth in the Americas, up a third in local currencies. We grew our orders at a healthy rate in the U.S. despite the tougher economic environment that has emerged there in the recent quarters. That was mainly thanks to a sharp order increase in both Power divisions, confirming that utilities continue to invest in upgrading their grids. Orders also increased in Automation Products and Process Automation in the U.S.

The 20% growth we saw in Asia was mainly on the Automation side, with Automation orders up 30% in local currencies.

I've already talked about order developments, large order developments in Europe. There was also a similar picture in the Middle East, where strong growth in two product divisions couldn't offset lower large orders mainly in oil and gas and the minerals business.

Chart 13 goes into the large order development in a bit more detail. The Q3 order book contained the lowest share of large orders we've had in more than two years, just 11%. A year ago, this was 17%. However, you can also see how our Power Systems tender backlog has developed since the end of 2006, which is why we remain cautiously optimistic about the market outlook. The tender backlog is at record levels, and it increased significantly in the third quarter.

Forecasting precisely when these fall into our order book remains difficult, as the decisions to proceed depend on a lot of factors such as regulatory and environmental procedures, and most recently, the financial support for these projects. Up until now, we have not seen any project cancellations or delays in Power Systems related to financing. We'll have to wait and see how the situation develops in the coming quarters, but the strong project backlog helps us to remain cautiously optimistic about the future of the Power business.

Our key balance sheet ratios are shown on Chart 14. The message here is very simple. Our strong balance sheet is a big plus in uncertain times. We have the cash to easily pay down our debt, as well as to grow the business further.

Chart 15 highlights our favorable financial position and low exposure to the current banking crisis. Our cash is conservatively invested across many different institutions and investment types. We have very little short-term debt, which is easily paid out of cash. We have strong relationships with our key banks. We have a credit facility and bond-holding lines in place.

In Chart 16, we see evidence of strong execution in the third quarter. We demonstrated outstanding cash flow in the quarter, and despite concerns about the availability of financing in some of our end markets, the ability of our customers to pay has not decreased.

When we updated our strategy last September, we again highlighted the attractive ROCE, and we can achieve -- we often achieve in these businesses. Chart 17 shows how we continue to move ROCE higher, again, driven mainly by the relatively small investments in fixed assets needed to generate double digit earnings growth.

When it comes to the impact of the current market turmoil on our business, as we've already seen in recent quarters, our short cycle businesses, such as construction and consumer related sectors remain under pressure. That impacts primarily Automation Products and Robotics. We're also seeing some smaller industrial customers who are being squeezed by high input costs and concerns about financing. That has resulted in some delays in taking decisions under capital expenditure programs.

As always, the visibility on the timing of large projects awards is low, and the additional uncertainty created by recent market events only makes that more difficult. On the positive side, we've seen that our diverse end markets and regional scope have provided us with some buffer against volatile economic conditions. Strength in North America in Q3 and continued growth in emerging markets helped to offset weaker order growth in Europe, and also in the Middle East. Demand for power equipment remains robust in every region.

And on the Automation side, orders for energy efficient equipment such as motors and drives continues to grow. And lastly, our balance sheet remains very strong, giving the operating businesses a firm foundation.

Chart 19 shows our exposure to different parts of the cycle. About two thirds of our portfolio serves either the power utility or process industry markets, where demand is driven primarily by longer term trends such as emerging market growth, and the need to refurbish and upgrade power infrastructure also in the mature markets. Nevertheless, shorter cycle markets are feeling some recessionary pressure. It's too early to say exactly how this will affect our later cycle businesses, but we can say with confidence that they are well positioned to handle tougher markets.

Looking at Chart 20, we have a $27 billion order backlog that will support revenue growth in 2009 and beyond. Our cost base continues to improve through measures such as low cost sourcing, footprint migration, G&A, controlling One Simple ABB, will drive further growth in our services business, taking advantage of the huge opportunities in our market leading installed base.

We will continue to support our R&D investments to make sure that we can build our technology lead and be competitive, and take the competitive advantage that we have in this area.

Let me wrap up in Chart 21 with a summary of our Q3 results. This is the strongest third quarter in the history of the Company. It was a great operational performance, with revenue, EBIT and cash flow all strongly higher. We continued to improve our cost competitiveness through measures like our footprint migration, low cost sourcing, and One Simple ABB.

Our Services businesses grew well in the quarter, which is a trend I want to see continue. Our order intake was impacted by a lack of large orders, and the continued weakness in the construction sector, but showed continued strength in the Product divisions. We have the balance sheet, global diversity, and further cost potentials to make us competent in our ability to deal with whatever challenges the future might bring. With our strong third quarter performance, we're on target to meet our full year growth guidance.

With that, I'd like to thank you for your attention, and open the line to any questions.

Excuse me. This is the Chorus Call conference operator. We will now begin the question and answer session. (Operator instructions)

The first question is from Mr. Andreas Willi, JPMorgan. Please go ahead, sir.

Good afternoon, gentlemen. Andreas Willi from JPMorgan in London. Two questions please. First one on, kind of how trends developed during the quarter. Michel, you were still reasonably optimistic when you spoke to the market in earlier September. How bad was September, really, for order intake? Maybe you could give us how base orders developed in July, August and September year-on-year, to give us a better feel for these trends.

Maybe I ask the second question --

You had two questions, yes?

Yes. The second question, maybe more for Joe. What is your main priority until year-end? Where are you going to focus your time on?

I'll let Michel take the first question.

Okay, well, overall what I would say, Andreas, is that -- indeed, since the last time I addressed the market, it was very early September. If I take it overall it turns out that the pattern for the quarter was pretty strong month of July, ended up to be a pretty weak month of August, and quite a good month of September, actually.

But clearly, there was a little bit of a weak point in August, which I didn't know yet at this stage, but anyway, even if I had known, it happens in the summer months, because usually it is always a quarter where most of it is done in September, if September is a normal month.

So you haven't seen a sudden drop in base orders in September?

No, actually, you could even pick some geographies where September was really excellent -- for instance, in the U.S.

Andreas, on my end -- you know, obviously, I've been here for about 50 days now, and my focus has been, you come to speed on the leadership team here, on the product lines. I've been visiting various customers and our field sales forces out there, get a feel for the Company.

From a prioritization standpoint, obviously the current situation with the lack of orders growth, and the slow orders growth, a lot of focus right now on operations, to make sure that we understand our costs. Michel and me, we have a lot of focus in that area, from a transparency standpoint. Understanding where to align resources where we think there can be strong growth.

So there's a combination of -- Andreas, it's one, it's like any person joining a new company at this level, of trying to understand the business as much as possible and be exposed to it. But given the economic situation right now, a lot of attention to operations to make sure that we position ourselves properly as we close out 2008 and move into 2009.

Have you -- are in the process of revisiting the CapEx plan you have yourself? I mean, it's a pretty big CapEx increase plans for this year.

Yes, I think, Andreas, when you look -- what I was really surprised as I came into ABB, $1.2 billion of CapEx for a business this size is not necessarily very large. You can see that reflected in the ROCE measurements we have. This Company, I think, utilizes cash very well.

I like the way the cash has been applied. This footprint, and making sure that we have a strong global footprint, is done really well. Some of the margin improvements that you've seen in ABB has come significantly through those kinds of activities.

So we'll start raising, as we move into 2009, we will look at our cash, and make sure our cash expenditures are on line. But I want to make sure we continue this aggressive move overseas, and we continue to invest in that size of the business, because it's an opportunity for us to drive some margin in the business.

Thank you.

You're welcome.

The next question is from Mark Troman, Merrill Lynch. Please go ahead, sir.

Yes, good afternoon, gentlemen. It's Mark Troman here from Merrill Lynch.

Hi, Mark.

First question, basically on Power Products. I wonder if you could basically give an indication of how much pricing drove the organic growth. I think it was about 22% organic in orders and sales. Roughly what proportion was pricing?

And what is the outlook for the pricing trends in products, given we've had a big commodities selloff, and I guess base steel prices are lower. I would imagine electrical steel prices are up -- must be coming down to some degree. How would you think about pricing in this division? Thank you.

Mark, the first part of your question is, price is about 30% of that, and about 20% on the volume side. And I'm sorry, 70% on the volume side.

As far as commodities go, you can see what's happened to copper. Prices have come down pretty significantly. But when you look at our Transformer division as part of the Power Products side, it's predominantly electrical steel when you look at the material content. And even though steel is -- looks like the capacity is going to loosen up, from what I've seen so far is, electrical steel pricing is still staying very high, and the capacity is somewhat limited.

Now, I'm not saying that's not going to change, but there is a limited amount of electrical steel in the marketplace, and a limited amount of capacity to expand now, and that probably will continue into -- at least into the near future.

Okay, and if that electrical steel were to drop, would you be obliged to pass on price reductions, or is it just a function of the supply and demand within the T&D market itself?

Mark, my position will be -- is, one, remember, we've pretty much hedged against those prices in the sense of how we move forward. So any kind of a rapid commodity drop doesn't mean we necessarily have to move in that way. There's still a lot of capacity constraints in that specific market, in the transformer market.

So as always, we'll be sensitive to the marketplace, but when I look at it right now, we'll still have capacity constraints and some positioning that we have to just make sure that we aren't.

So again, it's very difficult to say, because we have to see how the demand piece of this works. Right now, for the majority part of our Transformer business, we're still at capacity, as we talk to you today.

Delivery times --

Yes, and very long delivery times.

And just one final one, on Power Systems. I think you put a little slide in there showing tender levels, etc. Could you just provide a little bit more color on that, and is there any sort of one-off, like the [400 million] that we saw in Q3. Do we have any big hurdles like that in Q4 which might upset the year-on-year comparison? Thank you.

Well, I would say that the Q4 last year was not exactly a great quarter for PS, actually. All of those were down at that time, but there were a few large orders in the quarter. I remember, for instance, one in Qatar of [200-something]. So clearly, the comparison -- it may be a bit easier than it has been the last quarters, but I think what we're really trying to emphasize here is to say, on one side, the level of activity remains very high, because our tender backlog has never been as high as it is now. It's not that these potential projects are disappearing and there's a lot of new ones coming on board.

But the fact is that now, and I have reported it to you at least since two or three quarters, it kept kind of dragging to get decisions made, and I think that now, with the financial crisis that started developing during the summer, we see it even more.

So the backlog of tender is a historical high. There is there a few very large projects that would normally have been awarded already, and so we still hope that we can grab a few during Q4. But we have to see how the total liquidity situation in the market will evolve in the coming weeks.

Okay, thank you very much.

The next question is from James Stettler, Dresdner Bank. Please go ahead, sir.

Yes, good afternoon, gentlemen.

Good afternoon.

Two questions. On the Power side obviously, very good order growth in Power in the U.S. Is there a sort of change in behavior on the utility side? Could you maybe talk a bit about that?

The second point, if we do start to see a slowdown, say in Automation Products, how are you positioned versus the last recession? I mean, operational leverage has obviously been great on the way up. What's it going to be like on the way down?

Your first question, as far as utility and change of behavior in the United States is -- remember, my -- obviously, my tenure here is relatively short, but I can tell you from what I've seen so far, there's a lot of pressure on distribution and transmission in the United States from an energy standpoint -- looking to save energy, they're looking to expand capacity in those particular areas. And so, some of the orders, like -- we had a large FAC order, which is a flexible AC transmission type of technology we have here at ABB, and we had recorded that in the third quarter. And that specifically is, how do you save energy through a transmission line, is what that technology is geared to.

And so, in that sense, I think that's a change of behavior, in being so energy conscious and so grid conscious, in that sense. But I don't have much of a database to tell you how different that was to maybe five years ago or six years ago.

As far as -- I think you're commenting was price up and price down, in the sense of how we leverage our systems is, Automation Products has a very diverse portfolio, everywhere from (inaudible) devices to windmill generators. And on those different scales, you're going to have different degrees of price sensitivity.

I continue to think that wind power, and those kinds of green power, will be in demand, over -- even a very difficult economic cycle, and our position there should allow us to continue to grow.

As far as anything close to the construction market plays, we're seeing a lot of pressure right now. We think there will be enhanced competition. I just think we're going to have to play this specifically by segment and by geography and be very smart about it.

And James, I think as well, if you analyze a bit, whole what's our Automation portfolio in the last crisis, I think it was only one of our portfolios, that was the least diversified out of Europe, which was really very much Europe-focused. When we started this global footprint program, I will say that [part of the intents of work] has changed, it is the business that has changed the most, because it was starting from the lowest base. So it is clearly a much better, diversified footprint today, which means also more flexible costs in coming out of there, too.

And if you look at the other side of the portfolio, the Process Automation part, I think a big difference, too, is that this time, we enter a more difficult time with a very strong portfolio of projects that we are working on. It's no more it is a portfolio is a number of disaster projects that you have to deal with, which in tough times, is even worse. This time we have really cleaned up. The risk management has been, as you know, quite strict. And obviously, the intention is to stay like this as well.

So these are also two major changes compared to the last crisis.

A quick follow-on there. You have 58% of revenues in Europe in Automation Products. How much of your cost base is still in Europe?

The most -- Tom's global footprint this quarter will be about 35%. So in other words, about 35% of Tom's sourcing and his production is going to be in low cost countries, and 65% will be in high cost countries. Does that answer your question, James?

Yes, and we're just predominantly Europe, because we don't have so much --

In the United States --

-- footprint in the United States, yes?

As Michel indicated, that's improved from about a 19% to 20% low cost country footprint just as little as three years ago.

And again, it is diversifying that pretty fast. If you look at the performance of Automation Products this quarter, you see some rates of increase like 88% in India, 57% in South America, a good performance in China as well, in the mid-teens. So you see there is really a pretty good diversification that we're trying to achieve there.

Okay, thanks a lot.

Thank you, James.

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

Good afternoon. It's William Mackie from MainFirst Bank in London.

Hi, William.

Hi. First, could you discuss a little bit the visibility provided by the order backlog that you have today, that $27 billion, what proportion you would expect to be worked through in the next 12 months, and what proportion then extends beyond that? And a follow-on to the order book. I hear you said that you're not currently seeing any cancellations or delays, but in the event that it is more difficult to raise finance, would you expect that it takes longer to work through some of the orders that you're currently working through, just because of staged payments and execution issues?

Well, you know, first of all, from the standpoint of that $27 billion backlog, about 70% of that will be actionable within 2009. So we normally, when you look historically at ABB, as we enter the year, we normally have 55% or 60% of the year-coming sales in the backlog. And so this would pretty much put us in that kind of a range, based on what we're looking at right now.

Regarding the rest of your question, we've -- Michel and I have been working pretty diligently over the last 30 days, trying to figure out historically what ABB has seen in times like this. And one thing I want to tell you is, it's -- we've -- this business has never seen a broad number of cancellations, even in a broad downturn. So not having any cancellations so far, it's right in line with historical parts that we have learned about.

As far as how much of that backlog might be delayed from financing and those kinds of things, it's really a guess at this point. We don't know, since we haven't had anything like that happen in the recent past that we could ratio from, or anything that's happened in the last quarter that would give us some kind of a benchmark. It would be just a pure guess for, I think, Michel or me to try to make an estimate of that at this point.

And let's not -- still not forget always that this backlog is also supported by $2.3 billion of customer advances, so that is also applied to have a firm guarantee. And a lot of these projects that we work on, especially in the T&D area, also very often linked with [water] projects like power generation. And once the capital is already on the ground, it's more expensive for the customers to stop the projects and just pursue it at the base that was initially programmed.

Thank you. Then one thought -- question, my second question relates to how you're prioritizing the capital allocation as you come into the end of this year and into next year, with liquidity being at the top of your mind, where does M&A fall, Joe, in the list of your priorities?

You can almost answer it for me, William. Right now, my priorities, from an operational standpoint, is to make sure we maintain good, strong cash flow, and get the business from a cost standpoint and a revenue standpoint as well positioned for 2009.

In organic acquisitions, we'll have a few, relatively small ones that we've been working on, will come to fruition probably in the fourth quarter or in the first quarter. But these are relatively small.

And so, we -- from a Joe Hogan standpoint, from an EC standpoint here -- Executive Committee standpoint here at ABB, or even the Board -- major acquisitions are not a priority right now. The priority is to make sure this business continues to operate and execute well, and we get through this time of volatility, and we have some sense of where the market is going.

Yes. And on top of that, we are happy now to have the balance sheet we have to start in these more difficult times, and cash is king at this stage. And we will even be more conservative for the moment, with the kind of potential leverages that we would be willing to consider for our balance sheet. So we have to keep all that in mind as well.

Thank you.

You're welcome.

The next question is from Mr. Julian Beer, SEB Enskilda. Please go ahead, sir.

Yes, Joe and Michel, hi, it's Julian Beer from SEB Enskilda, okay?

Hello, Julian.

Hi. A couple of questions on capital conservation issue, and apologies if you covered this earlier in the presentation, which I missed the initial part. Share buybacks, I think you've still got something like CHF 1.5 billion of unused buyback approval to go. Do you intend to use it?

And then, regarding the issue of CapEx, I can imagine that you're fine tuning plans for next year now. Do you see any need for a more restrained approach than in 2008?

Yes, I'll take the CapEx question. Our major reviews, from a divisional standpoint, is we project what our operational goals are for 2009 are coming up at the -- in the next few weeks.

From a CapEx standpoint, we -- I have to understand what capacity utilization is right now. Again, as I mentioned in the earlier question on the call, is -- the one -- the footprint that we're trying to move overseas and to develop into low cost countries, to help to diversify our manufacturing base, more and more is extremely important to us.

So that, in combination with capacity needs, are the two driving factors around our CapEx budget, and I'll have a better feel for that in the next few weeks. But right now, given the relatively low level of CapEx spend, for ABB being close to $1.2 billion, $1.3 billion, I don't think that's excessive. And I -- if anything, I guess that our CapEx spend for '09 will be in that range.

On the stock buyback, Michel is the expert, and I'll turn that question over to him.

Well, Julian, so far we have spent $650 million on the stock buyback, over [2 billion] authorized program, and as you know, we have until the AGM of 2010 to execute. And I would say, in this stage, first of all, that we usually don't comment on our actions ahead, since it is market-sensitive. As an issue connected with the comments we made before, obviously, keeping a solid balance sheet for the moment is priority number one, and then we look at our priorities between the small acquisitions that Joe talked about, CapEx, which has always been the best return that we can get on our investments. Stock buyback will be part of that, too, and we'll assess a little bit the situation once the market comes back to a more normal pace, and the volatility we are seeing at this stage.

Okay, that's great. Joe, can I just ask you, will you be communicating your CapEx plans at the time of the Q4 report?

I don't know what the tradition is here at ABB, honestly, Julian. I'll let Michel --

Usually, we -- I have given always an indication, either as a percent of depreciation or an absolute amount. Like this year, the guidance was, it would be above $1.1 billion, and so it is probably something by Q4, we can give you an estimate. But I think so far, what Joe said, I would be surprised if we have a huge deviation from that number.

Okay, thanks a lot.

The next question is from Colin Gibson, HSBC. Please go ahead, sir.

Hi. It's Colin Gibson from HSBC. Commenting on 2002, Jeff Immelt said it was a tough year to be a rookie CEO, but also a good year to be a rookie CEO, so this one is very much for Joe.

As you look ahead to 2009, which -- I don't want to sound pessimistic, but could be, for you, a little bit like 2002 was for Jeff at GE. What do you see as the freedom of movement that you have? What are the levers you think you can pull? And do I take it, as read, that one of the things you'll be doing between now and Christmas is drawing up restructuring plans for a rainy day?

You know, Colin, to be thoughtful on the answer here is, you know, I wouldn't compare the situation that we see with ABB anything like GE experienced in 2001. This is a business that's very focused. This is an infrastructure business. It's a very long cycle business, across the entire organization, for the most part.

And so, we have a chance here, in the sense of our order backlog and our position across different geographies, to be able to make the right decisions, in the sense of being able to understand 2009 in more detail, and get our operations in line to make sure that as we execute on this backlog, but at the same time, that we align our costs with what we see in the future. And the long cycle business gives you that opportunity, which is great.

You know, the rest of your question is, as I look at the entire business, is, this is one where we're going to fine tune our operating plans for our divisions, as I mentioned, over the next three or so weeks. Each one of these divisions is extremely different, in the sense of the markets, and the diversity of the portfolio across different geographies. And so, we'll have different solutions for different areas.

But overall, when you ask me, what are the cards -- I think what you're asking me what we'll play, is, one, we'll play the services card very hard. Is -- this business has a really good installed base. Over the last 18 months, I think, as I come up to speed, there has been some very good work done here in Services, of hiring good, strong services leaders, understanding how services will be different in each one of these divisions, and putting together strategies and plans, and I think, very capable individuals to drive that. And even understanding the continuum of services, all the way from maintenance at the bottom to broader in-services and multi-vendor services at the top.

So I feel good about that piece, but I think we can put more emphasis on that, and be able to drive more revenue from that end.

I've been very pleased with the global footprint work, and it's something that I learned, obviously, at General Electric Company, is how important it is to make sure that you have a good, diversified base, and to be able to source and develop in low cost countries. This has been a great effort in global footprint. We have more to go -- we have good, strong plans for that. And that's why I'm hesitant to say that we'll dramatically cut CapEx, because I feel we have to keep moving strongly in those low cost countries to diversify the space.

So, two things for sure will be a lot more focuses on Services, and driving that. Secondly will be accelerating global footprint.

And you know, Colin, one other thing here that's been terrific has been this One Simple ABB. When you look at ABB, it's not -- you'd think of it as being a corporation, but this is -- if you go back four or five years ago, this is basically a holding company with a lot of independent entities out in different regions. And the activities by the leadership team here over the last three or four years has been to bring this thing together into more of a solid corporate kind of a feel, and to push some centralization, and through that efficiency, across the entire business.

And this One Simple ABB, where we can transact through one ERP system by country, is a really good effort to do that. It's going to help to reduce our overall general and administrative costs in the field, and it's going to give us much better visibility from a standpoint of cost and profitability by customer and region.

So those three things are things that were started here that I think that I can help to accelerate, and I think we'll be able to drive some margin and some growth through those activities, too.

And if we see orders remain weak for another quarter or two, will you be looking at restructuring measures for next year, do you suppose?

Like any responsible business person would, Colin.

Thank you.

The next question is from Charlie Dove-Edwin, MF Global. Please go ahead, sir.

Hello?

Yes, hello, sorry. A quick question, really, on how you see the development of your margins across your various divisions, given what you see the outlook as in terms of how will volumes affect the margins, and by how much do you see them possibly coming down, or will they remain flat?

Well, you know, it's obviously looking a bit at the crystal ball. The only thing I can comment is that for the moment, if you look still at the dropdown margins, the incremental margins of all Product businesses, it is clear that we are -- they have not slowed down. We still have, on an adjusted basis, incremental margins of more than 25%, more (inaudible) in Power and Automation. There is no indication at this stage that these businesses are slowing down, as you've seen from the results. Obviously, in the System side, it is much more difficult to see, and we have discussed about the risks before. Depending if some projects are slowed down or not.

But I think that otherwise, we keep going, and we have these long-term objectives that we addressed last September, where we said, well, when everything goes well, we can deliver 16% for that business, and that is what we have done, actually, for a few quarters in a row now. We will also say that the (inaudible) margin is 11. We are for sure not aiming to get all the way there, but we know as well that it is the other part of the coin, though, that we have to justify over a five year period. And we'll see, I think, we are pretty well equipped to fight and to get even better than that.

Yes, and can I have a quick follow-up on, basically, the large order situation here? I'm trying to -- you said it's in the backlog, has sort of grown. Has -- are there some significant large orders in that backlog? Or there's just nothing --

Yes, there are. By nature, that's what it is.

Yes, I mean, when we talk to the backlog, we talk the total of base orders and large orders. But really, especially in a business like Power Systems, the base order back tender backlog is quite stable. So the rest is really the large orders, and the very large ones that make all the difference there. So yes, there's a number of very high projects, and still new ones coming in.

Okay, thank you.

The next question is from Martin Wilkie, Deutsche Bank. Please go ahead, sir.

Hi, good afternoon. Yes, Martin at Deutsche Bank. A couple of questions. First of all, just going back to the point on order, you kindly gave us the indexed tender backlog in Power Systems, indicating that some of that perhaps is financing that could be holding up some orders there.

If we look at the Process business, Process Automation, I would like to think that there, some orders that you may have expected to receive in Q3 are simply not going to come back -- in essence, are, for example, some of the mining companies, some of the oil and gas companies, really just taken their foot off the gas in terms of their own CapEx plans.

And the second question was just on the One Simple ABB, and the global footprint plan. I don't think you've ever actually given the numbers for what you would look to achieve in terms of basis points and margin progression. But if you could just let us know how far you are through those plans -- are we now sort of 50% the way through, or do you think -- is most of the benefit still to come, in terms of those plans?

You know, first of all, Martin, on the first part of your question, on the automation side, is -- your question is derived from a good base. I mean, when you see the deflation and commodities going on out there, and the oil prices, too, there has to be some concern about future CapEx in those areas to help to keep up with the demand. I think that's legitimate.

What we've seen so far is, what's been most hit in this business has been paper pulp, some mines, some second tier mining and materials. The metals side, the marine side, hasn't been bad so far. That's held up. I'm not saying that will continue to hold up, but that's what we've seen so far.

I really can't anticipate or project beyond that what will happen. But it's an obvious thing, that if there is going to be a significant decrease in demand, and it's consequently price for these kind of raw materials, that consequently you'll see a retraction of CapEx in that area. But we've only seen it in one or two segments so far in that area.

I think most -- and Michel would know this index better than me, but this tender index is primarily Power types of applications, but it's not necessarily --

The one we are showing is really in Power Systems, indeed. Yes. Yes. Which -- and we did it for that, because also, Power System is a business that depends much more from these larger orders. As you know, Process Automation is a mix of service, systems and products. So even if they suffer as well from the lumpiness of large orders, it is less visible than it is in Power Systems.

When it comes down to your second question, you are right, we have never really quantified the benefits of global footprint, also because it is quite difficult to really put a finger on a precise number there. But I would say that if we have set each other -- ourselves a five year target on that, we are at the end of year two, in the middle of year three. I think we are doing pretty well in terms of plan, which means a lot of actions have been taken. But obviously, there is more than half of the benefits that still have to come.

We had some tangible measures. We know we have more, for instance, more than $5 billion of procurement to lower cost countries, and obviously, share the benefits. And clearly, as we build new plants and new capacity in emerging markets, the relationship between high cost and low cost footprint changes. It's only long-term that you start getting these benefits, but they are coming in every day.

So that is really a program that I think still has a lot of potential.

When it comes down to One Simple ABB, there have been in the past a little bit more precise. I'd say that 2008 will be the first year that the program breaks even, so that the benefits more or less offsets the cost of implementing it. As of next year, we will have a bit more benefits, that I said would be still below $100 million, probably more in the range of $75 million. And as we said, by full execution, to the -- probably the end of 2010, we would be talking about cost savings of $150 million a year.

And that obviously is just on the cost savings side. We're not putting here any quantification of the benefits that this program will give us in terms of better information available, ability to take faster decisions, etc.

Thank you.

The next question is from Mrs. Christel Monot, UBS. Please go ahead, madam.

Hi, good afternoon, gentlemen. That's Christel from UBS. I have two questions, please. The first one is regarding the comment you made that the results were, in Q3, mainly driven by volume growth. Can you elaborate a bit on that, meaning that prices are starting to disappearing, and just enough to offset commodity prices, and how do you see that developing going forward, in particular with the hedging losses you had to book on commodities?

And my second question is for Michel. This morning, you said that you have to be more careful on financial guarantees you're receiving from the banks, and that you're receiving less of these, so I don't know if I understood correctly, but can you explain a bit more what you were referring to? Thank you.

Okay. Well, on your question of volume price, I'm not sure we really say that the whole demand was driven by volume. We are still kind of, one third price, two third volume. And within the price, obviously, the large majority of it is offsetting the commodity inflation, but there's still -- obviously, still a little bit of pricing power on top of that.

I don't know if you --

No, I think that's a bit -- that has changed, though, when I read the statistics over the last couple of years, when you look at the percentage of the growth that's actually price, versus just a covering of commodity increase. That has changed pretty substantially.

But as Michel indicated, the one third, two third ratio has really been held up here over the last 18 months.

Yes. And then regarding the banking situation, what I meant was that, especially on large projects, it often happens that we partner with other companies in a consortium, or just by being [core] supplier, all that we also have to deliver to a system integrated that is not the final customer. You know, for that, we need also to get guarantee from these partners that they will execute their part.

And you know, this -- it becomes difficult, when I'm asked, which banks should we accept for the next five years' guarantees, it becomes also sometimes a bit of a headache to do. So we have to become a little bit more prudent there, and hopefully stick to the right names. That's what I meant.

All right. Do you think that can have some implication on your business, and your ability to take care, to take orders going forward?

Well, let's say for us, the biggest implication would be if all banks would start -- you know, crunching down the credit facility to the point that we wouldn't be able to use bonding lines anymore. I've said many times, this is a business that requires a lot of bonding facilities.

But fortunately, I would say we have a pretty solid pool of banks that we have stuck to since the crisis that we had in 2001. So this problem, for us, is for sure not there nowadays.

So actually, you're concerning, you're not seeing any issues currently on getting funding facilities?

Not for ABB, for sure, but it is clear that some large projects are probably delayed in the decision making because people need a little bit more time to put their financing together. That is for sure.

And that could impact small companies and some of your partners, if they are not as financially strong as you guys are?

It can, for sure, but as I said before, I think we still have to see a lot of things happening from these government rescue packages. We can't really say that liquidity is back in the market nowadays. So I think it takes probably a few more weeks or months to have a real assessment of the situation.

Okay. Just maybe one follow-up question, very quickly. On the hedging losses you had in the quarter because of currency and commodities, do you think that continues going forward?

It could very well be. I think you all understand how this hedge accounting works. Obviously, the issue is that on one side, we have pretty big amounts to hedge. On the other side, it is not always possible to apply hedge accounting, and sometimes it even becomes more difficult because of the fact that some markets are not liquid enough now to go out and hedge projects for the next two or three years. So by definition, then, you don't qualify for hedge accounting.

If you see, actually, the evolution since October of, for instance, copper prices or the dollar, the copper prices really collapsed since the beginning of October, and the dollar has gone up, which is twice going against our hedging activities. So I would say, yes, I expect the volatility to continue, and that's why we think -- and internally, we do the two, we try to isolate that aspect to really be able to evaluate the real operational performance, because at the end, this hedge accounting issue is mainly an issue of timing.

At the end, it all falls together. In fact, year to date, it's more or less flat, the impact. But it's just that we have a problem that the timing between the value of the hedges and the value of the exposure is not always recognized at the same time.

Okay. Many --

Hello?

Hello?

Please go ahead, madam.

Yes. I just was saying, many thanks for your reply.

Okay. You're welcome.

Thank you.

Your next question is from Mr. [Johann Tropmei], Nordea. Please go ahead, sir.

Johann Tropmei from Nordea Markets. If I could just ask a question please on the cash flow, I guess, mainly for Michel. Could you just comment, given that you obviously had very strong cash flow from operating activities. The investing activities, there is a fairly big difference in the purchases of marketable securities, and that's compared with the same quarter last year. Has there been anything significant going on there?

Yes. What is the most significant is that we have stopped, much earlier in the year, to buy any kind of money market funds, because we didn't want to take the risk to discover after that, that there were a few derivative type of transactions that we wouldn't have liked to see there.

So I'm going to say, on all this, when you have all the cash to invest, you don't try to be a hero and get the last comma in terms of yields. You're just happy to get your capital back. So we have come back to much more traditional investments, where we basically make bank deposits, buy commercial paper, and even buy Treasury bills. And that makes a difference. So we basically generate interest income, while last year, we had a lot of money market funds that we sold, and generated then gains on the sale of these money market funds.

Sounds like a very sensible policy. And I guess, no change to the underlying cash flow profiles at all, then?

No. Not at all. And I can tell you, we spend a lot of time to try to keep this cash as safe as possible.

Thanks.

Your next question is from Simon Smith, Credit Suisse. Please go ahead, sir.

Thank you. Hi. My question was with regard to orders in the Middle East. I saw that orders came off there by about 23%. And I just wondered if you could give us some feel as to how maybe the characteristics have changed there, or whether there's any particular features, whether you're seeing clients looking at -- you know, maybe slightly longer order books, order times they would normally have, and looking to right size, or more whether it's a price issue, or whether maybe it's just that region having been so strong moderating.

I wonder if you could give us some feelers to what you're seeing there, and maybe if any of those features exist for other regions.

Yes, Simon, our Middle East business, when -- you know, I've been able to look at it here as I've started. It's a very lumpy business, because I think about 60% of it has to do with large contracts, and so you're going to see this kind of lumpiness where it goes up and down over time.

Specifically, there were some substation contracts in the Middle East that we had landed before, and didn't subsequently land, I think, this quarter, that this goes against. But I have not seen a systemic change since I've been here. Anyone that's down there that tells us that there's something that's substantially changed in that investment -- in the investment parameters down there.

Now, obviously, with oil going down close to $70 a barrel and even below -- that might change over time. But that -- I don't think that's the driver right now for a negative Middle East. I just think it really did have some very large orders in the third quarter of '07 that didn't repeat in '08, and we still have a very good tender backlog for the Middle East.

And actually, some of these larger orders last year, were not even really in the Middle East. A number were in Algeria, for instance. So you really have, even in Africa, a bigger lumpiness in terms of the larger orders that you can back from time to time.

So I think that will continue. We had a fantastic second quarter in the Middle East. Now it's [opposed] there, but still, there is, well, a pretty strong pipeline, and an economic activity that's still -- you know, it's quite different than what we hear in other areas. We just announced last week two new skyscrapers, one in Saudi, one in Dubai. So clearly, there is still a disconnect toward the economic crisis that we see here in Europe, for instance.

Thank you. Could I ask one follow-up question, with regard to utility spends for a placement in developed markets? It's really been sort of the one last area of spending, which I sort of have some faith in. And yet, I still sort of look at the -- at a very high debt spreads that you're seeing utilities facing now. And it does concern me that they may decide to actually -- you know, somewhat take an ordering holiday in some equipment, just to try and sort to bring back the lead times that they had on equipment to more normal levels. I mean, I think you've pointed out, for transformers, the exceptionally long lead times you do have for some of that equipment.

Do you see that as a risk? Or have you seen any evidence in recent discussions?

No, you know, we haven't, Simon. We haven't seen any evidence of a pullback in that sector at all. Overall, we're -- our business has been very strong. Order rates in different parts of, like in Americas, it's up 40% in that area, and the United States specifically was up 48%, Asia was up 26%.

Look, I think your caution right here is to be advised. You just -- some of these utilities are leveraged pretty high, and you -- but I think you have to stand back from that and understand, there's a huge amount of pressure on these utilities from the standpoint of energy demand, and particularly the grids underneath a lot of pressure. And that's where our business comes in, in a big way -- is that being able to relieve some of that grid pressure.

So again, as I mentioned in my -- in the initial statement is, we remain cautiously optimistic about the business, and particularly that segment. But again, we're going to know a lot more over the next few months, as we watch these orders play out, and we watch the large -- particularly the large orders play out for the system.

Great. Thank you very much.

Okay.

The next question is from Olivier Esnou, Exane. Please go ahead, sir.

Yes, good afternoon, gentlemen. The only question I would ask in regard to supply chain, you -- as a big company, you can be holding up well in this crisis, but maybe some of your suppliers are coming under pressure. I'd like to have your thoughts on the visibility you have on your supply chain, and how comfortable you are with it -- have you done any audits of it? Any thoughts on that?

You know, initially in my operating reviews here with the businesses, we've gone pretty specifically through the supply chain side. First of all, I like the activities. They're very well coordinated across the different businesses, of trying to use and consolidate, from a supplier's standpoint. We have a lot more work to do in that area, but I think ABB has made good progress there in the last two to three years in general.

We haven't seen any real pressure from a supply base standpoint, on both ends, either financial constraints that put our suppliers at jeopardy, or maybe subsequently, capacity constraints too. So that is an area that you have to pay attention to at a time like this, and we certainly will. But we haven't seen any indications of that excessive strain from a supply chain standpoint so far in this whole cycle.

And when you say you have to do some more progress about it, what do you realize, do you think you need to progress as an organization?

Well, from a supply chain standpoint, it's more low cost country sourcing, so as we move our footprint overseas, putting engineering resources in place and sourcing resources in place, to be able to drive that. And then, consolidation of suppliers. It's more and more is try to leverage the strength of this Company's buy across a smaller supplier base. So you could have -- you could put more pressure, from a supply standpoint. And that's a more area -- that's an area, a big area, that we -- I think we can make progress, and rather quickly.

Okay, thank you.

The next question is from Scott Babka, Morgan Stanley. Please go ahead, sir.

Yes, good afternoon. Scott Babka, Morgan Stanley. I just have two questions, please.

First, you talk a bit about pricing and Process Automation. As a number of projects in mining, oil and gas potentially get more limited, are you seeing, or do you anticipate to see, tougher price competition or different terms offered by competitors?

And second question, just a bit of clarification on cash generation. Typically, what level of advances is ABB capturing on these large orders? And we haven't seen cash really compressed, but if we go below book to bill of one for an extended period of time, should we be modeling in a decent compression from working capital outflows? Thanks a lot.

Scott, I'll take the first question, on the prices side, for Process Automation. Yes, before I came to ABB, I did run an automation business for GE before I ran GE Healthcare. So I'm somewhat familiar with that marketplace and how things are done.

What's surprised me here at ABB is, in our Process Automation business, this is -- as Michel indicated about 20 minutes ago, there's a significant amount of services embedded in that business. This is not just an equipment business, like a PLC business, or a distributed control business that drives that. There's a broad number of services contracts that are very complex, and that are very deep in a number of our customers and organizations.

And the military is where we have a history, a big services portfolio. I don't expect a huge amount of challenge in that sense, from an overall price standpoint.

Now, when you get into specific jobs that might have more material equipment content in the future, sure, I think you're going to have more of a competitive environment, and we're going to have to be competitive in that sense. But I like the diversity of this business. I like, in the sense of services versus just raw equipment sales, and I really like the diversity across a lot of different geographies and a lot of different industries. I think that gives it a certain amount of safety.

Now, look, all these industries could be impacted in some way, but never in the same -- to the same extent. So we're going to see differences in different geographies, and obviously, in different kinds of industries. And this business is well positioned to take advantage of that.

Yes, and with regard to your question on cash generation, it's difficult to give you an overall answer, because each country has different practices. Some countries even ban payments in advance.

But I would say, a standard term would be an advance of 10%, sometimes even 15%. You can see that from our backlog as well.

So obviously, as long as the book to bill is pretty high, these advances keep coming. It is clear that if in one day, certainly we wouldn't get new orders, there would be a usage of cash, because meanwhile, you have to execute on these orders too.

Now, all these management practices, one concept that we will have to accept as well, is that we don't run -- or we don't commit to run projects which at any point in time should be cash flow negative. So I think that you can still kind of offset, a little bit, the pressure of that.

Okay, great. Thank you very much.

The next question is from GianMarco Bonacina, Euromobiliare. Please go ahead, sir.

Yes. I have a question regarding a statement you made in the press release. You are saying basically that the customer decision on a number of investments, structured investment, has been delayed. So I was wondering if you can comment a little bit about the geography. So if the delays are higher in emerging markets, or in developed markets. Thank you.

When you look at our order rate, it's -- if you look at the order rates overall, from an emerging standpoint, order rates were up about 8%, and then the mature industries, I think were about 5 -- about down about 5%. So I think, even though I haven't looked at it specifically that way, I think you see more of a delay right now in the mature markets than you do see in the developing market.

And I think obviously too is, this whole banking crisis has affected the developed world initially more thoroughly than we've seen in the emerging markets. So that kind of a trend isn't necessarily a surprise.

Can I ask you just a follow-up? Because actually, if you are looking at the stock market, recently the emerging economies are suffering more, especially if we look at the credits, or the (inaudible) of the emerging markets that are now very, very high. So I was wondering if, not to the current quarter, but going forward, the -- you can see also the situation? So more delays in emerging markets as the credit situation seems to be tougher there, relative to developed countries? Thank you.

You know, it's hard for us to say right now. Again, we haven't necessarily seen those delays specifically by region. But again, each one of these regions has their own different macroeconomic profile, whether it's Brazil, whether it's China, whether it's India. I think each of them will hold up in different areas. I think -- you know, I'm optimistic on China. I think India -- India is a little less optimistic, but we'll see exactly how that economy goes.

We've been doing relatively well in South America and Brazilian countries, and also Eastern Europe and Middle East, so far. So I don't quite know how to answer your question. I think we're going to -- we'll obviously stay very attentive to this, but I wouldn't necessarily say that emerging has, I think, any excessive downside versus the mature economies right now.

Thank you.

Your next question is from Gerhard Moore, Societe Generale. Please go ahead, sir.

Hi, good afternoon, everyone. Thanks for taking my question. It's Gerhard Moore calling from SocGen. Just a couple of questions to clarify a few details. First of all, back in September '07, you gave a few targets such as cash conversion to be 100% for the coming period -- I think, 2011, and maybe to try to get the working capital down to 11% of sales. Would you say that despite the change in markets and environment, we've seen that that target is still valid?

The second question is really on the hedging impact. I was wondering if you could give us the impact on margins for the three Automation businesses like you did for the Power businesses.

The third question, then, is actually within Power Products division. If you could tell us, were there any charges for the Transformer business during the quarter? I don't think you mentioned anything in the press release, but if you could just clarify that.

Two more questions, if I may. One is actually on the guidance for 2008. Again, there, can you just clarify that the guidance is referring to organic growth for both orders and sales? Or have I perhaps misunderstood that?

And then the final question is really on your cost structure. If you could give us an overall idea of the split between fixed and variable costs, or if it's maybe a little bit messy to do it at the group level, perhaps just for the product divisions. Thank you.

Okay, that's a lot of questions. Okay, starting with long-term targets, and especially towards related with cash flow. Well, first of all, all the long-term targets remain valid at this stage, for sure. We have indicated, indeed, on average, over the five year period, we expect that the free cash flow, a net income conversion to free cash flow of about 100%.

Last year, if you take away the one-off items of the net income that made it exceptionally high, you know, we had deferred tax assets and capital gain on the sale of Lummus, we had a conversion of 89%. I expect something in that range as well, in the high 80s this year too, and obviously, that is as long as you have the kind of brilliant order intake that we have, requiring more CapEx than you have depreciation, it happens over five years, or it is quite possible that we will start going more towards the 100% because of the -- after awhile, the need for capacity additions may slow down, and we keep doing some good efforts on the networking capital.

Networking capital is about 12.5% of revenues nowadays. We have always targeted to bring it lower, and usually it happens towards the end of the year, where we get a very good cash collection. So I would say that one is well on target as well.

When it goes down to hedge accounting -- and maybe I give the numbers here, so that everybody is working with the same assumptions here. As we said, for the Company overall, it was an impact of more or less $100 million, which is an equivalent EBIT margin of 1.1%. More or less half of that was in the Power Product division. And so, what I give you here is basically the EBIT margin impact on each of them, so for the Power Product, the impact was 1.5%. It was 0.8% in Power Assistance, 0.6% in Automation Products, 1.2% in Process Automation, and it was actually slightly negative in Robotics.

And so, once you build it in, in fact, what you see is that three divisions -- Power Products, Automation Products, and Process Automation, have actually improved the operational performance by more than 2%, if you compare to the EBIT margin of a year ago. So that I think it gives a little bit of a different perspective.

Moving on, your third question was on guidance. Well, guidance, yes, we are talking organic growth. I mean, at this stage, organic, inorganic doesn't make a lot of difference, so you see now, since September 1, we're integrating Kuhlman in the results, and that is about $30 million a month, so that doesn't change a lot to the overall picture. So the guidance, anyway, was more thinking organically, and we confirm now that in terms of top line, we can still make these numbers.

And for the fourth one, the cost structure, that is not something that we wish to disclose.

Okay, if I can just have two follow-up questions, please. What --

No, I think -- I believe that's enough. We have to still take another question. I think you got a fair share of the questions today, right?

We will take --

Thank you. So we are going to take the last question now.

We will take one final question. It comes from [Fabrizio Catano], (inaudible). Please go ahead, sir.

Yes. I would like to come back on the credit crisis impact on your order intake, which is, for me, has not been really addressed in this conference call.

I mean, I believe you are facing an unprecedented situation. Let's face it, financial services at ABB used to be a business driver.

How is really the situation on the order level, at the same, on the small, or the large orders? After September, the financing, it must have been granted already in the second quarter. So I don't think this -- it was really perceivable in these numbers. But going forward, I understand your extremely solid balance sheet, but on your client side, what type of talk are you having with them? What kind of measures are you eventually taking? Maybe making longer delays of payment, or helping yourself as well in the financing? I mean, how critical is the situation in this front?

Go ahead, Michel.

Well, I would say at this stage, it's not critical. We are not -- as we say, we are not having people that come to us and say, listen, forget the order, I don't get the financing. It is more that we hear that they have a little bit more -- they need more time to put the financing together, to speak with banks, to get more guarantees.

On the other side, we can -- we obviously are making an effort here. We are no more a financial services company, so to your question, whether we're going to help them, no, we are not going to use our own balance sheet to finance the customers. That is not part of our business model here. On the other side, if we can help brokering a deal to help them get money from other sources, so obviously, we would be happy to use our relationships to do that.

At this stage, we hear it in the system, but we don't really have people that come to us and say, we can't go ahead because financing is not there.

Are you pooling any specific measures on the payment front, or like you said now, you are, of course, trying to bridge some banking -- bank relationships? Or have there been measures you are --

No, we are not pooling measures, because as I say, I don't think it's the right time to start lending your balance sheet to somebody else. So to the contrary, we are rather very prudent with the networking capital, try to make sure we collect on time, negotiate good payments with the suppliers.

The way (inaudible) situation of, when there is no liquidity, or there to be suddenly a supply of free liquidity that can turn up into a nightmare pretty soon. So we are quite prudent in that regard, and try to just help others as much as we can in bringing new relationships. I mean, there is money out there. It's maybe not the usual sources, but if we can help our customer to access these sources, we will. But we are not using our own balance sheet.

It won't be ours.

Okay, thank you.

Thank you.

You're welcome.

I want to thank everybody for joining, and we'll sign in with you again at the end of the fourth quarter. And thanks again, and we look forward, we're going to take several visits here in the next couple of weeks, and we look forward to meeting several of you.

Thank you.

Ladies and gentlemen, the conference is now concluded, and you may disconnect your telephones. Thank you for joining, and have a pleasant day. Goodbye.