Abb Ltd (ABB) 2009 Q2 法說會逐字稿

Good morning and good afternoon. I'm Stephanie, the Chorus Call operator for this conference. Welcome to the ABB second quarter 2009 results analysts and investor conference call hosted by Mr. Joe Hogan, CEO.

Please note that for the duration of the presentation all participants will be in listen only mode and the conference is being recorded. After the presentation there will be an opportunity to ask questions. We would kindly ask each caller to limit themselves to two questions only. For those journalists who have called in, your participation is in listen only mode. This call must not be recorded for publication or broadcast. A replay of this call will be available for two weeks following the conference. (Operator Instructions).

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

Hi, good afternoon and thanks for joining us on our call today for the second quarter 2009 results. My comments in the call refer to the presentation that you can download from our website at abb.com.

Please refer to chart two for our Safe Harbor text regarding forward looking statements that may be made today.

I'll start as usual with the overview of our Q2 performance on chart three. We're proud of our ability to hold revenues at a high level and maintain EBIT margin well within our targeted corridor. It's important to remember that Q2 last year was our best quarter ever. So we're still comparing results achieved in an extremely difficult economic environment with those at the peak of the boom.

In terms of the top line, the development was mainly as expected. Orders were down 27% in local currencies and revenues were down 2% in local currencies, or just under $8b.

Just as our Q1 benefited from three very large orders, so did our Q2 suffer from the absence of such large orders. And base orders continued their decline, falling 25% in the quarter.

Our reported EBIT and EBIT margin were clearly lower than a year ago. But if you exclude the restructuring related charges and the positive impact of mark to market accounting treatments of our foreign exchange and commodity hedging activities, the EBIT margin only deteriorated by about 1.5 percentage points. We'll discuss that in more detail later in the presentation.

Our price erosion intensified in some of our short cycle businesses. Year to date savings from our cost reduction efforts exceeded $500m and went a long way towards mitigating the impact of lower capacity utilization, mix and pricing on our margin. I'll give you more details on the savings later.

Our net income was basically in line with EBIT this quarter but also reflects the lower market rates on the Company's cash balance.

Finally, as I mentioned on our first quarter call, we expected a rebound in our cash flows throughout 2009. Our increased focus on net working capital and large project payments paid off as our cash flow recovered nicely. While it's typical for ABB's cash flow to recover in the second quarter, this was an excellent development even compared to our last year's second quarter.

Chart four gives you an overview of the key figures for the quarter. I've already discussed the main points so let's just go directly to chart five.

On chart five, you'll see the tough comps we faced this quarter. The second quarter in 2008 was an all time record for ABB when it comes to order intake. So perhaps it should not be a huge surprise for large orders to decline 35% and base orders to decline 25% this quarter.

Clearly, as we cautioned, any positives which you saw in March were not signs of a turnaround. On the other hand let's look at chart six.

In chart six you can see how our tender backlog for our Power Systems business has developed. After declining in the first quarter as a result of ABB winning several very large orders, new projects have been tendered pushing our tender backlog to an all time record level. In fact, we hope to announce the signing of a large order in the coming weeks. So this once again gives us confidence that the transmission market is remaining resilient.

A few words on chart seven regarding the divisional performance. As you can see, base orders were low across all divisions and large orders, after nearly doubling in the first quarter, declined substantially, as seen in the order declines of our two Systems divisions, Power Systems and Process Automation. However, both of these divisions as well as Power Products, all with typically longer backlogs managed to continue growing their revenue.

From an EBIT margin point of view, Power Products continued to post a margin well above 19%. And both Systems businesses rebounded from the first quarter to post margins within their targeted corridors.

Although the short cycle exposure and resulting low capacity utilization continued to weigh on Automation Products margin, the EBIT included $50m of restructuring related costs. Excluding those costs, Automation Products margin would have been above 17%.

I'll come back to Robotics in a separate slide later.

Turning to chart eight, which gives you the regional breakdown of orders, while the overall picture is negative, the regional developments were of course impacted by the lack of large orders, particularly a region like the Middle East and Africa. But we did have several areas of growth. Like in India where our Automation Products division grew strong double digits or in Mexico where we grew 250% on the back of a $140m Power Systems order. We also won a $15m Power Products order to interconnect the Brazilian grid.

So while the second quarter was difficult from an orders perspective, we still are encouraged by the future emerging market growth. And our presence in those regions will continue to be a competitive advantage for us and one that we'll take full advantage of.

As you can see from this chart, we have remained within our targeted EBIT margin -- this is chart nine -- of between 11% and 16% every quarter since the first quarter of 2007. And once again excluding non-operational impacts of the mark to market treatment of hedging transactions, as well as restructuring related costs, our underlying operating margin was 14.4%.

So let's discuss the other EBIT margin drivers. Please turn to chart 10.

Chart 10 provides you with the reconciliation of our reported EBIT margins for Q2 this year and last year. In addition to the impact of restructuring related charges, our underlying operating margin was also driven by lower capacity utilization and some price erosion in our short cycle businesses, which was similar to the first quarter.

But we also saw the impact from a higher mix of Systems revenues which typically carry comparatively low EBIT margin.

So from an underlying operational basis, you can see we were looking at an EBIT margin of 15.8% in last year's Q2 versus 14.4% in this quarter.

Moving to chart 11, we have now achieved more than $500m of savings this year from our cost take out program. So we've saved about $300m from our global sourcing initiatives and to be clear, this does not include, as we've told you before, any savings from falling commodity prices. We've kept this excluded from these calculations.

You can see then roughly how much we've saved from each of the remaining three categories and we have a separate slide on each.

On chart 12, so we have saved about $50m through various G&A reduction initiatives. These include more than 1,500 projects targeting functional savings in finance, HR and IS as well as country overheads. Progress in this area is ahead of plan.

Chart 13. When it comes to adjusting our capacity and shifting our footprint we have numerous programs initiated which on average each yield $10m of savings. In some cases, we've closed sites due to lack of demand; in other cases for competitive reasons. Closures and restructuring programs are being implemented in Europe, Scandinavia and North America. At the same time, capacity buildup is ongoing in emerging economies. And so far our global footprint initiatives have saved us about $70m this year.

On chart 14, this chart simply gives you a couple of examples of what we mean when it comes to operational excellence. We're talking about more than 1,000 projects, many of which have savings of only $1m to $2m or less. Programs to increase productivity, reduce scrap and rework, they've all added up to more than $100m in savings so far this year.

Let's move to chart 15. It should come as no surprise that the pricing environment has become increasingly challenging. Lower input costs are being passed on to customers. Short cycle businesses continue to see demand related price erosion while competitors scramble to adjust capacity. And so far pricing in the power transmission market has remained reasonable.

So for ABB it's critical that we continue to move fast with our cost take out program and mitigate the impact of this challenging price environment.

On chart 16, as I mentioned earlier, a few more words on our Robotics division. Both the automotive and general industry markets have basically collapsed, creating a massive under absorption and forcing us to take aggressive action to regain competitiveness. So we're restructuring and redesigning our products, speeding up our low cost sourcing initiatives and attacking our working capital. Obviously we want to make the business profitable again and for now we're reassessing our 2011 targets for this division.

Turning to chart 17, our cash from the operations this quarter was extremely strong in the second quarter. Our two Product divisions contributed significantly by reducing inventories and receivables, while Power Systems' cash flow is reflecting the timing of project payments. The strong cash generation from those divisions more than offset the weaker performance of our Process Automation and Robotics divisions.

Particularly in this environment, cash generation is one of our top priorities. We still have work to do and going forward we will continue our strong focus on net working capital.

Turning to chart 18, our balance sheet remains among the strongest in the sector. Our net cash position increased from $900m from the end of the first quarter to reach a level of $5.7b. That's quite a bit of cash. But keep in mind we have several uses of cash that will hit in the second half as dividends and restructuring. In addition, at some point in the future, the provisions we took during the fourth quarter of 2008 for compliance issues will turn into a cash outflow.

Finally, we will continue to maintain the maximum financial flexibility and to review the markets for bolt on acquisition candidates that meet our strategic development goals. Protecting our investment grade credit rating will remain a key priority for the Company.

To wrap up then on chart 19, the second quarter showed that our order backlog continued to support our revenues and our cost savings programs bolstered our EBIT margin. Although orders were down significantly, our order backlog actually increased $900m from the end of the first quarter and was just under $26b.

Eventually, lower orders will flow through our revenues in future quarters but for now, our revenues remain close to last year's highs. And our EBIT margin remained well within our 2011 targeted range of 11% to 16% despite being in the midst of a major global recession.

We have continued adjusting our cost base and reached more than $500m of savings so far.

As I mentioned earlier, the key to future profitability will be reaping additional cost savings to offset any pricing declines.

Finally, cash flow rebounded nicely in the second quarter on an increased focus on net working capital and the timing of project payments. We will continue our intense focus on cash flow throughout the year.

Turning to our final chart and looking ahead to the second half of 2009, we see a number of encouraging opportunities but also challenges to deal with.

On the positive side, both the power transmission and the oil and gas sectors have remained resilient. We continue winning our fair share of large mega projects and we see new projects being tendered in the marketplace. Renewable energy projects continue to be an area of growth. And of course we'll continue driving our service strategy aggressively in looking for value creating bolt-on acquisitions.

Then the challenges. The pricing environment is increasingly challenging but we will remain disciplined. We will use the competitive advantages of higher quality, dependable delivery and best technology to our benefit. Cost reductions and capacity adjustments are also a challenge. And as the impact on revenues of lower orders is yet to come, the challenge to move even faster on our cost take out program will increase.

Finally, while most of you will probably know that our second half comparisons become less challenging, please keep in mind that the markets remain relatively difficult.

Before I open the line to questions, I'd like to remind everyone that ABB's Capital Markets Day will be held here in Zurich on Friday, September 11. Invitations will go out shortly and the event will be fully webcasted for those of you that cannot make the trip.

With that, I want to thank you for your attention and Michel and I will take any questions.

We will now begin the question and answer session. (Operator Instructions). We will kindly ask each caller to limit themselves to two questions only. (Operator Instructions).

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

Good afternoon. Two questions please. The first one on your Process Automation business. Orders were down 43% and you mentioned that services were flat in the quarter. Given that services accounts for probably almost half of that division, does this indicate that there's basically very little CapEx going on, or was this just an unusually difficult quarter compared with an unusually good one year on year?

And the second question I have is on acquisitions. You mentioned in this presentation, in the slides as well, that you're looking for bolt on acquisitions. In the press call this morning and on the headlines there was also the comment that you look at large acquisitions. How do you balance the advantage of making larger acquisitions early in the cycle in terms of valuation with the risk of overloading the organization with an acquisition while it's dealing with a difficult environment?

Yes, that's a good question. I'll start with your acquisition question first and then we'll go on into the services part on PA.

On the acquisition side, I'd just say that I've been very clear I've felt since I've been here in the sense that we will consider any acquisition, either large or small. I'm not trying to market time anything. I don't think I'm smart enough, or this organization is smart enough, to understand market timing right now in this economic situation that we're in.

So basically what we do is we have a very strong growth board process. We look at potential acquisitions throughout each of the five divisions. We look at the relative capabilities of them. It is always in the back of my mind about the organization's capability to properly integrate an acquisition just based on size alone.

I think one of the great things about ABB is the way we're divisionally aligned. As an example, when we did the Comem acquisition earlier this year, which is one of the largest acquisitions that we've done so far at ABB, I watched that integration very intently because I came in just as the acquisition was consummated. This team has done a wonderful job in acquisition integration. And I compare that with my experience at General Electric Company too in the sense of the rigor and the road map of being able to drive and properly integrate an acquisition like that.

So it is in the back of my mind. I think about the balance of an organization through different economic times. But you also have to look at that versus valuations and strategic opportunities along the way.

So more than anything what I'm trying to say on acquisitions is we'll keep the door open. We won't be foolish. We'll look at valuations real specifically. And anything we do will be strategically aligned and thoughtful and in line with the cycle also.

On the Process Automation services side, I would -- firstly, I think you almost answered that question as far as I'm concerned. This is really a tough comparison. Process Automation had a huge quarter last year from an order standpoint and also a performance standpoint versus more of a challenged quarter this year. So it's -- as you can tell from the percentages, it's the most difficult comparison that we have so far.

Our overall services rates though, our Robotics business has been really challenged. Our order rates are down 60% in Robotics as you can see. But also with plants just being shut down, we've seeing our services revenue I think go down by almost 60% in that division also. That reflects the overall decline just in the use of -- not just Robotics but in the discrete Automation business.

So I would say I wouldn't take this quarter specifically for Process Automation as directional, either good or bad in that sense. We're going to have to wait to see how these other quarters lay in the rest of the year before we can give you some trend lines. Not just on that business itself, but on the services component too.

And Michel if you have any specifics that I don't on that.

No. I just wanted to maybe specify with the numbers you just gave on the Robotics service. What you referred to is the parts of the service business which is down 60%, 70%. The overall service is down about 35%, just to be accurate. But the parts, which is obviously the biggest margin driver is even more down than that.

It's just that Process Automation orders also sequentially were down almost $1b.

That's right.

Given that that business has a lot of stable service business it looked like a big decrease.

Yes, it's clear that for the moment a lot of the CapEx projects are on hold. So there's not been too much new things to be discussed. But we had also quite a quarter to compare to last year. So yes, it's the situation that we are facing for the moment and hence the measures we are taking on the cost side.

I think to be clear though, the services are flat in that business overall right now for this quarter.

In PA yes.

In PA.

Thank you.

Okay.

The next question is from Mr. Robert Schneider, Robert W. Baird. Please go ahead, sir.

Hi, it's Mike Schneider from Robert Baird.

Joe, I'm looking at the savings rate that you reported, $500m year to date. I believe there was a $150m in Q1 which implies $350m in Q2. Can you give us a sense, is that a number that we can annualize to the extent that that would imply you're at a savings run rate of $1.4b versus your $2b target? Or if that's not the correct math, I guess how can we think about what run rate you're at?

You know Mike we anticipated this question and I'll let Michel handle the detail part of it. But we were really clear in the sense that our target for this year is a clear $1b of savings for 2009. And we're actually ahead of that trend right now. Whether you can actually take that trend and annualize it, I wouldn't do that, no. We only have two quarters behind us. In that sense I wouldn't draw a line through those two data points.

But what I'm very confident of reporting is that we'll hit this $1b target for sure. I know we'll do that. Anything above and beyond that we'll have to report more specifically in the third quarter. Michel, any other --

Yes, I would agree with that Mike. You know there's always different type of savings. When you start a savings program, there are a few low hanging fruits like cutting on travelling expense, cutting on meetings and all that that produce quick results. And then after a while you have to replace them with more sustainable cost savings initiatives.

So it's not really a flat development quarter by quarter. We are very happy. But it can be as well that some low hanging fruits have kicked in faster than others. So I think the $1b savings that Joe just mentioned is a very reasonable target for the year. And I think given the good start we have I'm quite confident that we can deliver that.

Okay and then just one specific on the footprint savings of $70m. Can you give us a sense of what percentage of square footage you intend to take out or have taken out thus far?

That's the first time we get that question. To be honest we are not measuring it in that regard. We really look site by site and engineering center by engineering center. So I would be unable to give you this information.

Okay.

You know Mike I'd say if we had an automotive plant or another like a process facility, I think that square footage would some way be important. But as Michel said, we look at this thing whether it's a relay plant somewhere or a transformer plant or whatever and it's not -- it's overall capability by region and by area. So we don't have that and really don't pay any attention to it.

Okay, thank you.

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

Thank you. Good afternoon Joe and Michel. It's Mark here from Merrill Lynch. Yes, just two questions please. Firstly, obviously your comments on pricing I'm sure are going to get a lot of attention. But could you give us a bit more detail on where you see the weakness? I guess Automation Products there must be some areas there which are pretty weak and destocking pretty hard. And what's going on in the Power Products as well? That would be helpful.

And the second question, one big theme coming out of Q2 results generally is destocking. And it looks as though with the exception maybe of Process Automation, you're decreasing inventory in particularly the Product divisions. Can you comment on where you see inventory levels? Is there a lot more to come? Where are we in that destocking process? Thank you.

Shall I do pricing? You want to do destocking?

Which one do you want to do?

Pricing.

Thanks.

I think I'll give it a shot at destocking too. You know Mark first of all on the pricing side this is a business that spans a lot of geographies and a lot of different business units and markets. So I'd just have to give you some anecdotal kind of information and you can try to weave that together to get some kind of idea of what's going on.

Sure.

First of all, just to move away from Automation Products for a second and talk about Power Products. If you look at something in the United States like distribution transformers, that market collapsed with the housing collapse and now with the commercial real estate challenges too. We're seeing severe price erosion in that marketplace for distribution transformers. We haven't necessarily followed it down. We've restructured very aggressively in our distribution transformer business in the United States to bring our costs in line.

And at the same time, when you look at our transformer business, we've been able to maintain margins there because we've basically replaced that with other kinds of transformer businesses in different parts of the world and also moving broadly from fewer distribution transformer types of businesses more to the power transmission kind of transformer side. And we're able to fill that gap.

So rather than just participating in that and driving prices down in a big way, we've restructured and we've taken advantage of our portfolio in that particular area to help to balance it.

As far as Automation Products, when you go to Europe, what you'll find in areas where you'd think like wiring devices and low voltage devices like breakers or whatever, the pricing has held pretty well there even though the volumes have been down. And we've seen a lot of discipline in the marketplace and we're going to continue to be very disciplined on our end and make sure that that doesn't happen in some way.

So and that's just two examples of what we've seen. But we -- Michel and I when we put these comments together are very specific. We know the longer this economic downturn goes on the more pricing pressure we're going to have around the world. And we're just calling your attention to that. And at the same time we also emphasize that internally with our teams is how important this cost out effort is so we can maintain our margins even if we start to see more aggressive pricing flow through to our income statement.

And Michel, I hope that bought you enough time for destocking.

I need time until tomorrow I think for that one.

Let's say that my comment on that is it's always very difficult to talk about destocking because the channels can be so different depending where you are. But what I find interesting if you look a little bit, for instance, in Automation Products and if you look at the different business units that we have there, strangely enough now the units that are suffering the least, are still suffering but less than others, are the ones for instance related to construction, which as you know have come down the hill since many quarters already. So units like wiring accessories, for instance, is doing today much better than the plain industrial motors or drives, for instance, where we really get quite a hit in terms of volumes.

So that is probably where now -- I don't know if it is destocking because I am not sure that people stock a lot of motors and drives. But for sure that's where we see the most impact from the fact that people hold on, on CapEx for the moment and kind of delay the decisions until they have a clear view of the future.

Let me just follow up. Would you expect -- I guess is your plan for further inventory reduction this year in areas where we've already seen it, or how does it work?

Mark, I think we might have misinterpreted your question. You're looking at our destocking of our current inventory also as part of your question?

Yes, absolutely. Both.

I'm sorry. I had understood you were talking about our customers, Mark. That's why I was giving you --

(Multiple Speakers).

Both are important I guess, but yes.

Well within our business, what you have in inventory is obviously a different type. We have work in process there which is always a very important item because still the backlog is quite big both in Power Systems and in Process Automation. So you have a lot of work in process there.

You have a bit too much finished goods because we have as well a clear slowdown that our customers are not too in a hurry nowadays to come and take delivery of their goods or making, for instance, factory acceptance test if you talk about transformers. So there is a little bit of a pressure on that. We have some specific programs in place. But clearly there are some execution delays which impact both inventories as well as receivables, where you can have some project accounting impacts too.

Okay. Alright, thanks very much.

Sorry I misunderstood your question here.

Mark, I know we're about as clear as mud on this one. But this is one --

Thank you.

This is one we look internally. As Michel said we're really challenged on the finished goods side at times and as we reduce our capacity and our capability too, we adjust accordingly. I often assume that destocking questions are associated with distribution.

Yes.

And there's so little of our business really is a pure distribution business.

(inaudible) and Automation Products as well.

It's hard to see that sign waved through our organization in that sense too because we're not necessarily a distributor driven business in that sense.

Okay, thanks very much.

You're welcome.

The next question is from Mr. Julian Mitchell, Nomura. Please go ahead, sir.

Yes, thanks. My first question was really on the change in EBIT you're seeing in that sense that in the first half of the year, if we exclude currency effects, your revenues were roughly flat year on year. But your EBIT fell by about $800m. And it seems you're isolating I think four different factors behind that. One is price. One is the mix within the two Product divisions. The third point is the mix of Systems versus Product and the fourth seems to be capacity utilization. So I just wondered if you could talk about how those four factors weight in terms of the change in EBIT you saw year on year in the first half and how you see those factors moving as we go through into the second half.

Well, I'm more taking a guess here Julian than giving you very specific information of each of the item. I mean the prices so far they have been challenging but have also, especially on the Power Products side, reflected for a part a certain commodity deflation if you compare to the same period last year. So I would say that surprisingly prices are still holding reasonably well given the low situation of demand.

So I would say that for me the two major drivers is on one side capacity utilization. That is clear and especially if you go down to a division like Robotics and some units of Automation Products. The other one is obviously the revenue mix. It is clear that the only reason why we are still flat in terms of revenues is that because we are still invoicing a lot of System business from our backlog. And this one obviously carries a much poorer EBIT margin contribution than for instance drives or motors, which when orders go down, translates by the way into lower revenues as well. So these are for me the two major drivers.

Okay, thanks. And then secondly, quickly just on your base order intake organically, is your sense that the year on year numbers there should, as you say, level out because the comparisons get slightly easier? I just wondered what you're seeing on base orders right now.

Well obviously Q1 and Q2 were quite tough to compare with because we had a tremendous increase the last year. So and you know the -- as of Q3, the absolute level is still quite high but at least it didn't increase as much any more last year. In the third quarter last year the total orders were up 1%. So clearly that will help, but, still, it's a big challenge to go through.

Last year in the third quarter we had $1b of large orders. That figure seems to be something that we can beat this quarter, knowing a little bit the kind of large tenders that we have in the backlog. So base order is much more difficult to forecast, but you are right, the comparison is a little bit less challenging now.

Great, thanks.

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

Yes, Joe and Michel, a very good afternoon to you. It's Julian Beer from SEB Enskilda.

Hello, Julian.

Hi Julian.

Hi. Sorry to come back to this savings run rate issue, but I just want to make sure I fully understand it. You've achieved a $500m saving in Q2. Does that mean that the quarterly costs would have been $500m higher without the initiatives? And I ask you the question because I think that's 7% of quarterly sales, which seems like a high number.

What was the second question, sorry?

Yes. No, so that's all one question.

What is the 7%? I didn't get this one.

Yes. No, I'm just saying that $500m --.

Yes.

Is 7% of quarterly sales. But the -- so the question's, without the initiatives would the -- would your costs in the quarter have been $500m or --?

No, no, because you have to understand the $500m as being a year to date number. So we had $150m after the first quarter and we added another $350m in the second quarter. That is a year to date total of $500m. So you have to divide this $500m by about $15b of revenues, which is what we have year to date.

Okay. Okay, that's fair enough. But does that therefore mean that compared to the start of the year, your quarterly costs could have been, let's say, $300m higher without the initiatives?

Yes.

Yes, that's right.

Okay.

$350m.

Okay.

Yes.

So the implication --.

And that is again excluding the impact of commodity prices.

I understand. But the implication is that without the savings your EBIT margin could have been 300, 400 basis points lower.

Well that's correct.

That's right.

Okay good. Thanks, thanks for that.

Secondly, on volumes. You said that you expect sales at some stage in the future to decline in line with orders. But for the third quarter, can you say whether you expect a similar factory loading level to the one achieved in Q2?

That's a tough one.

It's a tough one Julian because again the issue that we have here is that part of these revenues is also driven by what is going on in the fast rotating businesses like some of the units in Automation Products, the products of Robotics, Medium Voltage in Power and Power Products. If orders there keep declining, t impacts revenues pretty fast. If it starts improving we get also the upside there.

So we see what is in the backlog. We know that there may be some execution delay because that's just a situation we have for the moment. So it's still very difficult to pinpoint an exact number here.

Okay, thanks very much, gentlemen.

That's why, given this uncertainty, we just keep pushing on the cost cutting programs that we are ready to act.

That's understood. Thanks.

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

Hi and good afternoon. It's Martin Wilkie from Deutsche Bank. I just had a question on government stimulus. You mentioned obviously that as an opportunity. And it sounds like also you've got an upcoming order in the Power Systems business given your comments on the tender backlog. But if you could just talk about what sort of timescale you might be expecting to get the benefits from that? Is it too soon to expect any benefit in the second half? But is it even too soon to expect any benefit in the first half of 2010? If you could just walk through what sort of timescale you might think you get, both in China and the US, from a -- from government stimulus?

Martin, I'll start with the US because that's basically easier. If you take the US stimulus package and you break it apart, the roughly $850b I think it was, only about less than 20% of that was truly infrastructure. And so you know from following ABB we're an infrastructure kind of a business. And so even though you hear these huge sums from an overall standpoint in the US, we'll only be impacted by a certain amount of it.

Now, obviously the stimulus that's associated with Smart Grid and grid reinforcement is it's going to be a big help to ABB because of our position in that technology and our position in that geography. But we have not really seen that flow through yet in the United States. And you have to guess that that's going to have to come in the fourth quarter or the first quarter of next year. But, again, I've lived in Switzerland too long now to be an expert on US government policy. We'll have to see exactly where that washes out.

On the Chinese side, you can almost -- you can just reverse the US stimulus package. The Chinese, 80% of that stimulus package is devoted to infrastructure. So it'll benefit us directly in that sense. We have, as you know, a very large business in China with over 25 different joint ventures that are -- and we manufacture, we engineer, we have a great footprint there. So we've actually seen the results of that Chinese stimulus package so far.

But I can tell you it's extremely competitive there with local Chinese competitors. And so even though we see the funds flowing through, we know we have to be aggressive and we have to continue to maintain a technology lead in order to gain our fair share of what that opportunity exists there.

So, and I can tell you that China is the one country where we can definitely say that it's -- we're seeing the infusion and we're seeing the results of that package. And other countries around the world have not quite seen it yet, or (technical difficulty).

Yes. We could probably still mention that there are also some large projects that were on hold since quite a while that are back on the table again. I am thinking of some projects in India or in Brazil for instance, which, it's not exactly related to stimulus, but at least the current economic crisis kind of unblocked the situation.

Yes.

And the governments are ready to work again.

I think that's a great point, too, Michel. And, Martin, it's something to remember is you hear all the comments from Michel and I and our competitors, and what you hear from different governments or whatever, at times it's really hard to separate what's true stimulus and what's just a running forward of current projects that were in place but were lacking funding or were uncertain in a sense of what the economic viability was going to be. And so that could tend to become a grey area. Not as grey in China as it is in some of the developed countries.

And just to come back to your comment there on China about getting more competitive, is that specifically having a bigger impact on pricing, excluding the raw material question? Or is there enough business to go round that the increased number of players are just sharing in a bigger pie? How should we think of that in China?

With China I wouldn't say that there's a marked difference in pricing in the sense of 2008 versus 2009. Depending on where we compete, like in lower voltage products it's always been more competitive than in the higher voltage segments. But I can't say that there's enough business for everyone to go around to be happy. But I couldn't tell you that there's been a huge increase in price deterioration or price demands in China in 2009 so far versus 2008.

Michel, have you --?

No.

Going to say anything? No.

Okay, thank you very much.

Okay, Martin.

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

Yes hi. Good afternoon, Joe and Michel. I've two questions please. The first one, just to come back on the pricing pressure that you were talking about, I remember maybe one, two years back you were saying basically that order growth, a third was coming from pricing and two-thirds from volumes. So just wondering what your gut feeling is in terms of orders decline that we're seeing now? What could be coming from volumes, what's coming from prices? Rough, rough idea.

And second question is regarding your earlier comment this morning on the orders in China. If I understand correctly, you were saying that orders declined about 20% in China in Q2. And if I remember in Q1 they declined by about 6%. So just wondering if you can give us a bit of color about what you are seeing at the moment in terms of which division is suffering and what's your understanding of what's going on? And also, in terms of outlook, what you expect going forward in China? Thank you.

Okay. Let me take the China question if you want. Yes, so in [the Q1] it was minus 6% in the first quarter. We are minus 20% now. It has been a very difficult quarter, especially in Process Automation in China. So that is again linked to the big CapEx investment. It was for sure not a great quarter in -- on the Power side, so double digit negative numbers. But, still, I think there is enough activity there that we can become more optimistic for the future. We know of good tender negotiations that are going on.

I think what is important too, is that we see that besides China you have other emerging geographies. For instance like India, where, Joe has already mentioned, Automation Products had a very good quarter. And, in fact, overall we were only down 3% this quarter. So you see a little bit a certain stabilization. Brazil actually had positive development. The whole of Latin America is up 10%. And so we can see that at least something is happening in the emerging countries. It doesn't translate yet in the orders in China, but we're quite optimistic. We feel the vibrations I would say.

On the pricing side, I wasn't here two years ago to enjoy our pricing increase. But I can tell you that now in these kind of quarters (multiple speakers) we're looking at it now. If I just take the Power Products division right now, and I think, and, Michel, you can correct me if I'm wrong here, I think about, if you look at the overall orders rate in Power Products right now and what's flowing through from the standpoint of commodity deflation that we have to pass onto customers, about 3% of that orders downturn that we'd say would be price related and not volume related in that sense.

For instance, if you turn that equation around, that means we have to push more volume out through those facilities right now at a lower revenue base than what we had before. But I think 3% is the number we're working with.

Yes.

All right, just a quick follow up on this one. How do you consider the pricing pressure, or potential pricing pressure, or increasing pricing pressure, you're seeing at the moment? How, given your leadership position, how ready are you to follow in order to keep your market shares? Or are you ready to give up on volumes in order to maintain your own prices?

I -- this is a very delicate kind of an equation that you have to work through. We've got to take this thing again by region and by the 40 some odd business units that we have. But in general, we've taken a position that's not to lead the market down on price. It's to sell on value, to sell on relationships, to sell on services. Now it would be naive to say that that always works because it only goes so far. But I think you can see the margin rates that we've been able to maintain for the first at least two quarters of this year are a good indication we've been successful so far.

I just don't want to show any kind of I would say confidence or even arrogance that we'll just keep this up because the longer the recession goes on the more pricing pressure there's going to be. And we obviously have to, at times, make sure that we have maintained a proper market share in certain areas. So right now, though, we're -- we've been able to hold this thing off and we'll continue to take that road.

Yes. And that is for Products. If you think of Systems with the -- there, sometimes the situation is quite different. If I think, for instance, of Power Systems in the Middle East, it's clear you can read it everywhere. Prices are down 15%, 20%, sometimes more per cent. And, clearly, if you just try to go there with flat prices there's no chance you still get a contract.

So, on the other side, costs have come down quite a lot too, some commodity costs. But, for instance, civil works costs in that part of the world is much less than it was a year ago. So we have to really go a little bit more competitively. Not lead the trend but at least try to remain competitive. And that means keep renegotiating suppliers' contracts and, as well, become much aggressive with our sourcing decisions, both for engineering and for product. And try to have more products that are sourced from cheap markets into the Middle East. It's the only way to keep having volume there.

I guess, to summarize that, and I think, Michel makes a good point, in the end it's a margin discussion. And that's why this cost reduction program and everything else that we're working on is so important for us to remain competitive in that sense.

Okay. Thanks very much.

You're welcome.

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

Hi, good afternoon. It's Colin Gibson. Couple of questions please. First of all, you are holding, as you reminded us at the end of the call, holding a Capital Markets Day on September 11. First one for some time. And I just wondered, given that the current strategic plan and strategic financial goals that you're working to were articulated by the previous CEO during his tenure, is it -- isn't it reasonable to expect that you will want to revisit those on September 11? And could you confirm, if so, that that would be on the agenda?

Secondly, your cash pile is growing. Your list of completed M&A transactions isn't growing. Is it -- to what extent to you feel that you have a kind of use it or lose it ultimatum if you like from major shareholders? And so to what extent, and notwithstanding the calls on cash that you've outlined for the second half year, to what extent, as this situation continues, do you think buybacks become a more realistic opportunity for 2010? Thank you.

I'll just start with your last question first, is, we don't think we're in a use it or lose it mode with our Board or our shareholders in that sense. And I think we outlined in my original discussion here was basically we know that there's going to be some pull on this cash. Whether it's a dividend or in some of the compliance things we had to accrue for in the last quarter of 2008. So there'll a significant cash outflow on this business.

Secondly, as we still have a lot of restructuring we have to do, I think we said it could be up to $1b of restructuring through the end of 2010 with about $400m coming of that this year. And so there's some uses of cash outside of whether it's acquisitions or whether it's dividends, or however you want to look at it, that we're going to need a certain amount of that cash for.

As far as the Capital Markets Day, we are going to lay out the strategic initiatives of this business and how we're going forward. I think I wasn't here when Fred laid out the last strategic markets. But obviously I know what was discussed in that discussion. But I think one of the biggest things were margin corridors that were established and discussed and how the business was going to go through and we've held to those. I mean 11% to 16% was a direct result of those discussions and what's going on, and we'll certainly address that and tell you where we are, as we've done in these kind of conference calls also.

But we hope that you make Capital Markets Day. We're going to lay this out for you well, and we'll show you what we think the future of ABB is and what gives us a lot of confidence about when we come out of this recession that we'll come out here strong and (multiple speakers).

[More quality].

Yes. And we're well positioned.

All right, thanks a lot.

Okay, Colin.

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

Good afternoon, gentlemen. It's Scott Babka at Morgan Stanley.

Hi Scott.

Hi. Just two questions for you. One is on the tendering backlog. You talked about it being at all time high. Can you talk about what is holding things up? Is it a question that most bids are being repriced or is it the case that the customer financing is the issue? I mean does the fact that that tender backlog is so high, is that why you're making these comments on pricing, I guess is the question?

And then, second, can you just walk through what type of visibility the business would have right now in your longer cycle businesses? So in Process Automation, in Power Systems, as you look at the backlog now, how comfortable are you that that's -- that you're covered? Thanks.

Scott, on tender backlog I'd say if you look at -- you saw the tender backlog actually go down after the first quarter when we closed the large orders that we had in there. And so it's an indication of how fluid that backlog is. We closed some. But the way we -- we wanted to highlight it this quarter is because even though it went down it popped back up again this quarter because more jobs came in and we had to tender more. And so I just look at it as the resiliency of that market when you look at the Power Systems market and some of the larger jobs that are out there.

The concern about funding, or lack of funding that was highlighted in the fourth quarter of last year and the first quarter this year, it continues but some of these large projects are finding funding and moving through. And so I wouldn't look at it is that backlog keeps building because there's less and less financing available.

There is huge activity.

There's a lot of activity. There's a huge -- a lot of robustness there that we wanted to highlight. And, again, we're confident, as Michel indicated, that we'll continue to close some of those larger orders as we go out through the year.

I hope that helps.

And as far as the visibility is concerned, so far we're quite happy with the quality of the backlog. If we look here, today, I think the level of all the cancellations has been around $300m. And, out of that, about one-third is actually nothing to do with the economic crisis. It was just a customer that didn't get the environmental permit he needed to have. And so I would say that on an order book that can reach $35b in a year, $300m seems to me kind of a normal business condition.

So, at this stage we keep reviewing and, obviously, yes, we are working on some marine orders for instance, and we know that shipyards are not doing too great. But the fact is that they are already quite advanced with the construction of the ship at the time they have to use the ABB material. So the likelihood they have to cancel that is still considered quite low. To give an example.

Okay, great. Thanks, guys.

Thanks, Scott. See you.

The next question is from Mr. Martin Prozesky, Sanford Bernstein. Please go ahead.

Good afternoon, gentlemen. I've got two questions please. The first is on, I'm sorry to get back to it, on the cost savings, particularly the purchasing savings. The fact that you've got about 60% of the run rate savings from purchasing seemed a little bit surprising. To me, that sounds like that most of it must have been pricing, probably about 3% or 4% on costs across the board. Can you give a sense how much of that is structural versus secular, given that suppliers are probably willing to give you a price at this point in the cycle?

The second question is the resilience in the margin and Power Products, how much of that is related to strength of pricing in the backlog?

On the cost savings piece, as far as I think your questions were around the sourcing side, or the purchasing side, is, remember we took commodities out of this altogether. And so whether it's raw copper or raw steel or those kinds of things, we just -- we've excluded that from the beginning because, again, we know that a lot of that will flow right through in price of customer and their demands.

And I hope I'm answering your question here, Martin, but as far as the savings that we're reporting right now, that has to do with through savings. It's year over year decrease, whether we engineered that in with a new product that was qualified in some way, or whether we were able to negotiate price down. In a lot cases it's moving the sourcing to emerging markets where we have a great footprint.

Or leveraging the purchase power of ABB across all the business units.

Yes.

Yes.

So I would think right -- I think your question is the sustainability of that right now. We're very confident that we'll meet our targets in that area this year, and we'll continue to do that. We'll continue to leverage a significant amount of our low cost country sourcing on that end to help enhance that part of our business.

Okay.

Okay.

And then on the Power Products, in terms of the margin resilience you've seen in the quarter, how much of the -- how much of that is backlog pricing strength and flowing through versus offset in terms of weakness on the Power Distribution, on Distribution Transformer side versus cost savings? And are you worried that once the pricing strength in the backlog works through that the future cost savings you can take in the business will offset the weakness you should see?

Martin, that's a great question. It's something I obviously would watch very closely because I wouldn't want to be reporting great margins in Power Products and then having a tsunami come at us in the sense that what we're booking right now. But if you look at our -- when we look at our margin rates on orders coming through, and that's a vision right now, they're within a half a point of the orders that we booked in the second quarter of this year versus the second quarter last year. And so we haven't seen a major deterioration in the orders that we've booked this year in Power Products in that margin in the backlog coming through. I hope that's clear.

Yeah. Great, thanks.

Welcome.

The next question is from Mr. Andrew Carter, Macquarie. Please go ahead, sir.

Good afternoon. It's Andrew Carter from Macquarie. I just had two questions please. The first was just I wondered if you could talk a little bit about how you thought the business environment progressed as you went through the months of the quarter? I think that's something that you talked about last time.

And, again, perhaps referring to what you talked a little bit at Q1, you actually said that you didn't think March had represented a bottom to the market downturn. I think those were your words. Would you be prepared to comment on that with where we are today in July?

Andrew, I'd tell you I'd feel the same way, okay? If I didn't think March, that you could represent that as a trend for the rest of the year, and I don't think you can represent what we've seen in June for the rest of the year, too. We're not really commenting on July right now. We don't have enough data points in July to give you that kind of indication.

So, Andrew, I think more than anything we're very cautious. A lot of our competitors are talking about massive government stimulus programs and green shoots and a lot of things like that. We're -- we have our head down on cost out right now. We're pushing hard in emerging markets to find all the volume we possibly can. We're treating this situation like it's going to continue, and then our most challenging year could be 2010. And I can't tell you that I've seen any trend right now that would tell us that we should pick our heads up and think that we're coming out of this thing and that our order rates are going to be significantly different than what we saw in the first several months of this year.

Very clear, thank you.

(Technical difficulty). The next question is from Mr. Johan Trocme, Nordea. Please go ahead.

Hi, good afternoon. Johan Trocme from Nordea.

Hello, Johan.

Two questions please. First question, looking at your challenges that you highlight in your presentation, if we assume that orders will stabilize at the sort of levels you've seen for the past couple of quarters, will the restructuring you've got in the pipeline planned now be sufficient for you to deliver on the 11% to 16% targeted margin range? Or would that mean that you need to take to more measures as we get to the end of this year and looking into next year?

And the second question on challenges as well. You mentioned protectionism as a threat when it comes to taking advantage of stimulus programs going forward. Are there any specific countries where you'd see this is as a more -- more of an issue of concern than elsewhere? I'm thinking China or any other example? Could you elaborate on that?

First of all, in the idea of footprint and how they have to do if we did have stable orders based on what we saw in June, what I'd tell you, Johan, is that we are taking this opportunity to rebalance our footprint also. Is, we have a --- significantly, when you look at the balance of trade, we still really have too much that we manufacture in Europe and ship to emerging economies. And so part of this is demand driven as we change our footprint. But also part of it is strategically driven because we want to make sure that we have a good balance of trade between different geographies, and not over weighted just toward the European currency from where it is today.

And so, regardless of what that demand pattern might or might not be from a stability standpoint, you'll still see us protect this footprint and make sure that we balance it properly from high cost countries to low cost countries.

On the protectionism piece, it's really hard, and to honestly to be completely clear, governments are saying one thing and doing another. Okay? In broad economic settings, whether it's the G20 or whatever, everyone says they're absolute -- they're for trade, they want to make sure that doesn't happen or whatever. But whether it's the US, or you see different things going on in China, whatever, what's being inserted in bills or whatever is protectionism.

So that threat is constantly around. I can't tell you how much of it it's affecting us now or will, but I love is ABB's footprint. I mean we are a truly international global Company. We have engineering, manufacturing, design capabilities in all these different areas around the world. So if protectionism does turn ugly I still feel we're in a very good, strong position to be able to deal with that in some way. We'd obviously like to, from a logistic standpoint, procure from an overall efficiency standpoint where we'd like. But if this thing does turn radically protectionist, I still think that we're well positioned to be able to deal with that.

But if I understand you right Joe, this is more of a general prudent comment rather than specific examples of ABB seeing business opportunities slip away because of it?

That's right.

Thanks very much.

Yes.

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

Hi, good afternoon, gentlemen. I have just two questions please. The first one is going back to the issue of pricing and in particular in your Power Products division. Could you give us an idea if you're seeing any negative pricing trends for some of the other products apart from Distribution Transformers in the US? So, for example, in transformers outside of the US.

Could you also perhaps give us an update on electric steel prices, the latest trends that you're seeing there?

And then the second topic really is on the mix. We've seen the mix has had quite an impact on the margins over the last couple of quarters. Can you maybe give us an idea of what you expect for the coming quarters, perhaps based on your order backlog, if you see any significant change to the mix between systems and services in the coming quarters? Thank you.

You can pick.

You pick one.

Okay, well if we talk about pricing, obviously the example of Distribution Transformer has already been given before. I think here it is clear that the smaller categories of Power Transformers are also a little bit more affected than the bigger ones. So we are working on that perspective, too. And it's not as acute as we see it in Distribution Transformers. Obviously the challenges are there, so we have to keep paying attention to that point for sure.

On electric steel prices right now, I tell you that they are -- they're not going up any more. They're basically stable to down. We see it down in some areas. Not a dramatic collapse or anything like that that you would see in a commodity base steel, but the trend in that business overall is certainly not up any more.

No.

As we saw on the first quarter, it's flat to down.

Yes. So we have renegotiated some contracts as well there, too respectively.

Yes.

Yes.

And now on a mix side, I think probably the, when you look at our Power Systems business, which, really is when you had the first two halves of this year, is still positive in the sense of an order standpoint, it's going to continue to grow. And that'll be reflected in our revenue rates, too. So, as Michel indicated, too, there's a big backlog in Process Automation that'll flow through also. And that coincides with our Automation Products and Robotics divisions that are down pretty substantially because of a short cycle component.

So we're going to be pressured on mix, as we were in the second quarter. We'll continue to see that kind of mix pressure. And, given that we're seeing this resiliency in Power Systems also, that'll be -- that's going to be a factor of it also. So that's, again, Ill just come right back to our cost out program. That's why it's so important that we keep executing on this thing so we help to mitigate some of that mix risk that we see in our portfolio.

And can I just be more specific, within certain divisions, such as the Power Systems, how do you see the mix evolving there? Do you expect to see more or less service activities or can you make that call at this stage?

I don't think we would disclose that to be honest.

Okay.

Okay.

The next question is from Mr. Alfred Glaser, Cheuvreux. Please go ahead, sir.

Yes, hello. I've got two questions also. The one still on pricing. At the end of Q1 you said that the net impact of pricing was fairly limited on the margin. Could you give us an idea of this net impact on the Q2 margin as such?

And my second question is about working capital. After the weak performance in Q1, Q2 was now much better. Can you give us any indication of how much working capital could be improved in absolute numbers or as a percentage of sales going forward?

Okay.

I'll take the working capital or --?

Take the working capital.

Yes. Okay, so yes, indeed, we are very pleased with the cash flow generation in Q2, which was really needed after an atrocious Q1 from that perspective. So it is giving us a little bit more there in the net working capital. But the work is not over there. We already talked before about inventories. We still have to have more disciplines around overdues, and, as well, stabilize a little bit the payment terms to suppliers.

So, usually I've always indicated we should aim at a net working capital between 10% and 12%. I think, given the stretch on liquidity that is in the market for the moment, we have to be realistic. It's probably closer to 12% or even slightly above than 10%. But I still think that this is what we're aiming for, and if we finish the year at 12% we would be very happy I think.

Yes, okay.

On your pricing question, we did say in Q1 that it was really immaterial. In any sense it was very small. And when you look at Q2 also we're not saying that pricing had a huge impact when you look at how we devolve the overall margin for the business. But you could certainly say Alfred that we've turned up the volume on price in Q2 versus Q1 in our statements. And we're doing that because we're seeing more and more pricing in the marketplace, more pressures that, particularly on large jobs in different parts of the world.

And so, again, we think it's important for us to call attention to it. Not necessarily that, as I indicated on the last call, where, our margin rates on the orders that we have booked from quarter to quarter have not declined substantially. But, again, we're cautious because the longer this thing goes on and the higher the pricing pressure gets, that might not be the case in the third quarter. And I don't want to make any forward statements in the sense of how that might materialize as we go into the third and fourth quarter too.

It's all right. Thank you.

Okay, we've got time for one more question.

The last question for today is from Mr. William Mackie, MainFirst. Please go ahead, sir.

Thank you, and good afternoon. Yes, a couple of questions please. Firstly, on Power Products, could you share with us, as you have done in the past perhaps, how you -- how much visibility you have in that business looking into Q3, Q4? And particularly with respect to Q2 perhaps you could throw a little color on how the business lines developed between High Voltage, Medium Voltage and Transformer against the 4% revenue growth you booked?

My second question would be related to restructuring and particularly you've mentioned already that the restructuring charges in the second half of the year will be around $300 or perhaps a little more. In the past, particularly with some restructuring programs, you haven't fully completed them or there has been delays to the execution. How much visibility do you have on the provisioning you're expecting to take in the coming quarters, and, hence, how much confidence you'll be able to book that?

And the last is just a very small point. Should the corporate expense line we took -- you -- we saw in Q2, should we annualize that or should we take it into Q3 and Q4 for the rest of the year? Thanks.

You take the last one and then I'll (technical difficulty).

Yes, this last one I have to think about it. On the restructuring, to start with that one, William, I think we are quite confident that we will spend this restructuring expense this year. As you know, from an accounting point of view, sometimes even if the decision is taken there may be some delays in terms of the process you have to go through to inform the people and all that. So sometimes it takes a bit more time than what you think. But the plans are totally outlined. Approvals are given internally. So it's a matter of execution more than anything else.

So I'm still quite confident, reviewing division by division, the plans that we have that we will spend north of $400m for 2009. I think that's quite clear. And it's also because we want to keep the pressure going and we want to be able to bank the savings as quickly as possible.

On the Power Products visibility, William, what I'd tell you is that when you look at -- we break that division into basically three different Bus. It would High Voltage and Transformers and Medium Voltage. You'd guess that the Transformers and Medium Voltage would be the most competitive aspects of that portfolio. On the Medium Voltage side, we've been surprisingly -- we've done well in the sense of being able to grow that business. I can't give you the specifics. Michel might be able to find the data here in some way about what the growth was at that specific BU. But we've held well in Medium Voltage.

In Transformers, as I answered another question, is it's been broadly how do you leverage your portfolio in the sense of less Distribution Transformers, more Power Transmission types of transformers, larger ones, and then really moving in the emerging economies and finding business in that way, too. And being able to leverage ABB's footprint and capability, manufacturing capability that way.

On the High Voltage side, which is a lot GIS and circuit breakers and those kinds of things, too, the market does tend to fall in line sometimes with Power Systems orders and how the GIS and different things flow over. But so far we've been able to hang in on the High Voltage side, too. So what I'm telling you overall is the components of those are not broadly out of whack in the sense of one overly weighing that 4% increase versus some of the other BUs.

Okay.

Okay?

William, on this corporate cost what are you looking at, just so I know what you --?

I think the figure was $81m. It's the corporate expense in Q2.

Yes, $81m in Q2 was about $11m lower than a year ago. The major difference now we call it corporate cost and others. So, for instance, our -- the impact of our real estate operations is there as well. So the major difference comes from there that we had a bit less gains on the sale of real estate assets than we've had last year. In fact, our headquarter cost and corporate R&D costs were unchanged compared to a year ago.

I think the trend will be flat or even slightly up, because you have to realize as well that we start going more and more to a concept of shared service centers and all this where sometimes you'll have, at least at the build up, some additional costs before they are being recharged to the divisions. But I think we are probably flat. You can consider that that is possible

Yes. Could I just follow up from a couple of the points you've made please? On restructuring, should we take the spread of charges that you've taken in Q2 as indicative of where the actions will be taken on a proportional basis for the full year, is the first point?

No. No, we shouldn't, you shouldn't, because I would say like every restructuring program you start with the easier part and then it gets more and more difficult. So in the beginning obviously we can do much more with reduction of overtime, with forcing people to take holidays, with implementing short weeks. Once you have used all this arsenal, obviously, after that, next is really to go the real restructuring, and there then the impact of cost versus benefit is obviously changing. So no, you can't have a linear relationship on that.

Okay. Great, thank you very much.

Thanks, William. Well that's it. Again, thanks for your participation. Again we feel good about the quarter in the sense of our operational execution. We continue to push hard on cash and also cost and push hard on volume as we go into the third quarter. And we'll look forward to reporting out to you again at the end of the third quarter. Thank you.

Thank you. See you soon.

Ladies and gentlemen, the conference is now over. Thank you for choosing the Chorus call facility and thank you for participating in the conference. You may now disconnect your lines. Goodbye.