Abb Ltd (ABB) 2009 Q4 法說會逐字稿

Good morning or good afternoon. I am Stephanie, the conference call operator for this conference. Welcome to the ABB First Quarter and Full Year 2009 Results Analysts and Investor Conference Call, hosted by Mr. Joe Hogan, CEO of ABB.

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.

(Operator Instructions)

At this time, you will be joined to the conference room. Thank you.

Okay, ladies and gentlemen, welcome to this year's ABB Q4 Results Analysts and Investor Meeting. Again, like every year, just a little security applies. There are emergency exit doors to the left and the right, and also there in the back. We are actually not expecting an emergency today, but in case there is a siren or something going off, it is real, it is not training, so please exit quietly through these doors and follow instructions given by the various ABB people around you.

We also, as usual, have people following this conference here on the phone via conference call or over the web. We have a webcast, as well. So if we later on come to the Q&A session, we -- every year we will use microphones. Please wait until you have the microphone. State your name and company you work for, and so that also the on the phone or the webcast can hear what your questions, or otherwise, we would always have to repeat the question.

Okay, so without any further delay, I would hand over to Joe to give you the overview of the, ABB's Q4 and full year results 2009. Joe?

Good afternoon, and thanks for coming. Michel and I will walk you through the initial part of this presentation, and then we will have Brice and Ulri come up and talk about new parts of growth for ABB. Safe harbor statement, any questions out there? Okay.

We will -- I think everyone in this room knows the kind of economy that the whole world faced last year. GDP down pretty substantially factored to numbers that we had really never seen in our careers before. And really the lifeblood of ABB is CapEx spend. And when you look at CapEx spend, it dropped off a cliff, really beginning in later on in 2007 and 2008.

It really dropped off faster than any recession we have been able to see, at least in our careers, or even back to the 1930s. And since CapEx is such a leading indicator of ABB, we obviously were pretty concerned in the sense of what that would mean for our business, not just in 2009, but also 2010.

But, as we look at where we ended the year up, and I am sure everyone here has read the statistics so far, we are proud that we have been able to pull this Company through, as a team, through the year and I think in fairly good shape. We left last year our strongest quarter, and the strongest year that we have at ABB at 15.5% operating profit.

And you can see -- everyone knows the kind of headwind pressures that we face as a business as lower revenue, and price pressure, and underutilization, and obviously, mix in the sense of how that would work on the portfolio. But on the right hand side, you can see we have been able to maintain our 13% operating EBIT margin, I would emphasize. It is right in the middle of the range that we have communicated to you over the last several years, is where we want to steer the business to.

And I would say the main thing has been good operational restitution around the backlog that we did have of about $25 billion coming into the year. But, more importantly, this team getting their hands around a cost take-out as quickly as it could and getting good traction around that, initially, and also driving even stronger momentum with that cost-out program through the year.

And so, we end up with an operational EBIT margin of about 13%, and finished on a strong note in the fourth quarter. And Michel will go over the walk of that in more detail.

There were some really substantial aspects of a portfolio change this year as part of the business. And I think this emphasizes some real strength that ABB has, in the sense that our footprint in the overall culture of the business.

First of all, you can see on the left hand side, just from an emerging market standpoint in the fourth quarter of '08 about 43% of our orders in the fourth quarter of '08 were comprised in emerging economies. And as we closed out the fourth quarter of '09, that increased to 51%, which is substantial.

So you can see in the fourth quarter of '09, our emerging markets growth was about 15% in orders, but in developed countries, down almost 20%. And so, that historical strength that ABB has had from an emerging market standpoint and a footprint standpoint, and really an association and an understanding of emerging markets, has really helped us out because that is where the predominantly most of the growth was in 2009.

On the right hand side, again, this is fourth quarter 2008 to 2009 data. Everyone knows our overall portfolio here is being split between Power and Automation. We are pretty much an even 50/50 split in the fourth quarter of '08. But you see a substantial decline on the Automation side, of which the most was Robotics, and we will get into more details on that.

But Power continued to expand in the fourth quarter of '09, up 5%. This has to do with an industry piece versus utility piece. And we are not citing this as a long-term trend, but it does reflect the macroeconomics of the CapEx hitting industry pretty hard, and us seeing some resiliency in emerging markets around infrastructure spend, and also in the developed economies around infrastructure spend, around Power too, and it is reflected in these figures.

So overall, again, the infrastructure portfolio that we have between Power and Automation in the emerging market footprint actually came into being. So I would say, honestly, if you try to really distill what happened with ABB in 2009, and how were able to generate the cash and drive the margins that we did, it would be two overall variables, okay. One would be that found growth in emerging markets and took advantage of what we have there. And second would be our cost-out program, actually generated more cost-out than we initially -- those are two of the overriding variables that contributed to the financial performance.

If you look at where, again, where the orders came from last year, and this is the chart that we often show you, starting with the Americas, it is down 24% overall. When you look at the United States, it was down over 30%. South America was a little bit stronger than the United States, but in the US we really did not see much of a rebound at all through the four quarters in the US.

And then, Europe, down 10% to kind of a mix there, in the sense of Power infrastructure investment really helped to support some growth, orders growth that we had in the business overall, and we saw through Power Systems, and also Power Products. But that was really counterbalanced by some weakness in the industrial side, in the industrial CapEx side of the business.

Down below in Asia, you can see we are up about 4%, and this is fourth quarter 2009 data too, with India being up almost 70% in the quarter, and we will show you those specific figures -- in the Middle East and Asia having an extremely strong quarter, up 43%. So, again, this represents that really the difference between the growth you saw in the emerging markets, and then what we saw in the developing market, it was even more accentuated in the fourth quarter than what we saw throughout the entire year.

China has been a big question raised in the analyst community force over the last couple quarters, and we just wanted to take one chart and walk you through where we are in China. I think the best place to start on this chart is on the top right hand side. When you look at our portfolio, we have about 40% of our business over there is in the Automation side, and about 60% in the Power piece.

Look, their growth drivers in China continue to remain positive for us, okay. There is power infrastructure. The Chinese are building an electrical infrastructure like no other country in the world. They demand the highest technology. In some of these groups, it was the highest quality and ABB is well positioned there, in the sense of being able to supply that kind of capability.

Look, local content rules and some emphasis on those over the last several quarters has hurt us. And so, there has been increased competition there, and our share has swung from quarter to quarter. But overall, we have been able to remain competitive, and across several different segments.

And now, we have not talked about this much, but we have a very strong mid-segment strategy that was really pushed hard by Greece. You see this in China, and the mid-segment strategy is what we call in country -- for country, which means we put as much capability as we can on the ground in China. We compete with Chinese competitors in their own markets with their core technologies.

So, whether it be on the Power side or be on the Automation side, it is to make sure we are just not playing in the upper end of where we are comfortable from a high voltage standpoint, or a high end from an automation standpoint to make sure that we are really on the ground face to face, beating Chinese competition with our own Chinese resources and being able to compete at that level. And we have been extremely successful, in that sense, and we will continue to do that. And we think to be a very competitive and to continue to be successful in these kind of geographies you have to be able to do that.

There down below, the outlook for 2010 is we think we will see some sustained investments. There are some questions that have been going on about State Grids, investing in the grids next year or whatever, but it looks like in the lower voltages the investment might be down, but in the higher voltages it might actually be up. And so, we are still waiting to see exactly how that settles out.

The bar graph on the bottom right hand side, you can see in the fourth quarter of 2009 versus '08, Power Products is actually up 8%. You can see that Automation Products had a terrific year, overall, in China. And it was really reflected well in the fourth quarter being up 31%, you have to admit. And, again, our mid-market segment has been very strong in that business also.

So overall, you can see that ABB in China, up about 2% in the fourth quarter. And so, we continue to see growth in that geography. And we are saying -- we are not saying it is not competitive, but it has been a strong aspect of our portfolio. We feel good about our capability to continue in China. And we continue to be optimistic about our ability to grow in that marketplace and to win share.

This is a chart that shows you the dark blue bars are orders and the lighter ones are revenues. And it starts in Q1 2007 and moves to Q4 2009. I think really the most important thing to take from this chart is, one, is the most concerning, I think if you look at all of our statistics in the fourth quarter, was our revenues were down 13%.

But when you look at that, and that is the far bar on the right hand side, that was actually the second strongest quarter in revenues we have ever had in the history of ABB. It just happens to be against a comparison of the fourth quarter 2008, which was by far the highest revenue quarter we have ever had.

The other real key takeaway on this chart has to do with the orders bars. You can see somewhat of a flattening of those over the last three quarters in the business. And what Michel and I have seen in, increasingly, the AC team is that our shorter cycle businesses we feel has pretty much bottomed up, in the sense of what we have seen in the marketplace.

But you have to remember that shorter cycle part of our business is about 20% of our portfolio. The other 80% is driven really by CapEx. And we still remain somewhat cautious in the sense of what the investment tolerance is going to be, or willingness to invest, particularly by industry and governments over the upcoming orders in 2010. But again, an outstanding, again, revenue quarter and it looks like that at least the short cycle orders can see stabilized volume.

We talk about emerging markets, again. And this was Q4 2009 data up on top. We talk about emerging markets. I just wanted to highlight some of those countries. I talked about China being up 2%, India up 72%, really power infrastructure and industrial equipment.

Russia was actually up 81%. Actually, Russia was much stronger than any of us really anticipated. And in fact, Eastern Europe, overall, or what we term old Eastern Europe was actually pretty strong for us.

United Arab Emirates up over 100%, incredible investments being made in substations there in electrical infrastructure overall, Saudi Arabia up 52%. And Brazil was down in the fourth quarter, but overall we had a good year in Brazilian orders, particularly because of the hydro project that we made earlier in the year.

Down below is full year 2009 data. You can see that these are big countries for us, over $1 billion, China, India, Brazil, Algeria. Between those, $500 million, a $0.5 billion, and $ 1 billion might surprise some of you in here.

But countries like Saudi Arabia, and Kuwait, Russia, even Mexico. These -- when we talk about brick countries, you do not have brick, Mexico, in the brick side, but Mexico has been an unbelievable country for us this year in sense of orders. It just shows you the emerging markets investments that have been going on in electrical infrastructure are reflected in these figures.

And then, on the far right hand side between $200 million and $0.5 billion, Bahrain, Poland, Chile, South Africa, South Korea, really, so it shows, again, the extent of ABB's footprint to be able to compete and offer opportunities in those areas. But secondly, it shows what the emerging economies have done in the sense of continuing investment in the face of a very difficult downturn in 2009.

Look, we are very proud of our cash generation in the year. We had a very strong fourth quarter cash generation for the business and, actually, our net working has dropped through that sequence. I think everybody in this room appreciates that the quality of earnings is always reflected in what your cash piece is, and that is how the entire EC fields here. And so, we are really pleased to see that we -- over $4 billion of cash from operations and free cash flow of over $3 billion so, again, shows the quality of the earnings and the operational execution at ABB showed throughout 2009, but it came together extremely well in the last quarter.

We declared a dividend. We are offering a dividend now where, of $0.03 a share, up 6%. But the thing I want to, again, to emphasize here is just this part of our dividend policy, which is a steadily rising, sustainable annual dividend throughout the business cycle.

And so, we offer this. It is not just opportunistic based on what we have seen, and this year or this specific quarter. It is because we have confidence in this business, its ability to generate cash and continue to compete. And we wanted that reflected as an indication of the confidence that we have in the business going forward.

This obviously has to be approved by the AGM that will come up here in the spring, but we are confident that it will. And this will be delivered in the same way that it has in the past to help fund the tax endpoint with Swiss citizens in particular. I am not a Swiss citizen yet, though.

But so, entering 2010 in a stronger position, but 2009 revenues I talked about is near the record 2008. I think, again, one of the most surprising statistics if you had asked me this time last year if you would enter 2010 with relatively the same size backlog that we can into 2009, I would have said no. But we did. We are close. On a local currency basis, it is within one or two points.

Now, the composition of this backlog is much different. There is a lot less automation in it. There is a lot more Power Systems in it. But look, backlog is good. And it is great to have, to see that not deteriorate significantly. That helps us with our projections and what we know we have to execute on as we enter 2010.

The pace of order decline, as I mentioned, slowed in the fourth quarter. Remember, our base order rates when you look at Q4 this year, for Q4 '09 versus Q3 '09 were up about 2%. So it is a pretty good indication, at least quarter-to-quarter, not year-to-year. We saw some stability in our base order side.

Fast cost take-out that I talked about, we are increasing our cost take-out programs from $2 billion to $3 billion. After Michel talks about the financials, I will come back up and explain in detail that other part of the $1 billion cost savings, where we expect to get it, how much we will spend in getting it. And then, we can address your questions after that is all over in the sense of what you might have there of record cash flow.

The -- one of the things we are very proud of is we ended up with all the cost that is about this year, we continue to invest in R&D over and above what we invested in 2008, anywhere between 5% and 7%. And we will show you some of the fruits of that investment and why it is so important to maintain that momentum to maintain our competitiveness overall.

And the organization is better aligned with the evolution now that we have had with global and its products, and also discrete manufacturing, and also the new addition we have put on staff with marketing and customer solutions. And we will go into detail on that so you understand. So, we are well positioned and we are confident about the future.

Look, it just -- we are always asked our targets that were committed back in 2007 for the business. And we are basically saying if we look at EBIT margin and cash conversion, we feel that is in our hands in the sense of our operational execution. So we are reiterating our guidance on that that we feel that we really continue to meet those expectations.

On the right hand side, we think these are more recovery dependent on the revenue EPS and return on capital. And look, we will still continue to shoot for those goals. But we are not quite sure based on the uncertain economic environment in front of us, so -- but we have a strong track record we think we have earned on operational execution. So the EBIT side and the cash side stays firmly in focus and committed to. And with that, I will ask Michel to come up and give you the gory details on the financials.

Thank you, Joe. And it will be succinct. I am really happy you know it is that I don't have to spend 20 slides anymore to explain to you what happens below the EBIT lines and in the discontinued operations where we have put a clean income statement. And so it is much easier to read.

We decided to try to have a little bit better explanation from the pricing trends after the questions that came after the third quarter. So what we are showing you here is basically an EBIT or operation of EBIT walk through, first for the fourth quarter. The next slide will be on the full year, and I think can illustrate a bit better the different challenges we have been facing through all the year.

So you take this slide to start with, which is comprised in the operation of EBIT in the fourth quarter this year versus fourth quarter last year. You can see that overall we have lost 3.5% of EBIT margin on price, and another 3% on volume, while the mix of what we have offered to our customers during this quarter has, in fact, got into our favor. So we got a little bit more service, a little more Products, a little bit less Systems.

You put these three elements together we are talking about the 5.5% headwinds, if I could say, that if you applied it on an operating margin of 14.7%, it would have meant that we would have ended up with a single digit margin if we had not reacted to that. And that is why we did the cost saving program, was metered, was also accelerated and generated in the quarter over 4.5% savings at EBIT margin level. And thanks to that, we could basically reduce the damage to 1.5% decline to 13.2%, which is still well within the range of so 11% to 16% that we have committed to.

If you look at the full year, the picture is not very different, so I think that first of all, the good message is that the pricing loss is not accelerated. It is pretty constant from quarter-to-quarter. You see for the full year, the pricing loss was as well about 3.5% of EBIT margin.

The volume was an impact of 2%, and for the full year the mix was slightly negative. The best example to give, we have sold less Automation Products, which have really high contribution margin. And we have invoiced, for instance, more for Systems projects that carry a lower EBIT margin. That has, as well, an impact on the total.

Again, you put those three together, the impact is almost 6% with an again, for the full-year EBIT margin below 10% and, hence, the cost savings program was here very important to still, of course, to lend the EBIT margin at 13%. And, obviously, we looked at those charts, and okay, we understand why we have decided to accelerate even further and increase the size of the program because we know, as well, that the pricing pressures would end. There will be pressure on revenues next, and so we need to continue anticipating that trend and deliver these additional cost savings.

Joe mentioned that already before, it has not just been about cost saving. We have also been reinvesting part of this savings. And I think the most interesting, for instance is to look at the SG&A. SG&A overall, adjusted for currency was down 2% this year compared to last year. But in fact, it has mainly been an effort on the G&A, so on the overhead part which was down 8%, we have kept our selling expense flat.

And we have reinvested, also the savings we have done in G&A into new technology by increasing R&D spending by 5%. So it has been more redistribution of the money to go towards the growth and the innovation rather than just taking cost out of the system.

We have also not stopped investing, but we have tried to do it in a smart way. So, in fact, this year we had about $1 billion of CapEx. That is 12% less than the year before, but it is still more than 150% of depreciation to keep going with our capital discipline that we have now applied since many years.

We have mainly financed these investments in CapEx, the part of all the depreciation, by being able to reduce net working capital which has been down 8% from but the year before. And so, basically, it is a decline in net working capital that has more or less offset the increase in asset investment.

And as a result of that, our net capital employed to on which we calculate return is, in fact, only increased by 1% despite the high challenges of the lack of liquidity we have in this market, which already has given our customers much more incentive to try to deliver prepayment while on the other side of surprise is especially the smaller ones are overly in the need for cash, and asking for accelerated payments whenever possible.

So because of this discipline on capital, and because of the fact that we have managed through the cost saving program to still reduce the impact on EBIT quite a lot, yes, we have a reduction in ROCE, in return on capital employed after tax. But it is a reduction of only 4% and at 27% after tax, compared to a cost of capital of about 9% of the value creation is still here quite obvious.

And I have here an illustration of that which is basically a benchmark of ABB return on capital employed tax compared to our peers. And as you can see, that this conservative usage of cash over the years has obviously put us in a very strong position to look at the future with the ROCE, which is about 2.5 times the average of the industry.

And when you list the strength of balance sheets, and this cash flow was really generated throughout the year, that the good thing is that you have free hands to do what is right. So, first of all, I would recommend on CapEx we have invested now two years in a row more than 150% of depreciation into CapEx, that is to invest in technology that, for instance, the new plan that we are expanding here in Switzerland in Lenzburg, this is all semiconductor plans, but as well to continue expanding our footprint that we have built a lot of new factories in emerging markets like Poland, like Czech Republic, like Vietnam, like India and China.

We have, as well, based money into M&A, still small. We will talk about that a bit later as well. The good thing, as well, if you have the cash, if you have the balance sheets, you can really do the restructuring that you need to do. We have committed more than $1 billion to support this cost saving plan. And that is also a big advantage when you can do that because not only it protects our EBIT margin in short-term, but it will be the day the markets will fully recover, then you will be very lean and perfectly positioned to jump on these opportunities and deliver very strong, really performance EBIT margins.

And finally, obviously, we keep yielding to our shareholders. Joe already emphasized the importance of our dividend policy. We are really sticking to that one, and we see this year with a confidence in our balance sheet and in our financial strength. We really decided to slightly increase these dividends and pay $0.03 more than we did last year.

So we already have a very strong balance sheet of more than $7 billion of net cash, more than $14 billion of equity, gives you a very good base to operate from. And on top of that, we have also ample leveraging opportunity, even if we are still committed to measure, push our balance sheet to a limit which would put at risk our investment relating.

But as you can see, the credit part of ABB is also very well perceived in the market. Our CDS is actually the lowest levels we have seen in the last two years. It is constantly been tracing below the iTRAXX Europe index. And if you combine that to the fact that interest rates, as well, have been lower as we have never seen before, actually, if we would need to fund ourselves we could do it at a rate that we have never seen before in terms of potential lowering rates.

And finally, but most important part too, is that not only we have good access to the markets. We have also a very solid and loyal banking pool behind this. We have decided here to renew a little bit in advance our $2 billion credit facility.

We have done that as very good conditions. It was actually the best conditions post-crisis that we could reach there. We have for that put together a pool of 30 relationship banks which are the ones that have been behind us for all the years, except including the difficult years, but as well, a few new players which are the orange spots that you see on this map, in order to make sure we continue getting the support into the new markets where that we are penetrated like China, like India and like Brazil.

So, with that, we have the balance sheet, the wide access to the markets, as well as the wide banking support so that we can support from a financial point of view for ambitions for the future. And back to Joe.

I just wanted to peel down into our cost-out program because we needed -- you might have several questions on that that we can maybe head off. First of all, last year we announced a $2 billion cost-out program that would extend from 2008 through 2010 in a total of $2 billion of savings.

And we reported each quarter to everyone in this audience in the sense of how well we were doing. When you look at the four buckets we have stayed with that we originally communicated, which is overall footprint, our sourcing standpoint, how we do on sourcing, operational excellence, and also, G&A expenses.

And so, really you can see in savings in 2009, you can see how that has, overall, we are more than $1.5 billion of savings as we close out the year. And predominantly, $800 million of that happened in the sourcing side. About $300 million, you can see, was in the footprint piece.

Actually, operational excellence was much higher than what I thought. And I will just show you later on the series of projects we have had in operational excellence because it literally takes thousands of these projects to make it happen. But the team really had great momentum over the year to have to push that. And then, really with Gary Steel's leadership and Michel's leadership in this room, and the rest of the help from the EC, we were able to attack G&A expenses in a big way also, and be able to hit our targets.

So look, as we just announced, we are going to extend this cost savings program to another $1 billion. So it will be $3 billion in total, again, between 2008 and 2010. You can see the original targets listed three from the left, and then the new targets. And I think what is interesting to look at those and say what is the real difference here relative.

Really, 90% of these savings are made up in two buckets. It is going to be another $0.5 billion in savings will occur from the sourcing standpoint. And then, we are to spend, roughly, $1 billion of restructuring. A lot of that goes in the footprint. And we are going to save another $400 million on the footprint.

So you see those things are not just cost. The footprint piece is not just cost associated play. It is strategically related too. We are very long in the sense of what we export out of Europe still.

And we have to make sure that we balance our capabilities in different geographies so that we can serve geographies from as nearby as possible. And these kind of changes in footprint help us to do that, issue also of an operating excellence of another $100 million and another $30 million of G&A just to maintain momentum there.

Again, we have good visibility on these. We did mention, as when we did the third quarter review that we were considering this. Obviously, we are already looking at what we can do and where it would be done. And so, as we go into this year we have very strong targets exactly where this would come from. And we just need to execute on those targets to be able to deliver these savings.

Now you look at the footprint in Asia. If you go back to 2003, about 30% of our share of employees by regions were in emerging areas. And in 2009, it is 45%, and this is quickly moving toward the 55% range over the next few years as we make these footprint changes.

And here is just some pictures. You can tell these are really garden spots if you want to live in Bulgaria or different places in Vietnam. But these are facilities we have put together recently. And a lot of what we have done with these facilities is try to combine like they have done in Mexico, the strength of ABB, both Power and Automation in one site.

So we try to get as much scale as we can in those investments, if possible. So these are some examples of newer capacity. And we will continue to add and expand in those areas too.

Look at optimizing supply at both global, local levels, and so, what we wanted to show you here is exactly how we go about the cost savings piece. And not to bore you too long, but honestly, these things have to do with a lot projects that people put together, and track, and follow and make sure that we deliver on.

And if you stream them out of best practices sharing, and you have helped to coordinate it from a central standpoint, that the point out of someone saving a certain amount of money here with lost-cost sourcing in some way, why isn't that being duplicated in another part of the world that by the similar part in being able to leverage a scale? A number of -- ABB for years was an extremely decentralized organization. What we try to do is -- I love the independence of a decentralized organization, the creativity of it, the capability, what it can do to drive growth. But we have to lever the centralization capabilities of the Company.

And you see that a lot in the sourcing of what we are doing here, being able to share best practices, and move a certain amount of centralization and commonality among the different businesses of ABB. So, in this case, you can see pipe, pumps, valves and fittings of $5 million savings, in that sense, engineering and erection services, a $10 million savings, different cluster kind of projects where you bring different suppliers together for $5 million contracted services. It is all over the world. It is all different types of programs.

And the next page, you can see here medium voltage drives and power electronics right here in Switzerland, programs that cut inventory by 82%, again, reflected in the cash that we showed you recently, units per employee which is really a great measure of productivity up 2x, reduced costs by $2 million, dead tank breakers in the United States, $10 million savings and reduced $10 million inventory decreased in reduced cost, low-voltage drives in China, power transformers in Columbia. So it is 1,000 different programs in 100 different locations to bring this home.

And I think that the team has shown that they can execute on that. And we want to make sure that we maintain that momentum as we go through 2010.

When you look at our savings and just try to give you an idea of how spread out, our two product businesses, Power Products and also Automation Products, make up close to 50% of what those savings are. And then our Systems business, Power Systems and Process Automation, 19% and 17% respectively, Robotics at 7%. And then administrative is given almost 10% in this also.

So this has been pervasive and across the entire Company. As you would expect, a lot of the sourcing side is going to come from the Product division, and that is why you see almost 50% of the savings come from those areas. So I think it is very logical when you follow the cost savings and the numbers that we showed to you is how these actually distill out.

Well, from a growth standpoint we made two major structural changes last year that helped promote growth. So we said we invested in R&D last year 5% more than we did in 2008. We do that because ABB has such a history of innovation. And you want to maintain that momentum.

But also, structurally, I wanted to make sure that we align these businesses properly on growth. And so, I will start from the right hand side. We took our Automation Products business, and Tom Sjoekvist is here that has run this business extremely well for a number years.

So, we collectively thought it was the right thing to do to split this up because it is really two businesses that were buried inside of Automation Products, and that is a low-voltage business and a discrete automation. And part of discrete automation means robotics that is in there too because that is a composite of true motion control logic that fits in that business.

And so, we combined those businesses together and Ulri will come up here in a little while and explain to you how putting these parts together allows us to be able to share more, to be able to bring solution sets to customers. And actually, it gives you a better external benchmark against other discrete automation and manufacturing companies out there and also other low-voltage companies. So it gives you better transparency in the sense of how ABB's portfolio is doing in that sense, and allows management to see that too and to be able to hold ourselves accountable for that performance also.

On the left hand side is -- last year, it is Capital Markets Day, we announced the creation of a new EC position that would basically be customer solutions and marketing, and we asked Brice to come back from China and run that for us. And the idea there is to have at the EC level, a position that is truly dedicated to growth.

And the goal of this business is not to step on a division's toes. The division has shown that they know how to organically grow and to execute going forward. But we have never really brought the solutions power to ABB going forward.

So if you take something like smart grid, and you look across smart grid, it falls across four divisions at ABB. But customers do not care about the little divisional solutions, smart grid. They want to know how smart grid comes together to solve a problem. And that can be different in Europe than it is in the United States and is in Asia, and by having this focused as a One ABB look and how you bring that solution stuff together.

I also at Capital Markets Day talked about convergence and how automation and powers come into converging to soft solutions, and I gave you the example of wind and rail and how that works. But again, it falls across several different divisions. And if you are going to get a solution set, and have these parts actually talk and communicate together, you have to make sure that they work together. And that is going to be Brice's role that helps to drive that.

With that said, I will ask Brice to come up and really expand on his position. And then after that, Ulri will talk about Discrete and Motion.

Thank you. Good afternoon, ladies and gentlemen. What about growth in ABB? Going forward, as Joe mentioned a number of sectors where we are working around. But, first of all, we are in a very lucky position today that having the developed over the last decade a number of products which are highly efficient and really driving productivity, we have the market today which is moving to us.

So we talk about climate change. We talk about environmental concerns. And in order to address that concerns, we need more efficient and more productive products, or solutions or systems. And therefore, a market coming to the Company like this adds to the strength of the portfolio.

Now what does that mean more specifically? We talk about these key growth areas, like rail, like wind, like water and I will comment on this later in my comments. We talk about energy efficiency. I mentioned that solution, how to make the world and the economy, and especially the industry and the utilities more energy efficient. I will come also back on that.

And, also the business around service -- we today are in ABB an estimation of something like $170 billion of wind stalled days in the world. That means a lot of products to be maintained, to be retrofitted, to be upgraded, to be improved, but also systems and solutions around that.

So this opportunity, we need to tackle it as One ABB mode and BU the UY because on the same side, you do not have only one BU product. You have the whole ABB portfolio most of the time present. So how can we leverage that together?

And, finally, last but not least, innovation will be a very important part of addressing these solutions because a lot of them might not exist today. So we need to bring that together. We need to innovate, to do research, to improve that. And as Michel said, we are investing more on that to make sure that we come with new solutions and really new systems and products.

Now, coming to these sectors which I am going today more visibly, starting with wind, we know today that something like 2% of the energy in the world is wind energy, the rest being coal, nuclear and others. Now, looking at these improvements we need to go through for the environment, that means a huge potential to grow these kind of energy sources and availability, meaning 2%. Why not 4%, why not 6%? That are figures which might be relevant and for sure we will generate a lot of business around.

Now, going further and take the example of Joe from before, wind today is served in ABB by 13 BUs, 13. So 13 organizations in ABB are delivering products for wind, talking about transformers, switchgears, motors, drives and I forgot some, so how to make that package, that solution more appealing, and easier to deal with from a customer point of view, that is definitely an opportunity, furthermore, rail.

Why is rail so important? Because, again, rising -- driven by these energy efficiency concerns and environmental concerns, rail is one of the best solutions, first of all, to produce less CO2. Rail, today, produces something like 50 to 70 times less CO2 per kilometer and passengers than cars and planes.

On the other side, rail, or additionally, rail allows also to transport something like 25 times more passengers in an urban area than cars, and 10 times more than buses. So rail is really a key solution going forward, in order to address the energy efficiency or environmental concerns we have.

Now, why is that relevant to ABB? Yes, we do not produce locomotives. But 60% to 70% of the electrical components of a railway overlook locomotives, I -- ABB. We talk again about transformers. We talk again about motors, and drives, and switchgears and so on.

But why is rail so important? Because a lot of these electrical components in the rail are coming from ABB today already. And just this year about the size of the business, we talk already today about something of $1.2 billion. And that is a business which will, for sure, continue to grow double-digit as a percentage.

Water, I do not need to tell you about water's causality and the problem we have in the world around water. What probably people know a little bit less is that one of the most efficient ways to get water's causality partially solved is to reduce the leakages of the water system. And, again, here ABB who has controlled products with systems, with software, can help to improve these leakages in the networks, which is, again, a big opportunity around.

Now, Joe mentioned before, one of the strengths of ABB is not only the power system, or the Power business itself, or the Automation, but the combination of both. We are one of the rare companies, not the only one, having really this full portfolio of automation and power to be able to be combined together.

And here we have an example of a solution for an iron plant producing iron pellets in Oman, where you see the combination of the two. You see on one side the power side, which is about linking this plant to the grid. So we took Power Systems, we took Power Products, we took transformers.

But you see also on the other side the control systems in order to integrate the plant. You see the drives, you see the motors, some of the Automation part of it. And that combined, helped the customer to have one solution was together, instead of having different partners, instead of having problems to have the two solutions fitting together, we are the one stop shop, basically, with ABB solving the two things together.

Now, smart grid, yes it is almost becoming a buzzword these days. Smart grid, we are not so sure what is all in it. What we are sure about is that smart grid will change or this will refine the way the electricity flow is happening in the world.

Depending in which region you are, smart grid might be a solution to integrate renewables. In other regions of the world, it is more a solution in order to strengthen the grid. In any case, we see around smart grid this integration function and this intelligence coming into the grid where, again, having a few pilots now mentioned here, but having a number of pilots worldwide, we try to understand better what would be the products, what would be the solution, what would be the value proposition around the smart grid?

And we speak about the project in Germany where it is about minimal emission, integrating distributing generation storage, but also customer billing or spending. We talk about another project in Stockholm which is similar to -- which is building a small city and integrating all the aspects of the city in a smart grid kind of consideration.

We talk about here energy efficiency as in a generation storage and eMobility, or electric vehicles. We are really simulating what the world can look like in order to have a zero carbon footprint.

Now, I mentioned also service and here $170 billion of installed based. It is a big base. Now we have different aspects we can address here. Again, we can address it from servicing that base, from replacing it. But what we can also do much more is level of service products.

And that is a benefit having the different views and division together because, instead of fixing only one switchgear, I can then at the same time maybe fix also the transformer next to it. Instead of fixing only a drive, I can also fix a motor together with it because they are, anyhow, linked to each other. So having this One-ABB approach with the lowest level of products, which are much more simple to handle for the customers, and as such, we will head the market.

Furthermore, we have also over time developed a certain knowledge around energy efficiency productivity. And that is something which we can also propose more and more to the market today, this kind of brand, this kind of expense to help industries and also to parcel the utilities to get more productivity and more efficiency. So all that package of service is driving us to become a better, one, Company, and leveraging the strengths of the one view to push or to support the other one, or vice versa.

So, all in all, as I said before, we are in a lucky position, having developed over the last decades a number of very energy efficient product solutions, having an embedded knowledge and DNA in the Company around that, that the market is now heavily moving to that playing field. It is a lucky position to be. I do not know how many times companies can enjoy such a position.

But at least, that is what we enjoy these days and going forward. So, I am rather strong about growth going forward definitely. With that, thank you very much and I will give it, the floor, to Ulrich Spiesshofer.

Thank you, Brice. Good afternoon. The new division of Discrete Automation and Motion was formed not only for logical reasons, but also to serve the $100 billion market out there.

The three reasons that Joe already laid out, on the one hand, combining everything that ABB has to serve this market under one umbrella, secondly, you have a tailored service offering and more service activities in a focus today. And thirdly, you have a sharper focus on the very specific requirements of the different industry segments that are actually for that space.

You see on this slide here how it all comes together, power, the drives, control, motors and robots. And just to give you one simple example how we benefit already from it, on the drives motion and global side, we had three different remote service platforms bringing that together and operating in a more efficient way, will not only yield more market penetration, but also a cost advantage, and we are very happy with the progress that we have made already in the first couple of weeks. The focus will be on industrial productivity, on energy efficiency and renewables.

Now let me walk through examples for each of them, what it means, Power business. For start, with industrial productivity, purposely we picked here an example out of one of the toughest hit industries in the world, automotive, which really faced a very, very dramatic downturn in 2009. However, if you look at the structure of the automotive industry, there is a proliferation of models coming that will fight for volumes in a very, very low growing market.

That proliferation of models means more parts. And that more parts need to be produced more cheaply. If you take, for example, different body parts that you need to produce for an automotive layer, press line is extremely important. And the press line in an automotive plant, historically, was operated by a human being. It was the same coming up and down, and he put it in with his hands on safety bed, took it up again, and it then came down and took it out.

By putting a robot in there, instead of the human operator, means we have increased, first of all, the safety send up, significantly, because it is very often a very danger flow environment. Secondly, we have increased productivity by up to 50%, having a much faster cycle time using a robot.

In addition to that, we put a drive solution on top on top of the stand on the press line, and that means that basically we can coordinate the tack of the press with the tack of the robot, and that gives us an additional productivity gain which is very significant. So this is how we help the players in automotive to compete in a very difficult environment.

Robust industrial productivity, second example on energy efficiency -- energy efficiency is a theme that goes throughout ABB, present and operated, on which Joe and Michel has talked about it. What can we do in this division to really work on it?

I am going to give you a couple of examples. The one is if you take a cement plant and look at the amount of conveyors that you have to transport the stuff around, brining coordinated drive systems that speak to each other, and well synchronized in terms of speed, in terms of torque, in terms of movement that they create is already the first advantage and a significant data.

The second one is a conveyor does not always go up. It goes down. And taking the braking energy and putting it back into the system is another contribution to energy efficiency. And the recent example that you have up here have saved quite a significant amount of energy and CO2 exhaust.

But that is the reactive of addressing it. But we have also developed some very proactive ways. We have launched an energy audit program that is catered to specific industry domain needs where we go in together with the customer and assess the energy consumption of his plant. And then we work through with him the right setup and interchanged investments that he should place in that environment.

Recently, we have done this in the UK for a company that produces plastic films, and the result was very significantly the reduction of energy consumption of 37%. So we are not only following the demand of the customers. We are creating it through these data energy audits. And we plan to do more than 1,000 of them in the year 2010 out of the Discrete Automation and Motion division.

Thirdly, I would like to use the example of loading stock. Brice has very nicely laid out already how important the railway sector for us is. It is a very fast growing infrastructure sector, mainly also in emerging economies. And yet, we have to table offerings, and just recently we were successful, and we had the test run last week to put more energy efficient converters on a high speed train, saving more than 10%, in fact, almost 15% energy consumption of the total drain for the total operating life cycle. So, we think really we have something to offer on the energy efficiency side, and believe therefore this is second key driver for this division.

The third driver is around renewables. Now, we have already heard today about water. We have heard about solar. You have heard about wind. In wind, Discrete Automation and Motion has a very balanced footprint already with plants in India, in China and in Europe that allow us to be the leading provider of wind-generated and wind turbine builders. In that area, we will now bring more and more together the different parts and package them up to make sure that we take as much value added to our customers and make their life easier in terms of setting up wind turbines and wind plants.

On the solar side, we have here an example out of Spain where we have provided total system and distribution. Discrete Automation and Motion has provided the tracking, the PLC, the control, the drives and the motor that rotates the solar attachment out here.

And last, but not least, water -- water is not only something that we consume. It is also a source of renewable energy. It is also very important for energy storage. And just recently, we got the order for the largest ever installed convertor for a pump storage plant which will be installed now over the next couple of years.

This is an area where will also will benefit from stimulus money. Talking to some of the CEOs in the building industry to our customers most recently, they all expect the market to pick up significantly in the second half of 2010, and hopefully that means also for us, thinking if you control.

So if we bring this all together, what does this all mean? To summarize the challenges and to analyze challenges around, I would like to state here four. Number one, there is an increasing demand for optimized packages, means for main specific engineered applications of Power Products, solutions that will bring a drive a motive together in a tailored way that will bring a POC and Motor all drive together. And that is a key challenge for us.

The second challenge is communication. The group is absolutely crucial to make sure that all the devices, the products that we have can talk to each other. There is -- will be product parts or even, let's say, it is something that depends on the level of complexity of communication needs, and especially is something that we need to address.

The third challenge is our customers expect to be with them everywhere around the world. And the fourth is the life cycle support in a life cycle partnership maybe toward and just shipping the marked products.

We believe there is a very strong base to serve the customers. We have a strong market presence in all of the key product lines. We have a very strong technology position. We have a worldwide local presence, meaning we have not only the global reach, but also local arms and necks that service the customers. The large installed based helps us and the global service capabilities nicely compliment what we are doing on the product and solutions side.

So there are future growth opportunities, and we will drive to work on them hard. Bundled solutions across the full ABB portfolio and across the ABB Discrete Automation and Motion portfolio, working strong on the market channels for our products, penetrate high-growth, regional markets. I mentioned from a regional perspective, there is definitely a lot of opportunity for us in the emerging markets. And from a high-growth perspective, the rail example, the renewable example, are good ones that we can anticipate more.

We will definitely leverage our technology strength to get there and focus more and more on advanced services to cover our installed based. We are aiming to bypass 20% of our service orders of our total orders as part of this year. So, hopefully, we can reach that and can add more value to our customers.

So, to sum it up, the focus on industrial productivity, energy efficiency and renewables allows us to be cautiously optimistic for this division and the growth that we can expect. With that, thank you to Joe.

Well, we talked about, again, the increase in R&D that we had last year. And I just wanted to share with you some of the innovations that we launched in 2009, and we think will help us to grow not just in 2010, but in the future.

On the left hand side is a 100 kV Ultra High-Voltage AC, alternating current, Gas Insulated Switchgear. This goes into China. This is actually the highest voltage that has ever really been done in GIS. And it shows you, one, what China is actually putting in, from an infrastructure standpoint. And it is really incredible in that sense.

But is also shows ABB's ability to meet a customer need in this sense and take the GIS to a level it has never been before. In the middle, those are valve sets. Those are IGBTs that are used in HVDC lights. And this is a new product that we have launched that actually has a lot more energy efficiency, in the sense that the transmission of the energy, than what we have had in the past. And this is really critical when you start to look at offshore wind.

And often, this is HVDC light that connects offshore wind to shore, in that sense, underwater. And having one that has a higher wattage to it, but actually, at the same time, being able to save energy on that is really critical from a customer standpoint going forward for that specific market.

On the right hand side is a transformer, and transformers are probably one of the oldest components in our whole portfolio, over 100 years old. But typical of ABB is that continuing innovation around that. In this sense, there are two clear innovations here. One is a biodegradable oil that is more eco friendly in a sense.

Petroleum-based oils are what has always been used in the past. And it is always a concern from a fire hazard standpoint, and also from the standpoint of contamination over time. In this sense, using a biodegradable oil actually raised the performance of the transformer overall. But it gives it a much more environmental and friendly approach, and often, these transformers are in neighborhoods or in light industrial areas that you have to be concerned about this.

Also, as part of this was an amorphous core transformer. Remember, electrical steel is one of the main components inside of a transformer. It really dictates the efficiency of how well a transformer operates. The more amorphous, and that just refers to the grain of the steel, that it is more of a random pattern in a sense of how it goes together, changes the magnetic field and makes a transformer much more efficient.

The trick there is it is harder to work with. And it is very difficult material to make, at the same time. But we have been able to work with this over the years and be able to offer this product. And we think that there is more and more scrutiny, going forward, in the sense of transformers themselves and how much energy they actually use if they are not efficiently designed. These kind of things, the environmentally friendly aspect of this, from the standpoint of the biotemp, but also the energy savings aspect of amorphous core is going to becoming even more important.

And then next, we showed you last year this 800 kV HVDC transformer that is used in China to help the transport energy from about 2,000 km away. So it will be 48 of these transformers and two converter stations. The number of converter stations are what actually convert the power back on both ends of the equation here.

On the right hand side is -- that is a beautiful transformer, believe it or not. That is a -- that is for New York City, and New York City needed a low decibel transformer. For some reason, in New York, they wanted a quiet, at least in some part of that city. And they required a transformer with 20 to 25 decibels level. And we were able to deliver to the client and to do it.

And again, it just shows you, again, all this product that ABB has, but continuing to innovate, continuing to differentiate. And this is a key component for us to be able to, in a very difficult economy in a sense from a pricing standpoint, to be able to differentiate ourselves. And we continue to grow and to maintain margin in these businesses.

It was touched on briefly what Brice talked about, and really touched on it too about the power of being able to work across portfolio with ABB. One of the things that we have had for years, obviously, is our Process Automation business' 800xA. Well, most recently what we launched is, instead of just process automation or monitoring the closed loop control that would exist in a refinery or a different area, there is also a power section in those plants too that are underneath it, completely separate control.

And with ABB being a Power and Automation Company, we brought those two together, where you can monitor and control the power usage and distribution in your plant, along with the automation side, and be able to optimize both of those, when power is inexpensive or not available, is to reduce production, or you can change that on the other end of the equation if it is. And so, it really shows the power of thinking about what a customer needs and making a more simple solution to be able to embed that in our code, and being able to offer that to our customer base.

And then, this is just a series of products that we came out. These are mainly Discrete Automation and Motion products, just to go through a few. The BORDLINE CC1500 is a high-powered propulsion converter for locomotives. So when we talked about how important it looks like electrical rail transportation is going to be in the future, we have several innovations going on in those areas that are about energy efficiency and energy savings, and the way the propulsion goes, it is a key part of how you drive these systems.

Low-voltage AC drives for water and wastewater applications -- we have a world class drives business. It is so important that we continue to segment in this marketplace. We segment by reading. We segment by application. We continue to innovate around how these drives work.

Solar inverters -- we talked about us missing the solar inverter market last year and the year before that. Now we have launched our first solar inverters, and we will be launching several of these next year also to help to fill different market niches, and we feel great about our position in that marketplace.

Down below, Anders and his team in robots did a great job last year in taking our controller and reducing -- this does not give it justice, this picture, but taking a controller that was like this big -- and the controller is pretty much what it sounds like. It just controls the motion and the signaling that goes into a robot and with a controller of about to this size to a controller of about this size and, consequently, taking a huge amount of cost out, but keeping the performance at about the same level too.

Some more drives on the bottom, new-generation 3 kg robots. And we see robots going a lot this way. It is -- automotive will continue to stay as a large market for robotics. The robotic technology is getting simpler to use. It is getting smaller and cheaper. And you will see through that that it starts to penetrate different markets.

As Ulri described, taking that capability and marrying out drives business, our motion control business to offer a total solution for companies and for industries who think it is a huge opportunity -- and then another photovoltaic application down below with the V DCs.

So, look, this is a summary and outlook. So, 2009, I think you can tell from the comments up here that we feel we had a strong 2009, despite the market turmoil. And I think some questions out there is what we all had about how businesses would perform through this cycle, solid emerging market growth.

As I mentioned in the opening, I think really the two key areas when you look at the leverage of the business, overall. It was our ability to execute on cost and do it quickly, and really to leverage our emerging market position to find the growth that is out there and to help to build that, to build our order base.

Profitability well within that target corridor in the 13% EBIT, and you could see Michel's walk, as you go through both the fourth quarter walk EBIT and the total year, you can see how important it was for us to drive that cost savings, in order to mitigate the volume loss, and also to mitigate what we saw from a pricing standpoint. And then, cash generation, again, shows the quality of the earnings. So, it is a very strong year for ABB, and it is really our thanks to the team, not just the UT team, but the teams around the world to help to execute this all this year.

Looking to the chart that I think several of you have seen in the past that starts with the merger of Brown Bovari, and also of Cerovac in 1988. And if you remember the portfolio of our business, it was really different back then. We had rail, we had a big oil and gas business, the financial services business, power generation.

And then, when ABB had difficult years, back in the early 2000s, and we streamlined the portfolio around specifically power and the distribution of power, not the generation anymore, and also the automation side, and then the solid growth platform, and now, we are at a point now where you look at the blue bars, which are the revenue size which are just about the size of what we were at the peak years with that much expanded portfolio, but a much more enhanced EBIT margin which you can see on that line too. Again, we are committed to try to stay within that, and we feel that we have the capability and portfolio to be able to do that.

But look, when you move beyond the cycle, opportunities and uncertainties, I think from a market standpoint on opportunities, it has been talked about a lot today, and again, it is what we emphasis at Capital Markets Day, it is about sustainable energy. It is about emerging markets growth. And it is also about energy savings. And that is -- in any geography we want to talk about, we feel that we have a good position, and also a good portfolio to address that.

From an ABB standpoint, you can see that from a technology standpoint, a geographical balance. A geographical balance is, again, what we do with the footprint investment that we are making to make sure that our resources are aligned properly. And that technology lead is so important at times. This are just integrate technologies that if you break them, and you do not invest in them, and you lose a few years, you can lost a market over time. So I think what has been terrific, is even though we put $1.5 billion in more cost out this year, that is a continued investment in R&D to ensure the future of the business.

Look, there is always uncertainty in business, but there is more uncertainty in these times than I think than any other time we have been in business. And the amplitude and timing of the macro rebound, I think, that you all think about that, are concerned with too, so as governments remove stimulus, as they reduce monetary stimulus and fiscal stimulus, we are going to see how much private demand is really out there. And we have to be cognizant of that.

That is why when Michel and I say that we are mixed in the sense of what we think about the future, in the sense of the future being uncertain, this is a really important year in the sense of those economic stimulus packages being muted somewhat and letting private demand take over again. And we will have to see how that works out.

Increasing protectionism -- we can see we have seen that in different parts of the world. It affects us at times. But again, I would say our footprint and our experience in those geographies and really in depth knowledge of how to compete in those geographies have helped us through this.

Competitor pricing is always something that is unknown, but we will have to face, and that is why our cost-out program is so important. And then the developed market rebound, when you think of Western Europe and the United States, I think we are all not quite certain exactly what that rebound is going to look like, and how sustaining it will be. And that is why this cost-out program and us staying on our toes operationally is so important so we are not surprised in the marketplace.

Well, look, outlook and beyond. As I mentioned, 2010 remains mixed. We are pleased about having the same size backlog as we go into 2010 as we had in 2009. Look, we continue to see good demand in power transmission and also oil and gas, and anything around energy savings is critical for us.

Emerging markets we think will continue to be the real engine of growth in the near future. Look, our short-cycle demand we feel has bottomed, and remember, about 20% of our business is short-cycle. But in that part, at least quarter-to-quarter of what we have seen so far, we think we have seen the bottom of that piece, and we hope it stays that way.

We confirm our 2011 EBIT targets and also cash pieces. Our long-term market outlook remains optimistic. I am very confident about our portfolio that we have in both Automation and Power. Our continued ability to invest in that and be able to innovate around it and to be able to channel that to the right markets, I feel very good about.

Macro trends of climate change and energy efficiency continue, and the organizational alignments that were highlighted by Brice and Ulri are specifically geared to putting more of a growth mindset of ABB world balance grid operational execution, with an aggressive look forward in how we grow.

So, with that, Michel, and me and EC team is here today, everyone. We will be happy to take any questions that you might have. So thanks.

Okay, thank you, Joe. We are now going to the Q&A session, and as usual, I will start taking a couple of questions from the room here, and then we turn over to people on the phones asking questions, and maybe there are also questions coming in through the webcast.

(Operator Instructions)

Again, please wait for the microphone.

My name is Thomas Diamond from NZB, and I have got two questions. Actually, I have got more, but you are limited to two, right?

Yes.

It depends on who they are, Thomas.

Well, first of all it goes to price pressure. You showed it very nicely in your slides what price pressure impact was in Q4 and full year. It was 350 basis points. Now, I suppose that in the order it take it was more than that. Can you give us some information what the price pressure in ore intake was, and you said that going forward it is going to be a higher impact.

And my second question really goes to service. I have been -- or I think we have heard that initiative before to drive service, and to drive service also, and in revenues in that sort of terms irrespective of what the type will be. And of the service revenues, you were down, as well, in 2009. I can understand that, but maybe you can share with us what you think you might have done approximately in the past, or maybe you made mistakes in the past, enough to get that potential and what you intend to do differently this time around. Thank you.

Okay, let me address the pricing question. Obviously, it is always a matter of time. What you have seen this year in our income statement is really the pricing effects on the products that were short-cycles or straight in going from all this into revenues, or any reflected pricing pressure that we have seen in Automation Products and in Power Products. That is true. They are both between 3% and 4%.

It is very difficult to you -- for us to tell you exactly what it will present in the backlog because I take a revision on Power Systems, for instance. And it is clear that in Power Systems, we are taking to the substation orders in the Middle East at prices that are 20% below last year. But on the other side, the civil works, which is a big part of the cost during the Q, these projects, are down 50%.

So, it is just a matter of making sure that, yes, you have to come up with a lower price, but that you also align your cost base against all the subcontractors aligned to that as well, and deliver the engineering parts of your job from a cheaper location. So what you can see next year is where we will meet more pricing pressure once some of these projects start getting into the revenue stream. But again, that will come in to at a much lower cost. But what is important for us is to control the margins that we have in all the intake and in all backflow, and also then are still showing some very satisfactory trends.

And yes, and, Thomas, on the services side, I would say you were right, guilty as charged in the sense that you have heard about this initiative in services before, and what is really different from a team standpoint going forward? I would say one of the things, outside of turbocharger business, this is not a break and fix business. It is not one that has a normal supply of maintenance parts that are really associated with something breaking down in the field.

And so, there is a certain part of that kind of attrition that occurs with our products. And it is not like having a gas turbine or something like that where it is predictive. So what we are going to have to do when we are creeping and learning is we have to be more proactive in the sense of how we go after our services, in other words, being able to do predictive maintenance, in other words, when a transformer fails, is being able to predict when it will go down, to be able to change that transformer on site, rather than being able to have to move that transformer back to the plant and take it out of circulation.

You heard that -- Brice talked about our energy audit capability, and what we could do from that standpoint, and what we did also is -- we are really experts in the sense of energy usage, particularly energy usage in different facilities. But you do not necessarily sell that to the facility engineer. You usually go to a general manager with a different channel that you go to, and how -- and so we are going to have to be able to explore those channels and to modify our channel approach.

And we call these solution sets, and this is a lot what Brice is going to do in his role is that we have to arm our sales force to be able, to be comfortable to talk to a general manager, and to be able to explain why it can actually save money in the experience that we have. It is kind of consulting services that way that pulls to our business.

And so, look, this is all -- this is going to be a long road. And I won't deny that. But I would say it is the right goal for the business. When you look at 16%, 17% of our revenue base being services, what the opportunity for that, it is. And we won't give up.

And we think we know the path here. It is one that we are going to have modify our channel practices, be able to be better sellers of solutions to do that. But I am confident the team understands it now and that we will be able to get at it.

This will be like in that looking at behind an easy organization set of what was only, not only the roles to get the maximum potential of the reason. That is why we think with the external view that Joe had when he came here is, I think, going to be very helpful to get more and tighten and to make sure this mission gets out of revenues in total. And just to correct one thing you said, on the currency just the base of service revenues were flat last year, not declining.

Okay, another question here in the room? Maybe at the back, Axel?

Thank you. I am Axel Funhoff from ING. Yes, I have two questions as well. First of all, well, typically, what you notice is when you go through restructuring projects and cost savings projects is that the incremental costs, taking costs out and increasing over time.

You are now guiding for an additional $1 billion cost cut at actually a decreased incremental cost to the organization, which is strange, but very interesting. Can you comment and elaborate on where you basically found that it became easier to save costs in the process? And, secondly, and directly connected to this, could there be more, maybe, to come, in terms of additional cost savings beyond this $1 billion?

And the second question is, just for pricing pressure, I think the additional $1 billion cost that you want to take out could more or less coincide with an expected underlying pricing pressure of around 3%, 3.1%, 3 point something percent. Is that your expectation for this year's pricing pressure?

The rechanneling and restructuring costs, I think what we have seen is we have gone to that in a way we have found a lot of cost savings that could be done with also to invest restructuring costs. Resourcing is a major one, and I think the pace which we have got this accelerated speed compared to what we had forecasted.

Joe also mentioned a lot of op-ex projects, also ones that it is a lot of work that people to get these savings, but this is part of the normal work, so we are not adding people to do that, nor do we have to take people out to realize these savings. It is more getting productivity out of the tools.

So we have seen with that that, in fact, the first $2 billion that we committed, we couldn't believe at the cheaper cost that what he initially anticipated because of the combination of these savings. And I would say, as well, in all these restructuring programs, it is always the same. It is very difficult to get them started, but once you have them going, they start to take a life on their own.

And, in fact, I have seen in all the initiatives that we have taken until now, would have taken us way beyond the $2 billion that we targeted with the investment we have done. So now we are just adding the fuel to get to the $3 billion. So that is why you have a bit of a difficulty to reconcile the incremental costs. So, but we are now -- I think we have much more experience in judging the incremental costs, and we feel quite comfortable with the estimate we are giving to you today.

To add part of that too, I think when you look at the restructuring footprint piece, there is always a question is do you close a facility, or are you just reducing employment to a new level, right, and then maybe you will be able to pick up employment in an emerging economy somewhere else. And so, fortunately, as part of this we have not had to close down as many facilities. We had to reduce employment in those areas, so it has been -- but that is one of the reasons, the underlying reasons that Michel said did not quite cost as much on the front end as we would have thought it would.

But I understand your questions regarding the same questions to realize that came with the plans, but makes sense.

The pricing -- you had a pricing question too, Axel. I can see you are expecting -- look, we are not quite certain what the pricing environment is going to be next year, but I think you have to think it is going to be at least in line with what we have seen this year and completely competitive. So, this $1 billion cost-out is, again, an insurance policy that we can possibly have against an economy that we say is mixed right now. And that mix is both on demand and price.

Yes. And let's also not forget that all these cost savings are independent of the fluctuation of the commodity or material prices, which are also an impact on our final prices. So that makes it also quite difficult for us to really calculate exactly what is the price, the pricing pressure could be. But I think we are ready with enough initiatives now in terms of hedging for commodity price, and in terms of cost take off for the long commodity prices to be back to whatever the market pressure will be.

But before we go to the phone, maybe a question that we received from Chris at the EG Capital Management in Boston, and to you, Joe, and going a little bit in the same direction. Chris would like to know what keeps you up at night more. Is it pricing or the macro concerns 2010?

Well, actually, Chris, I actually think those two are related. I think the longer the macro concerns go on in the sense of demand suppression the more price pressure that you have in the marketplace. And so, I would say these two things are not discrete. They are actually related.

And, as I mentioned before, if you read economics right now, and you are interested in it, is there is going to be massive withdrawal of stimulus products, different stimulus packages throughout the world over the next several months, probably most of it in the second half of 2010. And we are not quite sure -- anyone is not quite sure out there what that is going to mean in the economy from a growth standpoint.

So, if that moves fine, and private demand picks up, and we are starting to see CapEx investments, that is going to help from a pricing standpoint. If it does not, we will see more pressure. So it is very uncertain. And the best way to deal with uncertainty is to plan for it. And, again, that is why we are so focused on the cost-out piece.

But we are also focused on innovation too. And, hopefully, you saw that through the presentation and in through the organizational structure. We are trying to balance both so we can hope to guarantee the future of the Company.

Okay. And then, we have got another question this time from David Jacobson at Ohman, and he would like to know whether we can shed some more light on the week Power Systems result in Q4? I think Jacob is referring to the EBIT margin, especially was it over, buffered overruns or write downs in this business.

Yes, I think on the -- David, on the Power Systems piece. Peter is here and Michel notes and I think there were $76 million to $80 million of restructuring charges that were part of that whole piece.

Yes. The adjusted EBIT margin was 7.6%, which actually was a 2% reduction compared to the fourth quarter of then. So, that was a major one was the restructuring. There is always a couple of one-off charges that are linked to project execution that I would say that still 7.6% for Power Systems is what we would call a good margin. It was in the target ranges that we had.

And it is right in the corridor that we discussed in that piece.

Yes. Thank you.

Okay, David?

So, now I guess we would turn to questions from the phone. Operator, please?

The first question from the telephone conference is from Mr. Mark Troman, Merrill Lynch. Please go ahead.

Yes. Thank you, thank you very much. Good afternoon, Joe and Michel.

Hi, Mark.

Hi. I just wanted to follow on this pricing. It looks like 3.5% affecting Q4, and if I remember correctly the, Q1 did not have that much of a pricing impact. So is it fair to say that Q3 was the real low point of the year, in terms of price down? That was the first question.

And, when we look forward with price, is this -- I take it from the earlier question that this is more about Products than Systems, in terms of Systems you can get an offset. Does -- basically, are you confident that the cost savings can fully cover any likely product deflation in 2010? And if so, does that mean that we are thinking about volume now, in terms of your profit outlook?

That's, Mark, -- those are tough questions. We will do our best to answer them. First of all, Q3 you asked as being a low point on price in the sense of the year. I would ask Michel, in the sense of the quantification of that, but it does not feel that way to me.

We still see continuing pricing pressure in the marketplace, depending on where you are looking by geography, a certain mix in our business, in the sense of what we see in Automation Products versus what we see in Power Systems and Power Products. But there is a lot of price competition out there, and I would not say that a decrease between, at least from what I have seen and felt, between the third and fourth quarters.

I think Q3 was quite lower in terms of headwinds. It was a combination of prices and volume where we, indeed, more volume at this stage, a soft quarter in terms of overall supply. So the combination of the two would, indeed, given us a margin compression. And it is true that the first half was a little bit slow in terms of price decline.

So, my take we will go -- I do not think it is a huge difference by the normally Q3 composite tree for. But in regards to the future, yes, I agree. It is a difficult question. I think the only thing I can answer is that we do not have a crystal ball, so it is very difficult to see when the market really turns.

But we have demonstrated that we have now all agility to react to tough market conditions. Remember that we started the cost cutting programs with a $1.3 billion target. We raised it to $2 billion. Now we are raising it to $3 billion. And we can deliver on this, actually, in advance of what we committed. So I can only ask you for the trust that we will keep moving as we see the market gets tougher.

Thank you. Just one quick one -- the -- your inventory performance looked very good and cash flow, particularly in the Products divisions. Is there a degree of underproduction going on relative to your sales?

You mean just less tables and the whole thing, Mark?

No. I meant just under absorption of fixed costs because you are producing less than you are selling? And if --

No. I think if you really look into the cash flow, the two major elements that have contributed to great cash flow in Q4 has been, one side, a reduction of over dues that has been quite important in Q4, about 20% less.

Okay.

And the second part, and especially that one, a strong reduction of inventories, which had been quite high for awhile. So, in a way, indirectly, your question is right. The way we look at it, inventories has been the biggest one of them, yes.

Okay, thank you very much.

Next question, Mrs. Lisa Randall, Nomura. Please go ahead, madam.

Good afternoon, gentlemen, Lisa Randall from Nomura. Two questions please. Just firstly, on Robotics, which looks to be under pressure again this year, Joe, you said the Robotics technology is getting smaller and cheaper. So the question is, is this still a technology-driven market that ABB continues to feel it have its competitive strength in?

And then, secondly, just on the dividends, you say on the, I think it is slide 12 of the presentation, that the dividend of $0.51 cents demonstrates the confidence in the outlook and the financial strength. Well, the financial strength is obviously, clearly visible. My question is really how you came to that sort of 6% increase year-on-year given the scale of the financial strength that the group has. Thank you.

Okay. Let me answer the dividend first. It will be a shorter one. We have this policy of distributing steadily rising, but sustainable dividends. So when we talk about outlook, we always think about if we waited until to the next level, we want to make sure that whatever happens in the coming years, we will never have to cut it back to a lower level.

So it is not just a short-term outlook. It is also a bit longer term, looking at the cycles and trying to see all the accounts. Obviously, because of that we -- you will not see from us a sudden 50% increase. We did that in the beginning when we started from nothing. But now that we have the yield that we have, we have a dividend yield of about 2.5%, you should more expect a kind of incremental improvements, always to a level that we are comfortable to sustain, rather than a bigger one.

Obviously, if you compared to our cash pile, again, it is clear that $0.05 more or less does not make a big difference to the cash pile. But we look at it, as well, as a long-term commitment, and as a result of that, we need to still have a conservative approach, and also keep the yield in mind at the same time. So that is the reason that guided or chose to go for a $0.03 increase.

Hey, Lisa, on your Robotics question, I think it should be clear to everyone by what we did with Robotics is taking it and making it part of the Discrete Automation and Motion business, that we believe in this business, and that we believe in an integrated solution and how is it going to be used in the future. If we would have thought that this was not a valuable piece of our asset base, and that it was not really worth hanging on to, we would have kept it as a separate division and looked to sell it.

But I truly believe in this technology. Again, I spent a lot of my career from a GE standpoint in the GE automation business, and I had a lot of association with the robotic side. And as I went from medical, I came back to medical back in this automation business, so I was amazed at how much change had gone in robotics.

And we are only in three major areas. One was four sensor technology, which means the ability, the tactile feel of a robot because the robots before had no feel at all. If you grab the cup, it would just crush it, right, and you had to control that. Now you can actually control it physically.

Secondly, it used to be that any kind of eyesight on robots was extremely expensive and very slow. And today, if you ever watch one of flex pickers, in a fraction of a second it sees something in the orientation of it, and it picks it up and it moves it.

And third, is I could not believe the amount of cost it came down in robotics since my time in GE too. So there is a natural progression there that says that this is more intelligent robots with four sensor technology, with eyesight capability and with the cost coming down, you are going to see much better penetration into not just automotive, but the industries it did not hit before.

And, look, at the same time you have to say it won't be alone. It is going to have to be in conjunction of other types of automation equipment if you really are going to get the effectiveness out of it. And that is why it belongs so well in the Discrete Automation and Motion business.

So, I do believe in it. We will continue to invest in it. And I am certain we are going to be right over a period of time.

Yes. And if I can add one point, about 20% of our total restructuring investment and the building we invest is, basically, in Robotics. So it is a mega change for that division. We get out of that, we have a brand new range of products, new technology, and a cost structure which I think is not really comparable with any of our competitors. So what we just need is the market picking up. And I think then we are really ready to show everyone the strength of that business for the future.

Okay, thank you.

Next question, Mr. Fredric Stahl, UBS. Please go ahead, sir.

Good afternoon, gentlemen. It's Fredric here from UBS.

Hi, Fredric.

Two questions, please, one on the cost cutting. You are obviously doing a little better than you initially expected. Can you maybe tell us a bit about this came about, and has it been top driven by you and management saying that, well, $2 billion is not enough? You need to increase that. Or is it something that has come through the organization organically as you have gone through the initial programs? Or is it maybe just the fact that you underestimated the impact of the programs that you started with?

The second question is regarding the price. Is it really a coincidence that you are able to take out more costs than your price declined? Or is it maybe fair to say that your pricing power and the industry price discipline is still strong enough to limit price erosion to what you actually can afford?

Fredric, on the first part, on the cost-out side, this is -- when we initiated this cost-out program, it was not from a management level. From an EC standpoint we could see a difficult market in front of us. And we knew we had to set certain cost-out goals in the driving.

I would say, after that, as Michel explained, there is a certain amount of momentum that actually started to occur with this in the sense of new ideas and new opportunities that came up. And I would say, as we saw that momentum, and we saw a very good return on that investment, and according to Axel's question, we said we should accelerate this and have it move forward.

Now, as you say -- so, it is a combination of everything that you talked about. There is a certain amount of top down to begin with. There is a certain amount of momentum that we had in the program. And then, lastly, I would say, did we underestimate? Yes.

You never want to necessarily overestimate what you can do on costs, and we were relatively conservative. And through that being conservative in that sense, we gained a momentum we could see.

On the price versus more cost, it is always very difficult for us to answer those kinds of questions because you have to remember this portfolio of ABB is extremely extensive. And so, it extends 35 different BUs and 40 different BUs across 180 different geographies.

And there is actually different pricing pressures and different norms and different demands in each one of those areas. So we can only answer your question in general. And I would say certain segments of our portfolio, we see increasing pressure on.

There is other segments of our portfolio, whether it be in low-voltage or whatever that really were in the initial part of the cycle and headed down, that we have seen better pricing discipline in the last couple quarters. And so, I could answer your question they are mixed since there is continuing pressure in some parts of our portfolio, but some stability that could be more around the alignment in the overall demographics of those marketplaces. But, necessarily, we see some good things, the pricing complete in those areas.

Actually, thank you very much.

Look around. See whether there is a question here in the room? Yes. Alex, you have a question here?

Hi, this is [Alex Mirarini] from [Javer]. A question of compliance, yet another investigation down into your FAX operations in Sweden, and this is something that you clearly wanted to tighten the screws on. But it seems like it continues to be a steady stream, if you like, of new investigations. And I am wondering whether you feel that this not really fair and warranted, alternative source of taxation, if you like, or whether there is still unresolved issues within the firm, and as a consequence, whether this could result in an erosion of your long-term pricing power.

It is a thoughtful question. First of all, I can't comment on the FAX that you speak because it is under investigation, and obviously, we would compromise ourself. But I can tell you that everyone who is sitting here, and the people that work for them, understand that compliance is not a legal issue, that is an operational issue and it is a management issue, where we take full responsibility for the culture that we set and how we try that kind of zero tolerance program down through the organization.

That is a big change in this organization over the last 18 months where the operating people in this room really take that on, understand it, communicate it and know they are held responsible for it. But like anyone who has been in business over a period of time, we all understand cultural change, it takes awhile.

And there is, look, there is a lot of legacy issues in this business that we know we have to deal with and we won't make any excuses about that. We will take -- be responsible for it. We will deal with it.

I would say this is not about overzealous commissions on antitrust or FCP Air, whatever. The issues that are presented to us, we investigate each one of them to see what the relevancy is, but I would say could there be a job being forced at some point in time about another kind of taxation. Maybe, but that is not what we see right now. We see that this about compliance and how we have to deal with it.

And so, and Michel and I -- and when you talk about the debt, change our pricing power going forward, I would say no. I do not think it does at all. I think that we can be competitive. I think that we can -- that those kind of practices actually make companies sloppy.

They do not make them competitive. They do not force you to look at prices into the cost-out. They do not force you to change your footprint. It is -- over time, it erodes the competitiveness of the company.

I would say there is a couple reasons why you never want to cross that compliance line, okay? One is it is immoral, both antitrust and bribery hurts countries, hurts people. And secondly, it hurts a company over a period of time.

There are just a lot of different dimensions as to why you do not want to do it. This leadership team is committed to making sure we want to comply in culture -- we go forward. We will clean up any issues that we have, and we will drive as fast as we can forward into that new kind of competitive benchmark.

Okay. Another question here from the room? Yes, Thomas, maybe, although, but Thomas, I have still quite a number of people lined up on the phone, so we are headed for a set, but if we dry out on the phone, I will come back to you. So then, operator, we go back to the phones.

Next question from the phone from Mr. Julian Beer, SEB Enskilda. Please go ahead, sir.

Yes. Good afternoon, Joe and Michel.

Hello, Julian.

Hello, Julian.

Hi. Firstly, in terms of months of invoicing, you backlog looks to be in similar shape as it was at the end of 2008, not least because of the help from Power Systems. And also, you are saying that the base order trends continue to be stabilized (technical difficulty). Is there any chance that you could achieve flat or even positive organic invoicing trend in 2010?

Julian, you kind of -- you had a little static in between that. Thank goodness. It sounded like a tough question, so we will answer it the way we want to. First of all, when you look at the backlog --

Just say yes.

When you look at our backlog, and Michel can correct me on this, but I think, historically, when we come into a year, we look at about 60% to 65% of our backlog actually converting within that year, and that is what we actually see in the backlog that we have now between those two areas. And so, like we mentioned before, the composition of the backlog is different.

The composition of the backlog is different. There is a lot of it around Power Systems and Power Products. But it is a good backlog in that sense. And then, the rest of your question, I --

Yes. It is a good backlog, but still, the composition of the backlog has changed quite a lot. The amount is the same, but if you compile division by division, for instance, the backlog of Power System is at 20% compared to last year. The backlog of Automation Products is down 12%. So the -- it is a different backlog in terms of EBIT mix composition.

And it is also a backlog that because of that extends a little bit more beyond 2010 than I think we had last year too. So we will need to ask you a question about invoicing. We will need more book and bill business to, basically, be able to get towards black numbers in there. So, it depends to get a little or shorter cycle businesses react, we see some encouraging signs this quarter if we take the typical short-cycle businesses of Automation Products, I think it is like a one access with enclosures, so breakers and switchers actually have shown a very nice order into development.

And we have seen the same trends in some emerging countries like India and China where these businesses were also doing very well. So it is encouraging from that thought. So that is the first part, a lot of book and build. And then, for the rest, you always can make the Q from the large projects because some of these are very large and will extend over time.

Okay.

Julian, I think also is, in fact, the analysts in the room too, is when you think about orders, and your invoicing is the question of how you are going to look on orders next year too, not just revenues. Remember, our first quarter orders last year were unprecedented. We had about $9.1 billion, $9.2 billion of orders in the first quarter of 2009.

That is a really tough mark for us from an order standpoint quarter-to-quarter. And so, as you talk about this positive piece, I think you have to look at the quarter as really an anomaly in the sense of the size that it was. And we have averaged every quarter, this quarter, somewhere between $7 billion and $7.5 billion of orders.

Okay. And this was a quarter that was especially strong in larger orders. It was the way the quarter was (technical difficulty).

Thank you, [Laser], next question please.

Next question from Mr. Simon Smith with Credit Suisse. Please go ahead.

Hi guys. Thanks for the actually taking the question.

Hi, Simon.

I just wanted to get a little bit more clarity on the factors sort of bridging profit into next year, and the cost taking out program, I just wondered how much of that do you think will fall into 2010 profit of the sort of the remaining $1.5 billion cost savings? And also, in terms of mix, I guess it follows on from that last question of the difference between maybe a greater bias towards some of the latest cycle projects in the backlog, and the faster pickup in the short-cycle businesses. Are you able to give us a sort of a steer as to how you think the impacted mix would be in 2010 versus '09?

Simon, those are -- from a mixed standpoint, obviously, we have said that our short-cycle part of our business we think we see in a bottoming and actually some of an increase in parts of those businesses. Those tend to carry pretty good margins, but they are not a huge part of our portfolio. So it is, from a mixed standpoint, it can be positive. But it is not necessarily hugely positive when you look at it in the extent of across the whole portfolio.

And so, mix is always -- I tease the team, if you want behind something, you just yell exchange and mix and you can someone confused. But this is truly a business of a lot of different mix from a geography standpoint and a product standpoint. But it is safe to say that in some of the products, we have seen a rebound in the short-cycle as they tend to carry a little higher margins than some of the other longer cycle business.

Yes, and I think to that service, for instance, which was more resilient in that part of business this year, but for sure we have seen, for instance, pretty weak business development in the spare part business, which is a high margin business. So, if you believe, Simon, that this recovery is there, that we still seeing a little bit more spending, then clearly we should see some pickup from the two that could help the mix. As far as your first question is concerned, we have always talked our cost savings for them is 2010 versus 2008 because we have $1.5 billion booked so far, so we will deliver another $1.5 billion in 2010.

So, just following up on that last point, so to get to achieve $1.5 billion, given that you still have further work to do now, the actual scope of the program is actually beyond $3 billion?

No. Our target, Simon is $3 billion, but we are not going to dump anything that is really above that, if that is your question. Could momentum take it to a different level? I think we talk to you about that in 2011 really. Right now the target is $3 billion in that 2008, 2010 comparative period.

Thank you.

You're welcome.

Next question, Mr. Andreas Willi, JPMorgan. Please go ahead, sir.

Good afternoon. Thanks for taking the questions. The first question I have is on the outlook for large orders. You had a very good 2009. If you look into the pipeline, what do you see for 2010? To what degree did 2009 benefit from large orders that slipped into the year due to the problems in the markets in the second half of 2008, particularly in Power Systems, and in Power Systems as well in terms of the revenue recognition?

The revenues were a bit weaker in Q4, but you had an excellent backlog. What should we expect for 2010 in terms of conversion of that backlog into revenues?

Well, first of all the conversion of 2010 backlog, as we move in, we talked about that $25 billion, think about a 60% to 65% conversion rate, if that is your question, Andreas. That is what we give, it has historically had. And as we analyze that backlog, it looks like it won't change this year.

As far as the outlook for large orders in 2010, as you indicated, most of those do surround Power Systems. That is where we saw predominance in large orders outside of what we took in Algeria in the early part of the oil and gas in our PA division. And I would say that we still have a very healthy, tender in that place. It is -- particularly on the HVDC in the transmission side, and also for distribution substations.

There is a competitive environment, obviously, out there. And so we have to make sure that we pick the right projects to quote on in the sense that we utilize our resources well because it costs a lot of money to quote on these projects too. But Peter has actually added extra resources this year that will allow us to be more, actually, entertain more projects, and to be able to scope those out.

And so, it is hard to us to say, but there are good projects out there in 2010, and we have a number of targets. And we will just have to see as we go quarter-to-quarter how well we do in converting that tender backlog.

The question I had on Power Systems on the conversion of 2010, it is just that we have seen kind of revenues trailing off into the end in '09, despite the more or less consistent positive book to go for the last few years, which indicates either kind of some temporary gap in revenue recognition or push outs by customers. Or is -- I just try to better understand, that Power Systems should be, should have positive sales growth, but it did not have in Q4.

Yes. No, that is a good question. Remember these projects we have in place -- this is not about projection execution. They are supposed to execute and deliver around certain timeframes. And we can't really affect that. And what happened in the four quarters, we did not have, necessarily, that demand pattern that said that we had to close those out in that quarter.

And so, but this is not about project execution. It is not about customers moving projects out on dates. It is just the way these things fall in place and the way they are executed.

Thank you very much.

You're welcome, Andreas.

Next question, Mr. Martin Prozesky, Sanford Bernstein. Please go ahead, sir.

Good afternoon, gentlemen. Two questions please, the first one on your base order growth, the organic order growth was I think up to minus 13%, compared to minus 3.3% in Q3. How much of that was the comp effect versus last year, as well as the short-cycle businesses and improving versus kind of mid-cycle businesses? Can you just give us a bit of more color on that?

And the second one, in terms of the realignment of the business unit into the new divisions in Automation, you have laid out the logic for either shifting the business unit. What else are you doing in terms of changing the way those divisions will operate? Are you changing R&D agendas, the way you do in customer segmentation in terms of going to market, product development? Just how would you realize the benefit from this realignment?

I will start with that while Michel is looking up the base order space so we can give you more specifics on it. It is -- first of all, the realignment business units is -- of course, we are going to have to realign, when you look at R&D in different parts of those businesses. We talk about solution sets, common protocol systems and how things communicate between each other, actually, how that is aligned.

And so, then Ulri and the team is in the process of doing that and Tom is in the same look at low-voltage. If you look at when we separated those businesses, too, they are very distinct in the sense of the services model. The Discrete Motion business that we have has much more of a services channel to it, more predictability, more up time, more spare parts and those kind of things.

The low-voltage business is really replacing parts of time. It is relatively small, and a lot of that business is channeled. Then we had channeled partners and distributors that worked for that business much more than Discrete Automation.

And so, as we separated those businesses, we did that because that because they were so different in the sense of how you go to market and the R&D commitments in those pieces. And, of course, what we will do is it not necessarily a rationalization, but it is a realignment of those resources around what makes more sense to drive, from a productivity standpoint and an innovation standpoint in those businesses. And on the base orders?

Sales of base orders not too easy an answer to give. I think, indeed, we see that the pace of decline is clearly slowing down. We were year-to-date after total orders something like 23% down in base orders. The fourth quarter was 13% down, so we see a marked improvement from that part.

It is really quite influenced by some of the examples I gave before, like one in the excess of recent breakers and switchers that we up about 10% for the quarter. So that helps a lot, but we can also have base orders in other divisions like Power Systems, for instance, or Power Products.

And so, you would have really to go market to market to that. But, for sure, the way we look at it, it is a good thing to see that the pace of decline is slowing down. It requires confirmation, but that seems to confirm some, what some other companies or, as well, that at least it, the fast rotating business keeps, starts improving.

All right. Thank you very much.

Next question, Mr. Martin Wilkie, Deutsche Bank. Please go ahead, sir.

Hi, good afternoon. This is Martin Wilkie from Deutsche Bank. I am just going to -- a question on the sort of margin benefits you could see going into 2010. You mentioned that cost's under absorption will decline in 2010 in the footprint at first head called.

If you could just outline how much of that under absorption was really focused on the short-cycle businesses, which obviously declined the fastest and the earliest. And has the bulk of that footprint effort been focused on those areas, and therefore, we see an early benefit as short-cycle improves? Or has the under absorption really been more widely spread across the portfolio? Thanks.

Yes. I would say, first of all, it has been spread across the portfolio, depending on where you look at it. The demand patterns have not been the same across the board, but when you look at the Automation Products division, in general, and I think it is where your question would center upon, I would say the short-cycle part of our business went into this downturn a lot sooner than other ones.

And so, we actually saw some under absorption that is in, actually, in 2008. And so, we absorbed some of that under absorption in 2008 and then again in 2009. So, if I am answering your question properly, Martin, I would say as you go into 2010, we have reduced some of those footprints. We have reduced employment in those areas.

As it comes back, our plan to not add employment back in the developed countries when re-streamline. Well, we will bring it back up into the low cost countries. And that is our strategy, so you will see some, hopefully, margin leverage in that sense.

How big it will be, and how soon it will come, I can't say. But that is certainly in our plan.

Okay. Thank you. Maybe I have just sort of a second question on the tender backlog. I know you do give us this chart on the tender backlog. Would you say that new tenders coming into the Power Systems business is continuing at the same rate that you saw law year? Or has there been any change in inquiry levels, in terms of large contracts in Power Systems?

No. It is really continuing at the same trend. And we keep adding people to work on all these trends. I think, especially, the grid systems as will see in FAX will be a lot of tenders that are being worked on now. And so, I would say the future from that type really looks promising as well.

Another thing, you saw this tender backlog coming down. That is the result of the high success we have had in the last two quarters in the backing new orders. But there is still a lot of demand and a lot of projects out there.

Okay. Thank you.

Next question, Mr. Andrew Carter of Macquarie, Please go ahead, sir.

Oh, good afternoon. It's Andrew from Macquarie. I had just a question on the transformer side again, which I think had been talked about earlier. A number of comments from the electrical steel suppliers suggest that electrical steel's selling prices fell quite substantially very late in 2009.

And I wondered what that really meant for the market from your perspective? Does it mean that the market has moved from oversupply position to an undersupplied one? And do the smaller players that were previously shut out of the market, do they still exist? Are they now more able to come back in?

Andrew, we saw -- obviously, we -- there is more capacity that has come on line to transformers in the marketplace over time. And so, we have seen more competitive pressure there. And we did see a significant fall in electrical steel prices in 2009.

That equated -- we did not count that as part of our cost savings that Michel talked about before. That is more in the commodity end because most of that just falls through back to the customer in that sense, so you do not really realize it from the price standpoint, and it just moves through.

As far as -- I think your question is about enhanced competition here is that we do -- there is more access to electrical steel than there was before because obviously the demand has gone down. I was not here to talk about the initiated new competitors or not, but in the competitors that we do have, we have seen capacity expansion. And it is available out there.

So, I would, overall, I would say what you are doing, you are digging around our transformer business because it is a great place to dig around. We have been able to, through that portfolio, both in the differences of kinds of products that we make, and also, the diversity we have from a geography standpoint, balance that business pretty well this year, even in a competitive environment.

Our goal is to try to do the same thing year, but we do see a lot of competitive pressure out there. And we have cost-out programs to help to address that so that we can remain competitive. Bernhard, any thoughts to mix in? Okay, Andrew?

Thank you.

You might have fallen asleep on me I was afraid.

Next question, Mr. Olivier Esnou, Exane BNP Paribas. Please go ahead, sir.

Yes. Good afternoon. I have two questions please. The first relates to the savings. If you look at the $1.5 billion this year, I mean in 2009 and 2010, would you say that there is a portion of it that should normally come back as demand picks up, which would be, I don't know, consulting or marketing relating, which is a sort of a short-term adaptation, and that has normally the ability to come back quickly. Or is it, in your view, pure fixed cost cut for the long-term?

Second question, I would like to come back on 2010 guidance because some competitors with shorter backlog are giving guidance for the sales roof in 2010. And I would like to know why you are somewhat hesitant to do it. Is it that there is some just more concerns on your side regarding the economy, or there something maybe be specific that makes you really tend to guide on the sales for '10? Thank you.

Yes. Starting with your second question, I would say we obviously watch our competitors' guidance pretty closely. If you do watch it closely, it seems to swing all over the place, even sometimes in a manner of two week differences of a robust bullish kind of an outlook and then kind of retracing their steps over a period of time. What Michel and I do is remain as consistent and accurate as we possibly can.

And so, what we do is we do not try to pretend to be economists. We look at order patterns. We try to look at the historical piece. We try to give you the most accurate representation as we can in the sense of what we see.

Remember, again, that having 20% of our portfolio in the short-cycle business, it helps to temper what we say about is that we said that we feel that it has bottomed out. We actually have seen an increase in some part of that portfolio. But to have you think that is really going to drive an incremental margin increase across the business with that being part of our small of our portfolio, we want to make sure we are very cautious in the sense of how we push that through.

The other 80% of our business is driven strongly, well largely, by CapEx. And I think we all know that it takes, as GDP comes back, it takes a lot before the CapEx goes in again. And if any part of our portfolio that have seen has been hit hard, it is in the industrial side. It has been hit extremely hard. And it is going to be awhile before we think we see the kind of robustness we saw in 2008 and that kind of expansion.

So, what we trying to do is we are not pessimistic and we are not optimistic. We are cautious. And at quarter-to-quarter, we are going to try to report to you as cleanly as we can what we see.

And we are a little cycle Company. And most of our competitors are. That's for sure. On the first question, if you really look at the kind of savings we have here, I think if you talk about G&A, is it sustainable? If you talk about op-ex savings, which is mainly working at cost of full quality, that should be sustainable as well. And obviously, a footprint savings, producing in a cheap country versus producing in a high country, high cost country, that obviously will stay as well.

The only one where you could be right is that, obviously, sourcing savings can always be challenged if the market shifts and suddenly becomes a surprise market again. Now, if that is the case, it is a surprise market for us too, and we will also then be able to increase the wrong prices, so I think the margin, then you start shifting from costs to margin, I think the ability for us to sustain the margin should still stay there because of that.

Okay. Thank you.

Next question, Gael de Bray, Societe Generale. Please go ahead.

Yes. Hello, good afternoon. Thank you for taking my questions. The first one is, actually if I look at the bridge on the chart, page 17, there is one that would beeps a negative impact on the margin in 2009 which has not been properly explained. I was just curious to know what are the different items within this other line, and how this could develop in 2010.

The question relates to China. You indicated at the beginning of the call that you expected orders to be still up in the higher voltages, even if it could be down in lower voltages following on State Grids announcement that would cut CapEx by 25%. So does that mean you still expect year end markets to grow over in China in 2010? And maybe could you give us some color on the breakdown of your Power sales in China between high voltages and the lower voltages both? Thank you.

I will take on the waterfall, Michel. Do you want to attack the other one, first one about China?

Okay. The waterfall, obviously you still have in the business like, of course, is diversified that this is the worth some kind of special charge that comes. But what you have in this order can be, for instance, adjustments of quantity provisions, can be some bad debt write-offs that have come, or some one-off costs that we have on a specific project execution. So this is all the things that are not really categorized as a pure price volume analysis.

And that is why we have bundled all together from that part. But it is nothing really exceptional. It just linked to the nature of our business.

On China, look, China is, obviously, an extremely market for ABB, and we watch it extremely closely. I think the best way for me to convey China to you is in the chart that we showed that 40% of that business was Automation, and we saw substantial expansion in our Automation piece and mainly Automation products last year, and then our Power business which is about 60%. And State Grid is our largest customer over there, but obviously our Power Product division over there is spread across a lot of different opportunities.

As we look at next year, we are -- we have not modified our forecast for China with the recent announcements from the State Grid standpoint. It is so quite uncertain in the sense of what the high voltage demand is going to be. We have several projects in our tender backlog that we will be quoting on that will see when that actually comes due by quarter.

But look, China is a very dynamic environment. It is extremely competitive. There is domestic competitors there and international competitors. And it is difficult for us to say exactly how it will pan out. But all I can do is convey confidence in the sense of our structure in China, our technology in China, our customer relationships we have in place over the number of years.

And as we showed in 2009, we have shown that we can be extremely competitive in that sense. And so, we are, again, cautiously optimistic about China, but we will have to see quarter-by-quarter exactly what those demand patterns look like.

Okay. Thank you.

And so, as we are looking at a hard stop to 4 o'clock today, I suggest we take the last question for today's conference call, and the conference here, and given that we still have a couple of people on the line, I think we take the last question from the phone.

The last question from today is from Mr. Timothy Rothery, Goldman Sachs. Please go ahead, sir.

Good afternoon. It is Tim Rothery here from Goldman Sachs. Just two quick questions please. Firstly, in relation to your sales in China, would you be able to break out what share of them are in the middle market where you are competing with local players, versus those in the high end?

And then, secondly, in relation to your solution strategy in Discrete Automation, could you just elaborate on that? How do you share the economics of improved productivity and energy savings with your customers? How does that translate? Does it come through in terms of better pricing on components, or is it part of the overall contract price when you agree to something with them?

Tim, first of all, on the middle market side of China, I don't have those figures at the tip of my hand, and I don't think we share those with people, in general. But it is a small section right now. But is goes across each one of our divisions, whether you are in low-voltage or you are in discrete or if you are in Power Products, you are in Robotics, we all have strategies. And in each one of those middle market segments that we know that we have to compete against, and we have invested in those over the last several years.

Great question on the Discrete Automation and Motion. You are basically asking how do we really obtain value from these solution sets. And I can tell you that the natural reflex of ABB is to get the pricing through better componetry. But increasingly, we know that we have to become a partner in that sense, and to be able to move in and to be able to maybe share some of that savings and help to guarantee those savings with customers.

And as we develop these solution sets, we will obviously have different value propositions we will put together for customers that could be enhanced from a product standpoint, or also enhanced from a solution standpoint. And we will remain flexible in that sense, depending on how customers want to handle it. Okay?

Thank you.

Joe Hogan. Yes. You're welcome. So, again, first of all, thank you for coming, and thanks for your support. Again, we thought 2009 is the team executed well, and we are proud of that. We take nothing for granted, and hopefully you could tell from our comments that we are optimistic about the future. We have confidence about the future.

But we are going to take 2010 in the sense of being cautious, and work very hard on the operations side through this cost-out effort, but also continue to invest in growth. With that, again, want to like to thank you, and we will call an adjournment to the meeting.

Thank you.

Thank you.

Okay, so thank you very much for those who actually came here at, to the World Trade Center in Zurich. The rest of the EC, and Joe and Michel will stick around for --

Ladies and gentlemen, the conference is now over.