Abb Ltd (ABB) 2010 Q4 法說會逐字稿

Good afternoon. Welcome to the ABB fourth-quarter and full-year 2010 investor conference call. Please note that for the duration of the presentation all participants will be in listen-only mode, and the conference is being recorded. (Operator instructions) we will kindly ask each caller to limit themselves to two questions only. This call must not be recorded for publication or rebroadcast. The broadcast of this call will be available for one month following the conference. (Operator instructions) at this time I would like to turn the conference over to Mister Joe Hogan, CEO of ABB. You will now be joined to the conference room. Thank you.

(Operator instructions)

Ladies and gentlemen, welcome very much to this year's presentation of our Q4 and full year results. A little bit of housekeeping before I introduce the speakers. As usual, we have the emergency exits on either side of the room for the people here in Zurich. In case there is an emergency and we have to evacuate the place, please follow the instructions that will be given by ABB people. However, I can assure you, we are not planning to have any exercises so as every year, so if really we urge you to leave the room, then there is a real emergency, and we are not making any fun.

So without any further ado, what we have today is the usual Q4 presentation, the deck that you have all been able to download from our website since this morning, and we will have in a first round presentation, we have Joe Hogan and Michel Demare together with Ulrich Spiesshofer and Brice Koch will lead you through the presentation. After that, we will have the Q&A, like every year, where also, all the other members of the EC Committee are today present with us, are here to help us with any questions you might have.

Before I hand over to Joe, I would like to point out one thing that we have also put in the press release, but maybe you have not noticed, with regard to the date of the Q1 release, which this year, we had brought one day forward, so it will be on a Wednesday instead of a Thursday, and that will be April 27 this year. So I thought while I have your attention, I'd briefly throw that in, so this doesn't get -- probably doesn't surprise later in the quarter.

So with that, Joe, please, the floor is yours.

Thanks, Michel. Good afternoon. I hope Michel and I don't say anything that sends you to the emergency gates here, okay? Concerns?

I'm going to walk you through the full year message on 2011, and what we're seeing, from a driver standpoint and the full year 2010. I think it's obviously, we know this community, we know you guys have gone over a lot of these charts and information, and so Michel and I will try to give you some color behind the charts as we go through this, to anticipate maybe some of your questions as we get into the Q&A part of the sessions.

Overall, we'd like to -- we feel good about 2010. We like how the business feels as we move into 2011. I'd describe it as a tale of two cities. As we went into the first part of 2010, still a difficult marketplace. But then we saw our demand patterns pick up pretty substantially on the shorter cycle side of our businesses related to Automation. As we moved into the latter half of the year, we saw good leverage in the standpoint of the cost out programs we put in place, and as volume began to come back in the shorter cycle businesses, I think you've seen that we've enjoyed some really substantial incremental margins that allowed us to post some pretty significant results.

And so overall, our EBIT margin is going to be well within the target quarter that we've given you, between 11% and 15%, at 13.1%. We've been able to book about $1.5 billion of cost savings or more for 2010. So combined, we've been able to book over $3 billion of costs out since we started our two year cost out program. And then we'll talk to you about as we move into 2011, about another cost out program we feel we're going to have to have to maintain this kind of momentum, given the marketplace that we're seeing.

You know, we have about a 4% backlog growth, which is a very strong backlog for us as we go into 2011. Our cash flow was significant, and really a good cash flow performance in the fourth quarter, and we'll -- Michel will walk you through the specifics of that.

We talk about a return to mergers and acquisitions. We redeployed about $6.5 billion of cash in 2010, and I think strategically, well in line with what we've been able to communicate to you from an analyst standpoint, and we can talk about the valuations and what the synergies are, and get into the specifics of that. But overall, we feel good about where we've placed that money, from an overall strategic platform at ABB going forward.

And then we raised our dividend by 18%. And that shows, one is the confidence that we have in the business and its cash generation, and its position going forward. So overall, we feel a pretty good year.

Now, look, I'd be remiss if I didn't say there were a few -- there were a few misses in this, in the sense of the issues we had in Power Systems with cables. I have some specific charts to go into that. And I know you have some questions on Low Voltage, and why the margin on Low Voltage was lower in the fourth quarter than it was in the third, and I'll try to supply some color on that as we go through the charts.

On the -- now this is specifically Q4. And what I'd point out in Q4 is, our orders are up 18%. Roughly, you can see that our base orders are up 17%, and our large orders, I believe, were up 21%. I think you all know the definition, below 15 million is a base order, above 15 million is a large order. So obviously is a large discrepancy between those two. But base orders are your best determinant in the sense of how this business is going and where it's going, by division. And so, we'll talk about our base order rates, and how they look at -- look at quarter to quarter.

Now this is a very important statement for the analysts that Michel and I put it in this presentation. Our gross order margins have been stable year on year. So we look at our orders that came in in '09, versus the orders of 2010, and you compare those margins between the two, they're just about flat to equal.

Now you know the price competition, and the pressure we've seen on price in the marketplace. And that means our cost out program, through that, we'll be able to mitigate this throughout the system. So it's a very important, obviously, leading indicator of the margins that we expect in this business going forward.

We had an additional $120 million charge -- I'll walk you through that. That's unfortunate, but I feel we have our hands around it, we understand it, we'll learn from it. This is a growth market that I think we can use this to further the business in the future.

Our EBIT margins benefited from, obviously, the leverage in our Automation businesses, but also, the $370 million of cost out that we saw in the fourth quarter. And our operating EBIT margin, about 12.3%, and cash from operations at a really strong $8.4 billion.

So, on this chart, what we're trying to show on this chart, is obviously, orders are a strong health index for your business. On the left hand side, you can read it, that's Q1 '09. It goes to Q4 '10. And this -- the heavy colored bars are orders, the lighter colored blue bar is revenue. And you can see from the first quarter of 2009, that we had a very strong book-to-bill ratio. Orders were very strong, and revenues were a little bit below that. So it was a really strong first quarter of '09. That's as we were heading into the recession.

But you can see for three consecutive quarters after that, we had a negative book-to-bill ratio. Then starting in the first quarter of 2010, you know, we started to see a reversal of that, and soon, we've had three consecutive quarters of a positive book-to-bill ratio. We're trying to show on this chart that the fourth quarter, even though it was a negative book-to-bill, that this is cyclical from a historical standpoint. Most fourth quarters are this way.

If you go to the right, you can see that's 2005 to 2010. You can plot those year-long book-to-bill ratios, staying at a high of 1.18 in 2007, dipped to 0.97. Now we're back in that organic growth phase of 1.02.

The next phase, next slide here is about base orders. And I call your attention to look at Q1 '09, okay? You can see that as you looked at '10, we were negative 5% if you look at that piece. But if you go back in history, when that looked really strong, actually, our base orders were starting to deteriorate in the first quarter of '09, even though we had a strong book-to-bill.

Now, if you look at our base orders now in Q1 '09, Q2 '09, Q3 '09, Q4, and compare that to '10, you can see the positive base order rates. And this signifies a significant amount of underlying strength in our order patterns in our business. And I think another great data point -- because I know we'll get a lot of questions on Power Systems, is Power Systems had positive base orders growth in the fourth quarter.

So my contention, that's a strong leading indicator, that business being our longest cycle business, starting to come out of this. Now, we have seen some strength in Medium Voltage that we have communicated to you before, and we look for that business to cycle back into a growth mode in the second part of 2011.

Our operating EBIT margins, I stated, stayed within that 11% to 15% range. We ended the year at 13.1%, so comfortably in the middle of that. And seeing we've been able to maintain that, I can tell you that it's our cost out program that contributed to this significantly. And secondly, is being able to find growth where that growth is available in emerging markets, that helped to sustain us through the downturn.

On the right hand side, though, you can see the composition of that EBIT, based on our portfolio, has changed pretty significantly, where Power was the dominating factor in the sense of our EBIT back in 2009. You can see that Automation has overtaken that. And that doesn't mean that Power is a weak business and Automation is strong, it just has to do with the short cycle, mid-cycle and long-term cycle application -- aspect of our portfolio.

Now, we fully expect that Power will come back and help to take its rightful share of that piece going forward. But it's part of the power of the ABB portfolio, that these things help to offset themselves. And then we have things like making sure that emerging markets growth actually happens, and putting the right resources and people on the ground, and our cost out program to help to mitigate the recession on both ends of the portfolio.

Now, this chart, a little bit of an eye chart, but specifically, this is our fourth quarter EBIT, orders and revenue, and we have it by each one of the divisions. You can see the red boxes highlight where we thought there were some issues, and the blue boxes, the green boxes, we feel good about it. Power Products, you know, orders overall down 5%, but as I mentioned, base orders up, revenues down 6%.

But on the right hand side of Power Products, you can see that our EBIT for the quarter was 16.3%, and that's great performance by Bernhard and his team to be able to post that kind of a margin, through which we all know has been a very competitive industry, both all over the world, from an emerging standpoint, and developed markets. And so, that's been the great effort that the team has done on costs, in order to keep us competitive.

On Power Systems, kind of the tale of two worlds here. You can see our orders are up 40%, revenue is up 10%, but we posted 2.1% operational EBIT, because of the $100 million to $120 million charge that we took in the fourth quarter on the cables issue we had in the North Sea. If we removed that -- and I'm not saying, look, we're responsible for that operationally, but if you want to understand the underlying performance of that business, you take a look at -- you remove that, it's about 7.8%, which has put the margin comfortably in the range that was communicated before, of the EBIT range we want Power Systems to be able to perform in.

On Discrete Automation and Low Voltage Products, you can see orders up 34% and 14% respectively, revenue up 14% and 16%, and operational EBITs between 17.2% and 17.8%.

Now, Low Voltage products, I think that was a surprise, and I know we've had some questions to Michel and the team on that. I'd point to two things. One, there is a seasonal pattern here -- not third quarter to fourth quarter, but fourth quarter to fourth quarter, year on year. But particularly, when you compare with a company like [Magrone], we have a Low Voltage Systems business that's significantly lower in margin than we have in the Breakers and some of the other aspects of our portfolio there. There is a stronger mix in that piece that helped to dilute this margin in the fourth quarter, too.

When you want to look at this business, look at the margin from a year to year standpoint, and annualize it. And that will give you the best look of how this business performs.

We've talked about, before, we expect the margin in this business to be in the 19% to 21% range on a normal basis. But we're going to invest in this business, too.

Now, this is a very clear portfolio for you. Remember, before, this was buried in Automation Products, and you never -- you didn't have clarity, in the sense of how this business performed quarter to quarter and year to year. We're happy to present that to you, and we'll -- as we all get comfortable with that, we'll explain to you any kind of variances that you might be concerned with or have questions on.

On Process Automation, our orders are up 25%. I'll have some slides later on, but we're seeing a huge rebound in Marine, we see it in Mining, we see it in Metals. So the commodity inflation is a concern from a financial standpoint as we deal with that. There's also a spur in the economy towards growth and investment, so not just improvements to existing facilities out there in commodities, but actually new greenfield sites. And we see our orders coming in, in that direction, and we see some strength in that marketplace.

Just overall, you can see that it was up 18% in orders, 6% in revenue, and 12.3% with the EBIT side.

When you look at the regional demand patterns, this is kind of the standard chart that we show you. I'd say this is a story of the developed world coming back. Remember, the developed world is the one that went down the most significantly when we went into the recession. Now we see the Americas coming back, to the tune of 22% overall in the quarter -- this is the fourth quarter. Automation up 41%, Power up 12%. You see Europe very strong -- remember, we booked a very large HVDC order in Europe that helped that piece, the Power up 55% and Automation up 25%. Middle East and Africa, you see Power -- remember, our Automation portfolio in the Middle East and Africa is not as large as it should, so the negative number is really on a small basis.

In Asia, we continue to battle it out in China, with our Automation business really growing well at 31%, but still some competitive pressures in Power. And I have some subsequent China charts. We'll talk about that.

So look, I think regional demand patterns, it shouldn't be surprising. We expect the developed world to be -- tend to come back, given the severity of the recession, as we went into it. But it's good to see those demand patterns start to come back in our Automation businesses and in our longer cycle Power businesses too.

This is a little more of a specific dive by country rather than region. So you can kind of walk around this chart and see the US up at 13% Automation and Power, how it splits, Brazil continuing to be very strong for us. You can see Germany overall, the Automation, the Power piece. Saudi Arabia, the subsequent (inaudible) -- Saudi Arabia is over a $1 billion country for us now, so it's very significant in the sense of our portfolio.

India is not as bad as it looks, at 42%. We've talked to you about the [Royal Metrification] jobs that the business got into several years ago, that we shouldn't be there. We had to pull out of those positions. We had to cancel some orders, in that sense. And so, year on year, you are seeing some pretty negative orders, as we adjust that portfolio. But going forward, we expect India to perform much better in 2011 than we did in 2010.

In China, the continued story of Automation and Power. One of the things I'd tell you, from a Chinese standpoint, and I'll show you on another chart, is I think Automation continues to grow, and it's pretty phenomenal in the sense of its ability to offset the losses we've had at State Grid. But we're optimistic that we can remain competitive in China. Our Medium Voltage business in China from Power grew double digits last year, and it's probably the most competitive part of our Power portfolio in China. And as we start to move into higher voltage ranges, as State Grid moves that way next year, we think we're well positioned to be able to recover some of our Power position there.

Look, this is just a chart to kind of show you that emerging markets is more than India and China. This is our $1 billion cluster of customers or countries that we deal with -- China, India, Brazil, Saudi Arabia. On the right hand side, you can see anywhere between $0.5 billion and $1 billion of Russia. South Korea might be a surprise to people, but South Korea, both from an EPC that we sell to, but also a domestic economy standpoint, we actually perform and compete very well in South Korea, and the UAE, obviously.

And then down below, anywhere between $100 million and $500 million, you can see from Czech Republic, all the way to Taiwan and Malaysia, these are countries that are fairly large, when you look at the radar screen of ABB and what we do. And so, I guess the point here I want to emphasize is that this emerging markets piece is much broader, again, than just China and India. And it takes a lot of focus on our part, a lot of sales strength. But it's one of the true strengths of ABB to have this kind of portfolio strength and capability in emerging regions.

On the left hand side, orders growth from '05 to 2010, just basically shows that emerging markets are growing over 2X of what the developed countries are. We expect that same kind of order pattern as we go forward.

You know, a little more specific dive on China. You can see that -- and this is basically in the fourth quarter, about $1 billion. You can see Power down about -- I mean, the whole portfolio down about 4%, but Automation being 54% of the total now versus 40% just a year ago.

On the right hand side, talk about grid investments, they're supposed to grow in China between 10% and 15%. We fully expect that to happen in 2011. But it's the Ultra-High Voltage piece on some specific jobs in China that we're optimistic about as we move into 2011. And obviously, we're much more competitive on that Higher Voltage side, and we'll look to -- we'll look to pursue that business pretty aggressively as we go into 2011.

Now, down below, our Automation businesses, you can read this, but I think it's pretty incredible, when you see Discrete Automation and Motion growing 43% on an extremely large base, Low Voltage products up 25%, and Process Automation up 51%. So it shows you the industrial side of this portfolio, and its ability to be competitive in China, and take advantage of strong growth opportunities there.

This is the slide on our cable issue that we had in the North Sea. I really wanted to take you back in time, to say really, it was the first quarter of 2010, where we first floated this issue to you, and we took about a $30 million charge at that point in time, because of a contract renegotiation delay on a cable layer contract as we've put in place.

As we moved into Q2 '10 and also Q3 '10, we had unexpected sea bed conditions. That just means we had committed, from a terms and conditions standpoint, to bury this cable at a certain depth. We ran into areas that were geologically represented, we thought, wrongly in the contract, it was rock instead of mud. It was more difficult to dig it, it slowed us down, and we had to address that and take these charges.

As we moved into Q4 2010, we had to, the new cable burial method, if we couldn't go deep enough, there was rock dumping that we actually had to do, to pile rocks on top of the cable to protect it in some way, which is significantly expensive in a lot of ways.

Now, look, these are accruals. It's not cash out the door. We are going to contend a lot of these charges, but from an accounting standpoint, if we feel we're going to take these charges going forward, we obviously have to accrue for those, and we have.

I think one of the most important things for you to remember, from an analyst standpoint, as we move into 2011, we feel we have this under control and we understand it. It's not saying that there won't be more charges in 2011, but we feel that we'll be able to offset that with the claims adjustments that we'll get from the contract that we have in place. So we feel that it will be neutral. There won't be a net/net loss in this particular cable contract.

Now, down below, I mean on the right hand side, short- and long-term risk mitigation, we obviously now put much more robust terms and conditions into these kind of situations, to make sure we don't run into them again, and we have the discipline to walk away. And we have walked away from jobs, and refused to quote on them, if we haven't been given the leverage to be able to address that.

From a long-term security standpoint, we did run into capacity issues of cable laying. We've been able to secure our long-term security on cable vessels, and also trenching. We can avoid that part of the issue that we've experienced here.

But look, I want to tell you, this is an extremely promising growth market. If you go back five years ago, we might have quoted on one of these jobs a year, and now we actually quote on five, six, seven a year. This is a market that's anywhere between $8 billion and $10 billion by 2015. It's a significant market. It's because, really, HVDC has revolutionized how you can stabilize grids, how you can move grids across geographies from an underwater standpoint, how you can save energy in the sense of transporting renewable energy, like wind energy, offshore and onshore.

And so, [I yield], this is a major mistake for us. It's an operational execution miss. But as long as we learn from it in this growth market, I think the Company can benefit from it in the future. We've made, I think, the proper management changes to address this, and the proper investments to be able to ensure that we'll be much more effective in this marketplace as we go forward.

Our cost out program of $3 billion over two years, we achieved that and more. I wanted to show on this side of the page that -- how that works. Remember our four buckets, sourcing and footprint, OpEx and G&A? Sourcing was the predominant piece all along, and we think we can continue to drive sourcing, and I'll show you why, in 2011.

Footprint, remember, that was the movements of plants, to put them in the right area, and to make sure that we took advantage of lower costs where we could. Now on the right hand side, you can see how that breaks by division, and I would say, it should be no surprise to the analysts in the crowd that predominantly, it was the Power businesses that took advantage of this because they had to, they are longer cycle, and had the highest cost pressures. But also, all the businesses, whether Discrete Automation and Motion, Low Voltage Products, Process Automation, took advantage of this, and I think you can see the leverage we've been able to deliver on the businesses as we've seen volumes come back.

And so, a successful program, and one we want to continue as we go into 2011, because we know we're going to continue to see competitive pressures, and we're going to see some inflation, from a commodities standpoint, and we have to deal with that with a combination of price increases, but also, continued cost out efforts.

So I want to just give you a little color on the cost out program. So if you look up above on this chart, it basically shows you the number of projects we have, like in sourcing over 100,000 projects, footprint 150, operational excellence 2,400. And so really, it's a huge amount of programs that have to be in place, people that are utilized, people that are motivated through this to make it all work. And then you could see down below the commensurate savings that we had from a sourcing, footprint and G&A standpoint.

So this is a massive effort for ABB. It's one that ABB, I think, has learned a lot, and we want to make sure that we maintain that momentum as we go into the next year.

And that's what this slide shows, so we've committed to another over $1 billion of cost savings for 2011. You know, I think you're going to see Power Products again continue to hit the cost out part of this very strong, until we're certain of the demand pattern coming back in that business. Down below, the blue box indicates we'll have targeted price increases where we know we can get it, and we think we have a shot, so Low Voltage Products, some part of Discrete Automation and Motion and Process Automation. We certainly will raise prices in areas where we feel we can continue to grow, but also be able to pass on these commodity price increases that we see throughout the business.

On the right hand side, you can see it's actually three buckets. It's sourcing, footprint, and operational excellence that will make it up next year. A little less on sourcing, a little more on footprint and operational excellence. And G&A, we'll just hold flat for the year. We're going to have to add some G&A to help further sales efforts that we have going on in the Automation businesses that continue to recover.

So I'm confident, again, in the Company's ability to be able to deliver these results, and I think it's really critical for us to be able to maintain our operating profit in the face of, I think, continuing price pressure, and really, economic uncertainty in the developed world and somewhat in the emerging markets.

We redeployed $6.5 billion of capital last year. I think you know the deals that we did. You know, Ventyx -- just so you know, Ventyx is going well. Michel will give you an update on the integration, and where we stood on the performance year to year, and what we expected.

But you know, with Ventyx, what we've had, we spent $1 billion, or over $1 billion, and we did that -- we really have the largest software company for utilities in the world today, and a very comprehensive portfolio of what I'd call administrative software at the CIO level, just being able to track and anticipate and move through that to get the kind of a value cycle that you have in a utility, and then the control software piece that we would have underneath it for SCADA systems, MMS and those types of programs.

And so, really it's -- and we're seeing great synergies across geographies and across customer bases, as we combine these portfolios and go to the marketplace.

In India, I think you all know, we increased our stake in our Indian public company, from 50% to 75%, for a little less than $1 billion. We really needed to do this strategically, so we could realign our investments and what we want to do in India properly with the kind of returns we'd like in the business.

K-TEK is a measurement company, that has to do with leveling technology in our Measurement Products group, and Veli-Matti's team on Process Automation. This is a strategic piece of technology that we needed. There's only four or five really good leveling technology companies that are out there. We were fortunate to get this and helps to build out our portfolio. And we've had some real success in increasing the margin and growth of our measurement products business.

And then lastly, Baldor, as we announced in the fourth quarter of 2010, this is obviously the NEMA motor company in the United States, ABB having the largest motor business in the world but not having a motors position at all in the largest industrial country in the world, we really had to fill that gap. We bought the best industrial motors company in the United States there. The acquisition is going extremely well, and Ulrich Spiesshofer will give you an update on that.

So all in all, I think from an investment standpoint, analyst standpoint, you don't question these strategically. You might question the synergies, you might question what we pay for them, but you don't question them strategically. And hopefully, Michel and I, as we talk to you, we've been able to communicate this kind of -- these kind of gaps in our portfolio we feel we need to fill in order for the Company to grow properly and be balanced properly over the -- along the geographies.

We talked about -- we raised our dividend, obviously, as you know, by 18%. Hopefully, what this shows you is that we again have a huge amount of confidence in this business going forward. We're confident from a cash generation standpoint, we showed it again in the fourth quarter in 2010, what we can do. And Michel will go through the tax-free dividend payments piece and what that means. But this is equivalent to a 54% payout ratio, so hopefully you can see from our end, we're trying to give you the proper mix of inorganic/organic growth, and the kind of cash returns that we think our investors deserve.

So entering 2011 in a much stronger position, early to mid-cycle business recovery well underway. Again, as we anticipate the Power Products will begin to come back from an organic growth standpoint, at least in the second half of next year, as utility spends begin to kick in. A $26 billion order backlog. Acquisitions will be accretive in 2011. And you know, a lean cost base that we want to maintain, through that -- another $1 billion of cost out, proven cash generation through the cycle -- you can read through this. Higher dividend shows our confidence in the future.

So we feel we're fit to compete, we have a good, lean cost structure, and a very strong balance sheet.

With that, I'll turn it over to Michel, and he'll give you the real details. Okay?

Only the truth. Thank you, Joe.

Yes.

Well, I'll first take you through some numbers, to at least summarize the situation here, won't read them all. I think what is important, first of all, is the fact that we finished the year on a strong note. As you can see, orders up 18%, so this is the third quarter in a row that we have a positive order development. Remember Q1, we were negative 19%, and everybody was wondering where the bottom was. This is actually the second quarter in a row now that we've had an 18% order increase.

The other good news is that this is now on the third quarter in a row that our base orders are at least growing by 15%, so that is obviously a very important point.

Revenues were good as well this quarter, plus 6%. That allowed us to close the gap for the full year. We finished the year down 2% in terms of revenue, and we finished also with a backlog which is up 4%, starting at $26.2 billion, and that is obviously a good guarantee of business for 2011.

In terms of profitability, I would say the most important number is not here, because it's not a US GAAP number, but as you know, in the management discussion, we always refer to operational EBIT, which is basically the EBIT corrected for the impact of derivatives and the restructuring expense, and as well, some special charges like the release of compliance provisions that we had last year.

Actually, in terms of operational EBIT, it's amazingly stable. The fourth quarter, it's the same than last year fourth quarter, there's a difference -- a positive difference of $24 million. The full year operational EBIT is the same, it's just $20 million less than last year. So in fact, we have really achieved, from an operational point of view, the same dollar profitability than a year ago, which -- I will explain that later, how we got to, because it doesn't -- it was not that simple. That was quite a journey to get us there.

Net income as well for the full year shows a difference of $340 million. In fact, if there as well, we are just (inaudible) operational difference, the difference is only $100 million.

And then important, the cash flow, $3.4 billion for the free cash flow for the year. I'll have some slides on that as well. And the return on capital employed -- there again, you have to operationalize these numbers. If you take operational return on capital employed, actually, we went down from 24% last year to 23%, so not a big difference there as well.

In terms of figures by division, I won't comment about the quarter. Joe has already a slide about that before. If you look at the full year, you see really the difference of speed between the two portfolio. Automation did very well, the three divisions are up in orders by 23%, 15%, and 7%, while the Power divisions obviously had much more headwinds, but it's also good to see that in the fourth quarter, Power Systems, thanks to a lot of large orders, was at 40%, and actually, the decline in orders in Power Products was only 5%. So at least we are bottoming out from that perspective, but it had still quite an impact on revenues.

If we look at the operational EBIT margin for each of the divisions, we see a huge progress in Discrete Automation and in Low Voltage Products, who are now at 17% and 18%. A good progress in Process Automation, but it's also, I think, worth to note is that Power Products, if you compare it to a year ago, has basically only lost 1% in margin, despite all the pricing pressure that we talked about. And obviously, Power Systems was impacted by these cable project issues that Joe has explained, and would have, in fact, been close to 7% if we hadn't had these charges.

It has been a tough two years since the -- since September 2008 and the bankruptcy of Lehman. I think we all agree that was the toughest crisis that we have seen since the century. And our feeling is that we have not done that bad for this period, and that in fact, ABB is emerging leaner, stronger, and with ambitions that are intact. And I have a few indicators here to demonstrate that.

I talk about the order backlog up 4% this year. In fact, the order backlog at the end of 2010 is the record high backlog for ABB. Never have we had a backlog above $25 billion, and we finished the year this time at $26.2 billion. As you can see from the comments, in fact, we lost in terms of top line, thanks to this backlog as well, only 6% in revenues during these two years of crisis.

The other thing is that the focus on cash flow is still extremely strong in the Company. We still really put a lot of attention to not just produce accounting profit, especially with project accounting, but to really see the cash as well. And by trying to first convert operating cash flow into EBIT, at a rate, if possible, of 100%, we try to manage our net working capital as tightly as possible, and this year also, we have slightly reduced our CapEx spending to try to offset, and the result of that is that the free cash flow this year, $3.4 billion, is as well a record for ABB that we have never seen before.

As a result of this strong cash flow generation, the financial situation of ABB is extremely strong. We end up the year with a net cash position of $6.4 billion -- this is the second largest net cash position at the end of the year, and this is obviously after having paid the dividend, as well as having paid the Ventyx acquisition and the ABB India increase in control. In January, we closed Baldor, and we paid the $4.2 billion that we agreed to pay for this acquisition. And so even after that one, we still have a net cash position of about $2.2 billion.

So that is really still a very strong position, especially if you combine it to the fact that we have now more than $15 billion of equity, also a record high from that perspective. And that again, despite the higher dividend payment, and the fact that from an accounting point of view, the ABB India transaction resulted in a net reduction of our capital stock, and so, affected the equity.

So that's obviously a very enviable position to be in. Let me now go a little bit more into the explanation from the quarter, and I refer to your favorite chart. Enjoy it while it lasts, as we say.

So as you see here, the comments I said before, that's from Q4 2009 to Q4 2010, we have managed to keep operational EBIT flat at $1.1 billion, a difference of $20 million, but it was a pretty hectic journey. You see that we have lost another $270 million in terms of product pricing -- that is obviously mainly from the Power side. We had the special charges on projects, the PS cables, $120 million. And we as well -- we invested part of the savings we have done in selling and R&D for $45 million, with also a slight impact from business mix, because we book a lot of revenues from large projects in the fourth quarter that have typically lower EBIT.

So that was a lot of negative impact that were offset on one side by the volume that is now turning positive, and in fact, the Automation division have got pretty high incremental [EBIT weight] for the additional volume they could book, actually, incremental weight above 50%.

But then, the best is that we could generate $370 million of additional savings that more or less totally offsets the negative impact of pricing and project margins. So I think a pretty good from that perspective.

You can look at it the same way for the full year, and there, as well, I think it's even more impressive to see this (inaudible). Beginning and end position is more or less the same, $4.1 million, but this is after taking an impact of $850 million in terms of product pricing, and another $450 million in terms of project margin. And I would say, $450 million is more or less 50% execution issues that we discussed, and 50% just the fact that some of these projects have poorer margins than they used to be in the past.

So these two together is $1.3 billion impact, versus $100 million reinvestment in selling and R&D, and all of that has been offset by $1.5 billion of savings generated throughout the year. $1.5 billion, obviously, it's a pretty big amount. If you translate that, it is almost 5% of revenues, which means that without these savings programs, we would have today an EBIT margin in the 8%.

So that was absolutely justified to do this, but you see that this has been a very dynamic business, and we had to react pretty fast to keep ourselves within the targets that we have committed to.

Again, talking of balance sheet a minute, we have done a lot of effort on the net working capital, that despite the fact that the last five years, have been nothing but a flat journey. And you have seen that we have keep -- kept, actually, our net working capital in a very tight range, between 12% and 13% of revenues. And there was a very big effort, again, in the fourth quarter, that allowed us to finish the year at 12.1%, as well with a significant reduction in overdues, which was a very good effort from the team across the different countries to accelerate collections from our customers.

So as a result of that, as I mentioned before, not only we got a good cash flow from operations, but this tight management of net working capital and CapEx led us to generate $3.4 billion of free cash flow. The good point here is the conversion rate. It's 133% of net income conversion into free cash flow, and that is after spending more than $300 million of cash restructuring expenses, or spending in cash the restructuring that we had provisioned for last year.

Over the last five years, we have converted, on average, 104% of our net income into free cash flow. So that company has become a very good cash generation machine, and can really translate the accounting profits into cash, which is always very reassuring to see.

The result of all this is obviously, we have a very strong financial footing. You know that we have this commitment to stick to our single A rating. We took here as an example the Standard & Poor's requirement to score a single A rating. And as you can see, each of them, we are in a very comfortable territory, having still a net cash position.

We also, during the year, we negotiated a credit facility of $2 billion. We had a 2-year credit facility in place; we renegotiated to extend it until 2015 without covenants at a cost that were more or less of half of what it was in the previous facility, and we got a very large group of our co-banks, because we need so many co-banks, as we need a lot of bonding lines. So we had 28 banks that signed up in this facility to guarantee us this $2 billion liquidity at any time.

We don't have any issue in terms of debt refinancing. We have $882 million equivalent of bonds maturing in September, and then another $946 million in 2013, so that can easily be covered by operating cash. And another good point is that we managed during the year to reduce our pension deficit. We made some contribution, some extra contribution of about $300 million to various pension funds. And obviously, a proactive asset/liability management strategy on one side, and a little bit increase of rates that we see toward -- that we saw towards the latest part of the year has helped as well to reduce this deficit from almost $800 million to $300 million.

In terms of use of cash, obviously, we still talk all the time about finding the right balance between spending money on CapEx and acquisition, and spending money on returning some cash to the shareholders. And as you can see, the M&A activity has started to accelerate. From a cash point of view, we have spent about $2.3 billion of M&A in 2010, and we have now spent this additional $4.2 billion on Baldor in January. Obviously, there is more to come on that.

But it's also interesting to know that from a shareholder perspective, since we resumed dividends back in 2005 once we became profitable again, we have distributed back to the shareholders about $4.5 billion, and that is the result counting the CHF0.60 dividend that we are asking now the AGM for approval back in May. Once that is in, we are talking of $6 billion return.

So you see there has been a good balance there. We have spent during these five years about $7.5 billion in acquisitions. We have returned about $6 billion to the shareholders.

One point on the dividend. So it is a pretty good increase of 18%, that signals again our confidence in our business, our confidence in our financial position, and our conviction that we can yield a bit more to our shareholders, given the balance sheet that we have today. We reconfirm as well our dividend policy, which is to pay a steadily rising but sustainable dividend over time, which means that now, this CHF0.60 a share is becoming a benchmark for our dividend decision of next year.

On top of that, we have taken benefit of a new Swiss tax law that basically allows you to take into account all the shareholder contributions, so the capital increases that have been done in the Company in the past. And (inaudible), this dividend has basically a repayment of this capital contribution.

We went all the way back to 1997, and we were able to qualify a total amount of CHF6.4 billion of capital contribution that now can be used as a base for repayment. And you remember that in the past two years, we have paid a dividend as a nominal value reduction, which has as well a very favorable tax treatment, totally tax-free for a Swiss shareholder, and with a favorable resulting tax treatment for our foreign shareholders. These dividends paid a return of capital contribution as exactly the same tax treatment.

Now, you put the two together, the CHF6.4 billion, plus a bit more than CHF2 billion that we have left on the nominal value reduction, means that we have, in fact, CHF8.5 billion of capacity to pay tax advantaged dividends to our shareholders. And I think there's quite some value in that, too.

We will as well this year, we start with the Swedish registered shareholders, the Swedish dividend access facility, what we call the [DAF], which has as well the same treatment in terms of resulting tax, and doesn't eat into this capacity of CHF6.4 billion that I have described here.

Obviously, the effect of making now acquisitions that have more impact to the top line than the bottom line, will oblige us also to change a little bit the KPIs that we are using in our management discussions of figures. I further want to mention to you that still in 2010, the impact of this new acquisition was not very important. It was about $170 million contribution to the top line, and about a loss of $20 million on the EBIT line. On the EBITDA level, it was a gain of $20 million -- that is obviously a lot of purchase price accounting that happens in the first year.

As of 2011, we're going to shift our management discussion focus from operational EBIT as I described before, to operational EBITDA, so that we don't confuse you with amortization of intangible, which obviously is something that always come along with acquisitions.

So from now on, we will discuss our operational EBITDA, which is described here as the starting with the EBIT, to which we correct for the adjustments of derivatives, which we correct for the restructuring charges, and to which we then add the depreciation and amortization. Sounds complicated, but again, sorry, I'm not making the accounting rules, but we are just trying to make them still understandable for our shareholders and I think that is the best measure of operational performance at this stage.

And we have here, we state that operational EBITDA going back to 2008, you see that would have in 2010 an operational EBITDA of about $4.8 billion, which is a margin of 15.3%, in fact, slightly better than the margin we would have had in 2009, and about 1.5% lower than the peak earnings that we had in 2008.

And lastly, I would like to also give you an update on the acquisitions. Ulrich Spiesshofer will speak later about Baldor, so he will handle the numbers there too, so let me just give you an update on Ventyx. We are very happy with Ventyx. We closed that deal in the second quarter of 2010, so we started consolidating Ventyx as of the first of July.

2010 has delivered what we expected, so the goals, the top line, was in line with the forecast we had in the business plan, and actually, the EBITDA was 10% better than what we had foreseen at the time. We are quite optimistic about 2011. We see at least 15% increase on the top line, and an EBITDA margin that will for sure start with a 3, which is typical for software businesses.

Beyond numbers, we are also quite happy with the quality of the integration. We have managed to retain all the key managers that made Ventyx a success in the past. We have done a lot of effort in terms of integration of the portfolio, integration of the sales force. And I think the most important, maybe, has been that the reverse integration is really working. So the software knowledge that Ventyx has brought to ABB, that really needs that, is already starting to demonstrate the value, and we are starting to be able to extract much more value of our existing software than what we had before we acquired Ventyx.

We also got a few breakthrough orders. For instance, in asset management software that we sold to China National Nuclear Power, all is well. We started making some combined offer, like we had an integrated package with management order that we got from (inaudible) in the US. So we really start combining these two companies, the two product offering, and really being able to offer something different to the utility.

And then the last point, which is also a good sign of, I think, a successful integration, is that Ventyx has also grown themselves by doing a lot of small bolt-on acquisitions all the time, too. This trend has not stopped now that they belong to ABB. In fact, since we bought them in the second half, they as well continued buying two software companies, IKS and Obvient, and we intend to have them continue to do that in the future, so that the portfolio can get larger and larger.

So I would say after six months, a good success. The numbers of the integration is really on track, and delivering both sides, for Ventyx and for ABB as a whole.

And with that, Joe will continue to more talk about the future. Thank you.

Yes, thank you, Michel. So, staying on the growth theme, when we look ahead, and you look at the growth opportunities for ABB, the market drivers that we've talked about before are staying intact. The market drivers we've mentioned to you on Capital Markets Day, which is -- it's basically climate change, energy savings, emerging markets, infrastructure, those kind of things. They're right in the sweet spot of where ABB finds most of the growth opportunities out there.

We think the global economy, as we're mentioning here, is heading in the right direction. I'd use a certain amount of cautiousness to that. I think that in the developed world, we still have to watch exactly what's going on in Europe and the United States, and the debt mitigation that obviously has to occur in both of those regions of the world, and the inflation that's going on in the developed world right now and what's going to happen in China and India.

So we -- we're obviously part of that, we're going to watch that closely. We have to make sure that we manage our business properly to take advantage of it, and also, to avoid some of the risks associated with it.

The rising commodity prices, you know, are helping our customers from a CapEx standpoint, so we're seeing significant growth in Mining and Minerals, in Ports and Transportation, in those areas which you would guess when you see the type of commodity prices that are out there today. Power grids have to become smarter, I think we know that, more flexible, technology driven. And industrial grid customers have service requirements too that we think there's a lot more areas of service, and Brice will talk about that, that we can take ABB into to help the growth platform for ABB in the future.

So even though we took $3 billion of costs out of the business over the last two years, I just wanted to show from an R&D standpoint, we're actually up 24% in R&D spend since 2007. We've sustained and continued to increase R&D over the -- through the recession, so we have used some of these savings to be able to invest specifically in R&D, and also, the sales.

I think it's important to mention too, that it's really important to have good products, investment products. But more and more, channel becomes important, and in a number of geographies, you have to invest in the channel piece to make sure it matches well with the product, and we'll continue to do that, going forward.

Then you can see our services revenues as a percentage of total sales, almost up to 17% in 2010. We have a significant, again, strategic effort to keep investing in this and keep driving this as we try to get this between 20% and 25% as a percent of revenues.

Look, localizing R&D is real important. We talk about an in-country, [for-country] strategy at ABB. We're moving in the mid-market very aggressively. But one of the most important things about being successful in those markets is, I call it, R&D autonomy in those regions. Because when you're in a country like India, you're in a country like China, you really can't have the Western world dictate the pace and the type of product developments you do in those countries. The countries that have their own demand specifications, specifically, and they have their own rhythm, their own cadence, how fast they want that product to be developed. And you can let the Western world try to adapt to that cadence -- it just doesn't work.

So you'll see us moving more and more R&D people on the ground, to get more autonomy to these people, to be able to produce their own products.

You can see some examples, R&D employees in emerging regions for Low Voltage Products will be actually 42% as we go into next year. From a Power Products standpoint, about 35% of our personnel in the R&D area, R&D areas in the emerging economy.

Now, this is not labor arbitrage. This is not because we think we can get lower cost engineers in China. This is because we know we need competent Chinese engineers that can actually design for China at the speed that China demands it. The only way you're going to be successful in those areas, and to take example, Power Products is a very difficult area for us that you've recognized and we've recognized over the last few years.

Take our Medium Voltage business in China, Bernhard's team. It has the most competitive Medium Voltage business in China today, and that's because we've been able to match the R&D, the manufacturing, with the local demands of the Chinese marketplace to do that. We increasingly have to do that more with transformers, and also, our GIS and High Voltage equipment there to.

You can see in LP, some of the products that came out, but also, in Process Automation, Veli-Matti's team, you know, 30% of the R&D in emerging markets, 60% control systems in R&D, you see India and China are hubs for this piece. And again, I want to emphasize, this is not about low cost labor. This is about taking advantage of the opportunities for growth in those areas, rather than just trying to find lower costs, try to labor arbitrage around the world.

So when you look at -- we have a highly targeted product development group, and I don't want to go through each one of these products, but what I want to point out here is, you can take just switchgear. You see we have an example here of a new [gasolated], insulated switchgear -- I think it's 72kv, an automated circuit breaker, an ultrafast switchgear.

One of the core competencies of ABB is switchgear, is being able to break, is being able to stop current from flowing when you need to, when you want to change directions of the current, if you have a short of some type, to break it. And that's arc extinguishing.

You know, when something like this happens, right, and you have a short, and you start to pull it apart, you have an arc, like a lightning bolt that flashes between those things. This is plasma, it's the heat of the sun, and you have to have the technology to extinguish that thing as fast as you possibly can.

ABB is one of the best companies, if not the best company in the world to deal with that. And you see that competency represented through each one of these products and how they're developed around the world, whether it's Low Voltage products, or High Voltage products, whatever. We take that overall platform understanding of ABB, and apply it to those products.

Down below, Uli and Tarak and his team, and Veli-Matti do the same thing on the Automation side. This is a low-loss motor. I think you know, one of the big enticements of the Baldor acquisition was the enhanced NEMA motor standards in the United States for energy efficiency. That's without drives, that's just the motor itself. We think we're going to see that kind of legislation increasingly throughout the world.

We've explained before, I think about 25% of the world's energy is consumed by electric motors. By putting drives on those, you can significantly reduce the energy consumption, but also, by reading down in the motor, you can do that too. And we take that competency and we move it throughout the business also, so just some product areas that show you more about what we can do overall from an R&D standpoint than just the specific products in themselves.

So we had a really good performance by the Discrete Automation and Motion team this year, and then a significant acquisition, obviously, in Baldor, and I'm going to ask Uli Spiesshofer to come up and walk you through the business, and also the Baldor integration and acquisition. Uli?

Thanks, Joe. Good afternoon, everybody. Last year, when we set out to form the new division, we communicated two basic things. One is, what is the strategy, what are we about, and secondly, what is the ambition (inaudible)?

On the strategy, we said we've got (inaudible), we've got to focus on five areas -- Discrete Automation, Industrial Motion, Renewables, Power Quality and Control, and E-Mobility. And under the ambition side, we laid out quite a couple of aggressive targets to get moving with this newly formed division.

We said we're going to accelerate growth through better technology leverage, new applications, a stronger penetration of underserved markets, and packages and bundling.

In 2010, we got overall a 23% orders growth rate, and if you look at the fourth quarter, we were even, about 30%. So I think the momentum has been accelerated, and we will work hard to make that happening in the future.

Leadership in Industrial Motion, it was pretty clear when we set out that we have a huge gap on the NEMA motors side, and on the distribution access in North America. The Baldor acquisition helps us to fill that gap. It doesn't help us only, it's the number one in that field, and I will talk in a minute more about it.

We said, we're going to go after faster growth and more growth on the service side. Happy to report the end of the year this 21% of orders in service, which is really going in the right direction in terms of balancing, to grow that business if services grow.

And last, not least, on the profitability side, is that we want to have an increased profitability driven by two factors -- cost take out, and a Robotics turnaround. The cost take out, we closed the year with about $270 million cost reduction in the end, which is, given the momentum of the business, that we also invested a lot of money into future growth initiatives -- a quite okay performance.

And in the Robotics side, I am happy to report that we are now a profitable Robotics business again, from a double digit minus margin the year before, we are now in a single digit, solid single digit operating margin in Robotics.

So, so much said for the overall ambition. Now let's go through these five areas, and I will try to give you an example in each of them with a bit more detail.

Discrete Automation, we help our customers to drive industrial productivity and an energy efficiency. We have a great PLC business which is growing now substantially. We have, on the Industrial Motion side, we've got more to offer. But you are probably very interested on the Robotics situation which was reported last year, in 2009, as a year that was very difficult due to the market provisions.

We are back in profitability, Motors, I laid out before, and that was basically a result, on the one hand, on cost reduction. We also streamlined further the workforce. We have now 3,600 people at the end of the year, instead of 4,200 in 2009. We also drove very strong execution focus on large projects, and only accepted orders that allowed us to really make a decent margin.

Talking about growth, while improving the profitability we had more than 60% orders growth all over during the year. That means we were able to sell more than 90% more units than the year before -- that's an all time record of more than 12,000 robots.

Now, interesting, if you look at that volume, about half of that volume goes into what we call general industry, outside of automotive. About a quarter goes into Tier 1 supply, into automotive, and about a quarter goes into OEMs, automotive OEMs only. So that the shift (inaudible) that we have started a couple of years ago getting out of general -- getting out of automotive, moving towards general industry, is going very well.

In addition to that, we launched in 2010 a range of new products. These (inaudible), they are lighter, and they are easier to handle. So for example, the configuration pipe of a new robot is now down 90%. We have easy to use configuration tools, which helps us a lot to sell more robots and get them easily installed, especially on the general industry side.

In addition to the broad (inaudible) performance, we had a very solid service growth in Robotics. Service is now more than 30% in Robotics again, and that's helped us to get back to profitability as well.

In Industrial Motion, we have a strong historic position in the European [spend] of products. We didn't have a strong offering for the North American market, and we also didn't have access to distribution.

The acquisition of Baldor is right in the middle of that gap. We really filled that gap with Baldor, as Joe and Michel already have laid out. We closed the offering. We have now a great distribution channel. Baldor serves more than 10,000 industrial OEMs in the US through a network of representative and distributors, and we have now accepted the right time a public offering for energy efficiency. The regulation changed in mid-December in the US, and as of January, you can only sell motors which are more high -- more energy efficient than previously.

Baldor is ready, and was ready for that change, and that allows us to get additional momentum in the business.

On a standalone basis, the 2010 numbers that we expected in Baldor came exactly along as expectations. The revenue was at about $1.7 billion, up 13% in the year 2010, the first year after the crisis -- 14% EBIT margin, and 18% EBITDA margin, quite solid performance, and a good swing in the right direction.

We expect in 2011 further improvement, on the one hand, there's a mix change, higher value energy, more energy efficient motors will contribute there, and continued operational improvement on Baldor will also contribute there.

So we expect again a double digit revenue growth and an EBITDA margin above the level of 2010.

In addition to that, we have started working on the synergies that we laid out to you when we came out with the announcement of the deal. The synergies are solid. We can confirm them, and together with the operational improvement and mix change, we expect the operating profit of Baldor to go up more than 30% in 2011.

The synergies that we assumed at the time when we made the deal, they are confirmed. We had, over the last couple of weeks, right after closing, more than 40 ABB people working with Baldor people on both sides, and they went through line by line the synergies. On the top line, we not only have confirmed the synergies, the first ones are flowing in. We got the first couple of million of cross-sell orders already on the Motor side. We have more than 2,000 key accounts needing (inaudible), and we try to bring to the customers the combined offering in a stronger way.

On the cost side, you might remember we said we will have more than $100 million cost synergies. I can confirm that today, that we will have that, get even an additional upside in some G&A areas. We will probably get a little bit more growth out of sales, synergies on the service side, which is something which will add to the business case.

So today, we stand in front of you, and we really can confirm the business case on Baldor, and we are very optimistic that we will fulfill the requirement that we have given ourselves.

In Renewables, you have seen during the year that we announced quite a couple of activities on the wind side, the opening of a new wind generator factory in India. Brice Koch will later on talk a bit more about the wind segment, so I want to focus today on the solar development.

Solar inverters is more than a $5 billion market that we entered consecutively in a staged way in 2009 and 2010. And today, we have now a full range offering on the solar side, ranging from small [string] inverters that you put into your house, up to large inverters (inaudible) that we even package up to get a bit further (inaudible) to full containers for EPC, and we sell them through Peter and other contractors out there.

So at the end of the first year, there is more than 100 megawatts delivered into the market, and we are on a good pace to get more out of this in the years to come.

Power Quality and Control, I would like to focus today on two building blocks of Power Quality and Control. This is a very [viable] portfolio, with very -- we do a lot of different things, ranging from [excitation] to [rectify our (inaudible)]. Let me pick the (inaudible) rail and energy storage.

On the rail side, you have seen by the couple of nice recent wins on rail orders, not only locally with Stadler here, but we have a good relationship with other locomotive builders like [Cav] in Spain, or [Forslow] in Germany. We got a really nice order to upgrade the high speed train in Germany, so Europe, we are very good in shape, and in China, we have succeeded in 2010 to form a joint venture together with the Ministry of Railway in China for traction converters, so we are well positioned to participate in that market in the future as well.

On the Energy Storage side, based on our Power Electronics capability, we have filled up a modular range of products, ranging from (technical difficulty) kv, up to 5 megawatts. And if you combine these containers, you might even go up to 20 megawatts, where we recently had an order. This is a very exciting opportunity, both for the Industry side and on the Power side, and we are working naturally on the Power side, close to Power [frame] on [PS and PP] to get that offering in the market.

Last, not least, on the E-Mobility side, that's a new offering and a new space that we have announced early 2010. We went out to really become a player on the charging side. The first installations have now been built. We have an installation in Hong Kong, where we are reducing the charging time down to already 15 to 30 minutes. That improves the convenience of electric mobility, electric vehicles use (inaudible) dramatically, so we are in that part of the world.

But we are also present in the part of the world here. In Europe, we have seen anywhere [up and doubled]. We had the first part together with Renault/Nissan, with whom we have a strategic partnership on E-Mobility now, and we still have more to show. Then you come to the Geneva Motor Show in a couple of weeks, we will have our charger range there as well.

So if I close off here, the DAM teams feels that we are pretty well on track with strategy execution. We have achieved the targets that we have set out. We wanted to strengthen the core, which is very important. The newly launched product, our service growth helps us with that. We said we're going to close the gaps that we've been offering. NEMA motors was filled with bad. We tried to fill the [UPS] space as well with [fluoride], but had the discipline to walk away after Emerson came out -- came up with a [blow-out bit], and I think that also adds to the credibility of the team, that we will not do blind deals. We really do them in a very well balanced way.

We have done a couple of things to expand the offerings, and we are well on track to get more out there, and the profitability improvement in 2010, up from about 12.5% to more than 17%. It's a good track record, and actually, we will not [eat off], we will keep the ambition to continuously work on profitability.

So with all this said, we feel we are on a strong basis now for continued solid performance in this business.

With that, I thank you, and hand over to Brice Koch.

Good afternoon. Good morning, probably somewhere else in the world. It is for me a pleasure to be here today, one year later, one year after we have created MC, Marketing and Customer Solution. It was an idea one year ago, and now I think we start to talk about the reality.

Now, going through what is our purpose, MC has, as a purpose, to support, to generate growth for the Group, leverage what we can in the Group in order to grow more and better. We talk about solutions, we talk about service, we talk about innovation.

When we talk about solutions, it is about addressing the key growth sectors, and I will talk about a few of them just in a few minutes. We talk about especially making this, making it easier to do business with ABB. We have five divisions pursuing the business, the service of products. We have a lot of opportunities to make it easier for the customer to do business with us, by bringing that together, by making it all compatible to each other. That is opportunities which the customer ask more and more in the market, and the new drive happening there.

We talk about service and also here I will shortly come back, because we have a huge opportunity to address here how we can serve the market better, how we can serve the installed base we have. And here, we talk about an installed base which I mentioned already last year, of $130 billion -- how can we address that better.

And last but not least, innovation. How can we do better innovation, quicker innovation, faster innovation? And innovation is not only about R&D. Innovation can also be about the business models, about the way to approach the market, and that is a topic which we need to improve further.

Now, if I go a little bit into the solution part, we talk about smart grids, and remember, smart grids, we defined that. In order to define one business we do out of it, so not just as a kind of big bubble, but what is smart grid in terms of business? Uli talked about storage. We talk about E-Mobility, we talk about Renewables, we talk about distribution automation demand management. So we talk about very specific topics which we are addressing across divisions.

Energy efficiency is an obvious one, which has been now called a vertical one of these very focused areas where we want to address the opportunities and the synergies between the division, which is now also moved to MC. And then we talk Group account management. What is Group account management? Remember, it is how do we serve the 30, 35 biggest customers in terms of size of potential for the Group, and we had last year already a gross of 24% in these Group accounts, showing the benefits of working together, showing the benefits of going to them with a solution. So (inaudible) average growth there.

We talk about other topics -- solar, Uli mentioned the data centers. The double digit growth which we see in the market, how can we address that and use the potential here? We talk about packages -- what is packages? It is a mixture -- it is something which is in between what we used to do. We do products, we deliver products and sell them as standalone, and we deliver systems where we bring them together, put intelligence on it, and deliver a full-fledged solution.

But we have the one in between where we deliver products, fitting together with probably no intelligence, but just a package of products. And that is something which, due to the complexity of ABB, was difficult to address, and we are doing that. And I spoke about ship to shore last year.

Then, I forgot to say, last but not least, one of the key things we try to address today, as I mentioned, making it easier for our customers to do business with us. Customer contact management, and what we call net promote (inaudible). It is about listening better and systematizing how our customers think about us, what do they think, what do they like, what do they dislike. So that's, we can really address the issues we might have.

Now, on the growing sectors, Renewable especially, but also Rail, we talk about a $6 billion relevant market for ABB. The wind market, as a total, is bigger, but what is relevant for ABB being the $6 billion, we saw a massive growth in China last year. We talk about 40%, being very new to the customer, having developed products, as Joe mentioned before, which they need, another product which we believe in the Western world what might be good for them. We entered, for the first time, a major service contract on wind, so also, moving together Renewable potential, but also service.

Rail, very strong position here, also in China, it was mentioned before by Uli. Water, I don't need to tell you how important water is getting. We identified that as a potential market for ABB between $8 billion and $11 billion, and there are a lot to come here, because this potential can be tapped from ABB point of view. And solar was mentioned before.

Those, together, we see that this kind of growth potential, we have addressed already to some extent with a 15% compound average growth rate, but a lot remains to be done.

On the service side, I mentioned $130 billion installed base, but we need also, and that is what we are now starting with a massive strategy effort, to bring the five divisions together, and to do more of what we call location based service. In order to not service only one product, or to go to a customer one by one, but to try to combine the offer so that the customer has one face, can get access easier to the ABB portfolio. That is a huge opportunity we have today, with the kind of organization we have.

And the third part is also what we call capability based services, (inaudible) energy efficiency. We know a lot about energy efficiency, we have it in the DNA of our Company. How can we help our customers to get advantage of that, how can bundle that or make it more attractive to them, because that will help them to do better business for themselves.

So these huge efforts will bring us to a percentage of sales for the Group between 20%, 25% in 2015.

And then I talk, another area which we are addressing in MC which is ATV, or ABB technology ventures. Remember, we mentioned that last year? It is about addressing the markets by acting as a venture capital, investing in companies where we believe the technology is attractive for us, makes sense, is filling gaps, or is a technology which is, if it works, it will be a lead change in the market. We cannot invent everything in ABB, the world is big enough, so we need also to learn from what is done outside of the Group, and that is the purpose of ATV.

Now, you saw that that organization, which has been created, as I said, one year ago, has landed seven deals within the last 13 months. We talk about Trilliant, which is going after smart grid, how to integrate all the information, how to come to make communication possible, to have this information flowing around smart grid.

We talk about cyber security, the merger of the conversions of Power and Automation, which we see more and more, because of smart grid, and because of the need of energy efficiency require also to protect the whole power world, and this communication and IT world, and we talk cyber security.

Power Assure, we talk about data center energy efficiency. Data center consuming a massive part of the energy in the world, and having the growth of more than 10% going forward, that is an optimization which is required, and which we can learn from.

Pentalum -- Pentalum being a laser technology to measure the wind speed. Now, you might say, why is ABB going into wind speed and measuring that? The call is to optimize where to put the wind parts, because where you have the maximum wind speed, you can put the parts and get the most out of it. And the second point, it is a technology which is quick enough and cost effective enough that you can put it on the wind turbines and optimize then the wind turbine pitches in order to get a better efficiency of the turbine itself, depending on the wind.

Aquamarine, I'll come back on that. Cleantech Fund in China, it is about tapping the opportunities in China to leverage that fund, which is a very well known fund in China, and to get access to potential investment in that country, which we might not see so well from the outside. Therefore, it's a way to leverage the knowledge of the market and to use it. And ECOtality, lately, ECOtality being an opportunity in the US, a major one, which I will just in the next slide detail a little bit more.

Trilliant, I mentioned it. It is integration from the meters to the control center, how to make that communication flow, how to make it possible, which is becoming more and more important as we all know in the smart grid area, and the way the market is developing.

Aquamarine, it is a wave technology, producing energy. It is working with a flap which is moving up and down, and by this movement, generates energy. It is something which is pretty much down the road, but it will happen, and that is one of the best technologies which we have seen in the world today.

And then, ECOtality is basically filling a gap between our portfolio. We have the products side on one side, in Uli's division, and we have the systems side, the connection to the grid in PS, in Peter's division. ECOtality is the one in the middle, bringing that products together, and linking it to Peter's PS portfolio.

So all that together has happened during this one year, supporting the growth which we want to achieve, and I think a lot more has to come, as you have seen from the potential we have in the market. But we have the portfolio for that, we have the market driver here, so it is something which is possible. Thank you very much.

Next, please. The summary. Well, you know, we're in a strong position for improved growth and profitability. Recovery in the early cycle Automation business has been mitigated here, and we're heading into 2011, I'll tell you, with a different economic platform, at least in the developed world, than obviously, what we experienced in the first half of 2011. And the emerging economies continue to be strong, with the caution on the inflation piece and what's going to be done there.

You know, the return to M&A is, as you could see from Uli's discussion on Baldor, and so Michel and Ventyx, the significant amount of integration work we continue to do. We hold monthly (inaudible) on that to make sure that we are on track, given the financial numbers and the cultural things that we want to accomplish in each one of those businesses.

And then, higher dividends, obviously, show a strong amount of confidence in the business, and the cash generation, we want to really take that going forward.

The outlook for 2011 overall, you talk about emerging markets again, and remember, about 50% of our revenue base now comes from emerging markets. We see the same thing in our order pattern -- obviously, it helped to reinforce that. Mature market demand is expected to remain robust, meaning continuation of what we see in the second half of 2010.

What are the big drivers in that sense? Obviously, there's the restocking in a certain platform, amount of performance that we see going on around the world as economies come back. But also, energy efficiency, I can't highlight enough, is the push for energy efficiency out there, and the pull that that push really puts on the ABB portfolio.

We expect higher utility spend next year as part of the whole longer cycle flow than normally comes after a recession than we've seen before, and we expect that to really begin to hit hard in the second half of 2011. And then, recent competitive trends we think will continue. You know, there's high power equipment capacity -- we think that will put pressure on prices, and again, that's why our cost out program is put in place, to address this, and also, the inflationary aspects that we see coming through on what we purchase.

And then ABB's emerging market footprint is going to help us remain globally competitive, and we'll help to leverage that, and particularly, try to take advantage of that demand that we showed in our R&D charts of being target on those emerging markets, and the mid-market segments of those to remain competitive, and to be head to head with our emerging market competitors in those geographies.

So our focus for 2011 and beyond, we want to capture the growth opportunities that you've heard described here. We want to keep the strong operational execution around cost and growth targets we've had in the past, as shown the last two years. I'll have a strong focus, again, on the acquisition integration piece, we can't let go of that. Cost control is so important.

So one of our key strategic imperatives at ABB is be able to balance that dichotomy between cost and growth, and be able to reduce costs, but at the same time, define growth areas, the specific focus growth areas, and pour funds and money into those areas.

So look, we hope to see you, our strategy development is underway right now. We'll present this to you on Capital Markets Day on November 4, 2011 here in Zurich, and we look forward to presenting that to you at that point in time.

Look, we appreciate your participation, and Michel, Michel, me and anyone, Uli, Brice, anyone from the EC team here, we'd be happy to entertain your questions. So, thanks.

(Operator instructions)

Now coming to the Q&A session, and again, same procedure as every year. I will take a couple of questions from the people here in the room, and then we'll hand over to participants who will join us over the webcast or over conference call. For the participants here in the room, as a reminder, please wait until you get the microphone handed to you, so that the people who are following this event on the webcast or on the conference call can also hear what your questions are.

So with that, who would like to ask the first question? Will Mackie, over there?

(technical difficulty), you had a big question, you were (technical difficulty) on. (laughter)

Hi, yes, good afternoon, Michel. First of all, you were quite explicit, I think, at the third quarter, with regard to pricing trends within the Power portfolio, on the order side and on the revenue side. Could you just update us on how you saw pricing developments within the Power business in the fourth quarter, and perhaps more, share some of your views about how pricing within Power specifically may trend in 2011 against the backdrop of some of the comments in your outlook statement?

And then, on the other side of that piece, coming on to input price inflation, what sort of scale of headwind do you think you may be facing against the spot prices for key materials like copper and steel? And then on pricing, particularly within the Automation portfolio, you held up a few points there about being able to push price increases through. Obviously, as one of the leaders, you can pull. Perhaps you could flesh out a little bit of what scale of price increases you might be able to push through in the current environment.

You want to take the pricing trends on PP?

You want me to take that one? Okay. I would say overall, the pricing trends in PP in the fourth quarter, compared to the fourth quarter last year, is probably more in the same range in which we indicate in Q3, you know, 7% on orders, 5% on revenues. I think for the full year, we have indeed mentioned that we were looking as well at the 5% and 7% revenue and orders.

The trend for the future, I would say if we look at it, it's really difficult to give you a general figure on that, but I think if you take, for instance, the transmission part, we have obviously lost a lot of prices during 2010. The feeling is, it starts bottoming out, especially if you exclude large power transformers. They still have a lot of competition there, but I think we see some bottoming out in low volt, low volt transformer side, then medium power transformer side.

On the other side, you have the distribution that is further than bottoming out. It is starting to recover, there's more demand, which is also good from an operating leverage point of view, so I think it's starting a different trend from that perspective.

So I would say it's still hard out there. Obviously, there's a lot of volume available, capacity available, as Joe mentioned before. But if you look at it overall, it's still interesting to see that the balance of the growth margin on orders that we see in the Power Product portfolio is actually remaining pretty good, and there is not a major difference compared to last year, because the portfolio mix is changing, with more distribution, we're doing well in components, we're doing well in service, and that offsets the fact that large power transformers are still under a lot of competitive (technical difficulty).

So on (multiple speakers) --

(multiple speakers).

Okay. On your third question, on the Automation portfolio and where we see the push price, let's say from a Low Voltage Products standpoint, Tarak and the team has already instituted anywhere between a 2% and 4% price increase across a significant amount of that portfolio in Europe.

Uli's seen a price increase on drives, somewhere between 2% and 4%, again, on low voltage drives. Baldor, late last year, actually pushed through about a 7% price increase on their motors. So those are some specific areas that we -- we feel that we have to hit this hard in the first quarter, because if you don't do it in the first quarter, you're really over the year in doing it, so we're lining up plans specifically by -- you know, in areas where we think we can get it.

We're obviously not going to launch a price increase on large power transformers right now, but we certainly have to mitigate the commodity inflation that we see in those by putting the right kind of contracts in place that have those commodity inflation indexes on them that we can take advantage (technical difficulty).

So your question on commodity, I think, as Joe said, just to build up on that, are in the two largest commodities we are exposed to is copper and electric steel. And electric steel is still achievable, because you still have the longer term contracts in place, so that stabilizes it.

On copper, it's a big exposure for us, so the jump that we have seen in the last quarter is obviously not in our favor, starting with. But what you have to also take into account is that we have a constant hedging policy in place there, so the impact of this sudden price increase is kind of smoothed over the next three quarters, I would say, before it starts really hurting us. And I think you can get to a point when it is that brutal, that in fact, it can maybe provide us also for the argument to say that (inaudible) with the price declines, because the input cost is there for everyone. Even the Chinese and the Koreans have to pay the copper price [is this].

So it will finally trigger a reaction that I think can -- will give us a new trend in terms of pricing possibilities, and let's not forget overall that for ABB, a high commodity price is quite good, actually. There is a lot of industrial activity behind that, that helps our portfolio a lot, too, so there's also a natural hedge to that (technical difficulty).

Thank you.

Next question? So everybody seems a bit shy in the room, so let me be -- quickly have a question that we got over the web. It's a Robotic question, that probably we can hand over to Ulrich. The question comes from Mike Schneider at (inaudible), and his question is that we talk about Robotic orders being up 60% while units are up 90%, and the -- Mike tries to draw a conclusion between volume and price, and that (inaudible) with such a steep price decline.

Okay, thank you for the question. I think there is a wrong assumption in here, because our Robotics business is not only products. First of all, if you look at the growth quality in this business, we have been extremely disciplined on the systems side, and in fact, we could have taken much, much more orders on the systems side. We kept it pretty flat, to make sure we only take in projects which are attractive from a margin perspective.

But there is very little growth on the systems side, conscious decision. There's about a 30% growth on the service side, and the rest is product growth. So the product growth is exponentially higher than the other parts of the [BU].

That's the one driver, and the other driver is, if you look at the amount of unit shift, the driving of structural change, and in automotive, you typically have a very large robot, a very expensive robot. In the general industry, we launched a range of new products which are smaller, more agile, and a lower investment for the customer, and they are really selling extremely well. So that combined mix change between systems, service and product, and the mix change within product itself, explains the difference between the 90% and the 60%.

Okay. The next question here from Thomas, and maybe I'll take the time, while the microphone is being handed over, to remind people to probably limit themselves to two questions, please.

Yes, two questions. Thomas Baumann from NZB. The one goes to the $1 billion cost take out program that you launched. You said it's going to be -- it's going to cost 80 basis points of revenues. That means, just to confirm, $250 million (inaudible), and it's going to be run rate by the end of 2011.

Yes.

Right. The second, actually, build up on prices as well, and on your statement that in the gross margin in the order -- was that order backlog, or order intake?

Order intake.

Order intake, (inaudible) mitigated. So the question is how much, from all the orders, how much price pressure there still [in be], the order backlog that you have, and do you think -- I mean, from what all you see now, the $1 billion cost take out will be sufficient to mitigate this price pressure?

I could have told you the same on the gross margin on order backlog, because it is also within the same range, within 1% of where we were before. So I would say -- as I say, it's again a portfolio mix. We have obviously taken some large power transformer orders, that the margin is lower than what we've seen in the past, but we have seen some compensation in the backlog for other products, taken in other geographies.

So from that point of view, we feel that at this stage, the $1 billion of cost saving program that we have now planned is basically trying to take care of $1 billion of headwind from product prices, and from project margins. And obviously, a big part of that will be in Power, and within Power, a big part of it will be in Power Products. That has the hardest work to execute in terms of cost savings.

So it's kind of related to our forecast of the kind of challenges the division will face in 2011.

So that means the $1 billion is designed to mitigate the expected price pressure, the (inaudible) that will to come? And in the unlikely case that there's no more price pressure, you will define it to $3 billion that you have done?

Well, you know, it's not as black and white as that, obviously. You know, these programs, we keep learning, actually, there is only a certain carryover from the $3 billion program that we had, that will continue generating additional savings in 2011.

I think it's not a short-term view that you have on this cost cutting program. You know, we are moving footprint, manufacturing, engineering. These are so because long-term, we know with (inaudible) we're going to have to compete. So if prices keep going better, but if we still feel that our programs make sense, we will continue, and it will be to the benefit of the margin.

All right, Thomas.

Okay, I think with that, we take a first round of questions from the phone. So, operator, first question, please.

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

Good afternoon. I have two questions, please, the first one on Power Systems, on the growth outlook. At the Analyst Day in September, we had discussion between division and CEO, whether business is going to be stable or going to grow going forward. Maybe you could give us an update on that, also considering your very optimistic outlook for the cable business over the next few years.

And also, in terms of the revenue developments in the Power Systems business, given you have had a consistently book-to-bill above 1, aren't your -- some of the sales held back by utilities delaying projects, or can we expect some sales acceleration in 2011, 2012?

And the second question is on the political risk that you see in Middle East, North Africa. You're very exposed to that region. What is your view? Do you have any contingency plans in place, what you would expect potentially as an impact on your business in North Africa, Middle East?

You know, Andreas, just from the standpoint of your first question on Power Systems, I mean, our gross outlook is strong in that business. We're seeing a lot of -- as you mentioned, sea cables, and also land cables, that have to do with HVDC. And really, on two dimensions. One is to reinforce these grids to make them stronger, and then secondly, is to connect with wind power offshore, solar, even hydro, and bring hydro down to different areas.

So our outlook is fairly bullish, in the sense of the jobs that we see coming through. Now, obviously, we're going to be pretty tough on terms and conditions in different things, because we've learned a little bit through this issue that we've had in the North Sea, and there's some jobs we'll walk away from if we can't receive the kind of terms and conditions that we want. But we feel that there's enough opportunities out there for us to be able to land the right kind of margin base and all of the right kind of current terms and conditions.

This is -- there's a hat on my chart, Andreas, I don't know if you saw it or not, is -- this is somewhere, anywhere between an $8 billion and a $10 billion market, as we go out. And this technology really has unlocked a lot of growth, because it's been able to do things with grids, and with a remote power that you couldn't do before. There is not too many companies in the world can actually service this kind of demand. It's important for us to be able to pick the right things at the right risk level in order for this to grow. So I'm bullish in that sense.

Your second point, about Power Systems sales, a lot of these jobs that we book, I believe, and Peter can help me here, are not just two years out. Sometimes they are actually four years out, and we've actually seen in Power Systems this piece actually gets longer, the time has gone on.

Peter, do you have any comment in the sense of how that backlog is constituted today, and how it will bleed through in '10 and '12 -- I mean, '11 and '12?

Yes, it was (inaudible). As you mentioned, many of the jobs you're going to book now are related to these interconnection, these offshore rate connections. Everything we've got to book now has to be in operation in three years, four years from now. So the whole project has a much longer delivery time that the traditional substation does.

Yes, and that as well, Peter, that there has been a tremendous effort done this year on base orders in Power Systems too, like electronic balance, electric balance of plant works that are usually less than $50 million. For instance, these base orders in Q4 were up 64%, and that is obviously also bringing revenues much faster in the income statement than those large projects, and we'll keep pushing for that, no?

Okay, Andreas, your last question, on political risk. I mean, obviously, we -- you know, we have a decent sized business in Egypt, and we were focused on that recently to make sure, more than anything, that our people were safe there. We'll watch interestingly right now with what's going on in Bahrain and some different areas.

I think traditionally there's a lot of volatility in politics in the Middle East, and we accept that. I mean, I can't forecast exactly what's going to happen. I'd tell you we have a strong demand pattern in that part of the world. Saudi Arabia is over $1 billion that we presented on our charts.

And so you obviously can't control it. There is a certain amount of risk, but I'm hopeful that things will settle down there in the next 30 days, and we'll get an understanding, a better understanding of what that might mean for the business.

I'm sorry, I can't be any more specific than that right now.

Thank you.

Okay, operator, next question, please?

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

Oh, hi. Thank you. I had a couple of questions. The first was, in terms of the performance of the Discrete Automation, Motion and Low Voltage businesses, you obviously talked about the seasonality of margins that you now expect into -- in Q4. I just wondered, looking at the order flow into these businesses, they also seem to me to be a bit weaker. And I just wondered, was there anything particularly driving that trend in short-term demand, and how should we think about that developing into next year?

The other question was, more going back to how you see the progression of margin, whether it be from price pressure, cost take out, or additional costs that you're putting into the business, panning out through 2011. And I think you've had a lot of questions on the cost take out and the pricing side.

But you also talked about actively putting some costs back into your business, particularly with regard to, as you're seeing, of competition in some areas. And I just wondered if I should take that to mean that we will see sort of a rising as a percentage of sales, some of your sales and R&D lines?

Simon, on your first question, I'm kind of confused. Our fourth quarter order rates for Discrete Automation and Motion was 34%, Low Voltage Products was 14%. So I mean -- you know, I think that's pretty strong demand, in that way. Our revenue base was different, but obviously, there's a book-to-bill ratio difference between those two.

But I think, obviously, Simon, you watch our competition. Some of our competition is starting to level out in that area. We do expect that you can't continue to post these kinds of quarter to quarter gains, so we'd expect that that would be mitigated somewhat, as we move into 2011.

But as I look at the order patterns in 2010, the fourth quarter, they were pretty strong, overall, and we feel good about where the business is.

As far as where we're going to invest in this business, remember, we want to balance on the cost and growth, so we talk about taking $1 billion of costs out of the business. At the same time, we're going to lay in some costs in emerging regions and the specific regions that we think make sense.

We watch very closely our revenue for head and revenue for profit area, to make sure we don't get ahead, and lay in cost ahead of the piece, but I think right now, one of our biggest issues that we had in the second half of the year was making sure that we could actually meet demand. I want to make sure that we have the resources in place to make sure that as we get orders, we can meet demand.

And that's why, when we see these kind of strong demand patterns, too, we know that there's always a time in the market to get price, and we do want to move quickly in those selected areas to try to realize that as (technical difficulty).

Thank you.

Okay, Simon, thank you.

Operator, next question, please.

The next question from Mr. Mark Troman, Bank of America Merrill Lynch. Please go ahead, sir.

Yes, thank you very much. Good afternoon, Joe and Michel, and the rest of the team.

First of all, just going to the EBIT bridges, those favorite charts of ours, I'm just trying to square -- just to be clear what's going on, you're talking about gross margins being stable, stable'ish in Power Products in terms of what's both in the backlog and in the order book, and in the orders received in Q4. You're also, I think, the $1 billion cost takeout, something that you look committed to, to 2011.

Is it the case that on the pricing, then, that you expect the Automation pricing to get better, and the Power worse? Or is that not right? Shall I expect the Power price to actually be broadly stable from here? That was question one.

On question two, I wondered if you could comment, post-Baldor, what your view of the M&A landscape is, what's your view on valuations? Are they getting too heady now, or are there still a lot of opportunities out there in terms of what's available and the likely prices that need to be paid? Thank you.

Okay. On the Power price, I think the best way for us to express this is, you know, Michel said about, you had about a 7% decline in Power pricing in the fourth quarter. We don't expect it to accelerate. We think that that's going to be pretty much the plateau of what we'll experience.

We can't tell you right now when we think it's going to turn up, but Mark, I think that's --

Right. Okay.

That's pretty much it. But again, when you look at the Power portfolio, that pricing is highly subject. Remember, Power transformers is the one that probably has the most pressure on it overall. We're starting to see an increase in our distribution transformer business. And that's starting to come back. And our Medium Voltage business continues to go well. And we think that we will see -- not -- we've seen a bottoming of price in that area already.

It's almost very close to say, it's really the Power transformer piece is one of the most sensitive areas, and also, the High Voltage GIS side, (inaudible).

And when we discuss $1 billion, so we are talking here of the impact of product pricing, and also, impact of project margins, because it's for sure, if you take some substations or some [EPC-like companies], projects in some industries, for sure, the competition is still very tough, and the margins are not what they used to be two years ago.

So that is all included in this $1 billion, which is about -- with the 3% of price impact at the Group level, so, yes, there will be a balance of Power prices declines slowing down. And Automation business starting to capture some price increases on the back of what was demand. So that's how you get to this average of 3%.

And Mark, on the M&A side, you know, there's a lot of liquidity in the marketplace right now. I think everyone knows that. We're starting to see private equity come back in, in some selected areas, but we don't feel the private equity is necessarily our competition, because we usually bring a lot more synergy capability against a target that we're looking for than what you'd have with a private equity company.

But I would say I haven't seen a substantial change in the P/E ratios of the companies that we're targeting, at least over the last six months. So I'm hopeful. But I mean, obviously, we're focused on the proper integration of what we have. We still have some pretty big strategic holes we'd like to address.

But you know, regardless of what the cycle is of the market, these targets are really never cheap in this segment. There's a limited number of them that fit in that portfolio. I think the premiums we've paid have been pretty consistent, at least in those segments where we have moved into last year, and I anticipate that those premiums would stay in the areas that we saw towards the end of 2010. At least, that's my hope.

Okay. Thanks very much.

Okay, Mark. Okay.

Operator, next question, please.

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

Good afternoon, gentlemen. A few questions, please, the first on material market order recovery. It seems pretty robust. Were you at all surprised to see kind of pockets of strength, and if so, kind of where was that? It looks like the US is particularly strong, and that, obviously, is a good reading to Baldor.

Then the second, in China Automation, again, very, very strong demand signals there, especially in Process Automation and DAM. Is this pretty broad-based, is it near capacity? Kind of, where's the skew, and are you expecting this to kind of be your trend through 2011?

Martin, first of all, in the mature markets, take the United States. Remember, we won't consolidate Baldor until we really begin in February this year to close the deal, so those statistics aren't skewed at all by that acquisition.

So you know, what you saw was, in the US, roughly a 20% increase, and you saw it go up in both Power and Automation. To be completely clear, though, remember, that business went down 30% in 2009 during the height of the recession, so we're still not back to where we were in 2008 in that business. So even though it's showing some robust rebound, we're still not back to where I think we should be, when you look at where our benchmark is.

As far as China, and PA, and Discrete Automation and Motion, is -- we also see good demand in our Low Voltage Products business there, too. It just reflects the overall industrial strength of China right now, and it reflects the strength of that business, those businesses we have in China, to compete in what we would call that mid-market segment. You know, Michel, in your Global Markets role, you see that piece, too.

Yes, this is true, yes. And I would still add Europe as well, since you talk about material market. We had a very good quarter in Europe, actually, and what you see there still is a lot of investments linked to the grid, renewable connection, interconnections between countries. We had very large orders in Germany and Sweden, for instance, so that has obviously helped Europe to really have a big push this quarter with us on the Automation side. All the Automation divisions are up, most of them, double digits. So the demand for Automation and the products that help for energy efficiency and productivity is quite strong, too.

So, yes, we focus on emerging markets, because the growth rate in percentage terms is very high, but let's not forget the critical mass of Europe and the US is still a very attractive market for us, too.

And then just quickly, on working capital, I mean, obviously, a very good free cash flow year. Is that now normalized in your view, or do you think your view -- you know, you'll have to give some working capital, put some working capital back as the volumes come back, but disproportionately so? So do you think -- are we looking at a (inaudible) free cash flow year in 2011?

Yes, I wish it would be normalized. It's obviously always a fight to keep it within this range, and as I showed, in five years, we have been between 12% and 13%. I must tell you, each time before starting the fourth quarter, oh, we think we will miss it this year, but at the end, it always works out.

Obviously, you have to deal with different trends here. The Automation businesses have a trend for the moment to us for more net working capital, because the high demand means also the need for more inventory. On the other side, we have quite some large orders in the fourth quarter, in Power, and also in Process Automation, so we have got more advance payments from the customer from that. And I think this combination of the different cycles allow us to work on this normalized basis.

So I would say, yes, the goal is still to keep it within this range of 12%, 13%. My view is if the economy continues as it is, it will probably be closer to 13% than to 12%, but we are committed to stay within this band as much as we can.

Thank you.

Yes.

Okay, let me quickly come back here. We have a question from [Michel Singh], who was writing us from Mumbai, and the question is about the ABB situation in India, but especially how the competition is developing, and again, what our plans are for also ABB India and our business in India after the increasing of the stake.

You know, from an India standpoint, I'd say this has been a year of stabilization in India. You go back several years ago, I think the business went off in some areas that just weren't good core areas for ABB, like the Royal Metrification Program that's going on over there. And so, we had to really retrench from that piece.

We had to rebuild our competitive position there. We're going to see a significant investment from a Power standpoint, to put more Power capability on the ground, both from a manufacturing standpoint and an R&D standpoint, it's a big part.

And also, in our Automation businesses, too. We -- some investments we have to make, both from a manufacturing standpoint, to enhance what we have there, but also, to be more competitive in that geography.

But I'd say, I think we've seen the worst of India in 2010. We're confident that we have new leadership there with [Bosni Hussein], and we have a lot of confidence in Bosni in putting together a team, and making sure we drive that business forward.

We're bullish on India. India is an economy we believe in. It has a completely different demand pattern and specification pattern than different parts of the world, and we have to get better at understanding that, aligning our products to be able to meet that kind of demand, in order to ensure the business as we go forward.

So I look at 2010 as kind of a stabilization year, and a rebuilding year we'll have in 2011.

I'd say it's one of the good challenges we have, from a management point of view. We have to say the situation is always competitive in India, the prices are always way low there. The part, or issues, I would say, self-inflicted. The good news is that we can also work at fixing it.

And I think that's one of the upsides that we are looking at for 2011, if we can fix the situation in India, and fix our cable project challenges that we have explained to you. These are two issues that can give us an upside of more than 1% in terms of EBIT margin if we do the job right there. So that's obviously -- we have a lot of resources dedicated to that.

Okay, let me see if we have any interest here in the room for a question here. Alex?

You talked about Process Automation. There's a good margin development there in Q4. I'm just wondering whether you're a bit more confident on the division's ability to close some of the profitability gap over the next three or four years. I know it has a different business mix, and different structures than key competitors. But whether you're any more optimistic there, in that respect.

Okay, you're talking about the profitability gap against [AB Emerson] versus PA?

Yes.

Anyone else? (laughter)

(inaudible).

[Anderson] has it, perhaps.

You know, that's an [instruments] pure play, I think it's a tough one for us. But I mean, if it's Emerson, I'm not [playing], it's -- Emerson is Emerson.

I'd say, look, remember, we have a -- as you mentioned, we have a different composition in that business than you deal with at Emerson. The real distinct difference is the measurement products piece and the valve technology [after Rosemont] that Emerson has.

You know, the valve technology, we're not strong on that. It's hard to match that, both the services piece and the margin that Emerson has on that. But when you look at the Process Automation piece, specifically the distributed control systems and the services behind that, I feel really good about how we match up with [Delta B] and the products on the Emerson side.

And we made -- remember, our measurements products business, it roughly correlates, outside of valve technology with that Emerson side. Veli-Matti and his team have made a real -- a project that we haven't publicized very well, but a massive consolidation in that industry to get the -- more economies of scale, and we've raised the EBIT margin in that business several percentage points just this year by doing it.

There's still some upside capability for us to be able to do that. But remember, that's going to help on one side. And remember, our oil and gas, which is largely an EPC business, is really strong from an ROTC standpoint, but we dilute it from an EBIT standpoint too, and so you have to watch the size of that business as it grows, because it tends to be a moderating factor from an EBIT standpoint. And that's why we tend to give you a wider range on PA, as those two parts of the business.

And then you have the turbocharger side of PA, which is close to a $1 billion business with very strong operating profit, and also, a very strong services business that's come back, too.

So it's really a difficult comparison. You really -- and we haven't given you the clarity, from a margin standpoint, of these different business units, and we probably won't, okay? (laughter) But I feel good with our ability to be able to compete margin to margin, ROTC to ROTC with our competitors out there and have them match up. But we do have one big deficiency, and that's valve technology specifically, and Emerson has its [world] spot, and it's a tough one to be able to match.

Alex, as well as saying that Veli-Matti and his team have done a lot of portfolio jobs to progressively change the composition of this business, as you go back two years ago, I think Systems were about 55% of the total of the business. Today, it's 45%. We are -- and our service is more than 35% of the total, and service is getting closer -- and Product is getting close to 20%.

So there, as well, the margin mix of these three components has totally changed over time, and it's also a business that because of that, it's much more stable than before.

So I think we are getting there. I think the long-term margin was -- the talk was 13%, Veli-Matti? Yes? So now we were plus, 12% plus in the fourth quarter, so we're getting there.

And Veli-Matti wants us to raise it to 20% in the strategy session, I think, so we're working on that.

You know, briefly, when I came into this business, I asked the exact same questions. And obviously, the same kind of forensics that you're asking for. And I'm pleased with where we are, but it is a different segmentation that you have to look at.

And you got the same answers, as well. (laughter)

Not that I accepted them all. (laughter)

Okay. Can we go back to the phone, operator?

Next question from Mr. James Moore, Redburn Partners. Please go ahead, sir.

Yes, good afternoon, everybody. I wonder if you could help us with some of the items that you can see relatively clearly in the bridge for 2011. You've talked a bit about price, you've talked a bit about saving, but specifically, could you help us with some dollar numbers on what you expect for mix, currency and sales and R&D? Because presumably you've got some visibility as to what proportion of revenues you want to push sales and R&D to, and at current currency rates, presumably you can see relatively clearly what FX is going to look like. Can you give us a flavor for what our mix will be?

So, you can stop here. I won't. Okay, it's always, you got (inaudible), before [back-looking] EBIT, which we are not going to start making forward-looking EBIT (inaudible). And I buy a crystal ball (inaudible).

Okay. Could you say a bit about sales and R&D, and as a proportion of revenue, how much that might move?

Well, for sure, we will continue investing in selling and R&D. You know, selling, for instance, we have quite specific plans to put much more salespeople on the ground to sell our service offerings, so for sure, we are quite (inaudible) investment there, also in the Low Voltage products, for instance. I can't quote you (inaudible) a percentage of revenue, because also, we'll do it progressively. We'll do it as long as we see that revenues are coming in, and we'll watch the market situation quite carefully.

So it's really too early to come with this kind of forecast now.

Okay. Maybe I could ask another question, then. What is a sustainable Low Voltage margin? We've obviously seen quite a move between the quarters. How should we think about that, going forward? The upper end, or the lower end?

Well, I would say you can look at most of our competitors, so who is the most famous of our competitors. I think that if you try to compare the portfolio like for like, and don't forget that we have 15% of the business is Low Voltage Systems, which is always a low margin, so you take that away, I think they have shown as well some sustainability of margins over time, and I think we can easily compare to the (inaudible).

Okay, thank you. And just back to mix. Am I right in saying that you've commented you expect a positive mix in 2011? And if so, why is that?

You mean for the whole business chain?

Yes, for the whole business.

We -- I don't remember saying that, or Michel saying that --

(multiple speakers), no. We -- I told you about that in Power, specifically, where we say that maybe the distribution is picking up, and transmission is starting to bottom out, we could see a positive mix in terms of EBIT contribution, because it was, it has been -- there will be a lot of operating leverage once distribution starts getting more volume. But we didn't comment on the mix for the overall ABB portfolio.

Okay. Thank you very much.

All right, James.

Operator, next question, please.

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

Yes, good afternoon. It's Martin Wilkie from Deutsche Bank. Just go back to the comment you made earlier about the positioning in High Voltage in China. We have seen, or there have been some announcements of some of the local players beginning to take some smaller HVDC contracts in China earlier this year. I was wondering if you could comment, has there been any change there, or are you looking to partner or even supply some of the local players in some of these HVD contracts? Thank you.

You know, Martin, I'd say we just announced -- I think it was yesterday, with Southern Grid, was an HVDC transformer, a transformer, power transformer order, which is anywhere between $60 million and $70 million, I think we announced, which is a good way to start the year.

You know, we see -- we know there's some major jobs, that actually, we've been monitoring for the last two years, and we think will really firm up in the first two quarters of 2011. Some of the HVDC jobs, if you talk about the locals that are booking in China, remember, we often supply componentry behind those orders, so whether it's bushings, or whether it's various aspects of transformers and different things, we help to support some of the Chinese locals in those kind of things. And actually, we do pretty well in that area.

So, look, the higher the voltage is in China, particularly at State Grid, the stronger competitive position that we're in. There's a few jobs that will be left this year, we feel, in China in that area, that again, we think we'll be very competitive with. So we are cautiously optimistic, but we'll have to wait and see in the first two quarters of this year.

Okay, thank you.

Thank you, Martin.

Okay, next question, please.

Next question from Mr. Colin Gibson, HSBC. Please go ahead, sir.

Yes, thanks very much. Good afternoon. It's Colin Gibson, HSBC. A couple of questions, please. One, a bit philosophical, one rather more nitty-gritty.

The more philosophical one, I'm kind of surprised you can find a further $400 million of sourcing savings for 2011, having taken out, what is it, $1.4 billion over the last two years in sourcing alone. And I'm just wondering if you could just give us some kind of color on how you do that, and how you avoid getting into the negativity of screwing your supply chain too hard, and where General Motors was with Jose Lopez in the early '90s, and that kind of situation. So where did you get that money from, in a nutshell?

Second question, and bearing in mind that they're still taking James Moore out on a stretcher as I speak, I'm going to try and ask a pricing and margin oriented question nonetheless. And that is really, just as you look at 2011, bearing in mind that there's too many moving parts for an outsider to really get a decent grip on in terms of supply contracts, invoicing contracts, you know, commodity prices and whatnot, price increases, do you expect margin pressure in, let's say, Power Products? Do you expect margin pressure to become, first and foremost, front-end loaded, or do you expect it to become ,first and foremost, back-end loaded in 2011?

And really chomping my arm, it would be great to know whether you mean that that answer is gross of or net of restructuring savings. Thank you.

Wow. Michel, if you take the last one.

I'll take the last one.

Okay.

It's before restructuring. As I say in the management discussion, when we refer to operational EBIT, it is excluding restructuring.

Got it.

On the -- you know, Colin, on the $400 million on the sourcing savings, that's how -- I used to call on General Motors back in the Lopez days, and I hope our purchasing people are never like that. Okay? That's not what we want to be.

I think what you have to understand about ABB is that we, again, this is a loose group of holdings, like a holding company, several years ago. And we had not properly pooled our purchasing power to help to leverage suppliers in the sense of trying to get one strong price across the whole business.

We see continued momentum in that. We think we can continue to do that, whether it's printed wiring boards, or different things.

I'd also say that when you look at the percentage of low cost source products that are actually utilized in our high cost country manufacturing, it's still below 30%, often below 20%. And that's a huge opportunity for us, so let's just take a casting in India. That can be 30% or 40% of the cost of a casting in Europe somewhere. Sourcing those, bring them over the water, there is still a significant opportunity, from an ABB standpoint.

So in those two areas, leverage of scale, and making sure we're consistent in our specifications of supply. And then secondly, having more low cost country sourcing in our plants in Europe and the United States, I think is enough to get us to the $400 million range.

Okay, thanks.

Okay, Colin. Tell James we said we didn't mean to hurt him so much.

Okay.

Okay, next question, please.

Next question from Mrs. Christel Monot at UBS. Please go, ma'am.

Yes, hi, it's Christel here from UBS. Can you hear me?

We can hear you. Hello, Christel.

Okay, hello, everyone, thank you for taking my questions. I'm sorry, I'm going to have another question on pricing. Actually, I -- when you're saying that pricing, you're seeing some kind of a plateau, and you're expecting pricing not to get worse from what you're seeing today, I don't really understand it. I mean, in a sense, I mean, (inaudible) higher, and you're saying price is not going to get worse. But at the same time, you're guiding for some kind of another 3% decline in 2011. So can you be a bit more specific about exactly, you know, what you are expecting maybe for the different businesses?

My second question would be on the backlog in Power Products. Can you advise us on the delivery time? So as, you know, in terms of the backlog, when will that materialize in terms of revenues, and in the P&L in 2011?

And the last question is on your CapEx plans for 2011. I see you're guiding for $1 billion CapEx for 2011. Can you be a bit more specific and what's driving that, and then where you intend to invest?

Yes, I take the question on pricing, because as I mentioned earlier, the $1 billion that we refer to is a combination of pricing losses on products, and of poorer margin on projects like substation, like maybe some oil and gas or EPC type businesses. So it is really across the board. It's not just Power Products and Lower Voltage products. I'm not going to give you a breakdown, except to say that Power Products is really the one that is the most exposed to some of the pricing.

But there again, you know, as we say, we still see some pressure but maybe slowing down in the transmission area for a large part, and on a Medium and Small Power, Medium Voltage, for instance, is a different story. We (inaudible) Medium Voltage, we start increasing prices. We expect the Automation division to increase prices. And we'll have to see as well, with all the large projects that are being negotiated for the moment, at any point in time, we should also see some of our competitors (inaudible) reaching some capacity limits, and people will start becoming more selective about what they want they want to capture.

So all that, it's a balancing that happens. Overall, we think on average, it will be 3% of total ABB revenues, but business by business, it will obviously be very different.

As far as the backlog for Power Products, there again, paint different pictures. I would say a large power transformer (inaudible), but I think it's delivery terms of close to 12 months, I would say. It depends also if it is attached to a specific turnkey project, but let's say for a single power transformer, it's probably 12 months, and it's probably three, four months faster than it used to be, I would say. Obviously, the shorter part of the portfolio turns much faster on that one, no?

As far as the CapEx plan is concerned, yes, we are talking about $1 billion, so that is around $150 million more than what we have done in 2010. I think about 60% of that will be new capacity at new locations, so a bit less of maintenance. Remember that this year, we had to finish two large projects in Sweden and in Switzerland. That obviously had an impact on the total. Next year will be a lot of new capacity, and especially in emerging countries, plus what specific projects in the US.

Okay, sorry, maybe just as a follow-up. I mean, some of your US competitors are talking about pricing, and improving in Power Product. Are you seeing that as well in the US?

I think if you take a look at the distribution transformer marketplace, that might be helping (inaudible) like [STX] and stuff. I've read those quotes, too. I'd say we're seeing a firming of pricing, you know, and distribution transformer in the United States. Remember, that's -- some of our competition are very narrowly focused on specific segments of the marketplace. When you talk about our transformer business, it's roughly a $5 billion business, and it consists of a huge number of different segments across a number of different geographies.

But US specifically, distribution transformers, yes, we've seen some firming there.

Okay. Thank you, Joe. Thank you, Michel.

You're welcome.

Next question from Mr. Clark [Gehrling], RBS. Please go ahead, sir.

Yes, hello. My question has been answered, thank you.

Okay.

Next question will be from Mr. [Anders Suzanne], Societe Generale. Please go ahead.

Hello, thanks for taking my questions. My first question is coming back on raw material costs. Can you give an indication of how much of your total costs, raw materials and components, account for as a percentage of your total costs of revenues? And what sort of headwind do you think we will have going into 2011? That's the first question.

And the second question, maybe a quick one on Baldor, and when do you think this one will be a -- this company will be consolidated into your accounts?

And the third question, 2011 will be the third year where you see your price decrease in the Power business, and just wanted to know if this price decrease will be at the same -- in line with your competitors in terms of pricing for Power Products after this decrease in prices, to see if you're closing the gap in terms of pricing with your emerging market competitors.

Thank you.

Okay. On the first question, you know, it really depends business by business. I mean, if you take some products, if we have a Low Voltage product, the amount of commodity material that you have in that can be 1% or 2%. If you talk about a large power transformer, it can be more than 20%. So it's difficult to give you an average. As I said, copper represents always the big spending at ABB, and this is why we are proactively hedging that.

As far as the trend is concerned, the fact is, as long as the world believes, like we do, that the emerging markets will perform well in the future, obviously that means that there will be a pretty high demand for commodities. And that means that the prices will probably go higher. At least that's how we prepare ourselves to hedge and have some protection clauses in our contract. But as I mentioned before, these are too good use for ABB, because a lot of commodity production activity is also a lot of activity from our customers that give business to ABB as well.

On question two, on Baldor, we have closed Baldor end of January, so we'll start consolidating it as of first of February, so what you will see in 2011 is 11 months of Baldor (inaudible).

And then the third question, on the price decrease, you know, I think it's very difficult. What we tell you about price decrease is obviously the price decreases of the orders we book. There's also a lot of orders that we decide to withdraw, because it just doesn't make any sense to put our feet there and to sell at a loss.

So I would say the market is probably even worse than that, but given the offering that we have and the different (inaudible) that we can have with our technology, that where the prices of the products and the contracts that we pick are in the range of the percentage that we give you, and obviously, that will also have, I think, over the term, stabilize this price pressure from (inaudible) sooner or later to start looking up.

Thank you.

You're welcome.

More questions here (inaudible)? That does not seem to be the case.

I think we're all exhausted, so --

Yes, you are.

Yes. (laughter) So we appreciate your attendance here, and your questions. Again, we felt really good about 2010. We're optimistic about 2011 with the plans we have in place, and we'll look forward to reporting on the first quarter 2011 here shortly. So thank you.

Thank you.

Thank you.

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