Abb Ltd (ABB) 2014 Q1 法說會逐字稿

Ladies and gentlemen, good morning or good afternoon. Welcome to the ABB first quarter 2014 results analysts' and investors' conference call.

I am Stephanie, the Chorus Call operator. I would like to remind you that all participants will be in a listen only mode, and the conference is being recorded. After the presentation, there will be a Q&A session. (Operator instructions.)

At this time, it is my pleasure to turn over to Mr. Ulrich Spiesshofer, CEO. Please to ahead, sir.

Thank you very much, Stephanie. Welcome and good afternoon, ladies and gentlemen. Thank you for joining us today to discuss our first quarter 2014 results. With me is Eric Elzvik, our CFO.

As always, my remarks refer to the presentation that you can download from our website at ABB.com. Before we get started, let me refer you to the important notices on page two, the Safe Harbor statement, regarding any forward-looking statements made in the presentation.

With that said, let's move on to chart number three. Ladies and gentlemen, I can quickly summarize the first quarter in just a couple of sentences. We turned in a steady performance across the large majority of our businesses, a performance that has been overshadowed by the disappointment of another poor performance in the power systems division.

We have now a clearer plan to bring PS back to health, and ABB remains well positioned to achieve long term profitable growth and attractive shareholder returns. Let me review the highlights of the quarter in a little bit more detail.

We delivered basically stable orders and revenues in a mixed environment as our broad early cycle exposure helped offset the continuing weakness in the late cycle and utility related parts of the business.

For example, base orders were up 3%, led by low voltage products and discrete automation and motion divisions, and were higher in all three of our largest markets, the US, China, and Germany, which is encouraging.

Excluding power systems, operational EBITDA margins were steady if you adjust for the dilutive effect of the Power-One acquisition in discrete automation and motion, which was expected.

Cost savings are again in line with our guidance of 3% to 5% of cost of sales, which further helped our earnings. Cash improved significantly as we gained some clear benefits from the many initiatives we are executing to improve net working capital management.

So, all in all, we have satisfactory performance in four of the five businesses. However, as I said, we are disappointed in the poor power systems performance. I will come back to that in more detail shortly.

I would like to emphasize up front that the new leadership team in PS under Claudio Facchin has completed a comprehensive review of the business during the last three months and have launched a step change program in the division.

This builds on but goes also well beyond the previously announced strategic realignment. A number of key decisions have already been taken, and there will be more to come over the last few quarters.

It's important to be clear that the transformation of PS will take longer than originally expected, but we are confident that the outcome will be a strong, profitable, and competitive business.

Finally, in line with our strategy to continuously optimize the portfolio and to focus driving profitable growth in our core automation and power businesses, we are selling the heating, ventilation, and air conditioning business from Thomas & Betts and, as we announced yesterday, the power solutions business from Power-One. Both transactions I expect to close in the second quarter.

Let us move to chart number four where you'll find the key figures for the quarter. First, let me point out that, as we promised after Q4, we will from now on give you a proper like-for-like comparison on orders and revenues that adjusts to changes in business scope.

This is in response to the feedback from many of you after the Q4 results that such a comparison would allow you to make a more meaningful analysis of our year-over-year performance. So, we have responded to your input and will provide this information both at the group and divisional level from here on.

Looking at the top line, I already mentioned the stability in orders and revenues, which is a reflection of both our good early cycle exposure and our balanced geographic scope.

That, in turn, is the benefit we obtained from our acquisitions over the past few years, primarily in the North American market. The group's operational EBITDA performance has been hit by power systems, as I said.

That has masked the otherwise decent performance in most of the business. Net income is correspondingly lower. We are pleased with the cash performance in the quarter, even if it still shows the seasonal Q1 build up of working capital.

The divisions have done a great job in implementing operational excellence initiatives related to better net working capital management across the company, and we see a large potential to keep driving those gains in the future. Eric will provide some color on that in a few minutes.

So, if you move on to slide number five, this shows our orders received in the regions on the first quarter. It's really interesting. Automation outperformed power in most markets, which you would expect given the current new spending by utilities on power transmission.

An exception to that pattern is the Americas, where we saw increased power orders in the US and Canada, both from utility and industry customers. Base orders were also up in the US on a like-for-like basis.

Brazil was down across most of the business. The decrease was the biggest in large process automation orders.

Europe remains a mixed bag. Germany is flat versus a year ago, but that mainly reflects a large rail order we took there last year. Base orders in Germany are close to 10%, up both in automation and power.

The UK increased dramatically thanks to a large rail related power order.

Italy remains weak, but this is being driven primarily by a difficult comparison in power. Automation orders were slightly higher in the quarter.

In Asia, base orders in China are higher, led by a double-digit improvement in automation. We are well positioned in automation in China where the government's growth initiatives around productivity, efficiency, and environmental improvement are exactly where ABB plays.

Large orders in China were lower compared with the same quarter last year when we won a large transformer contract.

India turned in a strong performance in the quarter, with a 31% order increase and a strong double-digit increase in base orders.

Finally, we saw growth in the Middle East and Africa, as an increase in oil and gas orders more than offset lower power demand.

So, turning to slide number six, here is the overview of the key divisional data. I won't bore you going through all of the data, but let me note a couple of highlights.

Discrete automation and motion delivered a strong order increase, mainly the early cycle businesses. Revenues on a like-for-like basis were lower, reflecting the lower opening order backlog in the large motors and generators business, which is later in the cycle.

The operational EBITDA margin, adjusted for Power-One acquisition, was basically unchanged from the previous year. We have guided that Power-One will face a choppy period for some quarters as the solar PV market adjusts to changing demand and subsidy patterns, but we remain optimistic about this business in the long term.

Low voltage products showed solid execution on revenues in the quarter, which is also reflected in their nicely improved profitability. Process automation reported a record operational EBITDA margin on really good execution of system projects out of the backlog, mainly in oil and gas and in marine.

The lack of large orders was felt on the orders line. Tendering activity is positive in several parts of this business, but it's too early to talk about significant recovery in areas such as mining or metals.

Power products continues to deliver industry leading profitability and had a really solid performance. And it still stays a high performance business with a great track record.

Power systems shows a loss in the quarter. And as I said, I will describe what is happening there in a minute and get to more detail after Eric has spoken to you about some more of the financials. So, over to you, Eric, for slide seven.

Thank you, Ulrich. We have the operational EBITDA on chart number seven.

So, if you start with the net savings, we were at a positive about $25 million for the quarter. The price pressure was lower in dollars in the quarter, mainly reflecting the reduction in revenues in the power business. It's also where we see most of the price pressure traditionally.

Similarly, the reduced volumes in power had some impact on the sourcing savings, while we continued to execute very well in the operational excellence programs. Cost savings remain in line with our vision to take out an equivalent of 3% to 5% of cost of goods sold on a yearly basis.

As we've said before, price pressure in power products has stabilized. That level is close to the long term average for this business. We can manage this through productivity improvements, supply chain measures, new product launches, channel actions, etc. So, we have returned to what I will now call business as usual on the pricing side.

On costs, we continue to achieve our cost savings of 3% to 5%, as I said before, on an annual basis.

The volume effects were slightly negative in the quarter, as revenue declined. This was further impacted by a small increase in the selling and R&D investments, as we are now starting to drive our organic growth initiatives.

Mix was slightly positive, mainly due to the early cycle growth in LP and DM, while the project margins were negative, mainly of course from power systems. And Ulrich will come back to that later, as we said before.

The other is a sum up of a lot of different impacts from merchant acquisitions, some change in the G&A cost, ForEx impacts provisions, and gains and losses on sale of business, which is part of the normal business.

So, let's move to chart eight where we have the cash flow. As you know, cash flow in the first quarter is typically impacted by seasonal effects of ramping up the working capital at the beginning of the year for a revenue increase in the second quarter.

Nevertheless, when taking this into consideration, the total cash improved by approximately $280 million in cash flow level, excluding the negative impact of power systems. It's about $80 million from the other divisions, about $100 million in corporate, and then $100 million negative in power systems versus a year ago.

A lot of work is going on to address the net working capital with many small initiatives down on the lower level to really change the processes around inventories and receivables.

If you look at this on division level and take the example of discrete automation and motion, we generated more than $100 million additional cash compared to the same quarter last year. They are doing a very good job in working to balance the seasonal effects out.

One of their net working capital projects was launched last year in Europe. And it spans the whole value chain from supplies to customers, and have already resulted in a significant reduction in inventory and a very substantial decrease also in lead times, which of course helps us to be faster to the customers.

And this methodology and way of working is now also being rolled out in markets outside Europe in DM, and then later in other divisions. So, with those local initiatives, I remain very confident that we have still a lot of potential to improve on net working capital and thus the cash flow. And we are aiming to get back into our guiding range of 11% to 14% of net working capital later this year.

And with this, let me turn it back to Ulrich.

Thanks, Eric.

So, I would like to update you, starting on slide nine, on the progress that we are making with the three focus areas in profitable growth, business-led collaboration, and relentless execution, and give you some real life examples what we are really doing quarter by quarter there in terms of concrete action.

So, this is not a PowerPoint initiative. This is really very, very concrete activities that we are doing every day and it is driving really our efforts.

Starting with profitable growth, we use a framework of penetration, innovation, and expansion to organize and drive our efforts in this area.

Actions are being taken to increase penetration, including our continued push on the sale of power solutions, for example, into the industry sector. So, that basically means selling more of our product businesses on the power side and standardized power systems activities into an industrial sector.

Well over a third of our volumes in power are already going into industry, but there is more we can do in this area, for example transformers and switchgear for offshore oil and gas, power distribution equipment and systems used in marine and rail. The order we won in the quarter to upgrade a rail network in the UK is a great example for that opportunity that we have here.

On innovation, I hope that a lot of you visited to Hanover fair recently. You will have seen at our stand our new IEC 5 high efficiency industrial motors that are really ready to capture the opportunities from the upcoming changes to motor efficiency standards in Europe and are, in fact, ahead of the European standard requirements. And we are the only company that has that at that scale across the entire range available to offer.

These motors have basically about 20% more energy efficiency compared to the current standard. And they do this with our permanent magnets that use rare earth. So, that makes them really more economical and more sustainable, and also, from a supply chain perspective, much more attractive to be produced.

When we look at expansion as a growth driver, we will continue expanding through M&A, we will continue to expand through organic investments, but we will also do more on partnerships.

And one of the partnerships that we announced in the quarter is a partnership with Philips, which I think is a great example, because is basically allows the customers out there to link ABB's automation software in commercial buildings with Philips connected lighting system. The result is a much more energy efficient way to control systems such as the lighting, the blinds, the building access, the HVAC in the building.

So, it's really a solution where two large global players come together to bring significant value to customers. And that really allows us to have an even stronger position in the building automation market together with a strong partner.

If you move on to page 10, that shows some examples of what we call business-led collaboration, really where we bring the power of ABB together.

The rail upgrade order we won in Sweden this quarter is a great example, where we are basically delivering products and services from multiple divisions to allow the customer to provide more reliable, more efficient, more convenient, and more comfortable rail service. In fact, this train will become a benchmark in terms of efficiency and reliability without having to build a new train during a retrofit.

Our recent footprint announcement on manufacturing and R&D and supply chain in China and Brazil are further examples of how we can increase productivity and bring more value to customers by having cross divisional product development, logistics, assembly, and service in a single location.

In Xiamen on the east coast of China, we are setting up a new development and production hub for low voltage products and power products which will really give us a base for further improved productivity and optimize our footprint by further growing local R&D in low voltage products and in the power businesses. And the total investment is about $300 million over the next couple of years.

In Brazil, we announced previously a $200 million expansion program. We are expanding our technology development and production capacity to serve increasing domestic demand from industries such as petrochem, pulp and paper, oil and gas and mining, as well as energy.

So, typical customers in Brazil have tended to buy electrical equipment from multiple suppliers. But, with this new factory, we can really locally act as a single vendor for locally engineered, designed, assembled, packaged, and tested and delivered equipment. And that's really a great opportunity for our customers and for us.

The product scope includes switchgear, drives, distribution equipment, automation systems, as well as the assembly of compact substations that we do there both for the industrial and for the power field.

And then, joint channel development is another key opportunity and area that we are working now very, very aggressively at ABB. For example, we have teamed up in parts of our power and low voltage business in China, bringing a very attractive combined product flow offering to channel partners not only in the tier one but also in tier two and tier three cities all across China, which will be a major growth engine for us to come in the future.

On chart 11, we show you a couple of examples and then what we are doing in terms of relentless execution to make ABB even more robust and successful. We have demonstrated a good track record in cost takeout over the past several years and we will continue this for a long time to come.

One way we will do this is to expand our productivity improvement initiatives beyond the shop floor and into the engineering and sales offices where we have room to optimize support process and tools that will make our frontend people more effective and give them more time to spend with the customers. So, we are kind of applying lean Six Sigma principles not only in the supply chain but also in the administrative functions.

Eric has already mentioned one of the network and capital initiatives underway in the discrete automation and motion division. And we are driving this very hard throughout the entire company to really become much better than we already are in that field of capital efficiency. This is part of our long term commitment to deliver that attractive cash return on investment, one of our main value creation metrics moving forward.

Turning to chart 12, let me now take you through the power systems results and the step change in the division that will take us to long term, consistent, and profitable growth.

As we said when we announced the new management team in power systems late last year, Claudio and his team were given a mandate to really reevaluate the business in a fundamental way, do a proper assessment, and come up with clear priorities in the portfolio.

They looked at the projects, the business portfolio, the execution, the people, the business model across all parts of the division. This review has now concluded, and the team has established a clear set of focus areas. They have already started to implement a number of changes, and there will be more to come as we move through the year.

So, what is really different this time compared to what we announced previously? This step change program goes well beyond our previously announced initiatives. We are building on what we have already done, and have benefitted from those learnings.

But, the changes have not been fast and deep enough so we are changing that now. For example, we have decided, with immediate effect, to stop bidding on engineering procurement and construction contracts in solar PV power generation projects effective immediately.

We have made some additional changes to management, and we are bringing in external experts, a company that you might know, AlixPartners, who have a solid track record in restructuring and in the offshore wind business, to really help us drive the step change program with additional program management and senior change management experience that complements Claudio's team that we have in place.

We have also broadened the scope of our assessment. And we are looking beyond the offshore wind connection business and the low value substation business and reassessing the way that we go to market across the entire portfolio.

In the short term, we expect the division's results to remain under pressure. We still have significant execution risk on some critical projects. Working through the low margin order backlog will also continue to pressure margins for several quarters to come.

So, while the power systems transformation will take longer than originally expected, we remain confident that the outcome will be a strong, profitable, and competitive business.

So, coming to the end and turning to chart number 13 as a summary, so first on the quarter, look, I would like to remind you, with all the noise around power systems, four of our five divisions remain on track and delivered steady top line results in a mixed environment. In operational earnings, they are close to last year's level.

Power systems disappointed, but we have launched a step change program to deepen the transformation of the business and bring it back to profitability and growth levels that will offer an attractive return on investment.

The cash performance improved, and we will continue to drive this key value creation metric over the rest of the year.

Finally, we continued our disciplined portfolio, pruning in line with our strategy to focus on driving profitable growth in our core automation and power businesses.

As for the outlook, we don't see a meaningful change in the outlook and keep basically the guidance that we had at the end of the fourth quarter last year. Early cycle indicators are generally positive. The uncertainty remains on the timing of recovery in later cycle industries and utility transmission spend.

So, with all that, I would like to conclude my remarks, thank you very much for your attention, and open the lines to questions.

(Operator instructions.) Mark Troman, Bank of America Merrill Lynch.

Firstly, power systems. I'm just trying to understand what really went wrong in the quarter. It looks to be related obviously to the offshore wind primarily and to some of the solar EPC. In Q4, we understood that it was obviously a weather related issue. So, maybe you could just elaborate what exactly or what list of issues went wrong in Q1. And if they are project issues, how far are we through the real problem projects that took the numbers down so significantly? So, that would be question number one.

And then also, just a follow up on power systems. Given step change, which I guess is the latest initiative, when we look at your order rate, in 2011 it was $9 billion, 2012 roughly $8 billion, 2013 $6 billion, and you did $1.5 billion or so in Q1, would you expect -- I don't expect any sort of formal guidance, but would you expect that, given the scope of this business and where you want to be, $6 billion is roughly the floor, or could it be a lot lower than that? Thank you.

Okay. So, Mark, thanks for your questions. I think they are all good questions.

Looking at first quarter, we had operational weakness in EPC projects, both project related but also some basic execution topics. We are working now. We are going deep into the processes that we have in place to really make sure we're doing it in the right way.

We had, again, some delays on some of the projects. But, it's not only the project business that we are looking now at. We really look at the entire business portfolio and make sure that the underlying quality and the margin quality of this business is being ramped up across the entire range of all the activities.

And you have our commitment that we're going to do this in the right way and that we're going to take the time that it needs to fix this. So, we are working on it with urgency, but we are not getting into a hectic mode. We will take the time that is needed to work that one through in the time to come.

Now on the step change piece, a couple of more comments on that one. Look, we have now a holistic program that is broken down from the overall divisional level down to every operating entity. And we need to make sure that we drive really deep and very hard and very swiftly all the change actions that we have in place across the entire program.

The external resources that we are bringing have not only the program management capability, but also the technical and the system related experience in driving large scale system projects. So, I'm confident that we're going to get this going in the right direction.

Now on the order rate, look, we always said that we're going to do this, the order intake, in a disciplined way in this business. So, we will not go out all of a sudden and take crazy orders just to fill the backlog. On the other hand, we are competitive in quite some areas of this portfolio and we are taking new orders.

So, at the moment, I'm confident that we will get additional orders in in this business and get it to a scale that justifies us being in there. But, I will not guide you on any more details on any numbers for the full year.

Okay. Then that's fine. So, just to -- on what went wrong in Q1, was it a mixture of technical human error, managerial sort of mistakes, or a whole mix of those?

Look, it was all of the above. We basically had some normal technical execution issues. We had some project timing issue, project management issue, coordination issues that we need to get better at. We had some human errors in there, and that's what we really need to work on.

Andreas Willi, JPMorgan.

My first question is on the working capital, which is also partly related to power systems. You obviously had the build up last year. You just said you aim to be within your target range. That's kind of a 4% to 5% reduction in working capital, which is kind of $2 billion, so a big number. Maybe you could give us a little bit more around that. Is that what you target for this year, a $2 billion working capital reduction? And how confident are you? And how much of it is visible things in power systems that you know, once customers start paying you or you start delivering, that this will unwind? Or, how risky -- is this also tied to execution risks in general?

And the second question is on SG&A, which ramped up quite a bit year-on-year. Maybe you could highlight a bit more by division where you're significantly increasing investments, whether this is what we should expect for the rest of the year. And how long until we see a payback, so until it becomes kind of sales paying in terms of these investments? Thank you.

Look, Andreas, thank you very much for both questions. I will have Eric answering in a second more in detail on the numbers on that one.

Both areas are areas that are high on the radar screen. So, both on the working capital side and the SG&A side, we are doing quite a bit of work, as Eric has already explained before, to make sure we really drive this in a hard way.

On the SG&A side, we had some special effects in the first quarter, and Eric will now run you through both topics.

Yes. So, the net working capital, you are right that in the first quarter we are quite a few percentage points away from the range of 11% to 14%. But, on the full year basis, we ended last year close to 15%.

So, it's basically 1 percentage point down at the year end measure. And that -- with all the efforts we have running, we have a reasonably good level of confidence that we can get that down by the end of the year.

Obviously, the biggest outlier today is power systems. You have seen this negative cash flow again in the quarter in power systems. And that is a lot related to large payments on some of the challenging and difficult projects we have.

So, we need to get some of that cash coming back to ABB, and there is a lot of that outstanding before the end of the year. And if you ask me whether there is a risk in that, I will say there is of course always risk whether that will come this year or next. The delivery schedules are being drawn out in times somewhat on those projects, so there is clearly a risk there.

But, the long term target is to take the power systems' net working capital level down substantially, and they are way above where they should be long term. So, that is one of the biggest potentials we have. But, all in all, it should mean we have a reasonable confidence that we should be able to get to the 14% by the end of the year.

On SG&A, you have seen it has gone up in total. Part of that has to do, obviously, with the acquisitions. And most of the investments are going into low voltage and into discrete where we are building the sales and service platform.

We are obviously more careful in the slower growing areas in power, even though we have also made some additional investments there. Process automation, we are also quite careful with the expansion of the cost level, given that the revenues are supported by a smaller backlog in process automation.

And the increase also includes some one-time items in terms of restructuring and write-offs and so on which is in the numbers. So, it is not fully the percent you see on the key data table if you look at it in the like-to-like basis, but it is still an increase.

Simon Toennessen, Credit Suisse.

My first question, just on power systems, I mean, you commented on what happened and the delays. Just to get an idea in terms of timing, if I'm right, this DolWin 1 contract was supposed to be operational last year, and obviously we're seeing further delays regarding that contract.

What's sort of the latest we could expect to see any charges, just to get an idea of the timeline? I know it's difficult, but when are you expecting to finish actually the installation of this contract and when is this contract now supposed to be done? I mean, you had $300 million charges for a contract size of around $700 million.

Just in theory, how much more charges could you theoretically accrue just from that contract? And where are you with regards to the DolWin 2 contract? I think that's what, $1 billion in size? And it's supposed to be operational, I think, next year. And is there any risk that you might actually see further delays with regards to that?

And the second question is just on these solar projects in power systems. Could you give us any kind of scale indication and sort of how much orders have you won in 2013, just to get an idea of what the order impact could be in 2014, if you're not bidding on those any more?

I think you had a quite a few contracts in Canada, if I'm right. And if you actually won some of those contracts last year, I mean, you had already a 9% to 12% margin target at this time. So, could I be right assuming that any new contracts in those areas have actually been in that margin range or is that wrong, if you could just comment on that? Thank you.

Look, Simon, thanks for your questions. Look, I'm not in the business of doing speculation. And on the DolWin 1 and in the DolWin 2, I can assure you we have the project teams on high alert. We have weekly reviews where it goes up to the executive committee level, weekly reviews on this project.

We definitely intend to get the DolWin 1 done within this year. And DolWin 2 is out a little bit further. So, to speculate on that one, whether we're going to make it or not, I don't want to do that.

But, I can assure you it has a completely different level of attention now compared to previously, that we really make sure that it is going in the right way. And that's all I'm going to say in that direction.

We really need to make sure that, with all of these projects, and that's really the difference now also in terms of how we run the program here, is we make it extremely operational and personal.

The people understand -- everybody understands what he personally has to contribute, what the deadline is, what the milestone, is, what the expected input is, and what people need to do. And I'm highly confident that with that effort we will have an improved performance pattern.

On the solar approach actually, look, we took about $200 million to $300 million last year in additional solar projects. I will not speculate on why, on under previous management, this was done. I will just tell you that, effective now, we have decided that we will not take any further orders.

So, we need to flush through the backlog and get that executed in the proper way. It's primarily projects in Canada and South Africa which make up the majority of the backlog. And I'm confident that going into next year most of the backlog is behind us and we'll have then a business where we don't have that dragged out anymore.

Jeffrey Sprague, Vertical Research Partners.

A couple questions again back on PS. Where are you at currently on ABB product content on the project that you're booking? Have you materially changed the complexion of what you're putting in the backlog today?

Look, we have a certain ambition level for ABB content. And for competitive reasons, we are not disclosing that precise number. But, this is something that we absolutely have in there.

So, there is a connect between the power systems and the power products business that we have in there. Historically it was about $1 billion that went from power systems into power products on an annual base. And we aim to still have good ABB content going forward in the power systems projects that we have, either on the execution or that we are taking as new projects.

And we are clearly reducing rapidly the backlog which has very low content. And obviously, the content is also different. It's not one number if you have -- everywhere should be the same content. Some are very high content. Some are a little bit lower. And so, it depends on, of course, the margin mix in those contents numbers.

But, I think we can say clearly that have implemented what was the intention, to increase the content step by step over time.

Yes, absolutely.

Has there been any change in the way you're compensating business leaders, project managers, senior sales engineers in this business, either a year or so ago with the changes or the step function changes you're announcing today?

Look, we are not disclosing too many details, but I can tell you the following.

For the project leaders of these large projects, $1 billion projects, yes, we have changed the compensation model, that we basically tie certain incentives to milestones achievement to make sure that what we want to achieve, what the customer wants to achieve, and what the individual wants to achieve is closely tied not only in the performance but also in the incentive management.

And then, just finally for me, could you elaborate a little bit more on the strength in US power orders that you saw? What was the nature of that demand, project related or industrial?

Look, you see at the moment in the US quite a bit of activity both on the industrial and on the power side, and in industrial side, the reindustrialization of some of the process industries. That's really an opportunity for us, because every new process plant -- look, when new process plants are now built in the Pittsburgh area, they need better supply, and we are participating in that very actively.

I'll give you another example. One of the largest projects that ABB has under execution outside of the US is the Sadara project with more than a $20 billion project volume. At the moment in the US, in the -- by the way, $20 billion project volume not for ABB. It's the total project.

In the US, we have a couple of dozen very large projects coming in on the industrial side. And with an enforced focus on industrial power sales, we really want to participate in that one. And that's a significant part of the upswing that you have seen in the first quarter.

Olivier Esnou, Exane BNP Paribas.

I'd like to come back to power systems. In terms of having an idea of where you are right now in the execution of these solar and problematic offshore wind contracts, is there a way you can give us an idea of the -- I don't know, the weighted average percentage of completion here? You mentioned percentage of completion as being a key incentive driver from now on. I'd like to know approximately if those projects are 30% through, 60%, or a broad number to get a sense, and maybe where you would like them to be by year end.

Second question here is can you give us an idea, if you take solar and offshore wind power connection again, roughly what percentage of power systems sales that represents today.

And third question, you mentioned earlier in the call with press today that you want to fix PS and bring it back to a good level of performance, and you were relating to the way ABB did with the robotics business, which was a great turnaround. That was done on a purely organic basis at the time. It did not involve buying or selling assets as far as I remember. Are we in a similar situation here for PS? It's purely ABB with the current portfolio that you have to fix or, in your broader strategic thinking, it could involve inorganic moves?

Okay. Look, I'll take the last one first and then I'll hand over to Eric on that one.

Look, if you look at the pattern on how we fixed the robotics business, it was really simple. We said we need to understand better what really differentiates us with the customers. So, we basically started selling robots with a purpose by putting standard applications on the robots instead of selling large scale systems projects as the main aim to go forward.

We made sure we commercialized the standard solutions. We packaged them in the right way. We standardized the technical design. And with that, we limited significantly the risk.

We also took the product part and did a very strong [technical difficulties] and footprint optimization and migration piece. And then, we strengthened the project execution, front end sales engineering and program management activities, and it all together led to a nice turnaround.

And pretty much that's the pattern that we're going to use on the PS in turning it around. Look, as on all other parts of the portfolio at ABB, we will not speculate on any inorganic activities so there is no comment on that one.

And to your two previous questions, we have this information for internal management purposes, but we don't disclose it externally.

Okay. So, if I can just follow on, you're saying that broadly what you did in robotics you think is somehow replicable to power systems today in the approach?

Absolutely.

Ben Uglow, Morgan Stanley.

I've got a few questions. First of all, I guess I'm going to try in a different way to try to figure out what we should think of in terms of profitability in power systems. I understand that you don't want to commit to anything, but from our standpoint from a modeling standpoint, it's a little bit of a black box.

Is it reasonable within what you see today -- and I understand that this is going to be an ongoing risk. But, is it reasonable to assume that, on a quarterly basis, you're not going to be back at break-even over the course of 2014, i.e., that we should continue to expect ongoing charges and potential negative results over the remainder of the year? That was question number one.

Question number two relates to Power-One. Based on the information given in the press release and the comments on discrete automation margin ex Power-One, it looks like that has gone into a loss, an EBITDA loss, which I calculated at about $11 million. Is that correct? And what's driving the loss beyond simply, I presume, just revenue going down? And how long will it take to get that one turned around in the discrete automation division?

And then, the third question, which I guess is more strategic and you may or may not be willing to comment, in theory, hypothetically, is ALSTOM definitely not interested in power generation assets? Pardon me, I think I said ALSTOM. Is ABB not interested in power generation assets?

This was Freudian, and I'll take that one.

It was very Freudian.

So, Ben, look, the last one, no comment. I said that earlier today. There is no comment.

On Power-One, we don't disclose details on Power-One on that one. When we bought Power-One, you might remember we bought Power-One, which was about a $1 billion business, for $1 billion. We got $250 million in cash with it. So, we paid, on a net basis, about $750 million.

Now we are getting $120 million, roughly, out of the divestiture, so we have $630 million. Having paid that for the number two position in solar inverters I think is a really good deal.

We are very happy that the power solutions part, which has nothing to do with solar, has now found a good home with the new owners. I think there is a good fit between the company that is acquiring and has it. It will be good for everybody involved.

In terms of the profitability, when we bought Power-One we said we expect a couple of softer years in line with the market development. That's what we are experiencing at the moment. I'm still confident that with, A, our industrial base and, B, with the market coming back up we will get where we want to be.

So, all together I am quite happy with the integration of Power-One. I am particularly happy that Eric and his team were able to do such a swift progress on the divestiture of it. So, that's what I have on Power-One.

And Eric, you want to take the first one on PS?

On the margin side, yes. This is of course a key question, Ben, and I understand why you are putting this question.

Let me repeat what we said already in February. We are driving towards -- to try to get into the 9% to 12% range at the end of the strategic period, means end of next year. That statement remains unchanged. We are driving as much as we can to keep this business running.

Can we tell you that there will not be more charges? No, we cannot, unfortunately, the way those projects are going. So, obviously the ambition is to drive improvements during the rest of this year. But, we will not give you any specific guidance on the year.

Okay. So, we should assume that whatever improvement happens from here is basically going to be quite gradual and we are looking at a pretty protracted and drawn out process. Is that fair?

Look, what we're going to do, Ben, we're going to take the time that it takes to fix this business. We did exactly the same with the robotics side. We did not get nervous about it. We did not compromise quality of improvement with short term, hypothetical gains that later on disappear again.

This time we will really do this right. We're going to take the amount of quarters that we need. But, I can tell you we are aiming very strongly to avoid to have a loss situation for the entire year in this business. We are really aiming very, very strongly not to have that.

And then, on September 9 when we get together on the Capital Markets Day, I am quite confident that we are in a position to see a little bit better there -- or significantly better the future, and then we can update you on targets then specifically.

And what we are telling you is the following. Give us time to fundamentally fix this business. We will do this right like we have done on the robotics side. We have put in the right resources. I am confident in Claudio.

I know that you might be not happy that you can't put in on the spreadsheet, but I'd rather tell you that in honesty than coming up with something that later on we can't keep.

Fredric Stahl, UBS.

Could I ask you, on the cost savings and the price declines and the dynamics there, is it fair to assume that both the price down and your cost savings are collated to input cost changes? That's question number one.

And question number two, if you ignore your raw material costs, is it also fair that your behavior will -- when prices decline less, is it also fair that you will reduce your cost takeout and focus more on growth, i.e., invest a bit more, take that leeway to invest a bit more in the business? Is that a fair assumption?

Yes, Fredric. As I have said quite a few quarters, through -- there is some correlation between the two, that it is sometimes more difficult to get cost reductions when prices are more stable. And I think that's a little bit what we are seeing now, even though this is only a quarter and we are aiming to stay, of course, well within our 3% to 5% for the full year.

And you have also seen in some of the other parts of the bridge that we are indeed investing a bit more into sales and other areas already today.

And just to clarify one point, Fredric, and you might not remember it. On the cost reduction side, we exclude the impact of the exchange traded commodities. So, if copper goes down, the direct copper purchases that we have is out.

And that's just something that I want you to reflect when you look at our cost reduction situation, because we have some changes in exchange traded commodity prices throughout the beginning of this year. But, this is something that we net out when we talk about cost reduction.

Okay, very good. And then, maybe a housekeeping question. Could you give us an idea how big -- the companies that you are disposing of now, how big are the revenues?

I believe that has been disclosed. And for power solutions, that was announced yesterday. It's about $250 million per year. And for the HVAC business --.

It's about the same.

It's about the same, a little bit bigger.

James Moore, Redburn Partners.

My questions center on the PS margin as well. I was going to ask what you expect for the full year, but I heard your clear answer to Ben, that you're really not happy to give that. So, maybe I could just step back and try and understand the result today a bit better in PS.

Now, you said on the bridge that you've got $129-ish million of project costs. I assume the majority of that is in PS. I'm guessing $110 million. If you can give me the right number, that would be great, but I want to be clear about what exactly that is. Is that solar EPC, offshore wind, and substations?

And secondly, if we then strip that number out, it looks like what we might call a clean operational pre-charge EBITDA margin. It's around a 5.5 number. And that's been running at 8% or so. And so, my other question is it's clear that, even if we exclude that, there is a step down in the profitability.

And I'd really like to be clear in my mind about what that step down is excluding the project changes. I guess it's the operational gearing effect of the falling revenues at the reset, but I just want to be clear in my mind what's in the underlying profit margin step down in PS and what is in the charges. That would be very helpful. Thanks.

Look, James, I have to disappoint you. We will not give you all the granularity that you want.

But, in terms of the levers that you mentioned, they are right. We have a revenue decline that mirrors the lower opening backlog from last year, which is significant. And that finds naturally its home on the cost iteration then reflecting in a lower margin.

And the second one is all of the above that you said. The wind piece, the solar piece is in the project hits, but we also have on the daily execution side some cost pressure on operational execution that all together yielded in the impact that we have seen -- that we have shown.

And just so I'm clear in my mind, when you think about the outstanding risks for the back nine months of the year, is it that you seen the risks as more being in project charges or underlying profitability?

If you would look at the historic performance of the business, it is definitely more related to the project related charges. We naturally work very hard to avoid all of them going forward. But, it would be fair to anticipate that if something comes, probably the likelihood that it comes from the project side is higher.

And if I might, just one more. The underlying profitability, if it is that sort of 5.5 picture, can you in any way say if you think that's a low point?

Look, James, I will not comment on that one, and I will not speculate that your hypothetical calculation is right or wrong.

So, we'll take one more question

Andreas Brock, Nordea.

So, just one question then. When I think about process automation, you mentioned that the margin has done pretty well the last couple of quarters. And it feels like you're executing an order backlog there which will probably have pretty good margins. In addition, you're taking down costs. Would it be fair to assume that the order backlog, the future margins in that division are lower than they have been for the last couple of years?

Look, we don't want to speculate on the quality of the order backlog in a single division.

But, what I can tell you is that Veli-Matti and his team have done a wonderful job over the last couple of quarters and, quite frankly, throughout the entire financial crisis situation delivering really good execution. He has had basically on the project side no risk, no major hits that would have derailed. And the day-to-day operation and execution in this business is good.

He has his costs firmly under control. He adjusts the costs in line with the revenue and the backlog development. So, I am confident that Veli-Matti will continue to deliver good operational results.

And there is also some mix effects in there as we have stepped out of some really low margin business there in that business.

Fair enough. So, it could be some structural improvement as well.

Yes.

Okay, with that one said, it was the last question. Thank you very much to all of you for attending. We will talk with you again either individually at the road show or in the summer results when we come out with the Q2.

Let me remind you Capital Markets Day, 9th of September, is still valid. Okay, with that said, thank you very much and have a nice day.

Ladies and gentlemen, the conference is now over. Thank you for choosing Chorus Call and thank you for participating in the conference. You may not disconnect your lines. Good-bye.