Abb Ltd (ABB) 2014 Q4 法說會逐字稿

Ladies and gentlemen, good morning or good afternoon. Welcome to the ABB fourth quarter and full year 2014 results analyst and investor conference call.

I am Stephanie, the Chorus Call operator. At this time, it's my pleasure to hand over to Mr. Ulrich Spiesshofer, CEO of ABB, and Mr. Eric Elzvik, CFO of ABB. You will now be joined to the conference room. Thank you.

Good afternoon, ladies and gentlemen, and thank you for taking the time to join us today for our fourth quarter and full year 2014 results call.

You can find the presentation on our website. This call is being recorded and will be available on our website within the next hour.

Before we get started, please refer to the Safe Harbor statement on page two of the ABB presentation. This conference call may include forward-looking statements. These statements are based on the company's current expectations and certain assumptions, and are therefore subject to certain risks and uncertainties.

On slide three, allow me a short overview of today's agenda. Our CEO, Ulrich Spiesshofer, together with our Chief Financial Officer, Eric Elzvik, will briefly review the financial results for the full year and Q4 2014. Uli will then give an update of our next level strategy, implementation, and an outlook. Uli and Eric will then be available to answer any questions you might have.

And with that, I would like to now hand it over to Uli.

Thank you, Alanna. Good afternoon, ladies and gentlemen. Welcome, and thank you for joining us today to discuss ABB's quarterly and full year results.

Before we start, let me make a few general remarks. 2014 was a demanding year where we had to overcome the challenges in power systems and the low order backlog that weighed on revenues and the group's profitability.

We delivered on our ambition to achieve a full year break-even profitability in power systems and took decisive actions to drive accelerated organic growth, cost out, and cash generation.

Our solid progress on the next level strategy puts us in a strong position to manage the global uncertainties heading into 2015. Our proposal to increase the dividend for the sixth consecutive year demonstrates our commitment to long term sustainable value creation.

Now let's move and turn to slide number five. Our robust order growth is one of the clear highlights for 2014. Through our strong focus and new approach on organic profitable growth, we grew faster than the market in a highly volatile environment in all parts of the world. Both base and large orders increased, and orders were higher in all regions and all divisions.

We lifted the book-to-bill ratio back above 1, and move into 2015 with a stronger order backlog. Contributing to this was another improvement in customer satisfaction, as measured by our Net Promoter Score. This is up 9 points compared to 2013 and is now at 44, which is a very strong performance.

We continued to drive our presence in high growth segments on our own and through strategic partnerships. And I'll describe our most recent strategic partnership in HVDC grid technology with Hitachi in a few minutes.

Our focus on relentless execution is another key focus area for ABB. And we are happy to report today that our power systems division delivered on our ambition to achieve a full year operational EBITDA break-even result for 2014. The team under Claudio Facchin has done a really solid job in completing the step change program, and PS will remain a high priority for 2015.

We maintained our good momentum since many years on cost and again took more than $1 billion in costs out for the sixth consecutive year. I will describe to you in a few minutes how we intend to keep this running at full speed in 2015.

We raised more than $1 billion in pre-tax proceeds from divesting non-core businesses this year, in line with our strategy to continuously optimize and prune our business portfolio.

As you know, driving higher cash flows is one of our most important value creation metrics. Eric and the teams and the divisions, regions, and corporate have been working hard to improve net working capital management in the past two years. This has contributed to a solid 9% increase in free cash flow in 2014, along with a cash conversion rate of 110% compared to 94% in 2013.

When we announced our next level strategy in September last year, we told you that we planned to adapt our compensation model to better align management compensation with our longer term value creation targets and enhanced performance culture. This model has now been implemented, and I'll come back to that in a moment with more detail.

Business-led collaboration is about simplifying the way we work and working better together as a team. We want to have a customer focused ABB where we really have the next level of external focus in daily operations, strengthen cross-business collaboration, and effectively empower the people closer to the customer so they can be fast, flexible in serving our customer needs.

We made good progress in this area in 2014 by implementing a more market focused organization swiftly, establishing undiluted global business line responsibilities, streamlining the regional organization to become more customer oriented, and filling our top 1,000 management positions.

Let's turn now to chart six to review the full year results. Let me highlight a couple of items. Our robust order growth and our positive book-to-bill allowed us to rebuild our order backlog. This will support revenues not only in 2015 but also in 2016 and 2017.

Revenues were slightly lower on a like-for-like basis. We felt at the beginning of 2014 that our lower opening order backlog and the PS situation would weigh on revenues, and you should take that into account when looking at our figures. Our operational EBITDA and the margin were therefore lower, mainly due to the still low result in our power systems division.

On an operational EBITA basis, which will be the way we measure operational profitability as of the first quarter of this year, we had an operational EBITA margin in 2014 of 11.2% compared to 12.3% in 2013. Basic earnings per share were at $1.13 with operational EPS at $1.28.

As I mentioned earlier, our positive cash generation performance for the year contributed to a more than 100 basis point increase in our cash return on investment compared to the year before. Eric will have more to say about that later in the presentation.

Let's turn to chart number seven, which is called focused growth initiatives result in 10% order growth. So, chart seven shows how orders developed by division and region in 2014 on a like-for-like basis.

Starting with the divisions, we had order growth across the entire portfolio. In fact, we achieved record orders for the group as well as in the discrete automation and motion in 2014. Geographically, order growth was broadly distributed close to 10% in each of our main regions.

Order wins for high voltage direct current power transmission links in the UK and North America supported good power growth in Europe and the Americas, as some of the examples. Large project wins in oil and gas, marine, mining, and rail contributed to good automation order increases in the Middle East and Africa and in Asia.

If we move on to chart eight, chart eight shows the development of base and large orders and the order backlog in 2014. Base orders were 5% higher on a like-for-like basis, and were higher in all divisions for the year.

Six consecutive quarters of base order growth gives us confidence that our profitable organic growth initiatives through penetration, innovation, and expansion are working.

Large orders were 50% higher after two previous years of declines. This will support future revenue growth in our longer cycle businesses in both power and automation.

Now let's move to chart number nine. As you know, we began several years ago to use the Net Promoter Score to measure and drive customer satisfaction and internal improvement, aimed at accelerating organic growth. Last year we again made significant improvements with a 9 point increase in Net Promoter Score, based on more than 30,000 customer feedbacks and a significant increase in the number of responses and response rate.

While it's encouraging to see this continued positive trend, the real strength of NPS is that it shows us, like a compass, exactly where we need to improve in order to capture an even higher share of wallet of our customers around the world.

Please move on to chart number 10. Chart 10 shows an overview of the divisional performance in 2014. I would like to focus on a few highlights.

As mentioned before, the record orders in discrete automation and motion are really a highlight of the year. The operational EBITDA margin is lower than in 2013 because of the dilutive impact from Power-One.

The solar photovoltaic market continues to be tough, but our long term view of this market remains positive. On a like-for-like basis, DM's profitability is even slightly up compared to 2013.

Low voltage products is seeing benefits, especially in North America, from the Thomas & Betts acquisition. The business is developing in line with our original acquisition business plan.

Process automation continues to generate consistent results through the cycle. There is a lot of attention on this business because of the recent decline in oil prices, and I will come back to that later in the presentation.

Power products also remains rock solid despite the muted utility market. Orders are up for the year ahead of the market, and the division remains the clear industry leader when it comes to profitability.

I have mentioned the return to operational EBITDA profit in power systems already. We are also encouraged to see solid growth in both large and base orders in 2014. In line with our strategy to de-risk this business, the PS order backlog has significantly improved compared with a year ago, not just in volume but also in margin quality and lower risk profile.

Now let's turn to chart number 11, which shows some additional divisional highlights. Many of you saw the new collaborative YuMi robot at our Capital Markets Day in September. The full product launch takes place this year, and we see a lot of exciting opportunities for this human-friendly technology all around the world, especially in general industry.

In low voltage products, our new regional distribution centers had a very successful start and have allowed us to significantly speed up delivery times and improve customer satisfaction, just as an example, in South Asia.

We completed the divestiture of our full service business in PA and basically threw off ballast with that last year as part of our portfolio pruning, and will now focus on continuing to drive growth in the more attractive life cycle services business across our industry leading installed base.

Our service business also grew strongly in power products, as did the rail business. As you may remember, the responsibility to grow certain attractive industry verticals like rail or data centers was given last year to members of the executive committee.

Bernhard Jucker, executive committee member and head of our power products business, has responsibility for the rail sector, and he and his cross-divisional team succeeded in generating more than $2 billion sales from the rail sector in 2014.

The success of the step change program to date in power systems is an obvious highlight, but the division also won a number of important HVDC projects in 2014. These are very attractive orders where we are the clear technology leader and where we have a strong track record in project execution.

With that, let us turn to chart 12 that gives you more details on the PS step change. The PS step change is on track. As I said at the beginning of the presentation, we started 2014 with some significant legacy challenges in the power systems division.

We launched the step change program and outlined a number of steps that needed to be taken to address the challenges, strengthened the leadership, de-risked the business, and repositioned it for future growth and profitability.

We committed to delivering a break-even operational EBITDA in the fourth quarter, with the ambition to break even for the full year. Today we can say that we delivered on our commitments and ambition.

Our new leadership team, headed by Claudio Facchin, has done a really solid job. We successfully completed a large proportion of the lower margin backlog, including more than 90% of the solar EPC projects.

In offshore wind, two out of three platforms are now energized. We are applying a new business model to project orders and tenders such as the HVDC partnership for Japan, which I'll describe in a moment.

Other de-risking measures include a focus on growing base orders, which were up 4% for power systems for the year.

Overall, we have made solid progress on step change with a stronger management team and business processes in place, as well as much better visibility on the future risks across the portfolio.

With that, let's move on to chart 13, which describes the sixth consecutive year of our $1 billion cost savings. Our track record in cost savings has been a key contributor to margin resilience through the cycle, and gives us a strong foundation and good momentum heading into 2015.

We have consistently taken out more than $1 billion in costs each year since 2009, well within the targeted range of 3% to 5% of cost of sales annually. We have accomplished it without major layoffs or interruptions to the business.

Supply chain and operational excellence have been the key levers, and we have driven these initiatives broadly across the entire portfolio and deep down in every single business.

We are committed to maintaining this performance in the future. Supply chain measures in 2015 will include an even stronger deployment of supply management engineers into our supplier base to improve quality, increasing supply management productivity through business excellence centers, and integrating supply planning earlier in the R&D and project tendering processes.

We will broaden the scope of our productivity measures from the factory floor to our white collar workforce by, for example, investing in tools and processes that make our sales and engineering teams more efficient. We aim to increase productivity through measures like Six Sigma or lean everywhere in the organization, from sales to engineering and to administration.

Turning to chart 14, which describes the portfolio pruning that we initiated, we carried out a number of key divestments in 2014 in line with our strategy to continuously optimize our business portfolio.

These are typically businesses that don't have significant synergies with our core automation and power activities, whether it's customer, technology, or channel synergies, for example.

Shareholders are also benefitting from our portfolio pruning, as the total pre-tax proceeds of more than $1 billion from the divestments supported the $4 billion share buyback program that we launched last September.

With that, I'd like now to turn over to Eric the presentation to continue with the fourth quarter results.

Thank you, Uli, and good afternoon, everyone. Let's start on chart 16 with some of the key takeaways.

As Uli already mentioned, Q4 was the sixth quarter in a row of base order growth, ahead of the market with total orders stable on a like-for-like basis compared to Q4 last year. Base orders increased in all regions and were steady to higher in all divisions in the quarter, and this despite a volatile market environment.

In December, we announced the HVDC partnership with Hitachi in Japan, and this is a key achievement to expand ABB's presence into a high growth market for HVDC grids in Japan.

For PS, as we have heard, we are back into positive margin territory on an operational EBITDA basis in Q4 compared with a loss in the same period last year. The operational EBITDA margins in the automation divisions were all steady to higher in the quarter, and PP continued to deliver industry leading profitability, which shows continued good discipline on cost.

We again took out costs in line with our target of 3% to 5% to cost of goods sold also in the fourth quarter. And this is not only in areas like material cost and supply chain optimization, but also structured costs like IT network infrastructure, where we are working very hard to increase operational and cost efficiency, as one example.

In Q4, we also turned in another solid quarter of cash flow generation. The absolute amount in the quarter is lower than a year ago, but it's higher on a year-to-date basis, which reflects our success to generate cash in a more balanced way over the quarters during the year. Total cash from operations for the full year is up compared to 2013.

Since we announced the next level strategy in September, we have been implementing the organizational changes needed to support and drive performance in line with our new strategic and financial targets.

In the fourth quarter, this included not only deciding on many of the key management appointments, but also rolling out the controlling and performance management tools needed to track our progress against these targets. Let's take a look at the key quarterly figures on chart 17.

Orders and revenues in the quarter were basically unchanged on a like-for-like basis compared to the fourth quarter of last year, despite the high level of macro uncertainty we saw towards the end of the year. Our group operational EBITDA margin improved year-over-year, largely due to the return to profitability in PS.

Net income is significantly higher and includes some gain from disposals of businesses in the quarter, but likewise also some negative effects from foreign exchange and commodity timing differences compared to Q4 in 2013.

The basic EPS is up 30% in the quarter. And taking out and adjusting for nonoperational items and measuring in local currency, we also have in operational EPS an improvement of 5%. This is the EPS measure we will track for our 2020 target with a base year of 2014.

Moving to chart 18, base orders were higher in all regions in the quarter, while large orders showed their usual variation related to timing of awards. The decrease in the US, for example, as you see on the left of the chart, reflects a difficult large order comparison from the fourth quarter of 2013. The US base orders were steady in the quarter.

Other highlights in Q4 include encouraging growth in key markets such as China, India, Saudi Arabia, as well as some European markets like Finland, Switzerland, and even Italy.

Chart 19 shows the operational EBITDA bridge in quarter four. This quarter we show you the bridge starting with the impact from divestitures, which reduced the operational EBITDA by some $40 million. And this is the profit of the divestitures that were in the quarter for 2013 and absent in the fourth quarter of 2014.

Our continued success in reducing cost more than offset the price pressure in the quarter, again generating a net positive of approximately $40 million.

Net volume had also a positive impact. The positive volume effects are mainly coming from the automation divisions. The positive effect was offset by negative mix effect, mainly from power products.

And in the other category, we have a significant portion of the delta versus last year from the foreign exchange translation effect, which is about $80 million in the quarter. And I will come back to that in more detail in a minute.

The biggest positive contribution to the higher margin is of course the PS improvement of almost $100 million.

Chart 20 gives you some guidance and granularity on the different effects on our business from the foreign exchange movements. This is an example which shows a 15% appreciation of the US dollar, which happens to be approximately what we have seen over the last few months.

ABB has a broad and flexible manufacturing and sourcing footprint, and our strategy is to be close to our customers along the whole value chain. This means we have, to a large extent, our revenues and costs in the same currency.

However, as a global company, we still have some export from one currency zone into another, which impacts our income from operations. This is what we call structural effect in this chart.

Assuming that all other factors remain unchanged, a 15% appreciation of the dollar will typically help the EBIT anywhere from $200 million to $400 million, or approximately 0.5 to 1 percentage point of EBIT. This, however, will only be coming over the medium term, let's say six to 18 months.

So, that is the dollar movement from appreciation of the dollar against the other currencies. What has happened recently, as we know, is the Swiss National Bank has dropped its peg to the euro and the Swiss franc has appreciated to the euro.

So, in this example, we have also used a 15% appreciation of the Swiss franc to the euro. And that effect obviously goes in the other direction, because the Swiss franc becomes more valuable, and that means our manufacturing footprint in Switzerland faces a competitive pressure. And that will then decrease our operational income by some $100 million to $200 million, everything else being equal, or 0.25 to 0.5 percentage point.

Again, this is everything being equal. And of course we are doing a lot of things to mitigate these downsides, especially on the Swiss franc appreciation, by taking further advantage of euro-based suppliers in addition to what has already been done in the past.

Then on the transactional level, we fully hedge those foreign exchange exposures that I mentioned under the structural part, which means we have short term, very small or almost no impacts of those structural effects. They will only come over time in the medium term, say six to 18 months, as I mentioned before.

So, putting all this together, our footprint, our exposure to the US dollar and also the Swiss franc, we would say that our impact on the results from a structural perspective is quite limited on ABB.

And then last, we have the translational effect. This comes from the reporting currency of US dollars we have. And when we then translate the financials from our local operations into dollars, when the dollar is strengthening, we get a reduction effect on the dollars.

Approximately half of our business globally is conducted in dollar or dollar-related currencies. So, when the dollar appreciated, our reported dollar number goes down. This has an immediate impact. And with the 15% move of the dollar, this will typically have a negative translation effect of approximately 9%.

You saw in the Q4 results that we have shown a negative effect of about 6%, which is in line with the above calculations. If the exchange rates continue to stay on the level where they are today, we will likely continue to see a negative translation effect into the coming quarters of 2015.

Now let's move to chart 21 on the cash flow. As I already mentioned, we have made good progress to generate cash in a more balanced way over the year and reduced the traditional hockey stick trend where cash flow spiked in Q4. Our cash flow performance has also helped us to start moving our cash flow return on investment in the right direction, which is the ambition in our next level strategy to raise CROI to the mid teens over the 2015 to 2020 period.

We have also delivered on our cash conversion target, with 110% conversion of free cash flow over net income versus the target of 90%.

And with that, let's move to chart 22, with an overview of the divisional performance in quarter four. I've already commented most of the main themes in the quarter, but let's touch on some of the divisional highlights.

Discrete automation and motion continues to see benefits from growth initiatives, for example to sell packaged industrial solutions and services, which helped in the quarter the robotics and drives business to grow.

The operational EBITDA margin was steady, as cost and productivity measures offset the margin impact of the Power-One solar inverter business compared to the same quarter last year.

In low voltage products, like-for-like orders increased in all businesses. And we saw good growth from our initiatives to increase the sale of ABB products in the US through the Thomas & Betts distribution system.

Process automation revenues remained at a high level in Q4, which helped to support the steady operational EBITDA margin.

Moving to the power divisions, industrial demand was the main driver for higher orders in power products, while utility spend in the key market remained muted. The division's industry leading operational EBITDA margin in the quarter is somewhat down from the high levels a year ago.

This is mainly due to product mix along with the lower revenues, and an increase in selling expenses for products and services as the division builds its local presence in a number of key markets like India, the Middle East, and China.

For power systems, the revenue decline is mainly due to the lower opening order backlog. The main story in PS is the return to the positive result of $49 million on an operational EBITDA basis in the quarter.

Chart 23 shows our priorities for capital allocation, as we communicated at the Capital Markets Day last September. We have been very consistent and reliable with these priorities for many years.

As we have said before, organic growth generates the most attractive returns. And we will continue to fund our growth initiatives, including R&D and CapEx, in a very targeted way, along with our PIE initiatives.

We remain fully committed to our dividend policy of returning a steadily rising dividend to shareholders over time. Value creating acquisitions is the third point on the list for deploying cash to generate attractive returns. We have a track record of disciplined bolt-on acquisitions, and you can expect us to continue with this approach.

Returning additional cash to shareholders is the remaining tool at our disposal. As you know, we launched a $4 billion buyback program back in September. And I will update you on that and give you more details regarding the dividend on the next chart.

Moving to chart 24, based on management's recommendation, our Board has proposed another dividend increase, the sixth in a row, up to CHF0.72 per share. At current share prices, the proposed dividend will represent an attractive yield of about 4%.

This is a strong vote of confidence in the underlying strength of the business and the continued successful execution of our next level strategy. It also is a demonstration of our long term commitment to deliver attractive cash returns to shareholders. If you look at last year's dividend payout as well as the share buyback, we created returns of almost $3 billion to our shareholders.

Our buyback program continues, and so far we have delivered about $730 million to repurchase 33 million shares until the end of last year. In the first three months since the launch, we therefore have completed about 20% of the total program.

Let me now turn the presentation back to Uli.

Thank you very much, Eric. Please turn to chart number 26.

As you know, we announced our next level strategy and financial targets in September last year. We demonstrated our strong position in attractive, growing markets and how we will deliver attractive shareholder returns through our three focus areas of profitable growth, relentless execution, and business-led collaboration.

Let me now show you some examples how we have already used this strategic framework to drive value creation in the fourth quarter, so please move to chart number 27.

Chart 27 shows three examples how we have driven profitable organic growth through penetration, innovation, and expansion. Growing our service business is a great way to penetrate both existing and new markets in a very attractive way.

In China, we have established more than 20 new service centers to support our customers across the entire scope of our business. Geographically they span the entire country and cover industries such as natural gas production, mining, hydropower generation, just to name a few.

This is a natural fit for us as we expand in China, moving into the tier two and three and four cities and heading westwards. We believe that bringing our customers our full portfolio of products as well as local service capabilities will allow us to continue to grow successfully in China.

On innovation, we introduced several key new products across our power and automation portfolio in 2014; in our robotics business, a new line of compact robots designed for use in the computers, consumer electronics, and communications sector, also known as the 3C sector.

Several of these have been designed in China specifically for our large 3C customers there, and are being used to manufacture a wide range of products. A small footprint and the ability to work safely alongside people make these products very attractive to a growing number of general manufacturing industries.

An example of growth through expansion is our initiative to grow our business in Africa. This is one of our thousand day programs, and today we announced an order from strategic customer Bombardier Transportation for traction transformers for 240 freight and passenger locomotives that will help form the backbone of South Africa's electric rail fleet. As you may know, South Africa is investing nearly $5 billion to renew and expand its rail fleet.

Turning to chart 28, joining forces through partnerships with complementary players in our markets is another new way to drive profitable growth that we introduced with our next level strategy. Basically we are opening up ABB for attractive partnerships.

In December, some of you may have seen our announcement of a partnership with Hitachi aimed at supporting the integration of renewable power generation into the complicated Japanese power grid using ABB's HVDC technology.

This is a true example of focusing on high growth sectors while de-risking the portfolio through a new business model. ABB will provide the partnership with HV design and engineering expertise, as well as our core HVDC components, solutions, and advanced software packages.

In the joint venture, we will jointly customize the offering for the Japan market, and Hitachi will then take the offering into Japan by providing other core components, civil design, take the full EPC responsibility, as well as installation and commissioning. This is one of our new business models, well suited for low risk expansion into new and promising high growth markets.

In the next two charts, I'd like to explain how we'll drive a second element of our strategy framework, relentless execution, across the business. So, let's move to chart 29.

At our Capital Markets Day, we showed you what we call our relentless execution dashboard. This is a performance measurement tool that assesses the business in broad areas such as productivity, inventories, and cost of poor quality, but also drills down to areas like field failure rates and others.

This example from the discrete automation and motion division shows how we aggregate this data up through the organization to drive improved performance. In net working capital, for example, the division deployed a number of what we call tiger teams to rapidly drive inventory improvements across more than 30 countries.

By sharing best practices and using the dashboard measurement tools, they contributed to a reduction in net working capital as a percentage of revenues for the division from 18% down to 16%, thereby freeing up significant cash.

Now let's look at chart number 30. As we said when we announced the next level strategy, one of the key ways to drive relentless execution and performance is to link strategy, performance, and performance management and compensation. We have now built a compensation model around a combination of institutional and individual metrics.

That means managers will be measured both on a group scorecard and on an individual line of sight scorecard that looks at financial, operations, change or the implementation of the next level strategy, and leadership. This will lead to a more differentiated, performance driven variable compensation model, and will apply to all management in ABB.

Let's turn to chart 31. Simplifying how we work together is key to delivering more value to customers as well as improving our own productivity. In Q4, we implemented the new regional structure, reducing the number of regions from eight to three and taking out one organizational layer, bringing us all even closer to our customers.

We are expanding shared services across the businesses and the countries to handle common back office and transactional processes so that the frontend teams can focus their time and efforts even more strongly on customers and be faster and more responsive to customer needs.

In line with our new direction and strategy, the top 1,000 management appointments have been made for the new organization. We've clarified roles and responsibilities. And we did that very smoothly, and without interrupting the business, in a swift way.

Our ambition is to continue building the momentum created by the launch of the next level strategy, and bring the organization up to full speed as quickly and smoothly as possible.

Let me summarize on chart 32 how we delivered on our commitments in 2014. At the beginning of the year, we told you about our ambition to drive profitable organic growth, to innovate and expand through partnerships. Today we are reporting 10% organic order growth in a volatile market, supported by a rich pipeline of product innovations and a number of strategic partnerships to expand into high growth markets.

Last year we said also we would tackle the challenges in power systems and committed to deliver a break-even operational EBITDA result in the fourth quarter, with the ambition to hit break-even for the full year as well. Today we are there.

We committed to further cost savings, higher cash generation, and profitable portfolio pruning. We delivered on all of them in 2014.

In January 2014, we said we would launch a new strategy with ambitious financial targets. As a part of that process, we have already implemented a leaner, more market focused organization with clear roles and responsibility, and a new compensation model that better aligns individual goals with the group's longer term value creation metrics.

So, in 2014, we delivered on our commitments. We did what we said.

Now let's turn now to the outlook on chart number 34. If you would describe the outlook, you could say continued volatility and uncertainty in the markets. As flagged in the third quarter results presentation, there was considerably increased macro uncertainty in 2014, and it looks like that it will continue well into 2015.

Chart 34 shows in a balanced way some of the concerns looking ahead, but also some of the areas where we can be cautiously optimistic. Most important is that we are all positioned to handle the challenges and take advantage of the opportunities in a well informed and agile way.

On the positive side, China is growing, the US is growing, and we see good momentum in India and Southeast Asia. On the other hand, macroeconomic concerns remain for many parts of the world.

There is an increased risk that low oil prices could lead to a global energy battle, and geopolitical uncertainties continue to fill the headlines. So, while there may be a certain stability in the overall macro outlook, there is also some downside risk.

In this environment, it's important that we sustain the organic growth momentum we have built up in 2014. We have a proven approach through PIE. And the implementation of our market focused organization gives us the agility and speed to address new market opportunities.

At the same time, operational resilience is key to weathering any turbulence ahead. For us, that means continuing to adapt our business models to better manage the risks as well as continuing to focus on costs and cash.

On the next chart, number 35, we will take a balanced look at one of the key topics for 2015, the impact of low oil prices and how they are likely to affect ABB. This chart, 35, shows the three main ways we might feel the oil price effect.

One is our oil and gas customer base, both upstream and downstream. On the upstream side, lower revenues as a result of lower oil prices means our customers might need to take corrective actions. This is most likely to impact our customers' CapEx plan. And about 6% of our total business is exposed to this area of customer spend.

In the mid to downstream side, the overall picture is more neutral. It might be slightly dampened for us. Revenue declines typically trail lower feedstock prices, and greenfield projects are likely to be postponed or potentially cancelled.

The second significant way to feel the effect for ABB is through many other industries that we serve where lower fuel costs are likely to have some benefits and may encourage increased production and capital investments. These include the marine and automotive sectors, chemical, cement, metals and mining, as examples. This impact has more potential on the upside for us.

The third way we see the impact is governmental spending, especially in emerging market, oil importing economies like India, Indonesia, and China that have historically invested heavily in fossil fuel subsidies. With up to $500 billion in subsidy funding becoming available for infrastructure development, so for example for power grids or public transportation, there is a clear opportunity for ABB.

On chart 36, we have put together our exposure to the oil and gas value chain and give you an overall perspective. About 10% of our sales are driven directly by the oil, gas, and chemical sector. Of that, some 60% is on the upstream side and 40% downstream and midstream.

CapEx represents about 45% of our chemical, oil, and gas revenues, but OpEx accounts for the remaining 55%. This is a well balanced portfolio in terms of end market exposure.

But, while we expect to see some dampening effect along the value chain from lower prices, we also see that there are some upsides in other industries in other parts of our business.

With this background, let's now move to chart 37 and look at our priorities for 2015. On profitable growth, we will build on the good order momentum we established last year through our PIE approach. We have continued to make significant investments in selling and R&D, close to $6 billion a year.

And in 2015, we will drive hard to get the value from these investments. We will continue to shift the center of gravity of the company towards high growth markets by further de-risking the business portfolio. Finally, it is key that we extract the value from the partnerships we established in 2014.

On relentless execution, as I described earlier, cost savings of 3% to 5% of cost of sales agreement and expanded white collar productivity are high priorities for 2015, as well as further improvements in net working capital and cash generation.

Finalizing step change in power systems so that we can move into our target profitability range by 2016 is another priority, along with generating tangible results from our 1,000 day programs.

The focus on business-led collaboration will be to energize the new market focused organization in order to realize both the growth and productivity benefits as quickly as possible.

With that, I'd like to conclude my remarks and thank you all for your attention. Let's open the line now for questions.

Ben Uglow, Morgan Stanley.

Afternoon, Ulrich, Eric, and Alanna; a couple of questions. Uli, I just wanted to understand the EPS outlook on slide 37. And really, I wanted to kind of get the sort of sentiment behind it. Is this actually a firm target? Are you saying that you definitely believe that ABB could grow its EPS by 10% this year, or is it more aspirational, i.e., that we want to get to the goal that we set at the Capital Markets Day? And in that context, can you also give a sense of is this in local terms, is it in dollar terms, basically just drill down into that statement a little bit?

And then, the second question was really about -- and I guess it's for Eric on power systems, which is obviously we're beginning to see higher EBIT numbers come back through. In terms of getting toward the 7%, 7% to 11% EBITA target over the course of this year, is that something that's going to be gradual and linear, or is it something that we're going to have to kind of wait until the end of the year before we get back to kind of normalized levels of profitability?

So, good afternoon, Ben. Thank you very much for your questions, and let me take the EPS discussion first. First, you asked whether it's local or US terms. On that one, we report the -- it's operational EPS that we report here, and it's local currency. So, that's the first point, operational EPS in local currency.

And we absolutely aim to be within the target range for 2015. For us, it's a top priority that we go that direction. Our growth initiatives and our strong backlog are key drivers for that. We also are committed to aim for margin accretion for the year.

Naturally, all of that is dependent on the economic development. But, as we see the goals developing at the moment, the long term EPS growth target that we have given ourselves should be one that also characterizes our ambition for 2015.

The EPS, by the way it's operational EPS, it also includes the effect of buybacks, just for clarity purposes, that you see. But, the majority of the EPS growth that we have in our ambition will come from operational improvements and from organic growth.

So, with that, I'll hand over to Eric for the power systems question.

Yes. Ben, it's Eric here. The margin in power systems, we have said we will be in the margin range in 2016 as we communicated in the Capital Markets Day. But, we have not given guidance on how the ramp up will go during this year.

This is because the individual quarters' margin will depend on how the backlog comes out on the remaining backlog of low margin orders, and also, frankly, on the revenue level per quarter. You have seen that when we have higher revenues, we have also higher profitability in this division.

So, we will not give a specific guidance if this is linear or how it works. There is still a few things that needs to be washed through the revenues during the year, and we are committed to make improvements to get into the range in 2016.

That's really helpful. Thank you. And then, just one -- I guess one follow up on the -- again, coming back to the general sort of view on the earnings outlook, Ulrich, what would you say were kind of the upside risks on achieving that 10% rate, and where are you kind of most concerned right now?

Look, we have built good momentum on the organic growth, as you have seen on the order side. We need -- relative to the market, we have the ambition to really keep that momentum and get going, because profitable, good growth is, in my eyes, the best contributor to that one.

Should the world shut down, then that growth will definitely have a negative impact. But, at the moment, it's a difficult world out there but we are not thinking that it will shut down and go there.

And then, naturally we're doing a lot of homework. As you know, last year we focused on the cost reduction side in a very significant way. All our capital efforts and net working capital efforts and inventory efforts have also an impact on the P&L. Inventory carrying costs go down if we can do a continued good job on the working capital and inventory side, and we should really focus on that one.

So, we are firing basically on all cylinders on the growth side, on the operational side, to make sure we get to the target range with the efforts that we have in place.

That's really helpful. Thank you very much.

You're welcome, Ben.

Andreas Willi, JPMorgan.

Yes, good afternoon, everybody. My first question is on your impact you talked about from the oil price. You showed the negatives and the positives. What is, in your view, the impact potentially on energy efficiency generally as a theme for your customers to upgrade, invest, and replace and how that plays out between oil driven energy costs and electricity costs for your customers? Kind of what do you assume to happen there?

And a second question, more a financial one. In 2014, you had a big derivative negative impact of about $170 million for the whole year due to the fluctuations we have seen on currency and commodities. That's kind of around 4% of your profits. How should we expect that to move in 2015? Are we going to get the benefit of the actual crystallization of these losses and gains in the operational earnings in 2015? So, what should we expect in terms of a payback for the derivative loss you had this year?

So, good afternoon, Andreas. Thank you for your two questions. I'll take the first one and have Eric answering the second one.

On the energy efficiency question, look, if you take energy efficiency, it's one of the competitive factors that any industrial CEO should really look at with a strong focus. If you take the oil price up and down, that's like the tide going up and down.

And that basically means, on a competitive picture, if you are competing in a certain field against somebody else that has the same value chain, if you invested in energy efficiency, on a relative basis you are still better off. So, this is something where I don't see a major short term slowdown or whatever because of the oil price, because it's a relative competitiveness picture that we have there very often.

But, interesting enough, what we see also on the upstream side, there are a lot of companies out there that are still pumping oil at the moment with the oil price around the $50s. And their automation and own energy efficiency as far as operations is also a topic that we need to drive in there.

So, for me, this is something that's there to stay. It's something which, on a relative basis, is a very important point. If you take the energy efficiency bill, a lot of companies see that via their electricity bill and the oil price has not yet hit home fully on the electricity bill, for example, for European industrials yet fully, so that's something that will keep going and get going.

And energy efficiency is not only about money. It's also around pollution and environmental impact. With an upcoming stronger legislation on CO2 emissions and CO2 cost, energy efficiency also plays a role in that context. So, I would say this is something that is there to stay.

With that said, I'll hand over to Eric for the derivatives question, Andreas.

Thank you. Hello, Andreas. So, you are correct that the derivative had a quite negative effect mainly on the fourth quarter. And that is because of the sharp appreciation of the dollar at the end of the quarter.

The reason why we separate this line out in our P&L statement is that this is a pure revaluation of the hedging -- part of the hedging portfolio which is not open for hedge accounting. And it's quite difficult to predict how this is going in the future, because it depends on the exchange rates at the end of each quarter.

So, if the exchange rate stays unchanged, then the derivative portfolio is exactly the same. There is no impact. But, obviously certain derivatives come in and certain goes out during the period.

But, the bigger effect is further movements on the currency side. So, I think what we could say is that, if the currency stays more or less on the same level, the impact will not be so big. If it starts to go in the other direction, mainly the dollar, then we will get the benefits back and vice versa.

But I would, for your assumption, see these as a neutral effect. That's the best we can do.

I was more interested in the effect on the operating performance. So, are you going to get benefits from the dollar, for example, being stronger versus the euro in the operating EBIT number during 2015 as you get kind of the realization of the benefit rather than the pulled forward hedging adjustment?

Yes, I understand. Yes. So, the derivatives that are in that portfolio now are revalued.

When they expire and are matched against the transaction that they belong to, you get a certain positive effect from that. But, it is certainly coming over time. It's not coming in one shot.

Thank you.

You're welcome.

Mark Troman, Bank of America Merrill Lynch.

Yes, thank you. Good afternoon, Uli, Eric, and Alanna. Got a question first on if I can call it the commodity exposure of ABB. You've kindly given oil and gas at 10% and given some details there. And I think, correct me if I'm wrong, but metals and mining and that area is about 15% and maybe marine another 5% or 6% or so.

If you just take that portion of your portfolio, what does the book-to-bill effectively look like? It looks pretty good for the group over the year at 1.04. What does it look like for that portion of your business as you go into 2015? And should we expect that part of the portfolio to grow in terms of sales? So, that was the first question.

And the second question, it also looks -- or you imply you seem to be taking a bit of share or growing faster than the market, whichever way you want to say it, and we're seeing lower copper, oil, iron ore, etc. So, what's happening with pricing and the spread versus the input costs, if we can call it that? Thanks very much.

Okay. Thanks, Mark. Look, on the commodity exposure, if you take the orders that we announced this year in the sectors that you mentioned, whether it's marine, metals, or mining, we got some really nice new orders that are not only creating backlog for 2015, but it also in some cases goes in 2016 and sometimes even in 2017.

Our marine business had really a record run in 2014. Heikki Soljama and his team have done a great job in getting some very large orders. In some cases, it's basically like serial manufacturing of large ships out there where we are now on the series, which is very nice for us because it gives us a repetitive sales pattern going forward.

On metals and mining, we got some good automation upgrade orders despite being -- the overall market being quite still challenging. So, all together, we have positive book-to-bill for the sectors that you mentioned that you should see over the years to come on a revenue realization.

On the market share point, yes, look, when you grow 10% in orders in a world that is not growing at 10%, your conclusion is right. But, I'm very, very proud to say that we haven't bought that market share.

If you look at the steady margins in four of the divisions which are not in turnaround now, excluding PS it shows very clearly that we have got that because we have better customer service as also reflected in our NPS, because we got really great technology.

You might remember throughout the crisis we kept spending on R&D and got that going. And we have invested heavily also on the sales side to make sure we are very close to our customers. So, that's basically what's driving it.

If you take the commodity pricing on oil, gas, copper, whatever you want to mention there, look, we don't speculate on that one. I'll say very honestly we fly onsite in these fields. What we need to make sure is that whenever a commodity goes down that we find fair arrangements with our customer base. They see. They read the newspaper. We do it as well. But, I would not expect a dramatic drop in any field at the moment.

Okay. Thank you, Uli. And just one follow up.

Please.

In oil and gas, it looks like -- you gave the mix upstream, downstream, CapEx, OpEx, etc. If we take mining -- maybe metals, mining, and marine, how much would you say of that is for OpEx type exposure verse CapEx?

In general, in these type of industries, we aim to have a very good, solid mix between CapEx activities, OpEx activities, and service, especially on service. On the process industry, Veli-Matti and his team have done a great job the last couple of years growing the service business.

You know we have a whole range of new service solutions in place, being it the remote service, being it asset health analytics that we are putting in. So, that's a growing share. So, you can assume that in these sectors the majority is on OpEx and service, and CapEx is usually less than half.

Thank you very much. Very clear.

You're welcome, Mark.

Simon Toennessen, Credit Suisse.

Yes, good afternoon, everyone. Thanks for taking the question. My first one is in the same direction as Mark's question earlier, just a bit broader on backlog conversion into organic sales in 2015. How should we think about particularly PA, PP, and PS into 2015? Looking at PP, you had 5% organic order growth in 2014 but revenues declined 4%. At PP, orders were up strongly in double digit in 2014 but likely to fall in 2015, given sort of the CapEx trends in oil and gas and marine going forward.

So, if we look at your backlog, how do you think about transitioning into organic revenues, particularly for those three businesses? And is it, from today's perspective, too optimistic to assume that you could even grow organically revenues in process automation, given your backlog in 2015?

My second question is on discrete automation. Looking at the order growth organically of 1% in the quarter, it seems there it was the slowest compared to sort of the last four quarters. Am I right -- assuming that base orders were flat in Q4 and given that you said that robotics and drives grew, particularly robotics, I presume, grew well again in the quarter, how should we think about some of the other categories such as controls and motors? Have those declined in the quarter, given the overall divisional growth rate, if you could just talk a bit around that? Thanks very much.

Look, I'll take the DM question and let then Eric answer the backlog question, Simon.

On DM, you need to understand this business has been growing very nicely. We are very satisfied with the overall pattern for 2014. Given that a lot of the activities are going through distribution there, we always need to watch the distributors' behavior towards the end of the year and the behavior of the distributors in the previous year.

And if you compare that, that explains basically the slightly softer pattern in the last quarter this year. This is nothing to be alarmed about, but it is just a seasonal pattern year-on-year on the distribution side that we have in there.

The robotics business is going really very strongly. We are very pleased with our decision a couple of years ago that we go more into application-based robotics, because that's where the majority of the market is going.

Next year China will be the largest robotics market in the world. And we are number one there, clearly, and very well positioned with a fully integrated value chain from R&D to sourcing, manufacturing, sales. It's basically a full local company, and I am quite optimistic there.

If you look at the challenges that this part of the world has, there is quite a bit of demand coming, but also in North America, for example, the boom in the automotive industry that we see there at the moment. There is more demand for automation solutions. So, all together on the DM side, I would stay optimistic going forward, especially also since you asked on the robotics side.

With that said, on the backlog side, the only thing that I will say at the beginning is PP -- just to comment on PP, this is not only utility business. This is industrial business. Bernhard's team has done particularly well this year on the industrial side to grow power. And that's something where you should expect some revenue.

But, with that, I'll hand over to Eric to comment on the rest.

Yes. So, looking at the backlog conversion, it's important to see the structure of the backlog. And as Uli already alluded to in PA, for instance, quite a bit of their very high order intake in 2014 comes from the marine orders, which is then spread over the next three years in terms of revenues.

So, we had in the quarter a positive revenue of 1% in PA. So, I think with the backlog that we see, we should be able to continue into positive territory, but not with major growth compared to the very strong order growth that we had of 13% last year.

I think also in PP, if you study that in detail, we had 2% minus in the fourth quarter against an 8% or 9% minus in Q3. So, we are also here turning, and will start to see positive growth of revenues in power products from the backlog. And obviously, the final number then depends on the book-to-bill that we get in there.

On the PS side, we have to be a bit careful because there we have a lot of revenues from the businesses that we are now executing from the old backlog. And if you look back to the order intake even 2013, which was pretty low, we will not be able to deliver high revenue growth numbers in PS in 2015.

All what I've said now obviously depends then on the book-to-bill of the short term business that we get also during the year. But, from the backlog point of view, I think you should see slowly but safely getting into positive territory, but with small numbers.

Okay. So, if I just take those answers, so you're basically expecting in PA at least the first half to see organic sales growth, and then second half is somewhat uncertain.

We'll let you speculate on that one. We don't give half yearly guidance, Simon. I'm sorry.

Okay. Thank you.

You're welcome.

Jeffrey Sprague, Vertical Research Partners.

Thank you. Good afternoon, everyone. Just a couple questions, actually, on the balance sheet. You're aggressively returning cash to shareholders, which is much appreciated. Your cash balance is actually continuing to grow though on a year-over-year basis. I'm just wondering if there's any claim on that cash, so to speak, because of your customer deposits or project work or anything, really kind of the flexibility that you might have to use that cash in the current year, and really even as kind of a structural question.

So, good afternoon, Jeffrey. Thank you very much for your question. Yes, look, we have four capital deployment priorities. Number one, we want to be able to fund organic growth. We have done our homework in this field, as you can see. We did a lot of work on market segmentation, understanding better where to invest the money.

So, I think in terms of resource and investment allocation, we are probably stronger positioned than before, especially also looking at cross divisional prioritization where we really have to decide between different businesses where we put the money going forward.

The second priority is the dividend. And as you see, we will honor our dividend policy. We want our shareholders to know that we are a reliable dividend yield company in good times and in times where we go through challenges. It's really, really important that you see that as part of ABB's value proposition to our shareholders.

Then our number three is acquisitions, and number four is additional returns. Now, last year we decided that we will not go for additional acquisitions. And quite frankly, at that time we had Thomas & Betts and Power-One still going on in terms of large acquisition integration.

We put up a new strategy and changed the organization. And whilst being proud that we did it so swiftly, we wanted especially the second half of the year to have the freedom to move with our team and get the new organizational alignment done swiftly, rather than getting distracted on additional acquisitions that we had.

And then we had naturally also the PS turnaround, which kept us all busy. Eric and myself were deeply involved there, together with Claudio. So, we just wanted to have our head free to do the homework in 2014.

Going forward, as you rightly say, we have a solid balance sheet. And that solid balance sheet gives us a lot of freedom, but we should also be very clear. In a highly uncertain and volatile world, you always want to have a little bit of a cushion and not overstretch yourself.

So, in 2015, you can expect us to start thinking about acquisitions again. We will be very careful, doing this right in the volatile market environment that you see. But, if we see the right opportunity, I am now ready for it, also from an integration capacity perspective. We might go out and do something.

And then, just a quick follow on on a different topic. We've heard from a few companies this earnings season, GE, Dover, Emerson, a few others, about customers kind of coming back and wanting to reprice orders in the backlog and things like that on the oil and gas side. I just wonder if you're seeing any of that and if you could give us any update, if there's been any change in behavior here in the beginning part of the year in January.

Yes, look, Jeffrey, that's an interesting one. If you go to the PIE slide where we show the different circles on oil and gas, you see that more than half of our oil and gas activity is OpEx and service.

And there we have basically longer term service contracts. We have operational contracts on the OpEx side. And I would not expect a dramatic change in that field.

On the CapEx side, a lot of the projects are locked in now. And going forward, we haven't seen customers coming back very strongly on that one. I was two weeks ago myself in the Middle East and met with a couple of customers in that field. What I heard there was not that they wanted to go back at the contracts. What I heard there is they wanted to talk about timing of future projects, how we do that, and some of the running projects. That was what I got as impact.

Okay. Thank you very much.

You're welcome, Jeffery.

Olivier Esnou, Exane BNP Paribas.

Yes, hello. Good afternoon. Thank you for the question. So, I wanted to talk a bit about the bridge in 2015. How should we think about the balance of savings versus pricing and maybe investment? How are you managing that going into 2015?

And going a little bit into the pricing trend, it's a little bit difficult to track it now with the breakdown. But, I was under the impression that there was maybe a little bit more pressure on the P&L on the pricing side. Could you maybe comment here at the trends you're seeing in pricing on orders and sales? Thank you.

Okay. I will start with it and then also hand over to Eric to make some comments.

Look, Olivier, we're living in a pretty volatile world. At the moment, you have commodity prices going up, down. You have the oil price move. You have the currency. So, this is something which is keeping us busy and probably also our customers, how they do see that going.

Our ambition is very, very clearly, going forward, that we beat any price impact with cost reduction. We have seen -- we have committed for next year again -- or for this year again for a 3% to 5% cost of sales equivalent on costs out.

This is something where we have the team up and running. We have the measures defined. We are expanding the scope. We really go after opportunities outside of what we have addressed so far. We are going into new fields there.

So, I am feeling that we will be able to deliver that ambition to compensate price increases, at least with our cost side. On the pricing itself, look, in a nervous world, in that environment you see all kind of behavior but I wouldn?t call it a trend yet.

With that said, Eric, you want to comment a little bit more on the EBIT bridge?

No. I think you have seen over the last quarters that we have been able to produce more cost saving than price. And that is certainly our intention to do so in the future, as Ulrich already said.

And I would say on the different components and the pieces behind there, it is no pattern of additional pressure. It is basically continuing where we are.

Okay. Thank you. If I may ask for just a follow up, you touched briefly on the incentive change, the program. I remember there was some discussion in the past about the allocation, in percentage terms, of each component between growth and margin and cash. Can you maybe update us quickly on what are -- the new way here? Is there any more -- any item which is becoming more important, I mean, to make it show that you are more focused on, let's say, growth or margin or cash going forward with the new system? How does it work? Any detail I hear would be welcome. Thank you.

Okay. So, Olivier, the major change in the system itself is that we combine individual and institutional performance. In the past we had people all signed up on the same group scorecard. So, if somebody individually was going well or part of the portfolio was doing well, another part was doing no so well, they got the same bonus on the short term incentive.

This is the major change that we have implemented this year on the STI. On the STI we have now, depending on the level in the organization, we have a variable income element which is driven by individual performance.

That individual performance is basically influenced by four factors, the classic financials, if you run a P&L. The second is then what we call the relentless execution dashboard. We showed you that before. I'm happy to share the details more, that we basically look at care, customer, cash, and cost and say how is somebody doing operationally.

The third element in there is how does somebody drive change, especially in the context of the next level strategy. How is somebody that runs a BU implementing his part of the next level strategy or his part of the 1,000 day program?

And the fourth point on that one is around leadership and behavior. We would like to have a very strong collaborative behavior in ABB. We have defined clear leadership attributes against that we will measure our people, and we kind of look at that.

So, that's the logic of the model. The details of the numbers we disclose together with the compensation report, which will come out at the end of the first quarter this year. So, this is something where I cannot yet give you more granularity. This will come out in a couple of weeks.

All right. Thank you.

You're welcome, Olivier.

Martin Wilkie, Deutsche Bank.

Hey, good afternoon. It's Martin from Deutsche Bank. A couple of regional questions, firstly on China. You alluded to some strength there, just wondering if you could highlight which particular parts of China were good for you. Was that mainly in robotics or was it slightly broader based?

And the second question was on Europe. Now, you have pointed to some macro risks inside Europe. But, generally I understand that you're not necessarily having a big currency mismatch in the euro zone, but perhaps some of your customers are. And do they benefit from the weaker euro? Are you beginning to see some signs -- at any of your customers that are big exporters in Europe, are you beginning to see them beginning to sort of pick up in order terms that might benefit somewhat in 2015? Thanks.

Okay. Good afternoon, Martin, and thank you very much for your questions. Look, on China, as you know I'm very, very frequently in China. Last year I was seven times in that country, and it is a key market for us.

And if you look at the country itself, ABB had in 2014 record order intake in China of about $5.4 billion. So, we have grown yet one more time. We are moving west in China. We are driving our portfolio. We have invested a lot in a fully localized value chain. More than 85% of our products in China is being developed, sourced, produced, shipped, and sold there. So, we are basically a local player.

And the mantra is that we want to beat any competitor in its home base. That basically means the ambition is that we'll beat the Chinese competitors in the home base of China. So, that's the ABB perspective on that one.

If you look at the country itself, if you take the 12th five year plan of China, it talks about efficient power grids. It talks about renewable energy. It talks about e-mobility. It talks about robotization. It talks about automation of industry.

It's really -- when I saw the plan first time, I can tell you I smiled and I felt that this is like ABB has written that plan. So, the country GDP -- if you look at the absolute growth of China, it's continued to be a very large delta of the world's GDP growth. And secondly, within the efforts of the country, we are very strongly positioned there.

I'll give you a couple of examples. We have local manufacturing of our solar activities. We have -- the biggest deployment of electric mobility charging network in the world at the moment is the work being done between ABB and Denza, which is a joint venture between Daimler and BYD in China. That ambition is to install more than 100,000 charging stations there, and we are strongly positioned there.

On the power grid side, we have found a really good way to drive continuously growth in our power business despite local competition getting also strong there, because we have strong innovation power there. We've got strong R&D teams, and that's something that customers like State Grid continue to appreciate whilst also having their own activities.

And then, on the automation side, the robotics business is growing extremely strong. That's one that is 100% localized. We basically have full R&D, the full value chain there. We've got ABB's brand and distribution there. We have put up a couple of startup teams -- for example, for small parts assembly we got a startup team, a couple of others. So, all together, the robotics piece is going very strong.

So, for me, China is a significant ongoing opportunity for ABB. Given that we are a strong local player and very well established there with a strong value chain, I am also optimistic on that part of the world.

And look, in Europe it's really interesting. I met last week Uli Grillo, who is the head of the German Industry Association and a good old friend and colleague of mine. And he told me that we will see in Europe, especially in Germany, the impact of the euro change. And that should be something that should be not only good for some of our customers, should be good for us.

To call it a general trend yet that we would see in the order pattern and revenue pattern, that's too early to speculate on that one, Martin.

Okay. Thank you.

You're welcome.

James Stettler, Barclays Capital.

Good afternoon all, and thank you for taking my questions. First of all, how comfortable do you still feel on the 4% organic growth rate for the year?

Secondly, can you give a bit more color on the project pipeline and how you're seeing the utility market developing? Are there sort of projects out there? How is the sort of behavior on the utility side? Thank you.

Okay. Look, James, to be quite frank, you know me now long enough. We always have set targets in a way that we are not feeling fully comfortable with that, because otherwise you would be disappointed that we are not stretching ourselves enough.

The 4% target for next year -- for the next planning period that we have given ourselves means for 2015 we need to do a lot of homework, and we need to be very, very strongly stretching ourselves because we are still aiming in that direction for 2015.

If you look at the backlog that we have built, if you look at the exciting R&D and technology innovations that we have coming out, if you look at the investments in sales that we have taken, especially also on the service side, we have created good momentum. So, we will work very hard to aim towards that target range that we have given ourselves for the next six years, as an average over these six years.

And on the utility side, it's really a mixed world out there, James. If we would hop on a plane together and go to South Asia and talk about utility demands there, electrification of Indonesia is a big topic. Electrification of Thailand and other pieces is a big topic which is still an opportunity for us.

If you go to North America, the reindustrialization of the US and the associated power needs opens opportunities for us, not only because the infrastructure is old in the US but there is also new places of demand. If you take the Pittsburgh area just as one example where you have now steel activities coming back in, that means we need to reinforce the grid up there and get going. So, that's something that's coming.

If you go then over the Atlantic and go to Europe, in Europe we see a mixed picture. We still see some underlying need, for example, to deal with the renewables coming into the grid in the countries that have a lot of renewables already installed, because that's destabilizing and there are some activities.

So, it's -- what we need to do on the utility side, you really need to do defined segmentation, understand the specific requirements in the different fields, and to get still some good orders.

All together, I would say that Europe is still to be treated with caution. This is not a booming market. North America is coming in line with the industrialization. In markets like South Asia, I have really strong hopes that we'll continue to develop there.

And if you take Bernhard's business this year, if you take a 5% growth that he has delivered, that's really a signal of doing good homework in that space as well.

Great. Thank you so much.

You're welcome, James.

Fredric Stahl, UBS.

Hi, guys. It's Fredric from UBS. I was curious on how low voltage did in China in the fourth quarter. That was the first question.

And then secondly, on robotics, if you can remind me how big the business is for you today and, maybe more importantly, if you had tried to estimate what the opportunity is for you guys with the new generation of robotics. I understand there's quite a few industries with very low levels of automation where these human-friendly, let's call them, robots could change things dramatically. I'm thinking about consumer electronics, for example. Thanks.

Okay. Fredric, first of all, good afternoon. Let me take the robotics question first, and then I'll hand over to Eric for the low voltage question, the specifics that you have.

Look, on robotics, I'd like to stretch here quickly. In the year 2030, which is about 15 years from now, all manual work in industry will be able to be done by robots. Now, let's assume a billion people work in that industry, and let's assume 10% of that could be robotized.

And 10% of that would be sold on an annual base, and we would have a 10% market share. That means we would be selling a million robots a year, and today the global market for articulated robots is somewhere between 100,000 and 150,000 pieces.

So, there is a world out there that will be robotized. And I think there is more and more realization that the countries that have the highest robotization level, like Germany, like South Korea, like Japan, have the lowest unemployment rates because they are able to drive competiveness with strong robotization.

So, I believe very strongly in that market long term. And that's the reason why we are short term investing heavily in this field. We are coming out with really a whole shotgun of new products in that field to go for the 3C industry.

We have robotics for the consumer goods. We have robotics in food and beverage. We have robotics on the service side. We have robotics in material handling and logistics. So, there is an enormous space out there that we drive in a very aggressive way.

The robotics business in 2009, that was the last time when we officially announced all the numbers, was $1 billion business and had a $300 million operational loss. Since then, the business is growing very substantially organically, and we are happy with the financial results and the margin on this business.

And that's all I'm going to say, because we don't disclose details on a business unit level. But, it's definitely one of the growth pillars of ABB going forward, Fredric.

And if you look at robotics, there are three core capabilities that you need. You need hardware, software, and service. On the hardware side, reliable, good hardware with good uptime, long service cycles like our new industrial automotive robot that basically you can run three times the length before you have to do an oil exchange on the gear works, which is really good. It gives you less downtime.

The software piece, where we are working on self-learning robots that basically can then copy human beings or can be much easier programmed, that's one of the key hurdles to be installed.

And then, the service network, ABB has the strongest service network of any robotics player in the world. And we're going to build on that one, together with our strong relationship with our system integration partners, to grow that business going forward.

So, with that, I should have had now enough time for Eric to answer the LP question. Eric, over to you.

Yes. Thank you very much. The question is LP business in China. Over the last few quarters, we still see positive trends in this business, even if it is with lower growth rates than before.

It is also a mix of different businesses. We have low voltage product business, low voltage system business, which is cabinets and installation, and it's a mix between those. But, we are pleased with the business in China.

Okay. Thank you very much.

You're welcome, Fredric.

Daniela Costa, Goldman Sachs.

Thank you. Good afternoon; two questions following up on earlier questions. On one back to the EPS double digit outlook for 2015, can you break down how much of this would be reversal of the power systems' issues, I guess, you had in 2014 versus actually underlying earnings growth?

And then, the second one following up on your M&A commentary, what are the areas that you think where your portfolio would need to be strengthened, or the new areas that you would like to have access for growth. So, just some broad comments on that. Thank you very much.

Okay. First of all, good afternoon, Daniela. On the EPS side, we are not disclosing the details of the impacts that we plan with.

But, as you have heard before, we are committed to bringing PS in even better shape than we have had this year. This year we made the break-even. 2016 we want to be in the target zone so there will be an accretive effect, an appreciation effect, coming out of PS.

My honest mandate to the team is the first priority in PS in 2015 is to complete the homework that we had to do. It is very, very important that we get that behind us. And for me personally, I would say this is even more important than to squeeze the last dollar out.

We want to have a sustainable homework done in PS that we never fall in this situation again that we have had in the last year, because that was one that we really didn't like. But, the team addressed it in a professional way and we are getting out of it.

On the M&A side, yes, look, when we presented the next level strategy, we gave you some flavor on where we are looking. If you take ABB's position in our customers' value chain, we are very strong in the build phase of our customers' value chain.

On the planning side and on the operations side are two topics where we today have some activities; on the planning side, for example, our robot studio software where we can virtually plan automation solutions, or our grid planning capabilities where we can virtually plan a grid on different levels. We can do that.

I would like to see more of that activities in ABB. But, in that field, you need to have the right targets available. You need to have the integration capacity to really swallow them. But, for me, the planning software, engineering, technical consulting piece is one that we will definitely look, because it's also one that, from a margin perspective, would be accretive and attractive to us.

And the second piece is then on the service side and the operations side. We have a good capability around asset health. But, we are investing a lot in our products being more able to speak to us and really give us data out of the operating base. Doing more with that and potentially deploying some capital on M&A in that field would be another one that would be interesting. So, that's the one piece on the customer value chain.

And if you look then across our divisions, discrete automation and motion is definitely a division that has done quite a couple of acquisitions. But, we have not fully explored the market opportunities out there. There could be activities that we go after in complement.

And then, in general in automation, if you look on the sensing and measurement side, there is opportunities. I think on the control side we are okay. And then, if you go into the actuation side, the industry agnostic actuation for process industries like motors and drives, we are the global market leader. We are okay.

But, industry specific actuation on the [belt] side or servo motion side, these are activities where I could also see, over the next year if the time is right, to get some capital deployed.

All right. Thank you very much.

You're welcome, Daniela.

Andrew Carter, RBC.

Yes, good afternoon. Thank you for the opportunity. I had a couple of question, please, first of all perhaps just two on the backlog. The first one was in the slide where you talked about the backlog year-on-year, you talk about constant FX rather than not like-for-like. And I was wondering whether we have to make some adjustments in sort of the prior year comparison for the businesses that you disposed of during the year, because I think you showed $1 billion of revenue for those. So, I assume that there was potentially some backlog in there that we need to adjust for.

And the second one just in terms of backlog was just looking at the upstream piece of the oil and gas. Is it fair to think about that as being something like 4% of the backlog as it is of the revenue, or should we look at it slightly differently? Perhaps this is much more of a book-to-bill business rather than backlog business.

And then the final question was just on the helpful slide talking about the currency transaction. Can you provide a little bit more information, perhaps help us understand where we would see the benefits of the stronger dollar and I guess the less benefits of the stronger Swiss across the divisions of the group?

Okay. Andrew, thank you very much for your question. I will pick the middle one on your backlog on upstream and then let Eric answer the dollar question and the year-on-year constant exchange rate question.

On the upstream activities in oil and gas, look, we have really had a good run the last couple of years. And I was personally involved in some of the customer situations in getting more long term service agreements and OpEx support agreements in place.

One customer that I can say publicly because it was announced, we are the chosen partner for Shell globally on low voltage motors and on drives the world with an associated service contract, which is really fantastic because basically these are the pieces that are running day and night. As long as you are exploring and pumping oil, you need our service capabilities in your OpEx there.

So, from here, we said it's about -- the upstream piece is about 6%. In there, in the 6%, you should expect that the majority, that means more than half, is in the OpEx and on the service side. And the minority, being in the CapEx side, is in the CapEx investments that we have in there.

This is a chosen strategy. That does not mean we don't want to do CapEx projects. I was recently in Saudi in Sadara, which is the largest CapEx deployment in oil and gas. As we speak, it's a $27 billion plant that's being built. So, there are significant activities down there.

But, our structure and our aim in the future is to have a good balance between CapEx and OpEx and service, with the majority going in OpEx and service, which is repeatable steady state business as long as the operations are going.

And with that said, I'll hand over to Eric for the other two questions that you had, Andrew.

Okay, Andrew. It's Eric here. On the backlog side, you have seen in the report we have said on a local currency basis we are up 5% with the backlog. That is not a like-for-like number, but I can confirm that the backlog at the end of the year clearly is without any impact over the divestitures.

So, that means that if you were to calculate the increase of the backlog on a fully like-for-like basis, it would be more than the 5%, even if the impact is not so big from those businesses. But, obviously there was some backlog in those businesses.

Then on the third question, the second for me, on the stronger dollar by division, this structural currency mismatch that we still have as a big global company has quite a bit to do with the euro exports. These are exports out of euro and euro related currencies into more than dollar denominated zone.

And we have all the divisions active in various ways in the euro zone. So, to spell this out or to single this out by division I don't think is very meaningful.

And I also repeat what I said on the call earlier today, that this is a structural effect that will show up over time when the hedging runs out. And obviously, all other things being equal, like competition, movements by customers and so on. But, we should see an improved competitiveness from our European base for this part of the business.

Look, and if you'll allow me just to comment, the reason why we put that extra explanation into the presentation today, we wanted you -- to take you with us to understand what are the structural adjustments, what are the different drivers that we have.

It's really a complex world out there. And when we work together the next couple of quarters and need to come out with numbers, I expect continued volatility in the currency side. And therefore, we wanted just to make sure that we all understand the drivers in a similar way.

That's great. Thank you.

You're welcome, Andrew.

Gael de Bray, Societe Generale.

Hi. Good afternoon, everybody. Thanks for the opportunity here. So, I understand the turnaround at PS is not going to be linear in 2015. But, could you maybe give us a sense of maybe your degree of confidence that the PS margins are not going to get back below the 2.5% margin achieved in Q4?

And also, again in relation to PS, what's the degree of completeness now of the three HVDC legacy projects, especially the latest one, and maybe what's the proportion of the backlog for PS which still includes some last make-in contracts that are currently being executed?

Okay, Gael. Thanks for your question. Look, on the turnaround on PS, it's not completed, yes? There is homework that we still have to do. We are happy that we are back in the break-even zone. But, quite frankly, that's not where we want to be long term. Long term we want to make decent money in this business.

We will not give any more guidance for 2015 than what we have already given. We aim to be in 2015 between the break-even and the target range of 2016. And that's all we're going to say about that one.

Now, on the HVDC project, you put a smile on my face because yesterday and even today during the day we had some quite detailed reviews with the project -- on all three projects. So, I am warmed up on that one and can really share where we are.

Two of these projects are now energized. That means they are installed out there and there is power flowing through. So, they are in an advanced stage. They are not fully operational yet because there also need to be all the other installations around that need to be done. But, we made really good progress. They are energized.

And the third platform, that's DolWin 2. DolWin 2 heads to sail last summer around the Cape of Africa. You might remember in one of the calls I told you that I didn't sleep so well during summer because that was an exposure. Now the good news is the team made that and the platform arrived in Norway. At the moment it's being fitted out, and that's a platform where we are making good progress.

All together, I would say we are on track with our plans that we have given ourselves for the turnaround of PS. But, there is still homework. The team that we have in place has a better grip on the risks. And on any project business, you always have risks until the last day that the project is finished. But, it's something that you should be -- we are much better able to manage compared to the past.

Now, on the backlog question, that's a good one. As you might remember, we had a couple of different buckets in there that were challenging. The one was the solar EPC business. We committed that we would have more than 90% of that backlog fleshed out by the end of the year, and we have fulfilled that commitment. So, that's gone. That's out of the way, and I am happy with the work that Claudio and Massimo together have done in that field.

We have a couple of smaller activities in some projects still open. But, this is something where you should expect in the first half of 2015 pretty much completion, that it is is that even the small thing that is left behind us should be fleshed out.

On the offshore projects, I just gave you a feeling. And other than that, we have done good work to go through all the legacy projects, work them through and ensure that we have now no more contamination in the backlog. We have some lower margin businesses still from the past in there, but we don't have any additional very large ones where we could say all of a sudden this could develop in a second offshore. We don't see that as we speak, Gael.

Okay, very helpful. Thanks very much.

You are most welcome.

The last question for today is from Natalie Falkman, Carnegie.

Thank you. That's an honor to end up. Hello, Ulrich. Hello, Eric. I have two questions. You had a better margin in the low voltage, and I just want to know the key drivers behind it. I was thinking that it might be lower system sales that were the key reason. Any other reason for the better margin?

And the second question is that, according to TenneT, your key client in offshore projects, they have a very large pipeline of projects, up to $80 billion, I think they said. Are you tempted to start bidding on these type of projects again?

Well, let me take the second one first, because that's one which is very high on my actual radar screen. Look, with the right business model, we are absolutely committed in the future to do more projects on HVDC, but the emphasis needs to be on the right business model.

We have been very clear with our customer base that we will not do business in the way we have done it in the past, especially on offshore wind, anymore. That times are definitely over, and ABB will not do any tendering with the same business model in that field ever more as long as I am the CEO, which I intend to be for a while.

So, on the activities, there is quite a bit of activity not only by TenneT but others out there. And that's something, going back to some of the earlier questions on utility, there is a good tender backlog on connecting renewables with the grid.

And there is a lot of opportunities out there. So, we're working on them but with a completely different quality, with a different discipline business model to ensure we focus on what we are really good at. You might see then orders which are smaller in terms of the overall face value. But, it does not mean that they wouldn't have very attractive or better profit potential.

Then on low voltage, your question, Natalie, yes, look, a couple of points. One, in low voltage you always have the mix between system and the product business. But, specifically on that division, I would like to make some comments.

Tarak and his team did a really good job this year selling two major chunks, the HVAC and the steel structure business, out of the Thomas & Betts portfolio. And as you can imagine, carving out two pretty sizeable businesses of a portfolio like Thomas & Betts took a lot of management attention and took quite a bit of effort to get it out; also cost quite a bit of money to get this going.

So, this is behind us. That's completed. The team has done a great job, and I'm very pleased with Tarak taking this one so quickly and swiftly and delivering so well. And given that, there is a lot of attention also of management, even more than in the past, on operational performance and on realizing the synergies between Thomas & Betts and ABB.

So, on the one hand, it's a little bit of mix, but it's also pure operational performance, that the team has done a really good job driving productivity and synergies across the portfolio.

Thank you very much.

You're welcome.

So, with that, we would like to conclude the call. And thank you very much for joining us today. Thank you.

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