Abb Ltd (ABB) 2015 Q1 法說會逐字稿

Ladies and gentlemen, good morning or good afternoon. Welcome to the ABB Q1 2015 results conference call.

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

At this time, it's my pleasure to hand over to Alanna Abrahamson. Please go ahead, madam.

Thank you very much. Good afternoon, ladies and gentlemen, and thank you for taking time to join us today for our first quarter 2015 results call.

As usual, 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, let me 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.

The call will start with a summary of the results by Uli and Eric. Uli will then update you on the progress we are making to implement the next level strategy. Then we will move back to the Q&A. With that, I would like to hand over to Uli.

Thank you very much, Alanna. Good afternoon, ladies and gentlemen. Welcome and thank you for joining us today to discuss the first quarter 2015 results. Before we start, let me make a few general remarks.

We delivered a solid quarter in which we grew both net income and increased cash flow, in line with our commitment to drive profitable growth and accelerate sustainable value creation.

In a challenging environment, we doubled large orders and kept base orders steady. We grew orders in our three largest markets and countries, the US, China, and Germany, on a like-for-like basis and won key projects due to our combined power and automation offering, reflecting our competitive advantage.

We brought revenue back to growth, benefitting from our order backlog and strong focus on growth segments in a difficult overall market. Book-to-bill in the first quarter was 1.2 higher than 2014. We continued to make progress in our power systems step change program and delivered the third consecutive profitable quarter.

Mix effect and market challenges such as oil and gas weighed on margins in the rest of the group. We have taken decisive actions on cost and productivity to address this as a part of our ongoing focus on relentless execution. In total, we delivered a steady operational EBITA margin in a challenging market.

We are seeing first benefits of our next level strategy, giving us confidence that we can take advantage of profitable growth opportunities ahead. We are driving costs out and are implementing additional restructuring to address market uncertainties in the quarters ahead.

Now let us turn to slide number three. In the first quarter, we continued to deliver along our three focus areas. Profitable growth through our framework of penetration, innovation, and expansion, which we call PIE, continued to pay off.

Orders increased 15% on a like-for-like basis. We won attractive large orders in HVDC power transmission in offshore oil and gas, in marine, and in rail. Our PIE initiatives contributed to higher base orders in four divisions despite a challenging market environment. Book-to-bill is now back above 1 in all divisions, which will support revenues in the quarters to come and into 2016 and 2017.

We launched many new products at the recent Hannover Fair. One in particular was our revolutionary YuMi robot, which will play a key role in human/robot collaboration in many industries.

Revenues were up on a like-for-like basis, and we delivered higher operational EBITDA and operational earnings per share on a constant currency basis.

In relentless execution, we continued to drive the step change program in power systems, and the division showed a solid improvement in profitability.

We also rolled out our new performance oriented compensation model to more than 60,000 employees during the quarter.

Business-led collaboration is the third focus area. And in the first quarter, as I mentioned, we announced a number of orders that we won because of our ability to jointly deliver integrated power and automation solutions into key growth sectors.

Finally, we had a fantastic customer event in Houston, Texas where we hosted more than 7,000 customers at our ABB Automation and Power World. This is a confirmation of our strong position in this important market.

Now let's turn to chart number four to quickly review the first quarter key figures. First, let me remind you that as a part of the next level strategy, operational EBITA is now our key operational profitability metric instead of EBITDA.

Also, the foreign exchange translation impact was significant in the quarter. We flagged this already at the end of last year, and I think most of you have already taken this into account. ForEx translation negatively affected reported orders by 13% and revenues and operational EBITA by 10%.

Let me highlight a couple of other items on chart number four. We continued to build our order backlog, which grew by 10% in the quarter. That in turn supported revenue growth of 3%. From an operational EBITA margin perspective, we remained at last year's level as improved results in power systems offset mix impact in the other divisions.

Let me take a moment to explain this. Discretionary spending in oil and gas declined in the quarter. This affected mainly process automation as well as the other product divisions where we serve the oil and gas sector with a comprehensive set of products and services.

Geographic mix also played a role. As an example, Russia had a negative impact on margins. While Russia represents only a small share of our total business, the severe ruble volatility and related drop in demand reduced volumes in some product lines. Lower demand in China related to infrastructure and construction reduced volume in some businesses.

We are already taking steps to adjust to this development. We are accelerating our restructuring activities, and you should expect restructuring related costs in 2015 to be between $250 million and $300 million, approximately $50 million higher compared to our original guidance of $200 million to $250 million.

Moving to the bottom line on chart four, operational EPS increased by 5% in constant currencies, and the positive cash flow from operations in the first quarter was reflected in a $100 million cash improvement compared with the same quarter last year.

Let's now turn to chart number five for a look at our regional order development. As you know, we have streamlined our regional structure and now report orders and revenues in the newly shaped three regions by combining the Middle East, Africa, and Asia into a single region, which we call AMEA.

Orders were higher in all regions in the quarter, with a strong contribution in Europe and AMEA from large orders in power transmission and offshore oil and gas.

In the Americas, orders were steady to higher in all divisions, led by some large order wins by the power products division in the US.

As I already mentioned, base orders were steady in the quarter, up in four divisions but lower in process automation, where we saw the impact of lower discretionary spending in oil and gas most.

Geographically, base order growth was mixed. China was flat, in line with slower macroeconomic growth. Base order growth was also flat in Germany and the UK, but we saw good growth in important markets such as Italy and Sweden in Europe, India and Japan in Asia. Base orders in Canada were higher and grew by 4% in the US, mainly in power.

If you move to chart number six, chart six reiterates what we said after the fourth quarter on the ForEx translation impacts from an appreciation of the US dollar. In the first quarter, the appreciation of the dollar resulted in a negative currency translation effect of 13% on orders and 10% on both revenues and operational EBITA.

We expect to have similar levels of negative translation in the coming quarters. I think most of you have taken this effect into account in your model.

Chart seven summarizes the impact of low oil prices on ABB in the first quarter. As we said at the end of the last year, we have a balanced exposure to the oil and gas sector, both in terms of CapEx versus OpEx as well as upstream versus mid and downstream.

In the first quarter, we saw a strong decline in OpEx as customers put a large share of their discretionary spend on hold, which we already flagged during the quarter. We are taking steps to adjust capacity and productivity, and are confident that we can successfully mitigate this impact.

Long term, our expectation is that low oil prices will impact CapEx spending on new upstream and possibly downstream production. At the same time, we also expect some long term benefits such as lower input costs that will support industrial growth, as well as the reallocation of fuel subsidies into infrastructure such as power transmission and distribution.

Now I'll hand over to Eric to take you through the financials in more detail.

Thank you, Uli. Let's look at the operational EBITA bridge on chart number eight.

We continued success in reducing costs again, which more than offset price pressure in the quarter, generating a net positive of approximately $10 million.

Net volume also had a positive impact, reflecting the operational leverage effect from higher revenues, mainly in the product divisions. Improvements in project execution also supported the margins in the quarter, which is mainly from the power systems division.

These positives were partly offset by mix effect, as Uli has described earlier. An example of mix effect is lower volumes in businesses that are exposed to the oil and gas OpEx and discretionary spending. Examples of geographic mix include the macro and ForEx turmoil in Russia, which resulted in lower volumes.

Looking forward, we assume that these mix impacts will persist, and thus far we are taking additional restructuring step that was already mentioned by Uli.

The other category consists mainly of a number of small one-offs. We have already explained the ForEx translation effect you see to the right of the chart.

Finally, divestitures which we did during last year through our portfolio pruning reduced the operational EBITA by approximately $30 million.

Turning to chart number nine where we show the overview of the divisional performance in the first quarter, I will now go in some more detail. Starting with the top line, the orders were flat to higher in all divisions on a like-for-like basis.

The division automation and motion was flat, but we have to remember that it is on a difficult comparable from the first quarter 2014, when we booked a $200 million order for the Swedish railways.

Revenues are more mixed. The strong order backlog in power drove revenue growth in those divisions. Discrete automation also achieved a 4% revenue growth and execution of its good backlog in robotics, as well as power conversion equipment for rail customers.

Low voltage products' revenues, which are more closely linked to the short cycle economic development, were flat. In process automation, revenues declined by 4% where the project backlog is still solid in oil and gas. But, the short cycle spending was down, which affected the book and bill business in the quarter.

As stated before, most of the large project wins in PA in the quarter will only be delivered over multiple years, mainly in 2016 and 2017.

Let's now move to the operational EBITA margins. If you start with the margin decline, it's partly the result of lower sales into the oil and gas sector for short cycle standard products.

In LP, the margin decline is mainly a reflection of the slightly softer revenues, and some of it is also related to the situation in Russia, as we have earlier talked about.

In process automation, the margin was mainly affected by the lower revenue volumes as well as mix, specifically related to the sale of standard products and services also into oil and gas sector.

On power products' margin, the result is impacted by the ongoing footprint measures to build capacity in growing markets like Saudi and India, which resulted in a temporary under absorption of fixed costs as capacity in these new plants is being ramped up.

PP also saw some volume declines in Russia, which had a negative effect on margins.

Finally, in power systems division, we delivered a third quarter of positive operational EBITA.

Overall, the main message on margin is that we are accelerating the cost and productivity actions in line with the priorities in our next level strategy that we have described to you over the last few quarters.

Let's then turn to chart number 10. In the first quarter, we generated around $100 million more in cash flow from operations. This is mainly driven by timing of project cash flows from power systems, but also by continuing efforts to improve net working capital such as shorter lead times and higher inventory turns.

We continue to improve cash generation in order to fund profitable growth and to support our dividend policy. The Board has recommended a dividend of $0.72 per share. That amounts in total to about $1.7 billion.

In order to again make the dividend tax efficient for shareholders, the Board has proposed it to be paid in two tranches. So, if approved by shareholders at our Annual General Meeting tomorrow, the dividend of CHF0.55 per share will be paid from capital reserves, a return of cash to shareholders equivalent of about $1.3 billion, and that amount would be paid during next week.

The second tranche of CHF0.17 per share, or the equivalent of about $400 million, will take the form of a nominal value reduction and is expected to be paid to shareholders in late July or early August.

At the same time, we are proceeding with a share buyback. We have bought back 21 million shares this quarter at a value of around $450 million, so we have now completed around 30% of the $4 billion buyback program which we announced last September.

And let me now turn it back to Uli again.

Thank you, Eric. Let's turn to chart 11 and an update on how we are implementing our next level strategy through our three focus areas of profitable growth, relentless execution, and business-led collaboration.

In the first quarter, we continued to make solid progress in each of these areas. If you turn to chart 12, please, we drive profitable organic growth through our PIE framework of penetration, innovation, and expansion.

On chart 12, examples of penetration success in the first quarter include our continued strong growth in Japan, where we have been broadened beyond our small base in painting robots and turbocharger service.

We delivered both power and automation solutions, for example our leading solar portfolio between the panel and the grid in Japan, as well as large EPC players who serve a variety of global industry sectors.

Innovation is one of ABB's trademarks, and we continued to launch new products in the first quarter, including intelligent transformer sensors, production management software for the cement industry, and control products for the power generation and water industries.

Those of you who were at the Hannover Fair saw our official launch of the YuMi collaborative dual arm robot. This is really an exciting development which will open large opportunities for profitable growth, for example in the fast growing 3C industry, as well as in other customer segments where small parts handling and packaging is important.

On expansion, we announced a strategic partnership with Samsung in the area of microgrids, where we combine Samsung's battery energies technology with our grid offering. On chart 13, I'll go into this in more detail.

We believe microgrids will be a major element in the grid of the future. We offer microgrid solutions to two major power challenges. One is to provide economically viable power to communities in the developing world that are distant from conventional power grids. More than one billion people in emerging markets today have no access to continuous electricity.

The other is to support industrial and commercial facilities that cannot afford the risks of power interruptions from conventional grids. We are already very active in this small but fast-growing market based on our power conversion technologies, grid connection, power management, and automation capabilities.

Energy storage technology is a further key element in making microgrids more viable, and Samsung is a leader in lithium ion battery technology. Our partnership with them will allow us to accelerate growth in this market on a global scale.

Turning to chart 14, relentless execution is the second focus area in the next level strategy for accelerating sustainable value creation. In the first quarter, we took decisive actions to reduce structural cost, improve productivity, and optimize the entire value chain, and we expect to see the benefits of these actions in the coming quarters.

We set the stage for further structural cost savings through multiyear agreements with three strategic IT suppliers that we announced this morning to fully -- to simplify our server infrastructure, network setup, and delivery of services to our customers and employees. When fully in place, we expect these measures to sustainably reduce our annual IT operational costs.

On productivity, organizational measures to streamline back office operations, along with portfolio pruning, allowed us to increase employee productivity. We also reduced G&A expenses by 7% in the quarter. And as I mentioned earlier, we will accelerate actions to adjust our cost structure to changing market demand in areas such as oil and gas.

At the same time, there is still much we can do through footprint actions to optimize the total value chain. For example, new production and R&D facilities in key markets such as Saudi, India, and Czech Republic focus on being closer to our customers.

In the past weeks, we opened manufacturing units in Saudi, Czech Republic for power that are among the most highly automated and cost efficient power equipment facilities in the world. This helps us to maintain our global technology and market leadership in this important sector.

We also recently announced the closure of a motor factory in Sweden as we look at how to best serve our customer base and optimize our footprint.

Let's move to chart number 15. The power systems division showed continued progress implementing our step change program to de-risk the business and reposition it for future growth and profitability. Chart 15 shows you where we are after quarter one on delivering against our ambitions.

Power systems delivered the third quarter of positive operational EBITA. At the top is the focus to reach the target profitability. We still have some work to do, but the progress is encouraging.

In offshore wind, two out of three platforms in offshore wind are energized. Today BorWin1 is connected to the grid and in operation. DolWin1 started trial operations in April and takeover is planned for later this year.

And DolWin2 is progressing well. The platform is undergoing final installation and commissioning work in Norway. Once that is completed, the platform will sail out and be positioned in the North Sea. This is expected to happen in the third quarter.

On EPC solar, we have completed all of the remaining projects and expect to finish the handover to our customers in 2015. Targeted partnerships in high growth markets remains a key focus, like the Samsung partnership that I described earlier.

We have also made progress on de-risking the business by being more selective in the projects we take. This is reflected in our recent order bookings that include a subsea HVDC link between Germany and Norway, a high voltage cable system order in Denmark, and a power plant automation system in South Africa. These are all projects with a more attractive risk profile where we already have a solid track record in execution and technology leadership.

Turning now to chart 16, we told you after Q4 that we were rolling out a new compensation model that provides a better balance between group and individual rewards in order to drive a new performance culture towards accelerated sustainable value creation.

In the first quarter, we implemented this change for more than 60,000 employees, and it has so far been very well received. We believe this is one of the most important changes we have made in the organization to drive value creation in the business, both for our customers and for our shareholders.

Let's turn to chart 17 and our actions to drive business-led collaboration. Part of our business-led collaboration effort is to deliver greater value to our customers by combining power and automation capabilities into integrated solutions that cover the entire customer value chain in utilities, industry, and transport and infrastructure.

This capability gives us a competitive advantage in sectors that require both high quality and reliable electrical power, as well as automation technologies for maximum productivity and quality. These include power plant control, process industries, data centers, building infrastructure, as well as rail and marine transportation, where we won significant combined orders during the first quarter.

We see further substantial profitable growth opportunities ahead, as power grids become more automated and as power quality and reliability, together with industrial productivity in industry and infrastructure, becomes more mission critical.

So, let me turn to chart 18. Finally, let me summarize the quarter and provide you an updated outlook. Our profitable growth initiatives drove a solid top line performance in the first quarter. PIE is working.

We continued to build our backlog and book-to-bill across the business to support revenues in the coming quarters and years. We achieved a higher operational EPS on a constant currency basis and continued to make progress in the power systems step change program, which helped us to generate steady operational EBITA margin for the group.

At the same time, we are accelerating cost and productivity measures to increase profitability in the other divisions in the coming quarters. We rolled out a new compensation model to accelerate value creation, and won key orders based on our ability to jointly deliver integrated power and automation solutions.

Finally, we further sharpened our focus on markets and customers by driving organizational simplification and productivity improvements.

On the outlook, the picture has not changed much since the end of the last year. The short term picture is mixed and there is still a lot of macro and geopolitical uncertainty in the market.

We continue to expect growth in the US. We also see China continuing to grow, but at a slower pace than in 2014. Europe growth remains modest, and is still subject to macro uncertainties and upcoming political developments. The long term demand outlook remains positive in our main end markets.

Lastly, headwinds from low oil prices and ForEx translation are expected to continue over the rest of 2015, but we are confident that we can manage the uncertainties through the implementation of our next level strategy. We confirm our 2020 financial target.

So, in summary, we are seeing the benefits of the implementation of the next level strategy in higher EPS and cash flow. We are closer to our customers and better able to meet their changing needs and, with that, grow our business despite an uncertain market environment.

We are taking actions in line with our strategy to increase profitability. And we are confident that we will continue to deliver on our commitments to customers, employees, and shareholders.

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

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

Just two questions for me, please, firstly on base orders and a second one on margins. So, on base orders, you had some areas that grew well, as you've highlighted in the presentation, but clearly there was a marked slowdown to basically flat from the -- I think it was 4% in Q4. Just wanted to get to your thoughts on that slowdown.

I mean, clearly oil and gas has been a big part. Is that -- really explains the bulk of it, or have there been other things that have surprised you in terms of, let's say, negative events or more stalling? I'm basically trying to get a picture of how base orders may evolve. Have we got a lot more downside to see in the oil and gas space, for example, or is it more -- is it a broader based impact? That's question number one.

And question number two on margins, power systems is clearly doing well, at least against expectations, but maybe the other divisions were a little bit soft. I mean, clearly process automation, we had some sales decline so I understand that. In discrete and in power, they also looked just a little bit soft.

I guess big picture question is what does ABB have to do to get on positive margin trajectory? Is it just about volume coming back in the markets, or is it about the restructuring? What can ABB do to get those margins improved, if you like, in the current environment? Thank you.

Okay. Thanks, Mark, for your questions. I'll take the first one and have the second one answered by Eric.

If you look at our base order growth pattern, look, we grew four out of five divisions in the first quarter on base orders, which gives us a lot of confidence in terms of the underlying growth initiatives' quality that we have put in.

We keep definitely our efforts to beat the market on base orders in all of our businesses. We allocate the resources and the investments in line with the growth opportunities. And naturally we restructure and we also cut the average needed where we don't see an underlying opportunity for growth.

If you look at the drivers of some slowdowns, one is definitely the oil and gas. We see discretionary spend in the first quarter as we had flagged and expected to be pulled back by our customers. This is something that will probably stay for a while.

Then we have an impact on base orders also, especially in Tarak's business in Russia, and then you have China. There is the construction field which is a little bit softer. Now, the good news is base orders, for example in automotive in China, have been growing quite strongly.

So, I think what we need to do is we need to continue living PIE. We have clearly our heat maps. We have clearly our current very, very strong and close understanding of each of the segments. We need to drive wherever growth is possible, and we need to be very cautious on pockets where the growth is not yet as strong or not as strong as it used to be.

So, it's a differentiated approach. But, our ambition is and will be to keep beating the market on that one.

With that said, I hand over to Eric on the margin question.

Yes, Mark. If you take a look at the margin situation, the PA you have identified yourself. It's basically the volume which is down, and then driving margin of -- higher margin product business mainly to oil and gas.

In the DM, it is also the same mix question, mainly related to oil and gas and also spread around a little bit on other industries.

On PP, as was already said, it has quite a bit to do with the ramp up cost for the new facilities we have in the lower cost countries to have the footprint better set up, and also some effects of mix, mainly related again there to Russia.

Your question on the outlook and how the trajectory will be going forward, obviously the cost reduction programs are taking more and more effect and will help us to support the margin. You have also seen that we will increase the restructuring to take out additional costs, mainly in the areas which are most severely impacted.

The mix changes we have in the quarter we see continue with the same mix. And obviously if that changes either in the more positive or more negative direction will have an impact on margin.

And I think last but not least is what Ulrich ended with, and that's the PIE efforts on the base order growth. That is, that base order growth, which typically is higher margin products, will support the margin trajectory going forward. So, the clear determination is to continue to drive the margin in the upward direction.

Okay. Thank you very much, very helpful.

You're welcome, Mark.

Ben Uglow, Morgan Stanley.

I had a couple of questions. The first -- and I know, Eric, you enjoy these conversations. But, the first was about the margin bridge. I appreciate that the cost savings have been positive relative to price this quarter on the order of $9 million. But, if I go back and look in the past, typically the cost savings have actually been quite a bit further ahead.

And I guess my sort of first question is how much of this is due to lower cost savings, or is it a price effect? And if it is a price effect, could you talk about that a little bit just in a general sense? And the reason I ask is, across the whole of capital goods this quarter, we are basically seeing much weaker pricing trends than I think people expected. Is that true of ABB? And if so, which divisions do you feel are most affected? So, that was question number one.

Question number two was for Ulrich. I don't want to put words in anybody's mouth, but my interpretation of your outlook statement was that it seemed much more incrementally cautious. I mean, you called out specifically a slowdown in China.

And what I really want to understand is what is the basis for the caution? When you look at organic growth assumptions that analysts have in the market, are you feeling that organic growth could be under pressure for the next couple of quarters, or is it something just more general?

Okay. First of all, good afternoon, Ben, and thanks for your questions. I'll take the outlook first and then I hand over to Eric.

Look, if you take our outlook statement, it reflects a tough world out there. We have seen during the second half of last year a deterioration of certainty and an increase of volatility.

If you look now what we have in our hands for the second quarter, you have in Europe a couple of issues that the world has to deal with, whether that's the election in the UK, whether it's Greece that has an impact.

If you move over then, we have in Asia -- yes, we have a slowdown in construction in China. At the same time, the Chinese government has eased or has helped with some financial policies and it will -- that might have a positive impact on the distributors.

So, there is a wider range of possible outcomes. And we wanted to flag that and share that very openly with you to say -- to share with you how we see the world as we go on.

Our ambition remains unchanged. We will try to beat the market on a continuous basis as we have done. If you look at our order pattern, four divisions having base order growth, we have a positive book-to-bill in all of the divisions in the first quarter, really nice large orders, all together it gives us the confidence that we will also deliver on this one going forward.

There will be very little tailwind, if at all, in the world in the quarters to come. So, we really need to create or continue to create our self-help. The PIE model works on that one.

Our teams are better aligned than ever before. We are closer to the customer. All the internal work is done so all the forces are now really out, and drive the growth with the ambition to beat the market.

So, that's on the outlook and the market perspective. I'll let Eric, as you rightly requested, address the margin bridge.

Yes. Good afternoon, Ben. So, on the pricing side, we really don't see a significant change in the pricing terms as we have described them over the last few quarters.

Price pressure is a fact of life in most of our businesses. And we, as you have seen, successfully continued to match those with the cost saving program. Yes, it is a little bit less on an absolute basis in this quarter, but there are two fairly big numbers behind this net number of $9 million, so it's not really a trend change.

The only portion we could point to is in low voltage product related to the Russian business with the ruble. Very clearly, with the imports from the European cost base into Russia, there has been some pressure on the prices. That has contributed to the situation and the margin impact from that side.

So, maybe on the margin they are slightly negative because of that. But, overall I will not call it significant.

Okay. And that's helpful. But, there's not been any significant -- I'm just making sure that the margin changes that we're seeing -- and I'm thinking obviously of discrete automation and to some extent power products. I know, obviously, that you've called out the effects there. But, I'm just making sure that we're not seeing incrementally weak pricing in those divisions. You wouldn't agree with that comment?

I think there are changes up and down in the divisions. But, I think overall there is no significant change in the pattern we have talked about over the last few quarters.

Okay. That's great. Thank you very much.

Andreas Willi, J.P. Morgan.

I have a couple of questions as well, please, the first one on Russia, which you mentioned frequently in the call and in the press release as a source of downside this quarter. Obviously, in the past you've highlighted Russia when questions come up as of quite limited exposure to ABB. Is the profitability or was the profitability substantially above average, that it can have a material effect?

And are there other areas in your portfolio at the moment where profitability stands out relative to the rest of the group where we could see revenue pressure in the coming quarters, areas like obviously some products in oil and gas, CapEx related areas, high-end ships, LNG or FPSOs? Is there other areas that could also have a disproportionate impact on group margins when they're potentially slow?

And the second question in terms of the large order bookings this quarter, the Statoil order that you booked in process automation, what's the amount of revenues, if any, that have been booked in power systems? And the same for NordLink, which -- it looks like you haven't booked all of those power products orders this quarter yet. But, when should we expect basically power products to benefit from some of the cross selling into the large order?

And the last question in terms of the base order growth during the quarter, is it right to assume that it slowed as the quarter progressed, given the commentary at the annual results in mid February was more positive on base orders than what we have now seen? And that basically relates to the acceleration in the oil and gas slowdown we have seen at other companies in February on -- from mid February onwards, basically. Thank you.

Okay. Thanks, Andreas, and good afternoon to you. Look, on the first question regarding Russia, the Russia business is indeed not very large for ABB. It's less than 2% of the ABB Group revenue.

But, the volatility both in terms of the currency and the demand was significant. And since we are importing a lot of product from Europe into Russia, you had basically a double whammy. You had the currency and you had demand.

So, together that had an impact. It's mainly on standard products business. It's not an outragingly huge profitability. It's a standard product situation that we have going into Russia. And that's typically when we have markets where we ship from one source to another one, the standard products. If they get hit both by currency and by demand, you have a quite significant impact.

And naturally, we are doing now all possible efforts to really make sure we mitigate that going forward. And we have already made some good progress in taking appropriate actions on that one.

I take your third question first on the base order pattern. Your observation is only partly right, because we had good base order growth in four divisions. And there we have not seen a slowdown or any change.

In the oil and gas business, we have seen a contraction of discretionary oil and gas spending. And since a lot of this also has a certain kind of a quarterly effect where, towards the end of the quarter there's a little bit more realized, that had a certain impact, but I wouldn't call it material in any way.

With that, I hand over to Eric to give you a little bit more insight on the large order side, Andreas.

Yes. Good afternoon, Andreas. So, your question was on the large orders booked in PA and in PS and the sub-supplies from the internal suppliers.

And the reality is that part of that sub-supply, the orders have already been booked and are part of the quarter, and some parts are coming now in the coming quarters.

We are trying as much as we can, depending on how the real schedules in those projects look, to have the internal and the external bookings in the same quarters. But, it's not always possible because of how the schedules and how the specification of the products are done.

So, what would power products have grown without the large order related bookings from NordLink?

It is not substantial in that sense, Andreas.

Thank you very much.

You're welcome.

James Stettler, Barclays.

Starting off just with this 150 basis point margin decline in PP and the footprint adjustment, is that something just we're going to see in this quarter, or for how many quarters do you think this impact will remain?

In terms of you talk about good base order growth across four divisions, can you sort of define good? Are we talking two, three or four, and so how significant was the drop in PA?

And just in terms of the order pipeline, could you talk us through what you're seeing in PS and the obviously very encouraging order with NordLink? Is there more to come? Thank you.

Okay. So, first of all, good afternoon, James. On the PP side, look, we will not open every quarter a lot of factories. So, we had a coincidence where in the first quarter we had the ramp up for the Eastern European piece, for the Saudi piece going on.

That naturally cost some money, because at the beginning you need to train the staff up. Then you get the volume in and then the factory takes off. So, that's -- you will not have a repeat of the same order of magnitude in terms of ramp up in the quarters to come.

This will ease definitely off. And naturally, we are working also very hard to mitigate the impact through additional cost reduction and restructuring measures, as we have said.

Let me take the second power related question, the pipeline on PS. If you look out in the world, there is an interesting situation going on. On the one hand, you have cautious spending and cautious investment policy by many utilities. On the other hand, the number of large scale connections, grid connections, has never been bigger that is being discussed.

So, there is a lot of tender activity, a lot of project discussions on connecting different countries, of connecting subsea, of connecting north and south, for example in the North American continent. So, there is a continuous good tender activity out there.

Now, as you and I know on the award of these projects, they are so large and they can easily slip from quarter-to-quarter, so we are not making any predictions out there. But, the underlying market opportunity out there is very good.

We also see that our power offering for industry, if you take the Statoil order in the North Sea this quarter, more and more we are also taking our capabilities from the power side on the industry side. And it's really fantastic to see that the customers, like Statoil in that case, appreciate that we have an overall understanding of their business end-to-end.

We help them on the automation side with uptime and reliability. But, for them this continuous power supply and power quality is as important for uptime reliability. So, it's really -- you really see that the joint offering there hits home with large customers, and I expect that to be another attractive growth driver going forward.

Now, if you look at the base order pattern across the businesses, there is not a huge variety between the different divisions that have been growing on base orders.

On process automation, we have had a significant hit this quarter coming from a base order deterioration. And if you look at it, we have quite a significant amount of service and repeat business with oil and gas customers that flows through PA.

We have had in the first quarter customers being cautious on spending there and pulling back immediately that. So, overall the impact, on a relative base, bigger on process automation negative. And on the positive side, it's pretty much similar across the range of our other divisions.

Great. Thank you.

You're welcome.

Martin Wilkie, Deutsche Bank.

It's Martin from Deutsche. Just going back to your commentary on China, it sounds like the automotive market was one of the reasons that the growth held up better and building is perhaps a bit slower, and if you could just talk through what your expectations are for that as we go through 2015. And particularly on the industrial side, we've heard comments from other companies that the sort of industrial production market is far slower. Is that feeding into your commentary that China is growing but slower, or are there other dynamics that are sort of leading you to give those comments? Just if we could get a bit more granularity on your China expectations. Thanks.

Yes. Good afternoon, Martin, happy to do so. Look, I was just recently in the China Development Forum where a couple of CEOs sat down with Chinese government. So, there is quite some insight not only from our customer interface but also with the government in China.

If you take the agenda that China has given itself for this year and the years to come, there is really a strong qualitative change of focus in China. It's moving from a consumption driven growth to an innovation growth to a competitive industry to where labor arbitrage is not the decisive factor anymore, where productivity improvements are really in the foreground to deliver.

In addition, if you take the power generation infrastructure in China, huge investments on the solar, in the wind side whilst, in parallel, still investing in conventional power generation. That's good for ABB.

And if you look at it, we've got now about 20,000 people in China. We have more than 85% of our product range fully localized, local R&D, local value chain, local sourcing, and that positions us very, very strongly. We have Chinese leadership there that understands the market and has strong market intimacy, so I think we are overall well positioned.

And now let me talk a little bit about segments where we can get some growth. We have a couple of efforts going on. Effort number one is we are going west. We are going west aggressively into tier two and tier three cities.

And the way we are doing it, under the theme of what we call business-led collaboration, we are doing it much more jointly across the different business units and divisions than previously in ABB. That gives you an SG&A advantage, a scale advantage, if you roll with all of them at same time in a focused way into the west.

The second piece is, look, compared to some other competitors we have a very strong robotics business. And robotics is not only a very strong business in itself, it's also a pillar that carries the flag of ABB into many new automation systems and automation situations.

Take food and beverage. Material handling in food and beverage, picking, packing, palletizing, is an opportunity where ABB does a lot of business. We just recently got additional orders for robotization and automation, for example, in the dairy sector in China, which is a great growth opportunity.

So, for us, what we do, we try to work our product portfolio towards the government agenda on automation and network upgrade. We have a very agile team that really understands the growth segment. And then we take our pillars in terms of capabilities and use them to pull in a wider solution offering.

China is a solution market in the automation side. And that's great for us because we can then take, for example, the robot, and under the robot wings we bring in low voltage products. We bring some motors. We bring drives. We bring complete solutions, and that's a good one.

So, look, China has a couple of challenges as an overall economy. The growth on a relative base might have come down a little bit. If we look at the absolute growth, it's still a remarkable market delta opportunity for us. And I think we are pretty well positioned with our team and our capabilities to participate a little bit stronger than others, and naturally we are running the extra mile to keep it going that way.

And in terms of that changing mix of growth, I mean, I know you obviously don't disclose the profitability by end market. But, is there a concern that the buildings market is contracting if we think about sort of mix effects and so forth, or do you think the opportunities in robotics and so forth are sort of equally profitable as some of the businesses that may now be a little bit slower compared to the past?

Yes. Look, Martin, we need to be pretty agile here. If you take for example our access on the industrial side that we have for our low voltage products, others have strong channels for low voltage, mainly in construction. ABB has a wider channel mix, and we benefit from shifting then volumes more on the industrial side.

And if you look at the profitability of our products in China, it could always be even stronger. But, I am quite satisfied there.

Okay. Thank you very much.

You're welcome, Martin.

Daniela Costa, Goldman Sachs.

I actually have three things, the first two just to follow up on some of the commentary around the base orders in oil and gas and also your commentary around pricing.

A few companies that are exposed to the same chain, or to the oil and gas chain, have talked a lot about a large portion of this drop basically in absolute dollar amount being price driven basically and the oil companies asking for large price declines. So, are you basically disagreeing, seeing different trends when you say that you don't see much of an change of environment in pricing? That's my first question.

And then, just the second question also on process automation, overall the orders, large and base included, are up quite significantly. I imagine on the large ones maybe there are some oil and gas related ones as well. Do you have any worries around delays or cancellations there?

And the third question related to basically inorganic growth. And you commented a little bit on it last quarter, basically on some of the areas. Has the fact that the outlook is perhaps a little bit more uncertain and the overall organic opportunity is maybe less uncertain got you more -- thinking more actively about inorganic growth? Thank you.

Okay. Good afternoon, Daniela, and thank you very much for your questions. If you take the oil and gas sector, I'll give you a couple of examples where ABB has some quite unique capability.

Take the Statoil order on HVDC. Such a connection between the mainland and an oil platform out there in the field is something where ABB has a very, very strong value proposition. And when you have great technology compared to other competitors, you still have an opportunity to get paid for that value that you are providing.

On the standard product side, we have long term frame contracts with our customers both for service and for the standard product. And naturally we will always try to work with our customers if they have a need to optimize their business. But, this is something that's standard procedure.

I wouldn't say that ABB is totally immune to that one, and Eric didn't say that and I wouldn't say that. But, we are working very strongly to have the minimum possible impact of any of these requests that are out there.

The second piece that you rightly address is on the PA backlog and the order backlog that we have now. We have a great mix of different orders. I might remind you of the large mining orders that we got not too long ago. We have some great marine orders, and actually we have some direct oil and gas orders as well.

At the moment we don't see any major delays or cancellations, and naturally we are working very closely with our customers to make sure that stays that way all together.

And your third question on inorganic growth, I don't want to change anything that we have said last quarter. We said that in 2015, after making progress on power systems, after having the integration of Thomas & Betts and Power-One further progressed, if the time is right we will consider doing inorganic moves. And that statement stays unchanged. And when we have to say more, happy to report at that time.

Thank you.

You're welcome.

Fredric Stahl, UBS.

It's Fredric here from UBS. Maybe this one is for you, Eric. I don't know if I'm misreading this, but it looks like you had a 29% currency hit on your power systems orders, if I look at your press release. Can you maybe clarify that for me? And that's question number one.

And then, on -- there is a -- the European Commission is about to make a decision on antidumping taxes or barriers or whatever you want to call it on electric steel. Can you maybe talk a bit about how that could impact ABB's business in Europe?

And then finally, maybe you could update us on how Power-One performed in the quarter. Thank you.

Okay. First of all, good afternoon, Fredric, and thanks for your questions. Let me get started with question number two and three and then I will hand over to Eric on the first question on the power systems question that you had.

Look, on the antidumping situation, we observe that. We are very close to that situation. But, since it's an ongoing process, I don't want to comment any further and speculate on potential outcome.

It is something that has been in the pipeline for a while now. It's becoming a little bit more concrete. And when we see then the direct impact, we can report next time when we are together. But, at the moment, we have no additional comments on that one.

Now on Power-One, if I look at Power-One and the development of the global solar market, the solar installations in terms of overall demand are going up. By the way, they have gone up the last couple of years continuously.

If you look, for example, at our success story in Japan, where we have now really grown for a couple of quarters constantly double digit, our leading edge solar portfolio between the panel and the grid is really strongly differentiating us from others and is a really great source.

So, what we have done with Power-One is, first of all, the Power-One brand has disappeared. It's all on the ABB portfolio. And if you look now, we got the beset portfolio between the panel and the grid of any competitor in the world. That positions us very well to work with solar EPCs.

Last year we also decided that we're going to exit solar EPC business. So, these market segments have now certainty that ABB will not compete, that ABB is coming with its complete solution set. And that's really coming nicely in terms of the growth.

So, on Power-One, the brand migration is done. The product integration between ABB and Power-One is done. The solution development is ongoing, and we have made some great progress there and they are moving forward. So, all together I would say that the commercial and the technical integration of Power-One is progressing in line with the plan.

If you look at that business and that market specifically, there is a market consolidation going on in solar invertors. And actually, as in every consolidation cycle, that might have or has an impact on margins. But, I am pretty confident that not too long out that consolidation will come to an end, and then the market forces will hopefully allow us to also take the margin higher up on Power-One.

So, with that said, let me hand over to Eric on the power systems currency question that you had.

Yes, Fredric. You are correct. We have a 29% FX impact on the power systems. And that has to do with the large orders and the mix between the large orders this quarter and the quarter back.

And obviously we booked some very big ones, oil related orders, in Germany. So, if you also take a look at the European conversion, it's 23% on average in Europe. So, you can see those two numbers together, and it is what it is.

I would also add that the Russian impact on the overall number obviously has there also an impact, as that foreign exchange rate has changed by even much more than 23% or 29%.

That's clear. Thank you very much, guys. Thank you.

You're most welcome, Fredric.

Natalie Falkman, Carnegie.

I have a couple of questions, first on the downstream. You mentioned the upstream and the OpEx. Do you see any more positive or negative or muted activity on the processing -- oil and gas processing in the downstream? That's the first question.

The second question is on the power products that you're saying that you're ramping up in India and Saudi Arabia. Is it just because you think you're going to have better demand there, or is this for some particular more concrete projects that you're doing that?

And the last question is on the robotics. The industry of robotics have come with the numbers of the sector growth of 27%, if I remember correctly. I think that was in volume terms in 2014. Do you recognize yourself in that growth number? Thank you.

Okay. Good afternoon, Natalie, and thank you very much for your questions. Let me take the questions in the sequence that you asked it.

First of all, on the downstream side we don't see any significant change in that field at the moment. Naturally the uncertainty that the customers, especially the ones that are integrated both upstream and downstream have, has a certain impact on the discussions that are going on there. But, we don't see any major project cancellations or delays or a delay in tender discussions. We don't see that at the moment.

And if you look at the underlying trend, in Middle East there is more and more oil being taken down the value chain. I was just recently in the Sadara complex. If you look at the amount of downstream activity that's being planned there, to use oil rather -- to convert it downstream, then putting it into power generation, I think this is something that will probably stay for quite a while.

Let's see how it turns out over the next years. But, at the moment, we don't see a significant change on that one.

On PP, if you look at the Saudi and the India situation, Saudi is a market where the infrastructure, the power infrastructure -- and by the way, not only in Saudi but also in the countries around Saudi where there is a free trade arrangement and some good trade arrangements -- it is important to have a very strong local footprint.

We opened -- just before Easter we opened the new factory there. And it was very well recognized and regarded by the customers that, okay, now you made a significant commitment, so that we have a competitive advantage with having that local capability.

We are also putting the newest technology in there to make sure we got great technology at a very high proximity to the customers. And that's something that in the future I am cautiously optimistic that it will also pay off in the appropriate way.

And similarly in India, India has certain specific requirements. It's a very large market. I expect a significant amount of the oil and gas subsidies -- it's about $40 billion that were spent in the last years -- to move over to the infrastructure side.

At the Hannover Fair, I had the opportunity to have a meeting with Prime Minister Modi, and he basically confirmed there will be more infrastructure spending, both on upgrading the existing infrastructure but then on larger projects. So, all together I think this is a worthwhile investment to have.

And your third question on robotics, look, all I'm going to say, since we don't disclose details on the BU level, we are very happy with our robotics business. Per Vegard is doing an excellent job.

If you look at the innovation pipeline and the amount of innovation that we are pumping out, the new YuMi robot, which is really changing the world of automation on small parts assembly, I am optimistic that this will stay a business that makes us a lot of -- makes us very happy in the long term future.

Thank you very much.

You're welcome, Natalie.

So, with that, we would like to conclude our Q1 results conference call. Thank you very much for your time, and looking forward to seeing you at some of our conferences where we will be.

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.