Abb Ltd (ABB) 2015 Q3 法說會逐字稿

Ladies and gentlemen, good morning or good afternoon. Welcome to the ABB Q3 2015 results conference call. I would like to remind you that all participants will be in listen-only mode and the conference is being recorded. (Operator Instructions).

At this time it is my pleasure to hand over to Mrs. Alanna Abrahamson, Head of Investor Relations. Please go ahead, madam.

Good afternoon, ladies and gentlemen, and thank you for joining us today for our third-quarter 2015 results call. I am with Ulrich Spiesshofer, our CEO, and Eric Elzvik, our CFO. As usual, you can find the presentation on our website. This call is being recorded and will be available within the next hour.

Before we get started, please refer to the important notices regarding Safe Harbor and our use of non-GAAP measures on page 2 of the ABB presentation. This conference call will include forward-looking statements. These statements are based on our Company's current expectations and certain assumptions and are therefore subject to certain risks and uncertainties.

With that I will hand over to Ulrich.

Thank you, Alanna. Good afternoon ladies and gentlemen and welcome from my side as well.

Let me start by summarizing some of the Q3 highlights on slide three. We continue to deliver along our three focus areas, profitable growth, relentless execution and business led collaboration. Our orders reflect the adverse market conditions we face and the challenging Q3 2014 comparable when we won a record amount of large orders in power systems and process automation. Base orders were minus 3% globally reflecting tougher conditions in China and the oil and gas sector specifically related to discretionary spending.

However, through our profitable growth initiatives, we were able to win in the quarter for example some key power transmission orders specifically in Europe and in China.

The book to bill ratio for the quarter was 1.03 and 1.07 for the year to date. Revenues in the third quarter declined 2% on lower short cycle volumes and weak demand in many parts of the distribution channels. Our continued focus on relentless execution enabled us to expand operational EBITA margin by 50 basis points.

We achieved further progress on the power systems turnaround as we improved operational EBITDA margin by over 520 basis points and continued to derisk the portfolio. The turnaround is well on track and nearing completion.

We also continued to drive self-help by focusing on growth opportunities in a disciplined way and stepped up our capacity adjustments, productivity measures and cost reductions to mitigate the impact of market headwinds.

As part of the second stage of our Next Level Strategy which we announced in September, we are driving our focused 1,000-day programs of white-collar productivity and working capital.

Our new divisional structure of four customer focused divisions is ready for operation in January 2016. To ensure we spend more time with our customers, we are establishing a common sales platform across the group with salesforce.com. The rollout is on track and the platform is already operational in 14 countries.

Our Group Account Management program has been realigned and is now focused to ensure greater success and further account penetration. In summary, we drove margin accretion in adverse markets and are stepping up cost out and productivity measures to safeguard profitability of ABB.

Let's now turn to chart four for the key figures where I will focus on a few key points. Orders were double-digit lower in the quarter mainly because of the tough comparable of Q3 2014 but are steady year to date. Our order backlog is up 4% on a like for like basis versus the end of Q3 2014. This will continue to support revenues into 2016 and 2017. Revenues were minus 2% in the quarter but up 1% year to date.

Net income in the quarter was lower than in the same period last year as we booked after-tax gains for the sale of business of about $100 million in Q3 2014. Without this, net income would have been in line with the revenue development. Cash from operations was flat in dollar terms as better capital management offset lower net income. Operational earnings per share on a constant currency basis grew 2% and 5% on a year to date basis.

Let me now give you a perspective on the regional order performance on chart 5. Orders in Europe were down 13% in the quarter. However you might remember that we won a record amount of large orders in Q3 2014 including an $800 million order to provide power transmission link in Scotland as well as $70 million order for Swiss railways. In Q3 this year, we won a $450 million order for high-voltage direct current in the connection between the power grids of the UK and Norway as well as a $90 million high-voltage cable order linking the Norwegian grid to the Johan Sverdrup offshore oilfield.

As you can see in the base order growth table on the right, it is really a mixed environment for Europe. Germany is steady, Finland and the UK grew double digits while the weaker market impacted Italy, France and Switzerland. Orders in the Americas were steady. Brazil was down significantly due to the large mining order a year earlier and the tough economy while the US grew total orders 5% as we had some large utility order bookings.

Softer demand in oil and gas was felt in the base order development in countries such as Canada and the US.

The Asia, Middle East and Africa region was down compared to a very strong quarter a year ago when we secured a large marine order in South Korea. Although China grew 5%, the underlying base orders declined 15% compared to the same period a year ago as we had signaled during the quarter.

However, we received significant orders worth $300 million to boost power capacity and grid reliability which reflects the successful collaboration across ABB's business units.

India this quarter grew 51% with key successes in almost every division. ABB won additional power orders related to renewables and an order to supply ultrahigh voltage AC transformers to upgrade their power transmission infrastructure. Our profitable growth initiatives and local footprint are really paying off in India.

These developments demonstrate that our [pie] approach works in a difficult market environment and that our broad geographic scope helps us identify and drive growth opportunities in a tough market environment globally.

Let's move to chart 6 where I would like to spend some time on the market trends we see going into 2016. When it comes to global end markets, many of you have expressed concern about the oil and gas and utility sectors so let me give you some detail and granularity on these.

In upstream oil and gas, we saw a big decrease in discretionary spending at the start of the year which appears to be stabilizing at a low level. However, we believe that more postponements of new CapEx in upstream oil and gas are to come.

Investment in offshore drilling equipment has basically stopped and shale gas investment has decreased materially. However, we are also seeing some benefits from the continued low oil price. We have seen some positive effects from the lower feedstock prices in downstream independent petrochemicals sector. We are also starting to see the funds for oil and gas subsidies being considered for redeployment into other areas such as infrastructure.

As for utilities, many are reevaluating their business model and structure in times of uncertain energy policy and pricing environment and this has led to cautiousness in investment spending. We continue to see investment activity in ultrahigh voltage DC power transmission projects in mature as well as in emerging markets. There is an increased demand to integrate renewables and invest in grid reliability.

Grid automation continues to increase in importance as complexity and distributed generation needs to grow. In these areas, we continue to be absolutely at the forefront of technology. We are leading in power and automation for the grid.

Let's now look at our two largest countries. The US is showing evidence of developing into a two-speed economy. The manufacturing and trade sectors are becoming constrained as weak global economics, strong US dollar and low oil exploration and production impacts spending. In contrast, the consumer market shows more resilience as food and beverage and automotive continue to grow. There is renewed optimism in residential construction in September. Homebuilder confidence was the strongest in nearly 10 years. As for utilities, they have been showing stronger interest in power transmission solutions that integrate renewables.

China has shifted its focus to a more consumer demand driven economy resulting in a reduction in industrial spending. In some industries such as cement, the government has even legislated against building more capacity. The rapidly rising consumer spending has yet to offset the decline in traditional industrial investments. Therefore, short-term demand is depressed.

On the positive side, there is continued investment in China's grid such as an ultrahigh voltage direct current transmission technology where ABB is a clear leader. State Grid of China has indicated that it will increase investments by 7% to 12% in 2016. In addition, automation demand particularly for robotic solutions is growing significantly due to a shortage of qualified labor and productivity improvement needs.

Let me turn over the presentation now to Eric to take you through the financials in more detail.

Thank you, Ulrich. Let's move to our operational EBITA average on chart number 7. In this challenging market, we have achieved $8 million in net savings which was offset then by negative net volume levels. Most of the project margin improvements came from power systems as the division continued to successfully execute its key milestones. The mix was negative as power systems made up a greater share of the revenues this quarter.

As always in the other category, we have many small items which add up; includes realized foreign exchange gains and losses, commodity supply chain costs, changes in corporate provisions and other small offs. And as in the last quarter, the foreign exchange translation effect continues to have a material negative impact. All of these changes lead to group operational EBITA of approximately $1.1 billion and an operational EBITA margin of 12.5% or a 50 basis points improvement.

Turning to slide number 8, we have here an overview of the divisional performance in the quarter. As I just mentioned, the highlight of the quarter was the improvement in the operational EBITA margin of 50 basis points. Solid execution on the step change program in power systems and cost savings measures in low voltage products led to higher margins in a difficult market. The order decline in discrete automation and motion is a bit amplified as there were significant in total marine orders that were booked in Q3 2014.

The operational EBITA margin decreased mainly as a result of lower volumes in the quarter and a lower share of standard product revenues. We are taking clear actions as focused capacity adjustments and restructurings are underway and we are further ramping up these activities.

The highlight for low-voltage products was the 180 basis points improvement in operational EBITA margins. This reflects targeted productivity measures, increased cost savings and a strong focus on execution. Please remember that in low-voltage products we have some small seasonal effects and therefore quarter four will most likely be lower as it was in earlier years.

Results in the process automation division also reflects the significant large order that were booked in Q3 2014 and overall lower spending in the oil and gas sector. Revenues will remain under pressure as short cycle orders primarily from oil and gas have been weak over the last nine months.

The operational EBITA margin declined 120 basis points due to weaker revenues and an unfavorable mix. Capacity adjustments to mitigate these market headwinds are well underway.

Cash was negatively impacted due to milestone revenue bookings late in the quarter which resulted in higher current receivables. Power products had a strong revenue growth in the quarter as it successfully executed orders from the backlog. The operational EBITA margin was steady as higher revenues offset ramp up costs associated with new production facilities in key markets. Cash flow reflects the current challenging market environment where customer advances are deteriorating and payment terms have been more unfavorable.

In power systems, large orders in the quarter declined for reasons of timing, challenging macroeconomic conditions and product selectivity. The operational EBITA and the related margins increased mainly due to the ongoing step change program and the continued cost savings which have been put in place to return this division to a higher and more consistent profitability.

We are on track to be within the margin corridor in 2016. Cash flow here also improved as many of the key milestones were achieved in the quarter. Ulrich will go into more detail on the power systems step change progress later in the presentation.

Many of you have asked about the corporate operational EBITA line and whether our guidance remains for 2015. With the current year to date figure and our estimate for quarter four, we will most likely be slightly below our 2015 indicated range of $500 million to $540 million for corporate EBITA.

All in all, it is a tough market but we are taking action to safeguard our profitability.

Just as a reminder when you are updating your models for quarter four 2015 and 2016, our restructuring guidance remains as before and therefore you should expect a much higher restructuring charge in Q4 of about $100 million to $150 million.

In addition to this in September we gave you more detail on our expected white-collar productivity program. From this program you should expect an additional restructuring in 2015, 2016 and 2017. The details of this can be found on chart 22 of the deck which is the same as we showed in London at the capital markets day and for 2015, we presently expect the white-collar productivity restructuring charge to be at the lower end of the range of $300 million to $600 million as we have in this chart. We will be disclosing and tracking this program separately in the future.

Let's now turn to slide nine and look at cash flow and net working capital. In quarter three, our effort to improve net working capital management started to show some results. Our free cash flow to net income conversion was 116% based on a 12-month average. Cash from operations was flat in the quarter in nominal rates but grew approximately 10% on a constant currency basis. In this challenging market, it is getting tougher to negotiate favorable terms of payment, advances are lower and payment terms are being stretched out. In this harsh market environment, our working capital initiative is critical.

The networking capital improved slightly by around 65 basis points. We continue to reduce working capital by stepping up efforts to improve inventory management through the entire value chain from product design through manufacturing and logistics. Additional measures are also being put in place to reduce the excess unbilled receivables in the large projects.

With that, let me now turn it back to Ulrich.

Thank you, Eric. Let's turn to slide 10. We launch the second stage of our Next Level Strategy in September 2015 to accelerate ABB's transformation. Stage 2 comprises a significant set of actions to drive the shift of the center of gravity of the firm towards higher growth, greater competitiveness and lower risk by initiating two focused execution programs and accelerating the existing ones. Implementation of Stage 2 of the Next Level Strategy continues along the three focus areas of profitable growth, relentless execution and business led collaboration.

If you turn to chart 11, let me quickly remind you what we really mean by shifting the center of gravity. There are three elements. One is to enhance organic growth momentum which is at the bottom right of the chart. We achieved this by implementing our PIE framework and expanding into high-growth segments. In the bottom left, we show how we are derisking the business by adjusting the business model as we are doing for example in power systems and in terms of the economic balance where we aim for a better balance between early and late cycle businesses.

At the top we show the drivers to strengthen our competitiveness by broadening our solutions offering, pushing harder on our service business and driving further our software led differentiation such as strengthening our leading position in asset management software.

On chart 12, you can see examples of our progress in each of the three areas in Q3. On organic growth, we have grown food and beverage double-digit consecutively over the last three quarters. With our unique and comprehensive product portfolio, we are able to provide the customer with a strong portfolio offering by collaborating as one ABB.

While lowering risk, ABB is realigning the divisions to become more customer focused whilst we are addressing the business model EG (inaudible) project. This will enable us to become quicker and more agile in addressing the markets.

On the competitiveness side, we continue to introduce new product software and service solutions across all of our businesses. As an example we installed the first -- the world's first high and medium voltage switch gear for Swiss utility EWZ with new eco efficient gas which significantly lowers the environmental impact.

Chart 13 shows concrete examples how we drive profitable organic growth through our PIE framework of penetration, innovation and expansion.

In terms of market penetration, we made solid progress in India by providing plant electrification, automation and substation solutions for solar power plants. We now have the largest installed base of solar inverters in India. We have a cumulative capacity of 2 gigawatts, that is half of the country's overall solar installed base of 4 gigawatts.

Innovation continued to be a focus for growth as we introduced several new offerings. One example is a successful partnership with Dutch weather forecasting specialist, Meteo Group, to optimize shipping routes, boost safety and protect cargo with software that forecasts adverse weather conditions and takes the ship condition in mind. Our common solution will be installed now on 140 container ships belonging to the Maersk line. This is a truly innovative offering to the market and it proves also that ABB is a true technology leader in what we call the Internet of Things, services and people.

We are also expanding into high growth markets and geographies such as micro grids in Africa. In the third quarter, we won a strategically significant order from Socabelec to install a micro grid solution to boost renewable energy used in a remote community in Kenya. This will provide power to a remote town of 5000 people in a continent where more than 600 million people do not have access to permanent power supply.

Moving to chart 14, here are two examples of success in the high-growth segment of e-mobility. Last week we launched our fast charging robotic solution for public buses at the [past] world's tradeshow. The first public project using this technology will integrate Volvo buses and four ABB automated e-bus chargers into the existing Luxembourg Public Transport System. This will allow electric buses to drive 24/7 with a typical charge time of just four to six minutes. This system can easily be integrated into existing bus lines by installing flexible chargers, I call them Robo chargers, at endpoints, terminals and/or immediate stops.

Just yesterday we announced another strategic partnership with Microsoft in which ABB's leading fast charging stations for electric vehicles will be combined with Microsoft's Azure cloud-based services. This gives us the solutions, scalability and global agility to develop charging infrastructure for the world's major automotive markets in a swift way.

Let's move to chart 15. We made a commitment to you to bring power systems back to sustainable profitability and we have delivered now four consecutive quarters of positive operational EBITDA margin.

Operational EBITDA margin amounted to 4.6% with a 520 basis point improvement year on year. In offshore wind, we continue to kick off milestones in our remaining project portfolio. We handed over DolWin1 to the customer in July and we installed DolWin2 in the North Sea in August. Another key success in power systems in this quarter was that the first phase in the North-East Agra transmission link in India was successfully energized.

Our partnership with Hitachi is now operational and we look forward to key business successes together in Japan. Hence, the turnaround in power systems is on track and we are nearing completion.

As we mentioned in September, we will realign our divisional structure effective January 2016 and we are conducting the announced strategic portfolio review of power grids which will be completed in 2016.

Turning to chart 16, in this tough market environment, we continue to drive self-help by accelerating cost savings and productivity measures and our 1,000-day white collar productivity program. Through our regular cost savings program, we continue to drive cost savings across supply chain management and operational excellence. We have reduced our workforce and are executing further capacity reductions in line with market improvements -- market conditions and productivity improvements.

As announced in September, we have committed to reducing structural costs in addition by $1 billion through our white color productivity program. The work streams for the program are on track and the consultation process with employee representatives has already started.

Let's turn to chart 17. This chart shows you how we enable and support collaboration to generate profitable growth by simplifying the organization, providing processes and tools and optimizing the way we go to market. We are continuing to drive ABB's transformation aimed at improving customer focus and increasing agility to support the achievement of our 2020 targets.

The streamlined organization is ready to commence operation in January 2016 and the first three layers of divisional management have already been announced.

A key enabler of simpler and faster sales collaboration is a common sales platform. We continue to roll out salesforce.com and we are now already operational in more than 14 countries. This tool cuts administrative time and increases the time that our salespeople can spend with our customers. It is crucial to do this in today's tough market environment.

The Group Account Management program is really about collaborating across ABB as a whole to get a higher share of the customers' wallet. We have recently redesigned a program and our pilots show proof of concept as we are now really improving account penetration.

Turning to chart 18. In summary, in this challenging market environment we delivered margin accretion. Going forward, we expect further (inaudible) savings. As part of Stage 2 of the Next Level Strategy, we will continue to drive self-help which means focusing on growth opportunities that are out there in a disciplined way and mitigating the impact of market headwinds through capacity adjustments, productivity measures and cost reductions.

With that, I would like to conclude my remarks and thank you all for your attention.

Let's now open the line for questions.

(Operator Instructions). Jeffery Sprague, Vertical Research.

Thank you. Good day, everyone. Just a couple of questions please. First, Eric, given what you were saying about kind of the issue of payment terms and the like that you are seeing out there, I'm wondering also if you are seeing any slippage in how backlog conversion is playing out in your business? It doesn't sound like there is significant order cancellations per se but I am wondering if you are seeing kind of meaningful push outs to schedules?

So on the backlog side, we have not seen any normal in terms of order delays, some smaller cancellations but we are executing quite well on the backlog as you are seeing also in the power businesses. On the payment side, it is what it is, we are of course working very hard to improve our networking capital in this environment but it is clear that some of the customer segments it is tougher with payment terms and payments.

And then just another follow up, on thinking about what is going on in the pricing environment in your bridge that net savings $8 million in the quarter has been pretty stable I think it was $6 million in the prior quarter. But is the price dynamic underneath that changing in a meaningful way? Are you seeing more inherent price pressure across the portfolio?

The market environment out there is tough. There is a fight going on for demand that is out there. ABB has clearly chosen not to participate in price wars. We will protect the delivery of our margin ambition in these tough times and as we have shown in many examples, would like to wow our customers with innovation that we are bringing out with great customer service. So there is a price I mentioned in that we will hold the line to make sure that we are not giving up on the margin going forward.

And then just a quick last one for me and I will move on. Just the 2015 restructuring being toward the lower end, does that just reflect kind of the timing and mechanics to get the program up and running or is there some other element to that? Thank you very much.

When you do these kind of programs, you go out at the beginning before you consult with the employees and you get the full range of that we have given for 300 to 600 for this year and then when you work through the options that we have and what kind of actions we take to get the cost out of the door, our ambition is to deliver the cost savings and as little as possible restructuring. And for example when you sometimes in-source costs and at the same time have improvements you might not have restructuring costs but still getting significant costs down. So that is the trade-offs that we are working on. We are right in the middle of the consultation process. At the moment indications that we are giving is towards the lower end of the range.

Okay, thank you very much.

Mark Troman, Merrill Lynch.

Yes, thank you very much. Good afternoon. Two questions from me please. First one on service, orders look to be a down 4 I think, sales grew 5 and both about 16% of the business at the last count. I don't know if the book to bill there is still well above 1. But if it isn't, should we expect the service sales to go down sooner -- when should we expect the service part of the business to decline? That was question number one.

Secondly, just on the outlook, you talk about growth in China and the US and slower Europe but the report today and I think the last one as well was almost the complete opposite to that with base orders in China down 15 and down 5 in the US and Europe looking generally okay. So are you calling some inflection points in those geographical trends into 2016? Are Europe slowing and China and the US maybe getting a bit better? Or is that more to do with your order visibility, just a bit of explanation on what gives you the -- if you like, what drives the thinking behind that geographical guidance? Thank you.

First of all, thank you for your question on service. On service year to date we still have positive book to bill and we are fighting hard to make sure that we keep it that way going forward. It is interesting on the service side because I'll give you a little bit of granularity there.

Oil and gas discretionary spending is directly associated with our service volume in that [fuel and debt] has come down massively because customers are very, very careful for example on inventory of spares and other elements there. At the same time, we are growing this service in China where we have a very large installed base that typically and historically customers have not yet taken out the service offering as strongly and we are pushing that very hard by making sure that we are penetrating here. So basically what we are doing is we recognize the market contraction in certain areas but at the same time, we are pushing it very hard. We are bringing out a lot of new service products. How we have strengthened consciously not only our service sales but we have especially strengthened our service product and product portfolio management to make sure that we have exciting, great offerings for our customers out there which all have at the moment an issue they want to demand, they want to make sure their own maintenance crews are being reduced and there is a good opportunity for us. So the vision is to keep it at a book to bill which is positive going forward.

Now on the market if you go to page six of our presentation, there is a little bit a description how we see the trends going into 2016 and altogether it is really a mixed bag. If you take China, we have a massive contraction of the classic investment spending and this year the pickup on the consumer demand side, it is solid but it is not big enough to compensate that. So it could well be that during 2016 we are at an inflection point and we are getting back to a growth momentum overall.

Now what we are also doing in China particularly, we are refocusing resources on the key growth opportunities. I mentioned service before. Our automation continues especially on the discrete side and especially on robotics a major opportunity so we are reallocating our resources in that field. And then also on the power grid side, look, State Grid just came out and had not only given a guidance for next year of 7% to 12% growth, they have also said until 2020 they will invest about $300 billion into incremental spending on the grid side. So this is something where we are all over it to make sure that this great technology that we participate in that one.

And in the US, a similar picture because the consumer driven, the residential construction I was impressed by the September number on residential construction which basically was as confident as it has not been for the last 10 years or so. That is positive.

Automotive I had just this morning important meeting with a large automotive customer based somewhere in Michigan who is really planning major investments there. And also on the transmission side, customers are more and more interested to get our renewables connected and work with us not only on the flow of the power but especially on the grid stabilization and grid automation side.

At the same time, upstream oil and gas in mining in my eyes will remain to be very, very soft in 2016. So it is probably flattening out and then coming back. But if you take that momentum then, you could expect a soft growth or growth in the US next year.

And then in oil and gas, look at the moment the massive contraction in oil and gas upstream has outweighed the opportunities on feedstock related investments. But they are there, we see them. I was just a couple of weeks ago in Saudi, visited our Sadara project which is at the moment the largest downstream oil and gas project going on. It is a 3 by 6 kilometer side. And there are two more sides in parallel where there is a strong consideration to develop them as well.

So it is a mixed bag altogether. I wouldn't call them market inflection overall for next year but we have some positive signals and with our heat map approach where we are much, much closer in terms of segmentation and reallocation, resources swiftly, I am confident that we will be able to stay available relative to the market development.

Very helpful, thank you.

Ben Uglow, Morgan Stanley.

Thank you. Good afternoon, everyone. I had a couple. So first of all on the discrete automation business in particular, I'm not sure if this is for Ulrich or from Eric, but can you give some color or some sense of what is driving the top line specifically? 7% down is a big number for that division. It happened quite quickly. The press release talks about motors and drives. I'm guessing that part of that is shale and oil and gas in the US but can you give us a sense of what is driving down discrete automation both in the US and China and is 7% down going to be the new normal? So that is question number one.

Question number two and I guess it relates back to an earlier question, the discrete automation margins were down 170 basis points. Is that the division, Ulrich, where you are seeing greater price or lack of price discipline? How much of that 170 basis points drop is a price impact as opposed to simply volume?

And then the final question for Eric, corporate eliminations bounces up and down quite a lot. It was obviously quite low this quarter. Can you give us a sense of why that is actually happening? The market was looking for $130 million I think it was of eliminations, we got [70], but what is actually driving that volatility?

Ben, thanks and good afternoon to you. Let me first comment a little bit at the top line in DM. If you start with orders, orders are down 9 but if you look at really third-party, it is 4 because last year we had a significant booking when we had the large-scale order in South Korea of marine. That was then passed through to DM as a large-scale order. We got that order through PA but then a part of that is being supplied by DM so on a like for like basis if you take out that internal order, the top line is down by about 4% third-party on the order pattern.

Then on the revenue side, look, it is basically a contraction of short cycle volume mainly in the US and China and broad action services. You might remember in the DM portfolio, we have a very strong exposure to process industries where we have built a very strong platform of offering on the large-scale drives and the large-scale motors and it also has a very strong service capability. That division has a strong service attachment rate to it and there we see a massive contraction on the discretionary spending which has flowed through the annual book to bill this year already in the revenue base in there.

Now on oil and gas, spending discretionary on these kind of products, customers have in my eyes maybe even a little bit over steered and there is a risk of up time if you don't invest in service, if you don't invest in spares. So I would say we have reached the past up there, the bottom of the (inaudible) and now we need to navigate out of it. Calling that precisely right in timing if I would note it, Ben, I would not be sitting here; I would probably be a rich man sitting somewhere else but that is the reality. That is the top line in revenue development in DM.

On the margin and the corporate eliminations, I will let Eric take that one.

On the margin side, the main reason is simply the mix and the lower share of standard products, specifically driven to the segments that Ulrich spoke about and the markets in the US and China to quite some extent. There is some small element of price but it is not material if I look quarter-over-quarter on that side.

I think you also should see that the third quarter last year was not a high quarter but a relatively high quarter that we are comparing to.

Okay.

You asked in which direction is this going and obviously it depends on where the volumes are going and Ulrich had talked about the volume numbers already on that side.

Just to follow up, I mean being brutally simplistic, is it fair for us and I am really just thinking about this one business, is it fair for us to assume that we continue to see for a couple of quarters some topline pressure but your assumption is that the margin shouldn't go down too much from here?

You might remember, we are not giving forward-looking guidance. I think we have given you all the inputs to model the future in that one. Sorry for that.

Then we have the corporate eliminations which is actually the whole corporate EBITA so that is not only eliminations, that is also the different type of costs that we keep on the corporate level. And that is a mix as I said already of some realized FX effects, some corporate costs that we have. Also part of commodity savings and cost changes that is not picked up in the normal cost savings on the supply chain side. And frankly, a list of lot of mix items and I think the reality is that both Q3 last year and Q3 this year were both lower than normal just because of those items.

So you should not take this as a new level rather that as I said, when we look for the rest of the year that we see a normalization in the fourth quarter and that we will end up somewhere at the lower end of the range we have indicated for that line of 500 to 540. Maybe even below the 500.

That is helpful. Thank you very much.

(inaudible)

Thank you. Good day Alanna, Ulrich and Eric. Maybe just in connection to Ben's question on DM, could you outside of robotics give some details which areas are stable to going up when it comes to organic growth sales, so outside of robotics?

And then a question on low-voltage margins, which was strong, how much of that is lower system sales and how much of that would you say are your own initiatives -- cost initiatives?

And then a question on process automation. You wrote that process automation base orders was steady in the quarter, do you believe we are somewhere at the bottom for this division?

And the last question regarding the share repurchase, your current share repurchase program is ending in September and if you don't have a clear acquisition of a couple of billion dollars, would you be open to continue that for another one, two years? Thank you.

Thank you very much for that set of questions. Let me try to address some of them and I will give the margin question over to Eric.

So on DM, if you read through the successes that we have shared with you in focused, high-growth segments, some of them are directly associated with DM. Take the food and beverage piece, DM is playing a major role in that area. If you take the transport piece and if you take the rail piece, that business is developing quite well with our one step back strategy where we feel the tin boxes in that transport with great electronic and positive solutions; that is going well.

If you take the renewable plays, DM is basically the model, however you want to define it, of the success story of solar in India with our very, very competitive especially large utility scale solar inverters that we have in there. So that is a pretty broad opportunity set in this division that we have and naturally we need to use them together with robotics to work on compensating the tough impact that we have from the contraction that we see on the process side and the bottoming out in the process side.

Now on the other one that I will take is the share repurchase and then I will let -- hand over to Eric. Look, on the share repurchase, we are basically on track with what we said we will do and there is no need to speculate on any direction going forward. We have very clear capital allocation priorities. Number one is the organic growth. Number two is the dividend. Number three is funding M&A and number four is additional returns to our shareholders. And depending where we are next summer, we will then consider how we deploy capital in the appropriate base. It is too early to speculate. With that, I hand over to Eric on the LP margin and the PA base question.

I think it was both LP and PA. So on the LP side, it is both the mix that helps but also very strong execution on productivity and cost out in this division. So both items are impacting the margin; it is not one that is dominant compared to the other.

The PA margin is low in the quarter compared to the earlier quarters. It also has to do with mix and we have talked already about the service and the oil and gas impact and it all depends on where those volumes will continue to go in the future.

We are working of course very hard also on cost out and productivity improvements in this division so that will have a positive effect on the margin that we see. Where it impacts on the results between the markets and our internal efforts, I don't want to give a forecast at this point in time.

And the question on PA was on the base orders if you think that it will continue to be steady that you reach some kind of a truss?

On the PA side, you need to understand a significant element in the base orders on two elements. It is the domain specific products that we have, the measurement products for example that we have in PA and on the other hand, the service activities. Now on both, we have seen a mixed picture. We have seen in oil and gas a massive contraction but PA has been successful on the service side to grow in other fields to compensate that impact and Peter's ambition is basically as the leader of this division to hold base orders as close as possible to the steady line in this tough market environment.

Andreas Willi, JPMorgan.

Good afternoon, everybody. My first question is on robotics. You called the business this morning, the press called a rock star. How do you see the trends here in the next 12 to 18 months, not a longer-term structural positives but more the risks in the automotive industry from weaker global car sales and maybe also anything related to VW you could see here given we have seen some areas of auto CapEx slowing recently.

The second question on the working capital, the dynamic between your own improvement in the market, the number you have given us at the capital markets day for what you want to save, does that assume basically stable payment terms, stable prepayments? So we should subtract from that kind of the ongoing deterioration in those terms?

Andreas, good afternoon. Thank you for being with us. On the robotics, let's talk about the market first and then about our own business. The market is one of the fastest-growing markets in the industry at the moment. If you look at the forecast that came out just the last couple of days for China, for other parts of the world, this is a market that is not only long-term but also short-term. It will continue to grow. Now it is very important in robotics if you want to participate in that growth to have the right offering because the offering is not only about a standard kilogram of robots, the offering demand and the customers really make their purchasing decision on the purpose and the application that a robot can be used for and there we are really leading. We have invested around the world in application centers for specific situations, material handling, gluing, and other applications so that is something that both ABB's strategy already in the last couple of years and we are really benefiting from that.

In addition, our investment and footprint you might remember earlier this year we complemented our China and our Sweden activity with a focused factory in Michigan in North America and that is really paying off all together.

Now on auto, look, it is interesting because in auto there are some overall volume dynamics and these volume dynamics is the one driver but there are two other dynamics that I want to make you aware of which are basically compensating maybe a little bit softer volume and the one is the complexity of cars.

If we look back 20 years, a car basically was a bunch of steel and tin that was welded together. Today if you look at the new 7 Series of BMW and some other cars, if you look at the amount of different materials that are being used there have never been more different materials on the car and therefore just one example requires a much wider range of joining technologies.

So in the past we had welding, today you have laser welding, conventional welding, riveting, roller hemming, gluing to make sure you get magnesium, titanium, aluminum, fiberglass, tin and steel together so that is really an opportunity for us and we have been working with the leading OEMs in making sure their journey towards a more sophisticated car is complemented by automation technology that we have all together. So that is one driver.

The other driver is if global demand is subdued that does not mean that there no demand dynamics underneath. We see strong growth still in emerging markets especially of the local players. Now given the fact that we have had a first and are the strongest robotics in China for automotive for example, this positions us pretty well to work with the local players, they are ramping up.

And then the last point on the players that might be at the moment a little bit under pressure, one area to compensate this pressure is to launch fantastic new technology and fantastic new cars and we are looking forward to continue working with our customers and all the customers that you mentioned going forward on that one.

With that, I hand over to Eric on the working capital side.

So on working capital, we obviously have set a very clear target and that is the target we have for 2017 within that different parameters and blocks in working capital. We have some pressure not potentially on the terms and conditions but we are clearly targeting the number that was mentioned in the capital markets day.

Andre Kukhnin, Credit Suisse.

Good afternoon. It's Andre from Credit Suisse. I will go one at a time. Firstly, just in China to come back to that, within that minus 15% in base orders, how much do you think was the customer destock versus underlying demand trend? And secondly, just within China, how did the robotics business do within China in the quarter?

The second one is a pleasure to talk about. The business did well and the first one, look, it depends really on the business line. If you take the (inaudible) business on low-voltage, the destocking is probably less preeminent as it is on the motors and the drive side that goes for distribution. The massive stopping of process industry investments has really on the DM side made the distributors extremely cautious and they are bringing down stock levels in a significant way.

On the LP side, I would say the market has already balanced in terms of destocking levels a little bit earlier so I wouldn't see the same amount of destocking on the LP as I would assume on the DM side all together. But very clearly there is a destocking going on. However, customer confidence is softer and we have clearly flagged that it is softer and we expect it to stay soft going forward, then people are very cautious in working capital investments on the distribution side.

So given this, just thinking about the fourth quarter, are you signaling that minus 15% is likely to carry on to continue?

No, Andre, we don't give forward-looking guidance on any market.

Fair enough. And just one last question on the State Grid in China, you said this investment ramping up, are you expecting to maintain, expand your market share within that spend?

Look, what we are doing is we are Punting our fantastic innovation with our new offering on the power products and the power system side. I think we will continue to have that vision to be a strong partner of State Grid going forward.

The new alignment of the division, the formation of the power grid's division was very much welcomed by the customers including State Grid. They said, okay, now it is easier to deal with ABB out of one hand so that the innovation pipeline that we have, the strong push on good service and the structural adjustment should put us very well to also participate into State Grid as a key customer that we highly value in the future.

Daniela Costa, Goldman Sachs.

This is Jessica in place of Daniela. So we had a couple of questions. The first one being if you can talk a bit about where you stand in terms of capacity utilization across your various businesses?

And the second one is about basically you have been talking about how automation, the trend of automation means that companies will start or customers will start investing more in CapEx now to invest less in CapEx in the future by becoming more efficient. Have you seen that in any particular end market? For example, mining I guess has already gone through the -- has already seen declining growth for a couple of years now but have you seen that step up in CapEx in order to become more efficient? Thank you.

Okay, Jessica, thanks for your questions. Look, first, we don't disclose capacity utilization number by business or sector but let me run you through how we drive capacity utilization. Basically we look at our assets and we take an OAE approach that is basically uptime speed and yield of each of the assets that we have out there. And actually we need to look at the future uptime, are we running the facility, at what speed are we operating and what is the yield and we have specific measures in place to all three of them.

Now there is a productivity driven element in that and there is a demand driven element on that. On the demand driven side, you have seen us announcing structural adjustments to our footprint throughout the year so for example in DM, we have announced an adjustment in Sweden, we have announced adjustments in North America on the capacity toward the one hand get better in line with the market demand. But on the other hand also take productivity up and move some of the capacity to lower-cost places. That is an ongoing process. We look on that in a very disciplined way.

It is very dangerous to become too nervous short-term with capacity adjustments but if we see a strong underlying trend either on the demand or productivity opportunity side, then we are not shy making that adjustment.

Now on the automation side, you mentioned mining as an example. Look, there is investments for example in the theme of demanning the mines. At the moment we have many customers that work with us and say can we for an the existing mine, take -- build up a pilot of a mine where we are demanning, where we are increasing remote monitoring and remote management so the basic theme there is we take the people further away from the mine and we bring the equipment itself closer and more steady to the mine that we don't have so much lost productivity in moving equipment with the people out and in on the mine on the excavator site, on the truck side and whatever. And that is something we are working very successfully.

If you take in the last quarter, we had some orders -- or sorry -- in year-to-date, we had some orders with [Valli] in South America doing that. We have a very strong customer up in Sweden called (inaudible) where we have been working to basically work on the mine of the future. So this is our area that we are working on to stay close to our customers.

Would I call it yet a full change of the CapEx side? No. Mining is still I would call it at the bottom of the bathtub. But do these kind of activities keep us close to our customers and prepare us for the market ramp up? Absolutely and that is the way we will continue to position it.

James Stettler, Barclays.

Thank you and good afternoon all. Just a very short-term question first of all. As you looked at the last quarter, was there a step change in demand as we progressed through September and do you still feel that your normal restructuring is going to be sufficient on the production side?

Secondly, slightly longer term as you embark on the strategic review of the power grid segment, could you maybe give us a bit more color of what your thinking is and what you are trying to achieve longer-term? Thank you.

I will let Eric answer the first question on restructuring and I take then the second on strategic review.

In the market we are -- we need to do more restructuring, we have announced it earlier this year. A lot of those plans are already in progress and we are expecting then to book as much as we said earlier this year to get to the full cost for the fourth quarter which would mean $250 million to $300 million of restructuring.

Obviously if we find projects that are worthwhile doing, we will consider to do them but we think we can do them within that frame which still leaves quite a bit above $100 million more to be booked in the fourth quarter.

Going to your second question, James, on the strategic review. What we are dealing with the strategic review, we are basically looking at how do we safeguard the number one position in transmission and distribution long-term going forward? So we look at our technology platform and we take a perspective on the functional hot bed and corporate iron stuff that (inaudible) the electronic piece that is for example going to our converters, the software that we have in asset management and on grid management and the service.

We also look at end markets and say how do we run this business for continued market leadership in end markets by industry segment but also geographically. We are pushing very hard on Africa. If you want to be successful in Africa, you might want to reconsider your business model how you do that. Similarly for parts like Southeast Asia. That is the second element.

And the third element that we are looking at is also the ownership options that we have running this business going forward and all options are on the table. We do that in a very calm and fact-based way. In the review that we have embarked on, the existing management team of the future power grid's division, will be -- or is already involved. We are already in discussions. We had yesterday a Board meeting that we went through some of the topics and discussed. It is a good process and it is pretty similar to what we did at the end of 2009 with robotics.

At that time you might remember robotics was in a situation where we had to fundamentally ask the question, how do we go forward and should we own this business? We came up with a clear transformation plan and a recommendation to the Board to keep the business at that time. I have to say thank God we did that. Today we are very happy and exactly the same kind of process and logic we go now through with the power grid's division.

If you look at the performance improvement momentum in power systems, I would describe it as very strong. If you take the delta that Claudio and his team have developed -- delivered not only in terms of the profitability but in terms of the operations quality in terms of the team that they are putting in, it is going in the right direction.

So we are in no rush to be in some kind of an extreme urgency. We will take our time working with the team through and as we have flagged earlier during 2016 when the time is right we will come out and share with the public what the outcome of the review is.

James Moore, Redburn Partners.

Good afternoon, everyone. Thanks for taking the questions. I have got three.

Two, James.

I will stick to two then. Firstly, can I ask why you see a bottoming of oil, mining, metals, marine, the heavy hit process industries when those global industries are signaling further CapEx cuts in 2016? Is it that you believe they are being too conservative or is it that you see an overly destocking at the moment that has to reverse?

Secondly, can I ask about price. Last time you actually broke price out in early 2014, it was running at just under $1 billion per year of pressure. Without putting a number on it, can you help us a little to say whether the last 12 month price effect is above that, similar to that or below that excluding savings?

Thanks for your patience. They are good ones to close out with. Look on the depositing out, there is a very simple reason. I think the companies that overshot in cutting service spending and that needs to come up again for a very simple reason. Yes, it is (inaudible).

If you look at the amount of assets that are out there on the oil and gas side, on the upstream side that are continuously running at the pace, some of the demand even has gone up and they are pumping more volume out to compensate the price pressure and that will require some investment on a pretty low level but it will require some investments to keep the assets going.

We already see some signals. I wouldn't call it a trend yet but I was with a customer late last week in the oil and gas segment and they basically said look, we need to do something again because we all realize if we keep going that way, we might jeopardize uptime and reliability of our assets. And mind you downtime in upstream oil and gas is much more expensive than putting a little bit of service in there. So that is the reason why I am confident that it will bottom out on a low level and not further deteriorate.

With that said, I hand over to Eric to take the price question.

Look, James, the reason we keep them together nowadays is obviously when we have price pressure we also have opportunities to go more back to our suppliers and get more out of the supply chain. So that is the reason why we are not breaking the two numbers out in detail.

We have communicated of course over the last quarters and also today that there is some more price pressure in some segments of the market. So if you really compare the latest trends, there is some more price pressure but I will not give you an estimate exactly to what we had the last time that we had those separated out. I think you should look at it as one thing together.

Thank you and on that, just as we go into next year because you are raising your -- with the white collar, your degree of savings basically from $1 billion to $1.5 billion broadly and is it that you think that the savings are going to sort of move ahead of that from being a little bit behind that at the moment?

James, I think I will call you on that question because the team here actually has to leave. So I will have to close the call out at this point in time. Sorry but I will give you a call on that topic. Okay?

Sure. Thanks.

With that, I would like to say thank you to everyone for their time and efforts today and we look forward to hearing you on the next call for the fourth quarter. Thanks again.

Ladies and gentlemen, the conference is now over. Thank you for choosing Chorus Call and thank you for participating in the conference.