Abb Ltd (ABB) 2018 Q4 法說會逐字稿

Hello, and a very warm welcome to ABB's 2019 Strategy Update. It's a great pleasure to have all of you here with us today in Zürich and a very special thank you to those of you that have traveled to be with us today. For those that don't know me, I am Jess Mitchell, ABB's Head of Investor Relations. And with me on stage, Ulrich Spiesshofer, ABB's Chief Executive Officer; and Timo Ihamuotila, our Chief Financial Officer. I am going to hand over to the 2 of them very shortly to start the program, but before I do that, there are just a few matters I need to run you through.

So firstly, on safety, pleased to be advised we are not expecting any fire drills or safety alarms today. So if you do hear one, we would need to ask you to evacuate in an orderly manner. We have a number of fire exits. There's one to my left and there are 3 more down to the right of where you came in into the reception area. The gathering point is the MFO Park. That's a large steel frame structure you probably saw on your way in about 200 meters in that direction. And we would gather there in the hopefully unlikely event.

Also today, I would like to draw your attention to the fact that this particular session is being webcast on camera via our website, and that will include the Q&A, which will take us through to the first break. You've all received a welcome pack and in there is a lot of useful information, including how to connect to the WiFi should you need that.

I would also like to draw your attention to our safe harbor statement, which Uli will show up on the screen shortly. That covers our forward-looking information that you may hear today and which could contain some uncertainties. There will be more information on that in the slide in your handout and on our website.

Just a few things about the numbers today. Further to the announcement of the sale of our Power Grids business, all the results you are seeing today have been recast to show our continuing operations, excluding Power Grids, and will show Power Grids as discontinued operations. Timo is going to explain that in a little more detail.

This afternoon, when we do our business presentations, all of the information you see there has been illustrated on the basis of our new business structure.

So that leaves only for me to say enjoy the day. We have a very, we hope, interesting afternoon plan for you. It will be busy but hopefully exciting, and the IR team is here if you need any help or assistance as well as our events team, please feel free to ask.

And with that, let me hand right over to Uli.

Thank you very much, Jessica. Welcome to ABB here in the old factory to experience the new ABB. I'm delighted to see such a big crowd of you here. Thank you for making the effort being with us.

This afternoon, we have a really interesting agenda prepared for you. On the one hand, we will naturally share with you the annual results. On the other hand, we will give you an update on the new ABB. Where are we with our planning? Where are we with implementation? But even more important, we will let you experience the new ABB in its new businesses. We're taking the businesses and bring them in front of you. You will see, in real life, the 4 business leaders that we have appointed to run these very strong businesses and at the same time, you will experience, in real life, some customer examples because we have not only the business leaders here with us that are presenting their business, we have also, from their team, 4 experienced senior business unit managers that will present some very interesting cases that hopefully lets you feel what the businesses are all about and how we are driving the new ABB.

After that session, later on when we have the 4 business leaders presented, Timo and I will come back here to be with you for a final Q&A session at the end of the afternoon.

So that's the agenda. That's what we're going to do, and let me start by putting this all in context and share with you the agenda, the journey of ABB to date. Where do we come from and where we are today?

Over the last more than 100 years, the world has fundamentally changed in many aspects, and the various industrial revolutions have shaped the pattern of the world. And we have been always shaping the pattern of these revolutions with our technology. In the 19th century, we brought electrification and motion to the world, to make sure people have power and lighting, to make sure that people in factories can move with our electrical motors.

In the 20th century, the century of the industry in industrial automation, we brought industrial automation, our leading distribution control systems, our motion offering, but we are also the first to bring robotics to the industry in 1974 when we launched our robotic offering initially for the automotive industry, and as you are all aware today, we are nicely balanced across different industries.

And today, we all face the fourth industrial revolution. Digitalization is changing the pattern of every single job in the world and especially in industry and we are right in the middle of it. So again, ABB has made a move with ABB Ability to support our customers in their competitiveness and in serving their customers with fantastic capabilities to ensure they're winning in a world that is becoming faster and more competitive.

As we have shaped what we are doing for our customers, we have shaped our portfolio and have consciously changed the center of gravity from a power and infrastructure-heavy centric portfolio many years ago to today, a portfolio that is ideally suited to serve customers in digital industries. We were the first to get out of certain infrastructure activities in rail and fossil power generation and we redeployed the capital in forward-looking technologies and in differentiating opportunities where we can help our customers going forward.

So today, you have an ABB strongly positioned in this field.

In 2014, when we launched the Next Level strategy, we said we have the ambition that all of our businesses should be #1 or 2 in the world. And I'm happy to report to you that the team has done a really great job fulfilling that ambition. All of our 4 businesses today are either #1 or 2 all around the world. Our Power Grids business has been brought back to strength through the transformation that we have been running since the very disappointing situation that we had in 2013/'14.

In electrification, through the start-up activities in e-mobility and data centers, through the deployment of capital in the biggest economy of the world through Thomas & Betts and GE Industrial Solutions, we have shaped the clear #2 globally in electrification.

In Industrial Automation, we just got reappointed #1 in distributed control systems, and we have nurtured that position and invested in it to be really the leading front, and we are complementing the historic software capabilities with our strong ABB Ability offering.

And in Robotics and Motion, on the motion side, the Baldor transaction was transformational for us. It made us the #1 in motors in the world. And in robotics field, in 2008/'09, we had a loss-making business and today, it's really a star in the portfolio, growing fast at a high profitability all around the world.

So these 4 businesses are the result of a conscious strategy where we have focused and where we have invested and we have driven technological leadership to truly differentiate with our customers.

So the longer journey is clear. Now let's put the lens on 2018 and let's talk about the last year. I can tell you the last year was not exactly a boring year. We had a lot going on, and I'm very happy that we were able to establish a growth momentum in ABB for the first time since a while in a pretty strong way. Orders came in strong. Revenue growth that was for a long while subdued is coming back and is especially in the new portfolio now developing in a nice way. ABB Ability, which was 2.5 years ago a vision is reality today and is contributing significantly to the growth momentum that you can witness now.

We closed in 2018 the GE Industrial Solutions acquisition and since then have done a lot of work to integrate it together with the ongoing integration of B&R.

In execution, the 10.9% margin that you see is impacted by 3 special effects: the stranded costs that are dampening the profitability as a result of the Power Grids move into discontinued; the GEIS integration that we flagged very clearly would have a dampening effect; and the additional charge that we took to accelerate the legacy noncore EPC activities that we want to flush through and get out of the backlog like getting it out of ABB's portfolio altogether.

We have progressed in operations in our businesses. RM had a significant margin improvement. Our Industrial Automation business despite the dampening effect of the opening backlog and a charge in the fourth quarter to a customer that went bankrupt in the last minute of the year that we couldn't avoid any more and we had to take charge. EIA has delivered a very solid, steady result in the context of the environment. EP has been dampened by GE Industrial Solutions and we need to work on operational execution in this division and Tarak will, later on, talk about how he does that and how he addresses that. So altogether, the businesses that constitute the new ABB have delivered the execution that I just described. And in Power Grids, we have continued the transformation path until we announced the deal with Hitachi in December and the pattern of execution is ongoing. We're not stopping the business. We are running it consecutively.

What I am specifically very proud about of the team's accomplishment is the strong outside-in focus that ABB has today. We are much more market focused, we are much more customer focused and as a result, we have been able to triple our Net Promoter Score since 2010 to a very strong level of 57%. This is not 100% yet but a significant improvement and if you benchmark it, a really strong result in the B2B space.

The brand of ABB is in a different position today than it was 5 or 10 years ago, and the efforts are really paying off. We see that in the interest, for example, of young experienced -- young engineers in the AI space, they see us as a company where they want to work and just recently we got, here in Switzerland, elected again as the employer of choice for young engineers, ahead of Google, with our new value proposition that we are shaping.

So the operations of the business delivered solid growth. We had one or the other operational challenge that we are working on like the integration of GEIS, and the collaboration has really yielded nice returns.

In parallel to that, 2018 was the year where we shaped the plan to fundamentally transform our business through 3 decisive actions: to become a leader focused entirely on digital industries. These actions together, the momentum that we have created, the path forward makes our Board of Directors confident to propose the 10th consecutive dividend increase and propose to the AGM in May a dividend of CHF 0.80 per share, another CHF 0.02 increase compared to the previous years.

Now I talked quite a bit about growth. Let me give a bit more granularity on that. If you take the revenue growth pattern of the new ABB over the last couple of quarters, you see an increase of momentum. You see that also the revenue growth is coming. And that is not a result of a coincidence, that's a result of a very deliberate strategy that follows our PIE approach of penetration, innovation and expansion. We have really driven execution and sales capabilities and invested on the penetration side. Whether it's in the west of China, the stronger penetration in [Plastic] markets here in Europe, whether it's the enhancement of our CRM capabilities in Salesforce.com, they all bring together a better momentum on the penetration.

In innovation, in 2018, we brought out a couple of wow moments to our customers whether it's the Ellipse asset health capabilities where we are truly globally the leader in the digital solutions for asset health for the target industries that we have, whether it's our leading position in e-mobility fast charging where we were the first to charge a car in 8 minutes for 200 kilometers, a technology that we unveiled in Hanover this year, or when you take the continued expansion of our collaborative robots capability where with the YuMi family, we have really made a lot of inroads with our great technology.

We're also spending more. We have increased the investment on R&D and digital engineering and is today about 4.5% of revenue to really make sure that we are driving innovation going forward. And we continued expanding. GEIS puts us on the map in North America, the largest market in the world, much stronger, and with ABB Ability, we add continuously new solutions, and you will see a couple of them this afternoon and I hope you join me in the excitement about this fantastic capability that we have.

So if we sum up 2018, we have completed our Next Level implementation. The businesses are all #1 or 2. We are starting to deliver solid top line growth momentum. We have given operations continued attention and we will do so for -- so in the future as well. We know we are not perfect yet. And we defined the new ABB as a leader for digital industries. At the same time, we are crystallizing the value of our Power Grids transformation through the divestment to Hitachi. $11 billion in value compared to a couple of years ago demonstrates that our decision was right to keep this business and transform it to really nurture and to harvest the value creation potential, but now it's also the right decision to put it in strong hands for the next phase of its development. We have a clear implementation road map for 2019. We know the actions, the milestones, we have resourced it, and I'm confident that we are strongly positioned for a great future in ABB.

Before I talk about the future, however, I would like to hand over to Timo to give you more granularity on the financial aspects of our Q4 and 2018 results. Timo, the floor is yours.

Thank you, Uli, and ladies and gentlemen, welcome from -- on my behalf as well. Maybe I'll take this here so that there is no risk for an accident or anything like that.

Okay. So let me start with key figures for the group for the full year and the fourth quarter. Before going into the actual numbers, however, I want to highlight that based on the announcement of the sale of Power Grids business on December 17, the results of our Power Grids division are now presented as discontinued operations in our financial information. Our results from prior periods have, therefore, been recast and orders, revenues and operational EBITA results record our continuing operations and thus exclude Power Grids.

At the same time, in line with the guidance provided as part of the announcement, stranded costs related to Power Grids are reflected in the group's operational EBITA. For 2018, total orders were $28.6 billion, up 8% from 2017 and revenues were $27.7 billion, an increase of 4% for the year. While the full year 2018 operational EBITA margin was 10.9%, down 30 basis points from 2017, operational EPS was $1.33, up 8% for the year. The group's total cash flow from operating activities for 2018 was $2.9 billion. In the fourth quarter, orders were up 7% at $7 billion, while revenues increased 5% to $7.4 billion. Operational EBITA margin for the quarter was 7.9%, down 180 basis points. Group cash flow from operating activities remained solid at $1.9 billion.

This next slide shows that total orders for the group are up in all regions on a comparable basis. As said, for 2018, total orders rose 8%. In Europe, total orders rose 10%. Growth was particularly strong in Italy with a positive contribution from Germany. The Americas experienced 7% growth, while total orders in Asia, Middle East and Africa rose 6%.

This was a year of strong performance in both the U.S. and China, ABB's 2 largest markets. In the United States, ABB's total orders were up 7% and in China, they were up 9%. For the fourth quarter, total orders rose 7%. You can see that Americas showed 12% growth in orders, led by the United States and very strong growth in Brazil. In Europe, while growth slowed in some core markets such as Germany, overall growth was robust at 4%. In Asia, the Middle East and Africa, orders rose 7% with India growing 19% and China up 6%. In China, during the quarter, growth was seen across discrete markets for motors and drives as well as for robotics, particularly from automotive customers. The pattern across process industries and in construction was more moderate while demand from rail was robust.

Now let's take a closer look at the divisions' performance for the full year. As you can see, comparable orders and revenues were up across all divisions, demonstrating solid growth in the new ABB. The operational EBITA margin for Electrification Products was negatively impacted by the acquisition of GEIS. Margins in Industrial Automation were robust while Robotics and Motion showed strong operating leverage year-on-year.

Looking more closely at the fourth quarter on a divisional basis starting with Electrification Products. We saw continued top line momentum with total orders increasing 2% and third-party base orders rising 3%. Electrification Products saw a strong growth in its core products business, including for its data centers offering as well as from its process industry customers. Revenues were up 3% year-on-year, and the order backlog ended the quarter up 7% compared to the same period last year.

The division's operational EBITA was 300 basis points lower year-on-year, including the effect of consolidating GEIS, which had an impact of 210 basis points in the quarter.

GEIS integration is well underway. While its margin contribution started out a little weaker in Q3, as noted at the time, its overall contribution for Q4 has been in line with expectations. GEIS will now impact the full year results of Electrification Products for 2019 compared to 6 months for 2018. Over the course of the year, we aim to offset much of the dilution to operating margin when compared to full year 2018 margin.

However, for Q1 and Q2, we still expect a significant dampening impact from GEIS when compared to the same quarters a year ago when GEIS was not included. And let me still highlight that the operational EBITA margin for this division was also negatively impacted by around 90 basis points in the quarter due to contractual charges.

Next, we move to Industrial Automation. This was a quarter of continued good order growth for the division. Total comparable orders rose 8%, while base orders were up 4% year-on-year, supported by broad-based growth in orders from pulp and paper, mining and marine. Oil and gas demand remained robust, and B&R delivered another quarter of solid growth. Year-on-year revenues were steady with strong execution of the order backlog, supporting revenue in a seasonally quieter book and bill period. The division ended the quarter with its backlog 2% higher year-on-year. The operating margin year-on-year was down 200 basis points against a tough comparison base and reflects a onetime charge of approximately 80 basis points due to payment default by a customer.

As previously noted, and similar to what we now have seen in the fourth quarter, we would not expect the IA margins tailwinds that we had in Q1 2018 to repeat themselves in the Q1 2019.

Looking now at Robotics and Motion, which delivered strong growth and execution in the quarter. Total orders grew 11%, while direct -- base orders grew 6% compared to the same period last year. The division won large orders from the automotive and rail sectors while experiencing continued demand from process industries customers.

Revenues experienced strong growth, increasing 11% on good execution of the order backlog and continued book and bill activity. The order backlog at the quarter-end was up 10% year-on-year. The division delivered a year-on-year increase of 120 basis points in its operating margin, reflecting positive volumes and ongoing focus on cost management.

Turning then to group operational EBITA margin. Here we can see the most material impacts summarized for the full year and fourth quarter periods. As noted earlier, our reported margin of 10.9% for the full year and 7.9% for the quarter were affected by stranded costs related to the transfer of Power Grids to discontinued operations. Stranded costs are services provided by the group to Power Grids that do not qualify to be reported as discontinued operations. These services include IT, real estate and other shared corporate services. We expect a vast majority of these costs to be either transferred to Power Grids or be eliminated by closing of the sale of the majority stake in Power Grids to Hitachi, which is anticipated in the first half of 2020.

For the full year 2018, ABB recorded operational stranded costs of $297 million and in the fourth quarter 2018, stranded costs amounted to $72 million. In addition, charges and costs associated with the ongoing wind-down of our noncore business now further accelerated by the sale of Power Grids as well as expected, the dilution of GEIS impacted periods shown. Combined, these factors affected operational EBITA by 250 basis points for the full year 2018 and 400 basis points in the fourth quarter.

This next slide shows the bridge between our group operational EBITA margin for Q4 2018 and the same period in 2017. In this instance, both periods include stranded costs of around $72 million due to the recasting of our results, so this does not give rise to a variance here.

Addressing the key year-on-year drivers. We continued to deliver net cost savings amounting to $31 million. This was supported by our ongoing focus on supply chain management and productivity. These savings were partly offset by negative impacts of $50 million from rising raw material costs. Volumes had a positive impact contributing $110 million, partly offset by mix which had a dampening effect of $23 million. Our investment in growth continued, including an increase in investments of $29 million year-on-year.

Noncore business had a net negative impact of $70 million, while other shows a negative impact totaling $92 million, including the contractual charges in Electrification Products and the onetime customer payment default in Industrial Automation.

Here, we have broken down the net income drivers to show very simply the changes that have taken place following the announcement of the sale of our Power Grids business and the simplification of ABB. Nonoperating items reflect the continued implementation of normal restructuring programs within our continuing operations and around $65 million of restructuring costs associated with the beginning of ABB simplification actions.

Further $25 million of Power Grids related transaction and separation costs were recorded in Q4. The results of Power Grids activity is reflected in the $135 million net income reported as discontinued operations. This result is net of restructuring costs within Power Grids and ongoing investment in Power Up transformation program.

So in summary, ABB's 2018 results show solid growth with orders and revenues up in all regions and all divisions. Margins were impacted by stranded costs, noncore charges and GEIS dilution, while cash flow from continuing operations was solid.

Thank you for your attention, and let me now hand back to Uli.

Thank you very much, Timo. So 2018, a year where we had enhanced growth and we defined the transformation of ABB into a leader in digital industries. Just before Christmas, we announced 3 decisive actions to do this: number one, we are focusing the company through the divestment of Power Grids to Hitachi; number two, we are fundamentally resetting our business model and really simplify our business towards full entrepreneurship; and number three, we are setting up and we are shaping our remaining portfolio in a way closely aligned with customers in 4 leading businesses serving customers in digital industries.

So when you take 3 steps back, what is the new ABB? The new ABB is a pioneering technology leader for digital industries. A company that operates in a $400-plus billion market, which is growing ahead of GDP. We're serving this country -- this market in the future through 4 businesses: Electrification, Industrial Automation, Motion and Robotics and Discrete Automation. This afternoon, you will hear much, much more about these businesses.

And we maintain and further nurture our global balance 1/3 in Americas, 1/3 in Asia, Middle East and Africa and 1/3 in Europe. And I can tell you in times like today where we have trade uncertainties, being naturally hedged and at home in key markets of the world with fully integrated value chain is a competitive differentiator that we plan to nurture in the future even stronger.

So together with the 110,000 colleagues of the new ABB, I'm quite excited about the opportunities that we have but I'm also very clear that we have a lot of homework to be done to make this now happen in the quarters to come. So let me run you through these 3 actions, where we are and what we're doing and what the roadmap going forward is.

Let's get started with the divestment of Power Grids. Since we announced the divestment just before Christmas, I've met about 3/4 of our shareholders or of our share capital, I've been around with many, many customers and met thousands of employees in town hall meetings all around the world. And the reaction is everywhere the same. The strong strategic rationale is understood and supported and the combination of ABB Power Grids with Hitachi is being as a very good long-term solution. A long-term solution that creates value but also certainty. The whole transaction is marked by certainty for our customers and many of them said, okay, highly complementary, we are not concerned about any regulatory issues. This is one thing that we'll go through; the employees that will be taken over by Hitachi on their existing employment conditions and have a clear long-term future in the home. And the shareholders that understand that the value creation and the value crystallization through this transaction is quite significant.

$11 billion realization as an enterprise value for the transaction, a clear exit path and the commitment to have in this staged approach that we have designed together with Hitachi the shareholders participating through us returning $7.6 billion to $7.8 billion of capital in the first stage -- after the first stage is completed, the divestiture of 80.1% to our shareholders is seen as very attractive, but it's also clear that the certainty that we have put into the structure, the clear articulation of the floor in the exit of the second phase is a good package altogether. We are on track to close in the first half of 2020. The key steps that we had to initiate in the last couple of weeks have been initiated and the team is working with full force on it.

But the divestment of Power Grids is not only a way to crystallize value. It is also a catalyst for the new ABB. We will be more focused on B2B customers and industries, and we can use the divestment as a trigger to significantly simplify our business model, especially on the country-level activities, and we will hear more about that in a minute. So as a result of this step, the new ABB will have better growth, better margin quality, less risk and less volatility.

The road map for the execution of the separation is clear, and let me just give you an update here what we're doing. We're focusing in Power Grids this year on 2 things. First, we run the business. It is the global leader in Power Grids. And we will stay close to our customers and continue the implementation of our Power Up program maybe are today already the global leader, for example, in the digital grid. The secret event this year was a really interesting one that's the annual get-together of the T&D industry all around the world. We have clearly seen with our ABB Ability solutions in the Power Grids space as the leading company, bringing the advantages of industrial digitalization to the utilities that are operating the grid all around the world.

At the same time, we have launched the separation activities. We have a clear execution road map that we are now implementing with a clear milestone approach. The team is fully staffed. We are finalizing the strategic long-term supply agreement between Hitachi and ABB, which goes both ways. Hitachi will buy in the future our medium- and low-voltage equipment. We are buying from Hitachi, continuously, the transformers and the equipment that we need, for example, for HVDC solutions on oil platforms in the North Sea. So we are finalizing that because we want to really make sure that this opportunity to create value is not lost in the transaction. The regulatory process is well underway. We are managing that between the legal teams of both parties. We have the appropriate external support, and we have a really sound governance established with our friends because they are long-term partners already where we are basically meeting on a regular drumbeat and ensure that the execution goes in the right direction. So overall, the transaction is sound and the implementation is very well underway.

Now let me talk about the simplification of our business that we have announced at the same time and what we're doing. We're discontinuing the legacy matrix structure of ABB. That was the hallmark of the company for more than 30 years, created some advantages, for example, in joint account management but a lot of dampening effects on the speed of decision-making and a lot of interfaces. And in today's world where we need to be fast and customer centric, the times of the matrix are gone and we are discontinuing it. So in the future, we will have a super simple ABB; the businesses run the business with all its operations and corporate focuses on corporate and there's nothing else. So what does this really mean? We will have a stronger customer focus, more agility and speed of decision-making and it also means significant efficiency gains. We expect about $500 million of efficiency gains medium term through this change.

Now to give you a little bit of more of a feeling what we're really doing and how this all hangs together. On the left side, you see how ABB operates today with our 4 divisions. And then we have a lot of functions that are being managed outside of the business but serve the business across the entire group. The business functions in R&D, in quality and operational excellence, in supply chain management and the support functions in HR, IS and IT.

And we have the country organization, which is an additional organizational element to the business teams. So what we're doing now, we move everything that belongs into the business into the business. But as a very important principle that we have established, it will be pool principle.

So the business leaders have to mandate to run the show and they will pool the resources that they need into the business. The resources that don't go into the business will either be in corporate or go into a job pool that I'll talk about in a minute. The businesses will decide when they want to share certain activities so they will maintain global business services but it will be, in the future, governed by the business heads together with the functional leaders. Much less interfaces, much more service dedication, much clearer arrangements directly between the customer and the supplier internally between service and service receiver.

On the corporate level, we will keep 3 activities: number one, the classic corporate functions; number two, the research and development for forward-looking common technologies like AI; and number three, our ABB Ability platform that enables our businesses to provide unique solutions to their customers, and I will, later on, talk a little bit more about that.

Now when you go through what this all means, let me give you a little bit more granularity what's going on and I could take that 25 levels down. We'd want to avoid overload but we just wanted to give you a couple of elements what we're doing as we speak at the moment and what's going on in dozens of workshops all around the world.

The businesses will establish the full scope of their business and support functions. They will streamline their own management structures because they don't need so many people anymore to interact also with the country management. They will strengthen their own team by pooling in, on a local level, the appropriate resources that they need to operate the business. And they will take over the responsibility for joint account management. We are not giving up the joint account management, which is a real success in ABB but we give the responsibility for that directly to the business leaders instead of having an additional layer outside of the business. The business and support functions that are not directly paid by the business today employ more than 15,000 people all around the world. These more than 15,000 people include R&D, sales, QO, quality and operational excellence, but also finance, HR and IS. The businesses will pool in what they need and the rest will either go into a lean corporate or into the job pool.

Now let me describe the concept. ABB is hiring, every year, about 10,000 people externally. We have put now a hold on the external hiring, and we have said people that become available through the efficiency gains will go into job pool and have the opportunity to be considered for the roles that we would have otherwise externally filled. So a clear employee-first, ABB-first principle here in people and people -- the way we treat our people. The country organizations are working to dissolve themselves. You don't believe it but we have, at the moment, workshops going on where the country organizations lay out a path together with the business how they're going to be transitioned going forward and I already talked about ABB Ability and the core technologies.

So how do we operate this? We have clear milestones defined, and the first 3 milestones we have already accomplished. We have clearly announced what we're going to do in December. We have set up the team and the team is fully operational. The GBS Board for the global business services is established and had its first meetings. So we are on a roll. 1st of April, we will lift and implement fully the 4 new businesses. Later on, you will see the 4 business leaders that will talk about their operations and their business and their strategy and so on we have clear milestones up to the complete -- completion of the transaction and the completion of the carve-out and hand over in summer 2020.

I already talked quite a bit about the 4 new businesses. Now let me describe the business portfolio and the business of the ABB -- of the new ABB that we are shaping. And let me start with the market. The market of our future portfolio is quite exciting. It's a market that grows ahead of GDP and has many pockets of multiple GDP growth pattern, whether it's data centers, whether it's food and beverage in certain areas, whether it is robotization, whether it's software in the industrial side, this is a real good market to be in, in especially a market where, through technological differentiation, we can really create additional value for our customers. And that's what we will focus on, creating value for our customers. In a very simple way, ABB will help customers to transform the way how we power a factory through a combination of digital solutions and classic hardware where a classic breaker might become a functional architecture control point within a factory.

The way we produce by combining ABB Ability with our classic DCS capabilities for even further increased up-time yield and speed. The way we work by bringing together collaborative robots where we are truly the world leader with people all around the world. Smart buildings in the space where we're living and e-mobility empowered by a cloud-based connectivity platform in the space where we're moving. That's the purpose of the new ABB, and this is what we stand for long term in the years to come with our new strategy.

We also have a clear understanding and a clear definition how we're going to competitively differentiate. We will differentiate by continuously shaping and enhancing our unique portfolio for digital industries. We believe our new solution-based business model that does not only get the customers more value but also gives us a more repetitive and stable revenue flow when you have a collaborative operation center solution for our customer where you get paid on a monthly fee for the support, it's something completely different than selling a one-off large-scale infrastructure project.

And we will continue to write the future through pioneering innovation. We will continue the path from differentiating through reliable copper and iron products to autonomous operations supported by artificial intelligence.

So let me give you a bit more granularity on that. And let me start with the portfolio. We are the only company in the world that combines at scale electrification, automation, robotization and digitalization. If you go into a modern factory, you will see that robots and classic automation enabled by digital solutions will be the new pattern, and no robot will move, no machine will move and no digital platform will be functional without reliable local electricity supply. This portfolio differentiates us very clearly from all of our competitors. It also means that when we go to market, when we compete, when we offer, we have a different pattern than others driving the growth of our business and serving our customers.

Now this unique portfolio will be brought to our customers through 4 newly shaped businesses: Electrification where we're global #2, combining our low- and medium-voltage offering with our building and infrastructure offering; Industrial Automation that brings together measurement analytics and process control, including the DCS solutions; Motion, a newly shaped business consisting out of our world-leading position in motors and generators and drives; and our Robotics and Discrete business that we are newly shaping by combining, in a unique way, machine and factory automation with robots, again on offering that nobody else has on this planet.

Now let me give you a couple of numbers for these businesses and some of them might be real news for you here today. If you look at the 4 businesses, all of them are facing a significant market. And all of these markets are growing either in line or ahead of GDP. The businesses are shaped in the line how customers buy and how customers operate. So in simple terms you could say, we have 2 product platform businesses, Electrification and Motion, and we have 2 customer solutions businesses in Industrial Automation and in Motion.

Electrification is about a $13 billion business, and we have operating margin today of roughly 13%, clearly dampened by the GEIS integration. You might remember about 200-plus basis points dampening effect coming from that and that is a way to work back into the target margin range.

Industrial Automation, and that's Industrial Automation excluding B&R now, which is about a $6.5 billion business operating at a 14% profitability with a quite unique business model because a lot of the profit that Peter and his team create for ABB are in the products in Electrification and Motion that he pulls through his business that acts in a certain way as an integrative channel within ABB.

Motion. Our motors and drives business is the #1, not only in hardware but also in software and digital solutions. And it's a business that has a profitability of approximately 16% operational EBITA. So it is possible to combine a copper and iron product like motors with a power electronics product like a drive and unique software to differentiate in a quality that you yield solid mid-teen returns in this business.

And then you have Robotics and Discrete Automation where you might remember when we acquired B&R, it was about 11% profitability and it's today, combining robotics and B&R, at a 15% profitability, meaning that we have a very strong position in the robotics field regarding profitability. Some of you might remember 2008/'09, we were loss-making and today this is a real jewel growing at a very strong pace last year and the years before double-digit as a combined business.

So when you take these 4 businesses and take a step back and look at the future ABB and you combine market growth with profitability, this is the pattern that you're getting. So on the x-axis, you see the profitability. On the y-axis, you see the market growth and this is how we have positioned our businesses. And it's very clear if you compare it to the old ABB, we are better positioned, stronger portfolio for the future.

Now these 4 businesses will be supported by ABB Ability. We bring solutions to the customers within the business but we support the business with a common platform across the businesses. ABB Ability today is really a leader in digital industry solutions. Just recently, there was an Ipsos survey that surveyed both the companies and their offering in digital capabilities and digital solutions quality. We came out #2 as a company right behind the largest player, our friends from Germany, but the offering was ranked #1. In terms of domain quality, in terms of solutions, functionality, we are very strong there.

Now let me share a little bit with you how this works. We have a common platform that we have built over the last 2 years where we bring connectivity, computation, cloud, sensing and artificial intelligence to our businesses. And they can tap the common scale of ABB in the areas of software connectivity and communications. That means we can truly scale. And if you look at it whether it's on device level, whether it's on edge level, whether it's on overall plant, gateway level or all the way up to the cloud, ABB is strongly positioned there.

We are not the only tapping our own scale. In cloud, we are working with Microsoft and get not only the cloud capability, but also the cybersecurity capabilities in this field. On the edge level, we're working with HPE, our partners, where we provide unique edge level data center solutions for customers that, for example, don't want to have their data stored in the public cloud. So that's the platform. And this platform is used by our businesses to develop solutions for customers that really make a difference. I mentioned it before, imagine you have a building where a classic power breaker becomes all of a sudden an architectural control point within the building, providing control capability within a building. Imagine we have a situation where through smart software configured hardware like drives in the motion space, we can make a true difference and make a product customer-specific without touching the hardware just doing a software specific parameterization for our customers. So these examples demonstrate that we have today a strong offering in all of our businesses and all together we have more than 180 solutions in this space of the new ABB that is today commercially available and making a difference in the growth pattern.

When we launched ABB Ability, we said our ambition is to move our industrial customers up the maturity curve of tapping the value of digitalization, and we're doing that today in a very forceful way. You will later on see an example of an offshore oil activity where we have brought through the combination of ABB's conventional offering and ABB Ability uptime to 99%, which is, in the oil and gas industry, a super benchmark and really providing a lot of value to our customers.

Go to a pump manufacturer where all of a sudden, the combination of a pump ABB motor and a drive can be offered in combination with an asset health and remote condition monitoring solution that ABB provides to this pump manufacturer that might be himself subscale, where we partner up and provide unique services.

So when you look at the ABB Ability offering, we got a strong platform, we've got great solutions, and we have customer cases that prove the value and so in this combination, I'm confident that we're going to drive growth in the future through ABB Ability for our customers and for us.

Now we would not be ABB and we would not be the Swiss engineers if we wouldn't invent the machine around that and make sure it's operated like a clockwork. What we have done is we have put our ABB Ability front end efforts on our new platform Salesforce.com and we are tracking in a rigorous way every single opportunity, every single lead, every single offer. And I'm really happy to report to you that today with that system, we already brag that about 45% of the incoming new orders are digitally-enabled orders. Orders where we sell digitally-enabled capabilities or offering solutions, products to our customers.

It's also amazing when you look at the development of the sales pipeline since April 2018, the customer contacts have doubled. And if you track it on a quarterly base, and I'll just give you the last quarter, since October 2018, that means the last 4, 5 months, we have increased the order pipeline by 20% in ABB Ability. So this is a great value proposition for our customers and it's a great opportunity for us to grow.

But with all the excitement, we also need to stay as humble and we need to appreciate what we have and what we don't have. ABB has a strong offering in industrial digitalization, but we don't have a world-class offering in the space of digital twin and PLM solutions. And that's the reason why we have decided and I'm very happy to announce this today that we will partner with Dassault Systèmes. Dassault Systèmes is the leader in PLM digital twin, CAT, CAE capabilities for industries all around the world. A very, very strong global player, a very strong company with unique capabilities in the 3D experience world of digital twins and software simulation.

And Bernard and myself, we met spring last year, we set down and say, what can we do together? We should do more together. We can complement each other. And we realized the combination of ABB as a strong leader for digital industries and Dassault Systèmes is something quite unique, where we are highly complementary and we can bring fantastic offering and additional value to our customers.

There is an unmatched capability between the 2 companies to bring end-to-end digital solutions. In this partnership, we cannot only simulate a broad arc in the operations. We can simulate with ABB RobotStudio, the robotics set up all the way, end-to-end from the design to the operation of the customer's operations. Initially, we are focusing on smart factories in the discrete space. Now we are ramping up in the smart building space and into the process industries to make sure that our customers all over the world can tap the value creation potential. And if we look here on this slide, you see it fits like a glove. We are highly complementary, we are basically not overlapping, we can work with each other, and we can create for tremendous value for our customers by integrating PLM with machine automation, by bringing robot simulation together with a 3D simulation of an entire operation and work that through as partners in a seamless way.

Just recently, we had a customer example. One of the global leading aircraft manufacturers in the world. Dassault and ABB teamed up and we demonstrated to this customer what an integrated solution between the digital twin world of Dassault, the robotization and industrial manufacturing and machine automation capabilities of ABB can do, and we have improved throughput time double-digit in terms of productivity for this customer. And the ones of you that are close to the aircraft industry, you know how much assets are deployed there. And if you improve the throughput time there significantly, this is something absolutely unique and you can 3D simulate the paint activities on an aircraft's wing and get the time in the paint job down significantly. This is real money and value creation for our customers.

So we remain long-term committed to drive continuously the quality of our portfolio but also to continuously drive innovation leadership. We have moved the company from mainly differentiating on copper and iron to differentiating in digitalization. We are moving from having reliable products to enabling autonomous operations with our capabilities. And set your watch, there's more to come in that space and ABB is uniquely positioned not only individually, but also with our ecosystem of partners.

So all this points to significant value creation potential. And let me talk you through what this means for me strategically. The new ABB will have better growth, strong secular drivers in the portfolio that we're offering, strong innovation opportunities through ABB Ability in our classic offering, more stability, less large orders that we had in the large-scale power infrastructure space, and more recurring revenue through seat base, renting out of seats, software subscriptions and solution subscriptions that we are selling. So real good quality of the overall portfolio. And naturally, in the next couple of years, supported also by the compelling shareholder value creation from the Power Grids separation through the $11 billion crystallized value served to our shareholders via $7.6 billion to $7.8 billion share buyback or similar mean to return the money in an expeditious way to our shareholders. In addition to that, our dividend, our dividend policy, which is basically like the airbag, the safety belt of value creation, that come in hell and high water, dividend is important and we put that as a part of our value package -- value creation package in front of you. This value creation and the ambitions that we have are articulated in the set of targets that we're giving ourselves.

With the new ABB, the likelihood that we hit all of our targets is higher. So we have clearly said, let's not change the group wide ambition too much. Let's change the likelihood that we hit the targets with the new setup that we have. And today, we're announcing the margin targets of our 4 businesses. And mind you, these margin targets includes the effect of putting indirect costs directly into the business and have them owned in the future in the business. That means the move on the corporate side down to about $300 million is included in the new target ambitions that you see in the 4 businesses. Timo will talk later on about it. We have done extensive benchmarking, and this is an ambitious set of targets in the setup that we will face in the future in ABB.

So if I wrap up, before I hand over to Timo on the financial perspective, the investment proposition of the new ABB is quite compelling. Attractive growth, stronger margins, optimized capital allocation, mind you, together with the value creation that comes out of the Power Grids divestiture, is a compelling opportunity and we want to put that in front of you.

Now with that said, it's important that you understand the financial mirror of what I just said, and Timo will now do that. Over to you.

Thank you. Thanks, Uli, and let me move to the financial mirror, then. So let's discuss the CFO's perspective on the value creation in the new ABB. We want to continue to move ABB towards better quality of revenue to drive profitable growth and improve capital efficiency. And we have certain principles on how we plan to do it. We want to be bigger by profit and free cash flow, not necessarily by revenue. And I think our planned BG exit is testament to that. We want to take a systematic long-term approach, and we want to drive high-performance, high integrity culture in line with our values. And this is where the ABB operating system common framework comes into play from the CFO perspective.

As Uli said, ABB operating system will define how we will do things in the new ABB. First, it will define what we do in the corporate; and second, it will define what will be done in the 4 businesses i.e. ABB operating system will define the boundaries within which the businesses in ABB can freely operate. And when these boundaries are few and clearly defined, businesses will have the entrepreneurial freedom to operate with the right clock speed focusing on delivering results. This leaves clear management for both corporate and the businesses.

So what will change? For example, after we discontinue the matrix, our businesses will take control of about $1.5 billion of cost, which was earlier allocated to them. After the change is complete, the allocated cost is planned to go down from about $1.8 billion to about $300 million.

At the group level, we will no longer have any supporting business functions in the matrix structure, neither centrally nor in the countries. At corporate level, ABB operating system will lead to a balanced approach on driving the right KPIs for execution. And again, from CFO perspective, this will include processes for financial planning, differentiated KPIs by business, portfolio management and capital allocation. And I will talk more about this framework with the coming slides.

As discussed earlier, we want to systematically move ABB towards better quality of revenue. We target more exposure to markets with strong secular growth drivers, with channel structure supporting higher margins and with business models benefiting from high ABB value add. And we do this systematically using our PIE model for penetration, innovation and expansion. In addition to PIE, we use portfolio management, partnerships like the one announced today with Dassault and ABB Technology Ventures to drive growth. In line with this framework, we have divested cables, both B&R, are in the process of exiting EPC business and Power Grids, just to name a few examples. And we also have some proof points. ABB's organic growth was 8% and organic revenue growth was 4% in 2018 in the new setup. We ended the year with an annual book-to-bill ratio of 1.05x, the highest annual number since 2014.

We also consistently drive for stickier revenue, for example, by higher service revenue and by new ABB-as-a-service business models. And my colleagues will talk about this more in the afternoon.

ABB continues to invest in organic growth using its PIE framework. For any technology company, a dollar of fixed cost investment should go either to R&D or sales investment whenever possible. You can see here that we have increased our R&D investment and we continue to target over 4% of revenue going to R&D, including ABB Ability. You also see that we have significantly reduced our G&A from '17 to '18, while increasing investment in sales. And this has been possible by tight management of functional costs like information systems, HR and so forth, but also on a very tight grip on discretionary spend. We intend to drive this trend going forward as well as part of the ABB operating system.

Let's then discuss ABB's cost base and cost execution. We are targeting sustainable cost reduction in 4 steps given the divestment of Power Grids and EPC business model exit. First, on run-rate basis, we expect to eliminate the vast majority of about USD 300 million of stranded costs by deal closing and a significant amount by end of 2019. Second, we are no longer expecting any orders or revenue in the noncore business going forward.

Noncore business had about $290 million negative impact on ABB's operating EBITA margin in 2018. For 2019, we expect this impact to be clearly lower. We expect to fully ramp down noncore business by the end of 2021. Third, we continue to drive the 3% to 5% running cost reduction to compensate for pricing pressure and cost inflation in the market. And fourth, with simplification of our business model, we target $500 million of cost savings medium-term on a net basis.

Let's then look at these cost components in a bit more detail. We continue to drive gross margin improvement, and also continue to target the 3% to 5% cost-out from cost of goods sold annually. Our key measures for these are: Dynamic pricing strategies, particularly in EP and Motion business; managing input costs very tightly with clear net cost-reduction targets; and driving quality and efficiency through Lean Six Sigma and focus on requested on-time delivery. With the ABB operating system simplification, central resources and quality and operations will move the businesses when we eliminate the matrix. This will allow our businesses to even better integrate and optimize end-to-end demand supply management.

Since our December '17 announcement, we have done further work on the $500 million net cost savings. Let me first describe what we mean by net savings as an example. So from '17 to '18, our total IP cost went down by USD 30 million. In other words, absolute costs was $30 million lower. This is -- this, however, does not always mean that the savings would automatically drop to bottom line as we need to also manage market pricing and invest into organic growth. We have, however, a very good grip on the levers and as said earlier, we expect the $500 million net cost savings to be a significant contributor to ABB to operate in its new operational EBITA margin target corridor of 13% to 16%.

And there's also a very important principle which Uli touched upon, the pull-down by business principle. When we discontinue the central and country functions, we will not push this to our businesses. Our businesses will [pool] or take costs and resources they want to have. The remainder will be restructured by respective functions through a job pool that prioritizes the recognition and redeployment of our talented employees. This way, businesses can fully focus on business execution.

On the $500 million cost savings we currently expect group functions and corporate level savings to be approximately $200 million and business level savings to be approximately $300 million. We also announced today as part of our results that we expect to have about $350 million of restructuring costs related to the program and approximately $150 million implementation costs, in line with our earlier expectations. These costs are expected to be below the line.

Let's then talk about execution time line. We expect to achieve $150 million to $200 million run rate savings by end of 2019 and the full $500 million of run rate savings during 2021. And naturally, we implement the program -- we implement the program, we continue to drive to as much further simplification and efficiency as possible.

An important part of ABB operating system will also be materially leaner corporate structure. Medium term, we target to reduce the corporate and other cost line item in our P&L to approximately $300 million. This will happen by stranded cost elimination, by exit from noncore business and by focusing corporate activities to only few areas, these are ABB Ability and artificial intelligence on R&D side, and central corporate processes such as finance, strategy and communications. All other activities will be in the businesses. To be clear, our target is to ramp down noncore activities by end of 2021, so there can still be some impact from noncore business during that year. And also, as stated in the appendix slides, we expect corporate and other costs to be approximately $800 million in 2019.

In the new setup, the medium term, we expect Electrification Products to operate in 15% to 19% operational EBITA corridor, Industrial Automation in 12% to 16%, Motion in 14% to 18%, and Robotics & Discrete Automation in 13% to 17%. Combining these medium-term target margin corridors with the new corporate cost run rate of approximately $300 million is well in line with the new medium-term ABB group target margin corridor of 13% to 16%.

I'll now summarize the P&L side of things before moving to portfolio and capital allocation. On the operational EBITA bridge, you can see that our 2018 starting point is 10.9%. As discussed earlier in the results presentation, this has a combined 250 basis point impact from stranded costs noncore business and GEIS integration. We will drive further performance improvement from our $500 million net savings program and from business performance optimization, including targeted improved operating leverage in our electrification and Motion businesses, in particular. Overall, we think we have the right levers to operate medium-term in our new 13% to 16% target margin range.

I will then talk a bit about how we manage our portfolio and how we allocate capital. Naturally, portfolio management is not new framework for ABB. The company has been using a portfolio management approach when shifting its center of gravity for many years. However, as part of ABB operating system, we are launching a modified framework. This framework is based on both strategic attractiveness of the business as well as our business performance.

This picture shows examples of our businesses mapped to this framework on an illustrative basis. Including the cable business, which we exited, and B&R which we have bought. Another example in the growth in leader category would be our robotics business. Naturally, we would like to have businesses where both market attractiveness is good, our ability to win is strong and they support the core. Or alternatively, if the market is mature, we have a very strong position to drive high profitability and cash generation. But it's clear that we also have businesses in review and transform categories. At the moment, we have approximately $3 billion of revenue in the review and transform categories under special improvement programs, including GEIS.

We expect meaningful margin improvement for ABB medium-term as we look to manage our portfolio and move such assets either out or to better place in our portfolio management framework. Also, we plan to move businesses in this matrix towards even more differentiated performance KPIs so that we further enhance and optimize our capital allocation.

Let me next talk a little bit about the inorganic side of portfolio management. We continue to have a clear criteria for value-adding acquisitions. We have clear financial hurdles, we look for good strategic and cultural fit as these are very important for long-term value creation, we have a predefined decision making framework and approval process and finally, we want to make sure we have good management capacity to integrate and drive rigorous follow-through of each acquisition business case.

We have also taken a look at acquisitions and divestiture track record during the last years. It is clear that there are learnings we can take in the speed of integration, in the way we execute integration as well as on carefully assessing market timing. However, when we look at GEIS and B&R, they are tracking well against the set targets, and the cables divestment was also a very successful transaction for ABB shareholders.

On capital efficiency, exiting Power Grids will have 2 impacts. First, on fixed assets, our CapEx will be proportionately lower after Power Grids exit as Power Grids is more capital intensive business than the ABB average. The same is true for net working capital as Power Grids has recently been using more net working capital compared to sales than other ABB businesses. So the overall Power Grids exit will be slightly positive to ABB ROCE. This is driven by proportionately lower CapEx and net working capital having a positive impact, partly balanced by negative impact due to the fact that Power Grids has proportionately less goodwill than ABB average.

Turning next to capital allocation. You can see our priorities remain unchanged and consistent with a strong record of cash generation. Our first priority for available cash is organic growth that achieves attractive returns on investment. Second, we are firmly committed to a policy of rising sustainable dividend. Third, we will continue to look at value-creating acquisitions in a disciplined way. Lastly, we look to return additional surplus cash to shareholders through the mechanism of buybacks, balancing this against other priorities. Our target capital structure includes our commitment to maintain a single A credit rating in the long term.

In the 2014/2018 period, we allocated approximately 60% of capital to shareholders through either dividends or buybacks. We intend to continue to deliver strong returns to our shareholders.

And finally, before I hand back to Uli, a couple of words on the year ahead. In the appendix, you can find the usual guidance framework for 2019 and next quarter across some of our key financial items as we said in our outlook statements in today's results press release. So macroeconomic signs are mixed in Europe and trending positively in the United States with growing -- growth expected to continue in China. The overall global market is growing with rising geopolitical uncertainties in various parts of the world.

Also, we are driving a [brick] transformation. Against this backdrop for 2019, we aim to continue revenue growth in this environment of rising uncertainties. We expect our operational EBITA margin to improve, aided by noncore improvement, stranded cost elimination, and our simplification progress -- program. GEIS integration will be a headwind for full year 2019. And we anticipate solid operating cash flow generation for the new ABB.

And with that, thanks for your attention. I'll hand back to Uli who will close on a group view.

Thank you very much, Timo. So Timo shared with you the financial perspective and the mirror of our strategy in numbers. You see there's a lot going on the one hand but on the other hand, there's also tremendous value creation potential.

Now how do we tap this and how will we deliver and what will be the focus this year? This year, we're going to do 2 things. On the one hand, we will run the company for continued profitable growth and on the other hand, we will manage the transformation in line with what I just shared with you. We will use our PIE approach to drive growth, we will deliver the value from our investments, and we will continue to focus on execution because as I said before, there's still room for improvement, and we will continue to focus that in a humble way. We will not lose out on the business-led collaboration opportunities in joint account management to drive profitable growth in ABB and continue to focus on it.

And on same time, we continue the separation journey of Power Grids. We will implement the simplification and as you have seen in Timo's presentation, which is quite fundamental, and we will shape up our new businesses and support them that they really go out in the market and are even more successful than they have been so far.

With that, I would like to stop the presentation and hand over to Jess to facilitate our Q&A session.

Thanks, Uli. So we will now have a short Q&A session for about 15 minutes. There will be chance later and all through the day to ask questions and when we wrap up at the end of the day. So we would like to ask in the interest of time for this session that everybody just limits themselves to one question and if you could please to a state your name and company before you ask your question. Thank you.

So we'll have the first question here from Martin in the front.

It's Martin from Citi. The first question is on, I'm sure you've done a benchmarking process on your margins as part of this and also we have the group margin target beforehand now we see the divisions. I think some people will be surprised that your motion targets is probably higher than people thought, but your robotics and discrete target is probably a little bit lower. Now I know that peers have quite wide ranges, a lot of mix effects in there and so forth, but if you at least talk a little bit about how you see those businesses and the targets relative to the peer group?

Yes, we had a bad outstanding, which would be one of the biggest surprises and we were very clear that the motion target and the motion -- actual performance and the robotics performance might be a surprise to the one or the other. On the motion side, Morten will later on, our new leader of the Motion business, will later on describe to you our business model and our way how we differentiate. We make really good money in this business by providing unique customer value. It is not a standout copper and iron business. It is a business where digital value proposition with ABB Ability to do remote condition monitoring, our global service network, true scale that we have, we are double the size of others, come together with a very strong domain expertise and deep understanding of what the customers really need. So we are really uniquely positioned and our unique technology with the most energy-efficient motors and drives, where very often when you buy this product, the payback time might be less than 6 months. It's a great business to be in and ABB is very strongly positioned. If you benchmark that, I would agree with you that the ambition there is significant. But it's built on our unique proposition and it's built on our historic track record of running this business together. Now if I go over to Robotics & Discrete Automation, mind you, there are 2 building blocks. There's B&R that came into ABB last year with about an 11% operating margin and there's Robotics where most of the competitors are, at the moment, struggling to have solid single digit margins. If you combine these 2 businesses with a significant growth, I think we see here a business where significant amount of monies are redeployed in innovation leadership. There is a reason why we are leading with YuMi. There's a reason why bottling companies all around the world choose B&R for automation because we continuously invest in innovation. And the specific pattern of success in both businesses has been put in when we decided the target margin range for these businesses. So that's the background of it. We naturally also benchmark. We did -- you can imagine also with our board, we do regular benchmarking. We just had a board meeting yesterday, we went through quite deep set of benchmarking. If you take the Motion piece, if you take the Robotics & Discrete Automation piece, we feel with that target margin range, combined with the exciting growth that we have delivered and are delivering, we are quite well positioned.

A quick comment. Just we need to take into account as well that taking corporate to $300 million will have a bit of an impact, so that's an important component. And then also, as Uli said, we will look to more differentiated KPIs. So if you look at Robotics & Discrete, we might have a little bit of more growth there and if you look at IA, we might have a little bit of more ROCE there going forward. So these are some of the things, what we are now working on moving forward so that we really drive best possible returns for our shareholders.

Okay. We have one at the back there.

It's James Moore from Redburn. Just a question on the future pricing pressure of the company. In the past, with Power Grids, being a more commoditized business, you've had a lot of pricing pressure. Now that we take that out of the corporate structure, one could argue that the pricing power of the company is improved. I guess that's reflected by the net savings line of the bridge. But when you look at that net savings over the last few years in the continuing group compared to the old group, can you help quantify or give us some flavor as to either the gross pricing pressure or the net pricing pressure and how it's improved by the change in structure of the company or whether it is or isn't?

I will start and then hand over to Timo. Our ambition is to truly differentiate through our customer value proposition and the 4 businesses that we are shaping for the future, we have the key to do so, in all 4 of them. When you go to a customer that runs a hospital and you have a continuous reliable electrification solution that is ahead of all the others, you can get paid for that and you get paid very well. If you combine it and Giampiero Frisio who sits -- where is Giampiero, who is running our business in that space in electrification, he is also running probably a world-class Lean Six Sigma operation down in Italy and in his sites all around the world to serve the customers. So the combination of true differentiation with a strong operational excellence is very good. I would agree with you that the commercial quality of the new ABB, excluding Power Grids, is enhanced through the move. And I would also clearly state that in the last couple of years, we have fundamentally changed the business model in quite a couple of areas to really be in a position where we are. I'll give you an example. We had, in 2008/'09, a strategy to sell the cheapest kilogram of robots. Today, we have a robot built for purpose that a solution defines the customer value and where we can partly harvest more customer value also in our commercial setup. So there is always price competition out there. But if you differentiate with a conscious choice on the business model, you might have the opportunity and that's what we are aiming for to still have good quality commercial profile. All right?

Yes, exactly. So as we spoke about the better quality of revenue, as Uli said, market channel and business model. But if you then dig to the numbers, so we had $31 million of the net cost savings in Q4, which was lower than we have had during some other quarters this year and this number is an absolute number. So earlier, it included some Power Grids impact as well. So we need to take that into account. And the second thing impacting here is that we were still riding the tail end of the WCP program this year and that came in a bit more front-end loaded because now we are really at the tail of that program so that's the main impact now on the short term.

Okay. Daniela in the front here.

Wanted to go back to the partnership with Dassault Systèmes and to sort of the rationale and the thought process you went for ending up with a partnership in comparison with, I guess, some of your competitors who either decide to fully own PLM or to just have equity investments, so just the rationale behind that. And I guess, related also to the partnership, you had your positioning on the portfolio versus your peers on your direct portfolio. Can you tell us sort of on you plus the partnership, where you stand, what's the pluses and the minus?

Yes, thank you very much for the question. You might remember when we launched Next Level in 2014, we said clearly, that partnerships will be one of the patterns of ABB going forward because we said we want to focus ourselves on positions of strength and we want to combine other people or other players' strength for unique customer value proposition. The partnership with Dassault is about 2 things: It's about customer value and making money. If you look in this space of soft -- industrial software at the moment and if you look at valuations, we would have needed to deploy a lot of money to get the same quality customer offering for our customers as we have now through the partnership. So we have made a conscious choice, and by the way, that's mutual on the Dassault side and our side, Dassault has a clear ambition to stay independent. If you understand their ownership structure and the family behind it, it's very clear, but they have the ambition to create tremendous value to customers. And that's what we're doing jointly. And we have basically figured out a triple business model where we sell through Dassault, Dassault sells through us and we sell jointly for certain customers and we are ramping that up at the moment. A unique element of this partnership also is the open standard that we both believe in. Both companies, Dassault and ABB, believe in open standard. We have been for decades in an open standard technology setup. Dassault does the same. If you take the combined capability and benchmark it against others, there is, at the moment, 3 players that are doing something combined between PLM, CAD, CAE and conventional industrial automation. There's an American one, there's a German one, there's now ABB. I would say the combination of the world market leader, which Dassault is, with the ABB, our strength positions us very well in the competitive environment. Our installed base, our strong capabilities as good and there's nobody else out there at the moment that combines robotics with PLM, automation and digitalization. So we're going to play this with a unique hand. And as I described before in the customer example that we have in North America in an aircraft plant, when you look at what we can do together by integrating, for example, the PLM, CAD, CAE solutions with our RobotStudio solutions to drive paint shop efficiency on aircraft painting is really mind-boggling. And I think we are very well positioned. We are humble enough to appreciate there are others out that are also competing. If I look at the market share gains that Dassault has demonstrated in the last 12, 18 months, I think we're betting on the right horse as a partner.

Okay. We take one from that side. Is it Ben that I can see there? Yes.

It's Ben Uglow from Morgan Stanley. I wanted to see if I could sneak in 2 quick questions. I wanted to pin Timo down on all of these stranded costs, legacy costs and so many costs. If I look at the margin impact, the dilution in 2018 is basically 250 basis points and you're doing a 10.9% margin. By 2020, is it correct for us to assume that all legacy noncore stranded costs and GEIS will basically be gone? So no comment here around savings or anything else, but all of those, let's call them one-off effects, should be eroded by 2020. And therefore, by my calculation, in theory, all else equal, we should be at a 13.4% underlying margin by 2020. So is that -- is my assumption there correct?

That's a good one.

So we go now first and then you had a second one as well, I would say, if you get a chance. Okay. So the answer to that is no because I actually said even in my prepared remarks that we expect to ramp down noncore business by end of 2021 and there could be still some impact from that. The answer on the stranded cost is yes, because that needs to be done by deal closing and GEIS follows the path, which we have described earlier. We expect to be back in the target margin corridor in electrification during 2020.

Could you please remind us what the residual noncore is in 2021?

That, I cannot comment at this point in time.

Is it significant or not?

As I said, I can't comment at this point in time.

Okay. And then very quick one for Ulrich. Nice chart there talking about acquisitions and you called out deliberately slow integration of Thomas & Betts. Why did you mention that? Why has integration been slow? And is that a factor right now in EP margin?

Look, when you do M&A, and we have done a lot, and you might remember when I came in as a CEO, we had a whole portfolio of acquisitions that they are done in a rapid pace and integration was at various stages of maturity. If only just to be honest and tell you what we faced, we have the good, the bad and the ugly when you do that. And Timo and I, Timo has not been alive as long as I have been but I have bruises all overall over my body learning what it takes to do a successful integration. We have done some wonderful integrations that I'm really proud of but we have also paid a hard price trying different approaches. We had a software integration approach with Mendix, which was a portfolio of different software activities where the no-touch integration approach failed and we did not create the value that we wanted. We had in Thomas & Betts a high level of respect for the very strong institution oriented in installed base, the relationships that we had there and therefore, we said let's be a little bit cautious on that one and we got caught on it. We did not deliver what we should have delivered in the full value-creation story. We have some others like now Baldor or B&R or what we're doing on the divestiture of cables, I think it was the right call it the right time done in the right way. And I think when you do this amount of different portfolio moves, it is important for you to understand that as on one hand, bad news, we didn't do it all right, but there's also good news, we can still fix it and yes, the Thomas & Betts innovation is definitely also an opportunity in the EP space to do even better.

Okay. We'll take one over here in this side of the room.

It's Alexander Virgo, Bank of America Merrill Lynch. Could you just talk a little bit about the incentives and KPIs that you're using to manage down for the business units, sort of division leaders to manage down those central costs. And perhaps, I think, if I listened to the media call correctly this morning, you talked about a hiring freeze? Maybe you can expand it a little bit more on the employee development with respect to that 15,000 FTEs?

Yes, thank you very much for your question. Let me first layout the principles, how we pay people today and how we used to do that. We used to have a socialistic approach where 70,000 people got paid on the same group scorecard in their STI. These times are over. We have changed the compensation system, and we have made it more performance-oriented. There's always 1/3 of the compensation is one level up and 2/3 of the compensation is direct line for the short-term incentive. This short-term incentive compensation contains financial elements but also, for example, at the moment, for 2019, in the scorecard, a transformation element for everybody in ABB where every line superior will charge how the person has contributed in the transformation, in the specific role that person has in the transformation, a business leader to get the right kind of pull momentum, getting the resources and getting the business operational, a functional leader supporting with the right guardrails for the future setup and in helping to get moved, a country manager getting paid on the pace and the support level that he provides -- he or she provides to the transformation on the country level. So we're making this a direct element not only of the performance setting but also of the compensation. And it's basically a team sport exercise where we're paying a granular way for a common objective that is brought down to individual accountabilities and responsibilities. And mind you, you have also seen the change in our long-term share-based compensation. It was changed towards a mix of TSR and EPS and it's relative to TSR. So if we do well, we get paid on that one. If we don't, we don't get paid on that element. So it's really a change -- a fundamental change in ABB's pay philosophy over the last couple of years, moving from an entitlement commonality driven approach to an individual performance approach that still has the right aspects of team management in the portfolio. Please?

Can I comment? Just on the functional cost, this is simply driven by one net number. So its functional cost owner has a number they need to hit and that, of course, we have to set that number in a fair way and in a way that it's possible thinking through the investment priorities and all that. But fundamentally, the system needs to be such that if you are a cost owner only, like I am in many areas, I just have a one number.

And on your employee question, I'm proud of the team. I'm really super proud of the team. If you look at all the people here in the room that are serving you, we announced the biggest change in the company's history just before Christmas and the people are doing a great job supporting it. They live their responsibility, we took a lot of time communicating and sharing why we are doing it and what everybody's individual role is and we are not done with that. We are continuously out there. I just go next week, and then the next 2.5 weeks, I will be going in Asia and in the U.S. being with the teams and getting out there. Timo will be going in China -- you will be in China, I will be in Hong Kong and then we go to different parts of the U.S. and do that, so it's really a team sport exercise. But I would say the employee morale and the employee commitments to be part of that one is amazing. They've also seen that with our decision to pause the external hiring and do an ABB-first approach, we do whatever is possible to give our people preference. We had a half-day meeting with the European Works Council, working through how we can engage that together as we have done previously on large-scale changes because this is not the first time that we are changing and we do this in a responsible way. If you look at there's about 15,000 people plus impacted. We hire about 10,000 people a year. I'm cautiously optimistic that a majority of the situations will be resolved in a very amicable way.

Okay. Thank you, Uli. I'm going to stop there at the moment. There will be more chance later in the day. Thank you for your patience on that.

So I need to now tell you what happens next. We are going to take a short 10-minute break and then we're going to start the afternoon sessions with the presentations from each of our 4 businesses. So we have split you into 4 groups. On your badge, you'll find a number, 1, 2, 3 or 4, which assigns you to a particular group. It would be quite important, please, that you stay with your group throughout the afternoon.

In the catering area, there will be members of the events team waiting, holding up a big placard with the number 1, 2, 3 or 4. So I need you to find the person that is holding up the same number that corresponds to the number on your badge and they will then lead you through the breakouts, which will each be about 40 minutes and they will go counterclockwise through our various areas for the business presentations but there will be people to lead you on the way.

When you get to the first breakout, you will find on your chair a headset. Could you please take that headset, keep it with you for the afternoon and take it with you to each session after the first one. So hopefully, all of that was clear and everything will go very smoothly. Enjoy the rest of the afternoon.