Earnings Call: Q2 2016

Jul 21, 2016

Ladies and gentlemen, good morning or good afternoon. Welcome to the ABB Q2 twenty sixteen Results Conference Call. I am Maria, the Chorus Call operator. I would like to remind you that all participants will be in listen only mode and the conference is being recorded. After the presentation, there will be a Q and A session. At this time, it's my pleasure to hand over to Ms. Alana Abrahamson, Head of Investor Relations. Please go ahead, madam. Thank you. Good afternoon, ladies and gentlemen, and thank you for joining us for ABB's Q2 2016 results call. With me today are ABB's President and CEO, Ulrich Biedhoefer and ABB's Chief Financial Officer, Erik Alsick. They will give a review of the Q2 results and an update on the execution of our next level strategy. The press release and analyst presentation was published at 7 am this morning and can be found on our website. This call is being webcast via our IR website as well as being recorded. Before we begin, I would like to draw your attention to the important notices on Slide 2 of our ABB presentation regarding Safe Harbor and our use of non GAAP measures. This conference call may include forward looking statements. These statements are based on the company's current expectations and certain assumptions and are therefore subject to certain risks and uncertainties. With that, I would now like to hand over to Uli. Thank you, Alana. Good afternoon, ladies and gentlemen, and welcome to our conference call. Let me start with the highlights of the quarter on Slide 3. We continued our solid progress on profitability, delivering double digit operational earnings per share growth for the quarter and year to date, even with revenues declining 2%. Operational EBITDA margin improved 100 basis points to 12.7%, but operational EBITDA absolute increased by 5%. We delivered margin increase for the 7th consecutive quarter. All divisions were within their target margin corridors, demonstrating that our white collar productivity program as well as our other cost and productivity measures are delivering significant results. Base orders remain steady. Total orders were 5% lower, reflecting the timing of large order awards and the longer deal cycles. Our cash performance was again very strong. Cash flow from operating activities was up approximately 80% to more than $1,000,000,000 Now let's consider our performance in the context of our 3 focus areas, profitable growth, relentless execution and business led collaboration on the next slide number 4. As mentioned, base orders were steady in the quarter amid persistent market headwinds. The global picture masks regional differences. And as you'll see on the next slide, what I show it shows that our pie formula for profitable growth is working. By consistently driving penetration, innovation and expansion in target markets, we are able to dampen the impact of strong market headwinds. We see this reflected in our NPS results, which yet again improved, which underscores our progress in making ABB a more market and customer focused company. In line with our plans, the strategic portfolio review of Power Grids is progressing well, and ABB will report on it at our Capital Markets Day in October 2016. On relentless execution, we continue to drive profitability with all of our divisions within their target margin corridors by the end of the second quarter. The double digit growth in operational earnings per share shows our execution programs are truly working. White color productivity delivered structural cost savings in all divisions and is now hitting the bottom line. A strong working capital management was one of the main reasons for the strong cash performance in the quarter. Finally, we strengthened our leadership team, appointing Sami Atiya, a highly talented and experienced leader with a strong industry and software background as Head of our Discrete and Automation and Motion division effective June 13. Turning to the regional picture on Slide 5. Europe was strong with base orders rising 7% and total orders up 2% in the quarter. Demand was driven mainly by construction and energy efficient solutions for sustainable transport. Base order demand was strong in Germany, Spain, Sweden and Denmark, but weak in the UK amid uncertainties around Brexit. The Americas were weaker due to lower investments in process industries. However, consumer industries held up. Total orders declined 5% with base orders basically stable. Brazil was a bright spot for base orders, which improved 24% on focused growth initiatives. U. S. Board based order demand showed some sequential improvement. However, large orders were very low. Demand in Asia, Middle East and Africa was mixed. Total orders were down 10% and base orders 6%. China was strong as ADB won orders of more than €300,000,000 to deliver equipment for 1.1 kilowatt 1100 kilowatt ultrahighvoltisdirectpowerlink. China overall grew double digit with steady base orders. India grew 15% and was strong in all end markets, excluding the process industries. However, these positives could not be offset the major decline in Saudi Arabia, where the demand was significantly impacted by the current uncertainties related to the oil and gas and infrastructure environment. Our base order performance overall demonstrates that our prior approach is helping us to deliver in the face of significant market headwinds and dampen the impact of those headwinds on ABB. With that, I'll hand over to Erik. Thank you, Uli. On Slide 6, you can see the divisional performance. Let me take you through some of the highlights. To start, in Electrification Products, operational EBITA margin improved approximately 80 basis points on additional cost savings and also some positive mix. Capacity adjustments to address the shift in demand were implemented swiftly during the quarter. In Discrete Automation and Motion, steady third party base order development could not be fully offset by the impact of the lower large orders. The implementation of the focused capacity adjustments and the productivity measures resulted in improved margin for the 2nd consecutive quarter, and the division reentered the margin target corridor. For the full year, we are aiming to be within the margin the target margin corridor, but it will remain challenging as we are still adjusting capacity. Process Automation continued to face significant market headwinds as reduced capital expenditure and cautious discretionary spending in Process Industries impacted large and base orders. Operational EBITA margin was basically stable as fully initiated cost and productivity savings largely offset lower volumes and reduced capacity utilization. In Power Grids, 3rd party base orders grew 7% and compensated for the lower large orders. The operational EBITA EBITA margin of 9% was significantly higher on improved volumes, productivity and cost savings. The ongoing step change and the white collar productivity programs are delivering results. This result includes additional project costs for the remediation of actions taken with regard to the cable components. Let us move to our operational EBITA bridge on Slide 7. In this challenging market, we achieved approximately $143,000,000 in net savings, which is comprised of our ongoing cost saving program, price pressure and our white collar productivity measures. As you can see, these savings are the main contributor to the bottom line improvements. The positive mix in Electrification Products as well as the higher service revenues helped operational EBITA. As well, these improvements more than offset any negative impacts from lower volume levels and project margins. As always, the other category consists of numerous smaller items like salary inflation, changes in corporate provisions, realized foreign exchange gains and losses, certain commodity supply chain costs as well as other smaller one offs. And as in the year earlier quarter, the ForEx translation had some negative impact, but less than in the prior quarters. All of these changes delivered the group operational EBITA margin operational EBITA of approximately SEK 1,106,000,000 and an operational EBITA margin of 12.7%, which is a full percentage point improvement. For 2016, we guided that the majority of the WCP restructuring costs would occur in Q2, and they are on track. We have booked €270,000,000 of WCP restructuring and €57,000,000 of WCP implementation costs in Q2. Let's now turn to Slide number 8, the capital management slide. We continue to improve our cash generation in the Q2, with cash flow from operating activities up by approximately 80% to SEK 1,082,000,000. The main contributor to this was our working capital improvement measures as well as timing of tax payments. We also implemented a continuous value chain improvement system in key operating units worldwide. As you saw in Q1 and now in Q2, our focus to have a more balanced cash generation throughout the year is working. Please remember for the second half of twenty sixteen that we will have further cash off payments for the WCP restructuring. Regarding our share buyback. In the second quarter, we purchased shares with a buyback value of approximately $780,000,000 And since the program was announced in September 2014, we have now purchased around 170,000,000 shares with an approximate value of $3,500,000,000 The buyback is a further demonstration of our commitment to drive sustainable value creation for our shareholders. Let me now hand back to Uli. Thank you, Erik. Before we move on to our strategy implementation, I would like to make one additional comment on ABB's capital allocation priorities. They remain unchanged. As you saw during the quarter, we remain disciplined when it comes to M and A, even to rumored M and A in the robotics space. With that, let's move on to Slide number 9. Stage 2 of our next level strategy launched in September 2015 aims to accelerate ABB's transformation by moving our businesses closer to our markets and driving growth as well as becoming leaner and more agile in developing our organization. On Slide 10, you can see some examples how we are driving organic growth through our framework of PIE, penetration, innovation and expansion. We delivered higher orders in all of the BRIC countries as well as stronger base orders in 3 of them, while China was stabilized on a steady level. Our penetration efforts to sell more of our existing offering to accessible customers where rewarded. Our innovations continue to strengthen our competitiveness and drive demand for our solutions in the quarter, especially as one example in robotics, the ABB has the largest installed base of more than 300,000 installed robots today worldwide. We launched a suite of IoTSP services called Connected Services to improve robot uptime and optimize systems performance as well as SafeMove 2, the latest generation of certified robot monitoring software. Connected services is an excellent example of how ABB is helping its customers realize the opportunities offered by the emerging Internet of Things, services and people, known as IoTSP, in a digitalized industry. And as a true highlight of this quarter, our YuMi robot won the most prestigious global industry innovation award in robotics. Through our expansion efforts, we gained access to the Japanese market for high voltage direct current, winning our first orders through our recently announced joint venture with Hitachi. The success paves the way for a new derisked HVDC business model for the Power Grids division. Turning to Slide 11. Our 1,000 day white collar productivity program is delivering structural savings in all divisions. After 5 66 days, we are well on track. Having realigned our divisional structure and taken out layers of management, we streamlined our group headquarters by more than 20% and consolidated it into 1 functional location from 4 previously. In addition, our 2 new global shared services centers are operational in Bangalore, India and Krakow in Poland, marking a very important step forward in the global consolidation of functions like finance and HR. Consequently, we are well on track to achieve the 2016 targeted white color productivity savings of €400,000,000 Let's turn to Slide 12 and look at progress on our 1,000 day working capital program, which Erik is leading, through which we aim to drive best in class capital performance throughout the value chain in inventory and unbilled receivables. Working capital has decreased approximately €1,100,000,000 since the end of June 2015, and as a percentage of revenues, is 150 basis points lower. We are on track to meet this target of freeing up at least €2,000,000,000 in cash by the end of 2017. Turning to Slide 13. A key ambition of our collaboration focus is to drive more productive and efficient collaboration across our divisions as well with our customers and partners. In the second quarter, our Electrification Products and DM, Discrete Automation and Motion divisions, worked closely together and won an order for energy efficient electrification and uptime improvement of a new greenfield car factory in Mexico belonging to Renault Nissan and Daimler. This solution reduces As I As I already mentioned, we strengthened our leadership team with the appointment of Sami Atiyah to the Executive Committee as President of the Discrete Automation and Motion division effective June 13. Sami is a great colleague already and a highly talented, experienced leader with a strong background in product, software and services in Europe, the Middle East and the U. S, and he will play a key role in driving our offerings in DM for the Internet of Things services and people in a digitalized industry. Now let me summarize the quarter on Slide 14. We delivered continued solid progress on profitability. Our execution programs are working. White collar productivity is hitting the bottom line and cash flow has truly moved to the next level. Base orders are steady due to pie, but market headwinds persist. Moving to the outlook. In this environment of heightened uncertainty, we expect the market headwinds to continue. We will remain focused on executing our next level strategy, driving our growth initiatives and our productivity and working capital programs relentlessly. We will host our Capital Markets Day on October 4 here in Zurich, then we will report on the further progress of our next level strategy, including the strategic review of our Power Grades division. On Slide 15, let me close by reminding you what we really stand for. ABB is a pioneering technology leader with strong positions in attractive markets. We have a crystal clear transformation agenda to drive earnings per share and cash return on invested capital, which we are implementing with rigor, discipline and perseverance. We remain committed to delivering attractive returns to all of our shareholders. As demonstrated again in the second quarter, our next level strategy is delivering positive results, and we will continue to accelerate sustainable value creation. With that, I'd like to conclude my remarks and thank you all for your attention. Let's open up the line now for questions. I would like to remind everyone that maximum two questions, so that we would allow more people to be able to ask questions to Uli and Erik. So with that, may I hand it over to the operator? Our first question comes from Jeff Sprague, Vertical Research Partners. Please go ahead. Thank you. Good morning or good afternoon, everyone. Question, just thinking about margins, the margin execution is quite solid given the lack of demand support that you're getting, lack of help you're getting from the end markets. Could you help us think about when revenues do improve, your confidence level and kind of the incremental margins on revenue growth? Is there spending that may have to work its way back into the equation, whether it's growth related spending or support spending or anything like that. Could you please give us some perspective on that, please? Yeah. Good afternoon, Jeff, and thanks for attending the call. When we look at the margin situation at the moment, I think the team did a really good job altogether because if you take the revenue that we have delivered this quarter, it's an interesting situation because we have some of our most profitable segments contracting massively and we have some growing segments that might not have the same margin dampening that contraction. And despite that negative effect, the team has delivered some margin accretion, which is substantial, 100 basis points in the quarter. So if you look going forward, first, if the overall, if revenue comes back and the growth comes back, you can expect a drop down effect on the margin over time. As you have seen, we have been very, very disciplined on our spending on all discretionary elements. The white color productivity program is driving productivity, for example, in sales, and you mentioned sales explicitly. We have made significant progress in that field already, and we will make more progress in the future to drive productivity. So additional growth will not be eaten up and will not require huge amounts of spending to realize it. So there should be a is an expectation. It would be naturally best if our most profitable markets come back in a significant way because then the negative mix effect that we have had to compensate so far this year would then be reverted and help us with a margin acceleration. So look what we do for this year, the market headwinds are continuing. We are right into heavy weathersailing in many of our businesses. We have been very disciplined on the cost and the cash side year to date. We are navigating ABB exactly that way. In some areas, we are investing quite significantly. If you take robotics, if you take food and beverage, if you take India, we are definitely investing to realize the growth opportunities out there. And in some other areas, we're driving massive cost reduction and restructuring in line with the segments. Our pie approach and our heat maps give us a much more granular understanding of the different segments. So I think I would say overall, we fly on-site, but the site is much sharper focused than in the past. And then just a quick follow-up on growth. Obviously, you have a very different mix than, say, Halliburton, but Halliburton yesterday, Dover today, all trying to call the bottom here on energy related CapEx. What is your view on that? Do you see signs of bottoming? How do you see that playing out in your portfolio over the balance of the year? Yes, look, given current volatilities and the uncertainty of the market, I'm very careful calling any improvements in any market at the moment. Altogether, we see on the oil and gas side, the first signals that customers might be thinking about some CapEx investments in the future again. It's too early to call it a tender activity. It's too early to call it a swing in the market. So yes, there are some signals, but I would be cautious calling that too early a change in the direction in the market. Thank you. You're welcome, Jeff. Thanks, Geoff. Next question, please. Our next question comes from Martin Wilkie from Citi. Please go ahead. Yes, thank you. It's Martin from Citi. The first question was really on the cost savings and the white collar productivity. When we look at your bridge, it looks like your cost savings were quite a bit ahead of the run rate that we might expect in the full year. But just wanted to understand, was it price versus cost elements a lot better? Was it white collar productivity delivering sooner than you expected? Or just if you could give us a bit more color as to what we should expect for that plan and if you could just give us the details for the white collar productivity savings specifically that would be very helpful as well. Look, I will make a couple of remarks on white color and then hand Eric over to Eric on the bridge. The white color program is really a success. We are taking out massively cost. We are becoming more agile, faster in many, many areas. And we have taken some very, very decisive actions. It's very important that we are not only looking at the last cost chunks, but we also look at the signaling effect of certain changes. So for example, here in the headquarter in Zurich, we have consolidated 4 buildings into 1. Headquarter staff is down by more than 20%, and that's a strong signal to everybody around the world that we are sweeping the steps not only outside, but we're also sweeping that here in the headquarter. If you take the 3 dimensions that we're working on, on the management complexity, as you know, we have taken out whole lines of management that we had previously. I have today 4 divisions and 3 regions. When I started, we had 5 divisions ahead of global market in 8 regions. So I needed 14 people to run the world, and today, I need 7. And that's something that has been now multiplied across all the divisions in the regions in a really positive way. The second piece is around the business functions. And if you take, for example, the rollout of salesforce.com, we have it rolled out now to more than 80 countries. At the moment, it's more than a cost than a benefit because we are still in the ramp up process here. But we see in the countries that are further advanced in implementation, we see significant productivity improvements. So this is one that will really fully hit us a little bit later in the future. And then look at the Superb Services. At the moment, we have basically start double staffing because we're staffing up Bangalore in India and in India and Cracow in Poland. And at the same time, we still have the resources in the existing functions. So when they are fully executed and this move is fully done, you can expect an additional impact. So overall, white collar is progressing very well. Your catch is good. We are really on track. We might be even a little bit ahead on track. But in this market conditions, trust me, we're really firing on all cylinders to get good momentum going. With that, I hand over to Erik to put that in the context of the overall EBIT bridge. Thank you, Ole. Yes. So Martin, in this SEK 143,000,000 plus are the price effects, the traditional cost saving program of 3% to 5% of cost of sales as well as the WCP savings. And it's clear that the reason that we are way ahead on the positive side on the net is clearly a big contribution from the WCP savings. The other savings are also coming well along, but it's a big contribution from the WCP saving in this quarter. And if I could take my second question on the Go ahead, Martin. Sorry, yes. Just on the second question was really on the corporate costs and really for the Q2. You've come in probably below the run rate that you might infer for your annual guidance. Just to get some sort of sense, does that mean that we can expect corporate costs for the full year to be lower than you've previously talked about? Or is there sort of a different weighting this year that we might expect to be come back in the second half? Yes. I take that one, Martin. The second quarter was a low quarter, a good quarter. Obviously, some of the cost savings on white collar also goes to the corporate side. We have already talked about SEK 400,000,000, SEK 450,000,000 of corporate costs on operational EBITA level. And I would say, as we see it today, we would rather be around SEK 400,000,000, maybe even somewhat below SEK 400,000,000 Thank you, Marc. Thank you very much. Next question, please. Next question comes from Mark Thumann, Bank of America Merrill Lynch. Please go ahead. Thank you. Good afternoon, Uli, Eric and Alana. Just ask two questions on demand, please. Firstly, this quarter was characterized by lower large orders. I wonder if you could comment on the pipeline and visibility you have on that, both say on the power side and, I guess, on the energy side, on the longer cycle side? And the second question, following on from, I think, Jeff's oil and gas question, are you seeing any difference in between upstream and downstream trends, especially in the light of the Saudi weakness, base order weakness and what's going on there? And also mining, oiling, you seem to be seeing signs of bottoming. What about the mining? Is that in the same situation? Thank you. Yes. Good afternoon, Marc. Thanks for your question. Look, let me run you through the large order situation that we have at the moment. It's really a massive structural differences between the different businesses. On in the Q2, you have seen that basically in Power Grids and in Process Automation, base orders relative to the large orders were better. And we have had a quarter that was very low overall on the large orders. Now on Power Grids, the tender pipeline is healthy. The market out there is active, Connecting renewables over long distances into the power grid is a very attractive value proposition that ABB has. And I would say on that one, it's a temporary effect in the quarter more than it is a structural effect longer term. On the Process Automation side, there is a massive contraction on large orders compared to the previous year. Remember last year, we had, for example, still quite a bit of marine large order in there for oil and gas supply vessels, and that market basically has dried out this year. So there is a structural element that will be there for quite a while on the process automation side, especially related to the oil and gas activities, and we have to say that as it is. Going forward, in terms of bottoming out, I would be very, very cautious calling that too early, but we see a different pattern on Upstream and Downstream. On Upstream, it remains a contracted spending pattern. Even on the OpEx side, there's very, very timid and cautious spending. On the downstream side, we see some signals for some tenders coming in, and there is some activity out there for larger projects that might come in the pipeline. Would I call it overall a changing market yet? I would be very cautious doing so. Now the themes that still sell in that business is energy efficiency and productivity, uptime improvement to make sure that on a relative gateways against your competitors, even with low revenue per barrel, you have a factor cost advantage in this business. You asked about Saudi. Look, Saudi was a particularly weak quarter in the second quarter. You know what's going on in terms of the changes on a government level. You have seen what's happening on the oil and gas side. That is something that we are watching very, very carefully. Our presence in Saudi is strong. We got a good team down there, but there is definitely a very weak market activity in that part of the world at the moment. Last, you asked about the mining piece. Mining is remained soft. Whether the turn of the software is there already or not, I think in the view of current market uncertainties, volatility and the most recent events that destabilized the world even further, I would be very cautious calling that market turn already. Thank you, Marc. Thank you very much, Uli. You're welcome. Next question, please. Next question comes from James Stettler from Barclays. Please go ahead. Yes, thank you and good afternoon all. On Power Grids, the margin was 9% that included some charges on Dolwin 2. Can you talk about how we should think about the margin going forward as you exit, as complete the exit from all those legacy contracts, will there be an additional benefit on that? And then secondly, on a discrete automation motion, with the change in management there, will there be any strategic changes in the division? Thank you. Good afternoon, James, and thanks for your question. Jarlouk, on Power Grids, I think Claudio and his team are doing a wonderful job improving the profitability, the business model, the underlying quality and especially also the risk profile of this division. You have seen a significant margin increase again in this quarter. And yes, you're right, that includes some charges and some costs that we had on the cable connectors for the 320 kV cable system that leads into Dolwin. And that is something when you have technology installations that can happen. We rather catch it in the testing phase and fix it. So what we are doing is we are fixing that situation and take the cost. The stability of the margin and improvement of the margin shows the underlying quality improvement, Power Grids. And absolutely, should you see over the next quarters years a further margin improvement. That's not only in terms of having a different quality tender backlog, It's also the business model. As you have seen, we announced this quarter the first orders in our Japanese joint venture. That's a completely different business model from a risk profile than we had before on HVDC, partnering with Hitachi. So I think that the hard work of Claudio is starting to pay off in his team, and we see the results. And hopefully, over the time, in the future, there's more to come. On DM, Sami is an incredibly gifted leader with a strong background in artificial intelligence and robotics. In fact, we are so proud about our 2 arm Yumi robot. He did a PhD study on a 6 arm robot. So let's see what impact he will have on that business altogether. But I think he brings a strong background on solutions, on service and on software. So I wouldn't expect a fundamental radical shift, but I would expect a very strong shift in line with our overall aspiration to see shift the center of gravity of ABB. We will continue to push harder on digital based solutions. We will drive software differentiation. We will drive service even more. And altogether, I'm highly optimistic that Sami, together with his well proven leadership team, will get DEM back on an even better momentum. The division has, despite the leadership change this quarter now, achieved the lower end of the target margin corridor. This is nothing to be too proud about, but it's good to be back in. If you look at the sequential improvements the last couple of quarters, we are definitely in that business out of the trough, and we are working very, very hard to deliver further improvements. Thank you, James. Thank you. Next question, please. Next question comes from Andreas Willey, JPMorgan. Please go ahead. Good afternoon, Uli, Erik and Alana. My first question is on the second half organic sales outlook. I think you got asked in the press call this morning about it, whether there's still an expectation of a return to positive organic growth in the second half, but then you said something is like 2 uncertain, maybe you could just clarify that message. And the second on the strong profitability in Process Automation given the top line, maybe you could give us some indication on how mix helps there and how profitability within service and within equipment is developing, so we better understand kind of the underlying trends there? Thank you very much. Yes. Look, good afternoon, Andreas. Thank you very much for your questions. If you take the market that we are facing at the moment and the events of the last couple of days weeks, look, Europe, we had the last couple of weeks multiple times crisis team that we had to set up within minutes. If you take Turkey, if you take France, very, very sad developments that we really regret very deeply. In such a world where you have, in addition, Brexit, you have in the U. S. The elections coming, which typically slows down then certain investment appetite. I would be very cautious to give any predictions for the second half of the year in detail. One thing is very clear, it is our ambition to bring ABB back to growth. And naturally, we have we are working very, very hard to realize that ambition as fast as possible. Whether it's in the second half of the year or later, is too early to call given the current uncertainties and the volatility that we face. Now if I move over to PA, I think Peter is a leader that has a very good grip on the future outlook, on his backlog and the understanding of his cost base. When he saw certain parts of his business portfolio turning negative on the orders, he swiftly acted on the cost base. And the good news is in PA, many, many of the activities in PA have quite some lead time. So if you are a responsible leader and you have good visibility on that, you can adjust your cost base in a significant way. Peter is probably of all the divisions the one who is furthest advanced in implementing white collar across his management structures. He has taken massive cost out in a very rigorous and disciplined way and at the same time making the division even more market focused. So that part is going extremely well. The service business is 1 in PA that has a significant share of the division overall, as you well know, Andreas. And on that one, we have seen a short term massive contraction, growth in a difficult market or environment, and PA definitely benefited from that one in the quarter. Now on the equipment, we have never stopped R and D. And PA is bringing out some very, very attractive new products. If you take, for example, the new generation of RC PODs, fantastic energy efficiency, they are being sold into the cruise ship sector. And when you look at the fact that the And then you have attractive technology, which is the newest, latest technology leading edge in terms of productivity and energy efficiency, you get paid on it. So altogether, the massive contraction has been dampened. On the one hand, there's some order pattern that was running against, mainly the oil and gas and mining contraction. And then on the cost side, responsible cost management and good quality attractive new products is the mix that we are driving to compensate the market headwinds that we are facing. Thank you, Andreas. Next question please. Next question comes from Ben Uglow from Morgan Stanley. Please go ahead. Good afternoon, Ulrik, Erik and Alana. I had a couple. First of all, again, we're going through the different divisional margins. Can you just give us more feeling or color around the electrification products? Nice margin expansion there effectively on flat revenues. So, what exactly is driving that and how should we think about it in the second half? That was the first question. Secondly, Ulrik, can you give us a sense of what's going on in China at the moment between your various businesses? How do you see the kind of the underlying trend in low voltage versus discrete automation and what we're seeing in power at the moment? Thank you. So, Ben, let me get started. First of all, good afternoon. Let me get started with the EP development. Look, I think Tarak and his team are doing a great job. The margin is up despite pretty soft revenue is down on comparable base, minus 1. And that's something that we have to appreciate and have really to give some credit to. Now in EP, it's a similar story as I just told you on the PA side, on the equipment side. There is good new product coming out. If you take our eKiksenrad Vision breaker that has additional functionality, If you look at building automation and home automation range that Tarak has, which is growing and is very, very attractive to our customers. So how to get innovation and new fresh technology for our customers and distribution partners is important driver there. The second driver, I would say, is a front end distribution and sales efficiency. We are bringing you might remember, 1st of January, we brought together medium voltage and low voltage under one roof in electrification, and we are only seeing the start of the efficiency gains and the fantastic collaboration opportunities that we have on the channel side between medium voltage and low voltage, especially towards the industry. And there's tremendous improvement opportunities ahead of us and Tarak is managing them in a very, very responsible way. And also he has done his homework on white color. Tarak has taken out management complexity in the division. He has changed the business model in terms of who runs supply, who runs demand. And if that simplifies the division in a remarkable way, He has more hands at the customer than ever before. So altogether, that's probably the key drivers on the margin development in EP. Now let me move over to China. Look, China was a big area of concern for quite a while. We had contraction, we had reductions. And this quarter, I'm really happy that we have total orders which are up 18% and base orders, which are basically have steadied out and are flat now in a still challenging market environment. China is still going through a transition period from an investment or consumption driven economy. But I look at China like a continent. And if you go to the different parts of this continent, if you go to the Hebei province, for example, I was very recently in Wuhan. And in Wuhan, you see as many grains as you used to see in the Middle East. The province which has the GDP like Poland is growing at 9%. So there is growth out there. We just have to find it. And Chunyan Gu and his team are doing a tremendous job in reallocating resources. I call it the Eastern Banana along the West Coast, east of at the moment. That's not going as strong as it used to be. But there are many parts of China which are progressing quite well. Now if I run you through the different divisions, EP is still facing some challenges on the spending on the process industry side, on the residential side because the trend is down in China in this quarter. If you look at DM, basically, robots is strong and the rest of the divisions, especially driven by the process industry, is a tough one, and we need to face that. If I take Process Automation, I talked about the Marine part of Process Automation, which is basically the only one which is up, and the rest is really down to a very deep to deep, weak domestic demand. There are still over capacities in metals, in cement, in pulp and paper. And then if you move over to Power Grids, the China base orders have grown double digit. And we won a €300,000,000 large order for HVDC in China from State Grid. And when you look what that is, it's again an elementation of our fantastic technology. It's a 1100 kV system that has never been done before. It has more capacity. It has higher reliability and lower losses than any other technology in this field. And actually, when you have that, you get paid for it and the customer takes it. So on the infrastructure utility grid side, China is still solid and we are extremely well positioned with our leading edge technology. On the process industry side, it's soft. On the consumer driven side, like auto, there is growth in the 3C side. So that's a little bit of granularity on China, Ben. Thanks, Ben. That's really helpful. Can I just one quick follow-up? On the pipeline? Ben, we have a long list of people, I'm sorry. Okay. Apologies. I will get back in the box. Okay. Thank you. Next question, please. Next question comes from William Mackie, Kepler Cheuvreux. Please go ahead. Yes. Good afternoon, everyone. Thank you for taking the questions. The first, if I could come back to understanding a bit more of the moving parts within Discrete Automation and Motion. Specifically, you've highlighted the jewel of the restructuring to implement the changes underway in the business and yet we haven't seen much margin expansion for the division. So could you perhaps throw a bit more light on how the power conversion business is developing? And also what lies ahead for us within the motors and generators business unit? That's the first area. And then if I come back to the bridge, is it possible for you to explain why given the benefits of Power Grids project execution that we've still seen a negative drag on the project's effect within the bridge on the for the group EBIT? Thank you very much. So I'll let the fun part on bridge will be answered by Eric and I'll start on the DEM side. Look, if you take the EM, it's a pretty broad portfolio. And let me go through business by business to help you understand what's going on. The robotics business is going well. So we are happy. We are pushing that very strongly. We have fantastic technology coming out. When you win the Global Innovation Awards, when you get a lot of customer attention even from new segments, you know that you're well positioned. We should not be arrogant. And we are putting a lot of investment to make sure that we are really driving growth in this business in line and ahead of the market development. Our ambition is very clearly to further take share in this growing market in the robotics field. Let me talk about motors and drives, let me remind you, ABB on the motors and drive side is very, very strong in continuous motion actuation. That means any continuous flow out in industry is where we are particularly strong. And that's the area of mining, of oil and gas, of pulp and paper, which is significantly impacted by the market at the moment. So therefore, that was the main area of restructuring. If you just look at one example, the Baldor footprint in the U. S. Has been significantly restructured following the weakness in the market. When you take customers like Joy, who this morning got taken over by Comazzo, they were down significantly on their order intake. And naturally, we need to align resources with that. And that's something that we are doing in a responsible way and we take the restructuring that is needed to go through. The one thing that we misjudged last year, now let me just repeat that, was really the service contraction. We would have never thought that the service activity in DM contracts so much, especially in the oil and gas side. That happened. We were slow in addressing it, but now it's fixed and we get back to the margin corridor in that field. Now if you take the power conversion piece, there's the solar piece in, you see the solar there. And our sustainable transport solutions in rail are very strong. We have a high level of productivity and energy efficiency in our solutions, so the customer demand is there. You also have excitation and rectifier solutions in that field. And naturally, that's something that's quite weak at the moment. Altogether, I would say robotics in DM, robotics is up. Our motors and drives challenged by the process industry. And in power conversion, it's truly a mixed bag. And with that, I turn over to Erik to answer your question on the bridge side. Yes. On the project margins in the bridge, which is a bit negative, as you have seen, in the bridge includes obviously positive effects from projects that are going better. It includes negative effects of other projects that are going not as good as expected or worse than last year. But of course, this item includes the issues with the cable joints as we have alluded to earlier today. Thank you. Next question please. Next question comes from James Moore from Redburn. Please go ahead. Yes, good afternoon everyone. I have a couple. Firstly, could I ask, if you strip out the WCP, was the net of the normal 3 to 5 versus price similar, better or worse than we were last quarter? And so within that, has pure price changed at all? And my second question surrounds your comments about the pie heat maps. You talk about taking share to dampen end market headwinds. I wonder if you could say across the 4 businesses where you're taking the most market share by product or by region or whether there are any pockets of share loss? Yes. James, thank you very much for your question. Look, on the white color versus the regular cost, we are not disclosing the details of that mix. But as you have the €400,000,000 commitment on white color that we have made And as you have heard that we are very well on track, you can probably make your own calculation in that context of it. Now if you go through the pie, let me go through on the one hand by business, but on the other hand also by region. The region that is most successful, there are 2 places in the world where we have most successful in implementing that, and the management teams are probably furthest advanced in using Pie. The one is Europe and the other one is China. So if you take the European piece and if you look at our growth pattern there, then we go through we went through country by country. And we had, for example, parts of Germany where we particularly were weak in the past in terms of our setup. We realized that we had given the market away too much to some of our competitors, And we have invested now in the appropriate resources to gain market share across the, for example, the DMPs, for example, the low voltage piece to make really sure we are driving that in an active way. If you go further up, if you go to Finland, we have had a very, very good success in data centers. You might remember this is a country where a lot of data center activities at the moment, and we are focused strongly on that, and we have a very strong development in taking share in that part of the European economy. So altogether, I would say the European, Donald Juker with his country managers and his local division and BU managers, they're really crunching the growth machine and doing a wonderful job in beating the market. If you look at the order development in Europe, especially the base order development in Europe, I think that shows very clearly that we are taking share in this field. Then if I go over to China, Xun Yang Gu and his team are really a role model how you drive it. The first was the geographic segmentation. We realized that there are many 1,000,000 cities, 1,000,000 people cities of in China, especially in the mid and the west, where ABB was totally underrepresented. So we reallocated resources from areas where we usually would have restructured them into that part and made sure we give that part of the market more attention. Our efforts in food and beverage around the world are paying off. We have a dedicated team on that. We have hired the Managing Director of a food and beverage company at the end of last year. We made him in charge of our food and beverage program across all of ABB, and he is basically driving the heat map and the activities around food and beverage. And here, let me just explain you a very concrete couple of elements. The one is making sure we take more of the existing portfolio to existing customers, increasing the share of wallet of customers. We had many, many customers in food and beverage where we basically had 1 BU active, and we are doing more on that one. The second piece is really around the innovation side and thinking through. If you go to a Kellogg's mostly plant, for example, or Kellogg's cornflakes plant, you need washdown equipment for the changeover in the plant. And not all of our equipment was suited to be used in a wet condition in a changeover where you basically hose down the whole line on a changeover. So we have invested in R and D and we have invested in getting the right product out to participate in the market in that way. In the 3rd part on the expansion side, look, food and beverage is a classic expansion element. But I can tell you, if you look at the market of packaged food and how it's growing in India, at the market of packaged food and how it's growing in China, it's tremendous. The rice sacks are disappearing and more smaller and smaller packaging sizes are coming, and it's a tremendous opportunity for us to do more. So as you can hear from my comments, we drive this not only on a global corporate level on overall segmentation. We have broken down really on a credit or local market understanding on all the different industry. We are quite detailed and we work on that and that's definitely a good story. We are not perfect on it yet. We still have countries which are not as far advanced in rolling that out and you will see continued efforts around it. We will have time for 2 more sets of questions. Thanks so much. Thanks, James. Next question comes from Andre Kukhnin from Credit Suisse. Please go ahead. Firstly, can I just ask more specifically on pricing, how that developed in Q2 and whether that was much different to Q1? And that's your question? Okay. Then I hand over straight to Erik. Good. So Andre, the price situation is obviously still with some price pressure as we have experienced for quite a long time in the markets we are in. But I would say the level of price change is not changing that much now between the recent quarters. Got it. And secondly, you've been very clear on your appetite to counter bid for midyear, but could you comment on any potential implications of what that media cuckoo, sorry, on particular implications on what that combination may mean for your business locally in China and in Europe? Yes, look, if you look at that situation, we have a clear acquisition pattern. We want to buy in situations that has a good industrial logic. We want to make sure when we do deals, we create significant value for our shareholders. And we also want to make sure that the integration complexity is not too big and there's a natural good fit. And we applied it on any situation. We have also applied it in the context of that deal, and you see the consequences of it. The situation that the combination of these two players is an interesting one. Look, we are in China since many, many years. We are the leading robotics company in that field. We have great technology. We have a full blown local value chain with local R and D, with local manufacturing, with local sales and distribution. We have invested strongly on the engineering side and the application center side. So I would say we are positioned strongly. And if I look at our combination, there is no significant short term value coming out of that for Europe. And in China, since ABB has 20,000 people and a strong footprint in China, we will face the competition in a well prepared way. Thank you. Thank you. Next last question please. Our last question comes from Guillermo Peigneux from UBS. Please go ahead sir. Hi, good afternoon. Guillermo Pinha from UBS. Just maybe a follow-up on the savings and more the pace going forward, very strong delivery in Q2. But I was wondering that if we stick to the previous plans, I guess, the momentum on the savings is actually far from its peak. And I was wondering whether we should see actually this contribution to increase further throughout 2016 and the beginning of 'seventeen even? Yes, look good, Evan. I think on tough market environment that we are facing at the moment, it's very, very important that you are extremely disciplined in cost and cash and that you make sure you take all the opportunities that you have on the cost optimization, productivity improvement side as swiftly as possible. You might remember when we launched our next level strategy, we confirmed the EBITDA margin ambition over the cycle. And yes, we have moved a little bit now, we are 100 basis points up, but it's very clear that our ambition is to deliver further margin accretion over the years to come in our overall effort to improve this value creation in ABB. If you take the overall cost out on supply chain and quality and operation excellence, the 3% to 5% ambition stays unchanged, and we will deliver on that one this year. If you take the white color products, EVDPs, we are very well on track to deliver at least the €400,000,000 this year. So ABB altogether is becoming leaner and lighter. And the good news is you don't see that only on the cost side. You see it also on the agility side. You see that amount of time that we are spending with customers. Our NPS score this quarter is up in a significant way. And one reason of that is also that we have, for example, salespeople spending even more time with the customers. So your assumption to expect further accretion is correct. Let's see how it comes at what pace, and we are not giving any specific guidance on that one. Thank you, Guillermo. And with that, we would like to conclude our Q2 results call. Let me remind you again that we have our Capital Markets Day here in Zurich on October 4, and we welcome you there. Thanks again. Thank you very much. Thank you. Ladies and gentlemen, the conference is now over. Thank you for choosing Chorus Call and