Ladies and gentlemen, good morning or good afternoon. Welcome to the ABB fourth quarter and full year 2015 results analyst and investor conference call. I am Maria, the Chorus Call operator. I would like to remind you that all participants will be in listen only mode, and the conference is being recorded. After the presentation, there'll be a Q&A session. You can register for questions at any time by pressing star and one on your telephone. Should you need assistance, please press star and zero to connect to an operator. At this time, it's my pleasure to hand over to Mrs. Alena Abramson, Head of Investor Relations. Please go ahead, madam.
Good afternoon, ladies and gentlemen, welcome to ABB's fourth quarter and full year 2015 results call. The press release and analyst presentation were published this morning at 7:00 A.M., and can be found on our IR website. This call is being webcast via our IR website, as well as being recorded. With me today are ABB's President and CEO, Ulrich Spiesshofer, and ABB's Chief Financial Officer, Eric Elzvik. They will give a review of the Q4 results, an update on the execution of our Next Level strategy, and present the outlook for 2016. Before we begin, I would like to draw your attention to the important notices page regarding Safe Harbor and our use of non-GAAP measures on page two of the ABB presentation. This conference call will 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. I would now like to hand over to Uli.
Thank you, Alena. Good afternoon, ladies and gentlemen, welcome. Before I start to go into the details of the fourth quarter, let me summarize 2015 in a couple of points. In 2015, we faced challenging markets. However, we continued to execute our Next Level strategy by taking decisive actions to drive profitable growth in the segments where they are possible. We improved our customer focus and simplified the organization to become more market-oriented. We truly accelerated our productivity improvements and cost reduction measures and delivered solid margin accretion. Driving the Power Systems step change program was a key priority and have brought the division back into the target margin corridor in Q4 already ahead of time. Our focus on cash generation is paying off as we delivered strong growth in this area. We continue to focus on delivering attractive shareholder returns.
In 2015, we returned more than CHF 3.2 billion in cash to shareholders through dividend payments and share repurchases. The board proposed a seventh consecutive dividend increase to a value of CHF 0.74 per share. This is in line with our progressive dividend policy. Together, the actions taken during 2015 position us well to deliver our Next Level strategy in 2016 and ongoing, despite the global uncertainties which we will continue to face. Now let me now turn to the Q4 highlights on slide three. In the challenging market environment that we face, we continue to drive PIE, penetration, innovation, and expansion. In the quarter, we realized some key orders in the U.S., Europe, and Middle East. Growth in large orders offset the 6% decline in base orders. That is the result of the tougher market conditions, mainly in China and in the oil and gas sector.
We continue to build the basis for future revenue as our order backlog grew 5%. The divisional realignment that we announced at the Capital Markets Day in September last year is complete and fully operational. The strategic portfolio review of Power Grids is well on track, and we will conclude as announced previously during 2016. Our continued focus on relentless execution enabled us to expand our operational EBITDA margin by 60 basis points in challenging times. We achieved a major milestone in Power Systems as we reached a target margin corridor with 7.5%, an improvement of 620 basis points over the previous year ahead of schedule. The turnaround is on track and is nearing the completion. We also continued to drive self-help by focusing on growth opportunities in a disciplined way and stepped up our capacity adjustments, productivity measures, and cost reductions to mitigate the impact of market headwinds.
As part of the stage 2 of our Next Level strategy, which we announced in September, we drive relentless execution and are accelerating our Focus 1,000 Day programs on white-collar productivity and working capital. Cash return on investment capital was up 70 basis points to 13.4% on a full year basis. This demonstrates that we are progressing well towards our new cash culture in ABB. In our third focus area, business-led collaboration, we simplified further our organization and confirmed all the leadership appointments effective January 1, 2016. Implementation of salesforce.com, our collaborative sales platform across the group, is operational in more than 40 countries and will soon reach 20,000 people. This tool enables us to have greater transparency into opportunities and to collaborate more effectively as one ABB. In summary, to drive efficiency and effectiveness on the sales front end.
The board of directors has proposed four new members for election to the board at the AGM in April. These members will strengthen our expertise in key areas of future growth for our Next Level strategy. In short, our Next Level strategy is really delivering positive results. Let's turn to chart four for the key figures. The currency impact was significant in 2015 due to the strength of the U.S. dollar, which had a translation impact on average of about 10%. Orders and revenues were stable in the quarter and for the year, reflecting the challenging market conditions that we faced. We grew operational EBITDA margin as we drove our costs and productivity programs. Our initiative to accelerate the reduction in working capital can be seen in the strong cash generation for the quarter as well as for the year. Let me move to chart five.
As we have said before, our primary focus is to generate attractive shareholder returns by growing earnings per share and increasing cash return on invested capital. In 2015, we faced strong market headwinds that dampened top-line growth. By continuing to drive PI, we focused our sales force on opportunities in target segments, and were able to deliver steady revenues in market headwinds. On cost and productivity, we took decisive actions and achieved a 60 basis points margin improvement. We also achieved 5% operational EPS growth versus our target of 10% in adverse market conditions. We delivered on our free cash flow conversion to net income of greater 90%. We had very good progress on our cash return on invested capital and are moving towards the mid-teen range. Let me now give you a perspective on the regional order performance on chart six.
We truly continued to experience hard weather sailing in many parts of the world. Markets were mixed and softened further in the fourth quarter. Europe orders grew 7%, driven primarily by selective transmission and distribution investments in Sweden as well as Italy. Turkey won a large order for the Trans-Anatolian Natural Gas Pipeline, where ABB will deliver the complete control system, telecommunications, pipeline monitoring, and security systems, utilizing fully our capabilities in the Internet of Things, services, and people. Turkey also had robust order growth across almost all our divisions. Americas was plus 1% in the quarter as weaker demand from the process industries was offset by power orders. As announced today, we won a $130 million order to upgrade an existing HVDC connection in the U.S. Base orders were down in the U.S. and Canada, primarily driven by weak automation demand for process industrial equipment.
Declines in North America were more than offset by strong base order growth in many countries in South America, like Argentina and Peru. The 13% decline in EMEA, in Asia, Middle East, and Africa, was primarily driven by China. In China, base orders were down 21% of a difficult comparable. In Q4 2014, we experienced significant pre-buying as distributors were wanting to achieve their year-end bonuses. India in the quarter declined 15% because it had a very difficult comparable for Power Systems. India continued to grow in Discrete Automation and Motion, as well as in Power Products. All these developments demonstrate that our PI approach works even in a difficult market environment, and that our broad geographic scope helps us to identify and drive still some very attractive growth opportunities. Let me turn over the presentation to Eric, who will take you through the financials in more detail.
Thank you, Ulrich. Let's move to chart seven, where we have an overview of the divisional performance in the quarter. The order decline in Discrete Automation and Motion is primarily related to lower demand for standard products used in the process industries in key markets like the U.S. and China. The operational EBITA and margin decreased mainly as a result of lower volumes in the quarter, and a lower share of standard product revenues. Capacity and footprint adjustments to mitigate these market headwinds have been taken and are well underway. We expect the benefits of these actions only to be felt in the second half of 2016. Low Voltage Products was slightly down on orders as the division had a difficult comparable in 2014, specifically in China, where Q4 of 2014 had significant distributor pre-buying, as Uli already mentioned.
Low Voltage Products operational EBITA margin was impacted by the greater share of low-voltage system revenues compared to a year ago. In Process Automation, low base order growth was offset by the large gas pipeline order that was mentioned earlier. Margin declined primarily due to weaker revenues and mix. As in DM, capacity adjustments to mitigate these market headwinds have been taken and are well underway. In Power Products, orders were up 3% due to the selective transmission utility spend. In Power Systems, had large orders in the quarter, as mentioned earlier, that more than offset the decline in the base order growth. As mentioned, the operational EBITA and the related margin were significantly higher, mainly as a result of the ongoing step change efforts. An improvement in the project margins and continued cost out measures.
The financial turnaround of Power Systems is on track, the division delivered another solid quarter profitability and entered the operational EBITA margin target corridor of 7%-11%. Oleg will go into more detail on the progress of Power Systems' step change program later. Many of you have asked about the corporate operational EBITA, since we had a 13% decline in the year on a constant currency basis, a 24% decline in US dollars, and whether this is a sustainable level going forward or not. For 2016, we expect the corporate operational EBITA to be in the range of $400 million-$450 million. It's a challenging market, we are taking actions to safeguard profitability. Just as a reminder, when you are updating your models for 2016, our standard restructuring guidance is approximately $200 million-$250 million.
The white-collar productivity restructuring for 2016 should be around $300 million-$400 million, we expect implementation costs of slightly more than $200 million. Those non-operational items will be about $700 million-$850 million. Let's move to our operational EBITA bridge on chart number eight. In the challenging markets, we have achieved the CHF 25 million net savings, which offset the negative net volume levels. Most of the project margin improvements came from Power Systems, as the division continued to successfully execute on key milestones in the projects. The mix was negative, mainly from the higher system business, primarily in Low Voltage Products, also lower short cycle business overall in the divisions. As always, the other category consists of many small items which add up. Realized foreign exchange gain and losses, certain commodity supply chain costs, changes in corporate provisions and other one-off items.
As in the last quarter, the foreign translation effect reduces the reported number in CHF. All of these changes led to a group operational EBITA of approximately CHF 1.1 billion and an operational EBITA margin of 11.7%, which means a 60 basis points improvement. Let's turn to slide number eight and look at the cash flow and net working capital. In Q4, our effort to improve the net working capital management started to show results. Working capital decreased significantly, mainly from stronger inventory management and improved collection from customers. We continue to drive the optimization of the entire value chain and work hard on the unbilled receivables in large projects. We are well on the track to achieve our CHF 2 billion working capital reduction by the end of 2017.
Our free cash flow to net income conversion was more than 150%, mainly due to the low net income from the restructuring and unrelated expenses, there was also little cash out for those restructuring expenses in 2015. We should expect in 2016 a significant cash out, approximately CHF 700 million-CHF 800 million, for those restructuring provisions we have taken. For that reason, we should not expect as high conversion ratio in 2016 as in 2015. We will continue to drive a good cash flow and a good cash flow conversion. On slide number 10, you see the positive trend from the free cash flow, which is up by 16% in constant currency. We are constantly generating a strong free cash flow over time, as you can see in the chart, which goes back here to 2011.
We are targeting an efficient balance sheet with a single A rating, which gives us the flexibility and a solid basis to implement our strategy and to drive the shift in our center of gravity. On the capital allocation, priorities on the next page remain unchanged. You have seen them before, they are exactly like we have presented them back in the Capital Markets Day. First of all, as we often said, the organic growth generates the most attractive returns, we will continue to fund our growth initiatives, including research and development and capital expenditures. In 2015, we invested more than CHF 1.4 billion in R&D and some CHF 900 million in capital expenditure. All of this to strengthen our competitiveness and our global technology leadership.
As you can see from the board proposal today, we remain committed to our progressive dividend policy by returning a steady to higher cash dividend to the shareholders every year. The board proposes now another dividend increase for the seventh consecutive year, this time to CHF 0.74 per share. At the current share price, this proposed dividend represents a yield of above 4%. This is a strong vote of confidence in the strength of our business and our ability to successfully execute on our Next Level strategy. Value-creating acquisitions remain one of the ways we can deploy cash to generate higher returns. We have a strong track record of disciplined acquisitions, you should expect us to continue with that approach.
Returning additional cash to shareholders is the remaining tool at our disposal. As of the end of 2015, we have completed more than half of our CHF 4 billion share buyback program, which runs until September of 2016. If you look at last year's dividend payment and the share repurchases during 2015, we have returned almost CHF 3.2 billion to our shareholders during 2015. Let me now turn back the presentation to Ulrich.
Thank you very much, Eric. Let's summarize our performance for the full year in 2015 on chart 12. Looking at this chart, you can see that we had a lot of homework to do, from the turnaround in Power Systems to laying the foundations for ABB to truly move to the next level of growth and productivity with our Next Level strategy. In line with this transformation, I would like to draw your attention to the rollout of our new performance and compensation model for 70,000 of our people. This is absolutely instrumental in ensuring that we will be successful in the future as well. In the next few slides, I will go into more detail about our success in transforming ABB.
On chart 13, you see the slide that we launched at our Capital Markets Day last September, where we basically set out and showed you the details of the second stage of our Next Level strategy. We announced that we would align the divisions with the pattern of our customers' activities. From five divisions, we now have four, really focusing on power and automation for the grid on the one hand, and power and automation for the site on the other hand, in the other three divisions. For our utility customers, our new Power Grids division offers a complete transmission and distribution offering. The division is the market and technology leader with a global presence and the largest install base. As such, it is well positioned to meet the changing needs of utility customers, such as integrating renewables, grid complexity, and other challenges of the current energy transition.
As stated earlier, the strategic portfolio review for Power Grids is well on track and will conclude during 2016. Our other three divisions, one of which, Electrification Products, is new, are focused on power and automation for the site of electricity consumption. Our new Electrification Products division sees us organized in the low and medium voltage segments in the way that our customers want to buy from us. We have the broadest portfolio in the industry in these segments. Discrete Automation and Motion remains the number one in industrial motion, whilst being a major robotics business as well. In Process Automation, which is the number one in distributed control systems globally, we have a strong position in process industry and process industry automation as well, whilst in parallel, being a leading player in the marine sector.
This new market-oriented divisional structure came into effect January 2016 and is fully operational now with the appropriate leadership appointments. Let me turn to chart 14. You might remember we continued to transform ABB by shifting the center of gravity towards strengthening our competitiveness, driving organic growth, whilst de-risking our business. The following charts illustrate how we have been doing on this in 2015. Let's move to chart 15. When we look into shifting the center of gravity of ABB, how will we truly improve competitiveness? One way is by driving growth in our service business. ABB has a tremendous installed base of products and systems around the world worth about $400 billion. We achieved our target of increasing our share of service revenues by one percentage point in 2015 to 17% on a comparable basis through driving penetration of our installed base and localizing our product offerings.
We have really great potential to grow service even further in the future. Turning to chart 16. A key driver to strengthening our competitiveness is technology leadership, which is at the center of our Next Level strategy. We are continually striving to develop technologies to better serve our customers and strengthen our position as a pioneering technology leader in power and automation. We have the strongest portfolio to help utility customers with the shift towards a more sustainable power supply system. Our new switchgear, for example, with a new eco-efficient insulating gas mixture, was a true technological breakthrough. Our YuMi robot needs very little introduction nowadays. It is the most advanced industrial robot available and illustrates how we are helping to drive a transformation in industry in the way humans and machines collaborate.
In the transport and infrastructure sector, we remain a leading provider of fast charging solutions for electric mobility. As an example, our eBus system, which is already deployed in Geneva, was complemented last year by an additional fast-charging robot solution that can easily be added to existing bus lines. Let me turn to chart 17. In industry, the world is on the cusp of the fourth industrial revolution driven by digitalization. Among the key drivers are the increased availability of data, ubiquitous connectivity between and among machines and people, and the exponential growth in processing power. Software is a large and growing part of our offering and a key differentiator for ABB. Today, 50% of our offering is already software-based. With leading-edge technologies such as our Ellipse Asset Health Center solution, we can dramatically improve safety, uptime, and return on investment for utility and process industry customers.
The same applies to our offerings for industry. For example, we helped our customer Boliden to transform the Garpenberg mine in Sweden into one of the most efficient and productive digital mines in the world. For transport and infrastructure customers, we are already the world's leading supplier of fast chargers for electric vehicles. In collaboration with Microsoft, we are pioneering a new platform for EV charging services using Microsoft's Azure cloud-based platform. Another example on the software side is our Octopus software for marine applications, which we are using to develop a route optimization solution for 140 container ships of the Maersk Line , helping them to find the safest, shortest, and most fuel-efficient routes to their destinations, taking into consider the load, the weather, and the wave conditions which are being transmitted by satellite to this very leading-edge system. Turning to chart 18.
One key to our success is the particularly close collaboration we have developed with important and leading customers. One example is our relationship with Statnett, with which we are connecting the power grids of Norway and Germany, as well as Norway and the U.K. in orders together worth well over $1 billion. Another example is our strong and long-lasting relationship with Ford in China, where we are able to help improve the flexibility and efficiency of Ford's local production with a fully automated robotics solution that has world-record changeover times in industry. The transformation of ABB to a more market and customer-oriented company is reflected in our steadily increasing Net Promoter Score, which rose last year to 48%, top quartile in the industry. Let me move to our second focus area, relentless execution, on chart 19.
We committed to you to bring Power Systems back to sustainable profitability. We have delivered five consecutive quarters of positive operational EBITDA margin. In Q4, meaning ahead of time, we entered the target margin corridor for the division with an operational EBITDA margin of 7.5%, a 620 basis points improvement year-over-year. In offshore wind, we continue to complete key milestones in our remaining project portfolio. We have handed over two of the three offshore wind connections. The third is now in the energization phase. We have exited the solar EPC business and have now implemented a successful new business model. Growth is back in the solar business of ABB. Our latest success is our joint venture with Hitachi, which will use our HVDC technology for its projects to strengthen the Japanese power grid. In summary, we fulfilled our commitment in Power Systems.
The turnaround has been a real success. A key execution achievement of Claudio Facchin and his team. Turning to chart 20. Our strong performance on cost savings is a continued further demonstration that execution is a hallmark of ABB. We accelerated our savings program when we saw the scale of the market headwinds during 2015 and took out CHF 1.2 billion in costs, making 2015 the seventh consecutive year in which we delivered savings of more than CHF 1 billion. We remain committed to our goal of taking out 3%-5% of cost of goods equivalent every year. On chart 21, you can see how ABB's productivity is improving. We have accelerated the improvement in 2015 in response to a further slowdown in growth in some key markets during the course of the year.
Specifically, in the Discrete Automation and Motion division, this action included a 7% reduction in total workforce last year. Further footprint and capacity adjustments are well underway. The full effect of these actions will only be felt in the second half of this year. Turning to chart 22. In this environment, we continue to drive self-help by accelerating our 1,000-day White-Collar Productivity Program. Key actions include the optimization and consolidation of business functions into centers of excellence. Streamlined shared services. Over the next two years, the 68 country-based services centers that we have will be consolidated into two global and four regional centers. The two global centers will be based in India and Poland. This process is already underway. Will enable us to deliver higher quality services to the business at best-in-class cost.
As announced in September, we have committed to reducing structural costs by a run rate of CHF 1 billion by 2017 through our White-Collar Productivity Program. We are targeting gross savings of CHF 400 million in this year already. That means the program is on an excellent track to deliver results. Moving to chart 23. To drive collaboration and enhance the expertise of our leadership team in line with Next Level, we have confirmed several appointments on the senior level of ABB's teams. In the executive committee, three of our leaders have new roles, Bernhard Jucker, Tarak Mehta, and Claudio Facchin. Following the realignment of our divisions to generate profitable growth by simplifying the organization and optimizing the way they are focused on the markets and going to market.
To support the ongoing transformation of ABB, the board of directors proposes four new board members for election at our AGM in April. Michel Demaré has elected not to stand for re-election at the next AGM. The expertise of the new board members in such areas as service, software, project management, and emerging markets, will be particularly valuable in supporting the shift in the center of gravity in ABB's activities markets, in line with our Next Level strategy. Going into 2016, on chart 24, the market remains challenging, and we anticipate further hard weather sailing. We expect utilities to continue to make selective investments in transmission and distribution, and solar and wind to continue growing. Growth should continue at a moderate pace in the consumer industries, while process industry will continue to be difficult due to overcapacity, mainly on the supply side of the value chain.
Transport and infrastructure markets should continue to grow, with one possible exception of marine, which gets impacted by the oil and gas sector as well. Moving to chart 25, the geographical outlook is mixed. Growth in China is set to continue, but at a slower pace, while India should accelerate as the country invests in power infrastructure and industrial development, while low oil prices will dampen demand in the Middle East. In the Americas region, the United States will likely remain steady, but conditions will be difficult in Canada. One reason is the heavy reliance on unconventional oil and gas. Europe is a mixed picture, with Northern Europe steady and Eastern and Southern Europe growing. Let's move to chart 26, which states the priorities for 2016.
2016 will be a year in which we drive external focus on our customers and markets, accelerate organic growth, and make ABB even further leaner, faster, and more agile. We cannot expect much help from the markets. Our disciplined and determined progress in our three focus areas will demonstrate that we are now in a strong position to expand our technology leadership and realize the benefits of our realignment. Our focus on execution will continue, and we expect to see additional significant savings and efficiency and productivity improvements. With stronger collaboration and the enhanced expertise of our leadership team, we will make decisive progress in moving truly into the Next Level. On chart 27, in closing, ABB is a pioneering technology leader with strong positions in attractive markets. We have a crystal-clear transformational agenda to drive earnings per share and cash return on invested capital.
We are committed to deliver attractive returns to all of our shareholders. Our Next Level strategy is delivering positive results and will accelerate sustainable value creation. With that, I'd like to conclude my remarks, and thank you all for your attention.
Thank you for that. We will now take some questions. The one thing that I would remind everyone is that maximum 2 questions. If you have additional questions, we need to be fair to everyone that is out there, and you have to get back into the lineup of the queue. With that, we will take our first question.
Our first question is from Andreas Willi, JPMorgan. Please go ahead, sir.
Good afternoon, everybody. My first question is on base order development. Maybe you could give us some indication on how that developed in the fourth quarter as we went through the months and maybe what you've seen in January so far. Also maybe on the tendering, particularly for larger projects, what's coming up for the next couple of quarters, how that looks like in terms of the tendering pipeline for the larger projects, I guess particularly in Power Systems and Process Automation. The second question is on Power Systems, where you're ahead of time or ahead of your plan in the turnaround. Is it also just running in a higher trajectory? Should we expect upside going forward as well? Or is this more a question of having got to where you want to be quicker?
Good afternoon, Andreas. Thanks for your question. If you take the base order development, the world distribution and distributors plays a major role in the fourth quarter. Last year, the distributors, especially in China, they're close to make the annual target. They ordered very strongly and got their warehouses filled. This year, we have a de-stocking going on. We have a very conservative behavior of the distributors, and that's one of the key drivers of the distribution-driven slow base order development in the year and in the last quarter of this year. Naturally, we don't give you any guidance on the January activity. I ask you for forgiveness on that one.
When we talk about tendering and large projects, if you look on the PA side. There are still projects out there on the downstream part of the value chain, which are being tendered and discussed with customers. We do see really two distinct patterns. On the one hand, the fully integrated oil and gas customers that have upstream and downstream, they are extremely cautious and they are trying to help the upstream situation with slowing down the downstream investments. The companies that focus primarily on the downstream side are still looking at an interesting project, and we see some activity in that field out there. On the PS side, all over the world, connecting renewables to the grid is a major theme.
If you look at the acceleration of change of mix in power generation all over the world, this is something that needs to be addressed with grid opportunities. The second thing that we see is connecting local disconnected communities, for example, in India and Africa, to the grid via microgrid solutions or even have off-grid microgrid solutions is another activity that we see coming. The third point is, and you have seen us announcing today a major order, upgrading the existing grid in traditional economies is an opportunity that we can tap with our great retrofit technology and our modernization capabilities that we have. On the PS side, look, I'm really proud of what Claudio has done with the team. I think the turnaround was a really tough task. It reminded me a lot of the robotics turnaround that we had to take a couple of years.
I'm very pleased together with the board and management, that the team has done such a good job, getting us back there. We have committed a new target bandwidth for the Power Grids division, of which Power Systems in large will be one of the major building blocks. We continue with that commitment. We will be in the target range of Power Grids going forward, and that's all I'm going to say about forward-looking statements.
Next question, please.
Thank you very much.
Thanks, Andreas.
Next question is from James Stettler from Barclays. Please go ahead.
Yes, thank you, and good afternoon all. Can you maybe give a bit more color around the Discrete Automation Division? There is obviously a lot going on there. Power-One, you have got robotics, you have got motors. Can you talk a bit about the restructuring? Should we be looking at margins sort of in H1 around the Q4 level? Secondly, just in terms of M&A, if you look at how things are developing out there, if you could maybe talk a bit about your priorities, especially in terms of software, what you think is missing in the portfolio. Thank you.
Good afternoon, James. Thank you for your question. On DM, as you rightly observe, it's a really interesting wide portfolio that Eric and I happen to know a little bit from the past. The robotics business is doing very well. We are pleased with the development as you have seen. We are throwing really the ball into the future with our technology. We have leading-edge offering both on the technology and the service side. The team is doing a great job, growing in basically three dimensions, more with existing customers, more industries, and more applications that we are driving. We do that in an incredibly disciplined way, and I'm happy with the progress that we have there. On the Power-One piece, we bought Power-One in an anti-cyclical behavior on the ABB side. We bought it at a time when the market went down.
You might remember on a net basis because we got about CHF 250 million cash. We sold one piece of total about CHF 120 million. On a net basis, we spent about CHF 630 million to get the number 2 position in solar inverters in the world. We combined it with ABB's existing solar activities that we had before. We have today the best offering of anybody between the panel and the point of consumption. We are the only player that brings together all these capabilities, and we really today see significant growth opportunities and solid growth going forward. If you take India, for example. India has an install base of about 4.5 gigawatt in solar as of end of last year. We have provided half of that. We are very strong there.
The integration is fully done on the Power-One side, and now we can benefit from the market upswing both with the legacy ABB portfolio and the combined Power-One activity. I'm very pleased with the positive growth momentum that we see in that field. On motors and drives, you have the situation where our strong historic position on the process industries was something that hit us now this year because we had a massive deterioration in demand on the oil and gas side and a continued softness on the mining and the mineral side, especially on the large motors and the drives. Basically, the larger the product and the closer to the soil of the Earth, the more difficult is the market condition. We have reacted swiftly on that one. We have taken a lot of capacity adjustment and went through the situation.
We are shutting down factories. We are adjusting the workforce altogether. We have taken about 7% of the workforce out, and there's more to come. It will take during 2016 until you see the full effect of these measures. Oleg Budin and his team are on it. They're acting against it, and we are taking all the efforts to really address that going forward. Your second question on M&A. When you take M&A, I think Eric laid it out nicely. We have clear capital allocation priorities. Number 1 is the organic growth. Number 2 is the dividend policy. With the increased dividend, you see that we are really honoring that even in a challenging market environment. Number 3 is M&A. Number 4 is then further returns to the shareholders.
On M&A, we have done a lot of homework fixing the company and putting the foundation in order. Now we are ready to consider inorganic moves. We will always stay disciplined in terms of pricing. We will also always stay disciplined in terms of cultural fit. Naturally, now is potentially a good time to look in certain fields. When you take the areas where we're looking, take from a cyclicality perspective, if we could add early cycle activities to our portfolio, would be good, because historically we have grown a little bit more late cycle. Would be good to have some early cycle activities. If you look from a business perspective, I think all of our business have an opportunity to grow through acquisitions, but we will definitely not go in too strongly and add in areas where we're already very strong.
We will have more complementary moves, filling holes in our offering. Take the Process Automation area between measurement, control and actuation. We are strong on the control side. We have a leading-edge position there. On the measurement and on the industry specific actuation, we want to do more, in the future, organically and inorganically. Low Voltage Products and Electrification Products. Some of the businesses that we have are pretty local businesses with strong local players. We might add to that one going forward. On the overall software space that you asked specifically about, look, we differentiate between three types of software: embedded software, control software, and application software. On embedded software, that's basically, in maturity, an organic game. We are strengthening our capabilities by putting artificial intelligence in systems and bringing that in by having selectively smaller teams and maybe even acquiring them.
On the control side, on the DCS side, we are number 1 in the world. There's no need to deploy capital in that one other than the normal organic growth. On the PLC side, that's a dream since many years. We need to admit, the scarcity of assets there is something that we have to respect. When we take the world of application software, there are two areas where we will further strengthen ABB, both organically through partnerships and also through acquisitions. On the planning engineering side, helping our customers to define, to plan the assets of the future, to define and plan the operations of the future is something where we already have strong activities on the power side, where we want to do more. On the operations side, take our Ellipse Asset Health Center that we have already today.
This is a space where we see tremendous value creation potential for our customers in a space where we will definitely also look at application software. Altogether, our center of gravity shift, you can expect a little bit less on the hardware side, more focused electronic software and service in terms of M&A.
Thank you, James. Next question, please.
Next question comes from Mark Troman, Bank of America Merrill Lynch. Please go ahead.
Thank you. Good afternoon, Uli, Eric, and Alena. I've got two questions relating to demand, part of which I guess you've dealt with already, but just a bit more detail. On oil and gas and the process impact, which we're clearly seeing in Robotics & Discrete Automation, and you've talked about taking cost out and adjusting capacity. Where do you feel we are in that cycle? Given the pace of decline, are we going to be declining all year, or should that stop by the half year so you can get your cost savings in, or you just take each quarter at a time? I guess my question is, we're already well into the decline rate. Where do we think that sort of hits the bottom on the process oil and gas impact, for discrete automation? Secondly, a question on China.
I mean, base orders fell, I think 21%, if I recall. Yet your outlook for China gives a kind of overall, I guess, positive tone. Are we seeing any signs of bottoming there? I realize the comparison was difficult in Q4. Are we seeing any stabilization? Would you expect that number to turn around notably this year on China? Thank you.
Good afternoon, Mark, and thanks for your questions. If you take the demand piece on the oil and gas side, it's interesting when you look at the dynamics of that industry. At the moment, the deterioration on the oil price and the shift on appetite on adding capacity or spending money on service and CapEx is purely supply driven. From a demand perspective, the assets are running and pumping out the oil. The world is not consuming less oil. That's not the drama. The drama is on the supply side. The existing assets on the upstream side and on the downstream side, some may need to be again serviced, and the service spend will come back. When you look at it, the new capacity additions in that space probably will be stopped for quite a while on the upstream side.
The service activities on the existing running assets will come back because otherwise our customer are risking downtime, which is even more expensive than not spending the money. This will be a positive element, but whether we have reached the bottom of the bathtub in that area or not, I don't want to speculate. I can tell you we're taking very responsible cost actions and capacity actions to ensure that the deterioration in the margin doesn't continue in a massive way going into the future. I'm optimistic that the team is taking the right actions to address that situation.
On China, the 21% looks really strong, but if you understand the dynamics of it, and the one year distributors buying very strongly at the end of the month to really get their bonus, and then this year, them basically stopping because they know they don't get it anymore. That very wide gap is something which can be explained in the way that I just did. If you take the Chinese pattern at the moment, let me go through the three customer segments, utilities, industry, and transport, and infrastructure separately. On the utility side, there's a continued appetite for spending. If you look at the announcements that State Grid has made publicly on their spending going forward, if you look at the T&D infrastructure investments which are needed to connect the newly added power capacity, both conventional and renewable, to the grid. If you look at the demand side dynamics on the distribution side, we are cautiously optimistic on transmission and distribution in China, and that matches also the CapEx forecast of our major customers in that field.
On the industry side, we have basically an adverse development on the one hand and a positive development on the other one. The process side is still subdued, and the large investment-driven activities that characterized the Chinese economy's growth in the past, that's coming or has come down very significantly, and we don't expect a take-up on that one. On the consumer-driven pattern, I always call it the piece economy, where you produce pieces on cars, on electronics or whatever, is still growing. I give you an example, the automotive industry in China. The complexity of the cars is going up. More different materials require more different joining technology, more automation.
The demand is shifting. It's not growing that strongly on the end consumer side, but it's shifting from the international OEMs to the local OEMs, so they need to build capacity. You have a significant labor scarcity in many parts of China today. All together, there is really an automation opportunity that we can tap going forward. We have had significant growth from new customers in 2015 in China, offsetting the deterioration of, for example, on the process side by going west, by going to new segments, and that's something that we will continue to do. So the negative delta on the process side has now probably bottomed out. On the consumption side, you see a pattern that allows a cautiously optimistic perspective on growth, and that's the reason why we made a statement as I had it before.
Thank you very much.
You're welcome.
Next question, please.
Next question is from Jeffrey Sprague, Vertical Research Partners. Please go ahead.
Thank you. Good day, everyone. Just two quick ones. You are covering a lot of ground here. Thank you very much for all the detail. First, I was just wondering if you could give us a little bit of perspective on how you view the incremental balance sheet capacity you have, Eric, relative to that net debt trajectory that you illustrated to us. Secondly, I was wondering if you could address price dynamics in your end markets, maybe collectively or if there is a couple things to spike out in the verticals. Price did not show up anywhere in the earnings bridge, I am sure it is embedded in there somewhere. Thank you very much.
Thank you very much, Jeffrey. I hand this question to Eric.
Let's start on the balance sheet capacity. We have a net debt, as you have seen, slightly more than CHF 1 billion. We are approximately the same as a year ago. During the year, we have returned CHF 3.2 billion to shareholders. You can say with the flat revenue growth, we have returned all the excess cash to shareholders, maintaining the net debt level. When you look at our current rating, which is a single A rating, it is where we would like to be. If you read the report from the rating agencies, you will see that we are somewhere of the area where we should be. With our strong cash generation, obviously, we will continue now the buyback, we will also have sufficient resources to implement the strategy and the needs.
I will not say more than that, we certainly have a balance sheet that we can implement our strategy. On the pricing side, the price is behind the net number of CHF 25 million savings between the cost savings, which we've said is over CHF 1 billion and actually close to 5% of cost of goods sold, which then shows that our strategy works to outpace the price pressure with those cost savings efforts. It was a CHF 25 million net savings as we showed in the quarter.
Thank you.
Thank you, Jeff. Next question, please.
Next question is from Nathalie Falkman, Carnegie. Please go ahead, madam.
Good day, Alena, Ulrich and Eric. Thank you for great answers. I have two questions. On the White Collar Productivity program , should we expect the even distribution of the benefits between the divisions? Can you just confirm that it's still the net saving will be in the range of 50% of gross savings? Also on the capital allocation area, would it be possible for you to connect capital allocation with the preferred leverage going forward because your buybacks are ending in September? Just how you're reasoning around that since you have such a strong balance sheet.
Okay. Look, on the white-collar productivity side, I'm extremely pleased how this program is progressing. We kicked it off, you might remember, during 2015. When I look at the actions that we have taken in the three dimensions that we have given, I'm pleased. We are taking out management complexity, and we have made significant progress on that. We are implementing a completely different structure on the shared services side. Eric for finance and J.C. for HR really truly leading that, and that will be a truly transformational change in ABB. We're driving white-collar productivity in the business function side. All together, we are optimistic about this program. We see gross savings of CHF 400 million this year. With that, I hand over to Eric to comment on the net savings and the second part of your question.
We have said at the Capital Markets Day, we have a CHF 400 million gross savings for 2016. We remain with the same statement as we did at that time, that we would be disappointed if not at least half of that saving will go to the bottom line. Obviously, it depends on the speed of implementation, and it also depends on the market development around us. We remain with exactly what we said at the Capital Markets Day.
Second one is the capital
Capital allocation.
Nathalie, can you just repeat the second one? It was on capital allocation, right?
Yes. Just if you're able to connect capital allocation priorities to your preferred leverage. I guess as you evaluate one year and you have certain leverage and then you have capital allocation, what has been done, what can be done, just how you reason surrounding that.
The capital allocation priorities, as I said, they remain-
Yeah
unchanged, they are designed to keep an efficient balance sheet at any point in time. We will continue to implement our share buyback until September. Looking at the other alternatives on capital allocation, we will make the decisions in the future that are needed to keep an efficient balance sheet for ABB.
You haven't communicated what efficient balance sheet is, what preferred leverage would be.
We have said we are targeting the rating that we have today, and that's what is guiding the efficient balance sheet.
Thank you.
Thank you very much. Next question, please.
Next question is from Simon Tönnessen from Berenberg. Please go ahead, sir.
Yes, thanks. Good afternoon, everyone. My first question is just a follow-up on James' question earlier on the DM margin. If I look at the last three years' pattern, obviously, we're close to 17% in 2012. Last year, Q4, 15.6%, and then now 12.5% in Q4. Margin range is 14%-19%. Shall we expect basically, given also that the capacity adjustments will only kick in really or benefiting from the second half, that reaching the bottom end of that margin range would be a target that you would like to achieve and that you think is reasonable to achieve? The second question is just on growth for 2016. Almost all Europeans and also U.S. electrics are giving some sort of guidance on organic growth in 2016. I'm aware of the 3%-6% growth target that you have.
I think last year you commented a bit that you want to achieve the bottom end of that range. Market's obviously quite difficult, but if you could just help us share your thinking there. I'm not interested in a range here, really, but do you expect to grow sales organically in 2016? A lot of your U.S. peers, and I appreciate you're not going to comment on that, are guiding towards -3%, -4%. Just a bit more color in terms of how you think about organic growth in 2016 would be great. Thank you.
Simon, thanks for your questions. Look, you can expect that we will forcefully act to ensure that DM is at the bottom end of the margin range as much as possible. This is something that we have to absolutely focus on. It has all of our attention, and Pekka is getting all the loving tender care to make sure that we really deliver that in this year. The second point on the growth momentum. Yeah, look, when we came out with Next Level, the world had a certain kind of projection. When we came out with the stage 2 last year, we had a certain projection. Nobody expected the oil price to be at CHF 30 at that time. I don't have the crystal ball sharp enough to know what will be coming. Let me explain to you what we are doing.
We drive growth with all fours in the segments where we can grow. I give you some examples. We have grown in 2015. If you take our 1,000 Day Growth Programs, we have grown double-digit in microgrids, we have grown double-digit in Africa, we have grown double-digit in food and beverage, and intend to continue to do so. If you look at the pattern on the power side, it's an encouraging pattern that should allow us to get a certain growth momentum in that place. Whether that's enough to weather the storm and the headwinds that we're experiencing on the process side, I can't tell you at the moment, but one thing is very clear, we want to beat competition and we want to beat the markets on the growth pattern in 2016. Quite frankly, the last two years we were also very busy doing a lot of homework.
The turnaround of Power Systems kept us pretty occupied on the power side. We put in a much lighter organization. We're taking out a significant amount of cost on the white collar side. We prepared. It also requires some attention. This homework is now in good hands or done. The team can now really focus on the market even stronger. On the market side, I think through our heat maps and PIE, we know better where to prioritize than before, and we can go in with a more selective and focused approach. All together, the ambition is to beat the market, and when the market goes in line with our original assumption that we had when we committed to an average of 3%-6%, we will deliver on it.
Speculating on how exactly it will come out in 2016, I don't want to give you any further guidance.
Thank you very much.
You're welcome.
Next question, please.
Next question is from Daniela Costa, Goldman Sachs. Please go ahead, madam.
Hi. Good afternoon. Thanks for taking my questions. I have two things, sort of. The first one I wanted to ask you about when you talk about relentless execution and one of the sentences you have on release is that you want to close the margin gap in operating performance compared to your best-in-class peers. Can you give us some color where you think those margin gaps are biggest and what would you say is best in class? The second thing I wanted to ask was regarding the strategic review of Power Grids. Basically, from one side when you're talking about shifting the center of gravity, it reads a little bit like you're talking more about the areas of the portfolio that are perhaps more automation related.
Maybe it's the wrong assessment, also when you speak about the opportunities in power microgrids and the things that you were just talking about on the prior question, you seem quite optimistic about power. As part of the strategic review, is there an option which would be strengthening Power Grids?
Okay. Thank you, Daniela, for the questions. Look on the relentless execution side. Let me just explain to you how we go after that. You might remember at the beginning of 2014, we set up a new performance management tool called the Relentless Execution Dashboard. We basically look at KPIs in the space of care, customer, cost, and cash. In these KPIs, we not only look internally, we also look externally at world-class performance. We are not looking at a specific company for the overall performance. We're looking at best-in-class operational performance and execution across all of our processes, all of our KPI. The ambition is really to get in all of the KPIs in a leading position. Now, you will not do that all at the same time.
We have a prioritized program, and we have a clear transformation path on our businesses going through. Take for example, quality. ABB provides good quality, but could we become even better? Yes, absolutely. There's always an opportunity. If you look at on-time delivery and service levels, we are good. Can we do even better in that area and get paid more then and have less cost doing so? Yes, absolutely, we do that. Basically we go in in a pretty granular approach in best-in-class benchmarking. Business by business, we look at the performance indicators that we want to improve. Now as of 2015, we have tied now the, we call it the RELX dashboard, results directly to compensation. For 70,000 people in ABB, there is an execution element in the variable pay element of every person in ABB. We're also incentivizing that journey.
The ambition is to whatever we do, we want to be at the very end in the top class performance bucket. That all together gives us ample room for improvement and margin improvement. If you take companies that have gone through that journey, take Danaher, take Honeywell, who have really crunched operations and excellence in a great way. I think this is a path that ABB has only gone through partly. We have tremendous upside. We are working on that one independent of the market dynamics. On the portfolio review for Power Grids, I'm really grateful for your question because at the moment there's too much nervousness around it in the public. What we're doing with this business is the following.
We are number one in transmission and distribution today. We have the clear aspiration to be also number one in transmission and distribution in 10 years' time. We're looking at the portfolio and say, what does it take to be number one in 10 years' time? On which end market should we focus on? What is the offering that we should have? A mix between hardware, electronics, software, and service. How should we position ABB going forward? What is the right business model to provide each of these activities to our customers? At the very end, what's the best ownership for this asset going forward? We are working with the board, we're working with the management on all these questions. You can imagine, given the complexity of the task, this is something which requires thorough work.
The good news is we are not under pressure because Power Systems is back in the target range. Power Products is performing well. We will take the time to do this right. Is there a scenario where we could say, let's strengthen this business, Keep it under ABB? Yes, absolutely. That's one of the scenarios that we absolutely should consider.
Thank you, Daniela. Next question, please.
Next question is from James Moore, Redburn Partners. Please go ahead, sir.
Yes, good afternoon, everyone. I've got a couple of questions. I wonder if I could go back to base order momentum and the discrete margin. I see the China numbers, the down 21% and the down 15% in the U.S., and I can see also the Q on Q at a continental level. That's skewed by large orders. Can you say organically what the Q on Q base order movement was in China and the U.S. in the fourth quarter versus the third? Because I think we're all trying to get a feel for what that looks like numerically. Secondly, on the discrete division, the margin's down 340 basis points. Could you help us a little more here? Specifically, could you say whether the robotics margin fell or lifted in the year?
Could you say whether that margin that we've just seen is a good guide for the first half, allowing for seasonality? I understand you've made some capacity adjustments, they will kick in towards the end of the year, not immediately. Is that a reasonable guide, seasonally adjusted for how we start the year?
Look, James Moore, good afternoon. You went out on an interesting fishing exercise, I have to say that I unfortunately have to disappoint you a little bit, the level of granularity that you're asking for, we are not disclosing. I think on the base order dynamics, we have said very clearly what were the drivers in the fourth quarter. Naturally, we have the ambition to rebuild the base order performance in ABB. There is a lot of different drivers. If you take the new technology that we are bringing into the market this year, we get a lot of stuff coming out there. I will not comment any further on any details. Then on DM, it's similarly. Look, on DM, the margin got hit mainly by an impact from the process industries.
You can think yourself how many robots we sell in the process industries and how many we sell into the discrete industries. This is not hitting robotics in a substantial way. Without guiding anything on the margin side, I just guide you on how the business is positioned. Going forward, the actions that we are taking on DM are pretty strong and deep. In some cases, we have already taken the restructuring. We already have the people out, and you will see the dampening effect of that one. Let's see how the year develops. Our ambition is very clearly to have DM in the target range in 2016.
Thank you, James. Next question please.
Next question comes from Martin Wilkie, Citigroup. Please go ahead.
Good afternoon. It's Martin from Citi. Just a couple of questions. The first one is on how you're reflecting the cost savings in the bridge and what we can infer from pricing off the back of that. You mentioned that you've had some savings from the white-collar productivity, which matches the CHF 25 in the bridge. I just want to clarify if that number is in there as well as the regular savings. Related to that, you've talked about gross savings being CHF 1.2 billion, which might suggest that some of the offsets, which is normally pricing, has actually gotten worse. Just wanted to understand if I've read that wrong or if pricing has deteriorated towards the back half of 2015, and if you expect that to continue into 2016. That was question number 1. Thanks.
Thank you very much, Martin. I hand it over to Eric.
Okay, good. Good afternoon, Martin. First of all, on the cost savings, the price and the traditional cost savings is combined in that net number. There is no WCP saving in this number. We have outpaced with the normal cost savings, the price pressure. Your observation that the savings are up, as we have said, with the CHF 1.2 billion, also means obviously that we have price pressure. In some areas it is a bit more than it has been before, which is quite natural given how the markets are around us. The key point is that we are driving hard and succeeding to outpace those savings with the cost savings that we have.
Just as a follow-up to that, obviously we've seen a mix effect from some of the standard products in discrete automation. Would you say that the pricing in that part has been worse than expected, or was it really just sort of a volume mix effect inside that part of the business? Thanks.
The mix effect is separated in the bridge, as you have seen, which has to do with the projects versus standard products. What we are talking about when we talk price is only price as comparable price.
Sorry.
Martin, we have to go to the next question. Sorry. We have a number of people here waiting. Next question, please.
Next question is from Andre Kukhnin, Credit Suisse. Please go ahead, sir.
Good afternoon. Thank you for taking my questions. Just two quick ones. One is on DM and low voltage production levels versus sales. Probably more for DM and that, did you underproduce in the quarter, given the demand trends and the distributors' behavior? If you did, then how much was the margin impact? Then the second question is on Power Systems. Do you still have any project or any revenue running through the system at zero margin? I understand you've handed over two out of three, but does that mean there's still some business going through at abnormally low profitability in Q4?
Yeah. Look, Andre, thank you very much for your questions. I'll take the second one first and then hand over to Eric. On Power Systems, as I said, we have handed over two of the platforms. The third one is the energization phase. That means there is still some activity out there, and that you can expect to have an impact or to be considered in the 2016 outcome. Despite of that, we have committed to be in the target range for the new Power Grids division in 2016. With that, I hand over to Eric for the first part.
Yeah. If I understood your question correctly, Andre, it's about the production versus the demand in DM and LP.
Yes.
It's clear that we had lower demand than expected at the end of the year. We have, as we have said, adjusted capacity and are adjusting capacity. Some of that has been foreseen, and obviously there's always a balance, how much we are producing and how much the demand is. I will not make any significant comment to that. I think we are in a normal territory.
It was more about the level of your factory loading and under absorption from that. Did you produce as much as you sold in terms of motors and drives in DM? Did you take the inventory down?
We're not closing that detail, Andre. We are not going there. What we are doing is we are taking capacity out, as I said, to match the demand levels. There is always ups and downs in shorter periods.
Thank you, Andre. Next question, please.
Next question comes from Alexander Virgo from Nomura. Please go ahead, sir.
Thanks for taking the questions. Good afternoon. I had just one, I guess, going back to the base order development. I'm just trying to understand, maybe this is just, I guess, a relative point. Saying that you had tough comps in China on base order development, I think your Q4 base orders last year were up four. That doesn't strike me as a particularly tough comp. Q3, it was up four as well. I guess slightly building on James's question earlier, I'm just trying to understand why you consider that to be a particularly tough comp.
Yeah, because we need to go two years back and more years back to see that. Typically, in China, you have in the fourth quarter a distributor behavior that leads towards year-end buying, and we haven't had that this year.
Right. Okay. All right. Thank you. Last question, I just wondered if you could give us a little bit of context for the 34% penetration rates in your installed base on the service slide. Can you give us an indication of where it might have been last year or a couple of years ago or five years ago, perhaps, to give us some idea of progress? Thank you.
Look, if you take the service opportunity in ABB, this is probably one of the biggest opportunities that we have out there in terms of penetration. If you go back to the year 2010, that's about five years ago, we would have been about six to eight points lower in terms of penetrating the installed base. This is something that we are driving very strongly. You know that we have a dedicated service team on ABB level, but basically in each of the businesses, we have a dedicated service P&L, which is being fully run as a business. People get measured by their penetration of the installed base. We have productized our service offering and have dedicated service product management. We have invested significantly in service sales and service engineering capabilities on the front-end side.
This is one area, Alexander, where I really see for ABB an opportunity to do much more. You will never get to 100% penetration, but can we get significantly higher than where we are today? Yes, absolutely. We have the machine in place now to do it. Now, the 2015 results on service get really impacted by the massive contraction on service appetite in the oil and gas industry. If you take that out and look at the rest of the portfolio, I'm quite happy with the momentum, we'd still want to see more going forward.
Thank you very much. Next question, please.
Next question comes from William Mackie, Kepler Cheuvreux. Please go ahead.
Thank you very much for taking the questions. Good afternoon. Firstly, I just follow up on the very strong Q4 cash generation you achieved across the group. In the context of your target of approaching CHF 2 billion release of capital by the end of 2017, where do you see us on that path? Is Q4 a big step? Should the progression be linear, or are there specific programs that kick in as we progress towards your 2017 target? Secondly, coming back to DM, clearly, you've laid out the challenges. You've laid around the various demand issues. Can you just walk us through some of the actions that are underway to redress the capacity utilization versus demand mismatch and to get you back into the target range for the division at some stage this year? Thank you.
I take the DM piece. Then hand over to Eric on the capital side and really get going. If you take the DM situation, there is, on the one hand, the classic operational excellence, Lean Six Sigma improvement on operations that we have had going on in this business since many years, that we will continue to strive. Naturally, we are accelerating that and do whatever is possible to really mitigate the adverse market impact. The second piece is that we're looking at capacity adjustments of the existing footprint of the existing activities. Here, a couple of things that you might not be aware of. If you take Baldor, for example, which is about 20% of the DM portfolio. Baldor has a crew model that allows you to breathe up and down, and we have used that historically to really adjust the capacity.
Now we have such a massive contraction in certain segments that we need to do more. We have announced some plant closures in North America to really address that, and have already acted on that very swiftly. The third point is really around capacity and footprint adjustments from a regional perspective. You have seen us doing a lot in Europe, and there is more to come. With that, I hand over to Eric.
Listen, on the cash side, it is clear that we had a good start and a good momentum in the net working capital reduction, as you have seen on one of my charts. We started obviously early in 2015, and we have seen an acceleration towards the end of the year. It is still a long way to go. As I said in the Capital Markets Day, quite a lot of those actions have to do with fundamental changes in the value chain and how we operate the business on the global value chain and also deep into the pieces that go into the local value chain. Many of those actions will take longer time to implement. The results of this program will come over time until 2017.
I would not say it is linear completely because obviously there are some areas having to do with projects and so on, which might be more lumpy than others. We will see a continuous path to the end of 2017.
Thank you very much. Next question, please.
Next question comes from Graham Phillips, Jefferies. Please go ahead, sir.
Yes. Sorry, Graham Phillips here. I have two questions. First question is just one, picking up on what you said earlier when the question was asked about the strategic review. You quoted too much nervousness in the public. Can I take that as there was some concern the division may be sold, that you are hearing from some customers that we don't want you to separate the business?
Look, if you take the strategic review, when you form a new portfolio or building out of different building blocks, I think it's the duty of a team to really look at the long-term prosperity of that one, and that's what we're going through. There is speculation, and I let the people that want to speculate do the speculation. We are driving this review in a pretty thorough and detailed way. Naturally, we are engaging also with our customers to assure them. Because independent of the outcome, this business will be around, and this business is the number one in T&D, and it will be the number one in T&D in the future. That's the whole ambition of that one. That's something that people that speculate, some of our competitors just need to be aware of. We are not setting up this business to shut it down.
We are setting up this business to strengthen and maintain and further build on our number one position.
Okay, thank you. Just the other question was around service. How do you think you can grow? Obviously, you've quoted the numbers about the install base. Thinking about higher service contribution should be on higher profit margins. If we look at the profit bridge, we can't really see any reflection of that. What ways can we think that this may contribute positively to profit? Again, I take the point that you made on one of the earlier questions that you've seen massive contraction in service for oil and gas.
Yeah, look. Service is typically a business which is accretive to our activities in ABB. Quite frankly, it is also in many areas in ABB in 2015, it will be so going forward. What you also need to look at is the volume situation that you have in certain activities. If you have an under absorption in certain areas, you might even have to look on the service side on the activities, and that's what's going on. If you go forward, if you take the service in ABB, we are not only talking the classic life cycle service on our products. That's one element which is very important, and we should do more in the future. If you look at, for example, technical consulting and engineering services, this is a growing activity in ABB where we could do much more in the future.
If you look at the software space and selling software as a service, this is a business model that we're only tapping at the moment, where we can do much more in the future. You will be seeing us introducing new business models around software as a service in all kind of areas of our customer base. The life cycle service piece needs to be driven, and hopefully the contraction that we're seeing in some segments comes back. On the other hand, we need to expand our service capabilities both on the consulting engineering side and, for example, on software as a service in the future.
Thank you.
Thank you. We have three people left in the lineup. I would ask that to accommodate all three's questions, each one of you guys please ask one question. Let's go to the next one.
Next question is from Andrew Carter, RBC. Please go ahead, sir.
Oh, good afternoon. Yeah, just the one question then, please. It was on Process Automation, which I guess, given the slightly stronger margin in the quarter, hasn't been a massive feature of the Q&A today.
I wondered if you could just talk a little bit about the trends in the quarter in terms of oil and gas and metals and mining, to help us understand a little bit about what might happen in future quarters. Perhaps just going back to the earlier question, I think, which is on discrete, which is about margins. I was just wondering, in terms of Process Automation, should we be thinking that Process Automation is targeting a bottom of the range margin in 2016? Do you think it's possible it could go below that?
Look, first of all, thank you for the questions, Andrew. It's clear that we will do everything to keep Process Automation within the margin range. As I said at the beginning, it's a tough world out there on the oil and gas side. If you go to slide 24 in our presentation, you see there also a little bit of guidance on what we expect in 2016 regarding the end markets. Quite frankly, the process industry end markets are tough. They are tough in mining, they are tough on the metal side, they are tough in oil and gas, and we need to understand it. Peter has done a great job in managing capacity, in taking cost out in a difficult year, 2015. He has my full confidence that he will also do so in 2016.
It will be a tough year, no doubt about that one.
Thank you very much. Next question, please.
Next question is from Gael de-Bray, Deutsche Bank. Please go ahead.
Oh, thanks. Good day, everyone. Maybe the one question would be a general top-down sort of question. In this quarter, most industrial companies have posted stable to slightly positive numbers in Europe, but also negative numbers in North America. Do you expect the current industrial weakness in the U.S. to be reflected in Europe at some point as it did historically in the past? Are there reasons to believe Europe could remain somewhat insulated this time?
Yeah, Gael. Look, thank you. I think that's an excellent question. If you go to the slide 25, we gave you a little bit of a regional perspective on the world going forward. In the U.S., right at the moment, there is a slowing pace of industrial activity. The closer it is to the soil, the more challenging it is, the closer it is to the consumer, the more cautiously optimistic we are. If we take the infrastructure piece, we expect a moderate growth in the infrastructure market in the U.S. altogether. If you move over to Canada is really tough because you have the mining impact, you have the unconventional oil and gas impact. These are really, really difficult. I would describe infrastructure there as steady altogether. If you take Mexico, this in 2016, it will be on a low level, okay-ish.
Altogether on North America, I think we need to watch it very carefully. If you look at the sentiment change, if I go back to the first quarter 2015, how people felt about, then I go to the third quarter in the U.S. and now, there is a reason to have a frown on your face when you look at that and really prepare for all kind of scenarios. There's an optimistic scenario that it might pop back, there's also scenario that it will be more difficult than we would have expected, and we are prepared for all of them.
Thank you very much. Last question, please.
Our last question comes from Alessandro Folletti, Bank Vontobel. Please go ahead, sir.
Yes, good afternoon. What an honor to ask you the last question. Maybe on the restructuring that you're doing in the Robotics & Discrete Automation business unit. Are you really reacting very quickly? At the end of the day, the downturn is already lasting 2 years, more or less. Do I have to assume that you are actually planning for a new normal? Can you, if the markets come back next year, really fulfill demand with the new capacity level that you have?
Look, Alessandro, I think your question is understandable. If you look at the margin development in DM, nobody can be happy. We're giving this a lot of effort. We are taking very decisive actions to make sure we mitigate the impact. I said before, we will do everything possible to really have that division in the margin range in 2016. You will see more actions become public in the next couple of weeks and months on that activity in that space. Naturally, when you run such a business, you also need to be respectful on the one hand, to the backlog that you have to execute, on the other hand, to your customer relationships. Thirdly, when you take massive restructuring, you also need to play the game or play the rules with the unions and labor representatives, right?
In the countries where we're active, we are doing that. Be assured, it's high on our radar. With that said, thank you very much. I hand back to Alena to close the call.
Thank you very much for joining us today. We very much appreciate it. Thank you, Uli and Eric. With that, we close the call.