Earnings Call: Q3 2015

Oct 21, 2015

Ladies and gentlemen, good morning or good afternoon. Welcome to the ABB Q3 2015 Results Conference Call. I'm Selena, 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 presentation, there will be a Q and A session. At time, it's my pleasure to hand over to Mrs. Elena Aberrantzond, Head of Investor Relations. Please go ahead, madam. Good afternoon, ladies and gentlemen, and thank you for joining us today for our Q3 2015 results call. I am with Ulrich Spieshofer, our CEO and Erik Elswick, our CFO. As usual, you can find the presentation on our website. This call is being recorded and will be available within the next hour. Before we get started, please refer to the important notices regarding Safe Harbor and our use of non GAAP measures on Page 2 of the ABB presentation. This conference call will include forward looking statements. These statements are based on our company's current expectations and certain assumptions and are therefore subject to certain risks and uncertainties. With that, I will hand over to Uli. Thank you, Arada. Good afternoon, ladies and gentlemen, and welcome from my side as well. Let me start by summarizing some of the Q3 highlights on Slide 3. We continued to deliver along our 3 focus areas: profitable growth, relentless execution and business led collaboration. Our orders reflect the adverse market conditions we face and the challenging Q3 20 14 comparable when we won a record amount of large orders in Power Systems and Process Automation. Base orders were minus 3% globally, reflecting tougher conditions in China and the oil and gas sector specifically related to discretionary spending. However, through our profitable growth initiatives, we were able to win in the quarter, for example, some key power transmission orders, specifically in Europe and in China. The book to bill ratio for the quarter was 1.03 and 1.07 for the year to date. Revenues in the 3rd quarter declined 2% on lower short cycle volumes and weak demand in many parts of the distribution channels. Our continued focus on relentless execution enabled us to expand operational EBITA margin by 50 basis points. We achieved further progress on the Power Systems turnaround as we improved operational EBITDA margin by over 5 20 basis points and continued to derisk the portfolio. The turnaround is well on track and nearing completion. We also continued to drive self help by focusing on growth opportunities in a disciplined way and stepped up our capacity adjustments, productivity measures and cost reductions to mitigate the impact of market headwinds. As part of the second stage of our next level strategy, which we announced in September, we are driving our focused 1,000 day programs of white color productivity and working capital. Our new divisional structure of 4 customer focused divisions is ready for operation in January 2016. To ensure we spend more time with our customers, we are establishing a common sales platform across the group with salesforce.com. The rollout is on track and the platform is already operational in 14 countries. Our group account management program has been realigned and is now focused to ensure greater success and further account penetration. In summary, we drove margin accretion in adverse markets and are stepping up cost out and productivity measures to safeguard profitability of ABB. Let's now turn to Chart 4 for the key figures where we'll focus on a few key points. Orders were double digit lower in the quarter, mainly because of the tough comparable of Q3 2014, but are steady year to date. Our order backlog is up 4% on a like for like basis versus the end of Q3 2014. This will continue to support revenues into 2016 2017. Revenues were minus 2% in the quarter, but up 1% year to date. Net income in the quarter was lower than in the same period last year as we booked after tax gains for the sale of businesses of about EUR 100,000,000 in Q3 2014. Without this, net income would have been in line with the revenue development. Cash from operations was flat in dollar terms as better capital management offset lower net income. Operational earnings per share on a constant currency basis grew 2% 5% on a year to date basis. Let me now give you a perspective on the regional order performance on Chart 5. Orders in Europe were down 13% in the quarter. However, you might remember that we won a record amount of large orders in Q3 2014, including an €800,000,000 order to provide power transmission link in Scotland as well as €70,000,000 order for Swiss Railways. In Q3 this year, we won a EUR 450,000,000 order for high voltage direct current interconnection between the power grids of the UK and Norway as well as a €90,000,000 high voltage cable order linking the Norwegian grid to the Johan Sverdrup offshore oilfield. As you can see in the base order growth table on the right, it is really a mixed environment for Europe. Germany is steady. Finland and the UK grew double digit, while a weaker market impacted Italy, France and Switzerland. Orders in the Americas were steady. Brazil was down significantly due to the large mining order a year earlier and the tough economy, while the U. S. Grew total orders 5% as we had some large utility order bookings. Softer demand in oil and gas was felt in the base order development in countries such as Canada and the U. S. The Asia, Middle East and Africa region was down compared to a very strong quarter a year ago when we secured a large marine order in South Korea. Although China grew 5%, the underlying base orders declined 15% compared to the same period a year ago as we had signaled during the quarter. However, we received significant orders with $300,000,000 to boost power capacity and grid reliability, which reflects grid reliability, which reflects the successful collaboration across ABB's business units. India this quarter grew 51%, with key successes in almost every division. ABB won additional power orders related to renewables and an order to supply ultrahigh AC transformers to upgrade their power transmission infrastructure. Our profitable growth initiatives and local footprint are really paying off in India. These developments demonstrate that our pie approach works in a difficult market environment and that our broad geographic scope helps us identify and drive growth opportunities in a tough market environment globally. Let's move to Chart 6, where I would like to spend some time on the market trends we see going to 2016. When it comes to global end markets, many of you have expressed concern about the oil and gas and utility sectors. So let me give you some detail and granularity on this. In upstream oil and gas, we saw a big decrease in discretionary spending at the start of the year, which appears to be stabilizing at a low level. However, we believe that more postponements of new CapEx in upstream oil and gas are to come. Investment in offshore drilling equipment has basically stopped, and shale gas investment has decreased materially. However, we are also seeing some benefits from the continued low oil price. We have seen some positive effects from the lower feedstock prices in downstream in the petrochemical sector. We are also starting to see that funds for oil and gas subsidies being considered for redeployment into other areas such as infrastructure. As for utilities, many are reevaluating their business model and structure in times of uncertain energy policy and pricing environment, and this has led to cautiousness in investment spending. We continue to see investment activity in ultrahighvoltage c power transmission projects in mature as well as in emerging markets. There is an increased demand to integrate renewables and invest in grid reliability. Grid automation continues to increase in importance as complexity and distributed generation needs to grow. In these areas, we continue to be absolutely at the forefront of technology. We are leading in power and automation for the grid. Let's now look at our 2 largest countries. The U. S. Is showing evidence of developing into a 2 speed economy. The manufacturing and trade sectors are becoming constrained as weak global economies, strong U. S. Dollar and low oil exploration and production impact spending. In contrast, the consumer market shows more resilience as food and beverage and automotive continue to grow. There's renewed optimism in residential construction in September. Homebuilder confidence was the strongest in nearly 10 years. As for utilities, they've been showing stronger interest in power transmission solutions that integrate renewables. China has shifted its focus to a more consumer demand driven economy, resulting in a reduction in industrial spending. In some industries, such as cement, the government has even legislated against building more capacity. The rapidly rising consumer spending has yet to offset the decline in traditional industrial investments. Therefore, short term demand is depressed. On the positive side, there is continued investment in China's grid, such as in ultra high voltage direct current transmission technology where ABB is a clear leader. State Grid of China has indicated that it will increase the investments by 7% to 12% in 2016. In addition, automation demand, particularly for robotic solutions, is growing significantly due to a shortage of qualified labor and productivity improvement needs. Let me turn over the presentation now to Erik to take you through the financials in more detail. Thank you, Uli. Let's move to our operational EBITA bridge on chart number 7. In this challenging market, we have achieved SEK 8,000,000 dollars in net savings, which was offset then by negative net volume levels. Most of the project margin improvements came from Power Systems as the division continues to successfully execute its key milestones. The mix was negative as Power Systems made up a greater share of the revenues this quarter. As always, in the other category, we have many small items which add up, includes realized foreign exchange gains and losses, commodity supply chain costs, changes in corporate provisions and other small offs. And as in the last quarter, the ForEx translation effect continues to have a material negative impact. All of these changes led to a group operational EBITDA of approximately $1,100,000,000 and an operational EBITA margin of 12.5 percent or a 50 basis points improvement. Turning to Slide 8. We have here an overview of the divisional performance in the quarter. As I just mentioned, the highlight of the quarter was the improvement in the operational EBITA margin of 50 basis points. Solid execution on the step change program in Power Systems and cost savings measures in low voltage products led to higher margins in a difficult market. The order decline in Discrete Automation and Motion is a bit amplified as there were significant internal marine orders that were booked in Q3, 2014. The operational EBITA margin decreased mainly as a result of lower volumes in the quarter and a lower share of standard product revenues. We are taking clear actions as focused capacity adjustments and restructurings are underway and we are further ramping up these activities. The highlight for Low Voltage Products was the 180 basis points improvement in operational EBITA margins. This reflects targeted productivity measures, increased cost savings and a strong focus on execution. Please remember that in low voltage products, we have some small seasonal effects and therefore quarter 4 will most likely be lower as it was in earlier years. Results in the Process Automation division also reflect a significant large order that were booked in Q3 2014 and overall lower spending in the oil and gas sector. Revenues will remain under pressure as short cycle orders primarily from oil and gas have been weak over the last 9 months. The operational EBITA margin declined 120 basis points due to weaker revenues and an unfavorable mix. Capacity adjustments to mitigate these market headwinds are well underway. Cash was negatively impacted due to milestone revenue bookings late in the quarter, which resulted in higher current receivables. Power Products had a strong revenue growth in the quarter as it successfully executed orders from the backlog. The operational EBITDA margin was steady as higher revenues offset ramp up costs associated with new production facilities in key markets. Cash flow reflects the current challenging market environment where customer advances are deteriorating and payment terms have been more unfavorable. In Power Systems, large orders in the quarter declined for reasons of timing, challenging macroeconomic conditions and project selectivity. The operational EBITA and the related margin increased mainly due to the ongoing step change program and the continued cost savings which have been put in place to return this division to a higher and more consistent profitability. We are on track to be within the margin corridor in 2016. Cash flow here also improved as many of the key milestones were achieved in the quarter. Ole will go into more detail on the power system step change progress later in the presentation. Many of you have asked about the corporate operational EBITDA line and whether our guidance remains for 2015. With the current year to date figure and our year to date and our estimate for quarter 4, we will most likely be slightly below our 2015 indicated range of $500,000,000 to $540,000,000 for corporate EBITA. All in all, it is a tough market, but we are taking action to safeguard our profitability. And just as a reminder, when you are updating your models for quarter 4 2015 2016, our restructuring guidance remains as before and therefore, you should expect a much higher restructuring charge in Q4 of about €100,000,000 to €150,000,000 In addition to this, in September, we gave you more detail on our expected white collar productivity program. From this program, you should expect an additional restructuring in 2015, 'sixteen and 'seventeen. The detail of this can be found on Chart 22 of the deck, which is the same as we showed in London at the Capital Markets Day. And for 2015, we presently expect the white collar productivity restructuring charge to be at the lower end of the range of €300,000,000 to €600,000,000 as we have in this chart. We will be disclosing and tracking this program separately in the future. Let's now turn to Slide 9 and look at cash flow and net working capital. In quarter 3, our efforts to improve net working capital management started to show some results. Our free cash flow to net income conversion was 116% based on a 12 month average. Cash from operations was flat in the quarter in nominal rates, but grew approximately 10% on a constant currency basis. In this challenging market, it is getting tougher to negotiate favorable terms of payment, advances are lower and payment terms are being stretched out. In this harsh market environment, our working capital initiative is critical. The net working capital improved slightly by around 65 basis points. We continue to reduce working capital by stepping up efforts to improve inventory management through the entire value chain from product design through manufacturing and logistics. Additional measures are also being put in place to reduce the excess unbilled receivables in the large projects. And with that, let me now turn it back to Uli. Thank you, Erik. Let's turn to Slide 10. We launched the second stage of our next level strategy in September 2015 to accelerate ABB's transformation. Stage 2 comprises a significant set of actions to drive the shift of the center of gravity of the firm towards higher growth, greater competitiveness and lower risk by initiating 2 focused execution programs and accelerating the existing ones. Implementation of Stage 2 of the next level strategy continues along the three focus areas of profitable growth, relentless execution and business led collaboration. If you turn to Chart 11, let me quickly remind you what we really mean by in the center of gravity. There are 3 elements. 1 is to enhance organic growth momentum, which is at the bottom right of the chart. We achieved this by implementing our PIE framework and expanding into high growth segments. In the bottom left, we show how we are derisking the business by adjusting the business model as we are doing, for example, in Power Systems and in terms of the economic balance, competitiveness by broadening our solutions offering, pushing harder on our service business and driving further our software led differentiation such as strengthening our leading position in Asset Management Software. On Chart 12, you can see examples for our progress in each of the three areas in Q3. On organic growth, we have grown food and beverage double digit consecutively over the last 3 quarters. With our unique and comprehensive product portfolio, we are able to provide the customer with a strong portfolio offering by collaborating as one ABB. On lowering risks, ABB is realigning the divisions to become more customer focused. Whilst we are addressing the business model, e. G. For the systems projects. This will enable us to become quicker and more agile in addressing the markets. The competitiveness side, we continue to introduce new products, software and service solutions across all of our businesses. As an example, we installed the first the world's first high and medium voltage switchgear for Swiss utility ABZ with new eco efficient gas, which significantly lowers the environmental impact. Chart 13 shows concrete examples how we drive profitable organic growth through our PIE framework of penetration, innovation and expansion. In terms of market penetration, we made solid progress in India by providing plant electrification, automation and substation solutions for solar power plants. We now have the largest installed base of solar inverters in India with a cumulative capacity of 2 gigawatts. That's half of the country's overall solar installed base of 4 gigawatts. Innovation continued to be a focus for growth as we introduced several new offerings. One example is a successful partnership with Dutch weather forecasting specialist, Matio Group, to optimize shipping routes, boost safety and protect cargo with software that forecasts adverse weather conditions and takes the ship condition in mind. Our common solution will be installed now on 140 container ships belonging to the Maersk line. This is a truly innovative offering to the market and it proves also that ABB is a true technology leader in what we call the Internet of Things, Services and People. We are also expanding into high growth markets and geographies such as microgrids in Africa. In the Q3, we won a strategically significant order from Socar Belek to install a microgrid solution to boost renewable energy use in a remote community in Kenya. This will provide power to a remote town of 5,000 people. In a continent, there are more than 600,000,000 people do not have access to permanent power supply. Moving to Chart 14, here are two examples of success in the high growth segment of e mobility. Last week, we launched our fast charging robotics solution for public buses at the Buzzworlds trade show. The 1st public project using this technology will integrate Volvo buses and 4 ABB automatic ebus chargers into the existing Luxembourg public transport system. This will allow electric buses to drive 20 fourseven with a typical charge time of just 4 to 6 minutes. This system can easily be integrated into existing bus lines by installing flexible chargers, I call them robo chargers, at endpoints, terminals and or immediate stops. Just yesterday, we announced another strategic partnership with Microsoft, in which ABB's leading fast charging stations for electric vehicles will be combined with Microsoft Azure cloud based services. This gives us the solutions, scalability and global agility to develop charging infrastructure for the world's major automotive markets in a swift way. Let's move to Chart 15. We made a commitment to you to bring Power Systems back to sustainable profitability, and we have delivered now 4 consecutive quarters of positive operational EBITDA margin. Operational EBITDA margin amounted to 4.6% with a 5 20 basis points improvement year on year. In Offshore Wind, we continue to tick off milestones in our remaining project portfolio. We handed over Dolwin 1 to the customer in July and we installed Dolwin 2 in the North Sea in August. Another key success in Power Systems in this quarter was that the first phase in the Northeast Agra transmission link in India was successfully energized. Our partnership with Hitachi is now operational, and we look forward to key business successes together in Japan. Hence, the turnaround in Power Systems is on track, and we are nearing completion. As we mentioned in September, we will realign our divisional structure effective January 2016, and we are conducting the announced strategic portfolio review of Power Grids, which will be completed in 2016. Turning to Chart 16. In this tough market environment, we continue to drive self help by accelerating cost savings and productivity measures and our 1,000 day white color productivity program. Through our regular cost savings program, we continue to drive cost savings across supply chain management and operational excellence. We have reduced our workforce and are executing further capacity reductions in line with market improvements and market conditions and productivity improvements. As announced in September, we have committed to reducing structural costs in addition by EUR 1,000,000,000 through our white collar productivity program. The work streams for the program are on track and the consultation process with employee representatives has already started. Let's turn to Chart 17. This chart shows you how we enable and support collaboration to generate profitable growth by simplifying the organization. Generate profitable growth by simplifying the organization, providing processes and tools and optimizing the way we go to market. We are continuing to drive ABB's transformation aimed at improving customer focus and increasing agility to support achievement of our 2020 targets. The streamlined organization is ready to commence operation in January 2016 and the first three layers of divisional management have already been announced. A key enabler of simpler and fast sales collaboration is a common sales platform. We continue to roll out salesforce.com and we are now already operational in more than 14 countries. This tool cuts administrative time and increases the time that our salespeople can spend with our customers. It's crucial to do this in today's tough market environment. The group account management program is really about collaborating across ABB as a whole to get a higher share of the customer's wallet. We have recently redesigned the program and our pilots show proof of concept as we are now really improving account penetration. Turning to Chart 18. In summary, in this challenging market environment, we delivered margin accretion. Going forward, we expect further hard battle savings. As part of Stage 2 of the Next Level strategy, we will continue to drive self help, which means focusing on growth opportunities that are out there in a disciplined way and mitigating the impact of market headwinds through capacity adjustments, productivity measures and cost reductions. With that, I'd like to conclude my remarks and thank you all for your attention. Let's now open the line for questions. The first question comes from Mr. Jeffrey Sprague from Vertical Research. Please go ahead. Thank you. Good day, everyone. Hey, Jim. Hey, Jim. Hey, Jim. Hey, Jim. Just a couple questions, please. First, Eric, given what you were saying about kind of the issue of payment terms and the like that you're seeing out there, I'm wondering also if you're seeing any slippage in how backlog conversion is playing out in your business. It doesn't sound like there's significant order cancellations per se, but I'm wondering if you're seeing kind of meaningful push outs to schedules. Harry, do you want to take it directly, Jeroen? I'll take it. So on the backlog side, we have not seen any pattern other than normal in terms of order delays and then some smaller cancellations. But we are executing quite well on the backlog as you have seen also in the Power businesses. And on the payment side, it is what it is. We are, of course, working very hard to improve our net working capital in this environment. But it's clear that some of the customer segments, it is tougher with payment terms and payments. And then just another follow-up on thinking about just what's going on in the pricing environment. In your bridge that net savings $8,000,000 in the quarter has been pretty stable. I think it was $6,000,000 in the prior quarter. But is the price dynamic underneath that changing in a meaningful way? Are you seeing more inherent price pressure across the portfolio? Look, Jeff, the market environment out there is tough. There is a fight going on for demand that's out there. ABB has clearly chosen not to participate in price wars. We will protect the delivery of our margin ambition in these tough times. And we rather and as we have shown in many examples, would like to wow our customers with innovation that we are bringing out with great customer service. So there is a price dimension in that, but we will hold the line to make sure that you're not giving up on the margin going forward. And then just a quick last one for me and I'll move on. Just the 2015 restructuring being towards the lower end, does that just reflect kind of the timing and mechanics to get the program up and running? Or is there some other element to that? Thank you very much. Look, Jeffery, when you do these kind of programs, you go out at the beginning before you consult with the labor employees and you give the full range of that we have given for 300 to 600 for this year. And then when you work through the options that we have and what kind of actions we take to get the cost out of the door. Our ambition is to deliver the cost savings with as little as possible restructuring. And for example, when you sometimes in source our cost and at the same time have improvements, you might not have restructuring costs while still getting significant costs down. So that's the trade offs that we are working on. We are right in the middle of the consultation process. At the moment, the indications that we are giving is towards the lower end of the range. Great. Thank you very much. You're welcome. Next question, please. The next question is from Mr. Mark Thromann from Merrill Lynch. Please go ahead. Yes, thank you very much. Good afternoon, Uli, Eric and Alana. Two questions from me, please. First one, on service, orders look to be down 4%, I think, and sales grew 5%, and both about 16% of the business at the last count. I don't know if the book to bill there is still well above 1%. But if it isn't, should we expect the service sales to go down soon? Or when should we expect those service the service part of the business to decline? That was question number 1. And then secondly, just on the outlook, you talk about growth in China and the U. S. And slower Europe, but the report today and I think the last one as well was almost the complete opposite to that with base orders in China down 15% and down 5% in the U. S. And Europe looking generally okay. So are you calling some inflection points in those geographical trends into 2016, by Europe slowing and China and the U. S. Maybe getting a bit better? Or is that more to do with your order visibility? Just a bit of explanation on what gives you the, if you like, what drives the thinking behind that geographical guidance? Thank you. Mark, first of all, you for your question on service. On service year to date, we still have booked positive book to bill and we are fighting hard to make sure that we keep it that way going forward. It's interesting on the service side because I give you a little bit of granularity to that. Oil and gas discretionary spending is directly associated with our service volume in that field. And that has come down massively because customers are very, very careful, for example, on inventory of spares and other elements there. At the same time, we are growing with service in China where we have a very large installed base that typically and historically customers has not yet taken up the service offering as strongly and we're pushing that very hard by making sure that we are penetrating here. So basically what we are doing is we recognize the market contraction in certain areas, but at the same time we are pushing it very hard. We are bringing out a lot of new service products. We have strengthened consciously not only our service sales, but we have especially strengthened our service product and product portfolio management to make sure that we have exciting great offerings for our customers out there, which all have at the moment an issue they want to demand, they want to make sure their own maintenance crews are being reduced and there is a good opportunity for us. So the ambition is to keep it at a book to bill, which is positive going forward. Now on the market, if you go to Page 6 of our presentation, there is a little bit of description how we see the trends going into 2016. And altogether, it's really a mixed bag. If you take China, we have a massive contraction of the classic investment spending. And this year, the pickup on the consumer demand side is not it's solid, but it's not big enough to compensate that. So it could well be that during 2016, we are at the inflection point and we are getting back to a growth momentum overall. Now what we are also doing in China particularly, we are refocusing resources on the key growth opportunities. I mentioned service before. Our automation continues, especially on the discrete side and especially on robotics, a major opportunity. So we are relocating our resources in that field. And then also on the power grid side, look, StakeGrid just came out and have not only given a guidance for next year of 7% to 12% growth, they have also said until 2020, they will invest about 300,000,000,000 dollars into incremental spending on the grid side. So this is something where we are all over it and make sure that we have great technology, that we participate in that one. And in the U. S, a similar picture because the consumer driven, the residential construction, I was impressed by the September number on residential construction, which basically was as confident as it hasn't been for the last 10 years or so. That's positive. Automotive, I had just this morning, important meeting with an automotive, large automotive customer based somewhere in Michigan, who is really planning major investments there. And also on the transmission side, customers are more and more interested to get renewables connected and work with us not only on the flow of the power, but especially on the grid stabilization and grid automation side. At the same time, upstream oil and gas in mining in my eyes will remain to be very, very soft in 2016. So it's probably flattening out and then coming back. But if you take that momentum then you could expect a soft growth or a growth in the U. S. Next year. And then in oil and gas, look at the moment, the massive contraction in oil and gas upstream has outweighed the opportunities on feedstock related investments, but they are there. We see them. I was just a couple of weeks ago in Saudi, visited our Sadara project, which is at the moment the largest downstream oil and gas project going on in the world. It's a 3 by 6 kilometer site. And there are 2 more sites in parallel that is a strong consideration to develop them as well. So it's a mixed bag altogether. I wouldn't call the market inflection overall mark for next year, but we have some positive signals. And with our heat map approach, maybe go much, much closer in terms of segmentation and relocation resources swiftly, I am confident that we will be able to sail well relative to the market development. Very helpful. Thank you. You're welcome. Next question please. The next question is from Mr. Benoit Lofts from Morgan Stanley. Please go ahead. Thank you. Afternoon everyone. I had a couple. So first of all, on the discrete automation business in particular, I'm not sure if this is Ulrich or from Eric, but can you give some color or some sense of what is driving the top line specifically? 7% down is a big number for that division. It happened quite quickly. The press release talks about motors and drives. I'm guessing that part of that is shale and oil and gas in the U. S. But can you give us a sense of what is driving down discrete automation both in the U. S. And China? And is 7% down going to be the new normal? So that's question number 1. Question number 2 and I guess it relates back to an earlier question. The discrete automation margins were down 170 basis points. Is that the division, Ulrich, where you're seeing greater price or lack of price discipline? How much of that 170 bps drop is a price impact as opposed to simply volume? And then final question for Eric, corporate eliminations bounces up and down quite a lot. It was obviously quite low this quarter. Can you give us a sense of why that's actually happening? The market was looking for $130,000,000 I think it was of eliminations, we got $70,000,000 What's actually driving that volatility? Ben, thanks and good afternoon to you. Let me first comment a little bit to top line in DM. Look, if you take if you go start with orders, orders are down 9%, but if you look at really 3rd party, it's 4%, because last year we had a significant booking when we had the large scale order in South Korea on marine that was then passed through to DM as a large scale order. We got that order through PA, but that is when a part of that is being supplied by DM. So on a like for like basis, if you take out that into order, the top line is down by about 4% 3rd party on the order pattern. And then on the revenue side, look, it is basically a contraction of short cycle volume mainly in the U. S. And China and products and services. You might remember on in the DM portfolio, we have a very strong exposure to process industries, where we have built a very strong platform of offering on the large scale drives and the large scale motors and also have a very strong service capability. That division has a strong service attachment rate to it. And there we see a massive contraction on the discretionary spending, which has flown through the annual book to bill this year already in the revenue base in there. Now on oil and gas spending discretionary on this kind of products, customers have in my eyes maybe even a little bit oversteered and there's a risk of uptime if you don't invest in service, if you don't invest in spares. So I would say we have reached the bathtub there, the bottom of the bathtub and now we need to navigate out of it. Calling that precisely right in timing, if I would know that Ben, I would not be sitting here, I would probably be a rich man sitting somewhere else. But that's the reality. So that's the top line and revenue development in DM. On the margin and the corporate eliminations, I'll let Erik take that one. Okay. Good afternoon, Ben. On the margin side, the main reason is simply the mix and the lower of standard products, specifically driven to the segments that Olej has spoke about and the markets in U. S. And China to quite some extent. There's some small element of price, but it is not material, if I look quarter over quarter on that side. I think you also should see that the Q3 last year was not a high quarter, but a relatively high quarter that we are comparing to. Okay. Okay. So but I will and then you ask how will it in which direction is this going and obviously it depends on where the volumes are going and Ulrich talked about the volume the volume numbers already on that side. Okay. And just to follow-up, I mean being brutally simplistic, is it fair for us and I'm really just thinking about this one business, is it fair for us to assume that we continue to see for a couple of quarters some top line pressure, but your assumption is that the margin shouldn't go down too much from here? Well, Ben, as you might remember, we're not giving forward looking guidance. I think we have given you all the inputs to model the future in that one. Okay. Sorry for that. Let's move on to the comp. Then we have the corporate eliminations, which is actually the whole corporate EBITDA. So that's not only eliminations, that's also cost, the different type of cost that we keep on the corporate level. And that is a mix, as I said already, of some realized FX effects, some corporate costs that we have, also part of commodities savings and cost changes that is not picked up in the normal cost saving on the supply chain side and frankly a list of a lot of mixed items. And I think the reality is that both Q3 last year and Q3 this year were both lower than normal just because how those items sum up. So you should not take this as a new level, rather that as I said when we look for the rest of the year that we see a normalization in the Q4 and that we will end up somewhere at the lower end of the range we have indicated for that line of SEK 500,000,000 to SEK 540,000,000, maybe even below the SEK 500,000,000,000, maybe even below the SEK 500,000,000 That's helpful. Thank you very much. Okay. Next question please. The next question is from Ms. Natalia Fakman from Corning. Maybe just in connection to Ben's question on DM. Could you, outside of robotics, give some details which areas are stable to going up when it comes to organic growth sales, so outside of robotics? And then a question on low voltage margins, which was strong. How much of that is lower system sales? And how much of that would you say are your own initiatives, cost initiatives? And then a question on Process Automation. You wrote that Process Automation base orders were steady in the quarter. Do you believe we are somewhere at the bottom for this division? And the last question regarding the share repurchase. Your current share repurchase program is ending in September. And if you don't have a clear acquisition of couple of $1,000,000,000 of dollars, would you be open to continue that for another 1, 2 years? Thank you. Hey, Nathalie, thank you very much for that set of questions. Let me try to address some of them. I will give the margin question over to Eric. So on DM, if you read through the successes that we have shared with you in focused high growth segments, some of them are directly associated with DM. Take the food and beverage piece, DM is playing a major role in that area. If you take the transport piece and if you take the rail piece, that business is developing quite well with our one step back strategy where we fill the tin boxes in public transport with great electronic and propulsion solutions that's going well. If you take the renewable place, DM is basically the father or mother, the way you want to define it, of the success story of solar in India with our very, very competitive, especially with large utility scale solar inverters that we have in there. So there's a pretty broad opportunity set in this division that we have. And naturally, we need to use them together with robotics to work on compensating the tough impact that we have from the contraction that we see on the process side and they're bottoming out in the process side. Now on the other one that I will take is the share repurchase and then I'll hand over to Erik. Look, on the share repurchase, we are basically on track what we said we will do. And there's no need to speculate on any direction going forward. We have very clear capital allocation priorities. Number 1 is the organic growth. Number 2 is the dividend. Number 3 is funding M and A. And number 4 is additional returns to our shareholders. And depending where we are next summer, we will then consider how we deploy capital in the appropriate way. So it's too early to speculate with that. I hand over to Eric on the LV margin and the PA base question. I think it was both LP and PA. Yes. Yes. So on LP side, it is both the mix that helps, but also a very strong execution on productivity and cost out in this division. So both items are impacting the margin. It's not one that is predominant compared to the other. The PA margin is low in the quarter compared to the earlier quarters. It also there has to do with mix and we have talked already about the service and the oil and gas impact, and it all depends on where those volumes will continue to go in the future. We are working, of course, very hard also on cost out and productivity improvements in this division. So that should have a positive effect on the margin that we see where it then balances out between the market and our internal efforts, I don't want to give a forecast at this point in time. And the question on PA was on the base orders. Is that that you think that it will continue to be steady that you reach some kind of a trough? On the PA side, you need to understand there's significant element in the base orders on 2 elements. It's the domain specific product that we have, the measurement products, for example, that we have in PA and on the other hand the service activities. Now on both, we have seen a mixed picture. We have seen in oil and gas a massive contraction, but PA has been successful on the service side to grow in other fields to compensate that impact. And Peter's ambition is basically as the leader of this division to hold base orders as close as possible to the steady line in this tough market environment. Okay. Let's move on to question. Okay. Thank you, Natalie. The next question comes from Mr. Andreas Willey from JPMorgan. Please go ahead. Yes, good afternoon, everybody. My first question is on robotics. You called the business this morning in the press call a rock star. How do you see the trends here in the next 12, 18 months? Not the longer term structural positives, but more the risks in the automotive industry from weaker global car sales and maybe also anything related to VW you could see here given we have seen some areas of auto CapEx slowing recently? And the second question on the working capital, the dynamic between your own improvement in the market, The number you've given us at the Capital Markets Day for what you want to save, does that assume basically stable payment terms, stable prepayment, so we should subtract from that kind of the ongoing deterioration in Thank you for being with us. Look on the robotics, let's talk about the market first and then about our own business. The market is one of the fastest growing markets in the industry at the moment. If you look at the forecast that came just out the last couple of days for China, for other parts of the world, this is a market that is not only long term, but also short term will continue to grow. Now it's very important in robotics, if you want to participate in that growth, to have the right offering. Because the offering is not only about a standard kilogram of robots. The offering demand is and the customers really make their purchasing decision on the purpose and the applications that a robot can be used for. And there we are really leading. We have invested around the world in application centers for specific situations, material handling, gluing and other applications. So that's something that was ABB strategy already in the last couple of years and we're really benefiting from that. In addition, our investment in footprint, you might remember earlier this year, we complemented our China and our Sweden activity with a focused factory in Michigan, in the America, and that's really playing off altogether. Now on auto, look, it's interesting because on auto, there are some overall volume dynamics and this volume dynamics is the one driver, but there are 2 other dynamics that I want to make you aware of, which are basically compensating maybe a little bit softer volume. And the one is the complexity of cars. If we look back 20 years, a car basically was a bunch of steel and tin that was welded together. Today, if you look at the new 7 Series of BMW and some other cars, if you look at the amount of different materials that are being used, there have never been more different materials on the car. And that for just one example requires a much wider range of joining technologies. So in the past, you had welding. Today, you have laser welding, conventional welding, riveting, roller hemming, gluing to make sure you get magnesium, titanium, aluminum, fiberglass, tin and steel together. So that's really an opportunity for us and we have been working with the leading OEMs in making sure their journey towards a more sophisticated car is complemented by our automation technology that we have altogether. So that's one driver. The other driver is, if global demand is subdued that does not mean that there are no demand dynamics underneath. We see strong growth still in emerging markets, especially of the local players. Now given the fact that we were the 1st and are still the strongest in robotics in China for automotive, for example, this positions us pretty well to work with the local players. They are ramping up. And then the last point on the players that might be at the moment a little bit under pressure, one area to compensate this pressure is to launch fantastic new technology and fantastic new cars and we are looking forward to continue working with our customers and all the customers that you mentioned going forward on that one. With that, I hand over to Erik on the working capital side. Thank you, Uli. So on working capital, we obviously have set a very clear target, and that is the target we have for 2017. Within that, the different parameters and blocks in working capital will move. We have some pressure now potentially on the terms and conditions, but we are clearly targeting the number that was mentioned in the Capital Markets Day. The next question comes from Mr. Andre Kukhnin from Credit Suisse. Please go ahead. Yes, good afternoon. It's Andre from Credit Suisse. I'll go one at a time. Firstly, just on China to come back to that. Within that minus 15% and base orders, how much do you think was the customer destock versus underlying demand trend? And secondly, just within China, how did the robotics business do within China in the quarter? Okay. The second one is a pleasure to talk about. The business did well. And the first one, look, it depends really on the business line. If you take the TARAC's business on low voltage, the destocking is probably less preeminent as it is on the motors and the drive side that goes through distribution. The massive stopping of process industry investments has really on the DM side, made the distributors extremely cautious and they are bringing down stock levels in a significant way. On the LP side, I would say the market has already balanced in terms of destocking levels a little bit earlier. So I wouldn't see the same amount of destocking on the LP as I would assume on the EM side altogether. But there's very clearly there is a destocking going on. Whenever customer confidence is softer and we have clearly flagged that it is softer and we expect it to stay soft going forward, then people are very cautious in working capital investments on the distribution side. So given this, just thinking about the Q4, are you signaling that minus 15% is likely to carry on to continue? Look, Andre, we don't give forward looking guidance on any market. Fair enough. And just one last question on State Grid in China. You said there's investment ramping up. Are you expecting to maintain, expand your market share in that within that spend? Look, what we are doing is we are pumping out fantastic innovation with our new offering on the Power Products and the Power Systems side. I think we will continue to have the ambition to be a strong partner of State Grid going forward. The new alignment of the division, the formation of the Power Grids division was very much welcomed by the customers including State Grid. They said, okay, now it's easier to deal with ABB out of one hand. So the innovation pipeline that we have, the strong push on good service and the structural adjustment should put us very well to also to State Grid as a key customer that we highly value in the future. Thank you, Andre. We will continue with the next set of questions. I ask that everyone keep it to 2 questions, please. Next set of questions. The next question comes from Ms. Daniela Costa from Goldman Sachs. Please go ahead. Hi there. This is Jessica in place of Daniela. So we had a couple of questions. The first one being, if you can probably talk a bit about where you stand in terms of capacity utilization across your various businesses? And the second one is about basically you've been talking about how automation the trend of automation means that companies will start or customers will start investing more in CapEx now to invest less in CapEx in the future by becoming more efficient. Have you seen that in any particular end market? For example, mining, I guess, has already gone through the phase or has already seen declining growth for a couple of years now. But have you seen that step up in CapEx in order to become more efficient? Thank you. Okay. Jessica, thanks for your questions. Look, first, we don't disclose capacity utilization number by business or sector. But let me run you through how we drive capacity utilization. Basically, we look at our assets and we take an OAE approach that's basically uptime, speed and yield of each of the assets that we have out there. And naturally, we need to look at which uptime are we running the facility, at what speed are we operating and what's the yield. And we have specific measures in place to all three of them. Now there is a productivity driven element in that and there's a demand driven element on that. On the demand driven side, you have seen us announcing structural adjustments to our footprint throughout the year. So for example, in DM, we have announced an adjustment in Sweden. We have announced adjustments in North America on the capacity to on the one hand, get better in line with the market demand, but on the other hand also take productivity up and move some of the capacity to lower cost places. I mean that's an ongoing process. We look on that in a very disciplined way. It is very dangerous to become too nervous short term with capacity adjustments. But if we see a strong underlying trend either on the demand or productivity opportunity side, then we are not shy making that adjustment. Now on the automation side, if you take many you mentioned mining as an example. Look, there is investments, for example, in the theme of demanning the mines. At the moment, we have many customers that work with us and say, can we, for an existing mine, take build up a pilot of a mine where we are demeaning, where we're increasing remote monitoring and remote management. So the basic theme there is we take the people further away from the mine and we bring the equipment itself closer and more steady to the mine that we don't have so much lost productivity in moving equipment with the people out and in on the mine, the excavator side, on the truck side and whatever. And that's something we have been working very successfully. If you take in the last quarter, we had some orders or in the last sorry, in year to date, we had some orders with Vale and South America doing that. We have a very strong customer up in Sweden called Voliden, where we have been working to basically work on the mine of the future. So this is these are areas that we are working on to stay close to our customers. Would I call it yet a full change of the CapEx cycle low? Mining is still at the I would call it at the bottom of the buffer. But do these kind of activities keep us close to our customers and prepare us for the market ramp up absolutely and that's the way we will continue to position that. Thank you, Jessica. With that, we will take 2 more sets of questions. The next question is from Mr. Jim Stettler from Barclays. Please go ahead. Thank you and good afternoon all. Just a very short term question. First of all, as you looked at the last quarter, was there a step change in demand as we progress through September? And do you still feel that your normal restructuring is going to be sufficient on the production side? Or as you embark on the strategic review of the Power Grids segment, could you maybe give us a bit more color of what your thinking is and what you're trying to achieve longer term? Thank you. I'll let Erik answer the first question on restructuring and I'll take then the second one on the strategic ratio. Yes. We have seen in the market we are we need to do more restructuring. We have announced it earlier this year. A lot of those plans are already in progress. And we are expecting them to book as much as we said earlier this year to get to the forecast for the Q4, which would mean SEK 250,000,000 to SEK 300,000,000 of restructuring. Obviously, if we find projects that are worthwhile doing, we will consider to do them. But we think we can do them within that frame, which still leaves quite a bit above SEK 100,000,000 more to be booked in the Q4. Look, going to your second question, James, on the strategic review. What we are doing with this strategic review, we are basically looking at how do we safeguard the number one position in transmission and distribution long term going forward. So we look at our technology platform and we take our perspective on the functional hardware, the corporate iron stuff, the electronic pieces that, for example, go into our converters, the software that we have on asset management and on grid management and the service. We also look at end markets and say how do we run this business for continued market leadership in end markets by industry segment, but also geographically, we are pushing very hard on Africa. If you want to be successful in Africa, you might want to reconsider your business model, how you do that. Similarly, for parts like Southeast Asia. That's the 2nd element. And the 3rd element that we are looking at is also the ownership options that we have running this business going forward. And all options are in the table. We do that in a very calm and fact based way. In the review that we have embarked on, the existing management team of the Future Power Grids division will be or is already involved. We're already in discussions. We had yes, today a board meeting where we went through some of the topics and discussed it. So it's a good process and it's pretty similar to what we did at the end of 2009 with robotics. At that time, you might remember robotics was in a situation where we had to fundamentally ask the question, how do we go forward and should we own this business? We came up with a clear transformation plan and with a recommendation to the Board to keep the business at that time. I have to say thank God we did that. Today we are very happy and exactly the same kind of process and logic we go now through with the Power Grids division. If you look at the performance improvement momentum in Power Systems, I would describe it as very strong. If you take the delta that Claudio and his team have delivered not only in terms of the profitability, but in terms of the operations quality, in terms of the team that they are putting in, it's going in the right direction. So we are in no rush to be in some kind of extreme urgency. We will take our time working with the team through. And as we have flagged earlier during 2016, when the time is right, we will come out and share with the public what the outcome of the review is. With that, I would like to have the last question, please. Last set of questions. The last question comes from Mr. James Moore from Redburn Partners. Please go ahead. Good afternoon, everyone. Thanks for taking the questions. I've got 3. Firstly, can I 2, James? I'll stick to 2 then. Firstly, can I ask why you see a bottoming of oil, mining, metals, marine, the heavy hit process industries when those global industries are signaling further CapEx cuts in 2016? Is it that you believe they're being too conservative? Or is it that you see an over destocking at the moment that has to reverse? And secondly, could I ask about price? Last time you actually broke price out in early 2014, it was running at just under $1,000,000,000 per year of pressure. Without putting a number on it, can you help us a little to say whether the last 12 month price effect is above that, similar to that or below that excluding savings? Okay, James. Thanks for your questions. They are good ones to close out with. Look on debottlenecking out, there's a very simple reason. I think the companies have overshot in cutting service spending and that needs to come up again for a very simple reason. The assets are all running. If you look at the amount of assets that are out there on the oil and gas side, on the upstream side that are continuously running at the pace. Some of the demand even has gone up and they are bringing they're pumping more volume out to compensate the price pressure And that will require some investments on a pretty low level, but it will require some investments to keep the assets going. That's we already see some signals. I wouldn't call it a trend yet, but I was with a customer late last week in the oil and gas segment and they basically flagged, look, we need to do something again because we have realized if we keep going that way, we might jeopardize uptime and reliability of our assets. And mind you, downtime in upstream oil and gas is much more expensive than putting a little bit of service in there. So that's the reason why I'm confident that it will bottom out on a low level and not further deteriorate. With that said, I hand over to Erik to take the price question. Yes. Look, James, the reason we keep them together nowadays is obviously when we have price pressure, we also have opportunities to go more back to our suppliers and get more out of the supply chain. So that's the reason why we're not breaking the two numbers out in detail. We have communicated, of course, over the last quarters and also today that there is some more price pressure in some segments of the market. So if you really compare the latest trends, there is some more price pressure. But I will not give you an estimate exactly to what we had the last time that we had those separated out. I think you should look at that as one thing together. And thank you. And on that, I mean, just as we go into next year, because you're raising your with the white collar, your degree of savings basically from $1,000,000,000 to $1,500,000,000 broadly. And is it that you think that the savings are going to sort of move ahead of that from being a little bit behind that at the moment? James, I think I will call you on that question because the team here actually has to leave. So I'll have to close the call out at this point in time. So sorry, but I'll give you a call on that topic, okay? Sure. Thanks. Thanks. And with that, I would like to say thank you to everyone for their time and efforts today. And we look forward to hearing you on the next call for the Q4. Thanks again. Ladies and gentlemen, the conference is now over. Thank you for choosing Chorus Call and thank you for participating in the conference.