Yeah. Yeah. Yes. I just want to wait until you're seated. May I ask everyone to take their seats? We're about to commence. Welcome. We are very excited here today for the launching of ABB's Next Level strategy. We are very pleased to have with us today, ABB CEO, Ulrich Spiesshofer, CFO, Eric Elzvik, as well as the entire Executive Committee. Before we get started, I would like to review the agenda. The day will start with presentations from Uli and Eric, followed by a Q&A session. We will then break for lunch, where we would like to invite you to participate in our exhibits. They are located at the back of the room, as well as in the reception area. These exhibits were tailored specifically to let you know about ABB and its offerings.
In the afternoon, we will have four presentations where we will actually demonstrate how we will execute ABB's Next Level strategy. At the end of the day, we will have Q&A, followed by an apéro. Today's event is being webcast. A couple of housekeeping items. Some of you might not have some handouts on the desk, and we apologize for that. They will be coming shortly, and they will be handed out. During the event, please wear your badge for security reasons. As well as if there is actually an alarm going off, it is not necessarily a drill, it is actually the real thing. You will not be able to actually use the elevators. Let me now draw your attention to our safe harbor statement for any forward-looking statements that we might make today. With that, welcome, and please enjoy the event.
For 120 years, our technology has been driving the modern world, from power plants to industrial robots, transport to control systems. The modern world is powerful. The world is changing. We're driving that change. Across the globe with a staff of more than 145,000, ABB continues to lead the way in power and automation. Empowering utility companies with a new generation of renewable energy. Pioneering High-Voltage Direct Current transmission to send more power further than ever before. Automating the industry of tomorrow with more industrial robots in operation than anyone else. Enabling transport and infrastructure from revolutionary ship propulsion to electric vehicle charging. In 120 years, ABB's businesses have never stopped innovating, shaping the world of the future from the power plant to your plug point. ABB, taking power and productivity to the next level.
Good morning, ladies and gentlemen, welcome to our Capital Markets Day 2014, to the unveiling of our Next Level strategy for ABB. We will shape the global leader in power and automation. The Next Level strategy is aimed at accelerating sustainable value creation. ABB today is a company that is well-positioned in attractive markets. Therefore, we don't need to talk about fundamentally changing the portfolio or doing dramatic things. It's about taking a very well-established company to the next level of performance in many dimensions. Last year, we introduced the three focus areas of profitable growth, relentless execution, and business-led collaboration. The new strategy is aligned and building on these three focus areas in a Next Level set.
We aim to realize the benefits of this strategy over the course of the next 5 to 6 years, and we are committed to delivering attractive shareholder returns over the period. This morning, the journey of attractive shareholder returns has started with our announced $4 billion share buyback that allows our shareholders to participate in our strong cash generation, in the results of our portfolio pruning activities, which we have successfully done over the last 12 months. It shows the confidence of our entire team into our own strategy and the plans that we have put together for the future. Profitable growth will be driven in the next year with a very strong focus on organic growth. I believe very strongly in our company that's so well-positioned in such a vast market opportunity that the focus on profitable organic growth should be the core mandate of the management team.
We will do this by shifting the center of gravity towards strengthened competitiveness. We will drive organic growth momentum, and we will de-risk ABB. You will not only hear this morning from me, we will have this afternoon our colleagues from the Executive Committee talking about it. For example, Claudio Facchin, the leader of Power Systems, will give you much more details that we owe you, I feel, on the Power Systems situation and the way going forward. In execution, we will be developing a leading operational model, building on the successes in supply chain management, in quality and operational excellence that we have delivered over the last years. We will drive change with a robust and clear and prioritized Thousand-Day change program that will allow us to realize what we say in a much more focused way.
We will link strategy, performance, and compensation tighter than before and make sure that both individual and institutional performance is rewarded. To get there and to support this move, we are simplifying ABB. We simplify processes, and we have announced this morning a streamlined, corporate structure, taking out one hierarchy level on the regional side, having a stronger market focus, and moving from 8 to 3 regions whilst putting undiluted global business responsibility as the mandate of our business unit leaders that are being led by our division heads. Altogether, we will accelerate sustainable value creation for a company that's well-positioned in attractive markets. Let me give you a little bit more flavor than just this short summary. ABB today is a company that some perceive as complex and difficult to understand. In truth, it's not.
We do power and automation for utilities, industry, and transport and infrastructure, and we do this globally. That's ABB. If you look at the shape and the quantification behind what I just said, we are today about 60% automation, about 40% power. We are about 30 utilities, about half in industry, and about 20% in transport and infrastructure, a segment where we had recently some really nice successes, and I would like to invite you over lunch break or later to look at one of the exhibits of the marine business, for example, that we have down there, which is a fantastic demonstration of our capabilities in that field. The three end markets that we are serving, utilities, industry, and transport and infrastructure, represent a $600 billion market opportunity for ABB today.
This market will grow in the next five to six years by three to four ABBs to about $750 billion. Each of these market segments have underlying drivers which make it an ideal playing field for a technology leader with global reach like ABB, whether it's renewables, the digitalization of the grid, the introduction of new consumption points, where you have more energy by wire for example, public transport and cars, personal mobility. These are all areas where we have strong opportunities to drive ABB ahead of the market growth. If you look at our 3 customer segments today, there are many fields where we are already in a strong position. Last year, we took a navigation check.
We said, "Where does ABB stand in each of the segments of our portfolio?" The outcome was a lot of good news regarding positioning, but also a lot of good news in areas where we can do even better. Our ambition is to be a number 1 or 2 in the segments where we are active. We are building on the strengths where we are already there, and we are allocating resources, capital, and people in a way to make sure that they become more over time in a focused and balanced way. Our power and automation offering is an integral part of ABB's value proposition to our customers. If you look just what we're doing for our 3 customer segments with our 5 divisions, each of the divisions is providing power and automation capabilities into the end customer segments.
The common theme that has built the strengths of ABB over many years will be the common theme in the future. Our portfolio will be, in the future as today, built around power and automation for our customers out there. We are well-positioned, but I also said in attractive markets. Now let me talk a little bit about the markets. If you look at the electricity value chain around the world, there is a big shift going on in this value chain. In generation, in 2035, which is only 20 years away, 40% of the global installed capacity will be renewables. That means more volatility, less predictability, more feeding points that we have to deal with. You have on the grid side longer distances to overcome. You cannot build a solar plant in the middle of New York. You have to build it outside.
You cannot build it in the middle of Shanghai. You have to build it outside. There is a tremendous need for longer, less loss, high-tech, transmission of power in the future. Controlling the grid with more feed-in points, with more take-off points is an art, and ABB is a master of that art today already. If you look up below the distribution level on the micro and nano grid level, there's a tremendous opportunity to do more on and off grid on micro and nano grid level in the future. This afternoon you will hear Bernhard and Claudio talking a little bit more, our two power leaders, about that space. Let me give you a concrete example what this means. Historically, on the left side, you see the power flow as it was.
Power flowing from a single power plant into the grid to the consumption point. That was the times when people described the power value chain as pretty dull and boring. This is over. Today, you have a grid that you see on the right side. Multiple take-off points, multiple feed-in points, complexity of control, and the relevance of controlling this grid, meaning controlling the bits and bytes to steer the grid in the right direction, rather than only looking at the electrons flow, is a key differentiator. ABB is already leading in the transition towards what we call the digital grid. We are strong there. We got the software capabilities that we have built over many, many years. Today, we are well-positioned to benefit from this big shift in the electrical value chain, and our customers like us as a partner.
As you have seen just two hours ago, we are very proud to announce today, breaking news, a large $800 million orders here in the U.K. It's still in the U.K., up in Scotland, where we're going to connect with two converter stations, renewable energy to the overall grid. This is a project that we like. We have done 13 of the 14 global commissionings of that type of project successfully on time with good profitability. I would like to congratulate Claudio and his team. They did a great job.
I was with the customer a couple of weeks ago trying to listen and understand what we really need to do to win this, and it was a fantastic proof that a customer really says, "Look, you are differentiating because you can have technology that works, and we trust in you." There is some hope around the Power Systems division, and this is just one signal of that one. Taking three steps back. In power, we have a strong portfolio today, and we will address attractive growth segments in the future. The strength today is not only the flow of the electrons, it's the control, the software piece coming together to bring an overall very strong value proposition to our customers.
In the future, more interconnections, higher voltages, grid automation, new grid topologies, microgrids, advanced services and software are key elements that will differentiate us not only today, but also in the future. The first big shift along the electrical value chain. The second is in industry. In industry, we are seeing a development from an industry of the past to what we call Industry 4.0. Today and tomorrow, the connectivity between things, people, and services will be a key differentiator for industrial enterprise. ABB has already well-shaped offering to work with our customers in that space. We proactively develop them and today are already deploying them. Let me give you a concrete example what this means. Imagine we go to a 3C assembly plant in China, where we have a robot assembling products.
That robot starts to have a little bit of vibration in one of the six joints of the robot arm. The robot calls and says, "I'm starting to shake. I have the following symptoms." That signal goes into our service operation center. That signal is being compared with a big data archive of historical operating data of other robots. The system says, "Typically, with these kind of symptoms, within 22 hours, you will have a breakdown." The signal goes to the service team. The service team dispatches a crew that goes out there to make sure before the 22 hours we address the problem. The service crew arrives on-site. It's a new site that the person has never been. He takes his iPad out and sweeps the iPad camera around and shows the video and the screen and the information of the local setup to the service center.
The service center says, "Be careful. Before you do the maintenance job, you should do here a proper disconnection. You have here a safety hazard that you need to obey." The person follows that up and makes sure that it does a safe and on time addressing the issue that the robot has. That is Industry 4.0 in action. This is what we are doing today. Xun Yang and his team in China have done a great job penetrating the space in China with robots. We have done that all around the world in other places, it's a key differentiator. It positions us in the forefront, bringing the Internet of things, the speaking robot, the services, the service center, and the people, the mechanic, all together to serve our customers in a better way.
If you take the overall picture, in automation, we are strong positioned. There are tremendous growth opportunities ahead. This is why we talk about attractive markets for ABB. We are not only well-positioned because of the what and what we do and with whom we do that. We are also strong positioned because of the where. If you look at the global reach of ABB and the balance that we have, having about a third of our business in Europe, a third in the Americas, a third in Asia, Middle East, Africa, is a wonderfully balanced portfolio that we are really proud of, that we have built over many years. It's not only the presence of the activities. Even more important is our cultural diversity. Three-quarters of the top 200 managers of ABB come from outside the two founding countries, Switzerland and Sweden.
This is unmatched in industry. Nobody else in industry has a similar kind of structure in our field of activities. We have, I always call it the United Nations of ABB. We have 27 nationalities from six continents in the top 200. The executive committee that you see here, we have eight different nationalities. That allows us to have a globally sensitive team and culture, which really knows and is at home in the relevant places all around the world. We are well-positioned in attractive markets. What will we do in the future? The Next Level strategy is building on the three focus areas that we announced last year in fall. Profitable growth, relentless execution, business-led collaboration, aimed at driving earnings per share momentum and cash return on investment of ABB.
In simple terms, we want to do more, we want to do it better, and we want to do it together. Let's talk about the more and the profitable growth piece, and let me give you some flavor on what we will do in that field. On growth, I said we are shifting the center of gravity, and we will complement the growth that we achieve that way with incremental acquisitions and partnerships. Let me run you through what we mean when we say shifting the center of gravity. Here is the ABB of today. If you look in three dimensions, competitiveness, growth, and risk, this is us today. Our aim is now to change the setup and move towards a strengthened competitiveness, stronger focus on organic growth, while de-risking the portfolio across ABB.
Let me make some concrete examples to share with you what this really means and what we will do to drive the three topics. Let's start with competitiveness. In competitiveness, we will work very strongly of enhancing our customer value proposition. That sounds awfully theoretical. What does that mean in practice? In practice, it means that we want to become more relevant across our customers' entire value chain and be not only a provider of product systems and solution in the build phase of our customers. Today, we are very strongly positioned, and we will keep that strong position. We will not move away from that.
We will complement that strong position by a stronger focus of becoming a planning and design partner and an operating partner for our customers, and lift both pieces up on both sides to basically enhance the relevance of ABB throughout a customer's life. That means we will add on the front-end piece and the planning and design piece. We will add engineering consulting activities. We will add new software tools like we have done with RobotStudio already or our grid planning software that we have today successfully implemented. On the operating partner side, we will add new software capabilities and service management capabilities to the already existing very strongholds of ABB around the Asset Health Center or the service solutions that I demonstrated to you earlier. Driving the customer value proposition up is one element of driving competitiveness. The second element is around service.
We started a couple of years ago, a successful journey on growing the service business of ABB. It's today an important growth pillar and performance pillar of our portfolio. Greg Scheu , together with his team, has done a marvelous job in laying out a clear strategy, and we are executing the strategy. We are following rigorously up for every single action. We have dashboards in place, we have investment plans in place to really make sure we are doing what we are saying. In parallel, we are embarking on the Next Level of growth by addressing additional levers, such as engineering and consulting, such as more software-based services. What I said before, the big data information that comes out of our installed base, whether it's a robot, a motor, a transformer, we can do much more for our customers, and this is a key focus for us going forward.
The ambition is to increase the service share of revenue by one point a year. It sounds maybe a not very ambitious target, but I can tell you given the size of ABB, this means a lot, and this is something that we will drive very hard in the years to come. Again, let me give you a concrete example what this means. Let's take the field of mining, where at the moment the market is being seen as being a little bit moderate. There are tremendous opportunities to do more to drive uptime, speed, and reliability of brownfield assets. Historically, we were a break-fix job. Customer calls, "I have a problem," we fix it. Today, we are an asset management partner.
We provide remote condition monitoring with our remote services stations and really drive very hard, together with our customer, uptime, speed, and reliability in a pretty competitive environment. The third part that I would like to mention in driving competitiveness is around software. Let me just give you some facts around software. Today, more than half of our offering is already software-based. We have been in that field since many, many years, and we will be in this field many, many more years. At the moment, there's a little bit of hype around digitization. We are already in that, and we will drive our software capabilities going forward even harder. Whether it's embedded software, where you have a piece of hardware, where some of the functionality comes out of the software element. Whether it's the automation software, where we are leading with our 800xA offering.
I invite you, we have an exhibit here on the newest generation 800xA, which is fantastically easy to install and really has a good connectivity with other system. It's an open architecture. I think this is something that we are very strong in. Thirdly, our application software for design, like a RobotStudio for operations and for services like the Asset Health. Altogether, we are already today a very strong software-capable player. We already differentiate ourselves very strongly. If you look at the breadth, the smallest piece of software is 100 lines of code in a single breaker, and the largest software piece that we have, for example, in a Network Manager, is about the software complexity of a Boeing 787. We are in that home, and that's a natural part of ABB.
We will use software also in the future, as we have done in the past, to drive software-based differentiation. Whether it's the ease of installation through easier or Next Level of embedded software, whether it's leaner operations as a customer value or higher energy efficiency through better control, or whether it's faster, easier design on the planning side or service efficiency on the operations side, we will continue to drive our software activities as a key competitive differentiator and as a hallmark of ABB's competitiveness. ABB today would not be ABB if we wouldn't have strong technology base. We have seen over the last weeks many announcements on new breakthrough technology. One of them is our 525 kV cable. You might say, "What is the cable?
It is pretty boring." No, it's not at all, because if you are a utility or somebody responsible for infrastructure in a country and you have to decide whether to use the common technology, where you might need two cables to connect a certain renewables plant with a distant point of consumption, or whether you need only one because the ABB cable has more capacity than anybody else. In fact, double the capacity that the next best has to offer. That's a clear differentiator, and it just shows that our high investments in R&D are really paying off. It's not only the big things that matter. It might be sometimes very small things, like a sensor that takes its energy that it needs for operations out of the process flow and harvests the energy out of the process flow rather than having a separate energy and power supply.
The world of sensors is growing very, very fast. We have more and more products speaking, having a strong capability in this field is another technological differentiator of ABB. Competitiveness, better value proposition, services, software, technology are key levers that we continue to work on to make ABB an even more competitive player in the world out there. The second piece that I want to talk about in terms of shifting the center of gravity is around addressing high-growth opportunities. During the exercise that we call the navigation check and the strategy exercise now, we looked at all of our markets. There's a tremendous opportunity in a lot of segments to drive high growth in certain areas of utilities, industries, and transport and infrastructure. The good news is it's everywhere.
In each of the segments are high-growth opportunities, we will now focus our capital, our investment, our time, our activities, especially stronger on these high-growth opportunities. With that, I'm confident that we will accelerate the organic growth momentum in ABB. When you want to drive growth faster, especially in an engineering culture like ABB, it's not only important to understand the what we could be doing. It's very important to deliver on the how, to determine how can we drive better growth in the future. Last year, we successfully introduced a new approach of driving growth. We called it PI, penetration, innovation, and expansion, where we have very clear priorities and clear understanding what does it take to penetrate a market further with stuff that we already do or customers that we already serve.
Innovation, may we constantly enhance our value proposition to our customers and drive more value. It does not always need to be a product. It can be a process. It can be delivery times. When I look what Tarak has done with his portfolio in taking down lead times, that's a very innovative value proposition to our customers because they can change their supply chain based on our capabilities. Last not least, it's around expansion, where we will do more in new segments. We recently launched a robot packaging center in Singapore to address the fast-growing needs of the food and beverage industry in that part of the world, it's a fantastic success. We will do more of that. Let me share with you how we have operationalized this.
We did heat maps all around ABB, where in a very well-segmented way, we went through and identified where are growth topics and where are growth opportunities. We know now in which segment we are number 1 or 2, and we give that a green. Whether we are number 3 to 5, we give that a yellow, or whether we are below the number 5, and that's a red. On the reds, if they are future core, we will invest. We cannot take all of them at the same time, but we will invest in a prioritized way. If they are not part of the grow core, they go. You have seen us pruning the portfolio in the last 12 months.
We have successfully executed a pruning program where we had multiple divestitures, very well executed by the team, this will be a pattern here to stay. Driving growth with clearly articulated measures along the heat maps that we have is key differentiator of us. People are aligned. There are milestones, personal accountabilities, and responsibilities defined. When you travel out today in a country, ask the country manager or local division or business unit manager about his heat map. He knows exactly what he's talking about. He knows exactly what he needs to do, that's really a differentiator and will drive and help us to operationalize a higher level of growth momentum. Now I talked about the competitiveness piece, I talked about the growth piece. Let's talk about risk.
I will take a first stand at it, Claudio will, this afternoon, talk a little bit more specifically for PS, what he's doing with his team on the PS situation to de-risk the business profile. Look, we learned our lesson. It was an expensive exercise on the Power Systems side. We have done our homework. We have ring-fenced the risks that we have in the ABB portfolio. For each of the risks, we have now a targeted mitigation plan in place. It can be sometimes, if you look at engineering, putting up a stronger standardization and platform approach to make sure we have repetitive skills and not try to make a new thing every time again. It's engineering pride, sometimes you don't earn money with it.
The mitigation program, together with the identified risks, are part of the management plan, the annual plans that have to be delivered going forward. Let me sum up what we mean by shifting the center of gravity. Accelerated growth momentum with a strong focus on organic growth, reduced risks, improved margin. This is a key reason why we commit to a margin accretion over the planning cycle that we announced today. Now, profitable growth will not only be driven organically. We will continue to address the opportunities by doing incremental acquisitions. We have done about 30 of them over the last years, I can tell you we expanded our portfolio successfully. We are on the map in North America like never before, it's great timing because that might be a part of the world that takes up before Europe really takes up strongly.
We have delivered value. The synergies, we have maintained the strengths of the team, the best of both worlds integration principle has proven to be really the right one. We have learned a lot from our acquisitions. They have become better by adopting certain ABB practices, together, we have lifted the level of performance. We have also been disciplined, and we will always remain disciplined. Some of you might remember the attempt on Chloride, where we had the board recommending that ABB get the deal. Somebody else came with a blowout bid, with a very high valuation. We stepped away and said, "Not for us, not with this valuation." We stopped the process. We did similar stoppages on other due diligence situations. If there is an issue around integrity, ABB will not play.
If there's an issue around financials, we will not play, we're going to keep that discipline going forward. A lot of you want to talk about very large acquisitions. Let me tell you, there is also very exciting smaller ones that really move the needle in ABB. We announced a couple of weeks ago the acquisition of Spirit IT, which is a liquid flow computers and software company up in the Netherlands. We are already strong in gas measurement and software. Spirit IT is strong on the liquid side. When you go to a process industry player, you need both.
We combine our strength on gas with the market access that we already have, with the software and measurement product capabilities of Spirit IT, which is a smaller company, we scaled it up, it's a wonderful growth story at relatively low risk and very attractive long-term outlook. Going forward, we have defined a clear strategic direction for M&A. We have defined the fields where we will be active, here you see a couple of examples in there, they range across the whole range of ABB's activities, our criteria will stay intact. We will be disciplined, we will be ambitious in terms of our return requests that we have. The third element around growth beside organic growth and acquisition, that's a new direction of ABB, is around partnerships.
You have seen us announcing in spring this year a partnership between Philips, global leader in lighting technology, and ABB. Together, we drive really a strong partnership for commercial building automation. Tarak and his team have done a great job hooking up with Philips there. I'm particularly proud about the partnership that we announced last Friday. BYD, the leading player in China on battery technology. With more than 180,000 people, the leading position in providing batteries to the electronics industry and one of the leading players for the emerging electric automotive industry, and ABB are joining forces in a partnership aimed at providing leading grid energy storage solutions. If you know that 600 million people in Africa today don't have access to the grid, 30,000 villages in India don't have access to the grid, there's an opportunity for off-grid solutions.
If we look what storage can do to dampen the peaks in developed economies like Germany, like U.K., like Switzerland, it will change fundamentally the paradigm, and we are with this partnership now extremely well-positioned. I'm convinced the microgrid, nano grid market over the years will evolve in a multi-billion opportunity, and ABB is now uniquely positioned with its offering. To sum it up, profitable growth, a tremendous market opportunity, clearly identified areas. We shift the center of gravity. We continue making incremental acquisitions, and we will drive partnerships to keep growth going. A company is not only about growth, it's around execution. Let me share with you the story on execution in ABB over the next years. We had some really nice successes in functional excellence that we're going to broaden to an operating model.
We will drive change in the future in a different way, focused, prioritized with a rigorous program management that we call Thousand Day Program. We will link strategy, performance, and compensation even stronger together on individual and institutional level. Let me put some beef around what I just said. The leading operating model. My predecessor, Joe, installed Net Promoter Score as a key measure to drive customer satisfaction and customer service in ABB. Boy, that was a great idea, and it was very well implemented. If you look where we are today, we have improved our Net Promoter Score from a score of 16 in 2010 to 46 today. This is a position that we are proud of. We will not stop at that level. We are aiming even higher in the strategy period, and we have the same success on the cost takeout.
You have seen us becoming a cost takeout machine, where we basically every year find a way or have a clear program in place to take out more than $1 billion cost of our cost base. This is there to stay. We will deliver by widening the scope. We will include white-collar productivity. Roughly two-thirds of the ABB people are white-collar people. One-third are blue-collar people. There's tremendous opportunity to free up resources, but we free them up for growth. We will not go in with a massive restructuring program because out of the heat map and navigation check exercise, we got so many segments where we need additional resources to drive growth, that we will free up the people on the one side and put them into the opportunities where we can really move forward.
A concrete example, look at Germany as a market where a lot of people say at the moment, "Hmm, how is that going?" The service business there is booming. We are re-qualifying our people to become strong on the service side, just as one example. These kind of leading practices will expand across the entire value chain and all the operations of ABB. With this change, you will see the Next Level of performance and profitability in this company. As of January 2014, January this year, we have introduced a new performance measurement tool. Very simple. Relentless execution dashboard, we call it. Tarak will talk this afternoon a little bit more how we use it in practice. It's basically focused around cash, cost, and customers, all the businesses are being measured the same way on that common tool.
It shows very nicely already a shift in focus and a ramp-up in attention to operational opportunities. When I talk about execution in ABB today, I need to talk about Power Systems as well. Here is a quick overview on Power Systems before Claudio talks more about it this afternoon. The situation we have described a couple of times before, it's a handful of projects that got out of control, legacy projects that we really had some operational issues. We have also taken some low-margin projects in the backlog that we need to flush through the backlog. What we have done, we have today a much better grip of the situation. We know what we got in our hands. We understand the risk profile.
Claudio and his team are working very hard to de-risk the business going forward and execute successfully the projects which we still have in the backlog. On solar EPC, 90% of the projects will be done by the end of this year. On wind, we had some really nice successes now over the summer break. We energized DolWin1, which was really an important step forward. DolWin2 has arrived safely in the fjord in Norway to be fully equipped with power electronics. We have changed the business model. We are tendering in a different way. Very good progress, and Claudio will share with you more this afternoon. This is all about the day-to-day execution. Let's talk about the execution and the operations of change.
When you run a company, you always have ambitious projects and say, "Okay, this is what I want to do better." We have now defined a way how we will prioritize, focus, and drive change. We are establishing a program that we call the Thousand Day Programs. A market entry or market ramp-up in Africa. What Eric is doing around networking capital will be put into a rigorous Thousand Day Program approach. We will have a Thousand Day Program office reporting to me, and Jill Lee, our CFO of North Asia, has been promoted to the role of running this program office. Jill is here in the room with us. She sits over there. She is a Singaporean colleague that has done a marvelous job, brings the right interpersonal skills, change management skills, and attention to rigorous program management.
I look forward to work with her together with the regions and the divisions to get this all going. Her role will be to bring it all together and to help to prioritize. To make sure when we starting, when we would like to start seven things in parallel, we might say, "Okay, let's do only three of them, and let's do them right." To make sure that actions, milestones, accountabilities, and responsibilities are defined, followed up, and led into the performance management. This is really a change how we drive change, and we have a very strong belief that this will help us to articulate and drive change more successfully, even more successfully than we have done in the future. The last building block around relentless execution is on compensation.
We will build a compensation system around financials, operations, change, and leadership, building on the system that we have in place today. A combination of institutional and individual performance will be measured in these four dimensions for all senior management in ABB. We have talked about growth. We have talked about execution. How do we get there? We need to make sure that we take business-led collaboration in ABB also to the Next Level. To get there, we need to simplify how we work. We announced this morning that we are streamlining the organization, and we have some targeted, focused leadership appointments.
Basically what we want to achieve, we want to have a customer-focused ABB, where we really have the Next Level of external focus in daily operations, where we strengthen cross-business collaboration, and where we effectively empower people closest to the customer, that we are fast, agile, and serving our customers' needs. We will have an organization that will be designed around business orientation. What we mean on that, we want to have undiluted global business line responsibilities for our business units and divisions. That means that all business functions will be located within the business. That means the person that calls the shots is at the very end, the P&L manager running a global business unit. With these principles, we are establishing a much clearer and simpler and more effective ABB. We have clarified the roles and responsibilities.
This morning, we informed in a conference call the top 900 people in ABB about these changes, and the executive committee members will work with their teams now until 1st of January when the changes are effective. To get this all ready that we roll in 2015. The resulting organization is pretty lean. We have five divisions, and we're reducing the number of regions in ABB that we have today from eight to three. At the same time, we are taking out one level of hierarchy and we are moving the regions directly into the executive committee. These three regions will be led by experienced ABB executive committee members. Frank Duggan will lead Asia, Middle East, Africa, a fantastic growth opportunity for ABB. Greg Scheu, currently running North America, will run the Americas.
Veli-Matti Reinikkala, who has very successfully built the process automation business over the last eight years up in ABB, will take on the role of running all of Europe across the entire ABB portfolio going forward. The focus of these three roles is simple: customer collaboration, shared services, and running the countries. That's it. All other functionality needs to go through the business line or the corporate center. This means if you look at the new executive committee structure, we will continue to have five divisions, and here, the leadership appointment of Veli-Matti is already done. Peter Terwiesch, who is here in the room with us, will assume as of 1st of January, the succession of Veli-Matti. Peter grew up as a control and process automation engineer. He grew up in our process automation business in leadership roles.
He turned around some software businesses in part of the portfolio and did that very well. Afterwards, he became CTO of ABB for 6 years before going out and running Central Europe, one of our largest regions in ABB, very successfully. Peter will be joining the executive committee, and his wealth of experience in process automation and his strong management skills position him as a great successor to take the successful story of Veli-Matti to a Next Level. We are not only changing executive management and working on senior management, we also announced this morning a change on board level of ABB. Following quite intensive discussions, as you can imagine, around the Power Systems situation, the board decided to add capability and competence in the field of EPC and project management.
David Constable, sitting CEO of Sasol, a strong company in South Africa on energy and chemical management, will be proposed to join our board at the next AGM as of 1st of May, 2015. David is a great guy. I had the opportunity to sit down with him. His wealth of experience is fantastic. He fits very well, and I look forward to work with him in his new responsibility as an ABB board member. You see Next Level is being lived in ABB in all dimensions. We are changing the focus on the portfolio. We are driving execution. We make leadership appointments, and even on board level, we are stressing competence-building opportunities to complement what we have already here. With all of this together, we are committed to deliver to you attractive shareholder returns.
This morning, we announced a significant share buyback to allow our shareholders to participate in our strong cash generation, the proceeds of a very successful portfolio pruning program, and to demonstrate the strong trust that we have in this company and its plans going forward. The attractive targets for ABB over the next period are clearly formulated, and I will hand now over to my colleague and friend, Eric Elzvik, our CFO, who will explain more in detail what they mean. Over to you, Eric.
Thank you, Ulrich, and good afternoon to all of you. We will now cover the financial targets and capital allocation as the basis for driving sustainable value creation in ABB. In the next 30 minutes, I will go through the targets and the capital allocation. There are three key takeaways that you should take. We will drive the operational EPS growth even harder based on the organic growth on volumes and the margin accretion we see possible within the corridor we have announced. You have already heard us talk significantly about the cash flow return on investment. Our definition, which is a fairly tough one, to drive the return on the capital that we are investing.
We will push the cash flow from the earnings, we will drive the capital, both on net working capital side and capital expenditure, to make sure that we have the right returns. We will be more active on the capital allocation side. You have seen the announcement of the buyback. We have talked about it before. That's one of our instruments, and now we have announced a significant buyback today. Behind the plan, we have made assumptions on the global GDP growth. We see 3%-3.5% over the period, which is underpinned by a good growth in emerging markets, 6%. We have, as you have seen from Ulrich, about half of our business already in emerging markets. We also see recovery continuing in the United States and North America, and also a recovery coming in Europe, even if on a more modest level.
Also, the industrial production, which is important for the growth of ABB, is recovering to a higher level, above 3%, even towards 4%, if you look further into the years. There, it's important to see the assumption we have made on the oil price, that it continues on a high level where it is today, which is driving the investment on the oil and gas side, but more importantly, pushing a lot of the energy efficiency investments that our portfolio is designed to drive. If you look at those underlying fundamental assumptions, which is behind the plan and the numbers we have put together, you see on the left side of this chart, the 3%-3.5% GDP growth. The ABB market, if you average it out between the different segments we are active, is a 3.5%-5% growth.
We see the ABB markets growing faster than GDP. On the three customer segments, utilities, industry, and transportation and infrastructure, we see a growth corridor on the utility side from 2%-4%, somewhat higher than the CapEx growth in utilities you had on the prior chart, and that's because of the growth areas on the higher growth parts that Ulrich talked about in the utility sector that we are aiming at. Industry, 3%-4.5%, is the centerpiece of the growth with a good growth rate foreseen. Then on transportation and infrastructure, we see a higher growth rate because of the new segments that we are active in there. Overall, the organic growth target on a like-for-like basis over the period as an average is 4%-7%.
Obviously, driven by our change of gravity and also the increased growth momentum we get out of all our efforts on the pie side that Ulrich has already covered to quite some extent. If you look at the delta growth over the next six years, from which part they are coming, you see on this chart that 75% of the additional revenues, approximately, that we see over the next six years is coming from industry, transportation, and infrastructure, where you have the higher growth rates. Importantly, 25% is coming out of utilities, where we are focusing on the high growth segments. You will hear more this afternoon from Bernhard and Claudio talking about the power business and how we focus in on the attractive parts of that market. That is the growth target.
If you turn to the margin target, I would first like to explain what we are doing with the change from EBITDA to EBITA. We had the prior target on EBITDA level. We will now have targets on operational EBITA. The A we take out is only the part related to acquisitions and the so-called PPA amortization. This is a better measurement because it includes those operational costs of depreciation and normal amortization into the management cycle and the evaluation we do inside ABB. This is not only the external target, this is also what we drive down the divisions, BUs, product groups, and inside the countries. Our aim and target is clearly to move up within this margin band of 11%-16% that we have defined.
We see the trough year to be 2014, obviously pushed down by the situation that we have in Power Systems. We see a clear possibility to have good accretion in 2015, mainly from the results out of the PS step change, but also the successive benefits we see coming out of the Thousand Day Programs and all the efforts we are doing on running a more stringent operating model in ABB. Good margin accretion, the margin target is 11%-16% on the group level. The important drivers behind the margin is coming out of productivity. You are well aware that we have, over the last few years, been successful to drive a 3%-5% cost reduction in COGS. That will remain a cornerstone of our cost management program to drive productivity and competitiveness from ABB.
Quite a bit of that comes out of supply chain, and we have more to do over time there, and also on the operational savings from process improvements in ABB. We are adding to that the white-collar productivity. We have about 100,000 of our 145,000 employees in the white-collar area. The productivity improvements we can do on the engineering side, on the administration behind it, are significant, as well as what we can do on the shared service side, the common services in the areas of HR, finance, and so on. From this, we see clear contribution to the margin accretion, together with the existing saving program that is in place today. These two parameters are then the two main levers to drive the EPS growth.
We will measure it as operational EPS, the key contributor to driving the absolute is obviously the growth target of 4%-7%, even if you also see some contribution from continuous activity on the M&A side, which we see in a more incremental fashion over the next years than we had in the past. The productivity improvements and cost savings and the change of the operating model will help drive the margin up. Those two pieces will obviously then be the key help to lift the EPS on ABB. We should not forget the items we have below the line, below the operational EBITDA, that's the finance net, where we have been quite good in recent years to drive it down and have achieved a funding basis in ABB with a good average interest level.
The tax rate has been around 27%-28%. The target we have for the period is to keep that at 27%, which is an ambitious target, but the fundament for the plan that we have. If you put all this together, the target is now to deliver in the next six years, 10%-15% compounded average growth rate on EPS on the operational level, until 2020. Next target is on cash flow conversion. Here we have had a good track record. We have delivered our target over the last few years above 90%. The target remains there, at above 90%. It's very important to point out that we have significant potential in the capital side of ABB, and on net working capital specifically, we were at the end of last year close to 15%, because of quite some investments in net working capital.
The long-term target is now to drive to 11%-13% net working capital as % of revenues. The way we do it is in a comprehensive program, which first of all goes to the inventory levels and logistic processes in ABB, where we are attacking the processes far down in the value chain to make those sustainable improvements. This is not about pushing the targets and pushing down the level, and then it comes up like a balloon again, but really changing the way we operate. That fits well with the focus on 1,000-day plans and operational improvements that Ulrich has already described.
What is also beautiful here is that we get the operational improvements on the finance side, those programs that are already running, we see a clear benefit also on the growth side, with faster delivery times, higher on-time delivery, and more attractiveness from the customer point of view. We have seen the first effects, since we started this a couple of quarters ago, this will be a continuous effort that will deliver results over time. You see on the right-hand side of this chart on the bottom, ABB's inventory turn on average, including sales in excess of invoicing compared to the peer group, we have a substantial potential here to release cash in the coming years. To the cash flow return on investment, you know we define this as cash flow, operational cash flow after tax, divided by the capital invested.
That is the capital we have invested over time. We add back depreciation and amortization. It's a fairly demanding measure where we score well against peers in the industry. We are around 12% after the large acquisitions we have done, and we see this moving into the mid-teen range. Our target is clearly to deliver in that range, driven by improved cash from operations, but also the discipline, not only on net working capital, but also on capital expenditure, with having higher asset efficiency, which will be helped also by the margin target that we are driving now, including the operational cost of depreciation and amortization.
On the M&A side, we have discipline criteria that I will come back to, and we will have them in continued in force to make sure that the money we spend on M&A is really done in a way where we get the right returns. Overall, the aim is very clear, active long-term cash return on investment to shareholders in the mid-teen range. Summarizing on the target. There are five key targets on the group. We had five before and we will still have five. It's the revenue growth of 4%-7% as a like-for-like growth on average over the strategic period. Operational EBITDA, 11%-16%. EPS target over the whole period, 10%-15%. Cash flow conversion, 90%, and the cash flow return on investment at mid-teen level.
These group targets will be supplemented by divisional targets on the margin side, and you have them on the right side of the chart here. We have, during the strategic work, refined them a bit between the divisions, and you will see in the backup to my documentation, how this also compares to the current ranges with an approximate translation to see where we have adjusted the target. What is important to point out is Power Systems. We have here a target range on EBITDA level of 7%-11%, and we see that we will get into this range in 2016. We see a recovery from today during 2015 and getting into this range in 2016. Those are the targets and the background to why we have set them the way we have.
Let's now take a look at the balance sheet and where ABB is on the balance sheet side. We have a strong foundation and a solid balance sheet today, and we need a good and strong balance sheet to support our strategy and the growth behind it. The balance sheet we sit on today also has the flexibility to be more active on the capital allocation. You have seen the cash flow generation. It has been stable. I covered it before. This is the free cash flow year by year. We have an attractive profile of our outstanding long-term debt, which runs into 2042. Average life is some six, seven years. We are now in a net debt position coming from a big net cash position before we started the big acquisition Program.
We are committed to our single A rating, which is the right rating, we believe, for our industry, and having a balance sheet that is supported also for all the bonding lines and things we need for the customers around the world. If we then look at the priorities for capital allocation, the four item list is the same as before. We stress more on the first one, the return on investment on the organic growth. Obviously, these typically have the highest and best returns to build the organic growth, and we will do that as the first priority. Our dividend policy remains unchanged. It's very close to our heart to deliver a sustainable raising dividend over time. We have in excess of 3% yield today, and we will continue to drive in that direction.
Value-creating acquisitions on an incremental basis primarily has to meet the strict criteria we have on M&A, including the integration aspect. My colleague, Greg Scheu, will talk this afternoon on the success we have had on the M&A so far and how we drive those processes to ensure a high rate of success on the M&A side. Finally, we will return additional cash to the shareholders when we have them available, and that's precisely why we have today announced the $4 billion buyback program that will run over the next two years. Let me go a little bit more in detail on what we do on the buyback program. It is clear that we have had great success in our divestiture program of pruning our portfolios. Over the last quarters, we have collected more than $1 billion in pre-tax proceeds from the divestitures.
That has strengthened the financial position. We have high confidence in the cash generation and the big potential in net working capital. We are committed to running ABB with an efficient balance sheet. As I said before, we need a solid balance sheet for the customers with an A rating behind it, but it still leaves space to return additional cash to the shareholders. About three-quarters of the $4 billion will go as a conventional buyback, where we also then cancel the shares later on, and about one-quarter of the needs is going to support our employee share option programs that we have, both to hedging and also for delivery of shares. All in all, we are very firmly committed to attractive shareholder returns over time, as you can see today's announcement. Let me then sum up what we have said.
Attractive growth targets and profitability targets with a corridor over time and the aim to drive higher into this corridor over the strategic period. 4%-7% organic growth. Good cost-saving programs behind to support the move in the margin range. Heavier focus on cash and capital efficiency through the networking capital program and a disciplined assessment of all capital spending, be it organic or inorganic. Driving the shareholder value through increasing operational earnings per share and a return on, capital return on investment in the mid-teens level, which we believe is an attractive return in our industry. Still having a solid balance sheet to support our strategic plan that we have communicated to you today. With that, I will hand back to Ulrich to sum up this portion.
Thank you very much, Eric. Next Level. What stays, what changes, and where will we go with our program? What stays? ABB is strongly committed to health and safety and integrity. There will be no compromises. There were none today, and there will be none in the future. We keep the focus on power and automation because we are convinced that these are attractive fields for an enterprise like ours to be active in. We will continue to deliver on our cost out. We keep the discipline, we widen the focus. We will continue to drive focused, incremental M&A, and we will build on our unique global team and culture. As you know, what we recently changed already, we accelerated the organic growth momentum through the introduction of PI.
In the second quarter results, if you look at the order momentum, there is a good momentum building up. I'm confident that this will remain that way if we keep doing our homework. White-collar productivity is an opportunity area of ABB not to have noisy people reduction programs, but to allocate resources better for growth. Net working capital management, the strong focus on the capital side, on the cash side of ABB, is something that we recently reintroduced and made sure that it's a key part of the performance management system. The Power Systems step change is well on the way. The risks are ring-fenced. We understand what needs to be done and have very strong actions in place to address the legacy situation.
What is new is the shift in the center of gravity towards a very strong focus on organic growth in a vast 600 billion-plus market that will grow by three to four ABBs over this planning period. We take the success in certain functions and roll that out to a comprehensive operating system. We will drive change with focused Thousand Day Programs to ensure what I call a high say-do ratio in execution of change. We tie performance management, compensation, and strategy closely together. We have simplified and strengthened the customer focus of our organization, complemented with some focused leadership appointments. What do we want you to take away from this morning? ABB, well-positioned in attractive markets.
Three focus areas will be the key elements to deliver attractive shareholders returns and a strong signal of confidence and a commitment to deliver these shareholder returns by announcing a $4 billion share buyback program. With this, we are convinced we will accelerate organic and inorganic sustainable value creation. Thank you very much for your patience in this morning. I suggest we go now over to questions and answers.
With that, I'd like to open it up to question and answer. Before we actually start with the questions, it is being webcast today. For anyone who is actually on the webcast and would like to ask a question, on the screen there is a box where you can email your questions in. We will answer them once we get them. When you get the mic or put up your hand if you would like to ask a question. Wait until you get the mic before you actually speak. Please limit your questions to two questions. I know there's a lot of questions today, and all of you guys want to ask a lot of things. We have another Q&A in the afternoon, but two questions, please. With that, let's start. To the right. James.
Yes. Hello, everyone. It's James Moore at Redburn. Two questions. In terms of the savings, I just want to be clear. You've got the COGS saving target, which has been there before, but you've also mentioned the white collar and the eight to three regions. Could you help us quantify those savings from those two aspects and just confirm they're separate to the COGS? Secondly, on slide 33, you talk about product and software gaps. Can you say what the process and electrification product gaps are? Are we talking valves and process, for example? On design software, can you say what you're talking about here? Is that PLM CAD/CAM, or is it simulation, or is it something else, or the whole spectrum?
Thanks, James, for your questions. First of all, on the cost reduction ambition level, we said we're going to keep the momentum of taking the equivalent of 3%-4% cost out every year. To deliver this, 3%-5%. Thanks, Eric, for the correction. To deliver this, we are expanding the scope and the focus. In the 3%-5% ambition level, we have now a wider scope, including the white collar measures, to make sure that we are delivering year-on-year the equivalent of 3%-5% COGS. I hope that clarifies the situation around that one. If you look at the product gaps that we have today. Take the process value chain. You need sensing, you need a brain, you need actuation to deliver process automation. On the sensing piece, we got a good measurement portfolio.
Could we be doing more? Yes, absolutely. We could be doing more in that field. On the control side, we got a very strong setup around 800xA. There's no need to do more. If you look at the actuation side, we got the segment agnostic, the motion actuation. We are very strong on that. Our motors and drives, we are there. If you look at actuated control valves as an example and other elements, there might be an opportunity to do more. That's around the process chain. Now let's talk about the software question that you had. Look, we have today already great software tools. If you go out and talk with the robotics guys, we have a software that's called RobotStudio that allows you to do 3D simulation of a robot cell in an environment. We are widening that capability.
If we find the right acquisitions in that field to complement what we are doing, very specific, domain-specific or asset-specific design software, that's what we are meaning here. We are not pointing at a large-scale entry into multibillion PLM activities. That's not what we are saying in that field. I hope that helps you to understand a bit better.
Thank you.
You're welcome.
Daniela.
By the way, this was two and a half questions, well done.
Good morning. It's Daniela from Goldman Sachs. One first question. You mentioned in the press release and during the presentation as well that you were changing compensation structure a bit to adapt to the new targets. Can you talk a little bit more precisely through exactly what you are doing in terms of variable versus fixed and which metrics, given the targets change a little bit, but they are not radically different from the prior ones? Second on digitalization. A lot of your competitors, and particularly the biggest capital goods companies, are talking also about playing a role in software and in digitalization. Can you talk a little bit through when I-
I'm assuming you mystery shopped a little bit about their product portfolio. What is really different, do you think, at ABB versus what you see the others saying they can do in this field? Thank you.
Okay. Look on the compensation. I will give you some structural comments. We are working as we speak with the board of directors on the finalizing the new compensation structure. The details will be announced together with the annual report and the compensation report then going forward. Basically, the principles that I laid out, that we have finance, operations, change, and leadership as key elements of compensation is one element of it in terms of the structural elements. The second piece is balancing institutional and individual performance, meaning what is a team delivering or ABB as a whole delivering, and what is an individual doing will get in a balance, in line with our ambitions here. I don't want to talk more today about it. This is work in process. These are the key principles around the compensation that we are adapting.
In terms of the digitalization, look, it's really interesting, and I tell it a lot of people. In 2001, 2002, you might remember out of the sudden, everything in the world was e. It became e-procurement, e-everything. If you look at it was not that disrupted. It was basically a continuous development of a DNA of an enterprise. On digitalization, the ones that realized that it is important, I can just say, welcome to the club. We have been in this business for many, many years. We have a strong software business today, as I said. We have about more than 50% of our offering already software-based. We are continuously developing it. One thing is very, very clear. The individual digitalization, that will play a key role. I give you some examples. Look at the people that come out of the high school today.
They all are used to a human-machine interface, which is completely different than what a generation 20 years ago had. We are adapting, and we need to make sure that we address the needs of that part of the workforce, as one example. The second piece is if you look at the affordability of sensor technology today, you get a lot of functionality that 10 years ago would have cost multiple hundred, if not thousands of dollars. You might get that for $5 or $10. That changes really the capabilities in the product that we have. Bringing that together with a capability to store data cheaply at mass and have operating data available is a competence that ABB is continuously shaping and building on, and we are in the leading front of it.
For me, digitalization has been and will be a part of ABB's way of doing business. We are investing very strongly. Our 2,500 software engineers will be more in the future. We continue to invest. I wouldn't say this is something that totally out of the sudden popped up and is a big surprise to us. It's a continuation. It gets a stronger emphasis going forward because we, as we said, we want to differentiate even stronger on a software basis.
Andreas, right there.
Andreas from J.P. Morgan. Thanks for the time. My first question is on the margin target that you've provided for the group, the 11%-16%. It's a very wide range for a diversified company that didn't even experience that kind of range in the biggest recession in recent times. Also in your business plan to 2020, you don't really forecast the business cycle, why such a big margin range? Before restructuring, why have you chosen to give a target excluding restructuring, given that restructuring is a business expense like any other in my view? The second question on investments. Since Q4 last year, we have seen R&D and SG&A go up as you drive this organic growth initiative. At what point in time should we expect that to stabilize as a % of sales? Thank you.
I take the second one and let Eric answer the first one. On R&D and SG&A, we have front-loaded the system. We have identified the opportunities out there, and we wanted to make sure that we address them in a swift way. You have seen now the order uptake. We are going through 2014 is an interesting year because we have the lower opening backlog for the revenue in 2014. I call it a bathtub. We are really going through the bathtub in terms of revenue this year. The new orders can come in and pick up the revenue base. We are conscious on these investments, so this is not a creeping up of R&D. This is conscious investments that we have taken, and you should expect during 2015 that we get some accretion out of that activity.
I let Eric answer the 11%-16% question.
We have narrowed the range somewhat, Andreas. This range we think is the right one to have. We believe we can drive into the upper end of that range in a good situation we are today in the lower half of the range. We believe this is the right size of range that we have. Your question on restructuring. We believe it's for consistency reason correct to track the operational EBITA, excluding the amortization and deal with the restructuring separately. We are going to be completely transparent on that as we have been in the past, also giving indications of what we believe the restructuring will be. For consistency reason over time, we have decided to leave that outside the operational EBITA definition.
Is there any questions from the back there?
Thank you. It's Tim Schultz, manager also from J.P. Morgan. Maybe just to add one question. What have you assumed in terms of the pricing environment within your margin and financial plan?
We have assumed that we have a net gain on pricing over the time, meaning that the cost savings will outweigh pricing impact over the activities over the next years.
Up here on the right.
Thank you. It's Simon Toennessen from Credit Suisse. Two questions. The first one on your growth targets. Looking at the midpoint of your expectations for ABB market growth and the midpoint of your own targets for organic growth, 4%-7%, it implies a bit more than 100 basis points of faster growth. Is this how you generally think about gaining share compared to your competitors? Second question on de-risking. Could you just elaborate a bit more on that? How did, for example, the tendering process change since the beginning of the year? I presume you would still bid for offshore wind technology, despite the issues you've seen, because the technology becomes a bit more mature. How do you approach new technologies? Are you generally aiming for a smaller share of project business where you become probably less of a turnkey partner? Thanks.
Okay. Look, both excellent questions. On the growth ambition. Look, our ambition is very clearly to outgrow the market. I think we got the resources, the understanding of the market, the actions in place. We have a rigorous, what I call organic growth machine now going, where we have clearly defined responsibilities of people. We want to grow ahead of it. The reason why the two ranges are as they are, on the one hand, the GDP forecast and the market forecast is a little bit narrower, and we want to stretch ourselves, and we want to have ambitious top of the range targets, both on the growth and by the way, also on the margin side. That's the reason why you see that. Let's see what we deliver on that one.
We have a clear ambition that we're going to outgrow with our organic growth target now of 4%-7%, we signal clearly that we will take share over the years to come. The second question was around the tendering piece. Look, I've been personally involved in some of the projects, and the project this morning, that we announced this morning, this $800 million project up in Scotland. What are we doing? If you take in offshore wind, we have changed what we offer. In the past, we took complete end-to-end turnkey responsibility, including building the platform, including the installations, and everything else. We will not offer that anymore, and we are not offering that anymore. We're focusing on the areas where ABB is really good. If you take an offshore platform, think about it in three pieces.
It's a tin box on stilts, it is power electronics, and it's installation. We are really good at power electronics, and we are the leading edge with our technology there. We learned that you need to be really good at installation and on the tin box as well to make money in this field. What we're doing now is we are partnering with players that are strong on these two dimensions whilst we focus on our core. That might mean that one or the other order on the top line looks a little bit lower, but it's a much better quality of activity for ABB. Hope that addresses your question.
I think there's another question here. Olivier, and then
Thank you. Olivier Snoeck, Exane. Coming back on 2014, that's a tricky year because it's the transition between the one plan and the other. You said in the release that you were confirming target. I wanted to know if you could be a bit more specific about what you have really in mind that you will meet this year in terms of targets, so we have a clear view of the base. The second question is on the share buyback, because in terms of messaging so far out of ABB, it was really kind of down the list. I think I could quote somebody saying it would happen only if you run out of M&A ideas and you had too much money. The question really is your thinking, your rationale here.
At times you also mentioned that PS was a drag, that the way Moody's was looking at the balance sheet was a drag. Are there some of these things that have changed as well? Thank you.
Look, let me start with the share buyback and let Eric talk about the 2014 situation. On the share buyback, why did we decide to do it today? We have done a great job in cash generation. If you look at the amount of cash that ABB turns out regularly in four out of five divisions, it's a really strong cash-generative portfolio. In addition, we have been successful in pruning the portfolio and get about $1 billion of proceeds out of the pruning. You look and say, "Okay, what do I do with a balance sheet that could be looked from outside as pretty inefficient?" What do we do with that?
At the moment, given the homework that we're doing in PS, given that we are driving the integration in the large acquisitions that we have done very successfully, and given that we knew we will make a structural change to this organization on the regional side, we said it would be prudent not to take on more risk by doing a large-scale M&A on top of what we're doing. We decided together with the board to look at the four options that we have. We have already provided for the organic growth. We had a good dividend increase this year, and we are keeping the dividend policy as it is. At the moment, we have decided not to go for the M&A activity, but to take the share buyback as one of the instruments that we have always laid out as one of the areas.
What we also want to demonstrate very clearly with this step is we have high confidence in our plans and the commitments to deliver to you that we showed today. That's the reason why we have put it that way.
On the outlook, what we have said today in the communication, if we confirm the outlook that we provided after the second quarter for the rest of this year, we are not giving guidance on the running quarter, the total outlook for the year remains unchanged as we had before. In addition to that, I mentioned the margin in Power Systems, where we also confirm with what we said after the second quarter, that we will deliver more than break even in the fourth quarter, and we are aiming very hard to deliver overall a break even for the year for the division.
Okay. With that, I would like to just ask one of the questions from the webcast. How much of your install base are you today targeting for service, and how big do you expect it to be for 2020? How will your penetration rate change from today to 2020?
Look, if you look at the ramp-up of our service activities over the last couple of years, one key element of success that we have today was to establish transparency, to make sure that we know what we have installed out there. We have today, we know more than two-thirds of our assets that are installed out there, precisely where they are. That's a fantastic opportunity for us to drive that further. Our commitment is that we're going to increase the share of service and revenue by 1 percentage point annually until 2020 in average.
With that, Frederick.
Hi, it's Frederick here from UBS. China State Grid is buying up grid assets almost monthly right now across the globe. You have quite an ambitious, rightly so, an ambitious growth target. You must have thought about the potential market share losses as they're not really prioritizing Western suppliers. How are you going to tackle State Grid's accumulation of assets?
Look. First of all, we are not in the business of acquiring these assets, we just have a different customer than dealing that is backward integrated. We got a great relationship with State Grid, and I meet with the chairman on a regular basis. We have good management-level contacts, and it's an interesting one because we work together on multi-projects with State Grid. If you look at most of the HVDC projects in China, we were intimately involved either with wider solutions or with certain components, and that will stay that way. We need to earn our right to be considered by every customer, not only State Grid, by every customer out there, by having leading-edge technology.
I can tell you when we announced the 525 kV cable, HVDC cable, the first one that called were our friends over there that said, "Well, what can we do with it and what can we do together?" We really need to stay at the forefront of technology development and drive that in a very active way to have a great value proposition for State Grid as a customer and others. At the same time, when you look at it, I think we have done a great job identifying now much better and clearer what we can do to address growth opportunities on the grid side. The grid control capability that we have, the software-based differentiation that we have in that field that we are driving very strongly.
The microgrid capabilities where we have, together with BYD, a pretty strong storage solution that puts us at the forefront. Let's not forget about the market access, the install base, and the service network that we have. All that together puts us in a strong position. Frederick, we should never be arrogant. We should take them very serious as a competitor, which they are in their own dynamic. I'm not scared of it. We have the mitigating actions in plan, technology investments, reach, and service will be key differentiators.
I think there's one here on the left-hand side up top. She's coming.
Thank you. It's Peter Reilly from Jefferies. Two questions, please, both quite high level. You've cut or trimmed most of your targets today. Can you talk about the high-level driver? Is it slower macro? Is it more competitive environment? Is it a bottom-up analysis of customers having lower investment plans over the next cycle? Secondly, on a related note, you've cut your cash return on investment target from over 20% to mid-teens, which is a pretty big cut and shouldn't really be affected by a lower growth environment. What's happening there? Is it more acquisitions in future? Is it historic acquisitions not delivering the returns you expected, more CapEx? Maybe you can just give us some high-level commentary on why the targets have come down, please.
Yeah. I assume you're referring to the growth target mainly, where we have now 4%-7% on a like-for-like basis. The old one was higher, and maybe in hindsight, quite ambitious given the way it was set at that time. We have really done it by analyzing the strategy bottom up. We believe that the 4%-7% is an ambitious target as it stands today, and that's why we have adjusted it on the growth side. On the return on capital, the above 20 was always set with the proviso In absence of larger M&A during the period. Obviously, we have now done larger M&A, and that's why we are on the 12 level today.
We firmly believe also benchmarking with different measurements and trying to equalize the calculation of different return calculations, that the mid-teen is the right level and is an attractive level compared to where we should be. We also will continue to do incremental M&A, and that might then temporarily push downwards in this range. We think it's the right level, and we want to have the right return on capital to also drive the growth and the earnings per share, and not the return in itself only.
When I look at the targets to complement Eric, I think we have today attractive, realistic targets in place given the environment that we're in.
I will take two more questions. At the very back. Ben, I think. Then Mark.
They're sitting down there.
We can barely see you.
Hi, it's Ben Uglow, Morgan Stanley. Two questions. On Power Systems, I don't know if this is a question for Ulrich and Eric or for Claudio, the target is basically unchanged over your former target. 7%-11%, if we adjust for DNA, is what it was before. At the same time, the competitive environment seems to be a lot tougher than it used to be. On an underlying basis, I would've said across the industry, those margins are down two to three percentage points. In terms of getting back into that range, what are you thinking about the competitive dynamic that's going on in Power Systems? Are you assuming the pricing conditions and the competitive environment actually improves, or is this all to do with ABB's own portfolio? That was question number 1. Question number 2 is just a very general question.
Eric, when you talked about the margins, you very kindly said that margins are at trough. We've talked about COGS being 3%-5%, what I'm curious about is in some of your highest margin areas, like Low Voltage, like Discrete Automation, do we really think we can actually drive those margins much higher? How significant is going to be the uplift, just the operating uplift, over the next couple of years outside of what's going on in Power Systems and on the cost side?
Let me start with the Power Systems situation. I think that goes in line with the question that Frederick asked before. In every business that we are in, at scale, we have a competitive environment. If you look how we are positioned in Power Systems, exclude the headache that we have created on the offshore wind side, that was a housemade headache. We are very strongly positioned in many parts of the portfolio there. If you look at our technology that we are providing, just as an example, what I said this morning on the HVDC Light links, we have commissioned 13 or 14 of them in the world. That means we've got a clear competitive advantage around technology.
If you look at the amount of R&D that we spend, the way we can use the wider automation capabilities of ABB to drive reliability, uptime, and control in the grid, we have a clear differentiating unit. It's clear that if you look at the R&D base on some key R&D building blocks, we have a benefit compared to some of our competitors. We are longer in the business, we have more scale, and we have more punch because we are investing more given the scale that we are in. The second piece is, if you look at the commercial behavior. Look, we have a discipline in place that will not allow us to do something strange or load up the backlog one more time with low-margin stuff. If others want to do that, let them be my guest. They can do that.
ABB will not play in that way. What we need to make sure is that we have good margin at competitive prices, and that's what we're working very strongly on. The modularization approach, for example, in Power Systems, will help us to get the cost down and maintain the margin. Claudio will talk this afternoon even more, a little bit more detail than, on what he's doing about his business. Over to Eric on the margin question.
On the Low Voltage and the DM margins, we are somewhere in the middle of the range on both of those. Obviously, depending on the mix on the underlying business units, we may drive higher in the range. The important part is that we will have efforts and processes in place in all divisions to continue to drive cost efficiency and margin accretion. I think exactly where we end up in the range, whether it's closer to the upper end of the range or middle, somewhere in the range, it really depends on the mix and the competitiveness. Don't forget that both those also have above-average margins, which will help drive the EPS growth for the group. We look at the EPS, and we look at the margin. We will not single out one that's more important than the other.
With that, the last question, Mark.
Yes, thank you. Mark Troman, Bank of America, Merrill Lynch. Just two questions, please. Firstly, Power Systems. Just trying to understand the drag that will still be there in 2015 beyond maybe some lower-margin backlog to get through. It feels like solar EPC is largely complete this year, and perhaps one of the major problem platform projects as well. First question is just what are we facing in 2015 in terms of major challenges? For Power Systems. The second question, related to what Ben was asking and some others. This trade-off between margins and growth, how are you thinking about it? Is it to get margins to where you really want them to be first as a platform and deliver the growth through that? Or is it a growth-led margin enhancement?
I'm a little bit confused as to where ABB is operationally really focusing to deliver its financial performance 2015, 2016, and beyond. Thank you.
Mark, first on Power Systems in 2015. Look, Claudio will share with you this afternoon the homework that he has been doing and the plan that he has going forward. Basically, 2014 is the trough. We aim to be, or we commit to be at break even in the fourth quarter, and we aim to be at break even for the full year for 2014. 2015 will not yet be in the target bandwidth, but we will go towards that one. If you look at the remaining risks, the solar EPC is pretty much flashed through by the end of the year, might be 5%-10% left, but the rest is all gone. On the platforms, we have made significant progress on the platforms under operation, and I'm very hopeful that next year will be a much better year.
I know already today, we know the risks much better. We got the right teams in place to address them, and we will really keep the scrutiny until everything is done in that field to make sure that we are delivering on it in the right way. The second question was on-
Margin trade-off.
The margin trade-off. We want to drive both, to be very clear. We want to have organic growth ahead of the market, and we want to deliver to your margin accretion. You might say this might not be possible. Let's show whether we can do it or not. On the growth side, we got the machinery in place. It does not necessarily mean we need to add more cost in the future. It might mean that we allocate resources and free up resources in an intelligent way to use them in a different way. On the margin accretion side, each of the businesses, when we went through this strategy exercise, we really went through in detail what can we do in the operations given the cost competitiveness, given the competitive environment. We did a lot of benchmarking. What is possible?
What can we do? I just give you one example. If you take at the moment the program that Eric is running around networking capital. Let's assume we take out over time about $2 billion or $3 billion of inventory. Let's just assume that for a moment. $3 billion of inventory is about $450 million inventory carrying cost. If we get this going, that goes straight to the margin.
With that, I'd like to close out the morning session. We now will be serving lunch in the reception area. I remind you again that we have the three exhibits here in the room. We actually have microgrids, marine, and then 800xA. Out in the reception area, we have our newly launched YuMi robot, human collaborative robot. We will be back here for the afternoon sessions at 2:00 P.M. Our executive committee will be joining us for lunch, please feel free to ask some questions. Thanks again.
Welcome back, everybody. I hope you have recharged the batteries and got something decent to eat. We have enough energy for a good and exciting afternoon where we will show you Next Level in action. This morning, you heard Eric and myself sharing with you the key building blocks of the Next Level strategy. Now, what we will not do this afternoon, have every business in detail running through the entire business strategy of what they're going to do in the next years. What we did, however, we prepared four teams that will show you what will be happening in distinctive pieces of the ABB portfolio that should give this morning's strategy presentation a little bit more granularity that you understand what we are really doing in the field of implementing Next Level.
The teams that you will see this afternoon will focus before a small coffee break on the big shift in power, and they will lay out that there are a lot of attractive opportunities. Look, over lunch, I got many questions on, well, what is it really in power that gets you so excited? Bernhard and Claudio will share that more with you. We will have Veli-Matti and Pekka talking about pushing the boundaries of the automatable and basically show you in two examples what's next and what is coming, and how will we drive growth, profitable growth on the automation side. We give you two distinctive, very clear examples.
After the break, we will have Frank and Chun-Yuan Gu presenting to you what Next Level really means in action in the regional and industrial focus with a strong focus on what does collaboration mean, bringing ABB's different businesses together and delivering on the promise of business-led collaboration. We're going to close out with a session on execution. Execution is a hallmark of ABB, and it needs to be a hallmark of our strategy going forward. We will have three blocks there. Tarak will share with you on execution, how we drive relentless execution in daily operations. He will give you some very practical examples out of his business. Greg will show you how we drive integration execution and what we have learned, and he will be pretty black and white on the good things and the things that we learned that we can do even better.
We will have Jill Lee talking about how do we drive the 1,000 day programs, the big change topics in the future in ABB. The team that you see this afternoon is a very good sample of the federation of nationalities in ABB. You see people from all around the world that are taking leadership position, already have leadership position in the context of realizing the new strategy. We have markets all around the world, and we got a team from all around the world. Welcome to this afternoon and over to Bernhard for his presentation.
Good afternoon, ladies and gentlemen. I would like to share with you some insights into the power sector and our strong presence in this domain, as Ulrich Spiesshofer covered in his presentation this morning. My team is responsible for Power Products, PP, and Claudio Facchin's team responsible for Power Systems, PS. We see significant changes in the power landscape. Grid complexity is increasing, both on the supply and on the demand side. For instance, increased renewables are leading to more distributed power, greater grid instability, and longer distances at higher power. New demands and more consumption points, for instance, data centers and electric vehicles, are changing the grid as well. This has many implications on the grid. As you see from the graphics, we need to manage multi-directional power flow. We have increasing need for power quality and reliability.
We have need for more interconnected grids as well as storage, energy storage capabilities. On the investment side, we see new private investors. The timing of investments by utilities is still somewhat uncertain. These significant changes are bringing many opportunities for growth where we can add value for our customers. For instance, for optimizing power generation, bulk transmission, grid reliability and power quality, microgrids, distribution system automation, and asset management, just to name a few. Let me take a deeper dive now into such an example where ABB is pushing the boundaries on AC and DC voltage levels. DC up to 1,100 kV. That is 1.1 million volts as opposed to what we are used to at home, 110 and 220 volts. On the AC side, we push it up to 1,200 kV, and these levels are called ultra-high voltage.
Ultra-high voltage means for transmission, more power, longer distances, and lower losses. More power up to 10 gigawatt, longer distances up to 3,000 kilometers, just to give you some of the key figures. Significant opportunities for these technologies are in China, in India, but also in Brazil. AC and DC applications are relevant for bulk transmission and subsea links integrating renewables. For these systems, we provide advanced control technology solutions. Another area where we contribute significantly is the digitalization of the power value chain to deal with the increased complexity and the need for flexibility. With digitalization here, I mean we do this with smart technologies from sensor-enabled products like transformers to the whole range of smart switchgears. We work, for instance, on pilot installations of a digital substation to automate the grid where we merge the flow of electrons and the flow of bits and bytes.
A substation is a core installation in the electrical grid to transform voltages and to switch power. In addition to serving utilities, we have a significant presence in the industrial sector, be it process industries, mining and minerals, oil and gas, or even, as you see in the chart here, be it for packaging, pharma, semiconductor, food and beverage, and even the automotive industries. The needs these industries have are power security and grid access. What we provide as solutions is the grid connection, storage, and power quality. This is yet another example how ABB brings its power and automation portfolio to deliver greater value to the customer. Transportation is also a growing sector where we play a major role. Be it rail, marine, or electric vehicles. We provide fixed and onboard solutions to serve these applications, such as automation and power equipment for fixed rail installations or rolling stock.
Electrical vehicle charging with a cloud-based control system and a customer interface on the iPhone. Marine and shore-to-ship solutions are also some of those solutions which we provide. These examples show that it is all about smart electrification. I like to wrap up my presentation with a few words on the Power Products division. We have a balanced business. Balanced across products, sectors, and markets. Products, transformers, medium voltage and high voltage products. Sectors, industry, utilities, be generation, distribution, and transmission. When it comes to the markets, we have a balance between emerging markets and mature markets. Some of our key differentiators include the most comprehensive and deep product and service offerings, diversified end market exposure, as you see on the chart.
We have 80% visibility on market opportunities thanks to our global presence and our front-end sales, which we have in all these markets. Another key differentiator is the pipeline of innovations. Be it digital switchgear, the new range of high voltage gas-insulated switchgear, or be it environmentally friendly insulation gas, which we announced as a breakthrough two weeks ago in Paris at CIGRE. As I mentioned, ultra-high voltage AC and DC products. Another key differentiator is our globally dispersed footprint, which keeps us close to our customers. All of this enables us to drive sustainable and profitable growth and puts us in an industry-leading position, be it market share, technology, and financial performance. Thanks for your attention. Now over to Claudio.
Thank you, Bernhard. Good afternoon, everyone. The next 10 minutes, I will walk you through the PS part. Uli has already briefed you very well on some of the topics, but I will start with taking over Bernhard message on the market. The dramatic changes that we see in that market actually creates good growth opportunities for us also on the Power Systems side. Be it because of the distributed power generation with the microgrids topics that we will talk about later on, be it the whole complexity of the grid nowadays requires much more intelligence, therefore much more automation. As you can see in the slide here, as part of our core technology and portfolio, we do have both ends of the portfolio, the automation side, both for the power plants as well as for the grid.
We have the whole transmission part, distribution, hardware, and the service software and the consulting piece, which allows to tap into those growth opportunities. Attracting market definitely for the Power Systems as well, given the changes and given the completeness of the portfolio that we are having. One just good example of it, of course, is the HVDC. As you all know, we are market leader in that segment. Very much driving technology, pioneering technology. We have done this for the last 60 years. The very first project that was commercialized, as you can see in the slide here, was just 10 megawatt worth of power capacity transmitted at that time. That is about the equivalent of two of the large wind turbines that are applied now in offshore.
After 60 years, again, we're reaching the 10 gigawatt that Bernhard just mentioned, which, if I'm not mistaken, corresponds more or less to the whole wind capacity installed in the U.K. That's with the technology that we've been pioneering for the last decades. Another key element of this strength here is our install base. As you can see also, by the way, we have added technology into the portfolio, moving into the VSC, the voltage source converter typology, which is, in our terms, HVDC Light. We started in 1997 with that, and now we basically are proud to say that 13 out of the 14 commission systems out there have been done by our team. Technology, the footprint, and the install base are key elements for us to drive this leadership.
When it comes to this part of the business, of course, also, we have to work on the execution piece, as most of these projects entail large, complex, turnkey environment. With that, I'll go into a bit more granularity of what Uli was giving you in the morning on the step change, where we are. Uli mentioned about the critical areas that we've been addressing, the offshore wind part. There, we hit a couple of important milestones. We have started energization for DolWin1, which was one of the projects that have been challenging us in terms of execution, in terms of delaying because of the weather conditions that we have been talking about end of last year, beginning of this year. Finally, we reached the milestone of initiating the energization, and we are on good track to get completion on that one.
The other big milestone that we have achieved is in DolWin2, which is the last large offshore wind project that we have taken, and that one is basically now safe in the Norwegian harbor of Haugesund, where we started the commissioning phase. The plan, it's to basically then sail it out sometime in 2015 to the final destination and for the handover. On the EPC solar, which is the other bucket that we discussed in the previous quarters, where we've been challenged with charges, good physical progress there as well. Seven out of the 10 projects are basically handed over. As already was mentioned earlier today, we basically believe that roughly 90% of that piece will go through our books, and we will hand over most of it within this year.
Obviously, in this six months, we've been learning, we've been taking pragmatic but also solid actions to define the risk, to confine the risk, and build up resources that can help us in addressing those challenges. We've been doing this, as you know, also with the support of external resources that came with the knowledge and the know-how from the offshore wind. They went through similar activities of turning around a couple of challenging projects in that area, and they brought a lot of expertise that we will also be able to use, and that's the center part of the slide here. We'll be able to use then for the rest of the portfolio as well.
We want to make sure that all the efforts we take here and the expensive efforts that we're taking to fix this problem, that at least we can leverage the learning and make sure that the portfolio going forward will be in line with the expectations. Of course, besides improving the risk profile, and I will comment on that one later on, the basics have been also addressed in the last few quarters. Number one is taking out costs. As you know, we have been starting the year with a very low backlog. We're down on revenues. If you see the Q2 results, there is a positive momentum on the order, both base and large, which is good. We need to make sure that we need to adjust our capacity according to the revenues and according to the performance that we need to execute for projects and deliveries.
One piece that also which is very important that Uli mentioned is the standardization and the modularization. One learning that we want to take going forward is that we need to improve our processes, standardize it, so that we actually can concentrate our resources in generating value for the customer instead of spending too much time in sort of reinventing the wheel and fixing the problems backwards. That will drive us to the basically what we believe is going to be a sustainable change by looking at adapting the business model as well, the de-risking part. I'm going to come back to that one in the next chart. Really important, there is a healthy part of this business, which is growing in a profitable way. It's all about the service piece, and I'll comment on that later on as well.
It's about the whole automation portfolio that we have, which is mostly base business. It's also a rather short cycle compared to the large projects. All that part of the business is already well within the margin corridor that we're targeting for the strategic period. We just need to make sure that we put enough efforts, enough attention, enough investment resources, sales capacity to grow that part, and will help us in getting where we need in terms of performance. Here it is, what we said we were going to do in order to reach the 2020 goals. Number one, obviously, we have an area that needs to be addressed, that is the EPC turnkey large complex projects. That one, what we're going to do is consolidate that business, adjust the processes, adjust the organizational design to be able to execute those projects with the right performance.
We will not step out completely of that business because we need that capability in terms of delivering turnkey projects, for instance, to be able to support our customers in large HVDC projects. Like for instance, the one that we just announced this morning. It's large, it's complex, but it's not really related to offshore risk. This is something that we've been doing all along in the last decades and so on, and we want to make sure that we have the right structure, the right capacity to deliver those projects going forward, even better than in the past. There is a whole piece, which is the darker blue at the bottom part, and that is the base pieces that I mentioned before. It's the service, it's the product portfolio that we have also within our own division, and it's the whole software and service piece combined together.
I will come back later on with an example of that one, why we think this is so crucial for us going forward. Again, as I mentioned before, that's the base that is already delivering today the profit that we need. We just need to make sure that we grow that proportionally, over proportionally compared to the rest of the business. In between, we have what we will push forward as what I would call system integration. It's basically de-risking the turnkey business, focusing, concentrating our efforts in what we're good at. Uli mentioned in one of the Q&As, the breakdown of the offshore wind in three buckets. I would use the example also, for instance, of the EPC solar.
Our role is to support customers to design and optimize the footprint of the solar, the electrical connection, the whole performance of the inverter piece, making sure that the control, the protection, the overall SCADA system on top of it works and improves the performance of the solar PV. We will leave the construction piece, the installation of those panels, to other companies that are more local, they have more expertise, and they can deal with that in a much better way than we do. System integration, what we would call sort of the electrical part of the plant, that is our core. We can support customers with that and we're going to concentrate on that piece.
Today, the mix is, more or less, illustrated on this end, and obviously going forward, we're going to then grow also the system integration in order to maintain our profitable growth targets as talked about earlier. Just two examples, microgrids, I won't spend time on that one as I'm running out of time. I just encourage you to go and talk to Otto and Massimo right there. They will explain why we believe this is a high-growth market. By the way, thanks to the partnership that now we have with BYD that Uli talked about today. That's something that will help us in differentiating ourselves and being able to provide either components or a complete system, again, with the principle of the system integration and support customers across the globe to develop this new technology.
One important piece that I want to highlight, as I mentioned before, again, is our profitable base. That's the service piece. Aligned with the group strategy, we're targeting to grow over proportionally the service piece. This is crucial for us. We have the single largest installed base in most of our portfolio. We need to make sure that we tap into that one. We want to increase the penetration, and as a matter of fact, we have a hard target there to reach 25% of the total share of revenues out of the service piece. We're going to do that also in an innovative way. We're going to leverage more and more the software piece. Uli mentioned about that, the software-led collaboration. That's something that we're working on pretty hard in our division. We know that we can leverage that software.
We know that we can support customers in developing their installed base and making sure that they leverage that installed base with the right optimized footprint. To conclude, why we are here, the market is attractive. We have a number of high-growth areas. We have a very strong position on the technology. I also encourage you to go and look at that cable that is back there at the end of the room. It's about that size, and it can pull through 2.6 gigawatt worth of power. That's a breakthrough. That's more than doubling the capacity with about the same size of cable. That's what we can do in ABB. That's what we can do to support our customers, to address all the challenges that they have. Technology is number 1 pillar, as you can see it here in the chart. Strong footprint, strong position on the market.
Also, Bernhard mentioned that we are present in most of the markets out there, not just with front-end capacity, also with engineering capability, with consulting, that we can support customers defining their needs. Last but not least, the breadth of our portfolio. Those three pillars are there. What we just need to make sure is that going forward, we balance right the mix, as I showed in the previous chart, and we will get there delivering not only technology, not only supporting customers, but also reliable returns. With that, I'll think I'll hand over to Pekka and Veli-Matti. Thank you.
Let us take you with us to the next boundaries of automation. My team is for the Discrete Automation and Motion division, and Veli-Matti Reinikkala is for the Process Automation division. I will talk you through today what is happening in the robotics industry and how we do see the future of the robotization going forward. Let me first, though, introduce what is the Discrete Automation and Motion division in short. We have a leading position in our drives and motors business and the derivatives of that. Actually, robots are built on drives, motors, gearboxes, and plenty of software around that. We also use the drives and motors in traction, or we have a very strong position in the wind, which is basically using the drives and motors to convert energy from the wind. We entered to some new markets.
Today, we are a leading player in fast charging of electrical vehicles. We have more than 1 million solar inverters installed in the world. As together, we are the biggest power electronics player, part of ABB Group in the world. Let me show you the path of the robotization in the world. It was actually ABB in 1974 who introduced the first electrical-driven industrial robot in the whole world. It took some time. The robotization came to automotive, and you can see around 1995 the market saturated. Today, the automotive body -in- white paint is practically fully robotized. The amount of the cars produced in the world and the needed capacity doesn't grow substantially for the future. But since 2009 crisis, we actually see a quite fast growth of the robotics market in the world. ABB plays a key role in that.
We actually have been growing faster than the robotics market in the past few years. You heard Ulrich Spiesshofer talking about the Industry 4.0, Internet of Things, people, and services. This is truly what ABB robotics is already today and developing that further on. ABB has a presence in more than 100 countries. In robotics business, we are established in 50 countries and expanding. More important than that is that we have thousands of ABB people, engineers for the robots, programming, servicing, and a solid growing network of 700 channel partner system integrator companies with their tens of peoples in each companies. It's really a platform there to grow further. Let me explain a bit how the growth of robotics is going forward.
The traditional values for the robotization when it came was very much of the product quality, that the spot welding in automotive get precisely to the right position, that the quality of the paint in the robot is precisely right. Productivity and the cost. In a modern automotive plant, there comes a car out every 50 to 90 second, 24 hours a day, seven days a week. Health and safety, key driver. The robotization expanded to the foundry, to the arc welding. Our first robot was precisely for the arc welding. This is a bit of tough work to do. Today, we see the drivers more on the total cost reduction. Not only the massive industries can afford robotization, but it can be applied to the smaller series, to more lighter industry, and that is by the help of the simplified programming.
It's actually the robot is like an uneducated man, the real difference is what is the software inside the robot, how is the gripper, and how does it do the job. The new trend in the robotization is more about flexible and collaborative automation. I will come back to that further on. The core of the robotic business is of course the robot itself, the solutions around the robot, making the sales, the complete line, which can be hundreds of robots in body-in-white line , the paint line following on that. As well as supplemented by the strong portfolio offering from safety, from Low Voltage Products division, our drives and motors, PLC, low-voltage products all together as a building block to build up the systems.
As I said, the programming of the robot is the key thing, there, the RobotStudio helps our customers to smoothly optimize the design and make it offsite. Further on, we are taking steps on the simulation tool, which makes it more easy for the customer to modify the production, to optimize the production. The key topic is how fast you can change the type of the production in your process. We are there to support the customer in terms of operating the unit, providing the 24-hour operation and the Proactive, seeing that now in 20 hours or 50 hours' time, please make this step and avoid the stoppage of the production. Let me explain a bit where the robotization is going on. The first robots created in 1970s and onwards, they were actually blind. They could not see.
They were programmed to go after the trajectory, make the spots, or make the ceiling, but they could not see what they were doing. ABB brought first as a market, the FlexPicker robot, which can nicely pick from the production line chocolates and really fast. Position them to the right position to the chocolate box with the vision together. That is actually not so easy thing to do at all. Now with the FlexPicker originally gone for the pick, you can also use that for leveraging the pasta, the tomato, and the pizzas, do it for fish processing and so on. The applications to go further are just expanding. Let me take another example in electronics assembly. Here we help our customer to produce more than 1 million computer mouse a month and keyboards in China. China is actually the biggest single robotics market in the whole world.
It's about the quality, it's about the repeatability, it's about the speed of the process and productivity. The same type of thing goes further on to the toy production for the consumer goods. It is expanding. The amount of the people understanding the robotics and the benefits of that and capability of programming it's kind of self-expands the market itself. Going for the logistics. That is a tough work. In food logistic, the operator needs to work around 0 degrees, having heavy lifts. It's actually not that nice work to do. With the help of robot, it can put dedicated outlet shipments. Computerized, each shipment can be very different to each other and serve thousands of stores from the same location. Actually, if you look the same thing, the same could be applied for IKEA packaging.
You will have the nightmares to put the products together at the home, but make a consumer package of the small wood parts where you can build up your furniture at the home. The speed and quality and repeatability is of essence. As you can see, it takes fair amount of the space. The robot needs to be isolated from its environment. You cannot have a human being and a robot next to each other. The heavy lift robot can lift 500 kilograms with single arm like that, and with the accuracy of 0.1 millimeter. If you happen to be on the roll, it's not good thing. The next part in the robotization is actually go towards to the collaboration. Have the human beings and the robots working together side by side in a safe manner, in a certified safe manner.
That further enables the automatization to go further. Because many of the cases is that it is worth to automate only part of the production, and you need to have the people next to each other. That we can offer with the YuMi. You will have an opportunity to meet Per Vegard Nerseth and Dr. Sun Yanguo explaining more with the opportunities of the YuMi. Putting together, it's an expanding market. ABB is working and expanding the market itself. We do have a large range of offering. We do have the capabilities, we do have the footprint, the people, and the nice thing is that that is a kind of self-feeding process. More industries and the education of the robotization goes up, the more faster the market does speed up.
With that, I would like to hand over to Veli-Matti Reinikkala and take a different view of the automation of the Next Level.
Thank you, Pekka. Warm welcome to the world of process automation. Just a few words on the division before we go to mining. I think most of you know that we are the leader in the DCS area, but we are also building a lot on top of the DCS in different kind of software applications. Maintenance is also playing a very crucial role for this division. Some of you might wonder why did we check mining for this presentation, because oil and gas is obviously much bigger CapEx spending. Because we have there one station where you can discuss the oil and gas quite well, and because Frank Duggan will have a few of stories from oil and gas from my division in his presentation, I think it's good to talk about mining. Here you see the history of mining.
You don't see it all because this goes only back like 130 years, mining is a very old industry. Actually, the oldest corporation with limited liability was registered in Sweden in 1270s from Stora Kopparberg, and those archives can be still found in Sweden. It's an old industry also from a corporate point of view. As you see here, vast majority of the history was just manual production and then some mechanical production. Even today, I think it would be fair to say that mining industry has a long way to go compared to, for example, to oil and gas. Especially in regards to utilization of automation. We see mining as one of the sectors where there's huge potential going forward by using automation, similar way as some other industries have gone through already, say, 15, 20 years ago.
The needs, if you think, for example, oil and gas and mining, if you compare them, they have a lot of similarities. They are in very remote locations usually. Even to get the basics there, which is power, water, people, it is a challenge. Productivity, of course, in today's world is another challenge, which certainly is present in the mining business. How do we see the mining going forward? One key element is that we need to get people out from these processes. They are very expensive. It is very expensive to keep people in a mine, and it's also from a safety point of view, it's never good to have too many people around those processes. They are dangerous. Remember, 10 years ago in China, 5,500 people got killed in mines. That's 100 a week. That's about like 100 too many a week.
Today, it's still 2,500, which is still a lot. Then if you take places like India, where mining is a big industry, but not so structured as it is in China, nobody even knows how many people get killed every year. Safety is a big driver for automation, in addition to need for higher productivity. We need to have equipment, a lot of equipment in a mine, which is controlled and monitored outside the mine, and the remote technologies which ABB has makes this possible today. All this can be done, of course, it needs a mindset that automation has to come to the mining industry like it has been already in other industries. Here you could say something which we call from a philosophy point of view, a Mine 2.0.
It's a bit of reflection of the Industry 4.0 or Internet of Things, People and Services like Uli was referring earlier here on the stage. This is a different way of running a mine. This is a mine where automation plays a key role, and you see the different, say, parts or portions of the process in this picture. The whole idea is that you have a mine where you control the whole value chain from the pit to the port to the market. I think if you think of mining industry and a company like Glencore or Xstrata, there were two companies where one was a trading company and one was a mining company. Now they form a total value chain. We believe that this is the way how the mining companies will also start to think.
Because you get a great value for your production if you don't only count it in the pit, but you know what you have in the port, you know what you have, what kind of ore you have in each ship, which is on the way to China in most cases. If your sales force can identify, locate all this material in the right time, that creates value for that salesman and sales event. We are very strongly believing that this is the way how this industry will go forward. Despite of the fact that at the moment it's pretty boring industry because there is no major CapEx, we are working on the maintenance side in the meantime, relying on the OpEx spending, which keeps us going, and we are getting ready for an automation revolution in this industry.
We see it coming, we are ready once the next wave of larger investments will take place. Here we have one example of an advanced company in mining, Boliden, for sure not the largest in the world, but very advanced. Here ABB was able to offer an integrated power and automation solution for the mine and ventilation on demand. For example, a system where the location of the people, vehicles, and tools can be identified in a separate control room. You know that in underground mining, the efficiency can be as low as 25%. This is due to the shift of the people, getting them down, getting them up, having the breaks. When something is needed, like a tool, a drill or whatever, if you don't know where the next tool could be, it takes a lot of time.
We are partnering with software companies, which are bringing very cute small applications. Together with ABB's Process Automation, they can help the mining companies to get significant improvement in their productivity. This one is just one example of what we have done so far. As I said, we believe that there's a big shift coming into this industry. We are ready for that, and that's kind of the main driver. We can also see that for ABB, the geographies, we have not penetrated at all the geographies yet. That's a kind of add-on into this whole thing. In addition to the mining or Mine 2.0, which is a bit automation integration, we also have a lot going on in the underground mining for explosion-proof products. We believe that safety is another driver still going forward.
Companies like ABB, who have the resources to develop this equipment, which makes the mine a safer place, we will be among the winners for this industry as a supplier. Just a quick one on mining, and then the next one will be coffee break. I can invite all of you back to the other end of the room and have a coffee and then we continue with the other presentations. Thank you.
Gentlemen, welcome back for the final session of the day. In the next 20 minutes, Chun-Yuan Gu and myself will show you opportunities from a customer and market perspective. I will focus on mainly the oil and gas market as a sector. Chun-Yuan Gu will take us through a country, and that, of course, is China, which I don't think will be a surprise. If you look at this chart here, you can see many of the drivers for market development are actually in the sweet spot of ABB's offering and capabilities. You've seen throughout the day the heat maps from various countries, divisions we use. I think it's true to say that we're not constrained or limited by the market. We have growth opportunities in all markets and in all market conditions.
I'm sure you're saying, "Why can't we get faster organic growth?" I believe we are. We have increased the focus on the markets and on the customers. We're becoming more customer-focused. The heat maps and the pie are a very good tool and process to focus attention, to raise opportunities, and track the actions to capture those opportunities. We have also raised the expectations and focus on our sales organization. In my 30 years in ABB, I have never seen the level of attention to sales as I've seen in the last year. We want to lift the sales organization to the next level of professionalism. Today, we announced the formation of a group function for marketing and sales to accelerate the development of our sales organization. Last week, we announced the collaboration with salesforce.com, this will enhance the environment for collaboration across the divisions and the BUs.
We are also working on other front-end processes and tools in what we call an integrated front end. The benefit from that will be a more productive and efficient sales organization. We're seeing results of this. Up to the end of Q2, we have a growth in our orders, and I believe this is coming from the focus and attention that we're putting on it. If I look at in the market, the maturity level of the countries. On the left side, you see a number of drivers, which really focus the attention that the world will continue to need hydrocarbons. Hydrocarbon will grow in exploitation and exploration and in usage downstream. In this part of the presentation, I want to focus in on real live examples.
These are where we show the power of the ABB full scope in power and automation to create additional value for the customers. Also, in many of the examples, customer relationship is extremely strong, and this is driven by our focus on account management. We also use a process called Capture Team, where we bring together the relevant parts of ABB to focus on an opportunity. The goal here is to ensure that the sum of the parts are greater than the individual parts. If we look at some examples, this is an example from ExxonMobil in the gas field development in Alaska. This project is extremely critical for the state of Alaska. This is the first phase of the project where they extract the condensate, reinject the gas.
The dry gas will be then extracted at a later stage when they have the infrastructure in place for transporting the gas. Because of the harsh environment of Alaska, the project is built with prefabricated modules. ABB was selected for the full scope power and automation because this ensures for Exxon that they de-risk the project by having one partner who's able to deliver the full scope for the plant control and electrification. We were not only selected because of our full scope portfolio, we also have a long experience of project execution in Alaska's harsh environment, and significantly, Exxon noted our strong local service. This was also very important for them. This is the first phase of this project. Relentless execution will position ABB very well for the remaining phases to be done, which are substantially bigger than the first phase. I take a second example.
This is for BASF in a new plant in Ohio. They had a new product which they wanted to bring to the market quickly, so it was a fast-track project. Here, they selected ABB for the full scope power and automation because they really believed that this would enhance the speed of building the product and support their goal to get the product to market as soon as possible. We all know first to the market is a competitive advantage. On top of the speed of execution, we were also able to deliver additional value because through the plant-wide smart grid, we were able to optimize and ensure a more energy-efficient use of the power for BASF. Another example is Sadara from Saudi Arabia. This is the biggest petrochemical plant ever constructed at one time. It has 26 different plants.
ABB was selected as the sole provider of the control system for the whole plant. It's one of the biggest control systems in the world. We also have a scope of other power and automation products and solutions. The customer obviously, and the owner, done an extensive evaluation of all the available suppliers in the market. ABB come out on top because of our state-of-the-art 800xA technology. As Veli-Matti pointed out, there is a demo of it on the left side of the hall here. We were also selected by the owner because ABB was deemed to be the company with the best capability to execute the project across more than 15 different EPC contractors in 10 different countries. We have been involved in this project from its concept through the feed, the detailed design.
ABB engineers are part of the owner's commissioning and startup team, and we will be there for a long time because we have a long-term service agreement for the life cycle of the project. It's interesting also, there's more phases to come, and there's a downstream value part. Again, through relentless execution, this positions ABB for many more opportunities in the future. I think you should note the size of this project because this is a classical ABB project that comes together in many different parts. A final example is from Australia. This time, I'd like to highlight the customer relationship. When BG Group went to Australia as a newish market for them to extract gas from coal seam and then convert it to LNG, they really wanted to have partners with them who had credibility and a proven record. ABB had that in other markets.
ABB was selected for the power and automation full scope. We have the controls of 1,700 wells done, the control of the LNG plant, and the electrification. We've delivered 50 prefabricated electrical substations. They are installed all across Queensland, across the field. Again, here we have a long-term life cycle, a relationship with the customer. As you note, there's another 4,300 wells to be done. Again, relentless execution positions ABB well and builds long-term relationships with our customers. I think in all of the examples we've shown, I'm sure you see the power of combining power and automation. This really adds value for the customer. It's not just for projects that are complex or in remote locations. It is also going on today, and the same value and advantages come to customers in other industries such as metals, pulp and paper, cement.
I think that clearly, from my perspective, the full power of our total scope of ABB, bringing together in a structured way how we can create more value from the total is better than the individual product. With that, I'd like to hand over to my colleague, Chun-Yuan Gu, who will take us through a market example. Thank you.
Thank you, Frank. Good afternoon. I will give you an overview of ABB China's capability and how it fits to the future growth driver in the country. As you can see, after being present in the country for over 100 years, we have today a very strong local footprint and capabilities. Today, we can serve our customer locally with a whole portfolio in power and automation by 19,000 highly skilled people in 109 cities. We have also recently built up a very strong R&D force with over 2,000 scientists and engineers. This gives us the capability to respond faster to the local market demand in China. Our revenue in 2013 was $5.4 billion US, of which 40% was from power and 60% from automation divisions. Overall, the group has invested about $1.8 billion US in China.
Here, I would like to share some examples of investment we have done in the last three years, and also what were the key objectives for those investment. First, we invest to better taking care of our customer, because today we have a very big install base. We have invested many full portfolio service stations around the country, on different place, to offer the sales, spare parts, service products very closely to our customer. Secondly, we invest to strengthen our competitiveness. As you can see the example, localization of export factory in Shanghai, EV charging center, HVDC valve package with a JV in Beijing, are just a few examples. We have also invested to look at our engineering productivities. We have created engineering center in Chongqing, which is the Midwest city in China, for our process automation to get the productivity and efficiency.
We have also invested R&D. As I mentioned, we have a very strong R&D force now in China to look at the future. One of the example I want to elaborate is this dual arm robots, the YuMi, which most of you have seen outside. This was started from, we create an application center for the precision engineering in Shanghai. By putting together a team, around 10, 15 people, combined with a very well experienced scientist from the U.S., located back to China, and most of the locally Chinese graduates and engineers. Working together closely with our leading customers, that is the key, looking at the future assembly solution. Finally, the group has also invested a lot of our future. The latest announced is $300 million US Xiamen Harbor project.
When it's completed, it will be a world-class factory for our low voltage, medium voltage, high voltage products to serve domestic and overseas market. Why are we taking these steps? As you can see, look at China's five years plan. These are the key objective has been written, productivity, reducing energy consumption for GDP, reduce emissions for energy used, smart grid, et cetera. You can nearly think this is written for the company like us, ABB, because we have a very strong offer in the power and automation, which can meet this medium and the long-term objective set by the local government. What are the actions we are taking to capture these huge opportunities? Here are some examples. We use the same methodology, the heat map, you have heard in the morning and also from Frank, looking carefully at the industry segment and geographically.
In China, it's not just the one country, actually, it's many regions. Where we are strong, where we have opportunity, and define the actions to capture these opportunities. Here are just some of the examples, like the penetration. Today, we are present in 109 cities directly with our sales service, but through our channel partners, we can cover additional 500 cities in China. With this latest e-commerce technology platform, we can reach additional 600 cities. Most of our customer, if you look at, they need both power and automation offer. By looking carefully our customer base, we can further penetrate the sales by business-led collaboration. Sell more with our existing capability. Innovation. With today's challenge and opportunities, there is a big room for the innovation. It's not only technology and products, but also the business models, the process, et cetera.
The example we have talked about is this small parts assembly, because we can foresee in the future, due to the development of the country, there will be a labor shortage, there will be increase of labor cost. These are the things. Country develop, of course, people get more wealth. That means also generate a big demand for the global-based automation, particularly in general industry. Last but not least, expansion. In expansion, we are talking about two dimensions. How can we fast expand to the new market segment? Here, what we are doing now is elaborate the collaboration and partnership with a strong local Chinese player. For example, we are in partnership with Denza to supply the EV charging, and the latest announced partnership with the BYD in energy storage for the renewable integration is another great example.
We want to speed up the new market segment penetration expansion. We also should look at the geographic expansion. I will come back in the one minute. I hope you agree, we have the good actions defined, but to generate great results, excellent results, we need good people today and tomorrow. Here, actually, I'm very proud to share with you, ABB China was voted as the best employer in industry by local graduate university students in 2014. I'm really proud because we have been working very hard to get these results. Geographic penetration. As I said, China is big. Today we have a strong footprint, cover the coast, middle, and the west part of the country.
Also, by looking at the heat map, by looking at the different regions, there are still many areas, cities where there's fast growth potential, which is not covered by us. We have made a plan to accelerate the local footprint expansion. Our plan is we will add additional 100 city within the next three years to capture the opportunity in this country. Finally, let me share with you some of the success story we have together with our customer. Within the utility sector, ABB is the technology leader in HVDC. We have participated 19 out of the 24 HVDC projects in China today. The latest example you see is from the Xiluodu-Zhejiang, is a world record DC line, which transmits 8,000 megawatts clean energy from west to the east over 1,600 kilometer. It clearly demonstrates our strength in this field.
If you look at the industry sector. Here, ABB, again, we can talk about robotics, for example. ABB has been pioneering in the robot automation in China for more than 20 years, mainly start from automotive industry. Today, if you look at every automotive OEM in the country, either the Chinese one or the Western. I think everyone use either ABB's robot or ABB's solution or both. We really have a full coverage in the automotive OEM. We also look at the new segment like 3C. Looking at the future opportunities. Again, we have been working in this segment for more than 15 years, and all this robot automation solution in the 3C industry today used by our customer, we have been involved in most of them during the development phase. We have a very strong position.
Another topic is ABB is a very strong committed to provide energy efficient solution for the Chinese industry. One example I want to share with you is the aluminum plant in Xinjiang. Xinjiang is the far most west province in the China. There, our ABB's energy efficient solution combined with the motors and drives could save customers energy costs by 30%. Transportation and infrastructure is another segment, which is very important for us in China. Here, all our five divisions are actively present. The example you have see is, for example, like next generation wireless intelligent building control for the Four Seasons Hotel. Here we can provide good comfort and energy efficient solution. Another example is integrated. It's a power and automation solution with an Asset Health Center for the offshore platform.
Actually, again, it provide good comfort for the people, stay on the platform, work in the platform, and very energy efficient solution. The last, not the least example is this EV charging. ABB announced a partnership last year with the Daimler/BYD's newly launched car, Denza car, where ABB will supply the DC fast charging in the next six years. In conclusion, I feel we are very well-positioned for the Next Level growth in China. Thank you for your attention. The next section will be the relentless execution, will be presented by Tarak, Greg, and Jill.
Good afternoon, everybody. Since Chun-Yuan did such a good job of introducing us, I thought I should give you a demonstration of what do we mean by relentless execution from multiple dimensions. First, I want to give you an overview of low-voltage products and then go into a little bit more detail what Uli talked about this morning, in terms of how are we in low-voltage products executing and getting results on the concepts that Uli articulated earlier this morning. Then how, with the support of Jill, we want to institutionalize the growth coming from relentless execution. Low-voltage products. From the perspective that you might have, you might think, "Well, it's low and it's voltage." It might be high margins, but is it really innovative?
I want to show to you a product which you wish you had in your hotel room yesterday evening or this morning. It actually is a socket that actually charges all the cell phones with a USB connection. This is a Red Dot Award-winning product, and you might not think of this as very innovative until you try to fit a transformer inside a socket. Then make sure that it actually does charge your phone. It doesn't electrocute somebody with 120 volts, which is what is sitting inside the socket on a 24 hours a day, 7 days a week basis. That is Low Voltage. We are producing 4 million parts a day. It's almost like a river of parts that we ship to our customers. We have a $7.5 billion-$7.7 billion in revenue last year.
We generated a profitability of 19%, which is respectable, but I'm sure all of you wish it was higher, and so do I, and so does Uli. We'll talk about how we increase the performance of this business. What's very interesting is in the last 4 years, the number of customers who have requested to us said, "Yes, you have 150,000 parts in your portfolio, but we need everything in 3 to 5 days." Imagine you have 4 million parts that you are producing on a daily basis, and then you need to deliver whatever the customer wants, wherever he wants, in 3 to 5 days. That puts a tremendous operational and logistics challenge on our business. To top it off, you're selling it in 100 countries.
For us to continue to be successful in Low Voltage, hopefully you see, not only do we have to be innovative in technology to command the price premiums that we need to sustain the profitability, but we also have to be extremely good at executing, because nobody's waiting for a Low Voltage product in the market. They like it, but if it's not there is always an alternative that a customer can go to. From execution in the business to what Uli talked about in terms of relentless execution. Here is the dashboard that you saw from Uli earlier today. I will go through one example each in the customer segment, in the cost category, and from a cash perspective. To give you a little bit better flavor of what do we mean when we talk about requested on-time delivery from a customer perspective.
How do we use automation to really implement a cost-saving program that is meaningful both to the business and to the customers? The most important piece, which is what Eric Elzvik always asks us to do, can you run this business with less money? It makes shareholders happy. It also forces you to make operational improvements because it's not easy to run a business like Low Voltage, which is very much a make-to-stock business with lower levels of net working capital. Let me go through one example each. Taking it first from the customer perspective. For those of you who were here, if you remember, in February, we talked about the execution of pie concept within Low Voltage Products. Here you see not only do we look at the heat maps from our market share perspective, but also from the channel penetration.
What is our go-to market? Whether it's an original equipment manufacturer, whether it's an end user, whether it's installer, or more importantly, in this case, distribution channel. Some 55% of our business goes through distribution channel partners. We did a thorough assessment, a stock take, as Uli mentioned earlier in the year. We decided we will focus on distributors as a way to grow the business. What has been very interesting is a razor-sharp focus on distributors, and you might think we've been in the business 30 years or even longer, that we would really be able to deliver on a daily basis to distributors. It's the systematic, methodical, razor-like focus that has resulted in growth, which we think is quite impressive in the current environment. Last year, we got about 2%-3% growth.
This year, in the first six months, we got 9% growth through distribution and distribution channel partners. That does not match the distribution industry. However, because of our broad portfolio, because we added Thomas & Betts, and because we focused on execution through distributors, we were able to drive both the top line, but also, as you see at the bottom, one of the most important statistics for Low Voltage is how are we doing with the customers. We were also able to increase our NPS score substantially at the same time where we are growing the top line with the distributors. Here's a good example, customer-focused penetration. From a channel point of view, not a product point of view, not only a geography perspective. There are different ways to look at penetration.
Another example, if you don't recognize what's a miniature circuit breaker, you just need to remember, when was the last time your child or you accidentally put something into the socket outlet and all the electricity in the house went away? You went down to the basement and you turned on a switch, and all of a sudden, all the power was back on. We make about 50 to 60 million of those switches. Thanks to all the customers like you who actually trip, and because it is required to protect people, this is something which all developed markets need nowadays, and we produce those switches or miniature circuit breakers, as we call them. We used to produce them in five different locations all over the world. With five different engineering systems, platforms for manufacturing.
We took a look at a systematic approach, very much like what Uli talked about this morning. How do we make it a standard? How can we make the manufacturing process modular? How can we make a design that is local to China, but the equipment, the process, the quality that we produce in Germany is also produced in China? Here you see an example of how we have taken a business that makes 50 to 60 million pieces all over the world and put a uniform standard on it. By doing that, we've lifted the quality, and we have executed our own Discrete Automation and Motion capability within our own facilities. The bottom line of this particular investment has been a $20 million savings. We didn't do it just for the customers. We didn't do it just for the quality.
We also did it because we knew by executing something like this, we'd get a $20 million bottom-line impact. Some of you who have been on the tour in Beijing, among the investor community, might have seen one of these locations that we have, or the one in Heidelberg. It's a really true world-class showcase of a marriage of automation, control, engineering platforms that delivers really a great value to the bottom line. A third example. You remember we added Thomas & Betts to the portfolio and to the family? One of the things we noticed is the focus on customers that Thomas & Betts has from an availability point of view. Here is an example. We've taken a concept. We've had the concept in mind for many years within the division, but now we've executed it in Southeast Asia.
What you're looking at is our logistics center in Singapore. What we have done is a customer in the region, there were 14 locations in the region, eight countries. If you were a customer of Low Voltage, you would be expecting us to have between 5,000 to 6,000 parts in inventory and a delivery between 5-25 days. If you wanted something that was not in the 5,000, it would take us longer. Since then, what we have done is we've consolidated in one location, all of the inventory from 14 locations. If you are a customer for ABB in the region, you will have access not only to 5,000, but now 25,000 parts that we can deliver, not in 5-25 days, but in 3-5 days.
The reality is we're actually below three days today in the countries that we have started this process on. These kinds of execution have allowed us to really reduce our net working capital by 300 basis points in the division. Again, these are three examples of how we are actually executing some of what Uli talked about in the Low Voltage Products division to really drive performance, both from a customer perspective, from a cost point of view, and most importantly, from a cash and a cash flow perspective, to a place which is better than it was before, but also something that we are absolutely convinced we can continue to execute in many different locations within Low Voltage Products. One of the areas of Low Voltage Products execution has been Thomas & Betts, which we integrated into the family.
To give you a perspective of that, let me hand it over to Greg, who will go through the M&A process and the value that we get from M&A. Thank you. Greg.
Thank you, Tarak. Good afternoon, ladies and gentlemen. I will cover relentless execution and how we drive value from our integrations of M&A. What I'll really touch on is three things. One, how do we approach integration along with M&A? Number two, what have we accomplished over the last three or four years in doing this? Thirdly, I'll come back and take a look at where do we go from here as we go to the next level of excellence with our integration processes. Really, when you think about integration, there's a lot of discussion on integration, you have to go back to the strategy as we look at it in ABB and say, "Why do we want to acquire something?" That thinking, that process begins in our overall group strategy, and it's a regular iterative process.
Uli shared some of the ideas on our 2020 outlook for some of the space we see that could be interesting. This goes on, and it's really a living process amongst the EC with the business leaders that would have responsibility for the acquisition, taking the lead, looking at the market, combing the radar. That process is one that's well thought through, very systematic in terms of the screening. When we do get to an interesting target, the M&A process has a lot of discipline. We go in with certain assumptions. There's a deep dive on due diligence that you might expect. What you may not know is we pull forward our thinking on integration, and we tie that into the analysis of the company.
We're beginning to think about, as we do due diligence on one hand, on the other, how difficult is this going to be to integrate? Can we see a clear path on how two companies will come together as one in a new family arrangement to get us to the targets? That's a cultural look. That's a people look. Going through the strength of the management team, really testing a lot of our assumptions prior to going in and spending time with the organization. We also bring forward all the learnings from our past integration, things that worked, and I'll come back to that, and things that could be even better.
We ask the due diligence team to start writing some basic plans for the day one and day 100 integration activity, so we don't lose the thoughts that were right there at the moment as to what the due diligence team is seeing. Then the idea is to continue some of the same people into the integration setup. We align a cadence process. We look at the synergies. We really go for that management continuity, because when you think about it, these are complementary businesses, but they may be in spaces where we don't have the depth, whether it's geography-wise or technology. We want the knowledge, buying a good company, of people that know how to run the company. That's certainly a part of what we do.
We set up a common scorecard right up front, because when you're in integration, you want to move at the speed, and the speed is usually based on trust. The more you can say and then follow up and do, the more you can explain up front as to what the roles are going to be if it does come together, the more people understand how this is going to work. Most of all, you start getting their ideas, because that's really what you want. No one company has all the answers. What you're really trying to do is create that connection between two companies that takes us to a better place. What have we done? Uli mentioned this morning, we've closed some gaps, certainly in my other role running North America and now the Americas.
We've made a major move in terms of the automation market and how we now see a much wider part of the market. This has really balanced ABB, where we've been quite strong in power and okay in automation, but not seeing enough of Tarak's business in the market. As the integration manager for the first couple of years on Thomas & Betts, Tarak and I were working hand-in-hand, the business owner, the integration process knowledge to figure out how are we going to map opening up the market even further and riding the backs of that logistics model that Tarak showed and really finding out more about the distributor channel partners that we can have a larger conversation with in Tarak's business. That's exactly what's happened.
The same thing working with Pekka and Uli when he was running DM as the integration manager for Baldor, taking a look at the things we could do with a strong motor presence. We didn't just buy a motor business in the U.S. We bought the number one player. That number one company had deep roots in terms of end user OEM and distributor relationships, and that really opened up the market for us greatly. You can see we've closed some of the gaps in software and instrumentation. Solar inverters, one of our newer acquisitions, and certainly well on its way with buying the number two player in the world. We've made a number of moves, roughly $10 billion invested.
You can see the larger moves in terms of the investments, Baldor, Thomas & Betts, Power-One, but other important, don't always have to be just big, important fit in terms of how we fill out our portfolio with smaller bolt-on acquisitions. As we said to you, our goal is to push for that cash return against our working capital targets, EPS accretive, and also making sure we maintain our A rating in your eyes and also in the eyes of our customers as we do this. Looking at what happens and what we've accomplished, we run a scorecard process, and you can see here the five areas we look at. Certainly, the financials are on the top. We keep track every month. We come back through a governance process that includes the EC business owner from the division and other members of the EC.
Eric, Diane, myself, J.C., and of course, Uli, really keeping track on how are we doing in moving through. Looking at this, we not only measure the financials, but what do the customers have to say about what we're doing? Because it's very easy to get internally focused on an acquisition, but if you want to grow and you want to stay relevant, you got to keep pushing for that external focus, and that's exactly what we do. We measure NPS. We come down, we look at operational excellence, how well are we doing in getting things done, but also the employees. The employees have to feel that this is a better proposition than it was before, or else you'll lose some of your key talent. Then overall, a summary.
Looking at the big acquisitions on Baldor, this is one now that we're after our third-year anniversary. We're into about a 39-month period, you can see that our cash return is above the targets. The customers have voted not only with ongoing NPS ratings that get higher each year, but they've come back and given us more business as a direct connection to what we've done on Baldor. First, saying, "Now you're a full line motor supplier around the world. You will be our global standard." Then coming back saying, "We want to add service in the next year." The following year, coming back saying, "We want to add drives." Just recently, this year, saying, "Low voltage systems with ABB." You can see how it brings us into a different level. Cost synergies at Baldor and across are tracking well.
We're above plan after our third year in Baldor. Thomas & Betts moving much the same way. Power-One, very early, but in line with the plan. Across the board, you see a track record of successful management retention, that's something we work hard at. Obviously, bringing companies together, we've given people even bigger jobs because we look at talent regardless of where they've come from. Did they come from Power-One? Did they come from Baldor? Look, if they're capable and they can go to the Next Level with us, we give them bigger jobs and not so much about what brand they carried as they came in. Thomas & Betts well on track as well. There's been a lot of great learnings.
We've really gone after it in North America in terms of completing the integration, using the Thomas & Betts logistics and business systems and Tarak's business, then commercially reaching across all the divisions to figure out how we can open up the market. Power-One, just at that one-year mark, maybe one year and a couple of months, but moving in the right direction. We've got a good company here, we also bought a company that has strong market position that has accelerated us. What we noticed, Pekka was very much involved as the integration team working with the business, the customers were saying, "Okay, what's going to happen with the product lines?" Because we also had a solar inverter at ABB. We harmonized the product line very quickly, we created one brand.
It made it very clear to the customers, okay, the commitment's there. We know the investments are there on the products, now let's go forward. What you've also seen, on the other hand, is we looked closely at all the assets of the acquisition and found the ones that were not core, but also not just moved on these, as Ulrich mentioned, when he came in as CEO, we'd be doing some pruning, but doing it in a very responsible way. What do I mean by that? Doing it in a way that we bring back more value than what we paid. We do it in a way that there's continuity on that business, so the owners are excited to get it. It's being well run. Also that these folks have a home with a strategic owner, in many cases, that is a better fit.
That's exactly what we've done in these cases, moving, for instance, in the gensets, was the largest component, and most of the material was a combustion engine that was inside that product. We're not in the combustion engine business. We love Baldor, but that small piece of Baldor wasn't such a great fit. On Thomas & Betts, we sell a lot of things, motors into the HVAC industry, but this was a heating business. This was space heaters for rooms. That's not a business we're in. It's a good business for someone, and we divested that along the way, along with Steel Structures. Power Solutions was a very small power supply business, that things fit inside of a computer to keep a computer running. That's more at someone else's level, and a fuse company came along and bought that.
We've done this to prune and make sure we have the right pieces and the things that don't fit, let's bring back the value to ABB. In summary, we've had a solid execution on our M&A so far. There's been learnings. I'd say on the things that have worked well, it's that say-do ratio, creating trust early on in the process. It doesn't mean you can't run into challenges and things are different than what you thought, but you do it together. Up front, a lot of discussion on what should we do, what adjustments should we make. Staying after that cost synergy, driving that hard, and then having this common integration scorecard. The people, for instance, in Baldor, Thomas & Betts, are measured in a way that it's the same as the people in ABB. It's one scorecard across. Everyone knows what they have to do.
They know what's in it for them. They also know what part they have to play. What would I say the learnings have been? Well, there's been many, in terms of this journey over the last three or four years. I'd say even more communication, because when you're doing change, it's a lot of face-to-face. Emails typically don't work. It's not about sending out broadcasts. You really have to spend time together. It's a lot of eyeball-to-eyeball contact because you're building trust. I'd say even more of that would increase speed to another level. Dedicated resources, we're now dropping in the pie methodology to really make sure we plan well in the markets. Where do we need more resources? It's not that people aren't excited and said they can do it, but where can we have a bigger impact on that one?
I think what's really interesting about ABB, and I've had 30 years in this industry, about 14 with ABB, is the culture of ABB. We have a strong management engineering culture. There's a lot of science. There's a lot of metrics and process and follow-up. Really what I'm most proud of in ABB is the leadership side, which is art, in that ABB takes time to listen and really understand the company because it's that combination integration of not just management processes, but people and cultures. That's really what's come together as we've looked at what we've learned over the last three or four years. Going forward, integration principles, good discipline, ties right back to that strategy right at the beginning, and making sure we have the right companies before we start and we have the right people involved.
Far, we've had a great track record. We think we could take this up. There's always room to do better, and we'll drive for the Next Level of excellence. With that, I will turn it over to Jill, who's going to talk about the Thousand Day Programs and change management. Here you go, Jill.
Good afternoon. I'm going to tell you the exciting stuff about how we're going to run our change program. This morning, you've heard from Ulrich, and later on our business colleagues, how we are going to drive our organic growth momentum, accelerate value creation, and bring ABB to the Next Level. In the earlier presentation from Tarak, you have heard how we run relentless execution in our day-to-day operations. At this point, what I want to show you is how we're going to take the same relentless execution spirit to drive our transformation program and realize our Next Level strategy. How do we do it? We have, for a start, set up the Next Level program office, as you've heard from Ulrich this morning, which I have the honor to drive. As you know, success is very much about 5% planning and 95% execution.
In order to do what we say, the focus of the program would be very much on rigorous implementation, implementing all that we've talked about in terms of our strategic priorities. For best-in-class execution, what Ulrich normally would say, the perfect say-do ratio. We will be launching Thousand Day Programs for each of the strategic priorities that we have identified. To do that, what we'll do is that we will have a common approach focusing on a few key strategic priorities. By that, what we are referring to would be the ones having high impact on generation of growth and generation of shareholder returns. We will launch our Thousand Day Programs in ways consistently and systematically across divisions, across regions and functions.
Concrete targets will be set, and we will break them down into action items, responsibilities will be assigned, and we will have rigorous monitoring throughout the duration of each of these programs. How do we do that? Well, let me elaborate with a couple of examples in my next slide. We will align the entire organization with a consistent framework. Dedicated teams will be put in place to run the respective projects that we have identified. For each of these Thousand Day Program, we will have the oversight by an EC responsible member. This is to ensure that we have the highest level of empowerment and attention on these major projects. At the same time, what we'll be doing is that we will be identifying key prioritized topics. The reason being that we do not want to overload the organization.
You've seen here a couple of examples that we have listed here, and let me talk about the example of Africa, where we see tremendous growth opportunities. We already have 5,000 employees in Africa, but the huge opportunities there that we've seen, is calling for greater penetration and greater presence. Africa has, meanwhile, a population of 1 billion people, and it's expected to surpass China eventually, at the rate that it's growing. There's a high growing middle-income class, as you've heard from Frank just now. At the same time, there is a strong push for urbanization. What this means is a strong demand for local consumption and a strong demand for city infrastructure. On the other side, when you look to the power side, you find that the power generation capacity remains low and insufficient.
Just as a comparison, for 1 billion people, we're talking about a power generation capacity that's less than Germany for 80 million people. Demand for microgrids is increasing, and so are the investments on the oil and gas front. Guess what? ABB has the solutions to provide for all these demands. What we're going to do is that we will have a focus team, led by Frank on the EC level, that will generate and will execute on the growth actions. Our program office will support Frank to coordinate, to facilitate, and certainly to monitor the progress. Let me show you another example, which is on the net working capital optimization, which you have heard a lot just now from Eric's presentation. How we see the potential to increase our net working capital efficiency when we are comparing ourselves to the best-in-class in the peers.
This I can show you in the next slide. When we talk about net working capital optimization, we will ensure a complete coverage of the end-to-end value chain, from design to delivery. The reason why we do that is because we are seeking a game change effect, an effect that is sustainable, as Eric puts it just now. This is a program that we will run as part of the Thousand Day Program. Eric on the EC board is overseeing this. At the same time, let me share with you some examples of what we have already done on the net working capital front. Let me share with you the projects that have been done in DM, motors and generators, and our drives units.
In the last year, we have carefully reviewed the entire value chain in this unit. We have consistently and carefully reviewed the underlying elements that was driving the net working capital. In doing so, we reviewed, for example, our supply footprint to see where we should appropriately drive localization. We work with our suppliers to look into the supply model. We drive lean processes in order to shorten the tighter time in our production as well as in our logistics. We also look and work with channel partners in order that we could improve our planning and coordination. What you can see is really a systematic follow-through and working on every element of our value chain. With that, what have we achieved? We actually have achieved in a number of these units where we've driven our projects, double-digit % reduction in the inventory level.
We see that there is a lot of potential where my program office can take the learning out of these best practices. Apply them and deploy them to the other unit so that we can get across-the-board optimization. That is the reason why Eric has talked about the potential of unlocking significant cash generation from driving inventories and driving greater net working capital efficiency. How do we do it all that we are saying? Let me share with you our implementation approach. What we believe is most important are these four elements. It's about focus, it's about phase action, clear ownership, and accountability. As I mentioned, we will be driving our Thousand Day Programs in waves. We do not want to have an overload on our organization.
What's important is that we want to have a balance of focus on the operational demand, while at the same time addressing the change project demand. We want to take care that we have the right amount of resources allocated to this change program, while ensuring that the relentless execution, as we have been doing in our operations, remain intact. Certainly, you have heard the old saying, "What gets measured gets done." One very key cornerstone of our Thousand Day Programs definitely is about rigorous follow-up. Concrete actions will be set and tracked. We will be implementing a unified monitoring system across the organization, making sure that the milestones that we have set are followed and successfully done. If not, we will have to do whatever necessary alignment, but remaining always with target in sight and making sure that we do what we say in this regard.
That's what my program office will do to support the respective teams and to support the EC level to ensure that we have transparency of performance progress and the transparency of performance metrics. Thirdly, we will dedicate resources to run this Thousand Day Program. When we talk about the resources, we refer to not only the availability of resources, but really ensuring that they have the right expertise, that they have the right information, and they have the right facilitation from us, but above all, the right empowerment. That brings me, of course, to the final cornerstone, which is the fact that we believe strongly that there has to be a strong linkage between the performance and the target of the business, and of course, the personal incentives.
We will take care that the contributions to the change project, as you've heard from Ulrich this morning, will be well-recognized and will be rewarded. Similarly, of course, accountability will also be similarly reflected. You see, that means that with this cornerstone, what we believe are the very important transparent steps systematically done will be the key success factor to ensure that we have effective implementation of our change program. That brings me, of course, to the end, where I hope that with this short presentation of what we are planning to do, that I have shown you and convinced you that we are ready to do what we say, and we are well prepared to bring ABB to the Next Level. With that, I would like to invite Ulrich to come up and do his summary. Thank you.
Over the lunch break, some of you asked me why am I so confident when I talk about the Next Level program. I can tell you what you have seen this afternoon is the key reason. We have great ideas. We have wonderful plans. We got a clear direction in ABB, how to accelerate sustainable value creation. The team that you have seen and hopefully experienced now that you could feel, that is ABB, that's ABB on the most senior level. These are the people that will get it done, and I'm incredibly proud to work with all of them in the next phase of this company. Let me sum up. Next Level in ABB. We will shape the global leader in power and automation. We will deliver by building on the strength that make out ABB for many years.
We will continue what you have started recently and bring it up to full momentum. We will implement what we said this morning on the key new elements of this portfolio. You have seen some examples how we're going to shift the center of gravity. I think Tarak has done a very impressive overview, what it really means day to day in the business to build up a comprehensive operating system. Jill has just now given you an overview on the Thousand Day Programs and what they really mean in daily action. I think all of the colleagues on the automation and the power side have shown you that we are well-positioned in very attractive markets. To sum it up, Next Level is there. We have set ourselves attractive targets. We will deliver to you sustainable, attractive shareholder returns.
We will drive profitable growth, relentless execution, and business-led collaboration. With the team that you just saw, I'm sure we will accelerate sustainable value creation for our shareholders. That's the story on Next Level. That's what we wanted to share with you today. We would like now to open up for the last round of questions and answers. Since we will do this as a team, I would like to ask you quickly for patience. We need to rearrange the stage quickly because the entire team will be on stage taking your questions and hopefully providing some very convincing answers. This was operational excellence in daily execution, huh? I need Eric here.
Before we start the Q&A, I would very much like your feedback. We have a survey that's in the deck that you have in front of you. We've spent a lot of time today presenting the Next Level strategy, and we would very much like to hear your thoughts. It's very important to us. As we're doing the Q&A today, I know many of you are going to want to rush out of here after it, so please take it out, fill it out, leave it on the table. If not, if you don't have time right now, you can find it on the internet. Please, it's very important that we get your feedback. With that, we will open up the Q&A. Who wants to be first? Fredrik? Behind you there, on the right.
Yeah. Hi, it's Fredrik Stahl here from UBS. Maybe I can start with, at least on my numbers, it seems that your dividend and the buyback, well, it adds up to roughly my net profit forecast. You will spend a large proportion of your cash flow on the shareholder return here. My question is, how much are you prepared to gear up if those acquisitions come along?
I would suggest the CFO takes this question.
Yeah. I'll take the question. The buyback program is over two years for $4 billion. Of course, it depends on the pacing over time on the buybacks. As I explained in my presentation, we also see to generate quite some cash from net working capital. One measure is to do it against net income, as you say. The other one is to look at the balance sheet and the cash flow and the leverage that we have. We are very confident with the $4 billion, and it still leaves room to run incremental moderate level of M&A activities.
If I may just complement Frederick. Look, it's not a bad ambition to tell the business leaders, "If you want to go shopping, find the money in your inventory." That's definitely an incentive to go a little bit more in that direction.
Okay. Up here to the left.
Hello. It's Peter Reilly from Jefferies. I've got a question about the mining automation opportunity. You paint a picture of very antiquated industry. Could you talk a bit about the payback? What sort of payback you get on a major mine automation project, and whether it really only works for a greenfield project, or whether you can retrofit to an existing mine?
I suggest Veli-Matti you take that.
Well, I think project by project is difficult to say what the payback is, but normally you could say that if there is a major job for us, that could be, say, from $50 million-$100 million job. That itself is profitable. I wouldn't say that we have done jobs in mining which don't have a return immediately. Moreover, it is that usually when you get with a $100 million project into a mine. You also get the aftermarket for that equipment, and over the time, probably even for more. I would say that mining is not one of those sectors where you have to buy a job to get in. Usually, with the technology, you can get it immediately. I'm not saying that it's gold mining, but it's mining.
I probably didn't phrase it very well. I was thinking more from a customer's point of view. If you're a customer and you got the opportunity of spending a lot of money on automation?
I think it depends a lot what the customer is buying. Like now, if we take the Carajás, for example, which was in the press release, I think they have a pretty good return because they go to a different model in the mine, and they kind of save the drivers and the trucks and all that operating cost. I don't know how they have calculated the return, but my assumption is that it's pretty good because Carajás is in the middle of nowhere, so it's very difficult to get people there. If you get people there, it's very expensive. All the trucks, which would be 100 at least in this case, that would be a major investment in the first place. To carry on with that fleet and renew it and all that, I'm sure that there is a pretty good payback.
Look, when I met with the customer recently visiting him together with Veli-Matti, the expectation was somewhere between three and five years. If you do automate right, you got labor savings, you got energy savings, you got capital avoidance because you don't need to expand certain kind of equipment.
Ben?
Thank you. A couple of questions with everybody up there. First of all, I couldn't resist the opportunity to ask about power pricing, given that we've managed to get through a capital markets day and nobody seems to have addressed it. Bernhard Jucker, how do you feel about Power Products pricing at the moment? You put up your capabilities in ultra-high voltage. Obviously, some of the Asian competitors are getting pretty good at that themselves. How do you feel about that? That's question number 1. Question number 2 was really just going back to Power Systems. I am correct to see the trajectory of margin. What you're basically saying is it's going to take us 2 years to get back to 7%. I just want to double-check that.
Okay. I suggest Bernhard takes the first question on Power Products pricing.
The price pressure and the pricing is, of course, an integral part of our business. Yes, there is always price pressure. It depends by product line, by markets, what the actual situation is. We did balance it so far, and it's all about competitiveness that we can also compensate for it by taking costs out, leveraging our global portfolio and platforms which we have on one hand, and being local when it comes to the applications, being close to the customers. When it comes to competitiveness and cost effectiveness, it has to do with innovation as well. We invest quite a significant amount in R&D, to have new solutions, more cost-effective solutions, and more value for the customer.
When we talk about cost reduction, it's about relentless execution, be it supply chain management or be it operational excellence, where we drive, of course, or where we are very cost conscious and drive the cost out programs. This is just in a nutshell, to answer your question regarding how can we balance and compensate the price pressure. The price pressure is, of course, as I said, an integral part of the business and we have to cope with it.
Just one comment in terms of the competition. Look, we had some customers in Saudi that stopped buying ABB product for a while and went for very, very cheap competitors' product from emerging countries. The first time one of them blew up, they came back and said, "We want to have high-quality products." It is about value. Some customers are not ready to pay for the value, Ben, and we need to let them go and experience what value really means. Typically, they come back and realize how good the product is. We need to continuously work on our technology that we really are ahead, measurably ahead of the others. On the Power Systems piece, look, your question is a good one, last time I counted it was 15 months between end of September and January.
January 2016 starts the year 2016, for which we have committed the 7% margin to start. It is about a year from now that we want to be at a run rate to really get there.
Let's do James first.
Hi there. One on PS and one on order momentum. On the PS, you have talked about 0 for the full year. I presume that is the old EBITDA, not the new EBITA, going up to seven in 2016 on the new EBITA.
Can you help us at all on 2015? Can we just assume halfway, or do you have a message that we should be at one end or the other? On order momentum, can you say whether the positive momentum that you saw in the second quarter in base orders has been broadly continued into July and August? Some companies have talked about China worse, U.S. better. Is there any color you can put just in words regionally or by end markets to what's happening at the moment?
I would broadly say that you're pretty narrowly fishing. Honestly, we don't give any further guidance than what we have said before. We have said that we expect in the fourth quarter Power Systems to be at breakeven, and we have also said that we aim very hard to get the full year at breakeven. What we also said is that 2015 will be the year where we complete the step change, and in 2016, we want to be measured against the target range that we have given ourselves. In terms of the order momentum, look, you have heard the team today. You have seen the numbers of the first quarter, of the second quarter, and you have heard the team today, what we are doing around growth. Let's keep the fingers crossed.
Andreas.
Just specifically to the question on EBITDA and EBITA.
Yeah.
The old definition is valid for this year. We are going to report this year on the old definition.
Good catch.
Yeah.
Andreas from J.P. Morgan. Two questions, please. The first one, we listen to a lot of company plans. A lot of your peers, competitors, they also target to outgrow their markets. They also want to run more efficiently, reduce costs, increase profitability. Some of them also do a buyback. If you had to single out one point that makes ABB different, in terms of what you're doing and what you believe you're doing relative to the others, what's the key part of your message today in terms of is it growth? Is it margin? Is it the balance sheet? What do you really see as a standout relative to the other plans that are out there? The second question on robotics. There's a lot of excitement about robotics outside industrial, in terms of service robots, hospitals, whatever else, logistics. Because ABB has a great robotics business in factories.
Do you plan to take that outside the factory at some point in time? Thank you.
Look, Andreas, on the standout, I would like to give you two answers. The one, this team. I think this team is top class, is very experienced, and is very ready to execute. I think we got the right team in place. The second point, if you look at the logic behind it's execution. It's a very rigorous approach to execution when anything that we will do. We will drive say, do. We have the processes in place. We have the rigorous performance management. We tailor it in a way that is staged and realistic, and that will be the hallmark of the next phase of our development. On robotics. Look, we are already outside of factories with our robots. Whether it's in the wine cellar of champagne producer turning around the champagne bottles.
Whether it's in a slaughterhouse in Australia using the robot in a way that I don't want to describe more drastically in this room. We are moving out there gradually and really make steps and inroads getting out there. The field of service robots is one that we are looking very carefully at in the industrial context. There is so much opportunity around the 3C industry, around assembly and manufacturing, that we want to also make sure that we stay top class and ahead what we're doing before we wander out in too many additional areas, because the underlying market dynamics are very strong. The core focus will be around what's happening in the factories, and then we're going to expand in a staged way in different parts on the robotics field.
I think Mark in the back had one.
Thanks very much. Ulrich, just wanted your view on, and the team I guess, on how you see M&A opportunities at present. Are assets too expensive? Is there not enough growth? Or is it hard to execute in terms of building relationships and things? Just a bit of color on the M&A, and in the context of the share buyback, how you went through the decision of balancing that versus your M&A options. Thank you.
Couple of different perspectives on your question. Number one, if you look at valuation today, in a lot of areas, it's pretty high and steep. We don't do M&A just to do M&A. We want to create value, as we have said before in the track record that we have created. The second piece, which is very important, we learned that the integration capacity in a company is as important as the effective value proposition. When you have a management team, when you have certain things ahead of yourself that you want to do, you need to balance off and allocate the resources in a way that you don't start overheating or over-risking by taking on too much at the moment. We have, at the moment, the homework on the Power Systems side that's going on.
We will now change the organization on the regional structure and get that going. That means basically, we all need to work on that one to make sure that the customers don't feel it, that we feel it internally in the transition phase as an improvement point. For me, it's a balancing question. If the right opportunity comes along, you look at Spirit IT, that's a wonderful smaller one that we added. Highly complementary, fantastic upside opportunities. We're going to go for them. Will we do in the next 3 months a multi-billion huge acquisition, jeopardizing what we have just started now? That will probably not happen.
I think there was something up here. Daniela?
Thank you. Actually, two things. One on low voltage regarding distribution and how you've been growing at 9% and faster. Can you comment on whether that was Do you think you've gained market share, and where and how do you do that? Because I guess distributors are also quite focused on volume and rebates, and so was it through pricing or something else? Then the second one, just on mining, I think there was a comment during the presentation that there will be a mining automation revolution when the next investment wave comes. Just your views on that, on what you're seeing on mining and how soon that might be. Thank you.
Let Tarak start on the low voltage side.
You mentioned on distributors. Exactly, you're absolutely right. We did not use price to drive our volume through distribution. It's really old-fashioned hard work. It's a scope expansion that the distributors find very attractive. It's actually performance and delivery, which they see great value in. Most importantly, we have dedicated a tremendous amount of investment in the market to create demand, that we then fulfill through our distribution partners. First you need alignments in terms of where you want to go with the portfolio you have. You need to create a demand. To create demand, we need access, which our distribution partners will agree to provide us access to and give us a view into the end customers that distributors have. Working together, we've been able to create a demand. That means we have dedicated accounts to distributors on a geographic basis.
We made significant investments in terms of relationship with distributors. We've taken advantage of the capability that Thomas & Betts has, and that team brought to the distribution portfolio and distribution partners that we have in U.S. That's what has driven our growth. Geographically, I would say we've grown through distribution almost everywhere where we are focused, be it China, be it Europe, or be it United States. U.S. is where we've seen the biggest success.
Thanks, Tarak. The mining piece, our mining pope, I give it over to Veli-Matti.
If you look at the spending of mining companies, that's been down very dramatically last year for, in some cases, beginning of the year, in some cases, mid-year. If you think of the mining, how it operates, this is pretty okay to stay away from the investments regarding the new mines. That's always a very strategical, big decision. If you look at the existing mines, they either grow, if they are open pit, or they go deeper, if they are underground. You cannot hold years an operation like that. Otherwise that will stop. What we believe is that the companies will need to do some investments to keep them going. More importantly, the productivity improvement need is in place. I don't believe that the mining companies would continue when the wave comes back.
I believe strongly that there will be this kind of automation investments which will then cut the operation cost away, because otherwise it doesn't really improve the situation in the industry. The comparable examples like from oil and gas, they are so evident that it's only a question of time when the investments will restart.
Look, Daniela, when you want to know where an industry is going, look what kind of leadership gets appointed. In the mining industry, a lot of appointments out of oil and gas and out of the automotive industry at the moment, up to the CEO level. These guys know what automation can bring. When we sit down today, and Veli-Matti and I now and then go out and see a customer together, or when I see CEOs, they speak all the same language. Same operation, half the people, less accidents, more safety.
Olivier?
Thank you. I just want to grab your mind on to what extent you could say the upcoming Alstom GE merger in Grid has influenced your strategic thinking in Power? Question number one. Question number two: coming back to pricing overall, what I appreciate that the heat map and your potential to gain market share, you're not necessarily playing the pricing game. We're also hearing from some of your competitors that pricing is a little bit tougher. I just would like to have some comment of, in general terms, what's your view on how pricing is developing into your next 5-year plan versus how it's been doing over the last 5 years?
It looks like we take the second one first. There are competitors out there at the moment that see us coming, all of a sudden they start talking, taking their pricing down. That does not mean that we need to follow that defensive move, which we will not. On the GE Alstom situation, look, we have been monitoring the situation. GE Alstom is a lot around power generation. Now, if you look at the world, more than 80% of the global electricity markets is unbundled. That means, by law, the company that operates the generation piece cannot operate also the transmission and distribution piece. There's a clear split.
The argument that some people brought to us and said, "ABB, you should buy this, then finally you get into power generation, then you are full liner to offer everything." People haven't understood the market dynamics behind it, where a significant part of the world is not deciding that way. That's first on some rumors on that we are interested in that. The other one is, look, Alstom, GE, Siemens are all formidable competitors, and you can bet that we are ready to compete with them in the way which is appropriate when they have done this deal and when they are going for it.
I think, Peter, you had a question.
Peter Lawrence from J.P. Morgan Asset Management. There's been a lot of focus today on growth, and the second message has been the lessons learned from Power Systems. I'm wondering, as you put together the Next Level Program and as you thought about the change in regional structure, how much focus was there on what you needed to do to improve your resilience in case the base case scenario you're presenting just doesn't materialize, i.e., if the oil price falls below $100 or if the upturn in mining automation is delayed? What have you felt needed to be changed to support the margins if there were to be a significant downturn in demand? Thanks.
Look, Peter, I think this is an excellent question. Given the volatility and uncertainty of the world, what we will do is we will manage the cost for the worst and the growth for the best. That means we are extremely cautious on adding cost. We are also pulling on all cylinders, making sure we even widen the cost reduction focus. If you look at our top line ambition and take that on the upper end, you would say, "Why are you so cost concerned?" Well, we are. We are a lot. That's the reason why what Eric showed to you today, there are strong approach in sales services. We will be very tight on our capital, and we will be looking at capital efficiency much stronger.
The direction that the team is taking is high discipline on cost and whatever we can do in productivity, in cost reduction, we're going to do as if we would be in the worst-case scenario. On the other hand, knowing now where the pockets of growth are out in the market, go after them full steam with a leaner and an efficient resource setup.
Okay, Frederick.
Hi, Frederick here from UBS again. You highlighted data centers as one of your growth areas. Could you maybe talk a bit about your business there and your ambitions in that area? That's the first question. Then second question is, obviously, software is another enabler of your growth strategy here, and I personally think you'll make more acquisitions in this space, big or small. This is for Greg then. What have you learned from the Ventyx acquisition?
I suggest Tarak takes the data center piece.
Yeah, I have the responsibility within the EC to look after the data center business in terms of the approach that we take. We believe the data center market is polarizing in terms of large players and very large data centers. We're in discussions with some key data center players where the size of the data center is approaching 500 MW. That means you need a power plant just to feed the data center. The concept of building a data center in a Lego brick approach from a building concept on up to 500 MW does not work. It's really a big part of the market is moving towards very high power consumption, huge power generation needs, a clear discussion with utilities to get that kind of power. You cannot just put a 500 MW data center anywhere you want. You really need to work with the utilities.
We see that part of the market coming towards what we believe in ABB is our core competence, which is really providing very high-quality power distribution and power transmission and protection capabilities, which the data center players need. For the lower end of the portfolio, which is the smaller data centers, we're taking a look at a different way to approach the market than all the key competitors have done. We very much believe in supporting the system integrators and the construction companies in providing a package solution, to offer them more options and more choices than some of our competitors have done, which they're going with a full line solution. We take a slightly different strategic approach in that market. We believe the data center market will continue to grow quite substantially in the next five to 10-year period.
The growth might be not balanced like it was in the past. It might be much more in Asia than Europe or U.S., we really see the market taking off.
Thanks, Tarak. Greg, you want to take a shot at the Ventyx?
Sure. Look, on the Ventyx integration, it's Claudio's business, so maybe he wants to jump in here or two on the business lines. A couple of things I've learned. One is, certainly software is different as it relates to speed, agility, and software cultures. The basic underpinning of the business is still the same in terms of making commitments, keeping your commitments, delivering for customers. A lot of it on the people side is very much like other integrations in terms of credibility, performance, trust. Very similar to what I've seen elsewhere. What I'd say on the customer side, it's been really interesting that the customers are trying to sort out all this, and Louis was mentioning it about the e-business craze is now the cloud craze or the big data craze. They're trying to sort out what's real and what's future?
Having a company like ABB connected with a software business brings some stability and reality to what I'm seeing from customers. I think that comes back to this differentiation piece. I could tell you that we're in the B2B business world, and you're dealing with utilities, we're dealing with oil and gas companies. They want to make decisions that they know the company's going to be there 3 years, 5 years, 10 years from now. There's a lot of come-and-go entities. That whole thing really has struck me in terms of the value connection to ABB being in a business like this. Claudio, it falls in your view.
Yeah, maybe just from a strategic rationale point of view, I'm glad that we don't need to convince you that software is a key part of our portfolio. Do we need that? We need that across the whole portfolio, certainly on the power side. We gave you some ideas on how we can leverage and where we see the synergies. We start seeing that. Maybe one learning also that we would take out of that is that, as you know, when we acquired Ventyx, we also asked them to reverse integrate part of our business, and therefore, it took a bit longer for the whole integration to go ahead, I'd say we're on the right track.
Yeah.
Basically, look, if you buy our application software business, what ABB brings is very, very deep domain expertise. If you got then a rocket of an application, you teamed it up with ABB's domain expertise and market access, then you go.
Natalie?
Hi, Natalie from Carnegie. Two questions. On the robotics side, I imagine that automotive in China has been driving growth in robotics, and that penetration is leveling off. How do you see the general industries actually picking up the demand there? Will they do that or will that shrink for a time? The second question is on the mining. Do you see mining equipment providers having the similar offer that you have in automation? Are they not at all penetrating that market? Thank you.
I think it's two excellent questions, Natalie. Just from my perspective, and then I'll ask Xun Yang to step in. Look, on the robotics side, one situation that I experienced in China was the following. We gave Xun Yang and his team startup money to do a small parts assembly workshop with robots for the 3C industry in China. We had some pilot installations with some customers. One day, one of the customer, a company that was in the press, Catcher from Taiwan, came and said, "Look, we really like this pilot. We would like to order." I said, "Okay, that's great. How many would you like to order?" "5,000." 5,000 robots in one order. I think that just shows the tremendous potential that we have outside of automotive and that we have in the 3C industries and others. I'll let you complement, Xun.
Actually, they just ordered 1,000 more last week. No, actually, no, it's true. It's true. We didn't tell the boss.
That's okay. It's up to you to order.
No, no. First, automotive is still going strong. Automotive is still going very strong. The general industry already picking up, like Ulrich mentioned there, 3C industry. As a driver, it's not only for the safety. Of course, no one wants to work with the unsafe environment, but also for the process. I give you one of a good example. You are using Apple computers, and all these computers, iPad, are polished, right? Because it needs to be polished. 10, 15 years ago, when I visited Chinese customer, it's polished by hands, but this is gone. Because you don't find that people wants to work it, because when we talk to the manufacturer, they say the turnover rate is more than 100%. Such means if they need 5,000 people, they need to have at least 10,000 people ready.
On top of that, these are the skilled people. You need months of training, you don't have this supply. This already have a very, very high penetration for the advanced electronics like Apple, but also for the general industry like water tap, et cetera. General industry already picking up. Today, the limitation is not on the demand. It's more are we able to supply enough engineers who can integrate our automation solutions.
Looking on the mining side, your question is a really excellent one. When a market is down, you see all kind of behavior of people playing in that market. We have some people in that field that have some very wild ideas to diversify and whatever hardware players thinking they can go get short-term into automation. I think the more sensible ones, they think about intelligent partnerships. That's something that I see coming on the mining side, where ABB might be also on the front end, not receiving only ideas, but also pushing out some ideas for some partnerships to combine ABB's very strong value proposition with some other players. Thank you.
I think, sorry, right there.
Yes. Thank you. Johannes Werner from Samtram Invest. I have a question, I have two questions, in fact, regarding the de-risking, going back to this point. The first one is, if you have a look at your portfolio, do you see any needs to do some more de-risking over time? Be it closing down, rescaling, or even selling businesses or activities? The second one that's regarding the future and how can you make sure that what you see in terms of legacy in the power system side, and you had more legacy in the past, if I have a look at the project management, and you always did adjustments. I wonder how you make sure this time that we won't sit here in 10 years' time and have similar legacy things and power systems as we have today.
Well, if you put the case, then in 10 years' time, you would be sitting here, but me, not anymore. On a serious note, let me take your questions on that one. For me, risk management is not a static exercise that you do once and that's it. Risk management is a dynamic, everyday process that you need to have. Take a large project. On every large project, we do risk reviews, and it's a very detailed process where we go through all the elements of the risks of a project. Eric and his team do every year, on a regular base, an ABB risk review for all of the businesses, the key business risks. I would like to invite maybe quickly, Claudio, if you talk a bit about the risk review process for projects and Eric for the overall business risk.
Why don't you share a little bit what we are doing in this field to give you a little bit more granularity?
Yes. As Uli said, it's a continuous process. What we are doing, I was showing that in one of the slides, is two dimensions. One is changes the business makes, de-risking, as you mentioned, which is an important part of the equation to get the sustainable performance in the division. The other one is also adjusting not just the risk review process in that sense, but adjusting the whole process across the value chain when we execute projects, to the extent that we will dedicate also an organizational design for that part. Because as you can understand, the logic, the overall risk management execution, on all the different functions is different for project execution compared to manufacturing, for instance. On the risk review, just to come back to that one, we've been running this process for now years.
Of course, again, it's a learning curve that we're going through. Some of the, let's say, that missed a risk that we did not highlight, obviously enough, for instance, when we went into new arenas like offshore wind, definitely now come in as part of the learning curve and go into the risk review process, identifying those risks and say, is there any similarity, for instance, to the offshore wind challenges that we've seen or to the solar EPC that we have seen? Then what we create around that is what we call the safe island approach. We look at then the portfolio of projects and say, okay, in the past, this was what we've done right, this is what we've done wrong. In some cases, we can fix it, so we can go after, then it becomes part of the portfolio.
Some cases, we simply say, it doesn't make sense for us, like for instance, we did for the EPC solar, where we said, look, the safe island is the system integration piece, no EPC anymore. Similar to the offshore wind, where we now concentrate on our core technology.
Thanks, Claudio. Eric?
On the enterprise level, we are running a process to review all the businesses on yearly basis. It goes all the way to the board for review to identify the risks that we have. This is not only project, these are also other risks we have in the group, and define specific mitigation plans. This process we are upgrading year by year, and we are now, over the last few months, also been upgrading the way we approach it and make sure that there is no areas which are not properly covered through that process. I think that has helped us to avoid quite a few risks, which we don't even talk about today because they have been properly mitigated. On the project side, we are upgrading it to make sure we really catch and implement the mitigation which has been defined in all those processes.
I think we have time for one more question. Here in the front.
Thanks. Graham Phillips from Jefferies. Can I just go to the share buyback program, and how are you actually going to implement it? Is it sort of going to sit there perhaps to be used if you see weakness in the share price, you're going to buy it, or is it just going to be sort of a permanent program? Also, why didn't you give consideration to actually not putting it all into a buyback? I understand that obviously, some of it's going to be used to cancel the employee program issuance. Perhaps just rebasing the dividend, to perhaps give even more confidence. Of course, increasing the dividend, not to the whole amount, but at least moving that up to another level would have perhaps given an even higher level of confidence.
Eric, why don't you start on that one?
Yeah. The dividend that we have in place today with the over 3% yield is a very high and competitive dividend today. Also, when you look at it on other metrics like share of net income and so on. We looked at it, but we see the share buyback as a better instrument to manage the position over the next 24 months. How exactly we're going to implement it, we will not comment on in detail, but obviously, we will be ready around the 16th of September to start. You also asked why do we have it in two pieces, and it's simply so that we have specific needs under the employee ownership programs. We have over 20,000 employees in those programs, both to hedge and to manage and deliver under those programs.
That part is something we need to do, the one for cancellation is what we have added up to come to total of $4 billion as a total frame for this program.
Okay. With that, we would like to thank you for joining us today. We will be having an apero right after the event. We also have the exhibits again. I please ask you, it's great, the exhibits that are out there to start to understand more about ABB and what we actually have to offer. With that, thank you very much for taking the time today, and we look forward to in the near future telling you about the execution on our Next Level strategy.