Earnings Call: Q2 2019

Jul 25, 2019

Ladies and gentlemen, welcome to the Q2 2019 Results Analyst and Investors Conference Call. I'm Alessandro, the Chorus Call operator. I would like to remind you that all participants will be in listen only mode and the conference is being recorded. The presentation will be followed by a Q and A session. The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Jessica Mitchell, Head of Investor Relations. Please go ahead, madam. Thank you, and good afternoon, ladies and gentlemen. Welcome to ABB's 2nd quarter results conference call and webcast. As you will have seen, the press release was published at 7 a. M. On our website. This briefing is being webcast via our IR website as well as being recorded. Following our presentation, we will open the lines for your questions. With me today is ABB's Chairman and Chief Executive Officer, Peter Boza and our Chief Financial Officer, Timo Ihamu Tila. Before we begin, I would like to draw your attention to the important information regarding Safe notices and our use of non GAAP measures on slide 2 of the ABB presentation. This conference call will include forward looking statements. These statements are based on the company's current expectations and certain assumptions and are therefore subject to certain risks and uncertainties. With respect to our results, you will remember that orders revenues and operational EBITDA results reflect our continuing operations and exclude Power Grids. Results for the 4 businesses reported as continuing operations have been recast back to 2017 in line with the business structure that became effective on 1st April this year, and this data is also available on our website. With that, let me hand you over to Peter. Thank you, Jess, and welcome to all of you. We will start with a review of Paybaby's results for the quarter. We will then provide an update on the group's progress in its transformation agenda. And finally, we'll outline the group's final financial expectations for the full year of 2019. On Slide 3, we summarize the 2nd quarter results. Total orders were $7,400,000,000 and up 1% year on year on a comparable basis, and revenues of $7,200,000,000 were up 2%. We continued to deliver some growth, led by solid growth in Electrification and Motion despite stronger headwinds in some of our end markets, particularly robotics and discrete automation. The operational EBITDA margin was 11.5 percent, impacted 90 basis points by Strande costs and a further 60 basis points by dilution resulting from the integration of GEIS. Our group's operational EPS of US0.34 dollars was 10% lower. The basic EPS result of US0.03 dollars is notably lower year on year, driven mainly by the charge of $455,000,000 resulting from our decision to exit the solar inverter business. Cash flow from operating activities was 0 compared to $1,000,000,000 in the Q2 of 2018. This primarily reflected the timing of employee incentive payments, which were paid in the Q2 this year, while in 2018, they were paid in the Q1. It was further affected by less favorable movements in accounts payables compared to the same period last year. On the next slide, ABB's regional and country order trends for the Q2. In the Americas, total orders grew 7% in comparable terms. All of our businesses were up, led by strong growth in Industrial Automation, Robotics and Discrete Automation and Electrification. Orders continued to grow in the United States, our largest markets, while developing very well in South America. In Europe, order development was more varied. Total orders were stable despite increases in electrification, robotic and discrete automation and motion, mainly due to weaker large orders in Industrial Automation. Strong growth in France, the Netherlands and Spain was more than offset by lower order levels from the UK, Finland, Sweden and Italy. Italy was particularly weak by comparison to a strong base from the previous period. Lastly, you can see orders in Asia, Middle East and Africa reaching a 3% lower. Solid growth in electrification and stable performance from motion was offset by lower large orders in Industrial Automation and the fall in select end markets for robotics and discrete automation. Lower orders from China and the Middle East outweighed positive developments in South Korea and Africa, Australia and India. To give a little more color specifically on China, ABB's total order growth rate at minus 1% year on year was driven mainly by significant lower orders in robotics and discrete automation due to the headwinds in discrete industries. However, we saw excellent growth in electrification and industrial automation. We therefore view the outlook as mixed rather than one of broad based contraction. Overall, 2nd quarter order trends show ABB was impacted by slowing in some geographies. However, we are on course to drive long term growth across our businesses while continuously improving the way we execute to mitigate slower demand. I will now hand over you to Timo to provide you with more details. Thank you, Peter, and welcome to all of you. I will now provide a closer look at the Q2 performance of our businesses, starting with Electrification on Slide 5. Electrification's results show continued top line momentum with total orders increasing 5%. Order growth was broad based with strong demand for solutions, including excellent growth in key segments like rail, data centers, wind and EV charging. Orders growth was led by the Americas. Order growth was robust in the United States and strong in China. Revenues were up 4% year on year, and the order backlog ended the quarter up 10% compared to the same period last year. The division's operational EBITA was 2 50 basis points lower year on year. GEIS's impact was approximately 200 basis points in the quarter compared to 2 70 basis points in the Q1. Excluding GEIS, margins reflect a shift in Electrification's business mix toward More Solutions revenue. Looking ahead, we expect the business' margin to continue to show the impact of a shift in mix towards solutions. Overall, we expect some sequential improvement in margin. This will include ongoing improvement in GIS performance, which will no longer be excluded from the comparison base from Q3 onwards. Next, on Slide 6, we have Industrial Automation, where total orders were up 4% sorry, where total orders were 4% lower. In this business, order development was impacted by lower large orders, mainly from Europe and the Middle East against a tough comparison with the prior year period. Process industries such as pulp and paper and mining as well as oil and gas showed continued good momentum, while conventional power generation was subdued. Measurement and Analytics grew very well in the quarter across end markets. The business is seeing a stronger pipeline of potential projects, including larger investments. Order awards remain subject to timing uncertainties. However, we do expect order growth to be strong in the Q3. Year on year, Q2 revenues rose 3%, supported by order backlog conversion. Operating margins were 220 basis points lower relative to Q2 2018, reflecting project mix impacts and higher costs due to under absorption and investments in growth. ABB expects margins in Industrial Automation to improve sequentially in the Q3. However, we still expect the year on year margin to be lower, absent the nonrecurring tailwinds that supported margins in this business last year. Let's turn to Motion on Slide 7, which delivered solid execution in the quarter against a tough comparison base. Total orders were up 4% with strength in drives and services and notable benefit from large rail orders. All regions grew. Revenues improved 5% and so did the order backlog. The operational EBITA margin of 16.7% was up 40 basis points compared to the period a year ago, primarily due to favorable volumes and ongoing cost management. Going forward, we anticipate steady execution in Motion Business. On Slide 8, we turn to Robotics and Discrete Automation Business or RA. As anticipated last quarter, we felt the downturn in the automotive and machine building builder markets. Accordingly, total orders for Q 2019 were 9% lower, reflecting both the more challenging market and a tough comparison base. Weakness was most evident in the automotive, machine builder and 3C markets and on regional bases in EMEA and particularly in China. Demand remained strong for logistics automation, and the business continued to benefit from orders for Automotive Solutions. The order backlog ended the quarter up 10% year on year. Revenues were 3% lower due to weaker book and bill activities such as spare parts and services. Reflecting lower volumes and adverse mix, the operational EBITA margin of 12.3% was 260 basis points below the prior year level. RA is strongly positioned in its addressable markets. In robotics, ABB continues to outpace broader market developments. In our machinery and factory automation business, we see significant growth in new design wins, leading to a very strong pipeline. Simultaneously, RA is focusing strongly on continuous improvement to help mitigate the effect of slower demand. We expect end market headwinds to continue, which will continue to impact order, revenue and margin developments for the next quarter compared to the previous year period. Let's now consider the main drivers of the group margin on a year on year basis on Slide 9. Net cost savings amounted to $57,000,000 supported by our ongoing focus on OpEx and supply chain management, plus some early wins from our simplification program. Volumes had a net positive impact contributing €60,000,000 Mix, including under absorption, had a dampening effect of €68,000,000 Investments in growth, namely sales and R and D, were €30,000,000 higher year on year. Acquisitions, which is GEIS, contributed €32,000,000 and the FX translation headwind was €38,000,000 this quarter. On Slide 10, we break out the key net income drivers for the quarter. In U. S. Dollar terms, restructuring related costs were EUR 74,000,000, including €51,000,000 in charges booked to advance our simplification efforts. Power grid's carve out costs were €38,000,000 and ABB recorded a charge of €455,000,000 from the announced sale of its solar inverter business. Looking at discontinued operations, where Power Grids performance is reflected, SEK 142,000,000 of net income was recorded. Looking forward on Slide 11, we revisit our financial framework where we set out our approximations for key items. Today, I will focus my commentary on issues where we have new or revised guidance. Within non operating items, normal restructuring charges are now estimated at approximately EUR 125,000,000 for full year 2019 from EUR 100,000,000 previously. Simplification program charges continue to be estimated at around EUR 500,000,000 in total, but in 2019, we now anticipate approximately EUR 300,000,000 lower than originally planned for the year as we have benefited more from normal natural accretions in this early phase. Our bridge separation costs are expected to trend higher in the second half as we move beyond the scoping basis into implementation. For 2019, we now expect more use of transfer service agreements, which should reduce the separation cost estimate to approximately €250,000,000 for the year. Finally, we anticipate solid operating cash flow for the year as a whole, not including cash outflows from the simplification program and carve out activities as well as the associated cash tax impacts. And let me now hand the call back to Peter. Thank you, Timo. I will turn now to Slide 12, where we have where we highlight how we are driving growth across our businesses with just a few examples. This quarter, electrification introduced the 1st major innovation in low voltage switch gears in the 1980s. Neo gear solves many of the issues encountered with current technologies, namely bus part contact failures and human errors that can result in serious injuries. It allows for up to 25% space savings and can cut energy losses by up to 20%. Also with ABB Ability connectivity, NeoGeR enables digital condition monitoring that can reduce operating costs by up to 30%. Our Industrial Automation business continued to consolidate its pulp and paper markets. For example, during this quarter, Industrial Automation won a contract to supply Trident Limited, the world's largest wheat straw paper manufacturer, with a control system to improve quality at their mill in Punjab, India while minimizing maintenance and reducing life cycle costs. Motion, in collaboration with Hewlett Packard Enterprises, Aruba, reached an agreement to combine ABB Ability's smart sensor technology with Aruba's Wi Fi and Bluetooth enabled access points, widening the application of its digital powertrain offering. This will all allow customers with large industrial sites to easily monitor the condition and performance of their equipment, reducing downtime by up to 70% and extending assets life by up to 30%. And in the robotics discrete automation, we announced plans to develop and introduce collaborative robotic solutions to hospitals, including logistics and laboratory automation solutions, starting with the new ABB Health Care Research Center at Texas Medical Center, which opens in October. Turning to Slide 13. The separation of Power Grid is advancing well and is on track to close in the first half of next year, as indicated at the time of the announcement. The demerger of PG from our Chinese holding company has been approved by authorities, and the demerger of ABB India is also on track. This is good progress given these are 2 of the more complex country separations. Worldwide, twothree of the necessary legal entities have been incorporated. With regards to the business developments, Power Grids is maintaining a strong focus on customers in a competitive market. We have seen solid order development this year to date with the business securing several significant HVDC technology orders. On Slide 14, we provide an update on the integration of GEIS. In the year since the acquisition, we have made good progress. We have fully integrated approximately 80% of GEIS employees. The combined sales force are operating as one To better access opportunities in the North American market, more than €70,000,000 in orders has been delivered through successful cross selling to date. We are digitalizing former GEIS service records and adding ABB service products to better leverage our installed base. The team showcased new combined products to customers in the Q2 and will take the first products to market in the second half, including, for example, the new generation of automatic transfer switches incorporating ABB technology. We have also upgraded and enhanced the former GEIS e commerce platform with ABB products. In addition to expanding market access, we have taken steps to optimize our footprint and supply chain while investing in factories and upgrading critical equipment to improve delivery and performance. For example, we announced plans to optimize our medium voltage manufacturing assets in the United States, investing approximately $40,000,000 to expand and upgrade our factory in North Carolina by June 2020. On a stand alone basis, the business is showing an improving trend in performance and achieved roughly 5% operational EBITDA margin in the 2nd quarter. We remain on track to capture the targeted cost synergies from the integration. We continue to expect the integration of the business to be a strong contributor to electrification's progress towards its 15% to 19% medium term target margin corridor. Let's look at our transformation quarter, in addition to global sales, we transferred the quality and operations and service functions from the group to the businesses. The transfer of country resources to the businesses has also commenced. And around year end, our future country model will go into effect. Furthermore, by end of December this year, we expect to have established a stand alone power grids legal structure. So let me sum up with Slide 16. We continued to grow in the quarter despite market headwinds. We are doing what we said we will we would do with our transformation and continue to expect $150,000,000 to $200,000,000 in run rate savings from AVB OS by the end of this year. The carve out of Power Grids is on track. We have been making good progress on the integration of GEIS, and we are actively managing our portfolio with the announced exit from our solar inverter business. Looking ahead, we anticipate headwinds in some markets to continue in the short term, particularly for discrete industries. That said, we expect slight growth in comparable revenues for the group for the full year, supported by our order backlog. We are maintaining our strong focus on performance management to continue to improve the underlying businesses. Group operational EBITDA margin is expected to improve for the full year, aided by an improved GEIS performance, ongoing stranded cost elimination, long core improvements and our simplification program. Lastly, we expect cash flow from operating activities to be solid for the year as a whole. Thank you for your attention. We are now ready to open the line for your questions, and Jess will do that for us. Thank you, Peter and Sima. Operator, maybe have the first question from the line, please. We will now begin the question and answer The first question comes from Virgo Alexander from Bank of America Merrill Lynch. Please go ahead. We lost connection with the questioner. We will go ahead with the second question from Ben Uglow with Morgan Stanley. Please go ahead. Good afternoon and thank you for taking the questions. It was really a little bit more color around China. There was actually some helpful stares in the introduction. But if I look at the order growth minus 1, Peter or Timo, could you help us quantify a little bit across the 4 businesses how strong relative with electrification products, how much of a headwind was robotics. I'm assuming that robotics must have been really quite difficult given that it was up in North America. So if you can put some sort of bandwidth or some numbers on the different businesses in China, that would be very helpful. And then the second question is really how should we think about the cadence of growth? So some of your kind of competitors have talked about things decelerating during the quarter in 2Q. Is that in China, I'm talking about, is that something that you saw? And how should we think about the setup in China into the second half? Those are my questions. Thanks, Ben. Let's split this one. Timo gives you a little more color on China, and then I will take you the second one on Q2 and the outlook in more general. Okay. So thanks, Ben. Yes, in China, the situation is actually fairly varied in a way that we have in Electrification Business and actually also in our Industrial Automation Business, double digit growth, so strong growth. Motion was more sort of in last year level type of areas and then significant double digit decline in robotics and discrete. So that's why we are saying that many markets in China continue to be resilient for us, and this is really quite much happening in one pocket. If I then take that up, Ben, I think for the quarter, which is Q2, I would say that in robotics and discrete, we saw it coming actually for quite a few months, and we saw also some competitors reporting lower numbers earlier than we have been reporting. So therefore, in June, what really came down or towards the end of the quarter was our conventional power generation. That's where we saw quite a significant slowdown there. In terms of looking forward, we think actually that in China, the way Timo just described it, we would still see headwinds, obviously, on robotics and discrete, And we would still be positive, as we said, on the other tools like Timo described, which is industrial automation and it's electrification. So I think that's the way we look at China. We said the U. S, and we have given you all the numbers. We see that as a positive trend going into the second half. So I think Europe is more or less stable in that sense. So I wouldn't but you have will have some differences between the countries. But let's settle there on stable. And I think China, if it develops the way we are forecasting, then that will be pretty much in line with the way we have given our outlook as well from a kind of total 2019 results point of view. That's very helpful. If I could have one quick follow-up. Just on the China Robotics side, I know your business quite evenly balanced in China between, let's call it, automotive and then general industry. Is it all really coming from the automotive side, the China weakness? Or is it also coming from general industry? Yes. Thanks, Ben. It's clearly the higher one is at automotive, but I would also see that we are seeing weakness on the other side as well. So therefore, I think it's in general, it is a weaker environment clearly driven by automotive, but the OEMs in that sense are also weak. Okay. That's very helpful. Thank you. And we go for the next question. The next question comes from Birg Aleksander with Bank of America Merrill Lynch. Please go ahead. Hi there, Peter, Jess. Thanks very much, Timo. Apologies for the phone problems just before. I wondered if I could follow-up on the China question with just trying to quantify or clarify what below 0 means in terms of discrete because obviously below 0 is could encompass quite a lot. So I'm just wondering if you could maybe clarify a little bit around that for us. And then secondly, maybe one for Timo. Could you just talk a little bit about why cash flow was so weak in the quarter and how we should think about that through the second half? Yes. Thanks, Alexander. I think I cannot give much more on your first question because, I mean, I don't have a crystal ball looking forward. So from that point of view, I think we you have seen us actually reacting already from Q1 to Q2 that we were adjusting. Cost base to the weaker cost base to the weaker general macro environment. And that's obviously through continuous improvement. That's continuing. So we are looking into a second half, which is weaker on that side. But I would just leave it, as I said before, the automotive is the bigger one, the more critical one, but OEMs do also. I think we are looking at the soft second half, but I can't give you much more for the second half. You just have to look at this month by month, quarter by quarter. So and for the second one, over to you. Okay. Thanks, Alex, for the question. So if you look at the cash flow from operating activities, and here, it's better to compare first half, first half because we had this change in the bonus payment. So first half, which is really comparable, we are down about EUR 750,000,000, and that comes mainly from 3 components. First one is payables, and I'll come back to that in a minute. Then the second one is cash related to the restructuring and to the power grid separation and the simplification program. That's about EUR 130,000,000 more than previous year. And then we have about €260,000,000 from discontinued operations. So these are the main buckets. And the payables are about €380,000,000 And the driver there is that we are, as a company, moving to a systematic global process in our purchase to pay process, and it will have this impact. We expect long term, I. E, our DPO worsened compared to last year. We expect long term this has to give us tools to manage also our DPO even better. And as we said, for the year, we expect solid cash delivery when you exclude the items related to power grid separation and also to OS implementation and the related tax area. Thank you, Alex. Next question please. The next question comes from Martin Wilkie with Citi Research. Please go ahead. Thank you. Yes, it's Martin from Citi. So the first question is on industrial automation. You have talked about some under absorption, some growth investments. And presumably, if you have maintained a certain cost level for an assumed high level of volume, you are investing for growth. Just if you could get a bit more color on the growth outlook. I think you said you do expect orders to pick up next quarter, but just what's giving you that confidence? Is it final investment decisions in certain markets are picking up? Is it your own investments means that you're going to start retaking share in certain areas? But just to understand the growth outlook in Automation. The second question I just had was on the electrification business. You have obviously given us a dilution effect from GEIS, but we have seen this systems drag as well. I'm just trying to understand a bit more as to why you're making that move into more systems. We've seen some other companies go in the opposite direction. Just a little bit of color around why you're making that push into system side in electrification. Okay. Thanks, Martin. Let me try the first one. It's Timo a little bit time to think about the second one. I think we are looking into, let's say, Q3 and specifically on Industrial Automation. We have got quite good visibility on some of the larger projects we have been working on. And therefore, we expect some of that to come through and hence, our remark on, let's say, the order positive outlook for Q3. In terms of the longer term, I mean, Peter Terrace is working on continuous improvements, spending money for growth but also taking, at the same time, costs out. It's a very mixed bag in the second quarter, obviously, because we have with Process Industries and Wholesale Measurement and Analytics are growing very well, both on revenue and on orders. But because of the tough comparable, we had some slowdowns and some project mix also in the quarter, and therefore, he's taking some measures on that one. The backlog overall has obviously increased as we have seen it. That gives us also, from a revenue perspective for the longer term, a positive outlook, I would just like to say here we are talking about long cycle pieces here. So it will take some time before they actually hit the revenue line, But we are very positive on how this has actually developed over the last 1 or 2 or 3 quarters. But we have got good visibility on the order side for Q3, and we hope that this will actually come through. 2nd one to Timo. Okay. Thanks, Martin. On electrification, we have a separate couple of items here. So first of all, when we look at the dilution from GEIS, it is lowest that it has been, and we are making very good progress on the integration and also improving the results in that area. Then on the Solutions business versus product business. So we have a mix impact where our solutions business now has been growing faster, but we are, of course, also focusing on growing our product business. So this is a mix impact. It's not like we would have particularly pushed the other one versus the other one. So again, we absolutely want to grow our product business, and we have made good progress there as well when you look at this a little bit longer term. And this is then coming through in the margin. So we had 11.5 percent of EBITDA margin for the quarter. Last year, we had 12.6 percent margin. And when you take GEIS, that has about 60 basis points impact, but we also had higher warranty cost in the solar than last year, which is having an impact. So that's how you come to the comparable. And as said, we would expect the margin to improve slightly in electrification going into the 3rd quarter. Thanks, Martin. Operator, can we have the next caller, please? The next question comes from James Moore with Redburn. Please go ahead. Yes, good afternoon, everyone. Peter, Timo, can I ask about robotics and electrification, please? On the robotics margin, thanks for the color earlier, the margin stepped down to 11%, 12% in the first half. But given the soft orders that we've had and that may have some worse pricing in it, I don't know, but have we seen the full extent of the robotics margin reset? Or should we expect a further step down into the second half or even into 2020? And have you stopped the Chinese robotics plant expansion plans to double capacity, which you did in response to KUKA's quadrupling theirs. On electrification, some good profit momentum at GIS, but do you think you can continue that towards, say, high single digit levels in the second half? And I sense that the Thomas and Betts margin, which is about 13%, I think, when you bought it after you'd sold some pieces, has come down a bit lately with some tough price versus raw material. But can you talk about where it is today? And what a realistic goal is for Thomson Betts. Okay. Thanks, James. I'll start with robotics. I'll start with your second part, which is on the plant. We are still planning to go ahead with the plant. I think we have earlier said that it will be finished or will be constructed by the end of 'twenty. That will be a little bit later. It will slip into 2021. But the plan is still to go ahead with it as we see the long term growth rates for robotics actually justifying to increase capacity for us. I will question your remark about that this is a response to KUKA. I think this is a response to our success that we are strong in robotics rather than as a response to a competitor. So I think that's the first one. In terms of margins, as I've already said, Sami and his team have taken actions between Q1 and Q2. They take further actions or have taken further actions into Q3 and Q4 in terms of adjusting to the cost base to the macroeconomic environment. So I think we will see this also coming through to the results. So I think that's as far as I will go in terms of predicting the second half. And with that, maybe over to Timo on the GEIS and the Thomas and Betts. So why don't I go through the math again because I was using the group numbers instead of electrification numbers in previous. So just that we get that one corrected. So electrification, as I said, the impact on electrification actually is 200 basis points, and it's now at its best. And we had 13.5% margin. Last year, it was 16.1%. So it is again the same 60 basis point delta as I discussed. And also relating to that, we had impact from mix but also from a bit higher warranty on the operational side from the solar business. On the GES, I don't have any further comments. I mean, we are making very good progress on the integration, and also we are making good progress on our market share in the North American market, which is the key market for us for that business. On Thomas and Betts, we are also making good progress. We have new management in place, which is really looking through this whole business and looking at what are the right pieces of the portfolio to drive. But we do not give that margin separately as we don't give those margins externally. Thanks, James. And we'll go to the next question. The next question comes from Graham Phillips with Jefferies. Please go ahead. Yes, good afternoon. Three questions, please. First of all, just a little bit more on GEIS. Can you talk about the growth rates of that business on a comparable organic basis? And some perhaps tangible examples of where you have had some success in integrating the business with electrification? Second question, I'll take it in turn actually. Okay. Graham, so why don't I Timo here. Thanks for the question. So on the GIS, we have not yet done a full product integration because it does not happen that fast. But what has happened, and that's also visible from our North American customers, right, Rexel is that we have a different focus on the business. We are also having a more focused sales effort, and we are continuing to drive this momentum. We have reasonable or good top line development in U. S. In particular, and we are pleased with the development. Okay. I mean you can't give us an organic growth number in the business? No, we will not do this. This is Peter. But I can say that when we look at market data in terms of volume growth and market shares, this looks positive for us on GEIS and in general. So that's, I think, just an additional data point. Okay. And just on B and R inside Robotics Discrete now. Given the move of that business into that division, can can you talk a little bit about what there are some disruptions caused by that? Again, how is that business faring in terms of growth and margins now given the pressure on discrete that you talk about? Yes. I take this one. I think we are happy with the acquisition. I think it has developed very well since we have it. I think as part now of the robotic and discrete automation organization from led by Sami, there is further integration and combined offering now taking place, which gives us another avenue of growth. So the growth expectations have been met, and also the financial pieces have been met so far. Yes, there is clearly some headwinds in the market as well, But we are clearly steering the business together with robotics towards capturing the growth opportunities which are there as we are expanding into new areas, into new countries in the world. And we have also clearly, you can see this also in the press, etcetera. We have had some wins on the design phase for integrated discrete automation sales or fabrications which we had. So therefore, we are pleased that we are gaining good traction in that business and can weather the macroeconomic storm over time. And I think it's not the first time that B and R is facing that. And their overall growth rate over the last 10, 15 years actually shows that they can manage that very well. And with the addition of robotics, I think we have a very good value proposition for our customers. And Graham, I think we'll leave it there, that's okay, and move on to the next quarter. Thank you. The next question comes from Gael De Bray with Deutsche Bank. Please go ahead. Thanks very much. Good afternoon, everybody. The first question is about EP. I understand there are some natural mix effects waiting on the margins, but some of your peers have been able to absorb these negative effects in the quarter with pretty strong pricing actions. So I guess my question is, could you talk a bit more about what you're doing on the pricing side in Electrification Products and if there was actually any benefit coming from your pricing actions in the quarter. The second question is, well, still about EP. Could you maybe tell us what was EP growth in the U. S. Specifically? And could you perhaps elaborate on how the various end markets are developing resi versus non resi industrial buildings, utilities and so on and so forth? Thank you. Okay. I give this to Timo. Okay. So first of all, on EL. So yes, we have been driving pricing actions in our product business, and it actually is visible in our numbers. As I said earlier in the call, we are driving product business and related pricing. But as the solutions business has been growing faster and there is more solutions business coming from backlog, that's impacting the mix overall in the segment negatively. Actually, what is important to note also that in our Solutions business, when we look at that business separately, we are actually improving our margin. So it is really the mix between Solutions and Products overall, which is impacting the situation. Then we had growth in electrification overall in the U. S, which is good to see. And it's really driven mainly by, for example, data center and those markets less so on residential construction, so more industrial and data center than residential. Thank you, Dan. What kind of growth was it in the U. S? Was it more like mid single digit or double digit? Well, we had some growth, yes. Thank you. Moving on. The next question comes from Andre Kukhnin with Credit Suisse. Please go ahead. Yes, good afternoon. Thanks so much for taking my questions. It's Andre from CS. I wanted to dig a little bit deeper into IA. And could you talk about how you developed relative to the market in Q2 or year to date, whether you've gained a loss share? And specifically on Pulp and Paper, we're seeing signs of that what has been very kind of good market starting to roll over. So I just wanted to get your view on that and maybe comment on whether you're seeing any signs of that in your order pipeline? And then finally, on that one, I thought there was some relatively one off effects in the quarter from the FX revaluations and maybe others. I wonder if you could quantify those for us if they are non repeat. Thank you. Okay. Thanks, Andre, for the question. So first of all, when we look at the Industrial Automation business, I don't think you can look at the market share on that market quarter by quarter. It's not that kind of business because we are talking about longer term project business. We are making good progress in the area. We continue to be number 1 in the DCS by external studies. Then you ask specifically about Pulp and Paper that actually continued to develop strongly for us in IA, and we also continued to have a good pipeline then there. So when we really look at the quarter impact, we had a fairly significant slowdown at latter part of the quarter on the conventional power generation, which really impacted the business performance during the quarter. We also had then related to this some under absorption, and we also had impact from small impact from currencies as well late in the quarter, mainly coming from way weaker Swedish krona. So these all impacted the quarterly margin, which then came out at this 12 point 1% for the quarter. But you're right, there were some late quarter impacts. Thank you. Thank you, Andre. And we'll take the next question. The next question comes from the line of Benjamin Tsakres with Goldman Sachs International. Please go ahead. Hi, good afternoon. It's actually Daniela here. Thanks for taking our question. Two questions. First, wanted to go back to the matrix structure on regions that was removed earlier in the year and ask you how progress on that? I remember you had a few thousands of people that were sort of putting in a group and sort of were going to be reallocated, where do we stand? And what's the name of the number of people that haven't yet been reallocated and whether they could turn into fixed cost savings? And then a second question, just if you could update us a little bit on the CEO process and whether given the time that has now gone, shall we assume it's an external candidate? Or there's still some chances of an internal candidate? Okay. Thanks, Daniela. I will take the CEO progress and the more quantitative one on the structure. And then Timo can maybe just add to that the cost piece, etcetera, how we are progressing there. So if I start with the CEO one, the process goes well. As I've said previously, we have done first the external candidates in order to have the benchmark for the internals. We are in that benchmarking exercise at the moment, and we are pleased as a board with the progress, with the list of candidates. And it's going actually faster than anticipated. So we are pleased with the progress, and we'll announce whenever we are ready to announce. So that's on that one. In terms of the transformation, I think we are making very good progress on this one. And as I've said in my speech, we have moved things over in various areas. Also, we have named all the new country heads are now double hatings, so they run a business and are also country heads apart from a few very special countries, and that is the biggest ones like India, China, the U. S, for example. But we are moving very good and very well and very fast. We are naming the leaders for all the jobs within the countries, within the businesses, but also those who have got both hats in the future. So let's say we obviously forfeit usually duties. We need someone on the finance side who will be the country CFO and then on the HR. So that's all being done. We are successfully now or yes, we are successfully now moving the country structures into the business structures that's ongoing at a quite high pace. So therefore, we expect really by year end to have everything in place, including the carve out in terms of PG from an organizational point of view. So therefore, I think I will call it slightly ahead of the game in the way we're moving. And then from a cost perspective, I pass it on to Timo. Okay. Thanks. Thanks, Daniel. I don't think I have that much to add to this, but we confirm that we are making good progress on our run rate target saving of €150,000,000 to €200,000,000 And big part of this is coming from the corporate activities. And if you look at the first half this year compared to first half last year, we were about €70,000,000 lower in the overall corporate costs. This, of course, also includes the stranded cost well as the non core impact. But nevertheless, we are seeing some early signs of the project coming through on the numbers. And we also have a target that everybody at ABB, will they then go to Power Grids or in their new roles under the ABB operating system organization would know their new roles by end of Q3. So that's the target. So as I said, we're making good progress here. Thanks, Daniela. We'll take another question. The next question comes from Rizvi Wase from RBC Capital Markets. Please go ahead. Hi, yes. It's Wasey here. Thanks for taking my questions. Just two left for me. Firstly, could you help us understand what's going on in North America a bit better? We've heard conflicting things from peers and supply distributors over the last few days. So I'd be interested in hearing how your business is performing across your end markets and divisions. And then the second question was just on your 2019 framework. So I understand the simplification program costs have simply moved. But in terms of the transaction and separation costs that are lower and the finance expenses that are lower, are they all cash costs that will be lower? So therefore, it's a positive movement on your cash flow statement for the year. Yes. Okay. Thanks, Vasyl. So first, on the North America market. So when we look at the North America situation overall, so as I said, we had growth in the U. S, as we discussed earlier. And as we said, the growth was actually strong in the electrification area. And then also, we had strong growth actually also in robotics and discrete in the U. S. And then on the other areas, it was a bit more subdued. So that's how the U. S. Performed for us. And as I said, in the electrification, for example, data center market is working well for us in the Robotics and Discrete. This was more in Logistics, which is an important growth area in general and where U. S. Growth came in quite nicely. So as we said broadly, we are doing well in the U. S. Then on the simplification program and on the cash. So we had a couple of movements here as you described. We said that we expect a bit less cost to go through in the simplification program. So overall, again, we are expecting €500,000,000 But for this year, we expect €100,000,000 less than earlier. That's mainly coming from the fact that we have been running this ABB First program very diligently, and we are seeing more natural attrition, and we have been filling those roles with ABB people. And then also on Power Grids, we are lower than our earlier estimate. And in that area, it is mainly coming from the fact that we expect a bit more transition services agreement, which also pushes the cost slightly forward. So you're right, we expect also then a bit less cash impact to come through this year than we would have expected earlier. And as I said earlier, we had about EUR 130,000,000 cash impact compared to last year during first half. We would, of course, expect that to be higher during second half. Okay, Wase, thank you very much. Another question, please. The next question comes from Guillermo Peigneux with UBS. Please go ahead. Thank you. Guillermo Peigneux from UBS. I wanted to ask a little bit about the balance between prices and raw materials. I guess you have a little bit of help on commodities this quarter. Could you give us some granularity as to how the second half of the year will be on net pricing, especially with the focus on EP and robotics, if I may? Yes. It's BTIG, Guillermo. Thanks for the question. Now that's a difficult one to have the outlook for the second half on this one. So I cannot give you any color around that. We are managing this, obviously, very diligently, and that's so far the 1st 6 months that has worked well for us. And now for the second half, I think we have the processes. We have the systems, the people in place. But I'm not going to forecast any commodity swings going forward. That will be just too risky for me at this stage. But we are managing this on an ongoing basis in order to actually offset that as quickly as we can or as best as we can so that the swings on the one side are actually covered on the other side at the same time. So I cannot give you much more on this one. Maybe Thibault wants to Yes. I can comment briefly just on a high level that when we look at the margin, it's really this is coming from mix and not negative pricing. So when we look at the different categories, the pricing is actually working quite well for us. Okay. Thank you. Next question? The next question comes from Andreas Willi with JPMorgan. Please go ahead. Yes. Thanks very much for squeezing me in. I just had a follow-up question on IA trends. You talked about the process markets and the power chain. Maybe you could give some comments what you're seeing in marine, which is also an important market for you both in terms of specialty vessels and the general marine contracting, which has collapsed in the first half of the year, what you're seeing there in terms of trends? And secondly, on IA, you mentioned the weakness in power generation towards the end of the quarter. Could you elaborate a little bit on that given it's a long cycle market that's been bad for years? What suddenly happened in that business in Q2? Okay. Thanks, Andreas. I think on the Marine one, and then I'll let Timo think about the second one. I think on the Marine one, the visibility which we have into the second half is actually not as negative as we have experienced it in some areas of the Marine business over the last 6 to 12 months. So therefore, I would just call it kind of semi positive as we are seeing from a project and potential order taking over the next few months. I think there, we can see some I wouldn't say lights at the end of the tunnel, but some positive effects, which could be helpful for us. But clearly, it was a tough comparable for us compared to last year. Yes. And then on the conventional power gen, so this impacts ABB in 2 ways. So we are exposed to the market in 2 ways. So we are exposed in automation, and that, of course, is a slower cycle. But we are also exposed to the actual engines through the turbo business, which then has some shorter cycle elements. So both of these are playing a role here. And some of these customers, as you have well seen, have also noted some tougher market conditions. Okay. Thank you, Andreas. And we're coming to the end of our hour, so we'll take a last question. Thank you. The last question comes from William Mackie with Kepler Cheuvreux. Please go ahead. Thank you. Good afternoon to you all. A couple of quick ones. Firstly, active portfolio review has always been a part of your business, and we've seen the moves that was made were made in solar and inverters. I mean to what extent given there's some speculation about power conversion, to what extent are there many other businesses within the portfolio that are being able to reach your 15% to 19% margin target within EP? And then a detailed question on cash. I was surprised to see EUR 260,000,000 of cash outflow from discontinued in H1. Can you provide some indication of how the cash development will be for the full year within the former PG business, please? Yes. Thanks, William. On the portfolio side, as you also said, it has always been active in ABB, and there is no change to that. In February, we flagged that we're reviewing some $3,000,000,000 of revenues to see what how we are progressing with those businesses. That could be the case that we are fixing them or we are divesting them or we are joint venting them, whatever it is. So we are reviewing those. We have made the decision quite clearly on the solar inverter 1. We have made the decision we already communicated that when we bought GEIS, that we have got a few areas where we would be proactively looking into potential divestments there. And that has been now the we have that came out in China with the joint ventures, which we there have, which we are negotiating with our joint venture partner to actually give them over to them so that we don't because we don't need them. So that will always be part of us, and then we will drive this even in a more accelerated way. On the margin question, we have said it, I think, clearly that the 50 basis points or slightly more than 50 basis points, which we see in the medium term as an uplift because of the solar inverter which we have sold, that, that is will help us, obviously, to get into the 15%, 19% margin kind of band. And if you're selling like the one in China out of GEIS, Obviously, that would also count for that one. And more ones, which we have already seen now being also talked in the market, same would apply. Okay. Thanks, William. And then on the discontinued operation, cash generation. So first of all, when we look at the PowerEdge business, we have now gotten some of these large orders that we are expecting advances from those coming in the second half. If you look at this EUR 260,000,000 dynamics, so we have part of this is coming from lower profitability than last year, but profitability is up from Q1 to Q2. So we are on a good trend here in profitability. And then rest is coming from net working capital. And we expect this net working capital trend to significantly change during the second half, driven by how the backlog comes in and by some of these advances. And overall, we expect a bit better cash in discontinued operations for 2019 than 2018. Okay. Thank you, Will. Before we close, I'd just like to remind you about a few of our upcoming events. Our Q3 results will be on Wednesday, 23rd October and that will be hosted by Timo. And then we will be having our Electrification Investor Day and Factory Tour hosted by the President of our Electrification Business Tarek Mehta and the electrification team and that is on the 5th November. So if anybody has an interest in that event, please let us know in IR. Otherwise, I'll just hand you back to Peter to close the call. Yes. Thank you very much, Jess, and also thanks, Timo. And thanks to all of you for calling in. I think I'm after a few months now in the job, I'm very pleased on how the company is reacting to all the challenges which we have on the table with the carve out, with the new business model, with the transformation and the headwinds in the market, I think we are moving well ahead, fully driven by improving through continuous improvement our results in all the businesses. And response from all the staff internally is very strong. And that gives us a good outlook for the second half. We will just be continuing our drive, and then Timo will report in Q3 on how we have been managing the Q3. So thank you very much for that. And to all of you, enjoy a summer. Recharge your batteries, and then we are all back in hopefully still not a macroeconomically too downwards looking world. So thanks for that, and have a good day. Ladies and gentlemen, the conference is now over. Thank you for choosing Chorus Call, and thank you for participating in the conference. You may now disconnect your lines. Goodbye.