ABB Ltd

Ladies and gentlemen, welcome to the Q3 Results 2020 Analyst Conference Call. I am Alice, 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&A session. You can register for questions at any time by pressing star and 1 on your telephone. For operator assistance, please press star and 0. 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.

Good morning and welcome to ABB's third quarter 2020 results call and webcast. The press release and financial information documents were published this morning at 7 o'clock and can be found on our website along with this results presentation. Following our presentation, we will open the lines for your questions. With me today to present the results and answer your questions are ABB's CEO Bjorn Rosengren and CFO Timo Iha-Matilla. Also on the call with us today is Anne-Sophie Noord, who succeeds me as head of IR at ABB going forward. A very warm welcome to Annecy and farewell and thank you from myself on my last set of results at ABB. Before we begin, I would like to draw your attention to the important information regarding safe harbor notices and our use of non-GAAP measures on slide two of the ABB presentation. This conference call will include forward-looking statements. These statements are based on the company's current expectations and certain assumptions and are therefore subject to certain risks and uncertainties. Let me now hand you over to Bjorn.

Thank you. Yes. And let me also offer a warm welcome to everyone on our call. I'd like to start with the key takeaways from the quarter. First, we saw a strong underlying performance in the third quarter. Of course, as expected, revenues in all regions suffered due to the ongoing impact of COVID-19. And there are still many uncertainties. It looks like the recovery for industrial automations and markets will still take some time. Robotics won a number of large orders in China, but the market remains tough. But all our business areas worked hard with their costs, and our focus on profitability is showing results. Electrification margins are a highlight. Strong progress was made with the GIS and the continuing turnaround of installation products. And Motion extended its good track record. Throughout the COVID-19 pandemic, our top priority has remained the health and safety of our people. We continue to monitor the development closely, and we are well prepared to adopt our operations to deal with these challenges. Lastly, as Timo will explain in details, the divestment of power grids has significantly strengthened our balance sheet, and we are carrying out our shareback program as planned. Let's move to slide four, showing ABB's regional and country order trends in comparable terms. Influenced by the pandemic, demand decreased year over year in all regions, despite a strong rebound in China. In the Americas, orders were 11% lower year on year, with the most countries reporting lower order levels. The United States declined 12% compared to last year. Motion's orders were robust in the US, but electrification and robotics and discrete automation was subdued. And we saw a step fall in the industrial automation. In Europe, orders were 10% lower year over year with mixed performance at the country level and lower levels in the larger orders. In Germany, orders were 14% lower with electrification remaining resilient. Broadly, Northern Europe countries did well while demand in the Southern Europe was subdued. Orders in Asia and the Middle East and Africa had an overall decline of 2% year-over-year. Weakness in IA and electrification was partially offset by robust orders in motioned and RA. India's market remains strongly impacted by COVID-19. China's growth was solid, with orders rising 8% year-over-year, driven by improved domestic demand. RA's orders were particularly strong in China, but electrification and motion also grew well there this quarter. So let's move over to slide five for a quick summary of the results. Compared to the same period last year, orders were 8% lower. Revenues declined by 4% on a comparable basis. Our operational EBITDA margin at 12% was up 30 basis points year on year. The margin includes roughly 80 basic points of negative impact relation to the KUSILE project in South Africa. And in addition, there was a negative impact of 130 basic points for non-core business activities. As you can see, without this impact, margin would have been in the 13 to 16% target margin corridor for the group. Basic EPS at $2.14 was including the impact of the over $5 billion gain for the sales of power grids recorded in discontinued operations. Cash flow from operating activities was 408 million, including a 273 million negative impact from cash flow outflow of the facilitate the transfer of certain pension plans to third-party insurers. This compared to the 670 million in cash generation for the same period last year. We continue to expect the resilient cash flow delivery for the full year. And with that, I will hand over to Timo to cover the quarter results for the business areas. Thank you, Timo.

Thank you, Björn. And good morning, everyone. Welcome to today's call from my side as well. On slide six, I will begin with electrification. Electrification's orders were 5% lower, weighted by a decline in large orders, even though short cycle activities showed good resilience overall. Buildings were somewhat mixed, depending on geography. Oil and gas activities declined materially. There was healthy momentum in distribution utilities, data centers, food and beverage, wind, rail, and e-mobility. Revenues were 2% lower, dampened mainly by demand decline in the longer cycle business, particularly in the U.S. Electrification's operational EBIT-R margin of 16.3% improved 210 basis points year-on-year. This reflected solid business performance while also including around 100 basis points of items that may not repeat. Good cost mitigation and supportive pricing actions helped offset the impact of lower volumes. The exit of solar inverter business and the improved performance from installation products as well as GEIS integration supported margins. We are pleased to see electrification comfortably within its target margin corridor for the quarter. There is still a way to go before we see this reflected in the full year margin results, but it's a strong indicator of the progress being made and of some really excellent work done by the team. In the upcoming quarter, we currently expect the decline in the top line to be more challenged than in Q3. We expect some improvement in year-on-year margins to be sustained, but do not expect similar tailwinds as seen in Q3 to be repeated. Next on slide 7, we have industrial automation or IA. IA's orders declined 20%. They were lower in all regions with a severe drop in the Americas. The business area was materially impacted by the ongoing downturn in energy and marine, although select large order wins and resilience in process industries, including pulp and paper, provided some support. The order backlog at the quarter end was 5.2 billion, the same level as at the end of the second quarter. Good opportunities are still in the pipeline, even though investment decisions are taking much longer. Subsequent to the quarter, the business secured an order of more than $300 million in its marine division. Revenues were 7% lower, reflecting a substantial drop in book and bill activities, particularly due to continued weakness in services. Both orders and revenues were negatively impacted by 3% due to the proposed settlement in South Africa with ESCOM in relation to the Kusile project, which resulted in a further project revaluation. The operational EBIT R margin of 6.4% was 260 basis points lower year on year, which also reflected a roughly 400 basis points negative impact in relation to the Kusile project. Other than Kusilä, margins were impacted by lower volumes and unfavorable mix, driven by noticeably weak service activities. Looking forward, fourth quarter orders will benefit from recent large order bookings. However, we do not expect much relief in IA's end markets for at least another couple of quarters, and services are expected to continue to weigh heavily, impacting both revenues and margins. margins are expected to continue the year-on-year decline trend we have seen year-to-date. Let's turn to motion on slide 8, which, as Björn mentioned, continues to perform well in Q3. Orders declined 5%, reflecting a continued downturn across several sectors, such as oil and gas. That downturn outweighs strong rail demand and moderate growth in short-cycle products. The order backlog was 3.3 billion compared to 3.4 billion at the end of Q2. Revenues were 2% lower, with development reflecting the resilience of short cycle products as well as good execution on the order backlog. The operational EBITDA margin of 17.4% decreased 40 basis points year-on-year, holding up well versus a tough comparable. The business area benefited from supportive mix and good cost mitigation efforts. Looking at the quarter ahead, we currently expect motion to continue to deliver a resilient performance with orders and revenues to be similarly challenged as in Q3. Regarding margins, we expect to see the usual dampening seasonal effect. On slide nine, we turn to robotics and discrete automation business area or RA. Orders for Q3 were steady relative to an easier comparison period last year as a result of some good sized orders in the 3C and automotive sectors, mostly in China. We also saw strength in food and beverage and logistics, while activity levels of machine builders was weak. The order backlog was 1.4 billion compared to 1.5 billion at the end of Q2. Revenues declined 5% year on year, consistent with a weaker backlog, but improved relative to the second quarter period. The revenues benefited from some catch-up in order execution in robotics for customers in automotive and general industry. The operational EBITDA margin of 9.5% was materially lower relative to the prior year period, although it improved sequentially. The impact of lower volumes coupled with lower margin system orders converting to revenue from the historic backlog weighted heavily on margins. These effects were partially mitigated by continued cost savings. Looking ahead, absent the large order wins seen in Q3 in China, we expect RA's orders and revenues to be down more than in Q3. Regarding margins, we expect them to decline similarly to Q3, due to both ongoing downturn and seasonal weakness. However, we do expect things to improve gradually next year. Continuing on slide 10, we lay out the main drivers of our net income result. The final figure for group net income attributable to ABB was approximately 4.5 billion. In addition to the regular below-the-line items, most notably, we booked a 5.3 billion gain in the quarter arising from the sale of power grids within discontinued operations. It has been a quarter with a lot of moving parts. I am not going to go through all of them here, but I'm happy to take any questions regarding them, and IR will also be able to walk you through the detail as and if needed. I also come back to some of these items when I discuss the capital structure optimization. Many of these items go hand in hand with the significant transformation we have been undergoing at ABB. Going forward, you should gradually see fewer effects from non-regular items as we continue to drive better quality of revenue in all our businesses. You will also see even tighter governance by our lean corporate center with our businesses having clear ownership of their P&L and their balance sheet under the new ABB way. For PowerGrids, our ongoing interest in the JV with Hitachi will be presented within a new non-operational line item. We remind that results from the JV will be negatively impacted by PPA-related amortization charges that reflect the initial fair value of our 19.9% share, and initially they also include a step-up for inventory. Our 2020 guidance framework, which you will find in the appendix, includes our estimate for Q4 impact related to the divestment. Turning to slide 11, let's look at our capital structure optimization. ADP takes a responsible approach to financial management, and our capital structure optimization program continues to deliver clear benefits. The divestment of power grids has significantly strengthened and improved our financial flexibility. During the quarter, we commenced our initial buyback program of 10% of the company's share capital. To date, we have purchased about 3% of our share capital. In addition, we took a number of other important actions to deleverage ABB in an efficient, value-maximizing way. Total cash, cash equivalents, and undrawn facilities ended the quarter at 11.6 billion. In terms of debt and credit facilities, we have repaid €6.3 billion worth of borrowings recently, including in early October a €1 billion bond when it matured. ABB's total or gross debt levels have reduced by about €4 billion over the six months to end September. We also worked on our review of pension structures and agreed to transfer certain pension plan obligations to third-party insurers during the quarter. In total, we transferred approximately 1.3 billion of pension plan liabilities to third parties. These liabilities were underfunded by approximately 450 million. These transactions were enabled by a cash contribution of about 320 million and a respective P&L impact within non-operational pension costs was about 380 million. These transactions are an efficient way to deleverage, significantly reduce the underfunding of our pension liabilities, and make future negative cash flow and P&L impacts less likely. We will continue to improve ABB's financial flexibility over the fourth quarter with further reviews of our pension, debt and credit structures. At this stage, we anticipate non-operational pension costs and finance expenses of approximately 330 million. At the same time, we expect additional cash contributions of about 90 million in our cash flow from operations. We expect to be largely complete with this phase of our capital structure optimization program by year end. And with that, let me pass you back to Björn for his closing remarks.

I will conclude on slide 12 with our outlook and priorities. On the left of the chart, you can see the short-term outlook for our end markets. While improving slightly in certain areas, COVID-19 continues to weigh on many end markets, particularly oil and gas, conventional power generation, automotive, machine builders, and marine. Some end markets, such as electronic distribution, transport, data centers, consumer electronics, and food and beverage, show relative resilience. There is still considerable uncertainties around the pace of recovery, but we will stay focused on serving our customers, capturing new opportunities, and improving profitability, particularly in our underperforming businesses. At the group level in Q4, we expect top-line growth rates to remain challenged on a year-on-year basis and revenue growth rates to decline sequentially. Operating margins are expected to be higher year-on-year with fewer impacts from non-recurring items, while weakening sequentially, including seasonal impacts. We will continue to make rapid progress on our transformation, implementing a new way of working under the ABB way and driving sustainability. But I'm not going to talk about any of that now, as we are looking forward to showing you our plans in details on the Captain Market Day, November 19. Before we go into the Q&A, I would like to take this opportunity, as you all heard, that this is the last quarter for Jess, and to thank her for the contribution that she has been doing to the ABB during the years. Unfortunately, I only had this short year to work together with Jess, but Jess has really helped me to dig into understanding the company and where are the opportunities and challenges. So, Jess, I thank you so much for this time. I really enjoyed it, and I wish you all the best in the future. Also, Timo would like to say some words.

Yeah, sure. So we actually started with Jess pretty much at the same time, so it's not been maybe the most straightforward three plus years in the company. And I would really like to thank Jess for building a strong team in IR and a systematic way of working in our IR function. And really thanks again and all the best to your future endeavors and really welcoming Anssi and looking forward to working with you on serving our investor community.

Well, thank you both for those kind words, and I think that means that we can open the lines for your questions. So, operator, would you go ahead?

We will now begin the question and answer session. Anyone who has a question may press star and 1 at this time. The first question comes from the line of Ben Uglow from Morgan Stanley. Please go ahead.

Good morning, everyone. Bjorn, Timo and Jess on your last ABB call. Thank you for all the help. Bjorn, my question was really just colour around China. 8% order growth, certainly nice, moving in the right direction. Could you just give us a sense of two things? First of all, which areas of your business in China are sort of... outperforming and which areas are performing less strongly. So, are there any end markets or particular divisions beyond the robotics orders which you see having very significant momentum? So, that's the sort of first part. And the second part is, as usual, and I'm sure you'll remember this from Sandvik, how do things trend throughout the quarter? So, if I think about China, and I'm talking particularly about China, That exit rate, how do things move in China during 3Q, and how does it look moving into 2021? Thank you.

Thank you, Ben. Absolutely. I'd like to talk about China, as that is a really positive thing during the quarter. As you heard also during the Q2, we've seen a quick and strong recovery in China, and When we look at our four different business areas, it's pretty clear that robotics was one of the big winners with a very strong order intake during the quarter. But we have also seen very strong orders, both in electrification and motion. A little bit more challenging is, of course, the IA, which is more related to the energy markets and oil and gas. So that is good. On the other hand, and moving forward, I think it's difficult to project the future on this part. We've seen some strong recovery, and how long that will be, if that will move into 2020, it may be a little bit too premature to have any opinions of, I think probably will be a little bit easier to see after Q4 how things will develop over there.

I understood. And just a quick, quick follow up in terms of the in terms of the sort of cadence of revenue, you know, the year on year growth rate being less in fortune. Is that that's not. And I asked the same question yesterday to one of your competitors. That's not China related. Is that more of a general comment?

Yeah, I think I would call it more on the general side. It's not really related to China.

Understood. Thank you very much. And thank you, Jess, one last time.

Thanks, Ben. We'll take the next question from Shane McKenna of Barclays. Go ahead, Shane.

Good morning, Bjorn, Timo, Jess, and Sophie. And also, thank you very much, Jess, for all your assistance since I initiated on ABB in terms of getting up the curve. I have a question on the run rate of OS savings. Is it fair to assume that similar to Q2 that the COVID temporary related savings amount to about 100 million? So that the underlying run rate for the first nine months, if I got my numbers correct, is about 382 million. So notwithstanding savings for Q4, you'll be on track to hit the 500 million net target already in 2020, one year ahead of plan. And can you also update on the cost of delivering OS? Have they come down further from the original 500 million target? If I can sneak one further question in, how do you see the normal Q4 seasonality in electrification versus the 100 basis points we saw in 2019? Will it be slightly better or slightly worse? Thanks a lot.

Okay. Thank you, Shane. Maybe I'll start with the OS. So first of all, yes, we have made good progress on the OS, and your assumption is correct that we have a bit more of 100 million of OS savings in our savings bridge when you look at the net savings of 245. And we will come back to this in the capital markets day, but as I said, we have really made very good progress in this area. And I continue to remind that we continue to clearly separate the OS savings, which are long-term impact from the short-term savings, which have been partly driven by COVID. The EL question, would you, or should I? Why don't you take that also? Okay. So on the EEL margin, as we said today, we expect a bit more challenged revenues going into Q3. And that's driven by the normal situation that we have less short cycle business during Q4. This is the same thing every year. And that will then have also seasonal impact on the margins. And as we said, we expect seasonality to impact somewhat negatively, but still expect some margin improvement on year-on-year margins going into Q4 in electrification. Perfect. Thank you very much.

Thanks, Shane. And we'll take the next question from Guillermo at UBS.

Thank you for taking my question. Yes, I wish you all the best in the future. Thank you. and Timo for your time today as well. I wanted to label a little bit on the robotics and electrification outlook. I guess in robotics, you saw 3D and automotive investments. Can you explain a little bit what kind of nature of investments you saw there? Is it traditional OEMs or is it electric vehicles in the case of automotive? And which segments of 3D actually you saw improving? And that's the first question. I have a follow-up then.

Okay. Talk a little bit about the robotic side. Yes, I think the recovery during this quarter, even though it's a little bit easier comparables as we've seen before, I think we were also very positive about the orders that we got in. In these orders from China, there's a combination of of consumer electronics. There are some automotive in that part and also some logistics parts. That is a little bit what we are seeing. The big automotive orders was actually booked last year. I think there was some press release that came out, which is actually, when we look at the quality of revenues in the part, I think that is probably being delivered out during this quarter and next quarter. That's why we see some effects on the margin side. On the robotics side, yeah, we believe that the quarter coming up next will be a little bit more challenged than these big orders. It's, of course, too early to say. We might be surprised also, but the projection is that we have two quarters in front of us for robotics, which will be a little bit more challenging before we see the improvements.

Thank you, and I take it that probably the quotient on the growth for electrification was more predicated on what Timo just said about the source site will be less represented in the case of revenues in Q4 in electrification.

And I think overall the electrification is actually moving in. There's a lot of parts in this. You see the improvement is actually coming from numerous parts. It's the GIS, of course, that is developing according to plan very good. But we also see a very good, you know, improvement in the installation products, As you know, that was an underperforming business, which had during the last year improved significantly, also margin-wise, which has helped us to push the margin up to these really good levels. But we also see very strong margin, both as smart power and as well as smart building. So I think things are moving in a good way there, as it should be. And, of course, they have high targets there. regarding the future and the electrification business.

Thank you. Thank you. And next up, we have Martin Wilkie of Citi. Go ahead, Martin.

Yeah, thanks. It's Martin from Citi. Just a couple questions on the end markets and one just to follow up on automotive and robotics. I mean, you do still point on slide 12 that automotive is one of the red markets. some companies are pointed to some signs of bottoming out there. So just to understand, is that a sort of general market trend that you're seeing, or is that sort of tender and project comments that you're getting for your business in terms of understanding the direction there? And then related to that, just in terms of end markets on oil and gas, and obviously we know the pressure there in that industry, but are you seeing a pipeline beginning to bottom out in terms of how you should think about orders related to oil and gas? Thank you.

Okay, on the automotive side, I mean, the automotive challenges, I think we've seen even before the COVID. So that's something that is mostly affecting our robot business. And that's what is affecting, because there's big volumes, of course, of robots going into this market. Yeah, I think we all follow the automotive market. And we've seen, of course, some good numbers during the second half of this quarter that The sales of the cars have been picking up and we've seen good year-over-year numbers on this part. Where we are active is, of course, in the body assembly, in the painting shops and so, which is very much related to the manufacturing of the car. not so much related to what kind of driveline you are using. So for us, it doesn't really matter if it's an electric car or if it's a combustion engine from that perspective. We think the automotive will keep on being a little bit challenging going forward before we see the pickup in this industry. The second one on the oil and gas side, yes, I mean, it's It's pretty clear the oil price is down. If we see our exposure towards oil and gas, it's about 14% today in the group. We see challenges within these projects, and it's actually moving projects which has been delayed, and that's, of course, keeping the numbers down at the moment. That's oil, but also traditional energy sites. We do not expect to see any recovery in the next quarter. That's pretty clear. You want to add something there?

If I just may say on the 14% estimate, that also includes conventional power generation. Yeah. So it's both oil and gas and conventional power generation. As we have discussed earlier, that exposure for us is a bit less than 15%, and it actually has been going down when we compare Q319 to Q320. Yeah.

Thanks, Martin. And we'll take a question next from James Moore of Redburn.

Yeah. Hi, everybody. Thanks for taking my questions. And have fun in Cape Town, Jess. Thanks for all your help. I've got two, if I could. One on the electrification business and one on robotics and discrete automation. On electrification, great news to hear. your installation products business is improving significantly. I wondered whether we've yet reached the mid-teens operational EBITR margin level that you talked about as a soft possible target at the electrification day. And the second question is on the revenue development in robotics and DA. Is there any chance you could break it out a little bit? I always think of it as three parts, really, auto robotics, non-auto robotics, and B&R. And if you could help us understand a little bit the differing demand dynamics around those parts, and also on the B&R margin, is it stable or is it also falling a lot like the robotics margin?

Okay. If we start up with the electrification, The question was there, what was the question there? Sorry.

Thinking about Thomas and Betts as installation products and whether you've made it to 15% yet, which is something.

Yeah, you were looking for the timing. James, I think it's pretty clear. I think Kitarak and his team, they are pretty convinced that they're going to reach the 15%. You know, from originally they said, of course, it would be this year, but the COVID have negative impacts. We said we have to push it a little bit forward. I think we see a lot of positive movement within electrification. I will not give you any timing on that, but I think we should continue to see the improvement within this year, business year over year, and moving towards the target that they have set up. I personally feel very confident in the development of electrification and the way they are improving. So for ABB, this is a great story. And, of course, Thomas and Betsy, from my perspective, this should be a really high-margin business and, you know, a strong focus on profitability, but also making sure that the portfolio within this is really sharp will help them to keep the margins on the right level. So the right management in this division is doing a great, great job, so a lot of credit for them. On the robotics, yes, of course, this is both – BNR and also the pure robotics side. I think on the order side, we saw stronger on robotics than we did on the BNR business, which is mostly affected by machine builders in Europe, which is actually the strongest performer. I think on the margin side, I think maybe BNR is... little bit more resilient but I think when you look at these two businesses they are pretty similar during this quarter when it comes to profitability did you have anything you want to add that Timo yeah I was just gonna go go quickly to the to the split so if you just look at the revenue we are

about 25% BNR and 75% is on the robotics side. And of the robotics piece, then with less than 50% is automotive. So I'm again saying of the robotics piece, with less than 50% automotive and with more than 50% other.

And those two pieces of robotics, were they similar in revenue trends or were they quite different?

Well, we expect clearly longer term the non-automotive to grow faster. But at the moment, it's kind of like reading that stuff from one quarter. It's a little difficult during the COVID time.

I think if you look at, if you see where we see good orders coming in, we see good orders from the general industry. We see good order from logistics companies. which are actually the growth areas. But the order book is pretty long, and we see things that have been coming out in revenues now is a lot of automotive at the moment. Thank you very much.

Great. Thanks, James. Next question from Alex Virgo of Bank of America.

Thanks very much for taking my question. Good morning, everybody. Best wishes, Jess, for the future. Thanks very much for all of your help. I wondered if we could touch on a couple of clarification points. So just wanted to think about the EBIT margin guidance for Q4 in the context of the 12% you've reported in the, I guess, 14% or so that you're talking about from an underlying perspective without the stranded costs, non-core and IA project impact. So just wondered if you could clarify that guidance for us and thinking about really the run rate into next year on that margin. And the second question on Kuzile, can you just talk a little bit about why there's another revision there, what's going on, and what are the risks that we see any further adjustments? Thank you very much.

Yeah. If I take the first question first on the EBIT margin, I think seasonally it's pretty clear that the fourth quarter is traditionally has always been somewhat weaker than you've seen in the Q3. And I think that could be related to the proportion of the short cycle business. which is a little bit less in Q4 than it is in Q3, which is also on the margin part. On the other hand, I think we should see a continuous improvement when it comes to margin in our businesses. So when we measure always year over year, that will be an improvement from the year before. So we are moving in the right direction. I think for going forward, and I think this is probably getting pretty clear when you get in this this Report it is very important that we move in the direction that the performance of our businesses actually reflects the performance of the group and I think that is what we are expecting to be much more next year and even further going forward which means some of these legacy that we have in the balance sheet and things like that, we're really trying to get rid of and to clean up to make sure that this becomes much more transparent for you guys in the future. And I think you should already see that through next year. Maybe the second question you can take.

Yeah, why don't I, I'll comment on Kusile, but maybe before that, just on the non-core part. So year to date, we have taken about 110 million non-core. And last year, Q4, we had more than 70. We are not expecting as big of a number to come through now during Q4 on non-core. So smaller non-core than Q4 last year. And then on Kusile, this is slightly different from the Q3 last year, when we did a project revaluation. This is now a settlement proposal, and it would be a settlement for the full exposure on this in South Africa. Now, we think this is a very, very fair proposal we have made, and let's see then what happens. But that's the situation regarding Kusile. Okay, thank you very much.

Thanks. Thank you, Alex. And we'll move now to Andre Cookman of Credit Suisse. Go ahead, Andre.

Good morning, and thanks so much for taking my questions. And again, many thanks for all your help, Jess and Valkymancy. I wanted to follow up first on the process and markets. I think your message is very clear in terms of no recovery anytime soon. But in terms of how you see the sequential movement, are we still kind of taking down there, or have we found the bottom we're just not expecting to go up from it anytime soon?

Thank you. Yeah, let's talk about the process industries. I think when we look at or in this industrial automation as the business area, What's sticking out in this part is this is a very big part service reflected in this business. I've been in a number of downturns in my professional life, but this is actually the first one where actually the service part of the business is getting more beaten than the equipment sales. which normally would be the other way around in industrial automation, should be resilient where the good margin aftermarket. But when we look at some of the end markets where we have difficult to conduct some service, we also have some markets like cruising, for instance, which is quite big on marine, where all the cruising ships are parked. We have also power generation in many exotic parts of the world where the power is not needed because there is no tourism anymore. So there are a number of these things which is actually affecting the service more than we've seen, even though we have seen a pickup in this service compared to Q2. So hopefully going forward, it will be easier to make service and that will do a recovery in the margins. In the process industry, we are, of course, in different kinds. We see good performance in process industries like pop and paper. We see in mining where we see good development, while we see much tougher than in the energy markets and oil and gas parts. That's reflecting it a little bit. I think, of course, moving forward, there should be movement in the right direction. We still have high ambition for this business area also to deliver margins within the target setting that we have made for the group. So we do expect that, too. A lot of action has been taken to adjust costs and to, in the future, which will be reflected in better margins going forward.

Great. Thank you. Can I ask one more, if I may?

Yeah, yeah. Sure. Go ahead.

Thank you. Thank you, Jess. And thank you for that color. That's very helpful. The main question I have really is actually about software strategy. And we've had another kind of wave of these hardware-by-software deals coming through across the sector recently. Without trying to induce you to comment on competition, but more just – Wanting to hear your stance on the trend itself and on those types of moves. What do you think and is ABB acquisition funnel, does that have a mix of software deals in it as well?

Thank you, Andrea. I'm very pleased for that question. First, I would like to say that our software strategy is very clear, and we are all in line with that moving forward. And we know that this is an important topic for all your investors, and we will actually spend a little bit extra time on the capital market day to go through these in detail. It is a very important part. It's a growing area. It's both embedded in our products, and it's actually building on our domain expertise that we have in the areas. We are increasing the investments within these parts, but also the revenues that is getting from product with embedded software as well as software by itself. So if you listen in a couple of weeks, we'll actually spend... a whole lot of time during the Captain Market Day to give you a clear view of that setup. And I just want to underline both the board of ABB as well as the management here feel very comfortable in the direction that we are driving this and going forward. So please join us the 19th.

Great. Thank you for that. And we'll move now to Mathias Holmberg of GMB.

Thank you. You've touched upon electrification already a bit, but I was thinking about the statement when GEIS was acquired. I think it was said that the business had a mid or high single-digit margin, and you've now mentioned for a couple of quarters that the integration is well on track, which sounds quite encouraging. So could you please help us a bit in understanding how far you've come in the extraction of synergies in GEIS? and also perhaps what the incremental potential is from this going forward.

Thank you very much, Mattias, for that question. Yeah, it's encouraging to see the development in electrification and the integration of GIS into that. You probably know that the GIS is split into three of our divisions. So it's actually a distribution solution. which has a pretty big part. We have smart power and smart buildings that are taking part here. The whole integration is actually two main points. One is the footprint consolidation. And we have so far closed 16 factories in relation to the GIS. And before the end of the year, there should be another two which are closed. There will be 18. And totally, I think it's somewhat over 20 that will be done. We are also 28 even. That's part of it. The other part is the product portfolio where we are integrating the ABB core products into the switch gear from the GIS and launch into the market, which is also doing quite well. And this together will actually strengthen up that business. You heard from Tarak and his team during the Captain Market Day there that they have, of course, the ambition to get this business up to the same margin level as we have for the rest of the part. I think the two ones sticking out is pretty clear. It's smart building and smart power. where they're really developing a really good margin. On distribution solution, it's a little bit more challenging, but it's really moving the right way. And we already talked about installation products, which is not really related to this integration. So the visions by themselves are really moving in the right direction. Very helpful. Thank you.

Thanks, Matthias. Up now is Will Mackey of Kepler, Chevro.

Yes, good morning. Thank you for the time, and good luck, Jess, in the future. I have a question. I'd like two areas. On the North America, and specifically the USA, when I look at the development of revenues for electrification in the third quarter in the US, still down nearly 20%, it seems, and in industrial automation down nearly 30% and motion nearly 11% on reported numbers. Can you at least put some more color around how you see the specific businesses developing in the U.S. now? Are we close to a trough? Do you have confidence that that levels of volumes that you've seen in Q3 have stabilized across the areas? That's the first question, is color around the USA. And the second relates to the one-time effects. There was the slight one-time effect in electrification, but more specifically in non-core. You said you're going to clean it up. You said that that should largely be done this year. And you've guided on some of the charges. But can you scope what is left in the non-core? and how confident we can be that it is all gone perhaps by the middle of next year. Thank you.

Let me start up with the U.S. partner electrification to clarify that a little bit, because it's a little bit of a mixed bag in the U.S. You know, we have four divisions which are quite different, and If we start with the smart power and the smart building, they are actually growing strong double-digit growth in the North American market. While you see on the distribution solution, you are actually double-digit negative, but that's more related to big project sales, which is natural of the nature of that business. When you see the installation products where you're seeing such a tremendous development in margin during the quarter, they are actually down double digits in volume also. And that's related to some of the cleaning up in product portfolio and focus on quality of revenues from that part. So I think the numbers you are mentioning, we do not really recognize from electrification in North America. It's higher than that. Did you have any ads to that, Timo?

No, no, I think that's clearly covered.

But I think we see good growth also in North America for the two important smart buildings and smart power. The second question was... On the non-core.

Non-core, please take that one, Timo. Yeah, so on non-core, when we started the non-core activity, we had more than 200 projects which were active, and we now have... less than 10 so you see that we have significantly moved down this and also the organization as such of course has reduced when you then look at the sub-segments we had three areas where we have this activity one was the full train retrofit we have a good plan here and we would hope that we would be done with that in the timeline which you mentioned Then we have a second area, which is the whole power grid substation EPC. There we are also very close to be done, but we can have maybe in the offshore wind area certain warranty cases which don't necessarily resolve themselves before we get the final legal analysis done. So we cannot simply pinpoint into that at the moment. And then finally, we have the oil and gas EPC, where we also hopefully start to be pretty much done, can be some tails left, but we have significantly reduced this exposure, and we will come back to this topic in the Capital Markets Day as well. Yeah.

Very helpful. Thank you very much.

Thanks, Will. And, Will, we're coming up near to the hour, and I know you all have a very busy day, so we're going to take a last question from Wasi Rizvi of RBC. Go ahead, Wasi.

Hi, thanks for fitting me in. Yeah, good luck. Just had a couple left, actually. One was building on from the last one. It looks like the corporate line's on track for an underlying, well, it looks like it's ahead of the underlying kind of 300 million run rate you've talked about in the past for next year on the corporate line. To what extent has that baked in some non-core charges as well, or do we need to think about those on top of that? And then the second one was just in the non-operational charges, you had changes in obligations from divested businesses, around 200 million, and I understand that's warranties for Meyer Steel Structures. Could you just talk a bit about what those warranties are and whether that is purely a one-off or whether that's something you'll need to review and adjust in the next couple of quarters as well?

Okay, Vasi, thank you for the questions. Why don't I take this one? So, first of all, targeted future run rate for the corporate of 300 million or lower does not include any non-core charges. So we want to be very clear with that. And you are right, we have been making very good progress on this now. This quarter's 64 million number might be a bit low, looking at everything what is happening. So just taking that times four would give a too low number, but we are working very hard on on getting to the 300 million. And then on the 200 million, where majority, as you mentioned, is coming from this divestment, which we already did before 2015, where we are having some warranties on the steel structure. So clearly, we are looking to provision as much as possible to the full exposure what we have. I mean, that's always what we are are trying to do, i.e. that the provision would reflect the situation, what we have. But of course, as you well know, before a case is fully closed, it is impossible to draw a final conclusion.

Great. And so if you just give some color on what the warranty is for or what they're regarding.

It's a warranty for repairs, basically.

Well, thank you, Wazi, and thank you, everybody, for joining our call today.

Thank you all. Thank you. Thank you. Bye-bye.

Ladies and gentlemen, the conference is now over. Thank you for choosing Koro's call, and thank you for participating in the conference. You may now disconnect your lines. Goodbye.