Prepared remarks by Fred Kindle, ABB President and CEO, for the 2004 annual results telephone conference

With me this morning are my colleagues on the ABB Group Executive Committee, our new chief financial officer Michel Demaré, Dinesh Paliwal, the head of the Automation Technologies division, Peter Smits, the head of the Power Technologies division, and Gary Steel, the global head of human resources.

As you will have seen in the press release, in 2004 we made solid progress in restoring the company's health. First and foremost it is of course a great pleasure to report that after three years of heavy losses ABB returned to profitability in 2004.

We communicated our aim to return to profitability a year ago and we have delivered on that. But we also still have some key challenges ahead such as asbestos and corporate costs. I will discuss this in more detail in a moment.

Let me begin with the full-year highlights. We met many of our objectives in a key turnaround year. We again took out costs and lifted productivity.

Coupled with a recovery in most markets, this allowed us to substantially improve performance. ABB's core divisions had double-digit growth in both orders and revenues. Group Earnings Before Interest and Taxes, or EBIT, more than tripled to over one billion dollars despite one-time costs.

Our cash flow was very strong, more than one billion dollars. Net income was 201 million dollars for the year, a rebound of close to one billion dollars. But as I said we also faced some challenges in the year. This includes a delay in resolving the asbestos issue.

Corporate costs are also clearly too high. In 2005 corporate costs will be a main focus of attention. The margins in Power Technologies in 2004 were below expectations. Moreover the impact of non-recurring items was still sizeable although it was much reduced from earlier years. We are now fully focused on finding timely solutions to these issues. In the fourth quarter we took steps to establish a more stable base for 2005.

Now, I return to our full-year result. Let me first remind you of the business reclassifications we made after the fourth quarter that have affected the full-year numbers.

First, the downstream oil, gas and petrochemicals business was reclassified from discontinued operations into continuing operations.
This was done following the US Third Circuit Court decision that effectively has delayed our planned divestment of this business. Therefore it no longer qualifies as discontinued operations under US GAAP. So we have brought it back up to continuing operations.

Also most of the Power Lines businesses were moved from the Power Technologies division into discontinued operations. This is the result of our ongoing process to exit these businesses by selling or closing them.

In 2004, the net income of 201 million dollars was the result of substantial progress in all parts of the group. We saw improvements not only in our core divisions, but also in non-core activities. The drag on profitability from discontinued operations also decreased substantially in 2004.

Cash flow from operating activities improved by more than one billion dollars.

Power Technologies and Automation Technologies posted double-digit orders growth and we also saw a 10 percent increase in Group orders.

Core division revenues grew even more strongly - 18 percent in dollar terms.

Group orders and revenues grew more slowly, as they include non-core businesses, many of which we have since sold.

As I said, Group EBIT tripled to more than one billion dollars in 2004. And our EBIT margin increased to 5.2 percent from 1.7 percent.
The balance sheet is considerably stronger than a year ago.

This is a result of paying down more than 2.4 billion dollars of debt in 2004. Our total debt is slightly higher than at the end of the third quarter. But this is because of the weakening dollar. We have not taken on any additional debt.

The gearing ratio came down to approximately 62 percent compared to 71 percent in 2003. Our gearing target for 2005 remains unchanged at 50 percent. Our net debt is now 1.3 billion dollars compared to 2.7 billion dollars at the end of 2003. Our ability to reduce debt is of course the result of our strategic divestment program.

We paid off debt with the proceeds from divestments in 2004 of businesses that we no longer consider core. These included, among others, the upstream oil, gas and petrochemicals business and the reinsurance business.

As I mentioned, 2004 was a key turnaround year for ABB. Now we are seeking to further improve our performance.

Let me now briefly mention some key countries our three biggest markets, the United States, Germany and China.

In the US, our biggest market, and in North America overall, we stopped a five-year continuous decline in orders in 2004. Moreover our core divisions increased their orders by 20-percent in local currencies. We have adjusted our cost base in the US constantly in the past two years but there are still some challenges to overcome.

Now, we expect ABB in the US and North America to turn profitable in 2005 for the first time in many years.

Germany is our biggest country organization and our second biggest market. ABB Germany has taken far-reaching measures and gone from a heavy loss in 2002 back to profit in 2004.

In China, we announced ambitious new growth plans in 2004 for the next five years. This includes doubling our orders and revenues by 2008.
In 2004, our orders in China grew to 2.6 billion dollars from 1.6 billion in 2003. Revenues increased to 2 billion dollars from 1.6 billion dollars.

ABB continued to invest in local capacity in China. This includes new manufacturing and engineering capacity. We have also opened new branches in different parts of the country.

Let me now turn to the year ahead. Despite the substantial progress in 2004, there are still challenges ahead for 2005.

Delivering our targets is one of the challenges. To do so, we will improve our margins in the two core divisions, Power Technologies and Automation Technologies, reduce corporate costs and seek to divest non-core businesses.

The previously communicated group margin target of 8 percent remains unchanged on the basis it was defined in late 2002. But as you know we reclassified the downstream oil, gas and petrochemicals business from discontinued operations where it had no impact on revenue or EBIT into continuing operations

So, to reflect the impact of the reclassification on our Group results we today amended the group margin target to 7.7 percent. This is an adjustment purely resulting from a new accounting treatment. It does not reflect any change in our outlook for the development of our business in 2005.

Nothing has changed as far as our core divisions are concerned or in our target for corporate costs.

Ladies and Gentlemen: another challenge for 2005 is to seek a resolution of the asbestos claims against our U.S. subsidiary Combustion Engineering. We are addressing the issues raised by the Third Circuit Court of Appeals in its ruling on December 2, 2004.

We may amend the Plan of Reorganization for Combustion Engineering if necessary. Let me spend a couple of minutes explaining the current developments on asbestos:

In December 2004, the U.S. Third Circuit Court of Appeals said that for the plan to be confirmed some conditions had to be met. The lower courts would need to show that the CE Settlement Trust and the two-trust structure on which the Plan was based were designed and implemented in a way consistent with the Bankruptcy Code.

The appeals court also found that it was not appropriate to include in the CE Plan certain asbestos claims against ABB Lummus Global and Basic Ltd that were not related to the operation of Combustion Engineering.

ABB is currently reviewing ways to deal with the asbestos exposure of these two companies which is small compared to that of Combustion Engineering.

There are currently about 11,000 asbestos claims against ABB Lummus Global. These have been provided for. ABB continues to review the Court of Appeals' opinion and to consider various options to resolve the asbestos liability of Combustion Engineering, ABB Lummus Global and Basic Ltd.

It is important for us to settle the asbestos issue as soon as possible. We are considering whether changes to the plan could be made. ABB is working to find a solution that is acceptable to all parties.

It is important for ABB to be able to move ahead without these question marks and uncertainties. ABB remains committed to minimizing the financial impact of our subsidiaries' asbestos liabilities
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ABB is also committed to resolving all outstanding issues in a timely manner but naturally we cannot predict when a resolution will be achieved nor the financial impact..

Turning to the fourth quarter, 2004, the core divisions reported a strong growth in orders. They were up a combined 9 percent in US dollar terms.
Core division revenues were 18 percent higher in US dollar terms.

Group EBIT more than doubled although EBIT in the core divisions was burdened by non-recurring charges. Cash flow from operating activities was 880 million dollars. This is an improvement of 220 million dollars compared to the same period in 2003.

The two core divisions had the same high level of seasonal cash flow.

There were significant improvements in corporate activities and in the oil, gas and petrochemicals business.

Now, let me briefly review each of the two core divisions' results in the fourth quarter 2004. In the Power Technologies division, orders in Q4 were up by 12 percent. This was driven by growth in North America and Europe.

Orders were down in China following very high growth rates in recent quarters. But we see no change in the longer-term order growth rates there.
Revenues in Q4 were up by 18 percent. There was improvement in all but one of the business areas.

PT EBIT for the quarter was down by 6 percent. This reflected non-recurring charges, which amounted to 45 million dollars in Q4.

The EBIT margin of Power Technologies in Q4 was also down, as a result of these charges. Cash flow improved slightly to 454 million dollars, at a seasonal high level.

In Automation Technologies, the division saw orders grow by 6 percent in US dollars in the fourth quarter of 2004 but they were slightly lower in local currencies.

Base orders grew at a double digit pace. But large orders decreased. This was mainly the result of a large order that we won in Poland in the fourth quarter of 2003.

Regionally, order growth was driven by double-digit increases in the Americas, and the Middle East and Africa. Asian orders grew more modestly but, as in Power Technologies, we see no change in longer-term trends.

AT revenues were up 18 percent in Q4. EBIT rose to 281 million dollars - a 29 percent increase on the same quarter of 2003. EBIT margins in Automation Technologies continued to improve while cash flow of 529 million dollars remained at a seasonally high level.

Looking at EBIT, I already mentioned that the core divisions improved earnings for the fourth quarter. Although still negative, the Non-core result improved substantially.

This was due to a significant reduction in losses in both the oil, gas and petrochemicals business and in Building Systems. Corporate costs, at 150 million dollars, were again negatively impacted by currency movements.

Overall, Group EBIT margin was 4.4 percent in the fourth quarter, compared to 2.4 percent a year ago.

To conclude, let me review the targets for 2005. We have adjusted the Group EBIT margin target to 7.7 percent, reflecting the accounting reclassification of the downstream oil, gas and petrochemicals business from disc-ops into continuing operations.

We are committed to this target, and I am fully confident we will reach it.

The Automation Technologies margin target remains at 10.7 percent.

The Power Technologies 10 percent target is achievable, but challenging. Revenue growth is strong and the large order book is solid.
Some issues that weighed on the division's profitability in 2004 have been identified.

These issues are being dealt with. We will continue to focus on improving the Power Technologies margin in 2005. Non-Core EBIT should no longer be a significant burden on the Group EBIT margin.

Another key component in reaching the target is corporate costs. Here we have taken a number of actions. We will achieve a corporate cost level in 2005 of around 450 million dollars, down from this year's level of 507 million dollars.

Ladies and Gentlemen, ABB has gone through a successful turnaround. Now we are entering a period of stabilization and our focus is firmly fixed on operational excellence and profitable organic growth.

We have great substance in technologies. We hold leading market positions. We have good people and a large customer base. The market environment in 2005 looks favorable

We'll address our challenges, and emerge even stronger for having done so.Thank you for your attention. Now we are ready to take your questions.