Good morning, ladies and gentlemen.
Thank you for joining our media conference call for the third quarter 2006 results.
With me as usual is Michel Demaré, our chief financial officer.
I will start by presenting the Group results and say a few words about the divisions before inviting you to ask questions.
There's no doubt that ABB had an excellent third quarter. Net income more than doubled, earnings before interest and taxes increased 48 percent and the EBIT margin rose to 11.4 percent.
All the hard work to strengthen ABB is now clearly showing up in the figures.
ABB is also taking advantage of powerful long-term trends ….
….including the strong global demand for improved power infrastructure; the push by customers to increase industrial productivity; and efforts to increase energy efficiency.
Group orders increased by a very satisfactory 16 percent in local currencies to almost 6.8 billion dollars from 5.7 billion a year earlier.
Revenues rose to 6 billion dollars from 5.6 billion, increasing 5% in local currencies. Revenues grew at a slower pace than orders and...
…as in the previous quarter, this is mainly the result of the increasing share of large orders in our backlog.
The share of large orders booked in the quarter continued to expand from a year earlier and was at some 15 percent, compared to 13 percent in Q3 2005.
This compares to a historical average of approximately 8 to 10 percent over the past several years.
The gap between order growth and revenue growth is a result of this development.
Let me remind you, that orders are always booked in the quarter we sign them with the respective revenue recognition only following in the coming quarters, or in the case of a large project, several years.
Clearly, we expect this gap to narrow in the coming quarters and the higher content of large orders improves our business visibility going forward.
Looking at the regional breakdown in orders and revenues, we can see that growth is well distributed around the world.
Orders rose by at least 10 percent in all regions, with the strongest growth in the Middle East and Africa and in Europe.
EBIT increased by a remarkable 48 percent to 686 million dollars in the quarter from 463 million dollars a year earlier and the EBIT margin rose again and now stands at 11.4 percent compared to 8.3 percent in the same period last year.
Our leading market positions, which resulted in higher sales volumes and better pricing, as well as the improved quality of execution of large projects continued to strengthen EBIT.
Corporate costs were further reduced in the period to 81 million dollars from 89 million dollars a year earlier. That brings costs this year to 234 million dollars compared to 287 million for the first nine months of last year.
As a result, I am very pleased to be able to report that net income more than doubled to 397 million dollars from 188 million dollars in the third quarter of 2005.
In addition to the strong operational performance, the balance sheet was further strengthened during the quarter with an increase in the net cash position and a decrease in gearing.
The third quarter also marked the resolution of asbestos liabilities relating to Lummus Global Inc. in the U.S.
This means that the asbestos chapter in ABB's history has now been closed.
Turning to the divisions, let me start with the two businesses that serve the electricity industry.
The Power Products and the Power Systems divisions are benefiting from several trends which we expect to be long-lasting.
Europe and North America are continuing to replace and upgrade aging power transmission and distribution networks.
Europe is also investing in systems to link regional grids, which will support the creation of a single market for electricity, strengthen the stability of the connected grids and enable better use of renewable sources of power.
In emerging markets elsewhere, the rapid pace of economic growth from Asia to the Middle East and from Africa to South America is requiring investments to meet surging power needs.
These trends helped orders in the Power Products division increase by 21 percent in local currencies and the division's EBIT margin continued to improve nicely.
Power Systems had lower orders in the quarter and let me emphasize here that the decrease is due to the timing of large orders awarded in the division.
It by no means represents a change in the positive trend, which is supported by the factors I have just mentioned.
EBIT in the Power Systems division made further strong progress, raising the EBIT margin to 7.1 percent from 3.7 percent.
The Automation Products and Process Automation divisions are also seeing strong demand, driven by pressures among industrial companies to increase productivity to boost their competitiveness.
In addition, the divisions are benefiting from efforts to reduce energy consumption to offset higher oil prices.
Orders at the Automation Products division increased 17 percent in local currencies and the EBIT margin reached 15.9 percent compared to 14.7 percent a year earlier.
The Process Automation division had an extraordinary 44 percent increase in orders in local currencies. An increase in revenues from the service business and strong execution helped to further improve the EBIT margin to 10.5 percent from 7.4 percent.
As for our Robotics division, this business continued to bear higher costs related to our previously announced efforts to improve operational performance.
As in the previous quarter, demand for Robotics from the automotive industry, which accounts for about three-quarters of the division's business, remained weak.
Both orders and revenues declined in the quarter.
As a result, we cannot rule out that Robotics will not break even for the full year and may post a small loss before starting its recovery next year.
In conclusion, let me just say a few words about the outlook for the Group.
The story continues, with our leading positions in key growth markets such as power transmission and distribution in Asia and the U.S. and the oil and gas, marine, and metals and minerals sectors on the Automation side providing us with a very good tail wind.
Higher volumes, higher EBIT and better EBIT margins are the result of our ability to capture market opportunities, combined with disciplined execution.
We have a very strong order backlog and market conditions remain favorable, which enables us to look forward to a strong start to 2007.
We expect demand to continue to grow both in the power infrastructure and industrial automation sectors.
Regionally, we again expect good market developments in Asia and North America as well as Europe.
The basic risks to our business have also not changed.
Price volatility in oil and other commodities could present challenges, both in terms of end-market development and our cost base. The potential for political instability also remains in several regions of the world.
Overall, while the current rapid pace of growth in order intake may slow in 2007, there is currently no sign of this and we expect ABB to continue to take advantage of the favorable global investment environment
The third quarter saw ABB continue to deliver strong results, building on the good start we had in the first six months of this year.
Our efforts to further improve our business performance continue to pay off and we look forward to a successful rest of the year and a good start into 2007.
With that, ladies and gentlemen, I’ll open up now for questions.