ABB Ltd

Alanna Abrahamson - ABB Ltd. Ulrich Spiesshofer - ABB Ltd.

Eric A. Elzvik - ABB Ltd.

James E. Stettler - Barclays Capital Securities Ltd.

Graham Phillips - Jefferies International Ltd. Daniel Cunliffe - Liberum Capital Ltd.

Alok Katre - Societe Generale Global Solution Centre Pvt Ltd. Andreas Juhani Koski - Deutsche Bank AG (Broker UK) Alessandro Foletti - Bank am Bellevue AG Akash Z.

Gupta - JPMorgan Securities Plc Anders Roslund - Swedbank AB (Broker)

Thank you, Maria. Good afternoon, ladies and gentlemen, and thank you for joining us for ABB's third quarter 2016 results call.

With me today are ABB's President and CEO, Ulrich Spiesshofer, and ABB's Chief Financial Officer, Eric Elzvik. The press release and analyst presentation were published at 7 o'clock today and can be found on our website.

This call is being webcast via our IR website as well as being recorded. Before we begin, I would like to draw your attention to the important notices on slide 2 of the ABB presentation regarding Safe Harbor and our use of non-GAAP measures.

This conference call may 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 that, I would now like to hand over to Uli.

Thank you, Alanna. Good afternoon, ladies and gentlemen, and welcome.

Let me start with the highlights of the quarter on slide 3. We delivered continued margin growth in tough markets with the eighth consecutive quarter of margin accretion through our continued focus on execution and improved operational EBITDA margin to 12.6%.

Net income was $568 million, ahead of expectations, and basic earnings per share were $0.27 compared with $0.26 for the same quarter of 2015, an increase of 2%. Operational earnings per share was steady in the quarter and grew 7% in the first nine months of 2016.

In the third quarter, we experienced significant macro uncertainties around Brexit and the U.S. elections, as reflected in the low order pattern, which I will go into later.

Revenues were steady. Electrification Products, Discrete Automation and Motion were stable, and Power Grids increased even slightly.

Our cash performance reflects our more consistent quarterly cash generation. Cash flow from operating activities was down in the quarter but up year-to-date more than 30% to $2.4 billion.

Now let's consider our performance in the context of our three focus areas, profitable growth, relentless execution, and business-led collaboration on slide number 4. Orders reflected challenging market environment we are facing.

We experienced significant macro uncertainties, as already stated, around Brexit and the U.S. elections.

This is in line with the guidance that we gave during the third quarter at Capital Conference of Morgan Stanley and our Capital Markets Day. Orders in Power Grids, they are additionally dampened by the hesitation of customers prior to the Capital Markets Day.

I would characterize the quarter as unusually weak as the Power Grids demand outlook remained solid and positive and tendering activity remained strong. Please remember all these comments are related to orders not to revenue.

As mentioned, revenues, they are steady in the quarter with Electrification Products, Discrete Automation and Motion, and Power Grids steady to positive. At our Capital Markets Day in October, we launched our new digital platform ABB Ability.

Customers and employees really like what they see and are asking for more. We created a true customer pull for ABB.

I've met now many customers together with the teams and the teams that's been out there since the Capital Markets Day. The feedback of all the customers is that they really expect what the Ability delivers from us.

It is really an exciting time for us launching this new offering. On relentless execution, we continue to drive profitability as we delivered the eighth consecutive quarter of margin accretion.

Power Grids also had a significant increase of 170 basis points to 9.5%. And over the last two years, Power Grids has improved by 340 basis points.

We continue to transform this division for sustainable profit generation. White Collar Productivity delivered structural cost savings in all divisions.

We are on target to deliver the new $1.3 billion savings target and now we expect total cost of approximately $1.1 billion, $100 million less than the original guidance. Eric will go more into detail later specifically related to the prioritization (5:18) of this cost.

What I want to highlight is that we are running a very tight ship in this aspect. Strong working capital management was one of the main reasons for the strong cash conversion in the quarter.

Net working capital as a percentage of revenues improved 170 basis points. Cash flow from operating activities has had a more balanced cash generation than in previous years.

Today, we announced the appointment of Timo Ihamuotila as ABB's chief financial officer and member of the executives committee, effective April 1, 2017. Timo is coming to ABB from Nokia.

There he has held the position of CFO since 2009. He is a proven CFO with extensive experience in the communications, software and services industries with an enviable track record in active portfolio management and operational performance improvement.

Timo will succeed Eric Elzvik in an orderly transition process. I really would like to thank Eric for his long and outstanding service as well as his dedication and contribution over the years.

Eric will pursue other career opportunities outside the company after a thorough handover in the second quarter. As announced at the Capital Markets Day, we launched our new brand.

We have had around 300 million views and a lot of them on a digital basis. So people really are noticing ABB, and that's exactly what we need to drive growth and create growth momentum around ABB.

Finally, we announced on October 4, Stage 3 of the Next Level strategy committed to unlocking value. Turning to the regional picture on slide 5, Europe was weak due to a tough large order comparison and knock-on effects from uncertainties around Brexit.

Large orders were down while base orders were steady in the quarter. Demand was driven primarily by construction integration of renewable energy and energy-efficient solutions for transport.

Base orders were up in Germany, Italy, Sweden, and Switzerland, but weak in the UK amid uncertainties around Brexit and offshore drilling in Norway. The Americas were weaker due to lower investments in process industries, but consumer industries held up well.

There was an increased uncertainty in the quarter primarily related to the U.S. elections.

We saw delays in capital as well as operational investments. Total orders in the region declined 16% with Power (7:55) base orders down 8%.

We are not the only one; others are seeing this as well. The U.S.

was slow on large as well as base orders, reflecting the uncertainty around the U.S. elections and customers' concern about investments.

Canada was stable in the quarter, as some large orders were booked specifically related to the utility sector. Brazil was down significantly, as investments in process industry has halted, and there has been little investment after the Olympic Games.

However, there is some talk about infrastructure spending, but that will still take some time to materialize. Demand in Asia, Middle East and Africa was mixed.

Total orders were down 5%, with base orders declining 9%. China had, because of the few large orders, a weaker quarter, but that's primarily a timing issue.

Demand for robotic solution continues to be strong. Base orders were down 3%, and overall orders were down 9%.

India grew 31% and was stable in all end markets excluding the process industries. However, these positives could not be offset the major declines in the Middle East where the demand was significantly impacted by uncertainties related to oil and gas and infrastructure.

We continue to drive our PIE approach for growth on penetration, innovation, and expansion to help us deliver in the face of significant market headwinds and dampen the effect of the difficult market environment. With that, I'll hand over to Eric.

Thanks, Uli. On slide number 6, we can see the divisional performance.

Let me take you through some of the highlights. In Electrification Products, operational EBITA margin improved approximately 40 basis points on additional cost savings and capacity adjustments.

Revenue in the divisions were steady. In Discrete Automation and Motion, we saw strong demand patterns in robotics and food and beverage, but this could not offset the ongoing declines in process industries.

We continue to drive our PIE approach, and we are seeing a change in the end market mix. The implementation of focused capacity adjustments and productivity measures resulted in a margin of 14.1%, which was sequentially above Q2 but at the low-end of the target range.

We continue to drive cost saving measures as well as capacity adjustments going into a seasonally weak Q4. Process Automation continues to face significant market headwinds, as reduced capital expenditure and cautious discretionary spending in process industries impacted both large and base orders.

However, operational EBITA margin improved 150 basis points due to successful project execution and implemented cost-out and productivity measures. In Power Grids, uncertainties leading up to the Capital Markets Day are reflected in the low orders, base as well as large orders.

The underlying demand drivers (11:08) activity remains strong. The Power Grids transformation is fully on track and this can be seen in the 170 basis points improvement in operational EBITA margin to 9.5%.

Many of you are asking about the prioritization (11:26) of the Power Up transformation costs. As stated on Capital Markets Day, the cost would be approximately $200 million.

This will be over 2017 and 2018 with approximately split of 50-50 and thereof two-thirds operational and about one-third non-operational. This is the reason why we are committed to be within the target margin corridor of 10% to 14% in 2018.

Regarding corporate operational EBITA costs, the full year guidance remain unchanged. We had more costs than many of you had estimated due to prioritization (12:07) in Q3.

But let me reiterate, no change in 2016 guidance. Let's move to our operational EBITA bridge on slide number 7.

In this challenging market, we have achieved approximately $107 million in net savings, which is comprised of our ongoing cost savings program, pricing pressure, and our White Collar Productivity measures. Savings related to OpEx were a little light in the quarter, but we delivered the White Collar Productivity and supply chain savings.

We are now stepping up actions on the OpEx savings. Volumes were negative in the quarter primarily due to under-absorption, specifically in Discrete Automation and Motion division.

Project margins were positive compared to Q3 2015 due to successful project execution in Process Automation. The mix was negative in the quarter due to unfavorable business mix in Electrification Products, Discrete Automation and Motion, as well as Process Automation.

As always, the other category consist of numerous smaller items like salary inflation, changes in corporate provisions, realized foreign exchange gains and losses, short-term commodity supply chain costs as well as other smaller one-offs. And as in the year earlier quarter, the forex translation had some negative impact less than in previous periods.

All of these changes delivered a group operational EBITA of approximately $1.046 billion and an operational EBITA margin of 12.6%, a 10 basis points improvement. Let us now turn to slide 8 for an update on the WCP cost guidance.

As stated at the CMD, we increased the White Collar Productivity cost saving target by 30% to $1.3 billion. We will achieve this additional savings within the initially announced timeframe.

Due to natural attrition and retraining efforts, we are reducing the total cost needed to achieve the targets by $100 million to approximately $1.1 billion. This will primarily have an impact in 2017.

Let's now turn to slide 9, the working capital program. We continue to drive our Net Working Capital program, positive results can be seen in the continued reduction on Net Working Capital as a percentage of revenues.

In the quarter, it was 170 basis points lower than in the third quarter of 2015. This was achieved by collection of overdue items and inventory management.

We've also implemented a continuous value chain improvement system in key operating units worldwide. As you saw in Q1, Q2, and now in Q3, our focus on having more balanced cash generation throughout the year is working.

We are up more than 30% for the first nine months of 2016 versus 2015, we should have a strong cash flow also in Q4, but not as strong as in the previous year, since we are trying to avoid the hockey stick approach as seen previously. So please take that into consideration in your modeling.

Let me now hand back to Ulr.

Thank you, Eric. If you move on to slide 10, as you heard on October 4, we have launched Stage 3 of our Next Level strategy, which consists of four actions.

First, we're driving growth in four market-leading entrepreneurial divisions. We're shaping and focusing divisional structure effective January 1, 2017 to Electrification Products, Robotics and Motion, Industrial Automation, and Power Grids.

The divisions will be empowered as entrepreneurial units within ABB, reflected in an enhancement of its performance and compensation model focusing on individual accountability and responsibility. The divisions will benefit from sales collaboration orchestrated by the regions and country as well as from the group-wide digital offering, ABB Ability, ABB'S leading G&A structure and costs, our common supply chain management, and our corporate research centers.

Second, we are taking a quantum leap in digital with ABB Ability. Today, ABB is ideally positioned to win in the digital space with new and existing end-to-end digital solutions.

The newly launched ABB Ability offering combines ABB's portfolio of digital solutions and services across all customer segments, cementing the group's leading position in the Fourth Industrial Revolution and supporting the competitiveness of ABB's four entrepreneurial divisions. Furthermore, we have announced a far-reaching strategic partnership with Microsoft, the world's largest software company, to develop next-generation digital solutions on an integrated open cloud platform.

Customers will benefit from the unique combination of ABB's deep domain knowledge and extensive portfolio of industrial solutions and Microsoft's Azure intelligent cloud as well as B2B engineering competence. Thirdly, relentless execution.

We continue to build on our existing momentum and are further accelerating our operational excellence. Our execution initiatives are really showing results, as you can see from our cash performance, and are positively impacting our bottom-line.

You have already heard about our success with White Collar Productivity and Net Working Capital. Fourthly, we are strengthening our global brand, adopting a single corporate brand, thus consolidating all the brands around the world under one umbrella.

ABB's portfolio of companies will be better unified, showcasing the full breadth and depth of the company's global offering under one master brand architecture. Our new brand slogan, Let's write the future.

Together., was very well received and has a strong energizing effect for all of our employees. Together with these four actions, we announced our plans for a new share buyback program of up to $3 billion from 2017 to 2019.

This reflects our confidence and continued strength of ABB's cash generation and financial profile. How were the Capital Markets Day announcement felt by customers, investors and employees?

Customers are extremely positive with the direction ABB is taking since it is aligned with their changing needs. Together with Eric, I visited investors that comprised of more than 40% of our market capitalization since the Capital Markets Day.

The vast majority of the investors were strongly supportive of all the announcements. Employees are energized, as they see a path to take ABB to the next level and transform the company.

Now, let's move to slide 11. Today, we announced the appointment of Timo Ihamuotila as ABB's Chief Financial Officer and member of the Executive Committee effective April 1, 2017.

Timo will succeed Eric in a thorough transition process and hand over in the second quarter of next year. Timo is joining ABB from Nokia where he has held the position of CFO since 2009.

He is a seasoned CFO with an impressive global track record. He has extensive and deep experience in all aspects of finance as well as in transforming businesses in times of industrial digitalization.

With his wide range of expertise ranging from financial to commercial and general management, he is the ideal person to lead our finance organization in the future and partner to drive ABB's ongoing transformation as a leader in the digital industry. I would like to warmly thank Eric already now for his long and outstanding commitment and many valuable contributions to ABB over more than three decades.

During Eric's CFO tenure, a new cash culture together with a significant improvement of our Net Working Capital, a fundamental productivity improvement of the finance function and many portfolio actions were successfully established and delivered. We wish Eric all the best for the next step of his professional career, which he will pursue after the orderly handover process is completed in the second quarter.

Now let me summarize the quarter on slide 12. We continued margin growth in tough markets, delivering the eighth consecutive quarter of margin accretion.

Our execution programs are working, White Collar Productivity is adding to the bottom-line, and cash flow has moved to the next level. We have appointed a new team member who will help us to drive sustainable growth and accelerate value creation in ABB through our digital transformation.

Our outlook remains unchanged. In this environment of heightened geopolitical and market uncertainties, we expect the market headwinds to continue.

We remain focused on executing our next level strategy, driving our growth initiatives in our productivity and working capital programs. Let me close by reminding you what we really stand for.

ABB is a pioneering technology leader with strong positions in attractive markets. We have a crystal clear transformation agenda to drive earnings per share and cash return on invested capital, which we are implementing with rigor, discipline, and perseverance.

ABB is well-positioned to reap the benefits of the Energy and Fourth Industrial Revolution. We have a lot of potential, and the management team is laser-focused to unlocking it.

We remain committed to delivering attractive returns to all of our shareholders. With that, I'd like to conclude my remarks and thank you all for your attention.

Thank you, Uli. Let's open the lines now for questions.

Let me remind you maximum two questions per person, please.

Yes, good afternoon all and thank you for taking my questions. Could you give a bit more color around the impact of the uncertainty on Power Grids, and have you seen an improvement since there's been more clarity in October?

And the second question just if you could talk again still on Power Grids in terms of the bidding pipeline, we haven't really seen any large projects the last few quarters, can you just talk us through what's going on there? Thank you.

Okay. Good afternoon, James.

Thanks for your question. Yeah, look, the ramp-up towards the Capital Markets Day was an interesting experience for all of us, adding – a lot of nervousness was created in a pretty aggressive way that led to uncertainties on the customer side.

The customers basically told us, look, we love ABB, we have always been with you, and but at the moment we would just like to wait a little bit to take larger decisions. If you look at the performance of the business underlying the order backlog, year-to-date is up, the revenues is up, the operational margin is now up 170 basis points.

We're heading in the right direction. But it is absolutely not desirable what happened in the third quarter, that massive dampening effect.

Now that the page is turned, the decision is taken what we do with the business, we were out seeing a lot of customers and the reaction is positive to say, no, we know what's happening with the business going forward. Next week, we will have a large customer meeting in Beijing there we have the Power World with our Chinese and Asian customers in Beijing.

The signals that we're getting is very positive. Customers really like what we have.

So altogether, I'm really glad that the page is turned now and the decision is taken, and we're moving forward and the customer reaction is very positive on that one. Altogether, the tender activity and the bidding activity is likely, there is long-term, there are 300 HVDC projects in the pipeline, some of them are hitting the tender pipeline now and our well underway.

So altogether, there's no reason, from a macro perspective, on Power Grids to be concerned. This was self-made dampening effect in the quarter and I'm glad it's over.

Thank you, James. Next question, please.

Yes. Good afternoon.

My two questions, one on Discrete Automation and one on Process Automation. Discrete Automation, how worried should we be about the fourth quarter, perhaps, slipping below the margin target range?

And you talk about low capacity utilization. I guess that's not in robot.

So which particular area is causing a problem? And then on Process Automation, my second question really, again with the minus 13% decline in base orders and 21% overall, one is conscious obviously that you've made the decision about Power Grids.

But does really a marine, oil and gas, metals, and automotive customer held off making orders because of that uncertainty?

Look, let me start with this last point. Absolutely, not.

Look, the comments that I made were related to the utilities customers. And if you look at the Process Automation side, this is mainly end industries in mining, in minerals, in oil and gas.

And there you – if you look at our competitors and if you look at us, there is a massive contraction out there in the market. There is a dampening effect.

If you take marine, as an example, the market for oil supply vessels this year has dropped by 70%. And naturally, given that we have strong exposure there, we were not able to fully compensate that with the efforts that we have, for example, in the crude sector, in the marine sector.

So, altogether, Process Automation is a true market contraction that we are facing. And, naturally, Peter is doing a good job in addressing that with his operational programs.

The margin is up in this division. We are facing significant market headwinds going forward.

But given the long backlog perspective and given the long tender – the long lead-time that we have here, Peter has enough time and is doing it in a good way addressing it. For the comments on DM, I hand over to Eric.

Okay. Thanks, Uli.

Yeah. So you have seen in the end that we have been in Q2 and Q3 right at the lower-end of the margin corridor, at 14% and 14.1%, respectively.

And as I said in my notes before when I spoke, the fourth quarter is a seasonally weaker quarter. So we are working very hard on the cost take-out, and obviously we are driving as much as we can the orders in this environment.

But it's difficult to see exactly where it will end up compared to the margin range.

Where is the major capacity utilization adjustments needed? As I say, it's not at robotics because we have been expanding that with the new plants in the U.S.

But, this mainly on the motor side, Graham.

Okay.

And they're especially on the large motors that go into the mining and the oil and gas sector.

Okay. Thanks very much.

Thanks, Graham. Next question, please.

Hello. Thanks.

Good afternoon. Thanks, Ulrich, Eric, and Alanna for taking the questions.

Two questions, first of all, just coming back to Grid, I mean, I know you don't comment on a Q3 call how the fourth quarter's shaping up, but perhaps you could just comment qualitatively on Grid orders for October. You said there is obviously hesitancy ahead of the Capital Markets; I'd just be interested in the qualitative comments on how that has developed post the CMD.

That's the first question. The second question is just really looking at, again on Discrete and obviously with, as you mentioned, the seasonally weak fourth quarter, and I think nine months margin is running at 13.8% may will be difficult to get towards 14%.

Is there any other issues that we should think about such as reversal of any sort of under-absorption issues as we head into Q4, so that would be my second question? Thank you.

Okay. Thanks, Daniel.

Look on the Grid side, we don't give forward-looking guidance, but I would not expect a disappointing result as we have had in the third quarter driven by the factors that I have laid out in the fourth quarter again. With that, I'll handover to Eric for the Discrete question.

Yeah. No, I think on Discrete, it is clear, of course, that the capacity take-out that we are doing mainly in motors, as Uli mentioned, is there to reduce the under-absorption.

That is done step-by-step, month-by-month. It takes out when we get those capacities off-line.

But I think your analysis of the nine-month margin compared to the range is quite valid one.

Thanks, Daniel.

Okay. Thanks very much.

Next question, please.

Hi. Thanks for taking my questions.

A couple of ones from my side. Firstly, on Middle East and Turkey: obviously, several companies have been flagging this as a pressure point, regarding the backlog that exists in those regions and whether we are sort of seeing, let's say, delays in converting the backlog into sales and specifically when it's large orders or whether it's base orders.

I mean, for example, the Anatolian pipeline contract that you won in December last year. And, of course, related to that is how large is this region for you?

So that's number one. Second thing is just on the service and software orders, they were sort of quite weak or down in this quarter that is despite relatively easy comps, so maybe if you could just help us with what's going on there in terms of perhaps just was it linked to the discretionary sort of maintenance-related issues or something else?

Thanks.

Okay. Thank you very much.

Let me just run you through a little bit on the Middle East and Asia, Middle East, Africa overall. Asia, Middle East, Africa is about 37% of our revenue base.

We don't disclose details on every single part of that region, but it's basically the largest region of ABB and given that it's a large part of the population of the world. I think we are very well positioned there from a footprint, from a market presence perspective.

If you go now specifically into the Middle East, look, there – we have an interesting development there. On the one hand, if you take Saudi, Saudi, the base orders this quarter were down 46% compared to the previous year, because basically, Saudi is recalibrating its spending and recalibrating its investment appetite and until that's recalibrated there will be a slowdown or it's a significant slowdown of order intake altogether.

We can feel that mainly in our base – base order businesses like Electrification Products business, which was really significantly down in the quarter, in the Middle East. In Power Grids, we have grown in the quarter in Saudi, for example, also in Oman and other parts with some large orders that we got.

But at the same time, in the UAE we see at the moment a dampening effect on the spending. So altogether, I would describe the Middle East as a mixed bag, very difficult to give a forward-looking guidance on the exact spending pattern.

There are still some projects in the pipeline which are interesting and that we're working on. Now the good news is when you have larger projects in there in the backlog, you can predict your capital – capacity utilization, you can predict your capacity needs.

And if you take, for example, Peter Terwiesch's activity around Process Automation, he has taken a great stand and basically has adopted his cost base in a good way altogether. So I would summarize, a difficult to be forecasted part, especially the Middle East, going forward.

Now, if I just move on to Africa, just came back here yesterday morning from South Africa, we had the board for a couple of days since Sunday to review the African growth opportunities, while some of the countries are moving – at the moment a little bit subdued altogether. There are great growth opportunities on the utilities side and renewables.

On the industries side, there are still some very large process industries projects in the pipeline. And we really go our extra way to be close with these customers early when the pipeline gets discussed.

And in the transport and infrastructure side, if I just look at the rail segment in Africa, it's an attractive long-term segment that ABB plays in. With that said, moving over to the service and software situation, I look in the second quarter to service development, basically (34:08) in line with the overall revenue development, a slight decline there, basically steady in most of the segments.

This is something that we will definitely drive even further with our growth efforts in the future. Service is a growth opportunity for us.

If you see now, it's about 17% of revenue altogether. It was 16% before.

It's going the right direction but we need to push much harder. And now with the launch of Ability with more digital offering, with digitalized service offering that Guido is leading, I have cautious optimism that we get the growth momentum going there again in the future.

Thank you.

Okay. Thanks.

I think we have to go on to the next question, please.

Thank you very much. Yes.

Hi. It's Andreas Koski from Deutsche Bank, asking questions on behalf of Gaël De Bray.

So, firstly, on net savings. Your net savings number in this quarter is down significantly from the net savings number in the second quarter.

What is explaining this? Is it that you are seeing further pricing pressure or you're not able to take out as much cost as you have been in the previous quarter?

I'll hand it to Eric.

Okay. Yeah.

So what you see in the bridge is a lower number than in the second quarter. And the key reason for that is basically on the traditional cost-out.

The supply chain is running very well. But on the OpEx savings, we are a bit light in the savings in this quarter.

We are now working to gear that up and to recover that in the right direction, as we move into the coming quarters.

So it's...

Excuse me, the WCP saving is developing according to plan on our earlier discussions.

Thank you. And then, secondly, on the U.S., so you're saying that you're seeing weaker industrial markets.

Could you please elaborate a bit in what parts of your business you're seeing deteriorating demand?

Well, look, if I go through that, Andreas, if you take the U.S., the total orders are down 16%, the base orders are down 6%. If I take Electrification Products, that has been hanging in there.

DM is definitely being hit by the large order – by a large motor and large drive contraction that the process industries have gone down. If I look at Process Automation, Peter has been hanging in there.

He has been able to compensate what he has as contraction on capital oil and gas and on power generation. He has been able to compensate it in the marine and port side where we had a really nice growth in the U.S.

in Process Automation. If you look at Power Grids, very low order levels in the quarter.

There is a lot of expectation on the energy policy outcome after the election. So there is an understandable dampened effect at the moment.

Medium and long-term, this is an attractive market for Power Grids, no doubt about that. So this is more probably a temporary thing than a long-term one.

Thank you very much.

Thank you very much.

You're welcome.

Yes. Good afternoon.

Thank you very much for taking my questions. I was wondering on Process Automation, I mean I'm sort of baffled to see this being down in terms of order intake double-digit already for a few quarters now.

And obviously, in percentage you can always cut away a lot. But in absolute numbers at some point, you should reach the bottom.

Do you have any signals anywhere that the bottom is being reached or declining of – reduced deceleration of the decline, things like that or, for example, the discretionary servicing that you've been talking about for a while and seems not to come. When will this recover?

Alessandro, thank you very much for your patience (38:16). And honestly, I think the deterioration of the markets on the Process Automation side in the main markets that we are exposed to, I don't think we are over yet.

If you look at the mining forecast, the mining CapEx forecast, is forecast to contract for the next three years, another 7% in average. If you look at oil and gas, whilst we see some good tender discussions coming up on the downstream side, upstream is still very, very much subdued.

And we have to appreciate that one. If I just go around the world quickly, if you take the Americas on the Process Automation side, our base orders were down double-digit, and the total orders were down very, very significantly.

Brazil is very weak, and also the overall mining sector in South America is very weak. If I'll go look at Asia, Middle East, Africa, there we had a single-digit decline in base orders, double-digit on total orders.

India was down this quarter on refineries and chemicals, despite India growing overall very well for ABB. Saudi is really massive, the deterioration.

Saudi has really taken, closed nearly the tap on spending and that's something that naturally hitting us quite significantly. If you go to South Asia, if I just give you some example, Indonesia is pretty difficult in terms of mining.

So altogether, that's challenging. And if I go then back to Europe, Europe in that sector is soft and careful.

So I wouldn't call the bottom yet on that one. We navigate the cost and the cash in a very careful way.

We take the growth wherever we can take it and we had some nice orders in the quarter still but it was not enough to dampen fully the effect that we have had. So this is a part of the business portfolio.

We are cautious to give you a positive outlook.

All right. But if I may ask – add my second question here.

You are sort of convinced and sure that you're not looking too much backwards because obviously the necessity of the current situation to keep the cost low and so on.

What we are doing is, on the one hand, we stay close to our customers. And just this Monday, I spent time with customers in Africa with some very, very large ones where we have interesting projects going.

We visited one of our largest project sites where 20,000 people are working out there. When you talk with these customers, they feel that we are close to them.

And we are working with them on the tender activity, whatever is in there. So there is a forward-looking attitude in the team.

But the market is subdued.

Thank you. Next question, please.

Yeah, hi, good afternoon. It's Akash on behalf of Andreas.

The first question is on the uncertainty over U.S. elections, and I'm wondering if you can talk about which are the customer industries where you have seen more impact than others?

And the second is on China where on earlier press call you said that China has bottom out for you. So the question is that what should we expect in the coming quarters?

Yeah. Look, if you take the U.S., I would say, the large the project and large the potential order, the more subdued is at the moment investment appetite that people say let's just wait a little.

The closer you get to the consumer, the more – the better the business was. So if you take anything related to auto, to consumer goods, to food and beverage that was quite okay, but if you look at large investments around the energy infrastructure, rail; large investments on oil and gas, chemical, there is a subdued pattern at the moment.

And when we go over to China, look, China is really going through a transformation of the country. I'm there next week again; I think this is the sixth or seventh time this year I'm going to China, spending time with customers out there.

And what we are seeing is basically, I would say, there are three different developments. In the process industries, that remains a very, very subdued investment climate, which is very dampened.

If you look at anything discrete around electronics, automotive, our customers are spending especially on automation to get more productivity, more quality out of their assets, get more asset utilization and that's something that I would rate as quite positive. If you take the infrastructure side, putting building automation in residential buildings is a major growth opportunity, and they are going after it aggressively.

So China is a country where our PIE approach really is being lived every week and every day to a great example. Chunyuan Gu, our Head of China, is really managing the team towards the growth segments in a very careful way, but managing the costs on the others.

Calling a growth pattern that is sustainable in China for the future is too early now. But I would say, we are at the bottom.

Thank you.

Next question, please.

Yes. Hello.

I had a question regarding the outlook on page – slide 12. You were mentioning here modest growth but increased uncertainty in Europe and slower growth in China and continued market growth in the U.S.

Is this sequential or – because, year-on-year it seems – how do you explain this relatively bullish outlook?

Well, if you take the outlook, we say very clearly in the first bullet on that page that the short-term outlook is very mixed and we need to be very careful. If you look at the medium-term and longer outlook, the market drivers are intact and they will come back.

Now the question is, when do we call it right? And that as you relate to the previous questions here, calling that inflection point in the right way will be the art.

At the moment, I don't dare to say, I know exactly where the inflection point will be. So what we're doing at the moment, on the growth side, we are really flying on site.

Where we see the growth opportunities, we go after them. But in the cost and the cash side, we are extremely disciplined.

And there you see that despite some unfavorable mix development in the quarter, despite the significant market headwinds, despite the one-off investments that we are putting in to make ABB better and faster and more agile, we have delivered a margin increase that the team has delivered altogether. I think this is going in the right direction and it's sustainable because it's for the eighth consecutive quarter.

So what we will do in this difficult market environment, drive continued execution improvement and aim for continuous margin accretion. So that when the growth comes into the ABB machine, more profit comes out of the cash register when we're through.

Okay. Thank you.

Thank you, Anders. Next question, please.

Hi. Just to confirm, did you sort of specifically say that you seem to think that ABB's demand trends have bottomed out in china, is that something that I can confirm?

And then just related to that, on the residential and non-residential construction side, if you look at the macro sort of indicators over there, they seem to be sort of on the starts or so on, they seem to be rolling over a bit. Do you sort of worry about some of these trends and, therefore, a bit more weaker construction market in china going forward?

Thanks.

Yeah. Look, if I go through your question in a sequence, if I take China altogether, I would say, we are either bottoming out or close to bottoming out, that's the pattern that we see across our very, very wide portfolio.

And actually we have completely different pictures in the different parts of the portfolio. Now if we look at China in terms of the building activity, there is a slight uptrend on non-residential buildings and what we are doing with our offering, we are getting penetrate – better penetration in residential buildings.

So in residential buildings, the penetration on brownfield buildings that are already there, where we are doing retrofit, is a growth opportunity. And in non-resi, there is a slight growth in that context.

So that's the way I wanted to clarify what you just asked.

Thank you, Alok.

Thanks.

And with that, I would like to conclude our Q3 results call. We are always available to take your calls at any point in time if you have any further questions as the day or weeks go on.

So thank you very much.