ABB Ltd

Jessica Mitchell - Head, IR Ulrich Spiesshofer - President & CEO Timo Ihamuotila - EVP & CFO Tarak Mehta - Electrification Products Division

Ben Uglow - Morgan Stanley James Stettler - Barclays Andre Kukhnin - Credit Suisse Guillermo Peigneux - UBS Mark Troman - Merrill Lynch Martin Wilkie - Citi Simon Toennessen - Berenberg Andreas Willi - JPMorgan Daniela Costa - Goldman Sachs

Good afternoon, ladies and gentlemen, and welcome to ABB's second quarter results briefing. The press release and analyst presentation were published this morning at 7:00 a.m.

and can be found on our website. This briefing is being webcast via our IR website, as well as being recorded.

With me today are ABB's President and CEO, Ulrich Spiesshofer; and ABB's Chief Financial Officer, Timo Ihamuotila and President of ABB, Electrification Products Division, Tarak Mehta, who will provide an update on ABB’s integration of GE Industrial Solution. Before we begin, I’d like to draw your attention to the important information regarding safe harbor notices and our use of non-GAAP measures on Slide 2 of the ABB presentation.

This conference call will include forward-looking statements. These statements are based on the company's current expectations and certain assumptions and are therefore subject to certain risks and uncertainties.

I will now hand you over to Ulrich.

Thank you, Jess. Good afternoon, ladies and gentlemen, and welcome to everyone who has joined us today.

As usual, we will start with a review of ABB's results for the quarter. I will then provide a brief update on our 2018 agenda.

Let's look first at Slide 4, this gives an overview of how we have continued our profitable growth in the second quarter, driving both the top and the bottom line. In the quarter, we increased order growth in all divisions and across all regions.

The book to bill ratio increased to 107 at the end of the quarter and was higher than one in all of our division. Our innovative digital solutions offering ABB Ability continue to be very well received by our customers, supporting growth with its portfolio of more than 210 digital solutions for utility, industry and transport and infrastructure.

We completed the acquisition of GE Industrial Solutions within the committed timeframe. We are pleased to welcome all our new colleagues from GE Industrial Solutions as part of the global ABB family.

With our disciplined approach to related execution, we have delivered both margin improvement and double-digit EPS growth this quarter and continue to drive net cost savings. In the second quarter we continue to strengthen ABB’s through business led collaboration.

Notable developments included our global edge data center solution alliance with HPE and Rittal and the further strategic development of our brand with title sponsor of the ABB Formula E championship. These results show that our transformation over the past years is deliberate.

While we still have a lot of work to do, we are achieving clear progress in our focus on customers, in realizing value from growing our ABB Ability solutions portfolio and in driving relentless execution and productivity everywhere in our business. Let’s turn to the result in more detail.

As you can see from Slide 5, the second quarter saw continued order momentum. Total orders were up 8% with increases in all divisions and regions.

Base orders up 9% also increased in all divisions and regions. Revenue were up 1% at $8.9 billion.

Reported operational EBITA that was up 12% year-on-year in nominal terms, with the margin expanding 60 basis points to 13%. The operational EPS result on a constant currency basis was 27% higher at US$0.38 per share.

Cash flow from operating activities was 101 million [ph] for the second quarter 2018 and we are on track to deliver solid cash flow for the full year. Slide 6 shows you our order development for the quarter in total and base orders in more detail.

Both total and base orders are up in all regions. Total orders were up 8% higher.

We have continued to see a selective recovery in the order, which were up 2% year-on-year. Notable wins included large orders for grid integration and transformers, as well as automation solutions for specialty marine, oil and gas and chemicals.

Base orders increased 9% on a comparable basis with strong demand in all regions. In Europe base orders rose 12%, growth was broad based, particularly strong in Italy, but also higher in Germany, the U.K., Norway, Spain and France.

The America experienced 7% base order growth. In the United States ABB’s base order were up 7%.

Orders in Asia, Middle East, Africa rose 7% and in China there are up 23%. This was a quarter of strong performance in both the U.S.

and China, ABB’s two largest markets. I will now hand over to Timo to take you through the results for the division.

Thank you, Ulrich. And good afternoon, everyone.

Moving on to discuss the divisional performance and numbers in more detail. Let's start with Power Grids on Slide 7.

Total orders were up 5%, while base orders rose 7%. The division has been delivering comparable base order growth for over a year now, with broad based growth driven by this Power Up initiatives.

The book to bill ratio rose to 1.09 from 1.03 at the end of Q1. Revenues were 8% lower, reflecting the lower order backlog at the end of Q1.

However, the year-on-year backlog situation improved from minus 7% at the end of first quarter to minus 4% at the end of the second. While the lower order backlog year-on-year will continue to weigh on revenues, we expect the continuing base order momentum to drive gradual improvement in comparable revenues for the remainder of the year.

The operational earnings margin was 40 basis points down year-on-year, mainly due to lower revenues and continued investment in the Power Up program. With gradually improving revenues and cost management initiatives by Q4 we expect operating margins to improve and the division to be within its target margin corridor for the year as a whole.

Turning to electrification products on Slide 8. Total orders rose 6% while third party base orders improved 4%.

EP saw broad based growth in product, including high single digit growth and low voltage and double-digit growth for data centers and EV chargers. Orders were higher across all regions.

Revenues were up 4% year-on-year and the order backlog ended up for the quarter 5% compared to the same period last year. The divisions operational EBITA rose 100 basis points year-on-year, reflecting continued operating leverage and pricing measures.

We closed the GEIS transaction smoothly within the planned timeline. For the second half of 2018, we expect that impact from GEIS to increase sales in the EV division by roughly $1.35 billion.

We expect GEIS to impact the divisions operational EBITA margin negatively for the second half by approximately 260 basis points. The impact is expected to be higher than this in Q3 and lower than this in Q4.

Looking further out, we continue to expect the division to be back in its operational EBITA margin range of 15% to 19% during 2020 as originally committed. Next we have Industrial Automation on Slide 9.

This was a quarter of excellent order growth for the division. Total reported orders in local currencies grew 30% year-on-year, reflecting the additional B&R.

Total comparable orders rose 15% with base orders up 9% year-on-year and double-digit growth in services, all regions advanced. The division's demand growth was broad based, led by selective recovery in process industries, particularly oil and gas and demand for specialty vessels.

Year-on-year revenues were steady for the third consecutive quarter, as strong performance from product orders continued to mitigate the order - the lower opening order backlog. The division ended the quarter with its backlog 4% lower year-on-year, much improved from the minus 8% backlog year-on-year of the previous quarter.

The operating margin year-on-year was up 70 basis points, reflecting continued positive mix, strong project execution and some one-time effects later in the quarter. Now looking at Slide 10, we have Robotics and Motion, which had another strong quarter.

Total orders grew 11%, while base orders grew 16% compared to the same period last year. The division captured growth in all regions and across all business units with drives and motor seeing continued support from recovery in process industrious.

Revenues experienced a similarly strong pattern of growth increasing 8% on strong execution of the order backlog. The order backlog at quarter end was up 6% year-on-year.

The division delivered a year-on-year increase of 100 basis points in operating margin, reflecting positive volumes and mix and tight focus on cost control and productivity. To summarize the picture across the divisions, our focus on profitable growth and relentless execution is delivering, while the lower backlog position in IA and PG in particular has dampened revenues for the group, divisional performance in RM and in EP before GEIS is showing clear signs of improved operating leverage.

We look next at our group operational EBITA margin bridge on Slide 11. In the second quarter we continued to deliver net cost savings amounting to $94 million.

This enables good mitigation of pricing pressures in the quarter through the ongoing focus on supply chain management, productivity and operational efficiency within our divisions and some ongoing benefit from the White Collar Productivity program that we completed in 2017. These were partly offset by negative impact of $35 million from commodity price increases.

Volumes and mix had a positive impact contributing $90 million [ph] and $27 million respectively. Our investment in growth continued, including an increased investments both the 56 million mainly in digital and sales.

In organic activity, including the acquisition of B&R and some impact from the EPC business model change had a positive impact of $42 million. Currency translation had a positive impact of $34 million.

Including all of these impacts, the group achieved operational EBITA of $1,167 billion, increasing 12% year-on-year and a map [ph] margin of 13%, up 60 basis points year-on-year. Looking ahead stronger sales, improved mix and continued cost savings are expected to provide ongoing support to margin development.

The date we provided by currency translation in the first half expected into a headwind over the remainder of the year, as well rising geopolitical uncertainties such as tariffs could act as a headwind. Then specifically on GEIS.

At group level, we expect an approximately 60 basis points negative impact on the second half 2018 operational EBITA margin. As we said going into 2018, our ambition remains to have full year of comparable revenue growth and to deliver some margin accretion for this year as a whole, even net of the impact of GEIS.

On Slide 12, we have a summary of group items and an update to the guidance for these items. Looking first at the items on the left side of this chart, the group's corporate operational EBITA was $278 million for the first half.

As noted in Q1, we have seen higher negative impact from non-core activities, which we expect to further impact the second half. We now expect full year corporate operational EBITA to be around $550 million compared to our original guidance for 2018 of $500 million.

Our framework for the other items on the left side of the chart remains unchanged since the last time we spoke. On the right side of the chart, we would like to focus your attention on charges to below the line items, including GEIS with IS related items for which we now have clearer line of sight.

I will not cover every item in detail, but would like to note that we expect the normal restructuring costs to be around $200 million in the second half. For the year as a whole this is in line with the low end of the range originally expected with these costs now much more weighted to the second half.

We expect $120 million of GEIS integration costs to be taken below the line in the second half with $62 million already reflected in the first half. The rapid progress we have already made with the integration of GEIS has brought more of these costs forward into 2018.

At the same time over the five year integration period a more efficient tax structure will reduce cash taxes by around 130 million. Overall, we expect that the cumulative cash impact to be broadly similar to our original estimate.

And Tarak will come back to this point in a moment. Approximately $25 million is expected to be booked for inventory adjustments at GEIS and we estimate PPA related amortization charges from GEIS to be around $25 million for the second half period.

And let me now hand back to Ulrich to update you on the progress on the broader group agenda.

Thank you, Timo. Please turn to Slide 13.

I would like to start with our focus on profitable growth. Our streamlined and strengthened ABB today offers two clear value propositions to our customers, bringing electricity from any power plant to any plug and automating the industries from natural resources to finished product.

Within this, our four entrepreneurial divisions, each either number one or number two in their field are driving growth through our high approach of penetration, innovation and expansion. Here are some examples, in Power Grid, our Power Up program is driving market penetration and expansion.

A highlight this border is the $150 million agreement just announced with Ørsted formerly known as DONG Energy to connect the worlds largest offshore wind farm to the UK power grid. ABB will be the supplier of grid integration and ABB Ability Automation solution is part of a five year long framework agreement.

In Electrification product, we are driving penetration of high growth sectors, such as data centers, EV fast charging and food and beverage. We have recently announced the global strategic alliance with HPE and Rittal for secure edge data center solution.

Our recent collaboration on a turnkey infrastructure software solution for the ultra energy efficient Lefdal Mine data center in Norway shows the potential of this alliance. As process industries showing signs of recovery, industrial automation will be working with China's Yitai group in a series of projects to digitalize operations with ABB Ability in greenfield coal, all the way to chemical plant.

And in Robotics and Motion, we are expanding our innovative robotics solution portfolio with the announcement of the acquisition of AB Rotech, an experienced supplier of robotics welding solutions for the automotive sector in Turkey and south-eastern Europe. Now let's go to Slide 14.

Our leading ABB Ability Digital Solutions portfolio is integral to driving growth in our divisions and momentum is building in a very encouraging way. Put simply, it comprises software solutions for domain specific value added and utilities industry and transport and infrastructure.

Already today our portfolio includes more than 210 of these digital solutions. This slide shows you how we are doing this, with examples of development in each of our divisions.

ABB Ability Distributed Energy Resource Management System or DERMS as we call it is enabling power grids customers who invest in renewables to better manage intermittent energy supply. The DERMS software and control solution provides real time information so that network operators can control thousands of assets and optimize performance.

This not only improves grid reliability, it also cuts this orders cost of energy supply by up to 25%. In Electrification product, one of ABB’s latest software solutions for low voltage switchgear ABB Ability MNS Digital was installed in the Batisoke Cimento at a recently modernized cement factory in Turkey.

With MNS Digital’s intelligence, a facility can achieve operating cost savings of up to 30% and lock in an approximately 20% reduction in electrical infrastructure investment. Moving on, at last month's Euro Mine Expo 2018 held in Sweden, we showcased ABB Ability mine optimize, the new software and control solution set to help mining customers achieve enhanced productivity, efficiency and safety in their facility.

For example, it can reduce ventilation energy costs, a large part of any underground operating cost at more than 50%. And with the new condition monitoring and diagnostics in our ABB Ability Connected Services solutions, we are using machine learning and artificial intelligence to better detect anomalies in robots.

Through better predictive maintenance and optimization the solution can achieve 24% reductions in downtime and 60% faster response time. These are just some of the many ways that ABB Ability today is adding value to our customers and strengthening the profile of our businesses, contributing to growth and driving profitability.

Please turn to Slide 15. As the global market leader EV fast charging infrastructure, we are proud to be a true pioneer in e-mobility and I would like to spend a few minutes on this today.

This is one of our most exciting market opportunities, as adoption of electric vehicles is substantially increasing around the globe. By 2030, an estimated 24% of new car sold globally will be electric.

This is the equivalent of up to 25 million electric vehicles being sold each year and a total of 100 million electric vehicles on the road in total. EV charging infrastructure will grow exponentially does the number of charge point installed in a year, expected to expand more than tenfold by 2030.

ABB is uniquely well-placed in the value chain of e-mobility. There are four key building blocks for e-mobility, renewables integration, transmission and execution grid upgrades, EV charging infrastructure and finally the electric vehicles themselves.

ABB is the global number one in three of these and working with OEMs of electric vehicles all around the world. We have made a promising start since launching as a start-up in electric vehicle charging market back in 2011.

As an example, in the second quarter we launched our Terra HP charger. The world’s first easy fast charge able to operate at power up to 350 kilowatt.

The Terra HP can recharge an EV battery about the same time needed to refuel a car's engine vehicle. It means about eight minutes for 200 kilometre reach refill.

We have recently received translating orders for his charger from Electrify America in the U.S. and IONITY in Europe.

With ABB ability, our fast-charging stations are connected via a cloud computing platform, enabling integrated vehicle and fleet data management and cashless payments, as well as remote services. In addition to our technological leadership, we have a broad installed base of more than 7000 fast chargers in 60 countries today.

Our reach as a group, we have a presence in over more than 100 countries and more than 30,000 service employees worldwide uniquely positions us to achieve rapid growth and support customers all around the world. Today ABB’s EV fast charging business is already roughly 100 million in size, while it has being growing at a high double-digit pace, our end to end global electrification offering, competitive positions are to benefit from the multiplier effect of increasing demand of electrifications through e-mobility infrastructure.

With our brand propositions reinforced through ABB Formula E, we intend to capitalize on our leadership position in the future. Turning to Slide 16.

A chart many of you will be familiar with we illustrate our approach to ongoing active portfolio management. As you can see from the chart, over the past few years we have continuously shaped our portfolio towards better competitiveness, lower risk and higher growth.

This was a very active period of transformation, but we would not say that our portfolio is now cast in stone. We will continue to shape ABB and constantly look for opportunities to shift our center of gravity to drive more profitable growth and further streamline and strengthen ABB.

The guiding principles of our actions will always be what creates the most long-term value for all of our shareholders. The purchase of GE Industrial Solutions illustrates this approach.

With the acquisition we increased ABB’s exposure to the world’s largest economy, the United States. Moreover, it strengthens the group's commercial profile in this very important market for electrification products division and alongside other portfolio actions, it adds early cycle exposure.

Now, let me hand over to my colleague Tarak Mehta to update you on the specifics of the strategic acquisition. Tarak, over to you.

Thank you, Ulrich. And good afternoon, everyone.

Please turn to Slide 17, where you can see, the slide where we first showed you at the announcement outlining the rationale behind our acquisition of GE Industrial Solutions. We are more convinced than ever by this proposition.

GEIS expands our access to the attractive North American market and provides a significant installed base around the globe and particularly in the U.S.. This was run like a non-core business by GE, but as part of ABB it strengthens our core and our number two global position in electrification.

It also offers significant potential for value creation. As key drivers of value potential, we see the injection of ABB’s leading technology into a combined and harmonized portfolio, along with the delivery of the cost synergies.

Together, GEIS and ABB will provide the most comprehensive electrification portfolio in the sector. Moreover, the agreement comes with a long-term strategic partnership, that supply GE with ABB’s leading products and solutions.

Slide 18 provides an update on the significant growth as we have already made, by preparing for the integration of GEIS. Since signing, we have completed a very extensive regulatory approvals process, closing the transaction has committed at the end of June.

We have created a new electrification for our business unit, named EPIS and appointed Stephanie Mains from GEIS as the Unit Managing Director. The leadership structure is in place and we have focused on retaining key staff from GEIS as an important part of this process.

The clean team preparing for the integration has planned how to implement the transition from day one. They work closely with GEIS to identify their resources required to secure the targeted synergies and they have developed a comprehensive plan for infusing ABB’s technology and ABB Ability solutions into the GEIS portfolio.

In the period between signing and closing, we look closely at how to create the best of both worlds and we have set clear performance target in line with the acquisition business case. This extensive preparation has put our integration well on track, with EPIS and ABB already receiving first joint orders, we will continue to build on GEIS’s deep customer relationships, while bringing its performance up to peer levels.

Please turn to Slide 19, which revisits the significant value creating potential of GEIS financial terms. We continue to see great potential to harmonize the joint portfolio, optimize our footprints and create cost synergies.

These include supply chain synergies and SG&A efficiencies. With the current pace of integration, we expect to realize around a $120 million in cost synergies in 2020 with the full $200 million run rate of synergies captured by 2022.

The profile is roughly six months ahead of our original expectations. The planned rapid pace of integration will frontload more of the cost into 2018 with $62 million of non operating costs already reflected in H1, as illustrated by Timo.

We expect approximately $480 million in further pre-tax, one-off costs from H2 of this year through 2022. Around 80% of these costs are expected to be non-operational.

Compared to our previous estimate, we also expect to realize around $130 million in reduced cash taxes over the same timeframe. In summary, I'm confident we will deliver the conformed cost synergies and will be back in our divisions to target margin corridor during 2020.

Looking further out, I'm also confident that we can achieve further the top line synergies from the GEIS’s significant installed base. Thank you.

And let me hand it back over to Ulrich.

Thank you, Tarak. And also thank you for your leadership so far on this important deal.

Slide 20 brings us on to relentless execution. With our [indiscernible] day program successfully completed last year, we are now driving towards world class efficiency and attractiveness within our four divisions.

We continue to deliver productivity improvements and cost savings through a systematic approach through supply chain management and the Lean Six Sigma methodology in all of our businesses. Let me illustrate it with some examples.

In Power Grid, our US transformer factory ran a successful design to value program. We then did the program to factories in Sweden wherein one of our high voltage factories this program reduced lead time by 67% and improved on time delivery, cutting inventories by 49%.

In electrification product, we systematically raised the standards with our projection in connection business unit across 12 sites to achieve a 50% improvement in quality performance and 22% increase in productivity. In Industrial Automation a full site program in our measurement & analytics factory in Italy saw a 30% reduction in lead time and a tripling of the Net Promoter Score as a customer satisfaction measure.

And our Robotics and Motion division used the Lean Six Sigma methodology at one of our motors factories in the US to increase delivery performance by 40% in a strongly recovering market. In all, ABB has 1500 continuous improvement projects within its four divisions underway.

This supports our ongoing aim of offsetting 3% to 5% of the group's cost of sales each year and providing superior service for our customers. This ongoing focus on productivity has contributed to the improvement you are seeing in operational EBITA of the group year-on-year, despite steady revenue and ongoing investments in growth.

On Slide 21, you can see how we create value from strengthening our global brand. More than a thousand trademarks has been consolidated into one ABB master brand and we are enhancing our brand positioning with strategic investments such as the sponsorship of ABB Formula E.

This quarter, the champion races were held in Rome, Paris, Berlin and Zurich, bringing ABB to thousands of consumers and customers in important markets. With these measures, we have increase brand equity by more than $2.5 billion in the period of our new branding was unveiled.

We have improved our reputation as digital leader, the ABB is now ranked number two versus peers and we have made ourselves an employer of choice for graduates doubling the number of job applications we received since the strategic brand launch in 2016. Let me summarize on Slide 22.

All our markets are in growth mode. Rising geopolitical uncertainties will require careful navigation, but we are global company with a strong and flexible global footprint and capable of meeting these challenges of our environment.

Longer term, the energy and fourth Industrial Revolutions offer substantial opportunities for demand in ABB's three major customers sectors, utilities industry and transport and infrastructure. ABB is well positions to tap into these opportunities.

Concluding on the second quarter, we continue to deliver profitable growth. Orders were up in all divisions and regions.

Our portfolio of ABB Ability solutions is driving growth. We have already made great strides with the integration of GE Industrial Solutions.

Operating margins have expanded and we have delivered double-digit operational EPS growth. Our focus will remain firmly on relentless execution to deliver profitable growth in the quarters ahead, as you write the future together.

Thank you very much for your attention.

Now, we will open the line to your questions.

Afternoon, everyone. Thank you for taking the question.

A couple quickly, just Ulrich on China. Obviously we can see a pretty nice sequential movement in the base orders, it was plus 12% last quarter, plus 23% this quarter.

Can you give us an idea how much of that is actually a sequential improvement in demand and how much is just a comp effect? Are you seeing an underlying kind of trend increase in China in 2Q?

And if so which industries might be - might be driving that? And then the second question, can you give us a little bit of help around tariffs.

This has become a bit of a topic today on some of the conference calls. Is there any way of quantifying for us what percentage of your - you know, your U.S.

production is sourced from China, even a rough idea. I mean, I’d assume that this is fairly low, what you know, some 10%.

But can you - could you give us any color on how your supply chain works from China into the U.S. for ABB?

Yeah. Ben, good afternoon.

Thank you very much for your questions. Now, look your observation on China is correct.

We have really nice China growth momentum and I think the move of China as a country and the transformation of China as a country and the key issues and actions on transformation in ABB’s portfolio fits really like a glove in these times. So there is a pick up on the overall momentum.

Yes, the comparables there also a little bit easier, but all together we see a pick up. And let me just run you through the four businesses what we are seeing out there.

If you take the Power Grid’s business there, we really are nicely up, but having said so from a low comparable last year mainly due to really solid base orders and grid reinforcement on digital, ABB Ability and on renewable integration. In electrification product, basically China was a good growth in the entire portfolio.

DC also some sign of recovery in the industry. However it still makes - on the one hand food and beverage is up, oil and gas remains low in China for electrification.

If you look at transportation, rail is good. If I look at buildings there is really dual growth, functional buildings such as hospitals and resource are quite okay.

Commercial building is a little bit slow and residential really suffers from the governmental restrictions on the building market. In industrial automation, good growth, here especially also B&R is doing very well.

We are super happy with the demand and robotics and motion, both parts, both the robotics and the transport is growing in a very solid way. Robotics, if you look at the amount of EV manufacturing that's coming up in China, very well positioned.

So all together, I would say a good market and good priorities in China that ABB fits very well. Look on the tariffs, let me just run you through a little bit.

We have in the moment tariff spread in the U.S., we had it in China, we had it in Europe and we have a team that’s basically looking at all of that to make sure that we are applying on site. That's what whatever is coming in and some of the news are coming really on a daily basis.

Secondly, we have our supply chain management clearly on top of all the topics. Now specifically, regarding the U.S.

In the U.S. we are pretty self-contained in terms of ready made production.

You might remember, we even opened up a robotics plant, not too long ago, so we can really do a lot self-contained in the U.S. The topic is more raw materials.

We have about 4000 people on the shop floor that are producing motors and transformers. Now for our highly energy efficient transformers and motors we need speciality steel and that specialty steel is not produced in sufficient quantity in the U.S., there's only one producer and he's full bled out, so there's no capacity available.

When you do that now - then you source, be sourced from Japan and Korea. And therefore this would be - would be impacted if we don't get an exemption.

It's very clear what our position is here. We want to have a level playing field.

If a country that there will be tariffs on imports we have to respect that. But our request is that at least that the raw materials and your ready made product get the same tariff at the same time, because otherwise it would mean that jobs are moving away towards the country that ready made products come from and we could also do that, we could ship into the U.S., but that would basically destroy the jobs that we have invested in in the last couple of years.

We have articulated that, clearly this government we have found open ears and good communication and we really hope that these uncertainties gets mitigated over the next couple of quarters that we enjoyed a pretty good underlying market in a positive way.

That's really helpful. I'm sure it's going to be a lot of follow-up.

So I'll pass it on. But thank you for that right now.

Thank you.

Thanks, Ben. We will take the next question.

Yes, thank you. Good afternoon, all.

Two from my side. Can we just again talk a bit about Power Grids?

I mean, having had the Power Up program now going on for some time, do you feel that you have the right set up here? Can you talk a bit about how you see the order pipeline evolving and looking into next year do we really think - do you really think you can return to growth there?

And the second question is on IA, which has continued to outperform at least my expectations on the margin. Can you talk a bit how you see the margin development for the second half of the year?

Thank you.

Yeah. I’ll start with Power Grid situation.

Look, in Power Grids, talking first, your observation on the order momentum. I'm really happy, I'm really happy that Power Grids in the quarter has grown both in total order, about 5% percent and in base order 7%.

That means also – we are starting to build backlog again in this business. You might remember the backlog got dampened by a couple of different effects.

One was a softer market, especially on large orders. Secondly, the massive change in business model and EPC and also some divestiture of activities, like the cable business that we had before that we got out.

So basically we are going through the backlog trough in Power Grids, we are building backlog with our goods book to bill that we see now and out of this that will also help us to get out of the revenue contraction situation that we still have experienced in the second quarter. If you look at the transformation that's going on, we already said we make the business first better and then we make it bigger and better.

The last couple of years was about making it better. We changed project and execution, we changed the way we ran the portfolio, we divested a lot of activities.

And we started investing into the future. Now, that the growth is coming in we really need to make sure we support the good growth momentum that's starting to build up.

Digitalization of the grid, if you take the new smart transformer, the ABB Ability enabled transformer that we launched in Hanover, honestly, even positively surprised how well the market took that. So the momentum is building service opportunities.

Look we have still $400 billion resale value installed base out there. And Power Grids has the lowest penetration in service in about 12%, 13%.

So we have a tremendous opportunity to do more in that one going forward. So with elements together we are confident that for the full year we will have the business back in the margin corridor and that we are building growth momentum and the orders that will ultimately result and also in revenue growth and helping us with the constitution going forward.

But industrial automation, just the high level and then I’ll hand over to Timo. Just one comment here on B&R.

We are very happy with the B&R acquisition. It's growing continuously double-digit.

Its result of the integration and the financial results are ahead of plan. So its good in the collaboration of the B&R colleagues together with the other automation teams, be it on industrial automation or robotics is really going well.

So that’s a good driver. The markets are coming back on the process industry, we see selective CapEx brownfield investment.

So altogether this is going into the right direction. I’ll let Timo now address the margin topic that you wanted to have also addressed, Tim?

Okay. James [ph] you know, we don't give the guidance directly, right, but I'll give some puts and takes.

So we had a very strong Q2 in IA, driven by positive mix, successful project execution and also cost savings and we also had some slight onetime impact on the quarter. And now when we look at the business going forward, we don't expect all that to continue to repeat itself during the second half.

And also we are moving to stronger order growth momentum here. The backlog as I said went from minus 8 to minus 4.

And when we are starting to get new orders in especially larger orders that they basically will take the proportionate amount of services down a bit and can have a negative impact to the margin. Of course, this then pull through some other products within will be positive for ABB overall.

So that's pretty much where we are on higher margin.

Thanks, James. We'll move on to the next question.

Good afternoon. Thanks so much for taking my question.

Could I just firstly follow up on China and on robotics specifically, some participants from your supply chain and some of your peers have commented specifically about order cancellations there and it sounds like primarily smartphones and maybe semi manufacturing related. But could you just confirm that whether you had any change in trend witnessed in China in robotics during Q2 and maybe splitting it between smartphone and industrial?

When you take ABB’s position in robotics in China, we are the market leader and we are market leader with a very specific business model that suits extremely well the Chinese environment. We have a solution based business model, where we help our customers to have to functionality easily installed that a robotics to have, some of our competitors are selling what they – what we call naked product that a customer needs, sort of engining resources themselves.

So that business model is super well suited to this specific situation in China. The second piece is we probably got the most localized team.

Our business there is led by Chinese management together with an entire Chinese team there. They have very, very deep long-term and forward looking relationships with the customers.

So we very often get involved very early in the process. Then customers think about how to design the factory and how to put in the solutions which gives us a competitive advantage as well.

We see solid demand on the automotive side, especially on electric vehicles. And I have to say that our position is a very strong one.

We are seen as a trusted partner somehow to ABB exposure to e-mobility and ABB’s background helps that also to be even more credible partner in that context. On the semiconductor side, on the smartphone side, on the smartphone manufacturing is one there really robots can make a differentiating factor to productivity.

Our solution offering again allows us to differentiate from one of the largest smartphone manufacturers in the world that has its base in China, but also extends globally. We have recently within half a year gone from planning a robot base assembly factory into installing the whole factory in between half a year with our brief productize and reconfigure solutions we were able to get a very significant factory up and running.

So I think our competitive advantage positions us well to continue to have a solid growth in China and maybe we experienced a little bit better than the one of the other competitor.

Thank you. And we will move on to the next question.

Hi. Guillermo Peigneux from UBS.

Thank you for taking my question. Just maybe an additional question on aftermarket.

We saw that the market - the market - the organic growth has slowed down during the quarter. And I was wondering the drivers behind that slowed down, if you could give some granularity around that?

Thank you.

Yeah. Good morning.

Thanks for the question, Guillermo. So on service orders, you are right, our service orders grew 2% during the quarter.

This is very isolated situation. So this is actually coming from color power grids where we had an unfavorable comp last year in high voltage business.

And when I look at the other three divisions, actually the service orders are growing very nicely and in line with or better than the other growth mark and also maybe just to highlight that our service revenues were actually up 13% during the quarter.

Thanks, Guillermo. And the next question please.

Yes, thank you very much. Yes, just two questions please.

Firstly, on market share, Ulrich, I don't know if you think in any of the major areas, whether it be your base order data, say this year on a rolling 12 months, whether ABB has either gained or lost market share in a notable area, I wonder if you could highlight that place? And secondly, on the profit bridge, we see net savings of I think $94 million.

I wonder if you could comment on the - you know the pricing trends that you're seeing where they're impacting, I know you mentioned in electrification, products division, is that helping robotics and motion as well with things like the larger motors and drive, a little bit coming on the pricing trends please. And also on the bridge, the other line I was surprised that was zero.

Normally it isn't. Maybe if team was to give a bit of an explanation what's going on and how we should think about that going forward?

Thank you.

Good afternoon, Mark. Thank you for your questions.

I’ll let second one be answered by Timo. Let me talk about the market share.

If you look at the base order momentum in the total order momentum it shows very clearly that we are growing ahead of the markets in our businesses. And I think that's a very encouraging signal for us.

All together, it also shows that our continued investment innovation, our strong focus on ABB Ability is really paying off and it helps us to differentiate. If I become a little bit more specific here, I think the Power Grids business in the last couple of years - the one that it becomes smaller because we said goodbye to certain activities.

But now you see the strengths of this business coming back in a market that may be growing 2%, 3% with a growth on total orders of 5 and base orders of 7. In the electrification product growth of 6% is clearly ahead of the market growth, then you take that global reach that we have that is good.

Industrial automation, I know that some people have come out with different messages about us. If you take the total order growth of 15% and base orders of 9%, it's very clear that we are taking share and that we are moving very forcefully and in especially our ability solutions and industrial automation go a long way.

And if you look at the recent survey it positions us as a number two in digital services. We are ahead of a lot of the competitors here.

In robotics and motion with a total growth of 11% and a base order growth of 16%. This is really good.

We are taking active shares. So all together, I think ABB is really firing on all cylinders getting the growth momentum up.

We are not everywhere, yet where we want to be on this growth momentum, but it's improving and coming out of the last couple of years together with an improving market. This is a good situation and you might remind just one thing during the transformation we increased our spending on R&D, we increased our spending on digital and still deliver stronger margins.

That means ABB really has a portfolio of highly competitive offering and we are basically launching every month exciting new capabilities and also drive sales in a much more structured way. With that, I hand over to Timo to give you the insights on the profit bridge that you have asked for Mark.

Okay. So on the bridge first of all when we look at the 94, so there are also some of the WCP savings on that line item, but when we look at how the savings from purchasing and operational efficiency are coming through, so they are coming through actually quite nicely.

And then when we look at the pricing environment, so we still have a headwind from commodity, but we have been able to push that better into the market and when we look EV and RM in particular, so there is stronger growth dynamics in the market, particularly in the RM and that also usually gives you a little bit more pricing opportunity on the market. So that's how that is developing.

In RM we are also – and you specifically asked about the larger motors, we are still having capacity, but less under absorption than earlier. So that business is also moving to the right direction.

Then if we talk about the other line being zero, so this is actually a pure coincidence. That doesn't mean that it could not come back later as being a driver here and we just simply had some less of this, smaller items what have constituted as of this time like provisions and some other such items, so that's really the driver there.

But as I said it doesn't mean that it will be zero from here forever, that's why we actually left the data as a piece of the bridge.

Thanks, Mark. Next question please.

Thank you, good afternoon. This is Martin at Citi.

Just a question on GEIS, so thank you for the update on the integration. In terms of - there's a lot of market chatter that the business had deteriorated before you sort of keys and took over ownership, just to confirm it is starting point to profitability in line with what you expected?

And just as a sort of a follow up or a part of that, when you talked with the guidance for the second half, it looks like you gave me a slightly bigger headwind to the - to the divisional margin because of the GEIS deal. Is that just because of the phasing of the public line charges or is it because the underlying business is perhaps less profitable to start within what you originally thought?

Thank you.

Martin, good afternoon. Why I don't we handle it the following way?

I would ask Tarak to give you a little bit of flavor on what he see is in the business and how sees the integration ramping up. And then I would ask Timo to run you through the numbers on that situation.

So Tarak, please give us an update on what you see in the business and how the integration has started.

Thank you, Ulrich. We spent some time with the team now, two or three things come out very clearly, the people of GEIS are very strong, the relationships with customers are even stronger, but it's also very clear we need to do homework in terms of the performance of the business.

So we work together with the team of GEIS to put together a comprehensive plan that I describe. In terms of the starting profitability question, we see it slightly lower than what we had thought through originally.

But in terms of the overall scope and the opportunity we still see - we're still quite enthusiastic about the potential of the business. On specific with respect to your question on profitability, I hand it over to Timo.

Yeah. Thanks.

So basically when I look at this now purely from the finance equation perspective, I would still call this that we are broadly on track regarding GEIS. So when you first look at the revenue line, it's on track and we expect about $1.35 billion to come in the second half, in line with our earlier expectation.

We said in the beginning of the year 110 to 130 basis point impact for full year for EV and we are now seeing to 60 basis points for second half for EV and bit more than this during Q3 and bit less during Q4. And it is fair to say that running profitability is slightly lower in the beginning, but in the beginning we also have some special items which we now know impacting like change in revenue recognition for example.

If you look at the implementation costs, we also have a bit higher implementation cost, but we have already taken part of that - part of that during first half ’18. And we also have a clearly bigger positive cash tax impact than we estimate data inception about 130 million.

And I said we confirmed the plant cost synergies now six months earlier. So that's where we are on the question.

Thank you, Martin. And we’ll move on for another question.

Yes, good afternoon. And thanks for taking my questions.

Firstly, on software, Ulrich, and you talked lot about Ability solution and how it's picking up, and I appreciate that and also the partnership you have with Microsoft, you talked a lot in the past. I mean, over the last couple of quarters you had in Q1, I guess, MSN doing a partnership with Aspen, you had in just the recent quarter Rockwell partnering with PTC, and obviously Schneider is ramping up with its deals.

How do you see generally the likelihood and the need for ABB to do more partnerships in the software, beyond maybe with the partnership that you have with Microsoft there? And secondly, Timo, you talked a lot about the bridge already.

But in terms of the investments in digital or generally the incremental investments, I think you started splitting out as of Q3 '17 in the bridge. And so in the next quarter, we're starting to comp obviously these incremental investments.

How should we think about that headwinds in the second half? Is going to be zero or is it going to be still negative?

And then lastly - excuse me, Ulrich, I mean, you - I thought when I heard you on press calls this morning and also on the analyst call now, you've been a bit more pronounced when you talked about the portfolio not being cast in stone, and naturally I had several incoming questions this morning with regard to Power Grids again, and I remember well you comments in 2016 when the strategic review was done why it remains part of the portfolio. But maybe you could just reconfirm on the call just in the long-term commitment to Power Grids that would be appreciated?

Thanks a lot.

Yeah, Simon, let me go through these questions one after the other. Let's talk about software first.

When we talk about software we need to remember that ABB is offering today is more than 55% already software base. So we have leadership in what we call embedded software, if you take our drives, our robot control, we have very, very strong.

If you looked at our power [ph] portfolio its now moving in terms of software capabilities. We have now breaker's that can control the entire micro grid through a software solutions.

So I think on the embedded software ABB is very strongly positioned and well underway. Then if you take the control software piece, they’re really the combination of our historic strength as the number one in distributed control software.

The B&R offering has closed the offering and we have now both machinery and factory automation software control, as well as the factory [ph] process industry. So I think in that second package we are well positioned as well.

The third package is application software. In an application software you basically help to plan to build and to operate better.

If I start at the end of that in asset health, in asset health and our industries we are really a leader in mining, we are a leader in the Power Grid space and we are expanding asset health very quickly into the robotic space. They are already expanded in the B&R space.

So they are pretty well positioned there and get going. On the planning side, if you take reasonably one of our key projects – that’s a project that I mentioned before, we have some major mobile phone producer to set in half a year to set up an entirely new factory.

We stimulated that new factory which is a robot driven factory with our robot studio software and got that going. On the PLM side, we are partnering with others.

So I think application software that could be one or other acquisition coming in, but we don’t - we are not desperate to have that. And then the fourth bucket is software platform.

If you take software platform, we have the partnership with Microsoft all together globally on cloud and just going super well. It also helps us with cybersecurity because cybersecurity is today a clear differentiating factor combining our capabilities, as Microsoft's, you see one or the other competitor now copying that model because it's very, very powerful.

On AI, the partner on the one hand is IBM, but also with smaller players to really get that going and drive that. And the third part on platform is really the partnership with HPE and Rittal on the edge side where we are one of the few or basically the only large scale industrial player that can provide edge solutions for cloud services through hardware and software to industrial customers and get going.

So I think we have a good strength together – all together on the software path. We have growth it very strongly, as you see ability is really off to a strong start.

The customers love it. We have a very different approach than most of our competitors here because we go from a solution based where we combine domain expertise but mostly software and application and engineering know how, which really differentiate us and create a lot of value to the customers.

Now let me hand over to Timo for his second first and then I'll come back later on this portfolio.

Yeah, okay. So quick one on the investments to growth.

So as you see we are at approximately the same level as where we were in Q1 sequentially and of course because these are mainly big cross type of investments, so you don't ramp them up or down that quickly, so we would expect that this would continue around these levels. So I check your point that was $49 million Q3 last year, so compared to that we would expect it to be a bit higher.

But then if you look at the content of the number we would expect that the digital will continue to grow. And the other items may be go down little.

And then taking your last question on Power Grids and portfolio, we took the decision in 2016 to maintain the business. You might remember at that time a lot of people said this business might be worth $4 billion $5 billion.

If you look at the business today, we’re on track for about $1 billion profit in this business, we have turned it around, its growing again. So I think it's much, much room to day and it proves to be a good decision that we have kept it in the portfolio.

Now in the last couple of years these are really, really active, not only this Power Grid, but also this other elements of our transformation and we did a lot of things in terms of active portfolio management already. But we would not say that our portfolio is now cast in stone.

We will continue to shape ABB and we will continue as we look forward opportunities to shift the center of gravity of our company and really drive more profitable growth and continue to streamline and strengthen ABB. The guiding principle, will be as in 2016 always to what creates most value long-term for our shareholders and that applies for the entire portfolio.

Thank you, Simon. And next question please.

Yeah, good afternoon, Ulrich, Timo, Tarak and Jess. I have a few follow up questions on GEIS.

Your gave the revenue number for the second half of the year. It's very helpful for our models, given that we don't know seasonality of this business souls in terms of profitability first half, second half, maybe you could help us a little bit, what kind of a full year run rate is for that business?

And the second question on GEIS is on the split of the cost of the integration costs are a bit higher, but you also saying not at 80% or below the line versus 50% when you announced the deal. And on the back end it was $200 million earmarked for investments into the product offering and similar things which are kind of operating in or not and not restructuring charges.

So what happened to that $200 million number given that you basically maintained the message on the 2020 margins for the division? But now have lower costs above the line.

So I just tried to reconcile that? And the last question around that is the key purchase commitment for four products.

It seems less clear from GE that there's a clear commitment here to buy from you. Can you maybe elaborate a little bit?

What exactly is that commitment from GE to purchase from you? Thank you very much.

So, Jeff [ph] good afternoon. Thank you for your questions.

I’ll quickly address the purchase agreement and then I’ll hand over to Timo on the financials. Now look we agreed as part of the value proposition to acquire this business to acquire substantial purchase agreement between ABB and GE, historically has always been a very important customer for ABB across a wide range of our offering and they continue that pattern going forward.

We are expanding it in the context of the supply agreement. For competitive reasons we are not disclosing all the details on that one, but it is something that naturally will be developed now going forward.

And the teams are already having the first meetings to really safeguard and make sure that we get rolling in that direction. With that said, I hand over Timo for your other questions on the financial model on GEIA?

Yeah. Thanks, Andreas.

So first of all on the top line seasonal seasonality there is not that huge seasonality here on the top line. So the overall is pretty close to this 2.7 what we looked at - announcement of the transaction and as I said we expect approximately 1.35 for the second half.

Then if you look at the overall cost, so it's natural that at this point in time after working through clean teams and all that we have a better visibility to the overall cost picture and also to the overall accounting picture. And that just have simply led to a treatment which we can now see better, I mean, at that point in time we looked at it could be approximately 50/50.

But we will naturally continue on the plan to transition very fast to the ABB product offer that's one of the key value drivers of the deal, so that part has really not changed.

Thank you, Andreas. And we'll take the last question now.

Hi, good afternoon. I have two questions.

First can you give us an idea and what percentage of your facilities in terms of manufacturing serve more than one division, that's my first question. And the second one related to that sort of, can you rank in terms of internal links between your divisions, what are the strongest and versus the weakest interlinks?

And the third question is unrelated to these, but relates to the automation side, industrialization. Can you guide us through which end markets have better margin profile within the division that would be great?

Thank you.

Okay. Look, Daniela, thank you very much for your questions.

And I might disappoint you on the answers with some of them because for competitive reasons we are not disclosing all the details how we run our global supply chain and where we produce or what. But in terms of which business supports what, if you take the Power Grids business, the Power Grids business is focused on providing all the activities and all the products and systems that you need to run the grid between the power plant and the substation.

There is some demand in Power Grids coming from partly from electrification products, its relatively small part, the rest of it is pretty independent. If you take in industrial automation, industrial automation buys, on the one hand from Tarak electrification solutions both for the industries base, but also for example for the marine base.

So that's the most significant relationship here, but also industrial automation buys in a quite significant way motors and drives from the robot and motion division and integrate them into overall solutions. I would say the strongest versus from the other divisions is industrial automation that we see today.

It's clear that that execution product also buy some of the transformers that come out of the Power Grid division, so there is a relationship between these activities. Now on the margin profile, we are happy with the margin accretion that we are seeing at the moment.

And our ambition is very clearly to have a good mix between highly profitable and more and more early development markets. If you take our end markets, it's clear that markets that are more at the beginning of edge curve, like e-mobility, micro grid space is not yet as profitable, I am happy that e-mobility is a breakeven.

So that's a good one. We go in the right direction.

And then you have the different majority. In general our service business is a very attractive business, which is the greatest in all of the divisions through their percentage of activity.

But other than that we are not disclosing any further details on that.

Thank you, Daniela. And with that we'll bring to a close today.

Thank you very much to everybody for joining us today.