Seeking Alpha
We cover over 5K calls/quarter
Profile| Send Message|
( followers)  

ABB (NYSE:ABB)

Q3 2010 Earnings Call

October 28, 2010 8:30 AM EST

Executives

Joe Hogan – CEO

Michel Demaré – EVP, CFO, and President of Global Markets

Analysts

Mark Troman – Merrill Lynch

Andreas Willi – JPMorgan

James Moore – Redburn Partners

Simon Smith – Credit Suisse

Johan Trocme – Nordea Securities

Colin Gibson – HSBC

Martin Wilkie – Deutsche Bank

Michael Hagmann – Nomura

Thomas Baumann – Neue Zurcher Bank

Alfred Glaser – Cheuvreux

Martin Prozesky – Bernstein

William Mackie – Berenberg Bank

Samson Edmunds – Goldman Sachs

Operator

Good morning or good afternoon. I’m Stephanie. The Corus call operator for this conference. Welcome to the ABB third quarter 2010 results analyst and investors conference call, hosted by Mr. Joe Hogan, CEO. At this time, I would like to turn the conference over to Mr. Joe Hogan, CEO of ABB. Please go ahead, sir.

Joe Hogan

Thanks for joining us for our discussion today for the third quarter 2010 results. As always my comments in this call can refer to the presentation that you can download from our website at abb.com.

Please refer to chart two for our Safe Harbor text covering any forward-looking statements made today.

I’ll start with a summary of our third quarter performance on chart three. We continued to take full advantage of the global industrial recovery in the third quarter with excellent orders growth, higher revenues and thanks to our cost takeout programs, strong earnings as well.

Orders for the Group increased by 18% local currency, a clear reflection, a clear acceleration compared to the 5% increase we saw in the second quarter of this year. Both base and large orders were higher in the quarter, including a large multimillion dollar power order in July to connect an offshore wind farm to the German grid. That was by far the largest order won by Power Systems division ever.

Demand for energy efficiency solutions and renewable energy was a notable driver of growth this quarter. The three automation divisions each reported strong double-digit orders growth ranging from 25% in Low Voltage Products to 39% in Discrete Automation and Motion.

The parts of our Power business exposed in industrial production such as medium voltage equipment and distribution transformers also reported higher orders in the quarter.

Utilities spending in power transmission equipment, however remained muted, a trend that we expect to continue into next year. While our revenue growth was modest, it represented a return to positive territory after five consecutive quarters of decline. Furthermore, this growth was generated from a lower fixed cost base as our $3 billion cost takeout plan continued to yield significant benefits, about $350 million in the quarter. As a result, we were able to post an operational EBIT of 14% this quarter compared to 13% a year-ago.

Chart four gives you an overview of the key figures for the quarter. As I mentioned, we saw strong orders increased in the quarter, a good portion of that can be attributed to the offshore wind order I mentioned a moment ago. I’d also like to highlight the operational EBIT which is reported EBIT adjusted for unrealized gains or losses from derivative transactions as well as restructuring related costs.

This quarter, we had a positive impact from derivatives of about $80 million and a small negative of $20 million for restructuring. In comparing our year-on-year performance, remember that we reported a $430 million net gain into EBIT from provisional adjustments to the third quarter of last year. If you exclude that impact, operational EBIT this quarter is up 6% versus the same quarter a year-ago. Those provision adjustments also positively impacted our net income last year, so making the same comparison net income this year is 18% higher.

Let’s move to chart five. Here we see some key data at the divisional level. As I said earlier, we saw some order recovery in the short to medium cycle parts of our Power Products of business. At the same time, it’s clear that globally, utility CapEx for higher voltage power transmission equipment remains at low levels, which is reflected here in Power Products orders. Still it looks like we’ve reached the bottom on the power distribution side.

In the EBIT column, the Power Products margin has declined by about 1.5 percentage points since last year, as volume and price declines could not be fully offset by a favorable product mix in cost savings of about a $100 million. Power Systems continues to work through a solid order backlog and that’s reflected in their revenue growth in the quarter. The EBIT margin of this division however is just below the low end of their target range. This is the result of the price erosion on orders taken last year as well as some negative product mix effects.

We had additional cost associated with our cables business. As we discussed last quarter that these were offset by the release of provisions related to the business in Russia and to the recently announced settlement with the US Securities and Exchange Commission and the Department of Justice.

Turning to the automation businesses, Q3 results are extremely encouraging. Orders were up strongly across the board in our short, mid, and even some longer cycle end markets. With excellent revenue growth on a lower cost base, the Discrete Automation and Motion and low-voltage product divisions, both turned in an outstanding EBIT performance.

Process Automation revenues show who this business is still later in the cycle and it will take some more time for the order growth we’re seeing in the past two quarters to follow through the revenue. However, Process Automation also showed some expansion in operational EBIT margin, mainly on a higher share of product and services revenues, as well as the benefits of cost reductions.

In chart six, you’ll see the development of orders in more detail. These orders were again up in all divisions except Power Products, and were up by 20% or more in each of the automation divisions. Large orders were also higher, up 32% compared to the same quarter of 2009. As a result, large orders accounted for 20% of total orders in the quarter, the highest level since the beginning of 2009.

The increase in base orders in Power Systems is normally a positive leading indicator for utility capital expenditure, but it remains unclear when we can expect to sustain recovery in this area. It was also encouraging to see a 13% increase in service orders in the quarter, led by a 20% increase in the Discreet Automation and Motion divisions.

Turning to chart seven, here are some of the areas where we saw a positive demand developments in the quarter. Obviously, the large wind power order we won in Germany is a big plus for our renewables business and we expect to see more offshore wind projects being awarded in Europe.

We also saw a good increase in solar related orders, especially for breakers and switches, and for control products from our Low Voltage Products division. Emerging markets were another positive when it comes to automation, with orders up 36%, as customers continue to ramp-up industrial capacity and as the construction activities continue to grow. I already mentioned the growth we saw on our short cycle portfolio. And we saw our service revenues outgrow total revenues, up 11% in the quarter.

Chart eight gives you an update on our Power business. I’ve already mentioned the improvement in the power distribution side versus continued weakness in power transmission. We're selling more medium voltage equipment like the switchgear pictured here for Power Distribution applications in various industries like minerals and metals.

Demands for large power transformers and high voltage equipment which is more typically used in big transmission developments remains muted. However, tendering activity in our Power Systems division remains at historically very high levels. Once again it’s hard to say when some of these big projects will finally be awarded. But this will obviously benefit the product businesses later in the cycles, and we are confident that we’ll take our share of that business when it comes.

Chart nine presents an overview of orders by region, and you can see how automation orders have led growth in most areas. Power in Europe is obviously impacted by the large offshore wind order in Germany. But even excluding that order, we would have seen Power growth in Europe. Asia showed a good overall improvement, higher in both Power and automation, while the Americas had a mixed comparison, mainly because of a large order we won in Brazil last year. The Middle East and Africa saw some decline in automation, because of a few large Process Automation orders compared to last year.

Let’s turn to chart 10 for more details on the orders by country. Brazil, as I mentioned, recorded a large AC/DC order last year, that was not repeated which accounts for the order decrease in Power. Automation however continued the growth we saw in Q2, partly due to increased customer spending in our mineral sector.

Germany is also very positive story; thanks to both the large Power Systems order, we also has had solid growth in automation that reflects Germany’s continued robust industrial performance. India enjoyed some recovery from its weak Q2 performance and saw automation orders come back at double-digit pace. Power orders in India declined slightly in the quarter, with an increase in PS offset by a decline in PP. Finally, China had another quarter of growth with automation orders up strongly and growth in Power Systems probably offsetting a decline in Power Products.

Let’s take a closer look at China and India in chart 11. There have been some concerns about these two important markets recently, so we wanted to provide you with a brief update there.

Starting with China, we saw double-digit orders growth in the third quarter, driven by very strong demand in our automation businesses as well as an improvement in Power Systems. This mainly reflects the continued high-level of investor activity in China for ABB is in a great position to meet growing demand for increased energy efficiency and process quality.

For example, we are in the top three in China in Low Voltage Products and number one in low-voltage drives and low-voltage systems. So we expect to continue to benefit from China’s industrial growth. Overall, therefore, the increases on the automation side were more than enough to offset the continued order decline in Power Products in China.

Again in the third quarter, this was mainly the result of local competitors becoming more active with our biggest customer state grid. However we are starting to see some positive impacts from our mid segment strategy in Power Products and we’re expanding that to other parts of the business. We also continued to expand in areas like traction transformers and wind generators.

The government’s new five-year plan is being rolled out and is focused on areas like industrial efficiency and process quality, alternative energy and electricity vehicles clearly played a many of ABB’s strength. So our overall view on China remains positive. Competition is tough in some areas, but there are still plenty of opportunities for profitable growth in areas where ABB is the market technology leader.

Turning to India for a moment, here also PP saw some decline along with Low Voltage Products. Again the overall portfolio however generated order growth in the quarter compared to the 40% decline we saw in Q2. One quarter is never enough to draw a long-term conclusions, but we continue to work hard in India to become more competitive, both to meet domestic demand with locally designed products as well as positioning the business to become a bigger exporter of both products and services. So here too, we remain upbeat about the longer term perspective.

Chart 12 shows how we’ve maintained ABB’s operational EBIT margin within our target margin range. We’ve been able to achieve these good results during the downturn, thanks primarily to the success of our cost reduction program. I’ll come back to that in a moment. But an additional factor is the strength of our portfolio over the cycle.

If you look at how the EBIT has changed since the beginning of 2009, automation needs that was already suffering significantly from the economic downturn, but Power still had some strength to partly compensate. Today automation is driving the earnings and helping to keep us in a target range as we wait for the Power cycle to rebound.

Chart 13 shows you how the various divisions lineup on their EBIT margin targets. You can see Power Products is comfortably within its range, despite the downturn in demand, and the price pressure that they’ve experienced. They’ve done a great job of mitigating these impacts with their cost out initiatives.

Power Systems division won’t get to this minimum 6% EBIT margin target this year, however the cost overrun associated with the subsea cable projects that we’ve discussed in previous quarters puts the target out of reach. Discreet Automation is also held up well through the downturn and is now making full cycle of the growth opportunities coming from the economic recovery.

Drives, motors and robotics were all enjoying solid growth, the Low Voltage Products division is clearly outperform right now, demand is robust and because they were among the earliest to takeout cost when the downturn hit, they are seeing the biggest benefits today in leveraging that improved end base cost. Process Automation continues to deliver within its target range and has been a steady performer. Cost savings have also been key in PA, in Process Automation, in every quarter, the second highest level of savings so far this year after Power Products.

Chart 14 shows our EBIT bridge versus the third quarter of 2009. First, the operating leverage we’re getting in Discreet Automation and Low Voltage Products resulted in the positive impact of about a $120 million for the volume component of the bridge. As you’ll recall, this was a negative $90 million in the second quarter.

Price pressure remains roughly where it was in the second quarter, close to 3% of revenues. This is mainly in two Power divisions. The project margin column is smaller this quarter as we get our hands around some of the execution issues in Power Systems. There is a column called Sales and R&D, where we've seen some significant cost increases to support the growth we’ve experienced on the automation side.

There was no material difference in this category in the second quarter which is why we didn’t show it then. We have small plus from the product mix with more higher margin product revenues driven by the short cycle industrial recovery. Last but not least, cost savings in some $350 million was more than enough to offset the price pressure. So once again, our great execution on cost has been a major contributor to our overall margin performance.

Turning to chart 15, let’s take a look at the cost takeout program in more detail. Starting with the contribution from footprint and operational excellence initiatives, we are ahead of schedule in these areas. We continued to make progress in the third quarter in global sourcing and G&A cost reductions, contributing a total of about $170 million to the bottom line.

However, the pace of improvements slowed slightly compared with the second quarter, which mainly reflects the shift of large parts of our automation business back to the growth mode. This is a tougher environment and which should take out supply cost and aggressively reduce G&A expenses.

However, thanks to our outperformance and operational excellence in grid trajectory and our footprint initiatives, we remain confident that we’ll make the $3 billion target by the end of the year. On the cost side, we can see today that total cost of the program will be below the $1 billion we originally estimated. Cost in the third quarter were just about $20 million, and we now expect from a $150 million to $200 million in the fourth quarter.

Chart 16 takes you through some of our cash and balance sheet metrics. Cash from operation showed its usual seasonality with a return to plus a 100% of EBIT in Q3. This is mainly the result of timing of head settlements in corporate revenue and improved cash flow in our divisions. There we see an increase in net working capital to support growth as well as payments related to the restructuring program.

As a result, divisional cash flows are mainly lower this quarter. Still we are generating good levels of cash and we achieved a net cash position of $5.3 billion at the end of September. Even including a dividend payment of $1.1 billion and $950 million used to increase our ownership stake in ABB India to 74%. So no change in our very strong financial position.

Looking ahead on chart 17, we see no significant changes in the outlook compared to last quarter. Emerging markets will continue to be key growth drivers and we are extremely well positioned to benefit from this. We expect continued growth in our short cycle businesses as the global economy continues to expand. And renewable energies and service will provide further growth opportunities in the coming quarters.

On the Power side, we’re seeing some recovery in power distribution which we expect to continue. Power Transmission demand however remains weak and we still don’t have great visibility on which will recover. Finally, when it comes to industrial CapEx which is especially important for our Process Automation business we see a two-speed development. Customers in the emerging margins are stepping up capacity expansions and moving ahead faster than many of their counterparts and mature economies, but we expect to continue to focus on improving the efficiency and productivity of the existing capacity.

In sum, ABB is well positioned to capture a ton of growth opportunities, with our lifecycle businesses seeing the main benefits starting next year. So to conclude, we had another strong quarter with higher orders, revenues and operational EBIT. We continued to execute our cost takeout according to schedule, and our cash generation and balance sheet remains among the strongest in the sector. We have a lot of growth opportunities in our business and we’ll pursue those actively, while continuing to be vigilant on cost as we head into the last quarter of the year.

That concludes the formal remarks. I’d like to thank you for your attention. And Michel and I are both here to answer any questions you may have. Thank you.

Question-and-Answer Session

Operator

First question from Mr. Mark Troman, Merrill Lynch. Please go ahead, sir.

Mark Troman – Merrill Lynch

Yes, thank you. Good afternoon, Joe and Michel. It's Mark here from Merrill Lynch.

Joe Hogan

Hi Mark.

Mark Troman – Merrill Lynch

A couple of questions. Obviously Power Products is the area still under some pressure. I wondered if you could give a bit more color on – you talked about distribution transformers picking up a bit. A bit more color on what you think about – how you think about this division recovering in terms of global end market demand.

And then maybe on the second point, on the market share, I think it's clear that China has been a problem. Is it really there where the market share has been lost or is it outside there as well? So I'm trying to get an idea of how your performance in Power Products is going versus the overall T&D market.

And just a final question on your profit bridge; you introduced the sales and R&D costs. I wasn't clear whether that was in the previous bridge and wasn't listed or whether that's a new element. But the main point of the question is do you think you can still get a lot of – I guess margin leverage out of further volume growth on the automation half of your business, and maybe give us a sense of some utilization. Thank you.

Joe Hogan

On the Power Product, I know that’s a lot of questions that are going on out there. I think within the Power Products division we certainly have a medium cycle part to the business when we look for it. So I’d say it’s earlier longer term and that’s the distribution side whether it interfaces with industrial applications and so that’s where distributor transformers are also medium voltage comes in also. We’ve seen that pickup. But it's not the utility customers' CapEx that necessarily drives that.

And so – what’s that mean for the business? It’s helpful, because it’s a significant part of the business. It is a good early indicator these historically that that leads before our other parts of our business come through. And so Mark, I don’t know how much color you want in that, but I mean we see that in the United States, we see that piece in China, we see that plays in different years, but I don’t want to mislead you, that’s an industrial interface primarily, it’s not a CapEx utility interface, and so we’re still waiting to see that part of our Power Products portfolio come through that would be utility driven.

On the market share side, yes, you're right. When you look at market share, we don’t have any kind of significant loss in the market share that we can see outside of China and even within China, it’s all really basically with the state grid and has to do with transformers, it doesn’t have to do with high-voltage switchgear, it’s mainly on the transformer side. But I would say that we’ve had some strong competition out there, but I would say when you really pin it down, China Transformer State Grid is the primary component of market share loss if you were concerned with that.

On the profit bridge, I’ll let Michel handle that.

Michel Demaré

Yes, Mark on the profit bridge, so far we never mentioned selling and R&D, because basically there was not major differences compared to last time. As you know, it’s not part of the savings programs, that was only focusing on the G&A part of these expense.

But it just happens now that we feel that it is a wildcard especially in the automation business to put more sales people on the ground on one side and also for the whole company to invest more in R&D and especially it is R&D that can help us design products to better compete with these Chinese and the Korean competition.

And so, yes, we have been increasing R&D this quarter to an extent we felt later to be mentioned on the bridge, because it was more material. So it is the first time that we have such a difference.

Mark Troman – Merrill Lynch

Okay, thank you. And just one quick follow-up. In terms of the Power Products division, do you envisage more restructuring in that area or how do you think about that going forward?

Joe Hogan

We’ve never stopped restructuring in our division Mark, we won’t stop, and we have to adjust costs with volume.

Michel Demaré

It’s clearly the division that is most challenge for the moment, so it still has a number of programs to execute, yes.

Mark Troman – Merrill Lynch

Okay, thank you very much.

Operator

Next question from Mr. Andreas Willi, JPMorgan. Please go ahead, sir.

Andreas Willi – JPMorgan

Good afternoon, gentlemen. I have a follow-up question on the earnings bridge, first. Where do we see changes in commodity prices in the earnings bridge? And maybe you could give us some indication how that's affecting ABB in Q3, and maybe also going forward.

On the price declines which year-on-year have gone up a bit relative to Q2, maybe you could give us some indication of the sequential change, because we don't really have all the data for last year.

And in terms of Power Products, maybe you could explain us a bit more in terms of what's going on in the mix in that division, whether that also explains why Q3 underlying EBIT was about $100 million lower than Q2 on a $100 million lower sales. Thank you.

Joe Hogan

Andreas you had some pretty big financial questions, so I see Michel is working hard over here, so I’ll kind of do a commercial for you for a while. That’s about the sequential change in pricing. Rene and Michel would give that to you to. On the Q3 EBIT, what exactly is going on between Power Products, I think what you’re talking about is Q2 this year versus Q3 this year, is that right?

Andreas Willi – JPMorgan

Yes, in terms of the – it's about $100 million less EBIT and $100 million less sales, and I just wondered whether on top of price and the impact of the volume decline, is there also mix changes that maybe help to explain some of the high quarter-on-quarter variations in profitability?

Joe Hogan

Yes, there are. Andrea there are some mixed changes. It depends on how you want to quantify mix. I mean there are some jobs that will roll through some times, it could be the same product like high-voltage kind of a product that comes through at a higher price versus another one. That would be mixed based on price mix between products. Also when you look at medium voltage as being one of the larger components versus high voltage that carries a higher margin sometimes you can get negative or positive mix depending on how those things go through channel.

Michel Demaré

First, these things like medium voltage hits the revenues much faster than high voltage, just [inaudible] so when medium voltage picks up you see the mix in fact much faster.

Joe Hogan

Yes, so there is a mix in here Andreas.

Michel Demaré

And what is your question on commodity for the EBIT, not part of the bridge itself. Basically if we have an increase of commodity cost and that we’re unable to [inaudible] in terms of price, it impacts the change in EBIT for one quarter to the other.

So what we try to explain here which is what do we get from high or low volumes, what do we get from the pricing of our own products, but if the raw material costs goes up and remember that the savings that we register we have excluded commodities from that, we are just working on the normal other products. So if commodity starts having a negative impact, these will explain part of the fact that the EBIT margin is different than it was in the previous years.

Andreas Willi – JPMorgan

But it would still need to show up in one of the different bars you show? I mean, let's say commodity costs are now $100 million higher than in Q3 last year, would it then basically reduce the volume leverage or –?

Michel Demaré

Yes, it would reduce the volume leverage and the price leverage as well, because it drive one with the others. So it’s kind of embedded into that and explains the difference of EBIT from one quarter to the other.

Andreas Willi – JPMorgan

Okay, thank you.

Operator

Next question from Mr. James Moore, Redburn Partners. Please go ahead, sir.

James Moore – Redburn Partners

Yes, good afternoon, everybody. It's James Moore at Redburn Partners. And a couple of questions if I could; one on R&D and sales. The $17 million headwind; will that run for the next three quarters, because you're just at a higher running rate?

And secondly, some questions on pricing in Power Products. I get the impression that Power Products has been the deterioration on year-on-year price. If it's 5% to 6%, let's say, is it possible to give us a feel as to where the pricing pressure is worse at the moment and what the range is between, say, power transmission down to medium voltage? And also, do you have any visibility on fourth quarter and 2011 Power Products pricing?

Joe Hogan

You want to handle the R&D and sales on the bridge.

Michel Demaré

Yes, okay, the R&D sales I think this quarter especially we had a few specific R&D projects that came to completion, so I think it was a little bit over blip, I don’t expect so much more in Q4. But I think for the whole year with the R&D expense is probably up 6% or 7% compared to last year. In terms of sales expenses, well, I think we’re running for the moment slightly positive. This trend will probably continue that on the full-year base I would expect to see your sale expense up 2% or 3%.

James Moore – Redburn Partners

Okay.

Joe Hogan

And James on the pricing side, I think if you look at the price down that we had in the quarter, we know that about 60% of that price down had to do with the Power side, and about 40% of that price had to do with the automation side. So we will kind of land it up that way to figure out what the differences are.

If you look, I don’t a lot of visibility going forward. Michel and I watch closely, but the margin is coming in on orders, so that we can anticipate it there is going to be a material change in someway. And so we haven’t seen a huge change in that piece.

I remember volume, and there are some mix, as Andreas asked in last question, they come in at times. So the Middle East continues to be a very competitive marketplace. If most of the orders that we get come from the Middle East. You’re going to see a lot of pricing pressure in that sense. You’ll start to see things come back in Europe, in different parts of United States. We don’t see as much pricing pressure in those cases and we’ll see higher margins.

And so it’s going to really be – a lot of it has to do with how these economies develop and what kind of capital expenditures that we’re going to see from the utility standpoint will dictate a lot in the sense of what kind of margins we’re going to see on Power Products as we go into 2011.

James Moore – Redburn Partners

Can I just follow up there and say if pricing pressure sustains itself in Power Products, would you do some kind of restructuring actions within all the charges that you've taken or would you have to make an additional program that would be broken out like the last one?

Joe Hogan

We do have more restructuring in the queue for Power Products. We know exactly what we’re going to do when we’re going to do it. And so I would say that is – we’ve had these plans in place for each division depending on what kind of volume we see and we’ll continue to execute on those until we see a marketplace. And in fact if you dig down into Power Products we have those restructuring plans whether it’s transformers, it’s high voltage, or medium voltage, we know exactly where we need to go.

Michel Demaré

Yes, and James remember that, before we started this $3 billion cost saving program, we always had restructuring going on. We had a guidance to say at least 0.5% of restructuring cost every year for the company, we say between 0.5% and 0.7%. So that will continue. It won’t be affected for the whole company, probably automation divisions are far beyond that point now, but for sure, Power Products needs to work more, and to really work at getting even a better footprint and a better product design than what it has to be.

James Moore – Redburn Partners

Sure. Thank you very much.

Joe Hogan

James, the last thing we’d tell you to is I think years ago, we gave a margin corridor for Power Products of between 12% and 17%. We’re seeing it here at it’s 15%, and it really – in the depth of this whole recessionary piece. So I think the teams will be able to juggle that one pretty well and you should take some comfort that we’ve been able to restructure and be able to be competitive within that range and to keep that business in good shape.

Michel Demaré

And we also clearly indicated in Q2 that the 18% was not sustainable, so I think you are more back to normal margins here.

James Moore – Redburn Partners

Okay, thank you very much.

Operator

Next question is from Mr. Simon Smith, Credit Suisse. Please go ahead, sir.

Simon Smith – Credit Suisse

Hi. Thank you for taking my questions. I had two main questions. One was, in terms of the Power business, clearly you've seen here the pricing pressure come through from orders that were already in the order backlog. And I know that in some of the areas that have been most aggressively competitive in terms of transformers, they are the longer lead time parts of that business.

And I just wondered if you could give me some impression as to how much more would have to come through from that backlog in terms of the transformer side in terms of price pressure. And sort of maybe, dovetailing into that, what we could maybe expect in terms of a sort of price component in Q4, whether on easier comps, we should now expect that to ease or whether we should expect something similar to what we've seen. So that was my first question.

And the second question was really, a comment that you made in your introductions, about the mid-market strategy in China. You were saying that you've already seeing some successes there. I just wondered if you could maybe give some details on what you've done there and maybe how that has seen an improvement.

Joe Hogan

Simon o the first part, on the backlog from a transformer standpoint, remember the transformers is a pretty diverse business. And so when we talked about our distribution transformer business showing some at least bottoming out or showing some upside, that helps us. And that helps us see the price pressure kind of moderate there and that should help us going forward if we can see that kind of sustainable growth.

It’s the large power transformer piece that is the longest cycle part of the transformer side and we continue to see pressure out there on it. But we have a mixed backlog of products that we’ve taken recently that has a – some of them have a good margin, some of them don’t, and then some of them that are longer that have higher margins. So it’s hard for us to tell exactly when those peel off and what’s going or what it’s exactly going to be.

But I would appeal to you to try and understand and I think you and I’ve talked about this before that, when you look at this transformer business, try not to make it look like it’s all large power transformers, it’s not. And if the distribution comes back faster and this continues that’s going to help this business in a significant way. But again it depends upon what we see in the United States and also if China which are our – and India which are our distribution transformer side.

On the mid-market piece in China, I’d tell you probably the biggest example is in our medium voltage switchgear side. There is two combination to that. One is having a competitive product that’s designed and engineered in China, because we see in China that you have these incredible product development cycles that are three times as fast as what you have in the western world. So you really have to have good engineering and manufacturing on the ground to service that demand.

Secondly, the channel strategy in China for that particular product is really important when you get into middle market, you have to have the diverse channels all over China. And we’ve been able to develop that over the last – really last year or several quarters.

We’re turning that experience over to our transformer side as we try to move from being almost cap to state grid to having more exposure China, moving from engineering capability over there in those business too that gives us more flexibility from an engineering and manufacturing standpoint to do that.

Simon, I also tell you in low voltage, and we’ve had the same kind of experience in China and also in motors where we have really world class businesses, Process Automation where we have number one positions that are really based on these mid-market strategies of strong engineering on the ground, they have their own autonomy, their own trajectory, how they can interface with the marketplace.

And then our manufacturing capabilities so they can respond, use local materials and really be competitive. And that’s where we’re moving both the high-voltage business and also the transformer business in China to help them to make that model.

Simon Smith – Credit Suisse

Thank you. And Michel is it possible to give a sort of guidance as to how pricing pressure would play out in the fourth quarter in the bridge?

Michel Demaré

Well listen, at this stage, if we look at the old margins and the backlog and new orders there is nothing dramatic out there. So I think and in fact you see the two – I mean on a year-to-date basis the operating margin of PP is down by 1%, 1.5% from a level that was a three-week high last year. So you can still have a little bit of a drift, but as I said before, to me PP remains a solid 15% type of a margin business.

And I think for the moment, there is enough offsetting forces like Joe mentioned, distributor transformer, even power transformers maybe starting to pickup components, dry transformers, that medium voltage that can offset the price pressure we see especially on the Chinese markets, both in transformer and in high voltage, so nothing dramatic. I think that we should expect a total collapse.

Simon Smith – Credit Suisse

Okay, thank you very much.

Joe Hogan

Thanks Simon.

Operator

Next question from Mr. Johan Trocme, Nordea Securities. Please go ahead, sir.

Johan Trocme – Nordea Securities

Good afternoon, Joe and Michel. Two questions for you, please. First of all, just to avoid any misunderstanding, you mentioned specifically in this third quarter report that the competitive pressures have started affecting orders. Shall we read that as ABB having turned away from orders because of pricing pressure, because those wouldn't be attractive enough from a margin point of view or is it something else that you're trying to describe there?

And second question, maybe Michel, if I could just ask you to update us at least in general terms of what the net currency exposure situation looks like for the Group. There's been a fairly significant amount of change to your footprint just over the past couple of years, and what do your major exposures from a currency point of view consist of at the moment?

Joe Hogan

Johan on the competitive pressure side, I – again I wouldn’t see any real more difference in the sense of what jobs that we decide. We want to really deny in the sense, because we see that there is pricing pressure there in jobs that we take. I mean we’ve always been very discriminate in the sense of what we take and what we don’t.

We see a lot of those jobs today big in the Middle East and depending on what country you are in the Middle East based on your terms and conditions. There sometimes it’s not the pricing of the component that it turns us away, we just don’t like to Ts and Cs. And what we the inherent liability are, and we do walk away from those at times.

But I would tell you there is not a material difference in the sense of what we’ve said yes to and what we’ve said no to. You just might see more of it centralized in some regions of the world where the growth is now rather than the United States in Europe spread out before.

Michel Demaré

For sure as well, the fact that our backlog margins are still it’s in acceptable level is also because we are still active and that we don’t take any kind of orders in the books. So we are for sure from time-to-time losing a little bit of volume. But I think it’s a sound way to operate for the moment, so that we keep all margins at acceptable level.

In terms of the currency exposure, you’re right, with the footprint movements that we have done in the last years, we have obviously moved some of our cost base from euro denominated to Swedish krona denominated, into more the dollars zone. If you still accept the principle that emerging markets are more in the dollar zone. So it’s good in a way, because it has offset the weakness of the dollar that is still our major revenue currency, since we also sell a lot in the Middle East and US dollars. So I think it has slightly improved the overall positioning of the company.

Now on a pure operational exposures, we are hedging order commitments suppose in terms of projects and in terms of future cash flows that’s why you see it is pretty high fluctuation of derivative impacts every quarter, but I think it shows again how volatile it can be, and the fact that this policy I think helps stabilizing our EBIT margin toward the quarters.

Johan Trocme – Nordea Securities

And would it be fair to say Michel, that from a very general perspective, ABB would still be overrepresented in its cost base in euros, so if there's any exposure there, it would be that?

Michel Demaré

It’s fair to say, it’s less than it was a year or two ago, but I would still say that euro is the major cost component, euro and Swedish krona.

Johan Trocme – Nordea Securities

Okay, thanks very much.

Michel Demaré

You’re welcome.

Operator

Next question from Mr. Colin Gibson, HSBC. Please go ahead, sir.

Colin Gibson – HSBC

Thanks very much. Hi, good afternoon. It's Colin Gibson from HSBC. A couple of questions please. The first on orders; first of all, just going back and looking at the order growth in Discrete, I mean it was 24% already in the second quarter, it's now 39% in Q3. Great performance. So could you just give a bit more color on what – which products it is that are starting to fly off the shelves, which geographies it is, which apps it is? Just a bit more detail really on that pretty remarkable performance.

And secondly, just going back to that PS tender backlog slide on chart 8, we saw a big step up in Q2 in the tender backlog and we've held in there pretty well in Q3. And I'm wondering to what extent that backlog leap up in Q2 was a result of just one or two very large competitors going in. And if they're still pending here in Q3, whether then there's a risk that we can back down in, say, Q4 or whatever, as those tenders are in fact awarded. So that was the first question.

And then secondly –

Michel Demaré

That was two questions, already.

Colin Gibson – HSBC

Well, two quick ones. Everyone else has had a go, so I thought I will. And then my second and a half question is regarding Chinese competition. You've had – you obviously, you're one of the companies in the sector which certainly has been struggling with some Chinese competition over the past year or so.

We've seen something very interesting this week, which is a big Chinese infrastructure firm, it's CLCC taking a $500 million hit on a contract in Saudi Arabia, a rail contract in Saudi Arabia. Do you think that's symptomatic of the terms and condition that the Chinese, and maybe to some extent even Indian firms are trying to do business on overseas? Do you think there are more risks out there? Thank you.

Joe Hogan

Colin on the Discreet Automation and Motion side, a 39% orders piece, the big drivers there are robotics drives and machines, real big ones that we’re seeing now. Drives really had its biggest orders month ever, I believe when we went – when we came out of September, so that continues.

When you think about drives, you’re thinking about energy savings, you’re seeing motion application and those kinds of things that goes with. Robots too, I think you know how depressed the robotics business was last year. We threw a lot of restructuring behind it. It’s come back very strongly and we’re in good position to be able to serve that marketplace and both out of our Chinese production and Swedish production too.

On the PS tender backlog, large orders come in and out of that all the time. Sometimes we get them and then retire them and they’ll become part of our real backlog, other times we missed. There are some large jobs out there. We talked about in the wind order that we had in Germany recently, we see a lot of wind orders coming up, some of those are represented in tender backlog and some of those if they come through will show up in that backlog also.

So I think what to look at there Colin is and this is what Michel and I look at too is, this is a high tender backlog. You’ll see it go and down, but it’s maintained a very high level over the last 24 months. It’s actually higher really than any other time in its history and it does show you the large number of projects that we see out there for PS and things like stacks or static bar compensation in HVDC.

On the Chinese competition piece, look, I – that’s kind of an EPC that you’re talking about. I mean I think you can look at Indian EPCs and they made these mistakes. Korean EPCs made them when they first started going in the marketplace.

Often they don’t have great understanding of Ts and Cs, hedging currencies and those kind of things, and you can get caught in this kind of a situation. I would say when we quote on those kind of jobs, obviously we’re kind of educated from a risk management standpoint and mitigation process.

And as I mentioned in the last call, the question is, there are sometimes on Ts and Cs we just won’t even go near those because we’re concerned about them. But I would tell you don’t write-off the Chinese, because they’ve made a mistake like that. If you look at the Koreans or whatever, they tend to learn based on that and continue to move on. So I wouldn’t necessarily say it’s [inaudible].

Michel Demaré

No, it’s also symptomatic of a biased market. Ts and Cs are much more difficult to negotiate than they were a year or two ago, the customers have much stronger request and define companies that are willing to accommodate for them. So it is a challenge from their perspective and maybe it will take a few accidents like this one for companies to draw the conclusions that they cannot be that aggressive on Ts and Cs.

Colin Gibson – HSBC

That's very helpful. Thanks a lot.

Operator

Next question is from Martin Wilkie, Deutsche Bank. Please go ahead.

Martin Wilkie – Deutsche Bank

Hi, good afternoon. It's Martin Wilkie from Deutsche Bank. A couple of questions. Firstly, on the low-voltage business, where obviously your margin has been exceptionally strong, and just if you could comment if you're coming up against any capacity constraints and so forth, that may require investment, and therefore, limit margin progression or if we should see that margin as essentially a new level that's possible within that low voltage business.

And then secondly, just going back to Power, on the Power Systems business, obviously you've talked about not being within the target range for the full year, but just to get an understanding, excluding the provisions, and obviously given that the margin was weaker in the first half, do you think the run rate of margin is now at the lower end of that range or are excluding what happened in the first half, are you now back in that sort of 6% or so range? Thank you.

Joe Hogan

On low voltage, Martin, I’d say we – if this thing is ramped up quickly, we’re seeing a lot of orders come in, we have developed a little bit of a backlog in that business, our low-voltage business that we don’t normally we have. But I’d say our capacity is pretty good. We invested in a significant lot of money during the downturn to really automate some capacity in different parts of the world to increase that and that’s helped us to be able to meet this demand.

We’ve had some issues, you’ve probably read about this with other companies with some electronic componentry that might not be readily available. These are things that aren’t real expense at times, it has become frustrating. Martin, like you capacity – small little capacitors, small little pieces.

We’ve been able to leverage the overall buy situation of ABB to mitigate that, and be able to get this components that we want. I’m going to be wrong for me to tell you that it’s not a – there is not a focus for us. And we continue to be try to make sure that we leveraged an overall buy as much as possible, so that we can get our fair or share of what’s available in the marketplace. But I wouldn’t say that is a pending big issue for us in the standpoint of view they’re outside supply or internal ability to produce right now and that’s a major concern for us.

Michel Demaré

Yes, and also in terms of our own capacity, I don’t foresee that we will soon enter into a problem. We have build a few new factories in the framework of this global footprint program and so in fact the additional capacity that we start using now is the capacity that is new and well established in countries like India and China for instance that is also helping a lot in this fantastic incremental margins that we see in low voltage at this time.

For your question on Power Systems, I would say yes. If you think that the Power Products system is getting back to a normal run rate and I would even say that we expected to even improve in Q4 which is traditionally a very strong quarter for Power Systems.

So you can see that in the previous years as well there is a lot of projects arriving to a certain milestones in Q4, so a better revenue recognition. So withdrew comps almost strong Q4 for PS, but still given the amount of project losses that they have done since beginning of the year, we don’t see them reaching the 6% for the full year, we’ll be close to 5% I think.

Martin Wilkie – Deutsche Bank

Okay, thank you.

Operator

Next question is from Mr. Michael Hagmann, Nomura. Please go ahead, sir.

Michael Hagmann – Nomura

Hi, two questions, if I may. The first one, I would really like to come back to what Andreas Willi was asking and what Simon were asking about the pricing element in the bridge. If you look back at those graphs over the last couple of quarters, we had a negative impact from pricing of about 300 in Q4 last year, and then if you add up the project margins and the price components over the last three quarters, we were in the range of 250 to 300.

Given your order backlog, you must know or must have a pretty good idea what the development is going to be in Q4, and maybe you also have some kind of a notion of what it could shake out to be during the first couple of quarters in 2011. And I think that's where we are coming from and that's where we are would kind of like to have some help. If you could give us some help, that would be really appreciated.

And the second one is on the cost savings. I was wondering if you could give us an indication on how cost savings in the quarter broke down between the different divisions. Thanks a lot.

Michel Demaré

Listen Michael, on the first one, clearly the price environment is not improving. So I think that what you experienced in the last couple of quarters I don’t see really a lot of reason for it to improve in the Q4. There is still the price decline that we see on all orders it's still slightly faster than what we see on revenue, so that impact should continue, and this is why also we need to continue getting this savings in order to deliver against it.

So I can tell you that for Q4, once we go beyond that, now that is quite difficult to say, because we still have a lot of book and bill sales as well, and on top of that if demand in the automation side of the business keeps going, I would expect as well as we will have to increase prices to reflect the fact that some of our component suppliers do the same, because of the shortage they are seeing. So the situation can change pretty fast. For Q4, I don’t expect an improvement compared to the kind of numbers we have shown in Q3.

As far as the cost savings are concerned, I don’t think that we disclosed this details by division. We have not done it in the past and I don’t think we should start getting in this kind of details. I think we more try to explain to you a little bit where we come from, the different categories of cost saving between sourcing and G&A. But we have not gone through our division details and I don’t think we should.

Michael Hagmann – Nomura

Fair enough. Thanks a lot.

Operator

Next question, from Mr. Thomas Baumann, Neue Zurcher Bank. Please go ahead.

Thomas Baumann – Neue Zurcher Bank

Yes, good afternoon, gentlemen. I have a question to Power Systems. Can you help here? I understand that you had a release of provisions that you mentioned in the press release, and against that, you had this $63.5 million payment with the US. Can you give us some detail at least what the net effect was? I understand it's a positive one in the quarter for Power Systems.

Michel Demaré

For Power Systems, I would say that in the quarter the additional cost that we had on some project slippage it was a little bit above $20 million was basically offset by a provision release that was related to this FCPA issue to some Russian VAT issues as well as just normal provision releases on contracts that were executed and had still a provision buffer left. So if you put all that together, it’s basically neutral.

Thomas Baumann – Neue Zurcher Bank

It's neutral. So we can – you're feeling that the margin shown is more or less the run rate?

Michel Demaré

Yes, I would say for a quarter, because also traditionally the run rate in the third quarter is low. But as I said before in Q4, you should expect a better run rate in that.

Thomas Baumann – Neue Zurcher Bank

Yes, that's my second question, related to that. That would mean that you had to get close to 10% in order to end the year with 5%. Is that what you're saying?

Michel Demaré

No. If I’ve not mistaken, let me see. I think that last year for instance we were close to 7%, 7.5% on the adjusted basis. And you have also pretty high revenues in Q4 if you look to what you have this time. We do expect both from an order, revenue perspective, quite a jump in PS in Q4, just because we know the progress of some of the projects we are working on. So I don’t see 10% if you consider the kind of revenues that I’m thinking of. But it would take something close to it.

Thomas Baumann – Neue Zurcher Bank

Okay. Thank you very much.

Operator

Next question from Mr. Alfred Glaser, Cheuvreux. Please go ahead, sir.

Alfred Glaser – Cheuvreux

Yes, I had two questions on – one, on emerging markets. Could you give us the total growth rate of the order intake in the emerging markets in Q3? And the other question relates to low voltage business. You have done a very impressive quarter in Q3 again. After your Q2, you basically said that we shouldn't expect such high margins to continue. Do you change your outlook now on low voltage, assuming that these very high levels of margin can be sustained going forward or should we expect that at some stage that there will be kind of a fallback of these margins?

Joe Hogan

On the emerging markets piece, Michel is looking it up, but if my memory serves me correctly, I think emerging markets are 36% for the quarter.

Michel Demaré

We haven’t calculated the compound, but I can give you a few example, China is up 13%, India is up 3%, but I think the problem here is, Brazil is down 74%, because last year we had this very large HVDC project in Q3, so obviously they can’t take comparison. That’s why overall emerging market the outlook is good this year as it was the other quarters, but it's just because of our large projects. But 13% in China, given all the questions that you guys had before about China, still shows a very robust position that we have the – and the automation business has more than made up for the pricing positions we’re seeing on the Power side.

Alfred Glaser – Cheuvreux

And do you have the total share of emerging markets in the total order intake in Q3?

Michel Demaré

Let me see if we have that. Have we calculated that the total share of emerging markets in the total? It might be that we haven’t yet calculated that, Alfred. But my intuition would be less than 50%.

Alfred Glaser – Cheuvreux

Okay.

Michel Demaré

Because we had very strong quarter in the US when we’re up 37%, and we had an extremely strong quarter in New York as well where we’re almost up 50%.

Alfred Glaser – Cheuvreux

All right.

Michel Demaré

It was revenge of the old economies this quarter.

Joe Hogan

Yes, and big order comparison. On the low voltage business, the margin sustainability, I think – and we’re obviously pleased with the 20.8% that we’re reporting right now. In the short term, we feel good about that business where the margin is, it’s hard for us to comment exactly what’s going to develop competitively in the longer term right now.

But at least in the shorter term, we feel pretty good about the sustainability of that. Obviously, it's going to have a demand component on here. It's going to be important in our ability to be able to maintain these productivity rates that we have based on the restructuring actions that we took on plans in employment during the downturn.

Alfred Glaser – Cheuvreux

All right, thank you.

Michel Demaré

You’re welcome.

Operator

Next question from Mr. Martin Prozesky, Bernstein. Please go ahead.

Martin Prozesky – Bernstein

Good afternoon, gentlemen. A few questions, please. On the service business, you mentioned pretty strong growth I think it was 12%. Is that a reflection of the strength of the Discrete Automation and Motion business, the robotics, and software associated with that or is that broader based? First question.

And secondly, on the very strong tender activity, are you seeing a difference in the mix of the types of projects that are being tendered on? So are there more high tech HVDC offshore and [inaudible] compensated projects in there, was the mix similar to what you would have seen three, four years ago?

Michel Demaré

Well, let’s say, yes, lately for sure. There have been a lot of large orders in the HVDC segment especially related with this wind offshore parks, while three, four years ago, I think we had much more substations projects to work on. It has been a little bit quieter on the substation front lately. But there is still a couple of things coming.

But we have also still quite a lot of HVDC at this stage to not only new opportunity, we are considering a few projects in the US and then Canada that obviously increases the scope quite a lot too, so it pretty diversified. And probably more high tech related than it was two or three years ago.

Joe Hogan

And more offshore wind we see too then. On the services business, I think we’ve got the 11% and 12% that you’re talking about. It's – Discrete Automation and Motion, I know had a really strong services quarter overall. Some of that is going to be consulting software and those kind of things. But the majority would be break and fix and things that we’ve been focused on over the last – yes, in the Ventyx also which came in, our acquisition comes a predominant mouth of that revenue comes in a services tube which helps that number.

Michel Demaré

But we see as well for instance quarterly resurgence of service activity in the turbo business or from Process Automation, and so that helps as well, because it’s a – it is a positive business in terms of margin contribution too.

Joe Hogan

Yes, and I’d say in DM also robots is a – we’re seeing big orders in robotics, but also a lot of work from a maintenance standpoint and a services standpoint there too.

Martin Prozesky – Bernstein

And then maybe one follow-up just on the early cycle businesses and the components freight [ph] issues. Are you seeing other pressures in the value chain, pricing, or maybe pressure on working capital because of the supply constraint with your payment terms and things deteriorating?

Joe Hogan

No, I don’t think it’s – we’ve obviously had to build some inventory in order to help these businesses to ramp up, so that’s been a negative on working capital. But I don’t look at this thing as a material change in a big way.

Michel Demaré

No, let’s say our net working capital as a percent of revenues is about 1% lower than it was last year. So the thing we are holding it quite well under control. Obviously there is some requirements in terms of inventory which we are trying to also compensate that by being tougher on the payment terms with suppliers. And so far we have managed to balanced it out quite okay.

Martin Prozesky – Bernstein

Okay, thank you.

Joe Hogan

You’re welcome.

Michel Demaré

So answering the question of Alfred Glaser before, the local country order intake for this quarter was 44%, emerging countries order intake, so that was the big change. Last quarter – same quarter last year was 57%. But then, again, big part of that is that a year-ago, we had this big HVDC project in Brazil, and this time we have a big one in Germany, and that makes a big difference.

Operator

Next question from Mr. William Mackie, Berenberg Bank. Please go ahead, sir.

William Mackie – Berenberg Bank

Yes, good afternoon. It's William Mackie from Berenberg Bank. A couple of questions for you. First of all, going back to the restructuring and savings element of the business, when you look into Q4, could you perhaps provide a little bit more detail on where you envisage the $150 million to $200 million of restructuring to be allocated, given it's almost twice what you spent year-to-date?

And then, you mentioned earlier in the media call, that you would anticipate some of the savings, the run rate of savings in 2010, also rolling into 2011. So what type of benefit do you envisage in terms of the savings element of the plan actually flowing through in 2011 as a delta against 2010?

And then coming back to the service side, across the Group, you've mentioned that the level of service growth, and particularly within Low Voltage Products I think you highlighted it at 20%. But from my recollection, Process Automation is the division where about 40% of revenues are linked to service, and yet we've not heard at least what type of Service growth you're seeing in that division. So it would be great if you could throw a bit more light on the rate of service growth within Process Automation.

Joe Hogan

Yes, William, I think – on the restructuring side, Michel.

Michel Demaré

Yes, on the restructuring side, I think the two divisions that will take the most of this spending will be Power Products and Discreet Automation, where we still have specific progress to make especially in terms of a footprint, so that will be the major ones.

In terms of giving you an idea of the run rate for next year, no we won’t give you that, because the issue is also that it has not really become a bit of a different program for each of the division, so we’re going to include in the budget for next year. It is clear that we are looking again at a year that we have to be able to juggle the challenges and still deliver an EBIT margin within this corridor expectation that we have that will take some fine tuning division by division, but we’re not going to give any feedback on this now, because the program officially finishes at the end of the year.

Joe Hogan

And PA service.

Michel Demaré

Okay. PA service growth, I don’t have the number here in front of me. The thing is that what we have done in PA, clearly it has been a good quarter in terms of mix, so they had less systems and more products and service to look for.

As you know we have mentioned that a few times that we have done quite a cleanup of some of the full-service contracts in PA that had for a while a negative impact on the top line of service, but also with a better impact on the bottom line.

Now, the traditional life cycle services, as well as turbo, is picking up, and so I know that the development was positive. We’re working towards 11%. So it was in total 11%, which is probably a combination of a more than that in terms of last cycle and a decline in terms of full service.

William Mackie – Berenberg Bank

Great. Could I just ask a follow-up regarding the tender backlog, which is in relation to the last question? When you look into your tender backlog for Q4 and the year – well, across the tender backlog – is there a great divergence with regard to geographic split? Are you seeing many of those tenders that are in that backlog coming from the Middle East and Asia, which have been sitting there? Or is it more skewed to Europe?

Michel Demaré

In Q4 for sure, we do expect a few Middle East projects to materialize. Middle East has been a bit weak in the last two quarters. In fact there is a lot of tendering activity, so that should happen. For the rest of – so we expect quite some things to happen in North America. So I think that would be the two geographies where I would expect to see the more materialization of some of these tenders into real orders.

William Mackie – Berenberg Bank

That's great. Thank you.

Operator

The last question for today is from Mr. Samson Edmunds, Goldman Sachs. Please go ahead.

Samson Edmunds – Goldman Sachs

Good afternoon, guys. Just two questions, please. The first one, just on the $82 million derivatives gain, I was wondering if you could give – just give some details on that, whether that's sort of normal hedging gain or something.

And then the second question was just on your balance sheet. And you've done a couple of billion dollars worth of acquisitions. You paid $1 billion in dividend. Your net cash position is sort of broadly unchanged. So you're kind of demonstrating that you've got enough cash flow in the business to do quite chunky bolt-ons. I'm just wondering if there's a point at which you start to think about returning cash or how you think about the balance sheet, what sort of financial [inaudible] you want. Thank you.

Michel Demaré

Okay. On the derivatives, that is now Samson that you see every quarter shows a little bit of volatility of the markets as I said before. We have a policy to hedge all of our cash flow and especially the cash flows coming from project. Now hedge accounting is a very complicated science.

For instance, the conditions that you need to put together in order to qualify for hedge accounting are very restricted. We have a project for instance change in terms of timing of the different maturities that you have in the cash flows. You are losing the qualification for hedge accounting and then you have to take an immediate impact.

You would not be able to analyze the results, if we don’t, we classify that, that’s why we divulge that separately, we disclose it separately. Now, $82 million seems to be a high number for a quarter in this, but year-to-date for instance it’s an impact of negative $56 million. So after a while you can do catch up as these hedges do get realized. But quarter after quarter you may have some differences there.

Joe Hogan

On our cash position, I mean this cash – the cash that we’re generating right now is really top in the segment, I mean we’re well aware of it, we continue to look for ways to deploy that cash.

If we talk about restructuring activities, it is always a big one, but I’ll make sure that we have as I stated many times a consistent dividend policies that you can depend on. And then we look at inorganic opportunities that continue to exist out there and we’ll pursue them. We also know that there is dividends in stock buyback as part of cash allocation that we can consider too. And Michel and I consider that and we discuss that on a Board level all the time.

Samson Edmunds – Goldman Sachs

Okay, thanks very much.

Joe Hogan

Yes.

Michel Demaré

Thank you.

Joe Hogan

Okay. We want to thank you for joining us. Again, we feel we had a strong quarter, with the 14% EBIT, and strong orders, and also return to growth from a revenue standpoint. We look forward to talking to you again after the fourth quarter and reporting on the entire year. Thanks again for your support and for participating.

Michel Demaré

Thank you, bye-bye.

Operator

Ladies and gentlemen, the conference is now over. Thank you for choosing the Chorus Call facility and thank you for participating in the conference. You may now disconnect your lines. Good-bye.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY’S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY’S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY’S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!

Source: ABB CEO Discusses Q3 2010 Results - Earnings Call Transcript
This Transcript
All Transcripts