Good morning, ladies and gentlemen.
Thank you for joining our media conference call for the second quarter 2006 results. With me is Michel Demaré, our chief financial officer.
ABB continued to deliver strong results in the second quarter of 2006.
We are clearly benefiting from the strong global demand for improved power infrastructure, increased industrial efficiency and the need for energy savings.
On top of that, our efforts to further improve our business performance continue to pay off.
Orders were sharply higher in almost all divisions and regions.
Good performance in four out of five divisions, the right attention to non-core activities and a continued focus on corporate cost control helped us achieve a strong EBIT and EBIT margin in the quarter.
We were able to increase our total EBIT by 73 percent and our EBIT margin also rose sharply to 10.7 percent from 6.5 percent in the same quarter a year ago.
Our net income more than doubled in size.
These are impressive results.
The two product divisions, Power Products and Automation Products, showed a strong performance in Q2 both with regard to volume development and operating margin.
In our Power Systems and Process Automation divisions, improved project quality and execution contributed to improved margins.
The Robotics division continued to take steps to improve its operational performance.
Market conditions, however, remained weak, with both orders and revenues declining in the quarter.
As a result, and as we said after the first quarter results, the Robotics division’s profitability remained depressed and is not likely to recover before next year.
Ladies and gentlemen, despite the significant growth in bookings, cash flow from operating activities increased in the divisions in line with their earnings development.
On the finance side, we continued to strengthen our balance sheet in the second quarter and we are now in a net cash position.
We have moved into a net cash position of $302 million compared to net debt of $427 million at the end of the first quarter.
Going now into a little more detail, orders were up sharply in all divisions except Robotics, as I already mentioned.
Revenues were also higher, although growth was more modest in our two systems divisions.
Revenues were up double-digits in our two product divisions reflecting both higher volumes and higher prices in some product areas, like transformers where we have successfully passed on higher raw materials costs to the market.
Revenues were down in Robotics following two quarters of lower orders in a weak market.
The good growth in Power Products and Automation Products contributed to their healthy EBIT margins in the quarter and clearly helped our overall profitability.
I would also point out that we increased our earnings and margins faster than revenues in Power Systems and Process Automation.
This is the result, as I mentioned earlier, of the higher quality of project orders in the backlog and our growing ability to execute them well and keep the profit.
The fact that revenues do not yet match the growth in orders reflects the time-to-cost of large orders and has a positive effect on our order backlog.
Orders are booked at full value in the quarter we sign them but we only recognize the revenues as the projects are being executed, which may take several quarters, in some cases, even years.
Clearly, we expect this gap to narrow in the coming quarters.
Turning to asbestos, that issue is now almost at an end. As you know, we made the Combustion Engineering plan of reorganization effective in April.
I am happy to say that our plan for ABB Lummus Global was affirmed by the District Court last Friday, July 21.
Assuming there are no appeals - and we don’t expect any - the Lummus plan should be finalized by the end of August.
To conclude, here is our market outlook for the rest of 2006.
The picture remains positive. We have a very strong order backlog and market conditions remain favorable.
We expect demand to continue to grow both in the power infrastructure and industrial automation sectors.
Regionally, we again expect good market developments in Asia and North America, and Europe should also continue to grow.
Whether we can sustain the exceptional growth rates in order intake we experienced in the last two quarters, remains to be seen.
The fact of the matter is that we don’t need such high growth to maintain a consistent improvement in earnings.
The basic risks to our business have also not changed.
Price volatility in oil and other commodities could present challenges, both in terms of end-market development and our cost base.
And the situation in the Middle East continues to create considerable uncertainty.
Last but not least, we need to take care of the considerable volume that we now have in the pipeline and convert it into profit and cash flow.
Ladies and gentlemen, to summarize: We continued to deliver strong results in the second quarter, building on the good start we made in Q1.
We are clearly benefiting from the global demand for improved power infrastructure and increased industrial efficiency.
Our efforts to further improve our business performance continue to pay off.
ABB has a healthy balance sheet, the strategic position to create success, and we look forward to a solid second half.
With that, ladies and gentlemen, I’ll open up now for questions.