Q3 2020 Abb Ltd Earnings Call
Good track record.
Throughout the call with 19 pandemic, our top priority has remained the health and safety of our people.
We continue to monitor the development closely.
And we are well prepared to adapt our operations to deal with these challenges.
Lastly, as them Timo will explain in detail the divestment of power grids has significantly strengthened our balance sheet and we are carrying out our share buyback program as planned.
Let's move to slide four.
Showing abbey's regional and country order trends in comparable terms.
Influenced by them pandemic demand decreased year over year in all regions. Despite a strong rebound in China.
In the Americas orders were 11% lower year on year with most countries reporting lower order levels.
The United States declined 12% compared to last year.
Moshus orders were robust in the U.S., but electrification and robotics and discrete automation was subdued and.
And we saw a step fall in the industrial automation.
In Europe orders were 10% lower year over year with mixed performance at the country level.
And lower levels in the large orders in June.
In Germany orders were 14% lower with.
With electrification remaining resilient.
Broadly northern Europe, count did well while demand in the south in Europe was subdued.
Orders in Asia, and the Middle East and Africa had an overall decline of 2% year over year we.
Weakness in Iowa, and electrification was part.
Partially offset by robust orders in motion and Ari.
In the us market remains strongly impacted by COVID-19.
China growth was solid with orders rising 8% year over year, driven by improved domestic demand.
Our ace orders were particularly strong in China, but electrification emotion also grow well there this quarter.
So let's move over to slide five for a quick summary of the results.
Compared to the same period last year orders were 8% lower revenue.
Revenues declined by 4% on a comparable basis.
Our operational EBITDA margin at 12% was up 30 basis points year on year.
The margin includes roughly 80 basis points of negative impact relation to the casino project in South Africa.
And in addition, there was a negative impact of 130 basis points for non core business activities.
As you can see without this impact margin would have been in the 13% to 16% the target margin corridor for the group.
Basic EPS at the two dollar 14 was including the impact of the over 5 billion gain for the sales of power grids recorded in discontinued operations.
Cash flow from operating activities was $408 million, including a 273 million negative impact from cash flow outflows flow of the facilitate the transfer of certain pension plans to third party insurers.
This compared to the 670 million in cash generation for the same period last year we.
We continue to expect the resilient cash flow delivery for the full year.
And with that I will hand over to Timo to cover the quarter results for the business areas. Thank you demo.
Thank you Karen and good morning, everyone welcome to todays call from my side as well.
On slide six I will begin with electrification electrification orders were 5% lower weighted by a decline in large orders, even though short cycle activity showed good resilience overall buildings were somewhat mixed depending on geography oil.
Oil and gas activities declined materially.
There was healthy momentum in distribution utilities, datacenters food and beverage wind rail and E mobility.
Revenues were 2% lower dampened mainly by demand decline in the longer cycle business, particularly in the U.S.
Electrification operational EBIT margin of 16.3% improved 210 basis points year on year. This.
This reflected solid solid business performance, while also including around 100 basis points of items that may not repeat.
Good cost mitigation and support the pricing actions helped offset the impact of lower volumes.
The exit of solar inverter business and to improve performance from installation products as well as GE is integration support bid margins.
We are pleased to see electrification comfortably within its target margin corridor for the quarter.
There is still a way to go before we see it is reflected in the full year margin results, but it's a strong indicator of the progress being made and have some really excellent work done by the team.
In the upcoming quarter. We currently expect the decline in the topline to be more challenging than in Q3, we expect.
We expect some improvement in the year on year margins to be sustained but do not expect similar tailwinds as seen in Q3 to be repeated.
Next on slide seven we have industrial automation or Ian.
Yes orders declined 20% they were lower in all regions with a severe drop in the Americas.
The business area was materially impacted by the ongoing downturn in energy and marine although select large order wins and resilience in process industries, including pulp and paper provided some support.
The order backlog at the quarter end was 5.2 billion the same level as at the end of the second quarter.
Good opportunities are still in the pipeline, even though investment decisions are taking much longer subsequent to the quarter. The business secured an order of more than $300 million in its marine Division.
Revenues were 7% lower reflecting a substantial drop in book and bill activities, particularly due to continued weakness in services.
Both orders and revenues were negatively impacted by 3% due to the proposed settlement in South Africa with Eskom in relation to the Castilla project, which.
Which resulted in a further project reevaluation.
The operational EBIT margin of 6.4% was 260 basis points lower year on year, which also reflected a roughly 400 basis points negative impact in relation to the Castilla project.
Other than koestler margins were impacted by lower volumes and unfavorable mix driven by north noticeably weak service activities.
Looking forward the fourth quarter orders will benefit from recent large order bookings.
However, we do not expect much relief in iOS and markets for at least another couple of quarters.
And services are expected to continue to weigh heavily impacting both revenues and margins.
Margins are expected to continue the year on year decline trend, we have seen year to date.
Let's turn to motion on slide eight which as Bill mentioned continued to perform well in Q3.
Orders declined 5%, reflecting a continued downturn across several sectors, such as oil and gas that day.
That downturn outweighed strong rail demand and moderate growth in short cycle products.
The order backlog was $3.3 billion compared to $3.4 billion at the end of Q2 revenue.
Revenues were 2% lower with development, reflecting the resilience of short cycle product as well as good execution on the order backlog.
The operational EBIT or margin of 17.4% decreased 40 basis points year on year, holding up well versus a tough comparable the business area benefitted from support that mix and good good cost mitigation efforts.
Looking at the quarter ahead, we currently expect motion to continue to deliver a resilient performance with orders and revenues to be similarly challenged as in Q3.
Regarding margins, we expect to see the usual dampening seasonal effect.
On slide nine, we turn to robotics, and discrete automation business area or a.
Orders for Q3 were steady relative to an easier comparison period last year as a result of some good sized orders in the hthreec and automotive sectors, mostly in China we.
We also saw strength in food and beverage and logistics, while activity levels overall machine builders was weak.
The order backlog was $1.4 billion compared to 1.5 billion at the end of Q2.
Revenues declined 5% year on year, consistent with a weaker backlog, but improved relative to the second quarter period the rate.
The revenues benefited from some catch up in order execution in robotics for customers in automotive and general industry.
The operational EBITDA margin of 9.5% was materially lower relative to the prior year period, although it improved sequentially the impact of lower volumes, coupled with a lower margin system orders converting to revenue from the historic backlog weighted heavily on margins. These effects were partially mitt.
Get the aided by continued cost savings.
Looking ahead absent the large order when seen in Q3 in China, We expect our race orders and revenues to be down more than in Q3 rigs.
Regarding margins, we expect them to declined similarly to Q3 due to both ongoing downturn and to seasonal weakness. However, we do expect things to improve gradually next year.
Continuing on slide 10, we lay out the main drivers of our net income result.
The final figure for group net income attributable to Abbey was approximately 4.5 billion.
In addition to the regular below the line items, most notably we booked a 5.3 billion gain in the quarter arising from the sale of power grids within discontinued operations.
It has been a quarter with a lot of moving parts I am not going to go through all of them here, but I'm happy to take any questions regarding them. An IR will also be able to walk you through the detail and if needed.
I also come back to some of these items when I discuss the capital structure optimization.
Many of these items go hand in hand, with the significant transformation, we have been undergoing a day Abby going forward you should gradually see fewer effect from non regular items as we continue to drive better quality of revenue in all our businesses.
You will also see even tighter governance by our lean corporate center with our businesses, having clear ownership of their BNL and their balance sheet under the new Abby away.
For our power grids, our ongoing interest in the JV with Hitachi will be presented within a new non operational line item we read.
We remind that results from the Jay we will be negatively impacted by BP a related amortization charges that reflect the initial fair value of our 19.9% share and initially they also include a step up for inventory.
Our 2017 guidance framework, which you will find in the appendix includes our estimate for Q4 impact related to the divestment.
Turning to slide 11, let's look at our capital structure optimization Ed.
It takes a responsible approach to financial management and our capital structure optimization program continues to live it deliver clear benefits that.
The divestment of power grid has significantly strengthened and improved our financial flexibility during the quarter. We commenced our initial buyback program of 10% of the Companys share capital to date, we have purchased about 3% of our share capital.
In addition, we took a number of other important actions to de leverage a BB in an efficient value maximizing way.
Total cash cash equivalents and Undrawn facilities ended the quarter at $11.6 billion in.
In terms of debt and credit facilities, we have repaid 6.3 billion worth of borrowings recently, including in early October a euro 1 billion bond when it matured.
Abby total gross debt levels have reduced by about 4 billion over the six month two and September.
We also worked on our review of pension structures and agreed to transfer certain pension plan obligations to third party insurers during the quarter.
In total we transferred approximately $1.3 billion of pension plan liabilities to third parties. These liabilities were under funded by approximately $450 million.
These transactions were enabled by a cash contribution of about 320 million.
And a respective BNL impact within nonoperational pension costs was about $380 million.
These transactions are an efficient way to de leverage significantly reduced the under under funding of our pension liabilities and make future negative cash flow and BNL impact less likely.
We will continue to improve abbey's financial flexibility over the fourth quarter with further reviews of our pension debt and credit structures. At this date, we anticipate nonoperational pension cost and finance expenses of approximately $330 million.
At the same time, we expect additional cash contributions of about $90 million in our cash flow from operations we.
We expect to look to be largely complete with this phase of our capital structure optimization program by year end.
And with that let me pass you back to be earned for his closing remarks.
I will conclude on slide 12, with our outlook and priorities.
On the left of the chart you can see the short term outlook for our end markets, while improving slightly in certain areas COVID-19 continues to weigh on many of our end markets, particularly oil and gas conventional power generation automotive machine builders and marine.
Some end markets, such as electronic distribution transport data centres, consumer electronics, and food and beverage so relative resilience there.
There is still considerable uncertainties around the pace of recovery, but we will stay focused on serving our customers, capturing new opportunities and improving profitability, particularly in our underperforming businesses.
At the group level in Q4, we expect topline growth.
Rates to remain challenged on a year on year basis, and revenue growth rate to decline sequentially.
Operating margins are expected to be higher year on year with fewer impacts from non recurring items, while weakening sequentially, including seasonal impacts.
We will continue to make rapid progress on our transformation implementing a new way are working under a BB way and driving sustainability, but.
But I'm not going to talk about any of that now as we are looking forward to showing you our plans in details on the capital market Day November 19.
Before we go into the queue M&A I would like to take this opportunity.
You all are that this is the last quarter four.
For for jazz and.
And thank you for the contribution that she has been doing to the BB during the years UNFI.
Unfortunately, I only had this short year to work together with yes, but yes.
Really helped me to dig into understanding the company and where are the opportunities.
Sure, let Jos suggests I.
Thank you so much for this time I really enjoyed it and I wish him all the best.
In the future also Tim I would like to say some words, yes sure. So we actually started with just pretty much at the same time, so its not being maybe the most straightforward three plus years in the company and I would really like to thank Jeff for building a strong team in IR and a systematic way of working in our IR function and that really thanks again.
The best to your future endeavors, and really looking welcome welcoming unsi and looking forward to working with you on serving our investor community.
Well. Thank you both for those kind words and.
I think that means that we can open the lines for your questions.
Operator would you go ahead.
We will now begin the question and answer session. Anyone has a question May press star one at this time.
Yes.
The first question comes from the line of Ben Nuclear from Morgan Stanley. Please go ahead.
Okay.
Good morning, everyone.
Yes on your on your loss equal.
Cool. Thank you for all the help.
Yep.
My question is really just color around China.
8% order growth or certainly nice moving in the right direction could you just give us a sense of two things first of all which areas of your business.
In China also.
Outperforming which areas all outperforming let strong so are there any end markets or particular divisions.
For.
Which you see having very significant momentum so that well.
So on the second.
On the second part is as usual Im sure you remember this from Sandvik.
So how did things trend throughout the quarter. So if I think about showing all along.
Im talking specifically about China that exit rate, how that even showing that doing well for you.
On how how does it look moving into Twentytwenty one thank you.
Thank you Ben.
Absolutely I like to talk about China is that is a really positive thing during the quarter.
As you heard also during the Q2, you will see in a quick and strong recovery in China and when we look at our four different business areas. It it's pretty clear that the robotics was one of the big winners with a very strong order intake during the quarter.
But we have also seen very strong orders both in the electrification and motion little bit more challenging is of course, the I a., which is more related to the energy markets and their oil and gas so that that is good.
On the other hand them well before what I I think it's difficult to predict the future on this part we have seen some strong recovery and how long that will be that will move into 2020. So it's maybe a little bit too premature to have any opinions of.
I think probably will be a little bit easier to see after Q4, how things will develop over there.
Okay understood and just a quick quick follow up in terms of the in terms of the Soviet Union.
Revenue for the year on year growth rates being less in Fourq.
Is that while the second question.
While the second question you asked about two to one of your competitors does not showing up related is that more of a general comment.
Yes, I think I will call it more on the general.
Perspective, it is it's not really related to China.
Understood. Thank you. Thank you very much and thank you just one last one.
Thanks, Ben we'll take the next question from Shane Mckenna Barclays Go ahead Jay.
Good morning, Deonte, Amerijet and untapped fan and also thank you very much asked for your assistance since I initiated the on IB in terms of getting up.
I have a question on the run rate of savings.
Okay Thats it seem that similar to Q2 that Kobe temporary related savings amount to about 100 million so that the underlying run rate for the first nine months.
Got right now.
Numbers correctly is about 382 million and notwithstanding it.
Savings for Q4, Youre on track to hit that 500 million net target already in Twentytwenty, one year ahead of plan.
And can you also update on the cost of delivering income.
Come down that from the original 500 million target if I can sneak one further question and how.
How do you see the normal Q4 seasonality in electrification versus the 100 basis points. We saw in 2019 will be slightly better or slightly worse. Thanks a lot.
Okay. Thank you Shane maybe I'll start with the always so first of all as we have made good progress on the always on your assumption is correct that we have bit more or the 100 million of our savings in our savings bridge when.
When you look at the net savings of 200, and and 45 and we.
We will come back to this in the capital markets day, but we as I said, we have really made very good progress in this area and I continue to remind that we continue to clearly separated the over savings, which are long term impact from the short term savings, which have been partly driven by Corbett.
The real question would you or should I read that you take that also okay. So on the on the email margin as we said today, we expect bit more challenged revenues going into Q3, and thats driven by the normal situation that we have less short cycle business. During Q4. This is the.
Same thing every year.
And that will then have also seasonal impact on the margins and as we said, we expect seasonality to impact somewhat negatively but still expect some margin improvement.
Improvement on a year on year margins going into Q4 in electrification.
Perfect. Thank you very much.
Thanks Shane.
Shane and we'll take the next question from Glenn.
Glenn as you appear.
Yes.
Thank you for taking my question.
Yes, I wish you all the best in the future. Thank you.
Beyond and team for your time today as well I wanted to labor EBIT on the.
On the robotics multiplication outlook I guess in robotics, you saw threepl and automotive investments.
Can you explain a little bit what kind of nature of investments you sell their traditional Oems or is it the electric vehicles in the case of automotive and in.
And in the end, we segments of Hthreec actually useful improving and that's the first question and I'll follow up then.
Okay.
Talk little bit about the robotics side, yes, I think yes.
The recovery during this quarter, even though it's a little bit easier comparable since we've seen before I think we were.
Also.
Very positive about the the orders that we came guardian in these orders come in from China, the combination of that.
Of consumer Electronics said, there are some automotive in that part and also some logistics part so.
That's just a little bit, but we are seeing in add on the big automotive orders was actually booked last year. I think there was some press release that came out which is actually when we look at the quality of revenues in that part I think that is probably being delivered out.
During this quarter and next quarter, that's why we see some effects on the on the margin side.
On the robotic side.
Yeah, we we believe that the where the quarter coming up next will be little bit more challenged than ever.
These big orders it's of course too.
Too early to say, we might be surprised also but the projection is that we had two quarters in front of us for robotics, which will be a little bit more challenging before we see see improvements.
Thank you.
Take it that probably the caution on the growth for electrification.
More predicated on what Tim just said about.
So that will be less.
It's a brand new Singapore or litigation.
Yes, I think overall the electrification is actually moving in there there is a lot of parts in in in this.
You see the improvement is actually coming from from a new brand support is the GE is of course that is developing according to plan a very good but we also see a very good day.
Improvement in the insulation products as you know that was an underperforming business, which had during the last year improved significantly also margin wise, which has helped us to push the margin up to these really good levels, but we also see very strong margin, both as smart smart power and.
As well as smart buildings. So I think yes things are moving in a good way there as it should be and of course, they have a higher high targets.
Regarding the future and electrification business.
Thanks, Karen.
Thank you and Jen.
Next up we have Martin Wilkie of Citi go ahead Martin.
Yes, Thanks, a lot and from Citi. Just a couple of questions on the end markets and one just to follow up on automotive Elizabeth you do still point on on Slide 12, the automotive is one of the red market.
Some can be appointed some signs of bottoming out there so just to understand it better and general market trend that you're seeing or is at hand.
Hendren, Okay, Comex, you getting new business in terms of understanding the direction, there and then related to that just.
Just in terms of end markets on oil and gas now obviously, we know the pressures in the industry, but are you seeing pipeline beginning to bottom out in terms of how we should think of orders relates to oil and gas. Thank you.
Okay on the automotive side I mean, the automotive challenges I think we will see an even before the covance. So thats something that is mostly affecting our.
Robot business and Thats, what is perfecting because as big volumes of course of Robert's going in to this market. Yeah. I think we all follow the optimal the market and we've seen of course, some good numbers during that the second half of this quarter that the sales of the cars have been picking up.
And we've seen good good the year over year numbers on this that is part where we are active is of course in their in their in their their body assembly in the painting shops, and so which is very much related to add to the manufacturing of the of the car not.
Not so much related to we have what kind of a bright line. You are you seeing so for us it doesn't really matter if it's an electric car or if it's a combustion engine from from from that perspective.
We think the automotive will keep on being a little bit challenging going forward before we see the pickup in this industry.
The second one on the oil and gas side.
Yes, I mean, it's it's pretty clear the oil price is down.
If we see our exposure towards oil and gas is about 14% today in the group.
We see challenges within in these projects and this is actually moving projects, which has been delayed in there and that's of course, which keeping here.
The numbers.
At the moment, that's oil and but also a tradition in the energy side.
We do not expect to see any recovery in this set in the next quarter, that's pretty clear you want to add something that if I just may say on the on the 14% estimate that also includes conventional power generation. So it's both oil and gas and conventional power generation as we have discussed earlier that exposure for us this is a bit less than.
10% than it actually has been going down when we compare.
Q3, 19 to Q3 20, yes.
Okay.
Thanks, Martin and we'll take a question next from James Moore.
Ben.
Yeah, Hi, thanks.
Thanks for taking my questions and accounting.
Turning to Cape town Jess Thanks for all your help.
If I could.
Juan on the electrification business and one on Opex in discrete automation.
Electrification, great news to hear your installation products business is improving significantly I wondered whether we've yet to reach the mid teens operational EBITDA margin level that you talked about as a soft possible targets at the electrification day.
And the second question is on the revenue development in.
Robotics and da is there any chance you could break it out a little bit I was thinking of it as three parts ready also robotics, Nanotech robotics and BNL and.
If you could help us understand a little bit that the deferring the mountain athletics around those parts and also on the PNR margin is stable or is also pulling a lot. So the robotics margin.
Okay, if we start up with the electrification.
Part of the question was there what was the question there sorry.
Thinking about Thomas and Betts as installations.
And whether you've made it to 15%, yet which is something that our year ago. You were looking for your we're looking for the timing.
James I think it's pretty clear.
I think you tarak and his team they are pretty convinced that they are going to reach the 15%.
Ill from originally they said of course, it would be this year, but the core would have a negative impact should we said we would have to push it a little bit further forward I think we'll see a lot of that positive movement within electrification and.
[music].
I will not give you any timing on that but but I think we should continue to see the improvement within this year business year over year and moving towards the targets that they have set up I personally feel very confident in the development of electrification and the way they are improving.
So for me.
From the four four ABDC, great Jim Great story.
And of course, Thomas and Betts is from my perspective, it should be a really high margin business and as you know.
Our strong focus on profitability and.
But also making sure that the portfolio within DC is really sharp will will help them to keep the margins on the right levels are the right management in this division is doing a great great job. So a lot of credit for them.
On the robotics yet of course this is support.
Jeff.
DNR and also.
The the pure robotic side I think on the order side, we saw stronger on robotics than we did on on the B NR.
Business, which is more mostly affected by machine builders in Europe, which is actually the strongest step.
The former.
I think on on the margin side I see Kim maybe be NR is a little bit more resilient, but I think when you look at these two businesses. They are pretty similar during this quarter. When it comes to profitability team did you have anything you want to add that Timo. Yeah. I was just going to go go quickly to the to the split so if you adjust.
Look at the revenue, we are about 25% DNR and 75% based on the robotic side correct. The robotics piece, then with less than 50% is automotive so I'm again, saying open the robotics fleet with less than 50, automotive and with more than 50 other.
And those two pieces of robotics with a similar in revenue trends will be quite different.
Well, we expect the May expect clearly longer term, the non automotive to grow faster but.
But at the moment, it's kind of like reading that stuff from one quarter it little difficult during the quarter.
I think if you look at if you see where we see good orders coming in we see good orders.
From from the general industry, we see good order from logistics, there, which are the actually the growth areas, but we have the order book is pretty long and we see yes, I think that is been coming out in revenues. Now is is a lot of automotive at the moment.
Thank you very much.
Thanks James.
Next question from Alex.
Bank of America.
Thanks, So much for taking my question good morning, everybody to see or well best wishes Jess for the future. Thanks very much for your help.
I wondered if we could touch on a couple of clarification point. So just wanted to think about the EBIT margin guidance for Q4 in the context of.
The 12% reported in the I guess, 14% or so that you're talking about from an underlying perspective without the stranded costs noncore and I project.
Impact so just wondered if you could clarify that guidance for us and thinking about really to the run rate into next year.
On on that margin.
And the second question on on to delay can you just talk a little bit about why there's another revision there what's going on and what are the risks that we see any further adjustments. Thank you very much.
Yes.
Take the first question first on the EBIT margin add to say I think seasonally it's pretty clear that the fourth quarter is traditionally has always been somewhat weaker than you've seen in into Q3, and I think that could be related to the proportion of the short cycle business.
Which is a little bit less in Q4 than it is in Q3, which is also the on the margin part on the other hand, I think we we should see continuous improvement when it comes to margin in our businesses. So when we measure always year over year and that will be an improvement from.
From the year before so we are moving in the.
In the right direction.
I think for going forward and I think this is probably get a pretty clear when you get in this this.
Report it.
It is very important that we move in the direction that the performance of our businesses.
Actually reflect the performance of the group and I think that is what we are expecting to be much more next year and even further going forward, which means as some of these said, let's just say that we have in the balance sheet as the fact that we really are trying to get rid of anchor to clean up.
To make sure that this becomes.
And much more transparent for you guys.
In in the future and I think you should already see that through next year.
You maybe the second question you can say, yes, yes, why don't I think Alex I'll comment on capital about maybe before that just on the non core part so year to date, we have taken about 110 million non core and last year Q4, we had more than 70, we are now.
Not expecting as big of a number to come through now during Q4 or non core so.
So smaller non core than Q4 last year.
Then on Castilla this is slightly different from the Q.
Three last year, when we did a project revaluation. This is now a settlement proposal and it would be a settlement for the full exposure on this in South Africa now.
No we.
We think this is a very very fair proposal. We have we have made on and let's see then what happens, but that's the situation regarding porcelain.
Okay. Thank you very much.
Thanks.
Thank you, Alex and we'll move on to Andre cooking enough Credit Suisse go ahead Andre.
Good morning, and thanks, so much for taking my questions and again many thanks for your help Jess on both.
In bulk Nancy I wanted to follow up first on the process end markets. I think your message is very clear in terms of no recovery anytime soon but in terms of how you see the sequential movement that we still kind of ticking down.
There or have we found the bottom which is not expected to go up from that anytime soon.
Thank you yeah, let's talk about the process industries I think when we look at them or in this the industrial automation as the business area, what what sticking out in this part is this is a very big part service as reflected in this business.
I think yes.
Our opinion a number of downturns in my in my professional life, but this is actually the first one where actually the service part of the business is getting more beaten them that the equipment sales, which normally would be the other way around in industrial automation should be resilient.
The good margin aftermarket, but when we look at some of the end markets, where we have difficult to conduct some service. We also have some markets like cruising for instance, which is quite big on marine where all the cruise ships. Our parks. We have also power generation in many exotic parts of the world where.
Power is not needed because there is no tourism anymore. So there are a number of these things which is actually affecting the service more than weve seen even though we have seen a pickup in the service compared to Q2, so hopefully going forward it will be easier to make service and that will do a recovery.
In the margins.
In the process industry, we are of course in different kind, what we see.
Good good performance in their process industries like year pulp and paper, we see in mining, where we see good development, while we see much tougher than in the energy Mark.
Markets and oil and gas part so thats it reflecting.
It's a little bit.
I think here of course going moving forward that should be.
Movement in the right direction, we still have high ambition for this business. They also to deliver margins within their target setting that we have made for the group. So.
We do expect that to a lot of actions been taking to adjust costs and two in the future, which will be reflected in better margins going forward.
Great. Thank you and can I.
Can I ask why.
Ask warmly funds.
I am sure go ahead. Thank you. Thank you Jess and thank you for that color. That's very helpful. Then my question I have really is actually about.
Software strategy and we've had another kind of wave of ace hardware by.
Hardware by software deals coming through across the sector recently.
Without trying to induce you to comment on competition, but more just.
Wanted to hear your stance on the trend itself and on those types of moves.
What do you think is abbey acquisition funnel.
Well have a mix of software deals deals in it as well.
Thank you Andrea.
Please for that question first I would like to say that our software strategy is set is very clear and we are all in line with that moving forward and we know that this is an important topic for all your investors and we will actually spend a little bit extra time on the capital market day to go through the.
In in a detail. It is a very important part is a growing area is both embedded in our in our product and its actually building out on our domain expertise that we have in the areas. We are increasing the investments within this part but also the revenues that is getting from for profit.
With embedded software as well as software by itself. So if you listen in a couple of weeks, we'll we've actually spend a whole lot of time during the capital market day to give you a clear view of that set up and I just want to underline both the board of a BB as well as the management here feel very.
Comfortable in the direction that we are driving this and going forward. So so please join us this as a 19th.
Great call centers. Thanks.
Thank you for that.
We've only done two mathias homework of Dnbi.
Thank you.
You've touched upon the electrification already a bit but I was thinking about the state melt when G.I.S. was acquired I think it was said that the business had a.
Mid to high single digit margin and.
You've now mentioned for a couple of quarters that the integration is well on track, which sounds quite encouraging. So could you. Please help us a bit in understanding how far you've come in the extraction of synergies Angie, yes, and also perhaps what the incremental potentially.
From this going forward.
Thank you very much.
Got it thanks for that question, yes, it's it's encouraging to see the development in electrification and the integration of G.I.S. into that you probably know that the G. I asked is split into three of our divisions. So it's actually it is Pearson solutions, which has.
Pretty big part, we have smart power and smart buildings that are taking part here.
The whole lab integration is actually two main points one is the foot footprint there.
Consolidation and we have so far close 16 factories in relation to the G. eyes and before the end of the year. The should be another two which are close to be 18, and totally I think it's somewhat over 20 that will be done we're also.
28, given that Thats the part of it the other part is the product portfolio, where we are integrating the HBP core products into the switch gear from.
From from the GE, Yes, and launched into the market, which is also doing quite well.
These together will.
Actually strengthen up that business and you heard from Tarak and his team during the captive market data that they have of course ambitions to get this business optum the same margin level as we have.
For the rest of the part I think the two one sticking out it is pretty clear its smart buildings and smart power wedge, where they're really developed really good margin on distribution solution, it's a little bit more challenging, but it's really moving the right way and we already talked about installation products, which is not really related to this integration.
So the vision by themselves far are are really moving in the right direction.
Very helpful. Thank you.
Thanks Miss here.
No. It is we'll mackie of Kepler Cheuvreux.
Yes. Good morning, Thank you for the time and good luck.
Good luck in the future.
I have a question I'd like to areas on the North America, specifically the USA when I look at the development of revenues for electrification in.
In the third quarter in the U.S. still down nearly 20% it seems and in industrial automation down nearly 30% and motion nearly 11% on a reported numbers.
Can you.
Just to put some more color around how you see the specific businesses developing in the U.S. now are we.
Are we close to a trough or do you have confidence that that levels of volumes that youve seen in Q3.
Have stabilized across the area. That's the first question is color around the USA and the second relates to the onetime effects. There was slight onetime effects in electrification, but more specifically a non core you said youre going to clean it up you said that that should largely be done this year.
Guided on some of the charges, but can you scope what is left in the non core and how.
How confident we can be that it is it's all gone perhaps by the middle of next year. Thank you.
Let me start up with the U.S. part electrification to clarify that a little bit because it's a little bit of a mixed bag in the US you know we have four divisions, which are quite different and if we start with a smart power and the smart building they are actually growing strong.
On double digit growth in the North American market, while you see on the distribution solution you are actually double digit negative, but thats more related to big project sales, which is natural and of the nature of that business. When you see the installation product where you have seen this.
Such a tremendous development in margin during the quarter they are actually down.
Single no dip at double digits in volume also and that's related to some of the cleaning up in product portfolio and focus on quality of revenues from that part. So I think the numbers you're mentioning we do not really recognized.
From electrification in North America, it's a it's higher than that if you have any adds to that as kimo.
No no I think that's clearly covered but about I think we see good growth both in North America for the two important.
Smart buildings and smart power.
The second question was on the non core non core fleet data front, EMEA, so or noncore and when we started the noncore activity, we had more than 200 projects, which were active and we now have less than 10. So you see that we have significantly more down these nols.
So the organization as such of course has reduced when you then look at the sub segments. We had three areas, where we have this activity one was the full train retrofit.
We have a good plan here and we would hope that we.
We will be done with that in the timeline, which you mentioned then.
Then we have a second area, which is the whole of power grids substation APC. There we are also.
Close to be done, but we can have a.
May be in the offshore wind areas certain warranty cases, which don't.
Necessarily resolve themselves before we get the final legal analysis done so we cannot simply pinpoint into that at the moment.
And then a final.
Finally, we have the oil and gas APC, where we also hopefully start to be pretty much done can be someday else left but we have significantly reduce this exposure.
And we.
We will come back to this topic in the capital markets day as well yes.
Very helpful. Thank you very much thanks.
Thanks will and Dan will be coming up near to the hour I know you all have a very busy day. So we're going to take a last question from well Irizarry of RBC go ahead wamsi.
Hi, Thanks for fitting me in again, good luck Jess just add a couple, especially one was building on from the last one.
The corporate line is on track for an underlying.
Well it looks like it's ahead of the underlying kind of 300 million run rate you've talked about in the past celestial corporate lines.
To what extent that placed in some non core charges as well or do we need to think about those on top of.
And then the second one was just.
In the non operational charges changes applications from divested businesses around 200 million I understand thats warranties from Meyer steel structures could you just talk a bit about what those launches or whether that's just that is truly a one off or whether that's something we'll need to review and adjust.
In the next couple of quarters as well.
So.
Okay, everybody. Thank you for the questions why don't I take this one so first of all the other targeted future run rate for the core breadth of 300 million or lower does not include any non core charges. So we want to be there.
Clear with that.
And you are right. We have we have been making very good progress on this now this quarter 64 million number might be a bit low looking at everything what is happening. So just taking that time sprawl or would gave way to a low number but we are working very hard on on getting to the 300 million and then on the two how.
Third million, where majority as you mentioned is coming from this divestment, which we already did before 2015, where we are having some warren.
Warranties on this deal structure. So clearly we are looking to provision as much as possible to the full exposure what we have I mean, thats always what we are trying.
Driving to do it at the provision would reflect that the situation what we have but of course as you well know before a case is fully closed it is impossible to draw a final conclusion.
Great I'm, sorry could you just give some color on what the warranties.
Regarding.
It's a it's a warranty for for repair basically.
Yes.
Yes.
Yeah, well, thank you Wamsi and again, thank you everybody for joining our call today.
Thank you. Thank you. Thank you bye-bye.
Ladies and gentlemen, the conference is now over thank you for choosing chorus call and thank you for participating in the conference you May now disconnect your lines good bye.
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