Q2 2019 Earnings Call
Hello.
First call follows the E General data protection regulation for more information please visit our web site.
Please enter your passcode followed by the hash key all star zero to speak with an operator.
Welcome to course coal chorus call follows the general data protection regulation for more information. Please visit our web site.
[laughter].
Passcode, followed by the hash key all star zero to speak with an operator.
Oh, yes.
Correct.
[laughter].
Right.
Welcome to chorus call chorus call follows the general data protection regulation for more information. Please visit our web site.
Your passcode is not valid.
Welcome to chorus call.
Oh.
General data protection regulation for more information. Please visit our website. Please enter your passcode followed by the hash key all star zero to speak with an operator.
Oh.
Welcome to chorus call. Please hold for an operator.
[noise] 'cause your operator I have your cost could please.
I don't have a code and looking for the HIV The limited earnings call.
I have your last name please.
Uri H.E.A.O.L. Eli.
[noise].
H E a.
Yep.
Tell you why.
What's your first name.
Brian B R y and.
Your company please.
Era A.I.E.R.A.
A car.
[noise].
I.
Yes.
Okay.
Okay, I will come back to you for questions Taiwan. Thank you.
Thank you.
[noise].
As shown on motion despite strong headwinds in some of our end markets, particularly robotics and discrete automation.
The operational EBITDA margin was 11.5% impacted 90 basis points by stranded costs and a further 60 basis points by died Lucian, resulting from the integration of G.
Our groups operationally EPS of 34 cents cents was 10% lower.
The basic EPS results of three cents is notably lower year on year, driven mainly by the charge of $455 million, resulting from our decision to exit the solar inverter business.
Cash flow from operating activities will see ROE compared to $1 billion in the second quarter of 18.
This primarily reflected the timing of employee incentive payments, which were paid in the second quarter. This year, while in 2018, they were paid in the first quarter.
It was further affected by less favorable movements in accounts payables compared to the same period last year.
On the next slide ABTS regional and country order trends for the second quarter.
In the Americas total orders grew 7% in comparable terms all of our businesses were up led by strong growth in industrial automation robotics in discrete automation and the electrification.
Orders continues to grow in the United States, our largest markets, while developing a very well in South America.
In Europe or the development was more varied total orders were stable despite increases in electrification robotic and discrete automation and motion mainly due to weaker large orders in industrial automation.
Strong growth in France, the Netherlands, and Spain was more than offset by lower order levels from the UK, Finland, Sweden, and Italy, Italy was particularly weak by comparison.
Two a strong base from the previous period.
Lastly, you can see orders in Asia, Middle East and Africa region were 3% low lower solid growth in electrification and stable performance from motion was offset by lower large orders enough industrial automation and the fall in select end markets for robotics on discrete automation.
Lower orders from China, and the Middle East Outweighed positive developments in South Korea, South Africa, Australia and India.
To give a little more color specifically on China Navy's total order growth.
The rate at minus 1% year on year was driven mainly by significantly lower orders in robotics and discrete automation due to the headwinds in discrete industries.
However, we saw excellent growth in electrification and industrial automation.
We therefore for review the outlook us make rather than one of broad based contraction.
Overall second quarter order trends show HBV was impacted by slowing in some geographies.
However, we are on course to drive long term growth across our businesses, while continuously improving the way, we execute to mitigate slower demand.
I will now handover you to Timo.
To provide you with more details.
Thank you Peter and welcome to all of you.
I will now provide a closer look at the second quarter performance of our businesses starting with electrification on slide five.
Electrification results show continued topline momentum with total orders increasing 5%.
Order growth was broad based with strong demand for solutions, including excellent growth in key segments like rail Datacenters wind and EBIT charging.
Orders growth was led by the Americas.
Order growth was robust in the United States and strong in China.
Revenues were up 4% year on year and order backlog ended the quarter up 10% compared to the same period last year.
The division's operational EBIT AR was 250 basis points lower year on year. GE is this impact was approximately 200 basis points in the quarter compared to 270 basis points in the first quarter.
Excluding GE is margins reflect a shift in energy applications business mix toward more solutions revenue.
Looking ahead, we expect the business is margin continue to show the impact of a shift in mix towards solutions overall, we expect some sequential improvement in margin.
This will enable include ongoing improvement in Gi performance, which will no longer be excluded from the comparison base from Q3 onwards.
Next on slide six we have industrial automation, where total orders were up 4%, sorry, where thought where total orders were 4% lower.
In this business order development was impacted by lower large orders, mainly from Europe , and the middle East against a tough comparison with the prior year period.
Process industries, such as pulp and paper and mining as well as oil and gas showed continued good momentum while conventional power generation was subdued.
Measurement and analytics grew very well in the quarter across end markets.
The business is seeing a stronger pipeline of potential projects, including larger investments order awards remain subject to timing uncertainties. However, we do expect order growth to be strong in the third quarter.
Year on year, Q2 revenues rose, 3% supported by order backlog conversion.
Operating margins were 220 basis points lower relative to Q2, 2018, reflecting project mix impact and higher costs due to under absorption and investments in growth.
Abby expect margins in industrial automation to improve sequentially in the third quarter.
However, we still expect the year on year margin to be lower ups and the nonrecurring tailwinds that supported margins in this business last year.
Let's turn to motion on slide seven which delivered solid execution in the quarter against a tough comparison.
Total orders were up 4% with strength in drives and services and notable benefit from lots rail orders all regions grew.
Revenues improved 5% and so did the order backlog.
The operational EBITDA margin of 16.7% was up 40 basis points compared to the period period year ago, primarily due to favorable volumes and ongoing cost management.
Going forward, we anticipate steady execution in motion business.
On slide eight we turned to robotics and discrete automation business.
Or art.
As anticipated the last quarter, we felt the downturn in the automotive and machine building more builder market.
Accordingly, total orders for Q2 9 in were 9% lower reflecting both the more challenging market and a tough comparison base.
Weakness was most evident in the automotive machine builder and Threec markets.
And on regional basis in our mail and particularly in China.
Demand remains strong for logistics automation and the business continues to benefit from orders for automotive solutions.
The order backlog ended the quarter up 10% year on year revenues were 3% lower due to weak or book and bill activities, such and spare parts and services.
Reflecting wrote lower volumes and adverse mix the operational EBIT margin of 12.3% was 260 basis points below the prior year level.
Our a strongly positioned in its addressable markets in robotics SBB continues to outpace broader market developments in our machinery and factory automation business, we see significant growth in new design wins, leading to a very strong pipeline.
Simultaneously Andre is focusing strongly on continuous improvement to help mitigate the effect of slower slower demand.
We expect end market headwinds to continue which will continue to impact order revenue and margin development for the next quarter compared to the previous year period.
Let's now consider the main drivers of the group margin on a year on year basis on slide nine.
Net cost savings amounted to $57 million supported by our ongoing focus on Opex and supply chain management, plus some early wins from our simplification program.
Volumes had a net positive impact contributing 60 million.
Mix, including Underabsorption had a dampening effect of 68 million investments in growth, namely sales and R&D, where 30 million higher year on year.
Acquisitions, which is GE is contributed 32 million and the FX translation headwind was 38 million this quarter.
On slide 10, we breakout the key net income drivers for the quarter.
In us dollar terms restructuring related costs were $74 million, including 50 mile 1 million in charges booked to advance our simplification efforts.
Outwards carve out costs were $38 million and Abby recorded a charge of 455 million from the announced sale of its solar inverter business.
Looking at discontinued operations, where power grids performances reflect is correctly Israel letter reflected 142 million of net income was recorded.
Looking forward on slide 11, we revisit our financial framework, where we set out our approximations four key items today I will focus my commentary on issues, where we have new or revised guidance.
Within non operating items normal restructuring charges are now estimated at approximately 125 million for full year 29 scene from 100 million previously.
Simplification program charges continued to be estimated at around 500 million in total but into 2000 9 billion. We now anticipate approximately $300 million lower than originally planned for the year as we have benefited more from normal natural attrition in this early phase.
Our blood separation costs are expected to trend higher in the second path as we move beyond the scoping basis into implementation.
For 2019, we now expect more use of transfer service agreements, which should reduce the separation cost estimate to approximately $250 million for the year.
Finally, we anticipate solid operating cash flow for the year as well as a whole not including cash outflows from the simplification program and carve out activities as well as the associated cash tax impact.
And let me now and to call back to Peter.
Thank you Timo will turn now to slide 12, where we have very highlight how we are driving growth across our businesses with just a few examples.
This quarter electrification introduced the first major innovation in low voltage switch gears incident as the eighties.
Male gear. So many of the issues encountered with current technologies, namely busbar contract failures and human errors that can result in serious injuries.
It allows up for up to 25% space savings and can count energy losses by up to 20%.
All surveys ABB ability connectivity nailed year enables digital condition monitoring that can reduce operating costs by up to 30%.
Our industrial automation business continued to consolidate its leadership position in pulp and paper markets.
For example, during this quarter industrial automation won a contract to supply treat and limited the worlds largest reach stroll paper manufacturer basic control system to improve quality at their male imprudent job, India, while minimizing maintenance introducing lifecycle cost.
Motion in collaboration with Hewlett Packard Enterprise's Aruba reached an agreement to combine HBV HBV ability smart sensor technology, which are overs wildfire blue Bluetooth enabled access points widening the application of its digital powertrain.
Offering.
This will all this will all allow customers with large industrial sites to easily monitor the condition and performance of their equipment.
Reducing downtime by up to 70% and extending asset lives by up to 30%.
And in robotics discrete automation, we announced plans to develop and introduce collaborative robotic solutions to hospitals, including logistics and laboratory automation solutions, starting with the New Abbey Healthcare Research Center at Texas Medical Center, which opened in October .
Turning to slide 13, the separation of power grid is advancing well and is on track to close in the first half of next year as indicated at the time of the announcement.
The demerger of PG from our our Chinese holding company has been approved by authorities on the demerger of Abbey, India is also on track.
This is good progress.
Given these are two of the more complex country separations.
Worldwide, two thirds of the necessary legal entities have been incorporated.
With regard to the business developments power grids is maintaining a strong focus on customers in a competitive market.
We have seen solid order development this year to date with the business securing several significant hvdc technology orders.
On slide 14, we provide an update on the integration of G., yes.
In the year since the acquisition, we have made good progress.
We have fully integrated approximately 80% of GE is employees the combined sales force our operating as one.
To better access opportunities in the North American market.
More than 70 million in orders as being delivered through successful cross selling today Digitalizing former GE Air Service Records in Nanjing, HBV service products to better leverage our installed base.
The team showed case, new combined products to customers in the second quarter, and we will take the first products to market in the second half, including for example, the new generation of automatic transfer switches incorporating HBV technology.
We have also upgraded and enhanced the former GE is e-commerce platform is a BB product.
In addition to expanding market access we have taken steps to optimize our footprint and supply chain.
While investing in factories, and upgrading critical equipment to improve delivery and performance.
For example, we announced plans to optimize our medium voltage manufacturing assets in the United States investing approximately $14 million to expand and upgrade our factory in North Carolina by June 2020.
On a standalone basis, the business is showing an improving trend in performance and achieved a roughly 5% operational EBITDA margin in the second quarter.
We remain on track to cap should the targeted cost synergies from the integration. We continue to expect the integration of the business to be a strong contributed to electrification progress towards its 15% to 19% medium term target margin corridor.
Let's look at our transformation milestones on slide 15.
The reorganization is in full implementation mode.
During the quarter. In addition to global sales, we transfer technology and operations and service functions from the group to the businesses.
The transfer of control resources to the to the businesses has also commenced and around year end, our future country module will go into effect.
Furthermore, by end of December this year.
We expect to have established a standalone power grids legal structure.
So let me sum up with slide 16.
We continue to grow in the quarter. Despite market headwinds we are doing what we said previously we would do with our transformation and continue to expect $150 million to $200 million in run rate savings from maybe be always by the end of this year.
This car that carve out of power grids is on track.
I've been making good progress on the integration of GE is.
And we are actively managing our portfolio, which genomes exits from our solar inverter business.
Looking ahead, we anticipate headwinds in some markets to continue in the short term.
Particularly for discrete industries.
That said, we expect slight growth in comparable revenues for the group for the full year supported by our order backlog.
We are maintaining our strong focus on performance management to continuously improve the underlying businesses.
Group operational EBITDA margin is expected to improve for the full year aided by an improved.
<unk> performance.
Ongoing stranded cost elimination noncore improvements and our simplification program.
Lastly, we expect cash flow from operating activities to be solid for the year as Rahul.
Thank you for your attention.
We are now ready to open the line for your questions and Jess will do that for us.
Thank you Peter and team there operator may we have the first question is on the line. Please.
We will now begin the question and answer session anyone who wishes to ask a question May Press Star then one on your Touchtone telephone.
You will hear a tone to confirm that you have entered the queue.
If you wish to remove yourself from the question queue, you May press Star one too.
Participants are requested to use only handset when asking your question.
Anyone who has a question May press star in line at this time.
The first question comes from getting Alexander from Bank of America Merrill Lynch. Please go ahead.
We lost connection with the questioner. We will go ahead with then the second question from Ben Uglow with Morgan Stanley . Please go ahead.
Oh, good afternoon, and thank you for taking the questions and it was really a little bit more color around China and there was actually some helpful.
Steve is in the in the introduction, but if I look at the order growth minus one.
Pedro team could you help us quantify little bit across the four businesses, how strong relative with electrification products, how how much of a.
A headwind with robotics I'm, assuming that robotics must have been really quite quite difficult given that it was up in North America. So so if you can put some puts some sort of bandwidth also numbers on the different businesses in China that would be very helpful. And then the second question is really how how should we think about the cadence of gross so some of your kind of competitors have talked about.
Things decelerating during the quarter into Q is that in China I'm talking about is that something that you saw and how how should we think about the setup in China into the second half Scott those are my questions.
Thanks Ben.
Let's split this wrong team against year anymore color more color on China, and then I will take you the second the second one.
On the second quarter and the outlook in more general Okay. So thanks, Ben Yes in China the situation is actually.
Clearly very it in a way that we had in electrification business and actually also in our industrial automation business double digit growth so loan growth.
Motion was more sort of in last year level type of areas and then significant double digit decline in robotics and discrete so thats why we are saying that many markets in China continued to be resilient for us and this is really.
Quite much happening in one follow up.
Biden cake now adopt Ben I think.
For.
For the quarter, which to Q2.
I would say that in robotics and discrete we saw it coming actually for quite a few months and you sold some competitors reporting lower numbers earlier than we have been reporting.
So therefore add in June was really came down or towards the end of the quarter was our commercial power generation that where we saw quite a significant slowdown there.
In terms of looking forward.
We think actually dart in China underway.
Timo just described it we will still see headwinds, obviously on the robotics and discrete.
And we will still be positive as we said on the other twos like Timo described which is industrial automation around its electrification. So I think thats the way, we look look at China.
We set it to us and we have given you all the numbers, we see that as a positive trend going into the second half so I think.
Europe is more or less stable in that sense.
So I wouldn't but do you have we'll have some differences between the countries well, let's settle down on stable and I think China. If it develops the way. We are forecasting then that will be pretty much in line vis vis the way, we have given our outlook as well from a.
Kind of total 2019 results point of view.
That's very helpful. If I could have one quick follow up just on owning the China robotic side.
I know your business is quite evenly balanced angina between.
Let's go to automotive and then general industry is it all really coming from the automotive side, the China weakness or is it or is it also coming from general industry.
Yes, Thanks, Ben it's clearly the higher the Ionis automotive, but I would also say WRC weakness on the other side.
As well so therefore I think in general it is a weaker environment clearly driven by automotive but.
The the Oems in that sense are also weak.
Okay Thats very helpful. Thank you.
I will go for the next question.
The next question comes from getting Alexander with Bank of America Merrill Lynch. Please go ahead.
Hi, there.
Peter Jess Thanks, very much tumor.
Apologies for the phone problems just before.
I wondered if I could follow up on the.
China question, we're just trying to.
Quantify or clarify what below zero means in terms of discrete because obviously below zero is.
Could encompass quite a lot. So I'm just wondering if you could maybe.
Clarify little bit around that for us.
And then secondly, maybe one for Timo could you just talk a little bit about why.
Cash flow was so weak in the quarter.
And how we should think about that through the second half. Thank you.
Yes, Thanks Alexander.
I think I got no give much more on the on your first question because I mean.
I don't have addressable looking forward from that point of view I think we you have see NAC as actually reacting already.
From Q1 to Q2 that we were adjusting and you saw that in the.
Ray margins from 11, one to 12, three we were adjusting our.
Cost base to the weaker general macro environments and Thats, obviously through continuous improvement Thats a continuing so we are looking into the second half which is weaker.
On on that side, but I will just leave it as I said before the automotive face is the bigger one the more critical one by the Oems to also.
No I think we are looking at to soft softer second half per day I call I cant give you much more for the second half you just have to look at this a month by month quarter by quarter. So on for the second one over to you. Okay. Thanks, Alex for the question. So if you look at the cash flow from operating activities and here, it's better to compare first half first half because we had this change in the bonus payment. So first half first half, which is really comparable we are down about 750 million.
And that comes mainly from re component.
One is payables and I'll come back to that in a minute then the second one is cash relate it to the restructuring and two the power grid create separation and the simplification program. That's about 130 million more than previous year and then we have about 260 million from discontinued operations. So these are the main buckets and the payables are about 380 millions and the driver. There is that we are as a company moving to a systematic global process in our purchase to pay process and it will have this impact we expect long term our defeo worsened.
Compared to last year, we expect long term this as to give us tools to manage also our DBO, even better and as we said for the year, we expect solid gas delivery. When you exclude the items related to our separation and also to always implementation and the related tax area.
Thank you Alex next question please.
The next question comes from Martin Wilkie with Citi Research. Please go ahead.
Thank you, yes, it's Martin from Citi. So the first question is on industrial automation, you have talked about some under absorption some growth investments and presumably if you. If you have maintained a certain cost level for an assumed higher level of volume youre investing for growth just to get a bit more color on the growth outlook. I think you said you do expect orders to pickup next quarter, but just was giving you that confidence is a final investment decisions in certain markets are picking up and is it your own investments means that you're going to start we taking share I am in certain areas. We just understand.
The growth outlook in automation.
Same question I had was on the electrification business I mean, you have obviously given us a dilution effect from GE I asked that we have seen this system drag as well and just trying to understand a bit more as to why you're making that move into more systems. We've seen some other companies going the opposite direction, just a bit little bit of color around why you're making a push into system site in electrification. Thank you.
Okay. Thanks margin.
We try the first wrong. This team over time to think about the second one.
I think we're looking into let's say Q3 and.
Specifically on industrial automation.
We have got quite good visibility on some of the larger project, we have been working on.
And therefore, we expect some of that to come through and hence our.
Remark on on let's say the order them.
Positive outlook for Q3 in terms of the longer term I mean.
BJ speed to tablets is working on continuous improvements.
Spending money for growth, but also taking at the same time costs out it's a very mixed back in the in the second quarter, obviously, we reach because we have.
With.
I mean, its process industries, and also measurement and analytics are growing very well both on revenue and annual notice, but because of the tough comparable we had some slowdowns in some project makes also in the quarter and therefore.
He is taking some measured on that on the backlog goal. Overall has obviously increased as we have seen in Turkey. If there's also from a revenue perspective for the longer term and positive outlook I would just like to say here. We are talking about long cycle pieces here. So it will take some time before they actually hit the revenue line, but we are very positive on how this has actually developed.
Over the last one or two or three quarters.
But we have got good visibility on the order side for for Q2, Q3, and we hope that this will actually come through.
Second one to chemo, okay. Thanks, Martin on electrification, we have to separate a couple of items here. So first of all when we look at the dilution from GE is it is lowest that it has been and we're making very good progress on the integration and also improving the results in that area then on the solutions business versus product business. So we have a mix impact where our solutions business now has been growing faster, but we are of course also focusing on growing our product business. So this is a mix impact it's not like we would have particularly post the other one versus the other one so again, we absolutely want to grow our product business and we have made good progress there as well when you look at this a little bit longer term and this is then coming through in the margin. So we had 11.5 of EBITDA margin for the quarter last year, we had 12.6.
Margin and when you think GE is that has about 60 basis points impact, but we also had higher warranty costs in the solar than last year, which is having an impact. So that's how you come to the comparable on US said, we would expect the margin to.
Improve.
Slightly in electrification going into the third quarter.
Thanks, Martin operator can we have the next.
Caller please.
The next question comes from James Moore with Redburn. Please go ahead.
Yeah. Good afternoon, everyone. Peter Timo can I ask about robotics and electrification plays on the robotics March it. Thanks for the color earlier the margin step down.
211, 12% in the first half, but given the soft orders that we've had and that may have some was pricing in it I don't know, but have we seen the full extent of the robotics margin reset or should we expect a further step down into the second half or even into 2020 I'd have you stopped the Chinese rubble takes plant expansion plans to double capacity.
Wish you did in response to Kickers quadrupling Bas.
On electrification some good profit momentum a g. I asked but do you think you can continue that.
I would say high single digit levels in the second half and I sense that the Thomas <unk> Betts margin, which is about 13% I think when reported after each sold some pieces has come down a bit lately with some tough price versus raw material, but can you talk about where it is today and.
What a realistic goal is for talks about us.
Okay. Thanks, James My thoughts with robotics.
I start with your second part which is on the plant and we are still planning to to go address to plant I think we have earlier said that it will be finished or will be constructed.
Body by the end of 20 that will be a little bit later, it will slip into 21, but the plan is still to go ahead with it as we see the long term growth rates for robotics actually justifying to increase capacity for us.
I will question your remark about that this is a response to cook off I think this is a response to our success that we are strong in the robotics, rather than as a response to a competitor.
So I think thats the first one in terms of.
Margins as I've already said.
Sammy and his team have taken actions between Q and one on Q2, they take further actions or uptake in further actions into Q3 and Q4 in terms of adjusting to the cost base to.
[noise] heard them upgrade at growth economic environment. So I think we will see there is also coming through.
To the result, so I think that's a far as I will go in terms of predicting the second off.
And is that maybe over to team on the GE is on consumers and match no why don't I go through the math again, because I was using the group numbers instead of electrification numbers in previous so just that we get that one corrected so.
Electrification as I said the impact on electrification actually is 200 basis points and is now at its best and that we had 13.5% margin last last year. It was 16.1. So it is again the same 60 basis point Delta Aside these costs and also relating to that we had impact from mix, but also from a a bit higher warranty on the operational side from the solar business.
On the G. I don't have any further comments I mean, we are making very good progress on the integration and also we are making good progress on our market share in the North American market, which is the key market for us for that business on some of them best bets. We're also making good progress we have new management in place, which is really looking through this whole business and looking at what are the right is in support of the portfolio to drive, but we do not give that margins separately as we don't give those margins externally. Thanks, James and I will go to the next question.
The next question comes from Graham Phillips with Jefferies. Please go ahead.
Yes. Good afternoon three questions. Please first of all just a little bit more on G.I.S. can you talk about the growth rates of that business on a comparable organic basis and some perhaps tangible examples of.
Where you have had some success in integrating the business with electrification second question I'll take them in turn actually.
Okay.
Okay Graham so.
So why don't I go here. Thanks for the question. So on the G.I.S., we have not yet done a full product integration because it does not happen that fast, but what has happened and that's also visible from our north American customers like Rex at least that we have a different focus on the business. We are also having a more focused.
Sales effort and we are continuing to drive this momentum we have.
Reasonable or good topline development in U.S. in particular, and we're pleased with the development.
Okay. I mean, you can't give us an organic growth number in the business.
No we will not do this is Peter Hmm, but I can say that when we look at market data in terms of volume growth and market shares. This looks positive for us on on T.I.S. and in general So knock them I think just an additional data point.
Okay, Thanks, and just on being a inside robotics discrete now given the move that business into that division can talk a little bit about what there's some disruptions caused by that again, how is that business sparing in terms of growth and margins now given the pressure on the screen that you talk about.
[noise], Yeah I take this one I think I have.
We are happy with the acquisition I think it has developed very very well we are up since we have it I think.
As part now of them and their robotic on discrete automation organization from from led by Sammy that is further integration and combined offering now taking place which gives us another avenue of growth.
So the growth expectations I'm not being met and also the financial piece is actually made so far the yesterday's clearly some some headwinds in the market as well, but we are clearly steering the business together with robotics towards capturing the growth opportunities, we John Dan I'm as we are expanding into new areas such as new.
Countries in the World and we have also.
Clearly you can see this also in India in the price et cetera, we have had some wins on on the design phase for for integrated and discrete automation burst assays or publications, which we had so therefore, we are we are pleased that we are gaining good traction in that business and can weather the macroeconomic storm over time and I think it's not the first time there will be an hour is facing dot on that overall growth rate over the last 10 15 years actually shows that they can manage that very well and with the addition of robotics I think we have a very good value proposition for our customers and.
Finally, I will leave it there if that's okay and then move on to the to the next quarter. Thank you.
The next question comes from guys the Gray with Deutsche Bank. Please go ahead.
Oh, thanks, Thanks, very much good afternoon everybody.
Just first question is about E. P. I understand there are some natural mix effects are waiting on on the margins but.
Some of your peers have been able to absorb these negative effects in the quarter, which is a pretty strong pricing actions.
So I guess my question is could you talk a bit more about what you're doing on the pricing side in electrification products and if there was actually enable any benefit coming from you on pricing actions in the quarter.
Second question is.
Well, it's still about ERP and could you maybe tell us what was ERP gross in the U.S., specifically and could you perhaps elaborate on the how the various end markets are definitely helping raise even in Houston on the raise the industrial buildings utilities and so on and so forth. Thank you.
Okay I get this to tivo.
So first of all on email. So yes, we have been driving pricing actions in our product business and it actually is visible in our numbers as I said earlier in the call we are driving.
Product business and related pricing, but as the solutions business has been growing faster and there is more solutions business coming from backlog.
That's impacting the mix overall in the segment negatively.
Actually what is important to note also that in our solutions business. When we look at that business separately, we are actually improving our margin.
So it is really the mix between solutions and products overall, which is impacting the situation. Then we had growth in electrification overall in the U.S., which is good to see and it's really driven mainly by for example data center and those markets less so.
On the residential construction, so more industrial and data center and residential.
Thank you Dan.
What kind of gross was it in the U.S.
Was it more like mid single digits or double digit.
Well, we had some some growth.
Thank you and moving on.
Your next question comes from Andrew Okay.
With credit Suisse. Please go ahead.
Yes. Good afternoon. Thanks, so much for taking my questions I was wondering from C. S.
I wanted to dig a little bit deeper into <unk>.
And could you talk about how you developed a relative to the market.
In Q2 year to date.
Whether you've gained a little share and specifically on pulp and paper were seeing seeing signs of that what has been very good market.
Starting to roll over so just wanted to get your view on that and maybe.
Comment on whether you're seeing any signs of that in your order pipeline.
And then finally on that one I thought there was some so relatively one off effects in the quarter.
From the facts are evaluations and maybe others I Wonder if you could quantify those for us if they're a nonrepeat. Thank you.
Okay. Thanks on ramp for the question. So first of all when we look at the industrial automation business. I don't think you can look at the market share on that more of a quarter by quarter, it's not that kind of base business. Because we are talking about longer term project business. We are making good progress in the area. We continue to be number one in the Dcs by external studies, then you ask specifically about pulp and paper that actually continued to develop strongly for us in <unk> and we also continue to have a good pipeline Dan there. So when we really look at the quarter impact we had a fairly significant slowdown at latter part of the call quarter on the conventional power generation, which really impacted the business performance.
During the quarter. We also had then related to these some under absorption and we also had the impact from a small impact from currencies as well as late in the quarter, mainly coming from a weaker Swedish kroner. So these all impacted the quarterly margin, which then came out.
This 12.1% for the quarter, but youre right there were some late quarter right.
Thank you.
Thank you Andrei and we'll take the next question.
Your next question comes from the line of Benjamin Secondary with Goldman Sachs International. Please go ahead.
Hi, good afternoon, its actually been out here. Thanks for taking our question to two questions first wanted to go back to the matrix structure on what on region that was removed or later in the year and and ask you how the progress on that I remember you had a few thousands of people that were sort of putting it in a group and sort of what are going to be reallocated, where do we stand and what's the name of the number of people that haven't yet been reallocated and whether they could turn into fixed cost savings and then a second quick question just if you could update us.
A little bit on the CEO process, and whether I'm given at the time that has a that has now gotten shall we assume it.
And external candidates or are there still some chances of an internal candidate it. Thank you.
Okay, Thanks and Daniela.
We'll take at the C O progress and they're more content qualitative one on the on the structure and then Timo can maybe just to add to that the cost piece et cetera. How we are progressing there. So if I start with the C. O. One as the process goes goes well as I've said previously we have done first and the external candidates in order to have to benchmark for the internals.
We are in that benchmarking exercise at the moment and we are pleased as a board, which the progress Mr list of candidates and its going actually faster than anticipated. So we're pleased vis vis the progress.
Also our country has in part from a.
From a few very special countries not in each one of the biggest ones like.
India, China. The U.S. for example, but we are moving way a very good did very well and very fast we are naming and the leaders for four older but the jobs within the countries within the businesses, but also.
Those who have got both both shots in the future. So let's say, we oversee for fiduciary duties, we need some warning on the finance side it will be the country CFO and then on the HR. So thats all being down we are successfully now.
Yes.
Successfully now moving.
The quite.
Hi pace. So therefore, we expect really by year end to have everything in place, including the carve out.
Under the Abbey operating system organization would know their new roles by end of Q3. So that's the target. So I said, we're making good progress here.
Thanks, Tania and we'll take another question.
Your next question comes from lease Viavi from NSP.
Sorry, RBC capital markets. Please go ahead.
Hi, again shortly here and thanks for taking my questions just two left for me.
Firstly could you help us understand what's going on in North America were better we heard conflicting things from payers and supplies distributors over the last few days. So I'm interested in hearing how your business is performing.
Well sure and marketing divisions and then the second question was just on your 2013 framework.
So I understand the.
The positive movement on your cash flow statement for the year.
Yeah. Okay. Thanks wants it so first first on the North America market. So when we look at the North America situation.
Overall, so as I said, we had a growth in the U.S. as we discussed earlier and as we said the growth was actually strong in the electrification area.
And then also we had a.
Our strong growth actually also in robotics and discrete in the U.S. and then on the other areas. It was a bit more subdued. So that's how the U.S. performed for us and as I said in the electrification for example, datacenter market is working well for us in the.
Robotics and this grid. This was more in logistics, which is an important growth area in general and where are you as growth came in quite nicely.
So.
As we said broadly we're doing well in the U.S.
Then on the simplification program and on the cash. So we had a couple of movement here. As you describe described we said that we expect to be less cost to go through in the simplification program. So overall again, we are expecting a 500 million, but the for this year, we expect 100 million less than earlier, that's mainly coming from the fact that we have been running this NBP first program and indeed intently and we are seeing more natural attrition, we have been filling those roles with SBB people and then also on power grids, we are lower than our earlier estimate and in that area. It is mainly coming from the back that we talked about we expect beat more transition services agreement, which also pushes the cost slightly forward. So you are right. We expect also then be less cash impact to come through.
This year than we would have expected earlier and as I said earlier, we had about 130 million cash impact compared to last year. During first half we would of course, we expect that to be higher during the second half.
Okay I see thank you very much and another question. Please.
Your next question comes from Guillermo opinion with CBS . Please go ahead.
Thank you good afternoon, Guillermo Pena from you, yes, I wanted to ask a little bit about the balance between prices and raw materials. I guess, you have a little bit of help on commodities. This quarter could you give us some granularity so as to how the second half of the year will be on net pricing, especially with a focus on our end robotics, if I mean, if I may.
Yeah. Its BJ Guillermo Thanks for the question now that's a difficult one to half the outlook for the second half of them. They swung. So I cannot give you any any color around that we are managing this obviously very diligently and that so far the first six months that has worked well for us and now for the second half I think we have to process is we have to say seems to be put in place when I'm not going to forecast any commodity swings and going forward.
That would be just too risky for me at this stage, but we are managing this on a on an ongoing basis in order to actually offset that us.
Quickly as we can to or as best as we can do that at the swings on the one side are actually covered or on the other side at the same time. So I cannot give you much more on this one yeah.
Maybe just a little more.
One comment briefly just on a on let on a high level that when we look at the margin. It's really this is coming from mix.
And and not negative pricing so when we look at the different categories. The pricing is actually working quite well for us.
Okay. Thank you and next question.
Your next question comes from Andreas Willi with JP Morgan. Please go ahead.
Yeah. Thanks, very much for squeezing me in I just had a follow up question on.
Hey trends you talked about the process markets and the powder powered Chen.
Maybe you could give some comments what are you seeing in marine which is also an important market for you both in terms of.
Specialty Bash vessels and there was a general marine contracting which has collapsed in the first half of the year, what you're seeing there.
In terms of a trend and secondly on on I know you mentioned the weakness in power generation towards the end of the quarter could you elaborate a little bit on that given it's a long cycle market. That's been bad for years, what suddenly happened in that business in Q2.
Okay. Thanks.
Andreas I think on the Marine one and then I'll let them.
Timo think about a the second one I think on the marine one the visibility, which we have in into the second half is actually know the us as negative as we have experienced it day in some areas of the marine bases over the last six to 12 months.
So therefore, I will just call it kind of semi semi positive as we are seeing from a from a project and.
Then she will order taking over the next few months I think Dan you can see some some my wouldn't say lights at the end of the tunnel about some positive effects, which could be helpful for us, but clearly it was a tough comparable for Oscar compared to last year.
Yeah, and then on the on the conventional power Gen. So that these impacts abbvie in two ways. So we are exposed to the market in two ways. So we are exposed in automation and that of course is a slower cycle, but we are also exposed to the actual engines through the turbo business, which then has some sort of a cycle elements of both of these are playing a role here on some of these customers that you have well see and have also.
No they had some tougher market conditions.
Okay. Thank you and dress sandals were coming to the end of hours I will take the last question. Thank you.
Good last question comes from William Mackie, We've kept our Shapiro. Please go ahead.
Thank you good afternoon to you all a couple of quick ones.
Firstly, you know active portfolio review has always been a part of your business and we've seen the moves that was made were made in solar inverters I mean to what extent given there's some speculation about power conversion to what extent.
Are there many other businesses within the portfolio that are being reviewed and with relation to solar inverter I mean his portfolio change an important part of you being able to reach your 15% to 19% margin target within EPG.
And then a detailed question on cash I was surprised to see 260 million of cash outflow from discontinued in H. One can you provide some indication of how the cash development will be for the full year within the former PG business. Please thank you.
Yeah. Thanks William.
On the portfolio side.
As you all societies as always been.
Actively Navy and there is no change to dancing in February the flock to heavier.
Reviewing some $3 billion of revenues to see walk through how we are progressing with which those businesses.
That could be the case that we are fixing them or we are divesting them or.
We're joint venturing them whatever it is so we are reviewing those yet made that decision quite clearly on the solar inverter one.
We have made that decision we already communicated that actually when we bought GE I S. W have called a few.
Areas, where we would be proactively looking into potential divestments, there and that has been out there. We have got came out in China. This.
The joint ventures, which we then have it you're negotiating with our joint venture partner to actually give them over to them. So that we don't be close we don't need them. So that will always be part part of us and we will drive this.
Even in a more accelerated way.
On the margin question, we have said it I think clearly.
That to 50.
Basis points or slightly more than 50 basis points, which we see in the medium term as an uplift because of the solar inverter, which we have sold that that is.
Helps us obviously to get into the 50 19 present a margin.
Kind of.
Bands and if he is selling like the one in in China out of GE is obviously that would also council for that one my.
And more bonds, which we have already seen now being also talked in the market the same would apply.
Okay. Thanks, Bill them and then on the discontinued operation cash cash generation. So.
First of all when we look at the power gets business. We have now both in some of the profitability and then rest is coming from net working capital and we spent.
These networking capital trend to significantly change during the second path.
Driven by our backlog comes in and buy some of these advances and overall, we expect to be better cash in discontinued operations for 2019 and 20.
Okay. Thank you well before we close I'd just like to remind you about a few of our upcoming events.
Our Q3 results will be on Wednesday, the 23rd over time.
And that will be hosted by Tina.
And then we will be having our electrification investor day in fact titular hosted by the president of our electrification business tax matter and the notification team and that is on the set of November . So if anybody has an interest in that event. Please let us know and I are otherwise I'll just hand, it back to Peter to close the call.
Yes. Thank you very much a janssens cultural thing says Timo and thanks to all of you for calling in I think gum.
After a few months now into job I'm very pleased on how the company is reacting to all the challenges, which you have on the table, we used to carve out with the new business model with the transformation and the headwinds in the market I think we are moving well ahead of fully driven by improving through continuous improvement dollar results in all the businesses and the response from all the staff internally is very strong and that gives us a good outlook for the second half we will just be.
Continuing our drive and then Timo will report in Q3 I'm on how we have been managing this quarter. So thank you very much for that and to all of you enjoy your summer rechargeable batteries and then we're all back in in hopefully still I'm not a macro economically to downwards looking world. So thanks for that and have a good day.
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.